What You Need to Know About Pass-Through/Subrecipient Relationships Under the Uniform GuidanceBy John D'Amico | November 3, 2017
If your organization is a recipient of federal awards and passes-through part of its award to another entity which then uses those funds to run the federal program then your organization is in a pass-through/subrecipient relationship.
For more than two decades, nonprofits and governmental entities have been subject to the pass-through guidance laid out under OMB Circular A-110 and A-102. However, with the 2014 issuance of the Uniform Guidance, an additional responsibility was imposed on pass-through entities.
This article serves as a refresher on the pass-through entity’s responsibilities under “legacy” OMB Circular guidance, as well as the “new” rule stemming from the Uniform Guidance.
Responsibilities of Pass-through Entities
As a pass-through entity, you are responsible for ensuring to the best of your ability that the federal funds passed to other organizations are accompanied with all of the information needed to run the federal program and ensure that it is being run in compliance with federal statutes, laws and regulations. As detailed in Uniform Guidance/Title 2 CFR 200. 300 series, your responsibilities are:
- Ensure that every subaward is clearly identified to the subrecipient as a subaward and include at the time of the subaward all required information pertaining to the federal program – including the name of the federal agency, the Catalog of Federal Domestic Assistance (CFDA) number and the award date.
- Consider imposing specific subaward conditions, (in addition to the federal regulations) on a subrecipient, if appropriate.
- Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes in compliance with federal statutes, regulations, and conditions of the subaward, and that subaward performance goal are achieved. This can be accomplished by requiring obtaining periodic financial and programmatic reports, site visits and obtaining the subrecipient’s audit reports.
- Verify that every subrecipient expending $750,000 or more in federal awards during their fiscal year have a Single Audit under Uniform Guidance.
- Consider whether the results of the subrecipient’s audit, on-site reviews or other monitoring requires an adjustment of your own organization’s own records.
- Consider taking enforcement action against noncompliant subrecipients
- Issue a Management Decision within six months of becoming aware of findings reported in the subrecipient’s audit.
- Upon the issuance of Uniform Guidance, an additional responsibility was imposed on pass-through entities:
- Evaluate each subrecipient’s risk of noncompliance with federal statutes, regulations and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring.
Evaluating a Subrecipient’s Risk of Noncompliance
Evaluating a subrecipient’s risk of noncompliance should be done on an annual basis. Uniform Guidance provides the following factors for a pass-through entity to consider when evaluating a subrecipient’s risk of noncompliance with the rules governing the subaward:
- Subrecipient’s prior experience with the same or similar federal program.
- Results of previous audits – including whether or not the subrecipient has a Single Audit, and the extent to which the same or similar subaward has been audited as a major program.
- Whether the subrecipient has new personnel, or new or substantially changed systems.
- Extent and results of federal awarding agency monitoring, if any.
Another important factor to consider is whether the subrecipient is new to the pass-through entity or has a longstanding relationship with them.
Based on the pass-through entity’s evaluation of a subrecipient’s risk, the pass-through entity may impose additional specific award conditions, including:
- Requiring payments as reimbursements rather than advances
- Withholding authority to proceed to the next phase until receipt of evidence of acceptable performance within a given period of performance
- Requiring additional, more detailed reports
- Requiring additional project monitoring
- Requiring the subrecipient to obtain technical or management assistance
- Requiring additional prior approvals
Subaward Information to be Provided to Subrecipients
Information required to be provided to the subrecipient regarding a subaward includes the following:
- Federal award identification, which includes the name of the federal agency and the CFDA number.
- The federal statutes, regulations and the terms and conditions of the federal award
- Any additional requirements that the pass-through entity imposes on the subrecipient
- The approved federally recognized indirect cost rate negotiated between the pass-through entity and the federal government or, if no such rate exists, either a rate negotiated between the pass-through entity and the subrecipient, or the de minimis indirect cost rate 10%.
- A requirement that the subrecipient permit the pass-through entity and auditors to have access to the subrecipient’s records and financial statements as necessary for the pass-through entity to meet the applicable requirements.
- Appropriate terms and conditions concerning closeout of the subaward
Uniform Guidance provides specific requirements regarding subrecipient monitoring. A pass-through entity’s monitoring of subrecipients must include the following:
- Reviewing financial and programmatic reports required by the pass-through entity
- Obtaining the subrecipient’s Single Audit, if they are required to have one, and reviewing it to ensure that the subaward they provided is included in the Schedule of Expenditures of Federal Awards and if there were any findings for this program.
- Following up and ensuring that the subrecipient takes timely and appropriate action on all findings for the subaward that are detected through audits, on-site reviews, and any other means.
- Issuing a management decision for audit findings reported in the subrecipient’s Single Audit within six months of receipt of the audit report.
Monitoring subrecipients is a significant responsibility of pass-through entities. Pass-through entities should have appropriate controls and systems in place to ensure that they comply with all of the requirements of pass-through entities.
If a pass-through entity is not appropriately performing their responsibilities or adequately monitoring their subawards, the organization may be subject to a finding in their Single Audit
About John D'Amico
John D'Amico, CPA, is a Partner within the Professional Standards Group at Marks Paneth LLP, which is responsible for monitoring quality control in the firm as mandated by professional standards. He specializes in pre-issuance reviews and inspections of nonprofit organizations, governments and Single Audits. Mr. D’Amico also provides consultation on accounting and attestation matters and tests and monitors the firm's quality review policies and procedures. He teaches continuing education classes for the firm and on... READ MORE +