**FEDERAL DEMONSTRATION PARTNERSHIP -- PHASE IV**

**Memorandum to the Executive Committee**

From: IRAB Task Force, Sub-Recipient Monitoring Working Group

Co-Chairs: Ms. Elizabeth Mora (Harvard University) and Ms. Debbie Rafi
(ONR)

Date: **September 2003 (Revised)**

Subject: Subrecipient Monitoring Demonstration Project Proposal

References: (a) FDP May 1-2, 2003 Meetings, Tab 5, Administrative
Initiatives

\(b\) OMB Circular A-133 and the 2003 Compliance Supplement

[Background:]{.underline}

The May 2003 FDP meetings presented the goals and initiatives of Phase
IV (2003-2007). A focus on the area of subrecipient monitoring
requirements was identified as one of the Administrative Activities that
Phase IV would address because of the increasingly challenging
environment that FDP members must monitor their sub-recipients under.
Reference (a) states that Phase IV "will look for more effective and
efficient ways to monitor sub-recipients". The Subrecipient Monitoring
Work Group was established under the Initiative to Reduce Administrative
Burden (IRAB) Task Force.

[Issue:]{.underline}

The Subrecipient WG has conducted three focus meetings with FDP members
to identify specific concerns/issues relative to subrecipient
monitoring. Based on these discussions, the WG has summarized some of
the key issues as follows:

-   FDP Institutions may have up to 300 sub-recipients that they are
    responsible to monitor.

-   Subrecipients can be generally classified into the following
    categories:

> \- Nonprofit sub-recipients subject to A-133 Single Audits
>
> \- Nonprofit sub-recipients not subject to the A-133 Single Audit
>
> \- For-profit entity sub-recipients
>
> \- Foreign entity sub-recipients
>
> The type of subrecipient will have an affect on how a pass-through
> entity monitors it because of the different regulatory requirements
> that apply. This presents a challenging environment for the research
> institution.

-   A-133 Single Audit Requirements are some of the most
    administratively burdensome requirements to research institutions.
    Specifically, the requirement for the subrecipient to provide
    [written notification]{.underline} to each pass-through entity that
    their A-133 audit has been conducted in accordance with OMB Circular
    A-133 and there were no findings relative to the Federal awards that
    the pass-through entity provided in as state in OMB Circular A-133,
    paragraph \_.320(e)(2):

> *"(2) Instead of submitting the reporting package to a pass-through
> entity, when a subrecipient is not required to submit a reporting
> package to a pass-through entity pursuant to paragraph (e)(1) of this
> section, [the subrecipient shall provide written notification to the
> pass-through entity that]{.underline}: an audit of the subrecipient
> was conducted in accordance with this part (including the period
> covered by the audit and the name, amount, and CFDA number of the
> Federal award(s) provided by the pass-through entity); the schedule of
> findings and questioned costs disclosed no audit findings relating to
> the Federal award(s) that the pass-through entity provided; and, the
> summary schedule of prior audit findings did not report on the status
> of any audit findings relating to the Federal award(s) that the
> pass-through entity provided. A subrecipient may submit a copy of the
> reporting package described in paragraph (c) of this section to a
> pass-through entity to comply with this notification requirement."
> (underline added)*

[Demonstration Proposal:]{.underline}

1.  Objective -- To demonstrate that the requirements of OMB Circular
    A-133, paragraph \_.320(e)(2) can be achieved by using the Single
    Audit Clearinghouse (SAC) website to determine (1) if a subrecipient
    has completed an audit in accordance with the reporting requirements
    of A-133 and (2) the schedule of findings and questioned costs
    disclosed no audit findings relating to the Federal awards the
    pass-through entity provided.

2.  Impact

    -   A successful demonstration of the proposed method will
        significantly reduce the administrative time and costs related
        to a subrecipient having to provide written notification to each
        pass-through entity when (1) their audit has been conducted in
        accordance with the reporting requirements of A-133 and (2) the
        schedule of findings and questioned costs disclosed no audit
        findings relating to the Federal awards the pass-through entity
        provided.

    -   Institutions will be able to more effectively monitor the higher
        risk subrecipients, by reducing the administrative time and
        costs related to providing written notification to each
        pass-through entity when (1) their audit has been conducted in
        accordance with the reporting requirements of A-133 and (2) the
        schedule of findings and questioned costs disclosed no audit
        findings relating to the Federal awards the pass-through entity
        provided.

    -   Increased reliance by Federal awarding agencies on the A-133
        audit. Awarding agencies will have increased assurance that
        recipients' subrecipient monitoring processes are more efficient
        and focused on the higher risk subrecipient population, because
        less time will be spent on monitoring subrecipient costs that
        had no reportable audit findings (the lower risk subrecipient
        population). This in turn, should result in improved oversight
        of Federal funded programs by pass-through entities -- a win/win
        scenario for the Federal awarding agencies and recipients.

    -   Facilitates the SAC Website to improve the A-133 reporting
        requirement process, which is consistent with the overall goals
        of the Federal Government's grant streamlining initiatives under
        PL 106/107**.**

3.  Goal -- To submit a proposed change to OMB asking for clarification
    in the Compliance Supplement relative to paragraph .320, Reporting
    Submissions. Specifically, propose that the Compliance Supplement
    include a statement that will accept use of the Single Audit
    Clearinghouse (SAC) website as a means of satisfying the requirement
    of paragraph .320(e)(2).

[Implementation:]{.underline}

1.  Duration -- One Single Audit cycle, as determined by the
    institutions' fiscal year

2.  Identify Participating Institutions

3.  Obtain OMB endorsement of demonstration pilot and exemption for
    participating institutions from paragraph \_.320(e)(2) of OMB
    Circular A-133 for the duration of demonstration.

4.  Data Requirements -- Participating institutions will be required to
    provide the following data for the demonstration period:

    -   Total number of subrecipients by category:

\- Nonprofit sub-recipients subject to A-133 Single Audits

\- Nonprofit sub-recipients not subject to the A-133 Single Audit

\- For-profit entity sub-recipients

\- Foreign entity sub-recipients

-   Total number of nonprofit subrecipients subject to A-133 that
    completed their A-133 audit requirement and had no findings or
    questioned costs relative to Federal award dollars issued by the
    pass-through entity to the subrecipient.

-   If the institution's most current A-133 audit was in accordance with
    OMB Circular A-133 reporting requirements and had no findings or
    questioned costs relative to Federal award dollars issued by the
    pass-through entity, identify the total number of pass-through
    entities, which the institution did not have to issue written
    notifications. Estimate cost savings to the institution in terms of
    time and materials.

-   Comparison of A-133 Audits conducted before and during the
    demonstration period:

> \- Identify the number and type of findings presented in A-133 audit
> reports related to subrecipient monitoring in the institutions' A-133
> audits.
>
> \- Identify the institutions' risk classification (high or low risk)
> and reason for a change, if appropriate.
>
> \- Identify the audit opinion issued on Major Program Compliance and
> reasons for a change, if appropriate.

5.  Single Audit Clearinghouse (SAC) Website Documentation --
    Participants are required to document their reliance on the SAC
    website. The documentation must be available to A-133 auditors, upon
    request, as part of their audit for compliance with Subrecipient
    Monitoring requirements in OMB Circular A-133. Each institution will
    be responsible for determining how they will document their
    reliance, however the WG will provide examples of how an institution
    can achieve this requirement.