Inventory... 3 Inventory Types... 3 Contracting Entities Single Inventory Management... 3 FIFO... 4

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1 Section 8000 Inventory and Records Table of Contents Inventory... 3 Inventory Types... 3 Contracting Entities... 3 Single Inventory Management... 3 FIFO... 4 School Food Authorities (SFAs) That Act as a Collective Unit in the Control and Use of USDA Foods... 4 Functions of the SFA Collective Unit... 4 Charter Schools and Other Small SFAs... 5 The Collective Unit and Procurement... 5 Food Service Management Companies (FSMCs)... 5 Activities an FSMC May Perform... 5 Credit the SFA To Substitute or Not?... 6 Contracts with Food Service Management Companies... 7 Types of Contracts... 7 Monitoring and Reconciliation... 7 Request for Proposal and Contract... 7 Use of USDA Foods... 8 Nonprofit Food Service Account... 8 Reimbursement... 8 Allowable Uses of USDA Foods... 8 Unallowable Uses of USDA Foods... 8 USDA Food Transfers... 9 Section 8000, Inventory and Records Page 1

2 Inventory at State-Contracted Warehouses... 9 Annual Physical Inventory... 9 Equipment Calculating USDA Inventory... 9 Completed Inventory... 9 Excess Inventory at State-Contracted Warehouses Relieving Excess Inventory Outdated or Inedible USDA Foods Distributing Agency Requirements Commodity Offer Value Subsequent Distribution or Use TDA Encourages Collective Units Processors Records The SFA s Records Utilization Records The FSMC s Records More About Keeping Records Section 8000, Inventory and Records Page 2

3 Section 8000 Inventory and Records Inventory A contracting entity 1 (CE) and the CE s agents must maintain complete and accurate records of U.S. Department of Agriculture (USDA) Foods received and used. Inventory Types Book Inventory Perpetual Inventory Physical Inventory Single Inventory The specific inventory level of USDA Foods at a particular point in time. This term is used in association with perpetual inventory and other USDA Foods records. An ongoing accounting system which requires daily entries to document the amounts of USDA Foods added or removed from storage. A yearly process to account for all USDA Foods received since the last physical inventory and to report those on hand at the time of the report. The commingling in storage of USDA Foods with foods from other sources, and the maintenance of a single inventory record of these commingled foods. Contracting Entities Single Inventory Management. CEs are not required to maintain a separate inventory of USDA Foods. Rather, CEs may maintain a single inventory that includes both USDA Foods and purchased food products. A CE must value its inventory for three different situations. 1. Products that a CE purchases commercially but does not receive as USDA Foods. TDA suggests that the CE base the inventory value for such items on the net purchase price for that item. For example: condiments such as catsup and mustard 1 Section 8000, Inventory and Records Page 3

4 2. Products that a CE receives from USDA but cannot purchase commercially 2. TDA will continue to provide CEs with the value of USDA Foods via TX-UNPS; i.e., weekly commodity bulletin, allocation inquiry screen. For example: ground beef, frozen corn, or frozen diced chicken 3. Products that a CE purchases commercially and receives from USDA For example: canned fruits or vegetables A CE may base the value of these products on the following. The net cost to purchase such products The USDA Foods value provided by TDA The average of the two values The weighted average of the two values TDA Recommends First In, First Out (FIFO). At the point that USDA Foods are allocated to the CE, the USDA Foods become a nonprofit food service account asset. The CE is not required to take an annual physical inventory of USDA Foods in storage, nor is the CE required to report the end-of-year inventory to TDA. The CE must continue to safeguard USDA Foods as the CE safeguards products purchased with nonprofit food service account funds. To that end, TDA recommends the CE practice first in, first out (FIFO) with USDA Foods inventory. School Food Authorities (SFAs) That Act as a Collective Unit in the Control and Use of USDA Foods CEs that participate in School Nutrition Programs are SFAs. The SFA must ensure that its interlocal agreement specifies the food activities to be performed collectively. When performing activities with USDA Foods, the SFA collective unit 3 is subject to the same requirements as a single SFA and may exercise the same options. Functions of the SFA Collective Unit Submit orders directly to TDA for USDA Foods Store donated foods with commercially purchased foods and maintain a single inventory 4 Prepare meals using USDA Foods at the kitchen facilities of one SFA, then provide delivery of those meals to other SFAs 2 Reasons a CE might not be able to purchase products commercially: 1) The price might be too high. 2) The product might not be on the market. 3) Commercial products require real money, whereas USDA Foods require only entitlement. 3 4 Section 8000, Inventory and Records Page 4

5 Procure the services of processors, storage facilities, food service management companies, or other commercial enterprises to utilize USDA Foods for all SFAs in the collective unit Charter Schools and Other Small SFAs. Charter schools and other small SFAs, such as private, nonprofit schools and residential child care institutions, benefit from the efficiencies of performing donated food activities as a collective unit. This is particularly true of small SFAs without kitchens. Such SFAs have a number of options: Enlist the help of a different SFA whose facilities are capable of receiving shipments, storing and preparing food, and transporting the meals to the small SFA to be served to its students. Procure the services of a commercial entity to receive shipments and to prepare meals for transport to the small SFA. Using USDA Foods to prepare meals at a commercial facility, however, is considered processing and is subject to requirements for processing USDA Foods (NOTE: The SFA must first consult with TDA to ensure compliance with program requirements.) Procure the services of a private, nonprofit organization, such as a hospital, to prepare meals. Such an organization is considered a food service management company, subject to regulations (NOTE: The SFA must first consult with TDA to ensure compliance with program requirements.) The Collective Unit and Procurement. For guidance on this topic, please see Administrator s Reference Manual, Section 21, USDA Foods. 5 Food Service Management Companies (FSMCs) Activities an FSMC May Perform Prepare and serve meals Store and manage the inventory of USDA Foods Pay processing fees Submit refund requests to a processor for the SFA Remit funds to the SFA for the value of USDA Foods in processed end products The FSMC may procure processed end products for the SFA, but the FSMC may not enter into a processing agreement directly with the processor. 5 Go to Section 8000, Inventory and Records Page 5

6 The FSMC may order or select USDA Foods from TDA if the SFA contracted its food service operations to the FSMC. If the SFA contracts with a caterer or vendor to supply only meals not other food service responsibilities the caterer or vendor must coordinate with the SFA to request USDA Foods. The caterer or vendor may not have access to TX-UNPS. The SFA maintains the responsibility to enter requests into TX-UNPS. Credit the SFA. The FSMC must credit the SFA for the value of all USDA Foods received for use in the SFA s meal service during a school or program year, including bonus foods 6. All crediting must provide clear documentation of the value received from the USDA Foods. The FSMC must use food values determined either by TDA or by an alternate means defined by the SFA and approved by TDA. The method of determining food values must be included both in procurement documents and in the contract. To Substitute or Not? In the SFA s contract with the FSMC, the SFA can stipulate that the FSMC may use only USDA Foods rather than commercial substitutes. In the SFA s food service, the FSMC must use all USDA Foods of ground beef, ground pork, and all processed end products. USDA and TDA may conduct reviews of FSMCs to ensure compliance in the use and management of USDA Foods. Additionally, in the SFA s food service, the FSMC must use all other USDA Foods or, if the contract does not specify that only USDA Foods may be used, then the FSMC may use commercially purchased foods of the same generic identity, U.S. origin, and equal or better quality than the USDA Foods. For more information regarding FSMCs and USDA Foods, please see the Administrator s Reference Manual, Section 22, Food Service Management Companies. 6 Section 8000, Inventory and Records Page 6

7 Contracts with Food Service Management Companies SFAs may contract with FSMCs to manage food service operations. Types of Contracts Fixed-price contract Cost-reimbursable contract Based on a fixed price per meal or a fixed cost for a certain time period. An FSMC charges an SFA for food service direct costs, as well as fixed fees for management and general administrative expenses. TDA must review and approve all SFA solicitations for FSMCs and all contracts with FSMCs before execution of the contracts. All SFAs that contract with FSMCs will have a contract period set by TDA. The contract between an SFA and an FSMC must be for the school or program year. The contract must also include wording that all of the SFA s USDA Foods must be used in the agency s food service. Monitoring and Reconciliation. The SFA is responsible for monitoring the FSMC and for ensuring that the FSMC is in compliance with contractual obligations. At a minimum, the SFA must conduct reconciliation annually and upon termination of the contract. Reconciliation ensures that the FSMC has credited the SFA for the value of all USDA Foods including those contained in processed end products that were used in the SFA s food service in the school or program year. Request for Proposal and Contract Finding the Request for Proposal and Contract Form Visit the TDA website at Choose the Programs tab, then make these selections: National School Lunch Program, NSLP Administration & Forms, Food Service Management Companies. All SFAs must use the Request for Proposal and Contract provided by TDA. For more information regarding FSMCs and USDA Foods, please see the Administrator s Reference Manual, Section 22, Food Service Management Companies. Section 8000, Inventory and Records Page 7

8 Use of USDA Foods Nonprofit Food Service Account. A CE may use USDA Foods across all programs, such as school breakfast, CACFP snacks, and lunch meals. See Allowable Uses of USDA Foods in this handbook section for additional details. This is true even for SFAs, whose entitlements are calculated based on only school lunches. If any meal or snack contains USDA Foods, then the income from the sale of the snack or meal must accrue to the nonprofit food service account 7. For SFAs, this account is also known as the nonprofit school food service account. 8 Reimbursement. An SFA must ensure that its contract with an FSMC provides for reimbursement to the nonprofit food service account. Alternative Reimbursement System Under the single inventory management system, sometimes reimbursement cannot be made based on actual usage of the USDA Foods. In such a case, the CE must establish an alternative method to ensure that USDA Foods subsidize only those school food service activities that benefit the children. For example: An SFA may include the current established per-meal value of USDA Food assistance in the price charged for the school food service activities. Allowable Uses of USDA Foods Allowable uses of USDA foods are school lunches, breakfasts, other meals, or snacks served by the CE to students; à la carte food sold to children; meals served to adults directly involved in the operation and administration of the nonprofit school food service; instructions in general home economics for students; training in nutrition, health, and food service; and meals served to other school staff. Unallowable Uses of USDA Foods CEs cannot use USDA Foods at: banquets, catered events, and activities that do not primarily benefit children. 7 8 Section 8000, Inventory and Records Page 8

9 USDA Food Transfers A CE may transfer USDA Foods to other organizations that participate in the same program without prior approval from TDA. If a CE makes such a transfer, then the CE will not receive an entitlement credit 9 for the value of the transfer. A CE may request approval from TDA to either donate or transfer USDA Foods to a CE in a different program. Inventory at State-Contracted Warehouses 10 Annual Physical Inventory. TDA staff, along with staff of the state-contracted warehouse, will conduct an annual physical inventory of USDA Foods, including USDA Foods stored at subcontracting warehouses. The annual physical count of USDA products includes available and allocated USDA Foods such as farm to school fresh produce, processed end products, and USDA Foods in private storage. During the annual physical inventory, the state-contracted warehouse must not schedule appointments for inbound or outbound shipments of USDA Foods. Equipment. The state-contracted warehouse must provide sufficient equipment to allow TDA to simultaneously count USDA Foods stored in freezers, coolers, and dry storage areas. For example: freezer outerwear, such as freezer coats lifts, with safety cages and safety belts, to hold counting teams If the state-contracted warehouse fails to cooperate and causes TDA to incur any additional cost to conduct the physical count, then TDA will bill that cost to the state-contracted warehouse. Calculating USDA Inventory. During the physical inventory, TDA will compare the physical count to the current inventory generated by the Texas Unified Nutrition Programs System 11, also known as TX-UNPS. The dollar amount of gains (overages) and losses (shortages) of USDA product is calculated using USDA s current list of food prices. Completed Inventory. When the annual physical inventory is complete, the counting team must agree to the number of cases, packages, or containers of each USDA product counted, including USDA Foods stored at subcontracting facilities. Both TDA and the contracting storage representative must sign and date the inventory count sheets See Food Distribution Program Handbook, Section 14000, Terms, Definitions, and Acronyms for a definition of 11 See Food Distribution Program Handbook, Section 14000, Terms, Definitions, and Acronyms for a definition of Section 8000, Inventory and Records Page 9

10 The contracting storage facility representative affirms agreement with the count by signing the inventory count sheet final copy at the conclusion of the annual physical inventory. TDA will then follow up with a findings letter outlining the gains and losses. Excess Inventory at State-Contracted Warehouses USDA Foods inventory must not exceed a six-month supply. Excess inventory is based on the following: Rate of distribution Anticipated distribution Logistical concerns Economic considerations For information about excess inventory at processors, please see Food Distribution Handbook, Section 10800, Excess Inventory at Processors. Relieving Excess Inventory. TDA monitors state-contracted warehouse private-storage reports. Short-term storage begins with the 46 th day of storage. Long-term storage begins at six months (or 181 days, as calculated in TX-UNPS). If an SFA s inventory is in short-term storage, TDA sends a letter to the SFA of the SFA s responsibility to prevent inventory going into long term storage. The SFA must either take delivery of or transfer the short-term storage inventory to another SFA before the inventory goes into long-term storage. If the inventory goes into long-term storage, TDA may transfer the excess inventory to another SFA that can use the inventory timely. If TDA transfers excess inventory, TDA notifies the SFA by . Outdated or Inedible USDA Foods. If the excess inventory of USDA Foods in storage at the state contracted warehouse is suspected to be outdated or inedible, the state-contracted warehouse must notify TDA. The state-contracted warehouse will notify a health official to inspect the excess inventory. If the health inspector does not condemn the excess inventory, then the SFA must either use the excess inventory (thus reducing inventory); transfer the excess inventory to another SFA. If the health inspector does condemn the excess inventory, then the state-contracted warehouse must complete Form H1638, Report of Loss of USDA Foods, and it to TDA; TDA will not reimburse the SFA for the loss of the condemned foods The SFA will not hold the state-contracted warehouse liable. The SFA is still responsible for any incurred costs. Section 8000, Inventory and Records Page 10

11 Distributing Agency 12 Requirements TDA enters into the Commodity (USDA Foods) Agreement with each SFA that participates in NSLP. Commodity Offer Value. TDA must inform all SFAs of the commodity offer value 13 of USDA Foods. TDA may sum up the SFA s individual commodity offers then present the sum to the SFA collective unit, if such an arrangement is acceptable to the SFAs. TDA must, however, inform each SFA of its individual commodity offer value. Subsequent Distribution or Use. Once USDA Foods are delivered to and received at the collective unit s storage facility, TDA is not responsible to further monitor the foods. If any question arises among the collective unit s SFAs regarding subsequent distribution or use of USDA Foods, then the unit is responsible for resolving the issues. TDA Encourages Collective Units. TDA s goal is to facilitate the distribution of USDA Foods. The agency recognizes that some SFAs lack the capacity to store USDA Foods or to prepare meals, so TDA may encourage such SFAs to function as a collective unit. Why? To maximize efficient and cost-effective distribution To minimize workload in control and use of USDA Foods Processors. TDA may limit the number of processing agreements it enters into with processors that use USDA Foods for SFAs. TDA must, however, consult with SFAs to consider other options to facilitate the distribution of USDA Foods to SFAs for use in each nonprofit school food service. 12 See Food Distribution Program Handbook, Section 14000, Terms, Definitions, and Acronyms for a definition of 13 See Food Distribution Program Handbook, Section 14000, Terms, Definitions, and Acronyms for a definition of Section 8000, Inventory and Records Page 11

12 Records Both the SFA and the FSMC are required to keep records pertaining to USDA Foods. The SFA s Records The SFA, to fulfill its contract with an FSMC, must maintain certain records regarding the use of USDA Foods (including processed end products) that were received and provided to the FSMC. Such records include: Documentation that the FSMC credited the SFA for the value of all USDA Foods that were received by the FSMC for the school or program year Documentation of the value of the USDA Foods in the processed end products The actual USDA Food values used in crediting Utilization Records. A utilization record is documentation showing that a CE used USDA foods in meal service operations. For instance, acceptable utilization records are meal production records. SFAs that participate in the National School Lunch Program (NSLP) and the School Breakfast Program (SBP) are required to maintain utilization records for USDA Food usage. For more information regarding FSMCs and USDA Foods, please see the Administrator s Reference Manual, Section 22, Food Service Management Companies. CEs that are part of the Summer Food Service Program might prefer to use utilization records as part of a good inventory management system. Utilization records require entries anytime a USDA Food is used to prepare a meal. Include the notation "USDA" to indicate the use of a USDA Food. The FSMC s Records The FSMC must maintain the following records: USDA Foods and processed end products received from or on behalf of the SFA Documentation of crediting the SFA for the value of all USDA Foods, including those contained in end process products, that were received for use in the SFA s food service Documentation of the FSMC s procurement of processed end products on behalf of the SFA, if applicable More About Keeping Records To read further about recordkeeping, please see Food Distribution Handbook, Item 9220, Recordkeeping. Section 8000, Inventory and Records Page 12

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