Released Date: 3/9/89

-'uP2/030989

P.EPORT OF THE AUDIT DIVIS ION

ON

PETE du PONT FOR PRESIDENT

FEDERAL ELECTION COMMISSION

WASliINGTON. 0 C 204&3

I. Background

A. Overview

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This report is based on an audit of Pete du Pont for

President (Wthe CommitteeW) to determine whetber there has been

compliance with the provisions of the Federal Election Campaign Act

of 1971, as amended (Wthe Act W ) and the Presidential Primary

Matching Payment Account Act. The audit was conducted pursuant to

26 U.S.C. S 9038(a) which states that Wafter each matching payment

period, the Commission shall conduct a thorough examination and

audit of the qualified campaign expenses of every candidate and his

authorized committees who received payments under section 9037.-

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

S 9038.l(a) (2) state, in relevant part, that the Commission may

conduct other examinations and audits from time to time as it deems

necessary.

The Committee registered with the Federal Election

Commission on June 3, 1986. The Committee maintains its

headquarters in Wilmington, Delaware.

The audit covered the period from the Committee's incep- tion, June 3, 1986, through March 31, 1988. During th~s period,

the ~ommittee reported an opening cash balance of $-0-, total

recelpts of $8,806,472.84, total disbursements of $8,736,410.05,

and a closing cash balance of $70,062.79. In addition, certain

financial activity was reviewed through April 30, 1988 for purposes of determining the Committee's remaining matching fund entitlement

based on its net outstanding campaign obligations. Under 11 C.F.R.

S 9038.l(e) (4), additional audit work may be conducted and addenda

to this report issued as necessary.

This report is based upon documents and workpapers which

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

record upon which the Commission based its decisions on the matters

in the report and were available to Commissioners and appropriate staff for review.

B. Key Personnel

The Treasurer of the Committee during the period reviewed

was Mr. Frank A. Ursomarso.

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C. Scope

. The audit included such tests as verification of total

reported receipti, disbursements and individual transactions:

review of required supporting documentation: analysis of Committee

debts and obligationsl review of contribution and expenditure limitations: and such other audit procedures as deemed necessary

under the circumstances.

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II. Findings and Recommendations Related to

Title 2 of the United States Code

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A. Allocation of Expenditures to States

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

states, in part, that no candidate shall knowingly incur qualified campaign expenses in excess of the expenditure limitations

applicable under section 44la(b) (1) (A) of Title 2.

Section 9038.2 (b) (2) (i) (A) of Ti tle 11 of the Code of

Federal Regulations provides, in part, that the Commission may

determine that amount(s) of any payments made to a candidate from

the matching payment account were used for purposes other than to

defray qualified campaign expenses. Section 9038.2 (b) (2) (ii) (A) of

Title 11 of the Code of Federal Regulations states that an example

of a Commission repayment determination under paragraph (b) (2) of

this section includes determinations that a candidate, a

candidate's authorized committee(s) or agents have made

expenditures in excess of the limitations set forth in 11 C.F.R.

5 9035.

Sections 44la(b) (1) (A) and 44la(c) of Title 2 of the

United States Code provide, in part, that no candidate for the

office of President of the United States who is eligible under

Section 9033 of Title 26 to receive payments from the Secretary of

the Treasury may make expenditures in anyone State aggregating in

excess of the greater of 16 cents multiplied by the voting age

population of the State, or $200,000, as adjusted by the change in

the Consumer Price Index.

Section 106.2(a)(1) of Title 11 of the Code of Federal

Regulations states, in part, that expenditures incurred by a

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

the nomination of the candidate for the office of the President

with respect to a particular State shall be allocated to that

State. An expenditure shall not necessarily be allocated to the

State in which the expenditure is incurred or paid.

Section 110.8(c) (2) of Title 11 of the Code of Federal

Regulations states that for State limitations, expenditures for

fundraising activities targeted at a particular State and occurring

within 28 days before that state's primary election, convention or

caucus shall be presumed to be attributable to the expenditure

limitation for that State.

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During fieldwork, the Audit staff identified a project used by the Committee involving a telemarketing and mail program (Wthe ProgramW). Discussions with Committee officials and a review

of :ommittee records made available indicated that the Program operated out of the Committee's headquarters in Wilmington, Delaware primarily from June, 1987 through February, 1988.

The Program was a computer-based system which appears to

have accommodated up to 35 telephone stations. Each station

accessed one of six predominately used scripts through a CRT screen

linked to an automatic dial feature used in placing calls. The

operator, using a headset, would work through the screen script

inputting re~ponses received from the person contacted. When the

call was completed an in-house mailing was automatically generated,

if needed. The Program appears to have been operated mainly during evening and weekend hours employing, on a part time basis, two

shifts of operators.

The Audit staff reviewed the Committee's expenditure

files for the vendors that could be identified as part of the

Program and calculated apparent Program costs totaling $745,439,24.

The Audit staff then reviewed the Committee's allocation

of expenditures to states to determine the extent to which these

Program costs were allocated to Iowa. The Audit staff determined

that $117,606.0~/ in Program costs were allocated to Iowa. The

following table provides a detailed comparison of identified

Program costs and costs allocated to Iowa by the Committee:

Total

Identified

Program Costs c

'"Telephone

~Computer & related services

Rent & utilities

t"'opayroll

~ostage

Wiring installation Miscellaneous~/

Totals

$157,833.32

171,792.26

28,396.39

277,371.62

97,202.18

8,760.00

4,083.47

$745,439.24

Program

Costs Allocated

by Commi ttee

$ 21,378.00

2,880.00

72,243.79

17,020.78

4,083.47

$117,606.04

Program

Costs Allocated

by Audit

$101,436.29

42,747.59

6,708.29

197,858.73

17,020.78

5,694.00

4,083.47

$375,549.15

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Committee allocation workpapers indicated that $134,293.95 had been

allocated to Iowa with respect to the Program. However, the Audit

Staff reduced this amount by $16,687.91 which represented an

over allocation made by the Committee in applying the 28 Day Rule. It

should be noted that the Committee's overall allocation to Iowa has

been adjusted accordingly.

Based on Committee allocation workpapers and documentation made

available, costs included in this category could not be directly

associated with any of the other categories noted.
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During this review it became apparent to the Audit

staff that the Program focused to a large extent on Iowa. A

March 23, 1987 memorandum from a consultant, directed to

Committee repres~ntatives, outlined in a fairly detailed fashion

the consultant's understanding of the -goals and objectives for

the du Pont telemarketing and mail program.- Although Committee

officials did not acknowledge that this plan was the basis of

their telemarketing program, the Audit staff is of the opinion that the basic components of this plan with respect to the

telemarketing effort directed at Iowa were implemented by the

Committee and indicate a focus on Iowa.

Second, a review of the billings by the long distance

telecommunications company used by the Committee for the Program indicated that the majority of the calls were to Iowa. During

the period June, 1987 to February, 1988, the Committee incurred

$157,171.32 for the Program's long distance service, or about

$17,500 per month. A review of the bills for the above mentioned

period indicated that the costs of calls made to Iowa comprised

from 48% to 90% of the cost of all calls made. Further analysis

of the cost, the number, and the length of calls, indicates that

the Program was used primarily in the evenings, during which

hours the calls were directed almost exclusively at Iowa.

Finally, the auditors reviewed all scripts considered

for use in the Program by the Committee. Of the 28 scripts

reviewed, at least 11 seemed to be targeted at Iowa. The

Committee provided an explanatory letter dated May 12, 1988,

along with copies of six scripts that according to the Committee

were used almost exclusively in the telemarketing program during the period 6/87 through 12/87, and copies of letters~/ mailed as

a result of the response to each script. One of these scripts

was a poll, four of the scripts appear political in nature with

no appeal for contributions and the final script did contain a

fundraising appeal. In all six scripts the text appears

specifically directed at Iowa by virtue of the caucus or debate

in Iowa being mentioned at some point.

The Committee's letter of May 12, 1988 notes that of

these scripts, only two were not fundraising in nature. The

Committee's position with respect to the scripts was that money could not be raised from people who did not know or support their

issues. The Committee provided, as further support that these

scripts were used extensively, workpapers detailing the days and

number of calls made daily with respect to each of the scripts.

As noted in their May 12, 1988 letter the Committee's position is

that the rent, HVAC (utilities) and computer rental ·were

correctly reported as national office overhead, consistent with

the treatment of other computer and office rental within the

campaign headquarters ••• and •••both •••were used Monday through Friday 7 a.m. to 5 p.m. by both the Legal and Accounting

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• !..1 Of the five follow-up letters mailed as a result of the

scripts, three included appeals for contributions.

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operation and the Direct Mail and Event Fundraising staffs."

Further, expenses associated with payroll, telephone, postage, and software were charged directly Wto either fundraising, the

Iowa allocation.or Exempt Legal/Accounting as appropriate.w

As noted above, the Audit staff calculated the apparent

cost of the Program to be $745,439.24, while the Committee only

allocated $117,606.04, or about 16\ of identified Program costs

to Iowa, although it is apparent that the Program focused on

Iowa. The Audit staff also noted that as of April 30, 1988,

according to the State Allocation Report, FEC Form 3P, page 3,

the Committee had allocated expenditures totaling $616,010.80 to

the Iowa limitation of $775,217.60. The Audit staff's review of

expenditures allocated to Iowa determined this figure to be

materially correct, except as noted with respect to the Program.

Based on the Audit staff's review of the information

and documentation made available, it is our opinion that the

following Program costs, totaling $375,549.15, require allocation

to Iowa.

o Program Costs Within the 28 Day Rule

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The Audit staff reviewed Program costs occuring within 28 days of the Iowa caucus and determined that $52,709.67

in telephone, rent, utilities, payroll and computer related

services should have been allocated to Iowa. As stated in the

Committee's letter, dated May 12, 1988, for the period subsequent

to January 1, 1988, expenses were allocated 100% against the Iowa

limitation due to the wFEC regulation eliminating the Fundraising

Exemption within 28 days of a primary election. w The Audit staff

reviewed Committee allocation workpapers with respect to the

Program and determined, based on the information available, that

the Committee allocated $41,500.04 in salary, phone and

miscellaneous Program costs to Iowa.

o Program Costs outside the 28 Day Rule

The Audit staff reviewed Program costs occurring outside of the 28 day rule and determined that·$322,839.48 in

telephone, rent, utilities, payroll, computer related services,

postage, wiring and miscellaneous costs should have been

allocated to Iowa. Based upon the scripts and telephone logs

provided as part of the Committee's May 12, 1988 letter, it was

determined that $86,378.48 in long distance telecommunication

charges and $168,339.00 in payroll costs with respect to the

Program should have been allocated to Iowa. With respect to rent

and utilities, the Audit staff determined that, based on the

hours of operation as provided by the Committee in their letter

dated May 12, 1988, $5,713.70 in expenditures should have been

allocated to Iowa. The Audit staff determined that $35,610.05 in

computer related Program costs should have been allocated to

Iowa. Finally, the Audit staff determined that postage totaling $17,020.78: wiring installation costs of $5,694 and miscellaneous

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costs totaling $4,083.47 should have been allocated to Iowa. The

Audit staff's review of Committee workpapers indicated that

$76,106 in salary, phone, postage, supplies and computer related

costs with respect to the Program were allocated to Iowa.

The following recap and analysis was provided with

respect to the Iowa state expenditure limitation in the interim

audit report:

Telemarketing Program costs allocable

to Iowa per the Audit staff:

Wi thin 28 Day Rule

Outside 28 Day Rule

Less Program costs allocated by

the Canmittee:

Within 28 Day Rule

Outside 28 Day Rule

Additional Program costs requiring

allocation to Iowa

$ 52,709.67'-

322,839.48 $375,549.15

$ 41,500.04

76,106.00 (117,606.04)

$257,943.11

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. Expenditures allocated to Iowa per Committee FEC Form 3P, page 3, as of

March 31, 1988

Expenditures subject to Iowa limitation

Less: 2 U.S.C. Section 44l(a) State

Spending Limitation

Total Expenditures in Excess of State

Limi tation

616,995.09

$873,953.91

(775,217.60)

$ 99, 720.60

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In the interim audit report the Audit staff recommended

that within 30 calendar days after service of the report the

Committee provide evidence showing that it had not exceeded the

limitation as set forth above. Absent such a showing, the Audit

staff recommended that the Committee adjust its records to reflect

the expenditures allocated in Iowa, and where necessary file

amended reports to reflect the correct amount allocable to Iowa.

In addition, the Audit staff recommended that the

Committee provide a detail listing for all vendors related to the

telemarketing program and an itemization of all associated costs

incurred with respect to each vendor. Such costs include those

incurred with respect to development and implementation of the

telemarketing program.

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Analysis of Committee Response

The Committee filed its response on November 4, 1988.*/ In

its response, thp Committee stated that it believes the Audit

staff's conclusions are incorrect and offered its reasons in

support of this position. Each of the topical areas addressed by the Committee are discussed in the following paragraphs.

1. The Telemarketing Effort was a Pundraising Program

The Committee contends that the Program wwas conceived

and implemented by the campaign as a significant fundraising effort. w According to the Committee's response, the Audit staff

mischaracterized the Program for three fundamental reasons: (a)

misplaced reliance on a memorandum from a consultant: (b) a failure

to understand the program's Iowa focus: and (c) a failure to

comprehend modern campaign fundraising.

With respect to (a), the Committee submitted an affidavit

from the deputy campaign manager which specifically stated that the

memorandum from the consultant was not adopted as the campaign's telemarketing plan and that fundraising was a prime objective of

telemarketing.

In the Audit staff's op1n10n, the committee's

contention that -misplaced reliance- existed on the part of the

Audit staff is without merit. Although this report refers to the

March 23, 1987 memorandum, our conclusion -that the basic

components of this plan with respect to the telemarketing effort

directed at Iowa were implemented by the Committee and indicate a

focus on IowaK (Report, page 4) is based, as stated in the

report, on our review of documentation for expenditures related

to the telemarketing effort. The Committee's contention that the

consultant's proposal was not adopted does not, in the Audit

staff's opinion, change or require revision to the Audit staff's

conclusion that a significant telemarketing effort was directed

at the voting age population in Iowa.

Concerning the Committee's assertion regarding the

Program's Iowa focus (item (b», the Committee argues that the

Audit staff's position wfai1s to recognize the uniqueness of

circumstances surrounding an 'underdog' campaign. An unknown

candidate must focus first on Iowa, to present his positions, to

become known, and to raise funds to support these efforts.

Momentum from success in Iowa permits the candidate to be a

factor in New Hampshire. K The Committee further states that

[since] KIowa voters could be educated, and would have a stake in

the election because of their participation in the early

caucuses. That stake would .cause them to contribute ••• once they knew the candidate.-

~/ The Committee requested a 60 day extension in which to

respond to the interim audit report, The Commission granted

a 30 day extension to November 4, 1~88.
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The Audit staff does not dispute the Committee's

position that a person is not likely to contribute to a candidate

about whom he or 'she knows little. Nor does the Audit staff

necessarily disagree with the Committee's statement that the Iowa

caucuses and the New Hampshire primary are the beginning and the

end for most campaigns. However for the Committee to then

conclude ·For an unknown like Pete du Pont, it is essential to

raise funds in those states, because those are the states in

which he is becoming known· seems more appropriate in support of

an attempt to influence a candidate's chances of a win or

reputable position in the Iowa caucuses or New Hampshire primary

rather than a justification that it is essential to that end to

raise funds in these two states and thus the telemarketing effort

should be viewed as primarily a fundraising program.

The Committee's third point (item (c» is an attempt to

identify similarities between ·sophisticated telemarketing" and

"traditional direct mail.· The Committee provides as an example

a situation where a phone call is made and, based on the

response/exchange concerning issues without a solicitation being

mentioned, a follow-up solicitation is sent. The Committee made

the decision "to give Iowans mUltiple opportunities to know the

candidate and the issues, and only then to ask for funds.· The

Committee's position is simply that both the phone call and the

follow-up solicitation should be viewed as components of a single fundraising appeal. The total costs as such would be considered

fundraising and not allocable to a state limit, unless occurring within 28 days of the election. The Committee states correctly

that the Audit staff viewed the expenses related to the phone

calls as separate and distinct from any follow-up mailings~/

which may have occurred. Further, the Audit staff viewed as

fundraising-related phone calls only those calls made outside the

28 days for which the script used actually contained a

solicitation of funds. The Audit staff's position, based on the

information submitted by the Committee, remains unchanged in this

regard.

2. Expenses for Rent, Computer Equipment and Wiring

The Committee contends that the headquarters expenses

for rent, computer expenses, and wiring allocated to Iowa by the

Audit staff are general overhead expenses and not allocable to

Iowa under 11 C.F.R. S l06.2(c) (1) (i) and S l06.2(b) (2) (iv).

These sections, in relevant part, define overhead expenses as

rent, utilities, equipment and telephone service base charges,

and exempt from allocation [such] operating expenditures incurred

for administrative, staff, and overhead expenditures of the

national campaign headquarters.

~/ The costs of any follow-up mailings were not charged to the

Iowa limit outside 28 days before the election.
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section 106.2(a) of 11 C.F.R. provi~es the general authority un~er which expenditures (inclu~ing overhead) shoul~ be

allocated to States. The Audit staff is of the opinion that the

exemption from Slate allocation of overhead expenses granted by

11 C.F.R. S 106.2{c)(1)(i) extends to operating expenses of the

national campaign headquarters and does not exempt operating

expenses of a specific program focused on s particular State

simply because it was directed out of the national office. In

addition, 11 C.P.R. S 106.2(b) (2) (iv) (B) states that ·overhead

expenditures of a committee regional office or any committee

office (emphasis added) with responsibilities In two or more

States shall1be allocated to each state on a reasonable an~

uniformly applied basis. An extension of the Committee's

position - that overhead expenses relating to the telemarketing

program are not allocable - would permit campaigns to avoid

allocation of overhead expenses related to focused programs to

any state simply by operating the programs from national

headquarters. The Audit staff is of the opinion that the

exemption from allocation of overhead expenditures by the

national campaign headquarters was not intended to include

allocable expenses of focused programs operated from the

headquarters office. The Audit staff further notes that if the

telemarketing program was performed on the premises of a vendor

or if the vendor rented extra space and/or equipment to perform

the services, then all the charges for space, equipment, and

installation would have been built into the fee charged. Therefore the Audit staff's position, that all expenses relevant

to the focused extent of the telemarketing program are allocable

expenses, remains unchanged.

3. Payroll

The Committee contends that the Audit staff understated

the payroll expenses already allocated by the Committee by $7,684. The Audit staff notes that this amount is the difference

between allocable payroll expenses not included in the

Committee's allocation figure and an overallocation of payroll

made by the Committee. Because the overallocation made by the

Committee was adjusted by the Audit staff for the full amount in

the interim audit report (Report p. 3, ~/ footnote) no further

adjustment should be made.

4. Telephone Charges

The Committee also contends that the Audit staff's

calculation for telephone toll charges to Iowa is incorrect. The

Committee stated that it sampled charges within the time frame

used by the telemarketing program and, based on the sampling data, determined that an average of $34.18 per day in toll

charges were unrelated to the telemarketing program. The

Committee asserts that the allocation made by the Audit staff is

overstated by $8,372.76. The Committee's allocation figure.s in

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the Response appear to be derived from the total charges for

night and weekend tolls to all area codes less $34.18 per day (estimated non-telemarketing evening and weekend charges) • Furthermore, the Committee did not provide the Audit staff the

documentation used in the sampling process.

The Audit staff recognizes the probability that all

calls to Iowa were not telemarketing related. Therefore the

Audit staff has revised the gross amount of calls to Iowa and has

reduced these amounts by credits and a business use (presumed

non-telemarketing) percentage. The Audit staff based the

business use reduction on the percentage of the toll charges made

during business hours relative to the total toll charges. This

percentage reduction was applied only to the calls made to Iowa,

not to the total evening/weekend tolls. The Audit staff applied

an average business use reduction percentage to the Iowa tolls

for the month of February because the Committee acknowledged that

some daytime calling was made during this period. These Audit

staff adjustments have reduced the allocable amount from

$101,436.29 to $81,173.80 This reduction of $20,262.49 is

reflected in the revised telemarketing program costs allocable to

Iowa per the Audit staff. In addition, allocation of wiring

installation, based on the allocable percentage of telephone

costs, has been reduced accordingly from $5,694 to $4,667.60.

5. Application of Advisory Opinion 1988-6

In the alternative the Committee suggests that Advisory

Opinion 1988-6 is applicable to the telemarketing program. The

Advisory Opinion allowed 50\ of the cost of a television

advertisement to be allocated to exempt fundraising. The

Committee states that WIn that opinion, the Commission concluded

that a three-second visual listing, 'Vote - Volunteer - Contribute,' plus a voice-over giving a phone number for

contributors to call ••would permit the allocation of 50\ of the

ad's cost to exempt fundraising. w The Committee further asserts

that a greater percentage of the du Pont telemarketing program

was directed to fundraising than the corresponding fundraising

percentage of time used for fundraising in the television

advertisement.

The Committee contends that Wtelemarketing fundraising

has multiple components, which combine to produce results••• [and]

the audit report treats the phone call and the mailing as two

separate events, rather than two components of a fundraising package, and considers the phone call not to be part of the

fundraising effort. w The Audit staff's discussion and rejection

of the Committee's rationale that the telemarketing program was

basically a fundraising program and thereby subject to a

fundraising exemption was discussed under paragraph (1) of this

section.
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The Audit staff is of the opinion that the Advisory

Opinion 1988-6 applies only to a specific factual situation - a

television comme~cial - and does not extend beyond the specifics of that case. Both the political issue and solicitation request

was contained within one message, whereas the ~u Pont

telemarketing program sought political interest first and then

addressed solicitation requests from identified supporters. The

Audit staff notes that it did not allocate the costs of any of

the follow-up letters sent by the Committee to Iowa outside 28

days before the election.

Finally, the Committee presented in its response an

allocation of telemarketing program expenses based on a 50'

exemption for fundraising. The Audit staff notes that certain

figures used in the Committee's analysis of allocable costs based

on a 50% fundraising exemption are incorrect. In one case, the

figure shown did not represent total cost, but rather only the

non-fundraising portion as determined by the Audit staff. In

another instance, the Committee did not include total costs

within 28 days of the election. The Audit staff did not perform

a detailed analysis of the Committee's figures because the

Advisory Opinion exemption does not appear to apply to this

program.

Conclusion

Based on the Audit staff's review of the Committee's

response to the interim audit report and the information and

documentation made available, it is our opinion that the

following Program costs, totaling $354,260.26 require allocation

to Iowa.

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Identified

Program Costs

Program Costs Allocated

by Committee

Program Costs Allocated

by Audit

'X Telephone

Computer & related services

Rent & utilities

Payroll

Postage

Wiring installation

Miscellaneous

Totals

$157,833.32

171,792.26

28,396.39

277,371.62

97,202.18

8,760.00

4,083.47

$745,439.24

$ 21,378.00

2,880.00

72,243.79

17,020.78

4,083.47

$117,606.04

$ 81,173.80

42,747.59

6,708.29

197,858.73

17,020.78

4,667.60

4,083.47

$354,260.26

The following recap and analysis, as revised for reduced

telephone toll charges and wiring installation, is provided with

respect to the Iowa state expenditure limitation:

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Revised Telemarketing Program costa

allocable to Iowa per the Audit ataffz ,

Within 28 Day Rule

Outside 28 Day Rule

Less Program costs allocated by

the Committee:

$ 50,358.13

303,902~ $354,260.26

$ 41,500.04

76,106.00 (117,606.04)

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Within 28 Day Rule

Outside 28 Day Rule

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Addi,ional Program costs requiring

allocation to Iowa

Expenditures allocate~ to Iowa per

Committee FEC Form 3P, page 3, as of

April 30, 1988

Expenditures subject to Iowa limitation

Less: 2 U.S.C. Section 44l(a) State

Spending Limitation

" Revised Total Expenditures in Excess of State

Limitation

$236,654.22

616,010.80

$852,665.02

(775,217.60)

$ 77,447.42~/

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Recommendation II

The Audit staff recommends that within 30 calendar days of

service of this report the Committee provide documentation of all

associated costs related to the telemarketing program. This

documentation will include: (1) a detail listing of all vendors

who provided services toward both the development and

implementation of the telemarketing program; and (2) an

itemization of all associated costs incurred with respect to each

vendor. These vendor costs will include both direct services and

collateral services (such as materials, printing, and

distributive costs) associated with the telemarketing program.

Based on our review of the information provided, the Audit staff

may require access to all supporting documentation such as vendor

invoices and receipted bills.

In addition, the Audit staff recommends that the Committee

adjust its records to reflect the expenditures allocated in Iowa,

and where necessary file amended reports to reflect the correct

amount allocable to Iowa.

~/ Total is based on limited vendor information. The Committee

did not respond to the recommendation that it provide a

detail listing for all vendors related to the Program.

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B. Itemization of EXpenditures

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

states that each report shall disclose the name and address of each

person to whom an expenditure in an aggregate amount or value in

excess of $200 within the calendar year is made by the reporting

committee to meet a candidate or committee operating expense,

together with the date, amount, and purpose of such operating expendi ture.

During a review of expenditures, the Audit staff noted

that the Committee failed to itemize on Schedule B-P two expenditures totaling $75,966.38 relative to the 1987 Year-end report.

This amount was included in reported disbursements on the

Committee's Detailed Summary Page, however, a Schedule B-P

disclosing these items was omitted from the 1987 Year-end report.

In addition, the Audit staff determined that for 23

itemized expenditures, totaling $868,943.72, the Committee failed

to itemize all required information.

Finally, the Audit staff noted a discrepancy of

($224,421.55) between the reported total of itemized expenditures and the calculated total of the itemized expenditures for the

Schedule B-P's provided with the January 1988 report. The

Committee apparently reported payments to a payroll service and the

related payroll checks and tax payments, issued by the payroll service. The Committee explained that it had inadvertently failed

to annotate as memo entries (non-additive) items totaling $224,421.55 related to payroll.

During the Exit Conference held on May 6, 1988, Committee

officials seemed receptive to filing amended reports to correct the

discrepancies noted above.

In the interim audit report the Audit staff recommended

that the Committee, within 30 calendar days after service of the

report, file amendments (1) to disclose the two unitemized

expenditures noted, (2) to correct and complete the disclosure on

the 23 items noted, and (3) to disclose correctly the expenditures

to a payroll service on the January 1988 report as memorandum

entries.

The Committee filed amendments on November 7, 1988 and

December 1, 1988~/ correcting the discrepancies noted above.

Recommendation 12

The Audit staff recommends that, despite the untimely filing

of the amendments, no further action be taken on this matter.

~/ The Committee was granted a 30 day extension to November 4,

1988 to respond to the interim audit report.

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c. Itemization of Interest Receive~

Section 434(b) (3) (G) of Title 2 of the United States Code

statQs that each report shall ~isclose the i~entification of each

person who provi~es any dividend, interest or other receipt to the

reporting committee in an aggregate value or amount in excess of

$200 within the calendar year, together with the date and amount of

any such receipts.

The term ·Person· is d~fined at 2 U.S.C. 5 431(11) as an

individual, partnership, committee, association, corporation, labor

organization, or any other organization or group of persons.

Identificati9n is defined at 2 U.S.C. 5 431(13) (B) to mean, in the

case of any person, other than an individual, the full name and

address of such person.

The Audit staff's review of interest earned by the

Committee revealed that 12 transactions totaling $19,114.03 were

not itemized on Schedule A-P relative to the 1986 October

Quarterly, 1986 Year-end, 1987 April Quarterly, and 1987 July

Quarterly reports.

At the Exit Conference, the Committee officials agreed to

file amendments to correct the public record.

In the interim audit report the Audit staff recommended

that the Committee, within 30 calendar days after service of the

report, file amendments i temi zing the receipts noted above'.

The Committee filed amendments, received November 7,

1988, itemizing the interest receipts noted above.

Recommendation 13

The Audit staff recommends no further action on this matter.

D. Matter Referred to the Office of General Counsel

A certain matter noted during the audit has been referred

to the Commission's Office of General Counsel.

III. Findings and Recommendations Related to Title 26

of the United States Code

A. Calculation of Repayment Ratio

Sections 9038(b) (2) of Title 26 of the United States Code

states, in part, that if the Commission determines that any amount

of any payment made to a candidate from the matching fund account

was used for purposes other than to defray qualified campaign

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

the candidate shall pay to the Secretary an amount equal to such an

amount.

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Section 9038.2(b) (2) (iii) of Title 11 of the Code of

Federal Regulations states that the amount of any repayment sought under this section shall bear the same ratio to the total amount

determined to hsve 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 candidat~·s date of ineligibility.

The formula and its application with respect to the

Committee's receipt activity is as follows:

i. Total Matching Funds Certified Through

Date of Ineligibility 2/18/88 •

$2,298,064.54

$7,653,436.93

= .300266

Thus, the repayment ratio for non-qualified campaign

expenses is 30.0266%.

B. Non-qualified Campaign Expenses - Payments Made in Excess

of Iowa State Limitation

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

states in relevant part 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 9038.2(b) (2) (i) (A) of Title 11 of the Code of

Federal Regulations states in part that the Commission may determine that amounts of any payments made to a candidate from the

matching payment account were used for purposes other than defrayal of qualified campaign expenses. Section 9038.2(b) (2) (ii) (A) of

this Title further states that Commisssion repayment determinations

include determinations that a candidate has made expenditures in

excess of the limitation for anyone State pursuant to

S9035.l(a)(1).

As noted in Finding II.A., Allocation of Expenditures to

States, the Audit staff determined that the Committee exceeded the

expenditure limitation in Iowa by $77,447.42. These expenditures

represent amounts paid by the Committee. The amount subject to

repayment is calculated below:
-: ·...

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t. ' ..• -. ,.-..-. ,. ....

16

Amount paid in excess of the Iowa State

Expenditure Limi~ation

4 •

Times the Repayment Ratio from III.A.

Repayment Amount

Conclusion

$77,447.42

.300266

$23,254.83~/

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On March 9, 1989, the Commission made an initial determination

that the Committee repay $23,254.83 to the u.s. Treasury pursuant

to 26 U.S.C. S9038(b) (2).

C. Statement of Net Outstanding Campaign Obligations

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

Regulations requires that the candidate submit a Statement of Net

Outstanding Campaign Obligations (WNOCO StatementW) which contains,

among other items, the total of all outstanding obligations for

qualified campaign expenses as of the candidate's date of ineligibility and an estimate of necessary winding down costs within 15

days of the candidate's date of ineligibility.

On February 18, 1988, Pete du Pont announced that he had

withdrawn from the race for the Republican nomination for President

of the United States. Pursuant to 11 C.F.R. S 9033.5(a), that is

the date Mr. du Pont's candidacy terminated for the purpose of

incurring qualified campaign expenses.

The Committee submitted their original NOCO Statement on

March 3, 1988 and has continued to submit revised NOCO Statements

with each matching fund submission.

The Audit staff reviewed the NOCO Statement dated

February 18, 1988 for financial activity through April 30, 1988.

This review included verification of cash, accounts receivable,

capital assets, other assets, accounts payable for qualified campaign expenses, and actual and estimated winding down costs.

Presented below is the Audit staff's analysis of the

Committee's NOCO Statement as of February 18, 1988.

(

*/ This repayment amount is based on limited vendor information.

The Audit staff recommended in Finding II.A. that the

Committee provide documentation of all associated costs

related to the telemarketing program. Adjustments to this

repa¥IDent amount may result and will be reflected in the

Commlssion's final repayment determination.
.•. ,·":~r·'Y·t:;", ··'··'·~ffW~Z:~;~.A~~4t.}~;f;'~tf.~:~1:;.~~ft5;~~~~~}~~~~~flNM;1~~1il1-~'t¥:\~~~\~~~t{~~~~r~t~:;~3~~~~:;~I~""- ".' n

Audit Analy.l. of ca.altt•••• WOCO .tat•••nt a. of ••bra.rr 11, ltll II

a. d.t.~in.4 on April 30, 1.11

A••et.

Caah or. land

Ca.h in lank

Daposit. and .acalvabl•• Capltal A..et.

'fotalA••et.

Obligation.

Accounts payable for

Qualified C_paign

EXpen.e.

Account. payable for

contribution refund.

Winddown Coat.- Actual

2/19/18 to

4/30/88

$ 200.00

341,052.21

13,21t.1.

1'7, 210. DO

$40i,132.11

2,912.00

"'51,122.12

AlIlount of nonquallflec! campaign

expenses (in excess

of Iowa limitation)

incluc!ec! above

Winc!c!ovn Coat.- Estiaatec!

5/1/88 to

2/28/89

Salarle. Mi acellaneou.

Operating

non-payroll

Salarie.

-Consulting

Legal fees- Te.as

Occupancy

Operating

Costs

Office

Supplies

Equipaent

Rental

COIllputer/Data

Processing

Fundraising

$34,808.24

10,845.78

159,767.09

$160,783.07

21,000.00

100,000.00

17,460.00

2,500.00

.,612.00

10,800.00

15,000.00

205,421.11

(61,518.18)

336,155.07

~ota1 Obligations

Net Outstanding Campaign Obligations (Deficit)

as of 2/18/88

$891,852.11

$ (UO, 029. 99)

(

~/ February 18, 1988 ia the date determined by the C~mission to

be the Candidate'. date of ineligibility for purposes of

incurring qualified campaign e.penses.

~/ Unc!er 11 C.F.R.S 9034.4(b) (2), an expenditure which is in

excess of any of the limitations under 11 C.P.R. Part 9035

.hall not be considerec!a qualified campaign e.pense, which

precludes sucb expenditurea from inclusion in the NOCO

presentation as aet forth at 11 C.F.R.S 90)4.5•

•
interest

4/30/88,

close of

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Shown,helow is an adjustment for private contributions,

and matching funds received during the period 2/19/88 to

the most current financial information available at the

fieldwork.

Net Outstanding Campaign Obligations (Deficit) as

of 2/18/88 .

f

Net Private Contributions

Matching Funds Received

Interest Received

Remaining Entitlement as

of April 30, 1988

$ (440,029.99)

177,536.10

238,740.39

3,438.61

$( 20,314.89) ~/

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As of April 30, 1988, the Committee has not received

matching fund payments in excess of its entitlement. Additional

fieldwork may be required to assess the impact of future

financial activity on the NOCO deficit.

~/ The Committee received its final matching fund payment of

$11,711.56 on May 26, 1988, and reported $4,663.41 in

individual contributions during May 1988. Therefore, the

Committee appears not to have exceeded its entitlement•

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FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 20463

MEMORANDUM

January 16, 1990

TO:

FROM:

SUBJECT:

Fred Eiland

Chief, Press Office f~

Kim L. Bright-Coleman \lX'-

Special Assistant General Counsel

Public Issuance of the Statement of Reasons

for the Final Repayment Determination for

Pete duPont for President Inc.

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Attached please find a copy of the above mentioned

Statement of Reasons which the Commission approved on

December 14, 1989.

Informational copies of the Statement of Reasons have

been received by all parties involved and the document may be

released to the public.

Attachment as stated

cc: Audit Division

FEe Library Public Disclosure

Reports Analysis Division
FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 204&3

December 14, 1989

"';...• --O'

Frank A. Ursomarso, Treasurer

Pete du Pont for President, Inc.

P.O. Box 1988

Rockland, Delaware 19732

Dear Mr. Ursomarso:

The Commission has considered the responses filed on

behalf of Pete du Pont for President, Inc. to the Commission's

initial repayment determination contained in the Report of the

Audit Division on Pete du Pont for President, Inc. issued on

March 9, 1989. On December , 1989, the Commission made a

final determination that Governor Pierre S. du Pont and Pete du

Pont for President, Inc. must repay $25,775.49 to the united

States Treasury.

Enclosed is a Statement of Reasons in support of the

Commission's final determination as required by 11 C.F.R.

S 9038.2(c)(4). Judicial review of the Commission's

determination is available pursuant to 26 U.S.C. S 9041.

Please note that, under 11 C.F.R. S 9038.2{d){2),

repayment must be made within thirty (30) days from the date of

service of this notice. The payment should be sent to the

Commission, but made payable to the United States Treasury.

Sincerely,

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"","""'Y\.oo'1."..c.. ! _ -h.,'" I

Danny i. McDonald

Chairman

Enclosure

Statement of Reasons
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FEDERAL ElECTION COMMISSION

WASHINGTON 0 C 204&3

December 14, 1989

Glenn C. Kenton, Esq.

Richards, Layton & Finger

One Rodney Square

wilmington, Delaware 19899

Dear Mr. Kenton:

The Commission has considered the responses filed on

behalf of Pete du Pont for President, Inc. to the Commission's

initial repayment determination contained in the Report of the

Audit Division on Pete du Pont for President, Inc. issued on

March 9, 1989. On December , 1989, the Commission made a

final determination that Governor Pierre S. du Pont and Pete du

Pont for President, Inc. must repay $25,775.49 to the United

States Treasury.

Enclosed is a Statement of Reasons in support of the

Commission's final determination as required by 11 C.F.R.

S 9038.2(c)(4). Judicial review of the Commission's

determination is available pursuant to 26 U.S.C. S 9041.

Please note that, under 11 C.F.R. S 9038.2(d)(2),

repayment must be made within thirty (30) days from the date of

service of this notice. The payment should be sent to the

Commission, but made payable to the United States Treasury.

Sincerely,

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Danny L. McDonald

Chairman

Enclosure

Statement of Reasons
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BEFORE THE FEDERAL ELECTION COMMISSION

In the Matter of

Governor Pierre 5. du Pont IV and

Pete du Pont for President, Inc.

Final Repayment Determination

STATEMENT OF REASONS

On December 14, 1989, the Commission made a final

determination that Governor Pierre S. du Pont IV, and Pete du Pont

for President, Inc. (the "Committee") repay $25,775.49 to the

United States Treasury pursuant to 26 U.S.C. 5 9038(b)(2),

representing the portion of public funds used by the Committee to

make expenditures in excess of the Iowa state limitation. The

repayment is based on expenditures related to a telemarketing and

mail program that the Committee did not properly allocate to its

Iowa expenditure limitation. Therefore, the Committee is ordered

to repay this amount within 30 days of receipt of this

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

Statement sets forth the legal and factual basis for the

Commission's determination in accordance with 11 C.F.R.

5 9038.2 (c)(4).
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I • BACKGROUND

Pete du Pont for president, Inc. (the "Committee") is the

principal campaign committee of Governor Pierre S.

du Pont IV, a candidate for the Republican presidential nomination

in 1988. The committee operated a telemarketing and mail program

from its Wilmington, Delaware headquarters from June 1987 through

February 1988. The program costs totaled $745,439.24. The

Committee allocated $117,606.04 in program costs to Iowa. The

Audit Division reviewed the scripts used in the program and the

long distance telephone bills, and concluded that Iowa was a

primary focus of the telemarketing program and that additional

amounts should be allocated to the Committee's Iowa expenditure

limit.

The issue first arose in the Interim Audit Report which was

.~ r.~

approved by the Commission on August 30, 1988. Attachment 1. In

the Interim Report, the Audit Division allocated $375,549.15 of

the program costs to Iowa, resulting in expenditures in excess of

the Iowa state limitation totaling $99,720.60. The report

recommended that the Committee provide evidence that it had not

exceeded the limitation or adjust its records and reports to

reflect the correct amount allocable to the Iowa limit. The

Committee was also requested to provide a listing of all vendors

related to the telemarketing program and an itemization of all

expenditures incurred with respect to each vendor. The Interim

Report contained a preliminary calculation of the repayment in the

amount of $29,942.71, based on the amount in excess of the Iowa

state expenditure limitation.
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The Committee responded to the Interim Report on November 4,

1988. Attachment 2. The Committee's principal argument was that

the program was essentially fundraising in nature. Therefore, the

Committee asserted that no additional amounts were allocable to

the Iowa state expenditure limit as they were exempt fundraising

expenses. In the alternative, the Committee argued that Advisory

Opinion ("AO") 1988-6 applies to the telemarketing program, and

half of its expenses for the program were fundraising costs exempt

from allocation under that opinion. Moreover, the Committee

argued that expenditures for rent, computer expenses, and wiring

allocated to Iowa by the Audit staff are general overhead expenses

which are not allocable to Iowa. The Committee also contended

that the Audit staff understated payroll expenses, and

miscalculated telephone toll charges to Iowa, because certain

telephone calls were not related to the telemarketing program.

The Commission approved the Final Audit Report on the

Committee on March 9, 1989. Attachment 3. The report recommended

that the Committee provide documentation of all associated costs

related to the telemarketing program: adjust its records to

reflect the expenditures allocated in Iowa; and where necessary,

file amended reports to reflect the correct amount allocable to

Iowa. The report rejected the Committee's contentions that the

program was essentially a fundraising appeal and that AO 1988-6

could be applied to exempt 50\ of the costs allocated to the Iowa

expenditure limit by the Audit Division. The report also rejected

the Committee's contention that certain expenditures were exempt

as national campaign headquarters overhead. However, the Audit
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staff accepted the Committee's contention that not all calls to

Iowa were related to the program, and accordingly reduced the

telephone and wiring allocations. This reduction was determined

based on credits on telephone bills which had not previously been

included in the allocation, and the application of a business use

percentage for presumed non-telemarketing calls. The report

concluded that $354,260.26 in the program costs should be

allocated to Iowa, resulting in expenditures in excess of the Iowa

state expenditure limitation in the amount of $77,447.42.

Therefore the Commission made an initial determination that the

Committee repay $23,254.83 to the united States Treasury purcuant

to 26 U.S.C. S 9038(b)(2).

The Committee responded to the Final Audit Report on

April 21, 1989. Attachment 4. In the response, counsel for the

Committee requested the opportunity to address the Commission in

open session regarding the audit report and repayment

determination pursuant to 11 C.F.R. S 9038.2(c)(3). The

Commission granted the Committee's request for an oral

presentation on May 18, 1989. On June 28, 1989, counsel for the

Committee made an oral presentation before the Commission.

Attachments 5 and 6.

The Commission issued a subpoena on June 2, 1989 for

Committee records relating to the telemarketing program. The

Committee responded to the Commission's subpoena on August 11,

1989. Attachment 7. The Audit staff reviewed the Committee's

response to the subpoena, and concluded that the Committee

underallocated postage costs to Iowa. The Committee's description
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of its postage allocation is inadequate because it did not provide

detailed documentation. While political mail was sent to Iowa as

early as June 11, 1987, and the Committee paid $20,000 for metered

mail between June and August 1987, the Committee did not allocate

metered mail postage to Iowa until September 1987. Therefore the

Commission concludes that the Committee underallocated postage

costs for that period. Moreover, it appears that the Committee

underallocated in-house metered mail costs to Iowa during the

28-day perlod preceding the Iowa caucus. Between January 14, and

February 1, 1988, the Committee paid $20,600 in metered mail

costs, but only allocated $3,600 to Iowa and $8,605.22 to New

Hampshire. The Commission concludes that the balance of metered

mail costs should be allocated to Iowa. These costs total

$8,394.78, which increases the total expenditures in excess of the

Iowa limitation to $485,842.20, and the repayment amount to

$25,775.49.

II. THE COMMITTEE'S ARGUMENTS

The Committee's primary argument is that the telemarketing

program was a national fundraising effort. Since the Iowa

caucuses and the New Hampshire primary are critical for most

campaigns, the Committee maintains that it is essential for an

unknown candidate such as Pete du Pont to raise funds in those

states, "because those are the states in which he is becoming

known." Attachment 4, page 3. Moreover, the Committee contends

that the program was "a national program that stalled."

Attachment 6, page 24. The Committee further argues that the

program only appears to have been targeted at Iowa because the
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campaign was unsuccessful. Counsel for the Committee stated that

it "would have been a national operation running out of the

headquarters ••••the computers that drove this program were set up

so that they could be used on a national basis." Attachment 6,

page 23. In the Committee's responses and th~ oral presentation,

the Committee made three arguments to justify its allocation of

program costs based on the premise that the program was a national

fundraising effort: 1} the expenditures at issue are exempt

fundraising costs which are not allocable to the Iowa state

expenditure limit; 2} AO 1988-6 applies to the telemarketing

program, and thus, half of the program costs are exempt

fundraisingi and 3} certain expenditures were national

headquarters overhead and should not be allocated to Iowa.

The Committee's main contention is that the program

expenditures were exempt fundraising costs which are not allocable

to the Iowa state limitation under 11 C.F.R. S 106.2(c)(S)(ii}.

The Committee states that the program used six scripts, of which

two were purely political. The other four scripts, it argues,

were part of the fundraising program, and should be exempt from

allocation. The Audit staff concluded that only one of the six

scripts was fundraising in nature, and exempted expenditures

related to this script from allocation.

The Committee further argues that the telemarketing program

was analogous to a direct mail fundraising effort. The

Committee's response to the Final Audit Report states: "All

campaign fundraising activities are comprised of multiple

components." Attachment 4, page S. The Committee notes that a
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direct mail fundraising scheme involves postage, printing and the

fundraising letter itself, but only the letter contains a

fundraising message. The Committee argues that: "[a]s with

traditional direct mail, telemarketing fundraising has multiple

components, which combine to produce results, but which

individually are not productive." Id. at 6. The Committee

believes that to treat the phone call and mailing as separate

events, rather than two related components of a fundraising

package, is similar to treating the postage for a fundraising

letter as separate non-fundraising expenditure. As an example,

the Committee states that the "debate" script and follow-up letter

are "obviously an integrated fundraising device" in which the

script "sets the stage for a written appeal based on watching the

first candidate debate." Id. at 7. Therefore, the Committee

contends that the telemarketing program costs related to the three

scripts are related to fundraising activities and should be exempt

from allocation.

Counsel for the Committee elaborated upon this argument

during the oral presentation. Counsel stated that there was a

"very prompt" follow-up fundraising letter after each telephone

call. The fundraising letter was sent "usually within 24 hours

after the call." Attachment 6, page 6. Individuals whose names

were obtained through the telephone calls often received several

fundraising solicitations. Counsel argued that the telemarketing

program "created our own vendor list." Id. at 7. Thus, he argued,

"[i]f the purchase of a vendor list for a direct mail is a cost

associated with fund-raising ... a targeted telephone call to
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elicit exactly the same thing, which is a list of people who would

be most likely to contribute to the campaign, is also a cost

related to fundraising." Id. The telemarketing calls enabled the

Committee to "hone in on the issues that moved people" and create

a list of potential contributors. Id. at 22.

Moreover, the Committee believes that AO 1988-6 applies to

this situation. In that opinion, a three-second fundraising

statement in a 60-second political advertisement supported the

exemption of 50\ of the commercial's cost as fundraising expenses.

The Committee argues that "far more than one-tenth" of the program

costs had a "clear fundraising purpose." Attachment 4, page 8.

Thus, it argues, "even accepting arguendo the audit report's

conclusion" that program expenditures relate to Iowa, half of the

costs are exempt fundraising. Id. The Committee contends that

this instance "is not materially distinguishable from [AO 1988-6],

and the principle established there may not be ignored." Id.

Therefore, the Committee concludes that "under either method" it

has not exceeded the Iowa limit, and no repayment is required.

Id.

Finally, the Committee contends that certain program

expenditures for rent, utilities, computer expenses and wiring,

allocated to Iowa in the Final Audit Report, are national

headquarters overhead and thus, not allocable to Iowa. The

Committee argues that these expenditures were general overhead

expenses "which would have been incurred regardless of whether the

telemarketing program ever called Iowa residents." Id. at 6.

Counsel for the Committee stated that the telephones and computers
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used in the program were also used for other national headquarters

functions. Attachment 6, pages 12-13.

III. LEGAL ANALYSIS

Section 441a(b)(1)(A), Title 2, united States Code

establishes national and state expenditure limitations for

candidates seeking the presidential nomination who receive pUblic

financing. The Commission's regulations, at 11 C.F.R. 5 106.2,

contain rules governing the allocation of expenditures by

publicly-financed primary candidates to particular states.

Generally, expenditures incurred by a candidate's authorized

committee for the purpose of influencing the nomination of that

candidate with respect to a particular state must be allocated to

that state on a reasonable basis. 11 C.F.R. 5 106.2(a)(1).

The Federal Election Campaign Act of 1971, as amended, 2

U.S.C. 55 431-455 ("FECA") and Commission regulations exclude from

the definition of expenditure any fundraising costs to the extent

that the aggregate of such costs does not exceed 20\ of the

expenditure limitation applicable to the candidate. 2 U.S.C.

5 431(9)(B)(vi)i 11 C.F.R. 5100.8(b)(21). Such expenditures are

not allocable to any state. However, under section 110.8(c)(2),

expenditures for fundraising activities targeted at a particular

state, and occurring within 28 days before that state's primary

election are presumed to be allocable to the expenditure

limitation for that state, the fundraising exemption of section

100.8(b)(21) notwithstanding. A fundraising cost is any cost

incurred in connection with the solicitation of contributions.

2 U.S.C. 5 431(9)(B)(vi). Examples of exempt fundraising
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expenditures include printing and postage for solicitations,

airtime for fundraising advertisements, and the cost of

refreshments for fundraising receptions and dinners. 11 C.F.R.

S 106.2(c)(S)(ii).

The fundraising exemption was the focus of AO 1988-6, which

concerned broadcast media time buys by a presidential campaign

committee. The advertisements at issue were 60-second spots which

included a three-second fundraising message. The Commission

concluded that the committee could allocate 50% of the

advertisement to fundraising, sincp the presence of the

solicitation in the advertisement indicated that fundraising was

one of the purposes of the advertisement. Thus, the application

of the fundraising exemption did not depend upon the proportion of

time in the advertisement which included the fundraising message,

but upon the fact that a solicitation was present in the

advertisement.

The Committee's arguments are based upon the assumption that

the telemarketing program was essentially fundraising in nature.

However, the evidence does not support this assumption. Only one

of the scripts used in the telemarketing program contained an

overt fundraising message. The Committee relies on the premise

that a voter contact program with several discrete elements which

may eventually lead to an explicit fundraising appeal should be

considered entirely fundraising in nature. Although the Committee

contends that the telephone calls without any apparent fundraising

message had a fundraising purpose of educating potential

contributors for subsequent fundraising appeals, the absence of a
a

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fundraising appeal in the calls makes them indistinguishable from

campaign devices intended to educate voters and garner voting

support. The Committee's contention that the prompt follow-up

letter renders the initial telephone call fundraising is equally

flawed. proximity in time is insufficient to establish a

connection. For example, two television advertisements broadcast

on the same day are not both exempt for fundraising if only one

contains a fundraising message. The only evidence that there was

a fundraising intention is the Committee's assertion that the

program was a fundraising effort. This is insufficient. The

limited fundraising exemption was not intended to cover

expenditures with no apparent fundraising message.

Counsel for the Committee contends that the program was a

national operation cut short by the failure of the campaign. He

asserts that the program only appears targeted at Iowa because the

campaign ended before the program expanded to other areas.

However, there is no documentation of the nationwide nature of the

program. There is no evidence of telephone calls or mailings to

Iowa voters after the caucus. Moreover, this argument begs the

question. In a successful campaign, any program which has proven

useful in the early states could be expanded to other states.

Nevertheless, since the program was in actuality limited to Iowa,

the program cost should be allocated to Iowa.

The Committee's attemp~ to analogize the program with the

creation of a list of potential contributors for a direct mail

operation is similarly flawed. The Committee purchased vendor

lists for Iowa, and based the program on a list of 60,000 likely
o

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contributors. These facts contradict the contention that the

program was used to create a list of potential contributors.

Moreover, the Committee ignores a crucial difference between the

telemarketing program and direct mail. The initial telephone call

had a purely political message, devoid of a fundraising

solicitation. In an exempt direct mail program, each mailing

contains a fundraising message and each contact with the public

consists of one mailing with a fundraising message. Conversely,

the telemarketing program consisted of several contacts with

voters, but only some of these contacts contained c fundraising

message.

Furthermore, the Committee's reliance on AO 1988-6 is

misplaced. The opinion applied to a specific factual situation

which is distinguishable from the facts at issue here. In the

opinion, both the political issue and solicitation request were

contained in one cohesive advertisement, so that the fundraising

message was clearly related to the entire advertisement.

Application of the opinion arguably requires the presence of some

overt fundraising message in a communication as basis for the

exemption. In contrast, the Committee asserts that telephone

calls and mailings which did not contain any fundraising message

should be exempt. The Commission's decision in AO 1988-6 would

not permit a candidate to exempt as fundraising expenses a

fundraising program which includes several disparate messages and
I:f.,.;-" • "':. ....

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contacts with potential voters which do not conta.in an explicit

fundraising message.

The Committee's contention that the program costs are exempt

national headquarters overhead is also not tenable. The exemption

for overhead operating expenses of a national campaign

headquarters does not exempt the operating expenses of a specific

program focused on a particular state simply because it was

conducted from the national office. The regulations exempt

operating expenditures of the national campaign headquarters from

allocation to any state. 11 C.F.R. S 106.2(c)(1)(i). Generally,

however, state allocations are based upon whether an expenditure

is intended to influence the nomination of a candidate in a

",-

particular state. Thus, the exemption for general overhead

o

r-.....

c

0:

expenses should not be applied to costs directed toward the Iowa

election, as distinguished from the general costs of running the

national headquarters.

IV. FINAL REPAYMENT DETERMINATION

Therefore, the Commission has made a final determination

pursuant to 11 C.F.R. S 9038.2(c)(4) that for the foregoing

reasons Governor Pierre S. du Pont IV and Pete du Pont for

President, Inc. must repay $25,775.49 to the United States

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

Staff Assigned: Delanie DeWitt Painter

ATTACHMENTS

1. Interim Audit Report on Pete du Pont for president, Inc.,

approved by the Commission, August 8, 1988.
-14-

Response of Pete du Pont for President, Inc. to the

Commission's Subpoenas, dated August 11, 1989.

5. Memorandum to the Commission on the Oral Presentation

of Pete du Pont for president, Inc., dated June 23, 1989.

6. Oral presentation to the commission on Behalf of Pete du Pont

for President, Inc., June 28, 1989.

4. Response of Pete du pont for President, Inc. to the Final

Audit Report and Initial Repayment Determination, dated

April 21, 1989.

2. Response of Pete du Pont for president, Inc. to the Interim

Report of the Audit Division, dated November 4, 1988.

3. Final Audit Report on Pete du pont for president, Inc.,

approved by the Commission, March 9, 1989.

7.

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(1--

a:
1U. ~rant A. Ur.caarM), !irla.urer

Pltl du Pont for preaident, Inc.

P.O. Boa IJ•• 1loCklalllS, J)e1avare 1J732

.. .. -------- _..- - --- .

1XJP1/0.0211

.

. 00

FEDERAL ELECTION COMMISSION o WASHIHCTOtC, D.C. »III

Slptem~ 2, lJ11

~la rlport 1. to fomally a~.ial you of t.hl fineUng. ana

rlcOBDena&tlCft. of the Audit at.ff re.ult.ing frca the .uait of

Plte du Pont toE Pre.ialnt, Inc.

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~ou are rl~••t.a to compl, vitb th. recoaalna.tiona vithin

30 ....,. of rec.ipt of thia lltt..r. Aft.r .xpir.ticn of the 30

da,. periCMS .nI! rec.ipt of !Oar re.pona., t.bl Audit. at.aff will

preaent a fiDal audit report. "to t.b. Comaia.icn for approYal .DiS

aub.equ.nt pablic 1'.1..... If t.b. r.colUl.na.tion. containl4 In

":111. report are foUoved, .uch .fforU vill be noted in tbe final

judit r.port.. Bowv.r. adh.rlnci to tbe.e r.commena.tlClDS viU

DOt nec••••rily preclua. th. In.tltutiOft of Inforcement

proce.ding. vitb regareS to .pparlnt "iol.tion. of tbl red.ral

n.ction Cap.19n Act of lJ71, .1 .eftd.s.

If JOu h ......n, qu••tlou reg.reSing tb••• uttlr., pl.u.

ccmtaet .itb.r b. CorDilla til.y or Mr. Al.x loni.vicx.t (202) 311-5320 or toll fr•• at (.00) .2.-J530. -

..-

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A tt.achaent .. atateeS

eel 1Ir. J)an 8w1UinVlr .

..•
, ,FEDERAL ELECTION COMMISSION • WAlHlNCTOM, DoC. ..

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%JI'1'DDI IIUOm- or '1'D ADDI!' D%VI.IO. -.

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0 "ftl. r.port 1. ba.ea on aa audlt of P.t. &Sa Pont for . Co 7n.lant (-tb. COulltt••-) to a.tewn. wh.tber th.r. bu be.a . ccapllanc••1th ·th. pro.l.lons of the JI.a.ral .Zl.ctlon C_palp Act - """ of 1.n, a....nded C-tb. Act-' ua tb••r••ia.ntlal .rlaar, . I ·..tchlng parelit ACoOQIlt Act. ft....udlt va. coftCSuct.d pgr.uaat to

v 21 U.I.C. . '03' tal which .tat•• ~at -aft.r each utchlnl pa,.'Dt . ..0 per.104, tb. C=-1••10n .hall aolldaet a thoroulb .s..ln.tlon aDd

I aadlt of tlte qu.llfl., ~p.lp espen••• of e••ry cucSld.t. aD4 hi. -- .utborl..4 oaaaittee. wbe r.c.l••d paya.nt. UDd.r ••ctlon '027.-

I la addition, 21 V.I.C. I 103.(bS ana 11 c.r.a• ., I '031.1 (a) (2) at.t., la r.l••ant part, that the Ccmal••lon .., coDduct oth.r .saa!utl.a aDd audita froa tl•• to tia. a. It d....

to Ilee....r'.

ft. Caaaltt•• r.gl.t.red wltb the red.ral _I.ctlon

C08II1••lcm Oft 3&JH J, 1111. COUlltt....IDt.1D. Ita Ie:: !I.d~artera ia Wl1alngtcm, %>el••ar••

.!'be .udlt co_ret th. perl04 frc. the Ccmaltte.'. Inc.p- tlae, 6... J, 1"', tIa~agh xueb .31, 1,.1. Darlnl tbl. perloS, til. Ccaalt,*. "lOr-ted .. opealal cub balance of -0-, total

r.c.l,ta of ".10',412.'., total 4Iabar...eat. of ",731,410.05,

aDIS a a1c.la, ." t»&1aaoe .of '70/:00.". la a~ltlon, o.rtala

!lUDCla! aot1Ylt, ... r••l ..., througb april 3D, 1,•• for parpc.... of a.t.r.atD1DI tbe'C~ltte.·a r...lalal .atchlng fand entltl...nt bu., OD Ita ".t oat.tu41nl c·.palp obligation.. UDa.r 11 c.r.•.

I .03••1(.)(.), aaaltional aualt wort .a, be conduct.d ana aaCS.nda

to till. r.port l.n.' .1 llee....!7.

ftia .r.port II bal.a apea aoe_eDtl ana vortpaperl whlcb

.apport .ach of lu factual Itat••nu. !'be, fora part of the

reoora apea whlcb the C..-l••lon ba••a ltl c!ecl.lona OD the utt.r.

iD tb. r.port ana ..r. a.allabl. to Coaal••lon.r. aDa appropriate .tat! tor c••l •••

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leap!

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•• Key P.r.~nn.l

~. ~r...ur.1 of tb. Cam-itt•• daring tb. peri04 r.vl.wea

.a. 1Ir. J'rank A. Dr.ClUr.o.

~. auait Inclua.a .uch t••t ... v.rification of total

report.a r.c.lpt8,. dl.bur.fm.nt••Da In!lvlau.l tran••etlon., r.vl•• of r.qgir.d .upporting docuaent.tlon, .naly.l. of committ•• a.bt.

ana obligatIons, rev!e~ of contribution An~ expenditure 11a1t.tlon., . .na .ucb otb.r audit p~oc.aur•• a. a....a n.c••••ry una.r the

circumstanc•••

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Finaing. ana Recommendation. R.lat.d to ~ltl. 2 of the Unit.d St.t•• coa.

_ It..i~.tion of Zxpendltur••

,-.0

S.etloD C3C(b) (5) (AJ of ~itl. 2 of th. unit.a'Stat•• ced. I ". aut•• that ••ch r.port .h.n al.elo•• tb. n....na .aar••• of ••ch ~raon ~o whoa an .~nditur. In an .ggr.gat. amount or value 1ft

ac••• of '200 within the cal.n6ar y.ar i••aa. by the r.porting ~itte. to ...t a can4iaat. or coaaltt•• operating .ZpeCl., tog.th.r with the aat., amount, purpo.e of .uch oper.ting

("'l ezpeD41tar••

.:I: - 3

'" , Daring a revl•• of ezpeD4itar••, th. Audit .t.ff not.a

that the Coaaitt.. tailed to it.IIi•• Oft Ichee!ule 1-' two .zpenaiC tere. totaling '75,'1'.3' relati.. to the 1"7 T.ar-.ne! report. ("yo ~i.· GI01mt wa•.includea In r.port.a dlaber....nt. em the

ceaaitt•••• D.tailed ImmaQ' hg., however, • Schedul••-~

di.elo.lnl th••• ite.. wa. c.ittec! frca the 1"7 t.ar-.na report.

tn adaition, the .Audit .taff aeterain.d that for 23 !t.m~~ expeDditar.., tot.ling "1','43.'2, the Comaltt.. f.iled

to ltal.. all ..i~.a inforaatloD. lee AttachaeDt I.

~luU7, the Audit ftaff not.d • 4i.cr.panCf of

('224,421.55) between the reporue! total of itai..a ezpeDalture. an4 the calculated total of the it.-i&.a ezpeD4iture. for the

Iche4ul. IS-". provla~ with the :anuUJ 1'" report. !'be . Ccmdtt•• apparenUf reportecS payaent. to a payroll ••rYice ecS the . ~.latea payroll checu aDa taz P&Yllent., 1••u.a by tbe payroll .erYlce. ~be Cc.aitte. explaln.a that it ha4 Ina4..rtentll fal1ea

·0 annotate U _.0 eDul•• (noD-aadltln' ita. totaling

124,421.55 ~elate4 to payron.

During the bit Conference hel4 OD x., I, I •••, Cc.altte.

official. .&e.ea receptiye to filing ...~e4 r.port. to correct th• .u.cr.paDCi.. DOtea abo...

,

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.. _.. ..,. • ..__ ....... e.. _ •• • Jle

.

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RecommenaatlOft tl

'fIl. Aualt ataff r.coaaeD&1a ~bat tb. Cc:.a1t te., "ithift 30

cal•..aar aa,a after a.rYlc. of thia repor~ file ..endaenta (1) to

dlacl0•• th, two unit..l••a ezpen4i~ur•• DOted, (2) to correct aDa

cCliplete the diacloaure OIl tbe 23 ite.. Dotea, aDlS (3) to correctlr

41acl0.e t!e expenditure. to a payroll .ervice on the Januarf 1'"

report a. a.-orancSua enUie••

•• lteml.ation of tntereat Racel..a

Sectl= 43e (b) (3) (G) of 'flUe 2 of tbe united Itate. coae

.tat•• ~at each report ahlll cSiacl0.e the identification of eacb

peraon who proviae. any divicSencS, iDtere.t or other receipt to tbe

reporting oaaaittee in an aggregate 9&1ue or amount ID ezc••• of t2~D witbin tbe calencSar y.ar, toget~.r witb the date ana aaoant of

auch receipt••

~e tera -Person- i. defiDw! at 2 U.I.C. I 431(11) a. aD

lDalylaaal, partner.bip, coaalttee, •••ociatl=, corporation, labor

v org&JIlntion, or any other organiAtloD 0: groap of person•• tdentiflcatloa 1. a.flnea at 2 V.'.C. I 431 (13) (I) to .eu, ID tbe

c..e of an, persoD, other ~u an 1mt!ylaual, the full n... aDIS

.adre.. of .ucb peraOD.

~e Aaalt .taff'. reYle. of lntere.t .arnecS by the '" Ce-1ttee revealea that 12 tran.actlan. totaling ,1',Ue.03 ..re

DOt It..llea on Icbeaul. A-~ relatl.. tbe 1'" OCtober

c Quarterl!, 1'" Year-ena, 1'" april Quartarl!, &DeS 1'.7 ~ulf

Quarterl! report.. lee Attacbellt n.

..... At the bit ConfereDCe, the ecaaltt•• official. agreea to oJ'. file ..eDdJlenta to correct the pgbl1c record.

~naat~on tl

Ifbe A1I41t aUff recoaaeDlb ~at the Ccas1ttee, wltb!D 30 cale~u da!••ftu .erYlce of th.l.a r.port, fl1. a.nc!aenta

It..laln, th. rec.lpta DOt.a aboft.

c. moeation of szpeDaltare. to Itate•

••ctlOftS en. (b) (1) (A) &DIS CUa (c) of IfIU. 2 of tbe

··VI11tea ltat•• coae proylae, ID part, that DO can4icSate for ~.

offie. of .r••laent of tbe United ltat•• Who 1. .11Vible aDd.r

"ctloD 1033 of ~1t1. 2' to recelYe par-ent. fraa tbe Secretar.r of ~e ~l'.uurf "7 ute espana1tare. in anyone ltate avvregatlnv In • asce•• of tbe greater of 11 cent. au1tlpl1ea by the 90tinl age populatl= of the ltat., or 8200,000, a. aa;1altea bf the change ID

the CoaaaHr .1'1ce %D4u.

-• /~ ,
--....1-------------..,,;;;;;;;;;;:.,:·-::.; ..;:;...._.:.....:-:;;.;;;:. ----, ". '. . .. , i.'

I

. .' .-,

. .Sects- ~O"2(a) UJ of 'fltle'll of the Coae of Peaeral

b,alationl .tatel, ID part. that ezpenalture. Incurrea by a canCSIdate'. authorl..a ca.altt..taJ !o~ the purpoa' of influlncing the

DOa1natl.OD of.the ~ICS.te for the office of tbe '~e.la.nt with .r••,eot to a partJ.C1I1u .ut. a!la1l be allocatea to that Itate. Aft e~ltar. sha11'~ ftece.larllt be allocatel to the 'tate ID

.lola th. ezpeD4itare II 1ncu.rreCS or pall.

. lecticm nO.I(c) (2) of 'fltle 11 of the coae of PeeSeral b,u1.~tona .tat•• that for S'tue 11.ltatloDl, ezpenaltur•• for . !uft!ralalng aetl.1ti•• targetea at a particular Itate ana occarrinl

vltbiB.21 da~ bI!ore that Itate'. prlaaff eleetloD, convention 01

caaca. shall be' preaaaea to 'be attributable to the ezpenaltare .11altatloD for 'that .tat.. .

.'

. .. . .. ..- _..-.._...... . , - r:- .... .. . .... . ,,..

. . 1)mlDI fieldwork, ~be Au"lt .taff laentlflea a pro~.et

Jlaea '" the Ccsdtt~ InY01.1DI a telemarketlnl ana .al1 prolr.. C-th. ~rOir~·J. _~1.CUI.1oAa nth coaalttee official. aD&! a re.le.

of C~ltt•• rec~r4s aaae a.al1able Indlcat.a that the 'rogr.. ~~at.' oat Df·tbe C~ltte.'. b.aa;aartar. ID Wl1alftgtoD, ~e1a..r. prwrl1J Iroa "aDe, 1'" ~rou;h P.braat}', 1"'.

1

..0 .' fte Progr.... a coapater-bal.a -rltell whIch appear. to

_..-haYe accomoa&te4'ap tD 35 telephone .tatlon.. Zach ltatl_ - ecces.ea one C)f .fa pteacalfta~elJ asea ilcrlptl through a ca screen

r liDked to u a~Uo diU fea~ure ueeS 'le placlnl caUs. fte ~rator, ubi • beaa-I.t, .oula work through the Icreen .crlpt 1ll,IIttlDI re.pc=I'. reoel• .a frc. tbe perlOft contacted. WheD ~he

oall wu coapletea u 1A-muae ..1111'1 va. autcaatlca11f ,eneratea, r .If eeedel. !be hograa appearl to ba.e ben operatea .alD1J darlftl

e..nlDI ADI! .ebml lleurl -pl071DI, OD a part tl•• balli, ttlO

n- nlfu of opuato:a. .

~. . ft. A~lt lUff re.le.a the Cc:.altt.e'l ezpeDalture fl1•• fH ·ve~or. that ooald be la.tlflea a. part of the

I ~OSJ%" aDS ~~:lRea ... ..t ~IOIr- aoltl totaling ,7C5,C31,2C.

~e ~t ataff thaD re.lewea tbe COBaltte.'1 allocatioD

of. ezpeD41 tu••ot;..to 'atatel to cSet.miDe' ~e eztent to "hlch the.e • 'rotra COlts '-i' a11ocat" to 10ft. fte Aa41t Itaff .seteralnea .. ~at 'U"IOI.OCf Ia 7rosr- ~tl were allocatea to tow. Ifte

.fOUoriDg t,M. ~la..·. detailed ocaparl.oD of laentlfle1 I ftogta ~t• ..a cOati a11oc&ted to towa bJ ~e Ccaaittee. .

•

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1101,431.2'

42,'47.51

1,701.2'

1'7,151.'7'

1',020."

5,1'4.00

4,083.4'

'3'75,Se'.15

Pr09r.. CO.tl Allocat.a

by Au4lt

- .

.

.

~ogr.. eolt. Allocat.a

bY COIUlt t te.

I 21,3'1.00

2,110.00

'2,243." - 17,020."

4,013.4' - '11'7,101.04

s •

.. :..:--'-_..... -_.... . . . _....

:,'

'total

I ....ntlfl.. - ,rOlr.. cost.

Il.phone " '15','33.11 ~pate~ I ralataa ••rYle.. l'1,"2.2C

Int I atllltJ.. 21,31'.31

s1ro11 277,371.12

'Ita,. ",202.11 irln, Inlta11atloD ',710.00

iacel1aneoas:1 .,013.4'

I - •

•

kid OD Cc.&1tb. a110catlcm wo~tpape~. ana aoe.entation ..I...allabl., COltl Incloaea ID thla categor, coull not be

alreet1!' uaoclat.1 with af of ~. oth.r cat.gorl.1 DOul.

,

f

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,

"

" Darlnl tbll ~.yl•• It bee... apparent to tbe Aaalt

('\'" .Uff that tb. progr.. foeu••a to a large est.nt on Iowa. &

JlUcIa 23, 111' ...oraluS.. Clee Attaebsent III) f~oa a eonlaltant, CSl~.et.a to Ccaaltt.e reprelenutl..l, oatl1n.a In a fal~lf

detail., fublOD tll. eonialtant'l anaerltanalnl of tb. -,oall ua ob~.etl... fo~ the 4u Pont telemarketing aDd ..11 progr...• Althoagb Coaaltt•• offleJall 41a ~t acknovleagl tbat thll plan

wu th. balll of tbel~ ~el_ar'etlnl pregr.., the Aaalt .taff II

of tIM oplDloa tbat ~b. balle ccaponenu of thl. plan with

%.I,.ct .to the t.l_ark.tlng .ffort al~.etea at %ow wer.

Japl...ntea bf the COIIIl1tte. aDa Wlcat. a foeu. on Iowa.

"..cona, a ~eYle. of tb. ~llllftl~ bJ tb. 10nl alltaftC.

e"' . ~.lecoaDanlcatlonl c:capan, as.a bf tb. CoaJtte. for tbe Progr.. ID41eat.a tll.t tb. ,,'or.-lt, of tIM c&11•. wer. to Iowa. J)lZrlnl

no the period :aM, 1,.7 to P.bruarJ, 1"1, tb. Co_itte. Incurr.a

1157,171.32 for the ~ogr"·I.1cm1 alltance I.rylee, or aboat

c: 11',500 per .ontb. & nyl•• of blU. for the abo.e .entlonea

'. period lnalc.te4 that tb. COltl of c&11...a. to Iova cceprillea f~_ ••, to 10' of the GOat of a11 DaU' ..a.. Parth.r analflll

j" . of tIl.leolt, ..tbe a_ber, alii the laftgtll of call., Inaleat.1 that , ~. ~r09r- wu ••a" prba~111 is ~!a•••u1JsgI, aurlng .bleb

Mar. ~. oalla "r. tllt.et.a 12..t aaclulftlf at low.

I J'lDaUf, til. a041 tora reYle"!! .U acrlptl eemlla.r"

for ue in the ~ogr_ bJ til. Cc.altte.. Of·tb. 2. Icrlpta Jeylevea, at le••t 11 .....a to be Ur,.t.a at Iowa. ft.

coaaltt•• pro~la.a an ezplanator.r 1.tt.r aat.a .a, 12, 1"',

.alOnI wltll copl•• of ala .e~lptl that .cco~alng to th. Coattt•• ..r•••ea alaOit .zclaslftlf ID the tel..art.tlng progr.. aurlftg

perlolS 1/1' throggb 12/1',
-_-i~_-- _

ana coplea of lettera ~.allea aa a reau1~ of the rlapon.e ~o

.ach acript. See Attacbalnt IV. One of ~he.1 acripta va. a poll . (Attacblliftt tv, PAve 21)., four 'of the .cripta appear political 1ft

Datar. with no qwpeal for contrlbutiona CAttachaent IV, page. 4- 2~J aDa tbe flDa1acrlpt dl' contain a fundralalng appeal (Attachmlnt n, pal" 22-23) • 1ft all ala acripta the tift

appeata apeclficaIl! alrectla at Iowa by .lrtue of tbe caucus or

debate lD lOR being .Intlonla at Soal polftt.

~e Co.-ittll'a lettlr of Mal" 12, ltll notls that of ~el. scripta, onlJ' two were not ftmcSralalnl 1ft ftatur.

(Attachmlnt IV, paVia 3, 11-17, 21). The Ccm=ittee'. position with re.pect to thl scripta vaa that .0neJ' coula not be ralaea

frc. people "ho die! DOt know or sapport their laaala. 'fhe

" COiI-Sttel provldlt" aa furthlr aupport that thesl acrlpts ..r.

usia estenalvely, vortpapers altal11ng the "-ya ana ftaaber of

c calla ..ae aal1y vltb retspect tio each of ~he acrlpta. " . " AI DOtee! III thlir Mal" 12, 1,.1 letter ~he COllll1ttee'. "" .1)OIlt!oa ia that t"bl rlnt, WAC (utll1tiea) aDa coaputez rental ~werl correctly rlportla aa national office oVlrhla4, coaalatlnt

../) ttll thl trlatalnt of othlr co.puter an4 office rlntal "lthlll the o Japalgn beaa~artlra•• ~ana •• ~both.....re Dala Monaay througb ~riaay 1 a... to 5·p.a. bJ both the Legal aftc! Accoantilll

operatloa ana tbl Dirlct Kall ana "ent PuDSralslng ataff••- o 71Zrth.r,· .~na"I. DlGclatea with ~yroll, tllephone, postage,

1'.. ana ,oftyare ..re chargla alr.cUJ -to .ltblr lunaralalng, tbe

Jowa a11ocatloll or bl.pt Lega1!Accolmtllll as appropriate.-

. Aa DOtea abo.e, tb. &a41t ataff calcalatea the apparent

no· coat of the 'rogr_ to be "45,43'.21.. while thl Ccmalttee 01l1!'

allocated '117, '01. 04, or: ".boat 11' of laentlfl~ 'rogr.. coata

Ct: .to Iova, althouvb It II a;parellt tbat the 'rogram focuse! on

Iowa. ne AueSit ataff al.o ftOtea. that· a. of Karch 31, 1'1', .accortillg to' dle .tate Allocatloll aqort, ftC ~ora D, PAge J,

tbe Cdmaitt.e baa allocat.4 eapencSltar.a totaling '111,tt5.0' to

the Iowa llaltatlOD of ,775,217.10. ft. Adlt ataff'a re.le. of

espeD&!ltar•• allocate4 to Iowa &Set.mnea tbia flgar. to be ..teria1~ oornct," ••cept U IaOtalS .itll ~eapeet to the »rOlr_•

• a.ea Oil the &a41t ataff'. re.lev of the Inforaatloe

u4 I!ocamentatloft aae a.ai1able, it i8 our opinion that the

following 'rogr.. COlta, totallll; '375,541.15, r.~ir. allocation

to Jowa. "e Attachaillt V•

t"

o

t

- -

- . - -

•

" -

• ".

•

Of the fin follow-up llttlr...11e4 u a r.ault of tile

acrlpta, thr.. Includla appeal. for COftUlbutlcma.

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o Pr09r.. ec.ta Wi thin the 21 DI' llule

~, Aual~ .taff ~eylevea PrOiraa costa occurlnl

wlthlD 21 aaya of the %Oft eweu aDd cJet.raln.a that $52,101.11

.ID tllephone, reDt, ut!11tl••, payroll ana eClllpate~ relatea

.,"lc.. ahoulCS haw been a1.1ocatea to Iowa. As atatea 1ft tbe ~oaaltt.la' lettl~, aatea May 12, l'SI, for thl period ~ubse;alnt

~o "anaary 1, 1'11, ezpens.a _n al1ee.t.a 100' a,lln.t the Iowa 11~tatlOD 4u, to tbe -rze ~e,u1atlon 'll.lnltin, tbe PunlSrals1nl

aze.ptlon within 21 aa18 of a prlurJ el.ction.- 'fbe AaCSlt ataff ~.vlowaa Com:lttee allocation verkpapara wltb respect to tb, ~OIr.. ana CS.t.r-InICS, bas.CS on the lnforaatlon available, that

tbe cemmltt.e aUocatea ,el, 500. oe In .alary, phon. ana

aiacellaneous PrOiraa costa to %ova.

o Program eost. outaial the 28 D.% 1lal,

~I AuCSlt ataff ~evllvel! Pro,raa costs occa~rlftl

oatalae of ~be 21 aa1 ~ale ana aetlr.ainla that $322,13'.CI ID

telepbone, ~ent, utilitiea, payroll, computer relatla aerylcea, P'sta9l, .lrlft; ana alseel1anlou COlt. aboalCS bavi been , al10catea to %QVa. BueCS the scripta anc! telepbone lOla

pro.,ial4 .. part of the Ccaaittee'l May 12, 1'88 letter, It val 4eter~nICS that 'II.311.CI 1D lon, alstance tllec~unlcatlon

eIIar,ea .&DC! '111,331" 00 ill parroll COlts vith relpect to the

Pro,r.. ahou1a bave been aUocate! to %owa. With respect to ~lftt

aDd utlllti'l, tbe ~aCSlt ataff CSetlrmlnea that, balea on tbe

boara of operation al proyiCSla b7 tbe Coaaittle 1ft tbelr 1,tter

aate4 xay 12, ltll, '5,113.10 iD eZplnaltar.. shoa1a ba.,e bien

aUocatea to Iowa. ~e Au41t ataff CSltlraln.a that $35,110.05 1ft

ccaputer rel.tea Pr09ra coat. aboa1a ba.,1 beln alloeatea to

Ion. FlnaU" tbl AQCSit ataff &SetlmineCS tbat polta,e totalln,

'1',020.", wiring lnata11atlon COltl of '5",e anc! .llell~nloua

COlt. total1n, '4083.C1 ahou],a ba.1 blln allocateCS to Iowa. fte ~Qait ataff'. ~eyl•• of CQmalttee workpaplr. InCSlcat,a tbat

"1,101 iD a&1"7' P!1OM, postage, aappli.1 ana ccaput,r relatea

CIOlta vitia ~elp!et to the .rogr_ nre 8110eatea to Iowa.

follow!ll; ~ecap ana aBalYll. is p~o.iaea witb ~eapeet to ~b' Iowa atate expan41 tare 11111tatloD.

'II

--------......_---------.......;,-------_.. --- .'.. --.

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•.t~ • •• •

.. . ~.l...rk.tlftg Prograa coata allocabl.

U %owa per the Aualt ataffa .

@..... .. ---. ....- .. .. '" .. .- _. _~iJ~ . - --.-_._.... ...... - ..... ,. 1;)-'

..= . •

Within 21 Da7 bl.

autaia. 2.' ~Q bi.

Le.. Progr.. coata alloeatea b.r

tbe Cc.alttee, -

• 52,70'." . 322,139.tl .. '375,St'.15

Wltbin 21 Daf aal.

OUtc14& 21 Daf ltal.

Aaaltlonal 7rogr..·coats r.;u!rin, ~OC.tl0D ~o Iowa

, tl,SOO.DC

7&,106.00 (117,606.04)

'2S7,'t3.11 ....... .....ftll!!t:Ta•••uocat.a U» Iowa per :

0- COII.ltu. ftC 'ora 3P, pag. 4 . n6,"S.0, . v ZK,eD4itur.. sabject U» Ion 11.1tatloD '.7t,'31.20

"T tAa., 2 'U.I.C. S.ctlon 4Cl Ca) ltat.

~: BpeD41ng £1aitatlo11 (775,21'.10) \

"-

~al ZzpeDalturea 111 bees. of State

0 %.1a1tatiOD $ ",'720.'0

. ft. Aualt .talf recca••na. that wltblll 30 calenaar da,.

.'ter ••r.lce of tll. report the Cca.!tt•• provia. evid.nc••bovlng ~.t it haa DOt eac••a., the 11.1tatloD u ••t forth abc:tv.. Ab.ent

.ueb a .howillg, Audit .taff r.Cc.D.fta. that tb. Commltt•• • ajut It. r.cora. to reflect the ezpeD41tur•• allocat.es 111 %ova,

aDd where Dece..ar~ fll. ...D4.a r.port. to r.flect the correct

_oamt a11ocel. to loa.

%a .Mltlon ~h. Adlt .taff r.=--na. that the Ccaaltte.

ltft).14. a S.Ul1 Uath, for aU ••Ddora r.lat.a to the

al.art.tlDt protr.. ana aD 1t ..lsat1011 of all usoclat.a coat.

illcarr.a witil reapect to .ach ••Ddor. 'ueb co.ta lftclua. thoa.

!ACUfrea with re.pect to de9.10pa.ftt aDd l~l".Dt.tloll of the

te1..ark.tlng progr... • ...a OD our r••lew of tb. aocua.DtatloD pr~ldec!; ~h. ADeUt .talf .., ~.;ulr. ace... to· all agpportlft' doc••DtatIOD.

J"Qrthu ~ec....naatloD8 .af be fortbcoalftg.

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.

.

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D. Refund. of Exce••i.e Contributions

Seetlcm 4Ua Ca) (1) (A) of 'fiUe 2 of the united Stat•• eode .tatl. that DO peraon .ball ukl contribution. to any c&ftdl4atl an4 hi. authorised political committee. with re.pect to

an! ellctlon for realral otfice which, in the aggregatl, ezc••d

'1,000.

S.ction 103.3(b) (3) of ~itle 11 of thl Coal of ~Iaeral ~gu1.tlon. stat•• in part th.t contribution. which ~zc~.d

~hl contribution liait. wbln aggregated with othlr contributiona

frc. the .ame contributor aay be litblr depo.itld into a campaigft dlpolltor,r or returned to the contribUtor. If alpo.itld, the ~~rl..urlr aaf .reque.t rGattributlon of thl contribution by'thl contributor. If thl r••ttribution il not obtainld, the tre••urer ~Ihall, within aiztf aaYI of thl .trla.ur.r'. receipt of thl contri- ~batloD. rlfLm4 the contribution to the contributor.

~- nuring fielawork the Audit .t&ff re.il..d the

contributions refuna~ by th. Ccmmittl' .na noted that for 41 ~Ofttributor. who.e ezc•••i.e portion. totalld '15,541, the

Caaaittee did not refund the azee••l•• portion. timelf. A Ichedul.

-of ~e.e contribution. vu pre.ented to thl Cccalttee at the bit

c·c=ferlnce.

SUb.lquent to the conclusion of fieldwork, the C~ttel refunded ezc•••i•• portion. of contribution. totaling ~",211 frc. 50 contributorl aDd providea documentation to aapport

C"" thl rl.ttrlbution of ezce••l.e portion. totaling $650 frca 2

coDtribator.. Bowver, of tbe.1 ezce••i .. portion., 16 refuna.

0: tota11ng '2,"2 ..rl DOt a.a. t.iJlIl!.

~UI, tbe Committee 4id not refuna in a ti.ll,

a&aDer _zcI••I.I portlOD. of contribution. totaling '11,513

('15,5«1 + '2,'72) f~aa 5' (11 + 11) contribator.. Se. Attacba.nt

VI.

R~naat!OB tl

'fb. Au4it ataff reccaaeDd. that thl Ccamlttel, within 3D

calenaar cSay••ftlr ••rvlci of thia r.pon, pro.iae an explanaticn, inc1u41nl an account of any altig.ting cirC1Z&lstance., a. to vhf

tbe.e ~Ifund. ..~e DOt acccapllab.s 1n a tiae1J aanner_

~ther reco...naationa .ay be forthcoming-

•

• I-IO
. III. Pln!lng. ana ••coma.naation•••lat.a to ~itl. 21

of the unlt.a Stat., cOd. .

A. eal=lal:108 of ".paD.nt .atl,

8ectioDa '031 (b) (2) of ~1t1. 21 of the unlt.a Stat•• coa• •tat••, la ~rt, that If the Cc.al••ioft a.teraln•• tbat any amount

of anI, ~,.ent .aa•. to a ca"aiaat. frca the .atching funa account

va. u.ee! for purpo.e. other than to aefra, ~alifi.4 campaign

.apen•••, it .hall Dotif, .uch can41aate of the ..ount .0 usea, and

the e~laat••hall pel to the Secr.tarJ an DOunt ec;gal to .uch aD

BOat. .

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sectloD JD31.2(b) (2) (111) of ~1t1. 11 of the Code of . ~.aeral ••,ulatlon••tate•.that the _oant of an, repayment eought fJ'gnaer thl••ectlOl1 .haU bear th•••• ratlo to the total DOunt ~eS.ter.alnec! to ha.. be.n asea for non-quallf!ea campaign espena•• a.

u. "OQftt of ..~cIlIDI funa. certlflea to the. canalaate bear. to '" the total ..oant of aepo.lt. of contribution. ana .atchlng fana. a.

of the caDdlaate'. aate of IDellglblllt,. v

to 'the fonala aDa It. application wlth respect to the l· ..lttee'. recelpt aetlYlt, I. a. follow•• "

~al ••tcbIDg Pun4. Certlflea ~ough

~ate of IneliGibility 2/1ILII • amerater + .rIvate contrlCbutlon.

.ecelna t~oag~ 2/11/11

•

-I2,29I,OI4.5C 7,453,436.'3 • .3002"

!'bu., the repayaent ratio 1M Doft-li'Iallflea cDpalgn

ezpanae. 1. 30.02"'•

•

a. ,.e ot fpna. for "em-oaa~tflea '-pale Zmn•e•

.: teetl_ '03SCa) of itltle 21 of the hitea Itate. coae

at.te., In part, that DO c~la.te .ball Dendftgl, Incur ClQallflea c_palgn ezpe~•• III ezceu of the ezpenc11ture l1altatlona appllcabl. ~er .ectlcm tCla(b) (1) (A) of ~IUe 2.

hetlOD J031.2(b) (2) (il UJ of trlUe 11 of the Coae of

7.aeral .egut.tlon. ItroyICS••, III p.rt, tbat the CCIIDlI.alon u, ·~t.ralne ~a~ aolmt C.l of aft' pata.nt...a. to a cancSlCSate fre:- ••atchlng pa,..nt acCOQftt ..re uea for purpo••• other thaD to

_.fraf ;aaliflea caapalgn .spen•••• leetlOD '031.2(b) (2) (II) (A) of ~1t1e 11 of the Coae of ~ec!.ral ••galation••tate. that aD esample of a ec.al••lon ~epa,..nt aeteralnatlon ancSer paragraph (b)(2) of

thi••ectlOD Incluae. aeterminatlon. that a caDc!laate, a canaleSate e•

:r -11
authorised coaal~te.(a) or agenta ha.e .aae expenditure. 1ft exce.a

of the l1altatlofta aet forth 18 11 c••••• I '035.

a. ftote4 lD ~IDdlD, II.D., ~b. Audit ataff d.ter.lned ~at the CCllJllttee haa .sceeaea the .zpeD41ture li.itation In towa

b! ",,'720.10. ft. aaoUDt aubject to "repayaent 1. calculated

below.

1fIl. Audit ataff recoaaena. that, wlthlft 30 calenaar· aa18 after

.•erYlc. of tbia report, the Coaaitte. d..on.trate that it ba. not

ezcee4e4 the Iova .tat. expenditure l1aitation. Aba.nt auch a

abovln9, the Audit ataff wiU rec:o.eDl5 tbat the CommiaalOft ute an

inltlal aet.ralnatlon that the pro rata portion of 521,'.2.'71

("','720.10 z .30021') be repalt to tb. V.I. ~reaaur.r.

"','720.10

.30025'

$21, 942.'7!Y

.'

.

. •

11 ..

.

-_.... .--_._--..... - • _e •._.. •

'fbia _oant '" lDcren. if additional allocable co.t. are

lc1antlfled baaea OIl our ~eYI.w of iDforaatlon pro.ldea la

re.poDae to .ecoaMn4atloft '5.

,

•

.. ~aft~ 1ft .zc••• of the tOft State

ZXpenditure LialtatioD

~De. tbe ••paYliezat btio frClll ttt.A.

7r.l1a1narJ CalCD1ation of tbe ••payaeftt

.a.ozt:

c. 'tat••ent of w.t Out.tanain, campa!," Obl1oation.

I.etloa 103•• 5Ca) of IflUe U of tbe Coal of r.a.ral ~9a1atioftS require. tbat the candidate .Ubmlt a Stat••lnt of Wet

.Outstanaln9 Caapalvn Obli",atloaa (-lOCO It.tem.nt-) which containa,

_ong otb.r 1t ..a, tbe total of all oat.t.nalng obligations for

qgal1fied campalgD espena•••• of tbe can41dat.'a dat. of In.llg1- bllltl aDa .n eatlaate of D.C••••r.r wlnalng doVil coat. witbln 15

")fa of~ the caD41aate'• .sate of In.U,lblUt,.

. ClID ••1:aru~ 1', 1,n, ftt. tu Pont .nnoancea that he haa

witb4nWD fzoa t.M ~ace for the ..pUblican ftoaination for Pr••ldeDt

of the VDlted .tat.... turaaut to 11 C..... I 1033.5(8), that 1.

the lSate 1Ir. h PCDt'a cwldaCf tera1Date4 for the purpoae of

lDCarrlng qgallflta c_palp eqeuu.

fte CCIIIlltte. aabaltted their original ROCO Stat•••nt on Ilar= 3, 1'" aDa baa continued to a"balt ~,Yl••e! .OCO Itat.ent.

wit.h each aatcblng fllDe! aabal.aloD.

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U" tecommenaaticm l!

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.

.

.. ~. Aall~ .t.ff re.l...a the waco It.te.ent aatea Pebruary 11, 1.11 for fln.nol.l actl.l~ througb april 30, 1"'. ~bl. r••lev

iaolu4ea "erlffeat!OD of c:aaJ., account.· recel••ble, c.plt.l ••••t., other ••••ta. .ccoW\~ p,abI.·for tu.l1fle4 oupallft expen•••, an4

actaal aaa ••tlaat.4 .1Dling aOWD co.t.. . ". ~re.ent.1 ~elow 1. ~he Aullt .taff'••n.ly.ls of th.

ca.altt•••••ceo atate••nt •• of p.bru.rf 1., 1••••

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• 100... JO,Oll.2'

1I.21t... 17,210,,,

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., 08Uua.Jla, e-pd..

ClIb1SptlOllll CDdla') • eI 1/11/11 .

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1/ "*Kr7 1•• 1..... tH 'ate ••teniael " th e-lliSn too .. tM CU4S&au·. tau of lHU.lI~lU'l' ,. talo... ef

tanrd...allfl....,.1.. ..,...... . ., ,..., u c.~.... IOJt.t~J (11 1 '*1. h la

I ..... er er .. lla1UU., U c Jut I'SS

AaU Mt 1••nt • callill 1~ ns_ prtclua u~ .~!\!ltu.. f~ he1ul~ la , .. ..:0 . .. _. -.. .

&coData ,.,abl. IN

OGallfhtJ CapaS.. Dpeuee

Aoec=u 1:1ab1. to:

_Ulbat oa ~.f'"

WlDlNoe COIU • aotul

JIlt/l' M tlM/••

salarl.. I1••lot.2t

aSloell&Be0a8 IO.,es.'1 Cpua".. In ,.poll 11','''."

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,( 23,955. 'I)

• (443,671.01)

111,536.10

231,140.31

3,.38.11

•

Bbo.a ~1ow 1. a. aaja.ta.nt for prl.at. contribution., lnter••t afta .atcblDI tuna. ~ec.i.ea auring tbe period 2/11/11 to ~/30/l" the ao.t carr.Dt finaDela1 Woraation aval1abl. at the

c1a.. of fi.1a~t.

11ft Oat.taft41ftg Capalga ObllgatiOD. (D.ficit) a.

of 2/1S/I' "'

..t 7rlwat. Contribationa

Hatching 7~a. Roc.l••e

%At.rut aecel..4

1Waalnlftg btltl".Dt a.

o! .april .10. 1.1S.

l~ a. of april 30. l'SS, the Cozaltt•• baa not recel•.a ..tcblJIg !aDa pa,.ent. 1a .xce••.of It. entltl...nt. Ualtloft&1

7 fl.lawork"7 be re;ulr.a to· s..... the impact of future ~1DaDCla1 aet191t7 on the ROOD a.ficlt•

••

..

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.

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UI'OU TIm .

. FZDI1t!U. ZLZCTIOH COMKISSIOR

WlSB%HQTOK, D.C. 20e.,

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RZSPONSI or

PE'1'I DC PORT FOR PRESIDIHT

'l'O '1'HI IH'1'ERIM RZPORT OF '1'BE AtJD%T DIVISIOJl

%. DTRODOC'l'IOH

Peu 4u Pont for President, the principal cupai;n cOD.ittee

of PeU 4u Pont, candidate for the 1988 RepuJ:)lican noaination,

fil.. thi. re.ponse to the Audit Division'. Interia Audit Report,

dated Sept.a=ar 2, 1911.

-:hi. re.ponse will follow the for:at of the audit report,

and rupond to each of the recommenc!ations therein.

%1. '1Tl'1Z 2 FINDINGS AND eCOMKEm>ATIOHS

A. i I. Xteli;.~iRD

The coa1ttae baa no oI:»jeet.ion to reCOll1Den4ationa 1 and 2,

call1ncJ for the uandaent. of coaait.t.ee reports t.o .ore accurately

reflect. certain expendit.ure. and intere.t receipts. The ..end-

.anta vUl H filed with the COIaIi.,1on under .eparate cover.

"
c.

,,

&11peatign gf Expenditure. ;0 stat.1

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1. %Dt:rocluction

Th. central i••u. rail.d by the audit report i. the allocation of the co.ta of a t.lemark.ting program, among headquart.r.

ov.rh.ad, funcSrai.ing co.ta and the Iowa expenditure limit.

Th. audit .taff'. vi.w i. that an additional $258,000 in

t.lemark.ting co.ta .hould b. allocat.d to the Iowa limit, which

vould cau•• the committe. to exce.d the $775,000 limit by more

than $99,000. Th. committ•• believes that the .taff'. conclu.ion

i. incorr.ct, and vill 10 demon.trat. that the expenditure. are

exempt funcSrailing cost. which ar. not allocabl. to .tat. .xpen4itur. limita.

Th. additional $258,000 propo.ed by the audit staff i. the

result of a differing vi.w of the allocation of the costs of a

funcSrai.ing telemark.ting proqram.

Th. committe. ua.d .ix differ.nt .cript. to contact voter.

and to raiB' mon.y. Tvo of the .cript. are political in nature;

the committ•• allocat.d tho•• co.ts to the Iowa limit. The audit

.taff agr••d that on••cript, which contain.d word. of .olicitation, v.. a funcSrai.ing d.vice, and th.r.for. exempt from the

Iowa 11Jlit.

Th. committe. beli.v•• that the oth.r thr•••cripts were

al.o part of a fundrai.ing p.roc;ram, and the co.ts a••ociated with

th_ are al.o exempt from allocation to the limit.

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2. Ta1~bt1ft9 - a l"un4rai.inq. Pr09r..

COntraJ:)' = the au4it .taff'. ~iev, the t:elemarketing

progra va. conceived and !mpl..ent:ed by the campaign a. a

.igniticant tuncSrai.ing etfort. The audit .tatt JIli.chara~eriz.d

~e proqr.. tor t:.hrae fundaaental rea.ona: Ca) JIli.placetS reliance on a meaorandu:a froa a conaultant (Attachment III to the

audit report)' ())) a failure to understand the proqrUl'. Iowa

tocua, ADd (C) a tAilure to comprehentS modem campaign

fun4rai.ing. The audit report al.o include. in the Iowa allocation certain overhead expena.. Which .hould have remainecS u

overheatS expeNIe.. In a44ition, expense. for payroll ancS toll

c:barge. vera incorrectly treated aa telemarketing co.ta, when, in

fact, they were part of general overhead•

ca) The 'templeton ."0.

Thi. c!oC1mant vaa received in reaponse to the campaign

JUnag_ent'. requeat tor a propoaal memorandwa outlining the

utabliahment of a telephone telemarketing, proqram, i. e. What

talecommunicationa and computer equipment waa needed to run a

talemarket1n; p~... The ruponae conaitSerGly exceecSe4 the

.cope ot 1:he 1nfo~tion r_que.tetS, and repre.ente4 a considerGle expansion ot the consultant'. ta.k (pre.umably in the

conaultant'. hope that he woulcS be hiretS to tSo the larger job).

The attached aftitSavit of Robert w. Perkina (.ee Attachment

B) r the deputy campaign IW\&ger, apecifically .tat.. that the

'ruapleton ...0 va. not adopte4 a. the campaign'. telemarketing

plan. It further .tate. that tundraiaing v•• a priae objective

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(;-.,.:. of ~al~Jtating, a tact which the Templ.ton auoranc!UIl·fail. = .~.. .

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fte audit ataff i;nore4 ~oth th. statuenta of campai;n

.-n&g..ent, •• vell •• the a-.o ita.lf, to arrive at it. conclu-

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(~) The Iowa Focua.

The audi~ .taff 1nc!icated, ))oth in the field audit exit

co~erence and. in 'the report itself (s.e p. 5), that the campaign'a lack of a national focua, and ita particular toc:ua on

Iowa, vaa a keystone of ita conclusions regarding the allocation

of tal-.arketing expena.., i.e., that the.. coata ven political

rather than fun4raia1ng in nature.

Tobia poaition fails to recognize the uniquen... of circumstance. aurrounc!inc; an -uncSerdog- campa~gn. An unknown candidate

IIU81: fOCWl fint on Iowa, 1:0 preaent hi. position., to become

mcnm, and to raia. tuna to .upport these .ffort.. Momentum

frca aucce•• in Iowa permita the candidate to be a factor in New

Hampshin. Pete c!u Pont va. nc* known nationally, and he va. not

kncnm in Iowa. A nationvic!e contri))utor ))ase vould be uncleratan4ably reluctant to contribute to • candidate whoa they did

not k:nov. To reach aDd to educa~e a national audience va. beyond

the ruourc.. of the ca:apaign. Indeed, each effort to do national c!1rect .ail -prospecting- func1rai.ing lo.t money - the

coa~ the liau, the printing and the po.tage excHc1ed the

revenue.
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IlOV8VU', %ova Y01:u'a could.be ed.~ca'te4, and vould have 'a . Rake in ~e election blcau.e of their participation in the early .. . cauCU8... !'ha~ at.aka vould. cauae th_ to conui))ute - once they

tnev the candidate.

By conua.t, .ore 1:rad.itional fundrai.ing va. carried out in

Nev Burp.hire, when COY. du Pont va. better known, and. where he

had the aupport of the .tate'. large.t new.paper.

'%'be au4it .taff'. concluaion regard,ing the lack of a national effort and. a foCU8 on Iowa .eems to ignore the roallty ot

aoc!ern Pre.idential campaiqna: the Iowa caucu.e. and the New

BuIp.hire primary are th. bec)inning and. the end. for .oat campaigns. If a candidate i. not IlUcce.sful in both, the candid.acy

18 over, a. it va. for almo.t all of the Deaocratic RapU})lican candidate. in 1981. For an unknown like Pete du Pont, it i •

...ential 'to rai.e funa in tho.. atate., because tho.e are the

aute. in which he i. becoming known.

(c) campaign Fundrai.1Dg.

All campaign tWldrai.1ng activities are compris.d of multiple ccaponenta. A trad.itional direct ..il effort requires

rantinc; a 11RJ c:reatinlJ a .ailing ·package,· with a l.tt.r, and

other 1naertaJ printing the package: affixing postaq.: aai1inq

the piece, and. procas.1nC; the returns. only one of the components - the letter - actually contains vorc!a of solicitation.

Yet the com-i••ion baa consi.tently treated all of the expenses

...cx::iatad. vith direct all as an exempt func1raiainq cost.

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,- .opbJ..~ica~ ulaarJca~1ftg is a rela~iv.ly Dev .ethod of " ~I \,

.-... . ,,:..'~ n.1aiDg cawpalp t\mda. Rather than. rentinv a ullift9 li.~, . 1Ddividual•. ap.n ca1led fZ'Oll li.b of phone JNJIl)ers a1)u1necS troll . . . . varioua aourcu - local al.c1:ion boards, cOIIZIlercial li.u

cover1Dg neighborhoo4a vith certain 4Uloqraphic charac1:eri.tic.,

poll~lca1 party ...buahip 11.u, etc. As vith traditional

direct ..il, tal--.rketing fun4rai.ing has IlU1~iple COIlpon.n~.,

vtUch coBine to proCluce re.ulu, but Which 1n4ivi4ually are not

productive.

Par umapl., a phone call a.kin; for • contr1bu~ion evan

froll a du Pon~ IIUPPOrter vill produce no ruponse unlu. •

follow-up letter ••ka for the money, and prcvi4e•• reply card

imd eDVelopa. A ·cold- call to &1'1 Iowa voter who knows nothing

aboUt Pate du Pon~ vill produce no r~enue: .omeone who i4entifiu h1sself •• • .upporter a. the re.ult of the telephone

.....g. i. mach aore likely t.o give .oney when • follow-up

..U1ng 1. received.

Thi. approach i. ..pecially important here .ince GoY. 4u

Pont. ran an 1••u..-ba.e4 campaign, the i••u•• were cOllPlex: the

deci.ion va...de to give %ovana .ultiple opportunities to know

'the candidate an4 the aaue., and only then to aak for funa.

'file .tId1~ report. tre.ta the phone call and the ..ilin; aa

two .eparate evanta, rather than tvo cc.ponanta of • tun4rai.ing

packAge, and conai4era the phone call not to be part of the

fUndraiaing .ffort. Following that loqic coul4 le.4 to the . concluaion ~~ the coat. of the liat rental for. traditional

direct _11 piece i. not. a fundrai.ing coat.

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The cawpaivn used .1x ba.ic .crip1:a for ~e ulemarketincJ

1'1:'091:- ..C'" Audit Report Atuchaent IV, p. 3). TWo of the.e I

were clearly not funCSnia1ng. The campaign haa never clailae4

th..=be ex~, and their costa vere allocated aqainat the

Iowa liai~. fte cClDDi~~ee believea that the other four acripta

were componenta of a fundraisinq proqraa, and along with liat

coau, follow-up uilinga, etc., the vaqea, =11 chaZ'ge., and

computer .ervices rela'.d to the us. of those scripta are exempt

funCSraising eoats, and should not be allocated to the Iowa limit.

The audit ataff treated aa funCSraising only one of these four --

tha ona which contained words of solicitation.

For example, tha -debate- acript and follow-up letter

containing a -debate .corecard- are obviously an integrated

funCSraising davica. Tha acript does not aak for funa, but

rathar aeta tha ataga for a written appeal ba.ed on watching the

fint candidate debate. Each of the other scripta operates in

siJlilar fashion.

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0" Tha audit -report, howevar, consic!ers as exempt only the

0: costa surrounc!ing the script which itself a.ks for a contribution. Tha comaittaa baliav.. that the thrae additional scripts

and aurrouncUn9 costa are exempt as part of a funCSraisinq progrea.

(d) other Expenses.

fta cemaiasion's raqu1ations, 11 CFR 106.2(c) (1) (i) and

106.2 (b) (iv), atau that headquarters expeMes for rant, office

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.qui~~, etc. , are national ovenaad. ':be audit report includ.. $,52,21.... in rant, comput~r expeMe. and wiring a• . allocele ~o Iowa, even though the.e are general overhead upewe.. '1'0 the committee'. knowledge, the cOJUIi••ion has never

allocated the Iowa liait the office rent for the headquarte~

.taff per.oD who wora full-time on Iowa. Neither .hould it

allocate the.e overhead co.ts.

'!'he co:=itt.. also disputes the accuracy of the aucUt

staff'. calculation of expen.e. allocable to the telemarketing

proqram. The CODittee believe. there should be adjustments to

the audit .taff'. calculation of telemarkatinq expense. for

payroll and telephone toll charg...

The audit report increa.e. "allocable Iowa expanse." by the

diffennce between the expense. the audit .taff purports are

allocable anCS the expense. allocateCS by the committe.. In doing .0 for payroll expens.., the audit .taff unCSentated the payroll

expanse. already alloCated by the committee by $7,684.00.

Attachment D detail. the payroll axpanae. originally allocated by

the committee. '!'be committee reque.t. that the "proqram costs

allocated by the CCIDIitt••- for payroll be incre••eCS by this

..ount, which would reduceCS the propo.ed "additional program

co.ts requiriDg allocation to Iow.- accordingly.

Finally, the committee believe. the methodoloqy u.ed by the

audit .taff .ignificantly oventate. the t.lemarketing costa

allocabl. the teluarketing progru. The comdttee ha., anCS

has offered to pre.ent, documented eviCSence (in the fora of

payroll ta. card.) of the hours of operation of the

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blaarkaUDg pr~... Thi. proc;r~ vas uti11ze4 exclu.ivaly . during ~eDing aM weekend calling peri048. ,

1'ha "ea-itt_ ba.e4 ita talep~one toll charge allocation

..thoc! on long distance charge. occurrinCJ within thi. peri04.

':he COIIIlittaa al.o .upled to deteraine what portion of call.

within thi~ ta. period vere unrelate4 to the telemarketing

prograa. Xt deteraine4 an average of $34.18 per day in evening

aM veekend toll charge. vere due to call. unrelatecS to the

telemarketing proc;ru. The vorkpapera in Attacbment C dQtail

what the committee ~lieves i. a reasonable calculation of

telephone charge. related to the telemarketing prograa. As.uming

the audit .taff'. proration percentage. of 76' O1Itaide the 28 day

rule and 100' vithin 28 days of the primary, this vould reduce

the -prcqr... co.ts allocatee! by audit- for telephone toll charg••

1:0 $13,063.53. Once again there would be a corresponding reduction in the -additional proqraa costa requiring allocation to

Iowa- of $1,372.'6.

'!'he c:mD.ulative impact of these corrections in the method of

calculating teleaarketing expens.s r.sult in • reduction of

$16,056.'6 to the audit .taff'. recommendation with respect to

the Xova lait.

3. konclusioD

(a) The ccnamittee'. original allocation to the Iowa limit

talezarketing prograa costa is the appropriate allocation. It

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racovn!a.. 1:.ba~ two of the ~el_rke~.inc; acripa wen not part' of . a funcSralaiD9 pr'09r... %~ further recoqnlze. that the other four .. vare par't of a tuDcsni.lng progru..

~e Federal Election campaign Act of 1971, a. amended, at 2

U.S.C. Sec. 431(9) (B) (vi), provide. that Wany co.ts incurred by a

• • • [Preaidential candidate] in connection yith the aOlicitation of contribu~lona on behalf ofw the candidate are excluded

fro- .tate expendi~ure laita. [Emphasi. added.]

~e Commi.sion'. regulations interpreting the =tatute define

the fundrai.!n9 excluaion ~o mean "any co.t reAsonably related

tR" or wA";eiated with" the solicitation of contributions. 11

CFR 10Q.8(b) (21) (ii), 106.2(i) (5) (ii). [Empha.i. added.]

~e committee has amply damonatrated that the telemarketing

proqra. co.ts related to the three .cript. in dispute are "in

connection with,w wa••ociated with," and "reasonably related to"

funcSrai.inq activitie.. They are therefore not allocable to the

Iowa expenditun, but rather are exempt fundrai.inq expen.e••

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. Telaarketin; Proc;r" coata allocal:»le to Iowa:

(b) In the alternative the committee suggests that the

cc.aission'a holding in Adviaory Opinion 1988-6 (CCB Paragraph

Sill), that 50' of the coat ot a television advertiaement for

Sen. Albert Go.re ..y !:»e allocated to exempt funcSraising, also

applies to this situation.

In that opinion, the Commission concluded that a thre.-

aecond viaual liating, -Vote - Volunteer - Contribute,· plus a

voice-over c;ivin; a phone n1mber for contributors to call, as

part of a 30-aecond iasue campaign advertiaement, would permit

the allocation of 50' of the ad'a cost to ex..pt fUndraiaing.

Given the clear fUnc!raiaing purpose of far more than onetenth of the du Pont telemarketing proqru, the committee au):)mits

that, evan accepting arguendo the audit report'a conclusion that

Leaa coata allocated by the committee:

Additional program costa requiring

allocation to Iowa:

Expenditures allocated to Iowa by committee:

Expenditur.. Subject: to Iowa limit:

Lua Iowa limit:

Amount under Iowa l1ait:

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Within 28-day rule

OUtaide 28-<5ay rule

$52,709.67

$76,106.99 128,815.67

117,606.00

11,209.67

616,99S.09

639,414,43

775,217.60

135,803.17

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$322,13'.41 of the talaaarkatin; co.~ outai4. 21 day. rela~ to

Iowa, ~f of th. co.ta an exapt f~4rai.in9.

Audit ataft concluaiona:

Lu. eoa1tt.e allocation:

Ad4itional allocation to Iowa:

Lu. 50' per AD 1988-6:

co-ittee allocation to Iowa:

Total allocated to Iowa:

'1'bi. total i. $35,000 under the Iowa limit.

$322,839.48

-71,101,00

246,733.48

123,366.74

+11fi"9S,09

740,361.83

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Th. committ.. therefore conclUde. that under .ither lIethod.,

it has not exceeded the Iowa limit. The audit report'. recom-

.endationa, and repaYllent calculations, .~oul4 therefore be

ao4ifie4 to ao reflect thi. conclusion.

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%II raapoDa. 1:0 recomaeDeSation '6 of the 1nt.ra aucU.1:. .. f1ndinqa, th. eem.itt.e acknowledges that the .pacified refuneS.

vera not ..de within 60 days of receipt. Ther. v.re, however,

mit1qattnq ci1"C\DUtances vit.h respect to th. aajority of th...

iDatanc...

fte du Pont campaign expended considerable resourc.s to

a.aur. that adequate syatems were in place to .crean for potential exce••iv. contributions. This included a Combination of

thorough manual screening procedur.. and contractual data proc..sing .upport from a third. party vendor.

Attachment A details the circumstances surrounding the delay

in refunding .pecific contributions or group. or contributions.

In 31 .eparate in.stanc.. the delay in identifyinq an exce.s

contribution 1. directly traced to the creation of • .econd or

third contributor record for a prior contrj.l)utor, due to a

di.crepancy in the name, title, SUffix or address of the individual.

er. '!'here were two perioc1a in which the refunds were delayed due

to the c!ifficulty in coping vith unusually heavy volum.s of work.

'!'h. fint of th... vas du. to a ..ssive direct aail effort in

Hov.abar 19.7. Many of the.e refunds vere not identified until

the and of January or the fint week of February 1988. The la.t

occurre<1 .ul:t••qucmt to the candidate'• withdrawal when the

dea.anca of INltipl. MOCO statements and monthly report preparationa swamped the reu.ining .kaleton staff.

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fta du e-apalgn had total privata contributions iD . axee.. of '1.25 aillion froa .cae 42,000 contributor8. 'rhe o

cnnit't.. '18 ccmvincec1 that the bureS"en 1mpo.ed by the .heer

voluae of transactions, compounded by the lack of a truly unique

identifier C.ucb as Social Security number), I1Ulke. loot compliance with .ucb tight time quideline. virtually impo••ible.

Civen the .inimal dollar value of the refund. in qu••tion

(0.0002g5 of total private receipt.), and the .1:ability of the

caspaic;n'. finance., there va. clearly no material ca.h flow

aCS:vanuge. The committee .trongly believe. that the number of

occurrence. (0.001357 of contributors) in light of the volume of

activity .upporta the .xi.tene. ~f exemplary .fforta t.o comply

vith FEe guideline.. Accordingly, the eommitt.e urge. that no

penalti.. or .anctiona are appropriate in this ca.e.

BovmD.ber 4, 1"1

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. FEI?ERAL ELECTION COMMISSION W~!t4INCTOH. D.C. JCMQ

M.rch 10, 1911

!'rut A. Dr.ClUr.o, '1'r.a.ur.r

P.t. 4u Pont for Pre.i~.nt

P. o. los 1981 . JlocklaNS, DZ 11732

»••r Mr. Ur.=.r.ol

Att.ch.a pl•••• fiNS the Final Auait Report on P.t. du Pont

for Pr••iaent. ~. Commi••ion approv.~ the r.port on March 9, ~989.

In .ccora.nc. with 11 C.P.R. SS9038.2(c) (1) ana (a)(l), the

Commi••ion h••• ••n initial d.t.rmin.tion th.t the C.ndid.te

i. to r.pay to the Secr.t.ry of the '1'r•••ury $23,254.83 within 90

aay. aft.r ••rvic. of this report (3un. 11, 1989). Should tb.

Candid.te di.put. the Commi••ion'. determin.tion th.t a repayment 1. r.quired, Camai••ion r.gul.tion. at 11 C.P.R. 5'038.2(c)(2) provid. the Can4id.t. with an opportunity to .ubmit ift writing, within 30 calend.r a.y. aft.r ••rvic. of the Commis.ion'. notice

(April 12, 198'), 1.ga1 and factual .aterial. to demon.tr.t. that

ftO r.paym.nt, or a 1••••r r.paya.nt, i. r.quirec!. 'l'he Commi••ion

will con.ia.r any written 1.g.1 ant! factu.l m.terial••ubmittea

by the C.nt!idat. within this 30 ~ay period In making a final

r.paym.nt a.teralnatioll. Such .at.rial••ay be submitt.d by couns.1 If ~be Canaiaat••0 .l.ct.. If tb. C.ndid.t. doe. not

ai.put. tbi. initial d.teraln.tlon witbin the 30 d.y perioc! provl~ed, it will be con.laerea final.

~h. recoaa.na.tlon for Pln4ing II.A., Allocation of

Expenaitur•• to St.te., alao rece-aena. that the CommIttee

provia. docamentatlon of all ...oci.tea co.t. relat.d to the

t.1emark.ting progru witbin ~be 30 day peri0c5 noted abov.. In

addition, the Audit .taff recomaen4. th.t the Committee am.nd it.

r.port. to r.flect the correct ..oant allocable to tov••

~. Commi••ion approvea copy of the Pinal Audit Report will

be plac.d on th. public recora within approsimately 24 hour•• Should you b.ve any que.tion. reg.rding th. pUblic r.l•••• of

thia r.port, pl•••• contact Hz. Pred S. Zil.nd of the

Caaai••ion'. Pr••• Office at (202) 376-3155 or toll fr•• at (800) 424-9530. Any qu.stion. you ..y have r.lat.a to ••tt.r. coverea

3. "'ia ".,r
. c!urinl tbe ....It 'or la tbe r.JID~t aboUl' be c!lr.et.a to corn.ll• • 11., of ~b.·AD'lt D191.10a .t (202) 3'I-S320 or to!l fr•••t

CIOO) .2.-'S30.

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of tb. Aualt Dlvlalon

eel Danl.l~. svl111nl.~

Attaeba.at .a atatel

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.

. FEDERAL ELECTION COMMISSION

WAPtINCTOH. D.C. ZM6J

IDeM' 01' 'rB! AtmIT I)IVISIOR

ON

PI:D du PORT POR PRES IDE1ft'

I. .acksrounc!

A. OVerview

,.hi. report i. ba.e4 on an .adit of P.te au Pont for

Pr••ident (-th. CommitteeW) to det.rmine whether there ha. been

cOIIplianc. vith the provisions of the FeeSer.l Election C_paign Act

of 1971, .. amendec! (-the ActW) .nd the Pr.sidenti.l ptlaary M.tching Payment Account Act. Th. audi t w.. conducted pur.uant to

26 U.S.C. 5 9038(.) which .t.t•• th.t -.ft.r .ach .atching payment perioc!, the C~i••ion sh.ll conduct a thorough esaaination and

audit of the qualified campaign expen.e. of .very candidate and hi.

autborizec! committee. vho receiv.d paym.nt. und.r .ection '037. w

In addition, 26 U.S.C. S 9039(b) and 11 c.r•••

I 9038.1(.) (2) state, in relevant part, that the Cammis.ion may conduct oth.r examination. and .udits from time to ti•••• it deems

n.c••••ry.

The cammitt•• regi.ter.d with the Federal El.ction

Comai••ion on Jun. 3, 19.6. Th. Committe••aint.in. it.

h.adquarter. in Wilmington, I)el.ware.

The .u4it cover.eS the perioc! frc:a the Ccmmi ttee·. incep- tion, Jun. 3, 1986, through March 31, 1988. During this period, the Committee report.eS an opening ca.h balance of $-0-, total

r.c.ipt. of $8,806,.72.84, total di.bur.ements of $8,736,410.05,

and. cloaiDg ca.h balanc. of $'0,062.'9. In addition, certain

fin.ncial aetiyity vas r.vi.wed through April 30, 1988 for purposes of deteralDiDg tb. Cam-itt•••• r..aining .atching fund entitlement

b..ed Oil lu n.t outst.nding capaign obligation•• Onder 11 C.F.R.

S 9031.1(.) (4), addition.l .udit work .ay be conducted and .ddenda

to thi. r.port i ••u.d •• n.c••••ry.

Thi. r.port i. ba••d upon eSocum.nt. and vorkpapers which

.upport ••ch of it. factual .tatement.. lfb.y form part of the

r.coreS upon which the Ca=mi.sion ba.ecS ita decisions on the aatters

in the r.port .neS wer••vailable to Commi.sioner. and appropriate

.t.ff for r.vi.v.

B. ~ey Personnel

Tbi Tr...urer of the committee during the perioc! reviewed

vas M%. Frank A. Ur.omarso.

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. ..~be aU41~ Incluaea auch ~eat. a. verification of total repor~ed r.ceiftf, di.bura.ment. and individual tran.action., review of requ red supporting documentation, analy.i. of Committee

debts and obligation., review of contribution and expenditure limitationaJ and such other a~it proc.dure••• deemed necessary under the circum.tances.

?inding. and Recommendation. Related to

Title 2 of the United State. Code t

A. Allocation of Expenditure. to State.

S.ction 9035(a) of Titl. 26 of the United State. Cede

atate., 1n part, that no candidate .hall knowingly incur qualified campaign expense. in excess of the expenditure limitation.

applicable und.r .ection 44l.(b) (1) (A) of Title 2.

S.ction 9038.2(b) (2) (i) (A) of ~itle 11 of the Code of ~ederal Regulations provide., in part, that the C~i••ion .ay determine that aaount(.) of .ny payment••ad. to a candid.t. from

the .atching payment account w.re u.ed for purpo.e. other than to

aefray qualifi.d campaign expen•••• Section 9038.2(b) (2) (ii) (A) of

Title 11 of .th. Cod. of ~eder.l R.gulation••tate. that .n example of a Commi••ion repayment d.termination und.r paragraph (b) (2) of

this .ection include. det.rmination. that a candidate, a

candidate'••uthorized committ•• (.) or .g.nts have .ad.

expenditur•• in .xce•• of th. limitations s.t forth in 11 C.P.R.

S 9035.

Section. 44la (b) (1) (A) .nd 44la (e) of Title 2 of the

United Stat•• Code provide, in part, that no candidate for the

office of Pre.ident of the United States who is eligible under

Section 9033 of Title 26 to receive paym.nt. from the Secretary of

the Tre••ury may mak. expenditure. in anyone State aggregating in

exce•• of the great.r of 16 c.nt. multiplied by the voting age population of the Stat., or $200,000, •• adjusted by the change in

the COluu••r Price Inde••

Section 106.2(a)(1) of Titl. 11 of the Code of 'ederal

Regalation. stat.., In part, that expenditur•• incurred by • candidate'. authorized committ.e(.) for the purpose of influencing the ne-ination of th. c.ndidat. for the offic. of the Pre.ident

with re.pect to • particular State .hall be allocated to that

State. An .xpenditure .hall not n.c••••rily be .llocat.d to the

Stat. in which the expenditure 1. incurred or paid.

S.ction 110.8(c) (2) of Title 11 of the Cod. of '.deral ·~egulation••tate. that for State li.itationa, expenditur•• for

lundrai.ing activiti•• targeted at a particular Stat. and occurring within 28 days before that atate'. pri.ary .lection, convention or

caucu. shall be pr••um.d to be .ttributabl. to the .xpenditur.

liaitation for that State.

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Daring fl.lawork, the Audit .taff id.ntifi.a a proj.ct ~~

ua.a by the Ca-altt•• involving a t.l~arketing and .al1 prograa ~~.

(-the Pr09r.-). DI.cus.lon. with Cc:aaitt•• official. and a r.vi.w "..!/

of Ca.alt~•• r.cord••aa. aVAilabl. indicat.d that the Progr.. operat.d out of ~h. Committ•••• headquarter. in Wilmington, nalaware prtaarilJ fro. June, 1987 through Pebruary, 1988.

'fhe Program va a comput.r-ba••a .yata which appear. to

have acccmmodated up to 35 telephone .tation.. Each .tation

acce••ed on. of .iz predoainatel1 u.ed .cript. through a CR'f .creen

linked to an automatic dial f.ature ua.d in placing call.. 'fhe

operator, u.ing a head.et, vould vork through the .cre.n .cript inputting re~pon••• received from the per.on contacted. When the

eall vaa complet.d an in-bouse mailing vaa automatically generated, if n••d.d. '!'be Program appear. to have been operated .ain1y during .v.ning and week.nd hours employing, on a part ti.e ba.i., two

.hift. of operator••

'fhe Audit .taff revi.wed the Committee'. expenditure fil•• for the vendor. that could be identifi.d a. part of the

Prograa and calculated appar.nt Program co.t. totaling $745,439,24.

'1'h. Audit .taff then r.vi.wed the Committ•••• allocation

of .xpenditur•• to .tat•• to det.rmine the .xtent to which these

Progr.. cOlta were allocated to Iowa. ~e Audit .taff.determined

that $117,606.0~/ in Progr.. co.t. ver. allocated to Iowa. The

following table provid.. a d.tail.d comparison of identified

Program costa and coata allocated to Iowa by the Cc:mmitteea

Committe. allocation workpapers ine!icatee! that $134,293.95 had been

allocatee! to Iowa with reapect to the Progr.m. Bovever, the Audit

Staff r.e!ucee! thia amount by $16,687.91 which repre.ented an

overallocation made by the Committee in applying the 28 Day Rule. It

,bould be noted that the Cemmittee' a overall allocation to Iowa has

been adjusted accordingly•

Ba.~ on Ca=aitt.e allocation vorkpapers and documentation made

available, cost. included in this category could not be directly •••ociated with any of the other categories noted.

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'fotal Program Program

Ie!entified Co.ts Allocatee! Co.ta Allocated

Pr09ram Costa by Cc:mmi ttee by AUl!i t

$157,833.32 21,378.00 $101,436.29

.ervice. 171,792.26 2,880.00 42,747. S9

28,396.39 --- 6,708.29

277,371.62 72,243.79 197,858.73

97,202.18 17,020.78 17,020.78

8,760.00 5,694.00

4,083.47 4,OB3.47 4,083.47

$745,439.24 $117,606.04 $375,549.15

~I T.lephon.

e comput.r' related

0' Rent' utiliti.a

payroll

cc Postage

Wiring installation Miacellaneoua~/

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March 23, 1"'7 ••orandua frca a conaultant, direct.d to

COIIIlitt•• repre••ntativ••, outlined in a -f-airly detail.d fa.hion

tbe conaultant·.·underatanding of the ·goala and objectiv•• for

the du Pont t.l.m.rk.ting and .ail progr...• Although Committe.

official. did not .cknowledg. that this plan va. the b••i. of

th.ir telemarketing progr.., the Audit .taff i. of the opinion that tbl ba.ic ccmponent. of thia plan with re.pect to the

tel..ark.ting effort directed at Iowa were implemented by the

caaaittee and indic.te • focua on I ow••

Second, • review of the billing. by the long diatance

telecem.unicationa company uaed by the Committe. for the Program indicated that th. majority of the call. were to Iow.. During th. period June, 1987 to February, 1988, the Committe. incurred

$157,171.32 for th. Program'. long distance service, or about

$17,500 per month. A review of th. bill. for th••bove mentioned

period indicated that the co.t. of call. mad. to Iow. campri.ed ...,frOil 48' to 90' of the co.t of all call. made. Further analysis of the coat, the number, and the length of call., indicates th.t

C"'th. Pr09ram vas u.~ pri.arily in the .v.ning., during which

l('hour. the call. "er. dir.ct.d almo.t ezcluaively .t Iow••

Pinally, the .uditor. r.viewed all .cript. con.ider.d r . us. in the Program by the Committee. Of th. 28 .cripta ~. .e"ed, at lea.t 11 .eem.d to be targ.ted .t Iowa. Tbe c~itte. provid.d an .zpl.n.tory letter d.ted May 12, 1981,

--along "ith copie. of .iz .cript. th.t according to the Committee

evere used alao.t .zc1uaively In the tel_arketing proqr.. during the period 6/87 through 12/87, and copi•• of 1.tter.~1 m.il.d a. ~a re.ult of the r.spon•• to .ach .cript. On. of the•••cript.

vas a poll, fom: of the .cript. appear political in nature with ~no appeal for contribution. and the final .cript did contain a

no- fundrai.ing appe.l. In all .iz .cript. the t.xt appear. specifically dir.cted .t Iow. by virtu. of th. caucus or debate

(\. in Iow. being .ention.d at sca. point.

~e Ca=aitt•••• l.tter of M.y 12, 1988 notes that of

th••e .cripta, only two vera not fundrai.ing in n.tur.. ~e

Committ.e'a po.ition with re.pect to the .cripts va. that money could not be rai.ed froa people who did not know or .upport their

i.aue.. ~e C~itt•• provide4, a. further aupport that the.e

.cript. v.re u.ed exten.ively, workpaper. d.tailing th. day••nd

number of call•••d. d.ily "ith r••pect to ••ch of th••cript•• As noted in tbeir May 12, 1988 letter the Cammitt•••• po.ition i.

that the rent, BVAC (utilitie.) and computer rental ·vere

correctly report.d a. nation.l offic. overh.ad, con.istent with

the treatment of other computer and office r.ntal vithin th. ~~paign h••dqu.rt.r•••••nd •••both •••••r. used Monday through '.y 7 a.a. to 5 p.a. by both the ~.9al and Accounting

~/ Of the five follow-up lett.r. mail.d a. a result of the

acripta, three includ.d appeal. for contributions•

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operation aDd tbe Direct Mail and ZVent Pundrailing atarra.-

Purther, aspenael ..aociat.ad with payroll, telephone, polt.age, aneS aofttfare wer~ chargeeS cUrect.ly -to either funeSraising., the

Iowa alleeation-or Zxempt Legal/Accounting al appropriate.-

A. not.a abo.e, tbe Audit ataff calculat.d the appare~t co.t of the Progr.. to be $745,439.24, wbile the Cammittee only allocated $117,606.04, or about 16' of identifiea Program COltl

to Iowa, although it i. apparent that tbe Progr.. rocu.ed on

Iowa. The Audit Itaff allO noted that a. of April 30, 1988, according to the Stat. Allocation Report, PEe Form 3P, page 3,

the Ca.aittee had allocated .xpeneSiturel totaling $616,010.80 to

th. Iowa limitation of $775,217.60. Tbe Audit atafr'l review of

expenditur•• allocat.d to Iowa determined this figure to be

materially correct, except .s not.d with respect to the Program.

Sa••d on the Audit Itaff'l review of the information

ana docum.ntation mad. availabl., it il our opinion tbat the

following Program COltl, totaling $375,549.15, r.quir. -allocation

to Iowa.

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Th. Audit Itaff reviewed Program cOltl occuring witbin 28 dayl of the Iowa caucul and determined that $52,709.67

in t.lephon., rent, utiliti.l, payroll and comput.r related

I.rvicel Ihould have been allocat.d to Iowa. As Itated in the

Committ•••• lett.r, dat.d May 12, 1988, for the period lubsequent

to January 1, 1988, expensel were allocat.d 100' againat the Iowa

liaitation due to the -FEe r.gulation eliminating the Fundraising ZX.mption within 28 daYI of a primary .lection.- Th. Audit Itaff

revi.w.d Committ.e allocation vorkpaperl with relpect to the

Program and d.termined, baled on the information availabl., that

the Committ•• allocat.d $41,500.04 in lalary, phone and

aiac.llaneoUi Program COlt. to Iowa.

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program COlts Within the 28 Day Rul.

Program Costl outlide the 28 Day Rule

~. Audit ataff re.iew.d Program costs occurring outlia. of the 28 day rul. and det.rain.d that·$322,839.48 in

tel.phon., rant, atiliti••, payroll, computer" relat.d aervicel,

poltag., wiring and ailcel1an.oUl COltl ahould have be.n

al1ocat.d to Iowa. Baa.d upon the Icriptl and telephone logl provid.d .. part of the Committ•••• May 12, 1988 1ett.r, it wal

det.rmin.d that $86,378.48 in long diltanc. telecommunication

charg.a and $168,339.00 in payroll coata with respect to the

Progru ahould have be.n aJ.locat.d to Iowa. With respect to rent

and utiliti.a, the Audit ataff determine4 that, based on the

houri of operation aa provided by the Committ•• in th.ir letter

dat.d May 12, 1988, $5,713.70 in expenditurea Ihould have be.n

allocated to Iowa. The Audit Itaff determin.d that $35,610.05 in

computer r.1ated Program costa Ihould have been al10cat.d to

Iowa. Finally, the Au4it staff determined that poltag. totaling $17,020.78, wiring inatal1ation cOlta of $5,694 and aiacellaneous

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Audit ataff'. ze.ie. of Ca.aittee workpapera indicated that

$'6,106 in .•a1ar~, phone, poatage, aupplie. and computer related

coata with re.peet to the Program were allocated to Iowa.

~he following recap and analy.ia wa. provided with

re.pect to the Iowa atate expenditure limitation in the interim

auc!it report:

$ 41,500.04

76,106.00 (117,606.04)

$ 52,709.67

322,839.48

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~elemarketing Program co.t. allocable

to Iowa per ~he Audit ataff:

Within 28 nay Rule

Out.ilSa 28 Day Rule

Leaa Program coata allocated by the CCII1IIlitteea

Within 28 nay Rule

Outaic!e 28 Day Rule

Ac!ditional Program coata requiring allocation to Iowa

Expenc!iturea allocated to Iowa per C~ittee FEC Porm 3P, page 3, aa of

Much 31, 1988

ZXpenc5iturea .ubject to Iowa limitation

Leaaa 2 ~.S.C. Section 4el(a, State

Spending Limitation

~otal Expenc!iturea In Excea. of State

Limitation

$375,549.15

$257,943.11

616,995.09

$873,953.91

(775,217.60)

$ 99,720.60

In the lnteri. audit report the Auc!it staff recommended

that within 30 calenc5ar daya after .ervice of the report the

Committee provide evic!ence ahowing that it had not exceeded the

limitation a. aet forth above. Ab.ent auch a showing, the Auc!it

ataff recommendec! that the Committee adjust it. records to reflect

the expenditure. allocated in Iowa, and where necessary file

amended reporta to reflect the correct amount allocable to Iowa.

In addition, the Audit .taff recommended that the

Committee provide a detail liating for all vendor. 'related to the

telemarketing program anc! an itemization of all asaociated costa

incurred with respect to each vendor. Such coat. include those

incurred with reapect to development and implementation of the

telemarketing program.

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Analy.i. ot CClllllit~•• It••pona, '.

~h. Ca-altt., fl1.a 1~. r.apona. on Rov.mbtr 4, 1988.-/ In

ita r ••pona,·,' tb.. CCIIIIllt~ •• a~a~.d that ·tt b.li.v•• the Au~it

ataff'. conclualon. ar. incorr,ct and off.r.d it. r.a.on. in

.upport of thi. po.itlon. Each of the topical ar.a••ddr••••d by th. C~itt•• art di.cu••ed in the following par.graph••

1. Th. T.l..ark.ting Effort wa. a Fundrai.ing Program

~. Committe. contend. that the Program -vas conceived

and 1.~"'Dt.d by the campaign as a significant fundrai.ing effort.- According to the Committee's respon.e, the Audit .taff

mi.charact.riz.d the Program for three fundamental reason., (a) misplac.d r.lianc. on a memorandum from a consultant, (b) 3 failure

to und.r.tand the progr..'. Iowa focus, and (c) a failur~ to

ccmpr.h.nd .od.rn campaign fundrai.ing.

o With r.spect to (a), the Committe. submitt.d an affidavit

frc. the d.puty campaign manag.r which specifically stat.d that the ~memorandum from the consultant vas not adopted as the campaign'. t.lemark.ting plan and that fundrai.ing vas a prime obj.ctiv. of

If't.l.ark.ting.

'f In the Audit staff'. opinion, the Committee'. ~eont.ntion that -.isplaced relianc.- .xi.t.d on the part of the A~it .taff i. without merit. Although this report ref.r. to the - Harch 23, 1987 aaorand=, our concluaion -that the basic

compon.nt. of thi. plan vith r.spect to the telemarketing effort

C)dir.et,a at Iowa vert i.pl_ent.d by the Committee and indicat. a

focu. on Iowa- (Report, page 4) i. based, a••tated in the ~r.port, on our r.vi.w of documentation for .xpenditure. r.lat.d

c-to the t.l_ark.ting .ffort. Th. Cc:&JIlitt.e's contention that the

consultant'. proposal va. not adopted does not, in the Audit

C"" .taff'. opinion, chang. or requi r. r.vision to the Audi t staff'. ~conclUlion that a .i;nificant t.lemarketing effort vas direeted

-at the voting ag. population in Iowa.

Conc.rning the Committ•••.....rtion r.garding the

Program'. Iowa focua (1tea (b», the Committ•• argues that th.

Audit .taff'. po.ition -fail. to recogniz. the uniqueness of

ci rcum.tanc•• surrounding an 'und.rdog' campaign. An unknown

candidat. auat focUi first on Iowa, to pr•••nt his positiona, to

becom. known, ana to rais. fund. to support th.s. efforts.

Momenta. frc. .ucc.ss in Iova peraits th. candidate to be a

factor in N.w Hampshir••- The Cammitt•• furth.r states that

[.inc.] -Iowa vot.r. could be educat.d, and would have a stake 1n

the .lection because of their participation in the early caucua.l. Tbat .tak. would .caus. them to contribut••••onc. th.y

kn.v th. candidat••-

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r.spond to the int.rim audit report. Th. Commis.ion granted

a 30 day .xt.nsion to November 4, 1988.

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a::.- Y',,: - \. .. '. Ifbe Aaai~ .~aff cSoe. not cSl.put. the CClIDIlitt.e'. -~ po.i~ioft ~ha~ a per.on i. not lik.ly ~o con~rlb~. to a c.naleS.t.

about "boa b~ o~ ·'.b. know. littl.. Ror· eSo•• the A\X!i t It.ff

n.c••••rily ~i••9r•• wi~b tb. comaitt••'••tat.ment that th. low.

caucu••• and the Rev Hampshir. primary are the beginning and the

end for .o.t campaign.. How.v.r for the Committe. to th.n

conclud. -ror an unknown lik. P.t. cSu Pont, it 1•••••ntial to

rai.e fund. in tho.e .tate., becaWi. tho•• are th••tat•• in

wbich he 1. becoming known- .eem. aor. appropriate in .upport of

an att..pt to influ.nce a candidate'. chance. of a win or

reputable petition in the Iowa caucu.e. or New Hampshire primary rather than a justification that it i. e••ential to that end to

ral.e faneS. in the.. two .tat.. and thus the t.1emark.ting effort

.houle! be vl.wecS .. primarily a fundral.1ng program.

~he CCllDllitt•••• third point (item (e» il an attempt to

id.ntify .icilariti•• between -.ophi.ticated telemarketing- and

-traditional eSirect mail.- ~he COMmittee provide. a••n .xamp1e

a .i~uation "her. a phone call II aaeSe aneS, baled on the

relpons./exchange concerning i.luel without a .olicita~ion being ~, ••ntionecS, a follow-up .olicit.tion 1•••nt. ~h. Committ•• made

tb. eS.ci.ion -tc 91ve Iowanl multiple opportunitiel to know the

caneS14at. aneS the il.ue., and only th.n to alk for funeS••- !h.

Committ••'1 po.ition 11 limply that both the phone call aneS the

follow-up .Olicitation .hould be view.d .. component. of a .ingle i> - -funcSrai.ing appeal. ~he total COlt. al .uch would be conlidered

funeSralling anc! not allocabl. to a .tate limit, unle.1 occurring within 28 dayl of the election. Th. Committee statel corr.ctly that tb. Audit .taff vi.w.eS the expenlel related to the pho,e call....eparat. and di.tinct from any follow-up mailingl~

which ..y h.v. occurr.eS. Purth.r, the AueSit Itaff vieweeS al

funeSrai.ing-relat.d phon. call. only thos. calls mad. outlieSe the

28 dayl for which the Icript u.ed actually containeeS a

.olicitation of fund.. Th. A~it .t.ff·. polition, based on the

information .ubmitt.d by th. Camaltte., remalns unchanged in thil

regard.

2. Bxpena•• for R.nt, ccaput.r Equipment and Wiring

!h. CaBaitt•• cont.na. that the h.adquarterl expense. for r.nt, caapgt.r .xpensel, aneS wiring allocated to Iowa by the

Audit .taff are g.n.ral ov.rhead expenl•• and not allocabl. to

Iowa und.r 11 C.P••• 5 106.2(c) (1) (1) aneS 5 l06.2(b) (2) (1v).

Th•••••etion., 1n rel.vant part, a.fin. ov.rhead expenses as

rent, utiliti••, .quipment ana telephone service base charges, aneS .xeapt frc. allocation (such] operating expenditures incurred

for a~lniatrative, .taff, and overhead .xpenditures of the

national campaign headquarter••

~/ ~he COlt. of any follow-up mailingl vere not charged to the

Iowa li.it outll~. 28 ~ays before the election.

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S~lOft 10l.2(a) of 11 C.7.~.:provl~e. the general authority under which ezpen~iture. (including overhead) .hould be

allocated ,«0 State.. 'the Aw!it .taff i. of the opinion that the

exemption fro. S~ate allocation of overhead expen.e. grantea by 11 C.P••• 5 l06.2(c)(1)(1) extend. to operating expen.e. of the

national campaign headquarter. and doe. not exempt operating

expen.e. of a .pecific program focu.ed on a particular State

almply because It va. dlrected out of the natlonal office. In

addition, 11 C.P••• 5 l06.2(b) (2) (1v) (B) .tate. that ·overhead

expenditure. of a committee regional office or any committee

office (empha.i. added) vith responsibilities In two or more

State••hal1'be allocated to each .tate on a reasonable and

uniformly applied ba.i.. An extension of the COIIlJIi ttee'.

position - that overhead expenle. relating to the telemarketing

progru are not allocable - would permit campaign. to avoid

allocation of overhead expense. related to focu.ed program. to

any .tate .imply by operating the program. from national

headquarter.. The Audit .taff i. of the opinion that the

exemption frca alloeation of overhead expendi ture. by the

national campaign headquarter. wa. not intended to include

allocable expen.e. of focu.ed program. operated from the

headquarter. office. The Audit .taff further note. that if the

teleaarketing program va. performed on the premi.e. of a vendor

or if the vendor rented extra .pace and/or equipment to perform the .ervice., then all the charge. for .pace, equipment, and

installation would have been built into the fee chargea. Therefore the Audit .taff'. polition, that all expenses relevant

to the focused extent of the telemarketing program are alloeable

espenae., remains unchanged.

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3. Payroll

The Committee contend. that the-Audit staff understated

the payroll expen.e. already allocated by the Committee by $7,684. The Audit .taff note. that this amount il the difference

between allocable payroll expen.e. not included in the

Committee'. allocation figure and an overallocation of payroll .ade by the Committee. Because the overallocation made by the

Committee va. adjUitea by the Audit .taff for the full amount in

the interi. audit report (Report p. 3, ~/ footnote) no further

adj Ultment abould be made.

t. -r.lepbone Charge.

The Cammittee al.o contend. that the Audit staff'.

calculation for telephone toll charge. to Iowa i. incorrect. The

Ca=mittee .tatea that It .ampled charge. vithin the time frame

used by the telemarketing program and, ba.ed on the sampling data, determined that an average of $34.18 per day in toll

charge. vere unrelated to the telemarketing program. The

Committee a••ert. that the allocation .ade by the Audit .taff is

over.tatecS by $8,372.76. The committee'. allocation figure. in

.IIJ-\l

•
.•-...

.~

. ~.

;~

. . ..:.:

C'\'

I

o

.........

c

'~ " ,.... "

10

.

. ~he Reapon.e appear to be aeri.ed froa ~he ~ota1 charge. for

night and ~eund tolla to all area code. le•• $34.18 per day (e.tiaa~ed nOD-t~l..arketlng evening and we.ken~ charg••). purth.raor., the CommItt•• did not provide the Audit .taff the

docum.ntation ua.d in tb••ampling proc••••

~h. Audit .taff r.cogniza. the probability that all

call. to Iova v.re not t.lemarketing r.lat.d. ~her.fore the

Audit .~aff hal r.vi.ed the gro•• amount of call. to Iowa and ha.

reduced th••e amount. by credit. an~ a busIne•• u•• (pre.umed non-t.lemarketing) percentage. ~h. Audit ataff ba.ed the

bUMin... use r.~uction on th. percentage of the toll charg•• made

during buaine•• hour. r.lativ. to the total toll charge.. Thi•.

percentag. reduction was applied only to the call. made to Iowa,

not to the total ev.ning/weekend toll.. ~h. Audit .taff applied

an a••rag. bUline.. us. reduction perc.ntage to the Iowa toll.

for the month of F.bruary becau•• the Committee acknowl.dged that

sca. daytime calling va••ad. during this peri~. ~he•• "udit

ataff adjustment. have reduc.d the allocable amount frc.

$101,436.29 to $81,173.80 Thi. reduction of $20,262.49 i.

refleeted in the revi.ed telemarketing program co.t. allocable to

Iowa per tb. Audit .taff. In addition, allocation of viring in.tallation, ba.ed on the allocable percentage of telephone

co.t., hal been r.duced accordingly from $5,694 to $4,667.60.

S. Application of Advi.ory Opinion 1988-6

In the alternative the Committe••ugge.t. that Advi.ory Opinion 1988-6 i. applicable to the telemarketing program. ~e

A4vi.ory Opinion allowed 50' of the co.t of a televi.lon

adv.rti.em.nt to be allocat.d to exempt fundraising. ~h.

Committ•• atate. that -In that opinion, the Commi.slon concluded

that a thr.e-s.cond vi.ual li.ting, 'Vote - Volunteer - Contribut.,· plus a voice-over giving a phone number for

contributor. to call••would permit the allocation of 50' of the

ad'. co.t to exempt fundrai.ing.- ~he Committee further asserts

that a greater percentage of the du Pont telemarketing program

vaa direct.d to fundrai.ing than the corre.ponding fun~rai.ing

percentage of tia. UI~ for fundral.ing in the television

advertis••nt.

~b. Ca.mitte. contend. that -telemarketing fundrai.ing haa au1tiple compon.nt., vhich combine to pro4uce re.ult•••• [and]

the audit report tr.at. the phone call and the mailing a. two

a.parate ev.nt., rather than tvo component. of a fun4raising package, and con.ider. the phon. call not to be part of the

fundraising effort.- ~e Audit .taff'. di.cussion an4 rejection of the Committ•••• rational. that the telemarketing program was

basically a fundrai.ing program and thereby .ubject to a

fundraising exemption was dl,cu'l~ un4er paragraph (1) of this

aect.lon.

.TIl - \~

•
'0

If'

11

~be Aadlt at.ff 1. of the opinion that the A~viaory

Opinion 19"-' applie. only to ••pecific factual .ituation - • televi.lon ~ercial - an~ doe. not extend beyond the .pecific. of that c.... loth the political i ••u. and .olicitation reque.t

v•• cont.ined vithin on••••••g., wh.r••• the du Pont

t.lemark.ting progr...ought political int.re.t fir.t .nd then

.ddr•••ed .olicit.tion r.que.t. from id.ntifi.d .upporter.. ~he

Audit .t.ff not•• that it did not allocat. the co.t. of .ny of

the follow-up l.tt.r•••nt by the Committ•• to Iowa out.ide 28

day. b.for. the el.ction.

Plnally, the CCDJIlttee pr••ented in ita re.ponae .n

allocation of telemarketing program expen.e. ba.ed on a SO,

exemption for fundra18ing. ~he Audit .taff note. that c.rtaln

figure. UI.a in the Committee'. analysis of allocable costi based

on a SO, fundrai.ing exemption are incorrect. In on. case, the

figure .hown did not repre.ent total co.t, but rather only the

non-fundrai.ing portion al determin.d by the Audit .t.ff. In

anoth.r in.t.nce, the Committe. did not include total cOlta

within 28 day. of the election. ~he Audit .taff did not perform

a det.iled analy.i. of the Committee'. figure. because the

Advi.ory Opinion exemption doel not appear to apply to this

progr_.

Conclu.ion

Ba.~ on the Audit .taff'. review of the Committee'.

r ••pon•• to the interi. audit report .nd the information and

docum.ntation made .vailable, it i. our opinion ~hat the

folloving Program co.t., totaling $354,260.26 require alloc.tion

to Iov••

r··

(

\

'rotal

Identified

Prosram Co.t.

elephone

~put.r • relat.d ••rvice.

ent • utiliti•• ayroll

'oatage

'iring irwtallation

:iscellaneoUi

'rotal.

$157,833.32

171,792.26

28,396.3'

277,371.62

'7,202.18

8,760.00

",083.47

$745,439.24

Program CO.tl Allocatee!

by Committee

$ 21,378.00

2,880.00

72,243.7'

17,020.78

-- 4,083.47

$117,606.04

Program COlt. Allocate~

by Audi t

$ 81,173.80

42,747.59

6,708.29

1'7,858.73

17,020.78

4,667.60

4,083.47

$354,260.26

The following recap and analYli., al revl.ee! for ree!uced

telephone toll charge. and wiring installation, il provided with

respact to the Iowa .tate expenditure limitation:

.m - '3 •
12

,. '50,358.13

303,902.13 $354,260.26

$ 41,500.04

76,106.00

-- - i!"-."': ....

'.• :a.i.ed "el_rutiftl ~ro,r_ co.t. :. . allocable to Ion per tbe AUl!i .ta!f.

Witbift·Z. aule

Out.ide 21 Day a\l1e

I.e•• Progr.. co.t. alloc.ted by the Cc:mmitt•••

Withift 28 Day Rule

Out.id. 28 Day Rul.

f

Aadition.l Program coat. r.quiriftg allocation to Iowa

bpendit.ure. alloc.ted to Iow. par

CCDIIlittee nc Fora 3', page 3, a. of

April 30, 1981

Expend!ture. .ubject t.o Iowa limi tat~on

I.e••• 2 U.S.C. Section 441(a) Stat.

Spending Limitation ..

(117,606.04'

$236,654.22

616, 010.10

$852,66'5.02

(775,217.60'

J

I

"

1

I

Re.i••d Tot.l Expenditure. in Exce•• of Stat. ~1ait.t.ion

O·

Recommendation .1

~h. Audit .t.ff recc..en4. t.hat within 3D calendar days of

.er.ice of t.hi. report the Ccmalt.t.e provide. documentation of all ...ociated co.t. relat.d to t.h. telemarketing program. Thi.

docQaentatien will includ., (1) a detail li.ting of all vendor.

who provided .ervice. t.oward both the d.velopment and

i.pl..entatien ef the t.lemark.ting progr&mJ and (2) an

it..iaation ef all ...ociat.d co.t. incurred with re.pect to each ••n4or. ••• veDaor coat. will includ. both direct .ervic•• and

collateral ••r.ice. (.uch as ••terial., priftting, .nd

di.tributi•• co.ta) ...oci.ted with the telemarketing progr... B•• on oar r••!ev of the inform.tion provided, the Audit ataff ..y require ace••a to all .upporting docUll.ntation .uch a. veNSor

invoic•• and r.c.ipted bill••

In addition, the Audit .~.ff r.commend. that the Committee

.djuat it. record. to r.flect the .xpenditur•• alloc.ted in Iowa,

and wh.re nec••••ry file amende4 report. to r.fl.ct the corr.ct

.-oant alloc.bl. to Iowa.

V trotal i8 baaei5 on limit.d .endor inforsation. Th. CClDJDitt.e

did not r••pond to the recommendation that it provide a

d.t.il li.ting for all vendor. relat.d to the Progr...

• :III -''f
13

B. tt..lsatlon of Zzpenaltur.. :

see~lOD 434(b) (5) (A) of ~ltle 2 of the Onitea Stat•• coa• • tat.s that .ach report .hall ai.clo.e the name ana aaar••s of each

per.on to vhoa an ezpenaiture in an aggregate amount or value in

exce•• of $200 vithin the calendar year i. made by the reporting committee to meet a candidate or committee operating expen.e, together vith the date, .mount, ana purpo.e of .uch operating espenditare.

During a reviev of expenditures, the Audit staff noted

that the Camaittee failea to itemize on Schedule I-P tvo expenditures totaling $75,966.38 relative to the 1987 Year-end report. This amount vas included in reported disbursements on the

committee's Detailed Summary Page, however, a Schedule I-P

di.closing the.e items vas omitted from the 1987 Year-end report.

In addition, the Audit .taff determined that for 23 ~it..ized expenditure., totaling $868,943.72, the Committee fa11ed

to itamize all required information.

M

Pinally, the Audit .taff noted a di.crepancy of l~{$224,42l.55) between the reported total of itemized expenditure. ~and the calculated total of the itemized expenditure. for the o Schedule I-P'. provided with the January 1988 report. '!'he . ~Committee apparently reported payments to a payroll service and the

related payroll checks and tax payments, issued by the payroll - service. ~e Committee ezplained that it had inaavertently failed

C'to annotate as ...0 entries (non-additive) items totaling $224,421.55 relatea to payroll.

""

During the Exit Conference held on May 6, 1988, Committee

e officials .eemed receptive to filing .mended reports to correct the

discrepancies noted above.

In the interi. audit report the A~it staff recommended

that the Committee, vithin 3D calendar aay. after service of the

report, file ..en4aents (1) to ai.close the two unitemized

ezpenditure. note4, (2) to correct ana complete the disclosure on

the 23 it..s note4, ana (3) to ai.close correctly the expenditures

to a payroll .er.ice on the January 1988 report as memorandum

entrie••

\.. ..

J

!i

1

~he C~ittee filed ..endment. on November 7, 1988 ana

December 1, 1988~ correcting the discrepancies noted above.

Reeommenaation tl

~he Audit .taff recommends that, despite the untimely filing of. the amen~ent., no further action be taken on this matter.

m- 15

•

~he Committee vas grantea a 3D day extension to November 4,

1988 to respond to the interim audit report.
14

c

j(:::~l c. ~'\;' ,

~:: .' 8e=1cm 434 (b) (3) CC) of lfiUe 2 of ~he Uni~ed State. C04e

atate. ~ha~ each. report ahall di.clo.e the identification of each

per.on who p~ovi(oe. any dividend, inte~e.t or other receipt ~o the repor~inv ea-ai~tee 1n an aggregate value or amount in exce•• of

$200 within the calendar year, together wi~h the date and amount of

any .uch receipt••

~bI tera ·Person- 1. definea at 2 U.S.C. S 431(11) a. an

individual, partner.hip, committee, a••ociation, corporation, labor

orvanization, or any other organization or group of per.on•• IdentiflcatlQn i. definea at 2 U.S.C. 5 431(13)(8) to .ean, In the

c..e of any per.on, other than an individual, the full name and

addre.. of .uch per.on.

~h. Audit .taff'. review of inter••t earned by the

Committee revealed that 12 tran.action. totaling $19,114.03 were

not itemized on Schedule A-P relative to the 1986 October

Quarterly, 1986 Year-end, 1987 April Quarterly, and 1987 3uly Quarterly report••

At the Exit Conference, the Cammittee officials agreed to

file amen~ent. to correct the public record.

In the interim audit repor~ the A~it .t~ff recommended

that the Committee, within 30 calendar day. after .ervice of the

report, file amendment. itemizing the receipt. noted above.

~e Committee filed amen4ment., received 50vember 7,

1988, it..ising the intere.t receipt. noted abeve.

Recommendation t!

~he Audit .taff recommend. no further action on this matter.

'.

I). Matter Referred to the Office of General Counsel

A certain .atter notea dazing the audit ha. been referred

to the Cam-i••ion'. Office of Ceneral Coun.el.

111. Finding. and Recommendation. Related to ~itle 26

of the united State. Code

A. Calculation of Repayment Ratio

Section. 9038(b) (2) of ~it1e 26 of the Unitea Stat•• Code

.tate., in part, that if the Commi••ion determine. that any amount

of any payment made to a candidate froa the matching fund account

va. u.ed for purpose. other than to defray qualified campaign

expens.s, it shall notify .uch candidate of the amount .0 used, and

the candidate .hall pay to the Secretary an amount equal to such an

caount.

jIL- " •
to the

:

lS

8ectloa '03a.2(b) (2) (iii) of ~i~e 11 of the Coae of

7e4eral ..galatiOG. atate. that the ..ount of any repayaent .ouvht

under this aecrtiQ.lft .hall bear the ••e ~.tio to the total Dount

d.t.raine4 to bav. been uae4 for non-qualifi.d c.palgn expen.es as

the ..ount of .atching fund. certified to the candidat. bear. to

the total ..ount of d.po.its of contribution. and .atching fund••s

of the candidat.'. date of in.ligibility.

fte foraula and it. application with re.pect Ca.aittee'. r.ceipt activity i ... follov.1

f· Total Matching Pund. Certified 'rhrough ____-:':"~t)~a~t~e~0::;.:f~I~n~e~1.:i;.aq~i::;.bi~1::.:i~t=oly~2~/'."1.:. 8/~8:;:1~~ •.

Numerator + Private Contrlbutlon.

Received through 2/18/88

'2,298,064.54 • .300266

$7,653,436.93

'rhus, the repayment ratio for non-qualified c..p.ign

expen••• i. 30.0266'.

f:"..

c

I

B. Ron-qualified campai~ Expense. - Payments Made in Exces.

01 Iowa State Limitat on

Section 9038(b) (2) of ~it1e 26 of the United State. Code

.tate. in relevant part that if the Commi••ion determine. that any ..ount of any payment .ad. to a candidate froa the .atchin9 payment

o account wu used for any purpo.e other than to defray the qualified

I'.. cupaign ezpeMe. vi th re.pect to vhich .uch payment va••ade, it

ahall notify .uch candidate of the ..ount .0 u.ed, and the

e candidate .hall pay to the Secretary an ..ount equal to .uch ..ount. -

Section 9031.2(b) (2) (i) (A) of ~itle 11 of the Code of

Pederal Regulation••tate. in part that the Commi.sion .ay d.termine that amount. of any payments ••de to a candidate from the

.atching payment account vera used for purpo••• other than defrayal of qualified c..palgn .xpen•••• Section 9031.2(b) (2) (ii) (A) of

this 'rit1e furtb.r .tat.s that Commi•••ion repayment determinations

inclUde deteralnatlon. that a candidate hal ••de expenditure. in

ezc••• of the 118itation for anyone Stat. pur.uant to

J 9035.1 Ca) (1).

A. not.d in Pindlng II.A., Allocation of EXTinditure. to

State., the Audit .taff determined that the comm~tee excee!ed the

expenditure 11.1tatlon In Iowa by $77,447.42. 'lbe•• expenditure.

r.pr.sent DOunt. paid by th. CClmlltt... 'lbe amount .ubj.ct to

repayment 1. calculated belovl

.I1J-- \r

•
l'

-_. .-.-..- ,..-_.

. . . .

.

. bOan1: p.1.d III eace•• of 1:be low. Sta~e

zxpendi1:ure LiJli ~.tiOft . ..- ~1ae. ~he Repayment R.~io frail III.A.

R.paym.nt boun~

Conclusion

$77,447.42

.300266

$23,254.83:.1

On M.rch 9, 1989, th~ Commis.ion .ad. an initial d.termination ~h.t the Committee repay $23,254.83 to the o.s. Tr.a.ury pursuant 26 U.S.C. S9038(b) (2).

C. Statement of Ret Outltandin9 Campaign Obligation.

S.c~ion 9034.5(a) of ~itl. 11 of ~h. Cod. of P.d.r.l R.9Ula~ion. r.quir•• ~hat ~h. c.nc!ida~••ubait a Stat...nt of Ne~

Out.tan4ing Campaign Obllg.~lon. (-NaCO Sta~em.nt-) which contain.,

among oth.r item., ~h. to~al of all out.tan4ing oblig.tion. for

qualified campaign .xpen••••• of the can4idat.'. dat. of ineligi- bili~y ana .n ••timat. of n.c••••ry windillg down co.t.·wi~hin 15

day. of ~he can41dat.'. 4a~. of ineligibill~y.

On Pebruary 18, 1988, Pet. du Pont announced that h. had

withdrawn from the r.ce ~or the RepUblican nomination for Prelident

of the Unit.d Stat... Pur.uant to 11 C.P.R. S 9033.5(a), that i.

~h. date ~. du Pont'. candidacy t.rminated for the purpo.e of

incurring qua1ifie4 campaivn .xpen.e••

~h. Committ•••ubaitt.4 their ~riginal NOOO Statement on

March 3, 1988 .nd haa continu.4 to .ubmit reviled NOCO Statement.

with ••ch .atching fun4 .ubmi••ion.

~he Au4it .taff r.vi.ve4 the ROCO Statement date4

Pebruary 11, 1988 for financial activity through April 30, 1988.

Thi. r.viev Inclu4.4 ••rification of ca.h, account. receivable,

capital ••••t., oth.r ••••t., .ceoun~. payable for qualifi.4 cDpaivn ezpens••, .Dd actual and e.timat.d vinding 40vn co.ts.

Pr•••nt.d b.low 1. ~h. Audi~ .taff'. analy.i. of the

Caamitt•••• Rooo St.t•••nt •• of P.bruary 18, 1988.

~/ ~hi. r.paym.nt amount 1. ba.ed on 11.it.~ ven40r information.

Th. Audit .taff r.comm.nded in Pin4ing 11.1.. that the

Ca:mitte. provide documentation of all a••ociat.d COlt.

r.lat.d to the telem.rketing progr~. Adjustm.nts to this

r.paym.nt amount may r••u1 t ana vill be refl.ct.4 in the

Ca.ml••ion'. final repayment d.t.rmination. l!l-/<ti

•
A"U AU1,.1••f e-1t...•• IIQCD 8'.~Oftt .. of •••uQ 11. 11•• AI ....t.,.1nocJ 8ft ~CU JO, 111.

• 200.00

3t1,0S2.2.

13,2....4

11.210.00

A·V

Cub oi. Sand

CMb 1a "al

Z>epo.lU ud -.c.lnb1•• C.pit.a1 A••eu

"0U1 Aaet.

..

pbUgatlpn.

AccounU peyabl. foe

Qualifl.d C_pa1p

Dpoa...

~Ufttl payabl. for

eoaUlbudon refand.

tflc4dow co.u - Ae:taal

2/11/11 to

4/30/••

lalarl.. 134,'01.24

Ml.c.118ftOOUi 10,1.5.'1

opuatint

DOn-payroll 15'.'''.0'

UOI,I32.11

2,'12.00

205,421.11

1,112.00

2,SOO.00

17,.10.00

CU,SU.lI) W

10,'00.00

15.000.00

100,000.00

nlO,,.3.0'

21,000.00

A80smt of DOltqualified c_pel", .zpenl.. (In oze••• of Iowa 11.1tatlon)

lac1aded abo"

Wlft4dova COltl - Eatlaat04

5/1/11 to

2/21/1'

lalarl.. eon.a1ti",

1r~1 fe•• -

".UI OCCupancy

Operating

cc.u

OfUc.

_Igppll.. &qg1paeat

ae!lUl

Cspaur!Data .roeel.1a,

Paadral.1a,

o

"

C

Obllgatlona

IIot Oatelandl", C_palp Ob119atlon. ~.Uclt)

.. of 2/11/1.

1"1.152.11

1 CUO c au. tt)

P.braary 1., 111. 11 tbe a.te a.unllned bf the caUllilOft to

be the candidate'. aat. of Ineligibility for purpo••• of

bcunlnt qgal1flecS c_pellft npeDl•••

anS.r 11 c.p.a. S t034.4Cbl(2). aft ospon41turo wbleb 1. la

eze••• of Ifty of tb. 11.ltatlonl an4.r 11 C.P•••••rt '035

.ball !lot be cona1dered a qallUed c_pdgft ospoa••, _blell

preclude••ach ••pencUtur•• fraa lac1ualon la tho IIOCO

pn••ntation a. I.t forth at 11 c.p.a. S to]4.5. l1I - 19
.

.

$(440,029.99)

11

.

SbovnJ;'low 1. an a4jUltment "for private contribution.,

Intere.t and .atching fun41 received during tbe perl04 2/19/88 to

4/30/81, tbe .Olt current financial inforaation available at the

clo.e of fiel~vork•

• et OUi:.tan~ing Capaign Obligation. (Deficit) •• of 2/18/88 .

..

.et Private Contribution.

Matching Fund. Rec.iv.~

Inter••t Receiv.d

177,536.10

238,740.39

3,438.61

Reaalning Entitlement •• ot April 30, 1981 $( 20,314.89)

A. of April 30, 1988, the Committee h•• not received

.atching fund payment. In esce•• of it. entitl..ent. ~ditional

fieldwork .ay be required to a••••• the impact of tuture

financial activity on the 8000 aeficit.

~he Caamitte. r.ceive~ it. final .atchlng fund payment of

$11,711.56 on May 26, 1988, and reported $4,663.41 in

individual contribution. during May 1988. ~erefore, the

Committee appear. not to have exceede~ it. entitlement•

.ill -JO

•
", .,;~~" ":~<~~9~I0:~:';1.'(lt?$1~Y:~~~~l~::~t!i~1;~t~~f~~~{1~\ 1~tl\t~~}1~$:1:1~~t~$~F:')~~~~:~i;Y~<'~(~ -",;,;, '", " " ;,~ ,~ ,. ~.

p, :31 ~""Cl5~ •

"~:.,,,-, ~1~lCl.o\

n"'KF~'C U'-~~~" ..~t..;:'\::...£ Lc'- .\., uaYI;;;'lwN"", :_~R'~:-, ,"-"", :~..i "~:;Ei

'E'I. '1.5'" ::-'":l:~'~

PU" U...:~ ·L~;'::'''

-"'v .... •

TELEX +400,1:

ALAOIA. DAY, MARSHALL,ft!:~ .

MINTMIRE &. ~HAUVIN

I~THOMASJEmItSONSTUET,S."'. 88 ACD '"

WASHINGTON, D.C. ~'<lO, ;;uI • "

,:0:' 3-4:0\)3-4%

TEUCOPIEllI:O:, .-:'~

CAlLEAL8M

April 21, 1989

..-

BY MESSENGER

Sincerely, • )

J)~ 9- ~~:,., ("/H 7<,[,

Daniel J. swillinger

Lt'

o

.......

C

Mr. Robert J. Costa

Audit Division

Federal Election Commission

Suite 725

999 E Street, N.W.

Washington, D.C. 20463

Dear Mr. Costa:

Attached are the original and two cc~ies of Pete du Pon·

President's response to the Final Aud~~ Report and Repa~

Determination.

r

.t

DJS:mnd

Enclosures

•
WASHINGTON, D.C. 204Al;';, , ~IJ.~.w~~

p' :~!

- .. ,-::-c ..... - f!t_."

,-... -...

BEFORE 'tHE B"I • ..... '" ;"".:.'

FEDERAL ELECTIQN COMMISSION

RESPONSE OF

PETE DO PONT FOR PRESIDENT

TO THE FINAL AUDIT REPORT

AND INITIAL REPAYMENT DETERMINATION

I. INTRODOCTION

o

'"

C

Pete du Pont for President, the principal campaign committe.

o! Pete du Pont, candidate for the 1988 RepU))lican nomination,

files this response to the Commission Final Audit Report,

approved March 9, 1988.

This response will follow the outline of the final aUQit

report, and respond to the conclusions th.rein.

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II. TITLE 2 FINDINGS AND RECOMMENDATIONS

A. Allocation of Expenditur.s to Stat••

1. Introduction

The central issue raised by the audit report is the allocation of the costs of a telemarketin; proqram, amon; headquarters
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overhead, fundraisinq costs and th~ Iowa expenditure limit.

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The Commission's conclusion is that an additional 5236,000

in telemarketl.ng costs should be allocated to the Iowa 1imit,

which would cause the Committee to exceed the 5775,000 limi~ by

more than $77,000._ The committee bel!!ves that this conclusion ..

is incorrect, and that the expenditures are exempt fundraisinq

costs which are not allocable to state expenditure limits.

The additional $236,000 allocation to the Iowa limit is the

result of a differing view of the allocation of the costs of a

fundraising telemarketing program.

The Committee used six different scripts to contact voters

and to raise money. Two of the scripts are political in nature:

the committee allocated those costs to the Iowa limit. The audi~

staff aqreed that one script, which contained words of solici~ation, was a fundraising device, and therefore exempt from the

Iowa limit.

The COlUllittee believes that the other three scripts \Jere

also part of • fundraising proqram, and the costs associated wl~h

them are also exempt from allocation to the limit. The

Commission concluded that these costs were not rundraisinq and

therefore allocable to the Iowa limit.

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Telemarketinq a. Fundraiainq

The telemarketinq proqram was conceived and ;mplemented by

the campaign a. a siqnificant fundraisinq etfort. The audi:

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report mischaracterize. the program because it fails to

under.tand modern campaign fundraising. The audit report also

include. in the Iowa allocation certain overhead expenses which

should have remained as overhead expenses. In addition, expenses

for payroll and toll charges were incorrectly treated as

telemarketing costs, when, in fact, they were pa~ of general

overhead.

The campaign's particular focus on Iowa was a keystone of

the Commission's conclusions regarding the allocation of

telemarketinq expens.s, i.e., that these cost. were political

rather than fundraising in nature.

The conclusion regarding the lack of a national effort and a

focus on Iowa seems to iqnore ~he reality of modern Presidentlal

campaiqns: the Iowa caucuses and the New Hampshire primary are

the beginning and the end for most campaigns. If a candidate 15

not succ...ful in both, the candidacy is over, as it was for

almost allot the Democratic and Republican candidates in 1988.

For an unknown like Pete du Pont, it is essential to raise funds

in those states, because those are the states in which he 15

becominq known.

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All campaign fundraiaing act~vities are comprised of mUlti-~~_

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ple components. A traditional direct mail effort requires '-:.. '} . renting a liat: creating a mailing "package," with a letter, an~:

other inserts: printing the package: affixing postage: mailing

the piece: and processinq the returns. Only one of the components -- the letter -- actually contains words of solicitation.

Yet the Commission has consistently treated all of the expenses

asaociated with direct mail as an exempt fundraising cost.

Sophisticated telemarketing is a relatively new method of

raising campaiqn funds. Rather than renting a mailing list,

individuala are called from lists of phone numbers obtained from

various sources local election boards, commercial lists

covering neighborhoods with certain demographic Characteristics

political party membership lists, etc. Aa with traditional

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direct mail, telemarketing fundraising has multiple components,

which combine to produce results, but which individually are nc~

productive.

For example, a phone call asking for a contribution eve:-:

fro. a C!U Pont supporter will produce no response unless a

follow-up letter asks for the money, and provides a reply ca~d

anc! envelope. A Rcolc!R call to an Iowa voter Who knows nothl~g

about Pete C!U Pont will produce no revenue: someone who ident:-

fiu himself as a suppor;er aa the result of the telephone

messaqe is much more likely to give money When a follow-ur"

mailinq is received.
The audit report treats the phone call and the mailing as . two separe~ event., rather than two components of a fundraisinq

packaq., and considers the phone' call not to be part of ~he

fundraisinq effort. Followinq that loqic could lead ~o the

conclusion that the cost of the mailinq list rental or pos~aqe

for a traditional direct mail piece is not a fundraisinq cos~.

The campaiqn used six basic scripts for the telemarketinq

proqram. Two of these were clearly not fundraisinq. The

campaiqn has never claimed them to be exempt, and their cos~s

were allocated aqainst the Iowa limit. The Committee believes

that the other four scripts were components of a fundraising

proqram, and alonq with list costs, follow-up mailinqs, etc., the

waqes, toll charqes, and computer services related to the use of

tho.e scripts are exempt fundraisinq costs, and should no~ be

allocated to the Iowa limit. The audit staff treated as

fundraisinq only one of the.e four

words of solicitation.

the one Which contained

For example, the WdebateW script and follow-up let~er

containing a -debate scorecardw are obviously an integrated

fundraising device. The script does not ask for funds, bu~

rather sets the staqe for a written appeal based on watching ~he

first candidate debate. Each of the other scripts operates In

similar fashion.

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The Commis.ion con.iders a.' exempt only the 'costs r;.

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surrounding the .cript which its.l~ asks for a contribution. The ~_;

Committ.e believe. that the three additional scripts ana

surroundinq cost. are exempt as part of a fundraisinq program.

The Commi••ion'. requlation., 11 CFR 106.2(c) (l)(i) and

106.2 (b) (iv), state that headquarters expenses for rent, office

equipment, etc., are national overhead. The audit report .ino

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elude. over $54,000 in rent and utilities, computer expenses ana

wiring a. allocable to Iowa, even though these are general

overhead expenses Which would have been incurred regardless ot

Whether the telemarketing program ever called Iowa residents. To

the Committe.'s knOWledge, the Commission has never allocated to

the Iowa limit the office rent for the headquarters staff person~I

Who works full-time on Iowa. Neither should it allocate these

overhead costs.

The committee's original allocition to the Iowa lim~~

telemarketing program costs is the appropriate allocation. It . recognizes that two of the telemarketing scripts were not part of

a fundrai.inq program. It further recognizes that the other four

were part of • fundraising proqram.

The Federal Election campaiqn Act of 1971, as amended, at 2

U.S.C. Sec. 431(9) (B) (vi), provides that "any costs incurred by a

• • [Pre.idential candidate]

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in connection with the

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solicitation of contributions on. behalf of" the candidate are

excluded fro. state expenditure limits. [Emphasis added.l ..

The Commission's requlations interpreting the statute define

the fundraising exclusion to mean "any cost reasonably related

tQ" or "associated with" the solicitation of contributions. 11

CFR lOO.8(b) (21)(ii), l06.2(i)(S} (ii). [Emphasis added.]

The Committee has amply demonstrated that the telemarketing

proqralll costs related to the three scripts in dispute are " in

conn.ction with," "associated with," and "reasonably ralated to"

tundraising activities. They are theretore not allocable to the

Iowa expenditure, but rather are exempt tundraisinq expenses.

B. Applicapility ot AO 1988-6

The Committee believes that the Commission's holding in

Advisory Opinion 1988-6 (CCH Paragraph 5811), that 50\ of ~he

cost ot a television advertis,ement for Sen. Albert Gore may t:::e

allocated to exempt tundraising, also applies to this situat~on.

In that opinion, the Commission concluded that a threesecon4 visual listing, "Vote - Volunteer - Contribute," plus a

voice-over giving a phone number tor contributors to call, as

part of a 30-second issue campaign advertisement, would perml':

the allocation ot S0' ot the ad'S cost to exempt fundraising .

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.. Given the clear fundraisinC) purpose of far more than one- . tenth o~ the du Pont telemarketing program, the Committee submits

that, .~en accepting arguendo the audit report's conclusion that

$303,903.13 of the telemarketinq costs outside 28 days relate to

Iowa, half of the costs are exempt fundraisinq.

Th. report asserts that AO 1988-6 applies only to television

commercials, as if it established no principle reqarding

allocation of fund raisinq costs. The matter at hand is not

materially distinquishable from the Gore situation, and the

principle established there may not be iqnored.

c. Conclusion

Th. Committee therefor. concludes that under either method,

o it has not exceeded the Iowa limit, and that no repayment is

r.quir.d. ,....

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I I I. VENDOR LIST

Th. report recommends that the Committee provide a list of

all vendors, and a list of all costs, associated with the

t.l.marketinq proqram.

Th. Committee mad. this information available to the staff

durinq the fieldwork nearly a year aqo. As stated in the

attached affidavit of Peter Nellius, Committe. controller, the

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needed reqardinq the telemarketinq proqra:.

audit staff told the committee t~at it had compiled all or the . recorda'- J.t:

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.. (Para: 4). Relying on that advice, all Committee records M'ere

placed in storage. Retrieval of the specific documents nc.

reque.ted would entail considerable expense to the Committee, and

constitute. an unreasonable burden. (Para. 5).

Mr. Nellius also states that the vendor and associated costs

listed in the audit report include all costs associated with the

telemarketing program. (Para. 3).

The Committee believe. it is unreasonable to ask the

committee to produce information which the audit staff possesses.

IV. ORAL PRESENTATION

Pursuant to 11 CFR 59038.2(c) (3), the Committee requests the

opportunity to address the Commissi~ in open session reqardir.g

the audit report and repayment determination.

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Respectfully SUbmitted, ..

willinger

Pete du Pont for President

April 21, 1989

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county of NIW caltll, II:

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. MPFAOAVIT OF

peTER C. NELLIUS

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Pltlr C. Nelliu., beinq duly ,worn••tate. a. follow.:

My name i. Peter C. Nelliu.. 1 aa a U.S. citizen over 21 yearl

2. 1 lerv.d a. Controll.r of the Pete du Pont for President

Co_ittee froa July 1987 'to the pre.ent. As .uch, I wal re.ponlible for

the Coulttee'l financial activity. includ1nq the preparation for and

conduct of, the Committee·. coapliance with the audit provi.ion. of th.

r.deral El.ction Ca.paiqn Act.

3. Durin; the cour.e of the rederal Election Co_i••ion' I audit

.taff field audit. the Coaaittee aade avail.ble to ttle auditorl all

infor.ation in the Couittee· I file. reqardinq the t.le..rketinq proqra.,

includinq information on all vendorl .nd related expenditurel.

4. At the conclulion of ttll .udit. 1 wal told by Cornelia Ri. of

the .udit It.ff, (at ay inquiry), that - .ince ay review of related ,iudit

vorkpaperl provided the Co_ittee indicated that they had identit1ecL ic

d.t.il, all cOltl a ••ociat.d with the telemarketinq proqr•• - it would not

b. n.c••••ry to provide a ••par.t. lilt which .imply duplicate,

inforaation which the .udit .taff h.d .lr.ady b.en 'liven.

5. Sa.ed on that conclu.ion, Committee record. were placed i'

.tor.qe. Thl tele.arketinq docusentl were not .e'lreqated. Findinq thes·

documentl .t this point would require enormoul time and expen.e.

Further affi.nt laylttl not.

SUblcribed .nd .worn blfore ae thil d.y of April 1989.

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- 'EDERAL ELECTION COMMISSION

WASHlNCtOH. 0 C 2CM6l

June 23, 1989

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MEMORAR1)OM

TOI '!'he Co_i.aion

THROUGH: John C. Surina

Staff Director

PROMs Lawrence M. Noble ~A General Counael "f/\-,/'

Itia L. Bright-Coleaan Vf)ll~ Special As.i.tant Gener~'C:oun.el

SOBJBC!I eral Presentation--Pete 4u Pont for Pre.ident, Inc.

(LU 1299)

on March 9, 1989, the Camai••ion aade an initial

deteraination that Pete du Pont for President, Inc. (the

·Cc.alttee 8 ) repay $23,254.83 to the United State. Trea.ury, repre.enting the portion of pUblic fun~. used by the Co..ittee to

aate expenditures in eze••• of the Iova .tate limitation. The

repayment i. ba.e~ on expenditure. related to a te1e.arketing and

aail program that the Co..ittee di4 not ~roper1y allocate to

Iowa.

~e Commi••lon approv.d the Pinal Audit Report containing the initial repayaent deteraination on March 9, 1989.

Attachaent 3. Th. Co.-itt.e responded to the report on April 21, 1989. Attachaent 4. In the respon.e, counsel for the Co_ittee

reque.ted tb. opportunity to addre•• the Commission 1n open ••••lon r.,arding the audit report and repayment det.raination

pur.uant to 11 C.P.R. S 9031.2{c) (3). ~e Cosaission granted the

CO..itt.e'. reque.t for an oral pre••ntation on May 18, 1989, and

a.t the date of Wednesday, Jun. 28, 1989 for the oral

pre.entation. A letter notifying the Coaaitte. of thi. decision

va. a.iled to th. Comaittee'. coun••l on May 22, 1989.

AttachJIent 6.

Tbe folloving me.orandum i. the General Coun.el'a analysis of the aajor i.aue. rai.ed by the allocation of the teleaarketing

prograa expenae. and the primary argument. preaented by the

ca.-itte. in re.ponse to the initial repayment deteraination.

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Me.orand~ to the Commiaaion

Oral PreaeDtation--Pete du Pont

for Preaident, IDC.

Page 2

I. DaGkOOlID

Thl allocation of the telemarketing program cost. is the

baaia of the Cosaisaion'a initial repayment determination. The

Coaaittee operated a telemarketing and mail program from its·

Wil.ington, Delaware headquarters from June 1987 through Pebruary 1988. The program coats totalled $745,439.24. The Comaittee

allocated $117,606.04 in program costa to Iowa. The Audit

Division reviewe4 the scripts used in the program and the long distanee telephone billa, and concluded that Iowa vaa a primary

focua of the telemarketing progr.. and that additional amounts ahoul~ be allocated to the eomalttee'a Iova expenditure li.it.

The isaue first aroa. in the Interi. Audit report, which va.

approved by the Commisaion on Auguat 30, 1988. Attacbaent 1. In

the Interia report, the Audit Diviaion allocat.d $375,549.15 of

the prograa costa to Iowa, reaulting in expenditure. in exceaa of

the Iowa atate limitation totalling $98,736.31. ~. report r.commended that the Comaitte. provide evidence that it haa not

exceeded the limitation or adjuat ita records and reporta to , reflect the correct amount allocable to Iowa. It alao requeste~

that the Co..ittee provide a liating of all vendor a related to

the tel••arketing progr.. and an itemization of all expenditures incurred with reapect to each vendor. The Interim Report . contain.d a preliminary calculation of the repayment in the

aaount of $29,942.71, baaed on the amount in exceas of the Iowa

atate expenditure limitation.

The Comaittee responded to the Interim Report on November 4,

1988. Attachment 2. Th. Committee's principal arguments in the

re.ponse focuaed on the fundraising exemption of 11 C.F.R.

S 106.2(c) (5). Section 106.2(c) (5) prOVides that an amount equal

to la' of the .alariea and overhead expenditures in a partiCUlar

atate ..y be exe.pted fro. allocation a. fundraising

.xpenditure.. ·Ise.pt fundrai.ing expenditures are thoae expenses assocIated with the aolicitation of contributions, and include

printing and po.tag. for solicitation., airtime for fundraising adv.rti....nt., and the coat of meal. for fundraiaing receptions

and dinner•• 11 C.l.R. S l06.2(c) (5) (ii). 2!!!!!2 11 C.P.R.

S lOO.8(b) (21). The Comaittee contended that the program vas

e ••entially fundraiaing in nature, and therefore not allocable to

the Iowa state expenditure limit beeause it was an exempt

fundraising expen... support this contention, the Committee

submitted an affidavit from the deputy campaign manager that

state. that fundraiaing was a prime objective of the program.
the alternative, the Committee argued that Advisory Opinion (·AO·) 1988-6 appliel to the telemarketing program, and half of

itl expensel for the prograa are exempt fundraiaing costs under

that opinion.

Furthermore, the Committee argued that expenditurel for

rent, computer expenses, and wiring allocated to Iowa by the

Audit staff are general overhead expenses which are not allocable

to Iowa under 11 C.P.R. 55 106.2(c) (1) (i) And 106.2(b) (2) (iv). The regulationl prOVide that expenditures for administrative,

staff and overhead expenses of the national campaign headquarters

are exempt from allocation to any state. 11 c.r.R.

S 106.2(c) (1) (i). Overhead expenditures include rent, utilities,

office equipment, furniture, suppliel and telephone lervice base

chargel. 11 C.P.R. 5 106.2(b) (2) (iv). The eo.aittee allO

contended that the Audit staff underltated payroll expensel, and

ailcalculated telephone toll chargel to Iowa, because certain

telephone calli were not related to the telemarketing prograa.

The Commislion approved the Plnal Audit Report on the

Coamittee on March 9, 1989. The report recommended that the

Coaaittee provide docuaentation of all alsociated COltl related

to the telemarketing programJ adjult itl recordl to reflect the

expenditurel allocated in lowaJ and where neceslary, file amended

reportl to reflect the correct amount allocable to Iowa. The

report rejected the Comittee'l contention. that the program was

ellentially a fundrailing appeal and that AO 1988-6 could be

applied to exempt 50' of tbe COlt. al19cated to the Iowa

expenditure limit by the Audit Division. The report also

rejected the Comaittee'l contention that certain expenditures

were exempt al national campaign headquarters overhead. However,

Audit staff accepted the Co..ittee's contention that not all

calls to Iowa were related to the program, and accordingly reduced the telephone and wiring allocations. This reduction was

deteralne4 baled on creditl on telephone bills which had not

previouIl! been included 1n the allocation, and the application

of a bUlinel1 u.e percentag_ for preaumed non-telemarketing calli. ~e report concluded that $354,260.26 in the program

cOltl should be allocated to Iowa, relulting in expenditures in

excea. of the Iowa State expenditure li.itation in the amount of

$77,447.42. Therefore, the Comai.aion made an initial

determination that the ca.-ittee repay $23,254.83 to the United

Statel Trealury pursuant to 26 U.S.C. 5 9038(b) (2).

,

. M••orandua ~o ~h. Commission

Oral Pr•••Dta~ion--P.t. du Pon~

for Pr••ideD~, Inc.

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M••orandua ~o ~h. Co..isslon

Oral Pr.s.D~a~lon--P.~. du Pon~

tor Pr.sid.D~, Inc.

Page 4'·

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In itl respon.e. to the tnteri. and Pinal Audit Reports, the

Co..ittee made three argument.: 1) the expenditure. are exempt fundrai.ing co.t. which are not allocable to the Iowa state

expenditure liait, 2) certain expenditure. were national

headquarter. overhead and should not be allocated to Iova, and

3) AO 1988-6 applies to the telemarketing prograa, and thus, half

of the program costs are exempt fundrai.ing.

The Comaittee'. primary argument 1. that the prograa expenditure. were exempt lundrai.ing co.ts vhich are not

allocable to the Iova State limitation under 11 C.P."

S l06.2(c) (5) (ii). The Committee state. that the prograa u.ed

.1x Icripts, of vhich two vere purely political. The other four

.cript., it argue., vere part of the fundrai.ing progr.., and

.hould be exeapt froa allocation. The Audit .taff concluded

that only one of the six script. was fundrai.lng in nature, and

ex.apted expenditure. related to this script froa allocation.

The Comaittee contend. that the telema~keting prograa va.

-conceived and implemented by the campaign as a significant fundrai.ing effort. w The Committe. argues .that the audit report -ailcharacterize. the prograa because it fail. to under.tand

aodern campaign fundrai.ing. w The Audit Division'. conclusion

that Iowa va. a primary focus of the program Wseem. to ignore the

reality of aodern Pre.idential campaign••- Si~:e the Iowa

caucu.es and the Nev Hampshire primary:are critical for most

campaignl, the Committee maintain. that it is essential for an

unknown candidate such a. Pete du Pont to raise funds in those

states, wbecau.e tho.e are the states in which he is becoming

known.-

!be co.aittee further argue. that the telemarketing program

wa. anaLogoua to a direct aal1 fundraising effort. The re.ponse

state.. -Ill caapaign fundraising activities are comprised of

ault1ple 'ca.ponent••- A direct aall fundrai.ing scheme involves

poltage, printing and the fundrai.ing letter itself, but only the

letter contain. a fun4raising aeslage. The Co..ittee argue. that: W[~]. vith traditional direct aail, telemarketing fundrailing hal mUltiple component., which combine to produce relult., but vhich individually are not productive. w !be

Committee believel that to treat the phone call amd .ailing as

separate event., rather than two relatea components of a

fundrailing package, Is similar to treating the postage for a

fundraising letter aa a separate non-fandraising expenditure. As

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C·' M.IIO~an4 .. to ~he Co_iaalon

,,: . Oral Pre.aatatlon--Pete du Pont

for Pre~ldeDt, Inc.

Page 5'

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.n example, tbe Co.-ittee atates that the WdebateWscript and

follow-up letter .re wobvioualy .n integrated fundrai.ing device w

1n which ~be script w.e~. the .tage for • written appeal ba.ed on

w.tcbing ~he fir.t candidat. debate. w Th.refore, the Comaittee

contend. ~h.t the telemarketing program coat. related to the

three .cript. are related to fundraising activities and should be

exeapt fro. allocation.

Moreover, the Committee believes that Advisory Opinion 1988-6 applies to this situation. In that opinion, • three second fundraising .tatement in a 3O-aecond political .dverti.ement .upported the allocation of SOt of the coaa.rcicl'a

co.t to exempt fundraiaing. ~e Committee argue. th.t -far aore

than one-tenthWof the prograa co.t. had a wclear fundr.l.1ng

purpo.e. W '!'bus, it argue., -.ven accepting arguendo the aud!t ".:

report'. conclu.ion- th.t program expenditure. r.late ~o Iov.,

half of the co.t. are exeapt fundrai.ing. The Co.-itt.. contend.

th.t this in.t.nc. -i. not aaterially di.tingui.hable froa the

Gore .ituation, and the principle established there .., not be

ignored. w '!'b.refor., th. CO.-ittee concludes that Wunder either

.ethod- it ha. not exceeded the Iow. lisit, and no repaya.nt i.

r.quired.

Pinally, the Comaitt•• contend. th.t certain prograa erpenditure. for r.nt, utilitie., computer expense. aDd wiring, alloc.ted to Iowa by the Audit Report, .re national headquartera overhe.d .nd thu., not allocabl. to Iow.. The Committee argues th.t th••e expenditur.a were general overhead expense. Wwhich

would have been incurred regard1esa of whether the telemarketing

prograa ev.r c.1l.d Iowa r.sident•• w

III. 'DLTSIS OP DSPOIIU

~. Coaaitt••'. argument••re ba.ed upon the assumption that

the t.leaarketing prograa waa essentIally fundraising in nature.

Tbe e.idenoe doe. not .upport this aa.uaption. only one of the

.cripta used la the te1eaark.ting prograa contained .n overt

fundrai.ing •••••g.. ~e Coaaittee reli•• on the preai•• that a

vot.r cont.ct prograa with .evera1 di.crete element. which may

eventually le.d to an explicit fundr.iaing appeal should be

con.ider.d entirely fundrai.ing in n.ture. Although the

COKaitt.e cont.nd. th.t tbe telephone call. without any apparent fundr.i.ing ....ag. b.~ • fundraising purpose of educ.ting potential contributors for .ub.equent fundraising appeal., the

.b.ence of • fundrai.ing appeal In tbe call. aake. tbea in~i.tingui.babl. fro. campaign device. Intende~ to educate

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Memcr.ndu. the eo..i ••lon

Or.l Pr•••n~.~iOD--P.t. 4u Pont

for Pr••4~.D~, Inc.

Pag.' ·

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voter••nd garner voting .upport. If the CO..itt..•• po.ition

were a~ceptea, virtually any ••th04 u••d to .ducat. pot.ntial

voter. could arguably have • fundr.i.ing purpo.e. !be only .viaence that th.re w••• fundrai.ing int.n~ion i. the

ee.aitt••••••••rtion that the program va. a fundral.in9 effort. ~i. i. in.ufficient. ~e limit.d fundrai.ing .xeaption was not

int.nd.d to cov.r esp.nditurel with no appar.nt fundrai.ing ••••ag••

Mor.ov.r, the COmmitt•••• reliance on AD 1988-6 i • • i.pl.c.d. In AO 1988-6, the Co.-i••ion peraitte4 the Gor.

c.ap.ign to ex.mpt 50' of the co.t of .n adv.rti••••nt und.r the

fundr.i.ing .x.aption of lection. 100.8(b) (21) and 106.2(c) (5).

!b. opinion .pplied to • Ipecific factual lituation which i.

di.tinguiohabl. froa the fact. at i••ue h.r.. In the opinion, both the political i••u. and solicitation r.qu••t were cont.ined

in ODe cob••iv••dv.rti••••nt, so that the fundrai.ing •••••g.

va. cl••rly r.l.t.d to the .ntir. adv.rti••••nt. Application of

the opinion .rgu.bly r.quir•• the pre••nce of .oa. ov.rt

fundrai.ing ....ag. iD • coaaunication •• a ba.i. for th.

ex.sption. In contr••t, the co..itte••••erts th.t t.l.phon. c.ll. and ••iling. which did not cont.in any fundr.i.ing .e.lage .hoa14 b. es.mpt. !he CO..i••ion·. d.ci.ion in AO 1988-6 would

not per.it • candidat. to exempt •• fundraising ~zpen•••• longrang. fundrai.ing progr.. which include••everal dilpar.t• •••••g•• ana contact. vith pot.nti.l voter. which do not contain

.n .xplicit fundrai.iDg •••••g.. Bowever, even if SO, of the tele~keting progra. exp.nditure. w.re con.idered exempt fundr.i.ing expenditur••, the Co.-ittee would have exceeded the

low••xp.nditur. limitation. Th. Audit It.ff has also noted that

the ea..itt•••••lloc.tion. bal.d on th.ir application of AO

1988-6 contain a nuab.r of error., in particular, the Coaaittee

u.ed figur•• d.v.loped by the Audit .t.ff which had already been

r.duced to account for the fundr.i.ing exemption.

P1nall!, the .X.~tiOD for ov.rh••d operating expen.e. of a

national ca.,.lgD he.dquart.r. doe. not .x.apt the op.rating

.xpen••• of ••pecific prograa focused on • particular .tat.

li.ply bec.u.. it v•• dir.et.d out of the n.tional offic.. The

r.gul.tion••x.apt oper.ting .xpenditur•• of the nation.l

caapaign h••dqu.rt.r. fro••llocation to any .tat.. 11 C.P.R.

S l06.2(c) (1)(1). Gen.r.lly, howev.r, .t.t. allocation. are

ba••d upon wh.ther an exp.nditur. i. int.nd.d to influ.nce the

no.in.tioD of • c.ndidate in a particul.r state. Thu., th. e~.mption for g.n.ral ov.rh.ad expen... .hould not b. applied to

co.te dir.cted toward the Iowa el.ction, •• diltinguilh.d from

th. g.n.r.l co.ts of running the national headquarters.
Me.orandua ~o the Commission

Oral PreseD~.tloft--P.t. du Pont

for Pre.~deD~, Inc.

Page" : 0:

IV. COELUSIOII

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5.

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3.

4.

Interim Audit Report and letter dated 9/2/88

Pete du Pont for President, Inc.-Response to Interim

Audit report dated 11/4/88.

linal Audit Report and letter dated 3/10/89

Pete du Pont for President, Inc.-Response to

linal Audit Report dated 4/21/89.

Maaorandua to Commission Re: Request for Oral

Pre.entation, dated 5/10/89, Agenda Document 189-28.

Letter to Pete du Pont for President, Inc.

aat" 5/22/89.

Staff Assigned: Delanie DeWitt Painter

1.

2.

Attachments

~e Office of General Counsel concludes that the Committee's

arguaents are without merit. The telemarketing program focused

on Iowa, and the allocation of the program expenditures should

reflect this focu.. The telemarketing program expenditures were

not exeapt fundraising expenditures, or national headquarters overhead. The Audit Division's allocation has taken the

fundraising purpose of one script into account, and the other

script. provide no evidence of a fundraising message or purpose. Moreover, AO 1988-6 is inapplicable to the scripts tbat lack a

fundraising measage. Therefore, we conclude that the allocation

and initial repayment deteraination of $23,254.83 is correct.

~. oral presentation will allow the Committee to pre.ent r

its argument. in response to the initial determination, which it

ha. set forth in its written response. The oral presentation also prOVides an opportunity for Commissioners and staff to

discu•• the issues involved, and to a.k questions of the

Committee's counsel in order to clarify the issues. Polloving the presentation, the Office of General Counsel will analyze the

Co..itte.'. oral and written reaponaes in preparing the draft

State.ent of Reasons for the Commission to make a final

deter.aination in this matter.

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1

FEDERAIi ELECTXON COMMXSSXON

* * *

oRAL PRESEN'rATION

TO THE COMMXSSION

ON BEHALF OF

PETE duPONT FOR PRESIDENT CoMMX'l"l'EE

Federal Election Commission

999 F street, N. W.

Ninth F1Q9r

Washinqton, D. C.

Wedne.day, June 28, 1989

10:05 a •••

PUSENTATION BY:

GLENN c. DNTON, ESQ.

counsel for Pet. duPont

for President ca-aittee

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ACE-FEDERAL REpORTERS. INC.

202.3"7.J'n!O Nal101l" Coverqe D3]6.66t6
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Good !Domine;• The special

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. PRO C E .E DIN G S

(10:05 a ••• )

CHAIRMAN MCDONALD:

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repay $23,254.83 to the Onited states Treasury. Thi. amount

represents the portions of the fund used ~y the committee to

make expenditure. in exces. of Iowa State expenditure II

t·

I limitations.

The repayment is based on expenditures related to

talaaarketinq and mail program that the committee operated

troa its national headquarters.

Opon review1nq the expenditure. related to the

!! proqram, the audit divi.ion determined that the cOJlmlittee

: had not properly allocated the expenses to ita Iowa .

~; expenditure limitation.

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II

III,

Commission will please come to order.

On the aqenda tor today special open se.sion is

an oral presentation on bobalf of the Pete duPont For

President Committee, Governor duPont'. principal campaign

committee for the 1988 Republican Presidential Nomination.

The committe. ba. reque.ted the opportunity to

address the Commission in open se••ion concerninq the

Commisaion'. initial repayment determination.

On March 9, 1989, the Commission made an initial

., determination that the duPont For President Committee must

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.' open me.tinq on June 28, 1989 of the Federal Election

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ACF-FEDER~L REPOIUERS. l~c.
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At the conclusion of hi. presentation, each

I will then ask the General Counsel and the Audit

The Commission granted this request.

w. are here today to hear the committee's oral

support ot that determination.

Itt.• Kenton.

opportunity to ask qu••tion•• ;1j:

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This ia not an adversarial or a trial type

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j: Commissioner and ex-officio representative will have an ,;

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• '. The committ.. responded to the initial r:payment

II determination on April 21, 1989, and requested an

i. opportunity to addr••• the Commi••ion in op.n seaaion.

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II hearing. The committee's representative, Mr. Glenn Kenton,

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!! will have 30 minutes to make his remarks.

:. Division it they have any questiozis.

!t

!. After this hearing, the committee will have an

opportunity to submit additional materials tor the

eo.aiaaion'. consideration. And then the Commission will

.aka a final determination and i ••ue a statement of reasons

:. presentation. The sol. purpose of this meeting is to give

the committe. an opportunity to address the Commission and

;. to demonstrate that no repayment, or a lesser repayment i.

il required.

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ACE-FEDERAL REPOK ;-ER~. l'l;c.

'JIII'''''."'t r." er:ue ..I\n ,-:.......... 0 ..
MR. DNTON: 'l'hank you, Mr. Chairman, and member.

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(Lauqhter. )

ORAL PRESENTATION.

BY MIl. KEN'l'ON:

Firat, I would 1ilte to take a Jloment just to

thank the staff of the Commission, Mr. Chairman -- Mr.

Noble's office, Ms. Briqht-col~, and the Audit Office.

And I wish to speak to you today more as the

..

j. of the coai••1on. My name is Glenn Kenton. I am a lawyer I'i: with the law firm in Wilmington, Delaware of Richard., •

ii Layton and Finqer, and more particularly, I a.a the chairman ,.

i; of the Pete duPont For Pre.ident campaign.

I: chairman of the campaiqn than a. a lawyer, because it 1s not

;: the intent -- it is not .-y intent tocSay to spend a lot of

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i: time arguinq a lot of detail., but to try to arque, or at

I: least explain you our view of what I Jliqht call the I

1 They have been terrific to work with, helpful, courteous,

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rlarqer i ••ues involvecS. .1

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thouqhtful, proapt, a1tbouqh a little too careful. ;

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And we do appreciate workinq with thea.

And I would like to say that for the record. To

Ii beqin with, I think what I would like to do, Mr. Chaiman,

'III and member. of the staff, is try to })oil this down to two

II i ••u... Let me say that with respect to the numbers and the

!I:1 calculationa, Mr. Chairman, and Ms. Vice-Chairman, in the

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I. a..elit ".port, 1:1>. Unal ".po~, 1t 18 not my p=po.: today I .

,I to di.pute those numbers, specifically their method of

3 calculation or any detail••

4 I would like to argue today generally that

5 numbers are either all in or all out. And it's not my

6 purpose here today to sU9gest that $23,000 ought to be

7 $26,000 or $22,000 or some other number on the allocation.

8 I; We will quibble forever on a tew thousand dollars of the

9 :! allocation. ,.

10 !: So, if there is such a thing a. a stipulation, :.

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11 Ii Mr. Chairman, I would be happy to stipulate, that if you .1

.. 12 ;: Mr. Chairman, that the numbers are accurate• .. 13 I

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It is the law that I would like to argue today,

14 ;\ or at least discuss.

. 17 :. Committee ran out of its National headquarters. There were I,

16 II proqram that the Pete duPont For President campaiqn ••

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I· The issue really boils down to the telemarketing

18 Ii in a sanae, in e.sence, six phone calls made into Iowa from

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19 national headquarters of which two, the staff and the staff

20 of the campaign agreed were, quote, "clearly political."

21 End quote. In that they did not involve a very prompt

22 financial follow-up or request for funds.

23 There were four other calls made and one of those

24 was allowec1 by the staff to c. a fund-raising call because

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it specifically, in the call, we asked for money.

ACE-FEDER-\L REPOR rERS. lsc. Vi -~

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The i ••ue and ~e que.tion here are ~e remaininq

2 three calls. None ot tho.e three call., did the callers or

And, theretore, it is our contention that the.e I'

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" are fund-raising costa - the cost ot the calls are

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;! the telephone tor tinancial follow-up into Iowa. "

although I don't want to getting to quibbling over the

statute ia, quote, "in connection with or a.sociate<! with.·

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I think the term of the statute,

I think the reg says -tund-raising".

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·1 tunclraising costs.

!' did our committee a.k for money directly. I

II But what happened in those call. i. there was a

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:: very prompt follow-up, usually within 24 hour. atter the

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itII call, to the tarqeted person using the intormation we got on

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tund-raising calls.

If they are fund-rai.ing calla, they are not

And I que.. I would like to argue ba.ically

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II subject to the Iowa limit and, therefore, under that ..

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H circumstance, the committee would owe no money, if they were

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19 !l only••• or suqc;est, not argue •••two points.

20 Hu:mber one, that the language in the regulations

ACE-FEDERA.L REPOR rERS. Isc.

for money through the mail, are coots that are fund-raisi'

Direct mail costs that are relate<! to fund-raising, that ask

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21 1. quite broad. It s.ys co.ts a ••ociated with or in

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!i from the New Republic ~- heavan forbiCS, the New.Repub11c

i' or Human Events, for example, or something like that, we

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II have, in effect, created our own vendor list.

!i them immediately with the follow-up letter.

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In that .ituation, the cost. associated with or

ACE-FEDERAL REPOI{ i"ERS. lsc. .n- '1

Now I'. not going to sit here and suggest to you

that the telemarketing eall. into Iowa didn't have political

import or political impact. Of course they cUd.

And, essentially, what we have in the

telemarketing program is, rather than purchase a vendor list

We have used the telemarketing to create a vendor

list, a list of nam... And. after we understand What those

that a tarqeted telephone call to elicit exactly the same

thing, which is a Ust of people who would be most likely to

contribute to the campaiqn, i. al.o a cost related to fundraising.

. If the purcha.e of a vendor list for a direct

mail is a cost as.ociated with fund-raising, it seems to me

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.. in connection with that are fund-raisinq C08U, for example,

this would include the buyinq or purchasinq of vendor lists,

.' vendor lisu for direct mail purpose••

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I, people f. issue. are, and if they are the same i ••ue. and of

;: the same concerns a. our candidate' 5 concerns, we then hit "

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i •~o.~ and would not be a11a::~le to Iowa or to any o~er I, State.

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2 would be two or three pages long, talking about everything

3 ,I in the world. And at the end 1t .ay., "And by 1:11e way, :1

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A direct mail letter

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. . But .0 do_ dire!=t: mail. .

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4 plea.e send money.-

5 That 1. a tund-raisinq co.t, all of it allocable

6 I to tund-rai.ing, none ot it allocable to politic. or to ..

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7 political and, therefore, not to the Iowa, New Hampshire, as

8 :! the ca.e may be, limit.

So it .ecu to me that if the C01lllll1asion i. going

Now, the Commi.sion points out that this is a

it seems to me that the same thing ~u9ht to be done here.

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.. to and has allowed all of the costa a.sociated with direct

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II of the co.ts in connection with or as.ociated with fundIII raising even though they al.o have political impact as wel: I

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;. . !: slippery .lope, one I would point out of many slippery

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17 :1 slopes in the req.. That if you allow this to happen, well, I

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18 II my heaven., everybody'. qoing to .et up telemarketing ,I

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h programs and phone into Iowa and New Hampshire, (the only

places, by the way, that a penon .110.. bean down this road

can tall you, the only place. Where the limits make any

ACE-FEDERAL REPORTER~. Isc.

First ot all, I think that there i. a much bi'

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ditterence at all), and that everybody's qoin; to be doing

" telemarketing.

I I don' t think that is really the ca.e.

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. loopbole, it you would call it that, in the senator Gore

ruling that you all made, the advisory ruling which

basically says you can put three seconds on a television "3

4 .' spot and allocate that 50 percent to tund-raising.

5 I think that is much more of a slippery slope

6 I than this. You already are on the slippery slope, it seellS

7 to me, because ot the direct mail exception. You can mail

8 into Iowa or New Hampshire and ask for money and say

9 anything political you want and it is a tund-;aising

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DIM/be

10 ,: expense.

11 it And so I would say to you that I just don't think

14 promptly, in our case 24 or 48 hours, by a fund-raising

15 .. tollow up and that fund-raising follow up is directly "

. 17 "there is that much ditterence and that much potential for

18 abuse between that and the direct mail program into Iowa or

19 New Hampshire.

20 And let me also say, and I'll say this with

21 respect to my second point that I would like to make, that I

22 think it'. a close call. I mean I don't think the staff's

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that it's that much of a slippery slope it you're talking

about tarqeted calls, to named individuals, followed very

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, connected to that telephone call. I just don't see that

" 23 :: position i. quote "unreasonable" end quote, or an abuse of .,

24 I, discretion or anything like that. I think it's a close

25 call, and I see how the argument could go either way. And I

I

!I., ACE-FEDERAL REPOf< l"ERS. INC.

'.II"'"""ClC ("~\C':lllC -"'1'" •••••
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.qu... that one or the poin~~, I'd like to make here today 1•.

that ror a committ•• that ha. don. it. very b••t to comply

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;' with the statute and the lawa, who haa spent $600,000 out ot i~

il a $7,000,000 campaign in FEC compliance, that waa run, "

, unlike the Vice President's campaign and the majority leader

" ot the Senate's campaign or minority leader, by basically by

volunteer. from a home stata, we've gotten really good

reviews by this staff and by these people tor how careful we

9 ~: were. We had terrific matchinq funcla reports aa I've been

J.O !: led to relieve by my staff and the Counsel' a ataff.

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:: think this telemarketinq is goinq to be an &bu.e in the

I mean I think it's a

And 80, what I'm basically s.yinq is that it you

Give ua the benefit of the doubt.

0\ future, pass a regulation in the future to deal vith it. C•

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;; clo.. call and I']a not goinq to ait here and tell you'd be

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I: unreasonable or wicked. And I'.m not goinq to appeal this to

;; the United Statu court of Appeals: I couldn't afford to if

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': I wanted to.

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what I would say ia that I don't think tha~ if you give us

the close call her"'1 ~ere vill be a problem. And if .

So I guess

firm. ney did a terrific job. They vorked aa volunteers,

And so what I am sayinq i. that ve really did the

beat that ve could and it waan't an amateur effort either.

But our accounting firm who did it vas a good accounting

ill a couple of the peopl., except tor expense•• I

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the State.

mail go on I don't know why you don't let telemarketing go

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I don't

. And the second point I would l1ke to make, to

Now, What the staff haa said is that their view

If you do think that it i. just aero•• the line,

pasa a regulation to stop it tor the next time. I

snmmarize it the same way, is that almost all of the $77,000

~.national ov::u::: :::t ::::-li:n:n::e:::::l:X:::::::t:::

il -staff coats, associated cosu ancl overhead. coats that are

III in the national headquarters are not allocable to a State."

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lion if you follow up quickly. I'

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11 (about $53,000) would go away if you did not accept the

l! staff's position that certain parts of our overhead back in

the campaign headquarters, the national headquarters, were

allocable to Iowa.

iI cloae.

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j; is that, if there is a very special program run out of the

F national headquarters, targeted to a special State like Iowa 'I

!; think there's any need to hammer ua for $23,000 and the

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:: potential tine, I might point out, tor a call that is this "

'lor New Hampshire, that the costs, the overhead costs that

are reaaonably asaociated with that are to be allocable to

"

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yant to .top this kind ot .t~tt in the tuture -- and I don't

I really think that you really need to it you will let direct ,.

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ACE-FEDER,-,L REPOR fERS. [sc,
But the r.qula~ion basically doesn't say except

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I will make the same arqumen~. It tha~ is going

Nov, the staff ba.ically says:

"Well, it i~ is a targeted program, they should

The program into Iowa.ran only trom 7-9 at night.

National overhead. OVerhead, and staff expenses

The reason for that exception is very simple.

~ l a~ the national level shall not be allocable to a State.

;. ~o be the position of the Commis.ion in the future, fine. ~!

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.1 Pas. a requlation saying that a tarqeted program run out of

the national headquarters is going ~o be allocable to that

;: State. I

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j! tor special programs run ~o a specific State. It says: I

:1 be."

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i~ Thi. phone-bank, if you will, this telemarketing program, we

"IiI' We had phone. si~ting there that were doing lots of other

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~: thing. during the clay. They were calling volunteers, for .

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I, exallPle , to come in and work. They were calling volunteers

1:0 410 on buse. to New Bampshin and Iowa. They were calling

other people -- following up fund-raising events in New York

!I and place. like that.

il If you are going to start trying to segregate in I,

II the national headquarters all of the expenses that are

:r allocable to Iowa or New Hampshire or the other States,

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'Il: ~ed it lot. ot other times during the day.

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didn't have many people to count.

it about it. Sit down and decide What regulations should say, i!

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ACE-FEOER...L REPO~' ERS. l'ie.

But I think that is going to be a nightmare of a

Okay. If you really believe that, let's argue

Anc1 I will make the same arqument that I c1id

And it seems to me that the staff basically is

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:'1 problem. I think the regulation 1. right the way it is, but

I! if you want to change it in the future and you want to set

And the Commission in ita wisdom saw fit to

exempt national expenses because it is just too hard to

" segregate out I presume, one of the reasons, im. that people

.'

!i saying that if it is really a special proqram and it is

" really targetec1, you should have to allocate it to Iowa.

:. are doing .lots of different things and the resources are

,. used for lots of different things.

~.parC1cular1Y tbe eer1y Sta~~•• you ere going to get

1

:nto •

II

i~ nightmare of a problem, whether it i. the Bush campaign or

I the Dole campaign or any of the other one.. There are lots

') of people working and lots ot efforts at the national

headquarters that are working on Iowa.

:: before.

Il

:: decic1e how you're going to allocate all of those funds, how

:i you're going to 90 into the Bush National Headquarters and

figure out who was working in there on a targeted proqram in

lava and Who wasn't. It's pretty easy for us because we

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.. tarqeted proqram i., give the next campaign. notice.

" campaign. Nobody'. suggesting we did anything illicit.

These are close call. in both of these cases.

~.,oae quideline. tor what

.

. 14 ~-~., .."",-

a t&rqeted proqram out ot . ,.- the

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!I national headquarters i., pa.. the requlation, say What a

They are clos. call. and I acknowledge that they are close

call••

'~ But at some point this thing haa got to come to

ij an end. And the campaign ha. zero balanc. at this point. I:

~~ It haa paid all of ita vendors.

The only person potentially that ow.. now is th

I'

But, don't make u. pay back $23,000, Which, by

the way, w. don't have. And hold u••ubject to a fine.

And let me say kind of in summary that we were in

this campaiqn as a balanced bUdget. It i. the only way the

Governor would run it. And we tinished with a $100,000

.. reserve tor lawyers and accounting fee.. That was the only

il:1

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mistake in jUdqment we made in thi. campaign, that va.

woefully inadequate. We are now a year and a quarter later.

One of the reason. I am here in addition to being

the chairman of the campaign i. that I coulcs.n't in good

conscience ask for lawyers to keep coming here without

getting paid. We've gone through that $100,000 reserve. It

I! is a year and a quarter later. We still have additional

legal and accounting fee.. And this is from a clean

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And it seau to me that enouqh is enough. And .

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3 " tha't if you really think 'that these 'thinq8 qo over 'the line

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4 Ii for 'the fu'ture, qo throuqh your requla'tory process, your ;.

II th . i :! ey are targeted for spec1f c programs.

rule-makinq process, and argue about how you're qoinq to ,.

:1 allocate national headquarters costs. And not do i't, in Illy 'I

" jUdgment, ex post facto.

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The statute says:

OVerhead costs are exempt. Perioc1.

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It doesn't say: OVerhead costs are exempt unless

So I think that i. generally about What I need to

And, once aqain, I wan't to thank the staff and 'the

members of the Commission and everyone else for beinq very

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say. :!

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12

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17 :: what we are thinkinq and why I am here.

,I

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15 " helpful to us all the way throuqh. And I've tried to be as

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16 I: candid as I could today and to tall you a lit'tla bit about Oo

0: 18 h

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It i. that I jus't think that we really did our

19 ,. very, very beat and got credit for doinq a qood job in

20 ecmplyinq with the quidelin... And to have to be dragged

21 out hare a yaar and a quarter later to pay back $23,000,

22 which we don't have, and the potential fine strikes me as

Thank you.

CHAIRMAN MCDONALD:

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II being unfair. ,

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I 'rh~ you, Mr. Kenton.

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I don't really think that

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One ia that: it: ia evident: by at least in the

. . Juat. • few brief remarka and then I'll t.urn t.o my ..

colleagu...

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;: meaaure, have a clean campaign. .1

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"i!:\ initial dotermination that you did, certainly by all

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6 ii ia up for debate• .,

7 II I would say to you that -- I don't know how

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13 "prepared for the next time, aome of us think that that is '.

12 '1 you ought to sit down and think about these JU.ttars and be

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And I

On. iG that we have for 'j comforting it is, but two things.

I years made recommendationa to do away with the State by .,

:11

,. couldn't help but think When you were talking Gout, gee,

" State limits because we do know their problema.

9

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14 'all we do.

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It ia a very difficult procedure and frustrating.

"

!~ It is not any easier for the aUditors, I might add, than it .. is the Pre.idential candidat... They are asked to perform a !I

ij pretty difficult task.

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19 If

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And as counsel's office, everyone wants to see

I'. going to start by giving you some aid and

Who baa a theory about the advisory opinion.

I.

j! comfort becau.e I'm going to start vith Commis.ioner Aikens,

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20 th... matters be resolved as quickly as possible. We have

21 bad • number ot candidates who were out much longer than a

22 year and. a quarter, I must say, which is a problem as well.

23

ACE-FEDERAL REPOP.. ERS. lsc.
" is clearly a public posture that we have had forever, which

;'

: is one that we would like to see tho.e limits done away

But, aa a qeneral overview, the Commission has

MR. KENTON: The Buah people had hundreds of

MR. RENTON: It ia just 1ucUcroua, ma'am.

COMMISSIONER AIKENS: It is absolutely

And by the same token, they have not been done

And a. 10nq a. they are not done away with,

Commissioner Aikens.

COMMISSIONER AIKENS: Thank you, Mr. Chairman.

Mr. Kenton, we thank you for cominq today. And I

17

Ie wa. noe, by ehe way, lily theory and, in tact, I

anxiou. eo discu•• ehat with you in a little detail

road.

';

'IIoversight committee, ao that maybe we can qet some action on

this.

been concerned about that. We have taken the posture that

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I'II with, because they are very difficult.

I ridiculous.

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:' when it qet. to be 1ItV turn, which is somewhere down the II -~

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:. hope, as the Chairman haa indicated, you will express your

::, concern about the State limit. to the member. of our

~; obviously, we are pue in a po.ition that ve don't have any

" choice ))ut to try to make our be.t j udqmsnt on what needs ' :!

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ii away with. .1

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Jpeople livinq eero.. the st~te Line in Rapid City. ::

2 . I, Vermont, going in for three day. and coming out tor three'

3 I. days becau.e of the four-day rule. It i. ju.t -- the hoops ..

IiI! you have to jump through, it is just ludicrous.

5 10 COMMISSIONER AIKENS: It is an absolute

6 ., nightmare. I couldn't agree more. We have been going I

" 7 through it since '76 every four years. And it is the

e biggest job the Audit Division has to do, is to try to

9 :. satisfy

10

11 a

MR. KENTON: I don't know how we do it.

COMMISSIONER AIKENS: I don't know either. It i.

12 :; difficult. As the Chairman indicated, I did not agree with

13 I the 886 Gore Opinion because of the State limita.

14 :!

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:~ to do our best to enforce them. I do have great sympathy II

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10 for your position.

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I think that the Congress pas.ed them and we have

I appreciate the fact that you are admitting that

it is a close call and I don't know how I'm going to vote on

19 I it as yet. But I really do have 80me pity for you.

20 And I think that yau have presented a very good

21 &r'9WDeJ1t. I think, in light af the Gore decision, we are

22 10 going to bave to cOMider it very, very carefully. I think .,

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23 I! you have presented your picture very clearly, and I don't I

24 il bave any specific question••

25 !! But I do appreciate your coming and giving us

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But, to hold u. accountable for

I apprecia~e it, Ms. Aikens.

COMMISSIONER AIKENS: Well, I was.

CHAIRMAN MCDONALD: You would be hard-pressed,

MR. KENTON:

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The Gor~ Opinion, if you're 90ing to allow that,

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I us, I don't think it 1s fair.

. then to hold us accoun~able for this $23,000, it is just I

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:! given the scenario you have painted.

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~, $23,000 and then fine u. wha~ever you are thinking of tininq I·

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ludicrous in my humble jUdgment. I'm not saying the Gore

Ii Opinion is wrong.

(Laughter. )

IIIj1Dur pr..entation.

I.I: MR. KEN'l'OH:

MR. KENTON: Thank yo.u.

COMMISSIONER AIKENS: Thank you, Mr. Chairman.

CHAIRMAN MCDONALD: Thank you.

Commissioner McGarry.

COMMISSIONER MCGARRY: Well, I fe.l much the sue

vay. I did vote for the Gore ac!Vi.ory opinion. And one of

the problema tha~ we face and the rea.on why I voted for it,

II among other reasona,' was I was tryinq to make it simplistic .,

I.t;

and make it a mathematical formula. And try to remove some

II of the subjectivity.

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i! COMMISSIONER AIKENS: I tend to aqree with you.

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!' And that's why I say I don't know how I'm going to vote yet. "

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But you make, Mr.. Renton, the very best argument

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Thank you, Mr. Kenton•

MR. KENTON: Thank you, sir.

CHAIRMAN MCDONALD: Thank you, commissioner

VICE-CHAIRMAN ELLIO'l'T:

And I really cannot tell you how I'm going ·to

Vice-Chairman Elliott.

I cannot tell you, words cannot express how

here. And I certainly will give it every consideration.

MCGarry.

come out on this, but I really appreciate your appearing

Who are on the firing line, Who are trying so hard to

administer our laws.

you coulc!n't have stated it better•

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ji believe me, I have total sympathy with the situation, and

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I think it gives us great insight and I thank you

I fer requesting this opportunity. And we would, as a group,

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It I think, like to hear even more from others who are

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i important and how helpfUl it is to me to hear from people I

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2 in my opinion, that anyone could make for your client. And,

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20 participating, particularly when we request rule-making

21 cc.aanu. Becauae, hearing how things are applied and how

22 I they affect different campaigns is always helpful.

23 And I aa aura that you recognize that our

24 regulations always are behind the practice. So we only help

25 thing. along or hurt things in our regulatory vein after the

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21

But I can understand your frustration when your

3 three phone calls at issue would have been not betore us,

4 not under question, if you had added to those register, vote

S and contribute. It would have all been over.

6 But I have a practical question for you.

7 You are claiming and making the point that the

8 calla that you made were to solicit, in effect, the

9 t. prospecting list for fund-raising.

10 Now let me ask you:

12 some aort?

17 :1

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Did every phone call get a fund-raising letter or

In other warda, I am trying to determine whether(. - if someone had expressed interest in the environment, did

they qet an environment letter? Anc! that. Or did everybody

qet something?

MR. KEN'l'ON: The answer is yes to both questions.

If they said they were going to vote for George I',I

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19 j. Bush and nobody else, they diem' t get a letter.

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VICE-CHAIJUWi ELLIO'l"1': Okay.

MR. KENTON: Practically everybody else got a

:; letter, but the letter was tarqetecl to the i.aues that Pete

11 waa campaiqninq on. If they said they were interested in

.. qetting a new road built outside of Where they lived, we

!! tried to press them in the call with reapeet to i.sues tha1" .\

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I ACE-FEDER-\l REPOR rERS. t'iC.
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And if

Please sand money.

And we really did assume by this kind of

, Thanks for talking to one of my people on the

In particular, I all

We need you to vote.

you agree with me on social security, we need your financial

moved people and try to match them to the issues that Pete

glad that you share my views on the social security issue.

help.

And let me tell you a little bit more about"tho.e.

prospecting, if we could really hone in on the issues that

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i; telephone last night, Mrs. Elliott.

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!I was talking about, what better possibility was there to

~ i in those issues. And the next day, actually, the letters

i! went later that night., all the through t.he night, and that

!; person would get a letter saying: ,

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Pete va. talking about, such a. social security, such aa

'drug te.ting and some of the other issue.. We tried to see' I

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j: where their heads were in that area.

III! And then the computer 5ysta ia taacinatinq.

II

I' Then what we could do i. you could punch in Pete-s position :1

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19 11 collect $25 or $50.

20 VICE-CHAIRMAN ELLIO'rl': Aft.er you had that

21 proapecting list and whether they responded or not, was that

22 liat used for any other purpo.e. in your campaign?

!.

23 MR. KENTON: Excuse me a moment.

24

25

VICE-CHAIRMAN ELLIO'rl': Yes.

(Counsel conferring).

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tor money.

VICE-CHAIRMAN ELLIO'1"I': That '. what I wanted to

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1m. REN'l'ON: orb. answer i. ye••

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4 I know. Okay. I

5 MR. KENTON: Several time. we called them for

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6 money.

7 And I'm not going to suggest that there weren't

8 political benetits to that: I am not going to .it here and

9 '. try to suggest that. ot course there were political

10 ., benetits. But we really did believe that it we could get

11 : ~ these people to believe on the same issues and really target

12 them, as Pete did, that they were the most likely people to

13 contribute to the duPont campaign, other than hi. relative!

,

" 14 ot which there were many.

15

16

17 ,. 18 I,

,VICE-CHAIRMAN ELLIOTT: I have one other

question. And I don't think I'm going to be able to ask the

question well.

I assume that this was planned as a nationwide

19 campaign in anticipation ot this being used virtually in

20 avery state making Mr. duPont the candidate of his party,

21 and the incumbent in the White Bouse.

22 MR. KENTON: I missed an argument. You are

23 I exactly riqht.

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., 24 :: VICE-CHAIRMAN ELLIOTT: Explain to me how that

25

IIii affected what happened to you in this process.

ACF-FEDER~l REPOL , ER~. l'ic. . . "
2 arguments, and let me make that point. One of the points

:1 the Staft make. i. that this was targeted to one or two

ji

i! stat... Tbe only reason it was targeted to one or two

h State. i. because that is all the longer we were alive.

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. MIl. la:N'rON: AJ.1 right. I cUd omit one of my .

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6 If we had -- if the election in New Hampshire had

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7 'happened three days earlier, I am profoundly convinced to

0' 8 I; this day that things would be far different than they are

We would have used it for more fund-raising in

set this whole proqram up, the computers that drove this !I

II program were .et up so that they could be used on a national "

l: today and we would, I think, if we could fiqure out a way to

I have gotten Jack Kemp out of the race and if/if/it, which

va. the fundamental strategy of the campaiqn to begin with,

this would have been a national operation running out of the

headquarters.

We would have

As a matter of fact, we

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.1Ii used the fund bank for volunteers. '1

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I' Alabama, Georgia, Florida and South Carolina.

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19 to basis.

20 I remember one time the campaiqn manager, Mr.

21 Hubbard, came to my office and he said -- we were putting

"You know, I think we'll have to put them in -- I

and h. Ny.:

computer, middle-sized computer, large computer system

II the computers in, and ve had a choice of going through small

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. ouqht to plan ~i•. ~ampaign in planning to win."

And he said, "I'm going to spend an extra ••• " I

was a couple of hundred thou.and dollara in

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3 think it ,

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" computers, .0 that if New Hampshire had turned out

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5 differently and the Vice-President had stumbled badly (then

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II Vice-President, now President), then we would have been I'

7 ready to go South.

I

VICE-CHAIRMAN ELLIO'rl': Thank 'u very much !

Is that a~er re.pon.ive to your que.tion?

VICE-CHAIRMAN ELLIOT'!': Ye., it i ••

Thank you very IlUch.

MR. KENTON: It va. a national pr09r&ll that just

than ours.

'. a lot more to do with the voter. in New HampsJ:lire'. view. oO

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. 8 The fact that it was only a two-State effort had

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15 :1 .talled permanently.

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,. appreciate your coming to u•• \.

,:

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19 "Elliott.

CHAIRMAN MCDONALD: Thank you, .1ce-Chairman

20 commissioner Thoma••

21

22

23

24

25

COMMISSIONER THOMAS: Again Mr. Kenton thank you.

,I It i. helpful to hear first hand the exasperating moments '1

l~

If that people go througb in ~e campaiqns. I bad a couple of

:1 questions. I wanted to focu- first on the argument about

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the national overhead argument, national overhead expense

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expenses that the Audit Division has indicated, that the

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MR. KENTON: First of all, I hate to make now

Why you feel that they are sort of intertwined

Tell me why you think that these overhead

So that it is the first point I want to make.

But, the more second and more substantive point

is that this fund bank and this telemarketing computer

costs that can be associatec1 with these or not.

I.

.. __.n~.

II with that national overhead costs and shouldn't be separated ~ l

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I.

IiII Commission heretotore has indicated it should be allocable,

.

I.

I am interested in your arguments in terms of

Whether these are expenses that would have been incurred

I: anyway, whether there was any sort of incremental add on

!: or should not be in tact so allocated.

I

II notice.

'II,

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:. legalistic arguments here, but my first reason is because I

.. don't see any support in the regs, and perhaps Mr. Noble

:1

!I might disagree, for the tact that anything can be singled Ii

i out. i:

,.Ii I'm not saying that would be an unreasonable

.. position, but I don't think the regs say that. The regs

just say overhead costs, period. It doesn't say "except for

those overhead costs directed toward a specific State.-

If it bad said that, then we would bave been on

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3 hour. a night•

., ""= 9!: of other things. And if the campaign had con~inued, i1:

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The Iowa

The computers were .e1: up 1:0 do direc1: mail

program was only running 1:wo hours a night, two or three

'(I,.'

:.Iprqgraa wara doing 10ta ot :ittarant thinga.

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5 :; without regard to the telemarketing into Iowa and into other .,

6 !: place., direct mail to other con1:ributors.

ii

7 !i This was a centralized computer system that was

8 ;' doing lots of other things. The telephones were doing lots II

01 01

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things with the computers and the printers and the

We were polling from these telephones, doing

.:

: would have Deen doing far more general campaiqn management ii

:: 1:ype. of things. ,I

We were just doinq lots of

telephones and the wiring and all of those things, of which

Iowa was only a part and we were using volunteers, a lot of

volunteers.

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j: nation-wide polling on issue•• .1

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And so it seems to me that the whole purpose of

I this national overhead exemption, if you will, is to say,

okay, if it i. running out of the headquarters, you're using

our people, you're using it for lota of different things,

I even though any auditor could go into any of the.e programs

llJld try to whack thUl up in .lica. ot tha pia and say what

II percentage was used for this and wbat percentage was used

IIl. for that.

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I assume the purpose for the reg -- I'm going

notice provision -- we assumed ~at that was 'the

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'I'I! back to my

.

. 28

deal.

purpose of the reg, and I think that we did it in good

.. would never figure out. I

..

i: other campaigns, maybe other things we were doing, that you

And I am a little concerned here, as I say, about

That's the best argument I can make, and I guess

And so we will just grant a blanket exception.

Now if you are saying that maybe a blanket

"

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II

.

I! the best argument that I can make in my own mind is that's

il what we believed. And I think with good reason. I'

I!

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j' faith, was to say:

Okay, it's all in the national headquarters and

I. we're using it for lots of different things. It is too

!; complicated to go in and allocate it to all of these states.

And, therefore, we grant what I read as practically a

blanket exemption.

I'

i; exemption goes too far, we would like to consider that, I

I: don't think that is an unreasonable position. Although I

think once you start trying to allocate costs at the

.. national headquarters and try to allocate thea by States, I

"

!! think you are into a morass. I can give you examples of

And I presume the purpose of the regulation is

I' that it is just too complicated. It is not that big of a .

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ACE-FEDER.-.L REPOR fERS. Isc. onr ......... .
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ACE-FEOER.4L REPOR rERS. lsc.

so, if you had known that the campaign was only

beqin with.

And if the campaign had gone on, we would have

been using them for far more things than we used them for to

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little bit at the factual setting here, whether you could

..

.,

;' the Audit Staff is trying to figure out what the add-on

II

" costs were.

ilIi phone bank and we would have had a computer system and we

I: would have had laser printers doing all of the traditional

thing. that modern campaigns do, whether we had been phoning

:1

I' into Iowa or not.

But, generally speaking, we would have had a

,

,

IjII going to go to two sta~es in the beginning and it is,

1\II therefore, easy to Bay that this i. a big program for Iowa,

you had all of these computers up there, they were all

.I

", allocated a portion of a8 being for Iowa.

MR. KENTON: Well, I guess it would be easy to

I,;' 8ay there was no add-on cost -- I don't think I can, in

II., candor, say that there were no add-on cosU. And I think

I

II computer charges and for these other cost. which we have so

" far identified as costs that you should nonetheless have

I also add the argument that there was no add-on. There was

no incremental add-on costs for, say, your rent, for your

.,

IIII th~ ex po.t facto nature of thi••

II' COMMISSIONER THOMAS: I was really scratching a

j 01 01

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months or eiqht montha and the Governor had been the

It~.d into Iowa. But if ~i. campaign had qone on for .ix

I

I,

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. 30

"I

nominae, this Iowa thing, if you triad to fiqure out What

percentage of the phone operation and headquarter. operation

was allocable to Iowa, you couldn't have found it; it would

Ii have been like looking for a needle in a haystack. ;1

So we were a little bit caught into the marqinal

~; or the extra incremental costs, if you will, because of when

i. the campaign stopp4td.

l; COMMISSIONER THOMAS: I also wanted to sort of

'i!l make the point that you bave noted that the advisory opinion

': we issued creates an advantage for people who put out

l ~ television ads and put a tag line on the end asking for

!: money.

\:

We have said that those kinds of things should be

allocated SO/SO. In the advisory opinion, I am just

wondering, it sort of raise. for me the question of Whether

we are to be consistent, what we should be doing at the

ii agency is dealing with all of the various kinds of fundraiaing letters and programs that all of the campaign.

enqag. in.

011\1\ 1·............

Pick it.

ACE-FEDERAL REPOR fERS. Isc..

MR. KENTON:

,I I assume that you had a fairly large direct mail

i,. fund-raising proqram that could -- or perhaps should '1I likewise be treated a. an allocable kind of activity.

I

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I! allocable.

decision, and particularly on the ex post facto basis, if

.. not much lO91c to all of that, particularly 11ke the Gore

I all just uoubled by it.

COMMISSIONER THOMAS: I have no other points at

Thank you again.

CHAIRMAN MCDONALD: Thank you, Itt. Thomas.

commiasioner Joaefiak.

COMMISSIONER JOSEFIAX: Thank you, Mr. Chairman.

MR. KENTON: Riqh~.

COMMISSIONER THOMAS: But it would perhaps add an

element of consistency.

MR. KENTON: b I 'think I tried to say earlier, I

do not cUsaqree with that fundamental theory. What we have

And 1t doean' t .eem to me -- carta1nly, there'

"II Mr. Kenton, I probably should do a little

j:

;1 defendinq of the Gore Opinion before getting into aome

. I here is you have the television which i. 50/50, the direct

I' mail which is 100 percent non-allocable, zero allocable.

And this si~uation ia mixed in between. "

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. I. COMMJ:SSIOND THOMAS: 'rhat would be a qreat 'c

,I disadvanuqe ~o ueat allot those expenses which heretof~re

have been treated a. fund-raiainq 100 percent a. 50/50

.

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I think it is wonderful.

CHAIRMAN MCDONALD: Save some.

MR. KENTON:

•

COMMISSIONER JOSEFIAK: 1 1m trying to give you --

you were very helpful to us in trying to give us a feel for

:!

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!, how you operate.

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(Laughter. )

COMMISSIONER JOSEFIAK: I would like to give you

9 I some impressions of how we operate under this law. For

10

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. example, when we get a request like the Gore request, and I

.!:! think there really is a fundamental difference between the "

1: concepts that you are brinqinq to us today and the Gore ,

..

,. opinion, because What we are dealing with was an "

..

18 " continues to treat fund-raising letters as 100 percent

14 :. advertisement that had, Whether you aqree or disagree, and

15 Ii the majority aqreed, a fund-raising solicitation with the

'i

!I 16 'i ad, a specific, self-contained advertisement.

17 And you were riqht in the past and the Commission

., allocable to this fund-raising exemption, and fund-raising. ..

it

ACE-FEDERAL REPOR TER~. Isc.

The question that we had:

And the question that the commission faced in

that advisory opinion was:

You have an advertisement. There is no question I

I'

II. that the advertisement was there for political reasons, to

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iI qet support for the candidate.

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]. Did • taq line ~t aaka for money somehow

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I. ~ri9ger a tund-rai.inq exemption?

33

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3 j1

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4 H be? ,

And it it did, what kind of percentage should it

I,

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And we sat and argued, privately and publicly, as

6 II to the percentages and came to the conclusion based on our

" 7 I! precedent in other kinds ot situations that if you were ,I

8 I doing two things in an ad, you should be able to take 50/50.

9 II

!i Hopefully, the regulations will clarify that, aa you say. IO

Whether that will be

Was that totally rigbt? Was that totally wrong?

And we did

So we made a decision.

that. And we bend over backwards in those situations under

:!

'; We had to make a jUdgment based on a request.

il

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I: the history of our exemptions, and also under the ,

Ii limitations of the State by State limits that we discussed ·1

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.: earlier. 'I

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JI :1

II there for the next Presidential Election? God. only knows.

II

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0: 18 We had situation. from the '84 elections where we felt that I

. 19 j' ve plugged up some of theae holes, and we gave some

20 information to potential candidate. regarding telephones, I

21 believe, becau.e that vas a big issue in '84, which

22 . telephone calls had to be attributed to the State and which

23 II to the national overhead costa.

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24 II I thought ve handled that. So ve thought ve

I

I, 25 plugged up that problem, and then you raise another problem.

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to

;' well, wa uaaCS backup frOll that material to go out and

~: better for me aa far aa why we should make thia exception :

-:

34

We're always trying to

Or are you auggesting that every piece of

~'\~.'~~. So I ~ink Commisaioner Elliott said that we are

Here you are asking us to go beyond that concept

and look at backup material.

The question I have for you is:

Maybe you can explain telemarketing a little

this kind of case.

whether that i. 48 hours. Whether it i. three weeks or six

acmt.ha, ahould there be a c:ut-otf?

And the follow-up question I bave on that:

Based on your experience in the ~elemark.tin9

look a~ the laa~ election and ~rying to adjua~ our

requla~ion. accordingly.

But we've always in the fund-raising exemption

,I

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:! .olicit monies atter the fact. Whether it is 24 hours, I

..

ii area, we're always dealing with one specific piece of

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political material .hould be capable of the fund-raising

, exemption a. long a. the campaign comes to us and says,

H .itc~tion in Iowa, when you sent the letter asking for money

i'

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:: based on the phone calls in Iowa, was it just during the

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,. alwaya aort o~ back-peddling here.

material, Whether it is a letter, Whether i~ ia an

:: advertisement.

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And, yet, und.er the language in the reg, in I'I:

is exempt.

MR. KENTON: Let me try to address those

..

11

I questions it I might, Commissioner, in order.

First ot all, you point out that with respect to

the direct mail, you said -- or the Gore exemption -- that

I you were dealing with one piece of advertisement.

I don't thi~ that ia exactly so. With respect

to direct mail in particular it i. not juat the direct mail

piece that you exempt, but the purchase ot the vendor list I'i:

r

That is not just the piece ot advertising -- you

I. could easily go in - the audit team could easily go into a

direct mail operation anet say, okay, the letter is exempt,

but the purchase of the vendor list is not exempt. That is

a ditferant transaction.

So it i. not just the advertisement in the direct

..11 that i. exempt. It is the purchase of the vendor list,

Ii and. that is a totally separate transaction. It could easily

i! be allocated. It could be separated out by the audit team. "

.: connection with or associated with fund-raising, the

I.

Of

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:j . 35

1",Iova caucuse.? Or cUe! you ~p after the tact and ask for

!f .oney, in other woret., to help pay some other bills?

In other words, was it strictly political trom

I! the Iowa sense, or were you asking tor money atter the Iowa

caucuses were over and after the selection had been made?

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2 So I don't think that your comment with respect

3 to the unified ad really holds with respect to direct mail.

36 .

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1 i: ,purchaae of the vendor liat .~. a fund-raising coat.

:) 01 01

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4 COMMISSIONER JOSEFIAK: It is more in line with

5 the Gore Advisory Opinion. And Whether it was subject to

6 the 50 percent rule.

7 The other question is the 100 percent allocation.

a And, certainly, we would, as your statement suggests, we

9 would count in there postage, et cetera.

o

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la

But I think that you can trace that back to a

tinal combination into one piece. What you're asking us to

do, I think, and I want your comments on this, is to say:

Okay, if I put out a strictly political direct

mail piece, or if I bUy a list strictly tor a piece of

political mail that is not tund-raising at all, that,

somehow, after the fact, I can.say that allot those costs

attributed were tor something else. It was not tundraising, because I'm using it atter the fact for fund19 raiaing, should be allocated to tund-raising.

20

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I And that is where I am trying to -- 1'111 trying to

21 qat your position on that.

22 .. Ara you sayinq that telemarketing is an exception

23 to the general rule?

24 Or, are you saying that anything that i.

25 a••ociated with political material that then ia used in

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.1.cr-FE!"FR-\\ RfPO'· ER" I~c,
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. 37

allowed the allocation for the fundIt is not at all unusual up to the

ACE-FEDERAL RE'POR; ER~. INC.

And people, a. you maybe know, in a lot of

. 'l'he people who had indicated they had

MR. RENTON: The answer is that if -- it seems to

me that -- first of all, I think it'. an area ripe for

regulation.

I'

I continually by mail and by tund-raising - by

telephone/telemarketing.

And 80 it was used on a continuinq basis tor

II

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II fund-raising. "

\\ these campaigns, people contri})ute four or five or six or

;\.even, eiqht tim...

,limit, sometimes over the limit, if you don't catch it.

:.

:.

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i

But, if I were qoinq to try to write a requlation

and I accepted the premise of both the Gore decision and the

direct mail exemption, if you will, you would probably want

!\ to say that if it is reasonably promptly after. the phone

~: call, if the phone call and the mail letter that qoes out

j.

i~ are directly related to each other, if you're tryinq to

write the req, you would probably want to qat into these

:! kincU of areas, that it asked for money.

, And qoing back to your third question, that it

,

" Hampshire. !!Ii contributed to Pete, Whether it waa in Iowa, were solicited

,

i: was used maybe on a continual basis to ask for money, we

Ii went back to the.e Iowa people until the day after New

I!

It I~und-rai.ift9 .hould be

I'rai.inq exemption?

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(Laughter. )

CHAIRMAN MCDONALD: Do you have a list of those?

MR. KENTON: I want to talk about that in a

"

minute. We are being held accountable in another area for

5 some 50 slow repayments of those things. Out of 42,000.

6 They want to fine us for that, too. If you can believe that

7 52, I think is the number, out of 42,000 that we didn't get

8 back within 60 days.

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9 " But the point i. that if you had made Mr.

10 I Josefiak -- excuse me.

11 " COMMISSIONER JOSEFrAK: Josefiak. commissioner

12 . Tom is fine.

13 COMMISSIONER MC DONALD: That's why I like (

14 McDonald. When you got down to Mr. commissioner, I knew you

15 were in trouble.

16

17

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::

, (Laughter. )

MR. KENTON: You have what you might think is an

enormous exemption for direct mail, direct mail into a State

asking for money i. about 90 percent political, about 10

20 Everybody knows that.

21

22

23

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25

'.:l percent fund-raising.

And I just don't think that this is any

different. Is that an enormous loophole into the statute?

Is that a slippery slope?

It doesn't seem to me it is because it is,

I: because as a practical matter, the big dollars into Iowa

'\

.\ ACE-FEDER ~L REPOR, ER~. I~c.
39 .

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ACE-FEDERAL REPO... · ER~. l~c..

You would be tar better tor political reasons to

It you were to quote, "open this up," unquote,

;

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ii

So it seams to m. that what you have got i.

II you've qot the toughest rule right now, or the toughest

II

il potential rule, on the program that probably has the most

fun4-raisinq component to it compare<! to the political I•

..

i

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:,

~; expensive program to run for just political reasons.

,I

:t money as easily, so this is really an expensive operation

that really is targeted to tund-raising more than a direct I'

il mail piece, which i. dirt cheap compared to this or

television, which i. even cheaper than direct mail as a way

,I

, of communicating.

So this is probably, ot the three types ot

thinq., this kind ot a proqram is probably the most tundraising balanced vis-a-vis political ot the three.

j

I .~to the State. are the television dollars.

I

1.

something like this tor something that might be reasonably

!I

" prompt atter that, it used on a continual basis, that is a .'

"

, small quote "loophole", end quote if you will, compared to

; ~ the Gore decision, because the big bUcks are in television. "

" put your money in television. But television doesn't raise

The big bucks are not in this. This is an

expensive program. This is not a program -- this really

it I said 90/10 on direct mail, political versus tund-

:: raising, this is more like 50/50 because this is an

.rlr';. 01 ',tlVt1

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COMMISSIONER JOSEFIAK: Thank you.

MR. KENTON: And I appreciate the difficulty that

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il. ?omponent of the three vehi.clea. " . a

40

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4 the Commission haa. This is just ona of 100 anomalous

S situations in the statutes, in these regs, that the

6 Commission and its Audit Staff try valiantly to deal with,

7 and situations that are anomalous in these regs and these

8 statutes are legion.

'.0

9

10

11

12

13

CO~SSIONER JOSEFIAK: Well, this has been very . helpful. Commissioner Thomas and I are involved with our

own regulations committee, so I think your testimony here is

vary helpfUl. You are right.

Please, any help you can give, divine or

.'

14 otherwise, will be appreciated.

16 At least now you know Who to blame.

"

CHAIRMAN MCDONALD: I'm glad you cleared that up.

COMMISSIONER JOSEFIAK: But I am curious because

there are some of us Who feel that even though there are

state by State limits, that the fund-raising exemption at

~I l ...t should be eliminated. And instead raise the limits so

II that you wouldn't have to go through this nonsense and make

lS

17

18

19

20

21

22

23 'II.

24 "

"

all of these crazy decisio~.

HR.. KENTON: Good worda.

COMMISSIONER JOSEFIAK: I am curious from your

2S :1j' perspective being representing a candidate that was trying

.\

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~:'.j ~.' ~:.~ ~~..: ; .'.' ; '.... <... -

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". ~:. :! 41 trJ~

:;. ;0 get in the proce•• without the power ot the incumbency or I

. without the big name backing.

MR. KEN'l'ON: Or the jet.

COMMISSIONER JOSEFIAK: Or the jet. Well, I

think the Democratic opponent would have more of a problem

than the Republicans with that even as you qot further

alonq. We did even have a request I believe at one point to

see if perhaps Mr. Dukakis could qet the equivalent thereot

and perhaps that should be in the reg, the two nominees qet

government conveyance, at the least.

But that's not the way it is. But, I am curious

from your perspective, c!isreqardinq the horror .how of

dealing with State by State limits, since we have qot you

here --

MR. KENTON: Good word.

COMMISSIONER JOSEFIAK:. Do you think it is an

advantage with someone like Mr. duPont to have a limit, or

is it a disadvantaqe?

In other words, would you find it more difficult

,! to get your message acros. if you knew that, for example,

II that Georqe Bush could spend $20 million in the State of

II

Iowa and the State of New Hampshire?

Or the fact that you may be able to spend $20

million in the State of New Hampshire to use that as

.. something that could challenge the power of an incumbent.

'-it
"

,j

j; were to ask me to qo to the core of the whole problem, it

:!

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. 42

Conqress to eliminate state by State'

I am curioua from your perspective because we

Once you have so much at stake in those two

Stat.., the rest of it just kind of dominoes. So, if you

benetits to rely on.

MR. KENTON: Boy, you are really into it now.

Tho.e are well-taken comments.

The problem once aqain, if you really want to go

to~tba cora of the problem, the problem really is this

procaas Where Iowa and New Hampshire come first. That is

I the real probl...

that they have never had an amendment before them that was

really active, that I think there is a concern that if you

eliminate the limits in the States of Iowa and New Hampshiro

in particular, you're qoinq to have a blood bath and perhaps

people who were tryinq to qet in the process under a public

. financinq system, tryinq to stay within the rules and the

limits, would have even a more difficult time of qettinq

.

,I

I

I·. it •

,I have always been askinq

" their messaqe across if someone like the incumbent, VicePresident in this particular case, would have that access

for other reasons; namely, havinq the federal office-holder

limit. because ot the administrative niqhtmare.

But Conqre•• has been reluctant to do that. And

. I think part of the problem has been, other than the fact

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- 41.

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4 lot of talk about how to deal with that. The outside

5 candidates certainly don't want a national primary on one

6 day, but there have been a lot of other, I think, thouqhtful

7 ways to address this that have been discussed and argued and

8 debated, and a lot has been written about that.

That is the real problem. And there has been a

43 ~:- 'lS"

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1 .' 'I would probaD1y be to the ~owa and New Hampshire

;! 2 Precedents, it you will, of the other States.

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And I think that almost any system is better than

the one we have. But I quess you always think that the

grass is greener.

But the answer is, as a practical matter, it you

were to ask me, given the situation as it is, if I woule

rather deal with the nightmare ot the allocations or let

George Bush spend $10 million in Iowa, I'd rather have the

allocations.

COMMISSIONER JOSEFIAK: Well, I think, the bottom

18

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24

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line is, and where you have been very helpful, is perhaps

assuming that we are going to have the State by State

'I limits, that maybe the best way to approach it is a more

I simplistic view of the requlation in dealing with this, and I

I'

try to set down some objective standards in certain areas

~ : and people will just have to live by them whether they are

good, bad or indifferent.

And what we try to do -- it is really a case

\11_- Y

~<:F-FFDFR~l REPOI' .ER~. l'ic:
" any other lawyer.

44 .

.

ACE-FEDERo\L REPOJ.;.. ER~. I~c.

CHAIRMAN MCDONALD: If he is here an hour, it

COMMISSIONER JOSEFIAK: ae is not from

I have been on the other side. I know What a

nightmare it 1.. It 1. a vary sensitive area.

MR. KENTON: Let ma say that, generally speaking,

it you were to ask for my advice, which is probably worth

about what you're getting ready to pay for it, that

CHAIRMAN MCDONALD: You must be different than

..'

"

"I

ii

..

issue, we try to addre.. it ba.ed on what the law and

regulation. say, and how far you can go under that law and

requlation.

And knowing full well that under the Public

Financing scheme, there is a contract between the candidate

that receives the public money and us that are certifying

the public money. We say one thing and we agr.e to do

certain things, and the candidate, by aiqning that

:\

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I! .ca_ ba.i. when somebody like you come. in and raise. an

ii'

II i••u. that we try to address, or Mr. Gore comes in with an

I,

'.

" Washington.

. agreement, says:

By that agreement, we agree to abide by certain

spending limits. And that is our responsibility. And it is

not an easy task. And I know it is not easy from your

.. perspective to come up wit:.h these allocation formulas.

~~

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II ~illl all change.

(Laughter. )

MR. KENTON: The arbitrary allocation numbers are

4 far easier to deal with rather than to have the audit stUff

5 come in after the fact and try to go in and find out how

6 much was allocated to this and how much was allocated to

7 that and try to figure out.

campaiqn staff with this nightmare of a problem of trying to

figure out the accounting on all of this.

JUilt say how much do you expect that you can do?

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They have a nightmare of a problem. Things like

the 10 percent, finance exemption, or the 20 percent, other

types of things.

Those things are arbitrary. But at least

understandable, generally speaking. So, if I were to

suggest that you qo any direction, i~ would be to make

reasonable arbitrary decisions, if you will. In other

words, 90 in and set up numbers, set up some formulae that

are easily understood, and not h~ve the audit staff and the

.:H Pick a number. Tell u. what the number is. And everybody

III can go home.

'.

COMMISSIONER JOSEFIAJt: I thank you. Aa one

(

\

23 ., member of Conqre•• told me way back when, he said to me:

24 "Write a regulation. You may'be wrong, but at

25 ~! least it will be a regulation that people can abide by."

Vi - Y5 - A.cF-FFOFR ~l REPnl: F.R"- t'iC

-
MR. KENTON: I appreciate your interest•

CHAIRMAN MCDONALD: Thank you, Mr. Josefiak.

A 01 01 .. "!.....

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. Thank you very m~ch.

46

You have been helpful.

4 Okay, now Ooug Patton, on behalf of the House of

5 Representativ... "

MR. PA'rI'ON: About four questions, Mr. Kenton. I

7 am sort of curious. We are talking about fund-raising in

8 Iowa, which happens to be my home State. So I am sort of I,

9 curious to -- I do have Republican friends and Republican

10 ~; relatives as well out there, even though I am on the other ;,

11 !l side of the aial•• ;'

12 "

13 I,

CHAIRMAN MCDONALD: That' 5 what's happenecl to us.

MR. PA'rl'ON: I am curious. Based upon what you

14 "said, do you have the figures on ac~ually how much money you

" 15 "raised out ot Iowa and what percent of that did that

c 16

17

'I

I, comprise overall money that you raised. Percentage-wise.

D. KEN'l'ON: The answer is that we raised -- I "

18 !. don't have the exact number

19 r MR. PAttON: Ball park, if you can.

20 -f.. '. MR. KENTON: staff maybe has that nUJDber.

ACE-FEDERAL REPOR rER~. lsc. I

a

21 $'%5,000? I mean, you know, not a lot of money, but not a

22 . little, I would say, per person. I would say this. That ;,

23 ii. per populat.ion w. had more contributors from Iowa than any

24 ;i other state in the nation, except for Delaware, aa a

25 II percentage ot the popUlation. Now those are decimal point

'III

II

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.
': only for Iowa but, say, it you want further out in the

not sure if he asked this question -- so, I may be re-askinq

it -- was this fund-raising plan part of an overall plan to

raise money?

MR. KENTON: Oh, very much so. If we had been

successful in the succeeding States, we had this computer

capability to call in, target ~. people, find out what they

believed in and mail, mail, mail back to them, phone, phone,

phone, back to them, qet them to contribute two times, th=ee

time., four times.

I! MR. PA'rl'ON: Did the plan realize your bUdget

\1 expectation? Did you have a line item as to what you

thought you would rai.. out of thi. kind of a program? Not

other State in the nation, except for Delaware.

MR. PA'rl'ON: I guess that proves that they plowed

under all of the fields, corn fields. They made law fields

out of them, Field of Dreams.

MR. KENTON: I think the average contribution was

fairly low though compared to Delaware.

MR. PATTON: I think Commissioner Josefiak, I'.

41

MR. KENTON: Oh, yes. Plans we did have, in

distance.

Are you with me on:that?

As a percen'tage of the total population in Iowa,

more people have contributed to the duPont campaign than any

.,

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. 48

Wall, ye••

'l'hey wera brought up by our lawyer and ba said

MR. KEN'l'ON:

MR. PATTON: Or the lack ot exception.

MR. KENTON: I am cautious about helping, about

contributors, how much from relative., how much from direct

mail, how much from telemarketing, how much from PAC --

I, taking that bait too quiekly because I don't want to sit ,

\' here and suggest to you that I am an expert on all of the

iI rul.. and regulations of tha things. But I do remember

conversations When wa qot into tha issue••

"

I: zero. Oh, yes. And there were paraqraphs written about

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l" wr1~1n9. We had a 2so-paqe, campaign plan with probably a

I, '50-page tinance plan tha~ ~etail.d it out in a great deal of

that wa asked him whather the.e thinqs would be allocable I

Iowa, and he said, -I think it is a close call.-

I' Be said, "Tha requla~ions say in connaction with

II or associated with, and I think you've qot a pretty darned

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MR. PA'l"l'ON: You mentioned this I think in your

opening statement. In your. opinion, did you rely on tha

l' requlations as to no cost associated with -- you said a :

11

Iiii statement in your openi nq remar"'- hO that -- at least I ha~a the

;! te.linq that you relied on tha regulations a. written for

,: detail, about how much wa would get trom Delaware

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argument."

And so I do remember that discussion, but I can't

3 tell you that I recall sitting down myself and reading the

4 ',regulation, but it was discussed in general terms with our

5 counsel.

6 MR.. PATTON: Final question.

7 Based upon your calculations, if the Commission

8 made a determination that this is a 50 percent following,

I' 16 ,and said it was 50/50 --

lS Haig wouldn't be under if you went to all of the direct mail

What you are saying, following the quidelines of the Gore

Opinion, would this put you under the expenditure

limitation?

I mean, Alexander

I

" "

No, no, nobody would be under.

MR. KEN'I'ON: If you went to the direct mail

incident, it was all 50 percent, too?

9

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17 MR. PATTON: No, no, I'm just talking about the

18 fund-raising program, per se.

19 MR. KENTON: I'm talking about the direct mail.

20 Are you talkinq about the telemarketing ---

21

22

I

"

MR. PATTON: The telemarketinq segment.

MR. KENTON: If the whole thinq were made -- now

"

23 !: what you bave done is -- assuming they are equal costs -- we oo

24 admitted were -- we didn't allocate. Excuse me. Two we

2S

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I allocated to Iowa. There were four left. ,

~rF-FFDER ~t REPOR' ER~, I~c.
50

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Does that. take into consideration

MR. PA~N:

The statf gave us.~ne ot the tour, so that is

HR. KENTON: The former comptroller of the

campaign, down here at his own expense today, advises me

that. SO percent of the whole thing we would be under.

HR. PATTON: tt'hank you.

But, if you went back and tried to gobble up

everything, if you put back on the table all of the ones

that are off the table, we would be over.

I~

\iII the 20-4ay exemption then?

..

MayDe --

CHAIRMAN MCDONALD: I think you're. going t.o have

to have a discussion with folks immediat.ely behind you. I

have no idea what the answer is.

three out. of six. So I que•• t.he answer is it would be

about t.he same. They said three out of six. And we are

saying six out. of six. If you t.ook six out. of six and made

them SO percent, I think you would be back to the same

place. My math may be. MayDe there's a proDlem with my

math.

(counsel conferring.)

MR. KENTON: If you provide t.he 50 percent for

the three in question, we would be under. Yes. If you

apply the SO percent for the three in question, we would be

. under.

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ACE-FEDER.l.l REPOK I ER~. lsc.
Con AO.

interpretation was a broad interpretation of both the

51

--. '. . ' ..-

Thank you, Mr. Kenton •

.

. Thank you, Mr. Ch~irman.

with the State by State limia.

!!!:

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:! statute and the regulations.

statute and of the regulations there~der.

I think it is my jUdgment that the Commission is

faced with a surely simply stated issue, and that is whether

or not it wishes to give an even broader interpretation, I

quess, to the rules and the statute than it gave under the

The Commission, a. the Chairman noted and others

:1 have noted, has said repeateclly that it is not satisfied

And as we know, the Gore

CHAIRMAN MCDONALD: Thank you.

Thank you, Mr. Patton.

Dave Gartner for the 0.5. Senate.

MR. GARTNER: Thank you for coming. I agree that

it is important to air matters such as this when people have

strong feelings about them.

First of all, let me just say that I think the

Commission's staff, and I am referring to the Office of

General Counsel and the Audit Staff, has done a good job in

coming forward to the commission with its recommendations.

Baving said that, however, I will .hasten to add

that, in my judgment, they have come forward with

" recommendations based on a very strict interpretation of the

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YJ.-51
"

7 I want to thank you, a. the other Commissioners

8 "' have, tor coming here and making a very good ca.e tor your

argument was very well-presented.

Thank you, Mr. Chairman.

CHAIRMAN MCDONALD: Thank you, Mr. Gartner.

Let me a.k the witnesa -- would you like a fivr

candidate. I think you did a good job and I think your

3 place the expenditure. under the Iowa limits.

4 I think that the question really betore the

5 Commis.ion is whether or not it wishes to place that broad

6 interpretation on it.

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".l:' BLW/bc 1 ,ii I think they ar~ both written in such a way that.

2 :, they probably could be interpreted to allow or not take II

14 minute break? You don't want to take a short break?

,- i 16 !; Mr. Cha rman. I

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15 .: MR. KENTON: It you would like to take a break,

17

18

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20

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CHAIRMAN MCDONALD: 1 1m in a position Where I can

always take a break.

(Laughter. )

CHAIRMAN MCDONALD: Whether you are here or gone.

21 It'. entirely up to you.

22 MR. KENTON: I would prefer to continue until the

23 bitter end.

24 (Laughter. )

25 II

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CHAIRMAN MCDONALD: You have been here betore,

ACE-FEOER.~l REPOR rERS. Isc. '0).'
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terms, aa I recollect, Mr. Noble. It didn't talk about how

. many phones, and it was not that specific. But it did talk

I

al>o\rt. the. general direct mail telephone type of plan. And

thara vaa a number in the budget that I recollect aa to how

'; INch thia waa going to rai.e. I c10n I t remember what the

II number waa. .,

it

:1 The number of $200,000 sticks in my brain, or

:1

lj maybe $500,000. Maybe that includes 80me other things.

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53 .

.

No, air, I haven't.

MR. NOBLE: That'. why they make me nervous.

(Lauqhter. )

, MR. NOBLE: You referred to the plan before. Tbe

MR. KENTON: The written plan, aa I recollect,

talked about a telemarketing direct mail program in general

campaign had a written plan about fund-raising.

Was this specific proqram mentioned in the

written plan?

of ua.

CHAIRMAN MCDONALD: Larry Noble.

MR. NOBLE: '!'hank you, Mr. Chairman•

Thank you, Kr. Kenton.

And also for your kind words. They always make

me nervous, but thank you.

CHAIRMAN MCDONALD: They always surprise the rest

•1

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i: .k.ven't yOU?

:1'.

ij MR. KENTON:

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I of time.

. be right before -- 24 hours, 48 hours, a reasonable amount

!'

I' really a question of whether we would expand on the Gore

opinion.

I may disagree with you a little about the Gore

opinion. It at least deals with a finite matter. What it

!I f i nally came out with is one public advertising.

It should

54

And then

.

.

I agree with Mr. Gartner. This is

Here what you would be dealing with is a number

And a number of them Which;'\

can you give me an idea of what factors you would

one of thea, you mentioned, was timing.

bringing them all into one fund-raising umbrella.

~is is out of the $7 mi11io~ budqet.

MR. NOBLE: Going back to the Gore Opinion, and I

look at?

of thinq. that 90 to the public.

One of the problema i. to try and find after the

Gore opinion some briqht line or some way that we can figure

out where we would stop on this.

think Mr. Gartner

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I think there would be an argument there that

while we were building up for months to create this list of

.' people we would then later hit for money, do you have any

.1

II suggestions on where we can draw a line at that point? I.

"'

I. MR. KENTON: As I say, this is all a slippery

III slope type of thing. In coming back to the limitation

~~

:. did not mention specifically fund-raising. ii

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And thi. ia a very time-consuming, hardware-

" under the Gore decision. If you're talking, as I say, about

loophole. and the ability to pour dollars through loopholes,

the Gore decision is a far bigger loophole than, it you

" 55

.j

,

i ••u.. of Ma. Aikena, you could draw the line, once aqain

I coming back to Commis.ioner Tom's comments, I don't care

where you draw the line. Draw the line and tell us. Fortyeight hours is probably too quick. But six month. is

probably too long.

I think that it ought to be reasonably promptly

after the phone call, even if it went out -- it I were to

draw on the requlation, just based on my experience, seven

days, maybe, it might be a reasonable rule if you were

looking at it in the future.

I think another type of test, if you would, is

that it be targeted, it be specifically targeted to

individuals. And that as the telemarketing programs are,

you are saying an extension of the Gore decision.

I think that this really comes just kind ot just

,.

n driven, computer-driven type of an operation which is not as

easy to pour dollars into, although it can be expensive.

" But, certainly, not compared to television.

will, to grant an exception, grant an exception such as this I' 'I because of the ability to pour millions of dollars into II

II televi.ion.

tY;101 01

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ACE-FEDERAL REPOR rERS. Isc.
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.. It it vere targeted to individual., that it

specifically identified issue., if those issue. were then

used within .even day., for example, to follow up and make a

4 'I fund-raisinq appeal based upon the information solicited or

5 elicited from the telephone call, that I just don't see how

6 ': that i. different than purchasinq a vendor list in a direct

7 mail effort.

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8 MR.. NOBLE: But doesn't that define a Whole

9 campaign? A campaiqn for purpo.e. to qet voter. and getting

10 money? Not necessarily in that order.

11 :1

"

12 ';

13

MR.. KEN"l'ON: Fifty/ fifty.

Goinq back to the Gore rule, I am not suqqesting

to sit here and tell you that this did not have political [

14 benefit., althouqh qivan the vote in Iowa, apparently, not

15 II much.

16 " But, a. I said to one of the other Commissioners,

17 if you look at the Gore situation vith television, and you

18 I look at the direct mail situation, this has more fund19 ~; raisinq per buck than any other ones do. If you really want I

20 to qat it down to the nitty-qritty, this is more of a fund21 raising program and va. u.ed for fund-raislnq more and has

22 more fund-raisinq per bUck -- to repeat myself -- than the

23 ~! other one. do. More fund-rai.inq component., le8. political

I mean, the Gore thinq, it i. about 99 percent

24

25

"

il11 component than any of the other one. do. ,

"I'

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'I AC'E-FEOER.&.L REPORTERS. Isc.
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10 slippery slope. I'm'just trying to figure out where we'd

, '

57

I mean, you

Who.e going to Bit e!own and write a check?

But that isn't going to raise a lot of money, so

MR. NOBLE: I think again, I had some problems

with the Gore decision. The biggest problem ia that

II

~! ~clv.rti.inC1 and about 1 perce¥tt fund-raising.

(' .

i~ sane! in money.

4 :\

8

3 You don't know where to send it looking at the thing.

6 'I mail exemption along with purchasing the vendor 1ist, it

7 seems to m. that this certainly falls somewhere in between.

5 given the Gore decision and given the 100 percent direct II

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begin drawing those lines. Maybe the end result of it would

be that SO, of everything is fund-raising in a campaign.

MR. KENTON: That would be real easy to

14 understand.

16 I cause serious problems with the State by State limits as a

17 method of trying to get rid of the State by State limits.

o

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15 MR. NOBLE: But, personally, I think that would

18

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MR. KENTON: I don't think these are easy issues.

MR. NOBLE: No they're not.

HR. KENTON: But, as I say, it is no different

t.ha.ft having 150 people live over in Vermont, you know, and

work in New Hampshire.

MR. NOBLE: I don't think that was the intent of

the State by State limit either.

MR. KENTON: There are just a lot ot anomalous

3tl- 57

ACE-rEDERAl REPOr-',. ER~. l'ic. "., .. , ...... .., : ...
MR. lCEN'I'ON: Probably, a dozen, and a lot of them

somebody. I sought some guidance on what was raised totally

, in Iowa.

e

··:;· ....

.>; 1Ii.:-•

(

i ..

:

58

Thank you.

And I think that that was about $75,000 •

MR. COSTA: 00 you know offhand how much was

raised on the telemarketinq program itself? Based on

follow-up solicitation. for contributions.

MR. Ja:NTON: I would hesitate to quess.

MR. COSTA: Do you h~ve any idea?

MR. KENTON: But there was a point I made to

somebody else betore. We had more contributors in Iowa as a

MR. COSTA: Ye., just a couple of quick

questions. In relation to the telemarketing program that

, you mentioned earlier, you raised some $75,000 as a result

of the follow-up letters that you had sent out.

MR. KENTON: I think I asked -- I think I asked

CHAIRMAN MCDONALD: Bob costa.

;; atter the Iowa, probably halt ot those after the Iowa

II

~: caucuses were raising money from people who bad indicated

percentage of the popUlation than in any State in America

except tor Delaware.

MR. COSTA: Do you know roughly how many follow-

" up letter. were sent out ba.ed on the telemarketing program?

.'

.,

il

!/ .•1tuat1on••

i! MR. NOBLE:

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We then called all of those people. We did not

59 .

.

New Hampshire effort.

Excuse me for a second.

MR. COSTA: 00 you know the total pieces mailed?

MR. KENTON: Total pieces mailed in the whole

MR. COSTA: Telemarketing program directed at

campaiqn?

Iowa.

MR. KENTON: Total pieces mailed. I would say

that if we made -- excuse me for a second.

MR. COSTA: Just a ball park guess.

MR. KENTON: I can get the number of how many

calls we made in the universe. I could then maybe make some

calculations.

(Counsel conferring.)

MR. KENTON: Very rough. I would think that we

started with a universe of about 60,000 people who we

:/

I ~nt.r.st in Pete duPont, to get them to contribute tor the I .

I

clearly.

i!

.,

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I.

Ii going to change their mind. They were going to vote for

Ii

,

"

I.

I: send fund-raising letters or any letters to people who were

II staunchly for another candidate. That weeded out about 15

!!

:1 percent maybe, or 20 percent who just said they weren't ever 11

,.

,- thought were most likely to contribute. That was basea upon

., qeography, income, those kinds -- voter registration

~~\

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. 60 .

Ball park.

So, probably more than 100,000 pieces

ACE-FEDERAL REPOt< rER~. lsc.

Pat Robertson was more typical, no matter

MR. KENTON:

MR. COSTA:

is a fair guesstimate?

But I want to emphasize it did qo on and we

continued to mail to th... people after the Iowa caucuses

MR. COSTA: One hundred thousand?

:1

I.

Ii four times before the Iowa caucuses and probably three or

four times after the Iowa caucuses, just to give you a ball

" park figure.

.

.'

t. tor fund-raising purpos.s.

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MR. KENTON: Particularly after the Iowa

caucuses, we narrowed it down. People who had given, you

.. know, once out of -- anybody who gave before was continually

II.George or Bob or

II ';'ha~ happened.

And then we mailed those people probably three or

. So there was a narrowing and a broadening

depending on how many letters we wanted to send out in the

:' screeninq. Sort of a rank order type of thinq. !i

- mailed; if they showed that they were with Pe~e on three or

I four issues that he was talking about, they.might continue

., to get mail after that, Iowa caucuses before New Hampshire,j

because they thought that h. really aqreed with them.

And the more they got to know, the more that

1: person might be inclined to contribute.

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:: this information alonq to anyone I see in the campaign

And do it at a time When the climate is not so II

:\"

.

. II . 61 'I . ilII . MR. COSTA: Okay. I •

Ii'

I'" MR. RENTON: But a qreat many of those after the

her comment wa. that she would urge you to urge the members

of Congress to look at this very closely, as we have done

for a number of year••

I think the reason that I would urge you to pass

l~ proce••, I wish all of the participanta would get together

" and try to visit with the Congress about this.

Iowa caucuses I would point out in which there was no

.. political benefit mailinq into Iowa. I will never qo on

that bike ride.

CHAIRMAN MCDONALD: You have proven beyond a

shadow what we have all maintained in Conqress for years, is

that if you were good friends of the Governor's before or

Vice-President's or Senator's or anyone else, and you

undertake this task and you are still qood friends after it

t· is over, you are truly a good friend.

The process is pretty demandinq and I don't think

. any of us doubt that.

I have a few questions to try to get to the

specifics of this case for just a minute, and then I might

" say to you, as I think Commissioner Aikens indicated to you

earlier on, that not only is it helpful that you come in but

,- .

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,I ACE-FEDERAL REPOK iERS. Isc.. '. .....:.,. ....) ....
4 I trying to talk to them in this ligbt because we realize as a

5 practical matter, once you reach a certain stage, there is

6 :, no turning back.

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I.!/I '. 62 ei~, ~:..... i. ljiifficult. 1991, 1992, it will be impossible, but there is -..j;.·r jJ ••

il never a better time, in my opinion, than now, to be honest

about it, an~ w. have talke4 to members of congress and are

And so I think Commissioner Aikens' suggestion is

a very good one, and I would only a4d to it that I would

hope that you would pick up others along the way on both

10 sides of the aisle.

11

12

13

Who, by the way, I think, without exception,

share this frustration with the process.

MR. KENTON: I think the Audit Staff, Mr. Costa' f

o

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C

0'

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14 staff and others are in an impo.sible situation, as the

15 Commission is.

16 :, And, you knov, I bave talked to most of those

17 people. All of them are still my friends. And if you asked

18 ,. them to the person what i. the biggest kind of hidden

19 problem, once you have been througb this, that you didn't

20 really focus on -- va. it a negative campaign? Was there

21 difficulty in raising mon.y? -- I .ean to the person, they

22 vill tall you: Thi. proce•• i. the mo.t difficult and

23 \i unforeseen maybe is ~. vord -- maybe not by th. ViceI:

24 .. President. Be had bean througb it before• .!

25 II But, for everyone els., I mean you could be

'\

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ACE-FEDER...L REPOR rERS. lsc.

n- GZ
us.

CHAIRMAN MCDONALD: You sit around and talk about

problems.

63 .

.

Ii

:: in front of a group that was not about to decide my fate, I

MR. DNTON: It I had the opportunity to testify

(Laughter. )

We weren't talking about some of the other

MR. KENTON: No one is critical. You're tryinq

to do -- you're doing a very good job in a difficult

situation. And we spent $600,000 on this process.

And what do we get back out of it -- $2 million?

Not a bad return, but that is still a lot ot money.

CHAIRMAN MCDONALD: I think in lots of respects

you would have a lot better opportunity of having an impact

on eonqresa than we would. And I think that my two

colleaque. from the COngre.. might share that point of view

.0 because we are in a posture of asking for it from an

~~~inistrative .tandpoint a5 opposed from a practitioner

standpoint, which, again, I think clearly you have an

Ii a(!vantage that we clon' t have.

And I do hope that you will follow Commissioner

Aikens' concerns and take her advice in that area because I

;\ think it would be genuinely very helpful.

IIIl·.•itting having a cup o~ e:o~~•• any plac. and. you sit around.

ii

'! and talk about FEe storie••

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ACE-FEDER.~l REPOR 'ERS. Isc. ... ..
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" that chance in a difterent context.

We took in 42,000

ACE-FEDER.~L REPOR rERS. b:c.

MR. KENTON: Within 60 clays. This is now once

And half-time people and

64

.ay • lot of thing••.

I could be real candid in tront ot congres., Mr.

volunteers working in the operation.

, and not returning it.

;1 Fifty-two? You gave me a number earlier.

Let me j uat go over a couple of things that I'.

interested in discussing for a minute. And I want to say

.: about the Audit staft, and I appreciate you being very

"

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.,

II candid, I think they are in a very, very difficult position

!I

,I with the example that you gave, and I apologize because I

ii!, don't think that I wrote it down how many did you say?

II

"

ii MR. KENTON: We're being held accountable. Once ,I

I

i; you mail to people six, .evan, eight, twenty time., as the

duPont family got mail, you write $100 check, $150 check,

and you're over.

CHAIRMAN MCDONALD: The question was returning it

.' Chairman. I would be happy to do that.

ilII CHAIRMAN MCDONALD: Well, maybe you will have

MR. KENTON: I have a couple of points I want t

:! make at the end, but that is not on this matter, Mr.

11I! McDonalcl. We're beinq held accountable.

i ~ CHAIRMAN MCDONALD: I understand.

•• cou1d

I!

.

: again with a volunteer CPA firm.

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3 late on S2 of those in the middle of the crunch between Iowa

4 and New Hampshire.

5 Now, the audit statf has goe to enforce the law.

6 .. I'm not being cri~ical.

65 .

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i~ pontribu~ion. and w. are n~ -- in enforc.m.ne aceion, I :0 . 11 think is whae it's call.d, facinq a po~ential tine tor beinq

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7 CHAIRMAN MCDONALD: That was goinq ~o be my

8 point. First of all, I think those are staggerin;

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.,

s~a~istics and things tha~ would again help your cas••

MR.. KENTON: I'm surprised they found them.

CHAIRMAN MCDONALD: They are preety good. I

think those are very compellinq numbers. But I did want to

make clear, becauee you had brouqht it up and I knew it

wasn't in the context of eoday's activities, bue aqain that

is the posture you are 1n. And, again, it qoes back to the

briqht line concep~ that Larry Noble asked about earlier.

Ia it 52, or is it 520 or is it 6, or is it

18 1,000?

19 Thos. are the kinds of issues. And I think

" 20 I Commissioner Josefiak did the best at outlinin; what we are

21 faced. with and what the procedure is, which I think is

22 ., fairly important to understand as well.

23 ,

I',I. And the advisory opinion, and it was a very

I

"

24 heated discussion, I am curioua about it a little bit. I

2S ;; want to 90 back to somethin; Commissioner McGarry said.

ACE-FEDER.4.l REPOK :OER5. l'4c. , --'"
purpose wa••

"

!~ rationale you have employed. In the Gore advisory opinion,

'J if memory serve. me right, they asked for a contribution

,I

" right then. No question about it. It was at the end, and

66 .

.. ~~.. ~.J-.

ua that took the t:heory of the 50 percent rule, and ~.

But I am little bit puzzled in relationship to

this ea.e specifically, saying that the Gore opinion is much

aore of a loophole.

And I qu... that I am puzzled because of the

that we knew that we were forever going to be involved in

these subjective jUdgments.

And we had a conversation in this very room

yesterday over not this kind of a problem but a problem

Where, again, time and its impact are always up for very

subjective views.

That is one of the things that we ~ry to do, is

take the guesswork out of the process.

I don't know Whether a tag commercial is geared

towarc:l votes and/or money. My guess was and is that it

answers both an effective commercial -- that i. what their'

"

..

And I think we could and we did argue for

I' sometime, as Mr. Josefiak pointed out, about the merits of

the percentage; be it 25 percent, 30 percent, I don't know

the answer to that.

IIII' .'Fh0 • e ot

'II' he hit the nail on the head a. far a. I'm concerned, was

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ACE-FEDERA.L REPOR rERS. Isc. - .'
3 way, we are for this.

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.!

r~oubt if many pooplo would ~op tho TV turned up if6~. II first thing said was: Gee, we want money. And, oh, by the

I would assume that there was a logical approach

5 to the commercial. Whether it benefitted them or not, I

6 r don't really know. I think the answer overall would be no,

7 I quess, in the final analysis. But, clearly, that is a

8 pretty logical deduction.

9 '!

"

"

Even you have indicated you made your pitch and

10 II then maybe you were a day or two removed, but that is part

11

,

'1I! and parcel of the process. But I think Commissioner

12 "Jos.fiak was right on point when he said there is •

13 different set of circumstances, and that is one step

14 removed.

,

:' will have to decide if it wants to go that extra step, I

I, tend to agree more with his analysis than yours only because I,

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17

18

19

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And When Dave Gartner tola us that the Commission

I think that there i. another step being added here.

Now I'm not saying it is wrong, I aon't know

20 about that. But we will just have to analyze toclay'.

21 proceeding- and se. where w. all come out.

22 ii But, for example, it you made calls on the day in

23

24

25

t! question and then the next time out, you did a tollow-up, or

,II! I should say you talked to peopl., then you mad. a tollow-

:jII up, the second round was money, I gather, what about those

'I

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MR. KENTON: Desirable.

so that they would participate in the votinq process?

Did

68

But, as you kind of fell off in your interest,

And so that was the first thinq that happened,

I aqreed with Pete, but I didn't send money.

were asked for money repeatedly.

I've tried to f iqure this out for years, and I u

from a small town myself. And I don't get it. Everyone wbo

wins in Iowa seems to get beat. But that's all right.

You made a call. You did a follow-up in which

.1 you never win the presidency once you win in Iowa.

MR. KENTON: The first thing you did is you got

another letter back that says: Come on. You know, you

really do aqr.e with him. Please send money.

CHAIRMAN MCDONALD: Precious -- I wasn't going to

say desirable. All Iowans are desirable. They qet lots of

attention out there. It is critical to win in Iowa because

I·

"

II

I

.,

i: You didn't drop them if they didn't give you

money. They may not have been as --

i!

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III especially if you aqreed with him on three out of four, you II

I!

II

II

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11

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..

11 the pitch I quess was you agree with Pete, please send

I· money.

!,

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1,~op1e that didn't send you ~oney? II Did you go ahead and pursue tho.e for a certainty

I:

,i I hear from you again?

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ACF-FEDER~L REPOR rERS. I~c.
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,

:. tuna-raising to be charqed to the National Fund-Raisinq

Exemption, the coat of buying vendor lists.

That ia a different step, buying the list. You

could easily, it you wanted to, you probably never thought

aboue it before, but you could easily say:

No, the coat ot buying the list -- because you

" can use the list, and they do use that list for lots of

I! other thinga -- co!Jld be easily separated out from the I·

l ~ direct mail piece. But it isn't.

II

;1 And what we are doing 1. we just have another ....ay .

69

Those may have been new

.

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ACE-FEDER~L REPOR rERS. Isc.

CHAIRMAN MCDONALD:

!

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11

it .you maybe

::

Republica~ that you were getting.

MR. KENTON: One day, we will fix social

security. But, anyway, the answer ia I've tried to be very

candid. I'm not suggesting that this didn't have a

political overtone.

CHAIRMAN MCDONALD: Sure, I understand.

MR. KENTON: Sure we used those people. We

called them on Election Day and tried to get them to go vote

., for Pete. But, if you compare that, Commissioner McDonald,

to the direct mail situation, and the reason I don't think

it is an extra step, I think that you already took that step

perhaps without wittingly knowing it in the direct mail when

you permitted costs in connection with or associated with

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!I o~ qattinq the tarqet list. .

CHAIRMAN MCDONALD: Let me pursue that a minute.

Because you have used that example on numerous occasions.

It I had a list and, in fact, I am a little bit puzzled by

the arqument in view of what you have just said about your

own fund-raisinq method, and you write a second time and you

say, Oh, come on, if I have the list and I bUy the list for

8 fund-raisinq activities, would you take the opposite poi~t

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of view, that we shouldn't call that fund-raisinq activity

when, in tact, it is clearly what it is desiqned to do?

You're sayinq that you shouldn't have the list as

a tund-raisinq vehicle?

o

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14

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17

18

(

I'm not followinq your logic, to be honest about,

it.

MR. KENTON: No, I'm sayinq you should. And I am

sayinq that it that i. a cost whi9h is reasonably associated

with tund-raisinq, which it is -- in my judqment, it would

be -- if you asked for my jUdqment, I think that is the

19 riqht rule.

20

21

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CHAIRMAN MCDONALD: Sure.

MR. KENTON: And if you permit that to be a non22 allocable expense, tund-raisinq expense, and that list, I

23 can assure you, the only thinq you really said that wasn't

24 quite factually accurate, Mr. McDonald, is that when you buy "

2S ~~ that list, they use it for a lot of other thinq., too. The~

"

-\rF-FfnfR-\\ REPORrER~. I'iC
:

71

I didn't dispute that. That

:

CHAIRMAN MCDONALD:

Just us. it --

..

I'~. don't.

:1

fjj.);

~:.JO 01 01

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2

3 isn't What I said, but that'. all right.

contact of the vendor doesn't solicit --

CHAIRMAN MCDONALD: I think that is critical. I

;~ rule.

I contact is not solicit money.

MR. KENTON: That i. correct becau.e the initial

It seems like in this scenario, and I'm not

CHAIRMAN MCDONALD: Even though the initial

MR. KENTON: I'm sorry. The point is that it is

not truly for fund-raising, but I think that i. the right

I

I

I"~ .1

!i

ji saying it i. wrong at all, I'm just trying to think it

il

I~ through and what is really before us, it seems like all of

II

I

!!

And I guess what I am saying here is that, if

that i. the right rule, the spending of $20,000 to buy that

list, that the spending of this kind of money to get this

., list is not that different. And the reason --

It" think that is critical When we are talking about this

.. process. The initial contact with the vendor, which is not

the voting populist, the initial contact with the vendor is

to get that initial contact for money, supposedly.

I don't argue that there are other -- I don't

know the answer to that. But, Larry Noble asked a question

I

II earlier that I think is kind of the underlying question.

4

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ACE-FEDER"L REPOR rERS. Isc.. , -.
i ~1a 1a part and. parcel of campaiqninq.

I

il:. I mean, it appears to me not in relationship to

72 .

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3 "you but in relationahip to the overall diacuasion that there

4 ;1 is almost i. not anythinq that campaigns under. Some

5 approaches simply wouldn't tie into this entire umbrella.

6 Would you think that is an accurate statement?

7

8

.i Semi-accurate?

MR. KENTON: Campaiqn. if you bifurcate them

9 :. campaigns, or you can cut the pie different ways. They do

10 .. only two thing.. They try to qet vote. and they try to get

11 .' money. And there is virtually no distinction.

12

13

CHAIRMAN MCDONALD: What about commissioner

Thomas' approach to a 50 percent rule going back to the

14 point made by Commissioner Thomas just across the board,

o

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16 !'

period?

MR. KENTON: I think for the comment thlU=. I made

17 about Commissioner Tom'. comments is that a bold rule like

18 that from an operatioM point of view is much preferr~cl.

-- okay, in this case, I would be in favor of it.

19

20

21

22

23

Whether 50 percent 1s the right rule, but as long as it

ii

(Laughter. )

I would be in favor of it unless it negatively

!l impacted u••

" most candid presentation. wa have ever had. .,

.,

24

25

CHAIRMAN MCDONALD: This is probably one of the

:.

, ACE-FEDER"L REPOR j'ERS. Isc.
difference between that and the Gore decision?

:: count. . And I don't say that that is an unreasonable

73

MR. KENTON: But! aure. I think 50 percent rule.

you open this thinq up on Gore, which you really did open

forget the difference of opinion because I think -- also,

there is a difference of opinion.

CHAIRMAN MCDONALD: Isn't that a fundamental

it up, and I'm not saying incorrectly, it is hard to see how

this doesn't fit under the same rule of 50 percent across

the board. Yes, that is about right.

CHAIRMAN MCDONALD: But you would acknowledge

that at least in terms of -- going back to Commissioner

Josefiak's point -- at least in terms of what the Commission

has traditionally tried to do. You're not suggesting though

that the initial contact was money-raising, at least in the

three letters that we are talking about.

It was a follow-up process. And that is really

the dispute, if you want to call it that, the difference of

opinion that i. really before us.

MR. KENTON: That is correct. And also don't

'IItii position if you apply it across the board and in other

'I

l~ ·

"

,I

:! If

MR. KEN'l'ON: Exactly. That is the fundamental

difference. The Staff has taken the position because these

.' are separate events and not integrated, that it doesn't

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'j ACE-FEDER ..L REPOR rERS. l~c.
.. were just

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li evolved to beqin with.

And it bas been since day one, no one knows

The real question, and I think that is what

(Counsel conferring.)

MR. KENTON: If I might just make aure that I

Does anyone else have any other questions?

(Counsel conferring.)

CHAIRMAN MCDONALD: Commissioner Thomas.

COMMISSIONER THOMAS: Just one quiCk question.

MR. KENTON: Excuse me for one moment, please.

It just s._ to me. we ouqht to be uniform.

CHAIRMAN MCDONALD: I understand. Let me ask my

colleagues:

I

ii

ii

1

CHAIRMAN MCDONALD: I understood that. I know I

di4 understand it. We are genuinely not looking to pick at

nuances so that we can figure out a difference.

-I

II

I'

.1

!:" Commissioner Josefiak was talking about, is bow these things

;.

.'

:; didn' t say fund-raising. It was directly related to fundraising because we followed up in 24 hours.

I dic1n't want to leave the impression that they

:, understand -- that you understand what I ju.t said.

When you talked about the phone call being

I separate from the follow-up and I said that it wasn't

related to fund-raising, what I meant was that the message

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'j ACE-FEDERAL REPOR ~ERS. lsc.
CHAIRMAN MCDONALD: There are differences and

75 .

.

I want to assure you that we take every election

culminated in relationship to the Gore matter is something

that I just wanted to be sure everybody took into account,

particularly vis-a-vi. this because it is like any other

aspect of the law.

I am not a lawyer. Lawyers always kind of take

aQvantaqe of me, b t --

MR. RENTON: I can tell.

"

Let me point out one other thing, an example you

made, because I think it i. important. I think it was Larry

Noble who said, "Well, what would the bright line be?" And

I we were talking about the follow-up to that initial call,

and you thought maybe ••ven claya would be acceptable, Which,

by the way, ia probably as good a. any other certainly.

:1 But I think it demonstrates the problems that you '.

.! process and try to double back, as the Vice-Chairman pointed

! ~ have in this proc••••

1/

~i:. better than Commiaaioner Ai)ten. that. it haa been an evolving "

, proce••, and alway. will be. But how that process

.. there have to be difference. because if there is not, well,

I don't suppose we would be sitting and you wouldn't be

employed. And now that I find out you give advice for free,

I will be getting with you later on other matters.

Commis.ioner Thomas.

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ACE-FEDER.~l REPOR rERS. Isc.
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regulat.ion. I don't. think it will ever change.

76 ~J'

were alway. coming up~. and I think that i. just the

II/I, out.,

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1

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3 don't. think i~ make. any difference whether it is this

4 agency or any place el.e.

5 But we are always trying to determine those kinds

6 of things. And I can assure you we have some very spirited

7 discussions because seven days is reasonable and i~ is

8 particularly reasonable. And I really appreciate your

9 candor.

10

11

12

13

It is particularly reasonable if it applies to

you. And it is the dispute. It is 14 day. if it applies to

me.

And I didn't qet mine out for whatever reason

14 We did bad in the polla. We didn't. qet the follow-up money

o

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15

16

17

18

to make the -- to pursue the solicitation, et cetera, et

cetera. And it may be 30 days for somebody else.

And all I am suggesting to you is I think what

you know in this process is that we are always trying to

19 come to grip. with tho.e thing.. And the point that

'j

20 Co..issioner Josefiak wado early on is one that I really do

21 think ia very good.

22

I

;.

" The more ve clear it up for the general public .1

23 II and practitioners the better off we are. Is a position I

;i

24 ;; have had since day one, I think you do, as Commissioner ,

25 1: McGarry said, you take yourself out of the process, riq~' 'r I'

.1

" y:r-7b

A("E-FEDER~L REPOR rERS. lsc.
1 .~ w=D9. of peop1e perCe1V1"'1~that you have

2 .i And t.hat. wa. the purpo.e, I might. say, at

3 ot view in relat.ion t.o the Gore matt.er.

77

)).come ar))itrary•.

l.a.t in our point

4 !' MR. JI:EN'1'ON: I think you' re right on the money,

5 . Mr. Chairman. My point is, you say it. is seven or 14 days.

6 As long as I am under, it is tine. But., it you knew that it

7 '. was seven, or if you knew it wa. 14 ahead of time, then you

8 could --

9 I'

10

11

12

CHAIRMAN MCDONALD: Absolutely.

MR. KEN'l'ON: You could act accorcUngly.

It wa. a clear rule. It is arbitrary,

nonethele.s. But., a. I said earlier in re.pon8e to

You knew

15 · la.t few months on arquing about $23,000 plus a fine.

13 Commissioner Josetiak, ar))itrary clear rules are far better

14 " than to go through the proce•• I have been through for the I' o

"

c

II

16 I;

17

18

19

CHAIRMAN MCDONALD: I want to thank you for

coming toclay. It ha. been very helpful. It is important

that we have these kinds ot torums.

We urge you to take this issue forward to the

20 congra... And let me point out that you could not do worse

21 than we have done. So, if you get no action at all, you

22 '.! will be even with u.. If you get some action, we will ,.

23 i~ torever be in your d.eDt.

,I

.l 24 !: And. if you would have some closing remarks you

Ii

25 :: would like to make, we welcome tho. "

I

"

'1

'1Ii, ACE-FEDER,~L REPOR rERS. lsc.

'_, '. r ,..•
3 subpoena that we are facing at this moment for cancelled

4 " checu for all of the.e payment. to vendor., plUS all of our

5 " records aqain, because the calculations in here may not be

6 t quite accurate.

And that i. that there'. another

78 .

.

MR. REN"I'ON: Very. briefly, I did want to point

other thing.

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7 I stipulate to the calculation.. I would ask the

8 Commission if it would not want to consider we don't have

15 " Without asking you, sir, to make a decision today, I would j.

16 :: ask it there ia some way that so~ebody can't reconsider that

17 to subpoena that is outstandinq.

18 I will stipulate to any number you want me to

19 stipulate to. And -- tor the audit stuff. Don't make me go

20 bac:k and photocopy all of those checks. They are boxed up.

21 '!'bey are gone away.

the money to photocopy all of those cancelled checka. There

is no indication -- they've got our ledger records and our

worksheets. There's been no indication that our cancelled

We are not

...

checks are different than the ledqer records.

that kind ot people.

There has bean no indication that we are.

9

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.. It will cost thousands and thousands and tens of

23 :1 thousands ot dollars. And I'm not a%'9Uing the numbers. '.

And so I would like to make that request.

24

25

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HThey are reasonable numbers.

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A.cF-FEOER-\L REPOR; ER~. h:c.
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~I understand it.

And

79

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I understand. I understand.

.

.

Particularly if you're in the 99\.

-" ,,",,~. -.'

CHAIRMAN MCDONALD:

MR. KENTON:

And, ~ina11y, for members of the Commission, wha~

tried to imply here i. to say that I think this, aa I

I just think that would be really -- I beg you to really

I'

.,

·1

~':t have

that.

And I think that you can give us the benefit of

, the doubt, if you will, without locking yourself into

something. If you're going to make a rule on requlation in

the future, and particularly I feel that about a fine,

whatever repayment decision you come to, it i. my

consider that carefUlly.

But, overall, as I say, I think that whether it

CHAIRMAN MCDONALO: Particularly if you I re in the

99 percent.

late, it seems to me if there were another rule,

I, Commissioner Josefiak, it ought to be that if you are 99

percent compliant with everything, you ought to qet a pass.

And somebody ought to have the authority to do

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I! That is a good rule, 99 percent, you ought to get a pass. .

'. said to Ma. Aikens earlier, this is a close call. We

'. understanding there is an automatic fine :that follows. ,

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., is in this 42,000 contributions -- 51 checks back that we're

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'l'b.1a l.~ 18 ~o coaply with the outstandinq

aubpoena. 1uue4 by the Federal Election Camuss10n to Pate du

PoDt tor Prea1cSent, Inc. aa sucb subpoena has been mocUtied

an4 aaended pursuant to our recent conversation and my letter

of AwJust 1, 1919. W. r.spond to the two outstanding

nquuts. u' tollova:

A 4uc:ri~ioll ot the allocation ot postaqe costs -...:" . _., far- ~_Ul-.rkat1ncJprograa for Iava an4 an explanation as -.I ~-".: - ....-. - ~a..-of' crutaida· ven40ra tor the telaarkating program '~::::-•.;";-.~;!' ~1a:&'ttMb_ baraVith u Zybjblt A.· . ~~~'~":';"-='''~=:!~~S~-~ .

::s ":.~~·r.~:;:=:·~~~~~I· '11. this 1a responsive. to the 2IO.t· recent

•• _ ••4 ~D&.' aD4 I look forward. to the rulinq ot the Federal

•. _-.~ '~.' D.ec1:i~ c:o-1..1oD with reapec1: to the outat.a.n<Ung i ••ues. :'.'~ .':.' ".:'lfo-1D.are-:- nad.bUi~ o£ our ruponaa, I ... Federal

.. - bpr-1DcJ an extra copy for arrival in your ottices Monday

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2. An explanation .. to the ua. of outside veneiors for the

t.lemark.ting proqraa.

OUtside v.ndors v.re not directly used to prepare the mailings

for the telemark.ting proqru. These were desiqned anc! printed in

bouse by campaign staff. How.ver, th.r. were indir.ct co.ts with

rec;arcl to the software chang.. n.cessary to print the packaqes. These ao~_cb~.. van ..4& by sY.~ service., Inc. (noted a. SSI in • • w the aad1~ 1:ua'a· vorkpapen) and th... coats were fully identified ...... 4~~ndtt.. :.~'':-~.~~ -: _':.'-=~ ~~~:cl1rac:1: ..11 .fforts for the c:upaic;n w.re handled

.:..- _. prbartlr~~t:var.~1na, Ban••n/Hendrix Inc. and th. Richard Norman . C01Ipany•. Th.... vendors han4led the bulk of our direct mail ettort but . '. '.' v.re unr.late4 to tb. taluaark.t1nq proq:u. Th.re was on. instance in -=:'-",:.::-. Wh1dt.. cUrec:t. ..U pi.ce of a political nature va. done in Iowa. It . . vas not don. aa a telemarket.ing .ffort hc:rvav.r. This mailing was

actually done froa Iowa, ui1e4 froa an Iowa location, anc! all costs . a••ociatee! with th1s aa111ft; w.ra .al1oc:atecl against the Iowa liaie as a

pare of the Iowa office budg.t'- not t:.h. te1emark.tinc; proc;raa budget. . .

" -: .. .: r .hope that you 'vUl fine! t:.hi. ac!4r..... your qu••tiona reqarcUng our

..:.. :::2 . te1aazJtat1n9 operatiorw in full. If I bav. been incoapleea in . ~'.,,: . aatiatyiDq your requirements in any vay, ple••• contact .. immeCSiately. , ... . . ..... : ..•. '.' . ~,..,r "" """e n:or 'til) l'a 3
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.. . FEDERAL ELECTION COMMrSSION

WASHINGTON. D.C 2046l

Glenn C. lenton, Esq.

aichards, Layton' ringer One Rodney Square wilaington, Delaware 19899

Dear Mr. lenton:

The Coaai&lion has considered the responses filed on

behalf of Pete du Pont for President, Inc. to the Cosaission's

initial repayaent determination contained in the aeport of the

Audit Division on Pete du Pont for President, Inc. issued on

Rarch 9, 1989. On Deceaber , 1989, the Comaission aade a

final deteraination that Governor Pierre S. du Pont and Pete du

Pont for President, Inc. auat repay $25,775.49 to the United

States Treasury.

Enclosed is a Statement of aeasons in support of the

Coaaission's final deteraination as required by 11 c.r.R.

S 9038.2(c)(4). Judicial review of the Commission's

deter.in.tion is available pursuant to 26 U.S.C. 5 9041.

Please note that, under 11 c.r.a. 5 9038.2(d)(2),

repayaent aust be made within thirty (30) days from the date of

service of this notice. The payaent should be sent to the

Coaaission, but aade payable to the united States Treasury.

Sincerely,

Danny L. McDonald

Chairman

Enclosure

StateaeDt of aeaaons

Proposed Letter
:

FEDERAL ELECTION COMM~SION

WASHINCTON. DC 2CM6J

rrank A. Ur.o.ar.o, Trealurer

Pete du Pont for Prelident, Inc • ••0. Box 1988

aockland, Delaware 19732

Dear Mr. Ur.o.ar.o:

The Coaai••ion haa considered the relponlel filed Oft

behalf of Pete du Pont for Prelident, Inc. to the Coaailaion'a

initial repayaent deter.ination contained in the Report of the

Audit Diviaion on Pete du Pont for President, Inc. i••ued on

R.rch 9, 1989. On Deceaber , 1989, the Coaailaion·.ade a

fin.l deter.ination that Governor Pierre S. du Pont and .ete d'

Pont for Preaident, Inc ••uat repay $25,775.49 to the united

State. Tre.aury. -

Incloaed ia • State.ent of aealonl in lupport of the

Coaai.aion'a final deter.ination al required by 11 c.r••• I 9038.2(c)(4). Judicial review of the Commillion'l

deter.ination ia available purauant to 26 U.S.C. S 9041.

Plea.e note th.t, under 11 c.r.R. 5 9038.2(d)(2),

repayaent .uat be aade within thirty (30) dayI fro. the date of

.ervice of thi. notice. The payaent should be sent to the

Coaai••ion, but aade pay.ble to the United StateI Tre••ury.

Sincerely,

Danny L. ~cDonald

Chairaan

£Dclo.ure ;:-

Stat....t of ••••on.

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Proposed Letter
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