GL4/120887

FEDERAL ELECTION COMMISSION •

MEMORANDUM

WASHINGTON, D.C 204&3

December 8, 1987

TO:

PROM:

SUBJECT:

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORTJOHN GLENN COMMITTEE

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

John Glenn Committee which was approved by the Commission on

December 2, 1987.

Informational copies of the report have been received by all it parties involved and the repOrt may be released to the public.

__ Attachment as stated

cc: FEC Library

RAn

Public 0 isclosure,/

Office of General Counsel

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GL4/111087

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FEDERAL ELECTION COMMISSION

WASHINCTON. D.C. 20463

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(\.,

'Q"

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REPORT OF THE AtDIT DIVISION

ON

THE JatN GLENN COMMITTEE

(Joint Fundraising Committee)

1:. Backgrouna

A. Overview

This report covers an audi t of The John Glenn Ccmmi ttee

(Wthe CommitteeW), to determine whether there has been compliance

with the provisions of the Federal Election Campaign Act of 1971,

as amended (Wthe ActW). The audit was conducted pursuant to

Section 9038(a) of Title 26 of the United States Code which

states that Wafter each matching payment period, the Commission

shall conduct a thorough examination and audit of the qualified

campaign expenses of every candidate and his authorized

commi ttees who recei ved payments un,ler Section 9037."

In addition, Section 9039 (b) of Title 26 of the United

States Code, and Section 9038.1(b) of Title 11 of the Code of

Federal Regulations state that the Commission may conduct other

examinations and audits from time to time as it deems necessary

to carry out the provisions of this sUbchapt~r.

The John Glenn Commi ttee (formerly the Democratic Uni ty

Committee) registered with the Federal Election Commission as a

joint fundraising committee, and was authorized by Senator John

Glenn, on April 26, 1984. Participants in various fundraising

events with The John Glenn Committee were the John Glenn

Presidential Committee, Inc., Senator John Glenn Committee, Sloan

for Congress Committee, and Americans with Hart, Inc. The John

Glenn Committee maintains its headquarters in Washington, D.C.

The audit covered the period from April 26, 1984

through December 31, 1985. The John Glenn Committee reported an

opening cash balance of $-0-, total receipts of $146,107.31,

total expenditures of $144,241.48, and a closing cash balance of

$1,865.83 during the period.

This report is based on documents and workpapers supporting each of its factual statements. They form part of the

record upon which the Commission based its decisions on the

matters in this report and were available to Commissioners and

appropriate staff for review •
-- - . ---'-. ,---_¥_- .:

• B. Key Personnel

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The principal officer of the Committee during the

period audited was Mr. William R. White, Treasurer.

c. Scope

The audit included such tests as verification of total

reported receipts and expenditures and individual transactions,

review of required supporting documentation and analysis of

Committee debts and obligationsl and such other audit procedures

as deemed necessary under the circumstances.

II. AUl3it Findings and Recommendations

Distribution of Proceeds

Section 9034.8(c) (1) of Title 11 of the Code of Federal

o Regulations states, in part, that the participants in a joint fundraising activity shall enter into a written agreement, Whether or not all participants are political committees under 11

C.F.R. S 100.S. The written agreement shall identify the

C\! fundr aising representative and shall state a formula for the

allocation of fundraising proceeds. The participants shall also

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use the formula to allocate the expenses incurred for the

fundraising actiVity.

Section 9034.8(c) (7) of Title 11 of the Code of Federal

Regulations states that the fundraising representative shall

o allocate proceeds according to the formula stated in the " fundraising agreement. Funds may not be distributed or

reallocated so as to maximize the matchability of the

contributions.

During the review of Committee records, the auditors noted

that the Committee scheduled ten joint fundraising events between

the following committees:

D Sloan for Congress Committee and the John Glenn

Presidential Committee, Inc. (one event) ,

D

D

Americans with Bart, Inc. and the John Glenn

Presidential Committee, Inc. (one event) and,

Senator John Glenn Committee and the John Glenn

Presidential Committee, Inc. (eight events).

The auditors reviewed the Committee's records and

documentation to determine whether gross proceeds and expenses had been properly allocated in accordance with the allocation

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formula (s) stated in the agreement (s). During this review, the

following matters were noted.
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- '" .......::.. . - -'

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A. • Sloan For Congress Committee and the John Glenn

Presidential Committee, Inc.

The agreement entered into between the above named

committees states that fundraising proceeds shall be allocated

two-thirds to Sloan For Congress Committee (the Sloan Committee)

and one-third to John Glenn Presidential Committee, Inc. (the Presidential Committee), and related expenditures shall be

allocated according to the same formula utilized for allocating fundraising proceeds. In addition, the solicitation material

states that notwithstanding the above allocation formula, each

contributor may designate his/her contribution for a particUlar participant.

The joint fundraising event involving the two

committees was held on October 12, 1984. Based on our review of

Committee records, it appears that the proceeds were allocated

100 percent to the Presidential Committee to the extent permitted

the contribution limits of the Act. In the event that the

contribution(s) exceeded the Presidential Committee's limit, an

allocation was made to the Sloan Committee. The Committee

allocated S2 contributions that were made to the joint

r;o..l fundraising event. As a result, 42 contributions, totaling $2,611, were allocated 100% to the Presidential Committee and 10

q contributions totaling $6,000 were allocated to the Sloan

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Committee. No contribution was allocated two-thirds to the Sloan

Committee and one-third to the Presidential Committee as required by the fundraising agreement. However, based on our review of -- the records, the 42 contributions could have been allocated twoc thirds to the Sloan Committee and one-third to the Presidential

Committee without exceeding the 2 U.S.C. S 441a(a) (1) (A) limit

for either committee. For the 10 contributions that were

allocated to the Sloan Committee, 9 contributors had previously

r contributed $1,000 to the Presidential Committee, and one

contribution was from the Senator John Glenn Committee. C'"

In addition, 6 of the S2 contributions totaling $2,300

were made payable to the Sloan Committee. The Committee included

these contributions with the other proceeds and based on their

allocation method the Presidential Committee received 3 of the

contributions totaling $100. 1/ There were no checks made

payable to the Presidential Committee.

1/

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The Committee allocated the three other contributions to the

Sloan Committee because the contributors had already met the

2 U.S.C. S 441a(a) (1) (A) limitation for the Presidential

Committee •
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As a result, gross proceeds adjusted for contributions

in excess of the limitation at 2 U.S.C. S 441a(a) (1) (A), totaled

$8,641. The Committee distributed $8,611 of the gross proceeds

among the participants. The Audit staff determined that, in

accordance with the agreement, the correct allocation of the

gross proceeds should have been $1,170.18 to the Presidential

Committee and $7,440.82 to the Sloan Committee.

Based on the allocation shown above, the Sloan

Committee should have received 86.41' of the proceeds and the

Presidential Committee 13.59'. Applying these percentages to

total allocable expenses relative to the event ($1,300.90), the

Sloan Committee's proportionate share of the allocable expenses should have been $1,124.11 and the Presidential Committee's sh~re

$176.79. The correct allocation of net proceeds to the Sloan

Committee, adjusted for its proportionate share of expenses, should have been $6,316.71 ($7,440.82 - $1,124.11) and the

Presidential Committee's share should have been $993.39

($1,170.18 - $176.79). However, the Committee disbursed

$2,220.73 to the Presidential Committee and $5,089.37 to the

Sloan Commi ttee •

~1 It is the opinion of the Audi t staff that the

disbursement of proceeds to the Presidential Committee was

$1,227.34 ($2,220.73 - $993.39) more, and the disbursement of

proceeds to the Sloan Committee was $1,227.34 ($6,316.71 - $5,089.37) less than the amount to which the committees were

entitled under the fundraising agreement. (See Attachment Il.

It is also our opinion that the Committee's method of

allocating the proceeds to the Presidential Committee maximized

the matchability of each contribution.l1 For example, if an

individual contributed $250 to the event and did not previously contribute to either participating committee, the $250

contribution should be allocated $166.75 to the Sloan Committee

(2/3) and $83.25 to the Presidential Committee (1/3). However,

in every instance this contribution would have been allocated

entirely to the Presidential Committee, and if submitted for

matching would result in $250 being matched instead of $83.25,

the amount which was actually matchable. The Committee's method

of allocating the proceeds also resulted in an overpayment of

matching funds totaling $1,190.67, the repayment of which is

addressed in the Addendum to the Final Audit Report for the John

Glenn Presidential Committee, Inc.

The Commission determined that Senator John Glenn and the

John Glenn Presidential Committee, Inc. satisfied the

eligibility requirements to receive Presidential Primary Matching Payments on October 6, 1983. (See 26 U.S.C.

SS 9033(a) and (b) and 11 C.F.R. SS 9033.1, 9033.2, and

9036.1 (b» •
. . - - ,~ - -....- - - . . '_ --. - .... 0.

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The Audit staff recommended in the Interim Audit Report that the Committee justify its method of allocation in accordance

with 11 C.F.R. 5 9034.8(0) (7). Absent such a showing, the Audit

staff recommended that the Committee obtain a reimbursement from

the Presidential Committee of $1,227.34 and make a distribution

to the Sloan Committee in the amount of $1,227.34. In addition,

the Audit staff recommended that the Committee amend their

reports to disclose the proper allocation(s) and inform the

participating committees to file amended reports reflecting the

correct allocation.

The Committee responded to the Interim Audit Report that wfundraising proceedsw was intended to mean the total amount

of money raised the event. Further, the Committee states Wit

was never intended to mean each and every individual contribution

considered separately.w In addition the Committee asserts that

Wthere is nothing in the law or regulations, that would have

prohibited the participating committees from adopting [this]

interpretation. w Finally, the Committee argues that in the law

of interpretation of contracts words are given the meaning which

best effectuates the intention of the parties.

The Audit staff notes that the solicitation material

sent to the contributors specifically stated that the proceeds

would be distributed two-thirds to the Sloan Committee and one-

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third to the Presidential Committee. The solicitation also

informed the contributor that he could designate his contribution

to a particular candidate, and advised the contributor that the

allocation may change if a contribution is received that would

exceed the amount a contributor may give to any participant. In

addition, the Audit staff notes that an internal memorandum found

in the Committee's files summarizes a communication with an Audit

Division staff member. The Committee was advised that, in the

opinion of the staff member, they were bound by the information

printed on the contribution card, rather than distributing the

checks as the committee intended. The Audit staff is of the

opinion that the regulations and advisory opinions advocate the

individual allocation of contributions. Furthermore, in this

case the contributors were 1) informed of the allocation formula,

2) given notice that they may designate their contribution, and

3) advised that the allocation formula may change if a

contribution would exceed the amount a contributor may give to

any participant. These notices appear to suggest to the

contributor a contribution-by-contribution allocation.

It is also the Audit staff's opinion that the

Committee's assertions are contrary to the requirements set forth

in the regulations. Specifically, 11 C.F.R. S 9034.8(c) (7)

states that proceeds [contributions received] shall be allocated

in accordance with the formula stated in the fundraising

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• agreement. This section also states that "funds may not be

distributed or reallocated so as to maximize the matchability of

the contributions.- (Emphasis not in original).

Recommendation .1

In view of 1) the relatively small misallocation in joint fundraising proceeds ($1,227.34), and 2) the fact that the

Commission is seeking repayment under Title 26 U.S.C.

5 9038 (b) (1) of the excessive matching funds received by the

Presidential Committee ($1,190.67) due to the misallocation, the

Audit staff recommends no further action.

B. The John Glenn Presidential Committee, Inc.

(the Presidential Committee) and Americans with

Bart, Inc. (the Hart Committee)

The agreement entered into between the above named

committees states that total proceeds from the event will be

divided between the committees in direct proportion to the

percentage of the total proceeds raised by each committee. If a

contributor gives an amount which, if allocated in accordance

with the above formula, would cause that contributor to exceed

the maximum that can be contributed to one of the committees, the

'"::r excessive portion of that contribution will be allocated to the

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other committee. Furthermore, the agreement states "in the event

that checks are received that are payable to either of the

[Presidential candidate's] committees as a result of a - solicitation authorized by the agreement, it is agreed and

c understood that such checks may be endorsed over to the

Democratic Unity Committee and deposited in that committee's

account the same as if they were originally written to the

Democratic Unity Committee.·

C"'

A joint fundraising event involving the two committees

was held on December 14, 1984. The Commi ttee reported receipts from this event totaling $42,355 and allocated 87.7' of the

contributions to the Presidential Committee and 12.3' of the

contributions to the Hart Committee. Subsequent to paying the

fundraising expenses, the Committee disbursed $33,042.15 to the

Presidential Committee and $17,300.32 to the Hart Committee. It

should be noted that amounts disbursed include the checks that

were sent directly to the participating committees.

The Audit staff's review of records relating to this

event indicated that gross proceeds from the event totaled

$56,100 (net of $1,000 in contribution refunds made). The

difference in the amount of proceeds per the Committee's records

($56,100) and the amount reported by the Committee ($42,355)

represents the value of contributions made by checks payable to

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either can~i~ate. The Committee forwarde~ these checks directly ~o the participants without reporting or ~epositing the

contri butions.

The Audit 8~aff included these contributions with other

contributions receive~ an~ ~eposite~ by the Committee in our

analysis, resulting in an allocation ratio for all contributions

of 65' for ~he Presidential Committee and 35\ for the Bart

Canmittee.

Base~ on Audit analysis (as opposed to the committee's

ratio of 87.7\ Presi~ential/12.3\ Bart), and taking into consi~eration the payment of the expenses an~ other adjustments require~ by the joint fundraising agreement, the Au~it staff determine~ that the Presidential Committee received $5,437.43 in

proceeds which 8houl~ have been allocate~ to the Bart Committee.

't) Allocation of Net

Proceeds by the

Canmittee

Presidential Committee

$33,042.15

Hart Commi ttee

$17,300.32

Allocation of Net

Proceeds by the

Audi t Staff

Overpayment/

(Underpayment)

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27,604.72

$ 5,437.43

22,737.75

($ 5,437.43)

In the Interim Audit Report the Audit staff recommended ~hat the Committee justify its allocation of the joint

fundraising proceeds. Absent such a showing, the Audit staff

recommended that the Committee obtain a reimbursement from the

Presidential Committee of $5,437.43 and disburse $5,437.43 to the

Bart Committee. In addition, the Audit staff recommended that ~he Committee should amend its reports to disclose the proper allocation(s) and the contributions that were sent directly to ~he participating committees. Further, the Committee should

inform the participating committees to file amended reports reflecting the correct allocation.

The Committee responded to the Interim Audit Report by

asserting that the checks written to the candidates were

unrelated to the joint fundraising event, were not received as a

result of the solicitation, and were delivered inadvertently to

the fundraising representative. The Committee further contended

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that these checks should not be included in the allocation

operation -merely because the checks were sent to the joint fundraising representative.-

The Committee also provided an affidavit from a staff

member who was involved with fundraising activities and the

related accounting and compliance functions during the period. The affidavit asserts that the candidate checks were forwarded to

the fundraising representative in error, and, following discussions between the two committees, were returned to the

committee to which they should have been forwarded in the first

place.

The Audit staff reviewed the Committee response and

documentation related to the event and determined the following:

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1.

2.

3 •

4.

5.

Fundraising efforts for the event began at least 2

weeks before the event was held on December 14,

1984.

The fundraising agreement was signed on December

5, 1984 after negotiations between the committees

lasting several weeks.

The majori ty of the checks wri tten to the

candidates were written the day of the event.

Most of the candidate contributions were written

within a week of the event and 72 of the 80 1/

contributions designated to the candidates were

written on or after November 20, 1984.

The checks written to candidates are shown as

contributions for the event on schedules generated the Committee.

Of the 80 checks made payable to the candidates,

26 of the contributions could not be associated

with a fundraising representative "host"; of the

remaining 54, 47 contributions were submitted

through 5 -hosts- Who, according to Committee

documentation, submitted only checks made payable

to a particular candidate.

3/ Eight contributor checks made payable to the Hart Committee

were not reviewed by the Audit staff •

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_= 0

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In aadition, the fundraising agreement e~licitly

states that WTotal proceeas from the event will be aivided

between the committees in direct proportion to the percentage of

the total proceeds raised by each committee for the event. w

Because solicitation for the event was underway before the

fundraising agreement was signed, this clause in the contract

appears designed to protect the fundraising efforts already begun by either committee. Purthermore, it appears unlikely that 5

fundraising representative WhostsWfor the event would

inadvertently receive only checks payable to the canaidates.

In summary, the checks written to the candidates appear

to be date-correlated to both the event and the solicitation

period for the event. In addition, the majority of these checks

were collected by certain joint fundraising representative

WhostsWwho, according to Committee documentation, collected only contributions made payable to a particular candidate.

~he Audit staff is of the opinion that the Committee

has failed to demonstrate that the checks written to the

candidates 1) were delivered inadvertently to the fundraising representative, 2) were not related to the joint fundraising

event, and 3) were not a result of the solicitation for the

event.

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~he Audi t staff is therefore of the opi nion that the

contributions written to the candidates in late November and

December are properly included with other contributions received _. and deposited by the Committee. The Committee has not provided ... evidence to substantiate its contention that thei r contri butions - were unrelated to the fundraising event or the solicitation for "" the event •

...... Recommendation 12

In view of 1) the relatively small amount of misallocation

involved, 2) the indeterminate allocation formula within the

joint fundraising agreement, and 3) the various possible interpretations of that agreement, the Audit staff recommends no

further action in this matter •

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SOIEDULE (R ALLOCATION OF GROSS PROCEEDS AND EXPENSES

.JCIIII GIoBIIN PIlESIDBIft'IAL COtltITTEB, INC./SLOAN FOR CONGRESS COtltlTTEB

Attach.ent I

.;- 8 l l p. I 0 L (J B lJ

Geoa. Peoceeda IDI.tdbutecU - ",611.00

Allocation pee C~tt.. Allocation pee &UlJlt

DIU.e..... - Owepe,..at/tU_epaJII_t)

••,..... - '1,300.10

Allocation pee C.-IttH

AUocation per AUlJlt

Dlff.renoe. - Owrpa,..nt/CU"'rpa,...t)

••t proceed.

~al Dl.trlbutlon pee c.-IttH

Dl.trlbutloa per &UlJlt

'rotal __.t of Owr,.,..nt - Pe..lcJentlal C.-IttH

'rotal "uat of UncJerpa,..ftt - 8lO. C~tt..

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Presidential

CClmlitte.

$2,611.00

1,170.11

l,do.12

, 390.27

176.79

213.41

12,220.7]

99].39

11,227.34

Percentage of Gross

Proceed. (per Audit)

13.5"

Sloan

CClmlitt.e

$6,000.00

7,440.82

U,440.82)

$ 910.6]

~l24.11 213.41)

$5,089.]7

6,316.71

(1,227.34)

Percentage of Gross

Proceeds (per Audit)

.6.41'

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