Hi,
In 2021 and 2022 an enormous amount of federal money moved from governments to other organizations. A city funded a local nonprofit’s outreach program. A county gave a community group money for housing assistance. A council of governments distributed to its members. A district paid a partner organization to run a service.
Most of those arrangements were documented with an award letter and a handshake. Very few were documented as subawards, and that distinction decides who answers for the spending.
If you gave federal funds to another organization to carry out part of a federal program, you are a pass-through entity and they are your subrecipient. That is not a label you choose for convenience. It follows from what the money was for. And it makes their compliance your responsibility:
- You must have made and documented a subrecipient versus contractor determination at the time. Buying a service for your own use is a contractor relationship. Funding them to deliver program outcomes to the public is a subaward.
- The subaward itself must have carried specific required information, including the federal award identification, the assistance listing number, the amount, the period of performance and the applicable requirements. A one page letter almost never did.
- You must have assessed their risk before and during, and monitored accordingly.
- You must obtain and review their audit where they were required to have one, and follow up on any findings touching your award.
- You must have checked they were not suspended or debarred and had a valid unique entity identifier.
Here is the part that catches entities cold. If your subrecipient spent the money improperly, the questioned cost lands on you. The federal agency’s relationship is with your entity. You disbursed the funds, so you repay them, and then it is your problem to recover from an organization that may have no money left and may no longer exist. Your general fund covers the gap, for a program your board approved in good faith.
The typical failure is not misconduct. It is silence:
- Money went out, reports never came back, and nobody chased them
- A subrecipient spent above the Single Audit threshold and no one asked whether they had one
- Their audit had a finding on your program, and nobody followed up in writing
- The file contains the award letter and nothing else, so monitoring that did happen cannot be evidenced
The work to fix it is finite and mostly clerical:
- List every organization you passed federal money to in the last several years, and the program each related to
- Make the subrecipient or contractor determination in writing for each, even retroactively, with the reasoning
- Request their audit reports where the threshold applied, read the findings, and write down your follow up
- Get the missing subaward terms documented, and hold future reimbursements until the file is complete
- Set a simple monitoring routine going forward: reports on a schedule, a desk review of costs, and a record that it happened
This is work we take on directly:
- Subrecipient monitoring frameworks, risk assessments and determination documentation
- Single Audit engagements, SEFA preparation and questioned cost resolution
- Grant compliance, procurement policy review and audit finding remediation
- Audit and Yellow Book engagements, ACFR and AFR preparation, and fund accounting bookkeeping
Reply to this email by Friday and we will set up a free 15-minute call with one of our senior government specialists. Tell us who you passed federal money to in the last three years, and we will tell you on the call which of those are subrecipients you are required to be monitoring, and what is likely missing from the file.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com