United States Department of Agriculture

Food and Nutrition Service

Southeast Region

 

Policy Memorandum 250.30-01:  Accounting for Rework in the Further Processing of Donated Commodities

 

This memorandum is a restatement of policy previously issued as Food Distribution Policy Memorandum 97-6 on December 30, 1996. 

 

The purpose of this memorandum is to transmit the procedures for accounting for rework in the further processing of donated commodities.  Rework is defined as wholesome, salvageable product generated during a production run that is not acceptable as the approved product on the end product schedule.  Rework may not be counted in determining whether a processor has met the guaranteed minimum yield established on his end product data schedule.  Any raw product that does not go through the entire production process should be considered rework.  Processors should continue to report rework inventory on the monthly performance report.

 

Should a processor fail to meet the guaranteed minimum yield and have to pay the recipient agency for the missed yield, he may not take any of the rework generated in that production run for his own use.  Rework can be reincorporated in subsequent production runs of the same product in any proportion as long as product quality remains consistent with the original formulation and the order of predominance of the ingredients does not change.  If rework comprises more than twenty percent of a new product formulation, then it should be described as an ingredient on the end product data schedule for the new product.  When rework is incorporated into a subsequent run, guaranteed minimum yield is calculated on raw donated food.  Raw inventory may only be drawn down based on the pounds of raw donated product included in the production run.  Rework inventory is drawn down based on the amount of rework contained in the production run.  Rework which cannot be reincorporated into subsequent production runs must be returned to the recipient agency; however, if the State agency determines that no recipient agency can use the rework, it may be disposed of by the processor without consequence under the following conditions:

 

1.      For cooked product, two percent of the raw commodity weight may be disposed of (for poultry-use deboned weight);

 

2.      For raw product, one percent of the raw commodity weight may be disposed of (for poultry use deboned weight).

 

Disposal of the rework could include donation to the needy, etc.; however, the rework may not be used in the processor’s commercial production or sold by the processor for his own gain.  Any rework disposed of by the processor must be weighed and recorded on the grading certificate by a U.S. Department of Agriculture grader.  A copy of the grading certificate shall be returned to the State agency (SA) with the monthly performance report.  All rework must be reconciled annually by the SA.  Rework in inventory may be carried forward into the next contracting year with mutual consent between the SA and the processor; however, if the contract is terminated, the processor must pay the SA for the value of the donated food contained in the rework, or have the rework transferred to another SA that will utilize it.  If payment is preferred, the value of the rework will be determined by using the January commodity file price of the donated food item.

 

Rework may be reconciled using the following formula:

 

Rework generated - (rework reincorporated + rework certified as disposed) = rework physical inventory.