FICA contributions made by both the employer and the employee are used to fund the Social Security and Medicare that provide benefits for retirees, disabled people and children of deceased workers. Social Security benefits include old-age, survivors, and disability insurance. Medicare provides hospital insurance benefits for the elderly. This contributions are to be used for a specific purpose only; hence they are restricted funds and are reported as the Agency or Custodian funds.
The government operates more than one pass-through agency funds. The federal government allows grant recipients to act as pass-through entities in order to provide funding to other recipients. The pass-through entity receives federal funds which it “passes on” or “passes through it” to other recipients. For example, federal crime-prevention programs may be assigned to a State Attorney General’s Office. That office may decide to assign part of its federal grant through sub-grants (or sub-awards) to cities and counties within the state for crime-prevention activities such as neighborhood watch programs or supplying new equipment to police forces. The original recipient has become a pass-through entity and the cities and counties have become sub-recipients in order to address the federal program’s purpose of preventing crime.