John Gallagher and Mark Durma USDA-FNS Resource Management John Gallagher and Mark Durma USDA-FNS

New Administrative Review for School Meal Programs Healthy Hunger-Free Kids Act Consolidate the Administrative Review Processes Incorporate: *School Breakfast *New Nutrition Standards *6-cent performance-based reimbursement Implement a 3-year Review Cycle Provide for offsite monitoring approaches Effective Training and Ongoing T/A   School Meal Programs has a new administrative review. Over the past year, the United States Department of Agriculture Food and Nutrition Service has worked with National Office and Regional Office staff, as well as State partners, to develop a new administrative review process. Reinventing the Administrative Review is based, in large part, on the new provisions in the Healthy, Hunger-Free Kids Act of 2010 passed by Congress. The Healthy, Hunger-Free Kids Act that called for a monitoring process that provides a more effective review of complex requirements within the school meal programs, while recognizing the resource constraints facing State government agencies.    Central to this is the mandate for USDA to develop a unified monitoring process, which involved combining elements of the found in the previous administrative review with the formerly separate school meal nutrition review. Reinvention goals furthermore included:  Incorporating into the new process school breakfast, the new meal pattern and dietary specification requirements and the 6-cent performance-based reimbursement;  Ensuring requirements of the school meal programs are implemented properly and efficiently by having State Agencies monitor programs within a 3-year cycle;  Developing recommended offsite monitoring approaches to offer flexibility, efficiency, and the broader incorporation of staff with the skills needed to address specific monitoring areas; and  Providing effective training of the new monitoring process and ongoing technical assistance to essential headquarter, Regional Office and State agency staff. So- you may be asking yourself- why would this review be relevant to School Business Officials? What does this review of school breakfast and school lunch have to do with the work of school finance? [NEXT SLIDE]

New Section: Resource Management Federal regulations require State Agencies to ensure school districts, or how USDA refers to them as School Food Authorities (SFAs), account for all revenues and expenditures of their nonprofit school food service. Ensures effective and consistent management of program resources. As part of the new review process, a new section titled Resource Management has been added. Federal regulations require State Agencies to ensure that school districts, or how USDA refers to them as School Food Authorities, account for all revenues and expenditures of their nonprofit school food service. The Healthy Hunger-Free Kids Act also instituted new fiscal requirements, called Paid Lunch Equity and Revenue from Non-program Foods, that must be monitored. If you are not familiar with these terms- we will go into additional detail on those later in this presentation. Not only is it practical for SFAs to ensure their financial house is in order so that they have the monetary resources necessary to adequately serve all students nutritious meals, it is also required under federal law.

Resource Management: Five Areas of Review 1. Maintenance of the Nonprofit School Food Service Account 2. Paid Lunch Equity 3. Revenue from Non-program Foods 4. Indirect Costs 5. USDA Foods Resource Management has five areas of review. Those areas are maintenance of a nonprofit school food service, which includes net cash resources and allowable costs; paid lunch equity; revenue from non-program foods; indirect costs; and USDA foods. We will discuss each of these areas in detail throughout the presentation and how each area fits into the review process.

Resource Management – Review Process SFA Off-Site Assessment State Agency Risk Assessment Review Approach Here’s a visual representation of the Resource Management Review process that we will now discuss in detail. Technical Assistance & Corrective Action Comprehensive Review

Resource Management – Review Process Initial RM Off-site assessment Part of larger off-site assessment tool Integration of off-site components into Administrative Review Process 4 weeks before on-site review Resource Management Portion of Off-site Assessment Tool 18 yes or no questions About 5 review areas of RM plus 2 additional areas SFA responses should reflect most recently completed Fiscal Year Collaborate with SA to complete No response results in RM Comprehensive Review The Resource Management review begins with an initial off-site assessment. This assessment is part of a larger off-site assessment tool that the SA will be using to obtain information about various aspects of the SFA’s school nutrition program operations, which includes Resource Management. The Resource Management portion of the Off-site Assessment Tool contains 18 yes or no questions. These 18 questions obtain information about the 5 review areas of Resource Management plus 2 additional areas that are indicators of risk, but do not assess compliance. We will be discussing each of the 18 questions throughout this presentation. Your responses to these questions should reflect the most recently completed Fiscal Year. If you fail to collaborate with the State to complete these questions four weeks before the on-site portion of the administrative review, your SFA will automatically receive a RM Comprehensive Review, which is detailed assessment of the 5 review areas. We will be talking about the specifics of the comprehensive review later in this presentation.

Resource Management – Review Process Cont’d Once RM portion of Off-site Assessment Tool is complete, SA uses the yes/no responses to complete the Resource Management Risk Indicator Tool. Resource Management Risk Indicator Tool Contains the same questions as RM portion of Off-site Assessment Tool Tool Scoring assigns risk with RM requirements for each of the 18 questions # of Risk indicators determines whether Resource Management Comprehensive Review is required Once the SFA has provided answers to each of the 18 questions, the State will uses these responses to complete the Resource Management Risk Indicator Tool. The Resource Management Risk Indicator Tool contains the same questions as the RM portion of the Off-site Assessment Tool. The SA inputs the applicable yes/no response into the tool to assign risk for each of the 18 questions. The number of risk indicators determines whether a Resource Management Comprehensive Review is required.

Resource Management – Review Process Cont’d The Resource Management Risk Indicator Tool assesses risk via “risk indicators” SFAs may receive a total of 0-7 risk indicators 0-2 risk indicators: technical assistance and/or corrective action 3+ risk indicators: more comprehensive review required 5 risk indicators correspond to the 5 areas of RM review Remaining 2 correspond to SFA size and past performance Once the RM Risk Indicator Tool is completed, the SA will know how many risk indicators the SFA has received. A SFA can receive 0-7 risk indicators. One for each of the 5 areas plus 2 that correspond to SFA size and past financial performance. If a SFA receives 0-2 risk indicators, a Resource Management Comprehensive Review is not required. However, the SA must determine if there is non-compliance in those flagged areas. If there is non-compliance, the SA must provide technical assistance and/or corrective action to bring that area into compliance. If a SFA receives 3 or more risk indicators, a Resource Management Comprehensive Review is required.

Resource Management – Review Process Cont’d Resource Management Comprehensive Review 3+ risk indicators Review all five areas of Resource Management: Maintenance of the Nonprofit School Food Service Account, Indirect Costs, PLE, Revenue from Nonprogram Foods, and USDA Foods (Regardless of Risk) Off-site or On-site Review (Except Allowable Cost) During an Resource Management Comprehensive Review, the SA will examine the SFA’s compliance with all five of the Resource Management areas, even if the Risk Indicator Tool did not identify possible risk of noncompliance in all five areas. The State agency may elect to complete any aspect of the Comprehensive Review off-site or on-site, except for the review of allowable costs under the Maintenance of the Nonprofit School Food Service Account. That particular aspect of that monitoring area must be reviewed on-site. What does this mean for SFAs? It means that the SA may ask you send them some financial information and other documentation via email, mail, fax or other method prior to the actual date of their on-site visit to your district. We will be discussing what types of documentation you can be expected to provide later in this presentation.

Resource Management – Review Process SFA Off-Site Assessment State Agency Risk Assessment Review Approach Here’s a visual representation of the Resource Management Review process that we just discussed. The State agency will work with each school district/SFA scheduled for an administrative review to complete the Off-site Assessment Tool at least 4 weeks before the on-site review. This is the same Off-Site Assessment Tool that’s used in the other modules and it contains 18 yes or no Resource Management questions. Once completed, the State Agency must take the Off-site Assessment Tool information and enter the answers captured in the assessment into the Resource Management Risk Indicator Tool at least 4 weeks prior to the on-site review. The Risk Indicator Tool will determine if the SFA may be at risk of non-compliance with the 5 resource management review areas. Please keep in mind that the Risk Indicator Tool is designed to identify both the SFA’s potential risk of noncompliance with the federal Resource Management requirements AND instances of possible noncompliance with the federal requirements. If the Risk Indicator Tool finds the SFA is at potential risk of noncompliance in up to 2 Resource Management areas, the SA must determine if there is non-compliance in those flagged areas. If there is non-compliance, the SA must provide technical assistance to bring that area into compliance. The SA would issue a finding with corrective action and record activity in the Comments section of the Off-site Assessment Tool. If the Risk Indicator Tool shows that the SFA is at possible risk of non-compliance in three or more Resource Management areas, the State Agency must conduct a Resource Management Comprehensive Review. During an Resource Management Comprehensive Review, the SA will examine the SFA’s compliance with all five of the Resource Management areas, even if the Risk Indicator Tool did not identify possible risk of noncompliance in all five areas. Technical Assistance & Corrective Action Comprehensive Review

Resource Management Risk Assessment This is a screen shot of the Resource Management portion of the Off-site assessment tool. This image shows the first two questions of Resource Management. I am showing these questions because – as you may notice – this questions do not apply to the five areas that will be assessed under Resource Management and that were mentioned earlier. These two questions assess SFA size and past financial findings. While there isn’t any information to review for these areas, these questions are used indicate potential for risk and are not compliance questions. SFA Size: Is the SFA’s enrollment 40,000 students or more? Past Performance: Did the SFA have any financial findings related to the child nutrition programs on previous Administrative Reviews, A-133, OIG, or other state audits within the past three years? These two questions are not evaluated further as part of Comprehensive Review, SA may answer these 2 questions on the school districts behalf. Off-Site Assessment Tool

Structure of Presentation For Each Resource Management Section: Background Information Monitoring Area & the Off-Site Assessment Tool Resource Management Comprehensive Review What documentation is required? What will be assessed? In an effort to make this presentation easier to follow along with, I will be covering Resource Management the following way: First, I will be providing you with background information about each section. Then I will discuss how we monitor each area and cover the questions from the off-site assessment tool. Finally, I will address the Resource Management Comprehensive Review as it pertains to each monitoring area. I will identify documentation that you’ll be asked to provide and what the SA will assess using that information.

Resource Management: Five Areas of Review 1. Maintenance of the Non-profit School Food Service Account 2. Paid Lunch Equity 3. Revenue from Non-program Foods 4. Indirect Costs 5. USDA Foods Now, we are going to talk about the Resource Management Review Area: Maintenance of the Non-profit school food service account. I will first provide background information on this area and then discuss how the administrative review will evaluate this area.

Background: Maintenance of the Nonprofit Food Service Account All food service operations conducted by the SFA principally for the benefit of children All revenue from which is used solely for the operation or improvement of such food services Restricted account in which all revenue from all food service operations conducted by the SFA for the benefit of children Retained and used only for the operation or improvement of such food service. Although we have touched on some of the concepts of school meal finance, I want to provide you with some basic fundamentals that will be helpful as I discuss each of the topic areas more in-depth. Central to all conversations about USDA School Meal Program Finance is the non-profit food service and non-profit food service account. The Nonprofit Food Service must operate only for the benefit of children and the revenue earned by the food service must go solely to the improvement of the food service Similarly, the Nonprofit Food Service Account must be maintained and operated solely for food service operations that benefit children- and the use of funds must solely be maintained for the operation and improvement of food service. ## Background

Revenue Use and Program Costs SFAs must observe the restrictions on the use of nonprofit food service account revenues. All revenue must be used for operating the food service program: To include food and food service staff costs; Administrative costs of the programs; and/or Improving Quality and Efficiency The nonprofit food service account must be maintained with all regulatory defined restrictions. In addition, all revenue must be used for program operations- this may be used for food, supplies, equipment, and personnel used to operate the meal service program; the as well as administrative expenses to operate the programs. And, the revenue can also be used to improve the quality and efficiency of the program. Background

What can revenue NOT be used for? Revenue Use and Program Costs (Cont.) Costs must be: Reasonable Necessary Allocable. What can revenue NOT be used for? Purchase land or buildings Construct buildings (unless approved by FNS) Spend on items not related to the food service program. As is typical with most Federal programs; all costs must be: reasonable, necessary, and allocable- we will go into further discussion on those points in a moment. There are some restrictions to Federal School Meal Programs that do not apply to most Federal programs. School Food Service Revenues can not be used to purchase land or buildings; construct buildings- unless approved by FNS; or on items not related to food service. Background

Revenue Use and Program Costs (Cont.) Appendix A of 2 CFR 225 “Reasonable:” a cost that would be incurred by a reasonable person in the same circumstance. “Necessary:” a cost needed to effectively and/or efficiently operate the meal program. “Allocable:” only the cost or portion of cost that benefited the food service program is charged to the food service account. For cost allowability great and small, USDA FNS directs all participants to Appendix A of 2 CFR 225. As you can see above- we give the definition of reasonable cost. So, if I were working in the food service and needed to purchase an additional food warmer because my food warmer had recently stopped working- would that be considered reasonable? The answer is it could be considered reasonable. The questions to consider are how much would it cost to repair the food warmer? Or does the cost of repairing the food warmer exceed the cost of repair? A reasonable person would likely make these considerations before purchasing a new food warmer. Then we provide the definition of necessary. Going back to the food warmer question- one may ask themselves if the food warmer is necessary. For example, if the food warmer is only used to keep a single specific item warm, it may not really be necessary to have one. If the food warmer is used on a daily basis, it is more than necessary to have one ready for use Finally, on the screen you will see the question about whether the cost is allocable. NEXT SLIDE Background

“Allocable” Example An administrative assistance spends part of his/her time on reviewing f/rp applications, preparing roster list, consolidating meal counts and submitting claim, and part of time on activities unrelated to food service program. To charge salary as a cost to the school food service account, must keep time sheet record of time spent on food service related activities. So, for example- Background

“Allocable” Example (Cont.) Time sheet shows admin assistant spends 40% of time on food service related activities over a certain period (month/year). 40% of salary is charged to the food service account. Background

Allowable Costs Requirements Conforms with Federal law, regulations, and program terms Reasonable Legal under State and local law Consistently treated as direct or indirect Necessary Net of applicable credits Adequately documented Allocable Determined in accordance with GAAP According to Appendix A of 2 CFR 225 allowable costs are as we just demonstrated: Necessary; Reasonable; Allocable; In addition, allowable costs must be: Legal under State and local law; Conforms with Federal law, regulation, and grant terms; Consistently treated as direct or indirect; Determined in accordance with Generally Accepted Accounting Principles (GAAP) Not included as a cost or matching contribution of any other grant; Net of applicable credits; and, Adequately documented. Background

Allowable vs. Unallowable Costs Salaries & wages Travel Training and staff development Meetings and conferences Printing and publications Food service or business supplies Allowable costs with prior SA approval Capital expenditures (equipment purchases, etc.) Unallowable costs Alcoholic beverages Entertainment Costs of general government lobbying Contribution to contingency funds Bad debts Costs to cover expenses for Universal Free meals beyond those provided by reimbursement 2 CFR Part 225 classifies costs in three categories: allowable, allowable with prior SA approval, or unallowable examples of Allowable costs include: Salaries & wages Travel Training and staff development Meetings and conferences Printing and publications Food service or business supplies Allowable costs with prior SA approval Capital expenditures (equipment purchases, etc.) Unallowable costs include the following: Alcoholic beverages Entertainment Costs of general government lobbying Contribution to contingency funds Bad debts Background

More Rules: Net Cash Resources SFAs must limit their Nonprofit Food Service Account: Net cash resources MUST NOT exceed 3 months’ average expenditures 3 months’ average expenditures = expenditures related to food service during an average 3 month period “Net Cash Resources” are: Amount of cash Accounts receivable Accounts payable present in the food service account at a given time Now that we have discussed allowable costs- let’s talk a little more about some of the other fundamentals of the non-profit food service account. One of the important rules of thumb involves the account’s net cash resources. Net cash resources are equal to the amount of cash in the account, plus the accounts receivable, minus the accounts payable present in the food service account at a given time. For the non-profit food service account, the amount cannot exceed 3 months operating expenses 3 months’ average expenditures is the amount of expenditures related to food service during an average 3 month period Background

Net Cash Resources What if my account exceeds the net cast requirement? Develop a spending plan and have it approved by the State agency Describe how the excess funds will be used to enhance the quality of the food service program. May include replacing equipment, adding equipment, purchasing higher quality foods, and upgrading the POS system. So, what if your account does exceed the net cast resource requirements? The school district must develop a spending plan and submit it to the State agency for approval. The SFA will have to describe how it intends to use the additional funds and how the use of the funds will be used to improve the quality of the food service The plan could include replacing old and damaged equipment, adding NECESSARY equipment, purchasing higher quality food, or upgrading the point of sale system- or as we call it- the POS. Background

SFA Compliance with Regulations - 7 CFR 210.14(a) Resource Management Area: Maintenance of the Non-Profit Food Service Account SFA Compliance with Regulations - 7 CFR 210.14(a) Intent: Federal funds must be used only for the operation and improvement of the school food service Intent: Maximize program benefits to enrolled students Now, I will provide you with an overview of how the Non-Profit School Food Service Account be reviewed during an administrative review. One of the major responsibilities that accompany the decision to participate in the school meal programs is the management of the nonprofit school food service account. As we have previously indicated, maintenance of the nonprofit school food service is a regulatory requirement under 7 CFR 210.14(a). The purposes of the review, we are looking to ensure that Federal funds are used only for the operation and improvement of school food service. Removing for-profit motives from program operations maximizes program benefits and helps School Food Authorities to use limited funding resources for the improvement of school meals. Monitoring Area

Maintenance of the Nonprofit School Food Service Account Off-Site Assessment Tool Questions – 5 questions 5 questions (cont.) Did the SFA conduct a year-end review of total revenues and expenses to determine the school food service nonprofit status? Did the SFA identify year-end expenses in excess of revenues? If the SFA had excess revenues at the end of the year, were the surplus funds transferred out of the school food service account to support other operations and/or to achieve a zero balance? Did the SFA, in the most recent fiscal year, complete a process to measure its compliance with the requirement to limit net cash resources to a level at or below three months’ average expenditures? Did the SFA maintain support records to document its compliance with the three months’ net cash resource limit? I will briefly walk you through the off-site assessment tool questions-please look at the slide above as I discuss each question… Off-Site Assessment Tool

Off-Site Assessment Tool Resource Management – Maintenance of the Nonprofit School Food Service Account RESULTS: Regardless of Risk indicators triggered in any one RM review area, only one indicator is counted If multiple risk indicators are triggered- only one counts in each of the Resource Management Review Areas. So, for example, if all five of your responses to the maintenance of nonprofit school food service questions indicate risk, only one risk indicator will be assessed when the SA completes the RM Risk Indicator Tool. Off-Site Assessment Tool

Maintenance of the Nonprofit School Food Service Account Three Components -- Comprehensive Review 1. Nonprofit School Food Service Account Review the SFA’s documentation to verify the nonprofit status. 2. Net Cash Resources Determine if the SFA is in compliance with the 3 month operating expenses limit; if not, was prior SA approval obtained? 3. Allowable costs Determine if program funds were used on expenses that were reasonable, necessary, and otherwise allowable. If the Resource Management Risk Indicator Tool identifies that a SFA needs a comprehensive resource management review, the State Agency will examine the health of the SFA’s nonprofit school food service account by looking at three specific areas: 1) The SA will determine the SFA’s nonprofit status by examining the SFA’s “Operating Statement” or “Statement of Activities” and by deducting expenses from total nonprofit foodservice revenue. The SA must verify that any excess revenues over expenses is retained and used only in the nonprofit food service program. The SA can also work with SFAs on corrective action plans to reduce or eliminate excessive balances. 2) The SA will calculate the SFA’s net cash resources and ensure the SFA is in compliance with the SA’s criteria for approval of net cash resources in excess of 3 months average expenditures; 3) The SA will test actual SFA expenses for compliance with allowable cost requirements and identify and correct any unallowable costs. The SA must also ensure that costs are adequately documented and treated consistently and that adequate support documents are maintained by the SFA. Remember :Comprehensive Review only necessary when 3+ risk indicators Comprehensive Review

Maintenance of the Nonprofit School Food Service Account Documentation Needed Assessment Will Be On Most Recent Fiscal Year’s: “Operating Statement” “Statement of Activities”; or “Balance Sheet” SA will identify: Any revenue shortfalls or excesses If excess, SA ensures SFA retained them Comprehensive Review

Maintenance of the Nonprofit School Food Service Account: Net Cash Resources Documentation Needed Assessment Will Be On Most Recent Fiscal Year’s: “Operating Statement” “Statement of Activities”; or “Balance Sheet” SA will identify: Whether the SFA is limiting net cash resources to an amount that does not exceed 3 months’ average expenditures, as required under 7 CFR 210.14. Comprehensive Review

Maintenance of the Nonprofit School Food Service Account: Allowable Costs Documentation Needed Assessment Will Be On Most Recent Fiscal Year’s: “Operating Statement” “Statement of Activities”; or “Balance Sheet” Source documentation for: At least 10% of total expenditures for most recently closed Fiscal Year The sample will include costs from food, labor and other expenses SA will identify: If SFA’s sample of costs are allowable Ensure that SFA keeps adequate documentation If the SFA allocates expenses consistently among local and Federal programs Comprehensive Review

NJ Handouts & Examples

Resource Management: Five Areas of Review 1. Maintenance of the Nonprofit School Food Service Account 2. Paid Lunch Equity 3. Revenue from Non-program Foods 4. Indirect Costs 5. USDA Foods Now, we are going to talk about the Resource Management Review Area: Paid Lunch Equity and how this area will be reviewed.

Paid Lunch Equity Pricing sponsors must price paid lunches at a rate at least equivalent to the revenue received for free lunches ($2.59 in SY 2013-2014.) If the price charged is less, sponsors must increase their price gradually (not more than 10¢) each year until minimum is met. Alternatively, non-Federal funds provided to support paid meals may be used to offset price increase. Background

Unallowable Non-federal Sources Paid Lunch Equity Allowable Non-federal Sources Unallowable Non-federal Sources Any payments, including additional per-meal reimbursements, provided to the SFA for support of the School Breakfast Program or other Child Nutrition Programs; Any payments, including additional per-meal reimbursements, provided specifically to support free and reduced price meals Per-meal reimbursements for paid breakfast and lunches from states, counties, school districts and others*; Funds provided by organizations; Any portion of State revenue matching funds that exceed the minimum requirement & that’s provided for paid meals* *For SY 13-14 only Financial support from non-federal sources must be cash for direct support for paid lunches Allowable Non-federal sources Per-meal reimbursements for paid breakfast and lunches from states, counties, school districts and others*; Funds provided by organizations; Any portion of State revenue matching funds that exceed the minimum requirement & that’s provided for paid meals* *For SY 13-14 only Unallowable Non-federal sources any payments, including additional per-meal reimbursements, provided to the SFA forsupport of the School Breakfast Program or other Child Nutrition Programs; any payments, including additional per-meal reimbursements, provided specifically to support free and reduced price meals Background

Paid Lunch Equity Included in the Healthy, Hunger-Free Kids Act (Section 205) Intent: To ensure that SFAs charge paid lunch prices sufficient to cover the costs of paid meals or otherwise provide enough funds to support paid meal costs. The second monitoring area of Resource Management is Paid Lunch Equity. Prior to the passage of Section 205 of the Healthy, Hunger Free Kids Act of 2010, there were no statutory or regulatory requirements for SFAs in establishing prices for paid reimbursable lunches or the amount of revenue that had to be generated by paid lunches. USDA’s research showed that the revenue received by schools for paid meals is often too low to cover the cost of those meals, effectively shifting federal subsidies designed for the lowest income children to less needy students. During a review of the Paid Lunch Equity, the State would determine if the SFA accurately calculated its need to raise its paid lunch prices, and if so, if it raised its prices as required. Monitoring Area

Off-Site Assessment Tool Paid Lunch Equity Off-Site Assessment Tool Questions – 4 questions Results Did the SFA use the USDA Paid Lunch Equity Tool to evaluate paid lunch prices? Did the SFA increase its paid lunch prices if the tool indicated a paid lunch price increase was required? Did the SFA use non-Federal funds to support its paid lunch prices? Did the SFA submit its most frequently charged paid lunch price to the SA? SA may answer this on your behalf Regardless of how many risk indicators are triggered in any one RM review area, only one indicator is counted. For example, if all four of your responses to the PLE questions indicate risk, only one risk indicator will be assessed when the SA completes the RM Risk Indicator Tool True for all RM review areas I will briefly walk you through the off-site assessment tool questions-please look at the slide above as I discuss each question… This section doesn’t apply non-pricing programs and RCCIs without day students Note: This section doesn’t apply to non-pricing programs and RCCIs without day students. Off-Site Assessment Tool

Paid Lunch Equity What documentation will you be asked to provide? SFA’s calculations to meet the paid lunch equity requirements. SFA-completed Paid Lunch Equity Tool; or, Approved Alternative Documentation Previous School Year (SY) Weighted Average Price All Paid Lunch Prices for October of the Previous SY Number of paid lunches served at each paid lunch price in October of the previous SY Comprehensive Review

Paid Lunch Equity Correct Determination of Need to Raise Prices What will the State agency assess? Correct Determination of Need to Raise Prices Price Increase Occurred, as applicable Non-federal sources were: Used in Whole or in Part Allowable Appropriately added to the non- profit food service account What will SA assess? Whether the SFA has correctly determined its need to raise its paid lunch prices; That the paid lunch price increase occurred as required, if applicable If the SFA used non-federal sources in whole or in part to meet PLE compliance, if the non-federal funds were allowable and if so, the funds were in fact added to the nonprofit school food service account. Comprehensive Review

Resource Management: Five Areas of Review 1. Maintenance of the Nonprofit School Food Service Account 2. Paid Lunch Equity 3. Revenue from Non-program Foods 4. Indirect Costs 5. USDA Foods Now, we are going to talk about the Resource Management Review Area: Revenue from Non-Program Food and how this area will be reviewed.

Nonprogram Revenue “Nonprogram revenue” “Nonprogram foods” Refers to the revenue resulting from the sale of nonprogram foods. All food sold that is not part of the reimbursable meal, e.g., a la carte foods, individual food/beverage item sales, 2nds of entrées or other items, vending machine foods/beverages, adult meals, etc.). Background

Nonprogram Revenue Proportion of Total Revenue from Effective on July 1, 2011 Proportion of Total Revenue from Nonprogram Foods Sales is greater than or equal to the Proportion of Total Food Costs of Nonprogram Foods to Total Food Costs of All Food This regulatory policy, effective July 1, 2011, requires SFAs to ensure that the proportion of total revenue from the sale of nonprogram foods to total revenue accruing to the school food service account shall be equal to or greater than the proportion of total food costs of nonprogram foods to total food costs of all foods. Therefore, revenues from the sale of nonprogram foods must generate at least the same proportion of SFA revenues as they contribute to SFA food costs. Background

Nonprogram Revenue Revenue Ratio: Nonprogram revenue (program revenue + nonprogram food revenue) Food Cost Ratio: Cost of nonprogram foods (cost of program foods + cost of nonprogram foods) Total Non-Program Food Revenue > Total Non-Program Cost Total Program Revenue Total Purchased Food Cost Background

Nonprogram Revenue Calculator   Cost for Reimbursable Meal Food $34,287       Cost of Nonprogram Food $2,876       Total Food Costs $37,163       Total Nonprogram Food Revenue $4,419       Total Revenue $73,138         Total Non Program Food Revenue = $4,419 equals 6% Total Revenue = $73,138 Total Non Program Food Cost = $2,876 equals 8% Total Food Cost = $37,163                 Min portion of revenue from nonprogram funds = 8% Min Revenue Required from the Sale of Nonprogram Foods =$5,660 Additional Revenue Needed to Comply = $1,241                     Background

Revenue from Nonprogram Foods Off-Site Assessment Tool Questions – 2 questions Results Does the SFA use the USDA Nonprogram Food Revenue Tool or a USDA-approved alternative method to calculate its nonprogram food costs and nonprogram food revenue? Was the SFA’s proportion of total revenue from the sale of nonprogram foods to the total revenue of the school food service account equal to or greater than the proportion of total food costs associated with obtaining nonprogram foods to the total costs associated with obtaining program and nonprogram foods from the account Regardless of how many risk indicators are triggered in any one RM review area, only one indicator is counted. For example, if all four of your responses to the PLE questions indicate risk, only one risk indicator will be assessed when the SA completes the RM Risk Indicator Tool True for all RM review areas I will briefly walk you through the off-site assessment tool questions-please look at the slide above as I discuss each question… Section may be not applicable if the SFA does not sell nonprogram foods or beverages, including adult meals Note: Section may be not applicable if the SFA does not sell nonprogram foods or beverages, including adult meals Off-Site Assessment Tool

Revenue from Nonprogram Foods What documentation will you be asked to provide? Food costs of reimbursable meals; Food costs of nonprogram foods; Revenue from nonprogram foods Total revenue USDA NonProgram Food Revenue Tool or Alternative Mechanism Adult Meal Prices Comprehensive Review

Revenue from Nonprogram Foods What will the State agency assess? Nonprogram Foods and Nonprogram Foods Cost Calculations Process for Compliance Revenue accrues in the Nonprofit Food Service Account Adult meals priced at least equal to cost What will SA assess? Whether revenue from nonprogram foods and nonprogram foods costs are correctly calculated If the SFA has a sufficient process in place to accurately and thoroughly assess its compliance with the revenue from nonprogram foods requirements Whether revenue from nonprogram foods accrues to the nonprofit school food service account If adult meals are priced at least equal to the cost of producing them Comprehensive Review

Resource Management: Five Areas of Review 1. Maintenance of the Nonprofit School Food Service Account 2. Paid Lunch Equity 3. Revenue from Non-program Foods 4. Indirect Costs 5. USDA Foods Now, we are going to talk about the Resource Management Review Area: Indirect Costs. I will first provide background information on this area and then discuss how the administrative review will evaluate indirect costs.

Background Information: Program Costs Direct Costs Indirect Costs Direct costs: incurred specifically for a program or other cost objective and readily identified to a particular objective. Indirect costs: incurred for the benefit of multiple programs, functions, or cost objectives; cannot be readily and specifically identified with a particular program or cost objective. Program costs may include both “direct” and “indirect” costs. Direct costs are those costs directly attributable to the program. So, for example, paying the salary of the food service director is a direct cost to the program. Indirect costs may benefit multiple programs and areas. So, for example, the custodial service in a facility, or in most of our cases- schools, benefit all programs. Only an amount attributable to the food service program can be funded by program funds. Background

Program Costs (Cont.) Examples of direct costs: wages/salaries, supplies, equipment used in food service. Examples of indirect costs: employee benefits, human resources, payroll services, accounting/finance, facilities management, utilities, water, refuse collection. Here are some more examples of direct program costs: wages/salaries, supplies, equipment used in food service. Here are some examples of indirect program costs: employee benefits, human resources, payroll services, accounting/finance, facilities management, utilities, water, refuse collection. Background

Program Costs (Cont.) The same cost or expense may not: Be identified under both direct and indirect costs Be treated inconsistently throughout the organization (either as direct or indirect). Background

Indirect Costs SFAs may charge a certain amount of costs identified as indirect to the food service account, but may not calculate or estimate this amount on their own. Must request an “indirect cost rate” from their Federal “cognizant” agency. The cognizant agency is the Federal agency that provides the most funds to the organization. Background

Indirect Costs (Cont.) Indirect Cost Rate Proposal (ICRP) Indirect Cost Rate Agreement (ICRA) Indirect Cost Rate is the ratio of indirect costs to direct costs organization wide The indirect cost rate is applied to the “direct cost base” of a specific unit/program to calculate the amount of indirect costs to charge to the program. Indirect cost pool Indirect cost rate Direct cost base In order to establish an indirect cost rate, an organization (or in our case, school districts) will submit an Indirect Cost Rate Proposal (ICRP) to the cognizant agency (usually department of education), which results in an Indirect Cost Rate Agreement (ICRA). Essentially, the indirect cost rate is the ratio of indirect costs to direct costs organization-wide. The indirect cost rate is applied to the “direct cost base” of a specific unit/program to calculate the amount of indirect costs to charge to the program. Background

Indirect Costs (Cont.) This methodology and calculation of the indirect cost rate and direct cost base is determined by the Federal cognizant agency only, through the ICRA If you’d like more information about Indirect Cost, please see Memo SP 41-2011 on the FNS website under Program Policy. This particluar memo provides a Guidance manual on Indirect Cost for School Food Authorities. Background

Indirect Costs Intent: To safeguard the financial integrity of the SFA’s nonprofit school food service account by ensuring that the SFA’s costs are appropriately charged as direct or indirect costs. Examining a SFA’s indirect costs as part the Resource Management review helps safeguard the financial integrity of a SFA’s nonprofit school food service account. In general, the full cost of a program, function or activity includes both direct and indirect costs. The determining factor in distinguishing a cost as direct or indirect is the extent to which it can be identified with a specific program, function, or activity that benefits from the organization (i.e., SFA) having incurred the cost rather than the nature of the goods and services themselves. Direct costs are incurred specifically for a program or other cost objective and can be clearly identified to a particular objective such as school food service. Some examples include wages and salaries of food service workers, food service supplies and food service equipment purchases. Indirect costs are necessary for the general operation of the SFA. Indirect costs are those costs of doing business that are incurred for a common or joint purpose benefiting more than one cost objective, and not readily assignable to particular cost objectives. Due to their generic nature individual indirect costs are not assignable to the School Meal Program’s specific functions or activities. Some examples include payroll services, electricity, water, and gas since the entire SFA uses these resources. Monitoring Area

Off-Site Assessment Tool Questions Off-Site Assessment Tool Indirect Costs Off-Site Assessment Tool Questions Results Were indirect costs charged to the SFA’s nonprofit school food service account? Were indirect costs charged to the SFA’s nonprofit school food service account at the SA- approved rate? Regardless of how many risk indicators are triggered in any one RM review area, only one indicator is counted. For example, if both of your responses to the Indirect Cost questions indicate risk, only one risk indicator will be assessed when the SA completes the RM Risk Indicator Tool True for all RM review areas Section would not be applicable if the SFA is not charging indirect costs to the school food service account Note: Section would NOT be applicable if SFA is not charging indirect costs to the food service account Off-Site Assessment Tool

Approved Indirect Cost Rate Agreement Financial statements What documentation will you be asked to provide? Approved Indirect Cost Rate Agreement Financial statements Chart of accounts Accounting records Comprehensive Review

Indirect Cost Use of the Correct Rate Accounting Consistency What will the State agency assess? Use of the Correct Rate Accounting Consistency Prior Year’s Retroactive Billing Proper Classification of Indirect and Direct Costs Support Documents for Indirect Cost Billing What will SA assess? Use Correct Rate: Ensure the indirect cost charged to the nonprofit school food service account is consistent with the approved indirect cost rate to the direct cost base found in the approved indirect cost rate agreement.   Accounting Consistency: Handling of indirect costs must be consistent in all activities of the SFA unless otherwise exempted. Prior Year’s Retroactive Billing: Confirm that the nonprofit school food service account was not charged for indirect costs that were previously paid from the general fund. Proper Classification of Costs (Direct/Indirect): Costs must be consistently treated as direct or indirect. Confirm that school food service accounts are not charged directly for expenditures that are included in the indirect cost pool (double dipping). Support Documents for Indirect Cost Billing: Verify the documentation that supports actual indirect costs charged to the school food service account. Check for mathematical errors and confirm that indirect costs were calculated based on the correct rate and the correct base Comprehensive Review

Resource Management: Five Areas of Review 1. Maintenance of the Nonprofit School Food Service Account 2. Paid Lunch Equity 3. Revenue from Non-program Foods 4. Indirect Costs 5. USDA Foods Now, we are going to talk about the Resource Management Review Area: USDA Foods. I will first provide background information on this area and then discuss how the administrative review will evaluate USDA Foods.

USDA Foods 4 methods for obtaining full value: (1) Rebate system: USDA Foods Processor Distributor Sponsor $ - Sponsor Distributor Rebate application – Sponsor Distributor $ - Distributor Sponsor Background

USDA Foods 4 Methods for Obtaining Full Value (Cont.) (2) Fee for Service – The processor charges the sponsor a fee (for processing only) per pound or case to convert USDA Foods into end product. (3) Direct Discount – Processor sells finished end product directly to sponsor at a discount. Discount is based on the value of USDA Foods in end product. Background

USDA Foods 4 Methods for Obtaining Full Value (Cont.) (4) Net Off Invoice – Processor delivers end product to a distributor who then sells the product to the sponsor at a discount. Discount based on the value of USDA Foods in product. Background

USDA Foods USDA Foods requirements: Included under Section 14 of the NSLA, 7 CFR 210.14(d), 7 CFR 250, FD instructions/policy memoranda. Intent: Ensure that SFAs have adequate policies and procedures in place to safeguard and fully utilize USDA foods. The fifth and final area of review under Resource Management is USDA Foods. USDA foods, also called “donated foods,” are foods donated, or available for donation, by the USDA under 7 CFR Part 250. The goal of monitoring USDA foods is to ensure SFAs have sufficient methods in place to safeguard and fully utilize USDA foods in the production of school meals. We also want to identify practices that may increase the likelihood that a SFA will be out of compliance with USDA food requirements and to identify opportunities to provide technical assistance to these SFA’s. Monitoring Area

Off-Site Assessment Tool Questions Off-Site Assessment Tool USDA Foods Off-Site Assessment Tool Questions Results Does the SFA receive its USDA Foods from a purchasing agency, cooperative, or distributor? (YES/NO) Does the SFA or SFA’s purchasing agent or cooperative divert USDA foods for processing? (YES/NO) Does the SFA contract with a vendor or a Food Service Management Company for food service? (YES/NO) Regardless of how many risk indicators are triggered in any one RM review area, only one indicator is counted. For example, if both of your responses to the USDA Food questions indicate risk, only one risk indicator will be assessed when the SA completes the RM Risk Indicator Tool True for all RM review areas Off-Site Assessment Tool

USDA Foods What documentation will you be asked to provide? 10 – 50% of the following records as applicable Contracts with entities other than the State distributing agencies (i.e. FSMC, processor, cooperatives) The bid document detailing the credit price by commodity type weight/case Inventory report from processor or cooperative Invoice/delivery receipt from the processor/distributor showing the credit the SFA received by commodity type Comprehensive Review

USDA Foods Full Value of USDA Foods What will the State agency assess? Full Value of USDA Foods Use of USDA Foods Reconciliation to Ensure Purchasing Agent or FSMC has credited the SFA SFA receives rebates, discounts, and credits off invoices What will SA assess? If the SFA is receiving the full value of USDA Foods Whether the SFA is using USDA Foods in its school food service If SFA conducts an annual reconciliation to ensure that a purchasing agent or FSMC has credited the SFA for the value of all USDA foods received Whether the SFA is receiving the rebates, discounts, credits or net off invoice to which it is entitled Comprehensive Review

Resource Management - RECAP Off-site Assessment Tool Questions on 5 RM areas plus 2 non-review areas SA determines risk of noncompliance with RM requirements 0-2 risk indicators Technical Assistance & Corrective Action only 3+ risk indicators Comprehensive Review RM Comprehensive Review Detailed look at all 5 RM areas SFA will have to provide documentation to SA

QUESTIONS?