Distribution and Control of USDA Foods and TEFAP

This Management Bulletin (MB) highlights key changes made to Title 7, Code of Federal Regulations (7 CFR), Part 250, which affect the requirements for the distribution and control of U.S. Department of Agriculture (USDA) Foods. These changes were effective June 20, 2016, and published by the USDA in the Final Rule titled, Requirements for the Distribution and Control of Donated Foods and The Emergency Food Assistance Program (TEFAP): Implementation of the Agricultural Act of 2014. The published Final Rule can be found on the USDA Final Rule: Requirements for the Distribution and Control of Donated Foods and TEFAP: Implementation of the Agricultural Act of 2014 web page at https://fns-prod.azureedge.net/tefap/fr-041916.

Background

The USDA published the Final Rule for 7 CFR, parts 250 and 251 on April 19, 2016. This rule revised and clarified regulations to ensure that USDA Foods are distributed, stored, and managed in the safest, most efficient, and cost-effective manner. This rule also reduces administrative and reporting requirements, and clarifies regulatory provisions related to the accountability of USDA Foods.

Key Changes for Recipient Agencies and Processors

The USDA has created a side-by-side comparison chart that provides a detailed summary of all changes made to 7 CFR, parts 250 and 251. The document titled, Side-by-Side: 7 CFR, Part 250 Final Rule, can be found on the USDA Food Distribution Regulations web page at http://www.fns.usda.gov/fdd/regulations [Note: the preceding web address is no longer valid.]

The following sections are key changes that directly affect recipients of USDA Foods, including USDA Foods processors. In addition to reviewing these selected citations, the California Department of Education (CDE) Food Distribution Program strongly encourages all participants to read the preamble and regulatory text in its entirety. The following citations are in sequential order.

Receipt of shipments, 7 CFR, Section 250.11(b):

New requirement that any entity receiving direct shipments from the USDA must comply with all applicable federal requirements, which includes notifying the USDA of receipt of USDA Foods through electronic means and maintaining an electronic record of all USDA Foods received.

Inventory limitations, 7 CFR, Section 250.12(c):

Retains the six-month inventory limitation for USDA Foods received and clarifies that the limitation applies to each category of USDA Foods. [Note: Edited March 22, 2017, the CDE clarifies that this regulation is a requirement for distributing agencies only; however, it is considered a good management practice for recipient agencies to follow.]

Inventory protection, 7 CFR, Section 250.12(d):

New requirement that mandates any subdistributing agency or recipient agency (RA) that has an agreement with a commercial storage facility, obtain the necessary insurance to protect the value of USDA Foods. The amount of insurance obtained must be at least equal to the average monthly value of USDA Foods held in inventory during the previous fiscal year. [Note: As of March 22, 2017, the CDE clarifies that this regulation is a requirement for distributing agencies only.]

Storage and inventory management at the RA level, 7 CFR, Section 250.14:

Retains requirement that RAs provide facilities for the storage, control, and distribution of USDA Foods that protect against theft, spoilage, or other loss, and that RAs maintain food at proper temperature and provide proper ventilation. The regulation also clarifies that RAs must comply with all federal, state, or local requirements relative to food safety and health, and obtain all required health inspections. The citation adds that RAs must comply with federal, state, or local procedures when responding to a food recall.

Inventory management, 7 CFR, Section 250.14(c):

Clarifies that RAs are not required to store USDA Foods in a manner that distinguishes them from other foods. Further, RAs do not need to maintain a separate inventory record of USDA Foods and therefore, may use a single inventory management system.

This citation also clarifies that for RAs, USDA Foods are subject to the same safeguards and effective management practices as other foods. Accordingly, regardless of system of inventory management used, RAs are not required to separately monitor and report USDA Foods use, distribution, or loss to the CDE, unless there is evidence that indicates such losses have occurred as a result of theft or fraud. 

Commercial storage facilities, 7 CFR, Section 250.14(e):

New requirement that allows RAs to obtain the services of commercial storage facilities to store and distribute USDA Foods. RAs that obtain these services must ensure compliance with procurement requirements cited in 7 CFR, parts 3016 or 3019, [Note: 7 CFR, parts 3016 or 3019 are no longer applicable. Please refer to 2 CFR part 200, subpart D and 2 CFR parts 400 and 416, as applicable.] RAs must also ensure that such commercial storage facilities comply with applicable 7 CFR, Part 250 requirements for storage, inventory management, and control of USDA Foods.

Out-of-condition USDA Foods at RA level, 7 CFR, Section 250.15(b):

Clarifies that USDA Foods are subject to the same safeguards and management practices as other foods and must be treated the same as other foods when safety is in question. RAs must comply with state or local requirements when determining food safety, destruction, or other disposition. The regulation adds that out-of-condition USDA Foods must also be removed from storage facilities in accordance with USDA instruction, and state or local requirements.

Food recalls, 7 CFR, Section 250.15(c):

New requirement specifies that RAs are to follow all applicable federal, state, or local requirements for USDA Foods involved in a food recall.   

Complaints relating to USDA Foods, 7 CFR, Section 250.15(d):

New requirement prohibits the disposal of any USDA Foods involved in a complaint without guidance and authorization from the USDA.

Processing and food service management company contracts, 7 CFR, Section 250.17(b):

Clarifies that RAs must use funds received from a processor or a food service management company (FSMC) in the crediting for USDA Foods, in support of their nonprofit school food service, in accordance with 7 CFR, Section 210.14.

Required records, 7 CFR, Section 250.19(a):

Clarifies that any entity that receives USDA Foods must maintain records of agreements and contracts, documentation of USDA Foods and end products received, reports, audits, claim actions, funds obtained from any incidents involving USDA Foods, and any other records specifically required in 7 CFR, Part 250 or in other USDA regulations, as applicable.

The citation also clarifies that processors are required to maintain records that include sales of end products to RAs, including sales through distributors. Processors must also comply with recordkeeping requirements and submit monthly performance reports, in accordance with 7 CFR, Section 250.30(m) [Note: Section 2250.30(m) is no longer applicable. Please refer to 250.37(d)].

Lastly, this citation clarifies that failure to maintain such records shall be considered prima facie evidence of improper distribution or loss of USDA Foods and may result in a claim against the responsible party for the loss of USDA Foods, in accordance with 7 CFR, Section 250.16.

Audit requirements for processors, 7 CFR, Section 250.20(b):

New requirement for in-state processors to obtain an independent certified public accountant (CPA) audit in the first year of receiving USDA Foods for processing, and for multistate processors to obtain a CPA audit in each of the first two years of receiving USDA Foods for processing. The citation also defines the required frequency of subsequent independent CPA audits that in-state and multistate processors must obtain, which is determined by the average value of USDA Foods received. The regulation also revises the current USDA Foods value thresholds and clarifies that all processors are responsible for all costs associated with required audits.

Post-audit actions required of processors, 7 CFR, Section 250.20(c):

New requirement for in-state processors to submit a copy of their independent CPA audit to the CDE for review by December 31 of each year in which an audit is required. In-state processors must correct any deficiencies identified in the audit, and provide a corrective action plan with timelines for correcting deficiencies to the CDE along with the audit.

Multistate processors must submit a copy of their independent CPA audit and corrective action plan, as appropriate, to the USDA for review by December 31 of each year in which an audit is required. 

Failure to meet audit requirements, 7 CFR, Section 250.20(d):

Clarifies that if an in-state processor fails to obtain their required audit, or fails to correct deficiencies identified in their audit, the CDE or RA may terminate the processing agreement, and may not extend or renew such an agreement. Additionally, the USDA may prohibit the further distribution of USDA Foods to the processor. 

If a multistate processor fails to obtain their required audit, or fails to correct deficiencies identified in their audit, the USDA may terminate the processing agreement.  Additionally, the USDA may prohibit the further distribution of USDA Foods to the processor. 

State oversight of processors, formerly 7 CFR, sections 250.19(b)(1) and 250.19(b)(2):

Removes the requirement for the CDE to review in-state processors, as well as the requirement for the CDE to implement a system which verifies the sale of processed end-products sold through distributors.

Processing of USDA Foods and inventory control, 7 CFR, Section 250.35(e):

Removes the requirement for processors to pay administering state agencies for excessive inventories at reconciliation. 7 CFR, Section 250.35 (e) now requires state agencies to ensure excess inventories are reduced at annual reconciliation. If reduction is not practical, the state must require the processor to pay for the USDA Foods held in excess of the allowed levels, at the replacement value of the USDA Foods.

This section also removes two reporting requirements for processors, which include the requirement that processors submit copies of requests for refunds and refund payments to the CDE and the requirement to report sales verification findings to the CDE.

USDA Foods in contracts with food service management companies, 7 CFR, Part 250, Subpart D:

Section 250.50(a) clarifies that a FSMC must use all USDA Foods received on behalf of an RA, or must use commercial substitutes in place of such USDA Foods as permitted in 7 CFR, Section 250.51(d).

Section 250.51(d) removes the reference to ground beef and pork to clarify current requirements, which allow for the use of all meat products in an RA’s food service.

Section 250.52(a) clarifies that the FSMC must meet all the requirements in 7 CFR, Section 250.14(a) for the safe storage and control of USDA Foods.

Section 250.52(c) clarifies that the FSMC must return all unused meat products upon termination of contract.

Recipient agencies acting as a collective unit, 7 CFR, Section 250.59(e):

Clarifies that RAs may conduct activities of nonprofit school food service as a collective unit (e.g., in a school co-op or consortium), including activities relating to USDA Foods. Such activities must be conducted in accordance with a written agreement or contract between the parties. Clarifies that RAs acting as a collective unit are subject to the same requirements as a single RA conducting such activities. The RA collective unit may, for example, use single inventory management in its storage and control of commercially purchased and USDA Foods.

Contact Information

If you have any questions regarding this MB, please contact Amy Bell, Child Nutrition Consultant, Food Administration Unit, by phone at 916-322-5051 or by e-mail at abell@cde.ca.gov. [Note: The preceding infomation is not longer valid. If you have any questions regarding this MB, please contact the Food Distribution Program Office by phone at 916-323-0865 or by email at FoodDistribution@cde.ca.gov.]