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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Pass-Through Activity

Federal Pass-Throughs
Interagency Federal Pass-Through Relationships

Federal interagency transactions between state agencies are reported in the PASS-THROUGH FROM AGENCIES OR UNIVERSITIES AMOUNT and the PASS-THROUGH TO AGENCIES OR UNIVERSITIES AMOUNT columns in the SEFA web application.

The disbursing agency must inform the receiving agency that the funds being sent are federal funds and provide the correct CFDA title and number. Apply the following general rules:

  • Disbursing agency is responsible for determining the classifications of funds:
    • Pass-through vs. vendor
    • Federal vs. state
    • The portions of federal and state
  • Disbursing agency confirms these decisions in writing to the receiving agency and the receiving agency records the transactions as determined by the disbursing agency (unless the agreement states how the funds are to be distributed). Invoices/billing agreements between agencies must specify the funding source, including percentage between federal and state. Timely reconciliation must be done to correct payments made from the incorrect source.
  • Receiving agency determines the amount of accruals.

Interagency federal pass-through revenues and expenditures are eliminated for the statewide SEFA to avoid double counting. There are two exceptions:

  1. Expenditures not tracked at the CFDA level — for example, indirect cost/administrative cost allocated and Public Assistance Cost Allocation Program (PCAP) expenditures. These expenditures are reported as direct expenditures by the agencies that receive and expend the federal grants directly.
  2. Typical vendor relationship between agencies — for example, training provided by universities for agencies. These transactions are reported as federal revenue and direct expenditure by the spending agency. The agency providing vendor services reports the revenue as sales of goods and services and not federal revenue.

Research & Development (R&D) Relationships

As per the Uniform Guidance (2 CFR 200.512 [c]), not all of the characteristics identified in the chart below (Federal Award Subrecipient vs. Payment for Goods and Services Vendor) will be present. Use professional judgment in determining if an entity is a subrecipient or a vendor. In making this determination, the substance of the relationship is more important than the form of the agreement.

A federal agency that provides federal awards must provide the following information to its recipients:

  • CFDA title and number
  • Award name and number
  • Award year
  • R&D disclosure

If some of this information is not available, the federal agency must provide enough information necessary to clearly describe the award.

If the transaction is a typical vendor relationship and it is determined that the expenditure meets the reporting definitions of research and development, report the expenditure in the R&D cluster as federal interagency pass-through for agencies and direct expenditure for universities.

Uniform Guidance (2 CFR 200.87) defines:

R&D — all research activities (both basic and applied) and all development activities performed by a non-federal entity.
Research — a systematic study directed toward fuller scientific knowledge or understanding of the subject studied. The term research also includes activities involving the training of individuals in research techniques where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function.
Development — the systematic use of knowledge and understanding gained from research directed toward the production of useful materials, devices, systems or methods, including design and development of prototypes and processes.

For statewide SEFA reporting purposes, all federal interagency R&D programs are reported as interagency pass-through activities. Since R&D and pass-through decisions should be made at the program level, agencies should coordinate with each other to reach final agreements between both sides.

Once the federal government sends funds to an agency, the following information summarizes the possible federal interagency pass-through relationships:

Agencies must determine whether to account for federal funds as a pass-through or payment for goods and services. Use the chart below to assist in this decision:

Federal Award Subrecipient Payment for Goods and Services Vendor
A. Determines who is eligible to receive the federal financial assistance. A. Provides the goods and services within normal business operations.
B. Has its performance measured against whether the objectives of the federal program are met. B. Provides the goods and services within normal business operations.
C. Has responsibility for programmatic decision-making. C. Operates in a competitive environment.
D. Has responsibility for adherence to applicable federal program compliance requirements. D. Provides goods and services that are ancillary to the operation of the federal program.
E. Uses the federal funds to carry out a program of the organization as compared to providing goods or services for a program of the pass-through entity. E. Is not subject to compliance requirements of the federal program.
Glenn Hegar
Texas Comptroller of Public Accounts
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