Revenue for Nonprogram Foods-Updated Guidance

This Management Bulletin (MB) provides updated guidance from the U.S. Department of Agriculture (USDA) Policy Memorandum SP 20-2016: Nonprofit School Food Service Account Nonprogram Food Revenue Requirements to school food authorities (SFA). The policy memo introduces a reference period that is intended to provide SFAs with a USDA approved approach to simplify how they may track their nonprogram food revenue and costs.

The USDA Policy Memo SP 20-2016 is located on the USDA Food and Nutrition Service (FNS) School Meals Policy Web page at FNS Documents & Resources | Food and Nutrition Service (usda.gov) and provides updated questions and answers regarding “Assessing Compliance with Nonprogram Revenue Requirements.”

Nonprogram Revenue Requirements

Subsection 12(q) of the Richard B. Russell National School Lunch Act, amended by Section 206 of the Healthy Hunger-Free Kids Act, and Title 7, Code of Federal Regulations, Section 210.14(f) require SFAs to comply with the following:

• All revenue from the sale of nonprogram foods accrues to the nonprofit school food service account;
  
  
• Revenue available to support the production of reimbursable school meals does not subsidize the sale of nonprogram foods.

The USDA requires SFAs to determine if the percent of total revenue generated from their nonprogram food sales is equal to or greater than the percent of total food costs attributable to the SFA’s purchase of nonprogram food.

For example, if the cost of nonprogram foods is 20 percent of the SFA’s total food costs, then the amount of revenue generated from the sale of the nonprogram foods must be at least 20 percent of the total revenue in the school food service account.

Nonprogram Food Revenue and Cost Example

Revenue from nonprogram food sales = $15,000
Total School Nutrition Programs (SNP) revenue = $60,000
Percentage = 25 percent revenue
answer: ($15,000 ÷ $60,000) x 100 = 25 percent

Costs of nonprogram food = $10,000
Total SNP food costs = $50,000
Percentage = 20 percent cost
answer: ($10,000 ÷ $50,000) x 100 = 20 percent

Since the 25 percent revenue is greater than the 20 percent food cost, the SFA is in compliance with federal regulations.

SFAs should note that when calculating their nonprogram food costs, they are required to exclude nonfood costs, e.g., labor, direct and indirect costs. However, if the SFA provides catering or vending services, the SFA must include the cost of labor to order, prepare, and serve the food in the price of the food; more information on this topic is provided later in this MB.

Assessing Compliance Options

Due to the wide variety and capabilities of accounting systems used by SFAs to maintain and monitor their nonprofit school food service account, the USDA FNS is providing two options for tracking their nonprogram food revenue and costs.

Option One: Simplified Reference Period

The simplified approach allows an SFA to use a reference period in which they can assess their compliance with the nonprogram food revenue requirements. The USDA Policy Memo SP 20-2016 suggests a reference period of at least five consecutive days, but allows state agencies the flexibility to establish a longer reference period.

Five days is an insufficient amount of time to capture significant data fluctuations that may occur during the school year. Therefore, the California Department of Education (CDE) has set the reference period to be no less than 22 consecutive operational school days for SFAs to track their nonprogram food costs and revenues separately from their program food costs and revenues (the reference period must reflect typical food service operations). If, at the end of the reference period, an SFA’s revenue ratio is less than their cost ratio, the SFA must monitor at least another 22 consecutive operational school days until the revenue deficiency has been remedied. SFAs must reassess their revenue requirements if there is a change from the reference period for either a la carte prices or items offered for sale, or if the price of meals for adults or second meals is changed. SFAs are required to assess their revenue requirement compliance every school year.

Option Two: Year Round Tracking

SFAs who choose not to implement the 22 consecutive operational school days reference period must do the following:

• Track their actual nonprogram food revenues and costs year-round and
  
  
• Ensure that by the end of the school year their nonprogram food calculation will be in compliance with federal regulations. This can be done by one of the following:
  
  
  • Implementing a process to ensure that their nonprogram food calculation will be in compliance with federal regulations; or
    
    
  • Using an allowable nonfederal funding source to offset the difference between their current revenue values are and where their values are required to be.

Some SFAs may offer a limited number of nonprogram food items with an easy to identify per serving cost (e.g., the SFA only sells milk a la carte) but are not able to accurately perform the assessment. In these instances, SFAs may be charging the full cost for the nonprogram foods they offer, but due to the small number of these items in relation to the total revenue and costs, their assessment may overestimate the required increase. SFAs in this situation should contact the CDE Resource Management Unit (RMU) by email at SNPCAFEFUNDQUESTIONS@cde.ca.gov for assistance.

Pricing Requirements for Catering and Vending

SFAs are required to include the cost of labor in the pricing of food and beverages they serve when they cater or vend to outside entities like the superintendent’s office, the school board, student clubs, or other school districts. Per USDA Policy Memo SP 20-2016: Nonprofit School Food Service Account Nonprogram Food Revenue Requirements:

The school food service may provide goods and services to the outside entity only if all costs, including labor and any other costs incurred, are covered by the entity being served by the school food service operations [emphasis added].

Failure to include labor in catered and vended pricing can result in a SNP administrative review finding and the CDE can require a nonfederal funding source to repay the nonprofit school food service account for the missing revenue.

State Agency Monitoring

Compliance with the nonprogram food revenue requirement is reviewed during the resource management portion of the SNP administrative review. Although there is no fiscal action taken against SFAs for noncompliance with the revenue requirements, the CDE will require that SFAs secure nonfederal funds to make up for any shortfalls in the nonprofit school food service account, as well as take steps to ensure that nonprogram foods are priced sufficiently to meet the nonprogram foods compliance requirement.

Contact Information

If you have any questions regarding this MB, please contact the CDE Nutrition Services Division RMU by email at SNPCAFEFUNDQUESTIONS@cde.ca.gov.