FEDERAL ELECTION COMMISSION

WASHINGTON, DC. 20463

June 16, 1999

MEMORANDUM

TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

DOLE FOR PRESIDENT, INC

Attached please find a copy ofthe final audit report and related documents on Dole

for President, Inc., which was approved by the Commission on June 3, 1999.

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 of General Counsel

Office of Public Disclosure

RepOl1s Analysis Division

FEC Library
-'------------------------------

REPORT OF THE AUDIT DIVISION

ON

DOLE FOR PRESIDENT, INC

Approved June 3, 1999

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
· FEDERAL ELECTION COMMISSION

Washington, DC 20463

I.

REPORT OF THE AUDITDIVISION

ON

DOLE FOR PRESIDENT, INC.

BACKGROUND

This report is based on an audit ofDole for President, Inc. (DFP). The

audit is mandated by Section 9038(a) ofTitle 26 ofthe United States Code. That section

states that "After each matching payment period, the Commission shall conduct a

thorough examination and audit ofthe qualified campaign expenses ofevery candidate

and his authorized committee 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.

A. AUDIT AUTHORITY

In addition to examining the receipt and use of Federal funds, the audit

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

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

(FECA), as amended.

B. AUDIT COVERAGE

The audit ofDFP covered the period from its inception, January 12, 1995

through December 31, 1997. DFP reported an opening cash balancel of$-O-; total

receipts of$56,583,853;2 total disbursements of$55,926,465;2 and a closing cash balance

of$657,388.3

All figures are rounded to the nearest dollar amount. These amounts were taken from amended

reports filed in 1997 and 1998 during audit fieldwork.

These figures do not reflect the transfers of$2,000,000 between DFP and DK (See finding II.A.)

Ending cash is overstated by approximately $476,000 at year end 1997. (See finding II.C.)
C. CAMPAIGN ORGANIZATION

DFP maintains its headquarters in Washington, D.C. The treasurer is Mr.

Robert E Lighthizer.

DFP registered with the Federal Election Commission on January 12,

1995. During the period audited, DFP maintained depositories in Alexandria, Virginia

and Washington, D.C. To handle its financial activity, DFP opened and used nineteen

bank accounts. From these accounts DFP made approximately 19,650 disbursements.

Into these accounts, DFP received approximately 401,300 contributions from 168,000

contributors. These contributions totaled approximately $32,075,000.

In addition, DFP received $13,545,7714 in matching funds from the United

States Treasury. This amount represents 87.65% ofthe $15,455,000 maximum

entitlement that any candidate could receive. Senator Dole ("the candidate") was

determined eligible to receive matching funds on May 31, 1995. DFP made twelve

requests for matching funds totaling $13,596,469. The Commission certified 99.63% of

the requested amount. For matching fund purposes, the Commission determined that

Senator Dole's candidacy ended on August 14, 1996, the date he was nominated at the

Republican Convention in San Diego, California. As applicable to Senator Dole, the

Commission's Regulations at 11 CFR §9033.5(c) state than the candidate's ineligibility

date shall be the last day ofthe matching payment period as specified at 11 CFR §9032.6.

DFP received its twelfth and final matching fund payment of$373,697 on August I,

1996.

D. AUDIT SCOPE AND PROCEDURES

In addition to a review ofthe Committees' expenditures to determine the

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

covered the following general categories:

1. The receipt of contributions or loans in excess ofthe

statutory limitations (Findings II.A. and B.);

2. the receipt of contributions from prohibited sources, such as

those from corporations or labor organizations;

3. proper disclosure of contributions from individuals,

political committees and other entities, to include the

itemization of contributions when required, as well as, the

completeness and accuracy ofthe information disclosed

(Findings IILA., B., C. and D.);

DFP made three refunds to the U.S. Treasury totaling $21,000 for matching funds which had been

received for contributions that were subsequently refunded.

2
4. proper disclosure of disbursements including the

itemization of disbursements when required, as well as, the

completeness and accuracy ofthe information disclosed;

S. proper disclosure of campaign debts and obligations;

6.

7.

8.

9.

10.

the accuracy oftotal reported receipts, disbursements and

cash balances as compared to campaign bank records

(Finding II.C.);

adequate recordkeeping for campaign transactions;

accuracy of the Statement of Net Outstanding Campaign

Obligations filed by Dole for President, Inc. (DFP) to

disclose its financial condition and to establish continuing

matching fund entitlement (Finding HI.G.);

DFP's compliance with spending limitations (Findings

lII.E. and lII.F.); and,

other audit procedures that were deemed necessary in the

situation.

As part ofthe Commission's standard audit process, an inventory of

campaign records is normally conducted prior to the audit fieldwork. This inventory is

conducted to determine if the auditee's records are materially complete and in an

auditab1e state. Based on our review of records presented, fieldwork began immediately.

As the audit progressed, additional materials and information were

required from DFP, its vendors, an individual, and the Republican National Committee

(RNC). To obtain the needed materials the Commission issued subpoenas to 10 entities.

Portions ofthe findings presented below are based on the material supplied in response to

those subpoenas.

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue further any ofthe matters

discussed in this report in an enforcement action. Finally, this report constitutes notice of

potential Federal funds repayment pursuant to II C.F.R. §9038.2(a)(2).

In a series ofmeetings between December 3, 1998, and March 4, 1999, the

Commission considered the Staff findings and recommendations. The action taken with

respect to each issue is described at the end ofthe respective finding.

3
II. AUDIT FINDINGS - NON REPAYMENT MATTERS

A. LOAN TO DOLE KEMP '96

Section 9003.2(a)(2) ofTitle 11 of the Code of Federal Regulations states,

in relevant part, that to be eligible to receive payments under I I CFR part 9005, each

Presidential and Vice Presidential candidate of a major party shall certify to the

Commission that no contributions have or will be accepted by the candidate or his or her

authorized committee except for contributions solicited for, and deposited to, the

candidate's legal and accounting compliance fund, or to make up any deficiency in

payments received from the Fund.

Section 9032.9(a) of Title 11 ofthe Code Federal Regulations states, in

part, that a qualified campaign expense means a loan or advance ofmoney - incurred by

or on behalf of a candidate or his authorized committee from the date the individual

becomes a candidate through he last day ofthe candidate's eligibility, made in connection

with his campaign for nomination and neither the incurrence nor payment of which

constitutes a violation of any law ofthe United States.

Section 9034.4(b)(3) of Title 11 ofthe Code of Federal Regulations states,

in part, that any expenses incurred after a candidate's date ofineligibility, as determined

under 11 CFR §9033.5, are not qualified campaign expenses except for costs associated

with the termination ofpolitical activity to the extent permitted under 11 CFR

§9034.4(a)(3).

Section 104.3 of Title 11 ofthe Code of Federal Regulations requires

political committees authorized by a candidate for Federal office to report, for the

reporting period and the calendar year, total receipts, total disbursements, transfers to

other committees authorized by the same candidate, and transfers from other committees

authorized by the same candidate. Further, each authorized committee shall report the

full name and address of each authorized committee ofthe same candidate to which a

transfer is made or from which a transfer is received during the reporting period, together

with the date and amount ofsuch transfer.

In the process of reconciling DFP's bank accounts, the Audit staff

identified a series oftransfers between DFP and the Dole - Kemp '96 General Committee

(DK) which were not properly disclosed or itemized. Between October 30 and November

1,1996, DFP transferred $2,000,000 to the OK. Without the transfers from DFP, the OK

bank account statements would have had a negative balance at November 1, 1996 of

approximately ($2,563,375). This balance excludes certificates of deposit used as

collateral for a line of credit and letters of credit issued in lieu of cash deposits for

telephone service, credit cards, and other vendors. Although these certificates of deposit

represent $2,948,077 in OK funds, the balances were not available to pay checks issued

byDK.

4
In a memorandum dated December 5, 1996, included in its disclosure

report for the post general election period, DFP stated:

"In the process of consolidating its primary committee bank accounts,

transfers totaling $2,000,000 were made from Signet Bank accounts to

Franklin National Bank. These funds were transferred in error to an

account titled "Dole-Kemp '96 Operating Expenses" instead ofthe

primary account which is titled "Dole for President Operating Expenses."

This error was made, discovered, and corrected within this reporting

period."

The account described as "Dole-Kemp '96 Operating Expenses" was in

fact titled "Dole for President General Committee," and, as noted, the transfers occurred

over a three day period. DFP transferred $500,000 on October 30; $1,250,000 on

October 31; and, $250,000 on November I for a total of $2,000,000. The transfers, as

noted in the memorandum, occurred between accounts at two different banks. Transfer

advices from the originating bank identified the name and account number ofthe

destination account for each transfer as follows: October 30 - "Dole for PresidentJAC1016040712," October 31 - "Dole for President General Operating Expenses/AC1016040712" and November 1 - "Dole for President Operating expenditureslAC1016040712." Though the account name varied, the account number did not. It was the

number ofthe DK operating account. The memorandum that requested the October 31

transfer was found by the Audit staff. It was a faxed copy that had been received at the

transferring bank and it also identified the transfer's destination by the DK operating

account number. This document suggests that no error occurred; that the transferring

bank made the $1,250,000 transfer exactly as requested. Further, no documentation was

found to suggest that the intended transfer destination for any ofthe three transfers was

other than the DK operating account. It was also noted that DFP's general ledger

originally classified each ofthe transfers as a "loan." On December 23, 1996, the general

ledger entry classifications were changed from "loan" to "transfer error." DFP did open a

second primary operating account, #3000024220, at Franklin National Bank. According

to a notation found on the account signature cards, November 4, 1996 is listed as the

opening date and November 6 is the date ofthe first deposit; both dates are after the last

transfer.s

These transfers were reversed when DK transferred $2,000,000 to DFP on

November 25, 1996. However, in order for DK to accomplish the return ofthe $2

million, it was necessary for DFP to repurchase from DK certificates of deposits in the

Another transfer of$25.000 was made to OK on November 4, 1996. The documentation with that

transaction suggests that it was intended for account #3000024220, the Franklin National Bank

account opened by DFP on that day. That transfer was deposited to DK's press reimbursement

account and refunded on January 14, 1997. Documentation surrounding this transaction suggests

that it was erroneously credited to DK's account.

5
amount of $1 million. DK had purchased these certificates of deposit from DFP on

August 30, 1996. They were used to secure letters of credit that served as DK's

telephone deposits and other security deposits. However when the certificates of deposit

were repurchased by DFP, one in the amount of$202,767 ($200,000 plus accrued

interest), had been liquidated. Therefore, DK owes DFP $202,767. That amount is

reported by DFP as a debt owed to it.

This issue was discussed with DFP representatives and their response was

to state that amended disclosure reports would "...be filed to show transfers made in error

between committees, as well as the reversal ofthese transfers which were made to correct

the error."

The Audit staff concluded that the transactions described above represent

loans to and repayments from DK by DFP. The loan was also a prohibited contribution

on the part ofDFP to DK,6 and as such, DFP incurred a non-qualified campaign expense.

Further, DFP made an additional contribution to DK and incurred an additional nonqualified campaign expense when it repurchased certificates of deposit that either secured

DK's deposits, or had been liquidated by DK since funds represented by the CD's were

not available to DFP.7 The contributions and non-qualified campaign expenses were

resolved when the letters of credit and other security requirements were eliminated in the

winding down period and the funds represented by the CD's became available.

In the Exit Conference Memorandum (the Memorandum) it was

recommended that DFP file amended Summary and Detailed Summary pages, schedules

A-P and B-P for the Post General period which fully disclose and itemize the transfers

between DFP and DK, provide documentation that demonstrated the transfers were not

contributions from DFP to DK for the period that the funds were with DK, and provide

any other relevant information regarding the transfers between DFP and DK which would

support their contention that the transfers were inadvertent and not intentional. It was

further specified that the documentation to be provided should demonstrate that it was

permissible for DFP to purchase certificates of deposit from DK that were serving as

security for deposits required ofDK; and that the DFP operating account at Franklin

National Bank was open at the time the transfers were made. Finally, DFP was to

provide transfer requests which identify the DFP operating account by number; an

analysis ofDK's security deposit requirements at the time the certificates of deposit were

In advisory opinion 1992-38, the Commission permitted the Clinton-Gore committee to borrow

funds from its GELAC to cover short term cash flow problems caused by amounts due from the

Secret Service. That opinion did not permit similar borrowing from a Federally funded primary

campaign. The opinion further required the amount borrowed to be repaid from the next amounts

received from the Secret Service, and full reporting of the transactions.

In Advisory Opinion J988-05, the Commission held that a committee's proposed use of public

funds received in connection with one election, to pay obligations incurred by another committee

ofthe same candidate incurred in connection with a different election to be a non qualified

campaign expense.

6
repurchased by DFP; and any documentation from Franklin Bank which supports DFP's

contention that the transfers had been erroneously credited.

In its response to the Memorandum, DFP states that it has filed amended

disclosure reports to disclose both the initial transfers and the correcting transfer. On

April 22, 1998, DFP filed schedules A-P, line 18, Transfers From Other Authorized

Committees, and B-P, line 24, Transfers To Other Authorized Committees, which

disclose the transfers in and out ofits accounts. No amended Summary or Detailed

Summary pages were included. Further, DFP maintains that the transfers occurred in

error but provided none ofthe requested documentation to support its contention.

With respect to the conclusion that DFP's purchase ofthe certificates of

deposit constituted a contribution to DK, DFP explained that its letters of credit,

underlying certificates of deposit, lines of credit, and loans were obtained in the normal

course of business as provided for at 11 CFR §llO.7(b)(II) and therefore could not be

contributions. DFP's relationship with the banking institutions that provided the

certificates of deposit, letters of credit, and commercial loans was not questioned. Rather,

OFP's purchase during the expenditure report period ofthe certificates of deposit

securing the business relationship between OK and its vendors is the issue. In the

Memorandum that transaction was identified as a contribution from DFP to OK. With

respect to this, OFP notes only that the Certificates ofDeposit were transferred back to

OFP which has been the lead committee during the wind down phase. That statement

does not resolve the question. (See Section III.H.1.b. for a discussion ofwind down

costs)

DFP has failed to demonstrate that the $2 million transferred to DK, and

the purchase ofthe certificates of deposit underlying DK's security arrangements with its

vendors were not contributions to OK.

The Commission voted to receive this finding without any determination

on the merits ofthe analysis ofthe facts or the interpretation ofthe law contained therein.

B. RECEIPT OF AN EXCESSIVE IN-KIND CONTRIBUTION

Section 1DO. 7(a)(l) of Title 11 ofthe Code of Federal Regulations state, in

relevant part, that the term contribution includes anything of value such as advances of

services made by any person for the purpose ofinfluencing any election for Federal

office. Subsection (iii)(A) states that the term any thing ofvalue includes all in-kind

contributions. Unless specifically exempted under 11 CFR §100.7(b), the provision of

services at a charge which is less the usual an normal charge for such service is a

contribution. Ifservices are provided at less than the usual and normal charge, the

amount ofthe in-kind contribution is the difference between the usual and normal charge

for the services and the amount charged to the political committee. Subsection (iii)(B)

states that the usual and normal charge for any services other than those provided by an

7
unpaid volunteer, means the hourly charge for the services at a commercially reasonable

rate prevailing at the time the services were rendered.

Section 110.I(b)(l) ofTitle 11 ofthe Code of Federal Regulations states

that no person shall make contributions to any candidate, his or her authorized political

committees or agents with respect to any election for Federal office which, in the

aggregate, exceed $1,000.

Section 114.9(e) ofTitle 11 ofthe Code of Federal Regulations states, in

relevant part, that a candidate who uses an airplane which is owned or leased by a

corporation not licensed to provide commercial service for travel in connection with a

Federal election must, in advance, reimburse the corporation where regular commercial

service is available the first class air fare and where no regular commercial service exists,

the usual charter rate.

A Gulfstream IV jet aircraft, personally owned by Mr. William Keck, was

used by Senator Dole and his campaign for travel from Sunday to Friday, May 28

through June 2, 1995. Senator Dole and his campaign staff, according to a DFP itinerary,

made at least nine" flights on the airplane paying first class airfare for each member of its

entourage for each flight leg. The total reimbursed to Mr. Keck was $17,225.9

DFP believes that these flights were entitled to treatment under 11 CFR

§114.9(e) because the airplane functioned as the corporate jet for Coalinga Corp. despite

the fact that it was privately owned. Patrick Templeton, Washington Representative for

Coalinga Corp., wrote as follows in response to the Audit stafT inquiries ofDFP

concerning these flights:

"Senator Dole's campaign travel on an aircraft registered in the name of

William Keck is properly reimbursable at first class rates. The aircraft

functioned as the corporate jet for Coalinga Corp., a sub-chapter S

corporation which is a diversified holding company wholly owned by Mr.

Keck. The aircraft was registered in Mr. Keck's name rather than in the

name of Coalinga Corp., dictated by tax law considerations. If Mr. Keck,

as a Coalinga employee, or any other Coalinga employee, needed a jet for

corporate business, they used the aircraft in question. Also, Coalinga's

Washington representative traveled on the aircraft every time Senator Dole

The nine trips were Washington, DC to Manchester, NH; Concord, NH to Boston, MA; Boston,

MA to Chicago, IL; Chicago, IL to San Francisco, CA; San Francisco, CA to Los Angeles, CA;

IrVine, CA to Las Vegas, NV; Las Vegas, NV to Phoenix, AZ; Phoenix, AZ to Tuscon, AZ; and

Tuscon, AZ to Washington, DC. A second itinerary suggests that an additional flight with

passengers occurred between Sanla Monica, CA and Santa Ana, CA(lrvine, CA).

OF? wrote two checks for this flight. The first check was dated May 25, 1995, but was made out

to Coalinga Corp. Because Mr. Keck personally owned the plane, a second check was requested.

The date ofthe check written to Mr. Keck was June 2, 1995.

8
or any other public official traveled on the plane (except in one instance).10

The tail numbers ofthe plane ended with "CC" (N404CC)11 for Coalinga

Corp. and has other markings in the cabin that make reference to Coalinga

Corp."

The "Financial Control and Compliance Manual," an FEC publication

offering guidance for presidential primary candidates receiving Federal funds, cautions

that the reimbursement rate for the use of aircraft owned by individuals is the usual and

normal charge for services provided. Usual and normal charges in such instances will

generally be the equivalent charter rate for the means of transportation used.

In order for the use of an airplane to qualify under the provisions of 11

CFR §114.9(e), it must be either owned or leased by a corporation. Coalinga Corp.

through its Washington Representative concedes that the plane was not owned or leased

by a corporation. Thus, the use ofthis airplane should have been reimbursed on the basis

of the usual and normal cost for a similar charter.

KaiserAir, Inc. 12 quotes an hourly charter rate of $4,500 for the use of a

Gulfstream IV. In addition to the nine identified flights, four positioning flights are

included in the calculation oftotal flight hours. The usual and normal costs of chartering

this trip was computed by multiplying the advertised hourly charter rate by the total flight

hours as listed on the KaiserAir itinerary. The airplane flew 26.3 reimbursable hours for

the campaign and the usual and normal charge should have been $118,350 (26.3 hrs. x

$4,500 per hr.). DFP paid $17,225 for the use ofthe airplane and therefore received an

in-kind contribution from Mr. Keck of$100,125 ($118,350 less the already paid $17,225

and a contribution allowance of $1 ,000).

In the Memorandum it was recommended that DFP show that the actual

charter cost was timely paid and it therefore had not, received an excessive in-kind

contribution, or provide any additional relevant information that would show that the

flights were correctly reimbursed.

DFP, responding to the Memorandum, states at the time it was used by

DFP the aircraft was not being used as a charter aircraft, but as a corporate aircraft in all

respects except formal title. DFP again mentions the aircraft's tail number and states that

10

II

12

None of the itineraries lists a Coalinga Corp. employee as passenger for the flights made by

Senator Dole and his staff.

The Audit staff notes that Mr. Keck also owns a small acrobatic airplane with tail registration

N403CC.

KaiserAir, Inc. of Oakland, California, which apparently operated the airplane for Mr. Keck, is a

privately owned aircraft management and service company. In addition to overseeing all phases

of airplane management, KaiserAir offers a charter option for clients who wish to offset operating

expenses by chartering their aircraft.

9
it had" ...no way of knowing that plane was not a corporate aircraft" and that others,

including members of congress have used this particular plane, reimbursing flights at

rates provided for at 11 CFR §114.9(e). From this it is concluded that DFP paid the

appropriate rate for the aircraft. DFP goes on to argue that even ifMr. Keck's aircraft is

individually owned, payment of a charter rate for flights to cities with commercial service

is not appropriate. The response cities 11 CFR §114.9(e) and §9004.7(b)(5)(i).

DFP acknowledges that the aircraft was owned personally by Mr. Keck.

Section 114.9(e) applies only to aircraft owned or leased by a corporation or labor

organization. Since no evidence of any lease agreement between Mr. Keck and Coalinga

Corporation has been presented, 11 CFR §lI4.9(e) does not apply to the use ofthis

aircraft. Though it is understandable that DFP may have been unaware that this aircraft

was not owned or leased by a corporation, it does not change the application of the

regulation. As for 11 CFR §9004.7(b)(5)(i), it deals with the use of government aircraft

by campaigns and is clearly not applicable. As noted earlier the "Financial Control and

Compliance Manual" explains that the use of an aircraft owned by an individual is valued

at the usual and normal charge for the service provided. It goes on to explain that the

usual and normal charge will generally be the equivalent charter rate for the service

actually used and not the commercial rate for the same trips.

DFP then argues that, ifthe charter rate is the correct valuation method,

the auditors had used an erroneous charter rate of $4,500 per hour and that, according to

Mr. Keck, the correct "inside" rate for known and repeat passengers was actually $3,100.

An additional error in the auditor's calculations, according to DFP, was the inclusion of

charges for positioning flights or "dead-head time." DFP stated "It is not the customary

practice of charter airlines to charge for such 'dead-head' time." The response goes on to

explain that a charter customer would not generally use an aircraft that is based 3,000

miles away and incur significant dead-head charges. Finally, DFP states that although

DFP did not receive an in-kind contribution from Me. Keck, ifit is determined that one

was made, it could not exceed $28,895 (15.2 flight hours @$3,100 per hour less $17,225

already paid and $1,000 contribution allowance).

Other than Mr. Keck's statement, no supporting documentation has been

provided to establish the existence, availability, or amount of an inside charter rate. The

rate used in the Memorandum is an advertised rate for the same model of aircraft operated

from the same location by the same company that manages Mr. Keck's aircraft. With

respect to dead-head flights DFP offers no support for the statement that air charter

companies do not generally charge for such flights. On the contrary, DFP was billed and

paid for all such flights that were flown by both charter companies that provided DFP

with its campaign planes. It is agreed that under normal circumstances a campaign would

not select a charter aircraft that was based 3,000 miles away. However, in this case that is

precisely what DFP did. Thus, the calculation of the in-kind contribution from Mr. Keck

contained in the Memorandum remains unchanged ($100,125 ($118,350 less the already

paid $17,225 and a contribution allowance of $1 ,000)).

10
Finally, DFP comments that this is a matter for consideration by the Office

of General Counsel and does not involve the repayment of public funds since none were

involved. As noted in the background section above, any of the matters in this report

may be pursued in a compliance action. As for a repayment, this transaction is treated as

both a contribution and a disbursement as are all in-kind contributions. The disbursement

transaction is applicable to the spending limitation, and the contribution is part ofthe

mixed pool ofprivate and public resources that were available to the campaign. The

relative amounts of private and public resources in that mixed pool determines the

repayment ratio prescribed at II CFR §9038.2(b)(2)(iii).

The Commission approved the Audit staff and the Office ofGeneral

Counsel's (hereafter Staff) analysis that as a result ofthe flights on Mr. Keck's plane,

DFP had received an in-kind contribution in the amount of$100,125. Therefore, this inkind contribution was included in DFP's total expenditures subject to the spending

limitation and in the calculation ofthe repayment ratio [see footnote 17 at page 19].

C. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(l), (2) and (4) of Title 2 of the United States Code state,

in part, that a political committee shall disclose the amount of cash on hand at the

beginning ofthe reporting period and the total amount of all receipts and all

disbursements for the reporting period and the calendar year.

The Audit staffs reconciliation ofreported financial activity to bank

records for the calendar year 1997 revealed the following misstatements:

1. Beginning Cash on Hand

The Committee's beginning cash on hand was overstated by

$257,125, the result ofreporting discrepancies in prior periods. 1J The correct reportable

cash on hand was $2,149,139.

2. Receipts

The Committee's reported receipts were understated by $62,077.

The components ofthe misstatement are as follows:

IJ The overstatement of beginning cash is the net effect of reporting errors in receipts and

disbursements in 1996 and 1995. These discrepancies were not material, owing to the magnitude

of bank activity for those periods. The Audit staff has identified receipts and disbursements in

1996 which account for approximately $190,000 of the overstated cash and has provided a

schedule ofthese corrections to OF?

II
Reported Receipts

Interest Not Reported

Transfers from GELAC not reported

Transfers from DK not reported

Vendor refund not reported

Payroll offset not reported

Press Reimbursements not reported

Reconciling Item

Correct Reportable Receipts

$13,058

$11,486

$30,162

$ 2,662

$ 551

$ 4,688

$ (530)

$404,001

$ 62,077

$466,078

3. Disbursements

The Committee's reported disbursements were understated by $281,226.

The components of the misstatement are as follows:

Reported Disbursements

Transfer to GELAC Not Reportcd

Transfers to DK Not Reported

Arithmetic Discrepancies within Total

Disbursements Reported

Cleared check reported as void

Reconciling Item

Correct Reportable Disbursements

4. Ending Cash On Hand

$ 45,088

$186,773

$ 46,930

$ 772

$ 1,663

$2,152,876

$ 282,388

$2,434,102

The reported ending cash on hand at December 31, 1997 was

overstated by $476,273, resulting from the misstatements detailed above. The correct

ending cash on hand was $181,115.

The Memorandum recommended that DFP file a comprehensive

amended report for calendar year 1997 correcting the misstatements noted above and

amend its most recently filed report to correct the ending cash on hand.

In response to the Memorandum, DFP states that it has complied

with the Audit staff's suggestions and is filing amended summary pages for 1997, and

that the appropriate supporting schedules will be filed shortly.

The summary schedules included in DFP's response did not

include any entries but receipts and disbursement totals for the detailed summary page.

Although DFP promises that a subsequent filing of supporting schedules will be made, as

ofNovember 10, 1998, DFP has yet to file complete amended reports for 1997.

12
The Commissioners voted to receive this finding without any

determination on the merits of the analysis of the facts or the interpretation on the law

contained therein.

III. AUDIT FINDINGS AND RECOMMENDATIONS - PAYMENTS TO

THE U.S. TREASURY

A. EXPENSES PAID By THE RNC

I. Background

This section discussed DFP's position with respect to the overall

spending limitation at the time Senator Dole became the Republican Party's presumptive

nominee and enumerated four categories of expenses paid by the RNC. Each category is

noted belowl4 •

2. DFP Expenses Paid As Coordinated Expenditures

Section 44Ia(d)(2) ofthe United States Code permits the national

committee of a political party to make limited expenditures in connection with the

general election campaign of its candidate for President ofthe United States. The Staff

questioned whether certain expenditures claimed by the RNC to have been made under

this provision were instead in-kind contributions to DFP, and attributable to DFP's

spending limitationIS.

The Staff recommended that the Commission determine that the

RNC had made in-kind contributions to DFP in the amount of $813,857 and that

$774,252 ($813,857 less a compliance exemption) was attributable to DFP's spending

limitation.

The Commission made two determinations with respect to the

expenses discussed above. By a motion adopted on a 5-1 vote regarding non-media

expenses, the Commission accepted DFP's claims that the amount of $936,245

constituted coordinated expenditures. In doing so, the Commission rejected the Staff

recommendation that these expenses represent in-kind contributions to DFP and arc

attributable to DFP's spending limitation. By a second motion approved 6-0, the

Commission determined that expenditures by the RNC for advertising before and during

the nominating convention ($32,527) featuring the Party's presumptive nominee, and

which were claimed and reported as coordinated expenditures, would be accepted as

..

15

For the full presentation and discussion ofthis issue see Agenda Documents 98-87 and 99-49,

Finding IIl.A. and the audio tapes of the Commission's Open Session meetings on the following

dates: December 3rd, 9th. and IDth 1998, January 14th and 28th, February 3rd and 25th, March

4th, and April 29, 1999.

Ibid.

13
claimed. The Total amount of$968,772 would then be counted against the RNC's 2

U.S.C. §44Ia(d) limitation.

3. Payroll

A number ofDFP staffmembers left DFP payroll in March and

April of 1996, and were employed by the RNC. Records indicated that in many cases the

duties ofthe employees were similar in both positions. The Staff questioned whether the

salary payments and expense reimbursements made by the RNC for those employees

characterized as "advance staff' were in-kind contributions to DFP by the RNC16•

The Staffrecommended that the Commission determine

that salary and expense reimbursement payments totaling $135,743 were in-kind

contributions by the RNC to DFP, and that $117,550 ($135,743 less a compliance

exemption) be attributed to DFP's spending limitation.

During the Commission's deliberations concerning this

matter, a motion was offered to approve the Staffrecommendation. That motion failed to

gamer sufficient votes to pass.

4.

The RNC sponsored a television advertising program in the spring

and summer of 1996. It was argued by DFP and the RNC that the ads featuring Senator

Dole and/or President Clinton were alleged "issue ads"l7.

The Staffrecommended the Commission determine that the cost of

producing and broadcasting the ads be allocated between DK and DFP and that the

portion attributed to DFP, $5,588,900, represented a contribution in-kind from the RNC

to DFP. It was also recommended that it be determined this in-kind contribution was

attributable to DFP's spending limitation.

In considering the Staffrecommendation, the Commission took the

following actions:

It disagreed with the allocation ofthe expenditures between DFP

and DK. The Commission's action caused all ofthe media expenses to be attributed to

DFP. Accordingly, the total amount spent by the RNC for media that the Staff concluded

represented a contribution to DFP was increased to $18,553,619. See Section lIl.A. of

Report ofthe Audit Division on DolelKemp '96, Inc. and Dole/Kemp '96 Compliance

Committee, Inc.

"

17

Ibid.

Ibid.

14
A motion that the Commission detennine in general that it will

make no repayment detenninations based on alleged overall excessive spending by

candidates receiving presidential matching funds, failed by a vote of 3 to 2, with 1

abstention.

By a motion adopted on a 6-0 vote, the Commission rejected the

Staff recommendation for a matching fund repayment related to the $18,553,619 in the

media expenses. The repayment would have resulted from the media expenses being

added to expenditures subject to the spending limitation, and the exceeding ofthat

limitation.

By a motion adopted on a 6-0 vote, the Commission directed the

Audit Division to revise the portion ofthe report relating to party ads to clarifY that the

Commission has not reached any conclusion regarding the Staffs in-kind contribution

analysis and to indicate that Commissioners may submit statements for the record.

The Commission directed that the media expenses discussed above

not be considered when the matching fund repayment ratio was detennined.

5. Polling Expenses

The RNC incurred expenses for public opinion polling in the

spring and summer of 1996 which the Staff concluded were, in part, in-kind contributions

to DFp18 .

The Staffrecommended that pursuant to 11 CPR §106.4,

the Commission detennine that polling expenses incurred by the RNC in the amount of

$463,844 were in-kind contributions to DFP and attributable to its spending limitation.

A motion to approve the Staffrecommendation failed on a

vote of3-3.

B. PRIMARY EXPENSES PAID BY RELATED COMMITTEES

Section 441a(a)(1)(A) ofTitle 2 ofthe United States Code states that no

person shall make contributions to any candidate and his authorized political committees

with respect to any election for Federal office which, in the aggregate, exceed $1,000.

Section I OO.7(a)(1) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that the tenn contribution includes a gift, subscription, advance, or deposit of

money or anything of value made by any person for the purpose ofinfluencing any

election for Federal office. The tenn anything of value includes all in-kind contributions.

18 Ibid.

15
Unless specifically exempted under 11 CFR §100.7(b), the provision ofany goods or

services without charge or at a charge which is less than the usual and normal charge for

such goods or services is a contribution. Examples ofsuch goods or services include, but

are not limited to: Securities, facilities, equipment, supplies, personnel, advertising

services, membership lists, and mailing lists.

Section 100.7(b)(l6) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that the payment by a candidate for any public office (including State or local

office), or by such candidate's authorized committee, ofthe costs ofthat candidate's

campaign materials which include information on or any reference to a candidate for

Federal office and which are used in connection with volunteer activities (such as pins,

bumper stickers, handbills, brochures, posters, and yard signs) is not a contribution to

such candidate for Federal office, provided that the payment is not for the use of

broadcasting, newspapers, magazines, billboards, direct mail or similar types of general

public communication or political advertising. The payment ofthe portion ofthe cost of

such materials allocable to Federal candidates shall be made from contributions subject to

the limitations and prohibitions ofthe Act.

Section 9003.4(a) of Title 11 ofthe Code of Federal Regulations states, in

part, that a candidate may incur expenditures before the beginning ofthe expenditure

report period ifsuch expenditures are for property, services or facilities which are to be

used in connection with his general election campaign and which are for use during the

expenditure report period.

Section 9002.12(a) ofTitle 11 of the Code of Federal Regulations states,

in part, that expenditure report period means, with respect to any Presidential election,

the period oftime which begins on the date on which the major party's presidential

nominee is chosen and ends 30 days after the Presidential election.

Sections 9034.4(e) of Title 11 ofthe Code ofFederal Regulations

discusses the attribution of expenditures between the primary and general election

spending limitations. Subsection (e)(1) sets forth the general rule that expenditures for

goods and services to be used exclusively in the primary campaign shall be attributed to

the primary spending limitation, and expenditures for goods and services to used

exclusively in tile general election campaign shall be attributed to that spending

limitation. Subsections (e)(3), (4), (6), and (7) provide guidance with respect to specific

categories of expenditures as described below:

" Expenses for the usage of offices or work performed on or before the date ofthe

candidate's nomination shall be attributed to the primary election, except for

periods when the offtce is used only by persons working exclusively on general

election campaign preparations.

16
• Expenditures for campaign materials that are purchased by the primary election

campaign committee and later transferred to the general election committee shall

be attributed to the general election limits. Materials transferred to but not used

by the general election committee shall be attributed to the primary election

limits.

• Costs of a solicitation shall be attributed to the primary election or to the GELAC,

depending on the purpose ofthe solicitation. If a candidate solicits funds for both

the primary election and for the GELAC in a single communication, 50% ofthe

cost ofthe solicitation shall be attributed to the primary election, and 50% to the

GELAC.

• Expenditures for campaign-related transportation, food and lodging of any

individual, including the candidate, occurring prior to the date ofthe candidate's

nomination shall be attributed according to when the travel takes place. Ifthe

travel takes place on or before the date ofthe candidate's nomination, the cost is a

primary election expense. Travel to and from the convention shall be attributed to

the primary election. Travel by a person who is working exclusively on the

general election campaign preparations shall be considered a general election

expense even ifthe travel occurs before the candidate's nomination. (emphasis

added)

Prior to the 1996 election cycle, substantial effort was dedicated to

determining whether expenditures made in the late primary period had a primary or

general election purpose. In the 1992 election cycle, a number of expenditures made in

the primary period by both major party candidates were questioned as possible general

expenses. Both the Bush and Clinton committees argued convincingly in response to

their respective preliminary audit findings that most disbursements made prior to their

candidate's date of nomination were necessarily made on behalf ofthe primary campaign.

In 1995, the Commission formulated new regulations found at 1I CFR

§9034.4(e) which codified the position adopted when the 1992 audit determinations were

made. For 1996, the major factor considered when reviewing expenditures and making a

determination to which election they relate [primary or general] is when the expenditure

was incurred. The key date is the date that the party nominates its candidate. Expenses

incurred before that date are presumed to be for the primary campaign, while expenses

incurred after that date are presumed to be for the general election campaign. Limited

exceptions are provided, but such exceptions require a definite showing of exclusive use

for the election other than that indicated by the date. Allowing exceptions to be granted

easily would have the effect ofinvalidating the rule.

As previously noted, by March 31, 1996, DFP reported having only $2

million in spending limitation remaining, but was four and one half months from the end

ofthe primary campaign period. Given this situation, the Audit staff, using the newly

17
formulated regulations as guidance, performed a detailed review of expenses incurred by

the Dole for President Compliance Committee, Inc., Dole/Kemp '96, Inc. and Kemp for

Vice President before the Candidate's August 14, 1996 date ofineligibility. The results

ofthose reviews are presented below.

1. Primary Expenses Paid by the GELAC

The Dole for President Compliance Committee, Inc.(GELAC)

registered with the Federal Election Commission on February 15, 1995. Between

registration and DOl, the GELAC spent $1,405,245 and shared staff and offices with

DFP. For the first eleven months, the GELAC accepted only contributions that were

redesignations of contributions initially made to OFP and incurred little in the way of

expenses. In January 1996, GELAC began paying salaries to staff formerly paid solely

from OFP fund-raising accounts, and began soliciting direct contributions. These

solicitations were frequently done jointly with OFP. An initial review ofthe GELAC

disbursements made prior to 001, identified expenditures of approximately $950,000 that

were correctly attributed to the GELAC in the primary period. However, expenditures of

$454,404 attributable OFP were also identified.

Ofthe $454,404 in DFP disbursements, salaries accounted for

$210,262 and overhead $1 15,302. Overhead expenses included office supplies, computer

hardware and software, telephone costs, and charges for other office equipment. Under

11 CFR §9034.4(e)(3) these salary and overhead expenses were viewed as primary

campaign expenses unless it could be demonstrated that they related to periods devoted

exclusively to the general election effort. No such showing was made. The balance of

the primary disbursements, $128,839, were for travel, including some expenses related to

attending the Republican National Convention, and the primary share ofjoint solicitation

costs. Approximately $93,000 of the $128,839 was spent on two fund-raising projects.

On April 11 and 12, the campaign held a series offund-raising

events in Memphis, Tennessee, and Dallas, San Antonio and Houston, Texas, described

as a compliance trip. All associated costs, including advance travel costs, air charter

expense, plane catering, ground transportation, press filing center costs and solicitation

costs, were paid by the GELAC. An invitation for the Memphis event contained ajoint

solicitation for OFP and for the GELAC. This, along with the fact that over seventy

percent ofthe contributions received and attributed to these fund-raisers was deposited to

primary accounts, establish that the events were joint solicitations. As a result, travel

costs of$57,267, are primary expenses pursuant to II §CFR 9034.4(e)(7). Additionally,

half of all solicitation costs related to the fund-raisers, $32,603 are OFP expenses

pursuant to 11 CFR §9034.4(e)(6).

The second instance of a joint solicitation funded by the GELAC

was a "Lawyers for Dole" event held in Chicago on July 19, 1996. A solicitation device

for this event requested contributions for both the OFP and the GELAC. This time 45%

18
ofthe receipts attributed to this event, $58,675, were deposited in the primary accounts.

The GELAC paid $2,887 ofthe primary share ofthe solicitation costs.

At the close offieldwork, OFP was provided a schedule of

GELAC expenditures identified as having been made on behalfofOFP. OFP provided

documentation in response, and where appropriate, adjustments were made to the total

presented here.

In the Memorandum, it was recommended that OFP provide

documentation which demonstrates that disbursements in the amount of$454,404 made

by the GELAC were not OFP expenses pursuant to I I CFR §9034.4(e). Absent such a

demonstration, the Audit staffstated that it would recommend that the Commission

determine that these expenses are attributable to the OFP spending limitation and that the

amount is due to the GELAC.

OFP responded to the Memorandum as follows:

"The attached documents establish that payments made by the

Compliance Committee were for expenditures for overhead and salaries

incurred exclusively for the benefit ofthe Compliance Committee. See

Exhibit 7. Indeed the Audit Stafffocuses on costs incurred for facilities

and expanded work space that would be used by the Compliance

Committee exclusively in the general election campaign. This rebuts the

presumption that expenditures incurred prior to the date of a candidate's

nomination should be allocated to the primary election. II C.F.R §

9304.4(e);[sic] Financial Control Compliance Manual for Presidential

Primary Candidates Receiving Public Financing Chapter I, Section

C(2)(c).

"With respect to the fundraisers in Texas and Tennessee referenced

by the Audit Staff, OFP has pro-rated between the Committees the costs of

the fundraisers and travel thereto in accordance with the Commission's

regulations at II C.F.R. 9034.4. Indeed, when travel costs were related to

a dual fundraising purpose, the Primary Committee diligently followed the

Commission's procedure for allocating such expenditures between the

Primary Committee and the Compliance Committee. See II C.F.R.

9034.7.

"Thus, only $35,3 I7 is owed to the Compliance Committee. Also,

only $35,317 should be addcd to DFP's expenditures subject to the

spending limit and $10,860 is repayable to the U.S. Treasury."

Exhibit 7 to OFP's response consists of copies of documents such

as invoices, check requests and tissue copies ofthe checks that were reviewed during the

audit field work. These documents do not show that expenditures made by the GELAC

19
were exclusively for general election purposes. The only evidence of exclusive GELAC

activity is OFP's statement to that effect. Ouring the period in question the GELAC was

principally engaged in fundraising. In point offact, most ofthe fund-raising was done

jointly between GELAC and OFP. This fact seems to refute any claim of exclusivity.l"

As noted in the Memorandum, ofthe disbursements reclassified, salaries accounted for

$210,262 and overhead $115,302. The balance, $128,839, were for travel, including

some expenses related to attending the Republican National Convention, and the primary

share ofjoint solicitation costs. The reclassified expenditures were not as OFP suggests

in their response predominately "costs incurred for facilities and expanded work space."

OFP concedes that some ofthe costs associated the fund-raisers"

in Texas and Tennessee should have been allocated, including a portion ofthe related

travel expense. For the allocation oftravel expenses OFP cited II CFR §9034.7.

However that section deals primarily with the allocation oftravel costs between campaign

and non-campaign purposes and the use of government conveyance. Neither subject is

relevant to the matters at hand. All campaign travel in the primary period, ifit cannot be

exclusively attributed to the general campaign, is an expense ofthe primary campaign as

outlined at II CFR §9034.4(e)(7). Section 9034.4(e)(6) ofTitle II ofthe Code of

Federal Regulations states that the cost of communications that solicit contributions for

both the GELAC and the primary campaign will be allocated equally between the two.

Given these rules, the allocation ofthe fundraising and travel costs in the Memorandum is

correct. The solicitation (event) costs are allocated equally between OFP and the GELAC

and the travel costs are attributed to OFP.

Since OFP has not provided documentation demonstrating that

GELAC was exclusively engaged in activity related to the general election, the

conclusion remains that GELAC made substantial disbursements in the primary period on

behalf ofOFP. However, in a review ofthe documentation provided by OFP, an offset to

expenses paid for the Texas fund-raisers was identified. One half ofthis offset $521

($1,04272) was netted against the amount attributed to GELAC primary expenditures.

Further, it was determined that the salaries offundraising personnel could be included

among the cost ofthe joint solicitations. The amount ofthose salaries is $153,394 with

50%, or $76,697, being attributable to the GELAC. Therefore, the contribution is

$377,186 ($454,404 from the Memorandum-$52I refund-$76,697 in fundraising salaries)

"

20

While it is OFP's intention to apply the general rule found at 11 CFR 9034.4(e)(1), it fails to

establish the exclusivity of purpose required for its application. Instead OFP simply says that

GELAC is exclusively occupied with GELAC matters despite the fact that GELAC is mailing

joint solicitations and engaging in joint events for both the GELAC and OFP. Under such

circumstances, the brightline regulations at 11 CFR 9034.4(e)(3), (4), (6) and (7) apply.

OFP does not address the Lawyers for Oole fund raiser.

20
Recommendation

The Audit staffrecommended that the Commission determine that

pursuant to 11 CFR §9034.4(e), disbursements in the amount of$377,186 made by the

GELAC are attributable to DFP's spending limitation and that this amount is payable to

the GELAC by DFP.

The Commission approved the Staffrecommendation.

2. Primary Expenses Paid by Dole-Kemp '96

DolelKemp '96, Inc. registered with the Federal Election

Commission on May 3, 1996. As noted in the citations above, 11 CFR §9003.4 permits a

general election campaign to incur expenses prior to the beginning ofthe expenditure

report period, ifthose expenses are for property, services, and facilities to be used in the

general election campaign. Examples ofsuch expenditures include expenses for

establishing accounting systems and for organizational planning. This regulation must be

read in conjunction with II CFR §9034.4(e) which requires that expenses incurred by the

general election campaign before the beginning ofthe expenditure report period be

exclusively for the general election. Therefore, the campaign must be able to demonstrate

that any expenditure incurred by DK prior to the candidate's date of nomination, is

exclusively for the general election. Absent that demonstration the expenditure will be

attributed to the primary campaign.

Between June 17, 1996 and August 14, 1996, the beginning ofthe

expenditure report period, DK spent approximately $416,000. Ofthis amount, $278,562

was identified as having been for goods, facilities and services used in the primary period,

and for which the campaign has not demonstrated an exclusive general election purpose.

Included is $71,184 paid for rent and related expenses that is addressed in Finding III. D.

Headquarters Rent and Security Deposits. The balance ofthe pre-expenditure report

period DK disbursements include:

.. $58,786 for telephone service, installation, and equipment;

.. $80,288 for office furniture and equipment;

.. $36,173 for utilities;

.. $6,588 for collateral materials;

.. $11,552 for HQ security;

<II $8,550 for supplies;

21
• $4,186 for convention related expenses, and;

• $1,255 for miscellaneous expenses.

Accordingly, for the purposes ofthis finding, DK made primary

disbursements of $207,378 ($278,562 - $71,184) chargeable to the DFP spending

limitation.

At the close offieldwork, DFP was provided a schedule ofDK

expenditures identified as having been made on behalf ofDFP. DFP provided

documentation in response, and where appropriate, adjustments were made to the total

presented above.

In the Memorandum, the Audit staffrecommended that DFP

provide documentation which would demonstrate that disbursements made by DK were

not primary related. For office and overhead expenses, the information submitted was to

demonstrate that the facilities were being used by persons working exclusively on the

general election (11 CFR §9034.4(e)(3)). For all other expenses, the material submitted

was to establish that the goods and services were used in the Expenditure Report Period.

Absent such a showing, the Audit staffstated that it would recommend that the

Commission determine that $207,378 paid by DK represent primary expenses, are

attributable to the DFP spending limitation, and an equal amount is due to DK.

DFP responded to the Memorandum as follows:

"Expenditures made prior to the date ofthe Republican party

convention are allocated to the general election ifthose expenditures were

made exclusively for general election purposes. 11 C.F.R. §

9304.4(e);[sic] Financial Control and Compliance Manual For

Presidential Primary Candidates Receiving Public Financing Chapter 1,

Section C(2)(c). The attached documents make clear that the expenditures

singled out by the Audit Staff were for facilities, including furniture,

supplies, and equipment and the build-out ofthe office space necessary to

accommodate the larger campaign staff, obtained for the general election.

See Exhibit 8. As Andrea Mack, the campaign's Deputy Director for

Administration, explains in the attached statement, the general election

committee had to begin preparation for the general prior to the date of

Senator Dole's nomination so that the Committee staff would have

facilities and equipment with which to work once the general election

campaign began. See Exhibit 9. Thus, given the exclusive general

election purpose for which almost all of the pre-convention expenditures

were made, they must be attributed to the general election.

22
"Upon review of the items in question, the Committee has

determined that $1,543.16 should have been paid by Dole for President.

The remaining $262,054.65 is not owed to Dole/Kemp. Also, this amount

should not be added to DFP's expenditures subject to the spending limit

and $80,581.80 is not subject to repayment to the U.S. Treasury."

The documentation provided at Exhibit 8 consists of copies of

invoices with the associated check requests and tissue check copies. It is the same

documentation that was originally reviewed to ascertain that DK had made disbursements

on behalf ofDFP. To paraphrase DFP, the attached documents not only single out

expenditures made for facilities, including furniture, supplies, and equipment and the

build-out ofthe office space necessary to accommodate the larger general election

campaign staff, they, more to the point, single out disbursements made within the primary

period where exclusive general election use has not been demonstrated. Andrea Mack's

statement at exhibit 9 explains that the campaign was in the process of gearing up for the

general election. Implicit in Ms. Mack's memo is Senator Dole's status as the

presumptive nominee.

There can be no doubt that the campaign was engaged in

preparations for the general election during July and August of 1996. Given the

Senator's travel schedule and the necessary preparations for the convention, there is also

no doubt that the primary campaign was continuing. It is important to note that the 11

CFR §9034.4(e), as previously discussed, was instituted to simplifY the allocation of

expenses between the campaigns for both the Commission and the campaigns.

According to that regulation, unless the campaign can establish and document that a

discrete group of employees occupying a discrete portion of campaign headquarters were

engaged exclusively in general election preparation, all salary and overhead expenses up

to the date of nomination are primary expenses. Although DFP argues that the various

expenses enumerated above were exclusively for the general election, it must be noted

that none ofthe campaign staff was paid by DK prior to Senator Dole's nomination and

that DFP allocated the tenth floor renovations, which it maintains were exclusively

general, equally between itself and DK. DFP's share was paid by the RNC as a

coordinated expenditure. Available documentation does not support DFP's contention.

With respect to campaign materials that were purchased before the

date of nomination, they should have been purchased by DFP and any amounts that were

on hand could have been sold to DK at cost. (See 11 CFR §9034.4(e)(4)). The

"Financial Control and Compliance Manual for Presidential Primary Candidates

Receiving Public Financing," suggests that an inventory be prepared to support the

transfer. A similar procedure could be used for office supplies and materials. No

evidence of any such procedure has been provided.

In the audit report presented to the Commission, the Staff

concluded that, having failed to establish that the expenses enumerated above related

23
exclusively to the general election, overhead expense of$207,378, paid by DK in the

primary period, were correctly attributed to DFP.

Recommendation

The Audit staff recommended that the Commission determine that,

pursuant to 11 CFR §9034.4(e), disbursements in the amount of$207,378 made by DK

were attributable to DFP's spending limitation and that that amount is payable to DK by

DFP.

A subsequent analysis ofDK's expenditures questioned in this

finding identified disbursements in the amount of$114,391 for assets that, ifthey had

been properly acquired by DFP, would have been transferable to DK after the convention.

At the time ofthe transfer, DK would have reimbursed DFP 60% ofthe original cost of

the assets. Total disbursements made by DK on behalf of DFP is therefore reduced by

$68,635 [$114,391 x 60%J to $138,743.

The Commission determined that, pursuant to II CFR §9034.4(e),

disbursements in the amount of$138,743 made by DK are attributable to DFP's spending

limitation and that that amount is payable to DK by DFP.

3. In-Kind Contribution - Kemp for Vice President

Expenditures by KVP for campaign materials promoting the

Dole/Kemp '96 ticket, and their distribution at the Republican National Convention, were

questioned as possible in-kind contributions to DFp21 .

The Staff recommended that the Commission determine that DFP

received an in-kind contribution from KVP of$77,237 and that amount was attributable

to DFP's spending limitation.

The Commission rejected the Staff recommendation.

C. TELEPHONE EQUIPMENT LEASES AND PURCHASES

DFP obtained a number oftelephone systems from NTFC Capital

Corporation (NTFC). The Staff questioned the payment ofsome ofthe charges related to

these telephone systems by OK, the GELAC, and the RNC. Further, the handling of a

telephone system that was stolen, and the sale and repurchase of the telephone systems

21 For the full presentation and discussion ofthis issue see Agenda Documents 98-87 and 99-49,

Finding III.B.3. and the audio tapes of the Commission's Open Session meetings on the following

dates: December 3rd, 9th, and 10th 1998, January 14th and 28th, February 3rd and 25th, March

4th, and April 29, 1999.

24
between DFP and DK was questioned. Finally, amounts still due to NTFC were

questioned as contributions by NTFC2l.

The Staffrecommended that the Commission determine that:

• The RNC made an in-kind contribution to DFP in the amount of$38,608

representing two installments on DFP's telephone system lease.

• DFP must pay DK $I8,628 related to the sale, repurchase, and valuation of

two ofthe telephone systems discussed above.

• DFP must pay the GELAC $2,123 for expenses that it paid on DFP's behalf.

• DFP understated expenditures subject to the spending limitation by $248,778

as a result ofthe transactions explained above.

After adjusting for the Commissions' acceptance ofthe RNC's

payment oftwo installments on Lease #48972 as coordinated [2 U.S.C. §44Ia(d)]

expenses, the Commission concluded that:

• A contribution had been received from NTFC and that $35,214 is

outstanding;

• DFP owes DK $39,118 as a result ofthe various transactions related to the

telephone systems;

• DFP owes the GELAC $2,123 as a result ofthe various transactions related

to the telephone systems; and,

• As a result ofthese conclusions and ofthe improper recording of other

transactions related to the telephone systems, DFP is required to add

$233,943 to its expenditures subject to its spending limitation.

D. HEADQUARTERS RENT AND SECURITY DEPOSITS

DFP leased office space from Union Center Plaza Associates Washington,

D.C. for its national headquarters. DFP's rent between March 1, 1995 and May 31, 1996

2' For the full presentation and discussion of this issue see Agenda Documents 98-87 and 99-49,

Finding IIl.C. and the audio tapes ofthe Commission's Open Session meetings on the following

dates: December 3rd, 9th, and 10th 1998, January 14th and 28th, February 3rd and 25th, March

4th, and April 29, 1999.

25
.;r.;, ••

Hi

was $28,382 per month. DFP expanded the office space it occupied in June 1996 and

again in July. The rent owed by DFP rose to $48,677 for June 1996 and to $96,275 for

July and August.1J In the review ofthe headquarters rent, three areas of concern were

identified. Rent due from DFP was partially paid by others. Construction work and

miscellaneous headquarters expenses incurred prior to the date of ineligibility were not

paid by DFP. Security deposits paid by DFP were not correctly reimbursed and

assigned14 •

The Staffrecommended that the Commission determine that

• DFP received an in-kind contribution from the RNC for rent and related costs in the

amount of$116,307.

• DFP should transfer $32,773 to DK, the net result ofthe amounts shown on the chart

above and that the transfer should be reported by both committees.

• the GELAC transfer $15,201 to DFP representing the net result of the amounts shown

on the chat presented above and that the transfer be reported by both committees.

• as a result ofthe transactions described above, expenditures subject to the spending

limitation were understated by $89,766 and that DFP should amend its disclosure

reports to reflect the additional amount.

As noted in the previous finding, the Commission accepted the RNC's

designation of certain coordinated [2 U.S.C. §44Ia(d)] expenses. Included among these

expenses were occupancy related expenditures of $116,307 made on behalf ofDFP. In

accepting the RNC's claim, the Commission rejected that portion ofthe Staff

recommendation that DFP received an in-kind contribution from the RNC for rent and

related costs.

By removing the occupancy related expenditures of$116,307, the

adjustment to the spending limitation is reduced by $95,229 ($116,307 x (1 - .181234)) to

-$5,462.

When the Commission considered the Staff recommendation with respect

to this matter, the revised adjustment to the spending limitation had been calculated. The

Commission approved the balance ofthe Staffrecommendation.

n The August rent actually owed by DFP was prorated at approximately 45% [(14.;. 31) x 100%].

For the full presentation and discussion of this issue see Agenda Documents 98-87 and 99-49,

Finding m.D. and the audio tapes ofthe Commission's Open Session meetings on the following

dates: December 3rd, 9th, and 10th 1998, January 14th and 28th, February 3rd and 25th, March

4th, and April 29, 1999.

26
;.

E. EXPENDITURES SUBJECT TO THE SPENDING LIMITATION

Sections 441a(b)(I)(A) and (c) ofTitle 2 ofthe United States Code state,

in part, that no candidate for the office of President ofthe United States who is eligible

under section 9033 to receive payments from the Secretary ofthe Treasury may make

expenditures in excess of $1 0,000,000 in the campaign for nomination for election to

such office as adjusted by the Consumer Price Index published each year by the Bureau

ofLabor Statistics ofthe Department ofLabor.

Section 9035(a) of Title 26 of the United States Code states, in part, that

no candidate shall knowingly incur qualified campaign expenses in excess ofthe

expenditure limitation applicable under section 441 a(b)(I)(A) ofTitle 2.

Section 9032.9(a) of Title 11 ofthe Code of Federal Regulations states, in

part, that a qualified campaign expense is one incurred by or on behalf ofthe candidate

from the date the individual became a candidate through the last day ofthe candidate's

eligibility; made in connection with his campaign for nomination; and neither the

incurrence nor the payment of which constitutes a violation ofany law ofthe United

States or the State in which the expense is incurred or paid.

Sections 9033.1 I(a) and (b)(I)(i) ofTitle II ofthe Code of Federal

Regulations state, in part, that each candidate shall have the burden ofproving that

disbursements made by the candidate or his authorized committee are qualified campaign

expenses as defined in 11 CFR §9032.9. For disbursements in excess of $200 to a payee,

the candidate shall present a canceled check negotiated by the payee and either a bill, an

invoice or voucher from the payee stating the purpose ofthe disbursement.

Sections 9034.4(e)(5) of Title 11 ofthe Code ofFederal Regulations

states, in relevant part, that the production costs for media communications that are

broadcast both before and after the date ofthe candidate's nomination shall be attributed

50% to the primary limitation and 50% to the general election limitation.

Sections 9038.2(b)(2)(i)(A) and (ii)(A) ofTitle 11 ofthe Code of Federal

Regulations state, in part, that the Commission may determine that amount(s) of any

payments made to a candidate from the matching payment account were used for

purposes other than to defray qualified campaign expenses. Further, an example ofa

Commission repayment determination under paragraph (b)(2) includes determinations

that a candidate, a candidate's authorized committee(s) or agents have made expenditures

in excess ofthe limitations set forth in 11 CFR §9035.

Section 9038.2(b)(2)(iii) ofTitle 11 of the Code of Federal Regulations

states, in part, that the amount of any repayment under this section shall bear the same

ratio to the total amount determined 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 of 90 days after the candidate's date of ineligibility.

27
Section 9038.2(b)(2)(v) ofTitle 11 ofthe Code of Federal Regulations

states, in part, that if a candidate or candidate's authorized committee(s) exceeds both the

overall expenditure limitation and one or more State expenditure limitations, the

repayment determination under II CFR §9038.2(b)(2)(ii)(A) shall be based on only the

larger of either the amount exceeding the State expenditure limitations(s) or the amount

exceeding the overall expenditure limitation.

I. Calculation of OFF's Expenditures Subject to the Spending

Limitation.

Generally, all qualified campaign expenses incurred by a candidate

receiving federal funds under 11 CFR §9035 are subject to the overall spending

limitation. There are, however, two categories of expenditures which are, within specific

guidelines, not included in the calculation ofthe total expenditures. They are exempt

fund-raising and exempt legal and accounting compliance expenses. All fund-raising

expenses, not to exceed twenty percent ofthe overall spending limitation, are exempt.

An amount equal to ten percent of all payroll, payroll taxes and overhead expenses may

be considered exempt legal and accounting compliance expense. A alternate allocation

method is available to committees which generally allows a larger exemption for legal

and accounting compliance expenses. After exempt compliance and fund-raising

expenses are deducted, a primary committee receiving matching funds for the 1996

election was permitted to incur expenditures of$30,910,000.

When audit fieldwork began, OFP, on its Post General 1996

disclosure report, reported expenditures in excess ofthe spending limitation. At the

entrance conference, on January 15, 1997, all work papers pertaining to the calculation of

the reported totals were requested. On June 6, 1997 allocation spreadsheets, the first of

two sets to be provided, were made available for review. When deficiencies were pointed

out to OFP representatives, their response was to provide more detailed allocation

spreadsheets on August 14, 1997. The timing ofthe receipt ofthe later spreadsheets

coincided with OFP's filing of amended disclosure reports for all report periods.

It was apparent from the allocation spreadsheets that OFP intended

to use the alternate method to calculate exempt compliance expense. But DFP provided

no documentation to support their claim of a 13% compliance exemption for headquarters

office overhead. It was not until August 28, 1997, that OFP made a available an internal

memo from July 1995 which suggested that the legal and accounting share of

headquarters office overhead were 4% and 9% respectively. This estimate was based on

relative square footage of office space, but never accounted for the expansion of

headquarters floor space which occurred beginning in May of 1996.

In addition to the application of the 13% compliance share ofthe

overhead for headquarters, OFP direct charged a portion of office supplies and equipment

as compliance expenses. It is presumed that already included in the compliance

28
percentage of all headquarters overhead are those charges which OFP also direct charged

to the same category. It was concluded that these direct charges to overhead constituted a

double count ofsome compliance overhead.

Because ofthe deficiencies outlined above, it was decided to

recalculate exempt compliance expenses for OFP. The legal and accounting compliance

share of headquarters office overhead was calculated to be 18.1234% based on the

headquarters office payroll. The disbursements database provided by OFP was

reconciled to bank records and to the latest OFP reports. Specific categories of

disbursements were drawn from the database and the exempt compliance disbursements

for 1995 and 1996 were calculated to be $1,870,544 and $1,694,081 respectively. The

maximum fundraising exemption of $6,182,000 was applied. The total disbursements

were adjusted for reconciling items such as offsets to expenditures, contribution refunds,

loan repayments and transfers to other affiliated committees. At August 14, 1996, the

Audit staff detennined that OFP had made expenditures of $32,120,870 subject to the

overall spending limitation.

2. Additions to Expenditures Subject to the Limitation from Other

Findings

The following amounts were discussed above and involve

additions and subtractions to expenditure subject to the overall spending limitation.

• $I00, 125 resulting from the improper reimbursement for the use of a privately

owned aircraft;[see Finding II.B.]

• $377,186 resulting from primary expenditures made on OFP's behalf by the

GELAC;[see Finding III.B.!.]

• $138,743 resulting from primary expenditures made on DFP's behalf by DK;

[see Finding III.B.2.]

• $233,943 resulting from the payment by DK, GELAC, RNC of portions of

DFP's obligation on the telephone system and the transfer ofsame to DK; [see

Finding III.C.]

• ($5,462) resulting from the payment by DK and GELAC of portions ofDFP's

rent and related obligations;[see Finding Ill.D.]

The amounts shown above have been revised to reflect

Commission action on each of the findings and recommendations discussed earlier in this

report.

29
3. Additions Resulting from Asset Transfers to DK and GELAC

a. Dole Supporter List:

OFP transferred supporter lists to OK in exchange for

$324,817 on May 31,1996. This represented OFP's calculation of half ofthe list

development costs. An additional $53,957 was wired on July 2, 1996 to OFP from OK.

A recalculation ofthe list value accounted for this transfer. In the documentation

accompanying the second payment, OFP and OK value the lists at 60% ofthe cost of

828,227 names at $.40 per name and 60% of estimated development costs of $300,000.

From this, the Audit staff concluded that OFP and OK regarded the lists as capital assets

and are transferring them as such under the provisions of 11 CFR 9034.5(c)(l).

However, OK neither reports a subsequent sale ofthe supporter list nor includes them as

an asset on OK's statement ofNet Outstanding Qualified Campaign Expenses.

Historically, campaign lists have not been included among capital assets because there is

a reluctance on the part ofthe Commission to require their sale in order to settle

campaign debt.

Using OFP's costs, their valuation ofthc supporter list is

approximately $.76 per name or $760 per thousand names. It should also be noted that

OFP representatives have maintained that the supporter list is not the OFP donor list.

Generally, a donor list is more valuable than a supporter list. One directory of mailing

lists offers political supporter lists for $55.00 per thousand. Clinton-Gore '96 contracted

with Names in the News/California, Inc., a list management company, to manage and

offer for public use the campaign's active donor list. The price charged was $80.00 per

thousand names, substantially less than $760 per thousand. Further, at the time the

memorandum was prepared DFP, despite numerous requests, had not provided any

documentation which establishes the number of names contained on the supporter list or

documented its cost calculation.

For these reasons, the Audit staff has not considered the

supporter lists to be capital assets. Therefore the proper valuation ofthe lists is fair

market value. Information gathered suggests that $760 per thousand names is many

times the fair market value. However, because the number of names had not been

established, at the time the Memorandum was prepared there was no way to attach even a

reduced valuation to the lists. As a result, the entire amount was considered to be due

from OK and no offset to expenditures subject to the limitation was allowed.

In the Memorandum it was recommended that OFP provide

documentation which demonstrates the number of names included on the supporter lists,

and provide evidence ofthe lists' fair market value. Absent such a demonstration, the

Audit staff intended to recommend that the Commission determine that OFP received an

in-kind contribution from DK and that OFP repay $378,774 to OK and add $378,774 to

its spending limitation.

30
DFP responded to the Memorandum as follows:

"As DFP explained in its previous response, it is standard industry practice

to establish a price per supporter name by dividing the total cost ofa

supporter program by the total number of names generated by such

program. See statement attached at Exhibit 13. As the Audit Staff

requested, DFP has attached records documenting that the total number of

names generated by the Dole Supporter program was 876,087. Id. Thus at

$0.40 per name, these documents establish that the $350,435 was the fair

market value ofthe list.

"Thus only $28,340 should be added to DFP's spending limitation and

$8,714.55 must be repaid to the U.S. Treasury."

DFP cites the memo (Exhibit 13] from Campaign Tel Ltd

(CTL) which notes that "the .40 cent pricing ofthe 1996 records" is a "price as any other

industry 'price per record' is based on the following formula: Total cost ofprogram

dollar amount divided by the number offavorables generated." CTL goes on to state that

this, referring to the derivation ofthe unit cost, is an industry standard. DFP citing this

industry standard, reverses the derivative process by multiplying the number ofnames on

the lists by the "industry standard" .40 cents and arrives at the cost ofthe list and then, in

a non sequitur, equates this unit cost with the fair market value. At no point in its memo

does CTL address fair market value let alone suggest that a cost of.40 cents per name is a

reflection offair market value.

Fair market value ofa list is not determined by the cost but

rather by what someone is willing to pay for the use ofthe list. The SRDS Direct

Marketing List Source, June 1998, Volume 32 Number 3, a catalog ofthousands of

available lists, was consulted to make a determination ofthe valuation oflists comparable

to the Dole supporter lists. Donor lists, which the Dole supporter list is not, were first

considered.2s The "Republican-Solid GOP Donors" list is currently available for $100.00

per thousand names [$0.10 per name]. The Dole Donors ($5 to $500) list is currently

valued at $125.00 per thousand [$0.125 per name]. The "Dole Signature Series Donors"

list, comprised of donors to various conservative and government reform, veterans and

charitable appeals, signed and endorsed by Senator Dole, is available for $85.00 per

thousand [$0.085 per name]. In the category ofsupport lists, there is a "Run Pat Run!"

list ofsupporters of Pat Buchanan which is available for $100.00 per thousand. Based on

this and the market value ofthe Clinton campaign's donor lists as discussed above, the

Dole supporter lists cannot be reasonably valued at more than $100 per thousand names.

As requested in the Memorandum, DFP included in its response documentation from

25 It should be noted that donor lists are generally perceived to be more valuable than supporter lists.

31
CTL which listed the total number ofnames on the list as 876,087.26 Accordingly, the

estimated fair market value at which the list may have been transferred to DK is not more

than $87,609 (876,087 names multiplied by $100.00 per thousand names).

Recommendation

The Audit staffrecommended that the Commission

determine that DFP received a contribution from DK of$291,165 ($378,774 - $87,609),

that DFP be required to repay $291,165 to DK, and add $291,165 to DFP's spending

limitation.

The Commission adopted the Staff recommendation with

the following stipulation. They directed that the valuation assigned to the lists be equal to

half ofthe list cost documented, $150,000 ($300,000 x 50%). Thus, DFP received an inkind contribution in the amount of $228,774 ($378,774 - $150,000), DFP is required to

repay $228,774 to DK, and must add $228,774 to DFP's spending limitation.

b. Film Footage:

DFP transferred film footage to DK on May 31, 1996 for

$266,086. The valuation ofthe transfer was later reduced to $189,081 and an appropriate

amount was refunded. The amount paid represented one half ofthe production costs as

calculated by DFP, $155,942, and one half of associated focus group costs equal to

$33,139, for 14 ofDFP's commercials that were also used by DK.

Documentation provided shows that fourteen primary

commercials were transferred to DK. Records also establish that each was broadcast at

least once in the general election period. Examples ofplacements were "Historic

Reforms" shown once at 6:18 A.M. on September 18, 1996, in Bismarck, North Dakota

and "American Hero" shown once at 7:35 A.M. on September 16, 1996, in Sioux City,

Iowa. For an expenditure ofonly $455, DK ran all fourteen commercials and met the

requirement for primary and general cost sharing.

The documentation failed to establish a connection between

the commercials and some ofthe production costs. The Audit staff could only associate

$54,193 ofthe production costs with the commercials used by DK. Similarly, $28,684 of

the focus group costs were associated with the commercials. Thus, DFP transferred

$101,749 ($155,942 - $54,193) in production costs and $4,455 ($33,139 - $28,684) in

26 The number of names attributed to the list by DFP has not been a constant. Each time the lists

were valued, the number has changed. When the lists were transferred on May 27,1996 to DK,

transfer documentation stated that the lists contained 874,085 names. When the transfer was

adjusted on July 2, 1996, the supporting calculation indicated that there were 828,227 names on

the lists.

32
focus costs more than supported. In this transaction, DFP received $106,204 ($101,749 +

$4,455) in excess ofthe asset value transferred to DK.

Based on the documentation made available at the time the

Memorandum was prepared, DFP owed DK $106,204 and an equal amount needed to be

added to DFP's expenditures subject to the spending limitation.

In the Memorandum it was recommended that DFP provide

documentation which would show the connection between the remaining production and

focus group costs and a specific commercial. Absent such a demonstration, the Audit

staff intended to recommend that the Commission determine that DFP received an inkind contribution from DK, that DFP must repay $106,204 to DK, and add $106,204 to

its spending limitation.

OFP responded to the Memorandum as follows:

"DFP has attached invoices that demonstrate that twelve ofthe fourteen

advertisements whose production costs were assessed to Dole/Kemp were

aired during the general election. See Exhibit 14. There has been some

confusion generated by the remaining two ads because the production code

numbers assigned to those ads changed after the ads were edited by the

primary committee, but the original pre-edit code numbers were used

when the ads were transferred to the general committee. DFP has attached

contemporaneous memoranda that establish that the remaining two ads

transferred to Dole/Kemp whose production costs were charged to

Dole/Kemp were also aired by during the general election. Id. Thus,

$106,204 should not be added to OFP's spending limit, nor must OFP

repay $32,657.73 to the U.S. Treasury."

It is not clear to what confusion OFP is alluding in its

response. Earlier, during fieldwork, a question had been raised about three commercials

that were not identified on the television station invoices. The answer provided at the

time was essentially the same as in the response. The Memorandum acknowledged that

all 14 commercials had been run by OK.

OFP did not address the underlying problem in its response

to the Memorandum, that is the lack ofdocumentation which would establish a direct

connection between the film production costs and the commercials run. Ofthe $311,883

in total production costs, only nine ofthirty-four invoices in amounts totaling $108,384

had been specifically identified with any ofthe fourteen commercials in question. It

appears that a portion ofDFP's library offilm footage is being attributed to these

commercials as well. The cost of establishing a library offilm footage is not part ofthe

cost of producing these particular commercials. To permit such a calculation would

require a recalculation of the cost of a particular commercial each time a portion ofthat

33
footage was used by either the primary or the general election campaign. No

documentation was provided that would warrant an increase in the amount ofthe

production costs to be transferred to DK. Similarly, DFP identified focus group costs of

$66,281 which it maintains were related to the production ofthe commercials. Ofthis

amount, $57,369 ofthe costs could be identified with the fourteen commercials from the

description on the documentation provided. Again, no new documentation was provided

which would indicate that the balance spent for the focus group work was connected with

these commercials. Accordingly, no increase in the value ofthe focus group work to be

reimbursed by DK is indicated.

Recommendation

The Audit staffrecommended that the Commission

determine that $101,749 ($155,942 - $54,193) in production costs and $4,455 ($33,139-

$28,684) in focus group costs were improperly reimbursed to DFP by DK. It was further

recommended that DFP be required to return the amounts to DK and that an equal

amounts be added to DFP's expenditures subject to the spending limitation.

The Commission approved the Staffrecommendation.

c. Improperly Valued Assets:

A review ofthe asset transfers by DFP to DK and the

GELAC identified assets reportedly transferred by DFP, for which no documentation of

DFP's acquisition could be found and in one instance where the transfer value exceeded

the documented value by $20,000.

On July 31, 1996, DK paid DFP $8,546 for these assets. In

addition DK over paid DFP for a copier by $20,000. On August 22, 1996, the GELAC

paid DFP $24,055 for undocumented assets.

At the close offieldwork, DFP was provided with a

schedule ofthe specific assets for which documentation could not be found or were over

valued according to the. available documentation. DFP responded that it had paid for

every asset it had used or transferred, but did not supply any additional documentation.

In the Memorandum it was recommended that DFP provide

documentation which would demonstrate its acquisition ofthese assets and their cost.

Absent such a demonstration, it was stated that the Audit staff would recommend that the

Commission determine that DFP was required to repay $28,546 to DK, $24,055 to the

GELAC, and that $52,601 be added to DFP's spending limitation.

DFP responded to the Memorandum as follows:

34
"DFP has no additional documentation at this time, leaving $28,546

payable to Dole-Kemp '96, $24,055 payable to the GELAC and $52,601

added to the spending limit.."

Recommendation

The Audit Staffrecommended that the Commission detennine that

DFP is required to repay $28,546 to DK and $24,055 to the GELAC, and that an

additional $52,601 is applicable DFP's spending limitation.

4.

The Commission approved the Staff recommendation.

Miscellaneous Adjustments to Expenditures Subject to the

Spending Limitations:

a. DFP received five offsets totaling $684,616 from either DK

or GELAC for the transfer of assets, for which 18.1234% ofthe original cost has been

excluded from expenditures subject to the spending limitation as a compliance related

expenses. The offsets should be applied to expenditures subject to the limitation in the

same ratio as the original expenditures. DFP offset expenditures subject to the limitation

for the full amount. The offset total must be reduced by $169,200, the amount paid for

the headquarters telephone system because it was adjusted for in calculations found at

Finding IILC. Accordingly, 18.1234% or $93,411 «$684,616-$169,200) x 18.1234%)

should be added to expenditures subject to the limitation.

b. During the expenditure report period, GELAC paid USAir

for a DFP obligation in the amount of $5,073 and reimbursed DFP $16,967 for primary

expenses. These must also be added back to expenditures subject to the limitation.

c. Offsets received after Senator Dole's nomination totaling

$597,154 by DFP and $6,145, received by DK for expenses originally paid by DFP, may

be subtracted from expenditures subject to the spending limitation.

d. A payment by DFP, after Senator Dole's nomination, for

air charter services of$6,350 which were applicable to DK should also be subtracted

from expenditures subject to the spending limitation.

5. Summary of Amounts Chargeable to the Spending Limitation

The effect ofthe adjustments to the DFP spending limitation are as

shown below. The amounts on the chart have been adjusted to reflect Commission action

on findings appearing earlier in this report.

35
Expenses subject to the limitation through DOl,

August 14, 1996:

ADD:

In-Kind use of Air Plane (p.7)

RNC 441 a(d) in-kind contribution

RNC SalarylReimbursement in-kind contribution

RNCMedia

RNC Polling

GELAC 1996 primary expenditures (p.17)

DK primary expenditures (p.20)

Kemp for Vice-President

NTFC adjustment to spending limit (p.24)

Occupancy adjustment to limit (p. 25)

DolelKemp - Lists (p.29)

DolelKemp- File Footage (p. 32)

DolelKemp- Focus Groups (p.32)

Transfer ofincorrectly valued Assets (p.34)

Asset Transfer Adjustment (p.34)

GELAC paid DFP USAir expense (p. 35)

GELAC reimbursed Primary Expense (p.35)

LESS:

Operating Offsets Post Date ofNomination (p.35)

Offsets Paid DK, but Owed to DFP (p. 35)

DK Air charter Expense paid by DFP (p. 35)

Expenditures subject to the primary spending

limitation:

Subtract Adjusted Primary Spending Limit

Expenditures in Excess ofthe Spending Limitation:

$32,120,870

100,125

°

°

°

377,186

°

138,743

233,943°

(5,462)

228,774

101,749

4,455

52,601

93,411

5,073

16,967

(597,154)

(6,145)

(6,350)

$32,858,786

($30,910,000)

$1,948,786

In the Memorandum it was recommended that DFP demonstrate

that it had not exceeded the spending limitation at 2 U.S.C. §441a (b)(l)(A). Absent such

a demonstration the Audit staffintended to recommend that the Commission determine

that DFP exceeded the limitation and that DFP be required to make a repayment to the

United States Treasury.

In addition to the responses to specific categories of expenses

discussed elsewhere in this report, DFP responded to the Memorandum as follows:

"To the extent that the Committee may have exceeded the spending limit,

that amount, according to the Committee's calculations, would be not

more than approximately $1.5 million."

36
While DFP has acknowledged that it exceeded the spending limit

by approximately $1,500,000, it provided no documentation which would detail and

explain the its calculation ofthis amount.

Recommendation

The Audit staffrecommended that the Commission determine that

DFP exceeded the overall spending limitation at 2 U.S.C. 44la (b)(I)(A) by $9,372,323

and that $2,474,953 was repayable to the United States Treasury.

After accounting for the various Commission determinations noted

above, the Staffrecommended that the Commission determine that DFP exceeded the

overall spending limitation at 2 U.S.C. 441a (b)(l)(A) by $1,948,786 and that $588,956 17

was payable to the United States Treasury.

The Commission voted on three separate motions that were

relevant to this recommendation. First, as noted at Section III.A.4., supra, a motion was

made that, in part, stated the Commission would make no repayment determinations

based on alleged overall excessive spending by candidates receiving presidential primary

matching funds. That motion failed to receive sufficient votes to be approved (3-2, with

one abstention). Second, a motion was made to adopt the Staffrecommendation

including the repayment determination. That motion also failed to receive sufficient

votes to be adopted on a 3-3 vote. Finally, a motion was adopted on a 6-0 vote to

determine that DFP had exceeded the spending limitation by $1,948,786, but without a

repayment determination.18

F. ALLOCATION OF STATE EXPENDITURES

Section 9035(a) ofTitle 26 ofthe United States Code states, in part, that

no candidate shall knowingly incur qualified campaign expenses in excess ofthe

expenditure limitation applicable under section 441a(b)(l)(A) ofTitle 2.

Sections 9038.2(b)(2)(i)(A) and (ii)(A) ofTitle 11 ofthe Code of Federal

Regulations state, in part, that the Commission may determine that amount(s) of any

payments made to a candidate from the matching payment account were used for the

purposes other than to defray qualified campaign expenses. Further, an example of a

17

28

According to II CFR §9038.2(b)(2)(v), should a candidate be determined to have exceeded both

the overall and the state expenditure limitations, only the greater ofthe two amounts would be

subject to repayment.

For the full presentation and discussion ofthis issue see Agenda Documents 98·87 and 99-49,

Finding IIl.A. to IIl.E. and the audio tapes ofthe Commission's Open Session meetings on the

following dates: December 3rd, 9th, and 10th 1998, January 14th and 28th, February 3rd and

25th, March 4th, and April 29, 1999.

37
Commission repayment determination under paragraph (b)(2) includes determinations

that a candidate, a candidate's authorized committee(s) or agents have made expenditures

in excess ofthe limitations set forth in 11 CFR §9035.

Section 9038.2(b)(2)(iii) ofTitie 11 ofthe Code of Federal Regulations

states, in part, that the amount of any repayment under this section shall bear the same

ratio to the total amount determined to have been used for non qualified campaign

expenses as the amount ofmatching funds certified to the candidate bears to the

candidate's total deposits, as of90 days after the candidate's date ofineligibility.

Section 9038.2(b)(2)(v) ofTitle II ofthe Code ofFederal Regulations

states, in part, that if a candidate or candidate's authorized committee(s) exceeds both the

overall expenditure limitation and one or more State expenditure limitations, the

repayment determination under 11 CFR §9038.2(b)(2)(ii)(A) shall be based on only the

larger of either the amount exceeding the State expenditure limitations(s) or the amount

exceeding the overall expenditure limitation.

Sections 441a(b)(l)(A) and 44 Ia(c) ofTitie 2 ofthe United States Code

state, in part, that no candidate for the office of President ofthe United States who is

eligible under Section 9033 ofTitle 26 to receive payments from the Secretary ofthe

Treasury may make expenditures in anyone state aggregating in excess ofthe greater of

16 cents multiplied by the voting age population ofthe state, or $200,000 as adjusted by

the Consumer Price Index.

Section 106.2(a)(I) ofTitle 2 ofthe Code of Federal Regulations states, in

relevant part, that for Presidential primary candidates receiving federal matching funds

pursuant to 11 CFR parts 9031 et seq, expenditures described in 11 CFR §106.2(b)(2)

shall be allocated to a particular State ifincurred by a candidate's authorized

committee(s) for the purpose ofinfluencing the nomination ofthat candidate for the

office of President with respect to that State. An expenditure shall not necessarily be

allocated to that state in which the expenditure is incurred or paid. In the event that the

Commission disputes the candidate's allocation or claim of exemption for a particular

expense, the candidate shall demonstrate, with supporting docwnentation, that his or her

proposed method of allocating or claim of exemption was reasonable.

Section I06.2(b)(I) of Title 2 ofthe Code of Federal Regulations states, in

part, that unless otherwise specified under 11 CFR §106.2(b)(2), an expenditure described

in 11 CFR §I06.2(b)(2) and incurred by a candidate's authorized committee(s) for the

purpose ofinfluencing the nomination ofthat candidate in more than one State shall be

allocated to each State on a reasonable and uniformly applied basis.

Sections 106.2(b)(2)(i), (ii), (iii), (iv) and (v) ofTitle 2 of the Code of

Federal Regulations state, in relevant part, that media costs, mass mailing costs, overhead

costs less a 10% compliance exemption, special telephone program costs and polling

costs are allocable to state spending limitations.

38
Section 110.8(c)(2) ofTitle 2 ofthe Code of Federal Regulations states, in

part, that the candidate may treat an amount that does not exceed 50% ofthe candidate's

total expenditures allocable to a particular State under 11 CFR §106.2 as exempt

fundraising expenses, and may exclude this amount from the candidate's total

expenditures attributable to the expenditure limitations for that state. The candidate may

treat 100% ofthe cost ofmass mailings as exempt fundraising expenses, unless the mass

mailings were mailed within 28 days before the state's primary or caucus. The total of all

amounts excluded for exempt fundraising expenses shall not exceed 20% ofthe overall

expenditure limitation.

For the 1996 election cycle, the state spending limitation for Iowa was

$1,046,984 (16 cents multiplied by the Iowa voting age population of2,117,000 and

adjusted for the cost ofliving by a factor of 3.091). DFP reported expenditures allocable

to Iowa of $1,040,306. 29 The Audit staffreviewed and verified the accuracy of a sample

of disbursements appearing on a detailed schedule ofIowa allocable expenditures

provided by DFP. That schedule supported the amount reported by DFP as allocable to

the Iowa spending limitation. The schedule proved to be reliable and therefore the Audit

staff accepted the reported amount as accurate for the items contained on the schedule. A

subsequent review of vendors from the allocation schedule and other vendors receiving

Iowa related disbursements, identified additional allocable expenses of$142,366.30

The additional allocable disbursements were made to 19 vendors, 18 of

whom had received other allocable payments and, were listed on DFP's Iowa expense

schedule. Almost all the individual disbursements comprising the $142,366 were

identified as allocable to Iowa on either the DFP's accounting system or on the

supporting documentation culled from the vendor files.

The purpose or characterization ofthe additional allocable expenditures

are as follows. 3

! Assorted Iowa overhead expenditures made to fifteen vendors for such

things as office supplies, event expenses, office utilities and printing totaled $85,638.

Allocable Iowa polling expenses totaled $41,742. Expenditures of$15,369 were made

for phone programs and related development costs.

29

)0

JI

On an amended report filed July 15, 1997, the OFP adjusted this figure by $1,147, reducing the

allocable Iowa disbursements to $ I,039, 159. Because no documentary support has been provided

to identify the disbursement or disbursements adjusted, the Audit staff continues to recognize the

earlier reported figure.

At the close of field work, the Audit staff provided the information as outlined in this finding to

DFP. This finding included preliminary calculation of additional allocable expenditures made by

DFP and subject to the Iowa spending limitation. As a result of material subsequently provided

by OFP, the figure for additional allocable expenses was reduced.

A mass mailing credit of $383 was identified and netted against the total additional allocable

expenses for Iowa.

39
No apparent pattern was found to the DFP's failure to include these

expenses in its reported Iowa expenditures subject to the spending limitation. The Audit

staff noted that DFP also omitted allocable expenses from its New Hampshire limitation

calculation. Additional allocable expenses for New Hampshire of approximately

$267,000 were identified. In a manner very similar to the Iowa allocations, the majority

ofthe vendors to whom additional allocable disbursements were made, had been itemized

on DFP's New Hampshire schedule for other allocable expenses. And again, as had

occurred in Iowa, the additional allocable expenses were generally identified in either the

DFP accounting system or on the supporting vendor documentation as expenses allocable

to New Hampshire. Only an over allocation of$270,591 for New Hampshire media

expenses, identified by the Audit staff, prevented DFP from exceeding the spending

limitation for New Hampshire.

The deficiency in the allocable amount reported by DFP for Iowa was not

the direct result of a failure of DFP's accounting system. As already noted, most ofthe

additional allocable expenses were clearly identified as such on either the supporting

documentation and in the general ledger. DFP accounting personnel demonstrated a clear

understanding of what constituted an allocable expense. Because no work papers

accompanied the schedule of expenses allocated to Iowa, the Audit staffwas not able to

evaluate the procedure used to aggregate the appropriate expenses and therefore cannot

explain why the DFP failed to properly include these disbursements.

An over allocation ofmedia expenses for Iowa, though much smaller than

the one found to have occurred in New Hampshire, was also identified by the Audit staff.

This amount, $14,257, was subtracted from the additional allocable amount. The actual

additional amount subject to the Iowa spending limitation after applying the 10%

overhead exclusion and then the 50% fundraising exemption was $59,772. Using the

accepted reported figure as the baseline, the Audit staff concluded DFP made

expenditures chargeable to Iowa spending limitation of$I,IOO,078 ($1,040,306 +

$59,772). Thus, DFP spent $53,094 in excess ofthe Iowa spending limitation

($1,100,078 - $1,046,984).

In the Memorandum, it was recommended that DFP provide

documentation which clearly demonstrates that disbursements subject to the Iowa

spending limitation did not exceed the limitation. It was explained that absent such a

demonstration, should the amount by which DFP's spending exceeded the state limitation

for Iowa be greater than the amount that its spending exceeded the overall spending

limitation, the Audit staff would recommend that the Commission determine that the DFP

be required to repay the U.S. Treasury $16,454 [$53,094 multiplied by the repayment

ratio as then calculated].

DFP responded as follows:

"The FEe auditors erroneously counted indirect polling expenditures

toward DFP's Iowa expenditure limit. These indirect costs were related to

40
activities that were analytical and strategic in nature and had overarching

implications for the campaign in all fifty states and not only in Iowa. See

attached statement ofBob Ward who was head ofpolling for the campaign

(Exhibit 2). Thus they are not allocable to the Iowa limit. Indeed, per

instructions from DFP, polling vendors broke down their bills according to

whether their services were directly related to Iowa or were indirect as

described above. See id. For example, invoices from Public Opinion

Strategies specified such indirect costs as "overhead." See attached

statement from Bob McInturff (Exhibit 3). The vendors provided these

overarching indirect services with the intent that they would provide

polling services to DFP throughout its entire national campaign."

DFP concluded that the audit inclusion in the calculation of expenses

allocable to Iowa ofindirect polling costs of $21 ,083, pager rentals of $1 ,054, database

preparation charges of $21 ,693 for phone numbers to be used in Iowa polling and

telemarketing, and travel costs of $1 0,609 incurred by a production company which was

responsible for putting on Dole events in Iowa was incorrect.

With respect to the issue of "indirect polling costs," DFP's intention is to

divide the cost invoiced for specific state polls into the basic cost of conducting the poll

and indirect costs (charges for services of a strategic and analytic nature] with the

consequence being that only the former expense is allocable while the latter is not. The

regulations at II CFR §106.2(b)(2)(v) note that expenditures incurred for the taking ofa

public opinion poll covering only one state shall be allocated to that state and included in

the costs to be allocated are the consultant's fees, travel costs, and other expenses

associated with the design and conduct ofthe poll. Clearly, the allocable cost attributed

to the cost ofconducting a poll would include strategic and analytic services connected

with the design of that poll. DFP has provided no documentation which suggests the

charges invoiced for these Iowa polls were charges for anything other that the

consultant's fee, travel costs or other expenses associated with the design of or the

conducting ofthose polls.

Perhaps, had DFP received no other such strategic and analytic services

from either ofthe two vendors in question, a case might be made for breaking out a

portion ofthese polling costs as representing such a service. But in fact, one vendor,

under contract to DFP, was receiving a monthly consulting fee in exchange for "general

and technical consulting services, advice and counsel on campaign strategies, election

techniques, scheduling, media events, and advertising." The other vendor received

$146,737 for services (not allocated] which presumably included work ofa strategic and

analytic nature which had "overarching implications for the campaign in all fifty states."

While there is no doubt that DFP paid for and received strategic and analytical services

from these vendors which were not state specific and therefore not allocable, nothing on

the invoices for the Iowa polls indicates that the charges were for anything other than the

design and implementation of the poll which must, according to the regulations, be

allocated to the Iowa state spending limit.

41
All rental fees for pagers leased in Iowa were included in the audit

calculation of expenses allocated to Iowa. Invoices for the pagers indicate that they were

leased and used in Iowa. Although DFP allocated a portion ofthe pager rental fees, they

did not allocate the rent for the pagers used by the advance staff on the grounds that the

advance staff used the pagers in states other than Iowa. In its response, DFP provided no

documentation which indicates that these pagers functioned outside ofIowa, let alone

were in fact used by the advance staff outside ofIowa. Thus all ofthe pager rental

expense incurred in Iowa remains allocable to the Iowa state expenditure limitation.

DFP states that the database work provided by Strategic Planning is not

allocable to Iowa. The allocable expenses identified by the Audit staff included only

invoiced charges for the development ofIowa phone lists. All costs related to the design

and implementation of a telephone program are allocable to the state in which the

program is to be conducted. It would seem that the costs ofthe compilation oflists of

phone numbers are costs related to the design of a telephone program and thus are

allocable to the particular state. Because DFP provided no documentation which

indicated that the development ofIowa phone lists as described on the various invoices

was not a part of an Iowa state phone program, the expenditure must be included in

amounts allocable to the Iowa state expenditure limitation.

DFP wishes to exclude from allocation the travel expense of TKO

Productions, a vendor who provided support services for numerous Iowa campaign

events. This vendor is not an employee ofthe campaign and therefore any transportation

expense it incurs is a cost oftheir doing business. As a cost of doing business and

providing a service, it is naturally included in the total cost ofthe services provided and

logically included in the event overhead cost. As an event overhead expense in a

particular state, it must be allocated to expenditures subject to the spending limitation for

that state.

DFP's response provides no reason to modifY the original finding that

DFP spent $53,094 in excess ofthe Iowa spending limitation ($1,100,078 - $1,046,984).

Recommendation

The Audit staff recommended that the Commission determine that DFP

exceeded the state spending limitation at 2 U.S.C. §441a (b)(I)(A) and §441a(c) by

$53,094 and that $14,087 was repayable to the United States Treasury.

The Commission approved the Staffrecommendation that it find that DFP

exceeded the state expenditure limit for Iowa by $53,094. However, as noted in the

42
previous finding, the Commission declined to determine that any repayment was due as a

result of excessive spending. Jl

G. DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONSSURPLUS

Section 9034.5(a) ofTitle II ofthe Code of Federal Regulations requires

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

statement of net outstanding campaign obligations which contains, among other things,

the total of all outstanding obligations for qualified campaign expenses and an estimate of

necessary winding down costs. Subsection (b) ofthis section states, in part, that the total

outstanding campaign obligations shall not include any accounts payable for nonqualified campaign expenses.

Section 9038.2(b)(4) ofTitle II ofthe Code of Federal Regulations states,

in part, that the Commission may determine that the candidate's net outstanding

campaign obligations, as defined in II CPR §9034.5, reflect a surplus.

Senator Dole's date ofineligibility was August 14,1996. The DFP filed a

Statement ofNet Outstanding Campaign Obligations (NOCO) which reflected a $24,623

surplus at August 14, 1996. The Audit staff reviewed DFP's financial activity through

July 31, 1998, analyzed estimates of winding down costs prepared by DFP and developed

the figures shown below. Also, Commission determinations with respect to findings

discussed in previous sections ofthis report are reflected in the NOCO Statement. Those

adjustments had been made when the Commission considered the Staffrecommendation

relative to surplus funds.

JZ According to 11 eFR §9038.2(b)(2)(v), should a candidate be determined to have exceeded both

the overall and the state expenditure limitations, only the greater of the two amounts would be

subject to repayment.

43
Dole For President Committee, Inc.

.Statement ofNet Outstanding Campaign Obligations

as ofAugust 14, 1996 as determined July 31,1998

ASSETS

Adjusted Cash in Bank $ 2,782,131

•

r!~

i ru

Accounts Receivable

Interest

Press

Secret Service

Vendor Refunds

Due From DK

Due From GELAC

Due from Multi Media

Total Accounts Reveivable

Total Assets

OBLIGATIONS

Accounts Payable for Qualified

Campaign Expenses

DueToDK

Due ToGELAC

Total Accounts Payable

Wind down Costs:

(b)

(e)

(d)

(e)

(f)

10,072

420,867

164,816

303,842

664,429

1,360,056

66,165

(1,193,444)

(574,158)

(426,280)

2,990,247

5,772,378

(2,193,882)

(g)

(h)

Actual 12/6/96-7/3 1/98

Estimated Wind down After 7/31/98

Total Wind down

Due to the U.S. Treasury-Stale Dated Checks

Total Obligations

Net Outstanding Campaign Obligations - Surplus

44

(2,161,132)

(275,000)

(2,436,132)

(225,536)

(4,855,550)

$ 916,828
(a) Outstanding checks issued prior to the date of ineligibility and determined to be stale-dated have been added back to the

cash in bank figure.

(b) Due From DK for

Bell Atlantic Refund orDeposit

Bell Allantic & Amerilech Refunds

Sale Non Capital Assets - post doi

Sale Capital Assets - post doi

Repurchase of CD's Redeemed By OK

Asset Repurchase on 7/27/97 of cquipment from OK was not recognized. The total was $166,427.

The remainder is included in the amount due to DK for telephone costs. That amount is anet ofseveral

adjustments. [See finding III.C.]

DK Travel Exp Paid by OFP

Av Atlantic Overpayment

DK expense paid duming wind down

OK Air Charter Expensc Paid by DFP

(c) Due From GELAC for:

GELAC Share of Wind down. DFP paid all wind down costs post December 5, 1996. Onc half of the

wind down expense should bc paid by OK or GELAC.

GELAC paid the 11/30/96 and thc 12/13/96 payrolls and was incorrectly reimbursed by DFP. Included

in this adjustment is the entire 11/30/96 payroll, and halfofthe 12/13/96 payroll. The remainder of

the 12/13/96 payroll is wind down and is addressed as a part ofwind down expense above.

OFP Deposit Refunds Rec. by GELAC .

Sale Non-Capital Assets to GELAC - post DOl

Sale Capital Assets 10 GELAC - post DOl

20,000

6,145

55,049

221,900

201,756

58,355

3,688

80,316

10,870

6,350

664,429

1,070,801

186,978

15,201

42,600

44,476

1,360,056

(d) The expenditures addressed in Finding 1II.H.!.a., were paid after the date ofineligibility. Therefore Ihey have been

excluded from Accounts Payable for Qualified Campaign Expenses.

(e) Due To DK for:

Pre 001 Expenses Paid By DK See Finding 111.B.2.

Telephone Expenses See Finding III.C.

Focus Group Expenses See Finding m.E.3.b.

Film Footage Sec Finding III.E.3.b.

Supporter Lists Sec Finding m.EJ.a.

Undocumenled Assellransfer 017/31/96 & 8/22/96 10 OK See Finding III.E.3.c.

Rent Expenses See Finding III.D.

(I) Due To GELAC for:

Primary Expenses Sec Finding I1I.B.1

OFP Expenses Reimbursed By GELAC See Finding m.E.4.b.

U.S. Air Expense See Finding m.E.4.b.

GELAC Phone

D&B fees paid by GELAC in Wind down period

Undocumented Asset transfer of7/31/96 & 8/22/96 to GELAC See Finding Ill.E.e.

(g) This represents the wind down cost paid by the Primary Committee.

(138,743)

(39,118)

(4,455)

(101,749)

(228,774)

(28,546)

(32,773)

(574,158)

(377,186)

(16,967)

(5,Q73)

(2,123)

(876)

/24,0551

(426,280)

(h) Consistent with the position taken by the Audit staff at Finding m.G.!.b.that DFP was responsible only for winding

down expenses related to it, the winding down estimate of$550,000 provided for both DFP and DK was halved and

entered as $275,000.

45
Section 9038.3(c)(I) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that if on the last day of candidate eligibility the candidate's net outstanding

campaign obligations reflect a surplus, the candidate shall within 30 days ofthe

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

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

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

total amount received by the candidate from the matching payment account bears to the

total deposits made to the candidate's accounts.

The Audit staffs calculation ofDFP's Net Outstanding Campaign

Obligations as ofAugust 14, 1996, as revised to reflect the Commission's actions with

respect to other findings in this report, shows it to have been in a surplus position in the

amount of $916,828 and that, $283,481 ($916,828 x .30919833) is repayable to the U.S.

Treasury.

In the Memorandum it was recommended that DFP provide evidence that

its Statement ofNet Outstanding Campaign Obligations did not reflect a surplus or that

the surplus was a lessor amount. At the time the Memorandum was prepared the amount

ofthe surplus was calculated to be $243,248. Absent the presentation such evidence, the

Audit staffstated that it would recommend that the Commission determine that an

proportional amount ofthe surplus is repayable to the United States Treasury pursuant to

11 CFR §9038.3(c)(I).

DFP responded to the Memorandum as follows:

"DFP has reviewed its statement of net campaign obligations and has

found no surplus. Indeed, total monies available to DFP are addressed in

the conclusion."

The principal reason for the increase in the amount ofthe surplus between

the the Memorandum and the calculation shown above, has to do with the estimate of

remaining winding down costs. In the Memorandum calculation the entire estimate was

included on the DFP NOCO Statement. It has been learned that, consistent with DFP's

position on other wind down costs, the estimate covered both DFP and DK. Consistent

with the calculation of other wind down costs discussed below, the amount has been

reduced to one half ofthe total to reflect the DK share ofthe costs [See Finding III.H.l.b.

below].

Other than insisting in its response to Finding III.H.1.b that it was properly

funding all wind down expenses from primary funds, DFP provided no documentation to

support its contention that it has found no surplus. Of course, if DFP was permitted to

3J This figure (.309198) represents the Committee's repayment ratio as calculated pursuant to II

CFR §9038.3(c)(1). (see explanation at footnote #17]

46
fund all of wind down, including DK's obligations, there would be no surplus funds. But

because DFP may only pay wind down attributable to the primary campaign, it is in a

surplus position.

Contrary to DFP's claim, "total monies available to DFP" is not addressed

in the conclusion ofits response. Indeed, the conclusion merely states that" ...to the

extent the Committee may have exceeded the spending limit, that amount, according to

the Committee's calculations, would be no more than approximately $1.5 million." It is

unclear what DFP meant to communicate by its inclusion of a reference to "total monies

available" or what effect this might have on its claim that net outstanding campaign

obligations do not indicate a surplus.

Recommendation

The Audit staffrecommended that the Commission determine DFP's

Statement ofNet Outstanding Campaign Obligations reflects a surplus of $916,828 and

that, $283,481 ($916,828 x .30919834

) is repayable to the United States Treasury pursuant

to II CFR §9038.3(c)(l)35.

The Commission adopted the Staffrecommendation.

J4

35

The repayment ratio is calculated as shown in the table below. The Commissioners adopted

motions on December 10,1998, and January 28,1999, which rejected Staff recommendations that

they determine DFP had received in-kind contributions from the RNC for media, polling and

441a(d) expenditures and from Kemp for Vice-President, Inc. for miscellaneous pre date of

ineligibility expenditures. Accordingly, these in-kind contributions are not included in the

following calculation The numerator is equal to the net matching funds received by DFP and the

denominator is equal to all contributions (including in-kind contributions), matching funds and

interest.

Repayment Ratio - .309198

Ratio Calculation = $13,524,771

$43,741,518

Total for Numerator / Net Matching Funds $13,524,771

Received:

Total Deposits [all contributions & matching 43,574,394

funds]:

Interest: 46,884

1995 - 1996 Other In-kinds: 20,115

In-kind from Keck: 100,125

Total for denominator: $43,741,518

The figures in this recommendation have been revised to reflect Commission action on other

findings in the report. The revised amounts were available at the time ofthe Commission's vote

on this recommendation.

47
H. OTHER REPAYMENTS

I. Non-qualified Expenditures

Section 9004.4(a)(4)(iii) ofTitle 11 ofthe Code of Federal

Regulations states, in part, that 100% ofsalary, overhead and computer expenses incurred

after the end ofthe expenditure report period may be paid from a legal and accounting

compliance fund established pursuant to II CFR §9DD3.3 and will be presumed to be

solely to insure compliance with 2 U.S.C. §431 et seq. and 26 U.S.c. §90Dl et seq.

Section 9032.9(a) ofTitle II ofthe Code of Federal Regulations

states, in part, that a qualified campaign expense is one incurred by or on behalf ofthe

candidate from the date the individual became a candidate through the last day ofthe

candidate's eligibility; made in connection with his campaign for nomination; and neither

the incurrence nor the payment of which constitutes a violation of any law ofthe United

States or the State in which the expense is incurred or paid.

Section 9033.1 I(a) ofTitle -11 ofthe Code of Federal Regulations

states, in part, that each candidate shall have the burden ofproving that disbursements

made by the candidate or his authorized committee(s) or persons authorized to make

expenditures on behalf ofthe candidate or committee(s) are qualified campaign expenses.

Section 9034.4(a)(I) ofTitle II ofthe Code of Federal Regulations

states, in part, that all contributions received by an individual from the date he becomes a

candidate and all matching payments received by the candidate shall be used only to

defray qualified campaign expenses or to repay loans or otherwise restore funds (other

than contributions which were received and expended to defray qualified campaign

expenses) which were used to defray qualified expenses.

Sections 9038.2(b)(2)(i)(A) and (ii)(B) ofTitle II ofthe Code of

Federal Regulations state, in part, that the Commission may determine that amount(s) of

any payments made to a candidate from the matching payment account were used for the

purposes other than to defray qualified campaign expenses. Further, an example ofa

Commission repayment determination under paragraph (b)(2) includes determinations

that a candidate, a candidate's authorized committee(s) or agents have made expenditures

for expenses resulting from a violation ofState or Federal law, such as the payment of

fines or penalties.

Section 9038.2(b)(2)(iii) ofTitle II ofthe Code of Federal

Regulations states, in part, that the amount of any repayment under this section shall bear

the same ratio to the total amount determined 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.

48
a. Incurred Prior to the Expenditure Report Period

In the course ofreviewing DFP's disbursements, items

were identified which, on their face, do not appear to be qualified campaign expenditures.

The expenditures in question were presented to DFP at the close offieldwork. DFP was

able to show that some ofthese expenses were qualified campaign expenses.

At the time the Memorandum was prepared, eleven

expenditures for $20,23 I had not been addressed by DFP and were regarded as nonqualified. The categories of non-qualified campaign expenses were as follows: a $4000

refund of an NSF contribution, $6,465 in tax penalties paid to local jurisdictions, $1,703

in duplicate payments to two vendors and $8,063 in expenditures not campaign related.

Ofthe expenditures which were not campaign related, $5,054 was paid for personal travel

by committee staff and billed to the campaign, and the remaining $3,009 was paid for the

preparation of a U.S. Senate financial disclosure statement.

In the Memorandum it was recommended that DFP provide

documentation which demonstrated that the above disbursements were qualified

campaign expenses. Absent such a demonstration, the Audit staff intended to recommend

that the Commission detenlline that the DFP is required to make a repayment to the U.S.

Treasury.

DFP responded that it "does not dispute the Audit Staffs

assessment ofthese items."

Recommendation

The Audit staffrecommended that the Commission

determine that DFP is required to repay the u.s. Treasury $6,255 [$20,23 I x .309198).36

The Commission approved the Staffrecommendation.

b. Incurred in the Post Expenditure Period

Winding Down expenses of $1 ,961 ,138 for both the

primary and general committees were incurred between December 5, 1996 and March 5,

1998. DFP paid all ofthe these costs. The Memorandum concluded that the cost should

have been allocated between the two committees. Absent a better allocation technique,

an equal allocation was used. Half ofthis amount, $980,569, was therefore shown as a

receivable ofDFP from OK. Further, this amount is a non qualified winding down

expense for DFP.

" The figures in this recommendation have been revised to reflect Commission action on other

findings in the report. The revised amounts were available at the time of the Commission's vote

on this matter.

49
•

In the Memorandum it was recommended that the DFP

provide documentation which demonstrated that DK either paid its share ofwind down

expenses or that DFP received reimbursement from DK for DK's share ofwind down

expenses. Absent such a demonstration, the Audit staffstated that it would recommend

that the Commission determine that the DFP be required to make a repayment to the U.S.

Treasury.

DFP responded to the Memorandum as follows:

"The Audit Staff erroneously imposed a pro-rata rule ofthe payment of

wind down costs. Indeed, nothing in the Commission's regulation[sic]

requires that the primary and the general committees split these costs. In

the absence ofsuch a directive, DFP is entitled to pay the entire costs of

the wind down process.

"Also, the Primary Committee is explicitly entitled to pay for its wind

down costs after the date ofthe nomination. 11 C.F.R. 9034.4(a)(3).

DFP's audit has been going on since the presidential campaign came to an

end. Also, there has been no distinction between DFP's audit and

DolelKemp's audit. Thus, DFP is explicitly entitled to pay for the wind

down costs under 11 C.F.R. §034.4(a)(3)."

DFP correctly notes that guidance for primary wind down

expense is found at 11 CFR §9034.4(a)(3). To pay wind down expenses from a mixed

pool ofpublic and private funds, the wind down expense must meet the definition of a

qualified primary wind down expense. Qualified primary wind down expenses, as

outlined at 11 CFR §9034.4(a)(3), are costs associated with the termination of primary

campaign political activity. These include the costs of complying with the post election

requirements ofthe Act and other necessary administrative costs associated with winding

down the campaign, including office space rental, staffsalaries, and office supplies. To

reiterate the point, 11 CFR §9034.4(a)(3) identifies only primary wind down expenses as

being permissible expenses ofthe primary committee. Thus, wind down expenses of

another committee are not and can not be qualified expenses ofthe primary committee.37

There is no prohibition against the sharing ofspace and

staff by two campaigns. In the interest ofeconomy, this is what DFP and DK did. While

the regulations do not require that the wind down costs be split, the regulations require

37 Similar guidance for the general wind down expenses can be found at II CFR §9004.4(a)(4). A

general committee may pay only qualified wind down costs with public funds. Qualified general

wind down expenses, as outlined at I I CFR §9004.4(a)(4), are costs associated with the

termination ofthe political activity. These are the costs of complying with the post election

requirements ofthe Act and other necessary administrative costs associated with winding down

the campaign, including office space rental, staffsalaries, and office supplies.

50
that the primary, ifit is using funds containing public moneys, pay only wind down

expenses attributable to the primary. Therefore; given that the wind down activity both

ofthe primary and general election campaigns' has occurred simultaneously in shared

facilities with a shared staff, and that the OFP may not pay for more than its share ofthe

wind down costs, and lacking a more precise allocation method, the costs should be

equally attributed to the primary and general campaigns.

A review of additional wind down expenses through July

31, 1998 revealed that OF? had continued to pay the wind down expense for OK and

itself. Accordingly, halfofthe additional expense, $90,232 was added to the wind down

receivable due OF? from OK.

Recommendation

The Audit staffrecommended that the Commission

determine OF? made wind down disbursements totaling $1,070,80 I on behalf of OK and

that amount is due from GELAC. Further the amount due from GELAC is an asset to be

reflected on OFP's NaCO statement.

The Commission approved the Staff recommendation.

2. Stale-Dated Checks

Section 9038.6 ofTitle II ofthe Code ofFederal Regulations

states, in part, 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 staff reviewed the OFP's bank activity through February

1998 for outstanding checks. The results ofthe review were presented to OFP at the

close offieldwork. OF? was able to demonstrate that a portion ofthose initially

identified were not unpaid obligations. When the Memorandum was prepared 522 checks

totaling $244,239 remained outstanding. Of these, 429 in the amount of$190,418 were

contribution refunds.

In the Memorandum it was recommended that OFP provide

evidence that the checks were either not outstanding or that they were void and no

obligation existed. Ifthe checks were not outstanding the evidence provided was to

include copies ofthe front and back ofthe negotiated checks or negotiated replacement

checks. Ifthe checks were void the evidence presented was to include statements from

the vendors acknowledging that they have been paid in full, or account reconciliation's

showing that all billings have been paid. Absent the submission ofsuch evidence, the

51
Audit staffintended to recommend that the Commission determine that stale-dated

checks, totaling $244,239, are payable to the United States Treasury.

In its response to the Memorandum, DFP identified four categories

of payments related to stale dated checks totaling $33,367, which it concluded do not

represent obligations on its part. First, it notes that there are five checks in the amount of

$4,837 which were written in error. Secondly, six checks, totaling $3,650, are identified

as having been negotiated. Personal services that DFP contends may be provided to a

committee and result in no obligation to that committee are determined to account for

payments to nine individuals totaling $7,046. Finally, four vendors, to whom stale dated

checks totaled $17,834, and with whom DFP had a long history oftransactions, who may

have required security deposits prior to providing service, and from whom refunds have

been received are eliminated as creditors because they have not re-billed or otherwise

requested payment of these amounts.

In its response, DFP provided no documentation in support ofits

challenge to stale dated checks. With respect to the checks identified as written in error,

no verification was provided from the vendors confirming that either no obligation

existed or that the obligation had been satisfied. No copies of canceled checks were

provided to support the claim that six checks had been negotiated and therefore were no

longer outstanding.J8 While individuals may donate personal services to and assume

travel costs on behalf of a campaign with no contribution to or obligation on the part of

the campaign, these special circumstances must be documented to demonstrate the

individual's intent, particularly in instances where the individuals had been previously

paid as committee employees. DFP did not provide evidence ofsuch arrangements, or

that it had contacted or attempted to contact these individuals to obtain a statement

acknowledging that no obligation on the part ofthe DFP exists. Two travel

reimbursements which had been included in this category were voided, reissued and

negotiated. DFP may be correct in that it no longer owes the last category of vendors for

services provided, but they did not provide documentation that they had obtained, or

sought to obtain, written confirmation from these vendors acknowledging that their

accounts were paid in full. Further, DFP did not provide a detailed reconciliation for the

accounts in question. Accordingly, except as noted, DFP's reductions to the stale dated

check total were not accepted.

A post fieldwork review ofDFP's wind down expenses indicated

that checks totaling $18,703,39 the majority reissued in March 1998, had cleared the bank.

Accordingly, the stale dated check total was reduced to $225,536 [$244,239 - $18,703].

38

J9

The negotiation of four of the six checks was verified during the post field work review.

Gfthe $33,367 challenged by DFP, checks totaling $6,517 were included in the amount of

reissued and negotiated checks.

52
":

In their 1998 third quarter disclosure report, DFP reported voiding

operating expenditure checks in the amount of $20,442 and contribution refund checks in

the amount of $190,599. The total voided, $211,041, was the same amount as that which

DFP acknowledged in its response to the Memorandum to be stale dated and repayable to

the U.S. Treasury. Implicit in DFP's acknowledgment was the fact that the contribution

refunds represented impermissible funds and as such were not available for use by DFP.

Section 103.3(b)(4) ofTitle II ofthe Code of Federal Regulations requires committees to

maintain sufficient funds to make all such refunds. In the same report, DFP also reported

that ending cash on hand was $48,265. Thus, some ofthe funds, acknowledged to be

impermissible, have evidently been expended.

Recommendation

The Audit staffrecommended that the Commission determine DFP

had stale dated outstanding checks totaling $225,536 and that DFP be required to pay this

amount to the United States Treasury.

The Commission adopted the Staff recommendation.

1. SUMMARY OF AMOUNTS DUE TO THE U.S. TREASURY

Finding No. Finding Title Amount

III.G. Determination ofNet Outstanding Campaign

Obligations-Surplus

lII.H. Other Repayments

1. Non-qualified Expenditures

a. Incurred Prior to the Expenditure

Report Period

2. Stale-Dated Checks

Total Amount Due to the U.S. Treasury

53

$ 283,481

6,255

225,536

$515,272
54
-.

.FEDERAL ElECTION COMMISSION

WASH INGTON, D.C. 20463

October 21, 1998

MEMORANDUM

TO:

THROUGH:

FROM:

SUBJECT:

Robert 1. Costa

Assistant Staff Director

Audit Division #:

James A. Pehrkon

Acting Staff Dire r

Lawrence

General Counsel

M. NobleA

Kim Bright-Coleman

Associate General Counsel

Lorenzo Holloway ~. Assistant General Counsel

Proposed Audit Reports on Dole for President, Inc.;

DolelKemp '96, Inc.; and Dole/Kemp '96 Compliance

Committee, Inc. (LRA # 467 and # 506)

The Office ofGeneral Counsel is continuing its review ofthe proposed Audit

Reports on Dole for President, Inc. ("the Primary Committee"), Dole/Kemp '96, Inc.

("the General Committee"), and Dole/Kemp '96 Compliance Committee, Inc. ("the

GELAC") [collectively, "the Dole Committees"] which were submitted to this Office on

September 16, 1998 and September 18, 1998, respectively. This Office will present its

comments to you as they are prepared. Individual subject matters are discussed in

individual sections, as noted by the section headings.
Memorandum to Robert J. Costa

Proposed Audit Reports on Dole Committees

Page 56

I. PRIMARY COMMITTEE LOAN TO GENERAL COMMITTEE (II.A. IN

PRIMARY COMMITTEE REPORT AND II.A.2.a. IN GENERAL

COMMITTEE REPORT)

We concur with the Audit staff's conclusion that, in connection with the

October 30 and November 1, 1996 transfer of $2 million from Primary Committee

accounts to General Committee accounts, the Primary Committee incurred non-qualified

campaign expenses when it contributed to the General Committee by loaning it funds.

Further, we concur with the Audit staffthat, in connection with the subsequent purchase

of certificates of deposit, the Primary Committee contributed to the General Committee

when it purchased certificates of deposit from the General Committee. 40 However, we

recommend that the Audit staff also conclude that the Primary Committee incurred nonqualified campaign expenses when it purchased the certificates of deposit from the

General Committee for two reasons.

First, the Primary Committee paid the General Committee more than the usual

and normal charge for the funds it received. The Committees acknowledge that one

certificate ofdeposit in the amount of $200,000 plus $2,767 interest had already been

redeemed by the General Committee, and the Committees acknowledge a debt of

$202,767 owed to the Primary Committee by the General Committee. The full value of

the remaining certificates of deposit was $800,000 plus earned interest. However, the

certificates ofdeposit were worth less than their face value plus interest because the

General Committee continued to use the certificates of deposit to secure letters of credit.

However, the Primary Committee paid $800,000 plus eamed interest to purchase the

certificates of deposit. If a committee pays more than the usual and normal charge for

goods or services, the excessive amount has no connection with the candidate's

nomination and therefore is not a qualified campaign expense. 11 C.F.R. § 9032.9(a)(2).

Therefore, the amount by which the Primary Committee's payments exceeded the value

ofthe certificates of deposit is a non-qualified campaign expense. See Statement of

Reasons in the Matter ofDr. Lenora B. Fulani, et ai. (Mar. 7, 1997).

The second reason for our view that the Primary Committee incurred nonqualified campaign expenses when it purchased the certificates of deposit from the

General Committee is that the Primary Committee pennitted the General Committee to

continue to use the certificates of deposit to secure letters of credit used in the General

Committee's operations. By doing so, the Primary Committee used its funds, which

include public funds, to provide a form ofsecurity to the General Committee. A

guarantee, endorsement, and any other form or security are considered loans and therefore

contributions pursuant to 11 C.F.R. § 100.7(a)(1)(i). In Advisory Opinion 1988-5, the

Commission recognized that a committee's use of public funds received in connection

40 The proposed Audit Reports refer to this transaction as a "repurchase" because the General

Committee had purchased these certificates of deposit from the Primary Committee on August 30, 1996.

56
Memorandum to Robert J. Costa

Proposed Audit Reports on Dole Committees

Page 57

with one election to secure the obligations of another committee in connection with a

different election would be a non-qualified campaign expense. See Advisory Opinion

1988-5 (noting that such use would be non-qualified campaign expense whether the

transactions were characterized as "transfers, contributions or loans (including any loan

guarantee or security)").41 Therefore, we recommend that the Audit staff conclude that

the Primary Committee also incurred non-qualified campaign expenses when it purchased

the certificates of deposit from the General Committee.

We understand that the letters of credit that were secured by the certificates of

deposit have expired and that the Primary Committee has unfettered access to the

certificates of deposit funds. With the expiration ofthe letters ofcredit, the value ofthe

certificates of deposit was no longer reduced by the General Committee's use ofthe

certificates of deposit as security. Consequently, the Primary Committee received the full

value ofthe certificates of deposit in its possession once the certificates of deposit were

no longer used by the General Committee as security. Pursuant to II C.F.R.

§ IOO.7(a)(I)(i), when the Primary Committee permitted the General Committee to use

Primary Committee certificates of deposit as security, the Primary Committee loaned

those funds to the General Committee. When the General Committee, which had already

provided the certificates of deposit to the Primary Committee, ceased using the

certificates of deposit as security, it repaid the loan. Pursuant to II C.F.R.

§ 100.7(a)(1)(i)(B), a loan, to the extent it is repaid, is no longer a contribution. On this

basis, we concur with the Audit staff's conclusion that the Primary Committee should not

be required to repay the non-qualified campaign expenses for which it has received or

expects to receive reimbursements.

n. PRIMARY EXPENSES PAID BY DOLE-KEMP '96 (III.B.Z. IN PRIMARY

COMMITTEE REPORT AND III.A.l.d. IN GENERAL COMMITTEE

REPORT)

The Audit staffrecommends that the Commission determine that, pursuant to

II C.F.R. § 9034.4(e), disbursements in the amount of $207,378 made by the General

Committee, are attributable to the Primary Committee's overall expenditure limitation.

While we generally agree with your approach, we do not believe you have sufficiently

addressed the issue of whether some ofthese expenditures may be General Committee

pre-expenditure report period expenses for property, services or facilities which are to be

used in connection with the general election campaign and which are for use during the

" Furthermore, we recommend that the proposed reports be revised to include a discussion of

Advisory Opinion 1988-5, which concludes that use of public funds in connection with any election other

than the election for which they were awarded is a non-qualified campaign expense. Additionally, to put

the Advisory Opinion in context, this finding should also include the definition ofthe term "qualified

campaign expense," 11 C.F.R. § 9032.9, even though that regulatory section is discussed elsewhere in the

proposed Audit Report.

57
Memorandum to Robert J. Costa

Proposed Audit Reports on Dole Committees

Page 58

expenditure report period. 11 C.F.R. § 9003.4. Such expenditures may include, but are

not limited to: expenditures for establishing financial accounting systems and

expenditures for organizational planning. Id.

The Explanation and Justification for section 9003.4 states that purpose ofthe

regulation was to "permit a candidate to set up a basic campaign organization" before the

date ofineligibility. Explanation and Justification for 11 C.F.R. § 9003.4,45 Fed.

Reg. 43375 (June 27, 1980). Section 9003.4 was modified by section 9034.4 only as it

relates to polling expenditures, and otherwise continued to allow general election

committees to incur expenditures prior to the general election expenditure report period.

See Explanation and Justification for 11 C.F.R. § 9003.4, 60 Fed. Reg. 31857 (June 16,

1995). In order to effectuate the regulation's undisturbed purpose of assisting in the setup of a "basic campaign organization," certain "start-up" costs can be incurred by the

General Committee. In this case, we believe that the costs oftelephone equipment and its

installation and the costs of office furniture and equipment may constitute expenditures

contemplated by section 9003.4 as "property, services or facilities which are to be used in

connection with the general election campaign" and constitute parts of a "basic campaign

organization.,,42

Staff assigned:

Peter G. Blumberg

Susan L. Kay

Tracey L. Ligon

J. Duane Pugh

Jamila Wyatt

" We note that the Office of General Counsel memorandum to the Audit Division of March 20,

1998 regarding the application of 11 C.F.R. § 9034.4(e)(3) addressed candidate committee campaign

expenditures in general. The March 20, 1998 memorandum references section 9003.4 and notes some of

the potential uses offunds for the pre-expenditure report period.

58
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 204&3

October 23, 1998

tl:Ur;ltAL ELEfJTlON

COMMISSION

AUDIT DIVISiON

OCT 23 9 lS ~M '98

•

MEMORANDUM

TO: Robert J. Costa

Assistant StaffDirector

Audit Division

THROUGH: James A. Pehrkon

Acting StaffDire

FROM: Lawrence M. NobleA,. General Counsel l'

Kim Bright-ColemanJcfoG

Associate General Co sel

Lorenzo Holloway 1.. f()-.

Assistant General Counsel

SUBJECT: Proposed Audit Report on Dole for President, Inc.

(LRA # 467)

The Office of General Counsel is continuing its review ofthe proposed Audit

Reports on Dole for President, Inc. ("the Primary Committee") submitted to this Office

on September 16, 1998. This Office will present its comments to you as they are

prepared. Individual subject matters are discussed in individual sections, as noted by the

section headings.

I. EXPENSES PAID BY THE GELAC (III.B.!.)

The Audit Division recommends that the Commission determine that

disbursements by the DolelKemp '96 Compliance Committee, Inc. ("the GELAC") in the

amount of$453,883 are attributable to the Primary Committee's overall expenditure

limitation pursuant to an application of 11 C.F.R. § 9034.4(e) which addresses allocation

of candidate expenses between primary and general electioncommittees. This Office
Memorandum to Robert J. Costa

Proposed Audit Reports on Dole Committees

Page 60

agrees that section 9034.4(e) applies to the GELAC. 43 However, this Office notes that all

GELAC expenditures should also be evaluated in light of 11 C.F.R. § 9003.3(a)(2) which

addresses permissible uses ofGELAC funds. This regulation states that the GELAC can

use its funds for, inter alia, legal and accounting costs related "solely" to compliance

with 2 U.S.C. § 431, et seq. and 26 U.S.C. § 9001, et seq. and for the "costs ofsoliciting

contributions to the GELAC." 11 C.F.R. § 9003.3(a)(2).44 The '''solely' for compliance"

standard is similar to the "exclusivity" standard ofsection 9034.4(e) and, therefore, we

agree with your overall conclusion that the GELAC must demonstrate the exclusivity of

its operations for any expenditure to be attributed to it.

However, the Report suggests that administrative costs related to fundraising

(fundraiser salaries, rent for fundraisers' offices) must be attributed to the Primary

Committee's overall expenditure limitation and not to the GELAC since the individuals

involved in fundraising for the GELAC also raised funds for the Primary Committee.

Consequently, you conclude that the lack offundraising efforts "exclusively" on behalf of

the GELAC requires that these individuals' salaries and related expenses be paid entirely

by the Primary Committee. This Office believes that expenses that are part ofthe cost of

a joint solicitation, such as salaries, overhead, and.travel, may be attributed 50% to the

Primary Committee and 50% to the GELAC as a cost ofthe solicitation under 11 C.F.R.

§ 9034.4(e)(6). Section 9034.6(e)(6) does not define "cost ofsolicitation," but we believe

that it includes more than just the cost of a "communication" since the regulation uses the

terms "solicitation" and "communication" separately, and the regulation is written in a

manner that suggests that the two are different. Nevertheless, the Primary Committee has

not demonstrated that the costs at issue were part ofthe cost of any solicitation.4s [d.

II. PRIMARY EXPENSES PAID BY KEMP FOR VICE PRESIDENT (III.B.3)

The Audit staffrecommends that the Commission determine that the Primary

Committee received an in-kind contribution from the Kemp for Vice President

Committee ("KVP") in the amount of $77,237 that is attributable to the Primary

Committee's overall expenditure limitation. The expenditures at issue include a

DolelKemp '96 rally sign, other campaign materials inscribed with "Dole Kemp '96" or

u Section 9034.4(e) applies to a candidate's authorized committees and the GELAC is an authorized

committee of the candidate. II C.F.R. § 9003.3(a). In addition, section 9034.4(e)(6) refers specifically to

the attribution of expenditures between a primary committee and the GELAC for fundraising solicitation

communications.

.. Section 9003.3 does not indicate when the GELAC can begin making disbursements in connection

with general election legal and accounting compliance.

,15 It is our understanding that the GELAC did not engage in joint fund-raising activity with the

Primary Committee pursuant to II C.F,R. § 9034.8, However, the primary financing joint fund-raising

rules at 11 C.F.R. § 9034,8 do not prohibit a GELAC from participating in joint fundraising activities with

the Primary Committee under 11 C.F.R. § 9034.4(e)(6).

60
if

Memorandum to Robert J. Costa

Proposed Audit Reports on Dole Committees

Page 61

"Dole Kemp #1," and a payment for a consultant to review the organization and

distribution of materials for the Republican National Convention. These obligations were

incurred preceding the nomination of both Senator Dole and Mr. Kemp.

The Primary Committee argues that these expenditures do not constitute in-kind

contributions to the Primary Committee under 11 C.F.R. § lOO.7(b)(16) (the "coattail

exemption").46 Based on the rationale set forth in the Audit Report, we agree with the

Audit staffs conclusion that these expenditures do not fall within the "coattail

exemption" and should be attributed to the Primary Committee. If, however, the Primary

Committee is able to show that the disbursements in question were for the purpose of

influencing Mr. Kemp's campaign for nomination to the Office ofVice President, we

recommend that these expenditures be attributed to KVP.

Staff assigned:

Peter G. Blumberg

Susan L. Kay

Tracey L. Ligon

J. Duane Pugh

Jamila I. Wyatt

" This Office notes that KVP is the subject of an ongoing audit and all the information relevant to

that audit has not been received by the Audit Division. Information received by the Audit Division in the

context ofthe KVP audit may have an impact on the Primary Committee. Ifthe information has an impact

on the Primary Committee, it should be included in the Primary Committee's Audit Report.

61
62
FEDERAL ELECTION COMMISSION

WASHINGTON. O.c. 20463

October 21/ 1998

•

•

MEMORANDUM

TO: Robert J. Costa

Assistant StaffDirector

Audit Division

THROUGH: James A. Pehrkon

Acting StaffDirec

FROM: Lawrence M. NOble~ /

General Counsel '/l./

Kim Bright-Coleman t~ Associate General Counsel

Lorenzo Holloway t. ffJAssistant General Counsel

SUBJECT: Proposed Audit Report on Dole for President, Inc.

(LRA# 467)

I. INTRODUCTION

The Office ofGeneral Counsel is reviewing the proposed Audit Report on Dole

for President, Inc. ("the Primary Committee") submitted to this Office on September 16,

1998. As you note in your cover memorandum transmitting the proposed Report to this

Office, it appears that at this time the Commission seeks to address these matters in early

November 1998. This proposed schedule necessarily requires an expedited legal review

from this Office. As suggested in your cover memorandum, this Office will submit

comments on particular sections ofthe Report as soon as we complete such review so that

any revisions to those sections could be made as soon as possible. The comments

contained herein will address matters on which we concur with your approach and have

only minor suggestions. As a threshold matter, we understand that the draft Audit Report

was submitted to this Office prior to the completion ofthe referencing process and,
Memorandum to Robert J. Costa

Proposed Audit Reports on Dole Committees

Page 64

therefore, we request that you inform us in writing of any changes to the Report that may

be made during the referencing process. 47 If you have any questions concerning our

comments, please contact Peter Blumberg, the lead attorney assigned to these matters.

II. RECEIPT OF EXCESSIVE IN-KIND CONTRIBUTION (KECK

AIRCRAFT) (11.8.)48

We agree with your conclusion that the Primary Committee was not entitled to

pay first class airfare pursuant to 11 C.F.R. § 114.9(e) for use of a private airplane owned

by William Keck. Section 114.9(e) applies only to aircraft owned or leased by a

corporation or labor organization. Because the aircraft was owned personally by Mr.

Keck, section I 14.9(e) is not applicable, and instead, the Primary Committee should pay

the usual and normal charge for use ofthe aircraft under II C.F.R. §§ IOO.7(a)(1)(iii)(A)

and (B).

The Primary Committee claims that Mr. Keck's aircraft was "a corporate aircraft

in all respects except formal title." Primary Committee Response, at 3. The fact that the

airplane may have functioned as a corporate jet cannot change its status as a privately

owned aircraft for purposes of evaluating the applicability ofsection 114.9(e). In

Advisory Opinion 1979-52, the Commission determined that the sole owner of a

corporation was subject to the requirements ofsection 114.9(e). The Commission stated,

"[s]ection 114.9(e) ofCommission regulations does not distinguish between corporations

whose stock is held by many persons and those corporations where a candidate is the sale

stockholder ofthe corporation." AO 1979-52 at 2. The Commission further stated in AO

1979-52 that section 114.9(e) would not apply ifthe organizational structure ofthe entity

at issue was changed to a sole proprietorship. ld. Therefore, whether section II4.9(e) is

applicable is determined by the entities organizational structure and not by how the entity

uses the aircraft. Thus, section 114.9(e) is not applicable and the Committee should have

paid Mr. Keck the usual and normal charter rated for the use of his privately owned

aircraft pursuant to 11 C.F.R. §§ 1OO.7(a)(l)(iii)(A) and (B).

III. ALLOCATION OF STATE EXPENDITURES (II.C.)

We suggest an alternative approach to your finding on exceeding the state

expenditure limitation. Pursuant to II C.F.R. § 9038.2(b)(2)(v), when a committee

exceeds both the state and overall expenditure limitations, the repayment determination

will be based on the larger of either the amount exceeding the state expenditure limitation

or the amount exceeding the overall expenditure limitation. In your Report, you have

47 Additionally, because the proposed Audit Reports concern the audit of a publicly-financed

candidate, the Office ofGeneral Counsel recommends the Commission consider the Audit Report in open

session. 11 C.F.R. §§ 9007.1(e)(1) and 9038.1(e)(l).

Parenthetical references are to the relevant sections ofthe Primary Committee's proposed Audit

Report.

64
Memorandum to Robert J. Costa

Proposed Audit Reports on Dole Committees

Page 65

declined to make a recommendation on the amount that the Primary Committee may have

exceeded the state expenditure limitation in Iowa since you assume that the

recommendation on exceeding the overall limitation will be adopted by the Commission.

Nevertheless, we believe that the better approach is to contain recommendations for both

findings in the Report. In order to detem1ine which amount is higher, the Commission

must take action on both determinations. See 2 U.S.C. § 437c(c) (requiring the

affirmative vote offour Commissioners for all decisions). Ifthe Commission adopts both

proposed recommendations, the Commission would subsequently seek repayment only

for the larger ofthe two amounts, and the recommendation for the lower amount would

simply be rendered inoperative. Additionally, in order to facilitate the Commission's

discussion ofthese issues in the proper context, we believe that the state expenditure

limitation issue should be moved to the portion ofthe Report where other repayment

matters are discussed.

IV. OTHER RECOMMENDATIONS

Finally, this Office concurs with your findings and recommendations on the

following sections ofthe proposed Report and has no comments on such sections:

Misstatement of Financial Activity (II.D.)

Stale-dated Checks (JILG.)

Staff assigned:

Peter G. Blumberg

Susan L. Kay

Tracey L. Ligon

J. Duane Pugh

Jamila Wyatt

65
0'

fU

n;

0:£
-

FEDERAL ELECTION COMMISSION

WASHINGTON, DC. 20463

October 27, 1998

MEMORANDUM

•

•

TO:

THROUGH:

FROM:

SUBJECT:

Robert J. Costa

Assistant Staff Director

Audit Division

//(/','/

James A. Pehrko.r(>~/ ;1

Acting StaffQI~ctbr/ 1/""

Lawrence M. Noble/)# '

General Counsel ,

Kim Bright-Coleman \~ Associate General Counsel

Lorenzo Holloway \2 tXJI..

Assistant General Counsel

Proposed Audit Report on Dole for President, Inc. - Media

Advertisements and Other Expenses Paid for by the Republican National

Committee, Repayment Ratio and Winding-Down Costs (LRA # 467)

The Office of General Counsel has completed its review ofthe proposed Audit Report on

Dole for President, Inc. ("Primary Committee") submitted to this Office on September 16, 1998.

The following memorandum contains our comments on issues related to the media, polling,

winding-down costs and coordinated expenditures sections ofthe proposed Audit Report

(sections III.A.4., III.A.S., III.G.1.b. and III.A2., respectively, ofthe proposed Audit Report).

We understand that the proposed Audit Report was submitted to this Office prior to the

completion of the referencing process and, therefore, we request that you alert us to any changes

to these sections. If you have any questions concerning our.comments, please contact Peter G.

Blumberg or J. Duane Pugh.
;;

Memorandum to Robert J. Costa

Dole for President, Inc. Audit Report

(LRA #467)

Page 68

I. INTRODUCTION

During the course of audit fieldwork, you requested this Office's assistance in preparing

subpoenas to obtain additional information for the audits. Thereafter, the Commission issued

subpoenas and orders to answer questions to 10 entities. Specifically, subpoenas and orders were

issued to Dole for President, Inc., DolelKemp '96, Inc. (the "General Committee"), the

Republican National Committee (the "RNC"), AV Atlantic, United Jet International, and Multi

Media Services Corp. on January 21, 1998; to Franklin National Bank on March 13, 1998; and to

the RNC, Fabrizio, McLaughlin, and Associates, Robert M. Ward, and Target Enterprises, Ltd.

on May 11, 1998. We recommend that you reference these subpoenas in your Report so that

there is a record ofthis activity.

Moreover, two ofthe subpoenas have not yet been fully complied with and additional

documentation is expected which may have an impact on your findings. Therefore, we

recommend that you consider withholding the findings in sections 1II.A.3.a., b. and c. (Payroll)

and lIl.A.5. (Polling Expenses),49 or portions thereof, ifthe outstanding documentation cannot be

incorporated into this Report. Once the information is obtained, the Commission can issue

addenda to the Audit Report. 11 C.F.R. § 9038. 1(d)(3). The addenda can include additional

repayment determinations. 11 C.F.R. § 9038. 1(d)(3); see 11 C.F.R. § 9038.2(f). Further, the

Commission could consider the information in connection with any subsequent inquiry pursuant

to 26 U.S.C. § 9039 and 11 C.F.R. § 9039.3. These procedural options should be considered in

light ofthe requirement that repayment determinations be more than a "progress report" and

must satisfy the repayment notification requirement. See Simon v. FEe, 53 F.3d 356, 359 (D.C.

Cir. 1995). See also Fulani v. FEe, 147 F.3d 924, 926 (D.C. Cir. 1998) (repayment

determinations must be "the product of a 'thorough examination and audit"'). The lack of

documentation is especially relevant with respect to your findings at sections IIl.A.3.b.-c. (Other

Employees and Consultants) where you conclude that expenditures made by the Republican

National Committee to certain consultants and other employees are attributable to the Primary

Committee's overall expenditure limitation based primarily on the unusual timing ofthe RNC's

hiring of these individuals. The Commission is continuing to seek documents from the RNC that

would provide information on the type of work performed by these individuals:

4? The supoenas seek information related to polling expenditures discussed in the proposed Audit

Report, as well as information related to polling expenditures that are in addition to those already discussed

in the Audit Report.

Similar evidentiary problems may not exist with the related findings on advance staff

(section III.A.3.a. (Advance Staf!)) since the RNC advance staffs appearance on Primary Committee

travel itineraries is persuasive evidence that the individuals were working for the Primary Committee.

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II. RNC EXPENDITURES FOR MEDIA (III., A., 4.)

The proposed Audit Report attributes media expenditures paid for by the RNC on behalf

of Senator Dole's campaign to the Primary Committee's overall expenditure limitation.50 The

proposed Audit Report recommends that the Commission find that the RNC paid a total of

$18,453,619 directly and through Republican state party committees for media expenditures on

behalf ofthe Dole campaign for advertisements that aired between April 1996 and August 1996.

This recommendation is based on your conclusion that there is evidence that the campaign staff

and consultants coordinated with the RNC regarding the creation and placement ofthe media

advertisements that appear to contain an "electioneering message" and references to a "clearly

identified candidate."sl

This Office concurs with the proposed Report's recommendation that some ofthe cost of

the advertisements paid for by the RNC on behalf ofthe Dole campaign should be added to the

expenditures subject to the Primary Committee's overall expenditure limitation; however, as

noted below, we also recommend that the proposed Audit Reports be revised to attribute some of

the media expenditures to the General Committee's expenditures subject to its expenditure

limitation.s2 Moreover, this Office concurs that, as a result, and in combination with other

5. The Primary Committee argues that "Ifthe Audit Division believes that an excessive contribution was made

[by the RNC to the Primary Committee], the proper procedure is to ... let the Commission decide whether to

pursue the matter in an enforcement action." Generally, a finding can be a part of an audit report regardless of

whether it is part of an enforcement action. It is well established that audits related to repayments under the

Presidential Election Campaign Fund Act ("Fund Act"), 26 U.S.C. §§ 900\, et seq., and the Presidential Primary

Matching Payment Account Act ("Matching Payment Act"), 26 U.S.C. §§ 903\, et seq., and enforcement

investigations related to violations ofthe Federal Election Campaign Act ("FECA" or "the Act"), 2 U.S.c.

§§ 43\, et seq., are separate and independent processes. See Reagan Bush Comm. v. FEe, 525 F. Supp. 1330,

1337 (D.D.C. \98\) (noting that "repayment determinations are not considered to involve violations oflaw ...

the procedure leading to repayment determinations which includes the audit process and the procedure for

enforcing violations ofthe [Fund Act] and FECA are treated as two different functions under the statutory

scheme and by the FEC in practice"). Moreover, the Commission has authority to examine a committee's

compliance with FECA during its audits. See II C.F.R. § 9038. I(b)(2)(iii). Further, in Bush-Quayle '92

Primary Comm., Inc. v. FEe. 104 F.3d 448, 451 (D.C. Cir. 1997), the Court ofAppeals explicitly noted that the

audit finding at issue in that case presupposed a violation offederal election law, but it did not question the

propriety ofsuch an audit finding.

S! There are grounds on which to conclude that the subject RNC advertisements are in-kind contributions to the

Dole campaign separate from the coordination/content analysis. The RNC used Primary Committee film footage

in its advertisements and therefore financed "the dissemination, distribution, or republication, in whole or in part,

of any broadcast or any written, graphic or other form of campaign materials prepared by the candidate, his

campaign committees, or their authorized agents." 2 U.S.C. § 44Ia(a)(7)(B)(ii). This use of "campaign

materials ... shall be considered to be to be an expenditure for purposes of this paragraph" (e.g, a coordinated

expenditure and a contribution to the relevant candidate). Id. The Primary Committee acknowledges the RNC's

limited use of certain footage, but states that "the RNC made a decision independent ofthe campaign to use that

footage in its ad and entered into an 'arms-length' agreement" to purchase the footage from the Primary

Committee.

" See Part II.C. infi"a. According to the proposed Audit Report, an allowance has already been made for a

contribution from the RNC to the Primary Committee for the full amount permitted under 2 U.S.C. § 441a(a)(2).

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findings that add expenditures to the overall expenditure limitation, the Primary Committee

exceeded its expenditure limitation. 2 U.S.C. § 441a(b)(l)(A) and (c); 26 U.S.C. § 9035(a).

Further, we concur with the recommendation that the Commission determine that the Primary

Committee must make a pro rata repayment for non-qualified campaign expenditures in excess

ofthe expenditure limitation.

The overall expenditure limitation for candidates receiving public funds for the primalY

election is set forth at 2 U.S.c. § 441a(b)(l)(A), (c) and 26 U.S.C. § 9035(a), and at 2 U.S.C.

§ 441a(b)(1)(B) and (c) for the general. See also 11 C.F.R. §§ 110.8(a); 9035.1(a)(1). An

expenditure is made on behalf of a candidate, and thus subject to the expenditure limitation, ifit

is made by an authorized committee or any other agent ofthe candidate or any person authorized

or requested by the candidate, an authorized committee ofthe candidate, or an agent ofthe

candidate, to make the expenditure. 2 U.S.C. § 441a(b)(2)(B). Because the statute requires that

expenditures made by others at the campaign's request be subject to the expenditure limitation,

this Office believes that it is appropriate to apply the RNC expenditures to the Primary or

General Committee's expenditure limitation as long as the expenditures were "knowingly

incurred in connection with the candidate's campaign for the nomination." 26 U.S.C.

§§ 9003(b); 9035(a); see also Statement ofReasons Supporting Final Repayment Determination

in Dole for President (February 6, 1992) (Commission concluded that in-kind contributions from

a political committee to a presidential committee are subject to the state expenditure limitation).

The evidence of coordination between the RNC and the Dole campaign with regard to the media

expenditures establishes that the Dole campaign knowingly incurred the expenditures.

A. RNC's Coordination with Dole Campaign

As noted above, your recommendations are based on the conclusion that the RNC's

media expenditures were coordinated with the Dole campaign and the advertisements contained

an electioneering message with reference to a clearly identified candidate. Thus, we begin our

analysis with the question of whether the RNC's expenditures for media were "made by any

person in cooperation, consultation, or concert, with, or at the request or suggestion of, a

candidate, his authorized political committees or their agents.,,53 2 U.S.C. § 44Ia(a)(7)(B)(i);

Buckley v. Valeo, 424 U.S. 1,78 (1976) (the term "contribution" includes "all expenditures

placed in cooperation with or with the consent of a candidate, his agents, or an authorized

committee ofthe candidate"); see 11 C.F.R. § 109.1 (b)(4). Congress's decision to treat

coordinated expenditures as in-kind contributions was designed to prevent and limit the

opportunities for corruption and the appearance of corruption inherent in coordinated activity.

The Buckley Court stated that the absence of prearrangement or coordination of an expenditure

"alleviates the danger that expenditures will be given as a quidpro quo for improper

" The statute's inclusion of authorized political committees, agents of the candidate and agents of

the committees establishes that a finding of coordination can be based on the activities of any ofthese

actors. Such a finding does not require candidate involvement.

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commitments from the candidate." 424 U.S. 1,47 (1976). The reverse is equally true - the

presence of prearrangement or advance coordination of an expenditure between a candidate or

his or her committee or agents and the person making the expenditure presents a danger of an

illicit quidpro quo like a contribution ofmoney. The Commission must consider all ofthe facts

and circumstances to determine whether the quantity and substance of contacts between a

candidate and a person, entity or political committee compromised the independence of an

expenditure and transformed it into a coordinated expenditure pursuant to 2 U.S.C.

§ 441a(a)(7)(B)(i).

In defining independent expenditures related to communications that include express

advocacy, the Federal Election Campaign Act ("FECA" or "the Act"), 2 U.S.c. §§ 431, et seq.,

describes the quantity and substance of contact that defeats the independence ofthe expenditure.

2 U.S.C. § 431(17). To be independent, an expenditure must be made without cooperation or

consultation with any candidate, or any authorized committee or agent ofsuch candidate, and it

must not be made in concert with, or at the request or suggestion of, any candidate, or any

authorized committee or agent ofsuch candidate. ld. The Commission's regulation on this

subject states that any arrangement, coordination, or direction by the candidate or his or her agent

prior to the communication is sufficient to defeat the independence of an expenditure and to

render the expenditure a contribution to the candidate. 11 C.F.R. § 109.1(b)(4) and (c).

While the line has not always been clear, the Commission has provided some guidance

on the quantity and substance of contacts that constitute coordination.54 For example, the

Commission has taken the approach in some case that passing any infonnation about a

candidate's plans, projects or needs from the campaign to the expending person may trigger a

conclusion of coordination that compromises the independence of an expenditure.55 However, in

54 See, e.g., II C.F.R. § 114.2(c) (any coordinated communications may negate the independence of

any subsequent communications). See also 11 C.F.R. § 114.4(c)(5) (concerning voter guides that include

express advocacy: any contact or other cooperation, coordination, consultation, request, or suggestion will

result in a contribution. Concerning voter guides that do not include electioneering messages: any contact

other than written exchanges about the candidate's positions on issues will result in a contribution); but see

Clifton v. FEC, 114 F.3d 1309 (1st Cir. 1997), cert. denied, 118 S. Ct. 1036 (l998)(declaring II C.F.R. §

114.4(c)(5) invalid under First Amendment insofar as it limited contact with candidates to written inquiries

and replies). Cf 62 Fed. Reg. 24,367 (May 5, 1997) (notice of proposed rulemaking regarding the definition

of coordination to be codified at II C.F.R. § 100.23).

55 See, e.g., MUR 3918 (Hyatt for Senate) (supporting probable cause detennination, coordination

found where advertisements, ostensibly for a candidate's law finn, were written by the campaign's media

adviser and approved by the candidate); MUR 3192 (Orton for Congress) (supporting probable cause

detennination, coordination found where an ad hoc citizens' group attacked a candidate's opponent where

member of group had fonnerly been a policy advisor to the candidate in the same election cycle and the

group learned from the candidate that he would not publicly attack his opponent on allegations raised by

group and that the candidate did not want the allegations raised); Advisory Opinion (HAO") 1996-1

(coordinated endorsements by a trade association may compromise its ability to make subsequent

independent expenditures); AO 1984-30 (coordinated in-kind contributions in the primary election precluded

independent expenditures regarding same candidates in the general election); FEC v. National Conservative

PAC, 647 F. Supp. 987, 990 (S.D.N.Y. 1986) (use of common campaign strategist constitutes coordination).

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other cases, the Commission has not pursued matters where contacts between a candidate and an

expending person resulted in changes to the content of a specific communication.56

In discussing the quantity and substance of contact necessary to impair the independence

of an expenditure and constitute coordination, the United States Supreme Court recently stated

that there was not coordination in a situation that lacked a "general or particular understanding."

FEe v. Colorado Republican Fed. Campaign Comm. 518 U.S. 604, 614 (1996)(plurality Op.).S7

This Office believes that the phrase was intended to convey a realistic understanding ofthe

concept of coordination that is broad enough to effectuate the statute's purpose oflimiting real or

apparent corruption without violating First Amendment rights. While some "general

understanding" regarding the expenditures may be necessary, requiring a specific agreement in

every case would allow expending persons to make "independent" expenditures after extensive

consultation with the candidate or committee about plans, projects, activities and needs, so long

as the campaign had no approval ofthe final content or timing ofthe communication. Indeed, it

might then be more difficult to prove that an expenditure was "coordinated" and therefore a

contribution -- a statutory structure intended to broadly limit opportunities for illicit quid pro

quos -- than it would be to prove the quidpro quos themselves under criminal bribery and

extortion statutes such as the Hobbs Act, 18 U.S.C. § 1951. See Evans v. United States, 504 U.S.

255,274 (Kennedy, 1., concurring) ("The official and the payor [in a Hobbs Act bribery/extortion

case] need not state the quidpro quo in express terms, for otherwise the law's effect could be

frustrated by knowing winks and nods."). Such a situation would be at odds with the purpose of

2 U.S.C. § 441a(a)(7)(B)(i) -. to avert real or apparent corruption.

The Primary Committee argues for a much narrower interpretation of2 U.S.C.

§ 441a(a)(7)(B)(i); it maintains that only expenditures that are directed and controlled by a

campaign are coordinated expenditures pursuant to 2 U.S.C. § 441a(a)(7)(B)(i). According to the

" See, e.g., MUR 4282 (Archdiocese of Philadelphia), where it was alleged that after a candidate's committee

received word that the Archdiocese's planned voter guide misstated the candidate's record and put him in no better

light than his opponent, a representative of the candidate contacted the Archdiocese to complain, and as a result, the

Archdiocese changed the voter guide. Although that case involved admitted contact between a candidate's

representative and an expending person that was about, and resulted in changes to, the content of a specific

communication, the Commission was divided 3-2 on a motion to fmd reason to believe that violations of the Act

occurred. See also MUR 4116, Statement of Reasons of Chairman Joan D. Aikens and Conunissioner Lee Ann

Elliott,3 (June 4, 1998) ("we would not agree that mere inquiries, without a meeting ofthe minds oftwo or more

persons on a course of action resulting in expenditures, is sufficient for coordination").

57 The Supreme Court's holding in Colorado Republicans was that the First Amendment prohibits the

presumption that national party committee's expenditures are coordinated with its congressional candidates.

Colorado Republicans, 518 U.S. at 608. The Supreme Court expressly limited its holding, stating: "Since this case

involves only the [FECAl provision concerning congressional races, we do not address issues that might grow out

of the public funding of Presidential campaigns." /d, 518 U.S. 604, at 612; see also RNe v. FEC, 487 F. Supp. 280,

284-87 (S.D.N.Y.) (Congress may condition public funding eligibility upon candidate's voluntary acceptance of

expenditure limits), ajJ'd memo 445 U.S. 955 (1980). However, the Supreme Court did not specify to which public

financing issues it was referring. Of course, the conclusion in the proposed Audit Report that the RNC's media

expenditures were coordinated with the Dole campaign is based on the facts, not on any presumption.

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Primary Committee, the RNC "independently designed, produced, and aired" the advertisements

"without direction from the candidate or campaign" and the RNC had "full and final authority

over both the production and the geographic distribution ofthe ads." The Primary Committee

adds that its only involvement with the "production or airing ofthe ads" was when, "as a matter

of courtesy, [the RNC] showed the ads to the campaign after the ads were finalized and made

public." In addressing the role of Don Sipple, the Primary Committee's media consultant, in the

RNC advertising campaign, the Primary Committee states that "when the ads at issue were

created, produced and aired, Mr. Sipple was being directed by and his legal duty was to the

RNC."

We concur with the Report's conclusions on coordination and believe that the RNC's

expenditures were "made .. , in cooperation, consultation, or concert, with, or at the request or

suggestion of, a candidate, his authorized political committees or their agents." 2 U.S.c.

§ 441 a(a)(7)(B)(i). The record in the audit includes evidence ofsubstantial communication

between the RNC and the Dole campaign on every facet ofthe media campaign. Thus, there is

sufficient evidence of coordination between the RNC and the Dole campaign to support the

Audit staffs conclusion that the RNC media expenditures were in-kind contributions to the

Primary or General Committees. The evidence of coordination that the Report details is such

that it is difficult to distinguish between the activities ofthe RNC and the Dole campaign with

respect to the creation and publication ofthe media advertisements at issue.

Documents and other evidence available to the Commission indicate that campaign

officials were provided with, inter alia, the following RNC advertising campaign materials:

copies offirst drafts of advertisement scripts, copies ofrevised drafts of advertisement scripts;

copies offocus group summaries where potential advertisements were screened and reviewed;

copies of polling results relating to the advertisements' effect on the popularity of Senator Dole

and President Clinton; and memoranda relating to which advertisements should, or would, be

broadcast in which markets on which dates. Documents and other evidence available to the

Commission also establish that Senator Dole's campaign manager, Scott Reed, attended weekly

meetings with RNC personnel where he actively participated in discussions about, inter alia,

RNC advertising content and about where the RNC ought to nm advertisements.

Moreover, evidence indicates that many ofthe RNC advertisements were produced by

Don Sipple, who was employed by Senator Dole's campaign at various points during the

campaign as chiefmedia consultant. Additionally, Anthony Fabrizio, another senior Dole

consultant and pollster, also consulted and conducted polls for the RNC. The key role ofthese

individuals for both the RNC and the Dole campaign is evidence of coordination. Cf 11 C.F.R.

§ 109.1(b)(4)(i)(B). Thus, the facts set forth in the proposed Audit Report are sufficient to

support a conclusion that the media expenditures made by the RNC were "made ... in

cooperation, consultation, or concert, with, or at the request or suggestion of, a candidate, his

authorized political committees or their agents." 2 U.S.C. § 441a(a)(7)(B)(i).

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B. Content of Advertisements Paid for by the RNC

The next question in determining whether a media expenditure by a national committee is

an in-kind contribution is whether the content ofthe advertisement constitutes an "electioneering

message" and references a "clearly identified candidate."s8 See ADs 1985-14; 1984-15. In order

to determine ifthe advertisement includes an electioneering message and references to a clearly

identified candidate, the Commission will consider the purpose, content and timing ofthe

advertisements at issue.

The Commission first set forth the clearly identified candidate/electioneering message

standard in AD 1984-15 and AD 1985-14. In AD 1984-15, the Commission determined that two

television advertisements which the RNC proposed to broadcast had "[t]he clear import and

purpose ... to diminish support for any Democratic Party presidential nominee and to garner

support for whoever may be the eventual Republican Party nominee" and "effectively advocate

the defeat of a clearly identified candidate." The Commission concluded that because the

"expenditures for these advertisements benefit the eventual Republican presidential candidate

and are made with respect to the presidential general election and in connection with the

presidential general election campaign," the expenditures would be reportable either as

contributions subject to the limitation set forth at 2 U.S.C. § 44Ia(a)(2)(A), or as coordinated

party expenditures subject to the limitation set forth at 2 U.S.C. § 44Ia(d).

AO 1985-14 involved television, radio and print advertisements, and mailers, which the

Democratic Congressional Campaign Committee ("DCCC") proposed to publish, and which

purported to describe Republican policies. Citing AO 1984-15, the Commission concluded that

amounts used to fund the communications would be expenditures subject to the limitation set

forth at 2 U.S.C. § 441a(d) ifthe advertisement funded by that amount "(1) depicted a clearly

identified candidate and (2) conveyed an electioneering message." The Commission cited

United States v. UnitedAuto Workers, 352 U.S. 567, 585, 587 (1957), in which the Supreme

Court stated that advertisements "designed to urge the public to elect a certain candidate or

party" constitute an "expenditure in connection with any federal election."s9 Applying this

standard, the Commission determined that advertisements which referred to "the Republicans in

Congress" were not subject to limitation under 2 U.S.C. § 44Ia(d), regardless of whether the

advertisement closed with the statement "Vote Democratic." The Commission also concluded

that advertisements which referred to "your Republican Congressman" were not subject to

limitation under 2 U.S.C. § 44Ia(d), ifthe advertisement did not close with the statement "Vote

Democratic." However, the Commission on a tie vote was unable to decide whether

advertisements which referred to "your Republican Congressman" and which closed with the

5& The Act defines "clearly identified" as meaning "(A) the name ofthe candidate involved appears;

(B) a photograph or drawing ofthe candidate appears; or (C) the identity ofthe candidate is apparent by

unambiguous reference." 2 U.S.C. § 431(18); see also 11 C.F.R. § 100.l?.

59 In United Slales v. United Auto Workers. the Supreme Court defined "expenditure in connection

with any election" as used in section 304 of the Taft-Hartley Act. 352 U.S. at 582.

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statement "Vote Democratic" were subject to limitation under 2 U.S.C. § 441a(d). Finally, the

Commission concluded that the costs of production and distribution ofthe proposed mailer

would be subject to limitation under section 441a(d). Because the advertisements in this audit

identify specific Republican and Democratic candidates for President, these advertisements are

akin to the proposed mailer at issue in AO 1985-14, in which the DCCC intended to identify

specific congressmen by name. Based on its understandings that the proposed mailers would

identify particular congressmen by name, and that the distribution ofthe mailer would include all

or part ofthe district represented by the congressman identified in that mailer, the Commission

concluded that the costs ofproduction and distribution would be subject to limitation under the

Act.

In AOs 1984-15 and 1985-14, the Commission considered the purpose, content, and

timing ofthe advertisements at issue. The Commission's determination that the costs ofthe

proposed mailer were subject to limitation under section 441a(d) was based on the Commission's

assumptions that the mailer would identify particular congressmen by name, and that the

distribution ofthe mailer would include all or part ofthe district represented by the congressman

identified in that mailer. As to timing, the Commission considered the proposed dates on which

the advertisements were to be run, stating that the '''proposed program is for the purposes of

influencing the 1986 election process," "emphasiz[ing] that this opinion is limited to the

timetable you have specified." The Commission's reference to the place and the timing ofthe

communicative activity makes clear that the determination whether spending for a particular

communication contains an electioneering message requires consideration ofthe context in

which the communication is published.GO The Commission also considered the purpose ofthe

advertisements. In AO 1985-14 the Commission explicitly relied on the representation that the

media program had "the clear purpose ofinfluencing voter perceptions ofthese candidates with a

view toward weakening their positions as candidates for re-election." Similarly, in AO 1984-15,

the conclusion that the proposed television advertisements were subject to regulation as

contributions or coordinated party expenditures was explicitly based, in part, on the opinion that

"the clear import and purpose of[the] proposed advertisements [was] to diminish support for

whoever may be the presidential nominee and to gamer support for whoever may be the eventual

Republican Party nominee.,,61

'" The Commission in AO 1985-14 assumed that the media campaign was developed without cooperation or

consultation with any candidate, and based the theory that the limitations under 2 U.S.C. § 441a(d) apply to party

expenditures irrespective of actual coordination with a candidate. AO 1984-15 involved a RNC media campaign

which, in the view ofthe Commission, was intended to benefit "the eventual Republican Party nominee [for

President]." Thus, AOs 1985-14 and 1984-15 both involved media campaigns which had a purpose ofinfluencing

the election of certain candidates, but which were implemented without coordination with the candidate. Both

AO 1984-15 and 1985-14 were issued prior to the Supreme Court's 1996 decision, Colorado Republicans.

61 In another opinion, AO 1995-25, the Commission concluded that costs related to advertisements focusing

on national legislative activity and the promotion ofthe Republican Party were allocable between the Republican

Party's federal and nonfederal accounts pursuant to II C.F.R. § I06.5(b)(2)(i) and (ii). Unlike the situation in

AO 1995-25, here the content of the media campaign, the coordination between Dole campaign officials and the

RNC, and the content ofthe advertisements together reveal that the purpose ofthe advertising campaign was to

influence the election of Senator Dole. Moreover, the Commission in AO 1995-25 explicitly declined to address the

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As noted, the FECA permits limited coordinated expenditures to be made by party

committees "in connection with general election campaign[s] ofcandidates for federal office,"

including expenditures for communications such as media advertising. 2 U.S.C. § 441a(d). The

Supreme Court, in Colorado Republican, did not address the appropriate measure ofthe content

ofsuch communications. However, the Court of Appeals in its earlier decision in FEC v.

Colorado Republican Federal Campaign Comm., 59 F.3d 1015 (10th Cir. 1995), vacated and

remanded on other grounds, 518 U.S. 604 (1996) (plurality op.), expressly deferred to the

Commission's long standing "construction of § 441a(d) as regulating political committee

expenditures depicting a clearly identified candidate and conveying an electioneering message."

59 F.3d at 1022 (citing AO 1984-15). The Court of Appeals relied not upon particular language

in the communication, but rather upon the overall impact ofthe message as one intended to

"garner support" for one candidate and to "diminish support" for another. 59 F.3d at 1023.

The Primary Committee argues that the Audit Division did not apply the "express

advocacy" test. However, the Commission has not required express advocacy in order to

determine that a coordinated disbursement is a contribution or, in the case of coordinated party

expenditures, subject to the limitations of2 U.S.C. § 44Ia(d). The Buckley Court applied the

"express advocacy" test only in the limited context ofindependent expenditures, 424 U.S. at 40-

44, 78-79, and no court has, without being overruled by a higher court, required application of

the express advocacy test to anything other than independent expenditures.62 The Supreme Court

in Buckley recognized a distinction between independent expenditures and expenditures for

communications that are authorized or requested by the candidate, an authorized committee of

the candidate, or an agent ofthe candidate, and held that the latter are to be treated as

expenditures ofthe candidate and contributions by the person or group making the expenditure.

424 U.S. at 46-47, n. 53. The Court explained that coordinated expenditures are treated as inissue whether or not the proposed advertisements contained an electioneering message, stating that "[t]he

Commission relies on [the requesting party's] statement that those advertisements that mention a Federal candidate

or officeholder will not contain any electioneering message. In view ofthis representation, the Commission does

not express any opinion as to what is or is not an electioneering message by a political party committee." AO 1995-

25 at n.l. Moreover, the Commission explicitly left open the possibility that the advertisements might be subject to

section 44 Ia(d), stating its conclusion that "legislative advocacy media advertisements that focus on national

legislative activity and promote the Republican Party should be considered as made in connection with both Federal

and non-federal elections, unless the ads would qualify as coordinated expenditures on behalf of any general

election candidates ofthe party under 2 U.S.C. § 44Ia(d)."

" Another reason to limit the express advocacy test to independent expenditures is that not all coordinated

expenditures are communicative. For instance, if a supporter provided aircraft charter service to a publicly funded

candidate's campaign, in coordination with the campaign, the supporter has made an in-kind contribution and an

expenditure. This is consistent with the definition of "expenditure" at 2 U.S.C. § 43 I(9)(A) and with 2 U.S.C.

§ 441 a(a)(7)(B)(i), which provides that coordinated expenditures are contributions. Yet, there is surely no "express

advocacy" in the provision of the aircraft charter services to the campaign. As the Colorado Republicans Court

noted the similarities between coordinated expenditures and other kinds of contributions are similar: "many

[coordinated] expenditures are also virtually indistinguishable from simple contributions (compare, for example, a

donation of money with direct payment of a candidate's media bills)." 518 U.S. at 624.

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kind contributions subject to the contribution limitations in order to "prevent attempts to

circumvent the Act through prearranged or coordinated expenditures amounting to disguised

contributions." 424 U.S. at 46-47.

Furthermore, the vagueness concerns that caused the Supreme Court to apply the express

advocacy test to independent expenditures in Buckley and FEC v. Massachusetts Citizensfor

Life, Inc., 479 U.S. 238 (1986),63 are not present in the case of coordinated expenditures. The

Buckley Court was concerned that the requirements ofthe FECA, for disclosure ofindependent

expenditures above a certain dollar threshold "could be interpreted to reach groups engaged

purely in issue discussion." 424 U.S. at 79. However, because "the distinction between

discussion ofissues and candidates and advocacy of election or defeat of candidates may often

dissolve in practical application," id. at 42, it would be difficult to know in advance without the

express advocacy standard whether a given independent communication had a sufficient nexus to

a Federal election to be subject to the Act; but in the case of a coordinated communication some

ofthe required nexus to a Federal election may be found in the act of coordination itself. See id.

at 78 ("So defined, 'contributions' have a sufficiently close relationship to the goals ofthe Act,

for they are connected with a candidate or his campaign").

Moreover, the application of a strict "express advocacy" test to coordinated expenditures

would undermine the statutory purpose ofprotecting the electoral process from real or apparent

corruption. The Buckley Court noted that:

It would naively underestimate the ingenuity and resourcefulness ofpersons and groups

desiring to buy influence to believe that they would have much difficulty devising

expenditures that skirted the restriction on express advocacy of election or defeat but

nevertheless benefited the candidate's campaign. Yet no substantial societal interest

would be served by a loophole-closing provision designed to check corruption that

permitted unscrupulous persons and organizations to expend unlimited sums ofmoney in

order to obtain improper influence over candidates for elective office.

Buckley, 424 U.S. at 45. The Supreme Court went on to say that the independent expenditure

limitations were, in any event, not necessary to close a loophole in the Act's contribution

limitations, because the Act treated coordinated expenditures as contributions, thus closing the

loophole. Id. at 45-46. Thus, express advocacy only applies to independent expenditures.

The advertisements in question in this audit "clearly identify" Senator Dole, or in some

cases, President Clinton, both candidates at the time the advertisements ran. Additionally, based

on the texts ofthe advertisements, it appears that the advertisements contain an electioneering

message. The texts contain phrases such as "Tell President Clinton you won't be fooled again"

61 See also Ca"!ornia Medical Ass'n v. FEC, 453 U.S. 182, 195 (1981) (plurality op.); Akins v. FEC,

101 F.3d 731,741 (D.C. Cir. I 996)(en banc), vacated on other grounds, 118 S. Ct. 1777 (1998); Orloski v.

FEe, 795 F.2d 156, 167 (D.C. Cir. 1986).

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and "Bill Clinton, he's really something." These phrases may be designed to urge the public to

elect a certain candidate. The advertisements feature Senator Dole and President Clinton,

sometimes together and sometimes separately, and juxtapose their positions on certain political

issues like the gas tax or on matters relating to personal behavior. The advertisement, "the

Story," is unique in that it provides biographical facts about the candidate and describes his

commendable personal characteristics in a manner that appears to serve to garner support for the

candidate. For instance, the advertisement's focus on Senator Dole's military service is

consistent with the reported campaign strategy to highlight his military record. See Katharine Q.

Seelye, Dole Says Veterans Are Better Americans, N.Y. TIMES, August 15, 1996.64 Although

"the Story" references "Work for Welfare," "Criminal Justice Reform" and "Wasteful

Washington Spending," there is no representation that these items are part of a legislative

agenda. Additionally, as noted in the Report, the advertising campaign's purpose appeared to be

designed to assist the Dole campaign and elect Senator Dole. One memorandum refers to

broadcasting advertisements in "target presidential states," and poll results track the advertising's

effectiveness by measuring Senator Dole's popularity versus President Clinton's. Therefore, this

Office concurs with the proposed Audit Report's conclusions that the RNC and the Dole

campaign coordinated media expenditures, that the advertisements contain an electioneering

message and references to a clearly identified candidate, and that the advertisements should be

considered an in-kind contribution to the Dole campaign.6s

C. Treatment of Media Expenditures as Primary Expenditures

The proposed Audit Report applies the RNC media expenditures on behalfof Senator

Dole's campaign to the Primary Committee's overall expenditure limitation. The magnitude of

the activity involved raises the difficult question of whether these expenditures should be applied

to the primary or general election expenditure limit.

The Office of General Counsel agrees with the Audit Division's conclusion that these

media expenditures should be subject to attribution between the primary and general expenditure

limitations according to the same analysis that a candidate's expenditures are attributed.

11 C.F.R. § 9034.4(e). Because the media expenditures were simultaneously in-kind

contributions by the RNC and expenditures by the candidate, they are equivalent to and

commingled with expenditures paid for by his authorized committee and are subject to the

expenditure limitations. See II C.F.R. § I04.13(a); 2 U.S.C. § 44Ia(b) and (c); 26 U.S.C.

§ 9035(a). Cf 11 C.F.R. § I09.1(c). This Office believes that the Commission's "bright-line"

rules at 11 C.F.R. § 9034.4(e) for attribution of expenditures between the primary and general

election limitations provide guidance for the attribution ofthe media expenditures, consistent

.. Similarly, the advertisement's focus on Senator Dole's value system was also consistent with the

Senator's reported campaign strategy ofmaking character an issue. See Robert Shogan, GOP Mounts

BroadAttack on President's Character, L.A. TIMES, June 18, 1996.

" See infra Part II., C. for a discussion of attribution to applicable expenditure limitation.

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with the application ofthese rules to all expenditures subject to the expenditure limitations.

Therefore, this Office reaches the conclusion that the media expenditures should be attributed

between the primary and general expenditure limitations pursuant to 11 C.F.R. § 9034(e).

The Commission promulgated 11 C.F.R. § 9034.4(e) to establish a "bright line" cut-off

date between primary and general election expenses "with regard to certain specific types of

expenditures that may benefit both the primary and the general election." See Explanation and

Justification for 11 C.F.R. § 9034.4(e), 60 Fed. Reg. 31,867 (June 16, 1995). The general "bright

line" rule is that goods or services used exclusively for the primary or general election campaign

are allocable to that election. 11 C.F.R. § 9034.4(e)(I). Otherwise, expenditures for media and

other communications used for both the primary and general elections are attributed between the

primary and general elections based upon whether the date of broadcast or publication is before

or after the candidate's date ofnomination. 11 C.F.R. § 9034.4(e)(6).

In adopting the rule, the Commission recognized that the application ofthe rules could

result in the attribution ofsome primary-related expenditures to the general election expenditure

limitations and vice versa, but reasoned that "these differences should balance themselves out

over the course of a lengthy campaign." 60 Fed. Reg. 31,867 (June 16, 1995). The Commission

has promulgated regulations based on the timing ofthe contribution in other contexts, such as the

designation of contributions to the primary or general election. See, e.g., 11 C.F.R.

§ 1IO.2(b)(2)(ii); see also 11 C.F.R. § I02.9(e). While 11 C.F.R. § 9034.4(e) does not explicitly

discuss national party committees, the regulation applies to a publicly financed candidate's

expenditures subject to the limitations, which include expenditures in the form ofin-kind

contributions.

This Office believes that the "bright line" regulations should apply because in-kind

contributions are also expenditures by the recipient candidate. See 11 C.F.R. §§ I04.13(a)(l)

and (2); I09.l(c). By coordinating with the Dole campaign and paying for media expenditures in

order to influence the election of Senator Dole, the RNC made in-kind contributions to the

candidate which were simultaneously expenditures by his campaign committees. See 2 U.S.C.

§§ 431 (8)(A)(i) and (9)(A)(i); 11 C.F.R. §§ 100.7(a)(l)(iii) and 11O.8(a)(l)(iv)(A). The

Commission treats in-kind contributions like any other expenditures by a publicly financed

candidate. See Statement ofReasons, Senator Robert Dole and the Dole for President

Committee, Inc. at 24 (February 6, 1992)(The Commission "generally allocates in-kind

contributions to a [publicly financed] committee's expenditure limitation."). Moreover, the inkind contributions are considered commingled with the candidate's other expenditures and

subject to repayment: "[o]rdinarily, federal matching funds and private contributions are

commingled in a committee's accounts. The Commission considers in-kind contributions to be

part ofthis commingled pool of available funds." Id. at 25. Thus, all of a publicly financed

candidate's expenditures, including expenditures in the form ofin-kind contributions received,

are considered commingled in the mixed pool of expenditures subject to the expenditure

limitations. See 2 U.S.C. §§ 44Ia(b) and (c); 26 U.S.C. § 9035(a). The "bright line" rules

should be applied consistently to all of a campaign's expenditures, including in-kind

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contributions paid for by national party committees, in order to avoid having two identical media

expenditures paid for and broadcast at the same time and made on behalfof a candidate's

campaign treated as primary and general expenditures depending on whether the candidate or

party committee paid for them.

Pursuant to II C.F.R. § 9034.4(e)(l), any expenditure for goods or services that are used

exclusively for the general election campaign shall be attributed to the general election

expenditure limits, which are set forth at II C.F.R. § llO.8(a)(2), as adjusted under II C.F.R.

§ IIO.9(c). Based on the facts described in the proposed Audit Reports, some ofthe

advertisements attempted to diminish support for President Clinton, but in no way referred to

Senator Dole. Without any reference to any ofthe competitors in the primary election, these

advertisements appear to have been used exclusively for the general election campaign. Such

advertisements include: Case Study, Even More Talk, More, More Talk, Pledge, Stripes and

Who. Because these seven advertisements apparently had a purpose only to diminish support for

President Clinton and did so in a way that did not attempt to increase support for any ofthe

candidates for the Republican nomination over the competitors for that party's nomination, the

advertisements apparently were not used for the primary election campaign. Senator Dole

became the inevitable nominee on March 26,1996/6 and it appears all ofthe advertisements

were broadcast after that date. Because Senator Dole was the presumptive nominee and because

these seven advertisements attempted to diminish support for his general election opponent, the

advertisements were used exclusively for Senator Dole's general election campaign. Therefore,

pursuant to II C.F.R. § 9034.4(e)(l), the expenditures related to the seven advertisements should

be attributed to the expenditure limits ofthe General Committee.

Alternatively, as general election expenditures, the RNC would have been permitted to

make such coordinated expenditures pursuant to 2 U.S.C. § 44 Ia(d). Thus, the media

expenditures related to the seven advertisements listed above can be considered coordinated

party expenditures to the extent the RNC has not exhausted the applicable contribution limit at

2 U.S.C. § 44Ia(d), as adjusted by other findings in the proposed Audit Report. In order to

attribute these media expenditures to the coordinated party expenditure limitation at 2 U.S.C.

§ 44Ia(d), the RNC must have made those expenditures directly or through its properly

designated state party committees, and the RNC must have used funds raised in accordance with

the limitations and prohibitions ofthe FECA. I I C.F.R. § llO.7(a)(4). Any remaining amounts

should be attributed to the General Committee's expenditure limitation. 2 U.S.C.

§ 44Ia(a)(l)(B) and (c). Therefore, we recommend that the proposed Audit Reports for the

Primary and General Committees be revised in accordance with this discussion.

With respect to the expenditures related to the other three advertisements described in the

proposed Audit Report, the Plan, Surprise and the Story, there is an argument that none ofthe

media expenditures were used exclusively for the primary or exclusively for the general

66 See, e.g., R. Cook, Dole's Nomination Clinch Fits Reagan, Bush Molds, Congressional Quarterly,

897 (Mar. 30, 1996).

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campaign. Rather, it can be argued that the advertisements were used for both the primary and

the general elections. The Plan, Surprise and the Story all appear to have been used for both the

primary and general election campaigns. Surprise depicts both Senator Dole and President

Clinton and therefore it seems to have an obvious general election use, but also a primary

election use of urging support for Senator Dole as the best choice for the Republican nomination

because of his standing compared to the Republican nominee's ultimate opponent, the

Democratic nominee.67 Cf Final Audit Report on Reagan Bush '84 Primary (July 7, 1986)

(stating that expenditures to unify party or to help candidate retain delegates' support had a

primary election purpose). The Story is a flattering portrayal of Senator Dole and it was

broadcast prior to his nomination, both of which indicate a primary election use.68 Because it

was broadcast in states chosen based on Senator Dole's competitive standing against his general

election opponent, the advertisement cannot meet the exclusively use test under II C.F.R.

§ 9034.4(e)(l). The Plan presents Senator Dole's position in a favorable light without reference

to any of his primary or general election opponents.

Therefore, the three advertisements are not subject to attribution under the exclusive use

tests of 11 C.F.R. § 9034.4(e)(1), but are instead attributed by broadcast date pursuant to

11 C.F.R. § 9034.4(e)(6).69 Using this approach, based on the timing ofthese three

advertisements, the related media expenditures were primary campaign expenditures that are

allocable to the Primary Committee's expenditure limitations. 11 C.F.R. § 9034.4(e)(6).

Therefore, this Office concurs with the finding in the Audit Report with respect to these three

advertisements that the Primary Committee exceeded the expenditure limitation and the

recommendation that the Commission determine that the Primary Committee must make a pro

rata repayment ofthe excessive amount. 26 U.S.C. § 9038(b)(2).

The approach ofsubjecting national party committee in-kind contributions to attribution

between the primary and general elections pursuant to 11 C.F.R. § 9034.4(e) does give rise to an

anomaly regarding 2 U.S.C. § 441a(d) expenditures. As a result of applying II C.F.R.

§ 9034.4(e) to some ofthe media expenditures involved in this audit, advertisements that may

have a sufficient general election purpose to have been permitted as section 441a(d) coordinated

party expenditures but for section 9034.4(e)'s requirement that mixed purpose advertisements be

attributed based on broadcast timing, should not be permitted as coordinated party expenditures

67 In fact, some unsuccessful primary election candidates compare themselves not to their primary

election opponents, but to their general election opponents and argue that they are their party's candidate

most likely to defeat the other general election candidates. Nonetheless, the primary election purpose of

such efforts is clear and is not eliminated by any candidate's success in the primary election.

" See also description in Part II., B. slipra.

69 Media production costs for media broadcast both before and after the date of nomination are split

50% to the primary and 50% to the general election. II C.F.R. § 9034.4(e)(5). Because it was broadcast

before and after Senator Dole's nomination, production costs for the Plan should be attributed pursuant to

[ I C.F.R. § 9034.4(e)(5). Distribution costs for the advertisement known as the Plan are discussed in Part

VI inFo.

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and, instead, should be attributed to the Primary Committee's expenditure limit. We recognize

that this consequence may be undesirable. If I I C.F.R. § 9034.4(e) did not control the attribution

ofthe media expenditures, AO 1984-15 would provide guidance. In that advisory opinion,

which was issued before the promulgation of 11 C.F.R. § 9034.4(e), the Commission concluded

that a national party committee could make coordinated party expenditures pursuant to 2 U.S.C.

§ 441 a(d) on behalf ofits "presumptive nominee" before the individual has received the official

nomination. The Commission explained, "[a]lthough timing is relevant, the Commission does

not view the timing of broadcast as controlling how expenditures for the advertisements should

be treated for limitation and reporting purposes." AO 1984-15. Instead, "the proper analytical

focus for attributing a national party expenditure between a primary and a general election

campaign is whether the expenditure was made for the purpose ofinfluencing the outcome ofthe

general election or for the purpose ofinfluencing the outcome ofthe nomination." Jd. However,

the advisory opinion applies only to 2 U.S.C. § 44Ia(d) expenditures, while II C.F.R.

§ 9034.4(e)(I) allocates expenditures exclusively related to an election to that election regardless

oftiming. Thus, we do not believe that the advisory opinion resolves the issue of how to

attribute expenditures between the primary and general election limitations where the

expenditures appear to have a mixed purpose related to both the primary and general elections.

The Commission promulgated II C.F.R. § 9034.4(e) in order to resolve these kinds ofsituations.

Under a "functional" approach, an examination ofthe facts related to each advertisements

could lead to an attribution of expenditures related to the advertisements between the primary

and general election that reflected the relative purposes served by each advertisement. The

Office of General Counsel believes that the better approach is to analyze these expenditures

under 11 C.F.R. § 9034.4(e). To analyze each mixed purpose advertisement, including external

events occurring at the time each was developed and aired, in addition to investigating activity

leading to the creation of each particular advertisement, to determine which purpose

predominated, would be a difficult undertaking. The Commission promulgated the "bright line"

rules for expenditures having a mixed purpose in order to obviate the need to use its limited

resources to perform such a time consuming task. This Office recommends that the audit report

should be revised to apply II C.F.R. § 9034.4(e)(2) through (6), which allocate expenditures

based on date, to any expenditures used for both Senator Dole's primary and general elections

that were reported by the RNC as coordinated party expenditures pursuant to 2 U.S.C. § 441a(d).

While this approach may seem to limit the RNC's ability to allocate expenditures under

section 441a(d) before the candidate's date of nomination in apparent contradiction to the

guidance provided by AO 1984-15, the exclusivity standard in II C.F.R. § 9034.4(e)(l)

preserves the national party committees' ability to use coordinated party expenditures subject to

2 U.S.C. § 44 Ia(d) prior to the nomination oftheir candidates. Finally, it is important to note

that the repayment amount in these proposed Audit Reports is substantial not because of

II C.F.R. § 9034.4(e)(I)'s limitation on 2 U.S.C. § 44 Ia(d) to expenditures that are used

exclusively for the general election. Instead, the repayment amounts are substantial due to the

size of the RNC's in-kind contribution to the Primary Committee, which dwarfs either ofthe

applicable contribution limits, whether it is for a $5,000 contribution to the Primary Committee

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and, instead, should be attributed to the Primary Committee's expenditure limit. We recognize

that this consequence may be undesirable. If 11 C.F.R. § 9034.4(e) did not control the attribution

ofthe media expenditures, AO 1984-15 would provide guidance. In that advisory opinion,

which was issued before the promulgation of II C.F.R. § 9034.4(e), the Commission concluded

that a national party committee could make coordinated party expenditures pursuant to 2 U.S.C.

§ 441 a(d) on behalf ofits "presumptive nominee" before the individual has received the official

nomination. The Commission explained, "[a]lthough timing is relevant, the Commission does

not view the timing of broadcast as controlling how expenditures for the advertisements should

be treated for limitation and reporting purposes." AO 1984-15. Instead, "the proper analytical

focus for attributing a national party expenditure between a primary and a general election

campaign is whether the expenditure was made for the purpose ofinfluencing the outcome ofthe

general election or for the purpose ofinfluencing the outcome of the nomination." Id. However,

the advisory opinion applies only to 2 U.S.C. § 441a(d) expenditures, while 11 C.F.R.

§ 9034.4(e)(I) allocates expenditures exclusively related to an election to that election regardless

oftiming. Thus, we do not believe that the advisory opinion resolves the issue ofhow to

attribute expenditures between the primary and general election limitations where the

expenditures appear to have a mixed purpose related to both the primary and general elections.

The Commission promulgated 11 C.F.R. § 9034.4(e) in order to resolve these kinds ofsituations.

Under a "functional" approach, an examination of the facts related to each advertisements

could lead to an attribution of expenditures related to the advertisements between the primary

and general election that reflected the relative purposes served by each advertisement. The

Office of General Counsel believes that the better approach is to analyze these expenditures

under 11 C.F.R. § 9034.4(e). To analyze each mixed purpose advertisement, including external

events occurring at the time each was developed and aired, in addition to investigating activity

leading to the creation of each particular advertisement, to determine which purpose

predominated, would be a difficult undertaking. The Commission promulgated the "bright line"

rules for expenditures having a mixed purpose in order to obviate the need to use its limited

resources to perform such a time consuming task. This Office recommends that the audit report

should be revised to apply 11 C.F.R. § 9034.4(e)(2) through (6), which allocate expenditures

based on date, to any expenditures used for both Senator Dole's primary and general elections

that were reported by the RNC as coordinated party expenditures pursuant to 2 U.S.C. § 441a(d).

While this approach may seem to limit the RNC's ability to allocate expenditures under

section 44Ia(d) before the candidate's date of nomination in apparent contradiction to the

guidance provided by AO 1984-15, the exclusivity standard in 11 C.F.R. § 9034.4(e)(I)

preserves the national party committees' ability to use coordinated party expenditures subject to

2 U.S.C. § 441a(d) prior to the nomination oftheir candidates. Finally, it is important to note

that the repayment amount in these proposed Audit Reports is substantial not because of

11 C.F.R. § 9034.4(e)(l)'s limitation on 2 U.S.C. § 441a(d) to expenditures that are used

exclusively for the general election. Instead, the repayment amounts are substantial due to the

size ofthe RNC's in-kind contribution to the Primary Committee, which dwarfs either ofthe

applicable contribution limits, whether it is for a $5,000 contribution to the Primary Committee

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under 2 U.S.C. § 44Ia(a)(2) or whether it is the amount remaining under 2 U.S.C. § 44 Ia(d) for a

coordinated party expenditure.

III. OVERALL EXPENDITURE LIMITATION AND THE REPAYMENT RATIO

With respect to the Primary Committee, the Commission may seek a pro rata repayment

for the amounts spent in excess ofthe expenditure limitations. II C.F.R. §§ 9038.2(b)(l)(i) and

(ii). Amounts in excess ofthe overall expenditure limitation are non-qualified campaign

expenses. II C.F.R. § 9034.4(b)(2). The Commission may seek a repayment for non-qualified

campaign expenses. 26 U.S.C. § 9038(b)(2). However, the non-qualified campaign expense or

the amount in excess ofthe expenditure limitation is not composed of only expenditures that the

RNC made on behalf ofthe Primary Committee, it is also composed ofpublic funds. See

II C.F.R. § 9034.4(a); Kennedy for President Committee v. FEC, 734 F.2d 1558, 1565 (D.C. Cir.

1984); Reaganfor President Committee v. FEC, 734 F.2d 1569 (D.C. Cir. 1984). Therefore,

when the Commission seeks a repayment for amounts in excess ofthe expenditure limitation, it

is not capturing expenses paid by the RNC on behalf ofthe Primary Committee. Rather, the

repayment for exceeding the expenditure limitation is an attempt "to 'recoup' only the federal

funds used for unqualified expenditures." Kennedy, 734 F.2d at 1565. See John Glenn

Presidential Committee v. FEC, 822 F.2d 1097, 1098 (D.C. Cir. 1987) ("The statutory

recoupment remedy pursued by the FEC does not call back private spending; it does police the

restrictions Congress placed on the expenditure ofpublic moneys"). The regulations contemplate

that the sum to be repaid for exceeding the expenditure limitation will equal the portion ofthe

matching payments that was used for non-qualified purposes. 11 C.F.R. § 9038.2(b)(2).

The proposed Report raises a related issue ofwhether contributions made by the RNC to

the Primary Committee are to be included in the total deposits when calculating the repayment

ratio. The repayment ratio in the proposed Report is 0.21.70 The Report includes all

contributions, whether in-kind or monetary, in the mixed pool of public and private funds used in

calculating the repayment ratio. The in-kind contributions are included in the repayment ratio's

denominator as part oftotal deposits. This Office agrees that the method for calculating the

repayment ratio in the proposed Audit Report is correct.

The regulations establish that the amount of a repayment shall bear the same ratio to the

total amount determined to have been used for non-qualified campaign expenses as the amount

ofmatching funds certified to the candidate bears to the candidate's total deposits, as of90 days

after the candidate's date ofineligibility. 1I C.F.R. § 9038.2(b)(2)(iii). Total deposits is defined

70 We note that the Primary Committee's proposed Audit Report states a repayment ratio rounded to

the nearest hundredth, while the proposed Audit Report for the Clinton/Gore '96 Primary Committee, Inc.,

states a repayment ratio rounded to the nearest hundred-thousandth. We recommend that you round and

state the ratios consistently in the two proposed Audit Reports.

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as all deposits to all candidate accounts minus transfers between accounts, refunds, rebates,

reimbursements, checks returned for insufficient funds, proceeds ofloans and other similar

amounts. 11 C.F.R. § 9038.3(c)(2). However, the Commission's regulations do not explicitly

state whether in-kind contributions are to be included in the denominator ofthe fraction for total

deposits when calculating the repayment ratio.

The Office of General Counsel believes that the in-kind contributions that are attributable

to the Primary Committee's expenditure limitation should be included in the denominator ofthe

fraction for total deposits. The purpose ofthe repayment process is to recapture public funds

used for non-qualified campaign expenditures. 11 C.F.R. § 9038.2(b)(2). Since federal

matching funds and private contributions are commingled in the campaign fund, it is difficult to

determine an absolutely accurate estimate ofthe amount ofmatching funds used for nonqualified purposes. Kennedy, 734 F.2d at 1565. In order to be as accurate as possible in

recapturing public funds, in-kind contributions must be included in the denominator. The

Kennedy Court noted that "by requiring repayment of 100 percent ofthe amount of unqualified

expenditures, without at least estimating the extent to which such expenditures derived from

matching funds sources, the Commission has shirked its statutory responsibility to make a

reasonable determination that the repayment sum represents the matching funds used for

unqualified purposes." Id. at 1562. Including in-kind contributions in the denominator for total

deposits lowers the ratio of public funds to more accurately reflect the amount that can be

recaptured as public funds spent in excess ofthe overall expenditure limitation.?· Furthermore,

in an example of a calculation ofthe repayment ratio based on surplus funds, the amount ofinkind contributions are included when determining total deposits and receipts ofthe committee.

See Financial Control and Compliance Manual, at 67-68 (Jaimary 1996).

Footnote 19 of the proposed Audit Report notes that the RNC in-kind contributions are

included in the repayment ratio calculation. However, it is unclear whether other in-kind

contributions were included in the calculation. Therefore, we recommend that the proposed

Audit Report be revised to note the amount and types ofin-kind contributions that were included

in the ratio calculation. In order to facilitate the discussion of this issue, this Office recommends

that the Report include discussion on calculating the repayment ratio when a committee receives

an in-kind contribution subject to the expenditure limitations.

With respect to the General Committee, any ofthese expenditures that are attributable to

the General Committee's expenditure limitation and were not within the 2 U.S.C. § 44Ia(d)

limitation are entirely repayable since publicly financed general election committees that receive

the full public grant must repay the entire amount of a contribution. 26 U.S.C. § 9007(b)(3).

71 According to the proposed Audit Report, the RNC's payment of media expenses, salaries,

consulting payments, and other expenditures were detennined to be in-kind contributions by the RNC to

DFP. Footnote 49 of the proposed Audit Report states the figure that represents the repayment ratio.

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IV. POLLING

With regard to the Audit Report finding on polling, the question arises whether 11 C.P.R.

§ 106.4 applies to polling activity paid for by the RNC. The Audit Report notes that the Primary

Committee "was part ofthe planning for the RNC polling that was done between the end of

March of 1996 and the convention," held on August 14,1996. A significant portion ofthe

polling appears to be related to the RNC's media expenditures. The RNC paid for focus groups

that viewed and commented on potential advertisements and for tracking polls that measured the

effectiveness ofthe advertising campaign over time. The Audit Report establishes that the

polling was coordinated by, inter alia, a pollster who was simultaneously a consultant for both

the Primary Committee and the RNC and that polling results were made available to the Primary

Committee, which had othel\vise stopped purchasing polls in March 1996.n This factual

situation falls within the ambit ofsection 44Ia(a)(7)(B)(i) ofthe Act, which provides that an

expenditure made by any person in cooperation, consultation, or concert, with, or at the request

or suggestion of, a candidate, his authorized political committees or their agents shall be

considered a contribution to such candidate. 2 U.S.C. § 441a(a)(7)(B)(i); Buckley, 424 U.S.

at 78.

Section 106.4 appears to contemplate a situation in which poll results are purchased by a

person not authorized by a candidate to make expenditures and are subsequently accepted by a

candidate or a candidate's authorized committee or agent. See AO 1990-12 (Commission

concluded that if campaign volunteer who previously commissioned and paid for survey for

purposes umelated to campaign, imparted poll results to campaign or used poll information to

advise campaign, information would constitute in-kind contribution, the amount ofwhich would

be determined by Section 106.4).73 Thus, ifthe expenditures for polling were not coordinated

from the start, and polling information was shared only subsequent to it being obtained by the

RNC, section 106.4 would apply to determine the amount ofthe contribution. 11 C.P.R.

§ 106.4.74 While section 106.4 does not specifically address in-kind contributions resulting from

coordinated expenditures, it would not be inconsistent to apply the regulation to allocate

coordinated expenditures such as the polling expenditures at issue here. Since the RNC's

payment of 100% ofthe polling expenditures was not correct and no attempt at allocation

between the RNC and the Dole campaign was made, it is not necessary to reach the issue ofhow

the polling costs should be allocated at this time.

7Z See supra note 1 and accompanying text (regarding polling information subpoenas).

7J Poll results are considered to be accepted by a candidate ifthe candidate or the candidate's authorized

political committee or agent (I) requested the poll results before their receipt; (2) uses the poll results; or (3) does

not notity the contributor that the results are refused. II C.F.R. § I06.4(b)( I), (2), and (3). The regulation then

delineates how the amount ofsuch contribution will be determined. II C.F.R. § 106.4(e).

74 We understand that in the audit for the Clinton/Gore '96 Primary Committee, Inc., the Audit Division has

concluded that section 106.4 should apply to expenditures for certain polls shared between the Clinton Committee

and the Democratic National Committee. Ifthe facts in the Clinton and Dole situations are similar, you must use the

same approach. Ifthere are relevant factual distinctions, then alternative approaches for the two audits are justified.

85
•

Memorandum to Robert J. Costa

Dole for President, Inc. Audit Report

(LRA #467)

Page 86

V. OTHER REPA YMENTS: NON-QUALIFIED CAMPAIGN EXPENDITURES

INCURRED IN THE POST EXPENDITURE REPORTING PERIOD

We concur with the Audit staffs conclusion that the costs of winding-down the Primary

Committee and the General Committee should not be allocated entirely to the Primary

Committee. Winding down expenses of$2,141,602 for both the Primary and General

Committees were incurred between December 5, 1996 and July 31, 1998. The Primary

Committee paid all ofthese costs. Pursuant to 11 C.F.R. § 9034.4(a)(3), costs associated with

the termination of political activity, such as the costs of complying with the post election

requirements ofthe Act and other necessary administrative costs associated with winding down

the campaign including office space rental, staffsalaries, and office supplies, shall be considered

qualified campaign expenses. The regulation's use of "the campaign" refers to the primary

election campaign, and not the general election campaign. Therefore, the winding down costs

that are qualified campaign expenses for the Primary Committee pursuant to 11 C.P.R.

§ 9034.4(a)(3) are limited to winding down costs for the Primary Committee.7s

Section 9034.4(a)(3) ofthe Commission's regulations provides that winding down costs

are qualified campaign expenses. Therefore, the Primary Committee also has the burden of

proving its expenditures are winding down costs as defined in 11 C.P.R. § 9034.4(a)(3).

11 C.P.R. § 9033.11. Because the winding down expenditures at issue include winding down

expenditures for the General Committee, this Office believes that the Primary Committee has not

met its burden ofproof with respect to these expenditures. Due to the Primary Committee's

failure to meet its burden, the Audit staff lacks a precise method to allocate the winding down

expenditures between the Primary and the General Committees. However, because some

winding down costs were for the purpose of winding down the Primary Committee's activity, we

concur with the Audit staffs attribution ofthe winding down expenses equally to the Primary

and the General Committees. Nevertheless, ifthe Committee can show through supporting

documentation that another allocation method more accurately reflects the winding down

expenses ofthe respective committees, the adjustments can be made accordingly.76 Cf

Buchanan Statement of Reasons at 23 (Aug. 1, 1995) (winding down costs require some

specificity).

7S The Primary Committee acknowledges that some portion ofthe winding down

expenses at issue relate to the termination ofthe General Committee's political activity.

76 See II C.F.R. § 9038.2(c)(2) (committee may seek administrative review).

86
Memorandum to Robert 1. Costa

Dole for President, Inc. Audit Report

(LRA #467)

Page 87

VI. COORDINATED EXPENDITURES (III.A.2.)

The Audit Report concludes that Republican National Committee expenditures totaling

$936,245 that were reported as coordinated party expenditures under 2 U.S.C. § 441a(d) do not

qualify as coordinated party expenditures pursuant to the statute since the expenditures were not

made for the general election, but rather, were operating expenditures ofthe Primary Committee.

Therefore, the Audit Report concludes that these expenditures are in-kind contributions to the

Primary Committee and attributable to the Primary Committee's overall expenditure limitation. 77

Additionally, the proposed Audit Report states that the advertisement known as the Plan was

broadcast by the RNC and the expenditures related to the distribution costs were reported as

coordinated party expenditures subject to 2 U.S.C. § 441a(d).

As described supra in Part II.C., this Office believes that 11 C.F.R. § 9034.4(e) applies to

in-kind contributions from the national party committees. Therefore, pursuant to II C.F.R.

§ 9034.4(e)(l), a national party committee can make coordinated party expenditures pursuant to

2 U.S.C. § 441a(d) prior to the nomination ofits candidate only to the extent those expenditures

meet the exclusive use test of II C.F.R. § 9034.4(e)(l). lfthe expenditures were for goods and

services that were not used exclusively for the general election, then the expenditures must be

attributed in accordance with II C.F.R. § 9034.4(e)(2) through (6). This Office recommends that

the Audit Division amend its analysis to state and apply the exclusive use test of II C.F.R.

§ 9034.4(e)(I) to the expenditures. Most ofthe expenditures at issue do not appear to have been

used exclusively for the general election. The proposed Audit Report should make clear that any

expenditures that were not used exclusively for the general election under section 9034.4(e)(l)

cannot be section 441a(d) coordinated party expenditures. With regard to the expenditures that

do no meet the exclusive use test ofsection 9034.4(e)(I), the analysis should include the

requirements of 11 C.F.R. § 9034.4(e)(2) through (6) and attribute the expenditures as provided

in those provisions.

Finally, we recommend that the proposed Audit Report be revised to include the

discussion ofthe RNC's coordinated party expenditures under 2 U.S.C. § 44Ia(d) for telephone

service and equipment, and rent, renovations and related services currently addressed in Sections

IlLC. and III.D., to Section HA2. ofthe proposed Audit Report so that all ofthe RNC

coordinated party expenditures are discussed in one section. This will provide administrative

convenience as well as a comprehensive presentation ofthe expenditures at issue.

17 The Audit staff identifies nine "Expense Categories" for which the Dole campaign received

coordinated funds. These categories include: travel and event expenses, rent, overhead, speech writers and

coaches, telephone expenses, polling, convention related travel and expenses, telemarketing and a

miscellaneous category.

87
•

Memorandum to Robert J. Costa

Dole for President, Inc. Audit Report

(LRA #467)

Page 88

Staff assigned:

Peter G. Blumberg

SusanL. Kay

Tracey L. Ligon

J. Duane Pugh

Jamila 1. Wyatt

88
FEDERAL ELECTION COMMISSION

Washington, DC 20463

June 10, 1999

Senator Robert J. Dole

c/o Mr. Kenneth A. Gross, Esq.

Skadden, Arps, Slate, Meagher, & Flom

1440 New York Avenue, NW

Washington, D.C. 20005

Dear Senator Dole:

Attached please find the Report ofthe Audit Division on Dole for President, Inc.

The Commission approved the report on June 3, 1999. As noted on page 3, the

Commission may pursue any ofthe matters discussed in an enforcement action.

In accordance with 11 CFR §§9038.2(c)(1) and (d)(I), the Commission has made

a determination that a repayment to the Secretary ofthe Treasury in the amount of

$515,272 is required within 90 calendar days after service ofthis report (September 13,

1999).

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

Commission regulations at 11 CFR §9038.2(c)(2) provide you with an opportunity to

submit in writing, within 60 calendar days after service ofthe Commission's notice

(August 13, 1999), legal and factual materials to demonstrate that no repayment, or a

lesser repayment, is required. Further, 11 CFR §9038.2(c)(2)(ii) permits a Candidate who

has submitted written materials to request an opportunity to address the Commission in

open session based onthe legal and factual materials submitted.

The Commission will consider any written legal and factual materials submitted

within the 60 day period when deciding whether to revise the repayment determination.

Such materials may be submitted by counsel if you 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) 694-1650 or toll free at (800) 424-9530. If you do not

dispute this determination within the 60 day period provided, it will be considered final.
Senator Robert J. Dole

Page 2

The Commission approved Audit Report will placed on the public record on or

about June 15, 1999. Should you have any questions regarding the public release ofthis

report, please contact Ron Harris ofthe Commission's Press Office at (202) 694-1220.

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

audit report should be directed to Marty Kuest or Joe Stoltz ofthe Audit Division at (202)

694-1200 or toll free at (800) 424-9530.

Robert J. C sta

Assistant Staff Director

Audit Division

Attachments:

Audit Report

90
FEDERAL ELECTION COMMISSION

Washington, DC 20463

•

•

Iii

;=

June 10, 1999

Mr. Allen Haywood, Assistant Treasurer

Dole for President, Inc.

c/o Mr. Kenneth A. Gross, Esq.

Skadden, Arps, Slate, Meagher, & Flom

1440 New York Avenue, N.W.

Washington, D.C. 20005

Dear Mr. Haywood:

Attached please find the Report ofthe Audit Division on Dole for President, Inc.

The Commission approved the report on June 3, 1999. As noted on page 3, the

Commission may pursue any ofthe matters discussed in an enforcement action.

In accordance with 11 CFR §§9D38.2(c)(l) and (d)(l), the Commission has made

a determination that a repayment to the Secretary ofthe Treasury in the amount of

$515,272 is required within 90 calendar days after service ofthis report (September 13,

1999).

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

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

opportunity to submit in writing, within 60 calendar days after service ofthe

Commission's notice (August 13, 1999), legal and factual materials to demonstrate that no

repayment, or a lesser repayment, is required. Further, 11 CFR §9038.2(c)(2)(ii) permits

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

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

The Commission will consider any written legal and factual materials submitted

within the 60 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 determination, please contact Kim L. BrightColeman ofthe Office ofGeneral Counsel at (202) 694-1650 or toll free at (800) 424-

9530. Ifthe Candidate does not dispute this determination within the 60 day period

provided, it will be considered final.
Mr. Allen Haywood

page 2

The Commission approved Audit Report will be placed on the public record on or

about June 15, 1999. Should you have any questions regarding the public release ofthis

report, please contact Ron Harris ofthe Commission's Press Office at (202) 694-1220.

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

audit report should be directed to Marty Kuest or Joe Stoltz ofthe Audit Division at (202)

694-1200 or toll free at (800) 424-9530.

Robert J. C ta

Assistant StaffDirector

Audit Division

Attaclunents:

Audit Report

92
CHRONOLOGY

DOLE FOR PRESIDENT, INC.,

Audit Fieldwork

Exit Conference Memorandum to the

Committee

Response to Exit Conference Memorandum

Audit Report Approved

93

1/13/97 - 3/16/98

5/13/98

7/28/98

6/3/99
FEDERAL ELECTION COMMISSION

WASHINGTON. DC. 2046)

ZOGO OCT 30 A 1\: 00

October 30, 2000

MEMORANDUM

TO:

'.j) THROUGH:

•

!t~ FROM:

n~

o

•

The Commission

Kim Leslie Bright JL(JI

Associate General Cdunsel

Lorenzo Holloway 1,. AIJ

Assistant General Counse~-

JamilaI. Wyatt

Attorney'

SUBJECT: Statement of Reasons for Dole for President, Inc. (LRA #467)

On October 19, 2000, the Commission rejected this Office's recommendation to

determine that Robert 1. Dole and Dole for President, Inc. must repay $283,481 for a surplus of

funds. The Commission directed this Office to revise the draft Statement ofReasons in

accordance with this decision and circulate the redraft for Commission approval.

Accordingly, attached for Commission approval is a revised draft Statement ofReasons.

The attached Statement of Reasons supports the remaining $6,255 repayment determination for

the use of public funds to defray non-qualified campaign expenses.

RECOMMENDATIONS

The Office of General Counsel recommends that the Commission:

1. Detennine that Robert J. Dole and Dole for President, Inc. must repay $6,255 within 30

days to the United States Treasury pursuant to 26 U.S.c. § 9038(b)(2) and 11 C.F.R.

§ 9038.2(b)(2);
Statement of Reasons for Dole for President, Inc.

LRA #467

Page 2

2. Approve the attached Statement ofReasons; and

3. Approve the appropriate letters.

Attachment

Proposed Statement ofReasons (attachments omitted)
BEFORE THE FEDERAL ELECTION COMMISSION

for this Post Administrative Review Repayment Determination. 11 C.F.R.

President, Inc. (the "Primary Committee") must repay $6,255 to the United States

(the "Commission") determined that Robert 1. Dole (the "Candidate") and Dole for

LRA#467

)

)

)

)

STATEMENT OF REASONS

In the Matter of

Robert J. Dole and

Dole for President, Inc.

II C.F.R. § 9038.2(d)(2). This Statement ofReasons sets forth the factual and legal basis

public funds to defray non-qualified campaign expenses. See 26 U.S.C. § 9032(9). The

On "2000, the Federal Election Commission

Treasury. The Commission's repayment determination is based on the use of $20,231 in

Committee is ordered to repay this amount to the United States Treasury within thirty

(30) calendar days after service ofthis determination. See 26 U.S.C. § 9038(b)(2);

2

3

4

5

6

7

8

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17

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20 § 9038.2(c)(3).

21 I. INTRODUCTION

22 The Primary Committee registered with the Commission on January 12, 1995 as

23 the principal campaign committee for Senator Robert J. Dole, a candidate for the 1996

24 Republican Party's nomination for the office of President ofthe United States.

25 Attachment I, at 3. Senator Dole was detennined eligible to receive matching funds on

26 May 31, 1995. [d. The Primary Committee received $13,545,771 from the United States

27 Treasury for the purpose ofseeking the Republican Party nomination. Id. The
2

Commission conducted an audit ofthe Primary Committee pursuant to 26 U.S.C.

2 § 9038(a).

3 On June 3, 1999, the Commission approved the Audit Report and detennined that

4 the Primary Committee must repay a total of$289,736 to the United States Treasury. See

5 Attachment 1. 1 The Commission's repayment determination was bas~d on its findings

6

7

that the Primary Committee had a surplus offunds in the amount of $916,8282 and lIsed

$20,231 in public funds to defray non-qualified campaign expenses. 11 C.F.R.

8 § 9038.2(b)(4) and (2).

9 On August 30, 1999, the Primary Committee submitted a written response to the

10 Commission seeking an administrative review ofthe repayment determination and

II requesting an oral hearing as permitted under II C.F.R. § 9038.2(c)(2)(i).3 Attachment 2.

12 The Commission granted the Primary Committee's request for an oral hearing and heard

13 an oral presentation by the Primary Committee on December IS, 1999. See Attachment

14 4. Following the oral hearing, the Primary Committee submitted additional

15 documentation on December 22, 1999.4 See Attachment 5.

The repayment determination does not include a payment of$225,536 that the Commission

detennined was due to the United States Treasury for stale-dated checks. 11 C.F.R. § 9038.6.

In the context of the Administrative Review, the Commission rejected a staff analysis

recommending a repayment of$283,481 ($916,828 x .309198) for a surplus of funds resulting from the

Primary Committee's payment of the DolelKemp '96, Inc.'s winding down expenses.

On July 30, 1999, the Commission granted the Primary Committee a fiftcen-day extcnsion oftime

to respond to the Comnnission's repayment detennination.

Thc additional documentation was submitted as a follow-up to the oral presentation made to the

Commission by both Dole for President, Inc. and Dole/Kemp '96, Inc, At the oral hearing, Dole/Kemp '96,

Inc. contested a Commission determination that DolefKemp '96, Inc. must repay $3,168,097 to the United

States Treasury. Inasmuch as the additional documentation submitted on December 22, 1999, relates only

to issues addressed by DolefKemp '96, Inc., it is not discussed herein,
2

II.

3

REPAYMENT NOTIFICATION

As a preliminary matter, the Commission addresses a procedural argument raised

3 by the Primary Committee for the first time at its oral hearing. The Primary Conunittee

4 argued that it was not timely notified ofthe Commission's repayment determination.

5 Attachment 4 at 7-8. The Primary Committee challenged the timeliness of notification of

6 the Commission's repayment determination as follows:

7 ... we preserved our procedural and due process defenses, and we

8 are preserving or making the argument herein that the notices for

9 repayment are not timely at this point because we don't believe

to that the notices that had been provided to us in the form ofthe

II exit conference memorandum is sufficient to fulfill the three-year

12 requirement under the statute.

13

14 That was not ripe at the time of our response to the exit

15 conference memorandum because we responded in August. The

16 three-year period ran in November after that at that time, but we

17 did preserve that right for both the committees ....

18

19 Attachment 4 at 7_8. 5 The Primary Committee's written response stated that in addition

20 to the arguments contained in the written response, the Primary Committee "preserves all

21 constitutional, procedural and jurisdictional claims that may be available to it."

22 Attachment 2 at 1.

23 The Commission concludes that the Primary Conm1ittee failed to raise the issue of

24 repayment notification in a timely fashion. Section 9038.2(c)(2)(i) ofthe Commission's

25 regulations provide that a candidate who disputes the Conunission's repayment

As noted above, at the oral hearing, the Primary Committee stated that it did not believe that notice

"in the fonn of the Exit Conference Memorandwn" was sufficient, and that it responded to the Exit

Conference Memorandum in August. The Commission preswnes that the Primary Committee is referring to

the Audit Report, not the Exit Conference Memorandum, with regard to its notification claim because it is

the Audit Report, approved by the Commission on June 3,1999, to which the Primary Committee

responded in August 1999. It is also the Commission's issuance ofthe Andit Report, not the Exit

Conference Memorandum, that constitutes notification for purposes of the 3-year notification requirement.

See II C.F.R. § 9038.2(a)(2).
4

detenninations shall submit in writing, within 60 calendar days after service ofthe

2 Commission's notice, legal and factual materials demonstrating that no repayment, or a

3 lesser repayment, is required. 11 C.F.R. § 9038.2(c)(2)(i). A candidate's failure to timely

4 raise an issue in written materials will be deemed a waiver of the candidate's right to raise

..

5 the issue at any future stage ofproceedings including any petition for review filed under

6 26 U.S.C. § 9041(a). Id. However, the Primary Committee did not raise the issue of the

7 Commission's repayment notification in its written response to the Commission's

8 repayment detennination. See Attachment 2.

9 Based on the Primary Committee's failure to raise its challenge with respect to the

10 repayment notification in its written materials, the Commission concludes that the

11 Primary Committee waived the right to present such challenge at the oral hearing or any

12 future stage ofproceedings pursuant to 11 C.F.R. § 9038.2(c)(2)(i). 11 C.F.R.

13 § 9038.2(c)(2)(i). See Americansfor Robertson v. Federal Election Commission, 45 F.3d

14 486,491 (D.C. Cir. 1995); see also Explanation and Justification for § 9007.2(c)(2)(i),

15 60 Fed. Reg. 31864 (June 16, 1995) (Candidate's failure to timely raise an issue in the

16 written materials presented pursuant to paragraph (c)(2)(i) will be deemed a waiver ofthe

17 candidate's right to raise the issue at any future stage ofthe proceedings).

18 Although the Primary Committee claims that it raised the repayment notification

19 issue in its written response, the Primary Committee's written response merely states that

20 the Committee "preserves all constitutional, procedural and jurisdictional claims that may

21 be available to it." Attachment 2 at 1. This catchall statement provides the Commission

22 with no notice of the nature of the Primary Committee's challenges to the repayment

23 detennination as it brings within its ambit an endless array of possible arguments. Simply
5

including such a broad and vague prescription in the written response cannot be construed

2 as having raised or preserved any particular issue inasmuch as this does not give the

3 Commission timely notice ofthe nature ofthe challenges to its repayment determination

4 as required by 11 C.P.R. § 9038.2(c)(2)(i).

. "'

The Commission notes, however, that it is not requiring a perfect pleading in a

written response to a repayment determination. Nonetheless, the written response must

be sufficient to place the Commission on timely notice as to the nature ofthe Primary

Committee's challenges. See Fulanifor President v. Federal Election Commission, 147

F.3d 924,927 n.S (D.C. Cir. 1998) (court denied Committee's petition for rehearing for

not setting forth clear and convincing grounds why new questions offact and law were

not and could not have been presented during the earlier determination process, and the

court noted that the Committee may have been barred from raising the new theory at the

oral hearing pursuant to 11 c.P.R. § 9038.2(c)(2)(i) where the issue had been generally,

but not specifically, raised by the Committee in its written submissions).

The Primary Committee also proffers the argument that the repayment notification

issue was not "ripe" as justification for not raising the issue in its written response.

Attachment 4 at 7-8. The Primary Committee appears to argue that the notification issue

was not "ripe" until the 3-year notification period expired. However, the 3-year

notification period expired on August 14, 1999, three years following the end ofthe

primary matching payment period. 6 See II C.F.R. § 9032.6. Subsequently, on August

The primary matching payment period ended on August 14, 1996, the date on which the

Republican Party nominated Senator Dole as its candidate for the office of President ofthe United States.

See 11 C.F.R. § 9032.6 (matching payment period may not exceed date on which party nominates its

candidate). Thus, the Commission was required to notify the Primary Committee of any repayment

determination on or before August 14,1999. See 2 U.S.c. § 9038(c). On June 3,1999, the Commission
6

30, 1999, the Primary Committee filed its written response to the Commission's

2 repayment determination. Thus, the repayment notification period expired before the

3 Primary Committee submitted its written response. Nevertheless, the Primary Committee

4 did not raise the issue in its written response.

7 The Commission accordingly rejects the

5 Primary Committee's assertion that the timeliness issue was not ripe.

6 III.

7

NON-QUALIFIED CAMPAIGN EXPENSES

In the context ofthe Audit Report, the Commission determined that the Primary

8

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13

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15

16

17

18

Committee made disbursements totaling $20,231 for non-qualified campaign expenses

and must, therefore, repay $6,255 ($20,231 x .309198) to the United States Treasury.

These non-qualified campaign expenses include a $4,000 refund of an unpaid

contribution check, a $3,009 payment for the preparation of a United States Senate

financial disclosure statement, $6,465 in payments to localjurisdictions for tax penalties,

$1,703 in duplicate payments to two vendors, and $5,054 that was paid for the personal

travel of canlpaign staff. Attachment 1 at 50. The Primary Committee's response

challenges only the Commission's determination that the Primary Committee must repay

$1,237 ($4,000 x .309198) for refunding an unpaid contribution and $930 ($3,009 x

.309 I98) for paying for the preparation of a United States Senate financial disclosure

statement, leaving a $4,088 ($13,222 x .309198) balance ofunchaIIenged non-qualified

19 campaign expenditures.

approved the Audit Report and detennined that the Primary Conunittee must repay a total of $289,736 to

the United States Treasury. See Attachment 1. The Audit Report, along with a letter from the Conunission

notifying the Primary Committee of its repayment detennination, was mailed to the Primazy Committee on

June 10, 1999, and received by the Primary Committee by June 14, 1999, within the three-year notification

period.

As noted previously, the Commission granted the Primary Committee a fifteen-day extension of

time to respond to the Commission's repayment detennination.
7

The Commission reviewed the Primary Committee's response and concludes that

2 the Primary Committee must repay $6,255 for its use of funds to defray non-qualified

3 campaign expenses, including $1,237 for the refunded contribution, $930 for the

4 preparation ofthe financial statements, and $4,088 for the balance of unchallenged non5 qualified campaign expenses.

6 A. Refund of a Contribution

7 In the context ofthe Audit Report, the Commission determined that the Primary

ill

rt~1 .'

8 Committee's disbursement of$4,000, purportedly paid by the Primary Committee to

9 refund an excessive contribution check that was never paid to the Primary Committee due

10 to insufficient funds in the contributor's account, was a non-qualified campaign expense

11 and, therefore, repayable to the United States Treasury.

12 In its written response to the repayment detennination, the Primary Committee

13 argues that it is unfair to require a repayment in connection with a disbursement that it

14 made to purportedly refund the excessive portion of a contribution. The contribution was

15 in excess ofthe contribution limitation ofthe FECA. Attachment 2 at 2-3. The Primary

16 Committee explains that it received a $5,000 contribution check from Skilled Healthcare

17 PAC, and that it "refunded" $4,000 after realizing that the PAC had not qualified as a

18 multicandidate committee.8 Attachment 2 at 3. However, the Primary Committee

19 explains, the bank would not honor the original $5,000 contribution check from Skilled

20 Healthcare PAC due to insufficient funds. Attachment 2 at 2-3. The Primary Committee

The FECA permits multicandidate committees to make contributions to a candidate and his or hcr

authorized committee which, in the aggregate. do not exceed $5,000. 2 U.S.C. § 44Ia(a)(2). However,

political committees that do not qualify as multicandidate committees may only make contributions to a

candidate and his or her authorized committee which, in the aggregate, do not exceed $1,000. 2 U.S.c.

§ 44 1a(a)(1).
8

asserts that despite repeated efforts, it was unable to retrieve the $4,000 from the PAC,

2 which it understands no longer exists. Attachment 2 at 3. The Primary Committee

3 asserts that under these circumstances, the Commission should not consider the $4,000

4 disbursement a non-qualified campaign expense as it would be unfair to penalize the

5 Committee for a second time with a repayment when it has already suffered a $4,000 loss.

l"i"'~ 6 Id.

7 The Commission concludes that the $4,000 erroneously paid by the Primary

8

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13

14

15

16

17

18

19

20

21

22

23

Committee to Skilled Healthcare PAC was a non-qualified campaign expense, and that a

pro rata portion ofthis disbursement is repayable to the United States Treasury. The

funds were not spent in connection with the candidate's campaign for nomination because

the original contribution check was never paid to the Primary Committee; thus, the

Primary Committee's $4,000 disbursement was lost. While the Primary Committee may

have made a mistake in making the $4,000 disbursement, committees must exercise a

duty of care when disbursing taxpayer funds. See generally II C.F.R. § 9034.4(b)(8)

(Commission considers factors indicating whether committee exercised duty of care in

determining whether lost or misplaced items are considered non-qualified campaign

expenses). The factual record indicates that the Primary Committee did not exercise the

duty of care in failing to ascertain the propriety ofmaking the $4,000 disbursement. The

Primary Committee first deposited the contribution check from Skilled Healthcare PAC

in April, 1995; redeposited the check in May, 1995; and did not disburse the $4,000 until

September, 1995, see Attachment 3 at 5. In light ofthe Committee's failure to exercise a

duty of care by making the $4,000 disbursement after unsuccessful attempts to collect on

the original contribution check, the Commission concludes that the $4,000 disbursement
9

was a non-qualified campaign expense. Therefore, a pro rata portion ofthe $4,000 must

2 be returned to the United States Treasury. Thus, the Primary Committee must repay

3 $1,237 ($4,000 x .309198) to the United States Treasury.

4 B. Payment for Services to Prepare Financial Statements

5 In the context ofthe Audit Report, the Commission determined that a $3,009

6 payment by the Primary Committee for the preparation of a United States Senate financial

7 disclosure statement was a non-qualified campaign expense and is therefore repayable in

8 pro rata portion to the United States Treasury. Attachment 1 at 50. The Primary

9 Committee challenges the Commission's determination, asserting that Senator Dole was

10 required to file a financial statement both as a presidential candidate and as a Senator, and

11 that there is overlap between these reporting requirements and the same information is

12 used to prepare the presidential and the Senate disclosure statements. Attachment 2 at 3.

13 Therefore, the Primary Committee argues that it was appropriate for the Primary

14 Committee to pay "its portion" of gathering and reporting the financial infOlmation; thus,

15 there should be no repayment in connection with the Primary Committee's payments for

16 services to prepare Senator Dole's financial statements. Id.

17 The total cost to prepare the financial statements was $4,815. An invoice reflects

18 that three-eighths ofthe cost of the financial services (3/8 x $,4,815 = $1,806) related to

19 Senator Dole's campaign for the Republican presidential nomination, while the remaining

20 five-eighths ofthe cost (5/8 x $4,815 = $3,009) related to Senator Dole's responsibilities

21 to the United States Senate. Attachment 7. However, the record reflects that the Primary

22 Committee paid the total cost of $4,815 for the financial services. The $3,009 portion of

23 the cost was not spent in connection with the Candidate's campaign for nomination
2

3

4

5

6

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8

ti1

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10

11

12

13

14

15

16

17

10

because it was related to Senator Dole's responsibilities to the United States Senate.

Although the Primary Committee claims that the same information was used for both the

presidential and Senate statements, the Primary Committee did not provide any

documentation to support an allocation different from that reflected on the invoice,9 see

II C.F.R. § 9033.11 (a). Therefore, the Commission concludes that the Primary

Committee's $3,009 payment for the preparation of a United States Senate financial

disclosure statement is a non-qualified campaign expense, and that the Primary

Committee must repay $930 ($3,009 x .309198) to the United States Treasury. See

Robertson v. Federal Election Commission, 45 F.3d 486, 492 (D.C. Cir. 1995)

("recipients ofmatching funds bear the burden ofaccounting for allocation and

documentation of campaign expenses").

V. CONCLUSION

For the foregoing reasons, the COl11l11ission determines that Senator Robert J. Dole

and Dole for President, Inc. must repay $6,255 to the United States Treasury pursuant to

26 U.S.C. § 9038(b)(2). The COl11l11ission determined that Robert J. Dole and Dole for

President, Inc. must, within 30 days, repay to the United States Treasury $6,255 for the

use ofpublic funds to defray non-qualified campaign expenses pursuant to 26 V.S.c.

18 § 9038(b)(2) and II C.F.R. § 9038.2(b)(2).

19

20

21

The Primary Committee has not stated whether its argument that the same infol1nation was used for

Senator Dole's presidential campaign and his Senate disclosure statement supports a SO/50 allocation or

some other allocation.
II

Attachments

2 l.

3

4

5 2.

6

7

8 3.

9

10

11 4.

12

13

14 5.

15

16 6.

17

18 7.

Report ofthe Audit Division on Dole for President, Inc. dated

June 3, 1999.

Request of Dole for President, Inc. for an Administrative Review

ofthe Repayment Determination dated August 30,1999.

Memorandum from the Audit Division to the Office ofGeneral Counsel (Analysis

ofthe Administrative Review Request) dated October 7, 1999.

Transcript ofthe Dole for President, Inc. Oral Hearing before the Federal Election

Commission on December 15,1999.

Supplemental Submissions ofDole for President, Inc. dated December 22, 1999.

Candidate Certification Letter (and Amended Page Three)

Invoice for Financial Services
FEDERAL ELECTION COMMISSION

Washington, DC 20463

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(

MEMORANDUM

TO:

FROM:

DATE:

SUBJECT:

Commissioners

Staff Director Pehrkon

General Counsel Noble

Mary

Press

W.

Office

DoveNeneshe

Ron Harris

Ferebee-Vine

@

v::..

Commission Secretary

July 6,1999

Statement for the Record in Audits of

1996 Clinton/Gore and Dole/Kemp Campaigns

Attached is a copy of the Statement of Reasons regarding

Audits of 1996 Clinton/Gore and Dole/Kemp Campaigns signed by

Chairman Scott E. Thomas and Commissioner Danny Lee McDonald.

This was received in the Commission Secretary's Office on JUly 6, 1999

at 11 :42 a.m.

cc: V. Convery

Attachments
FEDERAL ELECTION COMMISSION

W.A5HINGTOl'. 0 C 20463

•

Statement for the Record in Audits of

1996 Clinton/Gore and Dole/Kemp Campaigns

Chairman Scott E. Thomas

Commissioner Danny L. McDonald'

Our colleagues, Commissioners Sandstrom, Wold, Elliott and Mason,

recently joined in what must be seen as a very odd Statement of Reasons

regarding the audits of the 1996 Clinton and Dole campaigns. 1 Little is written of

the audits. Instead, the thrust of their statement is a tirade against an innocuous

shorthand reference the Commission coined in Advisory Opinion 1985-142 to

analyze whether party communications are sUbject to the statutory limits on

support of particular candidates. The energy expended by our colleagues to

savage the Commission's own advisory opinion process is surprising. The

strangest aspect of the Sandstrom et al. Statement, though, is that it claims to

abhor vagueness but, in the end, is itself very confusing.

We write this Statement to explain the state of the law in this area, and to

clarify that the Sandstrom et al. Statement does not effect a 'sea change' when

analyzing which party communications should be subjected to the statutory limits

on coordinated expenditures. In particular, we wish to emphasize that 'express

advocacy' is not required.

I.

The limits on coordinated expenditures by party committees on behalf of

their candidates have been on the books for over 24 years. They were part of

the Federal Election Campaign Act Amendments of 1974.3 In addition to the

1 Statement of Reasons of Vice Chainnan Wold and Commissioners Elliott, Mason and Sandstrom

issued June 24, 1999 (hereinafter "Sandstrom et al. Statement').

2 Fed. Elec. Camp. Fin. Guide (eCH Transfer Binder), 5819.

3 Pub. L. 93-443, 88 Stat. 1263, § 101.
$5,000 per election contribution limit available to all political committees,4 parties

have coordinated expenditure allowances permitting additional spending in

connection with the general election campaigns of their candidates.s

The party coordinated expenditure limits serve an important role in

preventing party donors from having an indirect way of effecting a 'quid pro quo'

arrangement with candidates for federal office-- the link between money and

official government action the statute is designed to prevent. If a party

committee is able to undertake only a limited amount of coordinated expenditure

activity on behalf of a particular candidate, donors or groups of donors will not be

able to expect large-scale donations to the party to result in large-scale spending

by the party on behalf of such candidate. For example, ten banking industry

PACs who donate $15,000 each to a party's House campaign committee and

who are close to a particular House committee chairman running for reelection

would not be able to expect $150,000 in coordinated expenditures by the party

on behalf such candidate because the coordinated expenditure limit would

prevent it.

The direct payment of funds to a candidate's campaign has been treated

as a "contribution"6 subject to the contribution limit. A party's coordinated

payment to a third party on behalf of a candidate has been treated as either an

in-kind "contribution" or a coordinated "expenditure,"7 at the option of the

expending committee. 8 If treated as a coordinated expenditure, the party has to

4 Currently codified at 2 U.S.C. § 441a(a)(2)(A).

511 C.F.R. § 110.7(a)(3), (b)(3). Codified at 2 U.S.C. § 441a(d), the coordinated expenditure

allowance provides:

Notwithstanding any other provision of law with respect to limitations on expenditures or

limitations on contributions, the national committee of a political party and a State

committee of a political party, including any subordinate committee of a State committee,

may make expenditures in connection with the general election campaign of candidates

for Federal office, subject to the limitations contained in paragraphs (2) and (3) of this

subsection.

Subsections (2) and (3) set forth formulas that in the last presidential election permitted a national

party committee to spend over $12 million on behalf of its presidential candidate, and that in the

1998 congressional elections permitted a national and state party committee each to spend

$32,550 for a House candidate and each to spend amounts ranging from $65,100 in small states

like Wyoming to over $1.5 million in California for a Senate candidate.

62 U.S.C. §431(8).

72 U.SC. § 431(9).

8 FEC Campaign GUide for Party Committees (1996) at 16. The FEC for many years operated

with a presumption that all party spending was coordinated with the parties' eventual nominees.

11 C.F.R. § 110.7(a)(5), (b)(4) (1996). The Supreme Court invalidated that presumption in

Colorado Republi,,-~n Fed~al CaCQQ.<l.ign Coml:nittee v, FEC, 518 U.S. 604 (1996) (hereinafter

"Colorado I"). As a result, only party spending that can be shown to meet the legal test of

'coordination' can be SUbjected to the limits at 2 U.S.C. § 441a(a)(2)(A) and (d). The legal test for

coordination is set forth at 2 U.S.C. § § 431 (17) and 441 a(a)(7)(B) and at 11 C.F.R. § 109.1 (b)(4)

and (d)(1).

2
keep within the coordinated expenditure limit, but only the party need repol1 the

transaction. 9

Because party committees are primarily in the business of electing

candidates, the Commission has required virtually all party-building activity to be

at least allocated so that indirect federal candidate support is not paid for with

funds not permitted under federallaw. 10 At the same time, recognizing party

committees sometimes undertake generic party-building activities that may help

their candidates only in a general way-- a way that should not result in a

contribution to or coordinated expenditure on behalf of a particular candidate--

the Commission has tried to clarify when a party activity need not be SUbjected to

a candidate-specific limitation. Thus, the Commission has specified at 11 C.F.R.

§ 106.1 (c) that an expenditure for rent, personnel, overhead, general

administrative costs, educational campaign seminars, training of campaign

workers, or registration or get-out-the-vote drives need not be attributed to

individual candidates unless the expenditure is "made on behalf of a clearly

identified candidate, and the expenditure can be directly attributed to that

candidate."

When identifying which party activities fall under the candidate-specific

limits, though, the Commission must deal first and foremost with the underlying

statutory terms. A "contribution" is a payment or gift of value made "for the

purpose of influencing any election for Federal office. "11 A coordinated

"expenditure" is a payment, advance or gift of anything of value made "for the

purpose of influencing any election for Federal office" and "in connection with the

general election campaign" of a candidate for Federal office. 12

Over the years, the Commission has grappled with the difficult factual

distinctions that make a party communication a generic party-building

expenditure on the one hand, or an in-kind contribution or coordinated

expenditure on the other. The best-known instances were Advisory Opinion

1984-1513 and the aforementioned Advisory Opinion 1985-14. In each of those

opinions, the Commission analyzed the facts according to the basic underlying

statutory provisions cited above.

In Advisory Opinion 1985-14, the Commission developed a shorthand

reference to the legal analysis to be used. Instead of repeating the statutory

phrases, "for the purpose of influencing" and "in connection with," the

Commission described the process as a search for whether the communication

911 CFR. § 104.3(a)(3)(iii). 10 11 C.F.R. § 106.5.

11 2 US.C. § 431(8). 12 2 U.S.C. §§ 431(9) and 441a(d).

13 Fed. Elec. Camp. Fin. Guide (eCH Transfer Binder). '115766

3
contained an "electioneering message." 14 The Commission then cited a

Supreme Court decision for further guidance as to what was meant by

"electioneering message."15 There, the Court simply described its view of the

reach of the corporate and union prohibition at 2 U.S.C. § 441 b: whether a

communication is "designed to urge the public to elect a certain candidate or

party."1e This phrasing, of course, is virtually indistinguishable from the "for the

purpose of influencing any election for Federal office" language at the heart of

any "contribution" or "expenditure" inquiry. Thus, at most, the Commission in

Advisory Opinion 1985-14 was paraphrasing the statutory language underlying

any coordinated party expenditure analysis.

II.

Our colleagues grossly overstate the significance of the "electioneering

message" phrase and then gyrate into an inappropriate constitutional hypothesis

regarding the vagueness of that phrase and other phrases used in Advisory

Opinions 1984-15 and 1985-14. Along the way, they grumble about perceived

improper rulemaking through the advisory opinion process.

A.

Dealing with the last 'red herring' first, to our knowledge no commissioner

has been confused about the legal effect of advisory opinions. While advisory

opinions clearly have binding consequences, the statute is clear that general

rules of law have to emanate from the statute or from regulations of the

Commission. 17 Nonetheless, our colleagues seem convinced that the

Commission's use in Advisory Opinions 1984-15 and 1985-14 of paraphrases

and synonyms for the statutory test was, in fact, the creation of a new

substantive rule of law.'s The reality, of course, is that there are only so many

words in the English language, and after citing the underlying statutory

provisions, the Commission simply attempted to explain the legal test in other

helpful ways.19

,. Fed. Elec. Camp. Fin. Guide (CCH Transfer Binder), 115819 at 11,185.

15 United States v. United Auto Workers, 352 U.S. 567 (1957) (hereinafter "UAW').

16 Id. At 587.

17 2"U.S.C. §437f(b).

16 At one point our colleagues call the phrases used a "test" and at other times they refer to them

as an "amalgam." Sandstrom et al. Statement at 2 and 4.

19 Lest our colleagues be struck down by a bolt of lightning for insinuating they would never stoop

to helpful descriptions of the underlying statutory and regulatory provisions, they should concede

that only recently in Advisory Opinion 1999-11, they engineered a description of the statute's

reach that depended on whether there was "any campaign activity" at the event in question. See

Memorandum from Commissioner Sandstrom, Agenda Doc. No. 99-61·A: Advisory Opinion 1999-

11 (unpublished) at 3.

4
Thus, our colleagues have felled a demon they didn't need to imagine in

the first place. The regulated community has had notice of the underlying

statutory provisions at 2 U.S.C. §§ 431(8) and (9) and 441a(d) all along.

Advisory Opinions 1984-15 and 1985-14 neither expanded nor diminished those

underlying rules of law.

Interestingly, our colleagues do not purport to supersede Advisory.

Opinions 1985-14 and 1984-15, but rather disagree with the phrasing of the legal

analysis therein. We take that to mean the Commission's conclusions regarding

specific proposed ads in those opinions still serve as valid legal precedent in

terms of the underlying statute. For example, a party committee that ran ads

under materially indistinguishable circumstances could 'rely upon' the

conclusions reached by a majority of commissioners in those opinions in

determining whether the ads would be a coordinated expenditure or not. 20 This

rightly diminishes the negative impact of our colleagues' statement and suggests

only that the Commission cease using the pesky "electioneering message"

phrase when explaining its interpretations under the statute.

We must address our colleagues' suggestion that an advisory opinion

may not be used as a "sword of enforcement." Sandstrom et al. Statement at 3.

Apparently, they disregard the statutory language quoted in the previous

footnote. Someone who receives an advisory opinion that certain conduct would

be illegal, as well as anyone in materially indistinguishable circumstances, surely

may 'rely on' that legal conclusion to file a complaint against someone else

engaging that conduct. Essentially, that is what happened when Democratic

Party representatives received a response in Advisory Opinion 1985-14 that

certain targeted communications attacking a likely opponent would be

coordinated expenditures subject to limit. Other Democratic Party

representatives then filed a complaint against the Colorado Republican Party

regarding certain ads that attacked the likely Senate nominee, Tim Wirth. That

enforcement case became the subject of the Supreme Court's decision in

Colorado I, supra.

Our colleagues may have missed the fact that the 10th Circuit in that

case upheld the FEC's use of Advisory Opinion 1985-14 (even its

"electioneering message" phrase) to bolster its c1aim. 21 Although the Supreme

Court vacated the 10th Circuit's opinion on other grounds, CQlora.(jQ..1. this is a

strong indication advisory opinions can be used as a "sword."

20 The statute provides that any advisory opinion rendered by tile Commission "may be relied

upon" by the person to whom the opinion is issued or by "any person involved in any specific

transaction or activity which is indistinguishable in all its material aspects ...." 2 U.S.C. §

437f(c)(1 )

21 fJ~.C v. Colorado Republican Federal Campaign Committee, 59 F. 3d 1015 (10'h Cir. 1995).

5
This proposition is supported by a 9th Circuit decision, a case our

colleagues cite but misconstrue. 22 There, in a successful enforcement action

against a committee that accepted excessive contributions, the FEC used its

advisory opinion precedent as a "sword," and the court specifically sanctioned

this approach. 23

The courts have strongly indicated the Commission is bound to apply its

advisory opinion precedent consistently.24 We caution our colleagues not to get

so agitated over the use of paraphrases and shorthand references in prior

advisory opinions that they issue statements undermining the ability of the

agency to enforce the law.

B.

Our colleagues go well beyond their role as commissioners by opining

about the possible unconstitutional vagueness and overbreadth of the words

"electioneering message."25 First, as just explained, everyone should agree that

"electioneering message" is not a rule of law and, hence, it is not the proper

focus of any constitutional debate. Second, even if it were, Commissioners are

not members of the judiciary entitled to render their own rules unconstitutional.26

It is one thing to interpret the statute in an advisory opinion, or to interpret the

n FEC v. Ted Haley Congressional Committee, 852 F.2d 1111, 1115 (9th Cir. 1988) (hereinafter

"Haley") ("interpretation of FECA by the FEC through its regulation and advisory opinions is

entitled to due deference and is to be accepted by the court unless demonstrably irrational or

clearly contrary to the plain meaning of the statute").

23 We cannot fathom our colleagues' attempt to distinguish Haley. They appear to argue the

court's reliance on advisory opinions is insignificant because there happened to be a relevant

regulation to apply as well. Sandstrom et al. Statement at4, n. 9. As our colleagues well know,

the existence of a regulation is not essential to the legal value of an advisory opinion. The law, 2

U.S.C. § 437f(a), specifically contemplates advisory opinions applying the statute as well- just as

was the case in AdVisory Opinions 1984-15 and 1985-14. As precedent, such opinions may be

"relied upon" just as much as advisory opinions applying a regulation. 2 U.S.C. § 437f(c).

2' See Common Cause v. FEC, 676 F. Supp. 286 (D.D.C. 1986) (certain FEC commissioners,

including Commissioner Elliott, ordered to issue statement of reasons in dismissed enforcernent

case where advisory opinion precedent seemingly inconsistent); Common Cause v. FEC, Fed.

Elec. Camp. Fin. Guide (CCH Transfer Binder), 11 9263 (D. D. C. 1988) (related case noting, "The

importance of respect for the Rule of Law ... requires that courts be Vigilant to ensure that in the

process 'prior policies and standards are being deliberately changed, not casually ignored.'").

2$ Sandstrom et al. Statement at 4.

25 Comrnissioners have an obligation to seek compliance with the statute passed by Congress. 2

U S.C. § 437c(b)(1). The D.C. Circuit has stated, "[A]drninistrative agencies ... cannot resolve

constitutional issues." American Coalition for Competitiy~ Trade ¥,J;<linton, 128 F.3d 761, 766 n. 6

(D.C. Cir. 1997). See also, Gilbe(t v. National Transportatiofl Safe!Y.J2..oard, 80 F.3d 364, 366-67

(9'h Cir. 1996) ("challenges to the constitutionality of a statute or a regulation promulgated by an

agency are beyond the power or the jurisdiction of an agency").

6
statute through a clarifying regulation U It is altogether different to opine that a

mere shorthand reference used to paraphrase the statute is unconstitutional. 28

That said, we believe it important to note a fundamental flaw in our

colleagues' 'judicial detour.' Their reliance on Supreme Court analysis of

independent spending provisions is simply inapposite. In the area of

coordinated expenditures, there is no basis for applying the "express advocacy"

standard created in Bucklei9 and FEC v. Massachusetts Citizens for Life30

where independent disbursements were at issue. Indeed, Buckley could not

have been clearer that its "express advocacy" test did not apply to coordinated

expenditures, When analyzing former 18 U.S,C. § 608(e), the independent

expenditure limit struck down by the Court, the per cunam opinion noted:

The parties defending § 608(e)(1) contend that it is necessary to prevent

would-be contributors from avoiding the contribution limitations by the

simple expedient of paying directly for media advertisements or for

other portions of the candidate's campaign activities, They argue that

expenditures controlled by or coordinated with the candidate and his

campaign might well have virtually the same value to the candidate as a

contribution and would pose similar dangers of abuse. Yet such

controlled or coordinated expenditures are treated as contributions

rather than expenditures under the Act. [footnote omitted} Section

27 The D.C. Circuit has noted that the advisory opinion process provides an opportunity "to reduce

uncertainty or narrow the statute's reach" and that "the susceptibility of the [Federal Election

Campaign Act] to challenge on the grounds of vagueness has consequently been reduced."

Martin Tractor Co. v. FEC, 627 F.2d 375, 386 (D.C. Cir.), cer!. denied, 449 U.S. 954 (1980).

28 This would apply, as well, to our colleagues' constitutional analysis of other phrases used at one

time or another by the Commission to explain the application of the underlying statutes, such as

whether the communication would "tend to diminish support for one candidate and garner support

for another candidate." Sandstrom et a/. Statement at 4, n. 11, discussing Advisory Opinion 1984-

15.

We are baffled by our colleagues' suggestion that the Supreme Court's phrase in UAW

("designed to urge the public to elect a certain candidate or party") is but "charming" and of little

"practical use" because it dates back to the days of a '57 Chevy. Sandstrom et a/. Statement at

5, n. 13. That might explain Why the old case of Marbury v. Madison, 5 U.S. 137, 178 (1803) (It is

for Article III judges to consider constitutional disputes and "say what the law is."), is of little value

to them. More importantly, because the phrasing used in UAW is so close to the current language

of the statute governing coordinated expenditures ("for the purpose of influencing any election for

Federal office"), we hope our colleagues are not suggesting the latter is unconstitutionally vague.

In Buckley v. Valeo, 424 U.S. 1(1976), the Court made crystal clear that it viewed the phrase "for

the purpose of influencing" in the context of coordinated expenditures to be free of constitutional

vagueness concerns ("We construed [the terrn 'contribution' which relies on a 'for the purpose of

influencing' test] to include ... expenditures placed in cooperation with or with the consent of a

candidate... , So defined, 'contributions' have a sufficiently close reialionship to the goals of the

Act, for they are connected with a candidate or his carnpaign."). 424 U.S. at 78, referring back to

n. 24 at 23.

29 424 U.S. at 42-44,76-82. 30 479 U.S. 238, 249-50 (1986) (hereinafter "MCFL").

7
•

608(b)'s contribution ceilings ... prevent attempts to circumvent the Act

through prearranged or coordinated expenditures amounting to disguised

contributions. By contrast, § 608(e)(1) limits expenditures for express

advocacy of candidates made totally independently of the candidate

and his campaign. 31

Similarly, in MCFL, the Court made clear that its "express advocacy" construction

need only apply to the provision in 2 U.S.C. § 441b "that directly regulates

independent spending."32

III.

We can only hope our colleagues' statement does not get misconstrued

by the regulated community and the courts. We note with interest, for example,

that one business day after our colleagues' statement was cirCUlated at the

Commission, counsel for the defendant in FEC v. Christian Coalition33 filed a

pleading suggesting its relevance to the issue in that case: whether a

corporation made in-kind contributions or independent expenditures prohibited

under 2 U.S.C. § 441b. In fact, no allegation in that case involves a claim that

depends on the phrase "electioneering message."34

31 424 U.S. at 46,47. See also Buckley at 78-80 (defining coordinated expenditures as

"contributions" and defining non-coordinated "expenditures" covered by former 2 U.S.C. § 434(e)

to reach only communications containing 'express advocacy'). 32 479 U.S. at 249.

33 No. 96-1781 (D.D.C., filed 1996).

"" Interestingly, the Commission passed a regulation in 1995 that implements 2 U.S.C. § 441b as it

relates to certain voter guides. It uses the phrase "electioneering message." Specifically, for

voter guides prepared with the candidates' cooperation and participation, the regulation specifies

that such guides ·shall not score or rate the candidates' responses in such way as to convey an

electioneering message." 11 C.F.R. § 114.4(c)(5)(ii)(E). As it post-dates the activities at issue in

FEC v. Christian Coalition, supra, it should not enter the debate there, but that has not stopped

the defendant's counsel. For activities properly SUbject to this regulation, we can only ponder

what our colleagues will say.

8
The confusion generated by our colleagues is regrettable. While the

Commission's efforts to apply the in-kind contribution and coordinated

expenditure provisions in the statute must focus, as always, on the words of the

statute, surely a great deal of energy now will be expended on what to make of

the banning of the innocuous "electioneering message" phrase. The answer is,

"not much." Sadly. a lot of explaining will be required to get there.

ru

riJ

Date

9

Scott E. Thomas, Chairman

~~~~ Dan~cDonald.Ommissioner"'7J~~
FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

MEMORANDUM

TO:

FROM:

DATE:

SUBJECT:

Commissioners

Staff Director Pehrkon

General Counsel Noble

Press Officer Harris

Mary W. Dove/Lisa R. Da is

Acting Commission Secre

June 25, 1999

Statement of Reasons for the Audits of

Clinton/Gore '96 and Dole/Kemp '96.

Attached is a copy of the Statement of Reasons in the Audits of

Clinton/Gore '96 and Dole/Kemp '96 signed by Vice-Chairman Darryl R.

Wold, Commissioner Lee Ann Elliott, Commissioner David M. Mason and

Commissioner Karl J. Sandstrom. This was received in the Commission

Secretary's Office on Thursday. June 24.1999 at 3:47 p.m.

cc: V. Convery

Attachment
FEDERAL ELECTION COMMISSION

STATEMENT OF REASONS of

VICE CHAIRMAN DARRYL R. WOLD and

COMMISSIONERS LEE ANN ELLIOTT,

DAVID M. MASON and,

KARL J. SANDSTROM

On The Audits Of

"DOLE FOR PRESIDENT COMMITTEE, INC." (PRIMARY),

"CLINTON/GORE '96 PRIMARY COMMITTEE, INC.,"

"DOLE/KEMP '96, INC." (GENERAL),

"DOLE/KEMP '96 COMPLIANCE COMMITTEE, INC." (GENERAL),

"CLINTON/GORE '96 GENERAL COMMITTEE, INC.," and

"CLINTON/GORE '96 GENERAL ELECTION

LEGAL AND COMPLIANCE FUND"

Pursuant to 26 U.S.c. §§ 9038(a) and 9007(a), the Federal Election Commission

("the Corrunission") audited the "Dole For President Committee, Inc.," the "Clinton/Gore

'96 Primary Corrunittee, Inc.," "DolelKemp '96, Inc.," the "DolelKemp '96 Compliance

Corrunittee, Inc.," the "Clinton/Gore '96 General Committee, Inc." and the "Clinton/Gore

'96 General Election Legal And Compliance Fund." In doing so, our Audit Division and

Office of General Counsel (collectively the "staff') analyzed media advertisements the

Democratic and Republican National Corrunittees (collectively "the parties") ran during

1995 and 1996. The purpose ofthis analysis was to determine whether the cost ofthese

advertisements constituted in-kind contributions (coordinated expenditures) by the parties

on behalf oftheir respective presidential candidates' committees (which, among other

things, could have caused the presidential corrunittees to exceed their primary or general

election spending limits in violation of 2 U.S.c. § 441 a(b».

In analyzing these advertisements, I the staff examined their content for the

presence of two factors to determine whether the advertisement were "for the purpose of

influencing" an election for Federal office, as that phrase is used in 2 U.S.c. § 43 I (8)(A)

("contribution") and (9)(A) ("expenditure"): Whether the advertisements referred to a

"clearly identified candidate" and whether they contained an "electioneering message.,,2

I See, e.g., "Report of the Audit DiVision on the Dole For President Commmee. Inc. (Primary)" ("Report

on DFP"), Agenda Document 98-87,11/19/98 at 14 & SO; "Report of the Audl1 on ClInton/Gore '96

Primary Committee, Inc." ("Report on CGP"), Agenda Document 98-85, 11/19/98 at 10,32-35 & 36-38.

2 The staff cited Advisory Opinions ("AO")1984-1 5 and 1985-14 as the authority for using "electioneering

message" as a test of the content of a communication. Only AO 1985-14 used that phrase, and it did so in

erroneously concluding that the Commission had employed the "electioneering message" test in AO 1984-

15, see AO 1985-15 at 7; in fact, those words never appear in AO 1984-15. See footnote eleven, infra, for

a discussion of the problems with the staffs interpretation of these opinions.
Because the staff found that both factors were present,) the staffrecommended that the

Commission determine that the costs ofthe advertisements were in-kind contributions

from the parties to their respective presidential campaign committees. 4 The staff also

recommended that the Commission determine that the applicable spending limits were

exceeded based in part on the cost ofthe advertisements, and that the Commission require

a repayment ofpresidential matching funds. For various reasons, the Commissioners

unanimously rejected the staffs repayment recommendations.

We write here to express our disagreement with the use of "electioneering

message" as a test to determine whether communications are "for the purpose of

influencing" elections and, therefore, constitute expenditures or contributions under the

Federal Election Campaign Act ("FECA"). Specifically, we agree that: (1) The phrase

"electioneering message" cannot serve as a substantive test to describe the content of

communications that are "for the purpose ofinfluencing" an election because it is derived

only from advisory opinions and is not found either in the FECA or in regulations

promulgated by the Commission in accordance with the rulemaking procedures specified

in the FECA; and (2) The phrase "electioneering message" cannot be used as a shorthand

expression ofthe Commission's interpretation ofthe statutory standard of"for the

purpose ofinfluencing" an election because the advisory opinions from which the phrase

is drawn do not convey a clear and consistent application ofthe statutory standard, and

the phrase, standing alone, is both too vague and too broad to have a sufficiently definite

meaning. Therefore, we conclude that the phrase "electioneering message" should not be

used to describe the content ofcommunications which the Commission would determine

to be "for the purpose ofinfluencing" an election to Federal office.

Procedural Defects With Employing The "Electioneering Message" Standard

Congress included an express prohibition in the FECA against the Commission

using advisory opinions to establish rules of conduct. Subpart (b) of2 U.S.c. § 437f, the

section governing the use ofsuch opinions, provides that the Commission may employ

rules oflaw that are not set forth in the FECA only ifit complies with the procedures set

forth in 2 U.S.C. § 438(d) in promulgating them. 5 By necessary implication, subpart (b)

of § 437fprohibits the Commission from using advisory opinions as rules oflaw, for the

] See, e.g.• Report on DFP, Agenda Document 98-87.11/19/98 at 50; Report on CGP. Agenda Document

98-85. 11/19/98 at 38.

4 See. e.g., Report on DFP, Agenda Document 98-87, 11/19/98 at 52; Report on CGP, Agenda Document

98-85, 11/19/98 at 43.

5 See id. at § 437f(b) ("Any rule oflaw which is not stated in this Act or in chapter 95 or chapter 96 of title

26 may be initially proposed by the Commission only as a rule or regulation pursuant to procedures

established in section 438(d) ofthis title."); United States Defense Committee v. Federal Election

Commission, 861 F.2d 765. 771 (2"' Cir. 1988) (USDCj (citing 2 U.S.c. § 438(d)) ("A rule oflaw may

initially be proposed by the Commission only as a rule or regulation pursuant to very elaborate procedures

involving submission of the rule or regulation to the Congress. ").

2
Commission does not follow the requirements of2 U.S.C. § 438(d) in drafting such

opinions; instead, it follows the requirements of § 437fo

As a result, the Commission may not use advisory opinions as a substitute for

rulemaking. Rulemaking is not simply the preferred method for filling in gaps in the

FECA. It is the required method. 2 U.S.C. § 437f(b), note five, supra. Where the law is

of uncertain application, advisory opinions cannot be used as a sword of enforcement.

See generally id. The regulated community can, however, use advisory opinions as

shields against Commission enforcement actions in appropriate circumstances. 2 U.S.c.

§ 437f(c).

Advisory opinions are binding only in the sense that they may be relied on

affirmatively by any person involved in the specific transaction or activity

discussed in the opinion or in any materially indistinguishable transaction or

activity.... On the other hand, to the extent that the advisory opinion does

not affirmatively approve a proposed transaction or activity, it is binding on

no one-not the Commission, the requesting party, or third parties. 7

This reading ofthe FECA's rulemaking requirements, of course, does not prevent

the Commission from enforcing the FECA in novel or unforeseen circumstances. It only

requires that, absent controlling regulations or the authoritative interpretations ofthe

courts, the Commission's enforcement standard be the natural dictate ofthe language of

the statute itself. 8

The threshold problem with the "electioneering message" standard, then, is that it

is not a rule. It is only a shorthand phrase that purports to describe the Commission's

reasoning in two advisory opinions. See note two, supra. The phrase is not defined in

either ofthose opinions. In fact, it does not appear at all in one ofthem. Rather than

being promulgated pursuant to the requirements ofthe FECA (see 2 V.S.c. §§ 438(d) and

OSee 2 U.S.c. § 437f(b) ("... No opinion of an advisory nature may be issued by the Commission or any

ofits employees except in accordance with the provision ofthis section [i.e., § 4371].").

7 USDC. 861 F.2d at 771 (emphasis added)(citing 2 U.S.c. §§ 438(d) and 437f(b)&(c)); see also Weber v.

Heaney, 793 F. Supp. 1438,1452 n. 9 (D. Minn 1992) (" ... Commission advisory opinions are binding in

the sense that they may be relied upon affirmatively by any person involved in the specific transaction or

activity discussed in the opinion or in any materially indistmguishable transaction or opinion."), aff'd. 995

F.2d 872 (8" Cir. 1993); Stockman v. Federal Election Commission, 138 F.3d 144, 149 n. 9 (5" Cir. 1998)

(same). Some argue that Orloski v. Federal Election Commission, 795 F.2d 156 (D.C. Cir. 1986), supports

the contrary conclusion. Unlike USDC, however, Orloski did not address the FECA's clear prohibitions on

using advisory opinions as rules of conduct. Instead. Orloski analyzed the advisory opinions implicated

there for purposes of determining whether the Commission's interpretation of the FECA was reasonable

and consistent and thus should be accorded deference. 795 F.2d at 164-167.

8 See Sullivan v. Everhart, 494 U.S. 83, 89 (1990) (Scalia, 1.) (quoting Chevron U.S.A.,Inc. v. Natural

Resources Defense Council, bie., 467 U.S. 837, 843 (1984) and National Labor Relations Boardv. Food

and Commercial Workers, 484 U.S. 112, 123 (1987)) ('" [I]f the statute is silent or ambiguous with respect

to the specific issue, the question for the court is whether the agency's answer is based on a permissible

construction of the statute,' that is, whether the agency's construction is 'rational and consistent with the

statute. "').

3
437f(b) & (c», the "electioneering message" standard is an amalgam ofthese advisory

opinions. Even at that, it is not the most natural, let alone the only reasonable, reading of

those opinions. In fact, it is difficult to draw any clear meaning from a comparison or

combination of ADs 1984-15 and 1985-14 (see "Substantive Difficulties," infra).

As a result, the regulated community most likely does not have /lotice as to how

this standard will govern its conduct, and it certainly did not have an opportunity to

comment on whether it should. Because ofits procedural infirmities, the Commission

may not employ the phrase "electioneering message" as expressing a general rule for

determining whether communications are "for the purpose ofinfluencing" a federal

election.'

Substantive Difficulties With The "Electioneering Message" Standard

Apart from its procedural infirmities, the "electioneering message" standard

suffers from serious problems of vagueness and overbreadth. As presented by the staff, a

communication satisfies this standard ifit includes statements which are "designed to

urge the public to elect a certain candidate or party, '0 or which would tend to diminish

support for one candidate and gamer support for another candidate." See, e.g., Report on

DFP, Agenda Document 98-87,11/19/98 at 14 (citing AD 1984-15); Report on CGP,

Agenda Document 98-87,11/19/98 at 10 (citing AD 1984-15)."

9 Democratic Congressional Campaign Committee v. Federal Election Commission, 645 F. Supp. 169

(D.D.C. 1986), aff'd in part and rev'd in part, 831 F.2d 1131 (D.C. Cir. 1987) (DCCC) and Federal

Election Commission v. Ted Haley Congressional Committee, 852 F.2d JIll (911) Cir. 1988) (Haley) do not

affect this conclusion. In DCCC, the Commission dismissed a complaint, contrary to the recommendation

of its General Counsel, without providing a statement of reasons for domg so when it appeared the

complaint alleged activity that satisfied the "electioneering message" standard. 645 F. Supp. at 170-17I.

The Court, in an action brought pursuant to 2 U.S.C. § 437g(a)(8), was faced with the question of whether

the Commission had acted "contrary to law" for appearing to disregard its "electioneering message" test

without articulating any reason for doing so, id. at 171-I74; the Court was not faced with the issue here:

whether that test, itself, was validly established. In Haley, the Court noted that the Commission's

interpretation ofthe FECA in its regulations and advisory opinions was entitled to due deference. 852 F.2d

at 1115. But all the advisory opinions to which that Court referred interpreted a Commission regulation,

id. at 1114-1115; they did not attempt to circumvent the FECA's clear requirement that for rules of

conduct, the Commission have a regulation. See also Federal Election Commission v. Legi-Tech, 967 F,

Supp. 523, 529-530 (D.D.C. 1997) (Commission advisory opinions interpreted regulation).

10 The staff cites AO 1984-15 as authority for this phrase. This phrase, however, comes from 1985-14. See

id. at 7 (citing United States v. United Aulo Workers, 352 U.S. 567, 587 (1957)).

"There is substantial question as to whether the staffs analysis properly characterizes AO 1984-15. While

that opinion uses the phrases "diminish support" and "garner support," id. at 5, it concludes that

advertisements which clearly identify presidential candidates of one party and include exhortations to

"vote" for another party "effectively advocate the defeat of a clearly identified candidate." Id. Whatever

distinction there may be between "effectively" and "expressly" advocating, the facts presented in that

advisory opinion bear similarities to the facts in Federal Election Commission v. Massachusetts Citizensfor

Life, Inc., 479 U.S. 238 (l986) (MCFL), and the Commission's conclusion in AO 1984-15 and the court's

conclusion in MCFL can be read consistently. The staffsuggests an extremely broad interpretation of AO

1984-15, citing the phrase "dimish (or] garner support." See Reports on DFP & CGP. supra. That

opinion's facts, however, suggest a more narrow, and more natural, construction. similar to MCFL.

4
Such fonnulations, the Supreme Court has held, offend the First Amendment. In

Buckley v. Valeo, 424 U.S. 1,42-44 (1976), the High Court held as impennissibly vague

the "relative to ... advocating the election or defeat of[a clearly identified) candidate"

standard in 18 U.S.C. § 608(e) (1970) ofthe original FECA. The "diminish support for

one candidate" prong--like the "relative to" standard in the original FECA- is especially

problematic because "the distinction between discussion ofissues and candidates and

advocacy ofelection or defeat ofcandidates may often dissolve in practical application."

Buckley, 424 U.S. at 42 (emphasis added).l'

The factual question of what a particular statement was designed to do also gives

rise to vagueness problems. The fact that the tenn "electioneering" and the phrase

"designed to urge the public to elect a certain candidate or party" were plucked out of

context from a four-decade old Supreme Court opinion (United States v. Auto Workers,

352 U.S. 567 (1957) (VA W» does not resolve the question. 13 First, it is clear that VA W

was not enunciating a constitutionally-pennissib1e standard for regulating speech, but

describing a particular communication in the course of an opinion explicitly refusing to

reach a ruling on the constitutionality ofregulating the specific speech so described. See

id. at 591 (internal citation omitted) ("Clearly in this case it is not absolutely necessary to

a decision to canvass the constitutional issues."). Second, the speech at issue in VA W

included specific endorsements of candidates. Id. at 584. Third, the per curiam opinion

in Buckley cites the dissent in UAW, see 424 U.S. at 43 (citing UAW, 352 U.S. at 595-596

(Douglas, 1., dissenting», which had urged that the FECA's predecessor statute be

declared unconstitutional as applied to the electioneering speech at issue in UA W.

The relationship, ifany, ofthe two prongs ofthe "electioneering message" test

underscores the test's vagueness. Read narrowly, "urge the public to elect a candidate,"

AD 1985-14 at 7, could be construed as equivalent to communications "that expressly

12 The "relative to" standard, on its face, was thus unhelpful in distinguishing berween these rwo types of

speech. !d. As a result, to allow unfettered issue discussion while regulating candidate advocacy, the

government, under this standard, had to attempt to divine the speaker's intent. Jd. at 43. This, the Court

noted, would not only be difficult, but dangerous.

Whether words intended and designed to fall short ofinvitation would miss that mark is a

question both ofintent and effect. No speaker, in such circumstances, safely could

assume that anything he might say upon the general subject would not be understood by

some as an invitation. In short, the supposedly clear-cut distinction berween discussion,

laudation, general advocacy, and solicitation puts the speaker in these circumstances

wholly at the mercy ofthe varied understanding of his hearers and consequently of

whatever inference may be drawn as to his intent and meaning. Such a distinction offers

no security for free discussion. In these conditions, it blankets with uncertainty whatever

may be said. It compels the speaker to hedge and trim.

Jd. (quoting Thomas v. Collins,.323 U.S. 516, 535 (1945)). The second prong ofthe "electioneering

message" test-given its "diminish [candidate] support" focus--requires the same difficult and dangerous

subjective inquiry.

IJ Like a '57 Chevy, a dated Supreme Court opinion may be charming, but often requires substantial

restoration to be of practical use.

5
advocate the election or defeat of a clearly identified candidate." Federal Election

Commission v. Massachusetts Citizens For Life. Inc., 479 U.S. 238, 249-250 (1986)

(quoting Buckley, 424 U.S. at 80). In contrast, there is virtually nothing which could be

said about a candidate for federal office which might not be interpreted as "diminish[ing]

support for one candidate [or] garner[ing] support for another candidate." See, e.g.,

Report on DFP, Agenda Document 98-87, 11/19/98 at 14 (citing AO 1984-15); Report

on CGP, Agenda Document 98-87, 11119/98 at 10 (citing AO 1984-15).

The "electioneering message" test is also unconstitutionally overbroad for related

reasons. As the Buckley Court observed,

[c]andidates, especially incumbents, are intimately tied to public issues

involving legislative proposals and governmental actions. Not only do

candidates campaign on the basis oftheir positions on various public

issues, but campaigns themselves generate issues of public interest.

424 U.S. at 42. Regulation of any statement which" diminishes [or garners] support for

[a] candidate," AO 1984-15 at 5, would encompass, then, virtually any meaningful

utterance identifying a candidate.

The vagueness and overbreadth problems ofthe "electioneering message" and

"relative to" standards are thus two sides ofthe same counterfeit coin. They are vague

because it is not clear when they encompass issue discussion and not candidate advocacy.

They are overbroad because, given the nature of campaigning, they will inevitably

encompass both. For the same substantive reasons that the Supreme Court held the

"relative to" standard in the FECA to be unconstitutional, the Commission may not

employ "the electioneering message" standard. Even in the context of coordinated, or

presumably coordinated, communications in which the "electioneering message" test has

generally been proposed (see II C.F.R. § 114.4(c)(5)(ii)(B)(2)(E) (regulation of voter

guides», the Commission may not ignore these constitutional requirements.

Conclusion

I Karl VSandstrom

CorfJmissioner

/ . /. .~ I ;. L.., "V! v ._"/ '

Date

Given the procedural and substantive infirmities with the "electioneering

message" standard, the Commission may not employ it in administering the FECA, the

Presidential Primary Matching Payment Account Act, the Presidential Election Campaign

Fund Act, or its own regulations.

J!J~J1~!~L({j'Gbi Darryl I{, Wold

Q'Jh1lt-- ~/2,/'1;l David M. Mason Date

Commissioner

6