MEMORANDUM

TO:

FROM:

FEDERAL ELECTION COMMISSION

WASH1NCTQN. 0 C 2CM63

September 9, 1991

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT .T l/'--""'" J.. COSTA , "7

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

MJ000236

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT

REPORT ON THE GEPHARDT COMMITTEE

- - -- - - -- - -

Attached please find a copy of the Final Audit Report on

The Gephardt Committee, which was approved by the Co..ission on

August 29, 1991.

Informational copies of the report have been received by all

parties involved and the report may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
.. .

FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 20463

RBPORT OF THE AUDIT DIVISION

ON

THE GEPHARDT COMMITTEE

I. Background

A. Overview

This report is based on an audit of The Gephardt

Committee (ttthe CODUlittee") to determine whether there has been

compliance with the provisions of the Federal Election Campaign

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

Matching Payaent Account Act. The audit was conducted pursuant to

26 u.s.c. 59038(a) which states that after each aatching payaent - -- ----pe-riod ,- -the---ea.ais si ol'l---s-ha-ll----condu-e-t---~_ho_'f_O\.l9h-e-xaai-ft-a-t-i-on- --and -

audit of the qualified caapai9D expenses of every candidate and

his authorized co..ittees who received payaents under Section

9037.

In addition, 26 u.s.c. S9039(b) and 11 cra 59038.1(a)(2)

state, in relevant part, that the Co..ission .ay conduct other

examinations and audits fro. tia. to tia. as it de.as necessary.

The Coaaittee registered with the Federal Election

Commission on May 24, 1988, as a joint fundraising representative.

The participants in the fundraising activity were the Gephardt for

President Comaittee, Inc. and the Gephardt in Congress Co.-ittee.

The Committee maintains its headquarters in washington, DC.

The Audit covered the period from the Coaaittee's inception in May 1988 throuqh Karch 31, 1990. The Coaaittee reported

an opening cash balance of $-0-; total receipts of $1,068,432.90;

total disbursements of $1,063,721.31: and a closing cash balance

on March 31, 1990, of $4,711.59.

This report is based on documents and workpapers which

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

record upon which the Commission based its decisions on the

matters in the report and were available to the Commissioners and

appropriate staff for review.
2 .....

B. Key personnel

The Treasurer of the Committee during the period of the

audit was Mr. Chris Petersen.

c. Scope

The audit included such tests as verification of total

reported receipts and expenditures and individual transactions;

review of required supporting documentation; review of contribution and expenditure limitations; analysis of debts and

obligations; and other audit procedures as deemed necessary under

the circumstances.

II. Audit Findinq and Recommendation

A. Allocation/Distribution of Joint Fundraising Proceeds

Section 9034.8(c)(1) of Title 11 of the Code of Federal

Requlations states, in part, that the participants in a joint

fundraising activity shall enter into a written agreement. The

written agreement shall identify the fundraising representative

and shall state a formula for the allocation of fundraising proceeds. The participant-s snilI--also---use----tne- -fcftmuI-a---to--a-Tl-oc-ate

the expenses incurred for the fundraising activity.

Section 9034.8(c)(8}(i)(A} of Title 11 of the Code of

Federal Regulations states, in part. that after gross contributions are allocated among the participants under 11 erR

9034.8(c)(7), the fundraising representative shall calculate each

participant's share of expenses based on the pereentage of the

total receipts each participant had been allocated. To calculate

each participant's net proceeds, the fundraising representative

shall subtract the participant's share of expenses fro. the amount

that participant has been allocated fro. gross proceeds.

Section 9034.8(c)(7)(i) of Title 11 of the Code of

Federal Regulations states, in part, that the fundraising

representative shall allocate proceeds according to the formula

stated in the fundraising agreement. Each contribution received

shall be allocated among the participants in accordance with the

allocation formula, unless the circumstances described in

paragraphs (c)(7)(ii), (iii) or (iv) of this section apply.

Section 9034.8(c)(7)(iv) of Title 11 of the Code of

Federal Regulations states that earmarked contributions which

exceed the contributor's limit to the designated participant under

11 CFR Part 110 may not be reallocated by the fundraising

representative without the written permission of the contributor.

A written instrument made payable to one of the participants shall

be considered an earmarked contribution unless a written statement

by the contributor indicates that it is intended for inclusion in

the general proceeds of the fundraising activity.
--

3 • -

1. Distribution of Net Proceeds

The Committee held events, conducted mailings and

phone solicitations. Durin9 the period June 13, 1988 through

March 30, 1990; the Committee made 21 distributions of net

proceeds to the Gephardt for President Committee (Uthe

Presidential Committee") totaling $360,000*/ and 14 distributions

of net proceeds to the Gephardt in congress Committee ("the

Congressional Committee~) totaling $311,OOO~/. However, the

Committee did not maintain documentation (workpapers,

spreadsheets, etc.) to support its calculation of the above

distributions.

Using deposit batch records, on which the

Committee's allocation of each contributor check to either the

Presidential Committee or the Congressional Committee was

annotated, in conjunction with expense recap sheets for each

event, mailing, and phone solicitation, the Audit staff determined

that the Presidential Committee should have received $356,863.49

and the Congressional Committee should have received $318,392.37.

As a result, the Committee's distributions to the

Presidential Committee were $3,136.51 ($360,000 - $3S6,863.49)

more fhan- it was entitled under -~the joinf fu~ndra1.s~fn9--a9ree-ment-~-

and its distributions to the Congressional Committee were

$7,392.37 ($318,392.37 - $311,000) short of their entitlement

under said agreement.

2. Allocation of Gross Proceeds

The j~int fundraising agreement states that the

receipts of the joint fundraising activity conducted under this

agreement will be allocated in full to the Presidential Committee

until and unless each contributor's lawful limit on contributions

to the Presidential Committee has been exhausted, whereupon the

contribution or that portion in excess of the limit applicable to

the Presidential Committee shall be allocated in full to the

Congressional Committee. Further the agreement states that a

contributor may designate his or her contribution to the fundraising committee according to a different allocation formula,

such as, by requesting that a contribution be accepted only by or

on behalf of the Congressional Committee.

Our analysis of gross proceeds received by the

Committee indicated that in 15 instances contributions were not

allocated in conformance with the fundraising agreement. The net

~/ Includes $500 that was disbursed directly by the Committee on

behalf of the Presidential Committee.

~/ Includes $4,000 that was disbursed directly by the Committee

on behalf of the Congressional Committee.
4 •.

affect of the errors resulted in the Presidential Co.mitt.e'.

allocation of gross proceeds being understated by $4,175 and the

Con9ressional Committee's allocation of gross proceeds being

overstated by $4,175.

To determine the effect on net proceeds, the Audit

staff applied a percentage (.6254), which represented the ratio of

gross receipts minus gross expenses divided by gross receipts, to

the misallocated gross receipts ($4,175).

As a result, the Presidential Committee's distribution of net proceeds was understated by $2,611.04 ($4,175 x

.6254) and the Congressional Committee's distribution of net

proceeds was overstated by $2,611.04.

3. Earmarked Contributions

The Committee allocated two contributions, totaling

$500, to the Congressional Committee since the two contributions,

when aggregated with prior contributions by the contributors to

the Presidential Committee. would have exceeded the limitations.

However, each contributor earmarked their contribution to the

Presidential Committee (i.e., checks made payable to Gephardt

Campaign Debt Fund and Gephardt for President). Therefore, it is -~-~ the----Audit staff's opin ion that -the--C-ouittee i s----p-ronfnn-ea--Croa-- reallocatinq the contributions to the Congressional Coaaittee

without the written consent of the contributors.

The Committee stated it will review our calculations

and recalculate its allocation/distribution of proceeds to the

participating committees as well.

In the interim audit report the Audit staff

recommended that, within 30 days of service of this report, the

Committee:

with respect to section 1 above, provide documentation

which demonstrated its distributions of $360,000 to the

Presidential Committee and $311,000 to the Conqressional

Committee were correct, or obtain a refund of $3,136.51

from the Presidential Committee and make a distribution

of $7,392.37 to the Congressional Committee and provide

evidence of such refund/distribution.

with respect to section 2 above, provide documentation

which demonstrated that the 15 contributions, totaling

$4,175, were allocated correctly or accept the Audit

staff's allocation of such contributions.

with respect to section 3 above, provide written documentation from the contributors which supported the

reallocation of the contributions or obtain a refund of

the amount actually distributed $312.70 ($500 x .6254)

from the conqressional Committee and refund $500 to the
5 -.

contributors and provide copies of the cancelled refund

checks.

On July 19, 1991, in its response to the interim

audit report, the Committee stated that ttafter a review of the

auditor's report and the Committee's records, the Committee has

decided not to contest the auditor's findings."

Further, on August 1, 1991, the Committee provided

documentation which demonstrated that it has received a refund of

$3,136.51 from the Presidential Committee, and that it has

distributed $7,392.37 to the Congressional Committee. According to

Committee documentation the source of the funds distributed to the

Congressional Committee ($7,392.37) was composed of $3,136.51

received from the Presidential Committee and $4,255.86 in

undistributed joint fundraising proceeds. In addition, the

Committee has orovided evidence that it has obtained a refund from

the Congressional Committee in the amount of $312.70 and has made

the necessary refunds to the contributors, totaling $500.

Recommendation

Based on the above, the Audit staff recommends no further

action.
CERTIFICATE OF SERVICE

This is to certify that on September 3, 1991, I caused to be

served, by first class mail postage paid, a copy of the final

audit report on The Gephardt Committee on the following

individuals:

Mr. Chris Petersen, Treasurer

The Gephardt Committee

80 F Street, NW, 8th Floor

Washington, DC 20001

Ms. Jackie Forte'

The Gephardt Committee

80 F Street, NW, 8th Floor

Washington, DC 20001

Mr. Robert F. Bauer

The Gephardt Committee

80 F Street, NW, 8th Floor

-Washingto-tl-,- DC- --2-9-0-0-1-- -

I date

fEDERAL ELECTION COtv1MlSSION :-'. .. ~"' .•~R002849 J •

May 22, 1992

MEMORANDUM

TO:

THROUGH:

FROM:

SUBJECT:

THE COMMISSIONERS /~/ / F

JOHN C. SURINA u:;//

STAFF DIRECTO~~

ROBERT J. COSTA , ~~ ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

FINAL ADDENDUM TO THE FINAL AUDIT REPORT ON

THE GEPHARDT FOR PRESIDENT COMMITTEE, INC.

Attached for your consideration is the subject final

addendum. Also attached is the legal analysis provided by the

Office of General Counsel (portions expunged).

This matter is being circulated on a 72 hour tally vote

basis. Should you have any questions, please contact Tom Nurthen

or Rick Halter at 219-3720.

Attachments:

Final Addendum to the Final Audit Report on the Gephardt for

President Committee, Inc.

Office of General Counsel's Legal Analysis Dated April 1, 1992

(portions expunged)
FEDERAL ELECTION COM/v\lSSION AK002847

ADDENDUM TO THE

FINAL AUDIT REPORT OF THE AUDIT DIVISION

ON THE

GEPHARDT FOR PRESIDENT COMMITTEE, INC.

I. Background

A. Overview

On June 10, 1991, the Federa~ Election Commission

("the Commission") approved the final audit report on Gephardt

for President Committee, Inc. (~the Committee"). That report

was based on an audit conducted pursuant to 26 u.s.c. S9038(a)

and included an initial determination regarding repayment to

the United States Treasury. The audit covered the period from

the Committee's inception, November 17, 1986, through May 31,

1988 ..

The final audit report, Finding III.C., addressed the

Coaaission's initial deteraination that the Coamittee made

payaents totaling $480,848.63 in excess of the Iowa state

liaitation. Further, the Coaaission determined that the

$126,383.37 was repayable to the United States Treasury

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

On May 21, 1992, the Coaaission approved the final

repayment determination and Statement of Reasons and reduced

the amount paid in excess of the Iowa state limitation to

$452,543.95 ($480,848.63 - 28,304.68). Further, the amount

repayable to the u.s. Treasury was reduced to $118,943.94

($452,543.95 x .252834).

Follow-up fieldwork was conducted pursuant to 11

C.F.R. S9038~1(b)(3)*/ which states, that the Commission may

conduct additional fIeldwork after completion of the fieldwork

conducted pursuant to paragraph (a)(ll and (2) of this section.

The follow-up fieldwork covered the perlcd June 1, 1988 through

November 9, 1990.

~/ Citations to 11 C.F.R. §§9031-39 and §§100-116 refer to the

regulations in effect for the 1988 cycle, unless otherwise

noted.
2

In addition, 11 C.F.R. S9038.1(e)(4) states that

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

circumstances warrant and as additional information become.

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

fieldwork conducted under 11 eFR 9038.1(b){3), and will be

placed on the public record.

This addendum is based upon documents and workpapers

which support each of its factual statements. They form part

of the record upon which the Commission based its decisions on

the matters in the addendum and were available to Commissioners

and appropriate staff for review*

B. Key Personnel

The Treasurer of the Committee during the period of

this review was Mr. S. Lee Kling.

c. Scope

The fieldwork included an examination of the required

supporting documentation for receipts and disbursements,

analysis of Coaaittee debts and obligations (including winding

down costs), and such other procedures as deemed necessary

under the circuastances to determine whether the Committee

received any matching fund payments in excess of the amount to

which it was entitled and whether any amount of any payment

made fro. the aatching payment account was used for any purpose

other than-to defray the qualified campaign expenses of the

Coaaittee.

II. Finding and Recommendation Related to Title 2 of the

United States Code

Certain Batters noted during course of this review

have been referred to the Commission's Office of General

Counsel.

III. Finding and Recommendation Related to Title 26 of

the United States Code

Use of Funds for Non-Qualified Campaign Expenses

Section 903S(a) of Title 26 of the United states Code

states, in part, that no candidate shall knowingly incur

qualified campaign expenses i~ excess of the expenditure

limitations applicable under section 441a<b){1)(A) of

Title 2.

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

Federal Regulations provides, in part, that the Commission may

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

from the matching payment account were used for purposes other

than to defray qualified campaign expenses.
3

Section 9038.2(b)(2)(ii)(A) of Title 11 of the Code

of Federal Regulations states that an example of a Commi••ion

repayment determination under paragraph (b)(2) of this section

includes determinations that a candidate, a candidate's

authorized committee(s) or agents have made expenditures in

excess of the limitations set forth in 11 erR 9035.

On June 10, 1991 the Commission made an initial

determination that the pro-rata portion ($126,383.37) of the

amount paid in excess of the Iowa expenditure limitation

($480,848.63 x .262834), as calculated by the Audit staff, was

repayable to the united States Treasury.

Presented below is a matter not addressed in the

interim audit report and consequently not considered as part of

the Commission's initial repayment determination.

The Commission obtained information that the

Committee received a list from the Iowa Democratic Party (lOP).

The list contained the names of past Iowa caucus attendees.

According to documents filed with the Commission, the Committee

or someone on their behalf provided $10,000*/ in cash or

services to the lDP in payment for the list:

Neither the audit fieldwork nor a subsequent review

of the Committee's computerized disbursement tape revealed a

$10,000 payment or combinations thereof to the lOP. If soaeone

paid the $10,000 or provided services to the lOP on behalf -of

the Committee, a contribution/expenditure should have been

reported by the Committee as well as allocated to the Iova

spending limitation.

As a result, an additional $10,000 is allocable to

the Iowa expenditure limitation.

In the interim addendum to the final audit report,

the Audit staff recommended that the Committee provide

documentation as to the source of the $10,000 payment to the

Iowa Democratic Party (the individual(s) who paid the lOP, a

copy of the check(s) or other instrument issued to the lOP,

receipt from the lOP, etc.). The Committee may also wish to

provide an explanation as to why the value of this transaction

should not be allocated to the Iowa state spending limitation.

Absent such a showing, the Audit staff will recommend that the

Commission make an initial determination that $2,628.34

($10,000 x .262834) be repaid to the United States Treasury.

~/ It appears $10,000 was the amount paid by other 1988

presidential committees to the lOP for its list of caucus

attendees.
4

In response, Counsel for the Committee states that

"The Committee has attempted to develop

information about this mailing list. Its

review is not complete, but if additional

information becomes available it will, of

course, provide it to the Commission.

To date, the Committee has determined the

following circumstances surrounding this

mailing list: It appears that the Iowa

Democratic Party offered its mailing list to a

number of candidates in return for their

agreement to help the Party with its

fundraising efforts. Among the candidates

offered the list on this basis was Congressman

Gephardt. The Iowa Democratic Party

apparently intended on one basis or the other

to make the information contained in this list

available to all candidates so long as they

reciprocated with some measure of fundraising

assistance to the Party. A review of relevant

news reports for the period in question will

find numerous suggestions that the Iowa

Democratic Party sought to maximize its

advantage in fundraising with a broader array

of presidential candidates whose interest in

the fortunes of the Party was heightened by

the pending Democratic presidential caucuses.

Nonetheless, the Committee does not take this

to be a complete account of the matter. At

this point, a nuaber of the employees who

might have recollections of the matter are no

longer with the Coaaittee and attempts to

contact them and interview thea about the

matter have been unavailing. Should the

Coaaission chance upon any information which

would be useful to the Committee in its

review, it would be most helpful to have this

information so the Committee can act upon it."

~ I

It is the opinion of the Audit staff that the Committ~.

has not demonstrated that the value of the transaction should not

be allocated to the Iowa state spending limitation, and has not

provided any documentation as to the source of the S10,000

payment to the Iowa Democratic Party. Therefore, the pro rata

portion of the amount in excess of the !~wa state limit

($2,628.34) is repayable to the United States Treasury.
5

Reeomaendation 11

On , the Commission made an initial determination

that $2,628.34 is cepayable to the United States Treasury within

90 calendar days of service of this report in accordance with

Section 9038.2(d) of Title 11 of the Code of Federal Regulations.

If the candidate does not dispute this determination within

30 days of service of this report, the initial determination will

be considered final.

Repayment Amount: $2,628.34
FEDERAL ELECTION COMMISSION

April 1, 1992

¥~~1 (1~w~ .--r-Lj-':-1 q'1 7Y7~I )

......,,1

FROPl:

~: Robert J. Costa

A.sistant Staff O' etor

Audit Oivisio

THROUGH:

,/

Lawrence M. Neble '~'

General Counnl? _

!till L. Bri9h~-cole.an{~ Associate General Counsel

Carmen R. Johnson nIY~ Assistant General dQU(\Sel

Lorenzo Holloway.... \\

Attorney A.~.

SUBJECT: Proposed Final Addendua Audit Report'on Gephardt

for President Coaaittee, Inc. (LRA t338/AR-92-4)

The proposed Final Addendua Audit Report on

the Gephardt for President Coaaittee, Inc. (-Presidential

Coaaittee-) were subaitted to the Office of General Counsel for

1-9a1 review on January 14, 1992.11 The Co..is~ion approved the

tnteria Addendua Audit Report on July 30, 1991. The co••ittee

responded to the Interim Addendua Audit Report on October 9,

liOn June 10, 1991, the Commission approved the Final Audit

ieport and made an initial deteraination that the Presidential

Coaaittee make a repayment of 5126,383.37 to the United States

Treasury. Pursuant to 11 C.F.R. S 9038.2{c)(2), the Committee

submitted a written response disputing the Commission's initial

repayment determination on July 18, 1991. In addition, the

Committee made an oral presentation before the Commlsslon on

NoveaDer 6, 1991.
-r--~~ c.na~ AaCenaum Audit Report Gephardt for president

(LaA,1338/AR-92-4)

page 2

1991. The followin9 memorandum contains our leqal analysis of

the finding and recommendations in the proposed Final Addendum

Audit Report ~/

I. USE or FUNDS rOR NONQUALIFIED CAMPAIGN EXPENSES - ALLOCATION or EXPENDITURES TO IOWA LIMITATION (III.;

)

The Iowa excenditure limitation. as calculated under 2 U.SAC~ S 441a(b)(1)(Ai for the 1988 presldential election cyele,

was $775,211.60. In the Final Audit Report. the Audit staff

found that the Presldentlal Commlttee exceeded the Iowa

expenditure limitation by S480,S43.63.l The Audlt s~aff

obtalned lnforma~ion lndlcatlna that :~e Preslden:lal :ommittee

acqulred a malling list ccn~alnlng tne ~ames cf past :owa Caucus

attendees and that the list ~as ?ur~~ased en oehal: c: the

Presidential Commlttee cv an U~Known cart~.~< The Audlt staff

allocated the cost of t~~ malling l:s~, S:O~OOO.QQ. t~ the Iowa

expenditure limltatlon.5.~ The Presldent:a: Commlttee did not

report the expenditure ncr d:d :: a:lccate t~e expendlture to

the Iowa limitatlon. ~he :~terl~ Addendum Audlt Reoort

recommended that the Presldentla: ~ommlt~ee ldent~fy the person

2/ Parenthetical references are to the placement of findings in

the proposed report. Throughout our comments, "FECA" refers to

the Federal Election Campalgn Act of 1971, as amended, 2 u.s.c.

55 431-455.

3/ The Committee's repayment ratio was .262843. Accordingly,

the Commission made an initial determination that the Co.mittee

repay $126,383.37 ($480,842.63 x .262843) to the United States

Treasury. See 11 C.F.R. S 9038.2 b)~2){ii)(A).

~/

51 The Audit D1V1Slon valued the rnalllng :~st at S10,000.00

because this 15 the amount all of ~~e ether preslden~~a~

commlttees pald for the llst.
'c; ..'''' "t"l'ha'l"Aad.'i\d'ua Audit Report

Gepharct fot'pre.ident

(LRA. • 338/AIl-92-4 )

Page 3

or entity that paid the party for the list on its behalf. In

addition, the Presidential Committee was provided an' opportunity

to submit an explanation as to why the cost of the mailin9 lilt,

$10,000.00, should not be allocated to the Iowa expenditure

11aitation.

In its response to the Interim Addendum Audit Report, the

presidential Committee notes that it has limited information

concerninq the acquisition of the mailing li~t from the Iowa

D.socratic Party (~Party")~ However, the Presidential Committee

asserts that the information that it has indlcates that the

party offered its mailing lists to a number of candidates in

consideration for their promise to assist the party with its

fundraising efforts. According to the Presidentlal Commlttee,

Congressman Gephardt was offered the list on that basls. The

Presidential committee argues that the Party sought to increase

its fundraising potential by uSlng presldential candidates who

were interested in the fortunes of the Party.

The Audit Division malntalns its position that the cost of

the mailing list is allocable to the Iowa expenditure

limitation because the Committee failed to demonstrate that the

cost should be allocated otherwise. Since the Final Audit

Report found that the Presidential Committee exceeded the Iowa

expenditure limitation, the Audit Division recommends that the

Commission make an initial determination that the Committee

repay an additional 52,628.34 ($10,000.00 x .262834) to the

United States Treasury.

f/

The Office of General Counsel a9 rees with the Audit staff

that the cost of the m&i1in9 list is allocable to the Iowa

expenditure liaitation and, therefore, we concur with the Audit

Division's reco..endation that the Coaaission aake an initial

determination that the Presidential Coaaittee repay $2,628.34 to

the United States Treasury. See 11 C.F.R.

S 9038.2(b)(2)(ii){A). It should be noted that the period for

notifying the candidate and the Presidential Coamittee of any

repayments to the United States Treasury expired on July 20,

1991. !!! 26 u.s.c. S9038(e). However, the Office of General

~/
\

..... -l"""''''~~ .- ....).0 ... AoaenQUm Audit Report Gephardt for president

(LaA.1338/AR-92-4)

Pag8 4

Counsel does not believe that this should preclude the

Commission from seeking an additional repayment based on a

finding in the Final Addendum Audit Report. The Final Audit

Report notified the Committee that the resolution of an

additional matter could increase In the initial repayment deter~inatlon. Furthermore, in the past the Commission has

notified other presidential committees, after the repayment

notification period expired, of additional repayments arisinql

out of addenda aud~t reports. See Addendum to the Final Audit

Report on The Cranston for Presldent Commlttee, Inc, approved on

October 27, 1987; Addendum to the Flnal Audit Report on The John

Glenn for President Commlttee, Inc. t approved on April 7, 1988.

Expenditures :ncurred f~r the purpose of

fnfluenClnQ tne nomlnatlcn of the candldate In a oarticular

state must-be allocated to that s~ateo :: C.r.Ro· S l06.2{a)(1:.

While there is no ~nformation lndlcatlng whether the mailing

list was acqulred fer the purpose of influenclng the voters of

Iowa, logic suggests that a mailing list conta.ning the names of

past Iowa Caucus attendees would be acqulred for this purpose.

The Presidential Committee has the burden, if it disoutes this

allocation, to demonstrate that another allocation is more

reasonable. Id.

II.
,·-.. "'.... u llna.l. Addendulll Audit Report Gephardt for Pr••ident

fLRA t338/AR-92-4) Page 8

III. SUNSHINE RECOKMEHDATION

--------- ----

The Comlllission's Sunshine Act ~rocedures provide that the

Office of General Counsel make Sunshine recommendations on

noeulllents submitted to this Office for revlew.

report should be considered in open We believe session that the proposed

fEDERAL ELECTION COtv1MlSSION :-'. .. ~"' .•~R002849 J •

May 22, 1992

MEMORANDUM

TO:

THROUGH:

FROM:

SUBJECT:

THE COMMISSIONERS /~/ / F

JOHN C. SURINA u:;//

STAFF DIRECTO~~

ROBERT J. COSTA , ~~ ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

FINAL ADDENDUM TO THE FINAL AUDIT REPORT ON

THE GEPHARDT FOR PRESIDENT COMMITTEE, INC.

Attached for your consideration is the subject final

addendum. Also attached is the legal analysis provided by the

Office of General Counsel <portions expunged).

This matter is being circulated on a 72 hour tally vote

basis. Should you have any questions, please contact Tom Nurthen

or Rick Halter at 219-3720.

Attachments:

Final Addendum to the Final Audit Report on the Gephardt for

President Committee, Inc.

Office of General Counsel's Legal Analysis Dated April 1, 1992

(portions expunged)
FEDERAL ELECTION COM/v\lSSION AK002847

ADDENDUM TO THE

FINAL AUDIT REPORT OF THE AUDIT DIVISION

ON THE

GEPHARDT FOR PRESIDENT COMMITTEE, INC.

I. Background

A. Overview

On June 10, 1991, the Federa~ Election Commission

("the Commission") approved the final audit report on Gephardt

for President Committee, Inc. (~the Committee"). That report

was based on an audit conducted pursuant to 26 u.s.c. S9038(a)

and included an initial determination regarding repayment to

the United States Treasury. The audit covered the period from

the Committee's inception, November 17, 1986, through May 31,

1988 ..

The final audit report, Finding III.C., addressed the

Coaaission's initial deteraination that the Coamittee made

payaents totaling $480,848.63 in excess of the Iowa state

liaitation. Further, the Coaaission determined that the

$126,383.37 was repayable to the United States Treasury

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

On May 21, 1992, the Coaaission approved the final

repayment determination and Statement of Reasons and reduced

the amount paid in excess of the Iowa state limitation to

$452,543.95 ($480,848.63 - 28,304.68). Further, the amount

repayable to the u.s. Treasury was reduced to $118,943.94

($452,543.95 x .252834).

Follow-up fieldwork was conducted pursuant to 11

C.F.R. S9038~1(b)(3)*/ which states, that the Commission may

conduct additional fIeldwork after completion of the fieldwork

conducted pursuant to paragraph (a)(ll and (2) of this section.

The follow-up fieldwork covered the perlcd June 1, 1988 through

November 9, 1990.

~/ Citations to 11 C.F.R. §§9031-39 and §§100-116 refer to the

regulations in effect for the 1988 cycle, unless otherwise

noted.
2

In addition, 11 C.F.R. S9038.1(e)(4) states that

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

circumstances warrant and as additional information become.

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

fieldwork conducted under 11 eFR 9038.1(b){3), and will be

placed on the public record.

This addendum is based upon documents and workpapers

which support each of its factual statements. They form part

of the record upon which the Commission based its decisions on

the matters in the addendum and were available to Commissioners

and appropriate staff for review*

B. Key Personnel

The Treasurer of the Committee during the period of

this review was Mr. S. Lee Kling.

c. Scope

The fieldwork included an examination of the required

supporting documentation for receipts and disbursements,

analysis of Coaaittee debts and obligations (including winding

down costs), and such other procedures as deemed necessary

under the circuastances to determine whether the Committee

received any matching fund payments in excess of the amount to

which it was entitled and whether any amount of any payment

made fro. the aatching payment account was used for any purpose

other than-to defray the qualified campaign expenses of the

Coaaittee.

II. Finding and Recommendation Related to Title 2 of the

United States Code

Certain Batters noted during course of this review

have been referred to the Commission's Office of General

Counsel.

III. Finding and Recommendation Related to Title 26 of

the United States Code

Use of Funds for Non-Qualified Campaign Expenses

Section 903S(a) of Title 26 of the United states Code

states, in part, that no candidate shall knowingly incur

qualified campaign expenses i~ excess of the expenditure

limitations applicable under section 441a<b){1)(A) of

Title 2.

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

Federal Regulations provides, in part, that the Commission may

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

from the matching payment account were used for purposes other

than to defray qualified campaign expenses.
3

Section 9038.2(b)(2)(ii)(A) of Title 11 of the Code

of Federal Regulations states that an example of a Commi••ion

repayment determination under paragraph (b)(2) of this section

includes determinations that a candidate, a candidate's

authorized committee(s) or agents have made expenditures in

excess of the limitations set forth in 11 erR 9035.

On June 10, 1991 the Commission made an initial

determination that the pro-rata portion ($126,383.37) of the

amount paid in excess of the Iowa expenditure limitation

($480,848.63 x .262834), as calculated by the Audit staff, was

repayable to the united States Treasury.

Presented below is a matter not addressed in the

interim audit report and consequently not considered as part of

the Commission's initial repayment determination.

The Commission obtained information that the

Committee received a list from the Iowa Democratic Party (lOP).

The list contained the names of past Iowa caucus attendees.

According to documents filed with the Commission, the Committee

or someone on their behalf provided $10,000*/ in cash or

services to the lDP in payment for the list:

Neither the audit fieldwork nor a subsequent review

of the Committee's computerized disbursement tape revealed a

$10,000 payment or combinations thereof to the lOP. If soaeone

paid the $10,000 or provided services to the lOP on behalf -of

the Committee, a contribution/expenditure should have been

reported by the Committee as well as allocated to the Iova

spending limitation.

As a result, an additional $10,000 is allocable to

the Iowa expenditure limitation.

In the interim addendum to the final audit report,

the Audit staff recommended that the Committee provide

documentation as to the source of the $10,000 payment to the

Iowa Democratic Party (the individual(s) who paid the lOP, a

copy of the check(s) or other instrument issued to the lOP,

receipt from the lOP, etc.). The Committee may also wish to

provide an explanation as to why the value of this transaction

should not be allocated to the Iowa state spending limitation.

Absent such a showing, the Audit staff will recommend that the

Commission make an initial determination that $2,628.34

($10,000 x .262834) be repaid to the United States Treasury.

~/ It appears $10,000 was the amount paid by other 1988

presidential committees to the lOP for its list of caucus

attendees.
4

In response, Counsel for the Committee states that

"The Committee has attempted to develop

information about this mailing list. Its

review is not complete, but if additional

information becomes available it will, of

course, provide it to the Commission.

To date, the Committee has determined the

following circumstances surrounding this

mailing list: It appears that the Iowa

Democratic Party offered its mailing list to a

number of candidates in return for their

agreement to help the Party with its

fundraising efforts. Among the candidates

offered the list on this basis was Congressman

Gephardt. The Iowa Democratic Party

apparently intended on one basis or the other

to make the information contained in this list

available to all candidates so long as they

reciprocated with some measure of fundraising

assistance to the Party. A review of relevant

news reports for the period in question will

find numerous suggestions that the Iowa

Democratic Party sought to maximize its

advantage in fundraising with a broader array

of presidential candidates whose interest in

the fortunes of the Party was heightened by

the pending Democratic presidential caucuses.

Nonetheless, the Committee does not take this

to be a complete account of the matter. At

this point, a nuaber of the employees who

might have recollections of the matter are no

longer with the Coaaittee and attempts to

contact them and interview thea about the

matter have been unavailing. Should the

Coaaission chance upon any information which

would be useful to the Committee in its

review, it would be most helpful to have this

information so the Committee can act upon it."

~ I

It is the opinion of the Audit staff that the Committ~.

has not demonstrated that the value of the transaction should not

be allocated to the Iowa state spending limitation, and has not

provided any documentation as to the source of the S10,000

payment to the Iowa Democratic Party. Therefore, the pro rata

portion of the amount in excess of the !~wa state limit

($2,628.34) is repayable to the United States Treasury.
5

Reeomaendation 11

On , the Commission made an initial determination

that $2,628.34 is cepayable to the United States Treasury within

90 calendar days of service of this report in accordance with

Section 9038.2(d) of Title 11 of the Code of Federal Regulations.

If the candidate does not dispute this determination within

30 days of service of this report, the initial determination will

be considered final.

Repayment Amount: $2,628.34
FEDERAL ELECTION COMMISSION

April 1, 1992

¥~~1 (1~w~ .--r-Lj-':-1 q'1 7Y7~I )

......,,1

FROPl:

~: Robert J. Costa

A.sistant Staff O' etor

Audit Oivisio

THROUGH:

,/

Lawrence M. Neble '~'

General Counnl? _

!till L. Bri9h~-cole.an{~ Associate General Counsel

Carmen R. Johnson nIY~ Assistant General dQU(\Sel

Lorenzo Holloway.... \\

Attorney A.~.

SUBJECT: Proposed Final Addendua Audit Report'on Gephardt

for President Coaaittee, Inc. (LRA t338/AR-92-4)

The proposed Final Addendua Audit Report on

the Gephardt for President Coaaittee, Inc. (-Presidential

Coaaittee-) were subaitted to the Office of General Counsel for

1-9a1 review on January 14, 1992.11 The Co..is~ion approved the

tnteria Addendua Audit Report on July 30, 1991. The co••ittee

responded to the Interim Addendua Audit Report on October 9,

liOn June 10, 1991, the Commission approved the Final Audit

ieport and made an initial deteraination that the Presidential

Coaaittee make a repayment of 5126,383.37 to the United States

Treasury. Pursuant to 11 C.F.R. S 9038.2{c)(2), the Committee

submitted a written response disputing the Commission's initial

repayment determination on July 18, 1991. In addition, the

Committee made an oral presentation before the Commlsslon on

NoveaDer 6, 1991.
-r--~~ c.na~ AaCenaum Audit Report Gephardt for president

(LaA,1338/AR-92-4)

page 2

1991. The followin9 memorandum contains our leqal analysis of

the finding and recommendations in the proposed Final Addendum

Audit Report ~/

I. USE or FUNDS rOR NONQUALIFIED CAMPAIGN EXPENSES - ALLOCATION or EXPENDITURES TO IOWA LIMITATION (III.;

)

The Iowa excenditure limitation. as calculated under 2 U.SAC~ S 441a(b)(1)(Ai for the 1988 presldential election cyele,

was $775,211.60. In the Final Audit Report. the Audit staff

found that the Presldentlal Commlttee exceeded the Iowa

expenditure limitation by S480,S43.63.l The Audlt s~aff

obtalned lnforma~ion lndlcatlna that :~e Preslden:lal :ommittee

acqulred a malling list ccn~alnlng tne ~ames cf past :owa Caucus

attendees and that the list ~as ?ur~~ased en oehal: c: the

Presidential Commlttee cv an U~Known cart~.~< The Audlt staff

allocated the cost of t~~ malling l:s~, S:O~OOO.QQ. t~ the Iowa

expenditure limltatlon.5.~ The Presldent:a: Commlttee did not

report the expenditure ncr d:d :: a:lccate t~e expendlture to

the Iowa limitatlon. ~he :~terl~ Addendum Audlt Reoort

recommended that the Presldentla: ~ommlt~ee ldent~fy the person

2/ Parenthetical references are to the placement of findings in

the proposed report. Throughout our comments, "FECA" refers to

the Federal Election Campalgn Act of 1971, as amended, 2 u.s.c.

55 431-455.

3/ The Committee's repayment ratio was .262843. Accordingly,

the Commission made an initial determination that the Co.mittee

repay $126,383.37 ($480,842.63 x .262843) to the United States

Treasury. See 11 C.F.R. S 9038.2 b)~2){ii)(A).

~/

51 The Audit D1V1Slon valued the rnalllng :~st at S10,000.00

because this 15 the amount all of ~~e ether preslden~~a~

commlttees pald for the llst.
'c; ..'''' "t"l'ha'l"Aad.'i\d'ua Audit Report

Gepharct fot'pre.ident

(LRA. • 338/AIl-92-4 )

Page 3

or entity that paid the party for the list on its behalf. In

addition, the Presidential Committee was provided an' opportunity

to submit an explanation as to why the cost of the mailin9 lilt,

$10,000.00, should not be allocated to the Iowa expenditure

11aitation.

In its response to the Interim Addendum Audit Report, the

presidential Committee notes that it has limited information

concerninq the acquisition of the mailing li~t from the Iowa

D.socratic Party (~Party")~ However, the Presidential Committee

asserts that the information that it has indlcates that the

party offered its mailing lists to a number of candidates in

consideration for their promise to assist the party with its

fundraising efforts. According to the Presidentlal Commlttee,

Congressman Gephardt was offered the list on that basls. The

Presidential Committee argues that the Party sought to increase

its fundraising potential by uSlng presldential candidates who

were interested in the fortunes of the Party.

The Audit Division malntalns its position that the cost of

the mailing list is allocable to the Iowa expenditure

limitation because the Committee failed to demonstrate that the

cost should be allocated otherwise. Since the Final Audit

Report found that the Presidential Committee exceeded the Iowa

expenditure limitation, the Audit Division recommends that the

Commission make an initial determination that the Committee

repay an additional 52,628.34 ($10,000.00 x .262834) to the

United States Treasury.

f/

The Office of General Counsel a9 rees with the Audit staff

that the cost of the m&i1in9 list is allocable to the Iowa

expenditure liaitation and, therefore, we concur with the Audit

Division's reco..endation that the Coaaission aake an initial

determination that the Presidential Coaaittee repay $2,628.34 to

the United States Treasury. See 11 C.F.R.

S 9038.2(b)(2)(ii){A). It should be noted that the period for

notifying the candidate and the Presidential Coamittee of any

repayments to the United States Treasury expired on July 20,

1991. !!! 26 u.s.c. S9038(e). However, the Office of General

~/
\

..... -l"""''''~~ .- ....).0 ... AoaenQUm Audit Report Gephardt for president

(LaA.1338/AR-92-4)

Pag8 4

Counsel does not believe that this should preclude the

Commission from seeking an additional repayment based on a

finding in the Final Addendum Audit Report. The Final Audit

Report notified the Committee that the resolution of an

additional matter could increase In the initial repayment deter~inatlon. Furthermore, in the past the Commission has

notified other presidential committees, after the repayment

notification period expired, of additional repayments arisinql

out of addenda aud~t reports. See Addendum to the Final Audit

Report on The Cranston for Presldent Commlttee, Inc, approved on

October 27, 1987; Addendum to the Flnal Audit Report on The John

Glenn for President Commlttee, Inc. t approved on April 7, 1988.

Expenditures :ncurred f~r the purpose of

fnfluenClnQ tne nomlnatlcn of the candldate In a oarticular

state must-be allocated to that s~ateo :: C.r.Ro· S l06.2{a)(1:.

While there is no ~nformation lndlcatlng whether the mailing

list was acqulred fer the purpose of influenclng the voters of

Iowa, logic suggests that a mailing list conta.ning the names of

past Iowa Caucus attendees would be acqulred for this purpose.

The Presidential Committee has the burden, if it disoutes this

allocation, to demonstrate that another allocation is more

reasonable. Id.

II.
,·-.. "'.... u llna.l. Addendulll Audit Report Gephardt for Pr••ident

fLRA t338/AR-92-4) Page 8

III. SUNSHINE RECOKMEHDATION

--------- ----

The Comlllission's Sunshine Act ~rocedures provide that the

Office of General Counsel make Sunshine recommendations on

noeulllents submitted to this Office for revlew.

report should be considered in open We believe session that the proposed