Home / Resources / 2 CFR 200.332 explained
Updated August 2026
If you hand federal money to another organization, you have become a pass-through entity, and a set of duties comes with it that most small nonprofits never see coming.
Give federal money to another group and four duties follow. Check they are not barred from federal funding. Write a subaward that carries a set list of facts. Rate their risk, on paper. Then keep an eye on them. §200.332 is that list.
§200.332 only applies to subrecipients. If the organization is really a contractor, buying from them is a procurement and a different set of rules applies. That call is made at §200.331, and it turns on the substance of the relationship, not what the agreement is called. Get it wrong in the direction of "contractor" and you have skipped everything below.
Paragraph (b) requires every subaward to be clearly identified as a subaward and to carry a defined set of facts. In practice this is the paragraph small pass-throughs fail, because a subaward written as a simple letter of agreement carries almost none of it. The list includes:
You must let the subrecipient use an indirect cost rate. It can be a rate they have negotiated with the federal government, a rate you and they negotiate, or the de minimis rate. What you may not do is force the de minimis rate on a subrecipient who already holds a federally negotiated rate. The de minimis figure itself is set at §200.414, not here.
Nor may you simply refuse indirect costs. A subaward that pays only direct costs is a common and expensive habit, and it pushes your subrecipient's overhead onto them.
Paragraph (c) makes you rate each subrecipient's risk of fraud and of getting the rules wrong. That rating sets how closely you watch them. The regulation says what to weigh. Have they run a subaward like this before? What did their last audit say, and do they get a Single Audit? Have they changed staff or systems? Has the federal agency flagged anything?
This is a short document, not a project. But it must exist, and it must be dated before the monitoring it justifies.
Paragraph (e) sets the floor: review the financial and performance reports they send you, follow up on findings, and issue a management decision on audit findings relating to their subaward. Paragraph (f) lists the tools you may add where risk warrants it, including training and technical assistance, site visits, and agreed-upon-procedures engagements.
"We sent the money and asked for a report at the end" is not monitoring, and it is where a pass-through gets a finding.
Build the list into the document once. Every subaward after that is fill-in-the-blanks, and the paragraph (b) problem disappears permanently.
It takes a minute, and the evidence that you did it is the part auditors ask for.
The four factors, a rating, a date, a signature, and what monitoring follows from it.
Ask whether they hold a negotiated rate before you offer the de minimis one. Getting this backwards is a compliance problem and a bad-faith look.
This is general information, not legal or accounting advice. Federal grant rules change and are applied differently by different agencies and auditors. Check with your auditor, your grant officer, or an attorney before relying on any of it.
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A non-federal entity that provides a subaward to a subrecipient to carry out part of a federal program. If your nonprofit receives a federal award and passes some of it to another organization to do program work, you are a pass-through entity and 2 CFR 200.332 applies to you.
It has to say plainly that it is a subaward. Then it must carry a set list of facts. Those are the subrecipient's unique entity identifier, the Federal Award Identification Number, the period of performance and budget period, the amounts obligated and committed, the project description, the Assistance Listings title and number, whether the work is research and development, and the indirect cost rate.
No, not if they already hold a rate negotiated with the federal government. The subrecipient may use that rate, a rate they agree with you, or the de minimis rate. A pass-through cannot force the de minimis rate on a group that holds a federally negotiated one.
Yes. 2 CFR 200.332 makes you rate each subrecipient's risk first. Then you watch the work, to confirm the money is used as agreed. You read the reports they send. You follow up on problems. And you issue a management decision on any audit finding about their subaward.
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Sources: 2 CFR Part 200 (eCFR), read 29 August 2026. Federal grant rules change; check the current text before relying on this.