As a federal employee I am NOT an advocate to hold "morale" events during work hours, which should be spent performing work for our taxpayers but, to answer your questions:
Q1 ) Yes... GAO decisions and the Redbook
Q2) In general, it is illegal for any agency to pay morale events out of their budgets. Only certain minimum light food items and refreshments are allowed, but they would have to be used for celebration of 'cultural awareness" events (e.g. ethnic foods, etc), awards ceremony, necessary to obtain benefit at a training event ,a non-separable portion of the registration cost of meeting or conference, which covers the meals, or a local / national emergency.