School Meal Programs: Sharing Information on Best Practices May Improve
Programs' Operations (Letter Report, 05/21/97, GAO/RCED-97-126).

GAO reviewed: (1) state and school food authorities'(SFA) management and
operating practices that are generally recognized as best practices by
Department of Agriculture (USDA), state, and other officials; (2)
whether some of these best practices could be replicated by other states
and SFAs; and (3) the training and technical assistance USDA provides to
the states and SFAs to help them better manage and operate the school
meal programs.

GAO noted that: (1) states and SFAs have developed a number of best
practices to improve the management and operation of the school meal
programs, including the use of: (a) a computerized system to improve the
efficiency of the commodity-ordering process; and (b) cooperative
purchasing programs to buy food and nonfood items at competitive prices;
(2) in addition, USDA has implemented a pilot project that uses the
Department of Defense's (DOD) nationwide infrastructure to purchase
fresh produce and improve the nutritional content of school meals; (3)
USDA and other officials believe that the best practices identified
could be replicated by some states and school food authorities to help
improve the management and operation of the school meal programs
nationwide; (4) however, some impediments would first have to be
overcome before these best practices could be adopted; (5) the
successful implementation of a computerized system would first require
the establishment of an effective commodity-ordering and -processing
network-that links commercial brokers and processors, SFAs, and the
state's commodity-distributing agency; (6) similarly, if other states
and SFAs wanted to purchase a wider variety of higher-quality fresh
fruits and vegetables at competitive prices by using DOD's
commodity-purchasing infrastructure under a USDA pilot project, their
participation might be limited by the $20-million cap on federal
commodity funds available for this USDA project; (7) moreover, not all
best practices may be suitable for all states and SFAs because of such
factors as the size and location of the state school food authority; (8)
USDA's recent training and technical assistance efforts for the school
meal programs have largely focused on providing information about the
new dietary guidelines to school food service personnel; (9) because
USDA's training and technical assistance resources are limited, USDA has
had few resources available for training and assisting states in
managing and operating the school meal programs more efficiently and
economically; and (10) past efforts to improve the management and
operation of school meal programs, such as the best practices awards
program that operated during fiscal years 1992 through 1994, have either
been eliminated or reduced because of other competing priorities for
resources.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-97-126
     TITLE:  School Meal Programs: Sharing Information on Best Practices 
             May Improve Programs' Operations
      DATE:  05/21/97
   SUBJECT:  Technical assistance
             Food programs for children
             State-administered programs
             Quality assurance
             Total quality management
             Human resources training
             Information systems
             State and local procurement
             Locally administered programs
IDENTIFIER:  National School Lunch Program
             National School Breakfast Program
             Pennsylvania
             Texas
             
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Cover
================================================================ COVER


Report to the Secretary of Agriculture

May 1997

SCHOOL MEAL PROGRAMS - SHARING
INFORMATION ON BEST PRACTICES MAY
IMPROVE PROGRAMS' OPERATIONS

GAO/RCED-97-126

School Meal Programs

(150266)


Abbreviations
=============================================================== ABBREV

  AMS - Agricultural Marketing Service
  DOD - Department of Defense
  FCS - Food and Consumer Service
  FNIC - Food and Nutrition Information Center
  GAO - General Accounting Office
  NFSMI - National Food Service Management Institute
  NGA - National Governors' Association
  SFA - school food authority
  TAP-IT - Telephonic Automated Produce Information Technology
  USDA - U.S.  Department of Agriculture
  DOD -

Letter
=============================================================== LETTER


B-276623

May 21, 1997

The Honorable Dan Glickman
The Secretary of Agriculture

Dear Mr.  Secretary: 

In fiscal year 1997, the U.S.  Department of Agriculture (USDA) will
provide over $6 billion in cash reimbursements and over $600 million
in commodities to the National School Lunch Program and the School
Breakfast Program--the two largest school meal programs.  USDA's Food
and Consumer Service (FCS) is responsible for regulating and
overseeing the school meal programs; however, the states and local
school food authorities\1 (SFA) have flexibility in purchasing,
distributing, and preparing the food that is served to
schoolchildren.  Some states and SFAs have developed and implemented
unique and innovative practices to manage and operate these programs
more efficiently and effectively in their schools.  Some of these
practices have the potential, if replicated, to improve the
management and operating processes and systems of other states and
SFAs.  These kinds of practices are commonly known as best
practices.\2

To learn how best practices might be applied to the school meal
programs, we (1) identified state and SFA management and operating
practices that are generally recognized as best practices by USDA,
state, and other officials; (2) determined whether some of these best
practices could be replicated by other states and SFAs; and (3)
reviewed the training and technical assistance USDA provides to the
states and SFAs to help them better manage and operate the school
meal programs.  Specifically, to determine the replicability of best
practices in other states and SFAs, we examined two best practices
more closely--Pennsylvania's computerized system for ordering
commodities from USDA and Texas' use of the Department of Defense's
(DOD) commodity purchasing infrastructure to purchase fresh fruits
and vegetables. 


--------------------
\1 A local school food authority is any local school district or
other entity, such as a private school, that manages a school's food
service. 

\2 Best practices refer to the management processes, practices, and
systems identified in public and private organizations that have
performed exceptionally well and are widely recognized as having
improved an organization's performance and efficiency in specific
areas.  Identifying and applying best practices to other
organizations can reduce their business expenses and improve their
organizational efficiency. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

States and school food authorities have developed a number of best
practices to improve the management and operation of the school meal
programs, including the use of (1) a computerized system to improve
the efficiency of the commodity-ordering process and (2) cooperative
purchasing programs to buy food and nonfood items at competitive
prices.  In addition, USDA has implemented a pilot project that uses
DOD's nationwide infrastructure to purchase fresh produce and improve
the nutritional content of school meals. 

USDA and other officials believe that the best practices identified
could be replicated by some states and school food authorities to
help improve the management and operation of the school meal programs
nationwide.  However, some impediments would first have to be
overcome before these best practices could be adopted.  For example,
Pennsylvania's use of a computerized system for ordering commodities
could help other states better allocate USDA-donated food among
participating school food authorities and minimize the amount of
USDA-donated meat that is sent back to commercial processors for
reformulation into other products and then returned to the school
food authority, a practice known as backhauling.  However, the
successful implementation of such a system would first require the
establishment of an effective commodity-ordering and -processing
network--like Pennsylvania's--that links commercial brokers and
processors, school food authorities, and the state's
commodity-distributing agency.  Similarly, if other states and school
food authorities wanted to purchase a wider variety of higher-quality
fresh fruits and vegetables at competitive prices by using DOD's
commodity-purchasing infrastructure under a USDA pilot project--as
Texas has done--their participation might be limited--as Texas'
is--by the $20 million cap on federal commodity funds available for
this USDA project.  Moreover, not all best practices may be suitable
for all states and school food authorities because of such factors as
the size and location of the state or school food authority.  For
example, a best practice that has worked well for school food
authorities in rural areas may have limited applicability and
benefits for school food authorities in urban areas. 

USDA's recent training and technical assistance efforts for the
school meal programs have largely focused on providing information
about the new dietary guidelines to school food service personnel. 
Because USDA's training and technical assistance resources are
limited, USDA has had few resources available for training and
assisting states in managing and operating the school meal programs
more efficiently and economically.  Past efforts to improve the
management and operation of school meal programs, such as the best
practices awards program that operated during fiscal years 1992
through 1994, have either been eliminated or reduced because of other
competing priorities for resources. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The school meal programs are designed to provide nutritionally
balanced and affordable meals to schoolchildren to safeguard their
health and well-being.  These programs are administered by FCS and
are available in all 50 states, the District of Columbia, and the
U.S.  territories.  The School Breakfast Program provides about 6.4
million children with a nutritious breakfast each school day, and the
National School Lunch Program serves nutritious lunches to about 24.6
million children every school day. 

SFAs participating in the school breakfast and lunch programs receive
cash assistance and commodity foods from USDA for breakfasts and
lunches served.  In turn, the SFAs must serve breakfasts and lunches
that meet federal nutritional requirements and must offer free or
reduced-price meals to children from families whose incomes are at or
below certain levels.  According to an FCS official, about 80 cents
of every dollar that SFAs spend on providing meals to schoolchildren
comes from federal cash reimbursements and state and local funds and
about 20 cents comes from commodity foods.  The federal government is
providing cash reimbursements to SFAs in school year 1996-97 of about
$1.02 for each free breakfast, $0.72 for each reduced-price
breakfast, and $0.20 for each full-price breakfast; and about $1.84
for each free lunch, $1.44 for each reduced-price lunch, and $0.18
for each full-price lunch. 

In addition to cash reimbursements, SFAs receive commodity foods,
valued at $0.145 for each lunch served.  States and SFAs select these
foods from a list of more than 60 different kinds of food that USDA
purchases.  This list includes, for example, fresh, canned, and
frozen fruits and vegetables; meat and poultry; peanut products;
grain products; and dairy products.  Commodity food purchases for
meat, poultry, fruits, and vegetables are made by USDA's Agricultural
Marketing Service (AMS) and for wheat, peanuts, oils, and dairy
products by USDA's Farm Service Agency.  FCS provides each state's
commodity-distributing agency with information on the types and
amounts of commodity foods that are available throughout the school
year.  Each state agency is responsible for ordering and providing
delivery instructions to FCS for commodity foods to be delivered to
the processors, warehouses, or SFAs within the state. 

FCS provides training and technical assistance to the states and SFAs
through conferences and meetings for state employees and directors,
and through workshops held in conjunction with the American Commodity
Distribution Association, the American School Food Service
Association, and the National Food Service Management Institute
(NFSMI).  It also provides information through the Food and Nutrition
Information Center (FNIC).  These meetings and conferences provide
the states with an opportunity to share ideas and/or new practices
applicable to the school meal programs.  NFSMI is a national
information center established to provide training and technical
assistance to the states and SFAs and to assist FCS by developing
guidelines and materials for promoting healthy eating behaviors and
providing nutritious meals through the school meal programs.  FNIC is
part of the National Agricultural Library and provides information
support services for FCS and state agency staff, as well as
information to the public through the Internet. 

While the states and SFAs have flexibility in managing their school
meal programs, FCS, as part of its oversight function, conducts
regular management evaluations, reviews state-performed
administrative reviews of SFAs, and asks USDA's Office of Inspector
General to conduct reviews of certain school meal program activities. 
For example, in fiscal year 1996, FCS' regional offices conducted
management evaluations of the operations of school meal programs for
15 state agencies.  Through this process, the regional offices
provide ongoing, comprehensive assessments of state agencies'
operations while offering technical assistance to achieve regulatory
compliance and improve program management.  The results of these
efforts help FCS identify areas in program performance that need
improvement. 


   STATES AND SFAS HAVE DEVELOPED
   BEST PRACTICES
------------------------------------------------------------ Letter :3

Several states and SFAs have developed practices for better managing
and operating the school meal programs.  These practices cover a wide
range of activities, including purchasing, preparing, and serving
food, as well as methods to improve administrative functions and
provide technical support to other states and SFAs.  With the
implementation of certain practices, according to some regional USDA
officials and state officials, programs are operating more
economically and efficiently and schoolchildren are being served more
nutritious meals.  According to these officials, some practices are
generally recognized as best practices and sharing information on
them could benefit other states and SFAs.  Of the best practices we
identified during the course of this review, USDA officials agreed
that those discussed below are likely to have the greatest potential
benefit for other states and SFAs if they are replicated. 

Pennsylvania's computerized commodity ordering system.  Pennsylvania
has developed a computerized commodity-ordering system to better
manage the commodity-ordering process for its over 900 SFAs. 
Pennsylvania's system ensures that each SFA obtains its fair share of
all federally donated commodity foods.  Moreover, the system has
improved the inventory control of commodity foods and has been
particularly beneficial in reducing the amounts of commodities, such
as meat and poultry, that SFAs have to backhaul.  For the 1995-96
school year alone, Pennsylvania estimated cost savings of $460,000. 
Furthermore, these officials told us that the reduction in backhauled
commodities has resulted in higher-quality products that more
schoolchildren are likely to accept.  (See app.  I for a more
detailed discussion of Pennsylvania's computerized commodity-ordering
system.)

Cooperative purchasing programs.  Some SFAs have entered into
cooperative purchasing programs in which two or more SFAs agree to
purchase food and nonfood items jointly for their school meal
programs.  Small rural school systems that have used these programs
have been able to purchase a wider selection of food and nonfood
items competitively and at lower prices.  For example, a 1993 study
of the benefits of implementing a cooperative purchasing program in
Mississippi found that this approach, among other things, reduced the
burden associated with the bidding process, increased vendors'
reliability, saved time, decreased paperwork, made ordering easier,
and decreased the number of deliveries.\3 On the basis of this study,
Mississippi's Department of Education established a cooperative
purchasing program for 35 rural SFAs; this program now includes over
100 SFAs. 

States' use of DOD's infrastructure to purchase fresh produce.  To
improve the availability of fresh fruits and vegetables and the
nutritional content of school meals, USDA started a pilot project
with DOD in 1994 to purchase high-quality fresh fruits and vegetables
for the school meal programs.  USDA chose DOD for the pilot project
because, unlike AMS, which purchases commodities centrally through
the federal bid solicitation process, DOD uses a nationwide,
decentralized commodity-purchasing system to purchase fresh produce
from local vendors for its customers.  During the project's first
year, eight states, including Texas, participated in and reported a
high level of satisfaction with DOD's service and with the quality
and variety of the fresh produce available to the SFAs at competitive
prices.  The pilot project was expanded to include SFAs from 32
states.  A recent study\4 of the project's performance in Colorado
found that schoolchildren in the SFAs that participated in the
project increased their consumption of fresh fruits and vegetables
during school meals and wasted less.\5 (See app.  II for a more
detailed discussion on the operation of the USDA/DOD pilot project in
Texas.)

Model contract for food service management companies.  In 1996, we
reported that SFAs had increased their use of food service management
companies to operate the school meal programs from 4 percent in
school year 1987-88 to about 8 percent in school year 1994-95.\6 FCS
requires that the meal services provided by food service management
companies are governed by contracts developed by the SFAs.  However,
we found that food service contracts varied greatly and at least 50
percent did not contain the necessary provisions to ensure (1) SFAs'
retention of financial and administrative control over the school
meal programs and (2) compliance with federal requirements.  To
overcome these problems, some states have developed a model food
service contract. 

According to FCS officials, the use of a model food service contract
can ensure that certain core business principles, required by federal
regulations, are contained in the contract.  For example, the model
contract developed by Pennsylvania contains provisions that cover
specific federal requirements for the school meal programs, such as
(1) ensuring that appropriate financial controls are in place, (2)
using USDA-donated foods in accordance with guidelines, (3) outlining
how SFAs will receive credit from the food service management company
for the value of the donated commodities used for school meals, and
(4) ensuring that adequate procedures for monitoring and evaluation
are established.  This model contract also contains terms covering
the duration and renewal of the contract and language to ensure that
SFAs adequately oversee the programs as required.  Moreover,
according to a regional FCS official, using a model contract often
eases the complex and tedious bidding and contracting processes that
SFAs are otherwise required to handle by themselves.  However, in
commenting on a draft of this report, FCS officials told us that
model contracts cannot cover all state and local requirements for
each SFA.  Therefore, SFAs that use model contracts must ensure that
they include adequate provisions to cover all state and local
requirements in order to protect their best interests. 

Training cadre.  Some states have identified individuals in various
SFAs throughout the state who are experts in different aspects of the
operation and management of the school meal programs, such as
nutrition education, and have trained them to assist other SFAs in
the state.  These individuals together form a training cadre that is
available to provide assistance to all the SFAs within the state as
necessary.  According to a regional FCS official, the hands-on
training provided by members of Pennsylvania's and West Virginia's
training cadres furnishes real-time solutions to the problems these
states' SFAs face. 


--------------------
\3 J.  Oldenquist, Analysis of the Effectiveness of the Mississippi
State Department of Education Purchasing Program for Child Nutrition
Programs (Dec.  1993). 

\4 J.  Anderson, and L.  Ryan, Evaluating the Fresh Fruit and
Vegetable Pilot Project in Colorado-Final Report.  Department of Food
Science and Human Nutrition of Colorado State University (Fort
Collins, Colorado:  1996). 

\5 However, the study did not address the extent to which other
factors, such as the SFA's demographics or the quantity of other
foods served during the meal, may have affected the observed
differences.  Thus, it is unknown to what extent, if any, factors
other than the availability of fresh fruits and vegetables through
the pilot project may have played in the observed differences. 

\6 School Lunch Program:  Role and Impacts of Private Food Service
Companies (GAO/RCED-96-217, Aug.  26, 1996). 


   BEST PRACTICES CAN BE
   REPLICATED, BUT SOME
   IMPEDIMENTS HAVE TO BE OVERCOME
------------------------------------------------------------ Letter :4

Although replicating best practices in states and SFAs nationwide may
result in operating efficiencies, cost savings, and better tasting
and more nutritious meals for schoolchildren, there are some
impediments to sharing best practices.  Two best practices we
reviewed in detail--Pennsylvania's computerized commodity- ordering
system and Texas' use of DOD's infrastructure for purchasing fresh
fruits and vegetables--illustrate the advantages of applying best
practices to other states and SFAs and the difficulties that have to
be overcome in doing so.  Moreover, not all best practices are
equally applicable to or beneficial for every state or SFA because of
such factors as the size and/or location of the SFAs. 


      PENNSYLVANIA'S COMPUTERIZED
      COMMODITY-ORDERING SYSTEM
---------------------------------------------------------- Letter :4.1

In 1996,\7 we reported that many states backhauled large quantities
of federally donated meat, creating lower-quality products and
increasing SFAs' program costs.  This problem was caused, in part, by
the inefficient commodity-ordering processes used by some states and
SFAs and the fact that some states ordered only fine-ground beef. 
These states and SFAs were ordering large quantities of fine-ground
beef without taking into consideration the type of products needed to
fulfill their menu plans for the school meal programs. 

Some of the states and SFAs that are backhauling large quantities of
federally donated meat could benefit from the use of a computerized
commodity-ordering system like Pennsylvania's.  Even though these
states may have computerized systems or other manual systems for
placing orders for commodities, these states may not use an approach
like Pennsylvania's to optimize the ordering process.  Pennsylvania's
commodity-ordering process ensures that the state orders commodities
that accurately match the SFAs' actual needs.  This process relies on
the state-developed network of commercial processors and food brokers
that work with the SFAs to determine how best to use donated
commodities to meet the requirements of the school meal menus.  The
information developed by the SFAs and commercial vendors is used by
Pennsylvania to order donated commodities from USDA in the form and
quantity that best meets the needs of the school meal programs in the
state.  Because of this improved ordering process, Pennsylvania's
SFAs decreased the amount of beef that they had to backhaul from
about 152,000 pounds for the 1993-94 school year to about 26,604
pounds for the 1995-96 school year.  For the 3-year period (school
years 1993-94 through 1995-96) Pennsylvania backhauled a total of
238,236 pounds of beef, about 1.6 percent of the total amount of beef
it received from USDA for the period. 

In contrast, we found that other states that receive large amounts of
beef from USDA, such as Texas and Washington, continue to backhaul
significant amounts every year.  For the 3-year period we examined,
these states backhauled a total of 2,656,171 and 798,804 pounds, or
6.9 and 12.9 percent of the total amount of beef they received from
USDA, respectively.  Although we could not obtain complete data for
California--also a large recipient of USDA-donated beef--we found
that SFAs using only the state's warehouse system backhauled about
750,000 of the about 2.6 million pounds of beef that they had
received during 2 school years, 1994-95 and 1995-96. 

Pennsylvania officials told us that they have provided information
about their system to a number of states exploring the idea of
setting up similar commodity-ordering systems.  However, Pennsylvania
officials also told us that their system has certain requirements
that, if not met, could impede replication in other states.  These
requirements include (1) a network of commercial food brokers and
processors that are willing to work with the SFAs and the state's
commodity-distributing agency to develop and place orders for donated
commodity foods; (2) a stipulation that SFAs identify as accurately
as possible their plans for using their share of donated commodities,
including the percentages they want delivered to the SFA, the
processor, or the warehouse; and (3) adequate computer support,
including hardware and software.  In commenting on a draft of this
report, USDA officials concurred that states' commodity-distributing
agencies should develop more efficient and comprehensive computerized
ordering systems.  However, they told us that using a
commodity-ordering system like Pennsylvania's would not eliminate the
requirement that SFAs use the competitive bid process when procuring
food-processing services valued at over $10,000.  (For a more
detailed discussion of Pennsylvania's computerized commodity-ordering
system, see app.  I.)


--------------------
\7 Federally Donated Meat and Poultry:  Information on Extent and
Impact of States' Restrictions on Processors (GAO/RCED-96-220, Aug. 
29, 1996). 


      TEXAS' USE OF DOD'S
      INFRASTRUCTURE TO PURCHASE
      FRESH FRUITS AND VEGETABLES
---------------------------------------------------------- Letter :4.2

In 1994, FCS gave the states the opportunity to participate in a USDA
pilot project to purchase fresh fruits and vegetables through DOD for
the school meal programs.  Texas, along with seven other states,
volunteered to participate in the pilot project.  Initially, 85 of
Texas' over 1,100 SFAs agreed to participate, and this number has
grown to more than 200 SFAs for the 1996-97 school year.  Similarly,
the amount of commodity funds dedicated to the project in Texas has
grown from $340,000 for school year 1994-95 to $2 million for school
year 1996-97.  The number of participating states and the level of
funding available for the project nationwide have also expanded. 
Currently, selected SFAs in 32 states are participating in the pilot
project and are authorized to purchase about $20 million in fresh
fruits and vegetables with commodity funds--an amount that has
increased from $3 million in 1994.  SFAs participating in Texas have
generally reported a high level of satisfaction with the quality of
the produce and service provided by DOD.  FCS officials told us that
most SFAs participating in other states have been similarly
satisfied. 

However, efforts to expand the pilot project to all 50 states and
every SFA within each state have been restricted because of limits on
the amount of commodity funds that can be used for this project. 
Funding constraints arise primarily because of the cap on the amount
of commodity funds that states can use to purchase fresh fruits and
vegetables through the pilot project.  USDA set the national cap for
commodity funds available for the project at $20 million for school
year 1996-97.  Texas' share of this national cap is $2 million.\8
According to the Texas official responsible for food distribution in
the school meal programs, this level of funding cannot support all
the SFAs in Texas that have asked to participate in the project. 
This official also told us that during the third year of the project,
the limit on commodity funds was the most significant impediment to
expanding the project to other SFAs in Texas.  Moreover, an official
of a Texas SFA told us that even if an SFA is allowed to participate
in the project, the amount of commodity funds is often not enough to
allow the SFA to purchase all of its fresh produce through DOD. 
Officials in other states--including Florida, Georgia, and
Maryland--and FCS officials that we spoke to in both regional offices
and headquarters also identified the limits on commodity funds
available for the pilot project as the primary factor impeding its
expansion. 

Beginning in school year 1995-96, to overcome the impediment caused
by limited commodity funds, FCS approved the use of cash
reimbursement funds--funds provided by the federal government to SFAs
to subsidize the cost of the school meals--to purchase fresh fruits
and vegetables under the pilot project for seven states.  Texas did
not receive approval to use cash reimbursement funds until the
1996-97 school year.  Moreover, Texas' SFAs were not notified until
January 1997 that they could use their cash reimbursement funds for
the pilot project.  An FCS official told us that the delay in
approving Texas' use of cash reimbursement funds for the project was
caused by Texas' late request and the need to study each state's
request individually because the project is still in the pilot phase. 
(For a more detailed discussion of Texas' participation in USDA's
pilot project, see app.  II.)


--------------------
\8 Each participating state is allocated a portion of the $20 million
cap.  This portion is based on the number of reimbursable meals
served in the state. 


      OTHER FACTORS INFLUENCE THE
      SHARING OF BEST PRACTICES
---------------------------------------------------------- Letter :4.3

The ability to share best practices depends on circumstances at the
state or SFA level.  USDA officials told us that not all best
practices should or could be replicated in all states and SFAs.  For
example, while cooperative purchasing agreements may work well for
small SFAs in rural areas, larger SFAs in urban areas generally do
not need such agreements to obtain competitive prices.  Similarly,
while other states and SFAs are requesting permission to participate
in USDA's pilot project for purchasing fresh fruits and vegetables
through DOD, one California SFA told us that it can purchase
comparable fruit and vegetables at competitive prices locally without
going through DOD because it is located near growing areas. 


   TRAINING AND TECHNICAL
   ASSISTANCE FOR MANAGING AND
   OPERATING THE SCHOOL MEAL
   PROGRAMS IS LIMITED
------------------------------------------------------------ Letter :5

Since January 1995, the training and technical assistance provided by
USDA to the states and SFAs (including the services provided by NFSMI
and FNIC) have focused primarily on nutrition education because of
USDA's new dietary guidelines that emphasize the use of more grains
and vegetables and less fat.  Less attention has been given to
providing training and technical assistance to SFAs for improving the
management and operation of the school meal programs.  For fiscal
year 1997, FCS has about $10 million to spend on all training and
technical assistance activities for the school meal programs,
including activities targeting improvements in the management and
operation of these programs. 

FCS officials told us that because of competing priorities, such as
the need to provide nutrition education, they generally have few
resources for providing SFAs with training in the use of better
management practices for the school meal programs.  They agree,
however, that this kind of training is needed and could help the
states and SFAs obtain the best value for the dollars spent on
purchasing and processing commodities for the school meal programs. 
FCS officials also agreed that encouraging the use of best practices
by other states and SFAs nationwide is a good way to provide training
and technical assistance, given the agency's limited resources. 

Furthermore, sharing best practices will allow USDA to provide
valuable assistance to the states and SFAs if these practices are
identified as solutions for correcting deficiencies found during
management evaluations or audits of the school meal programs.  For
example, according to an FCS regional official, during a management
evaluation of New Jersey's operations, an SFA official indicated that
the SFA would like to use more processed beef products to help reduce
the large amounts of fine-ground beef it was keeping in storage, as
well as the costs incurred for storage.  To address this concern, the
FCS regional official suggested that New Jersey consider using a
computerized commodity-ordering system similar to Pennsylvania's to
improve the state's commodity-ordering processes.  The use of such a
system could improve the process not only for the SFA reviewed under
the management evaluation but for all other SFAs within the state. 
After New Jersey officials contacted Pennsylvania, Pennsylvania
officials told us that they demonstrated their system and provided
information on how to set up a similar system in New Jersey. 

Sharing best practices has also been recognized by the National
Governors' Association (NGA) as a practical means for states to learn
about programs that operate effectively and efficiently in other
states, innovative practices that other states have employed with
success, and solutions to problems in programs that are not working. 
To promote the use of best practices, NGA revamped its Center for
Policy Research to form a Center for Best Practices and established a
new mission that includes (1) identifying states' best practices and
innovations and sharing this information with the nation's governors
and (2) providing the technical assistance needed to transfer and
implement best practices to make current programs more effective.  In
addition, sharing best practices has been generally acknowledged by
GAO, other governmental agencies, and the private sector as a
cost-effective approach for providing management training and
technical assistance to organizations.\9

Although USDA had a best practices awards program for the school meal
programs, it discontinued this program because of limited resources
and other competing priorities, according to an FCS official.  The
best practices awards program operated during fiscal years 1992
through 1994 at a total estimated cost of $190,000.  The program was
designed to recognize and share information on successful practices
used by school food service personnel.  However, while the awards
program provided ideas for the states to enhance their programs, it
did not provide a means for the states and SFAs to seek FCS'
technical assistance and guidance to ensure the successful
implementation of these best practices. 


--------------------
\9 Best Practices Methodology:  A New Approach for Improving
Government Operations (GAO/NSIAD-95-154, May 1995); Inventory
Management:  Adopting Best Practices Could Enhance Navy Efforts to
Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July 12, 1996);
Best Practices:  Commercial Quality Assurance Practices Offer
Improvements for DOD (GAO/NSIAD-96-162, Aug.  26, 1996). 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

The states and SFAs have adopted a variety of management practices to
operate the school meal programs.  Some of these practices have
resulted in more efficient and effective ways of providing nutritious
meals to students.  As more responsibility for nutrition programs is
transferred to the states and as federal funding for these programs
decreases, it is important that the states and SFAs develop and
implement more efficient and effective programs.  We believe that
encouraging the states and SFAs to share their best practices with
one another could result in the more efficient operation of the
school meal programs; potentially more nutritious meals; and, in some
cases, cost savings for the SFAs. 

However, recognizing that all best practices may not apply to all
states and SFAs equally, we believe that as part of its oversight
function and regulatory responsibilities, USDA should take the lead
in facilitating the sharing and replicating of best practices across
states and SFAs.  We believe that this approach could be particularly
useful for improving the operation of programs in which USDA has
identified weaknesses.  Furthermore, given USDA's limited resources
for providing training and technical assistance to the states and
SFAs, we believe that sharing best practices is a relatively low-cost
method of providing assistance on better program management
practices. 


   RECOMMENDATION TO THE SECRETARY
   OF AGRICULTURE
------------------------------------------------------------ Letter :7

To improve the management and operation of the school meal programs,
we recommend that the Secretary of Agriculture direct the
Administrator, Food and Consumer Service, to identify and encourage
the adoption of best practices and to provide the necessary training
and technical assistance to successfully transfer these practices to
other states and SFAs, where appropriate. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

We provided a draft of this report to FCS for its review and comment. 
FCS agreed that sharing best practices in the school meal programs is
an excellent means of improving program management at the state and
local levels.  FCS reiterated its continued commitment to promoting
the sharing of best practices among states and SFAs.  While FCS
agreed with the concept presented in the recommendation, it raised
some concerns about the feasibility of developing a program of this
type at the current time because of the agency's limited resources. 
FCS said that, within available resources, it will continue to share
and transfer information that will benefit the operation of the
school meal programs. 

We recognize that resource limitations may impede the establishment
of a nationwide program to promote the sharing and transfer of best
practices to states and SFAs, but we believe that FCS could explore a
number of other low-cost opportunities to do this.  For example, FCS
could establish an Internet site to describe in detail how some
states and SFAs manage and operate their school meal programs and how
these best practices could be applied in other states and SFAs. 
Other USDA agencies have established such Internet sites to share
information on best practices.  In addition, FCS could require its
regional management evaluation teams to identify best practices as
part of their oversight function and to report these practices
nationally.  These teams could also point out the availability of an
existing best practice during the course of their evaluations,
especially in those cases in which they determine that deficiencies
exist in program operations.  To provide training and technical
assistance, FCS does not need to establish a new national program. 
Instead, it could use its existing training and technical assistance
efforts, such as the National Food Service Management Institute and
its workshops held in conjunction with the American Commodity
Distribution Association and the American School Food Service
Association, to incorporate training on best practices. 

FCS also provided us with a number of technical comments that we
incorporated into the report as appropriate.  Appendix III contains
FCS' written response to our draft report. 

In addition, we received clarifying comments on a draft of this
report from AMS, DOD, Pennsylvania, and Texas officials responsible
for the matters discussed in this report.  These comments have also
been incorporated into the report as appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To identify best practices developed and implemented by states and
SFAs for managing and operating the school meal programs, we
interviewed USDA officials in headquarters (in the Agricultural
Marketing Service, Farm Service Agency, and Food and Consumer
Service); officials in four of FCS' seven regional offices; state and
local officials; and officials of the American Commodity Distribution
Association and American School Food Service Association.  We also
used information we had obtained during our past review of federally
donated meat and poultry for the school lunch program, in which
Pennsylvania's computerized commodity-ordering system for meat was
identified as a best practice.\10

To determine the feasibility of replicating best practices in other
states and SFAs, we evaluated two practices in detail to ascertain
whether other states and SFAs could benefit from adopting these
practices and to identify any impediments to their implementation. 
To obtain information on the benefits of and the requirements for
using Pennsylvania's computerized commodity-ordering system, we spoke
with Pennsylvania officials.  To determine the benefits of using this
system in other states, we spoke with AMS and FCS officials and with
state officials in California, Texas, and Washington.  We chose
California and Texas because they receive the largest amounts of
donated beef from USDA and also backhaul large quantities of
fine-ground beef.  We chose Washington State because while it
receives a smaller amount of beef from USDA, it also backhauls
relatively large quantities of beef.  To obtain information on the
benefits and operation of DOD's infrastructure for purchasing fresh
fruits and vegetables, we spoke to USDA officials and DOD officials
in Washington, D.C., Pennsylvania, and Texas.  We also interviewed
state and local officials in Texas, as well as visited three schools
participating in the pilot project and one school not participating
in the project in Texas.  To determine what impediments exist to
expanding this project to other states and SFAs, we spoke to
officials from USDA, DOD, Florida, Georgia, Maryland, and Texas. 

To determine what training and technical assistance USDA provides to
the states and SFAs for improving the management and operation of the
school meal programs, we obtained data from USDA and interviewed
officials at FCS' headquarters and the Mountain Plains and Southeast
regional offices.  We also visited and spoke with officials at the
National Food Service Management Institute in Mississippi.  To obtain
information on the training and technical assistance that USDA had
previously provided for similar programs, we reviewed information on
USDA's past best practices awards program.  To determine what
training and technical assistance states are providing to SFAs, we
interviewed state officials in Florida, Kansas, and Texas. 

We conducted our review from September 1996 through April 1997 in
accordance with generally accepted government auditing standards. 


--------------------
\10 Federally Donated Meat and Poultry:  Information on Extent and
Impact of States' Restrictions on Processors (GAO/RCED-96-220, Aug. 
29, 1996). 


---------------------------------------------------------- Letter :9.1

This report contains a recommendation to you.  As you know, the head
of a federal agency is required by 31 U.S.C.  720 to submit a written
statement of the actions taken on our recommendation to the Senate
Committee on Governmental Affairs and the House Committee on
Government Reform and Oversight not later than 60 days after the date
of this letter and to the House and Senate Committees on
Appropriations with the agency's first request for appropriations
made more than 60 days after the date of this letter. 

We are sending copies of this report to the congressional committees
with responsibility for appropriations and legislation affecting USDA
and to the Administrator of FCS.  We will also make copies available
to others on request. 

Please contact me at (202) 512-5138 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
IV. 

Sincerely yours,

Robert A.  Robinson
Director, Food and
 Agriculture Issues


PENNSYLVANIA'S COMPUTERIZED
COMMODITY-
ORDERING SYSTEM
=========================================================== Appendix I

This appendix discusses the objectives, operations and requirements,
and potential impediments of replicating the computerized
commodity-ordering system developed and implemented by Pennsylvania. 
During this review and our 1996 review of federally donated meat and
poultry,\1 this system was identified by officials as a best practice
for improving the ordering of commodities from the U.S.  Department
of Agriculture (USDA) and for reducing the backhauling of certain
commodities, such as beef.  During both reviews, we were told that if
more states used ordering systems like Pennsylvania's, they would be
able to place more accurate orders with USDA and could benefit from
more efficient operations, cost savings, and better-quality meat and
poultry products.  Consequently, we selected Pennsylvania's
commodity-ordering system as one of two best practices for detailed
review. 


--------------------
\1 Federally Donated Meat and Poultry:  Information on Extent and
Impact of States' Restrictions on Processors (GAO/RCED-96-220, Aug. 
29, 1996). 


   BACKGROUND
--------------------------------------------------------- Appendix I:1

With over 900 school food authorities (SFA), Pennsylvania is one of
the larger states participating in the school meal programs. 
According to a Pennsylvania official, participating SFAs represent
public and private, urban and rural, and large and small school
systems.  The commodity-distributing agency for the state is
responsible for consolidating each SFA's request for commodities into
a total request for the state and providing this total request to
USDA's Food and Consumer Service (FCS), which oversees the school
meal programs.  USDA delivers the commodity foods that the state is
to receive for the school meal programs, in the form requested by the
SFAs, to one of eight commercial warehouses that Pennsylvania uses
for storage.  From these warehouses, deliveries are made to the SFAs. 
Each warehouse serves the SFAs located within a specified area of the
state. 


   OBJECTIVES FOR IMPLEMENTING THE
   COMPUTERIZED COMMODITY-ORDERING
   SYSTEM
--------------------------------------------------------- Appendix I:2

The major objective of developing a computerized commodity-ordering
system, according to a Pennsylvania official, was to provide each SFA
within Pennsylvania with its fair share of federally donated
commodities.  The system was also expected to enable the state and
SFAs to more accurately determine the type of commodities needed for
the school meal programs, thereby reducing the amount of commodities,
especially of meat, that SFAs received from USDA and then backhauled
to processors for reformulation during the year. 


   SYSTEM OPERATION
--------------------------------------------------------- Appendix I:3

Before implementing the computerized commodity-ordering system,
according to an official with Pennsylvania's commodity-distributing
agency, the state used historical estimates to determine each SFA's
fair share of the commodities donated by USDA for the school meal
programs.  According to this official, in the past, the
commodity-distributing agency could not guarantee that every SFA in
the state would receive its fair share of all commodities.  With the
computerized commodity-ordering system, when FCS notifies the state
of an opportunity to receive commodity food donations and identifies
the amount of commodity food the state is to receive, Pennsylvania's
state commodity-distributing agency is now able to enter the
information into the computer system and calculate each SFA's fair
share of the commodity being offered by USDA.  The results of this
fair-share calculation are provided to the SFAs and to the network of
commercial food brokers and processors that sell products to the
SFAs.  These entities can then incorporate the commodities that will
be available into their school meal menu plans.  According to a
Pennsylvania official, a very important benefit of the system is that
even small SFAs that receive only a small quantity of a commodity,
such as one case of donated meat, can now participate in the program. 

To ensure that the state places the most accurate order possible to
USDA for commodities needed by the SFAs for the school meal programs,
most SFAs work with a network of commercial brokers and processors to
determine which products best satisfy their menu requirements.  The
commercial vendors offer the SFAs a variety of options for processing
USDA-donated commodities into products that can be used in the school
meal menus.  This is particularly important for meat products because
they often need further processing before they can be used.  For
example, donated beef could be processed into wafer steaks (used in
cheesesteak sandwiches), meatballs, and hamburger patties.  In
Pennsylvania, each SFA selects the product mix that best meets its
needs and provides a list of its selections to the
commodity-distributing agency.  The commodity-distributing agency
enters all 900 lists into the computerized system to determine (1)
the form or forms in which USDA should provide the state's allotment
of the donated commodity (e.g., 25 percent as fine-ground beef, 65
percent as coarse-ground beef, and 10 percent as hamburger patties)
and (2) the percentage of each SFA's fair share that should be
delivered to the SFA or the warehouse or sent directly to the
processor.  Pennsylvania provides this information to USDA, which
uses it to solicit procurement bids and deliver products to the SFAs,
warehouses, or processors.  Processors that receive commodities from
USDA deliver the kinds of product agreed upon with the SFAs to the
warehouse that serves those SFAs.  When the processed product arrives
at the warehouse, the SFAs are informed that the food is in storage
in their account. 


   BENEFITS OF USING THE
   COMPUTERIZED COMMODITY-ORDERING
   SYSTEM
--------------------------------------------------------- Appendix I:4

According to Pennsylvania officials, the computerized
commodity-ordering system provides the state and SFAs with a number
of benefits.  First, each of the over 900 SFAs in the state is sure
to receive its fair share of all USDA-donated food.  Second, by
requiring the SFAs to work with commercial vendors and accurately
estimate the quantity and type of commodities needed to fulfill their
menu requirements, the system minimizes the backhauling of
fine-ground beef, which degrades the quality of beef and increases
the SFAs' costs.  Third, the computerized ordering system allows
Pennsylvania and its SFAs to better control their inventory of
federally donated food so that commodities are not left in storage
for long periods of time.  Finally, Pennsylvania's system encourages
the ordering of more processed products by the SFAs, which ultimately
results in more efficient and economical meal preparation because the
processing is performed by commercial companies on a large scale in
central locations rather than by employees of the SFA as needed. 

Pennsylvania's ordering system particularly benefits the federal
government in purchasing high-value commodities like beef.  Because
Pennsylvania's method of ordering commodities encourages the use of
bulk coarse-ground beef in processed beef products--such as wafer
steaks and meatballs--the federal government buys more bulk
coarse-ground beef than fine-ground beef--which is better suited for
use in spaghetti, chili, and tacos--or hamburger patties.  Since
coarse-ground beef costs the federal government less per pound to
purchase than other beef products, the government can buy more meat
to stabilize domestic commodity markets at a lower cost.  AMS
officials told us that they encourage the states and SFAs to order
coarse-ground beef for processing, rather than fine-ground beef,
because of quality factors and cost savings to both the federal
government and to the SFAs.  These officials told us that bulk,
coarse-ground beef is less costly than fine-ground beef when
producing a processed product because processors need fewer resources
for processing, and these savings are reflected in reduced costs to
the SFAs.  Moreover, according to AMS officials, less processing
improves the quality and acceptability of the meat products provided
for the school meal programs.  Because bulk coarse-ground beef is
specifically intended for further processing, its processing results
in a finished product with better texture, appearance, and quality,
which is also more acceptable to schoolchildren. 


   COSTS SAVED BY USING THE
   COMPUTERIZED COMMODITY-ORDERING
   SYSTEM
--------------------------------------------------------- Appendix I:5

Since Pennsylvania implemented its computerized ordering system, the
amount of beef backhauled by SFAs in the state has declined.  When
the state implemented the system, in school year 1993-94, the amount
of fine-ground beef backhauled for reprocessing was about 152,000
pounds.  Four years later, Pennsylvania expects to have only about
8,000 pounds of fine-ground beef backhauled.  More importantly,
during this period, the amount of coarse-ground beef sent directly to
processors has grown from 756,000 pounds in school year 1993-94 to
1,932,000 pounds in school year 1996-97.  For school year 1995-96,
the state estimated that SFAs saved about $177,000 in backhauling
costs for beef through their use of the state's revised system of
ordering federally donated food.\2 State officials estimated $460,000
in cost savings during the 1995-96 school year because of the reduced
amount of meat (beef and pork) and poultry sent for backhauling. 

To compare the benefits of Pennsylvania's system with other states
that do not use a similar system, we obtained data from officials in
three states--California, Texas, and Washington--that receive
significant quantities of beef from USDA for the school meal
programs.  We found that the percentage of USDA-donated beef
backhauled in Pennsylvania was much lower than the percentage
backhauled in Texas and Washington.  Table I.1 shows the amount and
percent of donated beef backhauled by SFAs in Pennsylvania, Texas,
and Washington for school years 1993-94 through 1995-96. 



                               Table I.1
                
                Total Amount of Commodity Beef Received
                 and Backhauled by Pennsylvania, Texas,
                  and Washington, School Years 1993-94
                            Through 1995-96

                          (Amounts in pounds)

                                                            Percent of
                                 Commodity     Commodity     commodity
                                      beef          beef          beef
State                             received    backhauled    backhauled
----------------------------  ------------  ------------  ------------
Pennsylvania                    15,360,000       238,236           1.6
Texas                           38,365,600     2,656,171           6.9
Washington                       6,177,600       798,804          12.9
----------------------------------------------------------------------
Source:  GAO's analysis of FCS' and states' data. 

For California, state officials could provide us with data only on
the amount of beef that was backhauled for 2 school years, 1994-95
and 1995-96, and for beef that was stored in state-operated
warehouses at two locations.  California officials told us that for
these 2 school years, about 2.6 million pounds, or 11.9 percent of
the state's total commodity beef, was delivered to their
state-operated warehouses.  During these 2 years, SFAs using the
warehouses backhauled about 750,000 pounds of the fine-ground beef
they received from USDA. 


--------------------
\2 Pennsylvania's estimate of the cost savings reflects savings in
warehouse charges and backhauling charges.  It does not include
efficiency savings. 


   POTENTIAL IMPEDIMENTS TO
   REPLICATING THIS SYSTEM IN
   OTHER STATES
--------------------------------------------------------- Appendix I:6

Pennsylvania officials told us that their computerized
commodity-ordering system had certain requirements that needed to be
in place if the system were to be replicated successfully in other
states.  These requirements include (1) an established network of
commercial food brokers and processors that are willing to work with
the SFAs and the state's commodity-distributing agency to place
accurate initial orders for the donated foods offered by USDA; (2)
accurate information from the SFAs on their plans for using their
share of the donated commodities, including the percentage they want
delivered to the SFA, to the processor, or to the warehouse; and (3)
adequate computer support, including hardware and software. 
Pennsylvania officials stated that, if other states ask for
information about their system, they would share information on its
purpose, operation, and requirements and on the specifications for
the automatic data-processing equipment and software needed to
support the system.  For example, they told us that they had recently
provided information on their system to New Jersey state officials. 

Pennsylvania officials also told us that establishing the
requirements for operating the system took over a year.  For example,
it was initially difficult to convince commercial processors and food
brokers that it was in their best interest to work with the SFAs in
determining how best to provide the SFAs with processed products that
would meet the needs of the school meal programs.  Furthermore, it
was not easy to convince all the SFAs that they needed to improve the
accuracy of their ordering processes.  For example, one SFA resisted
because it believed that it would be required to give up autonomy and
flexibility in ordering, storing, and using donated commodities. 

We asked state officials in California, Texas, and Washington if they
would choose to replicate a system like Pennsylvania's.  While these
officials all acknowledged that SFAs in their states could order
commodities more cost-effectively, they cited the following obstacles
to implementing such a system: 

  According to a California official responsible for overseeing the
     distribution of commodity beef for the state, the greatest
     obstacle to adopting a system like Pennsylvania's would be
     convincing SFAs to give up the independence and flexibility they
     have under the current system.  SFAs like the flexibility of
     ordering and storing fine-ground beef and backhauling it for
     processing throughout the school year, as needed.  California
     officials stated that the complexity and size of the state and
     the number and diversity of the SFAs are also factors that
     affect the transferability of systems used by other states. 

  The Texas manager of the food distribution program acknowledged
     that using commercial vendors to work closely with the SFAs is
     the optimum way to increase direct processing of raw
     commodities.  However, he believes that commercial brokers in
     Texas would be unwilling to spend the time to work with SFAs in
     this manner.  Without the cooperation of the commercial vendors,
     the Pennsylvania system could not be replicated in Texas. 

  The director of Washington's food distribution program said that
     although the state's current manual system could be upgraded to
     a computerized system like Pennsylvania's, he was not sure that
     the cost could be justified.  He also said that SFAs in
     Washington would prefer to maintain their flexibility over the
     use of USDA-donated beef, including backhauling. 

We recognize that there are impediments to implementing a
computerized commodity- ordering system like Pennsylvania's. 
However, these impediments are similar to those that Pennsylvania
encountered and overcame in setting up its system and should not
prevent other states from exploring the possibility of using, and, if
necessary, modifying Pennsylvania's computerized commodity-ordering
system to suit their own circumstances. 


TEXAS' USE OF THE DEPARTMENT OF
DEFENSE'S INFRASTRUCTURE TO
PURCHASE FRESH PRODUCE
========================================================== Appendix II

This appendix discusses USDA's pilot project for purchasing fresh
fruits and vegetables using the Department of Defense's (DOD)
infrastructure and the reasons Texas chose to participate in the
project; explains how the project works; and identifies the
impediments that other states and SFAs could encounter in attempting
to participate in this project.  The pilot project was identified by
USDA and state officials as a best practice for improving the
nutritional content and availability of fresh produce in the school
meal programs.  Although this project is currently operating in 32
states, we examined its operation in detail in Texas.  We chose Texas
for our review because it was one of the eight states that chose to
participate in the project when it was first implemented in 1994.\1


--------------------
\1 The other states were Colorado, Florida, Maryland, New Hampshire,
South Carolina, South Dakota, and Wyoming. 


   BACKGROUND
-------------------------------------------------------- Appendix II:1

In recent years, FCS has emphasized the importance of improving
schoolchildren's access to high-quality fresh fruits and vegetables
to fulfill the nutritional standards for the school meal programs. 
Most schools receive canned fruits and vegetables purchased by the
Agricultural Marketing Service (AMS) for the school meal programs. 
On occasion, AMS purchases fresh produce if it is in surplus and
fulfills the agency's market stabilization objectives.  However,
because these purchases are usually sporadic and cannot fulfill all
the SFAs' needs for fresh fruits and vegetables for the programs,
SFAs use their cash reimbursement funds to purchase these products
themselves.\2


--------------------
\2 The federal government will provide cash reimbursements to SFAs in
school year 1996-97 of about $1.02 for each free breakfast, $0.72 for
each reduced-price breakfast, and $0.20 for each full-price
breakfast; and of about $1.84 for each free lunch, $1.44 for each
reduced-price lunch, and $0.18 for each full-price lunch. 


   OBJECTIVES AND OPERATION OF THE
   PILOT PROJECT
-------------------------------------------------------- Appendix II:2

To improve SFAs' access to high-quality fresh fruits and vegetables,
FCS began a pilot project in 1994 to supply fresh produce to the
schools using DOD's nationwide commodity-purchasing infrastructure. 
DOD was chosen for the pilot project because of its proven ability to
provide high-quality fresh fruits and vegetables at competitive
prices with on-time deliveries to its customers.\3 During the first
year of the pilot program, DOD provided about $3 million in fresh
produce to schools in eight states, including Texas.  By the
beginning of the 1996-97 school year, the pilot project had been
expanded to schools in 32 states, and $20 million in commodity funds
were set aside for purchases through DOD's purchasing
infrastructure.\4 Each participating state is allocated a portion of
the $20 million cap on the basis of the number of reimbursable meals
served in the state--Texas' share for school year 1996-97 is $2
million. 

Although participating states and SFAs have some discretion in
implementing the pilot project, the project operates in Texas much as
it does in other participating states.  To participate in the pilot
project in Texas, SFAs must enter into an agreement with the Texas
Department of Human Services--the agency responsible for distributing
USDA commodities--to follow specific operating procedures.  The state
agency determines which SFAs will be allowed to participate in the
pilot project and determines the amount of commodity funds each
participating SFA will be authorized to spend on the project.  This
amount is based on the number of meals the SFAs serve under the
National School Lunch Program and the total amount that FCS has
allocated to the state for use on this project.  The list of SFAs
authorized to participate in the project and the dollar amount each
is authorized to spend is provided by the state agency to DOD. 

DOD provides each SFA authorized to participate in the pilot project
with a list of available produce from which the SFA can order the
fresh fruits and vegetables it needs for school meals.  According to
a Texas official, orders may be placed by telephone, fax, or DOD's
automated telephone ordering system (known as TAP-IT).\5 The SFA also
provides information to DOD on the frequency of deliveries--such as
weekly or biweekly-- and the number of delivery stops, which may
include more than one school location and/or the SFA storage
facility. 

According to DOD officials, the produce that DOD provides to SFAs is
purchased through commercial produce vendors or is delivered directly
from DOD's distribution points --which DOD uses to consolidate
purchases from wholesale produce markets.  The fresh produce is
delivered by commercial vendors who are under contract with DOD.  DOD
provides an invoice to each school or SFA at the time of delivery and
deducts the total amount purchased by the SFA from its allocation. 
DOD notifies an SFA when it has spent 90 percent of its allocation
and will not accept an order that would cause the SFA to exceed its
spending limit. 


--------------------
\3 The Defense Subsistence Office within the Defense Personnel
Support Center of the Defense Logistics Agency purchases fresh
produce for DOD's military bases and commissaries, federal prisons,
and veterans hospitals. 

\4 According to an FCS official, of the $620 million available for
commodity purchases in school year 1996-97, FCS allocated
approximately $470 million for commodities to be purchased through
AMS such as meat, fish, and fresh, frozen, and canned fruits and
vegetables, of which $20 million has been set aside for the pilot
project with DOD; and $150 million for commodities to be purchased
through the Farm Service Agency, such as grain, peanuts, oil, and
dairy products. 

\5 Telephonic Automated Produce Information Technology (TAP-IT)
enables SFAs to place orders 24 hours a day, 7 days a week.  SFAs can
call in their orders by entering, among other things, a toll-free
telephone number, the identification number, and the quantity of the
desired items. 


   BENEFITS OF PARTICIPATING IN
   THE PILOT PROJECT
-------------------------------------------------------- Appendix II:3

Over the 3 years of its operation in Texas and nationwide, the pilot
project has enabled a growing number of SFAs to take advantage of
DOD's ability to provide fresh produce in a timely manner.  For
example, in Texas, with over 1,100 SFAs, the number of participating
SFAs has increased from 85 to more than 200.\6 The amount spent on
fresh fruits and vegetables purchased by Texas SFAs through DOD has
grown from $340,000 in school year 1994-95 to a projected $2 million
for school year 1996-97.  Texas officials reported two reasons why
SFAs' prefer to use DOD instead of other vendors:  (1) a wider
variety of high-quality fruits and vegetables at comparable prices
and (2) advantages in customer service, such as more efficient
ordering procedures and more convenient delivery.  FCS officials told
us that SFAs in other participating states have reported similar
reasons for satisfaction with DOD's service. 

Moreover, a recent study conducted in Colorado\7 --a state that also
participates in the project--found that, during school year 1994-95,
students at schools that were in the pilot project (1) were likely to
eat more fresh fruits and vegetables and wasted less than those who
were not and (2) ate more than four times the amount of fruits and
vegetables as children in schools that were not participating. 
However, the study did not address the extent to which other factors,
such as the SFA's demographics or the quantity of other foods served
during the meal, may have affected the observed differences.  Thus,
it is unknown to what extent, if any, factors other than the fresh
fruit and vegetables may have played in the observed differences. 


--------------------
\6 A Texas official stated that, in addition to the 200 SFAs already
participating in Texas, another 181 SFAs were offered the opportunity
to participate during the second half of school year 1996-97.  These
SFAs are in Austin and San Antonio and the surrounding areas. 

\7 J.  Anderson, and L.  Ryan, Evaluating the Fresh Fruit and
Vegetable Pilot Project in Colorado-Final Report.  Department of Food
Science and Human Nutrition of Colorado State University, (Fort
Collins, Colorado:  1996). 


   IMPEDIMENTS TO EXPANDING THE
   PILOT PROJECT
-------------------------------------------------------- Appendix II:4

Federal restrictions on the amount of commodity funds that can be
used to purchase fresh produce through DOD is the most significant
impediment to expanding the pilot project to all 50 states and all
SFAs within each state.  FCS has capped this amount at $20 million
for school year 1996-97.  Each of the 32 participating states is
allocated a portion of this cap on the basis of the number of
reimbursable meals served in the state.  As a result, states are
unable to allow all SFAs within their state to participate in the
project.  For example, Texas officials told us that because their
portion of the national cap--$2 million--is not enough to allow all
SFAs in the state to participate in the project, they have had to
restrict participation to selected SFAs in the state.  Moreover, an
SFA official in Texas told us that even if his SFA is allowed to
participate in the project, the amount of commodity funds allocated
to it out of the state cap is often not enough to allow his SFA to
make all of its fresh produce purchases for the entire school year
through DOD.  Consequently, some SFAs are choosing to purchase only a
limited number of items through DOD and are supplementing these
purchases with purchases of fresh produce through other vendors. 
Other state officials said that more SFAs would participate in the
project if more funds were available to them. 

To overcome the limitations on expanding the pilot project that
result from the cap placed on the use of commodity funds, starting in
school year 1995-96, FCS allowed the states to use their cash
reimbursement funds as well as their commodity funds to purchase
produce through DOD.  In January 1997, Texas became the eighth\8
state allowed by FCS to permit SFAs to use their cash reimbursement
funds to purchase fresh produce from DOD during the 1996-97 school
year.  DOD officials expect that SFAs in the states authorized to use
cash reimbursements for the pilot project will spend about $5 million
in cash reimbursement funds in addition to their allotted commodity
funds during the 1996-97 school year. 

In addition, because Texas officials have a goal of providing each
SFA in the state with the opportunity to participate in the pilot
project by school year 1997-98, they have decided to phase in the
participation of SFAs in groups, by geographic area, over several
years.  Each new group of SFAs will be allowed to use commodity funds
for the project.  For example, SFAs in the Dallas-Fort Worth area
were given the first opportunity to participate during the 1994-95
school year; in school year 1995-96, the opportunity was extended to
additional SFAs in central and western Texas; and during the 1996-97
school year, eligibility was expanded to SFAs in the Austin and San
Antonio metropolitan areas. 

However, according to Texas officials, under the Texas expansion
plan, not all participating SFAs have been allocated enough commodity
funds to purchase fresh produce for the entire school year through
DOD.  SFAs that participated in the project in a prior year are
authorized to supplement their commodity funds with cash
reimbursement funds.  For example, SFAs from the Dallas-Fort Worth
area that participated in the project last year are required to use
their cash reimbursement funds after their commodity funds for the
project are depleted if they want to continue to purchase fresh
produce through DOD for the rest of the school year.  But SFAs new to
the project this year were authorized to use only their commodity
funds for the project starting in February 1997.  For example, SFAs
in the Austin and San Antonio areas were allocated enough commodity
funds to use for the pilot project from February through June 1997. 
According to state officials, this strategy will allow newly eligible
SFAs to purchase through the DOD project by using their commodity
funds rather than cash reimbursements.  Furthermore, gradually
phasing in participation of additional SFAs will not overburden the
state and DOD resources available for implementing the project
statewide.  While Texas' plan may not be suitable to all states
participating in the pilot project, it does provide one approach to
expanding participation to all SFAs within a state. 



(See figure in printed edition.)Appendix III

--------------------
\8 The other seven states that used cash reimbursement funds are
California, Colorado, Hawaii, Nevada, South Dakota, West Virginia,
and Wyoming.  According to FCS officials, West Virginia is planning
to rely entirely on cash reimbursement funds to purchase from the
project in school year 1996-97. 


COMMENTS FROM THE FOOD AND
CONSUMER SERVICE
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



   GAO COMMENTS
-------------------------------------------------------- Appendix II:5

1.  We have included FCS' concern regarding the universal
applicability of Pennsylvania's computerized commodity-ordering
system.  While we agree that the use of a commodity- ordering system
like Pennsylvania's does not relieve SFAs from the $10,000 threshold
requiring the use of the competitive bid process, we do not agree
that this requirement should prevent states from developing and
implementing more accurate and efficient commodity-ordering systems. 
We also do not agree with FCS' statement that a computerized
commodity-ordering system can only be used in states that have very
small SFAs.  We found that a large number of SFAs in Pennsylvania,
such as the ones in Philadelphia and Allegheny County, continue to
order commodities through the state's computerized commodity-ordering
system as well as comply with the competitive bidding requirement. 

2.  We have included a summary of various FCS initiatives to provide
training and technical assistance. 

3.  We have included a summary of FCS' regional office management
evaluations of state operations. 

4.  Regarding FCS' response to our recommendation, while we recognize
that resource limitations may impede the establishment of a
nationwide program to promote the sharing and transfer of best
practices to states and SFAs, we believe that there are a number of
other low-cost opportunities to do this.  For example, FCS could
establish an Internet site to describe in detail how some states and
SFAs manage and operate their school meal programs and how these best
practices could be applied in other states and SFAs.  Other USDA
agencies have established such Internet sites to share information
and best practices.  In addition, FCS could require its regional
management evaluation teams to identify best practices as part of
their oversight function, especially in those cases in which they
determine that deficiencies exist in program operations.  With regard
to providing training and technical assistance, FCS does not need to
establish a new national program.  Instead, it could use its existing
training and technical assistance efforts, such as the National Food
Service Management Institute and its workshops held in conjunction
with the American Commodity Distribution Association and the American
School Food Service Association, to incorporate training on best
practices. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

Anu K.  Mittal, Assistant Director
Kathy R.  Alexander
Daniel F.  Alspaugh
John M.  Nicholson, Jr. 


*** End of document. ***