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Cafeteria Funds/Accounts - Reminders and Resources


Nutrition Services Division Management Bulletin

Purpose: Policy, Beneficial Information

To: All Public/Non-Public Schools, Districts, County Offices, Charter Schools, Group Homes, Juvenile Halls, Camps, and All Other Agencies Participating in the National School Lunch and School Breakfast Programs

Also:

  • California School Nutrition Association
  • California Association of School Business Officials
  • California Charter School Association
  • Association of California School Administrators
  • California School Boards Association

Number: NSD-SNP-05-2012

Attention: Food Service Directors, Superintendents, Business Officials, Administrators, Executive Directors, Members

Date: May 2012

Subject: Cafeteria Funds/Accounts—Reminders and Resources

Reference: Title 7, Code of Federal Regulations (CFR), sections 210.2, 210.9, 210.14, 3016, 3019; Title 2, CFR, Part 225 (formerly Office of Management and Budget Circular A-87); U.S. Department of Agriculture, Food and Nutrition Service – Cafeteria Fund Loan Guidance; California School Accounting Manual; California Education Code sections 38080–38103 et seq., and 41010; USDA Indirect Cost Guidance Manual

The California Department of Education (CDE) Nutrition Services Division (NSD) is issuing this Management Bulletin (MB) to remind School Food Authorities (SFAs) (Local Educational Agencies [LEAs] participating in School Nutrition Programs [SNPs]) of the laws and regulations that govern revenues accruing to cafeteria funds/accounts. This MB also highlights some improper practices that the CDE has encountered, which can result in audit findings for SFAs as a result of the misuse or mischarging of cafeteria funds, and highlights suggested “best practices.”

The California Department of Education’s Authority Over School Nutrition Programs

As the State Educational Agency for federal School Nutrition Programs, the CDE is required to ensure that SFAs participating in federal School Nutrition Programs comply with all applicable California State and federal laws and regulations. Some of the pertinent federal regulations concerning the CDE’s responsibilities can be found in Title 7, Code of Federal Regulations (7 CFR) as follows:

School Food Authority Responsibilities Related to Cafeteria Accounts

California’s Legislature recently added language to the state’s annual budget, which allowed fund transfers from one district/agency fund to another with the intention of allowing districts to maintain solvency. However, the Legislature did so without full knowledge of federal fiscal requirements and regulations.  When the Legislature gave SFAs this type of flexibility to move funds around, it caused some confusion. State legislation does not supersede federal law governing the use of cafeteria funds. Regardless of existing/proposed state statute(s), federal regulations clearly prohibit SFAs from using or transferring money from the cafeteria fund for non-food service expenditures.

Some of the pertinent federal regulations related to cafeteria accounts can be found in 7 CFR as follows:

  1. Maintain a nonprofit school food service and observe the limitations on the use of nonprofit school food service revenues...
  2. Limit its net cash resources [emphasis added] to an amount that does not exceed 3 months average expenditures for its nonprofit school food service or such other amount as may be approved in accordance with § 210.19(a)...
  3. Maintain a financial management system as prescribed under § 210.14(c)...
  4. Comply with the requirements of the Department’s regulations regarding financial management (7 CFR part 3015 and 7 CFR part 3016, or 7 CFR part 3019, as applicable)...

Net Cash Resources—Action and Spending Plans

As described above, 7 CFR Part 210 requires SFAs to maintain a cafeteria fund and defines the term “Net Cash Resources.” If an SFA’s net cash resources consistently exceed three months' average expenditures, the CDE strongly recommends that the SFA immediately submit a “spending plan” to the CDE’s FSU for approval in order to reduce the cafeteria fund to an allowable level and avoid the CDE requiring the SFA to reduce meal prices, or having to make adjustments to the rate of reimbursement provided to the SFA.

In addition to the federal guidance outlined above, the California Education Code (EC) provides definitions and restrictions concerning an SFA’s proper use of school cafeteria funds/accounts, which include, but are not limited to, the following:

Federal Regulations Do Not Allow School Food Authorities to Maintain a Cafeteria Fund Equipment Reserve

The California Legislature created EC Section 38102 to allow school districts to establish and maintain a cafeteria fund reserve, derived from the sale of food in the cafeteria, in an amount determined by the governing school board, and used solely for the purchase, lease, maintenance, or replacement of cafeteria equipment. However, federal regulations do not allow for a separate cafeteria fund for equipment or any other purpose (7 CFR, Section 210.2). The federal regulations require SFAs to establish a restricted account in which all of the revenue from all food service operations conducted by the SFA are deposited and retained. In addition, as mentioned above, the cafeteria fund may not exceed three month’s average operating expenses; therefore, a “reserve” is likely not feasible for most SFAs.

Charging Costs to the Cafeteria Fund

The California School Accounting Manual (CSAM) outlines California’s official school accounting system and assists SFAs in managing their funding. EC Section 41010 requires school districts to use systems to record their financial affairs that comply with the CSAM’s definitions, instructions, and procedures. Pursuant to EC Section 41010, SFAs must follow CSAM instructions with regard to charging costs to their cafeteria fund, especially when dealing with the following procedures:

The CSAM can be ordered, viewed, or downloaded from the CDE CSAM Guidance Web page at http://www.cde.ca.gov/fg/ac/sa/index.asp.

Additionally, the following federal regulations and guidance provide information related to charging costs to the cafeteria fund:

Handling Fees on Warehoused Goods

Generally, for SFAs that maintain general stores, warehouses, or stockrooms from which schools withdraw equipment, food, and/or supplies, items requisitioned from general stores or stockrooms must be charged at their actual net cost under any recognized method of pricing inventory withdrawals, consistently applied.

Overhead costs for receiving, storing, and delivering goods requisitioned from a warehouse are allowable if charged in one of the following three ways. If a cafeteria program maintains its own warehouse, it incurs the overhead costs directly. If a cafeteria program that is part of a local educational agency (LEA) uses the LEA’s warehouse, it incurs the overhead costs either through the LEA’s indirect cost rate or through an overhead charge added by the LEA to the cost of goods requisitioned from the warehouse. Adding overhead to the cost of goods is permissive, not required.

Procedures 405 and 775 of the CSAM prescribe how an LEA should calculate overhead and account for it. The accounting methods in these procedures ensure that overhead costs reflect neither a profit nor a loss, and preclude any possibility of the cafeteria program being charged twice, once directly and again indirectly, for the costs of warehousing [2 CFR, Part 225 Appendix B, Items 26(a) and 26(b)].

Borrowing Money from the Cafeteria Fund

Federal guidance imposes limitations on borrowing money from the cafeteria fund. An SFA may only loan money from its nonprofit food service account as long as the loan does not jeopardize the integrity of its food service program and the loan meets all of the prerequisite criteria set forth in federal guidance.

Specifically, a loan from the cafeteria fund must be treated as a commercial loan and, before the SFA can transfer the funds, there must be a written bona-fide loan agreement between the SFA and food service officials with specific repayment terms such as dates, amounts, and interest payments. The rate of interest charged must be commensurate with the rate that would be paid if the loan was obtained from a commercial source and be no less than the amount of interest the food service department would have earned by keeping the money deposited in an interest-bearing local account. For additional USDA loan guidance, please see the CDE’s Cafeteria Fund Loan Guidance Web page at http://www.cde.ca.gov/ls/nu/sn/documents/caffundguideusda.doc.

Applicability of This Information

While this MB is directed to all School Nutrition Program sponsors, the information regarding the EC and the CSAM applies only to public school districts and county offices of education. Unless specifically stated as such within applicable EC sections, the EC does not currently apply to charter schools, residential childcare institutions, juvenile detention facilities, probation camps, and private schools. Federal regulations apply to all School Nutrition Program sponsors.

Further Information

Below is a list of additional guidance and resources pertaining to the use of cafeteria funds. Please share this MB and information with your district/agency management, finance, and business personnel.

If you have questions regarding this MB or cafeteria fund policy or regulations, please contact the School Nutrition Programs Unit at 800-952-5609 or you can submit your questions to SNPCafeFundQuestions@cde.ca.gov.

If you have questions about the CSAM or how to account for particular charges to the cafeteria fund, please contact the School Fiscal Services Division, Financial Accountability and Information Services Unit by phone at 916-322-1770 or by e-mail at sacsinfo@cde.ca.gov.


Additional Guidance and Resources Pertaining to the Use of Cafeteria Funds

  1. 2008–09–current: Financial Management—Level I Training. The California Department of Education (CDE), through the San Jose State University California Professional Nutrition Education and Training (Cal-Pro-NET) Center, sponsors a two-day Level I introductory seminar that assists new directors, supervisors, managers, and department accounting personnel in fiscal management. Attendees learn about accounting methods to help them control labor, food, supply, and operating costs, as well as existing and new federal regulations affecting school nutrition program financial operations.

    The California School Nutrition Association (CSNA) has approved this seminar for 12 continuing education units (CEUs).
  2. 2011–12–current: Financial Management—Level II Training. The CDE, through the University of California, Davis Cal-Pro-NET Center, offers Financial Management II for Child Nutrition Directors (CNDs). This interactive seminar is for experienced CNDs, as well as others responsible for the financial management of child nutrition programs, and explores some of the complex financial management issues, trends, and strategies in school food service programs today. Topics include: Strategies for increasing revenues and managing expenses; the impact of the Healthy, Hunger-Free Kids Act of 2010 on financial management of school nutrition programs; indirect and direct costs of school nutrition programs; use of cafeteria funds; developing business plans and analysis of financial records; marketing your school nutrition program; and financial implications of Farm-to-School and school garden programs and the use of foods in the School Nutrition Programs.

    The CSNA has approved this seminar for 10 CEUs.
  3. 2008–Current: Annual training for School Food Service. The NSD has annually provided comprehensive Cafeteria Fund Guidance training sessions (PowerPoint and resource handouts) since 2008 at several CSNA Chapter Meetings, the Annual CSNA Conference (twice in 2011), and at the California Association of School Business Officials conference for school district administrators and food service directors. These cafeteria fund training materials are available upon request, and will soon be posted to the CDE’s School Nutrition Programs Guidance, Manuals, and Resources Web page at http://www.cde.ca.gov/ls/nu/sn/mgmb.asp.
  4. Management Bulletin (MB) USDA-SNP-22-2011: Indirect Cost Guidance Manual (September 2011) http://www.cde.ca.gov/ls/nu/sn/mbusdasnp222011.asp. Provides information about and the Web link to USDA’s Indirect Cost Guidance Manual that provides proper procedures for how and when to charge indirect costs to an Local Education Agency’s (LEA) cafeteria fund (e.g., a LEA cannot retroactively charge indirect costs to its cafeteria fund).
  5. MB NSD-SNP-01-2009: School Food Authorities’ Responsibilities to Provide Meal Services to Students and Clarification Regarding the Use of Parent Groups, Student Groups, and Other Community Organizations to Provide Meal Service (December 2009) http://www.cde.ca.gov/ls/nu/sn/mbnsdsnp012009.asp. Provides specific guidance regarding cafeteria fund regulations.
  6. MB USDA-SNP-16-2009: Interest Earned on the Cafeteria Account/Fund (July 2009) http://www.cde.ca.gov/ls/nu/sn/mbusdasnp162009.asp. Explains that interest is allowable revenue in cafeteria funds, and includes link to Title 7, Code of Federal Regulations (7 CFR), Definitions of Cafeteria Fund Revenue and Resource Management.
  7. MB NSD-SNP-05-2009: School Cafeteria Funds Frequently Asked Questions (June 2009) http://www.cde.ca.gov/ls/nu/sn/mbnsdsnp052009.asp. Provides specific guidance regarding the 2009–10 Budget Act, and related detailed information pertaining to the use of cafeteria funds (links to multiple other resources regarding Cafeteria Funds).
  8. Letter to County and District Chief Business Officials and Charter School Administrators regarding fiscal issues relating to budget reductions and flexibility provisions resulting from trailer bill, Senate Bill 4 of the 2009–10 Third Extraordinary Session (April 2009) http://www.cde.ca.gov/fg/ac/co/documents/sbx34budgetflex.doc. Provides State Budget information through 2012–13, and broad guidance governing cafeteria fund uses.
  9. MB NSD-SNP-07-2008: Limitations on Transfer of Funds (July 2008) http://www.cde.ca.gov/ls/nu/sn/mbnsdsnp072008.asp. Includes comprehensive federal and state cafeteria fund regulations; also includes guidance on loans and penalties.
  10. MB NSD-SNP-03-2008: Potential Funding Opportunities for School Food Service Facilities (May 2008) http://www.cde.ca.gov/ls/nu/sn/mbnsdsnp032008.asp. Provides opportunities for cafeteria facility funding, guidance on the use of cafeteria funds, and a link to the federal Office of Management and Budget (OMB) Circular A-87 that governs cafeteria fund expenditures.
  11. Joint Nutrition Services Division and School Fiscal Services Division (SFSD) Letter to County/District Superintendents, Business Officials, and School Food Service Directors regarding School Cafeteria Funds Regulations; Clarification of AB 1754. (November 2004) http://www.cde.ca.gov/ls/nu/sn/caffundguide.asp. Provides additional instructions for LEAs, further clarifying appropriate use of cafeteria funds.
  12. Cafeteria Fund Loan Guidance from the U.S. Department of Agriculture http://www.cde.ca.gov/ls/nu/sn/documents/caffundguideusda.doc (posted to CDE Web
    June 3, 2004, as a link to #11 above, and later added as link to MB NSD SNP-07-2008). Provides specific instructions as to when cafeteria fund loans can be used and how they must be repaid (with interest), and explains how the agreement for a loan must precede an actual fund transfer and be accompanied by documentation, such as a board policy.
  13. MB 03-125: Assembly Bill (AB) 1754: Use of Cafeteria Funds/Accounts (December 2003) http://www.cde.ca.gov/ls/nu/sn/mb03125.asp. Provides additional and specific guidance that clarifies federal laws that govern cafeteria funds, which conflict with AB 1754.
  14. MB 00-109: Use of Cafeteria Funds Update (March 2001) http://www.cde.ca.gov/ls/nu/sn/mb00109.asp. Provides specific cafeteria fund information and includes links to OMB Circulars and to 7 CFR.
  15. SFSD Letter regarding 2003–04 Budget: Flexibility Provisions to County/District Superintendents, Chief Business Officials, and Charter School Administrators (November 12, 2003) http://www.cde.ca.gov/fg/ac/co/budgetflex.asp. Explains the flexibility in AB 1754, and advises LEAs participating in school meal programs to exercise caution, “…so as to ensure program compliance and avoid a federal audit exception.”
  16. Ongoing: CDE Web Pages: Indirect Cost Guidance for LEAs http://www.cde.ca.gov/fg/ac/co/icrate1213ltr.asp and http://www.cde.ca.gov/fg/ac/ic/index.asp. These Web pages provide extensive annual guidance for LEAs including the list of indirect cost rates for each LEA; explanation of how indirect cost rates are calculated and applied; and the annual statewide maximum indirect cost rate for Child Nutrition Programs.
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