In our last blog, we talked about how to avoid Uniform Guidance Audit (UGA) findings in your FFR or SF-425 reporting. In this blog, we’ll talk about another area of frequent findings, failure to monitor a direct subcontractor.
WHAT IS A DIRECT SUBCONTRACTOR?
A direct subcontractor could be a university, a lab or a researcher who is essential to your project. In fact, their role is so vital that they are specifically named in your award. The government considers them co-investigators.
When it comes to government awards, many direct subcontractors—especially universities—know the rules and they know their responsibilities. However, it’s important to recognize that this individual or organization is part of your grant. As such, you are responsible for their compliance.
WHAT A UGA AUDITOR EXPECTS TO SEE FROM YOU REGARDING YOUR DIRECT SUBCONTRACTOR
The auditor will ask to see the Subcontractor Agreement. This document should be specific and include important details such as:
- scope of work
- amount to be paid and payment terms
- time of the engagement
- reference to the actual grant number
The Subcontractor Agreement must also detail the Federal Acquisition Regulation (FAR) provisions that flow from your company to the direct subcontractor, such as FAR 52.216-7 The Allowable Cost clause, which may force the subcontractor to have their own Uniform Guidance Audit.
Invoices from your Subcontractor
You will need to produce invoices from your direct subcontractor and your auditor will check to make sure they are in agreement with the overall direct subcontractor agreement.
Proper Monitoring of Your Direct Subcontractor
Getting a major research university or in-demand researcher to work with you can be intimidating. But you must understand:
A Direct Subcontractor is a pivotal part of YOUR award. You are responsible for their compliance and adherence to the rules of your grant.
No matter how big or prestigious your direct subcontractor, you must monitor and manage their performance. Your UGA auditor will expect to see evidence of this, and you may have to answer and demonstrate the following:
- Did your company retain a copy of the subcontractor’s UGA audit report?
- Did you monitor and verify the work performed by the subcontractor and ensure the validity of the amounts charged?
- Is your direct subcontractor’s costs and period of performance consistent with the timing in the award?
It is very common for universities to have poor billing practices, so you may need to accrue their costs into your books.
MOST COMMON UGA FINDINGS FOR DIRECT SUBCONTRACTORS
The three most common findings that we see during a Unified Guidance Audit of direct subcontractors are:
- A lack of a formal Direct Subcontractor agreement
- A Subcontractor Agreement that leaves out important terms, such as a reference to the FAR provisions
- Costs that do not match the time frame of the award.
GET THE HELP YOU NEED
If you’d like to talk to one of our government award accounting experts, contact Ryan at firstname.lastname@example.org or 781.862.5170 ext. 2106
Look for the next blog in our UGA series, which covers another potential area of trouble: Direct Consultants.