Establishment and Monitoring of Subrecipient Agreements

The Single Audit Act of 1984 and amendments (31 USC 7101-7105), Office of Management and Budget (OMB) Circular A-110, and OMB Circular A-133 require recipients of federal funds to ensure that subrecipients comply with federal audit requirements. The monitoring requirements apply only to subrecipients receiving a re-grant, memorandum of understanding, or subcontract and not to vendors receiving a procurement contract (contracted services agreement). To ensure compliance with these federal regulations, the following procedures will be followed at The University of Montana. UM's policy for the Establishment and Monitoring of Subrecipient Agreements is on the Human Resources website.

Determining the Appropriate Type of Subrecipient Agreement

The staff of the Office of Research and Sponsored Programs (ORSP) will determine whether the use of a subcontract, regrant, memorandum of understanding, or contracted services agreement is appropriate for each subrecipient included in externally funded projects.

Generally, contracted services agreements are entered into with a vendor for the purpose of performing a specific objective within the scope of work. Typically, vendors provide goods or services within their normal business operations, and operate in a competitive environment where they provide similar goods or services to many different purchasers. The program compliance requirements of the University's award do not apply to the goods or services being provided and the terms and conditions of the award are not passed down to the vendor. The monitoring requirements of OMB Circulars A-110 and A-133 and the Single Audit Act do not apply to contracted services agreements.

In contrast, subcontracts, regrants, and memoranda of understanding are used when the subrecipient is functioning as a co-investigator on the project, i.e., they are involved in a creative way in designing and/or conducting the sponsored activity and often the subrecipients qualifications were instrumental in helping the university obtain the award. The program compliance requirements and other terms and conditions of the prime award are passed down to these subrecipients.

Contracted services agreements are prepared by the staff of the Purchasing Department within Business Services. All other subrecipient agreements for externally funded projects are prepared by the staff of ORSP. For the remainder of this document, the term "subrecipient" will be used to refer to non-vendor relationships only.

Obtaining Sponsor Approval of Subrecipient Agreements

Sponsor approval is required prior to the preparation of a subrecipient agreement. If the desired subrecipients have been identified at the time of the application for external funding, the role and unique qualifications of the proposed subrecipients should be described in the application narrative and the subrecipients' budgets should be included in the proposal budget section. Subrecipients are included as a line item in The University of Montana budget, with the subrecipients detailed budgets included as part of the budget justification. In order to be included in The University of Montana application, the authorized institutional official for the subrecipient organization must sign The University of Montana's collaboration agreement certifying the subrecipient organization's compliance with all applicable federal and sponsor regulations. The subrecipient must also provide a detailed budget that has been approved by the subrecipient institution.

If the subrecipient was not identified at the time of the initial application for funding, written approval must be obtained from the sponsor before entering into an agreement. A formal request must be prepared, outlining the role and unique qualifications of the subrecipient and providing the subrecipient's detailed budget. The letter of request must be signed or co-signed by the Director of the Office for Research and Sponsored Programs or another authorized institutional representative for The University of Montana. Once the sponsor has provided written approval, the subrecipient agreement can be prepared.

Preparing Subrecipient Agreements

The staff of the Office of Research and Sponsored Programs will prepare all subrecipient agreements for externally funded projects. Memoranda of Understanding (MOUs) are used for agreements with other Montana University System institutions unless the terms of the award require a subcontract or regrant agreement. All subrecipient agreements will identify the sponsoring agency and provide the award number and title. In addition, they will include a scope of work, approved budget, period of performance, contact information for both parties, appropriate compliance requirements, and any special terms and conditions of the sponsor. At a minimum, the compliance requirements will include the following:

1. Subrecipients shall account for expenditures in accordance with generally accepted accounting principles.
2. Subrecipients shall allow access to records by university, state, and sponsor agency representatives.
3. Subrecipients shall retain records and supporting documents for a period of three (3) years from the completion date (or longer as required by the terms of the award or any pending litigation).
4. For foreign entities, an audited financial statement will be required for each year during the performance period and/or receipts will be required to support all invoiced expenditures.

For awards involving federal funds, subrecipient agreements will include the following in addition to the above:

1. Subrecipients will be informed that the source of funds is federal. In addition, the agreement will provide the name of the federal agency, the award number, the award title, and the Catalog of Federal Assistance (CFDA) number, if known. If the CFDA number is not known at the time the subrecipient agreement is negotiated, the subrecipient will be informed of the CFDA number as soon as the university obtains that information.
2. Subrecipients will comply with the applicable cost principles, i.e., OMB Circular A-21 for educational institutions, OMB Circular A-87 for state and local governments, and OMB Circular A-122 for nonprofit organizations.
3. Subrecipients shall comply with applicable federal administrative standards, i.e., OMB Circular A-110 for educational institutions, hospitals, and other nonprofit organizations, OMB Circular A-102 for state and local governments and tribal governments.
4. Subrecipients shall comply with applicable federal audit requirements, i.e., OMB Circular A-133 for state and local governments and nonprofit organizations.
5. Subrecipients shall allow access to records by federal government representatives.
6. Subrecipients shall certify compliance with applicable federal regulations as required in the federal award to the university.
7. Subrecipients will risk repayment of funds to The University of Montana for any expenditure(s) deemed unallowable by The University of Montana. Furthermore, subrecipients who are unresponsive or fail to meet any reporting requirements may be asked to repay the entire amount of the subaward whether the expenditures are deemed unallowable or allowable.

All negotiations concerning the terms of the agreement will be conducted by ORSP staff.

Subrecipient Monitoring Procedures

New Subrecipient Agreements
Prior to or at the time of subagreement creation, the Subaward Compliance and Assurance Statement (Form RA-115) and the Subaward Certification Regarding Lobbying Activities (Form RA-116) will be sent to the subrecipient for completion. Additionally, the staff of ORSP will determine if a current certification and audit report are on file for the subrecipient. If not, an Audit Certification (Form RA-120) will be sent to the subrecipient institution as well. Subrecipient agreements will not be executed for the university until all required supplemental documents have been received and approved by the university.

Audit certifications and audit reports received from subrecipient organizations will be forwarded to the Internal Audit Office. The staff of the Internal Audit Office will review the audit reports to determine if there are any audit findings that will have an effect on the subrecipient's ability to manage the agreement or that directly relate to the subcontracted activity. If there are no adverse findings, the staff of the Internal Audit Office shall release the subrecipient audit report to ORSP for filing in the appropriate award file.

If additional action is required because of auditor-noted noncompliance with federal laws and regulations, the staff of Internal Audit shall issue a memo to ORSP listing Internal Audit's concerns. The memo, the subrecipient audit report and any additional documentation collected by Internal Audit will be forwarded to ORSP for filing in the appropriate award file. In response to the memo issued by Internal Audit, the ORSP Subrecipient Monitoring Coordinator and the ORSP Contracting Officer shall convene a meeting to discuss and complete a Subrecipient Monitoring Action Plan. After the Action Plan has been completed, appropriate parties/ personnel (such as the subrecipient organization, the UM project director, departmental staff, ORSP staff, Internal Audit staff, University Legal Counsel staff, etc.) will be notified of any requested actions.

If the subrecipient's response to any request by ORSP to resolve audit findings is deemed inadequate or no response is received, the Subrecipient Monitoring Coordinator and the ORSP Contracting Officer will work with the subrecipient organization's representative to resolve the issues and the university may withhold payment of subrecipient invoices until the issues are resolved. In cases where the subrecipient is non-responsive or an inadequate response is received and negotiations between the university and the subrecipient do not bring a satisfactory resolution to the matter, the university may terminate the agreement with the subrecipient and/or ask for repayment of all funds paid under the subagreement.

If the subrecipient of an active project (a project that has not ended yet) does not respond to the original request for the audit certification and report, a second request will be sent via certified mail with signature confirmation and will include notification that the university is currently withholding payment, the university may elect not to enter into any new subagreements with the subrecipient, and a response must be received by a specified date or the university will terminate the agreement and/or ask for repayment of funds. If the subrecipient does not respond by the deadline, the subrecipient agreement may be terminated by the ORSP Contracting Officer and/or the ORSP staff will work with University Legal Counsel to draft a letter requesting repayment of funds. This letter will be sent via certified mail with signature confirmation to at least two executive officers of the subrecipient organization.

If the subrecipient of an inactive project (a project that has already ended) does not respond to the original request for the audit certification and report, a second request will be sent via certified mail with signature confirmation and will include notification that the university may elect not to enter into any new subagreements with the subrecipient and a response must be received by a specified date or the university will ask for repayment of funds. If the subrecipient does not respond by the deadline, the ORSP staff will work with University Legal Counsel to draft a letter requesting repayment of funds. This letter will be sent via certified mail with signature confirmation to at least two executive officers of the subrecipient organization.

If the subrecipient responds that its audit report is not currently completed, a second request will be sent if the certification and audit report are not received in a timely manner following the subrecipient's anticipated completion date. Review and follow-up procedures will be the same as outlined above.

Throughout each year, on a monthly basis, the staff of ORSP will review the files for all awards involving subagreements to ensure that the university has received the subrecipient's latest audit report. In cases where the report has not been received, the Audit Certification will be sent to the subrecipient. If subrecipient agreements are extended by the university, the Audit Certification will be sent to the subrecipient along with the agreement amendment. Follow-up procedures in these cases will be the same as outlined above for the initial audit certification.

Subrecipient Agreements Predating These Procedures
For all subrecipient agreements already in place at the time these procedures become effective, the staff of ORSP will send the subrecipient organization the Audit Certification for completion and signature for each year of the subagreement's period of performance. The remaining procedures will be identical to those outlined above for new agreements.

Revised 4/2007