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FEDERAL ELECTIO' COMfv11SSION

MARCH 3D, 1995

MEMORANJ)UM:

ROBERT J. COS

ASSISTANT ST

AUDIT DIVISIO

JOHN C. SU

STAFF DIREc!TQlIll:::;

~D~

COMMISSIONE'~'~l

FROM:

THRU:

TO:

!

SUBJECT: PAYMENT OF $1~,757 RECEIVED FROM BROWN FOR PRESIDENT

This informationa\ memorandum is to advise you of a $12,757

payment received. from B~~'n for President{the COltWlittee). The

payment satisfies the Committee's repayment obligation as -recommended-in-the- f inal- -audit- report and-represents--profits--from----------

excessive press remibursements and stale dated checks. -

Attached is a copy of the check, the letter which

accompanied the payment, and the receipt showing delivery to the

Department of the Treasury.

Should you have any questions regarding the payment please

contact Ray Lisi at 210-3720.

,~­

-/

Attachments as stated
-

-:'.&ncd

- ..,1I1.t1tsAnge1eB

---- FOR_-"r:,--.~t!""-.:.:...e"",,-,-----,.,-- __-'_-_-_"'_-__ __

I: 10 2 2 2 HOD 51:

_.;t=--·_/.-L.~_19~=
Brown for President

643 E. Channel Rd.

Santa Monica, Ca 90402

310-454-9905

tv1afch 17,1995

Federal Election Commission

Washington, DC 20463

Dear Mr. Noble.

Enclosed please fmd the final payment of our Final Repayment

Detenmnation (LRA # 440) in the sum of $12,757. I received a letter

. __a.<!<:!re~~ed_ !Q)~JIY__asldng for the balance of .$31.375.-dated-Marc-h .

2nd yesterday, I know this amount has been received by the

Commission already. I am very sorry for the delays. I hope that this

sets everything straight. I would like to know how to complete the

closing of Brown for President. Please have someone contact me.

i 1'-V'-'---C--i....

/ JJdie

U" Jules G1.ze<

JelTY Brown

Blaine Quick

Abel Montez
FEDERAL ELECTION (OM"\\15SIO:,,;

March 30, 1995

RECEIPT FROM THE

UNITED STATES DEPARTMENT OF TREASURY

FOR A

PAYMENT TO THE GENERAL FUND OF THE U. S. TREASURY

Received on March 30, 1995, from the Federal Election Commission

(by hand delivery), a check drawn on the Bank of Los Angeles in

the amount of $12,757. The check represents a final payment from

Brown for President for profits from excessive press

reimbursements and stale dated checks. The payment should be

deposited into the General Fund of the U. S. Treasury.

Brown for President

Amount of Payment: $12 1 757

Presented by: Received by:

United States Treasury
MEMORANDUM

TO:

FROM:

FEDER:\L ELECTIO~ CO"'IlSSION

May 26, 1994

RONALD M. HARRIS

CHIEF, PRESS OFFICE tftc

ROBERT J. COSTA

ASSISTANT STAFF DIREC~ R

AUDIT DIVISION

BJ005827

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON BROw~ FOR PRESIDENT

y-

\ Attached please find a copy of the final audit report

and related documents on Bro~n for President which was

C't --approved-by-O';e--Commi-ssioii6n ffay24 i--1994~--------------- ------- ----

Informational copies of the report have been sent to all

parties involved and the report may be released to the

public on May 31, 1994.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
TABLE co:ns;JTS - E?,Q:';:: PR::SIOSNT

Page

Executive summary

final Audit Report

Background

Findings

Legal Analysis, dated 4/28/94

Transmittal to Treasurer

Transmittal to Candidate

- -------~h~Gnology--­

~.

1

S

S

8

3S

39

41

43
FED E ..\, l f Lf C - ,-,,, ','~ '.• ,~; ':... I1" - "

rINAL AUDIT REPORT

ON

BROWN rOR PRESIDENT

EXECUTIVE SUMMARY

AK0050:.3

-~

'"' ' '. -

Brown for president ("the Committee") registered with the

rederal Election Commission on September 2, 1991. The Committee

was the principal campaign committee of Governor Edmund Brown,

Jr., a candidate for the 1992 Democratic presidential

nomination.

The audit was conducted pursuant to 26 U.S.C. S9038(a),

which requires the Commission to audit committees that receive

matching funds. The Committee received $4.2 million in matching

---funds ,-

The findings were presented to the Committee at an exit

conference held at the conclusion of audit fieldwork (April 13,

1993) and in the interia audit report approved by the Commission

on October 22, 1993, and ratified by the Commission on November

9, 1993. The Committee was given an opportunity to respond to

the findingS both after the exit conference and after receipt of

the interim audit report. The responses have been included in

this report.

In the final audit report, the Commission made an initial

determination that the Committee was required to pay the U.S.

Treasury $126,586 !/, representing $125,252 in matching funds

received in excess of the candidate's entitlement and $1,334 in

Committee checks that were never cashed. The Commission also

determined that the Committee had to make a $15,974 payment to

the U.S. Treasurv due to its receipt of apparently excessive
Brown for President

Executive Summary

Page 2 of 3

~isstatement of Financial Activit - 2 U.S.C. S434(b)(1',

'2', a~d (4). On disc osure reports filed bet~een September

:991 a~d September :992, the :~mm~ttee misstated its Einancta:

act~~·:~y. The C:~~i~tee filed ame~ded reports that materially

corrected the misstatements.

~~sclosure of Recei ts and Disbursements - 2 U.S.C.

§434(b\. The interim au it report ound that the Committee's

reports loadequately disclosed offsets to operating

expenditures, disbursements and loans. The Committee responded,

filing amendments that corrected the disclosure problems.

Excessive Contributions Resultin from Staff Advances and

Extensions 0 Credit by a Ven or an a Union - U.s.C.

5441a(a), 2 u.s.c. 5441bla), 11 CFR Sl16.5(b), 11 crR 5116.3,

and 11 CFR 114.9Idl. A payment by an individual from his or her

personal funds for campaign-related costs is a contribution

subject to the $1,000 limitation unless exempted from the

definition of contribution at 11 CrR lOO.7Ib)IB) or reimbursed

within specific time frames. The interim audit report

questioned whether funds advanced by five individuals resulted

in contributions that exceeded limits by $76,261. The report

also questioned whether the Comaittee had accepted prohibited --~--------corporate_and_}.ab~:r__c:ontributions in the form of credit

v' extended outside the norm-al--course--of--busines-~--by__ a compJ,15._e_r _ firll ($50,000) and a labor union ($57,196). The Co..ittu's --

response to the interill audit report provided no docullentation

to refute the excessive and prohibited nature of these advances

and extensions of credit.

Undocumented Disbursellents - 11 CFR S9038.2(b) and 11 crR

59033.11(a). In response to the interim audit report's

identification of inadequate documentation with respect to 16

disbursellents totaling $32,839, the Committee provided the

necessary documentation to correct this problem.

Matching Funds in Excess of Entitlement - 26 U.S.C.

S9038(b)(1). In the final audit report the Commission made an

initial determination that a repayment of $125,252 to the u.S.

Treasury was required. The repayment represented matching funds

received in exceS5 of the candidate's entitlement, based on an

analysis of the Committee's Statement of Net Outstanding

Campaign Obligations and relevant receipt activity.

Apparent Excessive Press Reimbursements - 11 CFR

S9034.6(al, 11 CFR S9034.6(b), and 11 CFR S9034.6(d)(1). A

committee that prOVides travel-related services to the Press may

charge for the services and accept the resulting reimbursements.

The final audit report found that the Committee had earned

S15,974 in profit on reimbursements received from the Press for

such services. The Commission determined that this amount had to

be paid to the U.S. Treasury. The Commission also determined

Page 2, 5/24/94
srown for President

Executive Summary

page 3 of 3

that tte Committee had overcharged the Press $51,233 for ~ravel-related services and ccnseq~ently had to ~ake refunds .~

~he ~ravelers who had overpaid.

Stale-dated Committee Checks - 11 erR 9038.0. Finally, the

Committee 1S required to pay to the u.s. Treasury 51,334, the

total amount of checks outstanding which have not been cashed.

Page 3, 5/24/94
FEDERAL tLEC-:-'(" ( '1',''.'''S'0'

.', .... '~ ....

REPORT OF THE AUDIT DIVISION

ON

BROWN FOR PRESIDENT

AKO04708

I. Background

"c

A. Audit.. Authority

This report is based on an audit of Brown for president

("the Committee"). The audit is mandated by Section 9038(a) of

Title 26 of the United States Code. That section state., that

---------"Afterea-ch_mat,c,hincLP"pent pe r lod, the Co_ission shall conduct rr a thorough examination and audi t-of-theqtia"lTfiedc-a.-pai-gn----------------

expenses of every candidate and his authorized cOllllllittees who

received payments under section 9031." Also, Section 9039(b) of

the United States Code and Section 9038.1(a)(2) of the

COllllllission's Requlations state that the Co_ission may conduct

other exaainations and audits fro. time to ti.e as it deem.

necessary.

In addition to examining the receipt and use of Federal

funds, the audit seeks to deter.lne if the Co..ittee has

materially complied with the li.itations, prohibitions and

disclosure require.ents of the rederal Election Campaign Act of

1971, as aaended.

B. Audit Coverage

The audit covered the peelod from the Committee's

inception, Septeaber 2, 1991, tnrcuqh September 30, 1992. During

this period, the Co..ittee's reports!/ reflect an opening cash

balance of $-0-: total receipts of 510,783,676; total

!/ All figures in this report have been rounded to the nearest

dollar.

Page 5, 5/24/94
-

" ' "

BROWN rOR PRES!OENT

page 2

disbursements of $10,253,296; and a closing cash balance of

S530,297.2/ !n addition, a limited review of the Committee's

:ransactions "'as conducted through March 31, 1993, for purposes c:

determin:ng the Committee's :e~a:ning match:~g fund entitlement ~ased en its financial pcsi:::n a~d :eported transactl~~S

~he=eaft.er.

C. Campaign Organization

The Committee registered with the redera1 Election

Commission on September 2, 1991. The Treasurer of the Committee

from its inception through March 5, 1992 was Jodie Evans. On

March 6, 1992, Blaine Quick became Treasurer and continues to

serve as the Committee's current Treasurer.

During the period audited, the campaign utilized

depositories in 16 states in addition to its national headquarters

located in Los Angeles, California. The campaign's current

offices are in Los Angeles, California.

To handle its financial activity, the campaign used 21

bank accounts at various times. From these accounts the campaign

made approximately 6,000 disbursements. Approximately 94,000

contributions were received from about 88,400 persons. These

--contributions-totaled_abo!Jt $5,015,000. It should be noted that

it wa s the COlllJlli t tee's polio cy-Fo--niilit--c-crn tributions -to- $10<l-per---

person.

In addition to contributions, the campaign received

$4,239,405 in matching funds from the United States Treasury.

This amount represents 30.70\ of the $13,810,000 maximum

entitlement that any candidate could receive. The candidate was

determined eligible to receive matching funds on December 2, 1991.

The campaign made a total of 8 matching funds requests totaling

$4,437,909. The Commission certified 95.53\ of the requested

amount. For matching fund purposes, the Commission determined

that the Honorable Edmund G. Brown'S candidacy ended July 15,

1992. This determination was based on the date of the convention

pursuant to the Commission's regulations at 11 C.F.R. 59033.5(c)

which states, in relevant part, that the candidate'S date of

ineligibility shall be the last day of the matching payment period

as specified in 11 C.F.R. 9032.6; which states that the matching

payment period may not exceed "the date on which the party

nominates its candidate." On August 4, 1992, the Committee

received its final matching fund payment to defray expenses

incurred through July 15, 1992 and to help defray the cost of

winding down the campaign.

~/ The reported activity does not foot due to two minor

mathematical errors in carrying the ending cash on hand

balance to the subsequent report as the beginning cash on

hand balance.

page 6, 5/24/94
BROWN FOR PRESIDENT

Page 3

Attachment 1 to this report is a copy of the

Commission's most recent Report on Financial Activity for this

campaign. The amounts sho~n are as reported to the Commission by

the C::umittee.

~. Audit Scope and Procedures

:n addition to a review of the qualified campaign

expenses incurred by the Committee, the audit covered the

following general categories:

1. The receipt of contributions or loans in excess of

the statutory limitations (see Finding II.E. l;

2. the receipt of contributions from prohibited

sources, such as those from corporations or labor

organizations (see Finding II.E.l;

tJ,)

... -.

3 •

-

4.

5.

6.

7 .

proper disclosure of receipts from individuals,

political committees and other entities, to include

the itemization of receipts when required, as well

as, the completeness and accuracy of the

information disclosed (see Findio9 II.a.);

p rope-r-di-scTosu re-o f--disburnllents-in<:ludi ng--the-------_

itemization of disbursements when required, as well

as, the completeness and accuracy of the

information disclosed (see Finding II.C.);

proper disclosure of Committee debts and

obligations (see Finding 11.0.);

the accuracy of total reported receipts,

disbursements and cash balances as compared to

Committee bank records (see Finding II.A.);

adequate recordkeeping for campaign transactions

(see Finding III.D.l;

8. accuracy of the Statement of Net outstanding

Campaign Obligations filed by the Committee to

disclose its financial condition and establish

continuing matching fund entitlement (see Finding

IILC.);

9. the Committee's compliance with spending

limitations; and

10. other audit procedures that were deemed necessary

in the situation.

AS part of the Commission's standard audit process, an

inventory of the Committee's records was conducted prior to the

Page 7, 5/24/94
BROWN FOR PRESIDENT

page 4

audit fieldwork. This inventory ~as conducted to determi~e If t~e

Committee's records were materially complete and in an auditable

s:a:e. The inventory indicated that some records were not

c~m~lete and the Committee was pro~lded thirty days to obtain the

ne:~ss3ry materia~5. At the end ~f the thirty days, some reccrds

were stlll not complete. In order to obtain the necessary records

s~bp0pnas were lssued to the Committee as well as a number of

vendors, banks, and individuals. AS a result of t~e information

obtained, 1t was concluded that the records were materially

complete except as discussed in individual findings.

Unless specifically discussed below, no material

non-compliance was detected. It should be noted that the

Commission may pursue further any of the matters discussed in this

report in an enforcement action.

Our analysis of press refunds/rebates was limited due to

the absence of Committee records with respect to: The flight

origination and destination to include the cost of each leg of

each trip; the £light manifest or itinerary for each leg of each

trip showing every person t~aveling (except the flight crew) by

name and any associated organization; and workpapers, computer

files etc. shoWing the derivation of amounts billed to the press

for each leg of each trip (see Finding III.D.).

Ir. ---Y!n-dings-and-Recommendations -. Non-repayment Matte r. s

Introduction to Findings

In light of an October 22, 1993 decision by the Court of

Appeals for the D.C. Circuit in FEC v. NRA Political Victory Fund

et. al, the Commission reconsidered the interim audit report and

voted its approval on November 9, 1993. As a result of this

action, the Committee was afforded an additional 14 calendar days

to respond to the interim audit report.

A. Misstatement of Financial Activity

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

States Code require a political committee to report the amount of

cash on hand at the beginning of each reporting period and the

t~tal amount of all receipts and disbursements for the reporting

period and calendar year.

The Audit staff's reconciliation of the Committee's bank

activity to its reported activity~/ for the period covered by the

audit indicated the following misstatements:

The Committee's reported totals were calculated by summing

the current period totals for each reporting period; which

differed from the calendar year-to-date totals reported by

the Committee for 1992.

Page 8, 5/24/94
""""....._._-""...... ~A9.....-[1-.,..W ~. i.1 j.

BROWN FOR PRESIDENT

Page 5

1. Inception through December 31, 1991

a. Receipts

The Committee reported total receipts of

5519,658 for 1991. Utl1izing available bank records, the Audit

~t~ff detecmined that the Committee should have reported total

receipts of 5515,017. Therefore, the Committee'S receipts were

overstated by a net amount of $4,641. This overstatement was the

result of the following:

o

o

o

o

o

In-kind contributions and deposits

not reported

Deposits reported twice

Reported deposits and edit adjustments

not traceable to bank statements

Correctio~ of mathematical error

unexplained year end correction

$ 6,109

$( 700)

$(9,800)

$ 400

$ (761)

o Reconcilin; adjustment $ 111

Total-TNet)-Overl>tatement

b. Disbursements

For 1991, the Committee reported total

disbursements of $440,958. The Audit staff deter.ined that the

Committee should have reported total disburse.ents of $457,298.

Therefore, the Committee'. reported disburse••nt. were understated

by a net amount of $16,340. This understate.ent was a result of

the following:

Total (Net) Understatement

o

o

o

o

Disburseaents not reported and 1991

disburseaents reported in 1992

Disburseaents reported twice

Miscellaneous charges, bank reversals,

and error corrections

Reconciling adjustment

c. Cash on Hand

$19,993

$(1,503)

$(1,999)

$ (lSl)

$16,340

The Committee reported an ending cash on hand

balance on December 31, 1991 of $78,700. The Audit staff

determined this was overstated by a net amount of $20,981 which

Page 9, 5/24,/94
"'--"";'~

1::_-.0::

BROWN FOR PRESIDENT

Page 6

resulted from the zisstate~ents detailed above. The correct

ending cash was determined to be $57,719.

2. Ja::'.;ary:C, ~392 t::r::Jugh September 30,1992

a. Recei?ts

The Committee reported total receipts of

510,:64,016 for the period January 1, 1992 through September 30,

1992. The Audit staff determined that the Committee should have

reported total receipts of $11,308,890 for this period.

Therefore, the Committee's reported receipts were understated by a

net amount of $1,044,872. Committee deposit records identified

the receipt of a 51.1 million dollar loan on Kay 20, 1992 that was

not reported (see Finding 11.0.). In addition, the Audit staff

noted press reimbursements for air charter services, totaling

520,126, which were paid directly to the vendor and not reported

by the Committee. In the absence of workpapers which detail the

preparation of its disclosure reports. the Audit staff was unable

to explain the cemaining overstatement totaling $75,254.

b. Disbursements

The Committee reported total disbursements of -----------~-$_9,_812,338--for_the_perj._od_~_~ua::y 1, 1992 through September 30,

.... 1992. The Audit staff determinea-tnat:-the-Collllllitteeshould- have---------

reported total disbursements of 510,875,192. Therefore, the (

Committee's reported disbursements were understated by a net

amount of $1,062,854. The majority of this difference was the

result of the Co.-ittee not reporting the Kay 26, 1992 repayment

of the $1.1 million loan described above. With respect to the

press reimbursements discussed above, a credit of $20,126 was

applied by the vendor to amounta due from the Committee, resulting

in an underreporting of disburse.ents. In the absence of

workpapers which detail the preparation of its disclosure reports,

the Audit staff was unable to explain the remaining $57,272

difference.

c. Cash on Hand

The Commltt.e r.ported an ending cash on hand

balance on Septeaber 30, 1992 of 5530,297. The Audit staff

determined this was overstated by a net amount of $38,880 which

resulted fr08 the misstatements noted above and correction

carryovers from 1991. The cor~ect ending cash was determined to

be $ 491, 41 7 .

The Audit staff provlded photocopies of its

bank reconciliations to Committee representatives at the exit

conference. The Committee representatives indicated a willingness

to file amendments to correct the above noted problems.

In the interlm audit report, the Audit staff

recommended that the Committee flle amended Summary and Detailed

Page ~:, 524'94
A

-.

.,..., '-' .

BROWN FOR PRESIDENT

page 7

Summary pages for calendar years 1991 and 1992 correcting the

misstatements of financial activity. The Audit staff further

recommended that the Committee file amended Schedules A-P and B-P

for 1992 to disclose the press transactions (520,126) discussed

abo'Je.

The Committee's response to the interlm audlt

report notes that amended disclosure reports have been filed. The

Audit staff's review of these amended disclosure reports

determined that the Committee has materially complied with the

recommendations of the interim audit report.

B. Failure to Itemize Refunds/Rebates

Section 434(b)(3)(r) of Title 2 of the United

States Code states that each report under this section shall

disclose the identification of each person who prOVides a rebate,

refund or other offset to operating expenditure. to the reporting

committee in an aggregate amount or value in excess of 5200 within

the calendar y88r, tugether with the date and amount of such

receipt.

Section 431(13) of Title 2 of the United States

Code defines the term =identification" to sean, in the case of any

-person__O_tAer_~_ha!1 an individual, the full name and address of such

person. In addi tion;-Z-U; S-;-C;--SB10-1) -de fines-"-pet"son" -to---__

include an individual, partnership, corporation, association,

labor organization or committee.

The Audit staff's review of refunds/rebates

received by the Coaaittee from vendors indicated that 37 out of 61

such receipts totaling $82,840 were not itemized on the

Coaaittee'. disclosure reports.

At the exit conference, the Audit staff advised the

Committee repre.entative. of this problem and provided the. with

photocopies of workpapers detailing these transactions. Committee

representatives indicated that amended reports would be filed.

In the interim audit report, the Audit staff

recommended that the Committee file Schedules A-P to amend its

disclosure reports to correctly itemize their refunds and rebates.

The Committee's response to the interim audit

report notes that the requested Schedules A-P have been filed.

The Audit staff's review of these amended schedules determlned

that the Committee has complied with our recommendation.

C. Failure to Itemize and Adequately Disclose

Disbursements

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

Code states, that each report under this section shall disclose

the name and address of each person to whom an expenditure in an

Page 11, 5/24/94
BROWN fOR PRESIDENT

Page 8

aggregate amount or value in excess of 5200 within the calendar

year is made by the reporting committee to meet a candidate or

comm:ttee operating expense, together ~ith the date, amount, a~d

purpose of such operating expenditure.

The Audit staff reviewed disbursements from the

Committee's state accounts. The review identified 177

disburse~ents, in an aggregate amount or value in excess of S200,

totaling 5106,482, that were not ltemlzed on Committee disclOsure

reports.

In addition, the Audit staff's review of itemized

disbursements from state bank accounts identified 80 disbursements

totaling 543,285, for which the proper disclosure of information

was either incomplete or omitted. All of the errors resulted from

either an incomplete address, or no address being disclosed.

At the exit conference Committee representatives were

made aware of the above problems and were prOVided photocopies of

schedules deta~inq these items. In response to the exit

conference the Committee filed amended disclosure reports

materially correcting the errors.

D. Reporting of Loan to the Co=-ittee

Sections---4 34(b )(-2)( H ) -and -{-3 HE) -of--T-itl e 20f- the _

United States Code state, that each report shall disclose all

loans along with the identification of each person who makes a

loan to the reporting committee during the reporting period,

together with the identification of any endorser or guarantor of

such loan, and date and amount or value of such loan.

In addition, 11 C.F.R. 5104.11(a) provides that debts

and obligations owed by a political committee which remain

outstanding shall be continuously reported until extinguished.

The Audit staff identified a $1,100,000 loan, the

receipt and repayaent of which had not been reported by the

Committee (see Finding II.A.2.).

The documentation available with respect to this loan

included a Promissory Note, a Committee bank statement with

related debit and credit memos and a document from the bank

showing the loan history. The Promissory Note was dated May 15,

1992, and related to Loan .6348 in the amount of $1,100,000. ThlS

Note had an initial interest rate of 8.5\, and a repayment due

date of June 8, 1992. The Promissory Note also stated that

interest started to accrue on the unpaid principal balance as of

May 15, 1992 until paid in full. The loan was secured with

matching funds. In addition, the bank was authorized to deblt the

Committee'S bank account, upon receipt of matching funds, to

repay the loan.

Page 12, 5/24/94
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BROWN FOR PRESIDENT

Page 9

According to the May, 1992 bank statement, this loan was

c=edited to the Committee's account on May 20, 1992. The credit

memo is dated 5-20-92 and is annotated "Brown for President Inc. -

Loan Proceeds". The bank statement notes a debit on May 26, 1992

to repay the loan. The corresponding debit memo, dated 5-26-92,

states that it "Rev[erses] entry of 05-22-92".

The documentation reviewed contained discrepancies

concerning receipt and repayment dates. Although the loan history

supplied by the lending bank and the bank statement supports

5-20-92 as the date of receipt, as noted above, the debit memo is

annotated as "Rev[erses} entry of 05-22-92". There is no

corresponding credit on the bank statement to which this could

apply other than the loan credited on May 20, 1992. The Audit

staff also noted an inconsistency between the bank statement and

the loan history with respect to the date of repayment of this

loan. As detailed above, the Committee's account is debited for

the amount of the loan proceeds on May 26, 1992, while the loan

history lists the repayment date as May 20 , 1992~ The Audit staff

is unable to explain these discrepancies.

Based on the available information, it is the opinion of

the Audit staff that the loan was received on May 20, 1992 and

repaid on May 26, 1992. The Committee had the proceeds from the

-loan-avai I abre--f 0 r-fi ve-days-;--

On the loan history was a note to a Committee

representative that stated in part "After signing the documents,

the Brown For President people decided that they did not want all

the money right away but rather wanted to take it as needed (to

save interest charges most likely). Therefore the initial advance

was reversed and the loan proceeds were subsequently taken in two

parts - but only $500,000 of the $1,100,000 were ever taken. This

is not a line of credit but rather a straight loan which was

disbursed in increments". At the exit conference, Committee

representatives stated that because the full amount was not needed

at the time the funds were drawn, they elected not to report the

$1,100,000 loan; they elected to report only the subsequent draws

on the loan.

The Audit staff acknowledges that loans for $300,000 on

May 26, 1992 and $200,000 on June 2, 1992 were drawn against Loan

16348 subsequent to the receipt and repayment of the S1,100,000

draw. The Committee repaid both draws and corresponding interest

on June 5, 1992. The Audit staff also acknowledges that both of

these loans were correctly disclosed.

At the exit conference, the Audit staff lnformed

Committee representatives of the need to file amended disclosure

reports to disclose the initial (Sl,lOO,OOO) loan. The Committee

agreed to amend its disclosure reports as requested.

Page 13, :;,24/94
BROWN FOR PRESIDENT

Page 10

In the interim audit report the Audit staff

that the Committee submit Schedules A-P, B-P and C-P,

the receipt and repayment of this IS~,lOO,OOO) loan.

recommended

disclosing

~~C'""".~" '2.~

'-,-':S

As part of its response to the interim audit report, the

Committee provided the requested schedules.

E. A arent Excessive Contributions Resultin from Staff

A vances and Extensions of Credit by a Ven or and a

Union

Section 441a{a)(1)(A) of Title 2 of the United states

Code states, in part, that no person shall make contributions to

any candidate and his authorized political committee with respect

to any election for Federal office which, in the aggregate, exceed

$1,000.

Section 44lb(a) of Title 2 of the United States Code

states, in part, that it is unlawful for any corporation or labor

organization to make a contribution in connection with any

election to any political office.

Section 116.S(b) of Title 11 of the Code of Federal

_Regula_tjon_~__st:ates, in part, that the payment by an individual

f rom his or her-personarfun-ds;--including--a -pers-onal-credi t-card~ _

for the costs incurred in providing goods or services to, or

obtaining goods or services that are used by or on behalf of, a

candidate or a political committee is a contribution unless the

payment is exempted from the definition of contribution under 11

C.F.R. 100.7(b)(B).

Pursuant to 11 C.F.R. Sl16.S{b), if the payment is not

exempted, it shall be considered a contribution by the individual

unless it is for the individual's transportation expenses or for

usual and normal subsistence expenses incurred by an individual,

other than a volunteer, while traveling on behalf of a candidate;

and, the individual is reimbursed within sixty days after the

closing date of the billing statement on which the charges first

appear if the payment was made using a personal credit card, or

within thirty days after the date on which the expenses were

incurred if a personal credit card was not used. "Subsistence

expenses· include only expenditures for personal living expenses

related to a particular individual traveling on committee business

such as food or lodging.

Sections 116.3(a) and (b) of Title 11 the Code of

Federal Regulations state, in relevant part, that a commercial

vendor that is not a corporation, and a corporation in its

capacity as a commercial vendor may extend credit to a candidate,

a political committee or another person on behalf of a candidate

or political committee. An extension of credit will not be

considered a contribution to the candidate or political committee

provided that the credit is extended in the ordinary course of the

Page 14, 5124/94
BROWN FOR PRESIDENT

Page 11

commercial vendor's business and the terms are substantially

similar to extensions of credit to nonpolitical debtors that are

of si~ilar r1sk and size of obligations.

Further, 11 C.FoR. 5116.3(c) states that in determining

whether credit was extended in the ordinary course of business,

the Commission will consider:

(1) Whether the commercial vendor followed its

established procedures and its past practice in

approving the extension of credit;

(2) Whether the commercial vendor received prompt

payment in full if it previously extended credit to

the same candidate or political committee; and

(3) Whether the extension of credit conformed to the

usual and normal practice in the commercial

vendor's trade or industry.

Finally, 11 C.F.R. 5l14.9(dl provides, in part, that

persons, other than officials, members and employees, who use

labor organization facilities for activity in connection with a

Federal election, are required to reimburse the labor or;anization

_wLthin_~~Q~ercially reasonable time in the amount of the normal

and usual rentalchai9-e--fo-r-the--use-of--the-faGilities~_

1. Staff Advances

During the review of the Committee's disbursements,

the Audit staff noted a number of reimbursements to individuals

that were for various kinds of campaign activity. For subsistence

and transportation expenses, the Committee did not reimburse the

individuals within the time periods required by 11 C.F.R. 5116.5.

Individuals were also reimbursed for other kinds of campaign

expenditures, such as advertising, supplies, telephone, postage,

and copying. Further, five indlv1duals were reimbursed for the

transportation, travel, and related expenses of other individuals,

to include the candidate.

As part of the ~udlt staff's analysis,

contributions resulting from the un~lmely reimbursement of

expenses incurred by individuals were added to direct

contributions made by these IndIVIduals. Our review indicated

that five individuals made apparent excessive contributions. The

amount in excess varied depend1~g ~pon when reimbursements were

made by the Committee. By summIng the largest amount in excess

for each individual, the Aud1t staff determined that the amount in

excess was $76,261. At the conclUSIon of fieldwork, there were no

expense reimbursements outstand1ng. Of particular note, most of

the amount in excess ($41,869) occurred with respect to the

Campaign Manager, Jodie Evans. The Campaign Manager utilized

seven (7) different personal credit cards for both personal and

campaign related expenses. The maJor1~y of expenses charged to

Page :5, 5 :~ '94
BROWN FOR PRESIDENT

Page 12

these accounts were for the candidate's and several campaign

employees' expenses.

This matter was discussed with the Committee durine

the exit conference. The Audit Staff provided the Committee witha schedule of excessive amounts, a summary schedule, and a cover

sheet explaining symbols and methodology. The Campaign Mana;er

stated that the regulation had been misinterpreted by them. She

also commented that the regulation and .epayment paricde ~re

unfair to candidates who do not have the same access to money or

credit as other candidates who have name recognition or political

position. Grass roots candidates are forced to rely on the good

name of Committee supporters.

In the interim audit report, the Audit staff

recommended that the Committee demonstrate that the individuals

did not exceed the contribution limits of 2 U.5.C. S44Ia(a)(1)(A),

and/or were reimbursed in a timely manner as defined under 11

C.F.R. Sl16.5(b)(2), or submit any other comments or documentation

the Committee feels may be relevant.

As part of its response to the interim audit

report, a facsimile letter from the Committee's Treasurer states

that "credit card charges by Jodie Evans {Campaign nanager] in the

-------~amount__of_~~LJ36~represents items used for campaign expenses."

(" The Committee's respons-e-do-es--not--addressthe-apparent-- excessi ve

contributions of the four individuals other than the Campaign

Manager.

J)

With respect to the matter of the credit cards, the

Audit staff does not dispute the Committee's assertion that the

credit card charges in question represent expenditures made

relative to the campaign.

The Committee's response fails to demonstrate that

the individuals did not exceed the contribution limits of 2 U.S.C.

S44Ia{a){I){A), and/or vere reimbursed in a timely manner.

Therefore, no adjustment to the interim report analysis has been

made.

2. Extension of Credit by a Commercial Vendor and a

Union

During the course of fieldwork, the Audit staff

identified two disbursements, each to different vendors, that

raised concerns with respect to the extension of credit given t~

the Committee.

On December 1, 1992, the Committee issued check

number 8094 in the amount of $50,000 to Quarterdeck Office Systems

("Quarterdeck") for miscellaneous computer software and hardware.

An attached invoice, dated 11-17-92, details the equipment and

services provided; the amount of the invoice is $151,121. The

Page 16, 5124/94
:..t)

BROWN FOR PRESIDENT

Page 13

invoice is annotated as follows: "Bill adjusted to $50,000. Due

Nov 30, 1992, Stanton Kaye".

Based on a ceview utilizing a Committee-provided.

d:sbucsement data file, the Audit staff did not note any other

payments to this vendor. According to Committee representatives

this equipment was used during the campaign which ended 7-15-92.

No other correspondence between the vendor and the Committee has bee~ prOVided.

In the other instance, on October 27, 1992, the

committee issued check number 5571, in the amount of $57,196, to

Local 1199 (Drug, Hospital & Health Care Employees Union). An

attached invoice, with a let:~r requesting payment, dated

10-28-92, details reimbursable expenses incurred by Local 1199

with respect to Edmund G. Brown Jr.'s Presidential campaign during

the period 3/30/92 to 4/10/92. The expenses were for food and

~efreshments, rent, printing, advertising, telephone and 8ther

~iscellaneous items. According to an October 12, 1992 letter from

the vendor to the Committee, this invoice is a revision of a

previous invoice.

The Audit staff did not note any other payments to

this vendor based on a Committee-provided, disbursement data file.

A~~osding to a written statement (dated 5-24-93) submitted to the

Audif-sta-n - oy--th-e-campaign-Manager,--there--was_ no w.ri_t t_en _

agreement for these expenditures, which were the result of a

sudden need for meeting rooms and banquet facilities, and were

incurred with respect to the New York primary. "Apparently the

invoice of the charges 'fell through the cracks' and we were not

billed. I contacted him several times asking for the bill so that

it could be paid. As soon as we received and reviewed the bill

(and after a revised invoice was issued) it was paid."

The Audit staff's concern is whether Local 1199 was

reimbursed within a coaaercially reasonable time at the normal and

usual charge. The Audit staff requested that the Committee

provide additional documentation with respect to these items. On

July 16, 1993, the Audit staff received a letter from Local 1199

stating that the reason for the delay in submitting the bill was

the result of several mislaid invoices in the accounting

department. It also notes that no bill was submitted to the

Committee until these bills were recovered.

In the interim audit report, the Audit staff

recommended the Committee provide additional documentation or any

other comments to demonstrate that the credit extended by the

commercial vendor and union were in the normal course of business

and did not represent prohibited contributions.

In its response to the lnterim audit report, the

Committee's cover letter states that "documents are attached that

demonstrate these items were in the normal course of business and

did not represent prohibited contributions."
BROWN FOR PRESIDENT

Page 14

,~

, -

The attached documentation consisted of copies of

letters sent to the Committee from Local 1199 and Quarterdeck

Office Systems. The letter from Local 1199, dated July 16, 1993,

had previously been provided to the Audit staff and is discussed

above. The letter from the Vice President of Marketing &

International Sales for Quarterdeck Office Systems, dated July 21,

1993, states:

"r have known Jodie Evans, Th~ campaign

Manager, for quite some time and in one of our

conversations it was mentioned that the

campaign would be needing computers. I

mentioned that although Quarterdeck was not in

the business of leasing computers there were

some in storage that were not currently being

used.

No agreement was ever signed. I turned this

matter over to my staff and it was verbally

agreed that nothing would be done until it was

decided whether the campaign was going to

purchase or rent the computers from us.

Jodie, her staff and my staff had discussions - ---fo,- sever-al- months- and-i t-was-finally__dec id_e_Q. _

that the campaign would lease the computers

for the amount that was comparable to the loss

of value and pay for our service time.

Since leasing computers is not our normal

business, this was not billed in the 'normal

course of business'. However, as soon as it

was billed, it was paid."

The facsimile letter from the Committee's Treasurer

states that the "[ejxtension of credit by Quarterdeck and Local

1199 represent charges to the campaign in the normal course of

business and does not represent contributions of any kind."

The Committee's response did not provide any new

documentation or comments to demonstrate that the credit extended

by Local 1199 was in the normal course of business and did not

represent prohibited contributions.

The Committee'S response: (i) does not provide

information relative to Quarterdeck's established procedures or

past practices in approving extensions of credit; (ii) does not

provide any information relative to prompt payment of previously

extended credit to the Committee; and (iii) does not provide

information to show that this extension of credit conformed to the

usual and normal practice in the industry.

Page 18, 5/24/94
c

BROWN FOR PRESIDENT

Page 15

Rather, the letter provided from Quarterdeck

appears to buttress the Audit staff's conclusion that credit was

not extended in the ordinary course of business. The letter

states that Quarterdeck "was not in the business of leasing

computers." No agreement was ever signed. There were several

months of discussions before the Committee decided to lease or buy

the computers. The Committee benefited from the use of the

equipment during the campaign until an invoice (dated 11-17-92)

was submitted to the Committee for payment well after the campaiqn

had run its course. .

III. Findings and Recommendations - Repayment Matters

A. Calculation of Repayment Ratio

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

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for any purpose other than to defray the qualified

campaign expenses with respect to which such payment was made it

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

candidate shall pay to the Secretary an amount equal to such

amount.

Secti-on-9038~lTcT{1)( v )of-TitleH--ofthe--Code--of

Federal Regulations states that preliminary calculations regarding

further repayments to the U.S. Treasury may be contained within

the interim audit report. Pursuant to 59038.2(a)(2) of this Title

the Commission will notify the candidate of any repayment

determinations not later than three years after the end of the

matching payment period. The issuance of this interim audit

report to the candidate constitutes notice of any repayment

determinations for purposes of the three year period.

The Regulations at 11 C.F.R. S9038.2(b){2)(iii) state

that the amount of any repayment sought under this section shall

bear the same ratio to the total amount determined to have been

used for non-qualified campaign expenses as the amount of matching

funds certified to the candidate bears to the total amount of

deposits of contributions and matching funds, as of the

candidate's date of ineligibility.

Pursuant to 11 C.F.R. S9033.5(c), Governor Brown's date

of ineligibility was determined to be July 15, 1992.

The formula and the appropriate calculation with respect

to the Committees' receipt activity is as follows:

Page 19, 5/24/94
BROWN FOR PRESIDENT

Page 16

Total Matching Funds Certified through the Date

of Ineligibil~ty - July 15, 1992

~umerator plus Private Cor.tributions Received through

Date of :~eligibility

$4,068,269

.449142

$4,068,269 + 54,989,592

Thus, the repayment ratio for non-qualified campaign

expenses is 44.9142%.

B. Apparent Non-Qualified Campaiqn ExpensesUndocumented Disbursements

Section 9032(9) of Title 26 of the United States Code

defines, in part, the term "qualified campaign expense" as a

purchase or payment incurred by a candidate or his authorized ~--co_i-t~tee,--in--connectLon~w~thhLs_campaign for nomination for

election, and neither the incurr ing-nor-p-ayment of-whTch------

constitutes a violation of any la~ of the United States or of any

law of any state in which the expense is incurred or paid.

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

Regulations states the Commission may determine that amount(s)

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

or agents, were not documented in accordance with 11 eFR 9033.11.

The amount of any repayment sought under this section shall be

determined by using the formula set forth in 11 CFR

9038.2(b)(2)(iii).

Section 9033.11(a) of TItle 11 of the Code of Federal

Regulations states, in part, that each candidate shall have the

burden of proving that disburse.ents made by the candidate or his

authorized committee(s) are qua:lfled campaign expenses.

The Audit staff's re·.. ~e·" :If selected disbursements from

the national accounts identif:ed a payment to Left Bank

Productions for S20,000 that ~as not supported by a receipt, bill

or invoice. This payment was ~ade by wire transfer. The

associated documentation did ~ct :dentlfy the purpose.

~"<~~

?

The Audit staff also :ev~ewed disbursements made from

the Committee's state accounts and ldentified 15 disbursements,

totaling S12,839, which were nor documented in accordance with 11

C.F.R. 59033.11. Based on CO!lll!llttee annotations or lack thereof,

these disbursements can be categorlzed as follows:

Page _J, j 2~/94
BROWN FOR PRESIDENT

Page 17

o

•

Expense Reimbursemen~/Reimbursement- five (5)

disbursements, totallng $4,317, to individuals, for

which notations on the canceled check indicate only

expense reimbursement or reimbursement. Committee

records contained no invoices or travel vouchers

for these disbursements.

No purpose - ten (10) payments to individuals and

vendo~s, totaling $8,522 for which no purpose was

available. No documentation was available for

these disbursements beyond the canceled checks

provided for eight of these items.

At the exit conference Committee representatives were

made aware of inadequately documented disbursements and provided

schedules detailing these items. Committee representatives stated

that they would attempt to obtain the additional documentation

required.

In the interim audit report, the Audit staff recommended

that the Committee submit documentation which demonstrates that

these expenses are qualified campaign expenses. The interim audit

report also stated that absent such a demonstration, the Audit

-----staff-wou~d_r_ecommendthat the Commission make an initial

determination -t-ha-t--the-com.Dint:ee--was--required--t;o -make- a--pro -Ht-a

repayment of $14,749 ($32,839 x .449142) to the United States

Treasury pursuant to 26 U.S.C. §9038(b)(2).

The Committee'S response to the interim audit report

contained an invoice to support the expenditure to Left Bank

productions. In addition, documentation was prOVided with respect

to four expenditures from state accounts. Based on the Audit

staff's review, the documentation submitted materially resolved

this matter.

C. Matching Funds Received in Excess of Entitlement

Section 9038.2(a)(1) of Title 11 of the Code of Federal

Regulations states, in part, that a candidate who has received

payments fro. the matching payment account shall pay the United

States Treasury any amounts which the Commission determines to be

repayable under this section.

Section 9038.2(b)(1)(i) of Title 11 of the Code of

Federal Regulations states, in part, that the Commission may

determine that certain portions of the payments made to a

candidate from the matching payment account were in excess of the

aggregate amount of payments to which such candidate was entltled.

Examples of such payments include payments made to the candidate

after the candidate's date of ineligibility where it is later

determined that the candidate had no net outstanding campaign

obligations as defined in 11 C.F.R. 59034.5.

Page 21, 5/24/94
"*'-~""""---;-~-<;~V"--v>__ "'Pb..-=,:" __ <i'ij,__ o\ZJ!!i¥0 . ..Au_. ~-~-::: --1dJi!'

, c,~J

BROWN FOR PRESIDENT

page 18

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

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

of ineligibility, the candidate shall submit a statement of net

outstanding campaign obligations ~hich contains, among other

items, :he :o~al of all outstanding obligations for qualified

campaign expenses and an estimate of necessary winding down costs.

Subsection (b\ of this section states that the total of

outstandlng campaign obligations shall not include any accounts

payable for non-qualified campaign expenses.

In addition, 11 C.F.R. 59034.1(bl states, in pact, that

if on the date of ineligibility a candidate has net outstanding

campaign obligations as defined under 11 C.F.R. 59034.5, that

candidate may continue to receive matching payments provided that

on the date of payment there are remaining net outstanding

campaign obligations.

Governor Brown's date of ineligibility was July 15,

1992. The Audit staff reviewed the Committee's financial activity

through March 31, 1993 and reported activity through March 31,

1994, as well as analyzed winding down costs, and prepared the

Statement of Net Outstanding Campaign Obligations ("NOCO") which

appears below:

C'

'--

Page 22, 5/24/94
BROWN FOR PRESIDENT

Page 19

BROWN FOR PRESIDENT

Statement of Net Outstanding Campaign Obligations

as of July 15, 1992

as determined March 31, 1994 by the Audit staff

Asse-:.sCash $998,386

Accounts Receivable 281,986 ~/

capital Assets 43,080

TOTAL ASSETS $1,323,452

Obliaations

"Accounts Payable Qualified

campaign Expenses (245,486)

_..

Press Payables

(See Finding 111.0.)

U.S. Treasury for Stale-dated Checks

profit from Press Reimbursements

-Due-U.S. Treasury- (See__F_indi_ncLUI_.p J__

Winding Down Costs Actual

(7/16/92 through 3/31/93)

Reported Winding Down Costs 1/

(4/1/93 through 3/31/94)

Winding Down Costs Estimated i/

(4-1-94 to 9-30-94)

TOTAL OBLIGATIONS

NOCO (DEFICIT)/SURPLUS

page 23, 5/24/94

(51,233)

(1,334)

(874,651)

(141,758)

(42,700)

($1,373,136)

($49,684)
BROWN FOR PRESIDENT

Page 20

Footnotes to NOCO Statement

7his amount increase~ significantly as a ~esult of the

Committee's reported receipt of refunds/rebates, mostly press

reimbursements, totaling about $206,000 for the period 4-1-93

to 3-31-94. The interim audit report had presented accounts

receivable of $76,025 (collected from 7-16-92 through 3-31-93)

and (outsta~ding) press receivables of $14,168.

2/ This amount excludes $1,050 in non-qualified campaign

expenses.

Subject to audit verification.

.,.....

i/ Since estimates were used in computing this amount, the

Audit staff will review the Committee's disclosure reports

and records to compare the actual figure with the estimates

and prepare adjustments as necessary.

Page 24, 5/24/94
BROWN FOR PRESIDENT

Page 21

Shown below are adjustmen~s to the NaCO deficit resulting

from an analysis of private c~ntributions, interest and matching

funds received after 7-15-92. based on the most current

information available.

Net Outstanding Campaign

Obligations (7-15-92)

Interest Received

(7-16-92 to 8-3-92)

Net Private Contributions

Received (7-16-92 to 8-3-92)

Matching Funds Received

(8-4-92)

Amount Received in Excess of

Entitlement as of 8-4-92

($49,684)

29

3,781

171,126

S125,252

As presented in Finding III.C. of the interim audit

_____ report, the candidate's audited NaCO statement reflected a deficit asof-7~lS""92-o£$36-j870.-OllAugJ.l$L4,1992, the Committee

received $171,126 relative to Matching FuntCRequest-'8~-The---------­

deficit on August 3, 1992 was calculated to be $33,060.

Therefore, the Committee was determined to have received $138,066

($171,126 - $33,060) in matching funds in excess of its

entitlement. On August 31, 1992, the Committee submitted a

repayment check in the amount of S97,674 based on preliminary

figures generated by the Audit staff during the fieldwork

inventory stage of the audit process.

In the interim audit report, the Audit staff recommended

that the Committee demonstrate that it had not received matching

funds in excess of its entit1e••nt. The interim audit report also

stated that absent such a shoving, th. Audit staff would recommend

that the Commission make an initlal determination that the

Committee make a repayment to th. United States Treasury pursuant

to 26 U.S.C. 59038(b}(1}.

In response to the lnterla audit report, the Treasurer

states the Audit staff's analysls showing that matching funds were

received in excess of entitlement lS lncorrect and offers that

"[w)inding down costs estimated from 4/1/93 - 9/30/93 should have

been $142,700 as is evidenced by the actual amounts spent during

this period." However, the Commlttee provides no workpapers to

support the $142,700 figure and dlsclosure reports filed by the

Committee indicate only $65,476 dlsbursed during this period.

Further, the Treasurer fails to consider the impact of

refunds/rebates received by the Committee during this same period

that were not considered in the lnterlm audit report.

Page 25, 5/24,'94
BROW~ FOR PRESIDENT

Page 22

The Audit staff's revie~ of the Committee's response to

the :~:~(im audit report, as well as disclosure reports filed by

the :ommittee for the period 4"193 through 3/31/94, resulted in

the :e~ised ~OCO presentation abo~e. This NOCO statement reflects

a def:=:: on :~ly 15, 1992 c: 549.684. The deficit on August 3,

1992 ~as calculated to be $45,5 7 4.

On )\ugust 4,1.992, the Committee received $1.71,125 in

matchinq funds. Therefore, the Committee received $125,252

($171 1 126 - $45,3741 in matching funds in excess of its

entitlement. Offset against this amount is the preliminary

repayment of $97,674 noted above.

Recommendation #1

The Audit staff recommends that the Commission make an

initial determination that the Committee make a repayment of

$125,252 to the United states Treasury pursuant to 26 U.S.C.

59038(0)(1). On August 31, 1992, the Committee submitted a

repayment check in the amount of $97,674.

D. Apparent Excessive Press Reimbursements

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

-Feife tar-Regula tions-st-ate,- -in--part ,_that_.JL~n author i zed

committee incurs expenditures for transportatfon~--grourm--servi-ces--­

and facilities made available to media personnel, such

expenditures will be considered qualified campaign expenses

subject to the overall spending limitation at 11 C.F.R.

S903S.1{aj. Further, if reimbursement for such expenditures is

received by a committee, the amount shall not exceed either: The

individual'S pro rata share of the actual cost of the

transportation and services made available; or a reasonable

estimate for the individual's pro rata share of the transportation

and services made available.

An individual's pro rata share is calculated by diViding

the total number of individuals to whom such transportation and

services are made available into the total cost of transportation

and services. The total amount of reimbursements received from an

individual shall not exceed the actual pro rata cost of the

transportation and services made available to that person by more

than 10\.

Section 9034.6{dli~) of Title 11 of the Code of Federa:

Regulations provides, in relevant part, that the committee may

deduct from the amount of expenditures subject to the overall

expenditure limitation of 11 crR 9035.1(a) the amount of

reimbursements received in payment for the actual cost of

transportation and services described in paragraph (a) of this

section. This deduction shall not exceed the amount the committee

has expended for the actual cost of transportation and services

provided. The committee may also deduct from the overall

expenditure limitation an additional amount of reimbursements

Page 26, 5/24/94
BROWN FOR PRESIDENT

Page 23

received equal to 3\ of the actual cost of transportation and

services provided under this section as the administrative cost to

~he committee of providing such services and seeking reimbursement

for them. If the committee has incurred higher administrative

costs in providing these services, the committee must dOCument the

total cost incurred for such services in order to deduct a higher

amount of reimbursements received from the overall expenditure

limitation.

In addltion, 11 C.F.R. §9034.6{d){1~ also states that

amounts reimbursed that exceed the amount actually paid by the

committee for transportation and services provided to media

personnel under paragraph (a) of this section plus the amount of

administrative costs permitted by this section up to the maximum

amount that may be received under paragraph (b) shall be repaid to

the Treasury.

After repeated requests for the necessary records, the

Audit staff requested, by memorandum dated November 20, 1992, that

subpoenas be prepared by the Office of General Counsel to the

Committee and Charter Services, Inc. for the production of records

as follows:

o a vendor statement (account summary of amounts

. bi-l-led··and--payments .receive.dJ L __

o Invoices detailing each flight origination and

destination, to include, but not be limited to:

o invoices, bills, etc. for the aircraft for each

leg of each trip;

o invoices, bills for any other costs associated

with each leg of each trip to include catering,

beverages, ground transportation, meals, press

filing facilities, lodging, etc.;

o a flight manifest for each leg of each trip

showing every person traveling (except the flight

crew) by name and any associated organization;

o working papers, computer files, etc., showing the

derivation of amounts billed to the press for

each leg of each trip;

o copies of bi1:s issued to the press for each leg

of each trip; and,

o records of amounts received in reimbursement for

travel on the Committee charter or other

aircraft, from each person for each leg of each

trip.

Page 27, 5 1 24/94
~. At the Exit Conference the Audit staff reiterated

its request for documentatioh of the Committee's procedures for

handling travel billings to and reimbursements from the Press,

specifically the Committee's computations/worksheets for

-------- ----de tet:JIlining_~~Qu_n!:!> b!lle~.

C

,~

BROWN FOR PRESIDENT

Page 24

Prior to the lssuance of the subpoenas, the

C:~~ittee and Char~er Se(~ices, Inc. provided some of the

req~es~ed material. Detailed billing statements, which show the

costs of each leg of each flight as well as any food costs, were

not available from Charter Services, Inc. after April, 1992. At

that ti~e, the Committee assumed this function. The Committee

stated that they maintained a computerized billing system complete

with leg analyses and manifests; the Committee further asserts the

disc containing this information is missing. In addition, Charter

Services, Inc. advised the Audit staff that they acted as a

"middle-man" between the Committee and the airplane charter

companies; and therefore, did not maintain any manifests detailing

passengers with respect to each flight leg.

Absent a cost figure and passenger manifests for

each flight, the Audit staff was unable to assess the Committee's

compliance under 11 C.F.R. 59034.6.

A request was forwarded to the Office of General

Counsel, May 6, 1993, requesting enforcement of the subpoena with

respect to the Committee as it relates to the press billing

documentation still required. In addition, a request was included

to prepare subpoenas to two individuals identified during

fieldwork as associated with the Committee's press billing and

reimbursement system.

Subsequent to this request, the Committee submitted

additional documentation with respect to press billings. The

Office of General Counsel agreed to delay subpoena enforcement in

order to allow the Audit staff to evaluate the submitted

materials.

Our review of these additional documents indicated

that total reimbursements from the press were significantly below

the overall amount the Audit staff determined could have been

billed by the Committee. Although workpapers were not provided

detailing the Committee's calculations of amounts billed to the

press, available documents indicated the Committee intended to

simply bill each press organization at 110% of cost. The Audit

staff's review of amounts billed to press organizations ~as

limited to the available documentation. Our limited review

indicted that the amounts billed were reasonable. Finally, the

Audit staff was aware of press receivables totaling only $14,168,

which, if collected, would not alter our conclusion.

The interim audit report recommended no further

action with respect to this matter.

Page 28, 5/24/94
\,.-',

BROWN FOR PRESIDENT

page 25

However, as a result of our review of recent

disclosure reoorts filed by the Committee, the Audit staff noted

that the Committee had received additic~al reimbursements from the

press, totaling $188,645, during the period April 1, 1993 through

March 31, 1994. This greatly exceeded the amount of press

receivables ($14,168) contained in available Committee records and

presented by the Audit staff on the interim audit report NaCO

statement.

The Audit staff re-evaluated the Committee's press

billings and reimbursements, incorporating these additional

reimbursements ($188,645). Based upon available manifests and the

cost of transportation/services provided to the press, the Audit

staff calculated the amount that could be billed to the press

(cost plus 10%) to be $251,020. The Audit staff identified press

reimbursements received through March 31, 1994, totaling $302,253.

Therefore, the Committee appears to have received

reimbursements from the press totaling $51,233 ($302,253 -

$251,020), in excess of the maximum billable amount under 11

C.F.R. S9034.6(b). As such, these must be refunded to the press.

The Audit staff has recognized this amount ($51,233) as a payable

on_the_NOJ:(LP~~s~ll_ta~iol1at Finding III.C.

In addition, the Audit staff used the revised

analysis to determine if the Committee had profited from press

reimbursements.

The analysis identified amounts paid by the

Committee for transportation and services provided to the press

totaling $228,200. Under 11 C.F.R. S9034.6(d}(1), the actual cost

of transportation and services prOVided plus the administrative

costs permitted by this section (3\, unless a greater amount is

documented) would be $235,046 ($228,200 x 1.03); and, the maximum

amount of reimbursement that may be received (cost plus 10\) is

$251,020.

As a result, the Audit staff determined that the

Committee received press reimbursements in the amount of

$15,974 ($251,020 - 235,046), representing amounts in excess of

that actually paid by the Committee for transportation/services

provided to media personnel and, therefore, subject to payment to

the U.S. Treasury.

It should be noted that the Audit staff's

determination of amounts to be refunded to the press ($51,233) and

of the amount payable to the Treasury \$15,974) does not consider

costs for at least 11 flights for which no manifests or billing

information have been provided by the Committee. Should the

documentation be located for these flights, the analysis of

amounts due the press and the U.S. Treasury would be significantly

di fferent.

Page 29, 5/24/94
" . '- .

BROWN FOR PRESIDENT

Page 26

Recommendation =2

7~e Audit staff recommends that :h~ Commission make an

initlal determlnation that the Commlt:e~ :s require~ to make a

payment of 515,974 to the United States Treasury pursuant to 11

C.F.R. S9S34.6Id\(11. In addition the Audit staff r~ccmmends that

the Commission determine that the Commlttee is required to ref~nd,

on a pro rata basis $51,233 to the Press.

E. Stale-Dated Committee Checks

Section 9038.6 of Title 11 of the Code of Federal

Regulations states that if the committee has checKs outstanding to

creditors or contributors that have not been cashed, the committee

shall notify the Commission of its efforts to locate the payees,

if such efforts are necessary, and its efforts to encourage the

payees to cash the outstanding cheCKS. The committee shall also

submit a check for the total amount of such outstanding checks,

payable to the United States Treasury.

The Audit staff reconciled the Committee's reported

activity to its bank activity through September 30, 1992. In

___~d_di!_io_n, limited reconciliations were prepared for the period

octobe r 1:,--199 2-through- Mar ch-31,-1-993.- This __ analys_is t<1E!Jlti f i ed

a significant number of stale-dated, outstanding checks. -------

At the exit conference, the Audit staff discussed this

matter with Committee representatives. The Committee

representatives agreed to review their records and provide any

additional information which may resolve these items.

Subsequent to the exit conference the Committee provided

the Audit staff with an updated list and documentation resolving

some of the stale-dated checks. Based on this information, the

Audit staff provided the Committee with a revised scheduled of

those checks still considered stale-dated.

There remained 17 unresolved stale-dated cheCKS totaling

$4,927.

In the interim audlt ce~oct. the Audit staff recommended

that the Committee: (1) pronde :~ples of any of the checks which

have now cleared the bank; \2' ll"~!:r:ll the Commission of its

efforts to encourage the payees to :ash the outstanding checks or

provide evidence documenting e!!~~ts to resolve Lhese items; and

(3) submit a cheCK payable to ~ne unlted States Treasury for the

total amount of such cheCKS ~h"ch are still outstanding.

In its response to the lnterlm audit report, the

Committee detailed its efforts to resolve these checks. This

Page 30, 5 24 19~
BROWN FOR PRESIDENT

Page 27

documentation included letters mailed to vendors to determine if

any mo~eys were still owed to the ~endc,. Also, included were

co~ies of similarly worded letters sen~ to follow up the initial

mailing, as well as some letters s:gned and returned by the

~endors confirming that no unpald debt existed. In one instance.

a replacement check was issued. Therefore. the Audit staff has

reduced the amount of unresolved stale-dated checks to $1,334.

Reco~~endation #3

The Audit staff recommends that the Commission make an

initial determination that the Committee make a payment of $1,334

to the United States Treasury pursuant to 11 CFR 59038.6.

IV. Recap of Amounts Due to the United States Treasu~

Reflected below are amounts due the United States Treasury as

noted in this report:

"

... '"-

Finding III.C. Matching Funds Received in

Excess of Entitlement

Profit from Apparent Excessive

Press-Re imbur-selllen ts

$125.252

c_

'--

Finding III.E. Stale-dated Committee Checks

TOTAL AMOUNT REPAYABLE

Less: Repayment received 8-31-92

REMAINING REPAYMENT AMOUNT

page 31, 3/24'-94

$ 1,334

$142,560

(97,674)

S 44.886
r

r""'tl .:... q '." 1'll':',I.I'-ld

,.., NI\I. 1\,,1> 'I:" '1'1' I 1\tli1chrrY-., t 1

i

l

: I 1\1<)(' 1 2

Adlua'ed Recelp'.

(lhrough March 31, 199~)

r-.", "'Irlt....oU31 P",C 1 end C'Jthlt, COfll'ltMJUOn, C.",hdo'o 011'1., tURns Adlulled M;,~ Con"tbuIlOn.'l emt" Conltlb I I,om It. loans fllnu, Mnul Other fOl.1

""'<k ""Im), A.'und, M1nu, ".fundl Cftn,flds'8 R.".ci·nI, R·pernenll R""o'pll Recelp" lnmlltlAll ,

,

'."y "o'nn S2f39,(jQl S331,631 $0 S500 $3,000 $1,029 $3,001 $808,852

....."y Rtown 'S•. 2Jf),~4" SS,I/G.3Je $0 $0 $0 SO S4,893 SII,420,374

"11 Ctu,lon SI2,5!8,DO $24.983,688 $2,~211 $0 $0 $1 $17,505 $37,521,753

'om IhJl~ln S2.1 03, 152 S1,080,20G 5415,570 50 $0 SO SU,70l1 55,813,837

Roo K"",.y S2.1911,;'04 S3.913,3J2 53411,757 SO 50 (51,225) 55,1131 58,466,0711

I yrwion I ;tHoU/til, S'OO 000 SI ,604065 SO SO 50 51,704.086 I "" SO S21 a-.

"'-

P:tl)l f "fYlg,3' Sl,019.188 55.072 164 S3,566 SO S45,OOO "" ($11.575) SO S8,150.543 I N

In"

floHoW11 t1f01 S?fl9.07ft S508519 5750 SO 50 50 $1,039 5799,334

N

lOtld aAmonal, $:llS.!.~2:~_$44.6~q9.' 5772,072 $500 $48.000 546,89l1 S70,284,858 M

OJ

Il000000Qlfll 0'

0.

'" '-lttllf"l UuOIPlflall $4,9'1') 'lWI $1,1 ',I 00<1 S24,750 SO $0 $0 $33,938 512,216,471

f',ft(}'0'l Hu'\tJ \lQ.fif",n,c,11 $27,088,825 $4~,250 $0 $0 $0 5222.410 538,013.11118

f)",~ 1)lI'k'" SO sno /15 SO SO $1,000 $0 $0 5271.815

t 0\At R"1>'JbllI::,n, \!.-~ r,r)~\.!<2~.~~ __ ~')4,4?J,348 S69,ooo 50 $1.000 50 $25e.3~8 550,502,200

0f10c f'Jlh

Anrtlft M.""ou· SI) $'.1;7,110 $181 $111\ ! $15,000 $0 SO 5578.087

I .-no'" f ul;:tfu' 'So I ,flV, '1;>41 ~7 701,490 SO S32S I (Sl,258) 51.200 50 S4.137,281

Jof." .b.~11f1 S"",l,1[IO S'\(I),Ooo S449 SO $0 S5.630 $5.316 $928,355

i nl;tl ()fhfl~ Pally 10] .7HfI,fln4 SJ.3;1A,or,n S610 $Hl 513,742 $8.8:10 55,318 S5,643.703

flHwd Iflllli \41;) 101\ 'Nil ._~~?,~f~~._:~4.'I._._-!,!.4I,702 $1141 I $112.742 (S2,1I40) S308,561 S126.~30,851

!

,

".unl SO 55,807 S66,822.727 ~" \:l 'lO'" til." SI) Sr,~'.R5 •.0S!. S~,O!;tl,371

(, G i \. -' I 21 , , , "..'
lIttachment: 1

rage 2 of 2

$006,852

Adjultod

Tol.,

R_","

$9,420,374

$3,001

$4,093

O'he,

II R_pll

$0

$1,02\1

Other lo."s

Mnul

$0

I

$3,000

Candld.t.

Loent Mlnul

Repe.,menl.

$0

$SOO

Conlflbullon,

"om the

Candldal..

Adlu".d R.celpt.

(nuough Milich 31, 1994)

$0

so

PAC', Dnd OU..,

emI. Contrlb

Mlnu' Retunds

S331.631

S5,176,336

Ind.Yldvlltl

Con'"buhon,

M",u, Relund.

$269,6'l1

f~11IIl

J;.4-;elr.ht"o

flJlld!l

S4.23'l,345

t.·, Il"""m 1", I'rl ":,d"I1( f F'IN/\J. /\l1111'!' JlI:lnj(l'

,

i' IlImOl:!illS

I

'.' LA"V I\olon

, "'''y Rtow n

~I

8M Clll'1lOn $12,510,130 S24,983,688 $2,42\1 $0 $0 $1 S17,505 $37,521,753

lomt'wilm S2,10J,3~2 53,080,206 $415,570 $0 $0 $0 $14,7011 $5,013,837

__~'-"-!.:'~i'._~r, SH,6M.'l41 $772,072 S500 S,40,OOO (S9, 770/ S40,099 $70,204,056 I I

'...' llnb K.".y

rII"'doo IAnovr".

t

1 PAUl f ,onO'"

I no..'Q Wlldnr

f

\ 10"" £htmO(.lAl"1

I\tlMl!!.WlS

S2 l'ln.21l4

SIOO,OOO

$3,OJ'l.JIl0

$;I!lg.O~(j

$3,913,:n2

$1,604.065

$5,012, t64

S500.519

$3411,757

so

$3,568

$750

$0

$0

$0

so

$0

so

$45,000

$0

($1,225)

$0

(S9,575)

$0

$5,1131

$21

$0

S1,039

$8,408,0711

$1,704,086

S8,I SO,543

S799,334

..,.

0'>

.".

"

N

"

If)

M

M

Q)

U>

10

n.

r"tllck AAtrhOlm," $4.!Jf)f'J,9A1 $7. t!, 7,806 $24,7SO so so SO S33,938 S12,210,477

("tROfOf' Ru'h S10,r,'"IA.'l11 ~?7.0Aa.R25 S44,250 so so so $222,410 S38,013,990

o~"'" f)l1~.I· Sf) S220115 $0 so :SI,ooo $0 $0 $271,815

ItAA'-.!.!...~J!.~U,Il~~_. ~-!:l.:!!~I.n I\'1f', _~:'~;_~-"!C_~~, _._ $69,000 SO $1,000 SO S250,340 $SO,502,290 I

Uaw'I'i11IV

Am"n M=ttt{H( t" J"",' I III '"11 ~l1n .1 ~,(l()(J sn '0 $~,n,()'"

'~lora f 1)1"("\1· ')1 (I 'f, '.;1-1 S??OI.490 SO $325 I

(S1. 258) $1,200 so S4,131,?OI

Jo11f1 IlaO"II" S'l', I 11;.0 \.',r,1,000 $449 $0 so $5,630 $5,310 $928,355

'nl,,1 01".., fl:lfly ..__~:'_?!~'_"."~__~~?R Of,() $6JO S441 1$13,742 S8,030 S5,318 S5,843,703 I

fj,,,ru1 'nLll .- -~-_.- . S4?!041'lr, ~_f~?_~~:'_~"-'l._._ .__..!!l."--'-J,~2 ~941 IS62,742 \S2,940) $306,561 $12&,430,R51 J

to.,OI \0 'l,tH)', '.tt'" so sn?nG4'1"~ ~P:,H~ri,jfl , ~o .~,alil 'oh h':j.~ n I

\.. ,

, .

1(,-6 '.) c.> u
Page 34, 5/24/94
1/ Since the proposed Final Audit Report does not include any

matters exempt from public disclosure under 11 C.F.R. S 2.4, ~e

recommend that the Commission's dlScusslon of this document be

conducted in open session.

The Office of General Counsel has reviewed the proposed Final

Audit Report on Brown for Presldent '"the Committee") submitted to

this Office on March 7, 1994.~ 7he following memorandum provides

our comments on the proposed report. If you have any questions

concerning our coaments, please contact Rhonda J. Vosdingh, the

attorney assigned to this audlt.

Page 35,5/::':'94

Rhonda J. vosdin9h~

Attorney

Lorenzo Holloway ~A ,-,JAssistant General Counsel

We have comments on findlngs II.E.l., II.E.2., III.B.,

and III.E. We concur with the flndln'ls in the proposed Final

Audit Report which are not discussed separately.

SUBJECT: Proposed Final Audit Report on Brown for President

(LRA 1440/AR 194-5)

FROM:

TO: Robert J. Costa

Assistant Staff Director

Audit Divisiofll . ,',1 !

THROUGH: John c. Suri'n~

S taff Di rec to..c: /

~r"-' ;;

..... ~:~:~_~~e~~~~~fl~G ~_ Kim Bright-Coleman l f

Associate General Counsel

I'IEMORANDUM
!j)

~emorandum to Robert J. Costa

proposed Final Audit Report on

Brown for President (LRA j440/,lI.R j94-5)

page 2

I. CONTRIBUTIONS RESULTING rRO~ STAFF ADVANCES AND EXTENSiONS or

CREDIT (II.E.l., II.E.2.)

:~e Office of General C=~~sel concurs with the ,lI.udit

~:':~SlO~'S findings regarding excessive contributions in the ferm

of staff advances and extensions of credit by a labor

oroa~::a::on. 7he Committee's method of using staff advances did

nct satlsfy the requirements of section 116.5. The credit cards

Nere used to pay for other campaign expenses in addition to

personal travel and Subslstence. The Committee did not always

relmburse the cardholders wlthln 60 days as reqUired by the

regulations; reimbursement took anywhere from 0 to as much as 137

days. Personal credit cards were used to pay for others'

expenses. Therefore, the Committee's use of staff advances

resulted in contributions to the Committee.

We disagree with the Committee'S contention that section

116.5 is unfair to "grass roots" candidates who, because they have

less name r~ccgniticn C~ political position; are forced to rely on

committee suprorters for credit.~1 Section 116.5 was promulgated

specifically to address the situation where campaign staff do not

have access to committee credit cards. Explanation and

Justification for 11 C.F.R. ; 116.5, 5S red. Reg. 26,382 (June 27,

1989) (The Commission noted in its underryIng rationale that

-"ca-mpaign-commntees- may-not--wantto- provide·· credi t- -cards-to tMirfield workers."). Therefore, the Committee must comply with

11 C.F.R. S 116.5 even if it is forced to rely on Committee

supporters for credit.

In addition, it appears the Committee did not reimburse Local

1199 (Drug, Hospital & Health Care Employees Union) ("the Union")

for use of its facilities within a comaercially reasonable time in

the amount of the normal and usual rental charge. 11 C.F.R.

S 114.9(dl. In Karch-April, 1992, the Union incurred expenses

totaling $57,195.97 on behalf of the Comaittee for rent, printing,

advertising, telephones, and other miscellaneous items in

connection with the New York primary. The Union did not bill and

the Committee did not reimburse the Union for theae expenditures

until October 1992.

This use of the Union's facilities may have resulted in a

contribution to the Coamittee. 11 C.F.R. S 114.9(d). Although

the Committee made efforts to pay the Union for the services and

accommodations it provided, the Committee did not reimburse the

2/ We rejected a similar argument raised by the Lenora B.

Fulani for President Committee.

page 36, 5 '2~9~

- • ---OF,,,,,,,
c

Memorandum to Robert J. Costa

Proposed rinal Audit Report on

Brown for president (LRA ,440/AR '94-5)

Page 3

Union for over 6 months after the expenses were incurred.3! The

~~mmitt.e did not demonstrate that waiting more than 6 months t~

~eimburse the Union was commercially reasonable. rurther, the

:~mmittee failed to prOVide any information to demonstrate the

~ental charge was the normal and usual amount pursuant to

:: C.f.R. S 114.9.

II. APPARENT NON-QUALIFIED CAKPAIGN EXPENDITURES -- UNDOCUKENTEO

EXPENDITURES (III.B.)

The Audit staff found that the Committee's response to the

:nterim Audit Report materially resolved the 16 undocumented

disbursements totaling $32,839. The Committee's respon.e

consisted of documentation to account for $22,798 and a promise to

submit documentation relating to an additional $3,743.93. The

Committee'S response did not address the remaining $6,351.07.

Since this matter has been materially resolved, this Office

acrees with the findina in the oroposed report. However, we note

that the promised documentation' has not been submitted. This

information should have been submitted within the time prescribed

for disputing or commenting on the Interim Audit Report.

11 C.F.R. S 9038.1{c)(2). The Committee'S mere promi._ to submit

supporting documentation does not satisfy the Committee'S burden

·-to-demonstratethe-ex1>ens.es-we re--qual i fied-campaign- expenses.--See--

11 C.F.R. S 9033.11(a). Therefore, you should revise the proposea

report to delete the statement "The Committee's response notes

that '{l]etters are out representing another $3,743.93 and when

documentation is received, it will be forwarded to the FEC.'·

III. STALB-DATBD CHECKS (III.!.)

The proposed Final Audit Report includes a finding that there

are no remaining unresolved stale-dated checks. This conclusion

was reached de.pite the fact that the Committee failed to provide

information for all of the unresolved stale-dated checks noted in

the Interia Audit Report. Specifically, checks totaling $1,333.80

were not resolved nor addressed by the Committee.

The Office of General counsel disagrees with this finding.

The Co..ission's requlations require committees with outstanding

checks to inform the Commission of its efforts to locate the

payees, if such efforts have been necessary, and its efforts to

encourage the payees to cash the outstanding checks. 11 C.F.R.

S 9038.6. In informal discussions between this Office and the

Audit Division, you noted that the Final Audit Report would be

3/ However, the Committee argues that it requested several

times that the Union send the bill to the Committee so that it

could be paid. The Union explained that the delay in submitting

the bill to the Committee was the result of several mislaid

invoices in the accounting department and no bill was submitted

to the Committee until these bills were recovered.

Page 37, 5/24/94
'J)

M~morandum to Robert J. Costa

Proposed Final Audit Report on

Brown for President (LRA .440/AR 494-5)

Page 4

r~vised to include a separate finding recommending the Committee

make a repayment to the United States Treasury in the amount of

:he remaining unresolved stale-dated checks. The separate findinc

~lll ~larify the Committee's repayment obligation resulting from'

:~e ~r.resolved stale-dated checks. 11 C.F.R. S 9030.6.

Page 38, 5/24/94
BJOOS8~-;

May 25. 1994

Mr. Blaine Quick. Treasurer

Brown for President

444 S. Occidental Blvd., 1421

LoS Angeles, CA 90057

Dear Mr. Quick:

Attached please find the Final Audit Report on Brown for

President. The Commission approved this report on ~ay 24, 1994.

As noted on page 4 of the report, the Coamission :ay p~rsue any of

the matters discussed in an enforcement action.

In accordance with 11 C.F.R. SS9038.2(c)(1)and (d)(l), the

Commission has made an initial det.ermination that the Candidate

is to repay the secretary of the Treasury $142,560 within 90 days

after service of this report (August 25, 1994). On August 31,

1992, a payment of $97,674 was submitted based on preliminary

figures leaving a balance due of $44,886. In addition, the

Commission determined that overcharges to the Press for

travel-related services totaling $51,233 must be refunded to the

traveler's who were overcharged.

Should the Candidate dispute the Commission's determination

that a repayment is required, Commission regulations at 11 C.F.R.

S9038.2(c)(2) provide the Candidate with an opportunity to submit

in writing, within 30 calendar days after service of the

Commission's notice (June 26, 1994), legal and factual materials

to demonstrate that no repayment, or a lesser repayment, is

reqUired. Further, 11 C.F.R. 59038.2(c)(3) permits a candidate

who has submitted written materials, to request an opportunity to

make an oral presentation in open session based on the legal and

factual materials submitted.

The Commission will consider any w"itten legal ar.d factual

materials submitted by the Candidate within the 30 day period in

making a final repayment determination. such materlals may be

submitted by counsel if the Candidate so elects. If :he Candidate

decides to file a response to the initial repayment determination,

please contact Kim L. Bright-Coleman of the Office of Seneral

Page 39, 5/24/94
Letter to Mr. Blaine Quick, Treasurer

Page 2

Counsel at (2~:\ 219-3690 or tol: f~ee a~ tEOO

Candidate does not dispute this :~itial deter$

30 day Feriod F:ovided, it ~ill te considered

42~-9S3C. If the

naticn ~ithin the

inal.

.-

, """' .'

The Commission approved Final Audit Report will be placed on

the public rec~rd en May 31, 199~. Should you have any questions

regarding the public release of this report, please contact Ron

Harris of the Commission's ?ress C~fice at (202) 219-4155.

Any questions you may have related to matters covered durinG

the audit or in the report shc~:d be directed to Alex Boniewicz ~r

Joe Stoltz of the Audit Division at (202) 219-3720 or toll free at

(800) 424-9530.

Sincerely,

Attachment as stated

Page 40, 5 2~/94
.. \-

BJOOS816

May 25, 1994

Governor Edmund Brown, Jr.

Brown for President

c/o Jodie Evans, Campaign Manager

643 E. Channel Rd.

Santa Monica, CA 90402

Dear Governor Brown:

Attached please find the Final Audit Report on Brown for

president. The Commission approved this report on May 24, 1994.

As noted on page 4 of the report, the Commission may pursue any of

--the -matters-discussed_i n_aJl __ELl'lfqr<:ement act ion.

In accordance with 11 C.F.R. SS9038.2{c){l)and (d)(l), the

Commission has made an initial determination that you are to repay

the Secretary of the Treasury $142,560 within 90 days after

service of this report (August 25, 1994). On August 31, 1992, a

payment of $97,674 was submitted based on preliminary figures

leaving a balance due of $44,886. In addition, the Commission

determined that overcharges to the Press for travel-related

services totaling $51,233 must be refunded to the traveler's who

were overcharged.

Should you dispute the Commission's determination that a

repayment is required, Commission regulations at 11 C.F.R.

S9038.2(c)(2) provide you with an opportunity to submit in

writing, within 30 calendar days after service of the Commission's

notice (June 26, 1994), legal and factual materials to demonstrate

that no repayment, or a lesser repayment, is required. Further,

11 C.F.R. §9038.2(c)(3) permits a candidate who has submitted

written aaterials, to request an opportunity to make an oral

presentation in open session based on the legal and factual

materials submitted.

The Commission will consider any written legal and factual

materials submitted by you within the 30 day period in making a

final repayment determination. Such materials may be submitted by

counsel if you so elect. If you decide to file a response to the

Page 41, 5/24/94
',,-

Letter to Governor Edmund Brown, J~.

Page 2

initia: ~epayment determination, please =ontact Kim ~.

Bright-coleman of the Office of General Counsel at (202' 219-3690

or toll free at (800) 424-9530. If you do not dispute thlS

initial determination withln the 30 day ?eriod provided, 1t will

be considered final.

The Co~~ission approved final Aud~t Report will be placed on

the public record on May 31, 1994. Should you have any questions

regarding the public release of this report, please contact Ron

Harris of the Commission's Press Office at (202) 219-4155.

Any questions you may have related to matters covered during

the audit or in the report should be directed to Alex Boniewicz or

Joe Stoltz of the Audit Division at (202) 219-3720 or toll free at

(BOO) 424-9530.

Sincerely,

I .

i If-l y-i/! , , j / ,J.--'

)dt1£jJ-J-r _" ..... ".0- !L4;[;.

ut--!,Robert J. Costa J ~'j~ssistant Staff Director

Audit Division

Attachment as stated

Page 42, 5 24 94
CHRONOLOGY

BROWN FOR PRESIDENT

Pre-audit Inventory Commenced

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report ~/

Final Audit Report Approved

8/24/92

12/7/92-4/13/93

11/9/93

1/27/94

5/24/94

~/ Additional reponse time was granted after the revote and

reissuance of the Interim Audit Report following the Courts

decision in FEC v. NRA Poli tical Victory Fund, et al., <No.

91-5360, slip op. at 2 (D.C. eir. Oct. 22, 1993)

Page 43, 5/24/94
'"-,

page 4, 5/24/94

-t---
',' - > -~ -

FEDERAL ELECTION COMMISSION

November 23. 1994

'1'0: The

THROUGH: John C. S

Staff Dir /v.....,. 'P --.----e s.a 1I.'1L,-, f /."

~:~~~~l c~~n~l~e t';~

Kim Bright-COleman \A.~ Associate General Counsel

i.-o-ienio-·Hol ~oway--"1-;~'----­

Assistant G~eral counsel

Rhonda J. vosdingh

Attorney

FROn;

SUBJECT: Proposed Final Repayment Determination and Statement of

Reasons - Governor Edmund G. Brown, Jr. and Brown for

president (LRA 1440)

I. INTRODUCTION

On May 24, 1994, the Commission approved the Final Audit

Report on Brown for president ("the Committee") and made an

initial determination that Governor Edmund G. Brown, Jr. and the

Committee must make a repayment to the United States Treasury,

consisting of $125,252 in excess entitlement. The Commission also

made an initial determination that the Committee must make a

payment to the United States Treasury in the amount of $1,334 for

stale dated Committee checks, $15,974 for profit on reimbursements

received from the media for travel related services, and refund

$51,233 to the media for excessive travel reimbursements.
,- ,

c

L0

Memorandum to the Commission

Proposed Final Repayment Determination

Brown for President (LRA 1440)

Page 2

On June 24, 1994, the Committee submitted its written

response to the initial repayment determination.!1 This response

addressed the media travel expenses and the valuation of capital

assets on the Committee's statement of Net Outstanding Campaign

Obligations. The Committee had previously submitted a check in

the amount of $97,674 on August 31, 1992 to cover the preliminary

repayment amount for public funds received in excess of the

candidate's entitlement.21 The Committee did not dispute the

Commission's initial repayment determination for stale dated

checks.

The Audit Division and the Office of General Counsel have

reviewed the Committee's response to the initial repayment

determination. The Office of General Counsel recommends that the

Commission make a final determination that the Committee repay

$179,049 to the United States Treasury, representing receipt of

funds in excess of entitlement ($171,136) and surplus funds

($7,913). If the Commission approves the proposed final repayment

determination, the outstanding repayment owed to the United States

Treasury would be $81,375 ($179,049 - $97,674). The Office of

General Counsel further recommends that the Commission determine

the Committee must pay $12,757 to the United States Treasury,

representing stale dated checks ($1,334) and excessive travel

reimbursements received from the media ($11,423).1/ The total

11 Two responses to the initial determination were submitted on

behalf of the Committee. This Office contacted Jodie Evans, the

Committee's campaign manager. She stated that her submission

constituted the Committee's response; the other letter, submitted

by the Committee's bookkeeper, Kinde Durkee, was not authorized by

the Committee. Therefore, this Office considered only the

submission by Ms. Evans. A letter from the Office of General

Counsel reflecting this conversation is attached. See Proposed

Statement of Reasons, Attachments 4-6.

21 This repayment amount was calculated and provided to the

Committee during the fieldwork inventory stage of the audit

process.

31 The draft Statement of Reasons advises the Committee of

amounts to be paid to the United States Treasury to comply with

sections 9038.6 (stale dated checks) and 9034.6 (excessive travel

reimbursements from the media) of the Commission'S regulations.

We have modified our approach regarding these payments from that

taken in the Final Audit Report, which grouped these payments with

the repayments for receipt of funds in excess of entitlement and

surplus funds. We believe this to be the better approach since

these payments are not repayments required under the statute. See

26 U.S.C. 55 9038(b)(1)(2) and (3). If the amounts in question---

are not paid to the Treasury, the Committee would not be in

compliance with the Commission'S regulations and the matters may

be addressed in an enforcement action.
Memorandum to the Commission

Proposed Final Repayment Determination

Brown for president (LRA *440)

Page 3

outstanding amount the Committee owes to the United States

Treasury would therefore be $94,132 ($12,757 + $81,375).

The total amount the Committee owes to the United States

Treasury has increased over the initial determination contained in

the Final Audit Report. The change in the amount is due to the

elimination of the amount owed to the media, a decrease in the

payment owed for excessive travel reimbursements, and an increase

in the value of the Committee's capital assets. These changes

resulted in the Committee's NOCO Statement showing a surplus of

funds rather than the deficit reported in the Final Audit Report.

Consequently, the Committee now owes a higher repayment for

receipt of funds in excess of entitlement. Attached for

Commission approval is a draft Statement of Reasons in support of

the final determination.

II. RECOMMENDATIONS

'-', , The Office of Counsel recommends that the Commission:

c

:.0

,-' ,

1. Determine that Edmund G. Brown, Jr. and Brown for

president must repay $179,049 to the United States Treasury;

2. Determine that Edmund G. Brown, Jr. and Brown for

presi dent--uiU-sT-lilaIte-a-paymenrirt-t:he amount- o~--$1-2,"]-51-tco- tche- _.

united States Treasury; and

3. Approve the attached draft Statement of Reasons in

support of the final determinations.

Attachment

proposed Statement of Reasons
BEFORE THE FEDERAL ELECTION CO~ISSION

In the Matter of

Governor Edmund G. Brown, Jr. and

Brown for President

STATEMENT Of' REASONS

On , 1994, the Commission made a final

determination that Governor Edmund G. Brown, Jr. and Brown for

President ("the Committee") must repay $179,049 to the United

States Treasury, representing $171,136 in matching funds received

in excess of the candidate's entitlement and $7,913 in pro rata

repayment of surplus funds. The Committee made a partial

------- ----- -repayment -inthe--amount-of--$97,6'14on--August -31,- -1992. --See ----- ------ C'<

Attachment 8. Therefore, the outstanding repayment owed to the

United States Treasury is $81,375 ($179,049 - $97,674). The

Committee must repay this amount within 30 days of receipt of this

determination pursuant to 11 C.F.R. 5 9038.2(d)(2). In order to

,- comply with 11 C.F.R. 55 9034.6(d)(1) and 9038.6, the Commission

concludes that the Committee must pay to the United States

Treasury $12,757, representing $1,334 in stale dated Committee

checks and $11,423 in excessive travel reimbursements from the

media. The total outstanding amount owed to the United States

Treasury is $94,132 ($81,375 + $12,757). This Statement sets

forth the legal and factual basis for the Commission's

determination in accordance with 11 C.F.R. 5903B.2(c)(4).
-2-

I • BACKGROUND

Brown for President is the principal campaign committee of

Governor Edmund G. Brown, Jr., a candidate for the Democratic

presidential nomination in 1992. The Committee received

$4,239,404.83 in federal matching funds under 26 U.S.C. § 9034(a).

Pursuant to 26 U.S.C. § 9038(a), the Commission conducted an audit

and examination of the Committee's qualified campaign expenses.

The relevant issues first arose in the Interim Audit Report which

was approved by the Commission on October 22, 1993 and ratified on

November 9, 1993.l1 Attachment 1. The Committee responded to the

Interim Audit Report on January 26, 1994. Attachment 2. On

May 24, 1994, the Commission approved the Final Audit Report and

------, ---madean-initi-aldetetmTnation-th-lit-tne--Commrnee--must.maKe'il·" .... "

0{ payment of $142,560 to the United States Treasury for funds

received in excess of entitlement ($125,252), stale dated checks

($1,334), and apparent excessive travel reimbursements ($15,974).

'>-

.,~'"'."

'- -.

Attachment 3. The Commission also determined that the Committee

must refund $51,233 to media organizations for excessive travel

reimbursements. Id.

The Committee responded to the Final Audit Report on June 24,

1994. Attachment 4.~1 The Committee's response addressed the

II The Commission ratified its approval of the Interim Audit

Report on November 9, 1993 in light of the decision in FEC v. NRA

Political Victory Fund, 6 F.3d 821 (D.C. Cir. 1993), cert.

granted, 114 S.Ct. 2703 (1994).

21 Two letters, one from the Campaign Manager Jodie Evans and

one from Kinde Durkee, the Committee bookkeeper, were submitted in

response to the Final Audit Report (Attachments 4 and 5). On

June 28, 1994, the Office of General Counsel contacted Jodie

Evans, who stated that the response she submitted (Attachment 4)
-3-

media travel expenses and the valuation of capital assets on the

Committee's statement of Net Outstanding Campaign Obligations

("NOCO statement").i/ The Committee did not dispute the

Commission's findings on stale dated checks.

II. EXCESSIVE TRAVEL REIMBURSEMENTS FROM THE MEDIA

A committee that provides travel-ralated services to the

media may charge for the services and accept resulting

reimbursements. 11 C.F.R. S 9034.6(b). The reimbursement may not

exceed the pro rata portion of the actual cost (or a reasonable

estimate of the pro rata share) plus 10%. Id. If the committee

receives more than 110% of the actual cost from the media, that

excess amount must be returned to the media on a pro rata basis.

Explanation-and-Justification-for-llC.F-.R.- uS-9034. 6. --S6-Fed-.-Reg.-

35906 (1991). The committee may then deduct from its expenditures

subject to the overall expenditure limitation the amount of

reimbursement received, not to exceed the actual cost plus 3\ for

administrative costs. 4/ 11 C.F.R. S 9034.6{d)(I).- If the amount

(Footnote 2 continued from previous page)

was the Committee's response and that the other response

(Attachment 5) was not authorized by the Committee. Attachment 6.

Therefore, the Commission considered only the submission by Ms.

Evans in making its final determination.

3/ On August 31, 1992, the Committee submitted a repayment check

In the amount of $97,674 to cover the preliminary repayment amount

for public funds received in excess of the candidate's

entitlement. Attachment 8. This repayment amount was calculated

during the fieldwork inventory stage of the audit process. See

Attachment 3, p. 24.

4/ If a committee has incurred higher administrative costs in

prOViding these services, it must document the total cost incurred

for such services in order to deduct a higher amount of

reimbursements received. 11 C.F.R. S 9034.6{d)(1).
-4-

reimbursed exceeds the actual cost plus administrative cost, the

difference must be paid to the United States Treasury. Id.

."- . '- ,

.~

L~ i

The Final Audit Report found that the Committee paid $228,200

for transportation and services provided to the media.

Attachment 3, p. 28. It also found that the Committee received

media reimbursements totaling $302,253 for transportation

services. Id. under the regulations, the maximum amount that

could have been billed to the media was $251,020 ($228,200 + 10%).

See 11 C.F.R. S 9034.6{d)(1). Therefore, the Commission

determined that the Committee had overcharged the media $51,233

($302,253 - $251,020) for travel-related services and consequently

made an initial determination that the Committee must make a pro

--rata- refund-of-$Sl, 233--to-the-media._

The actual cost of transportation and services provided plus

the administrative costs permitted by the regulations was

calculated in the Final Audit Report to be $235,046 ($228,200 +

3%). Thus, the Final Audit Report found that the Committee

received media reimbursements in excess of the amount actually

paid by the Committee for transportation services provided to the

media and the administrative costs, totaling $15,974 ($251,020 -

$235,046). The Commission, therefore, made an initial

determination that the Committee must pay that amount to the

United States Treasury pursuant to 11 C.F.R. S 9034.6(d)(1).

In response to the Final Audit Report, the Committee

submitted additional manifests related to transportation provided

to the media. The information submitted indicated that the

Committee actually paid $282,359 for transportation and services.
(

,,...;'".

-5-

The actual cost of transportation and services provided plus the

administrative costs permitted by the regulations is $290,830

($282,359 + 3%).~1 See 11 C.F.R. S 9034.6(d)(1). The Committee

collected reimbursements from the media totaling $302,253. Thus,

the Committee received media reimbursements of $11,423 ($302,253 -

$290,830) in excess of the amount actually paid by the Committee

for transportation services prOVided to media and the

administrative costs. The Commission therefore has concluded that

the Committee must pay $11,423 to the United States Treasury,

representing profit on reimbursements received from the medi&,

pursuant to 11 C.F.R. S 9034.6(d)(1).

Based on the documentation submitted by the Committee, the

___Commissionhas_determined--that no-refunds to -the-media -are -----

required. The documentation submitted in the response indicated

that the amount the Committee could bill to the media (cost plus

10\) was $310,595 ($282,359 + 10\). Media reimbursements totaled

$302,253. Because media reimbursements were less than the amount

that could have been billed, the Commission has made a final

determination that no refunds to the media are required.

III. NOCO STATEMENT: SURPLUS AND RECEIVING FUNDS IN EXCESS OF

ENTITLEMENT

The NaCO Statement reflects the publicly financed committee's

financial status as of the candidate's date of ineligibility.

Explanation and Justification for 11 C.F.R. S 9034.5, 44 Fed. Reg.

20340 (1979). The candidate must submit this statement within

51 The Committee did not document higher administrative costs.

See 11 C.F.R. 9034.6(d)(I).
-6-

fifteen days after his or her date of ineligibility. 11 C.P.R.

S 9034.5(a). The NOCO Statement is calculated by including, inter

alia, the fair market value of capital assets.~/ 11 C.F.R.

S 9034.5(a)(2)(ii). The fair market value of capital assets

acquired before the candidate's date of ineligibility is the total

original cost of the items when acquired less 40% to account for

depreciation. 11 C.F.R. S 9034.5(c)(1). A candidate must submit

documentation to support a higher depreciation percentage, if he

or she wishes to do so. Id.

If the the NOCO statement shows the committee in a surplus

position, then the candidate may be required to make a pro rata

repayment to the United States Treasury for the amount of the

- surplus.--H<:.F-.R.- S90 38.2 (b )(4).- I f -the -NOCO--S tatement shows -- -----

the cOllllllittee with net outstanding campaign obligations, the

candidate may continue to receive payments for matchable

contributions. 11 C.r.R. S 9034.1(b). However, the payments may

not exceed the candidate's net outstanding campaign obligations.

Id. If it is later determined that the payments exceeded the net

outstanding campaign obligations, the candidate may be required to

make a repayment to the United States Treasury. 11 C.r.R.

S 9038.2(b)(1)(i).

A. Calculation of the NOCO Statement: Capital Assets

The NOCO Statement in the Final Audit Report included capital

assets with a 40% depreciated value of $43,080. Attachment 3,

6/ Cash on hand (as of the candidate's last day of eligibility),

credits, and refunds are assets that may also be included on the

NOCO Statement. 11 C.F.R. S 9034.5(a)(2)(i) and (iii).
-7-

p. 22. The Committee challenges this valuation, arguing that most

of the capital assets included in the NOCO Statement "have been

sold and must be overvalued for what [it has) remaining."

Attachment 4, p. 1. The Committee attached a copy of the

Commission's workpaper deriving the capital asset figure and

annotated the status of each asset. Attachment 4, p. 13. The

Committee noted that the telephone system had been sold and

claimed that the voice mail system is broken and the copier cannot

be sold. With respect to television, video cassette recorders,

and video equipment, the Committee noted that "video equip and

camera were stolen." Id. The Committee also claimed a lower

value for the ·computer (AV)" than the amount included in the NOCO

--Statemen~-.-

The Commission concludes that the valuation of capital assets

has increased over the value included in the Final Audit Report to

$48,600.2/ This conclusion is based on two factors. First, a

computational error in the depreciated valuation of capital assets

on the NOCO statement contained in the Final Audit Report was

discovered during the analysis of the Committee's response to the

Final Audit Report.~/ Attachment 7, pp. 3, 5 (revised NOCO

Statement) .

Second, the Committee failed to provide any documentation

supporting a depreciation of more than 40% or a different

7/ As a result, the financial position of the publicly financed

committee as reflected on the NOCO Statement has been adjusted

from the Final Audit Report to show an increase in total assets.

Attachment 7, p. 5.

~/ The error caused an under-valuation of capital assets.
r

,.

'I)

,

-8-

valuation. See 11 C.F.R. S 9034.5(c)(1). Specifically, the

Committee did not provide any documentation to support the sale of

the telephone system, nor is it reflected on Committee disclosure

reports filed to date. The Committee also failed to submit

documentation to support its assertion that the voice mail system

is broken and the copier cannot be sold. Without information

detailing whether the voice mail system can be repaired, then

sold, there is no basis to reassess its valuation. There is also

no basis to reassess the valuation of the copier without knowing

the specific model and year. Furthermore, the Committee did not

provide police reports or identify which items were stolen and

which remain in the Committee's possession. The Co..ittee also

did not document thifpurcha.se price and the-source of -itsvaluation of the ·computer (AV),· for which it claias a lower

value than is included in the NOCO statement.~/

B. Surplus and Receiving Funds in Excess of Entitle.ent

The candidate's date of ineligibility was July 15, 1992. The

NOCO Statement in the Interim Audit Report reflected a deficit of

$36,870, as of July 15, 1992. Attachment 1, p. 19. Subsequently,

the NOCO statement was revised based on the Committee's response

to the Interim Audit Report and disclosure reports filed by the

Committee for the period April 1, 1993 through March 31, 1994.

Attachment 3, p. 25. The revised NOCO Statement reflected a

deficit on July 15, 1992 of $49,684; the deficit on August 3, 1992

was calculated to be $45,874. Attachment 3, p. 25. On August 4,

9/ The Committee failed to address any other pieces of computer

equipment listed as part of the capital asset deteraination.
-9-

1992, the Committee received $171,136 in matching funds.!QI The

Final Audit Report found that the Committee received $125,252

[($171,136 - $10) - $45,874J in matching funds in excess of its

entitlement. Therefore, the commission made an initial

determination that the Committee make a repayment in the amount of

$125,252 to the United States Treasury.

However, as a result of the elimination of the account

payable to the media, the revision in the amount required to be

paid to the United States Treasury for excessive media

reimbursements, and the revised valuation of capital assets,

Committee's NOCO Statement now reflects a $17,617 surplus on the

candidate's date of ineligibility, rather than a deficit as

---- -- --- ----- caleu:J.ated-in- the -Final-Audit- -Report.-Attachment -7,-p~ 6~--The-------

pro rata portion of the surplus, $7,913 ($17,617 x .449142), must

be repaid to the United States Treasury. 11 C.F.R.

S 9038.2(b)(4). Furthermore, in view of the Committee's surplus

position based on the revised NOCO Statement, all of the public

funds paid to the candidate after his date of ineligibility,

IJ''')

c.

$171,136, exceeded his entitlement. 11 C.F.R. S 9038.2(b)(1)(i).

Therefore, the Commission has made a final determination that the

Committee must make a repayment of $179,049 ($7,913 + $171,136) to

the United States Treasury.

101 The Final Audit Report states that the Committee received

$171,126 in matching funds on August 4, 1992. The Committee's

bank deposit records show that $171,126 was deposited in Committee

accounts. However, the actual amount disbursed to the Committee

was $171,136. The $10 difference is the result of a deduction for

wire transfer fee.
-10-

IV. FINAL DETERMINATION

Therefore, the Commission has made a final determination

pursuant to 11 C.F.R. S 9038.2(c)(4) that Governor Edmund G.

Brown, Jr., and Brown for President must repay $179,049 to the

united States Treasury. The Committee made a partial repayment in

the amount of $97,674 on August 31, 1992. See Attachment 8.

Therefore, the outstanding repayment owed to the United States

Treasury is $81,375 ($179,049 - $97,674). In order to comply with

11 C.F.R. 55 9034.6(d)(1) and 9038.6, the Commission concluded

that Governor Edmund G. Brown, Jr., and Brown for President must

make a payment in the amount of $12,757 to the United States

Treasury. The total outstanding amount owed to the United States

--- --- ". ---Treasury-is $94,1-32 {-$l2,-757 +$81-,375 )-.

Attachaents

,--

1. Interim Audit Report on Brown for President, approved

October 22, 1993 and ratified November 9, 1993.

2. Committee response to the Interim Audit Report,

January 26, 1994.

3. Final Audit Report on Brown for President, approved on

May 24, 1994.

4. Response from Jodie Evans, Campaign Manager, to the Final

Audit Report, June 24, 1994.

5. Letter from Kinde Durkee, Committee Bookkeeper,

purporting to respond to the Final Audit Report, June 23, 1994.

6. Letter from Rhonda J. Vosdingh to Jodie Evans confirming

telephone conversation, July 12, 1994.

7. Memorandum from Robert J. Costa to Lawrence M. Noble,

Analysis of Response to the Final Audit Report on Brown for

President (L~~ #440/AR 194-5), September 16, 1994 (portions

redacted) . 8. Check for $97,673.96 for "Surplus Repayment," paid to the

order of u.S. Treasury, by Brown for President, August 31, 1992.
FEDERAL ELECTION COMMISSION

WASHINCTON 0 C 204&1

INTERIM REPORT or THE AUDIT DIVISION

ON

BROWN rOR PRESIDENT

A!t003839

,,.., '-J ."

I. Background

A. Audit Authority

This report is based on an audit of Brown for President (~the Co..ittee~). The audit is mandated by Section 9038(a) of.

··-Ti·t·l. -26-of-~h..-Uni·ted· State...Cod -.'l'hats..c.tion.s.tat.esth.at .._ ~After each matching payment period, the Coaais.ion shall conduct

a thorough examination and audit of the qualified campaign

expenses of every candidate and bis authorized coaaittees who

received payments under section 9037.~ A2so, Section 9039(b) of

the united States Code and Section 9038.1(a)(2) of the

Co.-ission's Regulations state that the Co.-isslon may conduct

other examinations and audits from time to ti.e as it deems

necessary.

In addition to examining the receipt and use of rederal

funds, the audit seeks to determine if the Co.-ittee has

materially complied with the limitations, prohibitions and

disclosure requirements of the rederal Election Campaign Act of

1971, as a..nded.

B. Audit Coverage

The audit covered the period from the Comaittee's

inception, Septeaber 2, 1991, through Septeaber 30, 1992. During

this period, the Co.-ittee's reports reflect an opening cash

balance of $-0-; total receipts of $10,783,675.59; total

disbursements of $10,253,295.87; and a closing cash balance of

$530,297.00.!1 In addition, a limited review of the Committee's

1/ The reported activity does

iathe.atical errors in carrying

to the subsequent report as the

not foot due to two ainor

the ending cash on hand balance

beginning cash on hand balance.

AT'iACffilEiiT -I-I __ Paga I of -4~...K~__
2

transactionl val conducted through Karch 31, 1993, for purposes of

determining the Committee's remaining matching fund entitlement

based on its financial position.

C. Campaign Organization

-The Committee registered with the Federal Election

Commission on September 2, 1991. The Treasurer of the Committee

from its inception through Karch 5, 1992 was Jodie Evans. On

Karch 6, 1992, Blaine Quick became Treasurer and continues to

serve as the Co..ittee'l current Treasurer.

During the period audited, the campaign utilized

depositories in 16 stat•• in addition to it. national headquarters

located in Los Angel.s, California. The campaign'. current

offices are in Los Angeles, California.

To handle its financial activity, the campaign u.ed 21

bank accounts at various times. From these accounts the campaign

made approximately 6,000 di.bur••••nts. ApprOXimately 94,000

contributions vera received from about 88,400 per.onl. The•• contributions totaled about $5,015,000. It .hould be noted that

it was the Co~ittee'. policy to limit contributions to $100. • ------------lnadd-ition-to- contributi-ons,_thecaapai gJLre_l:~tVi!~__ $4,239,404.83 in matching fund. from the United State. Treasury~

This amount represents 30.70\ of the $13,810,000 maximum

entitlement that any candidate could receive. Th. candidate was

deter.ined eligible to receive .atching fundi on Deceaber 2, 1991.

The campaign made a total of 8 .atching funds request. totaling $4,437,909.13. The Co..ission certified 95.53' of the requested

a.ount. For matching fund purpo•••, the Co..i ••ion determined

that the Honorable Edmund G. Brown'. candidacy ended July 15,

1992. Thi. deter.ination was ba.ed on the date of the convention

pursuant to the Co..islion'. regulation. at 11 c.r.a. 59033.5(c)

which states, in relevant part, that the candidate's date of

ineligibility shall be the last day of the matching paym.nt period

as specified in 11 c.r.a. 9032.6; which state. that the .atching

payment period .ay not exceed -the date on which the party

nominate. its candidate.- On August 4, 1992, the Committee

received its final .atching fund payment to defray expenses

incurred through July 15, 1992 and to help defray wind-down costs.

Attachment 1 to this report is a copy of the

Commission's most recent Report on rinancial ActiVity for this

campaign. The amounts shown are as reported to the Commission by

the Committee.

D. Audit Scope and Procedures

In addition to a review of the qualified campaign

expenses incurred by the Committee, the audit covered the

following general categories:
5.

3

1. The receipt of contributions or loans in excess of

the statutory limitations (see Finding II.E.);

2. the receipt of contributions from prohibited

sources, such as those from corporations or labor

organizations;

3. proper disclosure of receipts from individuals,

political committees and other entities, to include

the itemization of receipts vhen required, as vell

as, the completeness and accuracy of the

information disclosed (see Finding II.B.);

4. proper disclosure of disbursements including the

itemization of disbursements vhen required, as well

as, the completeness and accuracy of the

information disclosed (s.e finding II.C.);

proper disclosure of Committe. debt5 and

obligations;

6. the accuracy of total reported receipts,

disbursements and cash balancaa aa compared to

Committee bank records (s•• Finding II.A.); •

7.

8.

9.

10.

adequate recordkeeping for campaign transactions

(see Finding II.F.);

accuracy of the Statement of Net Outstanding

Campaign Obligations filed by the Coaaittee to

disclose its financial condition and establish

continuing matching fund entitlement (see rinding

III.C.);

the Coaaittee's compliance vith spending

limitations; and

other audit procedures that vere dee.ed necessary

in the situation.

Ai:t.C,;\WlIT -LI -=~--

Page _S~ of 2$

Aa part of the Commission's standard audit process, an

inventory of the Coaaittee's records va. conducted prior to the

audit fieldvork. This inventory val conducted to deteraine if the

Comaitte.'. records vere materially complete and in an auditable

state. The inventory indicated that some records were not

complete and the Committee was provided thirty days to obtain the

necessary materials. At the end of the thirty days, some records

were still not complete. In order to obtain the necessary records

subpoenas were issued to the Committee as well as a number of

vendors, banks, and individuals. As a result of the information

obtained, it was concluded that the records vere materially

complete except aa noted below.
4

unle.s specifically discussed below, no material

non-compliance was detected. It should be noted that the

Commission may pursue further any of the matters discussed in this

report in an enforcement action. Finally, this report constitutes

notice of potential Federal funds repayment pursuant to 11 C.r.R.

9038.2(a) (2).

Our analysis of press refunds/rebates was limited due to

the absence of Committee records with respect to: The flight

origination and destination to include the cost of each leg of

each trip; the flight manifests or itinerary for each leg of each

trip showing every person traveling (except the flight crew) by

naa. and any associated organization; and workpaperl, computer

files etc. showing the derivation of aaounts billed to the press

for each leg of each trip (see rinding II.r.).

II. Findings and Recommendations - Non-repayment Matters

A. Misstatement of Financial Activity

1.

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

States Code require a political committee to report the amount of

cash on hand at the beginning of each reporting period and the • . ----.----to~alamount· ofall-receipts. ..and.d.isburse.aentsfor--the__ re.porting _ ~: period and calendar year.

The Audit staff's reconciliation of the Coaaittee's bank

activity to its reported activity~/ for the period covered by the

audit indicated the following aisstateaents:

Inception through December 31, 1991

a. Receipts

The Coaaitte. reported total receipts of

$519,657.59 for 1991. Utilizing available bank records, the Audit

staff determined that the Coaaittee should have reported total

receipts of $515,017.09. Therefore, the Coaaittee's receipts were

overstated by a net aaount of $4,640.50. This overstatement was

the result of the following:

o

o

o

In-kind contributions and deposits

not reported

Deposits reported twice

Reported deposits and edit adjustments

not traceable to bank statements

$ 6,108.76

$( 700.00)

$(9,800.00)

The

the

Committee's reported totals were calculated by summing

current period totals for each :;:~~~t;~9 ,eriod.

l'~gc 'I cf _,2..... '3--
Total (Net) Overstatement

o

o

o

5

Correction of mathematical error

Unexplain.d y.ar end correction

Reconciling adju.tment

$ 400.00

$ (760.65)

$ 111.39

$(4,640.50)

b. Disbursements

for 1991, the Committe. reported total

disburse.ent. of $440,957.87. The Audit .taff determined that the

Committee .hould have reported total di.bur••••nt. of $457.298.12.

Therefore, the Coaaittee's reported di.bur.e.ent. were understated

by a net amount of $16,340.25. This under.tat.ment was a result

of the follOWing:

Total (Net) Understate.ent

o

o

o

o

Disbursements not reported and 1991

disbursements reported in 1992

Di.bursement. reported twice

Mi.cellan.ous charges, bank reversal., ..lm.c:t!r rQf__c()....r.l.".4tc~_io_n_s

Reconciling adjustment

$19,993.01

$(1,503.12)

$(1,999.35)

$ (150.29)

$16,340.25

c. Cash on Band

,,.... - ,

.

'--.

The Committee reported an ending cash on hand

balance on Deceaber 31, 1991 of $78,699.72. The Audit staff

determined this was overstated by a net a.ount of $20,980.75 which

resulted from the .isstatements detailed above. Th. correct

ending ca.h was determined to be $57,718.97 •

2. January 1, 1992 through Septeaber 30, 1992

a. Receipts

The Committee report.d total receipts of

$10,264,018.00 for the period January 1, 1992 through September

30. 1992. The Audit staff determined that the Committee should

have reported total receipts of $11,308,889.93 for this period.

Therefore, the Committee'S reported receipts were understated by a

net amount of $1,044,871.93. Committee depo.it records identified

the receipt of a $1.1 million dollar loan on May 20, 1992 that was

not reported. (See finding II. D.). In addition, the Audit staff

noted press reimbursements for air charter .ervice., totaling

$20,126, which were paid directly to the vendor and not reported

by the Committee. In the absence of workpapers which detail the

J.:'._.~._'" --L/ :::-__ F~;: • c- L c~- ....0:>"1""'"'-- Y __

, ,
1.:.'...:.(;..:..... ..• -=...'--------

l'a..:;c ~fa.~ of ..zE

~.

~.,

6

preparation of its disclosure reports, the Audit staff was unable

to explain the remaining overstatement totaling $75,254.07.

b. Disbursements

The Committee reported total disbursements of

$9,812,338.00 for the period January 1, 1992 through September 30,

1992. The Audit staff determined that the Committee should have

reported total disbursements of $10,875,192.04. Therefore, the

Committee'. reported disbursements vere understated by a net

amount of $1,062,854.04. The majority of this difference vas the

result of the Committee not reporting the Kay 26, 1992 repayment

of the $1.1 million loan described above. With respect to the

press reimbursem.nts discussed above, a credit of $20,126 was

applied by the vendor to amounts due from the Committee, resulting

in an under reporting of disbursements. In the absence of

workpapers which detail the preparation of its disclosure reports,

the Audit staff was unable to explain the remaining $57,271.96

difference.

c. Cash on Hand

The Committee reported an ending cash on hand

p~lance on September 30, 1992 of $530,297.00. The Audit staff •

deterlll.ined-this'was'-overstat.d-by-a,ne_t_..m,o_unt of $ 3B, BBO .14 which

resulted from the misstatements noted above -and corr4fct:ion--

carryovers from 1991. The correct ending cash was determined to

be $491,416.86.

The Audit staff prOVided photocopies of its

bank reconciliations to Committee representatives at the exit

conference. The Committee representatives indicated a willingness

to file amendments to correct the above noted problems.

Recommendation 11

The Audit staff recommends that, within 30 calendar days of

service of this report, the Coaaittee file amended Summary and

Detailed Suamary Pages for calendar years 1991 and 1992 correcting

the misstatements of financial activity noted above. The Audit

staff further recommends that the Committee file amended Schedules

A-P and B-P for 1992 to disclose the press transaction ($20.126)

discussed above.

B. Failure to Itemize Refunds/Rebates

Section 434(b)(3)(r) of Title 2 of the United

States Code states that each report under this section shall

disclose the identification of each person vho prOVides a rebate,

refund or other offset to operating expenditures to the reporting

committee in an aggregate amount or value in excess of $200 within

the calendar year, together with the date and a.ount of such

receipt.
r-. . -.

7

Section 431(13) of Title 2 of the United States

Code defines the term "identification" to mean, in the case of any

person other than an individual, the full name and address of such

person. In addition, 2 U.S.C. 5431(11) defines "Person" to

include an individual, partnership, corporation, association,

labor organization or committee.

The Audit staff's review of refunds/rebates

received by the Committee from vendors indicated that 37 out of 67

such receipts totaling $82,840.10 were not itemized on the

Committee's disclosure reportl al required.

At the exit conference, the Audit staff advised the

Committee representatives of the above noted problems and provided

them with photocopies of workpapers detailing these problems.

Committee representatives indicated a willingness to amend their

reports.

Recommendation j2

The Audit staff recommends that, within 30 calendar days of

service of this report, the Committee file Schedules A-P to amend

its disclosure reports to correct the it••ization problems noted

-----above_. _

C. Failure to Itemize and Adequately Disclose

Disbursements

L0

Section 434(b)(S)(A) of Title 2 of the United

States Code states, that each report under this section shall

disclose the name and address of each person to whom an

expenditure in an aggregate amount or value in excess of $200

within the calendar year is made by the reporting coamittee

to meet a candidate or cOllllllittee operating expense, together with

the date, amount, and purpose of luch operating expenditure.

The Audit staff reviewed disbursementl from the

COllllllittee's state accounts. The review identified 177

disbursements totaling $106,482.03 that were not itemized on

Committee disclosure reports as required.

In addition, the Audit staff'l review of itemized

disburse.ents from state bank accounts identified 80 disbursements

totaling $43,285.32, for which the proper disclosure of

information was either incomplete or omitted. All of the errors

resulted from either an incomplete address, or no address being

disclosed.

At the exit conference Committee representatives

were made aware of the above problems and were provided

photocopies of schedules detailing these items. In response to

the exit conference the Committee filed amendments materially

correcting the errors discussed above. '-
ro.

8

Recommendation 13

The Audit staff recommends no further action with respect to

this matter.

D. Reporting of Loan to the Committee

Sections 434(b)(2)(H) and (3)(E) of Title 2 of the

united States Code state, that each report shall disclose all

loans along with the identification of each person who makes a

loan to the reporting committe. during the reporting period,

toqether with the identification of any endorser or guarantor of

such loan, and date and amount or value of such loan.

In addition, 11 C.F.R. 5104.11(a) provides that debts

and obligations owed by a political committee which remain

outstanding shall be continuously reported until extinguished.

The Audit staff identified a $1,100,000 loan, the

receipt and repayment of which has not been reported by the

Committee (See Finding II.A.2.).

The doeuaentation available with respect to this loan ----- --included--a-ProlllissO-fy-Note , __a_C~!IlIll~t~~_ bank statement with

related debit and credit lIlelllos and a doci.Uaeiit-froil--tnebank-------- --

showing the loan history. The Promissory Note was dated Kay 15,

1992, and related to Loan 16348 in the amount of $1,100,000.00.

This Note had an initial interest rate of 8.5\, and a repayment

date of June 8, 1992. The Promissory Note also stated that

interest started to accrue on the unpaid principal balance as of

Kay 15, 1992 until paid in full.

According to the Kay, 1992 bank statement, this loan was

credited to the Coamittee's account on Kay 20, 1992. The credit

memo is dated 5-20-92 and is annotated wBrown for President Inc. - Loan proceeds w. The bank statement notes a debit on Kay 26, 1992

to repay the loan. The corresponding debit memo, dated 5-26-92,

states that it WRev[erses] entry of 05-22-92-.

The documentation reviewed contained discrepancies

concerning receipt and repayment dates. Although the 106n history

documentation supplied by the lending bank and the bank statement

supports 5-20-92 al the date of receipt, as noted above, the debit

memo is annotated as WRev[erses] entry of 05-22-92 w. There is no

corresponding credit on the bank statement to which this could

apply other than the loan credited on Kay 20, 1992. The Audit

staff also noted an inconsistency between the bank statement and

the loan history with respect to the date of repayment of this

loan. As detailed above, the Committee's account is debited for

the amount of the loan proceeds on Kay 26, 1992, while the loan

history lists the repayment date as Kay 20, 1992. The Audit staff

is unable to explain these discrepancies.

L:~o__ :=2:r --'-1 _

L< _ J ::: _..2.~?4,,-----_
9

Based on the available information, it is the 0plnlon of

the Audit staff that the loan was received on Kay 20, 1992 and

repaid on May 26, 1992. The Committee had the monies from the

loan available for five days.

On the loan history was a note to a Comaittee

representative that stated in part "After signing the documents,

the Brown For President people decided that they did not want all

the money right away but rather wanted to take it as needed (to

save interest charges most likely). Therefore the initial advance

was reversed and the loan proceeds were subsequently taken in two

parts - but only $500,000.00 of the $1,100,000 were ever taken.

This is not a line of credit but rather a straight loan which was

disbursed in increments". At the exit conference, Committee

representatives stated that because the full amount vas not needed

at the time the funds were drawn, the elected not to report the

$1,100,000 loan; they elected to report only the subsequent draws

on the loan.

The Audit staff acknowledges that loans for $300,000.00

on May 26, 1992 and $200,000.00 on June 2, 1992 were drawn against

Loan t6348 subsequent to the receipt and repa~~ent of the

$1,100,000.00 draw. The Committee repaid both draws and

,",' -------------c:o r-respondinq-intere s t--on-June- 5t--199"2~ -- The-Auditsta f f-- a 1so

~~ acknowledges that both of these loans were correctly disclosed.

At the exit conference, the Audit Itaff informed

Committee representatives of the need to file a.endaentl to

disclose the initial ($1,100,000) loan. The Co..ittee agreed to

amend its disclosure reports as required.

Recommendation 14

The Audit staff recommends that, within 30 calendar days of

service of this report, the Committee submit Schedules A-P, B-P

and C-P, disclosing the receipt and repayment of this ($1,100,000)

loan.

E. A arent

Avances

unIon

J..:7ACliJl~T 1 _ P~e -.....1 oi' eM

Section 441a(a)(1)(A) of Title 2 of the United States

Code states, in part, that no person shall make contributions to

any candidate and his authorized political committee with respect

to any election for Federal office which, in the aggregate, exceed

$1,000.00.

Section 441b(a) of Title 2 of the United States Code

states, in part, that it is unlawful for any corporation or labor

organization to make a contribution in connection with any

election to any political office.
,.

rv

'_../ ...

'J!

c.

10

Section l16.5(b) of Title 11 of the Code of Federal

Regulations states, in part, that the payment by an individual

from his or her personal funds, including a personal credit card,

for the costs incurred in providing goods or services to, or

obtaining goods or services that are used by or on behalf of, a

candidate or a political committee is a contribution unless the

payment i~ exempted from the definition of contribution under 11

C.r.R. 100.7Ib)18).

Pursuant to 11 erR l16.5(b) the payment is not exempted,

it shall be considered a contribution by the individual unless it

is for the individual'. transportation expenses or for usual and

normal subsistence expenses incurred by an individual, other than

a volunteer, while traveling on behalf of a candidate; and, the

individual is reimbursed within sixty days after the closing date

of the billing statement on which the charges first appear if the

payment was made using a personal credit card, or within thirty

days after the date on which the expenses were incurred if a

pet50fial er.di~ card was not used. "Subsistence expense;" include

only expenditures for personal living expense. related to a

particular individual traveling on coaaittee business such as food

or lodging.

Sections 116.3{a) and (b) of Title 11 the Code of

rederaT Reg\i1at:fons sbite;--in-reTevant--part;thata-co1llll\ercialvendor that is not a corporation, and a corporation in its

capacity as a commercial vendor may extend credit to a candidate,

a political committee or another person on behalf of a candidate

or political committee. An extension of credit vill not be

considered a contribution to the candidate or political committee

prOVided that the credit is extended in the ordinary course of the

commercial vendor's business and the teras are substantially

similar to extensions of credit to nonpolitical debtors that are

of similar risk and size of obligations.

Further, 11 C.r.R. Sl16.3Ic) states that in determining

whether credit was extended in the ordinary cours. of business,

the Commi.sion will consider:

(1) Whether the commercial vendor followed its

established procedures and itl past practice in

approving the extension of credit;

(2) Whether the commercial vendor received prompt

payment in full if it previously extended credit to

the same candidate or political committee; and

(3) Whether the extension of credit conformed to the

usual and normal practice in the commercial

vendor's trade or industry.

Finally, 11 e.F.R. S114.9Id) provides, in part, that

persons, other than officials, members and employees, who use

labor organization facilities for activity in connection with a

b.: ':,\,C?.J.'3llT -I-/~----::-;;--- Pa,;e Ii> cf .2g
11

Federal election, are required to reimburse the labor organization

within a commercially reasonable time in the amount of the normal

and usual rental charge for the use of the facilities.

1. Credit Cards

During the review of the Committee's disbursements,

the Audit staff noted a number of reimbursements to individuals

that were for various kinds of campaign activity. For subsistence

and transportation expenses, the Committee did not reimburse the

individuals within the time periods required by 11 C.F.R. 5116.5.

Individuals were also reiabursed for other kinds of campaign

expenditures, such as advertising, supplies, telephone, postage,

and copying. Further, five individuals were reimbursed for the

transportation, travel, and related expenses of other individuals,

to include the candidate.

As part of the Audit staff's analysis,

contrloutions resulting from the untimely reimbursement of

expenses incurred by individuals were added to direct

contributions made by these individuals. Our review indicated

that five individuals made apparent excessive contributions. The " amount in excess varied depending upon when reimbursements were

-----------madILby_the_Committel!_. __t\y_s_\1~i_n9 __thela!"gest amount in excess • ('" for each individual, the Audit staff determined- tne-l-argeit-amount---

in excess was $76,261.10 (see Attachment 2). At the conclusion of

fieldwork, there were no expense reimbursements outstanding. Of

particular note, most of the amount in excess ($41,868.98)

occurred with respect to the Campaign "anager, Jodie Evans. The

Campaign Manager utilized seven (7) different personal credit

cards for both personal and campaign related expenses. The

majority of expenses charged to these accounts were for the

candidate'S and several campaiqn employees' expenses.

This matter was discussed with the Committee during

the exit conference. The Audit Staff provided the Committee with

a schedule of errors, a summary schedule, and a cover sheet

explaining symbols and methodology. The Campaign Kanager stated

that the requlation had been misinterpreted by them. She also

commented that the regulation and repayment periods are unfair to

candidates who do not have the same access to money or credit as

other candidates who have name recognition or political position.

Grass roots candidates are forced to rely on the good name of

Committee supporters.

2. Extension of Credit by a Commercial Vendor and a

Union

During the course of fieldwork, the Audit staff

identified two disbursements, each to different vendors, that

raised concerns with respect to the extension of credit given to

the Committee.
of ,la A!T.iCP'..:.r7HT I --'----=---

Page 102

The Audit staff's concern is whether Local 1199 was

reimbursed vithin a commercially reasonable time at the normal and

usual charge. The Audit staff requested that the Committee

provide additional documentation with respect to these items. On

July 16, 1993, the Audit staff received a letter from Local 1199

stating that the reason for the delay in submitting the bill was

the result of several mislaid invoices in the accounting

department. It also notes that no bill vas submitted to the

Committee until these bills were recovered. To date no further

information has been received.

The Audit staff did not note any other payments to

this vendor based on a Committee-provided, disbursement data file.

According to a vritten statement (dated 5-24-93) submitted to the

Audit staff by the Campaign Kanager, there vas no written

agreement for these expenditures, vhich were the result of a

sudden need for meeting rooms and banquet facilities, and were

incurred with respect to the Nev York primary. -Apparently the

invoice of the charges 'fell through the cracks' and we were not

billed. I contacted him several times asking for the bill so that

it could be paid. As soon as ve received and reviewed the bill

(and after a revised invoice was issued) it vas paid."

Based on a review utilizing a Committee-provided,

disbursement data file, the Audit staff did not note any other

payments to this vendor. According to Committee representatives

this equip:cnt was used during the campaign vhich ended 7-15-92.

No other correspondence between the vendor and the Committee has

been provided.

12

On December 1, 1992, the Committee issued check

number 8094 in the amount of S50,OOO to Quarterdeck Office Systems

for miscellaneous computer software and hardware. An attached

invoice, dated 11-27-92, details the equipment and services

provided; the amount of the invoice is S151,121.10. The invoice

is annotated as follows: "Bill adjusted to S50,OOO. Due Nov 30,

1992, Stanton Kaye".

.-

In the other instance, on October 27, 1992, the

Committee issued check number 5571, in the amount of $57,195.97,

to Local 1199 (Drug, Hospital. Health Care Employees Union). An

attached invoice, vith a letter requesting payment, dated

10-28-92, details reimbursable expenses incurred by Local 1199

with respect to Edmund G. Brown Jr.'. Presidential campaign during

the period 3/30/92 to 4/10/92. The expens.s were for food and __ --refxeshment~,_rent,_printi n<1,- ady_ertising , telephoneand_other '__ miscellaneous items. According to an October 12, 1992 letter from

the vendor to the Committee, this invoice is a revision of a

previous invoice.

r"'__ -~ .

,-

':"
13

Recommendation t5

The Audit staff recommends that, within 30 calendar days of

service of this report, the Committee demonstrate that the

individuals did not exceed the contribution limits of 2 U.S.C.

5441a(a)(1)(A). and/or were reimbursed in a timely manner as

defined under 11 C.F.R. Sl16.S(b)(2), or submit any other comments

or documentation the Committee feels may be relevant. In

addition, the Audit staff recommends the Committee provide

additional documentation or any other comments to demonstrate that

the credit extended by the above-noted commercial vendor and union

was in the normal course of business and did not represent

prohibited contributions.

r. Documentation for Press Billings

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

of Federal Regulations state, in part. that if an authorized

committee incurs expenditures for transportation, ground services

and facilities made available to media personnel, such

expenditures will be considered qualified campaign expenses

subject to the Qver~ll spending limitation at 11 C.r.R.

59035.1(a). Further, if reimbursement for such expenditures is __,- r eceived_~y_a_coJlUlli_ttee ~_the__amount __sha ll_not __e:lt_c_e~d_ej.ther : _ Tne

0: individual's pro rata share of the actual cost of the

transportation and services made available; or a reasonable

estimate for the individual's pro rata share of the transportation

and services made available.

An individual's pro rata share is calculated by

dividing the total number of individuals to whom such

transportation and services are made available into the total cost

of transportation and services. The total amount of

reimbursements received from an individual shall not exceed the

actual pro rata cost of the transportation and services made

available to that person by more than 10'.

After repeated requests for the necessary records,

the Audit staff requested, by memorandum dated Noveaber 20, 1992.

that subpoenas be prepared by the Office of General Counsel to the

Committee and Charter Services, Inc. for the production of records

as follows:

• a vendor statement (account summary of amounts

billed and payments received):

• Invoices detailing each flight origination and

destination, to include, but not be limited to:

• invoices, bills, etc. for the aircraft for each

leg of each trip:

A.:i _~,:~":.:::.!!T --..J/:..- -:- _ r:loge I { of -".2~Qu____
14

o copies of bills issued to the press for each leg

of each trip; and,

.-. .-.__ .--.- -- -.J.I ----:::-=.-__

r;...;" -L.o/y~ __ 0::' ..2&

A request was forwarded to the Office of General

Counsel, Kay 6, 1993, requesting enforcement of the subpoena with

respect to the Committee as it relates to the press billing

documentation still required. !n addition, a request was included

to prepare subpoenas to two individuals identified during

fieldwork as associated with the Committee's press billing and

reimbursement system.

L0

At the Exit Conference the Audit staff reiterated

its request for documentation of the Committee's procedures for

handling travel billings to and reimbursements from the Press,

specifically the Committee'S computations/worksheets for

determining amounts billed.

Absent a cost figure and passenger manifests for

each flight, the Audit staff was unable to assess the Committee's

compliance under 11 C.r.R. 59034.6.

o records of amounts received in reimbursement for

travel on the Committee charter or other

aircraft, from each person for each leg of each

trip.

o working papers, computer files, etc., showing the

derivation of amounts billed to the press for

each leg of each trip;

o a flight manifest for each leg cf each trip

showing every person traveling (except the flight

crew) by name and any associated organization;

o invoices, bills for any other COlts associated

with each leg of each trip to include catering,

beverages, ground transportation, meals, press

filing facilities, lodging, etc.;

Prior to the issuance of the subpoenas, the

-- ---- ----Commi-tteeand- Charte1"_Servicecs,__lnC~prQvided_soJle __of_tne L

0: requested material. Detailed billing statements, vhich show the

costs of each leg of each flight as vell as any food costs, were

not available from Charter Services, Inc. after April, 1992.

At that time, the Committee assuaed this function. The Committee

stated that they maintained a computerized billing system complete

with leg analysis and manifests; the Committee further asserts the

disc containing this information is missing. In addition, Charter

Services, Inc. advised the Audit staff that they acted as a

"middle-man" between the Committee and the airplane charter

companies; and therefore, did not maintain any aanifests detailing

passengers with respect to each flight leg.

I
15

Subsequent to this request, the Committee submitted

additional documentation with respect to press billings. The

Office of General Counsel agreed to delay subpoena enforcement in

order to allow the Audit staff to evaluate the submitted

materials.

Our review of these additional documents indicated

that total reimbursements from the press were significantly below

the overall amount the Audit staff determined could have been

billed by the Committee. Although workpaperl were not provided

detailing the Committee's calculations of amounts billed to the

press, available documents indicated the Committee intended to

simply bill each press organization at 110\ of cost. The Audit

staff's review of amounts billed to press organizations was

limited to the available documentation. Our review indicted that

the amounts billed were reasonable.

Recommendation .6

The Audit staff recommends no further action with respect to

this matter.

III. Findings and Recommendations - Repayment "atters

A. -------- --- Calculation-oCRepayment-RitToSection 9038(b}{2){A) of Title 26 of the United States

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for any purpose other than to defray the qualified

campaign expenses with respect to which such payment was made it

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

candidate shall pay to the Secretary an amount equal to such

amount.

Section 9038.l(cJ(1J9v} of Title 11 of the Code of

Federal Regulations states that preliminary calculations regarding

further repayments to the U.S. Treasury may be contained within

the interim audit report. Pursuant to S9038.2(a)(2) of this Title

the Comaission will notify the candidate of any repayment

determinations not later than three years after the end of the

matching payment period. The issuance of this interim audit

report to the candidate constitutes notice of any repayment

determinations for purposes of the three year period.

The Regulations at 11 C.F.Il.. S9038.2{bJ(2)(iiil state

that the amount of any repayment sought under this section shall

bear the same ratio to the total amount determined to have been

used for non-qualified campaign expenses as the amount of matching

funds certified to the candidate bears to the total amount of

deposits of contributions and matching funds, as of the

candidate'S date of ineligibility.

A!i'J..CO'Fl'':' -e./ _ Pacre /L of: $
~·-·'c~'iI!

16

Pursuant to 11 C.F.R. S9033.S(c), Governor Brown'S date

of ineligibility was deterained to be July 15, 1992.

The formula and the appropriate calculation with respect

to the Committees' receipt activity is as follows:

Total Matching Funds Certified through the Pate

of Ineligibility - July lS, 1992

Numerator plus Private Contributions Received through

Pate of Ineligibility

$4,068,268.91 • .449142

$4,068,268.91 + $4,989,591.89

Thus, the repayment ratio for non-qualified campaign --~ --·-expensesis-44.9142\._. C··.\

B. AP~arent Non-Oualified Campaign ExpensesUn ocumented Disbursements

Section 9032(9) of Title 26 of the United States Code

defines, in part, the tera -qualified caapaign expense- as a

purchase or payment incurred by a candidate or his authorized

committee, in connection with his campaign for noaination for

election, and neither the incurring nor payment of constitutes a

violation of any law of any state in which the expense is paid.

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

Regulations states the Coaaission may determine that amount(s)

spent by the candidate, the candidate'S authorized committee(s),

or agents, were not documented in accordance with 11 crR 9033.11.

The amount of any repayment sought under this section shall be

determined by using the formula set forth in 11 crR

9038.2(b)(2)(iii).

Section 9033.11(a) of Title 11 of the Code of Federal

Regulations states, in part, that each candidate shall have the

burden of proving that disbursements made by the candidate or his

authorized committee(s) are qualified campaign expenses.

The Audit staff's review of selected disbursements from

the national accounts identified a payment to Left Bank

Productions for $20,000 that was not supported by a receipt, bill

or invoice. This payment was made by vire transfer. The

associated documentation did not identify the purpose.

!.!':'b.C~~!T-1.1-------

F.:.:;e (It c:'- .J2..zg~ __
17

The Audit staff also reviewed disbursements made from

the Committee's state accounts and identified 15 disbursements,

totaling $12,838.95, which were not documented in accordance with

11 C.F.R. S9033.1l. See Attachment 3. Based on Committee

annotations or lack thereof, these disbursements can be

categorized as follows:

•

•

Expense Reimbursement/Reimbursement - five (5)

disbursements, totaling $4,317.25, to indiViduals,

for which notation5 on the canceled check indicAt@

only expense reimbursement or reimbursement.

Committee records contained no invoices or travel

vouchers for these disbursements.

No Purpose - ten (10) payments to individuals and

vendors, totaling $8,521.70 for which no purpose

was available. No documentation was available for

these disbursements beyond the canceled checks

provided for eight of theae items.

At the exit conference Committee representatives were

made aware of inadequately documented disbursements and provided

schedules detailing these items. Committee representatives stated

that they would attempt to obtain the additional documentation --req\lir-ed.--------------- --------- ---- ---- ------ -- ----

Recommendation .7

The Audit staff recommends that, within 30 calendar days of

service of this report, the Committee submit documentation which

demonstrates that the expenses noted above are qualified campaign

expenses. Absent such a demonstration, the Audit staff will

recommend that the Commission make an initial determination that

the Committee make a pro rata repayment of $14,749.35 ($32,838.95

x .449142) to the United States Treasury pursuant to 26 U.S.C.

S9038(b)(2).

C. "atching runds Received in Excess of Entitlement

Section 9038.2(a)(1) of Title 11 of the Code of Federal

Regulations states, in part, that a candidate who has received

payments from the matching payment account shall pay the United

States Treasury any amounts which the Commission determines to be

repayable under this section.

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

Federal Regulations states, in part, that the Commission may

determine that certain portions of the payments made to a

candidate from the matching payment account were in excess of the

aggregate amount of payments to which such candidate was entitled.

Examples of such payments include payments made to the candidate

after the candidate's date of ineligibility where it is later

determined that the candidate had no net outstanding campaign

obligations as defined in 11 C.F.R. 59034.5.

,
18

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

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

of ineligibility, the candidate shall sub.it a statement of net

outstanding caapaign obligations which contains, among other

items, the total of all outstanding obligations for qualified

campaign ~xpenses and an estimate of necessary winding down costs.

Subsection (b) of this section states that the total of

outstanding caapaign obligations shall not include any aCcounts

payable for non-qualified campaign expenses.

In addition, 11 C.Y.R. S9034.l(b) states, in part, that

if on the date of ineligibility a candidate has net outstanding

campaign obligations as defined under 11 C.r.R. S9034.5, that

candidate may continue to receive matching payments provided that

on the date of payment there are remaining net outstanding

campaign obligations.

Governor BrOwn~5 date of ineligibility .a. July lS,

1992. The Audit staff reviewed the Committee'S financial activity

through Karch 31, 1993, as well as analyzed winding down costs,

and prepared the Statement of Net outstanding Campaign Obligations

("NOCO") as of Karch 31, 1993, which appears below:
19

BROWN FOR PRESIOENT

Statement of Net Outstanding Campaign Obligations

as of July 15, 1992

as determined March 31, 1993 by the Audit staff

Assets

,'.0

Cash

Accounts Receivable

Press Receivables

capital Asset.s

TOTAL ASStTS

Obligations

Accounts payable Oualified __________________________Campa ign__Expenl>~s _

Winding Down Costs Actual:

76,025.04

14,168.34

43,080.00

1,128,089.76

Winding Down Costs Estimated ~/

-, (4-1-93 to 9-30-93) c. -

7/17-8/31/92

Sept. 1992

Oct. 1992

Nov. 1992

Dec. 1992

1/1-3/31/93

state accounts

(247,873.80)

(129,686.95)

(265,131.66)

( 66,754.97)

( 95,836.23)

( 58,147.84)

( 12,414.48) 1/ (875,845.93)

(42,700.00)

TOTAL OBLIGATIONS

NOCO (DErICIT)/SURPLUS

($1,164,960.03)

($36,870.27)

This amount excludes $1,049.59 in non-qualified campaign

expenses included at Finding III.B. above.

Since estimates were used in computing this a.ount, the

Audit staff will review the Committee'S disclosure reports

and records to compare the actual fiqure with the estimates

and prepare adjustments as necessary.
20

~~, 11';,;<_

\;·.c:, Shown below is an adjustment for private contributions and

matching funds received after 7/15/92, based on the most current

financial information available at the clo.e of fieldwork:

Net O~tstanding Caapaign

Obligations (Deficit)

as of 7-15-92

Interest Received

(7-16-92 to 8-3-92)

Net Private Contributions

R.ceived (7-16-92 to 8-3-92)

"atching Funds Received

(1-16-92 to 8-4-92)

Amount R.ceived in Excess of

Entitlem.nt as of 8/4/92

($36,870.27)

29.08

3,781.00

171,125.92

i:---

On August 4, 1992, the Coaaitte. receiv.d $171,125.92

relative to "atching Fund aequ.st t8. The deficit on Auqu.t 3,

1992 vas calculated to be $33,060.19. Therefore, the Coaaittee • . vasdeterai·ned to ·haveueuy.ed. $.13.8 ,065 ..73 {$171,125.92 - $33,060.19) in aatching funds in exce.. ofTt••ntrtl••e-nt~--

On August 31, 1992, the Co..ittee sub.itted a repayment

check in the aaount of $97,613.96 based on pr.li.inary fiqures

generated by the Audit staff during the fi.ldwork inv.ntory stage

of the audit proc••••

Reco..endation t8

The Audit staff r.co..end. that, within 30 cal.ndar day. of

service of this report, the Co..ittee de.on.trat. that it has not

received matching funds in exce•• of it. entitl••ent. Ab.ent such

a showing, the Audit staff will reco..end that the Coasi••ion aake

an initial deter.ination that the Coasittee .ak. a repayment of

$40,391.17 ($138,065.73 - $97,673.96) to the United State.

Treasury pur.uant to 26 U.S.C. S9038{b){1).

D. Stale-Dated Co.-ittee Checks

Section 9038.6 of Title 11 of the Code of F.deral

Regulations .tates that if the co..ittee has checks outstanding to

creditors or contributors that have not been cashed, the cOl\ll\littee

shall notify the COl\ll\lis.ion of its efforts to locat. the payees,

if such effort. are necessary, and it. effort. to encourage the

payee. to ca.h the outstanding checks. The co..ittee shall also

submit a check for the total aaount of such outstanding checks,

payable to the united States Treasury.

.-- - "_/<-----:-::--- L~ -e J V L:_ ..1lJ":::",,,-__
21

The Audit staff reconciled the Committee's reported

activity to its bank activity through September 30, 1992. In

addition, limited reconciliations were prepared for the period

October 1, 1992 through March 31, 1993. This analysis identified

a significant number of stale-dated, outstanding checks.

At the exit conference, the Audit staff discussed this

matter with Committee representatives. The Committee

representatives agreed to review their records and provide any

additional information which may resolve these items.

Subsequent to the exit conference the Committee provided

the Audit staff with an updated list and documentation resolving

some of the stale-dated checks. Based on this information, the

Audit staff provided the Committee with a revised scheduled of

those checks still considered stale-dated.

There remain 17 unresolved stale-dated checks totaling

$4,926.61 (see Attachment 4).

Recommendation 19

... _-- ---The.Audit--.sta£f recommends that the Co_at_e.e,...!Ii 1:..h~JL3.0 _

calendar days of service of this report, (1) provide copies of any

of the checks which have now cleared the bank; (2) inform the

Commission of its efforts to encourage the payees to cash the

outstanding checks or provide evidence docuaenting efforts to

resolve these items; and (3) the Committee submit a check payable

to the United States Treasury for the total amount of such checks

which are still outstanding.

IV. Amounts Repayable to the United States Treasury

Presented below is a recap of the amounts subject to the

repayment provisions of 26 U.S.C. S9038(b) or 11 C.F.R. 59038.6.

Finding III.B. Apparent Non-Qualified Campaign

Expenses - Undocumented

Disbursements

Finding III.C. Matching Funds Received in

Excess of Entitlement

Finding VII.D. Stale Dated Committee Checks

TOTAL MOUNT REPAYABLE

Less: Repayment received 8-31-92

REMAINING REPAYMENT MOUNT

$14,749.35

$138,065.73

$4,926.61

$157,741.69

(97,673.96)

560.067·73

A'!'I!.CliIDl.. --'1 -::-__ !'a&G J( o~ ~.{::"("--__
DolIlI Owed OJ

1"0 CamoAlDn

lol'" Com

o.HJnd

/1

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SuDloe, 10

lim"

() f),' ) , /. ( )

/ i'! (I 5

"dlualad Dl.bullam.nl.

(Thlough June 30. 10\.131

E. ••mp'

logoVAceounll"g Olhol Adlullod TOlal

....nu. Olf.... Ol,bun. Ollbl"••menll

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Ope,allng

E.pend.lul••

....nu. OfI..11

n~

lMtJ Acton ~7.0411 $0 $0 $115 $601,143 I $112.1511 $2,643 $5,1170

Jotry lIt_n $/1,413,270 12,218,038 1233,331 $101,504 10,104,123 111,'1111,4112 1111,0114 ".\.127

801 CIn"'" 127,122.1112 13,112,011 U,301,Ml 155,101 $33,151,lIJ8 : $25,530,0111 $1.MB,212 151,392

l .... IW1oln 13,112,140 11,114.078 1110,402 $0 as,22l,S20 13.102,11e 1237,507 $143,31'

IW> !(Myo, 15,111,450 11,07B.1I71 11",0" 123,404 $1,481,151 $1,050,481 IlI,M2 $0

l,.-,loAoucho $1,523,010 $0 $15,115 $0 $1.501,034 $1.4••.•511 $1.101 17,710

P..... lllllflClM $1,101.825 1754,117. $170,320 $0 $7,13.,132 17.001.568 1511,322 $IJll.l02

Doutl- "",134 $1.568 1311 $0 "115,141 '7111,014 1111,030 $0

10tal Oemoe:.,a'i 552.1180.011. SlI.174.5111 13.130.5114 tt." HI.. ~5 172.3.0 $51.2113.733 12.082.287 S354.49O

Bebl.ceU

Po_ 8ud\onan $11,481.27. $0 $0 $0 $11,41\,271 1".411.277 $107.154 SO

QeoI\.lO Buoll 127,101,045 U.524,ooo 14.100,102 $10.421 $37.000,568 127,107,047 $11.333 $0

O'.... llIM $363,1311 $0 $0 '1.000 S3S4.lIJI i $0 $0 120,250

i

I

30.422.1511 15.524.000 ... '1''''''' t"" t.111.21 .'".71•.112 I $39.OS•.324 1M1I.1I7 1211.250

,- p_c_

()IbM '.11

""0-' ,,15,571 $160,211 SO SO 1571,7115 • SO SO SO

IMW1I f ........ '4.203,122 SO SO U.2J5 ",204l,IS7 , ",204,5611 12,\170 SO

i

Toll! 01'* PIIlJ 14.1111,111. '180.210 JO 13.135 ...nU52 : 14.204,555 IU70 10

01... lol'll "7021.443 114 n'.U5 '7130.1118 'Z.O 140 111"'71.711' "1.03,,,12 12.!54.444 13113.700 H I

n'l'tt'T"~ / --._- 1

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I

IV ....
C) S ('\ / ( I \ 9 ~) L~

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(Tlwough JUM 30. 18031

i

Fode,1! 'ndlvldu.1 PAC'o _ 0".. Conulbullono Condldo'. I 0Ile< LOM. Mjuo.ed

",.,,:lIlnl Conl,lbuuonl Cmlo Conlilb '"m III. Lo.n....nu. I MlnII. Olh~, 10.0'

fund. "nu. R.lundl ....... ".lund. Candid... R.,.ormen,• ! /!!l>II""",1I ".c.tel• Ree.ete"

n.mAtla1.l I

,

L.ony 1qon $2e8.11111 $331,1131 SO $500 $5,000 $I,0211 $2,ll63 $810,814

""'" - $4.23I,3.f5 SIl, 17'.3311 SO SO SO SO $4,11113 $11,420.374

M ClInlon $12,11",130 1211.1011,044 $5,204 SO SO $1 $13,440 $37,1141.111

Tom Hottoln $2,103,351 $3,0011,474 $4n,OOIl $4,533 SO SO $11 ,8211 $5,681,058

_K",or $2,1111,2'4 13,1113,332 $3.f1l,757 SO SO ($ 1,2251 $5,031 SII.411',070

lrM«lLo-.o SO I I,1117,4110 SO SO SO SO $5 $1.507,4115

P... T...... $2.005,442 15,033,853 $3,see $0 $45,000 ($0,11751 SO ",0011,268

Daut- $2110,02' $5011,5111 $750 SO SO SO $1.030 $ 711O,334

Tola' p.moc.." 124813 280 144,735,117' 1115',34' '5,033 'SO,OOO I 1".7701 138.700 '70.21l5.257

8"M'bMc,n.

Po_- 14,lillO,III 3 $7,147,143 $24,750 SO SO SO $O,3.f3 '12,"1,2111

o-vo- '10,158,113 127,011,7110 "'.250 SO $0 $0 $221.717 131,013,310

Do..... DulIo' SO $220,711 SO SO 11.000 $0 $0 $271.811

To... Ropt!l!I..... SlI.1I511.4111 '3.f.4511.1I'1 1011.000 ..... ~I!I 11.000 SO 1231.130 $50.4811.344

re. Po

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L-.F...- 11,835,524 $2,20l,S71 $0 $325 ('1,2111 i '1.200 $0 $4,137,368 ..

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Attachment 3

Paqe 1 of 1

BROWN FOR PRESIDENT

Schedule of Non-oualified Campaiqn Expendituresundocumented State Account Disbursements

...--_..-.-_.._ -- - __ .

,-

PAYEE CHU DATE MOUNT COMENTS PURPOSE .......-- _---- -.•.•...••- -- -.•.•.•......._--_..

First Tier Bank(NE):

"ir&t Tier

Oavid Robinson

E:nterprise Bank

Mary Hardinq

Chittenden Bank(VT):

Robert Pearl

Joe Coffey Robert A. Backus

Ben Ptashnik

:::-.. "irst NH aank: _Larry Fernsworth

1SS 27-Apr-92 $190.00 docu UnknOwn

108 13-"'ay-92 $895.25 docu Re i IIIbu r sellen t

126 10-Jul-92 $3,194.12 docu Unknown

227 3l-Jul-92 $789.77 docu Unknown

13 27-Mar-92 $500.00 docu Exp.Reiaburse 23 02-Apr-92 $300.00 docu Exp. Reimburse

31 12-Apr-92 $622.00 docu Exp.Reimburse 59 18-May-92 $2,000.00 docu

102 04-Auq-92 $259.82 docu Unknown

Marine Midland(NY):

NPV

Wilda R-ode-iiquez--

NY Telephone

Spartan Display Kim Elia

Rev. Bosic Kimber

1009

--r013

1026

4

1822

1825

06-Apr-92 $300.00 docu

07;;.Apr;;.n-----Sn9.'9---ec;docu

07-Apr-92 $1,000.00 cCldocu

30-Mar-92 $1,388.00 docu

06-Apr-92 $425.00 docu

03-Apr-92 $685.00 docu

Unknowrt

--Unknown----

Unknown

Unknown

Unknown

Unknown

TOTAL NOCE UNDOCUMENTED $12,838.95

...._._._.

Leqend:

cc • no cancelled check available for review.

docu • supporting documentation unavailable.
Attachment 4

page 1 of 1

Brown for President

Stale-Dated Checks

..__ ---_ _-_ - _-_.......•

Check Check

t Date

Payee Check

Mount ..__ -- . 1697 05-reb-92 ~.vin Coner $450.00

1874 04-Kar-92 Univ. of Arizona $150.00

1966 17-Kar-92 Dade Co. $22.00

2173 09-Kar-92 Sec. of State Ohio $34.50

2248 27-Kar-92 Audio Gallery $172.12

2327 30-Kar-92 Robert Barris $62.31

3079 24-Apr-92 Kark Bochner $100.00

3107 27-Apr-92 Audio Services Corp. $800.00

3575 20-Kay-92 Clifton Gordon $87.50

3748 26-Kay-92 Robert Karlllorstein $100.00

_U74_2_7-Kay-92 Terra Verde Trading C $90.93

457 4 06=Jul~9~ AlIfni trek----~--------$1,500~na__ 4777 24-Jul-92 Vincent Lavery $162.45

5102 17-Auq-92 Delia Ibar $200.00

5483 02-0ct-92 Colin r. Weitzman $805.18

5536 24-0ct-92 Kike KcKahon $174.50

5540 14-0ct-92 Paula Tejeda $15.12

Total 1992 Stale-Dated Checks $4,926.61

--------.-

/
Brown For President

643 E. Channel Rd.

Santa Monica. CA 90402

310/454·9905 Phone

3 I O/~5J·3486 Fax

January :26. 1994

Robert J. Cosu

Federal Election Commission

999 E Street ~'W

Washington. D.C. 20463

Dear Mr. Cosu:

Enclosed is our response to your audit report. despite the

beating our records took in the earthquake.

The amendments requested in recommendations #1 and #2

',W_~~_ completed with the amendments med in luly 1993. Pm-suant

to Kinde DUfice'sconversation with_Alex Bonawitz. he confl11Tled

that these amendments are in fact in oliT- rue -at die- COmmiSSiOIl~----- -

Even lhough recommendation 13 states there is no further

action. I would like it noted that the numbers quoted in C. are

incorrect. Alex has quite a bit of additional backup in his office

pertaining to those numbers that was sent to him from the time of

the close of the audit until now..

The attached Schedules A-P. B-P. C-P arc pan of the

amendments filed in July 1993 for the May monthly report, and m

response to recommendation #4 of the audit report.

In response to recommendation IS, documents are attached

that demonstrate these items were in the normal course of business

and did not represent prohibited conaibutions. There will .. also be

a fax on Thursday. January 27 from Jules Glazer sent directly to

your office reguarding my credit card expentitures.

Recommendation #6 asked for no further action.

A'!'TACIDlENT _t2~' __~:--__ Pago -1-/ of _l{.l.-__
"., .

,'.."

.;~.~.~-~~ --: :

"ase : .::

Recommendation #7 See attached statement from Cheryl

Gundred.

The response for recommendation #8 will come by fax.

directly to your office from Jules Glazer on January 27.

Cheryl's attached statement also refers to recommendation

#9. We have made every effort to track down the stale dated

checks and have backups on $2.500.63 which is over 50%0f what you

requested.

We now consider all of the requirements )'Du asked for. to be

completed and submitted. We request the audit now be declared

terminated and the changes taken into consideration for the

repayment requested. (I would love to get on with my life and have

my garage free from aU the box.es.)

evans (i aign Manager
c.

Recommendation #7 See attached statement from Cheryl

Gundred.

The response for recommendation #8 will come by fax

directly to your office from Jules Glazer on January 27.

Cheryl's attached statement also refers to recommendation

#9. We have made every effort to track down the stale dated

checks and have backups on S2,500.63 which is over 50'itlof what you

requested.

We now consider all of the requirements you asked for. to be

completed and submitted. We request the audit now be declared

terminated and the changes taken into consideration for the

repayment requested. (1 would love to get on with my life and have

my garage free from ail the boltes.) ,

. ~_ ....,~.. 'J t. _ ..•. .• -"=0('-- _

I -.:::. .3 c:' ...:LI'i'---_
e~own for President

444 S. Occidental' l..,d .• 1~21

l.os Ange Iu. CA 90CS7

AI.,,, 90"0-I t %

Au-cl itO i vi $ i on

r.deraJ Election ~15s1Qn

W.~hin9ton, D.C. ~C463

Dear Mr. Bonawitz:

Pl~a$e in~luCe the following in the ~ittee's ~nswers to

your requests in t~ audit report.

ReCOIIiRetldnlOll'> IS • ,""reditU~ra ata-rgn-by-Jotile (vans;... the

iIMOU\"lt of $111,&&8.58 repruents item used For CMp<Jign ...~ns".----------------

["tension of cree; : by Qu.rterCeck and local 1199 represent Charges to

t~e campaign in tbe nor~.l courSe of business and does not represent

contributions of any kind.

RecQftM.ndatl~n 17 - your analysis that ~tehlng funds e~ceeded in

excess of .ntitl~nt is Incorrect. Winding down costs estimated 'rem

4/1/93-3/30/93 sh=uld have been SI~2,700.00 .s 15 evidenced by the

actual amounts spent during this period.

Sincerely,

Blaine Quick

"reesurer

Brown for Presldant

,- .- < "--=. -"--=7-'1-'- c:'

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FEDERAL ELECTIO,>; CO\1\\15510-..:

FINAL AUOIT REPORT

ON

BROWN FOR PRESIDENT

EXECUTIVE SUKKARY

1\1':005023

Brown for President (-the Committee-) registered with the

Federal Election Commission 00 September 2, 1991. The Committee

was the principal campaign committee of Governor Edaund Brown,

Jr., a candidate for the 1992 Oemocratic presidential

nomination.

The audit vas conducted pursuant to 26 U.S.C. $9038(a),

which requires the Commission to audit committees that receive

matching funds. The Committee received $4.2 million in matching ______£unds~_ _ _

The findings vere presented to the Coaaittee at an exit

conference held at the conclusion of audit fieldvork (April 13,

1993) and in the interim audit report approved by the Co..ission

on October 22, 1993, and ratified by the Coaaission on Noveaber

9, 1993. The Committee vas given an opportunity to respond to

the findings both after the exit conference and after receipt of

the interim audit report. The responses have been included in

this report.

In the final audit report, the Commission made an initial

determination that the Committee was required to pay the U.S.

Treasury $126,586 1/, representing $125,252 in matching funds

received in excess-of the candidate's entitlement and $1,334 in

Committee checks that were never cashed. The Coaaission also

determined that the Committee had to make a $15,974 payment to

the U.S. Treasury due to its receipt of apparently excessive

travel reimbursements from the Press. In addition, the

Committee had to refund $51,233 to the Press. These and other

matters are summarized below.

!I The Committee submitted a payment of 597,674 on August 31,'

1992, based on a preliminary calculation made early in the

audi t process. _.•_._......3..:;..__~-:- _

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C'.

Brown for President

Executive Summary

Page 2 of 3

of Financial Activit - 2 U.S.C. 5434(b)(1),

(2), an ( ). On lSC osure reports iled between September

1991 and September 1992, the Committee misstated its financial

activity. The Committee filed amended reports that meterially

corrected the misstatements.

Disclosure of Receipts and Disbursements - 2 U.S.C.

5434(b). The interim audit report.found that the Committee's

reports inadequately disclosed offsets to operating

expenditures, disbursements and loans. The Committee responded,

filing amendments that corrected the disclosure problemg.

Excessive Contributions Resulting from Staff Advances and

Extensions of credit by a vendor and a union - 2 u.s.c.

5441a(&), 2 u.s.c. 544lb(a), Ii crR 5116.5(b), 11 eFR 5116.3,

and 11 erR 114.9(d). A payment by an individual froa his or her

personal funds for campaign-related costs is a contribution

subject to the $1,000 limitation unless exempted from the

definition of a contribution at 11 crR lOO.7(b)(8} or reimbursed

within specific time frames. The interim audit report

questioned whether funds advanced by five individuals resulted

in contributions that exceeded limits by $76,261. The report

also questioned whether the Committee had accepted prohibited

---corpor.ate_a.Ill:L;tabQr _contributions in the fora of credit

extended outside th-e-no-rmal-course -of-busineu-by·a -- ~omputer-· - firm (SSO,OOO) and a labor union (S57,196). The Comaittee's

response to the interim audit report provided no docuaentation

to refute the excessive and prohibited nature of these advances

and extensions of credit.

Undocumented Disbursements - 11 eFR 59038.2(b} and 11 CFR

59033.11(a). In response to the interia audit report's

identification of inadequate docuaentation with respect to 16

disbursements totaling $32,839, the Coamittee provided the

necessary documentation to correct this problem.

Matching Funds in Excess of Entitlement - 26 U.S.C.

59038(b)(1). In the final audit report the Commission made an

initial determination that a repayment of $125,252 to the U.S.

Treasury was required. The repayment represented matching funds

received in excess of the candidate's entitlement, based on an

analysis of the Committee'S Statement of Net Outstanding

Campaign Obligations and relevant receipt activity.

Apparent Excessive Press Reimbursements - 11 crR

59034.6(a), 11 crR 59034.6(b), and 11 crR 59034.6(d)(1). A

committee that provides travel-related services to the Press may

charge for the services and accept the resulting reimbursements.

The final audit report found that the Committee had earned

$15,974 in profit on reimbursements received from the Press for

such services. The Commission determined that this amount had to

be paid to the u.S. Treasury. The Commission also determined

.1.'1'1 AC".U.,J1 r --,,=.J~ _ Page of: ";~'"'Lt,- __
Brown for president

Executive summary

Page 3 of 3

that the Committee had overcharged the Press

travel-related services and consequently had

the travelers who had overpaid.

$51,233 for

to make refunds to

•

Stale-dated Committee Checks - 11 eFR 9038.6. Finally, the

Committee is required to pay to the U.S. Treasury $1,334, the

total amount of checks outstanding which have not been cashed.
FEDERAL ELECTIO~ CO.\\'\\ISS10~

REPORT or THE AUDIT DIVISION

ON

BROWN rOR PRESIDENT

AK004708

•

I. Background

A. Audit Authority

This report is based on an audit of Brown for President

(-the committee"). The audit is mandated by Section 9038(a) of

Title 26 of the United States Code. That section states that

··-"x£t:er- -ellch--;lustchicng--payaent. pe.riod .. _tb~c:o~il! s ion sban conduct

a thorough examination and audit of the qualifiiiaca.pll1Ci1n-----

expenses of every candidate and hisauthori~ed co_ittees who

received payments under section 9037." Also, Section 9039(b) of

the United States Code and Section 9038.1(a)(2) of the

Co_ission'. Requlations state that the Co..i.sion aay conduct

other examinations and audits froa tiae to tiae as it deems

necessary.

In addition to exaaining the receipt and use of Federal

funds, the audit seeks to determine if the Co_ittee has

materially complied with the limitations, prohibitions and

disclosure requireaents of the Federal Election CaapaiCiin Act of

1971, as amended.

B. Audit Coverage

The audit covered the period from the Committee'S

inception, September 2, 1991, throuCilh September 30, 1992. During

this period, the Co_ittee's reportsl/ reflect an opening cash

balance of $-0-; total receipts of $10,783,676; total

.Y All figures in this report have been rounded to the nearest

do11a r . 1.':: ;.':T1.lli:l.~T --::3::;.-- _

:r~.; -:tf~-- c:f: j<ee--__..d
....... -.

BROWN rOR PRESIDENT

Page 2

disbursements of $10,253,296; and a closing cash balance of

$530,297.2/ In addition, a limited review of the Committee's

transactions was conducted through March 31, 1993, for purposes of

determining the Committee's remaining matching fund entitlement

based on its financial position and reported transac~ions

thereafter.

C. Campaiqn Organization

The Committee registered with the Federal Election

Commission on Septeaber 2, 1991. The Treasurer of the Committee

from its inception through March 5, 1992 was Jodie Evans. On

March 6, 1992, Blaine Quick became Treasurer and continues to .

serve as the Committee's current Treasurer.

During the period audited, the campaign utilized

depositories in 16 states in addition to its national headquarters

located in Los Angeles, California. The campaign's current

offices are in Los Angeles, California.

To handle its financial activity, the campaign used 21

bank accounts at various times. From these accounts the campaign

made approximately 6,000 disbursements. Approximately 94,000

contributions vere received from about 88,400 persons. These

--contributiotls__totaled_ab_ou~~S_,_OJ.5-, 000. It should be noted that

it was the Co_ittee's policy to If.n contribution-s~to$100per---­

person.

In addition to contributions, the campaign received

$4/239,405 in aatching funds from the United States Treasury.

This amount represents 30.70\ of the $13,810,000 maximum

entitlement that any candidate could receive. The candidate was

determined eligible to receive matching funds on Deceaber 2, 1991.

The campaign made a total of 8 matching funds requests totaling

$4,437,909. The Commission certified 95.53\ of the requested

amount. For matching fund purposes, the Co..ission determined

that the Honorable Edmund G. Brown'S candidacy ended July 15,

1992. This determination was based on the date of the convention

pursuant to the Coaaission's regulations at 11 C.r.R. S9033.5(c)

which states, in relevant part, that the candidate's date of

ineligibility shall be the last day of the matching payment period

as specified in 11 C.F.R. 9032.6; which states that the matching

payment period may not exceed "the date on which the party

nominates its candidate." On August 4, 1992, the Committee

received its final matching fund payment to defray expenses

incurred through July 15, 1992 and to help defray the cost of

winding down the campaign.

,.

~/ The reported activity does not foot

mathematical errors in carrying the

balance to the subsequent report as

hand balance.

due to two minor

ending cash on hand

the beginning cash on

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f.: ~, _ of .....J,;Ic,--._..._...
•

eaoWN FOR PRESIDENT

Page 3

Attachment 1 to this report is a copy of the

Commission's most recent Report on Financial Activity for this

campaign. The amounts shown are as reported to the Commission by

the Commi t tee .

D. Audit Scope and Procedures

In addition to a review ·of the qualified campaign

expenses incurred by the Committee, the audit covered the

following general categories:

1. The receipt of contributions or loans in excess' of

the statutory limitations (see rinding II.E.);

2. the receipt of contributions from prohibited

sources, such as those from corporations or labor

organizations (see Finding II.E.);

:..

3.

4.

s.

6.

proper disclosure of receipts from individuals,

political committees and other entities, to include

the itemization of receipts vhen required, as vell

as, the completeness and accuracy of the

information disclosed (lee Finding II.B.);

proper disclosure of disbur-.em-ents-Uicluding-tneitemization of disbursesents when required, as well

as, the completeness and accuracy of the

information disclosed (see rinding II.C.);

proper disclosure of Coaaittee debts and

obligations (see Finding 11.0.);

the accuracy of total reported receipts,

disbursements and cash balances as compared to

Comaittee bank records (see Finding II.A.);

7. adequate recordkeeping for campaign transactions

(see Finding 111.0.);

8. accuracy of the Statement of Net Outstanding

Campaign Obligations filed by the Committee to

disclose its financial condition and establish

continuing matching fund entitlement (see Finding

III.C.);

9. the Committee's compliance with spending

limitations; and

10. other audit procedures that were deemed necessary

in the situation.

As part of the Commission's standard audit process, an

inventory of the Committee'S records was conducted prior to the

A'I"~A\;~'• ...:i'-----:=;---

page (P of -:!~(,---
BROWN FOR PRESIDENT

page 4

audit fieldwork. This inventory was conducted to determine if the

Committee's records were materially complete and in an auditable

state. The inventory indicated that some records vere not

complete and the Committee was provided thirty days to obtain the

necessary materials. At the end of the thirty days, some records

vere still not complete. In order to obtain the neclssary records

subpoenas were issued to the Committee as well as a number of

vendors, banks, and individuals. As a result of the information

obtained, it was concluded that the records were aaterially

complete except as discussed in individual findings.

Unless specifically discussed below, no aaterial

non-compliance vas detected. It should be noted that the

Commission may pursue further any of the matters discussed in this

report in an enforcement action.

Our analysis of press refunds/rebates was liaited due to

the absence of Coaaittee record~ with respect to: The flight

origination and destination to include the COlt of each leg of

each trip; the flight :&nifest or itinerary for each leg of each

trip showing every person traveling (except the flight crew) by

naae and any associated organization; and workpapers, computer

files etc. showing the derivation of amounts billed to the press

for each leg of each trip (&ee rinding III.D.l.

II. Findin9's -a-rid- Recouendations - Non-repayaentllatters

Introduction to Findings

In light of an October 22, 1993 decision by the court of

Appeals for the D.C. Circuit in FEe v. NRA Political Victory Fund

et. al, the Commission reconsidered the interia audIt report and

voted its approval on Noveaber 9, 1993. As a result of this

action, the Committee was afforded an additional 14 calendar days

to respond to the interia audit report.

"-'-,,~ '':~

Ln

A. Kisstatement of Financial Activity

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

States Code require a political cosmittee to report the aaount of

cash on hand at the beginning of each reporting period and the

total amount of all receipts and disbursements for the reporting

period and calendar year.

The Audit staff's reconciliation of the Committee's bank

activity to its reported activity~/ for the period covered by the

audit indicated the following aisstatements:

The Committee'S reported totals were calculated by summing

the current period totals for each reporting period; which

differed from the calendar year-to-date totalsleported by

the committee for 1992. AT1'Ac.p": _ 19

Page :t:-- of ...;$).!_...._-
BROWN rOR PRESIDENT

Page 5

1. Inception through December 31, 1991

a. Receipt..

The Committee reported total receipts of

$519,658 for 1991. Utilizing available bank records~ the Audit

staff determined that the Committee should have reported total

receipts of $515,017. Therefore, the Committee's receipts were

overstated by a net amount of $4,6Al. This overstatement was the

result of the following:

o

o

o

In-kind contributions and deposits

not reported

Deposits reported twice

Reported deposits and edit adjustments

not traceable to bank statement..

$ 6,109

$ ( 700 )

$(9,800)

o correction of .athematical error $ 400

o

o

unexplained year end correction

Reconciling adjustment

$ (761 )

$ 111 ------ L_

Total (Net) Overstitement

b. Disburse_ents

For 1991, the Coaaittee reported total

disbursements of $440,958. The Audit staff determined that the

Committee should have reported total disbursements of $457,298.

Therefore, the Committee's reported disbursements vere understated

by a net amount of $16,340. This understatem.nt vas a result of

the following:

Total (Net) Understatement

o

o

o

o

Disbursements not reported and 1991

disbursements reported in 1992

Disbursements reported twice

Kiscellaneous charges, bank reversals,

and error corrections

Reconciling adjustment

c. Cash on Hand

$19,993

$(1,503)

$(1,999)

$ (151)

$16,340

The Committee reported an ending cash on hand

balance on December 31, 1991 of $78,700. The Audit staff

, determined this wa .. overstated by a net amount of $20,981 which

ATTACHlIENT -~------.,.----­ Page K of ...1~Ce~__
BROWN FOR PRESIDENT

Page 6

resulted from the misstatements detailed above. The correct

ending cash was determined to be S57,719.

2. January 1, 1992 through September 30, 1992

a. Receipts •

"--

:n

C>.

The Committee reported total receipts of

S10,264,018 for the period January· 1, 1992 through September 30,

1992. The Audit staff determined that the Committee should have

reported total receipts of S1l,308,890 for this period.

Therefore, the Committee's reported receipts were understated by a

net amount of S1,044,872. Committee deposit records identified

the receipt of a S1.1 million dollar loan on Kay 20, 1992 that was

not reported (see Finding II.D.l. In addition, the Audit staff

noted press reimbursements for air charter services, totaling

S20,126, which were paid directly to the vendor and not reported

by the committee. In the absence of workpapers which detail the

preparation of its disclosure reports, the Audit staff was unable

to explain the remaining overstate_ent totaling $75,254.

b. Disbursements

The Committee reported total disbursements of ___ S9,812_,l~~!.OJ:_the period January 1, 1992 through September 30.

1992. The Audit-staffdeterlilined- thatthe-Co_ittee .should-have----

reported total disbursements of S10,875,192. Therefore, the

Committee's reported disbursements vere understated by a net

amount of Sl,062,854. The majority of this difference was the

result of the Committee not reporting the Kay 26, 1992 repayaent

of the Sl.1 million loan described above. With respect to the

press reimbursements discussed above, a credit of $20,126 was

applied by the vendor to amount a due from the Co_ittee, resulting

in an underreporting of disbursements. In the absence of

workpapers which detail the preparation of its disclosure reports,

the Audit staff was unable to explain the remaining $57,272

difference.

c. Cash on Band

The Committee reported an ending cash on hand

balance on September 30, 1992 of S530,297. The Audit staff

determined this was overstated by a net amount of $38,880 which

resulted from the misstatements noted above and correction

carryovers from 1991. The correct ending cash was determined to

be S4 91 , 41 7 .

The Audit staff prOVided photocopies of its

bank reconciliations to Committee representatives at the exit

conference. The Committee representatives indicated a willingness

to file amendments to correct the above noted problems.

In the interim audit report. the Audit staff

recommended that the Committee file amended Summary and Detailed

A

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•

--.

,....

'-

C'.

BROWN FOR PRESIDENT

Page "1

Summary pages for calendar years 1991 and 1992 correcting the

misstatements of financial activity. The Audit staff further

recommended that the Committee file amended Schedules A-P and B-P

for 1992 to disclose the press transactions ($20,126) discussed

above.

The Committee's response to the interim audit

report notes that amended disclosure reports have been filed. The

Audit staff's review of these amended disclosure reports

determined that the Coamittee has materially complied with the

recommendations of the interim audit report.

B. Failure to Itemize Refunds(Rebates

Section 434(b)(3)(F) of Title 2 of the United

States Code states that each report under this section shall

disclose the identification of each person who provides a rebate,

refund or other offset to operating expenditures to the reporting

committee in an aggregate amount or value in excess of $200 within

the calendar year, together with the date and amount of such

receipt.

Section 431(13) of Title 2 of the United States

Code defines the term -identification- to mean, in the case of any

--.-pe-rson--other..tb_alL_an individual, the full name and address of such

person. In addi ticiO-;-2-U.S:C:·S431 (H)defines-wPerson.".tQ

include an individual, partnership, corporation, association~

labor organization or committee.

The Audit staff's review of refunds/rebates

received by the Committee from vendors indicated that 37 out of 67

such receipts totaling $82,840 were not iteaized on the

Committee's disclosure reports.

At the exit conference, the Audit staff advised the

Committee representatives of this problem and provided thea with

photocopies of workpapers detailing these transactions. Committee

representatives indicated that aaended reports would be filed.

In the interim audit report, the Audit staff

recommended that the Committee file Schedules A-P to amend its

disclosure reports to correctly itemize their refunds and rebates.

The Coaaittee's response to the interim audit

report notes that the requested Schedules A-P have been filed.

The Audit staff's review of these amended schedules determined

that the Committee has complied with our recommendation.

C. Failure to Itemize and Adequately Disclose

Disbursements

Section 434(b)(S)(A) of Title 2 of the United States _ Code states, that each report under this section shall disclose

the name and address of each person to whom an expenditure in an

ATTACiilLEJJT -'!~

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BROWN FOR PRESIDENT

Page 8

aggregate amount or value in excess of S200 within the calendar

year is made by the reporting committee to meet a candidate or

committee operating expense, together with the date, amount, and

purpose of such operating expenditure.

The Audit staff reviewed disbursements fr~m the

Committee's state accounts. The review identified 177

disbursements, in an aggregate amount or value in excess of $200,

totaling $106,482, that were not i~emized on Committee disclosure

reports.

In addition, the Audit staff's review of itemized

disbursements from state bank accounts identified 80 disbursements

totaling $43,285, for which the proper disclosure of information

was either incomplete or omitted. All of the errors resulted from

either an incomplete address, or no address being disclosed.

At the exit confererice Committee representatives were

made aware of the above problems and were provided photocopies of

schedules detailin9 these items. !n response to the exit

conference the Committee filed amended disclosure reports

materially correcting the errors.

D. Reporting of Loan to the Committee

SecHoI1s--434 ~b J(2) (8) -and·· (-3) (E)-of -Ti tle2-of-the---------

United States Code state, that each report shall disclose all

loans along with the identification of each person who makes a

loan to the reporting committee during the reporting period,

together with the identification of any endorser or guarantor of

such loan, and date and amount or value of such loan.

In addition, 11 C.F.R. Sl04.11(a) prOVides that debts

and obligations owed by a political committee which remain

outstanding shall be continuously reported until extinquished.

The Audit staff identified a $1,100,000 loan, the

receipt and repayment of which had not been reported by the

Committee (see Finding II.A.2.).

The docuaentation available with respect to this loan

included a promissory Note, a Committee bank statement with

related debit and credit memos and a document from the bank

showing the loan history. The Promissory Note was dated May 15,

1992, and related to Loan 16348 in the amount of $1,100,000. This

Note had an initial interest rate of 8.5\, and a repayment due

date of June 8, 1992. The promissory Note also stated that

interest started to accrue on the unpaid principal balance as of

Kay 15, 1992 until paid in full. The loan was secured with

matching funds. In addition, the bank was authorized to debit the

Committee'S bank account, upon receipt of matching funds, to

repay the loan.
BROWN FOR PRESIDENT

Page 9

According to the Kay, 1992 bank statement, this loan was

credited to the Committee's account on Kay 20, 1992. The credit

memo is dated 5-20-92 and is annotated ~Brown for President Inc. -

Loan Proceeds~. The bank statement notes a debit on~ay 26, 1992

to repay the loan. The corresponding debit memo, dated 5-26-92,

states that it ~Rev{erses) entry of 05-22-92~.

The documentation revieved contained discrepancies

concerning receipt and repayment dates. Although the loan history

supplied by the lending bank and the bank statement supports

5-20-92 as the date of receipt, as noted above, the debit memo is

annotated as ~Rev{erses) entry of 05-22-92~. There is no

corresponding credit on the bank statement to which this could

apply other than the loan credited on Kay 20, 1992. The Audit

staff also noted an inconsistency between the bank statement and

the loan history with respect to the date of repayment of this

loan. As detailed above, the Committee's account is debited for

the amount of the loan proceeds on Kay 26, 1992, while the loan

history lists the repaysent date as ~ay 20, 1992. The Audit staff

is unable to explain these discrepancies.

Based on the available information, it is the opinion of

the Audit staff that the loan was received on Hay 20, 1992 and

------- r-epa~d__on_"a,y- 2_6,J.9~~~__ The COlllllli t tee had the proceeds from the

loan available for five days-. - -

On the loan history was a note to a Coamittee

representative that stated in part ~After signing the documents,

the Brown For President people decided that they did not want all

the money right away but rather wanted to take it as needed (to

save interest charges most likely). Therefore the initial advance

was reversed and the loan proceeds were subsequently taken in two

parts - but only $500,000 of the $1,100,000 were ever taken. This

is not a line of credit but rather a straight loan which was

disbursed in increments~. At the exit conference, Committee

representatives stated that because the full amount was not needed

at the time the funds were drawn, they elected not to report the

$1,100,000 loan; they elected to report only the subsequent draws

on the loan.

The Audit staff acknowledges that loans for $300,000 on

Kay 26, 1992 and $200,000 on June 2, 1992 were drawn against Loan

16348 subsequent to the receipt and repayment of the Sl,100,000

draw. The Committee repaid both draws and corresponding interest

on June 5, 1992. The Audit staff also acknowledges that both of

these loans were correctly disclosed.

At the exit conference, the Audit staff informed

Committee representatives of the need to file amended disclosure

reports to disclose the initial (Sl,lOO,OOO) loan. The Committee

agreed to amend its disclosure reports as requested.

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BROWN FOR PRESIDENT

Page 10

In the interim audit report the Audit staff recommended

that the Committee submit Schedules A-P, B-P and C-P, disclosing

the receipt and repayment of this ($1,100,000) loan .

As part of its response to the interim audit•report, the

Committee prOVided the requested schedules.

E. ASParent Excessive Cont~ibutions Resulting from Staff

A vances and Extensions of Credit by a Vendor and a

union

C-.

Section 441a(a){l){A) of Title 2 of the united States

Code states, in part, that no person shall make contributions to

any candidate and his authorized political committee vith respect

to any election for Federal office vhich, in the aggregate, exceed

$1,000.

Section 441b{a) of Title 2 of the united States Code

states, in part, that it is unlavful for any corporation or labor

organization to sake a contribution in connection vith any

election to any political office.

Section 116.5(b) of Title 11 of the Code of Federal -- Rec;u~ations __.lta_te-,_,_j._~_ p~rt, that the payment by an individual

from his or her personal funds-;-n1(::l\.ldlnq-a-per~onal-:credit--card,

for the costs incurred in providing goods or services to, or

obtaining goods or services that are used by or on bebalf of, a

candidate or a political committee is a contribution unless the

payment is exempted from the definition of contribution under 11

C.F.R. lOO.7{b){8).

Pursuant to 11 C.r.R. Sl16.5(b), if the payment is not

exempted, it shall be considered a contribution by the individual

unless it is for the individual's transportation expenses or for

usual and normal subsistence expenses incurred by an individual,

other than a volunteer, while traveling on behalf of a candidate;

and, the individual il reimbursed within sixty days after the

closing date of the billing stateaent on which the charges first

appear if the payment was made using a personal credit card, or

vithin thirty days after the date on which the expenses were

incurred if a personal credit card was not used. ·Subsistence

expenses· include only expenditures for personal living expenses

related to a particular individual traveling on committee business

such as food or lodging.

Sections 116.3(a) and {bl of Title 11 the Code of

Federal Regulations state, in relevant part, that a commercial

vendor that is not a corporation, and a corporation in its

capacity as a commercial vendor may extend credit to a candidate,

a political committee or another person on behalf of a candidate

or political committee. An extension of credit will not be

considered a contribution to the candidate or political committee

prOVided that the credit is extended in th:~~:~nary jourse of the

l_~ -l ;;:: 1(( 8
BROWN FOR PRESIDENT

Page 11

commercial vendor's business and the terms are substantially

similar to extensions of credit to nonpolitical debtors that are

of similar risk and size of obligations.

Further, 11 C.F.R. Sl16.3(c) states that i~ determining

whether credit was extended in the ordinary course or business,

the Commission will consider:

(1) Whether the commercial vendor followed its

established procedures and its past practice in

approving the extension of credit;

(2) Whether the commercial vendor received prompt

payaent in full if it previously extended credit to

the lame candidate or political committee; and

(3) Whether the extension of credit conformed to the

usual and normal practice in the commercial

vendor's trade or industry.

Finally, 11 C.F.R. Sl14.9(d) provides, in part, that

persons, other than officials, members and eaployees, who use

labor organization facilities for activity in connection with a

Federal election, are teq~ired to reimburse the labor organization wLth~na c9~~rcially reasonable time in the amount of the noraal

and usual rental- char-gefor- the use of--the-facJ.liti_es.

1. Staff Advances

During the review of the Committee's disbursements,

the Audit staff noted a number of reimbursements to individuals

that were for various kinds of campaign activity. For subsistence

and transportation expenses, the Committee did not reimburse the

individuals within the time periods required by 11 C.F.R. 5116.5.

Individuals were also reimbursed for other kinds of campaign

expenditures, such as advertising, supplies, telephone, postage,

and copying. Further, five individuals were reimbursed for the

transportation, travel, and related expenses of other individuals,

to include the candidate.

As part of the Audit staff's analysis,

contributions resulting from the untimely reimbursement of

expenses incurred by individuals were added to direct

contributions made by these individuals. Our review indicated

that five individuals made apparent excessive contributions. The

amount in excess varied depending upon when reimbursements were

made by the Committee. By summing the largest amount in excess

for each individual, the Audit staff determined that the amount in

excess was $76,261. At the conclusion of fieldwork, there were no

expense reimbursements outstanding. Of particular note, most of

the amount in excess ($41,869) occurred with respect to the

campaign Manager, Jodie Evans. The campaign Manager utilized

seven (7) different personal credit cards for both personal and

campaign related expenses. The majority of expenses charged to

,- --.- _._--. ~.5"'-----:=--__ r....:;.. Jtf c:: """.:5k~ __
" .

0'

L0

BROWN FOR PRESIDENT

Page 12

these accounts were for the candidate's and several campaign

employees' expenses.

This matter was discussed with the Committee during

the exit conference. The Audit Staff provided the C~mmittee with

a schedule of excessive amounts, a summary schedule, and a COver

sheet explaining symbols and methodology. The Campaign Manager

stated that the regulation had been misinterpreted by them. She

also commented that the regulatio~ and repayment periods are

unfair to candidates who do not have the same access to money or

credit as other candidates who have naae recognition or political

position. Grass roots candidates are forced to rely on the 9,ood

name of Committee supporters.

In the interim audit report, the Audit staff

recommended that the Committee demonstrate that the individuals

did not exceed the contribution limits of 2 U.S.C. S441a(a)(1)(A),

and/or were reimbursed in a timely manner as defined under 11

C.F.R. S116.5(b)(2), or submit any other comments or documentation

the Committee feels may be relevant.

AS part of its response to the interim audit

report, a facsimile letter from the Coaaittee's Treasurer states

that ~credit card charges by Jodie Evans icaapaiqfi K8naqer] in the __ amQ\m_t~_f_~~.1_,~§9_represents. items used for campaign expenses.·

The Commi ttee' s responseaoes-not-aad-ress-the-apparent-excess-ive---

contributions of the four individuals other than the Caapaign

Kanager.

With respect to the aatter of the credit cards, the

Audit staff does not dispute the Committee's assertion that the

credit card charges in question represent expenditures made

relative to the campaign.

The Committee's response fails to deaonstrate that

the individuals did not exceed the contribution limits of 2 U.S.C.

S441a(a)(1)(A), and/or were reimbursed in a tiaely manner.

Therefore, no adjustment to the interia report analysis has been

made.

2. Extension of Credit by a Commercial Vendor and a

Union

ouring the course of fieldwork, the Audit staff

identified two disbursements, each to different vendors, that

raised concerns with respect to the extension of credit given to

the Committee.

On December 1, 1992, the Committee issued check

number 8094 in the amount of $50,000 to Quarterdeck Office Systems

("Quarterdeck") for miscellaneous computer software and hardware.

An attached invoice, dated 11-17-92, details the equipment and

services provided; the amount of the invoice is $151,121. The

l~~:":TI'K ~j~--:;;:----­ ra£jo _ of ....:3~it ....__
L0

BROWN FOR PRESIDENT

Page 13

invoice is annotated as follows: "Bill adjusted to 550,000. Due

Nov 30, 1992, Stanton Kaye".

Based on a review utilizing a Committee-provided,

disbursement data file, the Audit staff did not note.any other

payments to this vendor. According to Committee representatives

this equipment was used during the campaign which ended 7-15-92.

No other correspondence between the vendor and the Committee has

been provided.

In the other instance, on October 27, 1992, the

Committee issued check number 5571, in the amount of 557,196, to

Local 1199 (Drug, Bospital a Health Care Employees Union). An"

attached invoice, with a letter requesting payment, dated

10-28-92, details reimbursable expenses incurred by Local 1199

with respect to Edmund G. Brown Jr.'s Presidential campaign during

the period 3/30/92 to 4/10/92. The expenses were for food and

refreshments, rent, printing, advertising, telephone and other

miscellaneous items. According to an October 12, 1992 letter from

the vendor to the Committee, this invoice is a revision of a

previous invoice.

The Audit staff did not note any other payments to

this vendor based on a COllJllittee-provided, disbur:;clllent d/lta file . . . ·Accordi.ng._to_a_Jo'r.i~j:!!n statement (dated 5-24-93) subaitted to the

Audi t staff by the Campif9n -Mllnaq.-r-,--there-vas- no-vri-Hen

agreement for these expenditures, which were the result of a

sudden need for aeeting rooas and banquet facilities, and were

incurred with respect to the Nev York primary. "Apparently the

invoice of the charges 'fell through the cracks' and ve vere not

billed. I contacted him several times asking for the bill so that

it could be paid. As soon as ve received and reviewed the bill

(and after a revised invoice vas issued) it vas paid."

The Audit staff's concern is vhether Local 1199 vas

reimbursed within a commercially reasonable tiae at the noraal and

usual charge. The Audit staff requested that the Coaaittee

provide additional documentation vith respect to these items. On

July 16, 1993, the Audit staff received a letter from Local 1199

stating that the reason for the delay in sUbaitting the bill was

the result of several mislaid invoices in the accounting

department. It also notes that no bill was submitted to the

Committee until these bills were recovered.

In the interim audit report, the Audit staff

recommended the Committee prOVide additional documentation or any

other comments to demonstrate that the credit extended by the

commercial vendor and union were in the noraal course of business

and did not represent prohibited contributions.

In its response to the interia audit report, the

Committee'S cover letter states that wdocuments are attached that

demonstrate these items were in the normal course of business and

did not represent prohibited contributions. W 5

b ... ·l~ ..... ~. ~~--~---

Faoe 1ft of ....$~lRr-- __
BROWN FOR PRESIDENT

Page 14

The attached documentation consisted of copies of

letters sent to the Committee from Local 1199 and Quarterdeck

Office Systems. The letter from Local 1199, dated July 16, 1993,

had previously been provided to the Audit staff and i~ discussed

above. The letter from the Vice President of Marketing'

International Sales for Quarterdeck Office Systems, dated July 21,

1993, states:

ftl have known Jodi~ Evans, The campaign

Manager, for quite some time and in one of our

conversations it vas mentioned that the

campaign would be needing computers. 1

mentioned that although OUarterdeck was not in

the business of leasing computers there were

some in storage that vere not currently being

used.

No agreement vas ever signed. 1 turned this

matter over to =y staff and it vas verbally

agreed that nothing would be done until it was

decided vhether the campaign vas going to

purchase or rent the computers from us.

____________ Jol:ti~, her staff and my staff had discussions

for several -.onelis-and it-v.. finallydeei~ed--­

that the campaign vould lease the computers

for the amount that vas comparable to the loss

of value and pay for our service time.

Since leasing computers is not our normal

business, this vas not billed in the 'normal

course of business'. Bowever, as soon as it

was billed, it vas paid.-

The facsimile letter from the Committee's Treasurer

states that the -[e]xtenlion of credit by Quarterdeck and Local

1199 represent charges to the campaign in the noraal course of

business and does not represent contributions of any kind.-

The Committee'S response did not prOVide any new

documentation or comments to demonstrate that the credit extended

by Local 1199 was in the noraal course of business and did not

represent prohibited contributions.

The Committee's response: (i) does not provide

information relative to Quarterdeck's established procedures or

past practices in approving extensions of credit; (ii) does not

provide any information relative to prompt payment of previously

extended credit to the Committee; and (iii) does not provide

information to show that this extension of credit conformed to the

usual and normal practice in the industry.
.,....

BROWN FOR PR~SIO~NT

Page 15

Rather, the letter provided from Ouarterdeck

appears to buttress the Audit staff's conclusion that credit was

not extended in the ordinary course of business. The letter

states that Ouarterdeck "was not in the business of \easing

computers." No agreement was ever signed. There were several

months of discussions before the Committee decided to lease or buy

the computers. The Committee benefited from the use of the

equipment during the campaign until an invoice (dated 11-17-92)

was submitted to the Committee for payment well after the campaign

had run its course.

III. Findings and Recommendations - Repayment Katters

A. Calculation of Repayment Ratio

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

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for any purpose other than to defray the ~~&lified

campaign expenses with respect to which such payment was made it

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

candidate shall pay to the Secretary an amount equal to such

amount.

Se~tion 9038.1 (c )-<il(v) of-tn:le-llofthe ~Code-of

Federal Requlations states that preliminary calculations regarding

further repayments to the U.S. Treasury may be contained within

the interim audit report. Pursuant to 59038.2(a)(2) of this Title

the Commission will notify the candidate of any repayment

determinations not later than three years after the end of the

matching payment period. The issuance of this interim audit

report to the candidate constitutes notice of any repayment

determinations for purposes of the three year period •

The Regulations at 11 C.F.R. 59038.2(b}(2)(iiil state

that the amount of any repayment sought under this section shall

bear the same ratio to the total amount determined to have been

used for non-qualified campaign expenses as the amount of matching

funds certified to the candidate bears to the total amount of

deposits of contributions and matching funds, as of the

candidate's date of ineligibility.

Pursuant to 11 C.F.R. S9033.5(c), Governor Brown's date

of ineligibility was determined to be July 15, 1992.

The formula and the appropriate calculation with respect

to the Committees' receipt activity is as follows:
BROWN FOR PRESIDENT

Page 16

Total Matching Funds Certified through the Date

of Ineligibility - July 15, 1992

Numerator plus Private Contributions Received th\ough

Date of Ineligibility

$4,068,269

- .449142

$4,068,269 + $4,989,592

Thus, the repayment ratio for non-qualified campaign

expenses is 44.9142\.

B. APsarent Non-Qualified Campaign ExpensesUn ocuaented Disbursements

rn

Section 9032(9) of Title 26 of the United States Code

defines, in part, the term -qualified campaign expense- as a

purchase or payment incurred by a candidate or his authorized

-----couUttee,-in- connection--with-ltis_campaign__t9_r__noaination for

election, and neither the incurring nor payaent ofwfilch----~-­

constitutes a violation of any law of the United States or of any

law of any state in which the expense is incurred or paid.

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

Regulations states the Commission aay determine that amount(s)

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

or agents, were not documented in accordance with 11 crR 9033.11.

The amount of any repayment sought under this section shall be

determined by using the formula set forth in 11 crR

9038.2(b)(2){iii).

Section 9033.11(a) of Title 11 of the Code of Federal

Regulations states, in part, that each candidate shall have the

burden of proving that disbursements made by the candidate or his

authorized committee(s) are qualified campaign expenses.

The Audit staff's review of s~lected disbursements from

the national accounts identified a payment to Left Bank

Productions for $20,000 that was not supported by a receipt, bill

or invoice. This payment was made by wire transfer. The

associated documentation did not identify the purpose.

The Audit staff also reviewed disbursements made from

the Committee's state accounts and identified 15 disbursements,

totaling $12,839, which were not documented in accordance with 11

C.F.R. 59033.11. Based on Committee annotations or lack thereof.

these disbursements can be categorized as follows:

ATTACTI:~tT._fL--_-.,--::~_­ r~.:;~ ~-~. -~~--.
BROWN FOR PRESIDENT

Page 17

e

e

Expense Reimbursement/Reimbursement - five (5)

disbursements, totaling $4,317, to individuals, for

which notations on the canceled check indicate only

expense reimbursement or reimbursemen_. Committee

records contained no invoices or travel vouchers

for these disbursements.

No Purpose - ten (~O) payments to individuals and

vendors, totaling $8,522 for vhich no purpose vas

available. No docuaentation vas available for

these disburseaents beyond the canceled checks

prOVided for eight of these items.

~­

.~. :

At the exit conference Committee representatives vere

made aware of inadequately documented disbursements and provided

schedules detailing these items. Committee representatives stated

that they vould atteapt to obtain the additional documentation

required.

In the interim audit report, the Audit staff recomaended

that the Committee submit documentation which deaonstrates that

these expenses arc qualified ca:paiqn expenses. The interia audit ___ r~port also stated that absent such a demonstration, the Audit

staa-"oul-d.recouend-that-theeo_iuion__luke__an__lcni!-i_~l__ determination that the Co_ittee was required to make a pror-lita-----

repayment of $14,149 ($32,839 x .449142) to the United States

Treasury pursuant to 26 U.S.C. 59038(b)(2).

The Co.-ittee's response to the interim audit report

contained an invoice to support the expenditure to Left Bank

Productions. In addition, documentation was prOVided with respect

to four expenditures from state accounts. Based on the Audit

staff's review, the docuaentation submitted materially resolved

thi s matte r.

C. Matching Funds Received in Excess of Entitlement

Section 9038.2(a)(1) of Title 11 of the Code of Federal

Regulations states, in part, that a candidate who has received

payments from the matching payment account shall pay the United

States Treasury any amounts vhich the Co_ission determines to be

repayable under this section.

Section 9038.2(b)(1)(i) of Title 11 of the Code of

Federal Regulations states, in part, that the Commission may

determine that certain portions of the payments made to a

candidate from the matching payment account were in excess of the

aggregate amount of payments to which such candidate was entitled.

Examples of such payments include payments made to the candidate

after the candidate'S date of ineligibility where it is later

determined that the candidate had no net outstanding campaign

obligations as defined in 11 C.F.R. 59034.5 .

..:-: ':~.':' J.

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BROWN FOR PRESIDENT

Page 18

Section 9034.5(al of Title 11 of the Code of Federal

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

of ineligibility, the candidate shall submit a statement of net

outstanding campaign obligations which contains, among other

items, the total of all outstanding obligations for ~ualified

campaign expenses and an estimate of necessary windi~g down costs.

Subsection (b) of this section states that the total of

outstanding campaign obligations shall not include any accounts

payable for non-qualified campaign expenses.

In addition, 11 C.F.R. S9034.1(bl states, in part, that

if on the date of ineligibility a candidate has net outstanding

campaign obligations as defined under 11 C.F.R. 59034.5, that·

candidate may continue to receive matching payments provided that

on the date of payment there are remaining net outstanding

campaign obligations.

Governor Brown's date of ineligibility was July 15,

1992. The Audit staff reviewed the Committee's financial activity

through March 31, 1993 and reported activity through March 31,

1994, as well as analyzed winding down costs, and prepared the

Statement of Net Outstanding Campaign Obligations (-NOeO~) which

appears below:

-'.

C\. (

(

"-

ATTAClillElIT S

Pase .1,( -'::::-"'-ot--:J:-!.<---=
BROWN FOR PRESIDEN7

Page 19

BROWN FOR PRESIDENT

Statement of Net Outstanding Campaign Obligations

as of July 15, 1992

as determined March 31, 1994 by the Audit staff

Assets •

Cash $998,386

Accounts Receivable 281,986 !I

Capital Assets 43,080

TOTAL ASSETS $1,323,452

Obligations

Accounts Payable Qualified

Campaign Expenses (245,486)

Press Payables

(See Finding III.D.)

U.S. Treasury for Stale-dated Checks

(Sl,233)

(1,334)

Profit from Press Reimbursements

--Due-U.-5.. Treasury (S~~_F:i_ndi!lg III .0. )

Winding Down Costs Actual 2/

(7/16/92 through 3/31/93) -

(15,974)

(874,6S1)

Reported Winding Down Costs l/

(4/1/93 through 3/31/94) (141,758 )

,,..,. .~ ,

Winding Down Costs Estimated ~/

(4-1-94 to 9-30-94)

TOTAL OBLIGATIONS

NOCO {DEFICIT)/SURPLUS

(42,700)

($1,373,136 )

($49,684)

. ~~--

.....--"''---------

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J ••
BROWN FOR PRESIDENT

Page 20

Footnotes to NOCO Statement

This amount increased significantly as a result ~f the

Committee's reported receipt of refunds/rebates, mostly press

reimbursements, totaling about $206,000 for the period 4-1-93

to 3-31-94. The interim audit report had presented accounts

receivable of $76,025 (collect~d from 7-16-92 through 3-31-93)

and (outstanding) press Ieceivables of $14,168.

('

11

Y

This amount excludes $1,050 in non-qualified campaign

expenses.

Subject to audit verification.

Since estimates were used in computing this amount, the

Audit staff will review the Committee's disclosure reports

and records to compare the actual figure with the estimates

and prepare adjustments as necessary.
•

·_------"--.---_._------ .... ...._-..-

BROWN FOR PRESIDENT

Paqe 21

Shown below are adjustments to the NaCO deficit resulting

from an analysis of private contributions, interest and matching

funds received after 7-15-92, based on the most current

information available.

Net Outstanding Campaign

obligations (7-15-92)

Interest Received

(7-16-92 to 8-3-92)

Net Private Contributions

Received (7-16-92 to 8-3-92)

Katchinq Funds Received

(8-4-92)

Amount Received in Excess of

Entitlement as of 8-4-92

($49,684)

29

3,781

171,126

S12 5 ,252

-..

:n

c-

___As__ p'~es~nted in Finding III .C. of the interill audit

report, the candidate '-s-audited-NOCO- stateaent-r-e-f-lected-ll.__de.ficit __ as of 7-15-92 of $36,870. On August 4, 1992, the Co.-ittee

received $171,126 relative to Matching Fund Request t8. The

deficit on August 3, 1992 was calculated to be $33,060.

Therefore, the Committee was deterained to have received $138,066

($171,126 - $33,060) in matchinq funds in excess of its

entitlement. On August 31, 1992, the Co.-ittee subaitted • repayment check in the amount of $97,674 based on preliainary

figures generated by the Audit staff durinq the fieldwork

inventory staqe of the audit process.

In the interia audit report, the Audit staff recomaended

that the Committee demonstrate that it had not received aatching

funds in excess of its entitlement. The interia audit report also

stated that absent such a showinq, the Audit staff would recoaaend

that the Commission make an initial deteraination that the

Committee make a repayment to the United States Treasury pursuant

to 26 U.S.C. S9038(b)(1).

In response to the interim audit report, the Treasurer

states the Audit staff's analysis showing that matching funds were

received in excess of entitlement is incorrect and offers that

R{wlinding down costs estimated from 4/1/93 - 9/30/93 should have

been $142,700 as is evidenced by the actual amounts spent during

this period. R Bowever, the Committee prOVides no workpapers to

support the $142,700 figure and disclosure reports filed by the

Committee indicate only 566,476 disbursed during this period.

Further, the Treasurer fails to consider the impact of

refunds/rebates received by the Committee during this same period

that were not conSidered in the interim audit report.~ ATTACl::iu.:It _

Page .g'f o~ ...!J...l< _
BROWN FOR PRESIDENT

Page 22

The Audit staff's review of the Committee's response to

the interim audit report, as well as disclosure reports filed by

the Committee for the period 4/1/93 through 3/31/94, resulted in

the revised NOCO presentation above. This NOCO statement reflects

a deficit on July 15, 1992 of $49,684. The deficit ~n August 3,

1992 was calculated to be $45,874.

On August 4, 1992, the Committee received $171,126 in

matching funds. Therefore, the Committee received $125,252

1$171,126 - $45,874) in matching funds in excess of its

entitlement. Offset against this amount is the preliminary

repayment of $97,674 noted above.

Recommendation 11

The Audit staff recommends that the Commission aake an

initial determination that the Committee make a repayment of

5125,252 to the United States Treasury pursuant to 26 U.S.C.

S9038(b)ll). On August 31, 1992, the COaRittee subaitted a

repayment check in the amount of $97,674.

O. Apparent Excessive Press Reimbursements

Sections 9034.0(a) and (b) of Title 11 of the Code of --F_ederal_~eCJl.llation. state, in part, that if an authorized

committee incurs-expenditures--fortransportation,- ground_ser,,! c.e_s __ and facilities made available to media personnel, such

expenditures vill be considered qualified campaign expense.

subject to the overall spending limitation at 11 C.r.R.

59035.1(a). Further, if reimbursement for .uch expenditures is

received by a coaaittee, the amount shall not exceed either: The

individual's pro rata share of the actual cost of the

transportation and services made available; or a reasonable

estimate for the individual's pro rata share of the transportation

and services made available. - ....

An individual's pro rata share is calculated by diViding

the total number of individuals to vhom such transportation and

services are made available into the total cost of transportation

and services. The total amount of reimbursements received from an

individual shall not exceed the actual pro rata cost of the

transportation and services made available to that person by more

than 10\.

Section 9034.6(d)(1) of Title 11 of the Code of Federal

Regulations prOVides, in relevant part, that the committee may

deduct from the amount of expenditures subject to the overall

expenditure limitation of 11 CFR 9035.1Ia) the amount of

reimbursements received in payment for the actual cost of

transportation and services described in paragraph (al of this

section. This deduction shall not exceed the amount the committee

has expended for the actual cost of transportation and services

provided. The committee may also deduct from the overall

expenditure limitation an additional amount of reiabursements

lTTACIDlE9 3 I _

h581- of ...;xg~__..
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eROWN FOR PRESIDENT

Page 23

-~-:=::-. -:--:-:.~.~.-'-=----'. ,. -. ...

l..r:-

c

received equal to 3\ of the actual cost of transportation and

services provided under this section as the administrative cost to

the committee of providing such services and seeking reimbursement

for thea. If the committee has incurred higher administrative

costs in providing these services, the committee mus~ document the

total cost incurred for such services in order to de~uct a higher

amount of reimbursements received from the overall expenditure limitation.

In addition, 11 C.F.R. S9034.6(dl(1) also states that

amounts reimbursed that exceed the amount actually paid by the

committee for transportation and services provided to media

personnel under paragraph (al of this section plus the amount of

administrative costs permitted by this section up to the maximum

amount that say be received under paragraph (bl shall be repaid to

the Treasury.

After repeated requests for the nece ••ary records, the

Audit staff requested, by memorandum dated Noveaber 20, 1992, that

subpoenas be prepared by the Office of General Counsel to the

Committee and Charter Services, Inc. for the production of records

as follows:

• a vendor statement (accountsWulliryofamounts-------- billed and payments received);

• Invoices detailing each flight origination and

destination, to include, but not be limited to:

• invoices, bills, etc. for the aircraft for each

leg of each trip;

• invoices, bills for any other costs associated

with each leg of each trip to include catering, beverages, ground transportation, meals, press

filing facilities, lodging, etc.;

• a flight manifest for each leg of each trip showing every person traveling (except the flight

crew) by name and any associated organization;

• working papers, computer files, etc., shoving the

derivation of amounts billed to the press for

each leg of each trip;

• copies of bills issued to the press for each leg of each trip; and,

• records of amounts received in reimbursement for

travel on the Committee charter or other

aircraft, from each person for each leg of each

trip. 4 ATTACll!lwll ..2.

Page ,,2tR ----ot-1):-,,---
BROWN FOR PRESIDENT

Page 24

Prior to the issuance of the subpoenas, the

Committee and Charter Services, Inc. provided some of the

requested material. Detailed billing statements, which show the

costs of each leg of each flight as well as any food.costs, were

not available from Charter Services, Inc. after April, 1992. At

that time, the Committee assumed this function. The Committee

stated that they maintained a computerized billing system complete

with leg analyses and manifests; the Committee further asserts the

disc containing this information is missing. In addition, Charter

Services, Inc. advised the Audit staff that they acted as a

wmiddle-manw between the Committee and the airplane charter

companies; and therefore, did not maintain any manifests detailing

passengers with respect to each flight leg.

Absent a cost figure and passenger manifests for

each flight, the Audit staff was unable to assess the Committee'S

compliance under 11 C.F.R. 59034.6.

At the Exit Conference the Audit staff reiterated

its request for documentation of the Committee'. procedures for

handling travel billings to and reimbursements from the Pres.,

specifically the Committee's computations/worksheets for

determining amounts billed.

A request was forwaTded--to-theOffice-:of--GeneraL

Counsel, Kay 6, 1993, requesting enforcement of the subpoena with

respect to the Committee as it relates to the pres. billing

documentation still required. In addition, a request was included

to prepare subpoenas to two individuals identified during

fieldwork as associated with the Committee's press billing and

reimbursement system.

Subsequent to this request, the Co.-ittee submitted

additional documentation with respect to press billings. The

Office of General Counsel agreed to delay subpoena enforcement in

order to allow the Audit staff to evaluate the submitted

materials.

Our review of these additional documents indicated

that total reimbursements from the press were significantly below

the overall amount the Audit staff determined could have been

billed by the Committee. Although workpapers were not provided

detailing the Committee's calculations of amounts billed to the

press, available documents indicated the Committee intended to

simply bill each press organization at 110\ of cost. The Audit

staff's review of amounts billed to press organizations was

limited to the available documentation. Our limited review

indicted that the amounts billed were reasonable. Finally, the

Audit staff was aware of press receivables totaling only $14,168,

which. if collected, would not alter our conclusion.

The interim audit report recommended no further

action with respect to this matter.
.~u,

(

.'"-;~~~-::r-.~'- ,•• -- •

BROWN FOR PRESIDENT

Page 25

Bowever, as a result of our review of recent

disclosure reports filed by the Committee, the Audit staff noted

that the Committee had received additional reimbursements from the

press, totaling $188,645, during the period April 1, J993 through

March 31, 1994. This greatly exceeded the amount of press

receivables (514,168) contained in available Committee records and

presented by the Audit staff on the interia audit report NOCO

statement.

The Audit staff re-evaluated the Committee'l press

billings and reimbursements, incorporating these additional

reimbursements ($188,645). Based upon available aanifestl and ·the

cost of transportation/services provided to the prell, the Audit

staff calculated the amount that could be billed to the preis

(cost plus 10') to be $251,020. The Audit staff identified press

reimbursements received through March 31, 1994, totaling $302,253.

Therefore, the Committee appears to have received

reimbursements froa the press totaling $51,233 ($302,253 - 5251,020), in excess of the maximlUi billable aaount under 11

C.F.R. 59034.6{b). As such, these mUlt be refunded to the press. -- TheAudit--staff-has_recog!1j.~ed__th_is amount ($51, 233) as a payable

on the NaCO presentation at rindinij-III~-C~

In addition, the Audit staff used the revised

analysis to deteraine if the Committee had profited froa press

reimbursements.

The analysiS identified amounts paid by the

Committee for transportation and services prOVided to the press

totaling $228,200. Under 11 C.F.R. 59034.6{d){l), tbe actual cost

of transportation and services provided plus the adainistrative

costs permitted by this section (3\, unless a greater aaount is

documented) would be $235,046 ($228,200 x 1.03); and, the aaxiaum

amount of reimbursement that may be received (cost plus 10\) is

$251,020.

As a result, the Audit staff determined that the

Committee received press reimbursements in the .aount of

$15,974 ($251,020 - 235,046), representing aaounts in excess of

that actually paid by the Committee for transportation/services

prOVided to media personnel and, therefore, subject to payment to

the u.s. Treasury.

It should be noted that the Audit staff's

determination of amounts to be refunded to the press ($51,233) and

of the amount payable to the Treasury ($15,974) does not consider

costs for at least 11 flights for which no manifests or billing

information have been prOVided by the Committee. Should the

documentation be located for these flights, the analysis of

amounts due the press and the u.S. Treasury would be significantly different. A':J:AC:u..<.., _,«-- _ Page g( ot_~...~~__
-8"-.

-----~

BROWN FOR PRESIDENT

Page 26

Recommendation 12

The Audit staff recommends that the Commission make an

initial determination that the Committee is required.to make a

payment of $15,974 to the United States Treasury pursuant to 11

C.r.R. S9034.6(d)(1). In addition the Audit staff recommends that

the Commission determine that the Committee is required to refund,

on a pro rata basis $51,233 to the· Press.

E. Stale-Dated Committee Checks

Section 9038.6 of Title 11 of the Code of rederal

Requlations states that if the co.-ittee has checks outstanding to

creditors or contributors that have not been cashed, the committee

shall notify the Commission of ita efforts to locate the payees,

if such efforts are necessary, and its efforts to encourage the

payees to cash the outstanding checks. The co.-ittee shall also

submit a check for the total amount of such outstanding checks,

payable to the United States Treasury.

The Audit staff reconciled the Coaaittee's reported

activity to its bank activity through Septeaber 30, 1992. In

addition, limited reconciliations were prepared for the period

October 1, 1992 through March 31, 1993. This analysis identified --~------ --a-siqfiif1 cllnt--nuabe r-of--lI tale-da~ed,-out.tanding--checks.-- C'~ .

At the exit conference, the Audit staff discussed this

matter with Caaaittee representatives. The Coaaittee

representatives agreed to review their records and provide any

additional information which aay resolve these items.

Subsequent to the exit conference the Coaaittee provided

the Audit staff with an updated list and doeuaentation resolving

some of the stale-dated checks. Based on this information, the

Audit staff provided the Committee with a revised scheduled of

those checks still considered stale-dated.

There remained 17 unresolved stale-dated checks totaling

$4,927.

In the interim audit report, the Audit staff recommended

that the Committee: (1) prOVide copies of any of the checks which

have now cleared the bank; (2) inform the Commission of its

efforts to encourage the payees to cash the outstanding checks or

provide evidence documenting efforts to resolve these items; and

(3) submit a check payable to the United States Treasury for the

total amount of such checks which are still outstanding.

In its response to the interim audit report, the

Committee detailed its efforts to resolve these checks. This
'--

-- ------ ------"...-...,...,~---.-.'" .

BROWN FOR PRESIDENT

Page 27

documentation included letters mailed to vendors to determine if

any moneys were still owed to the vendor. Also, included were

copies of similarly worded letters sent to follow up the initial

mailing, as well as some letters signed and returned by the

vendors confirming that no unpaid debt existed. In one instance,

a replacement check was issued. Therefore, the Audi~staff has

reduced the amount of unresolved stale-dated checks to $1,334.

Recommendation 13

The Audit staff recommends that the Commission make an

initial determination that the Committee make a payment of $1,334

to the United States Treasury pursuant to 11 crR 59038.6.

IV. Recap of Amounts Due to the United States Treasury

Reflected below are amounts due the United States Treasury as

noted in this report:

.,.... ......'

c:.

rinding III.C. Matching runds Received in

Excess of Entitlement

rinding III.D.profit-troli-ApparentExcenive

Press Reimbursements

Finding III.E. Stale-dated Committee Checks

TOTAL AJliOUNT REPAYABLE

Less: Repayment received 8-31-92

REMAINING REPAYMENT AMOUNT

$125,252

$ 15,974

$ 1,334

$142,560

(97,674)

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."

FEDERAL ELECTIO' (0\1\115510'

•

~-

!

April 28, 1994

TO: Robert J. Costa ----..,

AUistant Stay. Director

Audit DiVisiOn'j / I

THROUGH: John C. Surina' . \

Staff Direht .../

FROft: Lawrence". Ob~~. c;.neral Co sel Po (If..,

Itim 8ric;ht-Coleman t~, ..., . 'Aa.o'c1&t'e- Geni-rill Counsel

Lorenzo Holloway 'it....;-

Assistant General Counsel

Rhonda J. vosdin9h~ Attorney

SUBJECT: Proposed Final Audit Report on Brown for Pr.sident

(LRA .440/AR '94-5)

The Office of General Counsel has reviewed the proposed Final

Audit Iteport on Brown for President (-the Co..itte.-) submitted to

this Office on ftarch 7, 1994.!/ The following memorandua provides

our comment. on the proposed report. If you have any questions

concerning our co...nts. please contact Rhonda J. Vosdingh, the

attorney assigned to this audit.

We have comaents on findings II.E.l., II.E.2., III.B.,

and 111.£. We concur with the findings in the proposed Final

Audit Report which are not discussed separately.

1/ Since the proposed Final Audit Report does not include any

matters exempt from public disclosure under 11 c.r.It. S 2.4, we

recommend that the Commission's discussion of this document be

conducted in open session.

..
----~

c

Memorandum to ~obert J. Costa

Proposed rinal Audit ~eport on

Brovn for President (LRA 1440/AR 194-5)

Paqe 2

I. CONTRIBUTIONS RESULTING rRoM STArr ADVANCES AND EXTENSIONS or

CREDIT (II.E.l., II.B.2.)

The Office of General Counsel concurs vith the Audit

Division's findings reqarding excessive contributiops in the form

of staff advances and extensions of credit by a labor

organization. The Committee's method of using staff advanc.s did

not satisfy the require.ents of s.ction 116.5. Th. credit cards

were used to pay for other campaiqn .xp.n.e. in addition to

personal travel and subsistence. Th. Committe. did not always

reimburse the cardhold.rs within 60 days as r.quir.d by the

regulations; r.imbur••••nt took anywher. from 0 to as much as. 137

days. p.rsonal cr.dit cards were used to pay for other.'

expen.es. Therefore, the Committe.'s use of staff advanc.s

resulted in contributions to the Committee.

We disaqree with the Committee's contention that section

116.5 is unfair to -qrass roots" candidate. who, becau•• they have

less name recoqnition or political po.ition, are forced to rely on

committee supporters for credit.~/ Section 116.5 va. proBulqated

specifically to address the situation where ea.paiqn staff do not

have access to eo_ittee credit card.. Explanation and _Justific_a~!.51n~or__11_C.r.R. S 116.5, 55 "ed. Reg. 26,382 (June 27,

1989) (The Co_ission not.d--in-it.-und.rryrncr~a~iona-h-that-------­

·campaign ~o.-ittees may not want to provide credit card. to their

field worker•• -). Therefor., the Co.-itte••ust co.ply with

11 C.r.R. S 116.5 even if it i. forced to rely on Coaaitte.

supporter. for credit.

In addition, it appears the Co.-itt.e did not reiaburse Local

1199 (Druq, Bospital , aealth Care £Sployee. Union) ("the Union")

for use of its facilities within a co..ercially r.asonable time in

the ••ount of the nor.al and usual rental charge. 11 C.r.R.

S 114.9(d). In "arch-April, 1992, the Union incurred expen••• totalinq $57,195.97 on behalf of the Co.-ittee for rent, printing,

adverti.ing, telephones, and other ai.cellaneoua it••• in

connection with the New York priaary. Th. Union did not bill and

the Committe. did not reimburse the Union for the•• expenditures

until October 1992.

This use of the Union's facilities say have result.d in a

contribution to the Co..ittee. 11 C.r.R. S 114.9(d). Althouqh

the Committee .ade efforts to pay the Union for the services and

accommodations it provided, the Committee did not reimburse the

2/ We rejected a similar argument

rulani for president Committee.
t.n

M••otanoWl 1:0 Jtcloere J. Costa

Propo••d rlnal Audlt R.port on

Brown for pr.sident (LRA tCCO/AR 194-5)

Paq. 3

Union for over 6 aonths .fter the expen••• were incurred.)/ The

Committ•• did not deaon.tr.t. th.t w.iting aore than 6 aonths to /

reiabur•• the Union was commerci.lly r•••on.ble. Further. the

Committ•• failed to provide any information to d.aon.trat. the

rental charqe was the normal and usual aaount pursUfnt to

11 c.r••. S 114.9.

II. APPAllENT NON-QOALI1IED CAHPAIGN EXPENDI'l'tJRES - UHDOCUIIENTED

EXPENDITURES (III.B.)

Th. Audit .taff found that the Co..itt•••• re.pon•• to the

Int.rim Audit R.port materi.lly resolv.d the 16 undocuaent.d

di.bur••••nt. tot.ling $32.839. Th. Co..itt•••• re.pon.e

consi.ted of documentation to account for $22.798 .nd • proai.e to

submit docuaentation rel.ting to an .dditional $3.743.93. The

Committee" r••pon.e did not addre •• the re.aining $6,351.07.

Since this matter has been ••teri.lly r••olv.d. thi. Office

agree. with the finding in the propo.ed r.port. Bow.v.r. w. note

that the promi.ed document.tion ha. not b.en .ubmitt.d. Thi.

information .hould h.v. b••n .ubmitted within the ti•• pr••cribed

for di.putinq or comm.nting on the Int.ri. Audit ••port.

11 C.F.R. S 9038.1(c)(2). Th. Co..itt••••••r. proai•• to .ubait

supporting docua.ntat!on does not satisfy the CoBaitt•••• burd.n

to de.on.tr~t. the .xp.n••• w.re qualifi.d c ••paign .sp.n.... s•• -1-1 -C.F .-R.- S--90~3.11(.).--Th.~.fore,--you.houldrevi••- the-prb-~Oj.-d

report to delete the .tate.ent -The Coaaitt••'. r••pon•• not•• that '[l}.tursare out repr.senting .nother $3,743.93 .nd when

docusent.tion i. r.c.ived. it vill b. forwarded to the FEC.'·

III. STALE-DATED CBBCKS (III.E.)

The propo••d lin.l Audit ••port includ••• finding th.t there

are no r...ining unre.olved .t.le-dat.d ch.cks. Tbi. conclu.ion

was re.ched d••pite the f.ct th.t the Co..itt•• f.il.d to provide

information for all of the unre.olv.d .t.le-d.t.d ch.ck. not.d in

the Int.ria Audit Report. Specific.lly, ch.ck. tot.ling $1,333.80

vere not re.olved nor .ddr••••d by the Co..itt•••

Th. Offic. of Gen.ral Coun••l di.aqr••• with this findinq.

The Co..i ••ion'. r.qulations require co..ittee. with out.t.nding

checks to inform the Commission of its efforts to locate the

payee., if .uch effort. have been n.c••••ry, and it••ffort. to

encouraq. the payee. to cash the out.tandinq check.. 11 c.r.ft.

S 9038.6. In informal di.cu.sions between this Office and the

Audit Division, you not.d that the Final Audit Report would be

3/ Bow.v.r. the Committ.e arques th.t it r.quested ••v.ral

times that the Union send the bill to the Committee .0 that it

could be paid. Th. Union explain.d that the delay in .ubmitting

the bill to the Committee va. the result of .everal mi.laid

invoice. in the accountinq department and no bill was .ubmitted

to the Committ.e until these bills were recovered.

AT':lcmwrr E of ~11o*~_­ fa.so -
----_..

/

K~morandu. to Robert J. Costa

proposed Final Audit Report on

Brown for president (LRA t440/AR 194-5)

Page 4

revised to include a separate finding recommendinq the Committee

make a repayment to the United States Treasury in the a.ount of

the remaining unresolved stale-dated checks. The leparate finding

will clarify the Committee'. repayment obligation resulting from

the unresolved stale-dated checks. 11 C.F.R. 5 90lB.6.
Robert J. Costa

Federal Elections Commission

Washington DC 20463

Dear Mr. Costa:

We received your final audit report and do have a dispute with your

finding. I include with this letter backup for our dispute. I would

also be happy to make an oral presentation in an open session.

To summarize what is enclosed: We were sent the audit pages by

Alex Boniewcz that show what press travel expenses you were not

allowing because they lacked manifests. The manifests for these

expenditures are attached.

Our capiTal-assetS·· are-Tisieda.l S43~080~-We-also-dispute this-most-0[---

the items have been sold and must be overvalued for what we have

remaining. The detail of that is attached.

Please contact me if you have any questions.

Sincerely,

I

Jodie Evans

VCampaign Manager

A'i'TACElq:lIT _tl","-__:,-__ Page --.l..- at _'..S _

BROWN FOR PRESIDENT

2121 C10verfield Boulevard, Suite 120 <00 Santa Monica, California 90404-5277 o tel# (310) 449-1992 fax# (310) 449-1903 Ef-0
# I: March 6, 1992. 5 reporters.

I~ ABC - Noelle Montgomery

CNN - Dan Blackburn

NPR - J0 Miglino

LA Times - Jon Peterson

Knight-Ridder - Kristina Huckshom

#2: March 9. 1992. 6 reporters.

ABC (3) - Noelle Montgomery, Sy Varmen. Ron Ladd

LA Times - Jon Peterson

LA Times - Jon Peterson

NY Times - Karen DeWitt

Chicago Tribune - Colin McMahon

#3: March 10. 1992. 19 reporters.

ABC (5) - Noelle Montgomery, Sy Varrnen. Ron Ladd. Linda

Patillo, Diane

Turrell

CBS (3) - Claire Chiapetta. Dick Smith. Timothy Norris

- - - -NY -Times (2)_- Karen neWitt,-J>hotographe~ _

LA Times (2) - reporter, photographer

Gannet - Earl Eldridge

Chicago Tribune - Colin McMahon

Newsday . Martin Kasindorf

Newsweek - photographer

Time - Lester Monroe

USA Today - Leslie Phillips

Wall St. Journal - Jim Perry

Wall 51. Journal - Jim Perry

#4: March 29, 1992. 14 reporters.

ABC (2) - Noelle Montgomery, Mary Marsh

CBS (3) - Claire Chiapetla, Akram Hannah. Craig Jarman

CNN (3) - Chuck Condor, Mike Dolsak, Mike Love

Boston Globe - Chris Black

LA Times - Sam Folwood

NBC . Peter Meryesh

NY Times- Richard Berke

Newsday - Martin Kasindorf :~:~;;·d·,n· ¥ ot: 13

freelance - Larry Kaplan ..., - _- :
'-. ..'

#5: March 29, 1992. See above.

#6: April 10. 1992. 11 reporters.

ABC (3) - Noelle Montgomery, Paul Sarris, Joe Steele

CBS (3) Claire Chiapetta, Brian Nolan, Dan Nazimack

AP . Karen Ball

CBS (3) Claire Chiapetta. Brian Nolan, Dan Nazimack

AP - Karen Ball

Copley - Marcus Stem

LA Times - Melissa Healy

NBC - Tom Behrens

Washington Post· Don Baker

#7: Aprii 9, 1992. 11 reporters~

ABC (3) - Noelle Montgomery, 2 crew

CBS (3) - Claire Chiapetta, 2 crew

AP - reporter

Copley - Marcus Stem

_ LA Times - Melissa Healy

---'-.. ---------··---NBC--producer-

- Washington Post - Don Baker

#8 & #9: April 21, 1992. 7 reporters.

ABC (3) - Noelle Montgomery, Bill Redding, Jay Patterson

CBS - Lars Kongshaugh

'J)

c:--

ABC (3) - Noelle Montgomery, Bill Redding, Jay Patterson

CBS - Lars Kongshaugh

AP - Karen Ball

LA Times - Jack Cheevers

NBC - Tom Behrens

# 10: April 23, 1992. 4 reporters.

ABC - Noelle Montgomery

CBS - Lars Kongshaugh

NBC - Tom Behrens

LA Times - Art Pine

#11: April 25, 1992. 12 reporters.

ABC (4) - Noelle Montgomery, Bill Redding, Jay Patterson, Leo

Meidlinger

CBS (3) Claire Chiapetta, Gabe Stix, Neil GrassoA::;'::]~!,,':l;T r

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NBC • Tom Behrens

Boston Globe - Chris Black

LA Times - Art Pine

Roston (llnllC - C.hris mack

LA Times - Art Pine

Newsweek - Lisa Quinones

Washington Post - Dan Balz

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PROPOSED ASSETS

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JULES GLAZER

BUSINESS MANAGEMENT

...... S OCCIDENTAL BLVD

L.OS ANGELES CA goo57

(213) 38"·7030

FAX' (213) 384·5548

SUITE 42'

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1&'/ ....1

V) _.,_,·'.1;'; --.

June 23, 1994

Robert J. Costa

Assistant Staff Director

Audit Division

Federal Election Commission

Washington, DC 20463

Dear Mr. Costa:

77·731 L.OS ARBOLES

LA QUINTA CAUFORNIA 92253

(619) 564~972

The Brown for President Committee disagrees with the findings

of the final audit report that the c01lllllittee lllust repay to the

__ Secretary__of _the _Tr_eas_ury_,__~_4_4-,-~~§,..Q_O-"____ _ _

We need additional time to gather all legal and factual

materialS that demonstrate that no repayment is due at this time.

All materials will be forwarded to you as soon as possible.

Thank you for your assistance in this matter.

Sincerely,

/r-jy/,~Gi4 ~;~·Durkee Bookkeeper

Brown for President

,-

A! .A\'~" --=--------

Page _-:-/__of -,,-/_--
, . . \

\0. •." _ , . I

FEDERAL ELECTION COMMISSION

July 12. 1994

(

..... .

Jodie Evans, Campaign Manager

Brown for President

2121 Cloverfield Boulevard

Suite 120

Santa Monica, CA 90404-5277

Dear Ms. Evans:

Thia is to confirm our telephone conversation of June 28,

1994 regarding the two letters received by the Comaission on

June 24, 1994, both purporting to r.spond to the Pinal Audit

Report of the Brown for President Committee ("the Committee"). In

addition to the letter (with enclosures) you submitted, we also

received a letter signed by ~inde Durkee, the Committee

Bookkeeper, dated June 23, 1994.

During our conversation, you said you were not aware that Ms.

Durkee had sent a response to the Final-Audit Report and that she

.----.----. was _not_authortz.e(L.to_.do_.s.Q,__ Ete_c.a.u.sJ!. yo~. "'~!J~_Il.Clj;._fami 1 iar wi th

this letter, you did not know whether Ms. Durkee's stateme-nt-- "We'

need additional time to gather all legal and factual materials

that demonstrate that no repayment is due at this time" contained

in the letter was an actual request for an extension of time to

respond.

However, you stated that you consider your letter and

enclosures to be the Committee's complete response to the Final

Audit Report. Therefore, you did not believe an extension of time

is necessary. Likewise, because you consider your letter and

enclosures to be the complete response to the Final Audit Report,

your statement that you "would also be happy to make an oral

presentation in an open session" was not meant to be a request to

do so. Rather, it is merely an offer to make an oral presentation

if the Commission wants more information.

You also mentioned that the Committee cannot sell its assets

for the amount listed by the Commission.

(

Please let me know if you believe the above does not

accurately reflect our conversation. We are proceeding under the

understanding that your submission is the Committee's official

response to the Final Audit Report and that the letter submitted

by Ms. Durkee was not authorized by the Committee. We note that

the Committee has not made a request for an oral presentation at

this time, although it may do so pursuant to 11 C.F.R.

S 9038.2(c)(3). However, the Commission's regulations provide

that a request for an extension of tiae must be made at least 7

days prior to the expiration of the time period for which the

extension is sought. 11 C.r.R. S 9038.4(c). Any request by the

Al"lAi;/i'!' -'4~~-----__ Page of 4t2__.......;;;
'.-

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----------;-:~

Letter to Jodie Evans, Campaign Manager

Brown for president

Page 2

Committee for an extension of time to respond to the Final Audit

Report's repayment determination was due June 19, 1994.

Therefore, the Office of General Counsel will proceed to the

preparation of the statement of reasons pursuant to 11 C.F.R.

59038.2(c)(4). The Office of General Counsel will notify the

Commission of its understanding with respect to the Committee's

official response, the oral presentation, and the extension of

tille.

If you have any questions, I Day be reached at (202) 219-3690

or (800) 424-9530.

Sincerely,

~~d'c.. '9..-~~~'/ Rhonda J. v~sdin9h--~ Attorney

J,::'O;: ;,.::;ID!l::;T -J,j~~~--=---­ PaGe _ ..2(..--- --..?-----
..- FEDERAL ELECTION COMMISSION

WASHtNCTOfl, DC. »l6J

Septeaber 16, 1994

TO:

THROUGH:

FRO":

SUBJECT:

Robert J. c~~a Assistant S aU

Audit Divis on

Analysis of \Responu to the rinal Audit

Brown for pr••ident (LRA t440/AR t94-5) -- .

lleport on

As requested by your aeaorandua, dated JUly 5. 1994, the

Audit staff has reviewed the the response to the rinal Audit

Report (WFAR W ) subaitted by Brown for President (WCOaaitte.W) on

June 24, 1994. Our analysis of these docuaents is presented

below. In addition, the Audit Itaff has attached a re.ised NOCO

statement based on the Coaaittee'l response and disclo.ure

reports filed to date (See Attachment 1).

Th. Co.-itt••'. r.lponle .ddr••••• the following aatters

as presented in the FAR:

c· •

•

Appar.nt Excessive presl a.iahur.ement. (Finding III.D.),

and.

The valuation of Capital A.s.t. within the NOCO

Stateaent.

With respect to Finding 111.0., Apparent Excessi•• Pre•• Reimbursements, the Coaaittee's response atates that manifests

are attached for flight l.gs not included in the Audit .taff'.

analysis contained within the FAR. That r.port reco...nded that

the CORBitt.e: (1) b. required to pay the 0.5. ~r.a.ury $15,974

for amounts received which exceeded actual cost. incurr.d by the

Co.-itte.J and, (2) refund $51,233 on a pro-rata ba.i. to the

Press for overbillings. ATTACIDLE1JT --:.r ;-- _

Page I of _IR _
la••d upon tb. additional ..nif••t••ubMitt.d by tb.

co.-itt••, the Audit .taff calculat•• the Co..itt•• bad billabl.

aaount. for tran.portation and ••rvic•• provid.d to the 'r••• (cost + 10') totaling $310,595. In addition, the Audit .taff

baa identifi.d ,r••• r.iabur....nt. totaling $302,253. 1/

Therefore, sinc. billable co.t. ($310,395) exc••d. the imount.

reiabur.ed by tbe Pre•• ($302,253), no refunds to the Pr••s are

required.

Thi. r.vi••d analy.i. detailed aaount. paid by the

Co.-itte. for tran.portation and .ervice. totaling $282,359.

onder 11 cr. '9034.6(d)(1), tbe actual cost of transportation

and .ervice. provided plus tb. adaini.trativ. co.t. peraitted by

this .ection (3', unless a greater aaount i. docuaent.d) would

be $290,830 ($282,359 x 1.03). A. noted above, the Coaaitte.

has collected reimbur.esent. totaling $302,253. A. a result,

the Audit .taff deterained that the Coaaittee rec.ived Pre•• reiabur••••nt. in the aaount of $11,423 ($302,253 - $290,830),

representing aaounts inexce•• of that actually paid by the

Coaaitte. for transportation/.ervice. prOVided to aed1a

personnel and, therefore, 8ubject to payg~nt to the U.S.

Treasury.

The attacbed NOCO State.ent has been adjusted by

eliainating the account payable due to the Press and by revising

the amount payable to the Treasury to $11,423.

with respect to the valuation of capital A••ets, the

Coaaittee'. response disputes the depreciated value presented in

the rAR ($43,080) noting that -so.t of the iteas have been lold

and sust be overvalued for what we have reaain1ng.- By way of

documentation, the Co.-itte. has attached a photocopy of the

Audit staff's workpaper deriving the capital Asset figure

annotated with the status of each as.et a. discussed below:

• The Coaaittee note. that the telephone systea ($3,000) hal been sold, but doe. not provide

docuaentation to support the sale, nor is the aale

reflected on Coaaittee disclosure reports fil.d to

date;

The Coaaittee's July lS Quarterly Report for 1994 discloses

the receipt of $5,997 in offsets to operating expenditures.

Bowever, since no Schedules A-P vere prOVided, the Audit

staff is unable to deteraine if any of these receipt.

represent Press reiaburse.ents. Coaaittee representatives

have been requested to pro~id. this inforaation. Should

theae off.et. to operating exp.nditures represent receipts fro. the sale of capital As.ets, the a.ount of the aurplus

as deterained on the attached NOCO would be overstated and

a lesser repayment varranted. L.·~'l';'{.;i...~,f ~:...._-=-~--

Page d of .b _
• The voice ..il syste. (f3,000) .nd the Xerox copi.r ($3,600) are both described at ·broken· and ·c.n't

.e1l no valu.·. Bovever, no doenaent.tion ha.

been provided to .upport this ••••••••nt. Ab••nt

inforaation d.tailing vhether th•••••••t. ean b.

repaired, th.n aold; .nd, in the ca•• of the voic.

aail 'ylte., .pecific .od.l/year inforaation, the

Audit .taff h•• no b.ai. to r.-a••••• it. valuation

of th•••••••t.;

• With r••pect to TV., VCR" Vid.o Equip••nt ($9,000),

the Co_itt•• not•• ·100 + 200· and ·vid.o equip , caaera v.re .tolen fro. ofc by Rich••l Caapbell ve

hav.n't been .ble to find hia-. Bov.ver, no copi•• of police r.port••re provid.d; nor • lilt detailing

which ite.. were .tolen and which reaain in the

Co..ittee'. po.se••ion.

- For the Co.puter (AV), with a depreciated value of

$30,000, the Co_itte. not•• -r.sal. value $3,200.-

and -Quadra 950·, apparently a refer.nce to • aodel/brand of coaput.r. Th. Co..itt•••• response ---fai~s-to_dOC'llt.n~~.__ purchase pric. and the sourc.

of its valuation. In addition;-the--Co_itteefaHllto address the other piece. of coaputer equip.ent

co.posing the $50,000 ·Coaputer (AV)· listed as part

of the Audit staff's Capital Asset deter.ination. ~/

In view of the lack of docu.entation .upplied by the

Co_ittee to support its deterainations and valuations, the

Audit staff has not revised our valuation of assets as presented

on the NOCO Stateaent contained in the FAR.

During the our analysi. of the Co..ittee's reaponse, the

Audit staff di.covered a co.putational error in the depreciated

valuation of Capital A.set. on the HOCO State••nt. The error

caused an under-valuation of Capital As.et•• The correct

valuation appear. on the attached (revi.ed) NOCO Stateaent.

As a result of our analysis of the Co_itt.e's response as

noted above, the Audit staff's revised NOCO Stateaent reflects a

$17,617 surplus at 7-15-92. 3/ Accordin91y, under 26 u.s.c.

S9038(b){3), that portion of-aaounts received by a candidate

"

~/

.Y

To date, the Audit staff hal yet to receive fro. the

Coaaitt•• an ite.ized listin9 of the equip.ent included as

part of the asset ·Coaputer{AV)-.

It should be noted that any docuaentation received froa the

Coaaitt•• to support ita asset valuations would impact on

this deter.inaUon. !.::.'.::~X::T--'r<--__-,-- _ Pa';9 _.1 oi: t;
t' froa the aatchiD9 payaent account, which reaains unexpended after the liquidatioD of all obli9ationa, shall be subject to

pro-rata repara-nt. In the rAa, the Audit staff calculated the

r.paya.nt ratio to be 44.9142'. Therefore, the .aount of the

surplul subj.ct to r.paya.nt is $7,913 ($17,617 x .449142).

rurth.r, in vi.w of the Coaaitt••'s surplus position based

on the r.viled NOCO, the Coaaltt••'s final aatching fund paya.nt

r.c.iv.d aft.r 7-15-92, totaling $171,126, il now r.payable in

its .ntir.ty. Th. ehart b.lows d.taill the re..ining r.payaent

now due froa the Co..itt••:

,-- .

Surplul a.payabl.

Ratching rundl in Exce•• of Ent!tl.aent

Profit froa Apparent Excessiv.

Press aeiaburseaent.

Stale-dated Co..itt•• Checks

Total aepayable

,." 1<e.s:- Partial- Payment--

Receiv.d 8-31-92

Reaaining aepayaent Aaount

$7,913

$ 171,136

$ 11,423

$ 1,334

$ 191,806

(97,6H)

$ 9.,132

......,....

Should you have any questions, please contact Alex

Bonievicz or Joe Stoltz at 219-3720

Attach.ent as stated
A~ACBKKHf 1 ('.9. 1 of 2)

••OMM ro. '''IID~

Itat...nt of Net out.tandlft9 c--fai9D Obligation. at 7-15-92

As Deter.ined 6-30-94 by the Aud t Itaff

•••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

ASSETS:

Ca.h

Account. Receivable:

7-16 to 9-30-92

10-1 to 12-31-92

1-1 to 3-31-93

State Account.

$40,807.79

$6,999.84

$25,175.73

$2,990.51

$998,385.74

$75,973.87

Reported Receivable.:

July Quarterly (4/1/93 - 6/30/93)

October Quarterly (7/1/93-9/30/93)

Yearend (10/1/93-12/31/93)

April Quarterly(1/1/94-3/31/94)

July Quarterly (4/1/94 - 6/30/94)

Capital Asset.

$0.00

$130,407.00

$72,650.00

$2,955.00

$5,997.00

$48,600.00

- -- $1 n~, 9-68: 61-- -- - -- ----- ------

--._._------_.-

LIABILITIES:

Accounts Payable:

7-16-92 payaents

R. Jones Judge.ent

7-17 to 8-31-92

($30,678.64)

($5,233.91)

($209,573.01) ($245,485.56)

($2,502.96)

($245,170.84)

($129,686.95)

($264,136.86)

($66,754.97)

($95,836.23)

($58,147.84) ($862,236.65)

c

·,..r")

Pres. Payables

O.S. Treasury - Staled Dated Checks

Profit fro. Presl Reiaburseaents

Due to u.S. Treasury

Actual Winddown:

7-16-92

7-17 to 8-31-92

Septeaber 1992

October 1992

Noveabet 1992

Deceaber 1992

Jan.1 to "ar.31 '93

$0.00

($1,333.801

($11,423.311

ATrA.CIUlf:liT --<..?-__-:- _ Page L (e ',-
I,I

$17,616.61

$7,912.36

---_..._---.....

----------------

- ________________ -----0.4491-42------~1

($34,999.55)

($31,476.00)

($39,292.09)

($35,990.56)

($18,766.46)

($23,933.54)

($12,414.48)

._._...._----.. ($1,317,352.00)

ATTACHMENT 1 (Pag8 2 of 2)

at 7-15-92

Ratio

OBLIGATIONS

rca .RESIDENT

t of Net outstanding ca.paign Obligation. at 7-15-92

n loed 6-30-94 by the Audit Staff ~~•• **.*******************************************************

CWlnddovn state Accounts

winddown: " QUarurly (4/1/93 - 6/30/93)

r Quarterly (7/1/93-9/30/93)

"'and (10/1/93 - 12/31/93) 1 Quarter1y(1/1/94-3/31/94)

,ouarter1y (4/1/94 - 6/30/94)

Wlnddovn (7/1/94-9/30/94)

c'

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--_.....----.._----

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._----

BROWN FOR PRESIDENT

44C OCCIDEHTAL BLVD•• tU1

LOS ANGELES. CA 1OCl57

(z1S)SI4-7030

--

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~~3t.~V\~ ~PQ~ '''005252'' 1:~22Bq0051: .-

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8AMIt 0' LOS ANGELO

HOLLYWOOD REGIONAL OFFICE

HOLLYWOOD. CA 1lOO28

8O-38Ol).1222

5252