High-Risk Grantees

The term "high risk" connotes financial risk resulting from poor business management practices. Grantees and delegate agencies can benefit from reviewing this resource as it shows granting agencies how to spot "high-risk" grantees and the actions to be taken once they are identified.

Background and Scope
Applicability
Indicators of High Risk
Obtaining Information
Minimizing Risk
Technical Assistance to High Risk Grantees
Advocacy Organizations

Background and Scope

  1. The Department believes that the great majority of its grantees are competently managed, responsible, and fully committed to achieving the objectives of the grants they receive. Experience has shown, however, that a minority of grantees creates relatively high risks of poor programmatic use and financial stewardship of grant funds.
  2. This chapter provides guidance on how granting agencies can identify "high-risk." grantees and the actions to be taken once the determination has been reached. For these purposes, "high risk" in large measure connotes financial risk resulting from poor business management practices although other grounds for considering high risk are also described. Section 1-05-60 deals with a special kind of risk that may arise when the grantee is an advocacy organization whose own goals diverge from or conflict with those of the grant.

Applicability

All HHS discretionary grant programs.

Indicators of High Risk

The following factors tend to indicate high risk:

  1. Poor financial stability (i.e., insolvency or threat of insolvency).
  2. Inexperience such as may occur in newly formed organizations or in those, which have not previously received Federal grants.
  3. Financial dependence on Federal support (i.e. 80% or more of the organization's revenues are expected to be derived from Federal awards in the forthcoming year).
  4. Serious deficiencies in program or business management systems (e.g., substantial failure to comply with the financial management standards or procurement standards in 45 CFR Part 74).
  5. A history of unsatisfactory performance, material violations of grant terms, or large cost disallowances on previous awards from the same or other Federal programs.

Obtaining Information

  1. When information is needed to determine whether the organization is high-risk, or to assess the nature and degree of risk, every reasonable effort should be made to determine whether the information is already available from within the Department or another Federal agency.
  2. Information may be available from several internal sources including:
    1. Representations made by the grantee prior to award, as in the grant application, during preaward reviews and site visits, or in the course of negotiating the grant.
    2. GAO or HHS Audit Agency reports, and reports of the grantee's own auditors. Considerable data on previous adverse audit findings is available in the Audit Agency's Stewardship Report System and may be obtained by contacting the Audit Coordinator in each granting agency. Or the Audit Agency may be asked to furnish a copy of the grantee's most recent audit which they receive under 45 CFR section 74.61(h).
    3. Previous experience with the grantee, either in the same program or other programs. (Consult any institutional files maintained pursuant to 1-12-50.)
    4. Analysis of the grantee's financial statements performed by the Regional Administrative Support Center as a part of the indirect cost rate negotiation process.
  3. Such sources of information should be addressed not only prior to award, but also at reasonable intervals over the life of the grant, since previously satisfactory conditions may degenerate over time.
  4. If sufficient information cannot be obtained from within the Department or from another Federal agency, the grantee may be directly requested to provide the information. In evaluating information obtained in this manner, consideration should be given to whether it is properly attested to or validated.
  5. In many cases it will be advantageous for program office representatives to make a site visit to evaluate more fully the organization's programmatic capability, facilities, etc.
    1. All requests for surveys of business management systems (see paragraph 1-03-20J) or of related matters that are within the HHS Audit Agency's very broad charter shall be referred to that organization.
    2. If matters other than business management competence (or related areas) are also to be covered in a survey, consideration should be given to assembling an ad hoc team from program, audit, and other professional staff to perform the assessment.

Minimizing Risk

  1. Options

    To minimize the risk after determining that a prospective grantee is a high-risk organization, the granting agency may:
    1. not make the grant (see 1-05-408);
    2. make the grant but with special protective conditions and generally closer monitoring (see 1-05-40C); or
    3. make a grant, but arrange for appropriate technical assistance to the grantee (see 1-05-50).
  2. Decision not to make the grant.

    The grant should not be made if the nature and extent of the risk are so serious that poor performance by the grantee is probable. If the proposed project is sufficiently meritorious and has otherwise been duly approved, a decision not to make the grant on the grounds that the organization is high, risk implies a decision that the Government's interests cannot be adequately protected by options 2 and 3, above.
  3. Special protective conditions and monitoring techniques.
    1. The specific special protective conditions or monitoring techniques to be used will depend on the nature and extent of the risk. -Special conditions, which constitute deviations from Departmental, agency, or program rules, may be used only when authorized in accordance with applicable deviation control procedures.
    2. Note that in certain circumstances, 45 CFR Part 74 authorizes the use of special conditions, which exceed the normal limits imposed by that regulation. These are not deviations:
      1. section 74.72(e) provides that additional financial reporting may be obtained in certain circumstances.
      2. section 74.7 authorizes special conditions, which would otherwise be deviations from Part 74 for some types of high risk. A copy of the special notice required by that section, whether issued by the granting agency or by a grantee to a subgrantee, must be furnished to OGP for dissemination to other granting agenc

Technical Assistance to High-Risk Grantees

  1. When a grant is to be made to a high-risk organization, technical assistance to the grantee should be considered. The purpose of such technical assistance is to raise the level of competence of the grantee organization to that it no longer needs to be treated as high-risk.
  2. In deciding whether technical assistance is appropriate, the potential benefits of the technical assistance must be weighed against its financial costs, the intangible costs of Federal intrusion, and the risk that the technical assistance offered might not succeed.
  3. The available methods of providing technical assistance vary. The range includes:
    1. tell the grantee what the problem is and require the grantee to cure it, getting its own technical assistance, if necessary;
    2. contract with a national or regional contractor to supply technical assistance of specified kinds, and authorize the grantee to call on the contractor for specified services for specified purposes;
    3. call on other available organizations to supply such assistance as is appropriate--private foundations, State organizations associations of similar organizations, and the like;
    4. call to the attention of the grantee another grantee who has successfully solved the problem and can serve as a model; authorize and/or request the successful grantee, where permissible, to explain its solution and give assistance and training;
    5. where narrow problems and minor time commitments are involved, furnish technical assistance directly by Federal personnel through site visits or through grantee visits to headquarters or regional offices; and
    6. in exceptional cases, provide substantial direct technical assistance by Federal personnel.
  4. Where a grantee receives grants from several programs within an agency or from several agencies, an attempt should be made whenever appropriate to coordinate technical assistance by designating either a lead program or a lead agency.

Advocacy Organizations

  1. The mere fact that an organization advocates an unpopular or controversial cause does not in any way affect that organizations eligibility for grants. At the same time, the award of a grant to such an organization does not necessarily mean that HHS endorses the organization's views.
  2. Where the institutional goals of the grantee diverge from or conflict with the goals of the grant, there may be a risk that persons outside the Department will assume that HEW endorses the grantee organization's goals even if no such endorsement is intended. This risk may be present even if the project itself is beyond reproach and the organization's honesty and competence are impeccable.
  3. At least five days before awarding any new grant involving a substantial risk of the kind described in the preceding paragraph, the head of the granting agency shall notify the Executive Secretary to the Department. The notification shall include the agency head's assessment of the risk.

High-Risk Grantees. Grants Administration Manual. HHS/OGAM. GrantsNet. 2000. English.

Last Reviewed: November 2008

Last Updated: September 10, 2015