Unpaid Meal Charges and Excess Account Balances

This Management Bulletin (MB) provides policy clarification on the California Department of Education’s (CDE) unpaid meal charges policy and excess student account balances. Additionally, this MB provides notification of the U.S. Department of Agriculture (USDA) requirement for school food authorities (SFA) participating in the National School Lunch Program (NSLP) and School Breakfast Program (SBP) to institute and clearly communicate to households a meal charge policy by July 1, 2017.

Background

The USDA has been examining policies, practices, and strategies relating to unpaid meal charges by seeking feedback from state agencies and other key stakeholders through a variety of forums. After reviewing the feedback, the USDA has determined that policies regulating unpaid meal charges and alternate meal policies should continue to be made at the state and local levels.

According to the USDA Food and Nutrition Service (FNS) Unpaid Meal Charges Web page, the USDA “. . . recognizes that unpaid meal charges represent a difficult and complex issue directly impacting the schools participating in our programs and the children they serve.” The 2016 USDA Guide, Overcoming the Unpaid Meal Challenge: Proven Strategies from Our Nation’s Schools is “. . . designed to support program operators in their efforts to find workable solutions to this challenge and ensure children continue to have access to healthy school meals.”

For additional information regarding unpaid meal charges best practices, guidance, and resources, visit the USDA FNS Unpaid Meal Charges Web page at https://www.fns.usda.gov/cn/unpaid-meal-charges which includes:

• A handbook summarizing best practices that the USDA collected from state agencies, SFAs, and other key stakeholders
• Webinars that share ideas and strategies submitted by local operators
• Other relevant policy memoranda and guidance documents developed by the USDA

The following federal and state regulations, guidance, and laws govern alternate meals and unpaid meal charges:

• California Education Code (EC), Section 49550, (often referred to as the State Meal Mandate) states:
  
  Notwithstanding any other provision of law, each school district or county superintendent of schools, maintaining any kindergarten or any of grades 1 to 12, inclusive, shall provide for each needy pupil one nutritionally adequate free or reduced-price meal during each school day[.]
  
  
• EC, Section 49552, states:
  
  For the purposes of this article, needy children shall be defined as those children who meet federal eligibility criteria for free and reduced-price meals as defined in Section 49531[.]
  
  
• EC, Section 49553(a), states:
  
  A nutritionally adequate meal, for the purposes of this article, is a breakfast or lunch as defined in EC, Section 49531 that qualifies for reimbursement under the federal child nutrition program regulations.
  
  
• EC, Section 49557(b)(c), states:
  
  (b) The governing board of each school district and each county superintendent of schools shall formulate a plan, which shall be mailed to the State Department of Education for its approval, that will ensure that children eligible to receive free or reduced-priced meals and milk shall not be treated differently from other children. These plans shall ensure each of the following:
  
  
  • Unless otherwise specified, the names of the children shall not be published, posted, or announced in any manner, or used for any other purpose other than the National School Lunch Program.
  • There shall be no overt identification of any of the children by the use of special tokens or tickets or by any other means.
  • The children shall not be required to work for their meals or milk.
  • The children shall not be required to use a separate dining area, go through a separate serving line, enter the dining area through a separate entrance, or consume their meals or milk at a different time.
    
  
  (c) When more than one lunch or breakfast or type of milk is offered pursuant to this article, the [free and reduced-price eligible] children shall have the same choice of meals or milk that is available to those children who pay full price for their meal or milk.
  
  
  • CDE MB SNP-06-2015: Clarification for the Use of Alternate Meals in the NSLP and SBP, Bad Debt Policies, and the Handling of Unpaid Meal Charges, released in May 2015.
  • Title 7, Code of Federal Regulations (7 CFR), Section 210.10(a)(1), states that, “Schools must provide nutritious and well-balanced meals to all the children they serve.”
  • USDA Policy Memorandum SP 17-2014: Discretionary Elimination of Reduced-price Charges in the School Meal Programs, clarifies for SFAs the permissible use of funds from the nonprofit school food service account (NSFSA) to lower or eliminate reduced-price student meal charges.

In order to lessen the financial barriers that limit student access to meals served under the NSLP and SBP, an SFA, at its discretion, may lower or eliminate the reduced-price meal charges for their students.

Please refer to the USDA FNS School Meals Policy Web page at https://www.fns.usda.gov/cn/unpaid-meal-charges for more information about the discretionary elimination of reduced-price meal charges in the school meal programs policy.

Recovering Unrecovered or Delinquent Debt

To avoid confusion when referring to repayment deadlines, this MB will use the term Fiscal Year (FY), July 1 to June 30, in lieu of using the term school year.

Title 2, Code of Federal Regulations (2 CFR), Section 200.426: Bad debts are an unallowable cost to federal programs. According to federal guidance, unpaid meal charges are designated as unrecovered or delinquent debt until it is deemed uncollectable, at which time it becomes bad debt. The difference between unrecovered or delinquent debt and bad debt is described below:

• Unrecovered or delinquent debt refers to meal charges that have not been paid by the student(s) or parent(s) during the fiscal year.
  
• Bad debt is considered unrecovered or delinquent debt that, after all reasonable steps have been taken, has not been recovered by, or before, the end of the fiscal year in which the debt was incurred.

After an SFA has taken all reasonable steps to recover the unrecovered or delinquent debt, and if the SFA is unsuccessful in collecting the debt by the end of the fiscal year, then the CDE considers the debt as bad debt and the SFA must use nonfederal funding sources (e.g., Parent–Teachers Association or district general fund) to repay the NSFSA for the total amount.

Although USDA Policy Memo SP 47-2016 states that unpaid meal charges may be carried over to the next fiscal year, the policy memo also states that, “SFAs [are] to rely on state and local policies for such determinations [emphasis added].” Therefore, the prohibition of carrying the unpaid meal charges to the next fiscal year, as stated in the CDE MB SNP 06-2015: Clarification for the Use of Alternate Meals in the NSLP and SBP, Bad Debt Policies, and the Handling of Unpaid Meal Charges, remains in effect for all California SFAs.

Meal Charge Policy Considerations

As noted above, unrecovered or delinquent debt becomes bad debt at the end of the fiscal year it is incurred in, unless such debt falls into one of two exceptions:

• Date of debt: The debt is incurred less than 90 days prior to the end of the fiscal year. Under this exception, the SFA will be afforded an opportunity to have a maximum of 90 days to collect the debt and receive payment for the unpaid meal charges. The 90 days will begin at the end of the claiming period for the debt incurred. At the end of the 90 days, the unpaid meal charges will be deemed as bad debt and a nonfederal funding source must repay the NSFSA within 30 days.

For example, a student incurs unpaid meal charges in the month of May. Since the student debt for May is less than 90 days prior to the end of the fiscal year, the SFA will have a maximum of 90 days to collect the debt for May. If the SFA is unsuccessful in collecting the unrecovered or delinquent debt at the end of the 90 days, then the debt becomes bad debt.

• Repayment plan: The SFA enters into a repayment plan with the family prior to the end of the fiscal year and this process continues into the next fiscal year. For example, a family notifies the district that they are willing to make monthly payments and agrees to set up a six-month payment plan in an effort to pay off the student’s unpaid meal charge balance. Under this exception, the district can establish a payment plan for the family that allows the unrecovered or delinquent debt to carry forward into the next fiscal year.

Schools Operating the Community Eligibility Program (CEP) or Provision 2

The requirement to develop a meal charge policy applies to the SFA, rather than to individual schools within the SFA. If all schools in an SFA operate a non-pricing provision (such as CEP or Provision 2), the SFA is not required to develop a meal charge policy, as no children would be charged for meals.

However, if one school in the SFA operates with standard counting and claiming procedures, the SFA must develop a meal charge policy. Meal charges would not occur at non-pricing schools within the SFA, but the SFA is still required to develop an SFA policy for those schools operating standard counting and claiming. Though not required, SFAs currently operating a non-pricing provision district-wide may consider developing a meal charge policy that would be available and ready for implementation in situations where a school (or schools) in the district return to standard counting and claiming.

Bad Debt Recordkeeping Requirements

Once unrecovered or delinquent debt becomes bad debt, records relating to those charges must be maintained in accordance with the record retention requirements in 7 CFR, sections 210.9(b)(17) and 210.15(b). The following records should be maintained to document the appropriate establishment and handling of bad debt:

• Evidence of efforts to collect unpaid meal charges in accordance with the CDE or local unpaid meal charge policy
• Evidence the collection efforts fell within the timeframe and methods established by the CDE or local meal charge policy
• Financial documentation showing when the unpaid meal charge(s) became an operating loss
• Documentation showing when the repayment plan was agreed to by all parties (as applicable)
• Evidence any funds written off as bad debt were restored to the NSFSA using nonfederal funding sources

Meal Charge Policy Prepayment Options

USDA Policy Memo SP 57-2016 [Note: Reference SP 57-2016 is no longer the most current information, and has been superseded by SP 23-2017] addresses prepayment options for SFAs to consider when establishing meal charge policies. Encouraging families to prepay for meals at the reduced-price or paid rate can help to ensure that children have consistent access to healthy, reimbursable meals, without accruing unpaid meal charges. Some SFAs provide incentives for families opting to prepay for their children’s reimbursable meals. Any incentives involving discounts for families who prepay for reimbursable meals must meet paid lunch equity pricing requirements.

Additionally, if a prepayment system is established, children and families must continue to have a method to add funds on the day of service. For example, families could make cash payments to the school office on the day of service.

SFAs choosing to establish prepayment systems for children approved for reduced-price meals must ensure that children actually receive all meals that are paid for, that the funds are carried over, or that the funds are refunded to the household. Federal regulations are clear that reduced-price lunch prices may not exceed $0.40 and reduced-price breakfast prices may not exceed $0.30. Therefore, payment for any meals not received by a student approved for reduced-price meals must be refunded to the household.

For example, a household prepays $8 for one month of lunches (20 lunches x $0.40 = $8.00). If, at the end of the month, the household did not receive all 20 lunches, the remaining funds must be carried over into the next month or the money must be refunded to the student’s household in order to ensure that the student did not pay more than $0.40 per lunch.

Student Account with Excess Balances

For SFAs with excess fund balances on their student accounts, either from the student leaving the district or after graduating, etc., the State Controller’s Office (SCO) provides guidance on the reporting requirements for unclaimed property.

The California Code of Civil Procedure, Section 1502, exempts from the Unclaimed Property Law, ". . . any property in the official custody of a local agency if such property may be transferred to the general fund of such agency under the provisions of Sections 50050-50053 of the Government Code.”

The California Government Code, Section 50050, provides:

For purposes of this article, "local agency" includes all districts. Except as otherwise provided by law, money, excluding restitution to victims, that is not the property of a local agency that remains unclaimed in its treasury or in the official custody of its officers for three years is the property of the local agency after notice if not claimed or if no verified complaint is filed and served. At any time after the expiration of the three-year period, the treasurer of the local agency may cause a notice to be published once a week for two successive weeks in a newspaper of general circulation published in the local agency.

A school district is a district within the meaning of Government Code, Section 50050, and, so long as the notification process as described in sections 50050 through 50053 is adhered to, at the end of the three-year period, the money becomes the property of the district and is not subject to being turned over to the state.

For a detailed description of the unclaimed property program, applicable laws and regulations, and forms required for reporting, please visit the California SCO Reporting Resources Web page at https://www.sco.ca.gov/upd_rptg.html.

Notifying Households of SFA Meal Charge Policies and Procedures

No later than July 1, 2017, SFAs will be required to have a written and clearly communicated meal charge policy in order to ensure a consistent and transparent approach to the requirements set forth in 7 CFR, Section 245.5, and with the regulations in 7 CFR, Section 210.12. Per USDA Policy Memos SP 46-2016 and SP 57-2016 [Note: Reference SP 57-2016 is no longer the most current information, and has been superseded by SP 23-2017], SFAs are required to provide this policy to the state agency during their School Nutrition Programs administrative review.

The SFA’s meal payment collection policy and procedures, at a minimum, must follow these guidelines:

• Not overtly identify students with unrecovered or delinquent debt.
• Conform with the following cost principles set forth in 2 CFR, Section 200.426:
• The cost to recover the unpaid meal charges cannot exceed the actual debt owed, e.g., if a student has a debt of $5, the SFA should not spend over that amount to collect the debt.
• The SFA’s collection policies must be consistent with the district’s collection procedures, policies, and state agency guidance.

Beginning in FY 2017–18, and each year thereafter, the meal charge policy must be communicated in writing to all households at the start of each fiscal year and to households transferring to the school throughout the year. Developing these policies is in the best interest of all parties involved and helps ensure that all students have access to nutritionally adequate school meals.

Districts should, at a minimum, use the following methods to communicate the meal policies:

• Send a letter to households explaining the meal charge policy when providing student registration materials in the back-to-school packets
• Add the policy to the print versions of student handbooks, if provided to parents and guardians annually
• Include the written policy when using existing notification methods to inform families about applying for free or reduced-price meals, such as distributing household applications at the start of the school year
• Post the policy on the SFA’s Web site
• Set up a parent notification system when a student’s meal payment account is low or when the student begins charging for their meals

To assist SFAs with creating their unpaid meal charges procedures, the USDA has created the Local Meal Charge Policy Considerations for All SFAs checklist. The checklist is available on the USDA FNS Unpaid Meal Charges Web page at https://www.fns.usda.gov/cn/unpaid-meal-charges.

USDA Policy Memo SP 57-2016 [Note: Reference SP 57-2016 is no longer the most current information, and has been superceded by SP 23-2017] states that SFAs may disclose individual student eligibility information only to those persons and organizations who require the information in order to carry out an activity specifically authorized by the Richard B. Russell National School Lunch Act. Therefore, SFAs may not enlist the assistance of unauthorized persons, such as parent volunteers, to follow up with payment reminder or debt collection efforts related to unpaid meal charges.

Contact Information

If you have any questions regarding this subject, please contact the Resource Management Unit by email at snpcafefundquestions@cde.ca.gov.