[Query Concerning Interest Earned on Grant Funds by Foreign Government]

Pursuant to a request from the Inspector General (IG) of the Agency for International Development (AID), GAO provided a legal opinion on whether the United States could recover interest earned by a foreign government on AID grant funds. The issue of major concern was interest earned by local and provincial elements of the Egyptian government on grant funds awarded by AID to the government of Egypt in the Basic Village Services Project (BVSP) in fiscal year 1981. Under the terms of the grant agreement, AID deposited funds in the account of the organization for the Reconstruction and Development of the Egyptian Village (ORDEV) after annual implementation plans were approved for each of the designated governorates. The General Counsel for AID took the position that, once the grant funds had been disbursed by ORDEV to the special accounts of the governorates and village councils, they had been disbursed for authorized use. However, the IG argued that, since an agency may not increase its appropriation from outside sources without specific statutory authority, interest earned by a grantee on funds advanced by the United States must belong to the United States. GAO determined that the critical issue was whether the central Egyptian government's disbursement of the grant funds to the governorates and village councils constituted an authorized use of grant funds. GAO concluded that disbursement of the grant funds to the governorates and village councils for their management was a legitimate use of the grant since the statutory provision under which the BVSP was funded contains broad program authority and since the stated purpose of the grant was to support Egypt's policy of decentralizing authority for development activities. Accordingly, GAO held that AID had no legal basis for attempting to recover interest earned by the governorates and village councils on the BVSP grant funds that had been issued to them.