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The risk assessment requirements for pass-through entities provide a framework for evaluating and establishing an appropriate monitoring strategy for subrecipients to the prime Federal award.

Definitions

Overview

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Authorities

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 "Contract" is defined in § 200.22 and means a legal instrument by which a non-Federal entity purchases property or services needed to carry out the project or program under a Federal award.  The term as used in this part does not include a legal instrument, even if the non-Federal entity considers it a contract, when the substance of the transaction meets the definition of a Federal award or subaward.

"Pass-Through Entity" is defined in § 200.74 and means a non-Federal entity that provides a subaward to a subrecipient to carry out part of a Federal program.

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§ 200.331(b) requires all pass-through entities to evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for the purposes of determining the appropriate monitoring needed to ensure that Federal funds are used properly.  Pass-through entities are not required to complete a risk assessment on contractors.

2 CFR 200.331(b) states that pass-through entities are required to evaluate each subrecipient's risk of noncompliance to ensure that Federal funds are used properly.  My organization uses only "contracts" as the legal instrument to enter into agreements with both subrecipients and contractors.  Therefore we consider all of our relationships as contractors.  Is this acceptable?

No.  Many non-Federal entities, particularly State agencies, call all of their legal instruments "contracts".  A non-Federal entity may concurrently receive Federal awards as a recipient, subrecipient, and a contractor, depending on the substance of its agreement with the Federal awarding agency and pass-through entities.  Therefore, 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.  Pass-through entities need to reflect upon the nature of the case-by-case relationship of the agreement in order to determine if the non-Federal entity is a subrecipient or a contractor.

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§ 200.331(b) requires pass-through entities to conduct an assessment of risk of their subrecipients, but does not specify that such assessments must be done prior to issuing the subaward or the subsequent disbursement of funds to the subrecipient.  COFAR addressed this question in its FAQs (updated July 2017).  Their response is: "No.  While section § 200.331(b) requires risk assessments of subrecipients, there is no requirement for pass-through entities to perform these assessments before making subawards.  Under the Uniform Guidance, the purpose of these risk assessments is for pass-through entities to determine appropriate subrecipient monitoring.  Pass-through entities may use judgement regarding the most appropriate timing for these assessments.  Regardless of the timing chosen, the pass-through entity should document its procedures for assessing risk.  § 200.331(b)(1-4) includes factors that a pass-through entity may consider when assessing subrecipient risk.  While § 200.205 imposes requirements for a Federal awarding agency to review the risk posed by applicants prior to making a Federal award, there are no corresponding requirements for a pass-through entity; however, it is a best practice for pass-through entities to evaluate risk prior to making a subaward." 

Where should I keep the results of our subrecipient risk assessment?

It is a best management practice to keep the results of each subrecipient risk assessment in either your agencies official subrecipient award file or a centralized subject-matter reference file.  In either the case, the results of the risk assessment should be easily obtainable by your program/fiscal staff and auditors if they request it. 

What criteria or factors should a pass-through entity evaluate when conducting a risk assessment on a potential subrecipient?

§ 200.331(b)(1-4) provides some factors that pass-throughout entities may review when evaluating a subrecipient's potential risk of noncompliance.  These factors should not limit a pass-through entity from evaluating additional factors that are above and beyond those listed in § 200.331.  

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Pass-through entities should remember that in the unfortunate case where Federal funds may be used inappropriately or waste, fraud, or abuse has occurred, the Federal awarding agency may seek remedies or legal action against the prime recipient.  They will not seek legal action against the subrecipient, this would be the responsibility of the pass-through entity.

What happens if a subrecipient is rated as higher risk, but the pass-through entity fails to follow through on any special requirements?

§ 200.331 describes the requirements of pass-through entities whenever they enter into a subrecipient relationship with another non-Federal entity (subrecipient) using Federal funds.  One of the requirements is to conduct a risk assessment of the subrecipient to evaulate that entities risk potential as it relates to Federal laws, regulations, ect.  § 200.331(a)(2) describes the requirements of pass-through entities to include information in the contractual document with the subrecipient concerning, "all requirements imposed by the pass-through entity to ensure that the Federal award is used in accordance with Federal statutes, regulations, and terms/conditions of the Federal award."  

The purpose of the risk assessment is to allow pass-through entities to develop monitoring protocols and special terms/conditions to mitigate for potential risk posed by subrecipients and help to ensure that Federal funds are used effectively.  § 200.338 provides guidance to Federal awarding agencies to remedy noncompliance of their prime recipients.

Can pass-through entities allow their subrecipients to fill out the risk assessment?

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