Revenue Sharing in School Nutrition Programs

This Management Bulletin (MB) supersedes the information in California Department of Education (CDE) MB NSD-SNP-04-2013, which informs school food authorities (SFA) (local educational agencies [LEA] participating in School Nutrition Programs [SNP]) that revenue sharing Memorandums of Understanding (MOU) are not allowable and provides resources to SFAs pertaining to the laws and regulations that govern financial management of the nonprofit food service cafeteria account (cafeteria fund). In addition, this new MB provides information regarding the implementation of Assembly Bill (AB) 626 (Skinner), Chapter 706, Statutes of 2013, which in part amended the California Education Code (EC) Section 38100.

Background

In February 2012, the CDE released Administrative Review (AR) summation report addenda for SFAs that the CDE found to be out of compliance for improper practices involving their cafeteria funds. During school Fiscal Year 2010–11, these districts had entered into revenue sharing MOUs between their SNP and Associated Student Body (ASB) organizations. The MOUs were established without the express authorization of district governing boards and allowed cafeteria fund transfers to ASB accounts for purposes other than the necessary operation and/or maintenance of the school food service. The CDE directed those districts that were subject to the findings to immediately discontinue all revenue sharing activities.

California Department of Education Authority Over School Nutrition Programs

Because the state agency is responsible for administering federal SNPs in California, the CDE is required to ensure that SFAs participating in federal SNPs comply with all applicable state and federal laws and regulations.

Public Law 111-296, the Healthy, Hunger-Free Kids Act of 2010 (HHFKA), Section 12(q) of the National School Lunch Act (42 U.S. Code 1760 [q]), requires all revenues from the sale of nonprogram foods to accrue to the nonprofit food service account and is codified in Title 7, Code of Federal Regulations (7 CFR), Section 210.14(f) as follows:

6. Revenue from nonprogram foods. Beginning July 1, 2011, school food authorities shall ensure that the revenue generated from the sale of nonprogram foods complies with the requirements in this paragraph.
   
   
   1. Definition of nonprogram foods. For the purposes of this paragraph, nonprogram foods are those foods and beverages:
      
      
      1. Sold in a participating school other than reimbursable meals and meal supplements; and
         
         
      2. Purchased using funds from the nonprofit school food service account
         
         
   2. Revenue from nonprogram foods. The proportion of total revenue from the sale of nonprogram foods to total revenue of the school food service account shall be equal to or greater than:
      
      
      1. The proportion of total food costs associated with obtaining nonprogram foods to
         
         
      2. The total costs associated with obtaining program and nonprogram foods from the Account; and
         
         
      3. All revenue from the sale of nonprogram foods shall accrue to the nonprofit school food service account of a participating school food authority.

Other U.S. Department of Agriculture (USDA) program regulations have been amended to reflect HHFKA statutory changes. Some of the pertinent federal regulations concerning cafeteria fund management include:

• Section 210.11(b) of 7 CFR requires the following:
  
  General requirements for competitive food. (1) State and local educational agency policies. State agencies and/or local educational agencies must establish such policies and procedures as are necessary to ensure compliance with this section. State agencies and/or local educational agencies may impose additional restrictions on competitive foods, provided that they are not inconsistent with the requirements of this part.
  
  
• Section 210.14(a) of 7 CFR requires the following:
  
  School food authorities shall maintain a nonprofit school food service. Revenues [emphasis added] 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 Food and Nutrition Service], 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. [For California, this means the California School Accounting Manual (CSAM)].
  
  
• Section 210.2 of 7 CFR defines Revenue, when applied to nonprofit school food service, as:
  
  All monies received by or accruing to the nonprofit school food service in accordance with the state agency’s established accounting system including, but not limited to, children’s payments, earnings on investments, other local revenues, state revenues, and federal cash reimbursements.
  
  
• Section 210.9(b)(1) of 7 CFR requires SFAs to:

1. Maintain a nonprofit school food service and observe the limitations on the use of nonprofit school food service revenues
   
   
2. Limit its net cash resources [emphasis added] to an amount that does not exceed 3 months average expenditures for its nonprofit school food service or such other amount as may be approved in accordance with Section 210.19(a)
   
   
3. Maintain a financial management system as prescribed under Section 210.14(c)
   
   
4. Comply with the requirements of the Department’s regulations regarding financial management (2 CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 and part 415)

In addition, the California EC provides definitions and restrictions concerning an SFA’s proper use of school cafeteria funds or accounts, which include, but are not limited to, the following:

• EC Section 38080 defines cafeteria as synonymous with the term food service.
  
  
• EC Section 38091 requires that the cafeteria fund shall be used only for those expenditures authorized by the governing board as necessary for the operation of school cafeterias.
  
  
• EC Section 38092 was repealed and replaced by AB 86, Chapter 48, Statutes of 2013. AB 86 was signed by the Governor in July 2013 and became effective on January 1, 2014. EC Section 38092 stated:
  
  The governing board of any school district with an average daily attendance of over 100,000 may allow as an expenditure from the cafeteria fund or account a share of money agreed upon pursuant to a contract, which is generated from the joint sale of items between the cafeteria and an associated student body student store.
  
  
• EC Section 38093 states:
  
  All receipts of the cafeteria, or cafeterias, as the case may be, derived from the sale of food shall be deposited in the account and shall be expended only for the maintenance of the cafeteria, or cafeterias. . .
  
  
• EC Section 38101(a) states:
  
  The governing board of a school district may authorize expenditures from the cafeteria fund or cafeteria account only for those charges from the fund or account that are defined in the California School Accounting Manual.
  
  
• EC Section 38101(d) states:
  
  Charges to, or transfers from, a food service program shall indicate when the charge or transfer was made and shall be accompanied by a written explanation of the purpose of, and basis for, the expenditure.
  
  
• EC Section 38101(e) states:
  
  This section does not authorize a school district to charge a food service program any charges prohibited by state or federal law or regulation.
  
  
• EC Section 41010 states:
  
  The accounting system used to record the financial affairs of any school district shall be in accordance with the definitions, instructions, and procedures published in the California School Accounting Manual as approved by the State Board of Education and furnished by the Superintendent of Public Instruction.
  

School Food Authority Responsibilities Related to Cafeteria Funds

SFAs are responsible for the financial management of their school food service and must adhere to the state and federal regulations that govern cafeteria funds. The cafeteria fund consists of revenues from state and federal reimbursements, child and adult meal payments, grants, interest, etc. When there is a conflict between state and federal regulations, the most restrictive regulations prevail.

Regardless of existing or proposed California state statute(s), federal regulations clearly prohibit SFAs from using or transferring money from the cafeteria fund for expenditures not related to the school food service.

Action Required

As mentioned in the above regulations, payments from the cafeteria fund to other funds for purposes other than school food service operations and improvements (e.g., to school clubs, associated student organizations, athletic programs, or parent organizations; or for school staff meetings or social occasions; or for school remodeling or construction, etc.) are not allowable.

In February 2013, the CDE advised SFAs that revenue sharing MOUs with school food services are not allowable and required all SFAs that had MOUs with their ASBs to discontinue revenue sharing activities immediately.

Charging Costs to the Cafeteria Fund

The CSAM outlines California’s official school accounting system and assists SFAs with managing their funding. EC Section 41010 requires school districts to use systems to record their financial affairs that comply with CSAM definitions, instructions, and procedures. Pursuant to EC Section 41010, SFAs must follow CSAM instructions with regard to charging costs to their cafeteria fund. To order, view, or download the CSAM, please visit the CDE Definitions, Instructions, and Procedures Web page at http://www.cde.ca.gov/fg/ac/sa/index.asp.

Applicable Information

While this MB is directed to all SNP sponsors, information regarding the EC and the CSAM applies only to public school districts and county offices of education. Unless specifically stated as such within applicable EC sections, EC regulations do not currently apply to charter schools, residential childcare institutions, juvenile detention facilities, probation camps, or private schools. However, federal regulations apply to all participating SNP sponsors and/or SFAs.

Contact Information

If you have any questions regarding this MB or cafeteria fund policy or regulations, please contact the Resource Management Unit (RMU) by phone at 800-952-5609 or by email at SNPCafeFundQuestions@cde.ca.gov.

If you have questions about the CSAM or how to account for particular charges to the cafeteria fund, please contact the School Fiscal Services Division Financial Accountability and Information Services Unit by phone at 916-322-1770 or by email at sacsinfo@cde.ca.gov.