Report 2013-046 Summary - February 2014

Cafeteria Funds: Local Education Agencies Generally Use the Funds for Appropriate Purposes


Our audit of local education agencies' (LEAs) cafeteria fund expenditures highlighted the following:


Beginning with the National School Lunch Program in 1946, and continuing with the School Breakfast Program, the Special Milk Program, and the Summer Food Service Program for Children, the federal government has established programs to provide nutritious food to needy children while at school. These programs are collectively known as the child nutrition programs. Each local education agency (LEA)—a category in California consisting of school districts, charter schools, and county offices of education—must separately account for its revenues and expenditures related to the child nutrition programs,1 and state law authorizes LEAs to establish a cafeteria fund for this purpose. An LEA may charge its cafeteria fund only for allowable costs—that is, those that are necessary and reasonable for the operation or improvement of the programs and in compliance with applicable federal administrative requirements. The federal government provides the largest amount of funding for the child nutrition programs, and the California Department of Education (CDE) is responsible for administering the programs.

We reviewed cafeteria fund expenditures at 18 LEAs for fiscal years 2010-11 through 2012-13. These 18 LEAs spent all or most of their cafeteria funds for allowable purposes. Specifically, of the $32 million in cafeteria fund expenditures that we reviewed across these 18 LEAs, $31 million was for expenditures that were necessary and reasonable for the operation of the child nutrition programs and complied with federal administrative requirements.

The $1 million in unallowable cafeteria fund expenditures occurred among 16 of the 18 LEAs, and involved either the use of the funds for inappropriate or prohibited purposes or a failure to comply with federal administrative requirements. More than $480,000 of this $1 million was for facility costs that four LEAs should not have charged to their cafeteria funds. For example, Stockton Unified School District (Stockton Unified) spent more than $383,000 to upgrade portable buildings for use as administrative offices. Although federal regulations require prior approval from the U.S. Department of Agriculture (USDA) for construction paid for with cafeteria funds, Stockton Unified was not able to provide documentation that it had requested or received prior approval for this construction project.

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 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.


By June 30, 2014, LEAs that used cafeteria funds for unallowable purposes should do the following:

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.


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.

1 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.