Pass-through organizations must use judgment to classify each agreement as either a subaward or a procurement contract. Because of the subjectivity of this decision, having well-documented processes, determinations and rationales can help demonstrate consistency, objectivity and reasonableness to organizational management and other stakeholders, such as auditors or reviewers.

An evaluation of each proposed subrecipient's risk for compliance is required by 2 CFR 200.331–200.333. It recommends organizations consider the following factors:

• The subrecipient's prior experience with the same or similar subawards.
• The results of previous audits, including whether the subrecipient receives a single audit in accordance with 2 CFR 200 "Subpart F—Audit Requirements," and the extent to which the same or similar subaward has been audited as a major program.
• Whether the subrecipient has new personnel or new or substantially challenged systems.
• The extent and results of federal awarding agency monitoring (e.g., if the subrecipient also receives federal awards directly from a federal awarding agency).

Documenting the results of this evaluation is important to demonstrate the evaluation was performed and can prevent audit-related findings. 

You must maintain transparent documentation, even if the subaward was approved in the proposal, to demonstrate you made a reasonable and objective decision. Your documentation must include:

• How a subrecipient was selected (i.e., sole source or competitive).
• Why a subrecipient was selected (i.e., what capability/quality the subrecipient brings).

Even if the selected subrecipient has a longstanding partnership with your organization or specific principal investigator (PI), documenting the process and rationale for selection may be useful in avoiding an audit finding.

NSF strongly recommends that organizations formally document and implement guidance, which promotes thoroughness and consistency.

Agreements between the prime recipient and the subrecipient must contain the following:

• Identification of the agreement as a subaward.
• Statement of work.
• Agreed-upon funding based on a budget.
• Federal award identification data elements (see 2 CFR 200.332(a)(1)).
• Prime award requirements/terms/conditions flowed down to the subrecipient either by link to the prime award terms and conditions or by attachment of the prime award to the agreement.
• An agreed-upon indirect cost rate.
• Subaward closeout terms and conditions.
• Subaward period of performance (beginning and end dates).

Pass-through recipients must document both that they understand the risk that they are taking as well as the activities they have taken to mitigate that risk. The risk analysis for each potential subrecipient must be documented to show the areas reviewed and the level of risk determined (e.g., "high," "medium" or "low" risk). Monitoring activities outlined in the monitoring plan should be tailored to the designated risk level. Refer to checklist item 8 for more details on subrecipient monitoring plans.

As a pass-through entity, you are responsible for safeguarding the government's funds and achieving your award's programmatic objectives. Specific conditions, as described in 2 CFR 200.208, are one method of fulfilling your organizations stewardship responsibilities.

Typical subrecipient monitoring activities include:

• Reviewing subrecipient single audits or audited financial statements to verify the subrecipient doesn't have notable accounting or financial deficiencies.
• Reviewing and approving subrecipient invoices to verify that invoiced items have been completed and that the project is completed satisfactorily and on time.
• Desk reviews or site visits.
• Periodic review of programmatic progress reports (e.g., monthly, quarterly, annually).
• Frequent communication between the prime awardee PI and the subrecipient PI to discuss any delays, concerns or issues.

If an awardee or subrecipient expends more than $1,000,000¹, in aggregate, in federal funds during its Fiscal Year the organization is required to have a single audit conducted (2 CFR 200 Subpart F).

Please be sure to understand 2 CFR 200.332, which pertains to management decisions related to single audits, to ensure that you understand your responsibilities. Note that while for-profit organizations are not subject to this single audit requirement, it is still a best practice to review these organization's audited financial statements for any non-compliance issues.

^{1. Revisions to 2 CFR 200 that were effective Oct. 1, 2024, raised the single audit threshold for cumulative federal expenditures from $750,000 to $1,000,000. Federal recipients must work with their respective CPA chosen to perform their reviews.}

You are required to consider if any adjustments are necessary in these situations; for example, if a subrecipient has sustained questioned costs, your organization may need to adjust its financial grant records accordingly. Although not required, we strongly encourage you to update and document your practices in this area.

Pass-through entities are required to report subawards that exceed $30,000 by value (as per 2 CFR 170), as awarded or amended, through the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS). Compliance with these reporting requirements is increasingly focused on by auditors and has recently been included in the Compliance Supplement for Single Audits.

Although not required, having a formal closeout process provides time to reflect on programmatic performance and lessons learned as well as to ensure that programmatic obligations, financial obligations and required reporting have been completed. We encourage you to develop a closeout process and to prepare written guidance.