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;
• Cost 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 vendors and SR personnel.

In addition to being a stand-alone financing modality, direct payment 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 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, these 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, paying too much 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 SSRs be engaged only in exceptional circumstances and grant implementation activities carried out directly by SRs or UNDP.