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Manju Patnaik
January 27, 2015 Article 6 min read

Subrecipient monitoring and management is laid out in Subpart D of the Super Circular. In this article, we will take a deeper dive into many of the changes with subrecipient monitoring and management, with a focus on some key aspects that were introduced or reemphasized in the Super Circular.

As defined by OMB Circular A-133, which is the outgoing standard, a subrecipient relationship exists when funding from a pass-through entity is provided to perform a portion of the scope of work or objectives of the pass-through entity's award agreement with the awarding agency. The Super Circular defines a subrecipient, in § 200.93, as a "non-Federal entity that receives a subaward from a pass-through entity to carry out part of a Federal program" but is not an individual that is a beneficiary of such program. "A subrecipient may also be a recipient of other Federal awards directly from a Federal awarding agency."

Comparing these two definitions, we quickly see that the essence of a subrecipient is the same under both the current guidance and the Super Circular. However, in the context of determining whether an entity is a subrecipient or a vendor, the Super Circular does replace the terminology "vendor" with the new term "contractor." Despite the new terminology, the characteristics that define a subrecipient as opposed to a contractor remain unchanged (see § 200.330 in the Super Circular for a detailed list of the characteristics of a subrecipient versus a contractor).

The Super Circular includes a few key changes to subrecipient monitoring and management that are worth noting. Perhaps they can be best illustrated by comparing the current outgoing guidance with the guidance under the new grant reform. The key changes are as follows:

Subrecipient vs. contractor determination

Under OMB Circular A-133

Determinations about whether an organization is a subrecipient or vendor (now called a contractor) are not always straightforward. No single factor will alone dictate the existence of one relationship or the other in all cases. Similarly, an organization need not possess all of the subrecipient characteristics in order to be a subrecipient, and may in fact possess some characteristics of both a vendor and subrecipient under the same agreement. Therefore, in each case, the determination of whether a particular entity is a subrecipient or vendor requires professional consideration of the preponderance of facts and evidence in a particular agreement against the definition and guidelines set forth by OMB Circular A-133.

Under the Super Circular

 In determining whether an agreement between a pass-through entity and another non-Federal entity casts the latter as a subrecipient or a contractor (formerly a vendor), the substance of the relationship is more important than the form of the agreement. All of the characteristics listed may not be present in all cases, and the pass-through entity must use its judgment in all cases. Also, the pass-through entity must use judgment in classifying each agreement as a subaward or a procurement contract by making case-by-case determinations of whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. (See § 200.330 for the detailed list of characteristics.)

Key takeaways

  • The substance of the relationship is the basis for determining whether an organization is a subrecipient or a contractor, not the wording in the agreement.
  • The pass-through agency is, ultimately, responsible to make the subrecipient versus contractor determination.

Subrecipient aareements

Under OMB Circular A-133

Agreements are required to include certain information that would ensure that:

  • Every subgrant includes a provision for compliance with these regulations;
  • Every subgrant includes any clauses required by Federal statutes and executive orders and their implementing regulations; and
  • Subgrantees are aware of the requirements imposed upon them by Federal statutes and regulations.

Under the Super Circular

 Agreements are required to include 15 specific data elements, including:

  • Subrecipient name (which must match registered name in DUNS)
  • Federal award identification number (FAIN)
  • Federal award date (see § 200.39, “Federal award date”)
  • Amount of Federal funds obligated
  • Identification of whether the award is for R&D
  • Indirect cost rate for the Federal award (including if the de minimis rate is charged per § 200.414, “Indirect (F&A) costs”)

Please refer to § 200.331 for an all-inclusive list of the 15 specific data elements.

Key takeaways

  • The grants reform expanded the elements that are required to be included in each subrecipient agreement.
  • Organizations will need to ensure their standard subrecipient agreements contain all the required data elements.

Subrecipient Monitoring

Under OMB Circular A-133

Guidance is not very explicit on the monitoring procedures that need to be performed, although it is clear monitoring is required.

Under the Super Circular

Pass-through entities are required to do the following:

  • Perform risk assessments to determine appropriate subrecipient monitoring.
  • Perform appropriate and ongoing monitoring of each subrecipient. On-site reviews, training, technical assistance, and contracting for an agreed-upon procedure engagement for monitoring are all examples of various monitoring efforts organizations may employ.
  • Review reports that the pass-through entities require of the subrecipient
  • Verify subrecipients have audits, as needed
  • Consider how to address subrecipient noncompliance
  • Issue a management decision for audit findings of the subrecipient within six months

Key takeaways

  • Performing risk assessments of subrecipients is a new concept; there are various aspects that need to be evaluated in order to assess risk. The grant reforms identify a few examples, but leave it generally open for organizations to come up with their own risk assessment process.
  • Once risk assessments are performed, entities will be able to tailor their monitoring procedures based on the assessed risk. Those subrecipients with higher assessed risk presumably would be monitored more than subrecipients with lower assessed risk.

As noted above, performing risk assessments on each subrecipient is a new concept introduced by the Super Circular. Not every subrecipient would or should get the same level of attention. A risk-based approach should be focused on the risk of noncompliance for that entity and its overall impact on the award managed by the pass-through entity. In order to perform risk assessments of subrecipients to determine the appropriate level of monitoring to be performed, a number of different criteria should be considered. Some examples of items pass-through entities may want to consider when performing these risk assessments include:

  • General Assessment:
    • Is the entity new to managing grant funds?
    • What is the rate of staff turnover at the entity?
    • What is the extent of new personnel, particularly in the grants area?
    • To what extent has the subrecipient developed or implemented new or substantially changed systems?
  • Legal Assessment:
  • Is the entity involved in any active lawsuits?
  • Is the entity currently suspended or debarred, or have they been suspended or debarred in the past?
  • Monitoring & Audit Assessment:
    • Were there any findings or violations from a prior audit?
    • Has any on-site monitoring been performed in the recent years and, if so, what were the results of those monitoring visits?
    • Have there been any Federal awarding agency monitoring and, if so, what were the results, even if related to a different award?
  • Financial System Assessment:
    • Does the entity have an effective financial management system in place?
    • Does the accounting system identify the receipts and expenditures of program funds separately for each award?
  • Overall Fiscal Assessment:
    • Is the specific grant large in terms of percentage of overall funding for the entity?
    • Has the entity been untimely in the drawdown of funds?
  • Financial Stability Assessment:
    • Has the state or any other authority placed the entity in a special financial status?
    • Has the entity been able to meet its cash needs?
  • Program Assessment:
    • Is the entity meeting current reporting requirements?
    • Is the entity meeting its annual measurable objectives or performance objectives?

While the aforementioned risk considerations are not all inclusive, they should give pass-through entities a starting point to performing these new risk assessments. Pass-through entities may need to spend some time coming up with a checklist or some other methodology to document the key risks, the assessment of these risks, and how the identified risks affect the extent of monitoring to be performed.