Summary

February 2014 Cafeteria Funds Local Education Agencies Generally Use the Funds for Appropriate Purposes Report 2013-046 COMMITMENT INTEGRITY LEADERSHIP The first five copies of each California State Auditor report are free. Additional copies are $3 each, payable by check or money order. You can obtain reports by contacting the California State Auditor’s Office at the following address: California State Auditor 621 Capitol Mall, Suite 1200 Sacramento, California 95814 916.445.0255 or TTY 916.445.0033 OR This report is also available on our Web site at www.auditor.ca.gov. The California State Auditor is pleased to announce the availability of an online subscription service. For information on how to subscribe, visit our Web site at www.auditor.ca.gov. Alternate format reports available upon request. Permission is granted to reproduce reports. For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255. For complaints of state employee misconduct, contact the California State Auditor’s Whistleblower Hotline: 1.800.952.5665. Elaine M. Howle State Auditor Doug Cordiner Chief Deputy February 27, 2014 2013-046 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: As required by Chapter 20, Statutes of 2013, the California State Auditor presents this audit report concerning local education agencies’ (LEAs) uses of their cafeteria funds in operating their child nutrition programs and the California Department of Education’s (CDE) oversight of those funds. This report concludes that from fiscal years 2010–11 through 2012–13, each of the 18 LEAs we visited used all or most of their cafeteria funds for allowable purposes. Specifically, of $32 million in cafeteria fund expenditures we tested, $31 million was for expenditures that were necessary and reasonable for the operation or improvement of the child nutrition programs and complied with federal administrative requirements. Of the $1 million in unallowable expenditures, nearly half were for facility costs that four LEAs should not have charged to their cafeteria funds. We also identified five LEAs that charged more than $171,000 in interest charges to their cafeteria funds, despite a federal regulation prohibiting such charges, and seven LEAs that inappropriately charged more than $94,000 in utilities and other support costs. In addition, 14 of the LEAs had payroll expenditures that lacked federally required documentation, resulting in unallowable charges to their cafeteria funds. The most common reason LEAs cited for these unallowable expenditures was a lack of awareness of program requirements. Further, LEAs did not always meet certain requirements concerning their financial resources. For example, nine LEAs we visited had net cash resources in their cafeteria funds that exceeded the federal limit of an amount equal to three months’ average expenditures. In addition, 10 LEAs did not maintain sufficient records to determine whether their food sales using cafeteria funds—such as vending machines or catering—that were unrelated to meals served in the child nutrition programs generated the minimum amount of revenue required by a federal regulation. As a result, these LEAs cannot determine if their cafeteria funds are subsidizing those nonprogram activities. Finally, before fiscal year 2013–14, CDE reviewed certain aspects of the child nutrition programs but it was not expressly required to review LEAs’ cafeteria fund expenditures to determine if they were allowable. However, in fiscal year 2013–14, CDE started implementing new federal guidelines that require it to examine the cafeteria fund expenditures of LEAs that meet certain risk criteria. These reviews will provide CDE with some assurance that LEAs are spending cafeteria funds appropriately. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor 621 Capitol Mall, Suite 1200 Sacramento, CA 95814 916.445.0255 916.327.0019 fax www.auditor.ca.gov Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 v February 2014 Contents Summary 1 Introduction 5 Audit Results Most of the Local Education Agencies’ Cafeteria Fund Expenditures Were Allowable 11 LEAs’ Unallowable Costs Were Mostly for Nonpayroll Expenditures 11 LEAs Did Not Comply With Federal Administrative Requirements for More Than Half of the Payroll Payments We Examined 19 LEAs Did Not Always Meet Certain Federal Requirements Concerning Their Financial Resources 22 CDE Is Starting to Systematically Review LEAs’ Use of Cafeteria Funds 26 Recommendations 28 Appendix A Detailed Results of Expenditure Testing 31 Appendix B Local Education Agencies’ Net Cash Resources in Excess of Federal Limits 35 Responses to the Audit California Department of Education 37 Anaheim Union High School District 41 California State Auditor’s Comments on the Response From the Anaheim Union High School District 45 Bakersfield City School District 47 California State Auditor’s Comments on the Response From the Bakersfield City School District 51 Elk Grove Unified School District 53 California State Auditor’s Comments on the Response From the Elk Grove Unified School District 57 Long Beach Unified School District 59 vi California State Auditor Report 2013-046 February 2014 Los Banos Unified School District 61 Madera Unified School District 63 Mendota Unified School District 65 California State Auditor’s Comment on the Response From the Mendota Unified School District 67 Merced City School District 69 Napa Valley Unified School District 71 California State Auditor’s Comment on the Response From the Napa Valley Unified School District 73 North Monterey County Unified School District 75 California State Auditor’s Comments on the Response From the North Monterey County Unified School District 77 Oakland Unified School District 79 Paramount Unified School District 81 Ravenswood Unified School District 83 San Bernardino City Unified School District 85 San Diego Unified School District 87 California State Auditor’s Comment on the Response From the San Diego Unified School District 89 San Francisco Unified School District 91 Stockton Unified School District 95 Sweetwater Union High School District 97 California State Auditor Report 2013-046 1 February 2014 Summary Results in Brief Audit Highlights . . . Beginning with the National School Lunch Program in 1946, and Our audit of local education agencies’ (LEAs) continuing with the School Breakfast Program, the Special Milk cafeteria fund expenditures highlighted Program, and the Summer Food Service Program for Children, the following: the federal government has established programs to provide nutritious food to needy children while at school. These programs » Although each of the 18 LEAs we reviewed are collectively known as the child nutrition programs. Each local for fiscal years 2010–11 through education agency (LEA)—a category in California consisting of school 2012–13 spent all or most of their districts, charter schools, and county offices of education—must cafeteria funds for allowable purposes, separately account for its revenues and expenditures related to the we identified $1 million in unallowable child nutrition programs,1 and state law authorizes LEAs to establish expenditures among 16 LEAs. a cafeteria fund for this purpose. An LEA may charge its cafeteria • More than $480,000 of these fund only for allowable costs—that is, those that are necessary and unallowable expenditures were for reasonable for the operation or improvement of the programs and in facility costs at four LEAs. compliance with applicable federal administrative requirements. The federal government provides the largest amount of funding for • Five LEAs charged more than the child nutrition programs, and the California Department of $171,000 in interest to their cafeteria Education (CDE) is responsible for administering the programs. funds, despite a federal regulation prohibiting such charges. We reviewed cafeteria fund expenditures at 18 LEAs for fiscal • Seven LEAs inappropriately charged years 2010–11 through 2012–13. These 18 LEAs spent all or most more than $94,000 in utilities and of their cafeteria funds for allowable purposes. Specifically, of other support costs. the $32 million in cafeteria fund expenditures that we reviewed across these 18 LEAs, $31 million was for expenditures that were • Many of the LEAs had payroll necessary and reasonable for the operation of the child nutrition errors that accounted for other programs and complied with federal administrative requirements. unallowable costs. The $1 million in unallowable cafeteria fund expenditures occurred » Nine LEAs we visited had net cash among 16 of the 18 LEAs, and involved either the use of the funds resources in their cafeteria funds that for inappropriate or prohibited purposes or a failure to comply exceeded the federal limit—by the end with federal administrative requirements. More than $480,000 of of fiscal year 2012–13, these LEAs had a this $1 million was for facility costs that four LEAs should not have combined total of more than $28 million charged to their cafeteria funds. For example, Stockton Unified in excess of the federal limit. School District (Stockton Unified) spent more than $383,000 » Ten of the 18 LEAs we reviewed did to upgrade portable buildings for use as administrative offices. not maintain sufficient records to Although federal regulations require prior approval from the demonstrate that they were complying U.S. Department of Agriculture (USDA) for construction paid with federal requirements involving for with cafeteria funds, Stockton Unified was not able to provide sales of certain foods purchased with documentation that it had requested or received prior approval for cafeteria funds. this construction project. » CDE was not expressly required to review LEAs cafeteria fund expenditures for 1 Federal regulations define a school food authority as the governing body responsible for allowability before fiscal year 2013–14, administering one or more schools and that has the legal authority to operate the child nutrition which is when it will begin such reviews. programs. We use local education agency synonymously with school food authority; this usage is consistent with management bulletins issued by CDE to LEAs regarding their administration of the child nutrition programs. 2 California State Auditor Report 2013-046 February 2014 In addition, we found unallowable interest charges and utility costs. For example, five LEAs charged more than $171,000 in interest to their cafeteria funds, despite a federal regulation prohibiting such charges. Further, seven LEAs inappropriately charged a total of more than $94,000 in utilities and other support costs to their cafeteria funds. We also identified unallowable payroll expenditures at most of the LEAs we visited. Specifically, nine LEAs lacked federally required documentation for 28 of the 63 payroll expenditures that we examined for employees the LEAs paid entirely from their cafeteria funds. Eight LEAs also did not have such documentation for all 15 payroll expenditures that we examined for employees whom LEAs paid from multiple funds, including the cafeteria fund. As a result of the payroll documentation errors, $72,600 of the $173,300 in payroll expenditures that we examined from LEAs’ cafeteria funds was unallowable. The most common reason LEAs cited for these unallowable expenditures was a lack of awareness of program requirements. Further, LEAs did not always meet certain requirements concerning their financial resources. For example, nine LEAs we visited had net cash resources in their cafeteria funds that exceeded the federal limit, which restricts cafeteria funds to an amount equal to three months’ average expenditures. Specifically, by the end of fiscal year 2012–13, these nine LEAs had a combined total of more than $28 million in excess of the federal limit. One LEA had a cash balance equal to more than 12 months of its average monthly expenditures, or more than four times the federal limit, in each of the three years of our audit period. CDE strongly recommends, but does not require, that LEAs with excess cash balances develop spending plans to reduce the balances to the allowable level and immediately submit them to CDE for approval. However, we found that only six of the nine LEAs with excessive cash balances had a spending plan to reduce the excess, and only four had submitted their plans to CDE for approval. In addition, 10 of the LEAs we reviewed did not maintain sufficient records to demonstrate that they were complying with federal requirements involving sales of food purchased with cafeteria fund money, but that was unrelated to meals served as part of the child nutrition programs (nonprogram foods activities). Examples of such sales include operating vending machines or providing catering services, and federal requirements specify that these sales must generate a certain minimum level of revenue. When nonprogram foods activities do not generate the required amount of revenue, funds intended for child nutrition programs are subsidizing the nonprogram foods activities. The 10 LEAs did not track the revenues and expenditures of their nonprogram foods activities and therefore cannot determine whether they are meeting California State Auditor Report 2013-046 3 February 2014 federal requirements. The most common reason LEAs cited for not tracking financial information for their nonprogram foods activities was a lack of awareness about the requirement. Before fiscal year 2013–14, CDE reviewed certain aspects of the federal child nutrition programs, but it was not expressly required to examine program expenditures to determine if they were allowable. However, under the federal Healthy, Hunger‑Free Kids Act of 2010, the USDA now requires state agencies, such as CDE, to review some LEAs’ expenditures. Specifically, it requires CDE to identify LEAs that meet a threshold for financial risk and to review the financial management of their cafeteria fund expenditures, including whether these LEAs’ expenditures are reasonable and necessary for the operation of the child nutrition programs. CDE will begin performing these reviews in fiscal year 2013–14, and they should provide some assurance that LEAs are spending cafeteria funds for allowable purposes. Recommendations By June 30, 2014, LEAs that used cafeteria funds for unallowable purposes should do the following: • Reimburse their cafeteria funds for those costs, if they have not already done so. • Review all guidance from the USDA and CDE to better understand what these funds may be used for. LEAs with excess net cash resources in their cafeteria funds should develop spending plans to reduce their balances to the amount allowed and submit the spending plans to CDE for approval by June 30, 2014. To ensure that the spending plans LEAs create to eliminate their excess net cash resources are adequate, effective, and fully executed, CDE should, by July 1, 2015, begin requiring LEAs to develop a spending plan, or revise an existing spending plan if it will not fully reduce the entire excess, and submit it to CDE for approval within three months after the end of each fiscal year that their cafeteria funds have net cash resources above the federal limit. LEAs that are not tracking the revenues and expenditures of nonprogram foods activities should implement a system to do so by June 30, 2014. 4 California State Auditor Report 2013-046 February 2014 Agency Comments Most of the LEAs we reviewed agreed with our findings and indicated they had taken or would be taking steps to correct the issues we identified, including reimbursing their cafeteria funds, as appropriate. CDE indicated it has taken steps to implement our recommendation regarding LEAs with excess cash balances in their cafeteria funds. California State Auditor Report 2013-046 5 February 2014 Introduction Background The federal government enacted the National School Lunch Act in 1946, creating the National School Lunch Program. Since then, additional programs have been created to further the goal of providing nutritious food to needy schoolchildren, including the School Breakfast Program, the Special Milk Program, and the Summer Food Service Program for Children, known collectively as the Child Nutrition Cluster of federal programs (child nutrition programs). According to the federal government, in fiscal year 2012–13, child nutrition programs served over 550 million lunches, 250 million breakfasts, almost 2 million half‑pints of milk, and over 10 million summer meals throughout California. The major funding in California for these four programs comes from the federal government, with some supplemental funding from the State of California. According to the California Department of Education (CDE), in fiscal year 2011–12, the U.S. Department of Agriculture (USDA) provided 92 percent of the funding for the child nutrition programs, or $1.7 billion, and the State provided the remaining 8 percent, or $148 million. The National School Lunch Program is the largest component of the child nutrition programs, accounting for more than $1.3 billion—or roughly 77 percent—of the $1.7 billion in federal funds spent in fiscal year 2011–12. CDE is responsible for administering the program, which includes activities such as disbursing funds and ensuring compliance with program requirements. The Cafeteria Fund Federal regulations generally require that a school food authority use the revenues generated by its nonprofit school food service (food service) only for the operation or improvement of such food service.2 Federal regulations further require local education agencies (LEAs)—a category in California consisting of school districts, charter schools, and county offices of education—to account for all revenues and expenditures for this food service, and they limit the amount that an LEA can have on hand related to the child nutrition programs to three months’ average expenditures. In California state law authorizes, but does not require, the governing board of a school district to establish a cafeteria fund to account separately for the federal, state, and local resources it uses to operate 2 Federal regulations define a school food authority as the governing body responsible for administering one or more schools and that has the legal authority to operate the child nutrition programs. We use local education agency synonymously with school food authority; this usage is consistent with management bulletins issued by the CDE to LEAs regarding their administration of the child nutrition programs. 6 California State Auditor Report 2013-046 February 2014 the food service program. CDE has also published a California School Accounting Manual that further defines how an LEA must account for the revenues and expenditures of its cafeteria fund. LEAs that receive federal funding for child nutrition programs and deposit the revenue in a cafeteria fund must ensure that expenditures from the cafeteria fund meet all applicable federal requirements for the child nutrition programs. Cafeteria fund revenues can include federal and state reimbursements as well as local funds such as money from students who pay for lunch. The cafeteria fund may be charged only for costs that are necessary and reasonable for the operation or improvement of the child nutrition programs, and for the share of indirect costs that can reasonably be allocated to an LEA’s food service operation. In addition, to be allowable, child nutrition programs’ expenditures must comply with federal administrative requirements, such as the requirement that all charges to the cafeteria fund be documented. LEAs may also use money from their cafeteria funds to purchase food and beverages that are then sold separately from the meals provided to students under the child nutrition programs. A federal regulation defines these food and beverages as nonprogram foods and require that LEAs take steps to ensure that sales of these food and beverages generate a minimum level of revenues when their costs are paid from their cafeteria funds. Child Nutrition Programs Oversight Before fiscal year 2013–14, federal regulations required CDE to perform an administrative review—commonly referred to as a coordinated review effort (CRE)—of each LEA within a five‑year period. In the CRE review process, CDE assessed whether the LEA was meeting certain critical performance standards, such as whether child nutrition programs’ meals were served only to eligible children, whether meals were counted and claimed correctly, and whether the meals met federal nutritional requirements. Federal regulations also required that CRE reviews assess general areas of program performance, such as determining whether an LEA maintained adequate records, adhered to food safety requirements, and performed its own monitoring activities. Federal regulations governing administrative reviews changed beginning with the 2013–14 school year, altering how CDE will perform such reviews beginning in fiscal year 2013–14. One significant change is that the five‑year review cycle has been reduced to a three‑year cycle. In addition, under guidance that the USDA created in response to the federal Healthy, Hunger‑Free Kids Act of 2010 (Hunger‑Free Kids Act), state agencies such as CDE will be required to evaluate certain risk factors that, if present at an LEA, will result in CDE performing a fiscal review of the LEA’s child nutrition programs. We discuss this new component of CDE’s reviews further in the Audit Results. California State Auditor Report 2013-046 7 February 2014 The “Food Fight” Report In February 2013 the California Senate Office of Oversight and Outcomes issued a report titled Food Fight: Small Team of State Examiners No Match for Schools That Divert Student Meal Funds (Food Fight report). It detailed examples of school districts not following established rules for the cafeteria fund. The report noted that many of the examples of improper spending were discovered not by CDE examiners but by internal whistleblowers. This report brought widespread attention to the issue of potential cafeteria fund misuse, and it was the impetus for this audit. Recent Legislative Activity The Legislature has taken steps that affect the operation of the child nutrition programs. First, the Budget Act of 2013 (Chapter 20, Statutes of 2013) called for CDE to report on its staffing needs for child nutrition compliance activities by October 1, 2013. CDE’s published assessment reported a need to hire 14 additional full‑time analysts and one manager to close resource gap it had identified. The assessment also stated that these additional positions would address the recommendation made in the Food Fight report to hire enough staff to carry out CDE’s oversight responsibilities. Assembly Bill 626 (Chapter 706, Statutes of 2013) made numerous changes to school nutrition standards to conform with the Hunger‑Free Kids Act, and it also made changes to the use of cafeteria funds. For example, the new law eliminated the authority in state law for school districts to use cafeteria funds for the construction of a central food processing plant. This change puts state law in line with federal regulations, which generally prohibit LEAs from using child nutrition programs funds to construct buildings. In addition, the new law authorizes school districts to charge the cost of maintenance for kitchen facilities and the cost to replace kitchen equipment against their cafeteria funds instead of the funds of the school district. The new law also requires CDE to monitor LEAs in accordance with the requirements of the USDA administrative review process, which we explain in the Audit Results. Scope and Methodology We conducted this audit as directed by statute. The audit objectives listed in Table 1 beginning on the following page are derived from that statute, the Budget Act of 2013. Our fieldwork included work at CDE and 18 LEAs. 8 California State Auditor Report 2013-046 February 2014 Table 1 Audit Objectives and the Methods Used to Address Them AUDIT OBJECTIVE METHOD 1 Review and evaluate the laws, We reviewed relevant laws, regulations, administrative policies, and other background materials regulations, and administrative applicable to the use of cafeteria funds by local education agencies (LEAs). We reviewed information policies significant to the for the federal Child Nutrition Cluster (child nutrition programs), which includes the National School audit objectives. Lunch Program, because funds from these programs are allowed to be deposited into the cafeteria fund and used for an LEA’s food service. 2 For a sample of at least 15 LEAs • Although state law required us to review at least 15 LEAs, we judgmentally selected 18 LEAs that participate in the National for our review based on geographical location and on data from the California Department School Lunch Program and reflect of Education (CDE) regarding October 2012 K‑12 enrollment and participation in the child the diversity of local regions and nutrition programs. program structures, review each LEA’s • We interviewed LEA and CDE staff to determine what, if any, other reviews or audits of cafeteria cafeteria fund expenditures and fiscal fund expenditures had occurred over the past three fiscal years at each of the LEAs we selected, practices to determine compliance including federal or state departmental audits, internal audits by the LEA, or external audits. If with applicable state and federal these reviews had findings, we determined any corrective actions taken by the LEA. laws, regulations, and administrative • We reviewed the administrative policies and fiscal practices of each LEA, including the following: policies with respect to each of the ‑ Types of revenues included in each LEA’s cafeteria fund. following areas: ‑ Computerized data system and processes used to track and record meal counts. ‑ Written policies and procedures related to the administration of the cafeteria fund. a. Payroll records for employee salaries ‑ Internal controls and the processes used to track and record expenditures. and benefits. ‑ Risk of cafeteria fund expenditures being misused due to fraud. b. Utility and interest costs. • Using a judgmental selection of at least 10 transactions at each LEA for each of the three fiscal years we reviewed (fiscal years 2010–11 through 2012–13), we performed expenditure testing c. Inter‑fund transfers between the on salaries and benefits; utility and interest costs; facilities repairs, maintenance, remodeling, cafeteria fund and other funds. or construction; and equipment purchases or repairs. When selecting transactions for testing, we considered the work of other auditors and attempted to ensure that we did not duplicate d. Unpaid obligations due to the LEAs’ their testing when possible. Additionally, we focused our selection of transactions to test on general funds. those types of expenditures that were most at risk of being inappropriate. We tested each transaction for compliance with state and federal laws, regulations, and administrative policies by e. Facility repairs, maintenance, interviewing relevant LEA staff and reviewing supporting documentation. remodeling, and construction costs. • For each of the fiscal years during our period of review, we reviewed transfers into and out of the cafeteria fund of the 18 LEAs and found no evidence of inappropriate transfers. f. Equipment purchases and repairs. • For each of the fiscal years during our period of review, our review revealed no evidence of LEAs’ cafeteria funds having inappropriate obligations owed to their general funds. g. Excessive fund balances. • We determined if each LEA’s cafeteria fund ending fund balance was excessive during our period h. Indirect and direct charges. of review by interviewing LEAs’ staff, reviewing LEAs’ audited financial statements, and reviewing supporting reports from the LEAs’ accounting systems. If an LEA had an excessive fund balance, we determined whether the LEA had a CDE‑approved spending plan to reduce the excessive fund balance. • We also evaluated the indirect charges for each fiscal year during our period of review for each LEA we selected by verifying that the LEA used the lower of the state‑approved indirect cost rate or the LEA‑calculated indirect cost rate. We also determined whether the LEA appropriately calculated the amount of indirect costs based on the expenditures for each fiscal year. • We reviewed other expenses charged to the LEAs’ cafeteria funds, such as expenses related to catering and a la carte items, for compliance with recent federal guidance regarding the required minimum amount of revenue necessary for such food and beverages. California State Auditor Report 2013-046 9 February 2014 AUDIT OBJECTIVE METHOD 3 Review and assess CDE’s oversight • Interviewed relevant staff at CDE to obtain an understanding of processes CDE uses for oversight of LEAs’ cafeteria funds, including and claim reviews. evaluating department processes, • Reviewed and assessed the oversight policies and procedures used by CDE to determine whether claim reviews, staffing, and training they met the requirements in law and regulation. related to that oversight. • Reviewed the coordinated review efforts performed by CDE for the 18 LEAs we visited. • Reviewed new requirements that CDE must follow in conducting administrative reviews under the Healthy, Hunger‑Free Kids Act of 2010. • Because CDE has not yet completed a full review cycle for its new administrative reviews, data were not available for us to assess staffing related to these reviews. • Reviewed CDE’s actions to provide training and guidance to CDE staff and LEAs for the new administrative review requirements. Sources: California State Auditor’s analysis of the Budget Act of 2013 and information and documentation identified in the table column titled Method. 10 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 11 February 2014 Audit Results Most of the Local Education Agencies’ Cafeteria Fund Expenditures Were Allowable The 18 local education agencies (LEAs) we visited generally used their cafeteria funds for expenditures that relevant laws and regulations allow.3,4 Although we identified 16 LEAs that used some of their cafeteria funds to pay for unallowable expenditures, all or most of the cafeteria fund expenditures we tested for each of the 18 LEAs were for allowable purposes. As shown in Table 2 on the following page, of the more than $32 million in expenditures that we reviewed across 18 LEAs, more than $31 million was for expenditures that were necessary and reasonable for the operation or improvement of the child nutrition programs and complied with applicable administrative requirements. Table A in Appendix A shows details of the results of our expenditure testing at each of the 18 LEAs we visited. LEAs’ Unallowable Costs Were Mostly for Nonpayroll Expenditures Most of the approximately $1 million in unallowable cafeteria fund expenditures was for nonpayroll expenditures. Further, more than half of the roughly $969,300 in unallowable nonpayroll expenditures we identified at 15 LEAs was for expenditures related to facilities and equipment. Stockton Unified School District (Stockton Unified) accounted for more than $453,000 in unallowable facility and equipment costs. As shown in Table 3 on page 13, other notable categories of unallowable nonpayroll costs are for interest, utilities and other support costs, indirect costs, and miscellaneous costs. Miscellaneous costs include all costs we tested that are not included in any of the other categories. We discuss unallowable payroll costs—those for salaries and benefits—in the next section. LEAs Spent Cafeteria Funds on Facility and Equipment Costs That Are Not Allowed Some LEAs used their cafeteria fund for unallowable expenditures related to facilities and equipment totaling more than $521,000. Specifically, we identified approximately $480,700 in facility repairs, maintenance, remodeling, and construction expenditures at four LEAs that were inappropriately charged to the cafeteria fund. Payments made without prior approval from the U.S. Department of Agriculture (USDA) from 3 Federal regulations define a school food authority as the governing body responsible for administering one or more schools and that has the legal authority to operate the child nutrition programs. We use local education agency synonymously with school food authority; this usage is consistent with management bulletins issued by the California Department of Education (CDE) to LEAs regarding their administration of the child nutrition programs. 4 Federal regulations require LEAs to separately account for their child nutrition program revenues and expenditures. State law authorizes LEAs to establish a cafeteria fund for this purpose. 12 California State Auditor Report 2013-046 February 2014 Stockton Unified’s cafeteria fund to upgrade portable buildings for use by the administrative staff of the LEA’s child nutrition food services department accounted for $383,600 of the unallowable facility charges that we found. According to federal regulations, capital expenditures for construction to be paid for with cafeteria funds require prior approval from the USDA. Further, according to its July 2011 Indirect Cost Guidance, the USDA historically has not approved the costs of such construction projects. According to its executive director of business services, Stockton Unified included the project on a report to CDE concerning excess net cash resources—an area of financial management that we discuss later in this report—and the LEA moved forward with the project because CDE never disapproved it. However, we confirmed with CDE that the document to which Stockton Unified referred is not a document an LEA can use to request approval for a project. Table 2 Allowability of Cafeteria Fund Expenditures Tested at 18 Local Education Agencies ALLOWABILITY OF EXPENDITURES STUDENT ENROLLMENT TOTAL LOCAL EDUCATION AGENCY (LEA) AS OF OCTOBER 2012 ALLOWABLE UNALLOWABLE EXPENDITURES TESTED Northern California Elk Grove Unified School District 62,137 $3,064,765 $25,986 $3,090,751 Napa Valley Unified School District 18,326 1,121,656 1,242 1,122,898 Oakland Unified School District 46,486 2,550,106 1,719 2,551,825 Ravenswood City School District 4,077 752,368 4,140 756,508 San Francisco Unified School District 56,970 3,359,785 12,221 3,372,006 Stockton Unified School District 38,435 2,129,430 493,651 2,623,081 Central California Bakersfield City School District 28,987 2,163,352 87,434 2,250,786 Los Banos Unified School District 9,892 974,063 14,828 988,891 Madera Unified School District 19,984 1,602,425 12,005 1,614,430 Mendota Unified School District 2,978 269,725 19,172 288,897 Merced City School District 10,671 810,262 24,738 835,000 North Monterey County Unified School District 4,284 481,793 55,322 537,115 Southern California Anaheim Union High School District 32,085 492,550 63,642 556,192 Long Beach Unified School District 82,256 833,741 – 833,741 Paramount Unified School District 15,864 149,241 24,080 173,321 San Bernardino City Unified School District 54,102 3,722,340 – 3,722,340 San Diego Unified School District 130,341 6,147,510 121,641 6,269,151 Sweetwater Union High School District 40,916 422,808 80,061 502,869 Total expenditures tested $31,047,920 $1,041,882 $32,089,802 Percentage of total expenditures tested 96.8% 3.2% Sources: The California Longitudinal Pupil Achievement Data System, a system maintained by the California Department of Education, and the California State Auditor’s analysis of selected expenditures and indirect cost calculations at the LEAs specified. California State Auditor Report 2013-046 13 February 2014 Table 3 Unallowable Cafeteria Fund Expenditures From Fiscal Years 2010–11 Through 2012–13 by Local Education Agencies CATEGORY OF EXPENDITURE FACILITY REPAIRS, UTILITIES EQUIPMENT MAINTENANCE, SALARIES AND OTHER TOTAL PURCHASES REMODELING, AND AND INDIRECT SUPPORT UNALLOWABLE LOCAL EDUCATION AGENCY (LEA) AND REPAIRS CONSTRUCTION BENEFITS COSTS INTEREST COSTS MISCELLANEOUS* EXPENDITURES Anaheim Union High School District $63,642 Bakersfield City School District 87,434 Elk Grove Unified School District 25,986 Los Banos Unified School District 14,828 Madera Unified School District 12,005 Mendota Unified School District 19,172 Merced City School District 24,738 Napa Valley Unified School District 1,242 North Monterey County Unified 55,322 School District Oakland Unified School District 1,719 Paramount Unified School District 24,080 Ravenswood City School District 4,140 San Diego Unified School District 121,641 San Francisco Unified School District 12,221 Stockton Unified School District 493,651 Sweetwater Union High 80,061 School District Number of LEAs with 5 4 14 5 5 7 7 unallowed expenditures Total unallowable expenditures $40,707 $480,694 $72,595 $67,218 $171,225 $94,510 $114,933 $1,041,882 Source: California State Auditor’s analysis of selected transactions and indirect cost calculations at the LEAs specified. Note: We did not include two LEAs—Long Beach Unified School District and San Bernardino City Unified School District—in the above table because we did not identify unallowable cafeteria fund expenditures at these LEAs during our testing. * The Miscellaneous category includes expenditures for materials and supplies; professional and consulting services; rentals, leases, repairs, and noncapitalized improvements; and travel and conferences. We also found that five LEAs used about $40,700 in cafeteria funds to purchase equipment that was partially or entirely unrelated to the operation of the child nutrition programs. For example, Paramount Unified School District (Paramount Unified) purchased about $13,700 of assorted audiovisual equipment, such as televisions, sound systems, a 3D Blu‑ray disc player, and related equipment using cafeteria fund money. The director of Paramount Unified’s student nutrition services stated that the equipment was purchased, in part, to comply with signage and marketing requirements in a federal regulation as well as to entertain students during mealtimes by showing movies and sports programs and playing music. However, this federal regulation simply requires that LEAs identify, near or at the beginning of the serving line, the food items that constitute a 14 California State Auditor Report 2013-046 February 2014 reimbursable meal. Further, CDE issued guidance in a March 2001 management bulletin indicating that if a televised menu board is located in a cafeteria and the LEA uses it for purposes other than food services, such as displaying sports scores, the LEA must pay a portion of the cost from funding sources other than the cafeteria fund. The director of student nutrition services for Paramount Unified told us that the LEA would not have moved forward with the expenditure if staff had known that the cost had to be shared among funds. Given the asserted use of this equipment, Paramount Unified should not have charged the entire cost to the cafeteria fund. Seven LEAs Improperly Charged Some of Their Utilities and Other Support Costs to the Cafeteria Fund Although most LEAs we visited either charged their cafeteria funds correctly or not at all for utilities and other support costs, seven LEAs inappropriately charged such costs to their cafeteria funds in one or more of the three years we audited. According to federal regulations, utilities and other support costs (utility costs) include costs associated with gas, electricity, water, and certain services such as trash removal, janitorial service, and security. Federal regulations require that all charges to the cafeteria fund be adequately documented. Additionally, guidance issued by the USDA in 2011 indicates that LEAs may charge the cafeteria fund for utility costs if they have a methodology to quantify exactly how much of the service was used by the child nutrition programs. Moreover, CDE guidance issued in 1995 and in place until May 2013 stipulated that LEAs wishing to allocate a portion of their utility costs to the child nutrition programs should use the methodology described in CDE’s California School Accounting Manual (accounting manual) for allocating such costs to instructional programs based on the square footage of the space the Local Education Agencies That Improperly programs use. USDA guidance also indicates that Charged Utilities and Other Support Costs utility costs are an allowable charge to the to Their Cafeteria Funds cafeteria fund without an allocation methodology if there is documentation, such as an invoice for Anaheim Union High School District $61,595 utilities or services used only in the kitchen area, San Diego Unified School District 16,829 which would allow the LEA to charge the costs Elk Grove Unified School District 10,094 directly. Therefore, whenever an LEA was unable Stockton Unified School District 2,869 to provide documentation to support its allocation Madera Unified School District 1,761 methodology or direct billing, we considered the Paramount Unified School District 1,271 entire amount charged to the cafeteria fund Ravenswood City School District 91 unallowable, because we could not determine the appropriate portion of the cost that the LEA could Total $94,510 have charged to the cafeteria fund. As shown in Source: California State Auditor’s analysis of selected transactions. the text box, the seven LEAs incorrectly charged their cafeteria funds a total of about $94,500 for utility costs. California State Auditor Report 2013-046 15 February 2014 At Anaheim Union High School District (Anaheim Union), we encountered what proved to be a typical situation involving unallowable utility cost charges. During the three fiscal years under review, Anaheim Union charged more than $61,500 in unallowable utility costs to its cafeteria fund. According to its director of food services, Anaheim Union has a longstanding agreement with the Anaheim City School District (Anaheim City) to equally share the cost of trash removal and associated custodial costs related to Anaheim City’s child nutrition programs. However, Anaheim Union officials were unable to provide documentation for the basis of this allocation methodology of charging the cafeteria fund 50 percent of these costs. According to the director of food services at Anaheim Union, most of the administrative team at Anaheim City are new to the district and, because the allocation methodology was developed years before, it would be difficult for them to explain the basis for the methodology. Further, the director of food services stated that the agreement was forwarded to CDE, and CDE raised no objections to it. However, the fact remains that there is no documented rationale for the allocation methodology There is no documented rationale Anaheim Union employed, and the cost is therefore unallowable. for the allocation methodology In total, five LEAs that inappropriately charged utility costs to Anaheim Union employed in their respective cafeteria funds lacked documentation to support charging more than $61,500 in those charges, and two more LEAs had errors in their allocation utility costs to its cafeteria fund. methodologies that resulted in overcharges to their cafeteria funds. CDE Is Developing Guidance for LEAs to Allocate Utility Costs to Their Cafeteria Funds As indicated earlier, CDE guidance issued in 1995 and in place until May 2013 allowed LEAs to allocate utility costs to their cafeteria funds using an allocation methodology based on square footage. However, CDE did not obtain approval for this methodology as required by a federal regulation from the U.S. Department of Education (USDE). According to an administrator of CDE’s school fiscal services division, it came to CDE’s attention only relatively recently that LEAs were using allocation methodologies that needed to be approved by the USDE and that the need for CDE to formalize a methodology and present it for federal approval was pressing. Subsequently, CDE issued a management bulletin to LEAs in May 2013 informing them that utilities may be charged directly to the cafeteria fund only when they use a meter dedicated to the kitchen. The bulletin made no mention of allocating utility costs. According to the school fiscal services division administrator, as of January 2014 CDE was still in the process of formulating an allocation methodology for utility costs. When CDE completes the methodology and has incorporated feedback from LEAs, it will submit the methodology to the USDE for approval. Although it cannot predict how long the USDE’s approval process will take, 16 California State Auditor Report 2013-046 February 2014 CDE hopes to have an approved allocation methodology in place for fiscal year 2014–15. Until the new allocation methodology is approved, LEAs using the square footage methodology to allocate utility costs to their cafeteria funds are taking the risk that CDE, in accordance with USDE requirements, will determine that these costs are unallowable. If this happens, LEAs may have to repay their cafeteria funds for these utility costs. Five LEAs Misspent Cafeteria Funds for Interest Costs Although most LEAs we visited did not charge any interest costs to their cafeteria funds, five of the 18 LEAs inappropriately charged more than $171,000 in interest costs to their cafeteria funds in at least one of the three fiscal years we reviewed. These five LEAs and the interest costs they charged Local Education Agencies That Mistakenly to the cafeteria fund are shown in the text box. Charged Interest to the Cafeteria Fund A federal regulation generally prohibits LEAs from San Diego Unified School District $102,702 using their cafeteria funds to pay for interest costs Sweetwater Union High School District 32,875 incurred on borrowed capital, or for interest Stockton Unified School District 22,053 paid on the use of a governmental unit’s own San Francisco Unified School District 9,712 funds. Sweetwater Union High School District Elk Grove Unified School District 3,883 (Sweetwater Union) charged almost $33,000 Total $171,225 in interest costs to its cafeteria fund for money that it periodically borrowed from other school Source: California State Auditor’s analysis of selected transactions. district funds to cover costs for its child nutrition programs. According to one of its accountants, Sweetwater Union borrowed this money to address the cafeteria fund’s cash‑flow issues, and it was unaware that making interest payments from its cafeteria fund on the borrowed money was not allowed. In contrast, San Diego Unified School District (San Diego Unified) and San Francisco Unified School District (San Francisco Unified) did not explicitly loan money to their cafeteria funds, but they elected to charge their cafeteria funds to recover what they referred to as lost interest earnings. Specifically, San Francisco Unified carried a negative balance in its cafeteria fund for each of the three fiscal years we reviewed because expenses for its child nutrition programs exceeded its federal, state, and local revenues for the programs. As a result, San Francisco Unified’s general fund subsidized its cafeteria fund during each of those years. According to documentation provided by San Francisco Unified, it allocated interest earned from pooled investments proportionately to the cash balances of its different funds. However, because its cafeteria fund carried a negative balance throughout our audit period, San Francisco Unified charged its cafeteria fund for the interest the LEA would have earned on the general fund money California State Auditor Report 2013-046 17 February 2014 that subsidized the cafeteria fund. In a like manner, San Diego Unified, in its response to findings from a CDE review, explained that it charges interest to its cafeteria fund because its general fund forgoes interest earned from the county treasurer when, due to a negative balance in its cafeteria fund, the general fund is used to pay for food service obligations. Although, according to its response to a CDE review, San Diego Unified believes that interest charges to the cafeteria fund were fair and reasonable, it accepted the finding and indicated that it would reimburse the cafeteria fund Like Sweetwater Union, both for the interest it charged. Although San Francisco Unified’s and San Francisco Unified and San Diego Unified’s interest costs did not result from a loan, federal San Diego Unified were unaware regulations generally state that interest costs, however represented, of the federal regulation that are unallowable. Like Sweetwater Union, both San Francisco does not allow costs for interest Unified and San Diego Unified explained that they were unaware to be charged to the child of the federal regulation that does not allow costs for interest to be nutrition programs. charged to the child nutrition programs. Five LEAs Overcharged Their Cafeteria Funds for Indirect Costs Although the LEAs we visited generally charged an appropriate amount of indirect costs to their cafeteria funds or did not charge them at all, five LEAs we visited overcharged their cafeteria funds for indirect costs in at least one of the fiscal years in our audit period. The federal government allows an LEA to charge its cafeteria fund for the share of the LEA’s general administration costs—referred to as indirect costs—that are attributable to the child nutrition programs. CDE’s accounting manual defines these indirect costs as agencywide general management costs, including accounting, budgeting, payroll, purchasing, and centralized data processes that are not readily identifiable with a particular program. State law limits the indirect costs that an LEA can charge to its cafeteria fund in a specific year to the lesser of the LEA’s indirect cost rate as approved by CDE or the statewide average indirect cost rate determined by CDE. One LEA—North Monterey County Unified School District (North Monterey Unified)—used the wrong rate in its calculation, thus overcharging its cafeteria fund by a total of more than $49,200 from fiscal years 2010–11 through 2012–13. According to the assistant superintendent of business services at North Monterey Unified, the district’s accounting department had a very high turnover rate for the past several years, and new staff working on indirect cost allocations may not have been familiar with the rules of those allocations. Two other LEAs that incorrectly charged indirect costs—Stockton Unified and Ravenswood City School District (Ravenswood City)— forgot to exclude an unallowable item from their calculations for fiscal year 2012–13, resulting in overcharges to their cafeteria funds of almost $8,900 and $3,000, respectively. A federal regulation 18 California State Auditor Report 2013-046 February 2014 requires the calculation of indirect costs to exclude certain items that would inappropriately distort the calculated amount. Ravenswood City explained that the expenditure item was left in its calculation because of a clerical error, and we found that the LEA calculated the indirect costs correctly in the other two years we reviewed. Seven LEAs Spent Cafeteria Funds for Various Miscellaneous Prohibited Uses Of the 18 LEAs we visited, Of the 18 LEAs we visited, seven spent almost $115,000 on a variety of seven spent almost $115,000 miscellaneous expenditures that are unallowable. Although these on a variety of miscellaneous unallowable expenditures included small transactions such as $118 to expenditures that are unallowable. transport schoolchildren on a field trip and $1,900 to upgrade fire suppression systems in two employee cafés that were not part of a school kitchen, the majority of the unallowable expenditures were for just two transactions by two LEAs that resulted in more than $105,000 in misspent cafeteria funds. In March 2012 Bakersfield City School District (Bakersfield City) used cafeteria funds to purchase children’s books costing more than $71,000. According to Bakersfield City’s director of nutrition services, the district uses these books for marketing purposes and nutrition education. However, Bakersfield City did not have documented evidence that the books purchased were a component of a program to provide students nutrition education or that there was an exceptional reason to use these particular books in such a program. According to guidance issued by the USDA in July 2011, because it and other entities provide nutrition education materials at no charge, an exceptional reason must exist to justify LEAs’ purchases of such materials with cafeteria funds. The USDA also stated in its 2011 guidance that LEAs must fully consider whether existing, available educational materials can meet their needs. Bakersfield City did not provide any documentation of having conducted such an assessment. In fiscal year 2010–11, Sweetwater Union paid the Mar Vista High Associated Student Body more than $34,300 from its cafeteria fund, even though federal regulations prohibit such a use of cafeteria funds. This payment was made in accordance with an agreement between the district’s nutrition services department and Mar Vista High Associated Student Body to share the cafeteria fund revenues. However, federal regulations indicate that revenues received by an LEA’s nonprofit food service are to be used only for the operation or improvement of such food service. California State Auditor Report 2013-046 19 February 2014 LEAs Did Not Comply With Federal Administrative Requirements for More Than Half of the Payroll Payments We Examined Our review of 78 payroll transactions, totaling approximately $173,300, found that more than half of them, representing 14 of the More than half of 78 payroll 18 LEAs we reviewed, did not comply with federal administrative transactions we reviewed did not requirements requiring documentation of employees work on comply with federal administrative the child nutrition programs. The payroll documentation errors requirements requiring we identified mean that almost $72,600 of the $173,300 in payroll documentation of employees work expenditures we tested was unallowable. Many of these LEAs on the child nutrition programs. stated that they did not comply with the federal documentation requirements for payroll because they were unaware of them. Half of the LEAs We Reviewed Failed to Properly Certify the Work Activities of Employees Who Were Compensated Entirely With Cafeteria Funds Nine LEAs did not comply with the federal certification requirement for employees whose salaries and benefits were paid entirely with cafeteria funds. A federal regulation requires that when an employee works solely on a single federal program, such as the child nutrition programs, charges for the employee’s salary and benefits must be supported by periodic certifications that the employee worked solely on that program for the period covered by the certification. These certifications are required to be completed at least twice a year and must be signed by either the employee or a supervisor with firsthand knowledge of the work performed by the employee. If LEAs do not meet this administrative requirement, the related charges for salaries and benefits are unallowable. Our testing of 63 payroll expenditures for employees whose salaries were paid entirely with cafeteria funds found 28 that were unallowable, involving nine LEAs and totaling nearly $57,000. Improper certification practices may also have contributed to the few instances of overcharges to the cafeteria fund that we found involving employees who were paid exclusively by cafeteria funds, but who worked less than full time on child nutrition programs activities. Specifically, three expenditures paid entirely with money from the LEAs’ cafeteria funds were for employees who spent less than 100 percent of their time on activities related to the child nutrition programs. For example, Stockton Unified used its cafeteria fund to pay for the entire salary of an office assistant who told us that only a small portion of her work is related to the child nutrition programs. In addition, both Stockton Unified and Paramount Unified used their cafeteria funds to pay the entire salaries of two employees working as warehouse and delivery workers when, according to duty statements for these employees, they did not work solely for the child nutrition programs. Neither of these LEAs 20 California State Auditor Report 2013-046 February 2014 had certified that the work activities of these three employees were solely related to the child nutrition programs. Had these two LEAs attempted to obtain signed certifications from these employees, they may have determined that the employees should not have been paid entirely with cafeteria funds because they did not perform tasks related solely to the child nutrition programs. Most of the nine LEAs that failed to Most of the nine LEAs that failed to properly certify the work properly certify the work activities activities of employees paid entirely with cafeteria funds indicated of employees paid entirely with they did not do so because they were unaware of the requirement. cafeteria funds indicated that they Two other LEAs knew of the requirement, but one believed that were unaware of the requirement it did not apply and the other had misplaced the certification to do so. records. Specifically, the director of fiscal services for Elk Grove Unified School District (Elk Grove Unified) did not think that the certification requirement applied to employees paid from the cafeteria fund. The nutrition services director for Merced City School District knew of the requirement to perform certifications but told us that her predecessor had misplaced the records. It was surprising to us that so many LEAs were unaware of the certification requirement because this requirement has been in federal regulations since at least 2005 and in CDE’s accounting manual for almost a decade. Failure to properly certify the employees who work on activities solely related to the child nutrition programs could be a serious problem in California if it is generally as common in other LEAs as it was among those we reviewed. Although the payroll expenditures we examined were not a statistically representative sample, approximately one‑third of these expenditures were unallowable. In addition, in fiscal year 2012–13 the 18 LEAs we reviewed spent a combined total of more than 47 percent of their cafeteria fund expenditures on salaries and benefits for child nutrition programs employees. If other LEAs in California devote a similarly large portion of their cafeteria funds to salary and benefit payments, and if they are also failing to comply with federal payroll certification requirements at the same rate we found with the payroll expenditures we tested, a significant portion of their cafeteria fund expenditures may be at risk of being unallowable. Nearly Half of the LEAs Did Not Comply With Federal Administrative Requirements for the Employees We Examined Who Were Compensated Only Partly With Cafeteria Funds Of the 15 expenditures we tested for salaries and benefits of employees paid only partially with cafeteria funds, involving eight LEAs, none were supported by a correctly completed personnel activity report (PAR) or similar documentation as required by a federal regulation.5 5 Three of these LEAs were also among the nine discussed in the previous section. California State Auditor Report 2013-046 21 February 2014 A PAR is similar to a timesheet and provides a breakdown showing how employees actually divide their time among all of the programs they work for, so that each program can pay its proportional share of the employees’ salary and benefits. LEAs are required to prepare PARs or similar documentation for employees that work on more than one federal program, such as the child nutrition programs and other federal and nonfederal programs (multifunded employees). As is the case with the payroll certifications we discussed earlier, if LEAs do not meet the administrative requirement for PARs, the related charges for salaries and benefits are unallowable. For example, if a custodian spent one hour each day cleaning the floors of an LEA’s kitchen and the rest of the day cleaning instructional classroom floors, the LEA would need a PAR detailing the time the custodian spent cleaning the kitchen if it paid some of the custodian’s salary with money from the cafeteria fund. PARs For the 15 expenditures we reviewed must be completed at least monthly, and the employees must for multifunded employees, sign them. If LEAs do not have PARs for multifunded employees, eight LEAs incurred more than it is not possible to determine the correct proportion of their $15,600 in unallowable costs; salary and benefits to charge to their cafeteria funds, and thus all seven LEAs were unaware until expenditures for such employees are considered to be unallowable. recently of the requirement to As a result, for the 15 expenditures we reviewed for multifunded provide a breakdown showing how employees, eight LEAs incurred more than $15,600 in unallowable employees actually divided their costs, representing nearly 22 percent of all unallowable payroll time among all of the programs expenditures we found. they work for. During our review of whether LEAs were completing PARs as required, we noted that had they consistently done so they would have identified instances in which they charged their cafeteria funds for work unrelated to their child nutrition programs. For example, Mendota Unified School District (Mendota Unified) charged 50 percent of a custodian’s salary to its cafeteria fund, but the employee stated that he had not performed any duties relating to the child nutrition programs for at least seven years. In another example, Bakersfield City charged half the time for a custodian who works three hours per day at one of its schools to its cafeteria fund even though, according to the employee, he spends only between 30 minutes and one hour each day cleaning the cafeteria at the school. If Mendota Unified and Bakersfield City had maintained PARs correctly for their multifunded employees, they likely would have realized that their cafeteria funds were funding work activities that were unrelated to their child nutrition programs. Of the eight LEAs we included in our examination of multifunded employees, seven were unaware of the PAR requirement until recently. For example, according to officials from Oakland Unified School District (Oakland Unified) and Mendota Unified, they did not maintain PARs until CDE directed them to do so in 2012 and 2013, respectively. Three other LEAs told us that they were unaware of the PAR requirement until we informed them of it 22 California State Auditor Report 2013-046 February 2014 during our review. As was the case with LEAs’ lack of awareness of the payroll certification requirement, their lack of awareness of the requirement regarding PARs is surprising, since this requirement has also been in federal regulations since at least 2005 and included in CDE’s accounting manual for nearly a decade. LEAs Did Not Always Meet Certain Federal Requirements Concerning Their Financial Resources During our review we found that LEAs often did not comply with federal administrative requirements for managing and tracking certain financial resources. A federal regulation specifies that a cafeteria fund’s cash on hand at any given time, less its unpaid bills (net cash resources), cannot exceed three months’ average expenditures for the child nutrition programs. In addition, since fiscal year 2011–12, a federal regulation has necessitated that LEAs maintain a record‑keeping system that tracks the costs and revenues of food and beverages sold through activities outside of the meals provided through child nutrition programs (nonprogram foods), so that they can determine whether these activities are generating a certain minimum amount of revenue. However, we found that LEAs did not always satisfy one or both of these federal administrative requirements. Half of the LEAs We Reviewed Have Cash Balances in Their Cafeteria Funds That Exceed the Amount Allowed Nine of the 18 LEAs selected for review had net cash resources in excess of the federal limit of three months’ average expenditures, as Most of the nine LEAs with excess shown in Figure 1. In fact, most of these LEAs’ cafeteria funds had net cash resources had a cafeteria cash balances of more than double the federal limit in at least one of fund balance more than double the the years under review. In fiscal year 2012–13, these nine LEAs’ cash federal limit in at least one of the balances ranged from just over $1 million to nearly $7.9 million.6 The years under review. amount of excess net cash resources for four of the nine LEAs steadily increased over the three‑year period we reviewed, and one LEA had more than four times the amount of net cash resources allowed in each of the three years. According to USDA guidance, if an LEA has a surplus of over three months of average cafeteria fund expenditures on hand, it must agree to lower the price of paid lunches, improve food quality, or make other improvements to its food service operation for the child nutrition programs.7 Thus, when an LEA has excess net cash resources, it may be charging too much for paid lunches, providing 6 Table B on page 35 in Appendix B has additional details on LEAs’ excess net cash resources. 7 Paid lunches are lunches sold to students who are either not certified for or elect not to receive free or reduced‑price benefits under the child nutrition programs. California State Auditor Report 2013-046 23 February 2014 lesser‑quality meals to its students than it could, or unnecessarily delaying improvements to its food service operation such as upkeep of its facilities or equipment. A federal regulation indicates that if an LEA does not take the actions described in the USDA guidance to reduce its excess net cash resources, CDE must make adjustments in the LEA’s rate of reimbursement under the child nutrition programs. In 2012 and 2013 CDE issued management bulletins strongly recommending that LEAs with excess net cash resources immediately submit spending plans to CDE to reduce their excess funds. Figure 1 Cafeteria Fund Net Cash Resources Shown as Months of Average Expenditures During Fiscal Years 2010–11 Through 2012–13 A n H a i g h h e i S m c h U o n o i o l D n istrict Bake S r c s h fi o e o l d l D Ci i t s y trict U n L ifi o e s d B a S n c h o o s ol District U nifi M e a d d S e c r h a o ol District U ni M fie e d n d S o c t h a o ol District Me S r c c h e o d o C l i D ty istrict N ort U h n M ifi o e n d t e S r c e h y o C o o l u D n is t t y rict S U a n n ifi B e e d r n S a c r h d o i n o o l District U ni S fi t e o d c k S t c o h n o ol District serutidnepxE egarevA fo shtnoM 16 Fiscal Year 2010–11 14 2011–12 2012–13 12 10 8 6 4 Three-Month Federal Limit on Net Cash Resources 2 0 Local Education Agency (LEA) With Excess Net Cash Resources Source: California State Auditor’s analysis of cafeteria fund net cash resources at LEAs selected with excess net cash resources. Note: Federal regulations define net cash resources of the cafeteria fund as all cash on hand at any given time less unpaid bills. Additionally, federal regulations limit net cash resources to an amount that does not exceed three months’ average expenditures of the LEA’s cafeteria fund. We determined an LEA’s monthly average cafeteria fund expenditures by dividing the LEA’s total cafeteria fund expenditures for a fiscal year by 12. The LEAs with excess net cash resources were generally aware of the federal regulation regarding the limit on net cash resources in their cafeteria funds and of CDE’s guidance that they should submit a spending plan to reduce excessive balances. Of the nine LEAs we identified as having excess cash during our period of review, six had developed some kind of spending plan to reduce the excess 24 California State Auditor Report 2013-046 February 2014 and four of these had submitted their plans to CDE. The other two LEAs that had developed spending plans did not submit their plans to CDE because they thought that LEAs were required to submit a spending plan only when such a plan was required by a CDE review. The remaining three LEAs that have excess net cash resources told us they either are currently working with CDE to develop a spending plan or are seeking CDE’s assistance. When we asked LEAs with net cash resources above the federal limit about the cause of the excess balances, some responded that the additional cash was needed to cover operating costs or unanticipated costs. For example, the director of nutrition services for San Bernardino City Unified School District (San Bernardino Unified) explained that the district is very large and limiting its net cash resources to three months’ expenditures is not viable for its daily operation. She further explained that the district runs 75 kitchens and that the volume and the costs of repairs and replacements for equipment (such as food delivery trucks and boilers) are very high. However, we question San Bernardino Unified’s explanation for holding more net cash resources than federal regulations allow because the amount it is allowed to hold takes into account its monthly expenditures. Federal Requirements on Revenue Generated Other LEAs cited high or increased participation in From the Sale of Nonprogram Foods the child nutrition programs and the resulting A federal regulation requires local education agencies (LEAs) increase in revenues as a reason that the to generate a minimum amount of revenue from the sale of excess accumulated. any nonprogram foods. Nonprogram LEAs Often Do Not Track Certain Food Costs Total Foods Cost Minimum Amount of X = Needed to Determine Compliance With Federal Revenue Total Food Nonprogram Foods Revenue Revenue Requirements Cost Example: Of the 15 LEAs we reviewed that conduct Nonprogram foods cost $100,000 nonprogram foods activities using cafeteria fund Program food cost 300,000 money, 10 did not comply with federal requirements Total food cost 400,000 concerning such activities. A federal regulation Total revenue $1,000,000 defines nonprogram foods as foods and beverages, other than reimbursable meals, that are sold in $100,000 schools that participate in child nutrition programs $1,000,000 X = $250,000 and are purchased with money from their cafeteria $400,000 funds. According to guidance from the USDA, In our example, the hypothetical LEA generated $1 million examples of nonprogram foods are foods sold in in total revenue, of which federal regulations require at least activities such as catering, à la carte sales, vending $250,000 come from the sale of nonprogram foods. machines, and adult meals. To comply with the Sources: Title 7, Code of Federal Regulations, Section 210.14(f), federal regulations, LEAs are required to generate a and the October 24, 2011, U.S. Department of Agriculture minimum amount of revenue from the sale of their guidance on revenue from nonprogram foods. nonprogram foods, using the USDA formula shown in the text box. California State Auditor Report 2013-046 25 February 2014 To complete the USDA formula, LEAs must track both the costs and revenues related to nonprogram foods. However, as shown in Table 4, many LEAs either did not track all of their nonprogram foods costs and revenues or did not generate the required minimum amount of nonprogram foods revenues. According to USDA guidance, if an LEA’s nonprogram foods revenues are less than the minimum amount the formula requires, the LEA must review the prices charged for nonprogram foods and make necessary adjustments. Table 4 Tracking of Nonprogram Foods Data by Local Education Agencies Fiscal Year 2011–12 Fiscal Year 2011–12 GENERATED REQUIRED GENERATED REQUIRED TRACKED ALL AMOUNT OF TRACKED ALL AMOUNT OF NONPROGRAM FOODS NONPROGRAM FOODS NONPROGRAM FOODS NONPROGRAM FOODS LOCAL EDUCATION AGENCY (LEA) COSTS AND REVENUES REVENUES COSTS AND REVENUES REVENUES Anaheim Union High School District Yes No Yes Yes Bakersfield City School District No Unknown No Unknown Elk Grove Unified School District No Unknown No Unknown Long Beach Unified School District No Unknown No Unknown Madera Unified School District Yes No Yes Yes Mendota Unified School District No Unknown No Unknown Merced City School District No Unknown No Unknown Napa Valley Unified School District No Unknown No Unknown North Monterey County Unified School District No Unknown No Unknown Oakland Unified School District No Unknown No Unknown Paramount Unified School District No Unknown No Unknown Ravenswood City School District No Unknown No Unknown San Bernardino City Unified School District Yes No Yes Yes Stockton Unified School District Yes Yes Yes Yes Sweetwater Union High School District Yes No Yes No Source: California State Auditor’s testing of nonprogram foods activities. Note: A federal regulation defines nonprogram foods as food and beverages, other than reimbursable meals, that are sold in schools that participate in the child nutrition programs and are purchased using funds from their cafeteria funds. The 15 LEAs we reviewed with nonprogram foods activities conduct a variety of such activities, including sales from catering, à la carte food items, vending machines, employee cafés, and a produce market. We found that 11 of these 15 LEAs provide catering services and seven sell food items à la carte or in vending machines. Additionally, Oakland Unified operates a produce market, similar to a farmer’s market, which sells produce to students, their families, and community residents on a weekly basis. Long Beach Unified School District and Elk Grove Unified maintain employee cafés. 26 California State Auditor Report 2013-046 February 2014 As Table 4 shows, in fiscal years 2011–12 and 2012–13, 10 LEAs did not track all of their nonprogram foods costs. Although the remaining five LEAs did track nonprogram foods costs and revenues in both fiscal years, only one generated the minimum amount of nonprogram foods revenues that federal regulation requires in fiscal year 2011–12, while four LEAs met this requirement in fiscal The most frequently cited reason year 2012–13. The most frequently cited reason for not separately for not separately tracking costs tracking costs and revenues for nonprogram foods was a lack of and revenues for nonprogram awareness of the requirement. LEAs that do not separately track foods was a lack of awareness of costs and revenues of nonprogram foods cannot determine if they are the requirement. complying with federal regulation. In addition, because nonprogram foods are purchased using cafeteria fund money, these LEAs risk using funds intended for child nutrition programs to subsidize their nonprogram foods activities. CDE Is Starting to Systematically Review LEAs’ Use of Cafeteria Funds CDE has started implementing new federal guidelines for examining LEAs’ expenditures for federal child nutrition programs. During our audit period of fiscal years 2010–11 through 2012–13, CDE reviewed certain aspects of these programs, but it was not expressly required to examine program expenditures to determine if they were allowable—that is, necessary and reasonable for operation or improvement of the child nutrition programs and in compliance with applicable federal requirements. However, in fiscal year 2013–14, as part of its implementation of the federal Healthy, Hunger‑Free Kids Act of 2010, CDE will begin examining LEAs’ uses of cafeteria funds to determine if the uses were allowable. These examinations are part of administrative reviews that CDE is conducting to assess LEAs’ administration of child nutrition programs. These reviews will provide CDE with some assurance that LEAs are spending cafeteria funds appropriately. CDE Will Begin Reviewing Some LEAs’ Use of Cafeteria Funds in Fiscal Year 2013–14 Before fiscal year 2013–14, CDE was not expressly required to examine an LEA’s child nutrition programs expenditures. The main mechanism of state oversight of the child nutrition programs was on‑site reviews known as coordinated review efforts (CREs). A federal regulation required the CREs to ensure the accuracy of an LEA’s meal counts and eligibility determinations, as well as the nutritional quality of meals served, at least once every five years. However, generally, neither federal regulations nor guidance California State Auditor Report 2013-046 27 February 2014 from the USDA, the agency that oversees the federal child nutrition programs, expressly required CDE to evaluate the allowability of cafeteria fund expenditures during our audit period.8 Beginning in fiscal year 2013–14, CDE will be following a revised framework for reviewing LEAs’ administration of child nutrition programs by conducting administrative reviews that will replace the CREs. Like the CREs, the revised administrative reviews include an analysis of the accuracy of an LEA’s meal counts and eligibility determinations, as well as the nutritional quality of meals served. However, unlike the CREs, administrative reviews must be performed every three years instead of every five years. Administrative reviews may also include a review of an LEA’s cafeteria fund expenditures if CDE determines that enough financial risk factors are present. The USDA developed detailed guidelines for administrative reviews, which include on‑site and off‑site review components. According to USDA guidance, the off‑site review is designed to decrease the amount of time needed for the subsequent on‑site portion of the administrative review. Additionally, CDE is to use the off‑site review to gather some of the information necessary to complete the administrative review and to determine the financial risk present at each LEA. When completing the financial risk component of the off‑site review, CDE is required to evaluate each LEA in seven areas of potential risk, using specific risk indicators. The seven risk areas CDE must evaluate are shown in Table 5. Table 5 Risk Indicators and Examples of High Risk Used to Determine Whether to Review a Local Education Agency’s Expenses From the Cafeteria Fund RISK INDICATOR EXAMPLE OF ATTRIBUTE INDICATING HIGHER RISK 1. Student enrollment The local education agency (LEA) has 40,000 students or more. 2. Previous financial findings The LEA has financial findings within the past three years from previous administrative reviews or state audits of child nutrition programs. 3. Maintenance of the cafeteria fund The cafeteria fund’s expenses exceed revenues. Surplus funds were transferred out of the cafeteria fund to support other operations and/or achieve a zero balance. 4. Paid lunch equity The LEA did not raise paid lunch prices, as required by regulation. The LEA did not submit paid lunch price information to the state agency. 5. Nonprogram foods revenues The LEA did not generate adequate revenue from the sale of nonprogram food. 6. Indirect costs The LEA has charged indirect costs to the cafeteria fund or has charged indirect costs at a higher rate than what was approved by the state agency. 7. U.S. Department of Agriculture (USDA) foods The LEA received USDA foods from a purchasing agency, cooperative, or distributor. Source: USDA’s 2013 Administrative Review Manual and Resource Management Risk Indicator tool. 8 Federal regulations and USDA guidance governing the CRE process prior to fiscal year 2013–14 did not require that CDE test cafeteria fund expenditures to determine whether they were allowable. However, federal regulations prior to fiscal year 2013–14 did require CDE to ensure that LEAs complied with net cash resource requirements, described earlier in this report. 28 California State Auditor Report 2013-046 February 2014 If CDE identifies risk in three or more of the seven financial risk areas at an LEA, it is required to perform a financial examination of the LEA’s child nutrition programs as part of its on‑site review. The financial examination must include an assessment of the LEA’s Administrative reviews have the financial management of its cafeteria fund, such as the allowability potential to provide a critical of expenditures and indirect costs the LEA charges to its cafeteria oversight mechanism to ensure that fund. As a result, administrative reviews have the potential to LEAs are spending cafeteria funds provide a critical oversight mechanism to ensure that LEAs are for allowable purposes. spending cafeteria funds for allowable purposes. CDE Has Been Preparing Its Staff to Conduct the Revised Administrative Reviews CDE has sponsored training regarding administrative reviews for its staff to ensure that they are ready to conduct these reviews. Because the administrative review process includes a new requirement for CDE staff to examine cafeteria fund expenditures at LEAs that meet a certain risk threshold, CDE provided some of its staff with financial training to enable them to successfully complete the administrative reviews. Additionally, CDE informed the USDA that it would provide training and technical assistance to LEAs on the new procedures before conducting administrative reviews to ensure that the LEAs are aware of the new process and their role in it. Some staff attended USDA training classes in 2013 regarding the administrative review process and financial management. CDE also plans to offer its own financial management training course on a yearly basis to staff responsible for completing administrative reviews. Furthermore, CDE stated that it has provided pre‑review workshops for LEAs that have upcoming reviews scheduled. Although these workshops are not considered trainings, according to an audit coordinator in the Nutrition Services Division, CDE views them as an opportunity to provide LEAs with an overview of what to expect during the review process. In addition, CDE contacted the LEAs that it plans on reviewing in fiscal year 2013–14 to inform them of the new administrative review requirements. CDE also provided the LEAs with USDA guidance that includes an overview of the financial management section of the administrative review. Recommendations The LEAs we reviewed should implement the recommendations specified for them in Table 6 to ensure that they are spending cafeteria fund money only for allowable activities for child nutrition programs and that they are meeting federal requirements concerning their financial resources. California State Auditor Report 2013-046 29 February 2014 Table 6 Summary of Recommendations for Local Education Agencies LOCAL EDUCATION AGENCY (LEA) RECOMMENDATION TCIRTSID LOOHCS HGIH NOINU MIEHANA TCIRTSID LOOHCS YTIC DLEIFSREKAB TCIRTSID LOOHCS DEIFINU EVORG KLE TCIRTSID LOOHCS DEIFINU HCAEB GNOL TCIRTSID LOOHCS DEIFINU SONAB SOL TCIRTSID LOOHCS DEIFINU AREDAM TCIRTSID LOOHCS DEIFINU ATODNEM TCIRTSID LOOHCS YTIC DECREM TCIRTSID LOOHCS DEIFINU YELLAV APAN TCIRTSID LOOHCS DEIFINU YTNUOC YERETNOM HTRON TCIRTSID LOOHCS DEIFINU DNALKAO TCIRTSID LOOHCS DEIFINU TNUOMARAP TCIRTSID LOOHCS YTIC DOOWSNEVAR TCIRTSID LOOHCS DEIFINU YTIC ONIDRANREB NAS TCIRTSID LOOHCS DEIFINU OGEID NAS TCIRTSID LOOHCS DEIFINU OCSICNARF NAS TCIRTSID LOOHCS DEIFINU NOTKCOTS TCIRTSID LOOHCS HGIH NOINU RETAWTEEWS 1. LEAs that used cafeteria funds for unallowable purposes should do the following by June 30, 2014: • Reimburse the cafeteria fund for those costs if it has not already done so. • Review all guidance from the U.S. Department of Agriculture and the California Department of Education (CDE) to better understand what these funds can be used for. 2. With regard to excess net cash resources, LEAs should do the following by June 30, 2014: a. Develop a spending plan to eliminate their net cash resources in excess of the amount allowed. b. Submit a spending plan to CDE for approval. 3. With regard to nonprogram foods, LEAs should do the following: a. Create and implement a system to track their nonprogram foods costs and/or nonprogram foods revenues by June 30, 2014. b. Determine whether they are generating at least the minimum required amount of nonprogram foods revenues and, if they are not, make the adjustments necessary to generate in fiscal year 2014–15 the amount of nonprogram foods revenues needed to meet federal requirements. Source: California State Auditor’s analysis of the specified LEAs’ administration of their cafeteria funds. To ensure that the spending plans LEAs create to eliminate excess net cash resources in their cafeteria funds are adequate, effective, and fully executed, CDE should, by July 1, 2015, do the following: • Begin requiring LEAs to develop a spending plan, or revise an existing spending plan if it will not fully reduce the entire excess, and submit it to CDE for approval within three months after the end of each fiscal year that their cafeteria funds have net cash resources above the federal limit. 30 California State Auditor Report 2013-046 February 2014 • If an LEA cannot eliminate its entire excess net cash resources within a defined time frame, CDE should make adjustments in the rate of reimbursement to the LEA under the child nutrition programs. We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the scope section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor Date: February 27, 2014 Staff: John Billington, Project Manager Jerry A. Lewis, CICA Sharon Best Vance W. Cable Andrew Jun Lee Amber D. Ronan Whitney M. Smith Christopher P. Bellows Brianna J. Carlson Vivian Chu Brandon A. Clift, CFE Joshua K. Hammonds, MPP Sam Harrison Heather Kendrick, JD, LLM Chuck Kocher, CIA, CFE Shaila Shankar Derek J. Sinutko, PhD Jesse Walden Legal Counsel: Donna L. Neville, Chief Counsel Scott A. Baxter, JD For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255. California State Auditor Report 2013-046 31 February 2014 Appendix A DETAILED RESULTS OF EXPENDITURE TESTING At each of the 18 local education agencies (LEAs) selected for site visits, the California State Auditor (state auditor) selected at least 10 expenditures from the cafeteria fund for each fiscal year from 2010–11 through 2012–13.9,10 We tested these expenditures for compliance with applicable laws and regulations and, based on our analysis, placed each expenditure in one of two categories. Allowable transactions are those that are necessary and reasonable expenditures for the operation or improvement of the child nutrition programs and comply with applicable administrative requirements. Unallowable transactions include both transactions that are unnecessary or unreasonable, and thus a misuse of cafeteria funds according to federal or state requirements, as well as expenditures that were appropriate but lacked evidence of compliance with one or more administrative requirements. Table A summarizes the results of our expenditure testing, listing the dollar amount tested for each type of expenditure at each LEA and how much was determined to be allowable or unallowable. Of the slightly more than $32 million in cafeteria fund expenditures that the state auditor tested, a little more than $1 million—about 3.2 percent— was unallowable. Further, for two of the 18 LEAs—Long Beach Unified School District and San Bernardino City Unified School District—we did not identify any unallowable cafeteria fund expenditures. Table A Results of the California State Auditor’s Testing of Cafeteria Fund Expenditures in Fiscal Years 2010–11 Through 2012–13 at 18 Local Education Agencies ALLOWABILITY OF EXPENDITURES LOCAL EDUCATION AGENCY (LEA) /EXPENDITURE TYPE ALLOWABLE UNALLOWABLE TOTAL EXPENDITURES TESTED Anaheim Union High School District $492,550 $63,642 $556,192 Equipment purchases and repairs 156,130 – 156,130 Facility repairs, maintenance, remodeling, and construction 282,576 – 282,576 Salaries and benefits 13,681 2,047 15,728 Utilities and other support costs (utility costs) – 61,595 61,595 Miscellaneous 40,163 – 40,163 continued on next page . . . 9 Federal regulations define a school food authority as the governing body responsible for administering one or more schools and that has the legal authority to operate the child nutrition programs. We use local education agency synonymously with school food authority; this usage is consistent with management bulletins issued by the California Department of Education to LEAs regarding their administration of the child nutrition programs. 10 Federal regulations require LEAs to separately account for their child nutrition program revenues and expenditures. State law authorizes LEAs to establish a cafeteria fund for this purpose. 32 California State Auditor Report 2013-046 February 2014 ALLOWABILITY OF EXPENDITURES LOCAL EDUCATION AGENCY (LEA) /EXPENDITURE TYPE ALLOWABLE UNALLOWABLE TOTAL EXPENDITURES TESTED Bakersfield City School District $2,163,352 $87,434 $2,250,786 Equipment purchases and repairs 210,028 6,682 216,710 Facility repairs, maintenance, remodeling, and construction 82,448 8,008 90,456 Salaries and benefits – 1,560 1,560 Indirect costs 1,857,513 – 1,857,513 Utility costs 645 – 645 Miscellaneous 12,718 71,184 83,902 Elk Grove Unified School District 3,064,765 25,986 3,090,751 Equipment purchases and repairs 198,530 – 198,530 Facility repairs, maintenance, remodeling, and construction 25,219 – 25,219 Salaries and benefits 811 5,589 6,400 Indirect costs 2,826,419 4,197 2,830,616 Interest – 3,883 3,883 Utility costs – 10,094 10,094 Miscellaneous 13,786 2,223 16,009 Long Beach Unified School District 833,741 – 833,741 Equipment purchases and repairs 104,884 – 104,884 Facility repairs, maintenance, remodeling, and construction 33,085 – 33,085 Salaries and benefits 12,290 – 12,290 Indirect costs 233,498 – 233,498 Utility costs 65,400 – 65,400 Miscellaneous 384,584 – 384,584 Los Banos Unified School District 974,063 14,828 988,891 Equipment purchases and repairs 472,536 – 472,536 Facility repairs, maintenance, remodeling, and construction 14,800 14,828 29,628 Salaries and benefits 9,626 – 9,626 Indirect costs 420,835 – 420,835 Utility costs 33,951 – 33,951 Miscellaneous 22,315 – 22,315 Madera Unified School District 1,602,425 12,005 1,614,430 Equipment purchases and repairs 221,616 – 221,616 Facility repairs, maintenance, remodeling, and construction 2,272 – 2,272 Salaries and benefits – 10,244 10,244 Indirect costs 1,221,213 – 1,221,213 Utility costs 8,257 1,761 10,018 Miscellaneous 149,067 – 149,067 Mendota Unified School District 269,725 19,172 288,897 Equipment purchases and repairs 32,380 1,328 33,708 Facility repairs, maintenance, remodeling, and construction 21,166 4,576 25,742 Salaries and benefits 3,900 6,823 10,723 Indirect costs 93,447 – 93,447 Utility costs 4,827 – 4,827 Miscellaneous 114,005 6,445 120,450 California State Auditor Report 2013-046 33 February 2014 ALLOWABILITY OF EXPENDITURES LOCAL EDUCATION AGENCY (LEA) /EXPENDITURE TYPE ALLOWABLE UNALLOWABLE TOTAL EXPENDITURES TESTED Merced City School District $810,262 $24,738 $835,000 Equipment purchases and repairs 295,411 11,329 306,740 Facility repairs, maintenance, remodeling, and construction 37,540 – 37,540 Salaries and benefits – 13,409 13,409 Indirect costs 472,370 – 472,370 Miscellaneous 4,941 – 4,941 Napa Valley Unified School District 1,121,656 1,242 1,122,898 Equipment purchases and repairs 35,427 – 35,427 Facility repairs, maintenance, remodeling, and construction 7,027 – 7,027 Salaries and benefits 5,537 899 6,436 Miscellaneous 1,073,665 343 1,074,008 North Monterey County Unified School District 481,793 55,322 537,115 Equipment purchases and repairs 132,728 – 132,728 Facility repairs, maintenance, remodeling, and construction 34,106 – 34,106 Salaries and benefits – 6,077 6,077 Indirect costs 299,874 49,245 349,119 Miscellaneous 15,085 – 15,085 Oakland Unified School District 2,550,106 1,719 2,551,825 Equipment purchases and repairs 164,651 – 164,651 Salaries and benefits 591 1,719 2,310 Indirect costs 2,055,038 – 2,055,038 Miscellaneous 329,826 – 329,826 Paramount Unified School District 149,241 24,080 173,321 Equipment purchases and repairs 40,717 14,368 55,085 Salaries and benefits 4,821 8,441 13,262 Utility costs 576 1,271 1,847 Miscellaneous 103,127 – 103,127 Ravenswood City School District 752,368 4,140 756,508 Equipment purchases and repairs 93,120 – 93,120 Facility repairs, maintenance, remodeling, and construction 6,000 – 6,000 Salaries and benefits 4,791 931 5,722 Indirect costs 346,740 2,997 349,737 Utility costs 565 91 656 Miscellaneous 301,152 121 301,273 San Bernardino City Unified School District 3,722,340 – 3,722,340 Equipment purchases and repairs 480,400 – 480,400 Facility repairs, maintenance, remodeling, and construction 17,610 – 17,610 Salaries and benefits 7,372 – 7,372 Indirect costs 3,073,992 – 3,073,992 Utility costs 43,000 – 43,000 Miscellaneous 99,966 – 99,966 continued on next page . . . 34 California State Auditor Report 2013-046 February 2014 ALLOWABILITY OF EXPENDITURES LOCAL EDUCATION AGENCY (LEA) /EXPENDITURE TYPE ALLOWABLE UNALLOWABLE TOTAL EXPENDITURES TESTED San Diego Unified School District $6,147,510 $121,641 $6,269,151 Equipment purchases and repairs 41,479 – 41,479 Facility repairs, maintenance, remodeling, and construction 16,730 – 16,730 Salaries and benefits 15,267 – 15,267 Indirect costs 5,709,945 1,870 5,711,815 Interest – 102,702 102,702 Utility costs 331,734 16,829 348,563 Miscellaneous 32,355 240 32,595 San Francisco Unified School District 3,359,785 12,221 3,372,006 Equipment purchases and repairs 135,097 – 135,097 Salaries and benefits 19,754 2,509 22,263 Indirect costs 2,297,913 – 2,297,913 Interest – 9,712 9,712 Utility costs 34,364 – 34,364 Miscellaneous 872,657 – 872,657 Stockton Unified School District 2,129,430 493,651 2,623,081 Equipment purchases and repairs 118,738 – 118,738 Facility repairs, maintenance, remodeling, and construction 83,897 453,282 537,179 Salaries and benefits 741 6,538 7,279 Indirect costs 1,892,312 8,909 1,901,221 Interest 25,072 22,053 47,125 Utility costs – 2,869 2,869 Miscellaneous 8,670 – 8,670 Sweetwater Union High School District 422,808 80,061 502,869 Equipment purchases and repairs 38,087 7,000 45,087 Salaries and benefits 1,524 5,809 7,333 Indirect costs 307,709 – 307,709 Interest – 32,875 32,875 Utility costs 563 – 563 Miscellaneous 74,925 34,377 109,302 Total expenditures tested $31,047,920 $1,041,882 $32,089,802 Percentage of total expenditures tested 96.8% 3.2% Source: California State Auditor’s analysis of selected transactions and indirect cost calculations of the LEAs specified. Notes: We tested the types of expenditures as required by Assembly Bill 110 of 2013. However, some of the 18 LEAs identified in the table did not incur all of the specified expenditures. As a result, the expenditure types tested varied with the LEA. The Miscellaneous category includes expenditures for materials and supplies; professional and consulting services; rentals, leases, repairs, and noncapitalized improvements; and travel and conferences. According to federal regulations, allowable costs must be necessary and reasonable for proper and efficient performance and administration of the child nutrition programs, and must comply with applicable administrative requirements. Unallowable expenditures include both expenditures that are unnecessary or unreasonable according to federal or state requirements, which is a misuse of cafeteria funds, as well as expenditures that were appropriate but lacked evidence of compliance with one or more administrative requirements. Federal regulations require LEAs to account for all revenues and expenditures of their nonprofit school food service. State law authorizes, but does not require, the governing board of a school district to establish a cafeteria fund to account separately for federal, state, and local resources of its food service program. California State Auditor Report 2013-046 35 February 2014 Appendix B LOCAL EDUCATION AGENCIES’ NET CASH RESOURCES IN EXCESS OF FEDERAL LIMITS Nine of the 18 local education agencies (LEAs) selected for a site visit had net cash resources in excess of federal limits, and all nine carried this excess in each of the three fiscal years under our review.11 A federal regulation requires that all net cash resources— all cash on hand at any given time, less unpaid bills—cannot exceed three months’ average expenditures of the cafeteria fund.12 For the most recent fiscal year, 2012–13, the largest amount of excess net cash resources, in nominal terms, was more than $7.8 million at the Stockton Unified School District. Although the smallest amount of excess net cash resources was observed at Los Banos Unified School District in fiscal year 2010–11, at almost $739,000, that amount increased to almost $2 million in fiscal year 2012–13, which was an increase of nearly 170 percent. In 2012 and 2013, the California Department of Education (CDE) issued management bulletins strongly recommending that LEAs with excess net cash resources immediately submit spending plans to CDE describing the actions the LEAs will take to reduce their excess funds. Table B provides details on the excess net cash resources in nine LEAs’ cafeteria funds for the period of our audit, including whether the LEAs have spending plans to reduce their excess funds. Table B Local Education Agencies Included in Our Review That Had Excess Net Cash Resources in Their Cafeteria Funds FEDERAL LIMIT OF FISCAL NET CASH THREE MONTHS’ DOES LEA HAVE A SPENDING PLAN LOCAL EDUCATION AGENCY (LEA) YEAR RESOURCES* AVERAGE EXPENDITURES EXCESS† TO REDUCE ITS EXCESS? Anaheim Union High 2010–11 $7,726,552 $5,125,757 $2,600,795 School District 2011–12 8,249,342 5,462,437 2,786,905 No 2012–13 8,976,548 5,374,488 3,602,060 Bakersfield City School District 2010–11 7,537,443 3,801,135 3,736,308 2011–12 7,139,526 4,433,096 2,706,430 Yes 2012–13 6,865,652 4,570,952 2,294,700 continued on next page . . . 11 Federal regulations define a school food authority as the governing body responsible for administering one or more schools and that has the legal authority to operate the child nutrition programs. We use local education agency synonymously with school food authority; this usage is consistent with management bulletins issued by CDE to LEAs regarding their administration of the child nutrition programs. 12 Federal regulations require LEAs to separately account for their child nutrition program revenues and expenditures. State law authorizes LEAs to establish a cafeteria fund for this purpose. 36 California State Auditor Report 2013-046 February 2014 FEDERAL LIMIT OF FISCAL NET CASH THREE MONTHS’ DOES LEA HAVE A SPENDING PLAN LOCAL EDUCATION AGENCY (LEA) YEAR RESOURCES* AVERAGE EXPENDITURES EXCESS† TO REDUCE ITS EXCESS? Los Banos Unified School District 2010–11 $1,764,903 $1,025,974 $738,929 2011–12 2,515,292 929,821 1,585,471 No 2012–13 3,019,672 1,033,660 1,986,012 Madera Unified School District 2010–11 4,713,600 2,090,411 2,623,189 2011–12 5,470,950 2,344,625 3,126,325 Yes 2012–13 4,979,049 2,759,498 2,219,551 Mendota Unified School District 2010–11 1,937,921 434,009 1,503,912 2011–12 2,275,947 467,488 1,808,459 Yes 2012–13 2,413,470 564,553 1,848,917 Merced City School District 2010–11 3,177,180 1,450,289 1,726,891 2011–12 3,504,957 1,487,382 2,017,575 Yes 2012–13 3,697,037 1,499,290 2,197,747 North Monterey County 2010–11 1,337,734 589,976 747,758 Unified School District 2011–12 1,569,632 570,117 999,515 No 2012–13 1,644,826 617,327 1,027,499 San Bernardino City 2010–11 15,025,922 6,649,518 8,376,404 Unified School District 2011–12 14,867,546 6,827,596 8,039,950 Yes 2012–13 12,481,798 7,439,037 5,042,761 Stockton Unified School District 2010–11 8,995,354 3,720,089 5,275,265 2011–12 10,691,769 3,871,813 6,819,956 Yes 2012–13 12,121,571 4,233,938 7,887,633 Source: California State Auditor’s analysis of financial information provided by each LEA. * Federal regulations define net cash resources as all cash on hand at any given time, less unpaid bills. Additionally, federal regulations limit net cash resources to an amount that does not exceed three months’ average expenditures of the LEA’s cafeteria fund. We determined an LEA’s monthly average cafeteria fund expenditures by dividing the LEA’s total cafeteria fund expenditures for a fiscal year by 12. † The excess amount in one fiscal year carries over to the subsequent fiscal year. So the amounts for each of the three years in the table should not be added together to arrive at the LEA’s current total excess. For example, at the end of fiscal year 2010–11 Anaheim Union High School District had an excess of net cash resources amounting to $2.6 million, and over the three‑year period the LEA added $1 million to that excess, ending the three‑year period with a total of $3.6 million in excess of net cash resources. California State Auditor Report 2013-046 37 February 2014 38 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 39 February 2014 40 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 41 February 2014 * * California State Auditor’s comments appear on page 45. 42 California State Auditor Report 2013-046 February 2014 1 California State Auditor Report 2013-046 43 February 2014 2 3 44 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 45 February 2014 Comments CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE ANAHEIM UNION HIGH SCHOOL DISTRICT To provide clarity and perspective, we are commenting on the response from the Anaheim Union High School District (Anaheim Union). The numbers below correspond to the numbers we have placed in the margin of Anaheim Union’s response. 1 The amount of salary and benefits that Anaheim Union charges for an employee may be an accurate representation of the time the employee spent working on tasks related to child nutrition programs. However, as indicated on pages 20 and 21, these charges are unallowable if not documented by a personnel activity report or similar documentation in accordance with federal regulation. 2 While preparing our draft report for publication, some page numbers shifted. Therefore, the page number Anaheim Union cites in its response does not correspond to the page number in our final report. 3 The sentence in our report on page 15 that Anaheim Union believes should be edited is correct as written. Although it is correct that Anaheim City School District billed Anaheim Union for unallowable utility costs, it was Anaheim Union that inappropriately paid these costs with its cafeteria fund. 46 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 47 February 2014 * 1 2 3 * California State Auditor’s comments begin on page 51. 48 California State Auditor Report 2013-046 February 2014 1 1 4 California State Auditor Report 2013-046 49 February 2014 5 6 7 50 California State Auditor Report 2013-046 February 2014 8 California State Auditor Report 2013-046 51 February 2014 Comments CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE BAKERSFIELD CITY SCHOOL DISTRICT To provide clarity and perspective, we are commenting on the response from the Bakersfield City School District (Bakersfield City). The numbers below correspond to the numbers we have placed in the margin of Bakersfield City’s response. Bakersfield City addressed its response to the Bureau of State Audits. 1 However, we are the California State Auditor’s Office. While preparing our draft report for publication, some page numbers 2 shifted. Therefore, the page numbers Bakersfield City cites in its response do not correspond to the page numbers in our final report. As indicated on page 18 of the report, our abbreviation for 3 Bakersfield City School District is Bakersfield City, which we have now used throughout the report. Our draft copy of the report incorrectly included the word Unified. 4 We disagree with Bakersfield City. Based on our interpretation of applicable federal guidance, we do not believe that the equipment Bakersfield City used to monitor students’ body mass index represents nutrition education materials. Also, as indicated on page 6 of the report, to be allowable, charges to a cafeteria fund must be for costs that are necessary and reasonable for operation or improvement of the child nutrition programs. We do not believe an awning meets this criteria. We disagree with Bakersfield City. As we state in our report on page 12, 5 construction costs to be paid with cafeteria fund money require prior approval from the U.S. Department of Agriculture (USDA). Bakersfield City acknowledged in its response that it paid the construction costs for this project from its general fund, thereby complying with USDA guidance for construction costs. Given the federal requirements in this area, we do not believe it would be reasonable to charge a cafeteria fund for design costs to build a structure when the costs of constructing the structure could not be charged to the cafeteria fund. As stated on page 22, Bakersfield City’s lack of awareness of the 6 requirement to complete and maintain personnel activity reports to support personnel costs charged to federal programs is surprising since this requirement has been in federal regulation since at least 2005 and included in the California Department of Education’s California School Accounting Manual for nearly a decade. 52 California State Auditor Report 2013-046 February 2014 7 Bakersfield City appears to misunderstand our point. Although the children’s books may have been an appropriate cost, as we state on page 18, Bakersfield City could not provide us evidence that justifies the need to use these books as nutrition education materials. 8 Although data for nonprogram foods costs and revenues may have been available when Bakersfield City prepared its response to our report, as indicated in Table 4 on page 25, these data were not available to us during our audit fieldwork. California State Auditor Report 2013-046 53 February 2014 * 1 * California State Auditor’s comments appear on page 57. 54 California State Auditor Report 2013-046 February 2014 2 California State Auditor Report 2013-046 55 February 2014 56 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 57 February 2014 Comments CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE ELK GROVE UNIFIED SCHOOL DISTRICT To provide clarity and perspective, we are commenting on the response from the Elk Grove Unified School District (Elk Grove Unified). The numbers below correspond to the numbers we have placed in the margin of Elk Grove Unified’s response. 1 Elk Grove Unified’s response suggests that we tested approximately $65.1 million of its cafeteria fund expenditures for fiscal years 2010–11 through 2012–13. However, this is not the case and as indicated in Table 2 on page 12, we tested a total of almost $32.1 million of cafeteria fund expenditures at 18 local education agencies (LEAs), of which $3.1 million represented the amount we tested at Elk Grove Unified. 2 We worded our recommendation regarding LEAs reimbursing their cafeteria funds for unallowable expenditures to reflect the likelihood that some LEAs might make these reimbursements before our report was published. We will perform a full review of documentation submitted by LEAs for such reimbursements when we assess each LEA’s 60‑day response to this audit report. 58 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 59 February 2014 60 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 61 February 2014 62 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 63 February 2014 (Original signed by: Sandon M. Schwartz) 64 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 65 February 2014 * 1 * California State Auditor’s comment appears on page 67. 66 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 67 February 2014 Comment CALIFORNIA STATE AUDITOR’S COMMENT ON THE RESPONSE FROM THE MENDOTA UNIFIED SCHOOL DISTRICT To provide clarity and perspective, we are commenting on the response from the Mendota Unified School District (Mendota Unified). The number below corresponds to the number we have placed in the margin of Mendota Unified’s response. 1 While preparing our draft report for publication, some page numbers shifted. Therefore, the page number Mendota Unified cites in its response does not correspond to the page number in our final report. 68 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 69 February 2014 70 California State Auditor Report 2013-046 February 2014 Merced City School District Response to Audit Merced City School District works hard to ensure compliance with all State and Federal regulations and funding requirements. We have reviewed the Audit team’s findings and offer the following response: Unallowable Expenditures Semi-Annual Certifications for federally funded positions are completed twice each fiscal year. Unfortunately, due to a change in personnel, the department was unable to locate the proper documentation requested. The Nutrition Services Department has reviewed their procedures and will make sure this documentation is complete and safely filed for inspection from this point forward. Equipment purchases and repairs made with Cafeteria funds were split between the General Fund and the Cafeteria Fund to match their intended use. Prior to making any future equipment purchases of this type, we will request written authorization from the State. The District will reimburse the Cafeteria Fund for these disallowed expenditures in the amount of $24,738.00. Cafeteria Fund Balance MCSD has had for the period of 2008 through 2014 a CDE, NSD approved spending plan. The expenditures planned were completed in full and were reported to the CDE, NSD division. In May of 2013, MCSD submitted a new three year spending plan. This plan spends down 80-90% of the cafeteria fund reserves and aligns with the districts long-term facility plan. MCSD has contacted CDE, NSD to obtain an update on the progress of their review of this Spending Plan. CDE, NSD stated that due to a new unit/staff our request has not been reviewed. Non-program Foods Merced City School District has completed the following for years 2011-2012 and 2012- 2013: Identified records that tracked non-program foods for both expenses and revenue o Applied the federally required “Non-program foods Formula”, to determine o compliance Based on the results, MCSD found the following: Expenditures for non-program foods were 3.2%, and Revenue for non-program foods was 2.1%. Immediately, a la carte price increases were applied to the non-program food items that had the narrowest margin of profit. MCSD will conduct this activity for the 2012-2013 and 2013-2014 school year and increase prices for the 2014-2015 school year as needed. California State Auditor Report 2013-046 71 February 2014 * 1 * California State Auditor’s comment appears on page 73. 72 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 73 February 2014 Comment CALIFORNIA STATE AUDITOR’S COMMENT ON THE RESPONSE FROM THE NAPA VALLEY UNIFIED SCHOOL DISTRICT To provide clarity and perspective, we are commenting on the response from the Napa Valley Unified School District (Napa Valley Unified). The number below corresponds to the number we have placed in the margin of Napa Valley Unified’s response. 1 Napa Valley Unified’s calculation of the minimum required amount of nonprogram foods revenue used data that were not available to us during our audit fieldwork because, as indicated in Table 4 on page 25 in our report, Napa Valley Unified had not tracked these data before our audit. 74 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 75 February 2014 * * California State Auditor’s comments appear on page 77. 76 California State Auditor Report 2013-046 February 2014 1 2 1 3 1 2 California State Auditor Report 2013-046 77 February 2014 Comments CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE NORTH MONTEREY COUNTY UNIFIED SCHOOL DISTRICT To provide clarity and perspective, we are commenting on the response from the North Monterey County Unified School District (North Monterey Unified). The numbers below correspond to the numbers we have placed in the margin of North Monterey Unified’s response. 1 While preparing our draft report for publication, some page numbers shifted. Therefore, the page numbers North Monterey Unified cites in its response do not correspond to the page numbers in our final report. 2 We appreciate North Monterey Unified’s concern about it being misidentified with other, similar sounding school districts. However, throughout the report we use the full name of North Monterey Unified in every graphic and the first time we mention the district in the Audit Results. Thus, we believe the risk of misidentification is minor. 3 The California State Auditor’s publishing style is to not capitalize position titles. 78 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 79 February 2014 Response to California State Auditor Report 2013-046 February 12, 2014 Recommendation: LEA’s that used cafeteria funds for unallowable purposes should do the following by June 30, 2014: 1. Reimburse the cafeteria fund for those costs if it has not already done so. 2. Review all guidance from the U.S. Department of Agriculture and the California Department of Education (CDE) to better understand what these funds can be used for. Response: The District agrees with these Recommendations and is/has: Reimbursing the Cafeteria fund for the unallowable expenditures by June 30, 2014 Established procedures for proper completion of PAR’s Recommendation: With regards to nonprogram foods, LEA’s should do the following: 1. Create and implement a system to track their nonprogram costs and/or nonprogram revenues by June 30, 2014. 2. Determine whether they are generating at least minimum required amount of nonprogram foods revenues and if they are not, make the adjustments necessary to general in fiscal year 2014-15 the amount of nonprogram foods revenues needed to meet federal requirements. Response: The LEA agrees to these recommendations and will be: 1. Create & implement a system to trace the nonprogram costs by June 30, 2014. System already exists to track revenues. 2. Review minimum required amount for nonprogram food revenues and make adjustments for 2014-15 school year. 80 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 81 February 2014 82 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 83 February 2014 84 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 85 February 2014 86 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 87 February 2014 * 1 * California State Auditor’s comment appears on page 89. 88 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 89 February 2014 Comment CALIFORNIA STATE AUDITOR’S COMMENT ON THE RESPONSE FROM THE SAN DIEGO UNIFIED SCHOOL DISTRICT To provide clarity and perspective, we are commenting on the response from the San Diego Unified School District (San Diego Unified). The number below corresponds to the number we have placed in the margin of San Diego Unified’s response. 1 While preparing our draft report for publication, some page numbers shifted. Therefore, the page number San Diego Unified cites in its response does not correspond to the page number in our final report. 90 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 91 February 2014 Note: San Francisco Unified School District (San Francisco Unified) provided us a copy of a journal entry relating to our audit of its cafeteria fund, to which San Francisco Unified refers in its response. We have not included this document with San Francisco Unified’s response, but it is available for inspection at the California State Auditor’s Office during business hours upon request. 92 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 93 February 2014 94 California State Auditor Report 2013-046 February 2014 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-046 95 February 2014 96 California State Auditor Report 2013-046 February 2014 California State Auditor Report 2013-046 97 February 2014 (Original signed by: Eric Span) Note: Sweetwater Union High School District (Sweetwater Union) provided us copies of several documents, including accounting records, payroll distributions, and personnel action memoranda relating to our audit of its cafeteria fund, to which Sweetwater Union refers in its response. We have not included these documents with Sweetwater Union’s response, but they are available for inspection at the California State Auditor’s Office during business hours upon request. 98 California State Auditor Report 2013-046 February 2014 Table of Contents Cover Letter…………….……………………………………………………………………………………………1 Response to Findings……………………………………………………………………………………………2 Exhibit I - Correction Documentation Exhibit II – Employee Payroll/Budget Documentation California State Auditor Report 2013-046 99 February 2014 Sweetwater Union High School District Nutrition Services Department 1130 Fifth Avenue Chula Vista, Ca. 91911 Unallowable expenditures: Interest charges: Due to cash flow issues, it is common place that the Cafeteria Fund periodically borrows from other District funds, such as the General Fund. It has been the District’s standing practice that the Cafeteria Fund pay interest to the funds borrowed from; however, the District was unaware that costs incurred for interest on borrowed capital for the use of the governmental unit’s own funds are unallowable. The District has repaid the Cafeteria Fund for fiscal years 2010/11, 2011/12 and 2012/13 in the amount of $ 32,875 and will no longer charge interest to the Cafeteria Fund (Exhibit I). Equipment: Prior administration purchased equipment that is not considered an appropriate Cafeteria Fund equipment expenditure. The District has repaid the Cafeteria Fund in the amount of $7,000 (Exhibit I). Salaries and Benefits: The cafeteria fund (fund 13) was reimbursed $5809 from the General Fund. This was done in response to not having the Semi-Annual Certifications for 2010-11 and 2011-12. The Nutrition Services department has begun instituting the certifications. The Nutrition Services Department provided the 2013-14 certifications to the audit team while onsite. Associated Student Body The Nutrition Services Department discontinued all ASB partnerships effective July 1, 2011. The District has repaid the Cafeteria Fund in the amount of $34,377 (Exhibit I). Non-program food costs: The District will adjust sales prices for non-program food sales (catering and al a carte) effective July 1, 2014. Cafeteria Financial Audit Responses 100 California State Auditor Report 2013-046 February 2014 cc: Members of the Legislature Office of the Lieutenant Governor Little Hoover Commission Department of Finance Attorney General State Controller State Treasurer Legislative Analyst Senate Office of Research California Research Bureau Capitol Press