The revised NOCO statement shows the Primary Committee to be in
deficit position in the amount of $2,197,652. As shown below, the Primary Committee

did not receive matching funds in excess of the Candidate’s entitlement.

[Net Outstanding Campaign Obligations (deficit) as
lof 9/27/99

($2,197,652)

|Net Private Contributions Received 9/28/99 to $ 107,048

1/3/00

[Matching Funds Received 1/03/00 1,044,340 1,151,388
[Remaining Entitlement at 1/3/00 (1,046,264)
[Net Private Contributions Received 1/4/00 to 2,496

1/14/00"

(Matching Funds Received 1/4/00 to 4/17/00 743,386 745,882
(Remaining Entitlement at 4/17/00 (300,382)
Matching Funds Received on 5/15/00 300,024
\Remaining Entitlement ($358)

already accounted for within the asset section of the NOCO statement.

Page 17 of 27

There were no private contributions received after January 14, 2000, or any other receipts not



QUAYLE 2000, INC

STATEMENT OF NET OUTSTANDING CAMPAIGN OBLIGATIONS

AS OF SEPTEMBER 27, 1999

AS DETERMINED ON JUNE 30, 2002

ASSETS

Cash in Bank
Cash on Hand

Accounts Receivable:

Vendor Deposits
Vendor Refunds

Capital Assets
Contributor List

Total Assets

OBLIGATIONS

Accounts Payable for Qualified Campaign Expenses
Loans Payable
Refunds of Contributions

Amount Due U. S. Treasury - Stale-dated Checks

Actual Winding Down Expenses
September 28, 1999 — June 30, 2002

Estimated Winding Down Expenses
July 1, 2002 — December 31, 2002 b/

Total Obligations

Net Outstanding Campaign Obligations (Deficit)

a.
b.

$143,907
481

17,381
10,288

18,800
36,876 a/

410,339
1,022,625
17,958

5,307

895,164

73,992

Represents proceeds from the sale of the Committee’s contributor list.

Includes storage at $130 per month through 12/31/2005

Page 11 of 27

$227,733

2,425,385

($2,197,652)


Memorandum to Joseph F. Stolz
Proposed Audit Report ; ;
Quayle 2000, Inc. and Quayle 2000 Compliance Committee (LRA 544)

Page 3

supplies of $550 (the auditors allowed $100 of this expense) and postage of $100. These
amounts appear to be both reasonable and negligible, and it is unclear why they were not
included in the winding down figures.

B. Insurance

In particular, the proposed Audit Report does not adequately explain why the Audit
Division estimated $0 for insurance costs for 2001 and 2002 when the Committee allocated
approximately $10,000 a year. The proposed Audit Report states that in 2001, the Committee
paid $8,265 for general liability insurance on its directors and officers and $1,400 for insurance
covering workers compensation, employee benefits liability and Property. According to
conversations with the Audit staff, these figures were based on the Committee’s Teports and the
Committee did not provide invoices or other documentation for the insurance in response to the
PAR. The Committee’s 2002 reports disclose insurance payments of $3,306 to Seabury and
Smith and $1,491 to the Hartford.

The proposed Audit Report states that these insurance costs were not in connection with
winding down the campaign and were not recognized as a winding down expense. The proposed
Audit Report states that the Committee stated its counsel advised maintaining corporate
insurance coverage. The Committee’s response to the PAR states that “as long as the Committee
is an ongoing incorporated entity,” it must maintain insurance coverage to svoid subjecting its
officers, directors and employees to “any number of potential liabilities.” Committee Response
(October 31, 2001) at 6. The Committee further explains that although it currently has no
employees, it has consultants and might need to hire clerical staff to assist with research related
to the audit; thus, on the advice of its insurance company, it is maintaining insurance to protect
its consultants. Jd.

This Office notes that this a close issue. According to conversations with the Audit staff,
the Audit Division does not believe that the Committee provided sufficient documentation to
support including these expenses as winding down costs. The proposed Audit Report, however,
does not make clear that the problem is a lack of documentation, but rather implies that these
kinds of insurance costs are not inherently winding down costs and are unnecessary. This Office
disagrees that these kinds of insurance expenses are not allowable winding down costs.
Insurance coverage is not inappropriate to winding down a campaign. Potential liabilities
continue as long as an entity continues to exist, regardless of the eligibility of the candidate. As
a matter of policy, committees should not be discouraged from obtaining insurance to reduce ~
potential liability. Indeed, the Commission’s regulations encourage publicly-financed
committees to obtain insurance on equipment: section 9038 4(b)(8) includes “whether the
committee sought or obtained insurance on the items" as a factor to consider in determining
whether lost, misplaced or stolen equipment should be considered a non-qualified campaign
expense. The kinds of insurance the Committee is maintaining appear to be reasonable. For

Page 21 of 27


took possession and began using these items in January 1999; however, it did not pay
Campaign America until July 28, 1999. Consequently, an excessive contribution of
$58,906" occurred as a result of this transaction.

ITEMIZATION OF LOANS - 2 U.S.C. § 434(b)(3)(E) and 11 CFR §§104.3(d)(1),
(2) and (3), 104.18(f) and (h). The Primary Committee did not itemize receipt of a loan
from the candidate in the amount of $45,000 on Schedule A-P for line 19(a). In addition,
transactions related to a line of credit were not reported properly. Information relative to
the line of credit was not disclosed on Schedule C-P-1 and draws totaling $1,402,625
were not itemized on Schedule A-P.

The Primary Committee filed the necessary amended reports and provided a copy
of each agreement for the loans in question.

STALE-DATED CHECKS — 11 CFR §9038.6. The Audit staff identified 18 stale-
dated checks totaling $5,307. The amount of stale-dated checks is payable to the United
States Treasury.

MATCHING FUNDS RECEIVED IN EXCESS OF ENTITLEMENT — | 1 CFR
§9034.1(b). The Primary Committee did not receive matching funds in excess of its
entitlement.

On January 12, 1999, Campaign America contributed $5.000 to the Primary Committee.

Page 2 of 27


Cc. STALE-DATED CHECKS

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

The Audit staff identified 21 stale-dated checks totaling $6,665. The
checks were dated between April 5, 1999 and December 8, 1999 and had not cleared the
bank as of October 31, 2000. Fifteen of the stale-dated checks represented refunds of
excessive contributions.

The Primary Committee was provided a list of stale-dated checks at the
exit conference. Subsequently, the Primary Committee demonstrated that one stale-dated
check ($45) had cleared the bank. Therefore, the value of the remaining (20) stale-dated
checks, $6,620, is payable to the United States Treasury.

In the preliminary audit report, the Audit staff recommended that the
Primary Committee provide evidence that the checks were either not outstanding or that
they were voided and no obligation existed. If the checks were not outstanding, the
evidence provided should have included copies of the front and back of the negotiated
checks. If the checks were voided, the evidence should have included statements from
the vendors that acknowledged they have been paid in full, or an account reconciliation
showing that no obligation exists.

The Primary Committee provided documentation that two checks, totaling
$1,313, cleared its bank account. As a result, the value of the remaining 18 stale-dated
checks, $5,307 ($6,620 - $1,313), is payable to the United States Treasury.

Recommendation

The Audit staff recommends that the Primary Committee make a payment of
$5,307 to the United States Treasury.

Page 18 of 27


Page 24 of 27


Memorandum to Joseph F. Stoltz

Proposed Audit Report

Quayle 2000, Inc. and Quayle 2000 Compliance Committee (LRA 544)
Page 2

L NOCO AND MATCHING FUND ENTITLEMENT (II. A. B.)

The Preliminary Audit Report (“PAR”) stated that, unless the Committee demonstrated
that it is not in a surplus position, the Audit Division would Tecommend the Commission make a
Tepayment determination in the amount of $186,124, pursuant to 26 U.S.C. § 9038(b)(1). The
Audit Division’s conclusion that the Committee would have a surplus was based on its
estimation of the Committee’s projected winding down costs. Generally, the Committee’s
estimated winding down costs were much higher than the Audit Division’s estimates. The
proposed Audit Report no longer contains any Surplus repayment, or any other type of
Tepayment, and includes only a $5,307 payment to the United States Treasury for stale-dated
checks. Based on its analysis of the Committee's Tesponse to the PAR and disclosure reports, the
Audit Division increased the amount of actual and projected winding down costs, thus
eliminating the Committee's surplus and the potential repayment. According to the proposed
Audit Report, the Committee’s Temaining entitlement is precisely $0. Although this Office
concurs that no repayment is appropriate, we have the following comments.

A. Winding Down Costs in General

In general, we note that the Audit Division's calculation of the Committee’s winding
down costs includes actual winding down costs through December 31, 2001 and estimated

extent possible, actual 2002 figures should be used rather than estimated figures to more
accurately reflect the Committee’s winding down costs; thus, we Suggest the winding down costs
be updated based on the Committee’s 2002 disclosure reports.

In addition, while most of the Audit Division’s estimated winding down figures appear to
be reasonable, we believe that the Proposed Audit Report should provide more detail and explain
the underlying basis for the Audit Division's estimated winding down figures.? For example, the
Committee’s actual consulting fees for 2001 were $153,716, an average of $12,809 a month.

The Audit Division’s estimate for 2002 is $11,137 a month. This slightly lower average monthly
amount appears to be reasonable, given that if there is no Tepayment, the Committee might not
need to pay any Consulting expenses in late 2002; however, the proposed Audit Report does not
explain why this lower figure is appropriate. Similarly, the Proposed Audit Report does not
explain the basis of the estimated telephone cost of §2,400 for 2002, which is lower than the
actual telephone costs of $4,813.53 in 2001.

Further, the proposed Audit Report includes no explanation for the Audit staff's deletion
of a number of smal] amounts for “other expenses” from the 2002 figures proposed by the
Committee, including cable costs of $132, delivery of $775, office expenses of $100, office

2 This Office has reviewed a Spreadsheet of esnmated winding down expenses prepared by the Audit staff.
We suggest appending a similar chart to the Audit Report listng the different categones of expenses, the
Communee’s estimates, the actual expense figures that are available, and the Audit Division's esnmates to help

clarify this issue.
Page 20 of 27


In its response, the Primary Committee revised its initial estimate
to include rent through June 2002 and storage through 2005. In
addition, the Primary Committee provided cost estimates for
various storage rental units within a specific area. The average
monthly rental cost was approximately $130.

Since the audit process will continue through calendar year 2002.
the Audit staff has allowed rent of $450 a month through
December 2002 and storage of $130 a month for the period January
2003 through December 2005 or $4,680.

Telephone Expense - the Primary Committee’s NOCO statement
included an estimated telephone cost of $4,500 and $2,700 for
calendar years 2001 and 2002 respectively. The Audit staff had
initially accepted the estimate for calendar year 2001 but did not
recognized any costs for 2002.

For calendar year 2001, the Primary Committee reported $4,814 in
telephone expenses. For the first six month of calendar year 2002,
the Primary Committee paid $2,549. Asa result, the Audit staff
has included telephone expenses of $4,814 paid in calendar year
2001 and $5,099 for calendar year 2002, which represents twice
the amount reported as being paid during the first half of calendar
year 2002, in its calculation of winding down costs.

Moving Expenses — the Primary Committee included an estimate
of $3,000 to cover moving costs. No documentation was provided
in support of this expense. As a result, the Audit staff's analysis
did not include an estimated amount for moving expenses.

The Primary Committee did not include any estimate for moving
expenses in its revised calculation of winding down costs.

Travel Expense — the Primary Committee included an estimate for
travel expenses of $10,000. No documentation was provided in
support of this estimate; consequently, the Audit staffs analysis
did not consider this a valid winding down cost.

The Primary Committee representative stated she will be required
to travel to Washington in calendar year 2002 for Commission
related matters and has revised its estimate for 2001 and 2002 to
$1,000. The Audit staff has included the revised figure in its
estimated winding down cost for 2002.

Page 15 of 27


Primary Committee took possession and began using these items in January 1999.*
However, the Primary Committee did not pay Campaign America until July 28, 1999.
Consequently, an excessive contribution of $58,906 occurred as a result of this
transaction.

This matter was discussed with the Primary Committee representative at
the exit conference. Subsequently, the Primary Committee responded that Campaign
America was treated like any other vendor and was paid in the normal course of business.

In the preliminary audit report, the Audit staff recommended that the
Primary Committee provide evidence and/or documentation that demonstrated that
Campaign America did not make an excessive contribution of $58,906. This evidence
should have included the purchase agreement, any invoices or billing statements issued
by Campaign America to the Primary Committee, and any memorandum or
correspondence related to this transaction.

The Primary Committee, in its response to the preliminary audit report,
stated:

“no such documentary evidence is necessary. This is
purely a legal matter and the fact is that the Audit
Division’s legal basis for its conclusion is erroneous.
Specifically, the Audit Division’s theory is that because
Campaign America is a multicandidate committee the
delay in payment constitutes an excessive campaign
contribution from Campaign America to the
Committee. However, based on the legal analysis
adopted by the Commission in its Advisory Opinions,
this theory is wrong and Campaign America did not
make an excessive contribution to the Committee.”

In support of its position, the Primary Committee’s response references
Advisory Opinions (AOs), which address the sale of assets by a political committee for
other than fundraising purposes (AOs 1986-14, 1989-4 and 1990-26). The Primary
Committee concluded:

“[w]hile these opinions address primarily whether or
not the purchaser of the assets will be making a

‘contribution’ to the committee selling the assets, the
fact is that in these cases the Commission has treated
the committee selling the assets as a vendor, not as a

Both Campaign America and the Primary Commuttee maintained offices at the same location in
January 1999. Campaign America then relocated to Austin, Texas.

On January 12, 1999, Campaign America contributed $5.000 to the Primary Committee.

Page 7 of 27


QUAYLE 2000, INC.

CHRONOLOGY

AND

QUAYLE 2000 COMPLIANCE COMMITTEE

Audit Fieldwork
Exit Conference

Preliminary Audit Report to
the Committee

Response Received to the
Preliminary Audit Report

Final Audit Report Approved

Page 27 of 27

06/12/00 — 8/27/00

12/07/00

8/15/01

10/31/01

09/20/02


The audit of the Compliance Committee covered the period from its
inception, July 25, 1999, through June 30, 2000 During this period, the Compliance
Committee reported an opening cash balance of S-0-; total receipts of $8,173; total
disbursements of $8,096; and, a closing cash balance of $77.

C. | CAMPAIGN ORGANIZATION

The Primary Committee and Compliance Committee initially maintained
their headquarters in Scottsdale, Arizona and subsequently relocated to Calhan, Colorado.
The Treasurer of both the Primary Committee and Compliance Committee is Mr. William
R. Neale.

Quayle 2000 Exploratory Committee, Inc. registered with the Federal
Election Commission (the Commission) on February 3, 1999, as the principal campaign
committee for former Vice President Dan Quayle, candidate for the Republican Party’s
nomination for the office of President of the United States.! The Compliance Committee
registered with the Commission on April 7, 1999.

During the audit period, both the Primary Committee and the Compliance
Committee maintained depositories in the District of Columbia. To handle its financial
activity, the Primary Committee utilized 13 bank accounts. From these accounts, the
campaign made approximately 4,480 disbursements. In addition, the Primary Committee
received approximately 78,000 contributions from approximately 36,000 individuals.
These contributions totaled $4,225,437. The Compliance Committee used one bank
account. It received 42 contributions and made 29 disbursements.

The Candidate was determined eligible to receive matching funds on May
27,1999. The Primary Committee made 6 matching fund requests totaling $2,191,638
and received $2,087,750 from the United States Treasury.” This amount represents 12%
of the $16,890,000 maximum entitlement that any candidate could receive. For matching
fund purposes, the Commission determined that former Vice President Quayle’s
candidacy ended on September 27, 1999, the date he publicly announced he was
withdrawing from the campaign. On May 15, 2000, the Primary Committee received its
final matching fund payment to defray qualified campaign expenses and to help defray
the cost of winding down the campaign.

Quayle 2000 Exploratory Committee. Inc. amended its Statement of Organization on June 1, 1999,
changing its name to Quayle 2000, Inc.

2 On May 13, 2000, the Commission determined that the Primary Committee was not entitled to
certified funds totaling $14,775 that remained unpaid due to the shortfall in the Matching Payment
Account. This determination was based on the Primary Committee's financial position reflected
on its Statement of Net Outstanding Campaign Obligations prepared April 18, 2000.

Page 4 of 27



FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20405

REPORT OF THE AUDIT DIVISION
ON
QUAYLE 2000, INC.
AND QUAYLE 2000 COMPLIANCE COMMITTEE

1. BACKGROUND
A. AUDIT AUTHORITY

This report is based on an audit of Quayle 2000, Inc. (the Primary
Committee) and Quayle 2000 Compliance Committee (the Compliance Committee). The
audit is mandated by Sections 9007(a) and 9038(a) of Title 26 of the United States Code.
Section 9038(a) states that “After each matching payment period, the Commission shall
conduct a thorough examination and audit of the qualified campaign expenses of every
candidate and his authorized committees who received payments under section 9037.”
Also, Section 9039(b) of Title 26 of the United States Code and Section 9038.1(a)(2) of
the Commission’s Regulations state that the Commission may conduct other
examinations and audits from time to time, as it deems necessary. Finally, Section
9007(a) states that after each presidential election, the Commission shall conduct a
thorough examination and audit of the qualified campaign expenses of the candidates of
each political party for President and Vice President.

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

B. AUDIT COVERAGE

The audit of the Primary Committee covered the period from its inception,
January 1, 1999 through June 30, 2000. The Primary Committee reported an opening
cash balance of $-0-; total receipts of $7.864.296; total disbursements of $7,416,334; and,
a closing cash balance of $447,962. In addition, a limited review of the Primary
Committee’s disclosure reports filed through June 30, 2002 was conducted for purposes
of determining its matching fund entitlement based on its financial position.

Page 3 of 27



¢ Other Expenses - the Primary Committee estimated the following
costs for calendar year 2002: cable costs of $132, delivery costs of
$775, office expenses of $100, office supplies of $550, postage of
$100, and utilities of $900. In addition, for the period January
2003 through December 2005, it estimated office supplies of
$1,000 and delivery costs of $300.

It is the Audit staff's opinion that the cost of cable service is not in
connection with winding down the campaign. Further, since the
Primary Committee did not report making expenditures for office
expenses, supplies or postage during the first six months of
calendar year 2002, the above estimates were not included as
winding down expenses. However, during this six month period,
the Primary Committee reported paying $794 in delivery charges
and $1,129 for utilities. Therefore, Audit staff has included
delivery cost of $1,586 and utilities of $2,257 as reasonable
winding down expenses. These amounts represent twice the
amounts reported as being paid during the first half of calendar
year 2002.

B. MATCHING FUNDS RECEIVED IN EXCESS OF ENTITLEMENT

Section 9034.1(b) of Title 11 of the Code of Federal Regulations states
that if on the date of ineligibility a candidate has net outstanding campaign obligations as
defined under 11 CFR 9034.5, that candidate may continue to receive matching payments
for matchable contributions received and deposited on or before December 31 of the
Presidential election year provided that on the date of payment there are remaining net
outstanding campaign obligations, i. e., the sum of the contributions received on or after
the date of ineligibility plus matching funds received on or after the date of ineligibility is
less than the candidate’s net outstanding campaign obligations. This entitlement will be
equal to the lesser of: (1) the amount of contributions submitted for matching; or (2) the
remaining net outstanding campaign obligations.

Section 9038.2(b)(1)(i) of Title 11 of the Code of Federal Regulations
entitled Bases for repayment states that for payments in excess of candidate’s entitlement,
the Commission may determine that certain portions of the payments made to a candidate
from the matching payment account were in excess of the aggregate amount of payments
to which such candidate was entitled. One example of such excessive payments is
payments made to the candidate after the candidate's date of ineligibility where it is later
determined that the candidate had no net outstanding campaign obligations as defined in
11 CFR 9034.5.

In the preliminary audit report, the Audit staff recommended that the

Primary Committee provide documentation demonstrating that it was entitled to the
matching funds it received.

Page 16 of 27



Unless specifically discussed below, no material non-compliance was
detected. The following matters relate to the Primary Committee. There are no findings
or recommendations with respect to the Compliance Committee. It should be noted that
the Commission may pursue further any of the matters discussed in the audit report in an
enforcement action.

Il. FINDINGS AND RECOMMENDATIONS - NON-REPAYMENT
MATTERS

A. PURCHASE OF ASSETS

Section 441a(a)(2)(A) of Title 2 of the United States Code states that no
multicandidate political committee shall make contributions to any candidate and his
authorized political committees with respect to any election for Federal office which, in
the aggregate exceed $5,000.

Section 100.7(a)(1)(iii) of Title 11 of the Code of Federal Regulations
States, in part, that the term contribution includes the following payments, services or
other things of value: A gift, subscription, loan (except for a loan made in accordance
with 11 CFR Section 100.7(b)(11)), advance, or deposit of money or anything of value
made by any person for the purpose of influencing any election for Federal office is a
contribution. For the purposes of 11 CFR Section 100.7(a)(1), the term anything of value
includes all in-kind contributions.

Section 100.7(a)(1)(i)(A) and (B) of Title 11 of the Code of Federal
Regulations states, in part, that a loan which, exceeds the contribution limitations of
2 U.S.C. 441a and 11 CFR part 110 shall be unlawful whether or not it is repaid. A loan
is a contribution at the time it is made and is a contribution to the extent that it remains
unpaid. The aggregate amount loaned to a candidate or committee by a contributor, when
added to other contributions from that individual to that candidate or committee, shall not
exceed the contribution limitations set forth at 11 CFR part 110. A loan to the extent it is
repaid, is no longer a contribution.

On July 28, 1999 the Primary Committee issued a check ($64,930°) in
payment for furniture, computer and telephone equipment it received from Campaign
America, Inc. (Campaign America). Campaign America is a multicandidate political
committee. The Candidate was Campaign America’s chairman at the time the Primary
Committee was organized. Records made available indicate that Campaign America
purchased the above items between May 1998 and December 1998; apparently the

The Primary Committee actually paid $58,906 net for the items. The worksheet that identified the
assets sold contained a math error of $6,024 ($58.906 ~ $6,024 = $64.930). Subsequently,
Campaign America returned $6,024 to the Primary Committee. Other than the math error, the
amount paid by the Primary Committee appeared reasonable.

Page 6 of 27


Memorandum to Joseph F. Stoltz

Proposed Audit Report

Quayle 2000, Inc. and Quayle 2000 Compliance Committee (LRA 544)
Page 4

example, the Committee is a corporation with Officers and directors and insurance to protect
them is an appropriate winding down cost.

This Office acknowledges that the Committee should have Provided documentation of
these insurance expenses in Tesponse to the PAR, such as invoices Supporting its reported
Payments and copies of the insurance policies. Nevertheiess, since the Committee’s reports
disclose payments for insurance coverage in 2001 and 2002, and the Committee made similar
payments during 1999 and 2000, this Office Tecommends including insurance costs as winding
down expenses for 2001 and 2002. This Office Tecommends that the insurance costs be
calculated based on the amounts disclosed as paid by the Committee on its 2001 and 2002
Teports rather than an estimate.

[on Entitlement

This Office notes that any change in the amount of winding down costs could change the
calculation of remaining entitlement on pages 14-15 of the proposed Teport. The proposed Audit
Report concludes that the remaining entitlement is exactly $0; however, a change could result in
some amount of remaining entitlement. The Committee’s Tesponse to the PAR states that
according to its figures, it “is still owed $12,478." Committee Response (October 31, 2001) at 9.

It should be noted that the Committee, according to foomote 2 on prge 2 of the proposed
Audit Report, had been certified for $14,775 that was never Paid due to the shortfall in the
Matching Payment Account. See 11 CFR. § 9036.4(c)(2). On May 31,2000, the Commission

the Committee on the same date. See Memorandum to the Commi:sion from Ray Lisi, “Dan
Quayle/Quayle 2000 Exploratory Committee - Non Entitlement to Further Matching Funds”
(May 30, 2000). On May 18, 2000, the Audit Division informed this Office that the Committee
had received an overpayment based on its most recent NOCO Statement, and that, although “this
Situation has never before been encountered, an adjustment to previous certifications was
indicated.” Memorandum to Kim Leslie Bright from Ray Lisi, “Overpayment of Matching
Funds to Quayle 2000, Inc.” (May 18, 2000) at 2. The Audit staff Stated that it contacted the
Committee and advised them of the overpayment, and the Committee responded that “a revised
NOCO will be prepared and based on that NOCO, a voluntary repayment will be made.” Id. ©

apparent remaining entitlement, it is too late for the United States Treasury to make any
additional payments of matching funds to the Commitee. According to the Internal Revenue

The Quayle 2000 Expioratory Communes, Inc. is mcorporated in the state of Anzona, and state corporate
filings list several officers, a Secretary and a PresidenvCEO, and directors Tae corporation filed its most recent
annual report on May 6, 2002. The Communee amended its Statement of Organizanon with the Commussion on
fune 1, 1999, changing its name from Quayle 2000 Exploratory Communes, Inc. to Quayle 2000, Inc.

Page 22 of 27


Chow

FEDERAL ELECTION COMMISSION

WASHINGTON, DC. 20463

October 7, 2002

MEMORANDUM

TO: Ron M. Harris
Press Officer
Press Office

FROM: Joseph F. Stoltz
Assistant Staff Director
Audit Division *

SUBJECT: Public Issuance of the Report of the Audit Division on Quayle 2000, Inc.
and Quayle 2000 Compliance Committee

Attached please find a copy of the report and related documents on Quayle 2000,
Inc. and Quayle 2000 Compliance Committee that was approved by the Commission on
September 20, 2002.

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

Attachment as stated

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


B. ITEMIZATION OF LOANS

Section 434(b)(3)(E) of Title 2 of the United States Code states that each
report under this section shall disclose the identification of each person who makes a loan
to the reporting committee during the reporting period, together with the identification of
any endorser or guarantor of such loan, and date and amount or value of such loan.

Section 104.3(d)(1), (2) and (3) of Title 11 of the Code of Federal
Regulations states, in part, that when a political committee obtains a loan from, or
establishes a line of credit at, a lending institution it shall disclose in the next report
information on Schedule C-P-1. The political committee shall submit a copy of the line
of credit agreement that describes its terms and conditions when it files Schedule C-P-1.
Additionally, political committees shall file in the next report a Schedule C-P-1 each time
a draw is made on a line of credit, and each time a loan or line of credit is restructured to
change the terms of repayment.

Section 104.18(f) of Title 11 of the Code of Federal Regulations states, in
part, that if a committee files an amendment to a report that was filed electronically, it
shall also submit the amendment in an electronic format. The committee shall submit a
complete version of the report as amended, rather than just those portions of the report
that are being amended.

Section 104.18(h) of Title 11 of the Code of Federal Regulations states, in
part, that certain schedules, forms, etc. have special signature and other requirements and
reports containing these documents shall include, in addition to providing the required
data within the electronic report, either a paper copy submitted with the political
committee’s electronic report or a digitized version submitted as a separate file in the
electronic submission.

Loans, including a line of credit, are required to be reported on Form 3P,
page 2 (Detailed Summary of Receipts and Disbursements) for line 19(b) (Other Loans);
loan proceeds received are itemized on Schedule A-P (Itemized Receipts). Information
related to a line of credit is disclosed on Schedule C-P-1. In the case of a direct loan from
a candidate, the reporting requirements are similar, except that if no financial institution
is involved in the transaction, Schedule C-P-1 does not have to be filed.

The Primary Committee received a $45,000 loan from the Candidate and a
line of credit at a lending institution that was initially established for $1,000,000 and later
increased to $1,750,000. Regarding the Candidate loan, the Primary Committee did not
itemize the receipt of the loan on Schedule A-P for line 19(a); the amount received was
included in the summary page figures and the obligation was itemized on Schedule C-P.

Page 9 of 27



committee, unless the committee receives in excess of
the ‘usual and normal charge’ for the goods.”

The Primary Committee concluded that Campaign America should be
treated as a vendor that was paid in the ordinary course of business and on a
commercially reasonable basis. In an apparent effort to demonstrate that Campaign
America was treated the same as other vendors, the Primary Committee included in its
response a schedule of debts owed to five vendors that were disclosed on its April 15,
1999 and July 15, 1999 Quarterly Reports.

Primary Committee representatives incorrectly interpreted the
Commission’s ruling with respect to the above Advisory Opinions. The three Advisory
Opinions address the sale of an asset(s) by a terminating committee. In two of the
Advisory Opinions, the Commission concluded the sale would not result in a contribution
from the purchaser (AO 1986-14 and 1990-26). In each, the Commission specifically
stated principal campaign committees with valuable campaign equipment and leftover
campaign supplies that wished to terminate their operations have been permitted to
liquidate such assets for debt retirement purposes, or in contemplation of prompt
dissolution of the committee, without contributions resulting. The issue addressed in the
third Advisory Opinion (1989-4) is similar but specifically addressed the sale of assets by
a candidate’s terminating federal committee to his current gubernatorial committee. The
Commission concluded that the proposed sale by the federal committee at the usual and
normal charge would not result in a contribution to the federal committee.

At no time did the Commission conclude in the above Advisory Opinions
that the sales were permissible because the committee selling the asset was considered a
vendor and the opinions did not discuss the elapsed time between the sale and payment.
In each Advisory Opinion, the committee selling its asset was terminating its operations.
Neither of the committees that were party to this transaction was terminating. Therefore,
the Primary Committee’s reliance on the above Advisory Opinions is misplaced.

Finally, the schedule provided by the Primary Committee that compared
this transaction (between Campaign America and the Primary Committee) to unrelated
debts disclosed to five other Primary Committee vendors is also not relevant. By
definition, a commercial vendor means any persons providing goods or services to a
candidate or political committee whose usual and normal business involves the sale.

rental, lease or provision of those goods or services (emphasis added) (11 CFR §100.10).

Campaign America is not a commercial vendor; its normal course of business is not
providing furniture, computer and telephone equipment to other entities.

The Primary Committee has not demonstrated that Campaign America did
not make an excessive contribution of $58,906.

Page 8 of 27



D. AUDIT SCOPE AND PROCEDURES

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

1.

10.

The receipt of contributions or loans in excess of the statutory
limitations (see Finding II.A.);

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

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

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

Proper disclosure of campaign debts and obligations (see Finding
I.B.);

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

Adequate recordkeeping for campaign transactions;

Accuracy of the Statement of Net Outstanding Campaign Obligations
filed by the Primary Committee, to disclose its financial condition and
to establish continuing matching fund entitlement (see Findings III.A.
and III.B.);

Compliance with spending limitations; and,

Other audit procedures that were deemed necessary in the situation
(see Finding III.C.).

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

Page 5 of 27


FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

August 9, 2002

MEMORANDUM

TO: Joseph F. Stoltz
Assistant Staff Director

Audit Division

THROUGH: James A. Pehrkon
Staff Director

Robert J. Costa
Deputy Staff Director

FROM: Lawrence H. Norton
General Counsel > a,
v7
Gregory R. Baker Gt”
Acting Associate General Counsel

Peter G. Blumberg Pe by Ke 4)
Acting Assistant General Counsel we J

Delanie DeWitt Painter /° 4

Attomey Ihe |

SUBJECT: Proposed Audit Report on Quayle 2000, Inc. and Quayle 2000
Compliance Committee (LRA 544)

The Office of General Counsel has reviewed the proposed Audit Report on Quayle 2000,
Inc. (the “Committee”) and Quayle 2000 Compliance Committee submitted to this Office on
June 27, 2002. This memorandum summarizes our comments on the proposed report.'
Generally, we concur with any findings not specifically addressed in these comments. If you
have any questions, please contact Delanie DeWitt Painter, the attomey assigned to this audit.

' The Office of General Counsel recommends that the Commussion consider this document in open session

since the Report does not include mamers exempt from public disclosure. See 11 C.F.R. § 2.4.

Page 19 of 27


FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20405

September 25, 2002

Mr. William R. Neale, Treasurer

C/o Peggy Doven

Quayle 2000, Inc.

Quayle 2000 Compliance Committee
P.O Box 437

Calhan, CO 80808

Dear Mr. Neale:

Attached please find the Report of the Audit Division on Quayle 2000, Inc. and
Quayle 2000 Compliance Committee. The Commission approved the report on September
20, 2002. As noted in the report, the Commission may pursue any of the matters discussed
in an enforcement action.

The Commission approved report will be placed on the public record on October 4,
2002. Should you have any questions regarding the public release of the report, please
contact the Commission's Press Office at (202) 694-1220.

Any questions you have related to matters covered during the audit or in the report
should be directed to Renee T. Coleman-Bunn or Thomas J. Nurthen of the Audit Division
at (202) 694-1200 or toll free at (800) 424-9530.

Sincerely,

Hsh #
Joseph F. Stoltz 4

/) jose Staff Director
Audit Division

Attachment as stated

ce: Peggy Doven, Comptroller
Keith Davis - Huckaby, Davis & Associates

Page 25 of 27


FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20404

REPORT OF THE AUDIT DIVISION
ON
QUAYLE 2000, INC.
AND
QUAYLE 2000 COMPLIANCE COMMITTEE

EXECUTIVE SUMMARY

Quayle 2000 Exploratory Committee, Inc. (the Primary Committee) registered
with the Federal Election Commission on February 3, 1999, as the principal campaign
committee for former Vice President Dan Quayle, candidate for the Republican Party’s
nomination for the office of President of the United States.'| The Compliance Committee
registered with the Commission on April 7, 1999.

The audit is mandated by Section 9038(a) of Title 26 of the United States Code,
which requires the Commission to audit committees authorized by candidates who
receive Federal Funds. The Primary Committee received $2,087,750 in matching funds
from the United States Treasury.

The findings of the audit were presented to the Primary Committee at the exit
conference held on December 7, 2000, and in the preliminary audit report. The Primary
Committee’s responses to the findings are contained in the audit report.

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

PURCHASE OF ASSETS — 2 U.S.C. §441a(a)(2)(A) and 11 CFR §100.7(a)(1)(i) and
(iii). The Primary Committee issued a check ($64,930°) on July 28, 1999, in payment for
furniture, computer and telephone equipment it received from Campaign America, Inc.
(Campaign America), a multicandidate political committee. The Primary Committee

' Quayle 2000 Exploratory Commitee. Inc. amended its Statement of Organization on June 1, 1999
changing its name to Quayle 2000. Inc

The Primary Committee actually paid $58.906 net for the items. The worksheet that identified the
assets sold contained a math error of $6.024 ($58.906 ~ $6.024 = $64,930). Subsequently,
Campaign America returned $6.024 to the Primary Committee. Other than the math error, the
amount paid by the Primary Committee appeared reasonable

Page | of 27


The audited NOCO statement was presented to Primary Committee
representatives at the exit conference. Subsequently, the Primary Committee provided
documentation that clarified certain components, but continues to disagree with inclusion
and/or exclusion of certain components. The above NOCO statement has been updated
based on a review of the Primary Committee’s response to the preliminary audit report as
well as a review of additional financial records and disclosure reports.

Capital Assets

As previously discussed, the Primary Committee purchased certain assets
from Campaign America including office furniture. According to records made available,
Campaign America reported purchasing $10,000 in furniture from Office Fumiture
Wholesales in November 1998. This furniture was then sold to the Primary Committee
for $10,000. The above capital asset figure includes this furniture at a depreciated value.

Primary Committee representatives claim that Campaign America did not
purchase but leased the furniture. Further, Campaign America made a one-time lease
payment of $10,000 and the Primary Committee was merely reimbursing Campaign
America and taking over its lease. At the time of the preliminary audit report, the
Primary Committee had not provided a copy of the original lease or any document that
demonstrated that the lease was transferred.

In the preliminary audit report, the Audit staff recommended the Primary
Committee provide documentation to show that the furniture did not constitute a capital
asset.

Primary Committee representatives continue to dispute the inclusion of
office furniture as a capital asset. The Primary Committee provided a letter from the
former president of Office Furniture Wholesalers stating he could not provide a copy of
the lease agreement between Campaign America and Office Furniture Wholesalers at this
time, but based on his personal recollection. the furniture in question was leased initially
by Campaign America and then by Quayle 2000, Inc. In addition, the Primary Committee
provided two invoices from the vendor, billed to Campaign America but paid by the
Primary Committee, for furniture pickup. The Primary Committee also provided a
worksheet that itemized specific office equipment. With the inclusion of a sales tax and
delivery charge, the cost of the furniture itemized on the worksheet totaled $10,000.

The clearest documentation would have been an itemized listing of the
furniture provided, on Office Furniture Wholesaler’s letterhead, that was created at the
time of the purchase/lease by Campaign America as well as an invoice/lease agreement
that supports the purchase or lease of the office furniture. The worksheet provided by the
Primary Committee is on plain white paper. The worksheet, if representative of the
furniture purchased, renders the issue of whether or not Campaign America purchased or

Page 12 of 27


on its Directors and Officers. Further, on the same date, the
Primary Committee paid $1.400 for insurance that appears to cover
workers’ compensation insurance for clerical office employees
($371), employee benefits liability (S250) and property ($774).
Absent documentation that demonstrated such insurance was in
connection with winding down the campaign, the amount was
excluded from winding down expenses.

In its response to the preliminary audit report, the Primary
Committee continues to state that an ongoing incorporated entity
must protect its board of directors, officers, and employees as well
as remaining assets with insurance. The Primary Committee
further stated, “while the Committee currently has no employees, it
has consultants, and was informed by the insurance company that
in order to protect itself and its consultants, the Committee should
continue this coverage. This coverage amounted to $621.”

Even though the Primary Committee stated such cost was only
$621, it continues to include estimated insurance costs of $10,000
in its revised NOCO statement. However, it reported paying
insurance costs of $5,121 in January, February and May 2002.

The Primary Committee provided neither documentation
demonstrating that such insurance was in connection with winding
down the campaign nor documentation supporting the above
reported payments. However, since the amounts paid in calendar
years 2001 ($9,665) and 2002 ($5,121) appear reasonable based on
similar payments made in calendar vear 2000, the Audit staff has
included these amounts in its winding down expense calculation.

Rent and Storage - the Primary Committee is renting its
headquarters at $450 a month and has included that amount in its
winding down expenses for calendar years 2001 and 2002
($10,800). For the same penod the Primary Committee estimated
storage cost at $6,100 or approximately $250 a month. The
Primary Committee’s disclosure report for the period January 1,
2001 through March 31. 2001 did not itemize any payments
relative to storage. In the preliminary audit report NOCO
calculations, for calendar year 2001, the Audit staff included
headquarters rent at $450 per month but did not recognize any
storage cost. Conversely, for calendar year 2002, the Audit staff
excluded headquarters rent but included storage cost, estimated at
$100 a month.

Page 14 of 27


TABLE OF CONTENTS

QUAYLE 2000, INC.
AND
QUAYLE 2000 COMPLIANCE COMMITTEE

Page

Executive Summary 1
Final Audit Report 3
Background 3
Findings 6
Legal Analysis 19
Transmittal to Committee 25

Chronology 27


Memorandum to Joseph F. Stoltz
Proposed Audit Report :
Quayle 2000, Inc. and Quayle 2000 Compliance Committee (LRA 544)

Page 5

Service Regulations governing matching fund payments, the Presidential Election Campaign
Fund (“Fund”) is divided into three separate accounts, one of which, the Presidential Primary
Matching Payment Account (“Matching Payment Account”), is used to make matching fund
payments to primary candidates. See 26 C.F.R. parts 701 and 702; Internal Revenue Service,
Treasury, Final Regulations “Financing of Presidential Election Campaigns” 56 Fed. Reg.
21596-21600 (May 10, 1991). Section 702.9037-1 of the Internal Revenue Service regulations
Provides that any amount remaining in the Matching Payment Account after October 31 of the
year following a presidential election shall be returned to the Fund to make transfers to the three
accounts for the next presidential election. See 56 Fed. Reg. 21597, 21599, Thus, since
October 31, 2001, there have been no funds in the Matching Payment Account available to pay
any entitlement arising from the 2000 election. The Commission’s Tevision of the amount
certified to the Committee was appropriate because there were no apparent remaining net
outstanding campaign obligations on the date of the revision based on the most recent NOCO
statement submitted by the Committee. See 11 C.F.R. §§ 9034.1(b), 9034.5. In addition, the
Commission’s revision was based on a NOCO Statement submitted by the Committee.
Moreover, the Committee did not protest the Commission’s revision of the amount certified to it
in May 2000, and apparently contemplated making a voluntary repayment of the apparent
overpayment. Therefore, this Office does not believe that any additional payment to the
Committee could be made even if there is any remaining entitlement.

Page 23 of 27


REPORT OF THE AUDIT DIVISION
ON

QUAYLE 2000, INC.
AND
QUAYLE 2000 COMPLIANCE
COMMITTEE

Approved September 20, 2002

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



Page 26 of 27



Certain transactions related to the line of credit were not reported properly.
Information relative to the original ($1,000,000) and restructured line of credit
($1,750,000) was not disclosed on Schedule C-P-1. Also, four draws on the line of
credit, totaling $1,402,625, were not itemized on Schedule A-P, as required.

In the preliminary audit report, the Audit staff recommended that the
Primary Committee file complete amended electronic reports to itemize the Candidate
loan ($45,000) and draws on the line of credit ($1,402,625) on Schedule A-P for the
appropriate line. In addition, the Primary Committee was to disclose the original and
restructured lines of credit on Schedule C-P-1 and to submit a copy of each agreement.

The Primary Committee filed the necessary amendments and provided a
copy of each agreement for the loans in question.

Il. FINDINGS AND RECOMMENDATIONS - AMOUNTS DUE TO THE U.S.

TREASURY
A. DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONS

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

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

The Candidate’s date of ineligibility was September 27, 1999. The Audit
staff reviewed the Primary Committee’s financial activity through June 30, 2002 analyzed
winding down costs (plus projections through December 31, 2005), and prepared the
Statement of Net Outstanding Campaign Obligations (NOCO statement) that appears
below.

Page 10 of 27


leased the office furniture moot, since no item listed is valued greater than $2,000.°
However, it appears that the office furniture was leased, as evidenced by the invoices
from Office Furniture Wholesalers for furniture pickup and the statement provided by its
former president.

Based on the above, the value of capital assets has been reduced by
$6,000, the depreciated value of the office furniture in question.

Estimated Winding Down Expenses

¢ Consulting/Consulting Expenses — the Primary Committee’s
NOCO statement included estimated consulting costs, totaling
$249,000, for calendar years 2001 and 2002. In addition, it
included $10,000 for consulting expenses for the same period. The
Primary Committee responded that it will continue to incur
consulting fees and expenses. The Audit staff had initially allowed
monthly consulting fees and expenses, totaling $10,250 per month,
for calendar year 2001 but had not recognized any such expenses
for calendar year 2002. The Primary Committee is in the final
stages of winding down the campaign. For example, for the period
7/1/00-6/30/01 the Primary Committee reported receipts totaling
$27,480 none of which were contributions, expenditures totaling
$241,900 (including $280 in operating expenditures, $1,351 in
fundraising disbursements, $45,000 in loan repayments, and
$195,269 in exempt legal and accounting expenses), and as of
6/30/01, debts owed by the Primary Committee were $1,568.
Given this level of activity, the Audit staff initially determined that
winding down expenses would not be necessary in calendar year
2002.

During the first six months of calendar year 2002, the Primary
Committee reported paying $53,908 in consulting fees and $1,026
in consulting expenses. Since the audit process has continued into
calendar year 2002, we have included additional consulting fees
and expenses of $116,000 in our winding down expense
calculation for calendar year 2002.

e Insurance — the Primary Committee’s NOCO statement included
estimated insurance costs. totaling $24,000, for calendar years
2001 and 2002 ($12.000 a year). When questioned, the Primary
Committee stated that its counsel recommended that it continue to
carry corporate insurance on its directors. Subsequently, the
Primary Committee paid $8,265 on March 20, 2001 for insurance

The term “capital asset” means any property used in the operations of the campaign whose
purchase price exceeded $2,000 when received by the committee (11 CFR §9034.5(c)(1)).

Page 13 of 27