warehousemen, carriers, or other persons to whom commodities are delivered under their distribution program. Agreements with subdistributing agencies and recipient agencies shall be in writing, except in those instances where subdistributing agencies are acting as agents for the distributing agencies. All agreements shall contain such terms and conditions as the distributing agency deems necessary to insure that (1) the distribution and use of commodities is in accordance with this part, and (2) subdistributing agencies, recipient agencies, warehousemen, carriers, or other persons to whom commodities are delivered, are responsible to the distributing agency for any improper distribution or use of commodities, and for any loss of or damage to commodities caused by their fault or negligence. To the extent that bills of lading and warehouse receipts afford adequate protection, the distributing agency may consider such documents as appropriate agreements.

(c) Use of subdistributing agencies. If distributing agencies use subdistributing agencies to effect or assist in affecting distribution of commodities, the distributing agencies' responsibilities to the Department for overall management and control of the distribution program shall not be delegated to such subdistributing agencies.

(d) Institutional distribution. Distributing agencies shall submit for prior approval of the Food Distribution Division, AMS, the method or methods by which the distributing agencies will determine the number of needy persons in institutions. The methods so approved shall include, but are not limited to, those which identify the persons, or the number thereof, who do not pay the full charge assessed for the services provided to them or who are unable to pay the full cost of providing such services.

(e) Welfare distribution. Distributing agencies, prior to making distribution to welfare agencies or households, shall submit a plan of operation for approval by the appropriate area office of the Food Distribution Division, AMS. Such a plan shall incorporate the procedures and methods to be used in certifying households as in need of food assistance and in making distribution of commodities to them. No amendments to such plan shall be made without prior approval of the area office, Food Distribution Division, AMS. Distributing agen

cies shall require welfare agencies making distribution to households to conduct distribution programs in accordance with all provisions of the plan of operation. As a minimum, the plan shall include the following:

(1) The categories of households, one or both of the following, to which distribution will be made:

(i) Public assistance households. Those households in which all members are receiving benefits under the Federally-aided public assistance programs authorized in the Social Security Act or under State or local welfare programs; or those households in which some of the members receive such benefits, but all members thereof are included in the determination to grant such benefits.

(ii) Non-public assistance households. Those households in which none of the members receive benefits as described in subdivision (i) of this subparagraph, or in which some of the members receive such benefits but all of the members are not included in the determination to grant such benefits.

(2) The name of the public welfare agency or agencies which will be responsible for certification of households.

(3) The manner in which commodities will be distributed, including, but not limited to, the identity of the agency or agencies that will distribute commodities, the storage and distribution facilities to be used and the method of financing.

(4) Assurance that Tribal Councils serving Indian households on reservations have been designated by the Bureau of Indian Affairs to so act.

(5) The specific criteria to be used in certifying households as in need of food assistance. If the standards used in the state's own welfare program are not to be used as these criteria, any other, or additional, criteria to be used must bear a direct relation to such standards.

(6) The method or methods that will be used to verify the information upon which the certification of eligibility is based, including the kinds of documentary evidence that applicants are required to furnish in connection therewith.

(7) Provisions for periodically reviewing the certification of households to discover any change in their status which would necessitate a change in the determinations of eligibility. Such provisions shall be in accord with the following:

each

(8) Provision for identifying person who has been designated to receive commodities for a household.

(9) Assurances that welfare grants or similar aid shall not be reduced because of the receipt of commodities.

(10) Assurances that the distribution of commodities shall not be used as a means for furthering the political interest of any individual or party, and that there shall be no discrimination in the distribution of commodities because of race, creed or color.

(11) Assurances that recipients shall not be required to make any payments in money, materials or services, for or in connection with the receipt of commodities, and that they shall not be solicited in connection with the receipt of commodities for voluntary cash contributions for any purpose.

(12) The manner in which the distributing agency plans to supervise the program.

(13) Definitions of any terms used which cannot be determined by reference to Webster's New International Dictionary (second edition).

(f) Quantities requested. Commodities shall be requested and distributed only in quantities which can be consumed without waste. Distributing agencies shall impose similar restrictions on recipient agencies.

(g) Distribution. Commodities shall be distributed only to recipient agencies and recipients eligible to receive them under this part (see §§ 503.8 and 503.9). Distributing agencies shall require that welfare agencies and disaster organizations distribute commodities only to recipients eligible to receive them under

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this part. It is the responsibility of distributing agencies to limit distribution of section 6 commodities to those schools participating in the National School Lunch Program, on the basis of the average daily number of Type A lunches served, as evidenced by information provided by September of each year and supplemented subsequently by the school lunch agencies or the appropriate Area Office, Food Distribution Division, AMS.

Whenever a dis

(h) Redonations. tributing agency has any commodity on hand which it cannot efficiently utilize, it shall immediately request the appropriate Area Office, Food Distribution Division, AMS, for instructions as to the disposition of such commodity. Distributing agencies requesting authority to make redonation of any commodity to the Department shall, upon the Department's request, have such commodity Federally-inspected at the distributing agencies' expense. Any commodity which the Department determines is acceptable for redonation shall be moved at the distributing agency's expense to the closest point, within the Food Distribution Division area in which the State is located, where it can be utilized, or to a closer point outside the area, if such a transfer is mutually agreed to by the Department and the distributing agency. In those instances in which the distributing agency satisfactorily demonstrates to the Department that the need for any redonation resulted from no fault or negligence on its part, the Department shall assume such transportation costs as it determines to be proper. Whenever a redonation is made at the request of the Department, the Department shall pay all transportation and handling costs in connection with such redonation and shall pay to the distributing agency all storage and handling costs accrued on the commodity at the time of redonation, as determined by the Department.

(i) Distribution charges. Recipient agencies may be required to pay part or all of the within-State costs of distribution through a system of charges assessed by distributing or subdistributing agencies. Any system of assessments operated by the distributing agency shall have the prior approval of, and be subject to review by the Area Office, Food Distribution Division, AMS. Any such system operated by subdistributing agencies shall have the prior approval of the distributing agency and be subject

to review by the distributing agency and the Area Office, Food Distribution Division, AMS. The charges assessed shall be reasonable in relation to the services provided and the funds collected shall be used solely in accordance with the provisions of paragraph (j) of this section. Under no circumstances shall recipients be required to make any payments in money, materials, or services for or in connection with the receipt of commodities, nor shall they be solicited in connection with the receipt of commodities for voluntary contributions for any purpose.

(j) Use of funds accruing in operation of the program. Funds accruing from the sale of containers, salvage of commodities, distribution charges, insurance, or recoveries from loss or damage claims (which are authorized under paragraph (1) of this section to be expended for program purposes) shall be used only for the payment of expenses of the commodity distribution program, including transportations, storage and handling of commodities, salaries of persons directly connected with the program, and other administrative expenses. The receipt and expenditure of funds so accrued shall be reviewed by distributing agencies periodically, but at least once each fiscal year, to determine that fund balances are not in excess of program needs. If excess funds accumulate by reason of collection of distribution charges, such excess funds shall be used to reduce such charges or shall be returned to contributors. If excess funds accrue from the sale of containers, salvage of commodities, insurance, or recoveries from loss or damage of claims, such funds shall be (1) used to reduce distribution charges, (2) used to purchase additional foods, or (3) paid to the Department. The distributing agency shall impose upon subdistributing agencies and recipient agencies similar provisions for the use of such funds accruing in the operation of their programs.

(k) Normal food expenditures. Commodities shall not be distributed to any recipient agencies or recipients whose normal food expenditures are reduced because of the receipt of commodities, except that this provision shall not apply to the distribution of section 6 commodities.

(1) Improper distribution or loss of or damage to commodities. If a distributing agency improperly distributes or uses any commodity, or causes loss of or

a

damage to a commodity through its failure to provide proper storage, care, or handling, the distributing agency shall, at the Department's option, (1) replace the commodity in its distribution program in kind, or, in the case of section 6 commodities, where replacement in kind may not be practicable, with other similar foods, or (2) pay to the Department the value of the commodity as determined by the Department. Upon the happening of any event creating a claim in favor of a distributing agency against subdistributing agency, recipient agency, warehouseman, carrier, or other person, for the improper distribution or use or loss of, or damage to, a commodity, the distributing agency shall take all action necessary to obtain restitution. Subdistributing agencies and recipient agencies shall be required to take similar action in connection with claims arising in their favor. All amounts collected by such action shall, at the Department's option, be used in accordance with the provisions of subparagraph (1) or (2) of this paragraph, or, except for amounts collected on claims involving section 6 commodities, shall be expended for program purposes in accordance with the provisions of paragraph (j) of this section. Determinations by a distributing agency that a claim has or has not arisen in favor of the distributing agency against a subdistributing agency, recipient agency, warehouseman, carrier or other person, shall, at the option of the Department, be approved by the Department prior to the distributing agency's taking action thereon. Where prior approval has not been given by the Department, a distributing agency's determinations shall be subject to review by the Department. Distributing agencies which fail to pursue claims arising in their favor, or fail to provide for the right to assert such claims, or fail to require their subdistributing agencies and recipient agencies to provide for such rights, shall be responsible to the Department for replacing the commodity or paying the value thereof in accordance with the provisions of subparagraphs (1) or (2) of this paragraph. However, distributing agencies shall not be held liable for any failure to pursue claims if the Department determines that they acted in good faith and that there was no fraud, gross negligence or continued inefficiency on their part. The Department may, at its option, require assignment to it of any claim aris

ing from the distribution of commodities. (m) Processing and labeling of commodities. Distributing agencies, subdistributing agencies, or recipient agencies may employ commercial or institutional facilities to process commodities by converting them into different end-products or by repackaging them. When this is done, distributing agencies shall, and subdistributing agencies and recipient agencies shall be required to, enter into written agreements with such processing facilities. These agreements shall provide, as a minimum, that the processing facility shall (1) fully account for the commodities delivered into its possession by production of an appropriate number of units of end-product or packages, (2) be liable for the return of all commodities not so accounted for or for the value thereof, (3) use or dispose of the containers in which the commodities are received in accordance with the instructions of the distributing agency, subdistributing agency, or recipient agency, and (4) maintain records and submit reports to the distributing agency, subdistributing agency, or recipient agency pertaining to the performance of the contract. When commercial or institutional facilities are employed to process commodities, the end-product, if placed in containers, or the repackaged commodity, shall be plainly labeled "Contains Commodities Donated by the United States Department of Agriculture-Not To Be Sold or Exchanged" or "Donated by the United States Department of Agriculture-Not To Be Sold or Exchanged", whichever is appropriate. When distributing agencies, subdistributing agencies, or recipient agencies use their own facilities to process commodities, the containers shall be plainly labeled as provided above to the extent practicable and within the limitations of available funds and personnel.

(n) Containers. When containers in which commodities are received are disposed of by sale, the proceeds of such sale shall be used solely in accordance with the provisions of paragraph (j) of this section, and subdistributing agencies and recipient agencies shall be required to use proceeds from the sale of containers solely for program purposes.

(0) Personnel. Adequate personnel, including supervisory personnel, to review distribution programs, shall be provided to effect distribution in accordance with the requirements of this part.

(p) Facilities. Facilities for the handling, storage, and distribution of commodities shall be such as to properly safeguard against theft, spoilage, and other loss. Subdistributing agencies and recipient agencies shall be required to provide similar facilities.

(q) Records. Accurate and complete records shall be maintained with respect to the receipt, disposal and inventory of commodities, including the determination made as to liability for any improper distribution or use, or loss of, or damage to, commodities, and the results obtained from the pursuit of claims arising in favor of the distributing agency. Accurate and complete records shall also be maintained with respect to the receipt and disbursement of funds arising from operation of the distribution program. Subdistributing agencies and welfare agencies shall be required to maintain accurate and complete records with respect to the receipt, disposal and inventory of commodities and with respect to the receipt and disbursement of funds arising from operation of the distribution program. Schools and institutions shall be required to maintain records of commodities received. All records required by this section shall be retained for a period of three years from the close of the Federal fiscal year to which they pertain.

(r) Reports. Distributing agencies shall submit monthly reports to the Area Offices, Food Distribution Division, AMS, covering the receipt and distribution of commodities, an annual inventory report in such form as the Department may prescribe, and such other reports covering distribution operations in such form as may be required from time to time by the Department.

(s) Right of inspection and audit. Representatives of the Department may inspect commodities in storage or the facilities used in the handling or storage of such commodities, and may inspect and audit all records, including financial records, and reports pertaining to the distribution of commodities and may review or audit the procedures and methods used in carrying out the requirements of this part at any reasonable time. Subdistributing agencies and recipient agencies shall be required to permit similar inspection and audit by the Department.

(t) Complaints. Distributing agencies shall investigate promptly complaints received in connection with the

distribution or use of commodities, correct any irregularities disclosed, and promptly report each instance of serious irregularity to the Department. Distributing agencies shall maintain on file evidence of such investigations and actions. The Department reserves the right to make investigations and shall have the final determination as to when a complaint has been properly adjusted.

(u) Demurrage. Demurrage or other charges which accrue after a car or truck has been placed for unloading by the delivering carrier, or which accrue because placement of a car or truck is prevented, shall be borne by the distributing agency, except that demurrage or other charges shall be borne by the Department where such charges accrue because of actions by the Department and without the fault or negligence of the distributing agency. § 503.7 Disposition of damaged or outof-condition commodities.

Commodities which are found to be damaged or out-of-condition and are declared unfit for human consumption by Federal, State, or local health officials, or by other inspection services or persons deemed competent by the Department, shall be disposed of in accordance with instructions of the Department. Such instructions may direct that unfit commodities be (a) sold in a manner prescribed by the Department with the net proceeds thereof remitted to the Department, (b) sold in a manner prescribed by the Department with the proceeds thereof retained for use in accordance with the provisions of § 503.6 (j), (c) used in such a manner as will serve a useful purpose as determined by the Department, or (d) destroyed in accordance with applicable sanitation laws and regulations. Dispositions under the provisions of paragraph (b) of this section shall not apply to section 6 commodities. Upon a finding by the Department that commodities were unfit for human consumption at the time of delivery to the distributing agency and when the Department or appropriate health officials require that such commodites be destroyed, the Department may pay to the distributing agency any expenses incurred in connection with such commodities as determined by the Department. The Department may in any event repossess a damaged or out-of-condition commodity.

§ 503.8 Eligible recipient agencies.

(a) Schools. Schools operating lunch programs under the National School Lunch Act are eligible to receive commodities under section 416, section 32, and section 6. Other schools which operate non-profit lunch programs are eligible to receive commodities under section 416 and section 32. Schools receiving commodities under section 416 and section 32 in accordance with this part shall also be eligible to receive such foods for use in training students in home economics, including college students if the same facilities and instructors are used for training both high school and college students in home economics courses. Schools receiving such commodities shall not discriminate against any child receiving lunches because of his inability to pay the full price of the lunches or because of his race, creed, or color.

(b) Institutions. (1) Institutions which maintain an established feeding operation on a regular basis as an integral part of their normal activities are eligible to receive commodities under section 416 and section 32 to the extent of the needy persons served by them, as determined by the method or methods approved by the Department in accordance with § 503.6(d). Institutions receiving such commodities shall not discriminate against any person receiving food because of his race, creed or color. (2) Private institutions, other than hospitals, must be established for the purpose of providing continuing services in the same place without marked change and, at the Department's option, approved by a public welfare agency as meeting a definite need in the community by administering to needy persons.

(3) Institutions which desire to receive commodities under this part may employ food service companies to conduct their feeding operations, provided that such services are contracted for only on a fee-for-service basis and the contracts are approved by the Area Office, Food Distribution Division, AMS. The contracts shall expressly provide that:

(i) Where the food service company also purchases food as a part of its services, the amount due by the institution as reimbursement for food purchases shall be accounted for separate and apart from the management fee: