Financial Management

Financial Management System Requirements

This is a summary of major requirements from federal and state law for a financial management system and related requirements for the operation of the nonprofit school food service that apply to school food authorities (SFA) participating in School Nutrition Programs (SNPs).

SFAs must maintain a financial management system as required by the Minnesota Department of Education (MDE) to document the revenues and expenses of the nonprofit school food service. For school districts, the financial management system is the Uniform Financial Accounting and Reporting Standards (UFARS).

In the agreement to participate in SNP, an SFA agrees to:

• Maintain a nonprofit school food service, which is defined as “all food service operations conducted by the school food authority principally for the benefit of schoolchildren, all of the revenue from which is used solely for the operation or improvement of such food services.”
• Maintain a financial management system that documents the revenues and expenses of the school food service, in accordance with U.S. Department of Agriculture and MDE requirements.
Limit net cash resources in the school food service account to an amount that does not exceed three months average expenditures for the school food service.

Applicable sections of the federal regulations for the National School Lunch Program, 7 Code of Federal Regulations (CFR) 210 are:

7 CFR § 210.2: Definitions - net cash resources, nonprofit school food service, nonprofit school food service account, and revenue.

7 CFR § 210.9(b): Agreement provisions regarding financial management.

7 CFR § 210.14: Resource management.

7 CFR § 210.19(a): Additional responsibilities.

An SFA must make its accounting system, including complete documentation of school food service revenues and expenses, available at the time of program administrative reviews and at any time upon request.

Documentation of Revenues and Expenses

Public schools meet financial management standards for documentation of revenues and expenses by their required reporting in UFARS, Fund 02.

Nonpublic schools and residential child care institutions may need to implement procedures so that their financial management system meets program standards.

1. The financial management system of a nonpublic school or an institution may already meet program standards. For example, a financial management system can meet program standards by maintaining a separate checking account for the school food service account or a ledger showing the revenues and expenses that are specific to the school food service.
2. Otherwise, a nonpublic school or an institution must use the Financial Report Form for Nonpublic Schools provided on the MDE website to track school food service revenues and expenses each month. View the Financial Report Form for Nonpublic Schools. View the Instructions for the Financial Report Form.

Net Cash Resources / Use of Excess Funds

SFAs must limit net cash resources in the nonprofit school food service account to no more than the SFA’s average expenditures for three months.

At the end of each fiscal year, an SFA must compare its net cash resources to its average food service expenditures to determine whether it has any excess funds, that is, whether SFA’s net cash resources exceed three months average expenditures for the SFA. If using the Financial Report Form for Nonpublic Schools, this comparison of net cash resources to average expenditures is shown in the Net Cash Resources section of the form.

An SFA with excess funds in the school food service account must notify MDE-Food and Nutrition Service of the amount of excess funds and the plan to reduce excess funds. Allowable expenses that excess funds may be used for include:

• Increased food purchases.
• Purchase of needed food service equipment.
Reduction to student meal payments. The price for reduced-price lunches may be reduced by any amount and those meals may be provided at no charge. Paid lunch prices may be reduced only to the extent that the SFA’s average paid lunch price exceeds the SFA’s minimum average paid lunch price as calculated by annual Paid Lunch Equity requirements.

Sufficient Revenues from Non-Program Funds

SFAs are required to annually compare program and non-program funds to ensure that non-program foods generate sufficient revenues so that prices for non-program foods are not subsidized by revenues from program meals. For details, refer to Minimum Revenue from Nonprogram Foods on the SNP/Financial Management page of the MDE website.

State Law Requirements for Public Schools

View Minnesota Statutes, section 123B.77 - Accounting, Budgeting and Reporting Requirement

View Minnesota Statutes, section 124D.111 – Lunch Aid; Food Service Accounting

State law requires public schools to attribute food service revenues and expenditures to a school food service fund. Public schools are required to adopt the UFARS system for financial management and reporting.

UFARS requires expenses to be allocated by program, i.e., by lunch, breakfast, milk, a la carte, and any other federal nutrition program that the SFA participates in such as Summer Food Service Program and Child and Adult Care Food Program.

The UFARS Manual is available online. View the UFARS Manual.

Costs Charged to Food Service Fund or General Fund

Costs that may be charged either to the food service fund or the general fund:

- Processing Applications for Educational Benefits to provide school meal benefits.

- Accounting for meals.

- Preparing and serving food.

- Providing kitchen custodial services.

- Other expenses involving the preparing of meals or the kitchen section of the lunchroom.

Costs that must be charged to the general fund:

- Lunchroom supervision.

- Lunchroom custodial services.

- Lunchroom utilities.

- In limited situations, if the food service fund has a surplus for three successive years, lunchroom costs charged to the general fund may be recoded to the food service fund.

- An SFA that participates in the Community Eligibility Provision (the SFA does not need to process Applications for Educational Benefits for the purpose of providing school meal benefits) and continues to process Applications for Educational Benefits must charge those costs to the general fund.

Capital Expenditures

Capital expenditures must be made from the general fund, unless the unreserved balance in the food service fund from the last fiscal year is greater than the equipment cost. (MDE approval is no longer needed for food service capital expenditures.)

Capital expenditures are:

- Equipment costing more than $500 and having a useful life of two years or more.
- Computer purchases regardless of amount.

Deficits

If a school district has a deficit in the food service fund on June 30 and the deficit is not eliminated during the following year, the deficit must be eliminated (by June 30 of the second year) by a permanent fund transfer from the general fund, unless a plan as described in the next paragraph has been approved by MDE-Food and Nutrition Service.*

An SFA may incur a deficit in the food service fund for up to three years, without any permanent transfer, if:

1. The SFA submits to MDE, by January 1 of the second fiscal year, a plan for elimination of the deficit by the end of the third fiscal year, and
2. The plan is approved by MDE.

* Exception: If a school district with a food service deficit contracted with a food service management company during the period in which the deficit accrued, the deficit must be eliminated by a payment from the company in the year that the deficit occurred.

Allocation of Superintendent/Fiscal Manager Costs

A school district with superintendent or fiscal manager costs that are attributable to the food service may charge those costs to the food service fund up to the maximum amount defined below, unless the SFA has a food service director or food service management company.

That portion of superintendent or fiscal manager costs attributable to the food service may be charged to the food service fund at a rate that does not exceed the average food service director wage in Minnesota as documented by the latest wage information available on the federal Bureau of Labor Statistics (BLS) website. View BLS information on Minnesota wages by occupation code. Scroll down to the row for Occupation Code 11-9051 - Food Service Managers and find the mean hourly wage.

March 2014