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MEMORANDUM

'1'0:

FROM:

SUBJECT:

MD4!061787

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C 20463

June 17, 1987

PRED EILAND

CHIEP, PRESS OFFICE

ROBERT J. COSTA ~~ ASSISTANT STAFF DI~~ AUDIT DIVISION

PUBLIC ISSUANCE OF ADDENDUM TO THE

FINAL AUDIT REPORT OF MONDALE POR

PRESIDENT COMMITTEE, INC.

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Attached please find a copy of the Addendum to the Final

Audit Report of Mondale for President Committee, Inc., which was

approved by the Commission on June 8, 1987 •

Informational copies of the Addendum to the Final Audit

Report have been received by all parties involved and the

Addendum to the Final Audit Report may be released to the public.

ee: FEe Library

RAD ~~ Office of General Counsel

Public Disclosure

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FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C. 20463

ADDENDUM TO THE PINAL REPORT

OF THE AmIT DIVISION ON TIlE

MC)NnALE 1'011 PBESIDEHT COMMITTEE, INC.

In addition, 11 C.F.R. 5 9038.1(e) (4) states, in part,

that Addenda to the audit report may be issued from time to time

as circumstances warrant and as additional information becomes

available. Such addenda may be based, in part, on follow-up fieldwork conducted under paragraph (b) (3) of this section.

The follow-up fieldwork covered the period September 1,

1984 through December 31, 1985, the final coverage date of the

most recent report filed with the Commission at the time of the

audit. In addition, certain activity was reviewed through March

31, 1986 as Committee records became available. The Committee

reported an opening cash balance of $476,129.84, total receipts

of $4,340,840.37, total disbursements of $4,452,686.16 and a

closing cash balance of $1 4,284.05.

Background

A. Overview

On October 28, 1986, the Pederal Election Commission

issued a final audit report on the Mondale for President

Committee, Inc. (Wthe CommitteW). That report was based on an ~uait of the Committee pursuant to 26 U.S.C. S 9038(a). The

audit ~overed the period November 2, 1982 through August 31,

1984•.!/ ~hls Addendum is based on follow-up audit fieldwork.

The follow-up fieldwork was conducted pursuant to 26 u.s.c. S

9039(b) and 11 C.F.R. 5 9038.1(b) (3) which state in relevant part that the Commission ..y conauct additional fieldwork after the

completion of the fieldwork conducted pursuant to paragraph

(b) (1) and (2) of this section.

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1/ In addi'tion, Canmittee activity was reviewed through March

31, 1986 relative to the Statement of Net Outstanding Campaign Obligations and allocation to the state and overall

expenditure limitations•

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~hi. Addendum i8 based upon documents and work papers wblch support eacb of its factual statements. They form part of

the record upon which the Cammission based its decl.ions on the

.atters in the Addendum ana were available to Commi••loners and

appropriate staff for review.

B. Key Personnel

~he ~reasurer of the Committee during the period covered by the audit was Mr. Michael S. Berman.

c. Scope

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The audit included such tests as verification of total

reported receipts and disbursements, limited reviews of

individual transactions and required supporting documentation,

analysis of debts and obligations (including winding down costs), review of contribution and e~enditure limitations, and such oth~~ dudit procedures as deemea necessary under the

circumstances.

II. Pindings and Recommendations Relating to Title 2 of the

Un! ted States Code 27

A. Misstatement of Pinancial Activity

Sections 434 (b) (1), (2), and (4) of Title 2 of the

United States Code state, in part, that each report under thle

section shall disclose the amount of cash on hand at the

beginning of the reporting period and the total amount of all

receipts and disbursements for the reporting period and the

calendar year.

~I There are no Title 26 findings in this report. The results

of the follow-up audit fieldwork, with respect to Title 26

findings, were incorporated into the Pinal Audit Report approved by the Commission on October 23, 1986•
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Our reconciliation of the Committ•••• 'bank activity to

its disclosur. reports for the period Sept••b.r 1, 1984 through Dec~n.L~: 31, 1984 ana calendar year 1985 inaicatea the following

differer.ces:

September 1. - December 31, 1984

Repo~tea beginning cash was unaeratated by Reported receipts were understatea by Reported disbursements were understated by

Calendar Year 1985

Reported receipts were understated by Reported disbursements were understated by

Reported ending cash was overstated by

$118,430.34

169,063.04

113,059.45

$ 35,296.67

361,395.76

151,699.78

The understatement of September 1, 1984 Cash on Band

was primarily the result of accumulated errors in prior periods'

reports, including a failure to report certain refunds, footing

errors, and over and under reporting of interest income.

The majority of the September 1 to December 31, 1984

receipt misstatement was caused by the under reporting of

contributions. According to the Committee'. Assistant Treasurer,

the Committee's computer firm may have been back-logged with data

and failed to post contributions in a timely manner. As a result,

the pre-election report receipts were understated by $168,614.30.

The understatement of disbursements for the period September 1 to December 31, 1984 was primarily the result of t~e

following:

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Unreported disbursements totaling $109,428.54 including $50,000 paid in partial settlement of MUR 1704 and a

$56,383.00 wire transfer to a direct mail firm.

Unreported bank charges of $183.00

Voided checks which were reported totaling $8,212.38

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In 1985, the understatement of receipts was primarily the result of the Committee not having reported activity relative

to the Assessment Fund. The Assessment Pund was established in

accordance with 11 C.P.R. S 9034.4(b) (4) (amounts received to pay civil or criminal penalties pursuant to the Act). Adjustea
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receipts relative to tbe Assessment Pund during 1985 totalea

$30,030. In addition, refunds and interest income totaling $5,375.83 were not reported.

~he 1985 understatement of disbursements stemmed from

the Committee'. failure to report disbursements of $359,580.31

and $684.21 In voided checks which were reportea. ~he unreported disbursements included $348,140.00 paid In settlement of MOR

1704.

The December 31, 1985 Cash on Band difference was the

result of the above receipt and disbursement errors, as well as

accumulated discrepancies from the Committee's inception to date.

On April 16, 1986, the Committee filed comprehensive amended disclosure reports materially correcting the identified

receipt and disbursement errors, as well as certain prior period adjustments. While these adjustments served to correct the major portion of the December 31, 1985 Cash on Band discrepancies, there remained an understatement in the Committee's reported Cash

on Band of $49,543.50.

In the Interim Addendum the Audit staff recommended

that the Committee make an ($49,543.50) adjustment to ending cash

on the next report filed to bring reported cash into agreement with Committee bank records.

On January 30, 1987, as part of the Committee's Yearend Report for 1986, beginning cash on hand was adjusted as

recommended.

Recommendation

The Audit staff recommends no further action on this matter.

B. Stale-Dat~d Outstanding Committee Checks

Sections 441b(a) and (b) (2) of Title 2 of the United

States Code, state, in relevant part, that it is unlawful for any corporation to make a contribution or expenditure in connection

with any election to any political office, or in connection with

any primary election held to select candidates for any political office. The term ·contribution or expenditure· shall include any direct or i~direct payment, or any services, or anything of value

provided to any candidate, campaign committee, or political party

or organization in connection with any election to any of the

offices referred to in this section •
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section 100.7(.) (1)(£) (iii) of ~itle 11 of tbe Code of

Federal Regulations provides, in part, that the term -anytbing of

value w includes all in-kind contributions. The prov18ion of any goods or services without charge or at a charge which Ie 1••s

than the usual and normal charge for such goods or services 18 a

contribution.

section 104.13(a) (1) of Title 11 of the Code of Federal

Regulations states that the amount of an in-kind contribution

shall be equal to the usual and normal value on the date

received. Each in-kind contribution shall be reported as a

contribution in accordance with 11 C.P.R. S 104.3(a).

During the Audit staff's follow-up fieldwork it was

noted that 115 stale-dated checks totaling $27,809.44 remained

outstanding at December 31,1985. Thirty-three of these checks,

which totaled $19,326.41, were in an amount in excess of $200.

Committee records further indicated that the majority of these

checks were issued in 1983 and 1984.

Available records were insufficient to identify the

payee or check date for some of these checks, however, the

available information suggested that the majority of the checks

were made payable to individuals rather than businesses.

Committee officials believed that a portion of these

items represented voided checks which were not removed from the

Committee's outstanding check list.

Attachment I provided the available detail information

on the $27,809.44 in stale-dated outstanding Committee checks.

The Interim Addendum recommended that the Committee was

to provide the following information relevant to its outstanding checks:

1. The identification of the payees for those not

identified on Attachment I.

2. The disclosure, except for contribution refunds, of

outstanding checks that were $200 or less as in-kind

contributions thereby offsetting the related expenditure previously ~eported, with the appropriate adjustment to Cash on

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3. A determination whether those checks greater than $200

and all contribution refunds were actually outstanding. Ybo•• checks which represented a remaining liability of tb. Committ.e,

were to be reported as an in-kind contribution if peral••ible, or

steps were to be taken to effect payment. .

In a letter dated January 21, 1987, the Committee .uggelted resolving the outstanding check issue donating the amount

($27,809.44) involved to charity, arguing that, among other

reasons, the substantial time and resources required to provide the information would be a great hardship at this late stage of

the audit process, and requested an immediate decision.

By letter dated February 9, 1987 the Committee next

requested an extension to respond to the Interim Addendum,

stating they had not received a response to their above detailed

letter of January 21, 1987.

The Commission approved the Committee's proposed resolution

of the outstanding check issue and their request for an extension

on February 25, 1987.

On March 20, 1987 the Committee responded by providing photocopies of four checks (tissue copy), totaling $21,519.14, made payable to different organizations. Additionally, Items

totaling $6,290.30 were considered by the Committee to be in-kind

contributions•

Recommendation

The Audit staff recommends no further action on this matter.

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Monda1e Por Pre.ident Co..ittee, Inc.

Dece.ber 31, 1985 Outstanding Checks

Attacbaent I ••ge 1 of 5

Pal••

1.

2.

3.

t.

5.

I.

7.

8.

,.

10.

11.

12.

13.

14.

15. 1'. 17.

18. 1'. 2G.

21.

22.'

23. ..tec D. .act and a.lIOClat•• 24. La Ccace. _••••• 25. aleba.l 81.1.,

Cbeck I

902716

902717

902725

902737

902739

902842

902852

902853

'02854

'02855

'02866

902867

'0286'

902871

'02872

9826

10246

10381

10426

10458

10603

10604

10944

11091

11245

Check Date

1/7/85

2/22/85

2/25/85

Check AIIount

, 25.00

250.00

200.00

250.00

200.00

400.00

1,186.56

134.00

365.72

189.55

500.00

200.00

350.00

500.00

100.00

55.56

306.49

152.14

62.92

200.00

123.00

9.35

28.60

114.30

255.00

IIOD. ..y... and Cbeck Date. that are not identified .bow. ace due to unavailable Ca..itte. records.

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••9 •• Check t Check Dat. Check a.Dunt

2'. D_occata of .1800..1. 9625 7/20/84 , 3.08

27. Yooc AUe. WeMec-et .1 9617 7/17/84 10.56

21. alebacd Ga9tee.. 9325 7/3/84 180.90

2'. .....11 Alle. 9264 6/28/84 75.00

30. Lal... Coll1_ 8970 6/5/84 57.28

31. "I:Y rlnkbolmec 8938 6/4/84 50.00

32. 81alne Ai_I. 8836 5/31/84 75.00

33. ADa 81..e 8641 5/16/84 25.00

34. • __ Lat. 8435 5/3/84 100.00

35. Lacey ..etl... 8259 4/23/84 100.00

3•• "la BecteaDl1 1693 3/27/84 50.00

37. . ••1tec Bo1toa 7668 3/26/84 75.00

31. Robia Coat. 74.7 3/14/84 75.00

3•• ..tee Sebec 7399 3/12/84 75.00

to. IIDbect "aftr 7273 3/6/84 130.00

41. LlnC1. Robae .,215 3/6/84 198.00.

42. "111:. Good"I. 7247 3/6/84 182.00

43. ".11. Dwyer 7245 3/6/84 180.00

••• .bee.ton Orl_o 1230 3/5/84 650.00

45. "cl. Slag .794 2/16/84 150.00

.,. Sathe 6742 2/15/84 125.00

47. r.__ ..ld 6732 2/15/84 125.00

.1. Claael•• L,... 6'17 2/15/84 125.00

tl. Jill if.aee 6.75 2/8/84 185.00

50. 8pHiia ..tee. 5577 1/11/84 .

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Mondale Woe Pc.aldent Ca-81ttee, Inc.

Dec_bee 31, 1985 OUtstanding Checks

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Att.c....t:

Page 2 of 5

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MOndale Wor President Co..itt.e, Inc.

Deceaber 31, 1985 Outstanding Checks

Attach••"t I

.age 3 of 5

.ane

51. Ituw.e . e. . 52. r.eoa c:Mp11a

53. AnCIIII Co.all'3

54. lart BalD

55. kcaclia

5&_ all_ ....f.r

57. Doug .lela.1IIaD

58. .bee.toa"toa

51. .eft~Y D. Lorc1

10. ..cla 8ablD80D

'1. Cback c..plaD '2. 8cotbera .rlntlD, 63. hrox ,.. xerox '5. 8.fe"a~ 'I. 8teratoa IDrtb .,. Gaklalll1 Athletic Club '8. Xerox ••• IlanCbeater _loy••• Cr..l t

'0. CApital Ca....la.tlon.

71. "El~&.t.

72.' clean later••tloaal Group

73. ..ter Gaets

74. larln 8baplro 75. _.r .1'..•_

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Check I

524'

5183

5168

902249

'0219.

'02119

901999

.018.'

901824

'0171.

161

111

1064

1290

2012

2101

2132

2201

'00008

'00072

2255

2337

'00245

'00652·

'0077&

Check Date

1/5/84

1/5/84

1/5/84

4/12/84

3/27/84

3/21/84

2/29/84

2/13/84

2/9/84

2/7/84

1/21/83

1/25/83

2/1/83

2/23/83

~/22/83

4/26/83

4/21/83

4/29/83

5/3/83

5/9/83

5/12/83

7/1/83

5/21/83

7/11/83

7/21/83

Check AIIount

, 225.00

182.27

1,147.35

50.00

155.00

100.00

100.00

125.00

75.00

75.00

80.00

338.61

730.00

410.00

50.42

107.00

237.51

700.00

305.31

25.00

213.03

238.00

1,354.17

105.00

250.00

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MOndal••or Pre81dent Co..ltte., Inc.

Deceabee 31, 1985 Outstanding Checks

Attach.ent I

.age 4 of 5

.ay••

". Cb.c~l Wee.a.a.

77•••tnil1e Bilton

78. Gapac·. ". Davia ......CI

80. Brl.. C10bectr

81. Sbeeaton 1_

82. JObn MDDaba.

83. Vi8.al Ca....lc.tl0•• .t. lad .alvoc8Oft .5. Gale .auf__ .,. Lewl. Dlachner '7. ..tec .elly ••• Jaced St...11 .,. RaJOft Praductloaa '0. Joe- Gooaaa. '1. Kate 8al11va. '2. .,.,In .ater.

13. .....t~ .r .... ,t. Ill.~ ., tb..al '5. scott Dolley ". "ate .r_tel '7. cael .Ie . '1. . ••• &191...1_

180.

Cbeck I Check Date Cbeck AIIount

900777 7/21/83 , 250.00

'00812 7/25/83 49.68

.00511 7/1/83 2,000.00

3107 8/8/83 28.30

'00944 t 8/12/83 120.00

'01034 9/8/83 126.00

3715 9/9/83 44.00

3810 9/13/83 200.00

387' '/15/83 875.00

3962 9/22/83 200.00

4003 9/27/83 750.00

422' 10/11/83 60.00

4396 10/28/83 718.75

'01242 11/18/83 35.00

'01355 12/9/83 90.00

'01356 12/9/83 60.00

'01365 12/12/83 30.00

'01530 12/20/83 200.00

'01531 12/20/83 200.00

.01532 12/20/83 200.00

5009 12/28/83 150.00

5196 1/5/84 9.41

7819 100.00

'01951 2/23/84 1,000.00

'02599 195.00

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A.ttach.ent I

.age 5 of 5

Mondale Poe President Ca.-itt••, Inc.

Deceaber 31, 1985 OUt.tanding Checks

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101.

102.

103.

104.

105. La1eeD COlllu

10'. "" _ .... 10'. ".ia 0'''111, 10.. Ll... 81c-..

10'. '-Cc~ ~tl... 111 11. '-C_

lU. .11 tIa ••ctl., 112. aoe... ~lc.

W. WIUI... ..1_1ng

Ut. J_ B...Dl." Je.

W.

Check I

'02602

'02626

9508

9557

'02146

'03182

903554

903821

904279

'04456

1393

1458

1755

1858

209'

Check Date

1/5/.4

3/1/84 ' 3/21/84

4/1/84

5/15/84

3/21/84

3/21/84

5/1/84

5/15/84

Check AMant

, 45.53

200.00

11.95

8.73

331.57

112.17

120.40

164.44

818.59

163.78

28.29

378.02

1,041.67

86.40

48.52

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'27,809.44

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• FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C. 20463

February 24, 1987

MEMORANDUM

Please find attached copies of documents relating to the

final determination made by the Commission relating to the

Mondale For President Committee, Inc. We suggest that these

materials be placed on the public record. We note that the final

audit report is already on file.

SUBJECT: Public Disclosure of Final Commission Action

Mondale For President Committee, Inc •

THROUGH: John C. Sur!

Staff Direct

FROM: Charles N. S eel~~// General Coun e~ __

essington

isor '-~

TO: Kent Cooper Assistant Staff

Public Disclos

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Attachments

Certification

Not1fication/Final Determination

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BEFORE THE FEDERAL ELECTION COMMISSION

In the Matter of )

)

Final Repayment Determination for the )

Mondale For President Committee, Inc. )

CERTIFICATION

I, Marjorie W. Emmons, Secretary of the Federal

Election Commission, do hereby certify that on February 12,

1987, the Commission decided by a vote of 6-0 to approve

the Final Repayment Determination for the Monda1e For

President Committee, Inc. as recommended in the Memorandum

to the Commission dated February 9, 1987.

Commissioner Aikens, Elliott, Josefiak, McDonald,

McGarry and Thomas voted affirmatively for the decision.

Date

Attest:

~I/U~7)), ~4«a ~jOrie W. Emmons

Secretary of the Commission

Received in the Office of Commission Secretary: Mon., 2-9-87,

Circulated on 48 hour tally basis: Tues., 2-10-87,

Deadline for vote: Thurs.,2-12-87,

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• FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20463

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February 20, 1987

Michael S. Beraan, leq. Kirkpatrick , Lockhart

1800 M Street, H••• South Lobby 9th Ploor

Washington, D.C. 20036

RE: Mondale ror President

Repayment Determination

Dear Mr. Berman:

The Commission acknowledges receipt of Mondale Por

President's repayment of $260,500.55 to the Secretary of the

Treasury as the portion of non-qualified, campaign expenses paid with pUblic funds ($60,087.64), and the amount of pUblic funds

received in excess of the candidate's entitlement($200,412.9l).

Inasmuch as the Committee has made repayment without dispute within the prescribed response period, pursuant to 11 C.P.R.

S 9038.2(c)(1), the Commission's initial determination has become

final.

Sincerely,

Scott E. Thomas

Chairman

cc: Walter F. Mondaie

Carolyn U. Oliphant, Deputy General Counsel
• FEDERAL ELECTION COMMISSION

WASHINeTON. DC m.J

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February 20, 1987

Carolyn U. Oliphant, Seq. Mondale For President

2233 Wisconsin Avenue, W••• Washington, D.C. 20007

RE: Mondale Por President

Repayment Deteraination

Dear Ms. Oliphant:

. The Commission acknowledges receipt of Mondale Por

President's repayment of $260,500.55 to the Secretary of the

Treasury as the portion of non-qualified campaign expenses paid with pUblic funds ($60,087.64), and the amount of public funds

received in excess of the candidate's entitlement ($200,412.9l) . Inasmuch as the Committee has made repayment without dispute within the prescribed response period, pursuant to 11 C.P.R.

S 9038.2(c)(1), the Commission's initial determination has become

f:nal.

Sincerely,

Scott E. Thomas

Chairman

cc: Walter P. Mon~ale

Michael S. Berman, Treasurer
'. 1.7".....

• FEDERAL ELECTION COMMISSION

WASHINGTON. DC »t6J

february 20, 1987

Walter P. Mondale

c/o Michael S. Ber••n, .sq. Kirkpatrick' Lockhart

1800 M Street, •••• South Lobby 9th Ploot

Washin9ton, D.C. ~003'

RB: Mondale Por President

Repayment Deter.ination

Co Dear Mr. Mondale: ,'V"

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The Commission acknowledges receipt of Mondale Por

President's repayment of $260,500.55 to the Secretary of the

Treasury as the portion of non-qualified campaign expenses paid

with pUblic funds ($60,087.64), and the amount of pUblic funds

received in excess of the candidate's entitlement($200,412.91).

Inasmuch as the Committee has made repayment without dispute within the prescribed response period, pursuant to 11 C.P.R.

5 9038.2(c) (1), the Commission's initial deteraination has become

final.

Sincerely,

Scott E. Tho.as

Chair.an

CC: Carolyn U. Oliphant, Deputy General Counsel

Michael S. Berman, Treasurer
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MEMORANDUM

TO:

PROM:

SUBJECT:

FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C. 204&3

October 28, 1986

FRED S. EILAND

CHIEF, PRESS OFFICE

ASSISTANT

ROBERT J. COSTA

STAFF DI~~R~ ~./

AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT - MONDALE FOR PRESIDENT COMMITTEE, INC.

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Attached please find a copy of the final audit report on

Mondale for President Committee, Inc., which was approved by the Commission on October 23, 1986.

Informational copies of the report have been received by

all parties involved and the report may be released to the

public.

Attachment as stated

cc: FEC Library

RAD

Office of General Counsel .~ublic Disclosure
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FEDERAL ELECTION COMMISSION

WASHINCTON, D.C. 204( J

REPORT OF THE AUDIT DIVISION

ON 'J.'RE

MONDALE POR PRESIDENT COMMITTEE, INC.

·. I. Background

· . A. Overview

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This report is based on an audit of the Mondale for

President Committee, Inc. (-the CommitteeW) to determine whether

there has been compliance with the provisions of the Federal

Election Campaign Act of 1971, as amended (Wthe Act·) and the

Presidential Primary Matching Payment Account Act. The audit was

conducted pursuant to 26 U.S.C. 5 9038(8) 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. S

9038.l(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 3, 1983 as the principal campaign committee

of Honorable Walter F. Mondale. In addition, the Committee

conducted activities of an exploratory nature commencing November

2, 1982. The related receipts and disbursements were included in

the first report filed after registration. The Committee

maintains its headquarters in Washington, D.C.

The audit covered the period November 2, 1982 through August 31, 1984, the final coverage date of the most recent

report filed with the Commission at the time of the audit. In

addition, certain activity was reviewed through December 31, 1984

for the Statement of Net Outstanding Campaign Obligations and for

allocation to the state and overall expenditure limitations.

SUbsequently, in follow-up fieldwork conducted pursuant to 11

C.F.R. 55 9~~8.l(b) (3) and (e)(4), the limited review was

extended through March 31, 1986. The Committee reported an

opening cash balance of $-0-, total receipts of $33,437,542.51,

total disbursements of $32,893,400.19, and a closing cash balance

of $476,129.84 !/.

1/ The totals do not foot due to math discrepancies.
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The Committee continued to receive contributions and

make disbursements. In addition, revised Statemente of Ret

Outstanding Campaign Obligations were submitted with each

matching fund submission as required by 11 C.P.R. 19034.5(d). Under 11 C.P.R. SS 9038.l(b) (3) and (e)(4), additional fieldwork

may be conducted and addenda to this report issued as necessary.

This report is based upon documents and work papers which support each of its 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 Treasurer of the Committee during the period covered by the audit was Mr. Michael S. Berman.

c. Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactions;

review of required supporting documentation, analysis of

Committee debts and obligations, review of contribution and

expenditure limitations, and such other audit procedures as

deemed necessary under the circumstances.

II. Findings and Recommendations Related to

Title 2 of the United States Code

Matters Referred to Office of General Counsel

Certain other matters noted during the audit have been

referred to the Office of General Counsel.

III. Findings and Recommendations Related to Title 26

of the United States Code

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A. Allocation of Expenditures to States

Sections 441a(b) (1) (A) and 4418(c) of Title 2 of the

United States Code and Section 9035(a) of Title 26 of the United

States Code 'provide, in part, that no candidate for the office of

President of the United States who is eligible under Section 9033

of Title 26 to receive payments from the Secretary of the

Treasury may make expenditures in anyone State aggregating in

excess of the greater of 16 cents multiplied by the voting age population of the State, or $200,000, as adjusted by the change in the Consumer Price Index.
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Section 106.2(a) (1) of Title 11 of the Code of Peaeral

Regulations states, in part, that expenditures incurred by a

candidate's authorized committee(s) for the purpose of

influencing the nomination of that Cand~date for the office of

President with respect to a particular State shall be allocated

to that State. An expenditure shall not necessarily be allocated

to the State in which the expenditure is incurred or paid.

In lieu of state office and advance staff checking accounts, the Committee maintained a headquarters' draft account.

Drafts of various denominations were issued to Committee staff

for their use in making expenditures. Drafts were coded with a

cost center (State) and required the date, amount (up to the face

value), payee name, and signature of the maker. All other

expenditures were drawn on one of several headquarters' checking

accounts.

From inception through February 1984, the Committee

maintained an accrual basis general ledger system. Expenses were

assigned to one of a number of Cost Centers. For example, each

state was a separate cost center. In addition, there were a

number of headquarters department cost centers such as Finance,

Administration, Fundraising, etc. Of particular interest in the

following discussion is the Field cost center which was provided for the recording of field expenses not attributable to a state

limitation and the Scheduling and Advance cost center for

recording all candidate and surrogate travel. Expenses were

further assigned to an expense category such as payroll, computer services, travel, polling, etc. To determine the amount to be

allocated to a particular State for a reporting period, a cost

center report was generated. This report summarized all expenses for the period by cost center. To adjust these figures to a cash

basis for reporting purposes, the total of all unpaid items

recorded in the ledger and coded to a particular cost center was

subtracted. The resulting figure was then adjusted for

compliance and fundraising exemptions and posted to the FEe Form

3P, Page 3, Allocation of Primary Expenditures By State (State Allocation Report).

Beginning in March 1984, the Committee maintained a

second general ledger on a cash basis. This ledger was prepared from the d~cumentation which accompanied each check request. As

with the accrual general ledger, each disbursement was coded to a

cost center and expense category. To arrive at the amount

allocable to a State, the charges to a particular State cost

center were summarized. This figure was then adjusted for

salaries and taxes, which were not recorded in the cash basis

ledger, and for compliance and fundraising exemptions. The

resulting figure was then posted to the State Allocation Report.
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The entries in both general ledger systems were t••tea

during the audit and, with the exception of the adjust.ents discussed below, were found to be materially correct.

The Audit staff's review of the State Allocation Report

as of December 31, 1984 indic.tea that the Committee had

allocated expenditures totalling $676,344.28 to the Iowa

limitation of $684,537.50, $388,164.53 to the Maine limitation of

$404,000.00, and $469,699.61 to the New Rampshire limitation of

$404,000.00. In addition, the Committee's recorakeeping syptem contained unpaid expenses allocable to Iowa which totalled

$8,548.40, $5,777.99 to Maine, and $10,062.75 to New Hampshire, which would be added to these States' reported allocations when

paid. (See Finding III.A.3.)

1. Specific Allocation Methods

In addition to the general allocation provisions contained in 11 C.P.R. S 106.2(a), 11 C.P.R S l06.2(b) (2) provides specific allocation methods for various categories of

expenses. The categories of expenses requiring adjustments to

the Committee's allocations are discussed below.

a. Media Expenditures

Section 106.2(b) (2)(1)(9) of Title 11 of the

Code of Federal Regulations requires that expenditures for radio,

television and similar types of advertisements purchased in a

particular media market that covers more than one State shall be

allocated to each State in proportion to the estimated audience.

This allocation of expenditures, including any commission charged for the purchase of broadcast media, shall be made using industry market data.

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The Committee retained the services of a

media firm located in Texas. The allocation of radio and

television broadcasts was based upon total household estimates

contained in the Arbitron Ratings Publication - 1983-1984. The

Audit staff analyzed the firm's media time charge allocations and

determined that the amounts allocable to Iowa, Maine, and New

Hampshire were reasonable. However, based on our review, the

Audit staff noted that the Committee had understated media

expenditures allocable to Iowa, Maine, and New Hampshire by $20,034.00, $6,617.00, and $4,052.00, respectively. These

misstatements apparently resulted from errors made by the

Committee when recording the allocations in their automated

general ledger, and therefore, in the reported state allocation

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In their November 18, 1985 respon8e to the

Interim Audit R.port, the Committee agreed to adjust their

accounting records to corr.ct th. m.dia allocation errors not.d

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Intra-Stat. Travel and Subsistence

Bxp.ndltures

Section l06.2(b) (2) (Iii) of Title 11 of the

Cod. of Federal Regulations stat.s that travel and subsistence

expenditure. for persons working in a Stat. for five consecutive

day. or more shall be allocated to that Stat. in proportion to . th. amount of time spent in each Stat. during a payroll period.

Th. Committee's files relating to travel by Committee staff often contained only a p.r diem request from an

individual. In many cas.s, invoices for rental cars, hotels,

etc., were filed under the name of the hot.l or rental car agency since charges were billed directly to campaign headquarters, or

were filed with the cancelled drafts, by draft number, if paid by draft. As. result, In order to determine if an individual had

been working in a State for five or more consecutive days, it was

neces.ary to r.view these file. to locate hotel receipts, car

rental bills, per diem requests, etc., to establish the duration

of an individual's travel.

In addition to the travel and subsistence

expenses discussed abov., a law firm performed various services

for the Committee during the campaign. A review of certain

billings which stated "No items for professional services are

included" showed charges for various travel, lodging, and

miscellaneous expenses. These billings indicated that $1,814.70 for automobile rentals in Maine should be allocated to the Maine

expenditure limitation rather than to a headquarters' cost

center.

In the Interim Audit Report, the Audit staff

concluded that, based upon an analysis of the documentation

relating to travel and subsistence .xpenditures, an additional

$7,178.46, $19,589.89 and $7,589.65 should be allocated to Maine,

Iowa, and New Hampshire, respectively.

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J./ The explanation and justification for 11 C.P.R. S

l06.2(b) (2) (ii) states that for purposes of determining the

length of time an individual remains in a State, the

Commission will generally look to the calendar days or any portion thereof that that person was in a State rather than

using 24, hour periods. (See Federal Register, Vol. 48~

No.2S pg. 5225.)
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In their Rovember 18, 1985 response to the

Interim Audit Report, the Committee agreed to "make reallocations

for errors in the amounts of '4,808.84, $13,880.01 and $2,383.03

to Maine, Iowa and He. Rampshire, respectively, based on the

Information provided by the auditors.- The Committee, however,

disput•• Audit staff reallocations totalling $2,369.62 in Maine, $5,709.48 in I~wa, and $5,206.62 in New Rampshire. These amounts

repre.ent payments to 31 individuale for which the Committee

believe. the supporting documentation presented by the Audit

staff -does not demonstrate that the individuals in question were

in the states for more than four days and therefore no state

allocation is required".

The Committee has submitted no documentation

to demonstrate that the individuals were not in the-states

indicated in Pinding II.B.l.b. of the Interim Audit Report~

Rather, in their Hovember 18, 1985 response, the Comittee

provided a brief summary of their interpretation of the

documentation provided by the Audit staff for the 31 individualS

whose allocations they dispute. In consideration of the Comit~ee'8 comments, the Audit staff re-reviewed the

documentation which served as the basis for the reallocations

contained in the interim audit report. As a result, the travel

and subsistence adjustments contained in the interim audit report have been reduced by $644.55 for New Hampshire (see Attachment I, items 26 and 31), but no adjustments have been made to the Maine

or Iowa allocations. In the absence of additional documentation

demonstrating that the remaining individuals were not in the

states noted in the Interim Audit Report, the Audit staff

concludes that a reasonable interpretation of the documentation

available supports the allocations contained in this report. Therefore, the Audit staff concludes that travel and subsistence

expenditures totaling $7,178.46 should be allocated to Maine,

$19,589.89 to Iowa, and $6,945.10 to New Rampshire.

Attachment I contains a listing of the 31

individuals and amount(s) in dispute, the Committee's comments

regarding the Audit staff allocations, and the Audit staff's

basis for each allocation.

c. Salaries, Employer FICA, and

Consultant Fees

Section l06.2(b) (2) (ii) of Title 11 of the

Code of Federal Regulations requires that, except for

expenditures exempted under paragraph (c) of this section

(relating to compliance costs and fundraising expenditures),
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aalaries paid to persons working in a particular State for five

con8ecutive day. or more, including advance staff, shall be

allocated to each State in proportion to the amount of time spent in that State during a payroll period.

The Audit staff's review revealed persons incurring expenditures 1n one State for five or more consecutive

day. (see l.b. above). Their names were traced to payroll records to determine whether the related salaries and employer PICA or consultant fees had been allocated to the State in which

the individuals were working.

In addition to the above, adjustments have

been made for the salaries of the Committee's State Coordinators

for each of the three States. ~he Committee exempted 30' of the

salaries of such persons, stating that they were involved in

"National Policyw. Bowever, since these coordinators were

assigned to work in these States for extended periods of time,

their salaries require allocation to the States pursuant to 11

C.F.R. S l06.2(b)(2)(ii).

In most cases, these salaries and related

costs were coded to either the Field or Scheduling and Advance

headquarters' cost centers.

Based upon this review, the Audit staff

determined that additional salaries, employer FICA, and

consultants' fees totalling $20,174.77 should be allocated to

Iowa, $17,157.14 to Maine, and $15,788.74 to New Hampshire.

In their November 18, 1985 response, the

Committee agreed to "make reallocations of $9,215.45, $2,931.81,

and $6,085.48 to Iowa, Maine and New Hampshire, respectively.- The Committee disputed the balance of the Audit staff's salary, FICA payment, and consulting fee reallocations for two reasons.

First, the Committee disputed the allocation of $4,434.32,

$3,725.33, and $4,977.76 to Iowa, Maine, and New Hampshire, respectively, because "the auditors' documentation does not

demonstrate that the individuals listed were in the state more

than four days.- With respect to Iowa and New Hampshire, this

argument goes back to the Committee's interpretation of the

auditors' intra-state travel and subsistence reallocations which

were addres~ed in section i.b. above. Just as the Committee

feels that certain individuals' travel and subsistence expenses do not require allocation to these states, they likewise do not

feel that their compensation for the same period requires allocation. As discussed in Finding III.A.l.b., the Audit staff

made minor adjustments to its intra-state travel and subsistence

reallocations as a result of the information provided by the
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Committee in response to the Interim Audit Report. It was noted

that no adjustments were made to the Iowa and Maine totals, but

the New Hampshire travel and subsistence allocation was reduced

by $644.55 as can be seen at Attachment I, "s 26 and 31. Aa a

result, the Audit staff made corresponding reductions of $240.00

and $360.00, respectively, to the consulting fee reallocatio~s

for these two individuals.

With respect to Maine, the Committee's

$3,725.33 disagreement is not that !h! auditors improperly allocated travel and subsistence where the documentation does not

support travel in excess of four days. Instead, the salary, employer FICA, and consulting fee allocations which the Committee

disputes stem from the auditors' allocation of the compensation

expenses of individuals for whom !h! Committee allocated travel

and subsistence expenses to Maine, but neglected to allocate the

compensation for the same period. The Comittee argues that -the

auditors did not provide any evidence as a basis" for these

individuals' allocation. Given that the basis for this

allocation was the Committee's own travel and subsistence

allocations for the individuals, the auditors did not provide duplicate copies of what the Committee already had in their

possession and had properly allocated. Provided at Attachment II

are the payments in dispute and the auditors' basis for

allocation.

Secondly, the Committee disagreed with the

Audit staff's "reallocation of salaries in the amounts of

$6,525.00, $10,500.00 and $4,725.50 in Iowa, Maine and New

Hampshire, respectively· on the grounds " •••that the key state

personnel in these states played an essential national policy role justifying a 30 percent allocation of their salaries to

headquarters operating expenditures not subject to state

allocation. w The Committee refers to 11 C.F.R. § 106.2(c) which

exempts national campaign expenditures, including staff

expenditures, from state allocation. They also cite 11 C.F.R. S

l06.2(b) (2) in which they state "the Commission has••• acknowledged that many campaign staff perform an essentially national campaign role, travelling frequently to many states.

Under this section, salaries••• need not be allocated to a

specific state unless those staff are in the state for five or

more consecutive days.w They then refer to the Explanation and

Justification which accompanied 11 C.F.R. § 106.2, in which, they

assert, the Commission • ••• acknowledges that there may be staff, meetings, etc., which perform a 'national strategy' function and

therefore need not be allocated to any state. 'While this

section sets forth the basic rule for allocating salaries, a

candidate may demonstrate that a particular individual or group of individuals is in a state for five days or more to work ,on

national campaign strategy.'w
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The Audit staff offers the following

comments. Pirst, that section of the Explanation and ~u8tiflcatlon to which tbe Committee refers primarily speaks to

the practical difficulties encountered in allocating the salaries

of -advance staff- personnel. Second, the general rule for

allocating salaries is quite clear in the section of the

Explanation and Justification to which the Committee refers.

This section begins, -Subsection (b) (2)(il) governs the

allocation of salaries. If an individual is working in a State

for four days or less, he or sbe will be presumed to be working

on national campaign strategy and not influencing the primary in

that particular State.- Later in this same paragraph, it states:

·If an individual works In a State for five consecutive days or

more, that individual's salary must be allocated to that State

from the date of his or her arrival.· Finally, although the

Explanation and Justification allows for a candidate to

demonstrate that a particular individual or group of individuals

is -in a State for five days or more to work on national campaign strategy", it was not meant to provide for a ·carte blanche·

national policy salary exemption for individuals assigned to

states for extended periods. On the contrary, the Explanation and Justification specifically states that • ••• the Commission

expects such exemptions to be the exception rather than the

rule", but recognizes "that national campaign strategy meetings, for example, may be held in a centrally located state for an

extended period of time" and would not require the allocation of

the attendants' salaries to the state in which the meeting is

held. Although the Explanation and Justification allows for

isolated salary allocation exemptions, gigen that the Committee

has exempted a portion of the salaries of state coordinators

assigned to states for periods of three to six monthS, the Audit

staff feels that the Committee has fallen far short of

demonstrating that the circumstances surrounding this group of

individuals constitute "the exception to the rule."

Though not raised in the Committee's response

to the interim audit report, the Audit staff notes that these

salaries are eligible for a 10% compliance exemption. (11 C.P.R.

S 106.2(c) (5». As a result of this compliance exemption, and

the adjustments discussed above, the revised salary, employer PICA and consulting fee reallocation in Iowa, Maine and New

Hampshire are, $18,157.29, $15,441.43, and $13,669.87 respectively•
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Compliance and P~ndraising Expenditures

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Sections l06.2(b) (2) (ii) and (iv) of Title 11

of the Code of Federal Regulations require that, except for

expenditures exempted under paragraph (c) of this section

(relating to national campaign salaries and overhead), salary and

overhead expenditures of offices located in a particular State

shall be allocated to that State. Por purposes of 11 C.P.R. , 106.2(b) (2)(iv), overhead expenditures include, but are not

limited to, rent, utilities, office equipment, furniture,

supplies, and telephone service base charges.

Section 106.2(c) (5) of Title 11 of the Code

of Pederal Regulations provides, in part, that an amount equal to

10' of salaries and overhead expenditures in a particular State

may be excluded from allocation to that State as an exempt

compliance cost, and an additional amount equal to 10' of such

salaries and overhead expenditures may be excluded as exempt fundraising expenditures, but this exemption shall not apply within 28 calendar days of the primary election.

The Audit staff reviewed the Committee's

calculation of exempt compliance and fundraising costs for

overhead expenses related to State offices. Since the Committee

generally utilized the 10' exemptions provided in 11 C.F.R. S

106.2(c) (5), the analyHis centered on the composition of the

overhead pool and adherence to the 28 day fundraising rule.

(i) Telephone and Utilities

In addition to telephone base service

charges, the Committee included intra-state long distance charges in overhead. As a result, the allocation of telephone expenses

was understated. Also noted was an Iowa water and sewer bill

which had been coded to a headquarters' cost center. As a result

of these misallocations, additional charges of $6,498.36 to Iowa, $1,109.55 to Maine, and $3,606.53 to New Hampshire are required.

In their response to the Interim Audit

Report, the Committee objects to the exclusion of intra-state

telephone charges from the overhead pool, and therefore, the

disallowance of the overhead compliance and fundraising exemptions•.. The Committee argues that the definition of

overhead, which specifically includes telephone base service

charges, does not exclude intra-state charges since it states

that • ••• overhead expenditures 'include, but are not limited to'

the items listed••••
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Though the definition of overhead

expenses at 11 C.F.R. S l06.2(b) (2) (iv) does not specifically exclude telephone toll calls, 11 C.F.R. 5 l06.2(b) (2) (v) does

specifically address such expenses. In that section, the cost of

interstate telephone calls is excluded from allocation to any

state, while the cost of intra-state calls is specifically required to be allocated to a state. Given that telephone service base charges are included in overhead, that intra-state

calls are specifically required to be allocated to a state, and

that interstate calls are exempt from allocation to any state,

the inclusion of the cost of intra-state telephone calls in

overhead is not appropriate. It is noted that, although the

regulations do not contemplate the inclusion of the cost of

intra-state telephone calls in overhead, as with any expenditure which may have a compliance or fundraising component, the

Committee may document those components and the resulting exemption from the expenditure limitation.

On September 11, 1986, the Commission

voted to accept the Committee's argument and to allow the

inclusion of intra state long distance in State office overhead.

The amounts shown on the Recap of Allocable Expenditures (page 23) have been adjusted accordingly•

(ii) Pundraising Expenditures - 28 Day Rule

In addition to the expenditures noted

above, the Audit staff reviewed other expenditures which the

Committee charged to fundraising, thus excluding them from state

allocation. The purpose of this review was to determine whether

any expenditures occurring within 28 days of the Iowa caucus, or

the New Hampshire and Maine primary elections, had been

improperly excluded from State allocation.

This review revealed that an additional

$16,270.49 should be allocated to Iowa.

In their November 18, 1985 response to

the Interim Audit Report, the Committee argues that the 28 day rule does not apply to the Iowa Caucus. The Committee cites

Advisory Opinion 1979-71 which held that the 1980 Iowa Caucus was

not an "election" as defined by the Federal Election Campaign Act, but stated that the state expenditure limitations do apply. The Committee notes that the Advisory Opinion does not

specifically state that the 28 day rule at 11 C.P.R. S

llO.8(c) (2) remains in effect•
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In addition, the Committee argues that

11 C.F.R. S 110.8(c) (2) establishes only "a rebuttable

,resumption that expenditures made within that time frame are not

or fundraising. In this instance, MPC held the largest grass

roots f~n~raiser--America for Mondale--in history within 28 days of the Iowa caucus. This 'was a nationwide fundraiser organized

at the local level in every state. This fUlly rebuts the

presumption created in the regulation that the $16,270.49 was not

a genuine fundraising expenditure" (emphasis in original).

As noted in the Committee's response, 11

C.P.R. S 110.8(c) (2) states that "expenditures for fundraising activitl targeted at a particular State and occurring withIn 28

days before that state's primary election, convention, or caucus

shall be presumed to be attributable to the expenditure

limitation for that State" (emphasis added). Advisory Opinion 1979-71 does not void this regulation. That advisory opinion was

requested by a political action committee and was limited to the

issue of whether or not the Iowa caucus required the filing of

pre and post-election disclosure reports. The opinion does state

that it has no effect on the "application of the expenditure limits to Presidential candidates eligible for matching Pederal

payments." To reinforce this position, the opinion cites 11

C.F.R. S 110.8(c) and quotes from Section 1 of that regulation. It refers to the language "primary election, convention or

caucus." The opinion concludes that "by referring specifically

to a convention or caucus in a State, the cited regulation means

that the State expenditure limits apply whether or not the

convention or caucus is an 'election' within the definitions of 2

U.S.C. S 43l(a) and 11 C.F.R. S lOO.6(b)." Thus, it is clear

that Advisory Opinion 1979-71 has no bearing on the application

of the 28 day rule with respect to the Iowa caucus.

The Committee appears to argue that the

presumption in the 28 day rule is rebutted by the statement that

this was a nationwide fundraiser organized in every state. The

Committee informed the auditors that a series of "House Parties·

were held at which contributions were solicited. The $16,270.49

reallocated in the Interim Audit Report represents a percentage of overhead expenses and the salaries of persons who worked in

the State organizing the program which occurred within 28 days of

the election. Absent documentation that this fundraising effort

was ongoing .in many states simultaneously rather than targeted at

a few states at a time coincident with the primaries in those

states, no adjustment to the amounts in the Interim Report have

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e. Public Opinion Polling Expenditures

Section l06.2(b) (2) (vi) of Title 11 of the

Code of Federal Regulations states that expenditures incurred for

the taking of a pUblic opinion poll covering only one State shall

be allocated to that State.

The Committee engaged a Washington, D.C.

vendor to conduct pUblic opinion polls. A review of copies of

the vendor's statements dated August 8, 1983 identified two

surveys, one in Iowa and one in New Hampshire, which had been

allocated to the headquarters cost center ·Campaign Management" rather than to the appropriate State. The required allocations

for these surveys are $13,500.00 to Iowa and $12,500.00 to New

Hampshire.

In response to the Interim Audit Report the

Committee agreed to ·reallocate account coding errors of

$13,500.00 to Iowa and $12,500.00 to New Hampshire."

2. Other Expenditures Requiring Allocation

As noted above, 11 C.F.R. S 106.2(a) (1) states

that expenditures incurred by a candidate's authorized

committee(s) for the purpose of influencing the nomination of

that candiaate for the office of President with respect to a

particular State shall be allocated to that State. An

expenditure shall not necessarily be allocated to the State in

which it is incurred or paid.

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- a. Automobile Leasing

The Audit staff noted that the Committee

leased a number of automobiles for use by campaign workers in the

States of Iowa and New Hampshire. The duration of the leases

ranged from one to three months. The documentation supporting these disbursements did not associate the name of a particular staff member as the driver of a particular automobile. Shown

below are the amounts for each State •

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(1) !2!!

The Audit staff identified 5 vendors in

Minnesota from which automobiles were rented. TheBe automobiles

were rented for various periods of time beginning in mid-January and, with the exception of one car which was apparently damaged in Iowa, were returned by March 2, 1984. 1/ With the exception of one vendor whose invoices did not contain the signature of a

Committee representative, the majority of the other contracts

were signed by one of two Committee staff persons. Notations on

certain of the documents reference specific cities in Iowa or

contained phrases such as RReturn of unit from IowaR or RMondale

Presidents' Campaign through Iowa. R All of these expenditures

were allocated to Minnesota.

Based on the Audit staff's review of the

above mentioned documentation, it was determined that an

additional $25,451.38 should be allocated to Iowa.

(ii) New Bampshire

The Committee leased 20 automobiles from

a Massachusetts automobile dealer and allocated the cost to

Massachusetts. The cars were leased between the end of November

and the end of December 1983.

With three exceptions, the cars were

returned by March 5, 1984. One was returned on March 7 with no

apparent explanation. Rental contracts for the remaining two

automobiles indicate that there was some difficUlty in locating them. These automobiles were returned on March 9 and 14,

1984.4/ A majority of the documentation indicates a New

Hampshire address on the original rental contracts, and

associated documentation also notes specific cities in New

Hampshire.

11 The Iowa Caucus was held on February 20, 1984. The

Minnesota precinct caucuses were not held until March 20,

1984.

!I It should be noted that the New Hampshire primary was on

February 28, 1984. The Maine caucus was on March 4, 1984,

while the Massachusetts primary was March 13, 1984 •
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Based on a review of the documentation, the entire amount of the expenses associated with the rental of

the 20 automobiles, $31,331.71, should be allocated to New

Bampshire.

In their response to the Interim Audit

Report, the Committee agrees to the reallocation of $5,278.87 to

New Rampshire and objects to the reallocation of $25,451.38 to

Iowa and the remaining $26,052.84 to New Rampshire. The response also notes that the Audit staff allocated these Minnesota and

Massachusetts expenditures to Iowa and New Hampshire, based on

notations on rental contracts which suggested that the cars were

used in those statee.

The Committee argues as follows:

·Since the cars were rented in Minnesota and Massachusetts,

the expenditure is clearly allocable to those states.

Ta show otherwise the auditors would have to produce proof showing that the particular cars involved were actually in Iowa or New Hampshire and on which days this occurred.

Evidence presented by auditors consists of rental

contracts, parking tickets and damage claims. None of

the evidence establishes that the cars were in the state

more than four consecutive days. Only one invoice, from

Clark Motors, leasing cars to the New Hampshire field

office, offers reasonable evidence that the expense is allocable to the state.

Moreover, under the regulations, it is entirely legitimate for these cars to be leased and used for

interstate travel and not allocated to any state. 11 C.P.R.

Section 106.2(c)(4). While the Committee allocated these

expenditures to the states in which leased, in many instances this was not even required, because the cars

were used to transport volunteers from Minnesota to Iowa

and from Massachusetts to New Hampshire for less than

five-day periods. There were major volunteer programs (-Fritz Blitzers·) in both Minnesota and Massachusetts

designed to bring weekend volunteers to Iowa and

New Hampshire. Under the regulations, the Committee

need n~t have allocated those expenditures to any state.·
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Pirst, 11 C.P.R. S 106.2(8)(1) state.

that an expenditure shall not nece.s.rlly be allocated to the

State in which the expenditure i. incurred or paid. Purther, the

Bxplanation and Justification for 11 C.P.R•• 106.2(c) (4) states

that travel across State lines that Is occasioned by transportation or lodging facilities will not be deemed exempt interstate travel. Therefore, the fact that the automobiles were

rented from agencies located in states other than Iowa or New

Hampshire is the controlling factor in the allocation of

these expenditures.

Second, since no person is listed on the

rental contract as the driver of any of these automobiles, and

since the rentals are for periods of at least 3 weeks, the.e

expenditures do not represent expenses for a person's travel and

subsistence while working in a state for more than four day. (11

C.P.R. S 106.2(b) (2) (iii». Rather, these expenditures are

treated as any other equipment rental and are allocable pursuant

to 11 C.P.R. S 106.2(a), which provides the general rule for

allocation. That section states that expenditures incurred by a

candidate's authorized committee(s) for the purpose of

influencing the nomination of that candidate for the office of

President with respect to a partiCUlar state shall be allocated

to that state. '

Finally, as noted above, the periods of

the rentals in relationship to primary dates and notations on

some of the documents supporting these disbursements indicate

that the automobiles were used in Iowa and New Hampshire. The

Committee has submitted no evidence that these _automobiles were

used other than as the documentation indicates. Also, for the

rentals allocable to New Hampshire, the Committee has agreed to

the allocation of $5,278.84. The Committee notes that these

rental contracts show a New Hampshire address indicating use in

New Hampshire. This disbursement was for the rental of 14

automobiles. Each contract has a vehicle number shown to

identify the particular automobile rented. There is another

payment of $2,262.36 to the same automobile dealer, for the

rental of 6 automobiles, supported by a check request form dated

the same day. However, there are no rental contracts attached to

the check request form. The Committee has not agreed to this

allocation. The remaining $23,790.51 in payments to this

automobile,qealer was paid in two installments. This amount

represented cleaning for 20 automobiles (6 plus 14, as noted

above), extra days rental on cars not returned at the conclusion

of the rental period, mileage beyond that provided for in the

rental agreements, and damages. A review of the documentation

supporting these payments indicates that the charges cover 20

automobiles, 19 of which are identified by vehicle number.,
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Further, of the 19 vehicles identified, 13 are among the 14 which

the Committee acknowledges as having been used in Hew Rampshire. These follow-up charges were billed after the New Rampshire primary for automobiles rented before the primary, and were

addressed to the Committee's headquarters in Washington, D.C.

rather than to the New Hampshire office.

Given the above, no adjustments to the

allocation amounts shown in the interim report have been made.

b. Telephone and Related Services

The following disbursements for telephone

usage and related services were noted. None of these

disbursements were allocated to Iowa or New Hampshire.

(i)

~wo labor organizations and two vendors

provided various services described as telephone usage, office

space, furniture and telephone usage, phone bank for Mondale

calling to Iowa, and Intra-state Watts lines in Des Moines.

Documentation for these disbursements indicated that amounts

totalling $3,955.00 require allocation to Iowa.

In their November 18, 1985 response to

the Interim Audit Report, the Committee agreed to the

reallocation of this amount.

During follow-up fieldwork an additional

payment to a labor organization for phone bank use in three Iowa

cities was noted. This payment ($4,073 on February 13, 1985) was

not previously included in amounts allocable to Iowa. The

documentation for this expenditure indicates that the payment has

been charged to the Iowa expenditure limitation by the Committee.

The addition of this amount to that

discussed above produces a total of $8,028.00.

(ii) Maine

Follow-up fieldwork also identified a

January 14; ·1985 payment of $46.89 to a Maine labor organization for the -Balance due on phone usage.- The payment was not

previously included in amounts chargeable to the Maine

expenditure limitation. The documentation indicated that the

Committee has allocated this amount to Maine •
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(iii) Rew Rampshire

~wo labor organizations, a vendor, and

the Manch••ter Municipal Bmploy••• Credit Union billed the

Committee for servic•• described as telephone usage, tel.phone answering service, and office .pace and subsequent clean-up work.

The documentation .upporting th••e disbursements indicated that

amounts totalling $4,856.62 require allocation to New Hampshire.

In their November 18, 1985 response to

the Interim Audit .eport, the Committee agreed to the

reallocation of this amount.

During follow-up fieldwork conducted

after the Committ•••• r••pons. to the Interim Audit ~eport, two adjus~ents were identified to amount. allocable to the New

Hampshire expenditure limitation for the use of labor

organization telephones and faciliti•••

Th. first vas a December 1984 payment of

$56,821.95 of which the Committ•• allocated $51,139.76 to New

Hampshire. This amount is included In the -Amount allocated by the Committee on PEC Porm 3P, page 3 as of D.cember 31, 1984-

shown on the Recap of Allocable Expenditure. below. While

researching another expenditure It was learned that the Committee

had made an error in their coding of this invoice. Only $18,068.25 of this payment relates to New Hampshire. The

remainder relates to a number of other stat.s. Therefore, the

amount chargeable to the New Hampshire expenditure limitation has

been reduced by $33,071.51.

The second adjustment i. a payment of

$2,840.53 to a New Hampshire labor organization for -phone banks.- This amount had not previously been included in

expenditures allocable to New Hampshire. The Committe.

documentation for this payment indicates ,that the amount w.s

charged to the Field cost center rather than to the New Hampshire expenditure limitation.

After considering this adjustment and

the amounts which appeared in the Interim Audit Report, the

revised figure is a $25,374.36 reduction to expenditur.s allocable to New Hampshire •
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c. 'rinting and Shipping Bxpenditure.

The Audit .taff reviewed documentation

8upportlng various expenditure. to one Maryland and two Maine

vendore for the preparation of campaign materials. Invoices

contained notations such a. ·List for Cumberland County·, printing services, preparation and shipping of letters, volunteer

cards, position papers, canvas sheets, Maine for Mondale

Letterhead, and Maine for Mondale Post Cards. In each case a

specific State was referenced and the expenditure was coded to a

headquarters' cost center.

Based on the Audit staff's review of the

documentation, It was determined that the Committee is required

to allocate an additional $15,403.50 to Iowa, $4,690.69 to Maine,

and $3,550.40 to New Hampshire.

In their November 18, 1985 response the

Committee agreed to reallocate the above amounts.

d. Miscellaneous Expenditures

The Audit staff reviewed other documents

related to computer services, auto accident claims, clean-up charges, and restaurant costs for a rally which were incurred in

and/or made for the benefit of Iowa or New Hampshire. The

results of this review revealed that the Committee had allocated

those expenditures to Headquarters, although the documentation

indicated the allocation should have been to a State.

In addition, a review of Committee allocation

worksheets indicated that the Committee had posted an incorrect

total to their worksheets for allocation to Iowa and New

Hampshire on the February, 1984 FEe Monthly Report. As a result

of this clerical error, the Audit staff has charged an additional

$2,079.75 to the Iowa limitation and reduced the amount allocated

to the New Hampshire limitation by $1,726.32.

Based on these reviews, the Audit staff

determined that the Committee should allocate an additional

$6,472.66 to Iowa and $4,482.24 to New Hampshire •
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In their response, the Committee agreed with

the allocation of $6,222.66 to Iowa, and $4,361.24 to New

Rampshire. The Committee objects to the reallocation of • $121.00 payment to a New Rampshire restaurant and a $250.00

payment to a Des Moines, Iowa real estate firm.

In the case of the restaurant, the Committee

argues that the expense is for a lunch "paid for by Advance Staff

not 1n state for more than four days." The restaurant was paid a

total of $1,312.50 by draft on February 21, 1984. Each draft

referenced a rally on that date and was allocated to New

Hampshire by the Committee. These drafts are in two groups, the

first, $762.50, and the second, $550.00. The $121.00 payment is

the balance due on a restaurant bill of $671.00 against which the

$550.00 group of drafts was applied. The restaurant bill

references a luncheon while the advance person refers to the

amount owed as "food for rally." This disbursement, though paid by an advance person who may not have been in the State of New

Hampshire for more than four days, is not a payment for that

person's travel and subsistence. Therefore, the payment is not

exempt from allocation under 11 C.F.R. S l06.2(b) (2) (iii) •

The Committee makes a similar argument with

respect to the payment to the real estate firm. The Committee

states that the payment was for ·clean-up of a Mondale stop related to interstate travel."

Section 106.2(c) (4) of Title 11 of the Code

of Federal Regulations exempts the cost of interstate travel from

allocation to any state. However, this payment was for cleaning, guards, and other incidentals relating to the "Victory Celebration" on February 20, 1984. Although interstate travel to

attend such a celebration may be exempt from allocation, the cost

of the event is not.

No adjustment to the allocation in the

Interim Audit Report was made as a result of the Committee's

response. However, the following amounts related to Iowa and

Maine and were identified during follow-up fieldwork. None of

these disbursements were previously included in amounts allocable

to these states•
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In Iowa a $400.00 payment for bu. rental w•• noted. The documentation supporting this disbur.ement indicatea

that the trip was between two cities in Iowa. In addition, • $75.00 payment for ·Piano rental for Mondale visit at Iowa State

Pair- was noted. Both of these disbursements were coded to the

Pield cost center rather than to Iowa.

A total of $110.45 in miscellaneous

disbursements relating to Maine was identified. Of this amount, $46.60 represents amounts reported by the Committee as charges to

the Maine expenditure limitation for which no specific disbursement was located. The remaining $63.85 was a payment to

a Maine vendor for office supplies.

These adjustments bring total

miscellaneous expenditures to $6,947.66 in Iowa, $110.45 in Maine

and $4,482.24 in New Hampshire.

Debts and Obligations Requiring Allocation

When Paid

The Audit staff determined that, as of December

31, 1984, the Committee's recordkeeping system contained unpaid debts and obligations allocable to Iowa, Maine, and New

Hampshire. Vendor invoices supporting these outstanding debts

and obligations indicated that an additional $8,548.40 should be

allocated to Iowa, $5,777.99 to Maine, and $10,062.75 to New

Hampshire.

In the response to the Interim Audit Report, the

Committee states "The auditors did not provide MPC with any documentation to substantiate their allocation. We are unable to

determine whether their allocation is consistent with our own, or

if they ar'e contesting our allocation. In the absence of

sufficient information we are disputing their allocations."

Prior to the Committee's receipt of the

Interim Audit Report, the Audit staff provided a schedule of the

payables which make up the amounts allocated. The schedule

contained the creditor's name, the Committee's voucher number, the amount and the allocation. This information was to allow the

Committee to locate the documentation in their files• . .
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The Audit staff reviewed the material

supporting these allocations and notes that some of the

allocations agree with the Committee's, others disagree, and some

were not marked by the Committee with any allocation.

No adjustments to the allocations in the

Interim Audit Report have been made as a result of the Committee

response.

During follow-up fieldwork the Audit staff

determined that all of the debts included in the figures noted

above had been paid. However, in some cases, the amount paid or

amounts chargeable to the state expenditure limitation varied

from those included in the Interim Audit Report. The revised

amounts are $8,501.70 51 in Iowa, $5,777.99 in Maine', and

$10,312.85 51 in New Hampshire.

The following is a recap of expenditures allocable

to Iowa, Maine, and New Hampshire as delineated in Finding III.A.

51 A portion of the change in these figures results from a

$328.80 item which was shown as an Iowa expense in the

Interim Audit Report that should have been allocated to New

Hampshire •
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>- .,plp pf Al1oplbl•••ptndity'"1111 II1D.I ••w ••••bl'.

; , AIIount allocated by til. C~ltt•• on rIC ~~. 3f,

page 3 a. of

Dec.aber 31, l••••J! ..,.,...... '3e',.20.S' '470,113.11

Ada;.tjlnt. J!i'bpy. ae rt 5\ •

111.A.l.a. Meala l.penc!itu~.1 20,034.00 ','1'.00 4,052.00

111.A.l.b. Int~a-8t.t.

~~av.l anc! 8ub.llt.ne. 19,58'.1' 1,1'8.46 1,945.10

III.A.l.e. lalarl.l, IIDploy.r PICA and

Conlultant •••• 18,157.2' 15,441.43 13,66'.87

111.A.l.d.(I) eo.pl1ane. coat. anc! .undrai.lng Bxpenc!itu~"-T.l.phon.

.~ Ind Utilltl•• 28.47 -0- -0-

tf' III.A.l.d.(li) .une!~ai.in,

Ixpenditu~••-28 day ~ul. 16,210.4'

0 III.A.l••• 'ublle Opinion Polling ••pendltu~•• 13,500.00 12,300.00 ,r

• 111.A.2.8.(I) I (II) Automobile Leallng 25,451.38 31,331.71

JII.A.2.b.(I) (il) (111) Te1ephon. and Re1at.d

0 Servic•• 8,028.00 46.8' (25,374.36)

'"

III.A.2.c. 'rlntlng anc!

Shipping ••penditur•• 15,403.50 4,690." 3,550.40

III.A.2.d. Mi.c.llan.ou. . '

Bxpenditur•• ',9.7.16 110.45 4,482.24

(,f' III.A.3. D.bt. ane!

e":' Obligation. a. of

December 31, 1'84

(Paic! 1/1/ to 2/28/85) 8,501.70 5,777.99 10,312.85

Total Amount Pale! Wltb

Respect TO ~h. Itat.

Expenditur. LI.itatlon

As of Dec• .a~ 31, 1.85 831,901.32 429,283.50 532,332.98

State Spending Llaltatlon (684,537.50) (404,000.00) (404,000.00)

Total Ixyenc!itur•• in $14'7,363.82 • 25,283.50 $128,332.9,8 1/

Bxce•• 0 Itat. Lialtatlonl

!I Tak.n fra. Am.na.a 3P, page 3 fi1.a April 15, 1'85.

1/ Thi. a.ount doe. not contain .xpenditures .ade by any Mondal. delegate committ... Th. Conciliation Agre.ment in MUR 1704 .p.cifi•• an

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additional a.cunt totalling '92,''75.73 whicb, for tbe purpo•• of

settling th. MOR, 1. treated as applicable to the N.w Hampshir. expenditure limitation. The Conciliation Agreement .1.0 contained a

repayment of $29,640.00 ••• result of exceeding tbi. limitation.

That amount wa. paid by the Committee on Pebruary 27, 1985.
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Conclusion

The Audit staff concludes that the Committee has exceeded

the Iowa expenditure limitation by $147,363.82, Maine by $25,283.50, and New Hampshire by $128,332.98.

Por the Commission's initial repayment determination with

respect to the above expenditures, see the discussion at Section

III.E.2.

B. Limitation on Expenditures

Seetlons 44la(b) (1) (A) and 441a(c) of Title 2 of the

United States Code, state, in part, that no candidate for

nomination for electlon to the office of President of the United

States who is eligible under section 9033 of Title ~6 (relating

to eligibility for payments) to receive payments from the

Secretary of the Treasury may make expenditures In excess of

$10,000,000 as adjusted for increases in the Consumer Price

Index.

Section 9035.1(a) of Title 11 of the Code of Federal

Regulations, states, in part, that no candidate or his or her

authorlzed committee(s) shall knowingly incur expenditures in

connection with the candidate's campaign for nomination, Which in

the aggregate, exceed $10,000,000 (as adjusted under 2 U.S.C.

441a(e).

Section 100.8(b) (15) of Title 11 of the Code of Federal

Regulations, states, in relevant part, that expenditures for

services solely to ensure compliance with the Act made by a

candidate certified to receive Primary Matching Funds under 11

C.F.R. Part 9034 do not count against such candidate's

expenditure limitations under 11 C.F.R. 9035 or 11 C.P.R. 110.8.

The Audit staff's review of FEC Form 3P, page 4 for the

period ending December 31, 1984 revealed that the Committee had

reported Total Expenditures Subject to Limitation (Overall

Limitation) of $20,047,673.22. Based on the audit procedures performed it was determined that certain adjustments to the above

total were required. Accordingly, the Interim Audit Report contained adjustments totaling $646,752.94. (It was noted that

these adjustments were comprised of both amounts paid prior to,

and debts owed as of, December 31, 1984). As a result of these

adjustments it was determined that the Committee had exceeded the

2 U.S.C. S 441a(b) (1) (A) spending limitation by $494,426.16 •
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In the Interim Audit Report, the Audit staff

recommended tha~ the Committee either demonstrate that the

expenditure limitation had not been exceeded or amend their

disclosure reports to reflect the proper amount subject to the

limitation. In their response of November 18, 1985, the

Committee contends that they have not exceeded the 2 U.S.C. S

441a(b) (1) (A) spending limitation. In addition to addressing the

Audit staff's adjustments contained in the Interim Audit Report,

Committee officials advise that • •••MPC has reduced its limit

spending as of December 31, 1984, by-$507,S26.43, by allocating that portion of fundraising costs attributable to compliance

costs to compliance· (see Finding III.B.7.). As a result of this

adjustment and their comments on the Audit staff's spending limit

adjustments, Committee officials conclude that the correct amount

subject to limitation at December 31, 1984 was $19,781,370.04,

or, $418,629.96 under the limitation.

Presented below are the Audit staff's adjustments as

contained in the Interim Audit Report, the Committee's comments

on those adjustments and the Audit staff's analyses thereof.

o 1. Fundraising Expenses

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Section 100.8(b) (21) (i) of Title 11 of the Code of

Federal Regulations states that any costs incurred by a candidate

or his authorized committee(s) in connection with the

solicitation of contributions are not expenditures if incurred by

a candidate who has been certified to receive Presidential

Primary Matching Fund Payments, to the extent that the aggregate of such costs does not exceed 20 percent of the expenditure limitation applicable to the candidate.

The Commission's Financial Control and Compliance Manual for Presidential Primary Candidates Receiving Public

Financing (Compliance Manual) states on page 1-15 that

fundraising expenses are the costs associated with the

solicitation of contributions. It expressly states that costs

reasonably related to fundraising activity include the

preparation of matching fund submissions. Further, on page 1-20,

Alternative Allocation of National Campaign Office Payroll and

Payroll Taxes, the Compliance Manual states: "A committee may allocate 85 percent of all payroll and payroll tax expenses which

relate to the operations of the accounting office as exempt
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(Legal and Accounting] compliance. The accounting office i.

defined as the cost center responsible for performlng tbe

following functions: contribution processing (excludina preparation of matching fund submissions)" expenditure

processIng, payroll•••• (emphasis added).!!

Contribution processing and computer .ervices were

provided to the Committee by the same firm. The firm retrievea

contributions from the Committee's post office box, screened the

contributions for acceptability and matchability, prepared bank

deposits, photocopied checks, performed necessary data entry, prepared and mailed follow-up letters, prepared the computer generated listings for both reporting and matching funa

submissions, and assembled matching fund submissions. In

addition to the firm's staff, the firm acquired additional staff,

on an as needed basis, from a temporary service. Also, on.

Committee staff person was assigned to the matching fund and

contribution processing functions. The cost of the matching fund

submission/contribution system was charged to the Committe.'.

Pinance cost center and, therefore, allocated 8S' to Bxempt Legal and Accounting and 15' to Operating. A review of the billing

statements provided by the vendor indicated that certain charge.

appear to relate to the matching fund function while other.

relate to contribution processing in general. In addition to

these expenses, the Committee was billed for labor co.ts.

In order to determine that portion of the labor

costs which should be charged to fundraising for matching fund

preparation, the Audit staff divided the cost of those services

which a Committee official agreed were matching funds-related by the total cost of non-labor charges. The resulting percentage

was applied to the labor costs of both the primary vendor and the

temporary service. Pinally, using a description of duties

supplied by the Committee for the staff person mentioned above, a

portion of the person's salary was allocated. After the labor

charges determined as described above were added to the other

services which were matching funds related, the Audit staff

determined that an additional $152,339.57 was allocable to

fundraising. Since the Committee has exhausted the 20'

fundraising exemption, this amount flows to the Committee's

overall limitation.

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for allocating expenses to compliance. The Finance cost

center, which was responsible for matching fund submissions

as well as for the accounting functions, was allocated 8S'

to compliance.
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In their November 18, 1985 response, the Committee • •••objects to the reallocation of $152,339.57 to fundraieing.- This objection is based on the following: W(A) The COlts incurred

to prepare a matching fund submission arise on~Y because of the

requirements of Title 2 and the Pund Act and t erefore fall

within the compliance exemptionJ (B) The costs of preparation of

matching fund submissions do not fall within the fundr.ising exemptionJ and (C) The costs of preparation of matching fund

submissions are properly allocable to the accounting cost center

for which the Committee elected to utilize the standard 85

percent compliance -- 15 percent non-exempt formula and therefore

the Commission must accept this allocation.·

The Committee goes on to state that ·the auditors

rely on no statutory or regulatory provision for disallowance of

these costs as compliance expenses. Rather, they·rely only on

the Commission's Financial Control and Compliance Manual••• This

manual does not have the force of a regulation••••• However,

later, the Committee states that WMPC elected to follow the

Commission's guideline allocation for its accounting cost center.

There is no dispute that the costs of preparing the matching fund

submissions are properly included within the accounting cost

center. MPC allocated only 85 percent of this cost center to

compliance. Therefore, the Commission should consider the

$152,339.57 to fall within the 15 percent of accounting costs

allocated to general operating accounts and not compliance.-

The Audit staff finds the Committee's arguments unpe~suasive for the following reasons. 11 C.F.R. S 100.8(b) (15)

exempts expenses which are solely to ensure compliance with the

Act from the definition of expenditure and expressly exempts such

costs from inclusion in the 11 C.P.R. 5S 9035 and 110.8 spending limits imposed upon federally funded presidential primary election candidates. In addition to these exemptions, the

Commission has recognized that certain types of expenditures may

not be eligible for full limitation exclusion, however, they do

relate to some degree to attempting to ensure compliance with the

Act. In an attempt to relieve committees from burdensome

measurement and allocation procedures, while at the same time

establishing a ceiling for judgmental percentage estimation, the

regulations at 11 C.F.R. S 9035.1(c) provide for a 10' compllance exemption for salaries and for certain expenditures properly classifiable as overhead. This is the only regulatory recognition of any such (partial) allocation method without the

need to keep detailed records on each person's activities. As

noted earlier, though, the Compliance Manual offers, !n

alternative, the 85%/15' compliance-operating allocation method

for the accounting department, but specifically excludes the cost

of Matching Fund Submission preparation. This was the method
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used by the Committee - presumably because it resulted in a

larger compliance cost exclusion. However, while the Committee

availed itself of the percentage exclusion provided for in this

alternative, it chose to ignore the provision regarding Matching Pund Submission preparation. That is, it opted for the

percentages, but not for the method by which they were to be

applied.

In summary, while the Committee questions the

force and effect of the Commission's Compliance Manual, they nonetheless implicitly acknowledge its authority by selecting one

of its alternative allocation methods. As such, the Audit staff

submits that they are bound by its provisions and directions for

application. The treatment of the matching fund preparation function is unmistakably clear in the Compliance Manual. If this

treatment is unacceptable to the Committee, their alternative is

the 10' "across the boardft compliance exemption provided for in

the regulations•

No change in the amount contained in the Interim

Audit Report has been made as a result of the Committee's

response. However, as a result of follow-up audit work

additional amounts have been identified. These amounts represent the matching funds portion of billings which were not available

when the original analysis was performed. These additional

billings were treated in the same manner as those included in the

original analysis. Further, an adjustment was made to the

interim report figures to recognize that bills for computer service paid in 1985 were charged 100' to compliance rather than

85' as had been done previously.

The revised matching fund portion of contribution

processing costs is $162,756.26 or an increase of $10,416.69.

2. Joint Fundraising Expenses

•

Section 9034.8(c) (8) (A) of Title 11 of the Code of

Federal Regulations states that after gross contributions are

allocated among the participants, the fundraising representative shall calculate each participant's share of expenses based on the

percentage of the total receipts that each participant had been

allocated.

. . Section 9034.8(c) (9) of Title 11 of the Code of

Federal Regulations states, in relevant part, that the

fundraisiag representative shall report all receipts in the

reporting period in which they are received and shall report all

disbursements in the reporting period in which they are made •
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The Committee engaged in a joint fundralsing effort with the Democratic National Committee (DNC). Since the

DNC acted as ~he fundraising representative, the Committe. was

not in possesion of the records for the fundraising activity. Purther, the Committee reports contained only the required memo

Schedules A-P for its share of the gross contributions and a

Schedule A-P for amounts transferred in from the DNC. The

Committee was requested to obtain an expense figure from the DNe

for UBe in determining the Committee's compliance with the

overall limitation. The Committee declined to make such a

request but suggested that by netting the amounts received from

the DNe against the amounts shown on the memo Schedules A-P, an

expense figure could be calculated. It was further stated that

all proceeds from the joint fundraising had been received and

reported by December 31, 1984. Employing this method, a figure of $136,884.36 was derived by the Audit staff as the Committee's s~are of the joint fundraising expenses. 9/

As noted in III.B.l. above, the Committee's 20'

fundraising exemption has been exhausted. Therefore, the

Committee's share of the joint fundraising expenses, $136,884.36,

is applied to the overall limitation.

In their November 18, 1985 response, the Committee

agreed that the $136,884.36 in joint fundraising expenses is

allocable to the overall expenditure limitation.

3. Debts and Obligations to be Applied to the Overall

Limitation

•

The Audit staff reviewed amounts owed by the

Committee as of December 31, 1984. In addition to Debts and

Obligations reported on the Committee's Schedule D-P (Debts and

Obligations Excluding Loans), a review was conducted of the

Committee's December 31, 1984 open items file. The Interim Audit

Report noted that debts and obligations totalling $445,658.68

applicable to the overall limitation were identified.

1/ With the exception of the amounts transferred from the DNe,

the information used in determining this cost figure is

unaudited. An audit of the joint fundraising activity will

be conducted in the future and necessary adjustments to the

cost figure made •
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In their November 18, 1985 response, the Committee

Wagrees that $414,633.48 in debts and obligations at December 31,

1984 are allocable to the overall limitation. MPC's allocation

18 based on actual 8ubsequent payments made by the Committee

through September 1985. The Report bases its allocation on the

audit review of committee files which contained 80me duplicate and invalid invoices, thereby inflating the debts and obligations by $31,025.20. The actual amount of allocable debt, as

determined by subsequent payment, was $414,633.48 at December 31,

1984. 8 Although no schedule or summary of the -actual subsequent

paymentsWwas submitted with their response, the Audit staff

conducted a review of the Committee's disclosure reports covering the period January I-September 30, 1985. It was noted that the

Committee disclosed $405,796.75 in operating and fundraising disbursements chargeable to the overall expenditure limitation

during this period. Further review revealed that $'14,633.48 in

operating and fundraising disbursements was included on

worksheets accompanying the disclosure reports but this amount

had been reduced by an $8,836.73 reallocation to Wexempt legal and accounting.- The Audit staff assumes· that the Committee

intended to include $405,796.75 as the amount of debts and

obligations subject to the overall limit as of Decemer 31, 1984

in their resp~nee•

As part of audit follow-up the Audit staff

examined the Committee's disbursements between January 1, 1985

and March 31, 1986. It was determined that the correct amount

chargeable to the overall spending limitation during that period is $418,855.67. The difference between the amount in the

Committee's response to the Interim Audit Report and the audit

figure ($13,058.92) is explained as follows:
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Committee Reported Amount applicable

to the overall spending limitation

January 1 to September 30, 1985

1985 Disbursements Hot Reported

Voided Checks Reported by the

Committee

Disbursements Reported as exempt compliance which should be applied

to the overall spending limitation

Headquarters and State Overhead

exemptions calculated on disbursements not properly included In

Overhead

Corrections to Pundraising Payroll Calculations (Payroll charged

at net rather than gross, employer FICA, and non-payroll items included in the Pundraising payroll compliance exemption)

- _Operating_ E1CpeI14i_~ur_~_~ from the

Committee's First Quarter -198o-aeportAdjusted Amount Applicable to the

Overall Spending Limitation

$405,796.75

1,493.39

(530.58)

4,778.45

5,275.50

1,572.67

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$418,855.67

•

In addition to the amounts discussed above,

the Committee either overlooked or did not elect to address the

amount of refunds owed to several news organizations for

prepayments or overpayments received as a result of having provided air transporation and other services to members of the

press throughout the campaign (see Finding III.B.6.) •
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The Interim Audit Report, at Finding II.C.6.

-Limitation on Expenditures-Accounts Receivable", made note of a

Committee liability in the amount of $30,810.95. This was the

amount carried by the Committee (as adjusted by the auditors) a.

negative accounts receivable. These negative receivables

represented amounts owed to the news organizations resulting from

unused prepayments and overpayments. This amount was included in

the interim audit report's "Debts and Obligations to be Applied

to The Overall Limitation" (Interim Audit Report Finding II.C.].)

and on the "Statement of Net Outstanding Campaign Obligations" as

accounts payable (Interim Audit Report Finding III.B., NOCO

Statement footnote g/). This obligation is being treated as

subject to the overall spending limitation because when the

(pre)payments were received from the news organizations, they

were reported as ·Offsets to Expenditures (Refunds/Rebates) - Operating". This served to artificially reduce operating

expenditures subject to the limitation. A review of 1985

disclosure reports indicates that the Committee reported making $33,894.83 in press refunds through September 30, 1985, however,

these refunds were reported as "Exempt Legal and Accounting Disbursements", which are not subject to the overall limitation.

During follow-up fieldwork the reported refunds were verified and

two adjustments noted. One reported payment for $153.60 was

subsequently voided and a $1,350.70 payment made in 1984 was not

reported. In amended reports filed on April 16, 1986, the

Committee acknowledged both of these items. Therefore, the

corrected amount owed to the press is $35,091.93. With-the

exception of the unreported $1,350.70 noted above, this amount

was paid by the Committee during 1985.

The Final Audit Report includes an amount

chargeable to the overall spending limitation after December 31,

1984 of $453,947.60 ($418,855.67 in vendor payab1es and

$35,091.93 in press payables)~ This amount is shown as Accounts

Payable as of December 31, 1984. However, as noted above,

follow-up audit work has verified that the entire amount has been

paid.

4. Apparent Primary Election Campaign Expenses Paid by_ the General Election Committee

During the audit of the Mondale/Ferraro Committee,

Inc., the Audit staff identified $28,928.02 in expenditures made

by the general election committee which appeared to be related to

the primary campaign. The related documentation indicated that

$28,718.75 was in payment of a Democratic Party official's

expenses for airfare, lodging, meals, etc., all of which were

incurred between May and July, 1984. The remaining $209.27

related to a utility bill covering 5/2-6/30/84. Pursuant to 26
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u.s.c. S 9002(11) (B), the Mondale/Ferraro Committee could incur

qualified campaign expenses prior to the July 18, 1984 date of

nomination only to the extent that such expenses were for

property, services or facilities used during the General Blection

period.

The Interim Audit Report included a statement to

the effect that the Audit staff would treat the $28,928.02 as a

debt owed by the Committee to the Mondaie/Ferraro Committee.

This debt was to be considered allocable to the Committee's

overall spending limitation until documentation supporting a

relationship to the general election campaign was provided. In

their November 18, 1985 response, the Committee concurred with

the reallocation of a $209.27 utilities expense and $2,261.00 In

travel and subsistence expenses from the general election

campaign to the primary election campaign. The Committee

objected to a similar reallocation of $26,457e75 in travel and

subsistence expenses. They note that the subject expenses were

incurred during late June and early July by the eventual general

election campaign chairman. They argue that these expenses were

incurred " ••• after all primaries were over••• " and are properly allocable to the general election campaign pursuant to 11 C.P.R.

S 9003.4(8) which provides for the incurrence of (general election) expenditures prior to the beginning of the expenditure

report period if such expenditures are for w •••services••• to be

used in connection with [the] general election campaign •••• " As

such, they assert that the subject travel and subsistence

expenses relate to the general election campaign because "the

ultimate outcome of the trips was that [the individual] assumed

the role of general election campaign Chairman •••• "

The Audit staff accepts the Committee's

explanation of the relationship of the subject travel and

subsistence expenses to the general election campaign. However,

the Committee provided no explanation of, or summary to support,

which expenditures comprise the $2,261.00 and the $26,451.15

which they view as allocable to the primary and general election

campaigns, respectively. We have reviewed the documentation

supporting these expenditures and have concluded that $24,768.29

in travel and subsistence expenses could reasonably be considered

to have been general election-related. This determination was

based on a review of the apparent dates of incurrence of the

expenses. All expenses incurred after the date of the last

primary election, North Dakota-June 12, 1984, were considered

general election-related.
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Based on the above argument and analysis, the

Audit staff considers $4,159.73 ($3,950.46 in travel ana

subsistence expenses and $209.27 in utilities) to be a debt owed

by the Mandale for President Committee to the Mondaie/F.rraro

Committee, subject to the overall expenditure limitation.

5. Refunds/Rebates

During a review of certain receipt records, it was

noted that the Committee failed to report $43,859.52 in refunds

and rebates. Given that the Committee's reported expenditures subject to the Overall Limitation is used as a base figure in the

limitation calculation, these unreported refunds should be

deducted from the overall limitation figure reported as of

December 31, 1984.

In their response of November 18, 1985, the

Committee agreed that -the $43,859.52 in refunds and rebates

inadvertently omitted from its reports should be deducted from

the overall spending limitation figure.-

With the exception of amounts due from the press,

the Interim Audit Report contained no amounts due the Committee

as of December 31, 1984 which would constitute offsets to

operating expenditures. However, during follow-up fieldwork, it

was noted that the Committee had received refunds and rebates

which offset amounts charged to the overall spending limitation

in the amount of $16,886.99. This amount is net of a 101

compliance exclusion on apparent overhead expenses.

Total offsets to expenditures applicable to the

overall spending limitation are $60,746851.

6. Accounts Receivable

Sections 9034.6(a) and (b) of Title 11 of the Code

of Federal Regulations, in part, considers expenditures for

transportation, ground services, and facilities made available to

media personnel to be qualified campaign expenses subject to the

11 C.F.R. § 9035.1(a) overall expenditure limitation.

Reimbursement for such services is limited to an individual's pro

rata share of the actual cost of the transportation and services

made available, plus an additional 10%. Reimbursements received

may be deducted from the amount of expenditures subject to the

overall limitation to the extent that the reimbursements do not

exceed the amount actually paid by the committee for the services

provided.
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Throughout the campaign, the Committee incurred

qualified campaign expenses for air transportation made available

to Secret Service personnel and for air transportion, ground services, and incidentals for members of the press. The

Committee, in turn, billed the passengers an amount equal to

their pre rata cost plus 10'. The entire amount in accounts

receivable as of December 31, 1984 related to uncollected press

billings for these Committee-provided services.

A review of the Committee's December 31, 1984 Schedule D-P

(Debts and Obligations Owed To The Committee) was conducted in

order to calculate (1) the amount of accounts receivable to be

included on the audited Statement of Net Outstanding Campaign

Obligations and (2) the amount of accounts receivable to be

offset against expenditures subject to the overall limitation.

There was some question, however, regarding both the actual value

of the receivables and the likelihood of their collection.

On January 19, 1985, a member of the Audit staff discussed

the matter of the outstanding press receivables with the

Committee's Assistant Treasurer. The staff was informed that

twelve of the receivables were to be pursued with the remaining items to be written off. A copy of a Committee-prepared listing of these receivables was provided for staff review. The adjusted total of the twelve receivables was $143,089.85.

On January 28, 1985, the Committee presented their final

matching fund submission. This was accompanied by a NOCO

Statement wh~ch did not reflect ant amounts owed to the

Committee. lOt Notes accompanying he NOCO Statement indicated

that the Committee's legal department had advised that the

remaining receivables were being written off after every commercially reasonable effort had been made to collect them.

A copy of a January 24, 1985 Committee Finance Department

memorandum was included which described the collection efforts.

10/ The NOCO Statement showed a Net Deficit of $769,088.50. The

accompanying Matching Fund Submission requested a payment of

$772,126.• 64.
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Finally, on January 31, 1985, the Committee filed

their Year End Report. The Schedule D-P as of December 31, 1984,

after adjustment for differences between the reported amounts and

amounts in the accounts receivable ledger, reflected

$185,775.21 !!I in amounts owed to the Committee.

Due to (1) the uncertainty surrounding the

receivables and (2) to the impact of their exclusion on the

Committee's final matching fund submission (see footnote 10/),

together with the Committee Comptroller/Assistant Treasurer's

earlier statement regarding a decision to pursue certain of the

receivables, the audited NOCO Statement in the Interim Audit

Report reflected the amount of the twelve receivables that were

to have been pursued ($143,089.85). The report included the

recommendation that the Committee provide additional information

regarding the status of these twelve receivables.

Having ascribed a value to the Committee's

accounts receivables, the portion of receivables to be offset

against the overall expenditure limitation was determined.

For purposes of offsetting collections and accounts receivable

against the amount of expenditures subject to the overall

limitation, the amount of the offset is limited to the amount of

the costs incurred by the Committee in providing the service (11

C.F.R. S 9034.6(b». As mentioned earlier, however, the

Committee billed the passengers at pro rata cost plus 10'.

Therefore, in the Interim Audit Report, the Audit staff

calculated that collections as of December 31, 1984 were

$68,105.48 less than cost. The calculation was as follows:

11/ The Schedule D-P for WAmounts Owed to the Committee" also

contained negative amounts totaling, after adjustment, $30,810.95. These represent amounts of overpayments received by the Committee which were to be refunded and are

included in Debts and Obligations to be applied to the

overall limitation in III.B.3. above.
•

1983-84 'r... Collection.

1983-84 secret Service

Billings

'repaid Items to be Refunded

Adjusted Accounts Receivable,

12/31/84

Adjusted Billings

Divide by: Cost Factor

Derived Cost

'"'-J Less:

Press Collections

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'1,574,030.03

423,787.87

(30,810.95)

185,775.21

$2,152,782.16

110'

$1,957,014.69

(1,574,U30.\;31

Secret Service Collections

Prepaid Adjustment

Uncollected Cost $

(345,750.13)

30,810.95

68,105.48

Therefore, in the Interim Audit Report, the Audit staff concluded

that the amount of accounts receivable at December 31, 1984 which

could be offset against the overall expenditure limitation was

limited to $68,105.48. In their November 18, 1985 response, the

Committee stated that it Robjects to the treatment of Press

Receivables in the Report. MPC contends that it should be able

to deduct $263,812.97 in billed press receivables (whether or not

collected) from the overall expenditure limit." Later in their

response, the Committee states:

"The audit report assumes that the 10 percent was

over and above MPC's actual cost. Thus, the

report concludes that only $1,957,074.69 in media

collection and receivables of the $2,152,182.16

billed by MPC to media may be deducted from MPC's

expenditures subject to the limitation. In r.eality,

MPC is entitled to deduct $2,152,782.18 from its

expenditures because that amount represents the

actual cost incurred for tr3nsportation and services,

including all required adminietrative costs. R
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In summary, the Committee's argument is twofold.

First, they argue that the Wactual costft incurred by the

Committee in providing air transportation, ground services, and

incidentals to members of the press and the Secret Service was

$2,152,782.18. They assert that the 10 percent ·surcharge-, which amounted to $195,707.47, was part of this -actual cost".

The Committee provided a narrative description of what was

involved in providing these services, including a brief summary

of various Committee personnel duties, however, no cost

accounting or financial summary of what exactly comprised the

$195,707.47 in Ractual W administrative costs or what percentage of these costs have been charged to the overall limitation was

provided. Second, they argue that the full amount billed to the

members of the press and the Secret Service - regardless of the

amount actually collected - is the amount that should be offset

against the amount of expenditures subject to the overall

spending limitation.

The Audit staff's position is as follows: We do

not dispute that the provision of transportation, ground services

and facilities, and incidentals to members of the press and

Secret Service required a significant utilization of Committee

resources. However, we understand that the Committee billed the

users at 110 percent of the pro rata cost of the transportation, ground services, and incidentals (these amounts were both easily identifiable and the maximum amount allowed by Commission

regulations). At no time were the "administrative costs"

aimilarly accumulated and prorated. Although we appreciate that

this would be both difficult and burdensome to do, it nonetheless

remains that no cost accounting analysis or summary exists to

substantiate that the $195,707.47 in administrative costs billed

was the Committee's "actual· cost. Such an analysis would not

only entail application of cost accumulation and allocation

techniques, but would have to take into consideration the

percentages at which the individual costs were initially charged

to the spending limit, i.e., it is unlikely that there would be a

dollar for dollar reduction. Irrespective of the magnitude of

such an exercise at this time, the Audit staff proposes that in

this case it would serve no meaningful purpose for the reasons

given below.
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The Commission's regulations at 11 C.P.R. S 9034.6

are the relevant source of authority pertaining to reimbursements

for transportation and services made available to media personnel

and members of the Secret Service. It views expenditures in

connection with providing transportation, ground services and

facilities to these individuals as qualified campaign expenses. It sets the guideline for determining the amount that the

passengers may be billed in situations where a committee seeks

reimbursement for such expenditures. 11 C.F.R. 5 9034,6(b)

concludes that "reimbursements received ••• may be deducted from

the amount of expenditures that are subject to the overall

expenditure limitation••• except to the extent [they] exceed the

amount actually paid by the committee for the services provided"

(emphasis added). It is the clear intent of this regulation that

only the amounts which the Committee actually coliects from the

passengers may be deducted from the amount of expenditures subject to the overall spending limitation. with all due

consideration of the Committee's efforts to collect their past

due accounts, "reimbursements received" cannot be construed to

include uncollectible or written-off accounts receivable. In

their response, the Committee states that "after extensive

efforts to collect [press accounts receivable written-off by the

Committee], the decision was made in January to consider such

debts as uncollectible."

The Committee's reports for the period January 1

to September 30, 1985, include collections from members of the

press totalling $8,561.38. However, during follow-up fieldwork

it was determined that collections from January 1, 1985 to March

31, 1986 totaled $8,848.15. Given this information and assuming

that the Committee will realize no turther amounts due from these

debtors, the Committee has not recovered the $1,957,074.69 in

direct transportation, services, and facilities costs calculated

above. Rather, as is shown below, collections have fallen

$63,538.31 short of direct costs.

8,848.15

Derived Direct Costs

Less:

Collections through 12/31/84:

Press $1,574,030.03

Secret Service 345,750.13

Prepaid Adjustment (35,091.93)

Collections 1/1/85 to

3/31/86

$1,957,074.69

(1,893,536.38)

Difference $
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Therefore, for purposes of inclusion in the Pinal

Audit Report, the amount of the reduction to the expenditures subject to limitation at December 31, 1984 for the -Accounts

Receivable - Air Charters (at 12/31/84)" category will be

$8,848.15. This is the amount of reimbursements received

subsequent to December 31, 1984, and, as such, renders any accounting of the Committee's "actual" administrative costs moot.

The audited NOCO Statement (Section III.C.3.) has

been revised to include as accounts receivable only those amounts

actually collected between September 1, 1984 and March 31, 1986.

If additional amounts are subsequently collected, adjustments will be made in an addendum to the Final Audit Report.

7. Committee Adjustment to Expenditures

Subject to the Overall Expenditure Limitation

Footnote 10 to the Interim Audit Report took note of a

downward adjustment to expenditures subject to the overall

limitation included in the Committee's April 15, 1985 Quarterly

Report. The adjustment was $507,526.43 and was shown as a

reduction to prior years' fundraising disbursements but was not

explained further. The Interim Audit Report did not consider

this adjustment.

In their ~eSDonse to the Interim Audit Report, the

Committee explained th~ adjustm~nt as follows:

ftMPC has reduced its limit spending as of

December 31, 1984, by $507,526.43, by allocating

that portion of fundraising costs attributable to

compliance costs to complianceG The FEe regulations

do not state how these costs are to be allocated in

the primary, and this allocation is consistent with

treatment of compliance fundraising costs in the

general election which must be allocated to compliance.

11 CFR Section 9004.4(b) (5).

"The calculation method used insures that only the

costs of raising private contributions spent on

compliance are reallocated, since MPC's mixed pool

of public funds and private contributions were

'used to defray these costs. However, it should

be noted that over $7,000,000 of MPC's private

contributions were never submitted for matching

funds. This $7,000,000 is substantially in

excess of the entire $2,518,741.57 spent on

compliance. Thus, MPC could have defrayed all

compliance costs with private contributions . that were never matched had these been segregated."
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With respect to the Committee's reallocation of

$507,526.43 in fundraising expenses to exempt legal and

accounting, the Audit staff offers the following comments.

First, Section 100.8(b) (21) (i) of Title 11 of the Code

of Pederal Regulations states that the term expenditure does not

include costs incurred by an authorized committee or candidate in

connection with the solicitation of contributions on behalf of

such candidate if incurred by a candidate who has been certified

to receive Presidential Primary Matching Funds. This section

also states that this clause shall not apply with respect to

costs incurred by an authorized committee of a candidate in

excess of an amount equal to 20 percent of the expenditure limitation applicable to such candidate under 2 U.S.C. S 441a(b)e

In addition, 11 C.F.R. S lOO.8(b) (15) states that expenditures

for legal and accounting services made by a candidate certified

to receive Primary Matching Funds if solely to ensure compliance

with the Act or 26 U~S.C. 9032 et seq. do not count against such

candidates expenditure limitation under 11 C.F.R. S 9035.

The 20 percent fundraising exemption is provided to

give campaigns an additional sum to pay the cost of soliciting contributions for all purposes. No separate exemption is

provided for the cost of solitieing contributions to defray legal

and accounting costs. Further, those expenditures which may be

excluded from the expenditure limitation as legal and accounting

costs must be "solely to ensure compliance." Fundraising costs

are neither legal and accounting costs nor solely to ensure

compliance.

Second, the Committee cites a general election

regulation (11 C.F.R. S 9004.4(b) (5» to justify the

reallocation, stating that in the general election compliance

fundraising costs "must be allocated to compliance." The cited

regulation does not classify the cost uf soliciting co~tri~uticns

as a legal and accounting cost to ensure compliance. Rather, it

prohibits the payment of expenses associated with the

solicitation of contributions to a separate legal and accounting

fund from monies received pursuant to 11 C.F.R. § 9005.

Therefore, the general election is not comparable to the primary

election campaign. In a publicly financed general election

campaign, qualified campaign expenses are financed 100% by

Federal funds. There is no need for fundraising, except to

defray any legal and accounting costs to ensure compliance not

paid with public funds. Although a separate fund is required for

such compliance costs and public funds may not be used to solicit

contributions to the compliance fund, the cost of raising money

for such purposes in the general election is not considered a

legal and accounting cost solely to ensure compliance. 11 C.F.R.

§ 9003.3(a) (2) (i) lists the purposes for which compliance fund
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monies may be used. In addition to legal and accounting costs to

ensure compliance, such funds may be u8ed for civil and criminal

penalties, repayments to the U.S. Treasury, loans to the

campaign's general fund before the receipt of the pUblic fund

grant, and the solicitation of contributions to the compliance fund. Though these are permissible uses of compliance fund

monies, they are considered legar-ind accounting expenditures solely to ensure compliance. In the primary campaign all

expenditures are considered to have been made from a mixed pool of private and public fundso In addition to qualified campaign

expenses, this pool of funds is used to pay legal and accounting

costs to ensure compliance and the costs of soliciting funds.

Therefore, attempting to draw an analogy between the primary and

general election campaigns is not valid. Further, given that all

expenses paid by a primary campaign are paid from a mixed pool of

private and pUblic funds, the amount of private funds raised in

relation to matching funds received, or whether or not certain

funds are segregated from the campaign's other monies has no

effect on how these disbursements are charged to the expenditure limitation.

Finally, the Commission's Financial Control and

Compliance Manual states on page 1-19 that "Legal and accounting

expenses incurred solely for the purpose of ensuring compliance

with the Act do not count against the overall campaign or State

expenditure limitation••• The costs of raising funds to defray

exempt legal and accounting expenses are not considered to be

legal and accounting expenses and accordingly may be viewed as

fundraising expenses and applied toward the 20% fundraising exemption."

Conclusion

On September 11, 1986, the Commission rejected the

Committee's reallocation of $507,526.43 from fundraising to

exempt legal and accounting.

8. Expenditures Subject to Overall Limitation - RecaE

The following is a recap of the Committee's

expenditures subject to the overall limitation.
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Deduct:

Bxpenditures subject to the limitation

at December 31, 1984 as adjusted

Add: III.B.l. Pundraising Expenses

Ill.B.2 Joint Fundraising Expenses

III.B.3. Debts and Obligations

III.B.4. Apparent Primary-Related

Expenses Paid by the

General Election Committee

III.B.S. Refunds/Rebates

III.B.6. Accounts Receivable-Air

Charters

Total

c· Less 2 u.s.c. S 441a(b) (1) (A) ~. Spending Limitation

~otal Expenditures in - Excess of Limitation

$20,090,751.15 11/

162,756.26

136,884.36

453,947.60

4,159.73

(60,746.51)

(8,848.15)

$20,778,904.44 13/

20,200,000.00

$ 578,904.44

r--.

""l,. 12/

~.

This amount is the figure reported by the Committee at December 31,

1984 ($20,047,673.22) less a $5,092.69 error made by the Committee on

the 1984 Year End Report related to the calculation of the compliance o~erhead exemption1 plus a $56,383.00 fundraising disbursement which

was not reported by the Committee; less ($8,212.38) in voided checks

which were included in the Committee's reports. On April 16, 1986,

the Committee filed amended reports acknowledging the unreported

expenditure and the rep~rted voided checks.

In addition, it should be noted that this amount does not reflect the

reallocation of prior years' fundraising disbursements to exempt legal and accounting as was included in the Committee's April 15, 1985

Quarterly ~eport. See Section III.B.7&

13/ This amount does not contain expenditures made by any Mondale delegate

committee. Those expenditures are addressed in the Conciliation

Agreement for MUR 1704.
'.

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-44-

Conclusion

The Audit staff concludes that the Committee has exceeded

the 2 U.S.C. S 441a(b) (1) (A) expenditure limitation by $578,904.44.

For the Commission's initial repayment determination with

respect to these expenditures, see the discussion at section III.

B.

c. Determination of Net Outstanding Campaign Obligations

Section 9034.5(a) of Title 11 of the Code of Federal

Regulations requires that the candidate submit a Statement of Net

Outstanding Campaign Obligations within 15 calendar days after

the candidate's date of ineligibility, which discloses, among

other items, the total of all outstanding obligations for

qualified campaign expenses and an estimate of the necessary

winding down costs.

Section 9034.5(d) of Title 11 of the Code of Federal

Regulations requires the candidate to submit a revised NOCO

Statement with each submission for matching fund payments filed

after the candidate's date of ineligibility.

1. Valuation of Committee Artwork

Sections 9034.5(a) (2) (ii) and (b) (2) of Title 11

of the Code of Federal Regulations state, in relevant part, that

the candidate's Statement of Net Outstanding Campaign Obligations should include the fair market value of capital assets and other

assets on hand. Other assets include any property acquired by the campaign for use in raising funds or as collateral for

campaign loans. These other assets must be included at their

fair market value on the candidate's date of ineligibility, or

the date on which the item is acquired if acquired after the date

of ineligibility, if the aggregate value of such assets exceeds

$5,000.00.

Section 9034.9(b) of Title 11 of the Code of

Federal Regulations states that a candidate whose outstanding debts exceed his cash on hand after the end of the matching

payment period may dispose of assets acquired for fundraising

purposes in a sale to a wholesaler or other intermediary who will

in turn sell such assets to the public, provided that the sale to

the wholesaler or intermediary is an arms-length transaction.

Sales made under this subsection will not be subject to the

limitations and prohibitions of the Act.
•

c

•

....

-45-

The Committee received donations of art work from

four American artists. A total of 420 prints of three works and w. selection of unique signed working artist proofs at varlous

stages of completion· of the fourth work were used for

fundraising purposes. A memorandum provided by the Committee

included a valuation of $1,000.00 each for two of the three sets

of prints and $1,500.00 for the third. No 'valuation of the

Wartists proofs· was provided. When the Committee presented their final matching fund submission, the accompanying NOCO

Statement (dated January 28, 1985) did not contain any valuation

of the artwork. Acompanying that NOCO Statement was a letter

which stated:

·Your auditors have requested information concerning the disposition of artwork previously reported as an

asset on the Committee's NOCO statement. The Committee

originally acquired ~is art for use as a fundraising device. The Committee's efforts to sell the art were

not totally successful. Because of its failure as a

fundraising device, the Committee decided during 1984 to

distribute the art by giving it to individuals who had

previously contributed to the campaign. The artwork

was transferred prior to year end 1984 to Art Transport which is responsible for delivering the artwork in

accordance with the Committee's instructions. Therefore,

the artwork is no longer an asset of the Committee and

is not reflected on the NOCO.-

At the exit conference held on February 22, 1985,

and on one previous occasion, the Audit staff requested more

detailed information concerning the artwork. At the exit

conference, the Committee informed the staff that if further

information is required, it should be requested in the Interim

Audit Report.

Since the Audit staff was unable to verify the

value of the artwork on the date of ineligibility with the

information available, a review of the various NOCO Statements

filed by the Committee was conducted. These NOCO Statements

contained values ranging from $149,000.00 to $244,000.00. The

latest NOCO statement on which the artwork was carried as an

asset was dated November 28, 1984. That valuation was

$244,000.00 and was footnoted as follows: "Artwork at estimated

FMV-This estimate will be adjusted to actual sales prices when

sale begins. ft It was this value ($244,000.00) that was included

on the NOCO statement presented in the Interim Audit Report.
•

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•

....

.

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The Interim Audit Report requested that the

Committee provide the following specific information with regard

to ·Other Assets· so that a proper valuation could be made.

1. Inventory of all ·Other Assets· on hand on the

candidate's date of ineligibility,

2. The valuation of the inventory in 1. above, to include

copies of any appraisals other than that discussed above,

3. All acquisitions of additional artwork and any other

item meeting the definition of ·Other Asset" made between the

candidate's date of ineligibility and 30 days from the date on

which the Committee receives this report;

4. An accounting of all Other Assets dispos~d of, along

with the amount realized from the disposal, for each item in the

inventories provided in response to 1. and 3. above. This should

include all disposals between the candidate's date of

ineligibility and 30 days from the receipt of this report,

5. An inventory of all Other Assets on hand as of 30 days

from the receipt of this report along with the valuation of each

item:

6. A description o~, and any supporting documentation for,

any attempts to sell Other Assets pursuant to 11 C.F.R.

·9034.9(b): and

7. Any other information which the Committee believes

pertinent to the valuation of these items for NOCO Statement

purposes.

In the response to the Interim Audit Report, the

following arguments were presented:

"Mr. Duane Garrett, ~ational Co-chairman

of the Mondale for President Committee, was

responsible for liquidating all MPC debts.

The artwcrk fundraising was part of this

process and Mr. Garrett was in charge of

the program.
'.

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-Four artists volunteered their services

and created proofs from which MPC made 420

prints. MPC paid for the cost of producing these prints and used them as fundrai8ing devices. The artists who volunteered their

services did 80 on the specific under.tanding that MPC would not dispose of the prints in

any type of bulk sale. They were concerned

that they be protected against sucha sale

and wished the prints to be sold only on an

individual basis.

-The prints and some of the proofs were

offered to contributors in return fora

$1,000 contribution, but because many of

the prints did not sell, Mr. Garrett offered

them for as little as $250 or $100 contributions.

While almost 300 of the prints were disposed of through this fundraising program, MPC was

left with about 125 prints. The total amount

of contributions raised in return for the

artwork was approximately $100,000, which more

than covered MPC's cost in producing the prints•

RMPC continued to show the artwork as

an asset on its NOCO statement, in late

1984 because, at that point, the Committee

was still attempting to dispose of the

prints through its fundraising program. However, by year-end 1984, it became

obvious that no further contributions

would be raised on the basis of the printso Mr. Garrett contacted at least six art

dealers who told him that there was no

commercial market for the remaining prints either through bulk or individual

sale. MPC subsequently gave the remaining prints away to previous contributors and

to staff. This was done through Art

Transport which sent the prints to

individuals whose names and addresses

were provided by MPC. Because MPC no

longer had any of the artwork in its

possession, it was not included as an

asset on the January 28, 1985 NOCO.
•

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WMPC's treatment of its artwork on thl.

final NOCO was completely In accord with

PEe regulations. 11 erR Section 9034.5

(a' (2) (ii) requiresa committee to 118t

the fair market value of its ·capital assets" and of its ·other assets· on

on its NOCO statement. As properly acquired for fundraising purposes, the

art prints would have to be listed as

an asset only 1f their aggregate fair

market value exceeded $5,000 under 11

CFRS 9034.5(b) (2). Since MPC was not

in possession of this artwork on January 18, 1985, it could not possibly be

considered an asset. Moreover, the

regulations speak in terms of wfair

market value." When MPC's efforts to

dispose of prints in return for

contributions became unsuccessful, the

prints at that point had no commercial

value.

-11 CFRS 9054.9(b) permits candidates

whose outstanding debts exceed cash on

hand after the end of the matching payment period to make an "arms length- sale of

assets acquired for fundraising toa

wholesaler or intermediary who then may sell those assets to the public without

regard to the Act's limitations or

prohibitions. This section would have

permitted MPC to sell its prints in bulk

toa wholesale art dealer. However,

while the regulations permits sucha

bulk sale, it does not requirea

committee to make that type of sale.

MPC decided not to sell its prints in

bulk because the proofs were obtained

on the understanding with the artists

that no bulk sales would occur and

because Mr. Garrett was informed that

there was no market even for bulk sale

of the remaining prints."
•

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The Committee cites 11 C.P.R. S 9034.5(8)(2)(11)

in arguing that since the artwork was no longer ·on handw it was

no longer an asset. While they emphasize the words ·on band- in

their interpretation of this regulation, they fail to recognize that the point in time for establishing possession and valuation

is the candidate's date of ineligibility. Ineligibility date · values may, of course, be adjusted if subsequent experience

proves the Fair Market Value of the assets to have been

misstated. The Committee argues that the artwork had no value

but provides no documentation to support that argument.

Further, the Commission does not suggest that 11

C.F.R. S 9034.9(b) requires a candidate to sell Other Assets in a

bulk transaction to a wholesaler. Rather, that option is

provided to assist a committee in liquidating its debts.

Regardless, the assets are required to appear on the NOCO

Statement at their Fair Market Value as of the date of

ineligibility, whether the committee chooses to take advantage of

this option or not. If committees were permitted to delete

assets from a NOCO Statement because they choose, for whatever

reason, not to liquidate those assets, they could artifically increase their Net Outstanding Campaign Obligations and hence the

amount of Presidential Primary Matching Funds that they are

potentially entitled to receive.

The Audit staff acknowledges that the valuation of

the Committee's artwork contained in the Interim Audit Report likely exceeds its Fair Market Value on the Candidate's date of

ineligibility. However, given that the Committee has, on several

occasions, declined to provide sufficient information to permit

an alternative valuation, the Audit staff has little choice but

to continue to use the most recent valuation placed on these

assets by the Committee. It should be emphasized that the Audit

staff is of the opinion that the issue is one of valuation, not

possession.

At its meeting of September 11, 1986, the

Commission considered the valuation of Committee artwork. Two

motions were offered. The first to allow the Committee's

valuation of $-0-, and the other to maintain the Interim Audit

Report valuation of $244,000.00 until such time as a documented

alternative valuation was supplied. Both motions failed to

receive a majority vote. As a result, the artwork has been

dropped from the NOCO Statement.
2.

, .I

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Accounts Payable for Qualified Campaign Bxpenses

Section 9033(c) (2) of Title 26 of the United

States Code states that any candidate who is eligible (under 26

U.S.C. S 9033(c) (1» to receive payments under section 9037 shall

be eligible to continue to receive payments to defray qualified

campaign expenses incurred before the date upon which such

candidate becomes ineligible.

Section 9033.5 of Title 11 of the Code of Pederal

Regulations provides that a candidate may receive matching

payments after the date of ineligibility, only if, and to the

extent that, he or she has net outstanding campaign obligations

(NOCO). Section 9034.5 of Title 11 of the Code of Federal

Regulations, in general, defines a candidate's NOCO at a given

point in time as: (total obligations for qualified campaign

expenses + estimated winding down costs) less (cash on hand +

market value of assets + amounts owed to the campaign, i.e.,

credits, refunds of deposits, rebates, etc.) net outstanding campaign obligations.

In the Interim Audit Report, the Audit staff

concluded that the Committee exceeded the state expenditure limitations by a total of $337,920.84 and the overall spending limitation by $494,426.16. These determinations were made by analyzing the Committee's expenditures made through December 31,

1984 which were allocable to these states' and/or the overall

limitation and by adding to these totals the accounts payable relative to the respective limits as of December 31, 1984.

The NOCO Statement presented in the Interim Audit

Report was as of August 31, 1984 but reflected actual receipts and disbursements through December 31, 1984. The Committee's

accounts payable as of August 31, 1984 were divided into two

categories under the NOCO Statement's Liabilities section: (1)

Accounts Payable for Qualified Campaign Expenses at December 31,

1984 and (2) Disbursements for Qualified Campaign Expenses and

Winding Down Costs, September 1 through December 31, 1984. To

assure that only accounts payable for qualified campaign expenses

were included on the NOCO statement, adjustments to the above

categories were required. Accounts payable at August 31, 1984

which relate to non-qualified campaign expenses paid subsequent

to the date of the NOCO statement and non-qualified campaign

expenses remaining unpaid as of December 31, 1984 were excludedo

A separate adjustment was made for those non-qualified campaign

expenses made after the date of ineligibility (July 18, 1984) through the date of the NOCO Statement (August 31, 1984).
••

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A calculation was included which demonstrated the

derivation of the $294,609.36 adjustment to the August 31, 1984

HOCO Statement. This amount was explained as follows:

1. $8,734.93 in non-qualified campaign expenses made between

7/19-8/31/84 was included as an asset on the August 31, 1984

NOCO statement.

2. $104,979.97 was deducted from disbursements for qualified campaign expenses and winding down costs, 9/1-12/31/84 and

so footnoted.

3. $180,894.46, representing accounts payable which would be in

excess of the state or overall expenditure limitations when

paid, was excluded from accounts payable for qualified campaign expenses at December 31, 1984 and so footnoted.

As a result of information provided in the

Committee's response to the Interim Audit Report and follow-up audit work conducted subsequent to the Committee's response, the

amounts by which the Committee exceeded the state and overall

expenditure limitations have been revised. The revised totals

are $300,980.30 in excess of the state spending limitations

($147,363.82 in Iowa, $25,283.50 in Maine and $128,332.98 in New

Hampshire) and $578,904.44 in excess of the overall limitation.

(See Finding III.A. and B. above.) Therefore, the amount of the

adjustment to the August 31, 1984 NOCO Statement has likewise

been revised. The calculation shown below explains the

composition of the amounts in excess of the state and the overall

limitations and the calculation of the related NOCO Statement

adjustments. This calculation follows that contained in the

Interim Audit Report, but utilizes the revised amounts in excess

of the limitations.
• -52-

State Overall

Limitation Limitation t·

1. Expenses In Excess of the

Limitation Paid on or Before

the Date of Ineligibility

(7/18/84) $182,164.89

$ -0-

2. Expenses Paid 7/19-

8/31/84 8,734.93 -0-

3. Expenses Paid 9/1/84 to

3/31/86 110

6 080.48 578,904.44

4. Accounts Payable at

3/31/86 -0- -0-

"- 5. Non-qualified Campaign $300,980.30 $578,904.44

fr Expenses in Excess of

the Limitation

c"

6. Less: Non-qualified ":.)1- Campaign Expenses in • excess of the lA, ME,

and NH limits not

allocable to the

26 u.s.c.S 9035(a) limitation (300,980.30)

I'.. 7. Less: Non-qualified "..- campaign expenses in

lA, ME, and NH paid -~,-- prior to 7/19/84 (and

therefore do not require a NOCO Statement

adjustment) (182,164.89)

8. Non-Oualified Campaign

Expenses as Adjusted for

NOCO Statement Exclusion $118,815.41 $277,924.14

(Total lines2 and3

above)
'. -53-

The netting of amounts in excess of the State

Limitations against amounts charged to the Overall Limitation

assures that non-qualified campaign expenses resulting from

exceeding the State LImItations do not charge to the 26 U.S.C. S

9035(8) overall limitations on qualified campaign expenses. Accordingly, the amount on line 5 of the State Limitation colun.n

on the above chart, which includes all amounts in excess of the

State expenditure limitations, regardless of when paid, is

deducted from expenditures charged to the Overall Limitation.

Also, by excluding the amounts shown on line 3 of the State

Limitation column and line 8 of the Overall Limitation column of

the above chart from NOCO Statement accounts payable and

including the amount on line 2 of the State Limitation column as

a NOCO asset, only payables for qualified campaign expenses form

the basis for post-ineligibility entitlemente Pinally, the

netting of amounts in excess of the State Limitations against

amounts charged to the Overall Limitation precludes any

possibility of duplication in reductions from the NaCO Statement

for non-qualified accounts payable related to both the States'

and Overall Limitation.

The actual adjustments to the August 31, 1984 NOCO

Statement, after considering the Committee's response to the

Interim Audit Report and the results of follow-up fieldwork, are

as follows:

1. $8,734.9) in non-qualified campaign expenses

made 7/19-8/31/84 has been included as the asset "Non-Qualified

Campaign Expenses Paid 7/19-8/31/84" on the NaCO Statement and so

footnoted.

2. $388,004.62 ($277,924.14 adjusted amount in

excess of the Overall Limitation and $110,080.48 in excess of the

State Limitation paid 9/1/84 to 3/31/86) in non-qualified

campaign expenses made 9/1/84-3/31/86 has been deducted from

"Disbursements for Oualified Campaign Expenses and Winding Down

Costs 9/1/84-3/31/86" and so footnoted.

In their response to the Interim Audit Report, the

Committee puts forth five separate arguments as to why the

Commission should not make these adjustments to the Committee's

accounts payable for NOCO Statement purposes, and therefore,

should not require a repayment pursuant to 11 C.F.R. S

9038.2(b) (1). Each of the Committee's arguments is discussed

below.
1.

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-The report subtracts from MPC's entitlement

the full amount of those expenditures which

they allege are over the limit. The effect

of this 1s to penalize the committee !22

percent for non-qualified expenditures Which

were made with only 33 percent matching funds. This method was declared unlawful

by the D.C. Circuit Court in the Kennedy

decision.-

The court, in the case cited by the Committee, was

addressing the Commission's formula for repayment of nonqualified campaign expenses made during the active campaign under

11 C.F.R. S 9038.2(b) (2). That case did not present the issue of

candidates' entitlement to additional public funds subsequent to

their ineligibility dates. As noted above, it is 26 U.S.C. S

9033(c) that places a limit on post-ineligibility matching fund

payments. That section states that post-ineligibility matching fund payments may not exceed the amount owed for qualified

campaign expenses incurred before the date of ineligibility. Therefore, establishing a candidate's entitlement in accordance

with the limitation contained in the Presidential Primary Matching Payment Account Act and the recovery of payments made in

excess of that amount does not represent a repayment of nonqualified campaign expenses, 100% or otherwise. Rather, it

represents the recovery of amounts to which the candidate was not

entitled.

2. "Most of the expenditures in excess of the

limits were incurred before the date of

ineligibility-and should be subject to a

ratio repayment just as other non-qualified campaign expenses (e.g. undocumented

expenditures) are. The interim report, however, takes the position that to

determine whether an expenditure is

nonqualified, the operative date is when

the excessive expenditures are eai1 and

not when they are incurred. ThIS S

incorrect. Expenditures paid after the

date of ineligibility may have been

perfectly lawful when incurred. Under the

statute, an expenditure occurs at the time

'of a promise or agreement to make the

expenditure, and candidates are prohibited

from incurr.!rt9. expenditures over the limit.
i' .

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2 U.S.C. S 431(9) (A) (ii)J 26 U.S.C. Section

9035. Thus, the only expenditures which might possibly be deducted from MPC's entitlement

would be those which were incurred after the

date of ineligibility and which were nonqualified when they were incurred. The only expenditures incurred by MPC after the date

of ineli9i~ility were for winding down costs

or fundraising costs to retire debt. Thus,

the expenditures which put MPC over the limit

were incurred prior to the date of ineligibility, and there is no basis for subtracting them from

MPC's entitlement. The approach taken in the

Report creates an enormous repayment for MPC's

excessive expenditures. These expenditures should simply be subjected to a standard ratio

repayment under Section 9038(b) (2).-

The Committee is correct when it notes that the

Interim Audit Report applies disbursements to the various

expenditure limitations in the order in which they are paid. This procedure is consistent with the reporting requirements in 2

U.S.C. S 434 and 11 C.P.R. S l06.2(d). For reporting and

repayment purposes, amounts are applied to the various

limitations when paid (FEe Form 3P, pp.3-4). Committees are not

required to make adjustments to reported amounts subject to

spending limitations for amounts incurred but not paid and such

amounts may not be used as a basis for a repayment pursuant to 11

C.F.R. § 9038.2{b) (2). Further, committees are not required to

record the date on which an obligation was incurred. Rather, 11

C.F.R. S l02.9(b) (1) states that wan account shall be kept of all

disbursements made by or on behalf of the political committee.

Such account shall consist of a record of:

(i) the name and address of every person to whom any

disbursement is made:

(ii) the date, amount, and purpose of the disbursement:

and •••• 111

Therefore, in many cases, the use of the date of

incurrence in determining when an expenditure limitation was

exceeded is not possible.
• 3.

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-In the Kennedy case, the court concluded

that the funds of a presidential primary

candidate committee must be considered a

mixed pool of matching payments and

contributions, wherein a public dollar

cannot be identified and segregated from a

private dollar. The Report, in reducing

MPC's entitlement by 100 percent for every non-qualified campaign expense paid after

ineligibility, in essence treats those

payments made for non-qualified campaign

expenses as coming SOlelI from federal

funds. This conclusions premised on the

theory that after ineligibility, it is

possible to identify which particular bills

were paid with federal funds and which were

paid with private dollars$ Such a theory

flies in the face of the Kennedy decision

and is contrary to standard accounting

practices.-

As explained with respect to item 1. above, the

Kennedy case did not address the calculation of a candidate's

post-ineligibility entitlement to matching funds and is,

therefore, not relevant to this situation. Further, the deletion

of accounts payable which are for non-qualified campaign expenses

from the Committee's NOCO Statement pursuant to 26 U.S.C. , 9033(0) (2) makes no assumptions relative to which funds are used

to pay such expenses or whether such expenses are ever paid. It

simply limits the candidate's entitlement to amounts required -to

defray qualified campaign expenses incurred before the date upon

which such candidate becomes ineligible."

4. ft26 u.s.c. Section 9038(b) (1), by its explicit

terms, allows the Commission to recover 100

percent repayments for payments in excess of

entitlement only in two situations: (1) where

a candidate received more than his or her

$10,100,000 in 1984 (MPC has received to date

only $9,494,920.93): or (2) where non-matchable

contributions were mistakenly matched by the

Commission. Neither situation applies in the

case of MPC. Rather, the auditors are trying

·to use the entitlement concept to recoup a 100

percent repayment even after the Kennedy decision."
5.

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Section 9038.2(b) (1) (1) of Title 11 of the Code of

Pederal Regulations (Bases for repayment - Payments In excess of

candidate's entitlement) states that a repayment of amount.

received by • candidate in excess of his entitlement is required when payments were made to the candidate after the candidate's

date of ineligibility and it is later determined that the

candidate had no net outstanding campaign obligations as defined

in 11 C.P.R. S 9034.5.

The Committee's argument on this point constitutes

an assault on the validity of the Commission's regulations governing post-ineligibility entitlement.

The deletion of accounts payable for non-qualified

campaign expenses from the Committee's NOCO Statement and the

repayment calculated at III.D. are in accord with this

regulation. Here again, the Kennedy decision is not relevant to

this repayment situation since it does not represent a recovery of the public funds portion of non-qualified campaign expensese Instead, it represents an entitlement determination pursuant to

26 U.S.C. S 9033(c) (2).

Wlf MPC had received all of its private

contributions prior to the date of ineligibility

and had those contributions been matched before

that date, it is clear that all expenditures made

for non-qualified campaign expenses, regardless of

when paid, would be subject only to a ratio repayment. Under the theory used in the Report, those same

expenditures are subjected to 100 percent repayment merely because they are being paid from contributions

which were received and matched after the date of

ineligibility. There is no rational basis for such

an approach. Moreover, this approach will

result in grave inequity of treatment of

candidates based on the timing of their

fundraising. 8I

The Committee's final point addresses a

hypothetical situation where all matching funds had been received

prior to the Candidate's date of ineligibility. Assuming such a

situation, the Candidate's maximum entitlement would be equal to

the amount payable for qualified campaign e~penses incurred prior

to the Candidate's date of ineligibility, plus winding down

costs, less cash on hand and assets. This is the same formula

used to determine the Committee's maximum entitlement in the

Interim Audit Report. The result would be either a surplus on

the date of ineligibility requiring a repayment pursuant to 26

U.S.C. S 9038(b) (3), or a remaining entitlement equal to the net

deficit calculated. In either case, payables for non-qualified

campaign expenses would be excluded from the calculation.
i •

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•

-58-

Obviously, if the candidate had remaining entitlement and raised

no further contributions or chose not to make any further

matching fund requests, a repayment resulting from the receipt of

.atching funds in excess of the candidate's post ineligibility entitlement would not be possible.

The Audit staff acknowledges that the entitlement

to matching funds is determined differently before and after the

candidate's date of ineligibility. Before the date of

ineligibility, 26 U.S.C. S 9034 places only two limitations on

entitlement: (1) SO, of the expenditure limitation at 2 U.S.C. S

441a(b) (1) (A) and, (2) the amount of matchable contributions

which the candidate can obtain. After the date of ineligibility,

26 U.S.C. S 9033(0) (2) adds the amount of qualified campaign

expenses yet to be paid to the other limitations on entitlement.

It is the latter limitation that, in this case, results in a NOCO

Statement adjustment and a repayment pursuant to 26 u.s.c. 5

9038 (b) (1) •

For the reasons stated above, except for the

adjustments required by the revisions to the amounts charged to

the expenditure limitations in Sections III.A. and B. above, no

changes to the amount of accounts payable deleted from the

Committee's NOCO Statement have been made•

3. Statement of Net Outstanding Campaign

Obligations

Sections 9033.5(c) and 903206(a) of Title 11 of the

Code of Federal Regulations defines the date of ineligibility for

a candidate seeking the nomination of a party which nominates its

Presidential candidate at a national convention as the date of

such nomination.

On July 18, 1984, Honorable Walter F. Mondale was

nominated as the Democratic Party's presidential candidate at its

national convention. Therefore, that is the date on which Mr.

Mondale's candidacy terminated for the purpose of incurring qualified campaign expenses.

The Committee submitted its original NOCO Statement on

August 6, 1984 and continued to submit updated NOCO Statements

with each matching fund submission. The Audit staff reviewed the

NOCO Statement dated August 31, 1984. This was the most recent

revision available at the time of the initial review. This NOCO

Statement was revised to reflect actual receipt and disbursement

activity between September 1 and December 31, 1984. Accounts

payable, accounts receivable, and estimated winding down costs

were also determined using data available at December 31, 1984.
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The NOCO Statement included in the Interim Audit Report reflected

Total Assets of $1,118,245.86 and Total Liabilities of

$4,546,085.45, resulting in Net Outstanding Campaign Obligations

of $3,427,839.59.

In their response of November 18, 1985, the committee

expressed disagreement with the Audit staff's determination of

the amount of Net Outstanding Campaign Obligations as of December

31, 1984. The Committee cited four areas in which they objected

to either the methodology applied by the auditors or to the

calculation of the amounts to be included on the NOCO Statement.

The Audit staff offers the following comments on the Committee's

objections.

The Committee objects to the Audit staff's inclusion of

$244,000 in artwork as an asset on the NOCO Statement. This

issue is discussed at length in Section III.C.l.

The Commit~ee objects to a $294,609.36 (revised to

$396,739.55 in this report) reduction to liabilities which

represents accounts payable related to non-qualified campaign

expenses paid subsequent to the Candidate's date of

ineligibility. This adjustment is discussed at length in Section

III.C.2.

The Committee states that the accounts receivable

carried on the NOCO Statement are 9ros~ly overstated. The Audit

staff included accounts receivable of $256,079.07 on the NOCO

Statement. This was comprised of $112,989.22 in receivables

actually collected between September 1 and December 31, 1984 and

$143 6 089.85 in receivables outstanding as of December 31, 1984.

As discussed in Section III.B.6., the $143,089.85 was included on

the NOCO Statement because the Committee's Comptroller/Assistant

Treasurer had advised a member of the Audit staff that the

Committee was going to pursue collection of receivables in this

amount. However, a NOCO Statement prepared shortly thereafter

excluded any such receivables from the assets reflected. As

noted in Section I11.B.6., the Audit staff has revised the value

of accounts receivable as of August 31, 1984 to reflect only those receivables actually collected between September 1, 1984

and March 31, 1986.14/ As a result, the Committee and the Audit

14/ The coverage date of the most recent disclosure report filed

by the Committee at the time of this writing and the close

of follow-up fieldwork.
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.taff are now in agreement on the valuation of the receivables,

although there remains a disagreement regarding their treatment

1n the calculation of expenditures subject to the 2 U.S.C. S

441a(b) (1) (A) and 11 C.P.R. S 9035.1 limitations (Bee Section

111.8.6.).

Pinally, in their November 18, 1985 response, the

Committee notes that they object:

-[To the Report's adding] as an asset 100 percent

of the amount of allegedly non-qualified expenditures

paid between July 20 and August 31, 1984 even though these funds are no longer in the possession of the

Committee and only one-third of the $8,279.58 could

have been considered to be matching funds. Similarly, the Report subtracts from the Committee's liabilities

$285,874.43, which are allegedly non-qualified

campaign expenses, even though those bills may have

been qualified campaign expenses when incurred and

even though they were paid with no more than onethird pUblic fundsc w

Just as the Committee argues that $285,874.43, (revised to

$388,004.62 in this report) representing accounts payable for

non-qualified campaign expenses paid subsequent to the date of

ineligibility, should be eligible for inclusion on the August 31,

1984 NOCO Statement, so too they argue that the $8,734.93 15/ in

non-qualified campaign expenses paid between the date of

ineligibility and the date of the NOCO Statement should not be

included as an asset on the statement.

The justification for excluding post-ineligibility nonqualified campaign expense payments from NOCO Statement

liabilities is given at Section III.C.2. It is for the same

reason that the $8,734.93 is included as an asset on the statement~ to prevent the payment of non-qualified campaign

expenses from increasin~ the amount of federal matching funds to

which a candidate is entitled (26 U.S.C~ S 9033(c) (2». It is

shown as an asset rather than exluded from liabilities because

the non-qualified campaign expenses were actually paid (subsequent to the ineligibility date, but prior to the date of

the NOCO Statement presented) and, therefore, were not

liabilities as of the date of the NOCO Statement. The effect,

however, l~ exactly the same.

15/ The Committee refers to $8,279.58 while the amount in the

report is actually $8,734.93.
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'resentea below is the August 31, 1984 ROCO Statement

a. determined by the Audit staff. Where appropriate, amounts

bay. been revi.ed to include receipt and disbursement activity through March 31, 1986. If revisions to amounts included on the

NOCO Statement are required, they will be presented in an

addendum to this Pinal Audit Report.
•

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Monda18 for Pre.ident Committee, Inc.

Statement of Ret Out.tanding Campaign Obligations

at Augu.t 31, 1984

a. determined at March 31, 1986

Assets

Cash on Rand

Cash in Bank

Accounts Receivable

Refunds Receivable !I

Other Assets

Cookbooks

Capital AIBets

Non-Qualified

Campaign Expenses ~/

Paid 7/19-8/31/84

Total Assets

Liabilities

$ -0-

593,996.21

121,837.37

17,602.30

15,435.65

-0-

8,734.93

$ 757,606.46

Loans Payable Press Advances Payable Accounts Payable

Disbursements for

Oualified Campaign Expenses and Winding

Down Costs

between ~/ 9/1/84

and 3/31/86 $2,522,922.74

$1,398,037.58

35,091.93

CO'

Contribution Refunds

Payable 111,802.00

Settlement - MUR 1704 350,000.00 $2,984,724.74

Estimated Winding

Down Costs at

3/31/86 2/

Salarie$ .and Fees

Office Rent

Total Liabilities

Net Outstanding Campaign Obligations

128,433.74

35,200.00 $ 163,633.74

$4,581,487.99
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~/ This figure represents collections from 1/1/85 to 3/31/86

which were not included on the NOCO Statement In the Interim

Audit Report.

~/ This amount represents payments chargeable to the .tate

expenditure limitations in Iowa, Maine and New Rampshire between 7/19-8/31/84. Since amounts had been paid In excess

of the limitations in these states prior to the July 18,

1984 date of ineligibility, any amounts paid subsequent to

this date are non-qualified campaign expenses. The amount

is shown as an asset to prevent the making of non-qualified campaign expenses from increasing the net deficit and

therefore matching fund entitlement.

This amount is audited disbursements for Operating, Fundraising and Compliance expenses paid between 9/1/84 and

3/31/86 ($2,910,927.36) less amounts paid in excess of a

State and/or the overall spending limitation during the same

period ($388,004.62).

The winding down estimates provided by the Committee

included a $32,000 reserve for potential liabilities that

would come to the Committee's attention in the future. This

amount has not been included in the NOCO Statement. Any adjustments to the NOCO Statement necessitated by changes in

estimated amounts will be made as events occur. Winding down estimates are also shown net of a $47,977.70 prepaid

computer expense.
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Matching Pund Payments In Excess of Entitlement

. ~l·

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Section 9038(b) (1) of Title 26 of the United States

Code states that, if the Commission determines that any portion of the payments made to a candidate from the matching payment

account was in excess of the aggregate amount of payments to

which such candidate was entitled under section 9034, it shall

notify the candidate, and the candidate shall pay to the

aecretary, an amount equal to the amount of the excess payments.

Further, 11 C.F.R. S 9034.1(b) states that, if on the

date of ineligibility a candidate has net outstanding campaign obligations, that candidate may continue to receive matching fund

payments for matchable contributions received and deposited on or

before December 31 of the Presidential election year provided

that, on the date of payment, there are remaining net outstanding

campaign obligations.

As mentioned in Section III.C.3., the NOCO Statement

contained in the Interim Audit Report reflected Net Outstanding Campaign Obligations of $3,427,839.59 at August 31, 1984. The

report concluded that this was the amount of the candidate's

maximum matching fund entitlement as of that date. The report also presented an analysis which detailed the liquidation of the

entitlement by subtracting post-August 31, 1984 deposits of both

private contributions and matching funds•.The analysis concluded

that the Candidate's matching fund entitlement was liquidated

prior to the date of the Commission's final matching fund

payment. Therefore, the Committee was advised that, absent some

showing to the contrary, the Audit staff would recommend that the

Commission seek a repayment pursuant to 26 U.S.C. S 9038(b) (1)

equal to the amount of the final matching fund payment

($552,742.60) •

In their response of November 18, 1985, the Committee

noted that it "objects both to the legal basis of this finding and to the auditor's method for calculating the amount of, and

the liquidation of, MPC's entitlement." They state that the

Presidential Primary Matching Payment Account Act ("The Fund

Act") established an ~entitlement program~ to subsidize the

campaigns of eligible presidential primary candidates. The

Committee further argues that as an entitlement program, an

eligible candidate's entitlement is qualified by the Fund Act in

only two respects: (1) contributions must be matchable and (2)

the total amount of payments to a candidate shall not exceed 50

percent of the overall expenditure limitation of 2 U.S.C. S

441a(b) (1) (A). For the 1984 cycle, candidates could receive a

maximum of $10,100,000. They state that since the Committee
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received $9,494,920.93, it is entitled to the full amount of

matching funds it received. They assert that 11 C.P.R. S

9034.1(b) is inoperative in that it -addts] non-statutory qualifications to • candidate's entitlement" by attempting to

limit entitlement to the amount of net outstanding campaign obligations as of the date of the matching fund payment.

The Committee further contends that, "even if the

interim audit report were correct that MPC's entitlement after

the date of ineligibility is limited to qualified debt, the

method used in the audit report is incorrect." As justification, they offer two reasons. The first relates to the auditors' NOCO

Statement adjustments to delete accounts payable for nonqualified campaign expenses. This issue has been discussed at

length in Section III.C.2~ and again at Section III.C.3. The

second reason relates to the auditors' method of calculating the

liquidation of the candidate's (post-ineligibility) entitlement.

The Committee argues:

wThe report begins with an August 31 [1984]

entitlement figure of $3,427,839.59 which has

been adjusted to exclude nonqualified campaign expenses. The report then subtracts

from this amount, contributions and matching funds as received. The Committee objects to

the premise of this method which presumes that

MPC's matching fund entitlement is liquidated by receipt of private contributions. Even

assuming the validity of the auditor's figures••• the Committee had an entitlement to $3,427,839.59 16/

in pUblic funds as of August 31, 1984, yet received only $1,907,164.25 in public funds

after August 31, 1984.~

16/ Including the $1,907,164.25 received by the Committee after

August 31, 1984, the Committee's matching fund payments totaled $9,494,920.93. Hence, their maximum remaining

entitlement could not exceed $605,079.07 ($10,100,000 - $9,494,920.93).
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In response, the Audit staff notes that the Committee's

main objection is to the use of private contributions, In

addition to matching funds, to reduce the candidate's post- ineligibility entitlement. The Audit staff agrees that the

candidate's entitlement is to an amount of matching funds, as

determined by operation of the NOCO Statement. However, we would

argue that the candidate is entitled to exactly this predetermined amount of ·public funds· only if no private

contributions have been received (or for that matter, no ·other

receipts· not originally reflected on the NOCO Statement have

been realized) subsequent to the date of ineligibility. Commission regulations relative to candidate entitlement state

that, assuming the candidate has net outstanding campaign

obligations on the date of ineligibility, he/she may continue to

receive matching payments provided that, on the date of payment, there remain net outstanding campaign obligations, wi.e., the sum

of the contributions received on or after the date of

ineligibility plus matching funds received on or after the date

of ineligibility is less than the candidate's net outstanding campaign obligations" (emphasis added). 11 C.F.R. S 9034.1(b).

The Audit staff's interpretation of the Act and the

Commission's regulations with respect to establishing post- ineligibility entitlement to matching funds and monitoring the

amount of this entitlement can be summarized as follows: (1) a

candidate is entitled to post-ineligibility receipt of matching

funds only to defray qualified campaign expenses incurred prior

to ineligibility (26 U.S.C. S 9033(c) (2» including winding down

costs, (2) the NOCO Statement is the vehicle to establish and

measure this entitlement (11 C.F.R. 55 9034.1 and 9034.5), (3)

only accounts payable for qualified campaign expenses or winding

down costs may be included on the statement as the basis for

(further) entitlement (26 U.S.C. S 9033{c) (2) and 11 C.F.R. S

9034.5(a) (1», (4) entitlement is always equal to the lesser of

the amount of contributions submitted for matching, the amount of

remaining net outstanding campaign obligations on the date of

payment (11 C.F.R. S 9034.1(b) (1) and (2», or the difference

between payments received and the maximum allowable amount

established by 26 u.s.c. S 9034(b), and (5) the amount of

entitlement remaining on the date of a matching fund payment is

limited to the amount of net outstanding campaign obli~ations as

determined at the date of ineligibility less all contrlbutions

and matching funds received from the date of ineligibility through th~ date of payment (11 C.F.R. § 9034.1(b».
$3,823,881.53

( 279,421.49)

( 244,463.71)

( 701,656.41)

( 352,271.86)

( 486,254.18)

( 296,704.68)

( 591,946.77)

( 460,981.40)

( 57,851.34)

($ 352(329069) Remaining Net Outstanding Campaign Obligations As of 2/21/85

-67-

December 1984 Matching Fund Payment

Net Contributions Deposited 12/29/84

to 2/21/85

November 1984 Matching Pund

Payment

Net Contributions Deposited

12/1 to 12/28/84

As noted at Section III.C.3. of this report, the Audit

staff revised the calculation of net outstanding campaign obligations included in the Interim Audit Report. The revised

HOCO Statement reflects net outetanding campaign obligations at

August 31, 1984 of $3,823,881.53. Shown below is the Audit

Division's calculation of how those obligations were liquidated with contributions and matching funds:

August 31, 1984 Net Outstanding Campaign Obligations

Less: Net Contributions Deposited

9/1 to 9/30/84

September 1984 Matching Pund

Payment

Net Contributions Deposited

10/1 to 10/31/84

October 1984 Matching Fund

Payment

Net Contributions Deposited 11/1 to 11/30/84

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Therefore, the Committee's remaining entitlement on

February 21, 1985 was $352,329.69. On Pebruary 21, 1985, the

Committee received a matching fund payment in the amount of

$552,742.60 !II. This payment was $200,412.91 In excess of the

CanCidate's entitlement ($552,742.60 less $352,329.69).

Conclusion

On October 23, 1986, the Commission made an initial

determination that $200,412.91 in matching funds certified on

February 19, 1985 represents matching funds received by the

Candidate in excess of his entitlement and, therefore, an equal

amount must be repaid to the U.S. Treasury within 90 days of

receipt of this report in accordance with 26 u.s.c. S 9038(b) (1).

If the Candidate does not dispute this determination within

30 calendar days of the receipt of this report, the initial ~~ determination will be considered final.

Repayment Amount: $200,412.91

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17/ On January 28, 1985, the Committee made their final matching

fund submission. This submission was accompanied by a NOCO

Statement with net outstanding campaign obligations of

$769,088.50. This statement contained a math error which

was corrected on a NOCO Statement filed February 11, 1985.

When the amount to be certified was calculated, it

mistakenly considered the net outstanding campaign obligations of the original statement. Therefore, the

amount certified on February 19, 1985, was overstated by $20,464.77. Irrespective of the outcome of the repayment recommendation included in this report, the Commission

reserves the right to a repayment determination of

$20,464.77 pursuant to 26 U.S.C. S 9038{b) (1) with respect

to this error.
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Apparent Non-Qualified Campaign Expenses

1. Calculation of Repayment Ratio

Section 9038(b) (2) 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 purposes other than to defray

qualified campaign expenses or to repay loans the proceeds of

which were used to defray qualified campaign expenses, it shall

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

shall pay to the Secretary an amount equal to such an amount.

The Commission, in a Notice of Proposed Rulemaking published in the Federal Register on June 28, 1984, set forth a

pro rata formula which would base repayments for non-qualified

campaign expenses on the proportion of federal funds to total

funds received by the candidate. The final version and the

Explanation and Justification was published in the Federal

Register on August 22, 1984 and transmitted to Congress.

On March 5, 1985, the revised regulations were

resubmitted for publication. The proposed regulations were

before the Congress for 30 legislative days as of May 20, 1985

and were approved by the Commission for publication in final form

on June 11, 1985.

The formula and its application with respect to

the Committee's receipt activity is as follows:

Total Matching Funds Certified Through

Date of Ineligibility (7/18/84)

Numerator + Private Contributions

Received through 7/18/84

$7,567,893.66 ~~7,567,893.66 + $15,375,296.95

=-.329853

ThUS, the repayment ratio for non-qualified campaign expenses is 32.9853%_

In the response to the Interim Audit Report, the

Committee accepted the Audit staff's calculation of the repayment

ratio.
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Use of Funds for Non-Qualified Campaign Expenses

't')

Section 9035(8) of Title 26 of the United States

Code states, in part, that no candidate shall knowingly incur

qualified campaign expenses in excess of the expenditure limitation applicable under section 441a(b) (1) (A) of Title 2.

Section 9038.2(b) (2) (1) (A) of Title 11 of the Code

of Federal Regulations provides, in part, that the Commission may determine that amount(s) of any payments made to a candidate from

the matching payment account, or contributions received by the

candidate, were used for purposes other than qualified campaign

expenses. Section 9038.2(b) (2) (ii) (A) of Title 11 of the Code of

Federal Regulations states that an example of a Commission

repayment determination under paragraph (b) (2) of this section

includes determinations that a candidate, a candidate's

authorized committee(s), or agents have made expenditures in

excess of the limitations set forth in 11 C.F.R. S 9035.

The Interim Audit Report concluded that the

Committee had exceeded state expenditure limitations by a total

of $337,920.84 and the overall limitation by $494,426.16. In

order to determine the total amount to which the repayment ratio

should be applied, a calculation was presented which (1) assured

that only qualified campaign expenses were applied to the 26

U.S.C. S 9035(a) overall limitation, (2) precluded any possibility of duplication in the repayment of Federal funds for

non-qualified campaign expenses, and (3) assured that the

repayment ratio was applied only to the non-qualified campaign

expenses which had been paid by December 31, 1984. The Interim

Audit Report further noted that a separate repayment determination would be required for non-qualified campaign

expenses paid after December 31, 1984 and before the Committee's

disbursement of their final matching fund payment. The amount of

the repayment calculated in the Interim Audit Report was ~lO~,419.37 ($313,531.10 32.9G53~).

In their response to this section of the Interim

Audit Report, the Committee again argues that the exclusion of

amounts payable for non-qualified campaign expenses from the

Committee's NOCO Statement when determining maximum post- ineligibility matching fund entitlement represents a 100 percent

repayment for those amounts contrary to the Kennedy decision.
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The Committee also argues that, given this, the application of

the repayment ratio to non-qualified campaign expenses paid after

the date of ineligibility, but while the campaign is still

receiving matching fund payments, constitutes a total repayment of 133'. The Committee also notes that in 1976 and 1980, the

Commission adjusted a candidate's entitlement for such

expenditures, but sought no repayment pursuant to 26 U.S.C. S

9038 (b) (2) •

The Committee is correct that, prior to the

Kennedy decision, with the exception of amounts incurred in

excess of an expenditure limitation, no non-qualIfIed campaign

expense repayment pursuant to 26 U.S.C. S 9038(b) (2) was sought for non-qualified campaign expenses paid after the date of

ineligibility. Rather, the candidate's maximum post- ineligibility matching fund entitlement determination excluded

payables for non-qualified campaign expenses as required by 26

U.S.C. S 9033(c). However, 100' repayments were sought in

relation to amounts incurred in excess of an expenditure limitation, regardless of when paid.

As noted by the Committee in footnote 6 to their

response, the explanation and justification of the revisions to

the regulations necessitated by the Kennedy decision described

the repayment methods to be used by the Commission after the

Kennedy decision.

With respect to the argument that the repayment calculation in the Interim Audit Report represents a 133%

repayment of non-qualified campaign expenses paid after the

candidate's date of ineligibility, the Audit staff makes the

following comments. As noted in several places above, the

exclusion of amounts owed by the Committee for ~on-qualified

campaign expenses on the date of ineligibility from the

calculation of the candidate's maximum post-ineligibility matching fund entitlement does not represent a repayment, 100% or

ratio, of the amount of any non-qualified campaign expenses. It

is the method required by 26 U.S.C. S 9033(c) for determining the

maximum amount the candidate may receive to assist in the

liquidation of "qualified campaign expenses incurred before the

date upon which such candidate becomes ineligible ••• " Once this

amount is determined, it may be compared to amounts paid to and

contributions received by the candidate. If amounts in excess of

this entitlement have been received by the candidate, the

excessive amount must be returned to the Treasury.
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On October 9, 1986, the Commission determined that

the matching fund ratio repayment pursuant to 26 U.S.C. S

9038(b) (2) would be limited to those non-qualified campaign

expenses paid on or before the Candidate's date of ineligibility. As is shown on page S2 above, no amounts in exce•• of the overall

limitation had been paid by that date. However, of the

$300·,980.30 in excess of the State limitation~ $182,164.89 had

been paid by the Candidate's date of ineligibility. Given this

situation, no netting calculation similar to that shown on page

52 is required for the calculation of a repayment pursuant to 26

U.S.C. S 9038(b) (2). The repayment calculation is as follows:

On October 23, 1986, the Commission made an initial

determination that $60,087.64 ($182,164.89 x .329853) must be

repaid to the U.S. Treasury within 90 calendar days of receipt of

this report in accordance with 11 C.r.R. S 9038.2(d).

If the Candidate does not dispute this determination within

30 calendar days of the receipt of this report, the initial

determination will be considered final.

.,.

•

Amount in excess of the

State expenditure limitation

paid on or before the

Candidate's date of

ineligibility

Times the Repayment

Ratio from IIIeE.l.

Repayment Amount

Conclusion

Repayment Amount:

Repayment Summary

III~Do Payments in Excess of

the Candidate's Entitlement

III.E.2. Non-Qualified

Campaign Expenses

Total Initial

Repayment Determination

$182,164.89

.329853

$ 60,087.64

$60,087.64

$200,412.91

60,087.64

$260,500.55
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Attachment I

Page 1 of 20

Intra-State Travel and Subsistence

(Pinding III.A.l.b.)

The following are the 31 individuals for whom the Committee

disagrees with the Audit staff's travel and subsistence expense allocations contained in the Interim Audit Report. All but the

Audit staff's comments is taken verbatim from the Committee's

November 18, 1985 response to the Interim Audit Report.

MAIRE

1. Jim Blair

Committee comments:

$ 36.67

$340.00

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Auditors rely on a document showing that he received per

diem for August 28 through August 31, and a document referring to

an expense reimbursement for a Mondale trip of August 31 to

September 1. Nothing presented to us by the auditors shows that

Blair was in the state for more than four days.

Audit staff eam.ents:

Accoraing to Committee check request forms, per diem was

requested for the individual for August 28 through August 31,

1983 and, in addition, the individual was reimbursed for

miscellaneous travel expenses covering August 31 through September 1, 1983. Based on these Committee notations, the per diem and reimbursed expenses cover five days (August 28-September 1).

Audit Adjustment:

2. Jim Farrell

Committee comments:

$-0-

$994.66

Auditors' evidence consists of an automobile rental contract

from a Boston rental agency for the period February 22 to March

27, 1984. Although the car was impounded in Maine, there is no

evidence that Jim Farrell was in Maine for more than four

consecutive· days.

Audit staff comments:

The documentation in question consists of a car rental

agreement with miscellaneous memoranda attached indicating that

the car was towed and impounded in Maine, was returned to Boston,

and damages that were sustained were repaired.
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Attachment I

Page 2 of 20

The following facts were considered: (a) the rental customer

listed his employer as ·Pirst District Delegates· (presumed to be

a New Hampshire delegate committee), (b) the car was rented

February 22, 1984 and prepaid for the week ending February 28.

The contract was renewed for the week of February 29-March 7 (the

car was towed March 5) with a prepayment on February 29.

Therefore, the rental period was inarguably more than four days. This would indicate that the expenditure likely required state

allocation. The Committee allocated it to a non-state allocable

cost center (llOS-Field), (c) although the car was rented from an

agency located in East Boston (this agency services Logan International Airport), it was expressly not restricted to

Massachusetts usage (as denoted on the agreement by ~NE use

only·, presumed to mean restricted to New England usage), (d) the

car was towed from a private lot in Portland, Maine and was

impounded by the Portland Maine Police Dept., (el the driver was

reimbursed for gas and lodging expenses incurred in Maine

covering March 2-4, which the Committee did allocate to Maine,

and (f) the allocation dollars in question-relate to the period

March 7-27 and cover additional rental charges, retrieval and

towing charges, and damages.

In consideration of the above facts, the Audit staff submits

that the individual likely rented the car on February 22, 1984 in

conjunction with work on the New Hampshire primary (February 28).

The rental contract was renewed on February 29 to extend through

March 7, likely for use in the Maine primary (March 4). There is

evidence that the car and/or its driver was in Maine at least

March 2-5. Since the allocation dollars in question relate to

the period March 7 through March 27 and since the car was

ostensibly last used in Maine, the Audit staff finds it

reasonable to consider these expenses state-allocable and to have

been incurred in connection with the Maine primary election.

Audit Adjustment: $-0-

3. Ned McCann

Committee comments:

$190.00

$300.00

Auditors refer to a consulting payment for August 15 to

August 31, 1983 and travel reimbursement payment on February 16,

1984. None of the documents indicate he was in Maine more than

four days. His home address is given as Portland, Maine, but

that is no basis for assuming he worked there. We do not

allocate expenditures based on the permanent address of the

payee.
•

•

-

-

..:r

--

Attachment I

Page 3 of 20

Audit staff c~nt.1

a. The Committee'. adjustment of $300 represents the

consulting fee portion of a check for $490, the balance of $190

was coded as a travel advance and is addressed in b. below. The

$300 was not included in the Audit staff's $7,178.46 intra-state

travel and subsistence allocation, but can be found in Finding III.A.l.e., ·Salaries, Employer FICA and Consultant Fees·, where

the Committee again makes this $300 adjustment (see p.23 of their

November 18, 1985 response).

b. The Committee disputes the allocation of the $190

travel advance portion of the check referred to in a. above.

With respect to the allocation of this expenditure, the Audit

staff would not suggest that expenditures be allocated on the

basis of the payee's permanent address either. However, the

check request form accompanying the $490 consulting fee/travel

advance payment indicates that the consulting fee covers August 15-31, 1983, or, more than four days. This expenditure was coded

to cost center 'lOS (Pield), not to one of the national or

headquarters cost centers. Taken together, these suggest that

state allocation would likely be required, i.e., a travel advance

coded to ·Pield" for a period in excess of four days. Since

there is no indication on the check request form to indicate the

state in connection with which the expense was incurred and given (i) that the Maine "straw poll" took place on October 1, 1983 and

(ii) that the payee's address on the check suggests that the

check was mailed to the individual in Portland, Maine, the Audit

staff finds it reasonable to assume that Maine is the state to

which the expenditure should be allocated.

Audit Adjustment:

4. Dennis O'Neil

Committee comments:

$-0-

$ 56.39

,

Drafts cited as evidence are accompanied by receipts which

do not show O'Neil was in Maine more than four consecutive days. Some receipts have no date or location.

Audit staff comments:

•

The documentation consists of miscellaneous receipts for

gas, meals, and tolls. Not all receipts bear dates or addresses,

however, there are definitive receipts for gasoline at Maine

service stations on July 16 and July 18-21, 1983. The Audit

•
$451.00

-

-

-

_.

Attachment I

Page 4 of 20

staff finds it as reasonable, to assume that there was no gas fill-up on July 17 (or just no receipts kept) as it is to assume

that this individual was in Maine on July 16, elsewhere for JUly 17, and back in M~ine July 18-21.

Audit Adjustment: $-0-

s. David S. Rosenberg

Committee comments:

Auditors provided a copy of a check request for auto rentals

in Portland, Maine, evidence which does not establish that he or

the cars were in Maine for more than four consecutlve days.

Audit staff cam-enta:

As opposed to car rental agreements, this documentation

consists of three credit card charge records and a billing

statement which list the point of origin and the point of return

of the vehicles. It seems that three vehicles were rented on

separate days from a Portland, Maine Avis agency. All were

rented for periods exceeding four days. Two of the three were

returned to a Maine location and were allocated to Maine by the

Committee. The third was returned to Boston and was allocated to

cost center '105 (Field) (rather than to Massachusetts or Maine).

It would appear that state allocation was required for the latter

rental as well. The auditors chose Maine due to the association

with the other two rentals (which were apparently used in and

allocated to Maine) and to the occurrence of the "straw poll" in

Maine on October 1, 1983.

Audit Adjustment:

6. Jonathan Blum

Committee comments:

$-0-

IOWA

$172.70

$100.00

Auditors provide as evidence a copy of a check request for

four days per diem for advance work, and copies of drafts written

on three consecutive days. The documents do not establish that

he was there more than four days.

•
•

, .

Attachment I

.age 5 of 20

Aualt ataff CD_ent••

Documentation consists of: (a) a check request of $100 for

per diem for an Iowa trip to cover February 11-14, 1984 and (b) four drafts accompanied by numerous receipts for gas, parking, meals, and supplies. The majorlty of these receipts bear Iowa

addresses and dates covering February 8-14. Together, these

documents evidence expenses incurred with respect to a trip to

Iowa, totaling $172.70.

Audit Adjustment: $-0-

7. Lynn Christensen

Committee comments:

$ 50.00

$144.88

q-

•

"

-

Auditors provide copies of documents that indicate she was

in Iowa February 10-13. No evidence she was there for more than

four days. They refer to a per diem for February 9 and 10, but

there is nothing to demonstrate that she was In Iowa on

February 9.

Audit staff comments:

Documentation consists of a check request for $50 for per diem in Iowa February 9-10, 1984 and a hotel receipt for $144.88

for lodging in Iowa February 10-13, 1984. The Committee's own

notations, together with these documents, evidence expenses incurred in Iowa totaling $194.88 covering February 9-13, 1984.

Audit Adjustment: $-0-

8. Marthena Cowart

Committee comments:

$493.69

•

The auditors provided as evidence copies of check requests and drafts, none of which indicate she was in the state more than

four days.

Audit'staff comments:

Documentation consists of: (a) a check request of $75 for

per diem in Iowa January 14-16, 1984, (b) an Iowa hotel receipt for January 15-18, 1984, (c) a draft with receipts covering January 15-17, 1984, only one of which bears the state location

of the vendor, but that location is Iowa, and (d) a draft 'for per diem for ·January 17-18, 1984 with no state indication.
•

Attachment I

Page 6 of 20

Since (a) and (b) above support expenses incurred in Iowa

covering January 14-18 and since the expenses incurred in (0) and

(d) are within the same period, the auditors view theae four

expenditures totaling $718.69 as reasonably requiring allocation

to Iowa.

Committee comments:

Copies of check requests provided as evidence do not bear

any indication that she was in the state more than four days.

Audit staff cam.enta:

A hotel receipt by itself indicates the individual was in

Iowa from February 9-13, 1984. In addition, there is a check

request for per diem for Pebruary 9-10, 1984.

Audit Adjustment: $-0- •

Audit Adjustment: $-0-

9. Kathleen Doria

10. Don Poley

Committee comments:

$216.12

$ 50.00

$200.56

$ 56.38

•

Copies of check requests provided by auditors bear no

indication that Foley was in the state more than four days.

Audit staff comments:

The expenditures in question are related to two lodging

expenses incurred in Iowa. For the first, the hotel bill

indicates Mr. Foley had a room for the nights of January 30-

February 2, 1984 (Monday through Thursday). Since Mr. Foley checked out apparently on Friday, February 3, he was in the state

for more than four days, therefore, his expenses require allocation. (The Explanation and Justification accompanying 11

C.P.R. S 106.2 states that "for purposes of determining the

length of time an individual remains in a State, the Commission

will generally look to the calendar days or any portion thereof

that that person was in a State rather than using 24-hour

periods.-)
'. Attachment I

Page 7 of 20

The second expenditure i8 for lodging in Ottum••, Iowa on

Pebruary 12-13, 1984. What places Mr. Poley in Iowa for more

than four days around theae dates is a Des Moines hotel receipt indicating Mr. Foley had a room there from February 6-16, which

the Committee properly allocated to Iowa.

Audit Adjustment: $-0-

11. Michael Pord

Committee comments:

$151.41

v

•

The auditors provided copies of check requests, none of

which bear any indication that Ford was in the state more than

four consecutive days.

Audit staff ~nts:

The expenditure in' question is a travel expense reimbursement for which the documentation consists solely of the

check request form indicating that the expenses were related to

an ·Iowa trip (Jan 24-28)·. Although the period exceeded 4 days, the expenditure was allocated to cost center 1105 (Pield).

Audit Adjustment: $-0-

12. Vicki Hartman

Committee comments:

$183.66

•

Auditors allocated $383.66 in expenses to Iowa when the

Committee only reimbursed her for $200.00.

Audit staff comments:

In this situation, the individual was not -reimbursed· at

all. In actuality, the expenditures in question relate to drafts

that Ms. Hartman wrote for "petty cash. w The documentation

consists of a recap of expenses prepared by Ms. Bartman which is

accompanied by miscellaneous receipts. Her recap indicates that

she issued or cashed drafts with a combined denomination of $450

(five $50 drafts and two $lOO's), however, all the drafts were

not written or cashed for their full face value. Her accounting indicates that she incurred expenses of, and was accountable for,

$383.66. The receipts are for expenses on February 9, and 11-13,

1984, although not every receipt bears a date. In addition, not

all receipts identify a state, but those that do are for Iowa

vendors, and the drafts were cashed in Iowa. .
$353.97

•

'q'

•

•

Attachment I

Page 8 of 20

The Committee's filing system for draft documentation was

different than that for the documentation supporting expenditures made by check. Documentation for expenditures by check was filed

alphabetically by vendor. With respect to drafts, the drafts

themselves were filed sequentially within a denomination with the

supporting documentation attached to the draft. Where more than

one draft was written to cover an expense, the documentation

would be affixed to one of the drafts and the bottom of that

draft would be annotated to indicate the additional draftee) to

which the documentation relates. In the situation at hand,

however, the $50 drafts did not include the cross-reference to

the $100 drafts to which the recap and supporting receipts relate. Therefore, ~he auditors could only assume that the $100

drafts were allocated to cost center 1108 (Scheduling and

Advance) as were the $50 drafts.

Audit Adjustment: $-0-

13. Larry Martinez

Committee comments:

Martinez rented a car in Omaha on January 16 and returned it

on January 21. He was in Iowa January 19. There is no evidence

he was in Iowa any other time in January.

Audit staff cam.ents:

For Mr. Martinez, the Audit staff reallocated to Iowa seven

expenditures totaling $1,176.60. The Committee takes exception

to a car rental/office supply reimbursement in the amount of

$353.97. They contend that the car was rented from an Avis

dealer located in Omaha, Nebraska and used January 16-21, 1984,

but Mr~ Martinez was only in Iowa on January 19. This is

apparently based on the fact that Mr. Martinez' reimbursement

request is accompanied by documentation for rental of the car

($335.75) and for office supplies ($18.22). The office supplies

were purchased on January 19 from an Iowa vendor, but there is no

evidence (at least contained in this reimbursement) that he was

in Iowa January 16-18 or January 20-21.

In addition to this one expenditure, however, the

documentation consists of: (a) an expenditure for a hotel room in

Sioux City, Iowa January 16-20, (b) an expenditure for per diem

in Sioux City, Iowa for January 17-20, and (e) an expenditure for

per diem in Iowa City, Iowa January 20-23. These expenditures

cover January 16-23, 1984 and, although not originally allocated

to Iowa, the Committee does not contest the Audit staff's'~owa
•

Attachment I

Page 9 of 20

reallocation. This documentation places Mr. Martinez in Iowa for

January 16 to at least the 21st and supports the allocation of

the $353.97 for car rental and office supplies to Iowa.

Audit Adjus~ent: $-0-

14. Ellen Schneider

Committee comments:

$ 75.00

$182.98

Copies of documents provided by the auditors as evidence do

not bear any dates indicating that this expenditure would be

allocable.

Audit staff cam.ents:

Documentation consists of: (a, a check request for per diem

in Iowa for February 5-7, 1984 and (b) an expenditure for a hotel

room in Iowa February 8-11, 1984. Together, these cover February 5-11, 1984 or more than four days•

• Audit Adjustment:

15. Bart Chilton

Committee comments:

$-0-

$400.00

$388.03

•

Copies of rental car documents used as evidence by the

auditors show a car rented in Illinois to this driver, but no

evidence that a driver or car were in Iowa more than four

consecutive days.

Audit staff comments:

Included in the Interim Audit Report was an adjustment allocating $5,849.25 in car rental expenses to Iowa. Ten cars

were rented from an agency located in Moline, Illinois, which is

on the Iowa/Illinois border. The $5,849.25 was paid in two

payments: $3,449.25 was allocated to Illinois and the balance of

$2,400 to M~nnesota (this was apparently a coding error, Illinois

is cost center 1129, Minnesota is cost center 1139). It is noted

that the car rental agency also has an office in Davenport, Iowa •
.-

•

•

Attachment I

Page 10 of 20

The documentation is comprised of: (a) a copy of the rental

agency's accounts receivable ledger detailing the dates and

amounts of the charges and the rental agreement numbers and (b)

copies of the rental agreements which list, among other items,

the name of the customer (and driver, if different), the

customer's employer and the dates of the rental.

The cars were rented for varying periods which generally covered mid-January through late February, 1984. The Audit staff

felt it reasonable to assume that the rentals were all related to

the same field effort. Given (1) the proximity of Moline,

Illinois to Iowa and (2) the periods of the rentals in relation

to the dates of the Illinois and Iowa primaries (of the ten cars,

seven were returned on February 21 and, three on February 28, the

Iowa primary was February 20, Illinois on March 20), the Audit

staff felt the car rentals were more likely related to the Iowa

than the Illinois primary election.

Further inspection revealed that, of the seven drivers

named, five were on the Committee's payroll during the car rental

period. According to the Committee's payroll records, the

salaries of three of the five were allocated to Iowa for the

period in question. A fourth driver was paid per diem for the

periodJ the Committee allocated this to Iowa. Also, one of the

vehicles received a traffic summons from the City of Clinton

(Iowa) •

Based on the above information, the Audit staff found it

reasonable to view the full $S,849~25 in car rental expenses as

allocable to Iowa (rather than to Illinois or Minnesota). In

response to the Interim Audit Report, the Committee took

exception to the allocation of the car rental expenses of three

of the seven individuals, including Mr. Chilton (Ms. Alksne and

Mr. Handler, I's 16 and 18 below, are the others). These are the

three individuals whose salaries were not allocated to Iowa by

the Committee for the period (one of the three was not on the

payroll) and the salaries of the remaining two were allocated by

the Committee to Michigan and Oklahoma. Since (a), as mentioned

earlier, the car rentals were likely all in relation to the same

field effort, and, this effort ostensibly was the Iowa primary election and (b) since there is better reason to believe these

three individuals were involved in this effort (being named as

drivers on the rental agreements) as opposed to the Oklahoma or

Michigan primary elections, it is also noted that the Committee's
•

Attachment I

Page 11 of 20

r••ponse merely questioned the Audit staff allocation a. opposed

to providing documentation supporting the Committee's allocation

to Oklahoma or MichIgan. The Audit staff submits that the

expenses of these three individuals were also in conjunction with

and should be allocated to the Iowa campaign.

Audit Adjustmentl $-0-

16. Cynthia Alksne

Committee comments:

$485.60

$ 43.20

$ 34.50

Copies of rental car documents used as evidence by the

auditors show a car rented in Illinois to this driver, but no

evidence that a driver or car were in Iowa more than four

consecutive days.

Audit staff ca..ents:

-q-

•

See 115 above •

Audit Adjustment: $-0-

17. Gary Kelleher

Committee comments:

$128.46

$289.71

•

Kelleher, in Iowa as an advance person, rented two 15-

passenger vans and a press car for a Mondale stop and returned

them the next day. Neither his salary nor these vehicles, which

were used by the candidate and press for one day, are allocable

to the state.

Audit staff comments:

The documentation consists of: (a) a check request for per diem in Iowa for January 15-19, 1984, (b) copies of drafts and a

rental agreement for a van in Iowa, January 18-19 and (c) a check

request accQmpanied by Mr. Kelleher's request for reimbursement

of expenses (including a press van) for his Iowa trip of January

15-19.

Mr. Kelleher's salary is not allocated to Iowa because he

was not on the payroll for the period. Had he been, it would be

allocable to Iowa based on his and the Committee's

representations that he was in the state for five days, no~ just

the two days covered by the van rental.
•

Attachment I

Page 12 of 20

Regarding the rental of the vehicles for the press, it is

unclear on what basis the Committee is asserting that they do not

require allocation. On the one hand, they mention that the

vehicles were used only two days, implying that they fall under

the intra-state travel and subsistence provisions, including the

"five day rule". On the other hand, since the rentals related to

press vehicles, they may be asserting that they are not

classifiable as expenses for travel and subsistence, but rather

fall under equipment rental. The Audit staff is of the opinion that since the vehicles were used in conjunction with a press event(s), they are properly classifiable as equipment rental, and

not subject to a "five day rule" test. Their primary usage was

to transport members of the press and/or related equipment, not

for the intra-state travel and subsistence of Committee

personnel. For that reason, the Audit staff feels that the press vehicle rental expenses are properly allocable to Iowa.

Audit Adjustment: $-0-

,,,.

•

18. Peter Bandler

Committee comments:

$400.00

$511.63

Copies of rental car documents used as evidence by the

auditors show a car rented in Illinois to this driver, but no

evidence that a driver or car were in Iowa more than four

consecutive days.

Audit staff comments:

r..--

See 115 above.

Audit Adjustment: $-0-

19. Terry Leftgoff

Committee comments:

$468.00

•

Copies of rental car documents used as evidence by the

auditors show a car rented in Illinois to this driver, but no

evidence that a driver or car were in Iowa more than four

consecutive days•
•

Attachment I

Page 13 of 20

Audit staff c~nt.:

The documentation consists of a check request form for the

payment of two rental cars. The Audit staff notes that the cars

were rented from a dealership located in Omaha, Nebraska, not

Iowa. The cars were rented by Mr. Leftgoff and Ms. Shapero (see

'20 below). The following were considered in the determination

that these expenses were more reasonably allocable to Iowa than

Nebraska: (8) the dates of the rental period in relation to the

Iowa and Nebraska primary elections. The cars were rented from

January 20-February 22, 1984. The Iowa primary was February 20,

Nebraska's on May 151 (b) the proximity of Omaha to Iowa (omaha

is approximately 15 miles from Council Bluffs, Iowa), (c) Ms.

Shapero's rental agreement lists the customer as Mondale for

President, Council Bluffs, Iowa, and (d) the Committee allocated

Ms. Shapero's salary for the month of February to Iowa. Also, in

their response, the Committee recognizes Ms. Shapero's presence in Iowa (see '20 below).

Audit Adjustment: $-0- ~.

•

20. Elizabeth Shapero

Committee comments:

$129.00

•

Documents provided by the auditors establish that only 22

days are allocable to Iowa, although the auditors allocate a full

32 days. We are adjusting for ten days for which there is no

evidence that Shapero was allocable to Iowa.

Audit staff comments:

The Committee disputes the allocation of $129 of the $412.67

allocated to Iowa pertaining to Ms. Shapero's car rental. This

is presumably based on the fact that the Committee allocated Ms.

Shapero's salary for February 1-29, 1984 to Iowa, but her salary for the second half of January was allocated to Washington (State). The Committee provided no evidence that the salary was

properly allocable to Washington for the first ten days of the

rental period (nor do they argue it was allocable to Nebraska,

the state the car rental was allocated to for these same ten

days). For. this and the reasons mentioned in 119 above, the

Audit staff feels that Ms. Shapero's car rental expenses are more

reasonably allocable to Iowa than Nebraska or Washington.

Audit Adjustment: $-0-
•

Attachment I

Page 14 of 20

RBW BAllPSBIRB

21. Bob Bosch

Committee comments:

$612.02

Documents provided by the auditors do not establish that

Bosch was in the state more than four days. A check request for

lodging for the advance party gives dates for a Mondale visit

February 23 through Pebruary 27, 1984, but there is no indication

on the face of the document that Bosch was there for more than

four days.

Audit staff cam.ents:

Included in the documentation is the check request form

referred to by the Committee. This is accompanied by the hotel

room receipt indicating the room was rented to Mr. Bosch for

February 24-28, 1984, or more than four days. The Audit staff is

unsure what is meant by ft •••no indication on the face of the

document".

Also included in the documentation are check requests for

per diem and drafts for taxis, all of which fall within the

period February 24-28, 1984, which, therefore, likewise require allocation.

C"'"

Audit Adjustment:

22. Walter Bolton

Committee comments:

$-0-

$602.47

•

Documents provided by the auditors include a per diem

request for a February 22 through February 24 trip to New

Hampshire and a copy of a check request to pay a Howard Johnson's

in Manchester, New Hampshire for a Mondale trip of February 23

through February 2;, 1984. This documentation on the face does

not establish that Holton was in the state for more than four

consecutive days.

Audit' staff comments:

The hotel room receipt is actually for February 24-28, 1984,

otherwise the Committee's summary of the documentation is

accurate. The per diem request and the hotel room receipt cover

February 22-28 or more than four days•

Audit Adjustment: $-0-
•

23. Stuart Ishimara

Attachment I

Page IS of 20

$150.00

Committee comments:

Documents provided by the auditors do not bear any evidence

that Ishimara was in the state of New Hampshire.

Audit staff eam-ent8:

The documentation consists of two drafts totaling $150 which

were accompanied by miscellaneous receipts covering February 22-

27, 1984. These receipts bear the names of Bedford and

Manchester, New Hampshire.

Audit Adjustment:

24. Elaine McLaughlin

Committee comments:

$-0-

$619.57

.~

•

r

Documents provided by the auditors consist of a check

request for McLaughlin's per diem of February 1 through February 3, 1984 for a Mondale trip to New Hampshire, a hotel bill check

request indicating lodging for the Mondale travel and advance

party for 2 of those days, and an expense reimbursement request for the Mondale trip of February 2, 1984. None of the documents

have any evidence on the face to indicate McLaughlin was in New

Hampshire more than three days.

Audit staff comments:

The Committee's summary is correct except that the check

request for the hotel payment referring to a "WFM Concord Trip 2/2/-2/3/84" is accompanied by the bill for Ms. McLaughlin's room

which indicates she had the room from 1/30-2/3/84. The auditors

suspect that the reference on the check request relates to the

duration of the candidate's trip, not the length of the advance

personnel's stay. Regardless, the duration of Ms. McLaughlin's

New Hampshire stay was January 30-February 3, 1984, or five days.

Audit,Adjustment: $-0-

•
$463.10

Attachment I

.age 16 of 20

25. Doug Miche1man

Committee comment81

Bvidence presented by the auditors con8isting of a copy. of a

check request for lodging for advance and field staff for a

Monda1e visit to New Rampshire trip, and copy of a request for

four days per diem in connection with a WPM New Hampshire trip. There i8 no indication that Michelman was there more than four

consecutive days.

Audit 8taff ~ent.1

Documentation consist8 of. (a) a check request for per diem

in New Hampshire February 12-13, 1984, (b) a New Hamphire hotel

room receipt for Pebruary 14-16, (c) a check request for per diem

in New Hampshire for Pebruary 18-21 and (d) a New Hampshire hotel

room receipt for February 18-21. The Committee appears to feel

that no five consecutive days are involved. However, the

individual had a motel room from February 14 through 16 with an

apparent checkout date of Pebruary 17, 1984. He also had a room

at the same motel for Pebruary 18-20 with a checkout date of

February 21, 1984. Therefore, the documentation indicates that

the individual was in the state for 10 consecutive calendar days from February 12-21, 1984.

As was noted at item 10 above, the Explanation and

Justification accompanying 11 C.P.R. S 106.2 states that for

purposes of determining the length of time an individual remains

in a state, the Commission will generally look to calendar days

or any portion thereof rather than using 24 hour periods.

Audit Adjustment: $-0-

26. Jim Mulhall

Committee comments:

$636.69

•

Documents provided by the auditors include copies of check

requests for per diem payments in connection with Mondale trips

to New Hampshire at various times, plus a copy of a check request for lodging for the travel and advance party for Mondale for two

days. None 'of the documents establish on the face that Mulhall

was in the state for more than four consecutive days.
•

Attachment I

Page 17 of 20

Audit staff ca..ent8.

Included in the documentation is a per diem request for a

New Hampshire trip January 21-24. In addition, there are two

check requests for consultant fees related to Keene, Lebanon, and

Claremont, N.H., which cover January 21-25. Although not

included in the travel and subsistence section, the five day consultant fees make the January 21-24 per diem allocable.

Also, the check request for advance party lodging refers to

a • •••WPM Concord Trip 2/2-2/3/84", however, the statement for

Mr. Mulhall's room indicates he was there from January 30-

February 3, 1984. There is also a per diem request covering January 30-February 1, 1984 related to the Concord, N.H. trip.

The per diem and hotel room are for January 30-February 3, 1984,

or, more than four days.

The Audit staff agrees that $238.77 in per diem, meals and

lodging for January 10-13, 1984 do not require allocation in that

the period is less than five days.

Audit Adjustment:

27. John O'Leary

Committee comments:

$238.77

$308.09

•

The auditors provided as evidence copies of check requests for lodging for a February 8, 1984 Mondale visit to New Hampshire and a February 17 to February 20 visit to New Hampshire, and a

copy of a draft dated February 15 to a New Hampshire payee. There is no indication on the face of the documents that O'Leary

was in New Hampshire more than four consecutive days.

Audit staff comments:

The documentation consists of: (a) a check request for a • •••WFM Visit Manchester 2/8/84", which is accompanied by room

receipts for Mr. O'Leary for February 8-9 with check out February 10, (b) a draft accompanied by a hotel receipt for February 11-12

with apparent check out on February 13 and on the same receipt,

room charg~s for February 14-15 with apparent check out on

February 16. The Committee allocated this to cost center 1154

(Pennsylvania), a likely transposition of cost center '145 (New

Hampshire), but, nonetheless recognized that it exceeded four

days, and (c) a check request for • •••WPM Visits of 2/17/84 and

2/20/84 to Manchester" which is accompanied by Mr. O'Leary's room

receipt covering February 16-20, 1984. Together these cover

February 8-20, 1984 and require allocation to New Hampshir~.

Audit Adjustment: $-0-
$361.11

•

Attachment I

Page 18 of 20

28. Kevin O'Malley

Committee comments:

The auditors' evidence consists of a copy of a check request for reimbursement for rooms for staff and advance for a Mondale

trip of January 8, 1984, a copy of a check request for per diem

January 4 through 7, 1984 in connection with a Mondale trip to

New Hampshire on January 7, and a copy of the check request for

payment of a hotel bill for a Mondale trip on January 8, 1984.

There is no evidence on the face of the documents to establish

that O'Malley was in the state more than four consecutive days.

Audit staff cam.ents:

The documentation consists of: (a) a check request for per diem in New Hampshire for January 4-7, 1984, (b) a check request for lodging for a • •••WPM 1/8/84 trip to Manchester" Which is

accompanied by Mr. O'Malley's room receipt for January 5-6 and

(c) a check request for • ••• rooms for WPM trip to Manchester

1/8/84" which is accompanied by Mr. O'Malley's room receipt for

January 6-7 with a January 8 check-out. Together these expenses

cover in excess of four days and require allocation to New

Hampshire.

r

Audit Adjustment:

29. David Van Iderstine

Committee comments:

$-0-

$847.79

•

The evidence provided by the auditors consists of a copy of

a check request for per diem February 4 through 6 in connection

with a Mondale trip to New Hampshire, copies of drafts cashed in

New Hampshire on February 9, 1984 for auto rental in connection

with a Mondale trip to New Hampshire on February 8 and 9J and a

copy of a check request for lodging for the travel and advance

party for the Mondale visit of February 8. This does not

establish that Van lderstine was in the state for more than four

consecutive days.

Audit'staff comments:

The documentation consists of: (a) a draft dated February 9,

1984 for "petty cash-Manchester" accompanied by receipts for gas and supplies between February 2-9, (b) two drafts dated February 9 for "car rental-WFM to NH, 2/8-2/9/84" which is accompanied by
•

Attachment I

Page 19 of 20

a rental agreement for February 4-9, (e) a check requ••t for per diem for Manchester, R.B., .ebruary 4-6, (d) a check request for

lodging for ·WPM Visit Manch••ter 2/8/84· which ie accompanied by Mr. Van Iderstine's room receipt for february 6-7 and (e) a check

request for lodging for ·WPM 2/9-10/84 Visit to Manchester· which

is accompanied by Mr. Van Iderstlne'. room receipt for Pebruary 7-8. Together these expenses cover Pebruary 2-9, 1984 and

require allocation to New Hampshire.

Audit Adjustment: . $-0-

30. Kate Varney

Committee comments:

$200.00

The auditors provided as evidence copies of draft. cashed in

New Hampshire on February 17, 1984, January 23, 1984 and January 24, 1984, a copy of a check request for four days consulting fees

for the period January 21 through 24, 1984, in connection with a

Berlin, New Hampshire trip, and a copy of a per diem request for

the same period for the Mondale trip to Berlin on January 24,

1984. The evidence as presented does not establish Varney's

presence in the state for more than four consecutive days.

Audit 8taff cam.ent8:

The documentation consists of a check request for per diem

in New Hampshire for January 21-24, 1984 and copies of two

drafts, dated January 23 and 24, for petty cash which were made

payable to an entity in Shelburne, N.H. The drafts are

accompanied by receipts for a rental car, gas, and supplies covering January 21-25. Together these cover January 21-25 and

require allocation to New Hampshire.

Audit Adjustment: $-0-

31. Steve Werbel

Committee comments:

$405.78

•

The evidence presented by the auditors consists of a check

request for. advance salary for a Massachusetts trip on January 8

and 9, and New Hampshire on January 10 through 13, 1984, copies of drafts written for per diem for January 12 and January 13, a

copy of a check request for expense reimbursement for January 13,

and a copy of a check request for four days per diem on January 8
•

Attachment I

Page 20 of 20

through 11 In connection with a Monda1e trip to Rew R.mp.hire on

January 12-13. The last per diem request 18 for the •••• period

as the advance salary request which was clearly described •• part Massachusetts and part New Hampshire. There is no evidence that

Werbel was in New Hampshire more than four days.

Audi~ staff ca..ent8:

The Audit staff agrees that $405.78 in expenses for per diem, air fare, car rental, and gas are not allocable to New

Hampshire.

Audit Adjustment: $405.78

Summary

• !2!! lIaine Rev Bupshire

Interim Audit Report amount

of intra-state travel and

subsistence $19,589.89 $7,178.46 $7,589.65 ". Adjustments:

f:f"* Mulhall, '26 (238.77) WeIbel, '31 (405.78) c~

Revised total of intrastate travel and $19,589.89 $7,178.46 $6,945.10 subsistence

•
•

Attachment II

Page 1 of 2

Salaries, .aployer PICA, and Consultant Pee.

('inding III.A.l.e.)

The following are the individuals for whom the Committee

disagrees with the Audit staff's Maine salary, employer FICA, and

consultant fee Interim Audit Report allocations. A1BO provided

are the amounts in dispute and the Audit staff's bases for

allocation. , .

1. John Bell $849.84

Basis for allocation:

Mr. Bell received a $295 travel advance for the period July 19-August 2, 1983 which the Committee allocated to Maine. Mr.

Bell's salary for this period, however, was allocated to the

Pield cost center ('lOS). The Audit staff's adjustment reallocates the individual's salary for the period July 19-August

2, 1983 to Maine.

Lynn Cribari $519.42

Basis for allocation:

Ms. Cribari received a $100 travel advance for August 9-

August 26, 1983 which the Committee allocated to Maine. Ms.

Cribari's salary for this period, however, was allocated to the

Pield cost center. The Audit staff's adjustment reallocates the

individual's salary for the period August 9-26, 1983 to Maine.

2. '.

3. Scott Dolley

Basis for allocation:

$344.48

Included in drafts '200587-200601 was a $243.88 car rental

expense incurred by Mr. Dolley in Maine from July 23-August 1,

1983. The Committee allocated these drafts to Maine, however,

Mr. Dolley's salary for this same period was allocated to the

Pteld cost center. The Audit staff's adjustment reallocates the lndlYidual~8 salary for July 23-August 1, 1983 to Maine •

•
•

Attachment II

Page 2 of 2

4. Bill Tapell. $687.50

Basis for allocation:

Mr. Tapell. received a $165 travel advance for the period July 22-31, 1983 and a travel expense reimbursement of $1,626.26

for the period July 22-AuguBt 1, 1983, both of Which the

Committee allocated to Maine. Mr. Tapella'. salary for this

period, however, was allocated to the Pield cost center. The

Audit staff's adjustment reallocates the individual'••alary for

the period July 22-August 1, 1983 to Maine.

5. Mike Pangor

Basis for allocation:

$300

Mr. Pangor received a $125 travel advance for the period

February 22-26, 1984 which the Committee allocated to Maine. His

salary for this period, however, was allocated to the Scheduling and Advance cost center ('108). The Audit staff's adjustment reallocates the individual's salary for the period February 22-

26, 1984 to Maine. v

..

6. Don Lesser

Basis for allocation:

$500

,.....

Mr. Lesser received a travel advance and a travel expense reimbursement, for $150 and $280.97, respectively, covering the

period February 21-27, 1984. The Committee allocated these

expenditures to Maine. Bis salary for the period, however, was

allocated to the Scheduling and Advance cost center. The Audit

staff's adjustment reallocates the individual's salary for the

period February 21-27, 1984 to Maine.

7. The Committee disputes the allocation of the employer FICA

payments which correspond to the reallocation of the above six

individuals' salaries. The Committee questions $224.09 in such

FICA tax payments. (The correct amount is $216.88. The Audit

staff used a FICA rate of 6.7\ for 1983 and 7.0\ for 1984. The

Committee's adjustment apparently was based on 7.0\ for both 1983

and 1984). However, for the reasons stated in numbers 1 through

6, the Audit staff has made no adjustment to the $216.88 in

employer FICA payment reallocations.

The Committee objects to the allocation of a $300 consulting fee covering August 15-31, 1983. For the reasons given at

Attachment I, 13, no adjustment to this allocation has been made. •

8. Ned McCann $300
•

•

Material requested to be made public by

Commissioner Elliott •
•

,

• . i "

•

I.. ..... ,"~'\~ _f .. - ,.-

'.. . .. Eli J~i Tf.:t FEe ,.. I "I )f" \ ......

.. '. .'f,.. FE'"' • ' f .., t t-1'- t;

{) GU(; r29 O~··, 0, "'T2')~f

RBASONS COMMISSIONBR LBB ANN BLLIOTT

VOTBD ON TBB FINAL AUDIT RBPORT

OF TliB MONDALB FOR PRBSIDBNT COMMITTBB (PRIMARY)

OCTODBR 9, 1988

Ala: 57

Ala: 57

-

-

-

On October 9, 1986, the Federal Election Commission granted the

Mandale Presidential Committee an exception from our established

repayment formulas for presidential primary candidates. This exception

deducts over $110,000 (30%) from the amount the Mondale Committee

owes the United States Treasury for improperly receiving and spending

federal funds in the primary election campaign, as normally computed

by the auditors applying the formula used throughout the 1984

presidential election cycle.

The Mondale primary committee was the final 1984 presidential

primary committee to be audited by the Federal Election Commission.

The Commission's "Mondale exception" was put forward on the belief

that the established repayment formula "double counted some violations. "

The Audit Division demonstrated, to my satisfaction, that no double

counting occurred in this or any other presidential audit.

The exception was accomplished by changing, on a one-time basis,

an established repayment formula that had been applied to every other

1984 presidential candidate audited by the Commission. I strongly

objected to this Commission action which effectively changes the rules

for one candidate after all other 10 presidential candidates in the

same election cycle had finished the audit process. The motion to

keep established audit procedures failed to carry by a vote 3-3.

Since that motion did not carry, I moved that the Commission

apply the "Mondale exception" to the Hollings and McGoverr. primary

commit tees, whose audits contained the same repayment iss ues presented

in the Mondale Committee audit. This motion would have permitted

the Hollings Committee to recapture $5,929 (38% of their payback) and

the McGovern Committee to recapture $14,189 (21% of their payback).

The Commission rejected this motion by a 2-4 vote.

A third motion to apply the exception only to the Mondale Committee

passed by a vote of 4-2. The Commission subsequently adopted the

entire Mondale Committee audit, containing the repayment exception,

on October 23, 1986.
-

• ,

• • •

•

•

•

Statement of Reasons Page 2

Final Audit Report of the Mondale for President Committee (Primary)

In my opinion, if the Commission feels compelled to change

important repayment formulas for presidential candidates, it should

change them for all candidates and not just one. Government agencies

that disburse the pUblic's money, as the Federal Election Commission

does, should consistently apply the same rules and not create exceptions

that prejudice some and benefit one. Tne Federal Election Commission

should abide by this principle and treat all candidates within the same

electlon cycle in the same way.

ee ott

Commissioner

Date

-

Attachment

-
•

•

r·-

.. "

Attachment to Commissioner Elliott's Comments.

86 cCTZ9 AIO: 51

DBSCRIPTION OP THB PRIMARY AUDIT PROCBSS

AND THB "MONDALB BXCBPTION"

Under the Primary Matching Payment Account Act, the federal

government matches a presidential primary candidate's private contributions up to a maximum dollar amount. If a candidate receives

federal matching payments in excess of what he is entitled to, or

spends federal money on items that do not qualify as permissible

campaign expenditures, that candidate is required to reimburse the

government for any amounts impermissibly received or spent.

The Federal Election Commission audits each presidential primary

campaign committee which receives public funds to see if any money

must be repaid to the government at the end of the campaign" In all

previous 1984 election cycle audits, the Commission made two decisions:

(1) did the campaign committee receive more federal money than it

was entitled to; and, (2) did the committee spend the federal money

to which it was entitled on permissible campaign expenditures. From

this audit review t a committee is charged with a repayment determination

that requires reimbursement to the government for all extra federal

money received and federal money misspent.

The Commission departed from this established repayment

formulation and crafted an exception for the 1984 Mondale Primary

Committee. This exception reduces the Mondale Committee's repayment

from $372,216.23 as figured under the normal repayment formula, to

$260,500.55 as figured under the exception.

The :\'londale exception was created on the belief that the

Commission's current repayment formula "double counted" the same

federal money in a committee's repayment calculation. Accordingly,

the "\londale exception" considers most of the federal money the Mondale

Committee spent on impermissible expenditures to be the same federal

money it received in excess of its entitlement. The "Mandale exception"

assumes that any federal money impermissibly spent after the date of

ineligibility is somehow recovered by the repayment of federal funds

received in excess of entitlement. In other words, the ~1ondale Commit tee's repayment of improperly spent federal funds is limited to on ly

those expenditures paid before the date :\londale became ineligible to

receive federal funds .

•
. ..

• DESCRIPTION OF THE PRIMARY AUDIT PROCESS

AND THE "MONDALE EXCEPTION"

Page 2

The effect of the "Mondale exception" is to reduce 8 committee's

repayment from an amount calculated under the normal repayment

formula. For the Mondale Committee, the figures are:

Normal

Repayment Formula

Applying "Mondale

Exception"

HOLLINGS COMMITTEE

The Hollings Presidential Committee and the McGovern Presidential

Committee audits presented the same two repayment issues as presented

in the Mondale Committee audit. Applying the nMandale exception" to

these two committees yields the following figures:

Normal

Repayment Formula •

*(1)

·*(2)

Total

Repayment

(1)

(2)

Total

Repayment

$200,412 .. 97

171,803.16

372,216.23

$9,676.11

5,929.48

15,605.59

$200.412.91

60,087.64

260,500.55

Applying "Mondale

Exception"

$9,676.11

0.00

9,676.11

McGOVERN COMMITTEE

Normal

Repayment Formula

Applying "Mondale

Exception"

(1)

(2)

Total

Repayment

$40,440085

27,285.66

67,726.51

$40,440.85

13,095.87

53,536.72

•

The Federal Election Commission voted not to apply the "~1ondale

exception" to these two commit tees, so their repaymen t determina tions

will remai n at th e originaL higher amou nts"

* Federal funds received in excess of entitlement.

**Federal funds impermissibly spent.
,

• FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C Z04&J

."

MEMORANDUM TO:

FROM:

DATE:

SUBJECT:

THE COMMISSION

MARJORIE W. EMMONS/ JOSHUA MCFADDE~ NOVEMBER 3, 1986

RESPONSE TO COMMISSIONER ELLIOTT

Re: Monda1e Final Audit

Dated OCtober 31, 1986

•

The attached has been circulated for your

information•

Attachment
\

t

\

•

RE:

J

RESPONSE TO COMMISSIONER ELLIOTT .. ,

J

MONDALE FOR PRESIDENT COMMITTEE FINAL AUDIT REPOR'rl I t....,a. •

.--.

'. ' . "

\1 .

The undersigned wish to respond to Commissioner Elliott's st8tdent of ' .. reasons regarding the Mondale for President Committee Final Audit Report·dnd tbtt ~-;,

"Description of the Primary Audit Process and the 'Mondale Exception'" 8~rent~

alsQ issued by Commissioner Elliott through the Commission's Press Office. .

Unlike the other presidential committees previously audited, the Mondale

for President Committee objected to being, in essence, penalized twice for the

same excessive expenditures. The Commission th us was called upon for the first

time to resolve a difficult legal and policy issue. Though there were several

different approaches available, the Commission had to select just one in order to

issue a tinal audit report. After caretul consideration and deliberation, a majority

of the Commission voted to take the action it did.

To characterize the calculations utilized in other audits dealing with

different facts as an "established formula" seems unwarranted, especially since

the issue at hand was not raised by other campaigns for consideration by the

Commission. Further. to state that the majority "crafted" a "'Mondale exception',"

•

is to lose sight of the unique procedural, factual, and legal circumstances of this

matter.

N R E

ce Chairman

SCOTT E. THOMAS

Commissioner

DATED: October' 31, 1986