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I'lLJI.RAl ElLl:11()N COj\\,~ISSION

I\.!f", '"U II 'I W

\\','\"tll~(~I()N.IH . JO·'h'

REPORT OF TIlE 1\UDI'l' DIVISION

ON TilE

COt-1MI T'rEI,; l"OR DIHCIl 131\YII IN '76

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'rhi.s rCpol--t covers an auc1i t of the Commi.ttee for Birch

Dayh i.n '76 (the COlllmilt.(~c) unc.1crtuken by the Audit Divinion

of lh(~ Fedoral Election COl1lwi:jsion to deter.mine whether

thcJ-e hilS bCl"Jl campI i~U1C(~ wi. th the provision:j of the I"cdc'ral

Election Campdiql1 Act of 1971, as amended (the Act). The

audit was conducted pursuant to Section 43B(a) (8) of the Act

and Section 9038(a) of Chapter 96 of the Internal Revenue

Code of 1954. Section 438(a) (8) of the Act directs the

Commi.ssion "to nl~ke from time to time audits and field

investi.gations \vi.th respect to reports nnd statements filed

under lhe prov i~,ions of this chilptcr, ilnd \vi. th r(.!spect to

a11cq(!d fnillu·cs to file nny report or ~~t~ tcmcnt required

under the provisions of this chapter, and to 9iv(! priority

to auditing and fi.eld i.nvcr.itigatillq of the verification for,

and lhe receipt ,lad tl8C of, any payment:.; received by a

cundidat(~ undl~r Ch~pLcr 95 or Chapter 96 of the InLernal

ncvcnue Code of 1954." Sf'ction 9038 (a) of Ch:lptcr 96

provi.<1(~fj th~t "after each matchinq p~Yl1lcnt period, the

Commi~H;ion Sh~lll conduct ,l thorouqh e:,;lminiltion and iludit of

the qu,11ifjed camp~liqn 0:Xl'l'n~~cf; of cvpry candidilte and his

iluthor.i Z(\ct commi ttccs \'1ho l:~cci\'cd p~l~lmcnt~} under S(~ct.ion

9037."

The aud i t covered lh(~ period fronl }\U9uS t 5, 1975, the

dat.e the Commi t.lce rC<Ji5lcrl~d \\'i th the C()m1tLi.~;sion, through

~1ay 31, 1977. During th~t peri.od, th(~ Commi ltcc reported

b(\~l inn) n9 C~l ~;h-on-hund of $ -0 -, tol,ll receipts of $1,390,443. 9 G,

tot.al (.'xpenditures of $1,303,449.12 ~uld cndineJ cash of $6,994.8-1.

In J\u~tU~>t of 1975, the Comr'Litt(\(~ re~Ti~;t\~rcd as the principal

c,lmp~li~J1\ comm.i tt"l'll for Sl'nat"or Birch Bdyh I r; presidenlial c~mpni<;n.

'J'he pri llciplll of ficl~rs al the til~le of thQ ,1.udit \'J(~ro 'file lIonor~lh1 \,.~

"latthp\-J \~cl~~h, Cl-h~irpl:ln, and r·!r. r·~Y<.'l- l~cldm~n, Trcanurcr. The

COllunitt:cQ mcJinL~lincd i.t:~ h(~3Jqu~rtC'rB in \vl.lr;hington, D.C •

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This audit report is bur-cd on documcnto und working papers

supportiny (''teh of: i cn factl1~\l ~t-:ltcment.r;. They Corm part of

the record upon whi.ch the Commission baf.)C'd its decisions on tho

matters in t.hin report, and were uvai.lable to Conunissioncrs

£lnd appropriate ~tilff for revi.ew:

• II. Findi I~~E~ _and Conclusions

. A. I;'ililurc t () Disclo!;e Commi ttec Rcposi tories

lntroductioIl

SecLionn 433(a) ~nd (b) (9) of Title 2, United States

Code stntcn, in p;\rt, that (~itch poli.tical commi ttcc which

anlicip~te~; rl"ccivi nq contrj buLions or UlilkinCj expenditures

during the (.'~llen(L.\r year in dn aggr('~Jate amount exceeding $1.,000,

shall file \oJith th<' Commis!;ion a statement of organization which

shall include c:l li:;Li.ng of ill] banks, sufety deposit boxes, or

other rcpo~;it.ori(~~; u:H~d. Z(~ct ion 433 (c) requires that any change

in information pr<'v.i.ously 5uL:llittcd in a statement of organization

Shilll be reported to the COlluni~.>sion within a lO-day period

following the chan(Je.

Discussion

'I'he Comm.i llee made n tot~l of $14,441.00 in advance

paymentB to Lhree (3) of itB represc'utati.vcs. 'l'hcsc repr(~~;('ntuti\"e~;

dcponiled the [ull(1:; )"cccived into bank accounts opened in their

n~mcs and [rom \'Jhich c:-:pcnJitul'CS \vcre mode! e:-:cluBivcly to conduct ComrniLL('c but;ll}(~L;s. l.'hC\~;l~ accounl~ \·:ere opened at the

rC(luest of the COll\1l\l Lll~l~ Comptroller who ~jL~lt:ec1 that this

syntcm \'1a~; u~;eu to \11]0\0.1 him to excrci~3\.~ ~;OllH..· control over the

funds adVc':lnl'(~d to t.h<,~;(.'" indiv.idu\1ls. 'l'he CUll'L1l\ittl~e did obtain

bills, invo:! ce~;, con t (.'mpOl:'~1l1(\()\l::'l m0mOrlllltLl dud canc.:elll'd checks

to Bupport lhe expendi turc~j ladde from the ;H~counts.

'rhe Comptroller told us he \'1as un~;urc as to how

trnllHfcrs to [ ield rl~prC~Cllt.~l t. i\"l~S of ,the Commi t tee should be

halldled. lie said thal in COll~;O'1~ncc \'1i th instructions front a

Commission [)t~ff memher, he h~lndled t:hcm uS noted above.

1\1 thouqh lh~ accoun tn \\·crc opened and nluintaincd by

indi.viduill Commi Lt f't' )"C'prc~;entdtivcs, t IH~Y \-Jere used cxclt15i.vcly

to conduct. Cu:mniLt-\'l'" bu~:dncs~;. 'l'hcrcforc, \o.1P believe these

ilccounts \..'\~)·e in f;H.:t rcpo~-jitoricfi of th0 Con\lllitt(~n, and should

hilve been di~;(;lo~;('ll ~\~; !juch. 'l'ile Comptl·ollt.'r ~\9rccd to and h~lS

since f i 1cd an amcndl'u S ta l<.:1nt'u t of Org ~111 i ~~.:ll ion d i zc losin9 the

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. ~lnmcndution

Since the Committee has filed an amended Statement

of Organization, no Commi~sion action is l·(~conunendcd• •

D. Improprr oi~clonurc of Debts an~ Obligations •

Introduction

Section 434(b) (12) of Title 2 of the United States

Code states that "each report shall disclo~~ the ilmount and

nature or debtn ilnd obligations O\-lCc] by or lo the committee,

in such form c:l!; the Commi~;sion may prescribe, Clnd a continuous

rcporLin~J of c.le1Jt~; und o1Jli<Jation~1 after thl.~ elect.ion at such

pcriod~~ uS the Commi~r;iou may require until ~uch debts and

obI i<Ja t.ions arc cxtin(Jl1i~;hcd, together \vi th a statement as to

the circum~;LanccB and conditions under which any such debt or

obli~Jalion is cxtincJui[;hcd and the consideration therefor. n

Discusf;ion

Committee reports covering the periods July 1, 1976

through r-111rch 30, 1977, contained 160 debt.s \aJhich \-Jere omittcd

from sUbsc:qu0nt d<.,bt and obligation schedules \vith no ~pparent

explanation as to Lhe dispor;ition of these items. '1'he debts

had bc('n outslanding for at leilHt three (3) months and ,.,lore 0\'10d

to both individual ~~ and business entities. Further review sho\ve(l

that at least 72 of the 160 debts had been !;ettlec1 for amounts

less th:U1 the orj q i nal nnlount i.ncurred. The puymcnts were

c1iscl()~;\'d ar; c:-:p('llditurcs on Committee rcporLs. '1'he forgiven

alnount of c!och deht \-;as dif.jclo~-;cc1 as an "in-kind contribution

ba!iCd on dobt scLllcmcntn."

For th(' di.sposition of some of the romil~n~ng debts, the

paym(~nt.r; \'Jere neither di~H.~losC"d nor \vas th01:C an c>:planation of

t.heir omission from t.hl~ report I~; ,1cbt and obliqat ion schedules.

\oJc found eiLher thdt paynH"nt:~ to ] iquid~t0 therie debts \,'ore in

iU\\Ol1nl:~; of lcr;~ than $100 auel did not meet lhc e~pcnc1iture

itemization requirclllcnt!.; 01· th~-\t the debt;; \-:ere forgiven in full

\-Ji. th lhc entire ':l111Uunt bein~J di~;c1osed as on .. in-kind contribution

based on debt SL~ltlcmcnts.II

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IFifty-one' of the 160 dcbt:1 disclosed rcprcficnt.cd corpol'ntc

debt fiC't:tl("mcnt~. Th~~;c S('t:tl('l11Cnls \-J(~rc for nmount~; less than t.ht~~

oriqiual nmount~; i.ncurred and each included il ~tatement as to t.h~

cirC\lm:jl~U1CeB ,11 h) COllditi()n~; Und0l: \dlich thl'~;~ debts \..'ere cxtinqui~;hc(

'l'hcy have been ~jtlbmittcd to th(~ Con:missio:l in \1ccordance \-Jith ~;(\etion

114.10(c) of 'J'itle 11, Codc' of l-'eueral l\c(jullltiolls, und arc currcntl~l u part: of the pub1i.c record •

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-- The Committec's trcatment unu disclosure of the r~maininCJ 109 items mentioned nbove did not include a st~tc-

.mont as to thc circumstQnce!J nnd conlli ti.ons unc1er which th~se

debts and ohligation5 were extinguished. Therefore, the

omission of the required information results in less than

adequate disclosure of Committee ~ebts and obligations.

A Committee official to~d us he felt he had complied

with the Act. He pointed out that the information was included

in the reports in the form of a payment and/or contribution

in-kind.

We recommended to the Treasurer that he amend the

Committec's rcports to remove from Schedule A all those items

l.isted as "in-kind contributions based on debt settlenlcnts. II

We rcconunendcd that these items be shown on Schedule C as memo

entries.

Recommendation

The Committee was directed on January 26, 1978 to

file amendments disclosing the debt settlements as reconwended.

The appropriate amended reports were filed March 3, 1978;

therefore, we recommend no further action be taken on this matter.

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c. Failure to Disclose Occupation/Principal

Place of Business

Introduction

Section 43~(b) (2) of Title 2 of the United States Code

provides in part that each report shall disclose the full name

and mailing address (occupation and principal place of bUEincss,

if any) of each person who has made one or more contributions to

or for such cOlmnittee or candidate \'1ithin the calendar year in an

aggregate amount or value in excess of $100. S0ction 434(b)

provides that \vhcn conllnittcc treasurers and canc1idates sho\" th~t

best efforts have been used to obtain and submit: the information

required by this subsection, they shall be deemed to be in

conlpliance ,with this subsection.

Discussion

The Conunittcc dir;closed the occupation and principal

place of bunincss for BG percent or more of all contributors

listed as contri.buting in excess of $100 in each report covering

the periods l\uqust 5, 1975 through ~~ovcmber 30, 1976, ilnd

January 1, 1977 through May 10, 1977. llowcvcr, the Committee's

1976 Year End Report contained the occupati.on and princip\.ll pl~c0

of bU£iiness ror less than GG percent of all i t(~ms listed. Accordj :ltf

to Cl Committee official, the contributioll£i lucking this inform3lion \'1Cl"(~ colll\ctcd :::it a funuraisinq event. lIe stated that t:hc

p\1rch.1scr~ of tic~~etr; to the ('\Tent did not al \\'ny~~ provide the

l"c'luirc'c1 inlorm"t:ion ~nd in ~ome cases JHay not hilVC Leen il\\'ill:'C

or the rl~q\l.i)·l\ml~nL!i of the Act •

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The Committee has attempted to obtain the required

informill:ion via letters and/or telephoru."" call~.i to contributors.

As a r('~jult of these efforts, two amendments have been filcu

since lhc close of our field work. Further, the Committee has

continueu its efforts and plans to submit additional amendments.

In our opinion, the Committee's 1976 Year End Report

lacks a Gubstantial portion ot the required contributor information. However, the Corrnnittee ,·s overall c1isclozure has been

sufficient, and we believe the Committee has c1emonstratecl "best

efforts" to obtain the required information for the Ye~r End 197G

report.

RccommQndation

In view of the fact that Committee officials have

filed two amendments and have stated their plans to continue

their efforts to obtain the required information, we recommend

that no further action be taken on this matter.

D. Apparent Unqualified Campaign Expense

Introduction

section 432(d) of Title 2 of the United States Code

requires that it shall be t.he duty of the treasurer to obtain

clnd keep a receipted bill, stating the particulars, for every

expenditure nlade by or on behalf of a political committee in

excess of $100 in amount, and for any such expenditure in a

lesser amount if the aggregate amount of such e:-:pcnditures to

the same person during a calendar year exceeds $100.

section 9038(b) (2) of Title 26 of the Internal Revenue

Code of 1954 provides that if the Conunission determines that any

aJnounl: of any payment made to a candidate from the matching payment account \vas used for an~' purpose qther than -

a) to defray the qualified campaign expenses with

respec t to ,'/hich such payment was nlade; or

b) to repay loans the proceeds of \'lhich \-lere used, or ()thcr\oJi~;c to restorc funds (other than contributions to defray

qualifit.'d campaign expenses \\lhich ,\'crc received and cxpcnd(~d)

,,,hich \-J("')"O used, to defray qualified c.:1!\lpaign c:-:pcnscs, it shall

noti[~' !HICh candidate of the alnount so used, and the candidilte

shall P~lY to the Secretary or his delegate an amount equal to

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Finnlly, S~ction 9032(9) (A) defi.ne5 a "qualified

campaign cxpcnril1", in purt, as a purchilnc, payment, distribution,

loan, advance, deposit, or gift of money or anything of

vnluc incurred by a candidate, or his authorized committee,

in connection \-li th hir.; campaign .for nomina tion for election.

1\fter rcvic\oling all commi.ttee expenditures, we

found that the Committee did not obtain and keep a receipted

bi.ll, invoice or accept ;tblc contemporaneous mcmorandunl in

suppol·L of nine (9) c:o:p(~nditurc~; tota1linq $7,812.75. 'l'hesc

c>:pvll<1i LU1'e~) \'Jcre made Lo vendors and indivic..1uals for such

pl1rpo~;es a:i pt.~r:;onal c;erviccs and advertising. Each expcnditurc

Wil~j ~;upportet1 by a cnncelled check and a journal entry

vOllchc'\r which thu ConullitLce uBcd as part of its accounting

~;y~;l ('m. 'fhe voucher normally contained the name of the

paYPl~, date, amount, check number, and a general purpose of

the pxpcndi turc. Ho·\vcvcr, in at least four instances the

voucher contained no purpose.

Accordinej to the Comptroller, the Commit tee was

not always able to obtain receipted bills. Some expenditures

required prepayment, while others were made with the understnnding that receipted bills \vould be prov id"d. He said

that those trans;lctio;1~; often resulted in rClJc·atcd efforts

to obtain the promised documents.

On Janu.:lry 2G, 1978, the COllunission preliminarily

detprElinec1 that ilb:-;cnt documcntiltion to the cont.rary, the

insu~[iciellLly !;u!Jportc\.1 e:·:penditurcs would bl' vic\ved as

ungu ali[ i cel nd the \"a 1\lC ( $ 7 , 812 • 7 5 ) \-Jou1d bc> r c pay ab 1 c in

f u 11 tothe U. S • T 1·c.:.t ~; u r y • 'rhc Commi t tee ~; IIb ~.~ t -<} U C n t 1y

~ubm.i.l Ll.~d acc(lpLdLJ I! <.1ocuI~~cnl:~t.ion to cstabli~;h connection

with t.he campai~Jll for the above amount.

\ve recolnmencl lh':lt th("\ Commission find the Committee has

obli.l.i.ned acccptilbl. o doeumen lillion for the ~b(>\·t~ c:-:pcncti tures

as required by 2 U.S.C. 432 (d), c:lnd \"ith rc~;p(~ct to 26 U.S.C.

9038 (b) (2) and 9032 ~S·) U\) tbat the documcnt~lli.on is sufficient

to C!~ Lal>li~)h the (.,.·:·:ppn;.1 i Lures I conn(~ction to the cilmpai9n;

thcrvby requirillg no repayment of matching fundn to the united

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E: Net Cnmpaign Obligations'

Section 9038(b) (1) of Title 26 of the United

St.nt(~s Code provides that if the ·Commis~,;.i()n determi.nes that an~' portion of the puytTIcnts made to i1 cand idilte [rOllt the

matclling payment account was in excess of the ~ggrcqate

amount of p,lyml-!nLs to which such candidale was entitled

under Section 9034, it shall notify the candidate, and the

cilnc.lid~te shall pay to the Secretary or his delegate an

nmount equal to the amount of excess payments.

Thc Commission determi.ned that Senator Birch Bayh' :·3

cilndidacy for the Democratic Prc~idcntial nomination effectively

terminated on Nay 11, 1976. 'l'he candidate \-Jas thus prohi.b.i t.l~(l

from makinCj .:lny expenditure from l~cdcral mat:ching funds aft(-'r

thc above date 'w'Jhich was not incurred or contracted for prior to

that date.

Committee records show a net outstanding obligation

of $243,735.40 on the candidate's date of ineligibility. As

of January 21, 1977, the Committee had remaining net outstanding

campilign ohliqat ions of $162,313.14. The candidate received

$76,510.85 in matchin<J funds after January 21, 1977. Hence,

no pnrmcnts in c;:.:ccss of eligibility \vcre received by the

candidate.

III. Auditor'fi Statement

Except for the mat.ters sp(~c:i.fical1y noted in this report,

the audit di ~~<.;l()r;ed that the COJnllli ttec conducted its activities

in conformit.y wi th the Feder-ill Election Campai~n i\ct. of 1971, as

ilmenllcd, and in conformity \.;ith Chapter 96 of 'l'itle 26, united

Stil te~; Code I in all mater.i al aspects.

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F[l)[RAI. [I.[CTION CO"'1fv\ISSION

"~~. ~1~1l1 N W. \\'''~III~c; I()N.I>C 2C).I(I\

June 7, 1978

lIonorablc nirch Bayh

United States Senate

363 Russell Senate Office Bldg_

Washington, D.C. 20510

Dcar Senator nayh:

Enclosed for your information is a copy of the final

audit report of the Committee for Birch Buyh in '76 which

was approved by the COmmi!iSion on Nay 23, 1978. Upon notice

of your receipt of this letter the report will be publicly

released.

'~~7''''' S:;i7c1P!

ASslstant Staff D~rector

for the Audit Division

Enclosure as stated

CERfJ.'I1"IED HAIL:

RBTUHN RECEIP'f REQUES'rED

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