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FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 20463

February 5, 1987

MEMORANDUM

TO:

FROM:

SUBJECT:

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DlREC~~ AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT -

MONDALE/FERRARO CO~~ITTEE, INC.

MONDALE/FERRARO COMMITTEE, INC./

LEGAL AND ACCOUNTING COMPLIANCE FUND

INDEPENDENTS FOR MONDALE/FERRARO

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Attached please find a copy of the subject final audit

report which was approved by the Commission on February 5, 1987.

Informational copies of the report have been received by

all parties involved and the audit report may be released to

the public.

Attachrn~~t ~~ ~tdte~

FEe LIBRARY

~LIC DISCLOSURE

OFFICE OF GENERAL COUNSEL
WASHINGTON. 0 C. 20463

FEDERAL ELECTION COMMISSION

REPORT OF THE AUDIT DIVISION

ON

THE MONDALE/FERRARO COMMITTEE, INC.,

THE MONDALE/FERRARO COMMITTEE, INC./LEGAL AND ACCOUNTING COMPLIANCE FUND,

AND INDEPENDENTS FOR MONDALE/FERRARO

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I. Background

A. Overview

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This report is based on an audit of the Mondale/Ferraro

Committee, Inc. (the "General Fund"), the Mondale/Ferraro

Committee, Inc./Legal and Accounting Compliance Fund (the

"Compliance Fund"), and Independents for Mondale/Ferraro 1/ to

determine whether there has been compliance with the provisions

of the Federal Election Campaign Act of 1971, as amended ("the

Act") and the Federal Election Campaign Fund Act. The audit was

conducted pursuant to 26 u.s.c. S 9007(a) which states that

"after each presidential election, the Commission shall conduct a

thorough examination and audit of the qualified campaign expenses

of the candidates of each political party for President and Vice

President."

In addition, 26 u.s.c. S 9009(b) states, in part, that

the Commission may conduct other examinations and audits from

time to time as it deems necessary to carry out the provisions of

this subchapter.

The Mondale Presidential Campaign - General registered

with the Federal Election Commission on June 14, 1984 as the

principal campaign committee of the Honorable Walter F. Mondale.

On July 31, 1981, the comMittee changed its name to the

Mandale/Ferraro Committee, Inc. This committee was financed by

funds received pursuant to 26 U.S.C. § 9005.

The Monda1e Presidential Campaign - Legal and

Accounting Compliance Fund registered with the Federal Election

Commission on June 14, 1984. On July 31, 1984, the committee

changed its name to the Mondale/Ferraro Committee, Inc./Legal and

Accounting Compliance Fund. This committee was established in

accordance with 11 C.F.R. S 9003.3. The General Fund and the

Compliance Fund filed separate disclosure reports as required by

11 C.F.R. § 9006.1 .

• 1/ There were no findings pertaining to Independents for

Hondale/Ferraro.
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Independents for Mondale/Perraro registered with the

Federal Election Commission on September 10, 1984 as an

authorized committee of the Candidate. It was financed solely by

funds received from the General Fund, was accounted for as a cost

center on the General Fund's automated general ledger, and

likewise filed separate disclosure reports.

The audit covered the period from the General and

Compliance Funds' inception, June 14, 1984, through December 31,

1984, the final coverage date of the latest reports filed at the

time of the audit. In addition, certain financial activity was

reviewed through March 31, 1985. Finally, follow-up fieldwork

was conducted to perform a limited review of General and

Compliance Fund activity through March 31, 1986.

The General Fund reported an opening cash balance of

$-0-, total receipts of $44,419,140.68, total disbursements of

$43,027,424.28 and a closing cash balance on December 31, 1984 of

$1,391,726.37 £1. The Compliance Fund reported an opening cash

balance of $-0-, total receipts of $1,186,274.68, total

disbursements of $615,774.42 and a closing cash balance on

December 31, 1984 of $570,500.46 ll. The Independents for

Monda1e/Ferraro reported an opening cash balance of $-0-, total

receipts and total disbursements of $135,645.51, and a closing

cash balance on December 31, 1984 of $-0-•

Under 11 C.F.R. S 9007.1(b) (3) and § 9007.l(e) (4)

additional audit work may be conducted and addenda to this report issued as necessary.

This report is based on documents and workpapers

supporting each of the factual statements contained herein. They

form part of the record upon which the Commission based its

decisions on the matters addressed in the report and were

available to the Commissioners and appropriate staff for review.

B. Key Personnel

During the period audited, the Treasurer of both the

General and Compliance Funds was Mr. Michael S. Berman. The

Treasurer of Independents for Mondale/Ferraro was Mr. Mark

Barrett.

c. Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactions;

review of required supporting documentation; analysis of debts

and obligations; review of contribution and expenditure

• ?:./ The reported totals do not calculate correctly due to minor

mathematical discrepancies.
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limitations; and such other audit procedures as deemed necessary

under the circumstances.

II. Findings and Recommendations Relating to

TItle 2 of the United States Code

A. Misstatement of Financial Activity

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

United States Code state, in part, that each report under this

section shall disclose the amount of cash on hand at the

beginning of the reporting period and the total amount of all

receipts and disbursements.

1. General Pund

The Audit staff performed a reconciliation of the

General Fund's bank accounts to the reports filed and determined

that cash on hand as of December 31, 1984 was overstated by

$598,550.16. This overstatement was the net result of the

following misstatements (parentheses indicate that the error

caused an understatement of cash on hand):

$202,315.77

70,594.23

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Receipts

1. Math error (receipts overstated)

2. Unreported receipts

3. Miscellaneous

Net Receipt Overstatement

Disbursements

1. Math errors (disbursements

understated)

2. Unreported disbursements

(See Exhibit B,l)

Headquarters

checking

Drafts

3. Voided checks reported

4. Miscellaneous

Net Disbursement Understatement

Total Cash on Hand Overstatement

$ 44,366.00

( 9,608.21)

(·ill ------~ $ 34,757.34

$ 493,579.45

272,910.00

220,261.26)

17,564.63

563,792.82

$598,550.16
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As part of the regular 1985 First Quarter report

filed on April 15, 1985, the General Fund amended prior reports

by disclosing a previously omitted expenditure of $103,198.50

(for headquarters rent) and by correcting a $315,620.20 math

error. In addition, the General Fund's regular 1985 Second

Quarter report filed on July 15, 1985, amended a prior report by

disclosing $70,423.48 in previously omitted drafts. As a result,

cash on hand on the General Fund's reports remains overstated by

$109,307.98. The General Fund's representatives agreed to amend

their reports to correct the remaining misstatement.

2. Compliance Fund

The Audit staff performed a reconciliation of the

Compliance Fund's bank accounts to tileir reports filed and

determined that cash on hand as of December 31, 1984 was

overstated by $20,915.47. This overstatement was the result of

(1) an unexplained failure to disclose certain disbursements

($25,887.15) (see Finding II.B. 2.), (2) a failure to adjust for

reported checks subsequently voided ($5,064.15), and (3) other

miscellaneous items ($92.47).

Compliance Fund officials were provided with the

details of these misstatements and agreed to file amended reports

to correct them •

In the Interim Audit Report, the Audit staff

recommended that, within 30 days of receipt of the report: (1)

the General Fund correct the remaining $109,307.98 cash on hand

misstatement by amending the cash on hand figure of the most

recent report filed, and (2) the Compliance Fund file a

comprehensive arnendement for 1984 correcting the disbursement and

cash on hand figures, and in addition, amend the cash on hand

figure of th~ most r~c~nt report filedo

The response to the Interim Audit Report stated

"MFC agrees to amend its reports to correct the errors as

outlined in the Report. These errors amounted only to 1 percent

percent (sic) of Committee transactions. Eighty-two percent of

these errors have already been corrected by the Committee."

However, no amended reports were filed with the response. Though

not filed timely, the General and Compliance Funds, as part of

their April 15, 1986 Quarterly report, substantially complied

with the recommendations in the Interim Audit Report.

Conclusion

The Commission determined that no further action is

necessary on this matter.

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B.

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Failure to Itemize Expenditures

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Section 434(b) (5) of Title 2 of the united States Code

requires that each report disclose the name and address of each

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

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

committee to meet a candidate or committee operating expense,

together with the date, amount, and purpose of such operating

expenditure.

1. General Fund

In addition to the checking accounts maintained at

the General Fund's headquarters, a draft account was established,

which was utilized in lieu of State office or advance staff

checking accounts. Bank drafts of various denominations were

issued to General Fund staff for making disbursements in the

field. As a matter of convenience, it was General Fund practice

to itemize all disbursements, regardless of amount.

Included in the $202,315.77 in unreported

expenditures from the Headquarters checking account, noted in

Finding II. A. 1. above, are 44 expenditures, totaling $201,382.21, which were not itemized as required. The balance of

the unreported expenditures do not require itemization. One of

the 44 expenditures was a payment in the amount of $103,198.50

for headquarters rent. General Fund officials could offer no

explanation why the 44 expenditures had not been disclosed.

Our review of the draft account revealed that

there were 618 drafts, totaling $70,594.23, which were not

itemized (and therefore not reported, as mentioned at Finding

II.A. 1.). Of these, 616 drafts totaling $70,423.48 were paid by

the bank on October 17, 1984. Due to a computer programming

peculiarity, these drafts were not included in the 12 Day PreGeneral report covering October 1-17, 1984, nor did they appear

on the report that followed.

As previously mentioned, the General Fund amended

prior reports by disclosing the $103,198.50 expenditure for

headquarters rent and by disclosing $70,423.48 in drafts in its

April 15 and July 15, 1985 filings, respectively_

General Fund officials were provided with copies

of workpapers detailing the above items and agreed to file

amended reports to disclose the remaining expenditures.

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2. Compliance Pund

Our review of the Compliance Fund'. expenditure.

rev••led that there were 12 expenditures totaling $25,643.61

which vere not itemized as required. Since it was a18Q

Compliance Pund practice to itemize all expenditures, the.e items

were not reported and are included in-the $25,887.15 mentioned at

Pinding II.A. 2.

Compliance Fund officials could not explain the

oai••lon of these expenditures yet agreed to file amended reports

to itemize them.

In the Interim Audit Report, the Audit staff

recommended that, within 30 days of receipt of the report: (1)

the General Pund file a comprehensive amendment itemizing the

remaining 43 headquarters account expenditures, totaling $98,183.71, and the two drafts totaling $170.75 and (2) the

Compliance Fund file a comprehensive amendment to disclose the

above 12 expenditures.

The General Fund's response to the Interim Audit

Report stated that wMFC agrees to amend its reports to correct

the errors as outlined in the Report. Fifty-eight percent of

these expenditures have already been itemized on amended

disclosure reports. The errors were a result of computer and

coding errors and represented only .6 percent of Committee

expenditures.- No amended reports were filed with its response.

Though not filed timely, the General and

Compliance Punds, as part of their April 15, 1986 Quarterly

report, SUbstantially complied with the recommendations in the

Interim Audit Report.

Conclusion

The Commission determined that no further action 1s

necessary on this matter.
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III. Findings and Recommendations Relating to Title 26

of the UnIted States Code

A. Apparent Prohibited Contributions (Fees Charged by

Media Vendor)

Section 9003(b) (2) of Title 26 of the United States

Code states, in relevant part, that no contributions to defray

qualified campaign expenses will be accepted except to the extent

necessary to make up any deficiency in payments received out of

the fund on account of the application of 26 U.S.C. S 9006(c).

Section 441b(a) of Title 2 of the United States

Code, in part, prohibits corporations from making contributions

or expenditures in connection with any election to any political

office. This section likewise prohibits candidates from

knowingly accepting or receiving such contributions.

Included in the definition of contribution at 11

C.F.R. S 100.7(a) (1) is "anything of value" which, according to

11 C.F.R. S 100. 7(a) (1) (iii), includes in-kind contributions. It

further states that the provision of any goods or services at a

charge which is less than the usual and normal charge is a

contribution. Included as an example of such goods or services

is advertising services. The provision of such services at less

than the usual and normal charge results in an in-kind

contribution equal to the difference between the csual and normal

charge for the goods or services (at the time of the

contribution) and the amount charged the political committee.

During the course of the general election campaign

the General Fund retained the services of two media firms. The

first firm, which had also been retained by the Monda1e For

President Committee, Inc. in the primary election campaign,

provided production services as well as much of the radio and

spot market television buying. This firm was paid a total of

$11 , 359,701.95, as follows:

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Media production

Media time and space (air time)

Creative fee

Time buy fe.e

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Fees as a percentage

of time bUys

1,150,000

9,366,544.53

$ 843,157.42

9,366,544.53

450,000.00

700,000.00

$11,359,701.95

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The second firm, which is incorporated, placed national network television buys only and was paid $8,408,607.87,

as follows:

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Media production

Media time and space

Consulting fees

Fees as a percentage

of time buys

( 169,656.36

8,228,951.51

$ 10,000.00

8,228,951.51

169,656.36

$ 8,408,607.87

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(The vendor's invoices indicate that it charged the General Fund

an Ragency fee R of 1.75' of the gross amount of television time

buys, which equates to 2.06\ of the net amount of the bUys, as

above.)

In light of the disparity between the fees charged

by the media firms (12.28\ of gross time buys vs. 1.7S%), it

appeared that the fee charged by the second firm may have been

less than the usual and normal charge for such services (at least

as compared to the fee negotiated by the General Fund with

respect to the first firm), resulting in a possible prohibited

in-kind contribution.

General Fund officials commented that it is

important to distinguish between the services provided by the two

firms. They described the first firm as a "full service"

advertising agency which provided a wide range of services, i.e.

creative design, artwork, planning, trafficking, etc., in

addition to merely placing the ads. It was this firm that

conducted the spot market buying which, the officials noted,

involved far more placements with far more stations than did the

network ad placement. They stated that the second firm was

retained mainly as a convenience to relieve some of the load from

the first firm, they placed network ads only, and provided no

other services. General Fund officials advised that it is common

practice to charge lesser commissions for such services due to

the large dollar value of relatively few placements. The

officials agreed to seek and furnish written representation from

the second 'firm to substantiate that the services were, in fact,

rendered Mat arm'c length M •

On January 2, 1986 the General Fund submitted its

response to the Interim Audit Report. In its response, the

General Fund reiterated the comments noted above stating, "The

services provided by these firms were vastly different....·

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·Consultants 'S4 provided a full range of

advertising services to the campaign. These

services included creative design, artwork,

production, media strategy and planning,

trafficking and placement of advertising.

Consultants also did the spot market buying

for the campaign. This involved

identification of local radio and television

stations in targeted locales, coordinating

the buys to coincide with other campaign

activity and targeting the advertising to

the particular spot markets, in addition to

placing the spot advertising on over

350 local stations.·

"This is in sharp contrast to the services

performed by McCaffrey & McCall which served

as a network time buyer for the Committee.

McCaffrey & McCall did not perform creative

work for the Committee. Their role was

simply to purchase the optim~~ network time

available based on the amount budgeted by

the Committee for a particular week.

McCaffrey and McCall had only to deal with

the three networks on a one time per week

basis. On the other hand, ~pot buying done

by Consultants '84 occurred on a daily basis

and involved as many as 350 local stations."

In addition, the General Fund supplied a letter

from the advertising firm which states:

ft ••• [T]he Mondale/Ferraro Committee hired

McCaffrey and McCall, Inc. for the

limited task of purchasing time on

the three networks for the broadcast

of MondalejFerraro advertising that

had been created and produced by others."

"The fee that McCaffrey and McCall, Inc.

charged the Mondale/Ferraro Committee

(1.75% of gross media costs) was, based

on the number of placements, negotiations

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with the networks, the services provided

to the Committee, and the dollar value of

advertising placed, well within the usual

and normal range of fees charged by

McCaffrey and McCall, Inc. to its client,s.·

Conclusion

The Commission determined that no further action is

necessary on this matter.

B. Apparent Non-Qualified Campaign Expenses

Section 9007(b) (4) of Title 26 of the United States

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

amount of any payment made to the eligible candidates of a

political party under Section 9006 was used for any purpose other

than to defray the qualified campaign expenses with respect to

which such payment was made, it shall notify such candidate of

the amount so used, and such candidates shall pay to the

Secretary of the Treasury an amount equal to such amount.

The term "qualified campaign expense" is defined at 26

U.S.C. S 9002 (11) (A) (iii) as an expense incurred by an authorized

committee of the candidates of a political party for the offices

of President and Vice President to further the election of either

or both of such candidates to such office. Further, 26 U.S.C. S

9002(11) (B) stipulates that such expenses must be incurred within

the expenditure report period (as defined at 26 u.s.c. S

9002(12» or incurred before the beginning of such period if for

property, services, or facilities used during such period. As

examples of permissible pre-report period expenses, 11 C.F.R. S

9003.4(a) states that if such expenditures are for property,

services or facilities which are to be used in connection with

his of her general election campaign and which are for use during

the expenditure report period, such expenditures will be

considered qualified campaign expenses. Examples of such

expenditures include but are not limited to: Expenditures for

establishing financial accounting systems, expenditures for

organizational planning and expenditures for polling.

In addition, 11 C.F.R. § 9004.4(b) (3) states that

expenditures incurred after the close of the expenditure report

period are'not qualified campaign expenses, except to the extent

permitted under 11 C.F.R. § 9004.4 (a) (4), which, provides in

relevant part, that winding down costs, such as 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;

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The expenditure report period for the General Fund is

July 18, 1984 throu~h December 6, 1984. The Audit staff's review

of the General Furl" s expendi tures revealed the following.

1. Apparent Non-Campaign Related Expenses

Two possible non-campaign related expenses

totaling $1,437.15 were nLted. These expenditures, for a slide

presentation and for photographs of the Mondale family, both

appeared to have been incurred after the closing date of the

expenditure report period. At the exit conference, General Fund

representatives stated that they felt these were campaign-related

and that they would research the items and submit documentation

or repay them as necessary_

In the Interim Audit Report the Audit staff

recommended that the General Fund demonstrate that these

expenditures were qualified campaign expenses py virtue of being

both campaign-related and winding down in nature.

In response, the General Fund stated that "one

payment of $432.15 was a fundraising expense of the Legal and

Accounting Compliance Fund that was inadvertently paid out of the

wrong account." The General Fund stated that the amount will be

reimbursed by the Compliance Fund. A review of the General

Fund's disclosure reports and records through September 30, 1986

shows no such reimbursement. Absent such refund, this amount is

still sUbject to repayment.11

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With respect to the second payment ($1,005.00),

the General Fund states that it "was incurred during the

expenditure report period and appears to be a payment to a

photographer for prints of the Mondale family to meet a backlog

of requests for photographs received during the General Election

campaign. It i~, therefore, a qualified campaign expenditure (sic)~" The invoice to the General Fund was dated December 7,

1984 1 one day after the close of the expenditure report period.

Payment was effected by the General Fund by check dated December

12, 1984. There is no indication as to when the goods were

received. In the opinion of the Audit staff, the General Fund's

response resolves, in all material aspects, the points raised in

the Interim Audit Report, concerning the second payment

($l,OOS.Oor.

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determined by the NOQCE Statement) would increase by a

corresponding amount.

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Conclusion

On February 5, 1987, the Commission made an initial

determination that this expenditure is a non-qualified campaign

expense and that an equal amount is repayable to the u.s.

Treasury pursuant to 11 C.F.R. S 9007.2(b) (2) within 9~ days of

receipt of this report.

If the candidate does not dispute this determination, or

provide evidence to demonstrate the refund ($432.15) has been

received, within 30 calendar days of the receipt of this report, it will be considered final.

Recommended Repayment Amount: $432.15

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2. Apparent Primary Campaign Related Expenditures

The auditors noted two expenditures, totaling $28,928.02, which appeared to be related to the primar~ campaign.

The documentation available indicates that $28,718.75 related to

reimbursement of expenses for airfare, lodging, meals, etc.,

incurred between May 20 and July, 1984. The remaining $209.27

related to a utility bill covering 5/2-6/30/84.

At the exit conference, General Fund

representatives indicated that they felt a portion of the

expenses may have been related to the primary campaign but that

most of the expenses fell under the 11 C.F.R. S 9003.4(a)

organizational planning provision. They indicated that the

matter would be researched and documentation provided supporting

their position.

In the Interim Audit Report, the Audit staff

recommended that the General Fund demonstrate that the above

expenditures totaling $28,928.02 are qualified campaign expenses.

In its response to the Interim Audit Report, the

General Fund agreed that the utility bill should be charged to

the primary e~~ction. The General Fund further agreed that

$2,261.00 of travel and subsistence reimbursement is allocable to

the primary election. However, the General Fund objected to a

similar reallocation of $26,457.75 in travel and subsistence

expenses, noting that the subject expenses were incurred during

late June and early July. Further, the General Fund argued that

these expenses were incurred " ••• after all primaries were

over •.. " and are properly allocable to the general election

campaign pursuant to 11 C.F.R. § 9003.4(a} which provides for

the incurrence of expenditures prior to the beginning of the

expenditure report period if such expenditures are for " ..• services... to be used in connection with [the] general

election campaign .•.• " As such, the General Fund asserted that

the subject travel and subsistence expenses relate to the general

election campaign because "the ultimate outcome of the trips was

that [the individual] assumed the role of general election

campaign chairman .•.. "

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Given that this campaign official does not appear

to have had an earlier role in the primary campaign (a review of

the Mondale for President Committees' reports did not disclose

previous payments), the types of expenses incurred, the timing of

the activity and that this individual was the eventual general campaign chairman, the Audit staff accepts the General Fund's

explanation of the relationship of the subject travel a~d

subsistence expenses to the general election campaign and that

these expenses are within the organizational planning provision

of 11 C.F.R. S 9003.4(a). However, the General Fund provided no

explanation of, or summary to support, which expenditures

comprise the $2,261.00 and the $26,457.75 which they view as

allocable to the primary and general election campaigns,

respectively. We have reviewed the documentation supporting these expenditures and have concluded that $24,768.29 in travel

and subsistence expenses could reasonably be considered to have

been general election-related. This determination was based on a

review of the apparent dates of incurrence of the expenses. All

expenses incurred after the date of the last primary election,

North Dakota-June 12, 1984, were considered general electionrelated.

A-review of the General Fund's disclosure reports through September 30, 1986 indicated that no such reimbursement

had been received. Absent Sqch reimbursement, this amount is

still subject to repayment~!/

Based on the above, the Audit staff considers

$4,159.73 ($3,950.46 in travel and subsistence expenses and

$209.27 in utilities) to be primary election expenses paid by the

General Fund.

Conclusion

On February 5, 1987, the Commission made an initial

determination that $4,159.73 in primary election expenses paid by

the General Fund are not qualified campaign expenses. As a

result, an equal amount must be repaid to the u.s. Treasury

within 90 days of the Committee's receipt of this report in

accordance with 11 C.F.R. § 9007.2(b) (2).

If the Candidate does not dispute this determination, or

provide evidence to demonstrate the reimbursernent($4,159.73) has

been received, within 30 calendar days of the receipt of this

report, it ,will be considered final.

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if Should this reimbursement be received, the surplus (as

determined by the NOQCE Statement) would increase by a

corresponding amount .

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Recommended Repayment Amount: $4,159.73

C. Income Generated From Air Charter Billings

Section 9004.5 of Title 11 of the Code of Federal

Regulations, states, in part, that investment of pUblic funds 0t

any other use of pUblic funds to generate income is per~issible,

provided that all net income from such investment shall be repaid

to the Secretary (emphasis added).

Sections 9004.6(a) and (b) of Title 11 of the Code of

Federal Regulations consider expenditures for transportation,

ground services, and facilities made available to media

personnel, to be qualified campaign expenses subject to the 11

C.F.R 55 9003.2(a) (1) and (b) (1) overall expenditure limitation.

Reimbursement for such services is limited to an individual's pro

rata cost of the transportation and services plus an additional

10\. Reimbursements received in compliance with the requirements

of this section may be deducted from the amount of expenditures

that are subject to the overall expenditure limitation of 11

C.F.R. § 9003.2(a) (1) and (b) (1), except to the extent that such

reimbursements exceed the amount actually paid by the committee

for the services providedr.

Throughout the campaign, the General Fund incurred

qualified campaign expenses for air transportation made available

to the Secret Service and to members of the press and for ground

services and incidentals made available to the press only. The

General Fund sought reimbursement for such services by billing

the users an amount equal to their pro-rata cost plus 10%.

Therefore; the General Fund had the potential to realize net

income from air charters in an amount equal to 10% of its cost.~/

The General Fund had billed members of the press and

Secret Service a total of $5,732,478057e The dollar value of

costs associated with these billings, which served as the basis

for the 10% surcharge, was calculated to be $5:211,344.15. The

resulting difference of $521;134.42 represented potential net

income.

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~/ Cost is comprised of airfare, ground transportation and

incid~nta1s, such as phone, lodging, and equipment.

•
•

•

•

16

During the audit, General Fund official. advised the

Audit staff, however, that for the following reasons, it was

unlikely that the full amount then outstanding would be

collected. First, the secret Service was limited by statute as

to the amount it would reimburse for such services, the.refore,

the balance due ($174,489.26) was considered uncollectable.

Second, one of the news services, with $152,442.49 outstanding and due the General Fund, had filed for Chapter 11 bankruptcy

protection; the chance of further collection was remote. [And

finally, due primarily to billing errors, the amounts originally bille~ to the passengers were understated by $81,779.13.1

Therefore, as of March 31, 1985, potential net income was

determined to be $112,423.54 ($521,134.42 less the three

unco1lectable amounts noted).

At the exit conference, the General Fund's officials weI~ in basic agreement as to the amounts presented, however,

they strongly disagreed with the Audit staff's treatment of the

(excess) 10\. They asserted that all or a portion of this 10\

"surcharge" represented their cost of providing these services,

potentially eliminating any profit. Documentation in support of

this assertion was not provided, however, General Fund officials

stated that they were prepared to substantiate their position •

The General Fund's response to the Interim Audit Report

reiterated its argument that the 10\ "surcharge," which amounted

to $521,134.42, represented actual costs of administration.

Further, a lengthy description of the types of costs involved in

providing these services was included.

The Audit staff does not dispute that the provision of

transportation, ground services and facilities, and incidentals

to members of the press and the Secret Service required a

significant utilization of General Fund resources. However, no

cost accounting analysis or summary was submitted to substantiate

that the $521,134.42 in administrative costs billed was the

General Fund's "actual" cost or what portions of that cost has

been applied to the overall spending limitation.

Although no additional costs have been documented, the

potential profit from air charters has been significantly reduced

from the amount calculated in the Interim Audit Report. In the

Interim Audit Report, accounts receivable from air charters was

shown at $739,760.94 as of March 31, 1985. This amount was net

of the billing errors and uncol1ectable amounts noted above.

Between April 1 and December 31, 1985, the General Fund reported

collections on those receivables of $651,236.53. Follow-up

fieldwork indicated that the General Fund's reported collections

were correct and that no further amounts were realized through

March 31, 1986. With respect to the remaining amounts, the

General Fund's response states "MFC has made extensive efforts to

•

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•
•

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17

collect from these entities, having written and phoned each

organization repeatedly to no avail. Many of these entities are

foreign press from whom it is impossible to collect." The Audit

staff is of the opinion that the General Fund's position with

regard to the remaining receivables is reasonable and it is

a8sumed that no further collections will be made. If additional

collections are identified 1n the futuL~, appropriate adjustments

will be made. Based on audited collections by the General Fund

through March 31, 1986, the Audit staff calculated that the

amount collected by the General Fund exceeds direct costs and

amounts due the press by $22,971.73.&1

The cost figure used to determine collections in excess

of direct costs does not include an administrative cost element.

Though the General Fund argues that such costs were incurred, no

calculation of the amount was provided. However, in view of the

General Funds' narrative description, the fact that in excess of

$5.2 million in non-administrative costs were incurred, and that

in its Notice of Proposed Rulemaking (Federal Register, Volume

51, Number 150, page 28168) for the 1988 election cycle the

Commission has provided a standard 3% administrative cost

deQuction (which would provide a deduction of up to $156,000 in

this case), the Audit staff does not dispute that in this case a

reasonable estimate of actual administrative costs would exceed

collections in excess of direct cost .•

Conclusion

On February 5, 1987, the Commission determined that the

General Fund's response resolves the issues raised, and,

therefore, no further action is necessary.

•

•

D. Repayment of Net Interest Received on Federal

Funds

Section 9004.5 of Title 11 of the Code of Federal

Regulations states that investment of public funds or any other

use of public funds to generate income is permissible, provided

that an amount equal to all net income derived from such

i .vestments, less Federal, State and local taxes paid on such

income, shall be repaid to the Secretary.

•

~/ The General Fund's response states that "using the 'income

theory' contained in the Report, MFC would actually receive

only $21,714.13 in so-called 'income'e" The General Fund's

figure is incorrect apparently due to computational errors;

the correct figure is $22,971.73.

•
•

....

•

,.......

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18

During the course of the campaign, the General Fund

maintained interest bearing accounts at two different financial

institutions. In addition, the General Fund made an investment

in three-day securities. Through March 31, 1985, the G~nera1

Fund earned interest totaling $206,954.38.

On this income, the General Fund has paid $104,152.00

in taxes on interest income earned through December 31, 1984, and

owes an additional $9,307.82 in taxes for 1984 as the result of

an error in computing taxable income. Further, it 1s estimated

that the General Fund will pay $3,356.41 in taxes on interest

earned for the period January 1, 1985 to March 31, 1985.

Therefore, the interim audit report concluded that net interest

income of $90,138.15 is repayable to the u.s. Treasury.

The General Fund's representatives do not dispute that

this amount is repayable.

In addition during follow-up fieldwork a small amount

of interest income earned between April 1, 1985 and March 31,

1986 was identified. Therefore, the after tax interest repayment has been increased to $90,142.19.

Conclusion

On February 5, 1987, the Commission made an initial

determination that interest income, net of taxes, earned through

March 31, 1986 totalling $90,142.19 is repayable to the U.S.

Treasury pursuan t to 11 C. F. R. S 9007.2 (b) (4) • In accordance

with 11 C.F.R. S 9007.2(d), the repayment is due within 90 days of the receipt of this report.

If the candidate does not dispute the Commission's initial

repayment determination within 30 calendar days of receipt of

this report, it will be considered final.

Recommended Repayment Amount: $90,142.19

E. Determination of Net Outstanding

Qualified Campaign Expenses

Section 9007.2 (b) (3) of Title 11 of the Code of Federal

Regulations states that if the Commission determines that a

portion of payments from the Fund remains unspent after all

qualified campaign expenses have been paid, it shall so notify

the candidate, and such candidate shall pay to the United States

Treasury an amount equal to such amount .

On November 26, 1984, the General Fund submitted a

Statement of Net Outstanding Qualified Campaign Expenses

•

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19

("NOQCE") to the Audit staff which appeared to depict its

financial position as of October 31, 1984. During fieldwork, the

auditors requested and received a NOQCE Statement as of December

6, 1984, the end of the expenditure report period (as defined by

26 U.S.C. S 9002(12) (A». The Audit staff reviewed the December

6, 1984 NOQCE Statement as well as the available books and

records to verify the totals and developed an updated statement.

In addition, the Audit staff developed an analysis of

the General Fund's spending as of March 31, 1985, in comparison

to the 2 u.s.c. 5 44la(b) (1) (B) expenditure limitation of

$40,400,000, established for the 1984 election. The NOQCE

Statement and the limitation calculation, as presented in the

interim report, showed the General Fund to be $170,055.70 under

the expenditure limitation and in a surplus financial position in

an equal amount. Any such surplus must be returned to the U.S.

Treasury. However, the interim report noted that the use of

estimates and the uncertainties surrounding the collection of

receivables impact on the calculation of expenditures subject to

the limitation as well as the NOQCE Statement. It was further

noted that as events occurred which necessitate adjustments to

these calculations, the transactions would be verified and

adjustments made accordingly.

In its response to the Interim Audit Report, the

General Fund makes a number of changes to the audited NOQCE

Statement, as well as to the calculation of expenditures suject

to the expenditure limitation. Many of the General Fund's

changes are the result of its use of updated information while

others represent disagreements in the handling of certain

transactions. Additionally, follow-up fieldwork has been

completed for reported activity through March 31, 1986. Changes

to the Interim Audit Report figures are discussed below.

1. Accounts Receivable - Air Charter Reimbursements

The Interim Audit Report included Accounts

Receivable from Air Charters in the amount of $739,760.94. This

amount represented gross receivables of $1:066,692.69, less an

allowance- for doubtful accounts of $326,931.75. As discussed in

Section III.C. (Income Generated From Air Charter Billings), Air

Charter Reimbursements Receivable has been reduced to $651,236.53

based on actual collections through March 31, 1986. All

remaining receivables will be considered uncollectible. Further

adjustments will be made should any amounts be collected after

March 31, 1986.

In addition, the General Fund argues that amounts

billed to the press and the Secret Service should be deducted

from the amount applicable to the expenditure limitation . regardless of whether they are collected. The response to the

•

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•

•

•

20

Interim Audit Report states that ·Since MFC never intended to

defray from its own funds the cost of transporting media, the

amounts billed to press, whether or not collected l should be

deducted from MFC's expenditures subject to the 1 mit so that

amounts spent on press do not increase MFC's limit spending,"

The General Fund's response states that the

"Secret Service owes $169,574.48, but is limited by regulation in

what it may pay. Another portion of the uncollectible bill--

$152,442.49--18 owed to MFC by [8 news agency] which has gone

bankrupt." The response goes on to say that other amounts are

owed by various entities, "[m]any of these are foreign press from

whom it is impossible to collect."

The Commission's regulations at 11 C.F.R. S 9004.6

are the relevant source of authority pertaining to reimbursements

for transportation and services made available to media personnel

and members of the Secret Service. It views expenditures in

connection with providing transportation, ground services and

facilities to these individuals as qualified campaign expenses.

It sets the guideline for determining the amount that the

passengers may be billed in situations where a committee seeks

reimbursement for such expenditures. Section 9004.6(b) of Title

11 of the Code of Federal Regulations concludes that

"reimbursement received e •• may be deducted from the amount of

expenditures that are subject to the overall expenditure

limitation ••• except to the extent that such reimbursements

exceed the amount actually paid by the committee for the services

provided" (emphasis added). It is the clear intent of this

regulation that only the amounts which a committee actually

collects from the passengers may be deducted from the amount of

expenditures subject to the overall spending limitation. With

all due consideration of the General Fund's efforts to collect

their past due accounts, "reimbursements received" cannot be

construed to include uncollectible or written-off accounts

receivable.

2. Accounts Receivable - Other

The NOQCE Statement in the General Fund's response

to the Interim Audit Report includes $138,889.76 in "other

accounts receivable" which did not appear on the Interim Audit

Report NOQCE Statement. These receivables represent amounts

collected after the March 31, 1985 NOQCE date or amounts which

are to be collected. Approximately $107,000 of this amount

represents reimbursement from the primary election campaign for

shared winding down costs through June of 1986.

The Audit staff compared these amounts to those on

the General Fund's reports during follow-up fieldwork for the

period April 1, 1985 to March 31, 1986. That review indicated

•

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•

,......

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21

that Other Receivables should be $183,481.01. This amount, a

portion of which is based on estimates, will be verified by

reviewing General Fund reports and/or additional follow-up

fieldwork, and adjustments made as required.

3. Disputed Bills

The General Fund's response to the Interim Audit

Report included $25,000 in accounts payable for disputed bills

which total approximately $75,000. A footnote to the Interim

Audit Report NOQCE Statement acknowledged that these contingent

liabilities existed but stated that, pending further

investigation, no amount was being included in the NOQCE

Statement. Additional information has been reviewed during

follow-up fieldwork. Based on that review the NOQCE Statement

has been revised accordingly.

4. Accounts Payable and Winding Down Costs

The General Fund's response to the Interim Audit

Report's Determination of Net Outstanding Oualified Campaign

Expenses contained significantly higher figures for Accounts

Payable and Winding Down Costs than those initially determined by

the auditors. The Audit staff reviewed these areas

simultaneously, in an attempt to reconcile the audited amounts to

those presented in the General Fund's response. It was

ascertained that the General Fund's figures were arrived at by

reviewing reported disbursements through December 31, 1985 and

identifying and totalling those which the General Fund considered

to have been incurred Winding Down Costs. This amount was then

subtracted from total reported disbursements to arrive at

Accounts Payable ($430,790.83). The General Fund's (NOQCE)

Winddown figure ($491,851.69) was computed by adding an estimated

amount of winding down costs to be incurred for 1986 to the

actual winding down costs (as determined above) incurred through

December 31, 1985. The difference between the Interim Audit

Report Winding Down and Accounts Payable figures and those in the

response to the Interim Audit Report are the result of the use of

different cut-off dates and different assumptions with respect to

winding down estimates. The Audit staff, in anticipation of such

changes, included footnotes to the Interim Audit Report NOQCE

statement which recognized that additional payables may be

identified 'necessitating an upward adjustment to the audited

Accounts Payable figur~. Similarly, it was noted that Winding

Down Costs could also be sUbject to increases, as they were based

on estimates.

Follow-up fieldwork, which provided audited

information through March 31, 1986, necessitated further revision

in these areas. The auditors verified Accounts Payable, as of

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22

March 31, 1985, totalling $355,224.64, based on actual payments

made by the General Fund through March 31, 1986. It was also

determined that no payables ~emain on the General Fund's books,

with the exception of the Disputed Bills previously discussed.

Actual Winding Down costs of $498,232.69 were determined by

netting the Accounts Payables figure ($355,224.64) against

reconciled disbursements ($853,457.33) for the period 4/1/85 to

3/31/86; and, an estimate of additional Winding Down Costs

($69,185.19) to be incurred through September 30, 1986 was added.

5. Amounts Due the Press

The Interim Audit Report included an amount for

accounts payable due the press of $32,381.36 which represented

amounts collected from the press for air charters and incidentals

which were in excess of amounts billed. The figure was as of

March 31, 1985. The General Fund's response, verified by fol1owup fieldwork, indicates that after March 31, 1985 an additional

$927.40 was received. Therefore, accounts payable due the press

has been increased to $33,308.76. General Fund officials intend

to research these prior to making any refunds. A review of the

General Fund's disclosure reports through September 30, 1986 show

that none of these refunds have been made. If it is determined

that the refunds will not be made, the amount of the surplus

repayment should be adjusted accordingly .

Presented below is a revised NOQCE Statement.

•

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23

$259,385.33!1

•

Mondale/Perrro Committee, Inc.

Statement of Net Outstanding Qualified Campaign Expenses

As of March 31, 1985

As Determined on March 31, 1986

Cash

Accounts

Receivable:

Total Assets

$651,236.53 !21

Air Charter

Reimbursements

Receivable (see

Finding III.C.)

Other Receivables

Media Vendor Refund£/

C&P Deposit.9.1

Bills Paid Twice

Total Receivab1es~1

~apita1 Assets II

tr

Liabilities

:r

~ounts Payable

~ntingent Liabilities gl

183,481.01

87,183.67

5,000.00

1,081.56

$355,224.64

25,OOO~OO

927,982.77

1,750.00

$1,189,118.10

• ~mounts Due to the Press

for Overpayments Received

'"

~inding Down Costs

Actual (4/1/85-

.- 3/31/86)

Estimated h/

(4/1/86-9/30/86)

$498,232.69

69,185.19.

33,308.76

56;,41i.88

Interest Income

Repayable (see

Find i ng I I I • D. )

Income Taxes Payable

90,142.19

12,669.48

Total Liabilities 1/ $ (1,083,762.95)

Net Outstanding Qualified

Campaign Expense Surplus

• 3/31/85

$
•

24

~/ During follow-up fieldwork, a substantial number of staledated, outstanding checks were noted. These items would

have a signficant impact on the extent of the General Fund's

surplus. As such, this issue will be addressed separately

In an addendum to this report and any adjustment made as

information and documentation become available.

~/ If any written-off receivables (see Finding III.E.l.> are

subsequently realized, adjustments will be made accordingly.

£/ The General Fund, by letter dated November 21, 1986, advised

the Audit staff of the receipt of this media vendor refund.

•

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~/

~/

il

Any interest earned on this deposit will be recognized as an

adjustment to the NOQCE Statement at the amount(s) realized.

Apparent primary election expenses paid by the General Fund

are not shown as a receivable although the amount

($4,159.73, see Finding III.B.2. above) could be reimbursed

by the primary committee. Additionally, a fundraising

disbursement ($432.15 g See Finding III.B.1. above) is not

shown as a receivable although it also could be reimbursed

by the Compliance Fund.

Includes only those assets satisfying the 11 C.F.R. §

9004.9 (d) (1) capital asset criteria. However, any other

assets, such as furniture, calculators, etc., subsequently

liquidated have been added to Other Receivables at the

amounts realized. Further, adjustments will be made as

necessary based on amounts actually realized as the related

information and documentation becomes available.

•

9.1 This amount, based on estimates, will be verified and any

adjustments made, as actual costs and the related

documentation becomes available.

hi Projected Winding Down Costs are necessarily based on

estimates. Any adjustments will be made as actual costs and

the related documentation to support them become available.

•

1/ Non-qualified campaign expense repayment items are not

included as liabilities on the NOQCE statement in accordance

with 11 C.F.R. § 9004.9(a), in that, such expenses do not

meet the definition of qualified campaign expense at 11

C.F.R. § 9002.11.

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25

The $4,591.88 difference between the NOQCE surplus figure and that noted at the Expenditures SUbject to Limitation

Statement (See page 27) results from the adjustment for

apparent non-qualified campaign expendses at item I.6.d.

the latter statement.

of

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•

26

Related to the development of the NOQCE Statement, the

Audit staff also determined that the General Fund appears to have

complied with the expenditure limitation imposed by 2 U.S.C. S

441a(b) (1) (B). For the 1984 election, the limitation was

$40,400,000.00.

•

The Interim Audit Report concluded that as of March

1985, the Committee's spending was $170,055.70 less than the

expenditure limitation. Using information contained in the

General Fund's response to the Interim Audit Report and

information obtained during the follow-up fieldwork covering period April 1, 1985 to March 31, 1986, the revised figures shown below were developed.

31,

the

'1'

C!'

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r-

{"'!"

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27

Mondale/Parraro Ca.aitt••, Inc.

Expenditures Subject to Llaitation at March 31, 1986

1. Operating Expenditur••

•

1 • 1986 Expenditur•• (through 3/31/a6)

2. 1985 Expenditure.

3. 19S4 Bxpenditure.

•• Contingent Liabi1itie•

5. Winding Down Co.t.

(4/1-9/30/86)

,. Adjustmentsa

a. 1984 Inco•• Taxe. Paid

b. Outstanding Check

Voided 4/85

c. Amounts Due to the

Pre.s for Overpay.ents Received

• 48,909.79

2,863,502.81

43,236,407.13

25,000.00

69,lS5.19

(104,152.00)

(998.07)

33,308.76

•

II. Operating Oftsets

d.

(")

1.

2.

3.

4.

Apparent "on-Qualified Campaign Ixpen... (See

Finding 111.8.1 and 2)

Total Operating Expenditures!/

1986 offsets

(through 3/31/86)

1985 offsets

1984 offsets

Additional Adjustments:

(4,591.88)

$46,166,571.73

$ (10,966.96)

(2,326,867.07)

(3,428,669.50)

•

total Operating Offsets

Expenditures SUbject to Limitation

Limitation

,... ...

A.

b.

c.

e.

Media Vendor Refund

Other Accounts

Receivable (eat.)

Bills Paid

Twice

CiP deposit

Capital Assets~/

(97,183.67)

(15,000.00)

(1,081.56)

(5,000.00)

(1,750.00)

($ 5,876,518.76)

$40,290,052.97

$40,400,000.00

!/ Winding Down Costa are treated as qualified campaign

expenses of the General Fund in this calculation. In

addition, the Audit staff determined that there was $1,315,201.35 in allocable exempt legal and accounting

overhead costs incurred by the General Fund: Should

.ccounts payable, Winding Down Costs, etc., materialize in

such a manner so ae to cause the General Fund to have spent

In excess of the expenditure limitaion, it may, at its

election, allocate all or a portion of the above amount. to

•

Amount in Excess/(Under)

Limitation ($ 109,947.03)

•
•

•

•

28

the Compliance Fund, and receive a like reimbursement from

the Compliance Fund.

2/ It is assumed that the remaining Capital Assets will be

liquidated at this amount.

•

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•
•

•

29

The NOQCE Statement indicates that the General Fund has

unspent funds amounting to $105,355.15 and is, therefore, in a

surplus position.

As events occur which indicate that adjustments may be

in order, they will be verified and the NOQCE Statement and

expenditures subject to the limitation revised accordingly.

Conclusion

On February 5, 1987, the Commission made an initial

determination that $105,355.15 represents surplus funds and that

an equal amount must be returned to the U.S. Treasury pursuant to

11 C.F.R. S 9007.2(b) (3) within 90 days of the receipt of this

report.

In accordance with 11 C.F.R. S 9007.2(c) (1), if the

candidate does not dispute the initial determination within 30

calendar days of the receipt of this report, the initial

determination will be considered final.

Recommended Repayment Amount: $105,355.15

F. Matters Referred to the Office of General Counsel

Certain other matters noted during the audit were

referred to the Commission's Office of General Counsel.

•

•

IV. Summary - Amounts Repayable to the U.S. Treasury

Presented below is a summary of the amounts determined by

the Commission as subject to the repayment provisions of 26

U.S.C. § 9007(b), as discussed in Section III. of this report.

Finding III.B.l.

Finding III.B.2.

Finding III.D.

Finding III.E.

Apparent Non-Campaign l~e:a ted E~~~~,,1 Le d

Apparent Primary Campaign

Related Expenditures

Net Interest Income

Determination of Apparent

Surplus

$ 432.15

4,159.73

90,142.19

105,355.15

•

L- .....

Total Amount Due the U.S. Treasury $200,089.22

•

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•

tmMORANDUM

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 204&3

June 11, 1987

MD4!0611/87

~----~---

Attached please find a copy of the above mentioned Addendum

to the Final Audit Report which was approved by the Commission

on June 4, 1987.

•

TO:

FROM:

SUBJ~

FRED EILAND

CHIEF, PRESS OFFICE

ASSISTANT

ROBERT J. COSTA

STAFF DIRE~R~ ~~

AUDIT DIVISION

PUBLIC ISSUANCE OF ADDENDUM TO THE FINAL

AUDIT REPORT - MONDALE/FERRARO COMMITTEE, INC,

THE MONDALE!FERRARO CO~1ITTEE, INC./LEGAL AND

ACCOUNTING COMPLIANCE FUND, AND INDEPENDENTS

FOR MONDALE/FERRARO

Informational copies of the Addendum to the Final Audit

Report have been received by all parties involved and the

Addendum may be released to the public.

Attachment as stated

cc: FEe Library

RAD

Office of General Counsel

Public Disclosure

•
• FEDERAL ELECTION COMMISSION

WASHINeTON, D.C. 20463

ADDENDUM '1'0 '!'BE PINAL REPORT OF THE ADDI'!' DIVISION

ON THE MONDALE/FERRARO COMMIT'l'EE, INC.,

THE MONDALE/FERRARO COMMITTEE, INC./LEGAL AND ACCOUNTING COMPLIANCE FUND,

AND INDEPENDENTS FOR .10NDALE!FERRARO

I. Background

.' A• Overview

On February 5, 1987, the Federal Election Commission i8sue~ a final au~it report on the Mondale/Ferraro Committee,

Inc. ("The Gene%al Fun~·), the Mondale/Ferraro Committee, Inc.1

Legal and Accounting Compliance Fund ("the Compliance Fund"), and

Independents for Mondale/Ferraro. That report was based on an

audit of the above-named committees ("the Committ~es") pursuant

to 26 U.S.C. S 9007(a). The audit covered the period June 14,

1984 through December 31, 1984 •

This Addendum is based on follow-up audit fieldwork and

a review of the Committees' filings. ~he follow-up fieldwork was

conducted pursuant to 11 C.F.R. 5 9007.l(b) (3) which states, in

part, that the Commission may conduct additional fieldwork after

completion of the fieldwork conducted pursuant to paragraph

(b) (1) and (2) of this section.

In addition, 11 CeF.R. S 9007.l(e) (4) states, in part,

that addenda to the audit report may be issued from time to time

as circumstances warrant and additional information becomes

available. Such addenda may be based, in part, on follow-up

fieldwork conducted under paragraph (b) (3) of this section,

The follow-up fieldwork covered the period January 1,

1985 through March 31, 1986, the final coverage date of the

latest reports filed at the time of the audit fieldwork. The

General Fund reported an opening cash balance of $972,907.67,

total receipts of $2,370,950.97, total disbursements of

$2,889,885.421 and a closing cash balance on March 31, 1986 of

$274,241.76. _/ The Compliance Fund reported an opening cash

balance of $510,500.46, total receipts of $102,974.42, total

disbursements of $78,127.08 and a closing cash balance on March

31, 1986 of $574,567.77. 1/

•

f".-

•

1/ The reported totals do not calculate correctly. Adjustments

were made to reported cash on hand figures during 1985. as

the result of the recommendations from the initial audit

which covered activity through 12/31/84.
•

2

This Addenaum i8 basea upon documents and workpapers which support each of its factual statements. They form part of

the record upon whlch the Commission based its decisions on the

matters 1n the Addendum and were available to Commi••loner. and

appropriate staff for review.

B. 'Key Personnel

The Treasurer of both the General and Compliance Funds

during the period audited was Mr. Michael S. Berman. The

Treasurer of Independents for Mon~ale/perraro was Mr. Mark

Barrett.

C. Scope

~he au~it included such tests as verification of total

reported receipts and disbursements, limited reviews of

individual transactions and required supporting documentation1

analysis of debts and obligations (including winding down costs),

review of contribution and expenditure limitationsJ and such

other audit procedures as deemed necessary under the

circumstances•

II. Finding and Recommendation Relating to Title 2

of the United States Code

Misstatement of Financial Actiyity

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

States Code state, in part, that each report under this section

shall disclose the amount of cash on hand at the beginning of the

reporting period and the total amount of all receipts and

disbursements made during a reporting period In the calendar

year.

.

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1 • General Fund

The Audit staff performed a reconciliation of the

General Fund's bank accounts to the reports filed and determined

that reported cash on hand at March 31, 1986 was overstated by

$49,284.29. This misstatement was the net result of the

following overstatements (understatements):
. "

3

Receip1:8

1. Receipt disclosed twice $30,000.00

2. Unreported receipts ( 3,717.63)

3. Miscellaneous 770.42

Bet Overstatement

D isburBementB

$27,052.79

Interbank TransfeI Reported ($10,946.00)

Unreported disbursements 48 f 566.74

Disbursements reported

erroneously ( 24,366.47)

Math error 12,393.56

1.

'" 2.

If\ 3.

4.

• 5.

r-:'

'"

Miscellaneous

Net Overstatement

Total (Net) Cash on Ban~

Overstatement

( 3,416.33)

22,231.50

$49,284.29

,....

•

General Fund representatives were provided with details

of these errors and agreed to file amended reports to correct

them.

2. Compliance Fund

The Audit staff performed a reconciliation of the Cornplianc~ Fund's bank accounts to their reports filed and

determined that reported receipts and disbursements for 1985 were

u nd e r s ta ted.. by $2 , 3 0 9 • 52 and $1, 593 • 18, res pe c t i vely •

Compliance Fund officials were provided details of

these misstatements and agreed to file amended reports to correct

them•

The General and Compliance Funds filed amendments

SUbstantially correcting these errors on July 15, 1986. .
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Recommendation

The Audit staff recommends no further action on this matter.

III. Finding and Recommendation Relating to Title 26

of the United States Code

Resolution of General Fund Outstanding Checks

section 9003(b) (2) of Title 26 of the United States Code

states, in part, that no contributions to defray qualified campaign expenses will be accepted except to the extent necessary

to make up any deficiency in payments received out of the fund on

account of the application of 26 U.S.C. S 9006(c).

The term contribution as defined at 11 C.F.R. S 100.7(8)(1)

includes a gift, subscription, loan (except for a loan made in

accordance with 11 C.P.R. S lOO.7tb) (ll»f advance, or deposit of

money or anything of value made by any person for the purpose of

influencing any election for Federal office. Purther, 26 U.S.C.

S 9007(b) (3) states that if the Commission determines that the

eligible candidates of a major party or any authorized committee

of such candidates accepted contributions (other than

contributions to make up deficiencies In payments out of the fun~

on account of the application of section 9006(c» to defray

qualified campaign expenses (other than qualified campaign

expenses with respect to which payment is required under

paragraph (2», it shall notify such candidates of the amount of

the contributions so accepted, and such candidates shall pay to

the Secretary of the Treasury an amount equal to such amount.

During the course of the follow-up fieldwork, the auditors

identified 101 stale-dated checks, totaling $46,853.26 (see

Attachment I), that had been issued by the General Fund for goods and/or services provided, and, that remained outstanding_ Four

of these checks, totaling $4,526.68 were issued between January

11 and August 27, 1985, while the remaining 97 checks (totaling $42,326.58) had been outstanding since at least December 31,

1984. The records available at the time of the fieldwork did not

allow for the identification of the payees of the checks issued

prior to January 1, 1985.

Additionally, during discussions with the General Fund's

representatives, the auditors were informed that the General

Fund's records had been adjusted to reflect these items 8S part

of cash on hand.

General Fund representatives, who were provided with

schedules identifying these items, disputed the implication that

they had accepted any contributions, but acknowledged that these

items could impact upon their Statement of Net Outstanding

Oualified Campaign Expenditures.
3.

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5

In the Interim Addendum the Audit staff recommended that

within 30 days of receipt of the report the General Fund:

1. Provide the identification of the payees not Identlfie~

on Attachment I.

2. Void outstanding checks that aggregate $200 or le8s to

a single payee and make the appropriate adjustment

(increase) to cash on hand.

Determine, for those checks greater than $200 or which

aggregate in excess of $200 to a single payee, if the

checks represented remaining liabilities of the General

Fund. Those which did not represent such liabilities

were to be voided with the appropriate adjustment to

cash on hand. For those which did represent remaining

liabilities, steps were to be taken to effect payment.

With respect to any chacks which the General Fund was able

to void, it was noted that the amounts, when added to the cash

balance on the NOQCE Statement w would cause an increase in the

Surplus as calculated in the final audit report and require a

repayment of an equal amount pursuant to 26 u.s.c. S 9007(b) (1) •

It was also noted that with respect to those checks which

represented liabilities of the General Fund, absent a showing

that payment had been effected, the Audit staff would recommend

that such amounts be considered contributions and an equal amount

determined to be repayable to the Treasury pursuant to 26 u.s.c.

S 9007 (b) (3).

The General Fund's response, received March 20, 1987, states

that " (b)ased on our review of records concerning the checks, we

have determined that none of these checks represent outstanding

liabilities of the Committee ••• Adjustments have been made to

our NOQCE for the full amount of $46,853&26 which will be

included in the Committee's surplus repayment (as determined in

the Final Audit Report).-

Recommendation

The Audit staff recommends no further action be taken on

this matter. The NOQCE statement in the Final Audit Report will

be adjusted to increase the General Fund's surplus, thereby

causing an increase in the repayment pursuant to 26 U.S.C. S

9007 (b) (1) of an equal amount •
. ..

6

• Attachment I

Page 1 of 4

Sebeaul. of Stale-Dated Checks

A. Checks Issued During 1984

Payee Cbeck t !!.!tt Amount

1. 132 8/13 $ 150.00

2. 156 8/13 12.00

3. 189 8/15 226.22

4. 204 8/16 733.95

5. 405 8/30 215.00

6. 484 9/1 100.00

7. 552 9/4 150.00

8. 673 9/8 2,812.08

,,.. 9. 716 9/8 100.00

10. 747 9/10 56.74

11. 1655 9/28 180.00

•

12. 1795 10/2 125.00

13. 1855 10/2 25.00

14. 1957 10/4 230.00

15. 2030 10/5 229.65

16. 2075 10/6 1,911.65

r:' 17. 2085 10/8 476.00

18. 2195 10/11 480.00

"" 19. 2204 10/11 180.00

20. 2653 10/19 75.00

r- 21. 2802 10/20 420.00

,..,.... 22. 2841 10/23 100.00

23. 2905 10/24 420.00

,- 24. 2910 10/24 360.00

25. 2969 10/25 324.28

26. 3025 10/26 150.00

27. 3063 10/27 75.16 28~ 3162 10/29 360.00

29. 3385 11/3 619.79

30. 3449 11/6 231.05

31. 3450 11/6 2,300.00

32. 3452 11/6 244.56

33. 3456 11/6 253.00

34. 3460 11/6 1,162.57

35. 3464 11/6 435.47

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t Attachment I

J Page 2 of 4

f

I

f

Schedule of Stale-Dated Checks

I A. Checks Issued During 1984 I

\

I

• Pavee Check t Amount

36. 3475 11/6 $ 20.79

37. 3482 11/6 275.00

38. 3486 11/9 550.00

39. 3492 11/9 1,244.90 40. 3497 11/9 317.85

41. 3511 11/9 3,000.00 42. 3513 11/9 840.00

-"" 43. 3591 11/15 450.00

If'' 44.• 3638 11/15 690.00

45. 3690 11/17 540.00

46. 3698 11/17 300.00

47. 3720 11/17 180.00

•

48. 3141 11/17 180.00

49. 3748 11/17 300.00

50. 3831 11/29 14.00

51. 3942 12/31 38.63

52. 800255 8/24 300.00

r 53. 800869 9/10 340.00

54. 800873 9/10 420.00

'" 55. 800930 9/12 75.00

56. 801040 9/15 147.66 r- 57. 8010~1 9/15 2,909.70 ,..,.. 58. 801042 9/15 1,317.60 59. 801043 9/15 539.55

60. 801045 9/15 75.00

61. 801104 9/18 75.00

62. 801191 9/21 125.00

63. 801196 11/1 1,420000 64. 801200 11/1 50.00

65. 801390 10/1 593.84

66. 801576 10/5 225.00

67. 801597 10/5 225.15

68. 801822 10/13 229.50

69. o. 801850 10/15 500.00

70. 801854 10/15 200.00

•
. .. . . .

8 I

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f At;tachment I , Page 3 of 4 (

,

f

Sche&!ule of Sta1e-Datea Checks •

t

.

t A• Checks Issued During 1984

•·. Payee Check • Amount

71. 802034 10/19 $ 433.00

72. 802051 10/18 150.00

73. 802072 10/18 83.60

74. 802100 10/18 1,166.40

75. 802144 10/19 200.00

76. 802320 10/22 278.76

<:) 77. 802323 10/22 70.00

78. 802338 10/22 790.87

...r 79. 802413 10/31 175.00

80. 802454 10/24 73.26

81. 802496 10/29 233.20

•

82ct 802526 10/24 621.00

83. 802550 10/25 125.00

84. 802563 10/25 102.13

85. 802577 10/25 185.00

86. 802643· 10/26 100.00

87. 802713 10/26 100.00

r 88. 802728 10/26 783.71

"'- 89. 802842 10/29 50.00

90. 803003 10/31 129.80

91. 803026 10/31 174.90

92. 803071 10/31 273.28 ,..,.. 93. 803075 10/31 100.00 -.-. 94. 803898 11/9 984.73

95. 804008 12/21 200.00

96. 20006 10/25 28.00

97. 802615 10/25 81.00

( 1984) Total Stale-Dated Checks $42,326.58

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9

Attachment I

Page 4 of 4

schedule of Stale-Dated Checks

B. Checks Issued During 1985

$4,526.6.1

$ 487.13

341.45

200.00

3,498.10

Amount

1/11

1/30

2/21

8/21

payee Check t

1. Dubbow's 4007

2. Jim Quackenbush 4207

3. Irma Gallardo 4708

4. Digital 804159

Equipment

Corp.

(1985) Total Stale-Dated Checks

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J)