Food and Nutrition Programs

Nonprofit School Food Service Allowable and Unallowable Costs

Introduction

The purpose of this memorandum is to supplement the Allowable and Indirect Costs memorandum issued on February 1, 2024, and provide School Food Authorities (SFAs) examples of allowable and unallowable costs.

Regulations require that all expenditures from the nonprofit school food service account, whether funded wholly or in part, shall comply with all federal, state, and local procurement requirements. All expenditures charged to the nonprofit school food service account must be necessary, reasonable, allowable, allocable and adequately documented to support the effective and efficient operation of the Child Nutrition Programs.

For more information and guidance on General Expenditures you may visit 2 Code of Federal Regulations CFR 200 : Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards.

Common Expenditures

Advertising, Disposing of Surplus Materials

Allowable: materials and expenses to obtain services to properly dispose of surplus materials

Advertising, Outreach

Allowable: materials and expenses for communication with parents and the community about program activities and services

Unallowable: materials and expenses for public relations materials or activities designed solely to promote the School Food Authority SFA and not promote child nutrition program(s) the School Food Authority SFA operates

Advertising, Procurement

Allowable: materials and expenses to publicize procurement solicitations

Advertising, Recruitment

Allowable: materials and expenses to recruit personnel

Contributions

Unallowable: contributions of cash, property, and services by the School Food Authority SFA to another entity

Equipment, Disposal of Equipment

Allowable: costs associated with the disposal or transfer of equipment if the School Food Authority SFA is instructed by the Office or Food and Nutrition Programs (FNP) to dispose of the equipment

Equipment, Expendable Equipment and Other Supplies

Allowable: materials or supplies used specifically in the School Food Authority SFA operation, including items that must be replaced from time to time: pots and pans, serving trays, dishes, glassware, silverware, linen, mops, brooms, and cleaning supplies

Equipment, Nonexpendable Items

Allowable: items or equipment used directly in preparing, storing, or serving meals (see Capital Expenditure Approved List )

Equipment, Office Equipment

Allowable: items used to support program goals and objectives including cash registers, adding machines, software, communication equipment, and other equipment used exclusively for the school nutrition program operation as well as maintenance, upkeep, and repair of allowable office equipment

Equipment, Office Equipment, Cell Phone

Allowable: Cell phones and cell phone expenses if the cell phone contract is in the School Food Authority SFA's name and not in the name of the individual employee using the cell phone

Unallowable:

• Cell phones and cell phone expenses considered to be a stipend or allowance
• Cell phones and cell phone expenses purchased and registered in the name of the employee

Equipment, Computers

Allowable: computers/computing devices that are essential to program operation

Facilities, Improvement, Rearrangement, and Reconversion

Unallowable: costs associated with remediation or repair to a school building (i.e. general plumbing, heating, air conditioning) would add to the permanent value of the school building and are therefore unallowable. These costs should be borne by the School Food Authority SFA's general fund.

Facilities, Insurance

Allowable: premiums for covering Child Nutrition CN property in connection with general operations and sound business practices or premiums for insurance that the School Food Authority SFA is required to carry by federal, state, or local regulation or law

Unallowable: loss resulting from failure to maintain insurance as prescribed by regulation

Facilities, Land Purchase, Acquisition, and Construction

Allowable: payment to purchase land, acquire or construct buildings, or make alterations to existing buildings that materially increase the value of capital assets when the School Food Authority SFA has received prior approval from Food and Nutrition Programs FNP and United States Department of Agriculture USDA.

• A request for this type of purchase must be sent to Food and Nutrition Programs FNP for review or potential further submission to United States Department of Agriculture USDA.

Unallowable: payment(s) to purchase land, acquire or construct buildings, or make alterations to existing buildings that materially increase the value of capital assets are not allowable uses of the nonprofit food service account

Facilities, Rental of Facilities or Equipment

Allowable: rental or lease fees for non-School Food Authority SFA owned facilities such as cafeterias, kitchens, or storage facilities required for specific program needs

Unallowable: rental or usage fees for School Food Authority SFA-owned equipment or facilities such as cafeterias, kitchens, or storage facilities

Facilities, Security

Allowable: expenses for the protection and security of facilities, personnel, and work products including wages and uniforms of personnel engaged in security activities, equipment, barriers, and contracted services

Facilities, Services

Allowable: services attributable only to the school nutrition program, including services such as pest control, trash removal, security, and janitorial

Facilities, Utilities

Allowable: actual costs accounted for separately or prorated for the food service program. School Food Authorities SFAs must use a reasonable method to determine the cost of utilities

• Direct — Meter for kitchen/serving area
  • Total billed amount allowable
• Indirect — One meter for entire school
  • Billed amount must be prorated based on the School Food Authorities SFAs current indirect cost rate

Financial Audits

Allowable: cost for audits conducted in accordance with program requirements or a proportional share of the costs of audits (if the audit covers non-Child Nutrition programs) conducted in accordance with program requirements

Unallowable: cost for any audit not conducted in accordance with requirements

Financial, Cost Sharing

Unallowable: charging any items or services that are part of cost sharing or matching requirement to the nonprofit school food service account:

Financial, Depreciation

Allowable: depreciation or use allowances based on a straight-line calculation method (the pattern of consumption of the asset) that have a useful life of more than one year for assets purchased after December 26, 2014, or another method which allows the School Food Authority SFA to demonstrate with clear evidence that the expected pattern of consumption would be greater in the earlier portions of the asset's useful life

Unallowable:

• Depreciation calculated by any method other than a straight-line calculation for items purchased after December 26, 2014, unless the School Food Authority SFA can demonstrate with clear evidence that the expected pattern of consumption would be greater in the earlier portions of the asset's useful life
• Depreciation recorded on the cost of land; any portion of the cost of a building donated by the federal government no matter where the title was originally vested
• Depreciation for any asset purchased with restricted program funds
• Depreciation for any asset that has been paid for in full though payments were made over more than one fiscal year
• Depreciation for any asset that has outlived its depreciable life
• Depreciation for any asset that is paid for in full in the current fiscal year

Financial, Improperly Procured Products or Services

Unallowable: costs incurred as result of improperly procured products and/or services whether the cost was incurred as a result of micro-purchase, small purchase, invitation for bids, or request for proposals methods of purchasing

Financial, Interest

Allowable: interest at the prevailing loan rate

Unallowable:

• Interest costs for the use of the program's own funds
• Expenses used for lobbying and membership in an organization that devotes substantial activities to lobbying and influencing legislation

Financial, Scholarship

Unallowable: use of funds from any Child Nutrition program payments, rebates, credits, or other income for student scholarships

Financial, School Improvement

Unallowable: use of funds from any Child Nutrition program payments, rebates, credits, or other income for school improvement expense

Food Operation, Food Service

Allowable: food purchases and costs directly related to the storage, handling, processing, and transportation of food

Fundraising, Actions to Raise Funds for the Program

Allowable:

• Costs related to physical custody and control of monies and securities that result from fundraising
• Costs for the purposes of meeting program objectives are allowable with prior written approval from United States Department of Agriculture USDA

Unallowable:

• Costs of organized fundraising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions
• Costs of investment counsel and staff and similar expenses incurred to enhance income from investments are unallowable except when associated with investments covering pension, self- insurance, or other funds which include Federal participation allowed by this part

Legal Expenses, Attorney's Fees

Allowable: Appropriate fees that are consistent with normal program operations

• School Food Authorities SFAs must consult with Food and Nutrition Programs FNP when there is a question as to whether the fee supports normal program operations.

Unallowable: costs incurred in the defense of any civil, criminal, or administrative fraud proceeding or similar charge

Legal Expenses, Fines and Penalties

Unallowable:

• Expenses used to influence the outcomes of any federal, state, or local election, referendum, initiative, or similar procedure, through in-kind or cash contributions, endorsements, publicity, or similar activity
• Expenses used to establish, administer, contribute to, or pay the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections in the United States
• Expenses used in an attempt to influence the introduction of federal or state legislation; the enactment or modification of any pending Federal or state legislation through communication with any member or employee of the Congress or state legislature (including efforts to influence state or local officials to engage in similar lobbying activity); or any government official or employee in connections with a decision to sign or veto enrolled legislation
• Expenses used to attend a legislative session or committee hearing with the intent of gathering information regarding legislation and analyzing the effect of legislation when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying

Outreach and Public Relations, Committees

Allowable: expenses for organizing or activities related to committees or councils that increase outreach and promote program involvement

Outreach and Public Relation, Promotional Materials

Allowable:

• Exhibits or other information sharing activities related specifically to Child Nutrition programs as well as printed materials to communicate information and messages central to program operations and program mission
• Activities to maintain and promote understanding and favorable relations with the community or public at large or any segment of the public

Unallowable: any promotional materials or activities for purposes other than those described as allowable. This includes the following types of costs:

• Meetings, conventions, and convocations
• Cost of displays, demonstrations, and exhibits, meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other special events
• Salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations, and providing briefings
• Cost of promotional items and memorabilia, including models, gifts, and souvenirs
• Cost of advertising public relations designed solely to promote the School Food Authority SFA

Program Operations, Printing and Reproduction Equipment or Services

Allowable: materials used to provide notification, maintain records, or other uses related specifically to program objectives

Staff, Cafeteria Monitor

Allowable: funds used for personnel directly involved in operating or administering Child Nutrition programs who have monitoring duties assigned to them as part of or integral to their regular school food service program responsibilities.

Unallowable: funds used to pay meal service monitor salaries for personnel not directly involved in operating or administering the School Nutrition Program SNP and who do not have monitoring duties assigned to them as part of or integral to their regular Child Nutrition CN responsibilities

Staff, College Credits

Unallowable: cost incurred by an individual to obtain the college credits needed to meet the professional hiring standards

Staff, Employee Recognition

Allowable: reasonable expenses for recognizing employee efforts in the following conditions:

• Activity is a part of the School Food Authority SFA's established practice
• The recognition is for employees who work directly for the school food service program or whose salaries are paid out of the nonprofit food school service account
• Activities or items are intended to improve employee performance
• Activities or items are intended to improve employee-employer relations

Staff, Fringe Benefits

Allowable: benefits for employees such as the following: leave, insurance, pension, and unemployment plans provided the following criteria are met:

• Established in written policies
• Equitable allocation for related activities for all programs
• Appropriate accounting procedures are in place

Unallowable: benefits that include use of an automobile for personal use of an employee, including transportation to and from work, whether the cost is direct or indirect cost to the program and whether the cost is reported as taxable income to the employee

Staff, Labor

Allowable:

• Payments for labor and other services directly related to food service operation
  • This includes employer's share of retirement, social security, insurance payments, and fringe benefits as well as severance required by law, employer‐employee agreement, established institutional policy, or circumstances of the employment.
• Prorated portion of the salaries of janitorial, maintenance workers, secretarial, and finance staff for services performed specifically for the school nutrition program operation

Staff, Memberships, Subscriptions, and Professional Publications

Allowable: fees for memberships, materials, subscriptions, and professional activities used to benefit or improve the operation of the food service program

Unallowable:

• Fees for memberships in any civic or community organization as well as country club or social or dining club or organization
• Costs for membership in organizations whose primary purpose is lobbying

Staff, Personal Use

Unallowable: costs of goods or services for an employee's personal use even if reported as taxable income to the employee

Staff, Training and Conferences

Allowable: costs of meetings and conferences for which the primary purpose is the sharing of technical information including meals, transportation, facility rental, speaker's fees, identification of dependent care resources, and conference registration fees

• This also includes the costs associated with meeting the professional standards requirements.

Unallowable:

• Costs associated with obtaining a degree to meet the hiring standards
• Costs for daycare for employees attending training or conference

Transportation, Meal Production Related Activities

Allowable: reasonable costs associated with purchasing, transporting, and disposing of food items, meals, or stored items used to support the food service program

Travel, Conferences and Training

Allowable: expenses incurred for staff travel related to improvement of the food service program and to meet the professional standards requirements, such as workshops, conferences, and training programs

Additional Guidance for Certain Expenditures

Consistent Treatment of Allowable, Allocable Costs to Other Federal Awards

2 Code of Federal Regulations CFR 100.403 states a cost item must be treated consistently as either direct or indirect in all activities of the School Food Authority SFA. Furthermore, all costs to Federal programs, whether direct or indirect, must be treated consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-federal entity.

For example, custodial costs are included in the indirect cost pool used for the state calculated unrestricted indirect cost rates. Therefore, custodial costs cannot be charged as a direct cost to the nonprofit school food service account if indirect is also being charged.

Pertaining to compensation and fringe benefits, 2 Code of Federal Regulations CFR 200.431 states that "such benefits, must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal award and other activities."

For example, if health care benefits for all school district employees (other than food service employees) are a direct cost to the school district's general fund and no other allocable Federal awards that fund staff salaries are charged these costs, then health care benefits for school food service employees cannot be charged to the nonprofit school food service account.

Bad Debt

Bad debt is defined as debts which have been determined to be uncollectable. Bad debt is an unallowable cost to the program. The School Food Authority SFA must resolve any negative balance (including net cash resources) to the food service program with non-program funds at the end of the school year. Once debt is determined to be uncollectable any cost associated with legal services for that debt is also unallowable.

Bad Debt, Outstanding Student Debt

Outstanding student debt resulting from nonpayment of school meals or milk is an unallowable cost to the nonprofit school food service account and cannot be absorbed by the school food service program at the end of the school year. It must be paid for with other non-federal sources.

Employee Timekeeping

School Food Authorities SFAs are expected to ensure that salary and wage expenses are correctly charged to the nonprofit school food service account. School Food Authorities SFAs must have a timekeeping record system, paper or electronic, that accurately reflects the work performed by employees for the school food service program.

The timekeeping record system must meet the following requirements:

• Be supported by a system of internal controls which provides reasonable assurance that the charges are accurate, allowable, and properly allocated.
• Be incorporated into the School Food Authority SFA's official records that include a hand signature by the employee and the supervisor certifying the accuracy of the records.
• Comply with the established accounting policies and practices put in place by the School Food Authority SFA to ensure program integrity.

The timekeeping record system must provide the following information:

• Actual hours worked, not estimated hours worked, for both hourly and salaried employees compensated by the School Food Authority SFA for each pay period, integrating compensation by Child Nutrition funds and non-Child Nutrition funds.
• Distributions of the employee's salary or wages among specific activities or cost objectives if the employee works on Child Nutrition and non-Child Nutrition projects.

Cafeteria Monitors

School food authorities are not allowed to charge the costs for cafeteria monitors that solely provide supervision of students to the nonprofit school food service account. As indicated in 7 Code of Federal Regulations CFR 210.14 and 220.13 (i), the revenues from the nonprofit school food service account may be used only for the operation or improvement of the school food service. Costs related to the preparation, service and cleanup of the meal service area are related to the food service. School Food Authorities SFAs may charge cafeteria monitors provided the monitors perform duties related to the operation and administration of the school nutrition program (such as assisting students with meals, setting up the lunchroom, etc.). For personnel that have responsibilities related to the school food service program as well as other student supervision responsibilities, a cost allocation plan may be appropriate.

Equipment

Equipment, as determined by 2 Code of Federal Regulations CFR 200.1, 200.313 and 200.439, includes tangible personal property (including informational technology systems) having a useful life of one year or longer and a per-unit acquisition cost that equals or exceeds the lesser capitalization threshold established for financial statement purposes, $10,000, or a lower threshold set by state or local level regulations.

Purchasing school food equipment with nonprofit school food service account funds is allowable if the item is listed on the Capital Expenditure Approved List or the School Food Authority SFA receives prior approval from the State agency.

Maintenance, Repairs and Renovations

See Food and Nutrition Programs FNP memo titled "Charging the Nonprofit School Food Service Account for Maintenance, Repair and Renovation Costs"

Nutrition Education Expenses

Nutrition education and related activity expenses are allowable if the expenses meet the following criteria:

• Are reasonable, necessary and allocable as defined in this section.
• Support the operation of and/or improvement of the child nutrition objectives to serve nutritious meals that meet the meal pattern.

Farm to School and School Farm or Garden Expenses and Revenue

School Nutrition Program funds may be used to support farm to school activities, including school gardens, if the expenditure is an allowable cost. The Farm to School/School Garden Allowable Cost Assessment Chart may be used by the School Food Authority SFA to determine if the farm to school or school garden expenses are allowable.

Supplies or Equipment for School Farms or Gardens

If the school farm or garden is used within the context of the school meal programs and serves the purpose of supporting the operation of or improving the school meal program, supplies and equipment for the school farm or garden may be purchased with funds from the school nutrition program account. Supplies (i.e., seeds, fertilizer, water cans, or rakes) and equipment (i.e., hoop houses and high or low tunnels) are allowable if (1) the School Food Authority SFA has assessed the purchase using the questions from the Farm to School/School Garden Allowable Cost Assessment Chart and determined that the costs are allowable and (2) the products grown in the school garden or farm are used within the context of the school nutrition program.

Procured Farm to School Products

School Food Authorities SFAs may conduct procurement for garden produce even if the purchase falls below the small purchase threshold. Geographic preferences may be used. The School Food Authority SFA must still ensure that products purchased from the garden are purchased at reasonable prices.

Sale of Produce from a Garden Funded by the School Nutrition Program

If the School Food Authority SFA sells produce from a school garden or farm that is funded by the school nutrition program, the revenue must accrue back to the school nutrition program account. If the School Food Authority SFA contributes a proportion of the total cost, the amount accrued back to the school nutrition program may be proportional to the amount of the school nutrition program's contribution.

Use of Fresh Fruit and Vegetable Program Funds (Fresh Fruit and Vegetable Program FFVP)

School Food Authorities SFAs must not use funds from the Fresh Fruit and Vegetable Program FFVP to purchase supplies or equipment for school gardens.

Food and Nutrition Programs FNP's Financial Management Team is available to answer your questions and provide technical assistance.

This document was adapted from guidance created by the New York Education State Department and the Illinois State Board of Education

This institution is an equal opportunity provider.