FEDERAL ELECTION COMMISSION

W"SHINGTON. 0 C 20463

MJ000945

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May 23, 1990

MEMORANDUM

TO: FRED EILAND

CHIEF, PRESS OFFICE

FROM: ROBERT J. COSTA nv ,J...)!- _~(2. 3 , 0

ASSISTANT STAFr DIRECTOR

AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT

ON THE LAROUCHE DEMOCRATIC CAMPAIGN

Attached please find a copy of the Final Audit Report on the

LaRouche Democratic Campaign which was approved by the Commission

on May 17, 1990.

Informational copies of the report have been received by all

parties involved and the report may be released to the public •

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library
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FEDERAL ELECTION COMMISSION

\"SHINCTQN DC ;O~03

REPORT OF THE

AUDIT DIVISION

ON

LAROUCHE DEMOCRATIC CAMPAIGN

I. Background

A. Overview

This report is based on an audit of LaRouche Democratic

campaign ("the Committee ll ) to determine whether there has been

compliance wlth the provisions of the Federal Election Campaign

Act of 1971, as amended ("the Act ll ) and the Presidential Primary

i1atching Payment Account Act. The audit was conducted pursuant to

26 U.S.C. § 9038(aJ which scates cnat, ~After each matching

payment perlod, the Commisslon shall conduct a thorough

examination and audit of the qualified campaign expenses of every

candidate and his authorized committees who received payments

under Section 9037. 11

In addition, 26 U.S.C. S 9039(b) and 11 C.F.R. §

9038.1(a)(2) state, in relevant part, that the Commlssion may

conduct other examinations and audits from time to time as it

deems necessary.

The Committee reglstered with the Federal Election

Commission on October 25, 1985. The Commlttee maintains its

headquarters in Leesburg, virginia.

The audit covered the perlod from the Commlttee's

lnception, October 25, 1985, through August 31, 1988. Durlng this

perlod, the Committee reported an opening cash balance of

$-0-, total receipts of $3,930,064.25, total disbursements of

$3,857,066.60, and a closing cash balance of $72,399.68~/ on

August 31, 1988. In addition, data relating to the statement of

Net outstanding Campaign Obligations (NOCO) were reviewed through

September 30, 1989. Under 11 C.F.R. S9038.1(e)(4) additional

audit work may· be conducted and addenda to the report lssued as

necessary.

This reoort is based uoon documents and workoaoers which

support each of the factual statements. They form part or the

record upon WhlCh the Commlssion based its deC1Slons on the

matters ln the report and were avallable to CommlSSloners and

approprlate staff for reVlew.

*/ These figures do not foot due to a mathematical error by

the Committee.
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During fieldwork, the Committee Treasurer advised the

Audlt staff of a Special Legal Account (SLA) which according to ~lm ":unds activities outside the purview of the Federal Election

Campaign Act and the Presidential Primary Matching payment Account

Act."

In a subsequent letter to the Audit staff dated october

27, 1988, the Commlttee representative, 1n describing the source

of funds deposlted to this account, stated "that the nature of the

SLA 1S determlned by the nature of its disbursements." This

letter goes on to discuss Advisory Opin10n 1981-16 and Advisory

0plnlon 1982-35 in support of the Commlttee's position, that 1f an

expense 1S str1ctly a matter of self-defense, it is outside the

purv1ew of the Act.

C. Scooe.

An affidavit dated October 13, 1988, submitted by a

Commlttee representative to the Audit staff describes this account

as one where 1I ••• the only disbursements issued on the SLA were to

attorneys for the purposes of defending Mr. LaRouche's ballot

status from legal challenge, or of challenging the

constitutionality of state ballot-access statutes."

Section 431{9) of Title 2 of the United states Code

defines expenditure to include a purchase, payment, distribution,

loan (except for a loan made in accordance with 11 C.F.R.

SlOO.8(b)(12», advance, deposit, or gift of money or anything of

value, made by any person for the purpose of influencing any

election for Federal office.

3. Kev Personnel .

A. Transactions Related to LaRouche Democratic campaign

Speclal Legal Account

Section 431(8) of Title 2 of the United states C~de

~etlnes contribution to lnclude a gift, subscription, loan (except

for a loan made in accordance with 11 C.F.R. §100.7(b){11»),

advance, or deposit of money or anything of value made by any

person for the purpose of influencing any election for Federal

office.

II. Finding and Recommendation Related to Title 2

of the United States Code

The audit included such tests as verification of total

reported receiots, disbursements and individual transactions~

review of required supporting documentation; analysis of Committee

debts and obligations; review of contribution and expenditure

limitations; and such other audit procedures as deemed necessary

under the circumstances.

From the inception of the Committee, the Treasurer has

been Edward Spannaus.

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Finally, ln a March 1, 1989 letter, the Comm1ttee

explains that a prepayment of $6,500 from the SLA was made at a

time when the Committee was preparing a constitutional challenge

to the exclusion of the campaign from the Democratic National

Convention and in the Committee's view "'Nas outside the scope and

jurisdiction of the FECA." Circumstances prevented the campaign

from engag1ng in this litigation. subsequently, Mr. LaRouche's

general election committee was engaged in litigation in the sta~e

of Michigan with respect to a ballot challenge handled by the same

legal firm. The $6,500 prepayment was applied to the Michigan

litigation and the expenses relative to the DNC, litigation were

paid by the Committee.

On February 14, 1989, the Committee provided records for

the Audit staff's review which included copies of contributor

checks, bank statements, cancelled checks and an obstructed

invoice. The Audit staff determined that SLA activity for 1988

consisted of $11,750 in total receipts; $11,602.36 in total

disbursements; and an ending cash on hand balance at 12/30/88 of

$147.64.

without unobstructed copies of invo1ces for all

disbursements, the Audit staff is unable to determine whether the

activity falls within the definition of contribution and expenditure.~./

In the Interim Audit Report, the Audit staff recommended

that within 30 calendar days of the date of service of the report,

the Comm1ttee provide information regarding the litigation that

necessitated the creation of the SLA, unobstructed copies of

invoices for all disbursements and any other materials in support

of the1r position.

The Committee's response of December 19, 1989 reiterates

and expands on its posltion as presented in letters previously

submitted to the Audit staff and which are discussed above. In

addltion, the Comm1ttee provlded an unobstructed invoice for ~ayberry and Assoc1ates supporting the $6,500 prepayment. with

respect to the other vendor in question, although the committee's

response states it has included a "cumulative invoice of his

[Nicholas Miglinol best present recollection of the extent of his

services", which totaled $5,000, no such documentation was

lncluded. However, when subsequently notified of this, the

Comm1ttee provided the missing document.

The Audit staff is of the opinion that activity of the

Special Legal Account relative to Mayberry and Associates and

,. / If the activity is under the Jurlsdiction of the Act,

additional recommendations wlll be forthcoming relative to 2

U.S.C.§441alal, and for lnadequately documented

disbursements, which could result in a posslble repayment

under 26 U.S.C. §9038(b)(2).
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~icholas Miglino appear to be outside the purview of the Act.

According to the documentation provided, the services provided

appear to pertain to litigation with respect to Michigan general

election ballot access and defending petitions necessary for

ballot position in New York.

Recommendation ~1

/ . The Audit staff recommends that no further actlon be taken

wlth respect to this matter.

B. Matters Referred to the Office of General Counsel

Certain matters noted during the audit have been

referred to the Commission's Office of General Counsel.

III. Findinqs and Recommendations Related to Title 26

of the·United states Code

A. Stale-dated Committee Checks

Section 9038.6 of Title 11 of the Code of Federal

Regulations states that if the committee has checks outstanding to

creditors or contributors that have not been cashed, the committee

shall notify the Commission. The committee shall inform the

Commission of its efforts to locate the payees, if such efforts

have been necessary, and its efforts to encourage the payees to

cash the outstanding checks. The committee shall also submit a

check for the total amount of such outstanding checks, payable to

the United States Treasury.

During our reconciliation of Committee bank accounts

to disclosure reports, the Audit staff identified 17 checks,

totaling $3,369.70, which were dated prior to June 1, 1988 and

remalned outstanding as of September 30, 1988.

At ~he eXlt conference, Committee representatives

offered no comments regarding these items, and were prOVided a

schedule detailing the stale-dated checks.

In the Interim Audit Report, the Audit staff recommended

that within 30 calendar days of the date of service of the report

the Committee (1) provide copies (front and back) of any of the

above checks which have now cleared the bank; (2) inform the

Commission of its efforts to encourage the payees to cash the

outstanding checks or provide evidence documenting the Committee'S

efforts to resolve these ltems; and (3) submit a check payable to

the United states Treasurv for the total amount of such checks

which are still outstandinq at the concluslon of the resoonse

penod. - .

The Commlttee's response, received December 19, 1989,

detalls lts efforts to resolve stale-dated checks either by

sendlng letters to the vendors involved to determine if monies are
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s~ill owed to them, or, by issuing replacement checks (dated

3/1/89) for those items involving contribution refunds and

including a cover letter encouraging the payees to cash these

checks. For one stale-dated check ($27.15), the Committee made no

effort to resolve the item. The Committee concludes, in its

response, that it has complied with the best efforts provisions to

resolve these items, ~comporting with 11 CFR 102.9(d) and 104.7",

and considers only the $27.15 item subject to repayment, noting it

has no control over those vendors wh9 did not reply, nor the

persons who have not cashed their replacement checks.

The Audit staff is of the opinion that the Committee's

efforts have, in fact, resolved only 8 stale-dated checks,

totaling $2,208.75, and that the remaining 9 items totaling

$1,160.95 require repayment to the United states Treasury (see

Attachment 1).

Recommendation ~2

On May 17, 1990, the Commission made an initial determination

that $1,160.95 in stale-dated checks 1S repayable to the United

states Treasury pursua~t to Section 9038.6 of Title 11 of the Code

of Federal Regulations. N

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Section 9038(b)(1) of Title 26 of the United states Code

states, in part, that payments made to a candidate from the

matching payment account in excess of the candidate's entitlement

shall be repaid to the Secretary upon notification by the

Commlssion.

Section 9038.2(a)(1) of Title 11 of the Code of Federal

Regulations states, in part, that a candidate who has received

payments from the matching payment account shall pay the united

States Treasury any amounts which the Commission determines to be

repayable under this section.

Section 9038.2(b)(1)(i) of Title 11 of the Code of

Federal Regulations states that the Commission may determine that

certain portions of the payments made to a candidate from the

matching payment account were in excess of the aggregate amount of

payments to which such candidate was entitled. Included are

payments made to the candidate after the candidate's date of

ineligibility where it is later determined that the candidate had

no net outstanding campaign obligations as defined in 11 C.F.R.

§ 9034.5.

As presented in Finding III.F., the candidate's audited ~OCO statement reflected a defic1t on May 26, 1988, the

candidate's date of ineligibility. The Audit staff determined

that contributions recelved from individuals and matchina funds

rece1ved after the date of ineligibility coupled with the

eXcluslon of accounts payable for non-qualified campaign expenses

orlg1nally included by the Committee on its NOCOs filed with the

Commlssion, caused the deficit to be eliminated on July 14, 1988.
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~he Committee received three matching fund payments,

totaling $109,148.88, after July 14, 1988. On July 27, 1988,

Matching Fund Request tS ($40,657.36) was certified by the

Commission and received by the Committee on July 29, 1988. On

August 24, 1988 Matching Fund Request ~6 ($41,330.02) was ~ertified by the Commission and received by the Commlttee on

August 26, 1988. On October 13, 1988 Matching Fund Request *7

($27,161.50) was certifded by the Commission and later received by

the Committee.

At the exit conference, Committee representatives stated

they would review copies of workpapers prOVided by the Audit

staff.

In the Interim Audit Reoort, the Audit staff recommended

that within 30 calendar days after service of the report the

Committee demonstrate that it has not received matching funds in

excess of entitlement. Absent such a show1ng, the Audit staff

would recommend that the Commission make an initial determination

that $109,148.88 be repaid to the United states Treasury.

In 1tS reSDonse, received December 19, 1989, the

Commi ttee presents the issue to be "·....hether a presidential

candidate who chooses to campaign after being declared ineligible

for additional pUblic financing is entitled to have the entire

deficit as of the date of ineligibility paid for by public

financing, so as to permit the use of private funds raised after

the date of ineligibility exclusively for the candidate's

continued electioneering. The Federal Election Campaign Act, as

amended, is silent on this issue. 1t The Committee next references

11 C.F.R. §9034.1(b), stating that "[t]his regulation clearly

assumes that all pr1vate contributions are automatically applied

to reduction of NaCO, regardless of whether or not a candidate

continues to campaign."

~!n the case of the candidate who does w1thdraw from the

race at that pOlnt, no problem arises, since there 1S no

leg1timate purpose to which private contributions might be

applied, other than winding down and retirement of campaign

obligations. In this circumstance, both the regulation and its

application are fair and reasonable. However, no regulation

addresses the issue of whether private contributions received

after the date of ineligibility, in the case of a candidate who

continues to campaign, must be applied to reduce the deficit, or

can instead be used for continued campaigning."

The Comm1ttee then points out that ln order to continue

to campalgn as a vlable candidate, the candidate must have access

to all of his or her private funds and that the Audit Divlslon's

proposed lnterpretation of entitlement would exact a severe

penalty agalnst the candidate who chooses to continue campaignlng

by denylng his statutory rlght to recelve matching funds for

retlring qualified debt.
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:n support of this position, the Committee then cites,

as relevant, the following issues:

With respect to the LaRouche Campaign, Lyndon LaRouche's

1984 presldential Committee, the statement of Reasons 6ubmitted by

the FEC's Office of General Counsel stated lithe Comm1§sion must

decide that ltS repayment determination only seeks recovery of

federal funds used for non-qualified purposes, while at the same

time allowing an ineligible candidate to continue his or her

campaign with private monies."

The same document states that "the legislative history

makes clear that candidates deemed ineligible for insufficient

public support are free to continue their campaigns for the

nomination with private monies only."

The Committee thereafter argues that the Audit staff

mlsapplied the concept of entitlement when contributions from

individuals were used to eliminate the deficit; comparing it to

the "1984 misapplication of the definition of 'non-qualified

campaign expense'" and noting both applications have ~he effect of

:orclng a candidate to cease campalgning, even when such

campaigning is financed by private contributions.

The Committee then emphasizes "that while the campaign

continued, using private funds, the Committee also did not fail to

retire the qualified debt, using federal funds for that sole

purpose. No federal funds were used for the purpose of continuing

to campalgn. The amount of federal funds received

post-ineligibility never exceeded the Net Oustanding campaign

Obligation."

The Commi t tee's response continues stating it """,as aware

of the requirement to use federal funds received after the date of

lneliglbility solely for the purpose of defraying qualified

pre-lneligibility obligations and later winding down costs. To ~hat end the Commlttee established its segregated federal funds

account."

The Committee concludes its response by noting its

posltion is that no repayment is required.

with respect to the Committee's position as presented

above, the Audit staff believes it has applied 11 C.F.R.

§9034.1(b) correctly. In reducing a candidate's de~icit as

calculated at date of ineligibility ("DOI"), the regulation

prescrlbes that all private contributlons be applied whether or

not actually used to pay qualified accounts payable at DOI. Thus,

matching funds may be recelved/used only to the extent necessary

to supplement private contributlons 1n reducing said deficit (see

application at p. 19).

With respect to the Commlttee's references to the

statement of Reasons for Lyndon LaRouche's 1984 presidential

prlmary campalgn, the Commlttee neglects to note the following.
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The sltuation addressed a candidato with remaining

entitlement and notes that at "issue in this casels whether or

not the Commission's initial determlnation (with respect to

post-ineligibility expenditures under 26 U.S.C. §9038(b)(2)] is

properly limited to the recovery of federal funds, as opposed to

private monies, spent on the ineligible candidate's continued

campalgning ll , as opposed to recovery of matching funds received in

excess of entitlement.

The summary section also states, just prior to the

section referred to by the Committee, that "In summary, the

Commission is guided by several basic principles when making

decisions involving candidate entitlement and repayment of federal

funds. The statute provides that candidates unable to demonstrate

a minimal level of support at the polls are not eligible to

receive additional federal funds for the purpose of continuing

their campaigns. The statute and implementing regulations also

prov1de, however, that such ineligible candidates may continue to

receive federal funds only to defray qualified debt 1ncurred prior

to becoming inelig1ble and to pay for costs assoclated wlth

terminating campaign activ1ty; entitlement to additlonal matching :~nds for such purposes 1S dependent upon the existence of net

outstanding campaign obligations. Moreover, such individuals are

free to continue their campaigns for the nomination with private

monies only. Finally, the statute and regulations prOVide for

the recovery of the federal portion of campaign funds that are

spent on non-qualified campaign expenses. Thus, to require a

repayment under 26 U.S.C. 5 9038(b)(2) and 11 C.F.R. §

9038.2(b)(2), the CommiSSlon must decide that its repayment

determination only seeks recovery of federal funds used for

non-qualified purposes, while at the same time allow1ng an

ineligible candidate to continue his or her campaign with private

monies."

with respect to the Comm1ttee's final argument, that the

federal funds were not used by virtue of establishing a

"segregated federal funds account", the Commlssion has previously

consldered this argument.

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

Federal Regulations states, 1n part, that to determlne at what

pOlnt commlttee accounts no longer contain matching funds for the

purpose of seeking repayment for non-qualified campalgn expenses,

the Commission will review committee expenditures from the date of

the last matching fund payment to the candidate, uSlng the

assumption that the last payment has been expended on a last-in,

first-out baS1S [emphasis added].

The Regulations conslder all committee accounts as lf

they are one account and make no prov1slon for the segregation of

matchlng funds. Only after the pOlnt in time when all matching

:unds have been expended may dlsbursements for non-quallfied

campalgn expenses be made wlthout lncurring a repayment

obl1gation.

Therefore, the Audit staff's position remalns unchanged.
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~ecommendation =3

On May 17, 1990, the Commission made an initial determination

that S109,148.88 in matching funds received by the committee

represent matching funds received in excess of entitlement, and

that an equal amount must be repaid to the United statos Treasury

pursuant to 26 U.S.C. S9038(b)(1).

C. Calculation of ReDayment Ratio

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

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for any purpose other than to defray the qualified

campaign expenses with respect to which such payment was made it

shall notify such candidate of the amount so used, and the

candidate shall pay to the Secretary an amount equal to such

amount.

The Regulations at 11 C.F.R. § 9038.2(b)(2)(iiil state ~hat the amount of any repayment sought under this section shall

=ear the same ratlo to the total amount determlned 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 funds, as of the

candidate's date of ineligibility.

On May 2, 1988, the Commlssion determined Mr. LaRouche's date

of ineligibility to be May 26, 1988.

The formula and the appropriate calculation with respect

to the Committee's receipt activity is as follows:

Total Matching Funds Certified through the

Jate of Inelialbilitv 5/26/88 ~umerator plus prlvate Contrlbutlons Recelved

through 5/26/88

635,917.29

3,319,955.i6 .191544

Thus, the repayment ratio for non-qualified campaign expenses is

19.1544%.

D. Apparent Non-qualified Camcaign Expenses: ~ew Hamoshlre Excenditures 1n Excess of State

Limltatlon .

Section 9035(al of Title 26 of the Unlted States Code

and Sectlon 9035.1(al(1l of Title 11 of the Code of Federal

Regulatlons state, 1n part, that no candidate shall knowlngly

lncur qualified campalgn expenses 1n excess of the expendlture

limltatlon applicable under section 441a(b)(1)(A) of Title 2.
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Section 9038.2(b)(2)(i)(A) of Title 11 of the Code of

Federal Regulations provides, in part, that the Commission may

determine that amount(s) of any payments made to a candidate from

the matching payment account were used for purposes other than to

1efray qualified campaign expenses. Section 9038.2(b)(2)(ii)(A) ~f Title 11 of the Code of Federal Regulations states that an

example of a Commission repayment determination under paragraph

fb)(2) of this section includes determinations that a candidate, a

candidate's authorized committee(s) or agents have made

expenditures in excess of the limitations set forth in 11 C.F.R. §

9035.

The Audit staff's review and analysis of expenditures

allocable to New Hampshire, including those allocated by the

Committee, indicated that $520,033.84 should reasonably have been

allocated to New Hampshire, causing the Committee to exceed the

state expenditure limitation by $59,033.84. The Committee's

(amended) Allocation of Primary Expenditures By state For a

Presidential Candidate for its 1988 Pre-Election Report, disclosed

that $526,137.85 had been allocated to New Hamoshire, exceeding

the New Hamoshire state exoenditure lim1tation'of 5461,000 by

S65,137.85." :he Commltteeis net overa1location of $6,104.01

resulted mainly from differences in allocating media and travel

expenditures. The Committee excluded from allocation

approximately $9,000 in travel expenditures for security personnel

travelling in New Hampshire with the candidate, and failed to

exclude from state allocation approximately $15,000 in various

expenditures for overhead, interstate telephone calls, media

production, national advertising, advertising for another state,

and travel and SubSlstence for personnel who remained in the state

for less than five days.

The Audit staff also determined that $22,680.29 of the

$59,033.84 1n exoenditures 1n excess of the limitation was oaid

after July 14, 1988, the date on which the Comm1ttee'S accounts no ~onqer contained matchinq funds, and under these C1rcumstances is ~resently not subject to~pro rata repayment. See Findings III.B.

and F.

The amount subject to repayment is calculated below:

Amount in excess of the New Hampshire

state Expenditure Limitation

LESS: Expenditures paid after 7/14/88

Amount SubJect to Repayment

Times Repayment Ratlo (III.C.l

?relim1nary Calculation of the

Repayment Amount

$59,033.84

122,680.29)

S36,353.55

.191544

$ 6,963.30
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The following recommendation was presented to the

Commlssion on sepcember 19, 1989:

»The Audit staff recommends that within 30 calendar days

after service of this report the Committee demonstrate that it has

not exceeded the New Hampshire state expenditure limitation.

Absent such a show1ng, the Audit staff w1ll recommend thar the

Commlsslon make an 1nitial determination that $6,963.30 be repaid

to the United States Treasury."

During the Commission's consideration of this

recommendation, the Commissioners could not reach a conclusive

decision.

A motion was made to approve the above recommendation as

written, that motion failed by a vote of 3-3; Commissioners

Aikens, Elliott and Josefiak voting 1n the affirmative and

Commissioners McDonald, McGarry and Thomas voting against.

A second motion was made to approve the recommendation,

Drov1ded the orio1nal amount of non-oualified camoalon exoenses in ~xcess of the state limltation subject to repayment ($36,353.55)

be further reduced by the value of those non-qualified campaign

expenses paid with matching funds after the candidate'S date of

ineligibility ($17,254.78). The pro rata portion to be repaid to

the United States Treasury would in turn decrease to $3,658.25;

($36,353.55 - $17,254.78) x .191544. That motion failed by a vote

of 3-3; Commissioners McDonald, McGarry and Thomas voting in the

affirmative and Commissioners Aikens, Elliott and Josefiak voting

agalnst.

A third motion was made to require the pro rata

repayment of $3,658.25, as calculated above, and to add language

to the report to explain the issue on which the Commisslon did not

reach a majority decision. This motion passed by a vote of 5-1;

CommlSSloners McDonald, McGarry, Thomas, Elliott and Josefiak ~otlng 1n the affirmative and CommlSSloner Aikens voting agalnst.

The discussion with respect to the recommendations

1nvolved the appropriateness of seeking a repayment under 26

U.S.C. §9038(b)(1), as found at Finding III.B., pp. 5-9; while at

the same time seeking a repayment under 26 U.S.C. §9038(b)(2). The

Commlssion focused on the question of whether or not a "double

counting" existed since as part of the calculation of the

Committee's remain1ng entitlement, non-qualified campalgn expenses

were not recognized for purposes of determlnlng the Candidate's

deficit in accordance with 11 C.F.R. §9034.5(bl. Also, a pro rata

repayment was belng sought for the amount of non-qualified

campalgn expenses paid w1th matching funds but not permltted to be

recognized for NOCO purposes.

Based on the Commiss10n's deliberations as described

above, the Interlm Audit Report recommended that wlthin 30

calendar days after service of the report the Commlttee submit

evidence demonstrating that the payments in question are qualified
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c~mpaign expenses. Absent such a showing, it will therefore be

recommended that the Commission make an initial determination that

the pro rata portion of $3,658.25 be repaid to the united states

Treasury.

The Committee, in its response received December 19,

1989, states:

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"Section 9035(a) [of Title 26, United States Code], as

cited, falls under Chapter 96 of the Federal Election campaign

Act, that is, the 'Presidential Primary Matching Payment Account

Act', which applies to candidates receiving federal funding for

their primary campaigns. Lyndon LaRouche had been denied matching

funds upon first application, and was not subsequently qualified

by the Commission for receipt of such funds until after the date

of the New Hampshire primary election. No federal funds were used

to defray any costs associated with the New Hampshire campaign.

Therefore, campaign activity relevant to the New

Hampshire campaign, including amounts spent, falls outs1de the

scope of that Chapter (though of course not outs1de ~he scope of

:he more general provisions of the F.E.C.A.), unless the

prov1sions of that Chapter are retroactively applied.

Therefore, no repayment should be required under this

Section."

The Audit staff finds the Committee's arguments to be

defective in at least two areas. First, in order to become

eligible to receive Presidential primary matching funds, 11 C.F.R.

§9033.2(b)(2) provides that the candidate and the candidate's

authorized comm1ttee(s) shall certify that they have not incurred

and w1ll not incur expenditures in connection with the candidate's

campa1gn for nomination, which expenditures are in excess of the

limItations under 11 eFR Part 9035. Second, the Aud1t staff's

analvs1s 1ndicates that $69,160.26 of exoenditures allocable to ~ew ~ampshire were pald after March 25, 1988, the date upon which

federal funds were first deposlted into the Committee's bank

account. Therefore, the Audit staff's position remains unchanged,

except as noted below.

Based on the Committee's response with respect to

Finding III.A., Stale-dated Committee Checks, the Audit staff has

made the following adjustment to the pro rata repayment amount as

calculated in the Interim Audit Report for one stale-dated check

which has subsequently been voided, and another stale-dated check

for which repayment 1S being requested under Section III.A. of

thlS report:
';~I~~:!~~:_-':' '0' .

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Pro Rata Repayment Recommended

in the Interim Audit Report

(see page 12)

LESS: Adjustment for Pro Rata

Portions of Two Stale-Dated

Checks

Revised Calculation of Repayment Amount

Recommendation *4

$ 3,658.25

(23.88)

$ 3,634.37

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On May 17, 1990, the Commission made an initial determination

that the pro rata portion of $3,634.37 is repayable to the united

States Treasury.

E. Apparent Non-qualified Campaign EXDenses:

Post-Ineligibility CamDaian Expenditures

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

Regulations states, in relevant part, that the Commission may

determine that amounts of any payments made to a candidate from

the matching payment account were used for purposes other than to

defray qualified campaign expenses.

Section 9032(9) of Title 26 of the United States Code

and Section 9032.9 of Title 11 of the Code of Federal Regulations,

in part, define a qualified campaign expense as a purchase,

payment, distribution, loan, advance, deposit, or gift of money or

anything of value incurred by a candidate or his authorized

committee in connection with his campaign for nomination for

election from the date the lndividual became a candidate through

the last day of the candidate'S eliglbility.

Furthermore, included in the examples of disbursements

that are not qualified campaign expenses under 11 C.F.R.

§9034.4(b)(3) are "post-ineligibility expenditures" or expenses

incurred after a candidate'S date of ineligibility, to the extent

that they do not qualify as winding down costs.

Sections 9034.4(a)(3) and (b)(3) of Title 11 of the Code

of Federal Regulations provide that any expenses incurred after a

candidate'S date of ineligibllity are not qualified campaign

expenses except for winding down costs associated with the

termination of political activity, such as the costs of complying

wlth the post-election requirements of the Act and other necessary

admlnlstratlve costs associated wlth winding down the campalgn,

lncluding office space rental, staff salaries and office supplies;

or costs lncurred before the candidate's date of ineligibility for

goods and services to be received before the date of ineliglbility

and for which written arrangement or commitment was made on or

before the candidate's date of ineliglbility.
The Audit staff identified 63 payments totaling

$71,500.63, lncurred after May 26, 1988, the candidate's date of

ineligibility, which upon examination of the supporting

documeneation appear to be expenditures related to the Democratic ~ational Convention.

The Audit staff also identified 31 payments totaling

$12,540.35 relat~ve to expenses incurred after the date of

ineligibility and based on our analysis of the supporting

documentation made available appeared to be related to a continued

campaign effort, as opposed to winding down costs.

Finally, the Audit staff identified one media

expenditure in the amount of $262,828.50 paid May 19, 1988, prior

to the candidate's 5/26/88 date of ineligibility ("DOI"), for a

one-half hour broadcast aired on June 4, 1988. On August 31, 1988

the Committee received a $44,152.98 refund with respect to this

media purchase, for a net cost of $218,675.52. Based on available

information, this appears to be related to a continued campaign

effort as opposed to a winding down cost.

co

!t was further determlned that payment of $47,949.49 in

conventlon related expenditures and payment of $630 related to a

continuing campaign effort occurring after July 14, 1988, the date

the Committee's accounts no longer contained matching funds, and,

as such, are not presently subject to pro rata repayment.

The amount subject to repayment is calculated below:

Post Ineligibility Expenditures

Conventlon Related

Post Inellglbility Expenditure

Continulng to Campalgn

?ost :~ellglblllty Medla Expendlture

Subtotal

LESS: Amounts Paid after 7/14/88:

Convention Related

Continulng to Campaign

Amount Subject to Repayment

Repayment Ratlo I III.:.)

?rellmlnary :a1culatlon of the

Repayment Amount

$ 71,500.63

12,540.35

218,675.52

$302,716.50

(47,949.49)

(630.00)

$254,137.01

.191544

S 48,678.42
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At the exit conference, committee representatives were

supplied with schedules detailing these items, with the exception

of the media expenditure.

The followIng recommendation was presented to the

CommIssion on September 19, 1989:

I "The Audit staff recommends that within 30 calendar days

of the date of service of this report the Committee submit

evidence demonstrating that the payments which appear to be

convention related and continuing to campaign expenses are

qualified campaign expenses. Absent such a showing, the Audit

staff will recommend that the Commission make an intitial

determination that $48,678.42 be repaid to the united States

Treasury. "

During the Commission's consideration of this

recommendation the Commissioners could not reach a conclusive

decision.

A motIon was made to approve the above recommendation as

wrItten, that motion failed by a vote of 3-3; Commissioners

Aikens, Elliott and Josefiak voting in the affirmative and

Commissioners McDonald, McGarry and Thomas voting against.

A second motion was made to approve the recommendation,

provided the original amount of non-qualified post-ineligibility

expenses subject to repayment ($254,137.01) be further reduced by

the value of those non-qualified campaign expenses paid with

matching funds after the candidate's date of ineligibility

($35,259.49). The pro rata portion to be repaid to the united

States Treasury would in turn decrease to $41,924.68; ($254,137.01 - $35,259.49) x .191544. That motion failed by a vote of 3-3;

CommIssioners MCDonald, McGarry and Thomas voting in the

affirmative and Commissioners Aikens, Elliott and Josefiak voting

agaInst.

A third motion was made to require the pro rata

repayment of $41,924.68, as calculated above, and to add language

to the report to explain the issue on which the Commission did not

reach a majority decIsion. This motion passed by a vote of 5-1;

Commissioners McDonald, McGarry, Thomas, Elliott and Josefiak

voting in the affirmative and Commissioner Aikens voting against.

The discussion with respect to the recommendations

involved the appropriateness of seeking a repayment under 26

U.S.C. §9038(b)(1), as found at Finding III.B., pp 5-9; while at

the same time seekIng a repayment under 26 U.S.C. §9038(b)(2). The

CommISSIon focused on the auestion of whether or not a "double

counting" existed SInce a ~art of the calculation of the

CommIttee's remaInIng entitlement, non-qualified campaIgn expenses

were not recognized for purposes of determining the Candidate'S

deficIt in accordance with 11 C.F.R. §9034.5(b). Also, a pro rata

repayment was being sought for the amount of non-qualified
campaign expenses paid with matching funds but not permitted to be

recognized for NOCO purposes.

Based on the Commission's deliberations as described

above, the Interim Audit Report recommended that within 30

calendar days after service of the report the Committee submit

evidence demonstrating that the payments in question are qualified

campaign expenses. Absent such a showing, it will therefore be

recommended that the Commission make an initial determination that

the pro rata portion of $41,924.68 be repaid to the United states

Treasury.

The Committee's response of December 19, 1989 states

that with respect to the media expenditure, campaign volunteers

inadvertently assumed, based on regulations in effect when the

Committee was organized, that such an expenditure constituted a

qualified campaign expense. The response states it was an

oversight made in good faith, without any intent to circumvent the

law or regulations and requests the Committee not be penalized for

a good faith mistake. The response continues by stating that in

the event a repayment is required, an additional refund has been

received with respect to the media expenditure totalling

$5,088.93. The Committee's response does not address the other

post-ineligibility expenditures identified by the Audit staff.

The Audit staff's position remains unchanged, with the

exception of an adjustment for the additional media refund.

o

Pro Rata Repayment Recommended

in the Interim Audit Report

LESS: Adjustment for Additional

Refund ($5,088.93 x .191544)

Revised Calculation of the Repayment

Amount

Recommendation #5

$ 41,924.68

(974.75)

$ 40,949.93

On May 17, 1990, the Commission made an initial determination

that the pro rata portion of $40,949.93 is repayable to the united

States Treasury.

F. Determination of Net Outstanding Campaign Obligations

Section 9034.5(a) of Title 11 of the Code of Federal

Regulations requires that within 15 days of the candidate'S date

of lneligibility, the candidate submit a Statement of Net

Outstanding Campalgn Obligations (NOCO) which contains, among

other ltems, the total for all outstanding obligations for

qualified campaign expenses and an estimate of necessary winding

down costs.
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~:I1AROUCH~ DEKOCRATIC CAKPAIGN

Audit Analysis of May 26, 1988 NOCO Statement

Determined as of September 30, 1989

-';;*:t~~~~S;;·:":';{f~Yl·«/...~ljt$:i~~~·

"1f~¥" . '~'>~ • '-"~';";"-

.

Assets

Cash in Bank

Accounts Receivable

capital Assets

Other Assets

$30,505.23

89,456.80

4,083.00

14,920.67

Total Assets $138,965.70

Obligations

Accounts payable-Qualified

Campaign Expenses $289,842.69 .!/

Estimated Winding Down

Costs (10/1/89 - 6/30/90)

Storage $1,000.00

Office Supplies

and Postage 500.00

Legal and

Accounting Fees 1~500.00

Total Estimated Winding

Down Costs 3,000.00

Total Obligations

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Actual Winding Down :os~s (7/21/88-9/30/89) 129,459.70 ~/

422,302.39 1,/

Net Outstanding Campaign

Obligations (Deficit) as

of May 26, 1988 $(283,336.69)

!/

2/

The figure shown is net of $39,935.07 of payables paid after the

date of ineligibility determined to be non-qualified campaign

expenses and excluded under 11 C.F.R. §9034.S(b).

The figure shown is net of $176,430.74 in expenditures paid after

the date of ineligibility determined to be non-qualified campaign

expenses and excluded under 11 C.F.R. § 9034.S(b).

3/ Since estimates were used in computing this amount, the Audit

staff will review the Committee'S reports and records to compare

the actual figures with the estimates and prepare adjustments as

necessary.
ot9!Jiii"'!"ii;i'i''''¥f~:~'~~1'Mr~~~":®)'.~~~{if;'''';w¢'w,,,:'~''''' "'"''~''':;~'~''\Fi'i1jl\<~''''' "

,

.'

Shown below is an adjustment for private contributions,

interest and matching funds received after 5/26/88, based on the

most current financial information available at the close of

fieldwork.

Net outstanding Campaign Obligations

(Deficit) as of 5/26/88

Net Private Contributions Received

(5/27/88-7/14/88)

Matching Funds Received (5/27/88-7/14/88)

Remaining Entitlement as of

July 14, 1988~/

$(283,336.69)

I

202,825.87

80,510.82

$.:..(__-....;0_-__

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The Committee's response to the Interim Audit Report,

received December 19, 1989, notes that schedules provided by the

Audit staff during fieldwork support different figures than those

presented in the Interim Audit Report. The Committee then

requests itemization and justification for these changes.

The Audit staff has forwarded to the Committee copies of

workpapers detailing not only post-fieldwork adjustments to the

NOCO to support the presentation in the Interim Audit Report, but

also workpapers reflecting the revised NOCO presented in this

report.

Additional fieldwork may be required to assess the impact of

future financial activity on the NOCO Statement.

IV. Summary - Amounts Repayable to the united States

Treasurv

Presented below is a summary of the amounts recommended

by the Audit staff as subject to the repayment provlsions of 26

U.S.C. § 9038(b) as discussed in Section III of this report.

Finding I I 1. A.

Finding III. B.

Stale-dated Committee Checks

Matching Funds Received in

Excess of Entitlement

$ 1,160.95

109,148.88

Finding III. D. Apparent Non-qualified Campaign

Expenses: Expenditures in Excess

of New Hampshire State Limitation

Finding III. E. Apparent Non-qualified Campaign

Expenses: Post-Ineliglbility

Campaign Expenditures

Total Amount Due the united States Treasury

3,634.37

40,949.93

$154,894.13

~/ A deposit of private contributions on 7/14/88 eliminated

the Committee's remaining entitlement.
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AttadmEnt 1

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I..AMrlIE I:IJfDAT!C CAHPAt~

srAIE-OA.nD cntm'ln: Cl!m(S

(Aldit Analysis of 1Re:riel 19, 1989 Ccumittee Re.spc:ase)

l.hresolvei OIEXK # rate Aal:mt Ccumittee Resoanse Anant

557 \00 .AH-Ri 07-00-87 S~.OO No debt exists per venior S -0-

759 \1l'JZ AM 07-n-a7 100.00 No debt exists per vendor -0-

1076 ~AM ~7 82.:0 No respcnse by venier 82.:0

1288 ~AM 1()..{)1-87 82.:0 No respcllSe by vemor 82.:0

1724 KOOI 11-25-87 2~.00 No debt exists per verdor 4-

1725 I<E1!E 11-25-87 1ce.00 No debt exists per vendor -0-

1894 Artiulr~ 12-15-87 27.15 No att~t to resolve 27.15

2996 04-05-88 182.00 No debt exists per verxior -0-

300S Oregtn Asse!iJly 04-05-88 ~.OO No respcnse by VEDior :0.00 for Black Affairs

223 KPlE AM 05-25-88 363.00 No reslXlLge by VS'Iior 363.00

242 KFQ) 05-25-88 243.75 No debt exists per venior 4-

118 Margaret Keen 12-23-87 1,cxx>.00 Reissued chedt negotiated -0-

121 Billy Ba.mett 01-05-88 5.00 ReiS5lJl!r:i chedc. oots~ 5.00

144 ThaIBs G. Bara1e 02-29-S8 200.00 Reissued chedt oots~ 200.00

170 Marian Schatz 04-01-88 125.00 Rei S5lJl!r:i check negotiated -0-

176 Cllarles Berems 04-01-88 ~.OO Reissued check oots~ 1:0.00

219 Mae Roberts 05-19-88 200.00 Reissued check outstanding 200.00

Total. S 3,369.70 51.160.95
~,~'i;,~~f{.J,4'l:~~?f:;;';-'i?~f. ii .• .::~"f'~~';~;';-''''~'·'''-'- ~<':'

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FEDERAL ELECTION COMMISSION

WASHINGTON 0 C 204bJ

February 14, 1991

MEMORANDUM

TO:

THROUGH:

FROM:

SUBJECT:

JOHN C. SU

STAFF DIR

ROBERT J.

ASSISTANT ST

AUDIT DIVISI

REPAYMENT OP $4,795.32 RECEIVED FROM THE LAROUCHE

DEMOCRATIC CAMPAIGN

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This informational memorandum is to advise you of a

repayment received from The LaRouche Democratic Campaign which

represents the repayments discussed in Recommendations 12 and #4

in the committee's Final Audit Report with respect to

expenditures in excess of a state limitation and stale-dated

checks. A separate repayment checK was issued for each

repayment request.

Copies of the committee's accompanying letter, the

repayment checks, and the receipt showing delivery to the

Department of the Treasury are attached.

Attachments as stated
~-.. f January 31, 1991;'

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Kim L. Bright-Coleman

Special Assistant General Counsel

Federal Election Commission

Washington, DC 20463

Re: laRouche Democratic Campaip, payment

Dear Ms. Bright-Coleman:

Enclosed please find LaRouche Democratic Campaign's payment [0 [he

U.S. Treasury in accordance with the Commission's Final Audi[ Repon,

Recommendations #2 and #4.

Very truly yours,

..J}'\~'dRichard Mayberry

RM:ww

Enclosure

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FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 2lJ.463

RECEIPT FROM TBB

UNITED STATES DBPARTMENT or TREASURY

FOR A REPAYMENT or

1988 PRESIDENTIAL PRIRARY KATCBING FUNDS

February 13, 1991

Page 1 of 2

Accepted on this date were two (2) repayments of

Presidential Primary Matching Funds, totalling $4,795.32, made

by The LaRouche Democratic Campaign which were received at the

Federal Election Commission pursuant to 26 U.S.C.S 9038(b)(2)

and 11 C.F.R. 59038.6.

In accordance with 26 U.S.C.S9038(d), the checks shall be

deposited into the Presidential Primary Matching payment Account.

The LaRouche Democratic Campaign

Amount of Repayment *1: $3,634.37

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presented by:

- ~(~ (jl-fynqlJr f r the

Federal Election Commission

THE LAROUCHE DEMOCRATIC CAMPAIGN 10015

P.o. BOX 210. DOWNTOWN STATION

LEESBURG. VA 2207S

Treasury

_ 3938
~f~"";'-"" --t~", ·'\f~im~~~~\?~,\.",·,,,c'~'~";'~~X5;{~i$~;;i~f~:~Qt~~""-:'C'

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FEDERAL ELECTION COMMISSION

WASHINCTON. D.C. 20463

RBCZIPT PRO" TUB

URITED STABS DBPARTJlBH'f OP TRBASUllY

POR A RBPAYJlBN'T or

1988 PRBSIDBHTIAL PRIRARY RATCBING ruNDS

February 13, 1991

page 2 of 2

The LaRouche Democratic Campaign

Amount of Repayment 12: $1,160.95

co presented by:

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f the If-,u=

Federal Election Comaission

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~:.-3937

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_-------;;;~;;;;;:;:~=:::::~=~~~;;~;-=-=-=-=-=-;;::;-;:-=-=-:-=-=-~-...:=====~..:- ..

THE LAROUCHE DEMOCRA11C. CAMPAIGN 1N1

P.O. BOX 210. DCIWNTOWK STATION ••--

LEESlIURlJ. VA".",. - ~.~ ... -'-- - _-._:_-:._~_~._.~-I-£·,::J,.:::!~~_1.tL

151//'0. fr