Nutrition Services Division Management Bulletin
Purpose: Policy, Beneficial Information
To: All School Nutrition Program Operators
Attention: Food Service Directors, School Business Officials
Date: February 2020
Reference: Title 2, Code of Federal Regulations (2 CFR), Part 200; Title 7, Code of Federal Regulations (7 CFR), Part 210; California Education Code (EC) 38100; California School Accounting Manual; U.S. Department of Agriculture (USDA) Policy Memorandum SP 60-2016: Indirect Cost Guidance
Supersedes: Management Bulletins NSD-SNP-07-2013; NSD-SNP-05-2012; USDA-SNP-22-2011
Subject: Cafeteria Funds—Construction
This management bulletin (MB) supersedes the California Department of Education (CDE) MB NSD-SNP-07-2013: Cafeteria Funds—Allowable Uses, MB NSD-SNP-05-2012: Cafeteria Funds/Accounts—Reminders and Resources, and MB USDA-SNP-22-2011: Indirect Cost Guidance Manual. The purpose of this MB is to reiterate the USDA requirements and provide updated guidance on allowable and unallowable expenditures from the nonprofit school food service account (cafeteria fund).
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. The factors affecting allowability of costs and additional information can be found in MB SNP-05-2020 Cafeteria Funds–Allowable Uses. This MB specifically addresses allowable construction costs and documentation requirements for cafeteria fund expenditures. Cafeteria funds must be used solely for the operation and improvement of child nutrition programs, and comply with federal regulations and state laws.
Factors Affecting Allowability of Costs
Costs must meet the following general criteria established in 2 CFR, Part 200, in order to be allowable under federal awards. Costs must:
- Be necessary and reasonable for the performance of the federal award and be allocable
- Conform to any limitations or exclusions set forth in 2 CFR and the federal award
- Be consistent with uniform policies and procedures for federally financed and other activities
- Be accorded consistent treatment as a direct or indirect cost
- Be determined in accordance with generally accepted accounting principles, and be adequately documented to support accounting and cost records
- Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program
Maintenance and Repair Costs
Maintenance and repair costs to buildings which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in efficient operating condition are allowable. In addition, SFAs may purchase allowable items that have a per unit cost less than $5,000 without obtaining prior CDE approval.
Limited Allowable Construction Costs
Under any given federal award, the reasonableness and allowability of certain items of costs may be difficult to determine. In order to avoid potential disallowance or dispute, SFAs must obtain the CDE’s prior written approval for equipment and other items that have a per unit cost of $5,000 or more. An SFA may have established a capitalization threshold lower than $5,000. In such cases, SFAs should obtain prior approval from CDE for equipment and items at or above the SFA’s capitalization threshold.
Facility Rearrangement and Alteration Costs
SFAs are allowed to charge to the cafeteria fund costs incurred for normal and ordinary rearrangement and alteration. For example, replacing the flooring in the kitchen and serving area, painting the kitchen, installing new lighting, and removing and constructing nonload bearing walls are generally allowable.
However, major rearrangement and alteration costs are not allowable and are considered an expense to the district. For example, upgrading service systems (such as air conditioning systems), replacing building fixtures, and adding or removing walls that are structural to the building are not an allowable cost. When rearranging or altering facilities, SFAs should contact the Resource Management Unit (RMU) via email at firstname.lastname@example.org before work begins to assess allowable costs and understand documentation requirements.
Installation of Walk-in Freezer or Refrigerator
SFAs must obtain prior approval from CDE for the installation and purchase of a walk-in freezer or refrigerator. Professional services for the engineering and construction of a concrete pad for the walk-in freezer or refrigerator is an allowable expense with prior approval from CDE. In addition, alterations to service systems and buildings for the installation of a walk-in freezer or refrigerator may be allowable in certain circumstances with prior CDE approval.
Permit, Professional Fees, and Invoices
Construction projects may require permits and professional fees. Professional fees associated with allowable costs may be a charge to the cafeteria fund. However, allowable services must be scheduled separately on invoices from unallowable services. For example, architectural services for the rearrangement of a service line in a multipurpose facility renovation must be itemized separately from nonfood service renovation costs. In addition, invoices should reflect actual hours worked on allowable and unallowable services.
Unallowable Construction Costs
The purchase of land, buildings, and the construction of buildings are prohibited in 7 CFR 210.14 and EC 38100. In addition, in most cases, building fixtures and service systems are an unallowable cost. SFAs contemplating such purchases or expenses should contact RMU with questions to limit the risk of disallowance during administrative review.
Land, Buildings, and Central Food Processing Plants
The cost of providing adequate housing for cafeterias including permanent kitchen facilities is an unallowable cost to the cafeteria fund. Such housing must be a charge to district funds (i.e., general fund or bond funds) unless the SFA obtains a waiver from the USDA and the California State Board of Education (SBE).
SFAs seeking USDA and SBE approval to use cafeteria funds to purchase land, buildings, or to construct buildings should contact RMU for guidance. 7 CFR 210.14 is very restrictive regarding the use of cafeteria funds for land, buildings, and capital projects.
Building Fixtures and Service Systems
Building fixtures and service systems are an unallowable cost to the cafeteria fund because these purchases typically improve the useful life or increase the value of buildings. Building fixtures, such as built-in cabinetry, are usually attached to the building, function as an integral part of the building, and have a fairly long useful life span.
Service systems are defined as having a single function throughout the building, included as a part of the original construction, built as integral parts of buildings and have long useful lives. Service systems include but are not limited to heating and air conditioning, electrical, water, sanitation (sewer), and telecommunications systems. If existing building fixtures or service systems need to be updated to accommodate food service equipment, such costs are unallowable in most circumstances.
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. Invoices for capital assets and services must contain itemized expenses and activities that clearly demonstrate allowable and unallowable costs. Accounting records should confirm the portion that was paid by the cafeteria fund and other funds. Records for real property and equipment acquired with federal funds must be retained for three years after final disposition. All other records must be maintained for the current fiscal year plus three prior fiscal years.
If you have any questions regarding this subject, please contact the CDE NSD Resource Management Unit by email at email@example.com.