United States Department of Agriculture

Food and Nutrition Service

Southeast Region

 

Policy Memorandum 250.15-01:  Use of Funds Generated Through Salvage, Recycling, and Distribution Charges

 

This memorandum is a restatement of policy previously issued as Food Distribution Policy Memorandum 95-1 on December 12, 1994. 

 

This memorandum will clarify the conditions under which State, subdistributing, and recipient agencies (RAs) can use funds derived from the salvage of spoiled food to reduce claims.  It also prohibits the use of revenues from recycled containers and packing materials for the purpose of offsetting claim assessments.

 

Effective immediately, a State agency (SA) may offset claims with funds collected from the salvage of spoiled or out-of-condition foods.  These funds represent the recovery of a program loss, not program income; therefore, it can be used to repay a debt without contradicting 7 Code of Federal Regulations (CFR) 250.15(f)(1).  Once a claim determination has been established for the entire loss, spoiled and out-of-condition food becomes the property of the entity responsible for the loss.  These foods can then be salvaged by the entity (with SA approval if the loss is under $2,500.00), or, upon mutual agreement between the SA and the Regional Office (RA), returned to the Department for salvage.  SAs are reminded to provide clear instructions to RAs and warehouses regarding proper procedures for salvage (obliteration of all U.S. Department of Agriculture labels, etc.), prior to granting such approval.  Regardless of the source, once funds are placed in the SA’s salvage account, they cannot be used subsequently to offset a claim.  Funds deposited into the salvage account are considered Federal funds and, in accordance with 7 CFR 3015 and Office of Management and Budget Circular A-87, cannot be used to repay bad debts, i.e., claims.  It is understood that even if the entity chooses not to use the funds collected from the salvage of food to reduce a claim, it will still be held liable for the entire claim amount.  The following examples may serve to clarify this information:

 

EXAMPLE 1:  A warehouse in State A discovers that $3,310.00 in TEFAP flour has been infested with rodents.  The warehouse reports the loss, and the SA recommends that the warehouse be held liable because they do not have documentation to support that the warehouse was exterminated in the past six months.  The RO concurs with the recommendation and requests that a check for the amount of the loss be sent to the Department.  The warehouse knows some local farmers who want to buy the flour for animal feed.  The money received from the salvage of this product can be used toward the payment of the total amount owed to the Department.

 

EXAMPLE 2:  A school in State B reports a loss of $700.00 in fresh corn due to cooler failure.  Since this school does not keep temperature charts and has been cited previously for similar losses, the SA requests that a check be sent to them instead of allowing the school to replace the product.  The SA deposits the amount into its salvage fund.  Two months later, the RO assesses a claim against the SA for the loss of $3,000.00 in cornmeal at the SA warehouse.  The SA cannot use the $700.00 in the salvage account toward the payment of the current claim.

 

Funds collected from the recycling of containers, packaging materials, and pallets cannot be used to offset claims.  These funds are considered to be “program income” and can only be used as allowable costs for program improvement operations.  Revenue received from the recycling of containers, packaging materials, and pallets are generated from items that were initially purchased with Federal funds and must be maintained in the salvage account.  State and commercial warehouses must return funds received from the sale of products to the SA for deposit into the salvage account.

 

EXAMPLE:  State C receives $400.00 from the sale of pallets.  They cannot use the $400 toward the payment of a claim.  The money must be deposited into the SA’s salvage account, and can be used to improve the efficiency and operations of the Food Distribution Program.