Child and Adult Care Food Program - Less-Than-Arms-Length Transactions - Budget Procedures

Oct 10, 2026

Budget Procedures for the Child and Adult Care Food Program define less-than-arms-length transactions and require full disclosure of all related-party relationships to the Illinois State Board of Education. The document explains how to scrutinize costs and potentially limit allowable expenses. It provides specific rules for rental costs, including space and time considerations, and an annual rental calculation method. For other sponsorship-related costs, it requires procurement guidance, supporting documentation, submitted budget-cost calculations, and notes consequences for failure to identify or disclose required information.

LanguageEnglish

CategoryHealthcare

FormatPDF

Pages2

Reading Time5 min

AccessFree to download

Less-Than-Arms-Length Transactions Overview

Definition and Disclosure Requirements

Rental Costs for Less-Than-Arms-Length Transactions

Annual Rental Amount Calculation

Other Than Rental Costs for Less-Than-Arms-Length Transactions

Consequences of Failure to Disclose

Illinois State Board of Education Nutrition Programs Division Budget Procedures Child and Adult Care Food Program Day Care Home Sponsoring Organization Less-Than-Arms-Length Transactions The definition of a less-than-arms-length transaction is one under which one party to the transaction is able to control or substantially influence the actions of the other(s) . Such transactions include, but are not limited to, those between divisions of an organization; organizations under common control through common officers, directors, or members; and an organization and a director, trustee, officer, key employee of the institution or immediate family members, either directly or through corporations, trusts, or similar arrangements in which a controlling interest is held. (FNS Instruction 796-2 , Revision 3 Exhibit A Glossary T) All less-than-arms-length relationships involving the CACFP must be disclosed to ISBE. All costs for less-than-arms-length transactions require scrutiny and the allowable cost to the CACFP may be limited. Less-Than-Arms-Length Transactions for Rental Costs When the space or equipment rented by the CACFP is owned by a party related to the sponsoring organization, specific rules limiting the amount of costs allowed to be charged to the CACFP must be followed. When the space is part of a residence, the square feet of space occupied by the CACFP and the amount of time used for the CACFP must be considered. The FNS Instruction 796-2, Revision 3 (VIII I 36 d) states: ”Costs under-lessthan-arms-length arrangements, no matter how represented, may not exceed the amount that would be allowed had the item been owned by the institution. All transactions between related parties are less-than-arms-length.” The calculation for the annual rental amount for less-than-arms-length arrangements follows: Property acquisition cost minus value of land X Sq ft of CACFP 30 years Total sq ft If this area also has personal use, the amount would then be further prorated by the amount of time used for the CACFP. The calculation would be as follows: Value from above calculation X ~~ ~~HouTrso~~t~~aol~~ ~~fhoo~~p~~uerrsionvailfora~~b~~lhfe~~ ~~CACor~~ ~~useFP Less-Than-Arms-Length Transaction for Other Than Rental Costs When a less-than-arms-length relationship exists for the sponsorship for other costs, the required guidance for procurement must be fully supported to establish that the costs presented were obtained in good faith and at reasonable rates for the services or product offered. All lessthan-arms-length transactions require disclosure to ISBE when presented as a budget cost of the CACFP. Calculations of submitted budget costs must be included. Regulation FNS Instruction 796-2, Revision 3 VIII (B) states: The failure of the institution to identify related party transactions, less-thanarmed-length transactions, ownership interests in equipment, supplies, vehicles and facilities, or disclose any other information to the State agency that inhibits the State agency’s ability to make informed assessment of the allowability of a particular cost will result in the disallowance of the cost and may subject the institution, its principals, employees, consultants, or others to the administrative and legal remedies available to the State agency and FNS.

FAQs

What qualifies as a less-than-arms-length transaction in CACFP guidance?

It is a transaction where one party can control or substantially influence the actions of the other(s), including relationships among divisions, common-control organizations, and related individuals or entities holding a controlling interest.

What must institutions do regarding less-than-arms-length relationships?

All less-than-arms-length relationships involving the CACFP must be disclosed to ISBE. Costs for such transactions require scrutiny and may be limited.

How are less-than-arms-length annual rental amounts calculated for CACFP?

Use property acquisition cost minus value of land, multiplied by the square feet occupied by the CACFP, divided by 30 years total square feet. If there is personal use, further prorate by the time used for the CACFP.

What happens if an institution fails to identify or disclose related-party and less-than-arms-length transactions?

The cost will be disallowed and the institution and responsible parties may face administrative and legal remedies available to the State agency and FNS.

Oct 10, 2026

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