Policy 1509: Interest Income from Investment of University Cash

Subject Area: Cash
Responsible Office: Financial Services
Sponsor: Chief Financial Officer
Originally Issued: August 2000
Revised: January 2010
Refer Questions To: Maru Mendoza, 773-702-3690

Purpose: To provide guidelines for the payment of internal interest on cash balances.

Policy

It is the policy of the University to retain central control over interest earned from the investment of cash balances. There are three exceptions to this policy, (1) Auxiliary Operations, (2) Private Gifts and Grants, (3) Capital Projects.

1. Auxiliary Operations

1. Auxiliary Operations> – Auxiliary Operations generate revenues from activities conducted primarily to provide facilities or services for students, faculty, and staff. Normally, such operations are expected to operate on a “break-even” basis. The University functions as a bank for Auxiliary Operations: a) lending funds which enable Auxiliary Operations to cover negative cash positions resulting from negative operations or holding large amounts of inventory and receivables, or b) holding funds generated from accumulated net income from operations.

2. Calculation of Internal Interest – Auxiliary Operations that have a positive month end cash balance will be paid internal interest at the rate of six-month Treasury Bill minus 1%. Auxiliary Operations that have a negative month end cash balance will be charged internal interest at the rate of the six-month Treasury Bill plus 1%.

3. Implementation – Financial Services is responsible for performing the monthly internal interest calculation.

2. Private Gifts and Grants

1. Private Gifts and Grants – The University does not charge individual private gift and grant accounts for those central costs that benefit all units and activities such as the Library, utility costs, operation and maintenance of the physical plant, student services and general administrative expenses. At the same time, the University retains control over interest earned on cash balances in individual private gifts and grants accounts except in those instances where a donor or grantor explicitly requires the payment of interest as a condition of the gift or grant award.

2. Payment of Internal Interest – Interest is calculated and paid monthly based on the month end cash balance in the private gift or grant account. The interest rate will be the six-month Treasury Bill rate minus 1%.

3. Implementation – Financial Services is responsible for performing the monthly internal interest calculations.

3. Capital Project Accounts

1. Capital Project Accounts – In those cases where private gifts and grants are used to finance a capital project of $5 million or more and for which the funding of the project is the responsibility of a unit of the University rather than the Central Budget, interest will be paid to the capital project account to the extent that the gifts and grants exceed the cumulative incurred project costs. Interest will not be paid to a capital project account prior to approval of the project by the Board of Trustees.

2. Payment of Internal Interest – Interest will be calculated and paid monthly if there is a positive cash balance in the capital project account. The interest rate will be the six-month Treasury Bill rate minus 1%.

3. Implementation – Financial Services is responsible for performing the monthly internal interest calculations.

Exceptions

Exceptions to this policy are discouraged, and can only be approved by the Associate Vice President for Finance.