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

Examples of Direct Costs
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.

Examples of Indirect Costs
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.