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Expenditures (Cost)

Revenues must be used for expenses that are necessary for child nutrition program operation and improvement. This includes, but is not limited to, food, equipment, supplies and program personnel. School nutrition program (SNP) funds must not be used for expenditures that are not directly related to the SNP operation and improvement even though the SNP account may be part of the SFA’s general fund. All expenditures must be reasonable, allowable, and allocable.

All financial transactions related to expenditures are subjected to the federal, state and local procurement regulations. SFAs must use that guidance in addition to the guidance in this section to ensure that they are in compliance with all regulations related to financial management.

SFAs must use the following guidance in determing if an expense is allowable.

Direct or Indirect Costs

Direct Costs - direct cost are defined as expenses that can be identified specifically with a particular cost objective used to meet a specific program goal or goals. For Example: Cost of food, staff salaries, supplies and materials related to the food service program.

Indirect Costs - indirect costs are defined as expenses that are incurred for the benefit of multiple programs or functions and are also necessary for the general operation of the food service program, but these expenses cannot be directly attributable to the program. For Example: Costs associated with payroll services, building utilities, or facilities management.

Indirect Costs, Equipment and Capital Expenditures - equipment and other capital expenditures are unallowable as indirect costs.

Indirect Rate, Public Schools - the indirect cost rate for public schools is approved annually by the Grants Finance Office at NYSED. Additional information can be found on the Grants Finance website (

Indirect Rate, Private Schools and Residential Child Care Institutions (RCCIs) - SFAs that are private schools and RCCIs should work with the agency regulating their organizations to get an approved indirect rate.

Indirect Cost, Consistent Application - it is unallowable to bill the nonprofit school food service account for indirect costs that were paid from the general fund in prior years unless an agreement exists to show that the SFA has been loaning the nonprofit school food service account funds to cover the indirect costs in one or more prior years.

Factors Affecting the Allowability of Costs

To determine if a cost is allowable the SFA must consider the following factors:

Reasonable - A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the purchase decision was made. In determining the reasonableness of a purchase cost, consideration must be given to the following issues:

  • Necessary. Is the cost generally recognized as ordinary and necessary for the operation of the food service program or the proper and efficient performance of the program?
  • Sound Business Practices and Regulations. Does the purchase meet the standards or regulations imposed by sound business practices; federal, state, local, tribal, and other laws and regulations; and terms and conditions of the SFA’s agreement with NYSED?
  • Fair Price. Is the cost in line with market prices for comparable goods or services for the geographic area?
  • Prudent. Have the individuals involved with the purchase acted sensibly in the situation or circumstance considering their responsibilities to the SFA?
  • Established Practices. Does this purchase significantly deviate from the SFA’s established practices and policies regarding such purchases?

Allocable - A cost is allocable to a particular program or other cost objective if the goods or services involved are chargeable or assignable to that program or cost objective based on the relative benefits received. In determining if a cost is allocable, consideration must be given to the following issues:

  • Purpose. Is the purchase cost aligned with the purposes described for the federal program for which the funds were awarded?
  • Shared Benefits. If the purchase benefits both the program and other non-program activities can the cost be distributed in proportionally to all programs that benefit from the purchase?
  • Necessary and Allowable. Is the cost necessary and allowable?
  • Indirect Costs. Will any indirect costs associated with this purchase be treated consistently across programs, including the determination of unallowable and allowable cost?

Consistency - The cost must be consistent with the policies and procedures that apply uniformly to both the federally-financed and other activities of the SFA.

  • Ordinary and Common. Is the item or service generally considered an ordinary and a common expense for child nutrition programs?
  • Consistent Treatment. Is the cost for the item or service consistent with the way the SFA charges the costs for other programs for direct and indirect costs?

Is the Cost Allowable?

Using the criteria described in the Necessary and Reasonable and Allocable subsections in this section, the SFA determines if the cost of the item is allowable. The cost of an item or service is allowable if it meets the criteria described in the following questions:

Questions to Help Determine if a Cost Is Necessary, Reasonable, and Allocable

  • Could the SFA justify the purchase to USDA, NYSED, the media, or auditors? Would taxpayers deem the cost to be appropriate for the objectives of the food service program?
  • Would a prudent person consider the cost to be reasonable? Is the cost charged at a fair rate or do alternatives exist that may be more cost effective?
  • Does the item or service support the operation of the program? DOes the item or service help the SFA to achieve program objectives?

Questions to Help Determine if a Cost Is Consistent with Federal, State, and Local Requirements

  • Is the payment method for the item or service consistent with the way other programs pay for direct and indirect costs?
  • Has the SFA made sure that the cost of the item or service is not associated with any cost or matching contributions for any other grant?

Questions to Help Determine if a Cost Is in Line with Accounting Principles

  • Is the use of the item or service recognized as ordinary an appropriate for food service program operation?
  • Is use of the item or service consistent with the Generally Accepted Accounting Principles (GAAP)?
  • Will payment for the item or service be made from Child Nutrition funds or from general funds?
  • Is the invoice and payment for the item or service adequately documented?

Unit Cost Maximum

An expenditure of any single item or service that exceeds $5,000 must have preapproval from CNPA for the cost to be allowable. See the Capital Expenditure subsection in this section for additional information on this topic.

Helpful Links - Expenditures

General Expenditures - Examples of Allowable and Unallowable Costs

Indirect Cost Guidance


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