15

In response to the preliminary audit report, Keyes 2000 provided
documentation that demonstrated that $117,626 of the $127,433 in disbursements
described above were qualified campaign expenses, leaving $9,807 in disbursements
undocumented.

3. Undocumented Expenses from the Travel Account

In June of 1999, Keyes 2000 opened an account at First Union
Bank and issued debit cards to several key campaign personnel to be used for campaign
travel expenses. All disbursements from this account were made by debit card.
Campaign personnel did not retain documentation from vendors for disbursements from
this account. The only documentation retained and provided were account statements
that itemized each disbursement in chronological order. The information provided was
limited to a transaction date, an eighteen-character field to identify the name of the
vendor, and the City and State where the transaction occurred. Without some collateral
evidence showing the connection between the expenses and the campaign efforts, these
expenses were insufficiently documented. Originally, expenses totaling $594,385 were
insufficiently documented. However, the candidate itineraries supplied at the exit
conference provided collateral evidence to document $406,938 in expenses as campaign
related, reducing the amount not documented to $187,447.

In the preliminary audit report, the Audit staff recommended that
Keyes 2000 provide documentation such as receipted bills, invoices, or vouchers, from
the payees, that stated the purpose for the disbursements; contemporaneous memoranda;
or other collateral evidence'® to support the remaining $183,986"! undocumented
disbursements as qualified campaign expenses. Except for providing two canceled check
copies,'' Keyes 2000 did not comply with the recommendation. Instead, Keyes 2000
generated and provided schedules to describe how the disbursements from the travel
account were documented.

The undocumented expenses presented in the preliminary audit
report consisted of:

a. Expenses incurred from 1/3/00 through 2/3/00

Candidate itineraries for the period 01/03/00 through
02/03/00 were not provided. The preliminary audit report contended that travel account
expenses totaling $83,593 paid during this period were undocumented.

° Collateral evidence may include but is not limited to: evidence demonstrating that the expenditure
is part of an identifiable program or project that is sufficiently documented; or evidence that the
disbursement is covered by a pre-established written committee policy.

" These checks document expenses of $3.461 and this reduces the undocumented travel account
disbursements from $187,447 to $183,986.

17



Any questions you have related to matters covered during the audit or in the report
should be directed to Marty Kuest or Wanda Thomas of the Audit Division at (202) 694-
1200 or toll free at (800) 424-9530.

Sincerely,

Jos€ph F. Stoltz
Assistant Staff Director
Audit Division

Attachment as Stated

38


Memorandum to Robert J. Costa
Proposed Audit Report

Keyes 2000, Inc. (LRA #570)
Page 6

the Candidate’s personal activities, including fundraising for other organizations, and not
solely to maintain contact with campaign contributors and supporters. Since the
Candidate was traveling for other activities at the same time that he was terminating his
political campaign for the 2000 presidential election, the Committee should have been
more vigilant in documenting the costs related to closing the presidential campaign. The
fact that the candidate was engaged in other activities does not relieve the Committee of
documenting its winding down expenses. 11 C.F.R. §§ 9033.1(b), 9033.11(a)-(b).
However, the Proposed Report does not address these facts. We recommend that the
Audit Division revise the Proposed Report to specifically address the Audit staff's
concerns that the Candidate was traveling for other purposes not related to the
termination of the campaign.

34


The Audit staff advised the Treasurer on April 9, 2001 that should the
audit result in an excessive contribution finding, Keyes 2000 would be required to pay to
the United States Treasury a projected amount of unresolved excessive contributions.
This projection would not consider as resolved any excessive contribution that was
untimely refunded after the commencement date for the audit, January 16, 2001. Any
such contributions would be considered unresolved. It was recommended that Keyes
2000 not issue any more untimely refunds of excessive contributions.

The spreadsheet provided with Keyes 2000’s statement did not provide
documentation to show that the excessive contributions identified as sample errors were
not excessive or that a corrective action had been taken. As such, the Audit staff
projection of $168,200 for unresolved excessive contributions remained unchanged.

In the preliminary audit report the Audit staff recommended that Keyes
2000 provide documentation to demonstrate that the contributions identified as sample
errors were not excessive. Such documentation should include copies of timely
negotiated refund checks or timely signed and dated reattribution letters. Absent such
documentation, the Audit staff recommended that Keyes 2000 make a payment of
$168,200 to the United States Treasury.

Keyes 2000 did not comply with the Audit staff's recommendations.
Instead, they provided a schedule of contributors who made excessive contributions and
copies of letters from contributors for reattributing their contributions. The schedule
indicated what action, if any, was taken to address the excessive contributions.

Keyes 2000 also provided a written response that acknowledged a “failure
to successfully adhere to the sixty-day deadline for refunds” of contributions due to a
breakdown in procedures and problems with the campaign data management software.
The response acknowledges that that nearly $90,000 in unresolved excessive
contributions remains.

None of the materials provided by Keyes 2000 demonstrated that the
contributions identified as sample errors or those identified in the 100% review were not
excessive. Rather, the schedule confirmed the contributions as either unresolved or
untimely refunded after the start of audit fieldwork.

The Audit staff's projection of $168,200 for unresolved excessive
contributions was not changed as a result materials provided in Keyes 2000 response.
However, the Commission has recently adopted new regulations which allow committees
greater latitude to reattribute contributions to joint account holders and the Commission
has applied these new provisions to current matters. Accordingly, the Audit staff
reevaluated the sample results under the revised regulations. This reevaluation resulted
in a reduction to the number of excessive contribution sample errors and a corresponding
reduction of the projection for excessive contributions. The new excessive contribution
projection is $95,286.



19

As stated above in Finding II.A., Cash Disbursements, Keyes
2000’s acknowledged that cash disbursements were made from the New Hampshire
account. The preliminary audit report response stated “...the cash money represents
disbursements transactions by checks from a Committee depository for legitimate and
authorized expenditures, they are documented and those transactions in justice should be
deemed qualified campaign expenses.”

The Audit staff concludes that cash disbursements from the New
Hampshire account totaling $80,498 are non-qualified campaign expenses because they
violate the prohibition on cash disbursements set forth at 2 USC §432(h).

In summary, Keyes 2000 made non-qualified disbursements
totaling $288,876. This amount includes the duplicate payment of $12,000, non-qualified
campaign expenses of $2,585'° for convention activity, undocumented disbursements of
$274,291 ($9,807 from the operating account and $183,986 from the Travel Account and
$80,498 in cash disbursements in excess of the $100 limitation).

Recommendation #3

The Audit staff recommends that the Commission determine that a pro rata
repayment of $74,439($288,876 multiplied by the repayment ratio of .257686'°) is
payable to the United States Treasury.

B. CosTs ASSOCIATED WITH CONTINUING TO CAMPAIGN

Section 9034.4(a)(3)(ii) of Title 11 of the Code of Federal Regulations
states if the candidate continues to campaign after becoming ineligible due to the
operation of 11 CFR 9033.5(b), the candidate may only receive matching funds based on
net outstanding campaign obligations as of the candidate’s date of ineligibility. The
statement of net outstanding campaign obligations shall only include costs incurred
before the candidate’s date of ineligibility for goods and services to be received before
the date of ineligibility and for which written arrangement or commitment was made on
or before the candidate’s date of ineligibility, and shall not include winding down costs
until the date on which the candidate qualifies to receive winding down costs under
paragraph (a)(3)(i) of this section. Contributions received after the candidate’s date of
ineligibility may be used to continue to campaign, and may be submitted for matching
fund payments. The candidate shall be entitled to receive the same proportion of
matching funds to defray net outstanding campaign obligations as the candidate received
before his or her date of ineligibility. Payments from the matching payment account that
are received after the candidate’s date of ineligibility may be used to defray the
candidate’s net outstanding campaign obligations, but shall not be used to defray any

See Finding III.B. Costs Associated with Continuing to Campaign; explanation at footnote #19.

This figure (.257686) represents Keyes 2000's repayment ratio as calculated pursuant to
11 CFR §9038.2(b)(2)(iii).


Audit Fieldwork
Preliminary Audit Report to
the Committee

Response Received to the
Preliminary Audit Report

Final Audit Report Approved

CHRONOLOGY

KEYES 2000, INC.

January 16, 2001 -
September 13, 2001

July 17, 2002

October 4, 2002

December 12, 2002

39



Keyes 2000 was permitted to use only private contributions received in this period and
not matching funds, to fund campaign activity. However, a review of expenditures in this
period indicated that Keyes 2000 spent $332,271 in excess of the amount private
contributions received. Documentation provided in response to the Preliminary Audit
Report reduced this amount to $116,454. The Commission determined that Keyes 2000
must make a pro rata repayment of $30,009 to the United States Treasury.

DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONS — 11CFR
§§9033.5(b), 9034.5(a), 9034.1(b), and 9034.4(a)(3)(ii). A Statement of Net Outstanding
Campaign Obligations was prepared to determine Keyes 2000’s financial position as of
the Candidate’s date of ineligibility, April 20, 2000. Because Ambassador Keyes
continued to campaign until June 7, 2000, Keyes 2000 could not claim any winding down
costs until June 8, 2000. The Audit staff concluded that the Committee did not receive
matching funds in excess of the amount to which it was entitled.

STALE-DATED CHECKS — 11 CFR §9038.6. The Audit staff identified checks
issued by Keyes 2000 in the amount of $8,003 that had not been negotiated. Keyes 2000
must pay this amount to the United States Treasury.


Memorandum to Robert J. Costa
Proposed Audit Report

Keyes 2000, Inc. (LRA #570)
Page 4

The Audit Division reviewed the PS Air receipt’ and noted a few inconsistencies
with the amount the Committee paid. This Office reviewed the PS Air receipt, and we
found that the receipt shows the purpose of the disbursement and the amount that the
Committee paid. Therefore, this documentation satisfies the minimum required for
documenting disbursements. 11 C.F.R. § 9033.11(b). To address the inconsistencies, this
Office asked the Audit Division to separate the disbursements that were supported by the
receipt from the inconsistent disbursements. However, the auditors stated that the
disbursements in question could not be separated in such a manner. Given the limited
options at this point and the fact that the Committee satisfied the minimum documentation
requirements, the Office of General Counsel recommends that the Audit Division revise
the Proposed Report to conclude that the travel expenses are qualified campaign
expenses.

B. Travel Expenses During Winding Down Period (Section III.A.3.b.)

Generally, committees will incur winding down expenses as a part of their effort to
terminate the campaign. Winding down costs are “costs associated with the termination of
political activity, such as the costs of complying with the post election requirements of the
Act and other necessary administrative costs associated with winding down the campaign,
including office space rental, staff salaries, and office supplies.” 11 C.F.R.

§ 9034.4(a)(3)(i). These expenditures are recognized as qualified campaign expenses. Jd.
Since winding down expenses are qualified campaign expenses, committees must document
their winding down expenses. 11 C.F.R. § 9033.11(a)-(b).

According to the Audit Division, the Committee made $76,489 in travel-related
disbursements during the period June 7, 2000 through December 8, 2000.° The Audit
Division concluded that the Committee’s travel disbursements were nonqualified
campaign expenses because the Committee did not submit documentation establishing
the connection between the travel and the administrative expenses allowed for winding
down. See 11 C.F.R. § 9034.4(a)(3)(i).

In response to the PAR, the Committee submitted three schedules that provided
information about disbursement dates, amounts and vendors. According to the
Committee, the travel disbursements are documented by the submitted schedules.

7 Unlike the PS Air Receipt, the Malvey invoice was dated March 7, 2002 and is not
contemporaneous documentation. The auditors believe the Malvey invoice was prepared in response to the
PAR. 11 C.F.R. § 9033.11(b).

5 This Office recommends that the Audit Division review the other “undocumented disbursements”
in the Proposed Report in connection with any supporting documentation submitted by the Committee that
may satisfy the minimum required for documenting disbursements. 11 C.F.R. § 9033.11(b).

° The Commission determined that the Candidate was ineligible for public funds on April 20, 2000.
On June 7, 2000, Ambassador Keyes publicly announced he was withdrawing from the campaign.

ion)
nN



16

In response to the preliminary audit report, Keyes 2000
submitted a Schedule of Travel Disbursements 1/01/00 thru 02/02/00. This listing of
disbursements from the travel account included a vendor name, date, amount, purpose
and Keyes 2000’s “reason for compliance” for each transaction. For each entry, the
reason for compliance was stated as “Travel and Related Expenses Other” followed by a
brief description of the purpose for the disbursement.

The schedule was generated in response to the preliminary
audit report and therefore, is not a contemporaneous memorandum. Further, the schedule
does not demonstrate that the disbursements were made as part of an identifiable program
or covered by a pre-established written policy. Therefore travel account expenses
totaling $80,132 ($83,593 less the two checks totaling $3,461) paid during this period
remain undocumented.

b. Travel Expenses as Winding Down Costs

From June 7 through December 8, 2000, Keyes 2000 spent
$76,489 on travel. The regulations at (11 CFR §9034.4(a)(3)(i)) allow necessary
administrative costs associated with winding down the campaign. Expenses included in
administrative costs are office space rental, staff salaries and office supplies. Keyes 2000
had not established the connection between this travel and administrative expenses
allowed during winding down. Therefore, the Audit staff considered these expenses to be

non-qualified campaign expenses.

In response to the preliminary audit report, Keyes 2000 submitted
three schedules:

1. Wind Down Travel Table — First Union Account - This is a schedule of
disbursements, paid from the travel account during the period, which lists the
disbursements by category (airfare, lodging, and transportation).

2. Wind Down Administrative Table — First Union Account - This is a schedule of
disbursements, paid from the travel account during the period, that are administrative
in nature (expenses for telephone, general office expense, and office supplies.)

3. Schedule of Wind Down Travel - Itinerary Documentation for Non-Qualified
Campaign Expenditures — This is a schedule that lists the candidate’s travel during
the period June 8, 2000 through December 6, 2000. For each date, the schedule lists
personnel, location, airline city of departure and arrival, type of event, hotel, car
service and a “reason for expenditure qualification.” For each date, the stated reason
is: “Costs associated with terminating political activity and debt retirement; Trip is
allocable to Committee sustaining positive public relations and donor support
necessary for wind down funding.”

Keyes 2000 stated in its written response that ‘‘All travel
and associated costs funded by the Committee in this period represent either compliance,

18


22

Recommendation #4

The Audit staff recommends that the Commission determine that $30,009
($116,454 multiplied by the repayment ratio of .257686) is repayable to the United States
Treasury.

Cc. DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONS

Section 9034.5(a) of Title 11 of the Code of Federal Regulations requires
that within 15 calendar days after the candidate’s date of ineligibility, the candidate shall
submit a statement of net outstanding campaign obligations which reflects the total of all
outstanding obligations for qualified campaign expenses plus estimated necessary
winding down costs.

Section 9034.1(b) of Title 11 of the Code of Federal Regulations states, in
part, that if on the date of ineligibility a candidate has net outstanding campaign
obligations as defined under 11 CFR §9034.5, that candidate may continue to receive
matching payments provided that on the date of payment there are remaining net
outstanding campaign obligations.

Section 9034.4(a)(3)(ii) of Title 11 of the Code of Federal Regulations
States, in part, that if the candidate continues to campaign after becoming ineligible due to
the operation of 11 CFR §9033.5(b), the candidate may only receive matching funds
based on net outstanding campaign obligations as of the candidate’s date of ineligibility.
The statement of net outstanding campaign obligations shall only include costs incurred
before the candidate’s date of ineligibility for goods and services to be received before
the date of ineligibility and for which written arrangement or commitment was made on
or before the candidate’s date of ineligibility, and shall not include winding down costs
until the date on which the candidate qualifies to receive winding down costs.

Under 11 CFR §9033.5(b), the Candidate’s date of ineligibility shall be
the 30th day following the date of the second consecutive primary election in which such
individual receives less then 10% of the number of popular votes cast for all candidate’s
of the same party for the same office in that primary election.

The Commission determined that Ambassador Keyes’ date of ineligibility
was April 20, 2000. However, he continued to campaign until June 7, 2000, the date he
notified the Commission of his official withdrawal from active campaigning. As a result,
Ambassador Keyes may not claim any winding down costs until June 8, 2000. The Audit
staff reviewed Keyes 2000’s financial activity through December 31, 2000, reviewed
Keyes 2000’s reported activity through September 30, 2002, analyzed allowable winding
down costs, and prepared the following Statement of Net Outstanding Campaign
Obligations (NOCO).


18

11 CFR 9033.11 (b)(iv)(A) [sic], the itemized bank statements, collated with the
Candidate’s itineraries offer information as to how the cash was spent among campaign
staff and functionaries for meals, incidentals, and local travel.” To support this, Keyes
2000 cited the following:

¢ The cash disbursements were part of an identifiable personnel policy to provide
travel advances for the staff;

e The First Union bank statements served to “voucherize” each advance by
designating by debit card number the staff member making the withdrawal; and

e The policy for facilitating travel advances is substantiated by lining up daily data
on the itineraries with withdrawals on the bank records.

The response also stated that supplemental documentation
that demonstrated pre-established written campaign policies, was previously submitted to
the Audit staff in the form of memoranda and captured email communications.

In the Audit staff's opinion, Keyes 2000 has not provided
adequate documentation for the cash disbursements. Documentation of pre-established
written campaign policies was not previously submitted as stated. Copies of the
referenced memoranda and captured email communications were not included in the
preliminary audit report response and none of the materials submitted in the response
provides evidence that such policies existed. Furthermore, the response did not identify
the staff members to whom the debit cards were assigned or the corresponding debit card
numbers. Finally, the response provided nothing to demonstrate how the itineraries,
when “lined up” with the bank records, provide adequate documentation for the cash
withdrawals. The materials provided in the response to the preliminary audit report do
not comply with the documentation requirements of 11 CFR §9033.11 or demonstrate
that the disbursements do not violate the prohibition on cash disbursements. Therefore,
Keyes 2000 has not shown that cash disbursements, totaling $27,365, were qualified
campaign expenses.

4. New Hampshire Cash Disbursements

As previously noted, Keyes 2000, in the course of conducting
campaign activity in New Hampshire. made 122 cash disbursements, each in excess
$100.'* The disbursements total $80,498.

Although a number of checks were identified which, when cashed,
may have provided the funds to make the cash disbursements in New Hampshire, no
specific or direct connection between the disbursements and funds available can be made.

“ Also See Finding II.A., Cash Disbursements.

20


Memorandum to Robert J. Costa
Proposed Audit Report

Keyes 2000, Inc. (LRA #570)
Page 5

Furthermore, the Committee argues that all travel expenses incurred during the winding
down period were “qualified costs associated with the termination of political activity of a
nationwide campaign, including the fundraising imperative of facilitating personal
candidate contact with contributors and supporters” and that all the disbursements
“represent[ed] either compliance, administrative, or legitimate and essential fundraising
and contributor solicitation expenditures.”"° Keyes 2000 Response Narrative addenda —
Re: Repayment Matters (““Addenda”), at 2. Furthermore, the Committee contends that “it
is the Committee’s prerogative how best to execute its own termination, and how most
appropriately to handle its donor relations in preparing the ground for its debt retirement
activity.” Addenda at 3.

This Office concurs with the Audit Division’s finding that these travel expenses
are nonqualified campaign expenses. Although the Committee provided schedules in
Tesponse to the PAR, the Committee did not provide cancelled checks, receipted bills,
invoices, vouchers, contemporaneous memoranda or other collateral evidence to support
the schedules or otherwise demonstrate that the travel disbursements were related to the
termination of the campaign.'' 11 C.F.R. § 9033.11(b)(1)(i)-(iv). According to the Audit
staff, the schedules do not provide any additional information beyond what was made
available during fieldwork and at the Exit Conference. The schedules merely provide
general, uncorroborated descriptions relating to the purpose of the disbursements.’

It is our understanding that the auditors are concerned that the travel was for the
purpose of soliciting contributions on behalf of other organizations.'? A review of the
Committee’s itineraries for this period suggests that portions of the travel were related to

"0 The Committee stated that it had significant debt to retire and, therefore, fundraising was a

necessary expense. Keyes 2000 Response Narrative, at 13.
" Winding down costs may include disbursements for fundraising and supporter solicitation. The
regulations at section 9034.4(a)(3)(i) provide only a partial list of permissible winding down expenses, and
the absence of language relating to fundraising should not be interpreted as being prohibitive of such
purposes. 11 C.F.R. § 9034.4(a)(3)(i). Furthermore, this Office agrees “it is the Committee's prerogative
how best to execute its own termination.” Addenda at 3. However, this is a case about documenting the
expenses. A committee’s autonomy and freedom of choice concerning the manner in which it shuts down
the campaign does not relieve the committee of the obligation to document expenditures. 11 C.F.R.

§§ 9033.1(b), 9033.11(a)-(b). Although the Committee provided itineraries for the winding down period,
the Committee did not submit any documentation linking the purported travel expenses to specific dates and
events. /d.

e Two of the schedules describe the disbursements as “travel.” The third schedule, Schedule of
Wind Down Travel- Itinerary Documentation for Non-Qualified Campaign Expenses, notes that the “costs
[are] associated with terminating political activity and debt retirement” and the “trip(s] [are] allocable to
{the] Committee sustaining positive public relations and donor support necessary for wind down funding.”
The Proposed Report notes that schedules were produced in response to the PAR and are, therefore, not
contemporaneous memoranda. 11 C.F.R. § 9033.11(b)(1)(ii).

8 The Candidate is involved in numerous grassroots political organizations, including the
Declaration Foundation, Declaration Alliance, RenewAmerica and AKE (Alan Keyes Enterprises).

i)
iv)


13

Section 9034.4(a)(3)(i) of Title 11 of the Code of Federal Regulations
states, in part, that costs associated with the termination of political activity, such as the
costs of complying with the post election requirements of the Act and other necessary
administrative costs associated with winding down the campaign, including office space
rental, staff salaries, and office supplies shall be considered qualified campaign expenses.
A candidate may receive and use matching funds for these purposes after he has notified
the Commission in writing of his withdrawal from the campaign for nomination.

Section 9038.2(b)(2)(i) and (iii) of Title 11 of the Code of Federal
Regulations states, in part, that the Commission may determine that amounts of any
payments made to a candidate from the matching payment account were used for
purposes other than to defray qualified campaign expenses. The amount of any
repayment under this section shall bear the same ratio to the total amount determined to
have been used for non-qualified campaign expenses as the amount of matching funds
certified to the candidate bears to total deposits, as of 90 days after the candidate’s date of
ineligibility.

The audit discovered that Keyes 2000 made non-qualified disbursements
totaling $407,378. This amount included a duplicate payment of $12,000, undocumented
disbursements of $314,880 ($127,433 from the operating account and $187,447 from the
travel account) and $80,498 in cash disbursements in excess of the $100 limit.

At the exit conference the Treasurer, citing regulations at 11 CFR
102.9(b), could not understand why the bank statements from the travel account, by
themselves, did not constitute adequate documentation. The Audit staff explained that
pursuant to 11 CFR §9033.11, the committee must show that expenses were qualified and
made in connection with Ambassador Keyes’ campaign for nomination. The
documentation standards for publicly funded campaigns are more stringent than those
applicable to non-publicly funded campaigns.

In statements provided subsequent to the exit conference, the Treasurer
wrote:

“During the course of the audit I asked repeatedly for a list
of expenditure qualification problems, yet I received minimal specifics.
Documented responses to specified requests by the auditors were
submitted to the FEC as quickly as possible. We are asking that the Audit
Division of the Federal Election Commission finish reviewing the
documentation provided them, and only then give us an “Exit Memo”
specifying missing documentation. We need one list, with all of the
pertinent insufficiencies, including the reason for non-qualification, of all
non-qualified expenses.”

Beginning on February 1, 2001, the Audit staff made numerous requests to
the Treasurer for documentation and for campaign itineraries. Requests for additional
disbursement documentation were made on April 10", July 17", and August 15". On


2. Cash Disbursements Made From the Travel Account®

Beginning in May 1999, Keyes 2000 opened and maintained an
account at First Union Bank to facilitate campaign travel. Debit cards were issued to
several key campaign personnel who made periodic cash withdrawals.

Keyes 2000 personnel made 129 cash withdrawals, each in excess
of $100, from its travel account. The total for these withdrawals was $27,365. Keyes
2000 did not maintain any documentation supporting these transactions. Absent
documentation showing that no single purchase greater than $100 was made from these
funds, these withdrawals were considered cash disbursements in excess of the limitation
for petty cash disbursements.

Thus, it appeared that Keyes 2000 made cash disbursements in
excess of the limitation for petty cash disbursements, which, in the aggregate, totaled
$107,863 ($80,498 + $27,365). At the exit conference a Keyes 2000 representative stated
that the cash payments had been made in violation of committee policy.

In the preliminary audit report, the Audit staff recommended that
Keyes 2000:

e Make any comment it deemed relevant or offer an explanation regarding the cash
disbursements made in New Hampshire; and

¢ Provide documentation that demonstrated that it did not exceed the $100
limitation for petty cash disbursements.

In its response to the preliminary audit report, Keyes 2000 agreed
that the cash disbursements occurred and made two general arguments as to why these
disbursements should not be considered violations of the prohibition on cash
disbursements. First, it is suggested that the prohibition on cash disbursements should
apply only to funds that were not deposited into the Keyes 2000’s account and then
withdrawn by check or other debit to the account. Second, it argued that the cash
prohibition should not apply if the expenditures are adequately documented. Neither is
the case.

With respect to the cash disbursements made in New Hampshire,
Keyes 2000 stated that vendors refused to accept their checks. Therefore, the staff was
compelled by the circumstances to make lump sum cash withdrawals in order to pay for
goods and services. Further, the response stated that the use of lump-sum cash
disbursements violated Keyes 2000’s accounting standards and practices.

Regarding cash disbursements from the travel account, Keyes 2000
stated that, “the Committee policy for using the [debit] cards was soon revised for
authorized staffers to make periodic cash withdrawals as petty cash, per diem, and travel

‘ For additional detail concerning the Travel Account, see Finding III.C.3.b.



Memorandum to Robert J. Costa
Proposed Audit Report

Keyes 2000, Inc. (LRA #570)
Page 2

period, and 2) undocumented travel expenses during the winding down period. We
concur with any findings not specifically discussed in this memorandum. If you have any
questions, please contact Dawn R. Jackson, Michelle Abellera, or Susan Kay, the
attorneys assigned to this audit.

Il. TREASURER PROCEDURAL ISSUE

The Proposed Report states that Mary Lewis Parker succeeded William Leo
Constantine as the Committee’s Treasurer. On September 23, 2002, the Committee
submitted an amended Statement of Organization indicating that Mary Lewis Parker was
the new Treasurer. However, the amended Statement of Organization was submitted in
paper format.

The Commission’s regulations require the Committee to file all of its reports
electronically. 11 C.F.R. §§ 104.18(a)(1), 105.3. In addition, “if a committee is required
to file electronically, it must file amendments to its Statement of Organization (FEC form
1) electronically.” Explanation and Justification for 11 C.F.R. § 102.2, 65 Fed. Reg.
38416 (June 21, 2000). Therefore, the Committee’s amended Statement of Organization
must be filed electronically.” Thus, we recommend that the Audit Division revise the
Proposed Report to indicate that a procedural requirement for designating a new treasurer
- filing electronically - has not been met; therefore, Mr. Constantine remains the
Committee’s Treasurer.’

I. APPARENT NON-QUALIFIED CAMPAIGN EXPENSES

The Proposed Report recommends that the Committee repay $88,496 to the
United States Treasury. The repayment represents the pro-rata portion of $343,482 in
nonqualified campaign expenses. The nonqualified campaign expenses include $64,354
in undocumented travel expenses incurred during the candidate’s eligibility period and
$76,489 in travel expenses incurred during the winding down period.

The Committee has offered some documentation to support these expenses.
Therefore, we believe there is a question as to whether these two expense categories
should be considered nonqualified campaign expenses. The key factor in this
determination is whether the Committee’s documentation is sufficient to establish that the

2 The electronic filing requirement is not merely a question of form over substance. The

Commission noted that, in addition to reducing paper filing and manual processing of reports, the electronic
filing system was intended to “provide the public with more complete on-line access to reports...thereby
furthering the disclosure purposes of the Act.” Explanation and Justification for Regulations on Electronic
Filing of Reports by Political Committees, 61 Fed. Reg. 42371, 42372 (August 15, 1996).

5 This Office notes that the Audit staff advised Ms. Parker of the electronic filing requirement on
September 23, 2002. The Reports Analysis Division will also notify the Committee of the electronic filing
requirement. If an electronic amendment is filed, the new treasurer will be properly designated at that time.



25

At the exit conference the Treasurer noted that the listed checks had been
voided. He also expressed concer that the payment for outstanding refund checks
constituted double counting.”°

In a statement provided subsequent to the exit conference the Treasurer
stated:

“Stale Dated Checks: Although we have been assured that these
checks were not included in the Unresolved Excessive Contributions, we can
not confirm this assertion, because we can not determine how the FEC
number was generated. The Stale Dated Checks in question have been
voided.”

The stale-dated refund checks represent untimely resolved excessive
contributions, a category separate from unresolved excessive contributions. These
refunds were not a factor in calculating the projected payment due the United States
Treasury for the unresolved excessive contributions presented at Finding IIB.

It should be noted that the mere voiding of a stale-dated check does not
obviate the requirement to pay the amount of the check to the United States Treasury.
Keyes 2000 must demonstrate that the obligation for which the check was written has
been satisfied or that the obligation never existed.

In the preliminary audit report, the Audit staff recommended that Keyes
2000 provide evidence that the checks were not outstanding (i.e., copies of the front and
back of the negotiated checks), or that the outstanding checks were voided and that no
obligation exists. Absent such evidence, the Audit staff recommended that $8,003 was
payable to the United States Treasury.

Keyes 2000’s response to the preliminary audit report “...asserts that the
stale-dated checks for over-donors are included in the unresolved excessive calculation of
$89,861.82 at Finding II.B.” This is a restatement of the argument presented after the
exit conference and addressed above.

Recommendation #5

The Audit staff recommends that Keyes 2000 make a payment to the United
States Treasury in the amount of $8,003.

20 By double counting, it is the Treasurer's belief that Keyes 2000 is being forced to refund some
excessive contributions twice.


Cc. CAMPAIGN ORGANIZATION

Keyes 2000 maintained its headquarters in Washington, DC. The
Treasurer, William Leo Constantine, CPA, was designated on June 17, 1999 and
continues to serve in that capacity.’

Keyes 2000 registered with the Federal Election Commission (the
Commission) on June 17, 1999 as the principal campaign committee for Ambassador
Alan L. Keyes, candidate for the Republican Party’s nomination for the office of
President of the United States.> During the audit period, Keyes 2000 maintained
depositories in Minneapolis, Minnesota; Phoenix, Arizona; Houston, Texas; Washington,
DC; Manchester, New Hampshire; and Roanoke, Virginia. To handle its financial
activity Keyes 2000 utilized 11 bank accounts.* From these accounts Keyes 2000 made
approximately 6,000 disbursements. In addition, Keyes 2000 received approximately
238,500 contributions from 96,800 contributors totaling $8,357,000. Keyes 2000 also
received bank loans of $1,860,900.

Ambassador Keyes was determined eligible to receive matching funds on
September 30, 1999. Keyes 2000 made 20 requests for matching funds totaling
$5,261,907 and received $5,043,341 from the United States Treasury. This amount
represents 29.9% of the $16,890,000 maximum entitlement that any candidate could
receive. For matching fund purposes, the Commission determined that Ambassador
Keyes’ candidacy ended on April 20, 2000. Ambassador Keyes continued to campaign
after the Commission made its determination. On June 7, 2000, Ambassador Keyes
publicly announced he was withdrawing from the campaign. On June 1, 2001, Keyes
2000 received its final matching fund payment to defray qualified campaign expenses and
to help defray the cost of winding down the campaign.

Mary Parker Lewis, Campaign Chief of Staff and Keyes 2000, Inc. corporate president, submitted
to the FEC on paper, an amended Statement of Organization designating herself Treasurer and Mr.
Constantine Assistant Treasurer. She was advised that in order for the change to be recognized,
she would need to submit the Statement of Organization electronically. Although Mrs. Lewis
made known her intention to make the proper electronic filing on September 24”, as of December
6, 2002 no filing had been received and Mr. Constantine continues as Treasurer.

3 Shortly after registering, Keyes 2000 filed a Mid-Year report for 1999. In this report, receipts of
$1,914,847 and disbursements of $1,742,349 were disclosed. All of the reported activity,
however, did not occur in 1999. This report included receipts of approximately $218,000 and
$663,000 and disbursements of approximately $166,000 and $642,000 which occurred in 1997
and 1998, respectively.

‘ Keyes 2000 failed to report on its Statement of Organization the existence of a depository at the
TCF National Bank in Minnesota (TCF). This TCF account was opened in November, 1996,
however, its existence was first made known to the Audit staff in February, 2001 when Keyes
2000’s treasurer identified it as the source of the funds deposited to open Keyes 2000's account at
Norwest Bank Arizona, N.A. TCF account activity was not included on Keyes 2000 disclosure
Teports.


FEDERAL ELECTION COMMISSION 20-0008

WASHINGTON, DC 20464

REPORT OF THE AUDIT DIVISION
ON
KEYES 2000, Inc.

I BACKGROUND
A. AUDIT AUTHORITY

This report is based on an audit of Keyes 2000, Inc. (Keyes 2000). The
audit is mandated by Section 9038(a) of Title 26 of the United States Code. That section
states that “After each matching payment period, the 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.” Also,
Section 9039(b) of the United States Code and Section 9038.1(a)(2) of the Commission’s
Regulations state that the Commission may conduct other examinations and audits from
time to time as it deems necessary.

In addition to examining the receipt and use of Federal funds, the audit
seeks to determine if the campaign has materially complied with the limitations,
prohibitions, and disclosure requirements of the Federal Election Campaign Act of 1971
(FECA), as amended.

B. AUDIT COVERAGE

The audit covered the period from Keyes 2000’s first bank transaction on
November 13, 1996, through December 31, 2000. Keyes 2000 reported an opening cash
balance of $-0-; total receipts of $15,063,087; total disbursements of $14,529,460; and a
closing cash balance of $514,784.’ In addition, a limited review of Keyes 2000’s
financial activity and disclosure reports filed through September 30, 2002 was conducted
for purposes of determining Keyes 2000’s matching fund entitlement based on its
financial position.

' The reported figures do not foot due to various reporting errors.



14

November 5, 2001, a detailed summary of prospective audit findings along with detailed
schedules supporting each area of concern was provided. Finally, on February 15, 2002,
at the exit conference, a detailed schedule of disbursements considered to be non-
qualified for lack of documentation was provided to Keyes 2000.

In the preliminary audit report, the Audit staff recommended that Keyes
2000 provide evidence documenting that the disbursements described below were
qualified campaign expenses.

1. Duplicate Payment to Vendor

Keyes 2000 made a duplicate payment to MDS Communications.
Two invoices from this vendor totaling $12,000 were paid on February 22, 1999. These
two invoices were mistakenly batched with three additional invoices and paid a second
time on April 2, 1999.

In the response to the preliminary audit report, Keyes 2000
concurred with the Audit staff that the duplicate payment was made.

2. Undocumented Disbursements

A review of operating disbursements indicated that Keyes 2000
failed to adequately document 61 disbursements totaling $127,433. For these
disbursements, neither documentation such as receipted bills, invoices, vouchers or
contemporaneous memoranda was available for review, nor could these disbursements be
associated with an identified program, policy, reoccurring expense or other collateral
evidence to document them as qualified campaign expenses.

Canceled checks were not available for four of these disbursements
totaling $1,238. For the remaining disbursements, canceled checks were the only
documentation maintained. The canceled checks alone, lacking a purpose on the memo
line, failed to document the disbursements as qualified campaign expenses.

Nine checks, totaling $69,746, were identified, by the purpose on
their memo line, as travel-related disbursements. Listed purposes included
“reimbursement,” “expenses,” “travel expenses,” and “travel reimbursement” which,
without further information, are not sufficient to establish that the expenses were incurred
in connection with Ambassador Keyes’ campaign for nomination.

Individuals received sixteen checks, totaling $19,962, identified as
“reimbursements” by their memo entries. Four checks totaling $1,539 had memo entries
that were too vague to identify their purpose. Without additional documentation such as
receipts or invoices, it is not possible to establish the campaign purpose of these
disbursements. Three checks totaling $5,385 were payable to two individuals for
consulting. Consulting contracts were not provided and the payees did not endorse two
of the three checks. Finally, twenty-five checks totaling $29,563 lacked any memo entry.

16


Unless specifically discussed below, no material non-compliance was
detected. It should be noted that the Commission may pursue further any of the matters
discussed in this report in an enforcement action.

Il. AUDIT FINDINGS AND RECOMMENDATIONS —- NON REPAYMENT MATTERS

A. CASH DISBURSEMENTS

Section 102.10 of Title 11 of the Code of Federal Regulations states, in
part, that all disbursements by a political committee, except for disbursements from the
petty cash fund under 11 CFR 102.11, shall be made by check or similar draft drawn on
account(s) established at the committee’s campaign depositories.

Section 102.11 of Title 11 of the Code of Federal Regulations states in
relevant part that no payment from petty cash may be made in excess of $100.

1. Cash Disbursements made in New Hampshire

Keyes 2000 opened an account at the Bank of New Hampshire in
December 1999 to facilitate campaigning in the state but did not timely transfer sufficient
funds to cover every check written. This resulted in 31 checks to vendors totaling more
than $80,000 being returned unpaid. It appeared that as a result, vendors refused to
accept checks from Keyes 2000. Subsequently, campaign staff cashed checks and used
the proceeds to make campaign expenditures.

A review of the activity in New Hampshire identified 397 receipts
for purchases made in cash totaling $111,104. One hundred twenty-two of these receipts
involved purchases greater than $100. The total value of these expenditures was
$80,498.” The receipts could not be associated with any specific check. Among the
checks drawn on the New Hampshire account were eight, made payable to “cash.” These
checks totaled $48,000 and ranged in amounts from $3,000 to $20,000. Each of the eight
checks was disclosed; seven were disclosed as operating expenditures paid to individuals
and one was reported as a fundraising expense. An analysis of the remaining checks
drawn on the account and Keyes 2000 operating account identified 32 checks that
apparently funded the remaining cash activity. These checks were payable to and
disclosed as payments to campaign staff. It appears that the checks were negotiated and
the staff used the cash to fund these expenditures. These checks (including those checks
drawn to “‘cash”) totaled $113,237. Ninety-seven percent of the receipted cash
disbursements and all of the checks that funded them occurred between October 1999 and
February 2000. Though the total amount of cash disbursements corresponds in time and
amount to total funds available; no direct connection could be established between
particular disbursements and particular checks.

For additional detail concerning the cash disbursements, see Finding III.C.4.


20

costs associated with continuing to campaign unless the candidate reestablishes eligibility
under 11 CFR §9038.8.

Section 9034.4(b)(3) of Title 11 of the Code of Federal Regulations states,
in part, that any expenses incurred after a candidate’s date of ineligibility under 11 CFR
§9033.5, are not qualified campaign expenses except to the extent permitted under 11
CFR §9034.4(a)(3).

Section 9038.2(b)(2)(i) of Title 11 of the Code of Federal Regulations
states, that the Commission may determine that amount(s) of any payment made to a
candidate from the matching payment account were used for purposes other than defrayal
of qualified campaign expenses, repayment of loans which were used to defray qualified
campaign expenses and restoration of funds (other than contributions which were
received and expended to defray qualified campaign expenses) which were used to defray
qualified campaign expenses.

Section 9038.2(b)(2)(ii)(D) of Title 11 of the Code of Federal Regulations
states, in part, that the Commission may make a repayment determination under 11 CFR
9038.2(b)(2) for funds, described in 11 CFR 9038.2(b)(2)(i), which were expended for
costs associated with continuing to campaign after the candidate’s date of ineligibility

The Commission determined that Ambassador Keyes’ date of ineligibility
(DOD) was April 20, 2000. Ambassador Keyes chose to continue to campaign until June
7, 2000, when he formally withdrew from active campaigning. At the time of the PAR it
appeared that during the period that Ambassador Keyes continued to campaign, Keyes
2000 incurred expenses of $782,711. To partially offset these expenses, Keyes 2000
received contributions totaling $450,440. The balance, $332,271 appeared to have been
paid with funds containing matching funds; and as such, subject to a pro rata repayment
to the United States Treasury.

At the exit conference the Treasurer acknowledged that Ambassador
Keyes had, indeed, continued to campaign but pointed out that as soon as there was a
decision concerning the Arkansas primary results, this issue would be resolved.!”
Further, the Treasurer contended that there were serious errors in how the Audit staff
presented this issue.

In a statement provided subsequent to the exit conference the Treasurer
stated:

“Repayment Due to Continuing to Campaign: This number will
diminish considerably when the auditors look at the actual bills for goods and

" Ambassador Keyes received 19.8% of the vote in the Arkansas primary. He needed to receive
20% of the vote to reestablish his eligibility to receive matching funds. Keyes 2000 is currently
attempting through legal action, to persuade the Arkansas authorities to round up his election
results to 20%.

ie)
is)


Abi

FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

December 26, 2002

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ !
ASSISTANT STAF! ECTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
KEYES 2000, INC.

Attached please find a copy of the final audit report and related documents on
Keyes 2000, Inc. that was approved by the Commission on December 12, 2002.

All parties involved have received informational copies of the report and the
report may be released to the public.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library



Sections 110.1(k)(3)(ii)(A) and (B) of Title 11 of the Code of Federal
Regulations state, in part, that a contribution shall be considered to be reattributed to
another contributor if the treasurer of the recipient committee asks the contributor
whether the contribution is intended to be a joint contribution by more than one person,
and informs the contributor that he or she may request the return of the excessive portion
of the contribution if it is not intended to be a joint contribution; and if within sixty days
from the date of the treasurer’s receipt of the contribution, the contributors provide the
treasurer with a written reattribution of the contribution, which is signed by each
contributor, and which indicates the amount to attributed to each contributor if the equal
attribution is not intended.

Section 110.1(1)(3) of Title 11 of the Code of Federal Regulations states,
in part, that if a political committee receives a written reattribution of a contribution to a
different contributor, the treasurer shall retain the written reattribution signed by each
contributor.

Sections 9038.1(f)(1), (2) and (3) of Title 11 of the Code of Federal
Regulations, state, that in conducting an audit of contributions pursuant to this section,
the Commission may utilize generally accepted statistical sampling techniques to
quantify, in whole or in part, the dollar value of related audit findings. A projection of
the total amount of violations based on apparent violation identified in such a sample may
become the basis, in whole or in part, of any audit finding. A committee in responding to
a sample-based finding concerning excessive or prohibited contributions shall respond
only to the specific sample items used to make the projection. If the committee
demonstrates that any apparent errors found among the sample items were not errors, the
Commission shall make a new projection based on the reduced number of errors in the
sample. Within 30 days of service of the Final Audit Report, the committee shall submit
a check to the United States Treasury for the total amount of any excessive or prohibited
contributions not refunded, reattributed or redesignated in a timely manner in accordance
with 11 CFR 103.3(b)(1), (2) or (3).

A review of disclosure reports revealed that Keyes 2000 disclosed the
receipt of 78 excessive contributions dating back to 1997. Indeed, 69 excessive
contributions disclosed on Keyes 2000’s first report (Mid Year 1999) were, at the time
they were disclosed, outside the time that they might have been resolved timely. Keyes
2000 only began to address excessive contributions in April 2000. In response to
questions raised about this issue by the Reports Analysis Division, the Treasurer, on
September 29, 2000, wrote “‘...in April 2000 we refunded $27,101.55 of the donations
over $1,000.00.”

Although these refunds were disclosed as having been made in April 2000,
the checks were not mailed until December 2000. Beginning in January of 2001, the
checks began to clear the account. By the first week of February, 43 checks, totaling
$19,140, (of 69 written) had been cashed. Even if the checks had been mailed when
prepared, none of the refunds would have timely resolved an excessive contribution.


advances,” when it became apparent that it would be burdensome to report each small
purchase made with the card. Keyes 2000 wrote that “with the notable exception of a
few airfare purchases at airports that were so last-minute only cash could transact quickly
enough to get tickets issued, virtually no cash purchase greater than $100 per person was
ever authorized or made from these funds, as the cards operated as debit and credit cards
and there was no need for large cash transactions.”

Keyes 2000’s response to the preliminary audit report stated that
supplemental documentation demonstrating that they did not exceed the $100 limitation
for petty cash was submitted under separate cover. However, the materials submitted by
Keyes 2000 made no such demonstration. Based on the Committee’s response, the Audit
staff concludes that Keyes 2000 made cash disbursements in excess of the limitation for
petty cash disbursements, which, in the aggregate, totaled $107,863 ($80,498 + $27,365).

B. APPARENT EXCESSIVE CONTRIBUTIONS FROM INDIVIDUALS

Section 441a(a)(1)(A) of Title 2 of the United States Code states that no
person shall make contributions to any candidate and his authorized political committees
with respect to any election for Federal office, which in the aggregate, exceed $1,000.

Section 103.3(b)(3) of Title 11 of the Code of Federal Regulations states,
in relevant part, that the treasurer shall be responsible for ascertaining whether
contributions received, when aggregated with other contributions from the same
contributor, exceed the contribution limitation set forth at 11 CFR 110.1. Contributions
which on their face exceed the contribution limitations set forth at 11 CFR 110.1 and
contributions which do not appear to be excessive on their face, but which exceed the
contribution limits set for in 11 CFR 110.1 when aggregated, may be either deposited into
a campaign depository under 11 CFR 103.3(a) or returned to the contributor. If any such
contribution is deposited, the treasurer may request redesignation or reattribution of the
contribution by the contributor in accordance with 11 CFR 110.1(b) or 110.1(k). Ifa
redesignation or reattribution is not obtained, the treasurer shall, within sixty days of the
treasurer’s receipt of the contribution, refund the contribution to the contributor.

Section 103.3(b)(4) of Title 11 of the Code of Federal Regulations states,
in part, that a contribution, which appears to be illegal under 11 CFR 103.3(b)(3) and is
deposited into a campaign depository, shall not be used for any disbursements by the
political committee until the contribution has been determined to be legal. The political
committee must either establish a separate account in a campaign depository or maintain
sufficient funds to make all such refunds.

Section 110.1(k)(3)(i) of Title 11 of the Code of Federal Regulations
states, in part, that if a contribution to a candidate, either on its face or when aggregated
with other contributions from the same contributor, exceeds the limitations on
contributions, the treasurer of the recipient committee may ask the contributor whether
the contribution was intended to be a joint contribution by more than one person.


RECEIVED
FEDERAL ELECTION
COMMISSION
AUDIT DIVISION
FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463 2002 DFC 10 A Il: 0b
December 9, 2002
MEMORANDUM
TO: Robert J. Costa
Deputy Staff Director

THROUGH: James A. Pehrkon
Staff Director

FROM: Lawrence H. Norton go
General Counsel

Gregory R. patel Zt”

Acting Associate General Counsel

Lorenzo Holloway JZ
Assistant General Counsel

Dawn R. Jackson pwe* & vs
Attorney .

Michelle E. Abellera yu07—
Attorney

Susan Kay we~ i OF
Attorney

SUBJECT: Report of the Audit Division on Keyes 2000, Inc. (LRA #570)

I. INTRODUCTION

The Office of General Counsel reviewed the proposed Report of the Audit
Division (“Proposed Report”) on Keyes 2000, Inc. (“the Committee”) submitted to this
Office on November 5, 2002. This memorandum summarizes our comments on the
Proposed Report.' Our comments address a procedural issue and two related repayment
findings: 1) undocumented travel expenses incurred during the candidate’s eligibility

' The Office of General Counsel recommends that the Commission consider this document in open
session. See 11 C.F.R. § 9038.1(e)(1).


26

IV. SUMMARY OF AMOUNTS DUE TO THE UNITED STATES TREASURY

Finding I1.B. Unresolved Excessive Contributions $ 95,286

Finding ILC. Excessive Cash Contributions 15,013

Finding II.A. Non-Qualified Expenses 74,439
Finding III.B. Costs Associated with Continuing

to Campaign 30,009

Finding III.D. Stale-Dated Checks 8,003

£222,250

—


D. AUDIT SCOPE AND PROCEDURES

In addition to a review of expenditures made by Keyes 2000 to determine
if they were qualified or non-qualified campaign expenses, the audit covered the
following general categories:

1. The receipt of contributions from prohibited sources, such as those
from corporations or labor organizations;

2. The receipt of contributions or loans in excess of the statutory
limitations (see Findings II.B. and II.C.);

3. Proper disclosure of contributions from individuals, political
committees and other entities, to include the itemization of
contributions when required, as well as, the completeness and
accuracy of the information disclosed;

4. Proper disclosure of disbursements including the itemization of
disbursements when required, as well as, the completeness and
accuracy of the information disclosed;

5. Proper disclosure of campaign debts and obligations;

6. The accuracy of total reported receipts, disbursements and cash
balances as compared to campaign bank records;

7. Adequate recordkeeping for campaign transactions (see Finding
ILA);

8. Accuracy of the Statement of Net Outstanding Campaign Obligations
filed by Keyes 2000 to disclose its financial condition and to establish
continuing matching fund entitlement (see Finding II.C.);

9. Compliance with spending limitations; and

10. Other audit procedures that were deemed necessary in the situation
(See Findings IL.A., Ill. B., and III.D. ).

As part of the Commission’s standard audit process, an inventory of
campaign records was conducted prior to the audit fieldwork. The inventory was
conducted to determine if Keyes 2000's records were materially complete and in an
auditable state. The records were found to be materially complete and the audit
fieldwork commenced immediately.



17

or legitimate and essential fundraising and contributor solicitation expenditures.”
However, in the opinion of the Audit staff, the documents provided do not support Keyes
2000’s contention that the travel and activity that occurred after June 6, 2000, was related
to winding down the campaign. In fact, they suggest that Ambassador Keyes was
engaged in activity not connected with winding down his campaign.

Ambassador Keyes engaged in fundraising for the benefit
of entities other than Keyes 2000. He raised money on behalf of two individuals, two
right-to-life committees, a county republican committee, and a church mission. He also
attended an event described as a fundraising reception at which he met with “$10,000
donors.” Nothing on the itineraries suggests that he was engaged in raising money for
Keyes 2000. There is an indication that he received two honoraria: $5,000 from a church
and an indeterminate amount, a “love offering” in the form of a check to be made payable
to AKE’”, Between July 31, 2000, and August 3, 2000, during the Republican National
Convention, Ambassador Keyes made three trips to Philadelphia and attended several
events. On August 2, 2000, he held a “Keyes 2000 Hospitality Suite — Birthday Party”
for himself. In late September, he participated in a debate whose topic was “Does
Organized Religion Have The Answers To The Problems Of The 21° Century?” He
made speeches on behalf of the Christian Coalition, the Tennessee Right to Life
committee, Michigan Catholic Radio Anniversary Celebration, the Calvary Chappel
Church and the New City Jewish Center. His topics ranged from “The Moral
Disintegration In America” to “The Future Of The Conservative Movement In This
Country” to “Israel And Zionism In The 21° Century.” The itinerary for November 12,
2000, showed that he appeared in a two-hour election special; this was not included on
the “Schedule of Wind Down Travel.

The lack of documentation such as receipted bills, invoices,
or vouchers, from the payees; contemporaneous memoranda; or other collateral evidence;
prevents the Audit staff from concluding that the disbursements represent legitimate
winding down costs. Further, available documentation suggests that Ambassador Keyes
was engaged in activity unrelated to the wind down effort of his campaign. The
schedules provided by Keyes 2000 were generated in response to the preliminary audit
report and are not contemporaneous memoranda. Therefore, the Audit staff considers
these expenses totaling $76,489 to be non-qualified campaign expenses.

c. Cash Withdrawals

Cash withdrawals totaling $27,365'3 were made from the
travel account. No documentation of the amounts spent from these cash advances was
provided. The Candidate’s itineraries supplied at the exit conference did not offer any
information as to how the cash was spent.

In response to the preliminary audit report, Keyes 2000
asserted that the cash disbursements were documented. The response stated that “under

- AKE is an acronym for Alan Keyes Enterprises, Inc.
8 Also See Finding II.A., Cash Disbursements.

19



Any questions you have related to matters covered during the audit or in the report
should be directed to Marty Kuest or Wanda Thomas of the Audit Division at (202) 694-
1200 or toll free at (800) 424-9530.

Sincerely,

Assistant Staff Director
Audit Division

Attachment as Stated

cc: Mark Braden, Counsel
Mary Parker Lewis, Campaign Chief of Staff


FEDERAL ELECTION COMMISSION

WASHINGTON, D.C 20463

December 17, 2002

Ambassador Alan Keyes
13533 Scottish Autumn Way
Damestown, Maryland 20878

Dear Ambassador Keyes:

Attached please find the Final Audit Report on Keyes 2000, Inc. The Commission
approved the report on December 12, 2002. As noted on page 6, the Commission may
pursue any of the matters discussed in an enforcement action.

In accordance with 11 CFR §§9038.2(c)(1) and (d)(1), the Commission has made a
determination that a repayment to the Secretary of the Treasury in the amount of $222,750 is
required within 90 calendar days after the service of this report (March 24, 2003).

Should you dispute the Commission’s determination that a repayment is required,
Commission regulations at 11 CFR §9038.2(c)(2) provide you with an opportunity to submit
in writing, within 60 calendar days after service of the Commission’s notice (February 21,
2003), legal and factual materials to demonstrate that no repayment, or a lesser repayment, is
required. Further, 11 CFR §9038.2(c)(2)(ii) permits a Candidate who has submitted written
materials to request an opportunity to address the Commission in open session based on the
legal and factual materials submitted.

The Commission will consider any written legal and factual materials submitted
within the 60-day period when deciding whether to revise the repayment determination.
Such materials may be submitted by counsel if you so elect. If you decide to file a response
to the repayment determination, please contact Greg Baker of the Office of General Counsel
at (202) 694-1650 or toll free at (800) 424-9530. If you do not dispute this determination
within the 60-day period provided, it will be considered final.

The Commission approved Final Audit Report was placed on the public record on
December 24, 2002. Should you have any questions regarding the public release of the
report, please contact the Commission’s Press Office at (202) 694-1220.


23

Keyes 2000, Inc.
Statement of Net Outstanding Campaign Obligations
As of April 20, 2000
As Determined at September 30, 2002
ASSETS
Cash in Bank $739,163
Accounts Receivable 3,692
Capital Assets 3,808
Total Assets $746,663

LIABILITIES
Accounts Payable for Qualified Campaign
Expenses at 4/20/00 $1,318,400
Disbursements for Winding Down
(06/08/00 - 09/30/02) 3,716,162 (a)
Loan Payable 181,006
Estimated Winding Down Costs
(10/01/02 - 12/31/03) 332,188 ()
Amount Due United States Treasury

Excessive Currency Contributions 15,013

Unresolved Excessive Contributions 168,200

Stale Dated Checks 8,003

Total Liabilities $5,738,972

Net Outstanding Campaign Obligations (Deficit) ($4,992,309)
Footnotes:

(a) This amount does not include $566,494 in expenses incurred between April 21 and June 7, 2000, the
period after DOI during which Ambassador Keyes continued to campaign. (See Finding III.B.)
Post DOI non-qualified campaign expenses such as travel and convention and undocumented cash
disbursements have been excluded from winding down expenses.

(b) The estimated winding down costs will be monitored throughout calendar year 2002. Should actual
costs be substantially less than projected costs, a repayment pursuant to 26 USC §9038.2(b)(1)
would result.

The Treasurer expressed concern at the exit conference and in the
statement submitted subsequent to the exit conference, that cash-on-hand as calculated by
the Audit staff was overstated by more than $100,000. Although he was provided with a
printout detailing the Audit staff's calculation of cash-on-hand, his statement did not
address how the Audit staff's calculation was in error.


REPORT OF THE AUDIT DIVISION
ON

KEYES 2000, Inc.
EXECUTIVE SUMMARY

Keyes 2000, Inc. (Keyes 2000) registered with the Federal Election Commission
(the Commission) on June 17, 1999, as the principal campaign committee for
Ambassador Alan L. Keyes, candidate for the Republican Party’s nomination for the
office of President of the United States.

The audit was mandated by Section 9038(a) of Title 26 of the United States Code,
requiring the Commission to audit committees authorized by candidates who receive
Federal Funds. The Candidate received $5,043,341 in matching funds from the U.S.
Treasury.

The findings of the audit were presented to Keyes 2000 at an exit conference held
on February 15, 2002 and in the Preliminary Audit Report. Keyes 2000 Inc.’s responses
to those findings are contained in the audit report.

The following is an overview of the findings contained in the audit report.

CASH DISBURSEMENTS ~ 11 CFR §§102.10 and 102.11. Keyes 2000 made cash
disbursements in excess of the limitation for petty cash disbursements, which, in the
aggregate, totaled $107,863.

UNRESOLVED EXCESSIVE CONTRIBUTIONS — 2 U.S.C. §441a(a)(1)(A). Testing
of contributions from individuals indicated that Keyes 2000 received unresolved
excessive contributions in the amount of $95,286. Keyes 2000 must pay this amount to
the United States Treasury.

RECEIPT OF CURRENCY IN EXCESS OF LIMITATION — 2 U.S.C. §441g and 11
CFR §110.4(c)(3). A review of contributions indicated that Keyes 2000 received
excessive anonymous currency contributions in the amount of $15,013. Keyes 2000 must
pay this amount to the United States Treasury.

APPARENT NON-QUALIFIED CAMPAIGN EXPENSES — 2 U.S.C. §432(h)(2) and 11
CFR §§9032(9), 9033.11(a) and (b), 9034.4(a)(3)(i), 9038.2(b)(2)(i) and (iii). The audit
identified non-qualified campaign expenses totaling $407,378. In response to the
Preliminary Audit Report, Keyes 2000 provided documentation that reduced that amount
to $288,876. The Commission determined that Keyes 2000 must make a pro rata
repayment of $74,439 to the United States Treasury.

Costs ASSOCIATED WITH CONTINUING TO CAMPAIGN — 11 CFR
§§9034.4(a)(3)(ii), 9034.4(b)(3), and 9038.2(b)(2)(i) and (ii)(D). Ambassador Keyes
continued to campaign after his date of ineligibility, April 20, 2000 until June 7, 2000.



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Recommendation #1

The Audit staff recommends that Keyes 2000 make a payment to the United
States Treasury in the amount of $95,286.

Cc. RECEIPT OF CURRENCY IN EXCESS OF LIMITATION

Section 110.4(c)(3) of Title 11 of the Code of Federal Regulations states
that a candidate or committee receiving an anonymous cash contribution in excess of $50
shall promptly dispose of the amount over $50. The amount over $50 may be used for
any lawful purpose unrelated to any Federal election, campaign, or candidate.

Section 441g of Title 2 of the United States Code states that no person
may make contributions of currency of the United States or currency of any foreign
country to or for the benefit of any candidate which, in the aggregate, exceed $100, with
respect to any campaign of such candidate for nomination for election, or for election, to
Federal office.

Section 9038.1(f)(3) of Title 11 of the Code of Federal Regulations states,
in part, that within 30 days of service of the Final Audit Report, the committee shall
submit a check to the United States Treasury for the total amount of any excessive or
prohibited contribution not refunded, reattributed or redesignated in a timely manner in
accordance with 11 CFR §103.3(b)(1), (2) or (3).

The Audit staff identified 89 deposits, each containing currency greater
than $50. The total for these currency deposits was $39,243. Keyes 2000 provided
documentation for 45 deposits that were associated with events. The remaining 44
currency deposits were not satisfactorily explained. These deposits totaled $19,039.
After allowing for one permissible $50 anonymous currency contribution from each
deposit, Keyes 2000 received excessive anonymous currency contributions in the amount
of $16,839.

At the exit conference, the Treasurer and Chief-of-Staff wanted to know
why the candidate’s itineraries” were not used to answer any questions concerning the
large currency deposits. The Treasurer also stated that the cash contributions were
deposited within 24 hours of the date of the event where they were received.

In a statement provided subsequent to the exit conference Keyes 2000

stated:
“Each cash contribution in question has been matched to the
candidate’s daily schedules, staff travel itineraries, and campaign events
° Though requested during audit fieldwork, the Candidate's itineraries were not made available for

Audit staff review until the Exit Conference.


12

referenced contemporaneous documentation was not attached to the response to the
preliminary audit report.

Recommendation #2
The Audit staff recommends that Keyes 2000 make a payment to the United
States Treasury in the amount of $15,013 ($16,839 less $1,826).

I. AUDIT FINDINGS AND RECOMMENDATIONS — REPAYMENT MATTERS

A. APPARENT NON-QUALIFIED CAMPAIGN EXPENSES

Section 432(h)(2) of Title 2 of the United States Code states, in part, that a
political committee may maintain a petty cash fund for disbursements not in excess of
$100 to any person in connection with a single purchase or transaction.

Section 9032(9) of Title 26 of the United States Code defines, in part, the
term “qualified campaign expense” as a purchase or payment incurred by a candidate, or
by his authorized committee, in connection with his campaign for nomination, and
neither the incurring nor payment of which constitutes a violation of any law of the
United States or of the State in which the expense is incurred or paid.

Section 9033.11(a) of Title 11 of the Code of Federal Regulations states,
in part, that each candidate shall have the burden of proving that disbursements made by
the candidate or his authorized committee(s) or persons authorized to make expenditures
on behalf of the candidate or authorized committee(s) are qualified campaign expenses.

Section 9033.11(b) of Title 11 of the Code of Federal Regulations states,
in part, that for disbursements in excess of $200 to a payee, the candidate shall present a
canceled check negotiated by the payee and either a receipted bill from the payee that
states the purpose of the disbursement or a bill, invoice or voucher from the payee that
states the purpose of the disbursement. Where the documents specified above are not
available, the candidate or committee may provide a voucher or contemporaneous
memorandum that states the purpose of the disbursement. Where the supporting
documentation required above is not available, the candidate or committee may present
collateral evidence to document the qualified campaign expense. Such collateral
evidence may include, but is not limited to, evidence demonstrating that expenditure is
part of an identifiable program or project which is otherwise sufficiently documented or
evidence that the disbursement is covered by a pre-established written campaign
committee policy, such as a daily travel expense policy. If the purpose of the
disbursement is not stated in the accompanying documentation, it must be indicated on
the canceled check negotiated by the payee. Purpose means the full name and mailing
address of the payee, the date and amount of the disbursement, and a brief description of
the goods and services purchased.

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TABLE OF CONTENTS

KEYES 2000, INC.

Executive Summary
Final Audit Report
Background
Findings
Legal Analysis
Transmittal to Committee
Transmittal to Candidate

Chronology

Page

29
35
37

39


FEDERAL ELECTION COMMISSION
WASHINGTON, DC 20464

December 17, 2002

Mr. William L. Constantine, Treasurer
Keyes 2000, Inc.

2400 Earlsgate Court

Reston, VA 20191

Dear Mr. Constantine:

Attached please find the Final Audit Report on Keyes 2000, Inc. The Commission
approved the report on December 12, 2002. As noted on page 6, the Commission may
pursue any of the matters discussed in an enforcement action.

In accordance with 11 CFR §§9038.2(c)(1) and (d)(1), the Commission has made a
determination that a repayment to the Secretary of the Treasury in the amount of $222,750 is
required within 90 calendar days after the service of this report (March 24, 2003).

Should you dispute the Commission’s determination that a repayment is required,
Commission regulations at 11 CFR §9038.2(c)(2) provide you with an opportunity to submit
in writing, within 60 calendar days after service of the Commission’s notice (February 21,
2003), legal and factual materials to demonstrate that no repayment, or a lesser repayment, is
required. Further, 11 CFR §9038.2(c)(2)(ii) permits a Candidate who has submitted written
materials to request an opportunity to address the Commission in open session based on the
legal and factual materials submitted.

The Commission will consider any written legal and factual materials submitted
within the 60-day period when deciding whether to revise the repayment determination.
Such materials may be submitted by counsel if the Candidate so elects. If the Candidate
decides to file a response to the repayment determination, please contact Greg Baker of the
Office of General Counsel at (202) 694-1650 or toll free at (800) 424-9530. If the Candidate
does not dispute this determination within the 60-day period provided, it will be considered
final.

The Commission approved Final Audit Report was placed on the public record on

December 24, 2002. Should you have any questions regarding the public release of the
report, please contact the Commission’s Press Office at (202) 694-1220.

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services in the accounts payable, which were paid during the period of
ineligibility, but which were incurred previous to DOI. Rectifying these
errors will significantly lower the repayment amount due to Continuing to
Campaign.”

The $782,711 in expenses identified, as having been incurred during the
period did not include expenses incurred prior to DOI as determined by the Audit staff
using the records available during audit fieldwork. The Treasurer was provided detailed
spreadsheets supporting the amounts presented in this finding. Documentation was not
provided to address specific items about which the Treasurer believed mistakes were
made.

In the preliminary audit report, the Audit staff recommended that Keyes
2000 provide documentation to demonstrate that matching funds were not used to fund
the continuing to campaign effort between April 20, and June 7, 2000. Absent such
documentation, the preliminary audit report stated that the Audit staff would recommend
that the Commission determine that $85,622 ($332,271 multiplied by the repayment ratio,
.257686) was repayable to the U.S. Treasury.

In response to the preliminary audit report, Keyes 2000 stated, “ the
Committee is pursuing a reconsideration of the DOI based on a favorable
determination concerning the Arkansas primary results. Such a determination
would of course render moot the CTC [Continuing to Campaign] issue of non-
qualified campaign expenses.”

Regardless, Keyes 2000 “‘...asserts that it incurred expenses during the
CTC period commensurate but not in excess of the contributions noted.”"*® However, a
schedule provided in the response to the preliminary audit report suggests that Keyes
2000 has acknowledged spending $35,720 in excess of the amount of funds available to
campaign.

In response to the preliminary audit report, Keyes 2000 presented
documentation that showed that disbursements totaling $215,817'° paid during the period
were for goods and services provided prior to DOI or following the CTC period. This
reduced the amount spent during the period from $782,711 to $566,894, or $116,454 in
excess of the amount available for use during the period.

" “Contributions noted” refers to the $450,440 in contributions that were available to Keyes 2000 to
spend during the period April 21, 2000, through June 7, 2000, for continuing to campaign activity.
a Included in this amount were two reimbursements for expenses incurred for attending the

Republican National Convention. Since the convention occurred in the winding down period,
these reimbursements were non-qualified expenses to Keyes 2000. These non-qualified expenses
were added to non-qualified expenses in Finding III.A. (See footnote #15.)

23



REPORT OF THE AUDIT DIVISION
ON

Keyes 2000, Inc.

Approved December 12, 2002

FEDERAL ELECTION COMMISSION
999 E STREET, N.W.
WASHINGTON, D.C.



Memorandum to Robert J. Costa

Proposed Audit Report
Keyes 2000, Inc. (LRA #570)
Page 3

travel expenses were incurred in connection with seeking the nomination or if the
expenses were a part of the Committee’s effort to terminate its 2000 presidential
campaign. 11 C.F.R. §§ 9032.9(a), 9034.4(a)(3)(i).

Candidates have the burden of demonstrating that disbursements are qualified
campaign expenses, by submitting the required documentation.’ 11 C.F.R.
§§ 9033.11(b), 9033.11(a)-(b). Disbursements over $200 must be documented with a
receipted bill from the payee that states the purpose of the disbursement; if a receipted bill
is not available, the disbursement must be documented with: (1) a canceled check
negotiated by the payee supported by an invoice, bill, voucher or contemporaneous
memorandum; (2) a canceled check stating the purpose of the disbursement; or (3) a
canceled check and collateral evidence to document the qualified campaign expense.
11 C.F.R. § 9033.11(b)(1)(i)-(iv).

A. Undocumented Travel Expenses During the Period of Eligibility
(Section ITI.A.2)

The Proposed Report notes that the Committee has $64,355 in nonqualified
campaign expenses for undocumented travel expenses due to the fact that the listed
purposes on the canceled checks “are not sufficient to establish that the expenses were
incurred in connection with [the Committee’s] campaign.” In particular, there are two
canceled checks, totaling $54,547.55, made payable to Malvey Travel.° The checks state
on the memo lines “outside services-air travel” and “air charter-lowa flying services.”

There is a letter from Peter Malvey to the Committee dated December 31, 1999
that stated “Iowa City Flying will rent the aircraft to Malvey Travel, not the campaign.” In
response to the Preliminary Audit Report (“PAR”), the Committee submitted a $67,691.07
invoice from Iowa City Flying Service. The invoice lists the date of each transaction, the
referencing invoice number, a brief description of each transaction, the amount of the
transaction, and the payment received from the Committee. In addition, the auditors were
able to obtain a receipt dated February 29, 2000 from PS Air® to the Committee that listed
the Committee’s activity and balance for the Iowa City Flying Service Account.

‘ As a condition precedent to receiving public funds, candidates “agree to obtain and furnish to the

Commission any evidence it may request of qualified campaign expenses.” 26 U.S.C. § 9033(a)(1); see
also 11 C.F.R. § 9033.1(b)(3). Also, candidates are required to keep and furnish all documentation relating
to disbursements and receipts and any other information that the Commission requests. 11 C.F.R.

§ 9033.1(b)(5).

s According to the auditors, there are eleven checks that total $64,354.83 in nonqualified campaign
expenses. However, this Office has only identified two checks that require comment.

‘ PS Air is a service provider for the Iowa Airport that offers services such as fuel, aircraft rental,
aircraft maintenance, oxygen, and hangars.

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The Statement of Net Outstanding Campaign Obligations as of April 20,
2000 as presented above shows Keyes 2000 to be in a deficit position in the amount of
$4,992,309. Shown below are adjustments for funds received after April 20, 2000, based
on the most current financial information available:

Net Outstanding Campaign

Obligations (Deficit) as of 4/20/00 ($4,992,309)
Net Private Contributions

Received 6/7/00 to 12/31/00 882,934
Matching Funds Received

04/20/00 to 12/31/00 3,183,371

SUBTOTAL: Remaining Net Outstanding
Campaign Obligations (Deficit) @
12/31/00 ($926,004)

Net Private Contributions Received
1/1/01 to 6/01/01 302,621

Matching Funds Received 1/2/01 through
06/01/01 171,567

Remaining Net Outstanding Campaign
Obligations (Deficit) 4 16

As presented above, the Keyes 2000 has not received matching fund
payments in excess of its entitlement.

D. STALE-DATED CHECKS

Section 9038.6 of Title 11 of the Code of Federal Regulations states that if
the committee has checks outstanding to creditors or contributions that have not been
cashed, the committee shall notify the Commission. The Committee shall inform the
Commission of its efforts to locate the payees, if such efforts have been necessary, and its
efforts to encourage the payees to cash the outstanding checks. The committee shall also
submit a check for the total amount of such outstanding checks, payable to the United
States Treasury.

The Audit staff identified 27 stale-dated checks totaling $8,003. Twenty-
four of the stale-dated checks represented refunds to individuals of excessive
contributions.


Based on these facts, it appears that Keyes 2000 had no policy to address the timely
resolution of excessive contributions.

The sample review of contributions from individuals indicated that Keyes
2000 failed to resolve a substantial number of excessive contributions. The sample
projected that the total dollar value of the unresolved excessive contributions in the
population was $163,200. In addition to this, $5,000 was identified in a 100% review of
selected contributions. Thus, the Audit staff concluded that Keyes 2000 failed to resolve
excessive contributions totaling $168,200 and must pay this amount to the United States
Treasury.

At the exit conference, Keyes 2000 was provided with a spreadsheet of the
sample errors for unresolved excessive contributions as well as documentation to support
that the sample contributions were excessive. The Treasurer expressed his concer that
because of the magnitude of the projection for unresolved excessive contributions,
untimely resolved contributions’ were included. He stated that he could not understand
how the sample error projection was calculated. Despite the Audit staff's explanation
that only exceptions involving unresolved contributions were used to make the
projection, he stated he was unconvinced.®

In a statement provided subsequent to the exit conference the Treasurer
stated the following:

“T am attaching a spreadsheet that shows exactly and completely
which excessive contributions have not yet been refunded. This
spreadsheet was available to the auditors in March of 2001. Because the
method of using sampling to determine the excessive contributions
amount is both unintelligible and far in excess of the actual amount, I
contend that the auditors need to confirm the data in this spreadsheet and
adjust this amount down to accord with the facts. Moreover, I have the e-
mail that the lead auditor wrote to me advising me to suspend our ongoing
refund efforts, and stating that if Keyes 2000 continued to refund
excessive contributions after sixty days, those same amounts would also
have to be repaid to the US Treasury anyway — doubling the Committee’s
financial liability. As we learned in the February 15" meeting, this is not
necessarily the case, yet we suspended our refund efforts on this FEC
advice. Moreover, an imputation was made during the February 15"
meeting that the Committee might face increased legal liability because of
the remaining unrefunded excess contributions. This feels like a bait and
switch.”

Untimely resolved contributions means excessive contributions that were either refunded or
reattributed to another contributor outside the 60-day time period provided for by 11CFR
§103.3(b)(3).

Subsequent to the exit conference, the Treasurer was provided with a detailed explanation of the

“Dollar Unit Sampling” program used by the Audit staff, including the background, statistical
theory and the computer code for the sampling program.

10


11

where small donor fundraising solicitation was made. The documents
which specified these travel and event fundraising efforts, correlated to the
Committee’s bank records of receipts deposits, were ignored by the audit
team. A spreadsheet was provided to the auditors, which shows this
information explicitly. At the Exit Conference we first learned that this
spreadsheet had not been accepted, and some cash receipts were still
deemed excessive. All of these cash receipts do qualify under the
regulations and should be accepted.”

Keyes 2000 was formally advised of the remaining excessive anonymous
currency contributions on November 5, 2001, approximately 2% months prior to the exit
conference when the Audit staff sent, via electronic mail, a summary of the audit findings
and nine supporting schedules.

Despite the Treasurer’s claim of prompt deposit, according to his
spreadsheet, 30 of the 44 inadequately documented deposits were not made within ten
days of the associated event. In addition, the Treasurer associated several large currency
deposits with events that occurred up to 66 days after the deposits were made.
Explanations for other currency deposits referred to unverifiable events. Finally, the
remaining currency deposits were attributed to “white mail” where no attempt was made
to identify how many contributions each currency deposit represented.

In the preliminary audit report, the Audit staff recommended that Keyes
2000 provide documentation for fundraising events associated with the 44 currency
deposits noted above that shows that no single anonymous cash contribution in excess of
$50 was received. Absent such a showing, the Audit staff recommended that Keyes 2000
pay $16,839 to the United States Treasury.

In response to the preliminary audit report Keyes 2000 supplied a revised
schedule of cash deposits and stated that it matched each contribution deposit in question
to the:

e Candidate’s daily schedule;
e Candidate and staff travel itineraries; and
e Campaign events where small donor fundraising solicitations were made.

The schedule, like its predecessor, indicated that 30 deposits were not
made within ten days of the associated event. Therefore, for those deposits no
adjustments were warranted. However, there were changes related to nine events that
corrected earlier assertions that cash deposits were made prior to the dates of the events
with which they had been associated. This resulted in a reduction of $1,826 to the
excessive anonymous cash total.

Keyes 2000 also stated that attached contemporaneous documentation
supported their position that all of the cash receipts meet compliance under the
regulations, and should be accepted as qualified campaign contributions. However, the