Food for Progress Program - Commodities made available under this program, regardless of funding source, must be donated for use in developing countries and emerging democracies that have made commitments to introduce or expand free enterprise elements in their agricultural economies. The program's authorizing legislation was amended in 1992 to make the independent states of the former Soviet Union eligible for commodity assistance under this program.

Section 416(b) Program - Commodities made available under Section 416(b) outside the scope of the Food for Progress Program may be used to support food assistance programs in friendly countries and developing countries.

The Plan of Operation and agreement set forth the description of the activities for which commodities, monetized proceeds, or program income shall be used.

Except as approved in advance by CCC, the Cooperating Sponsor shall ordinarily bear all costs incurred subsequent to CCC's delivery of commodities at U.S. ports or intermodal points (7 CFR section 1499.7(d)).

With prior written approval from CCC, the Cooperating Sponsor may use CCC funds for administrative expenses under the Food for Progress Program. Administrative expenses include expenses incurred for the purchase of goods and services directly related to program administration and monitoring of distribution and monetization operations (7 CFR section 1499.7(b)(3)).

A Cooperating Sponsor must use USDA commodities furnished under the Foreign Food Aid Donation Programs, and proceeds from the sale of such commodities if applicable, for purposes expressly provided for in its agreement with the CCC (7 CFR sections 1499.10(a) and 1499.12(d)).

Agreements with Cooperating Sponsors implementing Section 416(b) projects may provide for the use of proceeds from monetization operations to fund administrative expenses (7 USC 1431(b)(7)(F)).

A Cooperating Sponsor may request an advance of up to 85 percent of the amount of an approved program operating budget. Cash advances furnished by the CCC must be deposited in interest bearing accounts. Any interest earned on such advances must be used for the same purposes as the cash advances themselves (7 CFR sections 1499.7(f) and (g)).

A Cooperating Sponsor must deposit all proceeds from the sale of USDA donated commodities under monetization agreements into interest bearing accounts. Exceptions are permitted where this practice is prohibited by local law or custom of the importing country, or the CCC determines that enforcing the requirement would impose an undue burden on the sponsor (7 CFR section 1499.12(c)).

To the extent required by the program agreement, a Cooperating Sponsor must furnish the CCC and FAS with inventory lists of equipment and real property acquired with proceeds from the sale of donated commodities, interest, and other program income (OMB No. 0551-0035). When such assets are no longer needed for program purposes, the sponsor must dispose of them in accordance with 7 CFR section 1499.12(g).

Any portion of a cash advance not obligated by the Cooperating Sponsor within 180 days of receipt, and any related interest, must be refunded to the CCC within 30 days after the Cooperating Sponsor's obligational authority over the funds has expired (7 CFR section 1499.7(h)).

CCC will not pay any cost incurred by the Cooperating Sponsor prior to the date of the program agreement (7 CFR section 1499.7(c)).

A Cooperating Sponsor must follow commercially reasonable practices in procuring goods and services and when engaging in construction activity in accordance with its agreement with the CCC (7 CFR section 1499.12(f)).

Program income includes interest on sale proceeds and money received by the Cooperating Sponsor, other than monetization proceeds, as a result of carrying out approved activities (7 CFR section 1499.1). A Cooperating Sponsor must use program income for program purposes identified in its agreement with the CCC (7 CFR section 1499.5).

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271 - Outlay Report and Request for Reimbursement for Construction Programs - Not Applicable

d. SF-272 - Federal Cash Transaction Report - Not Applicable

e. Financial Statement (OMB No. 0551-0035) - Any Cooperating Sponsor that receives an advance of CCC funds must file quarterly financial statements with the CCC.

Key Line Items:

2. Performance Reporting

a. CCC Form 620, Logistics Report (OMB No. 0551-0035) - A Cooperating Sponsor must submit this report to the FAS semiannually for each agreement. If commodities are distributed directly, the sponsor must continue submitting reports until all commodities made available under the agreement have been distributed. In the following detail, quantities of commodities are reported in terms of net metric tons (NMT) unless otherwise specified (7 CFR section 1499.16(c)(1)).

Key Line Items - The following line items contain critical information:

(2) Freight Charges - The dollar amount of claims for a reduction or recovery of freight charges in both local currency and U.S. dollar equivalents. Claims generated by the ocean and inland portions of the shipment should be separately identified.

(3) Warehouse Losses - The following data relating to storage of each commodity provided for in the agreement:

(4) Direct Distribution - The following data relating to direct distribution of each commodity provided for in the agreement:

(5) Warehouse Inventory Status - The warehouse inventory status of each commodity provided for in the agreement: beginning inventory, total received in warehouse, total dispatched from warehouse, warehouse losses, and ending inventory.

b. CCC Form 621, Monetization Report (OMB No. 0551-0035) - A Cooperating Sponsor must submit this report to the FAS semiannually for each agreement that provides for monetization of the commodities. Reports are required until all the commodities have been sold and the proceeds disbursed for authorized purposes. If a monetization project involves a revolving loan program, current FAS policy requires the Cooperating Sponsor to submit reports only through repayment of the first loan cycle.

Methods a Cooperating Sponsor may use to determine prevailing local market prices for monetization purposes include, but are not limited to, soliciting sealed bids, using public auctions, involving commodity exchanges, or obtaining written statements from the agricultural attache or minister for foreign agricultural affairs in the host country. The FAS home page on the Internet provides agricultural attache contact information. (http://www.fas.usda.gov/scriptsw/fasfield/ovc_frm.idc)

Key Line Items - The following line items contain critical information:

Compliance Requirement - The Plan of Operation is required to describe the Recipient Agencies that will be involved in the program and a description of each Recipient Agency's capability to perform its responsibilities (7 CFR section 1499.5(a)(3)). A Recipient Agency is defined as an entity located in the foreign country which receives commodities or commodity sale proceeds from a Cooperating Sponsor for the purpose of implementing activities (7 CFR section 1499.1).

The Cooperating Sponsor must enter into a written agreement with a Recipient Agency before transferring USDA commodities, monetization proceeds, or other program income to that entity. Such an agreement must require the Recipient Agency to pay to the Cooperating Sponsor the value of any commodities provided by USDA, sales proceeds, or other program income not used for purposes expressly permitted under the Cooperating Sponsor's own agreement with the CCC; or that are lost, damaged, or misused as the result of the Recipient Agency's failure to exercise reasonable care (7 CFR section 1499.11(a)).

The Cooperating Sponsor must ensure that the activities of any Recipient Agency that receives $25,000 or more in commodities or commodity sales proceeds are subjected to on-site inspection. The Cooperating Sponsor may meet this requirement by relying upon independent audits of the Recipient Agencies or by conducting its own on-site reviews (7 CFR section 1499.17).

Audit Objective - Determine whether (1) the Cooperating Sponsor entered into written agreements with the Recipient Agencies (2) the use of the Recipient Agencies was consistent with the Plan of Operation, and (3) the Cooperating Sponsor monitored the activities of Recipient Agencies to ensure proper performance of assigned activities and use of commodities, monetized proceeds, and program income.

a. Select a sample of Recipient Agencies and ascertain if:

Funds made available for administrative costs must be used to screen and certify applicants for program benefits, issue benefits to eligible households, conduct fraud investigations and prosecutions, provide fair hearings to households for which benefits have been denied or terminated, conduct nutrition education activities, prepare financial and special reports, operate ADP systems, monitor subrecipients (where applicable), and otherwise administer the program. Portions of the award made available for specific purposes, such as ADP systems development or Employment and Training activities, must be used for such purposes (7 CFR part 277).

1. Eligibility for Individuals

The auditor is not required to test eligibility because detail testing of the individual case files is performed by the quality control unit and reviewed by FNS and the automated system supporting eligibility determinations and processing and tracking food stamp issuances is tested under III.N.1, ADP System for Food Stamps.

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

3. Eligibility for Subrecipients - Not Applicable

The State is required to pay 50 percent of the costs of administering the program. Exceptions to the 50 percent reimbursement rates are: (a) 100 percent grants to administer the Employment and Training Program, and (b) an increased reimbursement rate for States with high benefit payment accuracy rates (about eight States receive this money) (7 CFR section 277.4(b)) .

For Federal fiscal years 1999 through 2002, the Federal reimbursement will be decreased and the State share of administrative costs will increase by an amount equal to certain common certification costs grand-fathered into the States' TANF grant levels but attributable to the Food Stamp Program (7 USC 2025(k)).

Costs of payment error rate reduction activities conducted under reinvestment agreements with FNS are not eligible for any level of Federal reimbursement. Private in-kind contributions are not allowable to count toward the State's share of the program's administrative cost (7 CFR sections 275.4(c) and 275.23(e)(11)(i)(C)).

2. Level of Effort - Not Applicable

3. Earmarking - Not Applicable

ADP Systems Development - For competitive acquisitions of ADP equipment and services costing $5 million or more (combined Federal and State shares), the State must submit an Advanced Planning Document (APD) for the costs to be approved and allowable as charges to FNS. This threshold is for the total project cost. In addition, noncompetitive acquisitions of $1 million or more require an APD. Contracts resulting from noncompetitive procurements of more than $1 million and contracts for EBT systems, regardless of cost, also must be provided to FNS for review (7 CFR section 277.18).

a. SF-269, Financial Status Report - Applicable

b. SF-270, Request for Advance or Reimbursement - Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transactions Report - Not Applicable

2. Performance Reporting - Not Applicable

Note: The requirement for State agencies to automate their food stamp program includes automation of reporting requirements (7 CFR section 272.10(b)(2)(vi). The testing to ensure accuracy and completeness of the following reports should be coordinated with the testing of the ADP System for Food Stamps (see III.N.1).

a. FNS-46 - Food Stamp Program Issuance Reconciliation Report (OMB No. 0584-0080). This monthly report is used to account for benefits issued during a report month for each issuance reconciliation point. The FNS-46 reports the reconciliation of food stamp benefits actually issued with the State=s (or county=s in county-run operations) Master Issuance File. The Master Issuance File contains records on all households eligible to receive benefits (such as a listing of the households and the benefits each is authorized to receive). Actual issuances may be recorded in the Record for Issuance (RFI) or alternative filing system. The RFI is created from the Master Issuance File and shows the amount of benefits the household is eligible to receive and the actual amount issued. Generally, one FNS-46 covers the entire State. However, if a State concurrently operates more than one type of issuance system (Authorization to Participate (ATP), mail issuance, EBT, or cash-out), its FNS-46 report(s) must separately identify the amount of benefits issued under each system.

Key Line Items - The following line item contain critical information.

b. FNS-209 - Status of Claims Against Households (OMB No. 0584-0069). If a household receives more food stamp benefits than it is entitled to receive, the State must establish a claim against that household and demand repayment (7 CFR section 273.18 (a)). The State is required to create and maintain a system of records for monitoring these claims against households (7 CFR section 273.18 (l)). States use a variety of manual and computer systems as the source for the line items on the FNS-209. At a minimum, a system must be able to produce a detailed listing of cases that reconciles to the beginning and ending balances on the FNS-209. The State is permitted to retain a portion of the collected repayments: 35 percent of the recovered funds from claims involving fraud or other intentional program violations; and 20 percent of the recovered funds from claims involving inadvertent household errors. No portion of funds recovered from agency-error overpayments may be retained (7 USC 2025(a)).

The State agency completes the FNS-209 on a quarterly basis to detail the State=s activities relating to claims against households. The form is due no later than 30 days after the end of each calendar quarter and is submitted to FNS even if the State agency has not collected any payments (7 CFR section 273.18(i)(2)).

c. FNS-250 - Food Coupon Accountability Report (OMB No. 0584-0009) . Monthly, State Agencies must submit an FNS-250 to FNS reporting monthly food stamp coupon issuance and inventory by an individual or consolidated site. The FNS-250, or equivalent information, is provided by each coupon issuer and bulk storage point that distributes food stamps. The reports are to be submitted within 45 calendar days after the last day of coupon issuance each month, and should reach the FNS by the 15th day of the second month following the last day of coupon issuance for the month (7 CFR section 274.4(b)(1)). Verification of FNS-250 information will likely require test work at individual coupon issuers or bulk storage points.

Note: See III.E.1, Eligibility for Individuals, for why the testing of the ADP system for food stamps is under this special test and provision instead of under eligibility.

Compliance Requirement - State agencies are required to automate their food stamp program operations and computerize their systems for obtaining, maintaining, utilizing, and transmitting information concerning the food stamp program (7 CFR sections 272.10 and 277.18). This includes: (1) processing and storing all case file information necessary for eligibility determination and benefit calculation, identifying specific elements that affect eligibility, and notifying the certification unit of cases requiring notices of case disposition, adverse action and mass change, and expiration; (2) providing an automatic cutoff of participation for households which have not been recertified at the end of their certification period by reapplying and being determined eligible for a new period (7 CFR sections 272.10(b)(1)(iii) and 273.10(f) and (g)); and, (3) generating data necessary to meet Federal issuance and reconciliation reporting requirements.

Audit Objective - Determine whether the State administering agency's ADP system for food stamps is meeting the requirements to: (1) accurately and completely process and store all case file information for eligibility determination and benefit calculation; (2) automatically cut off households at the end of their certification period unless recertified; and, (3) provide data necessary to meet Federal issuance and reconciliation reporting requirements.

Because of the diversity of ADP systems, both hardware and software, it is not practical for the Compliance Supplement to provide suggested audit procedures to address each system. See Part 3, E.1.a (suggested audit procedures for eligibility for individuals relating to automated systems) for other guidance in this Supplement concerning testing ADP systems. The auditor should test the ADP system to ascertain if the system:

Compliance Requirement - States that use Electronic Benefit Transfer (EBT) must have systems in place to reconcile all of the funds entering into, exiting from, and remaining in the system each day with the State's benefit account with Treasury and EBT contractor records. This includes a reconciliation of the State's issuance files of postings to recipient accounts with the EBT contractor. States (generally through the EBT contractor that operates the EBT system) must also have systems in place to reconcile retailer credit activity as reported through the banking system to client transactions maintained by the processor and to the funds drawn down from the EBT benefit account with Treasury. States' EBT system processors should maintain audit trails that document the cycle of client transactions from posting to point-of-sale transactions at retailers through settlement of retailer credits. The financial and management data that comes from the EBT processor is reconciled by the State to the Food Stamp Program issuance files and settlement data to ensure that benefits are authorized by the State and that funds have been properly drawn down. States may only draw Federal funds for authorized transactions, i.e., on-line purchases supported by entry of a valid personal identification number (PIN) or purchases using manual vouchers with telephone verification supported by a client signature and an EBT contractor authorization number (7 CFR sections 274.12(a), 274.12(g)(1) and 274.12(j)(1)).

Audit Objective - Determine whether the State reconciles retailer activity to client transactions, to its issuance files of postings to recipient accounts with the EBT contractor, and to postings to and drawdown activity from the State's benefit account with Treasury.

Compliance Requirement - The State is required to maintain adequate security over, and documentation/records for, Authorization to Participate (ATP) cards, other documents authorizing issuance, EBT cards (7 CFR section 274.12(h)(3)), and the food stamp coupons themselves to prevent: coupon theft, embezzlement, loss, damage, destruction; unauthorized transfer, negotiation, or use of coupons; and alteration or counterfeiting of coupons and other documents authorizing issuance (7 CFR sections 274.7(b) and 274.11(c)).

Audit Objective - Determine whether the State maintains security over instruments used to authorize issuance of food stamp benefits.

Suggested Audit Procedures

Compliance Requirement - Each coupon issuer and bulk storage point that distributes food stamps is required to prepare a Food Coupon Accountability Report (FNS-250) to report monthly coupon issuance and inventory (7 CFR section 274.4(b)). Each State agency must assure that day-to-day operations of all coupon issuers comply with regulations by performing a triennial on-site review, including physical inventory, of each coupon issuer and bulk storage site under its direction (7 CFR section 274.1(c)).

Audit Objective - Determine whether the State agency has conducted required triennial on-site reviews, including physical inventories, at coupon issuers and bulk storage points.

Determine by inquiry or inspection of records that the State agency conducts the required triennial reviews of coupon issuers and bulk storage points to ensure physical inventories are appropriate, inventories are made as required, and differences between recorded and actual inventories are reconciled.

Compliance Requirement - State agencies must monitor the coupon inventories of coupon issuers and bulk storage points to ensure that inventories are neither excessive nor insufficient to meet the issuance needs and requirements. Inventory levels are not to exceed a "six-month supply," taking into account coupons on hand and on order (7 CFR section 274.7(a)(1)). State agencies must review the FNS-250 and other reports including shipping and transfers, returned and/or replaced mail-issuances, improperly manufactured or mutilated coupons, and reports of shortage or overage of food coupon books to ensure the accuracy of monthly inventories, compliance with required inventory levels, and accuracy and reasonableness of coupon orders.

Audit Objective - Determine whether food stamp coupon levels are neither excessive nor insufficient to meet the issuer's requirements.

Verify that the State agencies determine that inventory levels at coupon issuers and bulk storage points are neither excessive nor insufficient to meet the issuance needs and requirements, and that inventory levels do not exceed a six-month supply, taking into account coupons on hand and on order.

Compliance Requirement - The State or local government must establish a quality control unit that is independent of program operations (7 CFR section 275.2(b)).

Audit Objective - Determine whether the quality control unit is organizationally independent of program operations.

Ascertain that the quality control unit is organizationally independent of program operations.

a. Local program operators provide prepared meals to children in structured settings. Four types of meal service may be authorized: breakfast, lunch, supplements (snacks), and supper. Milk service may be authorized only under the SMP. The types a particular program operator may offer are determined first by the respective program's authorizing statute and regulations, and second by the program operator's agreement with its administering agency.

b. While all children in attendance are entitled to receive these program benefits, children whose households meet stated income eligibility criteria generally receive their meals (or milk, where applicable) free or at a reduced price. With certain exceptions, children not eligible for free or reduced price meals or free milk must pay the full prices set by the program operator for these items.

c. Federal assistance to local program operators takes the form of cash reimbursement. In addition, USDA donates food (commodities) under 7 CFR part 250 for use in preparing meals to be served under the NSLP, SBP, and SFSPC.

d. To obtain cash and commodity assistance, a local program operator must submit monthly claims for reimbursement to its administering agency. All meals (and half-pints of milk under SMP) claimed for reimbursement must meet Federal requirements and be served to eligible children.

e. The program operator's entitlement to reimbursement payments is generally computed by multiplying the number of meals (and/or half-pints of milk under the SMP) served by a prescribed per-unit payment rate (called a "reimbursement rate"). Different reimbursement rates are prescribed for different categories and types of service. "Type" refers to the kind of service (breakfast, lunch, milk, etc.), while "category" refers to the beneficiary's eligibility (free, reduced price, or paid). Under this formula, a local program operator's entitlement to funding from its administering agency is generally a function of the categories and types of service provided. Therefore, the child nutrition cluster programs are said to be "performance funded."

a. School Nutrition Programs (NSLP and SBP) - These programs target children enrolled in schools. For program purposes, a "school" is a public or non-profit private school of high school grade or under, or a public or licensed non-profit residential child care institution. At the local level, a School Food Authority (SFA) is the entity with which the administering agency makes an agreement for the operation of the programs. A SFA is the governing body (such as a school board) responsible for the operation of the NSLP and/or SBP in one or more schools. A school operated by a SFA may be approved to serve breakfast and lunch. A school in which the SFA operates an after-school care program with an educational or enrichment component may also be approved to serve supplements. See also the description of the SMP, below.

b. SFSPC - The SFSPC is directed toward children in low-income areas when school is closed for vacation. It is locally operated by approved sponsors, which may include public or private non-profit SFAs, public or private non-profit residential summer camps, or units of local, municipal, county or State governments or other private non-profit organizations that develop a special summer or other school vacation program providing food service similar to that available to children during the school year under the NSLP and SBP.

A feeding site under a sponsor's oversight may be approved to serve breakfast, lunch, supplements, and/or supper. Except for children enrolled in participating summer camps, all participating children receive their meals free. Participating summer camps must identify children eligible for free or reduced price meals and may charge those not income-eligible for free meals. Sponsors are reimbursed for operating (meal service) costs at the lesser of the performance funding formula outlined above or actual costs incurred (7 CFR section 225.9(d)(6)), except that participating summer camps can receive reimbursement only for meals served to children identified as income-eligible for free and reduced price meals (7 CFR section 225.6(e)(6)). In addition, sponsors receive payment for administrative costs under a formula described at 7 CFR section 225.9(d)(7).

Although USDA donated foods are made available under the SFSPC, they are restricted to sponsors that prepare the meals to be served at their sites and those that have entered into an agreement with a SFA for the preparation of meals.

c. SMP - The SMP provides milk to children in schools and child care institutions that do not participate in other Federal meal service programs. However, schools operating the NSLP and/or SBP may also participate in the SMP to provide milk to children in half-day pre-kindergarten and kindergarten programs where children do not have access to the NSLP and SBP. A SFA or institution operating the SMP as a pricing program (See "Pricing of Program Meals," below) may elect to serve free milk but there is no Federal requirement that it do so. The SMP has no reduced price benefits (7 CFR part 215).

a. State Administrative Expense (SAE) Funds - These funds are granted under CFDA 10.560, which is not included in the child nutrition cluster.

b. SFSPC State Administrative Funds - In addition to regular SAE grants, administrative funds are made available to State agencies under CFDA 10.559 to assist with administrative costs of the SFSPC (7 CFR section 225.5). The State agency must describe its intended use of the funds in a Program Management and Administrative Plan submitted to FNS for approval.

a. School Nutrition Programs (NSLP and SBP) - A "child" is defined as: (1) a student of high school grade or under (as determined by the State educational agency) enrolled in an educational unit of high school grade or under, including students who are mentally or physically handicapped (as determined by the State) and who are participating in a school program established for the mentally or physically handicapped; (2) a person who has not reached his/her twenty-first birthday and is enrolled in a public or non-profit private residential child care institution; or (3) for meal supplements served in after-school care programs operated by an eligible school, a person who is 18 years of age or under, except that children who turn 19 during the school year remain eligible for the duration of the school year (7 CFR sections 210.2 and 220.2; 42 USC 1766a(b); section 108 of P.L.105-336).

b. SFSPC - A "child" is defined as: (1) any person 18 years of age and under; and (2) a person over 18 years of age, who has been determined by the State educational agency or a local public educational agency to be mentally or physically handicapped, and who participates in a public or non-profit private school program established for the mentally or physically handicapped (7 CFR section 225.2).

c. SMP - Schools operating this program use the same definition of "child" that is used in the NSLP and SBP, except for provision (3) under the definition of "child" at 7 CFR section 210.2 regarding supplements served in after-school care programs. Where the program operates in child care institutions, as defined in 7 CFR section 215.2(e), a "child" is any enrolled person who has not reached his/her nineteenth birthday (7 CFR section 215.2(e-1)).

a. Puerto Rico and the Virgin Islands - These two State agencies have the option to provide free meals and milk to all children participating in the School Nutrition Programs, regardless of each child's economic circumstances. Instead of counting meals and milk by type, they may determine the percentage that each type comprises of the total count using statistical surveys. The survey design must be approved by FNS (7 CFR section 245.4).

b. Special Assistance Certification and Reimbursement Alternatives - Special Assistance Certification and Reimbursement Alternatives, Provisions 1, 2 and 3, are authorized by Section 11(a)(1) of the National School Lunch Act (NSLA) (42 USC 1759(a)(1)). Provision 1 may be used in schools where at least 80 percent of the children enrolled are eligible for free or reduced price meals. Under Provision 1, eligibility determinations for children eligible for free meals under the School Nutrition Programs must be made once every two consecutive school years. All other children are certified annually (7 CFR section 245.9(a)).

For Provisions 2 and 3, extended cycles are allowed for eligibility determinations. Since the schools also use alternative counting and claiming procedures, descriptions of Provisions 2 and 3 are included in the next section under "Claiming - Exceptions."

c. SFSPC Open Sites - Determinations of individual household eligibility are not required for meals served free at SFSPC "open sites." See III.E.3.a for more information.

a. School Nutrition Programs - The following types of service may be authorized for schools participating in these programs: breakfast, lunch, supplement if the school operates an after-school care program, and milk if the SFA operates the SMP in schools that don't have NSLP and/or SBP and for children attending split-session kindergarten and pre-kindergarten programs who do not have access to the NSLP and SBP. All claims must be supported by accurate meal counts by category and type taken at the point of service or developed through an approved alternative procedure (7 CFR sections 210.7, 210.8, 215.8, 215.10, 220.9, and 220.11).

b. SFSPC - The meals that may be claimed under the program are: breakfast, lunch, supper, and supplement. Food service sites other than camps and sites which primarily serve migrant children may claim either: one meal each day, a breakfast, a lunch, or supplement; or two meals each day, if one is a lunch and the other is a breakfast or a supplement (7 CFR section 225.16(b)(4)). Camps or sites which serve meals primarily to migrant children may serve three meals or two meals and one supplement (42 USC 13(b)(2)).

a. Special Provision 2 - Provision 2 has a four year cycle for annual notification and certification for free and reduced price meals. In the first year, schools must take daily counts of the number of meals served by meal category (paid, free, reduced price) and establish the percentage of meals served by category each month. In the second and third school years, schools must count only the total number of meals served each month; the monthly percentages established in the first year are then applied to the counts taken in the corresponding months of the current year. At the end of four years, the cycle may be extended for another four years if the State determines that the economic condition of the community has not improved. Additional four-year extensions may be approved on the same basis.

b. Special Provision 3 - Provision 3 has a four year cycle and is available for schools with high percentages of children eligible for free and reduced price meals. Cash reimbursement and commodity assistance are provided at the same level as the school received in the last year free and reduced price applications were taken and daily meal counts by category and type were made, adjusted for inflation and enrollment. Schools opting for this alternative are not required to make annual free and reduced price eligibility determinations or take daily meal counts. Free and reduced price eligibility determinations and daily meal counts by income category are only required during a base year which is not included as part of the four year cycle. Provisions exist for authorizing subsequent four-year extensions if the economic status of the community has not improved.

To be eligible for Federal reimbursement, meals must be served to eligible children and must be supported by accurate meal counts and records indicating the number of meals served by category and type. For the NSLP and SBP, meal count and claiming systems must comply with the requirements of 7 CFR sections 210.7, 210.8, 220.9, and 220.11, respectively. Requirements for meal reimbursement under the SFSPC are set forth under 7 CFR section 225.9(d).

SFSPC - Sponsor reimbursement is provided for central-level general administrative overhead, including such costs as site monitoring, preparation of claims and reports, and audits. Payment to sponsors for administrative costs will be the lesser of: actual net expenses incurred for administrative costs; or the number of meals by type actually served to eligible children multiplied by the administrative rates for those meals; or the administrative budget that was approved by the administering agency and included in the program agreement, along with any approved amendments to it (7 CFR section 225.9(d)(7)).

a. School Nutrition Programs - Eligible persons from households with incomes at or below 130 percent of the Federal poverty level are eligible to receive meals or milk free under the School Nutrition Programs. Persons from households with incomes above 130 percent but at or below 185 percent of the Federal poverty level are eligible to receive reduced price meals. Persons from households with incomes exceeding 185 percent of the poverty level pay a full price set by the SFA for the meals. In addition to being published in the Federal Register, income eligibility information is published on the USDA Food and Nutrition Service Home page (http://www.usda.gov/fcs/fcs.htm) under Child Nutritions Programs, Income Eligibility Guidelines. Meal prices are set by the SFA. However, the maximum price for a reduced price lunch or breakfast is $0.40 and $0.30, respectively. Under the SMP, children of households whose income is at or below 130 percent of the poverty level are eligible to receive free milk. There is no provision under the SMP for reduced price benefits (7 CFR section 245.2(g); sections 9(b)(1) and 17(c)(4) of the NSLA, 42 USC 1758 (b)(1) and 42 USC 1766(c)(4); sections 3(a)(6) and 4(e) of the CNA of 1966, 42 USC 1772(a)(6) and 1773(e); and 7 CFR section 245.3).

b. SFSPC - Free and reduced price eligibility requirements for the SFSPC are set forth in 7 CFR section 225.15(f).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

Administering agencies may disburse program funds only to those organizations that meet eligibility requirements. Under the NSLP, SBP and SMP, this means the definition of "School Food Authority" (SFA) as described at 7 CFR sections 210.2, 215.2, and 220.2., respectively. Eligible SFSPC organizations are described at 7 CFR section 225.2 under the definition of "Sponsor." Additional organizational eligibility requirements apply to the SFSPC at the feeding site level (see detail below).

a. SFSPC - There are three categories of sites eligible to provide service under the SFSPC:

b. SBP - Severe Need Schools - In addition to the national average payment, FNS makes additional payments for breakfasts served to children qualifying for free or reduced price meals at schools that are in severe need. The administering agency must determine whether a school is eligible for severe need reimbursement based on the following eligibility criteria: (1) the normal reimbursement rate per meal established by the Secretary of Agriculture is insufficient to cover the costs of the school=s breakfast program; (2) the school is participating in or desiring to initiate a breakfast program; and (3) 40 percent or more of the lunches served to students at the school in the second preceding school year under the NSLP were served free or at a reduced price. Administering agencies must maintain on file, and have available for reviews and audits, the source of the data to be used in making individual severe need determinations. The administering agency is also responsible for establishing systems for determining breakfast costs (7 CFR section 220.9(e)).

The State is required to contribute State appropriated funds amounting to at least 30 percent of the funds it received under Section 4 of the NSLA in the school year beginning July 1, 1980, unless otherwise exempted by 7 CFR section 210.17. In the fall of each year, FNS furnishes each State with a report giving data for the State's use in determining its matching requirements. However, the State revenues derived from the operation of the NSLP and State revenues expended for salaries and administrative expenses of the NSLP at the State level are not considered in this computation. In States with per capita income lower than the national average, the 30 percent match is proportionately reduced (sections 7(a)(1)and (2) of the NSLA, and 7 CFR section 210.17(a)).

a. Private School Exemption - States that are prohibited by law from disbursing State appropriated funds to non-public schools are not required to match "General Cash Assistance" (Section 4) funds expended for meals in such schools, or to disburse to such schools any of the State revenue required to meet the matching requirements. Also, the matching requirements do not apply to schools in which the program is administered by a FNS Regional office (7 CFR section 210.17(b)).

b. Applicable State Revenues - State revenues, appropriated or used specifically for program purposes, are eligible for meeting the matching requirement. States use a number of methods to apply funds toward the matching requirement. For example, they may: (1) disburse such funds directly to SFAs, generally on a per-meal basis; (2) pay bills that SFAs would otherwise have had to pay themselves (such as FICA payments for school food service workers); and (3) track State-appropriated funds that SFAs have indirectly applied to the program through transfers from their general funds to their school food service funds (7 CFR section 210.17(d)).

2. Level of Effort - Not Applicable

3. Earmarking - Not Applicable

a. SF-269, Financial Status Report - Applicable

b. SF-270, Request for Advance or Reimbursement - Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transactions Report - Not Applicable

e. FNS-13, Annual Report of State Revenue Matching (OMB No. 0584 - 0075) - This report is due 120 days after the end of each school year and identifies the State revenues to be counted toward meeting the State revenue matching requirement (7 CFR section 210.17(g)).

Key Line Item - Line 5.

2. Performance Reporting - Not Applicable

A State agency administering one or more of the child nutrition cluster programs compiles the data gathered on its subrecipients= claims for reimbursement into monthly reports to its FNS regional office. Such reports present the number of meals served, by category and type, by schools or sponsors under the State agency=s oversight during the report month.

An initial monthly report, which may contain estimated participation figures, is due 30 days after the close of the report month. A final report containing only actual participation data is due 90 days after the close of the report month. A final close-out report is also required, in accordance with the FNS close out-schedule. Revisions to the data presented in a 90 day report must be submitted by the last day of the quarter in which they are identified. However, the State agency must immediately submit an amended report if, at any time following the submission of the 90 day report, identified changes to the data cause the State agency=s level of funding to change by more than (plus or minus) 0.5 percent. The specific reports for each program are described below.

a. FNS-10, Report of School Program Operations (OMB No. 0584-0002) - This report captures meals served under the NSLP and SBP, and half-pints of milk served under the SMP (7 CFR sections 210.5(d), 210.8, 215.10, 215.11, 220.11, and 220.13).

Key Line Items - Items 5 - 11.

b. FNS-418, Report of the Summer Food Service Program for Children (OMB No. 0584-0280) - This report documents the number of meals served under the SFSPC by sponsors under the State agency=s oversight. Unlike the FNS-10 and FNS-44 (Report of the Child and Adult Care Food Program), which are generally submitted year round, the FNS-418 is filed only for the months when the program is in operation (7 CFR sections 225.8(b) and 225.9(d)(5)).

Key Line Items - Part A - Meals Served, Items 5 - 19.

State agencies administering the programs included in the Child Nutrition Cluster are required to perform specific monitoring procedures in accordance with 7 CFR section 210.18 (SBP and NSLP), 7 CFR section 215.11 (SMP), and 7 CFR section 225.7 (SFSPC).

Compliance Requirement - By December 15th of each school year, the SFA (or State in certain cases) must verify the current free and reduced price eligibility of households selected from a sample of applications that it has approved for free and reduced price meals, unless the SFA is otherwise exempt from the verification requirement. The verification sample size is based on the total number of approved applications on file on October 31th (7 CFR section 245.6a(a)).

A State agency may, with FNS approval, assume from SFAs under its jurisdiction the responsibility for performing the verifications. If the SFA performs the verification function it must be in accordance with instructions provided by the State agency. The SFA must follow-up on children determined ineligible for free and reduced price meals and change the category of such children determined ineligible.

SFAs (or State agencies) must select the sample by:

a. Random sampling (the lesser of three percent or 3000 of the approved applications on file, all randomly selected) or

b. Focused sampling, in which the SFA must verify a sample that is, at a minimum, the sum of:

Sources of information for verification include written evidence, collateral contacts, and systems of records, as described in 7 CFR section 245.6a(b).

Audit Objective - Determine whether the SFA (or State) selected and verified the required sample of approved free and reduced price applications.

a. Obtain the current family size and income guidelines published by FNS.

b. Through examination of documentation, ascertain that the sampling and verification of free and reduced price applications were performed, as required.

Compliance Requirement - Accurate and complete records shall be maintained with respect to the receipt, distribution/use, and inventory of donated foods including end products processed from donated foods. Failure to maintain records required by 7 CFR section 250.16 shall be considered prima facie evidence of improper distribution or loss of donated foods, and the agency, processor, or entity is liable for the value of the food or replacement of the food in kind (7 CFR sections 250.16(a)(6) and 250.15(c)). Distributing and recipient agencies shall take a physical inventory of all storage facilities. Such inventory shall be reconciled annually with the storage facility's inventory records and maintained on file by the agency which contracted with or maintained the storage facility. Corrective action shall be taken immediately on all deficiencies and inventory discrepancies and the results of the corrective action forwarded to the distributing agency (7 CFR section 250.14(e)).

Audit Objective - Determine whether an appropriate accounting was maintained for donated food commodities, that an annual physical inventory was taken, and the physical inventory was reconciled with inventory records.

a. Determine storage facility, processing, and end use locations of all donated food commodities, including end products processed from donated foods. Determine the commodity records maintained by the entity and obtain a copy of procedures for conducting the required annual physical inventory. Obtain a copy of the annual physical inventory results.

b. Perform analytical procedures, obtain explanation and documentation for unusual or unexpected results. Consider the following:

c. Ascertain the validity of the required annual physical inventory. Consider performing the following steps, as appropriate:

d. On a sample basis, test the mathematical accuracy of the commodity records and related summarizations. From the commodity records, vouch a sample of receipts, usage/distributions, and losses to supporting documentation. Ascertain that activity is properly recorded, including correct quantity, proper period and, if applicable, correct recipient agency.

Compliance Requirement - A SFA is required to account for all revenues and expenditures of its non-profit school food service in accordance with State requirements. A SFA must operate its food services on a non-profit basis; all revenue generated by the school food service must be used to operate and improve its food services (7 CFR sections 210.14 (a), 210.14 (c), 210.19 (a)(2), 215.7(d)(1), 220.2(o-2), and 220.7(e)(1)(i)).

Audit Objective - Determine whether a separate accounting is made of school food service, Federal reimbursement payments are promptly credited to the school food service account, and transfers out of the school food service account are for the benefit of the school food service.

1. Funds allocated to a State agency for food must be expended to purchase supplemental foods for participants or to redeem food instruments issued for that purpose. When supplemental foods are provided to participants via direct distribution, the warehouse facilities costs shall be allowable food costs. Beginning in Federal fiscal year 1999, food funds can also be used to purchase breast pumps for participants. Funds allocated for NSA must be used for the costs incurred by the State or local agency to provide participants with nutrition education, breast-feeding promotion and support, and referrals to other social and medical service providers and to conduct participant certification, caseload management, food benefit delivery, vendor management, voter registration and program management (42 USC 1786(h)(1)(C)(ii); 7 CFR sections 246.14(a) through (d)).

There are two exceptions to the preceding rules. Funds allocated for NSA costs but not needed for such costs may be applied to food costs (7 CFR section 246.14(a)(2)). Funds allocated for food costs may be applied to NSA costs as a result of a State's plan to exceed participation levels projected by the Federal funding formula and/or vendor/participant collections. Conversion due to planned participation increases is allowed only if such increases are expected to result from an approved cost containment plan (7 CFR sections 246.14(e) and 246.16(f)).

Under no circumstances may the WIC grant be charged for costs which are demonstrably outside the scope of the WIC program. The cost for some screening (exclusive of laboratory tests), referrals for other medical/social services, such as immunizations, prenatal (before birth)/perinatal (near the time of birth from the 28th week of pregnancy through 28 days following birth) care, well child care and/or family planning, and follow-up on participants referred for such services, may be charged to the Federal WIC grant. However, the cost of the services performed by other health care/social service providers to which the participant has been referred shall not be charged to the WIC grant. For example, the cost to screen, refer, and follow-up on immunizations for WIC participants may be charged to the WIC grant; but, the cost to administer the shot, the vaccine, and vaccine-related equipment may not be charged to the WIC grant.

2. FNS has authorized WIC State and local agencies to charge the full acquisition cost of non-computer equipment costing less than $25,000 per unit without obtaining prior FNS approval, and to allow local agencies under their oversight to do likewise. FNS regional offices retain the discretion to apply a lower dollar to an individual State agency and to the local agencies under its oversight, provided certain requirements apply and the State agency receives written notice.

FNS authorizes WIC State agencies to make ADP acquisitions with a total project cost of up to $24,999 without prior FNS approval. Instead, WIC State agencies must notify the FNS Regional Office in writing of such purchases within 60 days of the expenditure or contract execution. ADP acquisitions with a total project cost of $25,000 to $499,999 require a written request for prior approval from the FNS Regional Office, including an explanation of the purchase(s), description of needs, and other information appropriate to the proposed acquisition (cost allocation, procurement documents, etc, as appropriate).

WIC State agencies are required to submit an Advanced Planning Document (APD) to request prior approval of automation acquisitions with a total project cost of $500,000 or more. Prior approval from FNS is required for such costs to be allowable charges to the WIC grant.

Purchases of other capital assets, such as buildings, land and improvements to buildings or land that materially increase their value or useful life, costing more than $5000, continue to require prior approval from FNS (7 CFR sections 241.14(d) and 3016.22).

Rebates, vendor collections (post-payment vendor collections are funds collected by the recovery of claims assessed against food vendors for errors and overcharges; pre-payment vendor collections are improper payments prevented as a result of reviews of food instruments prior to payment) and participant collections (collections for improperly issued food benefits as the result of a participant, guardian or caretaker intentionally making a false or misleading statement or withholding information) are credits against vendor billings or prior expenditures. A State agency must recognize, use, and account for these items in accordance with program regulations. A State agency=s failure to do so could result in overclaims against its Federal WIC grant and in cash management problems.

The WIC program is subject to the provisions of the CMIA; however, rebates are exempt from the interest provisions of the CMIA and its implementing regulations (Section 17(h)(8)(J) of the Child Nutrition Act; 42 USC 1786(h)(8)(J).

Applicants for WIC Program benefits are screened at WIC clinic sites to determine whether they meet the following eligibility criteria (7 CFR sections 246.7(c), (d), (e) and (g)).

a. Categorical B Eligibility is restricted to pregnant, postpartum, and breast-feeding women, infants, and children up to their fifth birthday (7 CFR sections 246.2 (definition of each category) and 246.7(c)).

b. Residency B An applicant must meet the State agency=s residency requirement. Except in the case of Indian State agencies, the applicant must reside in the jurisdiction of the State. Indian State agencies may require applicants to reside within their jurisdiction. All State agencies may designate service areas for any local agency, and may require that applicants reside within the service area. A State agency must establish procedures, in accordance with guidance from FNS, to prevent the same individual from receiving duplicate benefits through participation at more than once local agency (42 USC 1786(f)(23); 7 CFR section 246.7(c)(1)).

c. Income B An applicant must meet an income standard established by the State agency or be determined to be automatically income-eligible based on documentation of his/her eligibility, or certain family members= eligibility, for the following Federal programs: (1) Temporary Assistance for Needy Families (formerly Aid To Families With Dependent Children); (2) Medicaid; or (3) Food Stamps, i.e., adjunctive income-eligible. State agencies may also determine an individual automatically income-eligible, based on documentation of his/her eligibility for certain State-administered programs. With limited exceptions, applicants who are not adjunctively or automatically income eligible for WIC must provide documentation of family income at their initial certification or subsequent recertification (42 USC 1786(d)(3(D); 7 CFR sections 246.2 (definition of "family"), 246.7(c), and 246.7(d)).

Income Guidelines: The income standard established by the State agency may be up to 185 percent of the income poverty guidelines issued annually by HHS, State or local income guidelines used for free and reduced-price health care. However, in using health care guidelines, the income guidelines for WIC must be between 100 and 185 percent of poverty guidelines. Local agency income guidelines may vary as long as they are based on the guidelines used for free and reduced-price health care (7 CFR section 246.7(d)(1)).

Income Determination: Except for applicants determined automatically income-eligible, income is based on gross income and other cash readily available to the family or economic unit. Certain Federal payments and benefits are excluded from the computation of income. In addition, the State agency may exclude the value of military families= off-base housing allowances but must implement such exclusion uniformly for all military families (7 CFR section 246.7(d)(2)(iv)).

At a minimum, in-stream (away from home base) migrant farm workers and their families with expired Verification of Certification cards shall meet the State agency=s income standard provided that the income of the family is determined at least once every 12 months (7 CFR section 246.7(d)(2)(viii)).

An Indian State agency, or a State agency acting on behalf of an Indian local agency, may submit reliable data that proves to FNS that the majority of Indian households in a local agency service area have incomes at or below the State agency=s income guidelines. In such cases, FNS may authorize the State agency to permit the use of an abbreviated income screening process whereby an applicant affirms, in writing, that its family income is within the State agency=s prescribed guidelines.

State agencies may instruct local agencies to consider family income over the preceding 12 months or the family=s current rate of income, whichever indicator more accurately reflects the family=s income status. However, applicants in which an adult member is unemployed shall have income determined based on the period of unemployment. A State or local agency may require verification of information which it determines necessary to confirm income eligibility.

d. Nutritional Risk B A competent professional authority (e.g., physician, nutritionist, registered nurse, or other health professional) must determine that the applicant is at nutritional risk. Nutritional risk is defined by each State agency within broad guidelines set forth in WIC legislation and regulations. At a minimum, this determination must be based on measurement of height or length and weight, and on a hematological test for anemia. Such anemia testing is required of all applicants except infants under six months of age and, at the State or local agency=s discretion, children who are determined to be within the normal range at their last certification. The determination of nutritional risk may be based on referral data provided by a competent professional authority who is not on the WIC staff (7 CFR sections 246.2 (definitions of competent professional authority and nutritional risk) and 246.7(e)).

When an applicant meets all eligibility criteria, he/she is determined by WIC clinic staff to be eligible for program benefits. Certification periods are assigned to each participant based on categorical status for women, infants, and children (7 CFR section 246.7(g)).

A WIC local agency assigns each eligible person a priority classification according to the classification system described in 7 CFR section 246.7(e)(4). A person=s priority assignment reflects the severity of his/her nutritional risk. If the local agency cannot immediately place the person on the program for lack of an available caseload slot, the person is placed on a waiting list. Caseload vacancies are filled from the waiting list in priority classification order. State agencies are expected to target program outreach and caseload management efforts toward persons at greatest nutritional risk (i.e., those in the highest priority classifications).

Pregnant women are certified for the duration of their pregnancy and for up to six weeks postpartum. Breast-feeding women may be certified for six-month intervals ending with the breast-fed infant=s first birthday. Infants are certified at intervals of approximately six months, except that infants under six months of age may be certified for a period extending up to the child=s first birthday, provided the quality and accessibility of health care services are not diminished. Children are certified for six-month intervals ending with the month in which the child reaches the fifth birthday. Non-breast-feeding women are certified for up to six months postpartum.

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

A State agency may award WIC subgrants only to organizations meeting the definition of "local agency" in 7 CFR section 246.2. Such organizations are identified under "II. Program Procedures" above.

For WIC formula grant funds awarded for Federal fiscal years 1998 and after, a State agency may spend NSA funds up to an amount equal to one percent of its total WIC formula grant for NSA costs of the following Federal fiscal year. With prior approval from its FNS regional office, the State agency may also spend NSA funds in an amount that does not exceed one-half of one percent of its total WIC formula grant, for management information systems development costs during the following Federal fiscal year. Food funds may no longer be "spent forward."

For WIC formula grant funds awarded for Federal fiscal years 1999 and after, a State agency may:

The State agency may use current year program income for costs incurred in the current fiscal year and, with the approval of FNS, for costs incurred in previous or subsequent fiscal years. Currently, the following are the only funds FNS is aware of that WIC State agencies receive that are classified as program income: (1) royalties from printed publications; (2) nominal fees, not to exceed costs, for reproducing or mailing publications, videotapes, posters, etc.; (3) interest earned on rebate funds for infant formula and other foods; and, (4) general grants not tied directly to foods redeemed, but made for inclusion of food items in a State=s food package (such as certain grants from the private sector). A State agency may use program income for any combination of food and NSA costs or other costs that further the broad objectives of the program (7 CFR section 246.15(b)).

f. FNS-227A, Addendum to WIC Program Annual Closeout Report - NSA Expenditures (OMB No. 0584-0427) - The FNS-227A is prepared annually by State agencies to report: (1) NSA expenditures by function for the fiscal year being closed out; (2) the method by which NSA expenditures were charged as indirect costs; and (3) the method by which the indirect cost amount was determined. FNS uses the amounts reported in nutrition education and breast-feeding promotion and support, two of the four functional categories on the FNS-227A, to determine whether the State agencies met the statutory minimum spending level for those functions.

g. FNS-498, WIC Monthly Financial Management and Participation Report (OMB No. 0584-0045) - A State agency is required to submit monthly financial and program performance (participation) data (7 CFR section 246.25(b)).

Each WIC State agency uses the FNS-498 to report projected and actual Federal food expenditures and participation for each month of the fiscal year. Participation for any given month equals the number of individuals who received supplemental foods or food instruments during that month plus the number of infants who received no supplemental foods or food instruments, but were breast-fed by participating women during that month.

The FNS-498 also reports actual NSA expenditures and unliquidated obligations and the source of funds available to support both food and NSA expenditures. The reporting of State-supported food expenditures and participation is optional. The States and FNS use this information for program monitoring, funds management, budget projections, monitoring caseload, policy development, and responding to requests from Congress and the interested public.

Key Line Items - The following line items contain critical information:

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

Compliance Requirement - A State agency must reconcile all redeemed FIs to issuance records within 150 days of the FI=s first valid date for participant use. The State agency must determine whether each redeemed FI was: (1) validly issued and validly used; (2) used after being lost, stolen, or voided; (3) validly issued but used outside its valid use dates; (4) used pursuant to a duplicate issuance (either two FIs bearing the same serial number or a participant receiving duplicate benefits); or, (5) otherwise not matching issuance records. State agencies generally do this by analyzing computer reports that provide detailed issuance and redemption information on each FI redeemed (7 CFR section 246.12(n)(1)).

Audit Objective - Determine whether the State agency=s FI reconciliation process complies with the one-to-one reconciliation requirement.

a. Obtain an understanding of the State agency=s process for reconciling redeemed FIs. At a minimum, this includes ascertaining how the State agency:

b. Ascertain whether written guidance on how to follow up on unreconciled FIs exists for local agencies.

c. Inspect reconciliation reports to ascertain that the State agency:

d. Using State agency reconciliation reports for one or more months of the audit period, verify the State agency=s non-reconciliation rate. The non-reconciliation rate should not exceed one percent. The State agency should use the following steps in performing the non-reconciliation rate calculation:

Compliance Requirement - State agencies must establish an ongoing management evaluation system which includes at least the monitoring of local agency operations, the review of local agency financial and participation reports, the development of corrective action plans, the monitoring of the implementation of corrective action plans, and on-site visits. Monitoring of the local agencies shall include evaluation of management, certification, nutrition education, civil rights compliance, accountability, financial management systems, and food delivery systems. These reviews must be conducted on each local agency at least once every two years, including on-site reviews of a minimum of 20 percent of the clinics in each local agency or one clinic, whichever is greater (7 CFR section 246.19(b)).

Audit Objective - Determine whether the State agency has conducted the required local agency management reviews and that the local agency management reviews cover the required areas.

To be eligible for Federal reimbursement, meals must be served to eligible children or adults, and must be supported by accurate meal counts and records indicating the number of meals served by category and type. Requirements for meal reimbursement payments are contained in 7 CFR sections 226.11 and 226.13. Reimbursement payments for snacks served to children in after-school at-risk programs are limited to one snack per child per day provided free of charge and are reimbursed at the "free" rate (42 USC 1766(r)).

Reimbursements shall be used solely for the conduct of the food service operation or to improve such food service operations, principally for the benefit of the enrolled participants (7 CFR section 226.15(e)(12).

A sponsoring organization must disburse advance and meal reimbursement payments to centers and day care homes under its sponsorship within five working days of their receipt from its administering agency (7 CFR sections 226.16(g) and (h)).

Eligibility requirements for free and reduced price meals are set forth in 7 CFR section 226.23. Individual determinations of eligibility for children enrolled in after-school at-risk programs are not required (42 USC 1766(r)).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

Administering agencies may disburse CACFP funds only to those organizations that meet the eligibility requirements stated in the following program regulations: (a) generic requirements for all institutions at 7 CFR section 226.15; (b) additional requirements for sponsoring organizations at 7 CFR section 226.16; (c) additional requirements for child care centers (whether independent or sponsored) at 7 CFR section 226.17; (d) additional requirements for day care homes (which must be sponsored) at 7 CFR section 226.18; (e) additional requirements for outside-school-hours centers at 7 CFR section 226.19; (f) additional requirements for adult day care centers (whether independent or sponsored) at 7 CFR section 226.19a; and (g) additional requirements for after-school at-risk programs at 42 USC 1766(r)).

1. Matching - Not Applicable

2. Level of Effort - Not Applicable

Administrative cost reimbursement to sponsoring organizations of day care homes is limited to the lesser of the following factors on a cumulative year-to-date basis: (a) the sponsoring organization's approved administrative budget; (b) actual administrative costs less income to the program; or (c) the appropriate monthly rates per home, multiplied by the number of operating homes in each month. In addition, during any fiscal year, administrative payments to a sponsoring organization may not exceed 30 percent of the total amount of administrative payments and program (meal reimbursement) payments for day care home operations (7 CFR section 226.12(a)).

a. SF-269, Financial Status Report - Applicable

b. SF-270, Request for Advance or Reimbursement - Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transactions Report - Not Applicable

2. Performance Reporting - Not Applicable

FNS-44, Report of the Child and Adult Care Food Program (OMB No. 0584-0078) - A State agency administering the program compiles the data gathered on its subrecipients= claims for reimbursement into monthly reports to its FNS regional office. Such reports present the number of meals served, by category and type, in institutions under the State agency=s oversight during the report month.

An initial monthly report, which may contain estimated participation figures, is due 30 days after the close of the report month. A final report containing only actual participation data is due 90 days after the close of the report month. A final close-out report is also required, in accordance with the FNS close-out schedule. Revisions to the data presented in a 90 day report must be submitted by the last day of the quarter in which they are identified. However, the State agency must immediately submit an amended report if, at any time following the submission of the 90 day report, identified changes to the data cause the State agency=s level of funding to change by more than (plus or minus) 0.5 percent.

Key Line Items - Parts A and E.

The administering agency is responsible to monitor the institution's non-profit status to ensure that all reimbursements shall be used solely for the conduct of the food service operation or to improve such food service operations, principally for the benefit of the enrolled participants (7 CFR section 226.7(b)).

The administering agency is required to assess institutional compliance by performing reviews of independent centers, sponsoring organizations of centers, and sponsoring organizations of day care homes, including reviews of new organizations, in accordance with a schedule prescribed in 7 CFR section 226.6(l).

Compliance Requirement - Accurate and complete records shall be maintained with respect to the receipt, distribution/use, and inventory of donated foods including end products processed from donated foods. Failure to maintain records required by 7 CFR section 250.16 shall be considered prima facie evidence of improper distribution or loss of donated foods, and the agency, processor, or entity is liable for the value of the food or replacement of the food in kind (7 CFR sections 250.16(a)(6) and 250.15(c)). Distributing agencies and institutions shall take a physical inventory of all storage facilities. Such inventory shall be reconciled annually with the storage facility's inventory records and maintained on file by the agency which contracted with or maintained the storage facility. Corrective action shall be taken immediately on all deficiencies and inventory discrepancies and the results of the corrective action forwarded to the distributing agency (7 CFR section 250.14(e)).

Audit Objective - Determine whether an appropriate accounting was maintained for donated food commodities, that an annual physical inventory was taken, and the physical inventory was reconciled with inventory records.

a. Ascertain storage facility, processing, and end use locations of all donated food commodities, including end products processed from donated foods. Ascertain the commodity records maintained by the entity and obtain a copy of procedures for conducting the required annual physical inventory. Obtain a copy of the annual physical inventory results.

b. Perform analytical procedures, obtain explanation and documentation for unusual or unexpected results. Consider the following:

c. Ascertain the validity of the required annual physical inventory. Consider performing the following steps, as appropriate:

d. On a sample basis, test the mathematical accuracy of the commodity records and related summarizations. From the commodity records, vouch a sample of receipts, usage/distributions, and losses to supporting documentation. Ascertain that activity is properly recorded, including correct quantity, proper period and, if applicable, correct recipient agency.

The annual plan of operation submitted by the PR Department of the Family must include a description of PR=s program for providing nutrition assistance to needy persons. The nutrition assistance PR actually provides must conform to the approved plan (7 CFR section 285.3(b)(3)).

The PR Department of the Family is required to identify in its annual plan the population eligible for NAP benefits. In testing the propriety of eligibility determinations and disbursements for NAP benefits, the auditor shall apply the eligibility criteria established by the PR Department of the Family and identified in the annual plan (7 CFR section 285.3(b)(2)).

2. Eligibility for Group of Individuals or Area of Service Delivery - Not Applicable

3. Eligibility of Subrecipients - Not Applicable

The NAP grant provided by FNS is intended to cover 100 percent of PR=s expenditures for food assistance and 50 percent of the related administrative expenses. PR must provide funds for its 50 percent share of the administrative expenses (7 CFR section 285.2(a)).

2. Level of Effort - Not Applicable

3. Earmarking - Not Applicable

a. SF-269, Financial Status Report - Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transactions Report - Not Applicable

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

A State agency or ERA must use its administrative cost grant or subgrant for activities intrinsic to the processing, transportation, and distribution of TEFAP commodities within its State or service area. Such activities are listed at 7 CFR section 251.8(d)(1)(i)(A) through (E). Under certain circumstances, a State agency may also use these funds for: transporting TEFAP commodities to other States; and transporting non-USDA foods in from other States (7 USC 7505(d)).

An ERA that receives USDA non-program commodities and TEFAP commodities may use its administrative cost subgrant for the distribution of both classes of commodities. In addition, a State agency or ERA may use its administrative funds for certain activities associated with the distribution of non-USDA foods donated by private individuals and organizations (7 CFR section 251.8(d)(1)(ii)).

While regulations issued under previous legislation had required State agencies and ERAs to use TEFAP administrative funds solely for direct costs, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 expressly identified State level indirect costs as allowable costs (Personal Responsibility and Work Opportunity Reconciliation Act of 1996, section 202A(c)(1)).

To receive commodities and TEFAP administrative funds, a public or non-profit private organization must have entered into an agreement with the State agency, or with another ERA, binding it to perform the duties of an ERA. The State agency's distribution plan identifies the classes of organizations with which it will enter into such agreements.

A State agency must match each Federal dollar expended for State level TEFAP administrative costs with a dollar from non-Federal sources (7 CFR section 251.9(a)).

Exceptions - The following States are exempted from the matching requirement in any fiscal year in which their respective required matching contributions would have fallen below $200,000: American Samoa, Guam, the Virgin Islands, and the Commonwealth of the Northern Marianas (7 CFR section 251.9(b)).

Acceptable Matching Contributions - Acceptable matching contributions include:

2. Level of Effort - Not Applicable

A State agency must use at least 40 percent of its TEFAP administrative cost grant for costs that benefit ERAs. The State agency may do this by awarding subgrants directly to ERAs, and/or by incurring costs the ERAs would otherwise have had to pay themselves (7 CFR section 251.8(d)(3)).

a. SF-269, Financial Status Report - Not Applicable

b. SF-270, Request for Advance or Reimbursement - Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Programs - Not Applicable

d. SF-272, Federal Cash Transactions Report - Not Applicable

e. FCS-667, Report of the Emergency Food Assistance Program (TEFAP) Administrative Costs (TEFAP) (OMB No. 0584-0385) - This report captures the status of a State's TEFAP administrative cost grant in a manner that identifies the portions applied to State level costs, costs paid by the State on behalf of ERAs, and costs paid by the ERAs themselves. It thus facilitates the monitoring of a State's compliance with the State matching and 40 percent pass-through requirements (7 CFR section 251.10(d)).

Key line items - The following line items contain critical information.

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

A State agency must make on-site reviews of ERAs under its oversight, and of distribution sites operated by such ERAs, in accordance with its distribution plan. At a minimum, the State agency's annual review coverage must include 25 percent of its ERAs and one-third or 50 (whichever is less) of the distribution sites in the State. To the maximum extent practicable, review scheduling should enable State agency staff to observe TEFAP commodity issuance and prepared meal service operations (7 CFR section 251.10(e)).

Compliance Requirement - Accurate and complete records shall be maintained with respect to the receipt, distribution/use, and inventory of donated foods including end products processed from donated foods. Failure to maintain records required by 7 CFR section 250.16 shall be considered prima facie evidence of improper distribution or loss of donated foods, and the agency, processor, or entity is liable for the value of the food or replacement of the food in kind (7 CFR sections 250.16(a)(6) and 250.15(c)). Distributing and recipient agencies shall take a physical inventory of all storage facilities. Such inventory shall be reconciled annually with the storage facility's inventory records and maintained on file by the agency which contracted with or maintained the storage facility. Corrective action shall be taken immediately on all deficiencies and inventory discrepancies and the results of the corrective action forwarded to the distributing agency (7 CFR section 250.14(e)).

Audit Objective - Determine whether an appropriate accounting was maintained for donated food commodities, that an annual physical inventory was taken, and the physical inventory was reconciled with inventory records.

c. Ascertain the validity of the required annual physical inventory. Consider performing the following steps, as appropriate:

Commodities donated by USDA must be used in the preparation of meals served under Special Programs for the Aging, Title III, Part C (Nutrition Services). Cash paid in lieu of commodities must be used to purchase food for use in such meals (7 CFR section 250.42(c)(5)(ii)).

1. Eligibility for Individuals - Not Applicable

2. Eligibility for Area of Service Delivery - Not Applicable

A State may provide USDA donated commodities and cash in lieu thereof only to area agencies on aging that operate Special Programs for the Aging under Title III, Part C of the OAA. An area agency on aging, in turn, may provide NPE assistance only to agencies that are under the jurisdiction, control, management, and audit authority of the network of State and area agencies on aging (7 CFR section 250.42(a)).

a. SF-269, Financial Status Report - Applicable

b. SF-270, Request for Advance or Reimbursement - Not Applicable

c. SF-271, Outlay Report and Request for Reimbursement for Construction Program - Not Applicable

d. SF-272, Federal Cash Transactions Report - Not Applicable

2. Performance Reporting - Not Applicable

FCS-586A, Monthly Report of Meal Counts for Title III Nutrition Program for the Elderly (OMB No. 0584-0293) - This report documents the number of meals served to elderly persons in congregate meal settings and by home delivery, respectively. Data gathered via this report form the basis for the State's entitlement to USDA donated commodities (and to cash in lieu thereof) under the NPE (7 CFR section 250.17(e)).

Key Line Items - The following line items contain critical information: Items 5 through 7.

Under 7 CFR section 250.19(b)(1), a State agency must make quadrennial reviews of each commodity recipient agency under its oversight. At least 25 percent of such agencies must be reviewed in each year of this quadrennial review cycle.

Compliance Requirement - Accurate and complete records shall be maintained with respect to the receipt, distribution/use, and inventory of donated foods including end products processed from donated foods. Failure to maintain records required by section 250.16 shall be considered prima facie evidence of improper distribution or loss of donated foods, and the agency, processor, or entity is liable for the value of the food or replacement of the food in kind (7 CFR sections 250.16(a)(6) and 250.15(c)). Distributing and recipient agencies shall take a physical inventory of all storage facilities. Such inventory shall be reconciled annually with the storage facility's inventory records and maintained on file by the agency which contracted with or maintained the storage facility. Corrective action shall be taken immediately on all deficiencies and inventory discrepancies and the results of the corrective action forwarded to the distributing agency (7 CFR section 250.14(e)).

Audit Objective - Determine whether an appropriate accounting was maintained for donated food commodities, that an annual physical inventory was taken, and the physical inventory was reconciled with inventory records.

a. Determine storage facility, processing, and end use locations of all donated food commodities, including end products processed from donated foods. Determine the commodity records maintained by the entity and obtain a copy of procedures for conducting the required annual physical inventory. Obtain a copy of the annual physical inventory results.

b. Perform analytical procedures, obtain explanation and documentation for unusual or unexpected results. Consider the following:

c. Ascertain the validity of the required annual physical inventory. Consider performing the following steps, as appropriate:

d. On a sample basis, test the mathematical accuracy of the commodity records and related summarizations. From the commodity records, vouch a sample of receipts, usage/distributions, and losses to supporting documentation. Ascertain that activity is properly recorded, including correct quantity, proper period and, if applicable, correct recipient agency.

1. Loan and grant funds may be expended on eligible project costs, as approved by RUS. These expenditures include items such as land acquisition, water rights, legal fees, engineering fees, construction costs, and the purchase of equipment (7 CFR section 1780.9).

2. Loan and grant funds may not be used for the following (7 CFR section 1780.10):

Borrowers may be required to provide funds from other sources as specified in the grant agreement and the letter of conditions issued by RUS (7 CFR sections 1780.44(d) and (f)).

2. Performance Reporting - Not Applicable

3. Special Tests and Provisions - Not Applicable

In years after the program funds are expended and construction is completed, and the only ongoing financial activity of the program is the payment of principal and interest on outstanding balances, the prior loan balances are not considered to have continuing compliance requirements under OMB Circular A-133 section ___.205(d). Prior loans which do not have continuing compliance requirements other than to repay the loans are not considered Federal awards expended and therefore are not required to be audited under OMB Circular A-133. However, this does not relieve the non-Federal entity to file financial reports (which are not required to be audited) or otherwise comply with program requirements (e.g., maintaining insurance, depositing funds in federally insured banks, obtaining prior approval for sales of plant).

2. Performance Reporting - Not Applicable

3. Special Reports - Not Applicable

After RHS has made a commitment on the loan, the borrow may obtain interim financing from commercial sources (e.g., a bank loan) during the construction period (7 CFR section 1942.17(n)(3)). Expenditures from these commercial loans which will be repaid from a CF loan should be considered Federal awards expended, included in determining Type A programs, and reported in the Schedule of Expenditures of Federal Awards.

In years after the program funds are expended and construction is completed, and the only ongoing financial activity of the program is the payment of principal and interest on outstanding balances, the prior loan (including loan guarantees) balances are not considered to have continuing compliance requirements under OMB Circular A-133 section ___.205(d). Prior loans which do not have continuing compliance requirements other than to repay the loans are not considered Federal awards expended and therefore are not required to be audited under OMB Circular A-133.

However, this does not relieve the non-Federal entity to file financial reports (which are not required to be audited) or otherwise comply with program requirements (e.g., maintaining insurance, depositing funds in federally insured banks, obtaining prior approval for sales of plant).