What Automation Vendors Get Wrong About Subrecipient Risk Assessments
If you have subrecipients, you have done this: opened a spreadsheet, pulled up SAM.gov in a browser, navigated to the Federal Audit Clearinghouse in a second browser, and started pulling together a risk assessment for a recipient you have worked with for years. But 2 CFR 200.332(c) doesn't care what you know — it requires you to assess this risk for every subaward.
Every week, an automation vendor contacts you about automating your processes. They might claim they can automate your subrecipient monitoring or streamline your risk assessments.
Most vendors have not actually performed a risk assessment themselves.
Good engineers build systems, but compliance risk assessments under Uniform Guidance require more than pulling data. They need regulatory judgment, understanding what 200.332(c) asks, why each piece matters, and how the results shape your monitoring, subaward terms, and audit exposure.
What the Regulation Actually Requires
Section 200.332(c) requires pass-through entities to evaluate each subrecipient's fraud risk and risk of noncompliance with a subaward to determine appropriate monitoring. The regulation specifies four factors to consider:
1. Prior experience with the same or similar subawards. This isn't just about whether you have worked with them before; it is an assessment of the organization's ability to handle the scope, complexity, and regulatory requirements. A community nonprofit that has managed a $50K foundation grant is not automatically ready for a $500K NIH subaward with effort reporting requirements.
2. Results of previous audits. This goes beyond simply checking whether the subrecipient has a Single Audit. It means considering the extent to which their other similar awards have been audited, the results, and whether those results indicate a pervasive or systemic issue.
3. New personnel or substantially changed systems. This data can't be pulled from a database; it requires an actual inquiry. A subrecipient that was low-risk last year may no longer be low-risk this year if their grants manager has left or their accounting system has been migrated. No vendor system will surface this. You have to ask. Does the new accounting system meet the requirements of § 200.302(b) Financial Management?
4. Extent and results of Federal agency monitoring. If your subrecipient also receives federal awards directly, the results of any federal agency monitoring will directly affect planned monitoring. This information is not on SAM.gov and must be obtained by asking the subrecipient directly or by reviewing internal documentation of correspondence with the agency.
Factors 1 and 2 are partially automatable. Factors 3 and 4 are not — not because the technology isn't there, but because the regulation requires direct inquiry and contextual judgment that no database can substitute for.
Here is where automation vendors go seriously wrong: the four factors don't yield a binary pass-or-fail result. They produce a risk level that helps direct your entire monitoring approach: the frequency of financial report reviews, whether you require transaction-level supporting documentation, whether you impose specific conditions under 2 CFR 200.208, and whether you conduct site visits. Get the risk assessment wrong, and your monitoring plan is either inadequate or wasteful, potentially leading to audit findings.
The Real Problem with Automating This
The first two factors — prior experience and audit history — are partially automatable. You can build a system that pulls Single Audit data from the Federal Audit Clearinghouse, checks SAM.gov for exclusions, and presents these factors for review. That is useful and worth building.
But factors three and four cannot be automated. Determining the potential impact of a systemic issue from a single audit requires understanding the context of the finding. They require direct inquiry of the subrecipient and understanding the associated risks within the context of the entity's internal structure.
A tool that skips or automates these steps and calls itself a risk assessment solution gives a false sense of compliance.
The best automation for subrecipient risk assessments does not replace your judgment — it structures it. It automates the busy work, pre-populates what can be pre-populated, flags what needs human review, enforces documentation, and connects the risk rating to a tiered monitoring plan so downstream consequences are automatic even when the assessment itself requires thought. That distinction — between automating the busywork and replacing the judgment — is what separates a compliance tool from a compliance risk.
The Checklist
Before you buy an automation tool for subrecipient monitoring — or hire someone to build one — use this checklist and demand clear answers. Insist that any solution you choose meets both the regulatory requirements and enhances, rather than replaces, your judgment. Take ownership of your risk assessments and make the right investment for your compliance needs.
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Check items above to see your assessment.
If the system covers all six regulatory items and the builder can answer all five domain questions, you're probably in good hands. If not, you might be automating a process that produces documented noncompliance faster than you could produce it manually.
The technology isn't the hard part. Understanding what to automate — and what still requires a human who has actually done this work — is.
This article is provided by Fadi Opgenorth, CPA/MBA, strictly as an educational and informational resource. It does not constitute professional advice, create a client-practitioner relationship, or transfer any liability or responsibility.
Distribution or use of this content does not create, establish, or imply:
- A client-practitioner, advisory, or professional services relationship of any kind;
- An engagement for accounting, auditing, consulting, attestation, or tax services;
- A transfer, assumption, or sharing of liability, fiduciary duty, or legal responsibility;
- Professional assurance, certification, or opinion on any compliance determination; or
- A guarantee of accuracy, completeness, or applicability to your specific circumstances.
The content herein reflects the author's interpretation of federal regulations as of the publication date and may not account for subsequent amendments, agency-specific guidance, or your organization's unique facts and circumstances. All subrecipient and contractor determinations must be made by the responsible pass-through entity based on the specific terms and substance of each agreement, in consultation with qualified legal counsel and your organization's grants management and compliance personnel.
This document is not a substitute for professional advice. The author expressly disclaims all liability arising from or related to reliance on this article, any determination made using the accompanying checklist, or any omission of relevant regulatory requirements. Users assume full responsibility for the application of these materials to their own compliance decisions.
Consistent with standards promulgated by the American Institute of Certified Public Accountants (AICPA) and applicable state boards of accountancy, nothing in this article constitutes the practice of public accounting or the rendering of a professional opinion.