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Subrecipient Monitoring

Governments and not-for-profit organizations frequently receive federal & state grants and may pass a portion of those grants through to other organizations. When that happens, certain compliance requirements attach to these organizations, which then are identified as "pass-through entities." While this article focuses specifically on federal pass-through grants, the concepts apply to non-federal grants, as well.

When dealing with federally-funded grant programs (whether received directly from a federal agency or passed through another entity), grantees are subject to up to 14 separate compliance requirements as detailed in the OMB Circular A-133 Compliance Supplement. Among these is the requirement for subrecipient monitoring. Essentially, subrecipient monitoring is the process of evaluating the compliance of a subrecipient with the compliance requirements applicable to the sub-award being monitored. However, before an organization begins this process, it first needs to determine whether the funds it passed through were to a subrecipient or a vendor. (To learn more about these categories, read Subrecipient or Vendor?)

In most cases, an entity's compliance responsibility for a vendor is limited to ensuring that the procurement, receipt and payment for goods and services complied with laws, regulations and the provisions of contracts or grant agreements. A program's compliance requirements normally do not pass through to vendors. Conversely, when passing through funds to a subrecipient, an entity is subject to a variety of requirements.

Requirements of pass-through entities

Pass-through entities are held accountable for federal awards administered by their subrecipients and should establish an appropriate subrecipient monitoring process.Before that can occur, pass-through entities must first:

  • Inform each subrecipient of the catalog of federal domestic assistance (CFDA) title and number, award name and number, award year, and name of the federal agency originating the funding.
  • Advise subrecipients of the requirements imposed on them by the federal government, as well as any supplemental requirements imposed by the pass-through entity.
  • Require subrecipients to permit the pass-through entity and auditors to have access to the records and financial statements as necessary for the pass-through entity to comply with OMB Circular A-133.
  • Ensure that subrecipients expending $500,000 or more in federal awards have a single audit.
  • Comply with the Federal Funding Accountability and Transparency Act (FFATA) Subaward Reporting System (https://www.fsrs.gov) requirements for awards made.

Monitoring activities

While obtaining a copy of a subrecipient's audited financial statements is a good start, it is only one step in a comprehensive subrecipient monitoring process. Subrecipient monitoring should occur throughout the year, and may include a combination of the following:

  1. Reviewing financial and performance reports submitted
  2. Site visits to review financial and programmatic records and observe operations
  3. Regular contact and inquiries of subrecipient management concerning program activities

The timing and frequency of subrecipient monitoring is a matter of judgment, and should take into account:

  1. Program complexity.
  2. The portion of the pass-through entity's program that is passed through to subrecipients.
  3. Subrecipient risk. Subrecipient risk is largely a function of past experience and monitoring efforts, and may be impacted by new systems or personnel. Pass-through entities should document this assessment and their planned approach to monitoring each subrecipient

When a subrecipient has a single audit, the pass-through entity should carefully review it and reconcile the amounts presented on the subrecipient's schedule of expenditures of federal awards (SEFA) to the amounts previously reported to the pass-through entity. Of course, there is no guarantee that any particular award that is passed through to a subrecipient will be selected as a major program and tested in a given year. However, the pass-through entity should be mindful of any audit findings reported for other programs that might represent a systemic issue that could bear on the funds being monitored.

If any audit findings are reported, the pass-through entity should issue a management decision on those findings within six months after receipt of the subrecipient's audit report and ensure that the subrecipient takes appropriate and timely corrective action. In general, it is not necessary for a pass through entity to repeat the findings of its subrecipient's in its own single audit. However, it may be necessary to adjust the pass-through entity's records or any disallowed costs to be repaid by a subrecipient.

Requirements of subrecipients

Of course, not all the work falls on the pass-through entity. Subrecipients are required to understand and comply with the requirements applicable to the pass-through awards they receive. It is important to clarify these expectations with the pass-through entity, as certain compliance requirements may remain at the pass-through entity level and not be passed down to a subrecipient, while other additional requirements may be imposed by a pass-through entity as part of its agreement with the subrecipient.

When reporting pass-through funds on the SEFA, subrecipients should also include the name of the pass-through entity and identifying number assigned in addition to the normal requirements of CFDA Number and federal agency name.

Recommendations

The single best way to avoid problems with subrecipient monitoring is to have frequent communication between the pass-through entity and its subrecipients.

Key provisions should be incorporated into a written agreement between the entities and amended as necessary. If either party is unclear on its expectations, they should be clarified and documented as early as possible.

Pass-through entities should develop and document their subrecipient monitoring risk assessment and plan, and keep a log of completed monitoring activities -- including a clear paper trail showing how they reviewed/reconciled subrecipient single audits and followed-up on any audit findings.

Subrecipients should keep a copy of all relevant correspondence in their grant files and be prepared to support their accounting practices with approved policies/procedures.

While subrecipient monitoring may never quite get to the point of being "easy," following these guidelines should help your subrecipient monitoring activities run far more smoothly for everyone concerned.

For additional information on subrecipient monitoring refer to our archived webinar on this topic.

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