Foreign Assistance

Cost Reductions Possible From Improved Cash Transfer Management Gao ID: NSIAD-93-58 November 18, 1992

Some countries have earned and kept millions of dollars in interest on cash grants from the United States, despite guidelines for managing foreign aid grants that call for retaining funds in the U.S. Treasury as long as possible to minimize federal borrowing costs or returning the interest earnings to the Treasury to offset these costs. GAO's review of assistance to 22 countries revealed that nearly $230 million in interest had been earned by recipient governments on about $6.6 billion in cash grants between October 1988 and May 1992. Israel, the single largest recipient, receives its cash grants within 30 days of appropriation and has earned about $163 million in interest on $3.6 billion in grants. Poland, another special case, earned about $31 million on a $200 million U.S. contribution to a currency stabilization fund. Options for improving the Agency for International Development's (AID) cash management practices without detracting from foreign assistance objectives include (1) direct payment by AID for official debts and for reimbursements for imports and (2) retaining the current practice of depositing funds into separate accounts but with the interest accruing to the United States.

GAO found that: (1) AID does not always retain cash transfer funds in the U.S. Treasury for as long as possible to minimize costs; (2) foreign governments are able to earn interest on cash transfer funds which, under the applicable grant agreements, they can use for the same purposes as the principal; (3) under other AID grant programs, such interest would have to be repaid; (4) Israel has earned about $162.9 million in interest, and Poland has earned about $31.3 million in interest on AID grant funds; (5) options to improve AID cash management include direct AID payments for debts or reimbursements for imports and depositing cash transfer funds in separate accounts with the interest accruing to the United States; and (6) AID was unaware of the extent to which its disbursements were excess to the recipients' needs and to which recipients earned interest on cash grants.

Recommendations

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