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How many of you have solicited and received funding or seed funding directly from the federal government or a pass-through entity that originated from the federal government? Did you read the fine print?
What Is The Uniform Guidance?
The Uniform Guidance (the “guidance”) generally applies to all non-federal entities, including state and local governments, Indian tribes, institutions of higher education, and for-profit and nonprofit organizations. The guidance is required for non-federal entities that expend more than $750,000 of federal dollars within their fiscal year. Note, effective for audit periods beginning on or after October 1, 2024, the threshold requiring Single Audits increases to $1,000,000, so if you are a calendar year-end, this is effective for the year ended December 31, 2025. The standard-setting body that governs these Single Audits in the United States is the Office of Management and Budget (OMB). The OMB issues the Compliance Supplement that auditors use to conduct Single Audits.
Pass-through entities that issue sub-awards are responsible for establishing the necessary requirements to ensure sub-recipients’ compliance. The agreement with the sub-recipient must include applicable compliance requirements and the sub-recipient’s compliance responsibility. Methods to ensure compliance with federal grant awards made to sub-recipients may include SF-1408 pre-award surveys, monitoring during the agreement, and post-award audits.
Since the audit requirements are dictated by the granting agency or the grant agreement itself, it might make sense to better understand them through a review of the agreement terms and a follow-up with the granting agency.
DOE Guidance
Some agencies, such as the United States Department of Health and Human Services (and their divisions) (“USDHHS”) and the United States Department of Energy (and their divisions) (“DOE”), have additional regulations that go beyond the standard Uniform Guidance requirements. The guidance for the USDHHS is housed under Section 45 of the Code of Federal Regulations. The guidance for the DOE is discussed below:
If a for-profit entity has one or more DOE awards with expenditures of $750,000 or more during its fiscal year, it must have a compliance audit for each of those awards. This compliance audit is a requirement of 2 CFR Part 910 Subpart F – Audit Requirements for For-Profit Entities, including 2 CFR § 910.501. The compliance audit is typically performed by an independent third-party auditor, such as a certified public accountant, and must be performed to Generally Accepted Government Auditing Standards (GAGAS). A compliance audit must comply with the applicable provisions in 2 CFR § 910.514. When an auditor conducts a DOE for-profit compliance audit, the auditor needs to assess whether recipients follow the cost principles contained in 48 CFR Part 31 Subpart 31.2 as specified in 2 CFR § 910.352.
Under the terms and conditions of most federal grants, there should be a reference to the audit requirement guidance.
Recipient or Subrecipient
In addition to the dollar threshold, the company must determine whether they are considered a recipient, subrecipient, or contractor. The payments received for goods or services provided as a contractor are not federal awards. Paragraph 75.351 of 45 CFR (DHHS) defines/determines the differences between being a sub-recipient or contractor, or Paragraph 910.501 of 2CFR (DOE):
Recipient or subrecipient. A sub-award is to carry out a portion of a federal award and creates a federal assistance relationship with the recipient or sub-recipient. Characteristics that support the classification of the non-Federal entity as a recipient or sub-recipient include when the non-Federal entity:
- Determines who is eligible to receive federal assistance.
- Has its performance been measured in relation to whether the objectives of a federal program were met?
- Has responsibility for programmatic decision-making.
- Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
- In accordance with its agreement, the Federal funds are used to carry out a program for a public purpose specified in the authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.
(B) Use of Judgment in Making a Determination
In determining whether an agreement between a pass-through entity and another non-Federal entity casts the latter as a subrecipient, the substance of the relationship is more important than the form of the agreement. All the characteristics listed above may not be present in all cases, and the pass-through entity must use judgment in classifying each agreement as a sub-award.
Takeaway
In summary, you must review the grant agreement details, specifically, the audit requirements, as they will vary depending on the funding source.
Contact Us
For more information on this topic, please contact a member of Withum’s Government Contractors Services Team.
