Cafeteria Fund Guidance

Yes, 2 CFR, Section 200.302, financial management, requires SFAs to adequately identify the amount, source, and expenditure of funds for the federal award. Per 7 CFR, Section 210.14(a), the cafeteria fund is a restricted account in which all the revenue from all food service operations, is retained and used only for the operation or improvement of the nonprofit school food service. Revenue, when applied to the cafeteria fund, means all monies received by or accruing to the nonprofit school food service in accordance with the state agency's established accounting system. This includes, but is not limited to, student meal payments, earnings on investments, other local revenues, state revenues, interest, and federal cash reimbursements.

Federal regulation 2 CFR, Section 200.303, requires recipients and subrecipients of federal awards to establish, document, and maintain effective internal control over the federal award. Internal controls are processes, procedures, and regular monitoring that provide reasonable assurance that SFAs are managing the CNPs in accordance with the terms and conditions of the programs. Examples of internal controls that relate to the cafeteria fund include cash handling, reconciliations of receipts and deposits, inventory and supply management, procurement procedures, record retention procedures, security and access controls to food stores and sensitive information, and a travel policy.

Direct costs are those that can be easily identified as supporting a cost objective or program. Examples of direct costs include school food service employee compensation, food, equipment, and supplies. Indirect costs are those that are incurred for a common or joint purpose and benefit more than one cost objective and are not easily assignable to a cost objective. Examples of indirect costs include accounting, payroll preparation, budgeting, personnel services, or centralized data processing.

It is important to note that federal regulations require each item of cost to be treated in a consistent manner as a direct or indirect cost. A cost may be assigned to the cafeteria fund as a direct cost only if that cost item has not been charged to other programs or cost objectives as an indirect cost (2 CFR, Section 200.412). For example, utilities or waste management services may not be charged to the cafeteria fund as a direct cost if the cafeteria fund is charged indirect costs and those services are provided to other programs through indirect costs. The proper and consistent classification of costs as direct or indirect avoids the possible double charging to federal awards.

NCR, also known as cash reserves, refers to the total funds available to or accrued by a school food authority's cafeteria fund, minus any cash payable. According to federal regulations 7 CFR, Section 210.14(b), SFAs must limit their NCR to no more than three months of average operating expenditures, unless a higher limit is approved by the state agency.

The CDE increased the NCR limit to six months of average operating expenditures, effective July 1, 2022. SFAs with excess NCR of six months or more at the end of a fiscal year are required to enter into a budget agreement with the CDE by December 31 of the following fiscal year.

For additional information see the CDE Management Bulletin SNP-04-2022: Excess Net Cash Resources-Update.

SFAs should closely monitor and calculate their NCR at least once after the close of the fiscal year. The CDE has developed an easy form to help SFAs evaluate their NCR. This form is available in the CNIPS, form ID SNP-57 Net Cash Resources Calculator. For more information on NCR, please visit the Cafeteria Fund Guidance web page, tab NCR.

SFAs with excess NCR of six or more months are required to enter into a budget agreement with the CDE. A budget agreement is a spend down plan over an agreed upon period of time for SFAs to achieve compliance with the NCR limitation. To request a budget agreement please contact the Resource Management Unit at SNPBA@cde.ca.gov.

Federal regulation 7 CFR, Section 210.19 (a)(1) requires the CDE to monitor SFA compliance with the NCR limitation. SFAs that do not make progress toward compliance of the NCR limitation may be subject to payment hold (2 CFR, Section 200.339 (a)) and reimbursement rate adjustment (7 CFR, Section 210.19 (a)(1)) until compliance is achieved.

Allowable costs must meet the criteria established in 2 CFR, Part 200. These criteria include ensuring that costs are necessary, reasonable, allocable to the award, and conform to any limitations or exclusions set by the federal award and regulations. In addition, SNP regulations 7 CFR, sections 210.14(a) and 220.7(e) require that revenues received by the nonprofit school food service are to be used only for the operation or improvement of such food service.

For additional information see the CDE Management Bulletin SNP-05-2020: Cafeteria Funds-Allowable Uses.

No. SNPs regulations 7 CFR, sections 210.14(a) and 220.7(e) require that 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 revenue shall not be used to purchase land or buildings, unless approved by USDA, or to construct buildings. In addition to the above referenced regulations, California Education Code 38100 also prohibits the construction of school kitchens from cafeteria funds.

Note: The USDA has no prior precedence for the approval of land, buildings, construction of buildings, or capital improvements that increase the useful life of buildings.  

According to USDA Indirect Costs Guidance Policy Memo SP-60-2016, program funds are made available to help support the cost of nutritional benefits for children in school settings and not to construct school buildings. The goal is to ensure that SFAs maintain the necessary funding to operate the program as required by the SNPs’ authorizing legislation and regulations, and that the cafeteria fund is not used to cover major expenses that should be borne by the school district’s general funds (i.e., capital infrastructure costs). The costs of building a kitchen are analogous to the costs of constructing school buildings, which historically have been borne by the school district with general or capital improvement funds. Similarly, such capital infrastructure costs should be borne by the school district just as the school building and its contents should be.

Certain renovation expenses may be allowed. The USDA Indirect Costs Guidance Policy Memo SP-60-2016 states that limited renovations within the inside perimeter of a kitchen or serving area may be allowable. A best practice is to reach out to the Resource Management Unit (RMU) prior to a renovation or new construction project to understand allowable costs and documentation requirements. For more guidance on construction and allowable costs, please refer to CDE Management Bulletin SNP-08-2020: Cafeteria Funds-Construction and the Capital Expenditure Approved List.

No. Roof repair is not an allowable cost because it is a capital improvement which increases the useful life and value of the building. In addition, California Education Code 38100 states that adequate housing is a cost to the district and not the cafeteria fund. Note: An exception may be allowed if the repair relates to a walk-in refrigerator/freezer or food service hood. Please contact snpcafefundquestions@cde.ca.gov for more information and approval.

No, but limited flexibility is available. Although the work environment is greatly enhanced by air conditioning, service systems such as air conditioning, gas lines, electrical systems, plumbing, and telecommunication lines are a district expense. Such costs are capital improvements to a building that increase the value and/or useful life of the building.

However, portable equipment can be allowable such as stand-alone fans, plug-in air conditioning units, window box units, and ductless mini-split systems.

A shipping container or storage shed may be allowed if the following conditions are met: 1) portable in nature (not considered a permanent structure), 2) necessary to store food, equipment, and supplies, and 3) and used 100 percent for food service. Please contact snpcafefundquestions@cde.ca.gov to request prior approval.  Note: if associated costs such as concrete, electrical, or plumbing are needed for the storage equipment, it is a district expense.

A hot water heater may be an allowable cost if it supplies hot water exclusively for child nutrition purposes. Hot water heaters that service CNPs and general areas are a cost to the district. Also, please note that CDE prior approval may be required depending on cost. In addition, associated plumbing, electrical, or gas costs are not allowed and should be paid with other district funds.

No. Plumbing is considered a service system and therefore a district expense. Any expansion or upgrade to service systems are a district expense.

However, USDA Indirect Cost Guidance Policy Memo SP-60-2016 allows for exceptions with walk-in unit or hood installation or repairs.

No. Installing new electrical wiring that expands or upgrades the existing electrical system is an unallowable expense. Building fixtures and service systems are an unallowable cost to the cafeteria fund because they typically improve the useful life or increase the value of buildings. Service systems such as air conditioning, heating, ventilation, sanitary or sewer systems, intercommunications, telecommunication lines are unallowable charges.

Utility costs (i.e., electricity, gas, water) may be charged directly to the cafeteria fund if there is a mechanism to quantify the exact benefit to food service operations. The school district must have separate meters or utility lines that serve only the school food service area (kitchen and serving area) to charge utilities directly to the cafeteria fund. However, cafeteria fund may not be used to purchase or install meters, as meters are considered part of a service system and, therefore, the district’s financial responsibility.

Please also note the consistency requirement for direct and indirect costs. A cost may be assigned to the cafeteria fund as a direct cost only if that cost item has not been charged to other programs or cost objectives as an indirect cost (2 CFR, Section 200.412). This means that if utilities are directly charged to the cafeteria fund, they must also be directly charged to all other programs.

No. Cafeteria funds may not be used to purchase buildings. Providing adequate housing is a district expense. Reference CDE Management Bulletin SNP-05-2020: Cafeteria Funds-Allowable Uses.

Maintenance and repair of food service equipment are allowable costs. If the cost is $10,000 or more, CDE approval is required. In the event of an emergency, the CDE may grant retroactive approval if the repair is an allowable cost.

No. All revenues associated with the operation of a federal meal program must accrue to the cafeteria fund. In 2013, California’s legislature repealed the section of California Education Code that granted authority to the governing board of a school district to create a revolving cafeteria fund (Assembly Bill 626). Consequently, California Education Code no longer authorizes SFAs to establish a separate account for deferred maintenance or future equipment needs.

Maintenance and repair costs to buildings and equipment that neither add to the permanent value of property nor appreciably prolong its intended life, but keep it in efficient operating condition, are allowable. SFAs may contact Resource Management Unit (RMU) if they are unsure about maintenance or repair cost. 

Yes. If an SFA requires food service employees to wear uniforms, then purchasing uniforms is allowable.

No. Vendor credits are considered part of the cafeteria fund, because the credit is due to the expenditure of cafeteria fund revenue. Therefore, giving away items purchased with vendor credits is similar to donating federal money. Per 2 CFR, Section 200.406, applicable credits (i.e., purchase discounts, incentives) refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. In addition, in accordance with 2 CFR, Section 200.318 (c)(1), employees subject to a written code of conduct may not solicit or accept gratuities, favors, or anything of monetary value from contractors.

SFAs are not permitted to make donations to individuals. However, any food prepared for CNPs that are not consumed may be donated to eligible local food banks or charitable organizations. Eligible local food banks or charitable organizations must be tax exempt under Section 501(c)(3) of the Internal Revenue Code of 1986 (Title 26, United States Code, Section 501[c][3]). Protections are extended against civil and criminal liability for persons or organizations when making food donations under the Bill Emerson Good Samaritan Food Donation Act found in the Child Nutrition Act, Section 22. For further guidance and information, please contact your local environmental health department and see the CDE Management Bulletin CNP-02-2018: Guidance on the Donation of Leftover Food in CNPs. 

Yes. Employees whose duties involve the preparation and service of meals, and personnel involved in supervising these functions, may be provided with a meal at program expense. This also includes student workers.

It is highly recommended that SFAs have a written policy that designates positions for this benefit. More information can be found in the CDE Management Bulletin SNP-04-2021: Pricing of Adult Meals in the National School Lunch Program (NSLP)/School Breakfast Program (SBP).

Food purchased for staff meetings are generally not allowable. However, there are some exceptions to this rule, such as the following:

• Remote location: Instances where the training/meeting is in a remote location that makes getting food difficult during the scheduled lunch. SFAs should be prepared with documentation that demonstrates that the unique circumstances that would justify costs for staff meals are reasonable and necessary.
• Scratch Cooking/Recipe development: Training sessions on scratch cooking and recipe development, where food service staff are permitted to taste and consume the recipes they create.
• Operational staff: Meals for staff directly involved in the operation and administration of the SNPs (subject to the adoption of a local policy) and restricted to the regular workday when food is being prepared and served to students. See the CDE Management Bulletin SNP-04-2021: Pricing of Adult Meals in the National School Lunch Program (NSLP)/School Breakfast.
• Conferences: Additionally, meals included as part of a conference registration/attendance.

If lunch is provided for adults attending training sessions, and they are not subject to exceptions, the SFA should cover the cost using allowable nonfederal funds.

Awards of minimal value, such as length of service pins or certificates of appreciation, for food service employees may be purchased from cafeteria funds. Awards such as gift cards or cash prizes given to employees are not allowable.

It is not allowable to use cafeteria funds to pay non-food service personnel serving as cafeteria monitors (e.g. noon duty aides). However, it is allowable to pay for food service staff to perform nonsupervisory food service-related activities, including encouraging students to consume meals, opening milk and condiment containers, assisting at salad bars, encouraging the use of share tables, and encouraging students to return food service supplies and discard trash. 

Tables generally cost less than $10,000 per unit and do not require preapproval. Tables are allowable costs as long as: 1) the cost of the tables are reasonable and necessary for the operation 2) will be used for the primary purpose of meal service, 3) will be located either inside the cafeteria or adjacent to the cafeteria in a designated eating area.

Yes. Generators for SNP purposes are an allowable expenditure and included in the Capital Expenditure Approved List.

Yes, 7 CFR, Section 210.13, states that schools must obtain two food safety inspections during each school year. They are considered necessary and allowable using cafeteria funds. Reference CDE Management Bulletin SNP-09-2014: Mandatory Food Safety Inspections.

Yes, in accordance with 7 CFR, Section 200.454, memberships, subscriptions, and professional activity costs are allowable and do not require preapproval. This excludes memberships to country and dining clubs. Costs should be reasonable under the federal award.

No. The district must cover any expense related to Local Control Funding Formula activities. Only costs incurred specifically for the federal award which are necessary for the operation of food services can be paid from the cafeteria fund. Food service staff that process alternative income forms for the district can continue to do so as long as they complete a personnel activity report, and the labor is charged to the general fund.

Capital expenditures acquire capital assets or make additions, improvements, modifications, replacements, rearrangements, reinstallations, renovations, or alterations to capital assets that materially increase the value or useful life. Capital assets are tangible or intangible assets used in operations that have a useful life of more than one year which are capitalized in accordance with Generally Accepted Accounting Principles (GAAP). Capital assets include land, buildings, and equipment. Equipment is defined as tangible personal property having a useful life of more than one year and a per-unit acquisition cost that equals or exceeds the lesser of the capitalization level established by the recipient or subrecipient for financial statement purposes, or $10,000.

CDE preapproval is required for equipment with a per unit cost of $10,000 or more or the individual SFA’s capitalization threshold, whichever is lower. However, the CDE maintains a list of capital expenditure equipment items that are preapproved. Please see the CDE Capital Expenditure Approved List web page. For capital expenditure requests not included on the Capital Expenditure Approved List with a unit cost of $10,000 or greater, SFAs must send an email request for approval to snpcafefundquestions@cde.ca.gov.

Send an email to snpcafefundquestions@cde.ca.gov and include the following information:

Subject Line:Capital Expenditure Request from [SFA name]

Body of the email:

• Describe the equipment requested and how it supports the operation or improvement of the nonprofit school food service (cafeteria fund)
  
• If replacing existing equipment, explain how the item being replaced will be disposed and acknowledge that any proceeds from the disposition of the equipment will be used to offset the cost of the replacement equipment.
  
• Acknowledge that any equipment charged to the cafeteria fund will be used exclusively (100 percent) by the nonprofit school food service (i.e., not shared with other nonfederal programs not related to food service).
  
• List CNIPS ID number and name of SFA, and requestor’s name, title, and contact information.

No. Per 2 CFR, Section 200.439(b)(2), only equipment with a unit cost of $10,000 or more require prior written approval from the CDE.

No. Unfortunately any capital expenditure that is not on the USDA Capital Expenditure Approved List and has a unit cost of $10,000 or over must be approved prior to purchase by the CDE.

If prior approval is not obtained, the CDE may disallow the cost during a SNP's administrative review. In such cases, the SFA will be required to reimburse its cafeteria fund using an allowable nonfederal source.

What should we do with equipment that is no longer needed for food service?

Per 2 CFR, Section 200.313, if the equipment is no longer needed for the program, the equipment may be used in other activities in the following order of priority:

• Support the activities allowable under another Federal award funded by the USDA
  
• Support the activities allowable under another federal award

When acquiring replacement equipment, the equipment may be used as either trade-in or sold and the proceeds used to offset the cost of the replacement equipment.

When equipment is no longer needed for the original program or other activities, equipment with a current fair market value of $10,000 or less per unit may be retained, sold, or disposed of with no further obligation to the federal agency. If the equipment is sold, the Federal agency or pass-through entity may permit the recipient or subrecipient to retain $1,000 of the proceeds, to cover expenses associated with the selling and handling of the equipment.

No. The school district must follow the guidelines on the disposition of equipment as described in 2CFR, Section 200.313, for any equipment in the school’s possession that was charged to the cafeteria fund for the original project or program.

Items of equipment with a market value of less than $10,000 may be retained, sold, or otherwise disposed of, with no further obligation to the federal agency.

An SFA shall sell any equipment with a market value greater than $10,000 and deposit the proceeds into the cafeteria fund for final disposition.

Yes. The SFA should ensure the rental cost is necessary and reasonable. If the delivery van continues to break down or requires additional maintenance, then the SFA should conduct a cost analysis of renting versus buying a new delivery van.

Time and effort refers to timekeeping requirements to substantiate employee salary, wages, and benefit costs to federal programs. Employees paid with federal funds are subject to 2 CFR, Section 200.430(g), standards for documentation of personnel expenses, unless specific guidance is provided for the federal award. Examples of federal awards are:

• National School Lunch and School Breakfast Programs
• Child and Adult Care Food Program
• Summer Food Service Program
• Fresh Fruit and Vegetable Program

In simple terms, a single cost objective relates to federal program revenue source and the costs for activities associated with the federal program (see California School Accounting Manual [CSAM] procedure 905 for additional details). CSAM has established distinct resource codes for CNP cost objectives, which includes, but is not limited to the following:

• 5310–SNPs (National School Lunch Program, School Breakfast Program, and Seamless Summer Feeding Option)
• 5320–Child and Adult Care Food Program
• 5330–Summer Food Service Program
• 5370–Fresh Fruit and Vegetable Program

A semiannual certification is a periodic certification that an employee has worked solely on a federal program. These may be completed every six months. For additional information about semiannual certifications, please see CDE Management Bulletin SNP-06-2014: Documenting Employee Time and Effort in the SNPs.