Subrecipient Monitoring for Federal Grants: Compliance Requirements
Discover the federal requirements for subrecipient monitoring under 2 CFR 200, including risk assessments, monitoring plans, and strategies for ensuring subaward compliance.
Why Subrecipient Monitoring Is a Critical Compliance Obligation
When your organization receives a federal grant and passes a portion of those funds to another entity to carry out part of the program, you become a pass-through entity and the receiving organization becomes a subrecipient. Under 2 CFR 200.332, pass-through entities are responsible for monitoring subrecipients to ensure that federal funds are used in compliance with all applicable laws, regulations, and award terms. This is not a suggestion or a best practice. It is a legal obligation that carries significant consequences if not fulfilled.
Subrecipient monitoring is one of the most frequently cited areas of non-compliance in single audits. Federal agencies expect pass-through entities to exercise active oversight, not passive trust. If your subrecipient misspends federal funds or fails to comply with program requirements, the pass-through entity can be held financially responsible for those costs. For a comprehensive overview of post-award obligations, see our post-award grant management compliance guide.
Subrecipient vs. Contractor: Making the Right Determination
Before you can monitor effectively, you must correctly classify the relationship. The Uniform Guidance draws a clear distinction between subrecipients and contractors, and the classification determines your compliance obligations.
- A subrecipient carries out a portion of the federal award's programmatic purpose. They have decision-making responsibility for how the program is implemented and are subject to the same federal compliance requirements as the pass-through entity.
- A contractor provides goods or services that support the project but does not carry out program objectives. They are subject to your organization's procurement standards rather than federal grant compliance requirements.
The substance of the relationship, not its label, determines the classification. Calling an agreement a "contract" when the entity is actually performing programmatic work does not eliminate your monitoring obligations. Auditors will look at the nature of the relationship and may reclassify it if the label does not match reality.
Required Subaward Information
When issuing a subaward, the pass-through entity must include specific information as required by 2 CFR 200.332(a). This includes the federal award identification number, the CFDA number, the name of the federal awarding agency, the applicable compliance requirements, and an approved indirect cost rate or a requirement to use the de minimis rate. Omitting these details is itself a compliance violation.
Conducting a Risk Assessment
Before issuing a subaward and periodically thereafter, the pass-through entity must evaluate each subrecipient's risk of non-compliance. This risk assessment should consider factors such as:
- The subrecipient's prior experience with federal awards of similar size and complexity
- Results of previous audits, including whether the subrecipient had audit findings related to federal awards
- Whether the subrecipient has new personnel or substantially changed systems
- The adequacy of the subrecipient's financial management systems and internal controls
- The extent and results of any prior monitoring by the pass-through entity
The results of this risk assessment should directly inform the level and type of monitoring you apply. Higher-risk subrecipients require more intensive oversight, which may include more frequent reporting, on-site visits, or additional compliance testing. Building strong partnerships with capable organizations can reduce risk from the start. Our guide on organizational capacity and partnerships explains how to evaluate potential partners before entering into subaward relationships.
Developing a Monitoring Plan
Effective subrecipient monitoring requires a documented plan that specifies what you will monitor, how you will monitor it, and how often. A comprehensive monitoring plan typically includes the following components:
Ongoing Financial Monitoring
Review subrecipient invoices and financial reports for allowability, allocability, and reasonableness of costs. Verify that expenditures align with the approved subaward budget and that the subrecipient is not charging costs that are unallowable under the federal cost principles. Ensure that the subrecipient's financial reports are submitted on time and contain the required level of detail.
Programmatic Monitoring
Evaluate whether the subrecipient is achieving the performance goals and milestones established in the subaward agreement. Review progress reports, participate in regular check-in calls, and verify that services are being delivered to the intended populations in the manner described in the federal award.
Site Visits
For higher-risk subrecipients or larger subawards, on-site visits provide an opportunity to verify that operations match what is described in reports. During a site visit, review source documentation such as timesheets, procurement records, and participant files. Document your observations and any concerns identified during the visit.
Audit Review
When a subrecipient is required to have a single audit, the pass-through entity must review the audit results and follow up on any findings that relate to the subaward. If the subrecipient is not required to have a single audit, the pass-through entity may need to conduct its own limited-scope review or arrange for agreed-upon procedures.
Documenting Your Monitoring Activities
Documentation is essential. If an auditor asks how you monitored your subrecipients, saying that you had regular phone calls is insufficient without written records. Maintain files that include your risk assessment, your monitoring plan, copies of reports received and reviewed, site visit reports, correspondence about any compliance concerns, and evidence of corrective actions taken. Proper documentation of costs charged through subawards is also critical for your own financial management. Understanding federal cost principles will help you evaluate subrecipient expenditures with confidence.
Responding to Subrecipient Non-Compliance
When monitoring reveals non-compliance, the pass-through entity must take action. Depending on the severity of the issue, appropriate responses may include requiring additional reporting, imposing special conditions on the subaward, withholding payments until compliance is demonstrated, or in serious cases, suspending or terminating the subaward. The key is to document the issue, communicate clear expectations for corrective action, and follow up to verify that the problem has been resolved.
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Master Subrecipient Monitoring and Federal Compliance
Subrecipient monitoring is one of the most challenging aspects of federal grant management, but with the right training you can build a robust oversight system. Enroll in The Complete Grant Architect course to gain the expertise needed to manage subawards, conduct risk assessments, and maintain compliance across your entire grant portfolio.
Learn more about grant writing strategies at Subthesis.