FEDERAL El.ECTION COMMI~~ ION

\\"~HI"C:TON 0 l ~()4bl

Janus cy 30, 19~IO

MEMORANDUM

TO:

F.OM:

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

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SUBJECT: PUBLIC ISSUANCE OF FINAL A~DIT REPORT

FRIENDS OF GARY HART - 19~', INC.

Attached please find a copy of the final audit report on

Friends of Gary Hart - 1988, Inc., ~hich was approved by the

Coaaission on January 25, 1990.

Information copies of the repo.t have been received by all

parties involved and the report .ay be relea~ed to the public.

Attachments as stated

cc: FEC Library

RAD

Public Disclosure

Office of General Counsel
FEDERAL ELECTION COMMISSION

~EPORT OF THE AUDIT OIVISIO~

ON FRI~NDS OF: GARY HART - 1998, I~C.

Ie Backaround

A. Overvi ew

This report is based on an audit of F~iends of Gary

aart - 1988, Inc. !"the Committee") to determine whethe: there

~as ~een comDliance wtth t~e orovisions of the Federal ~lection

':amDalon Act' of 1971, '::'5 =-~ended ("the Act") and the p:esidential

? rimar':' ~!atchi no ?:ivment Account Act. ':'~e audi t 'o'1as conducted

oursua~t to 26 6.s.~. 5 9038(a) which states that, "After each

:natching payment ?enoC, ':he Commission shall conduct a thorough

examlnation and audit of the qualified campaign expenses of every

candi:3ate and his authorlzed committees 'Nho received payments

under Section 9037."

In addi~lon, :5 C.S.C. 5 9039(b) and 11 ':.F.R. 5

?038.1(a) (2) state, ::1 re1e',ant part, that the Co:nmlssion nav

conduct other examl~atlo~s and a~dits from time to time as it

jeems necessary, .::.nd ~o ~equire the ~eeping and submission 0: any

I;)ooks, records, .:l:1C .:1=or~aticn which it :3eter"!lines :-:> be

necessary to carr~' ·')ut .:3 :esponsi ~ilities.

o :'~e '':.::nml~:ee ~~';~:;ter~c Wlt:-: a:::e :~de~31 ::~ec1::':)~

:.)m:n:'SSlon on Apr:: :S, :?!:7. :'he Commlttee ~alntal:1S :':S

'-:eadquar:ers 1n Denver, :olorado.

~he audit 2overe~ the oeriod ::om ':he COMrnlttee's

!.:'lCeptlon, ~10vember :3, :~136, through .a.pril 30, 1.~8e.~' !n

3ddition, :~ata r':!latl~g '::> t~e Statement of ~~et ~utstandi:1g

-:ampa~gn Obligatlons ('rOC8) ',.;ere revlewed t~rough !·iay 31, 1988.

7he C:J:nmlttee reported 3:1 o;>ening cash :,a1ance of S-O-, total

receU:lts of S3,529,9i4.~9, total disbursements of $3,193,823.52

:ind a'clOS1:1g cash ~alance of S336,1S0.E- on Aonl 30, :~88.

~nder 11 C.F.R. § 9038.1(e) (4) additional audit ~or~ ~ay =e

conducted and adde:1ca ::> :~e report issued as ~ecessar!.

*/ '!'he coverage dates l:1clude the period of time f::om Senator

:tart's initial ·.Hthdrawal from the Presidential campaign to

his subsequent reentry into the campaign.
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¥t~~?1~1~j'~~~-{;¢i~~fl~J~~?'~}i;f(~:~i~tf~P "";- ,,'§~"'r;$B~. :';'~'j;;:';<';;': .,

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This report is based upon documents and workpapers

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

the record UDon which the Commission based its decisions on the

matters in the report and were available to Commissioners and

appropriate staff for review.

9. !< ev Personne 1

From the inception of the Committee until February 9,

1988, the Treasurer of the Committee was Michael Moore. From

February 9, 1988 to date, the Treasurer of the Committee is

Stephen Alfers.

C. ScoDe

The audit i~cluded such tests as verification of total

reported receipts, :lsbursements and individual transactions:

reVietoi of :eOlllred sUDDortina documentation: analvsis of

20mmlttee debts :inc ~;ii~ati;ns: review of contrifution and eXDendit~re limitatlons:-and such other audit nrocedures as

deemed necessary ~nder t~e circumstances: excect that cue to the

lack of certain- documentation for disbursements as noted in

Finding III.S., testing relative to qualified campaign expenses,

state allocations, and ~isclosure was limited.

"'T II. Audit Findincs :ind Recommendations Related to

'!'i tle 2 of t ":e ': 'n ted S ta te s Code

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A. Contr:=~t:cns:n the :orm of C~ecks ~ade Payable

to Amer:==ms -:it=-: Hart '''~WH'')

Sect:on ~?l'~' ';".) n.) of ':'itle 2, -':nited States Code

states, :n relev3.~:: ::irt, :":at :":e term ":ont::=ut:on" :ncl:Jdes

3ny ~::t, 5uDscr:~:::~~, :oan, 3cvance, or cepos:t 0: ~oney or 1nvt:::~o ~: t ..y~lue -1de -:.: 3:1" ::ers:::>n :::::- ::-:e :>:.:r::.'C)se ro:

"'ll;'''e~':''-c .,..,\" 0 ... 0,... : "=-;; .. r':ll -~; _ .. ...-... - '--". - '. ------_ or __ ae~ __ ot __ ce.

In addit:::m, :: C.F.~. 5 nO.l(!::» (4) (i) states, ::1 ~elevant ?art, t~at ~ontr~!::>ut:on shall ~e considered to =e

deslg:1ated in wrlting :~r a partlcular election i: the contri~utlon lS made ~1 check, ~oney order, or other ~egotiable

:nst::=nent ',."hic=-: =7..e:r:"·: :. :1dic3tes the oarticular elect:on with

respect to which t~e cont:l!::>ut:on is made.

Durlng t::e ;". .Jcit staf:'s review of :eceints, :t '...as

noted t ha t S13 ,606 1:1 c:-'ec ks beanng the payee cesignat ion "~mer:=ans with Hart," ~: ~emoranda to that effect, ~ere received
~:;.

~,~:;~,~~,C~.:; , .

Committee. Of the remaini'!;'g., !S.11.J;9~ ,~;" ;. ~~,tt·t!<•. _. .. s ta ted tha t they pl~n to forwar-~,~!$3'-i;~'19 flibm 116 co:tlt.~lbuto1'i.S :to

AWH and request clarification q,n;~.the .rem~1.nrn9 $7,'19'1 in ... contributions from 22 contribiU-:(a't'i>i~ Aceordi.ng to. the Commi.ttee,

the 53,219 is being r~fundia!Ja~elr-E.Q the cost of verifyinq that

the contributions were 'i'ntenced 'for the Committee and is not an

admission by the Ccimmittee t~at the funds were actually (ntended

for AWH. .

In the interim audit report, tn. Audit· staff

recommended that within 30 days of the date of ~ervice of this

report, the Committee submit evidence demQPs~~~tinq that the

Sll,010 in contributions were actu~ly in~.~a~d for the . Cornmi t tee. Absent such evidence i~;t: he comfft-t'tee should : orwa rd

the amount of the contri:>utions ,t~ AWH arid provide a copy of t.he

refu:ld check', front :ind back, to the Audit: staff.

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In its response to the i~terim audit report, :he

:ommlttee orovided ~oc~~entation l~ suonort of the d~Sooslt~on of

':.he re:nal:llng $13,076 i:l contr:.~utionS'·discussed above: :'he

table =elow deolc-=.3 . 5::nd ::~·SDOslt:on. .

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J is =0 S 1 t : on

':hec'< :::>rwar=e-::

': 0 A w"H (3 / L 3 e

~umber of

:on tr:. !::ut ions

116

S Value

S 3,325.:)0

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:: ';ec '< : o nola r= I?-:

':::) .; fm ': /: 4 "~?'

:cc...:-:e"~3t:=- :-: .. :~~:=~

: :' ~::'.... :. e:_ C 0 nt : : ..... : :: :" : :-

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3,37:).00

oJ' 0"""''' ... '" \".. __ •...., .,;

600.~~

S13,::~.:~* I

3ase:: .;;J0n ::~r :-.a:.·..~:3 -::: :":e ::::n:n:.t':ee l s ::esoonse, :I. e ;UC:~ ~~a~: =eco-~e~~s -~ :~~~~er ~ct:~~ ~egar=:~g t~lS -3tt~:.

/

~his ':otal =:::ers 3::ghtl: from ':~e S:3,076 -::~ted :i t~e

.:'Iter:.:n audl': re?Qf,:, 'sale ~:if:e::e:lce ··$40.80J :5 :1ot

~ons:.dered ~ater:al.
~#'~ilt~:~~~~ic~~~fi~~~~~[~i?~~ri~:fJfi;~::':ri:;1:;~:;':l~~:"l~,;;~t~l';';:'~ ocr:ibec;"cis';;i.iset'oCccwitiute f"'e-dui'em'en t >:;: .·!)ocumen ta t ion l :1":": .. ",\:, .,.,.' >",

mmrttee"""li'l'e:s';~;~tndi ca te'~f;'t'~a't'-the<use. of; 'the~ comDuter equi'Pment:.,'~'·· ')i

~s·~KVafiie(f;:at"~<$:25·O.'~·pe~t'::rion;thf6r''the p~r1Od.'Jan.uary" A.pri'l~.:'198i ..., ' :.\

,~t1~e:::~~f2rt'e: -:a'iso·ci~'co~l)tafne~;:~~a:n\'{tlvoi'ce. '~"f or ,..t:..ne:;:pu~'chase oft.h'~;~~::·.:_>~- ,,;/,.',;;~c-; '.. ," i:'; ',;

}~, t'e'~f;rifent:::~tli-c}L1(n:qT~'at'etif;:'tha:'t~,,':apO'rtl(:)n<q(--;~~!:ie-'pur chase ',prl c~e :",.~:::.,._- ,; ,\;,.",

gf ,i~:_'1~~/~'P'~'t:~.··:~lt,~;:.~:<<?h·eC~ ,'~,r~w~ "O!:1:;~ G..~~.e/:'al~~:~ri __a~ics' _.(check *161}~?) •. --. c.-' "

.,,:""~;'~""'" <;~';;'.~,,' d~.~m.~E,t,~~·l.9.n...·~rov: d;7d' l.e:a.~_'~·j;.open:·;~:~~~~gue,stl ons of t~~:.. ";, .,.- .... '; " - ,.:'" .;y1;,a~_~\!_~~~.,9~ners<:of .. th_~;_ e,qul pm.ent., ·--the"---actual;, users of the '- --;-/;..- .~::~~0~e~qufm'ent:~;~\'and'- how>the -s·1";ooo ::vaflie for :·four .:mo'nths use of -....~: -" ..

:-";~(f~~~puie-r'-equiPnen{>Has de'ri.ved'. r,he 'tdtftmi:ttee was unable "to:" ,.. 1·?'~~c·tiiii:.f,',.Y:·~any.';of :;'thes'e issues,~:;as"·.of the' e!i'~Fof 'fieldwork. ,.:In a·- y.' ,,-... , ......t'; ".<'~~ ~.. ",.. .~ .•.-."> "" - .-

"·'/:_;:Ji§:'J:._i'M:;.e~sDOrise regarding{ t,~e se cue st'ions· received!"' from th e Comml t tee,

. ~~f~f'Jt,;;' t"'Ke'~C:Ommittee'-':state'd 'that ·they were attempting to make contact

':t:~:f;"<~~{ w,ith ·~the contributor ::ut had !Jeen unsuccessful to date [July 25,

"c, •.':·.·.",:_._-.:,·,.;~::.f.:,:.:.~.~.~' :::::~ende~nt;~ ~ i ~ ~ ~ " 3u~ ~ie~~~ r~; y;o~t ~~; tc:~: E~f se rvice ~'~'':I'" of t:.is report' the CCmr.llttee: -

~q~ 0 provide evidence concerning t::e valuation of the

,¥~i. contri!Jut ion, and

0 provice eVidence ~emonstrati~g t::e actual ownership of

the equi~ent, and !Jy whom anc for what purpose t~e

-':~ equ: ::men ',·;as ..!sed.

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response ::~ t::e i:iter:.:n audit reoort, t::e Committee

?roviced corre;ipo~ce:1ce ::~rn t::e ~3med c~ntr:~utor :~ w~ic~ ~e o v .1.... -.. - .. ~,.:::- -,....... ... ••- - - - '""I c:: - ... . .... \.. - - _ •• P -=_ .•ea .. e ~._C_... ;:,,,,.:: ..ce_ ~,JrrOUnal:'lC ..e ourc.. ase .:::'1_

,.. , - c:: - : - It-, 90\"'; - - - - ..... - ,..... ... ;: '- ... • _ ... .ouo~e91en- _:'I ....- --,,, "''-.on o. _.. e c~m~uter eaUlO... e!"!_ ,~

~~es~:~~. ~~e C~~::::~~~: ~xnlai~ed ~~at ~~e :efe~~;ce ~~ a

ie!"!er3~ =ynamics c~ec~ _= ~~d~rstandably a source o~ =onfuslon.

Accorcl:ig :0 t~e cont~i!Jutor, as an emolovee of General

Jynamics, ~e partic:.?ated ::1 "A voluntary employee benefit

?rogram which allowed any employee to take out an i:iterest-f:ee

loan ::am General Jynamlcs to purc~ase computer eaui=rnent for

t~e1 r oersonal !":ome use." '!'he loans '.-Jere t!1en recald t~rough

automatic ?aycheck ~it~drawals. '!'he balance of t~e ourc~ase

?rice was pald from ?ersonal ::,Inds and t~e $3,600 loan '.-Jas ?ald

in f:Jll i:1 October :985. :'~e contr:.!Jutor also stated t::at !1e

chose ~o loan !'lis ?ersonal computer to t~e Committee's :1ational

campalcn office 1:1 ~'iash::iaton, D.C. "on a purel" voluntary

indlvi~ual !Jasis," and ~e~ained possession"of ail !1ardwar~ and

soft'.,are 1:1 April 1987.

Although t~e response does not specifically detail the

derivation of the $250 per month valuation, given the purchase

price and age of the system, the 5250 per month valuation appears

reasonable.
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1!",~ 1\~\~~~jj,:"~~:rt0:";:'i;;~~~t:;[~C'{!~~'~~ic~¥;;,~¥~rB'''':J'';;~:~P';i""" .... .;(~~t;; , I;:. ..

Recommendation ¥2

The Audit staff :ecommends no further action.

C. Poss ible/Aooarent Contributions in the Form of

Advances - ~edia Purchases

Section 44lb(b) (2) of Title 2, United States Code

states, i.n relevant cart, that the term "contribution" :'ncludes

advances made to a candidate or his authorized committee.

Section 44la(a) (1) (Al of Title 2, United States Code

states that no oerson shall ~ake contributions to any candidate

and his authorized committees with resoect to any election for

Federal office which, in the aggregate: exceed Sl,OOO.

On Januar'! 29,1988, the Committee made a $40,000

disbursement to 09 Productions, a corooration, for media buvs. - - Suooortina document~tlon was not ~ade available to the Audit

staff during fieldwork, ~nd t~e vendor account could not te

:econciled. During post ~udit, copies of invoices totaling

$13,907.62 were nrovided to the Audit staff bv the Committee.

The Committee st~ted t~at ~~ere were four more invoices to be

obtained, apparently for the $26,092.38 balance. All of the

supplied i.nvoices '..Jere Eor service dates in February, 1988.

In t~e oOlnion of the Audit staff the lack of

documentation Eor S~6,092.33 of the disbursement does not allow a

determination as to whether or not it reoresents a aualified

campaign expense. :n addi tion, 3 ince the dates of the medi a ourc~ases ::ire not ':nown, the oosslbilit'! exists that ~3

?roduct:ons made ?:oh:::ted'~ont:::utfon by advanci~g :~ncs on

behalf 0: the Comrn:~te~ :~ effect ~edia ~uys.

::::1 the :-.te::-: :::lc:t :eport, :-:e .';ucit staff :ecom~endec that, n:t~:n ;~ ca1enda: =ays of the service ~~ that

:eport, the Commlttee ?:ovlce documentation i=-. the form of

involces f:om broadc3st ~tations ceta1ling t~e remaining

S26,092.38 for media ?Urc:-:3ses, ::1c1uding dates purchased and

:un.

The Comm~ttee o:ovided ~hotocooies of station invoices

suooortina aooroximatelv'S40,OOO (oross)'in air time ourchased. According~to'the 1:1voices/afEidav1ts, t~e ads were run :n earl!

February, 1988.

~eco;n~endation =3

The Audit staff :ecommends no furt~er action regarding t~is

matter.
)t,!Jif.3T:~~';',~3:%1!0:~i('\r'~;~;$"<:'/i ',,:e;, '. ',,'

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D. Itemization of sx~~ndttures

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Section 434 (b) (5) of Title 2, United States Code,

states t:,at each ::eport shall disclose t:,e name and address of

each person to whom an expenditure in an aggregate amount or

value i~ excess of 5200 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

0perating expenditure.

Further, Section 104.3(b) (4) (i) CA) of Title 11, Code of

Federal Regulations, defines the term purpose as a brief

statement or descriotion of whv the disbursement was made.

Statements or descriotions such- as "advance", "election dav

expenses", II other expenses", "expenses", "expense reimbur semen til , ";n~scellaneous", "outside service s", "ge t-out-the-vote" and

"voter ::egistration" ·..;ould not :neet the requirements of 11 C.F.R.

S'l04.3(b) (4) for :eporti~g t~e purpose of an expenditure.

0"\ Hare:: 3::', :987, the Committee entered i~to an ~greement ',-lith Stratto~ & Associates ("SA") of Denver, :olorado. Accordi~e to the aareement, this fi~ was to orovide oolitical

organi zi~g consult~:1g ser'Jices at a rate of $1, iOO per :nonth plUS

~revlously agreed and ::easonable travel expenses and other

expenses. Durine the oeriod from Januarv, 1987 to March 1988,

the Co;nmlttee made ?ayments to SA of $23:305.31. In addition,

payments totaling 533,949.30 were made to Michael Stratton (the

indiVldual who exec~~ed the ~!arch :n, 1987 agreement on behalf of

SA). ~he Audit stat: =eviewed the documentation provided and

'1oted ::1stances ·...:.ere, ::1 the case of :::oth SA and ~·Hchael

Stratton, =eimburse~ent ~f exoenses associated with other

:ndi'll.cuals' travel :;5 ...<:11 as ::>avments to vendors ·,.,ere itemized

'In t::e CommIttee'::: =~?or~s as t:a~el and subsistence 0: contract

3erv:ces Nlthout :~: :~:t~er =escr:~tlon 0: the additional ~ses

:or ~~i~~ ~~e :~:1=s ~ere ~xpended.

Althoug:1 adequate cocumentation was not available for

:ill payments, See :::1cEng III. 3. , the Audit staff ',.,as able to

:dentl:y 11 payments :otaling 530,596.61 where additional

:temlzations are :eaul:ed to detail exoenses other t~an t~e

:ndivicual's travel -::nd s:..lbsistence ..

Payments l:emlzed as travel and subsistence for '.oJhich

documentation detalling the actual use of the f:..lnds was not ~resent ~av also l:1clude :~ems for whic~ additlonal cescr:otlons ~re :eeuired. ~~e Audit staff identified 11 such ~avments- to ta 1i ~g 56,490. . -

A Commlttee 0:ficial acknowledged t~at in some cases

adequate documentation was not maintained and they would attempt

to o:,tain the documentation and forward it to the Audit staff.

I t was also noted in an account ing received from Arnold

and Porter (see Finding III.G.) that the itemization included
.:

."

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'~if\'~f,l~i-.-,:,...

'.' ..:~:,·t'''~:;~" ~~)i~:B:;7~ ~t{;i;;1::~~;'l;~";::"":);~·5\:'J!l':'?!::~;ft;~'i;;fJi;i?¥?J~~;~;~~:·;;;:i~A~r~~;~~~1,!t:~{.··· \ '~'~ :._.; ,'~$%~~,;;::o,po:j n::'paym'eii~s'~;Cii'a"d~:'be:t'~tre'n;';'f\h:e",,'t~rm'~<s el1,(t6'·r:~:~·~:~.t:;\1.ef t:,t~.e, , I.,

""; .. ..'.:....p.[E! sidentf'al·:.;p·tfm'ar'y?r'ac'e ·the :frr:s:t;''-t~i:me ,~and·Yt!'ien:;;re·t!n~ered-/'to·::... ' . '. '.'. ,\ "~~a t'1:o:i'ci.:a·· S'am6ers ,}:'::-a:.,:cons ul,ta ntft'o~~'t't1e;', c~omm.ft te~e;'=-;:·;:'.·:A{comm~ ~~~,~.e::~· .:.;., '.. . ' ...- "t~: ;,~f.e'p'r.es·'e'nta'·t ive ·::s·ta;·tecj'.\th"ae~t'h'is:..'was;:dde:.>':·t-'-c{A"ino.tcf"'a·nd,':'p.6.rfe,r ' "

,'·.,:,oavi 'ng/~n "~n:,is~g :;po:r:~1'on "-qf, '~:t~e:;:reta i ne~r.,;'pa:id~, ~o ~~:h~m'~:~ by':",'t he .' .

.,". Commi tt:.~e availab(e\~,:~;.':R;,athe'r,:",;:th·a:·ri·~'·~epay:,.~:he~,,:fu.l!ds::'·~·o:H:he .. ;· _. ., :"",,.,,;,~, , '.' Commit'tee!~ Ar·nold"an-d':'.P.or;te r·.:.was' requeste'd,'jt::o~'pat::~the~,cons"ul tant

,~.,:, ..::,,' '~:'~'.:~:.;·o,~t'.:::.,~f,,:;tn~;':'~nu,~,~·~~~;~~~.~~\f~'··::~~~.·~~~~·~,.::·re:~~~,r~~~rt::;;i:;~:~~~~:'~7:t ~.\~:~~:';>;"':';'::'?'}~l.',~,:" ",:;~': , ,-., .0:. ,.c.':" • '\.:' ," ., .,In ·:.t·he:\n,~eiim,.aud·i,t;·,"r:epo.'r,£","'t'~e::"A'ud'it,rstalf~):ec'ommended

;" :" tha t· wi thin"3,O days: ,of the-':<Ja,te':.-of,:::'service,'.of,' t his::\,re'PQ.r~';"the

,:., 'o! '. Commit:"tee 'obtain~:.the·::;nec·e.s'sa"r·Y"doctm(entation·:,"and·,~i~'e)iIt(end,ed.,

,-',: .' :, Sched ule s' B'-P ':'t'o',.,.Lts " r'e'por ts ;~t9:,"i'nciude"?zl<:idit'-ional'.d·e~!=-ii·pti,ons

re'lative to the::'puroos'e of the",oayments.~·.ln·cues'tlon;::.inclucing

the" consulting fees -'paid,---b'y 'Arnolc "and po-rt'er:..· ,:.:;, .:,'-" ::.'; :~,_ '

On March 28," 1989, t!ie' A~d'i t ~'~'i'f;{::~ ece"f~ed",' E'~~ Committee's response rela_ti"e.tot~is finding i:1 which ··~t", ,'.

referred to ,the' ,r"ecue·stec:'--'amendm~nti··and ..:state'd· addi.t~onal·\ ., docu:nentat lon had', Seen, 0 !:>tained···and"ameridriie'nts·;.had"~'!:>een," oreoared

,...ith respect to reported payments t~ Michael Stratton/Stratton &

Associates. In addition, Nith r~ard to payments ~ade by Arnold

and Porter, the Committee stated that i,=· is filing a

comorehensive amenC:ilent n'.-lhich will fullY satisfy t~is

Recommendat i on." --

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Amendments ~ere filed on August 7, 1989:/,

approximately 3 1/2 mont~s arte!: the close of t~e response

?eriod. 3ased on our :eview of t~e amendments and assoc:ated

expenditure cocumentation, adeauate clarification of t~e ou!:>lic

::- eco::-d ',.;as accompl:' 3 ~ed . - -

~atte::-s ~efe::-::-ed to Cammissio:1 1 s Office of Gener;l

Counsel

Certain :natters :"Ioted curing t~e audit ::ave ~een

referred to the Commlsslon's Office of General Counsel.

* I According to a Commlttee Official, ,=he amendment ~as ~ailed

(fi::-st class) ~:"I early April, 1989. :Iowever, a ::-evie'o'l of

Commlssion records :ndicate it was never recelved. :'lhen

informed of t::is i:"l late Julv, the Committee official

forwarded a o~otocoov of t~e-amendment Nhic~ was received on

S/7 /89. - - -
<'- ,

'':'~.' r"~.:;~........

....fl~}r:"~i\f:,~g!~\'~~j\;': .':1"l;t:;~;')'i~:V~;t:~~~~,~, ,:,;<'t:t:,::'" ,

TI,!;';', Finai nas.. and ':~'ecciinmen'aatr'on's"Rel"ated·' to'T 1 tle 26

:. ·.. of··t~e' United-States ··Code, ;.'~::,

:.. ':·".A. '.,' ·:··::b~l~~i,ation'-"·~'i\~e·~k~';~~~t' Ratio

.:,:.' Sect ion '~~03'8;('b)\ 2') (AL, .o.f Title 26 of t~e Uni ted S t~"t~~;~:>':'_: Code' states' that.' i"f the' Cominissioh 'dete rmin~s t~at any amoi.mt':,o{':~"::..;i ~--" . any paymen"t mad£t.to: a·-cancfidate,~_froin'the.'~matching payment accoun.t{'.' "';'.

w~s used for any 'p~rpose .~other·than. to ~'defray the qualified' ":.~ ".:" .,t\:.

campaign expenses w.i thO respect"· to which such payment ',yas made "i t .!,',_

shall notify such c'ana'idate;'of"the amount so used, and the.':" ..·..·..· ..·

candidate shall pay, to the Secretary an amount equal to such ''. ,,:> 4

amount. .' . .

The Re'gulations at 11" C.F~R. § 9038.2(b) (2) (iii) state"

tha t the amount of any repayment sought under t his sect ion shall'

bear t~e same ratio to the to'tal amount determined to have been

:.lsed ~'.:)r ~on-quali:ied campaign expenses as the amount :::~

~atching f:.lnds certl:ied to t~e candidate bears to the tot~l

a~ount of ceoosits :::: contr::utions and matc~ina f~nds, as of the

candidate's date 0: :':1eligibil:ty. -

The formula =.nd the acorooriate calculation ',yith

respect to the Comrnl~tee's receipt ~ctivity is as follows:

':'otal :-!atc:-:i:ig Funds Certified through t~e Date

0f I:1eliaibilitv - 3/11/88 ~lurnerator plus ?~:'Jate Cont:ibutions Recelved through :;/11/88

o

Sl,l16,c81.99

S3,·D5,;:C:.OS = .325117

;ooare"1': ':;:1-'::'.]32.:::'ed ~::ncal.C:i ~:<::enses -

:'ravel ;:iO SubS1StenCe

Unde~ ~~ ':.F.R. S 9038.:(:') (2) I E3ilure -::) ":)~ovice

3dequate cocurnentat10n 1:1 accordance wIth 11 ~.F.R. § 9033:l1(a),

:nay :esult :''1 expencEtu:es =elng determIned :1on-quali::ed.

Sect:on 9033.11(a) of ~:'tle 1~, Coce 0: :ederal ~egulatlons, states ::1 relevant part t~at ~he commIttee s~all

obtaln and :urnIsh :0 t~e Commlssion on reauest a~v evidence

rega:di:ig -:;.Jalified campa1gn expenses made -by the candi::ate,

1is 0: :-:er author:=ed committees and agents 0: persons aut:-:o:lzed

to make expenditures on behalf of ~~e candidate or commlttee as

provlded i:1 11 C.F.R. S9033.11(b).

11 C.F.R. 5 9033.11(b) exoands t:;is bv soeci:':ing

the types of cocurnentatlon to be supplied: a receipted Sill,-

invoice, voucher, contemporaneous memorandum accompanied by a
-

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,: :...\

.~, "

"0' ... ',>;'

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:'::~~~

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....... ;;. :~jY;L(;,~.·" ;~'\~b'~;;·'·; ;;:~~~~}~K·~::~iK\~i~); .••.." .... ".•...... .:i·:.t:;{:;:~;:::~i:;~~;:;\;;::~>S'q ..:~~~:n'c~i]:~d· ·.:6h~dk·. ~'~'g·o~·.i"~ t~d:~ '~~::\;{e·; __'~~aY~~(~>:~r:.-,~~'~ can~~iJ;e~r c~~,~'k ;::-> .~c ' •• ': ,:; J

.'::,.;'n'e:g'O ti·.ated..··'b'v t ~e .,.payee 't'~at ..rst·a tes,'·.:t"hetpur·pose·· of ·'t:'e:.. ,:;';- '.:;',:;.:': :/? "

..... cHshursem'ent-.' '~ihere/s'uch sucpo-rt- 'is ·;·not· available r colla t',e.ral.' "~, ..:/ ':.

,:·.:ev i denc'e dem'emst:';i't:{"ncl t:-:a·t'.~t~·Etdist:)ui· 'sem.ent is pa rt'~'or a'n'i:-:r,: .,:.;;;>,\,~:~~. ":

::':',otherwise sufficiently.:':do'cUmented. i!ient·if·iable, progr~: or:"proj'~ct.'·,·~:,·

.'."or·:.evi'dence;:: th'at':··t:'e ;d'rsbur sement·: i~"··covered.. by a' pre-f!~ta~li'shed~.· ",

w<itt~~,,"campa'ign ",c"ommi t,"tee 'po~;cy;,' J~ucti.,::"~~:·.a. ·pe~.. di~~\po}.. icy'~.::: :/:;~.:

,,', .' ',.' :;:T~~",~:J'di ~~s:t~f}~'~~"~e~i;::~,6'~ ...'d.i:'Sb:~'~'Semef).~~:~,t\o,.~;:i:!:·'i~':}:\~' :,:':':i

$675,307.·99, "identified as 'travel 'aIid"s'iib'sist'ence. 'O'f t·h.ese:,~~,288""

disbursements''''' tota'lina $279,"608," made',crior to" t:,e'date of:' ', ..:.. ',

ineli gi bi Iity~/, lac ked ade'ciua'te docum'ehta tion. ' \:.,~:";: ':\' , ,.- ~.~ -.~~, ::~~:..;:. -'~~.:{'....,

These disbur·semen.ts were in 'amounts ranging:'i'rom ',:',,;'::

$125 to $1,500. "''!'hese amou'nts'a·cceared.: to be based on a"mimi'Tuim'

amount per '....eek al t~ough ge'nerali'Y 'pard' on a monthly basis""~" T,h!r,:'

Commi t tee provided an opi nibn setting forth the policy as . :.- "

prepared by t~ei r :egal counsel. !n support of the paymeryt~;<'the

~ommlttee provided ':j ::greements s.ign.ed. by all =ecipients'::,:i"" .,' 3tati~a the amount: {2)' ! statement ~6~omcanvinc each che~k~ ..

outlining t:,e i~tended ?urpos'e of the funds: and - (3) a canc'elled

check wit~ a memorandum o~ t~e face of the i~strument =eading

variously "April expenses" (or '....ords to that effect, the p!1rasing

and month specif:ed ~arled depending on grammar and t~e t:me

issued) .

Occaslo~all: the memorandum entry on t:-:e c:-:eck

would also i:1clude :::e --:ame of a state: onlY Iowa and ~!ew

Harnoshi:e '....ere ~ote::. ':ouc::ers, receioted Sills, invoices,

itineraries or l:ke coc~ents were supplied =y t:-:e recipients of

'"he _', oavrnent- -: ." • .:l .: ...__, 0-~"'O __ • _ ~~_ J .::- ?C-r"': ~.on 0 .. .." :.. .• e n i"; ... t:~: _,--,-_0 ... · '"-" ve_, =:on - d

SUDs:s~ence Cls~~r2emen:2.

~~e ~:~~::~=e s~ated t~at ~~r:~o t~e :;st:~g-t~e­

·...;ate:s ;:ort.:o~ c:: ":-:e :)~3 ~~-npalgn, ::-:e Cc~mlt~ee cE.re:~l2.:·

:':)ns:~ered var:at.,:s ~:Jt:::::s :==lat::1c to t~e :)3vment of ::eld

3taff. :'~e discussu:ms :esulted :.~ a form.3i 2.egal opinion 'Nhich

·....as t~e casis 0: ~:-'e <:~:nmlttee's 'DOlicv. ':'hus, '",hen :::di·;iduals ~ere ,.. "~wav - _ C·

-- om ~"-e" ,....... ::--orC"~-i __ ,-,_ •.,.:1g _erVlces - C_or ..".. e Comml ~"oo ...... __ , ~hey ....

'Nere given per :::em .::llowances for the cost of meals a:1d ::'ooging

:n lieu of expense r':lmou::-sement. Each indivldual recelved and

sianed a ner ~iem ac::-,:,:men~ ~hich was also sianed ~v a camnaian

official.- Thereafte::-, 310no ~ith each oer ~:.em che~k, t~e- -

indivldual received 3 not:ce reminding them of the pol:'~y and

their :esoonsibil:::es. ;11 such ~isbursements were :eoorted as

"'"ravel/C:u'\"Sl'S"'e.-,ce" _ _ 1_ >J ..... :..,

- •• ..",.e:.. Comml"........ee I -::. repor_s t 0 tl-,..e --

;:'l:'f'".....

.;;'It::ough ~::e Commlttee agrees ~he legal opinion

dealt 'tlith IRS, rather :::an F=:C, consequences of t~e policy, the

Commlttee contends t~at :::e policy satisfies t:,e burden of proof

* I

I 13 disbursements totaling $7,317.67 made after the date of

i nel i gi bi lit Y also 1ac ked adequ ate d ocu.'Tlen ta t ion.
,~., '::'~:'~~.\~;1:Zdt~~~~}~·~::~·,~~~~~t~1r~~~:Xr~{:·):;~~~ ;fi~ ....:..._.:,c.,.~.:.•••;••,.:,.•..,•.....~.,p.:ilirl.... t?o:t~I~~~r7f~~~~~~T~0r;~i,~\·.:~;~}~.r";"';1'~~}7Tr.(-~~;:; ;JJ:~!t~~.·:~,;-,:.:~~j!/rt!.,: ~~.:.~;:~~i·:·:··· ;::0~·,"'L '" .-'; ~;.:, .• .;.~~.\~·i." '.' ~\:;>::;; /". . '. . . .~~.

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"

~equirements for documentation of disbursements set forth in

Section 9033.11 of t!'le Code of Federal Regulations. The

Committee further contended t~at for each disbursement in excess

of $200, the camcaion has cresented both a cancelled check and

collateral evidence: as required at 9033.11 (0) (iv) (B) , namely

"ev i denc e that t!'le disbursemen t is covered by a preesta bl is hed

'Nr itten camp aign poli cy, such as a per di em policy."

The Audit staff does not agree with the Committee's

contention that the policv satisfies the burden of proof

reauirements. In the Audit staff's ocinion neither the written

poiicy nor the information provided to date establishes that the

disbursements in ~uestion were made in connection with the

candidate's camcaion for nomination. Admitted1v, the Committee

intended the per =iem payments to be used to defray t!'le costs of

meals and lodoino incur::-ed ov individuals v/hen thev were " awav

:rom home." No documentation was provided to demonstrate that

the f~nds were i~deed ~3ed for this curcose 0::- anv other ~urcose

~elated to the campa19~. In fact, n; documentation was provided

to show where t~e :~divlduals who received the per diem payments

',ole re wor ki ng.

The mere :act that t~e Committee chose to characterize

these oavments as ner ciem rather than advances should not

obviate the need t; provide documentation to show the monies in

question were expe~ded :or qualified campaign expenses.

o

I'..

o

RecelptS and vouchers are the major sources the

Audit staff use t~ ~est allocation to states and to determine if

3 dis~ursement :~ a c~al::ied camcaicn excense. ~he ~vidential

~atte~ p~esented =: ~~e Commlt~ee'did not: :~ t~e opinion of t~e

Audi~ ~taf:, allow ; :ete~~l~atlon of actual ~se =nd allocation

:0 s~::te !-.:'mits.

- .. -::-:e :~':.e~:!.::l audit :eoort, t:,e Audit staff

:ecommended t~at, ;~sent a showing to the contrary, wit:,in 20

0- -jays or t~e date of :e~'!:ce 0: ':.~e r~oort, t~e Commission approve

the ~~elimlnary c~lc~~at:on t~at ':.he aforementioned $279,608.00 ~epresent::.ng the value of undocumented t:avel and subsistence

d isb ur s ernen ts pald =:: the Comml t tee be vi ewed as non-qu alified

camDa::.cn exoenses. ~~e Audit staff further :ecommended ':.~at

absent-a showlnc t~ t~e cont:arv the oro-rata oortion $91,570.78 * I -. -

($279,608 x .327497)_ :,e r~paid to the Umted States ':':easury

pursuant to 26 U.S.:. 9038(:') (2).

~~e '=omml.t~ee f:led i:.s resoonse o~ ~1arch 23,

1989. :'he response ::egl~s with a discussion of the Committee's

per ::: i em po 1 i cy .

~/ This ratio was revised slightly based on information

concerning r~funds actually made.
~~t~@,~~~~~'!fmi:m·~~",~...,;oo,w,'tJir"f~>Y">:":;:"'<'·"~:·"";!"'),f"!i.$'!>~~'-. ;', lC~$i:1!<""':V~'f'

';j~:ifP~:~1:iV~~!~i:::':::~::::~~f:~~::::;~:~::";:~:tlon~ t:'~:';'::~:~':~:_;(j~\~!~';"':D ¢i.,iem policy, along with agreements signed by reclplents of

;;;per-diem payments and cancelled checks satisfy the burden

';'of proof requirements for documentation of disbursements set

forth in Section 9033.11 of the Code of Federal Regulations. For

each disbursement in excess of $200, the Committee has presented

both a cancelled check and collateral evidence, as required at

9033.11 (b) (iv) (B), namely "evidence that the disbursement is

covered by a prestablished written campaign policy, such as a per

diem policy."

In its resoonse, the Committee took exception to

several statements contained in the interim report.

o

""

o

o

o

The i~terim report concluded that no noc~~entation

was provided to demonstrate that the funds (per

diem payments) were indeed used to defray t~e

costs of meals and lodging incurred by individuals

~hen ~~ev were awav f:om home. ~he Committee

notes t::at :n stating t::is conclusion "they tthe

auditors] call to quest:on the word of over half

of FOGH's naid camoaian staff. These individuals

personally~signed a statement of unders'\:anding

that such monies are solely for this stated

pur pose and no other."

The :.nteri:n report contained a statement "':'he r.tere

fact ~~at the Committee chose to character::e

these ~avment5 as ner =iem rather than advances

~to c~ver ~he costs of meals and lodging] should

~ot ~~viate the need to provide doc~~entat:'on to

show :~e monies :n cuest:on were exoenced :~r

qual:::.ed c.:lmpaign ~xpenses." Althaug::::: ::s

:es!JOnse t::e Co=nmlttee c::ose to quote ~::l,:· ;.

?or::~;; 0:: t:-:e ::::ove statemen~ 'see :9s?O:1se 3.t

.;tt.:lc::.~ent:, ~age 2), ;:;;eComm1.ttee reemp::asized

its ~sltion t~at the payments in quest:on were in

fact :or ?er ~iem as evidenced ~y the i::for~at:'on

provlced to t:-:e auditors during :ieldwor~.

~he Committee :ncluded as oart of its :esnonse

infor:nation which in :ts opinion" ...further cemonstr~~es t::at

all the exoenses listed in Attachment 9 of the Interl:it Audit

reoort 'Nere auali fied camoaian exoenses, and 'Nere orocer!.';

alioca ted to -s ta te s . " For e~ch olsburs ement ident-i:: ~~d as

undocu:itented :n the :nteri:n reoort, the Committee l:'sted, =..,

payee, said d isb ursemen ts including:

"the c:-:eck date, amount and check ::umber :or each

of t~e payments~/ in Attachment 9,
, ,

>'

•• ":,~~=:"~,(',,,,

'. ''''. '·:.\~·r

the page number in Attachment 9 referenced,

the coding used to allocate these disbursements

for Page 3 of t~e Report of Receipts and

oisbur sements,

a brief descri~tion of the individual's job

responsibilities and the office or state where the

duties were performed,

a statement of the individual's state of r~sidence

(obtained fran W2 forms or other rOGa

documenta ti on) ,

air travel information, if any, obtained from a

careful review 0: vouchers from Imperial Travel

Agency ~nd showing t~e date, origin and desti~ation of each ~light, ~nd

" ~: -'::.

o

,.....

o

an :~=mization of t~e sucolemental doc~~entation

which is filed alphabetically by donor :payee] in =:xhi~it !.2.

1 Payments to individuals which were for severence

pay 0r other reimbursement have been removed from

this section of the report, and appear at the end

of ~~is alphabetized list."

Accor=ing to the Co~~ittee, ~~fidavit5 reaffi~ing

that ~onies rece~ve~ Here actually spent as intended :0: travel

and 3uosistence ex?enses ~ere received :rom ~ost 0: t~e

individuals who r~ce~ve~ ~er ~iern payments. ~~ese a:::=avits

Nere p~esented ~s ;3=~ ~: :~e Ccmm:tt~e's ~~5ponse.

:n a=d:t:on, ~he Ccmmlttee r.oted that .~ cases

where, during lts reVlew of the payments in question, state

allocation errors Here :=entified, an a~endment to its reports ·....as oreoared tQ re~lect a correction. :'.lrt:-.er, the Committee

identified $57,907.99 '$50,607.99 + $7,300) ln oavments to

individuals orginall~ disclosed as "~ravel/Subs;s~ence" :nstead

of "Severance ?ay." .;ccord ing to the Commi t tee, "! n g ener a1, the

amounts paid were t~e same as one month of ~er di~~. ~~e

intended :)uroose ',olas to enable these staff ·.... orkers to return to

their ::cme state, .::ind to find other emolovment ~after t:,e first

and second port icn of t:,e campaign termina ted] ." (Emphas is not

:n oricina1.) An a:nendment ·....as filed on Auaust 7, 1999 to

reflect t::ese changes.~1

~! According to a CommIttee official, the amendment was mailed

(first class) in early April, 1989. Sowever, a review of

Commission records indicate it was never received. When

informed of this in late July, the Committee official

forwarded a photocopy of the amendment which was received on

8/7/89.
,,/,l~:"';>;"""'\~i '":'';';;{!~~~;~~~~;;;::;:~;;.:~~};~~~~~{t''''' ',_.;'c',':r;~¥¥7"7(J:'~~~"'iRj!j;"'-;;"';';'~

Finallv, t,~'e Committee identified 13 disbursements

questioned in t~e interimreoort which, although itemized as

travel/subsistence on its reoo'rts, had no relationship to the per

diem issue accorei~g tQ t~e Committee. Documentation in t~e form

of travel expense vouchers, invoices, and receipted bills were

submitted as part of its response.

The Audit staff reviewed t~e information described

a bov e: our comments are de tailed below.

1. Severance/Termination Pav

Based uocn our review of t~e disbursements

reclassified by t~e committee as termination or severance pay, it

is the Audit staff's ooinion t~at, irresoective of t~e original

classification, t~e amounts paid, in general, appear reasonable

and under the circ~~stances may be viewed as separate from t~e

It pe r :: i em" iss ue •

o

"'"

o

:t shoule ~e noted, ~owever, in t~e c~se of

"severance pay" ~~ecr.s Issued on May 7, 1987 relati'Je tQ t~e

terminatIon of t~e ::rst portion of the campaign, (a) in many

instances individuals ~ere issued a "per diem" check dated May 1,

1987 and then on Mav 7, 1989 were issued one or more checks now

classified severance/termination oav, (b) in several instances

the amount ident:::ed as severance pay exceeded the amount

ident::ied as mont::l.':" per diem, and (c) in two instances, c~ecks

identi:ied as :Jer ::em ',-:ere issued after ~·1av 7,1987, to individuals ~ho are listed~as :ece:vino a Mav 1, 1987 ner diem navrnent as well

3S a~ay 7,1987 ::ever3nce-payment. ..

',';it:: res?ect ~o the S57,907.99 in payments

reclasslf:ed as E?Ver~~ce or termination nav ~~ t~e Commlt~ee,

-\..,,,, _. _ ..... ",..::.~... ::::\.. --af'"_ :""'5 ..- .... ~","';uce"'; __ _ .....\,'"_ ::.11"'oun~I. "- .-(<1:2--I_I 0 60-8 • 00) ;~"'nt'''':'''a- --_. ----

_~ ~~e l~te~~~ =epc~: :~ ~~doc~~ented t=~vel ~~d subsis~ence

~is~ursements ~: S::,6J7.:9, ~~d :~c:eased t~e a~ount ~: ~ccounts

paya~le Eor quali::ec ~~~pa:gn expenses as reflected on t~e NOCO

statement ~Qntai~ed :~ ~::e ~~teri~ audit renort ~v 57,300.00. :'~is adjustment (5i,300.CO) represents t:'e ';alue of payments :nade

:fter :~e candidate's date of i~e1icIbilitv exclueed :rom

accounts payable ?ursuant ~Q 11 C.F:R. 59034.5(~) at t~e i~terin

report stage.

2. ~10n ?~r :)iem Dis~ursements

gased upon our review of t~e documentation subml~~ed ~y t~e Commlt~ee with respect ~o t~e 13 dIsbursements

~~e Audit staff ~as reduced :urt~er the ~~ount ($2i9,608.00) of ~on-oua1ified camnaia~ exoenses ~entioned :~ the Interi~ audit

report. In the opInion of the Audit staff, adequate supporting

documentatIon Nas nrovided to eocument ~ateria1lv t~e 13

disbursements, totaiing 56,372.25. .
..~~t-r:::~\i""~~,\?'f;;\:'t;\.Ji§t~.1?r~ .~~

,', ,,;;,:~:;;lf;:~~;~"';';:~~~::;"'f~;~:~\:sYr~~'~:t~,: ;f~/,r:-;:,.,;,~,(,;{ ;~t:;'¥1{X;T??~~~;:'~!;:t~~~i_i'~;! :''-:'':;'':~' '0" (, ,3~' 'Per,;'-·Dlem·'D1sbursements.- ",' "', t ,-:'"'",,,:..-, "",,',,",: -""

~, " ..~~l,~~~,~~fZ~"·'~: '-", . _.... ~. ';-\.'~'ll~~~"~ : '..,.." '. " : '"' ,v" " .. ~.J _ ~.-, _ : "'<'~'l .' ~- ::••:~ .,~''':~.' "', , .... ~~~~.:':"~, ; ,. _',;-

:~.<>:..;' --,' " :',.. 'I'n·fi gh't ':of' ~~e :niat~e r·s .. d:iS'cU~~~d, -,i 'n }·:,~.np '2'., ,,-: ' ." "' ,~· .. ·above", the disburs'ements :now",'considered :as'= 'per diem': oaym.ents;i: ' '; "_ .:,:to'taF $ 2 22', 62}. 76" [$ 2,7-9/,608, ':-l'ess ..($50'- 607.99 i te~,h)··~$~,·, 372.;25

,c'/item 2)1'., TheCommit:tee',s resoons'e contains 'a s,l.zeable ... amou·nt of

,,", '. --.' "'., '1 nf ormat'i on r'e'l"ati v~:·:~to'·: the i nd··fvi-'duals.·· to" whom~:per:;'di'e~tf.'·checks

. ~.....~.:> ' ':;.,~·';;,er·7 .. yss?ed ~," The ,cpmmi tte~ h~s :":prqvi'd~'if ':, (~.r:,phO~ocC?P~e.~ ':~6f'::" t.,.,.

,.:': < ,J' c ' ,v·ar.l ous.payroll documents.',:"(b)', au;horl zatl~n '(ormsii,an~, a,f f.ldavl ts

.', .. '. '~'.: pert'aining to·:·,the" i'nte'naed/stated 'a'ctuaL use ~of. the, ',funds :..<.'

.;:,." c'ateg6tize'd 'as"per'dlem,)'(c) a'~des'ci'fptiori of the,'Posit'ion.'and/or

". ,'" '." work performed by the,.indi~ldi1al in'cluding any' ~ir ·'trav,:el,'"···,

'...'.... information identified, 'and 't~e individu'al's stqte. of:, residence,

'an'a (d) in those' instances' where 'errors were noted, the Commi ttee

has prepared amendments to 'it's 'disclosure repo'~ts. ","',',. c, .' ;."

o

"

o

The Audit staff has reviewed the i~formation

supplied and notes t~at much of the same material was 'reviewed at

~he ~:~e of fieldwor~. !t is acknowledged that the affi~a~its

')btained from t~e payees are useful in demonstrating that:'''ttiese

payments were made Eor t~e intended purpose of providing travel

and subsistence funds for Committee oersonnel. Further, the

affidavits establish ~hat the recioients understood the ourPOse

of the payments and ~elieved the funds were to be expended for

that purpose. ~he doc~~entation provided does not in all

instances establish when travel occurred, the specific purpose of

the travel, :Lts duration, the types of expenses actually incurred

or t~e location to -..:hich Committee personnel t=aveled. :-Hthout

such i :1format ion, is not possi ble to de termine the proper

class::ication 0: ~~ese expenses as operating, compliance, or

:undr~lSi:1c, ~or :3 :: =ossl~le to determine whether the exoenses

requlre aliocat:o~ ~') a~y ~tate expenditure ~i~itation. ::1-the

')pin:~n.cf the Audl~ :~af:, ~dequate sup~~rt:~9 doc~~ent~~:?n ~as

?rOV1Cec :0 docu~er.~ ~3te=:3~1! the per =le~ o:sbursements :~

-:ues: :~:1 •

.3ummar·:

3ased on our :~V1ew of the ::1for~ation orovided bv t~e

Commlttee in its :esoonse couoled with the C~mmltteels~aooarent

reliance on and co~pii3nce with the Commlsslonls regulatlons

ooncerning per diem payments, it is acknowledged that the

$222,62i.76 in per ~iem disbursements discussed are doc~~ented in

accordance with II C.:.R. 59033.11(0) (1) (iv)(B).

Recommendation =5

It 1S recomme~ded ~~at ~o f~rther action by t~e Comml~tee is

necessary.
';:~"?~·';Y~''fS·Y'<;'·;;;i',:\','~~':~(xt?··~::;·!::' ..'", "'\.:; :.:~.~~ .' '''; "."," - (:.< ",,_ ,1'~ '. '~. ~.

C. "':. A~p~'~e'n t""~'~~~~~~l i 'fl eCi c'~~ai an E:<'Oe'n~e's'.:.

.Media Pur chases':. >.,'::: '.

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',' AS"dis~~~s.ed ... at>:· fnding,'Il<'C., t'he com~ittee was' i.1na.:bl~ to provide"document;ation r.elated to~:,$26,092.38. of the $40,OgO:::,.·.··,'

paid to DB Prbductiorfs':f9r'-m~di'a'buys "during field~ork. ~:hth~:"~

opinion of the"Aud~t"Di'5i'isid,,:,-~in·,the"absenceof.adequate,··/.~"· .;

supporting documentati::ri', t'he 'amount ,in qilestion should be~·:v..iewed

as a non-qualified campafgn' expen'se, ~a pro rata porti'on o~"~h;ch

is repayable to t!1e United States Treasury in accordance with-ll

C.F.R. §9038.2 (b) (3).

In the inte'rim audit repor't, t!1e Audit staff ,_',

recommended that, absent a showing to the contrary, within·30.

days of the date of service of the report, the Commission a~prove

the oreliminarv calculation that the aforementioned $26,092.38

=epresenting t"Se value of undocumented media disbursements paid

ov t~e Commi ttee be viewed as non-auali:ied caInDaian e~'Oenses.o

tSe Audit staff :~rther =c:commended- t::at absent- a showing to'the

contrary t!1e pro-=ata port:on 58,545.13 ($26,092.38 x .327497) be

=eoald to the United States ':':easurv 'Oursuant to 26 U.S.C:.

§9038(b)(2). --

On February 28, 1989, the Audit staff received t~e

Committeels response whic~ included documentation to suppor~ the

payments in quest:on.

Recommendation =6

The Audit stat: ~eco~mencs no E~rt~er 1ction on :~:s ~at:er.

S ec :. n 00] -L S: ::) -:;:: ':':. tIe i' 0 f t :-: eeoCeo:: :' ed e r;: 1

~egul..1t::ms requl=es t:"'3t :::e candidate submit a Statement J:: ~Jet

Outsr.anding Campalg:1 O~ligatlons (~:aCO) which contains, among

other :'tems, t~e total :8r all outstanc:':1g obligations :~r

:Juali::'ed camoalC:-' excenses and an esti:nate of :1ecessar? ',vi:1ding

down costs withln 15 days of t~e candidate's date of -

lneliglbility.

o

'"

o

:) . ?eoavmen:~: SLl:~l~s F:,mds

In addit:on, :1 C.:. R. § 9038.3 (c) (1) reaUlres a

candidate whose net outstandina carnpaian obliaatlo~s reflect a

surolus on the day ot :':1elicibilitv- to~ reoav to t~e Secretar'!

'Nit~in 30 calendar ~ays of the ineiiaibilit;, date an amount. '~hich represents the a:nounr. ~E rr.atc~ing f~nds contained :':1 t~e s~rplus.
..,

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··.:t~f.~L~j;Y;iJ~:~~:~f~,~;:~ltg:::'r~:(~JJ:;ttu~~{~~:~Y:iY:2~1~!~~;:;~~~~';~}~~ "s"ur'pl,us', whi'ch' ,ha~",:'t~h'e'<same ia'tio:.~t-o :'the, :~otai su.rp~:·u's":,..tJ1_a:t.~:,:f~e,,;\, ; ;~,":' ,,' '~

"total amount'" r'eceiv'ed 'bv' '"the. car1'dida te -f=om» the 'mat'chirig··. pa:vn(ent... ~~·,. :.,: ','-::' " ,a'ccoun t oears' to"· t~e' t'otai deoosits made to 'the' cand,idate;":i::;:'...'·,, :... '" ., :: ';',' acc'ount."·,''':',' ',' ,.',:' ...'.' " ~': ...:'. " .. ,' , ',: :'. ,...,:...:-:~. ~',;/' :..: ..-, .:..' '."" ,,~ :...' ': i • '.

',", ,.. ,' .." 'secti'~'~ '9~38n»~'(3) oe'Ti'tle '26 of 'the' 'U~{t~d' s·~~~~1:,~:~-(·.::'--:c..:... '.,.,~.~:-' Code states that"· a:nounts :received 'by ':a ,can'didate>,from :the<':,"':;:, \,> , ';"I<~ mat~h'in9 paYtne,nt accouri't,"rn~Y- be retained, for·;'the·;liqulda~i..Cin:~;':o~,;';" .,

a~l .-obligat'i<J,ns,-' t<;>:pay' ;$1al'ified.'camp.,aign' ,expens.e s.~· ~·ncu.r'~~~::,.;f.C?,r·: a:.;

pen'od not' e,xc,eedlng,'6 months after: the' end of the. matchlng':;',:

payment oeri6d~·-.:\After, all obligations have been li'<=tuidate'd:~','ithat

portion of any ,une'xoend'e·d .. balance:· remaining 'in':the,,"candidate'~:!f;;".

a'ccounts which' bears t~e "same ratio, .to the total' unexcendedf~::::;.:·,'<,

balance as the' t~tal amount ::eceived f::om t~e matc~i.~g ,p~YJ:nen't .. account bears to' t~e total of all deposits made into ,t~e;:/:-:<""

candidate's acc,Qunts shall :-e promptly repaid to the ciatc~ing... ?ayment account. . , ,,', ,:"'"

. ., . . . ,.<:.'::'~ -, <:- " Senator ::2!rt' =aate of l:ielHnbllltv was ~·~arc:ll:;,;

1988. :One Commi t te e l s S ta tement of Ne t Outstanding Campaign Qbli~ations (~OCO) :eflected a surolus on the date of

ineligibility. .

Statement 'Jf ~!et 'Jutstandino Camoaion Cblioations

The Audi~ 3taf: :eviewed t~e Committee's f:nancial

activit:! through ~~.ay 31, :'988, and its esti:nates of 'ilindi:ig down

costs.

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> "

Accounts Pavable- ,;.for

Qual i fied Campaign, E~p~nses

and ~·:indina.. ~cown::: Exoens:es

:h:ough 5/31/SIL -'~:;~;'" -. '.;."

co Est ima ted Ninding Down C::>s ts

( 6/1/3 8 to 9/3 0/8 9)

'"

Salaries and Payroll Taxes ·~al Services

'0 mpute: S ervi ces

.•udi t Suppor t

-Printlng, Supplies, ?0stage

Teleohone

o Travel and Subs istenc e

f'.. Sst l:::atec 1988 Taxes

'J ff:' C~ :::<pense

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S (18,000.00)

(110,000.00)

(25, 000.00)

(18,000.00)

(12,000.00)

(3,000.00)

{16,000.00)

(200.00)

(2.000.00)

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( 1. 0 " 1 '3 9 - 9 /3 0 /9 0 )

~otal Obligations

:204.:00.00)

(31.~00.00)b/

($235, 600.00)~/

( 400,901.87)

~et Outstanding Campaig:i ObligationsSurplus S 89.308.29

~I :~cludes contri~uti0ns ~ated on or before ~arch 11, 1988 =ut ~eposited 3fter that date.

~I The Committee filed a revised ~OCO statement in October 1989 which

included additional estimated winding down costs, totaling $31,400,

for the period 10/1/39 through 9/30/90.

£/ Estimated Winding Down Costs will be compared to actual expenses and

adjustments, if material, made accordingly.
.~ " .:,

~\::'i:'i?PL~'};i5,/tz£r~~~~i~'t[;;J';'-';g~~;;;~~~:~~~; 1~~f~?t~f"i;,~~Ji['~},rJ~j"§}~:J';I;'i~'J:~F';i~?~;~ > " ,y',:;':t,~'~' ':'A's 'n6't:ed:,,~on'·th·e.;~lOCb:,::s~'at'eJrterft:"~·,;:tlie;·Committef!','wa,s>in:' a . ,_ :...... '.

" ,'!;'s'urp1 Us,:::i:x)s,it'i'oni.~oriY"t'~e\;C·a'ndidate:~ ,s (nate ':~~'" I'n'eli,gi:b; lity~. ~::',:,:.': '

"',Applica'tio'n,,~qf:;:t~e:{;re:paYme:n~~'~ra-tI6~/,con~'alried\:at ..<lr' C.:F. ~r. ~"'§'_

9038' ."3 (c) (l),>r e!:{ults', {n ,,,:a""~E;'ilr:::p1(is::'~r,~,paymen.t'"of'. ~,29/03SJ,§"4.;:'; "'(,9,n

<'J illy .1';1', 198'a,' a r,epa~e,nt,'of,.-'$31t,';462 '. 0 6,i::was~:re,ce'i~ed:"fr'o~:,.the

:~::l::::~ t 7 .~.~~;i;!:j!~fi/;;~·.:::f~ji;i~J;i~,;;~::~·· ....;..,~~;:"'<".'<' ,;: On Ja'nuary '2'5,;~ i990i;~.-t,Oe'iCcimmis~:ion.·made:a'n"';initi:~l.. : ..'

de termina t ion tha t'~,$t9,~~035'~;;6'4,,;:~h'lch :,:repre sents':, a·' pr,o ,,'bi'ta

po'rtion of surpl,us'<fun'ds'i"'is:rrepayabh! to "the-,U'nite,? Stat~§i..'

;' Treasury. The repa~ent·"i.n.:an\amourit",9f$'31;..462'.06 has;>,be'e~ "

received by the United~"States{T'reasury. TherefOre". the!=ommittee

is due a return ofS2 ,"4'2 6'.'4 2Lr,epres'~nt ing an overpayment of;.. the

surplus repaymen't amouh't,/ ,.', '.,

E. Interest, o:f' ..P·ederal Pordons of Committee Sur'Olus

Interest r~ceived on the CommIttee's sur'Olus from March

12, 1988 through June 30, 1988 was calculated at $4,864.17.

Taki:;o i:;to consideration a orovision :or Federal Income Taxes of

15%, in accordance toJlt;; 11 C:F.R. § 9034.4(a) (4), results in an

amount ?ayable to t:'e '':;llted States Treasury of Sl,354.05:

"~••, 'of •. :" , ......

I f a com~it':tee' ·tr'"a~·s.'fer,s campaign funds into' a~" ,

inte~est ~earing account, and i: on the date of ineligibility the

candidate's net outstanding campaign obligations reflect a

surplus as defined i:; 11 ~.F.R § 9034.5, interest earned on t~e

deposits afte~ taxes ~ust be repaid as part of the surplUS

subject to the ratio repayment formula of 26 U.S.C. §

9038(~)(3».

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o :nterest ~arned 2 '1~,'38 - 6/30/88

?rovlsion for Feder31 ::;come Taxes

($4,864.17 x .15)

Repayment Ratio (!:;terl::l Audit Report)

I ntere s t Earned 0 n Feder al Funds

Subject to Repayment

3/12/88 - 6/30/88

54,864.17

(729.63)

4,134.54

x .327497

51,354.05

This amount was repaid ~y t~e Committee on July 14, 1988.

-

*/' The surplus repayment ratio (.325117) in this situation is

the same as calculated at Finding IILA.
Conclusion #8

On January 25, 1990, the Commission made an initial

determination that S1,354.05, which represents a pro rata portion

of interest earned on federal oortions of t~e Committee's

surplus, is repayable to the U~ited States Treasury. The

repayment has been received by t~e United States Treasury.

F. Matchina Funds Received in Excess

of Enti tlement

o

'"

o

Section 9038.2{b) (l) (i) of Title 11 of the Code of

Federal Regulations states that the Commission may determine that

certain portions of t~e payments made to a candidate from the

matching payment account were in excess of the aggregate amount

of payments to which such candidate was entitled. Included are

payments made to the candidate after the candidate's date of

ineligibility where it is later determined that t~e candidate had

no net outstanding c:l!npaign obligations as defined in 11 C.F.R. §

9034.5.

As noted :n Finding III.D, t~e candidate's NOCO

statement reflected a surplus at the date of ineligibility (March

11, 1988). On March 18, 1988, prior to filing its initial ~OCO

statement, the Commlttee received $5,399.68 in additional

matching funds. Since the Committee was in a surplus ?Osition at

the date of :neliglb11ity, t~is payment was in excess of the

candidate's entitlement. On July 14,1988, a repayment of

$5,399.68 was recelved from t~e Committee.

Conc:!.:.Ision =9

'In January 25, :990, :'~e ':o:nmission made an initial

~eter~lnation t~at 55,399.68 represents matc~ing funds received

:.:1 excess of -=nt::.:~e:ne:1t ::nd ::-:at a:1 e:lual 3.J'ilOU:i: -::USt ::e repaid

:0 :::e ·':nited S':~tes ~::easur:' pursuant -:0 25 U.S.C. 59038(b) -(1).

:'~e repayment ~as ::'een received by the United States ~::easury.

G. Reconci liat::.on of ~,7endor Accounts

Section 9033.11 (c) of Title 11 of the Code of Feder al

Regulatlons, states ':~at the candidate shall retain records, with

respect to each dlsbursement and receipt, including bank records,

vouchers, wor~sheets, receipts, bills and accounts, journals,

ledgers, fundralslng solicitation material, accounting systems doc~~entation, matchi:1g fund submissions, and any related ~ater::.als cocumentlng campaign receipts and disbursements, for a

penod of t!1ree years pur suant to 11 C.F. R. § 102. 9(c), and

shall present these records to the Commission on request.

The Audit staff was unable to reconcile accounts

maintained by the Committee for certain vendors. The vendors

were Changing America, Inc., which handled the campaign's mail
solicitations: I:ncerial Travel, Inc., ;.Ihich handled a large part

of the campaignls~t:avel: and Arnold and Porter, a law f:rm

taking care of the leg al aspects of the campaign.

A full and reconclliable accounting for Arnoid and

Porter was received during t~e exit conference. Invoices and a

reconciliation for Imcerial Travel, Inc. were received during

post audit, leaving open only the matter of the reconciliation of

the account maintained by the Committee for Changing America,

Inc., which the Committee official stated would be forwarded to

the Audit staff.

In the i~teri:n audit report, the Audit staff

recommended that within 30 calendar davs of the date of service

of this recort the Committee obtain and forward cocies c~

invoices and reconciliation of the account for Changing America,

:: ~c •

~he Comml:~ee ~:ov:~ed a letter, ~ated ~arc~ ~:, :989,

~ddressed to C~angl~~ Amerlca, :~C.13 accountant where:n ~~e

:ommlttee concl~des :~at, ~bsent :~rther

document3tion/exDla~at:c~ ::om Chanolnc Amer:c3, :nc., :t accears

:hat t~e Commlttee -ade a ~et overpayment of $12,483.~1.

Accordi~g to the Commlttee's reconciliation, the overpayment

occurred when :t ~ade :~ll ~ayment agal~st a statement :ssued by

:hanglng Amerlca, :~c., the total a~ount of which was overstated ~y S12,483.01.

o

In l:g~t :: :~lS apparent overpayment, the Audit staff

-as :~creased ~ccc.;-':: :~ce:':a:::le :':' 512,';83.:1 o~ t::e '~oco

staterne!1t.

-- -~" -.......... -- :::::e.

'~ .

Surpl:Js ':r:.:.' s :9,035.64

:,354.C:

Excess of ~~t:'::e"'e'1t ':::::::.F.' :,399. tS3

s :5,789.:-
cooo

;~~~\~t"i" •.

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