Matttiew Sanderson To <thintermlster@fec.gov> 

<msanderson @capdale .com 

> 

06/07/2012 02:23 PM 

CO Trevor Potter <tpotter@capdale.com> 

bcc 

Subject Request fbr Audit Hearing and fbr Response Extension 

Mr. Hintermister: 

McCain Palin-2008 and McCain-Palin Compliance Fund request an audit hearing to discuss the matters 

raised in the Draft Final Audit Report. 

In addition, the Committees request additional time to respond in writing to the Draft Final Audit 

Report (and the attached Office of General Counsel memorandum). This written response Is currently 

due on June 11,2012. More time is needed to prepare a full response to the issues raised. The 

Committees also need an extension because they no longer retain full-time staff members and must 

rely on independent contractors who have other responsibilities. The Committees therefore 

respectfully ask for an extension so that their written response will be due on or before Monday, July 9, 

2012. 

Please let me know if you have any questions. 

Best, 

Matt 

Matthew T. Sanderson 

Caplin & Drysdale, Chartered 

(202) 862-5046 (direct) 

One Thomas Circle, NW 

Washington, DC 20005 

msanderson@capdale.com 

www.capdale.com/msanderson/ 

To ensure compliance witii requirements imposed by tiie IRS, we inform you tiiat, unless 

specifically indicated otherwise, any tax advice contained in this communication (including any 

attachments) was not intended or written to be used, and cannot be used, for tiie purpose of (i) 

avoiding tax-related penalties under the Intemal Revenue Code, or (ii) promoting, marketing, or 

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in error, please advise us by retum e-mail, or if you have received this communication by fax 

advise us by telephone and delete/desttoy the document. 
MCCAIN 

PALIN 

COMPLIANCE FUND 

July 7, 2012 

VIA ELECTRONIC AND CERTIFIED MAIL 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Federal Election Commission 

999 E Stteet, NW 

Washington, DC 20463 

Re: McCain Presidential Committees' Response to the Draft Final Audit Report 

Dear Mr. Hintermister: 

McCain-Palin 2008, Inc. and McCain-Palin Compliance Fund, Inc. have endeavored to 

comply strictly with Commission rules. Their success in doing so is demonsttated by ihe fact 

ihat the Audit Division's nearly four-year audit of McCain-Palin 2008, McCain-Palin 

Compliance Fund, and their seven affiliated joint ftindraising committees has identified only two 

outstanding issues: (1) Press reimbursement calculation methods that the Audit Division 

concedes did not result in "the General Committee ... receiv[ing] ttavel reimbursements from the 

Press that exceeded the maximum allowed by the regulations";' and (2) certain 48-Hoiir Notices 

that were not filed due to an outside vendor's data-management error and concemed 

contributions only used for compUance puiposes. 

This Response focuses its analysis exclusively on the frrst of these issues—^Press 

reimbursement—in addressing comments by the Audit Division and the Office of General 

Counsel that were included in the Draft Final Audit Report ("Draft FAR") materials. The 48-

Hour Notices were aheady discussed tfaorougfaly in Section II of the "Response to the 

Preliminary Audit Report," which was previously submitted to the Commission.^ 

' Fed. Election Comm'n. Preliminary Audit Report at 10 (Sept. 30,2011). 

^ Preliminary Audit Report Response of McCain Presidential Committees at 14-15 (Dec. 20,2011). 
L ANALYSIS 

The Press covering Senator John McCain's participation in the 2008 presidential 

campaign travelled predominantly on an aircraft chartered by the McCain Campaign through a 

conttact with Swift Air, LLC. John McCain 2008 (the "Primary Committee") and McCain-Palin 

2008 (tiie "General Committee") agreed to pay Swift Air $6,384,000 in exchange for 425.6 total 

fright hours from June 30th to November 15th.^ The total fee paid by the Primary Committee 

and the General Committee was frxed, in that $6,384,000 was still due even if fewer than 425.6 

hours were ultimately frown.^ This is relevant because the two Committees, in fact, only used 

252.1 of the 425.6 contracted fright hours (111.8 hours were used by the Primary Committee, 

140.3 hours by the General Committee). 

The Primary Committee and the General Committee were legally authorized to seek 

reimbursement from ttavelling Press entities for up to 110 percent of the $6,384,000 frxedpayment total and other travel expenses.^ The Audit Division does not allege tfaat any ineligible 

expenses were billed to tfae Press for reimbursement.^ And signifrcantly, the Audit Division 

concedes that the Primary Committee and the General Committee collected the proper total from 

the Press: 

The Audit staff agrees that when using the total Swifr Air LLC conttact amount for botfa 

tfae primary and general election periods ... the General Committee did not receive ttavel 

reimbursement from the Press that exceeded the maximum allowed by the regulations.^ 

The total amount billed and received by the Primary Conunittee and the General Committee was, 

by the Audit Division's statement, a legally proper amount. Despite the Audit Division's 

puzzling insistence on clinging to the term "overbilling," the Division is, at bottom, only arguing 

that the two Committees should have better "match[ed] the cost of the campaign to the proper 

election."^ Put differently, the Audit Division thinks that, although the two Committees together 

collected the proper total from the Press, the General Committee received too much of the total 

and the Primary Committee received too little.^ 

^ The contract permitted a maximum number of 22.4 flight hours flown in a week. If the maximum weekly hours 

were not flown, the leftover hours "rolled over" for use in subsequent weeks. If the contracted 22.4 weekly flight 

hours were exceeded and no "rolled over" hours were available. Swift Air charged $15,000 per additional hour. The 

maximum weekly flight hours were never exceeded. 

* The fee excluded aircraft reconfiguration costs and variable costs (e.g. fuel, baggage fees). Reconfiguration costs 

and variable costs are not at issue in the Draft FAR, so they are not discussed in this Response. See Fed. Election 

Comm'n, Preliminary Audit Report at 9 (Sept. 30.2011) ('The General Committee correctly reimbursed the 

Primary Committee $390,000 ... for these aircraft configuration costs."). 

'5ee 11 C.F.R. §9004.6. 

M l C.F.R. § 9004.6(a)(1). 

^ Fed. Election Comm'n, Preliminary Audit Report at 10 (Sept. 30.2011) (emphasis in original). 

^ Fed. Election Comm'n. Preliminary Audit Report at 13 (Sept. 30.2011). 

' Fed. Election Conun'n. Preliminary Audit Report at 13 (Sept. 30,2011) ('The General Committee received 

reimbursements from the Press for campaign travel that were above the maximum amount billable to the Press. The 

Primary Committee appears to have billed an amount that was less than its cost."). 
The General Committee, which is named in the Drafr FAR, does not dispute that Press 

reimbursements could be rebalanced between the two Committees, now with tfae benefrt of 

hindsight. The General Committee, however, argues that: (A) the Primary Committee and the 

General Committee used a reasonable process in the frrst instance to predict the eventual, proper 

allocation of Press reimbursements between the Committees; and (B) to the extent a 

misallocation of Press reimbursements between the two Committees still exists, it may correct 

the imbalance through a payment to the Primary Committee. 

A. The Primarv Committee and the General Committee Used a Reasonable 

Process to Predict the Eventual, Proper Allocation of Press Reimbursements 

between the General Committee and the Primarv Committee 

Commission mles require an authorized committee seeking reimbursement from Press 

entities to present an itemized invoice within 60 days of a campaign trip or event.The invoice 

must reasonably estimate a Press entity's pro rata share for the air ttansportation of "each 

segment ofthe trip," which is calculated by "dividing the total actual cost ofthe ttansportation 

and services provided by the total number of individuals to wfaom sucfa transportation and 

services are made available."'' 

A ttavel segment's "total actual cost of the ttansportation" is comprised of both variable 

and fixed expenses. Variable expenses, such as fuel, catering, passenger taxes, and ground 

handling fees, are easily atttibuted to a particular travel segment since they are that same 

segment's direct costs. Fixed expenses are different. They are not the result of any particular 

ttavel segment and would exist even if a ttavel segment did not occur. What is the proper 

method for assigning a portion of a fixed cost to a particular ttavel segment? 

The Commission has never issued a mie or express guidance that specifically answers 

this question, as was acknowledged in the Drafr FAR materials: "neither the regulations itself, 

nor its Explanation and Justifrcation provide a formula for calculating the actual cost of air ttavel 

on a chartered airplane used by two committees in two different elections."'^ To calculate the 

frxed-expense share of a ttavel segment's "total actual cost of the ttansportation," then, one must 

devise a reasonable method to assign some portion ofthe overall frxed cost to that single ttavel 

segment. 

'° 11 C.F.R. § 9004.6(b)(3). See also 52 Fed. Reg. at 20886 (June 3,1987)(stating that tiie rules permit an estimate 

of a media entity's costs because it "eases the burden of accounting precisely for such costs in the heat of the 

campaign. In addition, this allowance permits reimbursements received from some media organizations to 

compensate for those that do not pay in full."). 

"11 C.F.R. § 9004.6(b)(2)-(3). 

*^ Fed. Election Comm'n, Ofr. of General Counsel Memo, to Thomas Hintennister at 4 (Apr. 11.2012). See also 

Fed. Election Comm'n, Off. of General Counsel Memo, to Thomas Hintermister at 5 (Apr. 11,2012) ('The 

regulatory history provides no guidance about how to determine the 'actual cost' in a case like this one, where a 

candidate's primary and general committees shared a contract for use of the same leased airplane.") (emphasis in 

original). 
Here, the Primary Committee and the General Conmiittee presented itemized invoices 

that, as required, listed a reasonable estimate of each Press entity's pro rata share for air 

ttansportation, calculated by dividing the "total actual cost ofthe ttansportation" by the total 

number of individuals to whom the ttansportation was made available. Variable costs were 

easily attributed to each travel segment. To determine each ttavel segment's "total actual cost of 

the ttansportation," though, the two Committees still needed to devise a method to assign a 

portion of tfaeir fixed costs to eacfa ttavel segment. 

Tfais was not easily done in advance witfa tfae two Committees' largest fixed 

ttansportation-related cost, ti^ie $6,384,000 fee for 425.6 fright hours paid to Swift Air. (Again, 

this $6,384,000 fee was a frxed expense, because it was still due in full even if fewer than the 

maximum 425.6 hours were ultimately frown.) The Committees knew the total fee ($6,384,000), 

tfae total number of frigfat hours to which they were entitled (425.6 hours), and, therefore, the 

baseline hourly rate ($6,384,000 / 425.6 = $15,000/fright faour). But tiie frnal faourly rate for tiie 

Swifr Air conttact could be calculated only at the end of the conttact, when the Committees 

would know exactly how many fright hours over which to spread the $6,384,000 frxed fee. 

While an hourly rate for a ttavel segment could be predicted, the ultimate hourly rate for that 

ttavel segment would fluctuate based on subsequent use or disuse ofthe plane. For example, the 

Press could be billed a pro rata sfaare using a $15,000 per-hour estimate for a July ttavel segment, 

but the ultimate hourly rate for that segment would go up if plane use was less than anticipated in 

August through November, or go down if the plane was frown more than expected in the postJuly period. The Committees' calculations were therefore not hampered by "the fast pace ofthe 

election campaign," as the Audit Division surmised.'^ The Committees could not "calculate" 

here. At best, they could predict the proper hourly rate for a ttavel segment, knowing that the 

actual hourly rate would, in the end, depend on future, unknowable events.'^ 

Facing this situation without the benefrt of Commission mles or express guidance, the 

two Committees could have arbittarily applied a calculation method or an hourly rate. Instead, 

tfae Committees undertook an effort to continually adjust each new travel segment's hourly costs 

based on the evolving total of estimated hours to be flown under the Swifr Air conttact.'^ Press 

reimbursement billings were then sent out and collected using these estimated hourly costs. 

Realizing that the Swifr Air contract straddled the primary- and general-election periods, the two 

Committees fully anticipated that they could need to later "rebalance" the Press reimbursements 

between them when the actual hourly rates for all ttavel segments became known (and 

knowable) after the 2008 election. 

Fed. Election Comm'n, Preliminary Audit Report at 10 (Sept. 30,2011). 

Because the actual hours flown were far less than the hours to which the Campaign was "entitled" by the contract 

(252.1 hrs v. 425.6 hrs). the actual per hour cost was much greater ($25,208 per hour using the Campaign's 

methodology and $27,350 per hour using the Audit Division's methodology) than the per hour cost envisioned by 

the contract ($6,384,000 / 425.6 hours = $15,000 per hour). 

As the Audit Division noted, 'The General Committee ... relied on adjusting the per hour billing rates on a 

segment-by-segment basis due to using fewer flight hours than available in the Swift Air contract." Fed. Election 

Comm'n. Preliminary Audit Report at 10 (Sept. 30.2011). 
The Audit Division acknowledges that the Committees' metfaod for predicting the proper 

allocation of Press reimbursements between the General Committee and the Primary Committee 

"refrect[s] the comparative actual use of the aircraft between the Primary ... and General 

Coinmittees.. ."'^ The Audit Division nonetheless advocates a new, never-before-aimoimced 

technique for calculating a ttavel segment's hourly rate, and by extension, the proper allocation 

of Press reimbursements: divide each weekly installment of the $6,384,000 Swift Air payment 

"by the actual weekly hours frown during the general election period.. ."'^ 

The Audit Division's metfaod is convenientiy simple. But tfais simplicity is wrought by 

ignoring important realities about the Swifr Air conttact. For one, the Swifr Air conttact was 

jointly held by the Primary Committee and the General Committee. It spanned four months, 

sttaddling the divide between primary- and general-election periods. The Committees and Swifr 

Air intended this exact stmcture. A four-month contract held by two entities is manifestly 

different than a two-month conttact held by one. The Audit Division, however, wants to now 

artifrcially bisect the Swifr Air conttact without even considering whether the parties would have 

stmctured two separate two-month conttacts another way. For instance, the amount and 

frequency of the weekly installment payments might have been different, and the costs certainly 

would have been greater since a key factor in the cost of securing a dedicated aircrafr is the 

lease's duration.'^ The Audit Division cannot disregard a conttact's fundamental elements 

without its analysis spinning into the realm of frction. 

The Audit Division also ignores the fact that the Swifr Air ttansaction was a frxed 

$6,384,000 fee in exchange for 425.6 fright hours. The Committees were required to pay "a total 

of of $6,384,000 in exchange for "425.6 hours over the Term" of the conttact, which lasted until 

November 15,2008.'^ The total payment and the total hours were divided into equal weekly 

portions as a scheduling mechanism, but a particular week's payment was not in exchange for 

that week's fligfat faours, as the Audit Division supposes. General conttact law principles,^^ and 

Fed. Election Comm'n, Preliminary Audit Report at 13 (Sept. 30,2011). See also Fed. Election Comm'n, Ofr. of 

General Counsel Memo, to Thomas Hintermister at 4 (Apr. 11,2012) (remarking that the General Committee's 

"method may accurately reflect the comparative actual use of the aircraft"). 

" Fed. Election Comm'n, Preliminary Audit Report at 10 (Sept. 30.2011). 

Regardless of whether the contract is for two months or four months, the aircraft operator/owner is required to 

place the aircraft through Federal Aviation Administration inspection and thereby remove the aircraft from regular 

commercial service. The cost of setup and servicing the aircraft for the inspection is relatively static. This allows 

the lessor of the aircraft to factor that cost throughout the duration of the contract adding to the weekly operating fee. 

Timing for the complex reconfiguration and then its retum to an original state after use are also factors in 

determining the time the aircraft would be out of service fbr other commercial rentals. Therefore, the contract 

would naturally be cheaper based on the longer duration. Several outside experts on aircraft lease pricing confirmed 

this conclusion, that a four-month lease would be 5 percent to 20 percent less expensive than a two-month lease. The 

statements of those experts can be provided to the Commission upon request. 

" Swift Air. LLC Charter Agreement at Attach. A to Cover Sheet at 1 (May 30,2008). 

^ 15 Williston on Contracts § 45:4 (4di ed.). See also 15 Williston on Contracts § 45:3 (4th ed.) ("It may be 

assumed that if the promises constitute a single contract, there is a general dependency between all the promises on 

one side and all the promises on the other. This means that all the promised performances on both sides must be 

regarded as the agreed exchange for each other.") 
0 1 

Anzona law, which governed the Swifr Air ttansaction, presume that a conttact is not divisible 

in this manner unless divisibility is the conttacting parties' unambiguous intent. And the intent 

of the Committees and Swifr Air, as expressed through the lease's stmcture and plain language, 

was clear: 

• If die Committees breached or cancelled the lease, they were required to pay "all past 

charges for actual hours flown and related expenses to the date of termination."^^ The 

portion of the total 425.6 hours that had been used, not the number of weeks that had 

passed, served as the basis for calculating the breach or cancellation payment. This is 

consistent with a $6.38-million-for-425.6-hours agreement rather than a conttact divisible 

into 19 weekly segments. 

• The conttact is for a term of months, and not a term of weeks.^^ 

• The conttact featured no maximum or minimum number of weekly fright hours. Tfae 

Committees would have paid a fee to compensate Swift Air for employee overtime and 

other costs if weekly usage exceeded 22.4 hours. The Audit Division misreads this 

provision to mean that Swift Air "limited tfae services to be provided on a weekly basis to 

a maximum of 22.4 of frigfat hours."^^ This interpretation is plainly incorrect. That same 

conttactual provision specifrcally declares: "[t]here shall be no maximum amount of 

hours allowed." The Committees were also permitted to, without penalty, "roll... 

unused hours over to the next week or weeks." In fact, the contract expresses relative 

indifference as to the number of hours frown in a week, "so long as by tfae end of tfae 

Term, Charterer has paid for at least 425 hours of flying."^^ Thus, the fright time to 

wfaich the Committees were entitled was nowhere limited on a weekly basis. Rather, the 

. stmcture contemplated the hours over the agreement's entire term. This indifference to 

weekly usage undermines the Audit Division's claim that a weekly frxed payment was 

actually in exchange for that week's fright hours. 

• The Committees and Swifr Air anticipated that fright hours would increase as the 2008 

general election neared. If the conttacting parties had intended one week's payment to be 

in exchange for one week's fright hours, then, the payments would have been in 

graduated amounts so that the hourly rate remained roughly constant as usage also 

increased. Instead, the payments were divided equally, demonsttating that the parties 

intended the weekly payments and the weekly hours simply as a timetable. 

Dividing a week's installment payment by the week's actual fright hours therefore does not 

reflect what a ttavel segment's hourly rate and "total actual cost" were. Yet the Audit Division 

does that very tfaing, presumably to simplify the hourly rate calculations since one uses only a 

week's actual flight faours ratfaer than waiting until the end of the conttact to determine how 

^' See. e.g.. OUiver/Pilcher Ins.. Inc. v. Daniels. 148 Ariz. 530, 533,715 P.2d 1218,1221 (1986) ("Where die 

severability of the agreement is not evident from the contract itself, the court cannot create a new agreement for the 

parties to uphold the contract."). 

^ Swift Air. LLC Charter Agreement at Attach. A to Cover Sheet at 8.15 (May 30.2008) (emphasis added). 

" Swift Air. LLC Charter Agreement at Attach. A to Cover Sheet at 2 (May 30.2008). 

^ Fed. Election Comm'n, Draft Final Audit Report at 18 (May 23,2012). 

" Swift Air, LLC Charter Agreement at Attach. A to Cover Sheet at 1 (May 30,2008). 
many actual flight hours over which to spread the $6,384,000 fixed fee.^^ Simplicity is indeed 

atttactive. It interferes with accurately calculating each ttavel segment's "total actual cost" here, 

though. 

The Committees' calculation metfaod for a ttavel segment's faourly rate, on the other 

hand, does not rely on counterfactuals. It recognizes the Swift Air conttact as it is, and in doing 

so, is more consistent with the "benefrt derived" principle, with Commission audit precedent, and 

with Generally Accepted Accounting Principles. The Primary Committee and the General 

Committee therefore used a reasonable process to predict the eventual, proper allocation of Press 

reimbursements between the Committees. 

1. The Committees' Calculation Method is More Consistent with the 

"Benefit Derived" Principle 

The Committees' calculation method to determine a travel segment's hourly rate coheres 

with the "benefrt derived" principle. The Commission has favored the concept that shared 

expenses between committees should, unless otherwise specifred, be allocated "according to the 

benefrt reasonably expected to be derived."^^ For example, to allocate shared expenses between 

primary-election and general-election presidential committees tfaat are both publicly fimded, the 

Commission's mles state: 

Any expenditure for goods or services that are used for the primary election campaign ... 

shall be attributed to the [primary-election spending] limits set forth at 11 CFR 9035.1. 

Any expenditure for goods or services tfaat are used for tfae general election campaign ... 

sfaall be attributed to the [general-election spending] limits set forth at 11 CFR 

110.8(a)(2)... 

Usage is centtal to allocation.^^ And it is here as well because a conimittee derives benefrt from 

an aircraft only when it "uses" an aircraft."**^ 

^ Fed. Election Comm'n, Preliminary Audit Report at 10 (Sept. 30.2011) (stating that under tiie Audit Division's 

method "the actual flight hours are known soon after flights occur...") 

" See, e.g.. 11 C.F.R. § 106.1(a)(1). See also Fed. Election Comm'n, Report of the Audit Division on Bush-Cheney 

'04. Inc. and the Bush-Cheney '04 Compliance Committee. Inc.. Statement by Mason and Von Spakovsky 2 (2007) 

("The basic principle behind two entities sharing the cost of a mutually beneficial, single communication is express 

in 11 CFR § 106.1, which states that '[e]xpenditures. including in-kind contributions, independent expenditures, and 

coordinated expenditures made on behalf of more than one clearly identified Federal candidate shall be attributed to 

each such candidate according to the benefit reasonably expected to be derived."); Fed. Election Comm'n, Report of 

the Audit Division on Bush-Cheney '04. Inc. and the Bush-Cheney '04 Compliance Committee. Inc.. Statement of 

Weintraub 3 (2007) ('The only justification permitting cost-splitting between Federal candidate and the party is that 

other candidates in the party are going to benefit from the generic reference to the party."). 

^ 11 C.F.R. § 9034.4(e)(1) (emphasis added). 

^ See 60 Fed. Reg. at 31,867 (June 16,1995) (stating that die Rules in 9034.4(e) are bright-line rules meant to "give 

committees clear guidance as to which expenses will be attributed to the primary election and which to the general 

election."). 
As mentioned, the Committees undertook an effort to determine faow much ofthe frxed 

$6.38 million payment to Swifr Air each Committee was "using" on a rolling basis by 

continually adjusting each new travel segment's hourly costs based on the evolving total of 

estimated hours to be frown under tfae Swift Air conttact.^' 

Importantly, the Audit Division concedes that the Committees' method for predicting the 

proper allocation of Press reimbursements between the General Committee and the Primary 

Committee "refrect[s] the comparative actual use ofthe aircrafr between the Primary ... and 

General Committees.. .."^^ The Office of General Counsel seems to agree.*^^ Because measuring 

"use" of an aircrafr is the method to determine "benefrt derived," the Audit Division and Office 

of General Counsel recognize tfaat the Committees' method allocated the Swifr Air aircraft costs 

(and resulting Press reimbursements) according to the benefrt reasonably expected to be derived. 

The Audit Division advocates an abandonment of the "benefit derived" principle, though. 

The Office of General Counsel concludes: "[t]he auditors determined that the actual cost was the 

amount paid by the General Committee to Swifr Air.. ."^^ The Office then restates the correct 

standard— "ttavel costs are attributed based on when ttavel occurs"—^but somehow fails to point 

out that the Audit Division is ignoring aircrafr usage altogether and only focusing on the timing 

of payments. Under the Division's preferred method, the final 10 weeks of the 19-week conttact 

occurred during the general-election period, and the frnal 10 weekly payments are therefore, by 

that fact alone, the General Conunittee's "share" ofthe Swift Air fixed fee and resulting Press 

reimbursements.^^ Use is irrelevant. "Actual cost" equals actual payment per se. Allocation is 

determined solely by how committees choose to divide a shared expense. This approach 

meaningfully departs from past Commission practice. The Audit Division would commit the 

Commission to deferring entirely to political committees' chosen allocations. Assume, for 

instance, the Committees had front-loaded the weekly payments so that two-thirds of the $6.83 

^ See 11 C.F.R. § 9034.4(e)(7) (stating that travel expenses "shall be attributed according to when the ti-avel 

occurs."). 

^' As the Audit Division noted, 'The General Committee ... relied on adjusting the per hour billing rates on a 

segment-by-segment basis due to using fewer flight hours than available in the Swift Air contract." Fed. Election 

Conun'n, Preliminary Audit Report at 10 (Sept. 30.2011). 

Fed. Election Conun'n. Preliminary Audit Report at 13 (Sept. 30.2011). 

See also Fed. Election Comm'n. Ofr. of General Counsel Memo, to Thomas Hintermister at 4 (Apr. 11,2012) 

(remarking that the General Committee's "method may accurately reflect the comparative actual use of the aircraft 

between the two committees."). 

^ Fed. Election Comm'n. Off. of General. Counsel Memo, to Thomas Hintermister at 5 (Apr. 11.2012). 

Fed. Election Comm'n, Draft Final Audit Report at 17 (May 23,2012) ('The Audit staff notes that the only 

portion of the Swift Air contract for which the General Committee was responsible was the final ten weeks. The 

General Committee seemed to have understood that it was liable for the portion of the contract beginning in the 

contract's tienth week because that is how the contract obligation was paid... The Audit staff necessarily focused on 

the fixed cost incurred and paid during the general election period."). See also Fed. Election Comm'n, Off. of 

General Counsel Memo, to Thomas Hintermister at 5 (Apr. 11,2012) ("The Audit staffs calculation is appropriate 

because the cost of the Swift Air contract paid for and used by both the primary and general campaigns should be 

divided based on the amount each committee actually paid..."). 
million total was paid in the frrst nine weeks. If the Audit Division applied its approach to this 

hypothetical arrangement, the General Committee's "share" would be just one-third, regardless 

of the General Committee's comparative use of the aircrafr because "the actual cost [to the 

General Committee] was the amount paid by the General Committee to Swifr Air." One might 

think of other potential scenarios. For example, assume that the Swift Air conttact payment 

scfaedule and amounts were left as-is, but the Primary Committee used only one hour of fright 

time. The Audit Division would still permit the Primary Committee to defray over $3 million of 

the Swifr Air payment because the Primary Committee's actual cost "was the amount paid ... to 

Swifr Air." These absurd results, which would permit a conunittee to subsidize another's 

activities, show that while the timing of ttavel is relevant to reaching a proper allocation in this 

instance, the timing of payments is not. The "benefrt derived" principle is a more accurate 

allocation approach, and the Audit Division should not have discarded it. 

Unlike the Audit Division, the two Committees used a process tfaat was consistent with 

the "benefit derived" principle to predict the eventual, proper allocation of Press reimbursements. 

That process was therefore reasonable. 

2. The Committees' Calculation Method is More Consistent with 

Audit Precedent from the Commission. 

Though the Committees could not look to a Conimission mie or express announcement, 

they stmctured their calculation method for determining a ttavel segment's hourly rate to match 

Commission precedent found in previous audits. That precedent is embodied in this instmctive 

statement from the Dole-Kemp Final Audit Report, which discusses the proper method for 

prospectively estimating the hourly cost of a frxed-rate conttact: 

The conttacts for these aircrafr contained a fixed price and specified the maximum 

number of hours tfaat could be frown at that price. This required [Dole-Kemp] to estimate 

not only the variable costs (such as fuel, landing fees, catering, etc.) related to operating 

tfae aircraft, but also estimate tfae total number of hours to be frown by each aircrafr. 

Tfaese estimates were revised several times during the campaign. The estimated hourly 

rate used by [Dole-Kemp] increased as the campaign progressed and then dropped 

slightly prior to the campaign's conclusion. The Audit staff determined the hourlv rate 

for each aircrafr bv accumulating all operating costs and dividing that total bv the actual 

number of hours flown bv each aircraft. That calculation resulted in a significantly lower 

average hourly cost for the aircraft used by Senator Dole and Secretary Kemp than used 

by [Dole-Kemp] to bill the Press and Secret Service.^^ 

The Dole-Kemp Audit staffs metfaodology for determining a ttavel segment's hourly rate for a 

fixed-rate conttact was to divide tfae total amount of payments made under tfae aircrafr lease by 

the total number of actual fright hours. 

36 Fed. Election Comm'n. Final Audit Report on Dole for President Committee, et al. at 2 (2007) (emphasis added). 
The Primary Committee and the General Committee assigned a portion of tfaeir 

$6,384,000 frxed Swifr Air payment to each ttavel segment using the methods employed by the 

Dole-Kemp Audit staff. They initially undertook an effort to continually adjust each new ttavel 

segment's hourly costs based on the evolving total of estimated hours to be frown under the 

Swifr Air conttact. Press reimbursement billings were then sent out and collected using these 

estimated faourly costs, realizing tfaat tfae actual rate would differ from the estimate when the 

actual hourly rates for all ttavel segments became known (and knowable) after the 2008 election. 

The Audit Division rejects the Committees' metfaod because "only those costs 

atttibutable to the General Committee should be used in determining the ttavel cost the General 

Committee may bill to the Press"^^ and because "the General Committee should recognize only 

those ttansportation costs from September 1,2008 through November 4,2008 in the calculation 

for billing the Press."^* The Audit Division is only setting up "sttaw men" here so that it can 

knock them down. The Committees do not disagree with the Audit Division's tmisms— 

certainly only Press reimbursements for general-election ttavel should be billed and kept by the 

General Committee. The real issues here are how sfaould the Committees have predicted the 

amount of "those costs attributable to the General Committee"? And what was the proper 

method for prospectively calculating the "ttansportation costs fixim September 1,2008 through 

November 4,2008"? The Committees' point is that they used the Dole-Kemp method to 

calculate in advance eacfa ttavel segment's hourly rate, and thereby used a reasonable method to 

predict the amoimt of Swifr Air-related frxed "costs [that would be] attributable to the General 

Committee." 

The Audit Division also cites the Dole-Kemp Audit, but they tacitly suggest tfaat the 

Dole-Kemp Audit prevents the Division from recognizing that the Swifr Air conttact extended 

back into tiie primary-election period. This is not the case. The Dole-Kemp Audit did indeed 

deal only with general-election activity, but that was because it was examining a generalelection-only aircrafr lease.^' The Dole-Kemp Audit's scope was limited by the underlying facts, 

not by any legal considerations. The Dole-Kemp Audit sfaould therefore not be seen as precedent 

diat the Audit Division may not recognize that the Swift Air conttact extended back into the 

primary-election period. (Again, the Dole-Kemp Audit is cited by the General Committee for 

" Fed. Election Comm'n. Preliminary Audit Report at 10 (Sept. 30,2011). 

Fed. Election Comm'n, Preliminary Audit Report at 12 (Sept. 30,2011). 

Based on research of the news media from that time period and the Dole for President Committee reports filed 

with the Commission, it seems that the Dole Primary Committee had run out of room to spend money on normal 

operating expenses by May 1996, and therefore would not have had the opportunity, as our Campaign did, BushCheney 2000 did. and Kerry-Edwards 2004 did. to sign a contract for and implement reconfiguration costs related to 

a large air charter for a period of time that crosses the Primary/General periods. Research from the Commission 

reports shows that the Dole campaign's main air charter vendor was named "AV Atlantic." While we found 

millions of dollars in expenditures to that firm in September and October 1996, we could find no payments in June 

1996 and only one payment to the firm in July 1996 during the end of the primary-election period. It would seem on 

its face, then, that the Dole Campaign's arrangement with its air charter vendor was vastiy different then the type of 

contract setup the McCain Campaign used. We also note that a Ney^ York Times article during June 1996 validates 

tiie conclusion that die Dole Priniary Committee did not have sufficient fiinds available to enter into the same type 

of agreement as our Campaign did. New York Times, "Democrats Charge Dole Violated Rules on Spending." 

6/12/96 ("At the end of April, his campaign reported having spent all but $177,000 of that sum..."). 

10 
tiie proposition that the proper methodology here is to divide the total amoimt of payments made 

under an aircraft lease by the total number of actual fright hours.) 

Commission precedent is also valuable here. While only general-election committees are 

subject to mandatory audit,^^ the Audit Division has conducted limited inquiries into primaryelection committees conceming jointly held assets and other items. For example, the KerryEdwards 2004 and Bush-Cheney 2000 campaigns held air charter leases that, like the Swifr Air 

contract, straddled the primary- and general-election periods. 

The Kerry-Edwards 2004 Final Audit Report states that the campaign leased an aircrafr 

for a period of seven months (April to November 2004).^' Tfais time frame clearly demonsttates 

a contract that crossed election periods and therefore is also potentially a reasonable comparison 

to the Committees' circumstance if the Audit records do indeed show a similar conttact and 

payment stmcture. Additionally, the Keny-Edwards 2004 air charter lease allowed unused 

flying hours to be "banked" each month and moved forward, as needed, without changing the 

overall cost of the conttact. A total of 10.4 hours were banked from the Kerry-Edwards 2004 

primary-election committee and used by their general-election committee instead. According to 

the post-election Final Audit Report, the general-election committee owed the primary-election 

committee a total of $205,067 for these banked and ttansferred hours.^^ The Audit Division 

claims that the "repayment of banked hours was unrelated to press billing in Kerry-Edwards 

2004."*^ This seems unlikely. While Press reimbursement is not specifrcally mentioned in the 

Kerry-Edwards 2004 Final Audit Report, if unused "primary" banked hours were later used by 

their general-election committee and a reimbursement from the general committee to the primary 

committee was required afrer the fact to pay for those hours, there must also have been a 

misallocation of deposited offsets to those expenditures from the Press by both committees. 

Press ttavel reimbursements could not have been properly reconciled by tfae Kerry-Edwards 

general committee if the Audit Division did not make them account for the 10.4 primary banked 

hours that were rolled forward to the general committee until after the audit was completed. Yet, 

again, the Kerry-Edwards Final Audit Report does not include any conunents or findings as to 

how Press reimbursements should have been handled in that type of "cross-election" scenario. 

As for Bush-Cfaeney 2000, it faeld an aircraft lease with Miami Air Intemational, Inc. that 

was stmctured in a manner nearly identical to the Swift Air conttact. The Miami Air 

Intemational conttact sttaddled the primary- and general-election periods, from August 1,2000 

to November 7,2000, and entitled Bush-Cheney 2000 to a maximum number of fright hours for 

a frxed payment of $3,444,312.88. The Bush-Cheney 2000 compliance staff used tfae same 

billing methodology for ttavel under this conttact as the Committees did in 2008 with the Swifr 

Air conttact. However, the Bush-Cfaeney 2000 Final Audit Report did not contain an adverse 

audit finding related to Press travel reimbursements. And the Audit Division did not even 

^11 C.F.R. § 9007.1(a). 

^' Fed. Election Comm'n, Final Audit Report on Kerry-Edwards 2004, et al. at 13 (2007). 

*^ Fed. Election Comm'n, Final Audit Report on Kerry-Edwards 2004, et al. at 21 (2007). 

Fed. Election Comm'n. Draft Final Audit Report at 18 n. 5 (May 23.2012). 

11 
communicate informally any objection over calculation methodology to Bush-Cfaeney 2000 

compliance staff, many of whom are now involved in the McCain Campaign audit. As the Audit 

Division put it: 

The General Committee also referenced the 2000 Bush-Cheney audit and explained that 

it used the same billing methodology and personnel in that audit, which did not include 

an adverse audit finding or any informal advice from the Audit Division suggesting a 

correction to the accounting methods was necessary. The Audit Division acknowledges 

that the same billing methodology was used in 2000 Bush-Cheney.. 

The Division excuses its silence during the Bush-Cheney 2000 audit now by claiming that "the 

amount of the overbilling of the Press was not material."^^ Although the regulated community 

might well appreciate the Commission saying on the record that a $40,000 error is immaterial, 

this statement is higfaly questionable. The Press reimbursements were hardly minimal—over 

$40,000 was sought under the Miami Air Intemational contract during the primary election and 

the Bush-Cheney campaign incurred over $200,000 in travel expenses during that same period. 

Putting aside the amount, though, the Audit Division still should have given notice of 

methodology errors, even if the Division now somehow considers the amount involved as "not 

material." In the context of an audit, the Commission's acquiescence in a recordkeeping practice 

has precedential value because silence is reasonably constmed by the audited party as approval. 

This is particularly the case where, as here, the Commission has otherwise failed to issue general 

guidance conceming a particular recordkeeping practice. Indeed, "if an agency glosses over or 

swerves from prior precedents without discussion it may cross the line from the tolerably terse to 

the intolerably mute."** 

The Audit Division should not be allowed to "swerve" from prior precedent here. The 

Primary Conunittee and the General Committee followed the Commission-audited campaigns' 

proven path. Particularly, the Bush-Cheney 2000 method for a fixed-rate conttact that sttaddled 

primary- and general-election periods was replicated exactly because, again, the same 

compliance consultants and persoimel were involved in the two campaigns. The calculation 

method used by the Primary Committee and the General Committee is clearly more consistent 

with the Commission's audit precedent than the Audit Division's favored method. The two 

Committees therefore used a reasonable process to predict the eventual, proper allocation of 

Press reimbursements between the Committees. 

2. The Committees' Calculation Method Is More Consistent with 

Generally Accepted Accounting Principles 

^ Fed. Election Comm'n. Preliminary Audit Report at 11 (Sept. 30.2011). 

Fed. Election Comm'n. Preliminary Audit Report at 11 (Sept. 30,2011). See also Fed. Election Comm'n, Draft 

Final Audit Report at 18 (May 23.2012); Fed. Election Comm'n, Off. of General Counsel Memo, to Thomas 

Hintermister at 8 (Apr. 11.2012). 

^ Bush-Ouavle '92 Primarv Comm.. Inc. v. Fed. Election Comm'n. 104 F.3d 448.453 (D.C. Cir. 1997) (citing 

Greater Boston Tel. Corp. v. FCC. 444 F.2d 841. 852 (D.C.Cir.). 

12 
The Committees' calculation method is based on mles and standards adopted by the 

accounting profession called Generally Accepted Accoimting Principles ("GAAP") that are used 

to prepare, present, and report financial statements.*'' The Commission has endorsed GAAP's 

use in presidential campaign audits and cited GAAP to make an adverse audit finding against the 

Kerry-Edwards Campaign.*^ 

GAAP dictates the use of accmal-basis accounting in nearly all circumstances.*^ In 

accmal-basis accounting, revenue is recognized when it is eamed and expenses are recognized 

when incurred. Tfais is in conttast to casfa-basis accounting, a non-GAAP method, whicfa records 

revenue when cash is received and an expense when cash is paid.^° Why is accmal-basis 

accounting a GAAP method and cash-basis accounting not? Because "[i]n many instances, the 

cash basis just does not present fully enough the financial picture..."^' After all, the timing of 

cash receipts and payments may be detached from a transaction's underlying substance. 

The Primary Committee and the General Committee used GAAP-compliant accmal-basis 

accounting to calculate the frxed-expense share of each ttavel segment's "total actual cost of the 

ttansportation." Accmal-basis accounting required that the Swift Air conttact expenses (and 

offsets to those expenses in the form of Press reimbursements) were recognized as actual fright 

hours were used. A portion of the Swifr Air contract's frxed cost was assigned to each ttavel 

segment using a depreciation technique called the "units of production" method, which is 

expressed as Cost / Estimated Units = Depreciation Per Unit Produced (i.e. $6,384,000 / 

Estimated Flight Hours = Aircraft Hourly Rate).^^ The "units of production" method was most 

appropriate here because the actual fright hours, and thus the actual conttact costs, were not 

incurred ratably over the individual weeks ofthe conttact.^^ 

BARRY J. EPSTEIN, RALPH NACH & STEVEN M. BRAGG, WILEY GAAP: 2010 INTERPRETATION AND APPLICATION 

OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 2-4 (2010). 

^ Fed. Election Comm'n, Final Audit Report on Kerry-Edwards 2004, et al. at 13-14 (2007). 

RICHARD F. LARKIN & MARIE DITOMMASO. WILEY 2011 NOT-FOR-PROFTP GAAP: INTERPRETATION AND 

APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR NOT-FOR-PROFFF ORGANIZATIONS 9,17 

(2011) ("For financial reporting in accordance with generally accepted accounting principles, the accrual basis of 

accounting must be used."). 

^ DONALD E. KIESO, JERRY J. WEYGANDT & JERRY D. WARFIELD, INTERMEDIATE ACCOUNTING: PROBLEM SOLVING 

SURVIVAL GUIDE 3-4 (2011). 

^' RICHARD F. LARKIN & MARIE DITOMMASO. WILEY 2011 NOT-FOR-PROFFF GAAP: INTERPRETATION AND 

APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR NOT-FOR-PROFFF ORGANIZATIONS 14 (2011). 

Depreciation is not a matter of valuation, but a means of cost allocation. The method of depreciation chosen must 

result in the systematic and rational allocation of the cost of the asset (less its residual value) over the asset's 

expected usefiil life. See RICHARD F. LARKIN & MARIE DITOMMASO. WILEY 2011 NOT-FOR-PROFFF GAAP: 

INTERPRETATION AND APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR NOT-FOR-PROFFF 

ORGANIZATIONS 239 (2011). 

" RICHARD F. LARKIN & MARIE DITOMMASO. WILEY 2011 NOT-FOR-PROFFF GAAP: INTERPRETATION AND 

APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR NOT-FOR-PROFFF ORGANIZATIONS 240 

(2011). 

13 
By conttast, the Audit Division relied on non-GAAP cash-basis accounting to estimate 

tfae fixed-expense share of each ttavel segment's "total actual cost of the ttansportation." The 

"Audit staff used the weekly $336,000 installmenf' as the trigger for recording expenses (and 

offsets to those expenses in the form of Press reimbursements).^* Like all casfa-basis accounting, 

tfais simplifies tfae faourly rate calculations since one uses only a week's actual frigfat hours rather 

than waiting until the end of tfae conttact to determine faow many actual frigfat hours over whicfa 

to spread the $6,384,000 fixed fee. But again, like all cash-basis accoimting, tfais does not offer a 

frilly accurate picture of tfae ttansaction here because a week's installment payment was not paid 

to Swifr Air in exchange for that week's installment of fright hours. 

The Audit Division declares, all too conveniently, that "cash or accmal-basis accounting" 

is not "[t]he issue."^^ GAAP-compliant methods, in the Audit Division's view, are "[t]he issue" 

only when candidates fail to use them.^* The Audit Division then artfully changes the subject 

rather than confess that it used non-GAAP accounting: 

At issue is whether the activity of a separate reporting and corporate entity (the Primary 

Committee) should be recognized by tiie General Coinmittee and by this audit. An 

underlying assumption to GAAP is that every entity is separate and, therefore, the 

revenue and expenses of each entity sfaould be recognized as sucfa.^^ 

Again, this "corporate separateness" statement does not validate the Audit Division's rehance on 

cash-basis accounting—just because one tteats corporations as separate entities does not mean 

one should arbittarily use weekly installment payments as the basis for calculating a ttavel 

segment's "total actual cost." 

The Audit Division's point about corporate separateness instead seems to be that the 

Division must bisect the Swift Air contract and entirely disregard its primary-election portion.^* 

This is, again, counterfactual. The Primary Committee and the General Committee are separate 

for Commission reporting purposes and only the General Committee is subject to mandatory 

audit, but they are otherwise tightly integrated entities, having shared a candidate, staff members, 

^ Fed. Election Comm'n, Preliminary Audit Report at 10 (Sept. 30,2011). 

" Fed. Election Comm'n. Preliminary Audit Report at 10 (Sept. 30,2011). 

^ See Fed. Election Comm'n, Final Audit Report on Kerry-Edwards 2004. et al. at 13-14 (2007). 

Fed. Election Comm'n, Preliminary Audit Report at 10 (Sept. 30.2011). 

Interestingly, in the Kerry-Edwards Final Audit Report, the Audit Division quotes the Wiley GAAP 2007 

Interpretation and Application of Generally Accepted Accounting Principles textbook stating, "costs that are 

capitalized upon acquisition are any reasonable cost involved in bringing the asset to the buyer and incurred prior to 

using the asset." The reason the Audit Division includes this section is to later make its point that part ofthe 

reconfiguration costs paid by the Primary Committee are really owed by the General Committee. The General 

Committee notes this passage because the Audit Division states that it is permissible to bridge committees and use 

GAAP principles in an instance when reconfiguration costs for travel purposes are a capital asset that must be 

calculated and paid for by the General Committee, even though the checks were originally written during die 

Primary Committee. Having interpreted GAAP previously as requiring a "cross-election" inquiry, it is puzzling how 

the Audit Division now makes the opposite claim. Fed. Election Comm'n, Final Audit Report on Kerry-Edwards 

2004. etal. at 13-19 (2007). 

14 
consultants, the Swift Air conttact, and other resources.^^ Tfae Audit Division suggests GAAP 

mandates its proposed suspension of reality, but that suggestion is incorrect. In fact, GAAP 

provides for separate commonly conttolled organizations that share an economic interest, like the 

Primary Committee and the General Committee, to issue consolidated frnancial figures.^ And 

GAAP's "matching principle" counsels against bisecting the Swifr Air conttact, as it requires the 

cost of a long-lived asset to be allocated over all of the accounting periods during which the asset 

is used (i.e. the entire conttact period).*' 

In sum, the calculation method used by the Primary Committee and the General 

Committee is more consistent with GAAP. The two Committees therefore used a reasonable 

process to predict the eventual, proper allocation of Press reimbursements between the 

Committees. 

B. To the Extent a Misallocation of Press Reimbursements between the 

Committees Still Exists, the General Committee Mav Correct the Imbalance 

through a Pavment to the Primarv Committee 

The General Committee believes that, to the extent a misallocation of Press 

reimbursements between the General Committee and the Primary Committee still exists, the 

General Committee may correct the imbalance through a payment to the Primary Committee. 

Materials included with the Drafr FAR miscast the issue as whether "the General 

Committee owes the excess press reimbursements it received to the Primary Committee."*^ This 

is inaccurate. The actual issue is more general in nature: do Commission mles and precedents 

prohibit the General Committee from correcting a Press reimbursement misallocation through a 

payment to the Primary Committee? 

As an initial matter, it is worth noting tfaat tfae Audit Division is making two inconsistent 

arguments. On one hand, the Division states that the Press reimbursements received by the 

General Committee are excessive because the ttavel costs and associated receipts are attributable 

to the primary election: 

The Audit Division's method indicates that the General Committee billed the press and 

received reimbursements from the press ... for a portion ofthe ttavel costs that the 

' M l C.F.R. § 9007.1(a). 

" RICHARD F. LARKIN & MARIE DITOMMASO, WILEY 2011 NOT-FOR-PROFIT GAAP: INTERPRETATION AND 

APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR NOT-FOR-PROFFF ORGANIZATIONS 160 

(2011). 

See PATRICK R. DELANEY, RALPH NACH. BARRY J. EPSTEIN & SUSAN W. BLFDAK, WILEY GAAP 2003: 

INTERPRETATION AND APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 66 (2003). 

Fed. Election Comm'n, Off. of General Counsel Memo, to Thomas Hintennister at 9-10 (Apr. 11, 2012). 

15 
Primary Committee paid to Swifr Air for primary campaign ttansportation attributable to 

tiie primary campaign." 

On the other hand, the Audit Division asserts that these primary-election Press reimbursements 

cannot be given now to the Primary Committee because they have also become general-election 

Press reimbursements and disbursing them to "the Primary Committee ... would be considered a 

non-qualifred campaign expense subject to repayment."** It is not apparent how a single set of 

Press reimbursements can simultaneously be both primary- and general-election reimbursements. 

The Audit Division's argument is not just self-conttadictory, though. The Audit Division is 

wrong for several other reasons. 

First, the Audit Division cites the "qualitied campaign expense" defrnition for the 

proposition that "regulations state that a general election committee cannot incur primary-related 

expenses because they are not in furtherance of the general election."*^ This is a misstatement of 

the law. Primary-election expenses do indeed fall outside the "qualifred campaign expense" 

defrnition. But not all funds received by a general-election candidate committee must be spent 

only for a "qualified campaign expense." Commission mles are precise: "An eligible candidate 

shall use payments received under 11 CFR part 9005 only ... [t]o defray qualified campaign 

expenses.. Funds not "received under" Part 9005 (conceming the general-election public 

grant) are not similarly consttained. It may be tfaat the use of general-election Press 

reimbursements are restricted, since they offset the initial outlay of fund "received under" Part 

9005.*^ But the Audit Division makes no attempt to explain how Press reimbursements 

"attributable to the primary campaign," as described in the Drafr FAR materials, are "received 

under 11 CFR part 9005." Indeed, these primary-election Press reimbursements, which offset an 

initial outiay of privately raised funds by the Primary Committee, are simply not comparable to 

public frmds received by the General Committee as a general-election grant under Part 9005. 

They are therefore not subject to the "qualifred campaign expense" restriction. 

Second, the Audit Division never explains how the General Committee's ttansfer to the 

Primary Committee would be an "expense" at all—qualifred or non-qualified. The General 

Committee and the Primary Committee are "affiliated."** For conttibution limit purposes, 

affiliated committees are "considered ... a single political committee" and transfers between 

them are unlimited by typical resttaints on movement of funds.*' The General-to-Primary 

ttansfer itself would therefore not be an "expense." Now, the Audit Division may counter that 

" Fed. Election Comm'n. Off. of General Counsel Memo! to Thomas Hintermister at 5 (Apr. 11.2012). 

^ Fed. Election Comm'n. Preliminary Audit Report at 13 (Sept. 30,2011). 

Fed. Election Comm'n. Preliminary Audit Report at 13 (Sept. 30.2011). 

'^ll C.F.R. § 9004.4(a)(1). 

Fed. Election Comm'n, Off. of General Counsel Memo, to Thomas Hintermister at 10 (Apr. 11.2012) ("Because 

press payments reimburse campaigns for some of the public fiinds spent on travel costs, reimbursements retain their 

character as public fiinds."). 

*Ml CF.R. § 100.5(g). 

''ll C.F.R.§ 110.3(a)(1), (c). 

16 
tiie "expense" refers to the Primary Committee's outlay for Press ttavel. This is also incorrect. 

The Primary Committee, according to the Audit Division, already paid for Press travel without 

recouping its full costs.^° Given that it is nearly four years afrer the 2008 election, ftmds 

ttansferred to the Primary Committee will likely sit in tiie Primary Committee's bank account 

without actually defraying any primary-election activity's costs. In other words, the General 

Committee will not actually incur any primary-related expenses. The ttansfer is simply to 

correct what should be seen as the original "misdeposit" of primary-election Press 

reimbursements into a General Committee account. 

Third, the ttansfer would not be a "non-qualifred expense" because the Commission has 

in the past repeatedly permitted ttansfers from publicly funded general-election committees to 

their affiliated primary-election committees to correct misallocations and similar issues. For 

example, the Commission required the Kerry-Edwards Campaign's general-election coinmittee 

to pay the Campaign's primary-election committee to fix a misallocation of joint reconfiguration 

costs and banked fright hours. The Audit Division admits these types of payments have been 

relatively common: 

The Audit staff acknowledges that ttansfers were sometimes permitted between the 

primary and general committees in Presidential campaign when it has been sfaown in tfae 

course of an audit tfaat fimds or obligations belonging to a primary or general committee 

were in the possession of the other. This is not the case in this instance.^^ 

The Audit Division never explains why it "is not the case in this instance," offering only a bald 

declaration. But if the standard is, as the Audit Division states, that transfers are permitted 

"when it has been sfaown ... that frmds or obligations belonging to a primary or general 

committee were in the possession ofthe other," those circumstances are certainly present here. 

The Drafr FAR materials, in fact, conclude that the General Committee "received 

reimbursements from the press ... for a portion ofthe ttavel costs that the Primary Committee 

paid to Swift Air for primary campaign ttansportation.. ."^^ Said differently, funds "belonging to 

[the Primary Committee]... were in the possession of the" General Committee. The General 

Committee is, according to the Audit Division, receiving another "free ride" at the Primary 

Committee's expense. The Primary Committee's Press cost-to-reimbursement balance is 

negative, while the General Committee's is positive. The General Committee should be allowed, 

as other committees have been, to ttansfer fimds to reach a cost-benefrt equilibrium for botfa 

Committees because this situation meets the very standard articulated by the Audit Division. 

And frnally, a General-to-Primary ttansfer should not be prevented under the Audit 

Division's "non-qualifred expense" rationale because the only reason for this misallocation issue 

is the Commission's failure to provide guidance on how to prospectively calculate the frxed-cost 

^'^ Fed. Election Comm'n, Preliminary Audit Report at 13 (Sept. 30,2011) ('The Primary Committee appears to 

have billed an amount that was less than its cost.") 

^' Fed. Election Comm'n, Final Audit Report on Kerry-Edwards 2004, et al. at 19-22 (2007). 

Fed. Election Comm'n. Draft Final Audit Report at 19 (May 23.2012). 

Fed. Election Comm'n. Off. of General Counsel Memo, to Thomas Hintermister at 5 (Apr. 11,2012). 

17 
portion of a particular ttavel segment's "total actual cost of... ttansportation." The Primary 

Committee and the General Committee had no notice that they were not using the Coinmission's 

preferred calculation method. In fact, the Commission's past acquiescence during the 2000 

election cycle led directly to the Primary Committee and the General Committee using the cost 

calculation method that tiiey did, adjusting each new travel segment's hourly costs based on the 

evolving total of estimated hours to be flown under the Swifr Air contract. This was a reasonable 

method in light of the Commission's silence and apparently misleading acquiescence, and the 

General Committee should not be penalized through a forced refimd to Press entities. The 

Commission should permit the ttansfer here, even ifit decides not to do so for fiiture committees, 

who now understand the Commission's preferred calculation method under these circumstances. 

In sum, the General Committee asserts that to the extent a misallocation of Press 

reimbursements between the General Committee and the Primary Coinmittee still exists, the 

General Committee may correct the imbalance through a payment to the Primary Committee. 

The Audit Division claims this is legally prohibited because the ttansfer would be a "nonqualifred campaign expense." The Audit Division's claim is undermined, however, by the text 

of Commission mles, the "affiliated" status ofthe General and Primary Committees, tiie 

Commission's practice of allowing ttansfers to correct misallocation-like issues, and the 

Commission's failure to provide advance guidance on Press reimbursement calculations. We 

respectfully request that the Commission permit the ttansfer from the General Committee to tfae 

Primary Committee to resolve any Hngering misallocation of Press reimbursements between 

them. 

In tfae event the Commission somehow does not permit the ttansfer, the General 

Committee asks that it be allowed to disgorge the Press reimbursements to the U.S. Treasury, as 

has been permitted previously.^* Over 200 ttavel segments involving 700 press entities occurred 

during the primary- and general-election periods. Reconstmcting the proper refimd amounts for 

each Press representative would be exceedingly burdensome. And the General Committee 

would be compelled to remain open for an inordinate amount of time to await the clearance of 

any stale-dated refund checks. 

Fed. Election Comm'n, Final Audit Report on the Mondale-Ferraro Committee at 23 (1987) ("The Interim Audit 

Report included an amount for accounts payable due the Press of $32,381.36 which represented amounts collected 

fi'om the Press for air charters and incidentals which were in excess of amounts billed. The figure was as of March 

31,1985. The General Fund's response, verified by follow-up fieldwork. indicates that after March 31,1985 an 

additional $927.40 was received. Therefore, accounts payable due the Press has been increased to $33,308.76. 

General Fund officials intend to research these prior to making any refimds. A review of the General Fund's 

disclosure reports through September 30,1986 show that none of these refiinds have been made. Ifit is determined 

that the refunds will not be made, the amount of the surplus repayment [to the US Treasury assumed to be also for 

other items and their receipt ofthe federal grant] should be adjusted accordingly.") (emphasis added). 

18 
IL CONCLUSION 

For all the foregoing reasons, McCain-Palin 2008 and McCain-Palin CompUance Fund 

believe the Final Audit Report should state that the Commission found no legal violations and 

that the two committees may terminate tfaeir registtations witfa the Commission immediately. 

Respectfully Submitted, 

(signed) 

Salvatore A. Purpura 

Assistant Treasurer 

McCain-Palin 2008 and McCain-Palin Compliance Fund 

19