17

ATA’s President represented that ATA’s client base over the last 10 years consisted of
less than 10 percent political clients® and that over 95 percent of its contracts have been
of the no risk nature. Thus the majority of ATA’s business consisted of mostly non-
political clients under no-financial-risk contracts. To recognize the potential for loss on
no-risk contracts, ATA represents that it charges about one-third more under a no-risk
arrangement than it would for a pay as you go ar rangement. ATA further represents that
given the high risk nature of the CLPAC agreement, it charged CLPAC more than its
standard no-risk fee. ATA’s President further stated that ATA entered into the contract
with CLPAC based on the success of two recent direct mail programs (a nonprofit client
and a senatorial campaign).

Information was provided on three other clients, all nonprofit organizations that, like
CLPAC, have received proceeds from their fundraising programs while the costs of the
programs exceeded the revenue. The third was terminated early with ATA assuming a
portion of the unpaid balance. The others eventually made a profit. Unlike CLPAC, each
of the three examples appeared to be multi-year contracts.

It was further stated that ATA believed that CLPAC’s direct mail program was
unquestionably poised to generate large sums of money. However, the program was hurt
by “late and botched mailings caused by certain vendors.” These delays in meeting mail
dates and other mistakes resulted in ATA’s waiving some of its fees. He concludes by
stating ATA assumes client debt, pays vendors, and issues credits to the client direct mail
programs in its ordinary course of business. ATA’s President also states that even though
a direct mail program may lose money on one side of the ledger, ATA receives a mailing
list and the exclusive right to market that list in addition to the amounts that are paid by
the client.”

ATA’s President provided documents relating to the “late and botched mailings.” The
three vendors involved were the Fisher Group, REO Direct and United Envelope.
However, our review of these documents cast doubt on who was at fault for the failed
mailings. Further, ATA and TVC (the parent company of ATA) entered into agreements
recognizing, and paying, the full amount as being owed to these vendors.

The interim audit report concluded that undocumented credits ($2,113,721) and the
payments ($1,088,988) by other entities on behalf of CLPAC represent the receipt of
impermissible contributions. However, the response to Finding 2 documents the credits
issued by the Chester Mailing List Consultants, Inc. ($274,134) and Mail America
Communications, Inc. ($70,234). Therefore, these amounts have been removed from the
total undocumented credits of $2,113,721.

The response to Finding 2 also documented that ATA and TVC made additional
payments to vendors on behalf of CLPAC in settlement of many of the outstanding

8 The term “political” as used by ATA appears to refer to political committees. Non-political clients
appear to include political organizations that are not political committees.
° ATA’s President explained that senatorial campaign did not choose a no-risk contract.


Each vendor questioned in the interim audit report and the amounts billed for services
provided to CLPAC, the amounts paid against those billings, other credits posted to the
accounts, and the outstanding balance are shown in the chart below.

Prohibited
amount
Total shown inthe | Paid by Credits
Billings to Payments Interim Audit other issued by Outstanding
Vendor CLPAC By CLPAC Report Vendors vendor Balance
American Target 1,562,001 404.169 1,157,832 1,157,832 0.00
Advertising (ATA)
The Viguerie 524,481 23,829 500,652 500,652 0.00
Company (TVC)
Mail America 1,310,073 653,200 656,873 | 50,000 199,726 407,147
Communications,
Inc. (Mail America)
Chester Mailing List 868,634 382,964 485,670 | 208,069 277,601 0.00
Consultants, Inc.
(CMLC)
Fisher Group 745,162 374,345" 370,817 | 370,817 0.00
REO Packaging 179,406 33.103 146,303 | 146,303 0.00
Company
(REO Direct)
RST Marketing 259,098 132.486 126,612 74,266 52,346
Associates, Inc.
(RST Marketing)
United Envelope 121,743 4,500 117,243 | 117,243 0.00
Co., LLC (United
Envelope)
Premier Printing 127,838 10,000 117,838 10,384 107,454
Company LLC
(Premier Services)
Pro Tech Direct, Inc. 121,579 34.770 86.809 35,591 51,217
(Pro Tech)

The interim audit report concluded that the significant outstanding balances, the length of
time that the balances had gone unpaid, and the lack of evidence of collection efforts by
the vendors established that the outstanding balances represented contributions by the
vendors.

Interim Audit Report Recommendation

The Audit staff recommended that CLPAC provide documentation, to include statements
from the vendors, that demonstrated the credit extended was in the normal course of the
vendor’s business and did not represent a prohibited contribution by the vendors. The
information provided was to include examples of other non-political customers and
clients of similar size and risk for which similar services have been provided and similar
billing arrangements have been used. Also, information was to be provided concerning
billing policies for similar non-political clients and work, advance payment policies, debt
collection policies, and billing cycles.

3 Includes miscellaneous documented credits of $6,762.



| Finding 5. Disclosure of Occupation/Name of Employer

Summary

Contributions from individuals were reviewed on a sample basis. The review indicated
that CLPAC failed to disclose the contributor’s occupation and/or name of employer for
93% of the contributions tested that required the disclosure of that information. In
response to the interim audit report recommendation, Counsel stated CLPAC made every
effort to obtain the necessary documents from its vendors, but was unsuccessful. CLPAC
neither provided documentation that demonstrated its attempt to obtain the information
from its contributors nor filed amended reports.

Legal Standard

A. Required Information for Contributions from Individuals. For each itemized
contribution from an individual, the committee must provide the following information:
e The contributor’s full name and address (including zip code);

e The contributor’s occupation and the name of his or her employer,

e The date of receipt (the date the committee received the contribution);

© The amount of the contribution; and

e The aggregate year-to-date total of all contributions from the same individual. 11
CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A).

B. Best Efforts Ensures Compliance. When the treasurer of a political committee
shows that the committee used best efforts (see below) to obtain, maintain, and submit
the information required by the Act, the committee’s reports and records will be
considered in compliance with the Act. 2 U.S.C. §432(h)(2)(i).

C. Definition of Best Efforts. The treasurer and the committee will be considered to
have used “best efforts” if the committee satisfied all of the following criteria:
e All written solicitations for contributions included:
o Aclear request for the contributor's full name, mailing address, occupation,
and name of employer; and
o. The statement that such reporting is required by Federal law.
¢ Within 30 days after the receipt of the contribution, the treasurer made at least one
effort to obtain the missing information, in either a written request or a documented
oral request.
¢ The treasurer reported any contributor information that, although not initially
provided by the contributor, was obtained in a follow-up communication or was
contained in the committee’s records or in prior reports that the committee filed
during the same two-year election cycle. 11 CFR §104.7(b)

Facts and Analysis

Contributions from individuals were reviewed on a sample basis. The review indicated
that CLPAC failed to disclose the contributor’s occupation and/or name of employer for
93% of the contributions tested. CLPAC provided samples of several types of
solicitations sent to potential contributors, most of which requested occupation and name
of employer. However, contributor response devices were not available to determine if


receipts, invoices and other source documents for disbursements, and computer files for
disbursements. Between December 17, 2002, and April 3, 2003, Counsel made
piecemeal submissions of invoices, check copies, and bank statements. Also provided
was an electronic file of disbursements from one account, a duplicate database of receipts
from one account, some duplicate invoices, copies of wire transfer advices, copies of
some deposit tickets, loose copies of some contributor checks, and solicitation materials.
The electronic file was apparently maintained by American Targeted Advertising, Inc.
(ATA), CLPAC’s direct mail fundraising vendor, who also controlled one of CLPAC’s
checking accounts. Into this account, contributions totaling $4,666,695 were deposited
and disbursements totaling $4,150,574 were made.

Review of Receipts and Disbursements

The review of receipts was limited to an electronic file and very few contributor check
copies. The file and the check copies together satisfied minimum recordkeeping
requirements for 91% of the total deposits. CLPAC provided no source documents (such
as check copies attached to deposit tickets), whereby contributions could be traced to
bank deposits.

The review of disbursements was limited to bank statements, copies of checks and wire
transfer advices, contemporaneous memoranda to support some disbursements, and an
electronic file that included data for 89% of the disbursements made during the Audit
period. Invoices were available for only 11% of the total dollar amount of disbursements.
Thus, the Audit staff could not verify the information contained in the electronic files
provided.

Response to the Interim Audit Report

CLPAC submitted a limited response to the interim report. ATA, however, made a
separate and more extensive response including examples of other clients who were
provided similar services and extensions of credit, background on the CLPAC contract,
and documentation concerning the settlements between ATA and a number of its
subcontractors. Much of the information included below is from ATA’s response.

To the extent possible the audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions and other receipts.

The disclosure of disbursements, debts, and obligations.
The consistency between reported figures and bank records.
The completeness of records.

7. Other committee operations necessary to the review.

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act
of 2002 (BCRA). The BCRA contains many substantial and technical changes to the
federal campaign finance law. Most of the changes became effective November 6, 2002.
The period covered by this audit pre-dates these changes. Therefore, the statutory and
regulatory requirements cited in this report are those that were in effect during the audit
period.

DANAPWND


18

balances. As a result, payments by ATA increased from $884,007 to $1,195,024,
payments by TVC increased from $111,000 to $418,147.

The following chart incorporates the above changes:

Undocumented Total Credits
Credits Recorded for Payments Made and/or Payments
Vendor Name to Other Vendors Made

American Target Advertising $1,195,024 $2,352,856
The Viguerie Company 418,147 918,799
ConservativeHQ.com 77,425
Mail Fund, Inc. 68,254 68,254
Edward Adams 25,727 25,727
SMS Direct Printing 17,000
American Business Information
Systems 8,770
American Automated Mailing 7,674

Totals $1,707,152 $3,476,505

American Target Advertising apparently made payments, totaling $1,195,024, on behalf

of CLPAC to the following vendors:

Fisher Group $ 370,817
Mail America Communications, Inc. 150,000
REO Packaging Company 146,303
RST Marketing Associates, Inc. 126,612
Premier Printing 117,838
United Envelope 117,243
Mail Fund, Inc 77,001
Pro Tech 51,217
American Automated Mailing 17,905
SMS Direct Printing 17,000
Chester Mailing List Consultants, Inc 3,088
Total $1,195,024

Although ATA may routinely enter into no-risk contracts with its clients, in the political
committee setting the payment of large amounts of CLPAC’s fundraising costs while at
the same time forwarding proceeds of the fundraising efforts must be viewed as a
contribution under the Act. Postage loans by third party lenders may also be a normal
practice in the direct mail industry; however, when the beneficiary of a postage loan is a
federal committee, a violation of the Act occurs (MUR 3027).

It remains the opinion of the Audit staff that the proceeds received by CLPAC from the
escrow account ($465,000), undocumented credits ($1,769,353) and the payments by
other entities ($1,707,152) on behalf of CLPAC represent the receipt of impermissible

contributions totaling $3,941,505.



| Finding 7. Undisclosed Depository

Summary

CLPAC opened a new depository at The Huntington National Bank in August 2000 but
failed to disclose it as a depository on a Statement of Organization. In response to the
exit conference, CLPAC filed an amended Statement of Organization disclosing this
depository. The Audit Staff recommended no further action on this matter.

Legal Standard

Depositories. Each political committee shall designate one or more State banks,
federally chartered depository institutions (including a national bank), or depository
institutions the depositor accounts of which are insured by the Federal Deposit Insurance
Corporation, Federal Savings and Loan Insurance Corporation, or the National Credit
Union Administration, as its campaign depository or depositories. One or more
depositories may be established in one or more States. Each political committee shall
maintain at least one checking account or transaction account at one of its depositories.
Additional accounts may be established at each depository. 11 CFR §103.2.

Facts and Analysis

CLPAC opened a new depository at The Huntington National Bank in August 2000 but
failed to disclose this depository on its Statement of Organization. The account at this
depository was used for CLPAC direct mail fundraising program conducted by ATA.
Into this account CLPAC deposited $4,666,696 and disbursed $4,150,574 to vendors
between August 5, 2000, and December 31, 2000.

At the exit conference, a representative agreed to file an amended Statement of
Organization. On August 22, 2003, CLPAC filed an amended Statement of Organization
disclosing this depository.

Interim Audit Report Recommendation
The Audit staff recommended no further action on this matter.


The following table illustrates the amount of reportable outstanding debts:

(October Quarterly, Pre-General | Post-General [Year-End 200 Totals

Recorded payables 2,601,416 2,895,282) 4,278,803} 3,168,301] 12,943,802)
[Amount of
tundocumented credits 65,872) 0.00 0.00, 886,285} 952,157

[Recorded accounts
payable with credits
jadded back 2,667,288} 2,895,282) 4,278.803) 4,054,584 13,895.95

As indicated above, CLPAC failed to report approximately $12.9 million in debts owed
to 26 vendors over the four relevant reporting periods. In addition, the elimination of the
undocumented credits ($952,157) from the outstanding balances as of December 31,
2000 increases the unreported debt figure to approximately $13.9 million.

This matter was discussed at the exit conference. In the response period that followed,
representatives stated that the original reporting was in error and when they realized that
the obligations were the responsibility of ATA, the disclosure reports were amended.
CLPAC provided copies of letters sent to 17 vendors explaining that ATA, not CLPAC,
was responsible for payment.

The available invoices for these obligations were addressed to CLPAC at ATA’s address.
All payments to the vendors made by CLPAC or authorized by ATA from the CLPAC
escrow account are reported by CLPAC as disbursements. Further, as noted in Finding 3
above, the “no risk” contract entered into by CLPAC and ATA does not relieve CLPAC
of these obligations or the attendant reporting obligation.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CLPAC demonstrate that these obligations were not
its obligations. Absent such a demonstration, file amended Schedules D disclosing the
above outstanding debts. As previously stated, CLPAC believes the obligations were
ATA’s.

The above debts were owed to 26 vendors, including ATA and the TVC. The
outstanding balances owed the 15 vendors were discussed in Findings 2 and 3. The
balances owed to the remaining 11 vendors were actually paid by CLPAC.

The outstanding debts paid by CLPAC should have been continuously disclosed as debts
on Schedule D for each reporting period the debt remained outstanding, including the
reporting period in which the debt was eventually paid. The amounts owed to sub-
vendors of ATA, either paid by ATA or settlement agreements reached, should have been
reported as a debt owed to ATA. Any debt settlements should have been approved by the
Commission.


15

from the escrow account on its disclosure reports filed with the Commission. A total of
$4,666,695 was deposited into the escrow account and $4,150,574 was disbursed to
vendors. CLPAC received $465,000 from the escrow account.’ However, as detailed in
the paragraph below, vendors who provided direct mail services on behalf of CLPAC
were owed in excess of $3,000,000. If the terms of the Agreement were followed,
CLPAC should have been responsible for, at a minimum, expenses totaling $4,666,695.
Therefore, based on the amount deposited into the escrow account and the apparent losses
by ATA,° the distribution of $465,000 to CLPAC represents a contribution from ATA.

Finally, entries in CLPAC’s accounting records indicate that in addition to the amounts
paid from the escrow account, expenses totaling $3,202,709 were incurred with 10
vendors who apparently provided services to ATA in connection with CLPAC’s direct
mail fundraising. Many of the invoices that were available for review were addressed to
CLPAC in care of ATA. Information in the accounting records indicate that CLPAC
benefited from credits, settlements, and/or payments made by third parties for these
expenses. For the most part, the credits and payments originated from ATA and The
Viguerie Company. These two entities either paid other vendors directly or wrote-off
their own billings. When the interim audit report was prepared a total amount of
$2,653,491 had been identified

There were notations in CLPAC’s accounting records indicating why some of the credits
were issued. However, there was no documentation made available to support these
notations. Further, ATA, The Viguerie Company, Mail Fund, Inc., and Edward Adams
made payments against billings by other vendors.

During the response period following the exit conference, CLPAC provided the above
mentioned agreement and amendments thereto. A declaration of Mark J. Fitzgibbons,
ATA’s President was also provided. He stated the agreement contained a “no tisk”
provision for direct mail fundraising services. At the end of ATA’s fundraising services
on CLPAC’s behalf, ATA is fully responsible under the agreement for any cost for
services or goods used in the mailing on behalf of CLPAC that are not otherwise paid out
of the proceeds of the direct mail campaign during the term of the contact. Finally, he
stated ATA enters into agreements containing these, or similar no-risk provisions, with its
political and non-political clients. ATA’s standard practice for its non-political direct
marketing and fundraising clients is to provide services using substantially similar no-risk
contracts under which ATA is ultimately responsible to pay third party vendors where the
fundraising proceeds are insufficient to cover all costs incurred in the direct mail
program.

In the interim audit report, the Audit staff expressed the opinion that the proceeds
received by CLPAC from the escrow account ($465,000), undocumented credits
($2,113,721) and the payments ($1,088,988) by other entities on behalf of CLPAC

A second escrow account was opened. The cash balance for the escrow accounts at the end of the audit
period was $51,121.

6 ‘client list analysis report provided by ATA, as of October 30, 2000, indicated that mailings (both
prospect and house files) lost in excess of $2,000,000.


Facts and Analysis

Accounting records provided by CLPAC included 63 charges, totaling $1,835,335,
apparently related to invoices received from three individuals and one business entity.
There were 31 disbursements associated with this activity, the purposes for these
disbursements recorded in CLPAC’s accounting records were postage and list rental.
The purposes disclosed on CLPAC’s disclosure reports were postage lender and postage.
CLPAC’s records also reflect interest charges relative to the billings. Each of the entities
is discussed below:

Edward J. Adams, Jr. (Adams)

Between August 31, 2000, and December 20, 2000, Adams billed CLPAC a total of
$180,325 and received 6 payments totaling $148,888. CLPAC’s accounting records
record these payments as postage, list rental and interest. As of December 31, 2000,
Adams was owed $31,437. This balance was paid-in-full as of January 31, 2001.

Although the letterhead on the two invoices available bears Adams’ name and presents
the appearance of a business, a Dunn and Bradstreet report did not reveal any associated
business entity. However, Adams is apparently associated with CLPAC, as he approved
the payment of several telemarketing invoices received by CLPAC from American
Target Advertising.

Adams advanced funds to other business entities that provided direct mail or
telemarketing services to CLPAC. It is not clear, from the records made available, to
which entities postage advances were made. However, invoices from Mail America
Communications, Inc. and RST Marketing Associates, Inc. indicate that each may have
received an advance from Adams. These advances, in the form of short-term loans,
represent excessive contributions from Adams in the amount of $175,325 ($180,325 -
$5,000 limitation).

Marc Roffman (Roffman)

An accounting entry on July 26, 2000, indicates that Roffman billed CLPAC $75,480; the
recorded purpose was postage, program number “001P.” There was no invoice made
available for this transaction. Roffman was paid in full on August 15, 2000. The purpose
disclosed on CLPAC’s reports was “postage lender.”

Roffman is the Chief Executive of the Premier Printing Company LLC (PPC). On
September 30, 2000, Premier Services at the same address and phone number as PPC,
invoiced CLPAC for printing services in connection with program number O14P.
However, another entity provided the postage for the 014P program (see Mail Fund, Inc.
below).

Roffman advanced funds for postage on behalf of CLPAC. These advances, in the form
of short-term loans, represent an excessive contribution by Roffman in the amount of
$70,480 ($75,480 - $5,000 limitation).


Part III
Summaries

Findings and Recommendations

Finding 1. Receipt of Apparent Impermissible
Contributions
Three individuals and a corporation billed CLPAC $1,835,335 for postage, list rental, and
interest. However, they did not provide any services that required the use of postage
and/or list rental. It appears that the individuals and corporation that advanced postage
and list rental fees on behalf of CLPAC made impermissible contributions in the form of
loans to cover fundraising expenses. The Audit staff recommended that CLPAC provide
evidence that demonstrates that the advances did not represent impermissible
contributions. In response, both CLPAC’s attorney (Counsel) and ATA’s President of
Corporate and Legal Affairs (ATA’s President) argued that these advances were made to
ATA, not CLPAC, and that such advances are common practice in the direct mail
industry. CLPAC did not demonstrate that the advances were not prohibited and/or
excessive contributions. (For more detail, see p. 6)

Finding 2. Extensions of Credit by Commercial Vendors
The audit revealed that eight incorporated vendors and two limited liability companies
may have extended credit to CLPAC outside their normal course of business by allowing
invoices to remain outstanding for a considerable length of time. In the interim audit
report the Audit staff concluded that these vendors did not appear to make commercially
reasonable attempts to collect $3,766,914 for services rendered, thereby making apparent
prohibited contributions. In response to the interim audit report recommendation,
Counsel stated the debts were not CLPAC’s but rather obligations of ATA. ATA’s
President provided documentation that demonstrated steps taken by certain vendors,
including litigation, to collect the outstanding balances. (For more detail, see p. 10)

Finding 3. Impermissible Contributions

On July 6, 2000, CLPAC entered into an agreement with ATA to perform direct mail
fundraising services. CLPAC received proceeds ($465,000) not provided for in the
original agreement and vendor credits and/or payments against outstanding invoices
($3,202,709). These transactions appear to represent impermissible contributions totaling
$3,677,709. The Audit staff recommended that CLPAC demonstrate that it did not
receive impermissible contributions from ATA and other vendors associated with the
direct mail fundraising effort. In response, both Counsel and ATA’s President contended
that the agreement contains a no risk provision so that any shortfall in fundraising
proceeds as compared to cost is the responsibility of ATA and thus does not represent a
contribution to CLPAC. It was further stated that such contracts are common in the


Part II

Overview of Committee

Committee Organization

Important Dates

Conservative Leadership PAC

e Date of Registration

September 11, 1972

e Audit Coverage

January 1, 1999 - December 31, 2000

Headquarters

Arlington, VA

Bank Information

e Bank Depositories

2

e Bank Accounts

3 Federal and 1 Non-Federal Accounts

Treasurers

e Treasurer When Audit Was Conducted

Mr. David Fenner

e Treasurer During Period Covered by
Audit

Mr. Loren Smith (June 19, 2000 to June 29,
2001)

Mr. Howard P. Estes, Jr. (January 1, 1999
to June 19, 2000)

Management Information

e Attended FEC Campaign Finance Seminar

Yes

¢ Used Commonly Available Campaign
Management Software Package

Yes

¢ Who Handled Accounting and
Recordkeeping Tasks

CLPAC Staff and a paid accountant

Overview of Financial Activity
(Audited Amounts)

Cash on hand @ January 1, 1999 $ 2,519
Receipts

co Contributions from Individuals 4,761,574
Total Receipts $ 4,761,574
Disbursements

o Operating Expenditures 4,268,965
o Independent Expenditures 355,667
o Contributions to Federal Candidates/Committees 18,250
o Refunds of Contributions to Individuals 5,653
Total Disbursements $ 4,648,535
Cash on hand @ December 31, 2000 $ 115,558


16

represent the veceipt of impermissible contributions totaling $3,667,709. It was also
observed that it is unlikely that in the normal course of ATA’s business it enters into
contracts that result in multimillion dollar losses and continues to operate.

Interim Audit Report Recommendation

The Audit staff recommended that CLPAC provide documentation that demonstrates that
the above transactions do not represent impermissible contributions. Such documentation
should have included:

© For distributions of fundraising proceeds, a written statement from ATA
explaining why funds were disbursed when it was obvious that mailings were
losing in excess of $2,000,000 and an explanation why such distributions did not
represent an impermissible contribution to CLPAC.

e Forcredits issued against billings, copies of all invoices detailing the service
provided, the amount(s) billed and copies of subsequent invoices for each credit.
A written explanation describing the nature of the credits and an explanation as to
why the credits did not represent an impermissible contribution to CLPAC.

¢ For payments made for CLPAC obligations, copies of all invoices detailing
services provided and the amount billed. A written explanation stating the
reason(s) why certain amounts were paid by another vendor(s) and why such
payments did not represent impermissible contributions to CLPAC.

e Examples of non-political customers with whom ATA has had similar
agreements; the amounts that were paid or forgiven on those contracts; and, the
client list analysis report (including gross and net proceeds) for the related
fundraising efforts.

Committee’s Response to Recommendations and the Audit Staff's
Assessment

In response to the interim audit report, ATA’s President explained that ATA has been in
business for 39 years and over that time some direct mail efforts have been successful
while others have not. He suggested that the fact that ATA has been in business as long
as it has is evidence that more succeed than fail. The CLPAC program is one that did not
fare well financially. ATA’s President explained that ATA goes into each program with
the professional confidence of 39 years experience. Knowing in advance which
programs will succeed financially is perhaps more art than science. It was further
explained that early in a direct mail program, when a housefile mailing list is being
developed, losses are anticipated, but over time, as contributors make repeated
contributions, a profit is usually expected. It is further noted that building housefiles is
one of ATA’s specialties. New and some other non-profit organizations that lack the
capital and expertise to build their organizations rely on both ATA’s professional
experience and its ability to build programs at no financial risk.’

7 Subsequent to receipt of the interim audit report response, Commission staff met with ATA’s President
His initial response was supplemented on March 25", 29", 31° and April 1, 2004


Part IV
Findings and Recommendations

Finding 1. Receipt of Apparent Impermissible
| Contributions

Summary

Three individuals and a corporation billed CLPAC $1,835,335 for postage, list rental, and
interest. However, they did not provide any services that required the use of postage
and/or list rental. It appears that the individuals and corporation that advanced postage
and list rental fees on behalf of CLPAC made impermissible contributions in the form of
loans to cover fundraising expenses. The Audit staff recommended that CLPAC provide
evidence that demonstrates that the advances did not represent impermissible
contributions. In response, both CLPAC’s attomey (Counsel) and ATA’s President of
Corporate and Legal Affairs (ATA’s President) argued that these advances were made to
ATA, not CLPAC, and that such advances are common practice in the direct mail
industry. CLPAC did not demonstrate that the advances were not prohibited and/or
excessive contributions.

Legal Standard

A. Contribution: The term contribution includes: a gift. subscription, loan (except for a
loan made in accordance with 11 CFR 100.7(b)(11)), advance, or deposit of money or
anything of value made by any person for the purpose of influencing any election for
federal office. 11 CFR §100.7(a)(1).

B. Exempt Loans: Loans made from a lending institution that are subject to applicable
banking laws and regulations regarding its charter and insurance of deposits are exempt
from the definition of a contribution provided the loan is made in the ordinary course of
business. Such loans must: bear the customary rate of interest; be evidenced by a written
instrument; be made on a basis which insures repayment; and be subject to a due date or
amortization schedule. 11 CFR §100.7(b)(11).

C. Contribution Limits: No individual or group (other than a multi-candidate
committee) may contribute more than a total of $5,000, per year, to any non-connected
PAC. 2 U.S.C. §441a (a)(1)(C).

D. Advances by Individuals from Personal Funds: When an individual uses his or her
personal funds, including a personal credit card, to pay for goods or services used by or
on behalf of a candidate or political committee that payment is a contribution unless the
payment falls under certain exceptions for travel. 11 CFR §§100.7(b)(8) and 116.5(b).

E. Corporate Contributions Impermissible. A corporation is prohibited from making
any contribution in connection with a federal election. 2 U.S.C. §441b(a).


i)
is)

some of the information had been provided, but not recorded. Furthermore, CLPAC did
not provide any evidence that letters were sent or contributors were contacted in an effort
to obtain the missing information. As a result, CLPAC has not demonstrated best efforts
to obtain, maintain and submit the required information.

At the exit conference, representatives stated that another entity may have maintained the
contributor information. They agreed to file the necessary amendments to disclose the
necessary contributor information.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CLPAC take the following actions:

© Provide documentation such as phone logs, returned contributor letters, completed
contributor contact sheets or other materials which demonstrate that best efforts
were used to obtain, maintain, and submit the required disclosure information; or

¢ Absent such a demonstration, make an effort to contact those individuals for
which required information is missing; and

¢ Provide documentation of such contacts, such as copies of letters to the
contributors and/or phone logs; and,

e File amended reports to disclose any information obtained from those contacts.

In response, Counsel stated that CLPAC made every effort to obtain the necessary
documents from its vendors'®. However, such information was not maintained.
Therefore, CLPAC is unable to file amended reports.

If one or more of CLPAC’s fundraising vendors was in possession of the necessary
information, obtaining it from the vendors and filing the necessary amended reports
would be an acceptable response to the recommendation. However, the duty to gather the
information, or to make best efforts to gather it, is CLPAC’s not one of its vendors.

Thus, CLPAC did not comply with the recommendation.

Finding 6. Disclosure of Disbursements

Summary

For disbursements requiring itemization, the Audit staff identified 56 disclosure errors,
totaling $1,848,416, all of which related to the purpose disclosed. In response to the
interim audit report recommendation, Counsel stated CLPAC made every attempt to
obtain the necessary documents from it vendors, but was unsuccessful. CLPAC neither
provided documentation that demonstrated its attempt to obtain the disclosure
information nor filed amended reports.

' In referring to vendors, we believe Counsel is stating that CLPAC attempted to obtain the contributor
information from ATA.


FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

November 29, 2004

MEMORANDUM

TO: Robert W. Biersack
Press Officer
Press Office

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

SUBJECT: Public Issuance of the Audit Report on the Conservative Leadership
Political Action Committee

Attached please find a copy of the audit report on the Conservative Leadership
Political Action Committee, which was approved by the Commission on November 18,
2004.

The report may be released to the public on November 29, 2004.

Attachment as stated

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


Mail America Communications, Inc. (Mail America)

When the interim audit report was prepared it appeared that Mail America may have also
advanced postage on behalf of CLPAC. Although postage advances were not recorded in
CLPAC’s accounting records, interest charges were recorded similar to the interest
charges noted for the above postage lenders.

The interim audit report concluded that the advances from the corporation and the three
individuals represent prohibited and/or excessive contributions totaling $1,820,335
($175,325 + $70,480 + $130,681 + $1,443,849).

Interim Audit Report Recommendation

The Audit staff recommended that CLPAC provide evidence demonstrating that the
advances did not represent impermissible contributions; to include an explanation of how
these transactions can be distinguished from those considered in MURs 3027 and 5173.
In addition, CLPAC was to provide a detailed explanation of the interest charges
recorded for Mail America, to include the total amount advanced, the recipient of each
advance, and explain why any amount advanced should not be considered an
impermissible contribution. Finally, invoices and other records not previously supplied
were to be provided for all related transactions.

Committee’s Response to Recommendations and the Audit Staff's
Assessment

In response to the interim audit report, Counsel restated many of the arguments made
with respect to Finding 3 below. Counsel concluded that because ATA could not incur
debts in CLPAC’s name any advances or short term loans should be attributed solely to
ATA and that such advances or short term loans were on behalf of ATA, not CLPAC.
For these reasons, Counsel believes the transactions at issue are distinguishable from
those addressed in MURS 3027 and 5173. ATA’s President stated ATA has limited
capital; its ordinary course of business is to rely on lenders who advance funds for
postage. He further confirmed that Adams, Hart and Mail Fund, Inc. made postage loans
on behalf of the CLPAC program, each charging between 2% and 3% interest monthly.

The response was silent with respect to Roffman and interest charges recorded for Mail
America. However, other documents provided by ATA indicate that Mail America
charged interest on outstanding invoices for services, unrelated to postage loans, provided
to CLPAC through ATA. Finally, invoices supporting the above loans were not provided
as recommended.

The advances/short term loans are indistinguishable from the circumstances considered in
MUR 3027. As stated above, in MUR 3027 a committee’s direct mail vendor obtained
postage loans (from another vendor) for the committee’s direct mail program. MUR
5173 addressed similar circumstances. A committee contracted with a direct mail firm
that provided postage loans directly to the vendor.


Ben Hart (Hart)

Between September 21, 2000, and November 2, 2000, Hart billed CLPAC a total of
$135,681 for postage and interest expense. There were no invoices available for review.
Hart was paid in full as of November 15, 2000. The purpose disclosed for the payments
was “postage lender.”

Hart is the Manager of the Ben Hart Co. The nature of this business is described as direct
mail advertising services. Neither this entity nor Hart provided any other service to
CLPAC.

Hart advanced funds for postage on behalf of CLPAC. These advances, in the form of
short-term loans, represent an excessive contribution by Hart in the amount of $130,681
($135,681 - $5,000).

Mail Fund, Inc.

Between July 20, 2000, and December 31, 2000, Mail Fund, Inc. billed CLPAC a total of
$1,443,849. The billings were for postage ($1,274,010), list rental ($123,242), interest
($46,114) and administrative expenses ($483). CLPAC made 20 payments totaling
$1,379,112. The balance outstanding on December 31, 2000, was $64,737.

Only five invoices were made available for review. These invoices describe the services
provided as “Advance (List Prepay)” or “Advance (Postage).” There was also a fee
charged which amounted to 3% of the amount advanced. According to a Dunn and
Bradstreet report, Mail Fund, Inc. was incorporated on October 9, 1990. The nature of
this business is described as funding direct marketing programs for non-profit
organizations.

Mail Fund, Inc. advanced funds for direct mail programs on behalf of CLPAC. These
advances, in the form of short-term loans, represent prohibited contributions in the
amount of $1,443,849.

It should be noted that the three individuals and the Mail Fund, Inc. appear to have been
subcontracted by ATA. ATA is an entity co-owned and operated by Richard J. Viguerie.

The Commission has addressed this issue (postage loans) in MURS 3027 and 5173. In
MUR 3027, the Public Affairs Political Action Committee contracted with The Viguerie
Company (TVC), an entity that provides direct mail fundraising services. TVC then
subcontracted with Direct Marketing Finance & Escrow, Inc. (DMFE) for a postage loan
in the amount of $11,375. The Commission found reason to believe that DMFE violated
2 U.S.C. §441b(a). MUR 5173 also involved DMFE. DMFE made payments directly to
vendors on behalf of a committee for postage and list rental in excess of $657,000. The
Commission found probable cause to believe that DMFE and its President violated 2
U.S.C. §441b(a). DMFE and its President signed a Conciliation Agreement and paid a
civil penalty.


direct mail industry. CLPAC failed to demonstrate that it did not receive impermissible
contributions. (For more detail, see p. 13)

Finding 4. Disclosure of Outstanding Debts

CLPAC’s disclosure reports covering the last four reporting periods of calendar year
2000, as originally filed, disclosed approximately $9,938,000 in debts owed to vendors.
However, on June 8, 2001, and July 30, 2001, CLPAC amended these reports and deleted
all debts reported. The Audit staff determined that CLPAC failed to report approximately
$13,896,000 in debts owed to vendors during this same period. In response to the interim
audit report recommendation, Counsel stated the debts were not CLPAC’s but rather
obligations of ATA. CLPAC did not file amended disclosure reports. (For more detail,
see p. 19)

Finding 5. Disclosure of Occupation/Name of Employer
Contributions from individuals were reviewed on a sample basis. The review indicated
that CLPAC failed to disclose the contributor’s occupation and/or name of employer for
93% of the contributions tested that required the disclosure of that information. In
response to the interim audit report recommendation, Counsel stated CLPAC made every
effort to obtain the necessary documents from its vendors, but was unsuccessful. CLPAC
neither provided documentation that demonstrated its attempt to obtain the information
from its contributors nor filed amended reports. (For more detail, see p. 21)

Finding 6. Disclosure of Disbursements

For disbursements requiring itemization, the Audit staff identified 56 disclosure errors,
totaling $1,848,416, all of which related to the purpose disclosed. In response to the
interim audit report recommendation, Counsel stated CLPAC made every attempt to
obtain the necessary documents from it vendors, but was unsuccessful. CLPAC neither
provided documentation that demonstrated its attempt to obtain the disclosure
information nor filed amended reports. (For more detail, see p. 22)

Finding 7. Undisclosed Depository

CLPAC opened a new depository at The Huntington National Bank in August 2000 but
failed to disclose it as a depository on a Statement of Organization. In response to the
exit conference, CLPAC filed an amended Statement of Organization disclosing this
depository. The Audit Staff recommended no further action on this matter. (For more
detail, see p. 24)


19

| Finding 4. Disclosure of Outstanding Debts

Summary

CLPAC’s disclosure reports covering the last four reporting periods of calendar year
2000, as originally filed, disclosed approximately $9,938,000 in debts owed to vendors.
However, on June 8, 2001, and July 30, 2001, CLPAC amended these reports and deleted
all debts reported. The Audit staff determined that CLPAC failed to report approximately
$13,896,000 in debts owed to vendors during this same period. In response to the interim
audit report recommendation, Counsel stated the debts were not CLPAC’s but rather
obligations of ATA. CLPAC did not file amended disclosure reports.

Legal Standard

A. Continuous Reporting Required. A political committee must disclose the amount
and nature of outstanding debts and obligations until those debts are extinguished. 2
U.S.C §434(b)(8) and 11 CFR §§104.3(d) and 104.11 (a).

B. Separate Schedules. A political committee must file separate schedules for debts
owed by the committee and debts owed to the committee, together with a statement
explaining the circumstances and conditions under which each debt and obligation was
incurred or extinguished. 11 CFR §104.11(a).

C. Itemizing Debts and Obligations

¢ A debt of $500 or less must be reported once it has been outstanding 60 days from the
date incurred (the date of the transaction); the committee reports it on the next
regularly scheduled report.

e A debt exceeding $500 must be disclosed in the report that covers the date on which
the debt was incurred. 11 CFR §104.11(b).

Facts and Analysis

As previously stated, CLPAC originally reported outstanding debts totaling
approximately $9.9 million over the last four reporting in calendar year 2000. These
reports were subsequently amended and all reported debts were deleted. Using data
contained in CLPAC accounting records, the Audit staff generated an accounts payable
report through December 31, 2000, for all vendors. From this report, accounts payable
balances for each vendor were calculated at the close of each of the four reporting periods
(October Quarterly, Pre-General, Post-General and Year-End 2000). However, the lack
of vendor invoices prevented the verification of much of the recorded information.


Part I
Background

Authority for Audit

This report is based on an audit of the Conservative Leadership Political Action
Committee (CLPAC), undertaken by the Audit Division of the Federal Election
Commission (the Commission) in accordance with the Federal Election Campaign Act of
1971, as amended (the Act). The Audit Division conducted the audit pursuant to 2
U.S.C. §438(b), which permits the Commission to conduct audits and field investigations
of any political committee that is required to file a report under 2 U.S.C. §434. Prior to
conducting any audit under this subsection, the Commission must perform an internal
review of reports filed by selected committees to determine if the reports filed by a
particular committee meet the threshold requirements for substantial compliance with the
Act. 2 U.S.C. §438(b).

History and Scope of Audit

Initial Attempts to Obtain Records

On January 18, 2002, the Commission voted to audit CLPAC and the Audit staff notified
CLPAC by letter dated January 31, 2002. The audit notification letter outlined the scope
of the audit and described the records necessary for the audit. On February 8, 2002, the
President of CLPAC represented that preliminary records would be sent to the
Commission. On April 15, 2002, after changing the estimated schedule of record
production several times, and after being advised of the subpoena process, the President
stated that the records would be couriered to the Commission no later than April 18,
2002. No records were produced on that date and subsequent efforts by the Audit staff to
reach the President were unsuccessful.” The Treasurer was reached on April 24, 2002,
and a copy of the audit notification letter was faxed to him, so that he could expedite the
provision of records. On May 1, 2002, the President left a message stating that he
anticipated securing documentation by May 15, 2002. No documents were provided.

Records Obtained through Subpoenas

On June 3, 2002, the Commission issued subpoenas to the President of CLPAC and to the
Treasurer, through Counsel for the production of records. Subsequent to the issuance of
subpoenas, all communication has been through Counsel. On June 19, 2002, Counsel
produced five diskettes purported to contain disbursement data, but actually containing
only the file structure for CLPAC’s campaign management software. On July 12, 2002,
the Audit staff obtained an incomplete database of receipts. In response to the subpoena,
on August 20, 2002, Counsel submitted bank statements for one account, incomplete
receipt tallies, disbursement reports for one account, and some unpaid invoices. On
October 8, 2002, Counsel was advised that CLPAC had not produced the documents or
provided the written answers required by the subpoena. Major omissions included but
were not limited to, bank statements and enclosures; source documents for contributions;

2 CLPAC was initially provided extra time to produce records because it planned to move its offices in late
February or March.


12

Committee’s Response to Recommendations and the Audit Staff's
Assessment

In response, Counsel states that these debts do not represent an extension of credit to
CLPAC because these debts are obligations of ATA. Additional documentation made
available by ATA’s President demonstrates that all vendors (except ATA and TVC) made
efforts to collect from ATA. Five vendors filed suit against ATA while the remaining
three vendors entered into settlement agreements.

American Target Advertising

ATA, an incorporated vendor, performed telemarketing services and served as a Direct
Mail vendor and consultant for CLPAC. During the period, July 28, 2000, through
December 31, 2000, ATA billed CLPAC $1,510,470; received payments totaling
$391,964; leaving a balance owed of $1,1 18,506. On December 31, 2000, a credit of
$492,304 was applied, leaving a balance of $626,202. Subsequent to the audit period,
ATA billed CLPAC an additional $51,531 and received payments totaling $12,205;
leaving an unpaid balance as of June 6, 2001, of $665,528.

This balance was not paid by CLPAC. ATA issued credits against its own billings on
September 27, 2001 ($665,528).

For a discussion of ATA’s contributions to CLPAC resulting from the handling of the
CLPAC fundraising effort, see Finding 3 below.

The Viguerie Company

TVC, an incorporated vendor, provided list rental services for CLPAC. During the
period July 28, 2000, to December 31, 2000, TVC billed CLPAC $524,481; received
payments totaling $23,829; leaving a balance of $500,652.

The balance was not paid by CLPAC. According to CLPAC’s accounting records, on
December 31, 2000, and September 27, 2001, TVC issued credits against its own billing
eliminating the outstanding balance

Again, the contributions resulting from these and other transactions are discussed in
Finding 3 below.

As previously stated, the remaining eight vendors’ either sued ATA or entered into
settlement agreements. The documentation demonstrated that the credits issued by Mail
America, CMLC and Pro Tech were part of the settlement agreements with ATA.
However, as the chart shows four vendors had outstanding balances totaling $618,164.
These balances were paid by ATA and TVC. These additional payments by ATA and
TVC represent contributions to CLPAC and are included in Finding 3.

4 The vendors are Mail America, CMLC, Fisher Group, REO Direct, RST Marketing, United Envelope,
Premier Services and Pro Tech.


14

° The political committee has undertaken all reasonable efforts to Satisfy the
outstanding debt. Such efforts may include, but are not limited to the following—

i. Engaging in fundraising efforts
ii. Reducing overhead and administrative costs
iii. Liquidating assets

¢ The commercial vendor has pursued its remedies as vigorously as it would pursue its
remedies against a nonpolitical debtor in similar circumstances. Such remedies may
include, but are not limited to the following—

i. Oral and written requests for payment
ii. Withholding delivery of additional goods or services until
overdue debts are satisfied
iii. Imposition of additional charges or penalties for late payment
iv. Referral of debts to a commercial debt collection service; and
v. Litigation. 11 CFR §116.4(d).

E. Reporting. The political committee shall continue to Teport the debt in accordance
with 11 CFR §§104.3(d) and 104.11 until the Commission has completed a review of the
Tequest to forgive the debt pursuant to 11 CFR §116.8, or until the political committee
Pays the debt, whichever occurs first. 11 CFR §1 16.4(f).

and again on October 11, 2000. ATA is an incorporated entity co-owned and operated by
Richard A. Viguerie, who is also chairman of The Viguerie Company.

The original agreement, among other things, specifically stated that “[a]ll third-party
invoices will be incurred in ATA’s name. CLPAC will be responsible for payment of
Costs incurred hereunder only to the extent of the amount of moneys raised under this
Agreement (emphasis added).”

Further, the original agreement stated that income from Prospect mailing will be
disbursed to pay the costs of the Tespective prospect mailing first, then losses from prior
Prospect mailings and then held for future Prospect mailings. However, any net income
in excess of $1,000,000 will be distributed to CLPAC. This section was subsequently
amended. The amendment, in Part, states, income from prospect mailing shall be
disbursed to CLPAC from time to time before the net income reaches $1,000,000 to
enable CLPAC to make expenditures for its general purposes.

According to both Counsel and ATA’s President, the agreement contained a “no risk”
Provision for fundraising through direct mail in that CLPAC has no direct obligations for
services and goods ATA contracted for in the provision of direct mail services. All sub-
vendor invoices were to be incurred in the name of ATA.

An escrow account was maintained for all the deposit of all receipts and for the
subsequent payment of expenses. CLPAC disclosed receipt and disbursement activity


Table of Contents

Part I. Background
Authority for Audit
History and Scope of Audit
Changes to the Law

Part II. Overview of Committee
Committee Organization
Overview of Financial Activity

Part II. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Receipt of Apparent Impermissible Contributions
Finding 2. Extensions of Credit by Commercial Vendors
Finding 3. Impermissible Contributions

Finding 4. Disclosure of Outstanding Debts

Finding 5. Disclosure of Occupation/Name of Employer
Finding 6. Disclosure of Disbursements

Finding 7. Undisclosed Depository

Page

Nee

w

10
13

19
21

22
24


Legal Standard
A. Reporting Operating Expenditures. When operating expenditures to the same
person exceed $200 in a calendar year, the committee must report the:
e¢ Amount,
e Date when the expenditures were made;
e Name and address of the payee; and
¢ Purpose (a brief description of why the disbursement was made—see above).
2 U.S.C. §434(b)(5)(A) and 11 CFR §104.3(b)(3)(i)(A).

=

Examples of Purpose

¢ Adequate Descriptions. Examples of adequate descriptions of “purpose” include the
following: dinner expenses, media, salary, polling, travel, party fees, phone banks,
travel expenses, travel expense reimbursement, catering costs, loan repayment, or
contribution refund. 11 CFR §104.3(b)(3)(i)(B).

e Inadequate Descriptions. The following descriptions do not meet the requirement for

reporting “purpose”: advance, election day expenses, other expenses, expense

reimbursement, miscellaneous, outside services, get-out-the-vote, and voter

registration. 11 CFR §104.3(b)(3)(i)(B).

Facts and Analysis

The Audit staff’s review of disbursements requiring itemizations identified 56 disclosure
errors totaling $1,848,416, all of which related to the purpose disclosed. They include the
following: failure to disclose any purpose ($177,603); incorrect purpose ($1,075,098),
and, inadequate or incomplete purpose ($595,715).

This matter was discussed at the exit conference. CLPAC representatives were provided
a schedule of the above disclosure errors and agreed to file the necessary amended
reports.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that amended reports be filed to disclose the correct
purposes.

In response, Counsel stated that CLPAC made every effort to obtain the necessary
documents from its vendors. However, such information was not maintained. Therefore,
CLPAC was unable to file amended reports.

CLPAC did not provide any documentation of its efforts to obtain the necessary
information from its vendors. As with the previous finding the duty to maintain
documentation and file complete disclosure reports is CLPAC’s not its vendors.
However, as stated above, CLPAC was provided a schedule of the disclosure errors. This
schedule would have allowed CLPAC to file the necessary amended reports. CLPAC did
not comply with the recommendation.


Report of the

Audit Division on the

Conservative Leadership Political
Action Committee

January 1, 1999 - December 31, 2000

Why the Audit

Was Done

Federal law permits the
Commission to conduct
audits and field
investigations of any
political committee that
is required to file reports
under the Federal
Election Campaign Act
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
requirements for
substantial compliance
with the Act.' The audit
determines whether the
committee complied
with the limitations,
prohibitions and
disclosure requirements
of the Act.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

About the Committee (p. 3)

The Conservative Leadership Political Action Committee is a
multicandidate committee headquartered in Arlington, VA. For
more information, see chart on the Committee Organization, p. 3.

Financial Activity (p. 3)
¢ Receipts

fe}
fe}

Contributions from Individuals

Total Receipts

e Disbursements

Findings and Recommendations (p.4)

Receipt of Apparent Impermissible Contributions (Finding 1)
Extensions of Credit by Commercial Vendors (Finding 2)
Impermissible Contributions (Finding 3)

Disclosure of Outstanding Debts (Finding 4)

Disclosure of Occupation/Name of Employer (Finding 5)
Disclosure of Disbursements (Finding 6)

Undisclosed Depository (Finding 7)

i
.
.
.
.
.
.
.

'2 U.S.C. §438(b).

fe}

ooo°o

Operating Expenditures
Independent Expenditures

Contributions to Federal Candidates
Refund of Contributions to Individuals

Total Disbursements

$ 4,761,574
$ 4,761,574

$ 4,268,965
355,667
18,250
5,653

$ 4,648,535


10

It is the opinion of the Audit staff that CLPAC failed to demonstrate that the advances by
Adams, Hart, Roffman, and Mail Fund, Inc. did not represent prohibited and/or excessive
contributions totaling at least $1,820,335.

| Finding 2. Extensions of Credit by Commercial Vendors

Summary

The audit revealed that eight incorporated vendors and two limited liability companies
may have extended credit to CLPAC outside their normal course of business by allowing
invoices to remain outstanding for a considerable length of time. The Audit staff
concluded that these vendors did not appear to make commercially reasonable attempts to
collect $3,766,914 for services rendered, thereby making apparent prohibited
contributions. In response to the interim audit report recommendation, Counsel stated the
debts were not CLPAC’s but rather obligations of ATA. ATA’s President provided
documentation that demonstrated steps taken by certain vendors, including litigation, to
collect the outstanding balances.

Legal Standard
A. Corporate Contributions Impermissible. A corporation is prohibited from making
any contribution in connection with a federal election. 2 U.S.C. §441b(a).

B. Definition of Commercial Vendor. A commercial vendor is any person who
provides goods or services to a candidate or political committee and whose usual and
normal business involves the sale, rental, lease or provision of those goods or services.
11 CFR §116.1(c).

C. Extension of Credit by Commercial Vendor. A commercial vendor, whether or not

it is a corporation, may extend credit to a candidate or political committee provided that:

e The credit is extended in the vendor's ordinary course of business (see below); and

© The terms of the credit are similar to the terms the vendor observes when extending a
similar amount of credit to a nonpolitical client of similar risk. 11 CFR §§116.3(a)
and (b)

Facts and Analysis

The audit revealed that eight incorporated vendors and two limited liability companies
may have extended credit to CLPAC outside the normal course of business by allowing
invoices to remain outstanding for a considerable length of time. Outstanding balances to
seven of the vendors were eventually paid by ATA, TVC, Mail Fund Inc. and Edward J.
Adams, Jr. (see Finding 3.). At the time of the interim audit report, there was no
evidence that the 10 vendors made commercially reasonable attempts to collect
$3,766,914 for services rendered, thereby making apparent prohibited contributions.


It is the opinion of the Audit staff that the extensions of credit by the eight vendors did
not represent prohibited contributions. The credits issued by ATA and TVC are
addressed in Finding 3.

| Finding 3. Impermissible Contributions

Summary

On July 6, 2000, CLPAC entered into an agreement with ATA to perform direct mail
fundraising services. CLPAC received proceeds ($465,000) not provided for in the
original agreement and vendor credits and/or payments against outstanding invoices
($3,202,709). These transactions appear to represent impermissible contributions totaling
$3,677,709. The Audit staff recommended that CLPAC demonstrate that it did not
receive impermissible contributions from ATA and other vendors associated with the
direct mail fundraising effort. In response, both Counsel and ATA’s President contended
that the agreement contains a no risk provision so that any shortfall in fundraising
proceeds as compared to cost is the responsibility of ATA and thus does not represent a
contribution to CLPAC. It was further stated that such contracts are common in the
direct mail industry. CLPAC failed to demonstrate that it did not receive impermissible
contributions.

Legal Standard
A. Corporate Contributions Impermissible. A corporation is prohibited from making
any contribution in connection with a federal election. 2 U.S.C. §441b(a).

B. Commercial Vendors. A commercial vendor, either incorporated or unincorporated,

may only forgive or settle a debt incurred by a candidate, a political committee or another

person on behalf of a candidate or political committee for less than the entire amount

owed on the debt if —

e The amount forgiven is exempted from the definition of contribution per 11 CFR
100.7(b); or

e The commercial vendor has treated the debt in a commercially reasonable manner and
the requirements of 11 CFR 116.8, including the submission of the information
specified and Commission review, are satisfied. 11 CFR §116.4(b).

C. Reasonable Efforts by a Political Committee. A debt or obligation owed by a

political committee may be totally forgiven (see 11 CFR 116.8), provided that—

e The amount forgiven is exempted from the definition of contribution per 11 CFR
100.7(b); or

© The political committee has undertaken all reasonable efforts to satisfy the
outstanding debt and the requirements of 11 CFR 116.8, including the submission of
the information specified and Commission review, are satisfied. 11 CFR §116.4(c).

D. Commercially Reasonable. The Commission will determine that a debt settlement
between a political committee and a commercial vendor is commercially reasonable if—
The initial extension of credit was made in accordance with 11 CFR 116.3