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Cafeteria Funds--Allowable Uses


Nutrition Services Division Management Bulletin
Purpose: Policy, Beneficial Information
To: All School Nutrition Program Sponsors
All Public School Districts
Number: NSD-SNP-07-2013
Attention: Food Service Directors
School Business Officials
District Superintendents
School Administrators
Date: May 2013
Subject: Cafeteria Funds—Allowable Uses
Reference: Title 7, Code of Federal Regulations, parts 210, 220, 3015, 3016, and 3019; Title 2, Code of Federal Regulations, parts 225 and 230; California Education Code; California School Accounting Manual; Management Bulletin NSD-SNP-05-2012
Supersedes: Child Nutrition and Food Distribution Division Management Bulletin 95-107 (June 1995)

Due to the complexity of cafeteria fund oversight, the California Department of Education (CDE), Nutrition Services Division (NSD) is issuing a series of MBs about the laws and regulations governing revenues accruing to, and expenditures made from, cafeteria funds/accounts. This Management Bulletin (MB) supersedes MB 95-107 (June 1995) and provides updated guidance on allowable and unallowable expenditures from school food services cafeteria funds/accounts.

Expenditures from Cafeteria Funds/Accounts

Expenditures from the cafeteria fund/account are governed by both federal and State laws, specifically:

                        Circulars A-87 and A-122 respectively)

NOTE:  CFRs can be accessed from the U.S. Government Printing Office CFR Web page at http://www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR

CDE Press, Sales Office
California Department of Education
1430 N Street, Suite 3207
Sacramento, CA 95814-5901

School Food Authorities (SFA) participating in the federal School Nutrition Programs (SNP) must observe both State and federal limitations on the use of cafeteria funds (7 CFR Section 210.9[b][1]); expend nonprofit school food service revenues in accordance with 2 CFR parts 225 and 230; follow generally accepted accounting principles (7 CFR Section 210.14[a]); and adhere to procurement procedures defined in 7 CFR parts 210, 220, 3015, 3016, and 3019, for all cafeteria fund expenditures.

Public school districts and county offices of education that participate only in the State Meal Program or that do not participate in any reimbursable meal program still must observe all State laws (e.g., EC and PCC) relating to the operation of a food service program and the use of school food service program revenues. Food services include the preparation and service of regular and incidental meals, lunches, milk, and/or snacks in connection with school (or after school) activities, and food delivery.

Land and Buildings

SFAs may not use funds (revenues) from the cafeteria account to buy land or buildings or to build buildings without prior approval from the U.S. Department of Agriculture (USDA), Food and Nutrition Service (FNS), and an approved waiver of EC sections 38100 and 38101 from the State Board of Education (SBE). Specifically, 7 CFR Section 210.14(a), nonprofit school food service states:

Revenues received by the nonprofit school food service are to be used only for the operation or improvement of such food service, except that, such revenues shall not be used to purchase land or buildings, unless otherwise approved by FNS [USDA], or to construct buildings. Expenditures of nonprofit school food service revenues shall be in accordance with the financial management system established by the State agency under Section 210.19(a) of this part. [Emphasis added]

State law aligns with the regulation cited above. Specifically, EC Section 38100 states:

The cost of housing and equipping cafeterias is a charge against the funds of the school district.

Costs incurred for repairs and alteration of kitchen facilities that materially increase the value or useful life of facilities also require prior USDA approval (see USDA Approval Requests below) and SBE approval (EC Section 38101). Alterations and repairs to a central food processing plant do not require SBE approval because they are currently allowed in EC sections 38091 and 38100. However, they do require prior USDA approval.

Central Food Processing Plants

A central food processing plant is a facility in which an SFA prepares meals and/or meal components and distributes them to separate sites where meals are served. A kitchen facility is where meals are prepared only for the consumption of students at the same location, and is not considered a central food processing plant; it is a preparation site (aka “prep site” in SNP application documents). EC Section 38100 currently* permits the governing board of any school district to authorize a charge against the cafeteria fund/account the cost of construction, alteration, or improvement of a central food processing plant. The governing board may, at any time within five years after the expenditure, reimburse the school district funds from their cafeteria funds.

However, 7 CFR Section 210.14(a) prohibits this use of cafeteria funds without prior USDA approval. Therefore, the cafeteria fund/account may not be charged for the construction of a central food processing plant without prior USDA approval.

*NOTE: If Assembly Bill (AB) 626 (Statutes of 2013–14, Assembly Members Skinner and Lowenthal) passes, the above EC Section will be amended to align with USDA requirements. The CDE will amend this MB if and when that occurs.

AB 626 is available on the California Legislative Information Web page at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB626.

Facility Rearrangement and Alteration Costs

SFAs are allowed to charge against the cafeteria fund/account for special rearrangement and alteration costs. Specifically, 2 CFR Part 225, Appendix B, Item 35, Rearrangement and alteration costs states:

Costs incurred for ordinary and normal rearrangement and alteration of facilities are allowable. Special arrangements and alterations costs incurred specifically for a federal award are allowable with the prior approval of the Federal awarding agency.

Examples of allowable ordinary and normal rearrangement and alterations for the kitchen and food service area only, include:

Special arrangements and alterations requiring prior USDA approval include:

Rental and Leased Costs of Buildings

Districts may not charge the cafeteria account for the rental or lease of district-owned facilities that are being used by the food service department (EC Section 38100). Districts may, however, rent or lease privately owned facilities for the food service department (2 CFR Part 225, Appendix B, Item 37).

Associated costs of renting or leasing a facility are allowable provided that the rates are reasonable depending upon the following factors:

Reconversion Costs for Rented or Leased Facilities

SFAs are allowed to charge the cafeteria fund/account for reconversion costs. For example, if a district leases facilities and pays to remodel them to meet the needs of food services, the costs associated to convert the building to its original condition at the end of the lease are allowable.

Specifically, 2 CFR Part 225, Appendix B, Item 36, reconversion costs states:

Costs incurred in the restoration or rehabilitation of the governmental unit’s facilities to approximately the same condition existing immediately prior to commencement of the school meal program, less costs related to normal wear and tear, are allowable.

Equipment

The USDA allows the CDE to approve expenditures for food service equipment and repairs, maintenance, or alterations to equipment only if the total equipment cost is less than the capitalization threshold established by the SFA for financial statement purposes; or $5,000. If an equipment cost is greater than the applicable capitalization threshold, it is allowable only with prior USDA approval. If the USDA approves a waiver request, then expenditures for equipment and repair, maintenance, or alterations to equipment are allowable without additional prior SBE approval, provided that the equipment is used exclusively for food preparation, storage, and/or service.

Specifically, 2 CFR Part 225, Appendix B, Item 15(a)(2) defines “equipment” as:

An article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost which equals or exceeds the lesser of the capitalization level established by the governmental unit for financial statement purposes, or $5,000.

Cafeteria Equipment Reserve

Please note that EC Section 38102 states that “any school district operating school cafeterias may establish and maintain a cafeteria fund reserve…derived from the sale of food in the cafeteria in an amount to be determined by the governing board and…shall be used for the purchase, lease, maintenance, or replacement of cafeteria equipment.”

However, SFAs participating in the federal school meal programs may not maintain a separate cafeteria fund reserve for equipment or any other purpose (7 CFR Section 210.2). 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, retained, and used solely for the operation and improvement of school food services.

U.S. Department of Agriculture Approval Requests

Under the authority of 7 CFR Section 3015.196(c), the USDA has delegated to the CDE a “conditional” waiver of the requirement for prior written approval of certain costs, such as equipment and repairs, maintenance, or alterations to equipment or buildings.

SFAs wanting to use cafeteria funds for the purchase of equipment and repairs, maintenance, or minor alterations to equipment or buildings that exceed the applicable capitalization threshold may do so by obtaining the CDE’s delegated USDA approval. However, if it is determined, by audit or otherwise, that the costs do not meet other requirements or tests for allowability specified by the applicable cost principles in 2 CFR Part 225, such as reasonableness and necessity, the costs shall be disallowed (7 CFR Section 3015.196[c]).

NOTE: Unlike the USDA, the CDE does not provide a “conditional” waiver to SFAs. SFAs must obtain the CDE’s (and SBE’s as needed) pre-approval for each cafeteria fund expenditure that requires approval.

U.S. Department of Agriculture Approval Process

SFAs seeking USDA approval to use cafeteria funds to purchase land or buildings; to construct buildings (including food processing plants); or for special arrangements or alterations, must submit the following information with their USDA pre-approval request to the CDE:

­USDA Approval Request
School Nutrition Programs Unit
Nutrition Services Division
California Department of Education
1430 N Street, Suite 4503
Sacramento, CA 95814

NOTE:  Although federal regulations allow for SFAs to request a waiver to the restrictions on using cafeteria funds for the purchase of land, buildings, and material improvements to land and buildings (construction), based on the restrictive language of 7 CFR Section 210.14, the USDA has made it very clear that they will not approve expenditure requests that are capital in nature and involve the purchase of buildings, land, the funding of capital projects, or construction. Regardless, because federal law allows for these requests, SFAs may submit a waiver request to the CDE that will be forwarded to the USDA with a recommendation for denial or approval. The CDE will then notify the SFA of the USDA’s decision.

Education Code Waiver Requests

In addition to the information outlined above for federal approval(s), if the USDA approves an SFA’s project expenditure and the project expenditure is governed by the EC, then the SFA must also submit to the Waiver Office an SBE waiver request of pertinent EC sections 38100 and 38101* (excluding expenditures for building/purchasing food processing plants/central kitchen facilities).

SFAs pursuing a State waiver request as required by EC Section 33050, must include the following:

Further, pursuant to EC Section 33051(a)(3), SFAs must also submit evidence of the district  providing the opportunity to any appropriate school council or advisory committee to review the request and a written summary of their objections (if any).

The SBE will consider waivers on a case-by-case basis at a regularly scheduled SBE meeting. The SBE may ask SFAs seeking waivers to send a representative to the SBE meeting to present their request. More information about the SBE waiver process including the steps to submit the waiver is available on the CDE Waivers Web page at http://www.cde.ca.gov/re/lr/wr/.

*NOTE:  If Assembly Bill (AB) 626 (Statutes of 2013–14, Assembly Members Skinner and Lowenthal) passes, the above EC Section will be amended to align with the USDA requirements. The CDE will amend this MB if and when that occurs.

Direct Costs

Direct costs are those costs that provide measurable, direct benefits to particular programs. Typical direct costs that may be charged to the cafeteria fund/account include salaries of food service directors, supervisors, managers, cooks, kitchen helpers, and clerks; employee benefits for all employees in this program; food; laundry; costs of purchase and operations of vehicles used in the delivery of food to various locations; insurance on vehicles used solely for food service; repair and maintenance of equipment used in the program (with approval); and acquisition and replacement of related equipment (with approval).

Indirect Costs

Indirect costs are agency-wide, general management costs (i.e., activities for the direction and control of the agency as a whole). General management costs consist of administrative activities necessary for the general operation of the agency, such as accounting, budgeting, payroll preparation, personnel services, purchasing, and centralized data processing. Indirect costs must be claimed based on actual program expenditures rather than on budget estimates, and SFAs can only charge the lesser of the SFA’s approved indirect cost rate or the statewide average for food service.

The CDE is the [cognizant] agency authorized to establish indirect cost rates for California SFAs under the terms of a delegation agreement and indirect cost plan negotiated with the U.S. Department of Education. The terms of the agreement are renegotiated periodically and are binding on all federal agencies pursuant to 2 CFR Part 225. The terms of the agreement are reflected in the guidance on indirect costs for California SFAs contained in the CSAM, Procedure 915.

The CDE annually updates indirect cost rates and posts them on the CDE Indirect Costs Web page at http://www.cde.ca.gov/fg/ac/ic/index.asp.

In addition, the USDA has developed a guidance manual on indirect costs, which the CDE distributed as MB USDA-SNP-22-2011: Indirect Cost Guidance Manual (available on the CDE MB Web page at http://www.cde.ca.gov/ls/nu/sn/mbusdasnp222011.asp). The USDA’s indirect cost manual provides relevant guidance for how and when to charge indirect costs to an SFA’s cafeteria fund/account (e.g., an SFA cannot retroactively charge indirect costs to its cafeteria fund/account). The USDA indirect cost manual was issued with Policy Memo SP 41-2011 and can be accessed on the USDA School Meals Policy Memos Web page at http://www.fns.usda.gov/cnd/governance/policy2006-2011.htm.

In cases where guidance from sources other than the CSAM Procedure 915 conflicts with the guidance in the CSAM, SFAs must follow the guidance in the CSAM.

Limits on Net Cash Resources

According to 7 CFR  Part 210, SFAs must limit their net cash resources to an amount that does not exceed three months’ average expenditures. To ensure compliance with these regulations, the CDE is required to monitor, through review, audit, or by other means, the net cash resources of the nonprofit school food service in each SFA participating in the SNP.

“Net cash resources” are defined in 7 CFR Section 210.2 as:

All monies that are available to or have accrued to an SFA’s nonprofit school food service at any given time, less accounts payable. Such monies may include, but are not limited to, cash on hand, cash receivable, earnings on investments, cash on deposit and the value of stocks, bonds or other negotiable securities.

Per 7 CFR  Section 210.19(a)(1), each state agency is required to:

…ensure that school food authorities comply with the requirements to account for all revenues and expenditures of their nonprofit school food service. School food authorities shall meet the requirements for the allowability of nonprofit school food service expenditures in accordance with this part, and 7 CFR Part 3015 and 7 CFR Part 3016, or 7 CFR Part 3019, as applicable . . . The State agency shall ensure compliance with the requirements to limit net cash resources and shall provide for approval of net cash resources in excess of three months' average expenditures.

[and]

…In the event that net cash resources [emphasis added] exceed 3 months’ average expenditures for the school food authority’s nonprofit school food service…the State agency may require the school food authority to reduce the price children are charged for lunches, improve food quality or take other action designated to improve the nonprofit school food service. In the absence of any such action, the State agency shall make adjustments in the rate of reimbursement under the Program [SNP].

The CDE may approve the SFA’s net cash resources in an amount greater than three months’ average expenditures if the SFA has a spending plan in place with the NSD for the excess funds. Therefore, the CDE strongly recommends that SFAs with excess net cash resources immediately submit a spending plan for a period of up to three years for approval. The intent of this policy is to enable SFAs to:

Examples of appropriate cafeteria fund purchases to improve food quality or improve the nonprofit school food service includes, but are not limited to:

SFAs can submit proposed spending plans in response to an Administrative Review (AR) to:

AR Spending Plan
Field Services Unit
Nutrition Services Division
California Department of Education
1430 N Street, Suite 4503
Sacramento, CA 95814

SFAs can submit proposed spending plans as a proactive measure to align their net cash resources to an approximate three-month requirement to:

Spending Plan Request
School Nutrition Programs Unit
Nutrition Services Division
California Department of Education
1430 N Street, Suite 4503
Sacramento, CA 95814

Additional Cafeteria Fund Guidance and Resources

Additional guidance and resources relating to the cafeteria fund/accounts can be found on the CDE SNP MBs Web page at http://www.cde.ca.gov/ls/nu/sn/mb.asp.

For a limited list of allowable and unallowable expenditures from the cafeteria fund/accounts, please refer to the table below.

Contact Information

If you have any 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 the SNP Cafeteria Fund Team at SNPCafeFundQuestions@cde.ca.gov.

If you have questions about the CSAM or how to account for charges to the cafeteria fund, please visit the CSAM Web page at http://www.cde.ca.gov/fg/ac/sa/ or contact the School Fiscal Services Division, Financial Accountability and Information Services, by phone at 916-322-1770 or by e-mail at sacsinfo@cde.ca.gov.


Below is a limited list of allowable and unallowable expenditures from the cafeteria fund/account.

ALLOWABLE/UNALLOWABLE EXPENDITURES FROM THE CAFETERIA FUND/ACCOUNT

EXPENDITURE

ALLOWABLE OR UNALLOWABLE

1.

Purchase of land or buildings, or construction of buildings (excluding food processing plants)

Unallowable without prior USDA approval and SBE approval to waive 7 CFR Section 210.14[a]; and EC sections 38100 & 38101 respectively.

2.

Construction of a food processing plant

Unallowable without prior USDA approval to waive 7 CFR Section 210.14[a]. Allowable under EC Section 38100.

3.

Repairs and alterations to buildings (excluding food processing plants) and maintenance to equipment, which do not add to the permanent value of property or appreciably prolong its intended life

Unallowable without prior USDA approval (USDA conditional approval**). SBE waiver required to waive EC Section 38100).

4.

Alterations or improvement of a central food processing plant, , which do not add to the permanent value of property or appreciably prolong its intended life

Unallowable without prior USDA approval (USDA conditional approval**). SBE waiver not required. Allowable under EC sections 38091 & 38100.

5.

Equipment used solely for food service purposes

Allowable if the total equipment cost is less than the capitalization level established for the SFA for financial statement purposes, or $5,000. If equipment is greater than the applicable capitalization threshold, it is allowable only with prior USDA conditional approval**.

6.

Service systems such as air conditioners, heating systems, ventilation systems, intercommunication systems, sanitary systems, sewer systems, telephone, and computer lines

Unallowable (7 CFR Section 210.14[a]); these costs are the district’s financial responsibility.

7.

Utility bills (e.g., gas, electricity, water, etc.)

Allowable as a direct cost only if on a meter dedicated to the kitchen. Otherwise, unallowable. Note: Cafeteria funds may not be used to purchase or install meters (meters are considered part of a district’s financial responsibility).

8.

Food and laundry

Allowable as a direct cost.

9.

Salaries and benefits of food service personnel including directors, supervisors, managers, cooks, helpers, and clerks

Allowable as a direct cost.

10.

Salaries of non-food service personnel serving as cafeteria monitors (e.g., noon duty aides)

Unallowable as direct or indirect cost; costs of supervising students are the district’s financial responsibility .

11.

Food transport vehicles

Allowable (USDA conditional approval**); SBE approval not required.

13.

Point of sale systems

Allowable without prior USDA approval if the total system cost is less than the capitalization threshold established by the governmental unit for financial statement purposes, or $5,000. If cost is greater than the applicable capitalization threshold, it is allowable (USDA conditional approval**). SBE approval not required.

**The USDA will not approve written requests for prior approval of certain costs, but has delegated conditional approval authority to the CDE. Therefore, CDE staff can approve expenditures with an “**” indicated above. Please refer to section “U.S. Department of Agriculture Approval Requests” of this MB for further guidance on the approval process.

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