1. Financial Management in School Food Service Operations: What’s New, What’s Trending, and How it Affects the Role of the Business Manager MASBO BI-Monthly Meeting Milford MA February 5, 2015 Pete McLoughlin, Financial Management Section Head Rob Leshin, Assistant Director Office for Nutrition Health and Safety Programs

2. Agenda  Food Service Financial Management Overview  Renewed Focus on Financial Management  Financial Reporting  Resource Management Review Findings  Bad debt  Cafeteria Monitors  Consistency  Indirect Costs  Indirect Cost Study, March 2014 (USDA) Massachusetts Department of Elementary and Secondary Education 2

3. Food Service Financial Management – The View From 30,000 ft  School Lunch and Breakfast Cost Study, April 2008  SNA Member Feedback Survey, November 2014  Financial Health of the Food Service Operation  Challenges Massachusetts Department of Elementary and Secondary Education 3

4. USDA School Lunch and Breakfast Cost Study – April 2008 Massachusetts Department of Elementary and Secondary Education 4

5. USDA School Lunch and Breakfast Cost Study – April 2008 Massachusetts Department of Elementary and Secondary Education 5

6. SNA Member Feedback Survey – Nov ’14 Financial Health Massachusetts Department of Elementary and Secondary Education 6

7. SNA Member Feedback Survey – Nov ’14 Challenging Issues Massachusetts Department of Elementary and Secondary Education 7

8. Renewed Focus on Financial Management  Resource Management Comprehensive Reviews  Professional Standards  Financial Reporting  ESE Memo dated August 22, 2014 Massachusetts Department of Elementary and Secondary Education 8

9. Resource Management Process within the Administrative Review Massachusetts Department of Elementary and Secondary Education 9

10. Four Resource Management Review Areas  Maintenance of the Nonprofit School Food Service Account  Paid Lunch Equity  Revenue from Non-program Foods  Indirect Costs Massachusetts Department of Elementary and Secondary Education 10

11. Maintenance of the Nonprofit School Food Service Account Key Financial Reports:  Statement of Activities (P&L)  Statement of Net Position (Balance Sheet)  General Ledger Massachusetts Department of Elementary and Secondary Education 11

12. What We Review/Do  Revenues, expenditures, net profit or loss  General ledger detail underlying the above  Sampling of invoices, payroll detail, etc.  Daily potential income sheets supporting revenue  Three months average expenditures  Discuss Metrics-those being used/could be used  Allowable costs Massachusetts Department of Elementary and Secondary Education 12

13. Net Cash Resources  Per 7CFR, Section 210.9 (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. Massachusetts Department of Elementary and Secondary Education 13

14. Allowable Costs  All expenditures must conform to Federal Cost Principles 2 CFR Part 225 (formerly OMB Circular A-87) which says they must be  Necessary  Reasonable  Allocable Massachusetts Department of Elementary and Secondary Education 14

15. 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 15

16. 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 - this would assign the cost to a cost objective that did not benefit from it Massachusetts Department of Elementary and Secondary Education 16

17. Resource Management Review Findings  ESE Memo dated August 7, 2014  Bad Debt  Cafeteria Monitors  Consistency Massachusetts Department of Elementary and Secondary Education 17

18. Paid Lunch Equity Intent of PLE: To ensure paid lunch prices are sufficient to cover the costs of paid meals or otherwise provide enough funds to support paid meal costs. Massachusetts Department of Elementary and Secondary Education 18

19. Paid Lunch Equity-Reality  SFAs must, on average, charge for paid lunches at least the difference between the federal reimbursements for free and paid lunch $2.51 for SY 2012–13 $2.59 for SY 2013-14 $2.65 for SY 2014-15 $2.70 for SY 2015-16 Massachusetts Department of Elementary and Secondary Education 19

20. Paid Lunch Equity (PLE) Analysis  Determine weighted average price for all types of paid student lunches  Compare weighted average paid lunch price with the difference between free and paid reimbursement rates  Determine if a price increase is necessary Massachusetts Department of Elementary and Secondary Education 20

21.  Paid Lunch Equity – SFAs will need to raise price 30-50 cents over time; price gap narrowed by 6 percent in first year  Professional Standards – Most SFA Directors have considerable experience, but education and certification requirements vary  Food Safety – Nearly all SFAs have a written food safety plan based on HACCP principles and most schools had 2 or more safety inspections  Alternative Meals – practices vary for providing meals to students that can’t pay CEP Evaluation Results Special Nutrition Program Operations Study – Results related to HHFKA

22. Revenue from Non-Program Foods  “Non-Program foods” - Foods and beverages sold in a participating school that are purchased using funds from the nonprofit school food service account.  Includes a la carte items, adult meals, items purchased with nonprofit school food service account funds for vending machines, fundraisers, school stores and catered and vended meals. Massachusetts Department of Elementary and Secondary Education 22

23. Revenue From Non-Program Foods Intent of monitoring: With the exception of reimbursable meals, all food sold in a school and purchased with funds from the nonprofit school food service must generate revenue at least equal to the cost of such foods. Massachusetts Department of Elementary and Secondary Education 23

24. Indirect Costs Intent of monitoring: Ensure SFAs are correctly determining if their costs are allowable, allocable and appropriately charged as a direct or indirect cost. Massachusetts Department of Elementary and Secondary Education 24

25. What We Review/Do  Determine if SFA had an indirect cost rate agreement with the state  Determine indirect costs charged and the process for determining allocation  Determine whether federal programs were charged consistently across the SFA  Verify indirect costs charged were appropriate  Review documentation supporting indirect costs Massachusetts Department of Elementary and Secondary Education 25

26. Current and Future Data Collection for Child Nutrition Studies StudyCongressionally Mandated ContractorNo. of Sites YearFinal Report School Meals CEP EvaluationYesAbt1,000 SFAs 51 SEAs SY 12-13 SY 13-14 Feb. 2013 Feb. 2014 School Foodservice Indirect Cost YesAbt2,000 SFAs 51 SEAs SY 12-13March 2014 Direct Cert. w/ MedicaidYesMPR675 SFAs* 6 SEAs* SY 12-13 SY 13-14 Jan. 2015 APEC-IIIPERAMPR175 SFAsSY 12-132015 NSLP State IP ratesIPERAMSGfeasibility study n/a2015 RORAIPERAWestat56 SFAsSY 12-13Aug. 2014 Special Nutrition Program Operations Westat 2M 1,500 SFAs 51 SEAs SY 11-12 SY 12-13 SY 13-14 March 2014 2015

27.  Do school districts have indirect cost rates?  If so, do they calculate the indirect costs that are attributable to foodservice?  If so, do they charge any, or all, of these costs to the foodservice account?  If so, do they actually recover these charges? School Foodservice Indirect Cost Study Principal Study - Research Questions

28. Massachusetts Department of Elementary and Secondary Education 28

29. Just 21.1% of All LEAs Calculated and Charged Indirect Costs Specifically to School Food Service Massachusetts Department of Elementary and Secondary Education 29

30. Percent of All LEAs that Charged and Recovered Indirect Costs from School Foodservice, SY 2011-12, by LEA Size

31. Reasons LEAs Did Not Charge Any Indirect Costs to School Food Service SY2011-2012 Massachusetts Department of Elementary and Secondary Education 31

32. StudyCongressionally Mandated ContractorNo. of SitesYearFinal Report Direct Certification Improvement MPR5,000 SFAs 56 SEAs SY 2012-13August 2014 Dec. 2014 School Nutrition and Meal Cost MPRTBDSY 2014-15TBD CACFP Study on Nutrition and Wellness Quality in Child Care Settings (SNAQCS) HHFKAAbtTbd20152019 CACFP Assessment of Sponsor Tiering Determinations IPERAWestat14 States 55 Sponsors 660 FDCHs Fall 2011 Fall 2012 Fall 2013 Annual (Fall release) Erroneous Payments in Child Care Settings (EPICCS) IPERAWestatTbd20152019 CACFP Provider Characteristics KokopelliTbdSpring ’152017

33. Thank You! Pete McLoughlin 781-338-6454 pmcloughlin@doe.mass.edu Massachusetts Department of Elementary and Secondary Education 33

34. Interest on School Lunch Accounts  Title 7, CFR Section 210.2 defines Revenue as: Revenue, when applied to nonprofit school food service, means 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.  7 CFR 210.14 (a) – Resource Management states: (a) Nonprofit school food service. School food authorities shall maintain a nonprofit school food service. Revenues 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, or to construct buildings. Massachusetts Department of Elementary and Secondary Education 34

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39. Profit and Loss Statement (Statement of Activities)  Revenue by source  Expenditures by category  Net/gain loss for the statement period  Comparison of current month with previous month’s information and year-to-date information Massachusetts Department of Elementary and Secondary Education 39

40. Sample Profit and Loss Statement Massachusetts Department of Elementary and Secondary Education 40

41. Balance Sheet (Statement of Net Position)  Assets  Cash balance  Receivables due  Value of inventories  Non-current assets  Liabilities  Outstanding payables  Deferred revenue  Sales tax owed (when appropriate)  Fund Balance Assets = Liabilities + Fund Balance Massachusetts Department of Elementary and Secondary Education 41

42. Sample Balance Sheet Massachusetts Department of Elementary and Secondary Education 42

43. General Ledger  A general ledger is a central repository for accounting data (deposits, payments, transfers, credits, etc.) broken out by categories, containing user-defined account codes  The general ledger should include the date, description, and balance or total amount for each account  Provides additional detail for what is shown in the P&L Massachusetts Department of Elementary and Secondary Education 43

44. Sample GL- Revenue Massachusetts Department of Elementary and Secondary Education 44

45. Sample GL- Expenditures Massachusetts Department of Elementary and Secondary Education 45