Allowable Costs

Background

SFAs are governed by state and federal laws and regulations that limit expenditures from the cafeteria fund. Such funds must be used solely for the operation and improvement of SNPs and comply with federal regulations and state laws (Title 7, Code of Federal Regulations (7 CFR), Section 210.14). SFAs must meet the requirements for the allowability of cafeteria fund expenditures in accordance with Title 2, Code of Federal Regulations (2 CFR) parts 200.300, 200.400, 200.415, and 7 CFR, Section 210.19(a)(1). All costs resulting from contracts that do not meet the above requirements are unallowable cafeteria fund expenses (7 CFR, Section 210.19 (a)(1)).

In addition, SFAs participating in the SNPs must establish a financial management system to record all SNP revenues and expenditures. Financial management systems must be sufficient to prepare reports, document compliance, and track expenditures in accordance with federal laws, regulations, and terms and conditions of the program (2 CFR, Section 200.302).

Factors Affecting Allowable Costs

Costs must meet the following criteria to be allowable (2 CFR, Section 200.403):

• Be necessary, reasonable, and allocable to the SNPs
• Conform to any limitations or exclusions in laws, regulations, and policy guidance
• Be consistent with SFA policies and procedures
• Be treated consistently as a direct or indirect cost
• Conform with generally accepted accounting principles
• Not to be included as a cost or used to meet cost sharing requirements
• Be adequately documented
• Incurred during the approved budget period or closeout period

Understanding the rules for determining allowable costs to the cafeteria fund is critical for compliance with federal and state laws and regulations. Both federal regulations and state laws require all procurements—without regard to dollar value—to be conducted in a manner that promotes full and open competition (2 CFR Section 200.319). SFAs are required to follow federal, state, and local procurement requirements. An SFA that fails to follow the required procurement procedures may cause the expenditure to be disallowed (2 CFR Section, 200.339). Guidance for procurement is available on the California Department of Education Procurement in School Nutrition Programs web page.

Record Retention

Records for real property and equipment acquired with federal funds must be retained for three years after final disposition. (2 CFR, Section 200.334(c)). All other records shall be retained for a period of three years after the date of the final claim for reimbursement for the fiscal year to which they pertain, except that if audit findings have not been resolved, the records shall be retained beyond the three year period as long as required for resolution of the issues raised by the audit (7 CFR, Section 210.9(b)(17)).

Capital Expenditures

SFAs make capital expenditures in order to purchase equipment to carry out the objectives and purposes of the SNPs. Examples of capital expenditures include vehicles, forklifts, walk-in refrigerator or freezer, equipment maintenance over the capital threshold, and rearrangement and alteration of facilities. The federal per-unit capital expenditure threshold is defined by the total per unit acquisition cost of $10,000 or more (Title 2, Code of Federal Regulations (2 CFR), Section 200.439(b)(2)). SFAs may establish a lower capitalization threshold for assets.

Federal regulations require that SFAs seek prior written approval from state agencies for capital expenditures. State agency preapproval is required for capital expenditures with a total acquisition cost of $10,000 or more, including the cost of delivery and installation (2 CFR, sections 200.407, 200.439, and 200.1). SFAs with an established capitalization threshold below $10,000, must seek state agency approval for capital expenditures at or more than their capitalization threshold. In accordance with 2 CFR, Section 200.407, the California Department of Education (CDE) may disallow the expenditure if prior state agency approval is not obtained. In such cases, the Local Educational Agency will be required to reimburse the cafeteria fund using an allowable nonfederal source.

The CDE maintains a preapproved list of capital expenditures typically purchased by SFAs. The list of preapproved equipment is available on the CDE Capital Expenditure Approved List web page. Any equipment on this list has CDE approval for use by food service, and SFAs may purchase and install those equipment items following proper federal, state, and local procurement procedures without submitting a request for approval. It should be noted that equipment on the preapproved list assumes existing utility connections are adequate and within the area where the equipment will be installed per manufacturer's requirements. If utility connections are not adequate, SFAs should reach out to the Resource Management Unit for approval.

Submitting a Capital Expenditure Request for Other Equipment

For any capital expenditure requests using cafeteria funds with a unit cost of $10,000 or greater that are not included on the CDE Capital Expenditure Approved List web page, SFAs must send an email to SNPCafeFundQuestions@cde.ca.gov with the following information:

• The subject line should read, Capital Expenditure Request— (Indicate the type of equipment and whether it is an emergency request here (e.g., emergency replacement of delivery vehicle))
• The body of the email message should:
  1. Describe the equipment, including what it is, where it will be located, and how it will support the operation or maintenance of the nonprofit school food service. If applicable, confirm the equipment will connect to existing service systems (e.g., electrical and plumbing) or state the General Fund or other allowable funds will pay for the new service system or upgrade.
  2. Provide the estimated cost and whether you have sought bids for the equipment
  3. Acknowledge that any proceeds from the disposition of the equipment will be used to offset the cost of the replacement equipment or deposited back into the cafeteria fund when applicable (2 CFR 200.313(e))
  4. Acknowledge that any equipment purchased with cafeteria funds must be used exclusively (100 percent) by the nonprofit school food service (i.e., not be shared with other non-federal programs)
  5. Include your Child Nutrition Information and Payment System (CNIPS) identification number, agency name, and contact information

Other Allowable Costs

Common Allowable Costs

The following items are considered allowable direct costs per federal regulations, when incurred for the operation and improvement of SNPs:

• Advertising - for program recruitment, procurement, disposal or surplus, program outreach, and other purposes necessary for the federal award (Title 2, Code of Federal Regulations (2 CFR), Section 200.421)
• Audit services – the proportionate share of a single audit (when required) (2 CFR, Section 200.425)
• Closeout costs (2 CFR, Section 200.472)
• Conference fees (2 CFR, Section 200.432)
• Food for SNPs (2 CFR, Section 200.453)
• Insurance required by federal award, and indemnification to repay the federal government (2 CFR, Section 200.447)
• Labor in support of SNPs– Salaries, wages (2 CFR, Section 200.430) and fringe benefits such as leave, employee insurance, pensions, and unemployment benefits (2 CFR, Section 200.431). See tab prohibited costs for personal use of automobiles.
• Maintenance and repair costs that neither add to the permanent value of the property nor appreciably prolong its intended life (2 CFR, Section 200.452)
• Memberships, subscriptions, and professional activity costs. Excludes country club, dining club, and lobbying costs (2 CFR, Section 200.454)
• Pre-approved equipment (see capital expenditures tab)
• Professional service costs (non-legal) (2 CFR, Section 200.459)
• Recruiting costs (2 CFR, Section 200.463)
• Security costs (2 CFR, Section 200.457)
• Supplies (2 CFR, Section 200.453)
• Telecommunication and video surveillance cost, except when prohibited by federal regulations (2 CFR, Section 200.471)
• Training and education costs (2 CFR, Section 200.473)
• Transportation costs (2 CFR, Section 200.474)
• Travel in support of SNPs (2 CFR, Section 200.475)

Allocations of Direct Allowable Costs

SFAs may use direct cost allocation principles if a cost benefits two or more projects or activities in proportions that can be reasonably determined (2 CFR, Section 200.405(d).

When proportions cannot be determined, the cost may be allocated to benefited projects on a reasonable and documented basis. An Allocation may not be used to overcome fund deficiencies or to avoid restrictions imposed by federal statutes, regulations, or the terms and conditions of the federal awards. Allocations based on arbitrary percentages or estimates without a reasonable or documented basis are subject to disallowance by the California Department of Education (CDE).

For example, SFAs may operate more than one Child Nutrition Program and share food, supplies, and personnel costs. A proportion of food, supplies, and personnel costs incurred exclusively for Child Nutrition Programs may be allocated based on a per meal cost times the number of meals served to each program. This process helps to ensure that costs are evenly distributed across programs. Please reach out to the CDE further guidance when establishing cost allocation between programs.

SFAs should note that allocation of direct costs does not apply to personnel expenses for employees that support SNPs and other non-child nutrition related programs (known as multifunded employees). For example, multifunded employees include custodians and maintenance workers that support SNPs and other programs or provide general services. Standards for documentation of personnel expenses are stated at 2 CFR, Section 200.430(g). For more information about personnel expenses please review the CDE Management Bulletins; SNP-06-2014 Documenting Employee Time and Effort in the SNPs, and SNP-04-2018 Equivalent Documentation for Multifunded Employees. SFAs can learn more about cost allocation principles by reading 2 CFR, Section 200.405(d), and the U.S. Department of Agriculture Indirect Cost Guidance for State Agencies and SFA .

Construction

SFAs should be aware that there are prohibitions and limitations to the purchase land, construction of new buildings, remodel or alteration of existing buildings, and maintenance to keep buildings in efficient operating condition. Federal regulations, state laws, and state regulations are a few of the factors that must be considered to determine if such costs are allowable. The California Department of Education (CDE) has provided the following information to help SFAs understand required documents for construction costs; allowable costs related to maintenance; facility rearrangement, alteration, and utility connections; walk-in refrigerators and freezers; permits and professional fees, and the purchase of land, buildings, or construction of buildings.

Required Documents

Construction projects affecting food service facilities tend to be large in scope and can have both allowable and unallowable costs, which can lead to expenses to both the general fund and cafeteria fund. Documents for capital assets and services must contain itemized expenses and activities that clearly demonstrate allowable and unallowable costs. Documents like contracts and invoices must clearly show which costs are attributed to the cafeteria fund and other funds, and accounting records should confirm the portion that was paid by the cafeteria fund and other funds.

For example, an SFA may contract with design consultant to remodel a multipurpose room that contains a general use space and cafeteria. The SFA has planned to use a portion of non-federal funds to support the design costs of the general use area, and SNP funds to support the design of the cafeteria. For this example, the CDE recommends that invoices for design consultant professional services be itemized for actual hours worked on SNP activities separate from other non-SNP activities. (Title 2, Code of Federal Regulations (2 CFR), Section 200.302). Please see the background tab for additional information about record retention requirements.

Maintenance and Repair

Costs incurred for the upkeep of buildings and equipment which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are allowable. Examples of allowable maintenance and repair, are vehicle fluid and tire changes, hood exhaust cleaning, and refrigeration inspection and service.

However, costs that add to the permanent value of the buildings and equipment or appreciably prolong their intended life must be treated as capital expenditures (2 CFR, Section 200.452). Therefore, costs exceeding $10,000 or more or a lower capitalization threshold established by the SFA, require prior approval from CDE. SFAs may contact the Resource Management Unit (RMU) by sending an email to SNPCafeFundQuestions@cde.ca.gov to request prior approval.

Facility Rearrangement, Alteration, and Utility Connections

Costs incurred for normal and ordinary rearrangement and alteration are allowable with CDE prior approval. For example, replacing the flooring in the kitchen and serving area, painting the kitchen, installing new lighting, and removing and constructing non load-bearing walls are generally allowable with CDE approval. (2 CFR, Section 200.462)

As of April 10, 2025, the CDE can grant prior approval for service system upgrades if the request is adequately justified, detailed supporting documentation is provided, and the service system will only support the operation of the SNPs. For example, heating, ventilation, and air conditioning (HVAC) systems for the kitchen, electrical upgrades or installing new outlets to support food service equipment and plumbing to support food service equipment.

When rearranging or altering facilities, SFAs should contact the CDE by email at SNPCafeFundQuestions@cde.ca.gov before work begins to assess allowable costs and understand documentation requirements.

Walk-in Freezer or Refrigerator

A walk-in refrigerator/freezer is a capital expenditure and is excluded from the Capital Expenditure Approved List. Therefore, SFAs must obtain prior approval from CDE for the installation and purchase of a walk-in refrigerator/freezer. Professional services for the engineering and construction of a concrete pad for the walk-in refrigerator/freezer are allowable expenses when in support of SNPs. In addition, alterations to service systems, buildings, and other elements required for the installation of a walk-in refrigerator/freezer may be allowable in certain circumstances with prior CDE approval.

Permit and Professional Services

Construction projects may require permits and professional services. Professional services associated with allowable costs may be a charge to the cafeteria fund in proportion to the SNP benefit. For example, architectural services for the rearrangement of a service line in a multipurpose facility renovation may have costs that benefit the SNPs and general use areas. SFAs should observe the documentation requirements provided in the required documents section above to avoid potential disallowance of professional services.

Land, Buildings, and Construction of Buildings

The purchase of land, buildings, and the construction of buildings are prohibited in 7 CFR, Section 210.14 and California Education Code 38100, unless otherwise approved through a waiver by the U.S. Department of Agriculture (USDA) and the California State Board of Education.

SFAs that are interested in requesting a waiver for prior approval to purchase land, buildings, or to construct new buildings should reach out to the CDE at SNPCafeFundQuestions@cde.ca.gov. Furthermore, SFAs are encouraged to visit the USDA Web page titled Child Nutrition Program Waiver Request Guidance and Protocol- Revised and the California State Board of Education web page titled Submit a Waiver Request to learn more about the waiver processes.      

Prohibited Costs

SNP costs must be in support of the operation and improvement of the Programs, and be reasonable, necessary, and allocable to the federal award. However, some costs are explicitly prohibited by federal regulations or state law.

Payments made for costs determined to be unallowable must be repaid to the cafeteria fund from an allowable nonfederal funding source. Repayments must be made in accordance with the instructions provided by the California Department of Education and may require repayment with interest. (Title 2, Code of Federal Regulations (2 CFR), Section 200.410).

Examples of Unallowable Costs

The following is a list of unallowable costs based on regulation and state law. Please note, this is not a comprehensive list of all known and possible costs that could be determined unallowable.

• Advertising and public relations unrelated to SNPs – This includes any costs for meetings, conventions, conferences, and other events that are not related to SNPs  (2 CFR, Section 200.467)
• Alcoholic beverages – (2 CFR, Section 200.423)
• Automobiles for personal use - automobile costs furnished by the SFA (2 CFR, Section 200.431(f))
• Bad debt – this includes unpaid meal and nonprogram food (a la carte, second meals, and adult meals) charges. Unpaid meal or nonprogram food charges are considered bad debt once the debt becomes uncollectible beyond a reasonable time frame. The unpaid charges become bad debt if not collected by the end of the fiscal year, unless the debt occurred within the last 90 days of the fiscal year, or has entered into a repayment plan with the household (2 CFR, Section 200.426)
• Buildings and land purchases– Are unallowable unless otherwise approved by the U.S. Department of Food and Agriculture (USDA) (see construction tab for more information) (7 CFR, Section 210.14 (a), and California Education Code 38100 (a))
• Clubs and membership – specific to country club, dining club, and membership in lobbying organizations (2 CFR, Section 200.454)
• Contingency reserve – payment to a contingency reserve for events that cannot be foretold (2 CFR, Section 200.433)
• Contributions and donations - including cash, property, and services (2 CFR, Section 200.4343(a))
• Entertainment – This includes amusement, diversion, and social activities and any associated costs (such as gifts and meals), are unallowable unless they have a specific and direct programmatic purpose and are included in federal award. The USDA has not included entertainment as an allowable cost in law, regulation, or policy guidance. (2 CFR, Section 200.438)
• Lobbying – (2 CFR, Section 200.450)
• Promotional items and memorabilia (E.g., water bottles, mugs, sunglasses, tote bags, toys, gift cards, etc.) (2 CFR, Section 200.421(e)(3))
• Selling and marketing – for products and services of the SFA unrelated to the SNPs (2 CFR, Section 200.467)

Resources

Federal and State Regulations

Title 2, Code of Federal Regulations (2 CFR), Part 200 provides guidance to federal, state, and local agencies to ensure consistent and uniform policies and procedures for the management of federal financial awards, grants, and assistance.

Title 7, Code of Federal Regulations (7 CFR), Part 210 governs cafeteria fund revenues and expenditures of the National School Lunch Program and, by extension, After School Meal Supplements and Seamless Summer Feeding Option.

In addition, 7 CFR, Part 220 governs cafeteria fund revenues and expenditures of the School Breakfast Program.

California Education Code sections 38080-38103 pertain to cafeteria establishment and use, funds and accounts, and allocation of charges.

Manual

California Education Code Section 41010 requires school districts to follow the definitions, instructions, and procedures in the California School Accounting Manual. The manual provides accounting policies and procedures, as well as guidance in implementing those policies and procedures, and is available on the California Department of Education (CDE) Definitions, Instructions, & Procedures web page.

Training

Food Service Staff Education and Training

Nutrition Services Division Learning Site

The Nutrition Services Division Learning Site is available to SFAs and staff, including Food Service Management Company staff that have current contracts with a Local Educational Agencies.

For more information on how to set up an account, follow the instructions on the Child Nutrition Information and Payment System (CNIPS) download form LMS 001 – LMS Account Set Up Job Aid.

For questions or support, contact the NSD Learning Site team at NSDLearning@cde.ca.gov.

Additional Resources

The CDE Cafeteria Fund Guidance web page contains additional information about Resource Management including, policy, administrative reviews, net cash resources, paid lunch equity, and frequently asked questions. 

The CDE Procurement in School Nutrition Programs web page provides federal procurement information for SFAs operating the SNPs.

Contact Information

SFAs may submit their questions regarding the allowable use of cafeteria funds or requests for capital expenditure prior approval, please contact the Resource Management Unit by email at SNPCafeFundQuestions@cde.ca.gov.