High Risk Agencies

(Previously published in the Financial Management Manual Item #D-2)

Every county, and even many vendors, subgrant DHSS funding to other agencies. On occasion, a granting agency may encounter a situation where a prospective subgrantee has particular characteristics which create a higher than usual risk of having problems in administering the subgrant. The subgrantee, for instance, may have a history of unsatisfactory performance, being financially unstable, and/or not having a reliable financial reporting system. Even when these problems exist, however, it is not always feasible to award the subgrant to a different agency.

In these situations, the granting agency may wish to consider imposing special conditions or using other techniques to protect the funding. The federal Common Rule, or the federal "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," lays out some criteria for identifying "high risk" agencies and some possible actions to take when contracting with these agencies. The Common Rule in its entirety is referenced in the Financial Management Manual, but the portions relevant to high risk agencies are included on the following page.

Counties may find the federal guidelines useful in developing criteria to use in identifying subgrantees which are experiencing particularly difficult problems, and in identifying possible options for taking action. The attached information also may point to the types of information a granting agency may wish to routinely collect from all subgrantees as part of a larger information collection and tracking system to be used in flagging "high risk" subgrantees. The excerpted information also can serve to remind a granting agency that authority does exist for that agency to take more rigorous action, when necessary, to devise more stringent controls and tighter contract language in order to adequately monitor the use of federal and state funds.

Excerpt from Federal "Common Rule" Guidance on "High Risk" Subgrantees

____.12 Special grant or subgrant conditions for "high-risk" grantees.

(a) A grantee or subgrantee may be considered "high risk" if an awarding agency determines that a grantee or subgrantee: 

(1) Has a history of unsatisfactory performance, or

(2) Is not financially stable, or

(3) Has a management system which does not meet the management standards set forth in this part (see note below), or

(4) Has not conformed to terms and conditions of previous awards, or

(5) Is otherwise not responsible, and if the awarding agency determines that an award will be made, special conditions and/or restrictions shall correspond to the high risk condition and shall be included in the award.

(b) Special conditions or restrictions may include:

(1) Payment on a reimbursement basis;

(2) Withholding authority to proceed to the next phase until receipt of evidence of acceptable performance within a given funding period;

(3) Requiring additional, more detailed financial reports;

(4) Additional project monitoring;

(5) Requiring the grantee or subgrantee to obtain technical or management assistance; or

(6) Establishing additional prior approvals.

(c) If an awarding agency decides to impose such conditions, the awarding official will notify the grantee or subgrantee as early as possible, in writing, of:

(1) The nature of the special conditions/restrictions;

(2) The reason(s) for imposing them;

(3) The corrective actions which must be taken before they will be removed and the time allowed for completing the corrective actions; and

(4) The method of requesting reconsideration of the conditions/restrictions imposed."

Note:

See the "Common Rule" for a discussion of the management standards. DHSS has adopted a majority of these standards and they are reflected throughout this manual.

The Common Rule, "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," was adopted by the Federal Department of Health and Human Services at 45 CFR Part 2541 (exit DHFS) (search Title 45 for "45cfr2541").

Last Revised:  October 17, 2006