f' FEDERAL ELECTION COMMISSION

WASHINCTON, O,c. 20463

February 5, 1999

MEMORANDUM

1bis informational memorandum is to advise you that on January 29, 1999, the Office of

General Counsel received a 59,360.60 check from the Pete Wilson for President Committee, Inc.

("Wilson Committee") made payable to the United States Treasury. See Attachment. This check

represents the total amount due to the United States Treasury by the Wilson Committee for

non-qualified campaign expenses that it incurred on behalfofthe Pete Wilson for President

Compliance Committee, Inc. See Statement ofReasons on the Pete Wilson for President

Committee, Inc. approved by the Commission on December 18, 1998. The check has been

forwarded to the Department ofTreasury.

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THROUGH:

FROM:

SUBJECf:

The Commission

James A. Pebrko

Acting StafflJJ·il!tRgt"

Kim Bright-Coleman

Associate General Counsel

Pete Wilson for President Committee, Inc. Repayment to the United States

Treasury (LRA #478)

Ifyou have any questions regarding this repayment, please contact Andre G. Pineda,

the attorney assigned to this matter, at 694-1650.

Attachment
Per the Federal Election Commission's final determination of repayment notifieatio~ dated

December 23, 1998, and received by the Pete Wilson for President Committee, Inc. on December

31, 1998, enclosed please find a check in the amount of59,360.60.

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TO:

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RE:

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AND ASSOCIATES

MEMORANDUM

KIM BRIGBT-eOLEMAN

ASSOCIATE GENERAL COUNSEL

FEDERAL ELECIlON COMMISSION

LISA R. LISKER

ASSISTANT TREASURER

PETE WILSON FOR PRESIDENT COMMI'ITEE, INC.

JANUARY 25, .999

REPAYMENT

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! POLITICAL FIN~NCIAl CONSULTING

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PETE WILSON FOR PRESIDENT

COMMrnEE INC.

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Nin.-Tbguaapd three-Hundred Sixty ADd 60/1QO****************** OOUARSm~~

FRANKLiN r ~~ 1

FOR =:1marl Non qualified Expenditures ll.p.~ent d:q 'Cfffi!:'::::-:-... f ..OO? ~Ea 3" ':0 51,00 Sa. ?: itO Ita. 38? I. 2'" !

it ---.,Ja.nla'luuaurioolov---.2..1 19..ft. P PAY 4; TOTHE $ l;; ORDER OF---JU~n..illl.llt&.:liei.llld~S<a ..t-.:le&asiLo..lllT...r ..e_asliLlu~rIll.olY'-- ,.." 9,360.60

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',- FEDERAL ELECTION COMMISSION

WASHINGTO~. DC 204bl

January 13, 1999

MEMORANDUM

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TO:

FROM:

SUBJECT:

Ronald M. Harris

Chief, Press Office

Kim Bright-Coleman \~ Associate General Counsel

\

Rhonda J. Vosdingh~)'i

Assistant General Counsel

Public Issuance ofthe Statement ofReasons

for the Repayment Determination for The Honorable Pete Wilson

and the Pete Wilson for President Committee, Inc.

Attached please find a copy ofthe above-referenced Statement ofReasons which the

Commission approved on December 18.. 1998.

Infonnational copies ofthe Statement ofReasons have been received by all parties

involved and the document may be released to the public.

Attachments as stated.

cc: Audit Division

FEe Library

Public Disclosua

Repons Analysis Division
BEFORE THE FEDERAL ELECI10N COMMISSION

In the Matter of

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The Honorable Pete Wilson )

Pete Wilson for President Committee, Inc. )

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LRA#478

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STATEMENT OF REASONS

On November 5, 1998, the Federal Election Commission ("the Commission") determined

that Governor Pete Wilson and the Pete Wilson for President Committee, Inc. ("the Committee")

must repay $9,360.60 to the United States Treasury for non-qualified campaign expenses.

26 U.S.C. § 9038(b)(2)(A); see also; 11 C.F.R. § 9038.2(c)(3). The Committee is ordered to pay

$9..360.60 to the United States Treasury within 30 calendar days after service ofthis

determination. 11 C.F.R. § 9038.2(d)(2). This Statement ofReasons sets forth the legal and

factual basis for the repayment determination. 11 C.F.R. § 9038.2(c)(3).

I. BACKGROUND

In 1995. Governor Pete Wilson was a candidate for the Republican presidential

nomination. The Committee registered \\ith the Commission on April 3, 1995, and on

September 29.. 1995, Governor Wilson \\·jthdrew his candidacy for the Republican presidential

nomination. Attachment A at 6-7; II C.F.R. § 9033.5(a)(I). The Committee received

SI ..724.257 in public funds under the Presidential Primary Matching Payment Account Act ("the

Matching Payment Act"). Jd.; 26 U.S.C. §§ 9031-9042. Following Governor Wilson's

withdrawal.. the Commission conducted an audit and examination ofthe Committee's receipts,
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disbursements and qualified campaign expenses, as provided for in the Matching Payment Act

and the Commission's regulations: 26 U.S.C. § 9038(8) and 11 C~F.R. § 9038.1.

On November 4, 1996, stafffrom the Commission's Audit Division held an exit

conference with the Committee to discuss preliminary findings and recommendations based on

infonnation obtained during the audit that they planned to present to the Commission for

approval. Attachment A at 3; 11 C.F.R. § 9038.l(b)(2)(iii). The Audit Division's preliminary

findings and recommendations were contained in an Exit Conference Memorandum ("ECM"),

which Audit staffdelivered to the Committee during the exit conference. Attachment A at 3.

The ECM identified expenditures totaling $1,271,985 that the Committee spent on fundraising,

such as mailings and invitations as well as event and other related costs, ofwhich $699,098

appeared to have been incurred on behalfofboth the Committee and the Pete Wilson for

President Compliance Committee. Inc. e·the Wilson GELAC"). Id at 32-33. The Wilson

GELAC's share ofthese joint fundraising costs totaled 5351,856. Id. The ECM further stated

that the Committee paid an additional SI0.000 on behalfofthe Wilson GELAC for "Compliance

Committee Processing." Jd Therefore. the ECM concluded that the Committee paid a total of

$361 ..856 ($351.856 + $10.000) for Wilson GELAC expenses between April 3, 1995 and

September 29. 1995. Id. The ECM recommended that the Committee submit evidence

demonstrating that the Wilson GELAC·s share offundraising costs were qualified campaign

The Committee and Governor Wilson "'ere pennined to incur qualified campaign expenses from

April 3. 1995 through September 29. 1995. II C.F.R. §§ 9032.9(8) and 9034.4(a). Governor Wilson and the

Comminee were also penninecL and may have incurred. qualified campaign expenses prior to the date Governor

Wilson became a candidate. See JI C.f.R. § 9034.4(8)(2) ("testing the warers"). Additionally, Governor Wilson

and the Comminee were pennined to incur qualified campaign expenses, subject to certain contingencies, after

Governor Wilson withdrew from the presidenual nominating process for costs associated with the termination of his

political activity. II C.F.R. § 9034.4(8)(3).
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expenses or that it make a pro-rata repayment ofS83,387 ($361,856 x .230443) to the United

States Treasury.2 Id

On January 21, 1997, the Committee filed its written response to the ECM.3 The

Committee responded that it should not be required to make a pro-rata repayment for the Wilson

GELAC expenditures for several reasons. First, the Committee contended that the

Commission's regulations are internally contradictory. Id Second, the Committee argued that

the mailings and invitations were not Wilson GELAC solicitations because they did not directly

solicit funds for the Wilson GELAC. Id at 34. Third, the Committee argued that the mailings

and invitations were not joint solicitations due to the amount ofmoney the mailings and

invitations generated for the Wilson GELAC. Jd at 35. Finally, the Committee asserted that

nearly all ofthe costs associated with the mailings and invitations were incurred prior to the

effective date of 11 C.F.R. § 9034.4(e}(6)(i).· Jd at 36. Accordingly, the Committee argued that

a ·"funds received" method. like that described at II C.F.R. § 106.5(f), should be used to

determine the allocable amount. rather than the 50150 allocation described at 11 C.F.R.

§ 9034.4(e)(6)(i). Jd

On August 21 t 1997. the Commission considered the Audit Report on the Committee and

Governor Wilson. The Audit Repon concluded that the Committee incurred non-qualified

The pro-rata repayment ratio for the Commlnee was .230443. Anachment A at 33; II C.F.R.

§ 9038.2(b)(2)(iii).

The Committee had 60 calendar days after the exit conference to submit written legal and factual materials

disputing or commenting on the proposed findln~s contained in the ECM. II C.F.R. § 9038.1 (c). The Committee's

response was due January 3, 1997. At an unspecafied date in December of 1996, the Audit Division granted the

Comminee a .7-day extension oftime to submlt!ts wnnen response to the ECM; the Committee's written response

was due Janu8l')' 21. 1997. The Committee timel)' filed its written response.

The Committee argued that the costs assocaated with only one mailing and invitation were incurred after

August 16. 1995. Attachment A at 36.
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campaign expenses totaling S130,577 for Wilson GELAC fundraising and processing costs

which were subject to a pro-rata repayment to the United States Tieasury. 5 Accordingly, the

Commission determined that the Committee was required to repay 529,861 (SI30,S77 x

.230443)' to the United States Treasury.' Attachment A at 38; 26 U.S.C. § 9038(b)(2)(A).

The Audit Report noted that the regulations do not mandate the establishment ofa

general election legal and accounting compliance fund e'GELAC") or require joint fundraising

efforts between a GELAC and a primary committee. ld at 34. It further stated that expenses

incurred to benefit a candidate's general election campaign are not qualified campaign expenses

ofa primary campaign. ld; 11 C.F.R. § 9034.4(bX3). In addition, the Audit Report noted that

the solicitations at issue sought contributions for both the Committee and the Wilson GELAC

and noted that the amount ofmoney generated by the solicitations has no bearing on whether the

fundraisers were jointly conducted by the Committee and the Wilson GELAC. ld at 34-36.

In the Audit Report. the Audit Division agreed with the Committee that a funds received

allocation method was appropriate for fundraising costs incurred prior to the effective date of

The Audit Repon refe~ to non-qualified campaign expenses totaling SI30.577. Attachment A at 37. Due

to a mathematical error. the correct amount for non-qualified campaign expenses resulting from Wilson GELAC

solicitations and processing costs is 5129.577 «$638.144 x 13.94%) + S30.620 + SIO.OOO). See Attachment F.

Despite the mathematical error noted in note 4. the ratio-repayment amount is correct.

The Commission also determined that the Committee must pay 532.929 and the Wilson OELAC must pay

563.450 to the United States Treasury for stale-dated checks. Attachment A at 39 and 42. The Committee did not

dispute the findings for stale-dated checks and submined the payments. Attachment B at 1-2. The amount for the

Wilson GELAC was reduced 51.000 from the determination because one check for S1.000 stale-dated check cleared

the Wilson GELAC bank account. Id at 2 and Anachment C at 2.

The Audit Repon also includes two non-repayment findings: (I) Craig Fuller, the Committee Campaign

Chainnan. made a $28.193 excessive contribution to the Committee pursuant to II C.F.R. § 116.5; and (2) AT&T

Credit Corporation extended credit totaling $213.365 to the Committee outside orits nonnal course of business

pursuant to II C.F.R. § 116.3. Attachment A at 16 and 24. These non-repayment findings have no impact upon the

Commission's repayment detenninations.
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11 C.F.R. § 9034.4(e)(6)(i), August 16, 1995. Id at 37. Prior to this date, the Committee

incurred costs totaling $638,144 for fundraising conducted on beh8Ifofboth the Committee and

the Wilson GELAC. Attachment F at S. The Audit stafffound that 13.94% ofthe funds raised

were on behalfofthe GELAC. Attachment A at 37. Thus, the Audit Report applied a 13.94%

~ds received ratio ($638,144 x 13.94%)9 compared to the Committee's calculation of 10.37%.

After August 16, 1995, the effective date ofsection 9034.4, the expenses the Committee

incurred on behalfofboth the Committee and the Wilson GELAC were split 50150 pW'Suant to

11 C.F.R. § 9034.4(e)(6)(i). The Audit staff calculated that 530,620 in fundraising costs incurred

on or after August 16, 1995 were incwred on behalfofthe Wilson GELAC. Attachment F at I.

On October 29, 1997, in response to the Commission's detennination, the Committee

submitted legal and factual materials attempting to demonstrate that a lesser repayment is

required to be paid to the United States Treasury, 11 C.F.R. § 9038.2(c)(2)(i), and requested an

opponunity to address the Commission in an open session pursuant to II C.F.R.

§ 9038.2(c)(2)(ii). Attachment B at 2. The Commission granted the Committee's request, and

the oral hearing \\'as held on February 25. 1998.' Attachment D.

II. COMMllIEE'S RESPONSE TO THE REPAYMENT DETERMINATION

The Committee "disputes strenuously" the repayment determination contained in the

Audit Repon.Q

Attachment B at 1. The Committee contends that the fundraising and

The Comminee was also notified that it could submit additional materials for the Commission's

consideration within fivc (5) days after the oral hellinl. Attachment D at 4. The Committee did not submit

addiuonal materials to the Commission within this time period nor at any later time.

The Committee asserts that the repayment amount is "muddied" because the Commission did not make a

final decision with respect to its request for additional matching funds at the time it filed its response to the Audit

Repon. On October 22. 1991, the Commission considered the Committee's Petition for Rehearing that was filed in

connection with its additional matching funds request. Because the Commission voted 3-2 to grant the Petition for

Rehearing. the Petition for Rehearing was not granted and the Committee is not entitled to additional matching
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administrative costs that it paid on behalfofthe Wilson GELAC are qualified campaign expenses

because the costs were undertaken to benefit the Committee. Id ai 2. It argues that the

solicitations were only Committee solicitations because they wouid have been undertaken

irrespective ofwhether the Wilson GELAC was mentioned. ld It also argues that any mention

ofthe Wilson GELAC in the solicitations was incidental. ld

Additionally, the Committee asserts that "any mention ofthe [Wilson GELAC] in

the [ ] solicitations came about because ofthe Regulation's plain wording that a candidate may

establish a [GELAC] 'prior to being nominated or selected as the candidate of a political party

for the office ofPresident or Vice President ofthe United States.' 11 C.F.R. § 9003.3(a)(I)." ld

at 2-3; see a/so.. Attachment D at 6. Moreover, the Committee claims that it paid for the

solicitations because 11 C.F.R. § 102.9(e)(2) states that unsuccessful candidates with GELAC

funds must return or redesignate donations to the contributor. Attachment Bat 3. Thus, the

Committee asserts that the Commission"s regulations are ''the ultimate regulatory Catch-22,"

Attachment D at 9.. and that it is ubeing penalized" for following the Commission's regulations.

Attachment B at 3; see also, Attachment 0 at 9. It also argues that ifthe Wilson GELAC had

paid these costs, the Commission would claim that the Wilson GELAC was underwriting the

Committee. Attachment B. Therefore. the Committee maintains that based on the regulations, it

funds. See 2 U.S.C. § 437c(c). Contrary to the Comminee's assenion in response to the Audit Report. the

Commission's October 22" consideration ofits Petition for Rehearing had no impact on the repayment process.

Specifically, the repayment is for matching funds spent on non-qualified campaign expenses. The main issue in the

Comminee's Petition for Rehearing was the valuation on the Statement ofNet Outstanding Campaign Obligations

ofa telephone system purchased by the Comminee after the candidate's date ofineligibility. Regardless ofthe

Commission's decision on the Petition for Rehearing. the Committee would still be required to repay matching

funds spent on non-qualified campaign expenses. 26 U.S.C. § 9038(b)(2).
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had no choice but to pay for the entire fundraising and administrative costs related to the

solicitations.IO Id

The Committee further urges the Commission to re-examine whether the Audit Report

correctly characterizes the mailings as solicitations for the Wilson GELAC. Attachment B at 4.

The Committee argues that the plain wording ofthe mailings fails to meet the generally accepted

meaning, as well as the dictionary definition, of"solicitation." Id At the oral hearing, the

Committee's counsel referred to a four-page sample invitation which mentioned the Wilson

GELAC in "one small line in the response device" that noted ~'there is another vehicle in which

funds can be deposited." Attachment 0 at 1O. The Committee asserted that nothing in the

response device stated" 'Please contribute to the GELAC, please contribute to the Committee.' "

Id The Committee further contended that mention ofthe Wilson GELAC in the response device

was "a political decision" which enhanced Governor Wilson's status as a candidate and "showed

the inevitability of his nomination.~' Jd. at 11. The Committee also contended that ''there was

never any intent~ desire or thought about diluting the [ ] Committee's fundraising message" by

mentioning the Wilson GELAC in its solicitations. Id. at 14. In short, the Committee argued

throughout its oral hearing that its solicitations were ··purely" solicitations for the Committee,

and a "fleeting reference" to the Wilson GELAC in the solicitations did not negate this fact. See

KC!nera/~l·. Attachment 0 at 20.

Additionally, the Committee argues that ifthe mailings really constituted joint

solicitations~ the response rate for the Committee and the Wilson GELAC "should have been

eo The Committee also contends that the Audit Report's reference to II C.F.R. § 9034.4(b)(3) is misplaced

because no general election expenditures were Incurred. and fundraising and administrative costs are not "expenses

incurred ... for property. services or facilities." Anachment B at 4.
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roughly the same." Attachment B at S. However, since only 8.3% ofthe mailings generated

donations solely to the Wilson GELAC, the Committee contends that the mailings are not

solicitations for the Wilson GELAC. Jd

Finally, the Committee "disputes the 13.94 percent repayment figure used in the Audit

Report.". I Id at 6. Although the Committee did not elaborate upon this argument in its

submission or during its oral hearing, the Committee claims

Ifthis had been a 'solicitation', then logic would dictate that the response rate for

the Primary and Compliance Committees should have been roughly the same.

Instead, they were off by a factor of 10, indicating that there was no 'solicitation'

for the Compliance Committee that would trigger the disqualification ofany

expenses by the Primary Committee.

Jd. at 5. Without further explanation. the Committee states "[a]s this argument demonstrates, the

Committee disputes the 13.94 percent repayment figure used in the Audit Report.,,12 Jd. at 6; see

a/so., Attachment D at 30-32.

III. ANALYSIS

A. LAW

A qualified campaign expense means, in part. a purchase, payment, distribution, loan,

advance. deposit. or gift of money or anything of value that is: (1) incurred by or on behalfof a

candidate or his or her authorized committees from the date the individual becomes a candidate

through the last day ofthe candidate"s eligibility as determined under 11 C.F.R. § 9033.5; and

(2) made in connection with his or her campaign for nomination. 11 C.F.R. § 9032.9(a); see

O/:iO. 11 C.F.R. § 9034.4(b) (listing examples ofqualified campaign expenses).

.. The 13.94 percent figure is the funds received ratio calculated by the Audit Division. Attachment A at 37.

1: It appears thai the Committee is arguing thaI the repayment standard should be based on the number of

people who gave only to the Compliance Committee (8.3%) versus the total number ofpersons who gave to both

the Compliance Committee and the Primary Comminee or only to the Primary Committee.
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Ifthe Commission determines that a candidate used any part ofa matching fund payment

for a purpose other than a qualified campaign expense, the candidate shall be required to repay to

the United States Treasury the portion ofthe Don-qualified campaign expense that represents the

matching fund payment. 26 U.S.C § 9038(b)(2)(A); 11 C.F.R. § 9038.2(b)(2). The amount of

the repayment shall bear the same ratio to the total amount ofthe non-qualified campaign

expenses as the amount ofmatching funds certified bears to the total amount ofdeposits of

contributions and matching funds, as of90 days after the candidate's date ofineligibility.

11 C.F.R. § 9038.2(b)(2)(iii).

A general election legal and accounting compliance fund ("GELAC") may be established

by a major party candidate who seeks election to the office ofPresident ofthe United States or

the office ofVice President ofthe United States. 11 C.F.R. §§ 9002.2(a)(I) and 9003.3(a)(1)(i).

A candidate is defined, in pan. to mean any individual who has been nominated by a major party

for election to the office of President ofthe United States ofthe office ofVice President ofthe

United States. 11 C.F.R. § 9002.2(a)( I). Such a candidate may establish a GELAC prior to

being nominated or selected as the candidate ofa political party for the office ofPresident or

Vice President ofthe United States. 11 C.F.R. § 9003.3(a)(1 )(i).

Commission regulations promulgated for the 1996 election cycle require expenditures to

be attributed in specific ways ""hen candidates receive public funding in both the primary and

general elections. 11 C.F.R. § 9034.4(~).'\ For campaign communications, Commission

regulations require that, depending on the purpose ofthe solicitation, the costs ofthe solicitations

be attributed to the primary election or to the GELAC. 11 C.F.R. § 9034.4(e)(6). Ifthe

IJ The effective dale for the 1996 election c)cle regulation was August 16t 1995.
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candidate solicits funds for both the primary election and the GELAC in a single communication,

SOOA. ofthe cost ofthe solicitation shall be attributed to the priInaJj election and SO% to the

GELAC.ld

B. DISCUSSION

The fundraising on behalfofthe Wilson GELAC was not in connection with Governor

Wilson's campaign for the Republican nomination for President ofthe United States. See

11 C.F.R. § 9032.9(a)(2). The Commission's regulations, when viewed in their totality, limit

and contemplate the establishment ofGELAC accounts by general election Presidential

candidates. By their nature, GELACs are established for general election purposes and are not

related to primary elections. See 11 C.F.R. §§ 9002.2(a)(I) and 9003.3(a)(1)(i). Accordingly,

the Committee's fundraising and administrative expenses associated with the Wilson GELAC are

not related to Governor Wilson's candidacy for the Republican nomination.

Although GELACs may be established by candidates prior to their nomination for

election to the office of President ofthe United States, 11 C.F.R. § 9003.3(a)(I)(i), it may not be

advantageous for every primary candidate to establish such an account. However, a candidate

"'ho chooses to establish a GELAC may not use primary matching funds to pay for the

GELAC's expenses.. including the GELAC"s share of expenses related to joint fundraising

bet\\'een it and a primary committee.·"

As of August 16.. 1995. the regulations provided clear guidance as to how to allocate

costs associated with joint fundraising of a primary committee and a GELAC. However, prior to

" GELAC expenses may be paid by any surplus primary committee monies that exist after all presidential

primary comminee repayment obligations are made. See II C.F.R. § IIJ.2(d). AltemativelYlI GELAC expenses

may be paid with the personal funds ofthe presidential primary candidate or they may be paid with any remaining

residual funds from a candidate committee that was authorized for a different election cycle. See II C.F.R.

§§ IIO.3(c)(5) and 9003.2(C)(8) and 9035.2(a)( I).
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August 16, 1995, there was no regulation that directly addressed how costs ofjoint fundraising

by a primary committee and a GELAC should be allocated. Thus:a publicly financed

presidential primary candidate who undertook joint fundraising with a GELAC prior to

August 16, 1995 did not have Commission guidance as to how to allocate the costs. Because it

w~ not clear how such costs were to be allocated prior to the effective date ofthe regulation, the

Commission has determined not to require the Committee to make a pro-rata repayment to the

United States Treasury for joint fundraising costslS it incurred on behalfofthe Wilson GELAC

prior to August 16, 1995.

The Wilson GELAC's share ofthe costs associated with the joint fundraising incUlTed

after August 16, 1995 are non-qualified campaign expenses. See 11 C.F.R. § 9032.9(a)(2).

Contrary to the Committee's arguments. mailings which specifically ask for contributions to the

Wilson GELAC are solicitations. The response cards that were part ofthe solicitations at issue

state "Also. enclosed is my/our contribution in the amount of$__to [the Wilson GELAC]."

This \\'ording is consistent with '-asking" and "enticing," tenns that Black's Law Dictionary use

to define "'solicitation:" Funher, this language seeking contributions to the Wilson GELAC is

ncarly identical to that used to seek contributions to the Committee (" ... enclosed [is] a

contribution in the amount ofS to show my/our support for Pete's Presidential

campaign"). See Attachment E. Moreover. the response rate ofthe solicitations is irrelevant to a

detennination of whether a panicular communication is a solicitation. 16 Therefore, the

t' The Committee incurred joint fundraising cosu totaling $638,143.98 prior to August 16, 1995. Attachment

G. The pro-rata repayment amount to the United States Treasury for these costs as stated in the Audit Repon would

have lotaled $20.499.58 «$638,143.98 x .1394) x .230443). Id

It- Even ifthe response rate ofthe solicitations was relevant to a detennination ofwhether a panicular

communication is a solicitation. no facts exist to suppon the Committee's claim that the response rate for joint

solicitations should be approximately 50150, as compared to some other percentage.
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Commission has determined that the Committee must make a pro-rata repayment to the United

States Treasury for the Wilson GELAC's share ofjoint fundraising costs)? incurred after

August 16, 1995.

Finally, the Committee incurred processing costs totaling 510,000 on behalfofthe

Wilson GELAC after August 16, 1995. These costs are related only to the general election; they

were not made in connection with Governor Wilson's candidacy for the Republican nomination.

11 C.F.R. § 9032.9(a)(2). Thus, they may not be allocated between the primary and general. See

11 C.F.R. § 9034.4(e). Therefore, the Commission has determined that the Committee must

m~e a pro-rata repayment to the United States Treasury totaling 52,304.43 for these expenses

($10,000 x .230443).

IV. CONCLUSION

For the foregoing reasons, the Commission detennines that the Committee made nonqualified campaign expenses totaling $40.620.037 ($30,620.03 + 510,000) for Wilson GELAC

solicitations and processing costs which require a pro-rata repayment of$9,360.60 ($40,620.03 x

.230443) to be made to the United States Treasury. 26 U.S.C. § 9038(b)(2)(A).

Attachments

A. Audit Report on the Pete Wilson for President Committee, Inc., the Pete

Wilson for President Compliance Committee, Inc., and the Pete Wilson for

President Audit Fines and Penalties Account, Inc. approved August 27, 1997.

B. Dispute ofRepayment Detennination Finding for the Pete Wilson for

President Comminee. Inc. dated October 29, 1997.

11 The Committee incurred joint fundraising costs totaling $61,239.97 after August 16, 1995. Attachment G.

The pro-rata repayment amount to the United States Treasury for these costs as stated in the Audit Report totaled

$7.056.17 ($61.239.97 x .50) x .230443). Jd.
C'. c.

13

Analysis ofthe Audit Division ofthe Pete Wilson for President

Committee, Inc.'s Dispute ofRepayment I>etermination dated

November 14, 1997.

D. Transcript ofthe Pete Wilson for President Committee, Inc. Oral Hearing before

the Federal Election Commission on February 25, 1998.

E. Sample Pete Wilson for President Committee, Inc. Solicitations.

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G.

Audit Division Spreadsheet ofPete Wilson for President Committee, Inc. and

Pete Wilson for President Compliance Committee, Inc. Solicitation Expenses.

Audit Division Spreadsheet for Pete Wilson for President Committee, Inc. and

Pete Wilson for President Compliance Committee, Inc. Schedule ofNonQualified Campaign Disbursements by Cost Centers/Groups, as Revised Week of

November
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REPORT OF THE AUDIT DIVISION

ON THE

Pete Wilson for President Committee, Inc

Pete Wilson for President

.Compliance Committee, Inc.

and

Pete Wilson for President

.~udit Fines and Penalties Account, Inc.

Approwed Aupst %1. I'"

FEDERAL ELECTION COMMISSION ' - '. ... •..• A.-_

999 E STREET. NoW. ;.: :"'~"I.'~~-_r:i- \\·ASHISCTO~.D.C.
,

. TABLE OF CONTENTS

- PETE WILSON FOR. PRESIDENTCOMMnTELINC....

PETE WILSON FOR. PRESIDENT CO~LlANCE COMMITTEE. INC.

AND

PETE WILSON FOR PRESIDENT AVOn FINES

AND PENALTIES ACCOUNT. INC.

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, Executive Summary

LelaJ AnalysIS

Supplemenw Commcnu

10 LelaJ AnaJYSIS

TransmllUJ 10 Commlftee

TransrruaaJ to Candadale

Chronolo~

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FEDERAL ELECTION COMMISSION

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REPORT OF TIlE AUDIT DMSION

ON

PETE WILSON FOR PRESmENT COMMI'ITEE.INC.;

PETE WILSON FOR PRESIDENT COMPLIANCE COMMI'ITEE.INC., . AND

PETE: WILSON FOR PRESIDENT AUDIT FINES AND PENAI.:n ACCOm-,..INC.;

EXECUTIVE SUMMARY

Tne Pete W;lson for President Comnunee.lnc. (the Primary Committee) feaiSten:d with

the Federal Ele:tlon Commission on April 3. 1995. In additiOD. the Pac Wilson for President

Cornphanc:e Commlnee.lnc. (the Compliance Comminee) rqisIcred with the Commission on

Apn: 10. J995 Flnall)'. the Pete Wilson for President Audit FiDes mel Penalty Account. Inc. (the

Audit Fines Commsnee) regIstered \Vim the Commission on January 23. 1996.

Tn: audn ""as conducted pursuant 10 26 U.S.C. §9038(8) which requires the

COm..~:SSIOr. to audit conunsnees that ~CClve matchlna fw1cls. The Candidate received $1.7

ml1uor. ar. mat:nlng funds .

:-n~ f:n::n~s of the audl1 were presented 10 the Committees at a conference held at the

e~: c:' ia:iOv.·on. and were addressed In the E.XIt Conference Memorandum presented on

~O\ e~De~ -:. Jq96 Tne Commsnees' responses to lhosc findings are conwned in the audit

Tne follo~,ni IS an OVCTVlew of the findanp conwned in the audit n:pon.

APPAar", EXqsS'yt CON"U1t:r'O"'s Br$l'l TINe fROM ST.rr ADyANCE AND

r'1["'$'O' ,r CBrDrr') A COMMERCIAl VtllCQQ8 - U.S.C §§441aCa)( I )(A) and (b)~ 11

CFR §~ 1J6.5 and 116.3 The exn conference memorandum questioned whether a staff

acvance consuNted I S21.J93 excesslye cont:10uuon and whelher an extension of credit by a

commercial "moor consuMed a S213.365 prohibited contributlon. In response. the Primary

Commlntt u,ued that Ibc staff advance should be considered an ordinary course extension of

cred.: b~ a ~endor rather than u • su.fT &a vance The repon concludes that I convibuuon

occ~d und~ either analYSIS With I'eSJ)eCI to the commercial vendor. the Pnmary Comnnnee

conlcnd.s that no crcraorduW'." extension of credit occurTCd. After considennl the Information

and explanations prOVided. the repon concluaes lnat the contnbutlon did occur.

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MI$SXAnMENTQFf)N.r.rnAI Arnvm"- 2 U.s.C. §434(bXl). (2) and (4). The

exit conference memorandum DOted that both the PriDWY COIIUDiDee ad ComplilDce

Committee mismted financial activity on disclosure repons filed for the first four months of

1996. Both Committees filed adequate amended repons cluriDa the course ofaudit fieldwork.

Dlsn OSJ1BE OF DEBn/OlllC4nONS AND Qccne,noNlN4MEOF EMPLOYER -

2 U.S.C. §§434(b)(3) and (8). The exit confeRnCe memorandum foUlld that Pruqary Comminee

reportS ifiideqU&leJy disclosed debts/obligations. The PrimaJy Comminee filed Me necessary

amended repons. In addition. the Compliance Committee was found DOt 10 demonstrated best

effons to obtain. maintain aDd disclose occupatiODlname of employcr. The Compliance

Comminee has filed the necessary amended repons.

DETERMINATION OF NET QtrrnANQING CAMpAIGN QII,IGADONS - 11 CFR

§§9034.S(a) and 9034.1(b). The exit conference memo noted that the Primary Commsnee had

not receJ ved matching funds in excess ofits entitlement. The Primary Comminee argued that

an AT&:.T phone syStem. which was valued at its purchase price in this analysis. should have

been vaJued at a lesser amount. The detemuning factor was whether the telephone system

became a Pnmary CODUnlnee asset when it was insta1led. prior to the Candidate·s date of

lnehgibiht). or when the Primary Commsnee purchased it. well after the date ofineligibility.

Dunng ItS dIscussion ofthis maner.the Commission could not gamer sufficient votes to adopt

eane:- posItion As a result. no funher matchJng fund payments are anticipated and the

val uauon of the telephone system on the NOCO is unchanl~d.

e'PP4BE'ST No~·QIl61 Intn C6MrAIC~ExrrNSE"- COMPliANCE COMMIDTE

[xpr-.c:rc; PAID fOB I)· THE PRIMARy CO""IUEE - 11 CFR §§9032.9(8). 9034.4(b)(3) and

: :..:.5 C §9038(b)(2)(A). The exit conference memorandum nOled apparent non-qualified

c~:JaJ ~r. expenses In the form of payments by the Pnmary Commlnee for fundraising and

a=~:~ls::'aUVe costs Incurred by the Compliance Commlnee. After evaluation of the General

Co~.:":~:~ee s response. the COmnllSSIOn aetermlned that a repayment to the U.S. TreasW')'

to:J.:n~ S:~.86; IS reqwreci.

C;14' r.o4TcQ COMMJrrEE CHECKS - ) 1CFR §9038.6 The repon states that the

?:"1~a-:- Corr..."Jnee and the Comphance Commln~ are reqUIred to pay to the U.S Treasury

S::.C;~c, anc S63.-=SO. respecuvely. for unne~ollalec. stale-oated checks.

?a:;Je •
FEDERAL ELECTION COMMISSION

WAS"'NCT~ 0 C l

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REPORT OF THE AUD"DIVISION

ON THE

PETE WILSON FOR PRESIDENTCOMMl1TEE, INC.

PETE WILSON FOR PRESIDENT

COMPUANCE COMMITTEE, INC

AND

PETE WILSON FOR PRESIDENTAUD"FINES

AND PENALTIESACCOUNT, INC

BACKGROlTN»

A. AUDIT AUTHOIU'T\'

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This repon is based on an audit ofthe Pete Wilson for President

Corr..mlnee. Inc. C·the Pnmary CommIttee") the Pete W'dson for President Compliance

COr:".:nlnee. Inc. C·the Compliance Comnunee") and the Pete Wilson for President Audit

Fanes and Penalties Account.. Inc. c--me Audn Fines Conumnee"), The audit is mandated

t':- Se:uon 9038(a) ofTitle 26 of the Unned States Code. That section stales that ··Aner

e3::': rn3t:hJn~ payment ~od. the Comnusslon shall conduct a thorough examination

-:.~: aUOI~ of tne qualified e&mpIJ,n expenses of every candidate and his authorized

:O:':"'w~'Hnees who receIved payments unaer sectlon 9037." Also. Section 9039(b) ofthe

:... nile: States Code and Secuon 9038.1(a)(2) oft.he Commlsslon-s Regulations Nte that

tn~ COr:".nllSS10n m.a~ conduct oUler exanunauons and audits from tlme to time as It

aeems neces~

In addition to examnunG tne receIpt and use of Federal funds. the audit

seeu to aetemune If the cam; "'1" has matenlU~ complied wath the limitations.

DfOnJDIlJOlU. and dIsclosure requirements of the Federal £iecuon CamJWgn Act of 1971

..FEeA.. J. as amended

B. ACDIT COVERAC[

The audu ofthe Pnmar;. Commlnee covered the pcnod from Its Inception

I\pn1 ~. J995. throulh April 30. J9% The Pnmary Committee fq)Ofted an openIng cash

balance ofS·o.. total rcCetpts ofSI.079.117.1ot.a1 dlsbum:menu ofS7.597.B31~ and a

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closiDg cash balance of5481.349.1 In addition. a limited review was ccmducu:d throUlb

December 31. 1996, for purposes ofdet.ermiDiDg the Primary Commiuee's remaining

matehiDg fuDd entitlement based on its financial position. _

The audit ofthe Compliance Committee covered the period from its

inception April 20. 1995. tbrouah Apri130. 1996. The Complimce Committee reponed

an apcnins cash balance ofS-O-: total ~iptS of S598.635; tow clisbUl'SellElu of

S59O.455; and a closiDa cash ba1mce of51.180.

The audit ofUte Audit Fines Commiaee covered the period from the its

first bank ttaDSaCtion. November 30. 1995. tbrouah April 30. 1996.2 The Audit Fines

Comminee reponed an opening cash balance ofS-O-; total receipts ofs-'-34.540; toW

dlsbW'Sements ofS-o- and a closing cash balance ofS234.540.

c. CAMPAICN ORGANIZAnON

The Pnmary Commluee. the Compliance Commiaee and the Audit Fines

Comnunee miJntalned their headquaners In Saaamento. California until April 1. 1996.

As 0: April ::. 1996. all Commlnee offices were relocated to Alexandria. Vil'lmia.

1. Pomace Cprom,"«

The Pnmary Committee feaistered with the Federal

E:::t1or. CommISSion on April 3. 1995 The Treasurer ofthe Primary Comminee from its

:;.:e~lJO~ :.:".:ougn Juj~ 5. 1995 was Charles H Bell. Jr.. He was succeeded by Mary H.

:-:." e~ ~no served woulh Au,ust 10. 1995 Tne Treasurer from August 11. 1995

::-:ou~:-. Ja...,ua.-: 30. 1996 \N'I.S Mark.. Ho,lund He was succeeded by Counney Sakai.

\l\~r a:!:: as 7reasure~ wou,h June 13.1996 The cunent Pnmary Comminee

.~ ~eJ..Sure: as o! June 24. 1996. IS Ren~ Croce

To handle ItS financial activity. the Primary Commlnee

s.;~;:aze~ to~l of elgh: Dank accounts dunn~ \·anous urnes throu,hout the audit penod.

ro~ ~es: ~:c:ounts tne CMnpaa,n made 31'prO~Jm;ltet~ j.SOO disbursements.

~~::~OJLlm3te.~ I O.SOu c:ontnbuuons irom I O.~OO persons were received. These

':Or.::lOullons louteC S5.':'~.3;3

A f~ r.,,,rr, ." tllIl rq»on ftay~ ~" ro"noco to u,r nearest dollar

A''''OVI''' &ftC AuCla' Fmes ComnUftft' r"~d a 't~., End Rrpon dascloslftl lIS (mane..' activity

Cut.", tftll prr.OG. au S&atemftn of Or,an'&luGn -u nOI received bv tftc Federal Election

Comm"Sion IIftltl Jan~:3 I~ •

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In 8ddiuoa to COD1ribulioDs. the Primary Commiaee

received SI.724.2.$7 in m"d1in. fuDds fIorD the Uaited s_TIaSUI')'. ibis amount

iepresems 11% oftbe SI5.4.55.ooo IDlximum emil1emem1bat lIlY cadi.e could

receive. Govemor Wdscm wu detamiDed elilible 10 naiVe !ambin. funds on Auaust

30. 1995. The PrimarY Commiaec made • total of sneIl!l!l'Cbinl fund requesu toWinl

SI.725.013. The CommissiOD ccnified 99.9% oltbe requested IIDOUDL For matehina

fuD4 purposes. the Commission determiDecllbal Govemor Wilson'. candi_ ended

September 29. 1995. This delamination wu based OD die dale the candidate publicly

announced he was withdrawinl from the campaip. The CommimOll's rqulation at 11

en §9033.5(aXl)swes dw the ClDdidale's iDelipbili1y daie sball be the date the

candidate publicly umounces that be or sbc is DOt Klively COIICIuc:IiDI campaips in more

than one Swe. On AUIUSI 1. 1996. the Primary Commiaee naivecl its fiDa1 matchina •

fund payment to defray expenses incuned duo. SepIaDber 29. 1995 Ind to help defra~'

the coSt of windina down the campaiJD. The Primary Committee submined an eighth

matching fund request on March 3. 1997.

~. Comph,nsc CgmmiDCC

The Compliance Cornmiaee with the Federal

Ejection Commission on April 20. 1995. The Trasun:rofthe Compliance Committee

from Its Inception through Jul)' 5. 1995 was Charles H. Bell. Jr. He wu succeeded by

Mary H. Hayes. who served through January 30. 1996. Co~' Sakai became Treasurer

on Jan~ 31. 1996 and served as Trasmer through June 23. J996. The current

Comphance Comnllnee Treasurcr IS Renee Croce.

Tne Comphance Commlftee used rwo depositories. one in

Caisfomli and one In the DtSlnct of Columbia.. and maanwned a lOW ofthree bank

a::ot.:nu I! \'anous times t.hrou~hou: lne audit penod. From these accounts the

Co~~hanC:t Commlnee received c:ontnbuuons IOIAhng about 5589.000 from

app:cxlmateiy 630 persons and pollucal commlnees. The Compliance Committee .also

receIved approximately $9.600 In Interest earned on.lts bank accounu. The Comphance .

Comnunee made nominal disbursements for bank account fees ad corporate lUes. The

Compilanc:e Commlnee also transfenec approxlmatel~ ~)O contributions to the Fines

Commlnee and refunded lPJ'roxlmatet~ ..30 conUlDuuons to contributors.)

The Auda: FInes Comnunee fellS1ered with the FcdcraJ

Eie:uon CommIssion on Jan~ 1j. 1996 and dal,n&lcd Counney Sakai as its

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J Th~ ftumwr of cOftmlMllIOfts ,"c,"cCl .6)0. OOC' nOI aJfft -11ft 1M lOla' "umber of COIUIabuuoftS

ROC'.,,,,,,,, or ftfuftcMCI .6S0t .ChW 1ft MlnC '''S&lftCn a c Id redatpaaC •

penlOft of 1\1$ or MT c_tn........ 10 1ft, Audit Fmn Cornm and bawe 1M ttaaaace refunded

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Treasurer. Ms. Sakai served u Treasurer until June 24. 1996. at which lime tbc Audit

Fines CoZlllDiDee appoiDted its CurreDt Treasurer, Renee Croce.

The Audit FiDes Commiuee used one bat account

throuPout the audit period. from this accoamt. the FiDes COIIUIliUec received

contributionsIOtaliq approxim1teJy $234.500. from about 265 perIODS. Ofrhae

comributions .bout 230 bad been redesipwed from the ComplilDce CollUllinec. and 35

were received directly by the Audit fines COIIUIliUec. The Audit FiDes Committee has

made no disbursemems to date.

II. AUDIT SCOPE AND PRoa;DJIBES

In addition to a review oftbe Primary Commiaee's expcaditures to determine the

qualified and non-quallfied campaip expenses incurred. the audit covered the followina

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•The receipt of contributions or loans in excess ofthe statutory

limilatlons (Findina II1.A.I.a.);

the receIpt of contributIons from prohibited sources. such as those from

carporauons or labor oflaniutions (Findina IIIA.I.b.);

proper dlscJoslft of contributions from individuals. political comminees

and other mUlIes. to Include the itemiz:ation of'comributions when

required. as well &S. the completeness and accuracy ofthe inlannalion

disclosed (Fincbna IV .A.~.)~

proper disclosure of disbursements sncludina the itemization of

disbursements when required. as well IS, the completeness and accuracy of

the In(orrnauon disclosed:

proper dlSClosUft of campaign debts and obli,alions (findinllll.A.3.);

the accuraey of tOlal reponed receipts. disbursements and cash balances as

compared to campaJ~n bank records (Flndln,s 1I1.A.~. and rV.A.l.)~

adequate recordkeepln£ for campaign vansaetJons;

accuracy of Ute SLllcmmt ofNet Owtandinl Campaip Obliaauons filed

by the Pnmary Commln~ to disclose liS flnancaaJ conclauon and 10

establish conunwna mau:hlna fund entitlement (flndinalll.B.l.);

the Pnmary Committee·s comphancc with spcncbna bmllauons~ and

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10. other audit procedureS dw were deemed IIIC""')' in the situation.

As pan ofthe CammiuiOD·S mndlrd audit process. III iDvemory of campaign

records is zaormaIJy coDdueted prior 10 the audit fieldwork. This iDvemory is coDclueted

to determine ifthe auditee·5 records are IIWCrially complete md ill III auditable Slate.

Baed Oft our review it was determined that the Commiaea' records were materially

coJ:Dl)1ete. 11=eforc. lbc audit fieldwork wu commenced imznedillely ~coDClusion

ofthe inveDtOf)'.

Unless specifically discussed below. DO maICriaJ DOD-Comp1iaDce was delected. It

should be Doted that the Commission may pursue funber ay afme mmcrs discussed in

this repon in am enforcement action.

III. PETE WIJ SON FQR PBESIDEKt CQWI I I f:£· INC,

reRIMARY COMMrrrtEl

A. •. AUDIT FINDINCS AND R.ECOMMENDAnONS: NON-REPAYMENT

MATTERS

1. Aaplr;cn r:1'"Sin Cgntributions Bnvltjnr fmm Stiff Adva""

and Extens,on of Cr:dn by I CgmmmjaJ vendor

Section 441a (a)(1 )(A) orTitle 2 ofme United States Code stales.

tna~ no person shall make contributions to an~· candidate and his audloriad political

c:om..'Tunee With respect 10 any election for Federal office which. in the aaarelate. exceed

S:.OOO

Section 4': Jbe a t ofTllie of the United Stites Code states. In pan..

tn3: t~ IS wua~1ul for an~ corporauon 10 make a contribution in connection with any

c,c:t.on 10 An~ political office

Sectlon J 16.Slb' ofTnlr 11 ofthe Code ofFedera1 Relulalions

Sate1. Ir. p~. lhal the pa~ent b~' at\ IndiVIdual from hiS or her personal funds. includlftl

J persona. credit card. for the COSlS IftCUTftd In provldJn, loods or services to.. C·

oeLl.nln. ,oods or s-naces that are used bv Of on behalf of. a candidate or a political

comnun~ IS a contnbuuOft unless 1.I\c p~~mcnt IS exempted from the definluon of a

COnL.,ouuon unQCT JJ CFR §IOO.1Ib)(l)

f unncr.. sf the pa~mt IS not exempted. it shall be considered a

conlnbutlon b~ the IndIVidual unless at IS for the .ndlvlduars uansponalion expenses or

(or usual and normaJ subsmCftCc expenses Incurred by an lndivicluaJ. ot.hcr thin •

voluntec-:. ~·hlle U'lvchnl on behalf of I candidate.. and. the mdividual is reimbursed

wtuun Sl~ cays ahcT the clostn. dale of Ihe billana statement on wtuch the charles first

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appear ifthe paymem was made usma a perscmaI credit careL or witbiD tbiny days after

!be date OD which the expenseS \Wft incuned ifI penoaaI credit card was DOt used.

"SubsisIeDce expmses" iDclude ODly expenclliures for persaDI1liviDa expeases related to

I particular iDdividuaJ traveliDI on commiUee busiDess such as food or loclainl·

Sections 116.3(a) and (b) oCTllle 1i ofdle Code ofFederaJ

R.epaWiODS aile. in re1evlDt pan. that a. commercial vendar that is DOt a cCIIIPOf'Auon.. and

• corporation in its capacity as a commercial WDdor may examd credit to a candidate. or

political committee. AD CX'leDSion of credit will DOl be co~• COmribuliOD to the

candidate or political commiaee provided 1bat the credit is exteDded ill the ordiDary

course ofthe commercial vendor·s business and the lams are subslmtilJly similar 10

extensions of credit to nonpolitical debtorS tbal are ofsimilarrisk IDd size ofobliptionFinal)'. 11 en §116.3(c)swesthat in deIermiDiDa whether credit

was extended in the ordinary course of business. the Commission will consider:

• Vlhetbcr the commercial vendor followed its eaablished procedures

and its past pracuce in approvina the extension of credit:

• wheth~ the commercaal vendor received prompt payment in full ifit

previously extended credit to the same candida1e or political

COmmlftec. and

• whether the extClUIOn of credit conionncd 10 the usual me! normal

practice In the commercial vendor·5 mclustry or trade,

Dunn& our reVle\\ ofthe Pnmary Commlttee·s reponed

oeo: It Ma~ 31. 1996. the Audu sufi' noted an OUIsWldin, debt of551.18S owed 10 Craia

Fulle: On Ma~' 1. J995. the Pn~' Commlftee contracted with The Fuller Company. ;

'A'hacre, a:cordsng to the conuxt. IS a corporation whose sole represcnwive is Craig

Fuhe:· The contract specified that eraJ; Fuller ~·as to serve as the Primary Commlftee·s

Cam~al,n Ctwnnan and that the Pramary CoftUnlnee was to pay • monthly retainer fee

o!s::.ooo bellMlna Ma~' 1. 19'.; Tne contraet also conlalned &be followin. clause'

"Vendor apen to obl.\ln pno!' approval from the CommlfteC for all

travel and OthCT expenses Inc urred In the performance ofthis

Alreemcnt, The Commlfttt ",-.11 fClmburse Vendor for all nvel and

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The COft1nC1 staltd 1M! 1M Fulkr ComDln~ S pra"c...-. pIKe or--...Mc1.eM, Vq",.

COtftft'Uftft records .Iso ftwcaeeCl tAIl "" ""s...ss address for 1M FuJlet C....., was 1M SIfM

as Craie Ful."s penoulldOrti'

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other expeDSeS incurred underIbis apeman !be Comminee will

DOt reimburse VeDdor for first class or busiDess class air travel.

Authorized expenses sbal1 be iDvoiccd • COlt IDd without markup to

the Committee. All cxpc:ases iDcurred by V~·will be reimbursed

within thin)' (30) days ofreceipt by the Commi1Iee...

Altho. the comract wu with The Fuller Company. me

PrimarY Comminee disclosed all its a:usactions and wrote all but one ofits checks

payabl; to Crail Fuller. Since the comractspecified tbat The Fuller Company was a

corporation. the Audit suff anempled to verify its corporate SIalUS. The Audit staff was

unable to locate a Fwier Company incorporated ill eiIber Califomia. Washington D.C.• or

Virginia. A n:present.ative from the Corporate Division for the Swe ofVirginia also

stated that I'e,ardless whether a busmess was incorporated ill VirJiniL ifilS prinCipal

place of business was Virainia.. the COI1'Or&te Division would have a record ofits

eXIstence. Finally, the Audit stafT located a professional biopaphy for Craig Fuller on

the Internet ",'hich made no menuon of a Fwier CompIDY. It Slated lhat he had worked

for Philip Moms until he was invited to be Ihe chairman for Governor Wilson·s

. Presloenual campa1gn. Therefore. the Aucbt stafT ccmsiden:d this matter under 11 eFR

§! 16.5 rathe:- than 11 CFR §116.J.

The Audit sWfs review ccmfirmed that the PriJnar)'

Commlnee paid the ~pctified monthly fewner fees from May 1995 through July 1995,

Tn~ P:-::na..: Comnunec also nwnwned a record m iu accounts payable file detailing

:~:1: as 0: :--1a~ 1996. the Pnmary Comnunee still owed Crail Fuller his AUIUSl 1995

:':~3:ne~ fee (S::.OOO)

Tne Pnm~ Commlnee reimbursed Craig Fuller S6.555 for

'. J.."O~~ exoenses In:u:Ted throuan June 1 The Pn~ Committee also maintained In its

a::OL:.~ts pa~·able file expense felmbwvment requests from Mr. Fuller submined on

0:too::, 3:. 1995 for expenses ancuned and paid by him berwccn May 4. J99S and

Se:)t=:noe~ ~8. J995 The expense I'Clmbwvmcnt requests were silncd by Mr. Fuller and

suomsne: ~'IU\ suppa"lng documentation for expenditures such as lUi fares. and meals

311: note! ioa~ln£ paJd for on tus pcnon.al credn card The Audit staff detmruncd the

10t3~ amount of WU'Clmbuncd expensC's sUbI.'n'C'd was 529.193 thiS amount~ plus \he

.~u~ust retainer fee. compnse the S5: .115 reponed as owed by the Pnmary CommIttee to

C:oal' Fuhf':' at MI~ 31. J996 '

Tnf SI dln~C~ ""ft" .ftc S5 I I.~ ft'POftCd 1M COfIUftmec and the surn ofthf

s::.ooo rr.....,fft IIICS rn. t9) tf\ uftrc.mtMInCG capmscs IS nmaaerlla

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As. result oftbae uareimbuned expenses. the Audit staff

de1crmiDed tbat Mr. Fuller bad rude an excessive comributiOll totI'inI 521.193. The

Audit sWrs analysis CODSidered Mr. Fuller·s 51.000 ~buliOD limiWion; I SI.000

comributiOD made by him to the Primm'y commmee OD September 1. 1995 and. the

S1.000 !hat an iDclividual is permiued to iDcur for _ pursuant to J1CFR

§100.7(b)(8). . .... This maner wu discuaed with Primm'y Committee

officials at a conference held at 1.be end offieldwork. At that time•• copy ofa scbeciu.lc

was also provided dctailina the Audit sWrs determiDatiOD ofthe excessive amount. A

Primary Comminee represauauvc expressed surprise !bat such aD exorbitlftt amoUDt of

expenses had been submined to the Primary Commiftee for reimburscmeDt. and stated

that he doubted the Primary Commiaec would be iDclined to pay it. He added that there

may have been a dispute between Mr. Fuller and the Primary Committee concenung the

expenses claimed. He also Slated that the Primary Commitlee would provide the Audit

staff ",th more infonnation; however. no additional informatiOD or documentation

addreSSing this matter was submlned.

In the exit Conference Memorandum (the MemolVldum)~

Ute Audit staffrecommended that the Pnmary Comminee demonstrate that Crai, Fuller

QJ: not exceed the contribution limitation of U.S.C. §441I(a)(IXA). orwu reimbursed

If: a um:iy manner as defined under I J CFR §116.S(b)(2). orsubmit any other comments

o~ ::o:umentauon It felt ma~· be reieVanl.

In Its response to the Audit sII1rs recommendation. the

?:':~~-"\ Co:r.:,:unee contended tna: ttle mone~ owed to Craig fuller is subject to the

=~::'\ ISlons 0: 1] CFR §116.3. v.,·tu:n a:1dresses extensions of credit b)' commercial

\ e~.:or~ ratne~ t~ tne Audit staffs ucauncnt of the issue under IJ CFR §116.S(b), The

f':'l~:"-"\ Cornmlnee Mluec tna~. &oS 41 commercial vendor. Craig fuller was cxtcndlna

:re=:~ sr. tne usu.a! me normal course of hiS bUSiness Considered under this regulation.

:n~ ~:'::":':3.~ Com..41unee asscnec. mere was no excessive contribution. The Pnmary

:o~mJnee concludes b~ slallnl tnal M: Fulln IS not the only vendor Still owed funds

~: ;: :!e:Sle~ t.1~ Fuller tne same as e\'C'~ other commerclal-vendor 10 whom it owes

mone\

The response In:luded an affidaVit from Cral£ Fuller

Su~pO:1Jn, tne Pnmaf.\· Commln~ s statemenu In additiOn. the Pnmary Committee's

responst stiles

··The Memorandum rcco~n:zes tftal II CFR '116.3 pmnllS

commercial vendors. ~'n:tnC':' 0: not Incorporated. to extend cn:cln to

:andusatt as lon~ as tnt :reau IS extended In the orcbnary course o(

tnt commercaaJ venaor s DUSln~ss and the tCfmS arc not cmbhshed

eS;te:laJt~ fo~ the cand.a~te or political committee··

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Fuller. tbrouIb The FullerCeJmFa)'•• sole proprieunbip

embUshed ill J9'9, WU. veDdarto die~y C«nmdlee. M

such.IDY lDODies SIill owed Mr. fuller for his IDQIIIhIy fee aM

expmses under his CODIrKlIre subject to 11 CFR §116J. For

unexplaiDed reasoDS. the Memoradum iaoneedy cbmcterizes him

u.an employee subject to IJ CFR §116.5." ..

"Indeed. the only iDdicia the Memoradum CIft si~ (sic] in aquiD&

Mr. fuller was an employee ofthe PriIury COIDIIiiaee is tbat The

Fuller Company is DOt incorporated. However. for. \WillY or

busiftess reasons and bucd OD &be recoii,mendllion orhis financial

advisor, Mr. fuller opted not to incorporase1be Faller Company, and

instead operate it as • sole proprietorship".

·'As me COmmisslOft is welllWlre, Mr. Fuller is IIOt Ibe ODIy vendor

still owed funds.... There is simply no money to plY ift full Mr.

fuller or 56 other vendors. By contrUl.1be PriIDlr)' Commiuee has

paid all Its employees and sutr. Repeaably. slow payment is the

Comnunee·s normal course of business toWlrds vendors 10 whom it

still owes monq', mcludsfta The fuller ComPlfty.' Likewise, the

Fuller Comp&n)' rccopuza that in the normaJ course orbusincss.

clients may nOI be able to pay bills and. III such cues. credit bu to

be extended. The f uller ComP!'~' has extended paymentS and

earned debt In other lftSWlCCS··.

The Pnmary Comnunee's response. and Crail Fullers

affH::a"·lt. also me:luoned that u a soic propnetor. he reponed the income received from

tn: f':"1m~ Commanee to the Internal Revenue Service (IRS) on an IRS form 1040C

S:nedule C). and reccl~cd an IRS form 1099 {rom the Pnmary Comminft rather than

3.~ IRS form \at.-2 This LU treaunenl of hiS Income. the Pnmary Committee concluded. .

suppons the contention that he was nOl an employee of the Pnmary Comminec. ralher

ne ""'as an Inaependcnt cona-aaor. SUDJCC: to tile provIsIons of a commercaal vendor

unac: II CFR §116.3 1

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The Auclu SIan ftCMCS IIIaI moM" ".d tScftcau.c 8·P,1ncI owed (Schedule 0.') for Mr. Fulae,',

st~lcn wu CGUIIIBII, daKlOWa 10 ·Cra'e Fultc( . IIOf "The fulter Com...)'"

8011\ Ute Pntn~ COIft"Uftft Iftd Cra" FuaW' ,••Ieet 10 SWOVIdC c....'*'orIllUalIOftS wMft The

Fulac" ComPll'~ hid C&ICftOCG enc... 10 ftOftOOhuul chmll 01 JIIIU< 1&11_ rllk . (See II en

t 116.)"U

Thr l'esPOftlt ftOCft Ute PrtJNll'\ COftlnuftft ",smo, 10"~ '"tftc ftIOftea owed 'Of Nt. Fuller·s

~lCn lAd caPl'ftlft.1OOft &I ..,.0"· 1ft"" all"lda"lI. C Fuller .......lit .... A'made

..,IOCIIC ...INI ............. 1M Com"'tft" eaDlC1lO 10 "'tree..... ''''10III' (I)ftc Fulter Compan~··

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The affidavit from Crai, Fuller funher Slated Ml am

president oflhe Fuller Company, a sole proprietorship I bepD iD 1989 when I left

lovemlDeal service. J was advised by my fiDIftCw advisor 10 emblisb this business as a

sole proprietorship forux rasons". The affidavit contiDued by swift, that MFrom May

to September, 1995, Jwas retained lhroulh the Fuller Company by me Pete Wilson for

President Committee, Inc.. ThroUlh my company. Iserved u Campaian Cha1rman·'.

i. Mr Fuller u , Cgmmmi,J vendor

Section 116.1(c) ofTitle 11 oftbe Code ofFederal

Regulations defmes commercial vendors as any perIOD(S) providina ,oods or.sen·ices to

a candidate or political comminee whose usual and normal business involves the sale.

rental. lease or provision ofthose goods or services. The crux ofthe Pri~'

Commlnee·s argument is that CraJi Fuller is a commercial vendor. However. neither the

Audit staffs independent queries. the Primary Committee's resporsse. nor Mr. Fuller's

affidavit provide any explanation IS to what consUMes the"usuaI and normal bUSIness"

orrne Fuller Company. CraJ8 Fuller nates only that the company was established upon

the suggestion-ofa busmess advisor for his personal we purposes.

Funhermore, Mr. Fuller Slates in his affidavit

··[t]hrough my companl. Jserved as Campaign Chairman". The Audit sWf\\'1.5 able to

io:ate two professional blO,raphlcs on the Internet featurine Crail Fuller.' AccordIng to

tnese blo~raphles. CJ'3li Fuller worked as senior vice president for corporate affaIrs at

?ndl~ ~1oms Companies. Inc. before .tolnln~ the Primary Commlnee. PreviousJ)'. Mr.

:: ulle:' r.3: worked In tne Rca,an anc! Bush \V'hne Houses until J989. after which he

oe:J.~e 3..," ex.e:utlve at a lobbyln, firm Ane: leaVing the Pnmary Comminee, he

\\ o:'~e: 3~ In: publsc reiauons firm of 8urson·~1ameJleras vice-chairman. In msd· I996.

\~: ::ulle~ a:::plcd Ine posluon of mana~ln~ director at the WashlnJlon D.C. office of

;.~c~ ::e~ l:uemauonaL an executive search finn The biolraphles make no menuon of

7"n~ ;: ulJe:' Company nor of any otner pohtlcal consuJnng work done by Mr. Fuller since

1:3\ lng th~ \\-nue House Thus. absent an adeQUIte explanation ofThe Fuller Company's

OUSlness. a.n~. because of the COnSJSlmr~' In Mr Fulle:'s career as a bUSiness executive,

t~: ~L:Ol: S:..3fT IS unable 10 conclude that pro~'ldln~ campal,n chalnnan services to

DoiJtl:a. commlnecs IS tne usual ane nannal bUSiness ofThe Fuller Company. or that The

Fulle~ Compan~ COnsl~ ' .. of an~1hln~ more than a name

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The pnm.y COIIIIIIiaee.IapI)"CCiD,.n4' that the

Audit sratt iD IppIyiDa 11 CFIl §116.5. elloaeously CODduda Ibat Mr. Fuller is III

employeeof. Primal)' Commmee. The PrimIIy fails to ..u. tbat the

appliClliOll of 11 CFR §116.5 is DOt limiIed 10 c:omrai1ree lad[. IJIdeed the liIle ofthe

repalation itselfreads ..AdvIaces by commi1Iee staffad other iDdividualswubsccticm

(a) oCdIc rqulation. which clearly defiDes its applic:erjOll. ....DO acfiaeace to

··employees". RaIher, itswes its scope is -.0 iDdividuals wbo ..DOtKtiDIcommercial vendors". SiDce the PrimarY Commiaee is uaable to pnMde CODClusive

evidence that Mr. Fuller meeIS the defmition of. COIIIIDIIf:iII vendor under 11 CFR

§116.3. iu arpment that he was DOt 1ft employee of1be PrimIIy Committee and. ~.

default. not subject to 11 en §116.5. is misplacecL

iii. Pmgn.1 Cmdit carel

Secuon 116.5 (b)(2) orntle 11 oftbe Code of

Fed:ral Re,wations rads as follows:

"The payment by an mdlvidua1 from his or her personal funds.

includina apcrsoriaJ credn card. for Ibe com iDcurred in

providinlloods or SCrvlces 10. or OblliniDlloods or services

that 1ft used by or on behalf0(. a c:andidale or• polilicaJ

committee is a conmbuuon unless the payment is exempted

from the defimuon of cenU1bulion under II CFR 100.7(bXI).

Jfthe paymmlls nOI exempted under II CFR IOO.7(bXI). it

shall be considered a conmbuuon by 1hc individual unless· (2)

The IndlvtduaJ IS reimbursed wnhan Sixty days after the closina

date ofthe bilhna Statement on which Ibc dmJes fim appear if

the payment was made uslnl a personal credit caret. or within

tJuny days after the date on which the cxpcraSeS were incurred if

a personal credit card was not used.·'

Based on InC Audit sWrS revIeW ofthe expense

cotumml.luon submlfted 10 UK Pn~' Comnuuee by CraJ, Fuller. those expenditures

ft,:" were not paid an cash were paid v.·un hiS personal credit cards.It Even ifthe Audit

s:..a!! &:cq)lcd The Fuller Comp&n~' &S a commercial vendor under I JCFR §116.3. Since

.. DocuMcm.uIOft tn.-cd .. AuG.' 11IfT lftClaeatn ...., It .....-0 pmoul crecIa ens wen

uted"~ Crall Fuller 10"~ for tt., eoaMftIet .'Uk tcr'tlftl AI Campatp C The

ClOC"fftCftcall. IftCludcd credd CltO IUtCtftCftU .'aae" era. Ful6rr'" 1M Pr'IfItary

ComllUftft 10 etoeuIMftllus .aJCftd.ftlf'Cl M.. ofanc ca.aa Oft 1M PEl ena. Met

ft01 IUtWftIftCd f. "_~I.appeared 10 .. pmoul ..~. I.C•• dIIrpI_fill.. ,.....,

lIore,...,or .....UOCftlllOlft. Mel O"ter hdtMUa ........'*"-.........

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Mr. Fuller used his perscmaJ credit cards 10 pay for Primay commmee reWed travel.

lodaiD&. aDd meals. IIId bee_use the expense billiDp did DOt appear 10 involve The Fuller

Company. me comribUlion occum:.cl.

The Primary commmee bas failed 10 provide sufticiau

evidmce to substamiate ns llJUlfteDl that 11 CFR §1J6.5 was iDconcetly applied ill this

maD" EVCD.if coDSidemion ofthis mmcr under 11 CFR §116.3 was cOIRmplasecl. the

PriJnay Comminee failed to provide documentation _ me credit extended

was in the normal course of business for the Fuller Compay.ad examples of other

clients of similar size aDd risk for which similar services had beeD provided under similar

billing amnaemems. Additionally. consideratioa under 11 CFR §116.3 would preclude

application ofthe exemption for personal nvcl and subsislcnce expenses provided UDder

1] CFR §!OO.7(b){8) ; resulting in a prohibited comribubOll 0(129.193. Therefore. the

Audn staffs conclusion that Craig fuller made an excessive comribution. as defined

under J 1CFR §116.5. in the amount ofS21.193. renWDs unchanIcd.

b. EpC'sign OfCmdjt by • CgmmcrQ.1 Ycndm

DW'1ng me course offieldwork. the Audit staffreviewed

do:umentatJon associated wnh an man,ement be~ecn the Primary Comminee and

AmerJ:ar. Telephone and TelclTaPh Credit Corporation (An Credit). A document.

title: "~1aster EquJpment Lease Arrecment Schedule" (Master Scbcclule) was dated June

!. !995. and set the vaJue of equipment to be leased. a PBX telepboDc system. at

S~: ~.365 II TIus document sp:cdied that the Pnmary Commiaee was responsible (or

p3~'men~ of advance rent of Sl~.3S~. 10 be applied 10 the tim monlh·s rental payment.

ar.c monthJ~ payments of Sl~.3S~ thereafter Other documcnu submit'led after the

?:'1:'n3~ Commlnec·s response 10 the Exit Conference Memorandum make 1t clear the

?~m3..: Commlnee was 10 provlGe a tenet of credit to secure the lease. However. the

onJ~ ;>ayment to A"IT Crcdn Ult1malel~ made by the Pnmary CommIttee was on February

C;. ! 096 Ir. the amount ofS213.36S

The Pnmary Commlftee records Indicated It had also Issued

tn: jollo~'Jng checks 10 ··AT&:.T Credit Corr.'· 'heel number 1328 dated May 28. 1995.

cne:K numoer 1S09 dated June 27. I QQS. and c:hec~ number 1SI7 dalCd July JO. J995.

Ea:n ~'a.s In the amount ofS12.35: The checks datcd Ma~ 2& and June 27 were reponed

on tnc P:1maty Commsftec's SCMCSules 8·P fo~ the July Quarterly 1995 reponlna penod.

DU:lng tne same reporunl pcT1oe. tne Pnm~ Commlnee also disclosed an ouutandsna

aeD~ to •..At.TIi.T Credn COfJJOf'atlon·· on ItS Schcdules D·P In the amount ofS201.013

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Tft, \fl.ue of 1M IeteoftOM COu.ptftC1\: or· Iftt Master E.ctvq:wnau Leatc A''''1ftICft1 ScMdutc. W.

S 16~ .510 The chfterencc Mt'W"" 11',\ Imounl."d 1M Ij.J6~ .1 COftIJ"'IMd ofsates Iaa

Cs 1:.13~) .•"sul&...Oft CS)4.ooo) anO ''''P01ft1 (S952>

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($225.7J6 less IWO S12.352 plymeDtS).12 1D the October o-rerty J995 rcponins period.

the PrimarY ComrDiUIe reponed me May aad June cbecks • _paw amia OD its

Scbedula &aP. On its ScbeduJes D-P. &be PrimarY C('IIIm"reponed. beJiaains

period ..toW orS201.013. debt iDcumd duriallbe period ofSI2J52. &lid an

oUlSllDdinl bllamee at the end oftbe period 0(1213.365. Tbc Primary Commi11ee

reponed this amount u a debt UDtiJ the April 1996 MaDIbJy (MIrch I 10 March 31. 1996)

repaniDJ period. IL

The Audit sWrJocaaed 111 ..checks. UD-ne.otiawl. ill

the PrimaJy Committee's void check fiJe. AccordiDI to available records. the checks bid

been \roided on October 6. 1995. Each voided cbeck was 8CCOIDpIDied by a copy of.

bnefleaer &orn R.oben P. Wriaht ofATT Credit ill PasiPPIDY. New Jersey. Tbc tener

was addressed to. Primary Commiaec aaomey. A. Peter KairiaD. Jr.• and dated Oaober

) Q. J995. The lencr read as follows:

"Dear Peter: Enclosed 1ft three checks each in 1be amount

ofS12.351.68 held 1ft anuclpauon of. Leaer ofCredit U 10

, suppon fundinJ of your lease of1elecommunicalicms

equipment from AT"!. Smcerel)'. Robcn P. WrilbtDocummwlon submJned by Ihe PriJMry Commiaee on

Jul~ :":". J99":'. Included an intcmaJ memorandum from A. PeIa' KairiaD. Jr. (Counsel for

tn~ ?nma.~' Committee) to Mark G, HOIland (DuecIOrof_ forme Pnmary

Co~~:n==J Accorchnllo thiS memorandum. da1cd Aupst 21. 1995. discussions wnh

a:: .:...:-7 Credit represcnUtlve Incbcatcd lhal the lcncr of creelit was 1ft esscnUaJ pan ofme :~:s~ ~: ,~7"':" Credit could not process an~ oew Pnmary Cornmmee's paymems until

~:. ~::: .e.ue prereQUisites were compieced The same mcmorDdum stI1ed that AIT

: !'~ =:: r.a~ oeen requesled to consadc .'some \·.ll'dUOft ofthe Jener of credit" so that the

:~~~ 3~~e=men! could be exe:uled between the paniCS. but had refused because it fell

:o:':":~eh=: 10 treat all ampal'ns cqu.all~

On fe~' 9.1996. me Primary Commmee issued check

n~~~~ 0J0I7~: In the amount or S~ 1j.36S to An CredlL approximately nine months

3:'!=~ In: Committee had saped the MUlCr Schedule Pnor 10 February 9. J996. the

~:"1m.1.tI'\ COmmlftec be,ln ftC,ouaun, for lhc sate of th. ICIe,hone equtpmmt 10

\ .r~:"C41Se Corporation of Famun"on Halls. MaCh.,an Baed on the ..Apeement of

T'ht Aud.t suff .,""'lUI 1M r.: •••f'QOftCd U 1M 1MOUft' of*'"IftCUfftd for Ibc Jut,

~"tr." ~lftl 1'1"'*1." ."wrcd .... 1M """at." Com""a. to nsurc outlllncliftl

OCD~ rrDOfted Oft 1M Oaoocr Ouatwt., ~ftCavlC 0.' would MllftCc 10 1M 1CIUa 0U111ftCCS

.n lftt Musct ScllCdulC fDIJ.J6',

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AthftOV," ftO "" ,"",t'0' ICftCf .,CfWCIat ..MIdI ...... to die Audet _tr.

Outlftl h Mr.•", .. """'-' Com"",," rece'" a ... of atldII fSSOO.OOCh .-ttl,,,, was

UHC lO ", e tilftems so war..." Wftoor, ",t Ift8ft AT.tT

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PardIaIe- beMIID VIriLeaIe CorporasioD" the PriaIIJy Cam_in." da1ecl JIftUIIY 4.

1996 _IipedF~1. 1996. VIriLate Corporadoa palcb_*equipmau IDCI

bad illllipp'd to 0IiIC0 Valley TeJecom ill Li~.1pOO1.New York. The sale price ordlt

equipment to Vdase CorporaUoD WII 5SO.000 (555.000 ori......price las 55.000

cIeda..aoa for pIftS IlOl lICIived). CD MIn:b 1. 1996. die PriaIIJy ComnIiaee deposited •

S50.ooo cbIck. daIed MIn:b 1. 1996. &om Vdase CoJporaIioD. .... It is die Audil Jf&frJ opiaioa dI& ....on me available

docunIcnIIIioft reprdina the lase bcinI-.OIiaIecI beMIID die PriaIIJy Commlftle lad

ATT Credit. die PriaIIJy ConuDiaee received • aIIIIIioD ofCIIdk hila ATT Crectit

ouuide Ibe ordiaIJy counc ofbusiftaS. AT"T cleJiwrId - iallalled the

teJccommuaicalioas equipmenl prior 10 all documenU NIIred to IbisftIIIICIion bealll

compJaed. Funbcr. die Prim.-y eommlnee bid pot•••i..ofdie ceJecommunicauons

equIpment owned by AT"T (or JUftC momhs at DO COIL All ollbe cIoeumerlwaon

available 10 the Audil JU&frSIIftds m direct C:omraIllO Ibe (&aIIUCIIIed) late documem.

"il1:h allhoup ISped by a Primary Comftllftee reprwlllJtalive ..."..mJy never

executed by An CredJL The Mu1cr Schedule spec:iCsalJy delails cbe value ofIhe

eaulpment 10 Dc lased lad 1bc amount and manner 1ft wJUch lase pIYII'ICDU were to be

au~ Tile Pnmary Commmec ncvcr made afully nqOlillect ,.,..m..labve 10 the

,~xe:uled) lease for the 1C1cphone cqulpment nor provicIecI die neelflay Jeaer of credit

10 s~:ure 1be (unexecuted) lease The Audn suff ~ludaIhat Ihe PJimm'y Commlaee

r~:~Jvc:! a comributaon from ATT Crcdal {rom May 1995 thrDuJb February 1996 of

s:: .,36:. Iil~ amount ofIhe eventual purchase pnce ofIhe selepbollC SYJllm.

Tnc Aud.: sut! discussed Ibis m.ancr with Primary

C~~:~=: tf;n'CscnUUycs as a confcrcn:= neld at lhe end o(fieldwork and NqueJled dial

~O~: ao:~-:t~n:aIlOt.,. spc:JficalJ~ a COP' o! Inc .case wn.h ATT Creclii. be pnwidcct.

,,~: ~:..'" Commaftu offiCials nac no d1tC:1 comment. but andicaled Ibal they were

:=~=-.:=~~ ~:\~~. ~ouj, DC ab,e 10 'JC~ tnt' mafic:

The Pnma..~ Commntee did not prOVIde 1he ctocumcnlaUOft

'==t.:~s!e: pflor 10 &ftC Issuance of 1M £XI~ Conference Memorandum. Rather. II provided

::~~~ ... Go:u:nmr.aIlOft ..rudy ocu.ncd D' In: A.udl! staff or .nacmaJly.eneraICd leiters

:ro~ F-'rJ::la..~ Comm.ncc OffICialS adOressee to "MaouS ATT Credit rcpraemaIIWS, The

s:nt1'S ~. tdcd ImJc mlonnallor: wntl 1M e.eeDuon of one Jcacr from A. plIef hCZlnan.

J: .10 Cnr.suftC Myers of ATT Crc:tn Gale: Jun: :-. J99S nus tencr was .p.,..ent'y the

cO"c" ,~nt! 10 an owcn",tlt packa,c Ge"V:fC~ from the 'nmary Comm,lIeC 10 ATT

Crc~J: In rclc,"an1 pan. u.e Icftcr rca: &5 follows

"Enclosc~ plase find IIlf lollo".n, GOCumcnts related 10 AT"T

~1aste:' EQUlpmcft1 Lc.uc ~~'e:mcn~. CIa,cd AI ofM.,.. 17. J99S (the

.. "'tCcmcn~-J elf an e.e:utCG c~ of 1M Apeemcm. (ii) 1ft

caccuccc! Masac1 EqU1pme~~ ~caK AGreemenl Schedule. (ii.) 1ft

c_"lftcd Flnane,n, SUtcm~n~ or. a f otm UCC·I ; (IVJan executed

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BilliDilDfonution Sheet and (v) rwo checks, adsill the _OUDt of

SI2J51.'1 which reflecu our May and JUDI pa)DWIJII UIldertbe

AplemIDL

In lipt ofmy eliscussions with Phil LoZllllO ad Bob WripL lam

in the procm of eNblisbi.DI a line oC c:recIit" for the rem·inin•

payments due and oWftinI (Iic] UDder the ApeemIBL AI J ....

cliJeuaed earlier with Masers. LoZZlftO ad WriPt. the Committee

i. in its earl)' stiles ofdeveloprnenllDd our bank will not issue •

line ofmdit It this time. Once the Commiuee bas qualified for

federal nwchina funds. which will occur Oft June 30 and is

conUn.lftt on the completion of our iDitial filiftl with the Federal

ElecUon Commission. the Conuninee will become immediatel)'

eli.ible for abne of credit. As SOOft U 1have reeeived such.

financial inmument from our bank. Jwill provide AT&1 with the

neceslll)' docwnenu to complete our obliptions under the

Aarnment."U tf1

Thc Audit Nt!' alrudy had all the documenu itemized in

pararraph 1 of Mr. ~e~rian' s Imrr discussed above except for the "ATciT Muter

EqUIpment Leue A,rmnent. dated u of ~11~' J7. 1995".

In tnc Memorandum lubmined to the Primary CommIttee.

tne Audn staff'recommended tAIl It provide an exccU1ed copy orlbc AT"T Maller

EQUIpment L.eue A"ecmenl Galed M.~ I"':. 1995. u well u an~ other documentation

{fOrr. A'" Credu andlor frankhn National B~. or My olber source it deemed relevant.

tCl aemonslratc thaI &he credn cX1ended b~ A17 Crcdn was In !.he nonnal coun~ of

cus:ness and did not r"resent I contnDUlJOn The recommendation messed thaI the

sr.{o:-:nauor, provided should Incluar examples or other customers or clients ofsimilar

s:u ane ns" (Of which Similar services hive been provided and Similar biUinl

a,,-rJ.n,cmcnu have been used lnformauon concemanl billsna policies for similar clients

a,,~c: ~'or". ad\'Ance pl~'mcn, poliCies. debt colleclIon pohcles. and bilhnl cycles was also

rraueS1C:

In fCsponSf 10 IhC Memorandum. the Pnmary Cc,.:lmlnee

asse"e~ tha~ n had nOI ··recelved ",mf son of swcelJ\can deal" from A11 Credit. and th.t

USt lacu. the buslllcss reuons for A. ICIlOns as u.nOcmood by the Pnmary

Commlnec. and An's nonnaJ bUSiness pra:uces In Similar 11"lIlIOns debunk the

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8ucCl Of' IU "".JfloJclIUIIM,t,tef'ftC'."" Au,..I' II, '"5. 1M aM..... nLlbhwd

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Memcnndum's arpzme1It... The respoDSe SIlted !battbere \1Wft ....lIIeptjOftS..

comaiDed ill die Mcmorand,,", ach ofwhich WIS ......IJy 1III1nIe". The I'eSpOASe also

iDcluded ATT Cndit documeDU already obtaiDed byme Audit 11Ift.. aftidavit from A.

Peter K.czitiID. Jr•• 1Dd dOC1llDCDlS reprdiDa. "bu)' bact" anaaement berween AT"T"

and the BusbIQuayle ·92 Presidemial camptiII' OIlJuly_I? 1997.. the Primm')"

Comminee submiDed additioaaJ documeatalicm iDcludiDa iIIIemaI CommiDee

mcaaarancta: 1cacrs and other cIocumaIIs from ATAT; ad copies ofIeleP-e bills paid

by the PriIUJ)' COIIIIDitIee. The Primary Cormniftee·s apmems coacemiDI eKh oftbe

three aJleptioDS. and the Audit sWrS CODClusion abouI1bose ....-auIDC1 dle

supponiftl evidence provided. are discussed below.

The fim issue addressed by the Primary Cozmrunee

\\'I.S the Audit sWrs conclusion that PriJIwy Cormniftee received -aD extension of

credt: from Arr[Credit] ouuide the orcliDary course ofbusiDess.... The Primary

Comnun~ be,an b)' describing me basIS on which An Credit forms C1ISIOIfte1'

relationships. -\Vhile the affidavit from A. Peter Kezirim. Jr. suppons these statements•

, no ciocumenlatlon from Arr or A17CmJit characteri.ziDI iu business policies was

provloed

••AIT Credit .., re,ularly provides lasiDllDd credit services to

facilitate the we of equIpment for An since. IS the Primary

Commlnec has come to learn. equipment sales are CODSidcrccl the

beSt means ofsecunnll busIness" overall telqthone service.

Tnneforc. while the equipment costs about which the

Memorandum IS conecmed IS I sl,nificant component. it is also a

reJauveiy small pan of the entire bUSIness relationship between

,.:..IT and a customer.. The Memorandum fails to recopUzc that in

thIS context. It IS the normal course of business (or I telephone

compan~' to Install. telecommunications system and secure the

sen'lce contrlCts Defore (Inallzan, all ofthe credit and conuaet

te:ms ofsuch a sale or lease.. The monthly An billings to the

Prlm~ Commlnec for tetepnone s~lc:e were often five or SIX

umes the equlpmen, ~easc ;:a:vments The potCftuaJ billlD(!S to AIT

would conunue to 1fO~ eXpOnenuall~' as the campaign moved

closer to tne CICC1l0ns The tOlal dollars nOWlftlto An

from the Pnmary Commlftee demonsvate conclUSIvely that the

service .,recmcms 1ft of sl~nlflcantl~' pcatCf value to a telephone

company than the equIpment ules about which \he Memorandum

•• T,,, Aud.t 'tinnota uw au, ."..,Cfftraa daG ftOt Iftwotwt An Ctedft The...,1II anvotved

.,t, Iftt 8ulft/Oua~tt9: camO"'" '''CS ATI.T, Iftt patCftl COfft... or A'" CNelII

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fon 1[I ID 01bI:r wards.. ill crier.. oIIIIiD die lui:uldwe h";'WfSS of

J111MdiD11be service iIseIf.• Ie" ,t... , ME '41T) IDII)'••

""'p'M'd ben=. o8ir •deals•..8nibiIiIy _ ..,..far 1be

equip......

Tbe Audit SIdCIIIIIDI rely GIl die Primary Cammiaec'$

SIa1~eillSreprdiDa what elcmenls ATAT caasiders evaIaIIiDI its hlfjness

re1aIiOllSbips with iIS CUll ElIlaetS.. All iafanDIIiaD ATaTs bt'Sirn praaices is

provided by aD a1IDmeY employed by Ibe pnm.y Ca iIIee. No iafoamabOll from

AT&T is supplied. ., funbcnDcft.1be Audit Slafrbas ",mined a copy oftbe

(&meXeeuted) lase apeemau aDd DOwbcre does it require ...AT&T be the telcpbone

service provider for IDY period oflime as a CODdi1iaa ofthe lease. DOl does it comaiD •

clause which offers--oexsDiJily" 10 the Jessee ifit gtjlizrs AlTs 1elcpbDDe service.

FinaJl)·. the Audit stafffinds DO evida= 10 support the COIl1emioD that it is an established

bUSIness practice ofA17to iDsraU telccommunic:aliaas equipa'lCDl bISed Oft "potenual

billings.... and "before fmalizm& all ofdle credit IDd COIlIIM:l1eIIIIS ofsucb a sale or

tease"

The pnmary CommitIee·s IfSpome comiDued by

descnblng ho\\; An Credit ,=crates revenue for iuelfby discouDtiDa its lases and

selhni them In financ1l1 markets. It was dus commoa the response contends..

that resulted in the Pnmary Conmuncc'$ cbecks not bema deposited by AIT Credit.

Howeve:. the response fails to addlas how such. pnaice subsequently resulted in AIT

Crean retumJna to the~' Commluce alilbree pa~it ad seat relative to the

(unexe:uled) lease

•.A17 Credit proVides credit 10 the customers ofArr 10 help them

afford more telephone servlce·1 However. An Credit canDOt

Survl~ financaaJly ifIt hOlds onto ach o(thc loans extended to

AIT customers Therefore ... An Cred1t will -bundle· these loans

and sell them an the financial markets at a dascount.... The Primary

Commlft~ dad not unclerswuS wh~' Arr Credit had not deposited

the Pn~· Comnunee $ lease pa~mts until It leamed the deciSion

~-as based on An Crea&: $ SW\GItG pracuce ofbunclhnl and

resclbna loans Mr \l."In: lold Mr l\.ezanan that ••y depo$1t

Without 1M closure of &n~ element of me Master Lase Apec:namt

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IW DrIft ftCIUftICCI ".. AT£.T MCI ., tlDCC1tG '0 .. "'".... 100ft To ao such Ieaer has

Oftf\ .....1Oed

Tht aatl'fMttl tUt -ATT Cmln oro"tOt, creel" 10 CUSIOIMn or It.T£T 10 atrord

"'Oft tt-...oM ~a,' ,,_, c.-' It.n etedlt rlMltCCl."Clall _~ ROt

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would have disqualified die loa far sale. An Credit was willing to

bold dcposi1s to mljnnljn me opIim ofmelJm, die bD

__Thaer~ AITCredit held pa)DICD1S UDtil all SIep5 were

completed The Committee believed this was• DanDal business

decision by A11"Credit that bad DOIbiDI 10 do wi1b me OjJClations of

!be Primary Commmee.-

This seclion CODCludes by swiDI that Arr Credit

never did sell the Primary Committee·$ 10lD. -but [it] did m:eive full payment for me

equipmalt in February 1990. The respcmse then araues 1bat••result ofthe Primary

Committee·s purchase oflbe equipment at its full value. it"mam that An was

cenainl)- made whole aDd that the Primary Commiaee did DOtsecure a benefit outside

IT __I b1 . . ...., . A •5 DOIUIAIISIDfSS practices .

Given that no fully executed lease has been produced

and that An Credil·"could DOt process any oflbe paymentS- until the lease

reaUlrements were completed. which included a lener of credit. it appears that no lease

co~traCt eXIsted. Without a completed (lease) contraet. the sale ofthe instrument would

seem to be impossible.

further. the Primary Committee fails to address how

AIT Credit IS able to ··survive financlan~'- by retumina the payments it receives

relative to ItS leases. In the Pnmary Comnuuee"s case. AIT Credit never sold the

, une~e:uted) lease" but. after the (unexecuted) lease was in mears. and abKnt the

~=qulsne lener of credn. sent the uncieposned checks back to the Pnmary Commlnee.

Tn~ Prlma.~· Comnunee does not expialn "'hy It believes that It was a ·"norma) business

ae:lsaon b~ Arr Credu- to nOl ont~· return 10 It S37.056 in payments made relative to

tne f un:xe:uted) lease. but to do so In October of 1995. By this time the candidate had

c:,o;:::e: from tne race. the campal,n was pubhcly reponed as bankrupt. and. under the

terms of In: tunexecuted) lease" was two payments In arrears.

Flnall~. the Audit slafT notes with Interest Mr. v,,'nght"s

eXpl3."lat.o~ to Mr. Kczanan about ~'hy the Pnmary Committee checks were never

ceposne: As quoted previously In thIS reDOn. the lener from Mr. Wn,ht to Mr Kezlnan

Q3ted October 10. 1995" wtuch accompanied the return of tne un-,leBOUated checks. states

tta: tne cnecks WCTe returned because they wert -held an anticipation of a Lener of Credit

10 suppo~ funcbna of yoW' lease.. •· It IS the Audit staff S opinion that these checks were

nev~ tuned by An Credit to avoad any appcarance of conswnmaung the (unexecuted)

lease pnor to rccelvlna • letter of credit

.' \A"h~Ut~ ATT Cftdn .Iior -un I . mack ."ok·· ., not 1M tttNst or II CRt § J16.3 Thas

ft'UlatlOft Clab -.'" e.l~llOft' of crean "'.~ b~ commft't&ll YCftdOn

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The secoad issue preKlled by !be Primary Commitlee

was that M[t]be Primary Committee used the teJec cn'"'lmic:llioDs equipmcDt owned by

ATT [Credit] 6for nme mombs at DO cost"'. 111 this ponioD ofils respoDsc. the Primary

Committee assens that An Credit actually received mare moDI)' Ibm it wu emitled

because the Primary Commiaee bouaht !be cquipmem II iu fall value in F~' 1996.

ramer thaD payiD. for me equipment over the "17 momb[sj laID specified in lhe lease.21

Indeecllhe Primary Comminee stateS ill iu JespDlIJI. 'YselIiDa the system outright in

February 1996. An Credit received its funds sooner dID aIicipa1ed. ad therefore.

received an economic beDefit".

The Audit staff. in applyiq 11 CfR §116.3. is

concerned only with the nine month period whichAn Credit allowed the Pri~'

Commlnee possession and use of eqwpD1CDt wi1bout requiriDa my compensation.

Funher. the assenion that Arr Credit received more IftODeY Ibm cmitled by fOfeloin, its

monthly lease payments due under the (unexecuted)1_apecmaIt in lieu of a lump

sum at the end olmne months, is untrUe. Iflbe telephone SYSlCm bad been purchased

",'hen Installed In May J995. the pnce would have been 1213.365. Ifthe (unexecuted)

. tease had be:n paid to ItS conclUSIOn. J9 momhs at SI2.352 per month.. ATT Credit

~'ould nave received S~34.681. The Audit sWffails to sec how AT&tTs receipt of

S= IJ.j6S nIne months mer the SYStem was mstaIled provides. fiDaDciaJ benefit over

eltne=- tne umely collecuon of payments WouPUlIbe specified tam. Of the oUllisht

:ur:nase of the system when Installed

Addltlonall). the Primary Cornmiftee claims it was

:er:3:~:=: D~ A'" for wtthclrawtn, from the elccuon" because "By mid-October.

;.,~ n3: te~Jnated Its Kr'Vlce an'anJcmenu wnh the Primary Committee". The

~~~~. Cc:rw·,:unee states that It had to SlOp usana the equipment and Store it ·'until a

f::::'~:la, solu:aon was found·· No explanation IS provided as to why the service was

c:s:or.ne:t=~ and ~'n~ the eqwpment had to be stored rather than used durina the WIndcov.~ peno~ Funher. the Audit s1.afi' finds these stllmlCftU incompatible with preVIOUS

3SS=~lons m~de In the Pnmary Commlnee's response In pan I. above. me Pnmary

: ommsnee explained at lenllh liIat ATI,;.T's usual course of busIness is to first. secure

D:,oft:.3tue service a~reemmt.s. and sccon~. tiC them to flexible eqUipment leases. Based

on tnls ..:nano. n would seem thaI once the scrvlce was disconnected. AT&T would

ceue 10 DC ncx.bic WlU\ IU lcased equipment, demand It be rerumed. and continue

collc:tlon cfJons for the oumandln£ tease PJyments, Indeed. It would seem that AT&.T

tos: mon~~ In ItS elwlnlS wath the p"mary Commaftec. AT"T failed to n:a1izc all ofthe

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comD~tt DVfCftUC prlet' rcSUhl.., In IOU- .."",mu or D 13.612 Accordlftl 101M Master

L.C&M A'rtttfteftllU ICftft ••for It "'Oft""

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"potemial billiDp" it bid supposedly lmicipaled from ill service qsecmems. failed to

coDect die Sl2JS2 due in mombly paymems far aiDe IDODtbs UDder the (uacxecuted)

lease. IDd failed to repiD comrol and possessiOll ofits ~uipmeDt for four months after

it had "peuli"'" the Primary Committee by ICfDliDaIiDI its telephone service in

October J995.

iii. "NO t PIC Pmnn'"

The Primary Commiaee·. discussion ill the third

subsection ofits response araued that the Audit SII1rs CODClusiOlltbat --rbe Primary

Commiaee 'never made a fully nel0tiated lease paymaat OIl the telephone equipmenf....

... is patently incomct". The response continues as follows:

"Three lease payments ofSI2.351.68. each as required by the

Master Lease Ap'eemCftL were made in • timely IftIIIfter in May•

June and July. The Pnmary Commmee failed to make lease

payments in AqUSl and September due to fiDancial difficulties".

The difference bcrwea the Primlr)' Comminee's

1)osltlon on thss iSsue and Ute Aucbt staffs position is merely semantic. The Primary

Commtne: arlues that.. from liS perspecuvc. the paymems were fully nqotiated because

L"1e P:tma..~· Comnllftec ISSued the checks and recorded the payments in its records. It is

a:~ ue: tba: since these payments were so recorded. the funds were unavailable for other

uses Tne fact that Arr Credn neve: cashcc the checks causina the funds to be removed

:~c~ t::~ ~:-:mary Comnunee·s accounts IS no: rele\'ant to its position. In the Audit

s::~!> \ le~ of these same fa:u. A77 Credtfs failure to coUect the funds represented b)'

U~: :ne:ks to retu:n tnose cheCkS afte~ th: (unexecuted) lease was in aJTearS. and not to

c;,;~s&.:: :~~s~ aeunqucn: payments R;JI'CSenU an extension of credit beyond its ordinary

:o~~s: :::- o;,:sln:ss

Tne Audn stafT concludes that the Primary CommIttee

~.1S :,:UIC: :0 aemOMU'lte that ATI Credit die not extend credit outside orits normal

C;)~:'s: c~ DUSlness. as defIned unaC'~ ! ! eFR 11603. or that the Pn~' Commlnee did

no: receIve conUJDuuon from AT'i Cn:dll cunn~ the period from Ma)' 1995 throulh _ • I ftft . , $'"' ,. 3'· . r Ce:"W~. "7"70 In the amount o. _•J. \,i

..'"

Sections 4).4ID)( 1). (~I and (4) ofTitle 2 o(thc United States Code

Stitt:. Ir. rt;c\·ant pan. WI ca:h J'e1)O~ snali disclose the amount of cash on band at the

De~IMln~ o! lilt reponln; penoe, ln~ t013: amount of all receIptS. and the lOtal amount of

al. dlsou:,semcnu for the rcponJn~ penoe and calendar year.

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The Audit staffs reccmciliatioa oftbe Prim.Iry Comminee·s

reponed financial activity to bank activity for the filS! four mcmtbs of 1996 revealed a

misslatemCDl ofthe Primary Committee's reponed disbursemems as well as its reponed

ending-easb-on-band balance at April 30. )996. .

The Primary Comminee reponed total disbursements of

S1.119.117 for the rust four months of J996. UtiliziDa the Primary Comm1!ree's

financial records. the Audit staff determined that me Primary Committee should have

reponed toW disbursemenu 0(51.805.347. Therefore. the Primary Committee's

disbursements were underswed 586..230. Similarly. the Primary Commiuee's ~ned

ending-easb-on-band of5411.350 at April 30. 1996 was overstated by 586.224.21 The

correct ending-eash-on-hand balance was $395.126.

The understatement of disbursements and ovcmatement of

endlng-cash..on-hand resulted from the Primary Comminec·s failure to repon three

disbursements totaling $78.950 on its April 1996 Monthly Schedules B-P (March 1 to

March 31. 1996), and iu failure 10 rcpon one disbursement in the amount ofS3.638 an iu

f\1ay 1996 Monthly Schedules B·P (April 1 to April 30. 1996).

On June 24. 1996. during the course of audit field work. the

Primary Commlftee filed amended repon.s which cOJTected the morse

In the Exu Conference Memorandum to the Primary Comminee.

the Audit staff recommended no funher .,uon TelardinS this mancr. In its response to

tne Exst Conference Memorandum. the Pnmar:-' Commlnee concurred with the Audn

staf:s recommendation.

Section 4)4lb)(l) ofTule of the Unncd States Code StileS that

each repon sh.aJJ disclose the amount and natu~ of oatstandlna debts and obhiluons

o~'ec b~ or to such pohuc:al commlne1:. and where such debts and obh~allons are senled

io:' less tnan their reponed amount or \·aluc. a statement as to the circumstances and

condulons under which such debts or obh~:auons were exun,ulshed and the conslderauon

tnerefore

Secuon 104. J Jea)(bl ofTnle J J of the Code or FcderaJ Regulations

statfS. In pm.. that debts or obh,llIons owed b~ I pohucal commlnec which remain

oULSt&ndln~ shall be conunuously ~ncd unul exun;ulshcd These debts and

The dafff'rC'ftCc ~Ie" U\t ftUUUlc",nu lO&I" 1ft dlSItUtWtM'ftU tS'6~30.1ftd md"'l·casn-Gfthand (SI6.:2' , art 1M mu" of "'."0' "UUy,CfftCftU 1ft reponed reccqKS and minor. "nrcso'ycd

CS.neftftCti 1ft d.IIMInC"ItICftu ano 11'0'"1·cu"-O"-"Md

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oblipUODS sba11 be reponed OD separate scbe«'ules IOleIber with • sweJDeDt explainina

the circumStIDCeS ad CODdiUODS under which each debllDd obliptioa wu iDcurred or

extiDpaisbed. A debt or oblipbcm. the amouDt ofwbich,is 5500 or less. shall be reponed

u ofthe biDe paymem is made or DOt later!baD 60 days after such oblipUon is iDcurrecL

whichever comes fim. A debt or obliption the amount ofwhich is over SSOO shall be

reponed as ofthe date on which me debt or obliplioa is iDcurrecL except that an~·

obliplion inc:wred for rent. salaryt or 01ber......y reoccurriDI admiDisUaive expense

shall not be reponed u a debt before the paymeDt due date.

In the course ofverifyina the Primary Committee's Statement of

Net OutstandiDl Campaisn OblilatiODS.. the Audit SII1frevie\¥ed selected disbursement

records and identified significant debt reponiDa mars. AI. result. the Audit sWr

reconciled amounts invoiced b)' vendors and plymeDu made by the Primar)lO Comminee

for 64 vendors. Primary Comminee vendor files. which included all iftvoices both paid

and unpaid. were utilized alons with aU canceled and/or void cbecks. The 64 vendors for

which reconciliations were prepared included those with oUISDDdiDl ba1ances reponed at

May 31, J996~

Ofthe 64 vendors examined. the Primary Comminee had

Jncorre:tly disclosed out.SW\d1fta debt on Schedules D-P for 41 vendors. or 64~. oflhc

vendors reviewed. The Audit StaffdelmniDcd that debts and obliplioDS disclosed by the

P:Jrn~ Commlftee were overstated by a net amount or5614.622 oftoW reponable

ceo: ••

The total amount of reponable debt wu calculated by summing the

reponed total of OU1SW\dJna ciebts and obh,luons owed by the Primary Comnunee for

ea:r. re:to~ penoe! Similarl,', . the lOW amount of disclosure etTOrs was calculated bv. su~:nln~ Ine dIfferences berween tne amount dJsclosed as oUlStandina by the Pn~·

: c~::'::~ee on us Schedules o·p an~ the amount detemuned as outstandinG by the Audit

s:J.!:s r::onci hauons for each vendor. for each repon1na penod covered by the audit As

.1 resul:. aeDIS Wt were repeatedl,· misstated arc Included each tlme they required

re:Jo:"tln.

At a confertncc: held at the conclUSion of fieldwor~. the Audit suff

pro"'lde~ the Pnmary Commln~ WIth a copy of a schedule dctaihn~ the differences

oe~'ecn tne Audit staff dctemun.luons and tnc amounts reponed by the Pnmary

CO:":1msnce Copies ofschedules we~ IISO proYlced detaihng the amounts of debt

ouuW\Qlng al December J1. 199! and Ma~ 31, 1996. as determined by the Audit staff.

Tne Pnma..~· Comnuncc acreed to file Ine appropraalc amended repons.

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- ~omt GeDU -a'C o¥~dtS't"."'.1"0 Otftrt dcDU were UftGcrS&atcd ($303.076): the

,urn of Iftese mon would lOCal Sl.6CW."9~ .,ucft mutts an an mar rate or S6~. of correct

,coonlble dna "nte ..we 1Ift0000U 00 not lOUt SI.604."3 due 10 UftdtrsIaIemcnu and

O.~laICffteftUOCCU"1ft1 acros, I't'DOnIftSPtftOCts for etnam

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1D the Exit Coafereace Memonadnm tbe Audit aaft"

Ie:t)lnmeaded that the Primary CDIDIDit!ee file lIDerried Scbedules D-P for its 1995 Ycar

End aDd 1996 JUDe MODtbly (coveriDI die period May I ':0 May 31t 1996)repons 10

correct the disclosure ofits ouggndi"l debts ad obliptiODS.

In its respoase 10 me Exit Confaeace MemoraDdum. the Primary

Committee swcd that it ....ccmcurs with this ncommeadltjOD ad the relC\Wll repons are

beinl prepared and will be filed as promptl~· as possible." The Audit aaft"received the

amended Schedules D-P on April 7. J997. and. based upcm III exlmination ofthem.

concluded that they were m&tenaJly correct.

B. AUDIT FINDINCS AND RECOMMENDATIONS: AMOUNTS DUE TO

THE U.s. TREASURY

1. Pctmp!Mtjgn orNel QutSIIDdinr C'"1D'im ObJiI:'ljOD$

Section 90)4.5(1) ofTitle 11 ofthe Code offedcraJ RelulatioDS

requires that Within 1S days after the candidate·s elate ofineliaibilit)·. the cmclidate shall

suomi: a statement o( net outstanding campaJ.n obli'luons which contains. among other

thln~s. the total of all oulStlncbna obh,auons for qualified campaip expenses and 1ft

esumate o!neces~· Wlndlnl down cosu. Subsection (b) ofthis section Rates. in pan..

that the total outSWldma campalJn obhgluons shall not include any KCOUDIS payable (or

non-Quahfled campasgn expenses

Section 90~~ ICb. orTnle J1 ofthe Code ofFedcral Relulations

St3t:S. I~ f)a:':. that if on lhe d.ate of Ineh'lblh~· a candidate has net ouuwadinl campailft

ooil~ataOn$ as defined under 11 CFR ~90~';.S. that andidale may continue to receive

~a::nln~ t).1\·menu provided tha: on tne cate of payment there are remaininl net

outs:.an=sn. :3.-npal,n obh,luoru

Governor V.llson·s date of Ineh,ibiliry was September 29. J99S.

The Audat suff reViewed the Pn~ Commlnec's financaal actiVIty Woup April JO.

! QQe. &nC on a more limned basiS. acu\"l1~ U\1ou,h December 31. 1996. The Audit staff

~ISO aMl\~d Wlndlna down ~Osts me prt1)Ued the Statement orNet Ouwanchn&

C&mP&I,n Obh,ataons (NOCO) wruen appear'S be'o~'

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PETE WILSON FOR PRESIDENT COMMII iEE,lNC.

STATEMENT OF NET OUTSTANDING CAMPAIGN OBUGAnONS

U ofSeplelDber 29. 1995

u detcrmiDed December 31. 1996

tSem

Capital Assets:

Telephone System 213.365.00 (a)

Other Capital AsseU 47 6$Q 00 (b)

261.015.00

Total Assets $749.607.00

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Accounts Receivable

OBLIGATIONS

ACCOUDU Payable for Qualified

CampailJl Expea.scs

Amount Payable to U.5

TrcasUf)·:

Stale-daled Checks

\\·.ndlnz DO\Nl1 Cosu

09'30195 • 12'31196 Actual

J'. /97 and later: Estimated

Talai Obh,luons

:S404.283.oo

14.309.00

r'..390.413.00

32.929.00 (e)

SS~S.S:!7.00 (d)

Ie'"' "'So QQ

630.777.00

$' 0$4 J19 QQ

I'et OUls·.adiltc C••p.... ObbC.UODI (Deficit)

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mOTNOIES TO Nom

Ca) UDder 1) en §9034.S(cXl), the Audit Sllffvaluedtbe AT"T telephone system

at its cost 0($213.365 when purchased on 2·9-96. SeeFiDdiDg fil.A-I.b. On

August 21, 1997, the Commission considered a SwemeDt ofR.easons related to

the Primary Comminee's request for adclitionalmucbinl funds. central

question was the valuation oflbis asset. Ifvalued as preseated here. the

Candidate has no further muchinI fund entitlement. If valued at a depreciated

amount. some entitlement remained. The Commiuion was unable to gamer

sufficient votes to adopt either position.

(b) These assets are valued at 60010 of cost as provided UDder II en §9034.S(c)(1)

(effective date 8-16-95). The Audit sWr has requested the Primar.v Commlnee

provide documentation dew1inaUte fair market value ofcapital assets pw-chased

before August 16. 1995. Prior to this date. 11 CF'R. §9034.5(c)(l) allowed

comnunees the option of vaJulIlI capital assets at fair market value. rather than at

60~o df cost.

Cash ~·as adjUSted for $We-dated checks issued before the candidate's date of

lnehgibihry and actual Wlnd-down expenses were adjusted for stale-dated checks

Issued after- that date (September 29. 1995).

A::ual "',lnd·do....Tl expenses were reduced by the following: $11.746 for vendor

refunds associated WIth poSt cbte ofInelaBrbility disbursements; and. S14.550 in

Cornphance Commlftee expenses paJd by the Primary Comminee subsequent to

::1: :andlQatc SC1Ite of InchJlblh~ See FlndlngllI.B.2.

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Shown below are adjustmeDU for funds received after September 29. 1995. based

em the mOIl curreIlt fiDaDcial iDformation available:

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Net OulstaDdiDI CampaiJD

OblipliODS (Deficit) as of

9-29-95

- Mltchq Funds Received

9·30-95 to 8-1-96

Net Private Contributions

and Other Receipts Received

9-30-95 to I- J·96

RernainiDa Net OUlSWldlng

Campaip Obli,ation

at 8·1-96 (Deficit)

Net Pnvate ConuibutJons

Received 8-2-96 10 1~-3)-96

51.724.2$7

S 367 J44

S (212.911)

S 291.270

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As sho~'Tl above. thc Pri~' Comnunee hasl'eCeived more than sufficient

contnouuons to chmlnate Its deficit As such. the Audit staff concludes!hat the Pnmary

Commsnee has no Nnher enutlcmcnt to matctung funcls.

Tn: Pnmary Commlnee. In Its response to the Exit Conference Memorandum.

S:J~::: tn3~ It \4'as ·'In arreement ~,tn the IA)udn staffs NOCO determination.. with the

:'::=:10:"\ of tne ATetT lease Issue" ,~s dIscussed at Finding IIl.A.l.b, above. the Audit

~:J!: ~::::te: tn: Pnmary Commlnee S ar~uments concemln~ the AT&T lease. Since thc

DO~IOr. o! 1i erR §90)4.S(b)\~. rCle\'an: to assets acqulI'cd after a candidatc·s elate of

Inell~IO.U~ "as not chan,ed as of AUius: 16. 1995. such items Still must be valued at

cos: Th:~:jorc, tne ,~udn staff ~OCCJ rermuu unchanged from the Exit Confercnce

\ lemo:,,3.r.:.u'r.

Or. ~1vth 3, 199;. the Pn ";LfI'\ Commntee made an cl,hth request for matchln~

fun:n lo~hn, $149.435 Wnh Uus reQucs~. tnt Pnmary Comnunee also submlued a

~O:O St.llemm~. p~d at Feonw" I;. IQ~':'. which showed a rerrwnln; net

outSt&nd.n. ocfic:n of S150.104 Basee: on the Audit slafT's review ofthis NOeO. It was

determlncC: tne Pnmary Commlnee's dcf.cu "as malnl)' due to diSCrepanCies In the

lollo", Int lIeas

• The InclUSion of eSlIm3tcd fundraaslng costs ($40.635) not

Included In the A.udn St:lrrs NOCO since suffiCient moneys had

been raJSC~ to eiam.nate the deficit.

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• the PrimarY Committee's esriJnares far lep1 aDd audit fees

($1J4,184) are silDificaDtly hiBbertbaD IbDse esriJnaes made by

the Audit Staff(S60.ooo); mel

o the Audit staff valued the ATAT te1cpboDc system at cost

(S213.365), since it was purcbascd aftertbe candidate·s date of

b~1ilibiliry. The Primary Commiaee comiDues to ..we it at 6()04

of cost ($ 128.031 ).

The Prinwy Committee araues mat the lease ofthe telepboDC system constitutes a

··capiw lease" and should. therefore. be considered aD usct as ofthe date the lease was

executed. The Primary Committee concludes that its valuaticm is correa and the

Candidate bas remaining matcWDa fwld eDUUemenL The Audit staff'is Dot persuaded by

the Primary Comminee's argWDenl Notwithsw1ciina whether capital leases are relevant

to political campaigns. the Audit staff notes that a lease siped by both panies has not

been provided for our reVIew. prevIously Slated in FiDdiDa m.A.I.b.. the lease

payments made by the Primary Commlnee were not c:asbed by A.n Credit. rather.. the

Pnmary Co_nee purchased the telephone SYSlem nine mombs later for the full

purchase pnce quoted ($213.365). Further it is clear that An Credit did not cash any of

the lease payments received awaJung a letter of c:reclit from the Primary Comminee to

complete the reqwmnents ofthe lease docwnent. The lener of credit was not provided.

On August 21. 1997. the CommissIon also c:onsider= a Statement ofReasons and

Flna! Detemunauon (Comnusslon Agenc1a Document -97·S2-A) related to the

Ca..~dsdate·s enutlemm: 10 aU or a poroon of the March I. 1997 matchilll fund request.

Tne .-\udn staff had Rcommendec. and the Office ofGcncraJ Counsel qreed. that the

C3.ndldate had no funher matchJni entitlement because when the telephone system is

\"ajue~ a: cos:. assets are suffiCient to liQUidate all Net OutStanding Campaign Obh~ations

\j\,"l:nou: lne In:urrence of funne: funC1raJslna cosu If valued at a depreciated amount.

some entitlement rema.ans. Tne actcrmuuna factor "'"3.5 whether the telephone symm

De:ame a PnlTW)' Commlnee asset when It was InsWlcd. pnor to the Candidate's date of

sneiaglbiln~. or "-"hen the Pnmary Commlnee purchased 11. well afcer the date of

In:jl~lblht~ DunnilU diSCUSSion of the Statement of Reasons the Commission could

no! ,a..-ner suffiCient votes to adopt ellnC'~ POSItIOr. As a resulL no further malChln~ fund

pa~·mcnu arc anticipated and tnt: \·al~hon of tnt: telephone systcin on the NOCO IS

un:han,cd

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.. Non·Oy,hfic'" ('"'pattt c'ams"· Camp"'"" Cpmmjnc:

Expenses PitA let' ~\ tn- Domary CgmmJn=

Section 90j: qc •• orr nIt 11 oflhe Code of federal Reaulauons.

In p~. defines a qu.aJificd amlMl~n ~Jloense &$ one Incumd by or 01) behalf of the

candsC1att: from the date the InG.,,·.du.a! Dc:omtS J candu:lale tJvou;h the last day of Ole

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candidate's cliaibili1y; made in connection with his campaip for nomination: and neither

the incuneDCe nor the paymCDt of which coDSlimta • violation of any law ofthe United

Swes or State in which the expense is incurred or paid.

Section 9034.4(b)(3) ofTide JJ oftile Code ofFederal

Regulations stateS. in relevant pan. that any expeDSe5 iDcurred before the candidate·5 elate

ofiDdigibilit)Uor propcny. services. or facilities used to beDefit the candia.·s general

election campaip are not qualified campUpl expenses.

Section 9034.4(e)(6Xi) ofTitle 11 ofdle Code ofFederal

Regulations states that the com ofa solicitation shall be aaributed to the primary election

or the GELAC. depending on the purpose ofme solicilaticm. If1be candidate solicits for

both the primary election and the GELAC in a single communication. SD-I'e ofthe cost of

the sohcitation shall be attributed to the primary ele~cm. and 50010 to the GELAC.2J

Section 9038(b)(2)(A) ofTitle 26 ofthe United Slates Code stales

tha: if the Commission detennmes that any unount ofmy payment made 10 a candidate

from the matclung payment account was used for any purpose other than to defray the

qualified campaign expenses W1U1 respect to which such payment was made it shall notify

such candIdate ofthe amount so used. and the candidate shall pay to die Secretary an

amount equal to such amount.

The regulations at 11 CFR §903B.2(b)(2)(iii) state that the amount

0: an~ re;:Jayment sought under thiS section shall bear me same ratio to the toW amount

ce:e:nllne: to have been used for non-qualified campaign expenses as the amount of

~J::nJn~ fw1ds cenlfied to the candidate bears to the candidate·s total deposits. as of 90

C3yS ane~ the candidate's date of Ineh,lbiht')'

Section 903B.2(a)(~) ofTute 11 o(the Code of Federal Regulations

s13tes t.ha~ the Commission wilJ noufy the candidate of any repayment determinations

maoe unae~ thIS secllon as soon as possible. but not later than three years after the close

0: tne matenln. payment penod. The Commlsslon·s Issuance of the audit repon to the

:J..,~:1~3te unde~ 11 erR §9038. Hd) "·111 constitute notification for purposes ofthiS

se:uor.

Dunnalhe Audit St.3frs revIew of contributions to the Primary

Co:nrnsnee. It "'-as noted that Ivallable solacn.auon deVices contained appeals for

contncuuons of up 10 $ 1.000 each for both the Pnnwy Commlftee and the Comphance

Commane: The Audn sufTrevacwcd approxImately $1271.985 spent by the Pnmary

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CommiUee OD fuDdraisiD&, IDd idemified 229 nnsacDODS IIDOUDIiIIIIO 5699.098 that

appeared to be iDcurrcd for fuDdraisiDI appeals on bebaIfofboth 1be Primary Comminee

aDd the CompJilDce CommiUee. Ofthis S699.09I. S351.856 were expenditures by the

PrimarY Commit1ee to defray CompliaDce CommiUee fundraisiDa COSIS.

SimllIrly. III invoice from • PrimmY Commmee vendor dated Ma~·

1. 1.996. conWDed a S10.000 duqc for "CompliDc:e Commmee Processi..... This

cbarJc was paid by me Primay CommiUee on May 1. 1996.

These mancrs were prescmed 10 Primary COIIUDiUe

representatives at a CODfereDCC at the conclusion offielctwark alona with copies of

schedules and work papers detailing the AuditsWrs delf:rmiDatiOD. Primary Comminee

representatives indicated they were unhappy with the Commission·s rqulations

reBudlng expenditures made by lela! and accountiq funds established before a

candidate receives the parry.5 nomination. and indicated they would pursue this maner

funhe:-

In the £xu Conference Mentormclt'"' the Audit sWr

recommended that the Pnmary Comnunee submit evidence documentiDl that the above

expenditures were qualified campaap expenses. Absent such. demonsualion. the Exit

Conference Memorandum Slated Wllhe Audit sWfwould recommend that the

CommJSSlon make an IZUUa! dCW'mlnluon that the Primary Committee make a pro-rail

re~aymen: of S83.38i (S351.856 - S10.000 X .23(443)3' to the United States Treasury

pu~sua.~: to secuon 9038(b}(2) or Tatle 26 ofme United States Code.

In ItS response 10 the Exit Conference Memorandum. me Primll)'

Co::vnane: die not submit e\·.dence demons12'aung that the expenditures were qualified

:3."'~~U~~ ex~enses Instead. It Nle~ that the Audit sufrs recommendation ··must be

!':te::e: to~ se\·e:"3.l reasons·· ane ccntcred ns atJUlnenlS on the Audit mtrs application of

: : erR ~QO~~ 4te)f6)(1) to apponlon the JOInt fundraislna cosu. The response does not

3:~ress tn: SJQ.000 expenditure for Comphance Commlnee processing costs.

The Pnmat'.' CommlUet .s response states that:

··Tne cum:nt RClu.LIuoru art I "lema!ty contradictory and place a

COmmJDec wtuch Slmpl~ CXcrtlSCS IU nlhu pmted by the

Rc~ulatlons.utomauC&lI~ In violation for folloWin. the

Rc~ulatlons Spcclfialt~. 11 C.F.R §9OO3.)(1)(J) SUites that a

nUl (.,U"'(:JCW4). f'CI""tWftU 1M Pr'IU".' Commmft's ftJNt~t 1'1I10. as calculated punuant

10 II eFR I'OJI ~fbK~I(III.

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GELAC 'may be eszablisbed by such caDdidm priorto beins

nomiu!cd orselected u the c:mdidate of. political pany for the

office ofPresidcDt or Vice PresideDt ofthe UDiIed States·.

However" another RquWiOD requires • ClDdidate who raises

GELAC funds pursuant to the RquWion. but is DOt nominated or

seJeclCd to be the Presidemial or Vice Presidemial cadidalc. to

raum (or have redesipated) 111 ofthe funds collecled by the .~

GELAC. 11 C.F.R. §102.9(e)(2). NODe oftbe funds raised may be

attributed to any fundraisinl or overhead costs according to 11

C.F.R. §102.9(eX2). Yet 1J C.F.1l §9034.4(eX6Xi) requires that a

jointsolicitation be paid for by both the primary comminee and the

GELAC. It cannot be both ways."

The fact that these resulations appear ..contradictor;.·... to the

Pnmary Comminee does not mean that the expenditures are qualified campaign

expenses of the Primary Conurunee. Indeed. the sum ofthe reJUlations surroundin~ a

GELAC presents comnunecs with several choices. some ofwhich may hold potentia)

hazards. HoWever. the re,ulations also work to put 1he candidate on notice ofthe nsks

Involved \a,1th emblishms a GELAC pnor to receivina his or herpany·s nomination.

Thus. the regulations leave it up to the candidate to decide whether • proactive

fundralslng proaram between lhe Pnmary and Compliance Committee early in the

campasgn IS wise. Accordlngt)'. one section ofthe fe'ulatioDS in question unequivocally

states that •...any expenses Incurred before the candidate·s date ofineligibility for

propen~ . services. or facihtles used to benefit the candidate·s Jenera! election campasgn

a:e not qualified campaign expenses" (J 1 CFR §9034.4(b)(3»).

_. "\ lb- Sol!c;n,aUQD$ 3:: No' Splu;itatjQD$

Tne Pn~· Comnunec also contends the followinG:

•·...an examination of the actual maihn,s and invitations shows that

the reference to the Compliance Commlnee IS fleeting. at most. and

an realITy a secondar). If nOl tenlatj. consideration In the pIece as a

whole As such they are not ·sohclt.:usons· and no repayment IS

required by the Relu~uoru.. A fa., "tCWlng of the Invnatlons and

tenetS themseJves dcmonsU&IC'S th:u tney arc a clear attempt 10

sohcll funds {or lhe Pn~ Commat'lee The Invnauons are all for

events bmefiunl the Pn~ Commlnec... In shon. neither the

Invitations or the functrasslng lenen dIrectly solscn funds for the

Comphance Commlftee as defined b~ the RClulauons··.

The rele'·ant re~ulauons contain nClther a •.pnmary purpose·· tesl

fo:, solicitations. nor allo,,· for an~ son of allocallon based on space devoted to different

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CO"""mas. The leSt is wbctbcr funds "'1ft .1iciIed for boIb COIIIIDiUees. The

solicilalioMnMewed by the Audit staffQlll,jned .......for die ComplilDce

Commi1Iee 'Wbicb. with. few miDor varialiom. reid. foUows:

Also. CDClosed is my/ovt COIIIribulioll iIllIIe - ofS to

"Pete WllsoD for PresideDt CompWmce fuacr'. (The mnimum

camribUlioa orSl.ooo per perIOD may be made ill lIddiUon 10 ,.,.

conuibution 10 the Presidential Committee).

The Audit staff views the· above ••direct IOliciwion offuDds

for the Compliance Commitlee.

The response also arpaesthat the Complimce ColIUDinee did DOt

receive enoup mone)'. compared to the Primary Committee. to justify !be coDtention that

the sohcnations were "joint". The upmcm read u follows:

-.. of 627 CompliaDce Commiaee ccmribulars 0DIy S2. or 1.3

pCrcent. did Dot live to the Pnmary Commillee. With thaI 1.3

percent exception. all fu.nds tbaI were pllced in the Compliance

Comminee accounts were done so by comnDutars who had already

lIven 'the lela] maximum to the Primary Committee. and wished to

help funher, The raulu conclusively demonsIme Ibis. The

Pnmary COmJDlDCC raised about S5.167.ooo. The Compliance

Comnuncc ra1sed about SS9•• ... Ifthese were really thcjoint

sollcnatlons as the Memorandum contends. these numbers would

have been much more CVCD. To shov.·lhc illolic of1he

Memorandum·5 rcsuJL the Compliance Committee raised S591.OOO.

~'e: &he aucbt mJf nov.' atJUCS that liS fundraisinl COIlS were

S3S 1.856 l'h.ts amoun" 10 an unheard of cost of about S9 percent."

The mere fact that S519.oo5 In contributions \WI .enetated proves

In:l~ , soia::ltltlon occurred While II IS tNC that the major focus ofIhe solicltauon was

tnt Prl~ Commlftec:. as noted above. the relevant tCfutation doesn·' cite a pnmary

(ocus les: R.aUler.1t rcqwra IDe COil of a commurucatlon which solicits for bolta a

pnm&r.' COmJDlftCC and a.a ..... commlRec be allocated equally between the two.

f un.he:. based on the cxpenaace of &he Aucln staff. It IS not at all unusual to encounter

func:.-asssna propams wtuch yield poor response rateS. Indeed. the Audit sWrhas

frequently seen fundraasUIa propams &bat acN&lly Icnerate losses for political

commlnees Thus. Ihc DUmCnCa1 d&LI clIcd by 1bc Prun.y Committee above do not

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reflect results that are "UD.heard of" or otherwise especialJy remarkable. Indeed. the dau

reiDforces that the soliciwioDS were eft'ecUvc in pnenuiq comribuboas for the

Compliance Comminee.

3. Effmiyc plte gfRCp"tigp

The Primary Commiaee also presented the followinlifJiument:

"The Regulation upon which the Memorandum bases its repayment

determination went iDto effect on AUIUJl 16. 1995. This wu well

after most ofthe funclraising soliciutiODS by the W'l1scm committees

that are the subjeCt ofthe S83.387 repayment amoUDL The

Committees dispute that the Memorandum com:ctIy uses II C.F.R.

§9034.4(e)(6)(i) to detennJne the repayment in this situation. But

even ifmathematically correcl. the Regulation CIDIlot be applied to

any solicnation before AugUSt 16. )99S because me Replation was

not in effect ... Funhermore. a review ofthe invitaliOftS sent after

August 16. J995 shows that. with only one exception. the

sohcnation for the Compliance Comnunee was dropped entirely

from the COrtUnlttee·s sollcnauons.··

It should be noted that JJ CFR §9034.4(e)(6)(i) stipulates only the

m~tnoc ior apponlcrung casu of iundra1slng devu:es which solicit for both a candidate·s

Pr:~:L: a.."1C GELAC camnunecs The Re~ulauon does nOI state that such expenditun:s

e~:om~ oU3!:fl:d ca:npalgn expenses oi the pnmary comminee should the candidate fail

t: !'e:~J\'~ ::1: pa.~ nomlnauon Tnus. the effective dale of 11 CFR §9034.4(e)(6)(i) IS

:~: ::'\.1::: I:': a:~~nni that the Jain: solicitation cosu paid by the Pnmary Comnunee pnor

1:' ~l.:;:JS· Ie! 09~ snould be conslccrea quallfsed campa.", expenses. In addition.

CJ~~: cr. co:\;,:nenal1on maac ~\·aJlaDle to tne Audit staff by the Primary Commsnee.

t~::'~ 3:~~J:S to have oe:n more L'\ar. ··one·· JOint solicitation subsequent to the effective

=.1:: 0: tr.:s re~ulauor.

Tne response conunues D\ ar~ulng that the' Joint solicitation costs

snOUI~ ;lUocaled on Inc ..tunas re:e.\·c~·· oasss. as described at 11 CFR §I06.5(1) This

3iIO:~1Ion metnod wu Oeyelopc~ io~ use 0\ pan\ commlnees cnlagcd in both federal

In: non·ieaeral acuvlt) The Pnma1' Commsne: states that allocation should be •....on

In: o.uc~ o! (J) amounu recelvee cS5.76:'.OOO for the Pnmary Commlftee and S598.0oo

io!' tne Compliance Commltu:eJ or '~J space used for each commsftec in the sohcnAtlons

U\cmseh·c~·· The Pnmary Comman" contmds that. based on the funds recelvcd by each

commsne: ··:tJhe Comphance Commlne~ ralscd about S598.0oo. or 10.37 percent as

mu:~ tU In: Pnm~· Convnsne::e. 1:-: J footnote to Its response. the Pnmary Committee

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Ifthe Commission rally believed that this fuadraisiq requires

some son of. repaymem. lbcD it would have to be based on the

10.37 perca1t figure. 1D other words. eva under!be

Mc:morandum·s ovm IOlie. (as opposed to its viDdiClive conclusion).

the repayment amount should be S16,706.30 (10.37 percent of

5699,098 times .230443).

... . The Audit sWfagrees that prior to the effective date ofthe

regulation a funds received allocaUon would be permissible. However, the Primary

Comminee's calculation is flawed. The fipre supplied for Primmy Committee receipts

includes conaibutioDS solicited solely for that commitlee IIlCI Dot as a raWt ofthe joint

solicitations addressed by the Audit sWf. To apply. mio baed aD toW funds received

to only those expenditures identified by the Audit sWfwhich were in connection with

the jOint solicitations would result in a flawed compariscm. To accurately appl~· the

"funds received'· method In this SItuation. only Primary contributions received directly

as a result ofthe joint solicitauon should be cODSiclered. Further. in ca1culatinl the 10.37

percent. the Primary Committee SImply divides S591.ooo by S5.767.OOO. This

calculation does not accurately reflect the relative funds received by each committee.

USIng the fund.ra1s1na event codes conWned on the computer file

provided by the Pnmar.v Comnunec. the Audit sWf dClCm1ined that the Primary

Commlnee received S~.794.975 as a direct result oflbe joint fundraisiDg solicitations;

the Comphance Comnunec received S576.905. The Audit sWfalso determined that

S76 .6) 9 was the maxImum matciung funds \\tiuch could have been received from the

S:."Q.;.9:S raIsed by the Pnmary Commlnct. bnnglng its Iota) to S3.S6~.594. Based on

:nese amounts. a funds received RUO of Ij.94 percent was caJeullted.J6

The Audit su1T revised ItS analYSIS to reflect the effective date of

: : CFR §90j.; 4(c)C6){I) and to detemune the Compliance Commlnee ponion ofJOInt

fun~ralslni expenses uslna the func1s receIved ratio (13.94%). Only those expenditures

associated "",01 a JOlntJ~·sohcned fundraJslng event beld subsequent to the effective date

are allocated on a 50'50 twlS For thOSt expenditures Incuned with respect to jOlntl~.

sOllcnee funaralslni events held pnor to the effectlvc c:1atc. the Audit staff used the funds

recci vea method

The Audn sWTs revised analYSIS identifies non-qualified

:3.~palgn expenses tawing S130.S7i wtucn arc sub,ect to pro-rata repayment. thiS

amount Includes the SI0.000 payment for Comphance Comnunec processing not

adarcssed In the Compliance Commln~' s response

The Clac"iaUOI"i for VUI ,.110 U SS'" 90S - rSS'6.90~ • ~."'.''7S - S1'7.61'

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The Audit aaffrecon,menck that the COID"'issjOft deIenDiDe tbat 129.161 is

payable to die UDited StaleS Treasury pursuaDllO 26 U.s.C. §9031(b)(2)(A). :rr

-.

Section 9038.6 ofTille 11 ofthe Code ofFederal Relwations

stales that ifthe commiaee bas checks outsWldiDlIO creclitors or ccmtributors that have

not been casbed9 the comminee sha1J noufy Ihe Commission ofits efFons to locate the

payees.. ifsuch drons are necessvy. IDCl iu effons to acourap the payees to cash the

outstandinl checks. The committee sha1J also submit • check for the toW amo\mt ofsuch

outsW1dina checks. payable 10 the UDilCd Swes Treasury.

The Audit staffperformed bIDk reconciliations throup April

1996. From these reconciliations. 49 checks we identified totaliD& S37.470. which had

not been neloUated. Ofthese 9 33 IOwina S28.9509 were for comribution refunels. Ofthe

:;3 contribuuon refunds. it appears wt 28 represented refunds ofexcessive contributions.

At a conference held at me end offieldwork. the Audit sWT

prOVided represenlauves ofthe Pnmary Committee with copies ofschedules ofthe staleaaled checks. Commlftee represcntluves apecd to review their records and provide the

.'\udJ~ staff with addiuonal infonnauon which may resolve the items.

In lhe Exit Conference Memorandum. the Audit staff

:-:::omm:ndec that the PnmlJ') Comnunee proVide evidence that either the checks are not

cu~s:3..~dln~ D~' pro\·ldrnl copies ofthe front and back ofthe negotiated checks along With

~3.~_ s:ate:nents. or that the ouut.lnCilnp checks art void by providina either COplCS of the

\ o:c~: :n::kS VllOI!.h C\"Qence that no obh,auon eXists. or copics of nClotiated

:-:013:::n:nt checks Absent such c"lclencc. the Exit Conference Memorandum explained

tna: tnt Audit staIT would recommend that the Commission determine that stale-dated

:ne:KS 10talln£ S37.470 Ite payabi~ to the Unned States Treasury.

In us response to tnc Exit Conference Memorandun'l. the Primal'"

CommJnc~ nrovlried COPICS of four ,nccks. I013hn~ ~.541. which had been negotiated- by

tn: oa~ees The Audit staff conciuocs tnato Dascd on the documentation submsned slale·

:3t:: :nc:u lOlahnl S3~.929 (S3-:.';70·~.S41JremaIn

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The Audit sWfrecommeDds that !he CommjssiOll.cleIermiDc that the Primary

Committee is required to pay S32.929 to the United StaleS Treasury pursuant to Section

9038.6 ofTItle J1 oftbe Code ofFederal Regulalions.

IV•. _ PETE WJI SON FOR PBEsmENT COMPI.JANCE COMMn:n:E, INC

(COMPI lANCE COMMTTTEE\

AUDIT FINDINCS AND RECOMMENDAnoNS: NON-REPAYMENT

MATrERS

Sections 434(b){1). (2) and (4) ofTitle 2 ofme United Slates Code

state. In relevant pan. that each repon shall dIsclose the amoUDt of cub on band at the

beglnmng of c:ac:h ~nml penoc:1. the total amount of all receiptS. and the total amount

of all disbursements for the repomng pmod and calendar year.

The Audit StIffs reconciliation of!he Compliance Committee·s

reponed finanCial ac:uvny to bank acuvny for the fim four months of 1996 revealed a

matenal mIsstatement m the Compliance Comnl1nee·5 reponed disbursements and

endln~·cash-on·hand balance. Dunng the fim four months of 1996. the Compliance

Commlnee reponed toW disbursements of S360,916. and an cnding-eash-on-hand

OiJ3..,:e 0: SS.180 The Audn sWr detemuned that the Compliance Committee should

n3\"C repo~e: lotal disbursements of S367,1~7 and an ending-eash-on-hand balance of

s: .~60 7'r.ereforc. the Audit staff concluded 'that dIsbursements were understated by

S~ q!: ~.,~ tna~ endana-cash-on-hand balance "'as oversuted b)' 56.911.

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- The Audit staff determIned these misstatements were due to the

Compiaance Comnune:'s failure to repan three contribution refuncls during the April

! QQ6 ~10ntht~ reponln& pcnod (March 1 to March 31. 1996), and the failure to repon two

Qlsou."'Semcnu for Income taxes dunn~ the Mi\ 1996 Monthly reponing penod (April I

I" pn. 3C:. J996 )

On June 24. 1996. aunn~ the course of fieldwork. the Compliance

Commlnee filed amended repon.s for tnc Apn t and May 1996 reponIng penoc1s,

comc:tlne the errors noted above

In the Memoranaum to tl\c Compliance Commlftec. the Audit staff

recommended no fuMer ACtion re~araln~ thIS maner In Its response. the Comphance

Comnuntt nOled Its aJreCmcnt wun tne Audn Starrs recommendallon.

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2. PiSC;lgsurr ofOsc;upmign!N,mc gfpmplqycr

Section 434(b)(3)(A) ofTItle 2 oftlae UDited Swes Code requires

a political committee to repon the idmtWeatioD ofeach who makes a comribution

to the reponiq commiuee in an aaJrePlC amoUDt or val~ III excess of$200 per

calendar year. tOlemer with the dale and amount ofsuch comribUlion.

Section 43 l(13XA) ofTitJe 2 ofme United States Code defines the

term "identification" to be. in the case of any individual. me name. the mailing address.

and occupation ofsuch individual. as well as the name ofhis or her employer.

Section 432(h)(2)(i) ofTitle 2 ofthe United StaleS Code states. in

pan. when the treaSUlCf of a political comminee shows mat best effons have been used to

obtaIn. maIntain. and submit the infonnation required by the Act. any repon or any

records ofsuch comminee shall be considered in comp1iaDce 'With the Act.

Section 104.7('0) ofTitle 11 ofthe Code ofFederaJ Regulations

states. in pan.-that the lrelS'Um' and the comminee will omy be deemed to have exercised

best effons if all ofthe following are present: all wrinen solicitations for contributlons

Include a clear request for the contributor's full name. mailiDl address. occupation and

name of employer. and Include the statement that such reponiDa is required by Federal

13\\·: the treasurer makes at least one effon after the receipt ofthe conlribution. in either a

"nnen request or documented oral request.. WIthin thiny days ofthe receipt ofthe

contnbutlon. to obwn the Informauon. and the U'eaSUI'U repons all conlributor

lr.formluon not provided b~' the conU1DUlor. but In the comminee's possession. including

lr.:O:"m3t10n In contributor records. fwtdraJsln£ records and previously filed reports. in the

S3.~e twt' year election :ycle

The Audl~ st.3f: reVIewed contributions from Individuals to the

Compilance Commlnee on a sample basiS Tne sample results revealed that for a .

sl~nlfi:ant number ofsuch contnbutlons the disclosure of occupation and name of

emDloyc!' "'·as Inadequate AU the errors resulted from either a lack of evidence ofthe

Treasuf'e!" s beSt effons 10 obtain occupation and name of employer Information. or from

tne o:cugJuon and name of empioye:- Information beln~ available. but not disclosed.

Dunns the course of audit fseld work. the asSiStant treasurer stated

tna: the Comphance Commlnec dIe no: send follo~-up leners to contributors requesun&

tne occ:uJ)auon and name of cmplo~e~ Information Rather. the Compliance Commlnee

relied on the Pnmary Commlnee·s ~cords and cffons to provide the requIred

Information U All conmbulions Rc:e,"ed by the Comphance Conunlnee were eather

%.

Since &fte Pr~ Commlftft anc "'e COmph&ftCe CommlQft bad 1M WM crasurct for moSt of

'he audn pcnod. and OOCt'IlCd 0\,11 of Iftt umc adOrn$. the Audit iliff Cktftft'Uned lhat II was

feUOftabk to usumc U\at tile anformalton ma.ftYlftcd by 1M Pnmary Commmeoe was rudd)

&C~cSl'tue anel aVIILlbtt for USf D\ tnt CompliAnce Commmcc

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IrIDSfcned by the PriJIWy Commiaee in accordaDce with 11 CFR §9OO3(a)(1). or

soliciled ill conjunction with the Primary Commiuee (see fiDdiDa DLB.2.). Thus. the

Auditsraffexamined the Primary Committee comribumr far occupation and

name ofemployer information IDd for evideDce ofdie Treaurer's best etrons in order to

incorporate the iDformalion conWDed ill those n:ccmls iDto 1be review. As. result oflbis

review. the Dumber of errors was reduc:ed; however, • material problem remained. ... At • coDfereac:e bCld at the coadusion orfieldwork. the

Compliance Committee was advised ofthis matICf. Compliace Comminee officials

agreed to file amended Schedules A-P disclosiDi 1be mjninl occupation and name of

employer data; ancl, where the information could not be obWDecl. to maintain and submit

records of aU effons to acquire it.

In the Memorandum. the Audit staffrecommended that the

Compliance Committee submit docUJDenwion 10 clcmcmmate that best effons were

utihzed and file amended Schedules A-P 10 disclose occupation aad name of employer

Information contained in either the Primary Comminee or Complimce Commlnee

records but not previously disclosed.

Amended Schedules A-P were provided with the Compliance

Commlnee·s August 1996 (September MonlhJy) filiDI with !he Commission. Based on

au: reView of the amendments. the Audit sWT determiDed that Ibe Compliance

Commanee's repons had been ma,mall~' com:cted to disclose the required occupation

3..,,: na.."ne of employer Informauon.

B. FINDINC AND RJ:COM~tND4TION: AMOUNT DUE TO THE U.s. TR£.ASUR~·

Sectlon 9007.6 ofTnle 11 of the Code of Federal Reaulations Slates that if

:n~ COr:"..-nlnee has checks oUtS'Wtdln& to crednors or contributors that have not been

:J.Sne:. lne c:omnnnee shall noufy the Commasslon of 115 effons to locate the payees. if

su:n efior:s are nec:esSlJ") . and ItS effons 10 encoura,e the payees 10 cash the ouutandlne

:ne:KS Tne commnu:e shaJJ also submit a cheeL. for the lOW aD.":Wlt of such outstandinG

cnC:kS. pJ"able to the tinned Stiles 1 rc.&Sut)

The Audit sWf performed bank rcconcihauons throulh April J996 for the

Comphanc:e Commlnce From Ihae RCORCahallon.l. the Audit aaff determined that the

Comphanct Commlftec had 10 Nlc-cbted contnbutlon refund checks toualing S66.450.

At a confcrcnc:c held at tnc end of fieldwork. the Audit stiff provided

represcnt.luves of the Compliance Comman" wnh COplCS ofschcduJes oflhc mic-dated

chccb The Audit N.ffdiscussed thiS .mUCf with the Compliance Committee

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represenwives, who qreecl to review their records and provide the Audit staff with

additioaal aDd ODIoiDI information which may resolve the items.

In the Exit Confer=ce Memorandum. the Audit sWfs=ommended that

the Comp1iaDce Committee provide evidence that either checks were not ouuuanding

by providinl copies ofthe front and back ofthe nel0tilled checks alone with bank

st,remenu. or.dw me oumanc1ing checks are void by providiDa either cop_ofthe

voided checks with evideDCe that no oblilltion exim. or copies of nel0tiated

replacement checks. Absent such evidence. the Audit staffwould recommend the

Commission determine that sWe-dated checks lowinl S66,450 are J)ayable to the United

States Treasury.

In response to the Exit Conference Memorandum. the Compliance

Comn'unee provided evidence which resolved three items totalina $3.000. Therefore. the

Audn staff reduced the amount of unresolved. stale-dated checks to 563.450 (566.4SoS3.000)

Rcc:gmmcndjtjoQ -- 3

Tne Audn staff recommends that the Commission determine that the Compliance

Co:n,:runee make a payment of S6j.4S0 to the United States Treasury pursuant to Section

900-:'.6 ofTitle 11 oflhe Code of Federal Regulations.

\ rETE \\'11 ~Q~ fOB PBfSlnE~ 41'01T FINES AND PENALTIES

..(COL''''-! I~C CFJ'SES CQ\1\1IlTEEl

'";~:" ",Udl: sta!!' die! not Oele:: an\ m3tenal non-comphance maners resulting from

t~': .)0.;:;: 0:- ~n: AU01: Fines Corr.msnee ThIS ia:t ~'as stated In the Exit Conference

\!:~o:'a..~:~:':". lr. au response. tn: Aucil~ FInes CommJnee concurred with the Audit

su!: c:or.:ausaor.

J res.du.al moneys eXJst In tht Audit Fines Commlnee account(s) after payment of

.1: fln':~ an: C.VI) pcnahles. the Audit Fanes Commlnee must lake the follOWIng action

\4U:-. rest>C:: 10 such moneys

Return any rcsaOu.a: mon:"\ s to :ontnbutors on either a pro-rata basiS or

flfSl-an. fIrst-out DU1~

t dlSIOl1c any reSIdual mone~s 10 the United States Trc&S\U')·;

: contribute an~' rcS1Qu.I. monc\'s to any ofi&nlzauon described In section

170. C) of Tnle 26 of tnt united States Code. Of

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d. 1rIIlSfer any residual moneys 10 my 'Mrional..... or local committee of

8y political pIftY so 10DI as such IIIODe)'S lie" used ill CODDeCtion with

lIlY federal c1ecIiOIl.

VI. S!1MM4RY QF 'MQlms DllE TQ THE 11 S DEASJlRY

...... '?RIMAav COMMITTEE:

FiDdiDa m.B.2. Non-Qualified Campaip Expeoses:

Compliance Commmee EJqJeuses Paid by

the Pnmary Committee S 29.861

B. COMPUANCE COMMnTE£:

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Stale-dated Checks

Swr-dalcd Checks

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S 32.929

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MEMOB6NDJlM

TO:

THROUGH:

FROM: •

St:BJECi:

Roben J. Com

AsJimnt SdlliJ'~~

Audit OJ.....,..' IMIo.

JohD C. 5

StaffD1'ire'ctOI''''''

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LawreDCC M. Noble,/

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Assocaaze

Bn~-COlcmlll Cit:DcrIJ COUDSCI l~.-

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AsslSWlt GcnCfaJ COUDle!

P,oposed Audn Report on 1M Pac WilsaD for Presidcm

Commlllel:.lnc.. Pett Wilson for President Compliance

Commmcc.lnc.. and Par Wilson for Presadalt Aucbt FiDes and

Pmalues Accoun~. Inc CI..RA &471)

III I

1. J~"'RODUcnO"

The Oft"1~ ofGcDcnJ Counsel nas reviewed t.hc ploposed Audn R.epon on the

Pete U:uson 1m Prcsadan Commm.t:c. Inc C·Pnmary Commsnec")~ Par Wilson for

Prnadcnt Compliance COIIVDIIIeC.lnt r-Complaancc Commmee"); and Pete Wilson for

Prnadcn: Audit fanes aNt PcuJucs A"oun~ Inc c-Fmes Cormnmec") submmed 10 dus

Office on March II. 1997' 1M foUoWln~ mcmonndmn summanza our COIIIIIlCftU on

8ce.auw 1M.. 'lied AMO.. aeDO" .., ItOt , ..-.s......"-....... dllCtoiutt

....., 11 C' It .:.,••Off.....NRC"''' IMt tM COIftflU ',.1JWII1Oft of mas OIcUlftcnt.

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C _ JK.:'" Vu-s far PI a= C..,'=.

e.... 1&.;"PIle Wallan for Pi lei"" AudIt F.-

IDd ' ••1rieI Aecaum =. (1JtA "'71)

PIp 2

the proposed rcpan. This Office eemcurs with fiDdinp mthe proposed report ~ch are

DOt d.i.IcUSSft' scparmely in the followiDI memcmmdum. Ifyou have any questions

caaccmiDI our commems. please camact ADdre PiDedL ibe ~" assitmed to tius

a~l

D. . APPARENT EXCESSIVE COprrfWltrrlON (SEC110N In.A.1..)

The proposed repon noteS that aD May 19 1995. the Primary Committee...entered

into I connct with The fuller Compan)". a corporatiOD oWDed by Crail FIdler.· Pursuant

to the cont:aCt. Mr. fuller was to serve as the PrimaJy CommiDee's campai,n chaJrman.

and he was 10 receive a $22.000 maiDer fee each month bcpnina May 1. J995. The

proposed repon DOles that the pnmary Cormmaee O~ Crail fuller S51.185. an amount

wiuch mcludes an unpaid AqUSt 1995 monthly rcWDcr fee for campai,n clwnnan

servIces rendered ($22.000), as well as CXJ)CDSe5 Wt Mr. Fuller iDcurred while pro\"lclml

camJ:&lJn c~ services. such as Wti fares. mea1s.1Dd .bo1ellodlinl ($29.193). The

proposed rcpon cODcludes that the unresmburscd expcma coasmme an excessive

contribuuon 0£$28.193 from Mr. Fuller to the Primary Commiuee pursuant to 11 C.F.R..

§ 116.: Tne FOJ)Osed repon I"CJe:u the ~" Commit1ee's arpmCftts that Mr. Fuller

IS a commercIal vendor and his expenses. therefo~. are plOpetly maJyzed W1der

11 C.F.R S116.3.

Trus Office concurs wnh the Audit DJvlSlon's opmion that Mr. Fuller's expenses

are I'fOOlemau: Howevc. the sniormauon proVIded by the Pnmary Commsuer In

res,onse to tne EXJt Conference Memorandum SUl,ens that Mr. Fuller ma~' be a

:orr..:n~:la! vendor Thus. h1s expenses are ben~ ana)~~d under 11 C.F.R. § 116.3 than

: . : P.. 11t.5

The pnmary Commsnee mlCTed uno a conlTaC1 W1th The Fuller Compan)'

Pu.--suant to wtucb Mr. Fwier would proVIde campaJp ctwrman services to the Pnm.lt'\· ) . Comml'nee In respoDSC to lbe &11 Conlermce tvlemoranc1um. the Pnmary Commlnee

sucmlnec a.~ affidavit from M: fuH~ Nun~ lha: ne IS preslCient ofThe Fuller Company.

z SOle l'ro~neto~. HIS afrldaVlt &Jso Nles WI hC considered himself to be an

lnoepcnaet\t connaor wnh the Pnrrw'" Commln~. rather than a Pnmarv Comnunet

. e:nplovf:: Mr. fuJlcr"s affu:1avn funn~ sates tnat ius J995 federal laX ~tum reflected

rus satus IS an mac:pc::DCicm CDntnCt~ Spc:lfacaUy" he received I Form 1099 from the

.n IU COftt:l"lC1 w ""........." Com"uDft TM ful~ ComPM~ refen to "self as. c~uon

t1ow~.c~ Mr Ful":,'aatfadaVft aaaa 1M! The FUltCf ComDUt~ ., a soIt propflCtOfSftq) Stn AfflClavn of

:'~'I Fuhcr calee Jan..a.ry 1'7. ,..,

Th~ oroDOICO f'qIOn ftO&n ""I all DUI Oftt"l1li"" Corn"unft CMC& rctaacG to Mr FuHer s

"",~IP crwurm&n lC"\'aca wu fftadc ~v.Dtt 10 C...., Fuhc~. ftO! Th~ Fuhcr Cornpa.n~

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Cammmee for campenpriOD amed ill J~ ad this ~Ofton

schedu1e·C em his 1995 tax raum. Thus. Mr. fuller s aftidavit D1CS dIe~·

COIIIIDiIIee aazed him u • YCDdor.

;:;&

.. It appwzsIbat Mr. Fuller was DOt acIiDI u • iDdivicbal when be provided

canlJ'IilD cbaumaD services 10 me PriJDar?' CommiIIee. Sft 1. C.FeR.. 116.5 fJ'fOvision

applies to commmee staff aDd DIM" ,~). H~.It IS ~l mmely clear be was

actina u • commercial YeDdor beelUSC there IS 110 evsdcDce Ibat his usual normal

course ofbusincss involves the proVJSiOD of CIIIlp&ip cbairmID services. 11 C.F.R.

§ J16.1(c). Ncmetbeless. this Office believestbat Ibe halIDCC ofavailable information at

tius pOInt weiJbs in favor oftfaIiDI Mr. fuller u. commcrciaI YCIIClor pursuant It'

11 C.F.R. § 116.3(c).· AlthoUlh Mr. Fuller did not provide copies ofms 1995 federal w.

retWT'.. the swements conwncd m his affidavit are CODSisIc:Dt with the 1995 Internal

Revenue Service CMIRS") tax ya: sole propriaorsbip nquiJewem.s.' Moreover. It

app-o.&."'S wt ~: Commsftee did DOl CODIider Mr. Fuller aD employee because It

reDonec Mr. FuJlc:r·s amiDp em IRS form 1099•• form specifically used for

n~nemt)loYe1:s. Set Inmw:UODS to 1995 IRS Form 1040 at 10 (DODf:IDPloyee

compensation rr:J)Oncd OD IRS Form l099-MlSC).

t'oneti1eless. Uus Office nOles that Ihe PrmuIry commmee bas failed Ie

ce:nOns:'lte tnat The Fuller ComJ)&ft~··s onbnary course ofbusiness was to extend credit

&e:.ause M.r Ful'" maGe IftQuana &D 1M Con",uaec concernatC ,.~t or has s::.ooo ,,~, ..n· tQ9~ fCYJftcr fee. Ius OffICI GOa DOS .ttne G\al Mr Fuller extended crw:dJt 10 the Comrnmft

t::..aar.. S:: 000 uMe! II C,F.R t Il60J SH Atr'aOavlt of'Crall Fuller dated~ 17. 1"7 This

::!f~:~ "Ie nOles tAl! M: FullCf" AU'~ I"~ r'CLlIftC'f fft IS aen ~y Iftcluoed unocr II C.F.R

It oc:.a~st tne f"CLlIftr fft a.s mone:" owed It~ lIle Commmec to Mr. Fuller: It IS not me

0'"","n\ o~ &0 WMec of mona Mr Fulte"" 10 1M PnrNIry Commtllft for 1M COAl IftCUIftd 10 JII'Ovadt

,00c.21 Me 1~-"\tICCS 10 1M Com"'lftft 1ft ""'ned CII"C\ItftIIInC. Ulle COIIUDISlIOft bas """meet

cnlat.n '0 D.~ uptront COIU Nt .-r IftC'Uf'I'CG G'\ COftfteCUOft Wftft proyadan&.oods or servICes 10. poaltlcal

t ommInft .. Ilno", Iyeft COIU COftS'IftVllftI a comnDUUOft 10 !ftC _inal eomnnftec P'fIW"II,

AO ...'O..... Cnunlo,,, l"a·11 Md 1991·20

A IOIC ~""",~.. IS •• "1M" usualh, UftIftC~.owned and comroltcd uclusl'.tch

D' OAf Ot'f1,Or.' '1&'" JJr-Dc,,.,...., 1::0 f'''' E.c '"1) for taX IM.5.1M IRS reQuired

.na••ao....." -ftO f'U'etW'&G I oro(a or tau '""" .lOte I'f'OD'lCtonl\l$) 10 ftIlIOI'I Ulc ,rau recelt'U Of salc,

"0,," tl'Ci:" tnDCC1'~ auaancua 01\ IRS krcoute C. an 'nN ......110 IRS f..., HMO 1995 IRS Fonn

JCWC hI" :: aM '99.5 IllS F..~wC ,., I ho I Iftdt,,1duab damnaae .......' of the 'fOIl

",CCIW or ute'S from &herr ~.¥t "ftI:IM"I.~ nMtlftlftl ooa ., Oft lIS Form I,"-MISC. 1995 IRS

Form ~ftCa"lc C IfttlnlaaoM. C-2. Ml'lIIUO IftJInICI.-s 10 1"5 IItS fonD 10.0 at 10 ClMIMnqMoyec

comomultor. rnor\CG .. IItS f 10000MISC; l'hui. f. IU ,..., I99S. Iftd.wlduals .*' sotc

D'OO',CIO'",,"O' fftCI¥Cd IIl.S F 10M-MIS: aN: ICJjiOIltd 1M Ml",1 of J'OU tCCClIIU or utes from

"'CI~ ~a••c ""'1ttC's.M10I'& IItS Form U"O Me: ~CMthltC C ScMGuec C raauns a oncnpaeon of ,ftC'

rur Du''''t:~ mChaO"'l V" ....".1 (1110 Of la'.If). &ftC .,.. of.....-.a or .",a. Mel Ute of

CUIIOlft~ Of CUC'f': ~ftCO"tr C'..,..,C1I01\, .' C· :

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,......~_..,.\V.....'i 'cm ..-,,-.-- r_ C::iIIaIt • 1Dc.= ,..w..for Pi d'1 I .........

et.....IDe.; ad PIle VaJIaft fcJr PraIdem AudII Files

IDd PmalUa ACCOUIU. Inc. (LI.A .nI)

Pap.

for expe!'SC'S such u ux.i fares. meals. IDd hoIellod,ma. ill me course ofperf~

work for otbcr cliems.' J1 C.FJt § 116.3(c). Mr. Fuller's aftidavit cmJy discusses the

exiIU:DCC oCThe fuller Complllly ad his fi1iDp for die ! 995 laX yair: it does Dot dISCUSS

the bnsjness praclices ofTbe Fuller Compan)'. as!be PrimIryC~not

sublftiaCd m,..other docummwicm addressiDI The Fuller CompIDY·s usuallDd nonnal.

course ofbusiDess. ~. result.1his Oflir:c believes The Fuller C~y eaenc1ed credit

lotalinl $29.193 to !he Primary COIDIDJftee omside orits ordiIIIry course ofbusIness.'

III. NON-QUALInED tAMPAJGN EXPENSES • COMPLIANCE

COMMlJ I ££ EXPENSES PAID FOR BY THE PRIMARV COMMITTEI

(SECJ10N m.B.3.3)

Tne proposed report noteS that the Pnmary Comminee span 5699.091 on JOInt

fundra1slng aJ'J)C&ls wilh the Comphance Comminee. The Primary Commi'nee paid the

Coml)ilance COmmJftee"s share oflheJOlDt fundraisinl appeals. ill addiuon 10 SI0.000

io~ ··Compilan~eCommittee ProcessUlI·...

Tne proposed StItes that Compliance Comminee fundraismg costs paid for

D~ tn: P:unary Committee are non-qualified campaian expenses. The proposed repon

z~~iles a iuncis-rcC=lved aJlocauon method to determine the allocable com ofJOInt

soa:::~tlons wruc:h occurred ,,"or to Au,ur: 16. 1995.lhe effective elate ofthe 11 C.F.R.

9:':-': •• e)(6)(i J As a mu):.. the prDJ)Oscd rtpOn detemuDed !bat the coStS assocIated

\0\ :::- :.~: to:n: sohcu.auons pno:' to AUIUS: 16. J995 should be alloeated BS.86~. to the

t..~~~_ :o:n,:nln= me J~. J4-,.1O tne Comphance Commmee. Therefore. the proposed

.:::~ S"..&t:S t:-.a: lile Pn~ Comnun~ ancWTeC non-qualified c:ampupl expenses

t:::-a::~; s: j~.!>: fo! Comphance Conunlnee sohenauon casu '

&c:.a",r uu, Offau De'~ Mr F..&~, .aDl'ftlC" 8ft DmC'T ana.~ under II C.F.R § 116.':;. It

I. 1"'I'!""atr'~ .neU\t'f Fu'~ pa.d fO" nt' capense, D" C&Sft or DCftOI\Il emu card COIftPll"'c II C F R.

It' .".~ 16.sfOX:,

\ a com'"~"'1 ..m~, Mr ,""lie-- u nOI rftllUcG to .ftC nYfI eacmJ)uon for mctlVlcsuaas pursuant

,e.. : r fo. t •• 0 ,'ftt; .s- I I C.F.k t IOC '7nUll/ TftC"rCfcm. Ute tmOUftt of the COfttrlbuuon Iftcrcascs

Tnt c:..n.ftIft W1U not NOuIl"CO 10 OI~ SUd\ CDIU The Pnmary Commmee could haw

~Ie :omDuancr c.omm.. COlD IftCUft'V'I .........asftCd cunDalli' ca....-s if n uaed "",lus

monte' U\a~ """ .....,a" GftU n "'Ifibra all of 11.1 lTDItV'tMftt Gtth,1l1OllS Sft II C.F.1t t IIJ.2Cd)

Allrm&I••eI \ VMw coa.a c.utd ...., ...0 -M VIc pcnonat hindi or Pac Wi.... or IM'y could ha~

orer paae -a", &1\' 1'I'Ifta1ft•• ra...... hIftcb fororn. "en ¥r'tllOf' commfftec", was autI\Of'lIed for I

dlntTt'''' r.eC'hO~ CyCle .s.r II C.r It t~ lie )&')(~. ,OOJ.2tc)(I). and 9035..2'a)( I)

Tn" Off.ce ftCOlftlftC'ftAS tAlt pt"OOCncc IC1MI" • ~.lscG to IftCkICk • dlSCusslOft dnCT'O'"~ "0- &1\., n"mOt- .... ocnwcC:

A .<---'
If em 0a00CT 29. '",.1M C"",""".on octrrmlftCG 1M' CicMftI E6ea1Oft Leplaftd Account"'.

C:ompu&I\,r FyftGi r-C:;£l.Ac-, capct\M, NaG 0,. ............... commmen .-e ftOft1Ya..rred

"",OA'''' caDC'ftICS Ho-rewer. Ifte C...fftw.on oaO ftOt lftI&e • OftC'l'ftUI\ltlOf\ -n" n:JpCC1l0 method

o! .ho""nl cosu of Joant fvnaraaslnl ort"wecn A CLAC &nO. oramar:- commmft

.-rarlll::FiiIfMl.-a AUGA .....,....,.VI..,.. 'aa' , 7T

tiCP eamm_.IDc.; .... Vi..far PIAU f' C , ••

eammlll& IDe.; _ Pee .,.... for 'i tN' AIIdII f.-s

aDd ,..1rJM A~ra ..z.. bac. (1.RA ..71)

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This Office does DOt ..that a faDds-nceiw:d aDoc:aIicm metbod is apPiOPllatt

to clcterJDi= the allocable cosu ofjoUltsolicilalioas which occuned prior 10 AUlUSt 16.

1995. 10 Such. met.bod ccnmadicrs prior CcmvnissjOft pra:Uce wiIb respect 10 JOInt

soliciwioD COSIS between a pnmary commmee ad • compliace Pnar to the

199i·elccUozreyclc. it does Dot appear !be Comminicm specificaJ~· adclressed \\1tethcr

cosu incurred bcTuue= a primary colllllliaee ad • compliace c:oasmiUee could be

alloe:aw1. aDd ifso. what aJlocaUoD metbod should be usccL .s.~ Expluauon and

Justification for 11 C.F.Il § 9034.4(e). 60 Fed. Rea. 31166-68 (June 16. 1995): SIt

generally. FiDaDcial Cenvol and Com"liIDcc Manuals for PresiclcmjaJ ~.

CandIdates IDd GeDcraJ Elee:1ieD CaDdidales ReceiviD& Public FizIaDcinI for 191.;. 1988.

and 1992. However. the Commission discussed joim primary com.minee and comphance

comnunee expemes in the Clmton for Pn:siclcm Commi1:Iee. !Dc. ("Clinton Comnunee")

audIt. In 199:!. the Clinton COmmJftCC hued a vendor 10 coDcluet twO jOlDt maihn~s for

Ule ClmtonlGo~ -92 GenmJ £1ec:uon COID'Plimce Fuad ,CliDum GE1.AC") and It.

FInal AudIt Rt;PO" on me ChDlOD for PresiclcDt Commi1:Iee.1Dc. at 51 (December 20.

1994 j Tne Clmum Commmee a11oca1&d the cost ofthese mailiDp IS-/. to the Clinton

Comnune: and IS·/.to the ClintoD GELAC accordinllO bcDcfit reascmabl~·

eXDe:ted to De cimved [by ea:h commtnce]." Jd at 5~; $~' t1Uo. 11 C.F.R.. § 106.1 ,a).

Tne Comrrllss1on reJeClCd this method. and the Joint mailiD. costs were allocated S~. to

the Chnton Comnunee and 50-'010 me Chnum GE1.AC. Jd. at S~ and 63.

In addlt10n to this .uch~ the ComnussJon J'I"OIDw,ated a jOlftt solicitation

r=~l.::auor. fo:, Ule 1996 elea.Jon cycic. wruch apphed to candidates who receive pubhc

f'..:.n:Jni Ir. coUl tile pnmar:.. and the ,eneraJ elec:uan 11 C.F.R. § 9034.4(e). nus !':~L:latlor. spe:Jfi:aUy rcqwres the cOstS of a sahenatlon to be anributed to the pnm~

ese:tlor. C~ to tile GELAC aeopcndln~ on tnC' purpose ofthe sohcnauon. 11 C.F.R

QC'~'; ~,e )( 6)( 1J If a c.andlQ.ltt solicits tunas for both the pnmary elecuon and for the

GE:"AC In a sanile commUlUC&uon. .s~. of the coSt of the sobcnauon shall be anributed

to tne ;Jnma.:: ete:tJon.. ane So-,. 10 the GELAC Jd The Ca~nnusslonpromulP1Cd thiS

prOVISion to cianf.' past qucsuons "'that] have ansen as to whetheT a p(re] 001

CO:'n.'Tlwu:auon was Intended to Influence tnt ,eneral election. or VIse versa·· ~~

Extuanauor. and JusuflC&uon for lie F.R 9014 41C). 60 Fed Rei 31166-68 ,;"nt 16.

;0951 Ap:wmUy.lhe Commission &SSut.~c~ tnal GUAe accounts would only be

eS1.JDllSned b~ J)nm.ary candlQates wno were assured of oownlng their pan~.,s nomination

to oe:ome ,enenJ cl=uon canc1Jd.atcs Srt 11 C.f.R § 9003.)(&)( I )CQE1.AC may be

esubhsnec oy • major c:.uu!1d.ate pnOf to De1n& nominated or seteacd as the

cmdl~te of I polaucaJ pany for the office of Pn:suient) and t 9QOj .3(a)(2Xii)( A)

tcomphan:e related CON shall uuu...H~ be paId from Inc feGcraJ fund account of a major
":-:.!,' __. A ) :_ .,. _to.J_,-;__

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C 1Dc.:"W"''''I. Ie ;IB

c_a =.:...... W'...forPlzlld IAudIIF_

..., Is" Area. IDe. (LItA ana)

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p8ft)' eeMidate pelrinl me o16ce ofthe PI~.;an mme IeDaa1 e1eclicm: the G£LAC

may 1mr~bune!be federal fuDd accouat for these com).

Altho. 1J C.FJl § 9034.4(eX6Xi) does DOl dinctJy appl)- to the ~.

COIPII'i"ee be 'ase Govemor Wl1scm did DOt receive public fundin. ill both the pnrnar,'

and JCDCf8l e1ecbODS. this rqulatiOft provides additicmaJ paidlnc:e ccmc:cmiDI \be proper

aJlocaUoD method forjoint pnmary/GELAC solici1alioas. itlespeclive ofwbetber.

GELAC was emb1ilbed by • publicly fuDded caDdidale who failed to be DOIftiftated or

seleClCd as the caDdidate of a politic:aJ party for Presidem. AccordiDIly. Ihis OftiCt

beheves that 1JC.F.R.. § 9034.4(e)(6Xi) caD be usecL by aa!0IY. U support for tht

propoSItion that • 50-IJ50-4 allocation method should be used 10 detamiDe 1M

Compliance Comminee's share ofJoUst sobCJwicm com iDcum:d prior to AUllust 16.

!99:.

Based on the CliDtcm Comrmaec audit aDd 11 C.F.It. § 9034.4(eX6Xi). by

arWog). Uus office believes that use of a funcls received method to allocate the cosu of

IOlnt sohcnatJoDS beTween the Pnmary CommJnee met die Complimce Commlnee prior

~o .1\.u~US~ 16. J995 is inCOftSlsteftt With the Commission's past and present treatment of

su:n cosu Acccmhnll)·. this Office believes 1hat the Audit Division should allocate

tnese costS on a 50'/.,150-1'. buis ., Therefore. this Oftice recommCDds that the Aucbt

DIVISIon reVIse the proposed n:pon to reflea lhts aJlocation pen:emqe in tbc amount of

non-cuaisfJed camp&lll\ expenses subJe:t to a pro-rau repayment to be paid b~·1.ht

~::::-.a.:: Con".nunec.

&cc.aust t I C.F.IL 190~ )h. ''''1ft '0 candw:&aICs who receive pubhe ,.....&ftC 1ft botft the

pt'lmal" Inc 'ntCftt Ceea.&. n doD ftOt , Utn orov,,1Oft SClICC,rIClU~apphes to JOtft' sohea&auotu

unOtNACft o~ '" uuucceufut '"'ttbc.~ funoco Cllftdaaaar for ha.oau and au Ci£J.AC Ifter

A",..S~ •t '''~ However. for 1M ..."·....CO rt.UON...as OffICe _Ilewes "'1 "'IS "'u..... apphcll

D" MaIOI) to &uCft 10m,sobe..... T'heftf~. "'as Offace c.cun .IIft &ftc ptOpOIICI npon's

COftCtuSIOf' ana1 IOlftllOhclWlOf\S ""'.1"" COfIItfttftft Md 1M Comphance Com","'n .ruth

occumc Iht· Au,u.s: 16 199~ Iftould DC "1OCa&&C on I S~So-4 Duas

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May 28, 1997

r.-

.;~·-·::·8(~

~j FEDERAL ELECTION COMMISSIOt'

""iI,~..t'-iC1~ DC ...•

fall 21 2 .,~ :.,; '57 ....., '"

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TO:

THROUGH:

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FROM:

R.oben J. Com

AssINn: StaffDlreetor

AUCbtD~I~~

John C. S I '\

swro"cc .../

L.awn:ncc MjNoble /

Cicnerai Counsel i'L

Kim Brl&=nt-Coleman lUI{.,

AssoCIate General CO~I

Rhonda : \ osdtn~n r~ A.sslNn: venn'll Counsel

Propose: -\Udl: Repon on the Pet~ 'W·ilson for PresldeDI

Commute:. in: Pelt V...ason for PresIdent Complaance

Committe: In: anc Pelt V-"alson for President Audit fInes and

Pmau.t.. ~::~un: inc t1.R.A ":71 •. Sup, ,'emctltal Comments

•

1 1~"'RODUcrIO~

Tn,s memorandum IS .. rlne~ pu:"suant '0 an Informal request by the A.udtt

Olvlslon or. ,..,.\ 16" 199110 'r&;ons.a~ tnt conClusions conwned an our memorandum

AIled M., : JQ9-: conccm.n:: tnt prOOOStC lucht n:pon on tbc Pae Wilson for

Presldern Commillet. In: (··P'anu:"\ Comm.u~·· a. Pett ""ilson for Prcslclent Compliance

Commlftcc. an: '-Comphanct LOmmltlCr' , and Pat V.·dson for President Audat Fines

and PcnuIIC~ lI\.CC:OYft1." Inc I ,ttu fta"f an' OuCSUOIU conccnun, Ihese suppAcmalIaJ

commcnu plcase c:onLaCt Ana: .. Co P.ntC; tn~ :nlome~ asSlped to thIS audn

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•. .•--........ iI·

Pi' 1 Audn R....,n on 1M PeI~ \\ dSO" for 'IU." e-nnmee. Jnc.. a a- ....2

D. ,.pPAKE"'" EXCESSIVE: COJ\TRJBLIIOti CSEeTlO"; m.A.I..)

The Audit Division requested that UllS Office reconsider iu conclusion that Crai,

fuller is moSt likely a commm:lal ,·mdor ","hose umsac:uODS with the Pn~'

CcmuzsjUee should be anaJ~-z.ed under JJ C.F.R. t 16.3. Specifically. the ~udit Di\'1S1OD

uafeJllled tbis-Office ofilS behefthat Mr. Fuller ~-as actinI more like a Pn~'

commmee employee. than. commercw ,~dor. In support ofiu posiuon. the Awlit

Division DOled the folJoWln;: (I ) ~lr. Fuller lacked other business cliems: Ql be paid for

expenses via a personal credn c:2rc. ()) hIS bUSiness and persoDl1 address were the same;

(4) tus current resume does not reier to The Ful1er Compan~·; and (5) a search ofThe

Fuller Company revealed that I: \\"3.$ not an Incorporated entlty in either Califcmua. the

Dlm"lct ofColumbia.. or \t"l~lnla

IR~ ,,,,,n;, Iff ftOl Dlnal" ••' (untro'",,:: 0'· :'0"'",1".0" Qe'~lna"Ofn Howt¥e'f. suert ","n,~

P'O"'O~ ''''CLInt~ " 10 "0- 'rtf Con""'\'tOf\ Uf'I .~~ . .l! ~nlt"'I' 'Ir(umuancc, or SllUauoni

?aoe ~C

Based on thiS request. thIS Office examined Internal Revenue Service Ruhn,

! 98~-41. whIch sets lonh IUlcieilnes for detetmuun, whether a person IS an employee or

Ina~pend:nt contraCtor for ta~ pUrDoses : ThIS MIDI Slates that an indIvidual 15 an

emDloyee for federal t.aX purpo)es If the Indl\oldual bas the SI&tUS of an employee under

the .. usual common I.",· Nies ~"J'ia:ab)c In detcTmmiD, the cmploycr-emplo~ee

relauonsnl:·· Re\ Ru! 8~':: 19S":'·1 C.B ~96. 298 In JeneraJ. an employer/employee

re13uonsnlp :"IS1S \A.-hen the . oerson or J)ersons jar whom the SerYlc:eJ are performed have

the n~h~ to control and dire:: 'n~ Indl\,.cu.al ""no performs the servic:cs.- Jd Thus. an

lnclvlcual IS an eml)io~~ ""nen Il~ O~ sne ·'.S SUOte:t to the: will and comroJ oftM

emPloye:- no: onlY as to "'·ha~ sl~~I~ De cont out as 10 ho"· It shaJJ be done.·.. Jd The

aesl~nauor. C~ a:s:npuor. 0=' ,,,:" r::.uonsnl:' Det~ panles IS lmmatenaJ Jd

Howe\'e~. In01VIOuals wno art C:l:::;== In an IndC1'C1\dent trade. bUSlness. or J)1'Ofesslon..

1:'" v.·n:::-: U'l~\ ofie:- me::- Se!"\'I:~" Ie' tnt ouoU:. art i!mc:-alty not emplo~ees Jd

7'ne I :''He:-:u~ RC'\fcnu~ ~:'!'\ aCe cX&nunes :L' fa:lors 10 deu:mUM whe'ther suffiCient

:on:ro: IS t'~:sen~ to cNbhsr. ~.u' en'~lo\·er..eml)to'·c:" rel~llonshlp Jd These faaotS

:n:luoe (1. Inslru:uOftS. (~t 1:':'lIlln;: i I Inlc;:rauon.•4, services rendered pcrsonall)'.

! 5I nann. S1J~er'\·lsan;.. anc 1).. '\ "':, JSSaSl.1nlS .• 0' conunuln~ rel.uonstup. (7) set hours of

wor..... (8, fu!. ume reQuaree "It ot"ln; \,or" on emPlove!' s I'retnlses. (10, order or

seouence se: (1 J) oraa or WfaU::t' re:)onr. ,::' oa\~ml f't' he·u. w· ~L. or month.

{: 3 I oavmen: of ouslness ~nd·tV t:'=":lIn~ t,cense:. f I... , iumlshtnl= of tools or matc:nals:

( ! ! sl~nlrl:ant Invesunent f' It. r,Ju:,.2laOn ,,~ DtOrl~ o~ lOSS. {I' t wodan~ {or more \ban

on: rim: .~ ume. C18) mManr )\,."1"\ Ice l\"auJo.e If' ~ener~1 pubhc: (19) n~ht \0 dlscharge~

ane \10 J n,nt 10 temUnA1C leI ~~ ~Q'. ~Q" q:"O&.1lnln~ each factor In ~rcateT cielail). No

sJ)Cclfa: WCI~nt IS ~Ivcn 10 I P.1"'CU1~~ i':lO· ··Ine ae~r" of Imponancc of each factor

\'a..,cs aepenoln; on the OCCU.....IlIt.:: ~n: tnt :J:t~1 conl~~t In which the services are

pe:iorme~' J: a: ~91 E..1th ,·.·t..·~:nI~~I.O': ., ~nal~·UO on a casr-b:--case basiS
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Pi ; = 1 Audn RCJlIOft ....Pete Witscm for

Pi U e-mec. W- at 8. "3

At tbis ,oint. this Office bcbeves mat there is iDsUffician iDfomwion rcprdiDa

Cmil Fuller's reWicmsbip to the PrImary CC?ftUIllttee to defi:aiuvel~'CODClucle Ibat M:r.

Fuller WIS. PrimarY Ccmmunee emplo~'ee • ~1any ofIbe lisIed factors rcqwre cicWlcd

kDowledp oftbe relauODShsp that Mr. Fuller and The fuller ~.~'Wlth me

CQlDllUfteC. details whJch were not .'''Iiable ciunn~ the audit. for example. It 15 not clear

whether Mr. fuller was rcqwred to submit oral or wrmcn repcms (factor fill) or wbetbc:r

he was reqwrcd to work a set amount of hours CfaclOr '17). The ODl~' iDformauon oblaiDed

duriDi me audit mat J'I'Ovicks subSlafttl\'e details conccmiDI the re1alicmship bawem Mr.

Fuller and the Pnmary CommIttee IS a tonuact dated Ma~' 1. 1995. This comraet

however. provides little assJSWlCC In asc:enalnl~ Mr. Fu1Jer's duUes. s.t Anlcle 3

(··Duties of Vcnd01'''). Nonetheless. It appears that pans ofthis comraet support either

conclUSion: that he 15 a Pnmary Committee employee or a commercw vendor Co~

fa:tor til: (contract prO\'IS10n specli~ln:.: payment ofmonthly retaiDersua,csu empjo~er,employee relationship. ""lin factor. 17 Iconuae:t provision pennl~ the

30ihr,y to con~et wnh olh~ panles SUI~estS Ind~t com:ractor relaticmstupl.

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III. SO~.Qt,;ALlnEDCAMPAICt' EXPENSES· COMPLIANCE

COMMI'TT£[ EXPENSES PAID FOR B\· THE PRlMAR\-' COMMI1TEE

(SECTIO~ 111.8.3.3)

The A.ud:: DIVISion abo reauested lha: thIS Office reconsider liS conclUSion that

use o~ a ~~os·rete.ved aBocatlor. metnod IS n01 apl)fopnate to deu:nnine the allocable

cos:!> 0: .t0l::: soil:nauons In:U'rTC: 1'\\ UU~ Prlm~r~ Comnunee and the Compliance

Co:':"w-n:ne~ ::"10~ to Au,us: J6 ! 00: h~ sno~. the Aucbt DIVISion Informed Uus Office of

:~!> oeile: tna' tne !Qq: audl1 or ;ne :hntor. io!' PreSident Commlftee.lnc. CMChnlon -9= :or:-.:'nlne~· I co~!- no: conSUtut~ =~IC· t onlnllSStOn Draeuce WIth respeet 10 the allocation

c~ tOI~~ SOI:::t.l1l0r. costs oetweel: ::rln13r\ commIttee and a compliance comn'llftee.

~::orcln~!\ tne ...uch~ D,VISIOr. eeUe\ \.") lnl1 n('\ CommiSSion precedence exlS1$ wnh

,eSDe~ Ie tne 3110:11IOn of ,Oint Drlma!' compu~nce sohcltatlon costs pnor to AU~u.st 16.

! QO~ anc IS a resul~_ use of a func!-.. re •.;t\ c: ,3l1o:ataon rauo _~Y the Comnusslon IS

t)~:-mISS.r:)lt

-r"t's Offace maln~.ns II' DOS""" 11 •.1: In.. cOSts Incurred praor to Au~ust 16. )995

io" lOin: nanafalsanl of tne Pnnuf" :'on,mlll~ :Jnd Compliance Commlnee should be

alao:.atce 50-,.'50-,. to cacn commnte~ -:- II:' CunlOr. -C): Commlnec audit constitutes

pre:eamt Wllh respcC1 to tht aUoc~uor.•" In,n! prt~~"comphance sohclIatlon costs

In:urrcd pnO~ to Au,USt 16. 19'1: if' Ut~ Cuntnr. ·u: Commlnec audn. the Cornnusslon

allocated Ifte COSt of the .Iolnt sohc:~J:I(\n) 'fr " h' tne Clanton '9~ CommlReC. and SO-I. '0

tne Clantol\'Gore 'q: General E.t':ltt'~ I "'runll.Jnc~ Fun~ Therefore. It IS clear that past

1ftt 1':10'\ cllea 0\ Iftf Au: J .. ....

Chefta.. O'o.,or 'OMf f",QCftCC Il\It M· f whf'"

f.e:tOt\ .ff ftC; 0.'1»0'....(

, ••; I .,. ". Fvuer ,. IPNfCftl aac.. 0' otMf ""OMSS

.....",nto.ft 01 Iftt Pfl"'.~ Com",met Howe~, .hUe

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..; 5A8ItIr .....lite ,.Walson for

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Cmmnissjon pracUce WIS 10 .UOC<JOint prunaIY/compliac:e S01icitatiOll com on •

SOt4'SO% bais. Ac:cordiDII)'. IbJs Office ad\'IJeS the AUdit Division 10 appt~· a 50%'50-"

aI1OC111ioD paCCftrap for ~' Commlnee/Compliace Commiftee jointsolid_em

com iDc:IImaI prior 10 Aupst 16. 199:

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FEDERAL ELECTION COMMISSION

Aupst 21. 1997

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Ms. Renee Croce. TIU.Sl.Im"

Pete Wilson far President COmmittee. Inc.

Pete Wilson for President Compliance Comnuttee. IDe.

Pele Wilson for President Aucltt fines and PCDalties Account."Inc.

228 SouthWashington Street. Suite 200

Alexandria. VA ~314

Dear Ms. Croce:

Anadlcd please find the Audit Repon on Pete Wilson for PresideDt Comnunee.

In:.. Pete Wilson for President Comphance Commnu:c.lnc. and Pete Wilson for PresIdent

Audit Fines anQ Penalues Account. Inc. The CommIssion approved the repon on AugUSt

: ':". )99": As nOled on pale s. the Comnusslon may pursue any ofthe matters diScussed In

an enforcement &ellon.

In accordance wnh 11 eFR §§9031.:Uc)(I) and (d)(t). the Commission has made a

det:munauon that a repayment to the Se~~' of the Treasury in the amount ofS126.240

IS requIre: ",mln 90 caienda:' ciJys after service oftlus repon (December 1. 1997).

Snould the CandIdate dispute Ute Commlsslon's detmninauon that a repayment IS

:oe:u:rec. Comnusslon reawauons I: 11 CfR §9038.2(c)(2) proVIde the Candidate with an

c:=c~u..~:t~ 10 suamn In wnun•. ,,-,tnlr. )0 calendar days after service ofthe CommiSSion's

~O:l:~ (Se:)lemoe~ 30. J997,. ie,al m~ factual matenals to demonstrate that no repayment.

c~ a ,esse::- rcpa~·mm:. IS requlfCc funnc. 1) eFR §9038.2(c){2)(ii) permIts a Candidate

no nas suomlned wnnen mllmaJs to requeSt an opponunny to acldrcss the CommiSSion

J~ c=,er. sessIon based on tile ie,al and factual malenaJs subm1t:ted.

Tne CommISSion WIll conslat:- an\ "nnen It'll and factual materials submlned

v.·nnu~ tn~ 30 cay penod wnen dcead.n. whether 10 revise the repayment dClcmllnauon

Su:r. m.llena.ts m.'y be submlned b\ cou.~set If &lie CandlClale so elects If the CandIdate

ae:aoes to file a response 10 U\c te'Dlvmen~ aefcmunauon. please conlact KJm L.

B~inl·Coleman of the Office of ~CT21 Counsel at (20~) 219·3690 or toll free at (800)

.;:~.q~ JC Ifthe Candidate does no, CIS~u't liltS ClClcmunauon WIthin the 30 day penod

pro\,.aec. It Will be considered final

Tne Commission IpprovCC: Aual~ Repo~ Will be placed on the public record on

Se~temDe:' ~. 1997 Should ~ou hive an\ auestlons re,ardln~ 1M public release orthiS

repon. please con&.Kt Ron Hams of tnt Commission s Press Office It (202) 2JQ-41 55

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A:lJy quesIioDs you may bave related 10 IIUIIICrS ccnaed duriDa !be audit or ill the

audit repon Ibould be direcu=d ID Joe Stollz or Alex Boaiewic:z ofdie Audit DivisiOD at

(202) 219-3720 orIOU fn:e • ClOO) 424-9530.

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Raben . Colla

.AIIi...StlfrDirecr.or

Audit Division

Anachment as Stated

Paae 5..

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FEDERAL ELECTION COMMISSION

Aupst 21. J991

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Governor Pete Wdson

clo·Ms. ~Crocc. Treasurer

Pac Wilson for President CommifteC. IDe.

Pete Wi1scm for PresideDt Compliance Committee. !Dc. _.

Pete Wilscm for PresideDt A~it FiDes aDd Peultie5 Accoum.IDc.

~8 SouthWashiDpon Sftet. Suite 200

AlexandriL VA 22314

Dear Ms. Croce:

An.ached please find the Audit Report on Pete WilSOft for President Commnu:c.

In:.. Pete WilSDn for President Comphance Commsnee.1ftc. and Pete Wilson for President

Audit Fines and Penalties Account-Inc. The Commission approved the repon on AUlust

: -. ]99i AS noted on pqe ~. the CommIssion may pursue my ofthe matters diSCussed in

a.., enforcement action

In accorctanc:e WIth JJ CFR 1§9031.2.c)(l) and (d)(I). the Commission has made a

a~te:":nlnauon tnat a rt;)&ymcnt 10 the Seaewy of the Treasury an the amount ofS126.240

IS reQUIre: "'1m,n 90 ClJeftCa: d.a~s ahe! SC1"Vlce oflhls repon (December 1. 1997).

Snoul~ you dlsputc thc COlT'J:".1ssaon S dctmrunation that I repayment is required.

: O~w~lSSI0r. reJulauons a: 11 efR fQ031.2tc )(~, prOVide you With an opponunny to

s~~r:'u: Ir. v.nun•. u.1uun 30 calm=r cays aftt! servIce ofthe ComnuSSlonts notIce

5~~te:,:,:x~ 3C. J997 J. lelaJ and ia:tu.l1 matmJJs 10 demcmsualc that no repayment. or a

.esse- re~ymt:n:.. IS rcQUlrc~ funne:. I J CFR §9031.2(c)(2)(ii) permtu a candidate who

nas SUDmsnec v.nncn malmals 10 reQucSt an Ol'POnunlf)' to address the CommISSion In

O~:- sesslor. based on tnt ie,al Me fa:tu.al matmals subnuftcd.

Tne CommiSSIon Will conslae~ 11\' wnnen ic,a) ,tlCI facNlI malmals subnuned

-'nnl~ tne 30 csa~ period wnen acelOtn, ·..·ncUlr! 10 revise lhc repayment da.cmunauon.

Suer. matmals may be SUDm.ftcd b" counsel If ~ou so cicct If you decide to file I

~sponsc to 1M rqllYIftCI'l OCtemunalIO~. Dleuc contact KIm L. Bn.ftt-Cotcman of the

orru:c of CiencraJ Counsell! C20~) Ie;· 3690 or IOU free at (100) 424-9530. If you do not

dlspute uus dClcmuftaUOft wswn &he 30 CIa\ pcnod proVIded. 11 will be coftSadcTed final.

rftC CommIssIon IpproycC AYGI: RcPO~ wan be placed on the public record on

S~Im1DC:- ~. J99i ShouJd ~ou hive an\ auestlons rc,arda"C the pubhc release of thiS

rcpor:. pause contaCt Ron Hams o! 1M CommiSSion S Press Office at (202) 219-4155

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ArJy quesrioDs you may haw related 10 IDIDm CO\'wed cluriDa the audit or ill the

audit rcpan IbouId be diJecIed 10 Joe 510hz or Alex ofthe Audit Divisiora at

(202) 2J9-3720 ortoU free at (800) 424-9530.

Raben J. osra

Assiam SdDirector

Audit Division

Attachment as swed

Pac;7e 56

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CHRONOLOGY

- PETE WILSON FOR PRESIDENT COMMnTEE. INC.....

PETE WILSON FOR PRESIDENT COMPLIANCE C0MM111££.lNC.

AND·

PETE WILSON FOR PRESIDENT AVOn FINES

AND PENALTIES ACCOUNT. INC.

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Audit Fieldwork

Exit Conference Memorandum

to the CommsfteC

Response Received to the

Exit Con1'erence Memorandum

.~Udlt Repon Approved

?aqe 5-:'

SJ21196 - 1/17/96

11/4/96

1120197

8/'17/97

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PATTON BOGGS. L.L.P.

2550 M STREET. N W.

WASHINGTON. D.C 2003'7· 1350

~; 1202'.57·8000 -.

October 29. 1997

(20:!) 457-6405

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The Honorable lohn Wamm Mc~·

Chairman

Federal Election Commission

999 E Street. N.\\'.

V.·ashington. D.C. 20463

RE: Dispute ofRepayment Determination Finding for the Pete Wilson for President

Comminee. Inc.

. Dear Mr. McGarry:

By this submission. filed pW'Suant to 11 C.F.R. § 9038.2(c:)(2). the Pete \Vilson for

President Comnnnee. Inc. r'Commlnee") disputes the amount that the Commission detennined

snould be repaid to the unned States Tre3Su~ Specificall~·. the Comminee disputes strenuousl~

tn:.- re'OJ\ ment fo:- expendnures b~ the Pnm~ CommIttee for fundraisin~ and administrati\'e

cos:~ ",nl:n the CommissIon maIntains "'ere expenses of the Compliance Committee..!.. The

Commlnce does not dispute the repa~·ment findlnls for stale dated checks for either the

1n.\ tUue " ",udd.~d at pttwr" bc~uw 'he Commtntt" ·tftU,acmtnt to add,uonal matching funds IS sull

unorr (ommlnaon conslRrauon A'iUCh .lte outcome of thlt deCISIOn could Impact on the above NOCO

prt\cna.allon" Repon of the FEe AYdIl O",.,.on '1 ~I Pendlnl tht outcome of thiS conslderataon by the

Commission and Iht release of a Ssatemtftt of Rcucnu. the Commmec reserves the ",hI to dispute the

Gttttmtnauon of net ouwandlnl ampae,n Obt_,IUon,. and. spccificaU~. the Issue ofthe Commmce's

a,,"men' "It" AT"T retardlft. Iftt te.~one ,~"cm 1M Commmec used whde Governor Wilson was an

aClive candiCUlt for PrcSICknI Because Iftc Audit Report don not call for .. ....."",cnt based on the AT4;.T

amn,~mt lnal IUUC and Ift~ nnpact Iftal ml\ "Ivt Oft the NOCO. as ftOI rape for dISCUSSIOn un,ddte

Comm.".on aetermlnes Iht Commlftee s ,tQut,. for addauonal mllchanc funds and releases I SlItcmnt of

RCAlOn,.
-. PATTON BOGGS, L.L.P.

r::~ The Honorable John Warren MeGan')·

October 29, 1997

Pqe2

Committee or the Pete Wilson for President Compliance Committee. Inc.:' Checks from each

committee representing the repayment amoUDts are auaehed.

This Jetter also constitutes a request for an oppommity to address the Commission. as

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provided under 11 C.F.R. § 9038.2(c)(2)(ii). We further understand that under the Commission's

reguJations. this will suspend the repayment date for the Committee Wltil the Commission

completes its administrative revie,,·.

The Audit Repon contends that the Committee did not submit evidence demonstrating

that the expenditures at issues were qualified campaign expenses. The Comminee did. and this

statement crystallizes the probJem ",th the Audit Repon's position. The expenses involved were

qualuied campaign expenses for the Simple reason that all the expenses involved were

legitimate iundralslng expenses of the Pnmary Comminee. The truth that the Audit Repon seeks

to a\ Old addreSSing IS that all the sohcnatlon costs Incum:d were done to benefit the Primary

(ommlnee These sollcnatlons were for the Primary Comminee. Any mention ofthe

Comphance Commlnee "·as InCidental Each and every one of-these solicitations would have

been undenaken if the Comphance Commlnee had not been mentioned or did not exist. Not

mentlonln, the Compliance Commlnee In the leners would not have changed their cost one cent

An~ mmuon ofthe Compliance Comnunee an the Primary Committee solicitations came

about because of the Reaulauon·$ pllJn wordln~ that a candidate may establish a general election

On Ft~~ I. I~':'. chee" ftvm~ I36Q .arucMda cleared the Pete Wilson (or Presadent Comphance

Commlncc. In; account The Compliance Commlftte repayment amount IS adjusted accorchngl)

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PATTON BOGGS. L..L..P.

The Honorable John Warren McGarry

October 29, 1997

Pqe3

legal and accounting committee ("GELAC"). "prior to beina nomiDated or selected as the

candidate ofa political ~. for the office ofPresideDt or Vice President ofthe United States."

·11 C.F.R. § 9OO3.3(a)(1). The mailings were paid for solely by the Comminee because

JI C.F.R. § t02.9(e)(2) also requires any candidate who raises GELAC funds pursuant to the

Regulation. but does not receive the Presidential or Vice Presidential nomination. to return (or

have redesignated) all ofthe funds collected by the GELAC. Thus.. the Committee followed the

dIrectives ofthe Regulations. and is nov." being penalized by the Commission for it.

If the Compliance Committee had paid for any ofthese costs. the Commission would

no\\ be charging that the Compliance Commlnee Improperly underwrote the costs ofthe Primary

Commlnee And It ~·ould be requlnn~ repayment ofaU the Compliance Committee funds spent

or. tne mal hn~s Faced ",th Regulations permlnlng the raising of compliance funds before the

noman.1110n and requlnn~ a lOSing candu1ale to repa~ 111 monies raised. the Wilson Comminee

C'f'\ aousl~ had the Pn~ Commlncc pay the enure costs, By its interpretation. the Commission

n.1S len n(\ "'a~ for a Commlnee to do ,,'hat the Regulations pennit it to do. The Commission

\C'ted to continue fjElACs. but her... .1dopts a posItion that effectively undercuts that decision,

Despite the anempts of the Audit Repon. there IS no denying that this Nling has created a

conOlct bet"'un the Regulations It C.aMOI be COrTeet that exercising a right pennined by one

re~ujauon causes a Violation of another It does not suffice to maintain. as the Audit Repon

does. that follov"ln~ a felulauon ·'rna~ hold polmual hazards". The Audit Reponts citation to

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PATTON BOGGS. t..L..P.

The Honorable John Warren McGa.tT)·

October 29. 1997

Page 4

1) C.F.R. § 9034.4(b)(3) is misplaced for two reasons. First. the Regulation applies to a "el')'

different context - a primary committee which improper!y redu~es the expenses of a general

election committee - which is not applicable here.J.. Second)'. the regulation refers specifically

to to expenses incurred ... for properry. services. or facilities". But the issue here concerns the

costs of mailing out a solicitation. and not "propeny. services or facilities". Accordingly. the

regulation cited by the Audit Repon is misplaced.

SOLICITATIONS

The Committee urges the Commission to actually look at what the Audit Repon calls a

"sollcltatlon'", See Exhibit 6. \\'ilson Committees Response to Exit Conference Memorandum.

Jan : 1. 1QQ7. There IS no sohcltatlon (or the Compliance Committee. The m1U: words about the

Comphance Commlnee are

-\150. enclosed IS m~;our contnbutlon In the amount of5__to "Pete \Vilson for

PreSident Comphance Fund" (The maximum contribution ofS1.000 per person may be

made In addition to ~our contnbutlon to the PreSidential Comminee).

Th'~ fiectln~ reference IS nOI a "sohcltatlon" ,,"uhln any generally accepted meanin(! ofthe word,

The dlctlon~ defines I "sohcltatlon" as "a try 10 obtain by entreaty or persuasion; petitionins

perSlslcntl~ .. Onl~ In a game of "poncha" b~ thr CommiSSion could the words in the Primary

CommJnee mailln~ be called • "direct soliCitation offunds" .

•t .tU) cannot Itt COfTCCIIO myoar II C f R f '0).& 'fbXJ_lo IrJUt' thai thew were expenses used 10 -benefit

Inc cand.C24Ite, ,mrral election ca.mpal~f'I· Tnt ~',11JOft commmcc did not have a ,erteral e'ecuon campa.,n.

so Ih.~ could nor ·~efir· It
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PATTON BOGGS. La.l..P.

The Honorable John Warren McGarry

October 29. 1997

Page 5

In the multi-page mailings at issue. the only reference to the Compliance Comminee is on

one line of an accompanying response device.

The only language referring to the Compliance Committee in any ofthe Pri~·

Comminee's mailings comes in the context ofsoliciwions for the Primary Committee. The

events are all for the Primary Committee. The description in the materials is about the Pri~'

Commlnee. not the Compliance Comminee.

The Audit Repon aJso mistakenly argues that the fact ofreceiving funds into the

Compliance Comminee demonsuates that there ~'aS a solicitation. In addition to not being able

to sho"': the plain language of a sollcuatlon. this argument is flawed. That onl~' 8.3 percent ofthe

people ~'ho gave to the Compliance Commlnee did not give to the Primary Comminee indicates

tha: there ~as not a separate sohcltatlon. or any sohcitation. for the Compliance Comminee

'"Itnln an~ plaIn mcanln~ of that word \\nat It does sho\\,' is that individuals who knew the la",'

lne\\ the~ could ~I\'C to a GELAC. and they did It IS similarly misplaced to explain this plain

fact b~ maintaining that a "r ~r response ratc" IS responsible. Ifthis had been a "solicitation-'.

Ihcn JO~IC "'ould dictate that the response !"2te (or the Pnma..• and Compliance Comminees

should h.a\·c been roughly the samc Instead. they were offby a factor of 10. indicating that there

""as no "sohcnauon- (or the Compliance Committee that would trigger the disqualification of

an~ expenscs by thc Pnmary Commlnee

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PATTON BOGGS, L..L..P.

The Honorable John W~n McG~'

October 29. 1997

Page 6

As this &lJUlDeDt demoDSU'ates. the Committee disputes the 13.94 percent repayment

figure used in the Audit Repon.

For the reasons set fOM above. the Wilson for President Primary Comminee requests that

the Commission determine a lesser repayment as set fonh above.

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PETE WILSON FOR PRESIDENT COMPUANCE

COMUmEL INC. (CONTRIBUTIONS)

1369

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February 23 11-!!.

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fRANKlIN

NATIONAL IAMl

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Contribution Refund • 0909-06130195

• PAY

: 6~~~OF Mr. Joseph Tavaplione ":o~--_ -;"',= .. -

ONE THOUSAND AND oon 00 •••••••••••••••

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Last statement: J.nu.ry 31, 1997

This statement: February 28, 1997

PETE WILSON FOR PRESIDENT

COMPLIANCE COMMITTEE INC

20 S QUAKER LN SUITE 20

ALEXANDRIA VA 22314

Pegtt 1 of 1

10t3673512

(1)

Direct inQuirIeS to:

202·331 ·2737

Franklin Nationa' Bank

1722 Eye Street N W

Wuhington DC 20006

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{1 Business Checking Account 7

1013673512 Beginning baaance

68·0353701 Total additions

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Account number

Tax 10 number

EnClosures

Avg collected balance

CHECKS

t4fu",tMr Date

1369 02·21

DAILY BALANCES

D... Amount

O~·3' 67.S6393

Amount

1.000.00

D.,.

02·21

Amount

66.563.93

Dat.

Dal.

'67,563.93

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1.000.00

$66.563.93

Amount

Amount

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FEDERAL ELECTION COMMISSION

November 14, 1997

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MEMQIUNDI1M

TO: LAWRENCE M. NOBLE

GENERAL CO·t1N1~

THROUGH: JOHN C. SU.n..&&"'I1'WI

STAFF DIRE

FROM: ROBERT J. CO 'A

ASSISTANT S D~6-~ AUDIT DMSIrN

SUBJECT: RESPONSE Olr THE PETE WD..SON FOR PRESIDENT COMMITTEE.

INC. (WILSON\COMMlII EE) TO 1HECOMMlSSION AUDIT

REPORT

By memorandum daled November 4, 1997 you requested die Audit Division·5

analysIs afme Wilson Conmuaee·s response to the CommissiOD" audit report approved

on August 27, 1997. The WilsoD Commiaee makes oaIy two .......,nsin the response:

I) Tb~ is. coDfliet iD the Comm,ssioo's rquJarioas wiIh'cspecl to. PraideDtial

pnmary cand.ida!c wbo eleas to establish • CieDcral ElectiaG Lepl aDd ACCOUDUDI

Comphance FUDd (CiELAC) ad is DOt DO'"ineted by his pIIftY; ad. 2) Tbe lefamce to

contribunons to !be GELAC ill 1be WaboD Commit1ee's solic:i--' is DOl sufficiCDt to

be defmed u • solicilalicm aDd lberefore. DO COIl sbouId be alJocsred to the GELAC.

Both cflbese ..."""'" were pili forwwd ill icspGDIC II) die Exit Confamce

MemoraDdum aDd are dilCUSSed in the audit report at pqe.. 29 10 32. No DeW

tnfOnDIDOD bat beal provided aDd the Audit Division's opin.iOD bas DOt cbaDacd.

With respect 10 dcfiD.itioa of. solicitaliOD it is DOled tba ifdie Wllsoa

COnuD1l1ft'S posi1iOD sbauld preyail. it will be "ft'"'1I'Y to which

solicnauODS coasDue. Mjoim SOlietWlOD" in Ibe oqoiDI audits oftbe Dole IDd Clinton

campaaps.
OR 'r"'I"L

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TRANSCRIPT OF PROCEEDINGS

In ~he Maccer of:

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No.: 98-16

PETE WILSON FOR PRESIDENT

COMMInEE, INC.

{LRA 1478)

CORRECTED COpy

r:a:e: Wash1ngtoD. D.C.

:a:e: February 25. 1998

HERITAGE REPORTING CORPORATION

OJliClGl IUpon~n

1220 L Slreei. NW. Suite 600

WashinllOll. D.C.

(202) 628-4888

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FEDERAL ELECTION CO~SSION

ORAL HEARING

WEDNESpAY, FEBRYARY 2S, 1998

10;05 a,m.

AGENDA

PETE WILSON FOR PRESIDENT COMMITTEE, INC.

C:'RA #478)

Agenda Do=ke~ No. 98-16

HELD A~; FEO£~ ELECTIONS COMMcrSSION

999 E S:reet, N.W.

9:h Floor Conference Room Was~:.n9':.on, D.C.

EEF~R£: ::~~:. A:K£NS,

::.a:.:-:nan

APPEARANCES:

f;~ ;he ;?~;SS;g;:

SCO~ THOMAS. Vlce ~hairman

30E STOL~Z. Ass: Staff Director

ROBERT J. ~~S~A. Asst, Staff Director

LEE ANN £~~::~. :~mm:.ssioner

DANNY McDON~:. Commlssioner

JOHN w. Mc~AARY. :ommlssloner

JOHN SURINA. S:a!! OlreCtor ~WRENCE NOB~£. y~neral Counsel 30£~ ROESSNER, S:a~~ Attorney

Herl:a9~ Reporting Corporation

'2=21 628-4888

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3 CHAIRMAN AIKENS: Good morning. This specia: ~p~~

4 meeting of the Federal Election Co~ssion will please =~m~

5 to order. On our agenda today is an oral hearing on beha::

6 of the Pete Wilson for Presidenc Committee, Inc. Th~

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:ommittee has requested this opportunity co address the

~ommission in open session concerning a repayment

de:e~ination, which is contained in the Audic Repor:

:nrough August 27, 1997.

!~ :he aucl: report, che Commission ident~:ied

~xpendltures :ocalllng 51,271,985 chat the committee spent

=~ :~ndra~s~n9. O! this amount, the &udic report concluded

:~a: S69S,09B appears :0 have been incurred on behalf o~

==:~ :h~ :o~~::e~ a~= :he Pete Wilson for Presiden:

:=~~::a~:~ :o~~::e~. 7he audl: report further noted :ha:

:~~ :=~:::e~ appare~::y pald an add1:ional 510,000 on

:~~d:~ =~ :h~ =omp:~an=e Comml:tee for Compliance Co~m~::~~

Based on these expenditures, the Commission ma~e

:~:~~~natlon that :he :o~l:tee must repay 529,86: :0 :~~

~~::~d States Treas~ry ~or non-qualified campaign exp~n~~$

~~~sua~: :0 11 :.F.R. 3038.6.

~he sole p~~ose of this meeting is to glve :h~

:: :=~~::ee an oppor:u~~:y :0 address the Commission and to

Herl:age Reporting Corporation

:2:2) 628·4888
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demonstra~e that no repaymen~ or a lesser repaymenc is

required. This is no~ an adversarial or ~~ial-like ~~a=:~; .

:ounsel for the Commit~ee will have 30 minu~es :0 ~k~ ~~~:=

remarks. A~ ~he conclusion of the Committee's prese~~a~~o~,

each Commissioner will have an opportunity to ask ques:~o~s,

as will the General Counsel and the Audit Division Chi~~.

After this hearing, the Committee will have :~v~

days in which to submit additional material for the

Commission's consideration. The Commission will then make a

repayment dete~ination following administrative review and

~ssue a statement and reasons in support of that

~e:er:nination.

Represen:~n9 the Wilson Committee today is

E~~:arn~n L. u~nsberg. Esquire. I would ask Mr. Ginsberg :=

:~y := k~ep tlS rema~ks :0 about 30 minutes so that we w:::

~av~ ~:~~:y ~! :lme ~or ~~es:ions and answers and to l~~::

:: := :nose matters ralsed In :he written response to :h~

:=~~ss~on's 1n1:1a1 repaymen: determination.

Good morning. Ben, and welcome.

MR. GINSBERG: Good morning, Madam Chairman.

~~ank you. I:'8 a pl~asure to be here today. : am r~:~~v~=

:= hear it's not an a~ve~sarlal proceeding and I look

.: ~=rward to having :h~ 9~ve and take of ideas. I can prom~s~

:~ y~u :~a: : wil~ be S~9~~~~=antly shorter than 30 minu::s

.: oe:ause: think there really is one main issue for ou~

Herl:age Repor:ing Corporation

:202i 628-4888

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1 purposes today, bu~ i~ is an issue of principle which :s

2 the Committee felt it important to address it.

3 The matter involves a cand;date, Governor Wilso~,

4 who ran into same unfor~unate medical problems in the =o~~s~

5 of the campaign that forced h~ to drop ou~ premature:y :~

6 September of 1995 ~rom the last presidential contest. Tha:

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led to the somewhat unusual situation of the candidate no:

appearing on any presiden:ial ballots for actual purposes ~:

vo~:n9, yet being el~gible ~or matching funds under the

s:a~u:e and :he re9u~ations.

As a ~o1:ower o~ :he Commission, I certainly note

:ha: :his :s a situatlon you don't like particularly and I

:a~ p=o~:se you :ha: ~ove=no= Wilson didn't much like being

w::hou: a :and:da:e's most valued asset, namely his voi=~.

~=~e:he:ess, des~~:e some ~~~ortunate twists of fate,

• - j~v~~~=~ w::so~ s~o~:= no: be prejudiced as to repayment

~~:~~:~a::=~s, a~=. s:~::a~:y, the statute and

- ~~?~:a::o~s a~~ =lea: :ha: a candidate in Governor Wilso~'$

=::~a::~~ :s s:::: e~::::ed :0 matching funds, and he shou~d

~~=~:v~ due and :~me:y :onslderation on those issues.

Wha: see~ := nave :hrust the Wilson for Pres:j~~:

:=~~ttee ~nto :h~s ~epayme~: d~spute was, first of al:,

w~a: lS r~ally a ca:=~·:: :~ the regs and, secondly, an

:~ :~=:~en:a:. ra:he~ ~:e~::ns mention of the General £lect:c~

~~ga: and Ac=oun:~~; :o~.::tee tucked into the solicitatlons

H~:::age Repor~lng Corporation :2::1 628-4888

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by Governor Wilson's Primary Commi~tee, and !' 11 discuss _..

a moment whether ehis men~ion really even cons~itutes a

3 solicitation for ehe GELAC.

4 But there are two essen:ial points on ~he

5 repaymen: issue. Number one, nearly all of the coses ~C~

6 the mailings at issue occurred before the Commission's Regs

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d~rec:ing the split of costs that went into effect on A~g~s:

16, 1995. And, indeed, the coSt of only one mailing at

issue came af:er ~he August 16th date. But, more

impor:antly, Wilson for President Committee did only what

your regula:ions pe~~:. 9003.3.3(a) (1) (i) states that a

=and~date may estab1~sh a GELAC, "prior to being nominated

0= selected as a par:y's nom1nee."

Despl:e :~~S =lea~ wording, the regs are st:::

==~:~aa~=:o~y. As: m~~:~on~d, other regulations hold :ha:

a :=~~: so:~:~:a:~o~ ~~s: be sp11t between the Primary

::~~:::~~ a~c :n~ ~E~:. And despi:e this clear di~ect:v~,

:::.;,e -2' holds :ha: any unsuc=~ssful candidate must

~~:~=~ a:: ~unds ra:sed ~or a :ampalgn for which he O~ sh~

d:d not recelve the noc~na:~o~.

So wna:'s a =~~pa~9~ Wh1Ch exercises the ~igh:

;:ven by 9003.3 :0 d=~ ::'5 ~~relevant whether or not :h~

~. jE~: is requ1red. as :ne ~~~~=e of General Counsel argu~d.

:~ S~~=~ l: is clear~y s~~e:n1n9 that a candidate is allow~d :=

-~ == ~nder :he regs. ~ne ~£~c 1& something that a candida:~

Her~:a3~ Kepor:1ng Corporation

2C2: 628·4888

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1 can form, and che point is t.hat GELACs are permitted b~':'''''-

2 a candidate is nominated.

3 So, it's fundamentally unfair to penalize a

4 candidate for fo~in9 one. Yet that's precisely what's

5 happened here to the Wilson Committee. As a praceical

6 mat.ter, a campaign doing what's permitted by 9003.3 must

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spend all Primary Committee funds for its solicitat.ions ~~

order to be in full compliance, and that's what t.he wi:.so~

::>~i:tee did.

The reasons are really dictated by the regulatory

s=heme. Firs:, a:: :he solicitations were, in fact, for

pr~mary funds. If :ne G£~C did not exist, there would

s::::, o~ course, be solicitations by the Primary Committ~~,

y~: :he 0pposlte ~s ~o: :rue. In other words, since :he

~~~: would not so:~c~: on l:S own, there would be no reasc~

:: ~=~ a GE~C O~ ~:s own as an independent committee. ~~d

S~. a:: :he expenses lnvolved here would be by the Prlmary

:=~~::ee because 1:'5 only :he Primary Committee that has

:~~ ~~al nec~sSlty to go ou: and raise funds.

Second, 9~ve~ :he nature of GELACs, if the GE~C

~a~ pald for any o~ :~e expenses, which you wish us to d~

~=: purposes of thlS pro=ee~~n9, the Commission would

:~9h:fully be arquln9 :c us rlght now that a general

:~ ~:~=:~=n comml:~ee can'~ ~nderwrite the cost of a Primary

:: :=~~::ee. And it's :er:aln that if the GELAC had paid a~y

Her~:age Repor:ing Corporation

:2C2) 628·4888

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por~ion of the cost c~ the mailing, the Commission wou:d ~c~

2 be seeking repayment for that amount.

3 Third, since 102.9 requires all successful p~:~ary

4 candidates to return -- I'm sorry -- 102e9 requires al:

5 unsuccessful primary candidates to return all GELAC fu~ds

6 raised, it's impossible to use GELAC funds for any ~xpens~~

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be:ore a general elec:ion, which is why the Wilson Comm~::~~

didn't. Basically, you're providing no way out.

Here's an example of what would happen if the

:ommi~tee did what : ~hink you're telling us we should have

==n~ i~ this s~:ua:~o~. All right, a Primary Committee and

:~~ ~~~:, do spl~: :he cost of the mailing that generated a

~ypc:he:l=a: SlOC,OOC ~or the GELAC and then some other

a~=~~: === the P=~ma~y Comm~::ee. The overall cost of :~~

~:~_:~; was. say. S~:.:~~. Under the regs, the GELAC wou:d

~3V~ :: pay S~C.OO: ~~ ~os:s ~or the mailing.

-.....- ........ ....... --- 7~~ ~£~: wo~:d the~ have a balance of SBC,OOC.

ra~sed ml~us :he 52:.000 in fundraising costs.

~~w~ve=. should the :and~da:e not be 'the nominee, under

:::.; :hen the GELA: would have ~o refund the full S100,OO~.

:~e ~ull amoun: :ha: ~: ra~sed. So how is the candidat~

s~PPoged :0 do :ha:~ He or sn~ could go out and ralse th~

_. S::.OOO to make up :ne :~~~erence, but then there's gOlng == _-... ~~ a =~s: of fundra~s~~g :: actually raise that other

~::.::c. So then. YO~':l have to raise that amount of

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1 fundraising coses.

:2 And chen, to raise chat additional money, v .... ··, .. • ..J-" ....

3 have to raise more money to pay the costs a~d so =~ a~d s=

4 o~, so that there's no physically possible way ~~ ~v~~ =a:=~

5 up. In other words, it's the ultimate regulatory catc~·::.

6 Now, some may not like GELACs, and I can appreciate ~ha:,

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but :hey are on :he books, and it's fundamentally ~~awed :~

pun~sh the Commitcee for doing what the regulacions pe~~:

~: :0 do, at :he same time.

There's clearly a conflict between the regs, whic~

:~~ :omm~sslon 15 empowered to change, and the plain

:a~;~age of what che regs pe~it. In short, the Cornmit:ee

:s =augh: ~~ a game o~ go:::ha in which it can follow :he

;:a~~ wc=~~nq :he requ:a:l0ns, but still be subject to

S~:=nd:y. :~: ~e a~~ress briefly the ques:ion =~

.~~:~~~ :~~ ~o=~~e~:s a: lssue actually constitute a

~-.::::a:~~~ ~O~ :ne ~£~c a: a:l. I believe that :h~r~ :s

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~_=~~ss10n on ~anua~' :~. :9;1 In response to the ex~:

~he examp:e : nave here is an invitation :0 a

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by way of background, but when we did they were gene:a:~y

2 four-page lecters chac included a response devise simi:a~ --

3 the one that you see here. As you can tell in the

4 solicitations itself, in the invieaeion, there's absc:~~~::

5 no meneion of a compliance committee or a GELAC. And. i~

6 fact, there's only one small line in the response dev:=~.

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the second box down on ~he bottom. And, that does not say

"Please send us money." Ie merely notes the fact that ther~

:s another vehicle in which funds can be deposited. In any

~ai~ reading o~ this invitation, it is not a solicitation

~~~ :he GELAC. It 1S but a fleeting reference to the GELAC

at a::.

: :h~nk that the documents speak for themselves.

a~= : hope you do :ake the time to look at the full

a::a=~~en:. ~he tab s~:s on the January 19, 1997 subm~ss:o~

W~~~~ w~ rea::y show :~a: there is nothing more than a

~:~~:~~9 re!erence. :t says, in full, "Also enclosed ~s

~Y/our contrlbut10n l~ the amount of 'blank' dollars fo~ :~~

?e:~ wilso~ ~or Preslden: Compllance Fund ("Maximum

=cn:r~bution of 51,000 per person may be made in addi::c~ --

a :ontribucion to the P~lmary Commitcee).R And that's a::

:he~e 15. There's no:~~n9 l~ the text anywhere tha: says

·Pl~ase contribute to :ne GELAC, please contribute to th~

:~ :=~~::ee." Tha:·s :~s: no: there. This is merely show~ng

_......... :~a: there's a box ~o :heck for ehe GELAC. GELACs ar~

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1 pe~itted by 9003.3 for a candidate in Governor Wilso~'s

2 position. The OGC analysis wonders how this fleet~=q

3 mencion of a Compliance Committee could in any way be i~

4 connection with Governor Wilson's nomination campaign. 7=

5 =he extent: that argument is relevant, the reason is ~ea:~y a

political decision more than anything else. And the ~eas~~

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was whether we needed this publicity. If this is viewed as

a :ac:ical matter, it was thought that to put in the me~::~~

o~ a GELAC, which is the General Election Committee,

e~hanced Governor Wilson's status. And it even .- pa~don

:~~s expression -- showed the inevitability of his

~om~nation. ~hat was the reason it was in. And that did

~ave a pol1t1=al calculatio~ in that it would somehow

~e~e~:: :he Pr1mary Committee .

:~ a: ~he :~me :ha: these response devices had

;=~€ :~: anyone had ~ea:::ed :hat 9003.3 could be cons:r~ed

:: ~ea~ s=me:~:ng o:her :han what it clearly says, that "a

:a~::da:~ may estab:~sh a GE~C before being nom1nated" :h~

:=~~::ee most =er:a1~ly wou:d not have included thlS

~:~e::n9 ~eference. ~:ven :ne !acial contradictions l~ :~~

~~9~:atl0ns :he~e:ves and :ne very fleeting referenc~ t~

:~e :ompl~ance :omm~::ee·s In :he Prlmary Committee'S

$~:~:ltat1ons, we de ask :he Commission to reconsider :h~

III

-~ ~~paymen: decls10n and, l~ !ac:, to not require a repaym~nt

~~re.

Herl:age Repe~:in9 Cerpora:ion

(202) 628·4888

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There is one f~nal issue ! do feel compe::~d

2 address. The footnote on page 2 of the document you

3 received prior to this meeting with OGe's analysis, for :~i~

4 hearing states that the issue of the AT&T telephone sys:~~

5 is not a repayment issue and not subject to ~his hea~i~;.

6 Well it may not be the subject of this hearing, and!

it

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understand that's your right to limit this, but i~ most

=er~ainly is a repayment issue because if that issue was

was set~led properly, we would not be in this si:uation

we're in now arguing about the repayment over GELAC funds.

And frankly. we had hoped to have been heard on

bo:h :ssues a: once, really as an economy to the Commission,

a~d =er:a~nly to ~he W~lson Committee, which is now going to

~ave :0 pay ~ore money :han :: has to defend all of t~lS a

~~==~= ::me. ~he :O~:SSlO~ has denied requests for ~ea~:v

!:::.:~C :~ mat:h~ng fu~ds. ~here are vendors who have ~o:

~~~~ palO nearly S3CC,OOO i~ outstanding bills, and :~lS :s

a ~ar~sh:p ~or the Comml::ee.

~he Comml::e~ ~ollowed the regulations in seeklng

a hearing on that ma::hing fund denial. We timely subm:::~d

a ~equest a~ter the de~~a: :~ November and that decislon

::sel! came a~:er a pu::::ngly long delay. :t's be~~ mc~~

:~a~ a year-and-a-hal~ Sln:e the exit conference. ::'5 b~~~

:~ ~=~~ :~an y~ar s~nc~ :ne eXl: conference memorandum

-- 3pp~ar~d. 1:'5 bee~ :wo-and-a-half years since Governor

Herl:age Reporting Corporation ~2C2~ 628-4888

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1 Wilson dropped from ~he race. So far we have heard

2 absolutely nothing from the Commission about our proper:y

3 filed requests for a hearing on the matching fund denia:. -.

4 you have any sense of fairness, you would at least al:ow ~~

5 to pursue that in a hearing, which is pe~itted under :h~

6 Regs.

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It'S especially troubling since the telephone

sys:em really involves a very simple issue. We say there

was a contract in May of 1995. AT&T says there was a

=c~::act in May of 1995. But still, the funds are being

de~ied and we haven't even been afforded a hearing to

exp:ess ~his to you. The only people who say there wasn't a

~ee:~ng o~ :he minds 10 that contract are all of you, and we

wo~:d :ike :he opportuni:y to address those issues, along

w::~ rep:ese~:atlves o~ AT&T.

:~ summa:~o~. :he medical difficulties of Gove~~o~

w~:s=~. =~d pu: h~s p~eslden:ial committee in an unusual

s~:~a::o~ ~e9ard1n9 :he rece1pt of matching funds. ~his:$

a~ :ssue ove: which we a: least would- appreciate a hear:ng.

~~ank you very mUCh, and : would be happy to enterta~n any

::r-J~stlordl that. t.here a:e.

•

CHAIRMAN A:K£NS: ~hank you, Mr. Ginsberg. :'re

:~ su::~ there are. I'd :~ke :0 ask just one simple questlo~.

:~ a~d: may come back :: ~: later, but I just want.ed to get Q

:S date es:ab:ished. You state in your .. somewhere in your

Her~:age Repor~ing Corporation

:202) 628-4888

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repo=: I saw it, the one solicitation mentioning a G£~: wa$

2 made af~er the effective date of the regulations

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4

MR. GINSBERG: The cost of -- I'm sorry --

CHAIRMAN AIKENS: What was the date of tha:

5 solicita~ion?

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MR. GINSBERG: The·· I'm sorry. If I said :ha:,

1 misspoke slighely. The coses of the solicitation were a::

before August 16th. In other words, Governor Wilson dr~pped

September 30~h, all ehe solicieatiotts .... but one that :

believe is a Sep~ember 30th event is in your packages .

CHAIRMAN AIKENS: Yes, sir. That's the one I

MR. G:NSBERG: That's still before August 16th .

N~: a11 ~he even:s :ook pla:e before August 16th --

:HA:RMAN A:K£NS: No.

~. ~:NS=£R~: bu: the costs were.

:HA:~~~ A:K~NS: Bu: it's the September 30th ~ne

: ~.a ': . S ••

MA. G:NSB£RG: Y~s.

:HA:RMAN A:K~NS: :ommissioner McGarry.

COMMISSION£~ M:GARRY: Thank you, Madam Cha~~~,

~c~d morning, Ben.

MR. GINSBE~~: ~ood morning, sir.

COMM!SSION£~ M=~ARRY: Ben, I'm curious why :h~

:~ w~:so~ ~£~= was me~:~~n~d ~~ :he solicitation, at a1:.

:5 Was~·: :he notatlon '~~audlble) as you point out in the

He~~:age R~porting Corporation

.4:2i 628-4888

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1 commen~s. was it actually generated by your reading o! :h~

2 Commission's regula~ions?

3 MR. GINSBERG: The political people in :he

4 Commi~tee believed that it would be helpful to note :he

5 existence of ~he general election commiteee. To show:: was

5 helpful ~o t.he effort to show that Governor Wilson wo~:= w··,

~o: going ~o hurt us in raising primary money." So ther~

:~~~~ was the abili:v to do it under the regs, so i: was

?~~p:e ~t was helpful. In the minds of the legal people,

s=::=:ta~ions were done for the Primary Commi~tee, bu~ ~n

The fundraisers said, -Hey, you know, why no:? .... "'.''''::-

was never any intent, desire or thought about dilutlng :he

?r~mary Committee's fundraising message. All these

:hJ.s.

:~~ ~lnds o~ the finance people and the political committee

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:~ ~:her wo~ds, there was nothing in any :~::~~~

:~a: -~~~ se~: out, there's no:hJ.ng in any invitations t~a:

:. ;~.'::. .. :=:ne ": 0 ar: eve~": for :he GELAC." It merely says,

-~~~~.~ a box. CheCk l:.-

:~MMISSIONER McGARRY: I'm certainly

:~a~=~b1~~ and : :~a~k you, Madam Chairman.

CHA:RMAN A:K£NS: :ommissioner Elliott.

:OMMISSIONE~ £~~IC~: Ben, I noted that l~ yc~~

:~ ~~p=~~ yo~ say :ha: E.3 percent of the mailings generated

:: =~~a:~ons solely to :h~ GELAC. Now, does that mean you s~~~

Herl:age Reporting Corpora~ion

(2C2) 628·4888

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:'m sorry _. would have given to the Primary Committee a~d

would have given to the Primary Committee and the GELAC

responded .- math was never my strong suit, but : th:~k ?:.-

My mistake.

MR. ~:~SS£R~: :'m sorry. We are .- we're ~alkinq

:~MM:SS::~£~ £:::~: The dollars were genera:~~

d~::ars. no: people.

~~=~ :~~ peop:e? 7~a:'s :he base?

the language that you indicated gave

people responded? That way it --

MR. GINSBERG: What it means is that if :OC peo;_~

out 100 mailings and 8.3 percen~ generated dona: ions , ~~

does that mean the number of the peopie that responded

a ... ~··· ___ \oe.

:hen 8.3 percent o~ the people did not give to the Primary

:ornmit:ee but merely gave to the GELAC.

COMM:SS:ON£R ELLIOTT: Okay. So we're talking

abou: people. ~ha:'s very helpful .

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~. G:NSa£R~: Yes. It's dollars and not peop:~.

:~MM:SS:OS£R £~~IO~: Did you have any oth~r

s=:~:~:a:~ons only ~C~ :h~ GE~C?

MR. GINSaER~: No.

CO~:SS:=NEr: :-____ ....'twI ,.,. ....... • •• Okay. If you had so:~:::~d

=~:y f~om GE~C, wo~:: l: have gone to the same place ~ha:

... :n~ p~lmary cheeks wo~:~ have gone through?

-. .... MR. G:NSe£~~; ~he prlma~ checks? You mea~ .

::::a::.on·Wlse?

He~~:age Reporting Corporation

'2C2i 628-4888
COMMISSIONER ELLIOTT: Yes. The address whe:.--: y=....

2 send the check?

3 MR. GINSBERG: Yes. It would have gone ~o :he --

4 i~ was never a separate response device we're dealing w::~.

5 COMMISSIONER ELLIOTT: I see. Okay. Was any

·6 money raised for the GELAC fund in any way oueside of th~s~

was slmply puc:ing another box on there. There was never a

separa:e GE~C solici:ation- There was never a separate

==n~ o~a~:y o~ some:hlng like that?

~£~: event. !: really was ..

MR. GINSBERG: No. Well, ....

_.. everything .. no.

MR. ~!NSB£RG: No.

C~MMISSIONER ELLIOTT: Or a luncheon where it was

:nai1.ings?

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:OMM:SSION£~ E~~IO~: So we're really just say~ng

.--.- _ ••Cl .. •_ ••.... 0_ -:1:'-",-. --.~- ::..:: :::a:, came ~rom the 8.3 percent o~ :he

~~spc~d~~:s :c :he ma~:::..n9 and that was it?

MR. G!NSB£R~: Yes.

:~~:SS:~N£~ E~~::~: Thank you very much.

:HA:RMAN A:K£NS: Okay. Vice Chairman Thomas.

V::E =HA:R.~ -:-H~MAS: Thank you, Madam Chairma~.

~ood mornlng, Ben. and :hanK you for coming. I firs: wa~~

~: s==a:=h a 11t:le b~: more ~nto your interpretation o~

.:.. w~a::.s a SollClta::.o::. You probably are fully awar,= o~ 0"-

~~~c~de~:s :.n other =~~:ex:s for what we consider to be a

Her:.:age Repor:ing Corporation

:2C2} 628-4888

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solicitation and it becomes relevant in several areas. 3~:

I am just wondering how you would interpret a solic::a~~~~

3 piece chat had the kind of language you're talking abou:,

4 where they have simply substituted the GELAC W1:~ th~

5 Primary Campaign Committee.

6 Important in their (inaudible) was the stat~-by·

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state spending money. As you know, we r~vised the

:egulations substantially (inaudible) to greater st:earnl:~~

and simplify the state-by-state spending limits, and one of

:~e things we did was, we said "You can attribute a

s~g~i~ican~ amount o~ (inaudible) expense, subjec~ :0 ~he

overal~ 20 percen: exemption."

::~audib:e by wha: was part of the state·by-s~ate

spe~=~~g :~~~: amou~:s, and :hey considered that a

~~~=:a~s~ng expense. s=, w~a: !'m curious about is .~ :~~

~::~=::a::=~ ~~ece :~ :~a: :=~:ext had the exact same

_a~;~age :ha: you're :a:~~ns about here, saying we ought nc:

:=~s~der ~: a Sollc~:a:~on p~ece, would you be comfor:ab:~

~::~ ~s saY~~9. eve~ :hough you have that language at :h~

o~ one o~ your :e::~~s you were sending in the

:~e primary, ·We're no: qc~n9 :0 give you che benefl: of

:~ea:~n9 it as a ~~~=ra~s~n9 expense. And, in fact, you ar~

gO~~9 to have to a:lo:a:@ :na: to the communications as i~

:~ :: were an expense S~::~:: :c one of ~he state-by-state

:e::~n9. 00 you fo::~w~

He:l:age iepor:lng Corporation

.::2 628-4888

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1 MR. GINSBERG: No. I think ic would be hel~:~: .-

2 you took the fundraising piece here and sore of marked :.: O.:r:

3 wich the language you have sU9gesced. -

4 VICE CHAIRMAN THOMAS: And this is putting :l"1~

5 word "Primary Committee" instead of GELAC. "Also.enc:o~~d

6 is our con~ribution in the amount of X dollars co Pete

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Wilson for Preside~: Primary Commitcee. A maximum

:on:ribution of Sl,OOO may be made in addition to you~

con:~ibucion.· Does i: say chat the max~ contribution o!

s:,OOO per person applies, something like that? The basic

~~~=~ would be "Also enclosed is our contribution in :he

amou~: of X dollars :0 :he Wilson for President Primary

::l~:..:.:ee."

~hlS is sorne mai~in9 that you do in the con:ex: ==

• . = would v-··

.-- say :hat that's a solicitation

~O ~:NSe£R~: We don't have the' underlying

=~n~::..:: ~ha: we've n~~~ w:..:.h the regs, which allow you t~

~av~ a G£~C before :ne nom:..natlon.

VICE CHA:~~~ ~OMAS: I just am trying to exp~~ss

:: you, we w~ll hav~ .. we ':..naudible) try to deal wi:h wha:

:=o~s like a .oll=~:a:~o~ ought to be treated as a

-~ SC:lc~tatlon when :he va~~ous Federal rules apply and .~

:~ wc~:= be k1nd o~ har~ ~=~ us ! think in the context you'r~

~5 sU9ges:lng :0 say :ha: :h:..s k1nd of language is not a

Her~:age R~por~ing Corporation ~2C2: 628-4888

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solicitation. Then ~o go ineo che state by the sca~~

allocation rules and see the exact same kind of languag~ ~~

a primary campaign and say -No, no. We can't conside~ :~a~

a solicitation. Ic's not clear enough as a solicita:~o~.

Therefore, the commit:ee can't avail itself of the

opportunity to consider that a fund raising expense a~d :~~~

something that's not subject to the state by state sp~ndi~g

l.:.mits.

MR. GINSBERG: Well, I~m not sure the analogy

wo~ks. Simply because of the different regulatory schemes

b~~:.nd :he two di~fe~en: types of solicitations. Bu:,

~eyond that :.n:o wha: speci~:.cally you consider a

so:~=~:a:ion, while _ app~e=.ate the efforts the Commiss:.o~

~as p~: :.n:o :~lns :c hone down those definitions, :'d

s~;ges: :~a: :~:.s =onve~sa::.o~ shows that there is s:~:: a

:~=~ :~e w::so~ Co~:.::ee was pu~ely a solicitation :~~ :~~

r~:~a~y :omm:.::ee and me:ely a fleetlng reference to :h~

:~~~:~an=~ Comm1::ee :ha: ough: not to count as a

VICE CHA:R..~~ ~HOMAS: Let me move on :hen. 7h~

~ypo:hetlcal you ~a~se= was ~~:~~guin9 for me. I too a~

so~: o~ :rylng eo sor: :~rou9h what ocher ways ~his k~nd =~

JC

:~ a s::~a:lO~ mlgh: hav~ b~~~ deal: with and, to be houes:, -

;~~5S : had always so~: o~ assumed that it would be In

He:l:age Reporting Corporation 2~2) 628 -4888

1.: .:.::::.~·~:~ 12...__ .. 4't I/(y "'i._.........._
1 essence what your (inaudible) did. You would basica::y ~a~~

2 ehe decision ehae, you know, we're going to set up a

3 compliance fund in anticipation of him getting the

4 nominaeion and geteing into the general election. WA'-A

encitled to do that and the regs specifically allow ~=~

C ~hat. But, in essence, ehere is an accompanying risk.

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If you don't win the nomination and you have b~~~

=~: :here raising general eleceion compliance fund relaced

~c~~es are no: making it to the general election, so the

ne=essa~ consequence is, first of all as is the case with

a~: ~~~d o! commit:ee pUblically funded or not, general

~:~=:lon related monles that are raised that aren't needed

3~~ 90~ng :c have to be :e~unded to the donors or designated

~ay~~ :c some o:her e:ectl0n .

:~ ad=~:~=~ :: :ne public ~undin9 context, i: ~~s:

._~~ :=~~~::e~ p~=Ke= ~p :h~ ~~nd ralsing costs, which s~~ms

'.'--:y :=;~=a': and: ;a:he:- :.~a:' 5 what you people baslca::y

•. ~~~ ~=nse~uence ~s :ha: :ne publlC funding ratlo ~s ~~5:

:-~~~ t= hav~ to be :~pa~d :0 :he treasury. The pUbl~=

-:~~y ra:~on :na: was vsed :0 :-aise those monies is 90~~;

:~ -:~pa~d on a pe~=e~:a~~. :naudlble) 79 to 7; perce~:. _

?-~SS ~: ~S. SO ~ha: .~~ms :0 be the representative do~s~'~

:~ ~~a~=~c:., talked a=o~: ~: ~n a general election

-- ::~;:~ance lS !~naud~b~e.J ~hen, having the complica:~ons

He~~:a9~ R~por:in9 Corporation

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oc:urring of how do you prefer to handle all of cha=.

MR. GINSBERG: Well, I think- it's indi=aced --

part and some of the confusion is the fact that new r~g$

went in on August 16th that said 50/50. I think ~ha: :~

there's anything resembling sort of a (inaudible) wou:d

at:ribute co the cost, that makes some sense. All righ~, .....

one context, in other words, 8.3 percent of the costS := b~

paid for by the GELAC but then you're going to have co

~~~~nd 100 per=ent. And to analogize that and I don't think

:~~S g~~s you ~nto (inaudible.)

~he nex: ~~es~ion with public financing, ~he

s~:ua:~on would rea:ly be analogous to that of an incumbent

~~~~e~ c~ Co~gress who opens up an election committee bu:

~eve~ ge:s C~ ~he pr~~a~ ballot. In that context, i: w=~:=

~~~~~re :hem :0 re~~~= :00 percent of the amount raised ~O~

:~~ ~~~~a~y ~a:lo:. 7he regs don't do that.

:: s~ems :: ~e :ha: :here's another way to a:

:~as: ~~:e:le=:ually approach :he situation here. Just--

~=::~W ~~. my :ast :ho~;h: was: Just wanted to give yo~

:~:::~ percep:l0n In:c :he con:radictions within the

(Inaud~=:e' we do r~commend that you r~ver:

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=a:~ wl:h (lnaudlble ~:~ p~rposes of resolVing thlS ~E:A~.

: :~~nk we can do one :~ :wo thlngs. You can either r~v~r:

~a:~ := ~unds recelve~ me:hod which I thlnk is probably :~~

mos: :oglcal or you ca~ pass :he regs that say you can': de

He~1:age Reporting Corporation

:202) 628-4888

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GELAC until you're nomina~ed. That would be (inaudibl~.'

Bue we find ourselves in the posicion of deal~~g

3 wi:h concradic~ory regs and obviously-not having a way =~~.

4 CHAIRMAN AIKENS: I appreciate your ca~ch-2:

5 sieuation.! chink when we went into the regs to un=~v~~ a

·6 problem that occurred in che '92 elections, we didn'~ ~hink

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long and hard enough about it. Because this would have be~~

a~=i=ipated i~ we did. So, I appreciate your sugges:io~s,

b~: to change (inaudible) consider that.

Mr. Noble?

MR. NOBLE: Thank you

MR. NOBLE: Ben, !., d like to go back to when this

s=::=~:a~io~ oc:urs, not having actually the solicitation in

~~=~: o! us. You~ pos::ion ~hat -- I'd like to follow up ~~

...::=~ :ha:.::rna~ ~homas' Cf.Jesc::.ons. You're saying that :.h:.s _=-

~:: a s=::=:.:a:~on ~=~ :he GE~C?

~. GINSE£R~: Yes.

MR. NOBLE: :a~ yoc show me where this is a

s=::.::.:a:l0n? :: 1S fo~ ~he Prlmary Committee.

MR. G:NSBER~: I: basically says paid for by··

:.~audible) _. suppor: :he Governor and Mrs. Wilson In

s~pport of his cand~=a=y ~or Pres~dent of the Un~:ed Sta:~$.

•. :: you see on here where l: says -- I think your objection

:~ was ~~ :he way 1: sa~d ·9~V~ to the GELAC-.

MR. NOB~E: ~o you see anywhere on there that says

He~ltage Reporting Corporation '2~:!) 628-4888

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give :0 the pr~ry campaign?

MR. GINSBERG: In the sense that is says

(inaudible) payment !inaudible) president of the Un~:~=

Staces and adding co it's thousand dollars for the ?~~~a~

Committ.ee.

MR. NOBLE: (Inaudible) the contributions to :~~

G£LAC are in support of those candidates for che pr~ma~y?

MR. GINSBERG: Well, they obviously can't be ~~

:he primary. It's a general election committee, but the

a:lswer is no.

MR. NOBLE: So you're agreeing that they are now

p~~~~ expenses.

MR. G:NSBERG: I'm sorry?

MR. NOBLE: So you are agreeing they're not

MR. ~:NSa£R~: ~hlS whole solicitation is a

~':' ~~.a:y :omm:. t :e~ expense.

MR. NOBLE: So :'m :rylng to just ~igure au: :~ :

::OK a: :ha: card, see :here are :hree boxes there. At :h~

~l~~mum one-th.rd of :nose box~s is (inaudible) Prima~y

:c~.ttee and one a=:~a:1y one that doesn't say Primary

.. --

:=rnm~:tee. It says ·Yes. ~lnaudible) enclosed is my ch~ck

:~ :ne amount of blank for blank people."

Interestlng :hough. the only box that actual:y

~e~:~ons what accoun: ~:'s g01ng to go into is the one :ha:

Herl:a9~ Repo~tin9 Corporation ~2~2) 628-4888

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1 says "(inaudible) compliance fund," which is the next bcx.

2 So I'm just having a hard time visualizing what the cocc~p~

3 of the solicitation is if you think this is a solicita:~o~

4 for the Primary Committee but in fact does not mention :h~

5 Primary Committee but does mention the compliance fund but.

6 is not a solicitation of the compliance fund.

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MR. GINSBERG: The support is for the Primary

Committee, that's the first box to be checked. I mean, :f~

no~ sure .. how would you rewrite the solicitation to read

wha:~ver standard it ~s you think should be met here?

MR. NOBLE: • wouldn't rewrite it. I think it's

n~: a solicitation for the GELAC and it's a solicitation for

MR. G:NSBERG: ! have to disagree with you s~mply

o~=a~se yo~ only hav~ :0 :ook at the results to show that

~~=~:~ who saw :h~s ~~a1:zed 1t is not a solicitat1o~ ~=~

a~::~:~; b~: GELAC :o~~::ee, with the exception of the e.:

__ ?e:'"=~n: .

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......

MR. NOBLE: So those people were mistaken?

MR. GINSBERG: No, those people realized tha:

:here was a second opt~on for :hem. The fact that they w~~~

:~:":a:.nly not part o~ :ne P:-::..mary Committee and certa:.:7.:Y

:3 nobody :hought that :~~ GE~C was everything, and that ::

:4 :~~ld SO:~Cl: every~~:~g O~ ltS own independently. ~her~

=5 never was a sollclta:lon that said, ·Please give to the

He:-l:age Reporting Corporation

:2C21 628 .. 4888
GELAC" .

S:ates."

on it's face?

.:~audit:e.~ What we're really :a:K~~?

MR.. GINSBERG: Yeah, I think that's enough .

MR. GINSBERG: No. It says "Please suppo~: :~e

MR. NOBLE: When you talk about the regula:~~~s

MR. NOBLE: That's all it has to say is "S',;:J::==-:

MR. NOBLE: Was there a solicitation .. I ~:a~,

does this solicitation say to give to the primary campa:~~

~he primary candidate"?

candidacy of Pete Wilson for President of the United

::'s sc~: o~ a ca::h·22. Agaln, I think you've k~nd ~f

a==~: :us: s: we'~e =:ea~ ~s whether or not caxpaye= :~~~s

::::~=hec ~~ :~:.s.

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.., ~:~SEE:~~: ::ea~:y chJ.s 1.S Just a so:'::::.:a::.-::-.

:~~~ :axpaye: ~unds w::: be used ~or it. Yes.

MR. N~B:"E' . -- .. the

:~~~sslon says :ha: a p~~::=n c~ ~hlS was as a sol::::a::~~

~~~~s ::anno: be use= :~ pay ~~: :hat porclon (lnaud:b:~.

MR. NOS:"£; ~~~e=:~vely thlS lS a catch 22. A

He:::a~~ Repo::J.ng Corporat1.on

::: 628-4888
catch 22 seems to me to mean that there's no way out. __......-

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2 no matter what you do .. (inaudible) taxpayer funds ~~~ :~n~

3 por~ion of the solicitation.

MR. GINSBERG: But if the Committee wa::ted ::" '..:::':'

5 just Primary Committee money on the sense of the theo=y :~~:

the GELAC is a genera: election committee and that you

=:..gt.:~u:~y .. ~or example, if I had used GELAC funds :0 pay

~O~ :his, you would be saying you need to repay that amou~:

:= :he GELAC. That, ~o me, is sort of a catch·22 situation,

~spe~ial~y when 9003.3 says you may start a GELAC before

v=~'~e nominated.

Yo~'ve go: :0 at ~east concede that there's

b

1 ... MR. NOBLE: No. :'~ ~rying to figure out wha~ yc~

~~2~ :5 a :a:=~·~2. Se:ause we're not saying the Prlmary

MR. ~:NSB£R~: ~ha:'s a hypothetical that lS~':

MR. NOB~E' e~: :'~ ~us: not getting an answ~~

-. .. ,.. ..... . _ .

~. G:NSBER~: wna: I'm saY1ng is that there .5 ~c

He~~:aq~ R~po~:lng Corporatlon

:::: 628-4888

r; ••.K....__
r .... , 1 GELAC solicitation here. This is a fleeting meneion, - .. t.

2 is a Primary Committee solicitation and we're caugh: ~n :~~

3 catch 22 where no matter what we'd have done, somebody wo~:~

4 have been after us for something to repay. But there ~s ~~

5 practical way out of this situation for us, or, in !ac~ ~O~

-6 several other committees this cycle, who chose not to :nk~

:his up with you.

We are not the only people who got confused by :h~

~~g~latory scheme. We may be the only ones who are foolish

~~o~gh :0 put ourselves against the weight of the Commission

:~~s subJ~=:, but we are not the only ones who go: caught

•.. ::::"5.

MR. NOBLE: Again, (inaudible), what the

.~ =:::~~~~=~ ~~~ld b~ :na: :axpayer funds can be used to pay

::~ :~a: .. :~ vo~ ~~~= :he so~icita:ion and say you hav~ --

~~~~ c pa:~~~: bas~= ~~ :he solicitation. What we are

s~·::~~ =~ ~~~a~= ~s :~~ por:lo~ of the money that would hav~

.. ~:NSEER~: ~::~ma:ely you can postur~ :hlS

:~~=:ng so :ha: :h~~~ ~s a~ av~nue to go down anc poss~t:i'

say. y~a~, yoc':-e ..........

.. ..-, Bu: : dor:': :hink that'S what

-~ MR. ~~a~£: 7~~~ you ar~ suggesting :hat w~ nc:

H~:'::a9~ R~por:ing Corporation

:202' 628-4888
.... ,

.

1 MR. GINSBERG: I suppose given the amouncs of

2 money involved, if Governor Wilson nad, which he does,

3 personal money to pay for it, that w(~uld have involved

4 ~axpayer funds.

5

·6

MR. NOBLE: Bu~ you're asking che Commissio~

MR. G:NSB£RG: I chink ~his should all be a

~O~ :he Prima~ Committee.

~: y~~ have a s~milar numbe= ~o=

....... .. -.. ....... _..

~hey a~e :h~ ~olks chat gave co GELAC only?

c:...... .. _.""'_ ....

MR. NOBLE: ::'5 not that hard to say that you'=e

=HA:~~ ~:KENS: Joe Scolc%.

MR. s-:-o:.::·:: A9ai~', if I may, going back to the

~. .

........

....--

qualified campaign expense, buc because it's a solici:at~on

ask:ng for taxpayer ~unds (inaudible.)

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:~:R..Y.A:: ;":~:::~S: H4?' s ask::..ng :.he Huckaby ~nV:::

"~s::.:.a:~s.

....-... I"\.t:.•• "-.- ....... Would Mr. Huckaby 0= ~:: .

• s~sp~=: :hey wouldn't .

. :"a:.;;:::~:

"---:,. "---... You've got to ~nvit~

He~;:a?- ft~po~:lng Corporation ...... €2S·4888

i2 ......-.1.Ul&M1------ .;. 9 ...-~- .,.{,

ias. of-.....- ..
council's help. {Laughter.

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::

CHAIRMAN A:KENS Joe, you had to ask a ~a~=

~x~~se ~e, ~:ease

~ape

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say

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MR. STOLTZ: One other question,

MR. HUCKABY: (Inaudible) we do not have ~~a:.

::'5 o~ the same base, the difference is 2 pe~~e~:.

::':laudi.ble) and we have :0.3 percent who gave to:a:":'y,

Can you supply that?

Is the base of the pe~=~~: :~~

We'd be happy to.

But they are different bases,

CHAIRMAN AIKENS:

CHAIRMAN AIKENS:

MR. HUCKABY:

MR. HUCKABY:

same for that.? So:.: you had 8.3. percent that they :-:a',J~

1

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-.. says 8.3 percent of the pe~p:"e

::naudible) the base ye:.

Whe~e the end response lS =o~plete:y

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~. ....... -... -.. :-."- _ f~ w8~ld be :he :O:a:

- . . ~~ s~:~~= ques::on .-

~x:_s':' :'1e. ,::1aud:b::'e.

Mr.. 5:-::":-:

say. P::-eslden: ra:s'?

~~~::a~~ ~~p=~::~S Corporatlon

62&-4888

, .0,. __::_,_,_

"'1!..v.~N'I' ......./)....-1_- ·~ __ tL
1 money and the coneribu~ion of expenses relating co tha~ had

2 been split SO/50 with the compliance" fund during the

3 primary, would it be your opinion that that's pa~t paid

4 through the compliance fund which would constitu~e a

5 contribution from compliance to the Primary Committee ;iv~~

6 the same response ~evice, the same solicitation?

MR. STOL~Z: Correct .

~. S7:~7:: ~~C :~~s was done in a finite pe~~oc

:;)Iw -"" '::"'- _ : August 16 .- spli.~ :":

MR. HU:KABY: Has a compliance fund

MR. HU:KABY: And that fund paid 50 percent of the

MR. HUCKABY: Let me make sure I understand wha:

~~~=·~a~s~ng :05:5, as prov~ded in the regulations?

you're saying. This is a presidential candidate who does

be=ome a general elec:ion nominee?

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~. ~:NSEER~: We::.! think we would have

~~~:~a::~~. 3~:: :~:~~ wha: you have to do i: a9ai~ unde~

y:~: s:e~a~~c. we wo~:~ 5:::: pay fo~ it all in :he pr~ma~y

o~~~o= ou: c~ pr~~~~y ~~~ds. g:ven ~he regulacory schem~ a:

:::~ ::.me.

MR. HU:KAEY. ~:s~. nav~ng been :hrough th1S

s~:~a::.on. and :h~s ~~ :~s: ~rom a practical 5candpo~nt. -.-,

__ ~a~p~~s:s most o~ :n~ ~=n~y raised for GELAC is rais~d pns~

Her~:a9~ Repor:1ng Corpora:ion

.::: 628-4888

~... .. ~7· .

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'tL "
1 nomination, post (inaudible) candidacy. And if you hav~ a

2 litele problem with the August 16th date of deciding whe~~

3 the 50 percent would come into play and'where it would ::~:..

4 ! think, of course, any candidate that's raising money ~~

5 Sepcember, October, November and even after that, needs :'0

o read che regula:ions. It's states very clear to be 5viS:.

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MR. STOL~Z: See, the real question though ~s,

w~e:her chat would constitute a solicitation. And, i~ c~de~

~=~ :he 50/50 :0 come into play, there has to be a

s=:::~:.a:lO~, money solicited for vote .

MR. G:N5BERG: 50 you're talking about someching

=:~~eren: ~rorn what he's got there in front of him .

MR. S~:~~=: No. Same thing. Same thing.

:~~:~~~~: :a~=~da:e. and the candidate splits it SO/SO.

.. ~:~S=~~~. We ~eve~ would have written a

._~_:a::=~ .. : ~~a~. supp~se Pete Wilson is :h~

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=~:3~se we ~~~w he wa~ ;O~~~ :0 be the inevltable nomln~~.

:.; ::.\:-. ass~:-~ yo\.; : ha: ::1~ un:)· raisers would never l~t ll!=

He~~:a~~ ~~po~:in9 Corporation '2:~) 628-4888

72 _ •.•:..:hMCft-_.......--

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1

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money for the GELAC. It would be a direct solici:ati~~.

MR. STOLTZ: I'm not sure whether you have

3 answered the question then. The question is, in ano~h~~

4 situation, would you hold that that is not a solicita:~~~

5 for the GELAC?

MR. GINSBERG: I don't underseand the hypothe:l=a:

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because if you really send out a solicitation for the ~£~:

you would never send out this. You would send out some~hi~g

=ompletely di~feren:.

MR. STOL~Z: You might send that out if you were

~. G:NSa£RG: You would not use this wording.

MR. S~O~7:~ O~ scliciting for both.

~. ~:~SEE~~: You would not use this wording.

:_~= :: ~~~=ss~::~ :: ~~:~ev~ ~ha: a fundraiser ac~ually

s=::=~:a:~on ~or a G£LAC would s~nd -" .. ...., .

~. . ....-."'. .. ::>.""'_._: - wo~:= sU9ges: that : have se~~

:;~~:-=- a ~ew o~ :r'?~ ::-.a: a:-e::': slgnificant'.y differe:-~..:.

~~a~. over :he yea:~ :~aud:ble.:

MR. ~~V:S

CHA:R.-"A~ ;..: J-::::~S : Yes. We have Kei th Davis o~

....

-- :: : understand correctly, really

H~~~:a?~ K~po~~ln9 Corporation .2:~; 628-4888

..;·:c.trr b ~t ~f ¥cl

,
..'" despite the obj€ctive that the (inaudible) primary is

2 to send out solicitations directed for pr~ry funds, :~a:

3 it was nonetheless review the box, not unlike the box tha:

4 (inaudible) for the Wilson committee that gave you th~

opportunity to contribute to the eompliance committee.

(inaudible) paid by the Primary Committee. (Inaudible)

~E::..A: appears.

~. S~O~~Z: So that wouldn't seem to suggest then

~;::: ::. :~a: w~ s~:ua:ion where at least ,~ \-_--...-

~o:~ing other than put a box on a standard response that :~~

~eview that as a primary solicitaeion, and you have done

- understand in the primary period, at least in

.~~ .• was :~ea:ed as bo:h primary .- (inaudible) p~ima~y

:~a: say :~ 'Sc a =a~=~da:e who has done solicitation a~=

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- . -. . .. ... _.... -- .. w~ wo~:= nav~ ~E~A: paying p~imary expenses.

.. :AV:S~ 3~:aus~ :he regulations -- it'S a ~a~c

W~ knew :hat :he Commiss:~~

.~_.= ~c: a::ow a ~£~: ~~nc :c pay fo~ expenditures tna: ..

:::ay. a~ expen=~:~~~ =~ :~~S :yp~ r~a~ly is not qua:~~:~d.

~=.·~a~~~c. on beha.·.· c.· ._••..~~. ..·~.aud.'ble) l't·S been exac~'y __ ·~o _.1 .

• ' 5~~~ :~~~; :~a: :~~ ~~s: =~ :~e people did. and it's als~ :~

.:~ a~=~: :~por: =~:ec a~ amount of money due to the

H~:~:ag~ R~por=in9 Corporacion ::~2: 628-4888

__ 1). · . "'1b
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unqualified expenditure based on exactly whae the s:~~a:~~~

would be. That committee chose not to argue the poin:

3 before the Commdssion because ie was a small amount. •• W~~

4 a couple thousand dollars and it wasn't going to be wo=:~

5 ic.

6 But we propose to do exactly the same way,

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basically we can't pay for it out of GELAC, on the funds

~aised on the 50/50 ratio so we paid that out of primary .

70 ~hat exten:, the operational aspect of how do you deal

was un~inished from '92 to '96, in our view, anyway.

MA. ~AV:S: You have a (inaudible) but jus:

~a~;~ng over me is :he real~%ation that the Commissioners

a~~ go~ng :: come ba=k and say if you do not become :he

~=~~~ee :~a: yo~ ca~': :ake any:hing out of the G£LAC.

~~;_:Q::=~S :~ey a~~ s~ppose= :0 point that you can se: :hlS

I:laudible. }

CHA:~~; ~:~£~s· ~~ymore questions?

MR. NOB~£· As yo~ :an :ell, the two of us ar~

-- s=:~=~:a:lo~ ~o: :n~ ~£~:. You did receive money ~~

H~~~:a?~ ~~por:~n9 Corporation .~:.: 626-4888

. .~'.,~ ..• n ......... ..... ~~ ..• _Iff) •
1 response to the solici~ation?

2

3

4

5

MR. GINSBERG: In response to this .- (inaudib:~.

MR. NOBLE: The GELAC box?

MR. GINSBERG: The GELAC box.

CHAIRMAN AIKENS: Ben, could you come to th~

6 microphone?

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MR. NOBLE: Do you ~rack when you send out a

so~ici~ation and ge: money back, do you track what

soli:i:a:ion that money is coming back in response to?

MR. GINSBERG: Yeah .

MR. NOBLE: Would the checks that came in response

:= :h~s piece o~ paper, however you want to .- whatever you

.a~: :0 :a:: ~:, i: was a dlrect contribution tracked back

:: :~:s co=~~~~:? ~:naud~ble) coming from this document?

~. ~:NSE~~~: From the GELAC contribution?

~. ~~S~~: :~S. SO. in your view (inaudibl~~

=.E:~:=~:~= :: :~e ~~~:: Do you know why they would

::~:::=~:~ := :~e ~£~: :n response to this document?

: have~'t reviewed all the

S ·• .. A -- - somebody somewhere did.

MR. NOB:"£: :5 :: a ~alr lnterpretatlon that

:~ ==~:~:cu:ed to the·· ~naud~ble)·· s~atement on that box:

_.... MR. ~:NSa£R~: No: necessarily. I mean, I thlnk

He~::ag~ R~por:lng Corporation

'2C2i 626-4888
" 1 that there are other reasons they might have chosen ~o d~

someching like that.

3 MR.. NOBLE: So the issue is that you don': ~~ink

4 that this statement in the box generated contributio~s ~~~

5 GELAC?

6 MR. GINSBERG: I'm just saying, I don't know. -..

.• :h~ in:e~: of :he committee that that box generate

~=~m wi:h :he hypothetical

wasn't one of the group. I understand where you're com~~3

MR. NOBLE: :'11 take it out of hypothe:ica:. Was

~. G:NSB£R~: ~he intent of the committee was to

"""... a ;~~~a~' s=:::::a:~on for primary dollars, and i~ ooJ __

:~~~~ :s a~=:~~~ =;~:=~ :: s:a:: to educate people abou:

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-.... ::.--. ~=x .

s= :n~ =~x sa~d i: was my 0: our

=~::=, bu: .- ,.. .- -.. ::: Q :on::ibutlon?

:~ :~~y wanted to 91V~, :ha:'$

H~~~:d~~ ~~p:;)::~n9 Co~ora:ion

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Ben, Scan and Keieh.

MR. GINSBERG: Thank you.

3 CHAIRMAN AIKENS: And if you will submit any

4 additional materials within five days and we will take th~

5 ma~ter under consideracion, and we thank you very much fo~

coming today.

. -

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- . ...

The mee:ing is adjourned .

(Whe~eupo~, at 10:59 a.m., the meecing was

adj o~rned. i

/

H~~~:a~~ R~por:~ng Corporation '~:2; 626·4888

:':ITLC!DIin ... 72 -

~,,_ of ';0
1 REPORTER'S CERTIFICAIE

2

3 DOCKET NO.: 98-16

4 CASE TITLE: Pete Wilson for President Commi~te

5 HEARING DATE: February 25, 1998

- 6 LOCATION: Washington, D. C.

~~po:~ed by me at the hearing in the above case before the

c;

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I hereby certify ~hat the proceedings and evidence

=~~~ained fUlly and accurately on the tapes and notes

Date: February 25, 1996

O~~lcial Reporter

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Heritage Reporting Corpcra:~o~

Su:.:.e 6Ce

::20 L Street, N. W.

Washlngton, D. C. 2000:

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FEDERAL ELECTION COMMISSION

\\ASHISCTO"'- O( .104h\

SUBJECT:

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TO:

FROM:

DATE:

The Cammi••ioner.

Acting Staff Director

General Counsel'. Noble

Pre.. Officer Barris C®

t Marjorie W. Elllmons/Lisa R. Davi

Secret:ary of t:h. Cammi.sion

December 4, 1998

Statement of Re.sons for Pete Wilson for

Pre.ident, Petition for Rehearing.

Attached is copy of the Statement of Reasons in Pete

Wilson for Pre.ident, Petition for Rehearing signed by Acting

Chai~ Scott E. Thomas and Cammi••ioner Danny L. McDonald.

Thi. was received in the Cammi••ion Secretary'. Office on

Friday, December 4, 1998 at 12:35 p.m.

Attachment

c: V. Convery, OGC
FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C 204&3

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In the Matter of

Governor Pete Wilson's and the

Pete Wilson for President Committee,

Inc.'s Request for Additional Matching

Funds - Proposed Statement ofReasons

Denying Petition for Rehearing

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Agenda Document #98-66

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STATEMENT OF REASONS

ACTING CHAIRMAN SCOlT E. THOMAS

COMMISSIONER DANNY LEE. MCDONALD

On July 31, 1997 and August 21, 1997, the Federal Election Commission

considered a request for 5149,435 in additional matching funds made by Governor Pete

Wilson and the Pete Wilson for President Committee, Inc. ("the Wilson Committee").

Since the Commission failed to approve by four affmnative votes the Wilson

Committee's request for additional matching funds, see 11 C.F.R. § 9033.10(c), the

Wilson Committee·s request was not granted. See 2 U.S.C. § 437c(c). On November 5,

1997, the three Commissioners who voted against granting the Wilson Committee's

request for additional matching funds issued a Statement ofReasons explaining the basis

for their votes. This Statement ofReasons was sent to the Wilson Committee on

November 13.1997. Thereafter, on November 17, 1997, the Wilson Committee

submitted a Petition for Rehearing in response to the November S, 1997 Statement of

Reasons.

On October 22, 1998, the Commission considered, and we voted for, a proposed

Statement ofReasons and a recommendation denying the Petition for Rehearing filed by

the Wilson Committee. The Commission's Office ofGeneral Counsel, in accord with the

Commission"s Audit Division, had recommended that the Commission deny the Wilson

Committee's Petition for Rehearing. See Agenda Document #98-66, attached.

Commissioners Elliott, Mason and Wold disagreed and would have granted the Petition

for Rehearing. Commissioner Sandstrom recused in the matter. Since a majority ofthe

Commission did not approve the Wilson Committee's Petition for Rehearing, it was

denied. See 2 U.S.C. § 437c(c).
2

In denying the Wilson Committee's Petition for Rehearing, we specifically support

and adopt the proposed Statement ofReasons drafted by the Office ofGeneral Counsel

and contained in Agenda Document #98-66. See Attachment. Based upon a careful and

thorough review ofthe law and factual record pertaining to this request, this Document

clearly and fully explains our reasons for voting to deny the Wilson Committee's Petition

for Rehearing.

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Date

Date 7

Scott E. Thomas

Acting Chainnan

( /! I ! " Ii , J (, .J. 1>-1r;lM ~v JjCb-t?\~ Danny cDonald

Commissioner

AITACHMENT:

Agenda Document #98-66. Governor Pete Wilson's and the Pete Wilson for

President Comminee,lnc.'s Request for Additional Matching Funds - Proposed

Statement ofReasons on Petition for Rehearing (LRA #478)
FEDERAL ELECTION COMMISSION

WASHINCTON, 0 C 204&'

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February 27, 1998

M~MQRANDUM

TO: The Commission

FROM: Lawrence M. Noble

General Counsel

BY: Kim Bright-Coleman ~i?L Associate General CounsellI

,

Rhonda J. Vosdingh;:JII .'

Assistant General Counsel

Andre G. Pineda

Attorney lc,-,

SUBJECT: Pete Wilson for President Committee, Inc. -

Procedures Regarding Petitions for Rehearing

(LRA#478)

On February 25, 1998, Benjamim L. Ginsberg, on behalfofhis clients, the Honorable

Pete Wilson and the Pete Wilson for President Committee, Inc. (collectively "the Committee"),

made an oral presentation before the Commission with respect to a Commission detennination

that the Committee repay $29.861 to the United States Treasury. The Committee requested the

oral presentation to elaborate upon the matters discussed in its response to the Commission's

audit report on the Committee dated October 29, 1997.

During the oral hearing, Mr. Ginsberg stated that the Committee's Petition for Rehearing

dated November 17, 1997 (~'the Petition") made in connection with the Committee's request for

additional matching funds had not yet been considered by the Commission. He further infonned

the Commission that the Committee desires an oral hearing with respect to its Petition. I

The Office ofGeneral Counsel is currently drafting a statement ofreasons analyzing the Committee's

Petition, which this Office anticipates will be circulated to the Commission shortly.
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Memonmdum to the Commission

Pete Wilson for President Committee, Inc. (LRA #478)

Page 2

Oral hearings are part ofthe Commission'5 procedures with respect to repayment

determination disputes. 11 C.F.R. § 9038.2(c)(2)(ii). The CommisSion's regulations do not,

however, provide for oral hearings regarding the Commission'5 detenninations ofcommittee's

entitlement to matching funds. 11 C.F.R. §§ 9034.5(g) and 9038.5(8). Accordingly, the

Committee does not have a right to make an oral presentation with respect to its Petition.

This memorandum is being sent OD an informational basis. Ifyou have any questions,

please contact Andre G. Pineda at (202) 219-3690. As ofMarch 2, 1998, the telephone number

will change to (202) 694-1650.
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Memorandum to the Commission

Pete Wilson for President Committee, Inc.

Oral Hearing Request (LRA #478)

Page 3

RECOMMENDATIONS

The Office ofGeneral Counsel recommends that the Commission:

1. Grant the request ofthe Pete Wilson for President Committee, Inc. to

make an oral presentation as provided at 11 C.F.R. § 9038.2(c)(2)(ii);

2. Schedule the oral presentation for the end ofJanuary or early

FebnJary 1998; and

3. Approve the appropriate letter.

Attachment

Pete Wilson for President Committee, Inc. response dated October 29,.1997
FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 20463

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MEMORANDUM

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TO:

FROM:

BY:

SUBJECT:

November 20, 1997

The Commission

Lawrence M. Noble

General Counsel 0

Kim Brigbt-Coleman \~ Associate General Counsel

Pete Wilson for President Committee, Inc. - LRA #478

Withdraw Report and Resubmit

This Office is withdrawing the Pete Wilson for President Committee, Inc. -

Request for Oral Presentation Report dated November 18, 1997, which was inadvertently

circulated on 72 hour tally vote. Our intention was to place this document on the Open

Meeting Agenda for December 4, 1997.
Noveab!r 18, 1997

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FEDERAL ELECTION COMMISSION

WASHINCTON, 0 C 204&3

MEMORANDUM

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THROUGH:

FROM:

By:

. Noble

General unsel

Kim B· t-Coleman t~ Associ General Counsel I

Rhon 1. VosdinghC-O/

Assistant General Counsel

Andre G. p~~;.

Attorney ''k\

SUBJECT: Pete Wilson for President Committee, Inc. -

Request for Oral Presentation (LRA #478)

On October 29, 1997, the Pete Wilson for President Committee, Inc. ("the

Committee") requested the opportunity to address the Commission in open session in

connection with its written response to the audit report and the initial repayment

detennination as provided in the Commission's regulations at 11 C.F.R.

§ 9038.2(c)(2)(ii) (1997). See Attachment The Office ofGeneral Counsel recommends

that the Commission grant the Committee's request for an oral presentation and schedule

the presentation for the end ofJanuary or early February 1998.

The Commissionts regulations provide publicly funded candidates with the

opportunity to respond to an initial repayment determination by submitting written legal

and factual materials to demonstrate that no repayment, or a lesser repayment, is

appropriate. 11 C.F.R. § 9038.2(cX2). A candidate may request an opportunity to

address the Commission in open session. 11 C.F.R. § 9038.2(c)(2)(ii). The candidate

should identify in his legal and factual materials the repayment issues he or she wants to

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Memorandum to the Commission

Pete Wilson for President Committee, Inc.

Oral Hea.-ing Request (l;RA #478)

Page 2

address at the oral hearing. ld The Commission may grant this request by an affmnative

vote offour ofits members, and inform the candidate ofthe date and time set for the oraJ

presentation. Id

The Committee has requested an opportunity to make an oral presentation to

elaborate upon its position with respect to the Commission's initial repayment

determination made pursuant to 26 U.S.C. § 9038(b). Specifically, the Committee

"disputes strenuously the repayment for expenditures by the [ ] Committee for

fundraising and administrative costs which the Commission maintains were expenses of

the Compliance Committee.,,1 Attachment at 1.

The Office ofGeneral Counsel believes that an oral presentation may assist the

Commission to reach a final repayment determination. Accordingly, this Office

recommends that the Commission grant the Committee's request. Should the

Gommission approve our recommendation, the Office ofGeneral Counsel proposes that

procedures similar to those used for previous presentations in past election cycles be

followed. Pursuant to these past procedures, the 'Office ofGeneral Counsel will prepare

an analysis ofthe issues presented prior to the date ofthe presentation. This analysis will

be provided to the Commission and to the Committee. In addition, this Office will

prepare an agenda document containing materials relevant to the Committee's oral

presentation.

At the presentation, the Chairman will make an opening statement. The

Committee will then be allocated an amount oftime in which to make an a presentation

on the issues raised in the legal and factual materials submitted by the Committee.

11 C.F.R. § 9038.2(c)(2)(ii). Consistent with oral presentations in the 1992 election

cycle, this Office recommends that the Committee be given 30 minutes for its

presentation. See Memorandum to Commission dated August 8, 1994 on Wilder for

President Committee, Inc. - Request for Oral Presentation. Following the presentation,

individual Commissioners, the General Counsel, and the Audit Division may ask

questions. 11 C.F.R. § 9038.2(c)(2)(ii). The letter to the Committee will inform the

Committee ofthese procedures and also state that any additional materials the Committee

may wish to have the Commission consider should be submitted to the Office ofGeneral

Counsel within five (5) days following the presentation.

The Committee does not dispute, however, the stale dated check fmdinp pertaining to it or the

Pete Wilson for President Compliance Committee, Inc. As a result, the Committee included checks with its

written response made payable to the United States Treasury for the amounts specified in the Audit Report.

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FEDERAL ELECTION COMMISSION

Washington, DC 20463

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DATE &TIME OF TRANSMITTAL: Tuesday. November 18.1997 4:00

BALLOT DEADLINE: Friday. November 21. 1997 4:00

COMMISSIONER: AIKENS, ELLIOTT, McDONALD, McGARRY, THOMAS

SUBJECT: Pete Wilson for President Committee, Inc. -

Request for Ora. Presentation (LRA #485).

Memorandum to the Commission dated

November 18, 1997.

( ) I approve the recommendation(s)

( ) I object to the recommendation(s)

COMMENTS: _

DATE: _ SIGNATURE: _

A definite vote is required. All ballots must be signed and dated. Please return

ONLY THE BALLOT to the Commission Secretary. Please return ballot no later

than date and time shown above.

FROM THE OFFICE OF THE SECRETARY OF THE COMMISSION
• PATTON BOGGS, L.L.P.

2550 M STREET N W

WAS ... INGTON 0 C 2003"·1350

·202 45"·6000 . ,

(:!o~) 457-~05

October 29. 1997

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The Honorable John Warren McGarry

Chairman

Federal Election Commission

999 E Street. N.W.

Washington. D.C. 20463

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RE: Dispute ofRepayment Determination Finding for the Pete Wilson for President

Committee, Inc.

Dear Mr. McGarry:

By this submission. filed pursuant to 11 C.F.R. § 9038.2(c)(2). the Pete Wilson for

President Committee. Inc. ("Committee") disputes the amount that the Commission detennined

should be repaid to the United States Treasury. Specifically.. the Committee disputes strenuously

the repayment for expenditures by the Primary Committee for fundraising and administrative

costs ~'hich the Commission maintains were expenses afthe Compliance Committee.L The

Comminee does not dispute the repayment findings for stale dated checks for either the

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I .~~.LThis issue is muddied It present because the Committee's "entitlement to additional marching funds IS sull

under Commission consideration. As such.. die outcome ofthai declSion could impact on the above ~oco

prnenwlon." Repon ofthe FEe Audit Division at 21. Penclinl the outcome ofthis consideration by the

CommiSSion and the release ofa Seatement ofReasons. the Commiate reserves the right to dispute the

determination ofntt outstandina campaip obliplaons.. and, specifically. the issue oflhe Committee's

qreement with AT&T reprdinl the telephone system the Committee used while Governor Wilson was an

active candidate for President. Because the Audit Report does noc call for any repayment based on the AT& T

arrangement. that issue and any impact that may have on the NOCO. is nor ripe for discussion until the

Commission determines the Committee's request for additional matchl"1 funds and releases a Statement of

Reasons.

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PATTON BOGGS. L.L.P.

The Honorable John '~iarren McGarry

October 29. 1997

Page :!

Comminee or the Pete Wilson for President Compliance Comminee.lnc.;' Checks from each

committee representing the repayment amounts are attached.

This letter also constitutes a request for an opponunity to address the Commission. as

provided under 11 C.F.R. § 9038.2(c)(2)(ii). We further understand that under the Commission's

regulations, this will suspend the repayment date for the Committee until the Commission

completes its administrative review.

The Audit Repon contends that the Committee did not submit evidence demonstrating

that the expenditures at issues were qualified campaign expenses. The Committee did. and this

statement crystallizes the problem with the Audit Report's position. The expenses involved were

all qualified campaign expenses for the simple reason that all the expenses involved were

legitimate funclraising expenses ofthe Primary Committee. The truth that the Audit Repon seeks

to avoid addressing is that all the solicitation costs incurred were done to benefit the Primary

Comminee. These solicitations were for the Primary Committee. Any mention ofthe

Compliance Committee was incidental. Each and every one ofthese solicitations would have

been undertaken ifthe Compliance Comminee had not been mentioned or did not exist. Not

mentioning the Compliance Committee in the letters would not have changed their cost one cent.

Any mention ofthe Compliance Committee in the Primary Committee solicitations came

about because ofthe Regulation's plain wording that a candidate may establish a general election

_. ---------- ;. On February 21. 1997. check number 1369 (anached) cleared the Pete Wilson for President Compliance

Committee. Inc. account The Comphance Committee repayment amount is Idjusted accordinal)'.

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PATTON BOGGS. L.L.P.

The Honorable John \\-·arren ~1cGarry

October 19. 1997

Page 3

legal and accounting comminee ("GELAC") "prior to being nominated or selected as the

candidate of a political pany for the office of President or Vice President ofthe United States. II

11 C.F.R. § 9OO3.3(a)(I). The mailings were paid for solely by the Comminee because

11 C.F.R. § l02.9(eX2) also requires any candidate who raises GELAC funds pursuant to the

Regulatio~ but does not receive the Presidential or Vice Presidential nomination. to return (or

have redesignated) all ofthe funds collected by the GELAC. Thus, the Committee followed the

directives ofthe Regulations. and is now being penalized by the Commission for it.

Ifthe Compliance Committee had paid for any ofthese costs, the Commission would

now be charging that the Compliance Committee improperly underwrote the costs ofthe Prima.ry

Committee. And it would be requiring repayment of all the Compliance Comminee funds spent

on the mailings. Faced with Reg~ations permitting the raising ofcompliance funds before the

nomination and requiring a losing candidate to repay all monies raised. the Wilson Committee

obviously had the Primary Committee pay the entire costs. By its interpretation. the Commission

has left no way for a Committee to do what the Regulations permit it to do. The Commission

voted to continue GELACs, but here adoptS a position that effectively undercuts that decision.

Despite the attempts ofthe Audit Repo~ there is no denying that this ruling has created a

conflict between the ReaulatioDS. It cannot be correct that exercisiDa a right pennitted by one

regulation causes a violation of another. It does not suffice to maintain. as the Audit Repon

does. that following a regulation "may hold potential hazards". The Audit Repon's citation to
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The Honorable John Warren McGarry

October 29. 1997

Page 4

11 C.F.R. § 9034.4(b)(3) is misplaced for two reasons. First. the Regulation applies to a vel)

different context - a primary committee \\i1ich improperly reduces the expenses of a general

election committee - which is not applicable here.Jt Secondly, the regulation refers specifically

to "expenses incurred ... for property services~ or facilities". But the issue here concerns the

costs ofmailing out a solicitatio~ and not "property, services or facilities". Accordingly, the

regulation cited by the Audit Report is misplaced.

SOLICITATIONS

The Committee urges the Commission to actually look at what the Audit Repon calls a

"solicitation". See Exhibit 6. Wilson Committees Response to Exit Conference Memorandum.

Jan. 21. 1997. There is no soliciwion for the Compliance Committee. The words about the

Compliance Committee are:

Also, enclosed is my/our conuibution in the amount of$ to "Pete Wilson for

President Compliance Fund." (The maximum contribution ofS1.000 per person may be

made in addition to your contribution to the Presidential Committee).

This fleeting reference is not a "solicitation" within any generally accepted meaning ofthe word.

The dictionary defines a "solicitation" as fta try to obtain by entreaty or persuasion: petitioning

persistently." Only in a game of "Iotteha" by the Commission could the words in the Primary

Committee mailin& be called a "direct solicitation offunds".

1. It also cannot be correct to invoke 11 C.F.R. § 9034.4(b)() to ....ue that these were expenses used to "benefit

the candidate's Jeneral election campatp", The Wilson committee did not have Ilcneral election campal,n.

so thiS could not "benefit" it. of

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PATTON BOGGS. L.L..P.

The Honorable John \Varren !vlcGarry

October :29. 1997

Page 5

In the multi-page mailings at issue. the only reference to the Compliance Committee is on

one line of an accompanying response device.

The only language referring to the Compliance Committee in any ofthe Primary

Committee's mailings comes in the CODtext ofsolicitations for the Primary Committee. The

events are all for the Primary Committee. The description in the materials is about the Primary

Committee. not the Compliance Committee.

The Audit Repon also mistakenly aJ'IUe5 that the fact ofreceiving funds into the

Compliance Committee demonstrates that there was a soliciwion. In addition to not being able

to show the plain language of a solicitation. this argument is flawed. That only 8.3 percent ofthe

people who gave to the Compliance Committee did not give to the Primary Committee indicates

that there was not a separate solicitation. or any solicitation. for the Compliance Committee

",·ithin any plain meaning ofthat word. What it does show is that individuals who knew the law

knew they could give to a GELAC. and they did. It is similarly misplaced to explain this plain

fact by mainlainina that a "poor response rate" is responsible. Ifthis bad been a ·'solicitation".

then logic would dictale that the response rate for the Primary and Compliance Committees

should have been roughly the same. Instead. they were offby a factor of 10. indicating that there

"--as no "soliciwion" for the Compliance Committee that would mae!' the disqualification of

any expenses by the Primary Committee.
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PATTON BOGGS. L..L..P.

The Honorable John \\:"arren McGarT)'

October :!9. 1997

Page 6

As this argument demonstrates. the Committee disputes the 13.94 percent repayment

figure used in the Audit Repon.

For the reasons set forth above, the Wilson for President Primary Committee requests that

the Commission determine a lesser repayment as set forth above.

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PETE WILSON FOR PRESIDENT COMPLIANCE

COlllllnEE. INC. (CONTRIBUTIONS)

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FOR

PAY

ll~1OF_ ._U.S~. Tre!!!!1 _

I ~!!~!WO ~!!!!nd F~r-Hundr.d Fifty and OO/IOO**~********* FRANKUN

NAlIONALIAIC

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PIlE WIlSON FOR PRESIDENT

COMIlITTEE INC.

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FOR R~p"~~~~ fQr. ~t~.~ p~ted Check~

"'I PAY , =OF_.~L..J:!u!!!U .. _. _... _...

.1 .._Th.r~!=T1f!! Th~~1~114. ~1",~"~n4r,d T~,~tY-Jfln. @~t;I 00/ !Q9~••~*~~~••* DOlLARS m;:.~~~." :

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a'tr".O"".C5:JNLn ......."'r:rtr"
last statement: January 31, 1997

This statement: February 28, 1997

•••.• ' ~~!~.; -~1.. - ... : .: ~,: ,. '. . ~. ~..... . . -...- \ :. ~. .....:.':;;~i~.FRANKLIN NATIONAL BANK .i~~J:::~~:.') .'. 1722 Eye Street W .... ~~...... 20006 ~)".\~.~~ ..~,;,,,~, .". : W.hington DC ~:!jf.i~,,,:;, ~'.~~'~

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PETE WILSON FOR PRESIDENT

COMPLIANCE COMMITIEE INC

20 S QUAKER LN SUITE 20

ALEXANDRIA VA 22314

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1013673512

(1) -

Direct inquiries to:

202·331·2737

Franklin National Bank

1722 Eye Street N W

Washington DC 20006

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Business Checking Account

Account number

Tax 10 number

Enclosures

Avg collected balance

CHECKS

Number Dete

1369 02-21

1013873512 Beginning balance

88-0353701 Total additions

1 Total subtractions

$67,278.00 Ending beI.nee

Amount

1,000.00

$67,563.93

.00

1,000.00

$86,563.93

Amount

DAILY BALANCES

De,. Amount

01·31 67,563.93 02-21

Amount

86,563.93

Amount

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PETE WILSON FOA PRESIDENT COMPLIANCE

COMMmEE. INC. (CONTRIBUTIONS)

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February 23 t9~

250525517

Mr. Joseph Tavaglione -:. -... -. -, ;-.= -..... ...._ :-. _-:':'. :-.. _":0' ••~. 1QOS).OO

ONE THOUSAND AND 00/1 00 •••••••••••••••

. PAY

- TO THE - ORDER OF

FRANKLIN

NA11aW.1ArC

a1 .0 ~D.c._ '''M''4, .w

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FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 204&.\

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September 5, 1997

MEMQRANDllM

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TO:

FROM:

SUBJECT:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

.ROBERT J. COSTA -'1'~ ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF THE REPORT OF THE AUDIT DIVISION ON

THE PETE WILSON FOR PRESIDENT COMMITIEE, INC.; PETE

WILSON FOR PRESIDENT COMPLIANCE COMMITTEE, INC. AND

PETE WILSON FOR PRESIDENT AUDIT FINES AND PENALTIES

ACCOUNT, INC.

Attached please fmd a copy ofthe report and related documents on the Pete Wilson

for President Committee, Inc.; Pete Wilson for President Compliance Committee, Inc. and

Pete Wilson for President Audit Fines and Penalties Account, Inc. which was approved by

the Commission on August 27, 1997.

Informational 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

FEe Library
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REPORT OF TIlE AUDIT DIVISION

ON THE

Pete Wilson for President Committee, Inc

Pete Wilson for President

.Compliance Committee, Inc.

and

Pete Wilson for President

Audit Fines and Penalties Account, Inc.

Approved August 27, 1997

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
! .

REPORT OF THE AUDIT DIVISION

ON THE

9 Pete Wilson for President Committee, Inc

• Pete WUson for President

5 Compliance Committee, Inc.

i and

7

Pete Wilson for President

Audit Fines and Penalties Account, Inc.

Approved A1IpIt 27, 1997

FEDERAL ELECI10N COMMISSION

'"E STRt:JiTy N.W.

WASHINGTON, D.C.

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TABLE OF CONTENTS

- PETE WILSON FORPRESIDENTCOMMl1TEE, INC....,... .

PETE WILSON FORPRESIDENTCOMPLIANCE COMMI1TEE.INC.

AND

PETE WILSON FORPRESIDENT AUDIT FINES

AND PENAL11ES ACCOUNT, INC.

Paae

Executive S1JD!1D8'Y 1

Audit Report 3

Background 3

Findinp 7

LepI ADalysis 43

Supplemental Comments

to Lepl Analysis 49

Tnmsmittal to Committee 53

TI'IDIIDitt8J to Cmldidate 55

Chronology 57

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FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C 204&3

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REPORT OF TIlE AUDIT DIVISION

ON

PETE WILSON FOR PRESIDENT COMMl1TEE, INC.;

PETE WILSON FOR PRESIDENT COMPLIANCE COMMl1TEE, INC.;

AND

PETE WILSON FOR PRESIDENT AUDIT FINES AND PENALTY ACCOUNT, INC.;

EXECUTIVE SUMMARY

The Pete WjlsoD for President Committee, Inc. (the Primary Committee) registered with

the Federal Election Commission on April 3, 1995. In addition, the Pete Wilson for President

Compliance Committee, Inc. (the Compliance Committee) registered with the Commission on

April 20, 1995. Finally, the Pete Wilson for PresideDt Audit Fines and Penalty Account, Inc. (the

Audit Fines Committee) registered with the Commission on January 23, 1996.

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

Commission to audit committees that receive matching funds. The Candidate received $1.7

million in matching funds.

The fmdings ofthe audit were presented to the Committees at aconference held at the

end offieldwork and were addressed in the Exit Conference Memorandum presented on

November 4, 1996. The Committees' responses to those fmdings are contained in the audit

report.

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

APPARENT ExnsstVE CONTRlltmONS Bl;sULDNG FROM ST,n AnyANCE AND

EXTENSION OF CREpa Iy It CoMMERC'A', VENDOR - 2 U.S.C. §§441a(a)(I)(A) and (b); 11

CFR §§ 116.5 and 116.3. The exit conference memorandum questioned whether a staff

advance constituted a 528,193 excessive contribution and whether an extension ofcredit by a

commercial vendor constituted a 5213,365 prohibited conuibution. In response, the Primary

Committee aqued that the staffadvance should be considered an ordinary course extension of

credit by a vendor rather than IS a staffadvance. The repon concludes that a contribution

occurred under either analysis. With respect to the commercial vendor, the Primary Committee

contends that no extraordinary extension ofcredit occurred. After considering the infonnation

and explanations provided, the report concludes that the contribution did occur.

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M'SUATEMENTOFFrNANQAJ, Ac;:roon -2 U.S.C. §434(bXl), (2) and (4). The

exit conference memorandwn DOted that both the Primary Committee and Compliance

Committee misstated financial activity on disclosure reports filed for the first four months of

1996. Both Committees filed adequate amended reports dming the·course ofaudit fieldwork.

DISCLOSURE Of DEBTS!OBIJGADONS AND OCCUPADON!NAME OF EMPLOYER -

2 U.S.C. §§434(bX3) and (8). The exit conference memorandum found that Primary Committee

reports ili8dequately disclosed debts/obligations. The Primary Committee filed lfle necessary

amended reports. In addition, the Compliance Committee was found not to demonstrated best

efforts to obtain, maintain and disclose occupation/name ofemployer. The Compliance

Committee has filed the necessary amended reports.

DETERMINATION OF NET 0I1TSTANDING CAMPAIGN OBLIGATIONS 11 CFR

§§9034.S(a) and 9034.1(b). The exit conference memo noted that the Primary Committee had

not received matching funds in excess ofits entitlement. The Primary Committee argued that

an AT&T phone system, which was valued at its purchase price in this analysis, should have

been valued at a lesser amount. The detennining factor was whether the telephone system

became a Primary Committee asset when it was installed, prior to the Candidate's date of

ineligibility, or when the Primary Committee purchased it, well after the date ofineligibility.

During its discussion ofthis matter, the Commission could not gamersufficient votes to adopt

either position. As a result, no further matching fund payments are anticipated and the

valuation ofthe telephone system on the NOCO is unchanged.

ApPARENT NON-QUAI"nED CAMPAIGN EXPENSES - COMPIJANCE COMMIUEE

EXPENSES rAID FOR By THE PRIMARy COMMIIT£E - 11 CFR §§9032.9(a), 9034.4(b)(3) and

2 U.S.C. §9038(b)(2)(A). The exit conference memorandum noted apparent non-qualified

campaign expenses in the fonn ofpayments by the Primary Committee for fundraising and

administrative costs incurred by the Compliance Committee. After evaluation ofthe General

Committee's response, the Commission detennined that a repayment to the U.S. Treasury

totaling $29,861 is required.

STAl.E-DATED COMMI1T£E CHECKS - 11 CFR §9038.6. The report states that the

Primary Committee and the Compliance Committee are required to pay to the U.S. Treasury

$32,929 and $63,450, respectively, for unnegotiated, stale-dated checks.

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REPORTOF THE AUDITDIVISION

ON THE

PETE WILSONFOR PRESIDENTCOMMI7TEE, INC

PETE WILSON FOR PRESIDENT

COMPLIANCE COMMI1TEE, INC

AND

PETE WILSON FOR PRESIDENTAUDITFINES

AND PENALTIESACCOUNT, INC

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofthe Pete Wilson for President

Committee, Inc. ("the Primary Committee") the Pete Wilson for President Compliance

Committee, Inc. ("the Compliance Committee") and the Pete Wilson for President Audit

Fines and Penalties Account, Inc. ("the Audit Fines 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 of every 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.

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

seeks to determine ifthe campaign bas materially complied with the limitations,

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

("FEeAJ, as amended.

B. AUDIT COVERAGE

The audit ofthe Primary Committee covered the period from its inception

April 3, 1995, through April 30, 1996. The Primary Committee reported an opening cash

balance ofS-o-; total receipts of$8,079,187; total disbursements of$7,597,838; and a

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closing cash balance of$481,349.1 In addition, a limited review was conducted through

December 31, 1996, for purposes ofdetermining the Primary Committee'sremaining

matching fund entidement based on its financial position.

The audit ofthe Compliance Committee covered the period from its

inception April 20, 1995, through April 30, 1996. The Compliance Committee reponed

an opening cash balance ofS-O-; total receipts of S598,635; total disb~ts of

$590,455; and a closing cash balance of58,180.

The audit ofthe Audit Fines Committee covered the~od from the its

first bank transaction, November 30, 1995, through April 30, 1996. The Audit Fines

Committee reported an opening cash balance of$-0-; total receipts of$234,540; total

disbursements ofS-O- and a closing cash balance of5234,54O.

C. CAMPAIGN ORGANlZAnON

The Primary Committee, the Compliance Committee and the Audit Fines

Committee miintained their headquarters in Sacramento, California 1Dltil April 21, 1996.

As of April 22, 1996, all Committee offices were relocated to Alexandria, Virginia.

1. PriIDlQ' Committee

The Primary Committee reaistered with the Federal

Election Commission on April 3, 1995. The Treasurer ofthe Primary Committee from its

inception through July S, 1995 was Charles H. Ben, Jr.. He was succeeded by Mary H.

Hayes, who served through August 10, 1995. The Treasurer from August 11, 1995

through January 30, 1996 was Mark Hoglund. He was succeeded by CoUl1Dey Sakai,

who acted as Treasurer through June 23, 1996. The CUt'I'eIlt Primary Committee

Treasurer, as ofJune 24, 1996, is Renee Croce.

To handle its financial activity, the Primary Committee

utilized a total ofeight bank accounts during various times throughout the audit period.

From these accounts the campaign made approximately 3.500 disbursements.

Approximately 10,500 contributions from 10.200 persons were received. These

contributions totaled $5,474,333.

All rapres ill ibis...,have been rounded 10 .... nearest dol....

2 AltbauP die Audk Fines ConuniDee filed. V., End Report clilclosinl ill (lDIDCiaJ acaivity

durin. thai its Statement o(Orpnization ..DOC received by the Federal Election

Commission until anvary 23, 1996.

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In addition to contributions, the Committee

received $1,724;257 in matching funds from the United States Treasury. This amount

represents 11% ofthe S15,455,000 maximum entitlement that any candidate could

receive. Governor Wilson was determined eligible to receive matching funds on August

30, 1995. The Primary Committee made a total of seven matching fund requests totaling

51,725,013. The Commission certified 99.901'0 ofthe requested amount. For matching

fund.pmpo~ the Commission determined that Governor Wilson's candi,*"y ended

September 29, 1995. This determination was based on the date the candidate publicly

announced he was withdrawing from the campaign. The Commission's regulation at 11

CFR §9033.5(a)(I) states that the candidate's ineligibility date shall be the date the

candidate publicly announces that he or she is not actively conducting campaigns in more

than one State. On August 1, 1996, the Primary Committee received its fmal matching

fund payment to defray expenses incurred through September 29, 1995 and to help defray

the cost ofwinding down the campaign. The Primary Committee submitted an eighth

matching fund request on March 3, 1997.

2. Compliance Committee

The Compliance Committee registered with the Federal

Election Commission on April 20, 1995. The Treasurer ofthe Compliance Committee

from its inception through July 5, 1995 was Charles H. Bell, Jr. He was succeeded by

Mary H. Hayes, who served through January 30, 1996. Courtney Sakai became Treasurer

on January 31, 1996 and served as Treasurer through June 23, 1996. The current

Compliance Committee Treasurer is Renee Croce.

The Compliance Committee used two depositories, one in

California and one in the District ofColumbia, and maintained a total ofthree bank

accounts at various times throughout the audit period. From these accounts the

Compliance Committee received contributions totaling about S589,000 from

approximately 630 persons and political committees. The Compliance Committee also

received approximately 59,600 in interest earned on its bank accounts. The Compliance

Committee made nominal disbursements for bank account fees and corporate taxes. The

Compliance Committee also transferred approximately 230 contributions to the Fines

Committee and refunded approximately 430 contributions to contributors.3

3. Audit Fines Committee

The Audit Fines Committee registered with the Federal

Election Commission on January 23, 1996 and designated Courtney Sakai as its

3 The number orcontributions received (630) does not agree with the total number or contributions

redesignated or refunded (650) because in some instances a contributor would redesignate a

ponion orhis or her contribution to the Audit Fines Committee and have the balance refunded.

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Treasurer. Ms. Sakai served as Treasurer until June 24, 1996, which time the Audit

Fines Committee appointed its current Treasurer, Renee Croce.

The Audit Fines Committee used one bank account

throughout the audit period. From this account, the Fines Committee received

contributions totaling approximately 5234,500, from about 265 persons. Ofthese

contributions, about 230 had been redesignated from the Compliance Co~, and 3S

were received directly by the Audit Fines Committee. The Audit Fines Committee hu

made no disbursements to date.

D. AUDIT SCOPE AND PROCEDURES

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

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

general categories:

I. •The receipt ofcontributions or loans in excess ofthe statutory

limitations (Finding III.A.I.a.);

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

corporations or labor organizations (Finding III.A.l.b.);

3. proper disclosure ofcontributions from individuals, political committees

and other entities, to include the itemization ofcontributions when

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

disclosed (Finding IV.A.2.);

4. proper disclosure ofdisbursements including the itemization of

disbursements when required, as well as, the completeness and accuracy of

the information disclosed;

s. proper disclosure ofcampaign debts and obligations (Finding III.A.3.);

6. the accuracy oftotal reponed receipts, disbursements and cash balances as

compared to campaign bank records (Findings III.A.2. and IV.A.I.);

7. adequate recordkeeping for campaign transactions;

8. accuracy ofthe Statement ofNet Outstanding Campaign Obligations filed

by the Primary Committee to disclose its fmancial condition and to

establish continuing matching fund entitlement (Finding III.B.1.);

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

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10. other audit procedures that were deemed nc=s~IIY in the situation.

As part ofthe Commission's standard audit process, an inventory ofcampaign

recordsis normally CODducted priorto the audit fieldwork. This inventory is CODducted

to determine ifthe auditee's records are materially complete and in an auditable state.

Based OD ourreview it was detenDiDed that the Committees' records were materially

c;omplete. Tha'efore, the audit fieldwork was commenced immediately upcaconclusion

ofthe inventory.

Unless specifically discussed below, DO 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.

m. PETE WllJiON FOR PBMIDENT COMM" I peINe.

tFRlMARY COMMII I EEl

A. ., AUDIT FINDINGS AND RECOMMENDADONS: NON-REPAYMENT

MAnERS

1. Appmmt Ex-xc CgntributjOM Rcsu1tjDa fipm Stat!AdDuc;c

and Extension aCCredit by I Commercial \1cndor.

Section 441a (aXIXA) ofTide 2 ofthe United States Code states,

that no person shall make contributionsto any candidate and his autborLted political

committee with respect to any election for Federal office which, in the aggregate, exceed

$1,000.

Section 441 b(a) ofTitle 2 ofthe United States Code states. in pIUt,

that it is unlawful for any corporation to make a contribution in connection with any

election to any political office.

Section 116.S(b) ofTitle II ofthe Code ofFedera1 Regulations

states. in pIUt, that the payment by an individual from his or her personal funds, includiDa

a personal credit card, for the costs incurred in providing goods orservices to, or

obtaining goods orservicesthat are used by or on behalfof: a candidate or a political

committee is a contribution WlIess the payment is exempted from the definition ofa

contribution Wlder 11 CFR. §100.7(bX8).

Further, ifthe payment is not exempted, it sbaU be considered •

contribution by the individual unless it is for the individual'sttaDspol1atiOD expenses or

for usual and normal subsistence expenses incurred by an individual, other tbtm a

volunteer, while traveq on behalfofa candidate; and, the individual is reimbursed

within sixty days after the closing date ofthe billing statement on which the cluqes first

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appear iftile payment was made usiDa a personal credit cant, or witbiD thirty days after

the date on which the expmses were iDcuDed ifa personal credit card WIS DOt used.

"Subsistence expmses" iDelude only expenditures for perscmalliviDa cxpeases related to

a particularindiviclual1raVeq on committee business, such as food orlodging.

Sections 116.3(8) and (b) ofTide 11 oftbe Code ofFedera1

R.es"I'dODS Slate, in relevant part, that a commercial vendorthat is DOt a ~on. and

. a corpondion in its capacity as a commercial vendor may exteDd credit to • Cllldidate, or

political committee. AD extension ofcredit will Dot be CODSidered a contribution to the

candidate or political committee provided that the credit is exteDded in the ordiaIry

course oftbe commercial vendor's business and the terms are substmtiaUy similarto

extensions ofcredit to IlODpOlitical debtors that are ofsiJDilarrisk and size ofobligation.

FiDaUy, 11 CPR §116.3(c) statesthat in determiniDa whether credit

was extended in the ordinary comse ofbusiness, the Commission will CODSicler:

o Whetherthe commercial vendor followed its established procedwa

and its past practice in approving the extension ofcreclit;

o whether the commercial vendor received prompt payment in full ifit

previously exteDded credit to the same candidate or political

committee, and

o whether the extension ofcredit confonned to the usual and uormaI

practice in the commercial vendor's industly ortrade.

L Stat!Adyance

During our review ofthe Primary Committee'sreponed

debt at May 31, 1996, the Audit staffnoted an outstanding debt of55I,18S owed to Craig

Fuller. On May I, 1995, the PrimaJy Committee contracted with The Fuller Company,

which, accordiDa to the contract, is 8 corporation whose sole representative is Craig

Fuller.4 The contract specified that Craig Fuller was to serve as the Primary Committee's

Campaign Chairman and that the Primary Committee was to pay a monthly retainer fee

of$22,ooo beginnina May I, 1995. The contrael also contained the fonowing clause:

"Vendor apees to obtain prior approval from the Committee for all

travel mel other expeosa incurred in the perfOIlDlDCe oftbis

Apeemeat Tbe Committee will reimburse Vendor for aU travel and

4

The CODtI'Kt _The Fuller Company's principal place ofbusinea wa McLe-., Vqiaia.

Commiaee also revealed that the business address for the Fuller Company was the __

as Craie Fuller's Ilddress.

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other expenses incurred under this agreement The Committee will

not reimburse Vendor for first class or business class air travel.

Authorized expenses sbalJ be invoiced at cost and Without markup to

the Committee. All expenses incurred by Vendor will be reimbursed

within thirty (30) days ofreceipt by the Committee".

Although the contract was with The Fuller Company, the

Primary Committee disclosed all its tnmsaetions and wrote all but one ofits checks

payable to Craig Fuller. Since the contract specified that The Fuller Company was a

corporation, the Audit staffattempted to verify its corporate status. The Audit staffwas

unable to locate a Fuller Company incorporated in either California, Washington D.C., or

Virginia. A representative from the Corporate Division for the State ofVirginia also

stated that regardless whether a business was incorporated in Virginia, ifits principal

place ofbusiness was Virginia, the Corporate Division would have a record ofits

existence. Finally, the Audit stafflocated a professional biography for Craig Fuller on

the Internet which made no mention ofa Fuller Company. It stated that he had worked

for Philip MotTis until he was invited to be the chairman for Governor Wilson's

Presidential campaign. Therefore, the Audit staffconsidered this matter under 11 CFR

§116.5 rather than 11 CFR §116.3.

The Auditstatrs review confinnecl that the Primary

Committee paid the specified monthly retainer fees from May 1995 through July 1995.

The Primary Committee also maintained a record in its accounts payable file detailing

that as ofMay 1996, the Primary Committee still owed Craig Fuller his August 1995

retainer fee (S22,000).

The Primary Committee reimbursed Craig Fuller S6,S5S for

various expenses incurred through June 1. The Primary Committee also maintained in its

accounts payable file expense reimbursement requests from Mr. Fullersubmitted OD

October 31, 1995 for expenses incurred and paid by him between May 4, 1995 and

September 28, 1995. The expense reimbursement requests were signed by Mr. Fuller and

submitted with supporting documentation for expenditures such as taxi fares, and meals

and hotel lodging paid for on his personal credit carel. The Audit staffdetermined the

total amount ofunreimbursed expenses submitted was S29,193. This amount, plus the

August retainer fee, comprise the SS 1,185 reponed as owed by the Primary Committee to

Craig Fuller at May 31, 1996.5

The S8 difference between the SS J, 18S reported by the Primary Committee and the sum ofthe

$22,000 retainer fee and $29,193 in unreimbuned expenses is immaterial.

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As a result ofthese umeimbursed expenses, the Audit staff

determined that Mr. Fuller had made an excessive contribution totaling S28,193. The

Audit staff's analysis considered Mr. Fuller's S1,000 contribution limitation; a $1,000

contribution made by him to the Primary Committee on September 1, 1995 and, the

S1,000 that an individual is permitted to incur for transponation pursuant to II CFR

§100.7(b)(8).

-~

This matter was discussed with Primary Committee

officials at a conference held at the end offieldwork. At that time, a copy ofa schedule

was also provided detailing the Audit staff's determination ofthe excessive amount. A

Primary Committee representative expressed surprise that snch an exorbitant amount of

expenses had been submitted to the Primary Committee for reimbursement, and stated

that he doubted the Primary Committee would be inclined to pay it. He added that there

may have been a dispute between Mr. Fuller and the Primary Committee concerning the

expenses claimed. He also stated that the Primary Committee would provide the Audit

staffwith more information; however, no additional information or documentation

addressing this matter was submitted. . In the Exit Conference Memorandum (the Memorandum),

the Audit staffrecommended that the Primary Committee demonstrate that Craig Fuller

did not exceed the contribution limitation of 2 U.S.C. §441a(a)(IXA), or was reimbursed

in a timely manner as defined under II CFR §116.S(bX2), or submit any other comments

or documentation it felt may be relevant.

In its response to the Audit staff's recommendation, the

Primary Committee contended that the money owed to Craig Fuller is subject to the

provisions of II CFR §116.3, which addresses extensions ofcredit by commercial

vendors, rather than the Audit staff's treatment ofthe issue under 11 CFR §116.S(b). The

Primary Committee argued that, as a commercial vendor, Craig Fuller was extending

credit in the usual and nonnal course ofhis business. Considered under this regulation,

the Primary Committee assert~ there was no excessive contribution. The Primary

Committee concludes by stating that Mr. Fuller is not the only vendorstill owed funds

and it treated Mr. Fuller the same as every other commercial vendor to whom it owes

money.

The response included an affidavit from Craig Fuller

supporting the Primary Committee's statements. In addition, the Primary Committee's

response states:

"The Memorandmn recognizes that 11 CFR §116.3 pennits

commercial vendors, whether or not incorpora~ to extend credit to

a candidate as long as the credit is extended in the ordinary course of

the commercial vendor's business and the tenns are not established

especially for the candidate or political committee".

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"Craig Fuller, through The Fuller Company, a sole proprietorship

established in 1989, was a vendor to the Primary Committee. As

such, any monies still owed Mr. Fuller for his monthly fee and

expenses under his contract are subject to II CFR §116.3. For

unexplained reasons, the Memorandum incorrectly characterizes him

aun employee subject to II CFR §116.S." ......

"Indeed, the only indicia the Memorandum can site [sic] in arguing

Mr. Fuller was an employee ofthe Primary Committee is that The

Fuller Company is not incorporated. However, for a variety of

business reasons and based on the recommendation ofhis financial

advisor, Mr. Fuller opted not to incorporate the Fuller Company, and

instead operate it as a sole proprietorship".

"As the Commission is well aware, Mr. Fuller is not the only vendor

still owed funds.... There is simply no money to pay in full Mr.

FUller or S6 other vendors. By contrast, the Primary Committee has

paid all its employees and staff. Regrettably, slow payment is the

Committee's nonnal course ofbusiness towards vendors to whom it

still owes money, including The Fuller Company.' Likewise, the

Fuller Company recognizes that in the nonnal course ofbusiness,

clients may not be able to pay bills and, in such cases, credit has to

be extended. The Fuller Company has extended payments and

canied debt in other instances".'

The Primary Committee's response, and Craig Fuller's

affidavit, also mentioned that as a sole proprietor, he reponed the income received from

the Primary Committee to the Internal Revenue Service (IRS) on an IRS Form 1040C

(Schedule C), and received an IRS Fonn 1099 from the Primaiy Committee rather than

an IRS Form W-2. This tax treatment ofms income, the Primary Committee concluded,

supports the contention that he was not an employee ofthe Primary Committee, rather

he was an independent contractor, subject to the provisions ofa commercial vendor

under II CFR §116.3.1

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The Audit staff DOteS that money paid (Schedule B-P) and owed (Schedule D-P) for Mr. Fuller's

services was consistently disclosed to "Craig Fuller"l1 not "The Fuller Company".

Both the Primary Committee and Craig Fuller failed to provide examples ofsituations where The

fuller Company had extended credit to nonpolitical clients ofsimilar size Iftd risk . (See II CFR

§116.3(a».

The response notes the Primary Committee intends to pay ~e monies owed for Mr. Fullerlls

services and expenses as soon as possible". In his atTidavi~ Crail Fuller stated that he had "made

periodic inquiries about when the Committee expected to have suffICient funds to pay (t)he Fuller

Company".

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The affidavit from Craig Fuller f\.Irther stated "I am

president ofthe Fuller Company, a sole proprietorship 1began in 1989 when 1left

government service. 1was advised by my financial advisor to establish this business as a

sole proprietorship for tax reasons". The affidavit continued by stating that "From May

to September, 1995, 1was retained through the Fuller Company by the Pete Wilson for

President Committee, Inc.. Through my company, 1served as Campaign Chainnann •

i. Mr Fuller as a Commercial vendor

Section 116.I(c) ofTitle II ofthe Code ofFederal

Regulations defines commercial vendors as any person(s) providing goods or services to

a candidate or political committee whose usual and nonna! business involves the sale,

rental, lease or provision ofthose goods orservices. The crux ofthe Primary

Committee's argwnent is that Craig Fuller is a commercial vendor. However, neither the

Audit staffs independent queries, the Primary Committee's response, nor Mr. Fuller's

affidavit provide any explanation as to what constitutes the "usual and normal business"

ofThe Fuller Company. Craig Fullerstates only that the company was established upon

the suggestionofa business advisor for his personal tax purposes.

Furthermore, Mr. Fuller states in his affidavit

"[t]hrough my company, 1served as Campaign Chairman". The Audit staffwas able to

locate two professional biographies on the Internet featuring Craig Fuller.' According to

these biographies, Craig Fuller worked as senior vice president for corporate affairs at

Philip Monis Companies, Inc. before joining the Primary Committee. Previously, Mr.

Fuller had worked in the Reagan and Bush White Houses until 1989, after which he

became an executive at a lobbying finn. After leaving the Primary Committee, he

worked at the public relations firm ofBurson-Marsteller as vice-chainnan. In mid-1996,

Mr. Fuller accepted the position ofmanaging director at the Washington D.C. office of

KomlFerry International, an executive search finn. The biographies make no mention of

The Fuller Company nor of any other political consulting work done by Mr. Fuller since

leaving the White House. Thus, absent an adequate explanation ofThe Fuller Company's

business, and, because ofthe consistency in Mr. Fuller's career as a business executive,

the Audit staffis unable to conclude that providing campaign chairman services to

political committees is the usual and nonnal business ofThe Fuller Company, or that The

Fuller Company consists of anything more than a name.

9 Internet sites Iocaled at: I) http://www.register.com/prcentraViprjun24fuller.htm. and 2)

http://www.ac2000.orgIsyndieatelfuller.html.

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ii. Mr fgller a a 'Pri""tY ConqniJtcc Employee

The Primary Committee respcmse contends that the

Audit11Iftin appIyiDa 11 CFR §116.5, erroneously concludeS that Mr. Fulleris an

employee ofdle Primary Committee. The Primary Committee fails to realize that the

application of 11 CPR §116.5 is not limited to committee staft Indeed, the title ofthe

~OD i1scIfreads KA.dvances by committee staffand other iDdividuals'.!...BubsectiOD

(8) ofthe replatioa, which clearly defines its application, makes DO refereDCe to

"employees". Rather, it states itsscope is individuals who are not acting as

commercial vendors". Since the Primary Committee is UDable to provide conclusive

evidence that Mr. Fuller meets the defiDitiOD of. commercial vendor under 11 CFR

§116.3, its arpment that he was not an employee oftile Primary Committee and, by

default, DOt subject to 11 CPR §116.S, is misplaced.

iii. pmgnll Credit Card

Section 116.S (b)(2) ofTitle II ofthe Code of

Federal )legWatiODS reads as follows:

"The payment by an iDdividual from his or her personal funds,

incluclin& • personal credit card, for the costs incurred in

providiDa goods orservices to, or obtaining 800ds orservices

that.,used by or on behalfo~ 8 ClDdidate or a political

committee is a contribution unless the payment is exempted

fiom the definition ofcontribution under II CPR 100.7(bX8).

Ifthe payment is not exempted under 11 CPR lOO.7(bX8), it

shall be considered a contribution by the individual unless • (2)

The individual is reimbursed within sixty days afterthe closing

date ofthe bil1ina statement on which the charges first appear if

the payment wu made using a persoDal credit card, or within

thirty days after the date on which the expenses were incurred if

a persoaaI credit card was not used."

Based on the Audit statrs review ofthe expense

documentation submitted to the Primary Committee by Craig Fuller, those expenditures

which were DOt paid in cab were paid with his personal credit cards.I

' Even ifthe Audit

staffaccepted The Fuller Company as a commercial vendor under 11 CPR §116.3, since

I' Dacumeil'." nwiewed by the Audit stafI"iadicatll .........two penaaaJ credit cards were

used by Craia Fullerto pi)' for his expenses while .-villa_ Campaip CIaainD-. Tbe

doc:.wa••_ included aediI card •••"..which Crail Fuller.... 1Ubmiaed to the PrimIry

Cammiaee10 his expenditures. M8Iy of1be chqesitemized 011 the ltate...tI, 8ftCI

not lUblDiaed for 1ppeIfed10 be penaaaJ in ......... i.e•• cbqesto retail jewelry

IIora, IIIIjar - 1nCI other businessestrIdia& in COIIIUIDII' pods.

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Mr. Fuller used his personal credit cards to pay for Primary Committee related travel, '--

lodging, and meals, and because the expense billings did not appear to involve The Fuller

Company, the contribution occUlTed.

The Primary Committee has failed to provide sufficient

evidence to substantiate its argument that 11 CFR §116.5 was incorrectly applied in this

matter.. Evenlfconsideration ofthis matter under 11 CFR §116.3 was contemplated, the

Primary Committee failed to provide documentation demonstrating the credit extended

. was in the Donnal course ofbusiness for the Fuller Company and examples ofother

clients ofsimilarsize and risk for which similar services had been provided under similar

billing arrangements. Additionally, consideration under 11 CFR §116.3 would preclude

application ofthe exemption for personal travel and subsistence expenses provided under

11 CFR §100.7(b)(8); resulting in a prohibited contribution of$29,193. Therefore, the

Audit staff's conclusion that Craig Fuller made an excessive contribution, as defined

under 11 CFR §116.S, in the amount of$28,193, remains unchanged.

b. ExtensioD ofCredit by a Commercial vendor

During the course offieldwork, the Audit staffreviewed

documentation associated with an anangement between the Primary Committee and

American Telephone and Telegraph Credit Corporation (ATI Credit). A document,

titled "Master Equipment Lease Agreement Schedule" (Master Schedule) was dated June

1, 1995, and set the value ofequipment to be leased, a PBX telephone system, at

5213,365.11 This document specified that the Primary Committee was responsible for

payment ofadvance rent of SI2,352, to be applied to the first month's rental payment,

and monthly payments ofS12,352 thereafter. Other documents submitted after the

Primary Committee's response to the Exit Conference Memorandum make it clear the

Primary Committee was to provide a letter of credit to secure the lease. However, the

only payment to AIT Credit ultimately made by the Primary Committee was on February

9, 1996 in the amount ofS213,365.

The Primary Committee records indicated it had also issued

the following checks to "AT&T Credit Corp": check number 1328 dated May 28, 1995;

check number 1509 dated June 27, 1995; and check number 1587 dated July 10, 1995.

Each was in the amount ofS12,352. The checks dated May 28 and June 27 were reported

on the Primary Committee's Schedules B-P for the July Quarterly 1995 reporting period.

Dwing the same reporting period, the Primary Committee also disclosed an outstanding

debt to ....AT&T Credit Corporation" on its Schedules D-P in the amount ofS201,013

II The value ofthe telephone equipment, per the Master Equipment Lease Agreement Schedule, was

S165.580. The difference between this amount and the S2 J3.365 is comprised ofsales tax

(SI2.832), installation (S34,000), and shippin. ($952).

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(5225,7161ess two 512,352 payments).12 In the October Quart~y 1995 reponing period,

the Primary Committee reported the May and June checks as negative entries on its

Schedules B-P. On its Schedules D-P, the Primary Committee reported a beginning

period debt total of5201,013, debt incurred during the period of512,352, and an

outstanding balance at the end ofthe period of5213,365. The Primary Committee

reported this amount as a debt until the April 1996 Monthly (March 1 to March 31, 1996)

reporting period. ...

The Audit stafflocated all three checks, un-negotiated, in

the Primary Committee's void check file. Acc-..ording to available records, the checks bad

been voided on October 6, 1995. Each voided check was accompanied by a copy ofa

briefletter from Robert P. Wright ofAIT Credit in Parsippany, New Jersey. The letter

was addressed to a Primary Committee attorney, A. Peter Kezirian, Jr., and dated October

10, 1995. lhe letter read as follows:

"Dear Peter: Enclosed are three checks each in the amount

of512,351.68 held in anticipation ofa Letter ofCredit 13 to

•support funding ofyour lease oftelecommunications

equipment from AT&T. Sincerely, Robert P. Wright"

Documentation submitted by the Primary Committee on

July 17, 1997, included an internal memorandum from A. Peter Kezirian, Jr. [Counsel for

the Primary Committee] to Mark G. Hogland [Director ofAdministration for the Primary

Committee]. According to this memorandum, dated August 21, 1995, discussions with

an AIT Credit representative indicated that the letter ofcredit was an essential part ofthe

lease and An Credit could not process any ofthe Primary Committee's payments until

all the lease prerequisites were completed. The same memorandum stated that AIT

Credit bad been requested to consider "some variation ofthe letter ofcredit" so that the

lease agreement could be executed between the parties, but had refused because it felt

compelled to treat all campaigns equally.

On February 9, 1996, the Primary Committee issued check

number 0101732 in the amount of5213.365 to AlT Credit, approximately nine months

after the Committee had signed the Master Schedule. Prior to February 9, 1996, the

Primary Committee began negotiating for the sale ofthe telephone equipment to

VariLease Corporation ofFannington Hills, Michigan. Based on the "Agreement of

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The Audit .fI'believesthat the 1225,716 reponed IS the amount ofdebt incuned for the July

Quarterly reponing period was derived by the Primary Committee to ensure that the outstanding

debt reported on the October Quarterly Schedule D-P would balance to the actual value outlined

in the Master Schedule ($213,365).

Althoup no documentation with respect to a letter of credit was made available to the Audit staff,

during November, 1995. the Primary Committee received a line of credit (S5oo,000) which was

used to make payments to various vendors other than AT"T.

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Purchase" between VariLease Corporation and the Primary Co.nee, dated January 4,

1996 and signed February 1, 1996, VariLease Corporation purchased the equipment and

had it shipped to Otisco Valley Telecom in Liverpool, New York. The sale price ofthe

equipment to VariLease Corporation was S50,000 (S55,000 ori'ginal sale price less 55,000

deduction for parts not received). On March 7, 1996, the Primary Committee deposited a

550,000 check, dated March 1, 1996, from VariLease Corporation.

It is the Audit staff's opinion that, based on the available

documentation regarding the lease being negotiated between the Primary Committee and

AIT Credit, the Primary Committee received an extension ofcredit from AIT Credit

outside the ordinary course of business. AT&T delivered and installed the

telecommunications equipment prior to all documents related to this transaction being

completed. Further, the Primary Committee had possession ofthe telecommunications

equipment owned by AT&T for nine months at no cost. All ofthe documentation

available to the Audit staffstands in direct contrast to the (unexecuted) lease document,

which although signed by a Primary Committee representative was apparently never

executed by AIT Credit The Master Schedule specifically details the value ofthe

equipment to 6e leased and the amount and manner in which lease payments were to be

due. The Primary Committee never made a fully negotiated payment relative to the

(unexecuted) lease for the telephone equipment nor provided the necessary letter ofcredit

to secure the (unexecuted) lease. The Audit staffconcludes that the Primary Committee

received a contribution from AIT Credit from May 1995 through February 1996 of

$213,365, the amount ofthe eventual purchase price ofthe telephone system.

The Audit staffdiscussed this matter with Primary

Committee representatives at a conference held at the end offieldwork and requested that

more documentation, specifically a copy ofthe lease with AIT Credit, be provided.

Primary Committee officials had no direct comment, but indicated that they were

confident they would be able to clear the matter.

The Primary Committee did not provide the documentation

requested prior to the issuance ofthe Exit Conference Memorandum. Rather. it provided

either documentation already obtained by the Audit staffor internally generated letters

from Primary Committee officials addressed to various AIT Credit representatives. The

letters provided little infonnation, with the exception ofone letter from A. Peter Kezirian,

Jr., to Christine Myers ofATI Credit dated June 27, 1995. This letter was apparently the

cover letter to an overnight package delivered from the Primary Committee to AIT

Credit. In relevant part, the letter read as follows:

"Enclosed please find the following documents related to AT"T

Master Equipment Lease Agreement, dated as ofMay 17, 1995 (the

"Agreement"): (i) an executed copy ofthe Agreement; (ii) an

executed Master Equipment Lease Agreement Schedule; (iii) an

executed Financing Statement on a Fonn uec-I; (iv) an executed

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Billing Information Sheet and (v) two checks, in the amount of

SI2,3S1.68 which reflects our May and June payments under the

Agreement.

In light ofmy discussions with Phil Lozzano and Bob Wright, I am

in the process ofestablishing a line ofcreditl4 for the remaining

~ents due and owning [sic] underthe Agreement As I ...

discussed earlier with Masers. Lozzano and Wright, the Committee

is in its early stages ofdevelopment and OlD' bank will not issue a

line ofcredit at this time. Once the Committee has qualified for

federal matching funds, which will occur on June 30 and is

contingent on the completion ofour initial filing with the Federal

Election Commission, the Committee will become immediately

eligible for a line ofcredit As soon as I have received such a

financial instrument from our bank, I will provide AT&T with the

necessary documentsto complete our obligations under the

Agreement,,15 . The Audit staffalready bad all the documents itemized in

paragraph 1 ofMr. Kezirian's letter discussed above except for the "AT&T Master

Equipment Lease Agreement, dated as ofMay 17, 1995".

In the Memorandum submitted to the Primary Committee,

the Audit staffrecommended that it provide an executed copy ofthe AT&T Master

Equipment Lease Agreement dated May 17'1 1995, as well as any other documentation

from ATI Credit and/or Franklin National Bank, or any othersource it deemed relevant,

to demonstrate that the credit extended by A11Credit was in the nonnal course of

business and did DOt lepresent a contribution. The recommendation stressed that the

information provided should include examples ofother customers or clients ofsimilar

size and risk for which similarservices have been provided and similar billing

ammgements have been used. Information concerning billing policies for similar clients

and work, advance payment policies, debt collection policies, and billing cycles was also

requested.

In response to the Memorandum, the Primary Committee

asserted that it had not "received some son ofsweetheart deal" from AIT Credit, and that

"••. the facts, the business reasons for AITts actions as understood by the Primary

Committee, and AIT's normal business practicesin similarsituations debuDIc the

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All other .......aces have been to • letter ofcredit.

Based on its threshold submission received AUld II, J995, the candidate established

elilibility on Aupst 30, 1995.

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i. "IrnptOJlCI Extension ofCredit"

The fm issue addressed by the Primary Committee

was the Audit stairs conclusion that "the Primary Committee received 'an extension of

credit from ATT [Credit] outside the ordinary course ofbusiness'". The Primary

Committee began by describing the basis on which AIT Credit fonns customer

relationships. -While the affidavit from A. Peter Kezirian, Jr. supports these statements,

no documentation from A17 or AIT Credit characterizing its business policies was

provided.

Memorandum's argument". The response stated that there ~"three allegations"

contained in the Memorandum, each ofwhich was "factually UDtrue". The response also

included AIT Credit documents already obtained by the Audit staB: an affidavit from A.

Peter Kezirian, Jr., and documents regarding a "buy back" arraDgement between AT&T·6

and the Bush/Quayle '92 Presidential campaign. On July 17, 1997, the Primary

Committee submitted additional documentation including internal Committee

memoranda; letters and other documents from AT&T; and copies oftelephGBe bills paid

by the Primary Committee. The Primary Committee's arguments concerning each ofthe

three allegations, and the Audit staff's conclusion about those arguments and the

supporting evidence provided, are discussed below.

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"A17 Credit ... regularly provides leasing and credit services to

facilitate the sale ofequipment for AIT since, as the Primary

Committee has come to learn, equipment sales are considered the

best means ofseeming a business 9overall telephone service.

Therefore, while the equipment costs about which the

Memorandum is concerned is a significant component, it is also a

relatively small part ofthe entire business relationship between

AIT and a customer... The Memorandum fails to recognize that in

this context, it is the normal course ofbusiness for a telephone

company to install a telecommunications system and secure the

service contracts before finalizing all ofthe credit and contract

tenns ofsuch a sale or lease... The monthly AIT billings to the

Primary Committee for telephone service were often five or six

times the equipment lease payments. The potential billings to AIT

would continue to grow exponentially as the campaign moved

closer to the primary elections. The total dollars flowing to ATT

from the Primary Committee demonstrate conclusively that the

service agreements are ofsignificantly greater value to a telephone

company than the equipment sales about which the Memorandum

The Audit staff' notes that this arrangement did not involve AIT Credit. The panics involved

were the Bush/Quayle 92 campaip and ATltT. the parent company ofAlT Credit.

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focuses. In other words, in order to obtain the lu~ve business of

providing the service itself, a telephone company may, as

happened here, offer 'dealsf and flexibility on payment for the

equipment".

The Audit staff cannot rely on the Primary Committee's

statements reprding what elements AT&T considers when evaluating its ~iness

relationships with its customers. All infonnation about AT&T's business practices is

. provided by an attorney employed by the Primary Committee. No infonnation from

AT&T is supplied.•, Furthennore, the Audit staffhas thoroughly examined a copy ofthe

(unexecuted) lease agreement and nowhere does it require that AT&T be the telephone

service provider for any period oftime as a condition ofthe lease, nor does it contain a

clause which offers "flexibility" to the lessee ifit utilizes AIT'stelephone service.

Finally, the Audit stafffinds no evidence to support the contention that it is an established

business practice ofAITto install telecommunications equipment based on "potential

billings", and "before finalizing all ofthe credit and contract tenns ofsuch a sale or

lease".

The Primary Committee's response continued by

describing how AIT Credit generates revenue for itselfby discounting its leases and

selling them in financial markets. It was this common practice, the response contends,

that resulted in the Primary Committee's checks not being deposited by AIT Credit.

However, the response fails to address how such a practice subsequently resulted in AIT

Credit returning to the Primary Committee all three payments it had sent relative to the

(unexecuted) lease.

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"AIT Credit provides credit to the customers ofAIT to help them

afford more telephone service.18 However, AIT Credit cannot

survive fmancially ifit holds onto each ofthe loans extended to

AIT customers. Therefore ... AIT Credit will 'bundle' these loans

and sell them in the financial markets at a discount.... The Primary

Committee did not understand why AIT Credit had not deposited

the Primary Committee's lease payments until it learned the decision

was based on ATI Credit's standard practice ofbundling and

reselling loans. Mr. Wright told Mr. Kezirian that any deposit

without the closure ofany element ofthe Master Lease Agreement

Materials submiued on July 17, 1997, by the Primary Committee indicate a letter ofexplanation

has been requested from AT&T and is expected to be received soon. To date, no such letter has

been provided.

The statement that "AIT Credit provides credit to customers ofAT&T to help them afford

more telephone services" is not clear. A17Credit finances telecommunications equipment, not

telephone services.

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would have disqualified the loan for sale. AlT C~t was willing to

hold deposits to maintain the option ofreselling the loan

...Therefore, AIT Credit held payments until all steps were

completed. The Committee believed this was a nonnal business

decision by A1TCredit that had nothing to do with the operations of

the Primary Committee."

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This section concludes by stating that AIT Credit

never did sell the Primary Committee's loan, "but [it] did receive full payment for the

equipment in February 1996". The response then argues that as a result ofthe Primary

Committee's purchase ofthe equipment at its full value, it "meant that AIT was

certainly made whole and that the Primary Committee did not secure a benefit outside

ATI's nonnaI business practices".·'

Given that no fully executed lease has been produced

and that AIT Credit "could not process any ofthe payments" until the lease

requirements were completed, which included a letter ofcredit, it appears that no lease

contract exisfed. Without a completed (lease) contract, the sale ofthe instrument would

seem to be impossible.

Further, the Primary Committee fails to address how

AIT Credit is able to "'survive financially" by returning the payments it receives

relative to its leases. In the Primary Committee's case, AIT Credit neversold the

(unexecuted) lease, but, after the (unexecuted) lease was in arrears, and absent the

requisite letter ofcredit, sent the undeposited checks back to the Primary Committee.

The Primary Committee does not explain why it believes that it was a "nonnal business

decision by AIT Credit" to not only return to it $37,056 in payments made relative to

the (unexecuted) lease, but to do so in October of 1995. By this time the candidate had

dropped from the race, the campaign was publicly reported as bankrupt, and, under the

terms ofthe (unexecuted) lease, was two payments in arrears.

Finally, the Audit staffnotes with interest Mr. Wright's

explanation to Mr. Kezirian about why the Primary Committee checks were never

deposited. As quoted previously in this report, the letter from Mr. Wright to Mr. Kezirian

dated October 10, 1995, which accompanied the return ofthe un-negotiated checks, states

that the checks were returned because they were "held in anticipation ofa Letter ofCredit

to support funding of your lease...". It is the Audit staffs opinion that these checks were

never cashed by ATT Credit to avoid any appearance ofconsummating the (unexecuted)

lease prior to receiving a letter ofcredit.

19 Whether AIT Credit was or wasn't "made whole" is not the thrust of II CFR §116.3. This

regulation deals with extensions of credit made by commercial vendors.

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ii. "'Fn:e Equipment' fortbe Prjrnm Committee"

The second issue presented by the Primary Committee

was that "[t]he Primary Committee used the telecommunications equipment owned by

AlT [Credit] 'for nine months at no cost'". In this portion ofits response, the Primary

Committee asserts that AIT Credit actually received more money than it was entitled

~use the Committee bought the equipment at its full value in F~ 1996.

rather than paying for the equipment over the "17 month[s]" term specified in the lease.2o

Indeed, the Primary Committee states in its response, "By selling the system outright in

February 1996, AIT Credit received its funds sooner than anticipated, and therefore,

received an economic benefit".

The Audit staff: in applying 11 CFR §116.3, is

concerned only with the nine month period which AIT Credit allowed the Primary

Committee possession and use ofequipment without requiring any compensation.

Further, the assertion that AIT Credit received more money than entitled by foregoing its

monthly lease payments due under the (unexecuted) lease agreement in lieu ofa lump

sum at the end ofnine months, is untrue. Ifthe telephone system had been purchased

when installed in May 1995, the price would have been 5213,365. Ifthe (unexecuted)

lease had been paid to its conclusion, 19 months at 512,352 per month, ATI Credit

would have received 5234,688. The Audit stafffails to see how AT&T's receipt of

$213,365 nine months after the system was installed provides a financial benefit over

either the timely collection ofpayments throughout the specified tenn, or the outright

purchase ofthe system when installed.

Additionally, the Primary Committee claims it was

".. penalized by AIT for withdrawing from the election" because "By mid-October,

AIT had tenninated its service arrangements with the Primary Committee",. The

Primary Committee states that it had to stop using the equipment and store it Uuntil a

financial solution was found". No explanation is provided as to why the service was

disconnected and why the equipment had to be stored rather than used during the winddown period. Further, the Audit stafffinds these statements incompatible with previous

assertions made in the Primary Committee's response. In part i. above, the Primary

Committee explained at length that ATciT's usual course ofbusiness is to first, secure

profitable service agreements, and second, tie them to flexible equipment leases. Based

on this scenario, it would seem that once the service was disconnected, AT&T would

cease to be flexible with its leased equipment, demand it be returned, and continue

collection effoN for the outstanding lease payments. Indeed, it would seem that ATciT

lost money in its dealings with the Primary Committee. AT&T failed to realize all ofthe

20 The Primary Committee states in its response that "The lease required 17 months to pay the

complete purchase price·· resultina in total payments of$213.682. Accordina to the Master

Lease Agreement its tenn was for 19 months.

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"potential billings" it had supposedly anticipated from its ~ce agreements, failed to

collect the S12,352 due in monthly payments for nine months under the (unexecuted)

lease, and failed to I'egain control and possession ofits equipment for four months after

it had "penalized" the Primary Committee by tenninating its telephone service in

October 1995.

iii. "NQ Lease Payment"

The Primary Committee's discussion in the third

subsection ofits response argued that the Audit staff's conclusion that ~'the Primary

Committee 'never made a fully negotiated lease payment on the telephone equipment'....

... is patently incorrect". The response continues as follows:

"Three lease payments of512,351.68, each as required by the

Master Lease Agreement, were made in a timely manner in May,

June and July. The Primary Committee failed to make lease

payments in August and September due to financial difficulties". . The difference between the Primary Committee's

position on this issue and the Audit stairs position is merely semantic. The Primary

Committee argues that, from its perspective, the payments were fully negotiated because

the Primary Committee issued the checks and recorded the payments in its records. It is

argued that since these payments were so recorded, the funds were unavailable for other

uses. The fact that AIT Credit never cashed the checks causing the funds to be removed

from the Primary Committee's accounts is not relevant to its position. In the Audit

stairs view ofthese same facts, AIT Credit's failure to collect the funds represented by

the checks, to return those checks after the (unexecuted) lease was in arrears, and not to

pursue these delinquent payments represents an extension of credit beyond its ordinary

course of business.

The Audit staff concludes that the Primary Committee

has failed to demonstrate that AIT Credit did not extend credit outside ofits nonnal

course of business, as defmed under 11 CFR §116.3, or that the Primary Committee did

not receive a contribution from AIT Credit during the period from May 1995 through

February 1996 in the amount of$213,365.

2. Misstatement ofFinancial ActiVity

Sections 434(bXl), (2) and (4) ofTitle 2 ofthe United States Code

state, in relevant part, that each report shall disclose the amount ofcash on hand at the

beginning ofthe reporting period, the total amount ofall receipts, and the total amount of

all disbursements for the reporting period and calendar year.

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The Auditstaffs reconciliation oftile Primary Committee's

reponed financial activity to bank activity for the first fom months of 1996 revealed a

misstatement ofthe Primary Committee'sreported disbursements as well as its reported

ending-eash-on-band balance at April 30, 1996. .

The Primary Committee reported total disbursements of

51,719,117 fot the first four months of 1996. Utilizing the Primary Comuu"""ftee's

financial records, the Auditstaffdetermined that the Primary Committee should have

reported total disbursements ofSl,805,347. Therefore, the Primary Committee's

disbursements were understated 586,230. Similarly, the Primary Committee's t:ePOrted

ending-eash-on-band of$481,350 at Apri130, 1996 was overstated by 586,224.21 The

correct ending-eash-on-band balance was 5395,126.

The wtderstatement ofdisbursements and overstatement of

ending-cash-on-hand resulted from the Primary Committee's failure to report three

disbursements totaling 578,950 on its Apri11996 Monthly Schedules B-P (March 1 to

March 31, 1996), and its failure to report one disbursement in the amount of53,638 on its

May 1996 Monthly Schedules B-P (April 1 to April 30, 1996).

On June 24, 1996, during the course ofaudit field work, the

Primary Committee filed amended reports which corrected the errors.

In the Exit Conference Memorandum to the Primary Committee,

the Audit staffrecommended no further action regarding this matter. In its response to

the Exit Conference Memorandum, the Primary Committee concurred with the Audit

statrs recommendation.

3. Failure to Pamer)y Disclose Debts Quwandjne

Section 434(b)(8) ofTide 2 ofthe United States Code states that

each report shall disclose the amount and nature ofoutstanding debts and obligations

owed by or to such political committee; and where such debts and obligations are settled

for less than their reported amount or value9 a statement as to the circumstances and

conditions under which such debts or obligations were extinguished and the consideration

therefore.

Section 104.1 I(a)(b) ofTitle II ofthe Code ofFedera1 Regulations

states, in part, that debts or obligations owed by a political committee which remain

outstanding shall be continuously reported until extinguished. These debts and

21 1'be clift'ereace between the misstatement totals in disbursements ($16.230) and encIinl-eash-onhand (S86,224) are the result o(minor misstatements in reponed receipts and minor. unresolved

differences in disbursements and encIin.-eash-on-hand.

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obligations sbaIl be reported on separate schedules together a statement explaining

the circumstances and conditions under which each debt and obligation was incurred or

extinguished. A debt or obligation, the amount ofwhich is SSOO or less, shall be reported

as ofthe time payment is made or not laterthan 60 days after Such obligation is incurred,

whichever comes first. A debt or obligation the amount ofwhich is over $500 shall be

reported as ofthe date on which the debt or obligation is incurred, except that any

obligation incurred for rent, salary, or other regularly reoccuning administl1live expense

shall not be reported as a debt before the payment due date.

In the course ofverifying the Primary Committee's Statement of

Net Outstanding Campaign Obligations, the Audit staffreviewed selected disbursement

records and identified significant debt reporting errors. As a result, the Audit staff

reconciled amounts invoiced by vendors and payments made by the Primary Committee

for 64 vendors. Primary Committee vendor files, which included all invoices both paid

and unpaid, were utilized along with all canceled and/or void checks. The 64 vendors for

which reconciliations were prepared included those with outstanding balances reported at

May 31, 1996;

Of'the 64 vendors examined, the Primary Committee had

incorrectly disclosed outstanding debt on Schedules D·P for 41 vendors, or 64% ofthe

vendors reviewed. The Audit staffdetermined that debts and obligations disclosed by the

Primary Committee were overstated by a net amount of$614,622 oftotal reportable

debt.22

The total amount ofreportable debt was calculated by summing the

reported total ofoutstanding debts and obligations owed by the Primary Committee for

each report period. Similarly, the total amount ofdisclosure errors was calculated by

summing the differences between the amount disclosed as outstanding by the Primary

Committee on its Schedules D-P and the amount detennined as outstanding by the Audit

staff's reconciliations for each vendor't for each reponing period covered by the audit. As

a result, debts that were repeatedly misstated are included each time they required

reporting.

At a conference held at the conclusion offieldwork., the Audit staff

provided the Primary Committee with a copy of a schedule detailing the differences

between the Audit staffdetenninations and the amounts reported by the Primary

Committee. Copies ofschedules were also provided detailing the amounts ofdebt

outstanding at December 31, 1995 and May 31, 1996, as detennined by the Audit staff.

The Primary Committee agreed to file the appropriate amended repons.

Some debts were overstated (S917,698) and other debts were understated (S303,076); the

sum ofthese errors would total SI,604,793, which results in an error rate of56% ofcorrec:t

reponable debt. The above amounts do not total SI.604,793 due to understatements and

overstatements oecuning across reponing periods for cenain vendon.

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In the Exit Conference Memorandum, tbe Audit staff

recommended that the Primary Committee file amended Schedules D-P for its 1995 Year

End and 1996 June Monthly (covering the period May 1 to May 31, 1996) reports to

correct the disclosure ofits outstanding debts and obligations.

In its response to the Exit Conference Memorandum, the Primary

Committee stated that it "..concurs with this recommendation and the rele~ reports are

being prepared and will be filed as promptly as possible." The Audit staffreceived the

amended Schedules D-P on April 7, 1997, and, based upon an examination ofthem,

concluded that they were materially correct.

B. AUDIT FINDINGS AND RECOMMENDATIONS: AMOUNTS DUE TO

THE U.S. TREASURV

1. DeterminatioD orNet QutstandiPK Campaian ObliKatioDS

Section 9034.5(a) ofTitle 11 ofthe Code ofFederal Regulations

requires that Within 15 days after the 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.

Section 9034.1 (b) ofTitle 11 ofthe Code ofFederal Regulations

states, in part, that ifon the date ofineligibility a candidate has net outstanding campaign

obligations as defined under 1JCFR §9034.5, that candidate may continue to receive

matching payments provided that on the date ofpayment there are remaining net

outstanding campaign obligations.

Governor Wilson's date ofineligibility was September 29, 1995.

The Audit staffreviewed the Primary Committee's financial activity through April 30,

1996, and on a more limited basis, activity through December 31, 1996. The Audit staff

also analyzed winding down costs and prepared the Statement ofNet Outstanding

Campaign Obligations (NOCO) which appears below:

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PETE WILSON FOR PRESIDENT COMMl1TEE, INC.

STATEMENT OF NET OUTSTANDING CAMPAIGN OBLIGATIONS

as ofSeptember 29, 1995 .

as determined December 31, 1996

Total Assets

Capital Assets:

Telephone System 213,365.00 (a)

Other Capital Assets 47 650 QQ (b)

261,015.00

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ASSETS

Cash

Accounts Receivable

OBLIGATIONS

Accounts Payable for Qualified

Campaign Expenses

$404,283.00

84,309.00

52,390,483.00

-oil="-

5749,607.00

Amount Payable to U.S.

Treasury:

Stale-dated Checks

Winding Down Costs:

09130/95 - 12131196: Actual

1/1/97 and later: Estimated

5528,527.00 (d)

102250 QQ

32,929.00 (c)

630,777.00

Total Obligations

Net Outstanding Campaign Obligations (Deficit)

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FQQTNQDS m NOCO

(a) Under 11 CFR §9034.S(cXl), the Audit staffvalued the AT&T telephone system

at its cost of$213,365 when purchased on 2-9-96. See Finding .UI.A.I.b. On

August 21, 1997, the Commission considered a Statement ofReasons related to

_" the P$wY Committee's request for additional matching funds. Tb;..central

question was the valuation ofthis asset Ifvalued as presented here, the

Candidate has no further matching fund entitlement. Ifvalued at a depreciated

amount, some entitlement remained. The Commission was unable to gamer

sufficient votes to adopt either position.

(b) These assets are valued at 60'10 ofcost as provided Wlder 11 CPR §9034.5(c)(1)

(effective date 8-16-95). The Audit staff has requested the Primary Committee

provide documentation detailing the fair market value ofcapital assets purchased

before August 16, 1995. Prior to this date, 11 CFR §9034.5(c)(1) allowed

committees the option ofvaluing capital assets at fair market value, rather than at

600A» of cost.

(c) Cash was adjusted for stale-dated checks issued before the candidate's date of

ineligibility and actual wind-down expenses were adjusted for stale-dated checks

issued after that date (September 29, 1995).

(d) Actual wind-down expenses were reduced by the following: S18,746 for vendor

refunds associated with post date ofineligibility disbursements; and, $14,550 in

Compliance Committee expenses paid by the Primary Committee subsequent to

the candidate's date ofineligibility. See Finding 111.B.2.

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Shown below are adjustments for funds received after September 29, 1995, based

on the most current financial information available: .

As shown above, the Primary Committee has received more than sufficient

contributions to eliminate its deficit. As such, the Audit staff concludes that the Primary

Committee has no further entitlement to matching funds.

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Net Outstanding Campaign

Obligations (Deficit) as of

9-29-95

Matching Funds Received

9-30-95 to 8-1-96

Net Private Contributions

and Other Receipts Received

9-30-95 to 8-1-96

Remaining Net Outstanding

Campaign Obligation

at 8-1-96 (Deficit)

Net Private Contributions

Received 8-2-96 to 12-31-96

($2,304,582)

$1,724,257

$ 367.344

$ (212,981)

S 298,270

The Primary Committee, in its response to the Exit Conference Memorandum,

stated that it was "in agreement with the [A]udit staft"s NOCO detennination, with the

exception ofthe AT&T lease issue". As discussed at Finding III.A.l.b. above, the Audit

staffrejected the Primary Committee's arguments concerning the AT&T lease. Since the

portion of 11 CFR §9034.5(b)(2) relevant to assets acquired after a candidate's date of

ineligibility was not changed as ofAugust 16, 1995, such items still must be valued at

cost. Therefore, the Audit staffNOCO remains unchanged from the Exit Conference

Memorandum.

On March 3, 1997, the Primary Committee made an eighth request for matching

funds totaling SI49,435. With this request. the Primary Committee also submitted a

NOCO Statement, prepared at February 15, 1997, which showed a remaining net

outstanding deficit of$150,104. Based on the Audit staft"s review ofthis NOCO, it was

determined the Primary Committee's deficit was mainly due to discrepancies in the

following areas:

o The inclusion of estimated fundraising costs ($40,635) not

included in the Audit staft"s NOCO since sufficient moneys had

been raised to eliminate the deficit;

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the Primary Committee's estimates for.legal and audit fees

($114,884) are significantly higher than those estimates made by

the Audit Staff(560,000); and

the Audit staffvalued the AT&T telephone system at cost

($213~6S), since it was pmchased after the candidate's date of

ineligibility" The Primary Committee continues to value it at 6()O1O

ofcost ($128,031).

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The Primary Committee argues that the lease ofthe telephone system constitutes a

"capital lease" and should, therefore, be considered an asset as ofthe date the lease was

executed. The Primary Committee concludes that its valuation is coneet and the

Candidate has remaining matching fund entitlement The Audit staffis not persuaded by

the Primary Committee's argument. Notwithstanding whether capital leases are relevant

to political campaigns, the Audit staffnotes that a lease signed by both parties has not

been provided for ourreview. As previously stated in Finding In.A.l.b., the lease

payments made by the Primary Committee were not cashed by ATI Credit, rather, the

Primary Comininee purchased the telephone system nine months later for the full

purchase price quoted ($213,365). Further it is clear that A1T Credit did not cash any of

the lease payments received awaiting a letter ofcredit from the Primary Committee to

complete the requirements ofthe lease document. The letter ofcredit was not provided.

On August 21, 1997, the Commission also considered a Statement ofReasons and

Final Determination (Commission Agenda Document #97·52-A) related to the

Candidate's entitlement to all or a portion ofthe March 8, 1997 matching fund request.

The Audit staffhad recommended, and the Office ofGeneral Counsel agreed, that the

Candidate had no further matching entitlement because when the telephone system is

valued at cost, assets are sufficient to liquidate all Net Outstanding Campaign Obligations

without the inCUJTel1ce offurther fundraising costs. If valued at a depreciated amount,

some entitlement remains. The determining factor was whether the telephone system

became a Primary Committee asset when it was installed, prior to the Candidate's date of

ineligibility, or when the Primary Committee purchased it, well after the date of

ineligibility. During its discussion ofthe Statement ofReasons the Commission could

not gamersufficient votes to adopt either position. As a result, no further matching fund

payments are anticipated and the valuation ofthe telephone system on the NOCO is

unchanged.

2. Ngn-Qua1jficd Clmpajp Expcnscs - CmnpUanc;c Committee

ExPC"'CS Paid for by the; Pri""tY Cgmmjttee

Section 9032.9(8) ofTitle 11 oftbe Code of Federal Regulations,

in dermes a qualified campaign expense as one incurred by or on behalfofthe

candidate from the date the individual becomes a candidate through the last day ofthe

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caDdidatets eligibility; made in connection with his campaign f91 nomiDation; and neither

the incurrence northe payment ofwhich constitutes a violation ofany law ofthe United

States or the State in which the expense is incurred or paid.

Section 9034.4(b)(3) ofTide 11 ofthe Code ofFederal

Regulations states, in relevant part, that any expenses incurred before the candidate's date

ofiDeligibilitJ.for property, services, or facilities used to benefit the candi_'s general

election campaign are not qualified campaign expenses.

Section 9034.4(e)(6Xi) ofTitle 11 ofthe Code ofFederal

Regulations states that the costs ofa solicitation shall be attributed to the primary election

or the GELAC, depending on the PUlpQ1se ofthe solicitation. Ifthe candidate solicits for

both the primary election and the GELAC in a single communication, SOOAt ofthe cost of

the solicitation shall be atttibuted to the primary election, and SOOA. to the GELAC.23

Section 9038(bX2XA) ofTide 26 ofthe United States Code states

that ifthe Commission determinesthat any amount ofany payment made to a candidate

from the matc'hing payment account was used for any purpose other than to defray the

qualified campaign expenses with respect to which such payment was made it shall notify

such candidate ofthe amount so used, and the candidate shall pay to the Secretary an

amount equal to such amount

The regulations at 11 CFR §9038.2(bX2Xiii) state that the amount

ofany repayment sought under this section shall bear the same ratio to the total amount

detennined to have been used for non-qualified campaign expenses as the amount of

matching funds certified to the candidate bears to the candidate's total deposits, as of90

days after the candidate's date ofineligibility.

Section 9038.2(aX2) ofTitle 11 ofthe Code ofFederal Regulations

states that the Commission will DOtify the candidate ofany repayment detenninations

made under this section as soon as possible, but not later than three years after the close

ofthe matching payment period. The Commission's issuance ofthe audit report to the

candidate under 11 CFR §9038. t(d) will constitute notification for purposes ofthis

section.

During the Audit staffs review ofcontributions to the Primary

Committee, it was noted that available solicitation devices contained appeals for

contributions ofup to 51,000 each for both the Primary Committee and the Compliance

Committee. The Audit staffreviewed approximately 51).71,985 spent by the Primary

The effective date ofthis replation was AUIUSI 16, 1995.

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Committee OD fundraising, and identified 229 transactions amQUDting to 5699,098 that

appeared to be incurred for fundraising appeals on behalfofboth the Primary Committee

and the Compliance Committee. Ofthis 5699,098, 5351,856 were expendinues by the

Primary Committee to defray Compliance Committee fundraising costs.

Similarly, an invoice from a Primary Committee vendor dated May

1. 1996, contained a 510,000 charge for "Compliance Committee ProcessiBj:. This

. charge was paid by the Primary Committee on May 1, 1996.

These matters were presented to Primary Committee

representatives at a conference at the conclusion offieldwork along with copies of

schedules and work papers detailing the Audit staff's detennination. Primary Committee

representatives indicated they were unhappy with the Commission's regulations

regarding expenditures made by legal and accounting funds established before a

candidate receives the party's nomination, and indicated they would pursue this matter

further.

In the Exit Conference Memorandum, the Audit staff

recommended that the Primary Committee submit evidence documenting that the above

expenditures were qualified campaign expenses. Absent such a demonstration, the Exit

Conference Memorandum stated that the Audit staffwould recommend that the

Commission make an initial detennination that the Primary Committee make a pro-rata

repayment ofSS3,38? (S351,856 + 510,000 x .230443)14 to the United States Treasmy

pursuant to section 9038(b)(2) ofTitle 26 ofthe United States Code.

In its response to the Exit Conference Memorandum, the Primary

Committee did not submit evidence demonstrating that the expenditures were qualified

campaign expenses. Instead, it stated that the Audit staff's recommendation "must be

rejected for several reasons" and centered its arguments on the Audit staff's application of

11 CFR §9034.4(e)(6)(i) to apportion the joint fundraising costs. The response does not

address the $10,000 expenditure for Compliance Committee processing costs.

1. The ReeulatjoDs Are CODtradjct0O'

The Primary Committee's response states that:

"The current Regulations are internally contradictory and place a

committee which simply exercises its rights granted by the

Regulations automatically in violation for following the

Regulations. Specifically, 11 C.F.R. §9003.3(a)(J) states that a

This figure (.230443) represents the Primary Committee's repayment ratio, as calculated pursuant

to II CFR §9031.2(bX2Xiii).

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GELAC 'may be established by such candidate pri9r to being

nominated orselected as the candidate ofa political party for the

office ofPresident or Vice President ofthe United States'.

However, another Regulation requires a candidate"who raises

GELAC funds pursuant to the Regulation, but is not nominated or

selected to be the Presidential or Vice Presidential candidate, to

remm (or have redesignated) III ofthe funds collected by the "=FGELAC. 11 C.F.R. §I02.9(e)(2). None ofthe funds raised may be

attributed to any fundraising or overhead costs according to 11

C.F.R. §102.9(e)(2). Yet 11 C.F.R. §9034.4(e)(6)(i) requires that a

joint solicitation be paid for by both the primary committee and the

GELAC. It cannot be both ways."

The fact that these regulations appear "contradictory" to the

Primary Committee does not mean that the expenditures are qualified campaign

expenses ofthe Primary Committee. Indeed, the sum ofthe regulations surrounding a

GELAC presents committees with several choices, some ofwhich may hold potential

hazards. However, the regulations also work to put the candidate on notice ofthe risks

involved with establishing a GELAC prior to receiving his or her party's nomination.

Thus, the regulations leave it up to the candidate to decide whether a proactive

fundraising program between the Primary and Compliance Committee early in the

campaign is wise. Accordingly, one section ofthe regulations in question unequivocally

states that: "..any expenses incuned before the candidate's date ofineligibility for

property, services, or facilities used to benefit the candidate's general election campaign

are not qualified campaign expenses." (11 CFR §9034.4(b)(3».

2. The Solicitations arc Not Solicitations

The Primary Committee also contends the following:

"...an examination ofthe actual mailings and invitations shows that

the reference to the Compliance Committee is fleeting, at most, and

in reality a secondary, ifnot tertiary, consideration in the piece as a

whole. As such they are not 4 solicitations' and no repayment is

required by the Regulations... A fair viewing ofthe invitations and

letters themselves demonstrates that they are a clear attempt to

solicit funds for the Primary Committee. The invitations are all for

events benefiting the Primary Committee... In short, neither the

invitations or the fundraising letters directly solicit funds for the

Compliance Committee as defined by the Regulations".

The relevant regulations contain neither a uprimary purpose" test

for solicitations, nor allow for any son ofallocation based on space devoted to different

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committees. The test is whether fimds were solicited for both~. The

solicitationsreviewed by the Audit staffcontained an appeal for the Compliance

Committee which, with a few minor variatiODS, read asfoUows:

Also, enclosed is my/our contribution in the amount ofS to

"Pete Wilson for President Compliance Fund". (The maximum

cantribution ofS1,000 per per50D may be made in addition to yeur

contribution to the Presidential Committee).

The Audit staffviews the above as a directsolicitation offimds

for the Compliance Committee.

The response also argues that the Compliance Committee did not

receive enough money, compared to the Primary Committee, to justify the contention that

the solicitations were "joint". The arpIDleDt lead as follows:

".. of627 Compliance Committee contributors only 52, or 8.3

percent, did not give to the Primary Committee. With that 8.3

percent exception. all fimds that were placed ill the Compliance

Committee accounts were clone 10 by contributon who bad already

given the legal maximum to the Primary Committee, and wished to

help further. The results conclusively demonstrate this. The

Primary Committee raised about $5,767,000. The Compliance

Committee raised about $S98,~••. Ifthese were really the joint

solicitations as the Memorandwn contends, these Dumbers would

have been much more even. To show the illogic oftbe

Memorandum's result, the Compliance Committee raised S598,000,

yet the audit staffnow arguesthat its fUndraising costs were

5351,856. This amountsto an unbeard ofcost ofabout 59 percent"

The mere fact that S589,OO5 in contributions was generated proves

that a solicitation occurred. While it is true that the major focus ofthe solicitation was

the Primary Committee, as noted above, the relevant rqulation doesn't cite a primary

focus test. Rather, it requiresthe cost ofa communication which solicits for both a

primary committee and a general committee be allocated equally between the two.

Further, based on the experience ofthe Audit staff. it is not at all unusual to encounter

fundraisiD& J'IOIl1IIDS which yickt poor response rates. Indeed, the Audit staffhas

frequently seen fiJDdraisiDa PJOIIIIDS that ICtuaIly a-lossesfor political

committees. Thus, the numerical data cited by the PriJImy Committee above do not

2S Based on the Audit statrs review,dIe Compliance Commiaee received S589,005 in contributions.

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reflect results that are "unheard of' or otherwise especially remarkable. Indeed, the data

reinforces that the solicitations were effective in generating contributions for the

Compliance Committee.

3. Effective Date ofReplatjoD

The Primary Committee also presented the followin&argument:

UThe Regulation upon which the Memorandum bases its repayment

determination went into effect on August 16, 1995. This was well

after most ofthe fundraising solicitations by the Wilson committees

that are the subject ofthe S83,387 repayment amount The

Committees dispute that the Memorandum correctly uses 11 C.F.R.

§9034.4(e)(6)(i) to determine the repayment in this situation. But

even ifmathematically correct, the Regulation cannot be applied to

any solicitation before August 16, 1995 because the Regulation was

not in effect ... Furthermore, a review ofthe invitations sent after

AUgust 16, 1995 shows that, with only one exception, the

solicitation for the Compliance Committee was dropped entirely

from the Committee'ssolicitations."

Itshould be DOted that 11 CFR §9034.4(e)(6)(i) stipulates only the

method for apportioning costs offundraising devices which solicit for both a candidate's

Primary and GELAC committees. The Regulation does not state that such expenditures

become qualified campaign expenses ofthe primary committee should the candidate fail

to receive the party nomination. Thus, the effective date of 11 CFR §9034.4(e)(6)(i) is

irrelevant in arguing that the joint solicitation costs paid by the Primary Committee prior

to August 16, 1995 should be considered qualified campaign expenses. In addition,

based on documentation made available to the Audit staffby the Primary Committee,

there appears to have been more than "one" joint solicitation subsequent to the effective

date ofthis regulation.

The response continues by arguing that the joint solicitation costs

should be allocated on the "funds received" basis, as described at 11 CFR §I06.5(f). This

allocation method was developed for use by party committees engaged in both federal

and non..federal activity. The Primary Committee states that allocation should be "...on

the bases of: (I) amounts received (SS,767,000 for the Primary Committee and S598,ooo

for the Compliance Committee) or (2) space used for each committee in the solicitations

themselves." The Primary Committee contends that, based on the funds received by each

committee, "[t]he Compliance Committee raised about SS98,OOO, or 10.37 percent as

much [as the Primary Committee]". In a footnote to its response, the Primary Committee

further calculates:

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Ifthe Commission really believed that this fundrajsing requires

some sol1 ofa repayment, then it would have to be based on the

10.37 percent figure. In other words, even under the

Memorandum's own logic, (as opposed to its vindictive conclusion),

the repayment amount should be SI6,706.30 (10.37 percent of

S699,098 times .230443).

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The Audit staff agrees that prior to the effective date ofthe

regulation a funds received allocation would be pennissible. However, the Primary

Committee's calculation is flawed. The figure supplied for Primary Committee rc:~ceipts

includes contributions solicited solely for that committee and not as a result ofthe joint

solicitations addressed by the Audit staff: To apply a ratio based on total funds received

to only those expenditures identified by the Audit staffwhich were in connection with

the joint solicitations would result in a flawed comparison. To accurately apply the

"funds received" method in this situation, only Primary contributions received directly

as a result ofthe jointsolicitation should be considered. Further, in calculating the 10.37

percent, the Primary Committee simply divides 5598,000 by S5,767,000. This

calculation does not accurately reflect the relative funds received by each committee.

Using the fundraising event codes contained on the computer file

provided by the Primary Committee, the Audit staffdetennined that the Primary

Committee received S2,794,975 as a direct result ofthe joint fundraising solicitations;

the Compliance Committee received 5576,905. The Audit staffalso detennined that

$767,619 was the maximum matching funds which could have been received from the

$2,794,975 raised by the Primary Committee, bringing its total to 53,562,594. Based on

these amounts, a funds received ratio of 13.94 percent was calculated.26

The Audit staffrevised its analysis to reflect the effective date of

11 CFR §9034.4(e)(6)(1) and to detennine the Compliance Committee portion ofjoint

fundraising expenses using the funds received ratio (13.94%): Only those expenditures

associated with a jointly-solicited fundraising event held subsequent to the effective date

are allocated on a 50150 basis. For those expenditures incurred with respect to jointlysolicited fundraising events held prior to the effective date, the Audit staff used the funds

received method.

The Audit stairs revised analysis identifies non-qualified

campaign expenses totaling $130,577 which are subject to pro-rata repayment. This

amount includes the $10,000 payment for Compliance Committee processing not

addressed in the Compliance Committee's response.

26

The calculation for this ratio is: S576,905 .;. (S576,905 + $2,794,975 + S767,619.

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Rccommegdatiog II J

The Audit staffrecommends that the Commission detennine that 5299 861 is

payable to the United States Treasury pursuant to 26 U.S.C.. §9038(b)(2)(A).. 27

3.. Stale-dated Checks

-ot=-

Section 9038.6 ofTitle 11 ofthe Code ofFederal Regulations

states that ifthe committee has checks outstanding to creditors or contributors that have

not been cashed, the committee shall notify the Commission ofits efforts to locate the

payees, ifsuch efforts are necessary, and its efforts to encourage the payees to cash the

outstanding checks. The committee shall also submit a check for the total amount ofsuch

outstanding checks, payable to the United States Treasury..

The Audit staffperformed bank reconciliations through April

1996. From these reconciliations, 49 checks we identified totaling 537,470, which had

not been negotiated. Ofthese, 33 totaling 528,950, were for contribution refunds. Ofthe

33 contribution refunds, it appears that 28 represented refunds ofexcessive contributions.

At a conference held at the end offieldwork, the Audit staff

provided representatives ofthe Primary Committee with copies ofschedules ofthe staledated checks. Committee representatives agreed to review their records and provide the

Audit staffwith additional information which may resolve the items.

In the Exit Conference Memorandum, the Audit staff

recommended that the Primary Committee provide evidence that either the checks are not

outstanding by providing copies ofthe front and back ofthe negotiated checks along with

bank statements, or that the outstanding checks are void by providing either copies ofthe

voided checks with evidence that no obligation exists, or copies of negotiated

replacement checks. Absent such evidence, the Exit Conference Memorandum explained

that the Audit staffwould recommend that the Commission determine that stale-dated

checks totaling 537,470 are payable to the United States Treasury.

In its response to the Exit Conference Memorandum, the Primary

Committee provided copies offour checks. totaling $4,541, which had been negotiated by

the payees. The Audit staffconcludes that. based on the documentation submitted staledated checks totaling $32,929 ($37,470-$4,541) remain.

2'7 The payment amount is calculated as S130,577 x .230443.

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RecommegdatioD #12

The Audit staffrecommends that the Commission determine that the Primary

Committee is required to pay 532,929 to the United States Treasury pursuant to Section

9038.6 ofTitle 11 ofthe Code ofFederal Regulations.

IV. __. PETE WILSON FOR PRESIDENT COMPLIANCE COMMITXEE.INC.

(COMPLIANCE COMMII I EEl

A. AUDIT FINDINGS AND RECOMMENDAnONS : NON-REPAYMENT

MATTERS

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Sections 434(b)(1), (2) and (4) ofTitle 2 ofthe United States Code

state, in relevant part, that each report shall disclose the amount ofcash on hand at the

beginning ofeach reporting period, the total amount ofall receipts, and the total amount

ofall disbursements for the reporting period and calendar year.

The Audit statrs reconciliation ofthe Compliance Committee's

reported financial activity to bank activity for the first four months of 1996 revealed a

material misstatement in the Compliance Committee's reported disbursements and

ending-cash-on-hand balance. During the first four months of 1996, the Compliance

Committee reported total disbursements of5360,916, and an ending-cash-on-hand

balance of58,180. The Audit staffdetennined that the Compliance Committee should

have reported total disbursements of5367,827 and an ending-cash-on-hand balance of

$1 ~269. Therefore, the Audit staffconcluded that disbursements were understated by

56,911, and that ending-cash-on-hand balance was overstated by 56,911.

The Audit staffdetennined these misstatements were due to the

Compliance Committee's failure to report three contribution refunds during the April

1996 Monthly reporting period (March 1 to March 31, 1996), and the failure to report two

disbursements for income taxes during the May 1996 Monthly reponing period (April I

to April 30, 1996).

On June 24, 1996, during the course of fieldwo~ the Compliance

Committee filed amended repons for the April and May 1996 reporting periods,

correcting the errors noted above.

In the Memorandum to the Compliance Committee, the Audit staff

recommended no further action regarding this matter. In its response, the Compliance

Committee noted its agreement with the Audit staffs recommendation.

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2. Disclosure ofOccupationlName ofEmplgyer

Section 434(bX3)(A) ofTitle 2 ofthe United States Code requires

a political committee to report the identification ofeach person who makes a contribution

to the reporting committee in an aggregate amount or value in excess of$200 per

calendar year, together with the date and amount ofsuch contribution.

Section 431(13)(A) ofTitle 2 ofthe United States Code defines the

.tenn "identification" to be, in the case ofany individual, the name, the mailing address,

and occupation ofsuch individual, as well as the name ofhis or her employer.

Section 432(h)(2)(i) ofTitle 2 ofthe United States Code states, in

part, when the treasurer ofa political committee shows that best efforts have been used to

obtain, maintain, and submit the information required by the Act, any report or any

records ofsuch committee shall be considered in compliance with the Act.

Section 104.7(b) ofTitle II ofthe Code ofFederal Regulations

states, in part,lhat the treasurer and the committee will only be deemed to have exercised

best efforts ifall ofthe following are present: all written solicitations for contributions

include a clear request for the contributor's full name, mailing address, occupation and

name of employer, and include the statement that such reponing is required by Federal

law; the treasurer makes at least one effort after the receipt ofthe contribution, in either a

written request or documented oral request, within thirty days ofthe receipt ofthe

contribution, to obtain the information; and the treasurer reports all contributor

infonnation not provided by the contributor, but in the committee's possession, including

infonnation in contributor records, fundraising records and previously filed reports, in the

same two year election cycle.

The Audit staffreviewed contributions from individuals to the

Compliance Committee on a sample basis. The sample results revealed that for a

significant number ofsuch contributions the disclosure ofoccupation and name of

employer was inadequate. All the errors resulted from either a lack of evidence ofthe

Treasurer's best efforts to obtain occupation and name ofemployer infonnation, or from

the occupation and name ofemployer infonnation being available, but not disclosed.

During the course of audit field work, the assistant treasurer stated

that the Compliance Committee did not send follow-up letters to contributors requesting

the occupation and name ofemployer infonnation. Rather, the Compliance Committee

relied on the Primary Committee's records and efforts to provide the required

infonnation.2I All contributions received by the Compliance Committee were either

21 Since the Primary Committee and the Compliance Committee had the same treasurer for most of

the audit period, and operated out ofthe same address, the Audit staffdetennined that it was

reasonable to assume that the infonnation maintained by the Primary Committee was readily

accessible and available for use by the Compliance Comminee.

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transferred by the Primary Committee in accordance with 11 CfR §9003(a)(1), or

solicited in conjunction with the Primary Committee (see Finding m.B.2.). Thus, the

Audit staffexamined the Primary Committee contributor records for occupation and

name ofemployer infonnation and for evidence ofthe Treasurer's best efforts in order to

incorporate the information contained in those records into the review. As a result ofthis

review, the number oferrors was reduced; however, a material problem remained.

At a conference held at the conclusion offieldwork, the

Compliance Committee was advised ofthis matter. Compliance Committee officials

agreed to file amended Schedules A-P disclosing the missing occupation and name of

employer data; and, where the information could not be obtained, to maintain and submit

records of all efforts to acquire it.

In the Memorandum, the Audit staffrecommended that the

Compliance Committee submit docwnentation to demonstrate that best efforts were

utilized and file amended Schedules A-P to disclose occupation and name ofemployer

information contained in either the Primary Committee or Compliance Committee

records but nOl previously disclosed.

Amended Schedules A-P were provided with the Compliance

Committee's August 1996 (September Monthly) filing with the Commission. Based on

our review ofthe amendments, the Audit staffdetermined that the Compliance

Committee's reports had been materially corrected to disclose the required occupation

and name ofemployer infonnation.

B. FINDING AND RECOMMENDATION: AMOUNT DUE TO THE U.S.

TREASURV

Stale-dated Checks

Section 9007.6 ofTitle 11 ofthe Code ofFederal Regulations states that if

the committee has checks outstanding to creditors or contributors that have not been

cashed, the committee shall notify the Commission ofits efforts to locate the payees, if

such efforts are necessary, and its effons to encourage the payees to cash the outstanding

checks. The committee shall also submit a check for the total amount ofsuCh outstanding

checks, payable to the United States Treasury.

The Audit staffperformed bank reconciliations through April 1996 for the

Compliance Committee. From these reconciliations, the Audit staffdetermined that the

Compliance Committee had 80 stale-dated contribution refund checks totaling 566,450.

At a conference held at the end of fieldwo~ the Audit staff provided

representatives ofthe Compliance Comminee with copies ofschedules ofthe stale-dated

checks. The Audit staffdiscussed this matter with the Compliance Committee

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representatives, who agreed to review their records and provide the Audit staffwith

additional and ongoing information which may resolve the items.

In the Exit Conference Memorandum, the Audit staffrecommended that

the Compliance Committee provide evidence that either the checks were not outstanding

by providing copies ofthe front and back ofthe negotiated checks along with bank

statements, or..that the outstanding checks are void by providing either cop*-ofthe

voided checks with evidence that no obligation exists, or copies ofnegotiated

replacement checks. Absent such evidence, the Audit staffwould recommend the

Commission determine that stale-dated checks totaling 566,450 are payable to the United

States Treasury.

In response to the Exit Conference Memorandum, the Compliance

Committee provided evidence which resolved three items totaling $3,000. Therefore, the

Audit staffreduced the amount ofunresolved, stale-dated checks to 563,450 (566,450-

$3,000)."

RecQmmendjtjQn II 3

The Audit staffrecommends that the Commission determine that the Compliance

Committee make a payment of563,450 to the United States Treasury pursuant to Section

9007.6 ofTitle 11 ofthe Code ofFederal Regulations.

v. PETE WILSON FOR PRESIDENT AUDIT FINES AND PENALTIES

ACCOUNT. INC. enNIS COMMflTEE)

The Audit staffdid not detect any material non-compliance matters resulting from

the audit ofthe Audit Fines Committee. This fact was stated in the Exit Conference

Memorandum. In its response, the Audit Fines Committee concurred with the Audit

staff's conclusion. .

Ifresidual moneys exist in the Audit Fines Committee account(s) after payment of

all fines and civil penalties, the Audit Fines Committee must take the following action

with respect to such moneys:

a. Return any residual moneys to contributors on either a pro-rata basis or

first-in, first-out basis;

b. disgorge any residual moneys to the United States Treasury;

c. contribute any residual moneys to any organization described in section

170(c) ofTitle 26 ofthe United States Code. or

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trmsfer 8DY JeSiduallllOlle)'S to any DltiOlll1, or 10cII committee of

8IlY political party so JODI. such moneys are DOt used in CODDeCtion with

my Federal election.

VI. SUMMARy OF AMOl1NTS DUE TO THE u.s. DEMVRY

_. -A. 1'RIMARYCOMMITrEE:

B. COMPUANCE COMMI1TEE:

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Finding m.B.2.

Finding m.B.3.

Finding IV.B.

Non-Qualified Campaip Expenses:

Compliance Committee Expenses Paid by

the Primary Committee

Stale-dated Cbecks

Stale-dated Checks

Total

Page 41

S 29.861

S 32,929

S 63,4S0

1126240

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May 13, 1997

FEDERAL ELECTION COMMISSION

WAS"'NCTO.... 0 C 2CM01

. MEMORAND1lM

"~cr:,v~:) l~_" --TiC'1 FEDECAL EL.;tJJ .. COMMISSlOH

A"""IT

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TO:

THROUGH:

FROM:

SUBJEcr:

RobertJ. Costa

Assistant Stafr]JiJ·rectlDr

Audit Di... ail·~·......

John C. SUllJrrJI

StaffDi·~""

/:

Assoc·

=;;::~ GeDcraI Couasel

t ." : Rhonda~. Vosdinp ,L'r

Assistant GeDcraI Couasel

Proposed Audit Repon on the Pete Wdscm for President

Committee. IDe.; Pete Wilson for President Compliance

CommiUee. IDe.; and Pete Wilscm for PresideDt Audit Fines and

Penalties Account. Inc. (LRA #478)

1. INTRODUCTION

The Office ofGeDera1 Counsel bas reviewed the proposed Audit R.cpon on the

Pete Wilson for Presideat Committee. Inc. ("Primm'y Comnriaee"); Pete WUson for

PresideDt CompliIIace Commi1Iee.lDc. \CompIiIDce Committee..); ...Pete Wilson for

PresideDt Audit FiDes Del PeDaIties AccouDt.. IDe. ,FiDes Committee") submiaed to this

Oftice on March 18. 1997.1 The followiDa memonmdum summari2a our commcn1S on

Becau. the pioposecl Audit Report does DOl include .yaaaaers....flam public disclosure

UDder II C.F.1l § 2.4. dais 0fI"ac:e NCOIft,nends IbaI the Commission's dilcasian ordais docuIDent.

c:onducIed in open ......

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Paopolld Audit Repart • the ,.W"....for Pn:sicIeIlt

eamm~ IDe.; Pete W'dsan far PIaidem Compliance

eammjnec. 1Dc.; .ad Pete W'dsaa for Praident Audit Fines

adPmaIIiII Aceauat. IDe. (LRA 1471) "2

the proposed report. 'Ibis Office concurs with findings in the proposed repon which are

DOt diScussed separately in the fonowing memorandum. Ifyou have any questions

coDCeJDiDl our c:ommerm. please contact Andre p~the anomey assigned to this

audiL

.D. APPARENT EXCESSIVE CONTRIBtrrlON (SECI10N 111.A.l..)

The proposed report DOtes that on May 1, 1995, the Primary Committee entered

into a contraet with The Fuller Company, a corporation owned by Craig Fuller.~ Pursuant

to the contract, Mr. Fuller was to serve as the Primary Committee's campaign chairman.

and he wasto receive amooo retainer fee each month beginning May I. 1995. The

proposed report DOteS that the Primary Comminee owes Craig Fuller SS1.185. an amount

which includes aD unpaid August 1995 monthly retainer fee for campaign chainnan

. services rendered cmOOO), as well as expenses that Mr. Fuller incurred while providing

campaign chai!JDaD services, such as taxi fares, meals, and hotel lodging (529.193). The

proposed report CODCludes that the unreimbursed expenses constitute an excessive

contribution of$28.193 from Mr. Fuller to the Primary Committee pursuant to 11 C.F.R.

§ 116.5. The proposed report rejects the Primary Committee's arpments that Mr. Fuller

is a commercial vendor aDd his expenses, therefore, are properly analyzed UDder

11 C.F.R. § J16.3.

This Office concurs with the Audit Division's opinion that Mr. Fuller's expenses

are problematic. However. the information provided by the Primary Committee in

response to the Exit Conference Memorandum suggeststhat Mr. Fuller may be a

commercial vendor. Thus, his expenses are better analyzed under 11 C.F.R.. § 116.3 than

11 C.F.R. § 116.5.

The Primary Committee entered into a contract with The Fuller Company

pursuant to which Mr. Fuller would provide campaign chairman services to the Primmy

Committee.3 In respoase to the Exit Conference Memorandum.. the Primmy Committee

submined an affidavit from Mr. Fullerswing that he is president ofThe Fuller Company,

a sole proprietorship. His affidavit also states that he considered himselfto be an

independent COD1r8CtOr with the Primary Committee. rather than a Primary Comminee

employee. Mr. Fuller's affidavit funher Slates that his 1995 federal we mum reflected

his status as an iDdepeDdem CODtractor. Specifically" he received a Form I099 from the

In its c:onna wiIh die PriIDIry CoauDiaee. The Fuller Com....y refersto itself as a corporation.

However. Mr. FuUIr'. aftIdaYit liliestb8I The Fuller eom,.ny is a sole peopriclonhip. Sft Atrscta,," of

Crail Fuller dated "--'Y J7" 1997.

The proposed repan DOleS 1l1li all but one Commmce check relalcd to Mr. Fuller's

campaip chairman..-rices was made payable to Crail Fuller, not ne Fuller CompMy.

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PaDpOllCl Audit RIpon aD dae Pee W..... for Presidettt

Commiaec, Inc.; Pete Wilson for Presideat CoIIlpu.ncc

Commiaec. Inc.; IDd Pete Wilson for Presidellt Audit FiDes

aDd Peukies Account. Inc. (UtA 1478)

PIp 3

Primary Committee for compellSltion eamed in 1995 aDd reponed this compensation on

Schedule C on his 1995 tax return. ThUS, Mr. Fuller's affidavit states the Primary

Committee treated him as a vendor.

__ .It appears that Mr. Fuller was DOt acting as an individual when he Provided

campaign chairman services to the Primary Committee. See 11 C.F.R. § 116.5 U'l'ovision

applies to committee staff and otMr il'l/lividuQls). However, it is not entirely clear he was

acting as a commercial vendor because there is DO evidence that his usual and Donna)

course ofbusiness involves the provision of campaign chairman services. 11 C.F.R.

§ 116.1(c). Nonetheless, this Office believes that the balance of available iDfonnation at

this point weighs in favor oftreating Mr. Fuller as a commerciaJ vendor pursuant to

11 C.F.R. § 116.3(c).4 Although Mr. Fuller did not provide copies orhis 1995 federal lax

the statements contained in his affidavit are consistent with the 1995 Internal

R~venue Service ("IRS") tax year sole proprietorship requirements.S Moreover. it

appears that Primary Committee did DOt consider Mr. Fuller an employee because it

reponed Mr. Fuller's eamiDp on IRS Form 1099, a form specifically used for

nonemployees. ScI 1DstructioDS to 1995 IRS Form 1040 at 10 (nonemployee

compensation reported on IRS Form l099-MISC).

Nonetheless. this Office notes that the Primary Committee bas failed to

demonstrate that The Fuller Company'5 ordiDary course ofbusiness was to extend credit

4 Because Mr. Fuller..... inquiries to the Primary Commiaee conccmiD& payment ofms S".2.000

August I99S mainer fee, Ibis otrace does not beline dill Mr. Fuller extea*d aedit to 1he Commiftee

totaling s-'..2.000 under IJ C.F.R. § 116.3. See Afradlvit ofCraig Fuller dated Jan'*)' 11. 1997. This

Office also notes that Mr. Fuller's AUiust 199.5 reWncr fee is DOl ploperty included under II C.F.R.

§ J16.S because the mainer fee is money owed by the Primary CommiDee 10 Mr. Fuller; it is not the

pa)rmenl or advance ofmonies by Mr. Fuller to the Primary Commiaee for die costs incumd 10 provide

goods I1Id services to the Commiaec. III limiled the Commission bas permitted

entities 10 pay upfront COSIS Ibat incurred in caaneClioa with providin& loods or services to. political

committee without such cosu c:onstiIutin&. comribution 10 the political commiUee. S. p1tItf'Q/J)'.

Advisory Opinions 199]·18.ad 1991·20.

A "sole proprietorship" isk. business. usually unincorpomcd. owned and comroUed exclusively

by one person." Bl«k·slAw DicliofttIry 1220 (6th Ed. 1991). Forlax year 1995, the IRS required

individuals who received • profit or loss from • sole proprietorsbip to report the poss receipts or sales

from their respective btniDeues on IRS Schedule C, ........to IRS Fonn 1040. 1995 IRS Fonn

1040, line 12 and 1995 IRS Farm Sche....e C. Pan I. No. I. Individuals daennine the ......, ofthe polS

receipts or sales from Ibeir .espeaive busiIM'M' by examin" box 'on IRS Form I099-M1SC. I99S IRS

Form Schedule C lnIauctioas • C-2; GUo. 1DsIrucIioas 10 1995 IRS Fonn 1040. 10 (nonemployec

compensation reponed on IRS Form I099-MlSC). Thus. fara.x year 1995. individuals wida sole

proprietorships receiwd IRS Form I099-MISC and reponed the amount ofpolS receipts orsales from

their rapective busincssa on IRS Form 1040 Md Schedule C. Schedule C requires • dacnpuon ofthe

filer" s business. inc1udiD& the pncral facld or Klivnyt the type ofproduc1 or servICe. and the type of

customer or client. Schedule C InstrUctions It C-J.

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Ploposed Audit Repon onlhe Pete Wilson for Praident

Commiaec. Inc.: Pete Wilson for Praident ComplilDce

Commillec. Inc.: and Pete Wilson for President Audit fines

and PeaaJties Account, Inc. (LRA "4'1)

Paae4

for expeuses, such as taxi fares, meals, and hotellodaina, in the course ofperfonning

work for other clients.' 11 C.F.,R.. § 116.3(c). Mr. Fuller's affidavit only discusses the

existence ofThe Fuller Company and his filings for the 1995 tax year; it does not discuss

the business practices ofThe Fuller Company, and the Primary CommitteeJ!.as not

submitted any~ther documentation addressing The Fuller Company's usual and nonnal

course ofbusiness. As a result, this Office believes The Fuller Company extended credit

totaling 529,193 to the Primary Committee outside ofits ordinary course ofbusiness.7

III. NON-QUALIFIED CAMPAIGN EXPENSES - COMPLIANCE

COMMITrEE EXPENSES PAID FOR BY THE PRIMARY COMMllTEE

(SECI10N m.B.3.3)

The proposed repon notes that the Primary Commiuee spent 5699..098 on joint

fundraising appeals with the Compliance Committee. The Primary Committee paid the

Compliance G9mmittee's share ofthe joint fundraising appeals, in addition to S10..000

for 64Compliance Committee Processing.,.a

The proposed report states that Compliance Committee fundraising costs paid for

by the Primary Committee are non-qualified campaign expenses. The proposed repon

applies a funds-received allocation method to determine the allocable costs ofjoint

solicitations which occurred prior to August 16, 1995, the effective date ofthe 11 C.F.R.

§ 9034.4(e)(6Xi). As a result, the proposed report determined that the costs associated

with the joint solicitations prior to August 16.. 1995 should be allocated 8S.86% to the

Primary Committee ancl14.14% to the Compliance Comminee. Therefore. the proposed

repon states that the Primary Committee incurred non-qualified campaign expenses

totaling $130..854 for Compliance Committee solicitation costs.'

Because this OffICe believes Mr. Fuller's expenses are beaer analyzed under II C.F.R. § 116.3, it

is immaterial whether Mr. Fuller paid for his expenses by cash or personal credit card. COII'IfXl'e 11 C.F.R.

§ 116.3 WIth § 116.S(b)(2).

As a commercial vendor, Mr. Fuller is not entitled to the nvcl exemption for individuals pursuant

to IJ C.F.R. § I16.S(b). S- J1C.F.Il. § lOO.7(b)(I). Therefore. the Imount ofdie contribution increases.

The Primary Commillee was DOt required 10 pay such COlIS. The Primary Commiaee could have

paid Compliace Commiaee COlIS wiIbout iacurrinl non-quaIiflCd campaip expenses ifit used surplus

monies that may have exiIIed once it fulfilled all oriD rcp8ymcnt obliptions. S. II C.F.R. § 113.2(d).

Alternatively. thae COllI could have been paid with the personai funds ofPetc Wilson or they could have

been paid with any remain..raiduaJ funds from • Pete Wilson commmee 1baI wu auIhorizcd for I

different election cycle. S. II C.F.R. i§ JJO.J(c)(5). 9003.2(cXI). and 9035.2(1)( I).

This Offace recommends daallhe proposed rcpon be revascd 10 indudc • discussion describing

how this number wu derived.

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Plopaled Audit Repon GIl tile Pete Wi...for PraideDt

Commiaee. IDe.; PIle Willoa for President Compliance

CommiIreC. IDe.; JDd Pete Wilson for PnsideDt Audit FiDes

and PenaIIia ACCOUIlI.Inc. (LRA 1471)

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This Office does DOt apee that a timds-received allocation method is appropriate

to determine the allocable costs ofjoim solicitations which occurred prior to August 16.

1995.10 Such a method comradiets prior Commission practice with respect to joint

solicitation costs between a primary committee and a compliaDce commiUU: Prior to the

1992--eJecbouq'cle, it does Dot appear the Commission specifically addresSed -whether

costs incurred between a primary committee and a compliaDce committee could be

allocated, and ifso, what allocation method should be used. See Explanation and

Justification for 11 C.F.R.. § 9034.4(e), 60 Fed. Reg. 31866-68 (June 16, 1995);see

generally, Financial Control and Comp1iaDce Manuals for Presidential Primary

Candidates and General Election Candidates Receivina Public Financing for 1984, 1988.

and 1992. However, the Commission discussed joiDt primary committee and compliance

committee expenses in the Clinton for PresideDt Committee, 1Dc. (MClinton Comminee")

audit. In 1992, the Clinton Committee hired a vendor to conduct two joint mailings for

- the Clinton/Gore '92 GeDeral Election Compliance Fund (MClinton GELAC") and it.

Final Audit Repm on the CliDton for President Committee, IDe. at S1 (December 20.

1994). The Clinton CommiUee allocaled.the cost oftbese mailinp 85% to the Clinton

Committee and 15% 10 the Clinton GELAC according to '1be beaefit reasonably

expected to be derived (by each committee]'" Id at 52; s,e auo, 11 C.F.R. § l06.1{a).

The Commission rejected this method. and the joint mailina costs were allocated SOOIO to

the Clinton Committee and SOOIt to the Clinton GELAC. Id. at 52 and 63.

In addition to this audit, the Commission promulpted a jointsolicitation

regulation for the 1996 election cycle, which applied to candidates who receive public

ftmding in both the primary aDd the general election. 11 C.F.R. § 9034.4(e). This

regulation specifically requires the costs ofa soliciwion to be auributed to the primary

election or to the GELAC depending on the purpose ofthe solicitation. 11 C.F.R.

§ 9034.4(e)(6)(i). Ifa candidate soliciu funds for both the primary election and for the

GELAC in a sinale communication, SOOAt ofthe cost ofthe solicitation sball be anributed

to the primary election, mel SO';e to the GELAC. Id The Commission promulgated this

provision to clarify put questions M(that] have arisen as to whether a p[re] DOl

communicaUOD was iD1eDded to influence the general election. or vise versa." See

Explanation IDd Justification for 11 C.F.R. § 9034.4(e), 60 Fed. Reg. 31866-68 (June 16.

1995). Apparently, the Commission assumed that GELAC accounts would only be

eSl8blished by primary candidates who were assured of obtaining their party'5 nomination

to become general election candidates. See 11 C.F.R. § 9003.3(8)(1) (GELAC may be

established by a major pany candidate prior to beiDa nominated orselected as the

candidate ofa political party for the office ofPresidcnt) and § 9003.3(a)(2)(iiXA)

(compliance related costs Iball ini1ia1ly be paid &om the federal fwxt account of a major

.0 On 0cI0ber 29. J996.1be Commission delermined Ihat General EJection lApl and Accounting

Compliance funds (MOaAC') expenses paid by president.,,....., conuniaees non-qualirled

campaip expenses. However. the Commission did DOl lMke I delerminalion with respect to the method

of allocaUnl cosu ofjoint fundraisinl between I GELAC ...,.......-y commiaec.

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Piuposed Audit Report an the PIle Wilson for PnsideDt

Commillee, Inc.; Pete WiJson for President CamplilDce

Commillec.lnc.; and PeIe Wilson for President Audit Fines

IDd Peaabies ACCOUJlt. IDe. (LIlA 1471)

Pale 6

parry camdidate seeking the office ofthe+eDtin the general election; the GELAC

may later reimburse the federal fund account for these costs)..

Although 11 C.F.R. § 9034.4(e)(6)(i) does Dot directly apply to the.~.

Committee beaause Governor Wilson did not receive public funding in botl1 the primary

and general elections, this regulation provides additional guidance concerning the proper

allocation method forjoint primary/GELAC solicitations, irrespective of whether a

GELAC was established by a publicly funded candidate who failed to be Dominated or

selected as the candidate ofa political pany for President. Accordingly, this Office

believes that 11 C.F.R. § 9034.4(e)(6)(i) can be used, by analogy, as suppon for the

proposition that a SOO/oIS001O allocation method should be used to detennine the

Compliance Committee's share ofjointsolicitation costs incurred prior to August 16..

1995.

Based on the Clinton Committee audit and 11 C.F.R. § 9034.4(e)(6)(i). bv

analogy. this office believes that use ofa funds received method to allocate the ~osts of

joint solicitations between the Primary Committee and the Compliance Committee prior

to August 16, 1995 is inconsistent with the Commission's past and present tteatment of

such costs. Accordingly, this Office believes that the Audit Division should allocate

these costs on a SOOIJSOO/O basis. I J Therefore, this Office recommends that the Audit

Division revise the proposed repon to reflect this allocation percentage in the amount of

non-qualified campaign expenses subject to a pro-rata repayment to be paid by the

Primary Committee.

II Because II C.F.R. § 9034.4(e)(6Xi) applies 10 candidates who receive public fundine in both the

primary and leftcral eleaion, it does not appear 1bat this provision specifically applies to joint solici1allons

undcnaken by an unsuccessful publicly funded primary candidate for President and ItS GELAC after

Au,U5t 16. 1995. However. for the above-sweet reasons. thas Office believes that this rqulataon apphes.

by anaio&>-. to such joint soliciwions. Therefore, thIS Office concurs with the proposed repon's

conclusion thatjoinl solieilations between the Primary Commiftee and the Compliance Commattee whIch

occurred after Au,ust 16. 1995 should be allocated on a 50%150% basis.

Page 48
May 28, 1997

4:J MEMORANDUM

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TO:

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FROM: \.

FEDERAL ELECTION COMMISSION

WASHINCTO". DC ~.,

RobenJ.Co$Ul

Assistant StaffDirector

Audit Divis~

John c.s:zJJ-- "\ Staff~J

LawrenceMINoble /

GeneraJ Counsel '1L

Kim Bri~ht-Colcman lU'JL,

Associate General CO~1

Rhonda J. "osdilllh (UtI

Assistant General Counsel

Andre G~Ki~e;,

Anome~~

fIIr 21 220 Fii '97

SUBJEcr: Proposed ."udit Repon on the Pete Wilson for President

Committc=e.lnc.: Pete Wilson for President Compliance

Committ¢t:. Inc.: and Pete Wilson for President Audit FiDes and

Penallie~ Account. Inc. CLRA #478) • Supplemental Comments

I. INTRODUcnON

This memoradum is \\Tinen pursuant to an infonnal request by the Audit

Division on May 16. 1997 10 reconsider the conclusions contained in our memorandum

dated May 13. 1997 concemin~ the proposed audit n:pon on the Pete Wilson for

President Comminee.lnc. ("Prlma~' Comminee"). Pete Wilson for President Compliance

CommiUec.. Inc. ("Compliance Committee"). and Pete Wilson for President Audit Fines

mel Penalties Accoum.lnc. If you have an~' questions concerning these suppIcmentaJ

comments. please contact Andn: G. Pineda. the anomey assiped to this audit.

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Proposed Audit Repon on the Pete \\·ilson for

President Committee. Jnc~. et al.

PIle 2

n. APPARENT EXCESSIVE COI'7R1BUTI01\ (SECI10N 111.A.l.a)

The Audit Division requested that this Office reconsider its conclusion that Craig

Fuller is most likely a commercial vendor whose transactions with the ~.

Committee should be analyzed under 11 C.F.R. § 116.3. Specifically. the_Audit Division

infonned this-Qffice ofits beliefthat Mr. Fuller was acting more like a Pri~'

Committee employee. than a commercial vendor. In suppon ofits positio~ the Audit

Division noted the following: (J) 1\1r. Fuller lacked other business clients; (2) he paid for

expenses via a personal credit card: (3) his business and personal address were the same;

(4) his current resume does not refer to The Fuller Company; and (5) a search ofThe

Fuller Company revealed that it \\'as not an incorporated entity in either California. the

Disaiet ofColumbia. or Virginia.

Based on this request. this Office examined Internal Revenue Service Ruling

1987-41.. which sets fonh guidelines for determining whether a person is an employee or

independent c~ntractor for tax purposes. I This ruling states that an individual is an

employee for federal tax purposes ifthe individual has the status of an employee under

the ··usual common law rules applicable in determining the employer-employee

relationship:· Re\'. Rut. 87-41. 1987-1 C.B. 296.298. In general. an employer/employee

relationship exists when the ··person or persons for whom the services are perfonned have

the right to control and direct th~ individual \\'ho performs the services.'· Jd Thus.. an

individual is an employee "'hen he or she his subject to the will and control ofthe

employer not only as to what shall be done but as to ho\\' it shall be done.·· Jd. The

designation or description of th~ relationship between panies is immaterial. Jd

However. individuals who are engaged in an independent trade.. business. or profession.

in which they offer their services to the public. are generally not employees. Jd

The Internal Revenue S~r\'ice exanlines 20 factors to detennine whether sufficient

control is present to establish an enlployer-employer relationship. Id. These factors

include: (1) instructions: (2) tr:uning: (3) integration: (4. services rendered personally;

(5) hiring. supervising. and P;I~ Ing assistants: (6) continuing relationship: (7) set hours of

work; (8) full time required: (9, doing worl on employ~r's premises: (10) order or

sequence set: (11) ora) or written repons: (1~) payment by hour. week. or month:

(13) payment of business and/or tr3\'eling expenses: ( )4) furnishing oftools or materials;

(15) significant investment: (J(\ , realization of profit or loss: (17) working for more than

one finn at time: (18) making service availnble to general public; (19) right to discharge;

and (20) right to terminate. /,1 at :298-299 (explainin~ each factor in greater detail). No

specific weight is given to a p~lrticular factor: --the de[!ree ofimponance of each factor

varies depending on the OCCUp~1t ion and th~ hlClu:a1 context in which the services are

perfonned.·· Jd at 298. Each d~l~rminntion IS analyzed on a case-by-case basis.

IRS rulang.s are not bandln~ Cli controlhn~ on CommISSion detemunauons. However. such rulings

provide guidance as to how the COlllllltSS'On can an;llyze panlcular circumstances or situations.

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Menlo 10 Raben J. COSII

Ploposed Audit Report on the Pete Wilson for

PresidentCommmec. Inc.• et al.

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At this point, this Office believes that there is insufficient infonnation regardiDg

Craig Fuller's relationship to the Primary CC!mminee to definitively c~nclude that Mr.

Fuller was a Primary Committee employee. - Many ofthe listed factors require detailed

knowledge ofthe relationship that Mr. Fuller and The Fuller Compan)' ~~with the

Committee. details which were not available during the audit. For example. it is not clear

whether Mr. Fuller was required to submit oral or written reportS (factor # 11 ) or whether

he was required to work a set amount of hours (factor #7). The only information obtained

during the audit that provides substantive details concerning the relationship between Mr.

Fuller and the Primary Committee is a contract dated May 1. 1995. This CODtract.

however, provides little assistance in ascenaining Mr. Fuller's duties. See Anicle 3

("Duties ofVendor"). Nonetheless. it appears that pans ofmis contract suppon either

conclusion: that he is a Primary Committee employee or a commercial vendor. Compare

factor #12 (contract provision specifying payment ofmonthly retainer suggests

~ployer'employee relationship) with factor # 17 (contract provision permining the

ability to conWtct with other panies suggests independent contraCtor relationship).

III. NON-QUALIFIED CAMPAIGN EXPENSES • COMPLIANCE

COMMII I EE EXPENSES PAID FOR B\' THE PRIMARY COMMITTEE

(SECTION 111.B.3.3)

The Audit Division also requested that this Office reconsider its conclusion that

use of a funds-received allocation method is not appropriate to determine the allocable

costs ofjoint solicitations incurred by the Prim:lry Committee and the Compliance

Comminee prior to August] 6. 1995. In shan. the Audit Division informed this Office of

its beliefthat the 1992 audit on The Clinton for President Comminee. Inc. ("Clinton '92

Committee_.) does not constitute prior Commission practice with respect to the allocation

ofjoint solicitation costs between 3 primary committee and a compliance committee.

Accordingly. the Audit Division belie\'~s that no Commission precedence exists with

respect to the allocation ofjoint primary:compli:lnce solicitation costs prior to August 16.

1995. and as a result. use of a funds-received allocation ratio by the Commission is

permissible.

This Office maintains its posiuun lh~t the costs incurred prior to August 16. 1995

for joint fundraising ofthe Primary Committee and Compliance Comminee should be

allocated 500/01500/0 to each committee. Th~ Clinton ·92 Committee audit constitutes

precedent with respect to the allocation ofjoint primary/compliance solicitation costs

incurred prior to August 16. 1~)5. In the Clinton ·9~ Committee audit. the Commission

allocated the cost ofthe joint solicitations 5{)~o tu the Clinton -92 Comminee. and 500/0 to

the Clinton/Gore '92 General Election ('onlpliance Fund. Therefore. it is clear that past

The factors c.ted by Ihe Audit 01\ 1~lOtl ~uch .., Mr Fullers apparent lack of other business

client5. provide some evidence that Mr FuU~r., an cmp'o~ee of the Pramary Comm.nee. However. these

factors are not dispositiVe

P~e S1
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.....Raben J. Colla

Pioposed Audit Rcpon on the Pete Wilson for

Prn"t Camminee. Inc.• elal.

....

CcmunissiOD practice wasto allocate joint primary/complilDce sblicitation costs on a

SO'IJSO'~ basis. AccoftIinIly. Ibis Office advises the Audit Division to apply a SD-NSO%

aIlocatiOD percen18Ie for Primary CommineelCompliance CommiUee jointsolicita'liOD

costs iDc:urred priorto August 16. J995.

Page 52
FEDERAL ELECTION COMMISSION

~ASHINCTO"'. 0 C 204b 4

August 28, 1997

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Ms. Renee Croce, Treasurer

Pete-Wilson for President Committee, Inc.

Pete Wilson for President Compliance Committee, Inc.

Pete Wilson for President Audit Fines and Penalties Account, Inc.

228 SouthWashington Street, Suite 200

Alexandri~ VA 22314

Dear Ms. Croce:

Attached please fmd the Audit Report on Pete Wilson for President Committee,

Inc., Pete Wilson for President Compliance Committee, Inc. and Pete Wilson for President

Audit Fines and Penalties Account, Inc. The Commission approved the report on August

27, 1997. As noted on page S, the Commission may pursue any ofthe matters discussed in

an enforcement action.

In accordance with 11 CFR §§9038.2(c)(1) and (d)(l), the Commission has made a

detennination that a repayment to the Secretary ofthe Treasury in the amount of5126,240

is required within 90 calendar days after service ofthis report (December 1, 1997).

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

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

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

notice (September 30, 1997), legal and factual materials to demonstrate that no repayment,

or a lesser repayment, is required. Further, 11 CFR §9038.2(c)(2)(ii) pennits a Candidate

who has submitted written materials to request an opponunity 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 determination.

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

decides to file a response to the repayment detennination, please contact Kim L.

Bright-Coleman ofthe Office ofGeneral Counsel at (202) 219-3690 or toll free at (800)

424-9530. Ifthe Candidate does not dispute this determination within the 30 day period

provided, it will be considered final.

The Commission approved Audit Repon will be placed on the public record on

September S. 1997. Should you have any questions regarding the public release ofthis

repon, please contact Ron Harris ofthe Commission's Press Office at (202) 219-4155.

Page S3
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Any quesdoas yoU may have JellIed 10 IIIIIItaS covered cIuriDI the audit or ill the

audit report sbouId be direcIed to Joe Stoltz or Alex BoDiewicz oftile Audit Division at

(202) 219-3720 ortoU fiee. (800) 424-9530.

Robert •Costa

Assistant StaffDirector

Audit Division

Anacbment as stated

Page 54
. .

r"

\. FEDERAL ELECTION COMMISSION

WASHtNCTOflli. 0 C 204b.i

August 28, 1997

In accordance with J1 eFR §§9038.2(cXI) and (d)(l), the Commission has made a

determination that a repayment to the Secretary ofthe Treasury in the amount of$126,240

is required within 90 calendar days after service ofthis repon (December 1, 1997).

Attached please find the Audit Report on Pete Wilson for President Committee.

Inc., Pete Wilson for President Compliance Committee, Inc. and Pete Wilson for President

Audit Fines and Penalties Account, Inc. The Commission approved the report on August

27, 1997. As noted on page S, the Commission may pursue any ofthe matters discussed in

an enforcement action.

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Governor Pete Wilson

clo Ms. Renee-Croce, Treasurer

.Pete Wilson for President Committee, Inc.

Pete Wilson for President Compliance Committee, IDc.

Pete Wilson for President Audit Fines and Penalties Account Inc.

228 SouthWashington Street, Suite 200

Alexandria, VA 22314

Dear Ms. Croce:

-is=-

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

Commission regulations at 11 CFR §9038.2(c)(2) provide you with an opportunity to

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

(September 30, 1997), legal and factual materials to demonstrate that no repayment, or a

lesser repayment, is required. Further, 11 CFR §9038.2(c)(2)(ii) pennits a candidate who

has submitted written materials to request an opponunity 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 ifyou so elect. If you decide to file a

response to the repayment determination, please contact Kim L. Bright-COleman ofthe

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

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

The Commission approved Audit Repon will be placed on the public record on

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

repon, please conUlCt Ron Hams ofthe Commission's Press Office at (202) 219-4155.

Page 55
c;

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ADy questioDs you may have related to matters covered-cluriDa the audit or in the

audit reportsbouId be direcIed 10 Joe Stoltz or Alex Boniewicz ofthe Audit Division at

(202) 2J9-3720 ortoO free It(800) 424-9530.

Robert J. Ita

Assistant StaffDirector

Audit Division

Attachment u stated

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paqe 56
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CHRONOLOGY

- PETE WILSON FOR PRESIDENT COMMl1TEE, INC. -~

PETE WILSON FOR PRESIDENT COMPLIANCE COMMl1TEE, INC.

AND

PETE WILSON FOR PRESIDENT AUDIT FINES

AND PENALTIES ACCOUNT, INC.

...

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Audit Fieldwork

Exit Conference Memorandum

to the Committee

Response Received to the

Exit Conference Memorandum

Audit Report Approved

Page 57

5128196 - 8/17/96

11/4/96

1120197

8/27197
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