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FEDERAL ELECTION COMMISSION

WASHINCTON. D.C. 20463

...

MEMORANDUM

May 11, 1987

'1'0: FRED EILAND

CHElF, PRESS OFFICE

FROM: ROBERT J. COSTA

ASSISTANT STAFF DI~T~ AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF FINAL AUDIT REPORT

REAGAN-BUSH '84 GENERAL ELECTION COMMITTEE

REAGAN-BUSH '84 COMPLIANCE FUND

Attached please find a copy of the final report of Reagan- Bush '84 General Election Committee and Reagn-Bush '84 Compliance

Fund which was approved by the Commission May 6, 1987.

Informational copies of the report have been received by all

parties involved and this report may be released to the pUblic.

Attachment as Stated

cc: FEC Library RAD

Office of General Counsel ~b1ic Disclosure
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FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 204&3

... REPORT OF THE AUDIT DIVISION

ON

REAGAN-BUSH '84 GENERAL ELECTION COMMITTEE

AND REAGAN-BUSH '84 COMPLIANCE FUND

I. Background

A. Overview

This report is based on an audit of the Reagan-Bush '84

General Election Committee ("the GEC") and the Reagan-Bush '84

Compliance Fund ("the Compliance Fund"), to determine whether

there has been compliance with the provisions of the Federal

Election Campaign Act of 1971, as amended ("the Act") and the

Presidential Election Campaign Fund Act. The audit was conducted

pursuant to 26 U.S.C. S 9007(a), which states that after each

presidential election, the Commission shall conduct a thorough examination and audit of the qualified campaign expenses of the

candidates of each political party for President and Vice

President.

In addition, 26 U.S.C. § 9009(b) states, in part, that

the Commission may conduct other examinations and audits from

time to time as it deems necessary to carry out the provisions of

this subchapter.

The GEC registered with the Commission on June 19,

1984, while the Compliance Fund registered with the Commission on

December 1, 1983. The committees maintain their headquarters in

Washington, D.C.

The audit covered the period from the GEC and

Compliance Fund's inception (June 19, 1984 for the GEC and

December 1, 1983 for the Compliance Fund) through December 31,

1984, the last day covered by the most recent reports filed with

the Commission at the time of the audits. In addition, certain

financial activity was reviewed through April 25, 1985. The GEC

reported an opening cash balance of -O-~ total receipts of $42,851,801.97~ total expenditures of $42,560,761.71~ and a

closing cash balance of $291,040.26. The Compliance Fund

reported an opening cash balance of -O-~ total receipts of $2,306,114.68~ total expenditures of $1,035,06l.S8~ and a closing

cash balance of $1,271,053.10. Under 11 C.F.R. 55 9007.1(b) (3)

and 9007.1(e) (4) additional audit work may be conducted and

addenda to this report issued as necessary •
•

This report which support each of

the record upon which

matters in the report appropriate staff for

2

is based upon documents and working papers

its factual statements. They form part of

the Commission based its decisions on the

and were available to Commissioners and

review.

B. Key Personnel

The Treasurer of the GEC and the Compliance Fund is

Angela M. Buchanan Jackson.

C. Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactions7

review of required supporting documentation7 analyses of debts

and obligations7 review of contribution and expenditure limitations7 and other audit procedures as deemed necessary under

the circumstances except that: The records made available by the

GEC relating to the number and amount of assets (furniture and

equipment) recorded in its books of account were not sufficient

to allow the Audit staff to verify (1) the total number and

amount of assets purchased by the GEC, (2) the total number and

amount of assets liquidated at the close of the campaign, and (3)

the total number and fair market value of assets on hand on April 1, 1985.1/ See discussion of capital assets on page 27 •

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1/ The Audit staff made numerous requests of GEC personnel

prior to the exit conference for documentation necessary to

verify the amount of assets purchased, sold, and on hand,

but the necessary information was not supplied. The

Treasurer explained at the exit conference that the GEC's

staff was still attempting to compile the requested information regarding assets. In the response to the

interim report, the GEC for the first time supplied a brief

description of their asset control procedures and a partial

response to questions posed by the Audit staff regarding fixed assets. The response indicated however, that the

documentation needed to support the GEC's contentions was

not yet available. Therefore, we still cannot verify the

total number and amount of assets purchased, liquidated, and

on hand on 4/1/85. On May 2, 1986 (almost five months after

the interim report response due date) the GEC supplied additional schedules relative to asset acquisition, depreciation, and disposition. Since additional testing

must be performed to verify the accuracy of these schedules,

follow-up fieldwork will be scheduled and addenda to this

report will be issued as necessary in accordance with 11

C.F.R. §§ 9007.l(b) (3) and 9007.l(e) (4) •
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• II. Findings and Recommendations Related to Title 2 of the

United States Code

Reagan-Bush '84 Compliance Funa

A. Failure to Request and Disclose occupation and

Employer

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The Act at 2 U.S.C. § 434(b) (3) requires a

political committee required to file a report under this section

to disclose the identification of each person (other than a

political committee) who makes a contribution to the reporting committee during the reporting period, whose contribution or

contributions have an aggregate amount or value in excess of $200

within the calendar year. Identification is defined at 2 U.S.C.

§ 431(11) to mean in the case of an individual, the name, mailing

address, and occupation of such individual as well as the name of

his or her employer. In addition, 11 C.F.R. § 104.7 requires the

treasurer of a political committee to show that best efforts have

been used to obtain, maintain, and submit the information

required by the Act. With regard to reporting identification

defined at 11 C.F.R. § 100.12, of each person whose

contribution(s) to the committee aggregates in excess of $200 in

a calendar year (pursuant to 11 C.F.R. § 104.3(a) (4}), the

treasurer will not be deemed to have exercised best efforts to

obtain the required information unless he or she has made at

least one effort per solicitation either by a written request or

by an oral request documented in writing to obtain such

information from the contributor. For purposes of this section,

such effort shall consist of a clear request for the information

(i.e. name, mailing address, occupation, and name of employer) which request informs the contributor that reporting of such

information is required by law.

The Audit staff reviewed records and documentation

for contributions received by the Compliance Fund. Our review

indicated that 368 contributions (each aggregating in excess of

$200 per contributor) totaling $267,267.00 were received without

any evidence of a Compliance Fund request for occupation and name

of employer. These contributions were itemized on Compliance

Fund disclosure reports without occupation and name of employer.

At the exit conference, the Treasurer asserted that the

Compliance Fund had exerted best efforts as evidenced by their

instructions to the fundraising staff. These instructions were

for the Primary Committee fundraising staff1 however, the

Treasurer said the instructions were not given to Compliance Fund

fundraisers since the Compliance Fund fundraising staff was the

same as for the Primary Committee.

It was the Audit staff's opinion that the

Compliance Fund did not show that it exercised best efforts to

obtain occupation and name of employer for the contributions

discussed above.
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In the interim report, the Audit staff recommended

that the Compliance Fund request the occupation and name of

employer from those itemizable contributors who were not

previously requested to submit this information. In addition,

the Compliance Fund was to submit evidence relating to its

efforts and file amendments disclosing information received as a

result.

In it~ response to the interim report, the

Compliance Fund provided additional evidence and explanations

regarding their efforts to obtain occupation and a name of

employer from contributors. Specifically, they supplied copies

of relevant portions of solicitation guidelines given to the

Compliance Fund's fundraising staff. The response asserts that

the fundraising staff was "repeatedly" informed of their

obligation to'obtain the required information although written

records of the requests by the fundraisers were not supplied.

The Compliance Fund did admit that at least 23.4% of their

contributions were received without response devices but said

that best efforts were used to obtain the required information.

The Compliance Fund did not address the instances

where an individual made a contribution aggregating in excess of

$200.00 without being solicited and it is possible that a portion of the contributions received without response devices were

unsolicited. However, an argument could be made that the

Compliance Fund substantially complied with the best efforts

requirement with respect to occupation and employer by providing

the additional evidence and explanation related to their

procedures for obtaining the required information.

Conclusion

No further action is required on this matter.

('- B. Itemization of Contributions

•

The Act, at 2 U.S.C. § 434(b) (3) (A) requires a

political committee required to file a report under this section

to disclose the identification of each person (other than a

political committee) who makes a contribution to the reporting

committee during the reporting period whose contributions have an

aggregate amount or value in excess of $200 within the calendar

year, toget~er with the date and amount of any such contribution.

Identification is defined at 2 U.S.C. § 431(13) to mean in the

case of an individual, the name, mailing address, and occupation of such individual, as well as the name of his or her employer •
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The Audit staff examined contributions received by the

Compliance Fund. Our review indicated that individual

contributions aggregating in excess of $200 which were recieved

within a few days of the close of books for the October monthly,

Pre-election, and Post-election reports were not itemized as

required. The Deputy Treasurer stated that the contributions

were not itemized due to an oversight related to time deadlines

with the Compliance Fund's computer service. On May 10, 1985,

the Compliance Fund filed amended reports itemizing an additional

86 contributions totaling $46,180 as required. A review of this

amendment indicated that the Compliance Fund correctly itemized

the contributions as required.

In the interim report, the Audit staff noted that since

appropriate amendments have been filed, no further action was

recommended at that time, but the Compliance Fund was afforded an

opportunity to provide additional comments if they so wished.

The Compliance Fund chose not to provide any such additional

comments in its response to the interim report.

Conclusion

The Commission determined that no further action is

necessary on this matter.

Reagan-Bush '84 General Election Committee

A certain matter noted during the audit has been

referred to the Office of General Counsel.

III. Findings and Recommendations Related to Title 26 of the

United States Code

A. Reagan-Bush '84 General Election Committee

1. Expenditures Apparently in Excess of the

Limitation

•

Section 9007(b) (2) of Title 26 of the United

States Code states that if the Commission determines that the

eligible candidates of a political party and their authorized

committees incurred qualified campaign expenses in excess of the

aggregate payments to which the eligible candidates of a major

party were entitled under section 9004, it shall notify such

candidates of the amount of such excess and such candidates shall

pay to the Secretary of the Treasury an amount equal to such

amount •
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Interim Report Analysis

As noted in the interim report, the Audit staff

analyzed the GEC's reports and activity covering the period from

inception through April 25, 1985 and noted that with respect to

expenditures subject to the $40,400,000 limitation, it appeared

the GEC had exceeded the limitation at 2 U.S.C. § 44la(b) (1) (B)

in the amount of $1,484,107.92. It was also apparent from this

analysis that without the inclusion of the Reagan-Bush '84 ("the

Primary Committee") activity ($2,072,283.83), the GEC had not

exceeded the spending limitation. This amount represents

unreimbursed expenditures for voter registration and other

political activities which were made by the Primary Committee but

which appeared to benefit the candidate's general election

campaign only. The expenditures represent only payments for

goods and services used in a state after the date of that state's

primary or caucus. 2/

At the exit conference, GEC officials responded that they disagreed with the inclusion of the $2,072,283.83 as

apparent general election expenditures and that the treatment of

those disbursements represents a philosophical difference between

the GEC and the Audit staff.

In the interim report the Audit staff recommended

that absent a showing to the contrary, the Commission make a

determination that the expenditure limitation at 2 U.S.C.

§ 44la(b) (1) (B) had been exceeded by $1,484,107.92.

During its deliberations on the Final Audit Report

of the Primary Committee, the Commission considered the

Committee's response to this Finding, as well as the Audit

staff's recommendations. A more detailed discussion of this

issue is included in that Final Audit Report at pages 3-7.

2/ This matter was also presented to the Primary Committee in

an interim report sent July 17, 1985. In its response to

the interim report, the Primary Committee disagreed that

these expenditures were GEC related •
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On June 26, 1986 the Commission made a

determination that the $2,072,283.83 in expenses for voter

registration and other political activities were made in

connection with the candidate's campaign~for nomination for

election. Therefore, these expenses represent qualified campaign

expenses of the Primary Committee and need not be reimbursed by

or considered as qualified campaign expenses of the GEe.

Adjustments to Interim Report Finding

The Audit Staff considered the Commission's

decision with respect to the voter registration expenses,

analyzed the GEC's response relative to the media consulting fee

addressed at finding III.A.4., reviewed information made

available by the Primary Committee in response to a March, 1986

Commission request for additional media documentation (see

Finding III.A.S.), and performed additional fieldwork resulting

in the analysis depicted on page 8.

Upon completion of the additional fieldwork, the

Audit staff's analysis of the GEC's reports and activity covering

the period from inception through March 31, 1985, and available

records relating to receipts and expenditures from April 1, 1985

through April 25, 1985 revealed the following with respect to

expenditures SUbject to the $40,400,000 limitation.
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Reagan-Bush '84 General Election Committee

Overall Limit - Audit ~nalysis

1. Reported expenditures subject

to limitation from inception

through 3/31/85

$40,269,476.68

Adjustments to the Above Reported Totals

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3.

4.

5.

6.

7.

8.

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Add: Misclassification of

expenditures on 1984 yearend report

Add: Expenditures made from

4/1/85 through 4/25/85 subject

to limitation

Add: Accounts payable - State

bank accounts

Less: Accounts receivable at 3/31/85

Subtotal

Less: Audit-verified amount of

expenditures which may be

reimbursed by the Compliance Fund

at GEC's option

Subtotal: Expenditures subject to

limitation per analysis of GEC's

reported activity, as adjusted

Add: Apparent general election

expenditures made by the

Primary Committee

Total expenditures subject to limit

200,000.00

64,482.79

5,861.98

(111,671.14) a/

$40,428,150.31

(50,811. 90) b/

$40,377,338.41

831,510.15C/

$41,208,848.56d/
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Included in this amount is an accottnt receivable of

$20,655.60, representing reimbursements due the GEC from an

entity for travel on GEC chartered aircraft. This amount

may be adjusted downward as additional information becomes

available concerning the collectibility of the receivable.

See Finding III.A.6 •

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. The Audit staff's analysis of the GEC's calculation of the

amount available for allocation of exempt legal and

accounting costs between the Compliance Fund and the GEC

indicated that $926,355.27 could be properly allocated. As

of 3/31/85, the Compliance Fund has reimbursed the GEC

$875,543.37, thus leaving a balance of $50,811.90 eligible

for reimbursement. The GEC, at its election, may allocate

all or a portion of the $50,811.90 to the Compliance Fund.

For the purpose of this calculation, it is assumed that the

allocation and reimbursements from the Compliance Fund will

be made, thereby reducing expenditures subject to the

limitations.

Included in this amount is $792,066.50 representing the

unreimbursed portion of the media consultant fee due the

Primary Committee. Also included is $39,443.55 representing the unreimbursed portion of production costs due the Primary Committee for commercials shared by both campaigns. These

allocations were presented to the Primary Committee in July 1986 as part of an initial repayment determination contained

in the final audit report. The Primary Committee has

submitted a written response disputing the Commission's

initial repayment determination and has requested an

opportunity to address the Commission in Open Session. See

Findings III.A.4. and III.A.5.

Since several components upon which this total is based are

subject to change, adjustments to this total may also be

necessary •

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Based on the above analysis, it appears that the

GEC has exceeded the $40,400,000 limitation at 2 U.S.C. 5

44la(b) (1) (B) in the amount of $808,848.56 •

This amount represents a net decrease of

$675,259.36 from the amount in the interim report ($1,484,107.92). The components are summarized at items a-d.

This amount is $15,986.00 less than the amount noted in the

Primary Committee's audit report at Attachment 5, line 12

(AUdit analysis as Adjusted column). The $15,986 reduction

is necessary since this amount, representing the portion of

the fee paid to TTl by the Primary Committee, has already

been included in the $792,066.60 figure in item c. above.

If the Commission determines that the $792,066.60 media fee

allocation is not appropriate, an appropriate amount will be

added back to the production cost allocation amount. These

allocations were presented to the Primary Committee in JUly

1986 as part of an initial repayment determination contained

in the final audit report. The Primary Committee has

submitted a written res~onse disputing the Commission!s

intia1 repayment determlnation and has requested an

opportunity to address the Commission in Open Session. (See

Findings III.A44. and III.A.5.).

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Payments by the Primary Committee

for voter registration and

other political activities

that the Commission determined

were qualified campaign expenses

of the Primary Committee and not

GEC related. (See pages 6-7)

Apparent nonqualified campaign

expenses (not included in the

interim report amount) which, based

on the Audit staff's and Commission

analysis of the GEC's response to

the Interim Report are includable

in the overall limit (see Finding

III.A.2.)

Unreimbursed portion of the

media consultant fee due the Primary

Committee (See Finding III.A.4.and

footnote £/ on page 9.)

Unreimbursed portion of

production costs due the Primary Committee for commercials shared

by both campaigns (See Finding III.A.5. and footnote £/ on

page 9.)

Net Decrease

($2,072,283.83)

565,514.32

792,066.60

39,443.55 1/

($675,259.36)
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Items c. and d. above were developed as a result

of additional information supplied by the Committees after the

GEC's response to the interim audit report in December 1985.

Both matters were presented to the Primary Committee in the July

1986 pUblicly released audit report. As that report notes, on

June 26, 1986, the Commission made initial determinations that

the Primary Committee seek reimbursement from the GEC for both

$792,066.60 related to an allocation of the media consulting fee

and $55,429.55 1/ related to a reallocation of media production

costs. It should be· noted that the Primary Committee has

formally disputed these initial determinations.

It appears that without the inclusion of the

$831,510.15 in Primary Committee disbursements and assuming all

receivables are collected at the amounts shown on page 8, the GEC

would not exceed the spending limitation. Of this amount,

$792,066.60 represents the GEC's portion of the media fee paid by

the Primary Committee (see Finding III.A.4.). The balance of

$39,443.55 represents the unreimbursed portion of production

costs for shared commercials owed by the GEC to the Primary

Committee (See Finding III.A.5.). These matters were discussed

informally with the Deputy Treasurer and Counsel for both

committees in February and May 1986 and formally presented to the

Primary Committee in the pUblicly released Final Audit Report in

July, 1986. In its response to the Commission's Initial

Repayment Determination contained in the July, 1986 Audit Report, the Primary Committee disputed the Commission's initial repayment

determination as it relates to these two matters. This response will be considered by the Commission prior to reaching a final

determination with respect to the Primary Committee. If the

Commission determines that the $831,510.15 (or any portion

thereof) should not be allocated from the Primary Committee to

the GEC, the recommended repayment amount will be adjusted

accordingly.

Conclusion

On April 23, 1987, the Commission made an initial

determination that the expenditures made in excess of the

limitation totalling $808,848.56 must be repaid to the U.S.

Treasury within 90 calendar days of receipt of this report in

accordance with 11 C.F.R. § 9007.2(d). As noted above, the

Primary Committee has disputed allocations included in the

limitation calculation.

If the Candidate does not dispute this determination within

30 calendar days of the receipt of this report, the initial

determination will be considered final.

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Repayment Amount:

See page 10.

$808,848.56
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The term "qualified campaign expense" is defined

at 26 U.S.C. § 9002(11) (A) (iii) as an expense incurred by an

authorized committee of the candidates of a political party for

the offices of President and Vice President to further the

election of either or both of such candidates to such office.

Under 26 U.S.C. S 9007(b) (4) (A), if the Commission determines

that any amount of any payment made to the eligible candidates of

a political party under Section 9006 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 such candidate shall pay to the Secretary

of Treasury an amount equal to such amount.

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Apparent Nongua1ified Campaign Expenses

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The regulations at 11 C.F.R. § 106.1(a) require

that expenditures made on behalf of more than one candidate shall

be attributed to each candidate in proportion to the benefit

reasonably expected to be received.

The Audit staff reviewed GEC expenditures and

noted three (3) categories of apparent nonqua1ified campaign

expenses as outlined below.

a. Apparent Noncampaign Related Expenses

During the review of expenditures made by the

GEC the Audit staff noted 23 payments, totaling $88,693.78, which

appeared to be nonqua1ified campaign expenses. In the interim

report the Audit staff recommended that the GEC supply documentation to show that these expenditures were for qualified campaign expenses. Absent such a showing, the interim report stated that the Audit staff would recommend that the Commission

make an initial determination that the $88,693.78 be repaid to

the U.S. Treasury. These expenditures can be divided into three

sUb-categories: i) Promotional Mai1ings1 ii) Receipted Bill from

a Political Committee1 and iii) Joint Campaign Rally.

i. Promotional Mailing

Two payments, totaling $62,132.00, were

for a mailing which the documentation indicated was to promote

the e1ectio~ of a non-Federal Candidate.

In its response to the interim report,

the GEC stated that the 2 items totaling $62,132.00 which

appeared to be advertising promotion for a non-Federal Candidate

were actually promotional costs associated with an endorsement of

the Candidate by the non-Federal Candidate. The GEC provided a

copy of the promotional mailing to support this contention:
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The documentation supplied by the GEC

for the two payments totaling $62,132.00 supports the GEC's

contention that these payments were for sualified campaign

expenses.

ii. Receipted Bill From a Political

Committee

A payment in the amount of $14,000 was

made to an apparent corporation for promotional services but the

receipted bill was provided by a political committee. GEC

officials suggested that a corporate employee probably inadvertently prepared the receipt on political committee

stationery.

The GEC responded to the questionable $14,000 payment made to a corporation, but receipted by a

political committee, by providing documentation from the

corporate employee who signed the receipted bill. The employee

stated that the use of political committee stationery for

acknowledging payment was made in error.

The documentation supplied by the GEC in

the response to the interim report as noted above, supports the

GEC'S contention that these payments were for qualified campaign

expenses.

iii. Joint Campaign Rally

The GEC made 20 expenditures totaling $25,123.57 for a joint rally which benefited the Vice - Presidential candidate and another Federal candidate. No

evidence was found during fieldwork that the other Federal

candidate paid any portion of the expenses. Therefore, the

calculated amount of the other Federal candidate's portion [$12,561.78 (50% of $25,123.57») appeared to be a nonqualified campaign expense.

The GEC responded to the interim report by stating that the entire $25,123.57 which was expended for the

rally should be considered as a qualified campaign expense because that amount represented the GEC's approximate share of

the total cost of the rally relative to the benefits received.

The GEC stated that the committee of the other Federal candidate

supplied documentation showing that it paid about $13,000 or 1/3

of the total expenses which approximated $38,000.00. The GEC did

not supply this documentation in its response. The GEC believes

that the approximate 2/3 to 1/3 ratio for the rally expenses

accurately reflected the value of the appearance to each of the

participants•
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The GEC stated that the 2/3 - 1/3 split of rally expenses between the Vice-Presidential candidate and the

other Federal candidate is proper because certain expenses ($3,990.50 for flags and $1,751.45 for a balloon drop) were made

as a result of the presence of the Vice-Presidential candidate

and were authorized by the Reagan-Bush advance team. These items

are included in the $25,123.57 paid by the GEC. The GEC also

feels the ratio is appropriate because, according to the

coordinator of the rally, the Vice-Presidential candidate spoke

for approximately 10 minutes and the other Federal candidate

spoke for 5 minutes. Again, no documentation bas been supplied

to support this contention which was attributed to an

unidentified coordinator for the rally.

In light of the assertions contained in

the GEC's response regarding the rally, the Audit staff reevaluated the information obtained during our initial fieldwork

relative to this rally. The advertising material we examined

indicated that the other Federal candidate was at least an equal participant at the rally. Flyers promoting the event listed the

other candidate first. It appears that the expenses the GEC

asserted were a result of the Vice-Presidential candidate

appearance as well as the other expenses comprising the

$25,123.57 provided equal benefit to both candidates. Included

in this amount were typical rally expenses such as flyers, radio

and newspaper advertising, hall rental and decorations, payments for a band and sound equipment, food for volunteers, and flags

and balloons~ which clearly benefitted both candidates.

With respect to the 2/3 - 1/3

cost/benefit ratio, the Audit staff has not been supplied with

any documentation beyond the narrative section of the GEC's

response to analyze this contention. In addition, we have not

been provided with any evidence with respect to the $13,000

purportedly spent by the other candidate's committee to assess

the impact of those expenditures on this matter. Therefore,

based on our re-evaluation of the information regarding this

rally, it is the opinion of the Audit staff that the GEC has

failed to provide documentation sufficient to demonstrate that

the $12,561.78 was spent for qualified campaign expenses.

On May 2, 1986 (almost five months after

the interim response due date), the GEC supplied additional

information. related to this rally. Since additional testing must

be performed to verify the accuracy of these schedules, follow-up

fieldwork will be scheduled and addenda to this report will be

issued as necessary in accordance with 11 C.F.R. §§ 9007.l(b) (3)

and 9007.1 (e) (4) •
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Conclusion

No further action is necessary with respect to the $62,132 paid for a promotional mailing on behalf of the candidate and the

$14,000 paid to a corporation for promotional services.

In addition, on April 23, 1987, the Commission determined

that the 2/3 - 1/3 allocation set forth by the GEC in its

response relative to the campaign rally expenditures is

reasonable, and therefore no further action is necessary.

b. Apparent Undocumented Disbursements

The regulations at 11 C.F.R. § 9003.5(a) state

that each candidate shall have the burden of proving that

disbursements made by the candidate or his or her authorized

committee(s) or persons authorized to make expenditures on behalf

of the candidate or authorized committee(s) are qualified campaign expenses as defined in 11 C.F.R. § 9002.11. The

candidate and his or her authorized committee(s) shall obtain and

furnish to the Commission at its request any evidence regarding qualified campaign expenses made by the candidate, his or her

authorized committees and agents or persons authorized to make

expenditures on behalf of the candidate or committee(s) as

provided in 11 C.F.R. § 9003.5(b).

In addition, 11 C.F.R. § 9003.5(b) provides that

the committee be required to maintain a receipted bill or

cancelled check for all disbursements. This documentation shall

also state the purpose of the disbursement or be presented with

collateral evidence to document the expenditure.

The Audit staff reviewed the records made

available related to the GEC's media purchases. A portion of

those purchases for "spot TV" buys were handled by a media buyer, headquartered in New York City. Our reconciliation of net funds

transferred ($10,713,513.13) to the buyer versus the value

($10,311,932.32) of documentation provided in support of these

transfers indicated that $401,580.81 in funds transferred

remained unsupported. Our review was conducted during the week

of April 22, 1985. At that time, we were advised that additional

documentation would be forthcoming from the buyer.

In addition, the GEC opened a separate bank

account in each of the fifty states and three geographic regions.

The Audit staff reviewed bank statements, cancelled checks and
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other supporting documentation for all these accounts. During the review of the Connecticut account, the Audit staff noted that

the GEC did not have bank statements or cancelled checks for the

period November 1 through December 14, 1984. Between March 1,

1985 and May 14, 1985 the Audit staff made numerous requests for

these statements from the GEC.

During the period November 1 through December 14,

1984 the Audit staff found no evidence of transfers or other

deposits made to the Connecticut state account although it was

possible funds were received during this period. The balance per

bank as of December 14, 1984 was $6,422.08 less than the balance

per bank as of November 1, 1984 indicating that at least this

amount of checks had been paid by the bank.

Forty-three expenditures totaling $10,624.73 were

reported on the schedule G-P for Connecticut which did not clear

the bank during the period when bank statements were available

and could not be documented by cancelled checks or receipted bills.

At the exit conference, GEC officials said that

media invoices would be made available as soon as possible and

they had made a second request for the missing Connecticut bank

statements which would support the undocumented expenditures and

resolve the apparent discrepancy between the bank records and

reported expenditures.

In the interim report, the Audit staff recommended

that the GEC be requested to show that the above expenditures totaling $412,205.54 are qualified campaign expenses. Absent

such a showing, the Audit staff would recommend that the

Commission make an initial determination that the $412,205.54 be

repaid to the u.s. Treasury.

With respect to documentation for "spot TV" buys

handled by the media buyer, the GEC's response to the interim

report included invoice records relative to the amount found to

be initially undocumented. The Audit staff reviewed the records

made available and notes that payments for remaining "spot bUys"

are now adequately documented.

In the response, the GEC also supplied bank

statements for the Connecticut bank account which adequately documented the previously undocumented expenditures. The

information supplied also resolved the apparent discrepancy

between the bank records and reported expenditures•
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17

Conclusion

No further action is necessary wit~ regard to the

$401,580.81 in previously undocumented spot buys and the

$10,624.73 in expenditures made from the Connecticut bank

account.

c. Expenditures Paid Prior to the Beginning of the

Expenditure Report Period

The Regulations, at 11 C.F.R. § 9003.4(a) (1)

permit a candidate to incur expenditures before the beginning of

the expenditure report period, as defined at 11 C.F.R. S 9002.12,

if such expenditures are for property, services or facilities

which are to be used in connection with his or her general

election campaign and which are for use during the expenditure

report period. Such expenditures will be considered qualified

campaign expenses. Examples of such expenditures include:

Expenditures for establishing financial accounting systems,

expenditures for organizational planning and expenditures for

polling.

'~

On August 31, 1984, the GEC reimbursed $64,615.00

to the Primary Committee representing four (4) expenditures categorized by the GEC as voter registration and GOTV expenses. These expenditures were for telephone installation, telemarketing services, and postage paid in August, 1984 by the Primary

Committee prior to the beginning of the expenditure report period. (In accordance with 11 C.F.R. § 9002.12, the expenditure

report period began on August 22, 1984 - the date the Candidate

was selected as the nominee of his party for President). The

documentation supporting these expenditures does not clearly indicate when these service were used or if they were for polling

or GOTV. GEC officials believe these expenditures were incurred

in accordance with 11 C.F.R. § 9003.4(a) (1).

In the interim report, the Audit staff recommended

that the GEC show that the above expenditures totaling $64,615.00

were qualified campaign expenses. Absent such a showing, the

Audit staff would recommend that the Commission make an initial

determination that the $64,615.00 be repaid to the U.S. Treasury.

In its response to the interim report, the GEC

submitted documentation and explanations further detailing the

purposes of these expenditures. The information supplied

indicates that these are the type of start-up and polling

expenses permissible under 11 C. F. R. § 9003.4 (a) (1) •

Conclusion

No further action is necessary with respect to the above

expenditures totaling $64,615.00.
• 3.

18

Interest Earned on Investment of Federal

Funds

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The Regulations at 11 C.F.R. 5 9004.5 state

in part that investment of public funds or any other use of

pUblic funds to generate income is permissible, provided that an

amount equal to all net income derived from such investment, less

Federal, State and local taxes paid on such income, shall be

repaid to the Secretpry.

The Audit staff reviewed the GEC's investment

activity and determined that $496,796.58 in interest was earned

from investments of pUblic funds between August, 1984 and April,

1985. The income tax liability on this amount equals $228,434.42, leaving a balance of $268,362.16 repayable to the

Secretary of the Treasury.

On March 22, 1985, April 4, 1985, and July

12, 1985 the GEC made partial repayments to the Secretary

totaling $245,000, resulting in a balance due to the u.s.

Treasury of $23,362.16.

In the interim report the Audit staff

recommended that absent a showing to the contrary the Commission

make an initial determination that the $23,362.16 be repaid to

the u.s. Treasury.

On December 11, 1985, the GEC repaid the

$23,362.16 to the u.s. Treasury.

Conclusion

No further action is required on this matter.

4. Fee Payment to Media Firm

•

For a primary Presidential candidate, the

term "qualified campaign expense" is defined at 26 U.S.C. §

9032(9) as a purchase, payment, advance, or gift of money or

anything of value incurred by a candidate or by his authorized

committee, in connection with his nomination for election

(emphasis added).

For a General Election Presidential

candidate, the term "qualified campaign expense" is defined at 26

U.S.C. § 9002(11) (A) (iii) as an expense incurred by an authorized

committee of the candidates of a political party for the offices

of President and Vice President to further the election of either

or both of such candidates to such office. Under 26 U.S.C. S

9007(b) (4) (A), if the Commission determines that any amount of

any payment made to the eligible candidates of a political party
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under Section 9006 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 such candidate shall pay to the Secretary of Treasury

an amount equal to such amount.

The Regulations at 11 C.F.R. S 106.l(a)

require that expenditures made on behalf of more than one

candidate shall be attributed to each candidate in proportion to

the benefit reasonably expected to be received.

The Primary Committee and the GEC contracted

with Tuesday Team, Inc. (TTl) to handle the production and time

buying for commercials to be aired during both the primary and

general electon campaigns. For these services, the Primary

Committee paid a consultant fee of $1,000,000 to TTl. The

consultant fee for the GEC was $1,315,000.29. All but $26,225.00

of the GEC's fee was paid by the Republican National Committee in

accordance with 2 U.S.C. § 44la(d) (2).

In the interim report, the Audit staff cited

2 U.S.C. § 441b and said it appeared the consultant fee paid by

the GEC to its media firm was too low and a possible in-kind

corporate contribution had been made by the firm. Our analysis

was based on the application of a standard 17.65% mark-up on

media time buys and production costs normally charged by media

firms. (In fact, the Primary Committee used this standard markup rate to justify the $1,000,000 fee it paid to TTl.) Since the

GEC incurred $25,278,001.03 in media buys and production expenses (according to TTl's financial statements), the $1,315,000.29 fee

appeared much too low in light of the normal 17.65% mark-up.

At the exit conference, GEC officials

responded that the fee paid for the general election period was

negotiated when the market was "soft." They also said that their

contract was similar to media contracts with other "prestigious" firms that purchase a large volume of media time.

In the interim report, the Audit staff

recommended that the GEC submit evidence demonstrating an in-kind

contribution had not been received from the corporate media

consulting firm. The Audit staff added that based on a review of

that documentation, additional recommendations could be

forthcoming.

In its response to the interim report, the

GEC dismissed the Audit staff's interpretation of the Primary Committee's justification for the fee paid TTl during the

nomination period. The GEC simply stated that it sought and

obtained a flat fee arrangement through arms length negoti~tions.
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The GEC concluded that the fee was

substantial when considering the time frame "(a)nd there is

absolutely no evidence whatever that the fee did not compensate Tuesday Team for the market value of its services." The response

did not elaborate on this point, but instead contained

documentation supporting the contention that the media firm was

compensated for the market value of its services in accordance

with normal advertising business practices. The documentation

consists of articles from trade journals and a letter from an

advertising firm stating that negotiations often result in a set

fee instead of the standard 17.65% commission on media buys. The

articles indicate that in lieu of the standard commission,

advertising firms will accept less when (1) the budgets are

large, (2) the clients are prestigious, and (3) the opportunity for growth is present.!/ One article quotes an industry official

as stating "as long as the advertiser recognizes our right to

have a decent profit, 7.5% to 10% of gross billings, you can

project profit and manpower usage."

The Audit staff agrees that the documentation

supplied supports the contention that TTl was compensated for the

market value of its services to both the Primary Committee and

the GEC in accordance with normal industry practices L This

conclusion is based on the Audit staff's analysis of combined

activity of both the Primary Committee and GEC. The analysis

summarized on line 3 of Attachment 1 indicates that TTl received

an average gross profit of 8.336% for its services to both

committees. This rate of return is consistent with normal

advertising firm practices as outlined in the articles supplied in the response. Therefore, it no longer appears that the media

firm has made an in-kind contribution to the GEC. Rather, it

appears that the fees negotiated by both committees were not

allocated properly between them. Our analysis summarized on

Attachment 1 and detailed below indicates that the GEC should

reimburse the Primary Committee $792,066.60 to reflect the proper allocation of the fee paid TTl in accordance with 11 C.F.R. §

106.1(a).

Attachment 1, at line 1, reflects total GEC

and Primary Committee expenditures for media buys and production

expenses as reflected on TTl's financial statements. Then we

combined the media time buys and production expenses of both

committees and compared that to the combined fees received by the

media firm (Attachment 1, lines 1. and 2., Total column). On

line 3. we calculated the average gross profit rate (before

•

!/ It is apparent that the Primary Committee could be viewed as

possessing all three attributes, however, it is unlikely that the GEC could be viewed in the same manner. TTl ceased

operating after completing its contract with the GEC.
•

21

administrative expenses) of 8.336% received by the media firm for

its services to both committees. Applying this rate to the

$25,278,001.03 paid by the GEC for production expenses and media

time buys results in an appropriate fee of $2,107,066.89 or

$792,066.60 more than the $1,315,000.29 actually paid. Conversely, application of the 8.336% gross profit rate to the

Primary Committee's payments for production and time buys of

$2,494,543.58 results in an appropriate fee of $207,933.40 or

$792,066.60 less than the $1,000,000.00 actually paid. As

explained below, th1s calculation was based on amounts contained

in TTl's financial statements which appear to already reflect an

allocation of $331,366.44 for production costs possibly related

to shared commercials.

The Audit staff's analysis based on the

Committee's response to the interim report, began with a review

of financial statements prepared by TTl. We noted the following

breakdown of expenses:

N

'.

GEC Primary

1. Production $ 2,630,633.26 $ 576,811. 62

Costs

2. Media Time 22,647,367.77 1,917,731.96

Buys

3. Total of 1. $25,278,001. 03 $2,494,543.58

and 2.

4. Consulting $ 1,315,000.29 $1,000,000.00

fee

Total

$ 3,207,444.88

24,565,099.73

$27,772,544.61

$ 2,315,000.29

•

Prior to obtaining TTl'S financial

statements, the Audit staff had reviewed bank statements and

related supporting documentation with respect to these amounts.

With the exception of item 1., production costs, the

documentation provided by the committees and TTl materially

supported these amounts. Our review of bank records and related

supporting documentation indicated that prior to any allocation

for shared commercials (addressed at Finding III.A.5.), Primary Committee production costs totaled $908,178.06 and GEC production

costs totaled $2,299,019.22. Since total production costs for

both committees per bank records and supporting documentation

totals $3,207,197.28 ($908,178.06 + $2,299,019.22) or only $247.60 less than the total per the TTl accountant's financial

statements, it is the opinion of the Audit staff that the TTl

financial statements may reflect an adjustment for allocation of

shared commercials. In other words, it appears that TTl may have

allocated $331,366.44 in production costs from the'Primary
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Committee to the GEC. This contrasts with the Commission's

determination that indicated an appropriate allocation of

$181,877.55 (Attachment 2, line 9, Audi~ Analysis as adjusted). For a more detailed discussion of the Audit staff's analysis see

Finding III.A.5.

On February 4, 1986, the Audit staff met

informally with Counsel and the Deputy Treasurer for the

committees and requested an explanation regarding this apparent allocation reflected on TTl's financial statements. The

Committee officials could not account for the apparent allocation. Therefore, the Audit staff supplied the Committee

officials with workpapers similar to Attachment 1 and explained

how the consulting fee allocation of $792,066.60 was calculated

using the figures from TTl's financial statements which appeared

to already reflect the larger allocation of $331,366.44 for

shared commercials.

The issue involving proper allocation of the

fees paid to TTl was not included in the GEC interim report.

Therefore, the GEC will be afforded an opportunity to respond to

the Commission's initial determination. This response will be

considered by the Commission in reaching a final determination

(See 11 C.F.R. § 9007.2(c».

Conclusion

On April 23, 1987, the Commission determined that the GEC

owes the Primary Committee $792,066.60 and this amount should be

included in expenditures subject to the limitation (Finding III.A.l.) and the Statement of Net Outstanding Qualified Campaign

Expenses (Finding llI.A.6.). This allocation was presented to

the Primary Committee in July 1986 as part of an initial

repayment determination contained in the final audit report. The

Primary Committee has submitted a written response disputing the

Commission's initial repayment determination and has requested an

opportunity to address the Commission in Open Session.

The GEe is also to provide the Audit Staff with an

explanation, accompanied by adequate supporting documentation, of

the apparent allocation of $331,366.44 in production costs from

the Primary Committee to the GEC as reflected in TTl'S financial

statements. Such documentation, at a minimum, is to include

journal entries, ledger pages, cost distribution schedules,

adjusting entries, related CPA workpapers, and any other

documentation which will permit verification of the $576,811.62

total of Primary Committee production costs as reflected on TTl's

financial statements. As noted above, this apparent allocation

contrasts with the Audit Analysis as reflected on line 9 of

Attachment 2.
• 5.

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Media Production Costs

The Regulations, at~l C.F.R. § 106.l(a)

require that expenditures made on behalf of more than one

candidate shall be attributed to each candidate in proportion to

the benefit reasonably expected to be derived.

Certain production costs, identified by the

Primary Committee a~ relating to commercials to be aired during

both the primary and general election campaigns, were viewed by Committees as allocable between the primary and general election

campaigns. On September 7, 1984, the GEC reimbursed $304,389.50

to the Primary Committee. The Primary Committee indicated that

this amount represented 50% of total production costs associated

with certain commercials. The committees' Deputy Treasurer

stated that this allocation was based on the fact that the same

commercials were produced for use in both the primary and general

election campaigns and that the allocation percentage was

developed in early 1984 based on planning and estimated usage of

production ppieces. For a complete discussion of this issue,

please refer to Finding III.B.2. contained in the Final Audit

Report on the Primary Committee.

On June 26, 1986, the Commission determined that the

audit analysis at Attachment 2 should be adjusted to reflect

Commission approval of the committees' 50/50 formula for

allocating production costs between the two campaigns.~/ The

Commission further determined that within 30 days of receipt of

this report, the Primary Committee is to seek from the GEC the

amount ($39,443.55) ~/ of allocable production costs still owing.

It should be noted that the Primary Committee disputed this

determination.

§.!

•

As noted on pages 21-22, the financial statements prepared

by TTl indicate a possible reallocation of $331,366.44 or

$149,488.89 more than the Audit Analysis as Adjusted as

shown on line 9 of Attachment 2.

This amount is $15,986.00 less than the amount noted in the

Primary Committee's audit report at Attachment 5, line 12

(Audit Analysis as adjusted column). The $15,986.00 reduct~on is necessary since this amount, representing the

portion of the fee paid to TTl by the Primary Committee, has

already been included in the $792,066.60 media fee

allocation. If the Commission determines that the

$792,066.60 media fee allocation is not appropriate, an

appropriate amount will be added back to the production cost

allocation amount. (See Findings III. A. 4. and III.A. 5. ) •

...
24

Conclusion

On April 23, 1987, the Commission determined that the GEC

owes the Primary Committee $39,443.55 and this amount should be

included in expenditures subject to the limitation (Finding III.A.l.) and the Statement of Net Outstanding Qualified Campaign

Expenses (Finding III.A.6.). This allocation was presented to

the Primary Committee in July 1986 as part of an initial

repayment determination contained in the final audit report. The

Primary Committee has submitted a written response disputing the

Commission's initial repayment determination and has requested an

opportunity to address the Commission in Open Session.

6. Determination of Net Outstanding Qualified

Campaign Expenses

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Under 11 C.F.R. § 9007.2(b) (3), if the

Commission determines that a portion of payments received from

the Fund under 11 C.F.R. part 9005 remains unspent after all

qualified campaign expenses have been paid, it shall so notify

the candidate, and such candidate shall pay the United States

Treasury that portion of surplus funds.

On March 28, 1985, the GEC presented an

updated Statement of Net Outstanding Qualified Campaign Expenses

("NOQCE") to the Audit staff depicting its financial position as

of December 6, 1984, the end of the expenditure report period (26

U.S.C. § 9002(12) (A». The Audit staff reviewed the available

books and records to verify the totals on the NOQCE and developed

the statement shown below•
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•

25

Analysis of

Reagan-Bush '84 General Election Committee

Statement of Net Outstanding Qualified Campaign Expenses As of March 31, 1'85

$ 92,989.33 $101,312.74

111,671.14 !o/ 124,216.80

35,843.37 ~/ -0-

50,811. 90 ~/ 50,360.27

Assets

Cash-on-Band

Accounts Receivable

Capital Assets

Maximum Allocation

To Exempt Legal &

o Accounting

Accrued Interest

Receivable

';:r. Total Assets

.bi1ities

-Accounts Payab1e- Vendors

o

~eimbursement due - primary Committee

C'for - Media fee - Shared Coma':' mercia1s

~State Bank Accounts

Estimated

Liabilities

$

Audit

10,833.79 9./

64,482.79

792,066.60!./

39,443.55!./

5,861.98

-0-

GEC

-0-

$ 65,144.92

-0-

-0-

30,000.00

Audit

$ 302,149.53

GEC

$275,889.

Income Taxes Due

Interest Repayment Due

Total Liabilities

4,937.54

168,362.16

4,937.54

168,362.16

1,075,154.62 268,444.6

Net Outstanding

Qualified Campaign Expenses

_Heit)

$ (773,005.09)f/ $ 7,445.1
. -----

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26

• al Included in this amount is an account receivable of

$20,655.60, representing reimbursements due the GEC from a

news organization for travel on GEC chartered aircraft.

This amount may be adjusted downward as additional

information becomes available concerning the collectibility

of the recei7able. See discussion on pages 28-29.

bl See discussion entitled Capital Assets on page 27.

During the campaign, Federal funds were, according to the

Deputy Treasurer, transferred in error to the Primary Committee and to the Compliance Fund. The value shown is

the amount of interest, as calculated by the Audit staff,

earned on the investment of the Federal funds.

These allocations were presented to the Primary Committee °in

July 1986 as part of an initial repayment determination

contained in the final audit report. The Primary Committee

has submitted a written response disputing the Commission's

initial repayment determination and has requested an

opportunity to address the Commission in Open Session.

The audited NOQCE statement on page 25 reflects a deficit of

$773,005.09 while the Audit Analysis - Overall Limit on ~ages 8 and 10 indicates that the GEC incurred expenditures 1n excess of the limit by $808,848.56. This difference of

35,843.47 is explained by the items listed below.

cl The Audit staff's analysis of the GEC's calculation of the

amount available for allocation of exempt legal and

accounting costs between the Compliance Fund and the GEC

indicated that $926,355.27 could be properly allocated. As

of this date, the Compliance Fund has reimbursed the GEC

$875,543.37, thus leaving a balance of $50,811.90

eligible for reimbursement. The GEC, at its election, may

allocate all or a portion of the $50,811.90. For the

purpose of this calculation, it is assumed that the

allocations and reimbursements from the Compliance

Fund will be made. -

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B.

Additional capital assets not recognized

by the GEC on the NOQCE statement

(See discussion on page 27)

Unexplained miscellaneous adjustment

$35,843.37

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$35,843.47
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The GEC is generally in agreement with the

various components contained in the NOQCE statement prepared by the Audit staff with the exception of two components as discussed

below and the allocation of the media fee and shared production

costs discussed at Finding III.A.4. and III.A.5.

Capital Assets

Included in the accounts receivable total contained in the

GEC's NOQCE statement is $40,658.00 representing capital assets.

This amount represents the value of capital assets purchased after March 31, 1985 from the GEC by the Compliance Fund. The

Audit staff's NOQCE includes this amount in the accounts

receivable balance of $111,671.14. The GEC does not recognize

any of the additional $35,843.37 in the capital assets category

shown on the Audit staff's NOQCE.

The $35,843.37 represents the GEC value of certain capital

assets which the Audit staff was not able to account for based on

our analysis of records made available by the GEC concerning the

purchase and sale of assets acquired by the GEC for use in the

general election campaign. The Audit staff was precluded from

performing the necessary procedures to obtain sufficient

competent evidential matter needed to form an opinion as to

whether the books, records, and disclosure reports of the GEC

properly reflected the acquisition and disposition of assets.

The Audit staff, based on the information and records made

available, could not verify either the total number and value of

assets purchased nor the ultimate disposition of the capital

assets (see Section I.C. Scope, page 2).

The GEC's response to the interim report included a schedule

which the GEC said shows the disposition of the $37,956.37 in

capital assets questioned in the interim report. The schedule

does not contain any documentation with which to verify these

transactions with the exception of one of the assets with a book

value of $2,113.00. It is also unclear when these items were

disposed and what, if any, compensation was received. Therefore,

the Audit staff has included an additional $35,843.37 ($37,956.37

less $2,113) in assets on the NOQCE Statement.

On May 2, 1986 (almost five months after the interim report

response du~ date) the GEC supplied additional schedules of asset

acquisition, depreciation, and dispostion. Since additional

testing must be performed to verify the accuracy of these

schedules, follow-up fieldwork will be scheduled and addenda to

this report will be issued as necessary in accordance with 11

C.F.R. §§ 9007.I(b) (3) and 9007.l(e) (4) •
•

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28

Accounts Receivable - Press Reimbursements Due

From News Organization

The GEC paid for charter aircraft transport the press contingent and so facilitate press coverage of the campaign. Included on the GEC's Statement of Net Outstanding Qualified

Campaign Expenses (NOQCE), is $20,655.60 due from a news

organization for its share of such travel expenses. This

receivable, as a committee asset, offsets the GEC's expenditures

subject to the expenditure limit. However, if it is written off

as uncollectible, since the news organization has filed for a

Chapter 11 Reorganization in bankruptcy, the GEC's expenses for

such travel arrangements will not be offset and so will count

toward the expenditure limit. The GEC officials said that they

expected reimbursement for such expenses, that they would not

have incurred them otherwise, and that therefore the unreimbursed

expense in no event should be charged to the expenditure limit.

Rather, the GEe proposes that it assign the receivable to the

Government at full value (and so offsetting the expenses allocable to the news organization) which can perhaps ultimately

achieve a return to the Treasury.

Notwithstanding the GEC's argument, presidential candidates

presumably provide such transportation services to the media to

further their campaigns. It is for this reason that the

regulations specifically provide such expenses "will be

considered qualified campaign expenses subject to the overall

expenditure limitation ••• " 11 C.F.R. § 9004.6(a). The

regulations further provide that only "[i]f reimbursement for

such expenditures is received by a committee, ••• [the amounts

received] may be deducted from the amount of expenditures that

are subject to the overall expenditure limitation ••• " 11 C.F.R. §

9004.6 (b) (emphasis added). Accordingly, the debt should be

treated as a receivable and adjusted as necessary. The GEC's

offer to assign to the Government its right to collect the debt

in bankruptcy does not resolve the issue as to whether or not the

GEC's unreimbursed qualified campaign expenses are to count

against the GEC's expenditure limit under 2 U.S.C. § 44la.

Further, such an effective purchase of the receivable in return

for the right to attempt to collect it in bankruptcy court is not

provided for or anticipated by the Act or the Regulations, and

would not appear to accord to the Commission any greater priority

in pursuit of the claim.

GEC Response to Interim Report

With respect to the receivable for a press reimbursement due

from a news organization, the GEC responded that the Audit

staff's position is a " ••• hypertechnical response to what is

essentially an unexpected and unique circumstance." The GEC

argues that they relied in good faith upon the assurance o~ a
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major news organization that it would provide reimbursement. By

making the GEC the guarantor of such payment, the GEC implies that the Commission discourages an arrangement which contributes

to the public interest by aiding close a~d accurate reporting of

the candidate's activities.

In its response, the GEC submitted an alternative proposal. The proposal suggested that the Compliance Fund be permitted to

take assignment of the receivable at face value. The GEC argued that such an arrangement will satisfy the Commission's obligation

to recover federal funds while protecting the GEC from being unfairly penalized for its good faith reliance in budgeting the

news organization's promise of reimbursement.

The Audit staff believes that an assignment of the

receivable to the Compliance Fund at face value would represent a

contribution from the Compliance Fund to the GEC. Such

contributions are prohibited under 26 U.S.C. § 9003(b) (2). Under

normal business practices, entities frequently assign delinquent receivables to brokers or collection agents who specialize in

recovering bad debts. In such an arrangement, the entity which

sold the receivable would receive only a portion of the face

value of the receivable in return, never the full value.

However, the Commission's regulation at 11 C.F.R. § 9003.3(a) (2)

lists the following permissible uses of contributions to the

legal and accounting compliance fund: a) to defray the cost of

legal and accounting services provided solely to ensure

compliance; b) to defray that portion of expenditures for

payroll, overhead and computer services related to compliance; c)

to defray any criminal or civil penalties; d) to make

repayments; e) to defray the cost of soliciting contributions to

the legal and compliance fund; and f) to make a loan to an

account established to defray qualified campaign expenses

incurred prior to the expenditure report period or prior to the

receipt of Federal funds, provided that the amounts so loaned are

restored to the legal and compliance fund. 11 C.F.R. §

9002.3(a) (2) (A)-(F). These permissible uses do not include the

purchasing of accounts receivable, nor are any of listed uses

similar in nature to the purchasing of receivables. The

purchasing of such receivable would allow an infusion of private

funds into a publicly-funded campaign. Therefore, the Audit

staff is of the opinion that the GEC may not assign (sell) the

receivable due from the news organization to the Compliance Fund

irrespective of any determination of appropriate fair market

value of the receivable.

Conclusion

The NOQCE statement presented above indicates a deficit

caused by expenditures made in excess of the limitation and that
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matter is addressed at Finding III.A.l. Adjustments may be made

to the NOQCE statement as a result of the GEC's response to

Findings III.A.l., 4., and 5.7/ In addLtion, follow-up fiel~work

may be performed to verify actual expenses and addenda to th1s

report will be prepared as necessary.

7. Matters Referred to the Commission's

Office of General Counsel

.

a. A certain matter noted during the audit

has been referred to the Office of General Counsel.

IV. Summary - Amounts Repayable to the u.S. Treasury

Presented below is a summary of the amounts subject to the

repayment provisions of 26 U.S.C. S 9007(b) as discussed in

Section 111. of this report.

'.n Finding III.A.l. Expenditures Apparently $ 808,848.567/

in Excess of Limitation

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Total Repayment Amount $ 808,848.56

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7/ As noted in Findings III.A.l., 4., and 5., the Primary

Committee has disputed allocations included in the repayment

calculation•
-----------------~-..-~ '-.' ----. __._.-. '.-..--

!I Aaount. ar. ba.ed on Audit .taff reconciliation. of bant account. aaintained bJ ~I exc1u.ive1y on behalf of the ca.aittees, and ~I Pinancial Stateaent••

Reagan-Bush '8C General B1ectlon Ca..ltte.

Reagan-Bu.h 'S4 (Prlaary Ca..lttee)

Proper Allocation of Pee Paid to Media Plr. (~)

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,

'fotal

Attac"'nt 1

Pinal Aadlt Ieport ..agan-Ialb '.4 GIC

Page 1 of 1

(2,315,000.2')

• 2,315,000.2'

• 2,315,000.2'

• -0-

,

U1,172,5".11

6 ...

:)

$ 2,494,543.51 !I

(1,000,000.00)

$21,112,544.61) • ~,

• 1,000,000.00

• 201,933 ••0

($ 192,066.10)

2

Reagan-Bu.h ' .. (Priaary Ca..ltt••)

o 7 o '.4 q q

(1,315,000.29)

$25,218,001.03 !I

$ 1,315,000.29

$ 2,101,066.89

$ 192,066.60

($ 2,315,000.29

Reagan-Bu.h '8C

General Election Ca..lttee

2. Media Pe. Paid

1. Media Buy. and

Production Bxpen.e.

3. Calculation of

Averag. Gros. Profit

(Un. 2 total - 11ne 1 total)

4. Application of

Gro.. ProUt to

Buys

(8.336' x line 1 •

Proper Pee Pay.ent)

5. Le••, Actual Pee

paid hca 11ne 2

6. R.I.bur....nt Du.

Pri.ary Prca GEe

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Attachment 2

Final Audit Report Reagan-Bush '84 GEC

Page 1 of 1

Reagan-Bush '84 General Election Committee

Calculation of Allocable Production Costs

1. Total Allocable

Production Costs

2. Less: Primary Only Commercials:

Spring of 84:30

Spring of 84:60

America's Back:30

America's Back:60

Prouder Stronger

Better:30

~3. Less: General Only

Commercial: The Bear rp

~~. Net Production Costs

to be split

•

Allocation to GEC

of shared Commercials

~6. Add: General Only

r) Commercial: The Bear

~7. Amount Allocable

.., Audit Audit Analysis

Committee Analysis as adjusted

$662,533.00 $696,726.36 $696,726.36

(49,206.00) (49,206.00) (49,206.00)

(73,810.00) (73,810.00)

(146,354.00) (146,354.00) (146,354.00)

(97,569.00) (97,569.00) (97,569.00)

(84,537.00)

( 53,754.00) ( 53,754.00) ( 53,754.00)

231,113.00 276,033.36 276,033.36

$115,557.00 $166,131. 44 $138,016.68

26,877.00 53,754.00 53,754.00

142,434.00 219,885.44 191,770.68

Less: GEC payments for

Primary Only Commercials:

America's Back:60

America's Back:30

9. Net Amount Allocable

10. Amount Reimbursed

11. Amount yet to be

Reimbursed by GEC

-0-

-0-

142,434.00

(142,434.00)

$ -.,.;;0'--_

(7,012.10)

(2,881.03)

209,992.31

(142,434.00)

$ 67,558.31

(7,012.10)

(2,881.03)

181,877.551/

(142,434.00)

$ 39,443.55

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The $181,877.55 of allocable production costs from the Primary

Committee to the GEC production account indicates Primary Committee

production costs of $726,300.51 ($908,178.06 - $181,877.55). It is

noted that in Finding 111.A.4., Fee Payment to Media Firm, Primary Committee production costs are reflected as $576,811.62. This figure

was taken from the 1/31/85 TTl financial statements. To date~.the

committees have not provided access to records which will explain this

difference. Once those records are provided and received by the Audit

staff, adjustments will be made.

.

FEDERAL ElECTION COMMISSION

WA')ttlNI,IIIN 1)( 104hl

MEMORANDUM

July 11, 1988

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TO:

FROM:

SUBJECT:

Fred Eiland

Chief, Press Office \,~tJ

Kim L. Bright-Coleman~'

Special Ass_stant General Counsel

Public Issuance of the Statement of Reasons

for the Final Repayment Determination for

Reagan-Bush '84 General Election Committee

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Attached please find a copy of the above mentioned Statement

of Reasons which the Commission approved on June 2, 1988.

Informational copies of the Statement of ReaSons have been

received by all parties involved and the document may be released

to the pUblic.

Attachment as stated

cc: Audit Division

FEC Library

Public Disclosure l/

Reports Analysis Division
~{~ _ ~~ 4w~~~

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FEDER.\ L ( L CTI()" ( ( )\\ \"S I()"

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June 2, 1989

John J. Duffy, Esquire Piper & Marbury

1200 - 19th Street, N.W.

Washington, D.C. 20036

Dear Mr. Duffy:

The Commission has considered the responses filed on behalf

of the Reagan-Bush '84 General Election Committee to the

Commission's initial repayment determination contained within the

Report of the Audit Divlsion on the Committee issued on Ma¥ 7,

1987. On June 2, 1988, the Commission made a final determlnation

that President Ronald Reagan, Vice President George Bush, and the

Reagan-Bush '84 General Election Committee are not required to

make an additional repayment to the United States Treasury.

Enclosed is a Statement of Reasor.s in support of the

Commission's final determination. See 11 C.F.R. § 9007.2(c) (4).

Judicial review of the Commission's determination is available

pursuant to 26 U.S.C. § 9011.

S incerel

h

Y, /' . /

~~ rI~_______ Thomas J. Josefiak

Chairman

Enclosure
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BEPORB THE FEDERAL ELBerION COMMISSION

In the matter of )

)

President Ronald Reagan, )

Vice President George Bush, )

Reagan-Bush '84 General )

Election Committee, and )

Reagan-Bush '84 Compliance Fund )

STATEMENT OF REASONS

On June 2, 1988, the Commission made a final determination

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that no additional repayment is due from President Ronald Reagan,

Vice President George Bush, and Reagan-Bush '84 General Election

Committee. This Statement sets forth the legal and factual basis

for the Commission's determination in accordance with 11 C.F.R.

S 9007.2(c) (4).

c I. BACKGROUND

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Reagan-Bush '84 General Election Commi t tee ("GEC" or

"Committee") is the principal campaign committee of President

Ronald Reagan and Vice President George Bush, candidates for the

office of President ana Vice President in the 1984 presidential

general election. The Reagan-Bush '84 Compliance Fund

("Compliance Fund") is the registered legal and accounting fund

of the Committee •
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The GEC received $40.4 million in pUblic funds under the

Presidential Election Campaign Fund Act, 26 U.S.C. 5§ 9001-9013,

(QFund Act") to defray expenses "incurred by the candidate of a

political party for the Office of President to further his

election to such office ••• " 26 U.S.C. S 9002(11) (A) (i). See

also 26 U.S.C. S 9004(c) (1). In order to establish their

eligibility under the Fund Act, President Reagan and Vice

President Bush certified that their campaign for election would

abide by a spending limit equal to the amount of the public funds

grant. See 26 U.S.C. S 9003(b) (1). See also 2 U.S.C.

S 44la(b) (1). Under 26 U.S.C. S 9007(b) (2), the Commission may

determine that the eligible candidates of a political party and

their authorized committees have incurred qualified campaign

expenses in excess of the aggregate payments to which the

eligible candidates of a major party were entitled under

section 9004, and require that such candidates repay an equal

amount to the United States Treasury. See also 11 C.F.R.

§ 9007.2(b)(2).

The Fund Act requires the Commission to conduct a thorough

examination and audit of the qualified campaign expenses of

pUblicly-funded campaigns of the candidates of each political

party for President and Vice President. 26 U.S.C. § 9007(a).

Based upon its audit of the GEC, the Commission made an initial

determination on May 7, 1987, that the Committee must repay

$808,848.56, representing the amount of expenditures the
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Committee had made in exc~ss of the limitations, to the United

States Treasury.l/ The Commission's determination in this

respect was based upon the inclusion of several expenditures in

the GEC's expenditures subject to the overall spending limits.

First, the Commission determined that the GEC owed $792,066.60 to

Reagan-Bush '84 ("Primary Committee"), the candidates' principal

campaign committee as candidates for the Republican nomination

for President and Vice President in 1984, for its allocable share

of the fee paid to Tuesday Team Inc. ("Tuesday Team" or "TTl"), a

media firm. Secondly, the Commission determined that the GEC

owed the Primary Committee $39,443.55 for media production costs

for commercials intended for use in the general election

campaign. Finally, the Commission further increased the amount

of expenditures subject to the limit based on adjustments to the

Committee's Statement of Net Outstanding Qualified Campaign

S'.. Expenses ("t>JOQCE Statement"). These findings were set for th in

the Audit Report on the GEC issued on May 7, 1987.1/

Attachment 1. Pursuant to 11 C.F.R. § 9007.2(c) (2), the GEC

•

1/ The GEC had previously repaid $23,362.16 to the United States

Treasury for interest earned on investment of federal funds on

December 11, 1985. See 11 C.F.R. § 9007.2{b) (4).

1/ Corresponding findings regarding the media fee and production

cost allocations were set forth in the Commission's audit report

on the Primary Committee issued on July 8, 1986. Attachment 5.

The GEC Audit Report noted that the Primary Committee had

disputed the Commission's initial determination. See Attachment

1 at p.24.
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submitted a response to the Audit Report on August 7, 1987, and

requested an opportunity to make an oral presentation as part of

its response to the initial repayment determination.1/

Attachment 2.

On February 9, 1988, the Commission made a final repayment

determination with respect to the Primary Committee.

Attachment 4-A. The Commission determined that the Primary

Committee was not required to seek a reimbursement from the GEC

for any amount of the media consultant fee paid to Tuesday Team.

~he Commission also determined, however, that the Primary

Committee must seek reimbursement from the GEC for $39,443.55 in

production costs.

The Statement of Expenditures Subject to the Limit and NOQCE

Statement were subsequently revised to conform with the

Commission's determinations, and to update figures based on GEC

disclosure reports through September 30, 1987. Attachment 16.

The revisions included eliminating a receivable of $20,868.07

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1/ Counsel for the GEC sUbsequently withdrew his request for an

oral presentation. Counsel for the Primary Committee and GEC had

previously made an oral presentation on July 29, 1987, with

respect to the Primary Committee, urging reversal of the

Commission's initial determination. The Commission prepared a

transcript of this presentation and provided counsel with a copy.

Attachment 10. At the conclusion of the meeting, counsel was

advised that the Commission would consider any additional factual

and legal materials he wished to submit. Counsel submitted

additional information for Commission consideration in letters

dated August 5, 1987 and August 12, 1987. Attachments 11 and 12 .
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from a news organization. This receivable was originally

included in the GEC's NOQCE Statement as a receivable from a news

organization for reimbursement of air travel costs paid by the

Committee. Attachment 1 at pp. 25-26 and 28-30. The Audit

Division recommended that this debt be treated as uncollectible

in accordance with the Commission's treatment of a similar debt

in the context of an audit involving another publicly-financed

campaign and made appropriate adjustments to the GEC's NOQCE

Statement. Attachment 16. In a letter dated February 12, 1988,

the Committee agreed to treatment of the receivable as

uncollectible. Attachment 17. Finally, the Committee has

indicated that the Compliance Fund will reimburse the GEC for

$26,637.97, which would eliminate the repayment obligation.

Attachments 17 and 18.

The Commission modifies its initial determination in

accordance with its final determination regarding the Primary

Committee and the revisions to the NOQCE Statement. Therefore,

the Commission makes a final determination that the Reagan-Bush

'84 General Election Committee is not required to make an

additional repayment to the United States Treasury.

I I. DISCUSSION

A. Introduction

The Commission's audits of the GEC and Primary Committee

revealed that the two committees shared the services of a media

consultant firm, Tuesday Team, Inc., for commercials which aired

~uring both the primary and general election campaigns. TTl's
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services for the Primary Committee and the GEC included

developing the advertising campaign for President Reagan's

reelection, producing the advertisements, and arranging for their

placement in various television and radio markets. The

committees made separate payments to Tuesday Team for direct

production costs, purchases of advertising time and the fee for

its services. It appears that the committees had intended that

most, if not all, of the commercials produced for the primary

would also be used in the general election period. However, the

committees later decided to use only roughly half of the primaryproduced commercials in the general election period. The

production costs of the shared advertisements were allocated

between the two committees on a 50/50 basis. 3y separate

contracts with Tuesday Team, the committees allocated the fee for

Tuesday Team's services between the primary and general election

campaigns, $1 million and $1.3 million, respectively.

The Commission's review raised questions concerning the

allocation of the production costs for the advertisements between

the campaign committees. Moreover, the Commission questioned

whether the fee paid for the media firm's services was allocated

properly between the Primary Committee and the GEC. The Primary

Committee paid a fee to TTl of $1 million, while the GEC paid TTl

$1.3 million. However, the GEC used approximately six (6) times

as many commercials as did the Primary Committee, and spent more

than eleven (11) times as much to purchase advertising time for
h::~ff;.~~t~[1t:~~:q~,~:; \~.~.::~j,.v,¥t,

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the commercials as did the Primary Committee.~/ Since the media

activity by the GEe appeared to greatly exceed that of the

Primary Committee, the relationship of the amount of the fees

paid by the two committees seemed disproportionate. Therefore,

the Commission auditors questioned whether the GEC's media

expenses were in effect subsidized by the Primary Committee.

B. Pee Payment to Media Firm

The fee allocation question was initially raised during the

audit of the Primary Committee when the Audit Division indicated

that, under normal industry practice for advertising contracts,

the client pays a fee to a media firm that is calculated by a

particular percentage (~ 17.65%) of the cost of the time buys.

Attachment 5 at pp. 11-12. By this standard, the $1 million fee

paid by the Primary Committee when compared with the total time

buys during the primary period ($1.9 million) seemed excessive.

In an informal response to the Audit staff, the Primary Committee

submitted a sample media firm contract and asserted that

ordinarily media firms charge the mark-up not only on time buys,

but also on production costs and other services in the creative

~/ Tuesday Team produced nine commercials for the Primary

Committee of which eight were actually used during the primary

period. According to a schedule of commercials aired, including

additional commercials identified by the Audit staff, it appears

that at least fifty commercials were produced by TTI for the

general election campaign and that four additional commercials

produced for the Primary were used in the general. While the

Primary Committee paid Tuesday Team approximately $1.9 million

for time bUys during the primary period, the GEC paid

approximately $22.6 million for time buys during the general

election campaign.
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area, and that the $1 million fee paid TTl was in lieu of mark-up

on more than simply time buys. Attach,,,ent 14.

The fee allocation question was further developed in the

audit of the GEC, when the auditors examined the $1.3 million fee

the GEC paid Tuesday Team for the more than $22 million in time

t ~s and more than $2 million in production costs. The interim

report on the GEC contained a finding that the GEC had apparently

paid a disproportionally small fee bas~~ on the amount of time

buys and production costs made on its behalf, and suggested the

possibility of a prohibited in-kind contribution by TTl to the

GEC.

In response to the interim report, the GEC argued that the

fee fully compensated TTl for the market value of its services.

Attachment 3 at pp. 5-7. The auditors evaluated the total media

fee in view of the GEC's response, and concluded that TTl

received a commercial return only when the media activities of

the two committees were viewed as whole.2/ On the basis of

this approach, the Audit Report concluded that the GEC owed the

Primary Committee $792,066.60, thereby increasing its expenditures subject to the limit. Attachment L.

2/ The Audit staff used the figures from TTl's financial

reports to calculate the amount of production costs allocable to

each committee. These figures differed from those verified by

the Audit staff from bank records and other records. Counsel

provided an explanation for this discrepancy in the response to

the Audit Report on the GEC (Attachment 2 at pp. 13-14). The

Commission modified its calculations accordingly.
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As in the responses submitted on behalf of the Primary

Committee, the GEC has raised objections to the allocation to

the GEC of any portion of the fee paid by the Primary Committee.

See Attachments 2, 7, 8, 9, 10, 11, and 12. Upon further

consideration of the media fee allocation with respect to the

Primary Committee, the Commission decided on December 17, 1987,

that while there are valid arguments for both allocation methods,

the committees' allocation of the fee in this instance was

reasonable. The Commission, thus, modified the position taken in

its initial determination and made a final determination on

February 9, 1988, that the Primary Committee was not required to

seek reimbursement from the GEC for any amount of the media

consultant fee paid to Tuesday Team. Therefore, consistent with

the final determination with regard to the Primary Committee, the

Commission has determined that the GEC does not owe any amount of

the media consultant fee to the Primary Committee. This reduces

the GEC's expenditures subject to the limit by $792,066.60.

C. Media Production Costs

The Commission's initial repayment determination was based

in part upon the inclusion of $39,443.55 in expenditures subject

to the limit, representing a reimbursement from the GEC to the

Primary Committee for the allocable amount of production ;osts

for shared commercials determined to be owing.&/ The issue

§/ The Audit Report on the GEe explains that this amount is

$15,986.00 less than the amount of production costs allocated to

the GEC in the Audit Report on the Primary Committee. This

(Footnote continued)
~~~J·1f1iJ!i~;i:';tt:::.~~~....~)··;~~·;;··~." '.'t''";"::''t;"'',"..a'!.£-:-:·t~'''' I:N~~·';.~ r1.:':~}.i..;":" ..•

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regarding the allocation of production costs originated during

the audit of the Primary Committee, which revealed that the

Primary Committee had allocated 50% of production costs for

certain commercials to the GEC, based on the assumption that

these commercials would be shared by both committees. On

September 7, 1984, the GEC ~eimbursed the Primary Committee

$304,389.50 for its share of the production costs for these

advertisements. However, in February 1985, based on a new

calculation of which advertisements were actually shared, the

Primary Committee returned to the GEC the net amount of $161,955.

Thus, the amount paid by the GEC for the commercials was

$142,434.

Upon review of the bases for the committees' allocation of

the production costs, the Commission's Audit Division indicated

that the two committees had not allocated these expenses properly

between them. The auditors verified the amount of direct

production costs and the amount of production costs allocated to

each committee was adjusted accordingly. The appropriate amount

of production costs allocable to each committee was then

calculated using the adjusted figures.

While the GEC did not raise specific ob4ections to the

production cost allocation, its response to the Audit Report

incorporates by reference the arguments made by the Primary

reduction was made because this amount had been included in the

media fee allocation. The Primary Committee disagreed with the

amount included in the production costs as a portion of the fee

paid to Tuesday Team by the Primary Committee. Attachment 7 at

p .11.
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Committee. Attachment 2. In its response to the initial

determination, the primary Committee accepted the Commission's

initial determination relating to allocation of the production

costs for shared commercials. Attachment 7 at p.ll. However,

the Primary Committee contended that a Spanish language version

of the "Statue of Liberty" television commercial produced by the

Primary Committee was not used by the GEC and that production

costs of $34,193 were associated with that version. Therefore,

the Primary Committee asserted that this amount should be

excluded from the total production costs required to be split

between the Primary Committee and the GEC. Attachment 7 at

p. 11•

The Commission decided on December 17, 1987, that the

Primary Committee's factual assertion as to use of the Spanish

language commercial was unsupported. The auditors reviewed both

committees' advertising time charges, determined that the

commercial in question was aired repeatedly during the general

election campaign, and provided clear documentation of this fact

to the Deputy Treasurer. Attachment 4-A at p.12. A sample

invoice from a Spanish language television station showing that

the commercial was used in the general election campaign is

attached. Attachment 15. At th~ oral presentation, counsel was

asked to clarify the b ;is for the Primary Committee's assertion.

Since none of counsel's post presentation submissions addressed

this issue, the Commission reJected the assertion that costs for

the commercial should only be allocated to the primary campaign.
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On February 9, 1988, the Commission made a final

determination that the Primary Committee was required to seek

reimbursement from the GEC in the amount of $39,443.55.

Attachment 4-A at 12.1/ In accordance with the Commission's

final determination with respect to the Primary Committee, the

Commission here determines that the GEC is required to repay

$39,443.55 to the Primary Committee for production costs

associated with shared commercials.

Statement of Net Outstanding Oualified Campaign Expenses

The Commission has modified the final repayment amount based

upon revisions to the GEC's Schedule of Expenditures Subject to

the Limit and Statement of Net Outstanding Qualified Campaign

Expenses to reflect the Commission's final determinations

concerning the media fee and production costs allocations with

respect to the Primary Committee. In addition, modifications

have been made to update other information and to eliminate a

receivable from a news organization as uncollectible.

Attachment 16. In a letter dated February 12, 1988, counsel for

the GEC agreed to these changes. Attachment 17. Moreover,

counsel has indicated that the Compliance Fund reimbursed the GEC

1/ As to the portion of the media fee included in the production costs allocation in the Primary Committee Audit Report, the

Commission concluded that since the allocation of the media fee

had been treated separately, no additional portion of the fee

need be included in the production costs allocation. Accordingly,

the Commission deleted the additional amount allocated to the

GEC, and reduced the additional reimbursement required by a

corresponding amount. Attachment 4-A at p.12. On May 27, 1988,

the GEC reimbursed the Primary Committee in accordance with the

final determination regarding the Primary Comm"ttee.
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in the amount of $26,637.q7.~/ The net effect of these revisions

is to reduce the GEC's expenditures subject to the overall

statutory limit under 2 U.S.C. S 44la(b) (1) .2/ Attachments 17

and 18.

~/ Counsel for the GEC indicated that on May 27, 1988, the

Compliance Fund reimbursed the amount of $26,637.97 to the GEC.

The NOQCE Statement sent to the GEC on January 14, 1988, included

a line item amount of $30,811.90, representing compliance

expenses paid by the Committee which ~ould be reimbursed by the

Compliance Fund. If the full allowable amount of $30,811.90 had

been reimbursed, it would have resulted in unspent Federal funds,

and a potential repayment obligation in the amount of $4,173.93.

However, the Committee has avoided a repayment to the United

States Treasury by limiting its reimbursement to $26,637.97.

Attachment 18.

~/ The Committee has agreed that its Compliance Fund will pay $19,950 in settlement of a civil suit, an amount not reflected

in the NOQCE or Schedule of Expenditures Subject to the Limit • Moreover, counsel for the Committee indicates that two other

civil suits are pending, which could result in similar resolutions. Attachment 18 at p.2. It appears that the Compliance

Fund may legitimately make any such payments on behalf of the

Committee for the following reasons. First, It is arguable that

such payments are not qualified campaign expenses under 11 C.F.R.

S 9002.11. See Statement of Reasons, Lyndon LaRouche/Citizens

For LaRouche (December 23, 1982), where the Commission determined

that certain litigation costs were not qualified campaign

expenses under the Primary Matching Payment Account Act. Second,

the Commission has taken the view that the costs of defending

law suits should not result in a committee using up its

expenditure limits of 2 U.S.C. § 441a(b). In AO 1980-4, a law

firm donated legal services to the Carter/Mondale Presidential

Commitee to defend against a law suit that had been filed against

the Committee. The opinion states that "to characterize the

donated legal services as contributions in this case would force

the Committee to charge the legal expenses to their expenditure

lImit under 2 U.S.C. § 441a(b)... . This result could, in turn,

lead to the situation where any committee similarly situated

would have to use up its expenditure limit ... in defending law

SUIts, rather than in campaigning for the presidency." CCH

§ 5457 at 10,506. Third, although not explicitly provided for in

the Commission's regulations at 11 C.F.R. § 9003.3(a) (2), this

type of use of legal and account-ing compliance funds appears to

be permissible given the fact that the campaign is over. See

2 U.S.C. § 439ai 11 C.F.R. § 113.2.
•

1. Capi tal Assets

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At the time of the Final Audit Report for the GEC, the Audit

Division Nas not able to account for $35,843.37 in capital assets

in the records provided by the GEC concerning the purchase and

sale of assets acquired for the general election campaign. On

May 2, 1986, the GEC supplied additional schedules of asset

acquisition, depreciation and disposition. Thereafter, an onsite

audit was conducted. Since this audit accounted for these

capital assets, the NOQCE Statement has been adjusted, and the

amount of $35,843.37 has been deducted from the current total of

assets.

The Commission's regulations include as qualified campaign

expenses the cost of providing transportation, certain ground

services, and facilities to media and Secret Service personnel

2. Reimbursements Due from News Organization

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who travel with the candidate. 11 C.F.R. § 9004.6(a). The

regulations further pr~/ide that "reimbursements received" from

the media or Secret Service "may be deducted from the amount of

expenditures that are subject to the overall limitation" of

2 U.S.C. § 441a(b) (1). 11 C.F.R. § 9004.6(b).

The GEC paid for charter aircraft to transport press members

who were covering the general election campaign. Most of the

press members and organizations who used this transportation

reimbursed the GEC for the cost as permitted by 11 C..R.

§ 9004.6(b). However, one news organization, which has filed

for a Chapter 11 reorganization in bankruptcy, still has not
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reimbursed the GEC for the cost of its transportation, which

totals $20,868.07. This receivable has been eliminated from the

GEC's NOQCE Statement because this amount is uncollectible. 10/

If this receivable were considered a committee asset, any

reimbursement for the expenditure received by the Committee would

offset the GEC expenditures subject to the expenditure limit.

However, since it has been written off as uncollectible, the

GEC's expenses are not offset, and thus, the full amount of the

receivable counts toward the expenditure limit.

Therefore, the Commission makes a final determination that

the receivable from the news organization is uncollectible and

that the amount of $20,868.07 should be deducted from the total

of accounts receivable, but should be included in the

expenditures subject to the overall limitation of 2 U.S.C.

§ 44la(b) (1). See Attachments 16 and 18.

10/ In its responses to the interim and final audit reports,

the GEC proposed that this receivable be assigned to the

government at full value, or in the alternative, that the

Compliance Fund take assignment of the receivable at face value.

Attachment 2 pp. 9-13, Attachment 3 p. 24-25. The Commission

concluded in the Final Audit Report that an assignment to the

Government is not anticipated by the Act or Comlnission

regulations and does not seem to give the Commission any greater priority in pursuit of the claim than the GEC. Moreover,

assignment of the receivable to the Compliance Fund would permit

the infusion of private funds into a publicly-financed campaign,

would be a contribution in violation of 26 U.S.C. § 9003(b) (2),

and does not appear consistent with the permissibl. uses of

contributions to the legal and accounting compliance fund

delineated at 11 C.F.R. § 9003.3(a) (2). Thus, the Commission

made an initial determination that the GEC may not assign the

receivable to the Compliance Fund irrespective of the fal~ market

value of the receivable. Attachment 1 at p. 29. Since this debt

is now being classified as uncollectible, the issue of assignment

is moot.
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I I I. PINAL IE'l'BRMlHATION

The Commission has made a final determination that for the

foregoing reasons, President Ronald Reagan, Vice President George

Bush and Reagan Bush '84 General Election Committee did not

exceed the $40,400,000 expenditure limitation of 2 U.S.C.

S 44la(b)(l)(B), 26 U.S.C. S 9007(b)(2), and are not required to

make any additional repayment to the United States Treasury.

Attachments

Report of the Audit Division on Reagan-Bush '84 General

Election Committee.

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2.

3.

4.

Reagan-Bush '84 General Election Committee Response to the

Final Audit Report.

Reagan-Bush '84 General Election Committee Response to the

Interim Audit Report.

Revised Statement of Reasons for Reagan-Bush '84 Primary

Committee. (Agenda Document)

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4A. Letter dated February 10, 1988 with attached Statement of

Reasons.

5. Report of the Audi t Division on Reagan-Bush '84 (Primary

Commi t tee) •

6. Response of Primary Committee to Interim Audit Report.

7. Response of Primary Committee to Final Audi t Report.

8. Analysis of Primary Committee response by the Audi t

Division.

9. Analysis of Issues Presented by the Oral Presentation

(Primary Committee) by the Office of General Counsel.

10. Transcript of Oral Presentation (Primary Committee) .

11. Letter dated August 5, 1987 from John Duffy .

12. Letter dated August 12, 1987 from John Duffy.
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13. M-.orandu. fraa Audit Divi.ion _.. _.vialon of Media ree

Allocation.

14. MellOrand_ fre. Ron Robert.on to Rick Balt.r Re. "a,an-

.uah '8. Pri.ary Caapalgn Media Coat••

15. S..ple ~eleviaion Station Invoice.

11. Meaorandu. _e. expenditur•• Subject to Li.it Update.

1'7. Letter fraa John Duffy dated 2/12/88.

18. MeIIOralad__e. rlna! HOQCI Stat.ent and Schedul. of

expenditure. SUbject to the Li.it.