FNS Concerns

Danny Werfel
Deputy Controller
Office of Federal Financial Management
Office of Management and Budget
New Executive Office Building, Room 6025
725 17th Street, N.W.
Washington, D.C. 20503
Dear Mr. Werfel:
The Food and Nutrition Service (FNS), an agency of the U.S. Department of Agriculture
(USDA), hereby requests that the following programs be exempted from the governmentwide requirement to use the new Standard Form (SF) 425 (Federal Financial Report):
State Administrative Matching Grants for the Supplemental Nutrition Assistance
Program (SNAP)(formerly known as the Food Stamp Program)(CFDA No.
10.561)
School Breakfast Program (SBP)(CFDA No. 10.553)
National School Lunch Program (NSLP)(CFDA No. 10.555)
Special Milk Program for Children (SMP)(CFDA No. 10.556)
Special Supplemental Nutrition Program for Women, Infants and Children
(WIC)(CFDA No. 10.557)
Child and Adult Care Food Program (CACFP)(CFDA No. 10.558)
Summer Food Service Program (SFSP)(CFDA No. 10.559)
State Administrative Expenses for Child Nutrition (SAE)(CFDA No. 10.560)
The Emergency Food Assistance Program (TEFAP)(CFDA No. 10.568)
WIC Farmers’ Market Nutrition Program (FMNP)(CFDA No. 10.572)
Senior Farmers’ Market Nutrition Program (SFMNP)(CFDA No. 10.576)
The concerns giving rise to this request are fully explained below.

General Concerns:
Like the SF-269 and SF-269A that it is replacing, the SF-425 is ideally suited to
capturing a grantee’s cumulative total program cost. This is sufficient for discretionary
project and research grants that have distinct beginning and ending dates and no need for
any financial reporting other than allowable costs incurred. FNS administers several
discretionary grant programs, and anticipates no problem transitioning them to the new
SF-425.
The problems arise with respect to the major programs FNS administers. These programs
have financial reporting needs that neither the current SF-269 nor the new SF-425 can
meet. Specifically, they differ from project grants along the following dimensions:

1.
Mission. The programs for which FNS requests an exception do not fund unique
projects with distinct beginning and ending dates. Rather, they operate year after year in
order to provide the same authorized benefits and services to the same target populations
throughout the United States. The intent is not to make applicants compete for a limited
amount of funds, but to get State agencies in all States to make the benefits of these
programs available to their eligible residents. This is reflected in a business model that
differs dramatically from that of discretionary project grants; awards are determined by
entitlement and/or by statutory or regulatory formulae rather than competitively.
2.
Complexity. As these programs have evolved, they have grown in complexity.
They consist of multiple components, transactions, or other subsets of total program
activity for which cost data are needed. These are described in the attached appendices.
3.

Program Size.
a.
Delivery Systems. Rather than dealing with a score or so of universities,
FNS has program agreements with over 200 State agencies. The State agencies
generally award most of the funds to local-level subgrantees, which issue the
program benefits to eligible beneficiaries. The subgrantees number in the tens of
thousands; for example, about 20,000 school districts and other governing bodies
operate the NSLP/SBP in over 100,000 schools.
b.
Participation. Benefits issued under these programs reach very large
numbers of people. During Fiscal Year 2008, monthly SNAP participation
averaged approximately 12.7 million households and monthly WIC participation
averaged approximately 8.7 million individuals. Also during that period,
approximately 7 billion meals were served to 31 million children under the NSLP
and SBP. Approximately 1.8 billion meals were served to children and 64 million
to adults under the CACFP.

4.
Program Cost. Program activity of this magnitude represents a multi-billion
dollar investment by the Federal Government. The Federal share of State agencies’
SNAP administrative costs in Fiscal Year 2008 amounted to about $3 billion.
Expenditures of Federal WIC funds during that period aggregated $6.2 billion. Cash and
commodity assistance to States that year for the NSLP, SBP, SMP, CACFP, and SFSP
approximated $14.4 billion. Federal expenditures for all programs covered by this
request approached $23.9 billion in Fiscal Year 2008.
In summary, these programs do not fit the business model for which the SF-425 is
designed. The SF-425 cannot capture the financial information at the level of detail
needed to manage these programs effectively. Their sheer size and complexity magnify
the risks of human error, misunderstanding of program rules, and even outright fraud.
The financial reports currently used in these programs have evolved in order to facilitate
FNS’ management control over their operation, thereby minimizing our exposure to those
risks. Substituting the new SF-425, with its minimalist data gathering capability, would
weaken that oversight and control, thereby rendering the Government’s multi-billion

dollar investment in these programs more vulnerable. Program-specific manifestations of
these concerns are outlined in the attached appendices.

Available Remedies:
We understand that OMB has recommended adopting the SF-425 for capturing total
program costs, and supplementing it with supporting schedules to capture the same
components thereof that we currently collect. We have the following reservations about
this approach:
1.

State agencies are already accustomed to reporting under the existing formats.

2.
State agencies are currently able to report electronically via automated data
processing (ADP) systems dedicated to financial reporting on these programs.
3.
Implementing OMB’s recommendation would require FNS and the States to retool their dedicated ADP systems. Unlike paper information systems, the creation of a
new ADP system is a lengthy developmental undertaking that entails not only the design
of the system itself but also its testing, de-bugging, and training of prospective users.
This process will need to be replicated at all 200 or so State agencies that administer the
programs covered by this request. The time and cost involved in doing so could
otherwise be directed to ongoing program matters. Bearing these costs and burdens
solely to capture the same data in a different format would not add value.
For these reasons, we request an exception from OMB in order to continue using the
existing reporting procedures for the aforementioned programs. We believe this option
would best respond to all our concerns.
My staff will be glad to meet with you at your convenience in order to discuss this matter
further, and to furnish any additional information you may need. We appreciate your
attention to this matter.
Sincerely,

E. Enrique Gomez
Acting Administrator
Attachments
cc:

Patty Davis, SFPD
Ron Hill, OGC
Peter Laub, OCFO
Cynthia Long, CND
Rich Lucas, OANE
Cathie McCullough, FDD

Maeve Myers, Budget
Jessica Shahin, SNAP
FMDs, all regions
FNS:FM:GMD:GMB:Lipsey:jdh:01-31-2009
GMD Filing Classification: Financial Reporting, General
File Name: “Werfel FFR Concerns”

Appendix A
Page 1 of 3
Program-Specific Concerns:
Supplemental Nutrition Assistance Program (SNAP)
SNAP’s mission is to provide nutritional benefits to low-income households by
enhancing their capability to buy food through the retail system. FNS pays 100 percent
of the program benefit cost and 50 percent of most State administrative costs.
SNAP is an open-ended entitlement program, whose administration is composed of
numerous functions and components for which cost data are needed. The program’s
authorizing legislation and regulations require States to perform these functions. State
agencies administer SNAP in conjunction with various public assistance programs
(Temporary Assistance to Needy Families (TANF), Medicaid, Foster Care, etc.), and the
costs of most SNAP functions include the portions of many shared costs allocable to
SNAP. The SNAP share of such costs is identified via a Public Assistance Cost
Allocation Plan (PACAP) approved by DHHS. Salient examples of SNAP functions
include:
1.
Certification. The certification of households to receive SNAP benefits is the
program’s largest single cost objective. In Fiscal Year 2007, for example, certification
accounted for nearly 62 percent of Federal expenditures for State agencies’ SNAP
administrative costs. Among other things, FNS uses the data generated by this function
to evaluate State agencies’ managerial efficiency by comparing them along the dimension
of certification cost per case.
2.
EBT Issuance. State agencies issue SNAP benefits to eligible households via an
electronic benefits transfer (EBT) system.
3.
Nutrition Education. SNAP’s authorizing statute (at 7 USC 2013(a) and 2020(f))
authorizes State agencies provide nutrition education to persons eligible for SNAP
nutritional benefits. This nutrition education component is designed to teach low-income
persons to make healthy food choices on a limited budget, and to adopt a physically
active lifestyle, in order to reduce the incidence of nutrition-related health problems (such
as childhood obesity) over the long term. While the delivery of nutrition education
services is not mandatory, most States have elected to do so. Accordingly, FNS must
collect cost data on this component.
4.
Fraud Control. State agencies are required to investigate and prosecute cases of
households receiving SNAP benefits to which they had not been entitled. Because this
function is a high priority, State agencies formerly received reimbursement for 75 percent
of its cost. Such enhanced funding is no longer available, but FNS maintains a high level
of interest in this function.
5.
ADP Development. State agencies are required to develop and operate ADP
systems to support their SNAP administration. At a minimum, such systems must
maintain records on participating households, terminate a household’s benefits at the end

Appendix A
Page 2 of 3
of its certification period, and generate the information the State needs to meet Federal
reporting requirements. Before a State agency can incur costs for such a system, it must
obtain prior approval from its Federal awarding agencies (principally FNS and DHHS).
Their approval is evidenced by their acceptance of an Advance Planning Document
(APD), which spells out the system’s technical capabilities, its expected cost, and the
allocation of the cost among benefiting programs. While the system is in the
developmental stage, its costs do not flow through the PACAP; rather, they are identified
and allocated via the APD. Therefore, the State agency reports its developmental costs
separately from the cost of operating existing systems. That enables FNS to monitor the
actual cost vis-à-vis the cost allocated to the SNAP in the APD.
6.
Employment and Training (E&T). State agencies are required to assist SNAP
beneficiaries in overcoming barriers to their gainful employment. Examples of such
services include counseling, skill training, education, job placement assistance, etc. The
E&T function consists of three discrete administrative cost components and two
participant reimbursement components. Each is subject to different rules, so that cost
data must be reported on each E&T component individually. These components are:
a.
100 Percent E&T. Each State agency receives an allocation of funds for
the costs of providing E&T services. This allocation is one of the very few SNAP
components for which FNS funds 100 percent of the allowable costs (up to the
amount allocated to the State agency). Consequently, the State agency’s
expenditures of 100 Percent E&T funds must be separately identified.
b.
50 Percent E&T. A State may incur E&T administrative costs in excess of
its 100 Percent E&T allocation. Such incremental costs are reimbursed at the
regular 50-percent rate.
c.
Able Bodied Adults Without Dependents (ABAWD). ABAWDs’
eligibility for SNAP benefits expires after three months unless they are engaged in
activities leading to gainful employment. A State agency receives an allocation of
Federal funds for the administrative costs of providing E&T services to
ABAWDs. FNS funds 100 percent of the costs charged to this allocation. This is
a separate component from the 100 Percent E&T funding described above and,
accordingly, must be separately accounted for and reported.
d.
Participant Reimbursement for Dependent Care. Reimbursement for
dependent care is limited to the lesser of the participant’s actual cost, or a statewide limit established in accordance with the Child Care and Development Block
Grant provisions of 45 CFR section 98.43. FNS reimburses the State agency for
50 percent of these costs.

Appendix A
Page 3 of 3
e.
Participant Reimbursement for Transportation. This item actually
includes not only transportation but all participant expenses other than dependent
care. Participant reimbursement is limited to the lesser of actual cost or the
maximum reimbursement rate set by the State agency. FNS reimburses the State
agency for 50 percent of these costs.
FNS needs cost data on these and additional SNAP administrative functions for purposes
of budgeting, funds control, and program monitoring and oversight. Altogether, State
agencies report on 21 SNAP components, functions, etc. To provide these data, States use
a former version of the SF-269 report that was superseded in 1988. This version has a
columnar format that enables respondents to report on multiple programs and on multiple
components and functions within programs. This form is used under an exception
granted by OMB. FNS is currently repackaging this version of the SF-269 as the FNS778 for use in the SNAP; nevertheless, the conditions outlined above necessitate OMB’s
renewal of that exception.

Appendix B
Page 1 of 1
Program-Specific Concerns: Child Nutrition Programs (CNP)
The CNP consist of the meal reimbursement programs (NSLP, SBP, SMP, CACFP, and
SFSP) and funding for State agencies’ costs of administering these programs (SAE). The
meal reimbursement programs share the following salient features: (1) The program
benefits consist of prepared meals served to children in educational or institutional
settings; (2) The meals may be served at no charge, at a reduced price, or at full price,
depending on children’s income eligibility; and (3) a State’s entitlement to Federal
funding under the CNP is the product obtained by multiplying the number of eligible
free, reduced price, and paid meals served within the State by the respective per-meal
payment rate for each category of meal. This meals-times-rates funding formula makes
the CNP open-ended entitlement programs.
As with the SNAP, some CN programs consist of multiple components for which cost
data are needed. For example, the CACFP (CFDA 10.558) is comprised of five
components whose costs must be captured individually. These include:
1.
Meal Reimbursement to Subgrantees. This is the amount generated by the mealstimes-rates formula outlined above.
2.
Subgrantees’ Administrative Costs. Sponsors of family day care homes may
receive reimbursement for their administrative costs of sponsoring the homes. This is a
separate component from the meal reimbursement, and a sponsor’s entitlement to these
funds is driven by a different formula.
3.
Subgrantees’ Start-up and Expansion Costs. The CACFP authorizing statute and
regulations provide for State agencies to reimburse costs incurred by organizations to
initiate the CACFP or to expand their existing CACFP operations.
4.
Audit Costs. The program’s authorizing statute and regulations provide for
resources targeted to the State agency’s cost of auditing its subgrantees.
5.
Cash in Lieu of Commodities. CACFP operators are required to accept food
commodities donated by USDA and use them in preparing program meals. However, the
program’s authorizing statute and regulations allow them to opt for cash payments in lieu
of part or all of their commodity entitlements. As a substitute for commodities, such
payments are over and above the regular meals-times-rates reimbursement.
As in the SNAP, State agencies administering the CNP use the pre-1988 version of the
SF-269 for their financial reporting. Each column of this report captures the cost of a
discrete program or program component. Altogether, a CNP State agency may report on
as many as 14 categorical programs and program components.

Appendix C
Page 1 of 3
Program-Specific Concerns:
Special Supplemental Nutrition Program for Women, Infants and Children
(WIC)
The mission of WIC is to provide prescribed nutritional benefits, nutrition education,
breastfeeding promotion and support, and referrals to other health services to persons at
critical stages of the life cycle: pregnancy, infancy, and early childhood development.
The nutritional benefits are provided in the form of vouchers, checks, or electronic
benefits transfer (EBT) cards (known collectively as “food instruments”), which
participants use to purchase the prescribed supplemental foods at retail outlets (called
“vendors”). State administering agencies incur benefit (food) costs as the vendors
redeem the food instruments they’ve transacted.
The legislation authorizing WIC requires State agencies to submit monthly financial and
participation reports. Therefore, less frequent reporting is not an option for this program.
Further, WIC financial reporting reflects the complexity of the program itself. Program
attributes contributing to this complexity include the following:
1.
A State agency’s WIC grant is composed of two components: one for food costs,
and the other for the costs of State/local agency nutrition services and administration
(NSA). At an absolute minimum, FNS must capture data on these two components in
order to monitor their integrity.
2.
WIC is a closed-ended, non-entitlement program. The dollar amounts of a State
agency’s food and NSA grant components are set by applying an allocation formula to
the amount appropriated for WIC. This limits the number of eligible participants that can
be served. Provisions of the program’s authorizing statute and regulations therefore
encourage State agencies to judiciously manage their finite WIC grants in order to serve
as many eligible persons as possible without over-or-under-spending. Examples of such
provisions include:
a.
Reallocations. The program’s authorizing statute requires FNS to recover
WIC funds remaining unspent when the preceding year grants are closed out, and
to reallocate these funds to State agencies for use in the current year. The
reallocation of unspent prior year funds reduces the level of new budget authority
needed to maintain program benefits for participants. To accomplish this, FNS
and the State agencies need a report that captures all data necessary to
continuously forecast State agencies’ funding needs, make timely funding and
caseload management decisions, and ultimately identify funds available for
recovery and reallocation.
b.
Rebates. The program’s authorizing statute directs State agencies to
engage infant formula manufacturers in contracts for rebates on formula used in
the program. State agencies credit the rebates they receive to their food cost

Appendix C
Page 2 of 3
accounts, thereby “recycling” them for re-use. The availability of rebates thus
expands the purchasing power of a State agency’s food grant component.
c.
Vendor, Participant, and Local Agency Collections. The program’s
authorizing statute and regulations allow State agencies to retain amounts
collected through claims against vendors, participants, and local agencies, and to
use these collections for WIC food and/or NSA costs of the prior, current, or
following grant period(s). Like rebates, these amounts are credited to the State
agency’s WIC food and/or NSA expenditure account(s) and thereby operate as
reductions of prior expenditures. As such, they may expand the purchasing power
of the State agency’s WIC food and/or NSA grant component(s).
d.
Conversions. A State agency may “convert” food funds for NSA costs if
it meets certain criteria, such as a greater-than-planned participation increase.
FNS must capture data on a State agency’s participation, NSA costs, and actual
conversions in order to determine that the State agency met the criteria for
conversion and kept its conversion within authorized limits.
e.
Spending Options. The authorizing legislation and regulations allow a
State agency to back-spend a limited portion of its WIC grant for costs of the
prior grant period, and/or to spend-forward a portion for costs of the following
grant period. As the result, the amount available to a State agency for its current
year WIC costs may be more or less than the amount allocated for that period.
FNS must collect data on amounts back-spent and/or spent-forward in order to:
(1) monitor compliance with the statutory limits on this practice, and (2) account
for differences between amounts allocated to each State agency and amounts the
State agency actually spent for program costs.
3.
Like the SNAP and certain CNP, WIC is composed of several discrete functions
for which cost data are needed. Salient examples include nutrition education and
breastfeeding promotion and support. The program’s authorizing statute and regulations
express these two requirements in terms of percentages of the grant. For example, a State
agency’s expenditures for nutrition education in a fiscal year must equal or exceed onesixth of the total expenditures against its NSA grant component. Thus, a State agency’s
compliance with these requirements is measured by allowable costs incurred; and the cost
associated with each requirement represents a subset of the State agency’s total WIC
NSA costs that FNS must capture in order to gauge compliance.
The SF-269 report could not accommodate the program’s complexity, and WIC State
agencies use an alternative, program-specific report for their financial and programmatic
reporting. This is the FNS-798 (WIC Financial Management and Participation Report)
and FNS-798A (Addendum to the WIC Financial Management and Participation
Report)(OMB No. 0584-0045). The FNS-798 is a monthly report that captures the

Appendix C
Page 3 of 3
transactions intrinsic to the program. State agencies submit the FNS-798A annually in
order to report the subset of their WIC NSA costs that supports each programmatic
function. The program’s complexity necessitates the continued use of these reports.

Appendix D
Page 1 of 1
Program-Specific Concerns:
Farmers’ Market Nutrition Programs (FMNP and SFMNP)
The WIC FMNP (CFDA No. 10.572) was created in order to provide fresh fruits and
vegetables to WIC participants and to eligible persons on WIC waiting lists. The
SFMNP (CFDA No. 10.576) provides parallel benefits to elderly persons. Both
programs have the added mission of providing an additional market for farm products.
Thus, the coupons issued to participants are redeemable for fresh produce at farmers’
markets rather than for prescribed supplemental foods at retail outlets.
These programs are closed-ended, non-entitlement programs whose designs generally
follow that of WIC. Accordingly, they share several of the attributes that necessitate
more detailed financial reporting than the new SF-425 can provide. Specifically:
1.
The grant to a State agency consists of food and administrative cost components.
At an absolute minimum, therefore, FNS must collect data on both components in order
to maintain their integrity.
2.
The FMNP shares with WIC the back-spending option. Accordingly, a State
agency’s FMNP cost for a fiscal year may be supported by as many as two discrete grant
awards (funds allocated for the current year and funds spent-back from the subsequent
year). This means the State agency must report on two different things: the program cost
of fiscal year operations, and the status of the current year grant.
State agencies meet these needs by submitting the FNS-683 (WIC Farmers’ Market
Nutrition Program (FMNP) Annual Financial Report)(OMB No. 0584-0447), and/or the
FNS-683A (Senior Farmers’ Market Nutrition Program (SFMNP) Annual Financial and
Program Data Report)(OMB No. 0584-0541).

Appendix E
Program-Specific Concerns:
The Emergency Food Assistance Program (TEFAP)

Page 1 of 1

The TEFAP mission is to issue food commodities to income-eligible households. As in
the SNAP and other programs covered by this request, a State agency’s TEFAP
administrative costs fall into categories for which cost data are needed. Data must be
gathered in sufficient detail for FNS to gauge the State agency’s compliance with certain
statutory requirements. For this purpose, FNS collects the following subdivisions of each
State agency’s TEFAP administrative cost:
1.
State-Level Costs. A State agency must match each Federal dollar spent for
State-level TEFAP administrative costs with a dollar from sources within the State. To
monitor compliance with this requirement, FNS must collect the portion of the State
agency’s administrative cost grant spent for State-level costs and the amount of State
matching contributions.
2.
Subgrantee-Level Costs. The State agency is required to make at least 40 percent
of its TEFAP administrative cost grant available for the administrative costs of its
subgrantees (known as emergency feeding organizations (EFOs)). A State agency can
meet this requirement by incurring costs that actually benefit TEFAP operations at the
EFO level, and/or by making funds available for expenditure by the EFOs themselves.
Accordingly, FNS must collect the following categories of EFO-level costs:
a.
State-Paid EFO Costs. These are costs paid by the State agency on behalf
of EFOs. The State agency is not required to match Federal funds spent for EFOlevel costs, whether incurred by the EFOs or by the State agency on their behalf.
Therefore, it is necessary to distinguish State-paid EFO costs from the State-paid,
State-level costs that are subject to the matching requirement.
b.
Local-Paid EFO Costs. These are administrative costs incurred by the
EFOs. These costs, in combination with State-paid EFO costs, demonstrate
compliance with the 40-percent pass-through requirement.
State agencies currently report this information on Form FNS-667 (The Emergency Food
Assistance Program (TEFAP) Administrative Costs)(OMB No. 0584-0293). The format
of the FNS-667 generally follows that of the “old” SF-269 report used in the SNAP and
CNP. It has four columns: State-Level Costs, State-Paid EFO Costs, Local-Paid EFO
Costs, and Total. As with the other programs described above, the single-column FFR
cannot meet the financial reporting needs of TEFAP.