SUBSECTION 4.3.8.4
ADMINISTERING SUBGRANTS OF FEDERAL AWARDS

4.3.8.4.1

Pass-Through Entity Responsibilities

Effective Date:

Mar. 1, 1999

4.3.8.4.1.a

Properly identify federal awards by informing each subrecipient of the CFDA title and number, award name and number, award year, if the award is R & D, and name of the federal agency;

4.3.8.4.1.b

Advise subrecipients of requirements imposed on them by federal laws, regulations, and the provisions of contract and grants agreements as well as any supplemental requirements imposed by the pass-through entity;

4.3.8.4.1.c

Monitor the activities of subrecipients as necessary to ensure that federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grants agreements and that performance goals are met;

4.3.8.4.1.d

Require subrecipients to provide an annual inventory of federal awards sufficient to allow the pass-through entity to determine whether a single audit is required. The inventory can also be used for determining cognizant state agency, if applicable;

4.3.8.4.1.e

Ensure that subrecipients expending $300,000 or more in federal awards during the subrecipient’s fiscal year have met the audit requirements of Circular A-133;

4.3.8.4.1.f

Issue a management decision on audit findings within six months after receipt of the subrecipient’s audit report and ensure that the subrecipient takes appropriate and timely corrective action;

4.3.8.4.1.g

Consider whether subrecipient audits necessitate adjustment of the pass-through entity’s own records;

4.3.8.4.1.h

Require each subrecipient to permit the pass-through entity and auditors to have access to the records and financial statements as necessary to comply with Circular A-133; and

4.3.8.4.1.i

In limited instances, pass-through entities can inherit the responsibility for receiving, reviewing, approving and monitoring indirect rate cost proposals/plans. Circular A-87 states that, "where a local government only receives funds as a subrecipient, the primary recipient will be responsible for negotiating and/or monitoring the subrecipient’s plan.

4.3.8.4.2

Subrecipient Monitoring

Effective Date:

Mar. 1, 1999

Subrecipient monitoring is the processes and procedures undertaken by a pass-through entity as necessary to ensure that subrecipients are complying with applicable laws, regulations, contract or grant agreement provisions, and that performance goals are being achieved. As part of ensuring legal requirements are met, it also includes processes and procedures to verify that applicable audit requirements are satisfied and audit findings are reviewed for timely corrective action.

Factors such as the size of awards, the percentage of total program funds awarded to subrecipients and the complexity of compliance requirements influence the nature and extent of appropriate monitoring procedures. Forms of monitoring activities that might be employed include:

4.3.8.4.2.a

Pre-award assessments of subrecipient financial and program capabilities;

4.3.8.4.2.b

Require and collect written certification from subrecipients that required information on federal awards has been provided and that the subrecipient understands and agrees to comply with applicable laws, regulations, contract and grant agreement provisions and other requirements imposed by the pass-through entity;

4.3.8.4.2.c

Document reviews of subrecipient financial and programmatic reports;

4.3.8.4.2.d

Perform site visits to subrecipients to review financial and programmatic records as well as observe operations;

4.3.8.4.2.e

Perform limited scope audits. Limited scope audits are defined as an agreed-upon procedures engagements conducted in accordance with the American Institute of Certified Public Accountants’ (AICPA’s) generally accepted auditing standards (GAAS) and attestation standards, that are paid for and arranged by a pass-through entity and address only one or more of the following types of compliance requirements:

• Activities allowed or unallowed;
• Allowable costs/cost principles;
• Eligibility
• Matching, level of effort, earmarking;
• Reporting

4.3.8.4.2.f

Arrange for documented reviews of specific subrecipient activity based on risk assessment or significant compliance requirements. An example might be client eligibility determination;

4.3.8.4.2.g

Review and follow-up on subrecipient single audits; and

4.3.8.4.2.h

Use various checklists to document activities such as the review and follow-up on subrecipient audits or the receipt of required reports and documents prior to closure of contracts or grant agreements.

4.3.8.4.3

Subrecipient (Subgrantee) vs. Vendor (Contractor) Determinations

Effective Date:

Mar. 1, 1999

One of the more challenging tasks facing state agencies/institutions, acting as grantees and/or pass-through entities for federal assistance, is determining when federal program awards retain their identity of federal financial assistance. The distinction is important because federal financial assistance is subject to federal compliance requirements including federal audit requirements. If federal funds "lose" their federal financial assistance identity, the federal restrictions or requirements are generally no longer in effect. Federal funds typically lose their identity through expenditure (i.e., the funds are spent procuring goods or services from a vendor). Merely passing along federal funds to a subrecipient through a subgrant does not alter the federal assistance or award identity.

OMB Circular A-133, §___.210, states, "Federal awards expended as a recipient or subrecipient would be subject to audit under this part. The payments received for goods or services provided as a vendor would not be considered federal awards." §___.210 also provides a list of characteristics indicative of federal awards received as a subrecipient and a separate list of characteristics indicative of payments received by a vendor for providing goods or services. Listed below are some other factors that can be used to distinguish between subrecipient and vendor relationships:

• Solicitation and Competition - Generally government rules and regulations mandate maximum free and open competition for award of procurement contracts. There are no similar government-wide requirements for competitive awards of subgrants.

• Number of Awards - A purchaser usually picks only one vendor to provide needed goods or an identifiable scope of services. On the other hand, organizations awarding assistance (subgrants) generally make multiple awards until funds are exhausted.

• Criteria for Selection - Agencies awarding assistance generally place the ability to demonstrate need for funds above most other factors. Agencies awarding vendor contracts usually identify factors showing capability to deliver as most important.

• Statement of Work/Scope of Services/Project Objectives - In a vendor procurement, the specification or scope of work is defined by the awarding agency, i.e., the awarding agency identifies what it is buying. In an assistance or subgrant situation, the potential subrecipient generally identifies the program details of the activity for which it is seeking support.

• Timing of Payment - Federal assistance payments are usually made before or at the time work is performed. Vendor payments are generally made after performance or at intervals of progress toward identified deliverables.

• Pricing of the Agreement - Grantees and subgrantees generally operate on the premise that the ultimate settlement of the agreement will be on the basis of incurred allowable costs. No increment above cost is either intended or allowed. Vendors, regardless of type, are paid increments above costs (profit) usually in exchange for the risk they assume in competing with others to offer the needed goods or services.

• Special Conditions - Grantees are permitted to impose "high risk" conditions on subgrantees. These are normally imposed on a case-by-case basis. In such cases, the subgrantee must be told about special conditions being imposed, the corrective actions needed to have them removed and the method of appealing the decision to impose, if such exists. Procurement contractors/vendors have no such protections. Because the grantee is buying the goods or services, it has the right to impose whatever terms deemed appropriate as long as they are mutually accepted at the time of the award.

• Award Cost Participation - Often, matching or cost sharing requirements are passed through to subrecipients, who are responsible for helping the grantee meet matching requirements. While technically possible, cost sharing would be unlikely in vendor agreements.

• Award Risk - Generally, assistance awards are treated as so-called "best effort" awards. That is the grantee or subgrantee assumes little risk if performance does not meet goals. This is recognition that assistance is often rendered to try to solve intractable problems that may not respond. Procurement contracts, particularly fixed-price contracts place much of the risk of achieving the objective or guaranteeing performance on the contractor or vendor.

• Treatment of Property Purchased with Award Monies - In assistance awards, if a grantee permits the subrecipient to purchase real property, equipment and significant inventories of supplies with federal funds, the grantee typically retains a residual interest in the property, enabling it to recover the property or money associated with its sale price at fair market value. Although technically possible, such arrangements are not normally found in vendor contracts.

• Applicable Rules - The type of award can be determined by noting the federal administrative rules being followed. Subgrants are governed by federal grantor implementing applicable sections of the Uniform Administrative Requirements Common Rule (§37) and OMB Circular A-110 (paragraph 5 of the preamble). The two federal guides contain separate rules for procurement of vendor services (§36 of the Common Rule and Attachment O to Circular A-110).

• Public Policy Requirements - Frequently, Congress has imposed various civil rights, environmental and work-place requirements on the expenditure of federal funds. The so-called "boiler-plate" language of an agreement may provide further evidence of whether an award is being treated as assistance (subgrant) or procurement (vendor). Policies dealing with assistance are usually drawn from the standard Statement of Assurances that accompany federal grant applications (Standard Form 424B for non-construction programs, Standard Form 424D for construction programs). For procurements under grants, the public policy provisions are identified in §36(i) of the Uniform Administrative Requirements Common Rule and paragraph 4 of Attachment O to Circular A-110.

• Termination - Typically, an awarding agency hires help in a procurement contract, but provides help in an award of federal financial assistance. As such, procurement contracts can generally be terminated at the convenience of the awarding agency as well as for the vendor’s non-performance or violation of terms and conditions. Subgrants can only be terminated by the awarding agency for cause - which is for a material violation of the terms and conditions of the award. The subgrantee normally can terminate an award agreement unilaterally or the awarding agency and the subgrantee can mutually agree to do so.