Finding Text
Subrecipient Monitoring - Contractor vs. Subrecipient Determination (Significant Deficiency in Internal Control) Finding 2025-004 Identification of the Federal Program: 93.600 – Head Start Cluster, 93.387 – National and State Tobacco Control Program, and 93.872 – Tribal Maternal, Infant, and Early Childhood Home Visit Condition: During our testing of internal controls over compliance, we noted that the Organization does not maintain formal documentation supporting its evaluation of whether award recipients are classified as contractors or subrecipients in accordance with Uniform Guidance. Criteria: 2 CFR §200.331 requires pass-through entities to evaluate each subaward to determine whether the recipient is a subrecipient or a contractor. This evaluation should be based on the characteristics outlined in 2 CFR §200.331(a) and (b) and documented to support proper classification. Effective internal control over federal awards also requires documentation of compliance-related judgments to ensure consistent application and oversight. Cause: Management indicated that formal documentation of contractor versus subrecipient evaluations has not been implemented due to reliance on historical practices (new administrative roles) and program managers properly classifying. Effect: Without documented evaluations, there is an increased risk that recipients may be improperly classified, which could result in: • Inadequate subrecipient monitoring • Improper application of compliance requirements (i.e. $50,000 of costs applied to direct when charging indirect) • Increased risk of noncompliance with federal award terms and conditions Questioned Costs: $0 Repeat Finding: No Recommendation: We recommend that management implement a formal process to evaluate and document contractor versus subrecipient determinations in accordance with Uniform Guidance. Documentation should include consideration of applicable criteria and be retained in grant files. Establishing this process will strengthen internal controls over compliance and support consistent application of federal award requirements. Management Response: Management agrees with the finding. The Council will work to implement requirements at the program level to evaluate and document all contracts to properly identify between contract and subaward.