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RI~ponT OF 'rilE AUDIT DIVISION

ON

TilE BENTSEN IN '76 COI4HI'l'TEB

I. H1\CKGHOUND

'J'his report covers an audit of the Bentsen Conuuittee

F'unc1 and i Lr; successor, the Bentsen in • 76 Commi ttec,

undcrtak0n by the Audit Division to determine whether there

has been compliance with the Federal Election Cilmpaign Act

of 1971, as amended (tithe Act"). The audit was conducted

pursuant to Section 438(a) (R) of the Act, which directs the

Commission to give priority to auditing of the verification

for, allel the receipt nnd use of, any payments received by a

candidate under Chapters 95 or 96 of the Internal Revenue Code

of 1954, and by authority of Section 9038(n) which directs the

Conunission after each matching paym~nt peri.od to conduct a

thorough cX<llnination c\nd audi t of the qualified campaign expenses

of every CillHlidate and his authoriz(-:d committecf; that received

payments \111<1('1' Section 9037.

The audit covered the period from Junuctry 1, 1975, the

effective dilLe of the Act., throuqh June 30, 1976. The

Conuni ttee r('portcd beginning casil on hand of $652,951.65,

total receipts of.$1,662,070.27, total expenditures of

$2,311,182.41, and ending cash on hand of $3,839.51 for the

period.

'rhe principal officers of the Committee during the

period cov("'red by the audit included r-~r. Hi lliam II. Lane,

Chairman, ilnc1 Hr. Larry Lctscher, Complro llcr. r-lr. ,lack S.

Blanton \~laS Tr~af:urer of the Committee tlurinq the period

January 1, 1975, throu(Jh Llune 30, 1975, \'Jhile r\1r. ~hannon H.

Ratliff served as Treasurer from July 1, 1975 through the

clos0 of the p0riod covered by the audit.
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II. Findingn and Conc]_~l~:ii.on~

A. Bentsen Office ACCOUIlt ----

Section 9038 (b) (2) of 'l'it:lc 26 of lhe United States

Code (26 U.S.C. 9038(h) (2» }>rovides, 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 iln~Y purpose other than (A) to defray the qunlified campaign cxpcn~cs with respect to which such payment was made, or (3) to

repay loans the proceeds of whi ch \'lCI'C used, or otherwiBc to

restore f,'nds (other than contributi.ons to defray qualified

cilmpaign '.~xpenses whi.ch were received nnd expended) which were

used, to defray qua1ificd calnp'lign cxpc!nses , it shall notify

such candidat.e of the amount so used, and the candidate shall

pay to the Secretary or his delegate an aITlount equal to such

amount. On March 10, 1977, the Commission determined that as

a matter of policy the provisions of S(!ction 9038 (b) (2) apply

to cxpenscn incurred prior to the rpceipt of primary matching

funds by Presidenti.al candidates under Section 9037. With

respect to the 1976 election, the rcsLriction \-/ould extend to

those expenditures incurred on or after January 1, 1975, the

effective date of the Act as amended. Furthermore, the Commission determined to consider the circumstances surrounding

the incurra.nce of non-qualified campaign expenses on a case

by cas~ basis in applying its general policy.

Senator Bentsen filed his statement of candidacy on

February 10, 1975, designating the Rcnts(~n in '76 Cormnit1:ec

(forlucrly the Ben tsen C01l1mittec Fund) c!s the principal

campaign committee for his Presidential campaign. However,

the Bentsen Committee Fund and t\olO prcdccc~~;r;or Committees

had been rec0iving conLributions throughout 1974. In addition

to the campaiqn accounts maintained by the Committc0, Senator

Bentsen established an Office Account in 1\pri1, 1975, to

scparat.c official Senate expenses from political expenses.

\\Frittcn documcnt.atjon provided during 1.:hc audit Btated that

"the Office Account \__'Quld be established \\11 th funds received

in the campaign account during 1974 since solicit.ation of

those funds W()S made on t.he basis that the funds would be

utilized for purponcs of political campai(Ining or transactions

dir0ct1y re1ati.ng to Scnutc business."
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1l0\·:(~vcr, the transfer of f\1nd~; from the campaign account

to the orrice Account was not made in one lump sum; rather

betwCl!ll ,-lanuary 1, 1975, and Oetobcr 7, 1975, the Committee

expended $97,918.89 on behalf of the Office Account, including

$68,000.00 in direct transfers to the Office Account and an

additional $29,918.00 in expenditures made directly to

vcnl1orf; or others who had provided qoods or services to the

Office Account. After October 7, 1975, Senator Bentsen's

Senatori.al campai<jn assumed responr;i.bility for the Office

Account expenses.

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The Office Account transfers and expenditures were

c1cilrly not quali fled campaign expcn'ses which are defined

in 26 U.S.C. 9032(9) as a "purchas0, payment, etc ••• of

money or anythinq of value incurred by a candidate or by

his or her authorized committe~, in connection with his or

her authorized campaign for nomination for election, so long

as neither the incurring or paying is in violation of

Federal or state law." Although the Office Account may have

bC011 established in conformity with 2 U.S.C. 439a and Senate

Rule 42, th0re is no suggestion that the Office Account

activity was campaign related. In fact, notations on documentation provided by the Committee durinq the uudit specifically

identified the expenses as "not campaicJn expenses." 'rhcrefore, in accordanc0 with the Commis~ion's general policy

determination of March 10, 1977, tho $97,918.89 in expcnditureB

which \v()uld not represent "quilJ ificd cawpaign expenses" would

be rep~yab]c to the Treasury.

}lov-rever, in this specific case, there \-lere additional

factors ,·..hich \-lcr<..: considered by the Commission. The

Commit.tee's position on this matter i.s that all of the transfers

or expenditures incurred hy the Committee on b~ha1f of the

Office Account durinq 1975 should be vic\'.'0d as made from the

$652,000 cash-on-hdnd on l]<lnUary 1, 1975, rather than from

funds received after that date, since it: had anticipated

establishing the Office Account from funds on hand during 1974.

'rhcrefore, adopting tllc COlluni t tee' s po~;i tion \'10uld not require

any repaym(~nt.

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A contrary i.nterpretation is that si nc(~ the transfers

and expenditures on behalf. of the Office Account were made

by the Committee throughout the first ninc months of 1975,

together with several hundred thousand dollars of Presidential

campaign expenditures, the funds became rungcable, i.e., nonseparable. All of the funds expended by the committee on

behalf of the Office Account were made from cash-on-hand on

January 1, 1975, were received durinq 197!) by'the Committee,

and were deposited in the account with the funds collected

during 1974. Accordingly, under this theory, all of the

$97,918.89 in transfers anti expenditures on behalf of the

Office Account would be viewed as not qualified campaign

expenses and repayable to the u.s. Treasury.

However, viewing the first $652,000 e}:pcncled by the

Committee durinq 1975 as rcp:!.Acsenting the funds nlaintaincd

by the Conmlittce on December 31, 1974, produces a third

alternative of determining that only funds expended thereafter are repayable if spent for other than "qualifi.ed campai~n expenses". In this case, the $652,000 was expended

from the campaign account as of June 23, 1975, including

$78,783.39 in transfers and expenditures on behalf of the

Office Account. The remaining $19,135.50 in transfers and

expenditures on behalf of the Office Account were made

thereafter and would be repayable to the Treasury.

Hecommcndation

The Audit Division recommended that the Commission

determin0 that the $19,135.50 in funds transferred and

expended by the Committee on behalf of the Office Account

after June 23, 1975, be repaid to the Trc.:lsury on the basis

that they were made from funds received after January 1, 1975,

and were subject to the "qualified campaign e:-:pense" requirement. As a result, the Commission accepted the staff rpconuncn~ation and notified Senator Bentsen that it had

preliminarily determined that a repayment of $19,135.50

should be made. lIowever, after consideration of Senator

BenLs0n's legal position on this matter, the Commission

determined that no repayment was required based on the fact

that the committee had cash-on-hand on J(\nu~ry 1, 1975, in

excess of the total transfer to and expenditures made by the

Committee on behalf of Senator Bentsen's Senatorial Office

Accou))t, and on the fact that Senator Bentsen rejected some

$61,000 in Federal primary matching funds to which he was

entitled afler he withdrc\A.. from scekinq the nor,\ination for

election to the Orfice of Presidl~nt in- the 1976 clecti{;n.

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B.

Section 434(b) (12) of the J\ct requires that each

report disclose the amount and nntu)o(' of debt!> and obligations ow(~d by or to the Committee on it cntlt.i nUO\1S hasis until such

debts and obligations are cxtinqui:;hl'd, loql'lhcr wi th a statement as to the circumstances und COIHlitiont; under which any

such debts and/or obligations arc ('xtin9ui~;hcd and the

consideration thereof.

Hevie\-l of the Committee's reports showed that nurnerou~;

debts and obli.gations which were i.nitia1ly reported as owed by

the Comnlittce \-lere not reported in .:l continuous manner until

each was c>:tinguished. Our review showed that the COlnmi ttee

records documented adequately the dissolution of the debts,

which in total amounted to more than $12,000. Furthermore, in

eacll instance ilny payments made toward reducing the debts

werc' disclosed under the expenditure ~ection of the report.

However, it was not possible to ident.ify the payments as

reductions of previously reported debts, since many of these

payments repres(.\nted uni tcmized expcndi.turcs, or in other Cit:a~s the payment of a previ.ously reported debt \-las included

wit.h the payment. of other expenses i.ncurred \'lith a given pa~7cc.

The COlnmittcc was requested to submit an amendment

to properly disclose the dissolution of the debts on its debt

schedule. The amcndmcn t \oJas filed on July 26, 1977. Accordingly, we recommended no furlher action be taken on this matter.

C. R0paymcnts

Part 134.3(c) (2) of the Conunif.:sion's Hegulations

prov.il1cs that if on the lust day of candidate eligibili.ty

there are net outstandin~t campaign obligations, any matching

payments received may be retained for a perioel not exceeding

six months after the' end of the matching paymc'nt period in

order to liquidate those obligationf.~. Any amounts paid ~?hich

arc not used t.o liquidate the net outstandinq campai9n obligations within 6 months shall be rep~ic1 to the Treasury

30 dill'S thereafter.

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The Commission has dctcrnlined May 11, 1976, to be the

day on which Senator nentsen's candidacy terminated. He

then became ineligible to receive matching payments other

than to defray qualified campaign expenses incurred prior

to that date. However, the Committee had not requested

matching funds after February 25, 1976, the date on which

the candidate informed the Commission that he would not

accept any auditiona1 matching funas, including those

already submitted, but not certified.

Since the Committee had net outstanding campaign

obligations on May 11, 1976, and received no public funds

thereafter from the Treasury, no repayment is required under

the provisions of Part 134.3(c) (2).

Section 9038(b) (2) of Title 26 of the u.s. Code (26 U.S.C.

9038(b) (2» and Part 134.2 of the Regulations provide that

if the Commission determines that any portion or amount of

any payment made to a candidate from the matching payment

account was used for any purpose other than:

1) to defray the qualified campaign expenses with

respect to which such payment was made; or

2) to repay loans, the proceeds of which were userl

or otherwise to restore funds (other than contri.butions to

dcfrny qualifipd campaign expenses which were received and

expended) which were uf;cd, to defray qual i f ied campaign expenses;

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

candi~atc shall pay to the Secretary or his delegate an amount

equal to such amount.

Our review disclos0d that the Committee disbursed no funds

for other thiln qualified campaign expenses with the exception

of those expenses discu~scd in Finding A above. However, the

Commission determined that in the liqht of the factors mf~ntioncd in Finding A, it would not require a repayment by

Senator Bentsen under Section 9038(h) (2».

III. Auditor's Statement

Except for the matters specific311y noted in this report,

the audit disclosed that the Bentsen in '76 Committee conducted

their activities in conformity with the Federal Election Campaign

Act of 1971, as amended, and in conformity with Chapter 96 of

Title 26, U.S.C., in all material aspects•

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