Financial Management: A Course for School Nutrition Directors (4 Hour)

1. Financial Management: A Course for School Nutrition Directors (4 Hour) National Food Service Management Institute

2. Can you answer these financial management questions about the school nutrition program in your district? • Main sources of revenue? • Percentage of total revenue attributed to each source? • Expenditure categories?

3. More questions • Cost to produce a meal? • Percent of revenue spent for labor or food? • Labor productivity index (meals per labor hour)?

4. More questions • Net gain or loss over the past 3 years? • How many employees understand the importance of cost controls to the success of the program?

5. Defining Financial Management Financial Management can be defined as • The process of defining the financial goals and program objectives for the school nutrition programs, and • Implementing activities to attain those goals through the effective use of resources

6. Role of the School Nutrition Director in Managing Finances • Management of financial resources • Maintain financial accountability • Involve administrators, board members, cafeteria managers, and nutrition staff to identify goals • Promote team approach • Assess, monitor, and evaluate program funds • Maintain on-going training

7. Development of a Financial Management Information System Objective: Know the basic financial recording and reporting processes and procedures for directing the operation of a school nutrition program.

8. Financial Management Information System • Provides a uniform and consistent financial reporting structure • Provides meaningful and timely financial management information • Supports federal reporting requirements

9. Financial Management Information System (cont.) • Adheres to Generally Accepted Accounting Principles (known as GAAP) • Provides a basis for determining accountability

10. Available at: www.nfsmi.org NFSMI Financial Management Information System

11. Labor Employee Benefits Professional and Technical Services Property Services Food and USDA Foods Supplies Capital Equipment Miscellaneous Indirect Costs Fund Transfer-Out Classification of Expenditures

12. Financial Reporting of Revenue and Expenditure Transactions Objective: Know how to use financial reports that are consistent with federal and state guidelines to achieve a financial management system that provides a cost effective program with high integrity.

13. Types of Financial Reports • Statement of Revenue and Expenditures (Net Gain/Loss Statement) • Statement of Net Assets (Balance Sheet) • Budget

14. Statement of Revenue and Expenditures • Revenue by source • Expenditures by category • Net gain/loss for the statement period • Comparison of current month with previous month’s information and year-to-date information.

15. Statement of Net Assets • Assets • Cash balance, receivables due, and value of inventories • Liabilities • Outstanding payables • Deferred revenue • Sales tax owed (when appropriate) • Fund Balance

16. The Fund Balance • The school nutrition director can use the Fund Balance reported on the Statement of Net Assets to • Verify how much of the fund balance is reserved for encumbrances • Determine how much money is available for expenditures • Gauge how the program is performing financially

17. The Budget as a Management Tool • forecasting revenue • identifying how revenue will be allocated for expenditures • predicting how much money will be in the fund balance at year’s end The budget assists in managing theschool nutrition program by

18. Methods of Budgeting • Incremental(baseline) – Previous year’s budget is starting point. Adjustments made to each line item to reflect expected changes. • Zero – Start with zero for each line item and build according to expectations. • Combination – Uses zero for some items and incremental for other items.

19. Setting a Meal Standard for Financial Management and Analysis Objective: Know how to use financial management tools and standards to operate a financially and nutritionally accountable school nutrition program consistent with federal and state guidelines.

20. Using Meal Equivalents in Program Analysis to Measure Performance By converting food sales to meal equivalents, the school nutrition director can determine • meal cost, • labor productivity ratios, and • the average revenue earned per meal/meal equivalent

21. Meal Equivalent Conversion Formulas • 1 lunch = 1 lunch • 3 breakfasts = 2 lunches (2/3 = .67) • 3 snacks = 1 lunch (1/3 = .33) • other food sales revenue from other food sales current free lunch reimbursement + current USDA Foods value per lunch

22. Managing Revenue in School Nutrition Programs Objective: Know how to analyze, interpret, and use revenue data for program evaluation and improvement.

23. Why it’s important to compare revenue earned with meal cost • This comparison is useful because • It helps determine if and where revenue needs to be increased. • It allows you to analyze revenue by source. • It identifies areas in which revenue should be monitored for revenue loss.

24. Setting Meal Prices Average Lunch Cost ($2.56) minus Section 4 reimbursement ($0.24) minus USDA Foods Value ($0.2/75) yields Lunch Base Price = $2.1125 The projected average lunch cost of $2.56 is a hypothetical figure for illustrative purposes only. Many school districts project meal costs for the new school year based on anticipated increases in food, labor, and other considerations, and then use the formula to determine a base price for each meal served. *Rates shown in this slide are for school year 2008-2009

25. Types of Nonreimbursable School Day Food Sales • Adult meals • Sale of a second meal to a student • Individual components of the reimbursable meal such as milk • Other food items not on the menu (a la carte)

26. Nonreimbursable Foods Sold Away from Campus or Outside School Day Catered meals Contract meals that do not qualify for reimbursement (some meals such as day care might qualify for reimbursement) 3. Special school function meals such as athletic banquets

27. Managing Expenditures in the School Nutrition Program Objective: Know how to analyze, interpret, and use expenditure data for program evaluation and improvement.

28. Expenditure Analysis • Analyzing financial reports can provide information about • patterns or trends, • significant changes in costs categories, • deviations from financial goals, • possible abuse or theft, and • transaction errors

29. Types of Expenditure Analysis • Total costs to produce a meal • Meal costs per expenditure category • Percentages of operational costs to total revenue • Costs to produce a meal compared with the average revenue generated per meal

30. Meal Costs Deviations • Higher food costs at the beginning of the year due to larger than normal food purchases • Purchase of a large ticket item • Unplanned large repair bills

31. Food Cost Percentage to Total Revenue • Formula: Costs of Purchased Food Total Revenue • Example: $16,500 (food costs) $30,000 (revenue) = .55 x 100 or 55% • 55 cents from each dollar generated was used to purchase food.

32. What do Cost Percentages Mean? If total of all cost percentages is • Less than 100%-operating balance increases • Equal to 100%-program breaks-even • More than 100%-operating balance decreases

33. Comparing Revenue to Expenditures • Total net gain/loss to the school nutrition program expressed in dollars • Percent of gain/loss expressed in percentage of revenue • Net gain/loss per meal or meal equivalent Comparing revenue to expenditures tells us

34. Controlling Food and Labor Costs in School Nutrition Programs Objective: Know how to apply cost control measures to operate a financially sound program with nutritional integrity.

35. Meals Per Labor Hour Number Meals/Meal Equivalents Number of Paid Productive Labor Hours Example: 338 total meals/meal equivalents 24 paid productive labor hours = 14.08 or 14 meals per labor hour

36. Using Participation as a Financial Management Tool Used as a forecasting tool to • Prevent waste in excess labor hours and overproduction of food. • Reduce customer dissatisfaction because of inadequate staff and too little food prepared for the number served.

37. Developing and Analyzing a School Nutrition Budget Objective: School nutrition directors should understand the importance of using the budget as an analysis tool and control document.