The National Cold Fusion Institute garnered a near clean bill of economic health from state auditors, but it will need a financial transfusion to survive.

"Because the institute has operated almost exclusively on state support, we have substantial doubt about the institute's ability to continue as a going concern beyond June 30, 1991, unless there is continued state support or significantly increased private contributions," Auditor Tom Allen said.The audit includes nine "reportable" conditions, most of which have been corrected, according to Fritz Will, institute director.

In the first months after B. Stanley Pons and Martin Fleischmann announced they had discovered cold fusion on March 29, 1989, money was spent without following University of Utah policies. One infraction occurred when Pons' son, Joey, was put on the payroll, in violation of nepotism policies.

Fusion was considered a "gold mine," Allen said. "In the beginning, it was whatever these two guys wanted."

For example, before the institute was opened with a $5 million infusion of state funds, Pons and Fleischmann were each paid $25,000 from U. accounts, without supporting documents. And after the institute opened in August 1989, U. administrators waived competitive bidding requirements for all institute purchases from April 14 until Nov. 29, 1989.

Will said by the end of December, $4.2 million of the state's $5 million fusion investment will have been spent. The remaining $800,000 is budgeted to keep the institute operating through June. He is still seeking corporate funding to fuel ongoing cold fusion experiments.

The state financial audit, released Monday, is the first of two outside reports to scrutinize institute procedures. The results of an independent scientific review, which was called for by disgruntled U. faculty members, is expected to be released Dec. 15. Outside funding hinges on the results of the review.

Among discrepancies found in the financial audit:

- Institute employees rang up expensive food bills that weren't approved by the state oversight committee.

"Of 52 meal expenses tested," auditors wrote, "22 ranged from $30 per person up to $129 per person." Auditors say at least three times, spouses' dinners were billed to the institute.

One reimbursement payment to Pons for two dinners was $295 over its actual cost, due to errors in conversion from Japanese yen to dollars, but hasn't been repaid to the institute. "The overpayment will be recovered," Will said, and guidelines will be issued to institute personnel to control meal costs in the future.

- The institute paid airfare and hotel bills for Rob Winter, a professor who commuted to Utah twice a month from the South Dakota School of Mines. "We feel that expenditures of this nature should not be paid without a clear policy being established by the institute," the audit said.

Will said Winter was hired because he had unique skills in electrochemical engineering, skills that were badly needed. "I regard this as a deliberate good management decision," despite the add-on of commuting costs. As of Sept. 15, Winter is back in South Dakota full time.

- In two incidents, administrative expenditures were charged to the institute that didn't benefit cold fusion research. Educational leave totaling $692.64 was paid to one executive secretary who was seeking her liberal arts degree, the audit said. And 50 percent of the $21,000 of another secretary's salary was paid by the institute with the rest charged to the U. department of chemistry. "She said `almost all' of her duties were non-fusion related," the audit said.

But Will said the first secretary, with enhanced writing and communication skills, benefits the institute, while not directly conducting fusion experiments. And as of July 1, 1990, the second secretary's salary was no longer paid by the institute.

- The institute lost $29,240 in interest earnings, because its cash reservoirs weren't invested in the U.'s interest earning account. Will said the money is now properly invested and the U. will reimburse the institute.