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FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20463

REPORT OF THE AUDIT DIVISION

ON
HAGELIN 2000

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit of Hagelin 2000. The audit is mandated
by Section 9038(a) of Title 26 of the United States Code. That section states that “After
each matching payment period, the Commission shall conduct a thorough examination
and audit of the qualified campaign expenses of every candidate and his authorized
committees who received payments under section 9037.” Also, Section 9039(b) of the
United States Code and Section 9038.1(a)(2) of the Commission’s Regulations state that
the Commission may conduct other examinations and audits from time to time as it
deems necessary.

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

B. AUDIT COVERAGE

The audit covered the period from Hagelin 2000’s inception, May 10,
1999 through December 31, 2000. Hagelin 2000 reported an opening cash balance of
$-0-;total receipts of $2,151,898; total disbursements of $2,151,727; anda closing cash
balance of $171. In addition, a limited review of disclosure reports filed through
December 31, 2001 was conducted for purposes of determining Hagelin 2000’s matching
fund entitlement based on its financial position.

Cc. CAMPAIGN ORGANIZATION

Hagelin 2000 maintains its headquarters in Fairfield, lowa. The treasurer
from inception until present is Blanche Woodward. Hagelin 2000 registered with the
Federal Election Commission (the Commission) on May 10, 1999 as the principal
campaign committee for John S. Hagelin, candidate for the Natural Law Party’s
nomination for the office of President of the United States. During the audit period,
Hagelin 2000 utilized one bank account in Fairfield, lowa. From this account it made

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II. AUDIT FINDING AND RECOMMENDATION - AMOUNTS DUE TO
THE UNITED STATES TREASURY

A. DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONS

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

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

Mr. Hagelin’s date of ineligibility was August 31, 2000. The Audit staff
reviewed Hagelin 2000’s financial activity and disclosure reports through December 31,
2001, analyzed winding down costs, and prepared the Statement of Net Outstanding
Campaign Obligations (NOCO) that appears below.

HAGELIN 2000
STATEMENT OF NET OUTSTANDING CAMPAIGN OBLIGATIONS

As of August 31, 2000
As Determined through December 31, 2001
Assets
Cash in Bank $ 9,759
Total Assets $ 9,759
Obligations
Accounts Payable for Qualified Campaign Expenses 236,418
Loans Payable 178,000
Actual Wind Down Costs (August 31, 2000 — 42,724
December 31, 2001)
Estimated Wind Down Costs (January 1, 2002 - 22,080
December 31, 2002)
Total Obligations (479,222)
Net Outstanding Campaign Obligations S$ (469,464)

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Il. AUDIT FINDINGS AND RECOMMENDATIONS — NON-REPAYMENT
MATTERS

A. APPARENT PROHIBITED CONTRIBUTIONS — USE OF CORPORATE
AIRCRAFT

Section 431(8)(A)(i) of Title 2 of the United States Code states, in part.
that a contribution includes any gift, subscription, loan, advance, or deposit of money or
anything of value for the purpose of influencing any election for Federal office.

Section 114.1(a) of Title 11 of the Code of Federal Regulations states, in
relevant part, the term contribution shall include any direct or indirect payment,
distribution, loan, advance, deposit, or gift of money, or any services, or anything of
value, unless an activity is specifically permitted by part 114.

Sections 114.2(a), (d) and (e) of Title 11 of the Code of Federal
Regulations state, in part, that corporations are prohibited from making a contribution in
connection with any Federal election. Further, a candidate, political committee or other
person is prohibited from knowingly accepting or receiving any contribution prohibited
by this section. Lastly, no officer or director of any corporation shall consent to any
contribution or expenditure by the corporation prohibited by this section.

Section 114.9(e) of Title 11 of the Code of Federal Regulations states, in
part, that a candidate, candidate's agent, or person traveling on behalf of a candidate who
uses an airplane which is owned or leased by a corporation or labor organization other
than a corporation or labor organization licensed to offer commercial services for travel in
connection with a Federal election must, in advance, reimburse the corporation or labor
organization. In the case of travel to a city served by regularly scheduled commercial
service, the first class airfare; in the case of travel to a city not served by a regularly
scheduled commercial service, the usual charter rate.

The National Pacific Fund, Inc. (NPF) billed Hagelin 2000 $25,179,
incurred in connection with the Reform Party Convention whose nomination Mr. Hagelin
was seeking. According to the invoice. expenses for food, lodging and airfare were
incurred between August 7 and August 29, 2000. On September 7, 2000 Hagelin 2000
paid NPF $25,000.' Of the amount billed, $18,242 pertained to the Candidate and/or his
representatives’ travel on an aircraft owned by NPF. The flights were billed at the first
class rate. Payment for use of this aircraft should have been made in advance of each
flight in accordance with 11 CFR §114.9(e). However. the payment ranged from 10 to 31
days after the flights occurred.

1. The payment for that portion of the invoice representing the cost of food and lodging was made in
a commercially reasonable time frame.

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approximately 1200 disbursements. In addition, Hagelin 2000 received approximately
13,800 contributions from approximately 9,500 contributors. These contributions totaled
approximately $1,037,000.

Mr. Hagelin was determined eligible to receive matching funds on March
31, 2000. Hagelin 2000 made 10 requests for matching funds totaling $802,818 and
received $700,286 from the United States Treasury. This amount represents 4.15% of the
$16,890,000 maximum entitlement that any candidate could receive. For matching fund
purposes, the Commission determined that Mr. Hagelin’s candidacy ended on August 31,
2000, the date he received the nomination of the Natural Law Party. On March 1, 2001,
Hagelin 2000 received its final matching fund payment to defray qualified campaign
expenses and to help defray the cost of winding down the campaign.

D. AUDIT SCOPE AND PROCEDURES

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

1. the receipt of contributions from prohibited sources, such as those from
corporations or labor organizations (see Finding II.A.);

2. the receipt of contributions or loans in excess of the statutory limitations (see
Finding 11.B.);

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

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

5. proper disclosure of campaign debts and obligations;

6. the accuracy of total reported receipts, disbursements and cash balances as
compared to campaign bank records;

7. adequate recordkeeping for campaign transactions;

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

9. compliance with spending limitations; and,

10. other audit procedures that were deemed necessary in the situation.

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Section 441a(a)(2)(A) of Title 2 of the United States Code States, in part,
no multicandidate political committee shall make contributions to any candidate and his
authorized committees with respect to any election for Federal office which, in the
aggregate, exceed $5,000.

The Natural Law Party (NLP) paid all payroll and overhead expenses for
Hagelin 2000. Hagelin 2000 reimbursed the NLP for its share based upon the amount of
time spent by each individual on campaign related matters. The overall monthly payroll
percentage was then applied to overhead expenses for the month. During the period April
1999 through January 2001, Hagelin 2000 reimbursed NLP $330,872. As of December
2001, Hagelin 2000 owed the NLP $4,307. All reimbursements were timely except for
those instances noted below:

Hagelin 2000 Share Number of Days
Period of Payroll and Outstanding Prior to

Incurred Overhead Expenses Reimbursement

April 1999 — June 1999 $10,000 | 154 to 185 days
June 1999 -September 1999 $32,000 | 61 to 153 days

October 1999 $12,404 67 days
January 2000 ~ February 2000 $27,539 63 to 91 days
Total reimbursed untimely: $81,943

This matter was discussed with Hagelin 2000 representatives at the exit
conference. The treasurer agreed that the above expenses were not paid in a timely
manner and attributed the delays to inexperience and administrative understaffing.

Since Hagelin 2000 reimbursements were not timely, the NLP made
contributions for the period of time the above payroll and overhead expenses were not
reimbursed. Since the first payment did not occur until November 1999, NLP made a
contribution of $49,404 ($10,000 + $32,000 + $12.404 - $5,000 limit). Subsequently, the
NLP made a second contribution of $22,539 ($27.539 - $5,000 limit)’.

In the preliminary audit report, the Audit staff recommended that Hagelin
2000 demonstrate that it did not receive excessive contributions from the NLP as a result
of the above transactions. Further, Hagelin 2000 was to provide documentation that
demonstrated that the balance owed to NLP of $4,307 was paid.

In response to the preliminary audit report, Hagelin 2000 representatives
stated that they agreed reimbursements to the NLP for shared payroll and overhead
expenses were late. Further, the balance due to the NLP ($4.307) was converted to an in-
kind contribution that was reflected on an amended disclosure report filed by Hagelin
2000.

4. The NLP’s $5,000 contribution limit was restored once the expenses incurred April through
October 1999 had been reimbursed by Hagelin 2000.

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Chia

FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

October 7, 2002
MEMORANDUM

TO: Ron M. Harris
Press Officer
Press Office

FROM: Joseph F. Stoltz!
Assistant Staff lor
Audit Division \

SUBJECT: Public Issuance of the Report of the Audit Division on Hagelin 2000

Attached please find a copy of the report and related documents on Hagelin 2000
that was approved by the Commission on September 20, 2002.

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

Attachment as stated

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


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Shown below is the application of both private and public funds to the

NOCO through March 1, 2001, the date of Hagelin 2000’s last matching fund payment.

r

entitlement.

Net Outstanding Campaign
Obligations (Deficit) as of 8/31/2000 $ (469,464)

Net Private Contributions
Received 8/31/2000 to 3/1/01 72,467

Other Receipts/Income Received

8/31/2000 to 3/1/2001 153
Matching Funds Received
8/31/2000 to 3/1/2001 310,791

Remaining Net Outstanding Campaign
Obligations (Deficit) @ 3/2/01 $__ (86,053)

Hagelin 2000 did not receive matching fund payments in excess of its

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According to a Dun and Bradstreet, Inc. report, NPF provides investment
services and was incorporated on June 15, 1988 in the state of California. This report
also identified Nathaniel Goldhaber as its President. *

The Audit staff discussed this matter with Hagelin 2000 representatives
during fieldwork and at the exit conference. The representatives confirmed Nathaniel
Goldhaber was the President of NPF as well as the Natural Law Party’s (NLP’s) Vice-
Presidential candidate. The treasurer further explained that neither she nor anyone on the
administrative staff had knowledge of use of this aircraft at the time of the travel, and that
payment was made as soon as the invoice was received.

Subsequent to the exit conference, a Hagelin 2000 representative provided
a signed statement from Mr. Goldhaber. It stated NPF is a Subchapter S Corporation;
that Mr. Goldhaber and his wife are the sole shareholders; and, “[u]nder federal and state
law, all of the income and expenses of the National Pacific Fund are passed through to
my wife and me for tax purposes. Thus, financially, we are treated as if we operated the
plane in a partnership.”

The FECA does not distinguish a Subchapter S Corporation from any
other corporation. The fact that profit/losses of Subchapter S Corporations are reflected
on an individual tax return (Form 1040) does not alter the corporate status of NPF nor
mitigate the corporate nature of this transaction.?

In the preliminary audit report, the Audit staff recommended that Hagelin
2000 demonstrate that it did not receive a prohibited contribution in the amount of
$18,242. Further, Hagelin 2000 was to provide any other relevant information regarding
the use of the aircraft.

In response to the preliminary audit report, Hagelin 2000 representatives
stated that the failure to pay for the corporate aircraft in advance of the flight “was
inadvertent and due to the inexperience on the part of the Committee’s staff.”

It is the Audit staff's opinion that since payment was not made in advance
of each flight, the NPF made and Hagelin 2000 received a prohibited in-kind contribution
for the period of time the amounts remained outstanding.

B. APPARENT IMPERMISSABLE CONTRIBUTIONS

Section 431(8)(A)(i) of Title 2 of the United States Code states in part,
that a contribution includes a gift, subscription, loan, advance, or deposit of money or
anything of value for the purpose of influencing a Federal election.

2. The corporate status of the company was verified with the California Secretary of State.
3. If an individual or partnership owned this aircraft, Hagelin 2000 would have been required to pay a
much higher rate.

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FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

REPORT OF THE AUDIT DIVISION
ON
HAGELIN 2000

EXECUTIVE SUMMARY

Hagelin 2000 registered with the Federal Election Commission on May 10, 1999.
Hagelin 2000 is the principle campaign committee of John S. Hagelin, candidate for the
Natural Law Party’s nomination for the office of President of the United States.

The audit is mandated by Section 9038(a) of Title 26 of the United States Code,
Tequiring the Commission to audit committees authorized by candidates who receive
Federal Funds. Hagelin 2000 received $700,286 in matching funds from the United
States Treasury.

The findings of the audit were presented to Hagelin 2000 Tepresentatives at an exit
conference held on November 19, 2001 and in the Preliminary Audit Report. Hagelin
2000’s responses to those findings are contained in the audit report.

The following is an overview of the findings contained in the audit Teport.

APPARENT PROHIBITED CONTRIBUTIONS — USE OF CORPORATE AIRCRAFT — 2
U.S.C. §431(8)(A)(i);_ 1ICFR §114.1(a), §114.2(a), (d) and (e), and 114.9(e). The
Candidate and/or his representatives traveled on an aircraft owned by the National Pacific
Fund, Inc. (NPF). NPF billed Hagelin 2000 $18,242, the first class rate. Hagelin 2000
paid NPF between 10 to 31 days after the flights occurred. Representatives for Hagelin
2000 stated the failure to pay for the corporate aircraft in advance of the flight “was
inadvertent and due to the inexperience on the part of the Committee’s staff.”

APPARENT IMPERMISSABLE CONTRIBUTIONS — 2 U.S.C. §431(8)(A)(i) and
§441a(a)(2)(A). The Natural Law Party (NLP) paid all payroll and overhead expenses for
Hagelin 2000. Hagelin 2000 reimbursed the NLP. However, not all reimbursements
were made in a timely manner. Due to these untimely reimbursements, the Audit staff
determined Hagelin 2000 received two contributions from the NLP of $49,404 and
$22,539. Hagelin 2000 representatives agreed the reimbursements were late.

DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONS — 1]CFR
§§9034.5(a) and 9034.1(b). Hagelin 2000 did not receive matching funds in excess of its
entitlement.

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FEDERAL ELECTION COMMISSION
WASHINGTON, DC 20463

September 25, 2002

Ms. Blanche Woodward, Treasurer
Hagelin 2000

PO Box 1900

Fairfield, [A 52556

Dear Ms. Woodward:

Attached please find the Report of the Audit Division on Hagelin 2000. The
Commission approved this report on September 20, 2002. The Commission may pursue
any of the matters discussed in an enforcement action.

The Commission approved report will be placed on the public record on October
4, 2002. Should you have any questions regarding the public release of this report, please
contact Ron Harris of the Commission’s Press Office at (202) 694-1220.

Any questions you may have related to matters covered during the audit or in the
report should be addressed to Mary E. Moss or Thomas J. Nurthen of the Audit Division
at (202) 694-1200 or toll free at (800) 424-9530. .

Sincerely,

(, gat 7-

oseph F. Stoltz
Assistant Staff Director
Audit Division

Attachment as stated

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CHRONOLOGY

HAGELIN 2000

Audit Fieldwork 11/01/01- 12/07/01
Exit Conference 11/19/01

Preliminary Audit Report to

the Committee 05/08/02
Response to the

Preliminary Audit Report 07/11/02
Final Audit Report Approved 09/20/02

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TABLE OF CONTENTS

HAGELIN 2000

Page
Executive Summary 1
Final Audit Report 3
Background 3
Findings 5
Transmittal To Commission
— Legal Analysis 11
Transmittal to Committee 13

Chronology 15


REPORT OF THE AUDIT DIVISION
ON

HAGELIN 2000

Approved September 20, 2002

FEDERAL ELECTION COMMISSION
999 E STREET, N.W.
WASHINGTON, D.C.



FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20463

September 17, 2002

MEMORANDUM

TO: The Commissioners

THROUGH: James A. Pehrkon
Staff Director

Robert J. Costa

Deputy Staff Director

FROM: Joseph F. Stoltz
Assistant Staff ‘or
Audit Division

Thomas J. Nurthen a
Audit Manager

Mary F. ditt ul

Lead Auditor
SUBJECT: Final Audit Report - Hagelin 2000

Attached for your approval is the subject final audit report. A copy of Hagelin
2000’s response to the preliminary audit report is also attached. The final audit Teport was
sent to the Office of General Counsel for review on September 6. 2002. On September 16,
2002. the Office of General Counsel informed the Audit Division. via electronic mail, that
it had reviewed the proposed report and had no comments

Recommendation

The Audit staff recommends that the report be approved

This report is being circulated for a tally vote in leu of placement on the agenda for
September 26, 2002. Should you have any questions. please contact Mary Moss or Tom
Nurthen at 694-1200.

Attachments:

Report of the Audit Division on Hagelin 2000
Committee response to Preliminary Audit Repon

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