Welcome to Week 12 of Feldesman's Grants Practice Shorts series where we discuss helpful tips and strategies in common areas of federal grant management. Be sure to check out our other installments in this weekly series on our Grants Practice Shorts page.
Minimum Monitoring Requirements for Subawards
The Uniform Guidance provides a list of mandatory minimum monitoring obligations grantees must meet when they make subawards as pass-through entities ("PTE") to subrecipients.
At a minimum, the PTE must:
- "review[] [subrecipient's] financial and performance reports;"
- "ensur[e] that the subrecipient takes timely and appropriate actions on all deficiencies pertaining to the Federal award;" and
- "issu[e] a management decision for audit findings pertaining to the Federal award provided to the subrecipient from the [PTE] . . ." 2 C.F.R. §§ 200.332(d)(1)−(d)(3).
Optional monitoring tools PTEs may implement include:
- "providing subrecipients with training and technical assistance;"
- "performing on-site reviews of the subrecipient's program operations;" and
- "arranging for agreed-upon-procedures engagements." § 200.332(e).
In particular, on-site reviews provide a valuable opportunity for grantees to mitigate subrecipient risk and meet monitoring requirements. Grantees may consider conducting subrecipient annual site visits in which the review team may:
- tour the subrecipient's project operations,
- examine subrecipient's financial management systems, and
- examine step-by-step how the subrecipient "builds" the invoices it submits from costs accumulated and documented in its general ledger (including a review of samples of supporting source documentation). Often, these simple steps will uncover areas in which subrecipient compliance systems may be lacking.
Why Monitoring Subrecipients?
An important consequence of making a subaward is that the PTE is required to flow down all the terms and conditions of the federal award to the subrecipient. The Uniform Guidance states this requirement as follows:
"The terms and conditions of Federal awards (including this part) flow down to subawards to subrecipients unless a particular section of this part of the terms and conditions of the Federal award specifically indicate otherwise. This means that non-Federal entities must comply with requirements of this part regardless of whether the non-Federal entity is a recipient or subrecipient of the Federal award. . . ." 2 C.F.R. § 200.101(b).
Flowdown of grant terms means the subrecipient will be subject to the same fiscal and programmatic restrictions as the PTE, such as reimbursement of only costs that are allowable under the federal cost principles, beneficiary eligibility restrictions, and geographic scope restrictions, among other requirements.
Since any improper expenditure of the subrecipient will constitute an unallowable cost for which the PTE is responsible to the federal awarding agency, 2 C.F.R. § 200.339(b), grantees should take the time to mitigate subaward risk by drafting clear and sufficiently robust subrecipient agreement terms. In this regard, the Uniform Guidance requires that the subaward must include (i) "[a]ll requirements imposed by the [PTE] on the subrecipient [to ensure] that the Federal award is used in accordance with Federal statutes, regulations and the terms and conditions of the Federal award" and (ii) "[a]ny additional requirement that the [PTE] impose[s] on the subrecipient in order for the [PTE] to meet its own responsibility to the Federal awarding agency . . . ." 2 C.F.R. § 200.332(a)(2) & (a)(3). The PTE may wish to consider specific reference to the monitoring activities the PTE may deploy to monitor the subrecipient's performance.
Subrecipient relationships require that parties collaborate on meeting compliance obligations, address challenges and deliver outcomes consistent with Prime Award requirements. Viewed in this light, effective monitoring tools can enhance subaward success.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.