(b) The more important standards used to test the eligibility of expenditures are here summarized for the information and guidance of local agencies. Details will be found, by subject, in other sections of this Subchapter.

1. (1) Direct connection. Expenditures may be declared ineligible because they are not an essential cost or expense directly connected with the development or operation of a specific project under the terms of the contract for State aid for that project.
2. (2) Statutory provisions. Expenditures may be declared ineligible because of the operation of specific provisions of the Public Housing Law. The more important of these provisions relate to the compensation of members of a local housing authority, administrative expenses of an authority, and tax exemptions. Applicable provisions of other statutes, such as the exemption from Federal income and excise taxes granted by the U.S. Internal Revenue Code, may also operate to render expenditures ineligible.
3. (3) Mingling of funds. Expenditures may be declared ineligible because they constitute a mingling of funds, as defined in Subpart 1640-2, supra.
4. (4) Rules and regulations. Expenditures may be declared ineligible for failure to comply with the rules and regulations of the division and various instructions and directives issued by the division, and having the effect of rules and regulations. Such rules, regulations, instructions and directives may specify the purpose for which the expenditure is made, limit the amount which may be expended, and prescribe the manner in which the expenditure may be made. The latter refers to procedures in connection with the letting of contracts, requirements for approval or prior approval, etc. In some cases, notably in connection with land acquisition, the requirements for approval reach beyond the expenditure itself to require prior approval or authorization by the division of the commitment for the expenditure.
5. (5) Contract for State aid. Expenditures may be declared ineligible for failure to comply with the terms of the contract for State aid. The contract for State aid incorporates, by reference, the application for financial assistance, and expenditures, to be eligible, must also comply with the terms of the application. In a contract for the advance of loan funds by the State, it is evident that the maximum amount of the loan operates as a limit on the total amount of eligible expenditures possible.
6. (6) Budgetary and extra-budgetary limitations. Expenditures in excess of amounts budgeted for the various eligible purposes may be declared ineligible. Expenditures for development purposes are controlled by a development cost budget which forms part of the application for financial assistance. Expenditures during the operating period, are, similarly, controlled by an operating budget submitted annually. Overruns of the amounts budgeted for the various eligible purposes may, however, be authorized by the division under certain conditions. The amount of the overrun which may be authorized for a particular item is limited by regulation of the division and there are some budget items for which no overruns will be authorized because of extra-budgetary limitations reflected in the contract for State aid, in the application for financial assistance, in instructions and directives of the division, in rulings of the commissioner, or in supplementary agreements between the division and the local agency. Land acquisition costs are a common example of the application of extra-budgetary limitations.
7. (7) Internal approvals and authorizations. Expenditures may be declared ineligible for failure to comply with the requirements for internal approval and authorization by the local agency. Certain requirements for internal approval and authorization may be set up by the division, as in the case of the requirement that all expenditures shall be properly vouchered; other requirements may be set up on the initiative of the local agency. A great deal, of course, depends on the size and organization of the local agency. Some expenditures may require only the approval of appropriate officers or employees of the local agency; others may require appropriate resolution of the governing and policy-making body of the local agency; still others may require authorization, by the appropriate body of the local agency, of the commitment to make the expenditures, as well.
8. (8) Examples of ineligible expenditures. Exhibit 9 of Appendix S-6 lists typical ineligible expenditures which will not be allowed as project costs or expenses. Revisions will be made from time to time, as the need may arise.