Financial Management Tools for Program Accountability Robert Leshin, MPA Assistant Director, Office for Nutrition Health and Safety Programs

Objectives  Understand and become familiar with USDA school lunch resource management regulations  Understand and become familiar with standardized federal resource management regulations for usage of federal funds  Understand and become familiar with standardized program controls used to strengthen financial effectiveness  Understand the ‘why’ behind the regulations Massachusetts Department of Elementary and Secondary Education 2

Overview  Allowable Costs  Source Documentation  Accounting Records  Financial Reporting  Internal Controls  Budget Controls  Cash Management Massachusetts Department of Elementary and Secondary Education 3

Why so many rules and regulations?  As the steward of the nonprofit school food service account you must safeguard limited assets and ensure they are used only for authorized school food service purposes  Protect against non school food service charges! Massachusetts Department of Elementary and Secondary Education 4

Allowable Costs  USDA Program regulation 7 CFR Parts and (i) require a school food authority to establish a nonprofit school food service account, in which all reimbursements and other revenues from SFA operations are retained and used only for the operation and improvement of the nonprofit school food service  All expenditures must conform to Federal Cost Principles 2 CFR Part 225 (formerly OMB Circular A-87)  Necessary;  Reasonable;  Allocable Massachusetts Department of Elementary and Secondary Education 5

Necessary  A cost is necessary if the Child Nutrition Program’s authorizing statute, program regulations or applicable FNS policy establish that the nonprofit school food service cannot be operated without incurring the cost  e.g., a school food service cannot be operated without incurring the cost of appropriate food Massachusetts Department of Elementary and Secondary Education 6

Reasonable  A cost is reasonable if, in its nature and amount, it does not exceed a price that is consistent with what a reasonable person would pay under the same or similar circumstances. Massachusetts Department of Elementary and Secondary Education 7

Criteria to Help Determine Necessary & Reasonable Costs  How does the cost contribute to achieving an objective of the school food service?  Is the cost recognized as ordinary and reasonable for the operation of the school food service?  Would a prudent person find the cost to be reasonable under the circumstances? Massachusetts Department of Elementary and Secondary Education 8

Allocable  A cost must be assigned to the programs, functions, activities or other cost objectives that benefited from the school district having incurred the cost ( cost allocation plan needed )  For example, school food service cannot be billed a higher share of utility costs just because the school district doesn’t have the funds  Such an action would assign the cost to a cost objective that did not benefit from it Massachusetts Department of Elementary and Secondary Education 9

Allowable or Unallowable?  Food  Hamburger patties (allowable)  Labor  School secretary (depends)  Food service assistant (allowable)  Other  Unpaid charges/bad debt (unallowable)  School board dinner (depends)  A new refrigerator (allowable w/ prior approval)  Renovating a kitchen (depends) Massachusetts Department of Elementary and Secondary Education 10

Source Documentation  POS system  General Ledger  Payroll  Paid bills  Time and attendance records  Communication is key: Food Service Director and Business Manager. Massachusetts Department of Elementary and Secondary Education 11

Accounting Records  How does your program track revenues and expenditures? Who is involved?  Do you maintain consistent methods in doing so?  Do you know how much money you take in and spend out daily/monthly? Massachusetts Department of Elementary and Secondary Education 12

Why Account for Revenues and Expenditures?  Two Reasons:  Official and,  Sensible! Massachusetts Department of Elementary and Secondary Education 13

Official Reasons  7 CFR Part states, “Grantees and sub grantees must maintain records which adequately identify the source and application of funds provided for financially assisted activities.”  Proper record keeping a principle of the Generally Accepted Accounting Principles (GAAP), which is the uniform standard of guidelines for financial accounting used in school districts for compliance with Federal requirements Massachusetts Department of Elementary and Secondary Education 14

Sensible Reasons  All businesses (nonprofit and for profit) need to account for every penny of their financials in order to be successful  Need to trace all funds coming in and going out to achieve financial accountability  Protect employees (including yourself!)  Be able to answer financial questions easily and accurately from local, state and federal officials Massachusetts Department of Elementary and Secondary Education 15

Adequately Documented  There is no standard definition for what “adequately documented” means  The record of a school food service’s operation must be solid and able to stand on its own without depending on interpretation or “spin” by the program operator Massachusetts Department of Elementary and Secondary Education 16

What You Need to Track  Revenue  Defined as income received in exchange for goods or services provided by the school food service department (National Food Service Management Institute NFSMI).  Examples: sales to students, prepaid sales, reimbursements, adult sales, interest, catering, vending sales etc. Massachusetts Department of Elementary and Secondary Education 17

What You Need to Track Cont’d  Expenditures  Defined as costs that can be indentified specifically with the operation of the school foodservice program (NFSMI)  Examples: Food, labor, equipment, sanitation, outreach, promotional, fees, licenses, etc. Massachusetts Department of Elementary and Secondary Education 18

Required Financial Reporting Profit & Loss  Displays the results of operations for a certain time period, showing the income received and expenses paid for a particular month  Shows financial performance for one month  No beginning cash balance (starts at $0 everyone month)  Must be tracked and recorded separate from supplemental financial report  Why? You want to know your performance for a particular month separate from your overall balance sheet. Massachusetts Department of Elementary and Secondary Education 19

Financial Reporting Cont’d Supplemental Financial Report  Balance sheet- end of month cash flow statement and status of assets and liabilities  Pulls all of your record keeping (revenues, expenditures, inventory, payroll, liabilities etc. together)  Should be filled out monthly via the ESE security portal  Why? You want to know your financial status for a period of time (throughout the whole year) not just a particular month. Massachusetts Department of Elementary and Secondary Education 20

Resource Management  Budget Controls  Internal Controls  Cash Management Massachusetts Department of Elementary and Secondary Education 21

Why resource management?  Lunch aide steals more than $13,000 running a la carte line- Louisiana  FSD pleads guilty to embezzling more than $100,000- Oklahoma  Lots of smaller thefts, but all have lack of basic management controls in common  Keeps your food service operation from reaching its financial potential and from increasing its financial independence from the District  Protects employees Massachusetts Department of Elementary and Secondary Education 22

How does your food service control theft or loss? Massachusetts Department of Elementary and Secondary Education 23

Budget Control  Compare actual vs. budget  Who is reviewing this? (FSD, Business Manager, both?)  How often do you compare expenditures?  Cost of food & supplies used  Cost of labor  Food & labor percentages (of total revenue)  Meals Per Labor Hour (MPLH)  Cost of producing a meal Massachusetts Department of Elementary and Secondary Education 24

Internal Control  Effective control and accountability for all cash, property and other assets.  Do you have written policies/procedures with employee sign off?  Inventories- monthly (stay on top)  Purchased food, commodities & non-food supplies  Equipment (mark equipment)  Revenue  Average Daily Participation (ADP)  Meal count trends  Pricing- student & adult meals, a la carte  Cash handling procedures Massachusetts Department of Elementary and Secondary Education 25

Cash Cash is a liquid, portable and desirable asset. Therefore, districts must have adequate controls to prevent theft or other misuses of cash. Massachusetts Department of Elementary and Secondary Education 26

New Meaning to “Cold Hard Cash” Massachusetts Department of Elementary and Secondary Education 27

Cash Management  Written policies  How cash is handled and deposits are made  Training  Ensure staff understands policies and sign off  Cash Controls  Segregation of duties  Proper authorization and designation of cash handlers  Adequate documents & records  Physical controls  Independent checks on performance Massachusetts Department of Elementary and Secondary Education 28

Cash Management Cont’d Cash Controls at the Register  Minimize Time and Confusion  25 cent increments in pricing  Encourage families to pay online or times other than lunch service  Count out cash drawers after each shift  Reduce suspicion  Reconcile daily cash register readings to cash deposits  What is the process for discrepancies? Massachusetts Department of Elementary and Secondary Education 29

Cash Management Cont’d Cash Controls at the Register  Set Overage and Shortage Limits  Decide on a reasonable tolerance  Document transfers between drawers  Account for inter-register exchanges in order to properly reconcile Massachusetts Department of Elementary and Secondary Education 30

Resources NFSMI Financial Management Information System 2 CFR Part 225 (formerly OMB Circular A-87) Cost Principles for State, Local, and Indian Tribal Governments 7 CFR Part 3016 Uniform Administrative Requirements 7 CFR Resource Management idx?c=ecfr&sid=02dde6ef8db07a f e&rgn=div5&view=text&node=7: &idno= 7#7: CFR (i) Record Keeping idx?c=ecfr&sid=b1239e07dc80865bec89e9e7456cbb74&rgn=div5&view=text&node=7: &idno =7#7: Massachusetts Department of Elementary and Secondary Education 31