Finding Text
Material Weakness in Internal Control over Subrecipient Monitoring and Material Noncompliance
Research and Development Cluster
Criteria: In accordance with 2 CFR 200.331, a pass-through entity must make a case-by-case determination whether each agreement it makes for the disbursement of federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor.
Additionally, in accordance with 2 CFR 200.332(b), the pass-through entity must evaluate each subrecipient’s risk of noncompliance with federal statutes, regulations, and the terms and conditions of the subaward for the purpose of determining the appropriate subrecipient monitoring. In furtherance of this, the pass-through entity should inquire as to whether or not the subrecipient was subject to a Single Audit. If the subrecipient was subject to a Single Audit, the pass-through entity must request the Single Audit report and review for any findings or questioned costs. In accordance with 2 CFR 200.521, the pass-through entity should issue a management decision for audit findings pertaining to the federal award provided to the subrecipient from the pass-through entity as applicable.
Condition: The Organization does not document its evaluation of each party that it engages in business with as to whether they are a contractor or a subrecipient. For three (3) of the three (3) such parties selected for testing, the Organization did not maintain documentation regarding whether the entity was a subrecipient or a contractor.
Furthermore, as it relates to the monitoring of entities determined to be subrecipients, the Organization has not formally documented its subrecipient monitoring procedures to ensure that subrecipients are in compliance with federal statutes, regulations, and the terms and conditions of the subawards. For three (3) of the three (3) subrecipients selected for testing, the Organization did not inquire as to whether the entity was subject to a Single Audit. Consequently, the Organization did not request the Single Audit report nor did they review them for any findings pertinent to the federal award provided to the subrecipient from the pass-through entity.
Cause: The Organization did not have an effective process in place to determine whether entities receiving pass-through funds are subrecipients or contractors. However, it was noted that the Organization implemented a process during the year to properly document whether a company is a contractor or a subrecipient.
Furthermore, once that determination has been made, the Organization did not have a process in place for evaluating subrecipients and their compliance with the applicable requirements of the Uniform Guidance.
Effect or potential effect: Lack of proper consideration of subrecipient or contractor status may result in the Organization improperly classifying a recipient of federal funds, which may impact the recipient’s compliance with the Uniform Guidance.
Furthermore, by not performing adequate monitoring over subrecipients, the Organization is not appropriately monitoring whether subrecipients are in compliance with grant requirements.
Questioned costs: None.
Context: Our sample was not intended to be statistically valid.
Recommendation: The Organization should have instituted a process whereby all entities that receive federal funds have proper documentation supporting their classification as a subrecipient or a contractor for the entire year. Additionally, the Organization should maintain a standardized checklist for all such entities that support their rationale for the classification. This checklist should be prepared by an employee with knowledge of the grant and approved by a second individual.
Furthermore, as it relates to subrecipient monitoring, the Organization should institute an annual process whereby all subrecipients are asked whether they received a Single Audit. If the subrecipient was subject to a Single Audit, the Organization should receive and review the Single Audit report. The reviewer should submit a memorandum of any findings relevant to their federal grant, which should then be submitted to the project manager or other designated person for approval.
Views of responsible officials and planned corrective actions: Management's response is reported in "Management's Views and Corrective Action Plan" included at the end of this report.
Identification of prior year finding: 2021-006