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 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 a subdistributing agency, recipient agency, warehouseman, carrier, or other person, for the improper distribution, use, or loss of, or damage to, a commodity, the distributing agency shall take action to obtain restitution. 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 claim determinations shall be subject to review by the Department. In the case of an inventory shortage, when the loss of any one commodity does not exceed 1 percent of the total quantity of the commodity distributed or utilized from any single storage facility during the Federal fiscal year in which the loss occurred, or during the period for which an audit was conducted by representatives of the Department, or, if approved by C&MS, during the period for which an audit was conducted by the distributing agency, if the distributing agency finds that (i) the cause of the shortage cannot be established, (ii) the lost commodities were

held in noncommercial storage or other facilities owned or operated by the distributing agency, a subdistributing agency, or a recipient agency, and (iii) there is no indication that the loss was the result of negligence or continued inefficiency in operations, the distributing agency need not take any further claims action, but the factual basis for not taking further claims action shall be subject to review by the Department. Furthermore, distributing agencies shall not be required to file or pursue a claim for a loss which does not exceed an amount established by State law, regulations, or procedure as a minimum amount for which a claim will be made for State losses generally, but no such claim shall be disregarded where there is evidence of violation of Federal or State statutes. 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 subparagraph (1) or (2) of this paragraph. Distributing agencies which pursue claims arising in their favor, but fail to obtain full restitution shall not be liable to the Department for any deficiency unless the Department determines that the distributing agency fraudulently or negligently failed to take reasonable action to obtain restitution. The Department may, at its option, require assignment to it of any claim arising 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 District Offices, Consumer Food Programs, C&MS, 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.

§ 250.7 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 § 250.6(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. § 250.8 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 § 250.6(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 District Office, Consumer Food Programs, C&MS. 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:

(ii) Commodities received by the institution shall inure only to the benefit of the institution's feeding operations; and

(iii) The books and records of the management company pertaining to the feeding operation of the institution shall be available for a period of three years from the close of the Federal fiscal year to which they pertain, for inspection and audit by representatives of the distributing agency and the Department at any reasonable time and place.

(c) Summer camps. (1) Nonprofit summer camps for children are eligible to receive commodities under section 416 and section 32.

(2) Nonprofit summer camps for children 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 on the same basis as is stated in paragraph (b) of this section.

(d) Welfare agencies. Welfare agencies are eligible to receive commodities under section 416 and section 32, provided that they serve households certified in accordance with the plan of operation furnished by the distributing agency and approved by the Department.

(e) Disaster organizations. Disaster organizations are eligible to receive commodities under section 416 and section 32 for distribution to disaster victims. Distributing agencies making distribution to such organizations shall immediately inform the District Offices, Consumer Food Programs, C&MS, thereof. Such organizations shall be eligible for the duration of the disaster, as determined by the Department.

(f) State correctional institutions for minors are eligible to receive commodities under section 210.

§ 250.9 Eligible recipients.

(a) Needy persons in households. Needy persons in households are eligible to receive commodities under section 416 and section 32, provided the household is certified in accordance with the plan of operation furnished by the distributing agency and approved by the Department.

(b) Disaster victims. Disaster victims are eligible to receive commodities under section 416 and section 32.

§ 250.10 Miscellaneous provisions.

(a) Sanctions. Any distributing agency which has failed to comply with the provisions of this part or any instructions or procedures issued in connection herewith, or any agreements entered into pursuant hereto, may, at the discretion of the Department, be disqualified from further participation in any distribution program. Reinstatement may be made at the option of the Department. qualification shall not prevent the Department from taking other action through other available means when considered necessary, including prosecution under applicable Federal statutes.

Dis

(b) Distributing agency requirements. Nothing contained in this part shall prevent a distributing agency from imposing additional requirements for participation which are not inconsistent with the provisions of this part.

§ 250.11

Where to obtain information. Interested persons desiring information concerning the program may make written request to the following District Offices:

Northeast Area. Consumer Food Programs, C&MS, USDA, 346 Broadway, Room 604, New York, N.Y. 10013: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and West Virginia.

Southeast Area. Consumer Food Programs, C&MS, USDA, 1795 Peachtree Road NE., Room, 302, Atlanta, Ga. 30309: Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Puerto Rico, and the Virgin Islands.

Midwest Area. Consumer Food Programs, C&MS, USDA, 536 South Clark Street, Chicago, Ill. 60605: Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

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Southwest Area. Consumer Food grams, C&MS, USDA, 500 South Ervay Street, Room 3-127, Dallas, Tex. 75201: Arkansas, Colorado, Kansas, Louisiana, New Mexico, Oklahoma and Texas.

Western Area. Consumer Food Programs, C&MS, USDA, Room 734 Appraisers Building, 630 Sansome Street, San Francisco, Callfornia 94111: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Wyoming, Utah, American Samoa, Guam, and the Trust Territories of the Pacific.

The Department reserves the right at any time to modify or amend this part. The Department will give distributing agencies written notice of any modification of, or amendment to, this part and reasonable opportunity to conform their operations to any amendment which requires distributing agencies to modify their operations.

NOTE: The recordkeeping and reporting requirements herein specified have been approved by, and any further such requirements that may be established will be subject to the approval of the Bureau of the Budget, in accordance with the Federal Reports Act of 1942.