Sub-recipient Management

This section of the Manual focuses on financial and operational management of Sub-recipients (SRs), particularly regarding cash transfer modalities. Programmatic, legal and substantive guidance relating to SR management is detailed throughout the Manual but particularly in the following sections: SR management, Legal framework, Health product management (HPM), Monitoring and evaluation (M&E), and Audit and investigations.

UNDP, as interim Principal Recipient (PR) for Global Fund grants assumes the role of Implementing Partner (IP) through Direct Implementation (DIM). DIM is the modality whereby UNDP as IP takes on full responsibility and accountability for the effective use of UNDP resources and the delivery of outputs, as set forth in the project document. UNDP may identify a Responsible Party (RP) to carry out activities within a DIM project, which for Global Fund grants are called Sub Recipients (SR). In few instances, such as Cuba, UNDP can assume the PR role through the National Implementation Modality (NIM) modality.

A SR is defined as an entity selected to act on behalf of UNDP based on a written agreement or contract to purchase goods or provide services using the project budget. In addition, the SR may manage the use of these goods and services to carry out project activities and produce outputs. All RPs are directly accountable to UNDP in accordance with the terms of their agreement or contract with UNDP.

The SR may follow its own procedures only to the extent that they do not contravene the principles of the UNDP Financial Regulations and Rules. Where the financial governance of the RP does not provide the required guidance to ensure best value for money, fairness, integrity, transparency, and effective international competition, that of UNDP shall apply. Please refer to the UNDP Programme and Operations Policies and Procedures (POPP) on Direct Implementation.

The SR is contracted by the PR of the grant to assist in implementing programme activities. The PR is responsible for the oversight of implementation by the SR. SRs often play a pivotal role in the implementation of programme activities, the management of grant resources and the timely achievement of grant results. The SR’s specific role in performance-based funding is that, for periodic disbursements, the SR provides the PR with progress updates on the implementation of those activities for which it is responsible. For recording purposes, SRs, which as said above serve as RPs, use the ‘Responsible Partner’ code in Quantum for the UNDP project/budget.

It is important to distinguish between SRs and other entities that provide services for a project. The Global Fund provides the following guidance on this issue: An SR is a recipient of grant funds that performs any programme activities that would otherwise be expected to be directly undertaken by the PR within the scope of its responsibilities as implementer of the programme. Entities contracted by the PR to serve as manufacturers, procurement agents for certain tasks, or certain service providers, should not be treated as SRs.

UNDP’s SR agreements set out three modalities for financing SR activities:

• Advance disbursement (Direct Cash Transfers) - used when an SR has sufficient capacity to manage funds;
• Reimbursement - used when an SR has sufficient resources to pre-finance activities; and
• Direct payment - used when an SR has little capacity to manage funds or country-specific banking regulations prevent or complicate any other modality—in which case, UNDP pays directly to SR vendors and SR personnel.

In addition to being a stand-alone financing modality, direct payment on behalf of SRs is also built into the advance disbursements and cost reimbursement modalities. This gives the Country Office (CO) the flexibility to decide whether a portion of funding should be advanced and a portion directly paid to SR vendors and SR personnel. Such flexibility allows UNDP to manage the risk accompanying advance disbursements while building SR capacity to manage funds.

The work plan must detail the financing modality that will be used to fund the SR activities.

UNDP has a responsibility to accept appropriate cash advance requests, reported expenses or direct payments that are consistent with the annual work plan (AWP) and UNDP’s FRRs and, therefore, to reject improper advance requests, expenses, or requests for direct payments. If subsequent information becomes available that questions the appropriateness of expenses recorded or direct payments already made, the expenditures should be rejected.

UNDP has determined that direct procurement by Sub-recipients (SRs) constitutes significant organizational and operational risks to UNDP, for a number of reasons, including the process itself, the amount of money involved, the risk of procuring sub-standard products, value for money considerations, and the potential for fraud. As a result, UNDP does not permit SRs to procure health products for their activities. Procurement within the framework of SR agreements should be limited to minor office supplies and other similar items of limited value, as well as services. Capital assets should be procured by the CO. In no instance should the SR be authorized to procure for more than 10% of the SR agreement’s amount or US$100,000 (whichever is less) on procurement.

Practice Pointer

Sub-sub-recipients (SSRs) are SRs of SRs. Engagement of SSRs carries high risks for UNDP, primarily because UNDP remains as fully accountable to the Global Fund for SSR activities as it is for SR activities, while having less control and oversight over them. To minimize these risks, it is recommended that grant implementation of activities is carried out, where possible, directly by SRs or by UNDP.