Foreign Assistance:

Cost Reductions Possible From Improved Cash Transfer Management

NSIAD-93-58: Published: Nov 18, 1992. Publicly Released: Nov 18, 1992.

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Pursuant to a congressional request, GAO assessed the Agency for International Development's (AID) management of legislatively required separate accounts under its foreign economic assistance program.

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.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In March and August 1993, AID issued new guidance for cash transfer payment procedures as GAO recommended. AID now requires either direct payment procedures or the return to the United States of interest earnings in order to lower federal borrowing costs. AID also instituted regular reporting requirements on the status of cash transfer accounts. The extent of monetary benefits will depend on when and how AID implements its new guidance and what exemptions it allows. Any exemptions must be made on a case-by-case basis only on foreign policy grounds, and then only when a strong case can be made that retention of interest earnings by the recipient is in the national interest of the United States.

    Recommendation: The Administrator, AID, should: (1) require the use of whichever lower cost option is consistent with the purpose and objectives of each transfer; (2) justify any exemption from the use of the lower cost option on a case-by-case basis; and (3) adopt standardized requirements for periodic reporting on the status of separate accounts to AID headquarters in Washington.

    Agency Affected: United States Agency for International Development


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