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Appendix E9. Guidance for Management Plans and
Budgets – A CACFP Handbook
This information is being collected from local government agencies and businesses (institutions)
to enable institutions wishing to participate in the Child and Adult Care Food Program (CACFP)
to submit applications to the administering agencies, execute agreements with those agencies,
and claim the reimbursement to which they are entitled by law. Section 17 of the National School
Lunch Act, as amended (42 U.S.C. 1766), authorizes the CACFP. This collection is required to
obtain or retain a benefit and the Food and Nutrition Service (FNS) uses the information
collected to conduct reviews that determine whether or not institutions are observing the
requirements of the Program established by regulations and statute. In addition, the information
collection is necessary for administering agencies to monitor Program operations to ensure
compliance with legislative and regulatory requirements. Under the Privacy Act of 1974, any
personally identifying information obtained will be kept private to the extent of the law.
According to the Paperwork Reduction Act of 1995, an agency may not conduct or sponsor, and
a person is not required to respond to, a collection of information unless it displays a valid Office
of Management and Budget (OMB) control number. The valid OMB control number for this
information collection is 0584-0055. The time required to complete this information collection is
estimated to average 36 hours per response. This burden consists of the time it takes to review
all instructions and handbooks issued by FNS and the Department to clarify or explain existing
regulations. Send comments regarding this burden estimate or any other aspect of this collection
of information, including suggestions for reducing this burden, to: U.S. Department of
Agriculture, Food and Nutrition Services, Office of Policy Support, 1320 Braddock Place,
Alexandria, VA 22314, ATTN: PRA (0584-0055). Do not return a completed form to this
address.
OMB
#0584-0055
Expiration Date
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Guidance for Management Plans and Budgets
A Child and Adult Care Food Program Handbook
U.S. Department of Agriculture
Food and Nutrition Service
December 2013
USDA is an equal opportunity provider and employer.
Policy Memoranda
Throughout the text, references have been made to numbered
memoranda issued by the Food and Nutrition Service National
Office. The numbering system may differ from your State agency
or FNS Regional Office.
The U.S. Department of Agriculture prohibits discrimination against its customers, employees,
and applicants for employment on the bases of race, color, national origin, age, disability, sex,
gender identify, religion, reprisal, and where applicable, political beliefs, marital status, familial
or parental status, sexual orientation, or all or part of an individual’s income is derived from any
public assistance program, or protected genetic information in employment or in any program or
activity conducted or funded by the Department (Not all prohibited bases will apply to all
programs and/or employment activities.)
If you wish to file a Civil Rights program complaint of discrimination, complete the USDA
Program Discrimination Complain Form, found online at
http://www.ascr.usda.gov/complaint_filing_cust.html
or at any USDA office, or call (866) 632-9992 to request the form. You may also write a letter
containing all of the information requested in the form. Send your completed complaint form or
letter to us by mail at U.S. Department of Agriculture, Director, Office of Adjudication, 1400
Independence Avenue, S.W., Washington, D.C. 20250-9410, by fax (202) 690-7442 or email at
[email protected].
Individuals who are deaf, hard of hearing, or have speech disabilities may contact USDA
through the Federal Relay Service at (800) 877-8339; or (800) 845-6136 (Spanish).
USDA is an equal opportunity provider and employer.
Contents
Introduction ................................................................................................................................... 5
Background ................................................................................................................................... 5
Who Administers the Program? .................................................................................................... 6
About This Guidance .................................................................................................................... 7
Part 1. Institution Management Plans – General Guidance ......................................................... 8
A. Developing the Management Plan ..................................................................................... 8
B. New Institutions/Sponsoring Organizations ....................................................................... 8
C. Participating Institutions ................................................................................................... 12
D. Performance Standards ................................................................................................... 13
E. Additional Topics Covered in the Management Plan ....................................................... 15
F. Reviewing & Approving the Management Plan ................................................................ 17
G. Revising/Amending a Management Plan ........................................................................ 18
H. Monitoring the Management Plan .................................................................................... 18
Part 2. Budgets – General Information and Guidance .............................................................. 19
A. Costs ................................................................................................................................... 20
1) Allowable Costs ............................................................................................................ 20
2) Direct Costs and Indirect Cost Plans ............................................................................ 22
3) Allocable Costs ............................................................................................................. 24
4) Costs Require Prior, Specific Written, or FNS Approval ............................................... 25
5) Unallowable Costs ........................................................................................................ 26
B. Operating Costs and Administrative Costs ......................................................................... 28
1) Operating Costs ............................................................................................................ 28
2) Administrative Costs ..................................................................................................... 33
C. Income / Funds ................................................................................................................... 37
D. Evaluating the Budget...................................................................................................... 39
E. Approving / Denying a Budget ......................................................................................... 40
F. Revising or Amending Budgets ........................................................................................ 43
G. Review of Fiscal Records ................................................................................................ 43
H. Questions and Answers ................................................................................................... 44
Part 3. Additional Information for Institutions by Type .............................................................. 46
A. Independent Center Budgets .............................................................................................. 46
B. Sponsoring Organizations of Centers .............................................................................. 48
C. Sponsoring Organizations of Day Care Homes ............................................................... 49
D. Multipurpose Organizations ............................................................................................. 51
E. Questions to Keep in Mind Regarding Sponsoring Organizations ................................... 56
Guidance for Management Plans and Budgets
Page 3
Part 4. Acronyms and Glossary ................................................................................................. 60
Part 5. Resources ....................................................................................................................... 62
A. Financial Guidance .......................................................................................................... 62
B. Memoranda Issued by FNS Relating to CACFP Management Plans and Budgets ......... 62
C. Attachments ..................................................................................................................... 63
Guidance for Management Plans and Budgets
Page 4
Introduction
The Child and Adult Care Food Program (CACFP) is a Federally-funded Program that provides
payments for eligible meals served to participants who meet age and income requirements.
Meals served by participating institutions and facilities must meet minimum guidelines set by the
U.S. Department of Agriculture (USDA). The CACFP helps institutions and facilities serve wellbalanced, nutritious meals to the participants in their care. Serving nutritious meals helps
improve and maintain the health and nutritional status of participants in a day care environment
and can help them develop and maintain good eating habits.
Institutions earn Federal reimbursement for meals served to eligible children, and eligible adults
in an adult day care center, when the meals meet regulatory requirements. In addition,
institutions which are or sponsoring organizations of day care homes (DCH) or centers are
provided Federal funds to accomplish administrative activities in support of the facilities which
provide meals to children. State agencies are responsible for providing the structure and
oversight of institutions’ operation and use of and accountability for Federal funds. Management
plans and budgets are tools used by State agencies and institutions to manage the financial
systems of the CACFP.
Background
The Code of Federal Regulations (CFR) at 7 CFR 226.6(b)(1)(iv)(C) require CACFP institutions
to submit an organizational management plan and annual budgets as part of the application
process to ensure Program and fiscal integrity.
Reviews and audits have been conducted periodically by the Food and Nutrition Service (FNS)
and the USDA Office of Inspector General (OIG).
1995: OIG Audit No. 27600-6-AT
OIG audited the DCH component of CACFP due to the results of State and Federal
Program reviews. OIG selected five States for inclusion in the audit. The audit found
serious types of regulatory noncompliance and inadequate internal controls by States
and sponsoring organizations, and OIG recommended changes to CACFP review
requirements and management controls.
1999: OIG Audit Report No. 27601-0007-SF or 27601-3-SF
The OIG conducted targeted audits which were referred to collectively as “Operation
Kiddie Care.” These audits confirmed the findings of the 1995 audits and developed
additional findings as well. Findings related to State agencies and sponsoring
organizations included the misuse of administrative funds. FNS was required to
strengthen requirements of the Program in many areas of the CACFP.
2002: Child and Adult Care Food Program: Improving Management and Program Integrity (1st
Interim rule) based on the Agricultural Risk Protection Action of 2000 (Public Law 106224) and the Grain Standards and Warehouse Act of 2000 (106-472).
Required institutions to employ an appropriate number of monitoring personnel based on
the number and characteristics of their facilities.
Guidance for Management Plans and Budgets
Page 5
Required institutions to meet the viability, capability, and accountability performance
standards.
2004: Child and Adult Care Food Program: Improving Management and Program Integrity (2nd
Interim rule)
Provided options for simplifying the institution’s application process and made
agreements permanent.
2011: Child and Adult Care Food Program: Improving Management and Program Integrity
(Final rule)
Allowed participating institutions to submit only the names of publicly-funded programs it
is newly participating within since the previous year rather than reiterating their entire list
each year.
Required that an ‘‘institution’s governing board of directors’’ must: (1) Meet on a regular
basis; and (2) have the authority to hire and fire the institution’s executive director (i.e.,
the board must be independent of the executive director’s control).
2011: OIG Audit Report No. 27601-0012-SF, Review of Management Controls.
Required sponsoring organizations’ boards to be composed of a majority of members of
the community who are not personally financially interested in its activities, or related to
its personnel or to each other. Also, to adhere to less-than-arms-length requirements,
board members must recuse themselves from votes on decisions relating to their own
compensation and that of immediate family members and financially related parties.
Required sponsors to sign an annual disclosure of potential conflicts of interest,
including specific identification of any dealings with “less-than-arms-length” entities and
any relationships between officers, board members, and employees.
Require that program application materials and NDL submittals include full legal names
and any names formerly used.
Who Administers the Program?
USDA’s FNS administers CACFP through grants to States. The Program is administered within
most States by the State educational agency. In a few States it is administered by an alternate
agency, such as the State health or agriculture department.
Independent centers and sponsoring organizations of DCHs and/or centers enter into
agreements with the administering State agency to assume administrative and financial
responsibility for CACFP operations. The CACFP provides reimbursement for nutritious meals
and snacks served to eligible children and adults who are enrolled for care at participating
DCHs, child care centers, At-Risk Afterschool Meal Programs, emergency shelters, or in adult
day care centers.
Guidance for Management Plans and Budgets
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About This Guidance
This handbook specifically focuses on plans for institutions (independent centers and
sponsoring organizations) to conduct organized and fiscally responsible operations of the
CACFP management plans outline the institution’s policies and procedures for administering
and monitoring its own operations and those of its sponsored facilities. Budgets outline the use
of CACFP and other funds for meeting Program requirements.
FNS recognizes that maintaining a high-quality CACFP requires a commitment to excellence on
the part of institutions and caregivers. We applaud the efforts of the many dedicated persons
who ensure that the participating children and adults are served wholesome, attractive, and
nutritious meals in a sociable environment while meeting the requirements for Federal
assistance.
The term ‘institution’ is used for both independent centers and sponsoring organizations.
Sponsoring organizations can take several forms:
1. A public or nonprofit private organization that is
responsible for the administration of the CACFP in:
One or more DCHs;
One or more child care centers, emergency
shelters, at-risk afterschool care centers,
outside-school-hours care centers (OSHCC),
or adult day care centers which is a legally
distinct entity from the sponsoring
organization (affiliated or unaffiliated centers);
Any combination of child care centers,
emergency shelters, at-risk afterschool care
centers, OSHCC, adult day care centers, and
DCHs; or
Definitions
An ‘institution’ enters into
an agreement directly with
the State agency. A
‘facility’ enters into an
agreement with an
organization that sponsors
the facility. A facility may
be a child care center, atrisk afterschool care
center, OSHCC,
emergency shelter, adult
day care center, or day
care home provider.
2. A for-profit organization that is responsible for the
administration of the CACFP in any combination of
two or more child care centers, at-risk afterschool care centers, adult day care centers,
or OSHCCs which are for-profit centers and are part of the same legal entity as the
organization. A for-profit sponsoring organization may sponsor only those centers that
are legally part of the sponsoring organization (affiliated centers) and may not sponsor
DCHs.
Following are examples of types of sponsoring organizations.
A nonprofit institution that sponsors DCHs could also sponsor centers.
A nonprofit institution, such as a Community Action Agency, could sponsor both
affiliated and unaffiliated centers.
A for-profit business could sponsor child care centers that it owns and operates
(affiliated centers only).
Guidance for Management Plans and Budgets
Page 7
Part 1. Institution Management Plans – General Guidance
The purpose of this part is to provide guidance for State agency staff in all aspects of the
institution management plan process. It will assist State agency staff in establishing written
policy and procedures for developing, reviewing, approving, and monitoring management plans.
State agencies will use institutions’ management plans to evaluate their viability, capability and
accountability (VCA).
A. Developing the Management Plan
CACFP regulations require State agencies to develop application procedures to determine the
eligibility of institutions. The application for sponsoring organizations must include a
management plan.
For-profit Boards
For-profit sponsoring organizations are not
required to have a board; the owner takes
overall responsibility for the CACFP.
Although the regulations do not require
independent centers to submit a
management plan, all institutions must
demonstrate they have internal controls
in place and document they meet the
required performance standards.
The regulations provide specific
requirements for sponsoring organization management plans. All new sponsoring organizations
are required to submit a management plan as part of the Program application. Sponsoring
organizations also are required to submit revisions to their approved management plan when
changes are made and annually certify that the approved management plan on file at the State
agency is current and up to date.
B. New Institutions/Sponsoring Organizations
Following is the list of required elements of a management plan.
1. Detailed information must be obtained on the organization’s management and
administrative structure, identifying owners, principals, and individuals responsible for
specific CACFP, administrative, food service, and care-giving duties.
2. The Board of Directors is
responsible for setting policy,
fiscal guidance, and ongoing
governance. It regularly reviews
the organization’s policies,
Programs, budgets and
operations. Decisions are
documented in board minutes
which are maintained and
available for review.
Board Members Vote
Board members must recuse themselves
from voting on decisions relating to their
own compensation and that of immediate
family members and financially related
parties.
In addition, the Board should have a screening system to identify any criminal
confiscations of Board members and sponsoring organization responsible
principals/individuals (RP/I) which would disqualify them from the Program.
Guidance for Management Plans and Budgets
Page 8
Developing an Appropriate Board of Directors
An acceptable Board consists of a majority of the members whose livelihood is independent
from and who holds no personal fiscal interest in the institution’s activities and who are not
related to each other or to its personnel.
State agencies must determine if any member of the Board of Directors has fiscal ties to the
sponsoring organization or the sponsoring organization’s staff. Those members may not have
acceptable detachment to make decisions for the CACFP institution based on solely what is
best for the institution, whether or not the decision affects the Board member’s fiscal position.
State agencies must also determine if any members of the Board of Directors are also
sponsoring organization officials or family members of the sponsoring organization’s officials.
The definition of family member and the number and type of family members permitted on a
Board of Directors are governed by State law. For purposes of this determination, the State
agency may accept the sponsoring organization official’s response as to whether Board
members are family members and the nature of the relationship. However, a State agency
may request clarification if the official’s response is not consistent with other information
concerning the board; for example, if Board members have the same last name as the
Executive Director.
3. An institution’s administrative budget must include projected CACFP administrative
earnings and expenses.
4. The institution must outline the procedures it will use to administer the CACFP in, and
disburse payments to, the facilities under its sponsorship.
5. The institution must maintain appropriate records to document compliance with CACFP
requirements, including budgets, accounting records, approved budgets and
amendments, and, if a sponsoring organization, management plans and appropriate
records on facility operations [7 CFR 226.6(b)(1)(xviii)(C)(3)];
6. The institution must demonstrate that its participation will help ensure the delivery of
CACFP benefits to otherwise unserved facilities or participants according to the State
agency criteria.
The State agency must develop criteria for determining whether a new sponsoring
organization’s participation will help ensure delivery of benefits to otherwise unserved
facilities or participants, and must disseminate these criteria to new sponsoring
organizations when they request information about applying to the CACFP [7 CFR
226.6(a)(1)(xi)];
7. The institution must provide mandatory training on CACFP duties and responsibilities to
key staff (as defined by State agency) from all new sponsored facilities prior to the
beginning of CACFP operations. Topics must include instruction, appropriate to the level
of staff experience and duties on:
The CACFP meal pattern,
Meal counts,
Claims submission,
Guidance for Management Plans and Budgets
Page 9
Claim review procedures,
Recordkeeping requirements,
Civil rights requirements, and
Reimbursement system.
8. Sponsoring organizations are required to employ sufficient monitoring staff to adequately
conduct required review activities. A Full-Time Equivalent (FTE) staff year is the amount
of work that one person, working full-time 40 hours per week, would perform in a year.
7 CFR 226.16(b)(1) requires that sponsoring organizations have:
1 FTE for each 50 to 150 DCHs it sponsors; and/or
1 FTE for each 25 to 150 centers it sponsors.
Activities that may be considered monitoring include:
o
Preparation and review of files before conducting a review;
o
Conducting the review;
o
Writing the review report;
o
Technical assistance related to review findings;
o
Follow-up activities, including review of corrective action and closure of
the review; and
o
Activities related to the annual updating of children’s enrollment forms
[7 CFR 226.16(b)(1)].
State agencies are required to establish factors that it will consider in determining
whether a sponsoring organization has sufficient staff to perform required monitoring
functions [7 CFR 226.6(b)(1)].
State Staffing Factors
Sponsoring organizations must demonstrate that they
have an adequate number of FTEs to accomplish the
A routine standard
annual monitoring requirements for their DCHs and/or
would establish the
centers.
amount of time a
sponsor’s monitor is
Documentation includes providing job descriptions that
expected to spend
include the percentage of time each staff person devotes
conducting a DCH
to monitoring-related activities.
review.
9. Sponsoring organizations must include in their respective
management plan, policies restricting outside employment by all employees that
interferes with an employee’s performance of Program-related duties and
responsibilities, including outside employment that constitutes a real or apparent conflict
of interest [(7 CFR 226.16(b)(7)].
Guidance for Management Plans and Budgets
Page 10
EXAMPLE: A sponsoring organization’s monitor also works full-time with a tax
preparation office during tax season. The monitor would be unable to conduct
reviews of providers during the day if they work elsewhere full-time; therefore,
this demonstrates a conflict of interest.
10. The management plan must include procedures the sponsoring organization will
implement to comply with the requirement to maintain complete and appropriate records
of the following on file as required by 7 CFR 226.15(e) and other State agency
requirements;
Copies of applications and supporting documents submitted to the State agency:
o
Facility participant enrollment forms (except for emergency shelters, atrisk afterschool, or OSHCCs (7 CFR 226.2));
o
Facility participant Income Eligibility Forms (not emergency shelters or atrisk afterschool centers) including tier I children in tier II DCHs;
o
Source documents used to classify tier I DCHs; e.g., income, school,
census);
o
Daily records to support facility claims;
o
Daily records indicating the number of meals by type, served to persons
performing labor necessary to the food service (not DCHs);
o
Copies of invoices, receipts, or other records required by the State
agency to document administrative costs claimed by the institution;
o
Operating costs claimed by the institution as income to the CACFP
nonprofit food service; and
o
Copies of all claims for reimbursement sent to the State agency.
Receipts for all CACFP payments received from the State agency;
Information containing the dates and amounts of disbursements to each
sponsored facility;
Copies of menus and any other food service records required by the State
agency;
Copies of facility review reports, with location, date, problems noted, required
corrective action, approved corrective action plans, and implemented corrective
action plans;
Information on training sessions, date, location, attendees, and topics presented;
and
Documents of annual training for each staff member with monitoring functions.
Guidance for Management Plans and Budgets
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11. Sponsoring organizations of DCHs must provide a description of its system for making
tier I determinations, and a description of the system of notifying tier II homes of their
options for reimbursement [7 CFR 226.6(b)(1)(iv)].
Using the Management Plan for Statewide Program Improvement
Throughout an annual operating cycle, a trend of similar inaccuracies by institutions may
develop. The State agency may add an element to the management plan addressing the
trend. This recordkeeping requirement would not be an additional State agency
requirement. [CACFP 09-2013, Additional State Agency Requirements, March 29,
2013.]
C. Participating Institutions
Participating institutions are not required to submit a renewal application. Instead, they are
required to annually submit:
Updated licensing information for each independent center or sponsored facility
participating in CACFP. The State agency may choose to obtain this information directly
from the State licensing agency rather than requiring submission by the institution;
A single certification that any information previously submitted to the State agency is
current, or that the institution has submitted any changes or updates to the State
agency. This certification must address all required elements. State agencies may add to
this list other information required annually for proper administration of the Program,
including but not limited to the information described in 7 CFR 226.6(f)(3)(iv);
For sponsoring organizations, a budget for the upcoming year and, if required by the
State agency, a budget for independent centers.
Additionally, participating institutions must provide mandatory training sessions for key staff
(as defined by the State agency) from all DCHs and adult day care facilities not less
frequently than annually. Topics must include instruction, appropriate to the level of staff
experience and duties on:
The CACFP meal pattern;
Meal counts;
Claims submission;
Claim review procedures;
Recordkeeping requirements;
Reimbursement system; and
Compliance with civil rights requirements.
All annual responsibilities contained in 7 CFR 226.6(f)(1) continue to apply.
State agencies should refer to the prototype offered in CACFP 19-2011, Child and Adult Care
Food Program Annual Information Certification, April 8, 2011.
Guidance for Management Plans and Budgets
Page 12
D. Performance Standards
Performance standards outline expectations for institutions’ administration of the CACFP. All
new institutions must demonstrate they meet the three specific performance standards required
by CACFP regulations. Participating institutions must certify they maintain these performance
standards through the application process. The State agency can only approve applications
from new and participating institutions that meet the performance standards, and must deny
applications from institutions which do not meet the performance standards that demonstrate its
VCA.
Performance Standard 1 – Financial Viability and Management
A new or participating institution must be financially viable. This examination of the institution’s
fiscal and planning abilities can be a form of self-evaluation for the institution as it outlines and
assesses the details of its own operation. The institution needs to document in the application
that:
There are adequate resources to operate the CACFP on a daily basis (funding sources).
o
Specifically, what are the sources of the institution’s income and expenses?
o
The institution’s budget may include, among other items, income from
children’s tuition and meal reimbursement.
o
Does the institution already have sufficient enrollment of children or
enough sponsored centers or DCHs to support the expenses it has
included in its budget? If not, has the State agency judged it a reasonable
expectation that the institution will be able to do so?
o
Has the institution correctly determined the amount of reimbursement it is
likely to receive on a monthly basis (number of children identified or
estimated to be eligible for free, reduced-price or paid meals multiplied by
the number of meals it expects to claim)? If not, the State agency may
provide technical assistance and determine the institution’s level of skill in
developing a realistic budget and whether these sources of income are
likely to support the institution’s operation on a daily basis.
o
Has the institution identified the numerous expenses of operating a
business beyond those of food service; such as, property taxes and
insurance, salaries, licensing and building maintenance, and childcare
supplies? Again, the State agency can use this information to determine if
the organization has the skills and information needed to maintain a
financially viable child care institution.
There are sufficient recruitment opportunities to support approving an additional
institution’s participation. If the applicant is a sponsoring organization, the State agency
is also required to ensure the sponsor has acceptable recruitment policies and it is not
simply recruiting from other sponsoring organizations.
There are adequate resources to pay employees during periods of temporary
interruptions in CACFP payments (with non-Program funds);
Guidance for Management Plans and Budgets
Page 13
There are adequate resources to pay debts when fiscal claims have been assessed
against them (with non-Program funds);
The institution can document its financial viability (via audits, financial Statements, etc.);
and
The submitted budget contains costs that are necessary, reasonable, allowable, and
documented.
Performance Standard 2 – Administrative Capability
The new institution must be capable of administering the CACFP. To demonstrate
administrative capability, the new institution must document that it has:
Appropriate and effective management practices in place to ensure CACFP-compliant
operations;
Adequate number and type of staff;
Adequate number of monitoring staff (sponsoring organization);
Written policies and procedures that assign CACFP responsibilities and duties
(sponsoring organization); and
Written policies and procedures that ensure compliance with civil rights compliance
(sponsoring organization).
Performance Standard 3 – Program Accountability
New and participating institutions must have internal controls and other management systems in
place to guarantee fiscal accountability and other CACFP operational requirements. The new
institution must document and guarantee it has:
An independent governing board of directors consisting of a chairperson and members
who are neither related to one another nor the institution director, nor have a personal
financial interest in the institution. For-profit sponsoring organizations are not required to
have a board, so the owner’s accountability will be evaluated;
Fiscal accountability including a written financial system with management controls;
o
Fiscal integrity and accountability for all funds and property, received, held, and
dispersed;
o
Integrity and accountability of all expenses incurred;
o
A system ensuring claims will be processed accurately, and timely;
o
Funds and property are safeguarded and used for authorized CACFP purposes;
and
o
A system of safeguards and controls in place to prevent and detect improper
financial activities by employees.
Guidance for Management Plans and Budgets
Page 14
Recordkeeping systems to account for and retain required Program records; such as,
training documentation, reviews, corrective action, and serious deficiency processes,
etc.;
o
Provide adequate and regular training of sponsoring organization staff and
sponsored facilities in accordance with 7 CFR 226.15(e)(12) and (e)(14);
226.16(d)(2) and (d)(3).
o
Perform monitoring in accordance with 7 CFR 226.16(d)(4) to ensure that
sponsored facilities accountably and appropriately operate the Program.
o
If a sponsor of DCHs, accurately classify DCHs as tier I or tier II in accordance
with 7 CFR 226.15(f); and
o
Have a system in place to ensure that administrative costs funded from Program
reimbursements do not exceed regulatory limits set forth at 7 CFR 226.12(a);
226.16(b)(1); and
Meal service operations comply with CACFP requirements, such as;
o
Provide meals that meet the meal patterns set forth in 7 CFR 226.20;
o
Operate a food service that conforms with applicable State and local health and
sanitation requirements;
o
Comply with civil rights requirements;
o
Maintain complete and appropriate records on file; and
o
Submit accurate claims for reimbursement.
As a way of evaluating VCA, the State agency could review the Board minutes for the three
most recent meetings and determine if CACFP oversight is documented in the minutes [7 CFR
226.6(b)(1)(viii) and CACFP 09-2013, Additional State Agency Requirements, March 29, 2013.]
E. Additional Topics Covered in the Management Plan
Procurement
The management plan is an appropriate document for the
State agency to collect the institution’s procurement
procedures for foods, supplies, equipment, and other
goods and services. Proper procurement procedures are
required on purchases of any amount. Small purchase
procedures are allowed for purchased goods and services
with a total value under $150,000. Competitive sealed bids
are necessary for purchased goods and services with a
total value over $150,000. Each institution must have a
process for each type of procurement.
State and Local
Thresholds
State governments and local
organizations may set
procurement-related
thresholds that are different
than the Federal thresholds.
In these cases, institutions
must follow the requirements
with the lowest threshold.
State agencies are obligated to require all institutions to
follow the procurement provisions established in 7 CFR 226.22 [7 CFR 226.6(j)] or institutions
may use their own procedures for procurement with CACFP funds, however:
Guidance for Management Plans and Budgets
Page 15
Public institutions must comply with State or local laws and standards established in 7
CFR 3016.36,
Private nonprofit institutions must comply with standards established in 7 CFR 3019.40.49,
For-profit institutions must comply with standards established in 7 CFR 3015.180-.184,
See the procurement guidance and trainings offered by the National Food Service Management
Institute and CACFP 01-2013 Federal Small Purchase Threshold Adjustment, October, 10,
2012.
Banking
The CACFP regulations do not require institutions to maintain any specific type of banking
system. CACFP funds may be comingled with other funds in one single bank account or they
may be kept separate from other funds in a segregated bank account. However, if funds are
comingled, the institution and State agency must be able to track CACFP-related income and
expenses separately from other funds.
Support Documents
Submission of supporting documentation is necessary for some elements of the management
plan.
An organizational chart, or similar document, is necessary to determine what positions
are associated with the operation of the CACFP.
Monitoring schedules are needed to evaluate a sponsoring organization’s ability to
conduct reviews.
Training plans are required to demonstrate compliance with specific sponsoring
organization training requirements.
Governing board composition is necessary to determine compliance with performance
standard 3. (For-profit institutions are not required to have a board, so the owner’s ability
to meet performance standard 3 must be documented.)
Written policies such as the institution’s compensation policy will establish consistency in
treatment of similarly-titled staff.
Written procedures are needed to document the institution’s internal control processes.
State Agency Forms
A well-written management plan will provide more detail than simply listing the basic information
required, but instead, will clearly lay out the institution’s methods for meeting Program
requirements. Interrogative management plans elicit comprehensive answers. State agencies’
forms are poorly developed if they simply ask questions that allow yes/no answers. Similarly,
questions that are not answered completely by the institution do not provide the level of
information needed to adequately evaluate the institution. State agencies must follow up with
institutions to ensure that the appropriate level of detail is provided to ensure adequate review of
the institution.
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Best practices include:
Offering a form that collects monitoring FTE information and includes the State staffing
factors, instead of, “List the number of monitors and how many hours they perform
monitoring functions.”
Creating an element in the management plan regarding the institution recordkeeping
practices for review records, banking and fiscal records, board meeting minutes, claim
records and training records, such as where the records are stored, who has access to
the records, etc.
Asking the institution to describe its accounting systems, how they are organized, who is
responsible, and how they are used.
Types of management plans
A State agency may develop one management plan
prototype form that all the institutions’ use, or
develop a management plan prototype for a specific
type of institution, such as:
Independent centers;
Sponsoring organizations of unaffiliated
centers;
Sponsoring organizations of affiliated
centers;
Sponsoring organizations of DCHs;
Multi-Program sponsoring organizations; and
Multipurpose sponsoring organizations
(which sponsor the CACFP and non-CACFP
programs).
Affiliated or Unaffiliated Centers
An affiliated center is part of the
same legal entity as the
sponsoring organization; it is
owned in whole or in part by the
CACFP sponsoring organization.
An unaffiliated center is legally
distinct from the sponsoring
organization.
An example of an unaffiliated
facility may be a Boys and Girls
Club that is sponsored by the local
food bank.
Sponsored centers are considered either “affiliated” or “unaffiliated.”
Part 2 of this guidance covers general requirements for all independent centers and sponsoring
organizations.
Part 3 outlines additional requirements specific to the type of institution.
F. Reviewing & Approving the Management Plan
The State agency should only approve a management plan that includes an adequate response
from the sponsoring organization or independent center. A simple Yes or No to a question
requiring details must be returned for additional information. It is also important to match
responses listed in the management plan with budget and cost allocation plans.
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State agencies are obligated to notify a new or participating institution, in writing, of the
application approval or disapproval, within 30 calendar days of receipt of a complete application
[7 CFR 226.6(b)(3)].
A complete application is one that in which all the necessary information has been submitted for
State agency evaluation.
Best Practice
Include in the written notification of the approved budget, the number of monitoring FTE’s
established at the time of approval. Monitoring FTE’s can fluctuate as the sponsoring
organization adds or reduces sponsored facilities.
G. Revising/Amending a Management Plan
The State agency should include in its written application approval procedures instances when
sponsoring organizations should submit revisions to the management plan. For example, the
State agency’s procedures may require sponsoring organizations to submit revisions during the
year when factors within the management plan change.
The State agency will require a sponsoring organization to revise its management plan when
Program reviews uncover differences in how the sponsoring organization is operating; however,
this is not the preferred method since it is after-the-fact and may signal a lack of administrative
capability of the sponsoring organization to alert the State agency of changes in critical
management functions.
H. Monitoring the Management Plan
The State agency will use a sponsoring organization’s management plan throughout the year as
a living document that can be referred to for information about the sponsoring organization’s
ongoing activity, and certainly during a review to ensure the institution is operating according to
its plan.
Administrative functions outlined in the management will be evaluated as part of a Program
review to determine compliance with requirements outlined in the Monitoring Handbook for
State Agencies CACFP Handbook. Rereading the management plan prior to the review is
critical for informing the State agency monitors’ of what procedures they should find at the
sponsorship. When the monitor knows what to expect, they will more easily recognize variations
in operation outside what the sponsoring organization stated in its management plan and what
the State agency had approved.
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Part 2. Budgets – General Information and Guidance
The purpose of this part is to provide general budget information and guidance to State agency
staff and institutions participating in the CACFP. It further highlights information to consider
when reviewing and approving budgets to ensure fiscal viability and accountability and
compliance with Program requirements. The budget must reflect the institution’s anticipated
needs and financial resources to operate the CACFP.
Once the initial budget has been approved, the institution is expected to adhere to it or to submit
appropriate amendments to the State agency for approval should the need arise. The
institution’s actual expenditures will be submitted to the State agency for review and approval
with the institution’s monthly claim for reimbursement. The State agency will determine what
level of detail is required to be submitted with the claim; such as only the expenditures, or the
expenditures plus receipts. Some State agencies will require receipts only during reviews.
There are five types of institutions that must submit a budget for the State agency’s approval:
Independent centers (as a new applicant and then as the State agency requires);
Sponsoring organizations of DCHs;
Sponsoring organizations of affiliated centers;
Sponsoring organizations of unaffiliated centers, and
Multipurpose and multi-Program sponsoring organizations.
Institutions must submit an administrative budget to include projected CACFP administrative
earnings and expenses and non-Programs funds that may be used in Program administration.
The budget must include sufficient detail for the State agency to determine whether the
expenditures are allowable, necessary, and reasonable [7 CFR 226.6(f)(1)(iv)].
The budget must reflect the institution’s anticipated needs for the coming fiscal year, detail line
item costs, and support allocation of costs. The budget also must identify an adequate level of
funding for all required administrative functions, such as monitoring and training. If budgeted
costs exceed the expected CACFP reimbursement, institutions must indicate how these costs
will be covered with non-Program funds. Based on all of this information, the State agency can
assess whether the institution is financially viable, has adequate financial resources to withstand
temporary interruptions of CACFP payments, and can continue to operate when fiscal claims
are assessed against the institution.
The State agency will establish a method for institutions to identify and budget all costs of
operating the Program including the administrative time spent on claim preparation, and all
required Program paperwork and monitoring activities. In addition to meeting regulatory
requirements, the budgeting process will help the institution learn about the reimbursement
process and how much it will cost them to operate the Program, establish Program revenue,
and identify non-Program revenue sources to pay for unfunded CACFP costs.
Institutions must account for all costs of operation through the consistent application of
Generally Accepted Accounting Principles (U.S. GAAP). State agencies must determine if the
institution is utilizing acceptable accounting practices via the budget and monitoring activities.
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Examples of budget forms are in Part 4 of this guidance; Resources.
A. Costs
1) Allowable Costs
The Federal Government has identified costs that are generally allowable for all institutions that
expend Federal funds. However, due to limitations imposed by CACFP statutory, regulatory,
and policy considerations, some costs that are listed in the fiscal regulations may not be
allowable CACFP costs. Therefore, State agencies must refer to FNS Instruction 796-2, Rev. 4
Financial Management in the Child and Adult Care Food Program, when reviewing an
institution’s expenditures for CACFP reimbursement.
CACFP funds may be used to pay for expenditures that meet FNS’s definition of allowable, are
reasonable and necessary, and have State agency approval. An institution may have costs that
are necessary and reasonable for operation of the institution but are not allowed as Program
costs. Program funds may not be used to cover unallowable costs.
Institutions must include all costs in the budget. The allowable costs must be approved in
advance by the State agency through the annual budget approval process before the institution
can charge them to CACFP.
Once a cost has been determined ‘allowable’, the State agency must then use good judgment to
determine if a cost is ‘necessary’ and ‘reasonable’ for the operation of the CACFP before
approving that cost in the institution’s budget.
Necessary and Reasonable
A cost is allowable when it meets the guidelines of FNS Instruction 796-2, Rev. 4. However, for
purposes of the CACFP, the cost must also be necessary and reasonable. Necessity is
determined by the nature of the activity, while reasonableness is determined by the amount of
the cost. A cost is necessary when the activity or function is:
Generally recognized as ordinary,
Required for the institution to operate the Program, and
Accomplished as part of operating the Program according to regulatory requirements.
A cost is considered reasonable when the amount of the cost reflects what a sensible or
practical person would pay in the same situation. In business, there is sometimes an abundance
of funds so luxuries become the norm, but extravagance is not appropriate for a business
operating CACFP, that is a Federally-funded Program. The costs to the Program must be
reasonable for a publicly-funded Program. These costs are the result of sound business
practice.
EXAMPLES:
1. An independent center cooks food from scratch. The old oven is no longer working
and is not repairable so the center purchased a new oven to cook meals for the
children. This would be a reasonable action. However, if the oven costs $3300 and
the center serves 15 children, this expense is not reasonable.
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2. A sponsoring organization may hire a bookkeeper to handle financial management,
including claim consolidation and submission and disbursement of payments. The
pay rate for the bookkeeper should be reasonable and comparable to what other
bookkeepers providing similar services would receive.
3. A sponsoring organization leases an expensive luxury vehicle to conduct CACFP
pre-approval and monitoring visits. The vehicle is also used to support non-CACFP
functions. The sponsoring organization allocated a portion of the vehicle lease in the
CACFP budget. Although a leasing a vehicle may be a necessary expense in order
to accomplish monitoring visits, the allocated portion of the lease would be denied in
the budget because leasing an expensive luxury vehicle is not necessary or
reasonable. However, the mileage costs for conducting CACFP visits are allowable
as long as proper documentation, such as a mileage log, is maintained.
Additional Requirements for Costs to be Allowable
The use of Federal funds requires a high standard of consideration. In addition to being
necessary and reasonable, costs must meet a number of other requirements. The following
considerations must be made of each cost approved.
Legal under State and Local Law
In order to be allowable, the cost must be authorized or at least not prohibited under Federal,
State or local laws and regulations. Some State or local laws are more restrictive than Federal
laws and regulations and may therefore prohibit certain costs.
EXAMPLE: Some States or local governments/organizations have lower small
purchase thresholds than the current Federal small purchase threshold. An institution
wishing to vend meals or procure other services must make sure it follows the
State/local small purchase threshold if the State/local small purchase threshold is lower
than Federal threshold.
Conform with Federal Regulations
The cost must conform to limits or exclusions, as set forth in FNS Instruction 796-2, Rev. 4 and
Federal laws, or other governing regulations. If a cost is prohibited by the IRS, it cannot be
allowed in CACFP.
EXAMPLE: Personal expenses are not deductible as business expenses under both
the IRS rules and CACFP regulations. On the other hand, car expenses associated with
conducting CACFP reviews are allowable business expenses under all Federal laws,
and reimbursement is based on the actual mileage driven to conduct the reviews.
Consistent Treatment
The cost must be treated consistently through the application of U.S. GAAP principles. This
means the same cost cannot be charged differently depending on the Program to which it is
assigned [FNS Instruction 796-2, Rev. 4 (Section VII A 2)].
EXAMPLE: If an organization pays $0.55 per mile for business travel for the staff that
conducts non-CACFP travel, it cannot claim $0.60 per mile for CACFP business travel.
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Applicable Credits
The cost must be net of all applicable credits. Only the actual cost to the institution can be
claimed; any purchase discounts, rebates, or allowances received, must be credited to the
CACFP either as a cost reduction or by cash refund [FNS Instruction 796-2, Rev. 4 (Section VII
A 3 h)].
EXAMPLE: A sponsoring organization budgets the full cost of 5 boxes of copier ink
cartridges to the CACFP ($100). A review of the sponsoring organization’s invoice for
the supplies shows the cost had been discounted based on the quantity ordered (5
percent discount); therefore, only the actual cost ($95) may be claimed.
Adequate Documentation
All costs charged to the CACFP must be properly documented with receipts, invoices, or
mileage logs, and time and attendance records. Payments made must be documented in bank
statements, registers, and accounting systems. The State agency may identify the specific
documentation it expects based on general business practices.
EXAMPLE: The State agency may require a mileage log be kept by each employee
who is claiming mileage reimbursement. The mileage log requires the dates of each trip,
the origin and destination of each trip, the purpose for each trip, and some method of
determining mileage.
EXAMPLE: If costs are claimed for janitorial services related to the CACFP, invoices
including the hourly rate, time to complete job and total cost must be submitted. This
should be an official invoice on letterhead and cancelled checks, electronic payment
transactions, or paid invoices must be available for review.
Prior Approval
All costs require prior approval before they can be incurred – that is, obtaining the State
agency’s or FNS’ written permission ahead of the expenditure is required. This approval
generally occurs during the State agency’s annual budget-approval process or when the
institution has submitted an amendment to the budget.
EXAMPLE: A sponsoring organization of centers wants to attend a conference devoted
solely to the CACFP. The expenses will include air fares, lodging, meals, and
registration fee. The sponsoring organization must first get permission from the State
agency before making arrangements for the conference. If the sponsoring organization
attends the conference without asking the State agency for approval, the expenses
associated with the conference are unallowable costs and cannot be charged to CACFP.
The sponsoring organization would have to pay for these expenses with non-CACFP
funds.
2) Direct Costs and Indirect Cost Plans
Some costs are easy to identify as directly attributable to the CACFP meal service or
administrative duties. Other costs are difficult to attribute to only CACFP activities because the
costs cover non-Program activities also; these are referred to as indirect costs and require
special approval. Due to differences in activities and accounting practices of institutions, a cost
may be direct in one institution and indirect in another.
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Direct costs are costs that can be easily identified directly to, and only to, the CACFP. Some
examples of allowable direct costs are:
Food service employee salaries when their only function is to prepare CACFP
participants’ meals;
Depreciation or use allowances on equipment used in the nonprofit food service
Program when the only meals are for participants;
Cost of purchased food for use in the CACFP; and
Salaries for an office receptionist when working solely for the CACFP.
Indirect costs are those that are incurred for both CACFP operations and non-CACFP activities
in which the institution may be involved, such as the cost of water and utilities that are on a
shared meter for both the institution’s CACFP and its non-CACFP activities. The institution must
indicate in its budget, what method it will use to determine what portion of the total cost should
be allocated to CACFP.
Allocation is the procedure used to determine the amount or percentage of cost charged to a
particular function/activity or Program, based on the benefits received, not the source of funds
available to pay for the cost. The institution must provide the State agency with the method it will
use to assign or allocate these shared costs.
Some examples of costs that are shared among Programs are:
Depreciation and use allowances on buildings and equipment used for common
purposes;
Costs of operating and maintaining facilities,
equipment, and grounds;
Cost Allocation Differs from
Indirect Costs
Salaries for an office receptionist and central
accounting staff; and
Allocation divides a single
cost by percentage of space
or use.
Payroll services.
Indirect cost rates are
Indirect costs are assigned through an indirect cost rate.
developed by first pooling
An indirect cost rate is developed through a cost
several costs, then dividing by
allocation rate proposal. The cost allocation rate
a considered percentage.
proposal is used to show how costs are allocated
between two or more Programs. The indirect cost rate is
computed by dividing the indirect costs by a direct cost base of allowable and unallowable
costs. Sponsoring organizations must submit a cost allocation rate proposal when indirect costs
are listed in the budget.
EXAMPLE: A Head Start Program operates CACFP. Both the Head Start Program and
CACFP use gas, electricity, water, and payroll services. These costs are shared costs as
they are not directly associated with only one Program, but with both. The institution
must develop a method to assign to the CACFP its fair share of these indirect costs (i.e.,
a portion of the costs). The method used is a cost allocation rate proposal.
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See FNS Instruction 796-2, Rev. 4 (Section VII B & C and Exhibit I) and Part 3, Section D of this
guidance for more information on direct and indirect costs and cost allocation rate proposals.
3) Allocable Costs
Some costs benefit more than one Program or benefit both CACFP and non-CACFP activities.
Only the share of the costs that benefits the CACFP can be assigned as Program costs. In other
words, the cost must be properly allocated across CACFP and non-CACFP activities.
Some costs may be pooled together in a way that the individual expenses cannot be specifically
assigned to the CACFP. Examples may include occupancy fees, telephone, electricity, or data
processing. In these instances, costs must be divided among the various users or Programs
based on their percentage of use. This ‘allocation’ of costs ensures that the CACFP is not
charged more than its ‘share’ of the overall cost.
EXAMPLE: A sponsoring organization of DCHs also acts as a child care resource and
referral agency. The director spends 40 percent of his or her time on CACFP activities
and 60 percent on resource and referral activities, and this is documented through the
time sheet and time distribution report. The director can allocate 40 percent of his or her
salary to CACFP and the rest to resource and referral. Staff that work on both CACFP
activities and resource and referral activities must charge their time according to the
percentage of time spent performing each programs’ activities. Time sheets
documenting time spent on CACFP activities are required.
When space costs are allocated between CACFP and non-CACFP, the actual square footage
used by the Program must be determined. When the space is used by multiple programs, the
space must be prorated by Program time to total time used [FNS Instruction 796-2, Rev. 4
(Section VII B)].
EXAMPLE: A sponsoring organization rents 1250 square feet of office space for $1500
per month. The office space used by Program staff is 750 square feet.
1250 total square feet ÷ 750 Program square feet = 60 percent of total space is
used by Program staff.
$1500 x 60 percent = $900. The Program’s rental space costs $900 per month.
Program staff spends 75 percent of their time working on CACFP duties and 25
percent of their time on non-CACFP activities. The space Program staff use must
also be allocated by Program time to non-Program time.
$900 Program space x 75 percent Program time = $675 Program share to
CACFP.
Therefore, the sponsoring organization can only charge $675 per month to the
CACFP.
See FNS Instruction 796-2, Rev. 4 (Section VII B) for more information on the allocation
requirements. Additionally, there may be instances when a sponsoring organization administers
various aspects of the CACFP. In that case, the sponsoring organization must allocate its costs
between CACFP activities.
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EXAMPLE: A sponsoring organization of both DCHs and unaffiliated centers spends 30
percent of monitoring time on DCHs and the rest of the monitoring time on centers. The
allocated monitoring time for homes would be 30 percent and for centers would be 70
percent. See Part 3, Section D of this guidance for additional information on allocation
plans and the Cost Worksheet in Part 4, Section C for a sample form.
4) Costs Require Prior, Specific Written, or FNS Approval
All expenses claimed by institutions require written approval prior to expenditure. The State
agency will provide its approval in writing. Once the State agency has approved the budget, the
institution may expend funds as presented in the budget. States may accept budget
amendments after the annual budget approval process and should develop procedures for
institutions to submit amendments.
Some expenses require additional levels of approval. In addition to prior approval, cost items
within several budget line item categories require what FNS has termed, “specific” prior written
approval. Additionally, some expenses require FNS approval in addition to State agency
approval prior to expenditure and request for reimbursement. State agencies must have
systems in place to ensure the proper levels of evaluation and approval are provided for
budgeted expenditures.
“Specific” Prior Written Approval
In many cases, a budget category will include numerous expenditures. In some cases, FNS has
required State agencies to identify, evaluate and approve individual line item expenditures
within the budget categories. These are listed in the FNS Instruction 796-2, Rev. 4 (Exhibit I).
When the State agency provides approval for these expenditures, the State agency’s written
approval must identify the ‘specific expenditure’ that is being approved.
For costs that require specific prior written approval, the State agency’s approval of an entire
budget category (such as, salaries) does not constitute adequate specific prior written approval
for these costs.
The State agency must determine portion of travel costs attributable to the CACFP and whether
the cost is necessary and reasonable as a CACFP expense. Regardless of whether this request
has been made within the annual budget or as an amendment, the State agency’s approval
must be in writing and specify the expense item and amount approved. Denial of a cost must
also be in writing and include appeal rights.
Expenses requiring specific prior written approval may not be incurred until the sponsoring
organization has obtained written approval in advance from the State agency of both the total
cost and the amount of the cost that can be charged to CACFP.
When an institution does not request specific prior written approval before incurring the cost, the
cost must be disallowed and will result in a recovery of administrative funds.
Some examples of costs requiring specific prior written approval are:
Smoke detectors and fire extinguishers to enable tier I DCH providers to meet licensing
standards;
Computer hardware and software;
Guidance for Management Plans and Budgets
Page 25
Equipment purchases and repairs;
Professional crisis intervention counseling related to participation in CACFP;
Most employee incentive payments and awards; and
Severance payments.
See the sample letter in Section E of this guidance for an example of how the State agency may
provide various levels of approval.
FNS Approval
Some costs require specific prior written approval by both the State agency and FNS. An
example includes the costs of public and nonprofit institutions’ memberships in civic or
community organizations.
Another example includes those transactions that ‘lack independence’, such as those between
related parties. This can include those who are related by blood, family, business and legal
relationships. These are called less-than-arms-length transactions, and all less-than-armslength expenditures require the State agency’s written approval of each specific instance, as
well as FNS’s approval.
EXAMPLE: An institution director who is contracting for legal services must request
specific prior written approval from the State agency if the contract is with his or her
attorney husband. This request for funds is made within the budget by not only the cost
of the service, but the details regarding who will provide the service and their relationship
to the institution’s responsible principals. After the State agency determines that the
expense is necessary and reasonable, the request is forwarded to FNS for consideration
and approval or denial.
Failure to request approval for such costs will make them unallowable and will result in the State
agency’s required recovery of funds.
5) Unallowable Costs
An unallowable cost is a cost that may not be charged to the CACFP or claimed for
reimbursement [FNS Instruction 796-2, Rev. 4 (Section VII A 4)]. The following are examples of
unallowable costs:
Costs that are not a reasonable expense specifically for the CACFP;
Costs that are not necessary for the operation/administration of the CACFP;
Costs that are not approved in the CACFP budget or a budget amendment;
Costs that are not properly allocated between CACFP and other non-CACFP Programs;
Less-than-arms-length transactions that are not properly disclosed and approved;
Alcoholic beverages;
Paying bad debts;
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Entertainment – including amusement, diversion, and social activities, and any costs
directly associated with such costs (such as tickets to shows or sports events, meals,
lodging, rentals, transportation, and gratuities);
Lobbying;
Contracting with the sponsoring organization’s employees, officers or board members;
and
Recruitment incentive payments to employees of a sponsoring organization of DCHs,
either with Program or non-Program money [7 CFR 226.16(m)]. Note: Recruitment
incentives are an unallowable activity, even with non-Program funds. However,
employees can be paid or evaluated on the basis of recruitment activities accomplished.
Since there are instances when the institution will wish or need to make expenditures to support
non-CACFP activities, the institution must use non-CACFP funds to cover those costs.
Paying Overclaims with Program Funds
An “overclaim” occurs when the institution has claimed operational reimbursement, and in the
case of a sponsoring organization’s administrative funds, in excess of what has been properly
earned. When this occurs, the institution must find a non-Program income source to pay any
overclaims and any unallowable costs. Often during the State agency review of the institution,
unallowable cost items are identified and/or meals are disallowed due to non-compliant
recordkeeping practices, such as missing income eligibility forms, missing invoices or receipts,
missing meal counts, or missing attendance records.
The State agency will issue a fiscal action notice to the institution indicating it must repay a
specific amount by a specific date. The institution may not use Program funds to pay the
overclaim. The State agency may allow the institution to repay debt by offsetting the debt from
future claims. If the entire overclaim cannot be offset with one claim, the State agency must
charge interest for the unpaid balance.
EXAMPLE: An overclaim is established in the amount of $234 in administrative
reimbursement and $188 operating (meal) reimbursement. In the next month, the
sponsoring organization earns $1480 in administrative funds and $5600 in operational
funds. The State agency offsets the debt and provides payment in the following
amounts: $1480 - $234 = $1246 and $5600 - $188 = $5412. Because the sponsoring
organization actually spent $1480 on administrative expenses, it must cover the
shortage in reimbursement from other funds.
If a follow-up review is conducted, the sponsoring organization’s records one month
following the debt recovery must show what non-CACFP funds were used to cover the
debt of $234 and $188.
Sponsoring organizations may not use facility funds for administrative expenses, nor may they
use administrative funds for facility reimbursement. Therefore, overclaims may not be paid from
CACFP funds, and additional sources of non-CACFP funding are necessary.
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B. Operating Costs and Administrative Costs
Allowable costs can be categorized as operating costs or administrative costs. Operating costs
are costs for the preparation and service of meals including food, food service labor, nonfood
supplies and food service equipment. Sponsoring organizations of DCHs do not have allowable
operating expenses [7 CFR 226.15(e)(6)(ii)].
The FNS Instruction 796-2, Rev. 4 (Section VII D) limits administrative costs to the institution’s
allowable expenses for planning, organizing and managing the CACFP.
1) Operating Costs
Operating costs represent allowable expenses incurred by an institution in serving meals to
participants under CACFP. Each institution must maintain copies of invoices, receipts or other
records to document operating costs claimed.
Operating Costs - Advertising/Public Relations
Advertising includes expenses related to advertising in newspapers, magazines, radio and
television, direct mail, web pages, trade papers, and similar goods that is specific to the
operation of the food service.
Public relations are activities which are dedicated to promoting the CACFP, such as pamphlets,
news releases, and other information services to inform individuals, groups or the general public
about the CACFP. FNS Instruction 796-2, Rev. 4 (Section VIII I 3) contains a list of allowable
and unallowable advertising and public relations costs.
If advertising and public relations costs benefits Programs other than CACFP, these costs must
be allocated between CACFP and non-CACFP Programs.
Operating Costs - Equipment and Depreciation
FNS Instruction 796-2, Rev. 4 defines equipment as an item of
nonexpendable personal property with a useful life of more than 1
year and an acquisition cost of $5,000 or more per unit. A unit is
defined as all components required to make equipment
operational.
Operating equipment and vehicles and the depreciation
associated with them must be used for the operation of the food
service. Food service delivery vans would be an example of an
operational vehicle cost.
When the equipment is used for CACFP and non-CACFP
purposes, the amount of depreciation must be allocated. Refer to
FNS Instruction 796-2, Rev. 4 (Section VIII I 13 b) for more
information on depreciation.
EXAMPLE: Sponsoring organization A uses an $8,000
used vehicle as their method of transportation to conduct
monitoring of its centers. The anticipated life span of the
used vehicle is 10 years.
Guidance for Management Plans and Budgets
Documenting
Depreciation
All depreciation
charged to CACFP
must be
documented and
property records
must be maintained.
Exhibit D of FNS
Instruction 796-2,
Rev. 4 can be used
to meet the
recordkeeping
requirements.
Page 28
$8,000/10 years =$800 per year depreciation
$800/12 months =$67 per month depreciation
A use allowance may be used in lieu of depreciation when the item was originally purchased
with non-Federal funds and after it has been fully depreciated. A combination of use allowance
and depreciation may not be used. The maximum annual rate for use allowances for buildings
and improvements cannot exceed two percent of the acquisition cost this language is not in the
FNS Instruction 796-2, Rev. 4. For equipment, the maximum annual rate cannot exceed six and
two-thirds percent (62/3 % or 0.066) of the acquisition cost [FNS Instruction 796-2, Rev. 4
(Section VIII 13, d (2)(c) and (3)(1)].
EXAMPLE: Sponsoring organization B bought an $8,000 copier and fax machine with
private funds. The machine is now used for CACFP only. The use allowance that the
sponsoring organization can charge to CACFP is $533 per year.
$8,000 x 0.066 = $528 per year. $528/12 months = $44 per month. The anticipated life
span of the copier new is 3-5 years.
All depreciation claimed for reimbursement must be documented. Property records must
be maintained. Exhibit D. of FNS Instruction 796-2, Rev. 4 can be used to meet the
recordkeeping requirements.
Operating Costs - Food
Food costs include costs of purchasing ingredients for foods that are served to the participants,
sales taxes and delivery fees, minus any rebates or reductions made to the price are always
considered operating costs. All institutions and facilities, other than DCHs and sponsoring
organizations of DCHs, must compute the cost of food or cost per child, per day used in the
Program [FNS Instruction 796-2, Rev. 4 (Exhibit B)]. To determine food costs, use the following
formula:
Estimated Annual Food Cost ÷ # of Days Open/Year = Cost of Food/Day ÷ ADA = Food Cost/Child/ Day
19,500 ÷ 240 days = $81.25 ÷ 25 children = $3.25
Records of the cost and quantity of food purchased, cost reductions and/or rebates, and amount
of food used must be maintained. Required food cost records may include the following:
Procurement documents, including bids and contracts;
Purchase orders;
Delivery receipts;
Invoices;
Canceled checks;
Itemized cash receipts;
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Purchase records;
Cost records for transporting;
Credits, returns and rebates; and
Inventory records.
Operating Cost - Insurance Premiums
Premiums on insurance policies and deductible payments for minimal losses can be charged to
the CACFP. This category does not include life, disability, or health care insurance provided to
individuals, which is part of Labor and Employee Benefits. A description of the insurance
policies showing the type and cost must be on file to support costs claimed. These costs must
be allocated between CACFP and non-CACFP, if they are shared between two or more
programs.
EXAMPLE: Insurance premiums paid on a policy that covers the food service delivery
vans would be an allowable expense.
Operating Cost - Labor (Salaries, Benefits, and Taxes)
Operating labor includes the wages of personnel who prepare the food, serve the meals, clean
up after the meal service, or any other meal service related duties. Labor operating costs also
include prorated salaries that can be attributed to the meal service duties, such as planning,
organizing, and managing the nonprofit food service. Proper documentation, such as timesheets
and payroll records, must be kept in order to claim these costs.
A labor cost is necessary when the activity or function is:
Generally recognized as ordinary;
Required for the institution to operate the Program; and
Must be accomplished to fulfill regulatory requirements for proper and efficient operation
of the Program.
EXAMPLE: A center employs three staff members who work entirely on the meal
service and are not also responsible for other functions of the center. The center can
claim the entire labor cost for these employees. The fringe benefits it pays employees
and employment taxes are also considered part of labor cost.
Fringe benefits include vacation leave, health benefits, insurances and retirement benefits for
CACFP staff. The employer's share of Federal, State and local employment taxes, such as
Social Security withholding tax and State unemployment taxes, are allowable as an operating
cost [FNS Instruction 796-2, Rev. 4 (Section VIII I 23)].
Unallowable labor costs include:
Compensation that is inconsistent with the institution’s written compensation policy;
Retroactive salary or wage increases;
Compensation based on the number of homes recruited;
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Noncompliance with Federal and State employment compensation or taxation
requirements; and
Labor costs that are not determined and documented in accordance with U.S. GAAP
and FNS Instruction 796-2, Rev. 4 (Section VIII 23 b).
Operating Cost - Membership, Subscriptions, and Dues
This category includes membership costs in civic, business, technical, and professional
organizations, and subscriptions to professional and technical periodicals. See FNS Instruction
796-2, Rev. 4 (Section VIII I 23 and 29 a and b) for allowable and unallowable costs.
EXAMPLE: The subscription cost to a professional food service magazine is an
allowable CACFP expense.
Operating Costs - Non-Food
There are non-edible supplies necessary to operate the CACFP meal service. The institution
must document the costs of these items with receipts and invoices. Allowable non-food supplies
may include:
Paper goods (napkins, forks and spoons);
Cleaning supplies used directly for the food service operation, such as chlorine bleach,
sanitizer, cleanser, and dish detergent;
Food storage supplies, such as aluminum foil and plastic containers;
Small kitchen supplies, such as serving utensils, eating utensils, trash cans for the
kitchen, pots and pans, and small microwave ovens; and
Expenses related to the delivery of meals to facilities, such as coolers and mileage
expenses for food delivery.
EXAMPLE: A sponsoring organization prepares meals for all its centers and its delivery
van travels a total of 410 miles a day to deliver food to all of the centers. The
transportation cost is an allowable CACFP operating cost.
Operating Cost - Services
Allowable CACFP rental costs are lease fees for space, facilities, vehicles and equipment used
in the operation of the food service; e.g., an office in the cafeteria for the food service
supervisor. If his or her duties include both food service preparation and service (operational
function) and claim consolidation (an administrative function) the cost of the space must be
allocated between operating and administrative accounts.
The following apply when determining the allowable costs of any rental:
A bona fide rental arrangement must exist between the institution and lessor;
The rental must be properly procured;
Rental costs must be reasonable; and
Rental costs must be allocated between Program and non-Program use.
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An institution may not include in its budget for CAFCP reimbursement, a rental fee for space,
equipment or vehicles when the item is owned by the institution; however, the institution may be
able to claim depreciation. An institution cannot claim depreciation and a lease fee for the same
item.
Some leases require the State agency’s specific prior written approval:
An example would be less-than-arms-length transaction leases. A less-than-arms-length
lease is when one party to the lease is able to control or substantially influence the
actions of the other party. Some examples of less-than-arms-length leases are:
o
Leases between the institution and a director, trustee, officer or employee of the
institution;
o
Leases between the institution and a family member of a director, trustee, officer
or employee of the institution; and
o
Leases between divisions of an organization [FNS Instruction 796-2, Rev. 4
(Section VIII I 34 a)].
Utilities such as electricity, gas, water, sewer, and etc. in the budget, which are not
included in the office lease or rental agreement. If the utilities are shared with another
Program, allocate the portion of the utility costs applicable to the CACFP.
Communications related costs are telephone, telegrams, fax, license fees for electronic
mail software, Internet services, postage and messenger services. These costs must be
allocated between CACFP and non-CACFP use if they are shared with other Programs.
See FNS Instruction 796-2, Rev. 4 (Section VIII I 8) for more information.
Contracted services include equipment, janitorial, trash pick-up or other services. Costs
for these services require prior approval or specific prior written approval from the State
agency, depending on the type and nature of the services to be purchased. See FNS
Instruction 796-2, Rev. 4 (Section VIII I 34 a 1 and 2) for additional information.
These costs must be allocated between operational and administrative accounts if the costs
support both operational and administrative functions, and between CACFP and non-CACFP
use if they are shared with other Programs.
Operating Cost - Training
All staff with CACFP duties must be trained annually on Program requirements. The following
are allowable costs for training child or adult care center staff with State agency prior approval:
The cost of substitutes for child or adult care center employees required to attend
training conducted during the center’s established hours of Program operations; and
Travel and transportation costs that meet the requirements of FNS Instruction 796-2,
Rev. 4, for child or adult care center employees required to attend training.
Refer to FNS Instruction 796-2, Rev. 4 (Section VIII I 30) for allowable and unallowable training
costs.
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Operating Cost - Travel
An operational cost for travel would include expenses for cooks to attend food service training.
Documentation must be maintained in order to charge travel costs to CACFP [FNS Instruction
796-2, Rev. 4 (Section VIII I 30 a 2)]. Travel records include time logs, mileage logs, date,
purpose of travel, destination, and name of individual traveling.
EXAMPLE: A child care center employs five food service employees and they are being
sent to a one-day training on nutritious cooking techniques. The training is scheduled to
take place from 8:00AM – 5:00PM, which are the center’s operational hours. The
employees will drive about 180 miles to the training site. Because of the distance and
timeframe, they are requesting overnight expenses for one night including meals and
mileage. These are allowable as Travel Expenses if they meet the test of
reasonableness. The registration fee is allowable as Participant Training.
2) Administrative Costs
Administrative costs are expenses incurred by an institution in planning, organizing, and
managing CACFP. These costs may include labor for management, fringe benefits, traveling,
and other costs necessary to manage and implement the Program [FNS Instruction 796-2, Rev.
4 (VII D 2)].
Administrative Cost – Advertising / Public Relations
Advertising media includes newspapers, magazines, radio and television, direct mail, web
pages, trade papers, and similar goods; e.g., a sponsoring organization of an at-risk afterschool
centers sending postcards to all of the families in the area to advertise the availability of free
afterschool meals.
Public relations are activities which are dedicated to promoting the CACFP, such as pamphlets,
news releases, and other information services to inform individuals, groups or the general public
about the CACFP.
EXAMPLE: A sponsoring organization of centers budgets $250 to print pamphlets
containing information about CACFP and plans to pass them out at the local churches.
This cost is allowable if the cost is reasonable based on the number of flyers, etc. If the
content were not 100 percent CACFP, the cost must be allocated.
FNS Instruction 796-2, Rev. 4 (Section VIII I 3) contains a list of allowable and unallowable
advertising and public relations costs that are specific to administering the CACFP. If advertising
and public relations costs benefit Programs other than CACFP, these costs must be allocated
between CACFP and non-CACFP Programs.
Administrative Cost – Day Care Home Licensing Expenses
Administrative funds may be used to assist unregistered or unlicensed DCH providers to comply
with licensing standards and meet the requirements of 7 CFR 226.16(k). Sponsoring
organizations must have specific prior written approval from the State agency prior to incurring
licensing expenses. Eligible DCH providers may receive one-time assistance of up to $300 for
smoke detectors, fire extinguishers, fire and safety inspection costs, or licensing fees. Refer to
FNS Instruction 796-2, Rev. 4 (Section VIII I 12) for additional information.
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Administrative Cost - Equipment and Depreciations
Equipment is an item of nonexpendable personal property with a useful life of more than 1 year
and an acquisition cost of $5,000 or more per unit. A unit is defined as all components required
for the equipment to be operational. For example, in order for the copier to work it must contain
an ink cartridge, so that defines the “unit” [FNS Instruction 796-2, Rev. 4 Glossary].
Depreciation is the expense associated with the use of equipment, vehicles and facilities. This
involves costs associated with physical deterioration and loss in value of equipment.
Depreciation is based on acquisition cost and the life expectancy of the asset. Depreciation may
be claimed as an allowable administrative cost. Donated equipment may not be depreciated.
The cost of depreciation for idle or obsolete equipment is unallowable. When the equipment is
used for CACFP and non-CACFP purposes, the amount of depreciation must be allocated.
Refer to FNS Instruction 796-2, Rev. 4 (Section VIII I 13) for more information on depreciation.
A use allowance may be used in lieu of depreciation when the item was originally purchased
with non-Federal funds and after it has been fully depreciated. A combination of use allowance
and depreciation may not be used for an asset, with some exceptions. The maximum annual
rate for use allowances for buildings and improvements cannot exceed two percent of the
acquisition cost. For equipment, the maximum annual rate cannot exceed six and two-thirds
percent of the acquisition cost [FNS Instruction 796-2, Rev. 4 (Section VIII 13 d (2)(c) and
(3)(b))].
Administrative Costs - Insurance Premiums
Premiums on insurance policies and deductible payments for minimal losses can be charged to
the CACFP. This category does not include life, disability or health care insurance provided to
individuals. A description of the insurance policies showing the type and cost must be on file to
support costs claimed. These costs must be allocated between CACFP and non-CACFP if they
are shared with other Programs. Refer to FNS Instruction 796-2, Rev. 4 (Section VIII I 21) for
additional information.
Administrative Cost - Labor (Salaries, Benefits, and Taxes)
Administrative labor costs include salaries and fringe benefits paid to staff that perform
administrative duties. Allowable labor costs include the
employer’s share of Federal, State, and local employment
taxes such as Social Security withholding tax and State
Salary Information
unemployment taxes. Fringe benefits include vacation
leave, health benefits, life and disability insurances, and
Reference: Bureau of Labor
retirement benefits for staff. Refer to FNS Instruction 796-2,
Statistics (http://www.bls.gov/)
Rev. 4 (Sections VII D 2, and VIII I 23, and the Q&A under
or the State’s Labor Department
Labor Costs) for additional information.
website.
Salaries or hourly wages are allowable when the rates that
are charged are reasonable for the service provided. The rates charged are reasonable if they
are consistent with rates paid for similar work in the area in which the institution is located, the
years of experience, duties associated with the position, and the range of responsibility.
The following are some examples of administrative labor tasks:
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Reviewing free or reduced-priced applications;
Preparing the monthly claim; and
Conducting CACFP monitoring and training visits.
Administrative labor costs for both salaried and hourly employees must be documented.
Documentation includes:
Time sheets;
Time and attendance reports;
Time distribution records;
Payroll records.
Administrative Cost - Membership, Subscriptions, and Dues
This category includes membership costs in civic, business, technical and professional
organizations and subscriptions to professional and technical periodicals. See FNS Instruction
796-2, Rev. 4 (Section VIII I 29) for allowable and unallowable costs. If the membership or
subscription benefits Programs other than the CACFP, these costs must be allocated between
CACFP and non-CACFP use.
EXAMPLE: Using proper small purchase procedures, an independent center purchases
an annual membership to the local Club Store.
With prior approval and a cost allocation plan to estimate CACFP costs and non-CACFP
costs (diapers, snacks food for employees, etc.), the allocated cost of the membership is
allowable.
Administrative Cost - Services
Administrative offices and costs associated with their care and maintenance (not decoration or
improving) are allowable, if reasonable. Allowable expenses may include office space rental,
utilities, maintenance, janitorial services, telephone service, and contracted services.
EXAMPLE: A sponsoring organization of centers rents office space for its operation of
CACFP. The State agency can approve this expense when there is a rental agreement
and the rental cost is reasonable.
If office space is shared by more than one Program, the institution must prorate the costs and
charge only the CACFP portion to the CACFP budget. In addition, the institution must document
the method used to calculate costs charged to the CACFP. See Rental Costs in FNS Instruction
796-2, Rev. 4 (Section VIII I 17 and 36) for additional information.
EXAMPLE: A store front houses a child care center and a resource and referral agency.
Both share the monthly rent of $2,000 for a total of 1,600 square feet. Each Program
occupies half of the 1,600 square feet. The center must calculate the percent and
monthly cost allocated to CACFP which is $1,000 (50 percent of the total rent) and 800
square feet (50 percent of the total square feet) for its CACFP share.
Some leases, including those that involve a less-than-arms-length transaction, require State
agency specific prior written approval. A less-than-arms-length lease is when one party to the
lease is able to control or substantially influence the actions of the other party.
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EXAMPLE: A sponsoring organization leases administrative offices in a building owned
by the mother of the sponsoring organization’s owner. The sponsoring organization must
disclose this fact with the State agency and obtain State agency and FNS approval prior
to entering into a lease contract.
Some leases include utilities, some do not. The institution should include utilities, such as
electricity, gas, water, sewer, in the budget when they are not already included in the office
lease or rental agreement. If the utilities are shared with other Programs, the portion of the utility
costs applicable to the CACFP must be allocated. The method of prorating all utility costs must
be documented through the cost allocation plan.
EXAMPLE: An adult day care center shares an electrical meter with an adjacent
business (a dry cleaner) that shares the building. The center and its neighbor must
determine how the electrical costs will be allocated based on square footage or possibly,
the electrical usage based on the type of equipment used in each side of the building.
For example, the adult day care center with heating and cooling system and one oven
may have a smaller electrical usage than a dry cleaning business.
Telephones and related communications costs are allowable CACFP costs. This includes cost
incurred for business-purchase cell phones, land lines, faxes, license fees for electronic mail
software, internet services, postage, and messenger services. These costs must be allocated
between CACFP and non-CACFP use if they are shared with other Programs. See FNS
Instruction 796-2, Rev. 4 (Section VIII I 8) for more information.
Costs for certain contracted services, such as office maintenance, accounting services, facility
monitoring services, and translation services require prior approval or specific prior written
approval from the State agency depending on the type and nature of the services to be
purchased. FNS Instruction 796-2, Rev. 4 (Section VIII I 34) has more information on contracted
or purchased services.
Records necessary to support contracted services include contracts, invoices, receipts, and
cancelled checks. An institution that hires contractors to conduct training sessions for its DCHs
and centers must have the above documentation to support costs charged to CACFP.
Examples of allowable contracted services include:
Food equipment rental;
Vended meals;
Trash service related to the CACFP;
Janitorial service related to the CACFP; and
Insect and rodent control services.
Administrative Cost - Training
All staff with CACFP duties must be trained annually on Program requirements. The following
are allowable costs, with State agency prior approval:
Room rental fees;
Fees for speakers when the presentation is directly related to Program requirements;
Costs of child care services provided for center personnel attending the training;
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Costs for meals and nonalcoholic beverages served to participants but not to guests,
when Program training is presented concurrent with the meal service;
Materials and supplies that are not included in Materials and Supplies or Publication,
Printing or Reproduction Costs line items; and
Costs incurred for minor amounts of time spent on participant training on nonprogram
requirements or subjects when the costs are incidental to Program training and not
otherwise unallowable.
Refer to FNS Instruction 796-2, Rev. 4 (Section VIII I 30) for allowable and unallowable
administrative training costs.
Administrative Costs - Travel
Administrative travel costs are expenses for transportation, lodging, subsistence and related
costs associated with attending training, conducting monitoring reviews, etc., for the CACFP. All
travel costs require the State agency’s prior approval. Allowable travel costs may include:
Mileage allowances paid to the traveler;
Commercial air, train, and bus fare;
Public transit costs;
Registration fees;
Rental car; and
Parking fees.
Travel insurance and parking tickets and fines are example of travel costs that are unallowable.
Travel costs can be paid using a mileage rate, per diem or actual expenses, depending on the
type of travel and the method normally used by the institution.
Documentation must be maintained in order to
charge travel costs to CACFP [FNS Instruction 7962, Rev. 4 (Section VIII I 30)]. Travel records include
time logs, mileage logs, date, and purpose of travel,
destination, and name of individual traveling.
Refer to FNS Instruction 796-2, Rev. 4 for detailed
information on allowable and unallowable costs.
Other references include 2 CFR 230 and 2 CFR 225.
C. Income / Funds
Details within a Line Item
If the budget lists “Conferences:
$2,000”, the institution must also
provide specifics such as, which
conferences, how the conference
relates to the CACFP, agenda,
number of staff attending and
registration fees.
Sources of funding can vary by organization type, size, and structure. In addition to the
reimbursement from CACFP, some institutions fund their operations from tuition fees and fundraising activities, while some institutions may have other funding streams generated by activities
outside of the CACFP. The State agency can verify other sources of income through financial
audits, financial or tax reports, etc.
Program Income is the gross income generated from activities supported by the CACFP. When
costs are incurred to generate the Program income, these costs may be subtracted from gross
Program income if the costs were not charged to the Program. In other cases, income comes
Guidance for Management Plans and Budgets
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into the Program. Regardless of source, all of these types of income must be maintained in the
nonprofit food service account and be used for only approved costs:
Participant payments for meals in pricing Programs;
Payments for adults’ meals in child care centers when the cost is not deducted from
operating costs;
Revenue from non-Program activities when separation of Program and non-Program is
inappropriate;
Proceeds from the disposition of real and nonexpendable personal property acquired
with FNS funds. The CACFP portion of the sale of the asset will be refunded in the same
proportion as its participation in the cost;
EXAMPLE: Equipment or assets purchased with CACFP funds may be sold or
donated, but the resulting funds or credit, etc. must be credited to the Program.
Royalties and income earned from sale of licensing of copyrighted work developed
under the Program;
Cash donations earmarked for use in the Program food service [FNS Instruction 796-2,
Rev. 4 (IX D 6 a)];
Interest earned on advance administrative or meals service funds that can be retained;
Funds committed by the institution to the Program;
Funds received for Program food services activities from any other Federal, State,
intermediate or local government source; or
Funds received from the sale of unused of unneeded supplies purchased with Program
funds [FNS Instruction 796-2, Rev. 4 (IX D 6 b)].
The following items are always excluded as Program income:
Internal transfers of funds, to meet cash flow needs, between components of the same
institution; i.e., agencies of the same government or divisions of an institution pursuant
to the institution’s written funds management policies;
Bona fide third party short term loans to meet cash flow needs;
Revenues raised by a public recipient under its governing powers (a county that raises
funds for general county expenses and that also sponsors centers);
Interest earned on CACFP advance funds that must be returned to the State agency; or
Income generated from non-Program functions and activities, such as, fundraisers held
by non-CACFP staff and advertised as raising funds for expenses that are not related to
the CACFP.
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EXAMPLE: Sales of the children’s’ art work to raise funds for art supplies would
be excluded as Program Income.
Best Practice
The State agency may wish to design its budget forms in a manner that institutions must
report non-CACFP income and/or expenses separately from the CACFP income and/or
expenses.
In this way, the State agency will have the necessary information to verify there are nonCACFP funds available for use in supporting the CACFP, but its approval of the CACFP
budget can be easily communicated with the institution, without confusing Program
income/expenses with non-Program income/expenses.
D. Evaluating the Budget
FNS Instruction 796-2, Rev. 4 requires all budgeted costs be sufficiently documented so the
State agency may evaluate costs and estimated amounts as allowable. State agencies need
payment schedules, cost allocation plans, contracts for services, etc., in order to make their
determination of necessary and reasonable for the CACFP. Once the State agency approves
the budget, the institution can have confidence it will receive reimbursement for Program
expenditures.
Cost Allocations
If the sponsoring organization of DCHs is part of a multipurpose or multi-State organization, its
cost allocation plan must be carefully reviewed as part of the budget review process. For more
information on how to review cost allocation plans, please see Part 3, Section D of this
guidance.
Prior Approval / Specific Prior Approval
Several costs that are claimed by sponsoring organizations of DCHs require additional special
approval from the State agency or FNS before the budget can be approved. Please see Part 2,
Section D on General Budget Approval Information for additional guidance regarding these
costs.
Less-Than-Arms-Length Transactions
According to FNS Instruction 796-2, Rev. 4, a less-than-arms-length transaction is defined as
one under which one party to the transaction is able to control or substantially influence the
actions of the other(s). Such transactions include, but are not limited to, those between:
Divisions of an organization;
Organizations under common control through common officers, directors, or members;
and
An institution and a director, trustee, officer, key employee of the institution or immediate
family, either directly or through corporations, trusts or similar arrangements in which a
controlling interest is held.
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Institutions are responsible for disclosing any less-than-arms-length transactions that are part of
its administrative budget. The State agency must review all less-than-arms-length transactions
to ensure that the amount of cost involved in the transaction is not greater than it would be had
it been procured through an arms-length transaction. All less-than-arms-length transactions
require specific prior written approval from the State agency.
As part of the budget review, the State agency should also be aware of any possible unreported
less-than-arms-length transactions. If the State agency suspects that the sponsoring
organization failed to disclose a less-than-arms-length transaction, it should request further
documentation from the sponsoring organization to ensure that all potential less-than-armslength transactions are properly reported.
Unallowable Costs vs. Unapproved Costs
When a State agency finds that CACFP funds have been used to pay for an unapproved cost,
the State agency must disallow the cost. Even if the expenditure would have been allowable
had it received prior approval, the cost becomes an unallowable cost. The State agency can
either request that the funds be returned to the State agency or off-set future payments; either
of these actions is appealable.
Allowable but Unfunded Costs
The CACFP is intended to supplement overall Program expenditures rather than cover the
entire cost of the Program. As a result, institutions must have additional funds to cover costs
that the CACFP reimbursement does not cover. This difference is typically bridged by tuition,
fundraising efforts, and/or other government funding received by the institution. The budget
must identify how the unfunded costs will be covered and details about that source so the State
agency may determine the viability of the CACFP when it is expending more than it earns on a
routine basis.
EXAMPLE: A sponsoring organization spends $80,000 on food and food service labor at its
central kitchen to prepare all of the meals for its sponsored facilities. The reimbursement
earned is $62,000 per year. The difference of $18,000 ($80,000-$62,000) is unfunded by the
CACFP, but is a real cost that the sponsoring organization must fund. This represents an
allowable cost; however it is unfunded and therefore must paid for with non-CACFP funding.
The $18,000 unfunded cost for food service labor should still be included in its budget since
it is a CACFP cost. Additionally, the budget will include the unfunded amount and how the
costs will be covered with non-Program funds in order to maintain the sponsoring
organization’s fiscal integrity.
E. Approving / Denying a Budget
Before approving an institution’s budget, the State agency must ensure that the budget has
enough information to allow the State agency reviewer to determine the allowability of all
budgeted costs. If at any point the State agency reviewer is less than confident that all budgeted
costs are allowable, more information should be requested from the institution. There will be
instances when the State agency staff will need to question the institution about a cost item or
the value of a cost item.
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EXAMPLES:
The food costs seem low,
A contracted service is listed without supporting documentation, or
The wages for operational staff seem too high or low for that institution.
The State agency may negotiate with the institution to change these questionable figures in the
budget. If the institution refuses to change the figure or provide the appropriate documentation,
the State agency must not approve (deny) that portion of the budget.
In addition, the State agency reviewer should pay special attention to the allowability of any
disclosed less-than-arms-length transactions.
Disallowance of Individual Costs or Dollar Amounts
During the annual budget approval process, the State agency may disallow certain costs or
dollar amounts that do not meet the criteria for allowability without denying the entire budget.
The State agency must also disallow during the monitoring process, any cost which requires
prior approval or specific written prior approval, but for which appropriate approval was not
obtained.
Proper Notification
The written notice of budget approval or denial must be sent via certified mail, or by electronic
means that allow verification of delivery. If any portion of the budget is denied, the notification
must include appeal rights.
See a sample letter in the Text Box below. If the State’s budget request and approval process is
via an electronic system, there may perhaps be no “letter” of approval issued. Whether the State
agency provides hardcopy or electronic approval of expenses, the communication must be clear
about which expenses are being given State or Federal specific written approval, or prior
approval, and which are being denied. The Best Practice Text Box in Section C of this part
suggests State agencies request that CACFP and non-CACFP income and expenses be
reported in a way that separates these types of expenses so institutions may clearly identify
which expenses they are requesting for CACFP approval.
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Date:
Dear [Institution representative],
The [State agency] has approved the Program Budget for [Name of institution] for the Program
year 2014 (October 1, 2013 – September 30, 2014). Attached is a copy of the approved budget
for your file.
This approval acts as prior written approval to any cost item that was fully disclosed in your
agency’s submitted budget that required such approval per FNS Ins. 796-2, Rev. 4. This
includes 5 monitoring FTEs. Written approval is given to the following expenses that require
specific approval.
Request for travel costs of $4500 for the State agency’s annual training for [Names].
Request for travel costs of $1450 for the CACFP portion of the tri-State training on the
Serious Deficiency process.
Request for the contracted janitorial service for $400/month for the ABC day care center.
All documentation to support said costs must be retained in your agency’s fiscal year 2014
budget file.
Unallowable Costs:
The request for the cost of Child Care Theory Now, an educational publication, is denied
as an unallowable cost since it is a resource for education and curriculum rather than the
CACFP’s food service.
The costs for the Child Care Educational Meeting were provided as requested since your
organization administers this Meeting as a fundraiser in addition to, but outside of the
routine child care center meal activities. Though these expenses are unallowable for
CACFP reimbursement, they were provided to document additional costs of ABC’s nonCACFP activities. Review of this information during the budget approval process allows
the Department of Education-CACFP to appropriately determine, using all fiscal sources
possible, whether the CACFP is financial viable.
Appeal rights are enclosed for the denied costs. Any costs charged to the Program are
subject to review, and claiming any of these unapproved costs after receiving this letter,
demonstrates a lack of fiscal integrity by the sponsoring organization.
If you have any questions regarding this budget approval please do not hesitate to contact me
directly. Thank you for implementing Program integrity through the budgeting process.
Sincerely,
State agency representative
Enclosure: Appeal Procedures
Guidance for Management Plans and Budgets
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F. Revising or Amending Budgets
At any point after the budget is approved, the
organization may submit revisions or amendments to
the budget for State agency approval. The State
agency should follow its own procedures for
approving or denying amendment requests. An
organization is prohibited from spending CACFP
funds in accordance with the amended budget until
the amendments have been reviewed and approved
by the State agency.
Remember
Cost increases submitted in a
budget amendment are not
allowable Program costs until the
amendment is approved.
Budget Revisions Required of Sponsoring Organizations
The following are examples that require the submission of
a revised budget:
Best Practice
Since the State agency has
the authority to establish
budget revision procedures, it
can establish a line-itemchange threshold in its budget
revision procedures; such as
10 or 15 percent.
Changes to salaries and/or benefits, equipment,
travel, consultant and/or contract services;
Line-item increases or decreases in dollar amount;
When participation increases or decreases (based
on the State agency’s established threshold);
When the number of facilities (homes or centers)
decreases or increases (based the State agency’s
established threshold); and,
When an institution changes from self-prep to
vended meal service (i.e., a center that used to
prepare its own meals now purchases the meals from a food vendor).
When a line item expense
increases or decreases by the
established threshold, the
institution is required to submit
a budget revision.
G. Review of Fiscal Records
When reviewing expenditures, the State agency should ensure that each item that is paid for
with CACFP funds has been approved in the budget. The State agency will also review the
sources of verification for the expenses. These can include receipts, bills, invoices, time logs,
mileage logs, etc. Additionally, the State agency should verify that all food money is being
disbursed to the sponsored facilities and is not being used for administrative costs.
The State agency may collect administrative costs monthly along with claim information. This
allows the State agency to monitor actual expenses as compared to projected expenses on the
approved budget. Any administrative expense that is submitted with the monthly claim must
have been part of the approved budget, or the expense must be disallowed.
If source documents (invoices, etc.) are not reviewed on a monthly basis with the claim, the
State agency will analyze the institution’s financial records on its on-site Program review to
ensure that all administrative reimbursement is being spent in accordance with the approved
budget. A special analysis will be conducted of contracts and leases to ensure that there are no
undisclosed less-than-arm-length transactions among the expenditures. Other documents that
have not been provided to the State agency as part of the monthly claim review process can be
Guidance for Management Plans and Budgets
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reviewed while on-site. Refer to the Monitoring Handbook for State Agencies CACFP Handbook
for detailed monitoring instructions.
Corrective Action, Disallowance of Costs, and Serious Deficiencies
If any discrepancies are found during any part of the Program review, the State agency must
require the institution to take corrective action in order to address the issues and the State
agency must take fiscal action if CACFP funds have been misspent. If a review of a sponsoring
organization’s expenditures reveals costs that were not approved in the administrative budget,
these costs must be disallowed and an overclaim for the amount must be assessed.
In severe cases, where the institution is unwilling or unable to properly expend and document
expenditure of administrative costs in accordance with the approved budget, the State agency
should utilize the serious deficiency process. Refer to the Serious Deficiency, Suspension, and
Appeals CACFP Handbook.
H. Questions and Answers
1. Is the cost of hiring an accounting firm to perform required taxation accounting an
allowable CACFP cost?
The services of an accounting firm to conduct duties related to State taxation department
is not a requirement for the management of the CACFP. It is a general business
expense to maintain the institution’s nonprofit status with the State and to meet the
State’s tax requirement. Therefore, the payment to an accounting firm for services to
prepare State tax required information is an unallowable cost [FNS Instruction 796-2,
Rev. 4 (VIII I 20)].
2. May sponsoring organizations receive a partial reimbursement for CACFP
business use of an employee’s individual cell phone plan?
No, only the institution’s costs are allowable, not individual expenditures.
3. Is renting space in a private residence allowable?
Yes, when a bona fide arms-length rental exists with an independent third party and the
Program share of the cost is reasonable.
4. A sponsoring organization plans to have a float in a parade promoting the CACFP
and will develop pamphlets to hand out along the parade route, at farmer’s
markets, and at other community events. Is this an allowable CACFP cost?
The parade registration and pamphlets can be considered a CACFP outreach cost. The
CACFP can be charged 100 percent if the float is strictly promoting the CACFP; but
must be allocated if other Programs are being promoted. Another required consideration
is the reasonableness of the amount allowed; the cost allowed as reasonable for
promotions may be much less than the total cost.
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5. A sponsoring organization staff member is interested in improving their public
speaking and training skills. Is the cost of college or technical school an allowable
CACFP cost?
The cost could be a training cost or an employee morale, health and welfare cost or
credit. Whatever category, the institution would need to have a description of the benefit
included in its compensation policies and be available to all similarly-titled employees.
Also, this cost would require specific prior approval from the State agency and there
would need to be adequate funds available. Some costs are allowable costs, however
they end up becoming unfunded as there is not enough reimbursement dollars available
to cover the approved costs.
6. Do any travel costs require approval by the State agency?
All travel costs require prior approval.
7. How is the A-133 Audit cost allocated?
Audits are to be allocated by Program dollars to agency dollars.
EXAMPLE: The CACFP brings cash flow of $250,000 to the institution. The
institution earns $900,000 a year from various Federal and non-Federal Programs it
administers. The cost of the A-133 audit is $4500. To establish the cost to the
CACFP for the A-133 audit, the following calculations are conducted.
$250,000 ÷ $900,000 = 28 percent of the institution’s earnings are CACFP
The Program share of the audit cost is determined by multiplying the cost of the audit by
the percent of the institution’s funds that are CACFP -- $4500 x 28 percent = $1260.
In addition, if the institution sponsors both centers and DCHs, this amount would have to
be further allocated between DCHs and centers based upon the CACFP dollars from
each of the Programs.
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Part 3. Additional Information for Institutions by Type
All sponsoring organizations, regardless of whether they sponsor DCHs, centers, or a
combination of the two, or sponsoring organization of a CACFP facility and a non-CACFP entity,
are required to include additional information in their management plans and budgets. Also,
since these sponsoring organizations operate differently depending on what facilities they
sponsor, there are special considerations that the State agency needs to take into account in
evaluating the management plans and budgets.
See Section E of this part for questions State agencies may wish to ask all applicant sponsoring
organizations to assist the State fully identify what type of organization it is and how it solely
conducts CACFP, or programs in addition to the CACFP. Refer to Part 4, Section C of this
handbook for examples of different budgets and worksheets to expand or support budget
development.
A. Independent Center Budgets
This section provides guidance for State agencies to use in the proper implementation of
regulatory requirements for review and approval of budgets submitted by independent centers
[7 CFR 226.6(f)]. It is important to know something about the character of these types of
centers.
Independent centers have varied enrollment size. Some independent centers have as few as 10
participants enrolled. Some centers care for hundreds of children 24 hours a day and 7 days a
week in shifts. Reimbursement dollars could be small to large depending on the free, reducedprice, paid eligibility mix and enrollment size.
EXAMPLE: Independent center A has 50 enrolled participants; 30 participants
approved in the free category, 15 in the reduced-price category, and 5 in the paid
category. Independent center B also has 50 enrolled participants; 10 participants
approved in the free category, 15 in the reduced-price category, and 25 in the paid
category. Center A will receive more reimbursement than Center B based on the income
eligibility of their participants.
In some cases, the Program reimbursement dollars may not be enough to pay for all of the
Program costs.
EXAMPLE: Independent center Q receives $1500 per month in Program
reimbursement, while its Program costs are $2480 per month. Independent center R
receives $100 per month in Program reimbursement, while its Program costs are $2480
per month. Both of these Independent centers need additional funds to support the
Program costs.
Independent centers must devote adequate funds to food costs. There is no regulatory
requirement for the amount of funds devoted to food costs, but the State agency may set limits
as part of corrective action to improve the quality of meals. To receive reimbursement the
institution is obligated to serve meals that meet the appropriate meal pattern.
When approving the food cost line item it is important to be mindful of the dollars the institution
indicates it is devoting to food costs.
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EXAMPLE: Independent center Y, which is approved to serve breakfast, lunch, and
afternoon snack and has 50 enrolled participants, indicates it will spend $1200 per
month for food. Independent center Z, which is approved to serve morning snack, lunch,
and afternoon snack and has 50 enrolled participants, indicates it will spend $1000 per
month for food. Both centers are self-prep.
50 participants x 3 meals per day x 22 days per month = 3,300 meals per month
Independent center Y is saying it can prepare meals that meet the meal pattern
requirements for a reimbursable meal at breakfast, lunch, and afternoon snack and only
spend $1200 on food per month.
$1200 food costs ÷ 3,300 meals = 36¢ per meal.
Is this a realistic figure for the meal types the center is providing?
The value of the food cost budget line item is questionably low and more information
is needed to approve this budget. The State agency would need to follow-up with this
institution before approving the budget to identify and evaluate any other factors
regarding the food costs. For example, are extensive donated foods available? Are
the donations available on an ongoing basis? What documentation is there to verify
these donations?
Monitoring the Nonprofit Food Service Account
State agencies must develop and implement
a mechanism for independent centers to
document the operation of their nonprofit food
service account. The State agency is
obligated to monitor all institution nonprofit
food service accounts and review supporting
documentation. Each State agency
establishes the value for an excessive
nonprofit food service account balance.
The State agency’s review process can be
annual, conducted during the regular
Program review process, or at a separate
time established by the State agency.
Institutions can be required to submit
documentation electronically, in hard copy, or
through any other established procedure.
Best Practice
State agencies forms for evaluating
nonprofit status should describe
what monitors will evaluate; such
as, the approved budget, claims,
invoices and revenue sources
(CACFP reimbursements, other
funds to cover unfunded Program
expenses, and income to the food
service);
State agencies should establish a
specific timeframe for document
review; such as at, 3 months, 6
months, quarterly or annually.
Refer to Part 4, Section C Nonprofit Food
Service for Centers for a sample form.
Support Documents
The State agency may create a worksheet that each institution will use to demonstrate how the
budget figures were established for their institution. The State agency is responsible for
approving only necessary, allowable, and approvable budget items. The institution must support
its cost items with appropriate documentation.
Guidance for Management Plans and Budgets
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Documentation may include:
Contracts for vended meals;
Contracts for procured services, such as cleaning, etc.;
Salary or wage information; and
Procurement documents for any kitchen equipment purchased.
B. Sponsoring Organizations of Centers
A sponsoring organization of centers assumes the administrative costs and in some situations
the operating costs for the CACFP at sponsored facilities. In this section, all facilities referenced
will be centers, not DCHs. There may be any combination of two or more child care centers, atrisk afterschool centers, adult day care centers, or OSHCCs.
Affiliation
Sponsored centers are considered either “affiliated” or “unaffiliated.” An affiliated center is part
of the same legal entity as the sponsoring organization; it is owned in whole or in part by the
CACFP sponsoring organization. An unaffiliated center is legally distinct from the sponsoring
organization. An example of an unaffiliated facility may be a Boys and Girls Club whose food
service Program is sponsored by the local food bank.
Nonprofit sponsoring organizations may sponsor either affiliated or unaffiliated centers or a
combination of both. For-profit sponsoring organizations may sponsor only those centers that
are legally part of the for-profit organization.
Providing Reimbursement or Meals?
A sponsoring organization of either affiliated or unaffiliated centers may provide meal
reimbursement or the actual meal to its centers.
If a sponsoring organization provides food to its sponsored centers, each month it must
collect from each sponsored facility, documentation to enable it to compile the claim for
reimbursement, such as meal counts, menus and attendance records. If the sponsor
incurs all costs of the meal service then none of the reimbursement will be provided to
the facility.
If the sponsoring organization provides reimbursement to its facilities for the food and
meal service labor and supplies that the sponsored center is providing to participants,
funds must be disbursed to each center within five working days of the receipt of
reimbursement from the State agency [7 CFR 226.16(h)].
Administrative Support
Administrative Rate - 15 Percent or Less
The State agency must not approve a 15 percent cap without evaluating the actual
administrative costs. Should the estimated or historical administrative costs be less than
15 percent, then it would be inappropriate to approve a 15 percent cap. The lessor of the
two would be appropriate.
Guidance for Management Plans and Budgets
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A sponsoring organization may retain a portion of the reimbursement for costs associated with
administering the CACFP. It may retain up to 15 percent of the total CACFP reimbursement
received or the actual net administrative costs incurred
whichever is less. These costs must be included in the
Protecting the Food
CACFP budget.
Service
The amount a sponsoring organization may retain is
calculated and approved in the annual budget; however, it is
generally monitored on a monthly basis against the earned
reimbursement for the meals served to eligible children.
Cash-in-lieu of USDA Foods is not included in the
calculation.
In certain situations a sponsoring organization can submit a
written request to the State agency explaining why additional
funds are required. Refer to Section D of this part, where a
second agency is involved and a waiver is a possibility. The
State agency must limit the costs approved in the sponsoring
organization’s administrative budget to not more than 15
percent of the anticipated reimbursement for the budgeted
timeframe or the amount of the waiver, whichever applies.
There is a concern that
sponsoring organizations
of centers may spend
more on administrative
costs than on food.
The State agency’s review
should investigate how
reimbursements are
disbursed and whether the
food service is supported
appropriately.
A waiver for additional funds may be approved when a sponsoring organization can:
Provide justification that it requires funds in excess of the 15 percent threshold to pay its
administrative costs; and
The State agency is confident that there will be sufficient funding available to provide
eligible meals to participants and the administrative costs are allowable and in
accordance with 7 CFR 226.20.
EXAMPLE: The sponsoring organization of centers is a Head Start with affiliated centers
and it has frequently-used bulk foods sent to each facility on a quarterly basis. Its economy
of scale allows its centers to provide excellent meals at a reasonable cost. The sponsoring
organization’s centers are spread over a large geographic area and have requested more
than the allowable 15 percent for its administrative costs in overseeing all the centers. The
State agency would evaluate menus, meal observation records, and administrative costs to
determine whether to approve a waiver.
Refer to Section D of this part for additional information for a sponsoring organization of centers
that is also sponsoring DCHs and/or operates Programs other than the CACFP. See Part 5,
Section C, Budget - Sponsoring Organization of DCHs and Unaffiliated Centers for a sample
budget form.
C. Sponsoring Organizations of Day Care Homes
The purpose of this section is to provide information and guidance to State agencies regarding
the process for soliciting, approving, and reviewing an administrative budget for a sponsoring
organization of DCHs.
A DCH is defined by 7 CFR 226.2 as an organized nonresidential child care Program for
enrolled children in a private home, licensed or approved as a family or group DCH and under
the auspices of a sponsoring organization. A sponsoring organization of DCHs is a public or
private nonprofit organization that is entirely responsible for the administration of the CACFP in
one or more DCHs.
Guidance for Management Plans and Budgets
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A sponsoring organization is responsible for reimbursing sponsored DCHs for all eligible meals
served to enrolled participants. It is also responsible for all other administrative duties that are
required to comply with all Program regulations. In order to complete its administrative duties, a
sponsoring organization is provided with administrative funds based on the number of active
and claiming DCHs under its supervision. The current administrative payment rates may be
found at http://www.fns.usda.gov/cnd/care/ProgramBasics/Payments/Rates.htm.
Use of Administrative Reimbursements
Sponsoring organizations of DCHs must abide by the cost principles found in FNS Instruction
796-2, Rev. 4. This Instruction covers general allowability of costs as well as the allowability or
unallowability of specific items of cost. Please see Part 2 of this guidance on General Budget
Approval Information for additional guidance regarding the criteria for allowable costs.
According to 7 CFR 226.16(m), sponsoring organizations of DCHs are prohibited from making
recruitment incentive payments to their employees, either with Program or non-Program money.
Projecting Administrative Reimbursement
Each State agency may decide how sponsoring organizations of DCHs should project the
upcoming year’s administrative reimbursement. For a new sponsoring organization, the
projection should be based on a reasonable estimate of the number of DCHs the sponsoring
organization expects to be participating under its auspices in the upcoming year. For a
participating sponsoring organization, the projection should be based primarily on the number of
participating DCHs the sponsoring organization sponsored in the previous year. The projection
could be based on the number of homes claiming for a particular month, it could be based on
the average number of homes claiming over the course of the year, or it could be determined in
a different way. Any method is acceptable as long as the State agency is able to reasonably
anticipate the amount of administrative funds a sponsoring organization will receive.
Carryover from the Previous Fiscal Year
A sponsoring organization of DCHs may carry over up to 10 percent of its total administrative
reimbursement from the previous fiscal year into the current fiscal year. Carryover funds must
be based on the total amount of administrative payments received by the DCH sponsoring
organization during the previous fiscal year. Administrative funds remaining at the end of the
fiscal year that exceed 10 percent must be returned to the State agency. If carryover funds are
not expended in the succeeding fiscal year, the DCH sponsoring organization is required to
return the unused funds to the State agency.
Because the final administrative claims may not be known when the annual budget is submitted
to the State, the sponsoring organization would make its best estimate of the carryover amount
when preparing the annual budget. The estimate should be based on a comparison of the
administrative payments the sponsoring organization expects to receive with the amount of
allowable administrative expenses the sponsoring organization expects to incur. As shown in
the example below, this will yield the 10 percent carryover figure and any amount that must be
returned to the State agency.
EXAMPLE: The fiscal year 2013 budget approved in September 2012, projected costs
of $120,000 and projected carryover of $2000. The final claim for the fiscal year
submitted on November 15, 2013, showed total administrative reimbursement earned in
the amount of $150,000, and actual expenses of $140,000. (Amendments were
approved throughout the year to increase the projected budget of $120,000 to over
Guidance for Management Plans and Budgets
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$140,000.) A budget amendment for 2014 would need to be submitted for a revised
carryover of $10,000; this carryover amount is still under the 10 percent allowed, so no
repayment is needed this fiscal year.
D. Multipurpose Organizations
The purpose of this section is to provide information and guidance to State agencies regarding
the process for soliciting, approving and reviewing an administrative budget for a multipurpose
organization.
New Terms
A multipurpose institution is an organization that operates CACFP and at least one other
community-based program. An example of a multipurpose organization would be an
organization that sponsors DCHs and operates a child care resource and referral service.
In contrast, a multi-Program organization is one that sponsors CACFP DCHs and
centers. The biggest difference between reviewing/approving a multi-Program CACFP
institution and a multipurpose institution is the emphasis on ensuring that all costs are
properly allocated between the Programs.
The emphasis on cost allocation needs to include awareness of the following:
What expenses are shared between multiple Programs, and is CACFP paying more than
its fair share of the cost?
Are CACFP funds being used to pay for any non-Program cost?
Does the budget indicate that non-Program funds will be used to pay for Program costs,
and if so, what is the source of the extra money and how reliable is it?
Often, a State agency does not need to develop a separate and unique budget for multipurpose
organizations. Instead, it must simply ensure that its
budget forms for both sponsoring organizations of
Tip
DCHs and/or centers require the applicant
organization to indicate whether or not it is a
To understand if cost allocation is
multipurpose organization. If an organization
necessary, ask yourself,
indicates that it is multipurpose, the budget form
must allow the organization to properly document
“Is this cost shared?”
that all costs are properly allocated between all of
the organization’s Programs.
If the answer is yes, then the cost
must be allocated.
Cost Allocation
As indicated previously, one goal of a budget for
multipurpose sponsoring organizations is to ensure and document proper cost allocation of
expenses assigned to CACFP. A State agency must be sure that its budget form collects
sufficient information to do the following:
Ensure that CACFP funds only the CACFP portion of any cost that is shared between
the CACFP Program and any other program administered by the institution;
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Show whether the institution plans to use non-CACFP funds to pay for any CACFP costs
and if so, that the non-Program funds come from a reliable source; and
Properly allocate all costs, including separating revenue and expenses for multipurpose
and/or multi-Program institution. The budget form excerpt included below demonstrates
how the institution can organize information regarding how costs are allocated between
Programs.
SALARIES
1 Administrative
2 Accounting
3 Monitoring
4 Training
5 Clerical
6 Food Service
Operational
7 Benefits
SUBTOTAL
Agency
Share
Total
Agency
DHCs
Unaffiliated Total
Centers
CACFP
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(nonCACFP
funds)
Notice how the form has columns for the total agency cost, the specific cost for each
CACFP Program, and the percentage of the cost to be covered by non-CACFP funds.
Using a budget such as this allows the State agency to monitor a sponsor organization’s
cost allocation plan to ensure that CACFP funds are not being used inappropriately.
Indirect Cost Rates
An indirect cost rate is a method of cost allocation used when certain costs cannot be readily
attributed to a specific Program or grant within an institution, but are necessary for the general
operation of the institution. Indirect cost rates can include costs like utilities, general
administrative staff salaries and wages, accounting staff salaries and wages, and any other cost
that is difficult to directly allocate between Programs. Not all multipurpose institutions will
choose to use the indirect cost rate method of cost allocation, however, the State agency’s
prototype budget form should allow the institution to claim an indirect cost rate for CACFP’s
share of general expenses as well as provide an opportunity for the sponsor to document that
the rate was properly determined and applied.
Questions to Ask
The following are examples of questions that the State agency might ask of a multipurpose
sponsoring organization.
What Programs does the organization administer, both CACFP and non-CACFP?
How are costs allocated between the various Programs?
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What is the breakdown of revenue to the organization from all the administered
Programs?
Does the budget include non-Program money being spent on CACFP costs?
Is there an indirect cost rate, and if so, is it correctly determined and applied?
What to Look for in Proper Cost Allocation Plans
When reviewing a proposed budget submitted by a multipurpose sponsoring organization, the
State agency must examine each item of cost to see (1) if cost allocation is necessary and (2) if
so, does the sponsoring organization show proper implementation of an approvable cost
allocation plan. It is important to remember that regulations restrict the items on which Program
money may be spent. The goal of cost allocation is to ensure the CACFP does not pay for more
than its fair portion of shared costs, and that Program money is not spent on any non-Program
costs.
Appropriate Supporting Documentation for Cost Allocation Plans
All costs (including staffing, space and facilities, and all administrative costs) must be properly
allocated between the Programs and paid for with each Program’s available administrative
funds.
The key factor in reviewing and approving cost allocation plans as part of a multipurpose
institution’s budget is documentation. For any cost that is shared between a CACFP and at least
one other Program, the institution must clearly document each item of cost, the total amount
being paid by the organization, the portion of the cost assigned to CACFP, and the method by
which the CACFP portion was determined. The State agency may collect this information in any
way it determines effective, but an example of a chart that would gather all of the necessary
information is included below.
Item Description
Rent
How CACFP Percentage is
Calculated
Total
Cost
Percentage of total square
feet used by CACFP staff
$15,000
CACFP
Percent
CACFP Cost
25 %
$3,750
This chart can be adapted for the situation in which costs are allocated between multi-Program
sponsors: a CACFP sponsoring organization of DCHs’ Program and its centers’ Program.
Below is an example of a possible adaptation.
How
Item
Percentage is
Description
Calculated
Percentage of
FTEs for each
Rent
CACFP
Program
Total
Cost
CACFP
DCH
Percent
CACFP
DCH
Cost
CACFP
Center
Percent
CACFP Center
Cost
$15,000
70 %
$10,500
30 %
$3,150
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Approval and Implementation of Indirect Cost Rates
An indirect cost rate is a type of cost allocation that certain organizations prefer to use in lieu of
the direct cost allocation method. Typically these organizations are large organizations with
many Programs, several of which also require cost allocation. An indirect cost rate allows these
organizations to define a rate of allocation for all costs shared by all of their Programs with one
simple calculation.
If there are certain costs that are only shared between some, but not all, of an organization’s
Programs, these costs must be allocated separately from the general indirect cost rate.
EXAMPLE: A sponsoring organization is housed in a building where four other
businesses are housed. The building’s utilities are metered such that the sponsor and
one other business are on one meter and the other three businesses’ utilities are on the
other meter. Those two meters should not be included in the indirect cost rate since the
sponsor’s meter can be allocated between the sponsor and only one other business.
Which / What is the Cognizant Agency?
According to FNS Instruction 796-2, Rev. 4, (Section VII C 2 b), “An institution cannot use an
indirect cost rate to assign costs to the Program unless the rate has been developed through a
cost allocation plan approved by the cognizant Federal or State agency.”
The cognizant agency concept was developed by the Office of Management and Budget to
simplify relations between Federal grantees and awarding agencies. Under the cognizant
agency concept, a single agency represents all others in dealing with grantees in common
areas. The cognizant agency for nonprofit organizations is determined by calculating which
Federal Agency provides the largest dollar amount of grant funding when funding exceeds 1.5
million dollars. If FNS provides the largest dollar amount of Federal grant funding to a
multipurpose organization, the Federal agency responsible for administering FNS Programs
would be the cognizant agency responsible for developing and approving the indirect cost rate
for that organization.
Acceptable Methods of Defining Indirect Cost Rate
In its most simple form, an indirect cost rate is a tool used to approximate how much multiple
activities within a sponsoring organization benefit from a shared cost through applying a
consistent ratio that is easier to determine than directly allocating each shared cost. The basic
steps of establishing an indirect cost rate are as follows:
Determine the total shared or general cost pool as a percentage of the direct cost pool;
Determine each Programs’ percentage of the pool;
Determining an indirect cost rate is as simple as that. First, the agency needs to identify all
general costs that are shared among all of the Programs. This sum of all of the general costs is
known as the indirect cost pool. Examples of costs that may be included in the indirect cost pool
are:
Depreciation and use allowances on buildings and equipment used for common or joint
objectives;
Costs of operating and maintaining facilities, such as electricity, heat and other utilities;
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Salary of the receptionist and other general support staff; and
Salaries of the central accounting staff.
This list is not all inclusive. Any cost that is shared between all of the Programs administered by
the sponsoring organization and is difficult to allocate directly may be included in the indirect
cost pool.
After the indirect cost pool has been established, the next step is to determine the portion of the
total amount for which each Program is responsible. According to 2 CFR 225 and 230, this is
done by dividing the total indirect cost pool by an “equitable distribution base.” An equitable
distribution base is any standard that the cognizant agency determines to appropriately describe
each Program’s relative benefit of the shared costs. There are several potential equitable
distribution bases, but the most common method of determining an indirect cost rate is
calculating the ratio of the indirect cost pool to the direct cost base.
EXAMPLE: Determining Indirect Cost Rate Using the Direct Cost Base.
Sponsoring organization ABC is a multipurpose organization with a $1,000,000 direct
cost base and an indirect cost pool of $100,000. The CACFP division of the sponsoring
organization accounts for $200,000 of the direct cost base.
The indirect cost rate is determined by dividing the indirect cost pool by the direct cost
base: $100,000 ÷ $1,000,000 = 0.1 or 10 percent. The CACFP’s responsibility for
indirect costs is then determined by multiplying the amount of direct costs allocated to
the Program by the indirect cost rate: $200,000 × 10 percent = $20,000.
Therefore, CACFP is responsible for $20,000 of the indirect cost pool in addition to the
$200,000 directly expensed to the Program.
Proper Application of Indirect Cost Rate in a Multipurpose Organization’s Budget
Once an institution has established an indirect cost rate in conjunction with the cognizant
agency, the next step is to ensure that the indirect cost rate is properly applied in the
organization’s CACFP budget and also to ensure that CACFP is paying only for its fair portion of
the shared costs. The indirect cost rate should be applied consistently across all of an
organization’s Programs. The following is a non-exclusive list of things to check when analyzing
the implementation of an indirect cost rate in a CACFP budget:
The specific cost items included in the indirect cost pool and the total dollar amount of
both the indirect cost pool and the direct cost base should be appropriately documented;
The organization must demonstrate that all of the Programs sharing the indirect cost are
in fact benefiting from the shared expenses;
The organization must explain the equitable base used to determine each Program’s
share;
The budget should demonstrate that that amount of indirect costs being charged to
CACFP reflect the correct percentage of the total indirect cost pool; and
The remainder of the administrative budget should not directly charge CACFP for any of
the items of cost included in the indirect cost pool.
Guidance for Management Plans and Budgets
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Revenue
The State agency’s budget form(s) should also facilitate demonstration that a multipurpose
institution has sufficient revenue to properly administer the Program. The sponsoring
organization’s budget must show that all monitoring, training, and administrative duties will be
met. Often times the sponsoring organization will demonstrate that the allowable amount of
CACFP administrative funds will be sufficient to cover all of the administrative duties. Other
times, a multipurpose institution’s budget will show that non-Program funding will be used in
order to cover all Program costs. Following is an example of a revenue worksheet.
1. Revenue
This budget is based on the anticipated sponsorship
of
CACFP Administrative
Reimbursement Rates
First 50 DCHs
Next 150 DCHs
Next 800 DCHs
Additional DCHs over 800
Projected DCHs and revenue
Estimated
No. of
DCHs/Mo.
by Rate
day care homes (DCHs)
per month.
Rate
No. of
Months
12
12
12
12
Estimate of
Annual Revenue
$
$
$
$
$
-
List Other Sources of Income:
Amount
Total Other Income
$
Estimated Carryover (Max 10percent) from prior fiscal
year
$
TOTAL REVENUE
$
-
Lastly, as part of being financially viable, all multipurpose institutions must show that they have
sufficient non-Program funding to enable them to repay the State agency in the event of an
overclaim. This is required of all institutions, but since multipurpose sponsoring organizations
may have extensive budgets based on several income sources, this element of the CACFP
budget requires the State agency to ensure that a questionable viability of one of the other of
the sponsoring organization’s activities does not put its CACFP at risk, and in fact, that there are
excess funds within the organization to fund CACFP overclaims.
E. Questions to Keep in Mind Regarding Sponsoring Organizations
Some of the following items are useful to ask yourself to ensure you have reviewed items
sufficiently and the questions will help you to evaluate the quality of the budget submitted and
the supporting documentation.
Guidance for Management Plans and Budgets
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1. Is the sponsoring organization a ‘multipurpose’ organization (i.e., does the sponsoring
organization only operate CACFP, or is it part of a larger organization with other
activities such as resource and referral services, and/or Programs such as Head Start,
refer to Section D of this part.
2. If the sponsoring organization is a multipurpose institution, does the CACFP
administrative budget include funds from non-CACFP sources and, if so, are the nonCACFP activities properly identified in the sponsoring organization’s budget [7 CFR
226.6(f)(1)(iv)]?
3. Is the administrative budget less than or equal to 15 percent of projected CACFP meal
reimbursements to sponsored centers for the year [7 CFR 226.6(f)(1)(iv); 226.7(g);
226.16(b)(1)]?
a. If this is a sponsoring organization of centers and the administrative budget
request is greater than 15 percent of the projected meal reimbursement to be
earned by its sponsored centers, does the budget include an alternate source of
funds sufficient to cover the difference between the actual cost and CACFP
supported costs? Has a waiver been requested? If a waiver was requested,
based on the documentation presented, did the State agency’s approval or denial
of the waiver conform to requirements [7 CFR 226.16(b)(1); 226.7(g)]?
b. If the sponsoring organization sponsors both centers and homes, is its total
administrative budget request for both centers and homes equal to or less than
the sum of: the maximum earnings of administrative funds for DCH sponsoring
organizations plus up to 15 percent of the meal reimbursement earned by
sponsored centers [7 CFR 226.12(a)]?
If not, note the budget request and the maximum amount derived from your
calculation. DCH administrative funds may not be used to fund center costs
and vice versa. Briefly identify where administrative funds are being used
improperly (e.g., center administrative funds used to support travel for DCH
monitors, etc.) [7 CFR 226.16(b)(1)].
4. Whether, if applicable, all costs in the administrative budget request are administrative,
not operating, expenses? Note: This is most likely an issue for sponsoring organizations
that provide meals to facilities [FNS Instruction 796-2, Rev. 4 (Section VII D) and 7 CFR
226.2, definitions of Administrative Costs and Operating Costs].
5. Does the budget and management plan demonstrate that the sponsoring organization is
devoting adequate resources to the monitoring of facilities [7 CFR 226.16(b)(1)]?
6. If any costs in the sponsoring organization’s budget require “prior approval” or “specific
prior written approval,” did the sponsoring organization’s budget request properly identify
such costs [FNS Instruction 796-2, Rev. 4 (Section VIII F) and Exhibit I]?
7. Are all costs included in the budget allowable (i.e., reasonable, necessary, etc.) [FNS
Instruction 796-2, Rev. 4 (Sections VII)-(VIII)]?
8. Does the budget provide sufficient line item detail to allow for appropriate oversight (i.e.,
are budget categories like supplies, travel, mailing, or other sufficiently detailed to allow
the budget reviewer to properly determine whether the planned cost was approvable) [7
CFR 226.6(b)(1)(xviii)(A)(3); (B)(3); (C)(3)]?
Guidance for Management Plans and Budgets
Page 57
9. Does the budget include an approved indirect cost rate, if applicable [FNS Instruction
796-2, Rev. 4 (Section VII C 2 b)]?
10. If applicable, was the indirect cost rate properly applied [FNS Instruction 796-2, Rev. 4
(Section VII C 2 b)]?
11. Were costs in the budget properly allocated between CACFP and the rest of the
organization’s activities (i.e., only the share of the costs that benefit the Program are
assigned to CACFP costs) [FNS Instruction 796-2, Rev. 4 (Section VII B-D)]?
12. Are there supporting documents for each budgeted cost [FNS Instruction 796-2, Rev. 4
(Section VII A 3 j)]?
13. Did the sponsoring organization request any budget amendments after the budget was
approved by the State agency [7 CFR 226.7(g)]?
14. If the sponsoring organization requested a budget amendment, was it properly approved
or disapproved in accordance with the State agency’s written policies or procedures [7
CFR 226.7(g)]?
15. Does the sponsoring organization operate in more than one State? If so, the State
agencies associated must network with their FNS Regional Offices to negotiate
allocation plans and gain FNS approval of the budget.
16. Different approval may be needed on some of the sponsoring organization’s cost line
items. In order to get a better understanding if this approval is needed, the State agency
may need to obtain more information regarding the sponsoring organization’s budget.
The State agency could ask an applicant sponsoring organization a number of questions
to better understand how the organization operates and to make knowledgeable
decisions when reviewing a budget. Use this list to stimulate additional ones.
a. Do you own or lease your office space?
b. Is any of the property that the organization leases, rents or is purchasing
currently owned by a party that is related to any employee and/or board member
of the organization?
c. Are the cell phones and cell phone plans being claimed owned or leased by your
organization?
d. Are your employees salaried or hourly? Are any of them exempt from the Fair
Labor Standards Act?
e. What are your purchasing procedures?
f.
What are your accounting procedures?
g. What are your travel procedures?
h. Has the institution formalized its policies in an employee handbook?
i.
Do you contract for any services? Are any of these persons related to any
employees and/or board members?
Guidance for Management Plans and Budgets
Page 58
j.
Do you belong to any civic or community organizations?
k. How will you ensure all duties of the CACFP will be adhered to? (Request copy
of job descriptions for CACFP paid employees.)
l.
How are you going to fund the administrative expenses during interruptions in
Program payments and/or for any unfunded costs?
Guidance for Management Plans and Budgets
Page 59
Part 4. Acronyms and Glossary
CACFP- Child and Adult Care Food Program
CFR – Code of Federal Regulations
DCH – Day Care Homes
FNS – Food and Nutrition Service
FTE – Full-Time Equivalent
IRS – Internal Revenue Service
OMB – Office of Management and Budget
USDA – United State Department of Agriculture
VCA – Viability, Accountability and Capability
U.S. GAAP – Accounting Principles Generally Accepted in the United States of America
Terms used in this handbook are defined in 7 CFR 226.2. Other definitions of importance are as
follows.
Affiliated Center – A center that is a legal unit of the sponsoring organization.
For-profit centers are sponsored by a for-profit sponsoring organization that is legally
affiliated with those centers.
Community Action Program child care centers and Head Start centers are sponsored by
Community Action Agencies and Head Start Agencies, respectively.
Allowable Costs – Costs that occur during the routine operation of CACFP for which Program
funds may be used.
Depreciation – The expense associated with the use of nonexpendable equipment, vehicles
and facilities owned by the institution. Depreciation does not result in a reduction in the cash
balance of an institution. Depreciation allows the recapture of Program funds for equipment
purchases over the life of the asset instead of when the equipment is purchased for assets in
excess of $5000 or less if the State agency has a more conservative definition of equipment.
Direct Costs – Costs that can be identified directly to a Program and/or funding source and
must be charged directly to that Program.
Equipment – An item of nonexpendable personal property with a useful life of more than 1 year
and an acquisition cost of $5,000 or more per unit. When an institution or State agency has a
more conservative definition for equipment, the institution must use that definition. Equipment
costs must be recovered over the useful life of the asset. Refer to Depreciation.
Indirect Costs – Costs that have been incurred for common or joint objectives but cannot be
readily identified or assigned to the food service, CACFP, other institution activities or a
component (administrative versus operating) of the Program [FNS Instruction 796-2, Rev. 4
(Section VII)].
Guidance for Management Plans and Budgets
Page 60
Multipurpose Institution – A new or participation institution that receives funds from multiple
funding sources; i.e., other Federal Programs such as Head Start, State Programs, county or
city Programs, or other Programs that meet the agency mission.
Multi-Program Institution – A new or participating institution that is a sponsoring organization
and operates more than one element of the CACFP, for example is a sponsoring organization of
DCHs and of unaffiliated centers.
Performance Standards - The criterion established by CACFP regulations to document an
institution as financially viable, administratively capable of operating the CACFP, and has
internal controls in effect to ensure accountability.
Unaffiliated Center – Centers that are not a legal unit of the sponsoring organization.
Unallowable Cost – Costs that cannot be charged to the Program or claimed for
reimbursement [FNS Instruction 796-2, Rev. 4 (Sections VII and VIII)].
Guidance for Management Plans and Budgets
Page 61
Part 5. Resources
A. Financial Guidance
FNS Instruction 796-2, Rev. 4 Financial Management in the Child and Adult Care Food
Program
2 CFR Part 225 (formerly Office of Management and Budget (OMB) Circular A-87) Cost
Principles for State, Local, and Indian Tribal Governments
http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title02/2cfr225_main_02.tpl
2 CFR Part 230 (formerly OMB Circular A–122) Cost Principles for Nonprofit Organizations
http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title02/2cfr230_main_02.tpl
Audit requirements are contained in OMB Circular A-133, codified by USDA at 7 CFR Part
3052
http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&SID=5fbdb5345a92108987b835c4e93f5e2c&rgn=div5&view=text&node=7:15.1.
8.2.8&idno=7
7 CFR 3016 Uniform Administrative Requirements for Government-wide Debarment and
Suspension (Non-procurement)
http: //www.gpo.gov/fdsys/granule/CFR-2012-Title7-vol15/CFR-2012-Title7-vol15part3016/content-detail.html
7 CFR 3018 New Restrictions on Lobbying
http://cfr.regstoday.com/7cfr3018.aspx
7 CFR 3019 Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals, and other Nonprofit Organizations
http: //www.ecfr.gov/cgi-bin/text-dx?tpl=/ecfrbrowse/Title07/7cfr3019_main_02.tpl
48 CFR Part 31 Contract Cost Principles and Procedures
http: //www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title48/48cfr31_main_02.tpl
National Food Service Management Institute procurement training modules
http://www.nfsmi.org/Templates/TemplateDefault.aspx?qs=cElEPTIzOA==
B. Memoranda Issued by FNS Relating to CACFP Management Plans and
Budgets
March 29, 2013
CACFP 09-2013 Additional State Agency Requirements
http://www.fns.usda.gov/sites/default/files/CACFP09-2013.pdf
April 8, 2011
CACFP 19-2011 Child and Adult Care Food Program Annual Information
Certification
http://www.fns.usda.gov/sites/default/files/CACFP-19-2011.pdf
October 10, 2012 CACFP 01-2013 Federal Small Purchase Threshold Adjustment
http://www.fns.usda.gov/sites/default/files/SP01-2013os.pdf
Guidance for Management Plans and Budgets
Page 62
FNS Policy Memorandum Website
http://www.fns.usda.gov/cacfp/policy
7 CFR 226 – CACFP Regulation
http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&SID=86570c8e304645e5da8d64b9d778e428&rgn=div5&view=text&nod
e=7:4.1.1.1.5&idno=7
C. Attachments
State examples of documents used to collect sufficient information from institutions to
evaluate planned activities, income, and expenditures will be added to the handbook or
issued on the CNP Partnerweb at a later date.
D. FNS CACFP Handbooks
At-Risk Afterschool
Family Day Care Homes Monitor
Monitoring Handbook for State Agencies
Serious Deficiency, Suspension, and Appeals
Guidance for Management Plans and Budgets
Page 63
| File Type | application/pdf |
| Author | Sarah Powers - ICF |
| File Modified | 2022-03-18 |
| File Created | 2021-07-06 |