FEDERAL ELECTION COMMISSION

February 24, 1992

JlIUIOBAHDUJII

TO:

PR.()IlI:

SUBJSC'r:

FRED S. EILAND

PRESS OFFICER ~~

ROBERT J. COSTA7/CASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT ON THE GEORGE

BUSH FOR PRESIDENT COKMITTEE, INC.

___ _ ~~tached pl,a_se_find acppy 5J_f __ the__ ~inal_ Audi~ __ I_epor_t_Q1l

the George Bush for President Co..itte., Inc. which was approved

by the Co..lssioR on February 18, 1992.

Informational copies of the report have been sent to all

parties involved and the report aay be released to the publi~.

Attach.ent as stated

cc. Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
FEDERAL ELECTION COMMISSION

\VASHtNGTQN 0 C ~046J

February 18, 1992

Mr. J. Stanley Huckaby, Treasurer

George Bush for President Coaaittee, Inc.

228 South Washinqton Street, Suite 200

Alexandria, Virginia 22314

Dear Mr. Huckaby:

Attached please find the Final Audit Report on George Bush

for President Coaaittee, Inc. The Commission approved the report

on February 18, 1992.

In accordance with 11 e.r.R. S9038.2(c)(1) and (d)(l), the

Coaaisaion bas sada an initial deter.inatian that the Candidate

is to repay to the Secretary of the Treasury $113,019.70 witbin

90 days after service of tbis r~~~_~__ {"_ay_~OJ~-_19-92l- __ -!he --report

not•• that--tlle----Coii-itt:••---naa repaid $105,623.82. Tber.fore,

there is a balance of $7,455.81 to tepay. Sbould the CaDdldate

dispute the Co..i ••ion's d.~.~iDation that a repayaent 1.

required, Co..i ••ioD regulations at 11 c.r••• '9038.2(c)(2)

provide the Candidate witb aft opportunity to aubait in writing,

within 30 calendar days after service of the Co..i ••ion's notice

(Karcb 21, 1992), legal and factual ..~.ri.l. to d.~n.trat.

that no repa,..nt, or a l ••••r repayaent, 18 required. ruEther,

11 C.P.R. 19038.2(c)(3) peraits a Candidate who ha. subaitted

written aatertals, to request an opportunity to .ake a oral

pre.entatioD in open ••••ion ba.ed Oft the 18.81 and factual

aaterials sub.itted.

Tbe Co..i ••ion will consider any written 1e9a1 and factual ..terials aub.itted by the Candidate within this 30 day period

in aak1n9 a final repayaent deterainatioD. Sucb aaterials aay be

subaitted by couns.l if the candidate so elects. If the

Candidate decide. to file a r••pons. to the initial repayaent

deter.ination, plea•• contact Kia L. Bright-Cole.an of the

Office of General Counsel at (202) 219-3690 or toll free at

(800) 42C-9530. If the Candidate does not dispute this initial

deter.ination within the 30 day period provided, it will be

considered final.

The Coaaission approved copy for the Final Audit Report

will be placed on the public record February 24, 1992. Should

you have any questions re9ardinq the public release of this

report, please contact Fred S. Eiland of the Coaaission's Press
Mr. J. Stanley Huckaby, Tt••8urer' Geo~9. Bush for- President Co..it~••• Inc.

page 2

Office at (202) 219-4155 or toll free at (800)424-9530. Any

que.tiona you may have related to matters covered during the

audit or in the report should be directed to Russ Bruner or

Jos.ph F. Stoltz of the Audit Division at (202) 219-3720 or toll

free at (8GO) 424-9530.

Sincerely,

~A, RObe~.- ~osta As.istant Staff Director

Audit Division

Attacb8ent .s stated

eel Pr••ident George Bush

Jan Baran
,..-.... ....1£.

FEDERAL ELECTION COMMISSION

MJ000049

REPORT OF THE AUDIT DIVISION

ON THE

GEORGE BUSH FOR PRESIDENT, INC.

I. Background

A. Overview

This report is based on an audit of George Bush for

President, Inc. ("the Committee") to determine whether there

haa been compliance with the provisions of the Federal Election

Caapaiqn Act of 1971, as amended ("the Act") and the

Presidential Primary Matching payment Account Act. The audit

was conducted pursuant to 26 u.s.c. i9038(a) which states that

"After ••ch matching payment period, the Coaaission shall

conduct a thorough ex.ainatian and audit of the qualified

caapaign expense. of every candidate and his authorized co~tte•• who r.ceivedpa~~n~~uftd.! ~~e~i9n_ 9037~·_ .

In addition, 26 u.s.c. S9039(b) and 11 c.r.••

.9038.1(8)(2) state, in relevant part, that tbe Co..i ••ioft aay conduct other ez.~nation. and audits fro. tl•• to tl.... it

d.... nec•••ary.

The Co..itt.e registered with the rederal Election C~••ioft on February 19, 1987. The Co-.itt.e'. current ..111ft9 address is in Alexandria, vlrqiaia.

The audit covered the period fro. the Co..itt••'.

inception, July 11, 1986, through Sept.~r 30, 1989. In

addition, certain other financial activity relating to the

Coaaitt••'. state.ent of Net OUtstanding CaapaigD Obligations

va. reviewed through Septeabel' 30, 1991. aecords relatin9 to

the Co-.dttee's state allocation were reviewed through

Decellber, 1989.

The Coaaitt•• reported an opening cash balance of

$-0-, total receipts of $33,952,575.47, total disburse••nts of

$33,378,398.94, and a closinq cash balance of $574,176.53 on

Sept.aber 30, 1989. Under 11 C.F.R. 59038.1(8)(4), additional

audit work may be conducted and addenda to this report issued

as necessary.

This report is baaed upon documents and workpapers

which support each of the factual stateaents. They fora part

of the record upon which the Coaaission based ita decisions on
'>C. _

~;.

2

the matters in the report and were available to Comai••ioners

and appropriate staff for review.

B. Key Personnel

The treasurer of the Committee froa its inception to

the present ia J. Stanley Buckaby.

c. Scope

The audit included such tests as verification of

total reported receipts and expenditures and individual

transactions; review of reqUired supporting documentation,

review of contribution and expenditure limitations: and other

audit procedures .s deemed necessary under the circumstanee••

II. Audit Findings and Recommendations Related to Title 2 of

the United States Code

A. Prohibited Contributions - Media Commissions

Under Section 441b of Title 2 of the United Stat•• Code, it is unlawful for any corporation to make a contribution

or expenditure in connection with any election at which

preaidential---andvicepresidential electors -or a -S-ena{ot--o-t- ••pr••entative in, or a Dele9ate or Re.ident Co-.d.aioner to,

CODgr••• are to be voted for, or in connection with any prl..ry election or political convention or caucus held to .elect

candidate. for any of the foregoing offic••, or for any

candidate, political co..itt•• or other person knowingly to

accept or receive any contribution prohibited by this sectioD.

Section 100.7(a)(1)(111) of Title 11 of the Code of

rederal a_quIationa state. that the tera ·contributioninclude. a gift, subacription, loan, advance, or deposit of

aoney or anything of value. ~he tera -anytbing of valu.-

includ•• all in-kind contributions. Unl••• specifically

e•••pted under 11 c.r.R. SlOO.7(b), the provision of goods or ••rvic•• without charge or at a charge which is le.s than the

usual and noraal charge for such goods or services is a

contribution.

Roger Ailes was the Comaitte.'. media consultant.

The Coaaittee contracted with his corporation, Ailes

Co..unications Inc., to -supervise and manage all media

production and purchasing of ••dia tim.-. Ailes Coaaunications

agreed to bill the Coaaittee for actual production costs they

incurred on behalf of the Committee without mark-up. Bovever,

Ailes Coaaunications did receive $285,245.51 in consulting

payments during the campaiqn.

The same contract specifies that all media buying for

the Committee will be done by rarrell Media, Inc. rarrell

Kedia, Inc. is a subsidiary of Ailes Communications.
3

co.pen.etlon to Parrell v•• paid at the rate of 3.5\ of the

grol. coat of the .edla tl•• purcha••d. A revie. of th.

Co_itt••'. recorda do•• not indicate any network .edia buys, but rather the aore labor intensive spot ••dia buy.. ••••d on

a revie. of fee. charged by other ••dia fir.. for aiailar ••rvice. rendered to otber eaapaigns in the 1988 caapal9ft

period .1 well •• previous elections, 3.5' is subatantially

1••• than what i. nor••lly eharged for such ••rvice••

In the Interia Audit Report, the Audit staff

reco...nded the Coaaitte. provide evidence which demonstrated

that the 3.5\ coaai••ion paid Farrell Media for m.dia

place.ent, did not constitute services at le•• than the usual

and noraal charge, and thus in-kind contributions from Farrell

Media.

In respon.e to the Interia Audit Report, the

Tr•••urer stated that there was no standard media commission

charqed by the induatry. He qo•• on to state, "Clearly, one

such factor ia that (aie) the size of the potential place••nt.

Since a vendor's f ••• are based on a percentage co..i ••loft, the

larger the gro•• a.ount to be spent, the s..ll.r percentage the

vendor aay be willing to accept in coaai••iona. The Co..i ••ion

haa recogniz.d this over the cours. of .everal election cycl•• because It baa approved ••die co..i ••ion f ••• of b.~'!'~_~~_3'_ and

-------l-5\-.-w--- Th-'.rr..sure-r -I~.~.d-~--~1l1j--va-i---tll-.- .u_ -percentage

charged by the general election coaaitt•••

••co..end_tioD • 1

~. Audit staff reco...nds no further action on this

utter.

B. Pr... Plane

Section. 9034.6(8) and (b) of Title 11 of the Cod. of

rederal aegulations Itate, in part, if an authorised coaaitt•• incurl expenditure. for transportation, ground .erviee. and

faciliti•• aade available to .edi. per.onnel, .uch expenditure.

vill be conlidered qualified caapaiqn expen••• subject to

overall expenditure li.it.tiona at 11 c.r.a. 9035.1(8).

rurther, if r.labur••••nt for such expenditur•• is receiv.d by

a coaaitte., the a.aunt Iball not exceed either: The

individual'. pro rata share at the actual cost of the

transportation and .ervices aade available; or a reasonable

e.tlaate for the individual's pro rata share of the actual cost

of the transportation and .ervices aade available.

An individuals share shall be calculated by dividing

the total number of individuals to who. such transportation and

services are aade available into the total cost of

transportation and s.rvicel. The total a.ount of
.-.

4

r.iabur••••nt. received fro. an individual ahall not exce.d the

actual pro rata coat of tbe transportation and .ervic•• a.de

available to that person by more than 10\.

Section 9034.6{d)(ll of Title 11 of the Code of

rederal Requlations states, in part, that the committ•• may

deduct fro. the amount of expenditures subject to the overall

expenditure li.itation at 11 c.r.R. 9035.1(8) the amount of

r.iabur••••nt. received for the actual COlt of transportation

and service. provided under paragraph (8) of this section.

The coaaittee may also deduct from the overall expenditure

li.itatioD an additional amount of reimbursement received equal

to 3\ of the actual cost of transportation and services •• administrative costs. If the committee has incurred higher

administrative costs in prOViding these services, the committee

8Ust docuaent the total cost incurred for such services in

order to deduct a hiqher amount of reimbursements fro. the

overall expenditure limitation.

Also, the Explanation and Justification for the above

requlation. (Federal Reqlster, Volum. 52, No. 106, page 20871)

atate., that ·coaaittee••ay deduct an additional 3\ of the

direct cost of providing services to the media if rei~ur.e••nts in that a.ount are received. The additional 3\

1. intended to cover -adai·n-iatrative cost to the caapaign·--of --- - aaking ••di. travel arrange.ents, tracking which .edta

personnel are accoapanying the candidate on each leg of the

caapaigD, aDd billing the ••dia organizations for their sbare

of the .xp.n.... The.e adainistrative coats are not part of

the direct coat of providing ••dia transportation and servic•• and aay not be included in the calculation of direct costs for

billing purpo.e., whether the Coaaitt.e us•• its own staff to

perfor. th••• tasks or hire. a travel consultant and collection

agency.- Further, when discus.ing the 3' adainistrative coat

allowance the Explanation and Justification state. that tbe new

provision would continue to li.it the aaount billed to 110\ of

the direct coat of .ervice.. It do••n't incre.s. the a.aunt a

caapalgn aay bill for providing servicea. It only increa••• the size of the off.et if reiahur.e.ent. exceed 100\ of direct

cost to the caapaiqn.

ror one trip in October, 1981, and then frequently

be9inning in February 1988 the Coaaittee provided a plane

('re.s Plane) for ••abers of the pres. (Presl) to accompany Air

rorce II. The Co..itt•• determined the cost of each leg of a

trip and then billed ••abers of the Press for air

transportation, and in a .eparate calculation, ground

transportation and services. In addition to members of the

Pre••, the Press Plane manifest generally included Committee

staff meabers who the Committee stated were charged with

administering the press travel program, plus a small number of

S.cret Service agents and, on some flights, other Committee

.taff. When determining the amount to be billed to the pr•••, the Comaittee divided the cost of the flight by the number of
5

person. on the plane excluding the Itaff who adainistered the

Pr••• travel prograa and the Secret Service agents. !be

re.ulting ••aunt was then billed to the Pr••••. The Co_ltt•• also billed the Secret Service at fir.t cIa•• airfare. The

result of this procedure va. to bill the Pr••• for the cost of

both the Co.-itte. staff meabers and the secret Service agents,

and to bill both the Pre•• and the Secret Service for the

secret Service agent'. travel.

Aa an example, the Committee method for billing vaa

.a follows: Assum. a leg of a trip cost $10,000; there ar. 20

press people, four Committee personnel to administer the

prograal and 2 Secret Service agents aboard. The Co.-itte.

would have determined the amount billed to the Press .a

follows: Total Cost $10,000 + 20 people • $500 per persoft; and

$500 x 20 pre•• people - $10,000 billed to the Press.

The Interim Audit Report stated the appropriate

.ethod for computing the press billings in the above ex••pl. is

as follows: Total cost $10,000 + 26 people • $384.62 per

personl and $384.62 x 20 press people - $7,692.40 billable

coat. The regulation then allows a 10' markup for a total of

$8,461.64.

The Audit staff vent through eachl.CJo-f~~e-aeh--t-ri-p~~

u.ing flight aanifeat. provided by the Coaaitt•• to d.t.r~D• • revi••d billable a.ount for th. Pr.... The Co..itt•• billed

the Pr•••, a total of $1,386,759.31 for airfar.. Tbe Audit

.taff coaputed the billable a.ount to the Pre•• for airfare to

be $1,197,17•• 19 (including 10\ aarkup).

The Coaaitte. also billed the Pre•• for local ground

co.t. Oft various trips. As. line it•• on the•• bill. the

Coaaitt•• included -Daily Staff Exp.n••••• Though no recorda

.er. located to allow the Audit staff to calculat. the coata

covered by this it••, it appeared to b. the travel expen••• of

the Coaaitt•• personnel that traveled with the Pr.... Tbe

Interia Audit Report noted that the explanation and

justification for the Co.-is.ion'. regulations states that such

adainiatrative costs are not to be included in the cost

calculation. The total a.aunt billed to the Pre•• for Daily

Staff Expenses, during the Caapaign va. $22,717.69

The Press wal also billed for the total cost of tbe

telephone filing centers but the Committee didn't take into

account the refunds of $4,330.11 they received.

One of the fliqhts discussed above was a trip to New

Orleans, Louisiana on Auqust 16, 1988. The Committee billed

the Pre •• for the cost of this trip. The Audit staff could not

locate any information in the Committee records that indicated

the Committee paid any aircraft costs for this trip. The Audit

.taff could not locate any information in the Committee records
6

that indicated the Coamittee paid" any aircraft coata for tbis

trip. There was also no record of the Coaaitt•• billiG' the

Pre•• for any local 9r ound coats in connection .with tbt. trip.

The candidate's itinerary showed he entered New Orleanl on a

riverboat, yet the Audit staff didn't locate any disbur••••nt.

for this actiVity in the Committee records.

A Bumaary of what the Committee billed the Pr••• and

the adjust••nts made by the Audit staff was included in the

Interia Audit Report. Bas.d on this summary, it was concluded

that the Coaaittee received $218,278.64 in excess of the

billable a.ount. This amount was included on the Coaaitt••'.

N.t Outstanding Caapaign obligations as a payable to the

various press organizations the Committee billed during the

ca.paiqn. An adjustment was also made to the amount of offsets

the Coaaittee could apply against their overall expenditure

li.itation. Adainistration costs of 3' were added to the

Coaaittee's billable costs. The total reduction in offsets

applied against the overall limit was $298,046.54. This a.ount

was added to the Committee'S expenditures subject to the

overall spendinq Ii_itation.

In the Interi. Audit Report the Audit staff

reco..ended that the Coaaitte. provide evidence that they did

not over bill the Press by $218,278.64 and that offseta-4pplled

against the expenditure li.itation should not be reduced by

$298,046.54. It vas further noted, in the ab••nce of sucb

doeuaentation, the Coaaittee .hould sub.it evidence that

$218,278.64 had been refunded to the Pr.... This evidence v•• to include the calculation of the a.ount paid to each pre•• organization and copies of the front and back of negotiated

refund checks.

The Audit staff alao r.co..ended that the Co..itt•• provide additional infor••tioD relatin9 to the Auqust 16, 1988

Pre•• Plane and local grounds coat. for the Ney Orleans trip.

If the Co-.dtt•• did not pay for the•• activities, the

Coaaitte••hould provide the n.... of the organizations that

paid, why the other organizations paid, what was paid for, the

date paid, and the a.ounts.

Also related to August 16, 1988 travel, the Audit

staff recoaaended that the Committee submit documentation

de.onstrating how costs relating to the Candidate's activities

in New Orleans aboard the riverboat S.S. Natchez w.re paid. If

other orqanizations paid these costs, provide the names of the

organizations, why they paid the expenses, what was paid for,

when it was paid, and the amount paid.

In December, 1989, the Committee provided the Audit

staff with the candidate's itinerary for 1987 and 1988. A

comparison was performed between the Press Plane manifests and

the Air rorce II trips taken by the candidate. A list was
7

co.piled of cities where there were trip. made by the candidate

but there were no Pre•• Plane a.nif••t •• Also on this 11at vere

eiti•• in which the candidate appeared but where no local

9rcund costs were paid by the Coaaitt•• and billed to tbe

pr•••• A list of the different cities were provided to the

Coaaitte. during the audit, and at the exit conference.

In the Interia Audit Report, the Co..islion reque.ted

information about the previously .entioned cities, where there

val no record of local transportation and lor press plane

manifests. The Committe. wal to submit evidence to indicate

whether or not a presI plane was chartered in connection with

these trips and whether ground transportation and service. were

provided. If a press plane or ground services were provided for

the trips, the Committee should demonstrate how the costa were

paid. If other organizations paid these costs, provide the

n.aes of the organizations, why they paid the expenses, what

was paid for, when it was paid, and the a.ount paid.

In response to the Interi. Audit Report, the

Treasurer states that ft~ ••at no time did the Bush Comaitte.

bill the Pre•• more than 100' of the cost of the services

provided to the Press despite the fact that it 189a11y eould

have done so.- The Treasurer states that:

(t)he i.sue vith regard to th.'Pre•• Plane

revolve. 801e1y around the fact that the pro rata

pre.. travel expenses included the travel expen••• of

four caapaign individuals who traveled: 1) at the

request of the pre.s, 2) with the explicit

understanding that they would be paid for by the

pr•••: and 3) to provide certain ••rvic•• requested

by the pre••, which, had tbe pre•• not reque.ted

the••••rvices, would not have been provided. Thu.,

the.e individuals would not have b.en on the pte•• plane were it not for the request of the pr••••

Th. Coaaitte. prOVided five affidavits, including one

fro. a ••aber of the pre•• who traveled on the presl plane,

which confira. the above stated points aada by the Coaaitt••• The other four affidavits were froa the Coaaitt.e staff and

outlined their duties as follows: • ••• to organize arrange••ot.

for ground and air transportation, respond to special reque.ta

of the pre.s (such al additional press seats), arrange for

proper and acceptable food and supplies of beverages reque.ted

by the pre•• , and provide additional information regarding the

schedule, all in addition to creating and maintaining passenger

manifests and credit card payment facilities for the pr••s.·

The Treasurer takes exception to the Audit staff'S

treatment of these individuals as ·passengers· on the Press

plane. ae contends that -the.e individuals were not

'paslengera' any more than the pilot or navigator were
8

p••••ngers- and that they were on"the plane for the purpo•• of

facilitating travel by the pre•• and their costs were borne by the pr••• with the full concurrence of the pre.~. ae add. that

N. eo the CaBalssion'. own regulations acknowledge that there is

no di.tinction between· the Coaattte.'1 ataffers and independent

contractors for the purpose. of determining costs· (11

C.r.R.S9004.6(d)(2» and that w ••• this issue would never have

ari••n had the Committ•• contracted with the air carrier for it

to provide the•• servic•• to the press using airline ••ploy••• (a. coamereial airline. do for most of these service. aa a

.atter of course).- The Treasurer concludes that the 8uah

Committee do•• not owe the press $218,278.64 in reimbur.e••nts.

The Audit staff disagrees with the Committee'.

contention that this issue would not have been raised if the

Committe. had contracted directly with the air carrier, to

provide services to the Press using airline eaployees. Aa the

Treasurer notes, Commission requlations make no distinction

between having caapaiqn personnel or third party personnel

perfora these administrative services. In neither ca.e can

adainistrative costs be included in the direct cOlta for

purposes of billing persons traveling with the caapaitnThe Treasurer's arquaent that the Coaaitt•• staff who

actainis_ter the Pr••• travel- pr-ograa should not be coaa-i4e-ted--u

·p•••eDgers- ia not relevant. The regulations at 11 C.F.a. I

9034.6 specify that an individual'. pro rata cost shall be

deter.loed by diViding the total nuaber of individuals to ¥boa

such transportation was aade available by the coat of the

transportation. All Coaaitte. staff are covered by the tara

windividual B regardl••• of their dutie••

The Audit Itaff doe. not dispute that the Co..it~•• staff persona travelled at tbe request of the pr•••, Dor does

tb. Audit staff dispute the Tre••urer's .tat••ent that tb••• caapaiqD staff persons vere Oft th. plan. for the purpo••. of

facilitating travel for the pr.... Tbe.e facta, bowever, do

not e.tablish tbat coats a ••ociated with the•• ataff persons'

travel are direct coats for providing transportation and

s.rvices to the Presi.

It 1. al.o the opinion of the Audit Itaff that the ••rvices provided by the Coaaitt•• Itaff are adainistratlve

COlts aa defined in the Explanation and Justification (rederal

Regilter, Volume 52, No. 106 Page 20871) for 11 c.r.R. SS

9034.6(a) and (b) and 9034.6(d)(1). The Audit staff concurs

with the Treaaurer's reference to 11 c.r.R. S9004.6(d)(2) which

states tbat administrative costs shall include all costs

incurred by the committee for makinq travel arrangements for

media personnel and for seeking reimbursements, whether

performed by committee staff or independent contractors.
9

According to the Coaaittee's r••pon••, a clerical

ai.take waa aade with re.pect to the coat of the pr••• plane on

August 16, 1988. The coat was aistakenly paid for by the

Bush-Quayle 88 Coaaitt••• The Committee submitted a copy of a

check supporting that the Committee paid the General Election

Account $23,520. The Committee supplied no docu.entation with

re.pect to the COlts of this trip paid by the Bush-Quayle 88

Committee. Since the Co.-ittee paid for this trip, they are

entitled to an increa•• of $23,520 in billable COltS.

With respect to the list of cities where no pr••• plane manifest wal located, the Committee responded, -ror

eighteen of the twenty trips identified, there was no pr••• plane. For the r••aining two trips identified, a press plane

was chartered and Committee payments associated with the•• trips are attached.- Though the Committee did not specify which

two trips they meant, the documentation submitted was already

provided after the close of fieldwork and incorporated in the

Interim Audit Report. In the Audit staff's opinion, no

information exists that additional press planes were used.

The sa.e issue concerning the correct billable ••aunt

to the Pres., was addressed by the Coaaission in the final

audit report of the Bush-Quayle 88 Coaaittee. In that report,

the Co..ission peraitted the air transportation, tr~v,l,_ ~_D4_

.alary of the Co.-itt•• staff to be added to the billable coats

of the Pre••• To this new total, the Buab-Quayle 88 Coaaitt•• va. entitled to add 3\ adainistrative coats.

The correct billable a.ount in the Interia Audit

Report vaa $1,139,541.38. The afore••ntioned $23,520 for the

August 16, 1988 trip vaa added for a billable ..ount of

$1,163,061.38. The costa of the Co..itte. ataff who

adainistered the pr••• travel proqraa totaled $276,330.37, for

a revi.ed billable a.ount of $1,439,391.05. When 3'

adainistrative costa are added, the ••aunt the Coaaitt•• would

b. able to off.et against the overall expenditure liaitatioD ia

$1,482,573.50. The Coaaitt•• received a total a.aunt froa the

press of $1,471,774.16. Aa a reault, the Coaaitte. is entitl.d

to offset the entire $1,471,774.16 against the overall

expenditure Ii.itation.

Recoaaendation .2

The Audit staff recommends no further action on this

.attar.

c. Possible -Testin the Waters~ Ex enditures Made b

Other Po ltica Committees

Section 9034.4(&)(2) of Title 11 of the Code of

Federal Requlations statea that even thouqh incurred prior to

the date an individual becomes a candidate, payments made for
10

the purpose of deterainin9 whether an individual should beeo•• a candidate, auch .a tho•• incurred in conducting a poll, aball

be considered qualified caapaign expense. if th~ individual

aub••quently beeo... a candidate and shall count 4gain.t the

candidate'. limits under 2 u.s.c. 441a(b).

Section lOO.8(b)(1)(i) of Title 11 of the Code of

rederal Regulations stat••, in part, that the teea

-.xpenditure- doe. not include payments aade 801ely for the

purpose of deteraining whether an individual should beeo••• candidate. If the individual subsequently becomes a candidate,

the pa~.nt. aade are subject to the reporting require••nts of

the Act. Such expenditures aust be reported with the first

report filed by the principal campaign coaaittee of the

candidate, regardless of the date the payments were made.

Section 100.7(a) of Title 11 of the Code of Federal

Requlationa states that a contribution includes a gift,

subscription, loan, advance or deposit of money or anything of

value by any person for the purpose of influencing any election

for rederal office. The tera -anything of valueR include.

1n-kind contributions.

F1nally, Section 100.5(9) of Title 11 of the Code of

rederal a.CJUlatiol)~_._~_.t._._th.taff11iated-coaaitt..-a--1Dc-lude

----.II---authcrl-zed co.-itt••• of the saa. candidate and all

co..itt••s establisbed, financed, ..intained or controlled by the .... corporation, labor organiaation, person or group of

persona.

Tbe Fund for Aaerica'. Future, Inc. (Fund) ia a

.ultlcandidate co..itt•• wbich re9iltered with the Co..i ••ioD

OD April 25, 1985. On January 22, 1986, the Fund reque.ted an

advisory opinion (AO 1986-6) with re9ard to expenditure. for n~rou. activiti•• it plann.d Oft participating in duriog th.

1ge6 election cycle. In tbe reque.t, the Fund stat•• that

Georg- Bush i. the founder and honorary cbair.an of the FUnd

but that the Fund ia not authorized by any candidate. Aa part

of the plan to support .epublican candidate. at the federal,

state and local levels, the Fund stated that Georg_ Bush va.

required to .ake nuaerous trips to varioul locale. for the

purpo••• of lundraising and candidate support. one of the aain

are.s in which the Fund planned activity was Michigan, in

particular, the Michiqan 1986 caucuses.

In the adVisory opinion request, the Fund

characterized the Michigan August 1986 caucuses as an

-intra-party election, where those elected will participate in

party affairs, such as the nomination of candidates for state

office or selection of candidates for party leadership posta.-

The role of the precinct delegates was to participate in local

caucuses for the purposes of selecting delegates to the atate

convention, wbo would then select delegates to the 1988
11

••publican National Convention. The Fund propo••d to beeo•• involved in the 1986 caucua•• by incurring e.pen••• to recruit

and encourage i~dividu.l. to run for party office, and

di••••inating information, including qualifying'petition_,

re,arding the election for such positiona. The rund would alao

.ake donations to these candidates.

In the context of the 1986 caucuses, the Coaai••ion

concluded that:

the Fund's proposed activity in recruiting,

assisting, and donating to individuals ••eking election as precinct delegat.s in

Michigan in August 1986 . . . will not, of

itself, constitute contributions or

expenditures for the purpose of influencing

the Vice President's or any candidate's

noaination or election to federal office,

nor require allocation to any candidacy for

federal office nor tri9ger any such candidacy.

Bovever, the CoaaissioR cautioned in AO 1986-6 that

activity in conjunction with the aiding of the precinct

delegates that would go beyond the proposed activiti•• • ft~r.t.d in the rund~. letterl -such .s theaolieLtiD9-of-- ---.upPOrt- for Vice President Busb'. candidacy or potential

candidacy for President, or any other caapaigD activity on

behalf of a clearly identified pre.idential candidate, could

warrant a different conclusion by the Co..i ••ion.-

In addition to the Mich19an activiti••, the Fund also

de.cribed propo.ed activiti•• in support of aepublican candidate. aerosl the country. This included travel and

appearanc•• by George Busb with .epublican candidate. at the

red.ral, state and local levela, the cr••tion of st.eriDg eo~tt•••, and a volunteer prograa. In the context of tbe

activity proposed by the Fund, and ita al.ertioD that there

would b. no discus.ion of Bu.b'. presidential aspirations, the

Co..i ••ion concluded that payaentl for such activities would

not be considered -te.ting the vaters- activitie.. Bowever,

the Coaai••ion noted in AO 1986-6 that:

this opinion is 11.1ted to the specific activities as described in your request and

.a interpreted in this opinion. It doe. not

repre.ent, and should not be read as, a

Coa-ission deteraination that any of the

Fund'. past or future payments are or are not ••de for the purpose of either evaluating

Vice Presiden~ Bush's potential 1988 candidacy

or alsisting hi. to determine whether he should

become a candidate.
I ,r-""',

12

AO 1986-6, fn. 3. In AO 1985-40#' the Cosai••ion deter.tned

that disburse.ent. by a aulticandidate coaaitt•• for activiti•• a1.11ar to those described in AO 1986-6, which a former Senator

va. conducting for the purpose of determining whether to beco•• a Presidential candidate, would constitute Rt••ting the vatersto the extent that the Senator had not made a deteraination to

beeo•• a candidate.

At the ti•• of the Interim Audit Report, it v•• the

opinion of the Audit staff that based on our review of reported

rund activity, as described below, substantial questions arole

aa to whether the activity undertaken by the Fund went beyond

that envisioned in the advisory opinion. In order to anaver

thes. questions, it was necessary to exaaine the Fund records.

The Audit staff reviewed the Fund's disclosure

reports filed with the Federal Election Commission fro. its

inception, April 25, 1985 through March 5, 1987 to deter.ine

the extent of Fund activity in Michigan, Iowa and New

Haapshire. The March 5, 1987 cut-off date was selected because

the disclosed activity in these three states waa isaaterial

after this point in tim., which roughly coincided with the

February 19, 1987 reqistration of the Presidential co.-it~e•• Operating expenditures disclosed with paye.s in Kichitan, Iowa _~~~__ "e" _,aaplhir_e vere categorized by--the --audito-raiJl-Ul

att••pt to deter.ine what type. of activiti•• the Fund ..s

involved in and whether po.sibl. -te.ting the vater.-

activiti•• aay have occurred. Michigan paye•• were included

because of tbe candidate'. involve••nt 1n the August 1986

Rlcbi9an caucus.s. Iowa and New Baapshire pay••• were reviewed

because the Presidential coaaitte. bad apparently exceeded the

spending ii.it.tiona in tho•• statea and it app.ared that the

Fund had .et up state organizations in th... stat•• wbich vere

fairly active until the Pre.idential coaaitt•• registered in

February 1987.

The Audit staff also reviewed an affiliated

coaaitt••'. reports, the Micbigan Fund for Aaerica'. Future (XI

Fund), for the sa.e ti•• period, a1tbou9b the activity

disclosed by this eo.-itte. vas ainiaal. It should be noted

that the treasurer of the MI Fund later bee••• a co-Chairaan of

the Pre.idential coaaitt••'. Michigan state office. Tbe MI

Fund filed a Itate report with the state of Michi9an and the

Fund filed a state report with the state of New Haapshire, but

neither of these reports provided the auditors with any

additional information.

a. Michiqan

The Fund itemized 898 operating expenditures to

251 Michigan payees totaling $599,842.22 from the inception of

the Fund through March 5, 1987. After reviewing these

expenditures, it appears that activities were related to the

August 1986 Michigan caucuses.
13

Of the 16 staff on payroll, 9 received tbeir

laat paycheck on August 29, 1986 and only two received a cbeck

after August 29, 1986. Alao, of the 15 consultants, only on.

received their final payment after Septeaber 1986. Sial1ar

trends occurred in other cate90ries of expenditure.. Volunteer

expenses were paid to 50 individuals and one organization

totelin9 $3,204.00. Most of these payments occurred in Auqust and September 1986. There vere also expense relahur.a••nts to

49 individuals totaling $56,410.83.

There were payments for event costs made to 57

organizations totaling $47,556.41. The period of tim. for

these costs ranged from August 30, 1985 through January 27,

1987. It appears that an office was set up by the Fund in

Lansing, Michigan because there were reqular rent payments .ade

from October 4, 1985 through December 26, 1986. There were

also several payments related to direct mail efforts such .s

postage, printing, and market research. Six payments were .ade

to Market Opinion Research, totalinq $42,909.90, between June

3, 1986 and September 22, 1986 for direct mail costs and aarket

research. Market Opinion Research is a polling fir. operated

by Robert Teeter in Michigan, and was also used by the

Co.-itt•••

It appears that activities a ••ociated with

direct aai1 and polling a.y have 90ne beyond those d••••d •• per.i.sibl. activiti•• in AdVisory Opinion 1986-6. The subject

of Matter Under aeview (KUR) 2133 va. that the Republican

National Coaaitt•• authorized Market Opinion Re ••arch to

conduct a 1985 poll on behalf of George Bush which contained

questions related to hil poslible presidential candidacy in

1988 and whether this poll constituted testing the vaters

activities pursuant to 11 c.r.•• SS 100.7(b)(1) and

lOO.8(b}(1). Althouqb"OR 2133 ia not conclusive as to tbe

nature of the di.bur••••nt. at i ••u., it ia que.tionable .a to

whether the polls vere llaited to the Michigan precinct

deleqate activities or if the polls were conducted in

connection with po.sible te.ting the waters activities in

support of George Bush.

b. Iowa

The fund iteaized 328 operating expenditures to

98 payees in Iowa totaling $119,678.39. There were only two

people that received payroll and consulting payments. However

in 1986, the Fund made payments to S1 individuals for teaporary

services totaling $12,567.44 and seven payments to a firm

supplying temporary workers totaling $1,836.94. Of the 51

workers paid by the Fund, S later received either salary or

consulting payments from the Committee.
14

,aya_nt. were aade to eight individual. and two

fir•• for exp.nse r.iabur••••nt. totaling $12,281.20. One of

the•• individuals, who received $7,326.20 of t~ese expen•• reimbur•••ents. later beeaa. Chairman of the Coaaitt••'. Iowa

office. Of the eight individuals and two fira. who received

expen•• reimburse.ent. fro. the Fund, six of the individuals

and one of the firm. later reeeived either salary or consultifi9

payaenta from the Coaaittee.

It appears that the Fund had an office in De.

Moines, Iowa since they made reqular rent payments. One of the

two fir•• who received rent payments from the Fund later

received rent payments from the Committee. There were alIa

.everal payments related to direct mail coats, such as postage

and printinq. The firm who received the majority of payments

for printing and direct mail from the Fund also later received

direct mail payments from the Committee.

c. New Hampshire

The Fund iteaized 203 operating expenditure. to

SS payees, totaling $125,312.57. There was one staff person on

the payroll froa Deceaber 6, 1985 to January 30, 1987. This •••• person later received salary payaents fro. the Co..itt••• Tbre. individuals received con5ulting payaents- froa--the -ruad.

One of the•• individuals later received consulting paya.nts

fro. the Coaaitt•• and bee••• the Co.-itt••'. List Develo,-.nt

Director for Nev Baapabire. The Co..itte. also purchased $1.400.00 of co.puter equip.ent fro. this individual'. fir•• Another of the.e individuals was on the Coaaitte.'. payroll in

the first quarter of 1987.

payaents were also aade to eight individuals for expeo•• r.labur••••nt. totaling $15,816.29. Two of the•• individuals

later received expens. r.iabur••••nt. froa the Coaaitte.. The

Fund alao aade payaenta to 19 pay.es for event coats totaliD9

$22,72J.54.

An office va. apparently aaintained in Concord,

New Raap.hire because r.quIar rent payaents·vere aade froa

Rarch 18, 1986 to Deceaber 2, 1986. There vere also s.veral

payaents relating to direct .ail activities, such •• postage,

printing, and voting inforaatian lists.

The Audit staff also noted numerous references

to the Fund in the Committee's vendor files. Listed below are

specific ex.aples.

1) On September 17, 1987, the Committee

paid the Fund $3,347.23 for computer services and office

supplies in Iowa. A piece of equipment was bought by the Fund

on Deceaber 5, 1985 for its Des Koines, Iowa office for $284.72

and was sold to the Committee in 1987 for $75. Also, on
15

Noveaber 25, 1985 the Fund paid the Iowa voter Registration Ca..i ••ion $512.84 for microfiche copies of the Iova voter

registration f1le for its field operations in Iowa. In 1987,

the Co.-itte. paid the Fund $98 for the•• copies.

2) On Sept.aber 17, 1986 the Coaaitt•• paid the Fund $275 for a list of 2,000 names.

3) In June, 1988 the Committee purchased

furniture fro. the Fund totaling $227.36.

4) On February 1B, 1987 the Committ•• paid

the Fund $14,333.38. As part of this amount the Committe. paid $637.38 for 17,128 names on lists for apparent fundraising,

coaputer equipment apparently located in New Hampshire or .ent

to New Hampshire, totaling $9,883, office furniture totalinq

$3,470, and miscellaneous office supplies for $343.

S} On October 29, 1987 the Committee

notified a vendor that it was assuming responsibility for an

account which preViously had been the responsibility of the

Fund.

6) In January and February, 1987 Federal

Express sent the Fund a bill for charges totaling $932. ~_S_. ~_.

Coaaaittee- paid $313.20 of this-total.

7) The Coaaitt•• rented a typewriter in - its Iowa office and received a bill froa the vendor for a

additional deposit $46.80. The invoice stat.s that the vendor

reque.ta a deposit of $46.80 for an IBM typewriter that the

Coaaitt•• was currently renting. When the vendor received tbe

deposit they would refund the old deposit held under the Fund'.

n.... The vendor asked the Coaaittee where to refund the

Fund'. deposit.

8) On January 28, 1987 an Iova vendor

billed the Fund $2,163.22 for printing reply cards and

envelop.a. On February 27, 1987, the Coaaittee paid the entire

bill.

9) On Nov.aber 25, 1986 the Rola

Corporation billed the Fund $14,602.50 for a CBX II phone

systea. The billing states, wThis letter is to confirm that

ROLR Corporation will meet your intended systea cutover date of

January 5, 1987-. The Committee paid the entire amount on

Noveaber 26, 1986.

10) In March 1987, two hotels in Iowa

billed the Fund $551.54 for hotel rooms, for three people, in

January and February, 1987. The three people later became ••ployees of the Committee. The Committee also paid the hotel

billi.
16

11) On January 30, 1987, a vendor billed

the Fund $1,944.25 for 2S hours of consulting .ervices. The

Committee paid the entire amount.

12) On an Air Force II itinerary eovering

January 16 to January 18, 1987 and paid by the Committ••, Le.

Atwater is listed as travalinq for the Fund. Mr. Atwater

beea.e a political consultant and Campaign Manager for the

Coaaittee on 3anuary 1, 1981.

13) A hotel billed the Fund for Rich Bond's

room and other expenses incurred January 8 and 9, 1987. Mr.

Bond also shipped numerous items to the Fund and the Office of

the Vice-President, and had the charges billed to the Fund.

The Committee paid Bond and Co., $10,884.65 for the previously

mentioned expenses and his February, 1987 consultinq fee.

Rich Bond became a political consultant, a Deputy Campaign

Manager, and a Political Director for the Committee on February

19, 1987.

14) Starting in July, 1986, Fred Bush

billed the Fund for his consulting fees and secretarial

services. A billing vas done for every month throu9h Dec.abet,

1986. According to the Auqust and October billing, the

.ervices provided included "rundraisinq-- consulting-. -ft.---

Septeaber billing was for "rinance consulting-, and included

$312.50 to a C.P.A. fira for, "Accounting and ric co.pliance ••rvic••• • The Coaaittee paid for all th••• expens••, totaling $10,627.50.

15) In January, 1987 the Co..itt•• sublet

office spac. from the Fund, and paid the landlord rent for

January, 1987.

16) Tbere were nuaeroua coaaon vendors us.d

by the Fund and the Co..ittee. The Fund also paid for the Vice

President's travel on Air rorce II. Bowever, the Fund's

reports do not indicate the destination of tbat travel.

Sased on the Audit staff's review of the Fund's

report, a request for supporting docuaentation of disburse.ents

a.de by the Fund, vaa aade of the Coaaitt.e on January 17,

1990. Copies of workpapers, listing these disbursements, were

provided to the Committee on the same day. The same request

vas made at the @xit conference of March 5, 1990. The

Treasurer stated that the Coaaittee did not have the records

because it was not their Committee, and could not provide the.

to the Commission.

At the tim. of the Interim Audit Report the activity

described above indicated the possibility of a -testing the

waters· campaiqn by the Fund on behalf of the Coaaittee
17

be9innin9 1n early 1986 and continuing until the first quarter 1987. A review of the Fund'. diaelo8ure reporta did not enable

the Audit staff to make a determination al to whether the

activiti•• undertaken by the Fund go beyond those d••••d

permisaible in AO 1986-6.

In the Interim Audit Report, it was recommended that

the Coaaittee provide Fund disburae.ent records, including

copi•• of invoices, bank statements, cancelled cheeks, debit

and credit advice. and any other documents related to the

.xpenditures from the Fund's inception throu9h June 30, 1987.

The Coaaittee was also encouraged to provide any explanations

which it believed would clarify the nature of the

disburse.entl.

In his response, the Treasurer states that the Fund

was not connected in any way to the Committee, "they were two

distinct entities which never had more than an arms lenqth

relationship with one another". The Treasurer also states, that

it is "inappropriate" to sU9gest the Committee is in

"possession of Fund documents· and to sU9gest the Committee can

explain the Fund's expenditures$

In a separate letter to the Fund's Treasurer, the

Coaaisaion requested that the Fund provide the following

inforaation:

-receipts and other docuaentation a••ociated with

disburse••nts aade by the Fund which relate in any way to Iova,

Michigan, or New Baapahire fro. inception through June 30,

1987. The.e records are to include copies of invoices, bank

state••nts, cancelled cheeks, debit and credit advice. and any

other documents related to the expenditures. Tbe Coaaitt•• is

also encouraged to provide any explanations which it belie••• vill clarify the nature of the disburse••nts.-

The Treasurer of the Fund did provide so•• docuaentation in re.pon.e to the letter .ent by the Coaais.ioD.

In the re.ponse, the Treasurer states that the Fund ter.inated

on June 4, 1990. The Treasurer sent invoices -relevant- to the

Coaaission's inquiry covering the period January, 1987, to

June, 1987. The documentation subaitted by the rund supported

disburse.ents of $23,104.81, in Michigan, Nev Ba.pshire, and

Iowa.

The Treasurer goes on to state, NAll invoices and

other documentation prior to this ti••, other than checks and

bank statements, were disposed of when the Fund went out of

existence. While I do have original checks and bank statements,

these reflect information identical to the information

contained on the Fund's rEC reports.-
18

The Treasurer also stat••, "during the Fund'.

existence tho•••s.ociated with the Fund were very

conscientious in eo.plying with the Federal Election C••paigft

Act and itl regulations. The Fund co.plied with both the letter

and spirit of Advisory Opinion 1986-6 issued in 1986. AI the

enclosed documents reflect, the Fund paid only for tho•• expenses peraitted by the Advisory Opinion."

In prior audits of Title 26 candidates, the

Coaai••ion determined that a limited number or type of

expenditures could be associated with testing-the-watera

expenses of the Presidential candidate. A number of

disburse.ents made by the Fund possibly fall into this

category.

The Fund paid a consultant for work performed in

January, 1987. The consultant received the same amount fro. the

Committee for consulting work. The first check issued by the

Committee was on March 2, 1987. As previously stated, the

consultant's job with the Committee was List Development

Director for New Hampshire. ais job was to update voter files

fro. allover the state for Independents and Republicans in any

fora available. The Fund paid the saa. consultant a total of

$11,837.12 fro. May 15, 1986 to January 28, 1987. The Fund also

paid the City of Manchester $500.00 on January, 20, __~_~'1,__ (Q_{ __ __

---II.Dehester voter checklist on-a.-gnetic tape, requested by a

person who beea•• an e.ployee of the Co.-itte•• The total

additional expenditures related to Nev Raapshire based OD ~he

above activity is $12,337.12.

Additional disburse.ents vere aade in Iowa in

connection with voter lists. A person that waa a consultant for

the Co..itt•• was paid $464.42 OD March 20, 1987 for Iowa ••publican and non-affiliated voter tapes. This consultant v•• r.labur.ed for 5i.llar expenses by the Coaaitt••• Another

vendor vas paid $55.00 for a aepublican activist list and

$160.00 for a tape copy charge, tape deposit, shipping, and

pro9ra..ing. As previously .ention.d~ the Fund paid the Iova

Voter .e9istration Coaai••ion $512.84 on Noveaber 25, 1985. In

1987, the Coaaitte. paid the Fund $98 for these copies. The

total additional expenditure. related to Iowa based on the

above activity is $1,094,26.

The Fund also paid for telephone costs in Michigan,

New Baapsbire, and Iova. In Michigan, the Fund paid a vendor a

final bill for a telephone answering service in Lansing,

Michigan of $85.91 on January, 13, 1987. The first payment made

to the sam. vendor by the Comaittee was on March 26, 1987.

There were additional payments by the Fund to the vendor of

$275.26.

According to the documentation submitted, the Fund

paid Michigan Bell $138.18 on February 10, 1987, for telephone

charges in Noveaber and Deceaber, 1986. The balance of the bill
19

wa. paid by the Coaaitt•• on February 19, 1987. Additional

payaents of $30,224.96 were aade to Michigan aell by the Fund

covering the period fro. Deceaber 3, 1985 to January 5, 1987.

Activity related to this vendor, totaled $30,72~.31.

In Michi9an, the Fund'. disclosure reporta alao

indicate the Fund paid A.T.'T. a total of $6,583.02 fraa

Nov.abe, 6, 1985, to October 8, 1986, and Mel

Telecoaaunicationl a total of $1,059.48 on Auqust 29, 1986, and

Septeaber 30, 1986, for telephone expense•• Also, the Co.-itt•• and the Fund did not provide any additional information with

re9ard to the $42,909.90 paid to Market opinion Research, aa

previously mentioned in this finding. In our opinion, direct

8ail and pollin9 may still go beyond the activity deemed

peraissible in Advisory Opinion 1986-6.

The Fund also paid additional telephone expenditures

in New Hampshire. According to the invoices submitted, the Fund

paid a vendor for the telephone expenses in the New Haapshire

office of $2,066.40. According to the Fund reports this vendor

was paid additional disbursements for photocopying, conference

roo., event expense, office supplies, space rental and

additional telephone expenses. The telephone expense. paid to

this vendor totaled $5,315.10.

-The -Fund- -&ubai tt-ed--docuaentation-indieat:t-ttcl-We"

England Telephone vaa paid $52.39 as the final charge. for the

Funds office expense in Hew Baapsbire. According to the Fund'.

reports, $2,797.46 in additional telephone expen••• were paid

to Nev EDgland Telephone fro. the period June 10, 1986 to

Dec.abet 26, 1986. The Fund alao reiabur••d a persoD, who later

bee••• a consultant with the Co..itt••, for his telepbone

expen••• on Karch 9, 1987 for $187.87. This perlon received his

-first payaent fro. the Co..itt•• on February 10, 1987. Froa the

inforaation described above, the additional telephone expense.

related to New Raapsbite total $8,352.82.

In Iova, the Fund subaitted inforaation that they had

paid Northwestern Bell $478.20 on January 28, 1987 for the

January, 1987 telepbone bill. Accordin9 to the Fund'. reports,

Northwe.tern Bell wal paid an additional $ 8,647.22 in

additional telephone expenses froa Deceaber 26, 1985 to

Dec.aber 26, 1986. .

According to the documentation submitted, the Fund

allo reiabursed the consultant's, previously .entioned in the

voter list section, law fira $82.11 on February 10, 1987, as

reimbursement for hil telephone expenses. According to the

Fund's disclosure report, the Fund reimbursed the consultant or

hi. law fira an additional $1,085.73, for the period December

17, 1985 to March 3, 1987, in reimbursed telephone expenses.

From the information described above, the additional telephone

expenses related to Iowa total $10,293.26.
20

Pr••ented below ia an overall suaaary for each state

of the Fund activity baa.d on the limited recordl available.

Total Amount Allocable ror

Each State

Michigan

Ne", Re.p.hire

Iowa

Total

$81,276.71

20,689.94

11,387.52

$113,354,17

The Office of General Counsel's 1e9a1 analysis

disagrees with the conclusions discussed above. Given the lack

of records, it is not possible to deaonstrate activity similar

to that considered in previous cases. Therefore, in light of

the few records available and AO-1986-6, the Audit staff

accepts the Counsel's conclusion .

••co__end.tion 13

D. Matters Referred to the Offic. of General Couns.l

Other .etters noted during the audit have b.en

referred to the Coaaission'. Office of General Counsel.

III. rinding. and Reco...ndations Related to Title 26 of the

Uftlted States COde

A. Calculation of .epayaent Ratio

Section 9038(b){2)(A) of Title 26 of the United

States Code states tbat if the Coaai••ion deter.in•• that any

a.OUllt of any payaent aade to a candidate fro. the .etchiDCJ

payaent account was used for any purpose other than to defray

the qualified caapaign expenses with r.spect to which such

payaent va. aade, it shall notify such candidate of the a.ount

80 us.d, and the candidate shall pay to the Secretary an a.aunt

equal to such a.aunt.

Section 9038.2(b)(2)(iii) of Title 11 of the Code of

rederal aequlations states, in part, that the a.aunt of any

repayaent sought under this section shall bear the same ratio

to the total a.ount deterained to have been used for

non-qualified campaign expenses as the amount of matching funds

certified to the candidate bears to the total amount of

deposits of contributions and matching funda, as of the

candidate'. date of ineligibility.
21

Also, 26 u.s.c. S9038(b)(3) states, in part, .fter

all obligations bave be.n liquidated, that portion of any

unexpended balance r.aa1n1n9 in the candid.te'a-account. which

b••ra the sa.. ratio to the total unexpended balance a. the

total aaaunt received fro. the matching payment account b.ars

to the total of all deposits aade into candidate's accounts

sh.ll be promptly repaid to the matchinq payment account.

The foraula and appropriate calculation with re.pact

to the Coaaitteefs receipt activity is as follows:

Total Matching Funds Certified throuQh the Date of Ineligibility - 8/17/8

Numerator plus Total Deposits Received through 8/17/88

$8,393,094.56

$8,393,094.56 + $23,128,833.69 • .. 266262

Therefore, the repayment ratio is 26.6262'.

B. Deteraination of Net Outstanding Caapaign

obligations

__ ___Section -.9034.5(.) of- Title -llrC--od.-of---Fede-ralRegulations requires that the candidate sub.it a Stat••eDt of

Met OUts~andlng Caapaign Obligations (NOCO) which contains,

&aOD9 other it•••, the total of all outstanding obligations for

qualified C.-paigD expens•• and an .stiaate of n.c••••ry

winding down costa within 15 days of the candidate's date of

Ineli9ibil 1ty.

In addition, 11 c.r.R. S 9038.3(c)(1) requir.s a

candidate who•• net outstanding caapaigft obligations reflect a

surplus on the date of in.ligibility to repay to tbe Secretary

witbin 30 calendar day. of the ineligibility date an aaoUDt

wbicb repr•••nta the a.aunt of aatching funds contained in the

surplus.

Alao, 26 u.s.c. S 9038(b)(3) stat•• that -[a).ounts

received by a candidate fro. the aatching payaent account aay

b. retained for the liquidation of all obligations to pay

qualified caapaiqn expense. incurred for a period not exceeding

6 aonths after the end of the .atching payment period. After

all obliqations have been liquidated, that portion of any

unexpended balance re.aining in the candidate's accounts which

b.ars the saae ratio to the total unexpended balance as the

total a.ount received from the .atching payment account bears

to the total of all deposits made into candidate's accounts

ahall be proaptly repaid to the .atching payment account.·
22

Section 9033.S(c) and 9932.6(a) of Title 11 of the

Code of Federal Regulations define. the date of ineli91bl1ity for a candidate seeking the nomination of a party which

nominates its presidential candidate at a national conv.ntion

as the date of such nomination.

On August 17, 1988, President George W. Bush va.

nominated as the Republican Party's presidential candidate O~

ita national convention. Therefore, that is the date on wbich

President Bush's candidacy terminated for the purpose of

incurring qualified campaign expenses.

The Statement of Net Outstanding Campaign Obli9ations

(NOCO) is the basis for determining further matchinq fund

entitlement. The Committee filed a NOCO statement which

reflected a $25,940.00 deficit at August 17, 1988. There were

no matching fund requests after the date of ineligibility,

therefore, no revised NOCO statements were filed. The Audit

staff analyzed the Committee's August 17, 1988 NOCO, and made

adjustments to the financial activity as of that date. A review

of the Committee's financial records through September 30,

1989, and the Committee's disclosure reports through Septeaber

30, 1990 waa performed to determine the NOCO figures that

appeared in the Interim Audit Report. Further adjust.ents were

sade based on the Committee's response and disclosure reports

filed through Septellber 30, 1991. The NOCO as adjusted by the

Audit staff appears below:
23

Georp Bush for Pru1deat Coaitt... Ine.

St.t....t of Met OUtataad1q eu-paip Obllpt1ou as of

Aupst 17 t 19U!'

Assets

1-..- -

Cash in Baalts

Aeeounts Reeeivabl.

capital As••ts

Total Assets

Liabilities

AccountS Payable

CaJlpaign Expus•• anel Vlnd1ng

Dovn Costs 8/17/88 to 9/30/91

AIIount Due lush-Quayle '88

Offset to Payablu UDqQallfleci

Caapaiplxpeadltvu----Coata1Ded- -

iD AecoUDta Payable at 8/17/88

Total AeCOUDts Payabh

btl_teG Vl.._ Dowa aacl

Coapliaaee eo.ta 'ost 9/30/91

Total Liabilities

Net Outstandlna Cupaip ObllptloDS

$1.122.102.92

585.331.90 bl

114,371.14 -

1,902.598.00 s.'

42.'19.00 !!.'

1,730,897.38

90,908.58 !/

51,821,805.96

$1,82.1,805.96

s
!/

24

Footnotes to the NOCO

All fi9ures shown were determined as of 8/17/88 unl••• otherwise noted.

~I

£/

C -~/-

!/

Accounts Receivable includes refunds, rebates, interest

earned and reimbursements received between 8/18/88 and

9/30/91, and excludes what Bush-Quayle '88 paid for

Committee Assets. Amounts received between 8/18/88 and

9/30/89 were verified via the Committee's Account Receivable

records. Figures between 10/1/89 through 9/30/91 are from

reports filed and are subject to audit verification.

These amounts include adjustments other than the Pre•• Plane

and Payables to Bush-Quayle '88 discussed later in the

report.

See Pindinqs I I. B Press plane ($23, 520), 111.-0.4. Equip.ent

Sold ($4,140), and III.D.3. Prepaid Insurance ($14,859).

This a.ount is the sa•• as expenditures in excess of th.

overall liait. All a.ounts paid in excess of the overall

spending liaitation were paid after the date of

ineligibility. (Findin9III.D.)

Aaounts prOVided by Co.-ittee in response to the lnt.ria

Audit Report.
2S

Recommendation I 4

The Audit staff racomaenda that the COmBission make an

initial determination that there il no repayment to the United

States Treasury pursuant to 26 u.s.c. S9038(b)(3,.

c. Allocation of Expenditures to States

sections 441a(b)(1)(A) and 441a(c) of Title 2 of the

united States Code provide, in part, that no candidate for the

office of President of the United States, who is eligible under

Section 9033 of Title 26 to receive payments from the Secretary of

the Treasury, may make expenditures in anyone State ag9reqating

in excess of the greater of 16 cents multiplied by the voting age

population of the State, or $200,000, as adjusted by the change in

the Consumer Price Index.

Section 106.2(a)(1) of Title 11 of the Code of Federal

Requlations states, in part, that except for expenditures exempted

under 11 C.F.R. SlQ6.2(c), expenditures incurred by a candidate's

authorized committee(a) for the purpose of influencing the

nomination of that candidate for the office of President with

respect to a particular State shall be allocated to that State.

In the event that the Coaai••ion disputes the candidate'.

allocation -orclaiaof---exUlpti-on fo-r- apartl-cula-rexpense, the

candidate sball deaonstrate, with supportin9 docu••ntation, that

his or her proposed ••thod of allocation or cla!. of ex.aption vas

reasonable. rurther, 11 C.F ••• Sl06.2(c) d••crib.s the various

types of activities that are ex••pted fr08 State allocation.

Seetion l06.2(c)(S) of Title 11 of the Code of Federal

Requlations states, in part. that an a.ount equal to 10\ of

eaapaiqn workers salaries and overhead expenditure. in a

particular state ••y be excluded fro. allocation to that State .a

an ex.apt coapliance coat. AD additional a.ount equal to 10' of

such salaries and overhead expenditure. in a particular State aay

be excluded fro. allocation to that State .a ex.apt fundraiainq

expenditures, but this ex••ption shall not apply within 28

calendar days of the prt.ary election.

Section l06.2(b)(2)(iv) of Title 11 of the Code of

rederal Regulations states, in part, that overhead expenditures

include, but are not liaited to, rent, utilities, office

equipment, furniture, supplies, and telephone service base

charges.
c

26

For the 1988 election, the expenditure limitation for

the State of Iowa was $775,217.60 and for tbe state of Nev

Baapshire waa $461,000.00. Throu9h the Committee's March 31, 1990

report on ita PEe Fora 3., Page 3, the Committee's expenditure.

allocated to Iowa totalled $775,041.95 and expenditure. allocated

to New Rampshire totalled $481,332.45.

The Committee provided the Audit staff a coaputerized

file containinq all their expenditures from inception through

Deceaber 31, 1988. The Committee also provided the Audit staff

with allocation worksheets. The Committee's allocation .ethods

were reviewed.

Copies of workpapers and supporting documentation for

the Audit staff's allocations were provided to the Committee at

the end of fieldwork. In the Interim Audit Report was a recap of

allocable costs to Iowa and New Hampshire.

1. Adjustments to Committee's Allocations

On their report covering April, 1988, the Coaaittee

included a downward adjustment of their Iowa expenditure. subject

to the spending Ii.itation. The support for this adjust.ent vas a

recalculation of Iowa allocable aaounts froa inception to April

30, 1988. In reviewing this recalculation,- it was -not-ed----th-at

refunds which had been previously considered in the Iova

allocations were excluded fro. the revised a.ount. In addition, a

portion of the refunds received after April 30, 1988 were not

considered in the Coaaitt••'. subsequent allocations. The•• refunds result in a $3,091.62 reduction in reported allocationa.

It was alao noted that the Coaaittee'a revi.ed Iowa

alloeationa apparently neglected to calculate a 10' co.pllance and

10\ fundraising ex.aption on all salary expen.e. charged to the

State. The Audit staff calculated a corrected ex••ption which

r••ulted in a $9,354.36 reduction to the reported allocation. The

Audit staff also corrected an apparent error in the allocation of

equip.ent purchases charged to Iowa. This correction resulted in

a $2,004.00 allocation reduction.

Finally, a number of other miscellaneous

adjustments were aade that require a net increase of $459.45.

The net effect of these adjustments was a

$13,990.53 reduction in the reported allocation.

For New Baapshire, the Audit staff made a $5,559.93

adjustment to decrease expenditures subject to the limitation,

because the Committee did not calculate a fundraisinq exeaption

for payroll and overhead in the fourth quarter 1987. Also, the

Committee did not provide any workpapers to support their

allocations to New Haapshire for the first quarter, 1987 report.
27

o

The Audi~ ataff recalculated the a.aunt to be allocated fro. the

autoaated di.bur••••nt file and included telephone inltallation

eh.rg•• which the Comaitt•• had apparently not allocated. Th••• tva adjust••nts caus. a $2,830.36 increa•• in ~he allocated

aaouftt. There were also ai.cellaneous adjustaents that reduced

Co..itt•• exp.nditure. subject to the ii.it by $1,479.18.

Altogether, the•• adjustments decreased the expenditure. subject

to the Nev Hampshire ii.it by $4,208.75.

In re.ponse to the Interia Audit Report, the

Co..itt•• agr.ed with the Audit staff's downward adjustment of the

Iowa allocations by $13,990.53 and the New Hampshire allocations

by $4,208.75.

2. Individuals' Travel and Salary

Section 106.2(b)(2)(ii) of Title 11 of the Code of

Federal Requlations states that salaries paid to persons workinq

in a particular state for five consecutive days or more, including

advance staff, shall be allocated to each State in proportion to

the a.aunt of time spent in that State during a payroll period.

Section l06.2(b)(2)(iii) of Title 11 of the Code of

r.deral Regulations states, in part, that travel and subsistence

expenditures for persons working in a State for five consecutive

day. or aore shall be allocate~ to that st~_~,Jnp{oportiQo_to the

--allOUl'it -- of- --tilia. spent -in each State during a payroll period. For

purpos•• of this section -subsistence- include. only expenditures

for personal living expen••• related to a particular individual

traveliDg on coaaitt•• bu.in•••, such .s food or lodging.

Also, the Explanation and Justification for the

above regulations in the Federal ae9ister, Volu•• 48, No. 2S page

5225, stat••, in part, if an individual ia workinq in a State for

four days or Ie••, he or sbe will b. pr••uaed to be working on

national caapaign strateqy and not influencing the priaary in that

particular stat.. ror purpo.e. of deter.ining the length of ti•• aD individual re..ina in a State, the Coaai••ion vill generally

look to tbe calendar days or any portion thereof that the person

va. In • State rather than u.ing 24-hour periods. If an

individual works in a State for five consecutive day. or aore,

that individuals salary .Ult be allocated to that State fro. the

date of his or her arrival.

Further, Chapter 1, page 32 of the Financial

Control and Co.pliance Manual, Itates, "When deteraininq whether a

c••paign staff person worked in a State for more than

4 consecutive days, the Conaission will generally look to calendar

days or any portion thereof, rather than 24 ho~r periods.-

Finally, the Explanation and Justification for 11

CrR l06.2(c)(4) (Federal Register, Volume 48, No. 25, Page 5226)

states, "Travel across state linel that is occasioned by
28

transportation or lodqinq facilities vill not be d••••d ex••pt

interstate travel. For ex.aple, a candidate or personl

eaapaiqning on a candidate's behalf in a particular State may have

lodq1nq accoaaodationa in a contiquou8 State. In such ea•••, travel aeross state lines to campaign in a contiquoul Itate would

not be considered ex••pt interstate travel."

The Audit staff reviewed the vendor files related

to Coaaittee staff travel in Iowa and New Raap.hire to identify

travel and salary coats which althouqh allocable were not

allocated to these states by the Committee. In most ca••• , costs

of lodqing, air travel and vehicle rental were paid fro.

headquarters rather than by the traveler. Further, no receipts

for meals vere apparently required for per diem paid to travelers.

As a result, in order to determine an individual's len9th of

travel and location, it was necessary to create a travel itinerary

for such individuals from these various sources.

This review revealed that expenditures for

intra-state travel and subsistence had been incurred by staff

persons in Iowa and New Hampshire who were in these states on five

or more consecutive days, or were Iowa and New Haapshire

residents, but were not allocated to the states by the Co.-ittee.

The related payroll costs for these staff persons was also

calculated and included as expenses allocable to the•• stat••• 'rh.~ payroll va. calcula-tedfor the-period of ti•• in vbich--thelie

persons weee docuaented as being in these states and was adjusted

for the coaplianee and fundeaising ex.aption••s appropriate.

Durinq the Audit staff's review we noted the

Co.-ittee on a nuaber of occasions would have a Coaaittee staff

perlon traveling in Iowa or New Raapshire, Itay overnight in tho•• atat•• for three consecutive niqhts, then spend the fourtb n19bt

in a border stat.; and return to Iowa or Nev Raapsbire the next

day and vere therefore in the state on consecutive days. Th.

Coaaitt••, did not allocate the•• travel di.bur••••nts, including

aft ••ploy•• or consultant'. salary, to the Iova or New Reap.bire

state li.its.

Also, while reviewing the vendor flles we noted the

candidate and a nuaber of Coaaitte. staff stayed at a hotel, in

White River Junction, Vermont, fro. January 13, 1988 to January

17, 1988. The hotel and related costs totaled $15,804.89. During

this period the candidate participated in the debate at Dartmouth

College in Hanover, New Haapshire.

According to the candidate's itinerary, Air Force

II landed in New Hampshire on January 13. He participated in

events in New Haapshire on each day starting January 14, throu9h

his departure on January 17, 1988. The Committee paid the hotel

bills for 28 people. Of the 28, 22 people stayed 5 day. or
29

longer, and six stayed 4 days or le... Of the 22 people, 3 can be

placed in New Heap.hire 5 consecutive days, including the

candidate. During this ti•• period, the Co.-itt•• rented five

pas.enger vans and chartered leveral bus trips" one of ¥bich

occurred January 16, 1988 fro. White River Junction to Hanover and

return. The purpose of the bus trip vas ta transport people to

the debate. In the Audit staff's opinion, vith the exeeption of

exp.naea for the six persons ~ho traveled 4 days or le•• the

COltl associated vith the white River Junction, Vermont trip

(hotels, .eals, staff salary, staff office equipment, van, and

auto rentals) should have been allocated to the New Haapshire

expenditure limit. Some of the expenditures for this trip are

included in the non-travel section below.

The next month numerous campaign workers stayed at

the Lovell Hilton in Lowell, Massachusetts. The period waa

iaa.diately preceding the New Hampshire primary. The Co.-ittee

also had individuals, including the candidate, lodged at a hotel

in Nashua, New Hampshire. In some cases, portions of the period

were spent at both hotels, with some individuals' names appearing

on room. at both hotels. Also, many of the people, including the

Candidate, who were stayinq in Nashua moved to the Lovell Bilton

on the evening of February 13, and returned to New Haap8bire on

February 14 in an apparent effort to avoid the application of the

5 day rule. The current allocations include lS individuals who

traveled for .S consecutive days in New Baapshire and Na••achu••tts

and stayed at the Lovell Bilton, but can not be placed in Mev

B••pshire for 5 consecutive days.

In the Interia Audit Report, the Audit staff

deterained that the following travel and salary cost totals should

be allocated to Iowa and New 8aapahire:

Iowa Nev Reap.hire

Travel $ 52,152.44 $ 69,635.51

f,·r~ salary 39,351.28 56,732.16

TOTAL $ 91.593,72 $ 126,367,6]

The Coaaittee vaa provided schedules of the•• travel and salary costs at the exit conference.

In addition to the a.aunts chargeable to the State

.pending liaitations, the reallocation of salary from the national

caapaiqn to a state limitation results in an adjustment to the

a.aunt chargeable to compliance for purposes of the overall

spending limitation. AI a State expense, salary is eligible for a

10' compliance exemption. Compensation charged to the National

Office is 5' compliance if part of operating, 8S\ compliance if

part of the accounting office or 100\ charged to the legal cost
30

center and not otherwise allocated (s•• rinancial Control and

Compliance Manual for Pr.sidential primary Candidatea .eeeivin9

Public Financing, April 1987, pag•• 22-24).

Adjustments to the compliance exeaption for the

compensation payments discussed above result in an incr.a.e in

a.aunts chargeable to the overall spendinq limitation of

$8,266.98.

The Committee did not agree with the Audit staff's

adjustments reqardinq indviduals'travel and salary. The Treasurer

atates, "The Audit Division incorrectly relies on the co..ent of

the Compliance Manual that 'the Commission will generally look to

calendar days or any portion thereof that the person was in the

State rather than using 24-hour periods.' The Audit Division's

reliance on this provision is irrelevant, for it is undisputed

that the campaign staffers at issue here left the state before the

fifth calendar day and also before the fifth 24-hour period. Our

only dispute is over the fact that those workers, after beinq out

of the state, returned again at some point durinq the next day.

The Audit Division contends that this re-entry qualifies .a the

fifth 'consecutive' day, whereas the Committee maintains that the

stay was by definition not consecutive (since it was broken by

tim. out of state)." ---

\

\

\

\

I

The Treasurer continues, " .•• an individual ..y be

in a particular state for only one hour a day for five day. witb

the result being that the individual's salary and travel espea•••

are counted toward that state'. expenditure Ii.its.- The report

includes -15 individuals who travelled for five consecutive days

in Nev Raapshire and Massachusetts and stayed at the Lovell

Bllton, but can nor-be placed in New Raapshire for five

consecutive day•• ft The Tre.surer states that these should not be

allocated to New Reap.hire since -they are clearly not allocable

to ~ny stat.-. Be continue., that under the requlation. there is

norequire.ent that the Coaaitte. allocate that individual' • ••lary or travel expenses to any particular Itate. It may vell be

true that the individual va. in the state 'on consecutive day.,'

juat .a if he had been there for one hour on five consecutive

days, but it is certainly not true that the individual vas 1n the

state 'for five consecutive days.' The Audit Division has failed

to recognize this disti~ction."

A. additional information the Committee included an

affidavit from Gary E. rendler, who accordinq to the affidavit vas

-the Field Supervilor for the Advance Team of the George Bush for

President Committee-. According to the affidavit, "A number of

rooms would be blocked by the Committee months before an

anticipated stay in Iowa or New Hampshire in order to assure that

sufficient rooms would be available for the travelling caapaign

entourage. Further, some of these rooms vould be reserved for aore

than five days to permit Committee staff to arrive and leave the

state prior to and follOWing an event, as necessary.- Mr. rendler
31

continue., -my direction as well .a the direction to the advance

staff was to adhere to the policy of the caapaign not to perait

individuals to stay in a .tate for more than four con••cutive

day.; so that the individual's salary and transportation expenses

would not be allocable to that state. Therefore it wal caapai9n

policy that no individual was permitted to continuously occupy a

rooa for more than four days. Rather, as the time cam.,

individuals would stay in the rooms on an as needed baais. The

hotels, however, would not nec•••arily have any record of a

particular individual'. coming_ and goinqs."

The Audit staff does not agree with the Comaitte.'.

interpretation of the regulations at 11 erR l06.2(b)(2). The

references to the Explanation and Justification for that

regulation and the similar passage in the Financial Control and

Compliance Manual make it very clear that leaving a state for a

short period during an otherwise uninterrupted stay of more than 4

days, does not begin a new trip. To follow that interpretation

would allow the undesirable result of permitting a campaign worker

to cross a state line every few days, buy a newspaper or have

lunch to qenerate a document to prove he was in the other state,

and then return to the state in which he is working. This would

avoid any allocation of the caapaign worker'S salary or expense.

even though the individual was working in the saa. state for v••ks

at a tl... 8y defining con.e~utive days al a calendar day--or- any

portion thereof, the Co__ia.ion require. that a person be out of a

state for at least one entire calendar day. Tbis require••at

a.rves to insure the underlying asauaption stated in the

Explanation and Justification. That assuaption is .s follows, wIf

an individual is working in a state for four daya or 1•••, he or

ahe will be presuaed to be working on national campaign strategy

and not influencing the pri.ary in that particular state-.

Therefore, if a person re..ins in the state for aore than four

consecutive days, they are pre.used to be vorking to influence the

priaary election in the state. The Coaaitt•• appears to aflUe

that a sbort trip acro.s a state border so••how converts the

individual. function froa state related to national caapaigD

strategy.

The affidavit fro. Mr. Fendler aerves only to

establish that it was the Coaaittee'. intention to use the

provisions of 11 crR l06.2(b)(2) to avoid alloeation whenever

possible and that hotel roo•• were not always used as indicated on

Coaaittee records. Though the problem with hotel records may be as

previously described by the Committee, absent so•• indication to

the contrary, the Audit staff must assume that if the Committee'S

records indicate that an individual was in a particular location

for a specified period of time, that person was in that location.

With respect to those persons who were lodged in

Massachusetts during the period immediately preceding the New

Hampshire primary, the Committee'S response provides no additional

information. Aa noted above and in the Interia Audit Report, the
32

Explanation and Justification for'11 cr. l06.2(c)(4) ••k•• it

cl.ar that lodging in a contiguoua state do•• not preclude the

allocationa of an individual'. aalary and expense bec.u•• luch

travel ia not considered ex.apt interstate travel. In this cas.,

the expense. are allocable under the general allocation provisions

of 11 eFR 106.2(a)(1).

In the Interia Audit aeport, the Audit Staff

allocated so•• of Mr. rendler'. salary and trav.l to Iowa and New

Baapahire baaed on the recorda provided by the Committ•• during fi~ldwork. According to this information, Mr. Fendler va. in Iowa

froB January 18 to January 22, 1988. Mr. Fendler did spend the

night of January 19 in Omaha, Nebraska but returned to D•• Moin•• on January 20. Mr. Fendler left Iowa and traveled to New

Ba.pshire on January 22. Regardless, Mr. Fendler was in Iowa for

5 consecutive days.

The next period of time Mr. Fendler was in iowa was

froa January 29 to February 8, 1988. From the information provided

Mr. Fendler stayed in Moline, Illinois the niqhts of February 1

and 5, but returned to Iowa the next dayo Mr. Fendler had two

trips allocated to Nev Ba.pahire. The first covered the period of

January 11 to January 17. The nights of January 11 and 12, Rr.

Fendler stayed in Bedford, New Baapsbire. For the period January

13 to the 17, Mr. rendler vas with the 9roupill __ Wl\~_~_e_Jl_lv.r

Junction,-Ver.ont--that --"••- ptevlously- explained in tbi• finding.

Rr. rendler w•• also in Hev Baapshire for the period February 8,

through February 17, with the group that stayed at the Clarion

So••r••t in Be. Baapsbire and the Lovell Bilton in Ra••acbu••tts.

The affidavit subaitted by Mr. Fendler and tbe

inforaation aubaitted by the Treasurer do•• not dispute thia

inforaation. There wa. an overallocation of $25.00 in tbe Interia

Audit .eport.

The next i.au••ddr••••d in the Coaaitte.'.

respon•• involved allocatiDg e.pens•• of Iowa r••idents to the

.tate of Iowa. According to the Trea.urer, non. of the•••xpen••• should be allocated under the four day rule and none of the•• individual. were e.ployaes of the Coaaitt.e. According to the

Tre.aurer, -each of tbe•• individuals volunteered their ti•• Oft an

infrequent basis in order to a••ist the caapaign, generally with a

specific event, and they were reiabursed for their expenses. Thus,

if an individual vorked on an event for fewer than five day., hi.

or her expenses vere not allocated to the state, but rather that

individual wa. treated in accordance with the four-day rule. This

deteraination was appropriate because the individuals in question

aaintained non-Bush related jobs and would continue with their

private lives at the end of their volunteer service to the

campaign. The rules require that an individual work 'in a

particular state for five consecutive days,' .•• before any travel

or salary costs be attributed to that state."
33

The Audit ataff ia.not able to deterain. whether a

specific individual did volunteer work for the Co..itt•• on five

consecutive days. Conver.ely, the Committee sub.ita no e?idence

that their local caapaiqn workers did not work on five or aore

consecutive days. Bowever, this issue il not relevant. Th.

Explanation and Justification for 11 CFR 106.2(b)(2) u••• the term

wre.aina in a Stat.- when discussing the application of this

provision. To use the Committee's standard that required that an

individual work on the caapaign, whether the perlon va. a r••ident

of the state or not, would require the Coaaitt•• to keep detailed

tim. records on all individuals that worked on the campa19n.

Further, it would allow a campaign to avoid any allocation of

salary and travel expenses by simply giving each person a -day

off w every fifth day.

The Treasurer also disaqreed with the Audit staff's

allocation of Ralph Brown's and Julie Mashburn's salary and travel

expenses to the state of Iowa. The response states that all of Mr.

Brown's and Ms. Mashburn's activity should be allocated to exempt

compliance. The Treasurer also states that we should not have

allocated $566.02 of Jay Allison's expenses to Iowa for his hotel

and rental car for the period April 7 to April 12, 1987.

According to the Treasurer this should have been allocated to

exeapt fundraising.

The Audit staff cited 11- C.r.R.t-l%-.2(c){ 5) in the

Interia Audit aeport. The Coaaittee elected to take 10' of

caapaigD workers salari•••a an exe.pt coapliance cost and 10' for

lundtaisiog. The Regulation also state. that a candidate can elat.

e larger ex.aption for any person, if the candidate establisb•• allocation percentages for each individual vorking in that State.

Tbe candidate sball keep detailed records to support the

derivation of each percentage in accordance with 11 C.r.R.

1106.2(8). The Coaaitte. did not provide any docuaentation

supporting allocation. for each individual. The Co..itte. can not

clai. 10' co.pltance costs for the other caapaigD workers in Iova

and 100\ for Ralph Brown, and Julie Mashburn. The sa-e is true for

Jay Allison'. travel expenses being totally allocated to the

fundtaising ex.aption.

According to the respons., the Audit staff aad.

errors of $892.71. In the Interia aeport, the Coaaittee was

provided an Attachment for the adjustments to allocations for

travel and salaries. The adjustments were listed for each

individual person and contains a separate column for salary and

expenses. Therefore ve are unable to determine what $892.71 the

Coaaitt•• refers to aa -errors in the figures provided by the

Audit Division.

Based on the Committee's response the Audit staff

concludes that no changes should be made to the $91,503.72

allocated to Iowa for Travel and Salary expenditures, except for

the previously mentioned $25.00 overallocation to Mr. Fendler.
34

For Nev Raapshire, the Treasurer statea that

$108,259.64 involved the four-day rule .s previously dllcu••ed.

Another $4,430.87 was for allocating expenses for New H••pshira

residents. Aa previously mentioned the Co.-itt•• do•• not tbink

these expenditures should be allocated. The Committee r••pon•• also state that $ 4,971.72 should not be allocated because they

involved -individuals who were members of the ex_apt accounting

ataff, but who volunteered their time to the caapaign while they

v.r. on vacation. The•• individuals were paid for their expen••• while they were volunteering their time, and did not stay in the

state for longer than four days." No documentation was lubaitted

to de.onstrate either the individuals volunteer status or that

they were in New Hampshire for less than 5 days. The Committe.

also stated there was a discrepancy of $5,238.65 in the figures

provided by the Audit Division. As in the case in Iowa the

Committee provided no information on how this discrepancy was

determined. Also, as with Iowa an attachm~nt was provided with the

Interim Audit Report that listed each individual and the adjusted

amount for that person's salary and travel. Earlier in the report

we stated the Audit staff's position with re9ard to the five day

rule and the New Hampshire residents. With the information in the

Co.-itt••'s response, we do not believe any change in the a.aunt

allocated to New Ha.pshire of $126,367.67 il warranted.

3. Non-Travel and Salary

During the review of vendor files the Audit staff

noted non-travel costs wbich were allocable to Iowa and .ew

Haapshire but were not allocated to the statel by the Co..itte•• The Audit staff deterained that non-travel COlts, which were

allocable to Iowa and New Baapsbire, totaled $39,286.15 and

$96,742.54 re.pectively. The types of expenditure. that .ate up

these adjust.ents, are .a follows:

a) Botel charge. not allocated by the Co..ittee

tbat were not directly •••ociated with the personal living

expense. of a particular individual (1.8., banquet expens•• and

staff officea). The staff office vas usually a roo. rented by the

advance tea. of the Coaaitte. prior to the arrival of the

candidate. The Coaaitt•• generally allocated staff office. only

if the roo•• were rented for five consecutive days. Also included

are the COlts of incidentals related to groups of campai9n vorkers

stayin9 at the Clarion So.erlet (Nashua, New Hampshire) and the

Lowell Bilton (Lowell, Massachusetts) for a period before the Nev

Baapshire pri.ary.

These miscellaneous hotel charges total

$14,983.31 in Iowa, and $17,334.41 in New Hampshire.

The Committee'S response to the Interia Audit

Report did not include any additional documentation. Accordin9 to

the Treasurer, the Itaff offices were -residential suite. - the
3S

extra hotel rooa. associated with· the sleeping quarters of

campaign workers staying in particular state•• The 'offlc••' were

physically attached to the•• individuals' hotel roo••, and, in

fact, were directly associated with the living expense. of

Coaaittee personnel while in the state. There should b. no differenc.~between renting an adjacent hotel room and renting a

suite-like room with a separate living and dining area, .a .any hotel chains now offer. Thus, as with any room rented by a

Coaaitt•• staffer, if the individual left the state within four

days, the costl of his or her rooms - including the staff office - were not allocated to the state." The Committee concludes that

none of the $14,136.59 of staff offices, which includes $2,006.15

in long distance phone calls should be allocated.

The Committee's response argues only that

these rooms were adjacent to accommodations of Committee Itaff.

This proximity does not establish that the expenses were

subsistence costs as defined at 11 CFR l06.2(b)(2)(iii) and

therefore subject to the 5 day rule. That definition of

subsistence ftincludes only expenditures for personal livinq

expenses related to a particular individual traveling on coaaittee

business such as food or lodginqlt. In this case, worksheets

associated with most hotel bills show a room for each individual

in the party with the associated charges, and a separate charge

for -staff office- with no individual assigned to the roo•• The

Audit staff has aade no adjustment to the staff office_.l~oc.tiQn

fto. -the -a.aunt in the Interia Audit Report.

The Treasurer states, that another $2,676.91

in expense. were neither incurred in Iowa or New Baapsbire, and

should not be allocated, but does not specify which expens.s he is

referring to. The Treasurer also states that $2,026.08 in

expense. were a ••ociated with volunteers. As the Tre.surer

previously stated, volunteer expenses are not allocated wif the

volunteers did not work in the state for five consecutive days-.

Aa noted above, the Audit staff does not accept the Coaaitt••'.

interpretation. Also, aa with the other a.aunts, no detail i.

provided to identify the particular expenses included in tb.

a.ounts provided by the Coaaittee.

Also, the Treasurer does not think that

expenditure. made to the Boliday Inn Center of New Heap.hire

should be allocated to Nev Reap.hire. According to the response,

the candidate and his quests did not stay five days. Though the

Treasurer did not specify, there were two payments to this vendor

that the Audit staff allocated to New Rampshire. The first

involved miscellaneous charges of $ 291.50 incurred by Kelly

Walker. The travel expenses of Kelly Walker were allocated to the

New Baapshire state expenditure limit. Walker was in New Haapshire

froa 11/11 to 11/18/87, and Lankering was in New Hampshire from

11/14 to 11/18/87. The Committee'S invoice originally allocated

this a.ount to New Hampshire.
36

The second payment to this vendor va.

$1,078.75 for the final payment for a ballrooa the night of

February 16, 1988 and guest roo•• at the hotel for the nights of

February 15 and 16. The other payments to this vendor totalin9

$2,453.00 were allocated to New Rampshire by the Committe•• The

Vice-President and numerous campaign staff were in New Haapshire

from 2/10 to 2/16/88, including an overniqht trip to the towell

Hilton on 2/13 and 2/14. Further! expenses for the rental of a

ballroom are not subject to the 5 day rule.

The Committee does not think that the Audit

Division should allocate the "hospitality suite for an RNC

Convention to the State of New Hampshire.- A review of the Audit

workpapers indicates that rather than an RNC convention, these

expenses relate to the Republican party's Northeastern Reqional

Conference. The Commission has determined that such expenses are

not allocable. The amount of allocable expenses has therefore been

reduced by $1,951.82.

The Committee does agree that $7,929.16 should

have been allocated to New Rampshire. Based on the Committee'S

response, the Audit staff recommends no chanqes from the Interim

Report to the allocations for miscellaneous hotel charges of

$14,983.31 in Iowa and an adjustment of $1,951.82 in New

Baapshire, changing the a.aunt allocable to $15,382.59.

b) Vehicle rental not allocated to New Reap.bire

and Ioya totaled $15,800.84. Most of the expen••• were for

vehicl•• used in aotorcades, events, or the rental was for longer

than a 5 day period, including soa. rentals relating to the White

River Junction, Ver.ont travel discussed in Section 2 above,

The Coaaittee agrees with the Audit staff's

allocation of $227.13 for Iowa and $10,055.51 for Nev Haapsbire.

The Tre.surer disagrees with the other $5,518.20 allocated to Nev

Baapshire. "The buse. were u••d to transport the press to various

caapaign events around the state. Bowever, due to the high level

of activity in Nev Haapahire, the caapaign vas not able to bill

the pre•• accurately for this transportation.- The Audit staff

reviewed the documentation in our workpapers and determined that

pursuant to 11 e.l.R. 106.2(c)(3), these expenditure should not be

allocated to New Hampshire.

e) The Comaittee had expenditures for a

telemarketing program in New Hampshire that were mostly allocated

to exempt fundraisinq. The Committee did not prOVide scripts in

connection with this project, so the Audit staff was unable to

deter.ine if the expenditures should be allocated to exempt

fundraising. The expenditures totaled $30,557.14. There were

additional amounts for telephone service charges, intrastate

calls, and telephone equipment in Iowa and New Hampshire totalling

$6,077.73. In response to the Interim Audit Report the Committee

supplied scripts used in the telemarketing program in New
31

Hampshire aa reque.ted in the Interia Audit Report. The Audit

staff a9r••• with the coaaitt••'. original allocation of

$36,634.87 to exeapt fundraisingdj The auditors identified coats for 'hip.ents of

.aterials to Iowa and New Heapshire totaling $2,621.77 and postage

for mailings in Iowa and New Haapshire totaling $15,139.88 that

had not been allocated. The Coaaittee provided additional

documentation for $13,860 in postaqe costs to support the original

allocation to exempt fundraising_ After reviewing this

documentation the Audit staff agrees that these expenditure.

should not be allocated to Iowa.

The Treasurer also stated that $396.58 and

$411.60 should not be allocated to Iowa and New Hampshire. ~These

payments were primarily for shipments of materials from the Office

of the Vice President to the Advance Tea. in a particular state.

Those shipments contained the Vice President's schedules and were

not solely related to the destination state." The Treasurer also

did not think $384.25 of Federal Express charges should be

allocated to Iowa because "these costs were related directly to

exeapt coapliance". The Treasurer did not supply any additional

documentation related to these expenditures and no adjustment to

the Interim Audit Report allocations have been made.

e) A-con.ultant wrote 10 speeche. at-$l,OOO a

speech during the month of February and traveled to New sa-pabir.

i ..ediately preceding the Nev Baapshire priaary. The Tre.aurer

r••ponded. wThe more appropriate presuaption ia that Pe99Y Noonan

wrote a .eries of speeches for the Vice President which he used in

New Raapshire and throughout the campaign, inclUding in connection

with Super Tuesday which occurred on March 8, 1988. It would be

reasonable to a.sua. that she spent ti.e in New Baapshire in order

to confer with the Vice President about the contents of hi.

speeches. It is also likely that the speeches were written in

great part in Washington vhere Pe99Y Noonan lived. However, it is

eoaplately iaplauaible that she would have written every sp.ech

while abe vas pbysically in New Haap.bire, or that all ten

speeches were given in New Raap.hire.-

According to the documentation provided by the

Committee during fieldwork, Peggy Noonan was in New Hampshire fro.

rebruary 10 to February 17, 1988 and stayed at the Clarion

Somerset and the Lowell Hilton. The billinq Ms. Noonan lent to the

Committee states that it is for services rendered, "Ten speeches

for Vice President George Bush February, 1988". The billing was

received by the Committee March 22, 1988. Since Ms. Noonan was in

New Hampshire for eight consecutive days, it is not unreasonable

to aSlume that the speeches were written in New Hampshire,

although the allocation is not necessarily determined by the

location of her writing. Also, Ms. Noonan's bill specifically is

for February, 1988. The Committee prOVided no additional

documentation, including copies of the speeches or an affidavit

from Ms Noonan to support their position.
38

The Office of General Counsel's 18,.1 analysis

did not agree with the Audit Division's allocation of th. 10

speeche. to the New Rampshire state expenditure Ii.it. According to Counsel, -It is unlikely, ba.ed on the Co.-itt.e'. r••poDse,

that Ms. Noonan'. speeches were written or delivered to influence

only the New Hampshire election. It is more plausible that her

efforts were related to national strategy and that her ape.ehes

were us.d in .everal states."

Based on the Counsel's recommendation, the

$10,000 for Ms. Noonan's speeches have not been allocated to the

New Hampshire limit.

f) The remalnlng adjustments discussed in the

Interim Audit Report were for miscellaneous expenses such .s

supplies, equipment rental and collateral materials.

In the response, the Treasurer stated that

they could only account for $4,145.55 in miscellaneous ite••• Of

this amount the Treasurer does not contest expenses totaling $2,903.15. Be also states that "$371.86 in expenses vere directly

related to staff offices and/or fundraising events and are

therefore not allocable ..• Of the remaining $834.54, in

identifiable expense., $452.77 relates to equip.ent that ~~~~~

r.tur~ned~ to Washington for- use ~in additfonal -states·~and --$390.77

related to equipment used by either R0ger Ailes or Georg- Buab in

connection with his .ed!a consultation and vas correctly cbarged

to Redia Equip.ent Lea.e. ft The Treasurer did not provide any

additional docuaentatloD to support these state.ents. In the Audit

staff's opinion these expenditures should still be allocated to

the states, therefore no adjust.ent to the Interia Audit Report

allocation haa been aade.

The Coaaitte. stated there waa no

corresponding vorkpap.rs for $19,433.19. Copies of all workpapers

that related to the Audit staff adjultaentl were provided to the

Co.-itt•• at the exit conference and during the Coaaitt••'.

r••pon•• period of the Interia Audit Report. Soa. of the other

expenses that make up the ailcellaneoua category are additional

telephone charges, telephone equip.ant, caapaign posters, and

headbands. The Coaaitt•• also sold a mailing list. Only 80' of the

cost was allocated to New Haapshire, but the receipt fro. the sale

wal offset 100\ against the New Hampshire state limit. Thil

information along with explanations were provided to the

Coaaittee. Also, $1600.00 wal allocated in the Interim Audit

Report, to New Hampshire for consulting fees. The Audit staff has

not allocated these fees based on Commission decisions in earlier

audits.

4. Equipment Sold During CampaiQn

In 1987 the Committee purchased computer equipment

and furniture from various sources, including Fund for Aaerica's
39

ruture, which v•• apparently used in, but not properly allocated

to New Heap.hire. This a••• equipment v•• sold to the lununu

Committe. in 1988 and an incorrect a.ount waa used to reduce

expenditures subject to the New Haapshire expenditure liait. An

upward adjustment was aade to the itate's Ii.it of $6,300.96. The

Treasurer did not contest the Audit staff'. adjustment for the

equip.ent sold to the Sununu Committee.

s. Prohibited In-kind Contribution

Under Section 441b of Title 2 of the Unit.d States

Code, it is unlawful for any corporation to make a contribution or

expenditure in connection with any election at which presidential

and vice presidential electors or a Senator or Representative in,

or a Delegate or Resident Commissioner to, Congress are to be

voted for, or in connection with any primary election or political

convention or caucus held to select candidates for any of the

forgoing offices, or for any candidate, political committee or

other person knowingly to accept or receive any contribution

prohibited by this section.

Section lOO.7(a){1)(iii) of Title 11 of the Code of

Federal Regulations states that the term ·contribution- include. a

gift, subscription, loan, advance, or deposit of aoney or anything

of value. The tera -anything of valueR includes all in-kind

contributions. Unless specifically exeapted under -11 C.P.A.

SlOO.7{b), the provision of goods of services without charge or at

a charge which is less than the usual and noraa1 charge for such

goods or servic•• is a contribution.

A corporation in Iowa leased the caapaign vehicle.

in 1987 and 1988. The Coaaitte. generally paid for the ga.,

insurance, and sales tax, but not for the daily rent of the

vehicle. The a.ount of the daily charge vaa Oft the bills a.nt to

the Co..itte.. The charges not paid by the Co.-itt.e totaled

$4,815.95. This a.ount haa been allocated to the Iowa spending

liaitation, added to the Coaaitte.'. accounts payable on their Net

OUtstanding C.apaiqn Obligations and added to the expenditure

subject to the overall ii.itation (rinding 111.0.).

The Treasurer did not agree that the Committe.

received a prohibited in-kind contribution. The Treasurer

aubaitted an affidavit fro. Martha Charlea, the Office

Ad.lnistrator of the Iowa state office for the Committee.

According to Ms. Charles affidavit and the Treasurer, the

Co.-itt.e was "required to pay the coats of daily rentals plus

aileage and other assessments if a vehicle had been otherwise

requested by a renter. However, if no other renter requested a

vehicle, then George Bush for President was required to pay only

the fees a •••ased by Chuck Fletcher Ford." The Committee did not

submit any contract or an affidavit from Chuck Fletcher'S Ford

with the response. It does not seem reasonable that a corporation
40

in the rental car busin•••, would-not charge soa. fe. for the use

of it's vehicl.s in the nora.l cours. of bu.in•••• The Audit staff

reco..ends no change froa the Interim Audit Report.

6. Allocation of polling Expense.

The Committee had two corporations perform polling

nationally and in many Itatel. rhese corporations were as.ociated

with one pollster. The Coaaittee paid the corporationa • total of

$702,157.09. Of this total, $240,000 was for consulting payaents.

The Coamittee allocated the survey costs correctly includlnq

allocation to the states. However, the Committee did not allocate

any of the consulting payments to the states. The Audit .taff

divided the amount allocated to Iowa and New Hampshire by the

total non-consulting expenditures totalling $444,547.09.

Approximately 4\ of the corporations' work was allocated to Iowa

and 2.81\ was allocated to New Hampshire. When these were

multiplied by the total consulting payments of $240,000, $9,600

and $6,744 respectively are allocable to Iowa and New Haapshire.

Based on Commission decisions on earlier audits, the Audit staff

aqrees with the Committee that consultinq fees of $9,600 and

$6,744 respectively for Iowa and New Hampshire should not be

allocated.

During the Coaaission's consideration of this finding,

the Co..ission could not r.ach a consenaus, whether to-inelude in

expenditures subject to the Nev Baapsbire state li.it caapaign

activity related to the Lovell Bilton in Lovell, R••••chu••tts and

activity related to Wbite River Junction, Veraont, in tho•• eases

where an individual could not be placed in Nev Reap.hire for at

least five consecutive days. Se. Section 2. (Individual's Travel

and Salary) and Section 3. (Non Travel Coats).

A aotion vaa a.de to approve this finding provided the

expenditure. relating to Lovell, Rassachu••tts and White River

Junction, Veraont were not included in expenditures subject to the

Nev Raapsbire state liait. This aotion failed by a vote of 2-3

(Coaai.sionera Aikens and Elliott voting in the affiraativ. and

Coaaissioners McDonald, KeGarry and Thoaa. voting against.)

A second motion vas aade to approve the finding as

written; that motion failed by a vote of 3-2 (Cosaissioners

McDonald, KcGarry and Thoaas voting in the affiraatlve and

Coaaissioners Aikens and Elliott voting against.

A third aotion was made to exclude the amounts for

activity relating to Lowell, Massachusetts and White River

Junction, Vermont from expenditures subject to the New Hampshire

state limit. This motion palsed by a vote of 5-0.
41

Recap of Iova and Hew Baapshire Allocations

Pr••ented below il • recap of allocable coati to Iowa

and New Rampshire baa.d on the response to the Interi. Audit

Report, and the adjust..nts the Audit staff reeoaaenda.

tova Nev Raapshire

Amount Allocated by the Coaaittee $ 175,041.95 $ 481,332.45

1 ) Adjustments Based on Committee

Allocation Methods (13,990.53) (4,208.75)

2) Travel and Salary Costs 91,478.i2 97,714.26

3) Non Travel Costs 25,464.54 35,658.26

4) Purchase and Sale of Equipment -0- 6,300.96

....;,,~ 5) In-Kind Contribution 4,815.95 -0-

6) Allocation of Polling Expenses -0- -0-

7) Tea tinC}-Th.-Wat.r~_

(Plrid-ilfg---I I.-C,- - -0- -0-

,~, 8) void Check (rinal Aud-i t ••port rinding III.r.) (2,930.40) -0-

Total Allocable Aaount $ 879,880.23 $ 616,797.18

~"" L••• Expenditure Lla1tatlon (775,211.60) (461,000.00)

Aaount in Exe••• of Llaitatlon S \91,662,6] S 155,797,11

~-.T""""
, ,,-...,

1

42

D. Liaitation on Expenditure.

Sections 441a(b)(1)(A) and 441a(c) of Title 1 of the

United stat•• Code, state, in part, that no candidate for the

office of President of the United states who is eligible under

Section 9033 of Title 26 (relating to eligibility for payments) to

receive payments froa the Secretary of the Treasury may make

expenditure. in excesa of $10,000,000 as adjusted for incr•••es in

the Consumer Price Index.

Section 9035.1(a) of Title 11 of the Code of rederal

Regulations, states, in part, that no candidate or his or her

authorized coaaittee(s) shall knowingly incur expenditures in

connection with the candidate's campaign for nomination, which in

the aggreqate, exceed $10,000,000 (as adjusted under 2 u.s.c.

441a(c).

Section lOO.8(b)(lS) of Title 11 of the Code of Federal

Requlations, states, in relevant part, that expenditures for

services solely to ensure compliance with the Act made by

candidate certified to receive primary Matching Funds under 11

c.r.R. Part 9034 do no count against such candidate's expenditure

11.itationa under 11 c.r.R. 9035 or 11 C.F.R. 110.8.

The_Audit_staff'-s-review-of FEC Fora 3P-,- p-age -4 for the

period ending March 31, 1990 revealed that the Coaaittee had

reported Total Expenditure. Subject to Li.itation (Overall

Liaitation) of $23,020,108.35. The expenditure ii.itation tor the

prlaary ia $23,050,000. In the Interia Audit Report, the Audit

staff iDcre.sed the total by $617,158.78. As. result of these

adjust.ents, the Coaaitt•• exceeded the 2 U.S.C. 441a(b)(1)(A)

spendin9 li.itatioD by $587,267.13.

Pre.ented below are the adjust.ents fro. the Interia

Audit Report, the Coaaitt.e'. r••ponse to tho.e adjustments, and

the Audit ataff analysia of the r.sponae. The Audit staff

provided detailed schedules of these adjust••nts at the exit

conference.

1. Differences Between Co.-itt••'. rEC Reports, Committee worksheets, and computerized Data Base

A review was conducted to determine if the amounts

reported were materially correct. A reconciliation was made for

each report period between the Committee's F.E.C. reports,

Coaaittee worksheets used to prepare the reports, and the audit

data base created froa the computer discs provided by the

Coaaittee. Material differences were identified for each report.

Overall, the Coamitt•• understated operating expenditures by

$203,762.14, overstated compliance expenditures by $200,610.98,

and understated total disbursements by $3,151.16. The main

realona for thea. adjustments are listed belove
43

a) Coapliance Ex••ption

11 C.r.R. 9035.1(c) states, in part, that a

candidate may exclude fro. the overall expenditure li.itationa of

11 c.r.R. 9035.1 an amount equal to 10\ of salaries and overhead

expenditure. of his or her national campaign headquarters .s an

ex••pt le9a1 and accountinq compliance cost under 11 C.r.R.

lOO.8(b){lS). Alternatively, the Commission'S Finaneial Control

and Coapliance Manual for Presidential Primary Candidate.

contains some other accepted allocation methods for calculating a

compliance or fundraisinq exemption. If the candidate wish•• to

clai. a larger compliance or fundraisinq exemption for any person,

the candidate shall establish allocation percentages for each

individual who spends all or a portion of their time perforaing

duties which are considered compliance or fundraising. The

candidate shall keep detailed records to support the derivation of

each percentage.

The Compliance Manual on pages 22-27 explains

two alternative methods of allocating amounts to compliance. The

first allows a committee to allocate 8S\ of the accounting office

to co.pliance (including payroll, overhead, and other expense.).

In addition, a Comaittee may allocate 5' of all payroll, and

overhead .s.ociatedwith the national caapaiqn headquart~.­

office, excluding the 189&1 and accounting offices, to ex.apt

coapliance. The 1e9a1 office is then allocated based on

percentag•• developed by the Coaaitt.e. The second alternative

allows the Coaaitte. to allocate 8S\ of the accounting office

payroll expenses .s well aa a percentage of legal payroll

developed by the Coaaitte.. In addition an a.aunt equal to 10' of

all non-overhead expense. of the legal and accounting offic.. ..y be considered exe.pt legal and accounting overhead. As with the

previous alternative 5\ of other national overhead and payroll,

excluding the 1e9al and accounting offices, may be considered

ex••pt.

The Coaaitte. used the first alternative fro.

the co.pliance aanual (8S' of accounting, 50\ of the legal office

developed by the Coaaittee and 5' of national payroll and

overhead). In addition, the Coaaittee took 10\ of legal and

accounting payroll and other expenses as additional exeapt

overhead aa prOVided in the .econd alternative. This resulted in

a double exemption for exempt legal and accounting overhead.

b) Allocation of Legal Payroll

The Committee also, allocated legal payroll,

50\ to operatinq expenditures and 50\ to exempt compliance. The

Committee then took the part allocated to operating and allocated

an additional 5\ to exempt compliance.
44

c) Voided Checks

The coaaittee generally reported voided checks

written in earlier report periods as neqative entries on later

reports. If a compliance ex••ption was taken on the earlier

report (i.e. the oriqinal charge was state or national payroll or

overhead) the Committe. would, in some cas.s, apply the entire

voided amount against operating expenditures.

d) Refunds

The same problem that occurred with the voided

checks mentioned above, occurred with some refunds or rebat•• received from vendors. If part of the original disburse.ent was

allocated to exempt compliance when the refund was received by the

Committee, the entire amount was applied against operating

expenditures. In addition, the Committee received interest on

deposits which in some cases, were reported as refunds and used to

reduce the spending limitation. Also, near the end of 1988 and

beginninq of 1989 some Bush-Ouayle '88 refunds were received and

reported by the Committee as offsets against the expenditure

limitation. These have been included as a payable on the

Committee's Net Outstanding Campaign Obligations.

e) Miscellaneous Adjustments

There were also a number of miscellaneous

adjust.ents, such as unreported disburse.enta, addition errors,

voided checks not charged back against the li.itatioD,

expenditures reported twice, and voided checks charged back to

operating when they had been originally reported aa coapliance.

It vas noted that though provided for at 11

C.F.R. S903S.2(c)(1} the Coaaitt•• did not generally charge the

entire cost of matching fund sub.ission preparation to coapllance.

The exception was third quarter 1987 vhere salaries of certain

individuals were allocated 100\ to coapliance rather tban 85' .a

part of the accounting office. The additional co.pltance

allocation was $1,937.19. Pr.au.ably siailar adjustments could

have been calcuated for other periods. Rovever, to take advantage

of the exemption, detailed documentation supportin9 the

calculations would be necesaary_

Aa a result of the above adjustments,

$203,762.14 was added to the overall expenditure limitation.

In response to the Interim Audit Report, the

Treasurer did not disagree with the adjustment of $203,762.14. The

Treasurer stated, "review of its accounts indicates that this

aggregate figure is likely to be substantially accurate.

Accordingly, the Committee has chosen not to expend its resources

to identify the exact amount of each of these components, and will

not dispute the Audit Division'S overall figure."
45

However, the Treasurer did not agree with the

determination made by the Audit staff that he eould not take an

additional 5\ compliance exe.ption on the 50\ of_le9a1 payroll the

Committe. allocated to the overall limit, in addition to

allocatin9 SO, to exempt compliance. The Treasurer allO disaqreed

that he had applied the entire voided check amount against the

operating expenditures. However, the Committee did not dispute

the calculations of the Audit staff.

2. Vendor Payments Charged to Payroll

During the campaign the Committee contracted with

different vendors to conduct various types of campaign activity

such as polling, media production, telemarketing program., etc.

Contracts were made between the Committee and these vendors. Part

of the contract stipulated that a portion of the payments to each

contractor were for consulting fees. These consulting payments

were treated like any other person's salary on the Committees

payroll. If the work was performed on the national level, 5\ of

the fee was allocated to exempt compliance. If the work was

performed on the state level, 10\ of the fee was allocated to

exempt compliance.

Although the Coamittee had over 200 people and

organizations clasai-fied .s consultants i 1I0st perforwed the -s••• functions as if they were ••ployees of the Coaaittee. Bovever, in

the Audit staff's opinion, a number of these consultants vere

vendors rather than Coaaitt•• staff, and adjustments totaling $40,531.89 were made reducing exeapt co.pliance and incre.sing the

overall expenditure liaitation.

In r••pons. to the vendors not considered caapaign

staff and not eligible for the 5\ co.pliance exemption, the

Treasurer states that although the Audit staff chos. to consider

the payaentl at issue aa payaents to vendors rather than al

payaents in the payroll category eligible for the 5\ co.pli.nce

exe.ption, the payaents were for the personal service. of

individuals and therefore appropriately considered payroll. Be

also states that other coaaittee. claimed these ex••ptions for

individuals in similar situations. Se continue., -the•• individuals' personal services were rendered at the campaign or

caapaign facilities. Each one of these individuals utilized

campaign offices and telephones, and several support staff. w

The Commission decided to permit the Bush-Quayle

'88 Committee to charqe similar vendor payments to payroll and

thereby take a 5\ compliance exemption. Based on this

determination. the Audit Division has reversed the Interim Audit

Report adjustment.
,-.

L

46

3. prepaid Insurance

During the campaiqn, the Co.-itt•• paid for a

number of insurance policies with one vendor. The coverage dates

cn these policies carried over into the general election period.

In September, 1988, Bush-Quayle '88 reimbursed the Co__itt•• for

their share of the insurance. An analysis of the Coaaitt••'.

original allocation between Bush-Quayle '88, the Compliance Fund,

and the Committee, and a revised analysis provided by the

Committ•• indicates the need for revisions to the recorded

allocations. Bush-Quayle '88 over reimbursed the Committe. by

$14,859. This amount is included as a payable to Bush-Quayle '88

on the Net Outstanding Campaign obliqations. When coaparin9 the

Committee's revised analysis with recorded amounts, it was

determined that the compliance portion of the insurance expenses

was overstated by $27,705.87. The Audit staff had adjusted

$14,739 of this amount as a compliance reimbursement offset

against the expenditure limitation (Section 1.d. above), leaving

$12,966.87 to be adjusted from compliance to the spending

limitation. The total to be allocated to the spendinq Ii.itation

is $27,825.87 ($14,859.00 + $12,966.87).

The Coaaittee agreed with the Audit staff'.

adjustment for prepaid insurance and has paid Bush-Quayle $14,859.

4. Equipment

Another issue in the Interi. Audit Report cODcerns

the equip.ent Bush-Quayle bought fro. the Coaaitte•• Buah-Quayle

paid for S08. it.a. which the Coaaittee had previously Bold to the

Sununu Coaaittee, but failed to r••ove the it••• froa the

Coamittee's equipment inventory. Therefore, Bush-Quayle paid a

total of $4,140 for equip.ent that was not in the posl•••ioD of

the Coaaittee.

The Treasurer states that the Audit staff had

erroneously relied on an inventory list found in the Coaaitt••• records and that Bush-Quayle paid full the value of the equipaent

it received. The Treasurer explained that the Coaaitt.e

Winitially did a.intain a list of equipment based on serial

nuaners w , but Wthe Coaaittee ceased to update this lilt with

additions or deletions. While equipment bought and sold by tbe

Committee was carefully accounted for, such accounting was not

exclusively by serial nuaber after the initial early days of the

campaign because it beca.e impractical to do so." The Treasurer

continues, Bush-Quayle did buy equipment from the Committee

accountinq for the full purchase price of that equipment. "The

apparent administrative discrepancy in the clerical recording of

the serial numbers does not affect the amount paid by Bush-Quayle

88 for the equipment it did in fact buy from the primary

committee." Finally, an affidavit of a former Committee staff

member was submitted in support of the Treasurer's explanation.
47

The Audit staff notes that the Coaaitt•• did not

provide in its r••pon•• to the Interia Audit ••port, any documentation to deaonstrate which equip.ent was tranaf.rred to

the Bush-Quayle fro. the Coaaitt•• or the value, of that equip.ent.

The inventory list found in Comaitt•• records wa., at th. t1•• of

the aUdit, unverifiable. It il noted however, that the inventory

list wa. the basis on which the amount of the payment fro.

Bush-Quayle to the Committee for transferred equipment w•• determined. Abs.nt the submission of more specific inforaation,

no change to the Interia Audit Report conclusion is warranted and

the amount reaaina in expenditures subject to the spendin9

liaitation.

s. Exempt Legal and Accounting Expenditures

Section lOO.8(b)(15) of Title 11 of the Code of

Federal Regulations states, in part, that the cost of legal or

accounting services rendered solely to ensure compliance with the

Act do not count Against the candidate/s expenditure limitation

under 11 erR 9035.

Section 9035.1(c) of Title 11 of the Code of

Federal Requlations states, in part, that a candidate .ay exclude

froa the overall expenditure limitation of 11 c.r.R. 9035.1 an

a.aunt equal to 10' of salaries and overhead expenditure. for his

or her national caapaiqn headquarters and state of~~~_e_~ a ~D

-e-xeapt -1.9-1 and aceount-fng-coapliance cost under 11 c.p.a. lOO.8(b)(lS). If the candidate wish•• to clai. a larger co.pltance ex••ptian for any person, the candidate sball e.tablish

allocation percentage. for each individual who spendl all or a

portion of their tia. to duties which are considered co.pliance.

Th. candidate shall keep detailed record. to Iupport the

derivation of each percentage. Such recordl sball indicate which

duties are considered co.pliance and the percentage of ti•• each

person spends on such activity.

Tbe Audit staff reviewed Coaaitt•• disburse••nts

allocated to ex••pt co.piiance. The auditors noted 86

di.bur••••nt., totaling $70,301.94, to 28 vendors lacking adequate

docu.entation to support the Coaaitt••'. allocation to ex.apt

co.pliance. In addition, the Audit staff noted a nuaber of

allocations to ex••pt co.pliance for the Coaaittee'. Treasury

Division staff, in connection with the Republican Convention in

New Orleans in July and Auqust, 1988. There vere S4 of these

di.bur••••nts totaling $43,502.33 to 17 payees. Of the 17 payees,

13 were Treasury Division e.ployaes, three were for lodqin9, and

one waa for telephonea.

Finally, between May 1, 1988 and August 31, 1988,

the Committee added 40 employees to its Treasury Division.

Thirty-eight of the 40 were new employees and two were transferred

from other Divisions within the Committee. Payroll expenses for
48

tbe•• individuals thrcuqh Auqust 31, 1988 totalled $93,593.93. It

wal alao noted that 37 of the••••ploy••• later worked for either

Busb-Quayle '88 or the Compliance committee.

Lists of the.e disbursements were provided to the

Comaittee on January 17, 1990.

In response to the Interim Audit Report, the

Coaaittee submitted additional information for moat of the

disbursements noted above. In the Audit staff's opinion, the

Committee's response supported most of the Committee's allocationa

to exeapt compliance except for the following items.

Hilary Chestnut received one $1,500 consulting

payment. Accordinq to the Committee's response, Ms. Chestnut

provided consultinq services to the Treasury Division for the

month of February 1987. The authorization form indicates she

worked for the Treasury Division, and was siqned by Stan Huckaby."

The Committee's response provides no additional documentation or

information. The authorization form referenced in the response

provides for si9n-off by the requesting individual, the cost

center and the treasurer's office. The initials S8 appear under

treasurer's office, Ede Holiday, le9&1 counsel signed under cost

center, and the requesting individual is illegible. The original

-Division· typed is ·Adainistration W which is crossed out and

"Treasurerft ia written on the ftDivision" line. No d••cription of

work i. provided.

The Co.-ittee paid $3,682.31 to a law fir. that

reviewed wloan docuaents and r.lated aaterials. The check

authorization fora vas signed by Ede Holiday .a caapaigD 18,a1

counsel." The doeu.entation indicate. that the law fir. va. paid

to "prepare and/or review· doeuaents related to a -$1,000,000

standby letter of credit- with Sovran Bank. It further ap~.rs

that the Coaaitte. paid one-half of the charge and the Bank the

other. This disbursesent, r_,.rdle.s of the person who approved

it, doe. not appear to be related to co.pliance with the Act.

Another law fira received $277.25 for wbat the Treasurer stated

vere -legal services to the caapaign." Le9a1 services are not

autoaatically compliance expenditure.. This a.aunt repre.ents

aonthly billings for out-of-pocket expen.... In soa. month., they

are charged to the spending li.itation while in other months, they

are charged to ex.apt categories. One payment which is included

in the a.aunt questioned has a note on the documentation which

says ·legal non-compliance.-

Two of the Committee'S staff people william Jasien

and Julie Mashburn traveled to Michiqan and Iowa. According to the

Treasurer, Mr. Jasien ·was required to go to Michigan to monitor

and document campaign disbursements there." Ms. Mashburn's salary

and travel was allocated to Iowa for reasons described in Exhibit

C and an adjustment hal previoully been posted to the overall

limitation. For the sam. reasonl, Mr. Jaaien's salary requires
C9

adju8taent for the difference between the allowable co.pll.nce charg_ for a .apla,.. at National Headquarters (8S') and a

eaapaigD worker in a state (10'). Mr. Jasten alao had 10\ of his

salary alloeated to fundraiaing.

The Coaaitte. did not respond to paysents to two

vendors, the Federal Election Commission for copies of the Dukakis

Coaaitt••'. reports, and C , P Telephone for a 900 phone line.

Also, accordinq to the r••pon••, the Co.-itte.

maintained an adjunct accounting office in New Orleans fro. about

aid July to August 20, 1988. The purpose of the office was to

track -eaapaign expenditures during the convention period, and to

i.sue checks in payment for expenditures directly related to the

campaign portion of convention expenses."

In addition, the Committee responded to adding 40

e.ployees to its Treasury Division between May 1, 1988 and Auqust

31, 1988. According to the Treasurer, "These individuals were

assigned to data ftntry of contributor information, matching fund

submissions, data entry of expenditures, inventory (including

preparation for this audit), accounts receivable billinq

state••nt., .s well .1 qeneral filing.- Be continues, that it was

in this s••e time period that the original accounting staff was

-involved with the accounting functions of the treasury office at

the convention ~n N.~ Or_~e~~~, •••_Ttl\1,,_ InobV_ious gap- _had __to be

fnl.-d- Decaus. all of the preexisting functions of the accountinq

staff were still to be coaplated.-

The Audit staff concludes that the Coaaitt••'.

response ia adequate to support the co.pliance ex••ption for both

groups of Coaaittee .sploy•••• The total adjust••nts to the

overall expenditure Ii.it ia $10,650.17.

6. Secret Service

•

Tbe Secret Service traveled on the Coaaitt••'.

Pr••• Plane, .a vell aa Air rorce II. The total billable coats to

the Secret Service that traveled on the Pr... Plane waa

$100,953.35. The Coaaitt•• received total reiaburseaents fros the

Secret Service of $50,944.80. The billable a.ounts exceed the

r.iabur••••nt. by $50,008.55. Aa the Coaai••ion has deter.lned in

prior audits, this a.aunt should not be applied against the

Coaaitt••'s overall expenditure li.itation.

7. Air Force II

Section 9034.7(b)(2) of Title 11 of the Code of Federal

.equlations statel, in part, a trip that includes campaign-related

and non caapaign related stops, that portion of the cost of the

trip allocable to campaign activity, shall be determined by

calculating what the trip would have cost fro. the point of oriqin
so

of the trip to the first ca.pai9n~relat.d stop and fro. that stop

tbrou9h each sub.equent campaign-related stop, back to the point

of origin.

Section 9034.7(b)(3) of Title 11 of the Code of Federal

Regulations states, in part, for each trip, an itinerary shall be

prepared and such itinerary shall be made available for Commission

inspection.

Section 9034.7(b)(4) of Title 11 of the Code of Federal

Requlations states, in part, for trips by government conveyance, a

list of all passengers, along with a designation of which

passengers are and which are not campaign related, shall be made

available to the Commission.

Section 9034.7(b)(S} of Title 11 of the Code of Federal

Requlations states, in part, if government conveyance is used for

campaign-related travel, the candidates authorized committee shall

pay the government an amount equal to the first class commercial

airfare plus the cost of other services, or the commercial charter

rate plus the cost of other services.

Section 9003.4(&)(1) of Title 11 of the Code of Federal

Requlations states, in part, a candidate may incur expenditures

before the beginning of the expenditure report period, as defined

at 11 c.r.R. 9002.12, if such expenditures are for property, ••rvices or faeilities which are to be us~.d in connect.ion -wlth the

general election caapaign and which are for us. during the

expenditure report period. Exaaples include but are not liaited

to expenditures for establishing financial accounting syst•••, organizational planning and expenditures for polling_

The candidate us.d Air Force II for caapaign trav.l.

The Office of the Vice-President would bill the Coaaitte. for the

caapaign related portion of the trip at first cla•• airfare plus

one dollar. Each billlD9 included a aanif.st showing the p.ople

that traveled on Air rorce II and whether they were traveling on

official or unofficial bu.in.... The unofficial portion of the

aanifest generally repre.ented people that traveled for political

reasons. aeginning in the later part of March, 1988, the Audit

staff noted persons who traveled on Air rorce II for unofficial

re.sons but whose airfare vaa not billed to the Committee by the

Office of the Vice-President. Since, the Committee wal not

billed, they did not pay for these airfares, though the people

involved appeared to be traveling for political reasons.

Many of the individuals on the manifests were political

figures. According to Committee officials, these political

figures or their political committees were probably billed by the

Office of the Vice-president for their portion of the trip, and

traveled for realons of their own and not for Committee purposes.

Bowever, on a number of the flights people traveling for

unofficial or political reasons were either ••ployee. or

volunteers associated with the Committee, including the candidate.
51

The Committ•• waa provided the na.e. of the individuals ~nd asked to provide additional information as to who vaa billed

for this airfare, and why the Committee wasn't liable for the•• people travelinq on Air Force II. According to Coaaitt•• records,

the coat. for people traveling on Air Force II from March 24~ 1988

through August 16, 1988, for unofficial reasons, not paid by the

Committee, totaled $69,814.00.

Accompanying the billings for Air Force II, the Office

of the Vice President would also bill for White House

Communications Agency costs. These bills include what percentaqe

or portion of a trip was political. The billings also indicated

if another political organization was liable for a portion of the

expenses. The invoices indicating other political organizations

were billed for part or all the communication costs, totaled

$21,168.98. The Committee paid $6,506.56 of this amount. There

were additional billings not paid by the Committee which indicated

100\ political use. These totaled S16,595, and there was no

record of payment by the Committee or any other organization in

Committee files. These amounts and the cities the candidate

traveled to were provided to the Committee at the close of

fieldwork.

Starting on August 2, 1988 through Auqust 9, 1988 the

candidate aade a nuab_er of trip. which vere paid for by the_

general election caapaign (Bush-Ouayle '88), even though the trips

vere aade prior to the party's convention. These trips, including

the White Bou.e Coaaunications costs, totaled $30,101.26. In the

Audit staff's opinion the•• expenditures did not •••t the

requireaents of 11 c.r.R. 9003.4(a)(1). Tberefore, in the Interia

Audit Report, this a.ount waa added to expenditures subject to the

overall spending li.itation, and included in accounts payable on

the State.ent of Net Outstanding Caapaign Obligations as a

liability to Bush-Quayle '88.

In the Interi. Audit Report, the Audit staff requested

the following information:

a) Additional information about individuals that

traveled on Air Force II for unofficial reasona but were not

billed to or paid for by the Coaaittee, including:

i) why the travel was not related to the

primary campaign;

ii) the name of the organization that paid

for the trip; and

iii) the amount paid by the other

organization for each trip.
52

b) Th. Co..itt••·.hould provide additional

information about White Hou•• communication coats, to include why

on certain political trip. billed by the Office of Vice Pr••ident,

the Coaaittee only paid for a portion of the co~t.. The Coaaitt•• should also explain why on ether trips they paid for nane of the

coats. If another orqanization paid the char9••, the Coaaittee

should supply information about the organization to include:

i) why they paid these coats;

il) ~hat they paid for; and

iii) the amount paid.

c) The Committee should also supply additional

information as to why it is not liable for the Air Force II and

white House Communication costs for the trips in August, 1988,

paid for by Bush-Quayle '88.

In the Committee's response to the Interim Audit Report,

the Treasurer states that the Campaign served "as a clearinqhouse

for 'political' travel on Air Force II (including non-caapai9n

related political travel)." Also included is the followin9

explanation by Oavid Nuamy, Coaptroller of the Bush Coaaitt••:

It ••• the Caapaign would receiv_erequests -f-roa -candidates,

eoaaittees, and federal, state, and local officeholders requesting

the opportunity to travel on Air Force II.... Such requests for

political travel on Air Force II were aecoaaodated by the caapaign for the benefit of such other candidate., coaaitte••, or federal,

state and local officeholders whenever po.sible, to the extent

that there were seats available once the caapaigD's own travel

require••nts were .at. Tbe travel of the.e individuals was alvays

contiDgent, however, on the approval of the Office of the Vice

Presid.nt••••In these instance. of nOD-Bush caapai9n travel by

officeholders and others, the coat of these .ega.nts was billed

directly by the Office of the Vice pre.ident to the•• individuals

because their travel waa not related to the Georg- Bush For

President Coaaittee.-

The Treasurer adds that ·even if an individual on the

plane was a 'politician,' there is no reason to a.aua. that that

individual was not on the plane to further hil or her own

political objectives, as opposed to the Bush campaign's· and:

• .•• even if an individual was on the plane for

'unofficial' (non-governmental) business, this doel not mean that

he or she was necessarily on the plane for 'Bush caapaign'

business. "embers of the Vice President's family, and perlonal

friends, travelled on Air Force II for reasons related to neither

government nor campaiqn business. If the Vice President had

travelled by commercial plane, such costs would have been paid

directly by other non-public sources. However, the Vice president
53

of the United Stat•• travels as a matter of cour.e on Ait rorce

II, so that all personal guests are handled through the United

States Govern••nt. Moreover, because the billing waa handled in

this aanner, the Co..i ttee is unable to provide- infor••tion aa to

what entity actually paid for the transportation of the

individuals in question, unless that information is pUblicly

available."

The Treasurer continues, "as was the case in the qeneral

election Audit Report, several of the federal candidates or office

holders identified on Attachment 2 to the Interim Report paid for

their transportation as reflected on their FEe disclosure report.

on file with the Commission. As to several of the remaining trips

identified on Attachment 2 to the Audit Report, the Commission has

already been notified that these were not campaign related trips".

The Committee provided no additional additional information as to

which office holders paid for their transportation expenses.

The Committee goes on to state that several individuals

were incorrectly identified as Committee staff on Attachment 2 of

the Interia Audit Report. According to the Treasurer, "Every Bush

staffer or individual authorized to travel on behalf of George

Bush for President was paid for by the Bush Committee." Aqain, as

noted by the Audit staff in the Interim Audit Report, the

information relied on by the staff was froa the billings to the

Coaai-tt-e.--by the- Of-fiee ofVlce President.

With respect to White Bouse co..unication costs, the

Treasurer explains that, as in tbe case of the Air Force II costs,

-when the Vice-President travelled on non-caapaign busine••, the

caapaign va. not charged for WBCA costs. As can be seen when

co.paring Attachments 2 and 3 to the Interia Audit aeport, for

each trip which previously was identified .a non-caapaign related,

no WBCA coats were as.essed to the caapaign. Again therefore,

because the billing was handled in this aanner, the Coaaitt•• is

unable to provide infor••tion .a to what entity actually paid for

the WBCA costs in question, unle.s that infor.atioD is publicly

available. w

The Audit staff researched the rederal Election

Commission disclosure reports and identified 18 individuals who

were ••abers of or candidates for Congres., who.e air travel

between March 24 and Auqust 9, 1988, was paid for by their own

committees. This included a three spouses of candidates who

traveled on Air rorce II for unofficial reasons. Of $18,525.00

billed for the •• individuals, $5,854.00 was paid by the candidate

committees. Another $5,992.00 pertained to travel that the

Commission determined to be the General Election Committee's

activity in August, 1988. An explanation of that activity is

presented below. Of the oriqinal $69,814.00 detailed in the

interim audit report, $57,968.00 remains unaccounted for as to

which organization paid for this travel. The Audit staff

recommended that the $57,968.00 in transportation costs and the
S4

White Bou•• Coaaunication Agency costs of $31,257.42 not paid by

the Coaaitt•• be considered contributions in-kind and applied to

the overall spending limitation.

on January 30, 1992 the Commission voted to exclude from

expenditures subject to the overall limit, people traveling on Air

Force II except for the candidate, his spouse, and anyone

identified or associated with GeorQe Bush for President~ Wbite

House Coaaunication Aqency costs have also been excluded. As a

result the total amount considered as an in-kind contribution

totals $13,969~OO.

In the next issue addressed, the Treasurer states -the

travel in the week of August 2 through 9 were appropriately

charged to the General Election Committee." The Treasurer realons

that ftby summer, 1988 all of the presidential primaries had been

completed, and Vice President Bush was assured of his party's

nomination. Thus, the campaign properly undertook to determine

whether Vice President Bush's travel during this post-primary

period was nomination or general election related. Expenses were

paid by either George Bush for President or Bush-Quayle 88 in

accordance with this determination." The Treasurer states

further, that "the Commission has previously permitted general

election co.-ittees to pay expenses attributable to the general

election which are incurred prior to the general election period",

and _the Treasurerref,rs to Reagan-Bu$h Audit of 1984 a••upport

for this stateaent.

The Audit staff does not dispute that by Auqust of 1988,

all priaaries were over or that the Candidate appeared to be

aasured the noaination. In the Bush-Quayle 88 audit report, the

Coaaission determined that the travel costs discussed above did

not aeet the definition of peraissible pre-expenditure report

period expense. and therefore were considered non-qualified

caapaigD expenses on the Bush-Quayle 88 audit report. The Audit

staff is of the opinion that no further action, with respect to

the Co..itt••, is necessary with regard to the $30,101.26.
S5

8. Expenditure. Subject to Overall Llaitatlon - Recap

The following is & recap of adjust••nta to

Coaaittee'. expenditures subject to the overall limitation.

--"')

Expenditures subject to the limitation as of

March 31, 1990, as reported by the Coaaittee

Add: a) Overstated compliance and

understated operating expenditure.

(Section 1. above)

b) Insurance reimbursed by Bush-Quayle

'88 and the Compliance Fund

(Section 3. above)

c) Air Force II costs not paid by

the Committee (Section 7. above)

d) Equipment sold to the Sununu Coaaitte.

(Finding 111.0.4.)

$23,020,108.35

203,762.14

27,825.87

13,969.00

4,140.00

e) In kind contri_bution for ~ut_Q.obtl•• _ (rinding III.C.S.)

f) Over allocation of equip.ent in Iova to ea••pt co.pliance (Finding III.C.l.)

9) Adjustment to .aounts charged to co.pllance

for salary allocated to Iowa and Mev Baapabire

fro. National (rinding III.C.2.)

h) secret Service (Section 6. above)

i) Ex.apt Le9a1 and Accounting

(Section 5. above)

4,815.95

100.20

8,266.98

(SO,008.SS)

10,650.17

j) Reiaburseaent to Bush-Ouayle '88 for

Auqust 16, 1988 Presl Plane (rinding II.B.) 23,520.00

x} Voided Checks (Finding III.F.' (2,930.49)

TOTAL $23,264,219.62

Leis 2 U.S.C. S441a(b){1)(A) spending

Limitation 23,050,000.00

Total expenditures in excess

of limit s 214,219,62
56

In the Interi. Audit Report the Audit staff 4eterained

that the Coaaitt•• was in exce•• of the Ii.it by $587,69'.18. As

a result of the Committee's response, the overbilling for the

press plane was reduced by $298,046.54 (rinding II.B.), the

liability to Bush-Quayle '88 was redueed by $30,101.26 (Section

7), vendor payments charqed to payroll of $40,531.89 were

subtracted (Section 2. above), Secret Service billable eOlta

excaedinq reimburseaents by $50,008.55, were deducted (Section 6)

and the Co.-itt•• voided checks totaling $2,930.49 all of which

reduced expenditures subject to the Ii.it. Rowever, the

reallocation of exempt compliance expenditures of $10,650.17,

(Section S. above), paying Bush-Quayle '88 $23,520 for the press

plane (Finding II.B.) and use of air Force II not paid by the

Comaittee of $13,969.00 (Section 7) increased expenditures subject

to the liait. Therefore, the Committee's total expenditures are

in excess of the limit by $214,219.62

E. Use of Funds for Non-Oualified Caapaiqn Exoenses

Section 9035(a) of Title 26 of the United States Code

states, in part, that no candidate shall knowingly incur qualified

caapaiqn expenses in excess of the expenditure liaitation

applicable under section 441a(b)(1)(A) of Title 2.

Section 9038.2(b)(2)(i)(A) of Title 11 of the Code of

r.ott!'al lte-<JUlat-i-ons-prov-ides, in --part, -tbat--th. -<:0..i-..10D---a.y

deter.ine that aacunt(s) of any payaents aade to a candidate fro.

the aatching payaent account, were us.d for purpos•• other than

qualified caapaigD .xp.n.... Section 9038.2(b)(%)(il)(A) of Title

11 of the Code of rederal aequlations Itat.. that an exaaple of a

Coaaission repayment deter.inatioD under para,raph (b)(2) of this

section includes deter.inationa that a candidate, a candidate'.

authorized coaaittee(s), or agents have aade expenditure. in

exce.s of the 1iaitations set forth in 11 c.r.•• S 9035.

On January 30, 1992, the Audit staff pre.ented a final

audit report to the Coaai••ioft that the Co..itt•• had exceeded the

stat. expenditure li.itationa for Mev B.apabire and Iowa by a

total of $294,492.54 (rinding III.C.) and the overall li.itation

by a total of $289,476.04 (rinding III.D). The•• deter.inations

were aade by analyZing the Coaaitt.e'. expenditure. aade throu9h

Deceaber 31, 1989 which vere allocabl. to th••• states' and/or the

overall spending liaitation and by adding to the•• totals the

accounts payable relative to the respective limits.

In the case of the state spending limitation, all but

$1,533.78 was paid before the candidate's date of ineligibility.

ror the overall spending liaitation, an a.aunt totaling more than

the overage was applied to the limitation after the Candidate's

date of ineligibility. Therefore, the entire amount of the overage

ia assumed to have been paid in the post date of ineligibility

period. Only the $1,533.78 was paid when both set. of liaitations

had been exceeded and to avoid any double counting, only that

a.ount needed to be adjusted out of the total of the two overaqes.
57

Finally, the Co..itte.~. NOCO stat••ent, .a adjusted, reflected a surplus. It w•••••uaed that the portion of the

surplus which the Co.-itt•• va. not required to repay va. applied

to the a.ount in exce•• of the spending limitation. Thua • portion of the overall spendinq ii.itatioR exce.s val paid with purely

private funds. This amount va. adjulted out prior to the

application of the repayment ratio.

Given the above, the repayment calculation for •.aunts

paid in excess of the spending limitation was al follow.:

Amount in Excess of the State

Spending Limitation

Amount in Excess of the Overall

Spending Limitation

$294,492.54

289,476.04

Surplus from Finding III.B.

Less Repa}~ent

$25,749 .. 13

(6,856.01)

Non-Federal Funds Portion

of the Surplus Applied to

Expenditures in Excess of

the Spending Limitation

Total- Aaount- in Ex-c-ess -01- the- Spendi-n-gLiaitation Paid with Mixed Pool

of Private and Federal Funds

L•••: Aaount Paid in Violation of

80th Liaitations

Aaount Subject to 11 c.r.R. 9018.2(b)

Ratio aepayaent

Tia.s the Repayaent Ratio fro.

rlndinC) III.A.

aepayaent Aaount

(18,893.121

565,075.46

(1,533.18)

$563,541.'8

.266262

5150,9 49 ,73

In response to the Interia Audit Report the Coaaitte.

calculated, that they were in excesl of the New Haapshire atate

ll.it by $44,262.26 and the overall li.it by $225,316.56,

resulting in a repayment of $71,778.58. The Coaaittee submitted a

check in that a.ount with the response to the Interim Audit

Report.

The following recommendation was presented to the

Commission on January 30,1992:

wThe Audit staff recommends that the Commission a.ke an

initial deteraination that $150,049.73 is repayable to the United

States Treasury pursuant to 11 eFR 9038.2(b)(2).-
S8

The Co.-is.ion did not agree with this ••thad for

determining the repayaent. Instead, it v•• decided to co.put. the

repayment usin9 the larger of expenditure. in .xc••• of the state

limits or expenditure. in exc••• of the overall Ii.it and not

combine the two exce••ive a.aunts.

Based on the changes to Finding III.C. and D. the amount

in excesa of the state spending limitation totaled $260,459.81 and

the amount in excesl of the overall spending Ii_itation totaled

$214,219.62. Kultiplyinq the larger amount by the repay••nt ratio

of .266262 results in a repayment amount of $69,350.55. B••ed on

the changes to Finding 111.0. the Committee's NOCO stateaent, as

adjusted, no longer reflects a surplus.

Recommendation .5

Based on the Commissions decisions described above, the Audit

staff recommends that the Commission make an initial determination

that $69,350.55 is repayable to the United States Treasury

pursuant to 11 erR 9038.2(b)(2).

F. Stale-Dated Co.-itt•• Checks

Section 9038.6 of Title 11 of the Cod. of Federal -l\~ulations-state.-that- i-f-tb.--CoIIIIt~t••--lI.-.---en.e1t. --(hi~it:.nalnq

to creditors or contributors that have not been casbed, the

Coaaittee sball notify the Co..i.sioft of its effort. to locate

the payees, if such effort. are nec•••ary, and to encourage th•• to cash the outstanding chects. The Co..itt•• shall also

sub.it a check for the total a.aunt of sucb outstanding checks,

payable to the United Stat•• Treasury.

The Audit staff reconciled the Caa-itte.'. reported

activity to its bank activity througb Septeabet 30, 1989 and

deterained that the total a.aunt of outstanding checks waa

$52,663.22. Of this aaount $46,659.64 ver. for checks dated

between March 5, 1987 and January 4, 1989, including 13

totaling $7,060.00 that are contribution refund checks. The

remaining are to individuals and vendors in payaent for various

obligations.

In the Interia Audit aeport the Audit staff

recommended the Coaaittee present evidence that:

a) the checks are not outstanding (i.e., copies of

the front and back of the negotiated checks); or

b) the outstanding checks are void (copies of the

voided checks with evidence that no committee

obligation exists, or copies of neqotiated

replace.ent checks); and
S9

c) inform the Commission of the Coaaitt••'.

atteapts locate the paye.s to encoura9. th•• to cash the outstandinq checks or provide

evidence documenting the Co.-itte.'s efforts to

resolve theae iteas.

d) After reviewing the information, the Comai.sion

would recommend the amount payable to the United

States Treasury.

In response to the Audit Report, the Committee repaid

$33,845.24 to the United States Treasury. The Audit staff

reviewed the additional information and aqrees with the

Committee that there is no obligation for $2,930.49. The

Treasurer stated that two checks for $153.85, were voided and

reissued. However, these two checks were deleted from the stale

dated list, prior to the Interim Audit Report by the Audit

staff. The Treasurer also stated that two checks, totaling

$208.19, were voided and reissued, and the remaining checks

were all voided. The Committee did not submit documentation to

establish that no obligation exists for outstanding checks

totaling $9,883.91.

Recommendation • 6

The Audit staff reco..ends that the Coaaission make an

initial deter.inatioD that an additional $9,883.91 be paid to

the United States Treasury pursuant to 11 C.P.R. S 9038.6.

G. Recap - Aaounts Repayable to the United states

Treasury

Pre.ented below il a recap of the a.aunts

recomaended by the Audit staff a8 subject to the repayment

provisions of 26 u.s.c. S9038(b)(2) and (3), and 11 C.F.R.

19038.6.

Expenditures in Excess of Stat. and

OVerall Liaitations (5•• rinding III.!.)

Rea.ining Stale Dated Outstanding Checks

(See Finding III.G.)

Aaount Committee Repaid in Response to the

Interia Audit Report

Total Recommended Repayment

69,350.55

9,883.91

(71,778.58)

S 7,455,88
'"

FEDERAL ELECT'~~~'lYr'Ip~I~

VVASHINCTON, 0 C 2(46)

April 9, 1992

MEMORANDUM

The Commissi

THROUGH: John C. Su i a

Staff DireD

FROM: Lawrence M. b:e~~ General Coun el ~Ir~

t-Coleman HI'-'

Associate G neral Counsel

\ c

Carmen R. JOhnSOn~ Assistant General ..VoseJ.

L<:renzo Holloway '-1.4.

Attorney

SUBJECT: George Bush for president Com.ittee, Inc.

Repayment to the United States Treasury

(LRA 1358)

TO:

The Commission approved the Interi. Audit Report on George

Bush for President Committee, Inc. ("Com.ittee") on January lS,

1991. The Committee responded to the Interim Audit Report on

June 13 , 1991. The Committee's response to the Interim Audit

Report included two checks totaling $105,623.82 made payable to

the United States Treasury. On February 18, 1992, the

Commission approved the Final Audit Report and made an initial

determination that the Committee repay $113,079.10 to the United

States Treasury. On March 20, 1992, the Committee submitted a

check for $7,455.88 ($113,079.70 - $105,628.82), the remaining

amount owed to the United States Treasury. Accordingly, the

Committee has made full repaympnt to the United States Treasury.

See 11 C.F.R. § 9038.2(d)(1).

In a letter accompanying the repayment check, the Committee

indicated that it would not contest the Commission's initial

repayment determination. See attachment 1. Since the Committee

will not dispute the initial repayment determin~tion, it is

considered a final repayment determination. 11 C.F.R.

S 9038.2(c)(1). Therefore, the Office of General Counsel
-Memorandum to the Commission

George Bush for P~esident Committee, Inc.

Repay.~nt to the United states Treasury (LRA 1358)

page 2

recommends that the Commission conclud~ that the initiAl

repayment determination for President George Bush and the George

Bush for President Committee, Inc~ has become a final repayment

determination. Id. The Committee will be notified accordingly.

RECOMMENDATIONS

The Office of General Counsel recommends that the

Commission:

1. Conclude that the initial repayment determination for

President George Bush and the George Bush for President

Committee, Inc. has become a final repayment determination under

11 C.F.R. S 9038.2(c)(1)i and

2. Approve the appropriate letter.

Attachaent

Committee's Response to the Final Audit Report and the

initial repayment determination.
Bush- ·~e *.***8~*****--*--------------------­ Compliance Committee

March 20, 1992

Mr. Robert J. Costa

Assistant Staff Director, Audit Division

Federal Election Commission

999 E street NW

Washington, DC 20463

Dear Mr. Costa:

~~

-::~-

t C\::'~

The George Bush for President Committee, Inc., received your

letter of February 18, 1992, which accompanied the tommission's

Final Audit Report on George Bush for President Committee, Inc.

(the Committee).

The committee believes it made a full repayment of the proper

amount due the US Treasury when the Committee filed its response to

the Interim~ Audlt: Report----in --June~u-of --1-9-9-1. -Howev-er-,- ~---in- order u~-to

avoid needless waste of time and expense both for the Co1tdlittee and

for the government, enclosed with this letter is an additional

repayment of $ ',455.88.

It is the Committee's understanding that this repayment will

close the file regarding all .etters referenced in the Final Audit

Report.

Sincerely:

4:IEHU~ Treasurer

George Bush for President Committee, Inc.

encl.

I

- i

228 South Washington Street • Aleltandr1a. Virglf"la 22314

Telephone 703·549·8692 • FAX 703·684-0683

Paid fOt I)y &sn·O~y'18 88 ComOi!a~c. Committee
f

f PA~R~ United States Treasurl $,7,455.88

!

! --------Seven Thousand Four Hundred Fifty - Five & 88/100 --------------

..·003b80.8 -:051.00 It 20"':

repayment of stale-dated check amount 8a'per Final

Audit Report of George Bush for President, Inc .

NJt(XMf

$ 7,455.88

I DOLLARS

· ~pJ~

£ff!:L41fd~-_.-.-"-- ?l:l3'~ I"J

OESC.U'TION

DILun • 'ORII DVCP4 Y-I

O£TACH ANO MTAIN THtS STATEMeNT ...... "'1"1'''(,;''.0 C;••IC."" ,. _ "'''''''''''.'''1' 01' eYe.... 0«45('; 0 ..""OWl .• ....0. ("0........ (; .. ""-If ..... ...on,." ~'"" NO ....0 0«.....6

3/20/92

OAT(

GIORGE BUSH FOR 'RESIDENT

COMPLIANCE ACCOUNT

..J

;

f ~J:.:h.:c.on. DC 20006

1 I

,

i GEORGE BU_ ... FOR PRESIDENT

COMPLIANCE ACCOUNT