F

Financial Administration

The LEA must maintain, or have maintained, full and accurate records in accordance with generally accepted accounting principles (GAAP) and any other state and federal requirements for food service operations which receive federal financial assistance. Records must be retained for three years after the end of the federal fiscal year to which they pertain or until any unresolved audit questions are satisfied. Records must include the following information:

• The number of meals served daily to children and adults by type (lunch, breakfast, milk only, after school snack)
• The number of meals served daily by category (free, reduced- price, paid, adult)
• All applications for free or reduced-price meals
• All income accruing to the food service program (payments by children and adults, federal reimbursement, state reimbursement, interest earned, and any other income)
• Itemized receipts for all food purchased for the program
• Itemized receipts for labor, capital outlay, and program expenditures other than food
• The value of any other donated food or services or gifts of any type

Allowable Costs
Allowable cost groups include food used; supplies and expendable equipment; repairs, rental or use of equipment, and other services; and labor. These are considered direct costs.

Capital Expenditure. Capital expenditure refers to acquisition of equipment. Equipment is an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost which equals or exceeds the lesser of (a) the capitalization level established by the LEA or $5,000. Items that do not meet the federal standard ($5,000) or the LEA's (lower) definition may be directly expensed at the time of purchase in accordance with the procedures for handling supplies.

An LEA cannot expense equipment purchases for financial statement purposes. The equipment must be set up as an asset and expensed over the period in which it is used. Depreciation is the vehicle for measuring the annual benefit the LEA gets from using the equipment in its operations.

Cost of Food Used. The cost of food used is the dollar value of the beginning inventory, plus the value of food acquired during the period, minus the value of the ending inventory. The value of the inventory is based upon the purchase price of food items in stock. The first-in, first-out (FIFO) method of inventory valuation is the most accurate and is strongly recommended. Either a perpetual or physical inventory system may be used. However, all perpetual inventory systems must be verified by a physical inventory at least annually.

Indirect Costs. Indirect costs are those incurred for the benefit of the school food service, as well as other school functions, but not readily identifiable as part of the school food account. Indirect costs charged to the school food account cannot exceed the total amount of direct costs, excluding the cost of food used, times a preapproved indirect cost rate.

The indirect cost rate is the ratio of indirect to direct costs, based on the LEA's actual expenditures. It is established by the School Finance and Statistics section of the USOE and negotiated annually with the LEA.

Administrative service is not an indirect cost and should not be charged either directly or indirectly to the school food fund. Equipment and/or its depreciation or cost of use is a direct, not an indirect, expense. Indirect costs should be charged to the program when they are incurred.

Labor. Costs incurred for labor are charged to the program. No labor costs may be claimed more than once. Allowable labor costs include salary and other employee benefits, such as health insurance, retirement fund, etc. Because the cost of meals furnished without charge to adult food service employees constitutes an operating expense, it must be accounted for in the financial records.

Repairs, Rental and Use of Equipment, and Other Services. Costs incurred in the routine maintenance or minor repair of nonexpendable equipment and rental or use of equipment for the school food service may be charged to the program.

Supplies and Expendable Equipment. LEAs may charge the acquisition cost of nonfood items and expendable equipment used directly in food service operation to the program.

Fund Restrictions
The use of income accruing from the operation of any nonprofit food service program is restricted.

Generally Unallowable Costs. Costs which are not eligible for payment from federal funds include:
• Bad debts.
• Fines and penalties.
• Interest and financial costs.
• Legislative expense or executive direction (salaries and expenses of city councils, school boards, etc.).
• Contingency reserve contributions.
• Depreciation or cost of use for publicly owned buildings and improvements.
• Labor costs for administrative personnel above the food service employee level who do not have direct program responsibility.
• Costs associated with sales or service to adults and other a la carte sales.
Depreciation or costs of use are not allowed for:
• Nonexpendable equipment which has been fully depreciated.
• Nonexpendable equipment in storage for future use or disposal.
• Any equipment purchased with federal funds.
The following types of capital expenditures are also unallowable:
• Facilities.
• Repairs which materially increase the value or useful life of capital assets (rebuilding).
• Other capital asset purchases.
• Contractual agreements which are classified as rental-purchase or leases with an option to purchase.

Land or Buildings. Federal income from any nonprofit food service program cannot be used to purchase land, acquire or construct buildings, or alter existing buildings.

Interest Accruing in School Food Service Accounts. Interest which has accrued in individual school food service accounts must be remitted to the district's CNP. This interest may not be used for other school purposes.

Surplus Milk Funds. When payments are collected in advance and there is a balance left in the fund (because of student absences, for example), this money must be credited to the SMP account. The money may not be retained by the school or credited to the district general fund.

Net Cash Resources of Food Service Programs
The net cash resources of a food service operation must be limited to an amount consistent with program needs. At least once during each fiscal year, the SA will review the net cash resources reported for schools and require an explanation of the need for balances amounting to more than three months' operating cost. If, after considering the explanation or the plan for utilizing the balance, the SA determines that the amount is excessive, reimbursement payments may be reduced or denied until the net cash resources drop to an amount consistent with operating needs.

Nonprofit Program Operation
All food service programs receiving federal or state financial assistance must operate on a nonprofit basis. Institutions are required to maintain appropriate revenue and expenditure records to document the nonprofit operation of their food service programs. Designation as a nonprofit operation, a condition for program participation, is made by evaluating the financial status of the food service program as a whole. All funds accruing to these operations must be used to reduce the cost to the paying child, improve the quality of the food, purchase supplies, and maintain services and equipment used in storing, preparing, or serving food and/or milk to children.