FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

October 19, 2012 

MEMORANDUM 

To: The Commission 

Through: ^^^^ Alec Palmer L/JV ^ 

Staff Director 

From: Patricia C. Ortock 

Chief Compliance Officer 

Thomas Hintermister— 

Assistant Staff Director 

Audit Division 

Marty Kuest 

Audit Manager 

By: Rickida Morcomb ^IK- ^ 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on McCain-Palin 2008, 

Inc. and McCain-Palin Compliance Fund, Inc. 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendation(s) below and discusses the finding(s) in tiie 

attached Draft Final Audit Report. The Office of General Counsel has reviewed this 

memorandum and concurs witfa the recommendation(s). 

Proposed Finding on Campaign Travel Billing for Press 

In response to tiie Preliminary Audit Report and the Draft Final Audit Report, McCainPalin 2008, faic. (the General Committee) stated tiiat the excess Press reimbursement 

collected in the general period for ttavel was a misallocation of billing proceeds, requiring 

a transfer to John McCain 2008, Inc. (tiie Primary Conunittee). The General Committee 

stated it used a reasonable process fbr Press billing between the primary and general 

campaigns that was consistent with Commission precedent as well as Generally Accepted 

Accounting Principles (GAAP). 

At the audit hearing held on August 23,2012, tiie General Committee representatives 

made the following points to support that the billing method utilized by the campaign was 

reasonable and did not necessitate the need to refund the Press. 

• The General Committee explained there was no overbilling of Press if the 

entire contractual period covering the entire campaign were considered. It 
was stated that the stmcture of the Swift Air conttact at issue was not 

unusual when compared with previous campaigns. 

• The General Committee acknowledged that a misallocation of Press 

reimbursements collected in the general period may have resulted due to 

the unanticipated ttavel requirements during the campaign. 

• The General Committee noted it used the same conttact stmcture and 

calculations it used in past presidential elections and was not previously 

informed that the methodology could be considered unreasonable by the 

Commission. 

• The General Committee explained that the regulations only require a 

reasonable method to determine the pro rata share of costs related to ttavel 

and the General Committee stated it did all it could to use a reasonable 

method. The General Coinmittee asserted that the regulations do not allow 

substitution of the Audit staffs calculation for the General Committee's 

calculation unless the Commission can prove its methodology was 

unreasonable or adopted in bad faith. 

• The General Committee explained that they were aware of an imbalance 

and intended on making the ttansfer to the Priniary Committee. The 

ttansfer was not made because they were awaiting further instmction as a 

result of the audit. 

• The General Committee explained that there was no overall faarm to tfae 

ttaveling Press for tfae entire campaign period. 

• The General Committee recommended that the Commission should take no 

further action with regard to this matter. However, the General Committee 

would be amenable should the Commission mandate that the General 

Committee go back and "square-up" the accounts by ttansferring $344,892 

to the Primary Committee. 

The Audit staff offers the following for the Commission to consider with respect to this 

matter. 

First, the focus of the audit was the General Committee and the ttavel that took place 

during the general period. The Primaiy and General Committees are two separate entities, 

tiie latter being publicly fimded. The bright line as laid out at 11 CFR §9034.4(e)(7) 

distinguishes between primary and general ttavel expenses. This regulation defines ttavel 

occurring on or before tfae date of the candidate's nomination as a primary election 

expense. 

Second, a review of work papers from past presidential audits found key differences 

between the previous campaigns and the General Committee's calculation method and 

conttact. The Audit staff notes Press was billed for weekly flights within an average of 12 

days; the vast majority (approximately 80%) ofthe billings occurring prior to the end of 

the campaign. 

Third, the Audit staffs review of the travel in the primary and general periods indicated, 

that contrary to the General Committee's contention, there were Press organizations that 

flew with tfae campaign only during either the primary or general periods. This leaves 

open the possibility that some Press organizations may have subsidized the General 

Committee as a result of its billing method. 
Finally, the Audit staff believes the issue is not the reasonableness ofthe method, but the 

impermissible result. The General Committee beUeves the billing amounted to notfaing 

more tfaan an imbalance in collections from Press between tfae primary and general periods 

which could easily be resolved, if required, by a ttansfer to the Primary Conimittee. The 

Audit staff maintains the General Committee's billing calculations resulted in collecting 

more than was allowable for the general period whicfa was the subject of the audit. As a 

result, the regulations prescribe that the over collection be refimded pro rata to the Press 

representatives. 

Although the factors outlined by the Audit staff above support its methodology as 

appropriately applied to the general period, in consultation with the Office of General 

Counsel, it was concluded that further consideration should be given to different billing 

methods. It was determined that while the General Committee and the Audit Division 

may have had different methods for calculating the billing to the Press, it appears no 

material harm was caused by the General Committee's method in terms of 1) the Press 

materially subsidizing the campaign, 2) the General Committee exceeding the expenditure 

limitation, or 3) tfae Primary Committee financing the General Committee. 

According to the General Committee, the billing imbalance between the primary and the 

general for press ttavel resulted from the inherent complexity created by having a single 

air charter conttact that spanned the primary and general election periods. Lacking prior 

guidance, the General Conimittee chose an accounting method for the calculation of ttavel 

costs that evolved over time. This evolution of their methodology conttasted with the 

Audit staff belief that the assignment of cost for air charters, even m the case of a single 

conttact over two periods, need not be burdensome or conftising. Only those costs, paid 

in the respective election period, should be appUcable to the calculation of amoimts 

attributable to and billable to the ttaveling press in the same election period. In instances 

where a credit originating from tfae prior period is applied in a latter period, a corrective 

adjustment may be required. However, in view of tiie fact tfaat the regulations do not 

specify a particular methodology and only require that no more than 110 percent be 

collected for reimbursed ttavel, the Audit staff concedes that General Committee may 

have employed what it believed to be a reasonable methodology. See 11 C.F.R. 

§ 9004.6(b). It follows that the reimbursements collected may not have exceeded the 

allowable limit. 

The Audit staff recommends that the Commission frnd the method of billing the Press 

during the campaign did not result in material harm. 

Proposed Finding on Failure to File 48-Hour Notices 

In response to both the Preliminary Audit Report and the Draft Final Audit Report, the 

McCain-Palin Compliance Fund, Inc. stated the failure to frle 48-hour notices was due to 

an outside vendor's error. During tfae audit hearing, the McCain-Palin Compliance Fund, 

Inc. stated there was no factual dispute with the Audit staff and that the outside vendor 

miscoded the contributions. Therefore, the conttibutions were not included in the 48-hour 

reports fried by the McCain-Palin Compliance Fund, Inc. The McCain-Palin Compliance 

Fund, Inc. requested the Commission take no further action on tfais matter. 
The Audit staff recommends that the Coinmission frnd that McCain-Palin Compliance 

Fund, Inc. failed to frle 48-hour notices for contributions totaling $240,700 that were 

received prior to the general election. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 

30 days of the Commission's vote. 

In case of an objection, Directive No. 70 states that the Audit Division Recommendation 

Memorandum will be placed on the next regularly scfaeduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Rickida Morcomb or Marty Kuest at 694-

1200. 

Attachment: 

- Drafr Final Audit Report ofthe Audit Division on McCain-Palin 2008, Inc. and 

McCain-Palin Compliance Fund, Inc. 

cc: Office of General Counsel 
Draft Final Audit Report of tlie Audit 

Division on McCain-Palin 2008 Inc. 

and McCain-Palin Compliance Fund, 

Inc. 

March 24, 2008 - December 31, 2008 

Why the Audit Was 

Done 

Federal law requires tfae 

Conunission to audit 

every political committee 

established by a 

Presidential candidate 

who receives general 

fiinds for the general 

campaign.^ The audit 

determines whether tiie 

candidate was entitied to 

all of the general funds 

received, wfaetfaer tfae 

campaign used tfae 

general funds m 

accordance with tii( 

and whetfaer tiie ci 

otherwise complied wit 

the limitatii 

prohibit^Rs, and 

discloj^Krequirement 

of tneewBon law. 

Future Act 

The CommissioT 

initiate an enforcei 

action, at a later tim^ 

with respect to any of the 

matters discussed m this 

report. 

About the General Conunitt] 

McCam-Palin 2008 Inc. (Generaljpni3fttee) is the principal campaign 

committee for Senator John SJfK^n , the Republican Party's 

nominee for the office of PrMoSnBtiie United States. The General 

Coinmittee is currentiy heaanurtereoAj^ DC. For more 

information, see the c|]^il^ Oampaign^Hanization, p. 2. 

Financi 

Committee 

• Receipts 

leral Funds Ri 

^ Operatui; 

_;e d 

To3|MEeipts 

DisbursAents 

o OperauigBxpenditures 

Loan R«^ent s 

isbursements 

o loxariiisbursements 

Itures 

$ 84,103,800 

9.318,570 

17,076.880 

1.154,733 

$ 111,653,983 

$ 92.083,836 

17,076,880 

1.491,107 

$ 110,651,823 

FilHing and Recommendation for the 

General Committee (p. 5) 

• Campaign Travel Billmg for Press 

26U.S.C. 19007(a). 
About the Compliance Fund 

The McCam-Palm Compliance Fund, Inc. (Compliance Fund) was established pursuant 

to 11 CFR §9003.3(a)(l)(i). The Compliance Fund accepts conttibutions to be used 

solely for legal and accounting services to ensure compliance with the Federal Election 

Campaign Act (the Act). These conttributions mclude the Compliance Fund's share of 

contributions firom affiliated joint fimdraismg committees. The Compliance Fund is 

currently headquartered in Washington, DC. An overview of financial activity for the 

Compliance Fund is presented below. 

Financial Activity of the Compliance 

• Receipts 

o Conttibutions 

From Other Authorized Committees 

Offsets to Operating Expenditures 

Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

All Other Disbursements 

Total Disbursements 

Finding andJ|^ondBndatioimbr the 

Compliance 

H,675,642 

,112,237 

24,787,879 
About Joint Fundraising Committees 

This audit included seven joint fundraising committees. Each of tiie jomt fundraising 

committees is headquartered in Alexandria, Virginia and was an authorized committee of 

the candidates, John McCain and Sarah Palm. The combmed financial activity of tiiese 

joint fimdraising conunittees is presented below and the financial activity of each of tiiese 

committees is presented on page 4. 

Financial Activity of the Joint Fundraising Committees 

• Receipts 

o Conttibutions 

o From Otfaer Autfaorized Coinmittees 

o Offsets to Operating Expenditures 

o Total Receipts 

• Disbursements 

o Operating Expenditures 

o All Otfaer Disbursements 

o Total Disbursements 

207.620,125 

812,325 

159.926 

'2,376 

$ 30,374^3 

167.116.292 

$ 197,491,195 

Finding and Recommendat%n tflilBie Jglht Fundraising 

Committees (p. 51 

Based on tfae limitedjnSniSll^^of the repd^ and statEments fried and tiie records 

presented by the sefj^jf int fiic|aismg comi%tees. the Audit staff did not discover any 

material non-complii 
Draft Final Audit Report of the 

Audit Division on 

McCain-Palin 2008 Inc. and 

McCain-Palin Compliance Fund. 

Inc. 

March 24, 2008 - D 
Table of Contents 

Part I. Background 

Authority for Audit 

Scope of Audit 

Inventory of Records 

Part n. Overview of Campaign 

Campaign Organization 

Joint Fimdraismg Coinmittees 

Overview of Fmancial Activity 

Part ni. Summaries 

Finding and Recommendation - General 

Fmduig and Reconunendation - Compliance 

Finding and Recommendation - Joint Fundraising 

Part IV. Finding and Rec 

General Committee 

Campaign Travel Bii 

Party. Fin 

Compliance 

Failure 

Page 

1 

1 

1 

tion for the 

endation for the Joint 

19 

PaijMD. Findj 

Fundnk|^g Co] 

Based ui^tiie limitedKamination of the reports and statements fried and the 

records pre^ted. the ^dit staff discovered no material non-compliance. 21 

Part vn. AttflHment 

Statement of Ne^utstanding Qualified Campaign Expenses 22 
Parti 

Background 

Authority for Audit 

This report is based on audits of McCain-Palin 2008 Inc. (General Committee), McCainPalm Compliance Fund, Inc. (Compliance Fund), and seven joint fimdraising committees 

affiliated with the Compliance Fund, undertaken by the Audit Division of the Federal 

Election Commission (tfae Cominission) as mandated by Section 9007(a) of Titie 26 of 

the United States Code. That section states that "after each presid^^al election, tfae 

Conunission shall conduct a thorough examination and audit 

expenses of tfae candidates of eacfa political party for Presi 

includes joint fundraising conunittees autfaorized by tfae 

9009(b) of Titie 26 of tiie United Sttites Code states, ] 

conduct otfaer exammations and audits as it deems 

lifted campaign 

Vice President." Tfais 

Section 

mmission may 

Scope of Audit 

The audits of the General Coinmittee and Complis 

1. tiie receipt of excessive contributions and loans; 

the receipt of conttibutions from nhibited sources;^ 

the receipt of ttansfers from other aWBh^committ 

the disclosure of contributions and lnnsieR^^|iyed; 

tiie disclosure of disbursements, debts^d 

tiie recordkeepuig prag^nd completiu^of recdl 

the consistency bgpeSi^Hted frgureswid bank records; 

the accuracy ofi^Afitatem^Bsf Net Outsniding Qualifled Campaign Expenses; 

the campaigns' conHmiceAfaspendmg Sffiations; and 

other camoaien oper^ft^^RRB^i^fa^eview. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10 

It ml^isine conunittees affliiated with tfae Compliance Fund 

mttifajBtions and loans; 

mtributions among joint fimdraising participants; 

cpenses and net amounts ttansferred to tfae Compliance 

The audCs of the se^ 

ex£ 

1. the i3B|t of excess!) 

2. tiie prop^Uocation oi 

3. the prop^^cation oi 

Fund; and 

4. the consistency^MPEen reported figures and bank records. 

Inventory of Records 

The Audit staff routinely conducts an mventory of campaign records before it begms tiie 

audit fieldwork. The records for each of tiie audited conunittees were complete and tfae 

fieldwork began immediately. 
Part II 

Overview of Campaign 

Campaign Organization 

Joint 

Of tfae ^^^i^^int fimdrais: 

in April 20u9^d tfaree regis 

Alexandria, Vi^^^and Lisa 

fundraising conunl^^ mami 

conunittee maintaim 

)nimiLiw^Tour registered with the Federal Election Conunission 

in Aif^st 2008. These committees are headquartered in 

jker is the Treasurer for each committee. Eacfa of six joint 

led a smgle bank account, and the seventh joint fimdraising 

accounts. 
Overview of Financial Activity 

(Audited Amounts) 

General 

Committee 

Compliance 

Fund 

Opening Cash Balance- $0 $0 

Receipts 

• Contributions $9,679,490 

• Federal Funds Received $84,103,800 

• From Other Authorized Committees PrT5.046.453 

• Offsets to Operating Expenditures 9.318Jilk 1.131.139 

• Loans Received n.owso^ 

• Other Receipts JA54S3r •^•1471,782 

Total Receipts JffL,65?,983 $4lH|fc864 

Disbursements 

• Operatmg Expenditures *^^%|j083ifi^ $ll,675jPr 

• Transfers to Other Authorized 

Committees w 

222502 

551,599 

12,338,136 

$24.787,879 

$23,540,985 
6 
Part III 

Summaries 

General Committee 

Campaign Travel Billing for Press 

The General Committee received reimbursements totalmg $344,892 from the Press for 

campaign ttavel, wfaich was above the maximum amount billable to tfae Press. The 

Commission's regulations provide tfaat a 10 percent markup on tfae actual cost of 

ttansportation and services may be billed to tfae Press. The GengACommittee stated 

that the excess reimbursement from tfae Press for ttavel was ajKulooition of billing 

proceeds, requiring the General Conunittee to pay John MjjP^gOOS, Inc. (tfae Primary 

Committee) for tfae excess fimds collected. 

In response to tiie Preliminary Audit Report, tfae ^lerarCdmmitteeTlB^ined tiiat it 

used a reasonable process for tfae allocation ofB^s reimlnirsements ben«itiie two 

committees tfaat is consistent witfa Conunissi^^^^^dent ^^el l as GeneilBKccepted 

Accounting Principles (GAAP). The General Coml^teyR^xplained its^ntention 

tfaat any apparent excess of Press reimbursements colH ^ durmg tfae term of tfae 

conttact could be corrected by makirilfcyiavment to tfae^Mmry Conunittee. The 

General Committee requested tiiat theV^b|ysion permitaM^&r from tfae General 

Conunittee to tfae Primary Conunittee t^es^^hynatter. Jmae event that tiie 

Commission does not permit the ttansfer^e G^RHjkmmilttee requests that it be 

allowed to disgorge the^us^ve Press reilMj^emeniMFihe U.S. Treasury. Tfae 

General Committee h«veM^^ e CommSion shoulofmd tiiat tiie Press 

reimbursements WQ|ADn'ectiyV[culated resuking in no violation of tfae Act, and tfaat tfae 

General Conunitteemi^mninKii^ more detail, see p. 6.) 

Comi 

Faini^to File 4Blou]nrbtices 

The Com^^^e Fund fainto frle48-faour notices for 169 contributions totaling 

$240,700 thS^re receivMprior to tiie general election. In response to the Preliminary 

Audit Report, tflHompliyce Fund explamed that it faad experienced a one-time datamanagement error^H^foutside vendor relatmg to tfae 48-faour notice requirement. Tfae 

Compliance Fund h^Saen measures to ensure tfaat tiiis unintentional oversigfat was 

corrected. The Compliance Fimd believes tfaat tiie Conimission sfaould fmd tiiere was no 

violation of tiie 48-faour notice requirement and tiiat tfae Compliance Fimd should be able 

to termmate immediately. (For more detail, see p. 19.) 

Joint Fimdraising Committees 

Based upon the limited examination of the reports and statements fried, and the records 

presented by seven joint fundraising conimittees. the Audit staff discovered no material 

non-compliance. (For more detail, see p. 21.) 
Part IV 

Finding and Recommendation for the 

General Committee 

I Campaign Travel Billing for Press 

billal 

Summary 

The General Conunittee received reimbursements totaling $344. 

campaign ttavel. which was above the maximum amount 

Commission's regulations provide that a 10 percent marku 

ttansportation and services may be billed to the Press, 

tiiat tiie excess reimbursement from the Press for ttav 

proceeds, requiring tiie General Coinmittee to pay 

Conunittee) for the excess funds collected. 

a 

ain 200' 

from the Press for 

Press. Tfae 

actual cost of 

Conunittee stated 

tion of billing 

(tfae Primary 

In response to tfae Preliminary Audit Report, tiie CSl^ral Q^fti|;^ittee maint^ed tfaat it 

used a reasonable process for tfae allocation of Press^MRursements between tiie two 

committees tfaat is consistent witfa Cctaumssion nrecedaMljkwell as Generally Accepted 

Accounting Principles (GAAP). TfaeH^mlConimittee a^^glmned its contention 

tfaat any apparent excess of Press reunb 

conttact could be corrected by niaking a 

General Committee 

Coinmittee to tfae Pr: 

Conimission does ntfBermit 

allowed to disgorj 

General Committee 

reimburse] 

GeneralAmmit 

llected dlBg tfae term of tiie 

Coinmittee. The 

bansfer from the General 

In the event that tiie 

neral Committee requests that it be 

ents to tiie U.S. Treasury. The 

should frnd tiiat the Press 

m no violation of the Act, and tfaat the 

Lefaim^^dard 

A. Expeniwres for TraB>ortation and Services Made Available to Media 

Personnel amBepet SerSe. Expenditures by an authorized committee for 

ttansportation, g^H|d senffes or facilities (including aur ttavel, ground ttansportation, 

housmg, meals. telewKservice and computers) provided to media personnel. Secret 

Service persoimel orJrational security staff will be considered qualifred campaign 

expenses, and, except for costs relating to Secret Service personnel or national security 

staff, will be subject to tiie overall expenditure linutations of 11 CFR 9003.2(a)(1) and 

(b)(1). 11 CFR §9004.6. 

B. Billing Media Personnel for Transportation and Services. The committee shall 

provide each media representative, no later tfaan 60 days from tfae campaign ttavel or 

event, an itemized bill tfaat specifies tfae amounts cfaarged for air and ground 

ttansportation for eacfa segment of the trip, meals and otfaer billable items specified in the 

White House Press Corps Travel Policies and Procedures issued by tfae White House 

Travel Office. 11 CFR §9004.6(b)(3). 
C. Reimbursement Limits for Transportation and Services of Media PersonneL 

The amount of reimbursement sougfat from media persoimel shall not exceed 110 percent 

of tfae media representative pro rata sfaare (or a reasonable estimate of the media 

representative's pro rata share) of the actual cost of ttansportation and services made 

available. Any reimbursement received in excess of tfais amount shall be retumed to the 

media representative. 11 CFR §9004.6(b) and (d)(1). 

D. Pro Rata Share Definition. A media representative's pro rata share shall be 

calculated by dividmg the total actual cost of tfae ttansportation and services provided by 

tfae total number of individuals to wfaom ttansportation and services were made available 

(to include committee staff, media personnel. Secret Service stafMLl CFR 

§9004.6(b)(2). 

E. Administrative Costs for Transportation and Senfles of^Bdia Personnel. The 

committee may deduct from the amount of expendit^|^9l^ect too^^erall limitation 

the reimbursements paid by media representative^lFttansportation ai^mrices, up to 

the actual cost of the ttansportation and serviceagovidedto tfae media rSnhgi^tives. 

The cominittee may deduct an additional am^umKtfae renjmrsements recfllred from 

media representatives, representmg tfae incurred adn^^flfiv^costs of 3 pocent. The 

committee may deduct an amount in excess of 3 percS^uresenting the administtative 

costs actually incurred by tfae commi^^iproviding se^l^teto tfae media, provided tiiat 

tiie coinmittee is able to document tfaelf^^^jint of adimi^j^^e costs actually 

incurred. 

For tfae purposes of tfae 

by the committee m 

these services are 

§9004.6(c). 

isttative^9§ts include all costs incurred 

is and seeking reimbursement, whetiier 

orjndependent conttactors. 11 CFR 

F. Attril 

andlo 

whi 

nominate 

sfaall be 

on general 

even if the ttavef 

ExpenSffies for campaign-related ttansportation, food 

iual.^M^dmg a candidate, shall be atttibuted according to 

tta^Hrcurs on or before the date of the candidate's 

lary eKction expense. Travel to and from tfae conventions 

|ary election. Travel by a person wfao is working exclusively 

preparations shall be considered a general election expense, 

fore tiie candidate's nomination. 11 CFR §9034.4(e)(7). 

G. Travel Support4Documentation. For eacfa ttip, an ituierary sfaall be prepared and 

made available by the committee for Commission inspection. The itinerary shall show 

tiie time of arrival and departure and tiie type of events faeld. 

For trips by govemment conveyance or by cfaarter, a list of all passengers, along witfa a 

designation of wfaich passengers are and which are not campaign-related, shall be made 

available for Commission inspection. When requured to be created, a copy of the 

government's or cfaarter company's official manifest shall also be maintained and made 

available by tiie cominittee. 11 CFR §9004.7(b)(3) and (4). 
H. Assets Purchased from the Primary Election Committee. If capital assets are 

obtained from tiie candidate's primary election conimittee, tfae purchase price sfaall be 

considered to be 60 percent of the origmal cost of such assets to the candidate's primary 

election conunittee. 11 CFR §9004.9(d)(l)(ii). 

Facts and Analysis 

A. Facts 

In 2008, tfae Press covering tfae campaign of tfae Presidential candidate (Jofan McCain) 

and tfae Vice Presidential candidate (Sarafa Palin) ttavelled predominately on two aircraft 

chartered by tiie campaign. The aurcraft for the Presidential candidate was the same 

aircraft used by Jofan McCain 2008, Inc. (tfae Prunary CommitteoA^d was cfaartered 

tfarougfa Swift Air, LLC (Swift Aur). The aurcraft for the VicejfEsiddttial candidate was 

chartered through JetBlue Airways Corporation shortiy be 

Convention. The Press also occasionally ttavelled on aii 

Conimittee through CSI Aviation Services (CSI) an^ 

througfaout the campaign. 

As cited above, the amoimt of reimbursemen 

exceed 110 percent of tiie media representative' 

of the media representative's pro rata sfaare) of tfae a 

services made available. Any reimbilh[ttnent received £ 

returned to tfae media representative. ^|^[U9004.6(b) 

Republican National 

by the General 

irtation 

dia personnelWDl not 

pr a reasonsole estunate 

st of ttansportation and 

s of this amount shall be 

). 

The General Committee contends that it dii notJ^RMB]j|S^^avel reimbursement above 

the 110 percent allowedJMri|®ulations^ffi|^eGen^!^^nunitt^ calculated total 

ttansportation costs f«n^H^wo be $4,5()K558, equdmig 106 percent of the cost 

calculated by the QiM^ ConuBtee. The ol^al Conimittee actually received 

$4,476,728 firom the I^^as renbursement fcwavel. 

During fh 

ttavel rnbursem^ 

staf^iKdated the tol 

maximunHQOunt billabU 

the Audit s! 

refund to the 

^calculatioi 

.$344,81 

' calcuI3ESB^at the General Committee received Press 

[cess^yie 110 percent allowed by the regulations. The Audit 

jata frn^rtation cost for tiie Press to be $3,756,215 and a 

^tiie (110 percent of cost) of $4,131.836.^ Based on 

jf ttansportation costs, the General Coinmittee is required to 

r($4,476,728-$4,131,836). 

The main differencSV^^een tfae General Committee's figure and die Audit staffs frgure 

is the calculation foiyrotal ttansportation costs. The General Conunittee disagreed with 

tiie Audit staff's cost calculation methods with respect to charter frights associated with 

tiie aircraft used by tiie Presidential candidate. The General Conmiittee also did not agree 

witii the Audit staffs initial application of aircraft reconfiguration costs. 

^ The Creneral Committee billed at 106 percent, but was able to document administtative costs to allow 

billing up to 110 percent for all modes of ttansportation. In determming die amount billable to the Press, 

the Audit staff credited the (jeneral Committee for any under billing of the Press associated with any one 

aircraft or mode of transportation. Li other words, any under billmg of the Press ibr travel on tfae aircraft 

for the Vice Presidential candidate. CSI chartered airaaft, and ground transportation was applied to any 

overbilling of the Press that may have occurred for ttavel on the Presidential aircraft. 
The Audit staff calculated transportation costs based on actual hours used only by the 

General Coinmittee during the general campaign. The General Conunittee, in conttast, 

calculated ttansportation costs based on the life of the charter conttact, wfaich covered 

botii tfae primary and general campaign periods. 

Applying Cost on Aircraft for Presidential Candidate 

The Primary Conunittee and the General Conunittee chartered a Boeing 737-400 from 

Swift Air for use by the Presidential candidate. The Swift Air conttact covered tiie period 

from June 30,2008 tiirough November 15,2008. The conttact stipulated payments 

totaling $6,384,000 to be paid m 19 weekly mstallments of $336,000. Tfae conttact 

covered nine weeks for the Primary Committee and ten weeks for tiie General 

imary Conimittee 

fees. There was also 

tfae Primary 

Conimittee 

guration costs. 

Conimittee. The conttact also required the General Committee^ 

to pay costs for fiiel, catering, passenger taxes, and ground hj 

an aurcraft reconfiguration cost of $650,000 tfaat was paid^ 

Conimittee. The General Committee correctiy reimburse 

$390,000 ($650,000 less 40 percent depreciation) foi 

lihe 

The conttact allowed 22.4 flight hours per we^ 

life of tfae conttact. If tiie frill fligfat hours p 

to subsequent week(s). If the conttacted 22.4 

no accumulated unused hours were available, tiiere 

additional hour. Neitfaer the Primary mj^eneral Comnil 

flight hours in a week. The General CGHI^i&.used 

Conunittee used 111.8 flight hours diurimtfa< 

f425.6 flighn^j^r tiie 

own, the faoi^ffoUed over 

eek were e:roeeded and 

arge of $15,000 per 

exceeded tiie 22.4 

lurs and tfae Primary 

The General Committ 

August 29,2008, an^ 

included charges 

ts first weel 

ISSeToBoayments ol 

catenB, passenger 

Tstallm^payment of $336,000 on 

K,047,4d2 to Swift Air. Tfais amount 

and ground faandling fees. 

For tiie first^k^the 

conttact (j|^HQiB||gneri 

undertvconttact, i 

weql^^Hje calculated 

the estimnLflight hours 

The calculai^^cluded 

hourly charte^^^alculai 

rate, tiie segment«ftL>yi 

Coinmittee used tfae total cost of tfae 

d divideSnrby tfae remainmg number of hours available 

g unn^Q^ paid for by the Primary Cominittee. Later 

the aKfmt yet to be paid on the conttact and dividmg it by 

woun be used in the future, based on weekly averages, 

nfiguration costs. This method caused a fluctuation of the 

from as low as $11,569 to as higfa as $39,715. Usmg tiiis 

alculated and divided by tfae number of passengers. 

The Audit staff calcinated tiie charter rate per flight hour for Swift Air by taking tiie 

conttact weekly mstallment ($336,000) and dividing that by tfae actual weekly faours 

flown. Tfae costs of fiiel. catering, passenger taxes, ground faandluig, and certam 

reconfiguration costs were tfaen added to determine tfae total segment cost. Tfae cost per 

passenger was tiien calculated by dividmg tiie total segment cost by tiie total number of 

passengers on the segment. 

Applying Recortfiguration Costs 

The Audit staff and tiie General Committee did not mitially agree on tiie amount of 

aircraft reconfiguration costs billable to the Press. Historically, the Commission has 

allowed the Press to be billed only for the aircraft reconfiguration costs that could 
10 

reasonably considered as having benefited the Press. The General Committee believes all 

costs for reconfrguring an aurcraft at tiie begumuig and at tiie end of tfae campaign sfaould 

be considered wfaen calculating the billable amount for tfae Press. Tfae General 

Committee also stated that part of the aurcraft reconfiguration cost was to bring tfae 

aircraft mto compliance with Federal Aviation Administtation safety standards tliat 

ultimately benefited tiie safety of all passengers mcluding tfae Press. 

B. Preliminary Audit Report & Audit Division Recommendation 

The issue of press travel reimbursement was presented at the exit conference. In 

response, tfae General Conimittee submitted tiie followmg points for tfae Commission's 

consideration. 

Cost Calculation 

The General Coinmittee made a comparison between the 

spanned botii tiie primary and general election periods, 

were analyzed during previous presidential audits: 

2000, and Kerry-Edwards in 2004. The General Q^mmii 

Audit staffs calculation of the hourly rate for^n^aircraf^ 

audit, which accumulated all operating costs ^fic^nLded 

of hours frown by each aircraft. By applying the si 

tiie Swift Aur conttact ($6,384,000 divided by 252.1 HI 

contends that its cost calculations us^KHLbillmg the 

weekly fi8B|flown by thi 

Press. This^ktfnore ap] 

campaign ttavSlBi^g tin 

conttact, which 

simin^ircraft conttacts that 

P innBLBush-Cheney in 

e specifica^^^erenced the 

from tfae 199o^^^Cemp 

otal by tfae a^n number 

latton to tfae enme amount of 

own), the General Conmiittee 

re accurate. 

Tfae Audit staff agrees tfaat if tfae Genen 

conttact amount for both, the primary 

aircraft reconfiguration 

exceeded the maximi 

tfaose costs attrib 

ttavel cost tfaat tfae 

consistent witiyrayel 

CFR §9Oy0inP|^iuch 

ttanspontion shall 

tfae i^ift&taff used onl 

usini^e total Swift Aur 

ods, as well as the fiill 

ursement from tfae Press tfaat 

ons. However, as in Dole-Kemp only 

ConunitlKe sfaould be used in determining tfae 

le Press. Tfais conclusion is 

esidential audits and is supported by 11 

expenditures for campaign-related 

g to wfaen tfae ttavel occurs. As in Dole-Kemp, 

^tion operating cost ($4,047,402) and tiie actual 

mera^ommittee wfaen calculating tfae billable cost to tfae 

liate method when calculatmg costs and billmg for 

leral election period. 

The General ConunlBrprovided a spreadsheet that spanned tiie primary and general 

election periods and^lieid on adjusting the per-faour billing rates on a segment-bysegment basis due to using fewer flight faours than available in the Swift Air conttact. 

The General Conunittee made the spreadsheet available to demonstrate tfaat tfae Priniary 

and General Conunittees' billing allocation was based on total costs ($6,354,859) tfaat 

were lower tiian tiie conttact amount ($6,384,000). Tfae General Conunittee contends 

tfaat no overbilling of tfae Press could faave occurred smce tfae difference ($29,141) was 

never billed to tfae Press by tfae Primary committee during week eigfat. However, it 

appears tiiat tiie General Conunittee did bill tiiis difference to tiie Press^. Tfaerefore, tfae 

^ During the second week of the general campaign, the General Committee calculated Press billing by 

using the total cost of the contract ($6,384,000) and subtracting die amount of the contract aheady billed 

($2,140,752) to arrive at the remaining balance of die contract The helicopter cost ($29,141) was included 
11 

General Coinmittee included the total conttact amount m calculatmg the billing 

allocation. 

The Audit staff used the weekly $336,000 mstallment divided by tiie actual faours flown 

weekly durmg tfae general election period for billing calculations (plus tfae fiiel, catering, 

taxes, and ground faandling fees). The General Committee explained that the Audit 

staffs calculations had tfae benefit of hindsight because, due to the fast pace of the 

election campaign, the actual flying hours were unknown at the tune of billing. 

Therefore, estimates of pro rata sfaare had to be used in order to be m compliance with tiie 

regulations to bill media representatives within 60 days of ttavel. The General 

Committee believes that the Audit staffs metfaodology would be ui conflict witfa 11 CFR 

§9004.6(b)(3), wfaich says, in part, that media representatives stjg^l^e given a bill that 

specifies amounts charged for aur and ground for each segmei 

Tfae Audit staffs methodology does not conflict with 11^ 

tfae actual flight faours are known soon after flights 

required 60 days to provide the Press with an itei 

charged for air transportation for each segment 

Committee invoiced tfae Press on average 12tfa3 

allowing time to use tfae actual fligfat faours for tiie^ 

known at tfae time of billing also could have been 

passenger. This method would incoin|te adjustmg fof^ 

Gen^fft^^ccepted Ac 

The Genl^Committee 6. 

GAAP to siQwrt its metfa< 

tfaat the Audit^^Ldid not 

Specifically, the 

cash-basis of acco 

casfa-basis accouni 

g(b)(3), given tiiat 

tiierel^^^ witfain tfae 

that specinSj^ amounts 

Jt appears the^k^ 

tion of each^Wel week, 

e^billable ttra^l costs 

jletermuie the cost per 

y flight hours. 

The General Conunittee also referenced 

it used tiie same billmg methodology 

an adverse audit findiuj 

correction to the acci 

the same billing 

the overbilling of 

2000 Bush-Chg^yGenei 

Committ^flHRB^atiO] 

-Chen^Sudit and explamed tfaat 

it, which did not mclude 

dit staff suggesting that a 

Audit staff acknowledges that 

fa-Cfaeney; however, the amount of 

ermore. there is no indication that the 

costs associated with the Busfa Primary 

Iples(GAAP) 

Everal accounting principles and standards under 

logy for billing tfae Press. The General Committee believes 

ply the appropriate accounting basis in its analysis, 

•nunittee believes that the Audit staff mcorrectiy applied a 

instead of an accmal-basis m its analysis of Press billing. Under 

[ revenue is recorded when cash is received and an expense is 

recorded wfaen casfa is paid. In accmal-basis accounting, revenue is recognized when it is 

eamed (or when services are performed) and expenses are recognized when they are 

mcurred.^ The General Committee contends that under accmal-basis accountmg, the 

objective is to ensure that events tfaat cfaange an entity's fmancial statements are recorded 

in tfae periods in wfaicfa tfae events occur, ratfaer than only in tfae periods during wfaich tfae 

entity receives or pays casfa. The General Coinmittee also contends tiiat the matching 

in the $2,140,752 already billed. The remaining balance of die contract was dien divided by die avera^ 

estimated flight hours renuiining on the contract to determine die adjusted charter rate for the week. 

* "Accounting Principles 7* Edition", Jerry J. Weygandt PhD, CPA. Donald E. Kieso PhD, CPA, Paul D. 

Kimmel PhD, CPA, page 90. 
12 

principle under GAAP dictates that expenses are recognized when the revenue is 

recognized, and therefore that tfae enture cost of the conttact should be used when 

calculating billing for travel. 

Tfae Audit staff agrees tfaat the matching principle dictates that expenses be recognized 

wfaen the revenue is recognized. In tum, the revenue recognition principle recognizes 

revenue in tfae period in wfaicfa it is eamed. Since tfae period and activity audited was tiie 

general election period, tfae Audit staff correctly applied tfae $4,(K7,402 cost for the 

general election portion of tfae Swift Air contract and related expenses. 

Tfae issue is not wfaetfaer tfae cash or accmal-basis of accounting is applied to the 

ttansportation costs and revenue generated from billing the Presj^ll^ravel; nor is tfaere a 

e activity of a 

be recognized by 

GAAP is tiiat 

entity sfaould be 

entities 

question of the matching principle under GAAP. At issue is 

separate reporting and corporate entity (the Primary Co: 

the General Coinmittee and by this audit. An underlyin; 

every entity is separate and, therefore, tiie revenues 

recognized as such. As previously noted, reco 

separately is fiirther supported by 11 CFR §90 

expenditures for campaign-related ttansportai 

the ttavel occurs. Therefore, the General Commi 

ttansportation costs from September 1^, 2008, through 

calculation for billmg the Press. 

'activity 

states 

uted accordi: 

gnize onl 

when 

ose 

mber 4,2008, in tiie 

Reconflguration 

The General Committee believes that aircl^t r^^in|^^|i^osts are a part of placing 

the asset in service and titfHh^econfigurw^osts waRncluded ui tiie value of tfae 

asset wfaen it was puiwSe^^k tiie PrimamConunittee. Tfaerefore, tiie General 

Conunittee contei^^i^^all rec|frguration ct^j^^uld be billed to tiie Press pro rata 

since tfae Press used tnoMet. 

stated 

any^ian|nat benefrted 

includeaiH|Le billable 

Audit staff^Hsd its calci 

Tfae Audit stafiMLnot mc 

tfae cost for a divS 

costs since the Genii 

campaign. Asares^ 

and a!!SPdiscussions witfa tfae Audit staff, tfae General 

oniB|jatiQp costs incurred, witfa the exception of decals and 

campaBl^taff, such as divider-curtain expenses, should be 

t. Aner considering the General Committee's response, the 

ion of aucraft reconflguration costs billable to the Press, 

le costs for pamting and applying logos totaling $161,386 or 

totaling $1,167 ui tiie calculation for billable reconfiguration 

ommittee indicated that tfaese items benefited only tfae 

tiie Audit staff calculated $487,447 ($650,000 - $161,386 -

$1,167) in reconfiguration costs billable to all ttavelers for both the primary and general 

periods. After subttacting 60 percent of the accepted reconfrguration cost because the 

asset was purchased from the Primary Committee, tiie Audit staff calculated $292,468 

($487,447 X 60%) of aurcraft reconfiguration costs as billable durmg tiie general period. 

The Audit staff divided tiiis amount by tiie total 140.3 fligfat faours flown by tiie General 

Comnuttee to determme the amount of aurcraft reconfrguration costs atttibuted to each 

segment. 
13 

Other Considerations 

The General Conunittee stated that the Audit staff and the Commission have allowed for 

ttansfers and repayments between primary and general election presidential committees 

with respect to otfaer types of vendors. The General Conunittee believes tfaat any excess 

funds from the Press for ttavel are no different than deposits related to other vendors such 

as those for telephone conttacts, media placement refiinds, or lease agreements, for wfaicfa 

repayments sometimes are necessary to ensure tfaat a primary coinmittee does not 

subsidize a general committee. 

Tfae General Coinmittee also contends that it would not be reasonable to force campaigns 

to renegotiate and redraft every legal contract tiiat exists to sepa|A|j)rimary and general 

activity. To refund the Press would involve more than 700 sonate billing ttansactions 

and it would "go against many of the intemal etfaics policiyHBeyarious news 

organizations.. .wfao are not allowed to receive passage snscou^^ates on campaign 

ttansportation so as to not unduly infruence tfaeir co^f^eSf the caA^tes." 

The Audit staff acknowledges tiie administtativAirden t^at may be inv^ 

refunding tfae Press. Historically, tfae ConuniffiHI^ all«jd refimds to tiHRress to be 

made on a pro rata basis, such as in the 1996 Dole^^^«alt^ratfaer tfaan recalculating 

each billing to the Press. The General Committee's aRB|tive suggestion, refunding the 

Primary Committee, would be consic^^^non-qualifie^nopaign expense subject to 

repayment. The regulations state that nl^^lection coSttte^ cannot mcur primaryrelated expenses because tiieseexpense^[enl^^^];tiieranc^rhe general election. 11 

CFR §9002.11(a). 

The General CommittK recei 

were above the m^llBm amoi 

to have billed an amouHhut wi 

each paid itsslm|of tiie 

AlthouglU|f^HP^niliml 

billmsJvmade. Iml^Btta^ 

simburseilmts fromfrie Press for campaign ttavel that 

I billable to tl^jpss. The Primary Committee appears 

ss tfaan its oHT Tfae Primary and General Committee 

Press and Secret Service accordingly. 

m muctfcsm be billed, tiiere is no requirement that any 

ildjie provided at no cost. 

The GenS^Committee ilBnrectAat there are ttansactions between the Primary and 

General Coi^^tees in mal Presidential campaigns in whicfa eitfaer tfae primary or 

general electi^niubliclwuided. Assets, ranging from offrce equipment to service 

deposits to, as inoBcay^urcraft configuration, often are purchased. In each case, value 

is ttansferred betw^HRe two conunittees. For example, if tfae General Conunittee 

purchases security d^osits, it gives cash for the rigfat to contmue the service and recover 

tfae deposit after the campaign. No such exchange is involved in tfae proposed ttansfer to 

the Primary Committee in this case. 

Tfae General Conunittee does not dispute that it received more reimbursements from the 

Press during the general election period, but the General Coinmittee believes a more 

appropriate term is misallocation of Press travel reimbursement received between the 

General Committee and tfae Priniary Committee. Tfae General Conunittee's metfaodology 

may accurately reflect the comparative actual use of the aurcraft between the Primary 

(111.8 flight hours) and General Conimittees (140.3 flight hours), but it does not reflea 

the comparative actual costs paid by each coinmittee. The General Committee did not 
14 

exceed the overall expenditure limitation, even with tfae excessive Press reimbursements. 

However, tfae puipose is to match the cost of tfae campaign to the proper election and 

spending limit. For these reasons and tfaose noted above, the reimbursements totaling 

$344,892 that the General Conimittee received from tfae press were above the maximum 

amount billable under the regulations. 

The Prelimmary Audit Report recommended that tiie General Conimittee demonsttate it 

did not receive reimbursements from the Press for campaign ttavel that were above the 

maximum amoimt billable. Absent such evidence, the General Committee was to retum, 

on a pro rata basis, $344,892 to Press representatives and provide documentation to 

support the refiinds. 

C. Committee Response to Preliminary Audit Report 

The General Conmiittee submitted a response to tfae Prelii 

December 20,2011, which addressed the fmding concei 

ttavel. The General Conimittee argued that there wi 

Primary Conimittee and the General Committee \^da a n 

allocation of Press reimbursements between tha^nmitte< 

Conimission precedent as well as Generally /rccPnd A( 

General Committee also argued that if there was a 

between the two committees, a payment to the Prii 

udit Report on 

PreSBdmbursement for 

^erbillmHbecause "the 

isonable pi^^kto predict tfae 

tiiat is "coiinmt^itii tiie 

ting Principl»rThe 

ttiofa of Press rernibursement 

ttee can correct it. 

The General Conmiittee discussed tiie 

General Conunittee maintained that became 

spanned nine weeks of the Primary and tekvi 

necessary to bill based^||aBHDture cost o: 

asserted that tiie Prin^^Co 

process to predict^ii^^tual, 

General Conimittee arak&Pri 

some detail 

knew wh 

apply 

flo 

$15,000 

flown all 

general electid 

tfae conttact less 

to be flown would 

outstandmg balanced the conttact. 

its approaZSBypiess billing. The 

act witfa^^ft Aur for aur ttavel 

ral campaigns, it was 

nttact^he General Committee also 

and theleneral Conunittee "used a reasonable 

per allocatwof press reimbursements between the 

CommitteSnrhe General Conimittee described in 

ing process due to tfae fact that while they 

the cdiUnhed period, they would not know how to 

et was completed and tiie actual number of hours 

imary Conmiittee began billing at the rate of 

m have been the actual conttact price per hour had it 

or m the conttact. By the time the billing began m the 

eneral Comnuttee had to face the faa tfaat tfae total price of 

k flight hours billed to date requured tfaat tfae remammg faours 

valued at a higher rate ui oider to account for tiie remainmg 

The General Conimittee stated the foUowuig: 

"The Audit Division acknowledges tfaat tfae Conunittees' method for 

predictmg the proper allocation of Press reimbursements between the General 

Conmiittee and the Primary Conimittee 'reflect[s] the comparative actual use 

of the aurcraft between tfae Priniary and General Committees...' The Audit 

Division nonetheless advocates a new, never-before-announced technique for 

calculating a ttavel segment's hourly rate, and by extension, tfae proper 

allocation of Press reimbursements: divide each weekly installment of tfae 
15 

$6,384,000 Swift Air payment 'divided by tfae actual weekly hours flown 

during the general election period..."' 

"The Audit Division's metiiod is convenientiy simple. But this simplicity is 

wrought by ignoring important realities about the Swift Aur conttact. For one, 

the Swift Aur conttact was jointiy faeld by tfae Primary Conunittee and the 

General Coinmittee. It spanned four months, sttaddling tiie divide between 

primary and general-election periods. The Committees and Swift Air 

intended tfais exact stmcture. A four-montfa conttact held by two entities is 

manifestiy different than a two-month conttact held by one. The Audit 

Division, however, wants to now artifrcially bisect the Swift Aur conttact 

witiiout even considering whetiier tfae parties would faave^mctured two 

separate two-month conttacts another way. For instanoMm^^ount and 

frequency of the weekly installment payments mighyKe been different, and 

tfae costs certainly would faave been greater sinceafeyHmor in tfae cost of 

securuig a dedicated aircraft is the lease's duratioHThe ^^LDivision 

caimot disregard a conttact's fimdamental ^j^Rli^sVithout n^j^lysis 

spinning into the realm of fiction." 

'The Audit Division also ignores thai 

$6,384,000 fee in exchange for up to 425. 

hours were divided mto equal weekly installniil 

frxed installment payment wa%H^ exchange 

Dividmg a week's installment 

therefore does not reflect wfaat a 

cost" were. Yet tfae Audit DivisidI 

simplify tfae faoi 

hours rather 

actual fli{ 

is indeed atttac 

segm^itlsJtotal 

^culatioi 

wdHiHuntil tfae enl 

overwich to spreal 

It inKferes with ac 

saction was^THxed 

The payment and the 

but a particular week's 

t week's flight hours, 

^y the weeS^Kttud flight hours 

t's hou^^te and "total actual 

, presumably to 

one uwMy a week's actual flight 

f the coi^act to detennine faow many 

e^$6,384,000 flxed fee. Simplicity 

tely calculating each ttavel 

tion metfaod for a ttavel segment's faourly rate, on 

notl^^j^unterfactuals. It recognizes the Swift Air 

doiiflro, is more consistent witii Conimission 

nermy Accepted Accounting Principles. The Primary 

tneral Committee therefore used a reasonable process to 

iroper allocation of Press reimbursements between the 

The General Commit then asserted that the calculation method used by the 

Coinmittees is more consistent with Commission precedent. It defined Commission 

precedent by citing tiie metiiods used by three otiier campaigns. Dole - Kemp 1996, 

Kerry - Edwards 2004, and Bush - Cheney 2000, and mamtammg that its method 

comcided closely witii tiiose of the campaigns cited. The General Coinmittee contends 

that the Keiry-Edwards 2004 charter "sttaddled the prinuury- and general-election 

periods," like tiie Swift Air conttact. The General Coinmittee also maintauis that its 

methodology is more consistent with GAAP. 

Further, the General Conunittee states tiiat the Audit staff "relied on non-GAAP cashbasis accountmg to estimate the frxed-expense share of each ttavel segment's total actual 
16 

cost of the ttansportation" and pomts out, "The Conimission has endorsed GAAP's use in 

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

the Kerry-Edwards Campaign." 

The General Conunittee goes on to state: 

"The Primary Conunittee and the General Conimittee used GAAP-compliant 

accmal-basis accounting to calculate tiie fixed-expense share of each ttavel 

segment's "total actual cost of tiie ttansportation." Accmal-basis accountmg 

required that the Swifr Aur conttact expenses (and offsets to those expenses in 

the form of Press reimbursements) were recognized as actual flight hours were 

used. A portion of the Swift Air contract's frxed cost was a^gned to each 

ttavel segment usmg a depreciation tecfanique called the^Rffi^f production" 

metiiod, which is expressed as Cost / Estimated UnitnDepreciation Per Unit 

Produced (i.e. $6,384,000 / Estimated Fligfat Ho 

The "units of production" metiiod was most a] 

actual frigfat hours, and thus tfae actual con 

ratably over tfae individual weeks of the o^Riact. 

"By conttast, tfae Audit Division reli 

to estimate tfae fixed-expense share of eacS 

of the transportation. The Audit staff used thi 

tfae trigger for recording expd^uiand offsets td 

Press reimbursements). Like 

faourly rate calculations since on! 

tfaan waiting until the end of the 

hours over whidyMUjead the $6,^ 

basis accountu^^m^^i not offer 

here becaus^flbeek's uHallment pa} 

exchange for t^week'Astallment oi 

Hourly Rate), 

use the 

ed 

.cash-basis actastihg 

int's "tottd aOual cost 

dy $336,000 installment as 

expenses m the form of 

simplifies tiie 

^week's sBRal flight hours ratfaer 

low many actual flight 

frxeove. But again, like all cashlUy accurate picture of tiie ttansaction 

mtjvas not paid to Swift Air in 

"it hours." 

ISIS accouni 

The Generi 

method 

with 

eve 

)n on GAAP by stating,".. .the calculation 

littee and the General Conunittee is more consistent 

ifore used a reasonable process to predict the 

ibursements between the Conunittees." 

In tiie concli!9|^f its resSise, the General Committee offered its rationale m opposing 

the Audit stafflMutiontS a payment to tfae Priniary Conimittee to correct the 

imbalance would c^^ ^ an impermissible use of public fimding resulting in a nonqualifred campaign ^j^ise subject to repayment. The General Conimittee makes four 

arguments. 

1. Funds received under curcumstances outside Part 9005 (conceming the general 

election public grant), such as Press reimbursements, are not similarly 

restticted and tfaerefore tfaeur use is not restricted. 

2. Because tfae prunary campaign is long over, the General Coinmittee will not 

actually incur any primary-related expenses. The ttansfer is simply to correct 

what the Audit Division views as the original "misdeposit"(sic) of Press 

reimbursements. 
17 

3. The ttansfer would not be a "non-qualified expense" because in the past, the 

Commission has repeatedly permitted ttansfers from publicly fimded generalelection committees to tfaeir affiliated prunary-election committees to correct 

misallocation and similar issues. 

4. Finally, a General-to-Primary Conunittee ttansfer sfaould not be prevented 

under the Audit Division's "non-qualified expense" rationale because the only 

reason for this misallocation issue is tiie Commission's failure to provide 

guidance on how to prospectively calculate tfae frxed-cost portion of a 

particular ttavel segment's "total actual cost of... ttansportation." The 

Primary Committee and the General Coinmittee had no notice that they were 

not using the Commission's preferred calculation method^ 

The Audit staff notes tfaat tiie General Conunittee's respoiu^Bj^Preliminary Audit 

Report concedes that an imbalance existed between the v^pbu^^mts it sought from 

the Press during tfae primary portion of the Swift Airjfj^iQt andH^^ugfat during the 

period attributable to general portion. The imbal^j^eresb^lted from raH^iary 

Committee billing the Press for reimbursements^^ lowei^oiurly rate unBctual cost 

would faave suggested during die primary pesifflnhe Au^^afr maintainHR the 

amount represented by what the General CommittS^yiynnhnbalance" anally 

represents tfae amount the General Committee overcna^^^the ttaveling Press during the 

general election period. 

The Audit staff concedes that tfae Genen 

imbalance is accurate. It explains how tfa! 

tfae primary period, and t|H|fittieral Comni! 

period; this is essenti|[^^n^BUem. The 

during the general^A[pn by ^^eding 110 

incurred for ttansportj 

^s explaipR6n of the origm of tiie 

billed significantiy less in 

lilled SNIRigher rate in the general 

eneral Cominittee over billed the Press 

;ent of the actual reimbursable cost 

Tfae Genej 

up to 

fally 

additioi 

flight 

Should tiie 

would be entitic 

arose because neithi 

the cullfHut as a "fixed $6,384,000 fee in exchange for 

ion of tfae conttact was 19 weeks witfa nine weeks 

t ten weeks in tfae general period. Tfaere were 

General Conimittee could fly up to 22.4 hours of 

itional hours flown would be billed at $15,000 per hour, 

use the entire allotment of 22.4 faours m a given week, it 

any hours not used in a successive week. This issue never 

paign ever exceeded the weekly allotment of 22.4 hours. 

The General Committee objected to the Audit staffs calculation of frxed costs based only 

on the portion of the conttact that applied solely to the general election period. The Audit 

staff notes tiiat the only portion of tiie Swift Aur conttact for which the General 

Conunittee was responsible was tfae fmal ten weeks. The General Committee seemed to 

have understood that it was liable for tfae portion of the conttact begmning m tfae 

conttact's tentfa week because that is how the conttact obligation was paid. The Prunary 

Conimittee was not permitted to pay for any of the contract beyond its obligation 

because, in so doing, the Primary Comniittee would have made a conttibution to the 

General Coinmittee. This would not have faelped tfae General Committee since it was 
18 

limited to tiie federal grant. The Audit staff necessarily focused on the frxed cost 

incurred and paid during the general election period. 

The General Coinmittee also objected to tfae Audit staff calculation of weekly fixed costs 

based on payments each week divided by tiie hours flown that week. The General 

Conunittee contention that "the payment and the hours were divided mto equal weekly 

installments, but a particular week's fixed installment payment was not in exchange for 

that week's flight hours" does not square with the facts. Swift Aur did mtend tfaat it be 

paid weekly for services provided under tfae conttact. and it lunited tfae services to be 

provided on a weekly basis to a maximum of 22.4 of flight hours. Swift Au* charged the 

General Conimittee weekly for its services and monitored total use weekly to determine 

whetfaer it had provided services beyond the number of hours piwhiked in the conttact. 

As a consequence, the Audit staff believes that its method ofd^dmgthe fixed payment 

by the number of hours flown provides a reasonable calcu]|^H^^ixed weekly costs. 

Moreover, tfais method will associate tfae conect weekly4furly^^^based on the 

campaign's use each week. 

ologj 

dK^ 

The General Conunittee makes a case for its 

campaigns of Dole-Kemp 1996. Bush-Cfaen 

staff notes that Dole-Kemp 1996 had a distinct corS 

comparable to the problems of a conttact spanning tw 

General Committee. The audit of BuMChenev 2000 ini 

not materially overcharge tfae Press for 

Committee cited the audit of Kerry-EdWkds 

campaign had received bankable flight ho 

campaign. In tfais insta]M|fla|^ominissioi 

reimburse tfae primarwai^pflHfor tfaese fl^ 

to avoid a prohibi]j^^i^|Bttibuti9from the pi 

Further, the Audit st 

Committeesaiyiimted i: 

provided^lffiHB^^nce 

they nuf^eceive relmftKemei 

Ge] 

eing consisteH^ottUhe past 

-Edwards 209rThe Audit 

e^eneral elecnon and is not 

ions as laid out by the 

s tfaat tfais conunittee did 

related ttsi^^JSnally, tfae General 

faich foiSotfaat the general 

ed by the priniary 

rmmecniat the general campaign sfaould 

t hours. The reimbursement was required 

campaign to the general campaign, 

f methodology but of results, 

seek as reimbursement for ttavel 

establisinifimmisttative costs of ten percent of the total, 

nojnore than 110 percent of actual costs. The 

issue is nc 

reiniD^Pments in total that exceeded 110 percent. 

The Genen 

conttact that 

calculations, the' 

outiined above, the 

Within the general 

d to the Audit staff calculations based on the period of the 

e general election. It maintained that by using these 

is resorting to (non-GAAP) cash-basis accountmg. As 

of tfae review was necessarily the general election period, 

ion period, the Audit staff matched, on a weekly basis, the 

services received with the conttact cost paid. In summary, tfae amount tfae Press was 

overcharged is the difference between tfae maximum amount tiie Audit staff calculated as 

^ The audit of Kerry-Edwards 2004 found no material non-compliance with press billing. Apart from the 

fact that the Kerry-Edwards 2004 charter contract spanned die primary and general election, there is little 

similarity between the two campaigns. The repayment of banked hours was unrelated to press billing in 

Kerry-Edwards 2004. Indeed, Kerry-Edwards 2004 recognized diat die banked hours were appropriately 

an asset of die primary campaign arid had calculated a repayment equal to 99 percent of the amount 

identified in the audit; this amount eventually was repaid. 
19 

appropriately billable and the reimbursements actually received in the general election 

period. 

The General Committee made arguments for allowing a ttansfer to the Primary 

Committee to correct the imbalance. The Audit staff acknowledges that ttansfers were 

sometimes permitted between tfae primary and general conunittees ui Presidential 

campaigns when it has been shown in the course of an audit that fimds or obligations 

belonging to a prunary or general coinmittee were m the possession of the other. This is 

not the case in this instance. 

The General Conimittee believes tfaat tfae Conunission sfaould frnd tfaat tfae Press 

reimbursements were calculated correctiy. resulting m no violatj^t^tfae Act. and tfaat 

tfae General Committee may terminate immediately. 

In the final analysis, the focus of the audit is the Genen 

staff maintains that the General Coinmittee received, 

general election campaign period, wfaicfa m the a; 

allowed, and tiiat the General Committee shou] 

Press representatives and provide document 

the U.S. Treasury, however, may be acceptable 

reconstmct the precise amounts owed to Press 

Partv 

Finding 

Compli 

•mmn^^As suc^, tfae Audit 

imburSMnts durmg tfae 

xceeded tnoBjucimum 

a pro rata basM|g44^892 to 

refimds. DSRrgementto 

mmittee i^iable to 

es. 

ndSlon for the 

Si 

The Com^n ^ Fund faiflko file 48-hour notices for 169 contributions totaling 

$240,700 tii^Mre receiv«)rior to tfae general election. In response to the Preliminary 

Audit Report, tllkmplipce Fund explamed that it faad experienced a one-time datamanagement enror^WMnoutside vendor relatmg to tfae 48-hour notice requirement. Tfae 

Compliance Fund h^aken measures to ensure that this unmtentional oversight was 

corrected. The Compliance Fund believes that the Commission should find there was no 

violation of tiie 48-hour notice requirement and that tiie Compliance Fund should be able 

to terminate inunediately 

Legal Standard 

48-Hour Notification of Contributions. An autiiorized cominittee of a candidate must 

frle special notices regarding conttributions of $1,000 or more received less tfaan 20 days 

but more tfaan 48 hours before any election in which the candidate is running. This mie 

applies to all types of conttibutions to any autfaorized conimittee of tfae candidate. 11 

CFR §104.5(f). 
20 

Facts and Analsrsis 

A. Facts 

The general election was held on November 4,2008. Contributions of $1,000 or more 

received by the Compliance Fiuid between October 16.2008. and November 1.2008, 

required tiie filing of 48-hour notices (FBC Form 6 - 48-Hour Notice of Contributions/ 

Loans Received). The Audit staff isolated 589 conttibutions, totaling $871,260, which 

required the filmg of tiiese 48-hour notices. A review of these records identified 169 

contributions, totaling $240,700, for which the Compliance Fimd failed to file the 48-

hour notices. 

B. Preliminary Audit Report & Audit Division Recommenc 

The Audit staff discussed this matter witfa Compliance Fundj^esentatives at tfae exit 

conference and provided a scfaedule of tfae contributions r^H^^8-faour notice filings. 

In response, Compliance Fimd representatives stated tfaadne mrahhad been addressed 

previously in a letter to tfae Reports Analysis DivisiQg^toQWiterateo^tt''48-faour notices 

were not required for many of tiie identifred contt^^ionSt as tfaey w^A^ly 

redesignations or reattributions that took placeJmig the 48-hour notice^nitug 

period." Compliance Fund representatives aljo^^^tfaatB|||e Complianc»Rid's 

normal practice of frling a 48-hour notice was not fflBranroni remaming^oup of 

contributions, due to data-management errors made b^^^tside vendor. To elaborate, 

the Compliance Fund's outside data-n^^ement vendonB^ed' this group of 

conttibutions with an incorrect date uiVIWuse and con^Au^ failed to locate the 

group m a subsequent, computerized selBhi^^^||^tions Muiring a 48-Hour Notice. 

Tfae Compliance Fund has now taken me^res^ni^K|^ide vendor to ensure that 

tfais unintentional overai|Mh^irected, anm^nplianSrund staff believes tiiat tfais was 

a one-time occunrenc 

Additionally :unc , Compli 

intended to biuujlolight 

campais^Rffil^H^es, 

electiojlpfinal days^^yition! 

any^rfl^date's electio 

compliamn^th Federal 

maintauis a^^^ce of ove 

tiie 2008 geneSliection 

Fund was therefo: 

reliance on an outsi 

fimd lawyers' and a 

sentativespuphasized that "48-Hour Notices are 

utions that a candidate nught deploy for 

advefflSIhg and get-out-tiie-vote efrbrts, during an 

eCompliance Fund, however, may not be used for 

may opl^upport legal and accounting services to ensure 

It sUould also be noted that tfae Compliance Fund today 

0 nuUion. meanmg tiiat tfaese fimds received sfaortiy before 

faave not been spent for any purpose. The Compliance 

terial violation of the 48-hour notice requirement when its 

ndor caused it to delay disclosure of donations tfaat would only 

untants' legal compliance activities. For tfaese same reasons, the 

Compliance Fund should not be fined for tfais vendor failure even if the Commission 

somehow frnds tiiat a technical infrrmgement of the 48-hour notice requurement occurred." 

The Preliminary Audit Report recommended that the Compliance Fund provide: 

• documentation to demonsttate that the contributions in question 

were included properly in 48-hour notices; or 

• documentation establishing that the ccmtributions were not subject 

to 48-hour notification; and/or 

• any further written comments it considered relevant. 
21 

C. Committee Response to the Preliminary Audit Report 

In response to the Prelimmary Audit Report, the Compliance Fund reiterated the 

arguments mentioned above conceming the filing of 48-hour notices. Specifically, the 

Compliance Fund maintamed that the Commission incorrectly identified conttibutions 

tfaat were redesignated during tfae 48-faour notice reportuig period or refunded 

immediately following receipt. For otfaer conttibutions, tfae Compliance Fund stated that 

it did not follow the normal practice of frlmg 48-hour notices due to data-management 

errors by its outside vendor. Fiuthermore, the Compliance Fund agam stated that the 

fiinds received shortiy before the 2008 general election still have not been spent for any 

puipose, and it reiterated its belief that 48-hour notices are intended to disclose any lastminute contributions that can be used for campaign-related activities and not for 

donations to the legal and accounting activities of the Compliangtflind. 

The Audit staff acknowledges tiiat tiie majority of 48-hoi^nnyiot filed were tfae 

result of a data management error as mdicated by tfae CoBlianS^md. It also noted, 

faowever, tfaat none of tfae contributions it had identi^l^l^ red^B»ted contributions.^ 

Also, the conttibutions tiiat the Compliance FundJ^tifl^d in its response tiie 

Preliminary Audit Report, at footnote 56, actu^[^^ere received during lAm^u r 

notice period but refunded after the notice penoc^f;^ NOBIP^CI^ ^> 2008)^^such, 

these conttibutions required a 48-hour notice. 

Part VI 

Finding and Reco: 

Joint Fundlfllljing Ci 

n for tlie 

Based upon the linut 

presented 

material 

of the repcpfand statements filed and the records 

;tees. the Audit staff discovered no 

^ The Compliance FUnd's response to the Preliminary Audit Report mistakenly includes the example, at 

footnote SS, of a redesignated contribution ftom Eileen Kamerick on 10/23A)8. This contribution, 

totaling $1,500, was reported as a memo entry redesignation from the primary on the Compliance FUnd's 

Post-General 2008 disclosure report and not mcluded m the Audit staff's review of 48-hour notices. A 

subsequent credit card contribution made on die committee's website from Eileen Kamerick totaling 

$1,000 on 10/29/08 was also reported on the Compliance Fund's Post-General 2008 disclosure report and 

was included in this review. 
22 

Part VII 

Attachment 

McCain-Palln 2008 Inc. 

Statement of Net Outstanding Qualified Campaign Expenses 

As of December 4,2008 

As Determined on December 31,2011 

Cash in Bank 

Accounts Receivable: 

Due from the Compliance Fund 

Due from die Primary (Ommittee 

Due from Other Vendors 

TOTAL ASSETS 

Obligations 

Accounts Payable: 

For Qualified Campaign Expensei 

Due to the Compliance Fun 

Due to die Primary Co 

Payment to Press for 

Amount Due l^^reasury: 

Disgorgenu^MIH|fe^ami 

Disgoranent of Stale? 

Winding oALCosts: 

Actual: DecSftk5,2008 to ESmber 31,2011 

TOTAL OBUGi 

NET OUTSTANDINCX^UALIFIED CAMPAIGN EXPENSES (DEFICIT) 

$8,448,103 

$100,107 

$167,828 

$344,892 (c) 

$58,319 (d) 

$2,882 (e) 

$1.806.303 (0 

$10,928,434 

$10,928,434 

($0) 

(a) 

<b) 

(c) 

(d) 

(e) 

(0 

This amoum represents repayments for expenditures paid by C3enenl, $87,217 for Secret Service shoitfall for canqiaign travel, $76,841 for 

transfeis, and $2,399,908 for 5 percent allocable portion of media costs. A receivable for $97,149 is due for compliance-related windingdown costs. 

This amount represents Press and Secret Service receipts, media refunds tfarough June 30,2011. interest earned, coital assets sold, and capital 

assets in-house to be sold. 

This amount rqnesents payment due to Press as discussed in the Clampaign Travel Billing fbr Press finding on page 7. 

This amount represents a disgorgement made on Jan. 2,2009 for interest 

This amount represents a disgoigement made on Jan. 2,2010 for stale-dated checks. 

The (3eneral Conunittee has not exceeded the winding-down cost limitation at 11 CPR §9004.11(b).