SNP Indirect vs. Direct Costs
There are many demands made on the limited resources of a School Food Authority’s (SFA) nonprofit school foodservice account. It is imperative that the SFA adhere to the federal regulations and determine whether a cost is allowable, allocable, and charged appropriately as a direct or indirect cost in order to safeguard the financial integrity of the nonprofit school foodservice.
Direct Costs
These are costs/expenses that can be clearly identified as having been incurred specifically for the school food service program.
Indirect Cost
These are costs/expenses incurred by the Local Education Agency (LEA) as part of its general operation for common or multiple programs, and therefore, the costs/expenses cannot be clearly identified as having been incurred specifically for the school food service program. The SFA’s portion of these indirect costs is determined by applying the indirect cost rate established by the Tennessee Department of Education for that specific SFA.
LEAs can recover indirect costs only if a SFA has an excess balance. The excess balance is calculated after all revenues and expenditures are determined and posted to Tennessee: Meals, Accounting, and Claiming (TMAC). The excess balance is the amount of funds that exceeds three (3) months operating expenditures.
Additional Resources
| Category | Description | Supporting Documentation | Allowable or Unallowable | Direct or Indirect |
|---|---|---|---|---|
| Food/Food Supplies | Items used to prepare meals for enrolled children | Vendor Invoices and receipts | Allowable | Direct |
| Labor for Food Service | Wages & salaries of persons employed (FT or PT) in operating the food service. May include such positions as food service worker, food service supervisor, food service stock worker, etc. | Time Cards: Multi-Fund Reports for employees whose duties benefit two or more funds | Allowable | Direct |
| School Accounting Services | School front office personnel may be called upon to provide change, verify daily receipts, perform banking duties, etc. | Time card indicated specifically how much time was spent providing services to food service unit | Allowable | Direct |
| Workers' Comp | LEA provided benefits to workers who are injured during the course of their employment | Actual payments of Worker's Compensation claims to current or former food service employees | Allowable | Direct1 |
| Information Technology Support (IT) | Services that benefit only the food service program | Job cost ticket or similar documentation that details labor costs incurred based on actual labor hours | Allowable | Direct |
| Custodial Services | Clean kitchen/servings areas only | Time cards that identify the number of hours spent cleaning the kitchen, prep, and serving areas | Allowable | Direct |
| Maintenance Charges | Equipment/materials in kitchen/serving areas repaired or replaced by external vendor | Vendor invoice | Allowable | Direct2 |
| Maintenance Charges | Kitchen/serving area equipment/materials repaired or replaced by in-house personnel | Job cost ticket or similar documentation that details labor costs incurred based on actual labor hours expended | Allowable | Direct2 |
| Trash Collection | Picks up trash for school and kitchen/serving areas | Itemized vendor invoice that specifies cost for picking up in kitchen/serving areas | Allowable | Direct |
| Utilities | Meter for kitchen/serving area | Utility provider invoice or statement for utilities used in kitchen/serving area | Allowable | Direct |
| Pest Control | Separate invoice for kitchen/serving area/food storage areas | Itemized vendor invoice | Allowable | Direct |
| Transportation | To deliver food/prepared meals to schools (trucks deliver food and food supplies only) | Time cards, activity reports, job cost tickets | Allowable | Direct |
| Transportation | To deliver food/prepared meals to schools | Time cards, activity reports, job cost tickets | Allowable | Direct |
1 Direct cost because it is specifically related to the food service program in which the employee was working when s/he was injured.
2 Direct costs because billing maintenance services are specifically related to food service programs that received the labor and/or equipment.
| Category | Description | Supporting Documentation | Allowable or Unallowable | Direct or Indirect |
|---|---|---|---|---|
| School Accounting Services | School front office personnel may be called upon to provide change, verify daily receipts, perform banking duties, etc. | Each district has developed a cost allocation plan. That plan is used to determine whether these costs are direct or indirect. | Allowable | Indirect |
| Workers' Comp | LEA provided benefits to workers who are injured during the course of their employment | Periodic contributions to a LEA-wide reserve or self-insurance fund for workers' compensation and other benefits. Claims paid from fund as the arise (These claims would be for DISTRICT-WIDE employees) | Allowable | Indirect |
| Post- Retirement Health Benefits | LEA provided benefits to its retirees (medical, dental, and vision) | Periodic contributions to a LEA-wide reserve or self-insurance fund for retiree's post-employment healthcare and other benefits | Allowable | Indirect3 |
| Post- Retirement Health Benefits | LEA provided benefits to its retirees (medical, dental, and vision) | Payments of health benefits claims to retirees or their health care providers | Allowable | Indirect3 |
| Information Technology Support (IT) | Services that provide LEA-wide benefits | LEA expenses are pooled | Allowable | Indirect |
| Custodial Services | Clean entire school, including kitchen/serving area | Time cards that do not break down time by area served | Allowable | Indirect |
| Trash Collection | Picks up trash for school and kitchen/serving areas | Vendor invoice not itemized | Allowable | Indirect |
| Utilities | Utility provider invoice or statement for entire school | Utility provider invoice or statement for entire school | Allowable | Indirect |
| Pest Control | Invoice for services provided not itemized by area serviced, with separate charges for each | Vendor invoice is not itemized | Allowable | Indirect |
3 Both of these post-retirement health benefits are treated as indirect costs because allocating individual payments to retirees based on the departments in which they worked in the course of their careers would be oppressively burdensome, and therefore, they are typically treated as an indirect cost.