1. Breakout Session: Completion of Supplemental Financial Reports
2012 MASBO Fall Institute
Presenter: Rob Leshin, MPA
Nutrition Programs Financial Manager
ESE: Office for Nutrition, Health and Safety

2. School Lunch Financial Management
Objective: After this session you will…
know what the federal regulations say
Know what are school lunch revolving account allowable costs
know how to compute ESE monthly supplemental financial report consistent with federal and state guidelines

3. Overview
Importance of financial management in the school lunch program
Relevant USDA federal regulations
Overview of allowable costs
School Food Service Expenditures and Revenues
Supplemental Financial Report

4. Importance of Sound Financial Management
Costs of serving meals to students increasing faster than the generation of revenue in most districts (U.S. General Accounting Office 2003 Report)
As federal and state budgets tighten demand for more accountability rises
Healthy, Hunger Free Kids Act of 2010 calls for new focus on safeguarding school lunch funds and further defining allowable costs

5. Federal Regulations
Title 7, Code of Federal Regulations (7 CFR) School food authorities must establish a nonprofit school food service (cafeteria fund/account) [7 CFR 210.9(b)(1)].
7 CFR All federal, State, and local revenues, payments, and program reimbursement must be deposited into the cafeteria account and are to be used solely for the operation and improvement of this service.

6. Federal Regulations Continued
7 CFR Each State agency shall ensure that school food authorities comply with the requirements to account for all revenues and expenditures of their nonprofit school food service.
The State agency shall ensure compliance with the requirements to limit net cash resources and shall provide for approval of net cash resources in excess of three months' average expenditures.

7. Allowable Costs- General Guidelines
General Cost Principles
Appendix A of 2 CFR 225 (OMB A-87)
Costs must be necessary and reasonable for proper and efficient performance and administration of federal awards
Food service cannot operate without incurring the cost
Costs incurred for the benefit of multiple programs (such as retirement, utility charges) is an indirect cost. Cost allocation process needed.
Appendix B of 2 CFR 225 (OMB A-87)
Unallowable costs include costs of general government and bad debts
Non-food service related costs

8. Allowable Costs- Continued
USDA Regulations
All revenue from school lunch revolving account used only for operating the meal service and/or improving its quality and efficiency
Cannot borrow against account for non food-service costs! Unallowable

9. Two Required Monthly Financial Reports
Profit and Loss Statement
Statement of revenues and expenditures using cash basis accounting
Net profit (gain) or loss (deficit) to the program
Supplemental Financial Report
Statement of revenues and expenditures using accrual accounting
Includes assets (worth) and liabilities (what is owed to others and what is owed to the program)

10. Supplemental Financial Report
Required to ensure net cash resources are limited and revenues and expenditures accounted for
Balance sheet that shows true financial standing of program at a point in time.
Starts with revenues and expenditures to show cash on hand
Adjusts cash on hand by including the school food service’s assets (cash, food, commodities and supplies), liabilities (adding receivables and and subtracting payables) to show true balance of the school food service.
Unlike P and L the report takes into consideration liabilities

11. How to Get to Supplemental Financial Report on Security Portal
Log in under School Lunch and Breakfast/Claims
Menu names recently changed to assist sponsors
Menu named “Supp Fin Report Data Entry”
Menu named “Supp Fin Report View Only”

12. Supplemental Financial Report
Should be done monthly at the end of the month
Top portion is a cash flow statement
Bottom portion is a balance sheet

13. Monthly Cash Flow Transactions Paid or Received During Applicable Month

14. Examples of Revenue Items
Sales to Students:
Total gross sales to students earned AND received that month for breakfast, lunch and a-la-carte.
Reimbursement
State and Fed reimbursement received and deposited during month (Example: prior month’s claim)
Should not include commodity amount
Reimbursement that was never received for a month should be reported as a receivable for the rest of the year

15. Examples of Revenue Items Continued
Other
Student prepaid sales
Adult Prepaid sales received during month
All adult sales (does not include meals tax)
Rebates or discounts that were received during month
Catering sales
Local Appropriation
Any cash contributions from other local accounts to the school lunch program

16. Examples of Expenditure Items
Food, Labor and Equipment
Amount paid from school lunch account for purchased food, labor and equipment during applicable month
Equipment purchases (Includes only allowable equipment purchases of $5,000 or more per unit pursuant to USDA 7CFR 3015)
Other
Sanitation, outreach, promotional, professional development, fees, licenses, account management services.

17. Examples of Expenditure Items Continued
Other (continued)
Utilities (only if there is a separate meter for the school lunch program or included in cost allocation plan)
Total cash available (C) minus subtotal of expenditures (D5) equals ending cash balance
Ending cash balance (E) become beginning cash balance of next month.

18. Monthly Status of Assets and Liabilities Snapshot of current assets in addition to what school lunch program expects to receive and what it owes

19. Examples of Receivable Items
Monthly reimbursement should first be reported as a receivable.
Example: September reimbursement shown as receivable for month of September and shown as revenue for month of October. September 30th the reimbursement was not received yet. Most likely received in the month of October.
Other
Any other funds owed to school food service including uncollected student charges
Rebates or discounts not received yet

20. Inventory at Cost Commodities
Purchase value of commodity goods on hand (not market value)
Purchased Food
Value of purchased food on hand (not purchased through commodity program)
Supplies
Value of supplies on hand
Other
Note: equipment value not counted in report

21. Examples of Payable Items
Food
Any food bills not paid
Labor
Any administrative payments not paid (payroll, fringe and indirect)
Equipment
Any outstanding payments owed for equipment
Other
Any other outstanding payments still owed
Adult meals sales tax
Balance of prepaid meal cards (deferred revenue)

22. Reporting Prepaid Meals
National Food Service Management Institute’s (NFSMI) Definition of Prepaid Meals:
Reimbursable school meals, full or reduced price, which are paid in advance.
Revenue from these meals is reported as deferred revenue and is considered a liability on the balance sheet.
Once meals are reported as served, the revenue is reported as student meals sales.

23. Reporting Prepaid Meals Continued
As a prepaid card is swiped and a meal is purchased report the amount as revenue above under student prepaid. 
Report the balance of the card as "payable other" down below on supplemental report.  
The balances of prepaid meal cards are called "deferred revenue" because the revenue is unearned.  The money is a payable (could be owed back) unless swiped which then becomes part of cash on hand (earned and received). 

24. Net Cash Resource Limit
Per 7CFR, Section (b)(2), net cash resources are limited to an amount that does not exceed 3 months average expenditures.
At the end of an operating year (June), the ending cash balance cannot exceed this figure.
If sponsor exceeds the amount, the surplus amount must be put back into the school lunch program (i.e. new equipment, reduced meal prices, promotional activities etc.)

25. Reviewer Calculation
Use last 10 month operating year’s set of data for calculation (Sep through June)
Add together the ten expenditure subtotals (D5) for each month and divide by 10 to compute monthly average.
Multiply monthly average by 3 to get 3 months average expenditures.
Compare June’s ending cash balance (row E) to this figure.
If June’s ending cash balance exceeds 3 months average expenditures, not in compliance.

26. Questions?
Rob Leshin Office for Nutrition, Health and Safety MA Department of Elementary and Secondary Education