Administrative cost reimbursements to sponsoring organizations are currently limited by a four-part formula. As stated in Title 7 of the Code of Federal Regulations, Part 226.12, "Payments to a sponsoring organization may not exceed the lesser of (1) actual expenditures for the costs of administering the Program less income to the Program, or (2) the amount of administrative costs approved by the State agency in the sponsoring organization's budget, or (3) the sum of the products obtained by multiplying each month the sponsoring organization's (i) Initial 50 day care homes by 78 dollars; (ii) Next 150 day care homes by 59 dollars; (iii) Next 800 day care homes by 46 dollars; and (iv) Additional day care homes by 41 dollars." (The dollar amounts are for the July 1, 1999, through June 30, 2000, program year.) Part 226.12 further limits administrative payments: "During any fiscal year, administrative payments to a sponsoring organization may not exceed 30 percent of the total amount of administrative payments and food service payments for day care home operations."

The current administrative cost reimbursement system was instituted in the early 1980's. Recently, USDA's Office of Inspector General has questioned the system of reimbursing sponsors on a per home rate, the General Accounting Office has found that State offices most often question sponsors' budgets because of lack of clarity or excessive amounts, and the two-tier food reimbursement system has reduced the amount of food service payments flowing through most sponsoring organizations.

This study is needed to provide current information on: (1) the resources required for sponsors to appropriately fulfill the administrative duties of the CACFP, (2) sponsors' current reimbursements for administrative costs and how they vary by sponsor characteristics, (3) the feasibility of setting benchmarks for reasonable sponsor administrative costs, and (4) alternative cost accounting and reimbursement systems.