810 Quincy Street | Rapid City, SD 57701
(605) 342-5630
(605) 342-2172

Federal Compliance Requirements, Part XI – Subrecipient Monitoring and Special Tests and Provisions

Jeff YenniePart XI of our federal grant compliance requirements will cover the final two compliance requirements: subrecipient monitoring and special tests and provisions.

The first compliance requirement covered in this article is subrecipient monitoring. When an organization (the pass-through entity) passes federal award dollars through to a subrecipient, the pass-through entity is responsible for determining and complying with certain criteria to ensure the federal award monies are used appropriately.  This article examines what these monitoring activities are and provides guidance to ensure monitoring is performed effectively.

The second compliance requirement addressed in this article is special tests and provisions.  Special tests and provisions are specific to each federal program and can be identified in the compliance supplement for the program, or in the program’s contract or grant agreement.

Subrecipient Monitoring:

Subrecipient monitoring can be broken down into three phases:

  • Determining Eligibility
  • Identifying the Award
  • During-the-Award Monitoring

In the “Determining Eligibility” phase, the pass-through entity is primarily responsible for determining if the subrecipient meets the eligibility requirements of the grant that is being passed through to them.  Determining proper eligibility of subrecipients is addressed in Part V of the Federal Grant Compliance Requirements series of articles

The “Identifying the Award” phase consists of the pass-through entity communicating with the subrecipient regarding the details of the award.  This includes, but is not limited to, CFDA title and number, award names and amounts, and the federal awarding agency.  Although this sounds simple, the importance of this step should not be overlooked.  It is imperative that the subrecipient is informed of such details for their own internal records, to facilitate accurately prepared Schedules of Expenditures of Federal Awards, and for monitoring of compliance with the federal grant.

The “During-the-Award Monitoring” phase is the phase in which the actual monitoring takes place.  In this phase, the pass-through entity is performing several activities to ensure the use of the award by the subrecipient is appropriate, audit requirements are met, and the subrecipient is complying with the applicable laws, regulations, contracts, and grant agreements.  When determining the extent of monitoring the pass-through entity needs to perform, a helpful tool could be to perform a risk assessment.

The pass-through entity should consider several different items when performing a risk assessment. Items to address could include the complexity of the federal program, the amount of the award that has been passed through, and the overall experience of the subrecipient with federal awards and compliance.  A subrecipient with little or no experience with federal awards should be monitored more closely than a subrecipient with years of experience and staff that have an in-depth understanding of the federal award program and the compliance requirements involved.

Based on the risk assessment performed, the types of monitoring activities the pass-through entity performs could vary.  Different types of monitoring include reporting (covered in Part X of the compliance requirement article series), site visits, and regular contact with the subrecipient.  A simple phone call on a monthly basis to ask a few general questions could be all the monitoring the pass-through entity needs to perform.  However, for other subrecipients, or for federal award programs that have been identified by the pass-through entity as highly complex, regularly scheduled site visits, or even a surprise site visit, may be considered necessary.

As a result of the monitoring process, the pass-through entity should be able to determine with reasonable assurance if the subrecipient used the federal award for the intended purposes, complied with laws, regulations, and grant agreements, and met performance goals.  If necessary, the pass-through entity should communicate a corrective action plan to the subrecipient for deficiencies noted during the monitoring process and ensure the subrecipient implements such plans.

As noted above, the pass-through entity is also responsible for ensuring the subrecipient undergoes an external audit in accordance with OMB Circular A-133, if total federal funds expended by the subrecipient exceed $500,000.  As part of this process, the pass-through entity should ensure all appropriate corrective actions were taken on the audit findings issued.  If there were no audit findings and the subrecipient was not required to submit a copy of the reporting package to the pass-through entity, the pass-through entity may use the Federal Audit Clearinghouse (http://harvester.census.gov) to verify the audit was performed and completed.

Special Tests and Provisions:

Complying with special tests and provisions is unique for each federal program.  The compliance requirements can be found in the individual compliance supplement, contracts and grant agreements applicable to the program.  More often than not, these are the compliance requirements that do not fit into any of the other compliance requirement categories.  Additionally, they may be some of the most difficult compliance requirements to identify.

For instance, special tests and provisions related to Title I funding include complying with the requirements of allocating funds to children who do not attend the public school, primarily private school children, but reside within the school attendance area and qualify for Title I funding.  The organization should put procedures in place to monitor this requirement.

For tribal schools, a special test and provision related to Indian School Equalization Program funding includes character investigations. Employees of tribal schools must meet minimum standards of character and suitability for employment. Procedures should be put into place by the School to ensure these character investigations are performed timely, renewed every five years, and include all necessary information to monitor this requirement.

The entity receiving the federal award should familiarize itself with the special tests and provisions section of the applicable compliance supplements and implement the appropriate internal controls to ensure compliance with the federal program.

In conclusion, it is imperative to review grant agreements, compliance supplements, and any applicable correspondence from granting agencies to determine which of the 14 compliance requirements are applicable to each type of federal grant funding.

See our previous newsletters providing specific details on each of the 14 compliance requirements. Please contact Traci Hanson, Shelley Goodrich, or Sandra Weaver with specific questions.

Jeff Yennie

Jeff Yennie

CPA at Ketel Thorstenson, LLP
Jeff is a graduate of the University of Wyoming with a Bachelor and Masters of Science in Accounting. He joined Ketel Thorstenson in 2012 and is a Manager in the Audit Department.
Jeff Yennie

Latest posts by Jeff Yennie (see all)