Subrecipient Risk Assessment under 2 Code of Federal Regulations (CFR) 200

In our article, Understanding your Lower-Tier Relationships with Subrecipient and Contractor Determinations under 2 CFR 200, we addressed the required determination as to whether the lower-tier organization supporting your Awards or Subawards are classified as subrecipients or contractors. Now that the determination is made and documented is that all that needs to be done? Well no.

Importance of Classification of Subaward to a Subrecipient

As you put together your subaward agreement, 2 CFR 200.332(a)(1) Requirements for pass-through entities[1] includes a list of fourteen items that must be clearly identified in the subaward, including but not limited to, the federal award information, subaward period of performance, budget, funds obligated, pass-through entity information and even the indirect rates that were established for the subaward.

What Flows Down to the Subaward?

It’s easy, whatever is in your grant agreement usually flows to a subrecipient. The problem is that your agreement does not spell that out as clearly as it should be – the wording in the grant from the Federal agency is usually something like “Follow the regulations at 2 CFR 200, identified Federal Agency supplement, and special terms and conditions.” Besides additional terms and conditions that the Federal agency may specify, there are no specific instructions as to what part of 2 CFR 200 applies or not.

2 CFR 200.332(a)(2) requires the pass-through entity to impose:

• All requirements on the subrecipient to ensure the Federal award is used in accordance with Federal statues, regulations and the terms and conditions of your Federal award.
• Any additional requirements that the pass-through entity imposes on the subrecipient in order to meet its own responsibility to the Federal awarding agency, including the identification of any required financial and performance reports.
• Negotiated indirect cost rates, or if elected by the subrecipient, the use of the de minimis rate.
• 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 monitoring direct and indirect costs and settling indirect cost rates.
• Appropriate terms and conditions concerning closeout of the subaward.

You may be thinking to yourself that if all of the above is required in the subaward, then that sounds like a lot of work on your part. Unfortunately, yes…yes it is.

But Wait There is Another Requirement!

2 CFR 200.332(b) requires the pass-through entity to evaluate each subrecipient’s risk of noncompliance with the Federal statues, regulations, and terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring. Some factors to consider when evaluating risk include:

• Subrecipient’s prior experience with the same or similar subawards.
• Results of previous audits including whether the subrecipient receives a single audit.
• Whether the subrecipient has new personnel or new/changed systems.
• Extent and result of Federal awarding agency monitoring (if subrecipient also had awards directly from a Federal awarding agency).

What Next? Am I Done After Preparing the Risk Assessment?

No, not yet. After you document the risk assessment you have to determine and document the type of monitoring that you will perform. This will depend on the type of subaward, dollar amount of the subaward, whether you have prior experience with the subrecipient, and the type of indirect rates that will be applied (the types of rates applied will be determined by whether the subrecipient is a nonfederal entity[2] and subject to the 2 CFR 200, Subpart E- Cost Principles, or a for-profit which operates under the 48 CFR 31.2, Federal Cost Principles), etc. Monitoring is a complex area. The pass-through entity must ensure they have procedures in place to monitor the subrecipient to ensure they are meeting the requirements of the Federal regulations and the terms and conditions of the subaward agreement.

I know what you are thinking. You are thinking that if you have worked with the subrecipient before and they have done good work, then you don’t see the need to perform the risk assessment or document monitoring. That is understandable, but I would think twice. The Office of Inspector General has been performing reviews of grant recipients and have cited organizations with findings because risk assessments were not performed or documented.

Redstone Government Consulting can assist in addressing compliance with 2 CFR 200.332 by:

• Drafting a written policy and procedure to address performing a risk assessment on each subrecipient and the type of monitoring necessary.
• Providing questionnaire templates for the subrecipient to complete and use as part of your risk assessment and determining the type of monitoring necessary.
• Providing assistance in documenting the type of monitoring determined necessary.
• Providing monthly accounting support or review of contractor invoices for compliance with the subaward.

Redstone GCI is available to assist contractors in developing accounting policies and procedures, checklists, accounting support, and reviews of invoices, government reports for compliance with 2 CFR 200. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying the 2 CFR 200 Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Grants.

[1] 2 CFR 200.1 “Pass through entity (PTE)” means a non-Federal entity that provides a subaward to a subrecipient to carry out part of a Federal program.

[2] 2 CFR 200.1 “Non-Federal entity (NFE)” means a State, local government, Indian tribe, Institute of Higher Education (IHE), or nonprofit organization that carries out a Federal award as a recipient or subrecipient.