11

Although GFP’s receipts database indicated that for a few of the excessive contributions
a reattribution letter may have been sent to the contributor, no documentation to support
these actions was maintained in GFP’s records.

Subsequent to fieldwork, a schedule of excessive contributors was provided to GFP. In
response, GFP stated that contribution refunds were issued to some of the identified
contributors in February and March of 2005.°

Preliminary Audit Report Recommendation

The Audit staff recommended that GFP provide documentation that the contributions
identified as errors were not excessive. Such documentations should have included
copies of timely negotiated refund checks or timely signed and dated reattribution letters.
Also, for those contributions made by a check with more than one name imprinted, it was
recommended that GFP provide timely notifications to the contributors of the
presumptive action taken by GFP. Absent such documentation, the Audit staff
recommended that GFP make a payment of $225,792 to the U.S. Treasury.

Committee Response to Preliminary Audit Report & Audit Staff's
Assessment

For the eleven excessive contributions that were made by checks with two names
imprinted, GFP stated that these contributions represented 62.7% of the excessive amount
in the sample and could be presumptively attributed among both spouses and should not
be regarded as excessive contributions. According to GFP, the Commission removed the
requirement to obtain written authorization prior to attributing contributions between two
individuals whose names were imprinted on the check. To demonstrate that five of these
contributions were intended to be joint contributions, GFP provided copies of letters sent
for matching fund purposes that instructed the individual who did not sign the
contribution check to verify the amount of their contribution. These letters were not
considered valid reattributions because GFP did not obtain the requisite signatures.
Further, these letters were not considered valid notifications of presumptive reattributions
by GFP because the letters fail to adequately inform the individuals of how their
contribution was attributed and offer a refund of the excessive portion. GFP did not
provide any new documentation for the remaining six excessive contributions made by
checks with two names imprinted.

For two of the contributions that were made by checks with only one name imprinted,
GFP provided copies of letters sent to contributors for matching fund purposes that
instructed the individual whose name was not imprinted on the contribution check to
verify the amount of their contribution and that the account contained their personal
funds. For one of these contributions, GFP provided a copy of a personal statement
signed by both contributors which authorized the spouse to write a check to GFP on her
behalf. Since it appears that GFP received a timely reattribution of the excessive amount
to the spouse, the Audit staff accepted the corrective action taken by GFP for this

° The audit notification letter dated May 12, 2004 explained that untimely refunds for impermissible
contributions were not recognized by the Commission and payment to the U.S. Treasury may be required
for such refunds identified as a result of the audit. Subsequent to the preliminary audit report, the
Commission provided GFP the opportunity to make such refunds to identified individuals instead of the
USS. Treasury.


Part II
Overview of Campaign

Campaign Organization

Important Dates Gephardt for President, Inc.

e Date of Registration January 7, 2003

© Eligibility Period? December 1, 2003 — January 20, 2004

e Audit Coverage January 7, 2003 — June 30, 2006"
_Headquarters Washington, DC

_Bank Information

e Bank Depositories Seven

e Bank Accounts Thirteen - Certificates of Deposits

Six - Checking Accounts

One - Money Market Account

"Treasurer S. Lee Kling (January 7, 2003 —
current)

Management Information |

e Attended FEC Campaign Finance Seminar [No

e Used Commonly Available Campaign Yes
Management Software Package

¢ Who Handled Accounting and Recordkeeping | Paid staff and campaign consultant
Tasks

? The period during which the candidate was eligible for matching funds, beginning on the date of certification for
eligibility and ending on the date the candidate withdrew from the campaign. See 11 CFR §9033.

> Limited reviews of receipts and expenditures were performed after April 30, 2004, to determine whether the
candidate was eligible to receive additional matching funds.


Finding 4. Stale-Dated Checks

Summary

The Audit staff identified stale-dated checks totaling $12,242 issued by GFP. The Audit
staff recommended that GFP provide evidence that these checks are not outstanding or
make a payment to the U.S. Treasury for the amount of outstanding checks. In response
to the preliminary audit report, GFP accepted the Audit staff’s calculation of stale-dated
checks. Since no payment to the U.S. Treasury for the amount of stale-dated checks has
been made, the Audit staff maintains $12,242 is payable to the U.S. Treasury.

Legal Standard

Handling Stale-Dated (Uncashed) Checks. If a committee has issued checks that the
payees (creditors or contributors) have not cashed, the committee must notify the
Commission of its efforts to locate the payees and encourage them to cash the
outstanding checks. The committee must also submit a check payable to the U. S.
Treasury for the total amount of the outstanding checks. 11 CFR §9038.6.

Facts and Analysis

The Audit staff's reconciliation of GFP disbursements to bank activity through March 31,
2005 identified stale-dated checks totaling $12,242 issued by GFP. These checks were
issued between April 15, 2003 and June 15, 2004 and are comprised mostly of
contribution refunds. At the conclusion of fieldwork, GFP was provided a schedule of
stale-dated checks.

Preliminary Audit Report Recommendation & Committee Response
The Audit staff recommended that GFP provide evidence that the checks were no longer
outstanding by demonstrating the checks or replacement checks had cleared the bank or
that the obligations did not exist and the checks were voided. Absent such evidence, it
was stated that the Audit staff would recommend that $12,242 be paid to the U.S.
Treasury and the amount should be disclosed on Schedule D-P (Debts and Obligations)
until paid.

In response to the preliminary audit report, GFP stated that it accepted the finding on
stale-dated checks and would disclose the appropriate amount as a debt on Schedule D-P.
However, no payment to the U.S. Treasury has been made nor has GFP disclosed the
amount as a debt on Schedule D-P. The Audit staff maintains $12,242 be paid to the U.S.

Treasury.

Recommendation

The Audit staff recommends that GFP pay $12,242 to the U.S. Treasury.


Repayment The Commission-approved audit report may address issues other than those
in the preliminary audit report and will contain a repayment determination. 11 CFR
§9038.1(b)(1).

Facts and Analysis

The Candidate’s date of ineligibility was January 20, 2004. The Audit staff reviewed
GFP’s financial activity through December 31, 2006, analyzed estimated winding down
costs, and prepared the Statement of Net Outstanding Campaign Obligations that appears
below:

Gephardt for President, Inc.
Statement of Net Outstanding Campaign Obligations
As of January 20, 2004
Prepared on December 31, 2006

Assets

Cash on Hand $ 139,203 [a]

Cash in Bank 1,831,420 [b]

Accounts Receivable 223,689

Capital Assets 21,975

Other Assets 10,753
Total Assets $ 2,227,040
Liabilities

Accounts Payable for Qualified Campaign Expenses at

1/20/04 $ 1,963,408
Winding Down Costs:
Paid Winding Down Costs (1/21/04 — 12/31/06) $830,693
Estimated Winding Down Costs (1/01/07 — 6/30/07) 75,000 [c]
Contribution Refunds 38,160 943,853
Amounts Payable to U.S. Treasury for:
Unresolved Excessive Contributions (See Finding 2 ) $ 60,556 [4]
Stale-Dated Checks (See Finding 4 ) 12,242 72,798
Total Liabilities 2,980,059
Net Outstanding Campaign Obligations (Deficit) as of January 20, 2004 ($753,019)

Footnotes to NOCO Statement:

[a] Represents contributions dated prior to DOI and deposited after DOI.

[b] Includes stale-dated checks issued prior to DOI totaling $10,904.

[c] Estimate based on average monthly expenses during 2006. In addition, a $40,000 contingency for legal and
accounting costs related to complying with the post-election requirements of the Act has been included.

[d] This figure equals the amount of unresolved excessive contributions ($211,556) from the audit less subsequent
refunds for excessive contributions totaling $37,000 and an adjustment totaling $114,000 for notifications sent to
contributors eligible for the presumptive reattribution of the excessive portion of their contribution.


Part III
Summaries

Findings and Recommendations

Finding 1. Net Outstanding Campaign Obligations

Based on its financial activity through December 31, 2006 and estimated winding down
costs, GFP received matching fund payments totaling $250,304 in excess of the
Candidate’s entitlement. (For more detail, see p. 6)

Finding 2. Receipt of Contributions that Exceed Limits

A review of contributions from individuals indicated that GFP failed to resolve excessive
contributions totaling $225,792. These contributions were excessive because GFP
records did not include documentation to support the reattribution of the excessive
portion to another individual. In response to the preliminary audit report, GFP
demonstrated one contribution was not excessive and, therefore, a revised projection for
excessive contributions totaling $211,556 was calculated. GFP also demonstrated that
notifications were sent to contributors eligible for presumptive reattributions totaling
$114,000 and that refunds were made to contributors for $37,000 of the excessive
amount. Asa result, the revised payment payable to the U.S. Treasury is $60,556
($211,556 - $114,000 - $37,000). (For more detail, see p. 8)

Finding 3. Expenditures that Exceed Iowa Spending Limit
A review of expenditures indicated that GFP exceeded the Jowa spending limitation by
$162,943. The Audit staff recommended that GFP provide evidence that allocable
expenditures did not exceed the Iowa spending limitation. In response to the preliminary
audit report, GFP explained the procedural safeguards and circumstances related to
complying with the Iowa spending limit, but did not demonstrate that the limitation had
not been exceeded. The Commission decided not to seek repayment to the U.S. Treasury
for these expenditures. (For more detail, see p. 13)

Finding 4. Stale-Dated Checks

The Audit staff identified stale-dated checks totaling $12,242 issued by GFP. The Audit
staff recommended that GFP provide evidence that these checks are not outstanding or
make a payment to the U.S. Treasury for the amount of outstanding checks. In response
to the preliminary audit report, GFP accepted the audit staff’s calculation of stale-dated
checks. Since no payment to the U.S. Treasury for the amount of stale-dated checks has
been made, the Audit staff maintains $12,242 is payable to the U.S. Treasury.

(For more detail, see p. 15)


Overview of Financial Activity
(Audited Amounts)

Cash on hand @ January 7, 2003 $0
o Contributions from Individuals $ 14,205,243"
o Matching Funds Received 4,104,320°
o Transfers from Gephardt in Congress Committee 2,403,521°
o Contributions from Political Committees 548,308
o Offsets to Expenditures 256,919
o Interest Received 37,763
Total Receipts $ 21,556,074
o Operating Expenditures $ 20,805,873
o Contribution Refunds 50,986
Total Disbursements $ 20,856,859
Cash on hand @ April 30, 2004 $ 699,215

4
5

6

Approximately 63,800 contributions from more than 44,000 individuals.

GFP made 4 matching fund submissions totaling $4,183,766 and received $4,104,320 which represents 22% of the
maximum entitlement ($18,655,000).

This amount represents surplus funds from the Candidate’s principal campaign committee for election to the U.S.
House of Representatives (Missouri, Third District) following the 2002 general election. The transfer of funds
between a candidate’s previous Federal campaign committee and his current Federal campaign committee is
permissible if certain criteria are met. 11 CFR §§110.3(c)(4) and 116.2(c)(2). The Gephardt in Congress
Committee (GCC) met these criteria. GCC reported no outstanding debts and had a cash balance of $2,442,118 as
of December 31, 2002. The surplus funds were transferred to GFP during January and March 2003 and GCC was
subsequently approved by the Commission for termination on October 10, 2003.


Part IV
Findings and Recommendations

| Finding 1. Net Outstanding Campaign Obligations

Summary

Based on its financial activity through December 31, 2006 and estimated winding down
costs, GFP received matching fund payments totaling $250,304 in excess of the
Candidate’s entitlement.

Legal Standard
Net Outstanding Campaign Obligations (NOCO). Within 15 days after the
candidate’s date of ineligibility (see definition below), the candidate must submit a
statement of “net outstanding campaign obligations”. This statement must contain,
among other things:
e = The total of all committee assets including cash on hand, amounts owed to the
committee and capital assets listed at their fair market value;
e = The total of all outstanding obligations for qualified campaign expenses; and
e An estimate of necessary winding down costs. 11 CFR §9034.5(a).

Value of Capital Assets. The fair market value of capital assets is 60% of the total
original cost of the assets when acquired, except that assets that are received after the date
of ineligibility must be valued at their fair market value on the date received. A
candidate may claim a lower fair market value for a capital asset by listing the asset on
the NOCO statement separately and demonstrating, through documentation, the lower
fair market value. 11 CFR §9034.5(c)(1).

Date of Ineligibility (DOI). The date of ineligibility is whichever of the following dates
occurs first:
e The day on which the candidate ceases to be active in more than one state;
e The 30th day following the second consecutive primary in which the candidate
receives less than 10 percent of the popular vote;
e The end of the matching payment period, which is generally the day when the
party nominates its candidate for the general election; or
e In the case of a candidate whose party does not make its selection at a national
convention, the last day of the last national convention held by a major party in
the calendar year. 11 CFR §§9032.6 and 9033.5.

Entitlement to Matching Payments after Date of Ineligibility. If, on the date of
ineligibility (see above), a candidate has net outstanding campaign obligations as defined
under 11 CFR §9034.5, that candidate may continue to receive matching payments
provided that he or she still has net outstanding campaign debts on the day when the
matching payments are made. 11 CFR §9034.1(b).


FEDERAL ELECTION COMMISSION
Washington, DC 20463

June 19, 2007

MEMORANDUM

To: Robert W. Biersack
Press Officer

From: Joseph F. Stoltz
Assistant Staff D
Audit Division

U,
CYOr

Subject: Public Issuance of the Report of the Audit Division on Gephardt for
President, Inc.

Attached please find a copy of the audit report which was approved by the
Commission on June 11, 2007.

The report may be released to the public on June 19, 2007.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
C Library
“DSDD Website


notifications were sent to contributors eligible for presumptive reattributions totaling
$114,000 and that refunds were made to contributors for $37,000 of the excessive
amount. As a result, the revised payment payable to the U.S. Treasury is $60,556
($211,556 - $114,000 - $37,000).

Legal Standard

Authorized Committee Limits. An authorized committee may not receive more than a
total of $2,000 per election from any one person. 2 U.S.C. §441a(a)(1)(A) and (f); 11
CFR §§110.1(a) and (b) and 110.9(a).

Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:

e Return the questionable check to the donor; or

¢ Deposit the check into its federal account and:

o Keep enough money in the account to cover all potential refunds;

o Keep a written record explaining why the contribution may be illegal;

o Include this explanation on Schedule A-P if the contribution has to be
itemized before its legality is established;

o Seek a reattribution of the excessive portion, following the instructions
provided in FEC regulations (see below for an explanation of reattribution);
and

o Ifthe committee does not receive a proper reattribution within 60 days after
receiving the excessive contribution, refund the excessive portion to the
donor. 11 CFR §§103.3(b)(3), (4) and (5) and 110.1(k)(3)(ii)(B).

Joint Contributions. Any contribution made by more than one person (except for a
contribution made by a partnership) must include the signature of each contributor on the
check or in a separate writing. A joint contribution is attributed equally to each donor
unless a statement indicates that the funds should be divided differently. 11 CFR
§110.1(k)(1) and (2).

Reattribution of Excessive Contributions. Commission regulations permit committees
to ask donors of excessive contributions whether they had intended their contribution to
be a joint contribution from more than one person and whether they would like to
reattribute the excess amount to the other contributor. Thé committee must inform the
contributor that:
1. The reattribution must be signed by both contributors;
2. The reattribution must be received by the committee within 60 days after the
committee received the original contribution; and
3. The contributor may instead request a refund of the excessive amount. 11 CFR
§110.1(k)(3)(A).

Within 60 days after receiving the excessive contribution, the committee must either
receive the proper reattribution or refund the excessive portion to the donor. 11 CFR
§§103.3(b)(3) and 110.1(k)(3)(ii)(B). Further, a political committee must retain written
records concerning the reattribution in order for it to be effective. 11 CFR §110.1(1(5).

Notwithstanding the above, any excessive contribution that was made on a written
instrument that is imprinted with the names of more than one individual may be attributed


Shown below are adjustments for funds received after January 20, 2004 through
April 1, 2004, the date GFP received its last matching fund payment. As indicated, the
Candidate received federal matching funds in excess of entitlement.

Net Outstanding Campaign Obligations (Deficit) as of 1/20/04 (753,019)
Private Contributions and Other Receipts Received (1/21/04 - 3/15/04) 30,791

Matching Funds Received (1/21/04 — 3/14/04) 383,687 414.478
Remaining Entitlement as of 3/15/04 (338,541)
Matching Funds Received (3/15/04 & 4/1/04) 588,845
Total Matching Funds in Excess of Entitlement $250,304

The preliminary audit report did not contain a repayment for matching funds received in
excess of entitlement. The difference is due primarily to an estimate of winding down
costs that was substantially higher than the actual amount spent. The NOCO that appears
on the previous page replaces the estimate of winding down costs presented in the
preliminary audit report with a much lower total based on actual winding down
disbursements through December 31, 2006. Also, a lower estimate for winding down
costs was calculated based on an average of actual winding down disbursements over the
past year, plus a $40,000 reserve for legal and accounting expenses. Furthermore, the
Audit staff reduced the amount payable for unresolved excessive contributions as a result
of GFP’s response to the preliminary audit report (Finding 2) and reduced the amount of
accounts payable on the NOCO for non-qualified expenditures made in excess of the
Iowa spending limit (Finding 3).

At its May 31, 2007 meeting, the Commission decided to include expenditures totaling
$128,104 made in excess of the Iowa spending limit (Finding 3) and paid after the
candidate’s date of ineligibility as accounts payable on the NOCO. This resulted in a
reduction by the same amount of matching funds in excess of entitlement. The necessary
adjustments are reflected in the figures presented above.

Recommendation

The Audit staff recommends that the Commission make a determination that GFP repay
$250,304 to the U.S. Treasury pursuant to 11 CFR §9038.2(b)(1)(i).

| Finding 2. Receipt of Contributions that Exceed Limits

Summary

A review of contributions from individuals indicated that GFP failed to resolve excessive
contributions totaling $225,792. These contributions were excessive because GFP
records did not include documentation to support the reattribution of the excessive
portion to another individual. In response to the preliminary audit report, GFP
demonstrated one contribution was not excessive and, therefore, a revised projection for
excessive contributions totaling $211,556 was calculated. GFP also demonstrated that


Summary of Amounts Owed to the U.S.

Treasury

e Finding 1
e Finding 2

e Finding 4

Total Due U.S. Treasury

Federal Funds Received in Excess
of Entitlement

Receipt of Contributions that
Exceed Limits

Stale-Dated Checks

$ 250,304

60,556

12,242

$ 323,102


Part I
Background

Authority for Audit

This report is based on an audit of Gephardt for President, Inc. (GFP), undertaken by the
Audit Division of the Federal Election Commission (the Commission) as mandated by
Section 9038(a) of Title 26 of the United States Code. That section states “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 [matching] 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.

Scope of Audit

This audit examined:

1. The receipt of excessive contributions and loans.

2. The receipt of contributions from prohibited sources.

3. The receipt of transfers from other authorized committees.
4. The disclosure of contributions and transfers received.

5. The disclosure of disbursements, debts and obligations.

6. The recordkeeping process and completeness of records.

7. The consistency between reported figures and bank records.
8. The accuracy of the Statement of Net Outstanding Campaign Obligations.
9. The campaign’s compliance with spending limitations.

10. Other campaign operations necessary to the review.

Inventory of Campaign Records

The Audit staff routinely conducts an inventory of campaign records before it begins the
audit fieldwork. GFP records were materially complete and the fieldwork began
immediately.


12

contribution.'° The Audit staff maintains that the other contribution made by a check
with only one name imprinted is excessive because the requisite signature to validate a
reattribution was not obtained.

GFP also disputed an excessive contribution that resulted from the same person signing
contribution checks from two different accounts; one account in the contributor’s name
and another from a personal expense account of her spouse. GFP argued that unless the
spouse did not have access to his own bank records, it would seem improbable that funds
from his account would have been contributed without his consent, The Audit staff
maintains this contribution is excessive in accordance with 11 CFR §104.8(c) which
states that absent evidence to the contrary, any contribution made by check, money order,
or other written instrument shall be reported as a contribution by the last person signing
the instrument prior to delivery to the candidate or committee.

For the five excessive contributions that were made by credit cards, GFP questioned
whether the sample projection accurately reflected the level of possible excessive
contributions made with a credit card. According to GFP, credit card transactions by
paper represented only 8.4% of the total amount given to GFP yet they represented 16.9%
of the sampling. The generally accepted statistical sampling technique used by the Audit
staff to project the violation amount in this finding is based solely on the dollar value, not
the transaction count, of contributions and makes no distinction as to the method by
which the contribution was made.

In summary, GFP’s response to the preliminary audit report resolved one excessive
contribution identified in the sample. As a result, the projection for excessive
contributions was revised to $211,556.

Subsequently, as a result of Commission decisions in other audits, GFP was provided an
opportunity to send notifications to contributors whose contributions would have been
eligible for “presumptive reattribution” pursuant to 11 CFR §110.1(k)(3)(B) (See Legal
Standard above), or to make refunds. These actions would obviate the need to make a
payment to the U.S. Treasury for such contributions. In response, GFP demonstrated that
notifications of presumptive reattribution were sent for excessive contributions totaling
$114,000 and provided evidence of untimely contribution refunds for excessive _
contributions totaling $37,000. Therefore, the remaining amount due to the U.S.
Treasury is $60,556 ($211,556 - $114,000 - $37,000).

Recommendation

The Audit staff recommends that, within 30 days of service of this report, GFP pay
$60,556 to the U.S. Treasury.

'° The Audit staff notes that the letter sent to the contributor did not include the offer of a refund in
accordance with 11 CFR §110.1(k)(3)(A).


14

GFP allocation records indicated that $1,550,250 should have been applied to the lowa
spending limitation. As noted above, the Audit staff calculation is $1,506,700. The
difference of $43,550 reflects GFP’s allocation of certain expenses for advertisement
tracking and focus groups that did not require allocation to the lowa spending limitation.

At the conclusion of fieldwork, GFP was provided a schedule comparing GFP and Audit
staff calculations for amounts applicable to the Iowa spending limitation. In response,
GFP demonstrated that some amounts originally applied to the Iowa spending limitation
were in fact, not allocable. The figures presented above are net of those items.

Preliminary Audit Report Recommendation

The Audit staff recommended that GFP provide evidence that allocable amounts did not
exceed the Iowa spending limitation. Absent such evidence, the Audit staff stated that it
would recommend that the Commission make a determination that $31,589 ($162,943 x
repayment ratio of 19.3868%! ) was repayable to the U.S. Treasury.

Committee Response to Preliminary Audit Report & Audit Staffs
Assessment

GFP stated that it employed numerous and extensive procedures to comply with lowa
spending limitation including the use of a software system and a full-time employee to
manage the review and coding of state allocable expenditures. GFP also stated that it
used and enforced budgets to ensure compliance with the limit. According to GFP, two
circumstances contributed to exceeding the Iowa spending limit. First, the amount of
media refunds for broadcast time purchased before the Iowa caucuses were less than
expected. Second, GFP stated a significant amount of allocable expenses including
special telephone programs were incurred toward the end of the caucuses and only after
the election did they realize that those expenses were allocable to the lowa spending
limitation.

Although we acknowledge GFP had procedures in place to comply with the lowa
spending limitation, the Audit staff maintains that GFP exceeded the Iowa spending
limitation. Therefore, in accordance with 11 CFR §9038.2(b)(2), the Audit staff
calculated a repayment of $27,746 ($154,787 x repayment ratio of 17.9250%) for non-
qualified expenses paid before the point when matching funds, to which the Candidate
was entitled, were no longer contained in GFP accounts.

At its May 31, 2007 meeting, the Commission decided not to seek repayment to the U.S.
Treasury for these expenditures.

"| This figure (19.3868%) represents GFP’s repayment ratio as calculated pursuant to
11 CFR §9038.2(b)(2)(iii). Subsequent to the preliminary report, the repayment ratio was adjusted to
(17.9250%) to account for matching funds determined to be in excess of entitlement totaling $378,408
Expenses totaling $8,156 ($162,943 - $154,787) were paid after the Candidate’s accounts had been
purged of all matching funds. As a result, these expenses are not subject to any repayment.


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Inventory of Campaign Records

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations
Summary of Amounts Owed to the U.S. Treasury

Part IV. Findings and Recommendations
Finding 1. Net Outstanding Campaign Obligations
Finding 2. Receipt of Contributions that Exceed Limits
Finding 3. Expenditures that Exceed Iowa Spending Limit
Finding 4. Stale-Dated Checks

Page

13
15


Report of the Audit Division on
Gephardt for President, Inc.

January 7, 2003 — April 30, 2004

Why the Audit

Was Done

Federal law requires the
Commission to audit
every political committee
established by a
Presidential candidate
who receives public funds
for the primary
campaign.’ The audit
determines whether the
candidate was entitled to
all of the matching funds
received, whether the
campaign used the
matching funds in
accordance with the law,
whether the candidate is
entitled to additional
matching funds, and
whether the campaign
otherwise complied with
the limitations,
prohibitions, and
disclosure requirements
of the election law.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

' 26 U.S.C. §9038(a).

About the Committee (p. 2)

Gephardt for President, Inc. is the principal campaign committee
for Congressman Richard A. Gephardt, a candidate for the
Democratic Party’s nomination for the office of President of the
United States. The Committee is headquartered in Washington,
DC. For more information, see the chart on Campaign

Organization, p. 2.

Financial Activity (p. 3)
« Receipts

o Contributions from Individuals

o Matching Funds Received

o Transfers from Gephardt in Congress
Committee
Contributions from Political Committees
Offsets to Operating Expenditures
Interest Received
Total Receipts
« Disbursements

o Operating Expenditures

o Contribution Refunds

co Total Disbursements

0000

$ 14,205,243
4,104,320
2,403,521

548,308
256,919
37,763

$ 21,556,074

$ 20,805,873
50,986
$ 20,856,859

Findings and Recommendations (p. 4)

e Net Outstanding Campaign Obligations (Finding 1)

¢ Receipt of Contributions that Exceed Limits (Finding 2)

e Expenditures that Exceed Iowa Spending Limit (Finding 3 )

e Stale-Dated Checks (Finding 4)


among the individuals listed unless instructed otherwise by the contributor(s). Within 60
days of receipt of the contribution the committee must inform each contributor:

1. How the contribution was attributed; and
2. The contributor may instead request a refund of the excessive amount. 11 CFR
§110.1(k)(3)(B).

Sampling. In conducting an audit of contributions, the Commission uses generally
accepted statistical sampling techniques to quantify the dollar value of related audit
findings. Apparent violations (sample errors) identified in a sample are used to project
the total amount of violations. If a committee demonstrates that any apparent sample
errors are not errors, the Commission will make a new projection based on the reduced
number of errors in the sample. Within 30 days of service of the final audit report, the
committee must submit a check to the United States Treasury for the total amount of any
excessive contributions not refunded, reattributed, or redesignated in a timely manner. 11
CER § 9038.1(f).

Facts and Analysis

A review of contributions from individuals indicated that, at the time of the Preliminary
Audit Report, GFP failed to resolve excessive contributions totaling $225,792.5 The
contributions identified are excessive for one of the following reasons:

Contribution by check with two names imprinted- Eleven contributions were
identified as excessive because they were made by checks imprinted with two names and
signed by only one of the individuals. GFP attributed these contributions to both
individuals whose names were imprinted on the checks. Such action required that within
60 days of the contribution, GFP either obtain a signed reattribution from the contributors
or simply inform the individuals of how the contribution was attributed and offer a refund
of the excessive portion. GFP did neither. As a result, the entire amount of the
contribution was attributed by the Audit staff to the individual that signed the check.

Contribution by check with one name imprinted- Seven contributions were identified
as excessive because they were made by checks imprinted with one name and attributed
by GFP to two individuals. GFP records did not include a signature from the second
individual acknowledging them as an accountholder. As a result, the entire amount of
each contribution was attributed by the Audit staff to the individual who signed the
check.

Contribution by credit card- Five contributions were identified as excessive because
they were made by credit cards and attributed to more than one individual. The
documentation provided in support of these contributions were credit card authorizations
that resulted from telemarketing or direct mail solicitations from one individual in
amounts exceeding the $2,000 limit. The excessive portion was reattributed to another
individual without obtaining the signature of the second individual acknowledging both
the contribution and joint liability for the credit card used to make the contribution.

® Represents the projected amount of excessive contributions in the sample population ($218,292) as well
as additional excessive contributions ($7,500) identified by the Audit staff from a separate review.


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Finding 3. Expenditures that Exceed Iowa Spending Limit

Summary

A review of expenditures indicated that GFP exceeded the Iowa spending limitation by
$162,943. The Audit staff recommended that GFP provide evidence that allocable
expenditures did not exceed the Iowa spending limitation. In response to the preliminary
audit report, GFP explained the procedural safeguards and circumstances related to
complying with the Iowa spending limit, but did not demonstrate that the limitation had
not been exceeded. The Commission decided not to seek repayment to the U.S. Treasury
for these expenditures.

Legal Standard

State Expenditure Limits. No candidate for the office of President of the United States
who is eligible to receive Matching Funds may make expenditures in any one state
aggregating in excess of the greater of 16 cents multiplied by the voting age population of
the state, or $200,000 as adjusted by the Consumer Price Index. 2 U.S.C.

§441a(b)(1)(A).

State Allocation. An authorized committee shall allocate expenditures to a particular
state if the purpose is to influence the nomination of the candidate for the office of
President with respect to that state. If the expenditure influences the nomination of that
candidate in more than one state, then the committee shall allocate to each state on a
reasonable and uniformly applied basis, Allocable expenses include media, mass
mailings, overhead, special telephone programs, and polling. 11 CFR §106.2(a)(1) and

(b)(D(2)

Exempt Activity. The candidate may exclude the following expenses from the
expenditure limit of a particular state:

e Fundraising exemption 11 CFR §110.8(c)(2)- Up to 50% of the candidate’s total
expenditures,

¢ Compliance exemption 11 CFR §106.2(G)(iii)- 10% of overhead expenses, and

e Mass Mailing exemption 11 CFR §110.8(c)(2)- 100% of expenses for mass
mailings up to 28 days before the state’s primary or caucus.

Repayment. The Commission may determine that a portion of the matching funds
received by a Candidate was used for non-qualified campaign expenses. Examples of
repayments determinations under this section include a determination that the Candidate
has made expenditures in excess of the limitations at 11 CFR §9035. (11 CFR §
9038.2(b)(2))

Facts and Analysis

The Iowa spending limitation for Presidential candidates in the primary election was
$1,343,757. An analysis of GFP expenditures indicated $1,506,700 should have been
applied to the Iowa spending limitation. Therefore, GFP’s allocable expenditures
exceeded the Iowa spending limitation by $162,943.