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A major source of funding for school district food service operations comes from the federal government through the National School Lunch and Breakfast Programs. Food service operations accounting and reporting information is discussed by the Texas Education Agency in four categories: the appropriate use of funds, accounting issues, revenue recognition (commodities) and fund balance.
According to the TEA Financial Accountability System Resource Guide, the food service operations of a school district must be accounted for in one of three different funds: the general fund, a special revenue fund, or an enterprise fund (Exhibit 9-15).The fund in which a school district records food service operations depends primarily upon the source of the operation's funding; whether general fund revenues subsidize the food service operations; and if the school district's intent is for the food service operation to be self-sustaining.
Source: Texas Education Agency Financial Accountability System Resource Guide 1998.
School District Food Service Operation Fund Decision Chart
Situation General Fund Special Revenue Fund Enterprise Fund Students are charged for meals No Yes Yes NSLP funds are received Yes/No Yes/No Yes/No The general fund subsidizes the food service fund for expenditures in excess of the NSLP reimbursement Yes Yes No The school district's intent is for the food service operation to be self sustaining No Yes/No Yes
A school district must record its food service operations in the general fund if one of the following conditions exist: students are not charged for meals and all expenditures are paid from general fund revenues and a National School Lunch Program (NSLP) reimbursement; students are not charged for meals and all expenditures are paid from general fund revenues; or the school district does not participate in the NSLP.
A school district must record food service operations in the special revenue fund if the students are charged for meals; the school district receives an NSLP reimbursement; or the school district's general fund revenues subsidize the food service operations.
A school district may record food service operations in the enterprise fund if the students are charged for meals, or the school district's intent is for the food service program to be self-sustaining; that is, general fund revenues do not subsidize the program.
After the school district's management determines which fund most appropriately reflects the activity of the food service operations, several accounting issues must be addressed based on which of the three funds the district decides is more appropriate for its circumstances (Exhibit 9-16). In an enterprise fund, fund code 701 is used for food service operations with the exception of the United States Department of Human Services (DHS) Summer Feeding Program, which is accounted for in special revenue fund code 242.
Source: Texas Education Agency Financial Accountability System Resource Guide 1998.
School District Food Service Fund Accounting Issues
Requirement General Fund Special Revenue Fund Enterprise Fund Fund Codes 199 240 701, 702 Basis of Accounting Modified Accrual Modified Accrual Accrual Measurement Focus Flow of Current Financial Resources Flow of Current Financial Resources Flow of Economic Resources Budgeted Fund Yes Yes Yes Fixed Asset Accounting In General Fixed Assets Account Group In General Fixed Assets Account Group Within the Enterprise Fund Depreciation of Fixed Assets Recorded No No Yes Long-Term Debt Recorded In General Long-Term Debt Account Group In General Long-Term Debt Account Group Within the Enterprise Fund Profit and Loss Measurement No No Yes Recognition of Federal Assistance Recorded as Operating Revenue Recorded as Operating Revenue Recorded as Non-Operating Revenue Recognition of Commodities Received from USDA Recorded as Operating Revenue Recorded as Operating Revenue Recorded as Non-Operating Revenue Recognition of Interest Revenue Recorded as Operating Revenue Recorded as Operating Revenue Recorded as Non-Operating Revenue Recognition of Interest Expense Unmatured Interest on General Long-Term Debt Is Recorded When Due Unmatured Interest on General Long-Term Debt Is Recorded When Due Recorded in Accounting Period in Which It Is Incurred
The general fund and the special revenue fund require the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized in the accounting period when they are measurable and available, and expenditures are recognized when an event or transaction is expected to draw upon current expendable resources. The enterprise fund requires the accrual basis of accounting. Under the accrual basis of accounting, income is recognized when earned and expenses are recognized when incurred.
Regardless of the type of fund selected for recording food service operations, the food service budget must be included in the annual budget approved by the school district's board of trustees and reported to the TEA through the Public Education Information Management System (PEIMS).
In the general fund and the special revenue fund, a school district may not have a fund balance exceeding three months' average food service operating expenditures. In addition, these balances must be used exclusively for allowable child nutrition program purposes.
MPISD uses special revenue funds to account for its main food service programs. However, the district also uses an enterprise fund to account for the operation of its snack bar operations. The snack bar operates in the school cafeterias during normal lunch hours, and students can choose between the snack bar and the regular lunch line during any given lunch period. The enterprise fund's operations are not part of the Food Service Department's budget. The expenditures of this fund are used solely for the benefit of the snack bar's operations.
According to provisions in federal law: "All revenues received by or accruing to the school foodservice must be used only for the operation and improvement of the foodservice program. Revenues include, but are not limited to, receipts from: (1) operations of the lunch and breakfast programs; (2) snack bar and a la carte programs; (3) earning on investment; (4) other local revenues; and (5) federal and state reimbursement received by or accruing to the school foodservice. Foodservice account funds may not be used for expenditures that are not directly related to the foodservice operation although they are part of the district's general fund."
As far as TSPR could tell, the money is staying in the snack bar program and includes ongoing funding for costs of the snack bar, including payroll allocations, food supplies and related materials, and other operating expenses. The problem with the accounting treatment, according to TEA, is that the revenue should be considered program revenue of the federally funded food service program and accounted for in the main food service special revenue fund, thus subjecting it to all of the compliance requirements associated with the federal program.
TEA never cited MPISD for this accounting error because MPISD's external auditor did not point it out in findings in annual audit reports. The TEA relies heavily on school districts' independent auditors for this type of compliance finding.
Handling the snack bar operation as a separate enterprise fund, the district is unable to determine if it is in compliance with the fund balance level requirements and the appropriate uses of food service program revenues. The district's current method of accounting for the snack bar operation does not allow for submitting the financial data associated with all of district's food service operations to the TEA through PEIMS. The TEA uses financial data submitted through PEIMS to compare school district food service operations. The district is not in compliance with the TEA's budgeting requirements for food service operations because the district uses a separate enterprise fund for the snack bar operation.
Combine the snack bar enterprise fund with the regular food service special revenue fund and amend the annual budget to include the estimated annual revenues and estimated annual expenditures of the snack bar operation.
The snack bar operation is an extension of the regular food service program and should be included in MPISD's annual food service budget.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The business manager prepares a budget amendment to cover the annual estimated revenues and estimated expenditures of the snack bar operation and submits the budget amendment to the superintendent. March 1999 2. The superintendent recommends and receives approval for this budget amendment from the board. April 1999 3. The business manager closes the snack bar enterprise fund and transfers all snack bar financial activities to the regular food service special revenue fund once trustees approve the budget amendment. April 1999
This recommendation can be implemented with existing resources.
Cafeteria managers are responsible for collecting and depositing the cash that is collected each day. The managers said there is no policy for depositing money each day, and some take the money home and deposit it the next day. There is no check and balance for the cash collection, and kitchen managers should not be held responsible for collection and depositing. There is a safety risk and a chance for misappropriation of funds. There are no established policies and procedures for prevention of theft. The bank where MPISD deposits its funds suggested using a bonded courier to pick up money from each school cafeteria and deliver the monies to the bank daily.
Hire a bonded courier to pick up money from each cafeteria daily.
IMPLEMENTATION STRATEGIES AND TIMELINES
1. The business manager contacts several couriers to get price quotations on the service. March 1999 2. The business manager recommends a courier to the superintendent for approval. April 1999 3. The business manager develops the necessary audit trail to safeguard the receipts. April 1999 4. The superintendent approves and the business manager hires the courier and implements the audit trail procedures. May 1999
Bonded courier services are based on the frequency of pick-ups and the number of locations from which pick-ups are made. Based upon telephone discussions with several area courier services, the annual cost should be no more than $10,000 annually.
Recommendation 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 Hire a bonded courier to pick up money from each cafeteria daily basis. ($10,000) ($10,000) ($10,000) ($10,000) ($10,000)