One of the most critical aspects of federal grants management is subrecipient risk assessments and monitoring. Such practices safeguard against funds being utilized outside of federal regulations. They ensure that grant objectives are met, while reducing the risk of fraud, waste, and abuse. The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) found in 2 Code of Federal Regulations (CFR) 200 was set forth by the federal government to provide an outline for the responsibilities and requirements of grant recipients and their subrecipients. Below is an explanation of common pitfalls for performing subrecipient risk assessments and monitoring, as well as a list of best practices focused on improving an organization’s processes.
Background
The Uniform Guidance addresses the requirements that subrecipients must comply with in section 2 CFR 200.332. Grant recipients must understand the required monitoring and risk assessment procedures to reduce the risk of noncompliance, fraud, or other issues before entering into agreements with subrecipients.
It is vital to utilize effective risk assessment and monitoring to:
- Comply with Federal Regulations: To avoid penalties like disallowed cost, suspension, or termination, grant recipients must adhere to 2 CFR 200 requirements.
- Reduce Risks: By identifying and addressing risks in a timely manner, grant recipients can reduce the risk of fraud, mismanagement, or waste, so they can efficiently and effectively utilize federal funds.
- Achieve Desired Outcomes: To achieve desired outcomes, grant recipients must utilize proper monitoring to track progress, adjust, and ensure milestones are met.
Pitfalls
Below are several pitfalls that prime recipients (pass-through entities) may face when working with subrecipients.
- Ineffective Risk Assessment: Grant recipients must perform a comprehensive risk assessment before entering into any subaward agreement. Failing to do so, or simply utilizing historical information, can lead to an inaccurate understanding of a subrecipient's risk profile.
- Deficient Monitoring: Grant recipients need to allocate the appropriate amount of resources to monitor subrecipients. Self-reporting can foster misunderstandings and cause risks to remain unaddressed.
- Inadequate Documentation: Grant recipients must accurately document risk assessments, monitoring activities, and communications with subrecipients. Otherwise, the organization may not be able to demonstrate full compliance with federal regulations and resolve potential issues quickly.
- Poor Communication: Grant recipients and subrecipients must avoid ineffective communication, which causes misunderstandings, missed deadlines, and even noncompliance with grant requirements.
Subrecipient Risk Assessments Best Practices
We recommend the following components for best practices:
- Risk Assessment Outline: Develop a structured framework that includes risk categories, scoring criteria, and the schedule for ongoing risk assessments. The subrecipients experience managing federal funds, financial stability, prior audit findings, and debarment should all be considered.
- Pre-award Evaluations: Evaluate a subrecipient’s ability to manage a grant, including analyzing their internal controls, financial management systems, and technical expertise, before entering into a subaward agreement. This pre-award phase assessment will allow the inclusion of necessary monitoring procedures into the subaward agreement.
- Continuing Risk Assessments: Ongoing evaluations of subrecipients during the grant period allows for the identification of changes that could impact the organization’s ability to meet grant requirements.
Subrecipient Monitoring Best Practices
- Monitoring Plan: Develop a plan to monitor subrecipients, addressing respective risk levels and type of grant work. It should include documentation requirements, necessary tools, and a consistent schedule.
- Training and Technical Support: Subrecipients need support, training, resources, and guidance to ensure they meet federal grant requirements and maintain proper financial management and performance reporting.
- Communication/Site Visits: Subrecipients require open and consistent communications, with scheduled site visits as needed to confirm compliance, resolve concerns, and evaluate progress.
- Performance and Financial Reports: Consistent analysis of subrecipient performance and financial reports allow for the identification of issues, ensure grant term compliance, and track grant objective progress.
- Monitoring Risk Level: Resources should be allocated to monitor subrecipients based on their risk profile. Higher risk subrecipients will require increased attention and oversight.
- Subaward agreements should directly include monitoring procedures, just like above.
Overall
Federal grant recipients need effective subrecipient risk assessment and monitoring to fully comply with 2 CFR 200, achieve desired outcomes, and alleviate potential risks. Organizations can improve their process for grant management and guarantee proper use of federal funds by avoiding these common pitfalls and implementing best practices.
