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Pass Through Accounting Procedures

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May 20, 1998
MEMORANDUM

TO:
Chief Officers and 1099 Distribution List
FROM:
Richard D. Brown, Deputy Director
Department of Planning and Budget

Karen M. Robinson, Director, Financial Analysis and Services
Department of Accounts
SUBJECT:
Procedures for Identifying and Accounting for Transactions between State Agencies and Institutions

The FY 1996 audit report for the agencies of the Secretary of Finance charged the Department of Accounts with establishing uniform procedures for identifying and accounting for federal subrecipient and vendor transactions. Additionally, the Departments of Accounts and Planning and Budget have wrestled for years with the issue of the budgetary ramifications of the purchases of services between state agencies.

Implementation of the attached procedures will provide many benefits:

Implementation of these procedures for the remainder of FY 1998 is voluntary, but strongly encouraged by both DOA and DPB. Implementation for FY 1999 will be mandatory.

To implement these procedures, it is important for fiscal, budget and program personnel to understand the difference between a subrecipient agency and a vendor agency. Sometimes a state grantee agency will pass federal funds through to another state agency, called a subgrantee or subrecipient agency, to perform grant functions. At other times, funds may be paid to another agency, called a vendor or contractor agency, to purchase goods and services used in fulfilling the grant purpose. Some of the characteristics that should be considered in the determination of subrecipient or vendor relationships are identified in OMB Circular A-133 - Audits of States, Local Governments, and Non-Profit Organizations and can be found in TABLE 1. In making the determination of whether a subrecipient or vendor relationship exists, the substance of the relationship is more important than the form of the agreement. If all of the characteristics are not present, professional judgment should be used in determining whether an entity is a subrecipient or vendor.

The attached TABLE 2 and TABLE 3 outline the procedures agencies should follow to properly record subrecipient and vendor transactions.

TABLE 4 outlines procedures for recording recovery type transactions.

TABLE 5 outlines procedures for recording pass through (subrecipient) transactions between decentralized Higher Education Institutions (DHEI) and other state agencies and institutions.

TABLE 6 lists the responsibilities of the pass-through entity according to OMB Circular No. A-133, revised June 24, 1997. A pass-through entity is a non-federal entity that provides a federal award to a subrecipient to carry out a federal program.

Corrections to Procedures:

Transactions involving Higher Education institutions should continue to use Fund 0301 for federal funds, not Fund 1000 as stated in the procedures.

Agencies and institutions that use Fund 0401 for federally funded transportation transactions should continue to use Fund 0401, not Fund 1000 as stated in the procedures.

If you have any questions related to these changes or procedures, please call Karen Robinson at 804-225-2373.

cc:
Scott D. Pattison
Director, Department of Planning and Budget

William E. Landsidle