Interest Income on Grants, Contracts, and Gifts

Description/Definition

The UW (University of Washington) deposits all cash received for restricted fund (grant, contract, and gift) budgets and consolidated endowment fund budgets into UW bank accounts. This cash subsequently earns interest, or the UW may also invest it. The UW uses the term "interest income" to refer to the income earned from both bank interest and investments. This page is only concerned with the interest earned on restricted fund budgets. Departments should address questions concerning the interest earned on consolidated endowment funds and other gift accounts to the UW Treasury office.

The UW Treasury office also administers the policy for the distribution of interest income earned by restricted fund budgets. Those classes of restricted fund budgets that currently receive interest income include:

  1. Non-federal grant budgets, where the sponsor requires that the UW credit interest income to the budget.
  2. Non-federal contract budgets, where the sponsor requires that the UW credit interest income to the budget.

Process Overview

The Office of Sponsored Programs (OSP) notifies Grant and Contract Accounting (GCA) to activate Accounting Flag 4 (interest income) on eligible grants and contracts by means of an instruction in the "remarks" section of the Funding Action (FA). GCA activates Accounting Flag 4 in the Financial Accounting System (FAS) for eligible grant and contract budgets and for all gift budgets. This controls automatic FAS interest income computations. The UW Executive Vice President sets the rates that are the basis for these computations. Every year, after May 31, FAS performs an automatic computation to determine how much interest income the University will distribute to the budgets eligible to receive interest income. The applicable rate is multiplied by the average monthly cash balance of the budget for the number of months the budget was active during the period between June 1 and May 31, and the interest is posted by journal voucher in the month of June.

>> How do we know when an award earns interest?

  • Interest is only available to awards where the sponsor pays in advance (scheduled payments or in full) and the agreement states that interest is required.  Your award agreement may include the following (or similar) languageAward term regarding interest

Managing Earned Interest

Most sponsors allow earned interest to be used towards the award.  However, it is always a best practice to ask the sponsor if you aren’t sure. 

If there is unspent interest at closeout and it’s not clear if we can retain or need to return the funds to the sponsor, GCA will reach out to the sponsor for clarification.  Typically, sponsors allow the UW to retain interest-only balances, but not always.

PI/Department Responsibilities

  • Contact the Treasury Office if you have any questions about the current interest rates applied to eligible grant, contract or gift budgets.
  • Contact OSP if you believe that a grant or contract budget is eligible to receive interest income, but the Funding Action (FA) does not so indicate and the Budget Number Information Screen (Action 4 in OFIS) does not reference Accounting Flag 4.
  • Contact GCA if you believe that:
    • A grant or contract budget is eligible to receive interest income and the FA does so indicate, but
    • The Budget Number Information Screen (Action 4 in OFIS) does not reference Accounting Flag 4.
  • Check the June BARs or MyFinancial Desktop Transaction Summary for the annual interest income posting on budgets eligible to receive this credit.

Contacts

Treasury Office: 206-543-3524; invest@uw.edu
Office of Sponsored Programs:  206-533-4043; osp@uw.edu
Grant and Contract Accounting: 206-616-9995; gcahelp@uw.edu