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MyFedTrainer.com Blog

The Busy Person’s Guide to Banking of Grant Funds

This is the fifth section in our thirteen part series on “The Busy Person’s Guide to Grant Management.”

WARNING: GRANT FUNDS HAVE BANKING REQUIREMENTS. TWO LITTLE MISTAKES THAT CAN COST YOU BIG!

OK, now you have received your Grant, the money is flowing into your bank. Life is good. No worries now. Depending on the size of your Grant, there may be big bucks sitting in a bank account waiting to go out for payments to vendors and payroll for employees. There are still some little details that you need to watch out for when it comes to the banking of Grant funds.

The Busy Person’s Guide to Banking Grant Funds

Whether you are a Governmental entity, a Non-profit Organization, or an Institution of Higher Learning, there are a couple of requirements for banking your Grant funds that Auditors love to check on. Get ready for the questions if you get your Grant funds advanced to you by the Federal Government.

Item #1 Can you prove you are supporting banking opportunities for women and minorities?

The Administrative requirements for Grant recipients support the stated national goal of expanding opportunities for women and/or minority-owned business enterprises.

As a result, both Grantees and Subgrantees are “encouraged” to use women- and/or minority-owned banks for their cash depository needs. (A minority owned bank is defined as having at least 50% ownership by minority members.)

Just like the use of other women- and/or minority-owned business enterprises for goods and services spent in support of program objectives, (check out the requirements for procurement with Federal funds) your Organization should be looking for and documenting efforts to include these types of business relationships when it comes to banking as well.

Did I mention you should also be documenting the efforts of your Subgrantees? It’s pretty hard to recreate your efforts months or years after the fact. So be aware and be compliant.

Item #2 Will you find this “interesting”?

It’s more common than you would think for Organizations to assume Grant funds can’t be in an interest bearing account. Somehow the old line about not paying interest on Federal Grants has gotten convoluted into thinking Grant funds can’t be in an interest bearing account.

However, that is not what the Administrative requirements say. If your Organization is drawing Grant funds through the Advance payment method, there is a requirement to maintain advances of Federal funds in interest bearing accounts, with a few exceptions.

If you are a Non-profit Organizations or an Institution of Higher Learning, here are the exceptions to the interest bearing account requirement.
Not required if:

  • 1) The Grant recipients are receiving less than $120,000 in Federal Awards annually.
  • 2) The expected interest in the best available account would not exceed $250 per year.
  • 3) The average or minimum balance is so high that it would not be feasible to maintain that type of account.

Wait a minute!

Remember from the section on drawing Grant funds, that you can’t request more money than you need? That holds true even if you thought you could draw funds to meet the minimum balance requirements to get an interest bearing account.

The “no excess draws” trumps an “interest bearing account” in the strange and wacky world of conflicting Federal regulations.

“I’m not interested in money. I just want to be wonderful”. Marilyn Monroe

Try that line next time you’re getting reviewed by your funding Agency. (Or maybe not!)

What happens to the interest that is earned on the Grant funds held in interest bearing accounts?

In most cases, Grantees are generally required to send the interest earned on advances of Federal funds back to the Federal Government. However, there are exceptions to this rule as well. (Is it me, or does cash management seems to have lots of exceptions in the regulations?)

If you are a State, Local, and federally recognized Indian Tribal Governments.

Not required if:

  • 1) The interest is exempt under the Intergovernmental Cooperation Act.
  • 2) The interest that is exempt under the Indian Self-Determination Act.

Here’s the most common exception.

If the interest is a small amount each year you don’t have to send it back to the Feds. How small is small?

  • State, Local and Tribal Governments earning interest of $100 or less per year.
  • Non-profit Organizations and Institutions of Higher Learning earning interest of $250 or less per year.

The interest may be retained by the Grantee to cover administrative expenses. Yes, you actually have to track the interest to know if you are under that amount.

When do we have to send the money to the Feds?

What happens if the interest earned is more that these amounts?

  • State, Local and Tribal Governments, the amount of interest earned over $100 must be remitted promptly to the Federal Agency.
  • Non-profit Organizations and Institutions of Higher Learning, the amount of interest over $250 must be remitted to the Department of Health and Human Services Payment Management System. The excess interest is not returned to the awarding agency, nor is it retained by the Recipient.

Reality bites, and how banking really works.

Let’s talk about the reality of business banking. Many larger business accounts are not a strictly interest bearing accounts. Often accounts are set up with an “Account Analysis” that compares interest that could have been earned on the account and offsets it against bank fees for the account. With interest rates so low, often the potential for earning interest on the funds is pretty minimal, while the banks appetite for fees is not.

How do the regulations for an interest bearing account fit into this? The answer is even though common sense says you probably wouldn’t get diddly on an interest bearing account. You still have to go through the exercise of proving that you are trying to be compliant. Lay it out in a reasonable fashion to prove your case and hope for a reasonable reviewer from the Feds.

P.S. Here’s even more free information.

Check out the Banking Grant Funds Video Lesson.

Length: Approx. 3 minutes

Get your own very cool, one page “Quick Reference Guide: Banking Grant Funds.”

(Just click on the link to download the .pdf file.)

This is the fifth section in our thirteen part series on “The Busy Person’s Guide to Grant Management.”

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