Breakout Session: Completion of Supplemental Financial Reports

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

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

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

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

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 210.14 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.

Federal Regulations Continued • 7 CFR 210.19 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.

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

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

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) Two Required Monthly Financial Reports

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

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”

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

Monthly Cash FlowTransactions Paid or Received During Applicable Month

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

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

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.

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.

Monthly Status of Assets and LiabilitiesSnapshot of current assets in addition to what school lunch program expects to receive and what it owes

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

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

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)

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.

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).

Net Cash Resource Limit • 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. • 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.)

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.

Questions? Rob Leshin Office for Nutrition, Health and Safety MA Department of Elementary and Secondary Education rleshin@doe.mass.edu 781-338-6477

Breakout Session: Completion of Supplemental Financial Reports