This is another instance where your actions will depend on the severity of the problem. If the subawardee has spent a small amount of money on non-related supplies, they might reimburse the project with other organizational funds. A faith group that uses Federal funds to purchase religious materials, however, has put your program in jeopardy. The consequences, therefore, are much more serious.
For serious violations, it will be important notify your program officer about the problem and ask for guidance on how to proceed. You will likely need to terminate the subaward, and provide written support to your funder for your decision.