Best Practices in Subrecipient Risk Assessments and Monitoring for Federal Grant Recipients

Subrecipient risk assessments and monitoring are critical aspects of federal grants management. These practices ensure that funds are used in accordance with federal regulations, that grant objectives are met and that the risk of fraud, waste and abuse is minimized. The federal government has set forth guidelines in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) found in 2 Code of Federal Regulations (CFR) 200, which outlines the requirements and responsibilities of grant recipients and their subrecipients. This article will delve into common pitfalls around performing subrecipient risk assessments and monitoring, and the best practices for organizations looking to improve their processes in these areas.

Background

The Uniform Guidance addresses the requirements that subrecipients must comply with in section 2 CFR 200.332. This section describes the required procedures for performing monitoring and risk assessments to evaluate the likelihood of noncompliance, fraud or other issues when selecting subrecipients that could impact the performance and success of the grant.

Effective risk assessments and monitoring are crucial for various reasons, including:

• Compliance with federal regulations: Adhering to 2 CFR 200 requirements is essential to avoid penalties, such as disallowed costs or even suspension or termination of the funding.
• Mitigating risks: Timely identification and addressing risks can reduce the potential for mismanagement, waste or fraud, ensuring that federal funds are used effectively and efficiently.
• Performance and outcome achievement: Proper monitoring helps grant recipients track progress, confirm that milestones are met and determine if adjustments are necessary to achieve desired outcomes.

Common Pitfalls

Below are some of the common pitfalls that plague pass-through entities (prime recipients) that work with subrecipients:

• Inadequate risk assessments: Failing to perform a comprehensive risk assessment prior to executing the subaward agreement or relying solely on historical information may result in an incomplete understanding of a subrecipient's risk profile.
• Insufficient monitoring: Not allocating enough resources to monitor subrecipients or only relying on self-reporting can leave gaps in understanding that can allow certain risks to go unaddressed.
• Lack of documentation: Inadequate documentation of risk assessments, monitoring activities and communications with subrecipients can hinder an organization's ability to demonstrate compliance with federal regulations and address potential issues effectively.
• Ineffective communication: Poor communication between grant recipients and subrecipients can lead to misunderstandings, missed deadlines and noncompliance with grant requirements.

Best Practices for Subrecipient Risk Assessments

Below are some of the best practices that we recommend:

• Develop a risk assessment framework: Create a structured process that outlines risk categories, scoring criteria, and the frequency of risk assessments. This framework should consider factors such as prior audit findings, debarment, financial stability and the subrecipient's experience managing federal funds.
• Conduct pre-award evaluations: Before entering into a subaward agreement, assess the subrecipient's capacity to manage the grant, considering its technical expertise, financial management systems and internal controls. Performing this required risk assessment in the pre-award phase allows for the determination and inclusion of the monitoring procedures as part of the subaward agreement.
• Implement ongoing risk assessments: Regularly reassess subrecipient risk throughout the grant period to identify any changes in circumstances that may affect its ability to meet grant requirements.

Best Practices for Subrecipient Monitoring

• Develop a monitoring plan: Establish a systematic approach to subrecipient monitoring that includes a schedule, tools and documentation requirements. This plan should consider the risk level of each subrecipient and the nature of the grant activities.
• Provide training and technical assistance: Offer support to subrecipients in the form of training, resources and guidance on federal grant requirements, financial management and performance reporting.
• Conduct regular communication and site visits: Maintain open lines of communication with subrecipients and schedule site visits as deemed appropriate to review progress, verify compliance and address any concerns.
• Review financial and performance reports: Regularly analyze subrecipient financial and performance reports and included data to identify potential issues, ensure compliance with grant terms and track progress toward grant objectives.
• Tailor monitoring efforts to risk level: Allocate resources for monitoring based on the risk profile of the subrecipient, with higher-risk subrecipients receiving more oversight and attention.
• As mentioned above, incorporate monitoring procedures directly into subaward agreements.

Conclusion

Effective subrecipient risk assessment and monitoring are essential for federal grant recipients to ensure compliance with 2 CFR 200, mitigate potential risks and achieve desired outcomes. By implementing best practices and avoiding common pitfalls, organizations can strengthen their grant management processes and ensure the responsible stewardship of federal funds.

Written by Dan Durst and Sly Atayee. © 2023 BDO USA, LLP. All rights reserved. www.bdo.com