Hearings of the House of Representatives Subcommittee on Government Operations on how educational institutions that receive federal grants and contracts for health research and other restricted purposes account for the use of the funds are presented. The hearings also examined the quality and effectiveness of federal financial audits, which are the principal tool used by the government to ascertain that the funds have been spent for the intended purposes. Testimony is presented from the General Accounting Office, two research scientists who have had personal experience with the management of National Institutes of Health (NIH) grant funds in major universities, the Department of Health, Education, and Welfare (HEW), the Office of Management and Budget (OMB) and spokesmen for the academic institutions and the research community. Among the topics addressed are the following: OMB's revised Circular A-21 (Cost Principles for Educational Institutions), management of NIH grants by the Harvard School of Public Health and the department of biology at Johns Hopkins University, and the role of the HEW Audit Agency. (SW)