Audit 411614

Criteria The Organization is responsible for ensuring agreements entered into with external parties properly reflect the substance of the relationship and are accurately classified as either a subrecipient or contractor relationship. Proper classification and documentation are necessary to ensure that the appropriate compliance requirements and/or monitoring procedures are applied. Condition and context We identified one instance in which the Organization executed a subaward agreement with a service provider that was providing contracting services to the Organization. Based on the nature of the services provided and the relationship between the parties, the entity met the characteristics of a contractor rather than a subrecipient. Because management understood the relationship to be that of a contractor, the Organization did not perform subrecipient monitoring procedures associated with the agreement. However, the executed agreement inaccurately characterized the arrangement as a subaward. Cause The Organization relied on a subaward agreement template provided by the contractor and did not have sufficient procedures in place to review and evaluate whether the terms of the agreement accurately reflected the nature of the relationship prior to execution. Effect Failure to properly classify and document relationships with contractors and subrecipients increases the risk that federal compliance requirements will not be applied appropriately and may result in inconsistencies between contractual documentation and the Organization's administration of federal awards. In addition, inaccurate classifications may result in compliance reporting errors and confusion regarding monitoring responsibilities under Uniform Guidance. Questioned Cost: None Recommendation We recommend that management review its policies, procedures, and internal controls surrounding the review, evaluation and approval of federally funded agreements to ensure contracts accurately reflect the substance of the relationship and are properly classified as either contractor or subrecipient arrangements prior to execution. Views of responsible officials and planned corrective actions See Corrective Action Plan