RAG80 Subrecipient Monitoring

Contents:

• Purpose
• Risk Assessment
• During the Life of the Subaward/Subcontract
• Closeout
• Further Information
• Cross References

PURPOSE:

The Uniform Guidance 2 CFR 200.331 - 200.333 are the federal regulations that define the requirements for recipients of federal funds with respect to Subrecipient Monitoring and Management. As a recipient of federal funds, The Pennsylvania State University (PSU or University) is responsible for the programmatic and financial monitoring of its sponsored research award Subrecipients. Such monitoring responsibilities are shared among various areas of the University and should be followed in accordance with the guidelines provided below. For the sake of consistency, the practices described below shall be applied to both federal and non-federal subawards and subcontracts. The purpose of this guideline is to assist University faculty and staff in the monitoring of Subrecipients. Because of their unique standing, the contracts offices in the Penn State Applied Research Laboratory (ARL) and the Penn State College of Medicine (Office of Research Affairs or ORA) have in some instances been delegated the authority to deviate from the procedures outlined in this document.

RISK ASSESSMENT:

The University performs a risk assessment of each Subrecipient to evaluate the probability of noncompliance with Federal statutes, regulations, and the terms and conditions of the Subaward/Subcontract. This risk assessment is handled by the Office of Sponsored Programs (OSP) prior to Subaward/Subcontract execution; once approved, the Subrecipient is monitored over the life of the Subaward/Subcontract at various levels. The risk assessment process described below is further illustrated in the Subrecipient Risk Assessment Flowchart.

OSP will review the proposed Subrecipient's single audit (if applicable) or independently audited financial statement (AFS) in order to identify ANY adverse findings or material weaknesses (not just those related to PSU funds) if:

1. The Subaward/Subcontract is $500K/year or greater, or
2. The Subrecipient is an organization that PSU has never worked with before, or
3. The Subrecipient does not qualify as a “low risk” auditee in the Federal Audit Clearinghouse.

If there are no adverse findings, OSP will proceed with Subaward/Subcontract issuance. If there are adverse findings, PSU's Subaward Policy Specialist (SPS) will review the findings to identify their severity and assess the quality of the Subrecipient's proposed corrective action plan.

Other criteria considered in evaluating risk include, but are not limited to, the following:

• Subrecipient's prior experience with the same or similar Subaward/Subcontracts
• Results of Subrecipient's previous audits
• Whether the Subrecipient has new personnel or new or substantially changed systems
• Whether the Subrecipient has an approved/compliant property control system in place
• Inherent risk of the federal program
• Prior history of working with Subrecipient
• Prior oversight and monitoring received by the Subrecipient
• Nature and complexity of the proposed research project
• Fiscal maturity of the Subrecipient
• Subaward/Subcontract period of performance
• Type of prime award
• Type of Subrecipient

Lower Risk

Lower risk Subrecipients are typically entities with current annual single audits (or equivalent) containing "unqualified" opinions on their financial statements, and which have no reported material weaknesses in their internal controls. In the Federal Audit Clearinghouse, these entities are considered "low-risk auditees". If the Subrecipient is not included in the Federal Audit Clearinghouse, the criteria listed above are used as the basis for evaluating risk.

If the proposed Subrecipient is deemed to be lower risk, PSU will rely upon the inclusion of the following or similar statement in the Subaward/Subcontract Agreement to learn of potential problems: "Subrecipient certifies by signing this Subaward Agreement that it complies with the Uniform Guidance, will provide notice of the completion of required audits and any adverse findings which impact this subaward as required by parts 200.501-200.521, and will provide access to records as required by parts 200.336, 200.337, and 200.201 as applicable.”

Higher Risk

Potentially higher risk Subrecipients are most often entities which have not completed annual single audits, or whose audit results have demonstrated weaknesses in administering federal funding, a history of failing to adhere to applicable provisions of contracts and grant agreements, or weak internal control structures. Higher risk Subrecipients can also include start-up entities with limited resources or prior experience in performing research, and foreign entities.

Special Actions for Higher Risk Subrecipients

If any identified problems cannot be readily remedied, OSP will categorize the Subrecipient (or the specific Subaward/Subcontract) as higher risk and insist upon a higher level of scrutiny. At such time, OSP will then work with the Principal Investigator (PI) and College/Unit Research Office to ascertain whether or not a Subaward/Subcontract should be issued, what special terms and conditions should be considered for inclusion in the Subaward/Subcontract, as well as what additional oversight requirements might be necessary to adequately monitor the Subaward/Subcontract. Some of these additional requirements (e.g., more frequent financial and programmatic reporting, shorter periods of performance, smaller, more frequent funding allocations, more detailed invoices or backup documentation, training and/or technical assistance for Subrecipients, on-site reviews of Subrecipients) may become the responsibility of the PI and related College Research Office. For Subawards/Subcontracts $150K and less, OSP may mitigate risk by issuing fixed price agreements (subject to the prior approval of the sponsor). OSP is responsible for ensuring that adequate arrangements are in place to mitigate the additional risk to the University before issuing or continuing Subaward/Subcontracts with higher risk Subrecipients. In extreme cases, where OSP lacks confidence in the proposed Subrecipient's ability to manage federal funds responsibly, OSP will decline to issue the Subaward/Subcontract.

DURING THE LIFE OF THE SUBAWARD / SUBCONTRACT:

Principal Investigator (PI) Responsibilities

The PI has first line responsibility for University monitoring of the programmatic and financial performance and progress on a Subaward/Subcontract. The PI must be informed of and acknowledge this responsibility before any Subaward/Subcontract is issued. Duties of the PI (working in conjunction with the College Research Office) during the life of the Subaward/Subcontract are as follows:

1. Understand the terms and conditions of the prime award, including those flowed down to the Subrecipient and those that may have been imposed by the University, and monitor the Subrecipient's adherence to the Subaward/Subcontract's terms and conditions. Such monitoring may take place through desk audits, and through phone calls, emails, site visits, meetings, or other regular contact.
2. Review the Subrecipient's invoices to confirm they meet the following criteria:
   1. Subaward/Subcontract requirements are met,
   2. costs incurred are in accordance with the approved budget during the approved period of performance and overall cost limitations,
   3. costs incurred are aligned with the technical progress reported to date, and
   4. costs are allowable, allocable and reasonable relative to the prime sponsor's terms and conditions and the Subaward/Subcontract issued by the University. In the event the level of detail included on an invoice is not sufficient to fully understand the costs, or if it appears that some costs may be excessive or understated, the PI is responsible for questioning the Subrecipient's expenditures or requesting an explanation or further documentation, if appropriate, prior to approving an invoice.
   5. cost sharing commitments are appropriately reflected and met, if applicable.
3. Personally approve Subrecipient invoices, review expenditure statements, and submit Subrecipient invoices for institutional approvals and payment in a timely manner, consistent with the terms of the Subaward/Subcontract.
4. Monitor the Subrecipient's technical progress in terms of the Statement of Work and any required milestones. If technical progress is not acceptable, or if technical reports required of the Subrecipient are not prepared timely, the PI is responsible for contacting the Subrecipient to address these issues.
5. Plan for efficient completion of performance and closeout of the Subaward/Subcontract by requiring that the period of performance end no later than the end date of the prime award, and that the Subrecipient's final invoice, final technical report, and any other required deliverables, including any applicable closeout reports, be submitted to the University no later than sixty (60) days after the end of the period of performance or as otherwise stated in the Subaward/Subcontract terms and conditions.
6. Assist the College Research Office, upon request, in obtaining or reviewing reports, advising during risk analyses, complying with additional monitoring responsibilities for higher risk Subrecipients, obtaining audit information or monitoring a Subrecipient's adherence to corrective action plans.

College Research Office Responsibilities

The College Research Office is responsible for the following:

1. Review and approve all subrecipient invoices (after departmental/PI review).
2. Request additional information, or confirmation, for any invoiced cost which appears to differ from the approved budget or appears to be unclear, unusual, unreasonable or unallowable.
3. Verify that the subrecipient's indirect costs as charged are in compliance with the indirect cost rate specified in the Subaward/Subcontract.
4. Ensure accurate and timely payment of all invoices.
5. Coordinate through the PI and OSP to assure that proper financial closeout procedures are followed.

Office of Sponsored Programs (OSP) Responsibilities

OSP is responsible for the following:

1. Perform risk assessment prior to issuing Subaward/Subcontract, including financial audit reviews.
2. Prepare, negotiate, and ensure the execution of the Subaward/Subcontract in accordance with the budget and work statement as outlined in the prime contract.
3. Advise Subrecipients of requirements imposed on them by federal laws, regulations, and the provisions of contract and grant agreements as well as any supplemental requirements issued by the College/Unit Research Office or PI.
4. Require each Subrecipient to permit the University and its auditors to have access to the records and financial statements as necessary in accordance with Uniform Guidance 2 CFR 200.331.
5. Request and review the Subrecipient/s single audit (if applicable) or the audited financial statement on an annual basis if the Subaward/Subcontract requires a higher level of scrutiny (as determined by the analysis above). All findings will be reviewed by the Subaward Policy Specialist (SPS) to determine if additional oversight measures are required.
6. OSP may rely upon the Subrecipient to self-report any adverse findings if the Subaward/Subcontract does not require a higher level of scrutiny.
7. Consult with the College Research Office when a Subrecipient’s Final Invoice contains costs which differ from the approved budget or appear to be unclear, unusual or unallowable.
8. Review documentation submitted by College at closeout to verify Subrecipient monitoring performed.

CLOSEOUT:

Principal Investigator (PI) Responsibilities

PIs are responsible for obtaining final technical reports from their Subrecipients, completing the Certification of Technical Completion form, and retaining a copy in their project file. PIs are encouraged to remind Subrecipients of this need well in advance of the due date for such reports.

College Research Office Responsibilities

The College obtains the final invoice from the Subrecipient and reviews for the information below (College/Unit is responsible for the same type of review and approval as is required for the routine monthly invoice evaluations). The College must make certain this information is clearly provided prior to submitting the documentation to OSP for the purpose of requesting release of final payment and closeout. If the required information is not found on the final invoice, the College must seek the missing items from the Subrecipient.

• Is invoice clearly marked "FINAL"?
• Does the invoice include current and cumulative costs incurred (including cost sharing, if required by the Subaward/Subcontract)?
• If cost sharing was required, was the Subrecipient's obligation met?
• Were any special cost provisions made part of the Subaward/Subcontract followed by the Subrecipient?
• Does the invoice include the Subaward/Subcontract number?
• Does the invoice include the period during which the costs were incurred?
• Does the invoice include a certification as to the truth and accuracy of the invoice?

The College forwards a copy of the final cumulative invoice and completed Certification of Technical Completion to OSP, along with request for processing and approval of release of final payment.

Office of Sponsored Programs (OSP) Responsibilities

If the Subrecipient/Subcontractor required a higher level of scrutiny, OSP will verify that copies of all of the single audits (or AFS’s) issued prior to the end date of the Subaward/Subcontract have been received and that any issues raised have been addressed. (Copies of required single audits and AFS’s will be saved electronically for record retention purposes.) Documentation of this review will be on file and should be considered prior to closing out the Subaward/Subcontract.

If the Subaward/Subcontract did not require a higher level of scrutiny, OSP will close it out upon receipt of all required closeout documentation (e.g., certification of technical completion, proper final invoice, etc.).

OSP reviews documentation submitted by College to verify subrecipient monitoring.

OSP reviews and approves final invoices following College/PI review and acceptance.

OSP may request other final reports, including property reports, patent reports, and Assignment and Release documents, as required by the Subaward/Subcontract.

FURTHER INFORMATION:

For questions, additional detail, or to request changes to this policy, please contact the Office of the Senior Vice President for Research or the Office of Budget and Finance.

CROSS REFERENCES:

Other sources in GURU may also apply, especially:

RA80 Subawards and Subcontracts

Revision History:

• July 12, 2023 - Editorial changes:
  • References to the Corporate Controller changed to the Associate Vice President for Budget and Finance
  • References to the Office of the Corporate Controller changed to the Office of Budget and Finance
• September 19, 2019 - Changed Vice President for Research to Senior Vice President for Research
• February 26, 2016 - This new policy (incorporating parts of RAG22) has been created as part of the policy reorganization brought about by the implementation of the Uniform Guidance (2 CFR 200).
• December 23, 2014 - New Policy Guideline, to formalize the University’s current practices and existing guidance regarding Subrecipient Monitoring, and to better define the roles of the various units involved in subaward/subcontract management.