BUGS/052689

FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20463

May 26, 1989

MEMORANDUM

Informational copies of the report have been received by all

parties involved and the report may be released to the public.

Attached please find a copy of the Final Audit Report on the

Babbitt for President Committee which was approved by the

Commission on May 25, 1989.

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TO:

FROl-1:

SUBJECT:

FRED EILAND

PRESS OFFICER

ROBERT J. COSTA l2--k~ ~~_S:\2-~\8\ ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON THE

BABBITT FOR PRES I DENT COMHITTEE

Attachment as stated

cc: Office of General Counsel

Office of Public Disc1osure~

Reports Analysis Division

FEC Library
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BAB/OS0989

FEDERAL ELECTION COMMISSION

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REPORT OF THE AUDIT DIVISION

ON THE

BABBITT FOR PRESIDENT COMMITTEE

I. Background

A. Overview

This report is based on an audit of the Babbitt for

President Committee ("the Committee") to determine whether there

has been compliance with the provisions of the Federal Election

Campaign Act of 1971, as amended ("the Act") and the Presidential

Primary Matching Payment Account Act. The audit was conducted

pursuant to 26 U.S.C. § 9038(a) which states that "After each

matching payment period, the Commission shall conduct a thorough

examination and audit of the qualified campaign expenses of every

candidate and his authorized committees who received payments

under Section 9037."

In addition, 26 U.S.C. § 9039(b) and 11 C.F.R. §

9038.1(a) (2) state, in relevant part, that the Commission may

conduct other examinations and audits from time to time as it

deems necessary.

The Committee registered with the Federal Election

Commission on January 7, 1987. The Committee maintains its

headquarters in Phoenix, Arizona.

The audit covered the period from the Committee's

inception, January 1987 through March 31, 1988. In addition,

certain other financial activity relating to the Committee's

Statement of Net Outstanding Campaign Obligations was reviewed

through May 20, 1988.

The Committee reported an opening cash balance of $-0-,

total receipts of $4,010,100.00; total disbursements of

$3,813,141.00; and a closing cash balance of $180,402.001/ on

March 31, 1988. Under 11 C.F.R. § 9038.1 (e) (4), additional audit

work may be conducted and addenda to this report issued as

necessary.

1/ Due to math errors made by the Committee, the totals do not

foot.
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This report is based upon documents and workpapers

which support each of the factual statements. They form part of

the record upon which the Commission based its decisions on the

matters in the report and were available to Commissioners and

appropriate staff for review.

B. Key Personnel

The Committee Treasurer during the period covered by

the audit was Mr. Ronnie Lopez.

C. Scope

The audit included such tests as verification of total

reported receipts and expenditures and individual transactions:

review of required supporting documentation: review of

contribution and expenditure limitations: and other audit

procedures as deemed necessary under the circumstances.

II. Audit Findings and Recommendations Related

to Title 2 of the United States Code

A. Itemization of Expenditures

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Section 434(b) (5) (A) of Title 2 of the United States

Code states that each report shall disclose the name and address

of each person to whom an expenditure in an aggregate amount or

value in excess of $200 within the calendar year is made by the

reporting committee to meet a candidate or committee operating

expense, together with the date, amount and purpose of such

operating expenditure •

The Committee's disbursement records were reviewed to

determine if all disbursements aggregating in excess of $200 per

calendar year were itemized as required on the Committee's

disclosure reports. The results of sample testing the

disbursements made from the state accounts between January 1987

and March 31, 1988 and from the Committee's headquarters payroll

account between 11/30/87 and 12/31/87 indicated that 16% of the

itemizab1e disbursements were not itemized as required.

The explanation provided by Committee officials was

that the Committee had had difficulty obtaining the necessary

disbursement records from the state accounts timely enough to

include all disbursements made from the state accounts on the

disclosure reports and that the 12/7/87 payroll was inadvertently

omitted from the disclosure reports.

At the exit conference held on June 13, 1988, Committee

officials stated that they would file amended Schedules B-P to

correct the itemization problem.

It was also noted that the expenditures from the state

accounts were apparently excluded from the Committee's reported

totals.
In the interim audit report, the Audit staff

recommended that the Committee file amended Schedules B-P to

correct the itemization problem noted above for the period

January 1987 through March 31, 1988.

On January 23, 1989, the Committee provided to the

Audit staff amended Schedules B-P, which materially corrected the

itemization problem discussed above.

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Recommendation 11

The Audit staff recommends no further action on this matter.

B. Matters Referred to the Office of General Counsel

Certain matters noted during the audit have been

referred to the Commission's Office of General Counsel.

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III. Findings and Recommendations Related to Title 26

of the United States Code

A. Calculation of Repayment Ratio

Section 9038(b) (2) (A) of Title 26 of the United States

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for any purpose other than to defray the qualified

campaign expenses with respect to which such payment was made it

shall notify such candidate of the amount so used, and the

candidate shall pay to the Secretary an amount equal to such

amount.

The Regulations at 11 C.F.R. § 9038.2(b) (2) (iii) state

that the amount of any repayment sought 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 total

amount of deposits of contributions and matching funds, as of the

candidate's date of ineligibility. The formula and appropriate

calculation with respect to the Committee's receipt activity is

as follows:

Total Matching Funds Certified through the Date

of Ineli ibilit - 2/18/88

Numerator plus Private Contributions Received through 2 18/88

$870,133.58 = .283298

$870,133.58 + $2,201,311.86

Thus, the repayment ratio for non-qualified campaign

expenses is 28.3298%.
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B. Apparent Non-Qualified Campaign Expenses

Section 9038.2(b)(3) of Title 11 Code of Federal

Regulations states that the Commission may determine that

amount(s) spent by the candidate, the candidate's authorized

committee(s), or agents were not documented in accordance with 11

C.F.R. § 9033.11. The amount of any repayment sought under this

section shall be determined by using the formula set forth in 11

C • F. R. § 9038.2 (b) ( 2) (i ii) .

Section 9033.11 of Title 11 Code of Federal Regulations

states, in part, that each candiate shall have the burden of

proving that disbursements made by the candidate or his

authorized committee(s) are qualified campaign expenses. For

disbursements in excess of $200 to a payee the candidate shall

present one of the following: a receipted bill from the payee

that states the purpose of the disbursement~ a cancelled check

negotiated by the payee and a bill, voucher or invoice generated

by the payee stating the purpose of the disbursement, or a

voucher or contemporaneous memorandum from the candidate or

committee that states the purpose of the disbursement. Where

neither a receipted bill nor supporting documentation as

described previously is available, a cancelled check negotiated

by the payee that states the purpose of the disbursement is

required. Where a cancelled check stating purpose is not

available the committee may present a check and collateral

evidence to document the qualified campaign expense. Such

collateral evidence may include, but is not limited to evidence

demonstrating that the expenditure is part of an identifiable

program or project which is otherwise sufficiently documented or

evidence that the disbursement is covered by a preestablished

written campaign committee policy.

During the review of the Committee's expenditures it

was noted that 41 expenditures from their Iowa, Wyoming and Ohio

bank accounts, totalling $6,441.42, were not documented in

accordance with 11 C.F.R. § 9033.11.

The Committee stated that it had not received the

documentation from the state headquarters. Committee officials

indicated they would attempt to provide documentation and were

provided schedules of the above expenditures on July 25, 1988.

In the interim audit report the Audit staff recommended

that the Committee submit documentation which demonstrated the

above expenditures were qualified campaign expenditures and that

absent such a demonstration, the Audit staff would recommend that

the Commission make an initial determination that the Committee

make a pro rata repayment of $1,823.47 ($6441.42 x .283085) to

the u.S. Treasury.

The Committee included in its January 23, 1989 response

to the interim audit report documentation demonstrating that 35

of the expenditures discussed above, totalling $2,895.43, were
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qualified campaign expenses. The remaining 6 expenditures,

totalling $3,545.99, are still not documented in accordance with

11 C.F.R. § 9033.11 (See Attachment I).

Conclusion

On May 25, 1989, the Commission made an initial

determination that the Committee is required to repay $1,004.57

($3,545.99 x .283298) to the United States Treasury pursuant to

26 U.S.C. §9038(b) (2).

C. Determination of Net Outstanding Campaign Obligations

1. Missing Records

Section 104.14(b) (1) of Title 11 of the Code of

Federal Regulations requires political committees to maintain

records, including bank records, with respect to the matters

required to be reported, in sufficient detail that the necessary

information and data from which the filed reports and statements

may be verified and checked for accuracy and completeness.

The Committee's NOCO Statement, dated May 20,

1988, detailed estimated Accounts Receivables and Accounts

Payab1es in the amounts of $15,000.00 and $174,700.00,

respectively. The Committee provided the Audit staff with

documentation to support $3,300.00 in Accounts Receivable, none

of which was included in the estimate. The Committee provided

documentation to support $1,538.17 in Accounts Payable, leaving

$173,161.83 undocumented.

On January 23, 1989, the Committee provided

documentation to support 96% of the previously undocumented

Accounts Payable. No documentation was submitted in support of

the Accounts Receivable, however, the review of FEe Reports Line

20 (Offsets to Expenditures) filed since the analysis of the May

20, 1988 NOCO enabled the Audit staff to estimate Accounts

Receivable (See Finding IILC.2.).

Recommendation 12

The Audit staff recommends no further action on this matter.
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2. NOCO Analysis

Section 9034.S(a) of Title 11 Code of Federal

Regulations requires that within 15 days of the candidate's date

of ineligibility, the candidate submit a Statement of Net

Outstanding Campaign Obligations which contains, among other

items, the total of all outstanding obligations for qualified

campaign expenses and an estimate of necessary winding down

costs.

In addition, 11 C.F.R. § 9034.l(b) states, in

part, that if on the date of ineligibility a candidate has net

outstanding campaign obligations as defined under 11 C.F.R. §

9034.5, that candidate may continue to receive matching payments

provided that on the date of payment there are remaining net

outstanding campaign obligations.

Governor Babbitt's date of ineligibility was

February 18, 1988. The Committee filed a Statement of Net

Outstanding Campaign Obligations (NOCO) which reflected the

Committee's estimated NOCO as of February 18, 1988. The Audit

staff analyzed the amounts listed and made adjustments to the

NOCO. The Committee's NOCO as adjusted by the Audit staff

appears below:
Babbitt for President

Audit Analysis of February 18, 1988~/ NOCO Statement

Determined as of May 20, 1988

$117, 513 .38

100.00

79,472.70

20,517.68

17,423.00

$

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TOTAL ASSETS

Cash in Bank

Est.£/ Accounts Rec.

Capital AssetsC/

Cash on Hand

Assets

Oblig ations

Disbursements for Qualified

Campaign Expenses (5/20/88-l2/3l/88)b/~/ 99,056.47

Accounts Payable for

Qualified campaign Expenses as of 5/20/88~/

Accounts Payable for

contribution Refunds

96,481.14

8,591.00

Estimated£/ winding Down

Costs (5/20/88 - 12/31/88)

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Loans

Salaries/Consulting

Rent

Storage

Legal Costs

Operating

Telephone

Supplies

postage

$ 29,651.06

1,057.68

343.69

3,072.93

13,911.14

3,772.48

377.29

1,200.00

58,665.69

TOTAL OBLIGATIONS

53,386.27 316,180. 57

Net Outstanding Campaign

Obligations - Deficit as of 2/18/88 ($198,667.19)
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Notes to May 20, 1988

Statement of Net Outstanding Campaign

Obligations as of February 18, 1988

~/ February 18, 1988 is the date determined by the Commission

to be the Candidate's date of ineligibility for purposes of

incurring qualified campaign expenses.

b/ Estimates were determined from amounts reported by the

Committee on their FEC reports subsequent to the close of

fieldwork and are subject to change pending verification.

c/ Capital Assets:

Purchase Prices (total)

Less: 40% Depreciation

Subtotal

Less: Sale of Assets

(Documen ted)

Total

$33,443

(13,377)

$20,066

(2,643)

$17,423

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Five non-qualified campaign expenses from the Ohio bank

account are excluded due to unavailable expense date

information for these items.

This total includes previously undocumented Accounts Payable

for which the Committee provided documentation in their

January 23, 1989 response to the interim audit report (See

Finding III.C.l.).
BABBITT FOR PRESIDENT COMMITTEE

Undocumented Expenditures

Check No. Payee Date Amount

Attachment I

Page 1 of 1

Bank

:1. 102 Sharon Bolinger 01/23/88 19.95 Equity State Bank

(Wyoming)

2. AI AI AI 156.41 State Savings Bank

(Ohio)

3. ~I AI al 1,964.20 " " " " V ... 101 AI !,I 259.30 " " " " ..,...

~5. 102 al AI 1,000.00 " " " "

"I" 6. 103 !,I !,I 146.13 " " " "

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Total 6 Items $3,545.99

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