• II lJl J{AL f Ll=CTIO~ CO,\\,'v1ISSION

October 2, 1980

:·1Er-lQ~\NDU M

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e

TO:

TIIROL;Gil :

FRO~l :

FRED E I LJ\NO

PRESS OFFICE 4('1

HOI'. COS'I'A ~;\7 \,..J

.ltH)'! HA\\fKI~S

l'UBLTC ISSUl\~CE OF '1111HESllOLD AUDIT REPORT -

Kl:::~:EDY FOR PHESll>I-:N'P COMHITTEE

Attached plc.:.lse find a copy of the thr0shol<l audit rG~ort

of t:-:o Kennedy Fe> r P r-esidcn t ComIll i ttcc which WZlS approved by

the Cor:uniss ion on Sep t(~mbcr 2.3, 1980.

lnforma lj 011..11 copies of thi;~ report h,-l\'l~ Lcen recei\"cd

by all parties 1.n'.'oLvcd ~nd this report may be released to

the ;.ubl i c as 0 f lCll!.:lY, October 2, 1980.

;\t LachcJ as ~) t .1 tl.1li

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• '(1)IRt\L ttl eTION C(J,\\I\USSION

\\\'111',1 ll)..... III :0.111\

THRESHOLD REPORT OF THE AUDIT DIVISION

ON THE

KENNEDY FOR PRESIDENT COMMITTEE

I. Background

This report covers an audit of the Kennedy For President

Conunittce (lithe Committee"), to determine whether there has been

compliance with the provisions of the Federal Election Campaign

Act of 1971, as amended ("the Act"). The audit was conducted

pursuant to Section 9039(b) of Title 26 of the United States Code

\vhich states, in part, thZ\t the Commission is authorized to

prescribe rules and regulations in accordance with the provisions

of subsection (c), to conduct examinations and audits (in additioL

to examinations and audits required by Section 9038(a», to conduc~

investigations and to require the keeping and submission of an~

books, records, and information, which it determines to be

necL~ss~r~- to carry out its responsibilities under the chapter.

C'e

A. Overvic'IJ

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In addition, Section 9038.1(b) of Title 11 of tho

CodL' of Federal Pegulations stutcs, that the Conunission may

conduct other examinations and audits from time to time as it

deems necessary to carry out the provisions of this subchapter.

The Committee registered with the Federal Election

COffirnission on October 29, 1979 as the principal campaign

committee of the Honorablc Ed\·:ard H. Kennedy, a Democratic

candidate for the nomination to the Office of the President of

the Unitc~ States and maintains its headquarters in Washington,

D.C.

The audit covered the period from inception through

DecL'rnber 31, 1 J"7 'J. 'rhe Comr.li t tee reportcd an opening cash

balance of $-0-, total receipts of 53,893,272.57, total

expenditur8s of S3,474,.l39.66, and a closing cash balance of

$418,832.91 Juriny tho pcrio\.i.

This report is based on documents and working papers

sUlJPortinc~ each of its factual statements. They form part of

the rccor,-~ upon -,-"h ich th0 CO:;~"TIi~:lsion based its decisions on

the :n.:ltt,-~rs in t:1is report and ~_-icre available to Commissioners

anJ approp!~i.:1tl..' st3ff [or rc':ic\!..:.
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'l'ht.-:, princ ipa1 officc: r~; of the Commi t tee during the

pL''-10d dtlditt,j \'1crc Nr. Stephen E. Smith, Chairm~n, and

~1~;. Cdt () }'/11 ~"" •• Hocd, rrrcasurcr.

'l'h·~· ~udit included such tests as verification of total

repOl: Ll~d rcc~ ipts and expc'ndi tures 1/ ond indi viduol transactions;

rc\'i~·...·; of rCl1Ull-t'c] supporting document.ltion for rcce ipts: rflvie·,·;

ot contribution I iI-:1itations; and such ()Lh(~r Lludit procedures as

dl'L·r:~t_·~~ necess ..J ry under tlh' circumstanct '~.i. The ~udi t did not

inc 1 ude llny tL' ~~ t:; 0 f th(' l ~():nmi t tee's (' ;.:pl-nd i t U C0 processinq

~)YSl'-'!:l, compli,lI1C\.~ \.,tith l':·:pc'nditur-e limilLllions, or compliance

\.;iLil Lhl~ Acl';-; l':·~F\.·':lJit 1I1-1.' reporting .:1n<.1 recorc.lkccpin<] requirements.

This \'/i.lS due' La thl"' ~~l1l1UII i l teo's refusal to pro\'idc direct access

to COr7~mittc(' L.... :q)(~thiiturl' i iles, \.;hich prevented the Auditors frc::1

( "0 nd 'c.l c tinq i n Lit.> Pl.~ njt.' n t LL> t s 0 f the Commi t tee's expcnd i t u re proc't'S~~:S, and \·;hich '.\·ould h ..1\"0 resulted in the use of a different

c ':·:pC'lll.ii lure rcvic'll procedure th.::ll1 was uni form1~· applied to all

ulhcr audits of Presidenti31 cor.·...nittccs.

_._------------- .--~---_._--------- --- c-. : ... In·.:.:-oduction to Find i Il~~S

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Tll\..' objccti\"e 0 ~- tht, l:1rcsho 1d i.ludi .... is to review

Lh(~ ~.'or;m i t tc\.-· '~; Zlccoun t in,~ po 1 i c ics I3nd proccJurcs .in order

to UI_~t()rminf' :10t o!11~' thL,il- cur-~'cnt but also thc'ir potentiul

;l1)ilit,/ to cO:~·.l)i·:' ·..;it.:1 rl'itle: 2 ll!~ ... Titl.c 26 of t-hc' lTnitc\d States

l"OI.~··, and tc ':L'ri:-':' t:1l.' .:lCCurdC'·:· 1.1f t-c'porls ,ll~d ~3t....ltl'mcnts filc'~~

<Juri.:1:; th(\ ~l::,-iit. pL'l-jad.

tn\.." --.h:t'(: 1)(;10\'; ..:ire: th0 findinq~ i.ln<.l roc:am::I\'11l1ations ,-15

:)r('~~!>=1tcd tl) '_:iL~ ·CoI:'.r~1ittl"'l' 0:1 :\~l,:l1St 8, 19BO. Th('~;L' rccommcD:l~-

t·iul-::; consi~~: '-)~:- :_~-OCt:dtll-:ll c:han,~cs Lo the Co:~~::;.i.tlc'C·IS systC!:-~.

'1'11\' CC)1~m:i.ttl"'t-> \..·ZlS ~l~ lO\~'t~d 30 d.J.';·s in \·:hich Lo Cor.l.'1K~nt on any ~'"1'_ : •. :-:.

nut ,-'i in t}~\.· ~-t.·PO.4:. .\:; o~:- S... ·F:.·,::~:bcr 8, 1l)80, no r(~sponsc ha~- L\"I':l

l"t'C" ':('Ll ! 1-'.'::' t.:ll' ,-':)::~::li t L·,'l'.

~~I·l~:.il):: ·1·; ~.:l (el) (: \ U\) of 'fi t.It' :~ of t.ho united S+:~l~J':~

COl~t' ~-~~:lll'~~ ::~,lt_ :.(1 :h'1-:;,:1 ~;;l~·lll m~1k\.' cant l-iL.~~ iCll~-; Lo an~" cand:.:.:l~·.·

an...: ili~; tH~L::,-":-i::t':: :>,Jlit i,:.d (·(':··::itLl·\.~~-) \·..ith l-(.. ~~t\('ct Lo any cIeC'·-i·_)~1

f 0 :- : 'I • \ : I:r ,1 ] ,":: i,' ".;; 1 i \.:1, '. \ :.::. l \ : d r L'q ~l t L', t' :.: \ ~, •t!l 1 , 000 •

1 I • i': 1t· :\tl .. : ~: ,;- J •__ • • ,••;. l.', , : : .•: ~:' I,..) \'t 'ri f ~. r c· i .. _. :' ~_. ", i l' I.~ C e i p t s

:'-'):'.11 i::,~ :~ ~:: : , ',I. •. ,': .1:.: t ':.:: l~\l i t t1l4C~ lu· ,11i Ii 1 :-; 137 , 580.0-:-

,. I ': • !-I • : \. ' ::. 1: I' : '., . . ' , .; : ; t ,1 t l' • \. 'C\)' l : . , 1C t i '.' i t Y sinc;••

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During the period of the audit, Section l03.3(b)

of 'l'it 1(\ 11 of the Code of Federal Regulations stated, in part,

that contributions which appear to be illegal shall be, within

10 day:;;

(1) returned to the contributor; or

(2) deposited into a campaign depository, and

reported in which case the treasurer shall make and retain a

\vritten record notinq the basis for th(\ appearance of illegality.

If the contribution cannot be determined to be legal within a

reasonllble time the contribution shall be refunded.

a. E~;crow Account

'fhe Committee maintains a separate checkiny

accouI1L, known as the escrow account, tor depositing contributions \'Jhich need further <1oculll(!ntation to confirm their legality.

Accord i n'J to the Conuni t tee's wr itten procedures for the escrow

l1ccounl, the contributions whi(~h fall within this category are:

(a) Checks signed by an individual whose name is not

printed on the fLlCC of the instrument;

(1J) Business Ch0Cks (\v i lhou t any indication of corporate

status) with no ~;iqn<.'d statement from the contributor

that the' funds ar-e pcr~;onal funds and not drawn on a

cOrpOl"Ll t(~ accoun t;

(c) Contributions from p.ll-l.nerships without the necessary

documenlation for allribution;

(Ii) Contribution~; from political conuniltccs when there

is a question of affiliation or multi-candidat.e statu~;;

((~) Contributions from u111'cgistercd political committees

\-lhen there is a question as to whether the organization has corporate 01- union funds in its treasury;

(f) Contril>uti0ns from individuals living outside the

United ~;tatcs while citizenship is being ascertained.

The proc('dl1res stale thal these contribution.~

\vill }JI..' ~;cparatcd from all other contributions and deposited

j nt-() t 111...' ~scrow account. Inf<.>t-mation on each contribution will

DL' m;1 ill t.Zlined in an escro\'v' [i 1 incJ sys tem and check log. Letters

requ,,~:;t.inq addilional documentation 'viII be sent to the

can t. 1- ibu tors. I f in form.:l tion is obtained confirrning the leyal it·,:"

of t.il!\ contributions, a co~nnd L tee check, in the amount of the

oriq in':'11 contribution i~; dr.:n-"ll on the escrow account and made

p:li'ablc' to the operatilh; .:lccuunt of the Committee. If no rcspons~~

is rL'~l_)ived from the contriLulor in t\-lO \-leeks, a reminder lettcl'

i s ~;f -}1 t • If, in L\\'o ::(Ol-l.~ \vcC'ks no response is recc i vcd, a check
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\-.'i 11 111' c1 rawn on the escrO\-J account for the full amount of the

conI I'i IJlltion and returned to the contributor. Every Friday, the

(!~;(. t n\.; check loq wi 11 be reviewed to determine which contributions

n('('d t .'mindcr letters and which contributions should be returned.

A review of the Com~ittee's cscrow account

rt..'(·o rod:; disc losc'd lh3t a total of $126,090.00 in contributions \.;er(!

dc"'p{)~; i t(~cl in Lo the escrow aCCoun t and disclosed on the Commi ttec' s

rC!Jol-t durinq the dudit period. Funds in the escrow account werenol L,;,:pL:nclcd for campaiqn purposes until the ir legali ty W~1~5

dctcrmin(~d and Llll'V were tr.-.:lnsfcrred to the operating account. ':'~e

t'scrow ch(~ck 10<1 which is record of the contribution dct'o~it

d~ltl' ;1111.1 dall's o! follow-up action, 2/ indicates that Conuni Ltec

:~cr:")ot1Ilf'l were not following their wr'itten procedur~s, and as a

result, anywhere from three (3) to 67 days elapsed between Lhc

llcpo~; it (LltC and the date a letter requesting additional ducumcnt~tion tllclS senl. If a response 'Vw·as received, it was noted on tr-.·:;

Lo(; bu t the response.' <.L:lte was not recorded.

Bct\vcen eiqht (8) and 114 days elapsed bct\";(~'-=:1

thp dLltc of the }t'l tor .:lnd the date of any follow-up action.

l\lthou~;h Lht' cscrO\-J check 109 indic.:lleJ tha:.

L~ll' Committee did not llttc'mpl to determine the lcq~litv of the

contribulioll~.l in a Lin1L'ly mannl'r, (l11 contributio11S ciCLJositcd

\.lur inq the' audi l period ',.;L'rc' l' i till' t' dQtl~rmined to be acceptable

L1nd tt-ansferred to the' oi·'L~r;ll i nq -'1ccount or refunded to tho

cuntributor.

In ~lCldi l ion to Lhl' Commi t t~e IS fai 1 urc to

SC_"'~: cl;u-ificlltiol1 from tl1(\ contributors in a l:l.'l1sonablc period

oi t illll', the Commilll'~' fdil(\d La rct":lin a \oJrilt(~n rccorc.l 0: tIll'

rL'd~;OllS for \,,-hieh tilt' t·ontl-iiJuLion~:; \·:cre deposited into tho

c~;crov.; dccount.

TL,._' :"\udit ~;t.Jff rl'conm1cnJ~; that th\.? COllunitte~ follO\'l its

c:.... :'1-( -n l ·...·r i t ll."n procc·durt.'s fOI- proccssinq con trilJu tions deposi tc:.:

i :1t () t h·· '::~(·r-o\..t accounl L1I1(: ~] ~~o rc\·i.se those procedures to inc 1uti.' ,l ·..:r i. t tl.'!l record noLinq the' basis for the l1ppl;~r'ancc of

i 1 if'q .IIi. L~. () f L11 l' can t 1- i h u L i () n ~; •

1.1. Can L l~ ibu Lion Lil~1i t\:l tions

Du r inq lilt' rev ie\·: of the L'Gnu:li t tOE! IS contriL.:t i'l!l !-~l;01'ds .:.lull reLUlh.l pol.icies, the i\udit stal'~- '_~ctermincd

t:Ll~ t~():~·_:-U.)uLion~; .:.lq(jrc·'-j-J.tinq in e:·:cesg of tIll..' lir.~i::~t-.ions

'..:t.'!"" Ilr.,-. ;)~:in~; l-l·fundcd in ~1 re'::lson~bl\.; time pl'Lir,(i .

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In twenty-six (26) instances it appeared

t Il,lt contributors had exceeded t.hcir contribution limitation.

Tilt' contributions were deposited bel\-Joen Octob~r 29, 1979 and

Ut\cl'mbc~r 26, 1979. 'rhe Committee did not attempt to contact

conlrilJl1tors to determine if the contl·ibutions were excessive

until FclJru.:lry, 1<)80. Seven (7) contr-ibutions \Vere v('\rified by

the conlributors to be 0xcessive. No refunds of the excessive

portion of th(~ contributions were mad'.' until Fcbru.:lry "lnd ~larch,

1980. T!lp rc-mCJi.ninq possible exccssi \'l~ contributions were

vcrif it.'d b'/ thc~ contributors to bL~ 01 lhc:r split contributions, as

in lh·· case 0 f husband and wi fe, or camptl tar errors.

/\1 thouqh not s iLiH i f ic~nt as of December 31,

1979, it is the opinion of the Audit slaff that the absence of

procc:dure:s for hanlll.illCj thL'SC contribulions m~i result in a

mate'riLll probl~lH as l he' campaiqn proqrl.:sses.

}{r' comme nLl a t ion

The' i\ul1 itsta f f l:""<..'comnh."""n<.ls tha t t.- :1" Con'..~~.i I t .l~e dc\"c lop proct~dur.e~:; to idcnti fy and re fund cxccs~-; i ':'..: contr i.butiol1s in a

timely r.1anner, within 30 day~ of the L.Litc of initil11 \.lcposit.

2. Committee's 1),It.l l':nLcy Procc ...il~ros

D~rin\.J tht.~ rl.'vit\\..; of Lho rcct~ipt reCUt-tis we found

Lh.:lt t::t.: Lo::-:mitLl.l(" h~l<J t·:·:pcrioncoc1 !)robl(:ms \-lith the accurac1'

o ~- the ll:l tLl can try 0 icon t t- ibu tor name ~~ .:lnd cJ.dd r(:~sc s. This

rl~stlllo,-~ in Ci L.:li.lure lo dqI.D'C'q.:ltc cO~1tribution~), which dircctl':

affects t.he iLI...~miz.llioll o! contributions .:lnd tl1C~ Committee's -

ability to cO~;lply \vilh contribution lir.litations. In addition,

the sar.-~e d.:lta 1)(15e .is uSl'd to prepare t.hc COI::r'::i t tee's matchinq

fund sU;':;:'iliss ions.

The Commi l lc'(' ('\xpl ..1 incd that the er~(jr.~ occurred bccaust'"

th\.... d~ta entl~Y p(~rsonn(d \..'l.'rc' originall';" instructed to generate

t hL~ contributor inforI~I~lLion from the \.1i r •.:ct ;11.:1i 1 address label

()nthCCO!l t rib1.1 torca rd. La to r, t h c: U1:"" 0 C v '-~ u r \ '/J as changc d and

Lho cor:tri!J:.ltor .iIlfol·m~lLIon \-J~S qent.jr:ltt...:,-~ ~r()L~ t he contributor

clH~ck. 1:1 Sl1n'; C\l.~;<.'~; lht..' contributor i:~:-o~-H:d~ lUll on the direct

mail l.:llJcl di::-t-p}-t.'d in .lddr(\~lS or n:1:-:.(.' ~::clli:,j [l'om the in[ormati~~:

disi)l.J.'.:cl..i vn th(.' conLcilJulol- Clll~ck. 111 ~1(.lc.1it-_iCJn, the key punchi::..

of cc~r:':~iin t:h.J.ract .... 'l-i sL i cs of ll.:lmCS ~l:h.i aclJrC'~):;L:S \~\J.S not done

(·on::;is:-,-.n~::.l·/, i.L'., P.o. BO:·:/Post oC:-ic·..: =:.0:·:. In either case,

thl' inc:):l~~i~~Lllnt m~lnlll-'r ill \~'hich t;10 Jd:::'C4 ·.·:\.l~~ ~_·nLerc(: \ViIi

cont.in...:~~Ll·.. ;}f~I.;\:t thl~ .1\;\;rL·qatio:~ !~~C~(.::::-~ •
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For the period of the audit there were no material

pI (d,j"lll:; resulting from these errors. HO\vcver, it is the

op ill i (,n of the Audi t staf f that the present procedures could

r~:;\ll L In material aqqrcgation problems in the future.

'rhe AuLt itsta f f rpcommends tha t the Conuni t tee develop

procedures for use by its data entry personnel which provide

for all info14mation to be entered .in a r::onsistent manner. .in

3dJi t ion \r.J(. t-ccommcnd that the COnlm i ltce periodically review

i ts d~1 t d hLl~C to 11 t tempt to idcnti fy aqg rcga tion errors.
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