7 CFR 226.7 – State agency responsibilities for financial management
(a) This section prescribes standards of financial management systems in administering Program funds by the State agency and institutions.
(b) Financial management system. Each State agency must establish and maintain an acceptable financial management system, adhere to financial management standards and otherwise carry out financial management policies in accordance with 2 CFR parts 200, 400, 415, 416, 417, 418, and 421, and FNS Instruction 796-2, as applicable, and related FNS guidance to identify allowable Program costs and establish standards for institutional recordkeeping and reporting. The State agency must provide guidance on financial management requirements to each institution.
(1) State agencies must also have a system in place for:
(i) Annually reviewing at least 1 month’s bank account activity of all sponsoring organizations against documents adequate to support that the financial transactions meet Program requirements. The State agency may expand the review to examine additional months of bank account activity if discrepancies are found. If the State agency identifies and is unable to verify any expenditures that have the appearance of violating Program requirements, or if the discrepancy is significant, the State agency must refer the sponsoring organization’s bank account activity to the appropriate State authorities.
(ii) Annually reviewing actual expenditures reported of Program funds and the amount of meal reimbursement funds retained from centers, if any, for administrative costs for all sponsoring organizations of unaffiliated centers. State agencies must reconcile reported expenditures with Program payments to ensure that funds are fully accounted for, and use the reported actual expenditures as the basis for selecting a sample of expenditures for validation. If the State agency identifies and is unable to verify any expenditures that have the appearance of violating Program requirements, the State agency must refer the sponsoring organization’s bank account activity to the appropriate State authorities.
(iii) Monitoring and reviewing the institutions’ documentation of their nonprofit status to ensure that all Program reimbursement funds are used solely for the conduct of the food service operation or to improve food service operations, principally for the benefit of children or adult participants.
(2) The financial management system standards for institutional recordkeeping and reporting must:
(i) Prohibit claiming reimbursement for meals provided by a child or an adult participant’s family, except as authorized at §§ 226.18(e) and 226.20(b)(2), (g)(1)(ii), and (g)(2)(ii); and
(ii) Allow the cost of meals served to adults who perform necessary food service labor under the Program, except in day care homes.
(c) Management evaluations and audits. State agencies shall provide FNS with full opportunity to conduct management evaluations (including visits to institutions and facilities) of all operations of the State agency under the Program and shall provide OIG with full opportunity to conduct audits (including visits to institutions and facilities) of all operations of the State agency under the Program. Within 60 calendar days of receipt of each management evaluation report, the State agency shall submit to FNSRO a written plan for correcting serious deficiencies, including specific timeframes for accomplishing corrective actions and initiating follow-up efforts. If a State agency makes a showing of good cause, however, FNS may allow more than 60 days in which to submit a plan. Each State agency shall make available its records, including records of the receipt and expenditure of funds, upon request by FNS or OIG. OIG shall also have the right to make audits of the records and operation of any institution.
(d) Reports. Each State agency shall submit to FNS the final Report of the Child and Adult Care Food Program (FNS 44) for each month which shall be limited to claims submitted in accordance with § 226.10(e) and which shall be postmarked and/or submitted no later than 90 days following the last day of the month covered by the report. States shall not receive Program funds for any month for which the final report is not submitted within this time limit unless FNS grants an exception. Upward adjustments to a State agency’s report shall not be made after 90 days from the month covered by the report unless authorized by FNS. Downward adjustments shall always be made, without FNS authorization, regardless of when it is determined that such adjustments are necessary. Adjustments shall be reported to FNS in accordance with procedures established by FNS. Each State agency shall also submit to FNS a quarterly Financial Status Report (FNS-777) on the use of Program funds. Such reports shall be postmarked and/or submitted no later than 30 days after the end of each fiscal year quarter. Obligations shall be reported only for the fiscal year in which they occur. A final Financial Status Report for each fiscal year shall be postmarked and/or submitted to FNS within 120 days after the end of the fiscal year. FNS shall not be responsible for reimbursing unpaid Program obligations reported later than 120 days after the close of the fiscal year in which they were incurred.
(e) Annual plan. Each State shall submit to the Secretary for approval by August 15 of each year an annual plan for the use of State administrative expense funds, including a staff formula for State personnel.
(f) Rate assignment. Each State agency must require institutions (other than emergency shelters, at-risk afterschool care centers, and sponsoring organizations of emergency shelters, at-risk afterschool care centers, or day care homes) to submit, not less frequently than annually, information necessary to assign rates of reimbursement as outlined in § 226.9.
(g) Budget approval. The State agency must review institution budgets and must limit allowable administrative claims by each sponsoring organization to the administrative costs approved in its budget, except as provided in this section. The budget must demonstrate the institution’s ability to manage Program funds in accordance with this part, FNS Instruction 796-2, 2 CFR part 200, subpart D and USDA implementing regulations 2 CFR part 400 and part 415, and applicable Office of Management and Budget circulars. Sponsoring organizations must submit an administrative budget to the State agency annually, and independent centers must submit budgets as frequently as required by the State agency. Budget levels may be adjusted to reflect changes in Program activities. If the institution does not intend to use non-CACFP funds to support any required CACFP functions, the institution’s budget must identify a source of non-Program funds that could be used to pay overclaims or other unallowable costs. If the institution intends to use any non-Program resources to meet CACFP requirements, these non-Program funds should be accounted for in the institution’s budget, and the institution’s budget must identify a source of non-Program funds that could be used to pay overclaims or other unallowable costs.
(1) For sponsoring organizations of centers, the State agency is prohibited from approving the sponsoring organization’s administrative budget, or any amendments to the budget, if the administrative budget shows the Program will be charged for administrative costs in excess of 15 percent of the meal reimbursements estimated to be earned during the budget year. However, the State agency may waive this limit if the sponsoring organization provides justification that it requires Program funds in excess of 15 percent to pay its administrative costs and if the State agency is convinced that the institution will have adequate funding to provide meals meeting the requirements of § 226.20. The State agency must document all waiver approvals and denials in writing and provide a copy of all such letters to the appropriate FNSRO.
(2) For sponsoring organizations of day care homes seeking to carry over administrative funds, as described in § 226.12(a)(3), the State agency must require the budget to include an estimate of the requested administrative fund carryover amount and a description of the purpose for which those funds would be obligated or expended by the end of the fiscal year following the fiscal year in which they were received. In approving a carryover request, State agencies must take into consideration whether the sponsoring organization has a financial management system that meets Program requirements and is capable of controlling the custody, documentation, and disbursement of carryover funds. As soon as possible after fiscal year close-out, the State agency must require sponsoring organizations carrying over administrative funds to submit an amended budget for State agency review and approval. The amended budget must identify the amount of administrative funds actually carried over and describe the purpose for which the carry-over funds have been or will be used.
(h) Start-up and expansion payments. Each State agency shall establish procedures for evaluating requests for start-up and expansion payments, issuing these payments to eligible sponsoring organizations, and monitoring the use of these payments.
(i) Advance payments. Each State agency shall establish procedures for issuing advance payments by the first day of each month and comparing these payments with earned reimbursement on a monthly basis. The State agency shall maintain on file a statement of the State’s law and policy governing the use of interest earned on advanced funds by sponsors, institutions, child care facilities and adult day care facilities.
(j) Recovery of overpayments. Each State agency must establish procedures to recover outstanding start-up, expansion, and advance payments from institutions which, in the opinion of the State agency, will not be able to earn these payments. In addition, each State agency must establish procedures to recover administrative funds from sponsoring organizations of day care homes that are not properly payable under FNS Instruction 796-2, administrative funds that are in excess of the 10 percent maximum carryover amount, and carryover amounts that are not expended or obligated by the end of the fiscal year following the fiscal year in which they were received.
(k) Claims processing. Each State agency shall establish procedures for institutions to properly submit claims for reimbursement. Such procedures must include State agency edit checks, including but not limited to ensuring that payments are made only for approved meal types and that the number of meals for which reimbursement is provided does not exceed the product of the total enrollment times operating days times approved meal types. All valid claims shall be paid within 45 calendar days of receipt. Within 15 calendar days of receipt of any incomplete or incorrect claim which must be revised for payment, the State agency shall notify the institution as to why and how such claim must be revised. If the State agency disallows partial or full payment for a claim for reimbursement, it shall notify the institution which submitted the claim of its right to appeal under § 226.6(k). State agencies may permit disallowances to be appealed separately from claims for reimbursement.
(l) Participation controls. The State agency may establish control procedures to ensure that payment is not made for meals served to participants attending in excess of the authorized capacity of each independent center, adult day care facility or child care facility.