The New Normal: Monitoring Subrecipients Under the Uniform Guidance Requirements.

• Author: Harper, Kevin W.

The San Mateo County Human Services Agency faced challenges in understanding, implementing and complying with new subrecipient monitoring provisions. Here are the lessons learned.

The caliber of our program managers is the best that I have seen; they met these new challenges with the professionalism and strength that is the key to effecting change management and to continue to serve the needs of our clients.

"The past six years have been a rollercoaster for the San Mateo County Human Services Agency," said Maggie Wong, the compliance officer responsible for the agency's implementation of the subrecipient monitoring provisions of the Office of Management and Budget's Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The agency receives approximately 24 percent of its funding from federal sources each year, so contract monitoring and compliance is an important operational objective. Fortunately, agency leadership had the foresight to champion this compliance initiative as a way to ensure these federal funds would continue to be available to fund needed services in the community.

The uniform guidance's new requirements were new not only to the agency but also to its peers in other county agencies and in other counties. Therefore, there were no tools and templates readily available from other governments. "Starting from scratch with no guidance seemed insurmountable, and very scary. Fortunately, we found a consultant with substantial subrecipient monitoring experience to assist in this compliance development effort," Wong said.

First, the agency had to thoroughly understand the uniform guidance. "Did someone move my cheese or did the cheese just change colors?" Maggie wondered as she started reading the new literature. It became clear that every element of operations related to working with nonprofit organizations would need to be rethought and redesigned.

Second, the agency needed to identify and train all the personnel who would be involved in the new subrecipient monitoring process.

It needed to develop policies, procedures, tools, templates, and protocols to galvanize more than 50 directors and managers. "I told them to follow me, and in my head I thought, I kind of know where we are going," Maggie said. She quickly realized that the key to the change management process that would be required were the partners and peers that she relied on daily to support the agency's many critical programs. It would be critical to open the lines of communication between finance and program staff and to redefine normal.

"The process was not easy, and there were pain points along the way," Maggie said. "There were the days when being a compliance officer was difficult, as part of our job is to deliver bad news. Social Services is a constantly moving target, which makes it even more challenging when there are regulatory changes that affect the fabric of how we do business. The caliber of our program managers is the best that I have seen; they met these new challenges with the professionalism and strength that is the key to effecting change management and to continue to serve the needs of our clients."

To enhance the agency's capacity to manage increased administrative and fiduciary requirements, it expanded its procurement and contracting staff from three to six. This additional layer of administrative capacity allows the agency to help program staff with solicitations, subrecipient identification, suspension/debarment checks, financial risk assessments, and coordinated compliance checks. The agency also formed collaborative procurement and contract teams that consist of the program subject matter experts in each branch, a procurement and contract administrator, and a financial budget analyst. Each team strategizes branch contractual objectives collaboratively each quarter, with the goal of guiding the contractual work for the branch and meeting federal and county performance objectives.

The Uniform Guidance Requirements

The uniform guidance requires entities that pass federal funds ("pass-through entities") to a state, local government, Indian tribe, institution of higher education, or nonprofit organization (but not individual not-for-profit entities), to monitor those subrecipients. The uniform guidance, which is frequently referred to as "the Supercircular," can be found in Section 200 of the Code of Federal Regulations.

Monitoring is required to ensure that subrecipients spend federal funds in accordance with federal laws and regulations. The uniform guidance requires pass-through entities to:

* Provide information to subrecipients in the subgrant agreement that allows them to understand and comply with applicable grant provisions, laws, and regulations.

* Review subrecipient annual financial reports, as well as any programmatic reports the subrecipient is required to file with the pass-through entity.

* Assure that subrecipients submit a single audit report if they expend more than $750,000 of federal funds during their fiscal year.

* Issue management decision on findings.

* Ensure timely correction of findings.

* Conduct risk assessments to evaluate each subrecipient's risk of noncompliance with federal statutes, regulations, and the terms and conditions of the subaward.

* Monitor subrecipients based on the results of the risk assessment.

Comprehensive Program to Monitor Subrecipients

To implement a comprehensive program to monitor subrecipients in accordance with the uniform guidance, a pass-through agency needs to address the following tasks:

* STEP 1 I Identify Subrecipients

Any local government that passes federal funds to a subrecipient, which is a state, local government, Indian tribe, institution of higher education, or nonprofit organization, is required to monitor those subrecipients according to the uniform guidance. But before you can monitor subrecipients, you must first identify them and distinguish them from contractors. Contractors, individuals and for profit entities are not required to be monitored according to the uniform guidance.

The uniform guidance presents ten characteristics that should be considered when determining whether an entity receiving federal funds is a subrecipient or a contractor. Subrecipients generally provide goods or services that are integral to meeting the objectives of the federal program and have significant discretion over delivery of goods and services. Contractors generally provide goods and services that are ancillary to the objectives of a federal program and generally provide similar goods and services to other entities in the normal course of operations. Following is a short description of each characteristic from the uniform guidance:

Common subrecipient characteristics:

1. Subrecipient determines who is eligible to receive federal assistance. If the pass-through entity provides the subgrantee with a list of program participants to which goods or services are to be provided, the pass-through entity is determining eligibility. If the pass-through entity provides criteria for eligible participants but the subgrantee chooses the participants, the subgrantee is determining eligibility.

2. Subrecipient's performance is measured in terms of grant objectives. This characteristic is met if the pass-through entity determines how well the subgrantee is performing its contracted duties by measuring them against criteria listed in the federal program requirements. If the pass-through entity does not gather performance measures related to the subgrantee, does not measure...