Pass- through grants are first awarded to prime recipients, such as states, local  governments, or other entities, and then awarded to subrecipients. Both Government- wide Policies and Specific Program Policies Govern Distribution of Pass- Through Grant Funds

All federal grant programs are subject to a common foundation of  governing rules and government-wide requirements, and two are  particularly relevant to entities that pass funds on to subrecipients. The  Cash Management Improvement Act (CMIA) governs the exchange of  funds between the federal government and the states, and is applicable  to timeliness in the grant disbursement process, while OMB’s Circular No. A-133 provides general guidance on the roles and  responsibilities of the federal awarding agencies and primary recipients of  government funds regarding audit requirements of grantees and   The circular sets forth guidance implementing the Single  subrecipients. Federal Agencies Vary In Certain Pass-Through Grant Management Requirements

In addition to government-wide requirements, program-specific  requirements—found in a grant program’s authorizing legislation,  appropriation, or implementing regulations—can provide specific  requirements for individual grant programs related to disbursement of  funds. For example, as with the three programs we reviewed, the  authorizing legislation may contain statutory limits on the amount of  administrative funds that states and local governments are allowed to  withhold from the grant awards for their own administrative expenses. Federal Monitoring Efforts Include Methods to Identify Issues of Distributing Funds to Subrecipients

As part of program monitoring procedures to help ensure states comply  with federal requirements and agency regulations, federal agencies  oversee aspects of pass-through grants related to the administrative  funds states withhold and the timeliness of reimbursement practices. States have some flexibility  in determining whether a grant will be distributed on a reimbursement  basis or through a cash advance. For the selected programs and states we reviewed, we found that states  worked within the federal requirements of their grant programs and  reimbursed the subrecipients within the time allowed in their grant  agreements. Subrecipients in Focus Groups Reported Minimal Issues with Timeliness of Federal Funds’ Reimbursement and Administrative Funds that States Withheld

Subrecipients in our focus groups did not report instances in which  federal requirements related to reimbursement timeliness or  administrative funds withheld were not followed, and therefore were not  impacted by these requirements not being met; however, they did identify  other grant management issues. Each  agency provided technical comments, which were incorporated as  appropriate. Appendix I: Objectives, Scope, and Methodology

Our objectives were to report on (1) government-wide and select  agencies’ requirements and oversight related to the timeliness of federal  grant funds from states to subrecipients and the portion of funds states  may withhold for their own administration, (2) select states’ practices in  disbursing federal grant funds to subrecipients and the extent to which  select federal granting agencies have identified compliance issues with  these requirements, and (3) the views of subrecipients on the impact of  selected states’ practices in disbursing grant funds. To determine the government-wide and select agencies’ requirements  governing the timeliness of federal grant funds from states to  subrecipients and the portion of funds states may withhold for their own  administration, we identified Office of Management and Budget’s (OMB)  circulars related to grants management and reviewed these circulars to  determine the extent that they related to pass-through grants. We selected three federal  pass-through grant programs to illustrate how federal agencies manage  pass-through grant programs, including requirements for distribution and  monitoring practices. We reviewed monitoring reports for select states’ administration of the  selected programs. However, they provide insights and examples related to pass- through grants management. At these focus groups, we discussed  how federal and state management of pass-through grants positively  impacted their organizations as well as suggestions for improvement.
Why GAO Did This Study

Grant programs in which states are awarded federal grants but then pass funds on to subrecipients--entities within states' jurisdiction--are referred to as "pass-through grants." These relationships pose challenges for the management of grant programs, as the multiple levels add complexity to the flow of funds, administration, and oversight.
As requested, GAO examined management and oversight of pass-through grants. This report addresses (1) requirements and oversight related to the timeliness of federal grant funds from states to subrecipients and the portion states may withhold for their administration, (2) select states' practices in disbursing federal grant funds to subrecipients and the extent to which select federal granting agencies have identified compliance issues with these requirements, and (3) the views of subrecipients on the impact of selected states' practices in disbursing grant funds. To conduct this study, GAO selected states and programs based on characteristics affecting pass-through grants management. GAO reviewed documentation on government-wide regulations and selected federal pass-through grant programs; reviewed monitoring reports and audits of state pass-through entities; and interviewed federal and state officials, as well as subrecipients and others with relevant expertise. Findings cannot be generalized to all states and programs, but our work provides insights related to pass-through grants management.
GAO makes no recommendations in this report. OMB and selected federal granting agencies provided technical comments, which were incorporated as appropriate.

What GAO Found

As pass-through grant funds flow to subrecipients, they are subject to government-wide and program-specific policies, two of which are particularly relevant to disbursement issues for states as they pass funds on to subrecipients. Pass-through grants are typically first awarded to states, local governments, or other entities and then further awarded to subrecipients. The Cash Management Improvement Act governs the exchange of funds between the federal government and the states and is applicable to timeliness in the grant disbursement process. In addition, the Office of Management and Budget's (OMB) Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations , provides general guidance on the roles and responsibilities of the federal awarding agencies and primary recipients of government funds regarding audit requirements of grantees. Specific program policies can provide additional requirements for individual grant programs related to disbursement of funds. For example, as with the programs we reviewed, authorizing legislation may contain statutory limits on the amount of funds that states and local governments can withhold from the grant awards for their own administrative expenses. To ensure states comply with federal requirements and agency regulations for disbursing federal grant funds, federal agencies monitor aspects of pass-through grants related to administrative costs that states withhold and timeliness of reimbursement. According to their monitoring procedures, selected federal agencies also review the results of states' "single audits"--annual audits performed on many recipients of federal funds.
Selected states' pass-through grant disbursement practices varied for the three programs GAO reviewed, but generally complied with federal requirements. For example, states had some flexibility in determining whether a grant would be distributed on a reimbursement basis or through a cash advance. For the programs and states GAO reviewed, GAO found that states generally worked within the federal parameters of their grant programs and reimbursed the subrecipients within the time allowed in their grant agreements.
Subrecipients in GAO focus groups reported minimal issues with timeliness of federal funds' reimbursement and administrative funds that states withheld. In addition, these subrecipients did not report instances in which federal requirements related to reimbursement timeliness or administrative funds withheld were not followed and therefore were not impacted by these requirements not being met.