Subrecipient Monitoring Tools to comply under the new Federal Regulations Prepared For: Raising the Bar Conference 2017 Jennifer Arminger, CPA Nonprofit Audit Partner Jim Larson, CPA

Our Team Meet your instructors Jennifer Arminger, CPA Jim Larson, CPA Nonprofit Audit Partner Jim Larson, CPA Nonprofit Audit Partner Ms. Arminger has spent her career specializing in the financial management, accounting and auditing for tax-exempt organizations, with a concentrated expertise in compliance with Uniform Guidance. She is responsible for managing all phases of nonprofit audit and consulting engagements in accordance with generally accepted auditing standards and government auditing standards. Mr. Larson has worked in accounting since 1986, including 20 years exclusively providing audit and financial management solutions to nonprofit entities. His experience in the private sector provided him with hands-on experience implementing accounting and internal control procedures, preparing budgets and financial forecasts, and consulting on investment decisions.

Table of Contents 1 | Uniform Guidance 2 | Determination General background on the new Federal Regulations The importance of determining a subrecipient relationship 3 | Requirements 4 | Monitoring What are the requirements under Uniform Guidance How to effectively monitor your subrecipients 5 | Audit Program 6 | Policy Review the audit program for subrecipient test work Take a look at an example monitoring policy

Uniform Guidance General Background on the New Federal Regulations Title 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance) Effective for fiscal periods beginning after December 26, 2014 (i.e. December 31, 2015) Agency implementation in respective award agreements Multi-year grants may fall under old regulations, until a modification makes the change

The importance of determining a subrecipient relationship Determination The importance of determining a subrecipient relationship Judgment in the Determination The non-federal entity may concurrently receive federal awards as a recipient, a subrecipient and a contractor depending on the substance of it’s agreements. Therefore, the entity must make a case-by-case determination as to the nature of the relationship. The substance of the relationship is more important than the form of the agreement, and accordingly, the entity must use judgment and document the classification of each agreement as a subaward or a procurement contract.

Determination The importance of determining a subrecipient relationship Contractor (Vendor) Subrecipient Provides the goods and services as normal business operations to many different purchasers Has responsibility for programmatic decision making Provides goods or services that are ancillary to the operation of the Federal program Has its performance measured in relation to whether objective of the program were met Normally operates in a competitive environment Determines who is eligible to receive what federal assistance

What are the requirements under the new guidance 200.331 Policies The first, and possibly one of the most important actions an organization must take to ensure compliance, is adopting new policies. Your internal policies should be formally updated to comply with the new regulations and modified to fit your organization’s unique practices. Not only is it a requirement under Uniform Guidance (to establish policies and procedures) it is the document that auditors use to determine compliance.

What are the requirements under the new guidance 200.331 Pre-award Risk Assessment What commonly used to be an informal best practice, is now a formal requirement under Uniform Guidance. Before awarding federal funds an entity must evaluate each subrecipients risk of non-compliance, which could include: Knowledge based on prior experience Results of subrecipients audits New personnel or change in systems Extent and results of Federal agency monitoring

What are the requirements under the new guidance 200.331 Federal identification The award must identify funds are federal, provide the CFDA number, as well as several other specific requirements (see 200.331) Requirements All requirements in which the granting entity is subject, to include the federal statutes, regulations and terms of the original award Additional requirements Any additional requirements that the pass- through entity imposes on the subrecipient (i.e. performance reporting) Indirect rate An approved federally recognized indirect cost rate or (if not rate exists) a specific negotiated rate, or a de minimis indirect rate Access to records A requirement that the subrecipient permit the pass-through entity and auditors to have access to the records & financials Closeout Detail out the appropriate terms and conditions concerning the closeout of the subaward

How to effectively monitor your subrecipients Monitoring How to effectively monitor your subrecipients Must The regulations put forth the following requirements as “musts” when monitoring subrecipients: Review financial and performance reports required by the pass-through entity. Follow up for timely action on all deficiencies (pertaining to Federal award) as a result of audits, and on-site reviews Issue a management decision for audit findings Verify the entity is audited in accordance with Uniform Guidance (if applicable) Document any findings, and the applicable action to mitigate

How to effectively monitor your subrecipients Monitoring How to effectively monitor your subrecipients Recommended The regulations put forth the following requirements as “recommended” best practices when monitoring subrecipients: Provide training and technical assistance Perform on-site reviews Arrange for agreed-upon procedures engagements For poor performers, consider enhancing own documentation For poor performers, consider taking enforcement action for non-compliance (i.e. stop funding)

Subrecipient Monitoring Audit Program Handout Subrecipient Monitoring Audit Program

Example Risk Assessment Policy Handout Example Risk Assessment Policy

Get In Touch Jennifer Arminger, CPA Jim Larson, CPA jarminger@grfcpa.com (301) 951-9090 Jim Larson, CPA jlarson@grfcpa.com