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REPORT OF THE AUDIT DIVISION

ON

THE WALLACE CAMPAIGN t INC.

I. Backaround

This report covers an audit of the Wallace Campaign, Inc.,

(lithe Committee") undertaken by the Audit Division to determine

whether there has been compliance with the provisions of the

Federal Election Campaign Act of 1971, as amended (lithe Act").

The audit was conducted pursuant to Section 438(a)(8) of the

Act and Section 9038{a) of Chapter 96 of the Internal Revenue

Code of 1954. Section 438(3)(8) directs the Commission to "ma ke from time to time audits and field investifJations with

respect to reports and statements filed under the provisions

of this chapter, and with respect to alleged failures to file

any report or statement required under the provisions of this

chapter, ~nd to give priority to auditing and field investigating of the verification for, and the receipt and use of,

any payments received by a candidate under Chapter 95 or

Chapter 96 of the Internal Revenue Code of 1954." Section

9038(a) of Chaoter 96 states that "after each matching payment

period, the Commission shall conduct a thorough examination

and audit of the oualified campaign expenses of every candidate

and his authorized committees who received payments under

Section 9037. 11

The audit covered the period from January 1, 19i5, through

June 30, 1977. The Committee reported beginning cash-on-hand

of 5198,363, total receipts of S8,020 t 775, total expenditures

of $8,198,241 and ending cash-an-hand of 520,897 for the period.

The principal officers of the Committee during the period

covered by the audit included Mr. Charles S. Snider t Chairman,

and :., r • F. A1ton 0a uphi n t Jr., Trea sur e r •
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This audit report is based on documents and working

papers supporting each of its factual statements. They form

part of the record upon which the Commission based its

decisions on the matters in this report, and were available

to Commissioners and appropriate staff for review.

II. Findings and Conclusions

A. Disclosure

(l) Disclosure of Repositories

The Registration Form and Statement of Organization for the Committee dated November 27, 1974, indicates that five (5)

repositories were utilized by the Committee. However, our review

of bank records presented for inspection revealed twenty-one additional repositories which were not disclosed on the Committee1s

Statement of Organization, as required by 2 U.S.C. 433(c).

Recommendation

The Committee amended its Statement of Organization on

June 3, 1977, listing the previously undisclosed repositories, consequently, no action is recommended on this matter.

(2) Disclosure of In-Kind Contributions

Committee records indicated the receipt of 5491.50

of in-kind contributions which were not disclosed as required by 2 U.S.C. 434(b)(2}, (3), (9) and (lO).

Recommendation

The Committee submitted an amendment on June 3, 1977,

disclosing the in-kind contributions mentioned above, consequently,

no further action is recommended.

(3) Itemization of Exoenditures AQ~reqat1ng

in Excess of S100.00 During the Calendar Year

In our review of the Committee's procedures for itemizing ex?enditures, the Committee's bookkeeper explained that only those expenditures greater than S100.00 were itemized

on disclosure reports. Expenditures of SlOO.OO or less, but

aggregating in excess of S100.00 during the calendar year, were

not itemized on their reports, a~parent1y as a result of a

misinterpretation of 2 U.S.C. 434(0)(9) and (10) •
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Rec 0 OJ 1ll.1 ndat ion

We recommend amendments to previously filed reports not

be requested since our analysis revealed that only 2.3~ of the

total dollar value of all expenditures from January 1, 1975 to . Jul y 31, 1976 were cl ass; fi ed as un; tern; zed. We did advi se the

Committee that all expenditures must be reported in accordance

with 2 U.S.C. 434(b)(9) and (10) on any subsequent reports.

(4) Unreported Receipts and Expenditures

As of June 30, 1977, approximately $277.00 in

receipts and approximately $10,800.00 in expenditures relating

to activities undertaken by the Committee1s state offices and

agents have not been reported as required by 2 U.S.C. 434(b)(2), (3), (6), (7), (9) and (10). Conversations with the Committee1s

bookkeeper indicated that untimely and incomplete transmittal of

records from the state offices contributed to this situation.

On October 17, 1977, the Committee filed comprehensive amendments

for calendar years 1975, 1976 and 1977. The previously unreported

activity mentioned above was reported in the amendments, alung with detailed itemization relating to previously reported "lump

sumll advances to individuals. Due to the lack of certain records,

the amendments di-d not contain complete itemized ex~enditure

information, however, the Committee will file informational amend~ents as records become available. All necessary records

have been requested by the Committee from the respective parties.

Recommendation

It is the 0plnlon of the Audit staff that the Committee

has used its best efforts to obtain the required information

in accordance with Section 102.9(e) of the Commission's

Regulations (11 CFR 102.9(e)). Furthermore, the value of the

expenditures lacking the required information is addressed in

Item 8(6) as an apparent unqualified campaign expense since

the "best efforts" provision does not apply to Title 26.

Therefore, we recommend no further action on this matter.

However, the Committee may continue to su~p1y information in

the form of amendments to their disclosure reports as previously agreed.

(5) Itemization of Individual Contributors

We compared selected ;r.dividuals lis:ed on

the Committee1s sixth submission fer matching funds (covering

the period 4/17/76-5/31/76) as having contributed in excess

of SlOO.OO during calendar year 1976, and the ~ay 10, 1976
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report (covering the period 4/1/76-4/30/76). Our comoarison

indicated that twenty-four contributors were not itemized

on the disclosure report as required by the Act (2 U.S.C. 434(b)

(2}), even though the same contributor data base was used to

generate both the disclosure reports and the matching submissions for individual contributors. The Committee could offer

no explanation for this discrepancy but agreed to file amended

reports.

Recommendation

On July 7, 1977, the Committee submitted a comprehensive

contributor list, as an amendment to its reports for calendar

year 1976, correcting the inconsistency noted above; consequently,

no further action is recommended.

(6) Cash Expenditures in Excess of S100

During the primary campaign, the Committee or

its agents maintained checking accounts at ei~hteen national

or state banks located in eleven states outside the State of

Alabama •. According to the Treasurer, activities in other

target states were funded from Headquarters in the form of

advances to the person in charge of operations for the respective

target state(s). In most cases, the funds advanced were ultimately disbursed in the form of currency rather than from a checking

account as required by 2 U.S.C. ~37b. However, these are documented in Committee records by receipted bills as required by

2 U.S.C. 432(d).

Recommendation

We recommend that no further action be taken on this ~atter

since all required records have been maintained. We further

recommend that the expenditures be considered qualified campaign

expenses in that the documentation presented established that

the expenses were campaign related.

B. Aooarent Unqualified Campaign Exoenses

The following paragraphs enumerate various financial

transactions made by the Committee during the ~eriod January

1 1975 through June 30, 1977, which appear to be unaualified

campaign expenses as defined i~ Section 9032(9) of 7itle 25

of th~ Uni~ed States Code (26 ~.S.C. 9032(9)). Also included

are (1) the preliminary deter~inat;ons made by the Com~ission

on ~ay 19. 1977; (2) the resul:s of additional field work performed in June and July 197i; and (3) the final staff recommendations.
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(1) Sale of Committee Asset at Less

than Fair Market Value

On February 11, 1976, the Committee purchased

a 1976 Ford van for a total price of $4,950.70. On June 7,

1976, the Committee's Chairman, Mr. Charles S. Snider, purchased

the van from the Committee for 51,500.00. Upon checking with

d Montgomery bank and a Montgomery Ford dealer, in August, 1976,

we established a value for the Ford van of at least $4,200.00.

In addition, on June 4, 1976, the Committee incurred $367.00

in expenses for installation of an air conditioning unit ;n

the van, thereby raising the fair market value (FMV) to at

least 54,567.00. Further, post-sale and post-ineligibility

(6/9/76) expenses in the amount of 51,069.92 were incurred

by the Committee relating to repairs and improvements to the

van, including new tires and chrome wheels.

On May 19, 1977, by a vote of 4-0, the Commission

made a preliminary determination that an amount equalling the

difference between the fair market value, as adjusted, on the

date of sale - $4,567.00 - and the selling price - $1,500.00 - or 53,067.00 be viewed as an unqualified campaign expense and

be repaid in full to the U.S. Treasury. Further, the post-ineligibility repairs and improvements to the van incurred after the

date of sale ~ould be deducted from any remaining matching fund

eligibility based on net outstanding campaign obligations.

In July 1977, the Committee provided additional

information pertaining to the establishment of the F~V as of

June 7, 1976, namely: (a) the Chairman documented S775.30 in

post-sale expenses paid from his personal funds to restore the

van to original condition; (b) the Treasurer provided an

appraisal made in June 1977, based on a statement, also dated

June 1977, from a mechanic familiar with the van during the

period of ownership by the Committee. The appraised value was

between Sl~500.00 and Sl,750.00; (c) the Chairman also provided

an analysis utilizing the October *, 1976 trade-in value, as

adjusted, and deducting certain post-sale expenses for repairs

and improvements borne by him. However, the Audit staff believes

that this analysis is not a reliable indicator of the June 7,

1976 F~V of the van due to the cost valuations used.

Recomr.1endation

~ith the exception of the S7iS.30 in post-sale expenses

to r~store the van to original condition, we do not believe that

the June 1977 appraisal and F~V analysis provided by the
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Committee satisfactorily establishes the true FMV as of June 7,

1976. Therefore, an amount equalling the difference between the

FMV, as adjusted, on the date of sale--$3,791.70 ($4,567.00 less

S775.30)--and the selling price--Sl,SOO.OO--or $2,291.70, should

be viewed as an unqualified campaign expense and repaid in full

to the U.S. Treasury. The value (Sl,069.92) of post-ineligibility repairs and improvements to the van, which were incurred after th~ date of sale, was repaid to the Committee by the Chairman on

June 29, 1977. The amount of this recovery was used to reduce

the amount of net outstanding campaign obligations as of

January 21,1977; therefore, no additional repayment is necessary.

Recommended repayment amount - Item 8(1) - S2,291.70.

(2) Questionable Floral Arrana~ment Purchases

During 1975 and 1976, the Committee purcha5ed floral arrangements from two (2) florists in the amount of

S2,002.22. Of these purchases, gift card notations on the

receipts indicated that $1,566.95 of the total were from the

family of the Committee Chairman, ~r. Charles S. Snider, or

picked up by a member of his family. In addition, of the items

we questioned, S149.99 comprised arrangement orders lacking sufficient information relating to sender or recipient to make

any determination as to whether the purchase was campaign related.

ihese figures do not include any floral arrangements sent to

hospitals on behalf of the Committeels staff or sent by Governor

and/or Mrs. Wallace.

On May 19, 1977, by a vote of 4-0, the Com~ission

made a preliminary determination that absent documentation to the

contrary Sl,716.9~ in expenses for floral arrangements be viewed

as unqualified and the value repaid in full to the U.S. Treasury.

Additional infor~ation obtained from the Committee

indicates the following categories: (a) $558.56 represented personal (i.e., non-campaign related) expenses of the Chairman

who subsequently repaid the Committee on June 29, 1977, thus

eliminating the need for repayment; (b) $40.65 represented the

cost of an office terrarium; (c) S533.89 represented the value

of arrangements which could not ~e identified as to sender's

and/or recipient's name, although believed to be campaign-related by the Committee; and (d) S583.84 represented arrangements sent

under the name of the Chairman and/or his family which, according

to the Chairman, should be considered caMpaign-related due to his

long-standing relationship with the Committee and the Governor,

making his name readily identifia~le with the Wallace Campaign by the respective recipients •
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Recommendation

We recommend that the expenses noted in items (c) and

(d) above be viewed as unqualified and the value be repaid in full to the U. S. Treasury.

Recommended repayment amount - Item 8(2) - Sl.117.73

(3) Questionable Expenses Relating To

Automobile Servicing

Committee records indicate payment of $19.065.32

to an auto repair shop and a tire service from January 1, 1975.

to June 9, 19i6 (Candidate's date of ineligibility). These

expenditures represent $7,745.18 for gasoline, Sl,147.82 for

engine tuneups, $3,412.35 for tires, $402.25 for brake work,

and S6.357.72 for other repairs ranging from body and paint work to removal, repair, and reinstallation of engines to the

installation of an air conditioning system. In most cases, the

receipts for the work do not indicate the vehicle on which the

work was done or the person authorizing the work.

On May 19, 1977, by a vote of 4-0, the Commission

made a preliminary determination that absent documentation to

the contrary $18,698.32 (S19,065.32 less $367.00 for air conditioning unit in item B(1)) in expenses for automobile servicing be viewed as unqualified and the value repaid in full to the U.S.

Treasury.

The Committee subsequently ~rovided a listing of sixteen individuals who used this service and an analysis of expenses for the eighteen month period. In addition, according

to the Treasurer and one of the co-owners of the service station,

all major repair work was authorized by telephone before the work

was performed. Although, the Chairman and/or Treasurer authorized

the work, no records were kept which would aid in identifying the

person's vehicle serviced, or if there was sufficient usage on

campaign-related business to justify the repair and/or maintenance.

Recommendation

In light of the additional information/documentation

obtained from the Committee, we reco~rnend that the Sl,960.99

in major repairs which could not b~ verified as attributable

to the persons a~thorized to use the service be viewed as

unqualified and be repaid in full to the U.S. Treasury •

Recommenced repayment amount - Item S(3) - S1,960.99
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Questionable Gift ~urchases

Committee records contained paid receipts totaling $2,320.36 from a Montgomery jewelry and small

appliance dealer. The items purchased were:

Group #1

With the exception of the items listed in group 41, information which would enable the staff to make a determination as

to whether the remaining items were, in fact, campaign related

and hence qualified campaign expenses, was not available at

the conclusion of our initial field work in August 1976.

On May 19, 1977, by a vote of 4-0, the Commission

made a preliminary determination that absent documentation to the

contrary the expenses in Groups 2 and 3 (Sl,699.72) * be viewed as

unqualified and the value be repaid in full to the U.S. Treasury.

The Committee was able to document S2,294.43 of

purchases as either items- used in the campaign offices (S1,985.75)

or as gifts to long-time supporters and/or volunteers Jnd their

families (S308.68); hence leaving one purchase, a necklace and

gift wrap in the amount of S25.93 remaining which ~he Committee

could not document as campaign-related since the reci~ient ;s

not known.

Preliminary repayment amount overstated by 5211.95 as a res~~t

of a duplicate invoice, subsequently identifiec during additiona1 field work.

ioaster & blender S 50.iS r~int Julep serving set 1 39. SO

Can opener 15.32

Engraved Water Goblets Q" .. - .. ".~o

Server Car bag A4.99

Razor & Waffle Baker 56.55

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Purchase Date

5/28/75

11/7/75

10/11/75

Group #1 Total:

Group #2

3/11/75-4/6/76

Group #2 Total:

Group #3

6/20/75

7/24/75

7/18/75

9/4/75

9/10/75

10/11/75

Group #3 Total:

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Item Description

Desk TV

Portable TV

Camera and film

Unidentified items

Amount

S 233.15

211 .95

175.5~

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51,239.72

S1 ,299.72
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Recommendation

We recommend that the amount noted below representing the

cost of the necklace and giftwrap be viewed as unqualified and

the value be repaid in full to the U.S. Treasury.

Recommended repayment amount - Item 8(4) - $25.93

(5) Non.Campaian Related Purchases - American Exoress

Payments to American Express between January 1,

1975, and June 9, 1976, amounted to S4,263.89. These payments

were not supported by sufficient documentation to determine the

purpose of the expenditure. Upon inquiry we were informed by the

Committee bookkeeper that these were the personal credit cards

of the Committee Chairman and/or Treasurer. As a result of

Committee submission of documentation to clear unsuooorted expenditures mentioned in item 8(6), American Express oilling statements were furnished which indicated that the majority of the

charges were for hotel and restaurant services (meals and lodging)

in Montgomery, Alabama, location of Wallace headquarters.

On May 19, 1977, by a vote of 4-0, the Com~;ssion

made a preliminary determination that absent any docu~entation to

the contrary, such as a statement from the Committee Chair~an

and/or Treasurer, as appropriate, showing the pur?ose of the

charges, these expenses totalling S~,263.89 be viewed as unqualified and the value be repaid in full to the U.S. ireasury.

In June 1977, docu~en~ation was rev~ewed which

cleared all but $36.38 in charges. Th~ Chairman agreed that

this amount was personal and repaid the Committee on June 29,

1977.

Recommendation

~e recommend that since the ?ersonal charges noted above

were recovered by the Committee, no repayment is required.

(6) Unsuooorted Exoenditures

On August 27, 1976, the Committee was advised that

unsupported expenditures totalling approximately 587i,000.00 were

identified as a resul~ of our review of Commi~tee e~~enditure

r e cor ds • As 0 f May 19, 197;', the Co mm itt c e s U ;J ;> 1 i t~ c' add; t; 0 na 1

documentation in the form of recei~:ed bills, invoices, travel

vouchers, car.cel1ec chec~s and ac:ep~able contempo~aneous menoranda and other wa~eria1s with which the Audit staff ~as able
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to d'e t errn ; nethat the ex pen d; t ures we rei ncurred by the Can did ate,

or by his authorized committee, in connection with his campaign

for nomination for election (see 26 U.S.C. 9032(9)). This

additional documentation reduced the unsupported amount to

approximately $219,851.00.

On May 19, 1977, by a vote of 4-0, the Commission

made a preliminary determination that absent documentation to

the contrary, the insufficiently supported expenditures incurred

(1/1/75-6/9/76) be viewed as unqualified and the value ($219,399.42)

be repaid in full to the U.S. Treasury. In addition, with respect

to those expenses incurred (6/10/76-7/31/76), the amount ($451.58)

should be deducted from any further matching fund eligibility

based on net outstanding campaign obligations.

As of this date, there remains approximJtely $91,273.25 in expenditures ~ade by the Committee or its agents

durinq the period January 1, 1975, through June 9, 1976, supported

by: (a) a cancelled check or bank wire with the purpose notation

on the face with no additional documentation or (b) a cancelled

check or bank wire with the purpose notation included on the

associated check stub or (c) a cancelled check or bank wire with

an accompanying memorandum to the bookkeeping department from

the ireasurer containing the date, check number, amount, payee,

and intended purpose (address not included).

It is the opinion of the Audit staff that the

documentation in support of the remaining expenditures dces not

disclose the purpose of the ex?enditure in sufficient detail to

allow a determination as to whether the expenditures were campaignrelated, and consequently whether these expenditures are q~al;fied

campaign expenses as defined in Section 9032(9) of Titie 26 of

the United States Code (26 U.S.C. 9032(9)).

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Description

Group #1

Breakdown of Unsuooorted ~xpenditures

iime Period .~~ount

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Unaccounted for advances made from

Headquarters bank accounts to individuals 1/1/75-6/9/76

Total unaccounted for advances: $53,185.*5
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Group #2

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Time Period Amount

We recommend that the unsupported expenses incurred (1/1/75-

6/9/76) be viewed as unqualified and the value be repaid in ful1

to the U.S. Treasury.

Recommended repayment amount - Item 8(6) - $91,273.25

Recap - Section B

Recommended as ~nc~alified

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Unsupported expenditures made from

State bank accounts 1/1/75-6/9/76

Franklin State Bank - NJ

Fulton Uational Bank - GA

1st Nat" Bank & Trust - MI

S.E. l~t Bank of Jacksonville - FL

Bank of Countryside - IL

Southern Nat'l Bank of Houston - TX

American Fletcher Bank - IN

Bankers Trust - NY*

Amalgamated Bank - NY

Recommendation

6 ( 1) 'J an

B(2) Floral Arrangements B(3) Automobile Service

B(4) Unidentified Gift

8(5) American Express

8(6) Unsupported Expenditures

Total Recommended Repayment

S 1,273.81

1 , 500.00

995.00

4,673.0':

3,025.05

1,145.00

4,494.00

6,003.4.1

~,978.46

'523,087.80

S 2,291.70

1,117.73

1 ,960.99

25.93

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Determination of Net Outstanding Campaign Obli~ations

$10,807.28

In accordance with Section 134.3(c)(2) of the Commission's Regulations, the amount of net outstanding campai~n obligations of the candidate is shown below. This figure was determined

using actual receipts and qualified campaign expenses through

June 30, 1977, with the appropriate adjustments to arrive at a

January 21, 1977 figure, the last day on which the candidate

could have submitted funds for matching payments.

Cash in banks as of 1/21/77 and

capital assets as of 6/9/76

(candidate's date of ineligibility)

Post June 9, 1976, unreimbursed non-campaign related expenses

Subtotal

6t361.'!6~

l7,169.:.~

Therefore, on January 21, 1977, the Committee was

eligible to receive this amount of matching fund payment(s).

* Post 6/9/76 unreimbursed non-campaign related expenses:

Less: Qualified accounts payable as of 1/21/77

Net outstanding campaign obligations as

of 1/21/77

~e recommend the authorization of a matching fund payment of $~3,a7~.05, currently held in abeyance by the Commission.

However, in view of the recommended repayment amount of $96,669.60

noted above, the payment is offset by the required repayment leaving a balance owed to the U.S. Treasury of S47,795.55. ihis

amoun: is subject to change based on the results of the repayment hearing to be conducted on April 3, 1978, as requested by the

CanC:i-::ate.

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"Travel expense

Insurance expense ?ayroll and/or per diem

Storage expense ---~

Recom~endation

Total recorn~dnded repayment

Less: a~ount in abeyance

~et amount to be repaid

$1 ,408. 51

2,669.45

1,685.00

599.00

S6 y 36l.96

103,720.75

S86,551.51

$96,669.60

(~8,87J.05\

$J7,i95.55
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III. Auditor1s Opinion

Except for the matters specifically noted in this report, the audit disclosed that The Wallace Campaign, Inc. conducted

their activities in conformity with the Federal Election Campaign Act of 1971, as amended, and in conformity with Chapter 96 of Title

26 of the United States Code in all material aspects.