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FEDERAL ELECTION COMMISSION

W,\SHINCTON.().r. !04b\

October 29, 1985

MEMORANDUM

TO:

FROM:

SUBJECT:

FRED EILAND

PRESS OFFICER

ROBERT J. COSTA .

ASSISTANT STAFF DI~~~ AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT - THE LAROUCHE CAMPAIGN

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Attached please find a copy of the final audit report of The

LaRouche Campaign which was approved by the Commission on October

17, 1985.

Informational copies of the report have been received by all

parties involved and the audit report may be released to the

public.

Attachment as stated

FEe Library

RAD

~ic Record

Office of General Counsel
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FEDERAL ELECTION COMMISSION

WASHINGTON.D.C.204b3

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REPORT or TRB AUDIT DIVISION

ON

TRB LAROUCHB CAMPAIGN

I. Background

A. Overview

This report is based on an audit of The LaRouche

Campaign ("the Committeeft ) to determine whether there has been

compliance with the provisions of the Pederal Blection Campaign

Act of 1971, as amended ("the Act") and the Presidential Primary Matching Payment Account Act. The audit was conducted pursuant

to 26 U.S.C. S 9038(a) which states that "after each matching

payment period, the Commission shall conduct a thorough examination and audit of the qualified campaign expenses of every

candidate and his authorized committees who received payments under Section 9037."

In addition, 26 U.S.C•• 9039(b) and 11 C.F.R. §

9038.l(a) (2) state, in relevant part, that the Commission may conduct other examinations and audits from time to time as it

deems necessary.

The Committee registered with the Federal Election

Commission on October 21, 1983. The Committee maintains its

headquarters in New York, New York.

The audit covered the period October 1, 1983, through

June 30, 1984, the last day covered by the most recent report filed with the Commission at the time of the audit. During this

period, the Committee reported an opening cash balance of $-0-,

total receipts of $3,814,402.71, total disbursements of

$3,784,524.90 and a closing cash balance of $29,877.81. In

addition, a limited review of financial activity was conducted

through July 31, 1984 to determine the amount of remaining matching fund entitlement as of the close of the audit fieldwork

(see Section III.B.).

The Committee has continued to receive contributions and

make disbursements. In addition, revised statements of Net

Outstanding Campaign Obligations have been submitted with each

matching fund submission as required by 11 C.F.R. S 9034.S(d) • Under 11 C.F.R. S5 9038.1(b) (3) and 9038.1(e) (4) additional audit

work may be conducted and addenda to this report issued as

necessary.
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This report is based upon documents and working papers which support each of the factual 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 Treasurer of the Committee is Mr. Edward Spannaus.

C. Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactionsJ

review of required supporting documentation, analysis of

Committee debts and obligationsl review of contribution and

expenditure limitationsl and such other audit procedures as

deemed necessary under the circumstances. Since the Committee's

contribution records were predominately internally generated, this audit did not include the verification of individual

contributions to externally generated records.

Recommendation

The Audit staff recommends that no further action be taken

on this matter.

A. Contributions by Foreign Nationals

Section 441e of Title 2, United States Code, states

that it shall be unlawful for any person to solicit, accept, or

receive a contribution from a foreign national.

During the course of the audit, the auditors identified

contributions totaling $11,429.13 from 24 individuals who

appeared to be foreign nationals in that their mailing addresses

were outside of the United States. The Assistant Treasurer for

the Committee indicated that these contributions were probably from Americans living and/or working abroad.

On December 14, 1984, and January 4 and February 6,

1985, the Committee provided documentation signed by three (3) of

the contributors which confirmed their U.S. citizenship. For 21

individuals, the Committee provided notarized statements from

campaign volunteers who attest to having solicited the

contributions, with references to dates and amounts, and who

swear that during the course of the solicitation or in previous

discussions, they ascertained that the contributor was a U.S.

citizen.

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II. Findings and Recommendations Related to Title 2 of the

United States Code
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B. Matters Referred to the Office of General Counsel

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Certain matters noted during the audit were referred to

the Office of General Counsel.

III. Pindings and Recommendations Related to Title 26 of the

United States Code

A. Apparent Non-Qualified Campaign Expenses

1. Determination of Repayment Ratio

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

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for purposes other than to defray qualified campaign

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

defray qualified campaign expenses, it shall notify such

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

the Secretary an amount equal to such an amount.

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

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

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

the Explanation and Justification was pUblished in the Federal

Register on August 22, 1984 and transmitted to Congress.

On March 5, 1985 the revised regulations were

resubmitted for publication. The proposed regulations were

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

and were approved by the Commission for publication in final form

on June 11, 1985.

The formula and its application with respect to

the Committee's receipt activity is as follows:

Total Matching Funds Certified Through /

Date of Ineligibility (6/7/84)

Numerator + Private Contributions

Received through 6/7/84

$ $453,586.62

($453,586.62 + $1,490,047.60) .233370

Therefore, the Committee's repayment ratio for

non-qualified campaign expenses is 23.3370' •
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2. post-Ineligibility Campaign Expenditures

Section 9032(9) of Title 26, United States Code,

and Section 9032.9 of Title 11, Code of Pederal Regulations, in

part, define a qualified campaign expense as a purchase, payment, distribution, loan, advance, deposit or gift of money or anything of value incurred by a candidate or his authorized committee in

connection with his campaign for nomination for election from the

date the individual became a candidate through the last day of

the candidate's eligibility.

Furthermore, included in the examples of

disbursements that are not qualified campaign expenses under 11

C.P.R. S 9034.4(b) (3) are ·post ineligibility expenditures- or

expenses incurred after a candidate'S date of ineligibility, to

the extent that they do not qualify as winding down costs.

Section 9034.4(a) (3) of Title 11, Code of Federal

Regulations, defines winding down costs as (i) costs associated

with the termination of political activity, such as the costs of

complying with the post-election requirements of the Act and

other necessary administrative costs associated with winding down

the campaign, including office space rental, staff salaries and

office supplies, or (ii) costs incurred before the candidate's

date of ineligiblity, for which written arrangement or commitment

was made on or before the candidate's date of ineligibility (emphasis added).

As previously mentioned, the Commission determined

that Mr. Lyndon LaRouche's date of ineligibility was June 7,

1984. That was the date that Mr. LaRouche's candidacy terminated

for the purpose of incurring qualified campaign expenses under

Title 26 of the United States Code. In reality, however, Mr.

LaRouche continued to campaign for the presidential nomination.

In relation to this continued campaign effort, the Audit staff

identified $233,996.01 in post-ineligibility expenditures made

between June 8, 1984 and July 31, 1984. These expenditures could

be grouped as follows:

On May 18, 1984, the Commission determined that the date of

ineligibility pursuant to 11 C.F.R. S 9033.5(a) for Mr. • Lyndon LaRouche was June 7, 1984.

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2.

3.

4.

media and production printing

apparent campaign and/or

convention-related travel,

subsistence, and other

expenses

press release costs

Total

$161,154.34

34,669.16

31,110.98

7,061.53

$233,996.01
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The Auditors did note during the fieldwork that

some of these expenditures could have been qualified campaign

expenses, i.e., incurred prior to 6/7/84. Rowever, at that time

they were not included in the Committee's June 7, 1984 accounts

payable and from the documentation then available it could not be

determined if the obligations for the goods or services received

were incurred prior to June 7, 1984_ To date no further

documentation has been submitted by the Committee.

Included in the $233,996.01 above is a payment to

CBS Television by certified check in the amount of $107,670.00

for a "national TV broadcast" aired on June 11, 1984. The

certified check was prepared on June 7, 1984, the Candidate's

date of ineligibility, however, the contract refers to an

"Agreement made this 6th day of June, 1984" but it was not signed by the CBS-TV representative until June 8, 1984.

On December 19, 1984, the Committee submitted its

response to the interim audit report which asserted that the

above noted disbursements should not be viewed as non-qualified expenditures based, in part, upon the practical realities of

campaign activity and the guidelines and regulations promulgated and administered by the Commission. Further, the Committee takes

exception to the auditors' application of the pro-rata repayment provisions, supplying hypothetical examples, although no

additional factual material with respect to the matters discussed

above is provided. Therefore, no changes were effected upon the

above noted problem.

Conclusion

On October 17, 1985, the Commission made an initial

determination that the amount of post-ineligibility disbursements

related to the Candidate's continued campaign effort

($233,996.01) are non-qualified campaign expenses and the prorata portion of $54,607.65 ($233,996.01 x .233370) must be repaid

to the u.s. Treasury within 90 calendar days of receipt of this

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

If the Candidate does not dispute this determination within

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

determination will be considered final.

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Repayment Amount: $54,607.65
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B. Determination of Net Outstanding Campaign Obligations

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

Regulations, requires that the candidate submit a Statement of

Net Outstanding Campaign Obligations (NOCO) which contains, among other items, the total of all outstanding obligations for

qualified campaign expenses and an estimate of the necessary winding down costs within 15 days of the candidate'S date of

ineligibility.

On June 17, 1984, the Committee filed a NOCO statement

as of June 7, 1984, the candidate's date of ineligibility. This

initial NOCO statement was sUbsequently amended on August 16,

1984.

Shown below is the Committee's financial position (NOCO) as of June 7, 1984, as determined by the Audit staff and

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Assets:

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The LaRouche Campaign Statement of Net Outstanding Campaign Obligations

June 7, 1984

$1,766,346.50

358,126.96

42,500.00

Cash in Banks

Deposits and Receivables

Total Assets

Obligations:

Loans Payable-Individuals (as of 6/7/84)

Accounts Payable

Winding Down Costs

(through 12/31/84)

Total Obligations

$ 92,802.00

9,987.57

$ 102,789.57

$2,166,973.46

~Net Outstanding Campaign Obligations (Deficit) as ~~f 6/7/84 ($2,064,183.89)

Shown below is an adjustment for private contributions and m~cching funds received during the period of 6/8/84 to 7/31/84, the most ~current financial information available at the close of fieldwork.

~et Outstanding Campaign Obligations (Deficit) as of 6/7/84

~Net Private Contributions and Matching Funds-June (Post June 7, 1984) ~Net Private Contributions and Matching Funds-July

Remaining Entitlement as of July 31, 1984 1/

($2,064,183.89)

61,510.35

205,211.64

($1,797,461.90)1/

The Commission has yet to consider the appropriateness of

the Committee's inclusion of loans payable to individuals on their NOCO

statement. Should the Commission elect to question this treatment, the

Audit staff will assess the impact of their exclusion from the NOCO

statement and the resultant effect on the Committee's matching fund

entitlement (see 11 C.F.R. § 9034.5(e» •

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Does not include $407,440 in loans received/incurred from 6/8/84-

7/31/84. These post-ineligibility loans were excluded from both Assets

and Obligations as they have an offsetting effect on net outstanding campaign obligations.