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Calculating Interest on Federal Funds

Guidelines on calculating interest on federal funds.
Enclosure I
Page 1 of 2

The following guidelines are designed to assist the California Department of Education (CDE) federal program grantees and sub-grantees (referred to below as grantee or grantees) in calculating interest on unspent federal program cash advances.

Calculating Interest When Federal Cash is or can be Segregated from Other Grantee Resources

If federal funds are maintained in a manner in which the County Treasurer or County Office of Education can specifically determine the amount of interest earned on federal funds for a particular period (at least quarterly), then that is the interest amount that should be reported and remitted to the CDE. The interest due on federal cash balances should reflect the actual amount of interest earned on the unspent federal program funding advances. Therefore, interest calculations should be based on applicable interest rates applied to actual federal cash held in the grantee’s bank or County Treasury.

Calculating Interest When Federal Cash is Pooled with Non-Federal Funds

If federal funds are pooled with non-federal funds in the grantee’s bank or County Treasurer, then the grantee must reasonably determine the federal portion of total earned interest for the period. Since the amount of federal cash available for program costs can change daily, the grantee should apply applicable interest rates to the reporting period’s average daily federal cash balances. Average daily federal cash balances can be calculated by combining all federal program cash, both negative and positive, for each day of the reporting period, using federal program resource codes, then dividing by the actual number of days in the reporting period. If the combined federal cash available under this approach is negative for any day during the period, the grantee must record the average daily federal cash balance as zero to avoid reducing or offsetting federal interest earnings for the temporary use of non-federal cash resources for federal programs (see the sample calculation methodology on page 2 of this enclosure for an example of this situation).

If the grantee includes non-federal match funding in the federal program resource codes, the grantee may reduce the daily federal cash balances by the corresponding proportionate share of required cash match for each program. For example, if federal program Title XYZ has a 20 percent match requirement and the grantee accounts for the non-federal match in the Title XYZ federal program resource code, then the 20 percent proportionate share of match may be excluded from the calculated daily and average daily balances.

Reporting and Remitting Federal Interest

CDE federal program grantees are required to report and remit interest to the CDE at least quarterly. Although grantees are allowed to keep interest amounts up to $100 per year for administrative purposes, the $100 is in total for all federal programs, not for each federal program. When reporting and remitting federal interest to the CDE, grantees should specify the time period of interest earning and the federal program resource codes. Interest on federal cash balances should be sent to the CDE at the following address:

California Department of Education
P.O. Box 515006
Sacramento, CA 95851
Attention: Cashier’s Office


Enclosure I
Page 2 of 2

*  In this example, negative federal program cash balances are assumed to be the result of costs paid by cash from other federal programs.

** In this example, the combined cash daily cash balance is negative $100; however, for federal interest calculation purposes, combined daily cash balances cannot be negative. Negative combined daily balances would reduce or offset federal interest earnings due to the temporary use of non-federal cash resources. Therefore, any negative combined daily balances should be zero in calculating interest on federal cash balances.

Interest on Federal Cash Balances
(Sample Calculation Methodology)

Date

Federal Program
A

Federal Program
B

Federal Program
C

Federal Program (ARRA)
D

Combined
Daily
Balance

12/01/09

$500

$300

$400

$200

$1,400

12/02/09

500

300

400

200

1,400

12/03/09

500

300

400

200

1,400

12/04/09

500

300

*(400)

200

600

12/05/09

500

300

*(400)

200

600

12/06/09

500

300

*(400)

200

600

12/07/09

500

300

*(400)

200

600

12/08/09

500

300

*(400)

200

600

12/09/09

200

300

*(400)

*(200)

**0

12/10/09

200

300

400

*(200)

700

12/11/09

200

300

400

*(200)

700

12/12/09

200

300

400

*(200)

700

12/13/09

200

300

400

*(200)

700

12/14/09

200

300

400

*(200)

700

12/15/09

200

300

400

200

1,100

12/16/09

200

300

400

200

1,100

12/17/09

200

300

400

200

1,100

12/18/09

200

*(200)

400

200

600

12/19/09

200

*(200)

100

200

300

12/20/09

100

*(200)

100

200

200

12/21/09

100

*(200)

100

200

200

12/22/09

100

*(200)

100

200

200

12/23/09

100

*(200)

100

200

200

12/24/09

100

*(200)

100

200

200

12/25/09

100

*(200)

100

200

200

12/26/09

100

*(200)

100

200

200

12/27/09

100

*(200)

100

200

200

12/28/09

100

0

100

200

400

12/29/09

100

0

100

200

400

12/30/09

100

0

100

0

200

12/31/09

100

0

100

0

200

Total of all Daily Balances in Reporting Period
(December 1 through December 31)
       
$17,700
Step 1: Calculate the Average Daily Balance

Divide the Total of all Daily Balances in Reporting Period by the actual number of days in reporting period.

Example: Divide total of all daily balances of $17,700 in reporting period by 31 actual days in reporting period equals average daily balance of $571.

Step 2: Calculate the Annual Interest Amount

Multiply the Average Daily Balance by County Treasurer Interest Rate.

Example: Multiply average daily balance of $571 by county treasurer interest rate of 2.4267% equals annual interest amount of $14.

Step 3: Calculate the Daily Interest Amount

Divide interest amount by number of days in year.

Example: Divide annual interest amount of $14 by 365 days in year equals daily interest amount of $0.038.

Step 4: Calculate the Total Federal Interest Due

Multiply the Daily Interest Amount by number of days in reporting period.

Example: Multiply daily interest amount of $0.038 by 31 days in reporting period equals total federal interest due of $1.18.

Questions:   Teresa Palomino | tpalomino@cde.ca.gov | 916-319-0698
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