Pass through funding sounds like plumbing — money enters at the top, exits at the bottom, and your organization is just the pipe. The regulation disagrees. The moment a prime recipient re-grants federal dollars to another organization, it becomes a pass-through entity, and 2 CFR 200.332 hands it a list of duties that look a lot like running a small federal agency: verify, disclose, risk-rate, monitor, audit-check, and enforce. A Congressional Research Service overview of pass-through oversight puts the structure plainly: the federal agency keeps a legal relationship only with the prime — every subrecipient answers to you. And the price of that role is about to go up. The proposed Uniform Grants Regulation, published in the Federal Register on May 29, 2026, rewrites the pass-through sections effective October 1. If you are planning subawards for FY2027 money, this is the itemized bill.

Pass Through Funding Makes You the Enforcer, Not the Pipe

The core misunderstanding among primes is that a subaward is delegation. It is not — it is inheritance. Under 200.332, a pass-through entity must verify that a proposed subrecipient is not suspended or debarred before any agreement is signed, using the exclusion records in SAM.gov. It must evaluate each subrecipient’s fraud risk and risk of noncompliance. It must monitor the subrecipient’s activities across the whole period of performance, review its financial and performance reports, and make sure corrective action happens on every significant development — a Single Audit finding, a bad site visit, a written notice from the subrecipient that milestones are slipping.

Then come the duties most primes have never staffed. The pass-through entity must issue a management decision on audit findings that pertain to its subaward, the same formal document a federal agency issues to its own grantees under 200.521. It must verify the subrecipient obtained a Single Audit when one is required. It must consider whether the subrecipient’s audit results force adjustments to the pass-through entity’s own records, and it must consider enforcement — up to suspension and termination of the subaward — when a subrecipient will not cure. The CRS report notes the reason the structure works this way: the awarding agency has no direct legal relationship with any subrecipient, so oversight has to live with the prime. When the subrecipient fails, the finding lands in your audit, on your award, against your organization’s name.

The Subaward Package: What Must Be in Writing Before Money Moves

Duty two is disclosure, and it is more specific than most templates assume. Every subaward must be clearly identified to the subrecipient as a subaward — not a vendor agreement, not a memorandum of understanding — and must carry a defined package of federal award identification data: the subrecipient’s legal name and unique entity identifier, the Federal Award Identification Number, the award date, the subaward period of performance and budget period, the amount obligated by this action and cumulatively, the Assistance Listings number and title, whether the award is R&D, and the indirect cost rate being applied. Where information is not yet available, the regulation requires the best available information now and the missing pieces when obtained.

That last item on the list — the indirect cost rate — is where pass-through entities most often create liability for themselves. If a subrecipient has a federally negotiated rate, you must honor it; you may not force the de minimis rate on them. If they have no negotiated rate, you either negotiate one with them or offer the de minimis rate. The days of a county or a prime nonprofit telling community partners “no indirect on this one” are over, and subrecipients increasingly know it. The agreement must also give you and your auditors access to the subrecipient’s records and financial statements, and it must include closeout terms — final reports from a subrecipient are due to you within 90 days of the end date, faster than the 120 days you get with the agency. Organizations building a partner network around nonprofit grant funding should treat the subaward template as compliance infrastructure, not paperwork.

Risk Rating and Monitoring: The Recurring Cost Nobody Budgets

The disclosure package is a one-time cost per subaward. Monitoring is the recurring one. The regulation requires you to evaluate each subrecipient’s risk before deciding how closely to watch them, considering their prior experience with similar subawards, previous audit results, whether they have new personnel or new systems, and the extent of any direct federal monitoring they already receive. The rating is not a formality — it determines the monitoring plan. Treasury’s subrecipient monitoring guidance lays out the toolkit: training and technical assistance, on-site reviews, and agreed-upon-procedures engagements, scaled to the risk you documented.

Higher-risk subrecipients can be put on a leash through specific conditions — reimbursement-only payment instead of advances, mandatory technical assistance, or withholding until performance is demonstrated. But every condition you impose, you must administer. A first-time community partner with no federal history is exactly the organization most likely to need a subaward and most expensive to monitor. Recent audit practice has sharpened the point: auditors reviewing pass-through entities now test whether the documented risk assessment exists, whether monitoring matched the assessed level, and whether every flagged item has written follow-up. Inadequate monitoring generates findings against the pass-through entity even when the underlying problem happened entirely at the subrecipient. Primes managing multiple federal grant awards should assume the monitoring file, not the program outcome, is what gets examined first.

What the October Rewrite Adds to the Pass-Through Job

The proposed Regulation for Federal Financial Assistance (91 FR 32198) — OMB’s rewrite of the Uniform Guidance into a binding Uniform Grants Regulation — took comments through July 13, 2026 and is targeted to take effect October 1, 2026, applying to awards issued in FY2027 and beyond. Four changes land directly on pass-through entities. First, reporting: the proposal, as analysts at Venable read it, emphasizes recipients’ obligations to report all first-tier subawards of $30,000 or more in SAM.gov, folding the old FFATA/FSRS reporting pipeline into the system of record and pairing it with confirmation in your performance reports.

Second, fixed-amount subawards are eliminated except where a statute authorizes them. The milestone-based subaward — long the practical way to pay a small partner without imposing line-item cost accounting — would disappear, defaulting subrecipients into cost-reimbursement structures with full financial reporting. Third, related-entity transfers must be classified: money moved to an affiliate or subsidiary can no longer ride as an internal allocation; it must be a subaward or a contract, with all the machinery that follows. Fourth, and most novel, pass-through entities would be required to ensure subrecipients do not take actions that could significantly damage the reputation of the pass-through entity, the awarding agency, or the federal government — a policing duty with no compliance playbook yet. For a small business prime weighing whether to subaward part of a federal small business award or keep the work in-house, these four changes are the new decision inputs: the funder role now includes public reporting, mandatory cost accounting downstream, affiliate paperwork, and reputational surveillance.

The Money Mechanics: Rates, the MTDC Base, and the 30-Day Clock

Being the funder also has revenue implications, and they cut both ways. On the cost side, the 2024 revisions doubled the portion of each subaward that counts in your modified total direct cost base — the first $50,000 of every subaward now carries your indirect rate, up from $25,000. A prime issuing three $60,000 subawards recovers indirect costs on $150,000 of that spend rather than $75,000. That is real money that partially offsets the monitoring cost, and it belongs in the budget justification when you propose a subaward-heavy project.

On the obligation side, the payment clock runs against you. Under 200.305, a pass-through entity — not just a federal agency — must pay a proper reimbursement request within 30 calendar days. If your subrecipients front costs and you sit on their invoices while waiting for your own drawdown, you are the compliance problem. Cash-flow sequencing between your agency drawdowns and your subrecipient payments is an operational design question, and it gets harder under a rewrite that pushes everything toward reimbursement. Before committing to a pass-through structure, model the full cycle: subrecipient spends, invoices you, you pay within 30 days, you draw down or bill the agency, you reconcile at closeout. Primes that map their downstream partners early — a grant discovery database helps identify which partners already hold federal awards and negotiated rates — enter that cycle with fewer surprises, because a subrecipient with a NICRA and Single Audit history is cheaper to onboard and to monitor.

Frequently Asked Questions

What is pass through funding?

Q: What does pass through funding mean in federal grants?
A: Pass through funding is federal grant money a prime recipient re-grants to another organization to carry out part of the award. The prime becomes a pass-through entity, the receiving organization a subrecipient, and the transfer a subaward. The federal agency keeps its legal relationship with the prime only, so 2 CFR 200.332 makes the prime responsible for informing, risk-rating, monitoring, and, when necessary, disciplining the subrecipient.

Is a subaward the same as a subcontract?

Q: Is every downstream payment a subaward?
A: No. A subaward carries out a portion of the federal program and creates a financial assistance relationship; a contract procures goods or services for your use. The pass-through entity must make that determination case by case based on the substance of the relationship, not the label on the agreement. Only subawards trigger the 200.332 duties — but misclassifying a subrecipient as a contractor to dodge them is itself an audit finding.

What indirect cost rate must I give a subrecipient?

Q: Can a pass-through entity set a subrecipient’s indirect rate to zero?
A: Generally no. If the subrecipient has a federally negotiated rate, you must use it. If not, you must either negotiate a rate with them or let them take the de minimis rate — and you cannot require a rate below it unless a federal statute or program rule caps indirect costs. Subaward offers that zero out overhead conflict with 2 CFR 200.414 and are increasingly challenged by subrecipients in writing.

What changes for pass-through entities on October 1?

Q: How does the proposed Uniform Grants Regulation change the pass-through role?
A: The proposal emphasizes SAM.gov reporting of first-tier subawards at $30,000 or more, eliminates fixed-amount subawards absent statutory authority, requires related-entity transfers to be classified as subawards or contracts, and adds a duty to ensure subrecipients avoid conduct that damages the reputation of the pass-through entity, the agency, or the government. OMB targeted a final rule by October 1, 2026, applying to FY2027 awards.

Bottom Line: Price the Funder Role Before You Promise It

The decision to use pass through funding is a build-versus-buy decision about compliance capacity, and it should be made at proposal time, not after award. Every subaward you promise a partner obligates you to an exclusion check, a fully loaded disclosure package, a documented risk rating, a monitoring plan someone must actually execute, audit verification, and a 30-day payment clock — with SAM.gov reporting, affiliate classification, and reputational oversight stacking on top for FY2027 money. The offsets are real too: indirect recovery on the first $50,000 of each subaward, and program reach you cannot achieve alone. The mistake is treating any of it as free.

The specific recommendation from this ledger: before your next proposal names a subrecipient, run the duty list against your actual staffing. If no one owns subrecipient monitoring today, either budget the position into the award or restructure the partnership as a procurement contract where the substance genuinely supports it. And if the compliance lift is what stands between your organization and a subaward-heavy federal project, OpenGrants’ grant writing services can help you structure the application — including the subaward budgets, indirect rate math, and monitoring plan — so the funder role you take on is one you have already priced.