GRANTS AND OTHER FINANCIAL ASSISTANCE
State and local governments typically receive a variety of grants and other financial assistance. At the state level, this financial assistance may be primarily federal financial assistance. At the local government level, the financial assistance may be federal, state, or other intermediate level of local government. Financial assistance generally is legally structured as a grant, contract, or cooperative agreement. The financial assistance might take the form of entitlements, shared revenues, pass-through grants, food stamps, and on-behalf payments for fringe benefits and salary. What Financial Assistance Should Be Recorded? Governments often receive grants and other financial assistance that they are to transfer to or spend on behalf of a secondary recipient of the financial assistance. These agreements are known as pass-through grants. All cash pass-through grants should be reported in the financial statements of the primary recipient government and should be recorded as revenues and expenditures of that government.

There may be some infrequent cases when a recipient government acts only as a cash conduit for financial assistance. Guidance on identifying these cases is provided by GASB Statement No. 24 (GASBS 24), “Accounting and Financial Reporting for Certain Grants and Other Financial Assistance.”

In these cases, the receipt and disbursement of the financial assistance should be reported as transactions of an agency fund. A recipient government serves as a cash conduit if it merely transmits grantor-supplied money without having administrative or direct financial involvement in the program. Some examples of a recipient government that would be considered to have administrative involvement in a program are provided by GASBS 24, as follows:

• The government monitors secondary recipients for compliance with program-specific requirements.
• The government determines eligibility of secondary recipients or projects, even if grantor-supplied criteria are used.

• The government has the ability to exercise discretion in how the funds are allocated. A recipient government has direct financial involvement if, as an example, it finances some direct program costs because of grantor-imposed matching requirements or is liable for disallowed costs.

Taken From : Governmental Accounting Made Easy

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