FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 204&3

July 25, 1997

SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON COMMITIEE TO

REVERSE THE ACCELERATING GLOBAL ECONOMIC AND

STRATEGIC CRISIS: A LAROUCHE EXPLORATORY COMMITTEE

MEMORANDUM '1

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TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERT 1. COSTA Af--/

ASSISTANT STAFFD;;;;;;;:-

.- AUDIT DIVISION .

..

Attached please find a copy ofthe audit report· and related documents on the

Committee to Reverse the Accelerating Global Economic and Strategic Crisis: A

LaRouche Exploratory Committee which was approved by the Commission on July 17,

1997.

Infonnational copies ofthe report have been received by all parties involved and the

report may be released to the public.

Attachment as stated

cc: Office ofGeneral Counsel

Office ofPublic Disclosure

Reports Analysis Division

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REPORT OF THE AUDIT DIVISION

ON THE

Committee to Reverse the

.Accelerating Global Economic

and Strategic Crisis:

A LaRouche Exploratory

Committee

Approved July 17 1997

PEDERAL ELECTION COMMISSION

999 E STREET. N.W.

WASBINGTON. D.C.
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REPORT OF THE AUDIT DMSION

ON THE

Committee to Reverse the

Accelerating Global Economic

. and Strategic Crisis:

A LaRouche Exploratory

Committee

Approved July 17 1997

FEDERAL ELECI'ION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
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TABLE OF CONTENTS

COMMITIEE TO REVERSE THE ACCELERATING GLOBAL.

ECONOMIC AND STRATEGIC CRISIS:

A LAROUCHE EXPLORATORY COMMIITEE

.- Page

Executive Summary1

Audit Report

3

Background

3

Findings

5

Legal Analysis

9

Transmittal to Committee 11

Transmittal to Candidate 13

, Chronology 15
'. '. FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 20463

REPORT OF THE AUDIT DIVISION

ON THE

COMMITI'EE TO REVERSE THE ACCELERATING GLOBAL

ECONOMIC AND STRATEGIC CRISIS:

A LAROUCHE EXPLORATORY COMMI'ITEE

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EXECUTIVE SUMMARY .

The Committee to Reverse the Accelerating Global Economic and Strategic

Crisis: A LaRouche Exploratory Committee (the Committee) registered with the Federal

Election Commission on August 30, 1993. The Committee was the principal campaign

committee ofLyndon H. LaRouche, Jr., a candidate for the 1996 Democratic presidential

nomination.

The audit was conducted pursuant to 26 U.S.C. §9038(a), which requires the

Commission to audit committees that receive Federal Funds. The Committee received

$624,692 in matching funds from the U.S. Treasury.

The findings ofthe audit were presented to the Committee in an Exit Conference

Memorandum on April 8, 1997. The Committee's reponse has been included in the audit

report.

The following is an overview ofthe fmding contained in the audit report.

AMOUNTS DUE TOmE U.S. TREASURY-II CFR §§9038.2(b)(1) and (4), and

9038.3(c)(I). The audit report concluded that the candidate is required to repay 526,718

to the U.S. Treasury. The amount is comprised ofsurplus matching funds ($25,681) and

contributions that were matched and later determined to have been non-matchable

($1,037). On June 11, 1996 the Committee made a repayment of524,140 to the United

States Treasury, leaving a balance due of$2,578.

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FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 204b3

REPORTOF THE AUDITDIVISION

ON

COMMITTEE TO REVERSE THE ACCELERATING GLOBAL

ECONOMICAND STRATEGIC CRISIS:

A LAROUCHEEXPLORATORYCOMMITTEE

.. This report is based on an audit ofthe Committee to Reverse the

Accelerating Global Economic and Strategic Crisis: A LaRouche Exploratory Committee

<the Committee). The audit is mandated by Section 9038 <a) ofTitle 26 ofthe United

States Code. That section states that "after each matching payment period, the

Commission shall conduct a thorough examination and audit ofthe qualified campaign

expenses ofevery candidate and his authorized committees who received payments under

section 9037." Also Section 9039 (b) ofthe United States Code and Section 9038.1(a)(2)

ofthe Commission's Regulations state that the Commission may conduct other

examinations and audits from time to time as it deems necessary.

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I. BACKGROUND

A. AUDIT AUTHORITY

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In addition to examining the receipt and use ofFederal funds, the audit

seeks to detennine ifthe campaign has materially complied with the limitations,

prohibitions and disclosure requirements ofthe Federal Election Campaign Act of 1971,

as amended.

B. AUDIT COVERAGE

The audit covered the period from the Committee's inception, August 13,

1993, through August 31, 1996. During this period, the Committee's disclosure reports

reflect an opening cash balance of$-0-, total receipts of54,081,1641

, total disbursements

of54,017,432 and a closing cuh balance of$63,732. In addition, a limited review ofthe

Committee's records and disclosure reports filed through February 28, 1997 was

conducted for purposes ofdetermining the Committee's remaining matching fund

entitlement based on its financial position.

Fipm in this IT.pOI1 are rounded to the nearest dollar.

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C. CAMPAIGN ORGANIZATION

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The Committee registered with the Federal Election Commission on

August 30, 1993 as the principal campaign committee ofLynden H. LaRouche, Jr., a

candidate for the 1996 Democratic presidential nomination. The Treasurer ofthe

Committee is Kathy A. Magraw. The Committee's office is located in Leesburg,

Virginia

The campaign maintained one bank account to manage its financial

activity. From the account, the Committee issued approximately 1,400 checks in

payment for goods and services. Also, the Committee received approximately 17,300

contributions totaling 53,198,514 from roughly 8,700 individuals. The Committee also

accepted $1,020 from 2 political committees. I..

In addition, the Candidate received $624,692 in matching funds from the

United States Treasury. This amount represents 4% ofthe $15,455,000 maximum

entitlement. The candidate was determined eligible to receive matching funds on

November 2,J995. The Committee made 5 matching fund requests totaling 5628,070.

The Commission certified 99010 ofthe requested amount. For matching fund purposes,

the Commission determined that the candidacy ofLyndon H. LaRouche, Jr. ended April

25, 1996 pursuant to 26 U.S.C. §9033(c)(I)(B).

II. AUDIT SCOPE AND PROCEDURES

In addition to a review ofthe Committee's expenditures to detennine the qualified

and non-qualified campaign expenses incurred by the campaign, the audit covered the

following general categories, as appropriate, for the committee:

1. The receipt of contributions or loans in excess ofthe statutory limitations;

2. the receipt ofcontributions from prohibited sources, such as those from

corporations or labor organizations;

3. proper disclosure ofcontributions from individuals, political committees

and other entities, to include the itemization of contributions when

required, as well as, the completeness and accuracy ofthe infonnation

disclosed;

4. proper disclosure ofdisbursements 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;

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the accuracy oftotal reported receipts, disbursements and cash balances as

compared to campaign bank records;

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7. adequate recordkeeping for campaign transactions;

8. accuracy ofthe Statement ofNet Outstanding Campaign Obligations filed

by the Committee to disclose its financial condition and establish

continuing matching fund entitlement (see Finding III.A.);

9. the Committee's compliance with spending limitations; and

10. other audit procedures that were deemed necessary in the situation. . As part ofthe Commission's standard audit process, an inventory ofcampaign

records was conducted prior to the audit fieldwork. This inventory was conducted to

detennine ifthe auditee's records were materially complete and in an auditable state.

Based on our.review ofrecords presented, it was concluded that the records were

materially complete and fieldwork began immediately.

Unless specifically discussed below, no material non-compliance was detected. It

should be noted that the Commission may pursue further any ofthe matters discussed in

this report in an enforcement action.

III. AUDIT FINDINGS AND RECOMMENDATIONS

A. AMOUNTS DUE TO THE U.S. TREASURY

1. QeterminatiQn QfNet Qutstandina Campaian ObliaatiQDS - Surplus

Section 9034.5(a) ofTitle 11 ofthe Code ofFederal Regulations

requires that within 15 days ofthe candidate's date ofineligibility, the candidate shall

submit a statement ofnet outstanding campaign obligations which contains, among other

things, the total ofall outstanding obligations for qualified campaign expenses and an

estimate ofnecessary winding down costs. Subsection (b) ofthis section states, in part,

that the total outstanding campaign obligations shall not include any accounts payable for

non-qualified campaign expenses.

Mr. LaRouche's date ofineligibility was April 25, 1996. The

Committee filed a Statement ofNet Outstanding Campaign Obligations (NOCO) which

reflected a 5146,791 surplus as ofthat date. The Audit staffreviewed the Committee's

financial activity through August 31, 1996, analyzed estimates ofwinding down costs

prepared by the Committee and developed the figures shown below.

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ColIIDIittee to Revene the AccelentiDg Global

Ecoaolllie ud Strat.Crisis: A LaRoaclae Esplontory Committee

StatelDeat ofNet OatItaDdiag Campaip Obligations

as ofApri12S, 1996

as determined March 19, 1997

ASSETS

Cash in Bank $208,347 (a)

C} Accounts Receivable 548

• Total Assets $208,895 0

7 LlABD.JTIES:

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(1 Acco~ts Payable for Qualified Campaign

:. Expenses S49,636

• Matching Funds Repayable 1,037

1 Actual Wmding Down Costs 245

5 (Apri126,I996-March 19,1997) 3 Estimated Winding Down Costs 4.446 (b)

b Total Obligations $ 55.364

NET OUTSTANDING CAMPAIGN OBLIGATIONS - SURPLUS

as ofMarch 19,1997 $153.531

(a)

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The Committee's Cash in Bank Fipre bas been adjusted to reflect Pre Date ofIneligibility

stale-dated chects.

Some estimates were used in determinina this amount This estimate is subject to change.

Committee records and disclosure repons will be reviewed and chan,es made as necessary.

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2.

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Repayments to the U.S. Treasmy

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Section 9038.2(b)(4) ofTitle 11 ofthe Code ofFederaI

Regulations states, ift part, that the Commission may determine that the candidate's net

outstanding campaign obligations, as defined in 11 CFR 9034.5, reflect a surplus.

Section 9038.3{c)(I) ofTitle 11 ofthe Code ofFederal Regulations

states, in part, that ifon the last day of candidate eligibility the candidate's net

.outstanding campaign obligations reflect a surplus, the candidate shall within 30 days of

the ineligibility date repay to the Secretary an amount which represents the amount of

matching funds contained in the candidate's surplus. The amount shall be an. amount

equal to that portion ofthe surplus which bears the same ratio to the total surplus that the

total amount received by the candidate from the matching payment accounrbears to the

total deposits made to the candidate's accounts.

Section 9038.2(b){I){i) and (iii) ofTitle 11 ofthe Code ofFederal

Regulations entitled Bases for repayment - Payments in excess ofcandidate's entitlement

states, in p~the Commission may detennine that certain portions ofthe payments made

to a candidate from the matching payment account were in excess ofthe aggregate

amount ofpayments to which such candidate was entitled. Examples ofsuch excessive

payments include, but are not limited to, the following: payments made to the candidate

after the candidate's date ofineligibility where it is later detennined that the candidate

had no net outstanding obligations as defined in 1I CPR §9034.5 and payment or

portions ofpayments made on the basis ofmatched contributions later detennined to have

been non-matchable.

a. Surplus Repayment

The Audit staff's calculation ofthe Committee's Net

Outstanding Campaign Obligations as ofApril 25, 1996 showed it to be in a surplus

position in the amount ofS153,531 (see Section III. A.l. above). Ofthis surplus amount,

$25,681 ($153,531 x .167272)2 is repayable to the U.S. Treasury. As shown below the

net repayable amount ofthe surplus is $I,541 :

This figure (.167272) represents the Committee's repayment ratio as calc::ulated pursuant to II

CFR §9038.3(c::)(1).

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Repayable to the U.S. Treasury

as ofApril 25, 1996

Less Repayment Received June 11, 19963

Surplus Repayable to the U.S. Treasury

6

525,681

(24.14Q)

$ 1 541

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b. Refunded Contributions and Non-sufficient Fund Checks

Submitted for Matching

The Audit staffreviewed the refunds ofcontributions and

contributions which later were returned from the bank for insufficient fundS to detennine

ifthose contributions had been submitted for matching funds. Eight such contributions

were matched for 51,037. The Audit staffsupplied a list ofthese contributions to a

Committee representative at the end offieldwork.

In the Exit Conference Memorandum the Audit staffrecommended

that the Committee provide evidence that the amount ofmatching funds contained in the

candidate's surplus on the date ofineligibility did not exceed the amount repaid by the

Committee or that it has not received matching fund payments in excess of entitlement.

Absent such a demonstration, the Audit staffnoted that it would recommend that the

Commission make a detennination that 526,718 ($25,681 + 51,037) is repayable to the

United States Treasury pursuant to 11 CFR §§9038.2(b)(1) and (4).

In response to the Exit Conference Memorandum the Committee

stated that it raises no objection to the recommendation and that it would pay the cited

balance owed upon its confinnation by the Commission.

Recommendatiog #1

The Audit staffrecommends that the Commission detennine that the Committee

is required to repay $26,718 to the United States Treasury pursuant to 11 CFR

§§9038.2(b)(l) and (4). On June 11,1996 the Committee made a repayment of$24,140

to the United States Treasury, and thus $2,578 is still owed.

After the Date ofIneligibility an additional matching fund payment of5147,905 was certified to

the Committee. Since the Committee was in a surplus position, it repaid both that amount and an

estimate ofsurplus funds totaling 5172,045 (SI47,905 + $24,140).

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June 20, 1997

FEDERAL ELECTION COMMISSION

WASHINGTOK DC 204b.l

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FROM:

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MEMORANDUM

TO: RobertJ. Costa

Assistant StatTDirector

Audit Divisi 'il'

THROUGH: John C. f

StatTon;'.~rt::r

. /,'

Lawrence Noble /1'/'

General Co I r_

Kim Brightbl....... (fL

Associate General Counsel

Rhonda J. VosdinIh ,qJ Assistant General Counsel

Delbert K. Rigsby b~IL

Attorney

SUBJECf: Proposed Audit Report for Committee to Reverse the Accelerating Global

Economic and Strategic Crisis: A LaRouche Exploratory Committee (LRA #484)

I. INTRODUCTION

The Office ofGeneral Counsel has reviewed the proposed Audit Report on the

Committee to Reverse the Accelerating Global Economic and Strategic Crisis: A LaRouche

Exploratory Committee (the "Committeej. The following memorandum summarizes our

comments on the proposec:l Report. I Ifyou have any questions concerning our comments. please

contact Delbert K. Rigsby. the attorney assigned to this audit.

Since this document conccmsthe audit ofa publicly fmanc:ed presidential candidate. this Office

recommends that the Commission consider this document in open session. II C.F.R. § 9038.1 (e). See also

IJ C.F.R. § 2.4. which states that this discussion is not exempt from disclosure under the Commission's Sunshine

Regulations.

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Memcnndum to Robert J. Costa

AuditRepon

Committee to Reverse the Accelerating Global Economic

and Strategic Crisis: A LaRouche Exploratory Committee

(LRA#484)

Page 2

D. COMMENTS :z.-

This Office concurs with the findings in the proposed Audit Report. This Office notes

that questions arose during the course ofthe audit regarding the Committee s fundraising

operations. The proposed Report, however, does not contain any discussion ofthis issue. The

Committee received approximately $3.2 million in contributions.2 It appears that the Committee

incurred very few expenses, such as office rent, salaries, telephone solicitation costs, and printing

costs for campaign literature, to obtain such contributions. The Committee entered into contracts

with seven vendors, all closely connected with Lyndon LaRouche, pursuant to.:which the vendors

would provide fundraising services and receive a monthly fee and reimbursement for certain

expenses.3 A more detailed review ofthe Committee's fundraising operations may.enable the

Audit Division to detennine whether the ammgements between the vendors resulted in the

Committee receiving excessive or prohibited contributions from the vendors or whether the

vendors performed duties not outlined in the contracts, which could be considered excessive inkind contributionfby the vendors to the Committee. 2 U.S.C. § 441a(a)(1)(A); II C.F.R.

§ IOO.7(a){I)(iii). The audit ofthe Committee was conducted pW'Suant to 26 U.S.C. § 9038{a)

and II C.F.R. § 9038(a). The scope and procedures were consistent with those applied in audits

ofother publicly funded presidential candidates. However, the audit did not reveal any evidence

ofwrongdoing by the Committee. Thus, the Audit Division decided not to allocate its limited

resources to review the Committee's fundraising operations. This Office agreed with the Audit

Division's decision.

The Comminee also received approximately 5625,000 in matching funds.

During the J992 Presidential primary election cycle, the laRouche campaign also utilized vendors to raise

contributions and the Audit Division made no findings regarding that campaign's fundraising operations.

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July 18, 1997

Ms. Kathy Magraw, Treasurer

Committee to Reverse the Accelerating

Global Economic and Strategic Crisis:

A LaRouche Exploratory Committee

P.o. Box 730

Leesb~, 'fA 22075

Dear Ms. Magraw:

.. Attached please find the Audit Report on the Committee to Reverse the

Accelerating Global Economic and Strategic Crisis: A LaRouche Exploratory

Committee. The Commission approved this report on July 17, 1997. As noted on page 3

ofthis repo~ the Commission may pursue any ofthe matters discussed in an

enforcement action.

In accordance with 11 CFR §§9038.3(c)(l) and 9038.2(b)(1) and (4), the

Commission has made a determination that a repayment to the Secretary ofthe Treasury

in the amount of526,718 is required within 90 calendar days after service ofthis report

(October 20, 1997). The audit report also notes that 524,140 has been paid, leaving a

balance of$2,578.

Should the Candidate dispute the Commission's determination that a repayment is

required, Commission regulations at 11 CFR §9038.2(c)(2) provide the Candidate with an

opportunity to submit in writing, within 30 calendar days after service ofthe

Commission's notice (August 20, 1997), legal and factual materials to demonstrate that

no repaymen~ or a lesser repaymen~ is required. Further, 11 CFR §9038.2(c)(ii) pennits

a candidate who has submitted written materials to request an opportunity to address the

Commission in open session ba.~ on the legal and factual materials submitted.

The Commission will consider any written legal and factual materials submitted

within the 30 day period when deciding whether to revise the repayment detennination.

Such materials may be submitted by counsel ifthe Candidate so elects. Ifthe Candidate

decides to file a response to the repayment determination, please contact Kim L. BrightColeman ofthe Office ofGeneral Counsel at (202) 219-3690 or ton free at (800) 424-

9530. Ifthe Candidate does not dispute this determination within the 30 day period

provided, it will be considered fmal.

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The Commission approved audit report will be placed on the public record on July

2S, 1997. Should you have any questions regarding the public release ofthis report,

please contact Ron Hams ofthe Commission'5Press Office at (202) 219-4155.

Any questions you may have related to matters covered dming the audit or in the

audit report should be directed to Cornelia Riley or Russ Bnmer ofthe Audit Division at

(202) 219-3720 or toll free at (800) 424-9530.

Sincerely~ '?~

~JIIIlNTI7AK;J l-.£.JIJi'bert J. c;,sta 7

Assistant StaffDirector

Audit Division

Attachment u stated

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Mr. Lyndon H. LaRouche, Jr.

clo Ms. Kathy Magraw, Treasurer

Committee to Reverse the Accelerating

Global Economic and Strategic Crisis:

A LaRouche Exploratory Committee

P.o. Box 730

Leesburg, VA 22075

Dear Mr. LaBouche:

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Attached please find the Audit Report on the Committee to Reverse the

Accelerating Global Economic and Strategic Crisis: A LaRouche Exploratory

Committee. The Commission approved this report OD July 17, 1997. As noted on page 3

ofthis report, the Commission may P\D"SUC any ofthe matters discussed in an

enforcement action.

In accordance with II CFR §§9038.3(c)(I) and 9038.2(b)(1) and(4), the

Commission has made a detennination that a repayment to the Secretary ofthe Treasury

in the amount of526,718 is required within 90 calendar days after service ofthis report

(October 20, 1997). The audit report also notes that 524,140 has been paid, leaving a

balance of52,S78.

Should you dispute the Commission's determination that a repayment is required,

Commission regulations at II CFR §9038.2(c)(2) provide you with an opportunity to

submit in writing, within 30 calendar days after service ofthe Commission's notice

(August 20, 1997), legal and factual materials to demonstrate that no repayment, or a

lesser repayment, is required. Further, 11 CFR §9038.2(c)(ii) pennits 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 30 day period when deciding whether to revise the repayment detennination.

Such materials may be submitted by counsel if you so elect. If you decide to file a

response to the repayment detenninatio~ please contact Kim L. Bright-Coleman ofthe

Office ofGeneral Counsel at (202) 219-3690 or toll free at (800) 424-9530. Ifyou do not

dispute this determination within the 30 day period provided, it will be considered final.

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The Commiuion approved audit report will be placed on the public record on July

25, 1997. Should you have any questionsregarding the public release oftbis report,

please contact Ron Harris ofthe Commission's Press Office at«02) 219-4155.

Any questions you may have related to matters covered during the audit or in the

audit report should be directed to CorneliaRiley orRuss Bnmer ofthe Audit Division at

(202) 219-3720 or toll fiee at (800) 424-9530.

Sincerely,

Attachment aIstated

Paoe 14

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CHRONOLOGY

COMMITIEE TO REVERSE THE ACCELERATING GLOBAL

ECONOMIC AND STRATEGIC CRISIS

A LAROUCHE EXPLORATORY COMMIITEE

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Audit Fieldwork

Exit Conference Memorandum

to the Committee

Response Received to the

Exit Conference Memorandum

Audit Report Approved

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