MJ000529

FEDERAL ELECTION COMMISSION

WASHING TON, 0 C 204bJ

December 3, 1991

MEMORANDUM

TO: FRED EILAND

CHIEF, PRESS OFFICE

FROM: ROBERT J. COSTA

ASSISTANT STAFF DIR~~T~ AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT ON

~~~ DU~~KIS/BKNTSEN COKMITTBE. INC. AND

~l1t\hl<J.S/BENTS~N v::!:!:!'..l..L =:'ZCi:ION L.~~AL

AND ACCOUNTING CO"PLIANCE FUND

A~tached please find a copy of the Final Audit Report on the

Dukakis/Bentsen Coaaittee, Inc. and outakis/8ent••n General

Election Legal and Accounting Coapllance PuDd (".ised), which was

approved by the Co.-ission on Nov.~r 22. 1991. This report replaces the version considered by the Co.-issioft as Agenda

Docuaent 191-114 on October 31, 1991.!/

Infor.ationa1 copies of the report have been received by all

parties involved and the report a.y be rel•••ed to the public.

Attach.ent as stated

cc: Office of General Counsel

Of.tee of Public Disclosure

Reports Analysis Division

FEC Library

!/ Please refer to Agenda Document 191-114 for a copy of the

1e981 analysis.
FEDERAL ELECTION COMMISSION

WASHINCTON. oc 204b3

REPORT OF THE AUDIT DIVISION

ON THE

DUKAKIS/BENTSEN COMMITTEE, INC. -

AND DUKAKIS/BENTSEN GENERAL ELECTION

LEGAL AND ACCOUNTING COMPLIANCE FUND

MJQ00177

11/20/91

(Revised)

I. Background

A. Overview

This report is based on an audit of the Dukakis/Bentsen

Committee, Inc. ("the GEC") and the Dukakis/Bentsen General

Election Leqal and Accounting Compliance Fund ("the Coapliance

Fund"), to determine whether there has been compliance with the

provisions of the ••~~~~, ~!crti~~ ~~~;~~7n A~t ~f 1971, as

a.endec.i ,··-c.he Act.·;) and the Presidential Election Campai9n tund

Act. The audit was conducted pursuant to 26 u.s.c. 59007(a),

which states that after each presidential election, the Coaaission -- --- ~1.c111 \::tl~.-.:=t:- --~ -c.5-~-~~-"-'jtl-~Aa~~-i-~cI~~~-a---Ci~i~ -QuUr-~---j-f- -\.1Iii---q-u.~1-fit:J -

caapaiqn expenses of the candidates of each political party for

President and Vice President.

In addition, 26 u.s.c. S9009{b) states# in part, that

the Coaaission say conduct other exaainations and audits fro. tiae

to tia. as it d•••• nec.ssary to carry out the provisions of this

SUbchapter.

The GBe registered with the Coaaia.ion on Kay 18, 1988,

and the Coapliance Fund registered with the Co..ission on April

23, 1990.1/ The co..ittee. aaintained headquarters in Boston,

Massachusetts.

The audit covered the period froa the GBe and Co.pliance

Fund's inception May 15, 1988, throu9h June 30, 1989, the last day

covered by the .ost recent reports filed with the Coaaission at

the tiae of the audits. In addition, certain financial activity

was reviewed through Sept.aber 30, 1989. Finally, reported

activity was reviewed for the period October 1, 1989 through June

30, 1991.

The GEC reported an opening cash balance of -0-; total ~@rei~ts ~f S~5:~Q9.16~.941 t~t~l e~p~~ditur~~ of $55,€S1,0034!9;

and a June 30, 1989 cash balance of $242,165.15. The Compliance

Fund reported an opening cash balance of -0-; total receipts of

!I The Compliance Fund should have registered in May/June 1988.
2

$3,315,029.28; total expenditures of $2,868,536.03; and a June 30,

1989 cash balance of $446,493.25. Under 11 C.F.R. SS9007.1{b)(3)

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

addenda to this report issued as necessary.

This report is based upon documents and workpapers 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 report and were available to Commissioners and

appropriate staff for review.

B. Key Personnel

The Treasurers of the GEe and the Compliance Fund were

Mr. Robert A. Farmer and Mr. Edward Pliner, respectively.

c. Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactions;

review of required supporting documentation; analysis of debts and

obligations; review of contribution ~nrt p~~p~~;~,,~~ !;-i~~tinns:

dud othi; a. a'udi '- ~L ocedures as lAt!emeci necessa ry under the

circumstances.

-- -- _n J'!. -- -$"tl"rdt !!~,!u~~~ ~=--:o-t=.-ct':d~t~--~&.-~ ~'= l-~ t::~ ~c'r:;: ~-:::.c

States Code - Dukakis/Bentsen Committee, Inc.

A. unreported Activity

Sections 434(b)(4)(B) and (El of Title 2 of the United

States Code, in part, require that each report under this section

shall disclose for the reporting period and the calendar year, the

total amount of all disbursements for authorized committees,

transfers to other committees authorized by the same candidate and

the repayment of all loans.

Sections 434(b)(2)(E) and (8) of Title 2 of the United

states Code state, in part, that each report under this section

shall disclose for the reporting period and calendar year, the

total amount of all receipts, and the total amount of all

transfers from other authorized committees of the same candidate

together with all other loans.

Section 9003.4(b)(2) of Title 11 of the Code of Federal

Regulations states, in part, that a major party candidate may

borrow from his or her legal and assistance ~ompliance fund for

cne purpose of defraYlng permissible expenditures described in 11

eFR 9003.4.

1. unreported Transfers

During the period May 16, 1988, through July 21,

1988 the Compliance Fund transferred $1,242,500 to the GEC
3

pursuant to 11 C.F.R. S9003.4. The GEC and Compliance Fund

included only $362,500 of this amount on their disclosure reports.

On July 28, 1988, the GEC transferred $1,237,500 back to the

Compliance Fund however again only $362,500 was included on the

GEe or Compliance Fund reports. A $5,000 transfer from the GEC

to the Compliance Fund on September 21, 1988 also was not reported

by the GEe and Compliance Fund~

These transactions resulted in reported receipts

and disbursements of both the GEe and Compliance Fund being

understated by $880,000. At the exit conference Compliance Fund

officials were provided with a schedule of the unreported

transactions and agreed to amend the Compliance Fund's disclosure

reports to include the transfers. On November 13, 1989, the

Compliance Fund filed amended reports disclosing the $880,000 in

transfers.

In the interim audit report the Audit staff

recommended that the Compliance Fund provide any additional

comments deemed necessary regarding the unreported transfers. In

response to the interim audi~ report the Compliance Fund provided

th- ¥o)l~win~ Q~~lanation: "The under-reporting of ~h~ $8RO-Q~C

was also an accounting ertor caused oy changes In che personnel of

the accounting office. There has been no issue raised at all of

the proper expenditure of these funds, only of their accounting ~~:=t;=.:::'+; ":~&~---~~ r-~=-- ·.:~:;:.oi~=~\:~-~ 0-" SC-v.-a ~.i---lE ..':~~ ::'~u~~11t Lv

the Coaaittee's attention. On November 13, 1989, following the

exit conference, the Committee filed amended reports."

2. Expenditures for Advance School

In August 1988, the GEe conducted a school for its

advance staff at a hotel in Framingham, Massachusetts. Documents

including hotel bills, check request forms, American Express

receipts, and cancelled checks reviewed by the Audit staff

indicate that the total costs associated with the school were

$50,370.93. The GEC paid $20,000 directly to the hotel. The

majority ($28,470.93) of the remaining balance was paid by an

e.ployee of the GEC coordinating the school as follows: three

charges to his American Express card, dated August 26, 1988,

totalling $20,000 along with a service charge of $328, and two

checks drawn on the individual's personal checking account on

August 26, and August 28, 1988, in the amounts of $5,000 and

$3,142.93 respectively. The remaining $1,900 [$50,370.93 less

($20,000 + $20,000 + $5,000 + $3,142.93 + 328)} was paid directly

to the hotel in the form of checks and currency by individuals who

attended the school.

"'rh p (' n n ': '1 i ~.:. 1': I') !." <; 11 bI!'itt !." e i. mh '_1 r p",g n t r l! ...' '!' != ':

totalling $14,720.93 on August 30, 1988 and the GEC issued a check

in that amount on September 6, 1988. According to the GEC's check

request form, the difference between the amount advanced by the

coordinator ($28,470.93) and the amount paid ($14,720.93) was the

result of the coordinator receiving $13,750.00 in checks made
4

payable to him by attendees. The only reporting of the

transactions noted above by the GEe was the $20,000 paid directly

to the hotel and the $14,720.93 paid to the coordinator.

When questioned about this activity, a GEe official

stated that the individuals who paid their own way were covered by

the Act's volunteer exemption and that the GEe had acted properly

in the matter. The official did state that an attempt to obtain

additional records regarding this activity would be made.

In the interim audit report the Audit staff

recommended that the GEe obtain and provide the identification of

the attendees who made payments directly to the individual

coordinating the advance school along with the amounts paid. In

addition the Audit staff recommended that the GEe provide

additional information regarding the activities conducted at the

advance school including the cost to each participant, the costs

associated with the school, and information demonstrating that the

amounts paid by the coordinator and participants were not

contributions to the GEe. The Audit staff further recommended

that the GEe amend its disclosure reports to include the total

costs associated wit~ tne ~~~r~n~p ~~hool including the amounts

~dlU di(~~~ly ~o the coordinator by attendee~.

In response to the interim audit report, on ~:"~-~h€t !:, 1ge~, ~~.~- G~:- t:!."C·i~~-:::! -\:~e ~~~-:.tifi~:ltrc;f-~t ~l~~----

individuals attending the advance school. Regarding the total

cost of the school, the GEe agreed with the amount ($50,370.93)

identified by the Audit staff in the interim audit report.

According to the GEe, records regarding the number of attendees is

not available, however using 400, the highest number of attendees

that could have been accommodated, (the GEC believes the nuaber

was closer to 275) the cost for each attendee would have been

$124.50. The response further states "Each attendee was asked to

pay what they could and most paid either $50 or $100 of his or her

food and lodging costs; the rest was subsidized by the Co.-ittee.

Therefore no attendee paid in excess of -- or even the equivalent

of -- his or her food and lodging costs." The GEe amended its

1988 year end disclosure report to report the amounts paid by the

attendees to the coordinator. According to the GEC, amounts were

paid to the coordinator because the hotel refused to accept the

individuals' out-of-state personal checks. The GEC's response

reiterates its position that payments made by the attendees

related to their personal ~xpenses as volunteers to the GEC and

that none of the payments were used to defray the costs of

materials or other expenses incident to the training program

itself. All such costs were paid for entirely by the GEe.

Recommendation #1

The Audit staff recommends no further action.
5

B. Media Records and Commissions

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

states, in part, that it is unlawful for any corporation to make a

contribution or expenditure in connection with any election to any

political office.

Section 9003(b)(2) of Title 26 of the United States Code

states, in part, that in order to be eligible to receive any

payments under section 9006, the candidate of a major party in a

presidential election shall certify to the Commission, under

penalty of perjury, that no contributions to defray qualified

campaign expenses have been or will be accepted by such candidate.

The GEC entered into agreements with two media firms for

placement of television and radio time. The first media firm was

responsible for placing television and radio buys at the

local level. The GEe did not have a written contract with this

media firm and less than half of the payments to the media firm

were supported by invoices as of close of fieldwork. According to

the GEe's disbursements journal, $10,339,005.98 was paid to this

media firm between July 27, 198R, ~n~ M~~~h 0, 1q8q ~tven the

infvi:iiiQ\..~uii d"allaol.t::, Ctlt: ,;uui s \.-aff was unable to determine

what portion of the payments to the media firm represented

commissions. At the close of fieldwork, the media firm had not -~('\~J~f:~~ ~~':~:Ic~l-:'':a-ti''''~:,f ~~~ ~~i-~~~~-= =~-=~--:;7 -t~~-C~C f~= ~h~

buys made and credits received for ads which did not run. The GEC

did obtain a letter from the media firm in which the president of

the media firm states that the GEe paid a fee of $225,000 plus 2\

of all gross placement dollars which works out to a fee of

approximately 4% of gross placement. The Audit staff was unable

to verify the total amount of placements made by the media fira or

the actual amount of commissions paid by the GEe.

The second media firm was responsible for network,

syndication and cable television and network radio commercial

time. The GEe had a written contract with the media firm which

called for a commission of l~\ of the gross value of all

commercial time planned, reserved, purchased and confirmed on

behalf of the GEe. The contract also called for the GEe to

reimburse the media firm for the costs of dubbing video and audio

tapes at Agency's cost (net of commission or other charges) and

travel outside of New York City. According to the GEe's

disbursement journal, the GEC paid a net amount of $8,636,240.61

to the media firm during the period September 7, 1988 through

November 3, 1988. Payments to the media firm were supported by

notices numbered 1-60 which indicated the amount due the media

[Irm. A recap or payments provloea oy the media firm indicates

net payments receivpd of S8.81Q.8Rl.O'. or S'Ai:~AO.40 rn"'t"~ f:h!~

the amount reflected as paid based on our analysis of the GEe's

records made available. GEC officials stated that the media

records would be made available for Audit staff review. Regarding

the commission charged the GEe by the media firms, a GEe official
6

stated that the GEe should be allowed to obtain the best rate

available.

In the interim audit report the Audit staff recommended

that the GEe provide the Audit staff access to the media firms'

records in order to verify actual buys made and payments received

by the media firms. In addition, the Audit staff recommended that

the GEe obtain from the media firms the total amount received as

commission for media placement and provide justification, to

include copies of contracts with named clients and invoices, that

the amount of commission paid to the media firms is reasonable and

that a prohibited contribution has not been received.

The Audit staff was provided access to the records of

both media firms. Regarding the first media firm which placed

television and radio buys at the local level, the Audit staff was

able to verify that $10,236,824.54 was invoiced by ~he media firm.

Of that amount $9,688,438.13 represented buys and S202,191~62

represented commissions. The remaining amount invoiced was for

media planning fees and other direct expenses incurred by the

media firm. Based on these figures the GEe paid approximately a ~\ rommis~'~" for media buys.

A review of the second media firm's records disclosed

that the firm received a net amount after credits of $8,819,881.01 ~:---:~ t-~~ ~~r, !:>e~:-~~~x;~i::~ ~~~·~o:~- b~i'":;-- e.;:.~ ~~~i~=ic;l. -:l&c- fiw~';'t

staff also verified that the GEe paid a commission of l~' of the

gross amount of buys.

Based on the review of the media firms' records and

coaaissions paid by other presidential candidate committees deemed

reasonable by the Commission, the commissions paid to the aedia

firms appear reasonable and therefore no prohibited contribution

resulted.

Reco..endation 12

The Audit staff recommends no further action in this matter.

III. Findings and Recommendations Related to Title 2 of the United

States Code - Dukakis/Bentsen General Election Legal and

Accounting Compliance Fund

A. Partnership Contribution in Excess of Limitation

Section 441a(a)(1)(A) of Title 2 of the United States

Code states that no person shall make contributions to any

candiaate and hlS authorized polltlcal commlttees with respect to

any election for FQrl~r~l ~ffi~e whir~ in th~ aggrog~~~. p~r@~~

$1,000. In addition, Section 431(11) of Title 2 of the United

States Code defines the term "Person" to include a partnership.

Section 110.1(e) of Title 11 of the Code of Federal

Regulations, further notes that a contribution by a partnership
7

shall be attributed to the partnership and to each partner, and

that the amount of a contribution(s) attributable to a partnership

shall not exceed the $1,000 per election limitation.

A review of the Compliance Fund's receipt records

revealed a $10,000 check drawn on a partnership account. Signed

documents attached to the check indicate that the contribution was

to be attributed to twelve individuals. Since the contribution

was drawn on the partnership's check, the full amount ($10,000) is

attributable to the partnership, and as such, an excessive

contribution by the partnership of $9,000 results.

Compliance Fund officials acknowledged the excessive

contribution at the exit conference and stated that a

refund to the partnership would be made and contributions drawn on

the named partners' personal accounts would be sought.

In the interim audit report the Audit staff recommended

that the Compliance Fund submit evidence demonstrating that the

contribution noted above is not in excess of the limitation or

refund the excessive portion and present evidence of such refund

(front and back nr reT'lln'" chl=tl"'k) to the Audi t Divi.sion.

In its response to the interim audit report, dated

January 4, 1991, the Committee provided the Audit staff with a

-f:o!'-l" t'\f :L ':"?-~cc;!~=; -:~-~,~~e---=~~r>~- 9ay~~1~ --t~ t~-c-;;~--r-t;~~i!'z-t.-i-~--i~ - ~h~

a.aunt of $9,000. The response also contained the following

explanation regarding the receipt of the contribution: "The

excess contribution slipped through the Committee's rigorous

procedures, and was refunded as soon as it was brought to the

Coaaittee's attention. The Committee wishes to note that numerous

contributions were received totalling $3 million-plus. This

single excessive contribution constituted the only such error.

The refund is reflected in an appropriate filing by the

Coaaittee."

Recomaendation 13

The Audit staff recommends no further action on this matter.

B. Unreported Transfers

Sections 434(b)(4)(B) and (E) of Title 2 of the United

states Code, in part, require that each report disclose, for the

reporting period and the calendar year, the total amount of all

disbursements for authorized committees, transfers to other

committees authorized by the same candidate and the repayment of

dii iuans.

Sections 434(b)(2)(E) and (H) of Title 2 of the United

States Code state, in part, that each report under this section

shall disclose for the reporting period and calendar year, the

total amount of all receipts, and the total amount of all
8

transfers from other authorized committees of the same candidate

together with all other loans.

Section 9003.4(b)(2) of Title 11 of the Code of Federal

Regulations states that a major party candidate may borrow from

his or her legal and accounting compliance fund for the purpose of

defraying permissible expenditures described in 11 CFR 9003.4(a).

As noted in Finding II.A.l., unreported transfer

activity between the Compliance Fund and GEe resulted in a

$880,000 understatement in reported receipts and disbursements.

At the exit conference, GEe officials stated that the GEe

disclosure reports would be amended to include the transfer

activity.

On November 13, 1989, the GEC filed amended reports

disclosing the $880,000 in transfers. The GEC's response to this

matter is detailed at Finding II.A.l.

Recommendation #4

The Audit staff recommenns n~ !~1~t~~r ~rr;~~ on this matter.

c. Contribution~Records

s Cto i ~!1 ~~~! C=) f -r:. 1c 2 f t :.-~ '!,fIiI t~ S:it t ~:, --c ~d

states in part that the treasurer of a political committee shall

keep an account of all contributions received by or on behalf of

such political committee along with the name and address of any

person who makes any contribution in excess of $50, together with

the date and amount of such contribution by any person and the

identification of any person who makes a contribution or

contributions aggregating more than $200 during a calendar year,

together with the date and amount of such contribution.

The Compliance Fund maintained photocopies of

contributor checks filed in deposit order. Our review of these

records disclosed that documentation supporting $752,961.05 in

contributions was not available. Compliance Fund officials stated

they would request microfilm copies of the contributor checks from

the bank.

In the interim audit report the Audit Staff recommended

that the Compliance Fund provide for Audit Staff review,

documentation supporting the $752,961.05 in contributions.

On December 7, 1989, the Committee forwarded microfilm

caples Ot con~rloutor checks and deposlt slips which documented

the contributions noted ahnvp.

Recommendation #5

The Audit staff recommends no further action on this matter.
o

9

IV. Findings and Recommendations Related to Title 26 of the

United States code - Dukakis/Bentsen Committee, Inc.

A. Expenditure Limitation

The Act provides at 2 U.S.C. §441a(b)(1)(B) that no

candidate for the office of President of the United States who is

eliqible under section 9003 of Title 26 (relating to condition for

eligibility for payments) to receive payments from the Secretary

of the Treasury may make expenditures in excess of $20,000,000 in

the case of a campaign for election to such office as adjusted for

increases in the Consumer Price Index. Further, 2 U.S.C.

S441a(b)(2){B) states that an expenditure is made on behalf of a

candidate, including a vice presidential candidate, if it is made

by:

(i) an authorized committee or any other agent of the

candidate for purposes of making any expenditure; or

(ii) any person authorized or requested by the c~ndi~~t~* an authorized committee of the candidatp: O~ ~n a~~~r

of the canciidate, LO ,ttoke:= .... he expehdl curt.: .

The expenditure limitation for the 1983 general election - ~-("I::- -~=~-~~-e:'~z-~-t ·~=-::-=ic~-:::. ~-:: $--:S, 11)~ ,·~~C, ~~~p~:'·~d-· ~r. ~-c=:~-=~~=.~

with 2 u.s.c. S441a(c).

The Audit staff analyzed the GEe's reports and activity

covering the period from inception throuqh June 30, 1991, with

respect to expenditures subject to the $46,100,000 limitation.

The Audit staff also reviewed the GEe's calculation of

expenditures subject to the limit submitted as part of its

response to the interim report. The results of our analysis

appear below.
10

Dublds/lkmtsen eo-ittee. Inc.

Expenditures Subject too Liadtation at June 30, 1991

Audit Analysis

1. Reported Operating Expenditures SUbjeet to Limitation froll

Inception through June 30, 1991

Adjustaents to Reported Totals

2.. Less: Reported Offsets to Operating Expenditures

Media Reimbursements Offset Against Payables

3. Less: Accounts Receivable - Press

- U.s. Secret Service Adjustment

4. Add: Accounts Payable

Payables Offset by Media Reimbursements

5. Add: Reimbursements Due Compliance Fund from GEe

6. Add: Reclassification of Media Costs to Exspt Co8pliance

$ 53,155,440.13

(7,424,074.61)

( 229,035.49)

( 71,155.97) aI

( 290,906.36)-

bl 86,525.71 -

2~9,035.49

cl 17,942.41 -

( 31,229*24) ~I

511,469.68 ~I

.,Q12,899,75

at

bl

see 1. Accounts Receivable, below, for explanation of adjUSbent.

According to correspondence received f~ the GEe's attorney, Bastem Air Lines, Inc, is

entitled to an ex parte entry of Judpent apiDst the GBC in the a-Nllt of $200,000.

According to the court order, sipecl 9/16/91, the settl.-nt reflects a reasonable

settle.ent of a bona fide dispute over the billlnp by' Butem Air Lines, Inc. to the GEe.

Pa,.eDt of the $200,000 is to be __ as foiloys: $80,000 by GEe and $50,000 by the

o..c:ratie National eo-ittee i.-ediately upon execution of the Stipulation of 5ettl__t

agree ent; $10,000 on the first of _ell ..th thereafter until Eastern Air Lines, Inc. has

received an additional $70,000. 'ftle ~'s pa,.nt of $50,000 vas -.de pursuant to 2 U.S.C.

S441a(d)(2); the lie ., also pay the balance of $70,000 (in equal IIlOIlthly instal1Jlents);

however, the GEe stated it will recognize a contingent liability for the balance of

$70,000. 'nle Audit staff vill lIIOIlitor the status of this contingency and if warranted,

revise the above analysis accordingly. According to reports filed by the IH:, as of June

30, 1991, there r-.ins $441,902.80 of 441a(d)(2) spending authority relative to the 1988

presidential election. The GEe also owes its travel agency $6,495.71.

c/ This amount represents expenses charged to cCMlpliance which should have been operating (See

't. J.n-lU.no Legal services). Also, see 3.a. Consulting Fees Included in Payroll Base, for

an explanation of this adju~t~t.

dl The GEe reclassified this 8.8)W1t from Operating Expendi tures to Exempt Legal and

Accounting. (See 5. Noveaber 6, 1989 Aaaendllent - 2 U.S.C. 441d(a) Disclaimer.)

el Represents costs associated vith associate lavyers, paralegals, and su.aer associates

in preparing the Electoral College MmorandUII. (see 4. In-Kind Legal Services.)
11

Based on the analysis, it appears that the GEe has not

exceeded the limitation at 2 u.s.c. S441a(b)(I)(B).~/

Discussed below are adjustments made by the Audit staff.

These adjustments are contrary to the GEe's position.

1. Accounts Receivable

The Audit staff reduced the amount of the GEe's

accounts receivable by $523,555.36. This reduction is necessary

since this amount, billed the Secret Service by the GEe for travel

with the candidate, is not collectible. The GEe billed the Secret

Service, using a pro rata cost figure, for travel with the

candidate; however, the Secret Service paid the lower of the pro

rata share or first class airfare. According to the GEe Counsel,

the secret Service payments were in accordance with guidelines

provided in Comptroller General Decision 8-130961.141 dated July

5, 1977.i/ The Secret Service provided the GEe during the campaign

with a document entitled "Campaign Committee Aircraft Billing

Procedures" which outlined the procedures for billing the Secret

Service ..

In a letter dated October 18, 1989, the GEC's

Counsels argue that since all passengers, including caapaiqn ~~:':::i~.:;l, .... hil!~= :It !i~-ct ~l:.-.:.: ~; :~~~~ _t.~~; l~ :'-:~~".~!-:'-n-;- -..:it:::'

the incuabent on government conveyance, that the incumbent does

not have to cover, as the GEe has, the difference between the

Secret Service's actual pro rata cost and the cost per ita first

class airfare reimbursement policy. The GEC also argues that the

a.ount that the Secret Service refuses to reimburse should not be

treated as an expenditure subject to the limit.

The Co.-tssion's regulations at 11 C.F.R.

19002.11(a)(1) define a qualified campaign expense as any

expenditure incurred to further a candidate's campaign for the

office of president of the United States. Section 9004.6 of Title

11, of the Code of Federal Regulations provides that expenditures

for transportation made available to media are qualified ca.pai9n

expenses subject to the overall expenditure limitation. Caapai9ns

are permitted to obtain reimbursements from media personnel for

travel expenses paid by the campaign. A campaign may deduct from

the amount of expenditures subject to the overall expenditure

limitation the amou~t of reimbursements received. However, if the

~/ Tne ~ommlsslon-approved lnterlm audit report contained a oreli~inarv calc111a"i()n that t-he GE(" '?v .... o~nf!)rl i: h ,? ()vorall

iimit by $958,677.25.

if According to the decision, the method used by the Secret

Service to determine reimbursement is discretionary with

the Secretary of the Treasury.
12

caapaiqn does not receive reimbursement any amount paid for

transportation of media personnel will be subject to the overall

expenditure limitation.

References to the Secret Service were deleted from

Section 9004.6 in 1983. The Explanation and Justification for

that revision of the regulation explains that: "All references to

reimbursement for transportation ... made available to the Secret

Service ... have been deleted from the section. Other government

regulations govern payment for those expendi tures. n 48 Fe.-deral

Register 31824 (July 11, 1983)

As stated in the interim audit report, it was the

opinion of the Audit staff that

the amounts paid by the GEC over and above the ~mount

reimbursed by the Secret Service are costs inherent

with running a campaign for the presidency; are made to

influence the election; and are qualified campaign

expenses subject to the limitation. Further, the

$523,555.36 included by the GEC in.its ~~~~u~~~

t~ceivaL~e a~ vi SeptemDc( ~v, 1~S;, 15 uncollectible

and as such, the accounts receivable total has been

adjusted by the Audit staff with the resultant a.ount

f 1~;-1'1~ ~~ i? vF~~~i t".:=~z~-= ~~j~r -~- too ~-- -t-~e---l:-i ~i-~~:..-t :.-Gn-.----

In response to the interim audit report the GEe

sets forth a number of arguments disputing the treat.ent of the

Secret Service Receivable. According to the GEC, the Audit

staff#s "bold assertion" that the GEe chose to incur the expense

of Secret Service protection because it would soaehow exert a

positive "influence" on the candidate's chances for election,

ignores both the Hatch Act and Secret Service protection

guidelines. The GEe arques that such a position would violate the

Hatch Act which prohibits federal employees from participating in

any caapaign-related activities and Secret Service Guidelines

which limit agents to those activities related solely to the

safety and security of the candidate.

At no point in the interim audit report did the

Audit staff state that Secret Service protection would exert a

positive influence on the campaign. Rather, the interim audit

report merely states that the expenditures for Secret Service

protection are inherent with running a campaign and thus are

qualified campaign expenses and, less any reimbursements received,

are subject to the overall expenditure limitation.

The GEC furthpr r:ht\roe~ thnt thp t\ndit c;"'''f~'!=

argument is illogical because it is~based on the assertion that

whether the Secret Service protection influences an election turns

entirely on who pays for it. If Treasury reimburses the GEe it is

not a qualified campaign expense, but if Treasury does not

reimburse the Committee then it is a qualified campaign expense.
".....-

\..

13

The Audit staff's position is that the expenditure

for Secret Service protection is a qualified campaign expense just

as expenditures for the cost of press travel are qualified

campaign expenses. Generally, reimbursements received fro. either

the press or Secret Service may be deducted from the amount of

expenditures subject to the overall expenditure limitation,

however, if the GEe does not receive reimbursement then the a.aunt

chargeable to the overall expenditure limitation is not reduced.

The GEe's response continues that the consequences

of the Audit staff's position are both partisan and Draconian.

The fact that the incumbent and anyone flying on government

aircraft with the incumbent is only charged first class airfare

provides the incumbent with an unfair advantage. Further under

the Audit staff's interpretation, the GEC, in addition to having

to pay a portion of the cost of the Secret Service travel, is

faced wi th a repayment to the U. S. Treasury because- the

expenditures caused the overall spending limitation to be

exceeded.

AS ~~~p~ in the interim audit report, the ~~C V~~

dwdre of the Secret SerVlce'S r~lmbuLsement pOllCy durin9 che

campaign. Thus this amount, like any other expense, required

consideration when formulating the campaign budget. It is not

~~t:~=~:'~ tc :t.~.. c :~~ .. tn.:.~- -c~c c.-~tC;C;:I ~: ~X~CU~~-, ~·:~i,:h .~-­

known in advance, caused the GEe to exceed the spending li.itatioR

because the GEC does not believe that the charge should be

applicable to the spending limitation. It is the Audit staff's

opinion that the unreimbursed amount should be treated as any

other uncollectible receivable whether it be due from the Secret

Service, press, or any other vendor.

The GEe further argues that under the Audit staff's

position the GEC had two choices: One, forego the protection, or

two, set aside at the beginning of the campaign an amount to

coapensate for any amounts the Secret Service might not pay.

According to the GEe, the second choice would have required

cutting back on other expenditures which would then give the

incumbent an unfair advantage on top of the advantage he already

had of traveling on less expensive government aircraft.

The GEe states that while the FEe regulations permit a comaittee

to seek reimbursement from the Secret Service for the cost of

travel, the Department of Treasury is only willing to pay the pro

rata share or first class airfare, whichever is lower.

The GEC is correct in stating that the regulations a~~ow the seeking of reimbursement, however the Commission has no

authorltv over tho ro'mhnr~p~~n~ ~nlicy spt by thp- De~~rrmp~t ~~

Treasury. This was recognized in the Explanation and

Justification of the revision to 11 C.F.R. Section 9004.6 whereby

it was noted that other government regulations govern payment for

those expenditures.
14

Finally, the GEe argues that payment of expenses for the transportation costs of the Secret Service should not be

treated as qualified campaign expenses because the services

provided did not in any way further the election of the candidate.

Rather the GEe asks the Commission to disregard the uncollected

Secret Service receivable as not being a qualified campaign

expense and to not impose a repayment obligation.

The argument that candidate security in no way

furthers the candidate's election is without merit. Such service,

in the Audit staff's opinion, allows the candidate to safely

conduct his campaign and, therefore, does further his election.

C"1_

- - >

Moreover, an examination of the composition4/ of the

Secret Service receivable (uncollectible per the Audit staff)

recognized by the GEe reveals that with respect to the trips

handled by the travel agency, $223,809.40 of the $230,114.81, or

97.' of the receivable, occurred as a result of an 11.4\ "direct

cost" mark-up and a 10\ estimated cost mark-up applied to actual

cost. In other words. the f:Fr: 'tJ.:ts reif"hursed bv the Secret

~ecvi~~ rOL ~~~c0Aiwdtely 97~% of the actual cOSt 0X transporting

Secret Service personnel. The uncollected amount basically

represents other costs of the charter program.

For the trips handled by the GEC in-house, an

uncollectible portion of $293,440.56 exists. The vast aajority of

tbese charter trips are identified as "KDD" [the candidate's

spouse]. Of the 105 separate trip legs billed, all legs were

recorded as having 14 or fewer passengers.

In most cases, there were three Secret Service

8gents and less than four media passengers. The remaining

passengers were campaign personnel. With so few "billable w seats,

the Secret Service uncollected amount is understandable, given the

Secret Service's policy of reimbursing first class air fare or pro

rata cost, whichever is less. In the Audit staff's opinion, the

GEe's decision to utilize chartered aircraft having minimal

!/ According to an Accounts Receivable Summary dated June 14,

1;0;, pteparea oy tne GEL, the Secret Service was billed

$1,216,752.62 for fliahts hand!pd hy r~~ t~~"~l ~~en~y: with

Secret Service reimbursements totaling $986,637.81,

uncollectible portion $230,114.81 (18.9%). For trips handled

by the GEC in-house, the Secret Service was billed

$397,681.78 with reimbursements received totalinQ

$104,241.22, uncollectible portion $293,440.56 (73.79\).
lS

seating capacity and/or to schedule trips at less than full

seating capacity inevitably results in a very high pro rata ~08t

per passenger.~/

This decision on the part of the GEe, given the

Secret Service's reimbursement policy was known, must be viewed as

a decision by the GEe to incur these expenses to further the

candidate's election.

The regulations do not provide for such treatment

of expenditures as suggested by the GEe. Under 11 C.F.R. Section

9007.2, if the Commission determines that a candidate has incurred

qualified campaign expenses in excess of the overall limitation

then the amount of such expenses is repayable to the U. S.

Treasury ..

In summary, the regulations in effect for the 1988

election cycle form the basis for the opinion contained in the

interim report relative to the uncollectible receivable from the

Secret Service. The GEe's arguments contained in its response to

the interim report are not persuasive in the light of these

requlatory provisions. The $523,555.36 nnt r~~~bur~p~ by ~h·

St:,-ret S;,:t:"ilw':' .;,.~ vieweci ~~ U1H... vll..tn... ""iiJj"e.

However, on October 24, 1991, the Commission

-~~_iri~d_ ~~ -~rr]-Y' i.t=__ ;;~l:~~"_ ::_c.l_?t;_·:_~ __ t~ ~~~ __ 1 9~"_ ;!.:-~~i;_:; ~y_~~~ _t:~

this aatter and directed the staff to recalculate the a.aunt of

the unreiabursed Secret Service receivable which may, based on the

1992 regulations, be considered not subject to the overall

expenditure limitation. (See 11 C.F.R. S9004.6(8), Federal

Register, p. 35920, July 29, 1991.}

The Audit staff calculated the correct billable

a.ount in accordance with the above cited 1992 re9u1ation. Given

a billable amount of $1,381,785.39 relative to actual

transportation provided and after subtracting the actual

reiaburseaents received ($1,090,879.03), the GEe may view

$290,906.36 as not charqeable against the overall expenditure

limitation.

The 1992 regulations at 11 C.F.R.

S9003.3{a)(2)(i)(H) state, in part, that one of the purposes for

which contributions to the legal and accounting compliance fund

may be used is to defray unreimbursed costs incurred in providing

transportation and services for the Secret Service pursuant to 11

erR 9004.6.

~/ The GEC applied a 10\ mark-up to actual air transportation

cost to arrive at the total cost to be pro rated. Given the

10\ mark-up, the uncollected amount may include as much as

$39,000, which does not represent direct costs of providing

air transportation to the Secret Service.
3.

16

Accordingly, it appears that the Compliance Fund

may reimburse the GEe $290,906.36 in order to defray the

unreimbursed costs incurred and paid by the GEC in providing

transportation to the Secret Service.

The Audit staff has included an adjustment of

$290,906.36 to expenditures subject to the limitation at page 10,

and noted the adjustment fer NOQCE purposes.

2. Disputed Payables

The Audit staff, in the interim report, included

bills totalling $401,016.55 from the travel agency which handled

travel for the GEC. The GEC has not paid the bills because,

according to GEe officials, the travel agency has not documented

sufficiently the expenses billed.

In response to the interim audit report, the GEe

states that the accounts payable total contained in the State.ent

of Net Outstanding Qualified Campaign Expenditures (NOQCE)

included in the i~terim audit report should be revised. ~h~ ~R~

explains that any amount 1n ui~puL~ with tne trav~i agency was

included in the $161,430.13 also included in the NOQCE as a

payable to the travel agency_

The Audit staff reviewed records made available

relative to the accounts payable, and reviewed reported activity

through June 30, 1991. Our analysis indicates that, as stated by

the GEe, a duplication occurred. The amount in dispute with the

travel agency has been resolved as of June 30, 1991.

Reimbursement Due Compliance Fund

a. Consulting Fees Included in Payroll Base

The GEC allocated 5\ of its national payroll

to exempt compliance pursuant to Alternative 2 - Allocation of

National Campaign Office payroll, payroll Taxes and Overhead

Expenses contained in the June 1988 edition of the Financial

Control and Compliance Manual for General Election Candidates

Receiving Public Financing.

Included in the base number from which the

GEe's 5\ allocation figure was calculated were costs associated

with an expense code entitled "consultants." A review of charges

to the "consultants" expense code revealed that in addition to ~OllsulLlng iees, payments for media fees, travel expenses, rent,

background invest.i.gatiof'\s. r:'arnpllter servir~~! rrO(hlC'r.;r", f~pf:,

etc. were included in the expense code total. The Audit staff

reviewed all charges to the expense code and deleted all charges

not related to consulting services paid to an individual. This

procedure resulted in a reduction of the amount of payroll

chargeable to compliance of $78,224.04. Since the GEC had already
17

been reimbursed by the Compliance Fund, this amount was included

in the $128 , 850.62 classified as reimbursements due the Compliance

Fund in the interim report.

A copy of the Audit staff's workpapers was

provided to the GEe staff after the close of fieldwork. GEe

officials had no comment at the exit conference regarding the

Audit staff's adjustments.

In response to the interlm audit report the

GEe stated that it accepts the Audit staff's finding in this

matter.

It should be noted that on October 24, 1991,

the Commission determined that certain costs initially excluded

may be included in the base number. Accordingly, the Audit staff

reviewed the charges initially excluded and identif(ed $624,584.79

in charges which, based on the Commission's decision are

includable in the base number.

~h~~pto:~. rh~ ~~~ve reduction of $78,224.04

\~1,3v~,~~~.7~ x .05) is revlsed to $46,~94.80 l ~$i,364,~80.7~

624,564.79) x .051.

~.--"') .&.\..""" ~r-"'- ' ...... c: ... "l~-o":\";,,. - ... ...;. ..... ~~-~4 ,.,~~;.~ - - ..... "" .... ...••.... .; t- .... 4. _ - ~... - "'..... .I .t'..., .. ... .... - "" It"c:

$78,224.04 as chargeable to the expenditure limitation, an

adjustment of $31,229.24 ($18,224.04 - $46,994.80) is reflected at

page 10, line 5 and explained in note £/.

b. Printing Cost for Holiday/Thank You Notes

Also included in the amount due the Compliance

Fund is $17,995.95 in printing costs for 125,000 holiday/thank you

cards paid from the Compliance Fund. The postage costs

($29,312.75) were paid by the GEC and are included in total

expenditures subject to the limit.

In a letter dated November 13, 1989, the GEe's

Counsel states that the expenditures were for stationery and

postage for thank you notes from Governor Dukakis to 20,0006/

committee staff and volunteers. The cards were sent between

November 29, 1988, and February 27, 1989. The GEC's Counsel

states that the expenditures should be treated as qualified

campaign expenses.

It is the opinion of the Audit staff that

since cne expenoltures tor postage tor the cards are a qualified

~/ No explanation is available at this time for the difference

in the number of cards calculated by the Audit staff and

the number mentioned by the GEe's counsel.
18

campaign expense, the printing costs are also a qualified caapaign

expense which must be reimbursed by the GEC to the Compliance

Fund.

In response to the interim audit report, the

GEe stated that it accepts the Auditor's findings. On January 31,

1991, the GEe reported a $17,995.95 reimbursement to the

Compliance Fund.

4. In-Kind Legal Services

In the interim audit report the Audit staff

included $76,905.50 in expenditures subject to the limitation

representing the value of legal services provided by a law firm

for work conducted on an update of an Electoral College

memorandum. According to a letter, dated September ~4, 1988, from

a law firm to the GEe, an agreement was reached between the law

firm and the GEe whereby the law firm agreed to update a 1980

Electoral College memorandum. The letter states that the services

to be provided do not seem to be contributions because they do not

relate to a general election as definpd.

On June 9, 1989. the GEe issued a $17,942.41 check

to the law firm in payment of expenses associated with the law

fir",' t.tf"l':'~ "".:! .~~~ ~~~~=-~rf~"..;.:". 7/+ :!:~ =;:t:::.:;~:': \;::·t~ ·~Q~~~lri·~d· \:.a

courier services, duplicating,-postage, transportation, aeals,

secretarial services, etc. In a letter dated April 25, 1989, the

law fir. indicated that as of the close of the year, $76,905.50 in

professional services had been incurred but no charges had been

aade. These charges were comprised of hourly rates for partners,

associates, paralegals, and summer associates and were exclusive

of the $17,942.41 billed to the GEe.

The only reporting relative to this activity was

the payment of $17,942.41 which was reported by the GEC as a

coapliance expense. When questioned about the activity, a GEe

official stated that when the firm offered to do the work it was

presuaed that all the work would be volunteer activity. The GEC

stated that the activity was not compliance related and that it is

the position of the GEC that the activity is volunteer exeapt

activity pursuant to 11 C.F.R. §100.7(b)(3). On October 23, 1989,

the GEe sent a letter to the law firm requesting confirmation that

the services provided were exempt volunteer activity.

In a letter dated November 1, 1989, the law firm

stated that "all lawyers who work on a P~9 bon_o matter accepted by

tn1S !lrm ao so on a VOluntary oaS1S, but their compensation from

the firm doe s not va r v de pendina 01" h 0'" m' 1 c h l'" r n t' ~!' "J !:' yo ('1,,1 ! :' .. _ «J' -----.__ J

work they do for the firm." (Emphasis in original.) The letter

2/ According to documentation provided by the GEe, this bill

should have been paid by the Compliance Fund.
19

goes on to say that the law firm relied on 11 C.P.R. S100.7(b)(13)

which exempts from the definition of contribution legal ••rvices

rendered to or on behalf of a political committee of a political

party if the person paying for the services is the regular

employer of the individual rendering the services and such

services are not attributable to activities which directly further

the election of any designated candidate for Federal office.

Based on the law firm's response, it is unclear why the law firm

billed and was paid for expenses purportedly not attributable to

activities which directly furthered the election of the candidate.

In the interim audit report the Audit staff

recommended that the GEe provide evidence that the law firm's

activity is not a contribution to the GEe. This evidence should

include but is not limited to an explanation of the work performed

by the law firm's personnel on the Electoral College.memorandum

and an explanation as to why the GEe was billed for the

expenses associated with the services performed. In addition a

copy of the Electoral College memorandum should also be provided.

In response to the interim audit repo~t ~he ~~~

provided copies of COrlf:!bpl1fld~u(.;~ betwet:u Lhe ~i:t. dna t.he law firm

regarding the Electoral College memorandum and a copy of the

memorandum itself. The memorandum detailed requirements of the !!l~~+:-~r~] ::~! l~?~ '.• ~" i~; ~=~~~~~ ~~: :;~~-e~ ~n~. :.. ~:'~~l~:i ti~; -t;t;~

GEC should be aware of which could result in the candidate losing

Blectoral College votes. The law fira also prepared a suaaary of

applicable laws in each state to accompany the meaorandua.

The GEC argues that "Even if the 1988 election had

been a aatter for the Electoral College to decide, the legal work

should not be treated as a 'contribution' (which is defined at 11

C.P.R. Section 100.7(a) to include 'services ..• made for the

purpose of influencing any election to federal office') because an

Electoral College dispute is not an 'election' as the term is

defined by 11 c.r.R. Section lOO.2(b). As Mr. Josephson

reiterates in his letter of November 1, 1989, the Electoral

College election, which is the only election with respect to which

this fira rendered any legal services and incurred any

reiaburseaents, is not a general, primary, run-off, caucus or

convention, special or any other kind of election within the

meaning of 11 c. r. R. Section 100.2." The response continues

that since the work involved did not influence the general

election that it does not matter whether the law firm'S work was

volunteered or not since it is outside the purview of the

COlUDission.

The ~\Jdi t: !o'tAff dis(\q!'E'e~ with the t:tCOl1Tuent- that

the work performed by the law firm did not influence~the general

election. It is the opinion of the Audit staff that the Electoral

College is part of the entire general election process and
20

expenses incurred by the GEe related to the Electoral College are

qualified campaign expenses which are subject to the overall

expenditure limitation.

Regarding the GEe's argument that the legal work

performed by the law firm is exempt volunteer activity under

11 C.F.R. Sections lOO.7(b)(3) and (13), the Commission has in

past advisory opinions allowed partners in law firms to work for

presidential campaigns without creating a contribution from the

partnership when the partner volunteers his services to the

campaign and his compensation is based on a share in the

partnership, not related to his working hours. (See AO 1979-58

and AO 1980-107.) Therefore, the activities of partners involved

in preparing the Electoral College memorandum may have been

permissible volunteer activity, however the activities of other

law firm employees do not appear to be exempt volunt~er activity

because the law firm paid regular compensation to all of the

associate lawyers and support personnel for the time they spent on

legal work for the GEe. According to a billing statement prepared

by the law firm, billable costs totalling $11,017.50 relating to

one partner w~rp ~~~l\t~O~ ;~ t~~ ~76.905.50. The remaining ~o~,aoo.v~ represented work performed by aSSOclates, paralegals,

and summer assoc:ates, and other personnel.

~~c.: .:'.\.:~: s t~f £ ~:,~ i:1C1~~(;~ i --i~.j -ai'iu!-j" ~i a-of

expenditures subject to the limitation, the $65,888 representing

compensation paid to non-partners as an in-kind contribution. The

associated expenses, totalling $17,942.41, billed to the GEe are

also viewed as qualified campaign expenses subject to the overall

limitation, and therefore are included as such in the Audit

staff's calculation.

s. November 6, 1989 Amendment - 2 U.S.C. 441d(a)

Disclaimer

On November 6, 1989, the GEe filed an amended

disclosure report in which $511,469.68 was reclassified fro. line

23 - Operating Expenditures [chargeable to overall spending li.it)

to line 26 - Exempt Legal and Accounting Disbursements. The GEe

provided the following in its response to the interim report:

The FECA at 2 U.S.C. Section 441(a) [441d(a)] requires

in a "clear and conspicuous manner" the presence of a

"Paid for by .•• " disclaimer "whenever any person makes

an expenditure for the purpose of financing a

communication that expresslY advocates the election or

aeteat ot a clearly identified candidate ... through ...

any broadrast st;it.i(j" "

The Regulations at 11 C.F.R. Section 9003.3 permit

presidential committees to deduct from the expenditure

limitations legal and accounting costs that are provided

solely to ensure compliance with the FECA or the public
21

financing provisions. These "services" have been

construed to include, inter alia, the costs of computer

hardware and software, a proportional amount of the

salaries of all employees -- not just lawyers and

accountants ==-as well as a proportional amount of rent,

utilities, and other overhead costs.

Thus, the FEe has broadly construed the exemption for

"legal and accounting services to ensure compliance with

the Act U as encompassing costs reasonably and

substantially associated with complying with the FECA.

Under these circumstances the Committee considers its

exclusion from the expenditure limitation for the costs

of the disclaimer as falling with the law. Certainly,

legally required disclaimer costs are far more

proximately and substantially connected to "compliance"

than portions of utility costs, office rentals and

payroll costs of non-legal and non-accounting employees.

The amount of cost that the Committee deducted was based

on the length of time thp ~;~rl~~~~r :~~2;~~~ ~n th~

C~l~~lsion screen or was neard in a radio advertisement.

A 30-second TV commercial which contained a i-second

disclaimer, for example, resulted in 1/30 of the costs

::'f t~~ ~:;~::-=::~~!. t,=il£'.:f ~i:'~&\.~Gai: ~.~l i:;;:i::idt:Jl. ~'l~;Jliaff~tf-­

expenditure.

The Committee's formula was based on Advisory Opinions

1981-3 and 1978-46, in which the Commission indicated

that a reasonable allocation formula (for allocating

costs between federal and non-federal candidates) could

be based on a column inches or space in a newsletter.

Similarly, in Advisory Opinion 1982-5, the Commission

stated the costs of a national party conference could be

allocated on the basis of the time in the agenda for

activities pertaining to federal elections.

These Advisory Opinions were cited with approval in the

General Counsel's draft Advisory Opinion 1986-6, which

concerned Senator Gore's proposed plan to allocate a

portion of his TV advertising to the fundraising

exemption. The Commission overruled the legal staff's

recommendation. that the percentage should be based on a

"column inches" analysis, and agreed to a higher

percentage of 50\. The Commission's rationale was that

the fundraising message was an integral p~rt of the

entlre ad.

Thus, the Committee is justified in claiming a much

larger percentage of the ads as a compliance exemption.

The Committee's time-based allocation is reasonable and

indeed, conservative.

1--=-:

" -: ~~

1I

i

1
\..,

-

22

The GEe's reclassification of media costs 1s

incorrect and an adjustment to the GEe's reported figures, as

amended, has been made.8/ The Commission has previously considered

a similar set of circumstances in two 1988 primary campaigns and

found the claims for exemption without merit (see Final Audit

Reports - Dole for President, Inc. and Paul Simon for President).

In this instance, although the GEC cites the Act,

Regulations, and several Advisory Opinions which it believes

supports its position, our opinion remains the same - the GEe's

position is without merit.

The Commission's regulations provide that an amount

equal to 10% of salaries and overhead may be initially paid from

the candidate's federal funds account and later reimbursed by the

compliance fund account (see 11 C.F.R. §9003.3(a)(2»). Section

9003.3(a)(2) delineates the costs which may be exempt compliance

costs. Exempt compliance costs are those legal and accounting

costs incurred solely to ensure compliance with the Act. Media

costs are not included as potential exempt compliance costs.

The ~~U~~ 0i the compildnc~ ~x~m~~ion is strictly

limited to expenditures with a purely compliance purpose and does

not include the cost of an expenditure which merely complies with ~hp A.~t ~hc ~~D-~~n~~ ~=="n :'~:C==:'~-"'_..."'!! =:'e':~c;ii=~= - ;.-~ ~.

commercial does not transform the cost of a political

advertisement into a compliance cost.

Concerning the Advisory Opinions cited by the GEe,

to the extent that the Committee relies on AO 1988-6, its argument

lacks merit. That opinion concerned the fundraising exemption,

not the compliance exemption. The fundraising exemption is

broader than the compliance exemption, and has different

requirements. The Commission has delineated narrow rules

governing the exemption for compliance costs, and the media costs

at issue here do not fall within the parameters of these rules.

The Advisory Opinions cited by the GEe as the basis

for the "time based" formula it used to "allocate", in the GEe's

view, the compliance portion of media costs may well be useful in

support of an allocation formula for costs which in fact may be

allocated.

However, in the case at hand, no portion of the

media cost may be allocated to compliance, regardless of what

allocation formula is used.

~/ If this reclassification were permissible, in order for the

amount (or portion thereof) not to be chargeable to the

overall limit, a reimbursement would have to be made to the

GEC by the Compliance Fund. To date, no reimbursement has

been reported.
23

Suaaarx

Based on our review of (a) the GEe's response, (b) reported

activity from 10/1/89-6/30/91, and (c) applicable Commi••ion

decisions, it appears that the GEe has not exceeded the overall

li.it. Expenditures subject to the overall limit calculated by

the Audit staff as of 6/30/91 total $46,019,899.7S~/, approximately

$80,000 under the $46,100,000 limit in effect for the 1988 general

election.10I

Recommendation 16

No further action is recommended.

88 Interest Earned on Investment of Federal Funds

The regulations at 11 C.F.R. §9004.S state, in part,

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

to qenerate income is permissible, provided that an amount equal

to all net income derived from such investment, less Federal,

State and lor~l tr~~S ~~j~ ~~ such income, shall be repaid to t~e

SeCLC-Cal.y.

During 1988, the GEe received $550,360.31 in interest ----;4!:i~-=-a-te~ -=;~.:. -t~i :~"l:cst~~~t vf -f~d~-rf::.r ~·j;l~~~--- i:h~--- ~~-=--p~i-a- -- $215,677.17 in federal and state taxes on the interest received

leaVing net income of $334,683.20.

In the interim audit report the Audit staff reco..ended

that, absent a showinq to the contrary by the GEC,the Coaaission

.ake an initial determination that the $334,683.20 be repaid to

the United States Treasury.

On February 14, 1991, the GEe forwarded checks totalling

$334,683.20 for repayment of the interest.

Reco..endation 17

It is recommended that the Commission make an initial

determination that $334,683.20 is repayable to the United States

Treasury in accordance with 11 C.F.R. 59004.5. The Committee

satisfied this repayment obligation on February 14, 1991.

~/ This amount is subject to chanqe based on a review of

tinanClal activity post 6/30/91.

10/ The adjustment <$290,906.36> to expenditures subject to the

overall limit, described in section 1 above, does not involve

the receipt of funds by the GEe; therefore, the repayment

provision at 11 C.F.R. §9007.2(b)(3) regarding unspent funds

is not applicable.
~,.....

24

c. Determination of Net Outstanding Qualified Campalgft

Expenses

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

states that if the Commission determines that the eligible

candidates of a political party and their authorized committees

incurred qualified campaign expenses in excess of the aggregate

payments to which the eligible candidates of a major party were

entitled under section 9004, it shall notify such candidate. of

the amount of such excess and such candidates shall pay to the

Secretary of the Treasury an amount equal to such amount.

In october 1989, during the latter stages of the

fieldwork, the GEC presented a Statement of Net Outstanding

Qualified Campaign Expenses ("NOQCE") to the Audit staff which

reflected the GEe's financial position at October 1, 1989. In its

response to the interim audit report, the GEe submitted a revised

NOQCE as of September 30, 1989, revised January 2, 1991. The

Audit staff reviewed the GEC's NOQCE statement, related documents,

and disclosure reports covering activity through June 30, 1991,

and developed a revised st;tt~meJ"~ ~s ni= .TunE' ~('\. 1991. ::vt~d be.1.o~ ':'s .... il~ ALh':~ '- \..aff' s NOQCE along Wl th an expidlult.iun

of any differences.
," "0--' _'__~,~ d_C7_¥~_:c-","!?""'i-~~_t*i'_,_-,-~:,- "-'i,;f '_"d",', '"S§''''''''_,~,,\,,;~i¥~1*0-~4_~k;;,¥_<4tt'')Ji;'-AJ':S' :,-¥",,;,,'C$"~O;?"-'~';i': 3;,~ ':$i+,:-:?;~-:~~,~?~,::~~g"";::,,,,~_~_,~"!':~~~_¥{.~';;~t~ ~-M'~;~i, f~,:1:,,;::A¥~·~_,,~;"¥~i;-;'~-'" ,p ',:-;-,- - >~,~_-_?~_-._~ __ _,~~-,~~~:'~f--''''~~:~",,"~~;r,:tF!~~''"~~"'-h:·M_,.....~-;:"-,~ --:.---~ _. __ _. _ -. _- ~-~ _' '_ - . - ~.. " _ -- __ - _ ~,;,'- :-_>,,~--., ~- -:: ..:;'.

25

Dukakis/Bentsen Committee, Inc.

Net Outstanding Qualified Campaign Expenses

(Audit Analysis through 6/30/91)

ASSETS

Cash in Bank as Reported

Accounts Receivable Press

Aaounts Due fro. Compliance Fund

Total Assets

UABILITIES

Accounts Payable

In-Kind Contribution - Legal Services

Amounts Due to Compliance Fund

Total Liabilities

Net Outstanding ~ualifi€~

Caapaign Expenses

S 8 t 494.52

71,155.97

370.507.42 al

86.525.71 bl

65.888.00 cl

209,683.20 ~I

$450,157.91

5362,096.91

S§8,P61,09 el

aJ

bl

Represents a-ount rei.hurseable by the Compliance Fund after accounting for neeessary

adjust...ts explained in Pinding IV.A.

According to correspondence received fro. the GEe's attorney, lastern Air Lines, Inc.

is entitled to an ex parte entry of Judgment against the GEC in the .-ount of

$200,000. According to the court order, signed 9/16/91, the settle8eDt reflects a

reasonable settle.ent of a bona fide dispute over the billinas by Bastern Air Lines,

Inc. to tbe GEe. PaYBeDt of the $200,000 is to be aade as folloys: $80,000 by GEe

and $50,000 by the De~cratic National Co..ittee i-.edlately upon exeeutioD of the

Stipulation of Settl.-ent agree..nt; $10,000 on the first of each 80fttb thereafter

UDtil Eastern Air Lines, Inc. has received an additional $70,000. The DRe's pa,.ent

of $50,000 vas made pursuant to 2 U.S,C. §441a(d)(2); the DNC ..y also pay the balance

of $70,000 (in equal Bonthly installments); hovever, the GEe stated it viII recognize

a contingent liability for the balance of $70,000. The Audit staff vill aonitor the

status of this contingency and if varranted, revise the above analysis accordingly.

(By check dated 10/31/91, the ONe paid the first $10,000 installaent.) According to

reports filed by the ONe, as of June 30, 1991, there remains $441,902.80 of 441a(d)(2)

spending authority relative to the 1988 presidential election. The GEe also oves its

travel agency $6,495.71.

cl This figure represents the value of services provided by a law firm. (See Findin~

:(\I,A .... '

dl A repa,.ent ($125,000) from the GEe vas made on February 11, 1991, and on February 13,

1991, the eo.pIiance Fund paid the remainder ($209,683.20) of the interest repa,.ent.

el This aaount is subject to change. A difference of approximately $8,000 between the

calculated surplus and the comparable figure with respect to expenditures subject to

the overall limit is unexplained.
26

Conclusion

The NOOCK statement presented above reflects a calculated

surplus position. However, no repayment pursuant to 11 C.r.R.

S9007.2(b){3} is required.l1/

11/ See note 8 at page 23 for additional information.
:" l _ ...t

"'" -- '" • it .. -•• ' f.

,,··· r1r .... ••. t ;. 't:

~nruary 15, 1992

TO:

THROUGH:

FROM:

The commiSSi,o,;!>- /

John C. Sur,in

Staff Direct

Lawrence M. N bl:

General Coun 1 ff ')

, JI

Rim L. Bri9ht-colemanl({ .. Associate Geheral coudsel

Carmen R. Johnson ,~5 \/'-1. ~-:C.­ Assistant General Couns~l

•

Mary Tabor ... Attorney

SUBJECT: Final Repayment Deteraination for the

Dukakis/Bentsen Co..ittee, Inc. (LRA 1354)

On Noveaber 22, 1991, the Co••ission made an initial

determination that the Dukakis/Bentsen Co.-ittee, Inc. ("the

eo..ittee W ) aust repay to the United States Treaaury $334,683.20 representing the interest earned on the

investaent of federal funds. The initial deter.ination was

contained in the Coaaission's Final Audit Report, sent to the

Coaaittee by letter dated Noveaber 26, 1991.

The letter accoapanying the initial deter.inatioD

inforaed the Committee of its right under 11 c.r.R.

S 9001.2(c){2) to dispute such determination by subaitting

legal and factual materials within 30 days of receipt of the

determination. The letter also noted that even though the

repayaent had already been made in full, the Co••ittee could

still elect to dispute the Co••ission's determination that a

repayment is not required. The Co••ittee has not responded

to the Final Audit Report.

Seetion 9007.2(c)(1) provides that an initial

determination not disputed within the time period provided

"will be considered a final determination of the CODaission."

Accordingly, the Office of General Counsel reco.mends that
Meaorandua to the Coaaission

Final aepayaent Deteraination

Dukakis/Bentsen Co.-ittee (LRA 1354)

Page 2

the Commission conclude that the initial repayment

determination for Governor Michael S. Oukakis, senator Lloyd

Bentsen, and the DukakiS/Bentsen Committee has become a final

repayment determination and approve the attached letter

notifying the Committee. Attachment 1.

RBCOIUlBRDAt.fIOHS

The Office of General Counsel recommends that the

Commission:

1. Conclude that the initial repayment determination

for Governor Michael S. Dukakis, Senator Lloyd Bentsen, and

the Dukakis/Bentsen Co••ittee, Inc. has become a final

repayment determination under 11 C.F.R. S 9007.2(c)(l}; and

2. Approve the attached letter notifyin9 the

Dukakis/Bentsen Coaaittee, Inc. of this decision.

At.tachaent

Proposed letter to the Coamittee •

•
FEDERAL ELECTION CO""'I\:USStO~

•

CB"TIFIED RAIL

U'lUlUI ItKCBiPT RBOUBS!'BD

The Honorable Michael S. Oukakis

DUKakis/Bentsen Committee, Inc.

85 Perry Street

Brookline, KA 02146

Dear Governor Dukakis:

On Nove.ber 22, 1991, the Commission made an initial

determination that the Dukakis/Bentsen Committee, Inc. ("the

eo••ittee") Must repay to the United States Treasury $334,683.20 representin9 the interest earned on the

invest.ent of federal funds. The initial deteraination was

contained in the Coaaission's Final Audit Report, which set ___fo_r_tll_tb. __ l_~_ga:J. _~J'!~ ~a_~_~~~~_~~sis _for the deteraination. The

rinal Audit Report vas forwarded -to --the -Couiftee- -on- ------- Nove.ber 26, 1991.

The letter acco.panying the initial deteraination

inforaed the Co..itte. of its right under 11 C.P.R• • 9038.2(c}(2) to dispute such deteraination by subaitting

legal and factual .at.rials within 30 day. of receipt of the

deteraination. The letter also noted that the Co..itt•• had

already aade the requi~.d repayaent, and that no additional

repayaent is nece.aary. A response has not been received

fro. the Coaaitt.e. Section 9038.2(c)(1) provide. that an

initial deter.inatioR not disputed within the tl•• period

provided ·will be considered a final deteraination by the

Coaaission." Since the Coaaittee has not disputed the

Coaais.ion'. initial deter.ination, this letter is to infor.

you that the Coaaission's initial repayment determination has

become final.

'1-r: ~. ,~.: .. 'Page __t
•

Should you have any questions regarding the CO~••lon'. deter.in.tion, pl•••• contact Ms. Kia L.

8rlght-Col•••n# As.ociate General Counsel, at (202) 219-3690

or (800) 424-9530.

Sincerely,

Joan D. Aikens

Chairman

cc: Robert A. Farmer, Treasurer

Dukakis/Bentsen Committee, Inc.

lTTACRKEll% j

Page --1::._----- of L
FEDERAL ElECT'O~ (01\.11'AI5510,,",

CDYlrIED MIL

ift'Uiii llEC&i'PT RBQUBSTED

The Honorable Kichael S. Dukakis

Dukakis/Bentsen Committee, Inc.

as Perry Street

Brookline, KA 02146

Dear Governor Dukakis:

On November 22, 1991, the Commission made an initial

determination that the Dukakis/Bentsen Co..ittee, Inc. ("the ~~J Co••ittee") .uat repay to the United States Treasury $334,683.20 representing the interest earned on the

invest.ent of federal funds. The initial deteraination was

contained in the Co••ission's Final Audit Report, which set

----for_th_th_e li!gaJ~~~ factual basis for the deteraination. The

;-, Pinal Audit Report was---torwa-r-(rea--t-(,---~ne---co..tttee--on--

Noveabet 26, 1991.

The letter accoapanying the initial deteraination

inforaed the Coaaittee of its right under 11 C.F.R.

I 9038.2(c)(2) to dispute such deteraination by sUbaittinq legal and factual materials within 30 days of receipt of the

determinatioR. The letter also noted that the Co..it~.e had

already aade the required repayaent, and that no additional

repayaent is necessary. A response has not been received

froa the Coaaittee. Section 9038.2(c)(1) provides that an

initial deter.inatioD not disputed within the tia. perlod

provided' "will be considered a final deteraination by the

Coaaission." Since the Coaaittee has not disputed the

Coasission's initial deter.ination, this letter is to inform

you that the Co..ission's initial repayaent determination has

becoae final •

•
•

Should you have any questions regarding the

Coaai.aion'. d.~.r.ln.tion, please contact Ra. lia L.

Bright-Col••an, A••oclate General Coun••l, at (202) 219-3690

or (800) 424-9530.

Sincerely,

Joan o. Aikens

Chairman

cc: Robert A. Faraer, Treasurer

Dukakis/Bentsen Committee, Inc .