Pass-through funding is an important part of government funding, particularly in situations where federal funds must reach communities rapidly and on a regular basis. Often, in various programs, money is awarded by a federal agency to a state agency, authority, or department, which then allocates money further down the line to local governments, not-for-profit organizations, universities, and other qualified applicants. While this widens the scope, it also increases the burden on the pass through agency.
In this guide, we'll explain what pass-through funding is, give examples of how it works, describe how the money is awarded, break down the steps of compliance, give an example of a scenario, and demonstrate how Fluxx can help agencies distribute the money.
Defining Pass-Through Funding
Pass-through funding is a type of grant or funding that is awarded to or received by a governmental body and subsequently awarded to a different organization. This organization is usually termed a “subrecipient.” The body awarding the grant is usually termed the “pass-through entity.”
In public sector funding, this formula is often utilized to transfer federal program funds to the states, then to local implementers. It is especially used in large formula programs and federal initiatives where local implementation is critical but federal administration is required to ensure that the funds are utilized properly.
How It Works
Pass-through funds usually begin when a federal agency awards funds to a state agency, department, or other prime recipient. The prime recipient, upon accepting the terms of the award, develops internal controls and a subaward process to distribute the funds based on the rules.
Based on this, the pass-through entity then establishes a sub-recipient selection and monitoring process. The sub-recipients can apply for sub-awards or they can qualify based on a formula or eligibility or a competition. After that, the sub-recipient is awarded a sub-award that has the necessary terms and conditions. However, the pass-through entity is responsible for the disbursement of funds for the intended purpose as well as for the required standards of documentation.
Examples Of Pass Through Funding
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Pass-through funds appear in numerous government programs and sectors, particularly where coordination at a statewide level is required in conjunction with local implementation. Examples include:
- Funding from the federal government given to a state health agency that in turn allocates it to the county health departments for public health efforts.
- Funding allocated to a state DOT by the Department of Transportation that is subsequently sub-awarded to local entities for road and safety improvements
- Federal education funds allocated to a state education agency and then to districts according to population or indicators of poverty or other variables.
- Funding for emergency management given to a state agency and further allocated to cities, utilities, and other partners for preparedness and recovery projects
- Funding of the workforce/social services that passes through a state agency to local agencies providing services through direct programs
These projects are scaled for success, but they also need careful attention and consistent reporting and documentation on the part of many sub-recipients.
Funding Allocation Process
Pass-through funds may be awarded in several ways, depending upon the enabling legislation, the program, and the needs of the pass-through entity. Some of the ways that awards may be made include:
- Formula allocation, in which subawards are based on eligibility and a calculation such as population or service area
- Competitive selection, which involves submitting proposals that are then evaluated using a rubric or committee selection process, is not a common mechanism of selection at universities, but it is
- Targeted distribution, in which sub-awards are given to specific eligible entities, which can be based on policy priorities, geographic location, or capacity
- Continuation Awards: Awards in which subrecipients’ continued funding is contingent upon performance, reporting completion, or continued program need.
Irrespective of the awarding process, it is important that the pass-through entity record their choice, set terms and conditions in a subaward, record disbursements, and ensure that reporting and performance terms are being met.
Compliance Requirements
Pass-through funding means additional responsibilities regarding compliance because it establishes a monitoring layer between the awarding agency on a federal level and the entities carrying out the project on an organizational level. Though it may differ from program to program, some areas on which pass-through entities have to ensure their compliance include:
- Award documentation and flow-down terms: ensuring required federal and program terms are included in subawards
- Subrecipient monitoring: including risk assessments, ongoing oversight, and corrective action when issues arise
- Financial controls and allowable costs: ensuring funds are spent according to restrictions, budgets, and cost principles
- Performance and program reporting: ensuring required metrics, milestones, and narratives are collected and verified
- Audit readiness: including documentation, approvals, change history, and evidence supporting expenditures and outcomes
- Subaward reporting obligations: which may include reporting subaward details when required by federal rules and program terms
However, challenges arise when reporting formats are not standardized for sub-recipients, the reporting data is maintained in separate folders by program staff, and the documents are stored in separate systems that are not interconnected. This is where workflows and the "single source of truth" concepts are critical.
An Example Of Pass-Through Funding In Action
For instance, a state agency may be awarded a huge amount of funding from the federal government to promote statewide resilience in terms of infrastructure. This state agency has to disburse this funding to numerous local governments to carry out activities such as drainage improvement projects, road enhancement projects, and building improvement projects.
The pass through entity sets up a subaward procedure through application forms, budget templates, and scoring. The local government submits applications, and the agency reviews the applications and selects the awardees. Subawards are then made with specific terms that outline the allowable cost, reporting time, and performance requirements. Once the project starts, the subrecipients provide progress reports.
Without an integrated system, the agency might encounter problems of inconsistent reporting, lost documentation, unclear status of approvals, and lagging understanding of how project dollars are being invested throughout the portfolio. With an orderly system, the agency would be able to monitor every subaward from the time of selection through closeout, check on real-time compliance, and give leaders an accurate perspective on project status as well as statewide impact.
In what ways can Fluxx assist in the distribution of funds?
What is needed to manage pass through funds is more than just payment tracking; a system is needed that integrates terms and documents of subawards, disbursements, reporting, and performance in one location. Fluxx can help a government agency manage and disburse their pass through funds in a consistent and controlled manner by centralizing their subawards.
Fluxx allows for the standardization of the intake and selection process, the establishment of necessary documents and terms, as well as the establishment of a record of approvals and modifications over time. The disbursements can also be linked to the proper subaward requirements and reporting milestones, ensuring that funding decisions remain in sync with the requirements of compliance. There can also be a single system used by the program, financial, and executive teams based on role-driven access, eliminating the potential for misunderstandings related to status, deadlines, and document status when needed.
Add Structure to Pass-Through Funding
Pass-through funding is a major engine of government program implementation; however, it also adds a layer of complexity and compliance for the agencies that are charged with the responsibility of implementing the programs. It allows for a quicker impact and a greater sense of accountability when properly implemented.
If your agency has been distributing funds on a large scale and you are looking for a better way to handle subawards, reporting, or compliance, Fluxx may be an option to consider to organize the entire process. Schedule a demo to learn how Fluxx
