A pass-through entity is a non-federal organization that receives federal dollars and passes those dollars along to subrecipients. Pass-through entities have long been tasked with the challenge of determining whether an agreement made for the disbursement of federal program funds results in a subrecipient or vendor relationship, as the determination greatly impacts both your organization and the organization you’ve disbursed federal funds to during the year. If a pass-through entity determines that a disbursement of federal program funds results in a sub-award to a subrecipient, various requirements of subrecipient monitoring would apply to your organization, and the subrecipient may be subject to a single audit, depending on the amount of federal awards it has received both from your organization and in total. While the nature of a subrecipient is the same under the A-133 guidance and the new Uniform Guidance (or Super Circular), the new Uniform Guidance replaces the term “vendor” with “contractor.” Despite the new terminology, the characteristics that define a subrecipient as opposed to a contractor remain relatively unchanged. The Council on Financial Assistance Reform (COFAR) felt that “contractor” would be more accurate in the context of guidance on how to distinguish between a contract and a sub-award and would eliminate some previous confusion.
A sub-award is for the purpose of carrying out a portion of a federal award and creates a federal assistance relationship with the subrecipient. Uniform Guidance defines a subrecipient, in § 200.93, as a "non-federal entity that receives a sub-award from a pass-through entity to carry out part of a federal program; but does not include an individual that is a beneficiary of such program. A subrecipient may also be a recipient of other federal awards directly from a federal awarding agency." Characteristics of a subrecipient classification would include when the non-federal entity:
Determines who is eligible to receive what federal assistance;
Has its performance measured to determine if program objectives were met;
Has responsibility for programmatic decision making;
Is responsible for adhering to applicable federal program requirements;
Uses the federal funds to carry out a program for a public purpose, as opposed to providing goods or services for the benefit of the pass-through entity.
A contract is for the of obtaining goods and services for the non-federal entity’s own use and creates a procurement relationship with the contractor. Characteristics of a procurement relationship with a contractor are when the non-federal entity receiving the federal funds:
Provides the goods and services within normal business operations;
Provides similar goods or services to many different purchasers;
Normally operates in a competitive environment;
Provides goods or services that are ancillary to the operation of the federal program;
Is not subject to compliance requirements of the federal program as a result of the agreement.
Under Uniform Guidance, the substance of the relationship is more important than the form of the agreement. It’s also important to note that not all of the characteristics may apply, and the pass-through entity must use its judgment in all cases when determining a subrecipient vs. a contractor and document its considerations and ultimate decision.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.