• FEDERAL ELECTION COMMISSION

WASHINeTON, 0 C 20463

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REPORT OF THE AUDIT DIVISION

ON

HOLLINGS FOR ~RESIDENT, INC.

I. Backgrouna

A. Overview

This report is based on an audit of Hollings for

President, Inc. (lithe Committ.ee") to determine whether there has

been compliance wit.h the provisions of the Federal Election

Campaign Act of 1971, as amended (lithe Act"). The audit was

conduct.ed pursuant to Section 9038(a) of Title 26 of the United

States Code which states that "after each matching payment period, t.he Commission shall conduct a thorough examination and

audit of the qualified campaign expenses of every candidate and

his authorized committees who received payments under Section

9037."

In addition, Section 9039 (b) of Title 26 of the United

States Code and Section 9038.1(a) (2) of Title 11 of the Code of

Federal Regulations states, in relevant part, that the Commission

may conduct other examinations and audits from time to time as it

deems necessary.

The Committee registered with the Federal Election

Commission on January 14, 1983. In addition, disclosure reports

were filed covering all activity, including exploratory activity,

on April 19, 1983. The Committee maintains its headquarters in

Charleston, South Carolina.

The audit covered the period August 17, 1982, through

March 31, 1984, the last day covered by the most recent report filed with the Commission at the time of the audit. During the

period covered by this report, the Committee reported an opening

cash balance of $-0-, total receipts of $2,592,139.41, total

.disbursements of $2,543,248.43 and a closing cash balance of

$48,890.98. However, it is anticipated that the Committee will

continue to receive contributions and make disbursements. In

addition, revised statements of Net Outstanding Campaign Obligations will be submitted with each matching fund submission

as required by 11 CFR 9034.5(d). Under 11 CFR 9038.1(c) (4) additional audit work may be conducted and addenda to this report

issued as necessary.
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This report is based upon documents and working papers which support each of the factual s·tatements. They form part of

the record upon which the Commission based its decisions on the

matters in the report and were available to Commissioners and

appropriate staf~ for review.

S! Key Personnel

The Treasurer of the Committee is Mr. Rene Debacker.

C. Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactionsl

review of required supporting documentation; analysis of

Committee debts and obligations, review of contribution and

expenditure limitations, and such other audit procedures as

deemed necessary under the circumstances.

II. Finding Related to Title 2 of the United States Code

Matter Referred to the Office of General Counsel

A matter noted during the audit was referred to the Office

of General Counsel.

III. Finding Related to Title 26 of the United States ~ode

Determination of Net Outstanding Campaign Obligations

Section 9034.5(a), Title 11, Code of Federal Regulations requires that the candidate submit a Statement of Net Outstanding Campaign Obligations (NOCO) which contains, among other items,

the total of all outstanding obligations for qualified campaign

expenses and an estimate of the necessary winding down costs

within 15 days of the candidate's date of ineligibility.

On March 1, 1984, Senator Ernest Hollings announced ~hat he

had withdrawn from the race for the Democratic nomination for

President of the United States. Pursuant to Commission

regulations at 11 CFR § 9033.5(a), that is the date that Senator

Hollings' candidacy terminated for the purpose of incurring

qualified campaign expenses.

The Committee filed a NOCO on March 19, 1984 and

sUbsequently filed an updated NOCO detailing the Committee's

financial position as of April 14, 1984. Shown below is the

Committee's financial position (NOCO) as of April 14, 1984, as

determined by the Audit staff and agreed to by the Committee •
• Hollings for President, Inc.

Statement of Net Outstanding Campaign Obligations

April 14, 1984

Shown below is an adjustment for private contributions

received during the period of 4/15/84 to 5/2/84, the most curtent

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Committee financial information at the close of fieldwork:

Assets:

Cash in Banks

Accrued Income

Deposits and Advances

Total Assets

Obligations:

Accounts Payable Winding Down Costs

(through 6/1/84)

Total Obligations

Net Outstanding Campaign

Obligations (Deficit) as

of 4/14/84

$ 75,885.30

24,896.38

22,266.10

$123,047.78

$152,232.98

21,417.14

$173,650.12

$123,047.78

$173,650.12

($ 50,602.34)

Net Outstanding Campaign Obligations

(Deficit) as of 4/14/84

Private Contributions (4/15/84-5/2/84)

Remaining Entitlement as of 5/2/84

Conclusion

($ 50,602.34)

18,710.00

($ 31,892.34)

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The Committee's temaining entitlement pursuant to 11 CFR §

9034.l(b), as of 5/2/84 is·$3l,892.34. However, it should be

noted that estimates were used in computing the Committee's

deficit position as of 4/14/84, the Audit staff will review the

Committee's reports and records to compare the actual figures

with the estimates and prepare adjustments as necessary •

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FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C 204&3

February 24, 1986

MEMORANDUM

TO:

FROM:

SUBJECT:

FRED EILAND

PRESS OFFICER

ROBERT J. COSTA

!ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT - HOLLINGS FOR PRESIDENT, INC.

Attached please find a copy of the final audit report for

Hollings for President, Inc. which was approved by the Commission

on February 19, 1986.

Informational copies of the report have been received by all

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

Attachment as stated

cc: FEC, Library ~lic Record

RAD

Office of General Counsel

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FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C. 20463

ADDENDUM TO THE

FINAL RBPORT OP TBB AUDIT DIVISION

ON THE

ROLLINGS FOR PRESIDENT, INC.

1. Background

A. Overview

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On September 10, 1984, the Pederal Election Commission

("the Commission") released the final audit report on Hollings

for President, Inc. ("the Committee"). That report was based on

an audit of the Committee pursuant to 26 U.S.C. S 9038(a). The

audit covered the period August 17, 1982 through March 31, 1984.

This addendum is based on follow-up audit fieldwork and

a review of Committee filings. The follow-up fieldwork was

conducted pursuant to 11 C.F.R. S 9038.l(b) (3) which states that

the Commission may conduct additional fieldwork after completion of the fieldwork conducted pursuant to paragraph (b) (1) and (2) of this section.

In addition, 11 C.F.R. S 9038.1(e) (4) states, in part, that addenda to the audit report may be issued from time to time

as circumstances warrant and additional information becomes

available. Such addenda may be based, in part, on follow-up fieldwork conducted under paragraph (b) (3) of this section.

The follow-up fieldwork covered the period April 1,

1984 through August 30, 1984. In addition, documentation

submitted by the Committee as well as reports filed through September 30, 1985 were reviewed.

This addendum is based upon documents and working

papers which support each of its factual statements. They form

part of the record upon which the Commission based its decisions

on the matters in the addendum and were available to

Commissioners and appropriate staff for review.

B. Key Personnel

The Treasurer of the Committee during the period reviewed was Mr. Rene Debacker •
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C. Scope

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The fieldwork included an examination of required supporting documentation for receipts and disbursements, analysis of Committee debts and obligations (including winding down costs)

and such other procedures as deemed necessary to determine

whether the Committee received any matching fund payments in

excess of the amount to which it was entitled and whether any

amount of any payment made from the matching payment account was

used for any purpose other than to defray the qualified campaign

expenses of the Committee.

II. Pindings and Recommendations

A. Calculation of Repayment Ratio

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

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for purposes other than to defray qualified campaign

expenses or to repay loans the proceeds of which were used to

defray qualified campaign expenses, it shall notify such

candidate of the amount so used, and the candidate shall pay to

the Secretary an amount equal to such amount.

The Commission, in a Notice of Proposed Rulemaking published in the Federal Register on June 28, 1984, set forth a

pro-rata formula which would base repayments for non-qualified campaign expenses on the proportion of federal funds to total

funds received by the candidate. Further, the final version and

the Explanation and Justification were published in the Federal

Register on August 22, 1984 and transmitted to Congress.

On March 5, 1985 the revised regulations were

resubmitted for publication. The proposed regulations were

before the Congress for 30 legislative days as of May 20, 1985,

and were approved by the Commission for publication in final form

on June 11, 1985.

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

Federal Regulations, as revised, states that the amount of any

repayment sought under this section shall bear the same ratio to

the total ~Qunt determined to have been used for non-qualified campaign expenses as the amount of matching funds certified to

the candidate bears to the total amount of deposits of . contributions and matching funds as of the candidate's date of

ineligibility.

The formula and its application with respect to the

Committee's receipt activity is as follows:
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a. .336665

.. Total Matching Funds Certified Through

Date of Ineligibility {3/l~84)

Numerator + PrIvate Contrl~b~u~t·l0-n~s----------

Received through 3/1/84

$739,131.72

$739,131.72 + $1,456,321.90

Thus, the repayment ratio for non-qualified campaign

expenses is 33.6665%.

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B. Determination of Net Outstanding Campaign Obligations (NOCO)

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

Regulations, requires that the candidate submit a Statement of

Net Outstanding Campaign Obligations ("NOCO") which contains,

among other items, the total of all outstanding obligations for

qualified campaign expenses and an estimate of necessary winding

down costs, within 15 days of the candidate's' date of

ineligibility.

Further, 11 C.F.R. § 9034.5(d) requires that a

candidate submit a revised Statement of Net Outstanding Campaign Obligations with each submission for matching fund payments filed

after the candidate's date of ineligibility, reflecting the

financial status of the campaign as of the close of business on

the last business day preceding the date of submission for

matching funds.

Finding III. of the final audit report addressed the

Committee's financial position with respect to the Candidate's

entitlement to matching funds. The Audit staff verified the

Committee's April 14, 1984 NOCO Statement and determined that the

Committee had net outstanding campaign obligations of $50,602.34

on that date.

The Audit staff reviewed the Committee's financial

activity through September 30, 1985 and updated the Committee's

April 14, 1984 NOCO statement using actual expenses paid in lieu

of the estimated winding down costs presented in the final audit

report. This NOCO statement as amended appears below•

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HOLLINGS FOR PRESIDENT, INC.

STATEMENT OP NET OUTSTANDING CAMPAIGN OBLIGATIONS

AT APRIL 14, 1984

AS DETERMINED ON SEPTEMBER 30, 1985

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Assets

Cash on Hand and In Bank al

Refunds and Rebates Receivable

Total Assets

Liabilities

Payables for Qualified Campaign Expenses

Contribution Refunds Payable. Fundraising Costs

Winding Down Costs bl

Total Liabilities

Net Outstanding Campaign Obligations

$ 76,489.85

9,196.30

125,529.96

3,110.00

2,866.34

41,760.15

86,286.15

173,266.45

86,980.30

!./ Includes 587.24 in stale dated O/S checks

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B/ Excludes $17,638.66 in apparent Convention related expenses

(see Finding III.D. below)
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Matching Fund Payments in Excess of Entitlement

Section 9038(b) (1) of Title 26, United States Code,

states that if the Commission determines that any portion of the

payments made to a candidate from the matching payment account

was in excess of the aggregate amount of payments to which such

candidate was entitled under section 9034, it shall notify the

candidate, and the candidate shall pay to the Secretary, an

amount equal to the amount of the excess payment.

Further, 11 C.F.R. § 9034.1(b) states that if on the

date of ineligibility a candidate has net outstanding campaign obligations, that candidate may continue to receive matching fund

payments for matchable contributions received and deposited on or

before December 31 of the Presidential Election year provided

that, on the date of payment, there are remaining net outstanding

campaign obligations.

As noted in III.B. above, it was determined that the

Committee's Net Outstanding Campaign Obligations at April 14,

1984 totaled $86,980.30. Therefore, as of April 14, 1984, that

was the Candidate's maximum matching fund entitlement. That

maximum entitlement was liquidated as follows:

• Maximum Entitlement at 4/14/84

Less Contributions 4/15 to 4/25/84

Less Matching Fund Payment 4/27/84

Less Contributions 4/28 to 6/11/84

Remaining Entitlement at 6/11/84

Matching Fund Payment 6/11/84

Matching Fund Overpayment

$ 86,980.30

(11,010.00)

(24,687.00)

(33,114.50)

18,168.80

(27,844.91)

9,676.11)

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As can be seen in the above analysis, the June 11, 1984

matching fund payment includes $9,676.11 in excess of the

Candidate's entitlement.

In its January 22, 1986 response to the interim

addendum, the Committee stated that "it has decided to accept the

Report's recommendation in order to facilitate the termination of

the Committee's activities."

Conclusion

On February 19, 1986, the Commission made an initial

determination that $9,676.11 in matching funds received by the

Committee on June 11, 1984 represents matching funds received by

the Candidate in excess of his entitlement and, therefore, an
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equal amount must be repaid to the U.S. Treasury within 90 days of

receipt of this addendum in accordance with 26 U.S.C. S

9038 (b) (1) •

If the Candidate does not dispute this determination within

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

determination will be considered final.

D. Use of Funds for Non-Qualified Campaign Expenses

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

states that if the Commission determines that any amount of any

payment made to a candidate from the matching payment account was

used for any purpose other than to defray the qualified campaign

expenses with respect to which such payment was made, it shall

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

shall pay to the Secretary an amount equal to such amount.

Section 9034.4(b) (3) of Title 11 of the Code of Federal

Regulations states that any expenses incurred after a candidate's

date of ineligibility are not qualified campaign expenses except

for winding down costs associated with the termination of

political activity or costs incurred before the candidate's date

of ineligibility for which written arrangement or commitment was

made on or before the candidate's date of ineligibility.

The Commission determined that March 1, 1984 was

Senator Hollings' date of ineligibility. Beginning in May, 1984

the Committee incurred costs apparently associated with the

Senator's and certain staff members' attendance at the Democratic

National Convention in San Francisco. These disbursements were

not in connection with the candidate's campaign for nomination,

do not appear to have been made as a result of a written

commitment made on or before the candidate's date of

ineligibility and are not for the termination of political activity.

Apparent Convention related expenses paid prior to the

disposition of the June 11, 1984 final matching fund payment, !/

totaled $17,612.41. These disbursements were primarily for

deposits on rooms at the convention and for airline tickets.

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1/ As noted in Finding C above, the Committee was entitled to a

payment of $18,168.80 on June 11, 1984. On a last-in,

first-out (LIFO) basis, that amount was expended by June 22,

1984. Additional Convention expenses were paid after June

22, 1984 but these are presumed to have been paid with nonfederal funds.
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In its response to the interim addendum, the Committee

stated that " ••• it has decided to accept the Report's recommendation in order to facilitate the termination of the

Committee's activities."

Conclusion

On February 19, 1986, the Commission made an initial

determination that $17,612.41 in convention related disbursement

made after the Candidate's date of ineligibility but prior to the

Committee's disposition of is final matching fund payment, are

non-qualified campaign expenses and that a pro rata portion, $5,929.48, ($17,612.41 x 33.6655% (see II.A. above» must be

repaid to the U.S. Treasury within 90 calendar days of receipt of

this addendum in accordance with 11 C.F.R. § 9038.2(d).

If the Candidate does not dispute this determination within

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

determination will be considered final.

E. Repayment Summary

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Matching Funds Received in Excess of Entitlement

(26 U.s .C. § 9038 (b) (1»

Disbursements for Non-Qualified Campaign Expenses

(26 U.S.C. § 9038(b) (2»

Total

$ 9,676.11

5,929.48

$15,605.59