One State’s Story about Indirect Cost in theChild Nutrition Program

Lynn Harvey, Ed.D, RD, LDN, FADA

Child Nutrition Services

NC Department of Public Instruction

As the saying goes…

“If it is not tested, it is not taught. ”

“If it is not monitored, it is not managed properly.”

What you need to know…

Indirect cost is allowable.Indirect cost is complex.Indirect cost is governed

by Federal Regulations

(CFR Part 225, formerly OMB A-87).Indirect cost is inconsistent from state).

What you need to know…Indirect cost is frustrating.Indirect cost can be a contentious issue.

How you approach this subject is as important as what you do about it.

Indirect cost “errors” are usually unintentional.

1995

NC General Assembly downsizes the Department of Public Instruction.

CN Division is cut from staff of 52 to 12.CACFP and SFSP moved to NC DHHS.Program auditors moved to NC DHHS.Very little guidance and oversight of

financial aspects of NSLP.

Fast Forward to 2004

CN programs are coming under fire for the epidemic of Childhood Obesity.

NC’s CN Program has had a robust a la carte food/beverage program since 1990.

LEAs are charging 100% unrestricted indirect cost rate…and then some.

LEAs view IC as an “entitlement” and CN Program is managed with the primary goal of producing revenues to pay IC.

2005

NC General Assembly authorizes a study of the cost of nutrition standards.

Study of 124 elementary schools shows cost of implementation to be $20 million annually.

NCGA directs State Board of Education to adopt nutrition standards (with goal of funding).

Indirect Cost exceeded $46 million and begins to “squeeze” CN fund balances.

2006

NC SBE adopts nutrition standards.CN Programs begin to voluntarily comply.SA begins to monitor IC rates and confirms:

(1) cannot charge directly and indirectly; (2) cannot be charged retroactively; (3) IC must be treated consistently within the district; and (4) may only apply to salaries/benefits,

training/travel and materials/supplies.

2007

Gradual implementation of nutrition standards begins to erode the available fund balance.

LEA CFOs continue to assess Indirect Cost at the maximum unrestricted rate (9% - 28%)

SA begins to provide training for CN Personnel on Indirect Cost as part of financial management training.

SA becomes more enlightened about “unintentional errors” in applying Indirect Cost to CN Programs.

2007

Gradual implementation of nutrition standards begins to erode the available fund balance.

LEA CFOs continue to assess Indirect Cost at the maximum unrestricted rate (9% - 28%)

SA begins to provide training for CN Personnel on Indirect Cost as part of financial management training.

SA becomes more enlightened about “unintentional errors” in applying Indirect Cost to CN Programs.

2007

Gradual implementation of nutrition standards begins to erode the available fund balance.

LEA CFOs continue to assess Indirect Cost at the maximum unrestricted rate (9% - 28%)

SA begins to provide training for CN Personnel on Indirect Cost as part of financial management training.

SA becomes more enlightened about “unintentional errors” in applying Indirect Cost to CN Programs.

2008

CN Programs implement SBE-adopted nutrition standards in elementary schools.

CN Programs collectively lose $23 million.Ability for LEAs to assess Indirect Cost at the

maximum unrestricted rate is limited.Assessment of Indirect Cost begins to

contribute to the erosion of the financial integrity of the CN program (one of many factors).

94 of 115 LEAs are operating in the “red.”

2009

SA attempts to “stop the red” by modifying the Agreement to limit the assessment of indirect cost of doing so compromises the financial integrity of the CN Program.

This practice is not well-received by many LEAs.

Some perceive inability to pay Indirect Cost as a personnel/performance matter.

SA begins to monitor LEA Indirect Cost by desk audits and comprehensive Financial Management Review in the CRE.

2009

SA forms Task Force of LEA CN Directors and CFOs to establish recommendations for the establishment of Indirect Cost.

Task Force recommends the Agreement to require LEAs to limit the assessment of Indirect Cost if doing so compromises the financial solvency of the CN Program; NCASBO gets involved.

SA begins to monitor LEA Indirect Cost by desk audits and comprehensive Financial Management Review in the CRE.

2010

Legislative Task Force on Childhood Obesity begins to examine why nutrition standards have not been implemented state-wide.

Task Force recommends the Program Evaluation Division study the Child Nutrition Program to seek answers.

Program Evaluation Division specifically directed to evaluate Indirect Cost in the CN Program.

2011

Program Evaluation Division conducts comprehensive review of the CN Program and the CN Services Section.

Review documents reasons for inability to implement nutrition standards statewide.

PED recommends the GA establish legislation that would prohibit LEAs from assessing Indirect Cost if the CN Program has less than 1 month operating balance.

2011

SA moves aggressively to cap indirect cost and issues directive that the maximum indirect cost rate cannot exceed 18%.

SA also directs the Child Nutrition Services Section to enforce the limitation on “financial solvency.”

2012

SA will notify LEAs whether they can assess indirect cost to the CN Program based on “financial solvency” (1 MOB).

SA will require LEAs to declare their intent to assess Indirect Cost to the Child Nutrition Program…in advance, based on three-year rolling balance.

SA will continue to train LEAs and monitor Indirect Cost annually through desk audits, TAs, CREs.

What you need to know…

State/local education agencies must develop awritten plan for determining indirect cost; thisplan is called the Cost Allocation Plan orIndirect Cost Rate Plan

What you need to know…

The Indirect Cost Rate Plan must be approved by the “Cognizant Agency” (US Department of Education).

The Indirect Cost Rate is based on the approved Indirect Cost Rate Plan.

Indirect Cost may be established at a restricted or a non-restricted rate.

Child Nutrition Programs are assessed at the unrestricted rate or lower.

What you need to know…

The Indirect Cost Rate is derived from a

formula that considers the district’s various

expenditures.Direct CostsIndirect CostsExcluded CostsUnallowed Costs

2007

Gradual implementation of nutrition standards begins to erode the available fund balance.

LEA CFOs continue to assess Indirect Cost at the maximum unrestricted rate (9% - 28%)

SA begins to provide training for CN Personnel on Indirect Cost as part of financial management training.

SA becomes more enlightened about “unintentional errors” in applying Indirect Cost to CN Programs.

The Indirect Cost Puzzle can be solved.

Be informed.Be patient.

Be persistent.Be careful.

Be strategic.