FEDERAL ELECTION COMMISSION

July 31, 1991

.KEMORANDUM

TO:

FROM:

FRED EILAND

CHIEF, PRESS OFFICE A f':':.

ROBERT J. COSTA /\i/ "--

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON THE

JACK KEMP FOR PRESIDENT AND THE KEMP/DANNEKEYER

AND VICTORY '88 JOINT FUNDRAISING COMftITTEES

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

Jack Keap for President and the Keap/Dannea.yer and Victory '88

Joint Fundraising Coaaittees, which was approved by the Coaaission

j)n_Juty 25, 1991.

Informational copies of the report have b.en received by all

parties involved and the report aay be relea••d to the public.

Attachment as stated

CC: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
RELE.hSE D..~: 1/25i91

f\E.VISED DATE: 1/31/91

fEDERAL ELECTION COMMISSION

REPORT OF THE

AUDIT DIVISION

ON THE

JACK KEMP FOR PRESIDENT

AND

THE KEMP/DANNEMEYER AND VICTORY '88

JOINT FUNDRAISING COMMITTEES

WJT00664

I. Background

A. Overview

This report is based on audits of Jack Kemp for

President (the Committee), the Kemp/Dannemeyer Committee (KID) an:

Victory '88 (V '88l to determine whether there has been complianc!

with the provisions of the Federal Election Caapaign Act of 1911, ~. as amended (the Act) and the Presidential Prl.ary ftatching Payaen: -- - . ----·.··.-Aee-ount.·.-Act·.. ---The audi.t.was .co_n.dU.ct.~g 'p~r~~a.~_~ to 26 u. S •C •

0\ 59038 (a) which states that After each matching payment-··pe-rloo·; ··the

Coaaission shall conduct a thorough examination and audit of the

qualified caapaign expenses of every candidate and his authorized

committees who received payments under Section 9037.

In addition, 26 u.s.c. S9039(b) and 11 C.F.R.

S9038.1(a)(2) state, in relevant part, that the Commission may

conduct other exaainations and audits from time to time as it

deems necessary.

1. The Jack ~e.p for President Co..ittee registered

with the Federal Election Commission on April 6, 1987. The

Committee maintains its headquarters in Falls Church, virginia.

The audit covered the period November 24, 1986 throu9h April 30,

1988. In addition, certain other financial activity and

disclosure reports were reviewed through Deceaber 31, 1989.

The Committee reported an opening cash balance of

$-0-; total receipts of $18,942,695.68; total disbursements of

$18,821,191.92: and a closing cash balance of $120,903.80*/ on

April 30, 1988. -

~/ These amounts do not foot due to apparent rounding errors

on Coamittee reports.
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2. The Kemp/Dannemeyer Committee registered with the

Federal Election Commission as a joint fundraising representative

on September 3, 1987. The reported participants in the

fundraising activity were: the Dannemeyer for Congress Committe!.

principal campaign committee of Congressman William Dannemeyer 0:

California; and Victory '8a, a registered joint fundraisin9

committee. The Kemp/Dannemeyer Committee maintains its

headquarters in Falls Church, Virginla.

The audit covered the period from KID's inception

in August, 1987 through June 30, 1988. The Kemp/Oannemeyer

Committee reported an opening cash balance of $-0-; total receip:s

of $65,910.85; total disbursements of $65,189.41; and a closing

cash balance on June 30, 1988 of $781.44.

3. Victory '88 (formerly the Jack Kemp Super Bowl

Committee) registered with the Federal Election Commission as a

joint fundraising representative on December 1, 1986.

participants in various fundraising activities undertaken by

Victory '88 were the Campaign for prosperity (CFP), the Jack Rem;

for President committee, Citizens for Jack Kemp (CFJK), and the

McMaster for Senate Committee (MFS). Victory '88 maintains its

headquarters in Falls Church, Virginia.

The audit covered the per_i_od __ fr_oll__ V_ic_t_ory_'88_'__ $ __

inception in November, 1986 through June 30, 1988. Certain

activity was reviewed throuqh 9/30/88. Victory '88 reported an

opening cash balance of $-0-; total receipts of $1,650,557.09:

total disbursements of $1,611,377.39; and a closin9 cash balance

on June 30, 1988 of $39,179.70.

B. !tey Personnel

The Treasurer of all three Committees is Mr. Scott

Mackenzie.

c. Scope

The audits 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 as deemed necessary under the circumstances.

II. Jack Kemp for President Audit Findings and Recommendations

Related to Title 2 of the United States Code

A. Apparent In-Kind Corporate Contribution

Under Section 441b of Title 2 of the United States Code,

it is unlawful for any corporation to make a contribution or
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expenditure in connection with any election at which presidential

and vice presidential electors or a Senator or Representative in,

or a Deleqate or Resident Commissioner to, Congress are to be

voted for: or in connection with any primary election or politica:

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 section4

Section lOO.7'a){1)( 1iil of Tltle 11 of the Code of

Federal Regulations states that the term "contribution" includes a

gift, subscription, loan, advance, or deposit of money or any thin;

of value. The term "anything cf value nincludes all in-kind

contributions. Unless speciflcally exempted under 11 C.F.R.

SlOO.7(b), the provision of goods or services without charge or a:

a charge which is less than the usual and normal charge for such

goods or services is a contribution.

The Committee contracted with National Media, Inc. (N"I)

to provide media planning and placement services, including but

not liaited to:

Media market analysis; reach and-fre-quencyanalysis; comprehensive media plans and

recommendations.

o

o

o

Rate negotiation; schedule preparation and

placement.

Kedia reconciliation, including verification of

invoices, affidavits, and notarized scripts.

Timely reporting of financial summaries on

cumulative and state by state basis.

In return for the performance of these services,

the Coaaittee paid NMI a commission equal to 5\ of gross billings

for advertising placed. According to Mr. Robin Roberts, President

of NKI, the 5% commission was the normal fee charged his political

clients.

However, based on broadcaster's invoices maintained

by this Committee as well as others, it appeared that the 5\

commission may have been less than the normal charge. These

invoices contain the calculation of the net bill, the agency

commission, and the gross billin~. The commission that is shown

on the broadcaster's invoices is consistently 15\ of the gross

billing.
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The interim audit report recommended that the

Committee provide evidence which demonstrates that the 5\

commission does not constitute the provision of services at less

than the usual and normal amount NMI charges its non-political

clients which are substantially similar in size and nature.

In response to the interim audit report, the

Committee submitted a statement from Mr. Robin Roberts wherein he

states that: 1) NMI does not adhere to any standard formula or

commission but considers a number of factors when negotiating

fees; 2> NMI charges its non-political clients fees which are

comparable to the fees charged its political clients; and 3) NMI

was fully compensated for work performed for Jack Kemp for

President. In addition, the Committee submitted copies of

articles from trade journals cf the advertising industry which tte

Committee states "do not support the Audit staff's position" but

reflect the Committee's position that the "15% commission was

merely an arbitrary pricing arrangement without any meaningful

relationship to the cost incurred by the agency in providing these

services. Therefore, clients are negotiating today commissions

and/or fixed fees that more accurately reflect those costs."

The Audit staff acknowledges that the trend in the

advertising industry is toward a fee arrangement and accepts the

representations made by the vendor.

Recommendation 11

Based on the above, the Audit staff recommends no further

action with regard to this matter.

B. Excessive Contributions Received from Political

COlUlittees

During the review of contributions from political

committees, the Audit staff noted contributions from four

political committees which exceed the contribution limitation by

S5,350.00. Refunds totaling $5,000.00 were made by the Committee

four to seven months after receipt of the excessive contributions.

A separate account was not established by the Committee

for possible illegal contributions, nor were account balances

monitored to ensure that sufficient funds were available to make

refucds.

The Committee was provided with a schedule of the

excessive contributions at the exit conference.

In the interim audit report, the Audit staff recommended

that the Committee refund the remaining $350 in contributions froa

political committees. In response to the interim audit report,

the Committee provided copies of the refund checks.
,,- <

----~------

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Recommendation 12

In view of the small dollar amount and since the Committee

refunded the remaining $350 in excessive contributions, the

Commission has determined that no further action is required.

c. Itemization of Contributions

Sections 434(b)(3)(A) and (B) of Title 2 of the United

States Codes state that each report under this section shall

disclose the identification of each person who makes a

contribution to the reporting committee during the reporting

period, whose contributlons have an aggregate amount or value in

excess of 5200 within the calendar year, together with the date

and amount of any such contribution and each political committee

which makes a contribution to the reporting committee during the

reporting period, together with the date and amount of any such

contribution.

1. Itemization of Contributions from Individuals

The Audit staff reviewed the Committee's receipt

records to determine whether contributions aggregating in excess

of $200 per calendar year were itemized on the Committee's

disclosure reports. A -sample testing -of contributions re-ceivedfrom November 24, 1986 through March 31, 1988 indicated that the

Committee failed to itemize a material number of contributions.

Further analysis of the sample errors indicated that the ptoblea

was limited to 1986, June 1987, and February 1988. The Coaaittee

explained that all 1986 contributions were erroneously omitted

from Schedule A and that, in some cases, the Committee's cut-off

for preparing disclosure reports occurred before all of the

contributor information was entered into the Committee's database.

On September 12, 1988, the Committee filed a.ended

reports itemizing the previously unitemized contributions.

Recommendation 13

The Audit staff recommends no further action with re9ard to

t his ma t t e r .

2. Itemization of Contributions from Political

Committees

The Committee's receipt records were reviewed to

determine whether all contributions from political committees were

itemized. The Audit staff determined that 59 contributions

totaling $37,930.00 were not itemized as required. This a.aunt

includes $5,895.00 in contributions from political committees

whose reports disclose contributions to the Committee but

Committee records do not indicate their receipt.
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The failure to itemize the contributions may have

resulted from the data entry cut-off described at Finding

II. C. 1. above ..

On September 12, 1988, the Committee filed amended

reports itemizing $31,856.00 in contributions from political

committees. This amount does not include the $5 895.00 in

contributions described above. The remaining contributions from

political committees not itemized as required total $6,074.00. The

Committee was provided with a schedule of the remaining unitemized

contributions at the exit conference.

In the interim audit report, the Audit staff

recommended that the Committee determine whether the $5,895.00 in

contributions described above require itemization and file amended

reports if necessary to correct the itemization problem.

In its response to the interim audit report, the

Committee stated that it believes that the September 12, 1988

amendments corrected the itemization problem and that no

additional amendments are required.

Recommendation 14

In view of the· small amount of contributions· not resolved

and the small amount of contributions not itemized, the Audit

staff recommends no f~rther action.

D. Matters Referred to The Office of General Counsel

Other matters noted during the audit have been referred

to the Commission's Office of General Counsel.

III. Jack Kess for President Committee - Findings and

Recoaaen ations Related to Title 26 of the United states

Code

A. Calculation of Repayment 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. Section 9038(b){2)(iii) of Title 11 of the Code of

Federal Regulations states that the amount of any repayment sought

under this section shall bear the same ratio to the total amount

determined to have been used for non-qualified campaign expenses
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as the amount of matching funds certified to the candidate bears

to the total amount of deposits of contributions and matchinq

funds, as of the candidate'S date of ineligibility.

The formula and appropriate calculation with respect to

the Committee's receipt activity is as follows:

Total Matching Funds Certified through the Date

of Ineligibility - 3/10/88

Numerator plus Private Contributions Received

through 3./10/88

$4,506,454.78

$4,506,454.78 + $9,598,171.18

= .319502

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

31.9502\.

B. 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 candidat~'S date

of ineligibility, the candidate submit a statement of Net

Outstanding Campai9n Obli9ations which contains, among other

items, the total of all outstanding obligations for qualified

campa_ign expense_s_ and an__estimat~ of nece_ssA_ry -windin9- down----cos-ts.-

Section 9034.5(c)(1) states, in part, that a list of all

capital assets shall be maintained by the Committee in accordance

with 11 c.r.R. 9033.11(d). The fair market value of capital

assets may be considered to be the total original cost of such

items when acquired, less 40\, to account for depreciation, except

that items acquired after the date of ineligibility must be valued

at their fair market value on the date acquired. If the candidate

wishes to clai. a higher depreciation percentage for an item, he

or she must list that capital asset on the statement separately

and deaonstrate# through documentation, the fair market value of

each such asset.

In addition, 11 C.F.R. S9034.1(b) states, in part, that

if on the date of ineligibility a candidate has net outstanding

obligations as defined under 11 C.F.R. 59034.5, that candidate may

continue to receive matching payments provided that on the date of

payment there are remaining net outstanding campaign obligations.

The NOCO Statement is the basis for determining further

matching fund entitlement. Mr. Kemp's date of ineligibility was

March 10, 1988. Consequently, he may only receive matching

payments to the extent that he has net outstanding campaign

obligations as defined in 11 C.F.R. 59034.5.
-8-

The Com.ittee filed a Statement of Net Outstanding

Campaign Oblfgations (NOCO) which reflected the Committee',

financial position at March 10, 1988 and revised statement. with

each subsequent matching fund request. The Audit staff analyzed

the Committee's Noca Statement which was determined as of July 8,

1988 and made adjustments to properly reflect the Candidate's cash

position and to correct other misstatements. The Committee's NOCO

as adjusted by the Audit staff appears below.
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Jack Reap for President

Statement of Net Outstanding

Campaign Obligations as of ftarch 10, 1988

Determined as of July 8, 1988

ASSETS

Cash on Hand

Accounts Receivable

Capital & Other Assets

TOTAL ASSETS

LIABILITIES

Disbursements for

Oualified Campaign

Expenses and Winding "~ Down between 3/11/88

and 7/8/88

Accounts Payable for Q~~!!fied Ca.paign ~xpenses----a-~f-of--7/8788-

c"'- _ontribution Refunds

7/9/88-12/31/90

Contribution Refunds Due

at 12/31/90

prohibited Contributions

Excessive Contributions

Joint Fundraising - Return of ~~ Misallocated Proceeds:

Victory '88

Keap/Danneaeyer

Winding Down Costs

Personnel

Administration and

Financeg/

Le9a1 Costs

Total Windin9 Down Costs

TOTAL LIABILITIES

~t Outstanding Campaign

)bligations

335,346.25

30,432.00

120,398.00

59,043.37

685.33

234,255.02

514,390.32

200,000.00

104,566.56

1,871,882.80!1

27,268 .. S1b/

1,7S9,S28.91c/

30,793.S4d/

486,176.25!./

S9,728.70!/

$948,645.34

$2,003,8:7.87

($3,284,872.74)

(S1,281,054.87)
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-10-

Notes to July 8, 1988

Statement of Net outstanding Campaign

Obligations as of March 10, 1988

Accounts Receivable includes matching funds, contributions,

refunds, rebates, reimbursements and a bank loan received

between March 11 and July 8, 1988. In addition, refunds

verified and/or reported between July 9 and December 31,

1990 are included.

Capital Assets. This amount excludes a $4,134.55 loss on

sale of assets included in the Committee's NOCO. No

documentation to support the loss (over and above the 40\

depreciation permitted at 11 C.F.R. §9034.5(c)(1)) has been

provided.

Qualified Campaign Expenses and Winding Down 3/11-7/8/88.

This amount has been reduced for non-qualified campaign

expenses paid during the period (amounts in excess of the

state expenditure limitation; Iowa $41,491.95; and New

Hampshire $29,342.52.

Accounts payable. Includes non-winding down expenses through

12/31/88 -but---e-xcl-udes--amo-unt-s-- paid in excess -of -the--statelimitations; Iowa $1,979.84 and New Hampshire $50.00.

This amount is subject to change based on the final

resolution of prohibited and excessive amounts.

This amount represents the Audit staff calculation of excess

distributions to the Committee from the indicated joint

fundraising committee. The amount is subject to change.

Administration and Finance. This amount includes accounting,

contribution processing, matching fund processing, office

space and overhead. and fundraising. This estimate is the

reported amounts through 12/31/90.
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Therefore, as of July 8, 1988, the candidate's maximum remaining

matching fund entitlement was $1,281,054.87. Using the

Committee's contribution records through September 30, 1988, the

Commission's matching fund records and Committee disclosure

reports for October 1988 to December 1990, it was determined that

the Committee received $946,504$90 in combined private and public

funding between July 9, 1988 and April 11, 1989, the date on whic~

the Committee received its final matching fund payment.

Conclusion

As of April 11, 1989, the candidate had not received matchi~;

funds in excess of entitlement.

C. Use of Funds for Non-Qualified Campaign Expenses - Allocation of Expenditures tc States

Section 441a(b}(1){A) and 441a(c} of Title 2 of the

United States Code and Section 9035(a} of Title 26 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 aggregating in excess of

the qreater of 16 cents multiplied by the voting age population c~

the State, or $200,000, as adjusted by the chanqe in the Consumer

---PrIce --rndex.

Section l06.2{a){ll of Title 11 of the Code of Federal

Re9ulation states, in part, that expenditures incurred by a

candidate's authorized committees(s) for the purpose of

influencing th~ nomination of that candidate for the office of

President with respect to a particular State shall be allocated t:

that State. An expenditure shall not necessarily be allocated tc

the State in which the expenditure is incurred or paid.

For the 1988 election the expenditure liaitation for the

State of Iowa was $775,217.60 and for New Baapshire $461,000.00.

The Committee reports, from inception to April 30, 1988, disclosed

expenditures totaling $765,146.00 allocated to Iowa and

$425,968.00 allocated to New Hampshire.

At the entrance conference, the Coamitteefs Treasurer

informed the Audit staff that the files which deaonstrated the

derivation of the Committee's reported allocations had been lost.

As a result, it would be necessary for he and his staff to

reconstruct the allocations. The reconstructed allocations for

Iowa and New Hampshire were presented several months later and in

some cases, still included estimates. Along with the revised

allocations, the Treasurer included detailed information, except

for estimated amounts, which identified each disbursement, or

portion thereof, included in the allocations.
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These revised allocations total $754,051.11 for Iowa a~:

5460,820.93 for New Hampshire. It is these reconstructed

allocation figures on which the following analysis is bas.d~ The

categories of expenses shown below are the same as those used by

the Committee.

1. Media Expenditures

Section l06.2(b)(2}(i)(Bl of Title 11 of the Code

of Federal Regulations requires that expenditures for radio

television and similar types of advertisements purchased in a

particular media market that covers more than one State shall be

allocated to each State in proportion to the estimated audience.

This allocation of expenditures, including any commission charged

for the purchase of broadcast media, shall be made using industry

market data ..

The Committee did not allocate the cost of shippin~

associated with media buys in various states. The allocable

portion of these costs for Iowa is $1,275.00 and $561.58 for New

Hampshire.

The Committee's reconstructed allocation figures

for New Hampshire contained an apparent estimate for radio time

purcha-sed.-The amoun~ is -$5-;00-0-.0-0. --A,-t-evlew--of- i-t=fc-6rds at -the

offices of the Committee's media fira in conjunction with Arbitro~

Ratings Radio indicated that the correct allocation is $18,059.60.

A similar review for Iova radio expenses shows that the Coaaittee

allocation of $27,751.59 vas overstated by $767.85 and should have

been $26,983.74.

In the response to the interim audit report, the

Committee does not object to the reallocations with the exception

of the costs of shippin9 television and radio coamercials to

broadcast stations. The Committee contends that these costs are

properly included in production and hence not allocable. The

Committee further contends that based on Commission past practice,

if the allocation was reasonable at the time it was made and does

not conflict with a specific allocation method the Audit staff

must accept the Committee allocation.

The Audit staff does not accept that the cost of

transporting commercials which the Committee has produced to the

broadcaster for airing is a cost of production. Rather, the

shipping cost is part of the cost to air the media product.

Shipping costs vary with the airtime, not the cost of creating a

specific commercial, and are properly considered part of the

broadcast cost.

As noted above, 11 C.F.R. Sl06.2(b)(2)(i)(B)

addresses expenditures for radio, television and similar types of

advertisements, and states that commissions for the purchase of

broadcast media shall be allocated. This language does not
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exclude all costs of advertisements except air time charges but

uses the broader term, expenditures for advertisements. Further,

11 C.F.R. Sl06.2(a)(1) states that expenditures incurred for the

ourcose of infiuencina the nomination of a candidate with respect

to a particular state~shall be allocated to that State.

The Audit staff has made no adjustment to the

interim audit report allocations.

2. Iowa and New ~ampshir~ Personnel

Section l06.2(c)(S> of Title 11 of the Code of

Federal Regulations states that an amount equal to 10\ of campaig~

workers' salaries in a particular state may be excluded from

allocation to that state as exempt fundraisinq expenditures, but

the exemption shall not apply within 28 calendar days of the

primary election.

The Committee's allocation documents indicated tha:

allocable Iowa personnel costs totaled $107,761.88. The Audit

staff increased this amount by $1,219.19 to $108,981.07. The

increase is required because the Committee had taken a 10\

fundraising exemption on amounts incurred within 28 days of the

Iowa cauc\ s.

The Committee allocated $4f,631.-65 in New Ha.pshir!

personnel costs. The Audit staff reduced the amount by $2,096,01

to $39,535.64. This reduction is the result of an upward

adjustment to consider the 28 day restriction on the fundraisinq

exclusion and a reduction due to the Committee's allocation of

voided checks.

In the response to the interim audit report, the

Committee proposes a reduction of $362.64 to the audited Iowa

personnel figure. The reduction involves the application of the

28 day rule on the fundraising exemption. The Audit staff accepts

the Committee adjustment.

For New Hampshire personnel costs, the Committee

proposes reduction to the audited cost of $143.33. A portion of

the amount relates to health insurance premiums for which better

information was provided than was available at the time of the

audit, and a correction for a consulting payment. After

adjustment for compliance and fundraising exemptions, the

adjustment should be a $218.49 credit for a total amount allocable

of $39,317.15.

3. Payments to Vendors

Section l06.2(c)(S) states, in part, that 10\ of

overhead expenditures in a particular State may be excluded fro.

allocation to that State as exempt fundraising expenditures, but

this exemption shall not apply within 28 calendar days of the

primary election.
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The Committee's allocations contained a category c:

expenses entitled "Iowa Vendors" and "NH Vendors" with allocatio~s

of $86!308.93 and $80,841.14 respectively. The payments in this

category include expenses ranging from office overhead to

printing, to hotels, to individuals.

During our reVlew of committee disbursements, the

Audit staff identified additional vendor payments allocable to

Iowa of 564,166.41 for a total of S150,475.34 and additional

amounts allocable to New Hampshire of $42,887.50 for a total of

S123,728.64. The additional allocatlons represent some additiona:

payments to the same vendors identified by the Committee and

others are payments to vendors not included on the Committee's

list. In addition, a portion of the increase is the result of tt~

Committee's failure to recognize the 28 day limitation on the

fundraising exemption for overhead expenses.

Also included in the interim audit report

allocations were payments to Conus Communications totaling

$12,510.00. These payments were for satellite links and

associated services for two debates between the candidate and

Congressman Gepnardt. One was held in Iowa in July 1987, the

other was held in New Hampshire in August 1987. The satellite

links apparently made the debate and follow-up interviews

available to television news directors around tbe--count-ry-.

The Committee's response to the interim audit

report proposed a $30,299.14 reduction to allocated amounts for

Iowa vendors and a $30,746.46 reduction to allocated amounts for

New Hampshire vendors. In arriving at these reductions, the

Committee both challenges some of the allocations made by the

Audit staff and again recalculates some of their allocations. T~!

response includes four listings of committee allocations, 2 each

for Iowa and New Hampshire. One listing for each state shows the

vendors originally allocated by the Committee and another shows

those allocated by the Audit staff.

In reviewing the Committee's response, the Audit

staff began with the Committee's allocations, verified the total

disbursements to the interim audit report amounts and made

adjustments based upon materials submitted by the Committee as

well as documents contained in the audit workpapers. Attachment 1

shows the Committee's schedule along with adjustments to the

Committee allocations made by the Audit staff. For Iowa, the

Audit staff concluded the proper allocation was $149,097.89 or a

reduction of $1,377.45 from the interim audit report and for New

Hampshire $119,211.00 or a reduction of $4,517.64.

Discussed below are specific categories of

adjustments to the allocations proposed by the Committee in their

response to the interim audit report.
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o Section l06.2(b)(2)(O)(iv) of Title 11 of the Code

of Federal Regulations states that overhead

expenditures of com~ittee offices located in a

particular State shall be allocated to that State.

The regulation goes on to list as examples of

overhead: rent, utilities, office equipment,

furniture, supplies and telephone base charges.

f'urther t 11 C.F.R. 106.2(c)(S) provides a 10\

compliance and 10\ fundraising exemption for

overhead expenses.

The Committee has classified as overhead, and take=

the compliance and fundraising exemptions on, some

expenses which are not overhead expenditures of a

Committee office.

Included in these expenses are reimbursements to

individuals using personal telephones for campaign

buslness, printing and postage relating to events

or mailings and materials purchased for events.

Also, in the New Hampshire allocations, payments t:

AT&T and New England Telephone, have been included

in overhead for the calculation of the compliance

and fundraisinq exemptions. These payaents were

-already net cif--l-O\- c-ompliance and -10' -funar-ais-rnci,

thereby doubling the allowable exeaptions.

o As noted above, 11 C.F.R. l06.2(b)(2)(D)(iv)

includes state office overhead expenses for office

furniture and equipment and provides that these

expenses shall be allocated to the State. The

Committee has allocated only a portion of such

expenses. In New Hampshire, the Coaaittee

allocated 40\ of the cost of furniture and

equipment to the state explaining that this

represented the depreciation on the equipment. In

addition, in their Iowa calculations, the Coaaittee

first reduces the purchase price of the equipment

by a fraction the denominator of which is the

number of days that the campaign operated and the

numerator is the number of those days that the

campaign owned the assets. This fraction was

applied before the 40\ depreciation was calculated.

The depreciation percentage appears to have been

taken from 11 C.F.R. S9034.S(c)(1) which provides

for a 40\ depreciation for capital assets when

preparing a Statement of Net Outstanding Campaign

Obligations. The fraction based on days of

ownership is not explained.
o

o

-16-

Neither of these calculations are relevant to state

allocation. The regulatory provision requires

allocation less the applicable compliance and

fundraising exemptions. If the furniture or

equipment is subsequently sold, any receipts may be

offset against the purchase price. Absent that,

the entire amount is considered overhead of the

State office where the furniture and equipment was

used.

Also related to the allocation of overhead expenses

is the Committee's exclusion of office rent,

utilities, equipment lease payments, and related

services for periods following the date of a

state's primary election. The Committee calculate:

a daily fee for such expenses and excluded an

amount equal to the daily rate times the number of

days between the primary election date and the enc

of the lease or service period. This was general::

less than 30 days. The Committee argues that this

reflects that post primary expenses do not

influence the primary.

Tne Audit staff disagrees. The regulations require

the allocation of overhead expenses -for State

offices and makes no exception for periods

immediately following the primary election. The

establishment of state offices has as its purpose

the influencing of the primary in that state. It is

not unusual for rents and utilities to run for a

short period after the primary date reflecting

normal billing cycles. These costs are part of tte

cost of establishing and maintaining the State

office. In addition, activity at State office does

not cease the day after the primary election. Soae

activity will be necessary to finish the office's

business in the days following the primary. These

expenses are also part of the cost of maintaining

the office the purpose of which is to influence the

primary election in that State.

In addition to overhead expenses related to the

post primary period, the Committee excluded a

consulting payment to a New Hampshire resident paid

after the primary which the response states was to

compensate him for time spent closing down the Keap

office in New Hampshire. The audit calculation

includes this payment.

The Committee's response to the interim audit

report classified certain expenses as regional and
o

-17-

allocated them among several states based on the

relative voting age population of each state. In

Iowa, the amount relates to the ftidwest Re9ional

Republican Conference. This event was attended by

other campaigns as well and the description of the

expenses which the Committee contests appear to be

campalgn related (i.e., Helium Tank, whistles,

poster boards, ice cream, food and drink and

hospitality suite). The conference was held in Des

Moines in May of 1987. The Commission has

determined that these expenses should be considere=

regional expenses and thus not allocable to the

Iowa spending limitation. Accordingly, the Audit

Staff adjusted the allocable amount noted above to

exclude the expenses.

In New Hampshire, the regional expenses include a

reimbursed printing bill, expenses for a regional

conference paid to a consulting firm in New

Hampshire, and a reimbursement paid to a person

associated with the same fira and relating to a

later luncheon. These expenses were originally

allocated to New Hampshire by the Committee and no

information concerning the nature of the events or

documentation for the items other than check

ye-quest----£orDls -and -expens-e-vouche-r -cover--shee-ts,

have been provided. The final expenditure which

the Committee classified as re9ional is for

printingThe audit workpapers contain a sa.ple of the

printed material which clearly indicates that the

expense is for New Hampshire.

The Committee made payments to party organizations

in both Iowa and New Hampshire. In Iowa the

payment was to attend a straw poll event. The

Coamittee argues this event was aiaed nationally

and should be a national expense. The Audit staff

disagrees. It was an event sponsored by the Iowa

Republican Party in Iowa for Presidential

Candidates. It was, in our opinion, an Iowa

expense. In New Hampshire the Coaaittee states

that these expenses allowed Committee staff to

attend events where they could aeet potential

contributors and hence, are fundraisinq. The fact

that potential contributors may be identified at an

event does not make the cost of attending the event

fundraising.

The same argument could be made for any expense

which resulted in Committee staff co.ing into
'1)

c

ooo

-18-

contact with potential voters/contributors/

supporters. No indication of any solicitation of

funds is provided in the response.

The Committee argues that like interstate travel

and telephone calls, interstate shipping should be

exempt. There is no regulatory support for the

Committee's argument. The cost of shipping is

generally considered part of the cost of the items

shipped. When materials are shipped to Iowa or NeHampshire, the intent appears to be to influ.nce

the primary in those States.

The Committee excludes from allocation the cost of

campaign buttons fer Iowa and New Hampshire, citin;

the exclusion for media production at 11 C.F.R.

SI06.2(e){2). The cited regulation refers to

production costs for "advertising media." Campaig~

buttons should not be considered "Advertising

Media." However, if considered print media, the

Commission's Financial Control and Compliance

Manual at page 30 makes it clear that only layout

and design are considered production. The invoices

for these campaign buttons state that the artwork

was provided by the Committee.

The Committee's response to the interim audit

report argued that the cost of satellite services

in Iowa and New Hampshire are national, since the

target audience was reporters in Washington, DC.

As noted in the interim audit report, the satellite

link also made the debates available to television

newsrooms around the country.

The Commission has determined that the satellite

costs are not allocable to the Iowa or New

Hampshire spending limitations. Accordingly, the

Audit Staff adjusted the allocable amount noted

above to exclude these costs.

The Audit staff also madea number of miscellaneous

adjustments, including items left off the Coaaittee

allocations submitted in response to the Interim

Audit Report, voided checks allocated by the

Committee, application of the 28 day exclusion to

the fundraising exemption, on salary and overhead

expenses, and an item adjusted by the Audit staff

in the interim audit report and neither accepted or

challenged in the response.

Finally, the Committee madea number of adjustments

to both their own and audit allocations, but did

not submit sufficient documentation to support the

changes.
-19-

4. Iowa and New Hampshire Accounts

Section 106.2(c)(S) of the Code of Federal

Regulations states that an amount equal to 10\ of campaign

workers' salaries and overhead expenditures in a particular state

may be excluded from allocation to that state as an exempt

compliance cost. An additional amount equal to 10\ of such

salaries and overhead expenditures in a particular state may be

excluded from allocation to that state as exempt fundraising

expenditures; but this exemption shall not apply within 28 days c:

the primary election. Section l06.2(b)(2}(iv) defines overhead

expenditures to include rent, utilities, office equipment,

furniture, supplies, and telephone serVlce base charges.

The Committee kept a checking account in both Iowa

and New Hampshire. The Audit staff reviewed all disbursements

from these accounts and made the follo-ing adjustments.

In Iowa, the Audit staff increased the committee

allocation by $4,155.87 to $15,699.60. The majority of this

difference relates to an apparent estimate of $5,000.00 for exemp:

compliance and fundraising. The Audit staff analysis produced a

compliance and fundraising exemption of $696.02.

In--New-Sampshire, the Audit staff i-ncreas-ed--the

Committee's allocation by $260.39 to $10,730.95. This difference

results froa the Committee not having considered the 28 day

restriction on the 10\ fundraising exemption for overhead iteas,

and froa including some non-overhead iteas in the overhead

category.

The Committee's response to the interim audit

report included a reallocation of expenses paid from the Iowa

account. The proposed allocable amount .as $11,543.13. Amounts

excluded from allocation by the Committee fall into two

cateqories: national expense and compliance and fundraising

exemptions for overhead.

Of the $2,936.09 in expenses identified by the

Committee as national expenses, only $696.70 were categorized as

such by the Audit staff. Much of what the Committee included was

payments for express mail deliveries and hotel accommodations.

The Committee states that "the expenses related to shipping items

between Iowa and the national headquarters (i.e., Federal Express,

UPS., and United Airlines) are non-allocable as an interstate

expense." However, the Committee provided no documentation which

shows that the items shipped went to locations other than Iowa.

In addition, payments to hotels which the Committee indicates are

related to "the Jack Kemp tour (national staff and press corps)

and which have been treated as national expenses· are in fact

payments for meeting rooms and other political events and are

fully allocable to Iowa.
-20-

The Committee states that it has taken advantage c:

the 10\ compliance and fundraising exemptions applicable to

overhead expenses "(i.e., rent, utilities, postage, office

equipment and supplies, etc.)" However, the Committee has

included as overhead, items which do not fall within the

categories defined as overhead. The descriptions of the items

provided in the Committee's response are, in some cases, not

consistent with the descriptions on the original invoices reviewe:

by the Audit staff during th~ audit fieldwork. The Audit staff

has excluded those items which are more appropriately categorized

as political in nature and thus fully allocable.

In summary, the Audit staff increased the

allocation contained in the Committee response by $3,687.64 to

$15,231.25. The Audit staff's analysis produced a compliance and

fundraising exemption of $780.19 and a national expense exemptior.

of $696.70.

For New Hampshire, the Committee agrees with Audit

staff's allocation of $10,730.95.

5. Travel Expenses

Section l06.2(b)(2}(iii) states that travel and

$ubsi$tence expenditures for persons working in a State for five

consecutive days or- more shall -be alloe-ated to tha-t State in

proportion to the amount of time spent in each State during a

payroll period. For purposes of this section ·subsistence"

includes only expenditures for personal living expenses related t:

a particular individual traveling on committee business, such as

food or lodging.

Section l06.2(b)(2)(ii) states that salaries paid

to persons working in a particular state for five consecutive days

or more, including advance staff, shall be allocated to eacb state

in proportion to the amount of time spent in that State during a

payroll period.

a. American Express

The Committee used an American Express card t:

pay certain expenses. The Audit staff reviewed the Committee's

allocation of expenses charged on the American Express card and

determined that, with the exception of one charge for an apparent

intrastate aircraft charter in Iowa, the Committee's allocations

are correct. Available documentation does not permit a

determination of the passenger list or the length of travel for

this charter. The Audit staff has increased the Committee's Iowa

allocation by $513.00 to $4,002.38.

The Committee's allocation of American Express

expenses allocable to to New Hampshire was $8423.14. The Audit

staff agreed with the allocation.
-21-

In its response to the interim audit report,

the Committee reduced its Iowa allocation to $1,664.50 and its New

Hampshire allocation from $8,423.14 to $670.00. The Committee

deducted certain amounts paid to hotels which the Committee states

were travel-related expenses for the candidate and his travelin9

party which should have been charged to the national office. The

Committee did not include documentation (e.Q., invoices, receiots

bills, etc.) which identified the staff responsible for the • charges or the length of time spent at any location. The Audit

staff is therefore unable to verify that the Committee's

deductions are correct.

The Audit staff's allocation of the American

Express payments remains unchanged at $4,002.38 for Iowa and

$8,423.14 for New Hampshire.

b. Chartered Aircraft

The Committee included an estimate of $10,000

for chartered aircraft in their Iowa allocations in addition to

the charge discussed in a. f above. The Audit staff reviewed the

charter billings in Committee files and using the available travel

itineraries determined that all charters were either interstate or

did not involve travel of 5 or more consecutive days.

c. -- -- - -- -

National Staff Travel

The Committee allocated travel expenses to

Iowa of $17,351.63, and to New Hampshire of $4,375.01. The Audit

staff reviewed the Committee's travel files and identified

additional allocable travel expenses. In Iova, an additional

$23,333.81 was allocated brinqing the total to $40,685.44, and in

New Haapshire an additional $9,875.05 was allocated for a total of

$14,250.06.

These additional allocations are primarily due

to individuals who traveled in the states for aore than four

consecutive days but whose travel expenses were not allocated by

the Co..ittee.~/ Also included are travel expense payments to a

number of entities who are apparently vendors rather than

committee personnel. Travel expenses for such persons were

allocated regardless of their length of stay.

The Iowa allocation adjustment includes

expenses incurred by three individuals who spent periods of time

in Omaha, Nebraska (Hughes Grehan, Lewis Pipkin, Hagood Tighe).

*/ When determining whether a campaign staff person worked in

a state for more than 4 consecutive days, the Audit staff

counted calendar days or any portion thereof, rather than 24

hour periods~ See Financial Control and Compliance Manual for

presidential Primary Candidates Receiving Public Financing, p.

32 (April 1987 edition).
An analysis of the Committee's automated expense file indicates

that the Committee had no Nebraska campaign. Expenses coded to

Nebraska (after adjustment for miscoding) total only $11,083.81.

Of this amount, $8,279.03 relates to these three individuals and

rental cars with which Mr. Tighe, Mr. Grehan and two other Itaff

members are associated. Mr. Tighe and Mr. Pipkin were both in

Omaha through February 9, 1988~ the day after the Iowa Caucus.

The rental cars were aiso due to be returned on February 9, 1988&

After February 9, 1988, no further travel to Omaha for any of

these three individuals was noted. Of the remaining $2,804.73

coded to Nebraska, a number of items appear to be Iowa related.

For example, a travel voucher which indicates Iowa as the loeati:~

of the travel but notes that the traveler used an Omaha Hotel, a

travel voucher for a trip to Omaha to meet the Iowa staff and

reimbursement to a person with an Omaha address for travel in

Iowa. It is also noted that Omaha, Nebraska is separated from

Council Bluffs, Iowa by the Missouri River, the Nebraska primary

is not until May 10, 1988, and Mr. Tighe's salary for December a=~

January is attributed to Iowa in the Committee's payroll registe:.

In response to the interim audit report, the

Committee proposed a $31,651.02 reduction in the Audit allocatic~.

The Committee submitted a schedule of its revised national staff

travel expenses allocable to Iowa compared to the Audit staff's

allocation of those expenses. The Committee's schedule includes

only those items for which the Audit ai-location differs frQ_~ __ ~l"l_~

Committee's original allocation. In addition, the Committee's

revised total ($9,034.42) includes only the portion of the Audit

staff's allocations accepted by the Committee. The Co.-ittee has

excluded most of their original allocations. Since the response

makes no mention of such an exclusion the Audit staff assuaes t~!t

it was an oversight. Consequently, the Committee's response to

the interim audit report relates to only $25,338885 of the Audit

staff's allocation. To that amount the Committee proposes a

reduction of $16,304.43. The reduction relates to the followin;:

1. As stated above, the Audit staff allocated

travel expense payments to four entities who are apparently

vendors. The committee contends that the Audit staff incorrect:.

assumed that the individuals in question were not national .

campaign staff because they were not paid monthly retainers. Tt~

Committee states that 3 of the individuals' travel and consultir.;

fees should be considered national expenses on the basis that tt~

individuals did not remain in Iowa for five consecutive days.

According to the Committee, the fourth individual, Mike

Simpfenderfer, was a fundraising consultant in Iowa and a natior.31

headquarters staff person in Washington, DC; therefore, the

Committee believes that none of his consulting fees or travel

expenses are allocable.

The Commission determined that the travel

expenses for the three individuals in question are subject to t~~

five-day rule. Accordingly, the Audit Staff revised its
-23-

allocation of the expenses for those individuals, reducing the

allocable amount by $11,511.45.

Regarding Mr. Simpfenderfer, the Audit staff

notes that the expenses allocated relate to a period of time when

Mr. Simpfenderfer was residing in Iowa.

The response contains nothing to support the

committee's contention that Mr. Simpfenderfer's duties and exp~nses during the several months he resided in Iowa are either

partially or wholly fundraising.

The Audit staff allocated the applicable

travel related expenses for Mr. Simpfenderfer.

2. For two individuals, the Committee deducted

lodging and per diem expenses for the day following the Iowa

caucus as well as expenses for interstate travel between Iowa and

Nebraska.

The lodging and per diem expenses were

incurred for the purpose of influencing the candidate's nomination

in Iowa and as such are fully allocable. With respect to the

interstate travel, the Audit staff agrees with the Committee and

has reduced the allocable amount by $26.80.

3. The Coaaittee deducted the expenses of one

individual because they were for "incidental services perforaed by

his secretary in Southern California" which included typing thank

you notes to people the individual met in Iowa.

The Committee's exclusion of the expenses

appears to be based on the fact that the secretary was loeated in

Southern California. According 11 C.F.R. S106.2(a)(l), an

expenditure shall not necessarily be allocated to the State in

which the expenditure is incurred or paid. The costs of the thank

you notes appear to be a cost related to the individual's trip to

Iova and as such are fully allocable.

4. The Committee deducted the expenses of an

individual which it states were imputed based on the Audit staff's

assumption that the individual remained in Iowa for nine days

although he did not submit an expense report for the period. The

Committee states that it does not accept the Audit staff's theory

of "imputed expenses."

The Committee is in error. The Audit staff

based the allocation of the individual's expenses on expense

reports filed by the individual and paid by the Coamittee. Copies

of the expense reports were provided to the Committee at the exit

conference.
-24-

s. Finally, the Committee has reduced the amount

of allocable expenses for one individual because, according to the

Committee, the Audit staff "appears to have taken an erroneous

fiqure of $331.98" and is usinq it as the amount allocable to

Iowa. The Committee states that the individual submitted an

expense report dated January 14, 1988 for meeting expenses in

Iowa. The Committee allocated the full amount, $108.38, to Iowa.

The Committee failed to acknowledge that the

individual submitted two other expense reports for Iowa expenses

dated January 4, 1987 and November 30, 1987 in the amounts of

$114.20 and $109.40 respectively. The Audit staff allocated those

amounts as well, for a total of $331.98.

d. Travel Expenses Paid by Committee Staff

The interim audit report Finding II E.3.b.

recommended that the Committee provide information with respect tc

expenses associated with the campaign related activities of 12

individuals who failed to file expense vouchers for time spent in

Iowa and New Hampshire. On September 21, 1990, the Co••ission

issued subpoenas to the Committee requiring the production of the

inforaation. In response to the subpoena the Committee sub.itted

documents which indicate that for certain individuals additional --aaounts---a-ie- -alTocabl-~ to Iowa.

1. Hagood Tighe

In response to the subpoena, the Co.-ittee

submitted two expense reports which cover the period 1/10/88

through 1/23/88. The reports support that Mr. Tighe was in oaaha

fro. 1/16 - 1/22/88 and indicate additional a.ounts allocable to

Iowa in the amount of $249.87.

2. Dug Garrett

In response to the subpoena, the co.-ittee

submitted copies of expenses reports for Mr. Garrett which cover

the period 1/3/88 through 2/9/88. In addition, copies of expense

reports for other individuals were submitted. All of the

submitted reports were apparently rejected for reiaburseaent by

the committee but were apparently paid by Mr. Garrett.

The other individuals for whoa expense reports

were submitted were: Lisa Buestrin, Joe Bynum, Andrew Beckler,

Henry Hyde, Richard Isaacson, Jennifer ~emp, and Will Lynch.

A review of the expense reports indicates that

an additional $8,974.73 is allocable to the Iowa spending

limitation since certain of the individuals were present in the

Iowa for five consecutive days or more. For two of the

individuals, additional salary is also allocable. See Section

S.e., National Staff Salary.
-25-

The Audit staff's total allocable amount for

national staff travel expenses in Iowa is $38,371~19. In the

response to the interim audit report, the Committee agreed with

the Audit staff's allocation of $14,250.06 to New Hampshire.

e. National Staff Salary

As a result of the increased travel

allocations, additional allocable salaries and consulting fees

were identified. The Committee allocated $7,678.21 in salaries

and consulting fees to the Iowa spending limitation and nothing to

New Hampshire. Based on the Audit staff review, the interim audit

report proposed an additional $12,833.03 requiring allocation to

Iowa for a total of $20,511.24 and $3,119.06 requiring allocation

to New Hampshire.

In response to the interim audit report, the

Committee proposed a $15,096.09 reduction in the allocation to

Iowa and accepted the report allocation in New Hampshire. The

Committee submitted a schedule of its revised national staff

payroll allocable to Iowa compared to the Audit allocation of

those expenses. As with the national staff travel allocation, the

Committee's schedule includes only those items where the Committee

dis8qrees with all or a portion of the Audit staff's additional

Iowa allocations. In addition, the Committee's revised total ---($S-~-4~lS.~15} --lneludes---only- those -port~ionsof-~--t-he-Audit.taf-f~-s

additional allocations accepted by the Committee. The Co..ittee

has apparently excluded .ost of their original allocations. Since

the response aates no mention of such an exclusion the Audit staff

assumes that it was an oversight. Consequently, the Co..ittee's

response relates to only $14,353.53, of the Audit staff's

allocation. To that a.aunt, the Committee proposed a reduction of

$8,938.38. The reduction relates to the following individuals:

Dug Garrett - The Comllittee reduced the

allocation of Mr. Garrett's salary by $1,468.39. The Committee

calculated a daily salary rate for Mr. Garrett which differs

slightly froa the Audit staff's calculation. However, most of the

reduction relates to consulting fees which according to the

Committee were paid for wind down services perforaed in March and

retroactively spread by the Audit staff over January and February.

The Committee states that only the amounts actually paid during

Mr. Garrett's tenure in Iowa should be allocated.

The daily salary rate calculated by the

Committee does not include applicable FICA tax or medical

insurance paid by the Committee. The Audit staff calculated a

daily rate which correctly reflects those items.

The consulting fees in question consist of two

checks in the amount of $3,000 each. The memo line of one check

dated February 22, 1988 is annotated with the words "consulting

fee - January.- The Audit staff attributed the February 22, 1988

check to the month of January and allocated a portion of the
-26-

amount to Iowa based on the number of days Mr. Garrett was in Io~!

considerinq the five day rule at 11 C.F.R. l06.2(b}(2)(D)(ii). -. is also noted that Mr. Garrett was paid a salary for the month 0:

January. The second check was dated March 8, 1988 and though not

annotated with the month the consulting payment was meant to

cover, it is assumed to be for February 1988. No salary was paie

by the Committee during that month. The allocation of the payme~:

followed the same method as was employed for the February 22, 19E:

payment.

Huahes Grehan - The Committee states that its

calculation of the daii y salary rate differs from the Audit

staff's figure.

In fact the Committee's response to the

interlm audit report shows no allocation for Mr. Grehan. The

Audit staff determined that the Committee paid Mr. Grehan a

consulting fee in the amount $1,250 by a check dated February 22.

1988. The memo line of the check was annotated with the words

"consulting fee - January." The Audit staff determined that a

portion of that payment was allocable to Iowa and proceeded

accordingly.

Richard Isaacson and Peter Sterling - The

COllmitte estate s t ha tits cal c u 1ation 0 f the da i 1Y ·sa 1a r y rate

differs from the Audit staff's figure.

The daily salary rate calculated by the

Coaaittee does not include applicable FICA tax paid by the

Co..ittee. The Audit staff calculated a daily rate which

correctly reflects that cost.

Mike Lehman and Lewis Pipkin - The Coamittee

calculated a daily rate which differs slightly from the Audit

staff's figure. The Audit staff's allocation for the two

individuals exceeds the Committee's amount by less than $1.00 per

day.

Mike Simpfenderfer - The Coaaittee contends

that Mr. Siapfenderfer is a fundraising consultant and national

staff person, therefore, his compensation is non-allocable to

Iowa. Though no support is submitted for the Committee's

characterization of Mr. Simpfenderfer's function with the

campaign, the nature of his work in the State is not the

controlling factor. All amounts allocated represent a period whe=

Mr. Simpfenderfer apparently resided in Des "aines. Since the

Committee selected the method for allocating salary to coapliance

and fundraising provided at 11 C.F.R. 106.2(c)(S), the method mus:

be used for all campaign workers in that State. (See above,

National Staff Travel Section c.)

Hagood Tighe - The Committee calculated a

daily salary rate which differs slightly from the Audit staff's

figure. In addition, the committee states that the Audit staff

applied an "imputed payroll" figure for the period 2/1/88-2/9/88.
-27-

The Committee disaqrees with the Audit staff's use of "imputed

payroll" as an allocable expense.

The daily rate calculated by the Committee

does not include applicable FICA tax paid by the Committee. The

Audit staff calculated a daily rate which correctly reflects tha~

cost ..

The consulting fee in question was paid to M:.

Tighe by a check in the amount of $1,000, dated March 31, 1988.

The audit staff believes that these payments should be cons1derec

compensation for the month of February when the Committee

suspended payroll. The Committee's date of ineligibility was

March 10, 1988, hence, most campaign staff was not re-employed

after the February payroll hiatus.

In addition to the above, the Audit staff

adjusted its allocation of payroll expenses to include a 10\

compliance exemption not previously calculated for two

individuals ..

As stated in Section S.d. above, National

Staff Travel, the Commission issued subpoenas to the Committee

requirin9 the production of additional information on travel

expenses incurred by certain individuals who failed to file

--expe-nse -vou-ehers for- -travel --in -I-owa- -and New Ha~shire-. ------The----

response indicates that additional amounts are allocable to the

Iowa spending liaitation. For two of the individuals referenced

in the Co..ittee's response, additional salary is also allocable:

$3,178.40 for ftr. Dug Garrett and $638.66 for Mr. Richard

Isaacson.

The Audit staff revised the a.ount of nationa:

staff payroll allocable to Iowa from $20,571.24 to $24,268.39.

6. Voter Contact Costs

In this category the Committee included several

vendors who provided direct mail services with associated postage,

and telephone canvassing services.

a. Voter Contact Services

The Committee paid Voter Contact Services for

computer work, keypunching, labels, etc. for Iowa and New

Hampshire. The reconstructed Iowa allocation figures provided by

the Committee included the vendor'S listing of all of its

invoices, and an allocation of the charges between Iowa and New

Hampshire. The Committee included in their $39,428.48 Iowa

allocation amount all invoices not indicated as being New

Hampshire related. No amount was allocated to New Hampshire by

the Committee.
-28-

The Audit staff reviewed the Committee'.

allocations and reduced the Iowa allocat~on by $1,612.56 to

$37,815.92. This adjustment reflects an apparent overstatement c:

one billing amount, an invoice which should have been split

between Iowa and New Hampshire and a credit which the Committee

did not consider. The invoices which indicate that the work was

New Hampshire related total $15,548.40. The Audit staff has adde:

this amount to the New Hampshire allocations.

In its response to the interim audit report,

the Committee agreed with the Audit staff's allocation.

b. Long River Communications

According to Commlttee records, Long River

Communications was retained to conduct telephone survey and

get-out-the-vote programs in Iowa. The Committee allocated

payments to Long River Communications totaling $39,821.00 to the

Iowa expenditure limitation. The Audit staff identified an

additional payment of $6,500.00 made on February 4, 1988, which

the Committee did not allocate. The Committee's computerized

disbursement files show this payment coded to Iowa.

In its response to the interim audit report,

the Committee states that it was unable to locate the $6,500 -tefette-d tu- --above, and is the-refate maintaining its original_

allocation figure.

The Audit staff identified check number 3414

in the amount of $6,500, dated February 4, 1988 and payable to

Long River Communications on the Committee's check register,

computerized vendor history and Schedule B of the Committee's

disclosure reports. In addition, audit workpapers prepared durin;

audit fieldwork indicate that check number 3414 was paid by the

bank.

The Audit staff maintains that the additional

amount is allocable to Iowa.

c. Haughton & Company

Haughton & Company prepared flyers, brochures

and other campaign material. The Committee allocated $65,943.81

in payments to Haughton & Company to the Iowa expenditure

limitation and $16,676.55 to New Hampshire. The Audit staff

reviewed these allocations and identified additional amounts

requiring allocation. For Iowa an additional $11,064.41 was

allocated for a total of $7i,008.22 and for New Hampshire an

additional $2,702.68 was allocated for a total of $19,379.23.
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In addition to invoices for particular

printing and shipping charges, a portion of the adjustments

reoresented the allocation of consultinq fees paid bv the

Committee. These fees totaled $12,350.00 and were not allocated

by the Committee. The Audit staff prorated a portion of the fees

to Iowa and New Hampshire based upon the relative amounts

allocated to each state. The allocation was $4,069.33 for Iowa

and $1,023.82 for New Hampshire.

In lts response to the interlm audit r~port,

the Committee submitted revised schedules of costs allocable to

Iowa and New Hampshire. The Committee's revised total amount

allocable to Iowa is 567,243.12 and the New Hampshire amount is

$10,693.61. The Committee did not include costs which it states

relate to ~the production costs of generic advertising materials

such as brochures and yard signs. 1t The Committee states that

"shipping and printing costs are inseparable, and must be added

together to arrive at the production cost of the final product.

Therefore, in allocating Haughton & Company invoices to Iowa (and

New Hampshire), shipping costs are treated as if they were another

element within the print job" and therefore, are non-allocable.

The Committee also omitted the prorated

consulting fee paid to Haughton & Company. The Committee states

that Pauf Haughton <d.b.a. Haughton & Company) served as theExecutive Director of the State of Alabama and as the Southern

States Regional Coordinator and that the southern states benefited

from Mr. Haughton's political expertise, not Iowa or New

Hampshire.

The Audit staff disagrees with most of the

deductions taken by the Committee. According to the Commission's

"Financial Control and Compliance Manual for Presidential Pri.ary

Candidates Receiving Public Financing" (page 30, April 1987

edition), the cost of print media production does not extend to

the cost of printing and distribution of such material.

Therefore, the Committee's premise for excluding $5,435.77 froa

the Iova allocable amount and $2,216.83 from the New Hampshire

allocable amount is invalid. The Audit staff notes that the

Committee's revised schedules of allocable costs include some

shipping costs.

The Committee deducted an additional $5,444.97

from the New Hampshire allocable amount for costs which do not

appear to be New Hampshire related. The Audit staff agrees with

the deduction but notes that the amount was included in the

Committee's original allocation.

The Audit staff reduced the Iowa allocable

amount by $684.20 to adjust for one invoice which the Audit staff

overstated by $260 and another invoice which the Committee

allocated 100\ to Iowa but should have allocated 50\ to New

Hampshire. Thus, a reduction to the Iowa allocable amount of
-30-

$424.20 is appropriate for this invoice as well as an increase to

New Hampshire in the same amount.

With respect to the consulting fees, the Audit

staff notes that the Committee made all of its payments to

Hau9hton & Company except for one payment in the amount of

$1;003;12 which was payable to Paul Haughton. The reported

purpose of that payment was to reimburse travel, food and lodging

expense. All payments to Haughton & Co~pany were coded in the

Committee's computerized disbursements file as one of three

categories: collateral materials, politlcal mailings, or direct

mail. Mr. Paul Hauqhton is not listed amonq other consultants in

the Committee's history of consulting payments nor is he included

on the Committee's payroll history.

Recently, in the context of a similar case,

the Commission determined that consulting fees such as those

described above are not allocable expenses. Therefore, the Audit

staff has not included the pro rated consulting fees ($4,032.28

for Iowa and $743.47 for New Hampshire) in the final allocation

amounts.

The Audit staff's revised allocation to Iowa

is $12,254.69 and $13,334.64 to New Hampshire.

d. Anne- Stone- --&- Associ-ates-,- -Inc. {ASA)-

This vendor provided direct mail services to

the Coaaittee for political mailings. The Committed allocated

$57,150.57 in payments to Anne Stone' Associates to the Iowa

expenditure limitation and $37,411.41 to New Hampshire. The Audit

staff allocated an additional $6,745.30 to the Iowa expenditure

limitation and an additional $4:010.68 to New Haapshire for total

allocations of $63,895.87 and $41,610.12, respectively. As with

Haughton and Company, the increases in allocable amounts included

a pro rata share of consulting fees ($12,000.00) paid in addition

to amounts for specific services.

In its response to the interim audit report,

the committee submitted schedules of amounts which it has deducted

from allocation to Iowa or New Hampshire. The Committee deducted

$8,350.36 from the Iowa allocation and 55,293.65 from New

Hampshire. The deductions relate to three categories.

The first category is "fundraising-pack&qe.-

The Audit staff allocated the cost of two direct mail pieces

entitled "Differences" to Iowa and New Hampshire. The Coaaittee

states that "Differences" is a fundraising appeal and is therefore

non-allocable. The Committee did not submit a copy of the piece

or any other documentation to support that it is a fundraisin9

appeal. Furthermore, the order date of the piece whose cost was

allocated to New Hampshire is within the 28 day period prior to

the New Hampshire primary and therefore not eligible for the

fundraising exemption. The Audit staff notes that the cost of the
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Iowa "Differences" piece is incorrectly quoted by the Committee as

$2,110.98. The correct amount is $2,620.38. The difference,

$90.60, relates to the cost of printing an article which wal lent

to Iowa. The Audit staff allocated the amount ($90.60) to Iowa.

The second category is "Cancellation Fee."

The Committee engaged ASA to do a direct mailing to Iowa and New

Hampshire but canceled the order prior to its completion. ASA

charged the Committee a $2,iOO cancellation fee. The Committee

originally allocated a portion of the fee to Iowa ($1,605.06) and

to New Hampshire ($1,094.94) and the Audit staff agreed. In the

response to the interim audit report, the Committee states that

"the cancellation fee was not 'incurred for the purpose of

influencing the candidate's nomination' in Iowa (or New

Hampshire], and is therefore not allocable to the State."

It is the Audit staff's opinion that the

original order was incurred for the purpose of influencing the

candidate's nomination in Iowa and New Hampshire and the

cancellation fee is a related cost of such effort and is therefore

allocable.

The third category is "consulting fee." The

Committee states that, nASA is a firm engaged in the business of

direct mail. In addition, ASA has a particular expertise in ~ ~ ~ - ~di~[ec~ ~-~al1 fundraisinq. -. Althou9h f the- Cemmit-te-e J~u$e~d--ASA---to

prOVide a variety of direct mail services, the consulting fee in

question related to ASA's service concerning direct mail

fundraising efforts and, as such, should be categorized as a

non-allocable expense."

The Audit staff acknowledges that a portion of

the work performed by ASA is likely fundraising. However, there

is no indication that consulting payments relate solely to ASA's

fundraising work. The Audit staff calculation associates the

consulting proportionately to all work performed. However, in a

similar case the Commission concluded that consulting fees such as

those discussed above do not require allocation to state spending

liaitations. Therefore, the Audit staff has adjusted the

allocations to exclude the pro rata portion of the consulting fee

($4,034.32 in Iowa and $2,627.22 in New Hampshire).

The revised amounts allocable to the Iowa and

New Hampshire spending limitations are $59,861.55 and $38,982.90

e. Postage

The Committee allocated $10,000 in postage

expenses to the Iowa expenditure limitation and $20,455.73 to New

Hampshire. The Audit staff conducted a review of amounts paid for

postage and provided copies of our analysis to the Committee. The

Committee'S New Hampshire allocation agrees with the Audit staff

analysis. For Iowa, the Committee's allocation is an apparent
-32-

estimate. The Audit staff allocation was $53,257.35.

In the response to the interim audit report,

the Committee accepted the staff allocation for postage in both

States. Included in the Iowa amount was a deposit into the

Committee's Des Moines bulk mail account for $11,076.45. No

Committee check was located for this amount. During a review of

this finding; the Committee's response, and the allocations of

payments to Haughton & Company, an invoice for postage for a

Social Security Letter was noted. The amount matches the deposi~.

The Haughton & Company invoice is within 3 days of the depOSit.

The payment was allocated to Iowa. Given the above, it appears

that this amount is allocated twice in the lnterim report figures

as well as in the Committee's response.

The corrected postage allocation for Iowa is

$42,180.90.

7.. Pollina«

The Committee made payments to Tarrance, Hill,

Newport & Ryan for polling in 1987 and Tarrance & Associates in

1988. In 1987, polls were conducted only in Iowa and New

Hampshire and the Committee allocated the cost of specific surveys

to- those st_at~s. __ In _a_d<:1ition to billings for individual surveys,

the COlUli ttee paid a tofal of -S19,100-.00 in---consul-tift<J--f-e-e-s- -4-n

1987. The Committee did not allocate any portion of these fees.

The Audit staff prorated the consulting fees based on the relative

amounts of non-consulting charges allocated to Iowa and Nev

Hampshire. The additional allocation is $7,519.67 in Iowa for a

total of $22,519.67 and $11,580.33 in New Hampshire for a total of

$34,680.33.

In 1988, the Committee paid Tarrance' Associates

$36,790.24 for polling. This represents one survey in Iowa, two

in New Haapshire and one in South Carolina. In addition, the

Committee paid for a "focus group" ($4,200) billed on January 26,

1988 and paid one charge of $4,SOO on February 24, 1988 for which

no documentation was available in Committee files. Docuaentation

for the focus group does not indicate if it relates to a

particular state.

Since, all other survey billings by both firms

relate to a particular state; only one survey (paid for on March

7, 1988l relates to any state other than Iowa and New Hampshire;

and given the dates associated with these charges, the focus group

billing of $4,200 has been included as an Iowa expense and the

undocumented payment of $4,500 has been included as a New

Hampshire expense pending the submission of additional

documentation. Total allocations for Tarrance and Associates are

$14,800 for Iowa and $16,390.24 for New Hampshire.

In response to the interim audit report, the

Committee reduced the amount of Tarrance, Hill, Newport & Ryan's
-33-

expenses allocated to Iowa and New Hampshire by $7,519.67 and

$11,580.33 respectively. In addition, the Committee reduced the

amount of Tarrance & Associates' expenses allocable to Iowa and

New Hampshire by $4,200 and $4,500 respectively.

The Committee's response consists of a one paqe

unsigned memorandum dated January 18, 1990, from Mr. Ed Goeas,

President, Tarrance & Associates. The memorandum states that the

"monthly retainer" (consulting fee) was to compensate Mr. Lance

Tarrance who was approached early on in the campaign to be a part

of Jack Kemp's overall strategy team beyond the traditional tole

of pollster. It states that there is no question that Mr.

Tar rance ' s r 0 lewas for the ,. b i 9 pic t u r e n rat her t han for the

specific battles going on in the early primary states.

The memorandum goes on to address the issue of the

focus groups. It states, that the focus groups were to help

develop the overall media for the campaign by testing reactions to

Jack Kemp on camera, potential campaign themes, and the impact of

the social security issue. It states further that the focus groups

were not conducted with voters in the early primary states.

The memorandum makes no mention of the $4,500

payment dated February 24, 1988, for which no documentation was

pro_viqed.

The Commission determined that the $4,200 payaent

for the "focus group" and the $19,100 in consulting fees are not

allocable expenses. Accordingly, the Audit Staff revised the

allocable amount to exclude the expenses. The Audit Staff#s

revised allocation amounts for Tarrance, Siil t Newport & Ryan are

$15,000 for Iowa and $23,100 for New Hampshire. The revised Iowa

allocation amount for Tarrance & Associates is $10,600. For New

Hampshire, the amount remains unchanged at $16,390.24.

8. Possible "Testing-the-Waters" Expenditures

Section 9034.4(a)(2) of Title 11 of the Code of rederal

Regulations states that even though incurred prior to the date an

individual becomes a candidate, payments made for the purpose of

determining whether an individual should become a candidate, such

as those incurred in conducting a poll, shall be considered

qualified campaign expenses if the individual subsequently becomes

a candidate and shall count against the candidate's limits under 2

u.s.c. 441a(b).

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

Regulations states, in part, that the term "expenditure" does not

include payments made solely for the purpose of determining

whether an individual should become a candidate. If the

individual subsequently becomes a candidate, the payments made are

subject to the reporting requirements of the Act. Such

expenditures must be reported with the first report filed by the
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principal campaign committee of the candidate, regardless of the

date the payments were made.

Section lOO.7(a} of Title 11 of the Code of Federal

Regulations 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 Federal office. The term ~anything of value" includes in-kin=

contributions ..

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

Federal Regulations states that affiliated committees include all

authorized committees of the same candidate and all committees

established, financed, maintained or controlled by the same

corporation, labor organization, person or group of persons.

The Commission conducted an audit of the Campaign for

Prosperity, a PAC with which the candidate was associated.

During the audit, a number of disbursements were

identified as possible "testing the waters" expenditures made on

behalf of Secretary Kemp's presidential campaign. The

questionable expenditures include reimbursement for expenses

incurred for travel to Iowa and New Hampshire by individuals who

we_re__ ~ubs_~q~ently involved in the presidential campaigns in those

states. For example, -a- -r-equest for --reimbuTs-eaent -by one -of---t-he--

individuals included a note in which the individual identifies

himself as a ·one man advance team". His expense report indicates

travel to Des Moines and Council Bluffs froa 11/24/86 through

11/26/86.*1 The purpose given is "Advance J~ Travel to Iowa". In

addition,-a limited number of payments were also made to Iowa or

New Hampshire vendors. For example, CFP paid a Holiday Inn in

Manchester, New Hampshire for lodging for Congress.an Keap and a

meeting rooa for a press conference held on 11/10/86. The audit

of CFP covered a period beqinning January 1, 1987.

In light of these kinds of activity, the Audit staff

reviewed the 1986 CFP disclosure reports and noted a similar

pattern of activity which appeared to be concentrated just prior

to the establishment of the Committee. However, the reports qive

no indication as to the destination of the travel. The Audit staf:

determined that a review of the records related to that activity

was necessary_

A request for the 1986 CFP records was made verbally

during and after the audit fieldwork. Initially, the Treasurer

appeared willing to comply with the request. He stated that he

would retrieve the records from storage. Subsequently, the

request was refused based on advice from the Committee's Counsel.

Counsel wanted the request for the records including specifics to

be made in writing.

~/ The Committee began its activity on November 24, 1986.
-35-

In a letter dated June 1, 1989, the Audit staff

requested that the Committee provide the 1986 CFP disbursement

records for review. The Committee's Counsel responded by Itatina

that the Audit staff failed to explain its legal basis for

requesting the records. His position appeared to depend on the

audit notification letter for the 2 U.S.C. 438(b) audit of CFP

which specified an audit period beginning January 1, 1987. Counse:

stated that without further legal justification, CFP would not

make the 1986 records available.

While it is true that the Audit notification letter for

CFP specified an audit period beginning January 1, 1987, it also

stated that certain records and other documents dated outside the

audit period may be requested if they relate to activity during

the audit period. In addition, the Audit staff's request cited

the Title 26 audit provisions as well as the candidate agreements

and definition of "qualified campalgn expenses".

Given the above, the Audit staff was of the 0plnlon tha:

a review of CFP 1986 disbursement records was necessary to

determine if any presidential campaign activity was conducted by

CFP.

The Treasurer of CFP is Mr. Scott Mackenzie.

In the inter im audi t report t the A-udi t staff --reclJJIJIendet

that the Committee provide the 1986 CFP disbursement records,

including copies of invoices, bank statements, canceled checks,

debit and credit advices and any other documents related to the

expenditures. The Committee was encouraged to provide any

explanation which it believed would clarify the nature of the

disburseaents.

In response to the interim audit report, the Coaaittee

objected to the request to provide the records. The Committee

submitted that the request exceeded the Audit staff's authority

under the Presidential Primary Matching Payment Fund Act, and the

Commission's regulations, and that the Committee had no obli9atio~

under provisions of the Act, the Candidate Agreement or the

Commission's regulations to provide the Audit staff with CFP

records. The Committee stated further that the Audit staff had

provided no legal basis for requesting the Committee to produce

the records from a separate multicandidate committee.

The Committee cited 11 eFR S9033.1(b)(S) which states i~

part that the candidate and the candidate's authorized committee

will keep and furnish to the Commission all documentation relatinc

to disbursements and receipts. The Committee stated that CFP wasnot an authorized committee of Jack Kemp, nor an affiliated

committee and its disbursements did not fall within the scope of

the audit provision of Title 26.
-36-

In a separate letter dated February 12, 1990, Counsel

for the Committee responded on behalf of CFP. That response alsc

objected to the request for 1986 CFP records.

On September 21, 1990 the Commission issued subpoenas t:

both the Committee and CFP which required the production of any

and all records, receipts and other documentation associated witt

disbursements made by Campaign for Prosperity (CFP) which relate

in any way to Iowa or New Hampshire from January 1, 1986 through

December 31, 1986, including:

1. Bank statements, canceled checks, debit and cr~dit

memoranda, invoices and accounting records, and

2~ All documents which relate to appearances made by

Congressman Jack Kemp in Iowa and New Hampshire which include but

are not limited to invitations, hand-outs, press releases, fliers.

transcripts, speeches and itineraries.

In response to the subpoena, the Committee submitted

copies of CFP documents which cover the period 1/1/86 through

12/31/86. The documents included copies of invoices, expense

reports, expense authorization requests, itineraries, and

contemporaneous memoranda which relate to either Iowa or New

B~mps~ire. Not included were bank statements, canceled checks,

invi tations, hand-outs, press releas-es,- -speeches- or t-r-a-n-seripts~

Caapaign for Prosperity./ registered with the Coaaissio:.

on April 22, 1976. A review of reported receipts, disburseaents

and year end cash on hand for each year from 1976 through 1988

indicates a significant increase in activity in 1986. A review of

1986 reported activity shows that only 7.4\ of CFP's disburseaents

were contributions to candidates, with more than a quarter of tha:

contributed to Iowa and New Hampshire candidates.

An analysis of 1986 reported activity indicated an

increase in receipts and disbursements for the reporting period

beginning September 1, 1986 through November 24, 1986.

Documentation submitted by the Committee suggests that the

Candidate and other CFP staff were engaged in various activities

during that time and earlier in the year which indicate the

existence of a "testing-the waters" campaign by CFP on behalf of

Jack Kemp for President:

~/ Campaign for Prosperity registered with the Commission in

1976 as the "Committee for Economic Strength." It changed

its name to "Committee to Rebuild American Incentive" in

1919 and to "Campaign for prosperity" in 1982. In 1988,

Campaign for prosperity changed to its current name,

"Campaign for a New Majority."
-37-

1 . Iowa

o During June, a CFP staff person incurred travel expenses

in TnWA to make advance arrangements for the Candidate who

apparently traveled to Iowa June 23, 1986. In addition, CFP

apparently had a local representative assisting ~lth the

arrangements. The expenses paid by CFP indicate that a luncheon

and press conference were held in Des Moines.

o In July, the Candidate again traveled t~ Iowa. The

trip, which took place from July 9, through July 11, 1986, b_qan

in Des Moines and included stops in A~es, Vinton, and Osage, IA

and then went on to Niles and Grand Rapids, MI. According to the

trip itinerary, the Candidate attended receptions, breakfasts,

dinners, and fundraisers for Iowa candidates. At the events the

Candidate gave remarks and made himself available to the press

including a live television interview~ In addition, the Candidate

made a bus trip from Des Moines to a park in Ames, IA. for an Ice

Cream Social at which he spoke. The itinerary fer the trip

indicates that two buses were used, one with "AHWAY PEOPLE" and

one with "RIGHT TO LIFE PEOPLE". The itinerary states that the

"EVENT SCHEME IS 'BUS-RIDE WITH JACR KEMP'"(emphasis in original).

Finally the itinerary notes that the Candidate would be available

to the press before boarding the bus and that a Des Moines media

person aay be on the trip, however no mention of any other --candidate i sllade.

o At the end of July, CFP staff incurred travel expenses

in Iowa apparently to advance the Candidate's trip of August 1st

and 2nd. This trip included stops in Des Moines, Sioux City,

Waterloo, Cedar Rapids, and Iowa City. The Candidate's itinerary

includes the following: Des Moines businessmen's breakfast, a

press conference to support Fred Grandy and to address

agricultural issues, Greater Sioux Land Cha.ber of Commerce

luncheon, meeting with "area politicos", interview with Waterloo

Courier, Blackhawk County Republican Leaders meeting, Shriners

cocktail reception, Blackhawk County Conservative Leaders meeting,

Iowa East/West High School Football Banquet, meeting with Linn

County GOP Leaders, interview with Cedar Rapids Gazette reporter,

Johnson and Cedar County Grassroots Workers meeting, and Johnson

County Ice Cream Social. The itinerary also notes that the press

was to be invited to a number of these events.

o In mid August a CFP staff person made a trip to Iowa and

the Candidate apparently visited Dubuque 10 days later. No

information about these trips was provided.

o In late September, two CFP staff persons incurred travel

expenses in Iowa from 9/15-9/24/86. Their travel included Des

Moines, Cedar Rapids, and Davenport. No indication is given as to

the purpose of the travel.
-38-

o In late October, it appears that the Candidate and

three others traveled to Des Moines to meet with the Polk County

Republican Party. Campaign For Prosperity paid for the

Candidate's lodging, however no information was provided about the

Candidate's transportation or the expenses of the other CFP staff

who apparently accompanied the Candidatew

o On November 25, 1986 the Candidate arrived in Des

Moines, IA where, according to an itinerary, he met with the IA

Farm Bureau Federation Executive Board, and the IA Association of

Business and !ndustry~ In additlon, he was interviewed by

reporters from the Des Moines Reglster, Keel TV/Radio, WHO Radio,

and the president of the Iowa Newspaper Association. He also

attended a "JR rally-dinner." The following day he continued with

an Iowa Resources (PAC) Luncheon and an interview with Tribune

Radio Network (40 affiliates in 5 states). It should be noted

that Jack Kemp for President reports its initial activity as

beginning on November 24, 1986t

The expenses related to the events discussed above tota:

$26,283.51 of which $7,714.16 would be allocable to the Iowa

spending limitation~ No attempt was made to apply the five day

rule at 11 eFR Sl06.2(b)(2)(iii) given that these individuals were

not employees of the Committee.

In addi tiOD to- the travel- and event- expenses n-oted--

above, available records document other miscellaneous expenses

related to Iowa. These total $2,251.40 for mailing lists, mailing

services, and related coping. These amounts would be allocable to

the Iowa spending limitation.

2. New Hampshire

o Between February and May, 1986, a CFP consultant

made at least two trips to New Hampshire. Expenses included

rental cars, lodging and subsistence, and in one case a meeting

room. Also in one case the Candidate appears to have been on the

same trip. The documentation provided does not establish the

purpose of this travel.

o In June, the Candidate attended an event in

Hampton, New Hampshire related to Congressional candidate Bob

Smith.

o In mid-September, CFP staff incurred travel

expenses to advance the Candidate's September 18th through 19th

trip to Keene and Newport, NH. According to the trip itinerary,

the Candidate attended a dinner for the Cheshire County Republican

Women's Club, the Cheshire County Republican Leadership Coffee

Hour, and a Sullivan County Republican Party Luncheon. In

addition, he was interviewed by at least three radio stations,

scheduled press availability at his hotel were television coverage

was expected, and met with reporters from the New York Times and
-39-

Time in route to the airport. A briefing memo attached to the

Candidate's itinerary makes the following observations with

respect to some of these activities:

"Cheshire County Republican women's Club Dinner h

"As you are probably aware there was some movement by

the Bush people to cancel the dinner. The Bush people claimed that

State Representative Helen Burley, who is the President of the

Cheshire County Women's Club, was going against the by-laws by

featuring a candidate for 1988 and shoWing favoritism in a

primary. Helen claimed that you are not a candidate, and are only

here to assist the Women's Republican Club in raising money."

Later the same section of the memorandum states:

"Most of the people in the room are uncommitted for 1988

and will be paying a great deal of attention to what you will be

saying- They will be looking for a strong upbeat Republican

speech with an overview of National issues."

"FRIDAY 9/19 SULLIVAN COUNTY REPUBLICAN LUNCHEON"

"Something that you need to be aware of is that

___'lJ~~:-:Pr_e_sJ_~en~ Bush is having a bi9 barb-b-que on Sunday and .cst

of the people in -ttie room -wfll -be -ifteridfng. -You-t -prese-ncat.i-on

will make a stron9 impression, and will still be fresh in their

minds when they see the Vice-President on Sunday."

o From October 5 throuqh 8 a CFP staff person

traveled to New Hampshire for the state convention as well as

vermont and Massachusetts political meetinqs. The travel records

indicate that boxes of printed material were shipped as part of

this trip. No further information was provided.

o On November 10, 1986, the Candidate and others

traveled to Manchester, New Hampshire where the Candidate

addressed New Hampshire Bar Association at A luncheon (SOO in

attendance) and held a press conference. No evidence was provided

to conclude that the Candidate's speech or subsequent press

conference was not a testing the waters activity.

The expenses identified relating to these events total

$4,264.34 of which $2,752.34 would be allocable to the New

Hampshire spending limitation.

In addition to the events and travel noted above, CFP

incurred miscellaneous expenses for New Hampshire totaling

$770.33. These expenses were for printing and mailing services.

The events discussed above indicate that CFP engAged in

activities in Iowa and New Hampshire during 1986 which may have

been for the purpose of advancing Congressman ~emp's candidacy for

the office of President. Associated expenses for Iowa total
.--~

-40-

$28,525.91 of which $9,965.56 is allocable to the Iowa spending

limitation. For New Hampshire the total would be $5,034.67 of

which $3,522.67 is allocable to the spending limitation.

The Commission discussed a similar issue with

respect to another 1988 Presidential candidate. In that case the

Commission concluded, that with limited exception, the number,

type, and amount of expenditures made by a poltical action

committee associated with that candidate for events in Iowa and

New Hampshire did not constitute testing the waters activity. The

activities funded by CFP described above were compared to those

considered in the earlier case. Based on that comparison, the

Audit staff concludes that the following events and disbursements

are testing the waters.

o The Candidate's trip to Des Moines on November

25, 1986 (associated costs - $688.20, all of which is allocable t~

the Iowa spending limitation);

o The Candidate's trip to New Hampshire in

September, 1986 <associated costs - $1592.87, of which $876.37 is

allocable to the New Hampshire spending limitation); and

o The Candidate's trip to Manchester, New

Hampshire on November 10, 1986 (associated costs - $211.19, all of

whlch- fs al-l-o-cable --to --the New Hampshi-re -spending -limi-tationl. _

The itineraries for these trips as well as a

briefing aeaorandua included in documentation submitted by the

Committee provide evidence that Congressman Keap was engaged in

testing the waters activities.

Therefore, the Audit staff concludes that expenses

assosciated with these events ($2,498.26) should be considered to

be in-kind contributions to Jack Remp for President Committee*/ and

the amount $688.20 is allocable to the Iowa spending limitation

and $1,093.56 is allocable to the New Haapshire spending

limitation.

9. Refunds and Rebates

The Committee reconstructed allocation figures for

Iowa contain an offset of $3,753.38. The Audit staff reviewed

these refunds and reduced the offset by a net amount of $1,123.04.

This reduction is the result of the Committee having included

refunds at their full amount when some payments to the various

vendors had been allocated to the expenditure limitation net of

compliance and fundraising exemptions or had required only partial

~/ CFP made no direct contributions to Jack Kemp for

president. The costs associated with the testing the

waters activity fall below CFP,s $5,000 contribution

limitation.
-41-

allocation to the state (i.e., intra- vs. inter-state telephone

service) and one refund received after the Committee prepared

their allocation figures.

In their response to the interim audit report, the

Committee shows refunds credited to Iowa of $7,958.59 and to New

Hampshire of S6,243.58. For Iowa, the refund list includes the

same items considered in the interim report plus additional items.

For New Hampshire, no offsets were included in the interim report.

Like the items discuss?-d in the interim audit

report, the Committee made no adjustment for refunds of

disbursements which were not charged to spending limitations at

their full amount fi.e., compliance and fundraising exemptions O~

overhead expenses and telephone refunds where a portion of the

payments to the vendor represent interstate long distance

service). The Audit staff adjusted the refund amounts

accordingly.

In addition, some of the refunds appear to relate

to expenditures which were not charged to the State spending

limitation and hence may not be credited to the limitation. For

another group of refunds, the committee submitted inadequate

documentation to allow a determination as to how the original

amount was charged. Included in this group are telephone refunds

where -the check copy submit-ted -does no-t identify an __ ~c~9~I!_t

number. Without an account number, there is no way to telf---towhich State the refunds should be credited. Also included are

refunds from the Committee's media firm. The response does not

include a copy of the refund check or how the Iowa and New

Hampshire amounts were determined. No adjustment has been aade

for these refunds.

The Audit staff has determined that a credit of

$3,746.46 should be allowed for Iowa refunds and a credit of

$1,140.18 for New Hampshire refunds.

10. Recap of Allocable Amounts

Presented below is a recap of amounts allocable to

the Iowa and New Hampshire spending limitations. Shown are the

Committee's original allocations, the revised allocations

contained in the response to the interim audit report, and the

Audit allocations.
-42-

Iowa

Committee's

original

Allocation

Committee's

Allocation

in Response to Audit Staff's

Interim Audit Report Allocat:on

Voter Contact Services 39,428.48

Long River Communications 39,821.00

Media

Personnel

Vendors

State Account

Travel

American Express

Chartered Aircraft

National Staff

National Staff payroll

Voter Contact

Bau9hton & Co.

Anne Stone' Assoc.

Pollin9

$275,727.37

107,761 .. 88

86,308 .. 93

11,543.73

3,489.38

10,000.00

17,351.63

7,678.21

65,943.81

57,150.57

10,000.00

$274,959.52

108,618 .. 43

120,176.20

11,543.73

1,664.50

-0-

9,034.42

5,415.15

37,815.92

39,821.00

67,243.12

55,545 .. 51

53,257.35

$276,23".52

l08,61S.43

142,195.09

15,23:.25

4,002.38

-0-

38,371.79

24,268.39

37,815.92

46,321.00

72,254.69

59,861.55

42,180.90

Tarrance & Assoc. 10,600.00

Tarrance, Hill, Newport 15,000.00

& Ryan

Testing-the-Waters -0-

Refunds (3,753.88)

Total Allocable Amount 754,051.11

Less Expenditure

Limitation (755,217.60)

Amount in Excess of the -0-

Spending Limitation

10,600.00

15,000.00

-0-

(7,958.59)

802,736.26

(175,217.60)

S 27,518.66

10,600.00

15,000.00

688.20

(3,746.46)

889,897.65

(77S,217.60)

114,680.05
-43-

New Hampshire

Committee's

Original

Allocation

Committee's

Allocation

in Response to Audit Staff's

Interim Audit Report Allocation

Media

Personnel

vendors

State Account

Travel

American Express

National Staff

National Staff payroll

Voter Contact

S153,568 .. 47

41,631.65

80,841.14

10,470.56

8,423.14

4,375.01

-0-

$160,359.00

39,392.31

92,982.18

10,730.95

670.00

14,250.06

3,119.06

167,189.65

39,317.15

112,335.00

10,730.95

8,423.14

14,250.06

3,119.06

Upper Valley Press

Voter Contact Services

Haughton (, Co.

Anne stone , Assoc.

Postage

Polling

51,789.00 51,189.00 51,789.00

-0- 15,548.40 15,548.40

16,676.55 10,693.61 13,334.64

37,599.44 36,316.47 38,982.90

20,455.73 20,455.73 20,4S5.73

Less Expenditure Liaitation (461,000.00)

Tarrance' Assoc.

Tarrance, Hill, Newport , Ryan

Testing- the -Waters

Refunds

Total Allocable Amount

Amount in Excess of the

Spending Limitation

11,890.24

23,100.00

-0-

-0-

460,820.93

-0-

11,890.24 16,390.24

23,100.00 23,100.00

-0- 1,093.56

(6,243.58) (1,140.18)

485,053.43 535,920.30

(461,000.00) (461,000 .. 00)

S 24,953.43 73,920.30
-44-

Recommendation IS

The Audit staff recommends that the Commission make an initial

determination that $60,258.69 ($114,680.05 + 73,920.30- 188,600.35

x .319502) be paid to the United States Treasury pursuant to 11

C.F.R. S9038.2(b)(2).

D. Stale Dated Committee Checks

Section 9038.6 of Title 11 of the Code of Federal

Regulations states that If the Commlttee has checks outstanding to

creditors or contributors that have not been cashed, the Committee

shall notify the Commission of its efforts to locate the payees,

if such efforts are necessary, and to encourage them 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 T'reasury ..

The Audit staff reconciled the Committee's reported

activity to its bank activity through August 31, 1988 and

determined that the total amount of outstanding checks was

$139,571.99. A review of the Committee's bank statements for the

period 9/1/88-9/30/88 indicated that outstanding checks in the

amount of $72,625.19 were paid during the period leaving a balance

of $66,946.80 in outstanding checks.

On March 9, 1989, the Committee presented additional

bank documentation for the period October 1, 1988 through February

28, 1989 which indicated that $7,291.02 of the outstanding checks

noted above cleared during that period. In addition, $16,629 in

checks written during the period September 1, 1988 through

February 28, 1989 remained outstanding at February 28, 1989,

leaving a balance in outstanding checks at that date of $76,284.78

($66,946.80 - $7,291.02 + $16,629.00).

In the interim audit report, the Audit staff recommended

that the Committee 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 negotiated

replacement checks); and

c) the Committee attempted to locate the payees to

encourage them to cash the outstanding checks.

The Committee's response to the interim audit

report did not address this finding.. However, in response to

other findings contained in the interim report, the Committee

submitted documentation for contribution refunds made through

9/20/89. The Audit staff used this information to determine a
-45-

revised outstanding check amount for the Committee's contributio~

account. The Committee submitted no documentation which would

allow the Audit staff to revise the total for outstanding checks

from other Committee accounts.

Based on the available information, the Audit staf:

determined that as of 10/30/89, the total amount of outstanding

checks is S126.810.66.

It should be noted that the Audit staff reviewed

the Committee's disclosure reports for the period 7/1/89 - 9/30/E;

and identified $51,288.38 in stale-dated checks which were

replaced with other Committee checks. Should the Committee

present copies of the neqotiated replacement checks, the total

amount of outstanding checks will be revised accordingly.

Recommendation #6

The Audit staff recommends that the Commission make an

initial determination that $126,810.66 be paid to the United

States Treasury pursuant to 11 C.F.R. 9038.6.

E. Requests for Additional Information

Section 9033.1(b)(S) of Title 11 of the Code of Federal

Regula-ti'oris -state-s-;- --tn--pa-rt-,----th-at- --the---candi-da-t.-e--and--the

candidate's authorized coaaittee(sl will keep and furnish to the

Commission all documentation relating to disburseaents and

receipts including any books, records (including bank records for

all accounts), all docuaentation required by this section

including those required to be maintained under 11 c.r.R. S9033.::

and other information that the Commission may request.

In addition, Section 106.2(a)(1) states that unless

specifically exeapt, all qualified caapaign expenses made for the

purpose of influencinq the nomination of a candidate with respec~

to a particular state aust be allocated to that state and subjec:

to the state expenditure limitation.

1. Collateral Material Shipped to States

The Audit staff included in the a.aunts allocable

to the states of Iowa and New Hampshire, payments to United Parcel

Services (UPS) for shipments of campaign materials to Iowa and New

Hampshire (Iowa $1,802.19; New Hampshire $1,275.52). However, t~e

Audit staff was unable to associate the shipping costs with the

cost of the materials shipped. These shipping costs suggest tha:

the cost of these campaign materials may be allocable to state

expenditure limitations.

The Committee was provided with copies of documen~s

from the UPS vendor file which may indicate additional allocable

amounts.
c

-46-

The interim audit report recommended that the

Committee provide information to permit shipping costs to be

associated with the cost of the materials shipped.

In their response to the interim audit report, the

Committee states that they find the request unreasonable. They 9:

on to say that their records do not associate material shipped

with the shipping costs and that the person responsible does not

recall the nature of the material shipped.

Finally, the response contends that the Audit staf:

has not shown any need for the information requested or that the

shipping costs cannot reasonably be explained as the consequence

of shipping the amount of campai9n materials now allocated.

The reason for the request is clear. The shipping

charges relate to Iowa and New Hampshire where the Committee has

exceeded the spending limitations. Without any record as to

material shipped, establishing with any certainty that current

allocations are adequate to explain the shipping costs is not

possible and thus the request.

It is noted that the Committee's computerized

disbursement system shows the purchase of $75,710.77 in collateral ____ ~at:'_~Aals.None are coded for allocation to any state. The Audit

report has included $10; ra9 .-lloftnisamount in Iowa -and--New

Hampshire, however, $4,318.90 of that amount was shipped to those

states by the vendor and therefore, no shipping charges for this

material is included in the shipping costs questioned. The

re.aining $65,521.66 in purchases of collateral materials re.ains

with no indication in the Committee's data base of any State

allocation. Similarly, the Committee's computer system under

Printing and Stationery includes $87,554810 excluding expense

reimburseaents, purchases described as office supplies, for8s

printing, and purchases from vendors where the allocation is to

the same state as the vendors' address. The amount coded or

otherwise allocated to any state is $1,648.65 leaving $85,905.45

in printing not coded to any State. The amount is coded to the

administration cost center.

Though the Audit staff can accept the Committee's

representation that they are unable to associate shipping costs

with the material shipped, the question posed by the interia audit

report remains unresolved. As a result, the Audit staff is also

unable to determine a dollar amount of any potential State

allocation. It would therefore appear that Committee records are

not adequate to allow Committee allocations to be verified.

Recommendation 17

Based on the fact that the Committee and Audit Staff agree

that there is no available documentation which could be used to

allocate the costs of the materials shipped, and the absence of
-47-

specific regulatory requirements, the Audit Staff recommends no

further action on the matter.

2. Printing Costs Associated ~ith Postage Expenses

Similar to United Parcel Service discussed above,

the Audit staff identified payments to the United States Postal

Service which indicate that maiiings were made to Iowa and New

Hampshire. In some cases the post offices receiving the payments

were in either Iowa or New Hampshire and in other cases the post

offices were in the Washington metropolitan area. The postage

costs have been allocated to Iowa and New Hampshire. However, in

many cases the cost of the mailings cannot be associated with the

postage expense to determine if the proper allocation of printing

and other costs have been made.

At the exit conference the Committee was provided a

list showing the check number and date of the payments. These

payments total $41,284.87 for Iowa and $19,493.73 for New

Hampshire.

During the analysis of the Committee's response to

Finding II. D.6.e. (Postage) of the interim audit report, it was

noted that the postage allocation should be reduced by $11,076.45.

A_ j;i.i_l~J rE!_Q~ct_~on should be made here leaving the Iowa aaount at

$30,208.42 and the New- a-aapshi fe-- --am-chlnt- -unctran-qed--at$l't,-4-~ .-13-.---

In the interim audit report, it was recommended

that the Committee provide documentation establishing the costs

associated with these postaqe expenses and that such docuaentatior.

should contain sufficient detail to permit a determination as to

the need for allocation to a state.

In their response to the interim audit report, the

Committee states that in their opinion, the request is

unreasonable. The response goes on to say that "JKFP's expense

records do not, in most cases, relate postage expenses to the

materials sailed. Some of the post offices that received payaents

for postage were located in Iowa or New Hampshire and some vere

located in Washington, DC. Postage expenses incurred at post

offices in Iowa and New Hampshire included any number of it.as

including payment of rent, utility bills, responses to inquiries

and flyers, circulars, and letters produced by the in-house

printing and duplicating capacity of the local offices. To

require JKFP to try to reconstruct this information now fro.

non-documentary sources, long after the event, would impose a very

substantial, if not impossible, burden on the committee.

"Moreover, the Audit staff has not shown any need

for the information it has requested. It has not shown, or even

pointed to any evidence tending to show, that the amount of

printing and other costs associated with mailings that are

presently allocated to Iowa and New Hampshire, plus the ordinary

and usual business mailings of the Iowa and New Hampshire offices,
-48-

would not justify the amount of the postage expenses the Audit

staff has now allocated to Iowa and New Hampshire.

"JKFP has reviewed the records of its alloCltion of

printing and other costs associated with mailings to Iowa and New

Hampshire, which show that the costs now allocated to those States

are fully consistent with the amount of postal expenses new

allocated by the Audit Division to Iowa and New Hampshire."

The Audit staff believes that the need for the

requested information is obvious. The postage costs relate to

mailings to Iowa and New Hampshire. The Committee has exceeded

the spending limitation in both States and as the interim audit

report recommendation states, the response should contain

sufficient detail to permit a determination as to the need for

allocation to States.

The Committee also notes that the postage paid to

Post Offices in the States may relate to mailing of items produced

in State offices as well as normal business correspondence. The

staff acknowledges that some postage may have been so used.

However, it is also noted that the Committee maintained checking

accounts in both Iowa and New Hampshire and no amounts paid for

postage from these local accounts is included in the postage costs

gu~s_tjoned. __Thou_9h_ i!"l N_e~ ~allp~~ire__ such payments aaount _to only $106.28, in Iowa where the questioned amciu-rif- -was---Ia-ige-st-, -tffe- - local postage expenses were $2,703.60. Also, the interim audit

report figures do not include reimburseaents to individuals in the

states for postage. In the Committee's coaputer file, under the

heading of political mail, is a reimbursement to an individual in

New Haapshire for $1,500.00.

The Audit staff also reviewed the transactions

included in the Coaaittee's computer system and coded ·political

Mail", the sa.e coding as the majority of the postage charges in

question. After deleting payments to the postaaster, expense

reimburse.ents, list rental, computer services and other expenses

which did not appear to directly relate to cost of material

mailed. the total was $444,880.68. Of this a.ount, $235,891.43

was allocated by Audit or the Committee to Iowa and New Haapshire

and $57,023.84 to all other states. Of the Iowa and New Baapshire

amount, $62,891.43 was paid for postage to various vendors other

than the post office and $45,468.69 was paid to a vendor for

various work, much of which appears to be computer services rather

than the actual preparation of material for mailin9.

The remaining $152,639.23 is not allocated to any

state. According to the Committee's computer file only $4,346.50

of this amount, is for postage. Thus, $148,292.13 in political

mail costs remain which are not associated to any state.

Also relevant to the analysis may be a portion,

$85,903.45, in printing and stationery costs not coded to any

state discussed in Section 2 above.
-49-

Although the Audit staff can accept that in most

cases Committee records do not relate postage expense to materia:s

mailed, the queation raised in the interim audit report remains

unresolved. As a result, the Audit staff is unable to determine

the dollar amount of any potential State allocation.

Finally, the Committee states that it has reviewe:

its allocations of printin9 and other costs associated with

mailing to Iowa and New Hampshire and concludes that the

allocations to those States are fully consistent with the amount

of postal expense now allocated. However, nothing to support th:~

conclusion or any analysis was submitted with the response.

Recommendation 18

Based on the fact that the Committee and Audit Staff agree

that there is no available documentation which could be used to

allocate the costs of the materials mailed, and the absence of

specific regulatory requirements, the Audit Staff recommends no

further action on the matter.

3. Payment to Thomas Kemp

The Audit staff noted that Mr. Thomas ~e.p receive:

a payment -froa--fhe--Co..-itt-ee ---tn---the---allount of -$5-,-6-5-2.-45-- on---J-une ~,

1988. The Coaaittee presented no documentation in support of the

payment to Mr. ~e.p nor vas any portion of it allocated to either

Iowa or New Baapshire. The Audit staff noted that for a period c:

time im.ediately preceding the New Haapshire priaary, Mr. Keap

incurred Iowa and New Hampshire allocable expenses for which he

was reimbursed on June 15, 1988. Based on this information, the

Audit staff believes that the amount of $5,652.45 or a portion

thereof may be allocable to Iowa and/or New Haapshire.

In the interim audit report, the Audit staff

recommended that the Committee provide documentation in support c:

the $5,652.45 payment. In response , the Committee subaitted a

statement si9ned by the Committee Treasurer which states that the

committee received and paid an invoice from Mr. Thomas leap for

general secretarial services provided to Mr. Reap in California

with respect to campaign-related matters.

In the Audit staff's opinion the Committee had not

complied with th~ recommendation of the interim report since the

statement prOVided by the Committee was not sufficient for making

a determination as to whether any amount of the $5652.45 payment

is allocable to Iowa or New Hampshire and a copy of the invoice

referenced in the statement was not included in the response.

Therefore, on September 21, 1990 the Commission

issued a subpoena which required that the Committee provide copie~

of all records, receipts and other documentation pertaining to the
-50-

services provided by Thomas Kemp for which he received payments O~

June 2 and 15, 1988.

In response to the subpoena, the Committee

submitted an expense report from T. P. Kemp which detaiis the

billing time spent by Thomas Kemp's secretary on the Jack Kemp for

President camDaian. The expense reoort <dated 1/27/88) covers the

the period April-198? through December 1967 and indicates that 343

hours were billed at $16.00 per hour ($5,488.00) plus $164.45 for

postage. Though a small portion of the billing indicates that it

is Iowa related and possibly allocable, the amount is immat.ri8l~

Recommendation I 9

The Audit staff recommends no further action on this matter.

4. Decoy House Real Estate

The Committee's allocations to New Hampshire include a

$250 payment to Decoy House Real Estate. According to a document

in the Committee's file, the payment was related to the rental of

a house in New Hampshire for 6 weeks at a cost of $125.00 per

week. The payment, which was subsequently voided, was dated

12/28/87. The file contained no other documentation with re9ard

to--t.he--- house. ---

Presumably, the house was to lodqe campaign workers

during the weeks preceding the New Hampshire pri••ry. If the

house was used for such purpose, the rental cost and any expenses

associated with its use (such as utilities, telephone, furniture

rental, etc.) may be allocable to New Hampshire as well as any

previously unallocated personal expenses of the caapaiqn staff

lodged there.

In the interim audit report, the Audit staff recommended

that the Co.-ittee provide information vith respect to the house

rental, including but not limited to: the tim. period the bouse

was used by the campaign, any costs associated with its use and

the number of people lodged there along with the time periods they

were lodged.

In response to the interim audit report, the Committee

submitted an affidavit prepared by the Committee Treasurer and

signed by an agent of Decoy House Real Estate which attests to the

following: 1) The agent was responsible for leasing a house to

the Committee. 2) The term of the lease agreement was six weeks

at a rate of $125 per week. 3) The Committee paid $250 for the

first two weeks and at the conclusion of that period terminated

the agreement because the house was too far away from the Campaign

Office.

In addition, the Committee states that the check making

the initial payment was subsequently voided and believed to be
-52-

Kemp/Dannemeyer Committee was provided with a schedule of the

contributions at the exit conference.

The Audit staff found evidence of neither separate account

for the deposit of contributions which were possibly excessive or

prohibited, nor a method to monitor an amount required to be kept

in RID'S accounts while the acceptability determination was being

made.

The Audit staff recommended that the Kemp/Oannemeyer

Committee submit evidence demonstrating that the remaining

contribution was not received from a corporation, or refund the

remaining corporate contribution and present evidence of the

refund (copy of the front and back of the negotiated refund

check) .

In response to the recommendation, the Committee submitted ar.

undated letter from the contributor stating that the contribution

represented his personal funds and the account on which the

contribution is drawn is not maintained or controlled by an

incorporated entity. As a result, a conflict exists between the

information submitted by the contributor and information obtained

from the Secretary of State of California.

Recommendation III

Generally, the Audit staff depends upon the inforaation

obtained froa the independent party and considers the state.ent

fro. the contributor to be a mitigating factor. However, qiven

the small nuaber and amount of the contributions in question the

Audit staff recommends no further action with regard to this

matter.

v. victory '88 - Audit Findings and Recoaaendations

Matters Referred to the Office of General Counsel

Other .atters noted during the audit have been referred to

the Comaission's Office of General Counsel.
C)

-51-

reissued. However, a copy of that check has not been located anc

may not have been issued~

In light of the information supplied and the small

amount of the payment involved, the Audit staff accepts the

Committee's explanation.

Recommendation 110

The Audit staff recommends no further action in this matter.

IV. The Kemp/Dannemeyer Committee - Audit Findings and

Recommendations

Prohibited Contributions

Under Section 441b(a) of Title 2 of the United States Code,

it is unlawful for any corporation to make a contribution or

expenditure in connection with any election at which presidentia:

and vice presidential electors or a Senator or Representative in,

or a Delegate or Resident Commissioner to, Con9ress are to be

voted for, or in connection with any primary election or politica:

convention or caucus held to select candidates for any of the

forgoing offices, or for any candidate, political coaaittee or

othe t -per-son -itnowi~ly--- to---ac-ceptorr-eee-ive-any_cQn_tributton _ prohibited by this section.

Section l03.3(b)(1) states that, contributions that present

genuine questions as to whether they were aade by corporations aay

be, within ten days of the Treasurer's receipt, either deposited

into a campaign depository or returned to the contributor. If any

such contribution is deposited, the Treasurer shall .ake his or

her best efforts to deter.ine the legality of the contribution.

If the contribution cannot be deterained to be 1e9a1, the

Treasurer shall, within thirty days of the Treasurer's reeeipt of

the contribution, refund the contribution to the contributor.

Section l03.3(b)(4) states that any contribution which

appears to be illegal and which is deposited into a caapaign

depository shall not be used for any disbursements by the

political committee until the contribution has been deterained to

be legal. The political committee must either establish a

separate account in a campaign depository for such contributions

or maintain sufficient funds to make all such refunds.

During the period audited, KID received two contributions

from two corporations totaling $750.00*/. One of the contributio~s

for $500 was refunded seven months after its receipt. The

*/ The Audit staff contacted the appropriate Secretary of

State's office to verify the corporate status of the two

entities.
BErORE THE FEDERAL ELECTION COMMISSION

In the Matter of

Congressman Jack Remp

and the Jack Kemp for

President Committee,

Final Repayment Determination

STATEMENT OF REASONS

Cn June 11, :392, ~~e :~mmlSSlon made a final determination

that Congressman Jack Kemp and the Jack Kemp for President

Committee, Inc. (the "COmmlttee a ) must repay 5103,555.03 to the

United States Treasury. This repayment represents repayment

determinations in the amount of: tl) $54,253.13, the pro rata

amount of expenditures in excess of the state expenditure

checks. Therefore, the Committee is ordered to repay this

amount within 30 days cf ~~ceipt cf this determination pursuant

to 11 C.F.R. S 9038.2(d)(Z). ~his Statement sets forth the

legal and factual basls for the Commission's determination in

accordance with 11 C.F.R. § 9038.:(c)(4).!1

I • BACKGROUND

~he Jack Kemp for ?:esldent C=mmittee (the "Committee") is

the principal campaign ccmmlt:ee cf Congressman Jack Kemp, a

candidate for the Republican presldential nomination in 1988.

On July 25, 1991, the CommlSSlon made an initial determination

1/ Throughout the Statement of ~easons, "FECA" refers to the

Federal Election Campalgn Act of :971, as amended, 2 u.s.c.

5§ 431-455, and "Matching Payment Act" refers to the

Presidential Primary Matching Payment Account Act, 26 u.s.c.

55 9031-9042.
--,

-2-

that the Committee repay $187,069.35 to the United States

Treasury. This repayment represented determinations in the

amount of: (1) $60,258.69 for expenditures in excess of the

state limitations; and (2) S126,810.66 for stale-dated Committee

checks. The issues relevant to the repayment determination

fi~st arose in the :nteri~ Audit Report on the :ack Kemp for

?r~sldent Ccmmit~ee, and the Kemp/Dannemeyer and Victory '98

Joint Fundraising Commlttees (the "Committees") which was

approved on August 25, 1989. Attachment 1. The Committees

responded to the Interim Audit Report on February 7, 1990.

Attachment 2.

On September 18, 1990 1 the Commission authorized the

issuance of subpoenas to the Committee and other entities

concerning possible testing the waters expenditures by Caapai9n

for Prosperity ("CFP"), and certain Coaaittee expenditures. On

October 12, 1990, counsel to the Kemp Committee and CFP

submitted motions to quash the subpoenas. The Comaission denied

the motion to quash the subpoenas on October 31, 1990. The

Off:ce of General Counsel received and forwarded to the Audit

Division the last of the responses to the subpoenas on

December 18, 1990.

The Commisslon issued the Final Audit Report on July 25,

1991. Attachment 3. The Commlttee submitted its response to
-3-

the Final Audit Report on November 1, 1991.~/ Attachment 4.

In its response, the Committee requested the opportunity to

address the Commission in open session reqardinq the Final Audit

Report and the initial ~epayment determination. On November 21,

1991, the Commission granted the Committee's request for an oral

pr~sentat~on. Counsel :~~ ~~e Commlt~ee made an oral

presentat~~n before ~he C=mm~SSlC~ ~n ~ecember 10, 1991.

Attachment 5. The Commlt:ee submlt~ed additional information on

December 23, 1991. Attachment 6. The Commission's Audit

Divlsion submitted memoranda concerning the Committee's

responses to the Office of General Counsel on December 5, 1991,

January 8, 1992, and March 30, 1992. Attachments 7, 8, and 9.

___ I~. EXPENDITURES IN EXCESS OF THE STATB LIJIIITATIOHS

The fECA establishes state expenditure limitations for

candidates seeking the presidential no.ination who receive

public financin9_ 2 u.s.c. S 441a\b)(1){A). The Coaaission's

regulations, at 11 C.F.R. S l06.Z~ govern the allocation of

expenditures by publicly-financed primary candidates to

particular states. Generally, expenditures incurred by a

~andidate's authorized ccmmit~ee f~r the purpose of influencing

the nomination of that ~andldate with respect to a particular

state must be allocated to that state on a reasonable basis.

11 C.F.R. S l06.2(a)(1).

2/ On August 21, 1991, the C~mmlSSlon granted the

Committees an extension of tl~e until October 15, 1991 to

respond to the inltial repayment determination. The

Comm1ssion granted a second ex~enSlon of time, until

November 1, 1991, to the Commlttees on October 17, 1991.
-4-

The Final Audit Report included a number of findinqs

concerninq the allocation of expenditures to the Committee'.

Iowa and New Hampshire state expenditure limitations. The Iowa

state expenditure limitation for the 1988 election was

$775,217.60 and the New Hampshire state expenditure limitation

~as S461,JOC. ~he C~mml:tee ex=eeded its r~wa state expenditure

:i~ltaticn by Sl:~,580.:5 and ~ts ~ew Hampshlre state

expenditure limitation by $73,920430. The Commlttee's repayment

ratio for non-qualified campaign expenses is 31.9502\.

Therefore, the Commission made an initial determination that the

Committee must repay $60,258.69, a pro rata portion of

$188,600.35, the total amount of expenditures in excess of the

state limitations. 26 u.s.c. S 9038(b){2) and 11 C.F.R.

§ 9038.2(b)(2).

The Committee contests the allocation of the following

ca~e90ries of expenses to the state expenditure limitations:

tl~ apparent Sl,OOO mathematical overstatement; (2l media

allocations and refunds; (3) travel expenses - press

:eimbursements: (4) American Express: (5) voter contact

services: (El postage; fil polling; (8) refunds and rebates; and

;9) testing the waters expenditures.

A. MATHEMATICAL OVERSTATEMENT

The Committee states that ~he Final Audit Report includes a

$1,000 mathematical overstatement of the total amount allocable

~o the New Hampshire state expenditure limltation. The

Commlssion notes that the Final Audit Report contains a

typographical error on page 43. The total figure in the column
-5-

labeled ~Audit Staff's Allocation" should be $534,920.30, rather

than $535,920.30. While the printed total was incorrect, the

correct amount was used to calculate the amount in excess of the

limltatioo, 573,920.30. Attachment 1, page 1. Therefore, no

adjustment is necessary.

B. MEDIA ALLOCATION AND REFUNDS

The C=mmlt:ee lncurred ex~enses related to radio time on 2:

radio stations allocable t~ the New Hampshire-state expenditure

li~itation. In response t~ the Final Audit Report, the

C~mmittee proposes a $1,499.53 reduction in the allocation of

radio time to New Hampshire. The Committee's reduction is based

on allocations calculated ~ith percentages for New Hampshire

___ ~~y~_ra9_e_ taken from the Arbi t :-on 1989 Edi tion of Radio County

Coverage Reference Report (1989 Edition), which contains data

collected for 1988. This publication breaks down the listening

audience of particular stations by county and makes it possible

to determine the percentage cf listeners who reside in a

particular state. The Cc~mlttee's allocation of expenses for 12

of the radio stations dif~ers from the Commission's Audit

staff's allocation. The Commlttee used larger percentages for

five stations, and smaller percentages for the remaining seven

stations. In part, the allocatlons differ because the Audit

staff used the 1987 edition, the edition available when the

radio buys ~ere made, to allocate radio time. Moreover, the

Commlttee ~as unable to f:nd percentages listed for one AM

station, and used data fr=~ a sister FM station. According to
-6-

an Arbitron representative, data on AM and FM stations differs

because station coverage differs.

The Commission concludes that the Committee's use of the

1989 edition is inappropriate. The data for this edition had

not been compiled when the radio time was purchased. The

t:~e ~ased en the i~d~st:1 da~a ~h::h was avallable when the

ti~e ~as purchased. ~oreover, it does not appear that the

Committee consistently used the 1989 edition to allocate radio

time 1n all states, because It has not proposed any change to

the allocation of radio time in Iowa. In addition, AM and FM

data are not interchangeable, and thus, the Committee's use of

fK---s-tation da_ta_ to_ c_alculJlte t}'1~ a~location percent~_9_e for an AM

station is unacceptable. Therefore, the Commission has not

revlsed the allocation of ~ew Hampshire radio time.

c. TRAVEL EXPENSES - PRESS REIMBURSEREHTS

In response to the Final Audit Report, the Committee

contends that the New Hampshi:e allocations should be adjusted

to account for press reimbursements to the Committee for ground

transportation. box lunches and telephone service which the

Commlttee provided to the press Nne traveled with the

candidate.3/ The Committee cilled the press 150\ of a first

il To support its argument, :he :=mmlttee submitted

Commlttee generated schedules of p~ess reimbursements

recelved that detall the dates, ~r:oinatiens, destinations,

and amounts billed for each t~:p :eg. The trips are

categoclzed as intrastate ar :~terstate. The Committee also

submltted copies of involces to ~ews agencies and checks

received.
-7-

class ticket, which it contends did not exceed the pro rata

share of the actual cost, and assigned two thirds of that amount

to the cost of the flight, and one third to ground

transportatIon costs~ The Committee contends that it incurred

one half of its ground related costs at the point of departure,

and the ~the: hal: at t~e ~~:~~ ~f ~rrival~ The Committee

calculated that "for each one ~cur :eg !or ~hich reimbursement

had been received, 16~S\ per tour leg should ce deductible from

the allocable expenditures." Attachment 4, page 2. Therefore,

the Committee deduc:ed 33\ of all press reimbursements for

intrastate flights and 16.5\ for all interstate flights relating

to Iowa and New Hampshire, resulting in a reduction of $3,772.25

allocable to New Hampshire. The Committee's proposed reduction

is a new argument. The allocation of media transportation costs

to the state expenditure limitations was not at issue in the

Interim and Final Audit Reports.

The Commission rejects the Committee's proposed allocation

of these expenditures. The Committee has not documented which

specific expenditures in Iowa and ~ev Hampshire were related to

media travel, but bases its calc~lations on percentages of the

amount charged to the media. There is no factual basis for the

Commlttee'S proposed allocatlcn percentages. Koreover, it is

doubtful whether any of the amount charged to the media has been

allocated to the state expenditure limitations. Transportation

and services made available to ~edia personnel are generally

exempt from allocation to the state expenditure limitations. 11
-8-

C.F.R. S l06.2(c). Based on the available documentation, the

Audit staff is unable to accurately allocate the media

transportation costs to the state expenditure limitations.

Since the Committee has provlded no documentation to support

this deduction, the allocation of these expenditures remains

unchanged.

D. .~ERlCAN EXPRESS

The Committee original:y allocated Ameriean Express charges

of 53,489.38 to Iowa and $8,423.14 to New Hampshire. In the

Interim Audit Report, the Audit Division accepted the

CommIttee'S allocation for ~ew Hampshire and increased the Iowa

allocation by S513 to $4,002.38. In response to the Interim

Audit Report, the Committee argued that the amount allocable to

Iowa should be reduced t~ $1,564.50 and that the amount

allocable to New Hampshire should be reduced to $610. Bowever,

the Audit Division's allocation of these expenditures re.ained

the same in the Final Audit ~eport as it had been in the Interim

Audit Report. In response to the Final Audit Report, the

CommIttee again :evises its allocations and proposes reducin9

the figures to 51,570.87 in Iowa and $763.60 in New Haapshire,

based on charges for travel and subsistence expenses for the

candidate and his traveling companlons. The Committee contends

that these persons did not :emaln in Iowa or New Hampshire for

five or more consecutive days. The Committee submitted

documentation including credit card receipts, hotel bills, and

the candidate'S itinerary. :he documentation reveals that the

candidate did not remain in the states for five or more days.
-9-

Therefore. the Commission has reduced the amount of American

Express charges allocated to Iowa to $3,974.18, and to New

Haapshire to 55,242.68. The Commission made no further

reductions to the allocable amounts because the documentation

indicated that members of the candidate's traveling party

re~ained in the states ~~r fi~e =r ~ore =cnsecutive days~

E. VOTER CONTACT SERVICES - ANNE STONE' ASSOCIATES

the Committee engaged Anne Stone & Associates ("ASA") to do

direct mailing services. The Committee originally allocated

S57,150.57 in payments to ASA to Iowa and $37,599.44 to New

Hampshire. In the Interim Audit Report, the Audit staff

allocated additional amounts for payments to ASA totaling

___ $_~~._895~87 in 19wa and ~41,610.12 in New Hampshir_e, inc~u~!nCJ a

$2.500 cancellation fee. In its response to the Interia Audit

Report, the Committee contended that certain expenditures were

exempt fro. allocation as fundraising. and that the cancellation

fee was not allocable to the state expenditure liaitations.

Based on the Committee's response, the Audit staff revised

the allocations in the Final ~udit Report to 559,861.55 for Iowa

and $38,982.90 for New Hampshire. However, the Audit staff

rejected the Commlttee'S argument that the cost of two direct

mail pieces entitled "Differences" sent to Iowa and New

Hampshire were exempt fundraislng expenses. The Audit staff

noted that the Commlttee did not submlt a copy of the

"Differences" pieces or other documentation of a fundraising

message. Moreover, the order ~ate of the New Hampshire piece

was within 28 days prior to the ~ew Hampshire primary and, thus,
-10-

it could not be exe.pted as a fundraisin9 expense. 11 C.P.R.

SlOO.8(b)(21)(iii). The Audit staff also included the

cancellation fee as an allocable expenditure.

In response to the Final Audit Report, the Committee

proposes a deduction of 52,666.44 from the New Hampshire state

expenditure liml~ation and 54,316.03 from the Iewa allocation.

based on the cancellation !ee and the two "Differences" pieces.

The Committee contends that the packages entitled ~Differences"

~ere exempt fundraising appeals. The Committee states that its

"Final Blue Book ~aillng Report", which reflects the results of

direct mail fundraising, lists the "Differences" packages, and

the quantities listed match the amount in the invoices for the

"Oi ffe rencesIt pieces. At tachment 4, page 4. The Coaai ttee

contends that the Audit staff has relied on invoice dates rather

than the dates that the orders ~ere placed or the .ailings

occurred. The mailings occurred on "Oecember 4, 7, and 15, 1987

and January 3, 1987 (sic) which are more than 28 days before the

~ew Hampshire Pri~ary and, thus, the costs of the .ailings fall

~ithin the fundralsing exemption." Id. The Co.-ittee further

contends that the postage expenses associated with the aailings

should not be allocable to the states. On December 23, 1991,

the Commlttee 5ubmltted a sample of one of the three

"Oifferences" pieces. The letter contains an explicit

fundraising solicltation: "! need your help~. Please send

your check today for whatever you feel you can afford." The

Committee contends that "all three mallings were similar in
-11-

nature and were fundraising solicitations.-

Based on the documentation submitted by

Attachaent 6,

the Comaittee, the

Commission has reduced the allocation of expenditures to Iowa by

52,620.38. The "Differences" piece contains an overt

fundralsing solicltation, and ~he order date for the piece,

~ecember :3, 1987, ~as more t~an 28 days before the Iowa caucus.

11 C.F.R. S lOO.8(b}(21). However, the Commission has not

reduced the allocation of expenditures to New Hampshire. While

the "Differencesrt piece was fundraising in nature, the invoices

indicate a "Date of Order", of January 25, 1988, within 28 days

of the New Hampshire primary. There is insufficient

documentation to establish when the pieces were actually sailed

in New Hampshire. While mailing dates listed in -tjie- Cc.\I••lttei~js-

"Final Blue Book Mailing Report" conflict with the order date on

the invoice, the Committee has provided no documentation to

support its assertion that the "Final Blue Book Mailing Report"

accurately reflects the mal ling dates.

Moreover, the Commission does not accept the Coaaittee's

contention that the cancellatlon fee is not allocable to the

state expenditure limitations. The original order vas made to

influence the Iowa and New Hampshire prlmaries and all

associated costs are allocable to the state expenditure

limitations. The cancellation fee is a cost incurred in

connection with the Commlttee's agreement with ASA. As such, it

is also allocable to the state limltations. The Commission has

not revised the allocation ot ~his amount.
-12-

r. POSTAGE

The Committee did not contest the allocation of postage

expenditures totaling $53,25i.35 to Iowa and $20,455.73 to New

Hampshire in its response to the Interim Audit report. However,

in response to the Final Audit Report, the Committee proposes a

51,578.68 reduction in t~e all~cation of postage expenditures to

I~wa. The Committee contends that certain postage expenses were

entirely or partially unrelated to Iowa, and that no checks

exist to prove that other postage expenses were incurred. The

Committee submitted additional documentation concerning the

postage expenditures, including a listing of checks paid to the

United States Postmaster. Based on its review of the

documentation submitted by the Committee, the Commission has

revised the postage allocation for Iowa to $41,538.42, a

reduction of $936.20.

G. POLLING

The Final Audit Report allocated pollin9 expenditures paid

~o Tarrance and Associates totaling $16,390.24 to the New

Hampshire state expenditure limitations, includin9 a $4,500

payment for ~hich no documentation was available. Since

documentation for the payment had not been provided, the

Commission's Audit staff based the allocation on the date of the

payment and the fact that most of the other invoices to the firm

were related to Io~a or ~ew Hampshire. In response to the Final

Audit Report, the Committee submitted an invoice which indicates

that the payment ~as for a sur~ey conducted in South Carolina.

Therefore, the Commlssion has reduced the amount of Tarrance and
-13-

Associates expenditures alloeable to the New Hampshire state

expenditure liaitation to $11,890.24.

R. REFUNDS AND REBATES

The Final Audit Report included credits for refunds

totaling $1,140.18 in New Hampshire and $3,746.46 in Iowa. In

response to the Final Audit Report. the Committee proposes

credits for refunds totaling 55,738.51 in New Hampshire and

$10,995.95 in Iowa. The Committee submitted copies of refund

checks and documentation such as invoices. The Commission's

Audit staff reviewed the refunds and concluded that certain

refunds proposed by the Committee related to expenditures which

had not been allocated to the state expenditure limitations, and

th~~~_ ~~he~_Co!Dmi~ttee sub~i tted _inadeq~ate docullentation to support

other refunds. Based upon this review, the Commission has

credited $5,651.65 for the remaining refunds to the Iova state

expenditure limitation and $1,303.35 to the New Ha.pshire state

expenditure limitation.

I. TESTING THI WATERS ACTIVITIES

Campaign for Prosperity ("CFP"), a leadership PAC

associated with Congressman Jack Kemp, made testing the waters

expenditures on behalf of his presldential campaign. The Final

Audit Report analyzed CFP expenditures based on the Commission's

audit of CFPil, Audit staff reVlew of CFP disclosure reports, and

documentation submitted in response to Commission subpoenas

4/ The Commlssion conducted an audit of CFP pursuant to 2

u.S.C. § 438(b), which covered the period from January 1,

1987 to June 1, 1988.
-14-

issued to CFP and the Committee that requested cr, 1986 records

related to towa and New Hampshire. In the Final Audit Report,

the Commission concluded that certain CFP activities in Iowa and

New Hampshire appear to be connected to Congressman Kemp's

prospective presidential bid.~/ These activities included travel

by CFP staff and Congressman Kemp to Iowa and New Hampshire

where the itineraries provide eVldence of a possible testing the

~aters purpose. Congressman Kemp appears to have campaigned

primarily on his own behalf during these trips rather than on

behalf of other candidates or the Republican party.

In particular, the Commission concluded that a trip by the

candidate to Des Moines on November 2S, 1986, to meet with farm

____~n_g_ business ~_ssociations ·Afas a testing the waters caapaign

trip. During this trip, the candidate was interviewed by the

Des Moines Register, ~CCI TV/Radio, WHO Radio, the Iowa

~ewspaper Association, and Tribune Radio Network which has 40

affiliates in 5 states. He also attended a ~JK rally-dinner",

and an Iowa Resources PAC luncheon. The Commission considered a

number of factors in making its determination, including the

fact that: the trip was close to the beqinninq of Congress.an

Kemp's presidential campalgni the ltinerary is indistinguishable

from a presidential campalgn trip, as it included a number of

interviews and a rally; the trip was after the general election;

~I It should be noted that the Presidential Committee

reports its initial actiVity as beginning on November 24,

1986.
-15-

and the events do not appear to be primarily related to

campai9nin9 for Iova candidates or the Republican party.

t, addition~ the Commission concluded that the candidate's

trip to New Hampshire in September, 1986 was also a testinq the

waters trip. The trip itinerary indicates that the cnndidate

attended local Republican party functions l including a Cheshire

county Republican Women's Club dinner. Ourin9 the trip, the

candidate was interviewed by at least three radio stations,

scheduled press availability at the hotel, and met ~ith

reporters from Time and the New York Times en route to the

airport. A briefing memorandum attached to the itinerary notes

that the ftBush people" tried to cancel the Cheshire County

R~public~n w~~~n's ClubOinner_ because it featured "a candidate

for 1988" and showed "favoritism in a primary." Attacbaent 10,

page 1. The same memorandua notes, with re9ard to another event

on the itinerary, "(mJost of the people in the rooa are

uncommitted for 1988 and will be payinq a great deal of

attention to what you will be saying." td. The meaorandua

further informs the candidate that the attendees at the Sullivan

County Republican Luncheon would be attending a Bush event two

days later, and he should be aware that his "presentation will

make a strong impression, and wlll still be fresh in their minds

when they see the Vice-PreSldent on Sunday." Attachment 10,

page 3.

The Commlssion concluded that although this trip occurred

before the general election, it appears to be campaign actiVity

on behalf of Congressman Kemp rather than campaigning for the
-16-

Republican party or New Ha.pshire candidates. The fact that the

events on the itinerary for the trip are described in the

briefing me.orandum in comparison to activity by the "Bush

people" is evidence that the trip was testing the waters

campaigning. Moreover, the events include a number of

interviews ~hich appear to be intended to benefit Congressman

Kemp'S presidential campaign.

On November 10, 1986, the candidate traveled to Manchester,

New Hampshire to address the state bar association on the

subject of tax reform, and to hold a press conference. The

Commission concluded that this trip appears to be testing the

waters because of its proximity to the beginning of Comaittee

~~t1v~~ies in November, 1986. The trip occurred after the

c

'-""'.

general election, and does not appear to be related to caapaign

activity on behalf of the Republican party or New Heapshire

candidates.

The Commission considered these testing the vaters

expenditures, totaling $2,498.26, to be in-kind contributions by

CFP to the Committee which are allocable to the Iowa and Nev

Hampshire state expenditure limitations and subject to repayaent

under 26 u.s.c. S 9038(b)(2l. Thus, the Final Audit Report

allocated testing the waters expenditures by CFP totaling

5688.20 to the Iowa state expenditure limitation, and $1,093.56

to the New Hampshire state expenditure limitation.

In its response to the Final Audit Report, the oral

presentation, and supplemental response, the Committee contends

that the CFP expenditures ~ere not testing the waters
-17-

expenditures. The Committee states that in the audit of the

Dole for President Co••ittee, the Comaission ~refused to find

testing-the-vaters activity except in limited situations whore

clear statements or evidence relatinq to Senator Dole's

presidential campaiqn purposes existed ... which demonstrated

that Senator Dole was publicly explorin9 his potential

candidacy." Attachment 4, pages 7-8. The Committee maintains

that in the Dole audit, the Commission ftrej~cted a standard

based upon the occurrence or timing of appearances, and instead

required substantial evidence that the individual held himself

or herself out to the public as a potential candidate."

Attachment S, page 7.

The Committee believes that the Commission should consider

only actions and speeches, rather than tiaing, aotive, or the

totality of the circumstances surroundinq an event to deter.ine

whether the event was testinq the waters. The Co..ittee asserts

that the Co••ission should not "attempt to define whether or not

the individual has made an appearance for one purpose or another

as long as the appearance is in itself neutral, and •.• does not

make a statement on candidacy or a solicitation." Attachment 5,

page 40.

The Com.ittee further argues that the evidence supporting a

testing the waters finding here ~as less substantial than the

evidence of testing the waters In the Dole audit. For the

November 25, 1986 trip to Des Moines, Iowa, they state that

Congressman Kemp had a rally ~ith will Lynch who "had been a

Republican candidate for state representative in the 1986
-18-

election."!1 Attachment 4, page 10. The Committee contends that

there is no indication in the itinerary for the trip that the

candidate made references to his potential candidacy or

solicited funds for his future campaign during scheduled

interviews and events. Similarly, the Committee asserts that

there is no evidence that t~e candidate made public statements

concerning his candldacy cr engaged in fundraisinq "or any other

activities clearly deslgned to explore his candidacy" during his

trip to Manchester~ New Hampshire on ~ovember 10, 1986. Id.

Moreover, the Committee contends that the September trip to

New Hampshire was not testing the waters. The Co••ittee

emphasizes that the brlefinq memorandum states that the

~r~~ident of the Cheshire County RepUblican Woaen's Club stated

that Congressman Kemp was not a candidate and was only tryin9 to

assist the club in raising money. The Co••ittee argue. that

there is no indication that the candidate's speeches at any of

the events durinq this trip included references to his potential

candidacy or solicited funds for his future caapai9n. The

Commlttee submits that ttreferences in the meaorandua to

then-Vice President Bush having a bar-b-que and to Secretary

Kemp's presentation maKing a strong impression are meanin91ess

'¥lthout clear, objectlve and compelling evidence that Secretary

6/ In its supplemental response of December 23, 1991, the

Committee provided a statement by Will Lynch declarin9 that

he had been the Republican candidate, and that Congressman

Kemp attended a debt retirement dinner.
-19-

Kemp and crp expressly and publicly explored his potential

candidacy at these events." Attachment 4, page 12.

In support of its arguments, the Committee provided a

st~tement by the candidate's former press secretary that

Congressman Kemp did not give formal prepared speeches at press

aV!llabilities during these ~rl~s, ~ut rather ans~ered

questions, and that the events in the September trip to New

Hampshire were Republican fundralsing events .. Attachment 6,

page 2. Moreover, the Committee asserts that between September

and December 1986, the candidate attended and spoke at events in

California, North Carolina, Illinois, Arizona, Alabama, Georgia,

Michigan, Florida, Texas, and South Carolina, in addition to the

Finally, the Committee contends that the Co..ission should

require clear proof of a testing the waters purpose because a

testing the waters finding n may come dangerously close to

encroaching upon the First Amendment right to free speech. The

Commission must be careful to provide clear, definite and

objective standards to avoid chilling protected political

speech." Attachment 4, page 9. ay concluding that CFP's

actlvities ~ere testing the waters, the Commission would violate

the First Amendment because "the Commission's test is

unconstitutionally vague and violates the due process guaranteed

by the First and Fifth Amendments." Id.

The Commlssion has previously considered similar issues

related to testing the waters expenses paid by a committee other

than a candidate's authorlzed commlttee in two AdVisory Opinions
-20-

(ftAO"), AO 1985-40 and AO 1986-6. In AO 1985-40, the Co••i,ston

concluded that expenses paid by a political com.ittee for an

individual considerinq whether to become a candidate would b.

considered testing the waters expenses if such activities

related to the potential candidacy and that individual

subsequently became a candidate. :~ determining whether certain

~xpenditures would be considered ~es:ing the waters, the

Commission looked to the purpose of the expenditures. In

contrast, in AO 1986-6, the Commission concluded that a

multi-candidate committee could pay an individual's expenses

related to various activities to promote the Republican patty

and to solicit funds, provided that references to that

--indiv-idual'--s po~tential candidacy _were incid~n_tal~_t9 _~~~ events

and activities conducted by the multi-candidate co.-ittee. The

opinion distinguishes PAC events ~hich include only incidental

contacts and incidental remarks ~bout an individual·s potential

candidacy, such as those in response to questions, fro. caapaiqn

activity on behalf of a potential candidate.

Similarly, in the audit of Dole for President, the

Commission examined each event :or evidence of a testing the

~aters purpose. The Commission concluded that certain events

~ere apparently related to Senator Dole's prospective

presidential campaign. The focus of the Commission's discussion

~as on the distinction between party building efforts by a

prominent party figure and testing the waters activity. Factors

the Commission considered in reaching its conclusion included:

the timing of events in relation to the beginning of
-21-

presidential committee activity; the timing of events in

relation to elections; evidence of campai9ninq for other federal

candidates involved in elections in the states or for the party

generally; and statements made in briefing memoranda and

speeches. Dole for President Inc., Statement of Reasons,

approved February 6, 1992.

The C~mmissicn is not persuaded by the Committee'S

arguments. The Commission examined a number 6f CFP expenditures

and concluded that there was sufficient evidence of testing the

waters activity in only the three trips still at issue. The

available evidence is sufficient to indicate that the three

trips were related to the candidate's prospective campai9n, and

events close to the start of Committee activities, the dearth of

campaign activity for local candidatesll, the statements in the

briefing meaorandum, and the type of events and interviews

involved in these trips are evidence of testin9 the waters

activity. To counter this conclusion, the Committee could have

prOVided documentation of the text of speeches or the content of

7/ The Committee's assertion that Will Lynch had been a

1986 Republican candidate and that the rally was a debt

retirement dinner is not determinative. A rally with a

person who once was a candidate is significantly different

from campaigning for a person who is currently a candidate.

While a rally with a current local candidate may be construed

as campaign activity on his or her behalf, a rally after the

election with a former candidate, even if it raised funds to

retire the local candidate's debts, benefited Congressman

Kemp, by giving him a forum with the former candidate's

supporters. Moreover, this is only one of a number of

apparent testing the waters activities during the

November 25, 1986 trip.
-22-

interviews. Since it has not done so, there is no evidence to

support its arguaent.

The Commission's conclusion is consistent with the

precedents of the Dole audit and Advisory Opinions. The

Committee misinterprets the Commission's decision in the Dole

audit. The Commission considered several factors including the

timing of appearances in determlnl~g which events were testinq

the waters in that case. Moreover, the evidence in the Dole

audit ~as similar to the evidence of testing the waters activity

here.

The Committee apparently believes that the Commission

should never find that an event ~as testing the waters activity

unless there is evidence that a prospective candidate made a

public statement of potential candidacy at the event. Hovever,

in cases where, as here, there is no available evidence

concerning public statements of potential candidacy, the

Commission will consider evidence of the types of events, the

timing of events, and the apparent purpose of events to support

a conclusion that testing the waters activity occurred. The

Committee's proposed rule requires evidence which is not readily

available to the Commission. ~oreover, an unequivocal statement

of candidacy arguably goes beyond testing the waters activity.

The Committee's constltutional argument is equally flawed.

The Commission considered a number of factors in determining

.hich CFP expenditures were testing the waters. It is possible

that other CFP expenditures were related to the candidate's

prospective presidential campalgn, but the Commission included
-23-

only those expenditures where docuaentation provided a clear

indication that the trips were related to testing the waters

activity. The Commission's regulations and previous decisions

in Advisory Opinions and audits provide "clear, definite and

objective standards to avoid chilling protected political

speech." Attachment 4, page 9. The Commission's decision is

consistent with the standards delineated in its regulations,

Advisory Opinions, and other audit matters.

Therefore, the testing the waters expenditures remain

allocable to the Committee's state expenditure limitations and

subject to repayment as excessive expenditures. Moreover, the

expenditures by CFP were in-kind contributions. See AO 1985-40:

MUll -213-3 L The_CoDUai s_si on' _5_ regulations provide t~_at _~es_~i~~ ~_~~

waters expenditures are qualified caapaiqn expenses that count

aqainst the state and overall expenditure li.itationa if the

individual on whose behalf the testin9 the waters expenditures

are made subsequently becomes a candidate. 11 e.l.R.

5S 9034.4(a){2); l06.2(a){2); See 11 c.r.R. SS 100.7(b)(1);

lOO.8{b){1). The in-kind contributions froa cr, to the le.p

campaign were expenditures equlvalent to expenditures by the

Committee itself. 11 C.F.R. SlOO.7(a)(1); lOO.8{a)(1)i l09.1(c).

J. rIVE DAY RULE

In addition to the expenditures contested by the Committee,

the Commission has adjusted the amounts allocable to the Iowa

state expenditure limitation to confora with the Commission's

application of the five day rule In the audit of another 1988

campaign. See Attachment 9. ~he Commission has excluded
-24-

$3,967.75 for national staff travel and $1,78"1.42 for national

staff payroll from the Iowa state expenditure 11.itation for

expenditures related to the travel and salaries of three

individuals who spent periods of time in omaha, Nebraska in

connection with the candidate's Iowa campaign. The individuals'

presence in Iowa with respect to the five-day rule were not

established. Consequently, these expenditures are not allocable

to the Iowa state expenditure limitation.

III. STALE-DATED CHECKS

Section 9038.6 of the Commission's re9u1ations provides

that if a committee has outstanding checks that have not been

cashed, the committee should inform the Coaaission of its

~~ _~"eJJ~orts to loca te and encourage the payees to cash the

outstanding checks, and submit a check for the total .aount of

the outstanding checks made payable to the United Stat••

Treasury.

The Committee had outstandin9 checks as of February 28,

1989, totaling $76.284.78. The Interim Audit Report reco...nded

that the Committee provide evidence that the checks are not

outstanding, or attempt to locate the payees and encourage thea

to cash the checks. The Committee did not address this finding

in its response to the Interim Audit Reporti however, the

Committee submitted documentation in response to other findings

including copies of negotiated refund checks. Based on this

information and a review of the Committee's disclosure reports,
-25-

the Co.mission determined that the total amount of outstanding

checks as of October 30, 1989 was $126,810.66. Therefore, the

Commission made an initial determination that the Committee pay

$126,810.66 to the United States Treasury pursuant to 11 C.F.R.

S 9038.6.

In response to the Final Audit Report, the Committee states

that according to its records, $80,571.88 in outstanding

contribution checks have been resolved. The Committee provided

documentation concerning the outstanding checKs in its response

to the Final Audit Report. The Committee did not include checKs

drawn on its operating account, which total $15,555.90, in its

figures. On December 23, 1991, the Committee submitted

additional-docullentati_on <;on~erninq $9,096.88 in checks fro. its

operating account.

The Co••ission has reviewed the docuaentation submitted by

the Comaittee and has reduced the repayment by $68,411.88, for

checks written on the contribution account, and $9,096.88, for

checks written on the operatinq account. The docuaentation

provided by the Committee was not sufficient to reduce the

repayment for the remaining amount of outstandin9 checks.

Therefore, the Commission has made a final determination that

the Committee must pay $49,301.90 to the United States Treasury

for the checks which remain outstanding.
-26-

v. rINAL RBPAYJIIEtrf DETS"'INATION

Therefore, the Commission bas made a final determination

pursuant to 11 C.F.R. S 9038(c)(4) that for the foregoing

reasons Congressman Jack Kemp and the Jack Kemp for President

Committee must repay $103,555.03 to the United States Treasury.

ATTACHMENTS

1. Interim Audit Report, approved August 25, 1991 (portions

omitted) .

2. Committee's Response to Interim Audit Report, Appendices

omitted (February i, 1990, portions omittedle

3. Final Audit Report, approved by the Commission July 25, 1991~

4. Committee's Response to the Final Audit Report and initial

repayment deteraination dated November 1, 1991.

Tr_aJ'\$_cr;~p_t__ ~~_qral Presentation before the COlUlission on

Oeceaber 10 t 1991 --- -

6 ..

7.

8.

9 •

10.

Committee's Supplemental Response dated Deceaber 23, 1991.

Memorandum fro. the Audit Division dated December 5. 1991.

Memorandum froll the Audit Division dated January 8, 1992.

Kemorandua fro. the Audit Division dated March 30, 1992.

Briefing Keaorandua dated September 18, 1986.
FEDERAL ELECTION COJ\;1MISSION ~8WOO.44.68.

November 6, 1992

MEMORANDUM

TO:

THROUGH:

FROM:

SUBJECT:

THE COMMISS~O5

JOHN C. SUR A '

STAFF DIRE

ROBERT J~ CO~:iTI ~.I"\ -Ar ;,r------

ASSISTANT STAFF DIRECTOR

AUDIT DIVISrjoN

I

REPAYMENT at $103,555.03 RECEIVED FROM THE

JAC~ KEMP FOR PRESIDENT COMMITTEE

r,

...... This inforaational memorandum is to advise you of a

repayment check in the amount of $103,555.03 received fro. the

Jack le.p for President Coaaittee. The check represents full

payment as requested in the final repayaent deteraination.

Copies of the Committee's acco.panying letter, the

repayaent check, and receipt showin9 delivery to the Treasury

are attached.

If you have any questions concernin9 this matter, please

contact Ray Lisi at 219-3720.

Attach.ents as stated
la-CO NlN£T£ENTM STAE£T. N. W

WASl-HNGTON. O. C. 20038-2430

20~·eel·3.00

... O~N"'; CUF"ry

~:2' eel' 3938

October

~s. Delanie D. Painte=

Federal Election Cc~~issicn

999 E St:eet, N.~., #657

Washington, D.C. 20463

Re: ~ack Ke~~ :c= Pres~Oent Co~~it;ee Aud~:

Dear Ms. Painter:

e"\,"'! .... c~£

'tt'N veJllo<

-"',,";l.e£:_::>-· ..

... -:.""IIOc ....

I enclose a cashier's check in the amount of

$103,555.03, representing full satisfaction of the Comrnissionts

·repay-;r.ent: determinat~ion· in-·t-he··· above-.re-ferenced--.matter--..---

If you have any additionalAlUestions, please give me a

;;y, call.

.,, "....

~'_. ~.~

John: J. Duff'v" \ \ ..

E:1clcsure

~53.Z00205E
FEDERAL ELECTION COf'Afv1rSSION

\\ -'Stit~CTO~ 0 <. '?\)4b \

RECEIPT FROM THE

UNITED STATES DEPARTMENT OF TREASURY

FOR A REPAYMENT OF

1988 PRESIDENTIAL PRIMARY KATCHING FUNDS

November 5, 1992

Received on November 5, 1992, from the federal Election

Commission (by hand delivery) a cashier's check (#03950477)

drawn on the Signet Bank in the amount of $103,555.03. The

check represents a full repayment from the Jack Kemp for

President Committee as requested in the final repayment

determination in the final audit report.

Pursuant to 26 u. s. C. §9038(d), this check should be

deposited into the Matching Payment Account.

Jack Kemp for President Committee

Amount of Repayment: $103,555.03

Presented by

Federal Election Commission

Received by

.--...... ~-

. 1"\ c.; '~ 2. r' I I , , I .... , '/!:o --.-'loA ¢t....l 4 "..........-;

':\ . r the .

. United States Treasury

"'C\VSCN \C' O_c_:_'-'_--t:"_:'_- _ ...,,-c 03950477_

/

CASHIER'S CHECK

PAY TO ~~ ORDER C; *_*_,*,__:_.2_"._~_.E._..\_s_:........ _:-_~·._:_·E_?_:u_~_":-'_;.,.-...._.::.._.;_:_*_*_* _

ct

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He: :ack Kemp fc~ Pres:~~~·

JIG~T' B~~VK

II' 0 j G50 7 7 nl I: 0 5 500 it g 0 21: