Subawards and pass-through funding: rules for both sides

Most federal money that reaches small and mid-sized nonprofits never comes directly from a federal agency. It flows from the agency to a state, then to a county or a regional intermediary, then to you. Each organization that passes federal money down the line is a pass-through entity. Each organization that receives it to carry out part of the program is a subrecipient.

The key fact many nonprofits miss: federal rules travel with federal money. If you're a subrecipient, most of the Uniform Guidance (2 CFR 200) applies to you, plus whatever your pass-through entity adds. This guide explains how to tell whether you're a subrecipient, what your pass-through entity must do, what you should expect as a subrecipient of state pass-through money, and what's required if you make subawards yourself. It reflects the rules as of October 2026.

Who's who

An organization can be all of these at once on different awards. The Uniform Guidance says plainly that an entity "may concurrently receive Federal awards as a recipient, a subrecipient, and a contractor."

Subrecipient or contractor? (2 CFR 200.331)

This classification matters because subrecipients must follow federal program requirements and the Uniform Guidance, while contractors generally follow the terms of their contract. The pass-through entity makes the determination, case by case, based on the substance of the relationship.

No single factor decides it. 200.331 says judgment is required.

Why the label matters to you:

• Subrecipients must follow cost principles, procurement standards, reporting, records, and audit requirements, and their federal expenditures count toward the single audit threshold.
• Contractors are generally paid per the contract and aren't subject to the Uniform Guidance's cost principles or single audit for that money.

If an agreement is labeled a "contract" or "vendor agreement" but reads like a subaward, ask the pass-through entity how it classified the relationship and why. Misclassification causes headaches at audit time for both of you.

What a pass-through entity must do (2 CFR 200.332)

The pass-through entity's obligations, summarized:

Before the subaward

• Check exclusions. Verify that you aren't suspended, debarred, or otherwise excluded, using SAM.gov.
• Assess your risk. Evaluate your risk of noncompliance to decide how much monitoring you need. Factors include your prior experience with similar awards, results of previous audits (including whether you've had single audits), new personnel or new or substantially changed systems, and the extent and results of any federal agency monitoring.
• Impose specific conditions if warranted. If you're higher-risk, the pass-through entity may add conditions such as reimbursement-only payments, more frequent reporting, or additional documentation.

In the subaward

The subaward must clearly identify itself as a subaward and include, among other things:

• Your name and UEI
• The Federal Award Identification Number (FAIN), the federal award date, and the federal awarding agency
• The subaward's period of performance and budget period
• The amount of federal funds obligated by this action and in total
• The Assistance Listing title and number
• Whether the award is research and development
• The indirect cost rate for the federal award, including whether the de minimis rate is used
• All requirements the federal award imposes on you, plus any additional requirements the pass-through entity imposes so it can meet its own responsibilities
• Terms and conditions concerning closeout

On indirect costs specifically: the subaward must reflect your federally negotiated indirect cost rate if you have one. If you don't, the pass-through entity must determine the appropriate rate in collaboration with you. On awards under the 2024 rules, you may elect a de minimis rate of up to 15 percent of modified total direct costs, and federal agencies and pass-through entities may not require you to use a lower rate unless a statute or regulation requires it (200.414(f)). One exception to know: NIH announced in NOT-OD-26-072 (April 2026) that, because of FY2026 appropriations language, its awards keep the older 10% de minimis rate and $25,000 subaward MTDC rule, so check the specific agency's terms. See indirect costs.

During the subaward

The pass-through entity must monitor you to make sure you use the funds for authorized purposes, comply with requirements, and achieve performance goals. Monitoring must include:

• Reviewing your financial and performance reports
• Following up to make sure you take timely, appropriate action on deficiencies it identifies
• Issuing management decisions on audit findings that pertain to its subaward

Depending on your risk, monitoring tools may also include training and technical assistance, on-site reviews, and agreed-upon-procedures engagements.

Audits and enforcement

The pass-through entity must verify that you've had a single audit when you're required to, consider whether audit results require adjustments to its own records, and consider enforcement action against noncompliant subrecipients, which can include withholding payments, disallowing costs, or suspending or terminating the subaward.

What to expect when you receive state pass-through money

Small nonprofits are sometimes surprised by how much paperwork comes with a state grant that's funded federally. Here's what's typical, and what's reasonable.

Before the award

• A risk assessment questionnaire. Expect questions about your accounting system, written policies, staff experience, prior audits, and prior grant history. Answer honestly. Overstating your systems sets you up for trouble when monitoring reveals the gap.
• Requests for documents: most recent audit or financial statements, IRS Form 990, board list, policies (financial management, procurement, conflict of interest, time and effort), and proof of a UEI.
• State-specific requirements. Many states have their own grant accountability laws, pre-qualification portals, or standard terms layered on top of the federal ones. They may be stricter than federal rules, for example lower procurement thresholds or additional reporting.

In the agreement

• Federal flow-down terms, often as a long attachment
• State terms and conditions
• A budget, sometimes with tight line-item limits and a process for budget modifications
• Payment terms. Reimbursement is common, which means you spend first and get paid after submitting documentation. Plan your cash flow accordingly
• Reporting schedules for financial and performance reports
• Termination provisions. Because the federal award can be terminated under 200.340, the state's subaward often allows termination if federal funding ends or changes. Read this section carefully

During the award

• Monthly or quarterly reimbursement requests with backup documentation
• Desk reviews, where the state requests documentation for a sample of expenses
• Site visits, which may include reviewing files, interviewing staff, and checking participant eligibility records
• Requests for your single audit (if applicable) and corrective action plans

What you're entitled to ask for

• The FAIN and Assistance Listing number for every federal subaward
• Your negotiated indirect rate honored, or the de minimis rate you're entitled to elect
• Clear written requirements: what's allowable, what needs prior approval, and what documentation they want
• Written results of monitoring reviews, and a chance to respond
• Timely payment of properly documented reimbursement requests

Getting ready: a subrecipient readiness checklist

Before you take on federal pass-through money, make sure you can say yes to these:

• We have a UEI from SAM.gov
• Our accounting system can track this subaward separately, by budget category
• We have written financial management, procurement, conflict of interest, and travel policies
• Staff charged to the award will keep time and effort records
• We understand which costs are allowable and which need prior approval
• We can float costs until reimbursement arrives (or have arranged a line of credit)
• We know whether this award pushes our total federal expenditures over $1,000,000
• We've read the termination provisions and know what happens to our costs if federal funding ends
• Someone owns reporting deadlines, and they're on the grant calendar

For the full rulebook, see our Uniform Guidance guide. For day-to-day compliance, see post-award compliance.

When you're the pass-through entity

Larger nonprofits sometimes subaward to coalition partners. If you do, every obligation above becomes yours.

Before you subaward

1. Check that subawards are allowed. Many awards require prior approval to subaward work not in the approved application (200.308).
2. Classify each relationship under 200.331 and document your reasoning in the file.
3. Check SAM.gov exclusions and confirm the partner has a UEI.
4. Assess risk using the 200.332 factors and keep the assessment.

Writing the subaward

Include every required data element listed above, flow down applicable federal terms, specify reporting requirements and deadlines, and honor the subrecipient's indirect rate. Don't load the subaward with requirements beyond what you need to meet your own obligations. Burden that adds nothing to compliance just drives good partners away.

Monitoring

Scale monitoring to risk. A long-standing partner with clean single audits might get quarterly report reviews and an annual desk review. A new, small partner might get monthly reimbursement review with backup documentation, onboarding training, and a site visit in the first six months.

Reporting subawards

If you make a subaward of $30,000 or more under a federal award, federal transparency rules (FFATA) require you to report it. GSA retired FSRS.gov on March 6, 2025, and subaward reports are now filed in SAM.gov by the end of the month after the subaward is made.

Audit follow-up

Verify each subrecipient's single audit status annually, review any findings that relate to your subaward, and issue management decisions on those findings (generally within six months of the audit's acceptance by the Federal Audit Clearinghouse, per 200.521).

What may change

The May 2026 OMB proposal to rewrite 2 CFR 200 included changes affecting subawards. According to legal summaries, it would bar pass-through entities from treating transfers to affiliates as internal allocations and require proper subrecipient or contractor classification for all downstream transfers, extend E-Verify requirements to subrecipients, and eliminate most fixed amount subawards unless authorized by statute. As of October 2026, a continuing resolution bars OMB from finalizing that rule through December 11, 2026, so current rules apply. See the federal funding landscape for updates.

Whatever happens with the rulemaking, one thing won't change: when you accept federal money, from anyone, you accept federal rules. Read the subaward, ask for what's missing, and build systems that would hold up if the federal agency itself came to look.