Managing public funds is a shared responsibility, and one that can become challenging even for experienced teams. Two areas consistently create confusion and risk across federal and state grant programs:
allowable cost management and
subrecipient monitoring. This month’s spotlight brings these topics together to help organizations strengthen compliance, improve documentation, and support successful program outcomes.
Allowable Costs: A Quick Refresher
Many teams assume that if a cost is reasonable and supports the program, it must be allowable. Unfortunately, federal regulations, state regulations, and grant guidance take a more nuanced approach. Under 2 CFR Part 200, allowability requires meeting several criteria at the same time.
To be allowable, a cost must be:
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Reasonable: what a prudent person would pay
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Allocable: clearly linked to the specific award
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Consistent: treated the same across funding sources
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Compliant: aligned with federal rules, state rules, grant goals and internal policies
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Documented: supported by adequate justification and records
Most findings don’t arise because costs were inappropriate, they arise because documentation or consistency was lacking. A cost may fully support the program yet still be questioned if similar costs are charged differently across awards or if the decision making rationale wasn’t captured.
Auditors look for patterns, not isolated transactions. They want to understand not only what was charged, but why. Missing context always increases risk.
Subrecipient Monitoring: A Core Responsibility for Grant Administrators
When federal or state funds pass through your organization to another entity, you become
a pass through entity and your responsibilities expand accordingly. Subrecipient monitoring is not optional; it is a must under Uniform Guidance and most grant agreements.
Effective monitoring ensures that:
- Funds are used for their intended purpose
- Risks are identified early
- Subrecipients receive support to meet requirements
- Compliance is maintained across all awards
- Audit findings and questioned costs are minimized
Monitoring is fundamentally a partnership. Done well, it strengthens relationships, improves outcomes, and builds a culture of shared accountability.
Determining Subrecipient vs. Contractor
Before monitoring begins, organizations must determine whether a partner is a
subrecipient or a contractor—a decision based on the substance of the work, not the title of the agreement.
A subrecipient typically:
- Determines who is eligible for assistance
- Has performance tied to program objectives
- Makes programmatic decisions
- Must follow federal or state program requirements
- Uses the funds to carry out a public-purpose program
A contractor typically:
- Provides goods/services within normal business operations
- Serves multiple customers
- Operates in a competitive environment
- Supports the program but does not carry it out
- Is not subject to federal or state compliance requirements
This determination must be documented, and if the entity is a subrecipient, all monitoring requirements apply.
Key Components of Strong Subrecipient Monitoring
Effective monitoring is continuous, structured, and supportive. Core components include:
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Risk Assessment: Evaluate experience, internal controls, staffing, and financial systems before issuing funds. Higher risk subrecipients may need enhanced oversight.
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Clear Communication of Expectations: Share award terms, program guidance, reporting templates, and timelines early. Transparency prevents later confusion.
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Ongoing Oversight: Regular check ins, desk reviews, or technical assistance meetings help track progress and identify concerns proactively.
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Site Visits or Virtual Reviews: Provides important insight into program implementation and supports compliance verification of activities and discussing challenges firsthand.
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Documentation and Follow Up: Maintain written records of monitoring activities, discussions, findings, and corrective actions. These documents are critical during audits.