Financial Management Procedures, Reports, and Record Keeping

Transcription

1 Financial Management Procedures, Reports, and Record Keeping Nuts and Bolts Wednesday August 2, 2017 Donna McHugh, Resource Management Specialist Office for Food and Nutrition Programs Barbara Kempken, Resource Management Specialist Office for Food and Nutrition Programs USDA Non-Discrimination Statement In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA) civil rights regulations and policies, the USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, sex, disability, age, or reprisal or retaliation for prior civil rights activity in any program or activity conducted or funded by USDA. Persons with disabilities who require alternative means of communication for program information (e.g. Braille, large print, audiotape, American Sign Language, etc.), should contact the Agency (State or local) where they applied for benefits. Individuals who are deaf, hard of hearing or have speech disabilities may contact USDA through the Federal Relay Service at (800) Additionally, program information may be made available in languages other than English. To file a program complaint of discrimination, complete the USDA Program Discrimination Complaint Form, (AD-3027) found online at: and at any USDA office, or write a letter addressed to USDA and provide in the letter all of the information requested in the form. To request a copy of the complaint form, call (866) Submit your completed form or letter to USDA by: (1) mail: U.S. Department of Agriculture Office of the Assistant Secretary for Civil Rights 1400 Independence Avenue, SW Washington, D.C ; (2) fax: (202) ; or (3) program.intake@usda.gov. 2 This institution is an equal opportunity provider. and Secondary Education 1

2 Objectives Review the importance of financial management within school food service operations including effective procedures, reporting requirements and process overall. Learn from hearing some of the better and not-so-good practices from observations in the field over the last two years of reviews 3 Renewed Focus on Financial Management Financial Reporting Requirements New process began SY : Upload your YTD P&L, quarterly Upload your balance sheet annually (end of year) 4 and Secondary Education 2

3 Importance of Financial/Resource Management Federal regulations require State Agencies to ensure School Food Authorities (SFAs) safeguard limited assets and ensure they are used only for authorized school food service purposes Ensures effective and consistent management of program resources Critical to the fiscal and nutritional integrity of school nutrition programs. 5 What is Financial Management as it Relates to Nutrition Programs? The process of defining the program objectives and financial goals for the school nutrition programs, and Implementing activities to attain those goals through the effective use of resources Critical component of a Food Service Director s Responsibilities 6 and Secondary Education 3

4 Financial Management Competencies A school nutrition director competent in financial management develops financial management guidelines that support school nutrition program operational goals and comply with regulations, and establishes cost control goals to effectively manage the school nutrition program. 7 What are the Key Activities for More Effective Financial Management? School nutrition programs should plan through the budget process, apply efficient cost control measures, increase productivity, and identify ways to increase resources. 8 and Secondary Education 4

5 Developing and Analyzing a School Nutrition Budget Why So Important?... Budgets help you to analyze and control revenues and expenditures and can help get everyone on the same page 9 The Budget as a Management Tool Assists in managing the school nutrition program by forecasting revenue, identifying how revenue will be allocated for expenditures, and predicting how much money will be in the fund balance at year s end. 10 and Secondary Education 5

6 Steps To Building A Budget Forecast Revenue for each category Forecast Expenditures for each category Analyze whether goals and objectives are being met make changes 11 Budget Input School district business officials can provide guidance in accounting and business functions. They can also provide details such as school openings and closings, changes in enrollment, etc. Site level managers can provide information concerning participation trends, changes in student eating habits, equipment and labor needs, and other factors that will influence the budget process. 12 and Secondary Education 6

7 Methods of Budgeting Incremental (baseline) Previous year s budget is the starting point. Adjustments made to each line item to reflect expected changes. Zero-Based Start with zero for each line item and build according to expectations. Combination Uses zero for some items and incremental for other items. 13 What are the Financial Management Questions You Should be Asking? Main sources of revenue? Percentage of total revenue attributed to each source? Expenditure categories? Costs to produce a meal? Percentage of revenue spent for labor or food? 14 and Secondary Education 7

8 More Financial Management Questions Labor productivity index (Meals Per Labor Hour)? Net gain or loss over the past 3 years? Do employees understand the importance of cost controls to the success of the program? What does a comparison of Average Daily Participation for the past 3 years tell me? 15 What You Need to Track Revenue Defined as income received in exchange for goods or services provided by the school food service department (Institute of Child Nutrition - ICN) Examples: sales to students, reimbursements, adult sales, interest, catering, vending sales etc. 16 and Secondary Education 8

9 Classification of Revenue Local Sources State Sources Federal Sources Miscellaneous Sources Fund Transfer-In 17 Revenue Analysis Calculate average revenue per meal or meal equivalent. Establish consistent guidelines for pricing nonprogram food items to ensure revenue is equal to or greater than costs. Compare revenue generated per meal with costs per meal. 18 and Secondary Education 9

10 Why it s important to compare revenue earned with meal cost helps determine if and where revenue should be increased, allows you to analyze revenue by source, and identifies areas in which revenue should be monitored for revenue loss. 19 Using Meal Equivalents in Program Analysis to Measure Performance By converting food sales to meal equivalents, the school nutrition director can determine meal cost, labor productivity ratios, and the average revenue earned per meal/meal equivalent. 20 and Secondary Education 10

11 Meal Equivalent Conversion Formulas 1 lunch = 1 meal equivalent 3 breakfasts = 2 meal equivalents (2/3 =.67) 3 snacks = 1 meal equivalent (1/3 =.33) 1 supper = 1 meal equivalent Nonprogram food sales = revenue from nonprogram sales current free lunch reimbursement + current USDA Foods value per lunch 21 What You Need to Track Cont d Expenditures Defined as costs that can be indentified specifically within the operation of the school foodservice program (ICN) Examples: Food, labor, equipment, sanitation, outreach, promotional, fees, licenses, indirect costs etc. 22 and Secondary Education 11

12 Classification of Expenditures Labor Employee Benefits Professional and Technical Services Property Services Purchased Foods and USDA Foods Supplies Capital Assets Miscellaneous Indirect Costs Food Service Management 23 Expenditure Analysis Analyzing financial reports can provide information about patterns or trends, significant changes in specific cost categories, deviations from financial goals (budget), possible abuse or theft, and transaction errors. 24 and Secondary Education 12

13 Types of Expenditure Analysis Total costs to produce a meal Meal costs per expenditure category Percentages of operational costs to total revenue (operating ratios)* Costs to produce a meal compared with the average revenue generated per meal 25 Comparing Revenue to Expenditures Total net gain/loss to the school nutrition program expressed in dollars, Percent of gain/loss expressed in percentage of revenue, and Net gain/loss per meal or meal equivalent. 26 and Secondary Education 13

14 Food Cost Expenditure Percentage to Total Revenue Formula: Category Costs Total Revenue Example: $16,500 (food costs) $30,000 (revenue) =.55 x 100 or 55% $.55 cents from each $1.00 generated was used to purchase food. 27 Controlling Food and Labor Costs in School Nutrition Programs Why so Important?... Apply cost control measures to operate a financially sound program with nutritional integrity. 28 and Secondary Education 14

15 Meals Per Labor Hour Number Meals/Meal Equivalents Number of Paid Productive Labor Hours Example: 338 Meals/Meal Equivalents 24 Paid Productive Labor Hours = or 14 Meals Per Labor Hour 29 Why Calculate the Cost of Food? To determine if costs are within guidelines, To ascertain if there are sufficient funds to pay expenditures, To establish the cost for each meal equivalent served, and To prevent waste and food theft through monitoring food usage. 30 and Secondary Education 15

16 Calculating Cost of Food Used Beginning Inventory + Total Purchases = Total Food Available - Ending Inventory = Cost of Food Used *Purchased Food and USDA Foods 31 Key Financial Reports Statement of Activities (P&L) Statement of Net Position (Balance Sheet) General Ledger 32 and Secondary Education 16

17 Profit and Loss Statement (Statement of Activities) Revenue by source Expenditures by category Net/gain loss for the statement period Comparison of current month with previous month s information and year-to-date information 33 Sample Profit and Loss Statement Revenue (Source) July August September Year-to-Date Local Sources: Student Meal Sales $ 24,978 $ 23,025 $ 24,101 $ 72,104 Adult Meal Sales $ 2,376 $ 2,175 $ 2,265 $ 6,816 A La Carte $ 11,326 $ 10,785 $ 10,995 $ 33,106 Catering $ 1,575 $ 1,560 $ 1,640 $ 4,775 Interest $ 260 $ 255 $ 260 $ 775 Federal Sources $ 186,639 $ 182,220 $ 184,150 $ 553,009 State Sources $ 18,831 $ 18,130 $ 18,275 $ 55,236 Miscellaneous $ - $ 8,010 $ - $ 8,010 Fund Transfer-In $ - $ - $ - $ - Total Revenue $ 245,985 $ 246,160 $ 241,686 $ 733,831 Expenditures July August September Year-to-Date Salaries & Wages $ 65,875 $ 63,900 $ 64,950 $ 194,725 Employee Benefits $ 28,975 $ 25,364 $ 15,810 $ 70,149 Purchased Services $ 375 $ 326 $ 385 $ 1,086 Property Services $ 305 $ 280 $ 300 $ 885 Food Costs $ 96,190 $ 90,183 $ 95,180 $ 281,553 Supplies $ 24,750 $ 21,360 $ 22,065 $ 68,175 Miscellaneous $ 625 $ - $ - $ 625 Capital Assets $ - $ 55,000 $ - $ 55,000 Indirect Costs $ 5,835 $ 5,830 $ 5,835 $ 17,500 Fund Transfer-Out $ - $ - $ - $ - Total Expenditures $ 222,930 $ 262,243 $ 204,525 $ 689,698 Net Profit/(Loss) $ 23,055 $ (16,083) $ 37,161 $ 44, and Secondary Education 17

18 School Food Service Account - Financial Management Questions How does your program track revenues and expenditures? Who is involved? Do you maintain consistent methods in doing so? Do you know how much money you take in and spend out daily/monthly? 35 Not-so-good Practice -- Accounting for Prepaid SFA counting cash and checks received for student prepaid accounts as revenue on P&L Also counting meal sales against prepaid accounts as revenue so, in essence, double counting 36 and Secondary Education 18

19 Better Practice --Accounting for Prepaid SFA accounts for prepaid deposits as revenue only as it is drawn down as a meal sale at register SFA showing deposits received for prepaid student accounts as a liability (deferred revenue on Balance Sheet) Reduced prepaid liability as meals are consumed (as revenue) using prepaid accounts 37 Not-so-good Practice -- Recognizing Revenue SFA not considering as revenue meals to students that were not paid up front since they didn t have money (essentially charging the costs to their account - unpaid meal charges) 38 and Secondary Education 19

20 Not-so-good Practice -- Communication Food Service Director is not directly involved in managing the financials submits monthly claim for reimbursement and forwards bills Business Manager handles all finances and financial reports and does not communicate or review with FSD Food Service Director essentially managing food service in the dark 39 Better Practice -- Communication Business Manager and Food Service Director reconcile non-profit school food service account monthly with the general ledger Strong team involvement in the budgeting and planning process Good communication - on same page 40 and Secondary Education 20

21 Not-so-good Practice Cash Controls/Management Large SFA had multiple levels of hand-offs for daily cash receipts No reconciling/sign-off done at each level Result was numerous inconsistencies between receipts identified at POS and actual amounts deposited Scenario ripe for potential misappropriation of funds 41 Balance Sheet (Statement of Net Position) Assets Cash balance Receivables due Value of inventories Non-current assets Liabilities Outstanding payables Deferred revenue Sales tax owed (when appropriate) Fund Balance Assets = Liabilities + Fund Balance 42 and Secondary Education 21

22 Sample Balance Sheet Assets Ending June 30, 2014 Current Assets Cash and Cash Equivalents $ 205, Sales Tax Collection $ - Investments $ 10, Due from Federal Reimbursements $ 185, Due from State Reimbursements $ 7, Due from Other Funds $ 1, Other Receivables $ Inventories Food $ 8, Supplies $ 3, Total Current Assets $ 421, Noncurrent Assets Furniture and Equipment $ 425, less Accumulated Depreciation $ (400,124.00) Total Noncurrent Assets $ 25, Total Assets $ 446, Liabilities Current Liabilities Accounts Payable $ 172, Accrued Salaries $ 70, Accrued Payroll Deductions $ 19, Due to Other Funds $ Deferred Revenue $ 2, Sales Tax Owed $ - Total Current Liabilities $ 265, Fund Balance Fund Balance Noncurrent Assets $ 25, Inventory $ 11, Assigned $ 24, Unassigned $ 119, Total Fund Balance $ 181, Total Liabilities and Fund Balance $ 446, Not-so-good Practice (s) Balance Sheet SFA not maintaining a balance sheet SFA using G/L software balance sheet output SFA not including prepaid meal sales as a liability (Deferred Revenue) SFA is not including inventory as an asset SFA not including noncurrent assets in the balance sheet 44 and Secondary Education 22

23 Not so good Practice Balance Sheet, cont. School district borrowed money from the school lunch account at end of school year and returned it at start of next school year 45 T General Ledger A general ledger is a central repository for accounting data (deposits, payments, transfers, credits, etc.) broken out by categories, containing user-defined account codes The general ledger should include the date, description, and balance or total amount for each account/transaction Provides detail behind what is shown in the P&L 46 and Secondary Education 23

24 Sample GL- Revenue 47 Sample GL- Expenditures 48 and Secondary Education 24

25 Not-so-good Practice General Ledger Food Service Director and Business Manager not reconciling on a monthly basis. FSD does not even see the G/L on a regular basis. 49 Net Cash Resources Per 7CFR, Section (b)(2), Net cash resources are limited to an amount that does not exceed 3 months average expenditures. At the end of an operating year (June), the ending cash balance cannot exceed this figure. 50 and Secondary Education 25

26 Net Cash Resources ESE will ensure that school food authorities comply with the requirements to account for all revenues and expenditures of their nonprofit school food service. ESE will ensure compliance with the requirements to limit net cash resources and shall provide for approval of net cash resources in excess of three months' average expenditures. 51 Allowable Costs All expenditures must conform to Federal Cost Principles 2 CFR Part 225 (to be replaced by OMB Super Circular 2 CFR 200) which says they must be Necessary Reasonable Allocable 52 and Secondary Education 26

27 Necessary A cost is necessary if the Child Nutrition Program s authorizing statute, program regulations or applicable FNS policy establish that the nonprofit school food service cannot be operated without incurring the cost e.g. a school food service cannot be operated without incurring the cost of appropriate food 53 Reasonable A cost is reasonable if, in its nature and amount, it does not exceed a price that is consistent with what a reasonable person would pay under the same or similar circumstances. 54 and Secondary Education 27

28 Allocable A cost must be assigned to the programs, functions, activities or other cost objectives that benefited from the school district having incurred the cost (cost allocation plan needed) For example, school food service cannot be billed a higher share of utility costs just because the school district doesn t have the funds Such an action would assign the cost to a cost objective that did not benefit from it 55 Not-so-good -- Allowable Costs School district charged the school lunch account for cafeteria monitors whose job solely was to supervise students 56 and Secondary Education 28

29 Not-so-good -- Allowable Costs School department courier was fully charged to school lunch account as a direct cost Only a small portion of courier s job duties were school food service related 57 Not-so-good -- Allowable Costs School district carries unpaid meal charges as bad debt year-to-year in order to continue collection efforts. Bad debt is not an allowable cost. Another SFA was directed by the superintendent to delete unpaid meal charge records. This can t be done even if the LEA intends to pay off the bad debt. Please note: Meal Charge Policy - as of July 1, 2017, all SFAs must have a written and communicated meal charge policy to ensure consistent and transparent approach to the issue 58 and Secondary Education 29

30 It Would Be Easier If 59 Paid Lunch Equity Intent of PLE: To ensure paid lunch prices are sufficient to cover the costs of paid meals or otherwise provide enough funds to support paid meal costs. 60 and Secondary Education 30

31 Paid Lunch Equity-Reality SFAs must, on average, charge for paid lunches at least the difference between the federal reimbursements for free and paid lunch $2.59 for SY $2.65 for SY $2.70 for SY $2.78 for SY $2.86 for SY Paid Lunch Equity (PLE) Analysis Determine weighted average price for all types of paid student lunches Compare weighted average paid lunch price with the difference between free and paid reimbursement rates Determine if a price increase is necessary 62 and Secondary Education 31

32 Paid Lunch Equity Tool 63 Source: USDA s Paid Lunch Equity Tool available on USDA s website Paid Lunch Equity Tool If weighted average price is below reimbursement difference, SFA must either: Gradually adjust paid lunch prices upward or Provide non-federal funds to cover the difference or Combination of the two to meet difference 64 and Secondary Education 32

33 Not-so-good practices- PLE SFAs that have: Not done any analysis Didn t complete the PLE tool Had the same price for 3-4 years 65 Better practices- PLE SFAs used tool, or alternate method, which indicated increase needed, and used it as part of explanation to school committee why price increase necessary SFA was forward thinking and looked at future year PLE pricing/anticipated pricing requirements to stay in compliance for future years 66 and Secondary Education 33

34 Revenue from Non-program Foods Non-program foods - Foods and beverages sold in a participating school that are purchased using funds from the nonprofit school food service account. Includes a la carte items, adult meals, items purchased with nonprofit school food service account funds for vending machines, fundraisers, school stores and catered and vended meals. 67 Revenue From Non-Program Foods Intent of monitoring: With the exception of reimbursable meals, all food sold in a school and purchased with funds from the nonprofit school food service must generate revenue at least equal to the cost of such foods. 68 and Secondary Education 34

35 Requirements of Non-Program Foods Revenue Formula: Total Non-Program Foods Revenue Total Program Revenue > Total Non-Program Food Costs Total Food Costs 69 Revenue Requirement Calculation - Example Total Food Costs: $ 500,000 Non-Program Food 50,000 Program Food 450,000 Total Revenue $ 1,000,000 $50,000 Non-Program Food = 10% minimum $500,000 Total Food 10% x $1,000,000= $100,000 Revenue Required 70 and Secondary Education 35

36 Non-Program Food Revenue Tool 71 Source: USDA s Nonprogram Food Revenue Tool available on USDA s website: Memos/2011/SP ar.xls Adult Meal Price Formula Minimum Adult Meal Price = Federal reimbursement for a free student lunch + Per meal value of USDA Foods 72 and Secondary Education 36

37 Not-so-good Practices Non- Program Foods Food Service Director charges school district cost of food plus a small, fixed percentage more for catering SFAs adult meal charge was less than cost per adult meal - Another call for using metrics 73 Better Practice Non-Program Foods SFA charges for catering the cost of food; labor related to delivery, preparation, and serving; costs related to ordering; in addition to reasonable profit margin 74 and Secondary Education 37

38 Better Practice Non-Program Foods SFA tracks costs for Non-Program foods separate from reimbursable food costs by capturing exact costs where possible and estimating other food costs 75 Indirect Costs Intent of monitoring: Ensure SFAs are correctly determining if their costs are allowable, allocable and appropriately charged as a direct or indirect cost. 76 and Secondary Education 38

39 Indirect Costs Background Direct costs - Incurred specifically for a program or other cost objective; clearly identifiable with a specific program. Indirect Costs - Incurred for the benefit of multiple programs, functions, or other cost objectives; not readily identifiable with a specific program. Cost assignments are unique to the organization 77 Examples of Typical Costs 78 and Secondary Education 39

40 Not-so-good Practices Indirect Costs SFA charging indirect costs as two custodian salaries-correct amount as it turned out, but can t be done. Same SFA was also charging Food Service Operation and not other federal programs similarly 79 Better practice Indirect Costs SFA developed a cost allocation plan in this case based upon administrative costs as a percentage of costs overall and applied the same percentage to indirect costs across all areas 80 and Secondary Education 40

41 Best Practice Indirect Costs No indirect costs at all being charged to school lunch account 81 Questions? 82 and Secondary Education 41

42 Thank You! Donna McHugh Barb Kempken and Secondary Education 42