5101:9-1-88 Subrecipient annual risk assessment review and monitoring process.

(A) General purpose.

(1) County family services agencies (CFSA) and workforce development agencies (WDA), as subrecipients of the Ohio department of job and family services (ODJFS), are required to monitor their subrecipients. This rule establishes minimal standard monitoring requirements for CFSAs and WDAs.

This rule does not negate federal, state, or local requirements of the Workforce Investment Act or other specific federal programs.

(2) These standards follow the requirements set forth in the office of management and budget (OMB) circular A-133, the OMB circular A-133 compliance supplement, part 3, and other applicable federal principles.

(3) Subrecipient monitoring may include, but is not limited to, formal audits.

(4) Subrecipient monitoring need not test for all areas of compliance, but serves to provide reasonable assurance that:

(a) Federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grant agreements; and

(b) Performance goals are achieved.

(B) Definitions.

As used in this rule:

(1) "Compliance requirements" include, but are not limited to, compliance requirements listed in the OMB circular A-133, the OMB circular A-133 compliance supplement, part 3, and applicable state and federal laws referenced in the subgrant agreement between ODJFS and each CFSA or WDA, or communicated by ODJFS to a CFSA or WDA pursuant to such subgrant agreements. Examples include, but are not limited to:

(a) Activities allowed or disallowed;

(b) Allowable costs/cost principles;

(c) Cash management;

(d) Eligibility; and

(e) Reporting.

(2) "Federal program" means all federal awards to a non-federal entity assigned a single number in the catalog of federal domestic assistance (CFDA).

(3) "Improvement plan" means a written statement of action to be taken by the subrecipient to correct identified deficiencies, produce the recommended improvements, or demonstrate whether the reviewer's findings either are invalid or do not warrant corrective action.

(4) "Internal control" means a process affected by an entity's management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

(a) Effectiveness and efficiency of operations;

(b) Reliability of financial reporting; and

(c) Compliance with applicable laws and regulations.

(5) "Pass-through entity" means a non-federal entity that provides a federal award to a subrecipient to carry out a federal program. Pass-through entities identify the federal awards to subrecipients, inform subrecipients of federal, state, and local compliance requirements, monitor subrecipient activities, and ensure subrecipients have single audits if required. Pass-through entities also provide technical assistance and training, issue management decisions as to audit findings and ensure corrective action is taken by subrecipients if there are audit findings against the subrecipients' grants.

(6) "Single audit" means an audit that includes both the entity's financial statements and the federal awards as described in the OMB circular A-133, compliance supplement, part 3, subpart e.

(7) "Subgrant agreement" is the means by which a grant award of federal financial assistance is issued to a subrecipient. Subgrant agreements generally identify a federal award to a subrecipient that includes a CFDA number, a program name, an award year, the federal awards entity, and the program services and requirements. A subgrant agreement may contain identifying information for multiple grant awards being passed through to the same subrecipient. For each grant award passed through to a subrecipient, there will be a subgrant agreement and this subgrant agreement should be considered as an important tool for monitoring subrecipient activities.

(8) "Subrecipient" means a non-federal entity that expends federal awards received from a pass-through entity to carry out a federal program, but does not include an individual who is a beneficiary of such a program. A subrecipient may also be a recipient of other federal awards directly from a federal awarding agency.

(9) "Vendor" means a dealer, distributor, merchant, or other seller providing goods or services required for the conduct of a federal program. These goods or services may be for use by a CFSA, WDA, or the beneficiaries of the federal program.

(C) Subrecipient versus vendor relationship.

The CFSA or WDA may enter into contracts with vendors to obtain goods or services for the administration of a federal program or may enter into subgrant agreements to make an award of federal financial assistance to an entity to administer a federal program. While contracts with vendors require contract monitoring, such monitoring is beyond the scope of this rule, which addresses subrecipient monitoring pursuant to subgrant agreements. The substance of the relationship is more important than the form of the agreement when making the determination of whether a subrecipient or vendor relationship exists. The CFSA or WDA shall apply the following guidelines to determine whether an agreement establishes a subrecipient relationship or a vendor relationship. It is not expected that all of the characteristics will be present and judgment should be used in determining whether the relationship between the parties is that of a pass-through entity and a subrecipient or that of a purchaser and a vendor. The distinguishing characteristics are as follows:

(1) Subrecipient characteristics:

(a) Determines who is eligible to receive federal financial assistance;

(b) Measures performance against the objectives of the federal program requirements;

(c) Has responsibility for programmatic decision making and is adhering to the requirements of the federal program;

(d) Uses the federal funds to implement a program rather than provide goods or services for the program of a pass-through entity;

(e) Administers the grant from award to closeout;

(f) Develops policies and systems to ensure effective management of federal funds and compliance with federal, state, and local laws and regulations; and

(g) Ensures an established budget of costs exists to operate the program and a method of monitoring actual costs against the budget.

(2) Vendor characteristics:

(a) Provides services or goods within normal business operations;

(b) Provides similar or same goods or services to many different purchasers;

(c) Operates in a competitive environment;

(d) Provides goods or services ancillary to the operation of a federally funded program;

(e) Is not subject to compliance requirements of the federal programs; and

(f) Is not responsible for program compliance but transactions must be structured to allow the pass-through entity to assure compliance.

(D) Subgrant agreement requirements.

Each subgrant agreement shall outline, as appropriate, the scope of work, budget, performance requirements, the program authorizing legislation, and the program regulations.

(1) Subgrant agreements must include basic requirements addressing, at a minimum, administrative requirements. Those administrative requirements include:

(a) Financial management and procurement;

(b) Financial and program reports;

(c) Records retention;

(d) Cost allocation;

(e) Payment;

(f) Matching;

(g) Period of availability;

(h) Program income;

(i) Real property;

(j) Equipment and supplies;

(k) Monitoring and audits; and

(l) Other additional requirements to meet federal compliance.

(2) In accordance with those requirements, all subgrant agreements shall contain the following:

(a) Applicable CFDA title and number, award name, and name of federal agency;

(b) Notice of any significant applicable compliance requirements, including OMB circular A-133 audit requirements, arranging the audit, and submission of the final audit report to the CFSA or WDA; and

(c) Notice that the CFSA or WDA will perform an annual risk assessment to determine the appropriate level of monitoring of the subrecipient.

(E) Risk assessment.

On an annual basis, the CFSA or WDA shall determine the appropriate degree and method for the monitoring of each subrecipient by performing a risk assessment review. This risk assessment is performed to ensure adequate monitoring is performed and resources and personnel are used efficiently.

(1) The extent and frequency of subrecipient monitoring will depend on several factors including the:

(a) Amount of the award;

(b) Type of subrecipient organization;

(c) Subrecipient's prior experience with federal funds;

(d) Subrecipient's prior monitoring results;

(e) Complexity of the program requirements;

(f) Subrecipient's organizational stability; and

(g) Subrecipient's reporting history.

(2) Risk assessment review mechanisms shall be in place to identify the following:

(a) Where unallowable activities or costs could be charged to a federal program and be undetected or misappropriated, or improper disposition of property acquired with federal funds;

(b) Changes to eligibility determination systems;

(c) The accuracy of underlying report source data and the validity of the reports;

(d) The level of management commitment and understanding of federal requirements and regulatory changes; and

(e) Various internal changes that may affect performance, such as:

(i) Financial problems;

(ii) Loss of essential personnel; and

(iii) Rapid growth.

(3) The CFSA or WDA shall conduct the subrecipient risk assessment review annually. The review shall occur within a reasonable time interval from the beginning of the provision of the service or the establishment of the subrecipient relationship in order to:

(a) Identify any existing risk factors during the early phase of the grant agreement; and

(b) Determine the level of monitoring that shall occur.

(F) Subrecipient monitoring.

Subrecipient monitoring requirements are established by ODJFS to provide reasonable assurance that federal award information and compliance requirements are identified to subrecipients, subrecipient activities are monitored, subrecipient audit findings are resolved, and the impact of any subrecipient non-compliance on the pass-through entity is evaluated.

(1) Subrecipient monitoring may include, but not be limited to, the following:

(a) An on-site or desk review audit of the subrecipient's records to verify the services being provided are within the scope of the funding being received and the subrecipient has an effective means of determining recipients are eligible for the services being provided. Allowability of services and eligibility will be monitored by examining one or more of the following items:

(i) Program records to review brochures and/or materials disseminated to the public;

(ii) Program forms to ensure they capture accurate program services and eligibility requirements; and

(iii) Case files, completed applications, service delivery documentation, and other program records and forms to determine the subrecipient is appropriately assessing eligibility criteria and the service delivery documentation is valid.

(b) An on-site or desk review audit of the subrecipient's records in order to provide reasonable assurance the cost of goods, services, and property are allowable, in accordance with applicable federal regulations and expenditures appear to be within the budget submitted for approval by examining one or more of the following items:

(i) Purchasing records or invoices to ensure expenditures are allowable, necessary, and reasonable (ii) Monthly expenditure reports to compare with the annual budget amounts to determine an appropriate level of spending and expenditures being charged against the fund are supported by an approved budget;

(iii) Invoices and budgets, in order to provide reasonable assurance that costs and charges are within the scope of allowable federal costs. The reviewer may interview management personnel and review procedure manuals, inventory, and audit reports to ensure the subrecipient has effective control over and accountability for all funds, property, and other assets;

(iv) Financial records to assure accounting records identify the source of funds and provide for accurate division of charges and costs between federal and non-federal activities;

(v) Subrecipient's procedure manual or other operating policies to determine the subrecipient has an effective means of communication, internal control, and guidance for its employees to reasonably guard against the misuse of funds;

(vi) Quarterly/annual inventory reports to determine the subrecipient has a method for safeguarding assets to assure they are used solely for authorized purposes; and

(vii) Audit reports to determine compliance with any existing corrective action plan.

(c) An on-site or desk review audit of the subrecipient's records in order to provide reasonable assurance the recipient has acquired goods and services in accordance with applicable state and federal regulations by examining one or more of the following items:

(i) Subrecipient's procurement policy or manual to determine whether the policy represents an acceptable level of internal control and is in accordance with federal procurement requirements;

(ii) A sampling of various transactions to ensure the policy is being followed; and

(iii) Codes of conduct and other policies regarding standards of ethical behavior for making procurements to assure practice of acceptable procurement principles.

(d) An on-site or desk review audit in order to provide reasonable assurance reports are supported by underlying accounting or performance records and are submitted in accordance with the provisions of the subgrant agreement by examining the following items:

(i) Pass-through entities' records to assure timely receipt of required reports; and

(ii) Supporting documentation, for a sampling of reports to assure the accuracy and completeness of data and information included in the reports.

(2) In accordance with the CFSA or WDA annual risk assessment review, as described in paragraph (F) of this rule, and audit requirements, as described in paragraph (B)(5) of this rule, subrecipient monitoring may also include evaluation of the following elements, as applicable.

(a) Cash management, in which the reviewer will provide reasonable assurance federal funds are drawn down only for immediate needs. The reviewer will examine a sampling of expenditures and requests for federal funds to determine an appropriate amount of time elapsed between transfers of funds to the subrecipient.

(b) Program income, in which the reviewer will provide reasonable assurance income is correctly earned, recorded, and used in accordance with the program requirements. The reviewer will examine a sampling of the subrecipient's records to determine income is properly recorded as earned and deposited as collected.

(c) Audit requirements, in which the reviewer will provide reasonable assurance the subrecipient has obtained required audits and has submitted and is in compliance with any corrective action plan resulting from said audits. The reviewer will examine the audit report and any existing corrective action plan and obtain documentation of compliance with the existing corrective action plan.

(3) The CFSA or WDA shall provide reasonable assurance that the subrecipient obtained any required audits and takes appropriate corrective action on audit findings.

(4) Once the subrecipient monitoring is concluded, findings will be completed by the reviewer and signed by the director of the CFSA or WDA or its designee. A copy will be mailed to the subrecipient, identifying any deficiencies.

(a) Should the reviewer discover deficiencies or noncompliance issues that may result in the misuse of federal funds, immediate action to correct those issues will occur. The CFSA or WDA is responsible for recovering the funds for payment of expenditures not in compliance with grant regulations.

(b) The subrecipient will have sixty days from the issuance of the monitoring findings to develop an improvement plan to resolve any deficiencies or noncompliance issues that do not result in ineligible spending of federal funds. Failure of the subrecipient to submit and implement an improvement plan will constitute grounds for contract or subgrant agreement termination.

Replaces: 5101:9-1-88

Effective: 10/03/2011
Promulgated Under: 111.15
Statutory Authority: 5101.02
Rule Amplifies: 5101.02
Prior Effective Dates: 4/1/06