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Subrecipient Monitoring

Subrecipient Monitoring. Presented by: Norman Mosrie – Partner, Ernst & Young Chris Deweese – Member, Suttle & Stalnaker. Subrecipient Status vs. Vendor. According to Circular A–133, characteristics indicative of a federal award received by a subrecipient are when the entity:

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Subrecipient Monitoring

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  1. Subrecipient Monitoring Presented by: Norman Mosrie – Partner, Ernst & Young Chris Deweese – Member, Suttle & Stalnaker

  2. Subrecipient Status vs. Vendor • According to Circular A–133, characteristics indicative of a federal award received by a subrecipient are when the entity: • Determines who is eligible to receive what federal financial assistance • Has its performance measured against whether the objectives of the federal program are met • Has responsibility for programmatic decision making • Has responsibility for adherence to applicable federal program compliance requirements • Uses the federal funds to carry out a program of the entity as compared to providing goods or services for a program of the pass-through entity

  3. Vendor Characteristics • Characteristics indicative of a payment for goods or services received by a vendor. • According to Circular A–133, the characteristics indicative of a payment for goods or services received by a vendor are when the entity: • Provides the goods and services within normal business operations • Provides similar goods or services to many different purchasers • Operates in a competitive environment • Provides goods or services that are ancillary to the operation of the federal program • Is not subject to the compliance requirements of the federal program

  4. Subrecipient vs. Vendor Status • Use of judgment in determining subrecipient or vendor status: • There may be unusual circumstances or exceptions to the listed characteristics in the previous slides • The substance of the relationship is more important than the form of the agreement, it is not expected that all of the characteristics will be present • The federal cognizant agency for audit, the oversight agency for audit, or the federal awarding agency may be of assistance in making these determinations

  5. Subrecipient Relationship Examples Description of relationships—pass-through entity and subrecipient • Following are examples of a typical relationship between a pass-through entity and a subrecipient: • A state department of education (pass-through entity) receives a federal award and is responsible for administering and disbursing the federal award to local school districts (subrecipients) according to a formula or some other basis

  6. Subrecipients Relationship Examples(cont’d) Description of relationships—pass-through entity and subrecipient (cont’d) • A regional planning commission (pass-through entity) receives a federal award for the feeding of elderly and low-income individuals, and the award is disbursed to NPOs (subrecipients) to support their feeding programs • A hospital (subrecipient) receives a federal award from a university (pass-through entity) to conduct research • A theater group (subrecipient) receives a federal award from a state arts commission (pass-through entity) to support a summer arts series

  7. Vendor Relationship Examples Description of relationships—recipient and vendor • Following are examples of a typical relationship between a recipient and vendor: • A local government (recipient) receives a federal award to provide mental health services in a designated area, some of the funds are paid to a contractor (vendor) to repair a leaking roof • A county (recipient) receives a federal award to operate a head start program and pays an NPO (vendor) to provide temporary clerical services • An NPO (recipient) receives a federal award to run a preschool and pays a medical doctor (vendor) to perform health screening on a per-student basis • An NPO (recipient) receives a federal award to operate a child care center and pays a not-for-profit clinic (vendor) to perform physical exams

  8. Subrecipient Monitoring AuditingConsiderations • Circular A–133 and Supplement • Subrecipient monitoring is one of the specific compliance requirements • Supplement Part 3 – compliance requirements • Supplement Part 6 – internal controls

  9. Source of Requirements • Circular A–133 • Single Audit Act Amendments 1996 • A–102 Common Rule • Circular A–110 • Laws and regulations specific to awards, including State specific requirements

  10. Monitoring Requirements • Single Audit Act Section 7502(f)(2)(B) • A pass-through entity shall monitor the subrecipient’s use of federal awards through site visits, limited scope audits, and other means • Circular A–133 (400) • Award requirements • Monitor • Compliance • Performance goals • Required audits • Audit resolution

  11. A–133 Compliance SupplementPart 3 Compliance Objectives • Agreements with subrecipients should contain: • Award identification • CFDA title and number, award name, and Federal agency name • Applicable compliance requirements • Performance goals • Any additional compliance requirements (i.e., copies of audit report, budget vs. actual, etc.) • Arrangements for subrecipient monitoring

  12. A–133 Compliance SupplementPart 3 Compliance Objectives (cont’d) • During-the-award monitoring to provide reasonable assurance that subrecipient administers Federal awards in compliance with laws, regulations, and the provisions of contracts or grant agreements and that performance goals are achieved • Reporting • Reviewing subrecipient financial and performance reports • Site visits • Review financial and programmatic records and observe operations • Regular contact, including inquiries

  13. A–133 Compliance SupplementPart 3 Compliance Objectives (cont’d) • Agreed-upon procedures engagements or other mechanisms for monitoring subrecipients not required to have an A–133 audit • Allowable costs for subrecipients < $500,000 of federal awards • Pass-through entity required to arrange for and pay for such limited scope audits • Pass-through entity should develop specific procedures to be performed • Useful for testing compliance requirements such as: • Level of effort • Earmarking • Reporting • Activities allowed or unallowed • Allowable costs/cost principles • Eligibility • Matching

  14. A–133 Compliance SupplementPart 3 Compliance Objectives (cont’d) • During the award monitoring affected by: • Program complexity • Percentage passed through-larger percentage > risk • Amount of awards-larger dollar > risk • Subrecipient risk • Closer monitoring • Newer subrecipients • History of non-compliance • New personnel • New or substantially changed systems • Award not tested as major program in subrecipient audit

  15. A–133 Compliance SupplementPart 3 Compliance Objectives (cont’d) • Subrecipient audits • > $500,000 in expenditures require audits • Audits must be completed within 9 months of subrecipient year-end and submitted to pass-through entity if audit findings are noted • No audit findings- Pass-through entity should use the information in the Federal Audit Clearinghouse (FAC) database (http://harvestor.census.gov/sac) to verify audit was completed and no audit findings. Document review of FAC via a log. • Issue management’s decision on findings within 6 months of receipt of the subrecipient audit report • Ensure that subrecipient takes timely and appropriate corrective action on audit findings • Take action, including sanctions or withholding funding, for lack of audits or untimely, or lack of resolution of findings

  16. A–133 Compliance SupplementPart 6 Internal Control • Control Environment • Management’s “tone at the top” commitment to monitoring subrecipients • Sufficient resources dedicated to subrecipient monitoring • Individuals performing subrecipient monitoring possess defined knowledge, skills, and abilities required • Subrecipients demonstrate: • Willingness and ability to comply with the requirements of the award, and • Accounting systems, including the use of applicable cost principles, and internal control systems adequate to administer the award. • Appropriate sanctions enforced for subrecipient noncompliance

  17. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Risk Assessment • Key managers understand the subrecipient’s environment, systems, and controls sufficient to identify the level and methods of monitoring required • Mechanisms exist to identify risk arising from external sources affecting subrecipients, such as risk related to: • Economic conditions • Political conditions • Regulatory changes • Unreliable information

  18. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Mechanisms exist to identify and react to changes in subrecipients, such as: • Financial problems that could lead to diversion of grant funds • Loss of essential personnel • Loss of license or accreditation to operate program • Rapid growth • New activities, products, or services • Organizational restructuring

  19. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Control Activities • Identify to subrecipients the Federal award information (e.g., CFDA title and number, award name, name of Federal agency, and amount of award) and applicable compliance requirements. • Include in agreements with subrecipients the requirement to comply with the compliance requirements applicable to the Federal program, including the audit requirements of OMB Circular A–133 and any specific State requirements.

  20. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Subrecipients’ compliance with audit requirements monitored using techniques such as the following: • Determining by inquiry and discussions whether subrecipient met thresholds requiring an audit under OMB Circular A–133. Some agencies require written confirmation from subrecipients. • If an audit is required, assuring that the subrecipient submits the report, report package or the documents required by OMB circulars and/or recipient’s requirements. • If a subrecipient was required to obtain an audit in accordance with OMB Circular A–133 but did not do so, following up with the subrecipient until the audit is completed. Taking appropriate actions such as withholding further funding until the subrecipient meets the audit requirements.

  21. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Subrecipient’s compliance with Federal program requirements monitored using such techniques as the following: • Issuing timely management decisions for audit and monitoring findings to inform the subrecipient whether the corrective action planned is acceptable • Maintain a system to track and following-up on reported deficiencies related to programs funded by the recipient and ensure that timely corrective action is taken • Regular contacts with subrecipients and appropriate inquiries concerning the Federal program • Reviewing subrecipient reports and following-up on areas of concern • Monitoring subrecipient budgets • Performing site visits to subrecipient to review financial and programmatic records and observe operations • Offering subrecipients technical assistance where needed

  22. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Official written policies and procedures exist establishing: • Communication of Federal award requirements to subrecipients • Responsibilities for monitoring subrecipients • Process and procedures for monitoring • Methodology for onsite monitoring activities (i.e., rotation based, all subrecipients monitored) • Methodology for resolving findings of subrecipient noncompliance or weaknesses in internal control • Requirements for and processing of subrecipient audits, including appropriate adjustment of pass-through entity’s accounts for unallowable costs

  23. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Information and Communication • Standard award documents used may contain: • A listing of Federal requirements that the subrecipient must follow. Items can bespecifically listed in the award document, attached as an exhibit to the document, or incorporated by reference to specific criteria. • The description and program number for each program as stated in the CFDA. If the program funds include pass-through funds from another recipient, the pass-through program information should also be identified. • A statement signed by an official of the subrecipient, stating that the subrecipient was informed of, understands, and agrees to comply with the applicable compliance requirements.

  24. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • A recordkeeping system is in place to assure that documentation is retained for the time period required by the recipient. • Procedures are in place to provide channels for subrecipients to communicate concerns to the pass-through entity.

  25. A–133 Compliance SupplementPart 6 Internal Control (cont’d) • Monitoring • Establish a tracking system to assure timely submission of required reporting, such as: • Financial reports, • Performance reports, • Audit reports, • Onsite monitoring reviews of subrecipients, and • Timely resolution of audit findings. • Supervisory reviews performed to determine the adequacy of subrecipient monitoring

  26. Other Monitoring Procedures • Reviewing grant applications submitted by subrecipients to determine that: • Applications are filed and approved in a timely manner • Each application contains the condition that the subrecipient comply with the Federal requirements set by the Federal agency

  27. Other Monitoring Procedures (cont’d) • Establishing internal control over compliance to provide reasonable assurance that: • Funds are disbursed to the subrecipients only on an as-needed basis • Funds are disbursed to subrecipients only on the basis of approved, properly completed reports submitted on a timely basis • Refunds that are due from subrecipients are billed and collected in a timely manner

  28. Other Monitoring Procedures (cont’d) • Reviewing financial and technical reports received from subrecipients on a timely basis and investigating unusual items. • Reviewing subrecipient audit reports to evaluate them for completeness and for compliance with applicable laws and regulations. (PCIE checklist is a good resource) • Evaluating audit findings; issuing appropriate management decisions, if necessary; and determining if an acceptable plan for corrective action has been prepared and implemented. • Reviewing previously detected deficiencies and determining that corrective action was taken.

  29. Common Findings/Problems • Lack of formal monitoring plan (monitoring plan should address audit reports, desk reviews, invoice audits, onsite monitoring, and other programmatic monitoring) • Lack of documentation of monitoring activities (Consider utilizing standardized checklist) • Untimely monitoring and follow-up on corrective action plan • Grant agreements signed after subrecipient services begin

  30. Common Findings/Problems (cont’d) • Failure to complete onsite monitoring in a timely manner • Late audit reports (extension process is fairly easy) • Lack of review of FAC database • Failure to apply sanctions or withhold funding for untimely finding resolutions and/or lack of audits • Monitoring plan is to detailed (difficult to comply with)

  31. Roles and Responsibilities • Pass-through entity (PTE): • All federal funds it receives are used only for program-related purposes • Accuracy of Schedule of Expenditures of Federal Awards (SEFA), including identification of subawards • Subaward allowed? • May be prohibited • Amount may be limited • Subaward may be mandated • Subaward vs. procurement contract • Contract generally used when PTE buys goods or services for its own use or benefit

  32. Pass-Through Entity Responsibilities • What do they tell them? • Identify and provide information about federal awards (CFDA information) • Inform of compliance requirements • Monitor subrecipient activities • Provide technical advice/training • Issue management decisions • Consider adjustments due to audits • Require access to subrecipients records

  33. Pass-Through Entity Responsibilities (cont’d) • For-profit subrecipients • Not subject to OMB Circular A–133 • Compliance with program requirements must be ensured • For-profit subrecipients—ensuring compliance • Pre-award and post-award audits • Monitoring • Incorporate monitoring requirements into grant agreement • Require agreed-upon procedures engagement • Require periodic reports • Make site visits

  34. Subrecipient Responsibilities • Administer grant—award to closeout • Develop internal policies and systems • Ensure organization has adequate financial management system • Establish budget for program • Monitor budget to actual • Keep abreast of changes • Request prior approvals when necessary • Prepare necessary reports • Keep pass-through entity informed • Obtain A–133 audit when applicable

  35. Federal Awarding AgencyResponsibilities • No direct contractual relationship • Retains the right to review records and inspect operations • Source of information • Answers questions for pass-through entity and sub • Informs of programmatic changes • Provides guidance on monitoring • Provide information on “successful” monitoring procedures • Auditor Review of Monitoring Activities

  36. For further information, see Chapter 11 of the AICPA Audit Guide, Government Auditing Standards and Circular A–133 Audits Also refer to “Techniques for Monitoring Federal Subawards” by the Thompson Publishing Group

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