GAO was asked to reconsider its interpretation of the Intergovernmental Cooperation Act of 1968. In two past decisions, GAO interpreted the Act as permitting subgrantees of Federal grants to States to keep interest earned on State advances to the subgrantee. The Act, which exempts States from the general rule that requires the return of interest earned by grantees on State funds, is largely based on the assumption that the Government can effectively control the release of grant funds so that States will not be in a position to earn excessive interest on any advances they might receive. To obtain the interest earned by subgrantees, it would be necessary to require the State, rather than the secondary recipients of the grant funds, to account for the interest. This would be contrary to the statute, since it is the States with which the Government has a relationship and to which it must look for relief. GAO found no basis for revising its interpretation of the Act. However, States should monitor their grantee's draw of cash and recover any excess.
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