Ms. Carla Eudy, Treasurer
Page 2

The Commission approved Audit Report will be placed on the public record on or
about April 23, 2002. Should you have any questions regarding the public release of this
report, please contact Ron Haris of the Commission's Press Office at (202) 694-1220.

Any questions you may have related to matters covered during the audit or in the
Audit Report should be directed to Gary Hache or Marty Favin of the Audit Division at
(202) 694-1200 or toll free at (800) 424-9530.

pre
Ah LF 4
- Stoltz
Assistant Staff Director
Audit Division

Attachment

ce: Trevor Potter, Counsel, Caplan & Drysdale

Page 18 of 21


10

McCain 2000, Inc.
Statement of Net Outstanding Campaign Obligations
As of March 9, 2000
Prepared as of December 31, 2001

Assets
Cash in Bank S$ 228,174 (a)
Accounts Receivable 1,419,049
Capital Assets (at Fair Market Value) 28.649
Total Assets $ 1,675,872
Liabilities
Disbursements for Qualified Campaign Expenses and $ 8,741,369  (b)
Winding Down Costs paid 3/10/00 to 12/31/01
Estimated Winding Down Costs (1/1/02 to 6/30/02) 36,800  (c)
Loan Payable at 3/9/00 6,087,473
Amounts Payable to U. S. Treasury for Stale-Dated Checks 85,017
Total Liabilities 14,950,659
Net Outstanding Campaign Obligations - Deficit (813,274,787)

Footnotes to NOCO Statement:

(a) Adjusted for stale-dated checks totaling $34,092 issued prior to DOI.

(b) Apparent non-qualified campaign expenses of $28,975 and post DOI stale-dated
checks of $61,925 were excluded pursuant to 11 CFR 9034.5(b)(1).

(c) Audit staff estimate based on Committee's disclosure reports, estimates and prior experience.
Actual expenses will be compared to estimates with adjustments as necessary.

Page 12 of 21
Approved April 11, 2002



FEDERAL ELECTION COMMISSION

WASHINGTON, D.C 20463

REPORT OF THE AUDIT DIVISION
ON
MCCAIN 2000, INC. AND
MCCAIN 2000 COMPLIANCE COMMITTEE, INC.

I. BACKGROUND
A. AUDIT AUTHORITY

This report is based on an audit of the McCain 2000, Inc. (the Committee)
and McCain 2000 Compliance Committee, Inc. (the Compliance Committee). The audit
is mandated by Section 9038(a) of Title 26 of the United States Code. That section states
that “After 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.” Also, Section
9039(b) of Title 26 of the United States Code and Section 9038.1(a)(2) of the
Commission’s Regulations state that the Commission may conduct other examinations
and audits from time to time, as it deems necessary.

In addition to examining the receipt and use of Federal funds, the audit
seeks to determine if the campaign has materially complied with the limitations,
prohibitions, and disclosure requirements of the Federal Election Campaign Act of 1971
(FECA), as amended.

B. AUDIT COVERAGE

The audit covered the period from the Committee’s first bank transaction,
January 5, 1999, through June 30, 2000. The Committee reported an opening cash
balance of $-0-, total receipts of $58,012,969, total disbursements of $57,684,859 and a
closing cash balance of $328,110. In addition, a limited review of the Committee’s
financial activity and disclosure reports for the period from July 1, 2000 through
December 31, 2001 was conducted to determine the Committee’s matching fund
entitlement based on its financial position.

The audit of the Compliance Committee covered the period from its
inception, June 16, 1999, through December 31, 2000. During this period, the

Page 3 of 21
Approved April 11, 2002


FEDERAL ELECTION COMMISSION

WASHINGTON DC 20405

April 16, 2002

Senator John S. McCain

McCain 2000, Inc.

McCain 2000 Compliance Committee, Inc.
c/o Ms. Carla Eudy

900 2"¢ Street NE, #114

Washington, DC 20002

Dear Senator McCain:

Attached please find the Report of the Audit Division on McCain 2000. Inc. and
McCain 2000 Compliance Committee, Inc. The Commission approved the report on
April 11, 2002. As noted on page 4 of the attached report, the Commission may pursue
any of the matters discussed in an enforcement action.

In accordance with 11 CFR §§9038.2(c)(1) and (d)(1), the Commission has made
a determination that a payment/repayment to the Secretary of the Treasury in the amount

of $99,037 is required within 90 calendar days after service of this report (July 18. 2002).

Should you dispute the Commission's determination that a repayment is required,
Commission regulations at 11 CFR §9038.2(c)(2) provide you with an opportunity to
submit in writing, within 60 calendar days after service of the Commission's notice (June
18, 2002), legal and factual materials to demonstrate that no repayment. or a lesser
repayment, is required. Further, 1] CFR §9038.2(c)(2)(i1) permits a Candidate who has
submitted written materials to request an opportunity to address the Commission in open
session based on the legal and factual materials submitted.

The Commission will consider any written legal and factual materials submitted
within the 60 day period when deciding whether to revise the repayment determination.
Counsel may submit such materials if the Candidate so elects. If you decide to file a
response to the repayment determination, please contact Gregory R. Baker of the Office
of General Counsel at (202) 694-1650 or toll free at (800) 424-9530. If you do not
dispute this determination within the 60 day period provided. it will be considered final.

Page 19 of 21


CHRONOLOGY

MCCAIN 2000, INC.

AND

MCCAIN 2000 COMPLIANCE COMMITTEE, INC.

Audit Fieldwork

Preliminary Audit Report
to the Committee

Response Received to
Preliminary Audit Report

Audit Report Approved

Page 21 of 21

July 31, 2000 — February 21, 2001

October 11, 2001

December 18, 2001

April 11, 2002


Memorandum to Robert J. Costa

Audit of McCain 2000, Inc. and McCain 2000 Compliance Committee, Inc.
(LRA # 550)

Page 2

Il. APPARENT NON-QUALIFIED CAMPAIGN EXPENSES (III.A.1.-2.)°

This Office concurs with the Audit Division’s conclusion that the Committee’s
lost assets constitute non-qualified campaign expenses. However, this Office believes
that the lost equipment finding should be revised to include additional information that
explains the reduction in the repayment from the Preliminary Audit Report (PAR).

The PAR recommended that the Committee provide documentation to
demonstrate that the missing equipment was accounted for or present evidence that
demonstrated that the Committee made conscientious efforts to safeguard the missing
equipment. Absent such evidence, the PAR explained that the Audit staff would
recommend the Commission make a determination that the Committee make a pro rata
payment of $8,183 [$24,736 fair market value (FMV) x .33083]. In response, the
Committee stated that it had recovered one laptop and was in the process of selling the
asset.’ The Audit staff determined the FMV of the recovered laptop to be $753 and
reduced the FMV of the lost equipment by $249 ($753 x .33083).*

In determining whether lost or missing equipment is considered a nonqualified
campaign expense, the Commission considers whether committees have demonstrated
compliance with reasonable safeguards, such as filing police reports and contracting for
insurance. 11 C.F.R. § 9034.4(b)(8). However, the Committee did not provide evidence
to support its compliance with the safeguards or provide documentation to demonstrate
the previously missing laptop was recovered. The Office of General Counsel recognizes
that the amount at issue is not significant. However, the Committee maintains the burden
of demonstrating that its expenditures are qualified campaign expenses. See 11 C.F.R.

§ 9033.11(a). Furthermore, the Committee must obtain and furnish to the Commission
on request any evidence regarding qualified campaign expenses. Jd. If the Committee is
not required to submit evidence supporting its position that the laptop was recovered,
then this is a departure from precedent that requires committees to demonstrate that their
expenses are qualified campaign expenses. A departure from the Commission’s

prior procedure requires an explanation. Bush-Quayle '92 v. Federal Election
Commission, 104 F.3d 448, 453 (D.C.Cir. 1992). Therefore, we recommend that the
Audit Division revise the report to explain why the Committee’s statement is sufficient to
reduce the repayment.

The parenthetical reference corresponds to the section number in the proposed Report.

3 The Committee’s statement regarding the laptop was not submitted under oath.

‘ It is this Office’s understanding that the Audit staff will not seek additional information from the
Committee because of the insignificant amount involved with the recovered laptop. The Commission
recognized the concept of significant amounts as a valid consideration in dealing with lost and missing
equipment. See Explanation and Justification for Regulations on Public Financing of Presidential Primary
and General Election Candidates, 60 Fed. Reg. 31854, 58 (1995). However, this reasoning should be stated
in the report without citing an actual dollar amount to trigger the significance of the lost or missing
equipment. /d.

Page 16 of 21


repayment under this section shall bear the same ratio to the total amount determined to
have been used for non-qualified campaign expenses as the amount of matching funds
certified to the candidate bears to total deposits, as of 90 days after the candidate’s date of
ineligibility.

The Committee provided the Audit staff with a database of its
disbursements that covered the period from inception through September 6, 2000. The
Audit staff conducted various reviews that resulted in the identification of payments to
individuals and vendors that appeared to be non-qualified campaign expenses as
categorized below:

1. Apparent Non-Campaign Related Expenses

The Committee used an American Express credit card to
pay for campaign related travel expenses. The Audit staff reviewed charges to the
Committee’s credit card for the period April 1, 2000, through September 1, 2000, and
identified charges totaling $57,966 that appeared to be non-campaign related. The
charges were incurred for purposes that could not be associated with the Candidate’s
campaign for the nomination or qualified winding down expenses. According to Allen
Haywood, Assistant Treasurer, the majority of these charges were related to the
Candidate’s leadership PAC, Straight Talk America PAC? (the PAC). The PAC used the
credit card subsequent to the Candidate’s date of ineligibility for travel related expenses.
These charges were incurred during the period of time between when the PAC applied for
and was issued its own credit card.

The Audit staff provided the Committee a detailed listing of
these expenses at the conference held subsequent to the end of fieldwork. In its response
to the exit conference, the Committee provided documentation to evidence
reimbursements for a portion of these expenses totaling $49,724, including $41,870
received from the PAC for the charges incurred on its behalf. After applying the
reimbursements, the remaining non-campaign related expenses totaled $8,242.

In addition, the Audit staff identified payments to
individuals and vendors totaling $12,844 that appeared to be either duplicate payments of
qualified campaign expenses or non-campaign related disbursements. The duplicate
payments, totaling $3,164, include a reimbursement ($2,148) of expenses to an individual
and a vendor for the same goods or service. Also, a vendor was reimbursed twice for the
same travel expenses. The non-campaign related disbursements, totaling $9,680, include
payments of $5,680 to reimburse vendors for equipment lost by campaign staff and
$4,000 to Custom Coach Corporation for the purchase, removal and replacement of the
“captain’s chair” used by the Candidate on his campaign bus, the “Straight Talk Express.”

3 Straight Talk America PAC filed a Statement of Organization with the Commission on March 20, 2000.

Page 8 of 21
Approved April 11, 2002


D. AUDIT SCOPE AND PROCEDURES

In addition to a review of expenditures made by the Committee to
determine if they were qualified or non-qualified campaign expenses, the audit of the
committees covered the following general categories:

1.

10.

The receipt of contributions or loans in excess of the statutory
limitations;

the receipt of contributions from prohibited sources, such as those
from corporations or labor organizations;

proper disclosure of contributions from individuals, political
committees and other entities, to include the itemization of
contributions when required, as well as the completeness and accuracy
of the information disclosed;

proper disclosure of disbursements including the itemization of
disbursements when required, as well as, the completeness and
accuracy of the information disclosed;

proper disclosure of campaign debts and obligations;

the accuracy of total reported receipts, disbursements and cash
balances as compared to campaign bank records (see Finding II.A.);

adequate recordkeeping for campaign transactions;

accuracy of the Statement of Net Outstanding Campaign Obligations
filed by the Committee, to disclose its financial condition and to
establish continuing matching fund entitlement (see Finding III.B.);

the Committee’s compliance with spending limitations; and,

other audit procedures that were deemed necessary in the situation (see
Findings IIA. and III.C.).

As part of the Commission’s standard audit process, an inventory of
campaign records is conducted prior to the audit fieldwork. This inventory is conducted
to determine if the committee’s records are materially complete and in an auditable state.
The records were found to be materially complete and the audit fieldwork commenced.

Page 5 of 21
Approved April 11, 2002


Compliance Committee reported an opening cash balance of $-0-, total receipts of
$69,718, total disbursements of $69,718 and a closing cash balance of $-0-.' In addition,
a limited review of the Compliance Committee’s financial activity and disclosure reports
for the period from January 1, 2001 through March 31, 2001 was conducted.

Cc. CAMPAIGN ORGANIZATION

The Committee and the Compliance Committee maintain their
headquarters office in Alexandria, Virginia. Initially, the Treasurer of both the
Committee and the Compliance Committee was Mr. Max Fose; Ms. Carla Eudy became
Treasurer of the Committee on May 19, 2000, and Treasurer of the Compliance
Committee on April 26, 2001.

The John McCain for President Exploratory Committee registered with the
Federal Election Commission on January 7, 1999 as the principal campaign committee of
Senator John S. McCain (the Candidate), a candidate for the Republican Party’s
nomination for the office of President of the United States. On April 14, 1999 the
Committee’s name was changed to the name currently in use. The Compliance
Committee registered with the Federal Election Commission on June 16, 1999.

During the audit period, both the Committee and the Compliance
Committee maintained depositories in the District of Columbia and Phoenix, Arizona.
To handle its financial activity, the Committee utilized 18 bank accounts. From these
accounts the campaign made approximately 8,800 disbursements. In addition, the
Committee received contributions totaling approximately $28,450,000, from
approximately 154,700 contributors. To handle its financial activity, the Compliance
Committee used 1 bank account. From this account, the Compliance Committee made
approximately 250 disbursements. The Compliance Committee received 3 contributions,
totaling $3,000 and approximately $69,700 in contributions redesignated by the
contributor from the Candidate’s primary campaign.

The Candidate was determined eligible to receive matching funds on July
1, 1999. The Committee made 17 matching fund requests totaling $14,891,153 and
received $14,777,748 from the United States Treasury. This amount represents 87% of
the $16,890,000 maximum entitlement that any candidate could receive. For matching
fund purposes, the Commission determined that Senator McCain’s candidacy ended on
March 9, 2000, the date on which he ceased to be an active candidate. On April 2, 2001,
the Committee received its final matching fund payment to defray expenses and to help
defray the cost of winding down the campaign.

' See Misstatement of Financial Activity at Section IIA.

Page 4 of 21
Approved April 11, 2002


FEDERAL ELECTION COMMISSION
WASHINGTON DC 20dn

April 16, 2002

Ms. Carla Eudy, Treasurer

McCain 2000, Inc.

McCain 2000 Compliance Committee. Inc.
900 2" Street NE, #114

Washington, DC 20002

Dear Ms. Eudy:

Attached please find the Report of the Audit Division on McCain 2000, Inc. and
McCain 2000 Compliance Committee, Inc. The Commission approved the report on
April 11, 2002. As noted on page 4 of the attached report, the Commission may pursue
any of the matters discussed in an enforcement action.

In accordance with 11 CFR §§9038.2(c)(1) and (d)(1). the Commission has made
a determination that a payment/repayment to the Secretary of the Treasury in the amount
of $99,037 is required within 90 calendar days after service of this report (July 18. 2002).

Should the Candidate dispute the Commission's determination that a repayment is
required, Commission regulations at 1] CFR §9038.2(c)(2) provide the Candidate with an
opportunity to submit in writing. within 60 calendar days after service of the
Commission's notice (June 18, 2002). legal and factual materials to demonstrate that no
repayment, or a lesser repayment. is required. Further. 11 CFR §9038.2(c)(2)(ii) permits
a Candidate who has submitted written materials to request an opportunity to address the
Commission in open session based on the legal and factual materials submitted

The Commission will consider any written legal and factual materials submitted
within the 60 day period when deciding whether to revise the repayment determination.
Counsel may submit such materials if the Candidate so elects. If the Candidate decides
to file a response to the repayment determination. please contact Gregory R. Baker of the
Office of General Counsel at (202) 694-1650 or toll free at (800) 424-9530. Ifthe
Candidate does not dispute this determination within the 60 day period provided. it will
be considered final.

Page 17 of 21


the incurring nor payment of which constitutes a violation of any law of the United States
or of the State in which the expense is incurred or paid.

Section 9033.11(a) of Title 11 of the Code of Federal Regulations states,
in part, that each candidate shall have the burden of proving that disbursements made by
the candidate or his authorized committee(s) or persons authorized to make expenditures
on behalf of the candidate or authorized committee(s) are qualified campaign expenses.

Section 9034.4(a)(1) of Title 11 of the Code of Federal Regulations states
that all contributions received by an individual from the date he or she becomes a
candidate and all matching payments received by the candidate shall be used only to
defray qualified campaign expenses or to repay loans or otherwise restore funds (other
than contributions which were received and expended to defray qualified campaign
expenses) which were used to defray qualified campaign expenses.

Section 9034.4(a)(3) of Title 11 of the Code of Federal Regulations states,
in part, that costs associated with the termination of political activity, such as the costs of
complying with the post election requirements of the Act and other necessary
administrative costs associated with winding down the campaign, including office space
rental, staff salaries and office supplies, shall be considered qualified campaign expenses.

Section 9034.4(b)(3) of Title 11 of the Code of Federal Regulations states,
in part, that any expenses incurred after a candidate’s date of ineligibility under 11 CFR
9033.5, are not qualified campaign expenses except to the extent permitted under 11 CFR
9034.4(a)(3).

Section 9034.4(b)(8) of Title 11 of the Code of Federal Regulations states
that the cost of lost, misplaced, or stolen items may be considered a nonqualified
campaign expense. Factors considered by the Commission in making this determination
shall include, but not be limited to, whether the committee demonstrates that it made
conscientious efforts to safeguard the missing equipment; whether the committee sought
or obtained insurance on the items; whether the committee filed a police report; the type
of equipment involved; and the number and value of items that were lost.

Section 9038.2(a)(2) of Title 11 of the Code of Federal Regulations states
that the Commission will notify the candidate of any repayment determinations made
under this section as soon as possible, but no later than three years after the close of the
matching fund period. The Commission’s issuance of the audit report to the candidate
under 11 CFR 9038.1(d) will constitute notification for purposes of this section.

Sections 9038.2(b)(2)(i) and (iii) of Title 11 of the Code of Federal
Regulations state, 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. The amount of any

Page 7 of 21
Approved April 11, 2002


CHR AL

FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

April 24, 2002

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ
ASSISTANT STAF CTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
MCCAIN 2000, INC. AND MCCAIN COMPLIANCE COMMITTEE, INC.

Attached please find a copy of the final audit report and related documents on
McCain 2000, Inc. and McCain 2000 Compliance Committee, Inc. that was approved by the
Commission on April 11, 2002.

All parties involved have received informational copies of the report and the report
may be released to the public.

Attachment as stated

cc: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library


price of $132,194. The Committee received $25,563 from the sale of equipment with a
cost basis of $67,301. An inventory of the equipment remaining on hand revealed that
equipment with a cost basis of $55,373 was not accounted for. The Fair Market Value
(FMV) of the missing equipment was calculated at $24,736°.

At the conference held subsequent to the end of fieldwork,
the Audit staff provided the Committee with a detailed listing of the missing assets. The
Committee had no response.

In the PAR, the Audit staff recommended that the
Committee provide documentation to demonstrate that the equipment noted above is
accounted for or present evidence that demonstrates that the Committee made
conscientious efforts to safeguard the missing equipment, including but not limited to,
whether the Committee sought or obtained insurance on the items and whether the
Committee filed a police report detailing the type of equipment and value of items that
were lost or missing. Absent such evidence, the PAR explained that the Audit staff
would recommend that the Commission make a determination that the Committee make a
pro rata repayment of $8,183 [$24,736 (FMV) x .33083] to the U.S. Treasury pursuant to
26 U.S.C. §9038(b)(2).

In response to the lost equipment, the Committee submitted
documentation sufficient to evidence the recovery of one laptop computer with a fair
market value of $753 (the value assigned by the Audit staff in the PAR), and was in the
process of selling the asset. The recovered item reduces the fair market value of lost
equipment to $23,983.

Recommendation #2

The Audit staff recommends that the Commission determine that $7,934 [$23,983
(FMV) x .33083] is repayable to the U.S. Treasury pursuant to 26 U.S.C. §9038(b)(2).

B. DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONS

Section 9034.5(a) of Title 11 of the Code of Federal Regulations requires
that within 15 calendar days after the candidate’s date of ineligibility, the candidate shall
submit a statement of net outstanding campaign obligations which reflects the total of all
outstanding obligations for qualified campaign expenses plus estimated necessary
winding down costs.

5 Based on the market value received from the sale of equipment, the Audit staff estimated that the Fair
Market Value (FMV) of computers was 45% of cost, and the FMV of printers and fax machines was 40%
of cost.

Page 10 of 21
Approved April 11, 2002


The Audit staff provided the Committee a detailed listing of
these expenditures at the exit conference held subsequent to the end of fieldwork. In its
response, the Committee provided documentation to evidence reimbursement of $4,000
from the PAC for the “‘captain’s chair.” After applying the reimbursement, the remaining
duplicate payments and non-campaign related expenses total $8,844.

In the PAR, the Audit staff recommended that the
Committee provide documentation to demonstrate that the expenditures noted above are
qualified campaign expenses or present evidence that the Committee has been reimbursed
for these expenditures. Also, the Audit staff recommended that the Committee provide
documentation to demonstrate that the leased equipment noted above is accounted for or
present evidence that demonstrates that the Committee made conscientious efforts to
safeguard the missing equipment, including but not limited to, whether the Committee
sought or obtained insurance on the items and whether the Committee filed a police
report detailing the type of equipment and value of items that were lost or missing.
Absent such evidence, the Audit staff would recommend that the Commission make a
determination that the Committee make a pro rata repayment of $5,653 [($8,242 +
$8,844) x .33083]* to the U.S. Treasury pursuant to 26 U.S.C. §9038(b)(2).

In response to the non-campaign related credit card
expenditures ($8,242), the Committee stated that it concurred that these charges are not
campaign related. The Committee provided documentation to evidence receiving
reimbursement for $7,884, which reduced the non-campaign related credit card
expenditures to $358.

In response to the duplicate payments and other non-
campaign related expenses ($8,844), the Committee submitted documentation to evidence
reimbursement for the duplicate payment in the amount of $2,148. Also, the
documentation provided substantiated that the remaining duplicate payment for travel
expenses of $1,016 was, in fact, payment for a second person traveling with the
Candidate. Non-campaign related expenses, totaling $5,680 ($8,844 - $2,148 - $1,016),
remain unresolved.

Recommendation #1

The Audit staff recommends that the Commission determine that $1,998 [($358 +
$5,680) x .33083] is repayable to the U.S. Treasury pursuant to 26 U.S.C. §9038(b)(2).

2. Lost or Stolen Equipment

The Audit staffs review of fixed assets determined that the
Committee had purchased computers, printers and fax machines with a total purchase

* This figure (.33083) represents the Committee’s repayment ratio as calculated pursuant to 11 CFR
§9038.2(b)(2)(iii)(B).

Page 9 of 21
Approved April 11, 2002


Unless specifically discussed below, no material non-compliance was
detected. It should be noted that the Commission may pursue further any of the matters
discussed in the audit report in an enforcement action.

Il. FINDINGS AND RECOMMENDATIONS - NON-REPAYMENT
MATTERS?

A. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(1) and (2) of Title 2 of the United States Code state, in
part, that each report shall disclose the amount of cash on hand at the beginning of each
reporting period and the total amount of all receipts for the reporting period and the
calendar year.

The Audit staff's reconciliation of the Compliance Committee’s reported
financial activity to its bank activity revealed that the amounts reported for receipts and
ending cash were materially misstated. Reported total receipts of $69,718 were
understated by $3,053, mainly due to $3,000 of unreported contributions from three
individuals. The Compliance Committee reported an ending cash balance at December
31, 2000 of $-0-, an understatement of $2,968. The misstatement was mainly due to the
understatement of receipts noted above.

At the conference held subsequent to the end of fieldwork, the Audit staff
provided the Compliance Committee with a copy of the bank reconciliation. Compliance
Committee officials stated that amended disclosure reports had been prepared to correct
the misstatements and refunds of the contributions had been made. Cashier’s checks
were purchased on March 7, 2001 by the Compliance Committee to refund the
contributions and on March 15, 2001 the Compliance Committee filed amended
disclosure reports, which materially corrected the misstatements.

In the Preliminary Audit Report (the PAR), the Audit staff recommended
no further action.

Ill. FINDINGS AND RECOMMENDATIONS — AMOUNTS DUE TO THE U.S.
TREASURY

A. APPARENT NON-QUALIFIED CAMPAIGN EXPENSES

Section 9032(9) of Title 26 of the United States Code defines, in part, the
term “qualified campaign expense” as a purchase or payment incurred by a candidate, or
by his authorized committee, in connection with his campaign for nomination, and neither

? No material non-compliance was detected with respect to non-repayment matters involving the
audit of the Candidate’s principal campaign committee.

Page 6 of 21
Approved April 11, 2002


Senator John S. McCain
Page 2

The Commission approved Audit Report will be placed on the public record on or
about April 23, 2002. Should you have any questions regarding the public release of this
report, please contact Ron Harris of the Commission's Press Office at (202) 694-1220.

Any questions you may have related to matters covered during the audit or in the
Audit Report should be directed to Gary Hache or Marty Favin of the Audit Division at
(202) 694-1200 or toll free at (800) 424-9530.

incerely,
7

Mi A f YY
hike toltz
Assistant Staff Director

Audit Division

Attachment

Page 20 of 21


Determination of Net Outstanding Campaign Obligations — 11 CFR
§9034.5(a), 11 CFR §9034.1(b). The Audit staff conducted an analysis of the
Committee’s financial position and concluded that the Committee did not receive

matching funds in excess of its entitlement.

State-Dated Checks — 11 CFR §9007.6, 11 CFR §9038.6. The Audit staff
identified checks issued by the Committee totaling $85,017 and by the Compliance
Committee totaling $4,088, which had not been negotiated. The Commission determined

that these amounts were payable to the U.S. Treasury.

Page 2 of 21


1]

Shown below are adjustments for funds received after March 9, 2000
through December 31, 2001 based on the most current financial information available at
the close of fieldwork:

Net Outstanding Campaign Obligations (Deficit) as of 3/9/00 ($ 13,274,787)

Matching Funds Received 3/10/00 to 12/31/01 12,576,435

Private Contributions Received 3/10/00 to 12/31/01 587,456

Interest Received 3/10/00 to 12/31/01 8,776

Remaining Net Outstanding Campaign Obligations ($102,120)
(Deficit) as of 12/31/01

As presented above, the Committee has not received matching fund
payments in excess of its entitlement.

Cc. STALE-DATED CHECKS

Sections 9007.6 and 9038.6 of Title 11 of the Code of Federal Regulations
state that if the committee has checks outstanding to creditors or contributions that have
not been cashed, the committee shall notify the Commission. The committee shall inform
the Commission of its efforts to locate the payees, if such efforts have been necessary,
and its efforts to encourage the payees to cash the outstanding checks. The committee
shall also submit a check for the total amount of such outstanding checks, payable to the
United States Treasury.

The Audit staff identified 200 stale-dated checks totaling $97,017 issued
by the Committee from its Contribution Refund account and 19 stale-dated checks
totaling $4,088 issued by the Compliance Committee. The checks were dated between
May 17, 1999 and August 1, 2000 and had not cleared the bank as of March 31, 2001.

This matter was discussed at the conference held subsequent to the close
of fieldwork and the Committee was provided with a detailed schedule of stale-dated
checks. The Committee had no response.

In the PAR, the Audit staff recommended that the Committee provide
evidence that the checks are not outstanding (i.e., copies of the front and back of the
negotiated checks), or that the outstanding checks are voided and that no Committee
obligation exists. Absent such evidence, the PAR explained that the Audit staff would
recommend that the Commission make a determination that $97,017 in Committee stale-
dated checks and $4,088 in Compliance Committee stale-dated checks is payable to the
USS. Treasury.

In response to the PAR, the Committee submitted documentation to

evidence the re-issuance of contributor refund checks, by bank check, totaling $12,000.

Page 13 of 21
Approved April 11, 2002


FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20403

March 15, 2002

MEMORANDUM

TO: Robert J. Costa
Assistant Staff Director
Audit Division

THROUGH: James A. Pehrkon
Staff Director

FROM: Lawrence H. Norton we
General Counsel :

fs
Gregory R. Baker Y

Acting Associate General Counsel

Lorenzo Holloway
Assistant General Counsel

Michelle E. Abellera . :--
Attorney

SUBJECT: Report of the Audit Division on McCain 2000, Inc. and McCain 2000
Compliance Committee, Inc. (LRA #550)

1. INTRODUCTION

The Office of General Counsel has reviewed the proposed Report of the Audit
Division on McCain 2000, Inc. (the “Committee”) and McCain 2000 Compliance
Committee, Inc. (the “Compliance Committee”), which was submitted to this Office on
February 7, 2002.' This memorandum presents our comments on the proposed Report.
Generally, we concur with any findings not specifically discussed in this memorandum.

If you have any questions concerning our comments, please contact Michelle E. Abellera,

the attorney assigned to this review.

' This Office recommends that the Commission consider the proposed Report in open session

because the document does not include matters exempt from public disclosure. See 11 C.F.R. § 2.4

Page 15 of 21


FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

REPORT OF THE AUDIT DIVISION
ON
MCCAIN 2000, INC. AND
MCCAIN 2000 COMPLIANCE COMMITTEE, INC.

EXECUTIVE SUMMARY

McCain 2000, Inc. (the Committee) registered with the Federal Election
Commission on January 7, 1999 as the principal campaign committee for Senator John S.
McCain, a primary candidate for the Republican Party’s nomination for the office of
President of the United States. McCain 2000 Compliance Committee, Inc. registered
with the Commission on June 16, 1999.

The audit was conducted pursuant to 26 U.S.C. §9038(a), which requires the
Federal Election Commission to audit committees authorized by candidates who receive
Federal funds. The Committee received $14,777,748 in matching funds from the United
States Treasury.

The findings of the audit were presented in the Preliminary Audit Report
transmitted to the Committee on October 11, 2001. The audit report includes the
Committee’s response to the findings.

The following is an overview of the findings contained in the Audit Report.

Misstatement of Financial Activity - 2 U.S.C. §434(b)(1) and (2). The
Compliance Committee’s reported receipts and ending cash balance for 2000 were
misstated mainly due to $3,000 of unreported contributions. The Compliance Committee
refunded the contributions and filed amended disclosure reports, which materially
corrected the misstatements.

Apparent Non-Qualified Campaign Expenses — 26 U.S.C. §9032(9), 11 CFR
§9033.11(a), 11 CFR §9034.4(a)(1) and (3), 11 CFR §9034.4(b)(3) and (8), 11 CFR
§9038.2(a)(2), 11 CFR §9038.2(b)(2)(i) and (iii). The Audit staff identified non-
campaign related disbursements totaling $6,038 and lost equipment with a Fair Market
Value of $23,983. As a result, the Commission determined that a pro-rata repayment to
the U.S. Treasury in the amount of $1,998 for the non-campaign related disbursements
and $7,934 for the lost equipment was warranted.

Page 1 of 21


TABLE OF CONTENTS

MCCAIN 2000, INC.
AND

MCCAIN 2000 COMPLIANCE COMMITTEE, INC.

Executive Summary

Audit Report
Background
Findings

Legal Analysis

Transmittal to Committee

Transmittal to Candidate

Chronology

PAGE

w

15

17

19

21


In addition, Section 9034.1(b) of Title 11 of the Code of Federal
Regulations states, in part, that if on the date of ineligibility a candidate has net
outstanding campaign obligations as defined under 11 CFR 9034.5, that candidate may
continue to receive matching payments provided that on the date of payment there are
remaining net outstanding campaign obligations.

The Candidate’s date of ineligibility (DOI) was March 9, 2000. The Audit
staff reviewed the Committee’s financial activity through December 31, 2001, analyzed
estimated winding down costs, and prepared the Statement of Net Outstanding Campaign
Obligations.

The Audit staff's Statement of Net Outstanding Campaign Obligations
appears below:

Page 11 of 21
Approved April 11, 2002


12

Also, the Committee indicated that the remaining stale-dated Committee checks totaling
$85,017 and Compliance Committee checks of $4,088, remain outstanding and will be
paid to the U.S. Treasury.

Recommendation #3

The Audit staff recommends that the Commission determine that $85,017 in
Committee stale-dated checks and $4,088 in Compliance Committee stale-dated checks
are payable to the U.S. Treasury.

IV. SUMMARY OF AMOUNTS DUE TO THE U.S. TREASURY

Finding 01.4.1. | Apparent Non-Qualified Campaign Expenses $ 1,998
Finding 0.A.2.__ Lost or Missing Equipment 7,934
Finding IIL.C. Stale-Dated Checks — Committee 85,017
Compliance Committee 4,088
Total $99,037

Page 14 of 21

Approved April 11, 2002