Cafeteria Funds—Indirect Costs

This Management Bulletin (MB) supersedes the California Department of Education (CDE) MB NSD-SNP-07-2013: Cafeteria Funds—Allowable Uses; sections on direct and indirect costs, NSD-SNP-05-2012: Cafeteria Funds/Accounts-Reminders and Resources; section on charging warehoused goods, and USDA-SNP-22-2011: Indirect Cost Guidance Manual. The purpose of this MB is to reiterate the USDA requirements and provide updated guidance on allowable and unallowable expenditures from the nonprofit school food service account (cafeteria fund) as it pertains to direct and indirect costs. Additional guidance for allowable costs (SNP-05-2020) and construction costs (SNP-08-2020) are available on the CDE’s Cafeteria Fund Guidance web page at https://www.cde.ca.gov/ls/nu/sn/cafefundguide.asp.

Direct and Indirect Costs

Local educational agencies participating in the School Nutrition Programs (SNP) are considered school food authorities (SFA) by the CDE’s Nutrition Services Division (NSD). SFAs must observe both state and federal limitations on the use of cafeteria funds; expend nonprofit school food service revenues in support of the nutrition program; follow generally accepted accounting principles; and adhere to procurement procedures for all cafeteria fund expenditures.

Total program costs charged to the cafeteria fund are made up of direct and indirect costs. A cost’s activity identifies if it is either a direct or indirect cost. Direct costs are those that provide measurable and direct benefits to the program and indirect costs are agency-wide general management costs. An example of direct costs is equipment purchased specifically for a kitchen and used solely by the nonprofit school food service department. Examples of indirect costs are those associated with administrative activities such as accounting, payroll preparation, budgeting, personnel services, or centralized data processing. Indirect costs are not easily assignable, and therefore must be determined through an allocation process.

Determining Indirect Cost Rate

California EC Section 38101(c) states a food service program shall limit indirect costs to using the lesser of a school district’s prior year approved indirect cost rate (ICR) or the statewide average ICR.

Public school districts and county offices of education (COE) should refer to the CSAM Procedure 915 to learn how ICRs are determined. The CDE has been granted authority by the U.S. Department of Education to review and approve ICRs for California public school districts, COE, joint power authorities, and charter schools. Such entities submit proposed ICRs annually to the CDE with unaudited actual financial data. An automated worksheet is used to calculate the approved ICR for each SFA.

For the SFA’s state approved ICR as well as the statewide average ICR please visit the CDE’s Indirect Cost Rates web page at https://www.cde.ca.gov/fg/ac/ic/index.asp.

SFAs not subject to CDE ICR approval will need to determine their ICR in order to compare it to the statewide average approved rate. For detailed guidance on determining your ICR review the USDA Policy Memorandum SP 60-2016: Indirect Cost Guidance which can be found at the USDA Indirect Cost Guidance web page at https://www.fns.usda.gov/indirect-cost-guidance .

SFAs that do not charge the lesser of the two ICRs will receive a finding during an administrative review, and a transfer from the general fund to the cafeteria fund will have to be made for the difference between the two rates. If the SFA charges less than either of the two approved rates or does not charge indirect costs at all, these funds cannot be collected in future years, unless there is a preexisting contract in place documenting the SFA was loaning funds to the cafeteria fund. To learn more about loans between the cafeteria fund and other funds please refer to MB SNP-09-2020: Cafeteria Fund—Loans on the CDE SNP MB web page at https://www.cde.ca.gov/ls/nu/sn/mb.asp.

Allowable and Unallowable Charges

All charges to the cafeteria fund will either be direct or indirect, but they cannot be both. If a district is charging administrative costs as a direct cost to the cafeteria fund, those same expenses cannot also be included in the indirect cost allocation.

For example, if an SFA is receiving, storing, or delivering goods requisitioned from a warehouse, the costs associated may be allowable if charged in one of the following three ways:

1. If a food service program maintains its own warehouse and incurs the overhead costs directly
2. If a food service program uses the school district’s warehouse and incurs the overhead costs through the SFA’s approved ICR
3. If a food service program uses the school district’s warehouse and is charged an overhead fee by the SFA based on the cost of goods requisitioned from the warehouse
   

In addition, SFAs should practice consistent cost treatment. Costs incurred for the same purpose in like circumstances should be treated as only direct or indirect. A cost may not be charged to a program as a direct cost if other costs incurred for the same purpose are allocated to other programs as an indirect cost.

Additional Cafeteria Fund Guidance and Relevant Citations

• Additional guidance and resources relating to the cafeteria fund can be found on the CDE SNP MBs web page at https://www.cde.ca.gov/ls/nu/sn/mb.asp
• 7 CFR, sections 210 and 220
• 2 CFR, Section 200
  
  Note: CFRs can be accessed from the U.S. Government Printing Office CFR web page at http://www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR .
  
  
• EC Section 38101 can be accessed from the official California Legislation Information California Law web page at http://leginfo.legislature.ca.gov/faces/codes.xhtml .
• CSAM can be downloaded from the CDE Definitions, Instructions, and Procedures web page at https://www.cde.ca.gov/fg/ac/sa/.
  

Contact Information

If you have any questions regarding this MB or cafeteria fund policy or regulations, please contact the Resource Management Unit in the CDE Nutrition Services Division, by email at SNPCafeFundQuestions@cde.ca.gov.

If you have questions about the CSAM or how to account for charges to the cafeteria fund, please contact the School Fiscal Services Division, Financial Accountability and Information Services Unit, by email at sacsinfo@cde.ca.gov.