Single Audit Compliance: The Nuts and Bolts of Sub-Recipient Monitoring

Does your organization operate as a Pass Through Entity (PTE) in the disbursement of federal funds? (A PTE means your organization provides a funding subaward to a subrecipient to carry out part of a federal program.) If your organization is operating as a PTE, you need to be mindful of your responsibilities in ensuring that federal funds are properly expended and accounted for. As a reminder, PTEs and subrecipients that expend more than $1,000,000 in federal funds from all sources during their fiscal year are subject to Single Audits.

First, here are some basic definitions and principles to help you clarify what exactly a PTE is responsible for when it comes to the management of your federal awards.

Non-federal entities can receive federal awards in three different capacities:

• recipient
• subrecipient
• contractor

A recipient is a non-federal entity that receives a federal award directly from a federal awarding agency to carry out a specific activity under a federal program. A subrecipient is an entity that receives a subaward from a PTE to carry out part of a federal award.  A contractor is generally defined as an entity that has a contract with the federal government to provide goods or services. 

What are the Differences Between a Subrecipient and a Contractor?

Subrecipients can be selected competitively or noncompetitively, are responsible for programmatic decision making, and use federal funds to carry out a program for a public purpose. Contractors provides goods or services to support the goals of a federal program, but these goods and services are typically available to many different purchasers within a competitive market and are delivered as part of their normal business operations. The performance of a subrecipient is assessed in relation to whether the goals of a federal program are met while the performance of a contractor is evaluated against the requirements of its contract. Lastly, subrecipients are required to comply with federal program compliance regulations as stipulated in the federal award whereas contractors are not required to comply with federal program compliance requirements.  Subrecipients must permit the PTE and auditors to have access to the subrecipient’s records and financial statements, as necessary for the PTE to meet its requirements.  Guidance on subrecipient and contractor determinations can be found at CFR Section 200.331.  It is the PTE’s responsibility to determine whether funds are going to a subrecipient or a contractor.

What are the Responsibilities of a PTE?

Requirements for PTEs can be found at CFR Section 200.332.  PTEs should verify that the subrecipient they are working with is not excluded or disqualified in accordance with CFR Section 180.300.  These verification methods include confirming in SAM.gov that a potential subrecipient is not suspended, debarred, or otherwise excluded from receiving Federal funds.

PTEs should ensure that every subaward is clearly identified to the subrecipient as a sub-award and should also provide certain sub-award information at the time of the sub-award, and if any of these data elements change, these modifications should be included in subsequent sub-awards.  Sub-award information should contain the following elements:

• Subrecipient name
• Subrecipient’s unique entity identifier
• Federal award identification number (FAIN) and award date
• Sub-award period of performance start and end date
• Sub-award budget period start and end date
• Amount of federal funds obligated by the action
• Total amount of federal funds obligated to the subrecipient
• Total amount of the federal award committed to the subrecipient
• Federal award project description, as required to be responsive to the Federal Funding Accountability and Transparency Act (FFATA)
• Name of the federal awarding agency, PTE, and contact information for awarding official
• Assistance Listing Number and Title; the PTE must identify the dollar amount made available under each Federal Award and ALN at the time of disbursement
• Whether the award is Research and Development
• All requirements imposed by the PTE
• Any additional requirements that the PTE imposes on the subrecipient in order for the PTE to meet its own responsibility to the federal awarding agency including identification of any required financial or performance reports
• An approved federally recognized indirect cost rate negotiated between the subrecipient and the federal government. If no approved rate exists, either a rate negotiated between the PTE and the subrecipient or the de minimis indirect cost rate. (Note that the PTE must not require use of a de minimis indirect cost rate if the subrecipient has a federally approved rate. Subrecipients can elect to use the cost allocation method to account for indirect costs in accordance with CFR Section 200.405 Part D).
• A requirement that the subrecipient permit the PTE and auditors to access the subrecipient’s records and financial statements.
• Appropriate terms and conditions concerning the closeout of the subaward.

PTEs must 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, based on the provided criteria.

PTEs may consider imposing specific sub-award conditions upon a subrecipient, if appropriate as described in CFR 200.208.

PTEs must monitor activities of the subrecipient, which includes review of financial and performance reports.  Along with ensuring that the subrecipient takes corrective action on all significant developments that negatively impact the subaward and issuing a management decision for audit findings pertaining only to the federal award provided to the subrecipient, the PTE most also resolve audit findings specifically related to the subaward." 

There are other potential PTE monitoring tools depending on risk of the subrecipient. Specific monitoring activities a PTE can undertake include:

• Providing subrecipients with training and technical assistance on program-related matters
• Reviewing subrecipients program operations
• Arranging for agreed-upon procedures to monitor the subrecipient as described in CFR 200.425
• Documenting the results of the subrecipient's audits along with on-site reviews

PTEs must verify every subrecipient is audited as required by Subpart F of the Uniform Guidance. PTEs must also consider whether the results of subrecipient audits, on-site reviews, or other monitoring activity indicate conditions that necessitate adjustment to the PTEs own records. PTEs may also need to consider taking enforcement action against noncompliant subrecipients as described in CFR 200.339. 

Additionally, for each cumulative subaward of $30,000 or more, a PTE must report subaward data to the FFATA Subaward Reporting System (FSRS) by the end of the month following the month in which they issued the subaward.

If you face a situation where a subrecipient is noncompliant and that noncompliance is not being corrected by imposing additional monitoring, you can consider taking the following enforcement actions:

• Temporarily withholding cash payments
• Disallowing costs associated with the activity or action in noncompliance
• Requiring repayment of award funds
• Suspending or terminating the subaward as described in CFR 200.339 and 340.
• Recommending suspension or debarment of the subrecipient to the funding agency.

If you have any questions regarding your roles and responsibilities as a PTE, please contact a member of your audit team.