Evaluating and Managing Subaward Risk

Subaward Risk

RAS will assign the appropriate risk level for an organization based on information the organization provides us in the Subrecipient Profile Questionnaire [PDF].

Risk Benefit Scale

The vast majority of MIT’s subawards are to other institutions of higher education, or to established companies that also receive federal funds. These organizations are typically considered low risk due to their years of experience, audit history, and track record with the federal government. However, MIT also does business with many small businesses and new organizations that may not have the performance track record or systems and policies which provide comfort that they are able to properly manage sponsored funds. In these cases, we must perform a risk assessment to ensure that we are responsibly managing our sponsored funding. The answers to these questions help guide our determinations on the risk level for an organization.

  1. How long has the organization been operating?
  2. Is the organization based in the US or abroad?

  3. Has the organization had federal funding in the past?

  4. Does the organization have an A-133 or similar independent audit of their financial statements? Are there any material and relevant audit findings?

  5. Does the organization have a negotiated Federal Facilities and Administrative rate or is the organization willing to accept the 10% F&A rate provided under CFR 200.414?

  6. Does the organization have formal written policies and procedures regarding various matters, such as travel, purchasing procedures, time and attendance?

  7. Does the organization have adequate internal controls in place to responsibly manage federal funds?

  8. Does the organization have a written conflict of interest policy (if under an NIH prime, does the COI policy meet the NIH standard)?

  9. If the organization has worked with the government, has it been penalized or been given negative reviews through CCR or SAM?

  10. What is the size of the project, the term of the proposed Subaward and the complexity of the project? Will the organization be able to accomplish the work given its performance track record?

High Risk

Subawardees that do not meet the standards could be considered high-risk and MIT would need to consider the potential risks and mitigating strategies for collaborating with these organizations. For example, an organization may be able to develop formal, written policies, or acquire an independent audit of their financial statements within the required time period.

Options for Risk Management

RAS will determine the risk level for a subawardee, and if necessary, consult with the PI and the department to develop strategies for mitigating the risk. For federal awards, specific strategies are outlined in 2 CFR 200.207. Options may include one or more of the following:

Risk Management

  1. Issue a Time and Materials subcontract
  2. Issue a firm fixed price contract with total payment at the end of the period, when all work has been completed
  3. Issue a contract that reimburses the subawardee based on completion of milestones
  4. Audit the Subaward regularly (possibly with the help of MIT’s Internal Audit)
  5. Require receipts to accompany all requests for payment and certification of invoices
  6. Require quarterly or monthly (financial and or technical) progress reports to monitor progress
  7. Limit Subawards to non-federal sources of funding only
  8. Require additional PI monitoring in the form of more frequent technical reporting or,
  9. Require the organization to obtain technical or management assistance
  10. Require additional prior approvals, or additional milestones to be met before proceeding with the work
  11. With the approval of the DLC head, require the DLC to provide a backup account to cover any issues where payments are made but the deliverables are not met
  12. Plan for site visits to the organization to evaluate technical / administrative capabilities
  13. Require additional training or support to the subawardee
  14. Disallow the subaward and seek other options for carrying out the work

RAS will inform the PI and the subrecipient of these additional management strategies, and where appropriate they will be documented in the agreement as conditions of the subaward at the time that the prime award is allowed.