How to Tell the Difference Between a Vendor or Subrecipient

The latest view on not-for-profit accounting issues

How can you tell if you have passed federal funds on to a subrecipient or simply paid a vendor?  The answer to this question may not always be easy.  This is something many not-for-profits struggle with, and it’s extremely important as single audit requirements that an entity which passes federal funds on to a subrecipient must perform certain monitoring procedures to ensure the subrecipient is compliant with OMB compliance guidelines.

As defined in OMB Circular A-133, Section 105, a subrecipient is an “entity that expends Federal awards received from a pass-through entity to carry out a Federal program” whereas a vendor is defined as “a dealer, distributor, merchant, or other seller providing goods or services that are required for the conduct of a Federal program.”

With these definitions there can still be some confusion if an entity is a vendor or subrecipient, especially those entities that are service related. Some characteristics of a service entity that is a subrecipient include entities that are able to determine who is eligible to receive assistance and if the contract includes performance requirements that are measured against whether federal program objectives are met. 

Meanwhile an entity would be a vendor if they are providing the services within its normal business operations and provides similar services to many different purchasers. In addition, typically a vendor relationship exists if the entity operates in a competitive environment and if the services ancillary to the federal program.

Subrecipient relationships should not be confused as vendor relationships because the requirements related to OMB compliance.

Jeffery Patterson, CPA