Subrecipient Monitoring vs. Traditional Auditing

What Is Subrecipient Monitoring?

Subrecipient monitoring includes the activities a pass-through entity (PTE) undertakes to review the financial and programmatic performance of organizations that receive federal funds through a subaward. 

PTEs are organizations, such as state agencies, universities, or nonprofits, that receive federal funding and then pass a portion of those funds to other entities (subrecipients) to carry out part of the program. For example, a state health department may receive federal grant money and then award subgrants to local clinics to deliver community health services.

Under 2 CFR §200.331(d), PTEs are required to “monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward, and that subaward performance goals are achieved.”

Subrecipient monitoring activities include confirming that expenditures are allowable and that funds achieve the intended results. For example, dollars awarded for education should measurably support student achievement, and funds for housing should directly benefit eligible participants. 

To meet this obligation, subrecipient monitoring also involves: 

• Conducting risk assessments to evaluate the likelihood of noncompliance
• Performing ongoing monitoring through a mix of programmatic and fiscal reviews
• Using programmatic monitoring to track whether objectives, participant outcomes, and performance measures are being met
• Carrying out fiscal monitoring reviews of financial reports, expenditures, and internal controls to ensure costs are allowable under the budget
• Issuing corrective actions and follow-up when concerns or findings arise
• Documenting results in written monitoring reports, including findings, areas of concern, and recommendations

What Is a Traditional Audit?

A traditional audit is an independent examination used to verify the accuracy of financial records and compliance practices. It is performed by outside auditors who apply standards like Generally Accepted Auditing Standards (GAAS) to their work.

Audits usually take one of three forms for PTEs that get federal funds:

• Single Audit. This covers the entire portfolio of federal awards. It checks compliance with federal regulations, tests internal controls, and evaluates risk. The approach is highly structured.
• Program-specific audit. This is used when an organization manages only a single federal program. The audit goes through all of the program’s compliance and financial practices.
• Standard financial statement audit. This is broader in scope. It tests if an organization’s financial statements fairly represent its position using GAAS.

Audits do not guide program performance or help an organization course-correct in real time. Instead, they offer a standardized, after-the-fact evaluation of how funds were managed. 

If you’re confused about whether you’re meeting monitoring obligations or crossing into audit territory, contact our advisors at The Pun Group. We can help you separate the two and put in place the right processes for each. 

Subrecipient Monitoring vs. Traditional Audit: What’s the Difference?

Here’s a quick breakdown of the difference between subrecipient monitoring and traditional auditing: 

Aspect	Subrecipient Monitoring	Traditional Auditing
Who conducts it	Performed internally by the pass-through entity’s staff	Conducted by independent auditors, usually external CPA firms
When it happens	Ongoing throughout the award period, often tied to program milestones or reporting cycles	Periodic, usually annual, and reviews activity after the fiscal year ends
Focus of review	Covers both programmatic outcomes and financial compliance	Focused on financial reporting, compliance, and internal controls
Governing authority	Follows grant agreements and 2 CFR §200.331-200.333 (Uniform Guidance)	Follows GAAS, GAGAS (Yellow Book), and OMB audit requirements
Frequency and timing	Flexible and risk-based, so it can be monthly, quarterly, or biannually	Fixed annual schedule, commonly a review of the past fiscal year
Nature of the relationship	PTEs help subrecipients meet goals and stay compliant	Auditors issue findings after the fact to preserve objectivity

Who Conducts It

A pass-through entity handles subrecipient monitoring. That usually means staff inside a state agency, university, or nonprofit reviews the subrecipient’s performance and records. They keep an eye on the program and intervene early if issues come up.

Traditional auditing, however, is carried out by independent auditors, usually CPA firms, brought in from the outside. Their role is to provide an objective, third-party evaluation of financial statements, internal controls, and compliance. They are not directly involved in the day-to-day program operations.

When It Happens

Subrecipient monitoring is continuous and takes place throughout the life of the award. Reviews are usually tied to program milestones, reporting deadlines, or subrecipient’s risk. Because it’s ongoing, problems like budget overruns or late reporting can be caught in time.

In contrast, traditional auditing happens after the fact. Most federally funded entities undergo an annual audit, which looks back at the prior fiscal year. It’s a snapshot in time instead of continuous oversight. This means issues may not be identified until months after they occur.

Focus of Review

Subrecipient monitoring looks at the whole picture, not just whether costs are allowable, but whether the program is actually meeting its goals. 

A pass-through entity can weigh both financial and programmatic risks, like leadership turnover, student performance, or service delivery outcomes. That’s because the Uniform Guidance gives them the ability to adapt oversight to what matters most for the award.

Traditional auditing, however, zeroes in on financial statements, compliance, and internal controls. Auditors work with strict standards that use “must” and “shall” language, which leaves little room for professional judgment about program impact. 

The result is an assessment of accuracy and compliance, but not whether the funds truly delivered results for the intended population.

Governing Authority

Subrecipient monitoring is grounded in the requirements of the Uniform Guidance as well as the terms written into each grant agreement. This framework gives pass-through entities room to design oversight unique to each subrecipient.

In contrast, traditional auditing follows professional standards that are far more rigid. Auditors usually have to comply with: 

• Generally Accepted Auditing Standards (GAAS)
• Generally Accepted Government Auditing Standards (GAGAS)
• OMB audit requirements

These rules make sure processes are consistent across audits, but they leave very little room for tailoring procedures to the realities of specific programs.

Frequency and Timing

How often subrecipient monitoring happens depends on the risk profile of each subrecipient. A low-risk partner may be reviewed twice a year, but a high-risk subrecipient could be monitored quarterly or even monthly. 

Traditional auditing works on a fixed schedule. Most federally funded organizations undergo an annual audit that reviews the previous fiscal year. The timing is locked in regardless of risk level, which means every entity (high- or low-risk) is examined on the same yearly cycle.

Nature of Relationship

Subrecipient monitoring is meant to be collaborative. The pass-through entity usually works alongside the subrecipient. Its job isn’t to penalize and issue audit findings. Instead, a PTE helps the subrecipient improve compliance, so the program can meet its intended outcomes.

Traditional auditing, by contrast, is intentionally independent. Auditors evaluate after the fact and issue findings instead of issuing corrective steps in time. This means they assess and report, not coach.

What Does a Subrecipient Monitoring Plan Include?

A subrecipient monitoring plan includes risk assessment frameworks, monitoring schedules and activities, corrective action plans, and closeout planning.

1. Risk Assessment Framework

Every subrecipient monitoring plan begins with a risk assessment framework. Under 2 CFR §200.331, pass-through entities have to evaluate the likelihood that a subrecipient will fail to comply with federal statutes, regulations, or the terms of the award. 

But the regulation does not dictate how to perform that assessment. This means monitoring entities can develop processes that fit the characteristics of their subrecipients and programs.  

The first step is putting the risk assessment in writing. That way, auditors and oversight bodies can see that the process exists and understand the reasoning behind monitoring decisions. Risks are typically grouped into categories, such as:

• Compliance risks. This is the failure to follow federal statutes, grant terms, or reporting requirements.
• Performance risks. This means a subrecipient is falling short of program goals or outcomes, like student achievement or participant service delivery.
• Fraud, waste, or abuse risks. These are weaknesses in internal controls that could lead to the misuse of funds.

Many organizations also classify subrecipients as:

• Low risk. These are subrecipients with small awards (under $100,000), experienced staff, and no history of compliance or performance issues.
• Medium risk. These are usually subrecipients with awards between $100,000 and $1M, turnover in key positions, or prior findings that were corrected.
• High risk. These are subrecipients with large awards ($1M+), new or recently changed systems, negative audit history, or leadership instability.

Our advisors at The Pun Group use simple subrecipient monitoring tools to help you focus resources where needed most. This way, you can focus on high-risk partners while reducing unnecessary oversight for those at a lower risk level. 

2. Monitoring Schedule

Once risk levels have been assigned, the next step is to decide how often each subrecipient will be reviewed. The Uniform Guidance gives pass-through entities flexibility, but the good practice is to tie the frequency of monitoring to the level of risk.

Here’s what that may look like: 

• Low-risk subrecipients usually only need monitoring twice a year.
• Medium-risk subrecipients are often reviewed quarterly.
• High-risk subrecipients typically require monthly oversight, plus a full review of their Single Audit if they expend $1M or more in federal funds.

Grant-specific rules can also dictate timing. Some awards will require annual onsite monitoring regardless of risk level, but others may leave scheduling entirely to the PTE’s discretion. This is why a monitoring plan should document the frequency of reviews and the statutory or programmatic basis for those decisions.

3. Defined Monitoring Activities

A monitoring plan should also make clear how oversight will be carried out. These activities give structure to the review process and help ensure consistency across different subrecipients and staff.

They can include: 

• Comparing actual results with program goals, and documenting successes, challenges, and needed corrective actions
• Reviewing programmatic and financial reports for timeliness, accuracy, and completeness
• Verifying that expenditures are allowable, meet budget projections, and are properly supported by documentation
• Checking participant eligibility to make sure funds are reaching the intended population
• Reviewing compliance with any special award terms or conditions
• Following up on audit reports and confirming that corrective actions have been taken

PTEs usually use monitoring methods like on-site monitoring, desk reviews, or technical assistance to carry out these activities. However, the method used will depend on the number of subrecipients, staff capacity, and geographic spread.

4. Corrective Action Process

A monitoring plan also sets out how potential problems will be corrected and followed up on. When concerns are flagged, the pass-through entity should: 

• Document them clearly
• Classify them as either findings (noncompliance that must be fixed) or areas of concern (issues that could grow into findings)
• Communicate expectations to the subrecipient

This is usually done using a corrective action plan (CAP), which lays out the steps the subrecipient must take, deadlines for completion, and milestones for progress. Monitoring staff then follow up through desk reviews, site visits, or interim checks to verify that the plan is being carried out.

If a subrecipient fails to resolve findings, the Uniform Guidance allows pass-through entities to escalate in several ways. They can:

• Place additional conditions on the award, such as requiring prior approval before expenditures or shifting to reimbursement-only payments
• Increase monitoring frequency or require more detailed reporting
• Withhold funds, suspend part of the award, or begin termination procedures (in serious cases)

Our team at The Pun Group helps you develop clear subrecipient documentation systems. These systems make CAPs more effective and provide corrective action support to help you fix any issues you find. This way, you can prevent escalation and keep your federal funding on solid ground. 

5. Grant and Subaward Closeout Process

Monitoring does not end when the grant period does. A complete plan includes procedures for closeout. This makes sure that all funds have been spent properly, deliverables have been met, and reporting requirements are fulfilled.

Closeout activities usually require PTEs to:

• Review the final program and financial reports for accuracy 
• Confirm that expenses meet the approved budget and were allowable under the award
• Reconcile payments and verify that no funds remain unaccounted for
• Ensure that all required closeout reports are submitted on time
• Evaluate program outcomes to see if the intended goals were met, which can inform future risk assessments for the same subrecipient

Close Compliance Gaps in Your Subrecipient Monitoring Strategy With The Pun Group

Subrecipient monitoring makes sure that every dollar you pass through fulfills its intended purpose. 

The problem is that flexible federal rules mean monitoring doesn’t look the same for every subrecipient. This often means oversight issues or inconsistent documentation.

If you’re struggling to keep your monitoring program manageable, here are three steps to take:

1. Check if your risk assessments, schedules, and reporting keep an eye on both programmatic and financial risks.
2. Make sure your monitoring activities, decisions, and follow-up steps are clearly recorded in a way that auditors can follow.
3. Get expert support from The Pun Group when you need it.

At The Pun Group, our award-winning team works with governments, nonprofits, and universities to build risk-based subrecipient monitoring systems. We ensure these systems meet federal requirements and lighten the load for internal teams.

Want to improve your monitoring process before your next audit does it for you? Contact our advisors at The Pun Group today for a free consultation!