2013 ANNUAL CASBO CONFERENCE

2013 ANNUAL CASBO CONFERENCE
Long Beach, CA • Thursday, April 4th, 2013 California Department of Education’s Legislation & Cafeteria Funds Update [Sandip] Welcome to the CDE’s Legislation and Cafeteria Funds Update. My name is Sandip Kaur and I am the Director of the Nutrition Services Division. I am thrilled to have a panel of experts with me today: Alejandro Espinoza, who will be discussing current legislation that governs or impacts School Nutrition Programs and the recent Food Fight report; Chris Kavooras, who will be discussing Governing Regulation Guidance on Cafeteria Funds; Peggy O’Guin, will cover Cost Principles and Indirect Costs; and Glenn Ostapeck will share recent audit findings. We will be breaking up today’s presentation into two sessions. We will begin with Legislation, move into Cafeteria Funds, and we will go as far as we can until the end of the hour. Session 2 will begin at 4pm, and pick up where we left off – We think we may start with indirect costs, move into recent audit findings, then cover Net Cash Resources. Since we have so little time to explain an abundance of information, let’s get started! (introduce Alejandro again and motion him to begin) Presenters: Alejandro Espinoza, CDE Legislative Representative Chris Kavooras, Acting Manager, Nutrition Programs Administration Peggy O’Guin, Education Fiscal Services Administrator Glenn Ostapeck, Supervising Management Auditor

Today’s Legislative Update:
AB 626 (Skinner) – SSPI Sponsored Legislation AB 402 (Skinner) Implementation “Food Fight” Report Alejandro 2 2 2

AB 626 (Skinner) and the California Healthy Hunger-Free Kids Act
SSPI Sponsor AB 626 aligns State law to comply with the new federal laws and regulations set forth by the Healthy, Hunger-Free Kids Act of 2010 Alejandro My goal is to give a brief description of the bill.

AB 402 (Skinner) AB 402 utilizes information contained in the school meal program application to initiate the determination of eligibility for the CalFresh (formerly Food Stamps) program. Alejandro According to the author; As families continue to feel the impacts of the recession, federal programs such as the Free or Reduced Price Meal Program and CalFresh (formerly Food Stamp) provide a safety net to help ensure that low-income children get adequate nutrition. Recent U.S. data found that in 2009 nearly 17.2 million children, or almost one in four, lived in food insecure households where their families faced a constant struggle against hunger. In California between 2008 and 2010, an alarming number of children became newly eligible for free and reduced-cost meal programs in nearly every county. Although 3.4 million children are now eligible for school meal programs, a large number of these children and their families are not participating in CalFresh. California loses nearly $5 billion in federal food benefits and $1.7 billion in generated economic activity due to low CalFresh participation rates. The SSPI supports increasing the participation rates for CalFresh. How can we make that process easier? Discuss the collaboration with DSS.

AB 402 (Skinner) Working with CDSS Development of documents
Consent Form MOU Template CDE Management Bulletin Alejandro Discuss the process of developing standards for implementing AB Some challenges, parental consent, confidentiality issues, application content/ differences between the Free and Reduced meal application and CalFresh application. The goal is to roll out this option for the beginning of the school year.

Food Fight Report What is it? What are the issues?
What is CDE doing to address these issues? Alejandro Give a brief description of the report. I will keep it brief and discuss upcoming training sessions and additional guidance CDE is coordinating with the field. Basically, my message is that CDE is reviewing the recommendations in the report. I don’t want to go too much into it. My goal is to be brief and general.

Today’s Cafeteria Fund Presentation
SSPI’s Comments Governing Regulations & Guidance Cost Principles Indirect Costs 101 Recent Audit Findings Questions CHRIS We will be breaking up today’s presentation into two sessions: Session topics will include the State Superintendent’s Comments, Governing Regulations and Guidance, an overview of Cost Principles, Indirect Costs 101, Recent Audit Findings, and Questions from the audience. It will be up to you (the audience) to determine where we break into the second session, pending the number of questions we receive as we present this topic to you. We hope to make it to Direct and Indirect Costs before we break. We highly recommend that you return for the second half, as we will be discussing indirect costs in great detail, recent audit findings, and net cash resources. Please invite your CBO to join you! 7

Letter to County & District Superintendents • May 21, 2012
State Superintendent of Public Instruction “Over the past five years, the CDE has discovered and investigated an increasing number of cafeteria fund misappropriations. In response to this growing threat to school nutrition program operations, the CDE’s Nutrition Services Division developed cafeteria fund and financial management training for food service directors Both federal and California state law govern cafeterias (school food services) and their restricted accounts. These laws protect cafeteria funds and affirm that they may only be used for the maintenance and improvement of school food services. While California’s Legislature has tried to provide districts with flexibility in managing all of their funds during these tough economic times, it is important for you to note that federal laws prohibit the use or transfer of cafeteria funds for other purposes ” CHRIS In January 2011, the State Superintendent declared a fiscal emergency for California’s schools. Two years later (last month), he announced that 500,000 fewer California students attend school districts that are in financial jeopardy. Superintendent Torlakson has stated that it will take time to bring California’s schools back to financial health. That being said, he has been on this journey with you. He knows where you’ve been, experiencing years and years of cuts, and continues to fight for you now, and he will continue to stand by and defend the financial viability of California’s schools. Throughout this “financial journey,” the State Superintendent has also supported the Nutrition Services Division by helping educate county and district Superintendents on several cafeteria fund issues, and by holding districts accountable for spending funds appropriately and prudently. He and the U.S. Department of Agriculture understand the complexities of allocating costs to federal and State programs, so he has distributed several letters to Superintendents regarding the appropriate use of cafeteria funds, as in the example you see now on the screen. Letter to County & District Superintendents • May 21, 2012

To see how the State Superintendent has supported California’s schools during California’s financial crisis, visit his School Financial Emergency Web page at: CHRIS During some press releases over the past two years, the State Superintendent stated he wanted to work toward providing districts more financial flexibility where possible; although giving them more control over how they spend their limited funds is a poor substitute for providing them the resources they needed and deserved. He wanted to allow districts to stretch funds where possible, without stretching the law. To see what the State Superintendent has done regarding California’s financial crisis, please visit his Web page above. Today’s presentation will assist you with strategies for making sound fiscal decisions.

Chief Business Official (CBO)
Part of a CBO’s job is to stretch district and State funds by maximizing legitimate charges to federal funds. CHRIS

The regulations and policies governing Cafeteria Funds are numerous and complex

Governing Laws, Regulations, and Policies
Local Educational Agencies (LEAs) are required to comply with State and federal limitations Federal Regulations, Policy, Instructions, Guidance California Education Code (EC) Office of Management and Budget Circulars USDA Policy Memos The California School Accounting Manual (CSAM) LEAs must reference numerous sources to understand and determine allowable uses of Cafeteria Funds: CHRIS 12

Management Bulletins (MB)
Cafeteria Fund Management Bulletins (MB) 00-109: Use of Cafeteria Funds Update NSD-SNP : School Cafeteria Funds FAQs NSD-SNP : Limitations on Transfer of Funds USDA-SNP : School Nutrition Program Interest Earned on the Cafeteria Account/Fund NSD-SNP : Cafeteria Funds–Reminders and Resources NSD-SNP : Revenue Sharing in School Nutrition Programs CHRIS There are some MBs in your folder, but all of these are on our Web page, discuss NSD SNP 05 See complete list of all MBs at: 13

What is the Cafeteria Account?
A statutorily required and restricted account used by districts to track the revenue and expenses related to their non-profit school food service. Local Educational Agencies (LEAs) are governed by California State and federal regulations that limit the use of expenditures and revenues from the cafeteria account or food services account. 14

Defined in State Law “All receipts of the cafeteria, or cafeterias [defined as school food services], as the case may be, derived from the sale of food shall be deposited in the account and shall be expended only for the maintenance of the cafeteria, or cafeterias…” [emphasis added] Reference California Education Code (EC) Section 38093 California Education Code (EC) Section 38093 15

Defined in Federal Law “Nonprofit school food service account means the restricted account in which all of the revenue from all food service operations conducted by the school food authority principally for the benefit of school children is retained and used only for the operation or improvement of the nonprofit school food service.” [Emphasis added] Reference 7 CFR Section 210.2 Title 7, Code of Federal Regulations (7 CFR) Section 210.2 16

Revenue “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… .” [Emphasis added] Reference 7 CFR Section 210.2 7 CFR 210.2 17

Commingling of Funds Once monies or revenues have been deposited into the cafeteria account, they are considered part of the non-profit food service, and are governed, protected, and restricted by federal and State laws. Revenues are defined by federal law. All revenues must be deposited into the cafeteria account for the maintenance and improvement of school food services State law requires that all revenue from the sales of the “cafeteria” or school food service be deposited into the cafeteria account for the maintenance and improvement of school food services. Reference 7 CFR Sections 210.2, , EC Section 7 CFR 210.2, , ; EC sections 18

Restricted Account California Education Code (EC):
Term “Cafeteria” synonymous with food service Requires all revenues from sales of the cafeteria be deposited into the cafeteria account, and spent on maintenance of the cafeteria Authorizes expenditures from the cafeteria fund or cafeteria account only for those charges that are defined in the CA School Accounting Manual (CSAM) or are reported to the CDE Does not allow food services to be charged more than once for the same service The cafeteria fund is a restricted account by definition in Education Code, federal law. Here are the just some of the restrictions in Ed Code Reference EC Sections EC sections , et seq. 19

Restricted Account Federal regulations: Requires fund to be non-profit
Requires all revenue from food service operations be retained and used only for the operation or improvement of the nonprofit school food service. Expenditures of nonprofit school food service revenues shall be in accordance with the financial management system established by the State agency (CSAM) Federal law specifically defines the cafeteria fund or non-profit school food service account as a restricted account in which all of the revenue from all food service operations conducted by the school food authority principally for the benefit of school children is retained and used only for the operation or improvement of the nonprofit school food service. This account shall include, as appropriate, non-Federal funds used to support paid lunches as provided in § (e), and proceeds from nonprogram foods as provided in § (f). Reference 7 CFR 210.2 7 CFR and 20

General Cost Principles
Be Necessary and Reasonable for proper & efficient performance & administration of the federal award Benefit the Program Must follow sound business practices Market price for comparable goods and services Be prudent under the circumstances and not deviate from standard practice PEGGY BEGIN HERE Necessary and Reasonable Benefit the Program Must be necessary for the performance or administration of the grant Must follow sound business practices Arms length bargaining (hint: procurement process) Follow federal, state and local laws Follow terms of grant award Act with prudence example (no Lexus if a Ford will do) Reference 2 CFR 225 2 CFR 225

Allocable Can only charge in proportion to the relative benefit received by the Program Example: A food transport vehicle purchased solely for the use of the School Nutrition Program Legal under state and local law If cannot do under state law, cannot pay with federal funds Conforming with federal law and grant terms Example: Match requirements/special conditions PEGGY Allocable Example: Vehicle purchase If vehicle is used for any personal or non School Nutrition Program related uses, it will have to be charged as an indirect cost to the district Reference 2 CFR Part 225 2 CFR 225 22

Consistently treated Must follow uniform policies that apply equally to federal and non-federal activities Cannot assign cost as direct cost if indirect under state programs Net of applicable credits Example: rebates, discounts, credits – anything that reduces the price PEGGY Reference 2 CFR Part 225 2 CFR 225 23

Adequately documented How funds are expended Invoices Receipts Other records to facilitate an effective audit Purchase orders Proof of delivery or performance Approvals PEGGY Reference 2 CFR Part 225 2 CFR 225 24

California Education Code (EC): Requires a written explanation of the purpose of and basis for any charges to, or transfers from, a food service program. Does not authorize a school district to charge a food service program any charges prohibited by state or federal law or regulation. PEGGY Costs – California EC continued Reference EC Sections (c), d) and (e) EC (d)(e)

Allocation of Costs There are two types of costs: Direct Indirect
PEGGY 26

Allocation of Costs Said another way, there are two ways to charge costs to programs: Directly Indirectly Subject to certain rules: Some costs can only be direct, some can only be indirect, & some could be either (but cannot be both) PEGGY 27

Direct Costs Specifically for Performance of the Program Salaries
– for cooks, managers, food service director Food - for school meal programs Food Service Equipment and Supplies Food Transport Vehicles Travel – if necessary PEGGY -- Direct costs can be charged directly to the cafeteria fund if the charge specifically relates to the operation of school food service program. Such as: Salaries - for cooks, managers, food service director Food – for school meal programs, not for instructional programs Food Service Equipment and Supplies Food Transport Vehicles Travel – related to the food services program Note: All costs must be prudent and necessary 28

Indirect Costs Agency-wide, General Management Costs:
Incurred for common or joint purpose Benefit more than one cost objective Not readily assignable to individual cost objectives without effort disproportionate to the benefit CDE Web Indirect Cost Web Page: CSAM Procedure 915, Indirect Cost Rate: USDA Indirect Cost Manual, 2011: Policy-Memos/2011/SP _os.pdf PEGGY --- Examples: Accounting, budgeting, payroll preparation, personnel services, purchasing, and centralized data processing (from CSAM) More information is available on the CDE Web site above or in the CSAM You can also just type in indirect charges in the Search field on the main page Reference See web pages as listed 29

Indirect Costs In simplified terms, the “indirect cost rate” is the ratio of administrative overhead costs to the other operating costs General administrative costs are the numerator Other operating costs are the denominator The resulting ratio is the “indirect cost rate” PEGGY

Indirect Cost Calculation
Indirect Cost Rate expressed in words: PEGGY

Indirect Cost Rate expressed in math: PEGGY 32 32

Of course the realities are more complex CSAM Procedure 915 contains all the details (in your handout) PEGGY 33 33

Indirect Cost Rules The U.S. Department of Education (USDE) delegates authority to CDE to approve indirect cost rates for LEAs CDE carries out this responsibility in accordance with the terms of a formally negotiated indirect cost plan CDE and USDE renegotiate the plan periodically PEGGY 34 34

Indirect Cost Rules USDE is the cognizant agency for LEA indirect cost rules The terms of the indirect cost plan that CDE negotiates with USDE are binding on other agencies 2 CFR, Part 225, Attachment A Case in point: USDA’s June 2011 guidance mentions excluding food, but CDE’s ICR plan currently doesn’t (also see handout) PEGGY BTW – see illustration of effect of excluding food, in handout 35 35

Indirect Costs Federal Oversight
Reauthorization of Child Nutrition Programs USDA recently issued guidance on program rules for applying indirect costs and will study the extent of indirect costs used in food service. Recent or current activities: Guidance Issued July 2011 (MB USDA-SNP ) Indirect Cost Study in 2012 Report to Congress by October 1, 2013 PEGGY 36

Indirect Costs State Oversight
School districts cannot recoup prior year indirect costs that were paid from a non school food service account. Exception: Unless a formal written contemporaneous agreement exists to show that the district had been “loaning” the nonprofit school food service account funds to cover the indirect costs in one or more prior years. PEGGY Please provide citation 37 37

Indirect Costs State Oversight
Ed Code requires that an "indirect cost" be limited to the lesser of: the school district's CDE-approved indirect cost rate or the Statewide average school nutrition indirect cost rate EC 38101(c) 38 38 38

Recent Audit Findings Recent nutrition audits have resulted in audit findings related to: Employee salaries and benefits Utilities & maintenance Interest Interfund Transfers GLENN START 39 39 39

Salaries and Benefits Employee salaries and benefits are allowable as a direct charge to the cafeteria fund if the proper supporting documentation is maintained in accordance with federal requirements 2 CFR, Part 225, Appendix B.8 GLENN

Salaries and Benefits (single cost objective)
Employees who work on a single objective must maintain certifications that: Certify the employee works solely on that program/cost objective Are prepared at least semi-annually Are signed by the employee or supervisor 2 CFR, Part 225, Appendix B.8.h.3 GLENN Definition: Single Cost Objective

Salaries and Benefits (multiple cost objective)
Employees who work on multiple cost objectives must maintain personnel activity reports that: Reflect an after-the-fact distribution of the actual activity of each employee Account for the total activity each employee is compensated Are prepared at least monthly and coincide with one or more pay periods Are signed by the employee 2 CFR, Part 225, Appendix B.8.h.4 GLENN

Salaries and Benefits (multiple cost objectives)
Examples of employees that may be required to maintain PARs: Activity Supervisors Custodians Security Warehouse Maintenance Groundskeepers Administrative food service staff that work less than 100% on food service activities GLENN Examples of employees that may be required to maintain PARs: custodians,

Sample Personnel Activity Report (PAR)
GLENN

Utilities and Maintenance
Utilities and maintenance costs such as electricity, gas, water, and repairs may be directly charged to the nutrition programs if there is mechanism to quantify exactly the benefit to food services operations GLENN

Utilities and Maintenance (Utilities)
In order to directly charge utilities to the nutrition programs: Kitchen/serving area only Separate meters for food service operations Utility provider invoice or statement GLENN

Utilities and Maintenance (Maintenance)
In order to directly charge maintenance and repairs to the nutrition programs: Kitchen/serving area equipment only Job cost ticket or similar documentation detailing labor costs incurred based on actual labor hours expended Vendor invoice or statement (if repaired by external vendor) USDA, FNS, Indirect Cost Guidance, Appendix 4 GLENN

Interest Earnings & Expense
Interest income/earnings is allowed Interest Expense is not allowed on borrowed capital Interest Expense is not allowed for the use of the district’s own funds Title 2, CFR, Part 225, Appendix B.23 GLENN Explain interest expense, and what is meant by “Borrowed Capital” and “District’s own funds.”

Interfund Transfers Charges to, or transfers from, the cafeteria fund must: Indicate when the original charge or transfer was made Include a written explanation of the purpose of, and basis for, the expenditure Cannot exceed the actual cost incurred Note: Does not authorize a school district to charge a food service program any charges prohibited by state or federal regulations. EC sections & 38103 GLENN These usually never occur. Exceptions: Subsidy from the General fund to the café fund to pay for salaries Other?

There is a right way and a wrong way to charge expenses to the cafeteria fund.
GLENN The NSD has been notified about questionable cafeteria fund expenses by “whistle blowers,” through program reviews, through independent CPA audits, etc. We hope today you will be given some tools to help you determine the “right” way to charge the cafeteria fund, and walk away with some useful resources. NOTE: Claims example - Claim only actual fee, reduced-price, and paid meals served on reimbursement claims - Request reimbursement for meals that were never served or were based on prior year figures, or on projections of children eligible for free and reduced-price meals 51

Cafeteria Fund Charges
The Right way: Charge time documented by Personnel Activity Reports (“PARS”) or equivalent documentation for employees working in/for the nonprofit school food service operation to the cafeteria fund Charge only actual supplies and expenses used in school food services to the cafeteria fund Charge costs consistently to all programs including the cafeteria fund GLENN - The time an employee works in school nutrition program operations must be documented, and only actual time worked can be charged to the café fund. The same rule applies for supplies and expenses. MENTION PEGGY’s PRIOR COMMENTS HERE REGARDING PARS, DOCUMENTATION, ETC. Reference 7 CFR 225 2 CFR, Part 225 52

Cafeteria Fund Charges
The WRONG way: Project time or use time studies for employees working in/for the nonprofit school food service operation Project or use percentages of supplies, equipment, and electricity used in school food services Charge other program(s) services or staffing to the cafeteria fund using erroneous allocation methods GLENN The use of projections, averages, or studies are not appropriate cost allocation methods for charging expenses to the cafeteria fund. 53

Consequences for Improper Charges
If the CDE determines that a district charged unallowable expenses to the cafeteria fund, the CDE will direct the district to transfer the amount improperly expended (via payment plan or in whole) back into the cafeteria fund -- to be used solely for the maintenance and improvement of the district’s food service program. GLENN If the district fails to pay back the cafeteria fund as directed, the CDE can hold reimbursement funds, direct the district to pay back double the amount improperly expended, or take double the district’s apportionment and put it into the cafeteria fund. Reference EC Section 38101 EC 38101(f) 54

“Net Cash Resources (NCR).”
What does CDE look for? During “Administrative Reviews” and the analysis of Summer/Saturday meal waivers, the CDE looks at an LEA’s “Net Cash Resources (NCR).” CHRIS – starts here again and goes till the last slide. 55

Net Cash Resources (NCR)
“… all monies, as determined in accordance with the State agency’s established accounting system [CSAM], that are available to or have accrued to a school food authority’s nonprofit school food service at any given time, less cash payable. Such monies may include, but are not limited to, cash on hand, cash receivable, earnings on investments, cash on deposit and the value of stocks, bonds or other negotiable securities.” What are Net Cash Resources? Read slide… Reference 7 CFR 210.2 7 CFR Definitions 56

(continued) “The school food authority shall limit its net cash resources to an amount that does not exceed 3 months average expenditures for its nonprofit school food service or such other amount as may be approved by the State agency in accordance with Section (a).” Reference 7 CFR Definitions 7 CFR Definitions 57

There are two sets of rules: Allowable costs when NCR is less than three months average operating costs Allowable costs when NCR is in excess of three months average operating costs Basically, there are two sets of rules (in addition to governing regulations) that pertain to cafeteria funds: Allowable costs when NCR is less than three months’ average operating costs Allowable costs when NCR is in excess of three months’ average operating costs 58

#1 NCR Rule Per federal guidance, the LEA must follow all State/federal regulations and policies, and not jeopardize the integrity of the nonprofit school food service by reducing its NCR below 3 months operating costs. The average turn-around for one month’s reimbursement is 90-days, because of the timeline in which the claim is submitted. 59

At this time, please look at your Spending Plan handout
#2 NCR Rule When an LEA’s NCR is in excess of three months average expenditures, the NSD must approve how a LEA plans to expend the excess. At this time, please look at your Spending Plan handout It is important to note that the food services operation should work closely with the LEA’s administration, and they agree upon the expenditure plan together. We have turned Suzanna’s presentation into a handout, so they will have it as a resource. Reference 7 CFR (a)(2) 7 CFR (a)(2) 60

Conclusion The CDE is committed to assisting LEAs so they can avoid mischarging expenses to the cafeteria fund, and having to pay back the money later, plus interest, and/or penalties. Due to the trend over the past several years that shows districts charging improper expenses to the cafeteria fund, the CDE wants to educate LEAs, School Food Service and School Business Associations, Advocacy Groups, and the Legislature about the laws that govern school food service. We hope a new trend is on the horizon, where CBOs and Food Service Directors agree on allowable expenses, that can be supported by the CDE. 61

On the Horizon 2013 and beyond: 2013-14:
Financial Management training for School Food Service – check the CDE Web site for information and check your for messages from NSD for details! : Development of additional MBs, Web pages, and specialized training regarding the Use of Cafeteria Funds Also on the Horizon … More training from NSD at conferences, CSNA Chapter Meetings, and other venues; updated online resources Speaking of what’s on the horizon… The CDE is cognizant that LEAs need training on the use of cafeteria funds, and we are working with many partners to ensure this continues to happen. Mention training, bottom of slide, etc. We look forward to many more interactions like we’ve had today…. 62 62

Questions? Please use the cards we provided you and return them with a copy of your question(s), so that we can post them and the answers to our Web site. We hope to have this done by early May.

For questions not addressed today, please contact:
California Department of Education Nutrition Services Division School Nutrition Programs Unit Field Services Unit California School Accounting Manual 64

Thank you for joining us today. 65

2013 ANNUAL CASBO CONFERENCE

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