All award rules and regulations ‘flow down’ and apply to both passthrough entities and their subrecipients. However, payments to contractors, including fees for service, are not considered to be federal awards and thus are not subject to the Single Audit. Sometimes, the entity receiving the funding may be unsure if the organization they pass it to is considered a subrecipient or a subcontractor. To make this determination, consider the following definitions:
- Subrecipient: an entity that receives a portion of an award to carry out part of a federal program.
- Contractor: an entity that is contracted by another entity that purchases goods or services needed to carry out a program or project. This is often a procurement relationship where the goods and services are offered in a competitive environment and are also ancillary to the federal program.
When a subrecipient relationship is established, the passthrough entity is required to conduct an assessment that determines the monitoring procedures they will use to confirm the subrecipient is following the requirements associated with their subaward and to evaluate a subrecipient’s potential risk for noncompliance. While monitoring can be especially challenging in a remote work environment, it is a requirement and is an essential obligation of the entity that received the government funding.
Passthrough entities should ensure that they are adequately monitoring the subrecipients’ activities to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward, and that subaward performance goals are achieved. They should also provide the subrecipient with all the training and information needed to encourage compliance.
Subrecipient monitoring can be a hefty compliance obligation for organizations, particularly if they have multiple subrecipients to examine. If you are a passthrough entity, establishing detailed subrecipient monitoring procedures is a best practice to help avoid any surprise findings in the Single Audit. If your organization operates as a subrecipient, make sure you understand all the rules and regulations that flow down with your subaward and are having transparent conversations with the passthrough entity—this is essential to ensure you’re in compliance.