Understanding Subrecipients: The Who, What, and Why

HOST: Welcome and thanks for listening to Cherry Bekaert's Government and Public Sector podcast series. In each episode we hear from the best in the business on the latest challenges, trends, and opportunities affecting the government and public sector. I'm Christian Fuellgraf, leader of Cherry Bekaert's Government and Public Sector industry team.

HOST: Welcome everyone to "Standing Subrecipients: The Who, the What, and the Why." This is episode one of season two of our Grants Management podcast series.

PAULA: Wow, we made it to season two. I'm so excited for us. How is 2025 treating you so far?

KAT KIZIOR: It's been a little chaotic, but everything's going great. We have a strong forecast for the rest of the year with our podcast schedule, and I'm happy to be here with you for season two.

PAULA: Me too. It has been quite the whirlwind already, but we're going to forge ahead and keep offering this grants management advice for everyone listening.

KAT KIZIOR: I am Kat Kizior. I am the Grants Management Solutions lead at Cherry Bekaert. I am also a certified grants management specialist with over 25 years of experience in grants and accounting.

PAULA: Ditto. I am a Grants Management Solutions lead as well, and I am also a certified grants management specialist with over 25 years in grants, accounting, and work across local nonprofit and commercial sectors.

KAT KIZIOR: Today's podcast will focus on subrecipients: what a subrecipient is, who is considered a subrecipient, and why subrecipients can add value to your grant project. This discussion is from the point of view of the grant recipient who would award a subaward to another organization that is considered a subrecipient, either based on grant terms or as determined by the recipient or pass-through entity.

KAT KIZIOR: Paula and I do a lot of subrecipient work, from monitoring to writing subrecipient plans for agencies, so when it comes to subrecipient compliance we stay on top of the latest regulations. Let's start with the basics and discuss definitions: subrecipient, contractor, and beneficiary, and explain the Uniform Guidance differences.

PAULA: That makes sense. Let's dive in.

KAT KIZIOR: It's helpful to give a picture so listeners can visualize. Start at the top: a federal agency, for example the Department of Education, issues a request for proposals, an RFP, asking for proposals for innovative STEM programs. They will directly fund the program.

KAT KIZIOR: Keep this example simple and imagine an enterprising nonprofit called Active Learning Inc. manages 15 charter schools across the country. They submit a proposal and get funded.

KAT KIZIOR: The federal agency is the funder. The recipient is the entity that receives a federal award directly from a federal agency to carry out an activity under a federal program, as defined in 2 CFR 200. Active Learning Inc. then decides to make the individual schools subrecipients.

KAT KIZIOR: Under 2 CFR 200, a subrecipient is an entity that receives a subaward from a pass-through entity to carry out part of a federal award. The funds pass through the recipient, Active Learning Inc., to the individual schools as subawards.

KAT KIZIOR: These subawards are typically a contract, an agreement, or a memorandum of understanding. They are legally binding documents that show the program budget, including costs such as teachers, classroom usage, and supplies, and they show objectives for the program. In this example, a subaward might state, "By the end of the program we will increase participant math skills by 2%."

KAT KIZIOR: The subaward to the subrecipient is directly tied to the outcomes for the grant, and this is where confusion often begins. Active Learning Inc. also included work in the proposal for contractors: classrooms need updates, technology makeovers are required for robotics to communicate with existing systems, and contractors are hired to do that work.

KAT KIZIOR: Under 2 CFR 200, a contractor is an entity that receives a contract to provide goods or services. Although the contractor's work is important for program delivery, they are not directly tied to achieving the award objectives. They do not do program reporting; they provide the work, submit an invoice, and get paid.

KAT KIZIOR: To recap, the Department of Education funds Active Learning as the recipient. Active Learning passes funds to individual schools to implement the program as subrecipients. Those schools hire contractors to prepare learning spaces. The students who show up are the beneficiaries who receive the direct services of the award.

PAULA: That paints a clear picture. If that's clear, we can get into the nitty-gritty of these terms in practice.

KAT KIZIOR: As we walk through other terminology and actions related to subrecipients, keep that example in mind. Whether it's your first time or your hundredth time hearing about subrecipients and contractors, it can still be difficult to determine which terms to use when using grant money for a project.

KAT KIZIOR: Think of it this way: a subrecipient does work for you to benefit your grant objectives. A contractor provides a good or service but is not attached to the project's objectives. How do you determine which one to use? Consider relationship and purpose.

KAT KIZIOR: Look at programming decision-making. A subrecipient has responsibility for programming decisions and can exercise judgment and discretion when carrying out their work. Their performance can and will be measured, and they must meet the objectives of the federal program.

KAT KIZIOR: A subrecipient must adhere to applicable compliance requirements, since they are considered an extension of the project when the pass-through entity passes federal funds to them. The subrecipient uses the funds to carry out a program for a public purpose rather than providing goods or services for a single fee.

KAT KIZIOR: Subrecipients are also at risk of noncompliance; they are accountable for ensuring compliance, just like the pass-through entity. When deciding whether you are giving a subaward to a subrecipient or paying a contractor, think about these points.

PAULA: On the contractor side, contractors provide goods and services used for the federal project and program operation, but they are only providing a good or service. Contractors typically operate in a competitive procurement environment and require an RFP or bid.

PAULA: Contractors have no responsibility for program decision-making and cannot exercise discretion in program execution. They are subject to terms and conditions in the contract, but not the federal program compliance requirements in the same way subrecipients are. Contractors provide goods and services for a fee, typically at market prices.

KAT KIZIOR: Here's the kicker: the Uniform Guidance leaves it up to the recipient to determine whether funding is going to a contractor or a subrecipient. The recipient must use their judgment in making that determination.

PAULA: Another reason organizations avoid subrecipients is the strict regulation that comes with subrecipient oversight and monitoring. Subrecipients must understand and follow the same federal compliance and terms and conditions as the recipient. It is the recipient's responsibility to ensure compliance from pre-award through closeout.

PAULA: Contractors must be monitored to a point, but not as extensively. For contractors, monitoring focuses on whether they've delivered the goods or services required under the contract.

KAT KIZIOR: Some organizations lack the capacity, skills, or staff who understand grants and procurement to follow all compliance requirements for subrecipients. There are consequences if you don't address this from the beginning.

PAULA: If you classify a relationship as a contractor when it should be a subrecipient, you face noncompliance with federal regulations. That noncompliance often shows up as audit findings and penalties, which can lead to financial repercussions, legal and administrative consequences, and reputational damage.

PAULA: Funding agencies review compliance history, and noncompliance increases your assessed risk level. Worst case, you may face corrective action plans that take significant time and energy to implement.

KAT KIZIOR: In the Active Learning example, choosing a contractor instead of a subrecipient could lead to inadequate monitoring and oversight. That would directly impact program objectives and outcomes for the STEM learners.

KAT KIZIOR: Subrecipient monitoring is critical. It is the recipient's responsibility, from pre-award through closeout, to ensure subrecipients follow compliance. Many organizations simply do not have the capacity to do this well, but there are practical steps to plan for and implement effective monitoring.

KAT KIZIOR: I have ten recommended actions to help plan for subrecipients and monitor effectively. First, prioritize based on risk. Start with a risk assessment to identify subrecipients that pose the highest risk and focus monitoring efforts there.

KAT KIZIOR: Second, leverage technology. Use grants management software, your ERP, or other systems to help with subrecipient monitoring and data automation. If you lack systems and have many subrecipients, consider solutions that automate data collection and reporting.

KAT KIZIOR: Third, standardize processes. Create checklists, templates, and procedures to streamline monitoring and make it easier for staff to conduct activities consistently and efficiently.

KAT KIZIOR: Fourth, perform remote monitoring where possible. Use virtual meetings and digital document reviews to reduce the need for on-site visits and allow more frequent communication and oversight.

KAT KIZIOR: Fifth, focus on key indicators. Monitor the performance indicators that are most critical to the success of the subaward to prioritize limited resources.

KAT KIZIOR: Sixth, invest in training and capacity building. Train your subrecipients on workflows and compliance requirements. Educated subrecipients reduce the need for intensive oversight.

KAT KIZIOR: Seventh, require periodic reporting. Set up quarterly or regular reporting so you can identify issues quickly and address them promptly.

KAT KIZIOR: Eighth, maintain communication and collaboration. Keep an open-door policy so subrecipients can contact you about issues, which helps reduce the need for corrective oversight.

KAT KIZIOR: Ninth, utilize external resources. If your budget allows, consider temporary or permanent staff, consultants, or external auditors to assist with monitoring tasks during peak periods. Consultants bring professional subrecipient monitoring experience.

KAT KIZIOR: Tenth, focus on high-impact areas. Concentrate monitoring where it will have the greatest effect, often in financial management and program outcome achievement.

PAULA: That's a thorough list. Anyone starting new, in particular, could use those points to design a successful program from the beginning.

KAT KIZIOR: If there are three things to remember from today's episode, let them be these. First, making the choice between a subrecipient and a contractor is critical; understand the nature of the relationship before deciding and consider this when writing the grant.

KAT KIZIOR: Second, the consequences of making the wrong decision can have dramatic repercussions for your organization, and that risk is not worth taking. Be thoughtful in your determination.

KAT KIZIOR: Third, monitoring is essential. You need programmatic monitoring, fiscal monitoring, and compliance monitoring with regulations and the award's terms and conditions. You cannot lose focus on monitoring.

PAULA: We love our subrecipients and we are such grant nerds. We love the work and the compliance that come with it. We hope this discussion helps you decide whether to label a party as a subrecipient or a contractor when passing through funding.

KAT KIZIOR: If you have questions on subrecipients, you can reach us at kat.kizior@cb.com. Paula is at paula.hr@cb.com.

HOST: Thank you to our audience for listening. Remember to subscribe to the series at www.cb.com and to the Cherry Bekaert podcast.

HOST: I'm Christian Fuellgraf. I hope you enjoyed this episode and look forward to the next one.