Common Single Audit Findings – Part 4: Sub-recipient Monitoring

For many nonprofit organizations, single audits under the Office of Management and Budget’s Uniform Guidance have become a standard process for assurance that they are in compliance with the office’s requirements. If there is an issue with remaining compliant, it is likely that it will be in one of these for areas: allowable costsprocurement, suspension and debarmentreporting; and sub-recipient monitoring.

We’ve already covered the first three problem areas, so in this final post of our four-part series on common single audit findings, we will be diving into compliance issues associated with sub-recipient monitoring.

Findings

Many nonprofit organizations receive grants from the federal government that they may pass along to other organizations in the form of sub-awards. If an organization shares a portion of its federal award with other organizations, they become a pass-through entity and are required to oversee the spending of the federal funds they give out as sub-awards. If they fail to do so, they are out of compliance with the Uniform Guidance requirements. Quite often these failings can result in one or more findings that the organization must address.

The most common findings include:

  1. Failure of the pass-through entity to perform risk assessment and monitoring activities over the sub-recipient
  2. Sub-recipient contracts not including all information required to be included by the Uniform Guidance such as the CFDA number and contract period

Sub-recipient Monitoring

Monitoring sub-recipients is a significant responsibility of pass-through entities. Pass-through entities should have appropriate procedures in place to ensure that they comply with all of the requirements of the Uniform Guidance.

At a minimum, all those providing sub-awards using federal funds are required to conduct the following monitoring activities during their relationship with their sub-recipients:

  • Review financial and performance reports required under the sub-award agreement
  • Perform on-site or desk reviews
  • Provide technical advice and training
  • Verify that an audit or other on-site review is being performed pursuant to the Uniform Guidance and that the sub-recipient receives a Single Audit if expects to expend $750,000 or more in federal awards during its fiscal year
  • Follow up to ensure that the sub-recipient takes appropriate action on any audit findings and deficiencies
  • Issue a management decision on audit findings relating to the federal funds awarded to the sub-recipient

In addition, the pass-through entity should assess the risk of the sub-recipients noncompliance with federal requirements at the beginning of the award and then reassess the risk annually based on monitoring throughout the year. Pass-through entities should be reviewing and following up on any audit finding, especially related to the spending of federal awards.

Responsibilities of Pass-Through Entities with regards to providing information to sub-awardees

Pass-through entities are required to provide the following information to sub-recipients within sub-award agreements when issued:

  • Federal award identification number
  • Sub-recipient’s name (which must match the name associated with its unique entity identifier) and the sub-recipient’s unique entity identifier (currently DUNS number)
  • Federal award date
  • Sub-award period of performance including start and end dates
  • Amount of the entire federal award/grant and amount to the sub-recipient
  • Federal award project description
  • Name of Federal Agency issuing the federal award, pass-through entity and contact information of the awarding official
  • CFDA Number and Name for the federal award at the time of disbursement
  • Ensure that the sub-recipients are not suspended by the federal government
  • Should access the risk of the sub-recipient’s noncompliance with deferral statuses and regulation and the terms and conditions of sub-award at least annually afterward
  • Inform sub-recipient about compliance requirements

It is important to remember that if you have federal funds awarded to you, you are responsible for all the funds with regards to compliance with federal requirements.  This includes any funds you may pass through to another organization as a sub-recipient.  In giving out sub-awards, you still maintain the responsibility for the proper spending and use of the funds, so monitoring such activities for your sub-recipients is crucial.

If you’re interested in learning more about how to make sure your organization is in compliance with the Uniform Guidance, reach out to the nonprofit experts at HBP.

Written by HBP Audit Managers Rebecca Jex and Sam Habib