AI-Assisted Subrecipient Risk Assessment for Federal Grant Compliance

As 2026 progresses, nonprofit organizations who receive federal grants continue to face regulatory scrutiny, tighter budgets, and rising expectations for transparency and accountability. The operational challenges posed by these pressures may be more acute for organizations who rely on subrecipients to expand their capacity and mission impact.

According to the Uniform Guidance, pass-through entities are required to evaluate each subrecipient's fraud risk and risk of noncompliance. While the Uniform Guidance proposes some ways to do this, many organizations develop a subrecipient assessment tool. Depending upon that assessment, organizations may implement monitoring requirements and processes to assess proper accountability and compliance with program requirements.

The decentralized and distributed operations of subrecipients introduce risks as the primary recipient remains fully accountable for compliance, performance, and proper use of funds, even with limited direct control over the subrecipient and their actions. 

However, artificial intelligence (AI) emerges as a practical tool to help organizations pre-screen subrecipients, improve monitoring, and manage compliance across increasingly complex grant ecosystems.

AI to Enhance Subrecipient Risk Management

Risk management activities, from pre-award due diligence through continuous monitoring of programmatic and financial performance, may be encumbered by manual and inconsistent reviews and documentation. AI-assisted tools can fill key gaps in the review and documentation processes by automating and standardizing the due diligence process. 

Why Due Diligence is an Ideal Use Case for AI:

• Consistent and Objective Analysis: AI is particularly skilled at analyzing repetitive volumes of information, much of which is similar across assessments. This dramatically reduces the time required for evaluations, allowing program staff to focus on mission alignment and strategic impact.
• Streamlined Process & Data Consistency: AI can facilitate structured submissions and responses which can accelerate the application process and drive uniformity in data collection.
• Deeper Insights & Analysis: AI can surface both quantitative and qualitative insights, assisting staff in making ethical, high-value decisions based on comprehensive data review.

Organizations can leverage AI tools to assess risk consistently across subrecipients to then monitor and track performance more effectively and to demonstrate or improve compliance with federal requirements. When AI tools are thoughtfully integrated into these processes, leaders can more efficiently analyze relevant documents submitted, financial statements, audit reports, internal policies & procedures, and narrative responses. These tools can identify key risk indicators, surface anomalies, and apply a consistent evaluation framework across all the areas being assessed.

From Data to Defensible Decisions

To illustrate how this works in practice, BDO recently helped a nonprofit to modernize its subrecipient risk review process. By leveraging existing AI licensing that uses a structured sequence of prompts, the program evaluates submissions from subrecipients against defined risk criteria. This approach allows for a comprehensive assessment of various risk areas based on the materials provided for evaluation.

AI tools can then generate a concise memo clearly highlighting the key risk drivers and any significant concerns identified during the assessment process. The memo is also used to equip program staff to engage in focused discussions with subrecipients and pass-through entities, ensuring they understand the underlying risks and enact appropriate monitoring controls or contractual requirements to mitigate them.

The outcome is a standardized and defensible risk assessment process that provides clear and consistent scoring, comprehensive audit-ready documentation, and, most importantly, a risk mitigation plan that defines clear, actionable steps for both organizational staff and subrecipients to address identified risks.