THE RECORDS CONTROL FUNCTION FOR A SCHOOL LUNCH P‘RCGRAM 137 580 HTHS Thesis for ”he Degree of M. S. MECHIGAN STATE UNWERSWY Mary Eilen Ault 1962 1W " ~' TI‘IE? Phi-Hint)?"HIS-9i: (IT-(1)1"! 1 vol. I33'I.,ll"nf' ‘l‘...1i.xfi)r'l 1" Lin“ 5:220:71. 0? M ECCI'C""CS fl:.7“:: -".¢::I‘f‘_ 3.." \” it"; "I‘. ('(' ffrf: ."‘ t. ''''' BB! “a“-th‘L}. «Alkliiudbl LIBRARY Michigan State , University ’ (5.14.1. 'l; ., Mary I}; .1. [1. (:f'Pl'! M a $535 . ,1. '13» «:5. 2;: H N r: mm W sums umvgasnv I“ ”m V ' Deuce THE RECORDS CONTROL FUNCTION FOR A SCHOOL LUNCH PROGRAM By Mary Ellen Ault A THESIS Submitted to the Dean of the College of Home Economics of Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Institution Administration 1962 PREFACE School food service has become a permanent part of the con- temporary scene. Does it not follow, then, that it ought to be administered efficiently? This study was developed with the idea that standardized pro- cedures must be tailor-made to the organization which uses them, but even though the records were designed for a particular situation it is hoped that other organizations may find some part which can be adapted to their needs. , Experience in the field as well as the studies and experiences reported by others were drawn upon in the prepara- tion of this manuscript. Acknowledgment is made to the many writers who have furnished ideas directly or indirectly through their books and articles. ~ Sincere appreciation is given to Mr. Wallace Aylesworth, Superintendent of the Portage School Corporation, for his interest in providing pertinent information and for his cooperation in introducing the findings of the study to the cafeteria system. Thanks is due Mr. Albert Hinton, - Certified Public Accountant, for his assistance in the development and use of the record forms. Special acknowledgment is due Professor Katherine Hart, for her inspiration, patience, and advice in the execution of this study and to Dr. Grace A. Miller for her critical reading of the manuscript. ********* ii TABLE OF CONTENTS INTRODUCTION ..... O O O O O O O O O O O O O O O O O 0 THE COMMUNITY AND THE SCHOOLS. . . . . . . . . . . TheCommunity ..... .............. The Portage School System . . . . . . . . . . . . . . THE SCHOOL LUNCH PROGRAM. . . . . . . . . . . . . . Historical Highlights 0 O O I O O O O C O O O O O O O O LegiSIation O O O O O O O O O O O O O I O O O O O O O 0 Organization of Portage, Indiana Program. . . . . . ACCOUNTING AND FINANCIAL CONTROL. . . . . . . . . Public School Accounting . . . . . . . . . . . . . . . Budgeting O O O O O O O O O O O O O O O O O O O O O O O FormsDesignandControl AN APPRAISAL OF THE RECORDS CONTROL FUNCTION . The PrOblem O O O O O O O O O O O O C O O O O O O 0 O The Management Audit 0 O O O O O O O O O O O O O O 0 Preliminary planning . . . . . . . . . . . . . . Selectingpersonnel. . . . . . . . . . . . . . . . Preparing audit program . . . . . . . . . . . . ~Conducting management audit. . . . . . . . . . The report 0 O O O O O O O O O O O O O O O O O O O ACtion taken 0 O O O O O O O O O O O O O O O O O O O O EPILOGUE -- A Management Information System . . . . . CashReceiptsJournal CashDisbursements Journal........... .. PayrollJournal...... ..... GeneralJournal.................... GeneralLedger.................... Trial Balance 0 O O O O O O O O O O O O O O O O O O O 0 Profit and Loss Statement. . . . . . . . . . . . . . . A11 Appraisal ...... O O O O O O O O O O O O O O O O BIBLIOGRAPHY O O O O O O O O O 0 O O O O O O O O O O O O 0 iii Page \Oxl 19 19 21 2.9 31 31 32 32 36 37 39 45 47 48 48 48 53 56 57 57 66 68 7O LIST OF TABLES TABLE Page 1. Portage School Enrollment Figures for the School Years 1950-1961, Inclusive . . . . . . . . O O O O O O O O O O O 6 2. Development of the Portage Lunch Program from 1946- 1962 O O O O O O O O O O O O C O O O O 14 iv LIST OF FIGURES FIGURE Page 1. Organization Chart for Portage School Lunch Depart- ment........................... l6 2. Sequence of Budget Preparation . . . . . . . . . . . . 25 3. Management Audit Objectives . . . . . . . . . . . . . 33 4.TheManagementCycle ................ 35 5. Management Audit Flow Sheet . . . . . . . . . . . . . 38 6. Relationship of the Journals and the Ledger. . . . . . 49 7. Steps in Accounting Cycle . . . . . . . . . . . . . . . 49 LIST OF EXHIBITS EXHIBIT ‘ Page 1. Form for Comparing Actual Expenditure Variance With Budget Data. 0 O O O O O O O O I O O O O O O O O O 23 2. Financial Record Check List for Portage School LunchProgram.................... 41 3. ASMinuteFormCheckList............. 42 4. CashReceipts Journal . .......... 50 5. Cash Disbursements Journal . . . . . . . . . . . . . 52 6. Payroll é.PayrollJournal.................. 54 b.PayrollAnalysis.................. 55 7.VEarningsRecord.................... 55 8 0 General Journal 0 O O O O O O O O 0 O O O O O 0 O O O O 56 9. General-Ledgerooooo00000000000000. 58 10. . Control. and Detail Accounts for Selected Schools-- Portage, Indiana. . O O O O O O . O O . . . . C . . . . 6 1 11. Trial Balance 0 O O C C O O . O . O O ' O . O C O . O C O 66 12. .Profit and'Loss Summary. . . . . . . . . . . . . . . 67 vi INTRODUCTION As organizations are formed, procedures for obtaining operational records are slowly established by those who set up the fir st routines and process the initial papers. The methods which evolve are rarely as efficient as they might be. , Once procedures are fixed there is little motivation on the part of supervisors and employees to- seek a better way, since performance can become automatic enough. to- seem expeditious. A good reporting systemvis a requisite for effective manage- ment control. The modernization of office procedures represents a challenge to school lunch supervisory personnel, because there are not many precedents for such work. The financial aspects of school food service management call for sound business techniques adapted to meet the needs and purposes of the program as well as for intelligent direction. At present it is difficult to obtain satisfactory summaries of financial transactions and commodity values which adequately report school food services. Efficient records aid in administration, furnish data for statis- tical analysis, systematilz-e: operational control and show progress and development within the program.‘ Management may anticipate stimu- lation of personnel, improvement of service and better financial control through an effective accounting and reporting system. The principal objective of this study was-to develop systems and procedures for internal control of the school lunch department in Portage, Indiana. THE COMMUNITY AND THE SCHOOLS During recent decades our society has been marked by rapid change. , This is apparent to one who notes that only a few decades ago we were essentially a rural people. Then the villages, towns and cities were rather stable communities, but industrial and economic changes have been vast and they have had a great impact upon com- ‘munity life. Innovation in the schools has not been much-less than in the society. Not only is the public school one of a large group of influences which act upon the society, but it is also seen to be subject itself, through custom and tradition, to the strains and stresses of every activity within the community. The Community One does not have to go the annals of history nor does he have to search far off areas of the world to find the struggle of cultures taking place. People in modern civilized areas can find themselves in a virtual battle for their very existence because of geographical location, technological develOpment, and social structures. Fifteen years ago ‘Portage, Indiana was a peaceful rural community, and now we find a large heterogenious group of conflicting cultures. This struggle is not just a local concern as one might think. I For many years, the politicians of the State of Indiana have wanted to include its only remaining waterfront in the world markets. . The first industrial foothold in the dunes area was the purchase in 1929 of seven hundred and fifty acres by Midwest Steel, a subsidiary of National Steel Corporation. However, no great push was made until there‘was serious talk about building the St. Lawrence Seaway. Then a concen- trated buying program took place by Inland Steel Company, the Bethlehem Steel Company and even by the State of Indiana for the purpose of building a port to establish world trade. There has been a long-waged battle between conservation and industry over the deep water port. The project is supported by politicians and recommended by the army corps of engineers, but strongly opposed by two thousand members of Save-the-Dunes Council who would like to create a National park. This controversy has been before the United States Senate Interior and Insular Committee, a matter of discussion and debate on nation-wide television and a major concern of the State House of Indiana. I Most of the area of Portage Township is wealthy in rich farm land. This fact, generally accepted just a few years ago, is one that is lost to the influx of population during the last fifteen years. With one ex- ception all of the populated areas were found in the more sandy regions of the township. The exception, McCool, population now of about two hundred, grew more as a convenience to the farmers than for any other reason. A railroad passes through this town and many years ago was a loading place for milk brought in by farmers. Today the trend of population is strongly pushing at the outer fringes of the farm areas to the point that many farms are completely residential. . In the middle and western portion of the township is found a large tract of dry, sandy land which, though not the first to be inhabited, has grown to be the area of greatest population. Farther north, on the western side there is a decided mixture of swampland and sandy dunes, which, as yet, has not been put to any economical use except for con- struction of one small plastics factory. The extreme northern area from east to west borders Lake Michigan and is made up of both large and small sand dunes. Most of the people of this section are greatly attracted to the dunes and have moved into the area to take in their beauty and to be close to nature. It was for this reason alone that the small town of Ogden Dunes came into existence. People in this village are on a much higher socio-economic scale than those in the other parts of the township. East of Ogden Dunes is a small residential area that is made up of two extremes; a slum area and a larger section of very fine homes. In the township, then, we find three distinct classes of people recognized both by the location in which they live, and the occupations on which they depend for their livelihood. These are: (l) the farmer located in the better farmland, (2) the millworker who works in- Lake County and lives in the central sandy region of Portage Township, and (3) professional people including executives, doctors, lawyers, artists, and writers who reside in Ogden Dunes. Basically Portage Township acquires the overflow of Cary. The rapid growth of Gary in addition to plans for expanding the sand dune area made an increase in population of the township inevitable. This surge in population led to the incorporation of Portage in 1959. Midwest Steel built a finishing mill in 1960 as part of a large integrated mill which is planned for completion within ten years, and the other steel companies who purchased land in the area also expect to construct large plants. Portage, Indiana in 1962 is rated as a fifth class city with an approximate population of 15, 000 distributed over twenty-five square miles. The Portage School System Industrialization is responsible for the rapid growth of the Portage school system. During the past decade the number of students sky- rocketed 157% raising the school tax rate 119%. The assessed valuations did not keep pace with the enrollment since they increased only 54%. Annual expansion is necessary to keep step with the growth. 7 Four new buildings were constructed during the last ten years, and another will be completed in 1963. School construction dates and pupil capacity show the pressure of increasing enrollments: Date of Date of Site Size ' Pupil ' School Construction Addition (acres) Capacity Crisman 1898 1922-1930 5 540 Garyton 1920 1927-38-56 8 360 1Portage H.S. 1949 1953-55-58 35 1700 Geo. L. Myers 1959 10 360 Ethel R. Jones 1960 10 360 Central El. 1961 10 540 Portage Jr. H. 1963 950 An increase in personnel is to be expected with expansion. The Portage faculty nearly tripled in the last ten years. A change in organization came about in 1957 with the formation of a school board to replace the township trustee. The State of Indiana is now undergoing school re- organization, but their committee has recommended that because of its size the Portage school district should remain as it is. Probably the best picture of what has happened to the Portage school enrollment can be seen in the enrollment figures (Table 1). Note from the table that in 1950 there were 154 pupils in grade one. . In 1961 the enrollment in that grade had increased to 434. The total en- rollment of the Portage school system increased from 1297 to 3844 in twelve years. It is hoped that this background will lead to a better understanding of the lunch program. ¢¢wm mocm moan mwwm wvmm ¢oNN mean waa QNNH wmma wova FoNH mamfiFH 2 -- .. .. .. .. .. -- -- .. -- i 33on Fwd MPH oma mNH mod mm pm pm om No we mw NH Hmd moa cod 00H MNH mad no mod mm 00 mp 00 AH mwm CON Hoa NHN owd m¢~ FHA NOH mod om we ow 0H HNM mum oom NON NHN moa N¢H wad wofi NAM mo *5 a mmm ham owm mom Nwfi MOH mod wvd vHH vafi HHH mofi w mam mmm mmm HmN mom wwfi me mwa mmH Oaa ow . on b ¢mm 50m mom 0mm wHN moa owH Med MFA hwfi and oo o mmm mmm mom HON www mom me mma ¢>H woa vva NEH m mom owm com woN mmm mmm $0M mug omfi mcfi oma omH ¢ hmm own vom wmm com 0mm Hmm woa boa w¢~ mod 0mg m omw mom pom oom mum wwm avm mam HOH cod mmd mma N «me omv 0mm OHM mwN mmm wmm mmm bmw wwa meg va r-G good Obog omoa wmmfi hmod omod mmod vmofi mmod mmod Hmma omod undumv use? 033505 .Hooduomm; mums.” Hoosom 2.3 pg monswrm «coadoucm Hoosom. ommuuonm .H 2an THE SCHOOL LUNCH PROGRAM The story of school lunch is inevitably a part of the larger story of the rapid development of public education. This program is primarily the result of basic economic and social changes in the nation that have created a demand for a school lunch program. Like the majority of school systems Portage, Indiana has made the school food service an integral part of its total educational program. Historical Highlights Education is big business today-i-all phases of education--and the public, as well as school officials, are focusing their eyes on the spend- , ing of funds for educational purposes. A new sense of responsibility has developed toward the handling of monies and a "new look" is apparent in the business offices of the school systems throughout the United States (22). One of the fastest growing phases of education has been school food service. This program was in its infancy twenty years ago, but today has joined the parade of billion dollar operations. The serving of food at school has been known abroad since 1849. However, the type of food provided, the reasons for food service and the educational implications have changed radically over the last twenty years. France was one of the first countries to provide school lunches on a national scale, and in 1882 legislation provided for use of local funds to support lunch programs in all schools. During the Boer War, in 1902, an officer of the British Army stated that only two out of every five men who wished to become soldiers were physically fit. This became a national issue in England, and Parliament recommendedthat lunches be supported wherever possible by private funds. Public funds were made 7 available when costs could not be met otherwise. Local educational officials were authorized to install facilities for preparing and serving food as part of the standard school equipment, and by 1909 nearly all European countries had taken steps in the school feeding movement. The earliest instance on record of an organized school feeding operation in the United States was that of the Children's Aid Society of New York, which in 1853 opened the first of its vocational schools for the poor and served meals to all who attended. Growth in the knowledge of nutrition some decades later placed emphasis on the importance of the wise selection of food and the need for nourishing school lunches at low cost or without charge. Under the leadership of Ellen H. Richards,“ a well-known home economist, the Boston school committee passed an order that "only such food as was approved by them should be sold in the city schoolhouses" (9). About this same time school officials began to recognize that malnutrition affected the ability of the child to, learn at school, and the two decades that followed brought significant develop- ments in the school-lunchroom movement throughout the country. By 1910, many cities were operating penny-lunch programs in elementary schools, often taking over the task formerly performed by voluntary societies. Small portions of food--a bowl of soup, bread and butter, or cocoa, for example--were sold for one to three cents during recess. These lunches were self- supporting encouraging children to buy nourishing food with their lunch money. - In 1909 a new system was initiated at the William Penn High School in-Philadelphia. ‘ Instead of granting the lunch concession to the janitor or a caterer, a home economics graduate was hired as director of the lunchroom to serve lunches based on "sound food principles. " Light, heat, gas for cooking, and the original equipment were provided by the board of education and otherwise, the lunchroom was to be self— sustaining. All assistants and helpers were to be employed by the director, with prices for food fixed at such a scale that the receipts should cover overhead charges. This plan proved to be basic to school lunch development. Legislation In our country, federal assistance to school lunchioperations began in 1933, when the Reconstruction Finance Corporation provided loans to several communities in Missouri to pay labor costs of preparing and serving school lunches. By the end of 1934 this type of assistance was given to thirty-nine states through the Civil Works Administration and the Federal Emergency Relief Administration. . Later, the Works Project Administration and the National Youth Administration furnished both labor and trained management personnel for lunchroom operations resulting in an adequate program at the time (14). The enactment of Public Law 320, 74th Congress, in August 1935, made it possible for the federal government to provide additional assistance in the form of donated commodities. Section 32 of the law appropriated annually an amount equal to thirty percent of all customs receipts for the general purpose of encouraging the exportation and domestic consumption of agricultural commodities. One of the activities financed with Section 32 funds was the program for purchase of surplus food commodities and their distribution to nonprofit school lunch pro- grams, charitable institutions, and welfare recipients.. By March 1942, 7 six million children were participating in lunch programs receiving surplus commodities. . Our entry into World War II brought an unprecedented demand for food which, in turn, resulted in the production of a large volume of foods suitable for local purchase for school lunch programs. . In March 1943, the Department of Agriculture announced that assistance would be granted in the form of cash reimbursement. - Under this program, any nonprofit 10 public or private school was eligible. Local sponsoring groups entered into agreements with the department to operate lunch programs in accordance with certain standards and regulations, and were reimbursed directly for a portion of their food expenditures. The most important of these operating standards were: 1. Lunches served should meet nutritional standards established by the Department of Agriculture. 2. The lunch program should be operated on a nonprofit basis. 3. Children unable to pay the full price of the lunch should be served at a reduced cost or free. Direct distribution of surplus foods acquired by the department continued, although the quantities available were substantially smaller than in prewar years. During fiscal years 1944 and 1945, Congress appropriated $50 million of Section 32 funds and later voted a deficiency appropriation of $7-i- million. The National School Lunch Act, Public Law 396, 79th Congress, second session approved June 4, 1946, authorizes Congress to appro- priate funds for a permanent school lunch program administered nationally by the United States Department of Agriculture. The funds are to assist the state educational agencies in the establishment, maintenance, opera- tion and expansion of nonprofit school lunch programs. - Federal funds ' for the school lunch program are apportioned among the states to reim- burse schools for part of the cost of the food they purchase. . The amount of money each state receives depends on the number of school-age children in the state and the per capita income of the state. Federal funds expended in a state for the purpose of reimbursing schools must be matched with funds from sources within the state (including appropriated funds, children's payments, and donated services) at the rate of three dollars for each federal dollar. In the case of a state whose per capita 11 income is less than that of the United States, the matching required for a fiscal year is decreased by the percentage which the state's per capita income is below that of the per capita income of the United States. Reimbursement from federal funds is made monthly to. the schools. The amount of federal cash assistance that a school may receive depends on the need for assistance, the number of lunches served, and the amount spent for food. The maximum rate of reimbursement that may be paid per lunch is nine cents. 1 (The average rate of reimbursement . todayis 4. 1 cents.) No reimbursement is paid for lunches served to teachers or to other adults. Most of the food used in the school lunch program is purchased locally by the participating schools. 1 However, under a provision (Section 6) of the National School Lunch Act, (the United States Department of Agriculture buys and distributes to schools taking part in the national school lunch program foods that are of high nutritive value suitable for children's lunches. In addition, from time to time, the department makes available to all eligible nonprofit school lunch programs, foods which are obtained under authority of legislation to widen the market outlet for farm products. . Public schools and nonprofit private schools (such as parochial, sectarian, and denominational schools) of high school grade or under may apply for federal aid. To be eligible for pafticipation, schools must agree towfollow the operating standards of the Department of Agriculture. 4 The laws of a number of states do not permit the state educational agency to administer the program in nonprofit private or parochial schools. In those states, such schools may enter into an agreement with the Department of Agriculture to operate a program. Since June 1946, when the permanent National School Lunch Act was passed, the expansion of the school lunch has been phenomenal. Between 1947 and 1958 the total United States population increased 21 12 percent from 143 million persons to 173 million. .Percentagewise public and private school enrollment almost doubled the general population increase during the same period. The national school lunch participation grew from forty-five million children in 1947 to one hundred million. in 1958, an increase of 153 percent. ~The original federal appropriation of $81 million as compared to the 1960 budget request of $100 million shows” an increase of only 23. 5 percent. The special milk program was initiated in September, 1954, pursuant to Public Law 690, 83rd Congress, which amended a price sup- port provision of the Agricultural Act of 1949. The purpose of the legislation was ". . . to increase the consumption of milk by children in nonprofit schools of high school grade and under. " The first year, $50 million was authorized for the program; $60 million the following year; and $75 million for each of the 1957 and 1958 fiscal years. The first year the special milk program was in effect, reimbursement was made for all milk served to children over a fixed base established on the normal consumption of the school. As a result, 400 million additional half pints of milk were served. After that, reimbursement was given on all milk sold, and the use of a fixed base was eliminated. A maximum rate of four cents per half pint was set for schools serving types "A" and "B" lunches ("B" lunches have since been eliminated); and three cents per half pint for all other schools. - Figures compiled as of April 1961 showed that more than 63, 000 schools are participating in the National School Lunch Program which is available to nearly two-thirds of the children enrolled in the schools of high school grade or under. Approximately 13%- million children are participating daily making more than two billion meals served per year. , Considering that over a billion dollars a year is expended on. school lunches, almost equally divided between new equipment and private food purchases, we know that the program has become a big business. 13 Organization of Portage, Indiana Program -Ninety-nine percent of the pupils of Portage township were trans- ported to and from school by bus; therefore, it was necessary for them to eat one meal a day in the school house. The lunch box broughtvfrom home was the fir st source of the school lunch in this area, but in the mid—twenties as concern for rural school lunches developed throughout the country, the local Parent Teacher Association organized a lunch program. The women took turns going to school to prepare the lunches, cooked--on an oil stove--and served in a small basement room of the grade building. A year later the school accepted the responsibility of the program, and a cook was employed. A teacher of English and foreign language planned menus, decided quantities, purchased the food, and paid the bills since there was no home economics teacher. The . money was collected and kept by the teacher in charge whopaid all bills in cash. The income amounted to $40-$50 per week and any surplus remaining at the close of the year was turned over to the school. A fifteen cent plate was served including a main dish and salad, or a five cent bowl of hot soup could be purchased. In 1936-37 the same type of program was in operation withthe 1 addition of student helpers. Bookkeeping was not quite so casual since receipts were deposited in the school account and expenses were paid by check. The program grew rapidly during the 1940's, and was con- sidered well-established by 1946 under the supervision of the home economics teacher. Table 21i11ustrates the development of the lunch programrfrom 1946 until the present time. It is interesting to note that from 1946 to 1962 the number of lunches served each day increased from.380 to 2500 or 558 percent. The six schools in operation during 1961-62 included five elementary and a combination junio-r-senior'high school. The smallest of the schools served about three hundred lunches daily, and the largest, the junior Table 2. 14 Average Daily DeveloPment of the Portage Lunch Program from 1946 to 1962 Number Number Yearly Yearly Year Schools ' Employees Number Served Income Expend. 1946-47 2 3 380 $ 17,400 $ 17,800 1947-48 2 3 400 18,600 18,100 1948-49 2 4 450 20,900 20,600 1949-50 3 4 550 23,400 23,000 1950-51 3 5 580 26,200 27,400 1951-52 3 6 600 30,800 28,300 1952-53 3 6 620 32,300 29,500 ~1953-54 3 7 650 35,400 31,500 1954-55 3 8 700 56,400 67,100 1955-56 3 9 760 65,200 67,700 1956-57 3 10 1000 83,400 78,800 1957-58 3 14 1300 77,500 73,700 1958-59 3 15 1600 101,000 96,400 1959-60 4 16 1750 108,000 103,000 1960-61 5 25 1900 153,000 140,000 1961-62 6 28 2500 160,000 150,000 15 senior high, served about one thousand lunches. A new junior high school under construction is planned for completion and ready for operation by January 1963 increasing the total number of daily lunches served to three thousand. 1 Many people are involved in the administration of the Portage school food service. Some have broad, general responsibilities, whereas others have specific. detailed duties. The sponsoring agency, the super- intendent of schools, the principal, the classroom teacher, the director, food service personnel, and other school personnel--all have specific roles to perform to produce an efficient school food service. The sponsoring agency limits its function to making general policies for facilities, personnel, and administration. The chief executive officer of the agency, the superintendent is responsible for the total school pro— gram, of which school food service is an integral part. _His responsibilities center in the over-all, general policy area. A The principal is responsible for providing supervision in the lunchroom, planning lunch time schedules, reporting substandard practices of food service, and assuming leadership in planning and arranging activities so that all other personnel may enjoy the food service department. The classroom teacher correlates instruc- tional activities with those of food service and promotes participation by her speech and attitude. Other school personnel including school nurse, custodial, maintenance, and clerical employees are important in assist- ing the food service program in their own capacities. The school lunch director is appointed by the superintendent and is directly responsible to him (Figure 1). The function of the fulletime director is working with others to plan, develop, administer, and super- vise the food service program on an administrative unit-wide basis. . She also aids in the integration of school food service with the total curriculum serving as a member of the educational team working with 16 BOARD of EDUCATION SUPERINTENDENT OF SCHOOLS r Crisman Garytorim High Sch. A ~.GCM‘yers E. Jonefi entral Principal Principal Principal Principal Principal rincipal , SCHOOL. LUNCH DIRECTOR Sec. .Erismafl Garyton‘ . igh Sc G. Myervsil E. Jones Central Cooks Cooks k , Cooks Cooks Cooks Figure 1. » Organization chart for Portage school lunch department. l7 principal, faculty and other staff. Essential duties of the cafeteria director for Portage are summarized below: 1. Hiring, supervision and training of employees. The control of food purchasing, storage, production and serving. The control of all financial records. Assisting in planning and equipping new units. 2. 3. 4. 5. The purchase of large and small equipment. 6. The control of maintenance and sanitation. 7. The deve10pment of a nutrition program. 8. The direction of good public relations. The basic responsibility for efficient food service lies largely with the food service personnel. A cook serves as head in each kitchen and is responsible for the supervision of food production and personnel, cleaning, ordering daily supplies such as baked goods and dairy products,- making up order lists for canned goods, inspecting and signing for deliveries and keeping necessary records for that program. Financing of the school lunch program is centralized. School lunch funds are kept on demand deposit in a bank selected by the board of education as its depository. The school lunch secretary serves as treasurer holding a surety bond. . Such bonds not only protect the board against loss of funds but also stimulate the person bonded to keep proper records and to follow authorized procedures. Each teacher in the ele- mentary schools collects money from her pupils weekly. This money is picked up by the office secretary in the building and then deposited in the bank. A transfer is made to the central account monthly. A cashier is employed in the high school to collect money as pupils go through the line and this money is deposited directly into the central account daily. All receipts that are received by the central office are pooled with any state and federal funds available for the lunch program. This pooling of resources prevents the penalization of small schools and those 18 compelled to carry a heavy free lunch load because of the socio- economic level of the population. In practice, federal funds and surplus commodities are largely used to remove inequalities. All purchasing is done on a wholesale basis by the central office. All payments are made, and all financial accounts are kept by the central office. Budgets and cost accounts are kept for each lunchroom, but all lunchrooms are financed as one program. ACCOUNTING AND FINANCIAL CONTROL The necessity for complete information concerning income and expenditure for all types of food units is now generally recognized as essential to efficient management. The purpose of accounting and maintaining general fiscal and cost records is threefold; to provide a complete and adequate accounting for all public and non-public revenue and expenditures, in order to comply with the law; to protect executive personnel, the board of education members, and the general public from misused appropriations and possible waste; and to provide a base for future planning. Accounting and reporting activities are based on and, to a significant extent, controlled through information supplied on forms. Public School Accounting Public school accounting is Operated on an income and expenditure basis rather than profit and loss, as in commercial practice. The principal books of record include a cashbook, appropriation and general ledgers, and such other subsidiary or specialized ledger accounts as may be desired or required by law. Revenue is represented as a series of debits, and appropriations as a series of credits or authority to expend. School districts engage in a series of non-public revenue activities that include specific services operated by the board of education, such as lunchrooms, bookstores and activities performed directly by the schools under the approval of the board of education. Non-public revenues are managed in three ways. The first is the laissez-faire policy where lunchrooms may be rented to the highest bidders or operated by an 19 20 organization such as the Parent-Teacher Association. The second pro- cedure is to put the building principal in control of non-public revenues. Practices vary under this policy. Some principals delegate responsi- bility to committees of teachers and act as occasional auditors, while in other situations the principal keeps all the accounts and usually carries the cash reserves in his personal bank account. Under this form losses result not so much from dishonesty as from the principal's lack of bookkeeping knowledge or business acumen. Under the third type, the board of education is responsible for all non-public revenue activities and controls them through a subsidiary accounting procedure called internal or non-public revenue accounting. This may take the form of income and expenditure, or profit and loss accounting, usually directed by the general finance officer. The legal procedures governing the expenditures of general school funds in the different states usually apply to funds for school food services. Predetermined policies should govern expenditures in both the general and internal funds. Suchvitems as the payment of bills, the payment of wages to adult employees, the payment of student employees and the handling of balances in all funds must be administered in accord- ance with the laws, regulations and decisions of the states for the control of expenditures. The school cafeteria is a service unit with an edu— cational purpose and as such should be self- sustaining rather than profit- making. This is important in determining the policies which have to do with the financial management. It is acknowledged that every situation has problems peculiar to itself so that no set of records would be entirely suited to any particular cafeteria. On a national level school lunch records are used to keep Congress informed and through this medium of information these members are able to legislate more wisely and are in a better position to answer the questions raised by their constituents.- Records provide information 21 necessary to interpret the financial operation and service of school lunch program to administration, board of education, parents and community. Records also serve as a protection for those involved in the handling of income and expenditures of the program- If used properly, a good set of records can be of inestimable value as a management tool. They can help simplify the actual management of the program and can help improve program operations. Records can tell how the program stands and with reasonable interpretation what to expect in the future. Budgeting Expenses should be planned before spending begins. The first step toward reaching the goal, "know your costs," is the charting of a financial plan based on the anticipated income. Such a plan is known as a budget. A budget, in reality, is a plan of procedure--a map to follow. In addition,- it is a guide from year to year. It might be considered the dollar expression of an operating plan and an instrument for planning and coordinating activities to reach a desired goal. A budget provides an estimate of proposed expenditures for a given period and the proposed means of financing them. This operating plan furnishes a statement of future management policies and plans expressed in accounting terms. It supplies a financial statement outlining a plan of action. A budget is made up of estimates of future income and expense items broken down by time periods, accounting,classifications and organizational responsibilities. This provides for intelligent planning, in terms, of dollars and cents, of the time, supplies and equipment necessary to maintain the required standards under predetermined conditions for a future period, usually a year. Actually there are two concepts involved, the budget and budgetary control. Each of these can be defined formally. A budget is a device 22 consisting of an orderly arrangement of statistical data determined by computed guesses and covering all phases of the enterprise for a definite future period of time. On the other hand, budgetary control is the process of using the budget by comparing actual results with the computed guesses in order to correct either the estimates or the causes of the differences. The budget and budgetary control are interrelated and must always be considered jointly. A budget without budgetary control is useless from the managerial viewpoint; and budgetary control without a budget is meaningless. Exhibit 1 illustrates a form for comparing actual expenditure variance with budget data. The budget figures would appear at the top of each appr0priate horizontal spacing. On this form the figures from the budget may be entered for three months at any one time, that is four times per year. The actual expenditures are posted monthly at the bottom of each appropriate horizontal spacing. Comparison between actual expenditures and the budget reveals the extent to which activities are keeping in line costwise with the predicted estimates. A budget offers many advantages. - It establishes a comprehensive financial program covering funds and activities and functions as a work- ing guide for management in the control of finances, thereby assisting in orderly handling of financial matters and operations. A budget indi- cates when and where changes must be made in current operations in order that the planned objective of a balanced program may be realized. This operational plan makes profit for the company and places responsi- bility and authority for achievement of each forecasted result. Budgets are an important communication device for they keep all informed as to the happenings of the business. There are serious limitations to budgets and their use. The budget is a managerial tool, not management itself. . It is a means of assistance to a manager and an instrumentality which mirrors the operations of 23 EXHIBIT 1 .350 on .9 . 3 No one 449.09.. 3”:an oofluO Hammad Us: xoduh mac/mph. .udmaH mend? pooh Form for comparing actual expenditure variance with budget data i MANMW MOM BMOQDQ 24 management. Budgets are not automatic in their operation. They re- quire human thought and judgment, as reflected in discriminating foresight, a methodic compilation of current operating data, and a wise and meaningful interpretation of the figures. In addition, a budget requires a considerable period of time in which to become a useful and accurate control mechanism. Overnight or quick results should not be normally expected.’ Budgeting is usually a long, slow growth. It can be expressed in dollars, physical units, or any other term which is useful and convenient to use. The dollar is probably the most frequently used. Today business refers to a budget as dollarizing out the activities of the business. A graphic representation showing the sequence of budget prepara- tion is shown in Figure 2. The total estimated income is determined from expected sales and other sources of income. From this total estimated income are subtracted the expenses of sales, production, purchasing and general expenses. This gives the estimated net income or “loss, which can be reflected in the financial budget, an estimated balance sheet, and an estimated earnings statement. The chart shows some of the details included under each individual budget. The most common period covered is one year, with breakdowns for quarterly and monthly periods. The year usually coincides with the calendar year, although, if operations are on a fiscal basis, the fiscal year is used. It is important that budgeting be applied to school food service. To be of value as a guide, a budget must be in detail. It must reflect an honest effort to determine costs and provide all the services and materials required for the program. Details of the budget necessarily will vary with the type and policies of the food unit. The school lunch that has as its objective the serving of good food at a minimum cost to the pupils may be required by the board of education to pay for food, labor, and laundry only. In such a case, the percentage of the income 25 ESTIMATING NET INCOME I By pr eparation o L Sales budget showing Budget of other income from sales irlicome I I 1. equals 1 TOTAL ESTIMATED INCOME figs: l l ‘ 1 Production Budget urchasing BUHEBI General ExpensefiBudEet Labor FOOd Office Supplies - Administrative 1 T ‘ J ‘ _- . l 1 equals J ESTIMATED NET INCOME (PROFIT OR ,LOSS) ghich is refle .ted in the 1 FINANCIAL BUDGET EStimated‘ Receipts from Estimated Disbursements for Sales Production Other income Purchases General Expenses _ Ehich, in turn, may be arranged in the form ofJ T , l _g l ' I 1 An Estimated Balance She t ‘ 1An‘ Estimated Earninw. I J I the final result Of which is that you KNOW YOUR BUSINESS Figure 2. "Sequence of budget preparation - Source: George K. Terry, Office Management and ContrOl (Homewood, Illinois: Richard D. Irwin, Inc., 1953), p. 691. 26 spent for food is, rightly, very high (84). In each situation, the pro- portion of the income spent for various expense items will vary with the size and type, Objectives, and/or policies of the individual food service. , Included in the main items of the budget or the financial plan are the income expected from all sources, the anticipated expenses itemized under such definite headings as food, labor, and operating expense, and the probable profit, or excess of income over expenses. Whatever the division of income may be, any budget must be large enough to meet the necessary expenses in the operation of the service. Inadequate budgetary allowance for the jobs to be done results in inefficiency and loss of professional standing. The income is the sum total of all earnings for a definite period of time, such as one year. It may represent earnings on capital resources as well as cash items. The income anticipated for the ensuing year is based on the total income during the past year, allowance being made for variations due to changing conditions. Expenses of a food service are usually classified as food, labor, and operating costs. These major divisions are then broken down into individual items for which a payment is made. There should be a record of expense for each item throughout the past period of Operation in order to know what should be allowed for those items in the future. Later if actual costs show wide deviation from those predicted, the causes for such difference must be carefully determined. . In allocating expenses the director must weigh the relative desires and needs of each unit, search for non-essentials and decide if any items may be provided at a lower cost. She must also keep in mind the needs for upkeep and expansion of the plant and provide for the development and increase of personnel. Even though the income may remainapproxi- mately the same year after year, careful appraisal of past expenses 27 Should be made whenever a new budget is prepared. - This will prevent overspending for some items to the neglect of others quite as important. In a period of rising prices some plan should be made to take care of the excess of replacement prices over original cost price of equipment, since depreciation only allows for the wear and tear on the original cost of these items. The food director has limitedcontrol in planning the budget for certain expense items. These include the fixed charges, wages,“ food prices, and policies of management. 7 Some fixed charges, such as super- vision, rent, heat, light, taxes and insurance are usually taken care of by the school unit. . Labor costs are largely determined by the type Of operation; by the size and arrangement of the food preparation and serving units and their relation to each other by the amount, kind, and placement of labor-saving equipment; by the efficiency of the employees; and by the current wage rate. Food prices vary from one geographic area to another, as do the opportunities for quantity purchasing. The grouping of separate items of expense under certain main headings is desirable in order to Obtain a complete picture of the dis- persion of expense for the service. The main classifications for a typical food service budget could be as follows: EXPENDITURES Food Labor Salaries Insurance--group Retirement Operating Expens e 3 Travel Truck expense ' Laundry Trash Hauling Repairs to Equipment Office Supplies Capital Outlay for Equipment 28 REVENUES Revenue from student lunches Revenue from adult lunches Revenue from special dinners State reimbursement--school lunch program State reimbursement--special milk program Contributions Under each of these classifications, of course, should be supporting data to Show how the budget amounts were determined. Food and labor constitute the greatest portion of the expenditures. According to figures available in 1956, the percentages for expenditures ran about 60-65% for food; 25-35% for labor and 5-10% for other expenditures (22). These are typical of the average and may vary according to different school systems. In any event, a careful analysis of the number of meals to be served and the cost of the food should be made as well as a detailed list of employees and their proposed wages for the coming year. A careful review should be made each year of equipment and a long-range plan set up for the replacement of heavy equipment or for the addition of equipment to expand the existing facilities. In budgeting revenue, the enrollment pattern should be studied to determine the possible increase or decrease for the coming year. These figures help to estimate the number of meals that will be sold and the reimbursement that may be expected from the school lunch and milk programs. A schedule of special affairs that are customarily held in the school cafeterias with an estimate of the number and price of the meals served will be helpful. A list of donations should be reviewed to determine whether or not such contributions will be continued for another year. This information is necessary to ascertain estimates in a budget. It is not enough to make a budget: it should be followed. , Estimates may not be exact as to classification and at the end of the year balance 29 - may show in one classification and an overdraft in another, but there should be no overdraft in the overall budget. ~ Anyone who has worked with a budget, or under a budget, receives great satisfaction to find a balance at the end of the year. It Shows that they have guessed right, lived right, and have a little to go on for the next year. Forms Design and Control Before office work entered the era of integrated data processing and electronic computers, the printed form was the very‘warp and woof of systems work. The only integration of data was through the use of human beings, such as the typist who selected information from a bill of materials for transfer to a purchase requisition, the bookkeeping machine operator who created an invoice on the basis of a shipping ticket, or the accounting clerk who posted a job cost sheet from entries on material withdrawal requisitions and labor distribution tickets. At every step of the way, a system developed form by form. The form was the primary and the only record of the status of an operation at any point, and it was, moreover, the only medium for the transmission of data between points (37). Today, with the advent of punched paper tapes, tape-to-card and tape-to-tape converters, the storage of data on magnetic tapes and drums, and the use of internally stored programs, the principle of single entry of basic data and automatic transmission and processing without the intervention of human beings has had some effect in changing the roleof forms in the systems drama. HOwever, probably ninety percent of the forms in the average large company will not, at least in the near future, come within the purview of the IDP or EDP systems; and furthermore, , probably ninety percent of all business offices will not find the use of electronic computers feasible for at least another decade (37). In these 30 areas the challenge to the forms control specialist will be to keep up with technical and physical developments in printing processes and materials, as well as in improved techniques of design. It is principally through the printed form that positive and visible guidance and control of clerical work are exercised by management. The printed form on a clerk's desk or in a typewriter is often a more eloquent device for directing the flow of work than the written procedure that is filed away in the supervisor's bookcase. A form is nothing more than an object having constant information printed on it and having spaces for the entry of variable information. The purpose of forms control is tO provide and improve all forms essential for the conduct of the company's business; and to eliminate unnecessary and duplicatory forms. The most perfectly designed form in the world is of little use unless it is there when it is needed--in the right place, at the right time, in the right quantity, and of the right quality. AN APPRAISAL OF THE RECORDS CONTROL FUNCTION Time changes many things. 7 Customs consideredadequate in former years for an examination of a business or other organization were limited mostly to the financial position and the financial operations. The purpose of the audit consisted of an examination by a firm Of outside auditors to ascertain the financial condition and to detect fraud or errors. Today, modern management in business, with its many problems and complexities, demands a much closer check on controls and performance. This new approach in management has brought about the need for review and appraisal Of management methods. The Problem In 1945, Portage township employed a second home economics teacher to assist in meeting the growing school population. Within one year she was assigned the responsibility of the school lunchprogram in addition to her teaching duties. Previous to this time the records barely met the demands of the government agency and there had been no- appli— cation of information for management purposes. - Lack of training infood service management and little time in the teaching schedule resulted in slow improvement in the records control function during the next decade. By the end of 1959, the school lunch program had expanded to the extent that the home economics teacher was relieved of teaching, duties so that more time could be spent in supervision. The personnel, records, purchase and storeroom records, kitchen and service records and daily lunch count records had been developed, tried and found to be satisfactory. Some subsidiary records for financial control had been developed, but 31 32 because of lack of accounting knowledge no great change had been made to meet the needs of the expanding business. The ‘procedures used for public school accounting were followedein which an accurate record of income and expenditures was kept. Necessary payroll information for income tax purposes and records for reimbursement reports were con- sidered quite adequate. The superintendent and the school lunch director discussed the financial condition of the program at intervals. Neither was satisfied with the information available as to the status of the program, and both . felt that revision of financial records was necessary to provide needed information. Therefore, a decision was made to evaluate and studythe financial administration of the school lunch program. The Manag em ent Audit A management audit may be defined as a comprehensive and-con- structive examination of an organizational structure of a company or its components, such as a division or department, its plans and policies,- its financial controls, its methods of operation, and its use of human and physical facilities (37). The primary objective Of the management audit is to reveal defects or irregularities in any of the elements examined in that portion of the organization that is under study and to indicate possible improvements. See Figure 3 . Preliminary planning To operate a successful business today, management must specify its objectives, establish plans and a system of procedure to accomplish them, delegate responsibilities and authorities, set up adequate methods and standards of performance, apply a scientific attitudeand evaluate results. The main job of management would appear to consist Of four 33 REVIEW AND APPRAISAL l OF AN ORGANIZATION DETERMINE Waste and Deficienc ies More Efficient Operations Better Means of Control Improved Methods Figure 3. Management audit objectives. 34 major elements; namely, planning, executing, review (control), and appraising. .See Figure 4. The management audit falls under the element Of appraising. In checking the organization principles Of the Portage cafeteria due regard was given to the over-all plans and Objectives of the Opera- tion, to the basic fundamentals necessary for getting work done, to the organizational structure, and to the orderly arrangement of teamwork in order to provide unity of action in meeting the desired goals. The activi- ties Of which the program is comprised were recognized. Functions necessary and desirable were determined and the importance Of each was ascertained so that the major functions could be separated. A cheek was carried out to determine overlapping and duplication of effort. - Statement of policies were needed as a basis for decision in the area of finance. In raviewing the business systems and procedures the management con- cerned itself with its purpose as well as whether it was designed in the best interests of efficient administration. It was understood that no organi- zation remains static. Changes in products served, methods Of Operation, increase in volume, and even changes in key personnel-wall demand review and evaluation in order to point out any defects and to suggest possible improvements. The evaluation Of the system included three separate considera- tions. First, is the system or procedure meeting all of the current requirements? Second, is it Operating effectively? Third, what is the degree of effectiveness? In order to determine whether the system was meeting the current requirements procedures were studied for effective-~ ness. 1. Is the procedure designed to promote the achievement of the company's Objectives, and is it accomplished effectively? 2. Does the procedure operate within the framework of the organizational structure ? 35 Plan Appraise Execute R evi ew (c ontrol) Figure 4. The management cycle. 36 3. Does the procedure adequately provide methods Of control SO as to obtain maximum performance with the minimum expenditure Of time and effort? 4. Do the routines designated in the procedure indicate perform- ance in logical sequence? 5. Does the procedure provide the means for effective co- ordination between one department and another? 6. Have all required functions been established? 7. Has the necessary authority been designated to carry out responsibilities ? 8. Can any changes be made to improve effectiveness? A precise measurement of how effective a system or procedure Operates was difficult to determine, but the degree of effectiveness was ascertained by checking the activities from the standpoint of speed,— accuracy and orderly flow of the paper work. Careful evaluation was made of all control techniques of the business to determine their effectiveness. TO determine what factors were necessary for carrying out the survey objectives the following questions were asked: 1. What are the best methods for the business and individuals performing the function? 2. What are the limiting and controlling factors? 3. What means can be established to appraise performance? - Selecting per sonnel There are advantages in using an individual from within the organi- zation to appraise the activities of the business. The school lunch director had been with the school system long enough to be familiar with the over-all activities and had knowledge of the organizational structure, the various functions, the outlook for the business in matters of product 37 demand and service. Training for the management audit assignment was secured by individual study, group study and from discussions with trained analysts on business applications. Pr eparing audit prqgram Before beginning the management audit the school lunch director outlined briefly the audit program as it related to financial control, the area under study. This was merely a matter of listing the points to be covered and the procedures to be followed in performing the assignment. Figure 5 shows the sequential steps in the management audit and the interpretation of the flow sheet follows. A. Organization 1, Study the organization structure in the area under appraisal. 2. Compare the existing structure with that shown on the organization structure of the school system. 3. Ascertain whether or not full appreciation has been given to the principles of good organization and functionalization. B. Policies and practices Make a study to find out what action, if required, must be taken to improve the effectiveness of the policies and practices. C. Regulations Determine whether or not due regard has been given by the school system for full compliance with all local, state, 4 and federal regulations. D. Systems and procedures Study the systems and procedures for possible defects or irregularities in the elements examined and seek out methods to bring about possible improvements. 38 EXAMINATION AREA FOR REVIEW DETAILS FOR STUDY Financial Controls Systems and procedures Methods of control Standards for performance Measurement of results EVALUATION AND APPRAISAL PROCESSFOR EVALUATION SCIENTIFIC ANALYSIS (FACTORS FOR APPRAISAL INTERPRETATION SI‘SYN'THESIS Compliance with policies Study the elements and procedures ‘ Look for deficiencies - Accuracy and reliability Test for effectiveness of controls Seek methods for' improvement PRESENTATION Report to Manage- ment » Rec ommenda- \tigv FOLLOW-UP ' ' Check on ‘Instal lations Figure 5. .Management audit flow sheet. Source: Victor'Lazzaro, .Systems and Procedures-~-A Handbook for Business and Industry (Englewood Cliffs,- N. J.: ‘ Prentice-Hall, InCJ), p. 10. 39 E. Operation Evaluate operations to‘ascertain what is necessary for more effective controls and efficient results. - F. Personnel Study the general personnel requirements and their application to the work in the area under appraisal. - G. - Layout and physical equipment Determine whether or not improvements could be made in the layout and in better or greateruse of physical equipment. H. Report Prepare a report of findings with suggested recommend- ations. Conducting management audit The first step inconducting the management audit was to review the business activities forthe purpose of ascertaining whether or not they were being carried out with the maximum effectiveness and economy, to check on compliance with the school' policies and procedures, and to appraise the method of control. -An interview was one-means of obtaining information. The school lunch director conducted informal interviews over a period of two years with the administration, clerical help, and other personnel involved infinancial control. .Some factual information was obtained and opinions were expressed. - Opinions were disregarded unless substantiated by evidence, and the other'information waschecked and evaluated by the auditor. Investigationiis a careful inquiry, search, or examination for the purpose of collecting pertinent facts. The purpose of analysis is to prepare for synthesis. Analysis is the separation of anything into elements. Synthesis is the process of combining the separate elements--theopposite 40 of analysis. Following an investigation, an analysis is made to determine whether or not all of the facts have a bearing upon the plan or objective. The value of any analysis may be determined by the care and thoroughness with which the analysis is made. - For a good analysis, the best technique is to actually chart the various activities in detail form, step by. step. In order to facilitate analysis and interpretation for this study techniques employed in recording facts were organization charts, process charts, and forms distribution charts in addition to statements and exhibits. .Any determination of factual material was based upon personal observation Of actual operations. . A check list is always helpful in making an appraisal. 'It serves as a guide inseeking answers to various questions and is one good method .for' initiating a plan of action, something to follow or modify if necessary. Each management audit program is unique, and should be adapted to the particular conditions and problems encountered. . For this reason, the check list must be designed to include only those specific questions pertinent to the particular type of audit examination being made at the time. Each case has its individual aspects; therefore, it is not possible to establish a check list that canbe used for all situations. Exhibit 2 illustrates a check list that was developed for this study while Exhibit 3 is one that has been prepared by a commercial company and could be adapted to a specific situation. 41 EXHIBIT 2 Financial record check list for Portage school lunch program NEED NEED RECORD ADEQUATE OBSOLETE MODIFICATION TO ADD . Daily. Cash‘Report .. Daily Food Cost Report . Deposit Slip . Official Rec eipts l 2 3 4. Voucher 5 6 . Check and- Stub Bank Statement 7. Bank Reconciliation 8. Record of Donations 9. Gratis Meals 1 0 .1 Physical Inventory 11. Commodity Record 12 . Reimbur sem ent Record 13 . Requi sitions 14 .. Invoic e s 15. Budget 16. Cash Rec eipts Journal 17. Cash Payments Journal 18.. General Journal 19 . General Ledger 20. . Balanc e Sheet 21. Profit and Loss Summary 22. Petty Cash Record 42 EXHIBIT 3 A 5 Minute form check list NECESSITY OK 1.. Has the entire system been checked and would a written pro- cedure for the use of this form help out it into more efficient operation? 2. « Are all copies of the form or report necessary? 3. Have the actual users of this form been consultedfor suggested improvements, additional requirements and possible elimi- nations? 4. Can the data furnished by this form be combined withsome other form or can some other form be eliminated or consoli- dated with it? 5. Has everyone responsible for the form or the form system approved it? PURPOSE 6. If form is to be sent from one person to another, are proper Spaces for‘ "to" and "from" provided? 7. Will routing or handling instructions printed on each copy be helpful? 8.. Should this form be consecutively numbered, or have a place for- inserting a number? 9. If this is an outsidecontact form, should it be designed to mail in a window envelope? 10. . If this form is to take information from, or pass information to, another form, do both have the same sequence of items? 11. Have we taken into consideration the number of forms which will be used in a given time--the possibility of changes, and how long the form will remain in use? 43 SIZE AND ARRANGEMENT 12. l3. 14. 15. 16. Is the size right for filing, attention value, ample room for information and to cut without waste? Is all recurring information being printed, so that only variable items need be filled in? Has space been provided for a signature? Is spacing correct for handwriting or typewriting? Are the most’important items, which should be seen first, prominently placed? WORDING 17. 18. 19,. 20.» .Does the form,, by title and arrangement, clearly indicate its purpose? Is there a proper space for the date? Is the form identified by company name and firm name or code number to aid reordering? If this is a revised form, can it be distinguished from the previous form? . PAPER AND PRINTING 21. 22. 2’3 24. Should the form be on colored paper to speed up writing, distribution, sorting, and filing; to designate departments: to indicate days, months, years? Have we specifiedpaper which will be thoroughly satisfactory, economical enough for form use, consistent in performance and surely available ? Is proper weight of paper used for original and each carbon COpy? Are detailed specifications complete? OK 44 OK 25. Can other forms, printed on the same paper as this one, be ordered now to reduce costs? 26. Have requirements been estimated correctly and is the quantity to be ordered most economical? REMARKS ON POINTS QUESTIONED HOW TO USE FORM CHECK LIST Run through list and appraise form in question point by point with an initial either in column "OK" or‘ "?". Points marked(?) for further study can then be appraised systematically and discussed with .those who will regularly use the form. This is an effective form check list designed to aid in improving Office forms. Use of this list helps reveal information which is basic to improvement and to Show the present weaknesses Of the existing form. A separate sheet is recommended for each form analysis. Source: George K. Terry, Office Manwment and Control (Homewood, Illinois: Richard D. lrwin,~1nc., 1953), p. 280. 45 The report The careful preparation of the audit report, containing details of the findings and recommendations, plays an important part in the com- pletion of the audit assignment. Since this management audit was performed by the supervisor, information was received first hand and then discussed with the superintendent to determine a plan Of action. A summary of the management audit report prepared by the school lunch director follows: A. Purpose and scope 1. To study and evaluate the financial administration Of the school lunch program in Portage, Indiana. 2. To develop systems and procedures for internalvcontrol. B. Facts of major importance 1. Financial records have outgrown usefulness. 2. The system of double entry bookkeeping was not followed. 3. - Information was not available to prepare complete monthly summaries. . C. Current practices (detail) The following list has been prepared to show the general manner in which the records were maintained from 1956— ' 1961. 1. Receipts a. Daily cash record A form including cash register number, change fund, total sales per register reading, total cash count and difference. b. Deposit slip A form supplied by the bank in which the deposits are made. - It is made out in duplicate and the original copy is sent to the bank with the cash. The duplicate copy is filed with the daily cash record, and checked with the bank statement at the end of the month. 46 c . Official rec eipts A form made in duplicate for each deposit into the fund. (1. Cash receipts A record of all receipts, entered chronologically by the name of payer. 2 . Expenditur es a. Invoices A bill kept and filed under name of vendor, totaled at the end of the month and checked against his statement. b. Payroll A record kept to meet the requirements of the federal and state income tax reports. c. Voucher A form which accompanies a check for payment of bills. (1. Bank check and duplicate Pre-numbered checks are purchased with cafeteria name and bank. Check numbers are recorded when record of payment is made and stubs are checked with monthly bank statement. e. Cash disbursements A record of all checks issued, entered chrono- logically. f . Petty cash A business procedure which is not recommended for our Operation and, therefore, was not used. 3. Supporting records a. Daily food cost A form including each food group with blanks for items, quantity, unit cost and total cost. b. Record of donations NO form was needed since donations were so few. 47 c. Gratis meals A count was made on the cash register each day. d.- Profit and loss statement A form including actual income and expenditures for the month for each school. e. Summary of operations No form was kept. 1 Action taken The public accountant Offers his services to the general public and his clients are businesses Of all kinds, governmental bodies, and non- commercial organizations such as colleges, churches, and nonprofit enter- prises. On the basis of the report of the management audit the school lunch director, with the approval of the superintendent,» decided tovcontact and engage a certified public accountant to review the records and to recommend an accounting entity for the‘Portage school lunch system. The ensuing section "The Epilogue" reports modifications in the record systems and procedures which have resulted from working with the public accountant in an effort to improve the financial administration of the Portage school lunch program. EPILOGUE Records, like all forms of control, vary with the type, size and policies of the institution, so that management must decide what infor- mation is desired for each food unit and how it may be obtained with the least expenditure of effort, time and money. In order to meet the accounting needs of the Portage cafeteria four journals and~a general . ledger have been designed to-handle the transactions. The relationship of the journals and the ledger are shown in Figure 6 and the steps in the accounting cycle to be followed are illustrated in Figure 7. Cash Receipts Journal The cash receipts journal is provided to record all incoming cash. There are columns to show the distribution of the cash receipts corres- ponding to the detail required by the government, and: a column showing bank deposits as appears in Exhibit 4. - A record for each-school did not seem necessary since the elementary schools make only one transfer check monthly which is recordedrin the controlling account of the general ledger for that school. At the end of the month the total receipts are posted to the cash account of the general ledger. . Cash Disbursements Journal - Space, time and work are saved by setting up a cashdisbursement journal, in which only cash payments are recorded. . Exhibit 5 has been designed to include the categories required by the government. These expenditures are furtherbroken down into individual items so that a complete picture of the distribution of expensemay be obtained. - In order to meet the needs of a centralized operation and also to keep a record for 48 49 Balanc e, Figure 7. . Steps in accounting cycle. as rCash A Other Pa 11‘ Receipt ~ Disbursed Transact. yro Cash-Receipt . Cash Dis- 1 Journal bursement General - Payroll Journal _ Journal . Journal I L General . Ledger “ Figure 6. -Relationship of the journals and the ledger. Record » Post . in Journal to ransactions Journal Ledger 7 l . 'P81L . Take . Ledger Trial ——‘1Trial Balance ,State- ment 50 EXHIBIT 4 Cash receipts journal (77.71: 07.7.37 51.77-37.71;- Total School Total _ S ale 8 D e t ail Date .- Deposit 7 Deposit__ Sales - Child Adult Gov’t Other -_ _______ 4» ._ —_ _— —~ r—Jr—- — — ”I r) l . ,4 , 7. , ,- , 21762, 4-- 33-71743 .3 3.;- 1-1- _._-”1 .. ,436 {77,7 ___;.:_-/-.3-_ _- -__--.-__,-._--_._L_L-7 ...__l____ L]- in") 33, '4 77.5 .37 29’ A) #- ,L~.7_'7-)7‘:’7-23__4’157-_ -7..--____-.-7-_-L -_ --_ L-”- _ -7z_-l,_3-2-:>--JZ_-_ - .. _. ,- .- _- .- - _-74-’1-_-__,_2 25.357 -._.—2--7_-/_-B~f>_i. 1-3-- ”97776737777t 22 72> L, -__--/-_/: 337777-54 ....22-2- -527 _ 3f» .3. -../2 ' 37-7- -27. 1327-37-7 _i-LL- .- .25- -| -- 73-53-- 13-1- 35} 2.2 - 3 -7357 ._/:4-,i_-.>‘._3_6,/-3-_,-1-__.-.--Ti_ -_ . . _ --777.3 (1 .334- 7-7 3.3% ’71. 7 __-__--~.1.QL2---02 7--____.-373-72->7.7 . -7.__. l l | 4 f4 ___7-23--2-c;- . _ .427. .77 31.2“ _ 27- ._ }_--_- .3973 227-1 __-.;<.2-,-7-2. _.L__-__- - _ i - l l - ‘ 12.7771 JJ _ .2979 27 - 1:91 2213? 2137-12-7- i,.__3_7 _->7-_ ,_-L--_L_ ___ .427 .7751 7;:.__-73.5:7 7 r 2-749327_-..2_é-1.3->’_.- .__.. .._--__-__-_. _ _ 2227/ 2312/1 31-637. ‘ -7 - ,-_.__----_-”1733515147.,42-2-‘2 5/- -_-,-:-//6%_/-,_‘/é_. 27,175 -,__l_----__--- ----7-i_ - 427.4 7213M“.--_fl_,.zu;z1773--:,_-.-12_76..-..-_,-____-_____ - >~~ ——--—lea-)277// 52/ L,- “-_ (940/ !j:-2 > 94/717751 71-714-3”__24 _. A36 7 // ? AZZJ127LL1LL 723-67-7722- __ 1//'4_4_-.2.3+ - 771-42 _,_-___-. _-__-_-- - -- '._ .--__.-_-_., .. _T .- - .‘ . fl -2 . _ - ..--..w. . 772157.32”- 12:72.27 _ 13>- 77:12 “.52 35151-72313-- _- Mi cc 21.1-“... _._._ __.L ._ . I 51 T'I Explanation )_.__._.. — Bakery Dairy J7LILJ Lem-.6 726' LL23 .- 2677.7: 7.6 1/ Luci-4' A9410? LA uifia ll (6.756" 44712.); [Ru HUI-QE/ AL. .-.177'777L7A7t777 707 - {621.17 M.) his-1.1.2717 -.. ”19,. -Ml diesel/- A7”. L L ELL L L- L- LL--LI_ _ _-LLLL-L--.._L---- LL L. L -. LL-L __ [£4 £4777, 77,76/ I _LLL 7 .7661. 47.17.24.4117L‘AL 31.7-, 77 L- .1. 7 ___ 73-35 _L_ 114.474-7446 dLg/Z') QL _-_L.LJL_-_ L ...... L_. _ Moi-2;- f6 L. L- L L_L 7 -L L L. L-JrL-L L LL ....... .L_ 1311:1217 ,dzIC‘L- V 3113.6 ELL - _. L LL - L LLL, -L ........ LL _ 7.. L - .le‘Zfl .1-wa _._-LL Li’w/I , _._L _LLL _ .LLJ.-_.-LLL_ _ FL .. _ -- _ 7L-.- , 6-LWLL. LLLL . _ - 7 7- ___ (”MAXI L7. L LIL -- L LL-__ .T-L .L- _.LLL- _ L .LL .2764, A“). IL- -L---_ L_ 7. L LL _ L (xi/4424))! L _ - LL ’1' LL-. L- _L. 7L- LLLL LL (47/214472 ML. LLLL L L- -.-<"’_¢ ’57 ,LLLL _L - - - 0.5 F727 «6’7.- )2- ) I 22.-74.7 ., LL L... L -L ,- -/3_. LL L-) -L1_-__ -LL_-_-LL L i, 2:11) in LA.-.- )4 - L L _- L L1 L L -L-LL-LLLZf-LJQ’ 617777. 777776-297- - _ --LL L__L - -L.-_L ----- .LLlL L L 74146. ”Lac/Atfje - _LL L17 LL LL -L L___ i-L-L- _LL 11:276-15- ‘1 L- L L... IAMQLCUW LZ-LLL/a-‘L 77c __ LLLL-L 1 L L. 17 M741) 7.? .7: :7 , LL 1 ...L L --- 7'] ..éé/I- fie- ‘ j__ i ,-;77.-- -32 -L- L _. ..- _- LIL-L LL. _-_ ’92.: 14-, _ L LLLL - LLLL - 79? L- L - - - ...... - .L- .L LLLLLL - A- ‘0 /M(/. _. 3(a- -71--L L- - L L ,L L LL L L TL L _ _._ 6777777. 7317.67.67) 72-.L L ----- ..tha-IL-U766LWJ-7MJ-P . L L270 L_L LL_ J. '1) '. NALQ‘MVL‘L". --._. 7373--.- _J _._" _._L. 2- -..--- 77777777 -_....-___..-__ -L_L.L_L_L-_-.L.___.- L... (,L -..L _. - _. LLL LLLLLL- L-LLLH _- -- L716 . _-_ l l .L- _-_J- L .L L L- 5 2 EXHIBIT 5 Cash disbursements journal T Clean’g Small Towel Special Equip. Other Chges. . Equip. Service Parties Repairs . 5 .5. (Wm 3972, L7 51 Date Explanation ‘ . . Bakery Dairy Resale 52 EXHIBIT 5 Cash disbursements journal I '. f- Small Towel Special Equip. Other Equip. Service Parties Repairs 53 each individual school the form sheets have been cut and inserted so that entries can be made .for each school without rewriting explanation. 7By .. totaling across, the sum of the check for all schools is obtained for one purveyor and by totaling each of the analysis columns the total spent for individual items for each school is obtained. These totals are then entered—in the general ledger detail account for each» school. 7Only the total payroll accounts are entered here since the breakdown for each - school is done in the payroll journal. Every check or group of checks that is written is entered in this journal, and it is simple to total checks written which gives total cash disbursedrfor the period. Checks are pre-numbered and all cashdisbursements are made by check whereby a measure of control is attained. — Additional protection is given by requir- ing that checks be signed by thetreasurer and coun-tersigned by the superintendent. 7 Payroll Journal - The first stepinmaking up the payroll is tovcompute thetotal number of work hours on each employee's time card. This time record is then transferredto a permanent payroll journal showing the earnings of all employees . 7 (Exhibit 6a.) On the page opposite are columns for distribution to each school in which the gross pay for each employee is 7 entered. . See'Exhibit 6b. The deductions and net pay are then credited toaccrued payroll and the gross pay. is debited to each- school. ~ In addition to the payroll journal, anearnings record must be kept for each employee as illustrated inExhibit 7. This formis designed so that records can be conveniently totaled at the end of each-quarter to prepare the returns for the state and federal government. «After all employees earnings have been entered in the individual earnings record, the actual payment to each-worker is authorized by filling in a payment 54 EXHIBIT 6a Payroll journal _EARNINc’is DEDUCTIONS NET PAID Rate Reg O.T. Total O.A.B. F.T. S.T. Total 7 _-. Ex. Time 7 NOT- 5 5 EXHIBIT 6b Payroll journal -—..__...——..——-—_-__..__..__..—_..._._.v___.___. ._ 7-. r ‘ 7 1 7 7 V 7 U .T. SS. CTIONS INS. Check N o. -- _fl _' DISTRIBUTION _-‘g___‘:f__ _ _L _.Eassan __ Central Hi 199-177109- Geo.Mx¢rs ..E-z-J-eee--.Csp£--El- Rem: . L -LL_ .-.-.1... -._- -- _ -1-.. ..... _._. _._ -- _ _- “L .-L _- L - -LL _.L _LL_ --1____-- - - - _-_- -- -L.L-L- _— ._ 1_ _— ._.- L. _ m __ L_ _L..._____._.LL___-._ 7. 6 _. _ * _..__ .. l ...-L. _L- LL _LLL-LL.-L-LLLL- 1 ___.._ r-— '— ~‘1-e 11 - - e e - r ~ 1 -— -*r-——--r EXHIBIT 7 Earnings record _NAME _v Q _ ,_ NO. SEEP-2T L - (ll-TY. - 56 voucher which is approved by the supervisor and superintendent, and then the check is prepared. A series of entries are necessary to record these items. The net payroll is recorded in the general ledger as a credit at the end of each pay period. Note is made of checks covered by figure. General Journal The general journal supplements the three special journals. It will be used principally for recording opening, correcting, adjusting, closing, and post-closing entries. At present the only entry shows the cash in the bank. See Exhibit 8. EXHIBIT 8 General journal IJIAMAALL66 lie/141.572.62.14 ”ZMz/ZL H (211: nLZLLEL-L _/7é/-L-- -LL - L - .L '_—.—‘ — ._L-- . ._';:"_‘L' "t7 __ -:".‘-'-L /LLTL; “T." :T' .; Z_'_'; . 7 . i- L‘..f”’ . ‘7‘" "‘ A -- Charges 7‘__N___w DPSCFIDLIUII 1 _ _ _M . Credits‘ _ g LAgcct Rec Acct. Pay Gen Led. . __o_f entr_y_ _ _1 _gnuliedl Art; P7: L fagltérfi 2 -..LL -..LL_-p..-._L_.1--_LL- ___- .-._-__ 44411.... 4&166727ffl 77.66.621.66.- _ .- L. - .. 1 . L.. 52.27 4.2" . 6.74-4.20 .6414. 454411124...- 57 General Ledger The general ledger is the book of final entry. After the transactions are entered in the journals, this information is posted to the accounts in the ledger. These additional records are needed for a complete picture of the business and make pertinent information available at all times. The following pages illustrate the ledger accounts necessary for the Portage cafeteria operation. -Exhibit 9 illustrates a capital account which represents ownership of assets and a cash account showing cash on hand. Also included here are payroll, federal and state tax, social security, and group insurance accounts. > Amounts entered in these accounts are taken from the payroll journal and the cash disbursement journal. In ad- dition there is a control and detail account for each-school. .See Exhibit 10. Three lines are used for each month's transactions. Line 1 shows cash disbursed, line 2 cash received, and line 3 gross payroll. The totals are entered-from the detail account to the controlling account which presents the information in summary form. The total of debits and credits gives the balance in the bank. When the three journals have been posted and bank account reconciled, a trial balance may be taken. Trial Balanc e A trial balance is necessary because errors can creep into the work while posting from the journals to the ledger. - If the work in journalizing and posting has been accurate, the total of all the debit balanc es in the ledger should equal the total of the credit balances. - This is true because for each debit entry there is a credit entry for an equal amount. A proof of the ledger balances is made by preparing, a trial balance as illustrated in‘Exhibit ll. 58 EXHIBIT 9 General ledger Explanation 'l Explanation Credit Balance Explanation Post Ref. Debit Credit Balance 1. 7211 _. Quack ' .LkaJzzu.___.- _r__ V--- __ (inc 11.1.4-5 tthzz: VIL-...__....__ Eph.-- .--/.é_3-§L.V._.-b¢ ___ _ ____. = .2 7 .) f i .2. 755777—377 - -----1- _ - 1-----. _. _-_J . __ -O* ---." -----. ---- _-_-----_ - ---.-.--..-._-- -_-_._.--.____ --------..--.._..-'z‘.6.d 1,6414 161441-4422“.-- .---.- 221.: #kaL Vii/112414.41 ‘I'I’V. ' 3CLM- [‘13- _._ Lilia - 3.2.--- 32.1.9..- j/é’]. J-éiga- * ! Post Date Explanation 1 Ref. Debit Credit Balance $762-14)“. 66MB? 2:66 _-_ 10W ._ .231 —-// , ___-____ , V_ dime/12.. agenmia/__-V--1 CA)- r.?J_l._.‘Z/..__ gag/626166.16]. 26,6 1- QR- ---- _- 3J1_-91..-.1 - - - - 0.11.046 4.941124..- _ §-__<_3.-.§..- _311 -4124 ___-_-_-_. _-- 1 W??— 393' '7'?” _0_ _ -_-_- ..- - --- -..-.1. -. ._ ----.- __ -..-.- -- - ~ I 59 EXHIBIT 9 (contd) General ledger Credit Balance C? Balance .1? l Explanation . Credit Balance 60 Prod. M I 1 ransp. Prod. =Meat I ; ' Resale Chges. 61 EXHIBIT 10 Control and detail accounts for selected schools--Portage, Indiana ") Explanation Ref. Debit Credit Service Repairs Parties Expense ’ EXplanation . ' Credit Balance £21.61 («-1 La! 11144.4 L( _ - l ! ‘ J -. t 11 1 1-*“*——“~“" n l '1 owel ’Equ1p.1 Labor 11Spec1al iMisc. ', '_l_ncome11 '1 1 Service Repairs ‘ IP'dltl es i ‘Expense1l Child ‘1 Adult .' Govt 1' Totals. 9 ——— 1— 11 -— -- “.7 —— ——‘ m +1—- ~+ l1 zit-.53 ii 8 l l- 1 /2L.-- 3- 1’ Va" 1 3 ll 1 _T__,-1.§.1‘ELLL/_Z1.1 i; 2 [[1 1 ii I 1 11‘, [I | 71—4,”? 1| 6am / l 1 11 +1 -— - l 41 -- 1+ -----11... . , 9’43 e1 11—1-2 ~ [1 -.l _ .-1 -. - 1. .../6.32. 2‘: 1 -1. -V-.-_._.--,_-i..-- 1_ v ‘1 17 _.. .—IJL Tl i. 'w w . _1 l' L i 4‘1} I =1“: ' """“"*’“Tf“”"1““1' "7* ..--- rfir‘“ 71“ T 1 r 11 ‘11 r I 1 ‘ ' I: ' ’1 i 11.1 i 1 . 1 62 ransp. Prod. Meat Bakery Dairy Resale Chges. ’ 4 3.13 ‘ / ransp. lean g ! gProd. Meat Bakery Dairy Resale Chges. 7.3 ' W " 9' 63 EXHIBIT 10 (cont'd) Control and detail accounts for selected schools--Portage, Indiana ) ‘ , ,2 ’7 Explanation Ref. Debit Credit I ,‘ ,i T “)—t ’1 v _ ”I / /7 33 /7 f .; ' , ( ‘ P- M-— 1 Service Repair Child Explanation Ref. Debit Credit Balance amtcmymé _m- 4.141. , . 212.2, [5’ Service Repairs Parties Expense CFild Totals _ - I , ._ 64 ransp. Prod. Meat Bakery Dairy Resale Chges. ' ‘ (2‘. ELM” ‘ . ransp. g _ Prod. -M_eat ! Bakery _Dzairy Resale Chges. Supp Equip. .- I) 65 EXHIBIT 10 (cont' (1) Control and detail accounts for selected schools--Portage, Indiana _-, . (filed 'J—lh? .201 (axing/L Date”- Explanation . Credit Balance I! ‘ . Service Repairs Parties Expense / - Post 1 ‘ Date EXplanation Ref. Debit l Credit Balance 4 W - 30, w MALL/NJ}. “Us .__. .éy/497 a W Nikki/{:1 LBLL.._ Lit/LU jail-MW 23.. _._. ._-_-,-_:_._ "' 3 _ __ r ‘7? ”WWW" w a» . . , _ {j _ +__,____-___-_l____“_ Astana“...lanai-.9.-. ‘11 Towel iiEquip. ii Labor ' Special \ {‘Misc. '. __ _7 1 I'lncome :[ f ; l Service Repairs ,f j Parties :jExpense] Child gAdultfij Govt. ' otalsi I i ‘— fl I ‘ Tl'":‘_'”“k”‘ “l”— , l 2 Tl, l“’lL"——|'_L " 74‘"? ——- I.“ m 7L ~; m r , ‘irfl‘f—u a. H t ~ w -l --s l 1” oat—Hire—«Tu'r 1w i]. a} 'l ._'I 14 _ i all a- - ._ H-_e_l-LLLL__.L. }c_ Lt L ..p. l ; W- _~,n'._-.-_11 L- w _ _LLLJ _-_ L. '_ _‘L m I 1 ' . l J I I l ILL l 1 J I ' l ‘ ‘7‘? j I i raj-_— L il '7 7 I 4 | ‘ ‘ ‘ l 66 EXHIBIT 11 Portage Cafeteria Trial Balance, Sept. 30, 1961 Debit Credit Cash11,-917.68 ‘AccruedPayroll. . . . . . . . . . . . . . . . . -0- FederalW-H................... -O- StateGrossW-H................. -0- ‘Socialsecurity.................. -0- GroupIns.W-H................. -0- Individual Schools Crisman.................. 363.24 -PortageHigh . . . . . . . . .'. . . . . . 1,941.30 Garyton...v............... 1288.53 GeorgeMyers............... 418.51 ~Ethe1Jones................ 358.06 Central Elementary ..... . . . . . . . 440.16 Opening Capital . . . . . . . . . . . . . . . . 15,727.48 15,727.48 15,727.48 Profit and Loss Statement A monthly profit and loss statement for all food services is abso- lutely essential for goodbusiness practices, and its formulation is not difficult if the suggested records are kept. This statement is based on the actual figures of all income and expense during the past month. -It is prepared from the cash receipt and expenditure records, the payroll, and the inventory. The cost of food is figured by adding all purchases to the beginning inventory and subtracting the value of the ending inventory. The categories under income and expense are the same asthose in the detail accounts of the general ledger. A page is prepared for each school with headings for each period, a percentage determined on basis of total income and a cumulative to date of previous months' business. These 67 EXHIBIT 12 Portage Cafeteria System Profit and Loss Summary __P3_o_f_it and Loss S ar for l Sept. Oct. (70 Yr. Dte. % % Yr. Dte. % Dec. Yr. % Inc. (Receipts) Child Adult Gov’t Wo't’her Total Exp. (Disbursed Beg. Inventory Groc. Prod. Meat Bakery Resale Transp. Chges . l Clean’g Supp. l “ -___ , _- _---_- “l Small Equip. l “Towel Serv. Spec. Parties _.‘4. Misc. Labor End. Inventory Total Anticipated l '1 Excess Inc. (Exp.).; ! 1.-.---- __.-.L_-__- -.---. -.- 68 sheets furnish information forza total profit and loss summary prepared on an identical form as illustrated in Exhibit 12. This means that as the year progresses the business trend can be determined. The differ- ence between the income and expense gives the net profit or loss. It is recommended that the anticipated government reimbursement be noted so that there will be no distortion in the evaluation of the financial statement. The percentages for each category are most meaningful in interpreting the profit and loss statement. This statement shows only the results of past Operations and present financial condition. .While, in many cases the past is reliably indicative of the future, conclusion should not be accepted without supplementary investigation. An Appraisal Selected portions of the record control system were installed in the highschool cafeteria unit for preliminary trial during the 1961-62 school year. The payroll record provided information that was easily transferable to the profit and loss statement. The public accountant assisted in the development of additional record control forms which were planned in sufficient detail to be functional for all units in the Portage cafeteria system. At the conclusion of the school year these materials were evaluated for efficiency, and it was ascertained that the trial forms furnished all the desired information. In-September of 1962 the record system was inaugurated in all operating units. As a result of the 1961-62 preliminary trial this pro- cedural change was accomplished ‘with a minimum of time and effort. Within a period of five months it became evident that access to pertinent detailed financial data for each unit as well as for the entire Operation would provide management with knowledgeable means for effecting closer control of operational costs. The record system provided for monthly 69 computation, presentation, and comparison of food cost percentages, payroll costs, and various other maintenance expenditures. From these composite monthly data both favorable and unfavor- able operational trends are more readily apparent and the position of management is strengthened when corrective measures must be imple- mented. Furthermore, through this new accounting system the appro— priate information required for government reports is both complete and more readily available. With continued use of this records control system it is antici- pated that persons responsible for the management of the Portage school lunch program will be in a better position to estimate operational costs accurately and to establish more realistic performance standards for the separate units of the school system. It is recognized that as the needs of the organization change the record forms will require modifi- cation to retain their effectiveness as a managerial tool. Although the record forms and control system reported here are specific for the Portage cafeteria system, it is hoped that the general plan of control and the forms will be helpful to school lunch managers and boards of education who are endeavoring to improve the accounting procedures within their own operations. 10. ll. BIBLIOGRAPHY . Anthony, Edward T. Management Aids for Small Business Annual . N0. 3. . Small Business Administration. (Washington: U. S. Government Printing Office, 1957. . Arensman, Ray W. 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