Download Propose re-grouping of rules related to the food service fund

State Board of Education
Proposed Rule Changes
Jennifer Okes, School Finance Director
Kirk Weber, Financial Accounting Technical Advisor
October 16, 2014
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Rule Changes
 Meaningful Grouping: Re-group rules related to the food
service fund with other financial related rules
 Clarification on Operating Year: Three months average
expenditures is based upon a nine-month year
 Fund Treatment: Change from Enterprise Fund to Special
Revenue Fund
 Indirect Cost: Remove unnecessary restriction on indirect costs
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Meaningful Grouping
 Existing rules related to the food service fund are located both
in the Food and Nutrition Services Rules (1 CCR 301-3) and the
Rules for Accounting and Reporting (1CCR 301-11).
 Propose re-grouping of rules related to the food service fund
in a single location under the Rules for Accounting and
Reporting, with other rules related to financial matters.
 Allow the Food and Nutrition Services Rules to be focused on
the programmatic regulations, rather than a mixture of
programmatic and financial regulations.
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Operating Year
 Federal regulations (7 CFR 210.14(b)) outline that a school
district cannot carry an operating balance greater than three
months’ average expenditures in its school food service fund.
 CDE uses a nine-month operating year for this calculation.
 The updated CDE-5 clarified the use of a nine-month operating
year.
 The Rules for Accounting and Reporting (1 CCR 301-11) should
also be updated to clarify this nine-month operating year.
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Fund Treatment
 FPP approved a change to the Food Service Fund from an
“Enterprise Fund” to a “Special Revenue Fund”
 Various reasons considered:
• State Board Rules and State Statute considerations
• USDA heightened focus on fiscal matters – Federal
Regulations
• Food Service Fund as a Federal grant program
• Office of Management & Budget (OMB) guidance
• Governmental Accounting Standards Board (GASB)
considerations
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Overview of Indirect Costs
 CDE develops an indirect cost rate for each school district
based upon district expenditures using a standard
methodology
 Indirect costs are used by many federal programs to ensure
only allowable costs are charged to the federal program
 The indirect cost rate provides a simplified mechanism to
charge federal programs and maximize federal grant
collections
 Without an indirect cost rate, additional tracking and
documentation would be required of school districts
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What are Indirect Costs?
 Direct costs can be thought of as programmatic costs (e.g. food
service personnel) and indirect costs can be thought of as
overhead costs (e.g. human resources personnel)
 Program Codes:
 2300 – Support Services – General Administration
 2500 – Support Services – Business
 2600 – Operation and Maintenance of Plant Services
 2800 – Support Services – Central
 2900 – Other Support Services
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Current Rule
 Indirect costs are limited to the approved non-restricted
indirect cost rate.
 Districts can charge indirect costs to the food service fund
using the indirect cost rate (a percentage) or using direct
coding of expenses.
 Districts must keep a fund balance reserve of at least 30% in
order to charge indirect costs to the food service fund.
 Real World Example using the Food Service – Indirect Cost
Calculator:
http://www.cde.state.co.us/nutrition/osnfinancialindirectcosts
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Reason for Current Rule
Rationale for Current Rule:
 Federal regulations require that the state provide matching
funds.
 Previously the state did not provide funding for school
nutrition program.
 The 30% fund balance reserve requirement was implemented
in lieu of state matching funds.
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Reason for Changing Rule
Rationale for Changing Rule:
 Beginning in FY 2001-02, the General Assembly began
appropriating funds to comply with the state matching funds
requirement pursuant to Section 22-54-123, C.R.S..
 Since the match requirement is now funded by the State, it is
not necessary for districts to maintain fund balance reserves in
the food service fund.
 Eliminate state imposed restriction on school districts.
 Allow local control of financial decisions related to the food service
fund.
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Proposed Rule
 Keep: Indirect costs are limited to the approved non-restricted
indirect cost rate.
 Clarify: Districts can charge indirect costs to the food service
fund using the indirect cost rate (a percentage) or using direct
coding of expenses.
 Eliminate: Districts must keep a fund balance reserve of at
least 30% in order to charge indirect costs to the food service
fund.
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Reason for Proposed Rule
Rationale for Propose Change:
 Maintains and clarifies protection to ensure food service
fund is not over charged.
 Only allowable costs can be charged
 Indirect costs are capped
 Provides districts more flexibility in managing the food
service fund.
 Eliminates a unique and outdated state restriction on a federal
program.
 Provides for local control on program funds within federal
regulations.
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Reason for Proposed Rule
Rationale for Propose Change:
 Reduces complexity of regulations governing food service
fund
 For example, if a district determines it is appropriate to charge
indirect costs to the food service fund, they have to meet both a
federal regulation with a 33% maximum and a state regulation with
a 30% minimum as well as the considerations from paid lunch
equity requirements.
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Myths
 Myth: This change would require districts to start charging
indirect costs.
 False: Districts may continue to decide on whether to charge the
fund. This is a local decision.
 Myth: This change would remove an important protection for
the food service fund.
 False: The food service fund will continue to be protected from
overcharging . Indirect costs are designed to ensure programs are
not overcharged. Indirect costs are allowable costs. Indirect costs
will continue to be limited to the allowable non-restricted rates.
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Myths (continued)
 Myth: This change would bankrupt the food service fund.
 False: The food service fund may only be charged for allowable
costs. Indirect cost charges are capped at the allowable rate.
State statute prohibits any fund from having a deficit fund
balance.
 Myth: Without this rule, the food service fund could be
charged costs without any oversight or approval.
 False: Local boards of education are required to adopt a budget
with planned expenditures and must adjust the budget if
expenditures will exceed the planned budget. Local boards of
education are required to adopt a resolution if they use a portion
of the beginning fund balance.
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Myths (continued)
 Myth: The food service fund will be reduced to a zero fund
balance.
 False: The current rule does not prevent a district’s food service
fund from dropping below a 30% fund balance level. Many
districts currently have a fund balance lower than the 30%
threshold. Districts should establish appropriate policies and
procedures including a targeted fund balance in order to best
address the needs of the food service fund including cash flow
needs or reserves for operating volatility and/or future planning.
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Statistics
In FY 2012-13, of the 176 districts that are SFAs:
 120 had general fund transfers into the food service fund.
Thus, charging of indirect costs is not applicable.
 26 are over the 30% threshold and can charge indirect costs
per state rule
 Only 3 reported indirect costs were charged
 Thus, this rule is only potentially applicable to 30 districts.
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Violations
In FY 2012-13,
 20 districts failed federal regulation (had excess funds)
 11 districts failed state rule (charged indirect costs when
below the 30% threshold)
 12 districts failed state statute on ongoing deficit fund balance
(had year-end deficit)
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Options
 Keep the current state rule:
 Impact: 11 districts that failed the state rule will need to replenish
the food service fund
 Reduce the threshold in the state rule:
 Impact: If the threshold were reduced to 18%, the 11 districts
would not have to replenish any funds
 Eliminate the rule:
 Impact: Allow school boards to manage food service funds locally
and set targeted fund balances as appropriate to meet district
needs
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Questions
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