Pass-Through Entity

A pass-through entity (PTE) is a non-federal entity that receives a federal grant or cooperative agreement and passes a portion of the federal funds to one or more subrecipients through subawards, while remaining legally accountable to the federal awarding agency for both its own compliance and the compliance of every subrecipient.

What is a Pass-Through Entity?

Under 2 CFR Part 200, when a federal grantee awards a subaward to another organization, the grantee becomes a pass-through entity with specific, non-delegable obligations. These include: determining that each subrecipient is eligible to receive federal funds (not debarred or suspended); establishing written subaward agreements that identify the federal award and flow down all applicable terms and conditions; monitoring subrecipient financial and programmatic performance throughout the award period; reviewing subrecipient audit reports and following up on audit findings; and ensuring subrecipients submit required financial and performance reports on time.

Pass-through entities cannot delegate their federal compliance responsibilities to subrecipients, if a subrecipient misuses federal funds or fails to comply with requirements, the federal agency holds the pass-through entity responsible and may seek fund recovery from the prime grantee. This creates significant financial risk for organizations that do not actively monitor their subrecipients.

State governments are the most common pass-through entities in the federal grants ecosystem: they receive billions in formula and block grants and distribute funds to counties, cities, school districts, and nonprofits through subaward mechanisms. Universities frequently serve as pass-through entities in multi-institutional research consortia, with the lead institution managing the prime award and passing subcontracts or subawards to partner institutions.

Why Pass-Through Entities matter for government contractors

Any organization that receives a federal grant and plans to engage partners to carry out portions of the program will become a pass-through entity. Understanding the monitoring and oversight obligations before accepting a prime grant is essential, the administrative burden of subrecipient monitoring can be substantial and should be factored into the indirect cost budget.

Example

A state health department receives a $20 million CDC formula grant for pandemic preparedness and issues subawards of $1.2 million each to 15 county public health departments. The state health department is the pass-through entity. It must execute written subaward agreements with each county, monitor quarterly expenditure reports, conduct at least annual programmatic site visits or desk reviews, review each county's Single Audit (if applicable), and follow up on any findings. If a county misspends funds, the state must investigate, implement corrective action, and if necessary return the misspent funds to CDC.

Frequently Asked Questions

What monitoring is a pass-through entity required to perform?

At minimum, pass-through entities must: review financial reports from subrecipients at least annually; follow up on Single Audit findings applicable to the federal award; conduct risk-based programmatic monitoring (which may include site visits, desk reviews, or detailed financial reviews depending on risk level); and verify subrecipient SAM.gov registration and exclusion status.

Can a pass-through entity charge for subrecipient monitoring activities?

Yes. Costs of monitoring subrecipients are allowable costs of the federal award if they are allocable to the award and reasonable. These costs can be charged as direct costs (if monitoring is required by the specific award) or included in the organization's indirect cost rate.

What happens if a subrecipient's audit reveals a problem with federal funds?

The pass-through entity must review the audit findings, determine whether the findings affect the federal award, and take appropriate action: requiring the subrecipient to implement a corrective action plan, withholding future payments, or recovering misspent funds. The pass-through must report significant findings to the federal awarding agency.

Can a subrecipient also be a pass-through entity?

Yes. Second-tier subawards, where a subrecipient passes funds to another organization, are permissible and common in complex grant programs. The second-tier subaward arrangement must also comply with 2 CFR Part 200, and each level of the subaward chain must apply the same monitoring and compliance requirements to the next tier.