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Value Pass Through Systems


Nutrition Services Division Management Bulletin
Purpose: Policy, Beneficial Information

To: U.S. Department of Agriculture Foods Processors, Private Cooperatives, Food Service Directors

Number: USDA-FDP-02-2012

Attention: U.S. Department of Agriculture Foods Manager/Specialist

Date: March 2012

Subject: Value Pass Through Systems Used by U.S. Department of Agriculture Foods Processors, Distributors, and Recipient Agencies

Reference: U.S. Department of Agriculture Food Distribution Policy Memorandum FD-007 (Revised)

This Management Bulletin explains Value Pass Through (VPT) systems used by U.S. Department of Agriculture (USDA) Foods processors, distributors, and recipient agencies (RAs), including how VPT systems affect USDA Foods inventory draw down at processors.

Direct Sale

Under the Direct Sale VPT system, a processor delivers USDA Foods end products directly to an RA and bills the RA for the discounted net price reflecting the value of USDA Foods used to produce the end products. The processor reduces the RA’s USDA Foods inventory when they bill the RA.

Fee for Service

Meat and poultry processors often use the Fee for Service VPT system.

The processor charges a net case price to convert raw USDA Foods into finished end products. The net case price only includes costs other than the USDA Food ingredients, such as non-USDA Food ingredients, labor, packaging, etc. The discount for the USDA Food ingredients is included in the net case price.

Under the Fee for Service VPT system, a processor or a distributor may deliver the end products. If the processor delivers the end products, the processor will charge the RA for the Fee for Service case charges and the delivery fee. If a distributor delivers the end products, the processor may charge the RA for the end products and the distributor may charge the RA for the delivery separately. However, the processor can make arrangements with the distributor on the RA’s behalf. In this case, the processor provides an invoice to the RA including the Fee for Service case charges and the distribution charges as separate identifiable charges. The processor reduces the RA’s USDA Foods inventory when they bill the RA.

Direct Refund to Recipient Agency

Under the Direct Refund VPT system, a processor sells USDA Foods end products to an RA at the gross commercial price. The RA applies for a refund from the processor for the value of the USDA Foods used to produce the end products. The processor reduces the RA’s USDA Foods inventory when they pay the refund to the RA.

Indirect Refund to Recipient Agency

Under the Indirect Refund VPT system, a processor sells USDA Foods end products to a distributor at the gross commercial price. The distributor sells the USDA Foods end products to an RA at the gross commercial price. The RA applies for a refund from the processor for the value of the USDA Foods used to produce the end products. The processor reduces the RA’s USDA Foods inventory when they pay the refund to the RA.

Indirect Discount

Under the Indirect Discount VPT system, a processor sells USDA Foods end products to a distributor at the gross commercial price. The distributor sells the USDA Foods end products to an RA at the discounted net price to account for the value of USDA Foods in the end products. The distributor must apply for a refund from the processor to compensate for the discount they provided to the RA. The processor reduces the RA’s USDA Foods inventory when they pay the refund to the distributor.

Net Off Invoice

Net Off Invoice (NOI) is a type of Indirect Discount VPT system. Under NOI, the distributor receives the refund from the processor based on the automated sales report it provides to the processor. The automated sales report notifies the processor of end product sales to the RA. Once the processor receives the sales report from the distributor, the processor reports end product sales, pays the refund to the distributor, and reduces the RA’s USDA Foods inventory.

Additional Information for Indirect Discount and NOI

To ensure that processors and distributors only sell USDA Foods end products to eligible RAs, the processor must provide the distributor a list of RAs eligible to receive USDA Foods end products, and either:

  1. The quantities of end products that each RA is eligible to receive (cases or dollars)
  2. The quantities of USDA Foods allocated to each RA, and the amount of raw USDA Foods (pounds or dollars) that each case of end products contains
Commingling of Finished End Products

For end products produced from substitutable USDA Foods, the distributor may sell commingled commercial products and USDA Foods end products to any of its customers. The distributor must sell end products to eligible RAs with a discount for the value of the USDA Foods.

For end products produced from non-substitutable USDA Foods, the processor must assign an identifier to prevent commingling with similar commercial products at the distributor’s facility. Non-substitutable end products must only be sold to eligible RAs. The processor must provide the distributor the gross commercial price of the end products and the value of the USDA Foods in the end products. The processor should also notify eligible RAs when end products are shipped to the distributor, so that they can begin drawing down the inventory.

Sales Verification

Processors using the Indirect Discount and NOI systems must verify with a random sample of their RAs that the RAs received the appropriate value of USDA Foods and the correct number of cases of end products from the distributors.

Responsibilities for Processors

Processors using the Indirect Discount and NOI systems must contact RAs with sales verification requests. Processors must submit a sales verification report to the California Department of Education (CDE) at the end of December for the period of July through December, and at the end of June for the period of January through June. The sales verification report should include the total number of NOI sales, the sample size, the number of NOI sales for each RA, and whether each RA in the sample provided verification or reported discrepancies.

Processors may use electronic systems to track USDA Foods inventory and manage USDA Foods sales verification. These electronic systems must document that an RA accessed account information that would verify that the RA received the appropriate value of USDA Foods from the distributor. Processors should notify RAs that they conduct sales verification electronically.

Responsibilities for RAs

RAs are responsible for responding to sales verification requests from processors and from the CDE. RAs should respond either that they received the appropriate value of USDA Foods from distributors, or that they show discrepancies between the USDA Food value they should have received and the USDA Food value they did receive for end products from distributors.

As further assurance that RAs receive the appropriate value of USDA Foods in end products, RAs should indicate that a bid submitted in response to a solicitation for procurement of end products must include the gross commercial case price, the USDA Food value per case, and the discounted net case price.

Responsibilities for the CDE

The CDE re-verifies a sample of sales from the processor’s sales verification report. The CDE may request that RAs re-verify receipt of end products and the appropriate USDA Food value through e-mail communication. The CDE may accept a “read receipt” of an e-mail message sent to the RA as confirmation that the RA reviewed processor account information to verify the appropriate value of USDA Food was provided by the distributor. An RA choosing not to respond would be positive verification that the information contained in the message is correct.

The CDE reports its re-verification results to the USDA twice a year.

If you have any questions regarding this subject, please contact Jessica Gray, Processing Consultant, by phone at 916-324-6150 or by e-mail at jgray@cde.ca.gov, or Jennifer Stultz, Processing Consultant, by phone at 916-324-1583 or by e-mail at jstultz@cde.ca.gov.

Questions:   Nutrition Services Division | 800-952-5609
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