10

- February 6, 2000: Mr. Gargan issued a call, by memorandum dated
January 31, 2000, for an emergency National Convention of the Reform
Party to be held in Las Vegas, Nevada from March 17-19, 2000.

- February 10, 2000: Mr. Young filed suit in the U.S. District Court for the
Western District of Virginia, Harrisonburg Division, seeking, among other
things, for the court to order Russell Verney, Gerald Moan, and others
aligned with Pat Choate to cease interfering with the administration of Mr.
Gargan and Mr. Young in their operation of the Reform Party.

- February 12, 2000: National Committee meeting at which Mr. Gargan
was removed as Chairman, and Ronald Young was removed as both
National Treasurer and the Reform Party’s Convention Chair/Treasurer.
Mr. Choate was elected to the position of Interim Chair and Mr.
McLaughlin was elected to the position of Interim Treasurer. Mr. Moan’s
December 28, 1999 appointment as Convention Committee
Chair/Treasurer was reaffirmed. Lastly, the National Committee voted not
to hold the convention called by Mr. Gargan in Las Vegas, and it ratified
the Executive Committee’s decision to hold the Party’s 2000 presidential
nominating convention in Long Beach, California.

- February 16, 2000: Reform Party of the U.S.A., Pat Choate, Interim
Chair filed suit against Mr. Gargan and Mr. Young in the US. District
Court for the Western District of Virginia, Lynchburg Division, seeking,
among other things, for the Court to enjoin Mr. Gargan and Mr. Young
from interfering with the operations of the Reform Party and filed a
motion for a temporary restraining order seeking the return of $2,500,000
in federal funds.

- February 24, 2000: The Court ordered Mr. Gargan and Mr. Young to pay
into the Registry of the Court approximately $2,500,000 in federal funds
received until a decision as to the rightful leadership of the Reform Party
could be determined at a trial.

- March 27, 2000: The Court ordered that Mr. Gargan and Mr. Young
were enjoined from acting as officers or authorized representatives of the
Reform Party, including the Convention Committee, and to immediately
cease and desist from any and all activities in such representative capacity.
Funds held in the Registry of the Court were to be released to the custody
of Gerald Moan, as Chairman of the Convention Committee of the Reform
Party. The Court further ordered Mr. Gargan and Mr. Young to turn over
all documentation regarding convention funding and disbursements made
by the RPCC (or on its behalf) to the Reform Party of the United States of
America, which is responsible under the Presidential Election Campaign

Page 12 of 25 Approved September 26, 2002


held in the Registry of the Court? (see Finding II.B). The understatement of
disbursements resulted primarily from approximately $1,411,000 in payments to the
Registry of the Court not being reported, and $614,000 in disbursements that were either
not reported or the amount reported was net of any rebate received. The understatement
in closing cash resulted from the above-described reporting irregularities. Workpapers
detailing these irregularities were provided to RPCC officials during audit fieldwork and
on February 3, 2001, RPCC filed amended disclosure reports that corrected the public
record.

In the Preliminary Audit Report (PAR) the Audit staff recommended no
further action.

B. COMMINGLING OF FUNDS

Section 432(b)(3) of Title 2 of the United States Code states that all funds
of a political committee shall be segregated from, and may not be commingled with, the
personal funds of any individual.

Section 432(h) of Title 2 of the United States Code states, in relevant part,
that each political committee shall maintain at least one checking account and such other
accounts as the committee determines at a depository designated by such committee. All
receipts of such committee shall be deposited in such accounts. No disbursements may
be made (other than petty cash disbursements) by such committee except by check drawn
on such accounts.

Ronald Young, former Treasurer of the RPCC, incurred convention
expenses during 1999 and early 2000 and was reimbursed $11,500 with two checks.*
Both checks, which represented reimbursement to Mr. Young for convention expenses
incurred (primarily for the reimbursement of travel expenses), were apparently deposited
into an account at First Citizens Bank used for business purposes by Mr. Young.
However, no commingling occurred with respect to these two transactions.

On January 9, 2000 Mr. Young issued a check to himself, drawn on an
RPCC account, in the amount of $10,000 as an advance for expenses. In addition, on
January 13, 2000, Mr. Young issued another check to himself in the amount of $30,000,
also described as an advance for expenses. Both of these checks were deposited into Mr.
Young’s business account in January 2000.

Based on the records currently available regarding Mr. Young’s expenses,
funds reimbursed and funds advanced, it appears that the deposit by Mr. Young of the
$10,000 and $30,000 checks into an account he used for business purposes represents

> Reform Party of U.S. v. Gargan, 89 F.Supp.2d 751 (W.D.Va. 2000).

* One reimbursement check for $6,500 was dated December 10, 1999; the other for $5,000 was dated
January 9, 2000.

Page 6 of 25 Approved September 26, 2002


14

deposition, Mr. Young was asked if he had requested TPG to stop working on the Las
Vegas convention after the temporary restraining order was in place in mid-February in
an attempt to get some of the $300,000 paid to TPG returned to RPCC. He responded in
the negative and stated that it was essential that TPG’s work continued, otherwise they
never would have been able to go forward with the professional type of convention that
they wanted to have.

Mr. Murray, both as an individual and representing Murray & Murray (part
of the TPG joint venture — see footnote 8 on page 12), was deposed on March 8 and
March 14, 2000. In response to questions concerning what he had done to earn his part of
the fee paid to TPG, Mr. Murray responded

“Work on an administrative plan to figure what staffs, how to
get office space, you need to get to the city about month ahead
of time, volunteers, try to -- a lot, most of this is verbal, some
of it in there is open questions. Making sure that the time line
will fit, talking with Mr. Keefe and Mr. Foudy about what are
they going to do, what kind of media supplies are they going to
need, are people going to get credentialed before, talk about
electronic voting, how to accommodate that, talk
communications, will the host city provide what most host
cities do.”

Mr. Murray also responded to questions concerning what the two other
members of TPG (Mr. Keefe and Mr. Foudy) did to earn their share of the fee. Mr.
Foudy, in charge of media, prepared a Media Plan of about 8-10 pages and lined up
television coverage. Mr. Murray acknowledged that television coverage “...is difficult to
nail down because we don’t know what city ... There are a lot of gaps in final things, but
there is — we do as much generic work as we can.” Mr. Keefe was working on credentials
for the convention, and according to Mr. Murray, was “...endlessly in meetings and
discussions with people about how to set up various credentials ...”. The Media Plan was
not made available; correspondence and e-mails concerning credentials were made
available, but not a credential planning document or similar work product.

In response to the exit conference, Mr. Ronald Young, former Treasurer of
the RPCC, referred in general to the TPG contract and stated that “[t]he Performance
Group was contracted to assist with ALL [emphasis in original] planning and preparation
for the 2000 Presidential Nominating Convention.”

On February 16, 2000 a suit was filed seeking, among other things, to
recover funds under the control of Gargan and Young. TPG, along with its members,
were also named as defendants. Funds, amounting to slightly over $500,000 in the TPG
reserve account, were forwarded to the Registry of the Court on February 25, 2000.
Admittedly, TPG was involved in planning and preparations relative to the Las Vegas
convention, held March 17-19, 2000; however, the Las Vegas convention was expressly

Page 16 of 25 Approved September 26, 2002


REPORT OF THE AUDIT DIVISION
ON THE

REFORM PARTY 2000
CONVENTION COMMITTEE

Approved September 26, 2002

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



ll

Fund Act to provide all such information to the Commission for any post-
convention audit.

The Audit staff reviewed the records made available during fieldwork and
identified activities whose related expenses did not appear to be convention expenses —
expenses incurred by or on behalf of a political party’s national committee or convention
committee with respect to and for the purpose of conducting a presidential nominating
convention or convention-related activities.

Emergency National Convention ~ Las Vegas March 17-19, 2000

In early February 2000, Reform Party Chairman Jack Gargan issued an
official call for an emergency National Convention and an official call for a National
Committee meeting. According to a photocopy of an e-mail containing the text of the
letter (apparently dated 2-6-00, and postmarked 2-8-00), Mr. Gargan’s letter, in part,
stated:

“I call this an emergency because I feel the present EC [Reform
Party Executive Committee] is doing all they can to keep the
business of this party from being grassroots and inclusive of all
of you. They have usurped my position and my meeting calls
at every turn and have attempted to tie my hands and those of
Ronn Young, your elected national treasurer, to the point that
none of our new ideas can even be discussed. It is time you
and I get down to business and stop this foolishness.”

Evidently, planning for the Las Vegas convention began as early as
December 15, 1999. Corporate Planners Unlimited, business event coordinators (see
I11.B.2.), in an invoice dated April 1, 2000, referenced the Las Vegas site, and listed
coordination dates of December 15, 1999 through April 5, 2000. As noted above, at the
Nashville meeting, held February 12, 2000, the National Committee of the Reform Party
voted not to hold the Las Vegas convention called by Mr. Gargan. This action was
addressed in the Court decision, issued March 27, 2000, wherein Judge Moon concluded:

“Any action taken by Gargan or Young, allegedly acting as
National Officers of the Reform Party (with regard to the Las
Vegas convention or otherwise), since their removal as
National Officers on February 12, 2000, were ultra vires, and
without legal effect. Moreover, this Court finds that the Las
Vegas convention, held on March 17-19, 2000, was not a duly-
constituted or properly convened Convention of the Reform
Party of the United States of America, and any and all actions
taken there are null and void as they relate to the Reform
Party.”

Page 13 of 25 Approved September 26, 2002


17

national nominating convention held in Long Beach, California and therefore, subject to a
pro rata repayment to the U.S. Treasury pursuant to 11 CFR §9008.12.

In the PAR, the Audit staff recommended that the RPCC provide
documentation demonstrating that the expenses, totaling $15,040, related to the Las
Vegas convention were convention expenses. Absent such evidence, the PAR explained
that the Audit staff would recommend that the Commission determine that $14,821
($15,040 x .985411) is repayable to the United States Treasury pursuant to 26 U.S.C.
§9008(h) and 11 CFR §9008.12.

In response to the PAR, RPCC Counsel stated that RPCC, through Gerald
Moan, “...has consistently taken the position that the funds paid to Corporate Planners
[CPU] were not legitimate expenses for the Party’s Presidential Nominating Convention
for the reasons set out in the Audit Report. In that we agree with the audit staff's
determination in this regard, no additional documentation ...will be forthcoming.”

Recommendation #2
The Audit staff recommends that the Commission determine that $14,821

($15,040 x .985411) is repayable to the United States Treasury pursuant to 26 U.S.C.
§9008(h) and 11 CFR §9008.12.

3. Miscellaneous Undocumented or Non-Convention-related Expenses

The Audit staff identified 7 disbursements in payment of expenses that
either do not appear to be convention expenses or are considered undocumented. In the
case of 3 payments, totaling $1,907, the expenses were associated with the creation and
mailing of a newsletter entitled All About Reform, an official publication from the Reform
Party USA. The newsletter, dated February 7, 2000, consisted of 8 pages and was labeled
as “Volume 1, Issue 1.” It contained a survey and a solicitation of funds on behalf of the
RPUSA [Reform Party of the United States of America], not the RPCC. There is a short
article on page one about Presidential debates that mentions the 2000 nominating
convention. Otherwise, the newsletter contained articles and material related to the
Reform Party and its operations. In response to the exit conference, Mr. Young related
that the newsletters were prepared to send to members of the Reform Party and to give
out in Nashville and Las Vegas. The bulk of the newsletters went to the Communications
Chairman for distribution and 500 were mailed to Nashville for distribution.

The fourth item, according to Mr. Young, was a $500 disbursement to the
Reform Party of New Hampshire was “...for travel expenses for a Performance Group
representative who had media contacts to promote the Reform party Nominating process
(the Reform Party Primary) at the time the Democrats and Republicans were receiving
nationwide attention at the New Hampshire Primary. No contract was signed. A
[detailed] accounting was requested but none received.” The fifth item was a $550

Page 19 of 25 Approved September 26, 2002


13

copies of correspondence, meeting notes, and draft work products. In addition, Mr.
Daniel H. Murray was deposed on March 8 and March 14, 2000 in relation to the
litigation — Reform Party of the United States of America et al vs. John J. Gargan et al.
Mr. Ronald Young was also deposed in relation to that case on February 29 and March 1,
2000. The Audit staff reviewed these depositions.

Our review focused on whether the activities enumerated in the agreement
were undertaken by TPG, given (a) Mssrs. Gargan and Young were removed as officers
on February 12, 2000 and (b) RPCC filed suit on February 16, 2000 seeking, among other
things, a temporary restraining order directing Mssrs. Gargan and Young to deposit the
FECA funds into the Registry of the Court, or into a bank account approved by the Court,
and (c) TPG was a named defendant. Documents reviewed were dated between
December 1999 and March 2000.

Regarding the eight specific tasks listed above, documentary information
provided indicated that few had been completed. As to item (5), documents reviewed
included a January 10, 2000 meeting agenda to lay out a positive plan — establishment of
time line for the convention, host city obligations, labor and ethics; a draft action agenda
dated January 6, 2000; and an outline for the Las Vegas Convention Notebook, dated
March 9, 2000. Correspondence reviewed included references to fundraising sources,
media coverage and convention planning.

A review of TPG’s bank account activity identified payments, totaling
$16,000 to two law firms on behalf of Mr. Young. Related correspondence indicated that
Mr. Young assured a reimbursement would be forthcoming; bank statements through
February 29, 2000 did not reflect any reimbursement transaction(s). Also paid from the
TPG account were four checks for $5,000 each to cover travel and related expenses for
individuals to attend the Las Vegas Convention, not considered the national nominating
convention.

Finally, TPG activities were covered in both the Young and Murray
depositions, information provided by Mr. Young’s was either general in nature or not
conclusive. For example, when questioned about the business plan for the nominating
convention (item (1) above), Mr. Young replied that he had seen a first draft but nothing
else since; concerning the creation of an objective site selection process, Mr. Young
commented that “[w]ell, just in their approach to getting a site and contacting the people,
to me, is an overall approach of getting the Request for Proposals out, this kind of thing,
just kind of setting the framework and educating us.” Mr. Young related that TPG had
prepared a document on site selection but did not produce it at the deposition. He added
that it would be provided later. A document fitting that description was not contained in
the materials provided. However, a nine page “Convention Plan” was prepared by
Professionally Yours.” The invoice, dated November 30, 1999, listed preparation of a
convention plan, schedule and requests for proposals at a cost of $9,500. As part of his

° See footnote 5/.

Page 15 of 25 Approved September 26, 2002


Although the RPCC’s financial position, as shown above, reflects a deficit,
it did not approach the limitation provided for national nominating convention spending
($13,512,000). Further, the RPCC did not receive funds in excess of its entitlement nor
were there any unspent funds. See 11 CFR §§9008.12(b)(1) and (5).

B. PAYMENTS FOR OTHER THAN CONVENTION EXPENSES

Section 9008.12(b)(4) of Title 11 of the Code of Federal Regulations states
that if the Commission determines that any amount of any payment to the national
committee or convention committee under 11 CFR 9008.6 was used for any purposes
other than the purposes authorized at 11 CFR 9008.7 or was not documented in
accordance with 11 CFR 9008.10, it shall notify the national committee of the amount
improperly used or documented and the national committee shall pay to the Secretary an
amount equal to the amount specified.

Additionally, 11 CFR 9008.7(a)(1) provides, in part, that any payment
made under 11 CFR 9008.6 shall be used only for the following purposes: Such payment
may be used to defray convention expenses (including the payment of deposits) incurred
by or on behalf of the national committee receiving such payments.

In defining “convention expenses,” 11 CFR 9008.7(a)(4) provides that
such expenses include all expenses incurred by or on behalf of a political party’s national
committee or convention committee with respect to and for the purpose of conducting a
presidential nominating convention or convention-related activities. Such expenses
include, but are not limited to: salaries and expenses of convention committee
employees, volunteers and similar personnel, whose responsibilities involve planning,
management or otherwise conducting the convention; expenses for conducting meetings
of or related to committees dealing with the conduct and operation of the convention,
such as rules, credentials, platform, site, contests, call, arrangements and permanent
organization committees, including printing materials and rental costs for meeting space;
expenses incurred in securing a convention city and facility; expenses for printing
convention programs, a journal of proceedings, agenda, tickets, badges, passes, and other
similar publications; and administrative and office expenses for conducting the
convention, including stationery, office supplies, office machines, and telephone charges;
but excluded from these expenses are the cost of any services supplied by the national
committee at its headquarters or principal office if such services are incidental to the
convention and not utilized primarily for the convention.

Background

At the Reform Party National Convention, held on July 23-25, 1999 in
Dearborn, Michigan, John J. Gargan was elected to succeed Russell Verney as National
Party Chair and Ronald Young was elected to succeed Michael Morris as National
Treasurer, both effective January 1, 2000. A meeting of the Executive Committee of the
Reform Party was convened on September 1, 1999, during which Long Beach, California

Page 10 of 25 Approved September 26, 2002


spending did not approach the limitation provided for national nominating conventions.
Further, RPCC did not receive funds in excess of its entitlement nor were there any
unspent funds.

PAYMENTS FOR OTHER THAN CONVENTION EXPENSES — 11 CFR §9008.12(b)(4).
RPCC entered into an agreement with, and paid $300,000 to, The Performance Group
(TPG) to provide consulting services in connection with the official nominating
convention held in Long Beach, CA in August 2000. Available records indicated that
TPG activities were related, at least in part, to an emergency convention held in Las
Vegas, NV in March 2000. The Reform Party filed suit to recover the $300,000
contending that no work was performed relative to the nominating convention, however,
the jury ruled in favor of TPG. The Audit staff was unable to determine that the
$300,000 paid to TPG was a permissible use of federal funds. In the PAR,
documentation was requested to demonstrate that the $300,000 was related to the
nominating convention. Otherwise a pro rata portion ($295,623) would be repayable to
the U.S. Treasury. RPCC’s Counsel and Treasurer agreed that the $300,000 was

improper.

RPCC made a payment of $58,000 to Corporate Planners Unlimited (CPU), to make
arrangements for the nominating convention. Documentation indicated that while
$42,960 of this payment was related to the nomination convention, $15,040 was related
to planning for the Las Vegas convention and was therefore not permissible. In order to
avoid a pro rata repayment ($14,821) to the U.S. Treasury, the PAR requested
documentation demonstrating that the $15,040 was convention related. RPCC’s Counsel
and Treasurer agreed that this payment was not a legitimate convention expense.

Seven additional RPCC disbursements totaling $23,457 (including the $10,500 currency
payment noted above in the Commingling of Funds finding) either did not appear to be
convention-related expenses or were considered undocumented. In order to avoid a pro
rata repayment to the U.S. Treasury, the PAR requested documentation demonstrating
that the $23,114 was convention related. RPCC’s Counsel and Treasurer agreed that
these payments were not legitimate convention expenses.

SUMMARY OF AMOUNTS DUE TO THE U.S. TREASURY: The total amount
repayable to the U.S. Treasury is $333,558 ($295,623 + $14,821 + $23,114).

Page 2 of 25 Approved September 26, 2002


CHRONOLOGY

REFORM PARTY 2000 CONVENTION COMMITTEE

Audit Fieldwork
Preliminary Audit Report
To Committee

Response Received to the
Preliminary Audit Report

Final Audit Report Approved

December 8, 2000 -
April 2, 2001

June 6, 2002

August 7, 2002

September 26, 2002

Page 25 of 25 Approved September 26, 2002


Page 22 of 25 Approved September 26, 2002


TABLE OF CONTENTS

REFORM PARTY 2000 CONVENTION COMMITTEE

Page

Executive Summary 1
Final Audit Report 3
Background 3
Findings 5
Transmittal to Committee 23

Chronology 25




was chosen as the site for the Reform Party’s 2000 Presidential Nominating Convention.
Also at that meeting, Mr. Young was appointed Chair and Treasurer of the 2000
convention committee, a special committee of the Reform Party formed to carry out the
business of effectuating plans for the 2000 Presidential Nominating Convention. During
November 1999, the Commission certified to the Secretary of Treasury $2,468,921 in
funds to be paid to the Reform Party 2000 Convention Committee. These funds were
deposited into a RPCC depository in December 1999.°

Between November 1999 and February 12, 2000, several meetings of the
Executive Committee of the Reform Party, as well as the National Committee of the
Reform Party occurred. Topics discussed included the site of the presidential nominating
convention, removal of officers, and scheduling a National Committee meeting. A list of
some of these meetings and related occurrences appear below:

- November 29, 1999: National Committee meeting (conducted by mail
ballot) at which St. Paul, Minnesota was selected as the site for the 2000
presidential nominating convention. Certain members of the Reform Party
disputed whether a quorum existed.

- December 16, 1999: Executive Committee meeting at which a motion
was passed directing Mr. Young to sign a contract with the Long Beach
Convention Center by December 23, 1999.

- December 28, 1999: Executive Committee meeting at which Mr. Young
was removed as Treasurer of the Reform Party’s 2000 Convention
Committee and was replaced by Mr. Moan.”

- January 9, 2000: Executive Committee meeting at which, after much
discussion, the creation of an independent site selection committee was
approved as a compromise between Mr. Gargan and other members of the
Executive Committee.

- January 18, 2000: Executive Committee meeting at which remaining
members present, voted 6-1 to hold a National Committee meeting in
Nashville, Tennessee on February 12, 2000. Mr. Gargan, Mr. Young, and
Ms. DeBauche left the meeting prior to this vote.

- January 19, 2000: Reform Party National Committee members were
informed, via mail, of the date and time of the Nashville National
Committee meeting. This notice also included a proposed agenda that
included the recall of Mr. Gargan, Mr. Moan, and Mr. Young.

© Additional federal funds in the amount of $53,769 were forwarded to RPCC and deposited in June 2000.

7 Mr. Young was duly re-appointed convention committee treasurer by the National Party Chair, Mr.
Gargan, in early January 2000.

Page 11 of 25 Approved September 26, 2002


FEDERAL ELECTION COMMISSION
Washington, DC 20463

REPORT OF THE AUDIT DIVISION
ON THE
REFORM PARTY 2000 CONVENTION COMMITTEE

EXECUTIVE SUMMARY

The Reform Party 2000 Convention Committee (RPCC) registered with the
Federal Election Commission on October 5, 1999, as a national convention committee of
the Reform Party. Mr. Ronn Young was the treasurer of RPCC from inception through
February 12, 2000 and Mr. Gerald Moan served as Treasurer from February 13, 2000 to
the present. The Committee maintained offices in Fieldale, VA and Tucson, AZ.

The audit was conducted pursuant to Section 9008(g) of Title 26 of the United
States Code, which directs the Commission to conduct an examination and audit of the
payments for presidential nominating conventions no later than December 31 of the
calendar year in which the presidential nominating convention is held. RPCC received
$2,522,690 in federal funds.

The audit findings summarized below were presented to RPCC at an exit
conference held on April 2, 2001 and later in the preliminary audit report (PAR). The
report includes the RPCC’s response to these findings.

MISSTATEMENT OF FINANCIAL ACTIVITY — 2 U.S.C. §434(b)(1)(2) & (4).
A reconciliation of RPCC’s reported financial activity to its bank records indicated that
receipts, disbursements, and ending cash were understated due mainly to not reporting
transactions with the Registry of the Court in connection with a lawsuit. There were also
a number of other minor errors. Amended reports were filed to correct the public record.

COMMINGLING OF FUNDS — 2 U.S.C. §432(b)(3) and (h). When Ronn Young
was RPCC Treasurer, he issued checks totaling $40,000 to himself described as advances
for expenses. The funds were deposited into his business account resulting in an
impermissible commingling of RPCC funds with personal funds. Checks for RPCC
expenses were also issued from this account rather than from an RPCC account.
Although all of the funds are accounted for, one $10,500 cash payment to an RPCC
vendor is considered to be undocumented. Additional documentation for Mr. Young’s
account was requested in the PAR but RPCC Counsel stated that‘none was available.

DETERMINATION OF NET OUTSTANDING CONVENTION EXPENSES — 26 U.S.C
§9008.10(g) and 11 CFR §9008.12(b)(1) and (5). The Statement of New Outstanding
Convention Expenses prepared by the Audit staff reflects a deficit. However, RPCC

Page 1 of 25 Approved September 26, 2002


15

“not authorized” by the Reform Party’s National Committee during the February 12"
Nashville meeting, nor was it intended to be a nominating convention.

The section of the suit relating to TPG (and its associated joint venturers)
was bifurcated from the original suit and moved to the Circuit Court for Fairfax County
(Virginia). The motion filed by Counsel for RPCC against TPG contended that in return
for the $300,000 paid to TPG, the defendants “‘...agreed to and were obligated to provide
[RPCC] with the services necessary to establish the organization and infrastructure to
enable [RPCC] to conduct a Presidential Nominating Convention in the summer of
2000.” The jury ruled in favor of the defendants in December 2001.

In conclusion, TPG’s agreement specified a nine-month duration through
September 20, 2000 and planning for the presidential nominating convention could have
occurred through mid-February 2000. However, little evidence was provided that
established whether TPG had performed the services specified in the agreement and it
appears that some of the services provided by TPG related to the Las Vegas Emergency
National Convention, not to the official nominating convention held in Long Beach,
California. As a result, the Audit staff was unable to determine that the $300,000 paid to
TPG qualifies as a permissible use of federal funds. Since RPCC has not met the
documentation requirements of 11 CFR 9008.10, the $300,000 paid to TPG represents
payment of other than convention expenses and is subject to a pro rata repayment
pursuant to 11 CFR 9008.12.

In the PAR, the Audit staff recommended that the RPCC provide
documentation to demonstrate that the $300,000 paid to TPG was a disbursement
incurred by or on behalf of a political party’s national committee or convention
committee with respect to and for the purpose of conducting a presidential nominating
convention or convention-related activities. Absent such evidence, the PAR explained
that the Audit staff would recommend that the Commission determine that $295,623
($300,000 x .985411)'° is repayable to the United States Treasury pursuant to 26 U.S.C.
§9008(h) and 11 CFR §9008.12.

In response to the PAR, RPCC Counsel stated that the Party and RPCC,
through the current RPCC Treasurer, Gerald Moan, believe that the $300,000 payment
was improper and as a result, sought its return in a lawsuit in the Circuit Court for Fairfax
County, Virginia. He added that they took the position that the payment of the $300,000
to TPG was for purposes other than the payment of legitimate convention expenses. He
concluded that since “...we agree with the audit staff's conclusion on that issue, no
additional documentation will be forthcoming...”

'° Repayment = Total Federal Funds received thru Dec. 31. 2000 = $2,522,690 = 98.5411%
Ratio Total deposits thru Dec. 31, 2000 $2,560,039

Page 17 of 25 Approved September 26, 2002


FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

October 4, 2002

MEMORANDUM

TO: Ron M. Harris
Press Officer
Press Office

FROM: Joseph F. Stoltz / tL
Assistant Staff Difectér
Audit Division |

SUBJECT: Public Issuance of the Final Audit Report on Reform Party 2000 Convention
Committee

Attached please find a copy of the final audit report and related documents on Reform
Party 2000 Convention Committee that was approved by the Commission on September 26,
2002.

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

Attachment as stated

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


inception through February 12, 2000.? Gerald M. Moan, who succeeded Mr. Young as of
February 12, 2000, is the current Treasurer. At various times during the period audited,
the RPCC maintained offices in Fieldale, VA and Tucson, AZ; records are maintained in
Tucson, AZ and Washington, D.C.

The Committee used 8 bank accounts to handle its financial activity. From
these accounts it made approximately 120 disbursements. RPCC received $2,522,690 in
federal funds that represented its entitlement established at 26 U.S.C. §9008(b)(2),
approximately $29,000 in interest income, and approximately $7,800 in offsets to
operating expenditures/other receipts.

D. AUDIT SCOPE AND PROCEDURES

The audit of RPCC included testing of the following general categories as

appropriate:
1. the receipt of contributions from prohibited sources;
2. the receipt of contributions or loans in excess of the statutory
limitations;
3. proper disclosure of receipts including the itemization of receipts

when required, as well as, the completeness and accuracy of the
information disclosed (Finding II. A.);

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

5. proper disclosure of RPCC debts and obligations;

6. the accuracy of total reported receipts, disbursements and cash
balances as compared to RPCC bank records (Finding II. A.);

7. adequate record keeping for RPCC transactions;

8. accuracy of the Statement of Net Outstanding Convention
Expenses filed by RPCC to disclose its financial condition
(Finding ITI.A.);

2 During the period from December 28, 1999 to early January 2000, Mr. Young was temporarily removed
as Treasurer. He was duly re-appointed by the National Reform Party Chair, Mr. Gargan, in early
January 2000.

Page 4 of 25 Approved September 26, 2002


FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20463

REPORT OF THE AUDIT DIVISION
ON THE
REFORM PARTY 2000 CONVENTION COMMITTEE

L BACKGROUND
A. AUDIT AUTHORITY

This report is based on an audit of the Reform Party 2000 Convention
Committee (RPCC) to determine whether there has been compliance with the provisions
of the Federal Election Campaign Act of 1971, as amended (the Act). The audit was
conducted pursuant to Section 9008(g) of Title 26 of the United States Code that directs
the Federal Election Commission (the Commission) to conduct an examination and audit
of the payments for presidential nominating conventions no later than December 31 of
the calendar year in which the presidential nominating convention is held,

In addition to examining the receipt and use of Federal funds, the audit
seeks to determine if RPCC has materially complied with the limitations, prohibitions
and disclosure requirements of the Act.

B. AUDIT COVERAGE

The audit covered the period from December 6, 1999 through September
30, 2000. In addition, certain financial transactions and disclosure teports filed with the
Commission were reviewed through December 31, 2001 to determine any amounts due
to the United States Treasury. RPCC reported an opening cash balance of $ -0-, total
receipts of $2,559,632, total disbursements of $2,536,790, and a closing cash balance on
September 30, 2000 of $22,842."

Cc. COMMITTEE ORGANIZATION

RPCC registered with the Commission on October 5, 1999, as a national
committee of the Reform Party. Ronald Young was the Treasurer for the period from

' Figures shown for total receipts, disbursements and closing cash were materially misstated. See Finding
ILA.

Page 3 of 25 Approved September 26, 2002


Any questions you may have related to matters covered during the audit or in the
audit report should be directed to Marty Favin of the Audit Division at (202) 694-1200 or
toll free at (800) 424-9530.

Joseph F. Stoltz Y
Assistant Staff Director
Audit Division

ce: Dale A. Cooter, Esq.

Attachment as stated

Page 24 of 25 Approved September 26, 2002


FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20463

September 30, 2002

Mr. Gerald M. Moan, Treasurer

Reform Party 2000 Convention Committee
3281 N.Meadow Mine Place

Tucson, AZ 85745

Dear Mr. Moan:

Attached please find the Report of the Audit Division on the Reform Party 2000
Convention Committee (Final Audit Report). The Commission approved this report on
September 26, 2002. As noted on page 3 of this report, the Commission may pursue any of
the matters discussed in an enforcement action.

In accordance with 11 CFR §9008.12(a)(1) and (c), the Commission has made a
determination that a repayment to the Secretary of the Treasury in the amount of
$333,558 is required within 90 calendar days after service of this report (January 2,
2003).

Should the Committee dispute the Commission's determination that a repayment is
required, Commission regulations at 11 CFR §9008.12(c) provide the Committee with an
opportunity to submit in writing, within 60 calendar days after service of the Commission’s
notice (December 2, 2002), legal and factual materials to demonstrate that no repayment, or
a lesser repayment, is required. In addition to the submission of written materials, the
Committee may request an opportunity to address the Commission in open session. The
request for an oral hearing should identify the repayment matters that will be addressed and
the Committee’s presentation must be based on the legal and factual materials submitted

The Commission will consider any written legal and factual materials submitted
within the 60 day period when deciding whether to revise the repayment determination.
Counsel representing the Committee may submit such materials. If the Committee
decides to file a response to the repayment determination, please contact Gregory R.
Baker of the Office of General Counsel at (202) 694-1650 or toll free at (800) 424-9530.
If the Committee does not dispute this determination within the 60 day period provided,
it will be considered final.

The Commission approved audit report will be placed on the public record on

October 7, 2002. Should you have any questions regarding the public release of this report,
please contact the Commission’s Press Office at (202) 694-1220.

Page 23 of 25 Approved September 26, 2002




12

Therefore, it does not appear that the Las Vegas convention was related to
any degree with the conduct of the Reform Party’s national nominating convention or
process. As such, any expenses associated with the Las Vegas convention would not be
convention expenses. Payments of expenses identified as related to the emergency Las
Vegas convention, as well as other payments for other than convention expenses are
discussed below.

1, Payments to The Performance Group

On December 15, 1999, RPCC entered into a consulting agreement
with The Performance Group (TPG)* whereby TPG would provide consulting and
representational services to RPCC in the support, promotion and advancement of
initiatives of the RPCC with specific regard to the 2000 Presidential Convention of the
Reform Party of the United States of America. Specifically, the following activities to be
performed by TPG were enumerated in the agreement:

(1) Develop a business plan for the Reform Party Convention 2000, including a
work schedule, budget and organizational framework.

(2) Assist in the creation of an objective site selection process.

(3) Assist in the development of a Host Committee and support its planning.

(4) Provide support in negotiating a proper contract with a Host Committee for the
venue that is selected for the convention.

(5) Provide for structure of convention committees and review their functions and
activities.

(6) Assist in the creation of a security team and the security plan for the
convention.

(7) Provide for a system of credentials for convention delegates, guests, and the
media.

(8) Guide the Committee [RPCC] in compliance with all Federal Election
Commission rules and regulations governing the Convention.

The consulting agreement commenced on December 20, 1999 for a period
of nine months through September 20, 2000. Compensation in the form of consulting
fees was to be paid as follows: $100,000 on January 1, 2000, $200,000 on February 1,
2000, and $70,000 on August 1, 2000. Further, a reserve account of not less than
$500,000 for the purpose of funding expenses beyond the retainer was required. RPCC
paid $300,000 in consulting fees and also funded a $500,000 reserve account. This
$500,000, plus interest, was turned over to the Registry of the Court pursuant to the
Court’s February 24, 2000 order.

Information provided during fieldwork included the consulting agreement,
invoices, copies of bank statements for TPG’s operating account and reserve account,

® TPG was a joint venture between Murray & Murray, Inc., TKC International, Inc., and The Heartland
Group. Daniel H. Murray, Robert J. Keefe and Micheal (sic.) Foudy, respectively signed the agreement
on behalf of these three entities.

Page 14 of 25 Approved September 26, 2002


18

payment to Jim Mangia, National Secretary of the Reform Party, apparently intended to
pay for a mailing related to the Emergency National Convention held in Las Vegas. Mr.
Young, in his response, explained that the purpose was “...to mail the Notice and Agenda
of the Las Vegas Planning Convention. Mangia did not do the mailing and instead used
the money to reimburse himself for the 2-12-00 meeting held in Nashville.”"!

The sixth disbursement, a check for $10,000 made payable to “Gersten,
Savage, et al” for legal services related to a lawsuit filed by Mr. Young on February 10,
2000. According to Mr. Young, the lawsuit was filed because “...after 6 months, no
transition had been made of any of the party records to me or to the new National
Chairman, Jack Gargan. I could not prepare adequately for the Nominating convention
without membership databases, website, reflectors, media contacts, historical convention
records, etc., and after repeated requests and demands of the previous administration, it
was necessary to file a lawsuit against the previous administration (about 12 Reform
Party executives) including former Chairman, Russ Verney, to obtain the party records.”

As to the above-described 6 payments, the $500 payment purportedly
related to media operations involving the New Hampshire primary appears inadequately
documented. The remaining five items, do not, based on the records and explanations
made available, appear to be convention expenses and the stated purposes indicate that
the disbursements were made on behalf of the Reform Party of the United States of
America, or Mr. Young, not the RPCC.

Finally, the seventh item in question was described by Mr. Young as a
cash payment of $10,500 made to Professionally Yours, a firm that provided professional
services to RPCC. Apparently, when a check from Mr. Young’s account, issued January
31, 2000, was voided, 2 Mr. Young gave cash in return for the check. The documentation
presented by Mr. Young does not appear to be a receipted bill, it does not bear the
signature or some other acknowledgment initiated by the intended payee that payment
was rendered and received. Thus, it is being viewed as undocumented.

Accordingly, of the $23,457 discussed above, $12,457 ($1,907 + $550 +
$10,000) is viewed as not related to any degree with the conduct of the Reform Party’s
national nominating convention, and the remaining $11,000 ($500 + $10,500) is not
documented. Therefore, $23,457 is subject to a pro rata repayment to the United States
Treasury pursuant to 11 CFR §9008.12.

In the PAR, the Audit staff recommended that the RPCC provide evidence
to demonstrate that the aforementioned $12,457 in expenses are convention expenses, and
provide information, to include a signed statement from the person(s) who received the
$11,000, to document that the expenditures were qualified convention expenses. Absent
such evidence, the PAR explained that the Audit staff would recommend that the

"' A review of reports filed by the Reform Party of the United States of America, Inc. for the period
January 1, 2000 through June 30, 2000 did not identify a $550 receipt from RPCC.
"This check did not clear Mr. Young’s account as of April 30, 2000.

Page 20 of 25 Approved September 26, 2002




commingling of RPCC funds with personal funds. Also, checks were issued from this
account to pay RPCC expenses rather than from a checking account of the RPCC. In one
instance, documentation indicated that $10,500 in currency was given to a vendor,
Professionally Yours, when the check drawn on Mr. Young’s account was voided. This
payment is viewed as undocumented by the Audit staff (see Section III.3.). In another
instance, $35,000 was withdrawn on February 16, 2000; on February 28, 2000 $37,813.88
was deposited. Included in this deposit was a $35,000 cashiers check payable to “R. L.
Young” and a cashiers check in the amount of $1,800 payable to Green Valley Farms
(records available indicated Mr. Young has an ownership interest in Green Valley Farms).
According to a copy of this cashier's check, it was purchased by Thomas L. & April D.
Whited, the latter appears to be a signatory for Professionally Yours on a written
agreement to provide professional services to RPCC.°

In summary, of the $40,000 ($10,000 + $30,000) Mr. Young advanced to
himself, it appears that the funds were used as follows: an undocumented $10,500 cash
payment to Professionally Yours; two payments sent to the Registry of the Court, totaling
$21,624 ($13,617 + $8,007); and, the remaining funds apparently being used for
payments of travel and other convention-related expenses, many by cashier’s check.
Some of these transactions may be related to a $23,000 withdrawal that was posted to Mr.
Young’s account on February 29, 2000, for which there is no documentation.

Our analysis of the records currently available, consisting of bank
statements, copies of certain cancelled checks and deposits, expense documentation and
worksheets prepared by Mr. Young, indicate that RPCC funds deposited into Mr.
Young’s business account, although commingled with his funds, were not used to fund
Mr. Young’s personal or business expenses. However, without all cancelled checks,
deposit documentation and other debit and credit memoranda pertaining to his account,
plus adequate documentation relative to the currency transaction(s), it is not possible to
determine conclusively whether RPCC funds were used to fund Mr. Young’s personal or
business expenses.

In the PAR the Audit staff recommended that the RPCC obtain and
provide the following:

(a) All cancelled checks (both sides), debit and credit advices or memoranda,
and deposit slips (including copies of items deposited) for Mr. Young’s
account for the period January 1, 2000 through April 30, 2000;

(b) Photocopies of the pages of the check register(s) for Mr. Young’s account
for the period January 1, 2000 through April 30, 2000;

* According to deposition testimony provided by Mr. Young related to Reform Party of U.S. v. Gargan,
Sue Harris DeBauche, Mr. Young's wife, was also a regional representative on the Reform Party’s
Executive Committee during January 2000. She also worked on a mailing and agenda for the emergency
Las Vegas convention (see Finding II.B.) apparently in conjunction with Professionally Yours. Mr.
Young confirmed that Ms. DeBauche was going to be paid by Professionally Yours.

Page 7 of 25 Approved September 26, 2002


REFORM PARTY 2000 CONVENTION COMMITTEE
STATEMENT OF NET OUTSTANDING CONVENTION EXPENSES
AS OF SEPTEMBER 27, 2000
AS CALCULATED JUNE 30, 2002

AUDIT ANALYSIS
Assets
Cash in Bank $79,949
Capital Assets $0
Other Assets $0
Accounts Receivable (a) $54,851
Total Assets $134,800
Obligations
Accounts Payable (b) $241,380
Winding Down Costs 9/28/00-6/30/02 (c) $2,787
Total Obligations $244,167
Nef Outstanding Convention Expenses- $:109,367
eficit

Statement of Net Outstanding Convention Expenses Footnotes

(a) All of these amounts have been collected and it appears that there are no other anticipated receivables
due to RPCC as of June 30, 2002.

(b) Of the $241,380 in accounts payable as of September 27, 2000, $159,376 relates to legal fees still owed
by RPCC as of June 30, 2002.

(c) No additional winding down costs are anticipated.

Page 9 of 25 Approved September 26, 2002




16

Recommendation #1

The Audit staff recommends that the Commission determine that $295,623
($300,000 x .985411) is repayable to the United States Treasury pursuant to 26 U.S.C.
§9008(h) and 11 CFR §9008.12.

2. Payment to Corporate Planners Unlimited

Corporate Planners Unlimited (CPU), according to a Letter of
Appointment dated November 4, 1999, was the sole meeting management agent acting on
behalf of the RPCC for the purpose of securing hotels, convention space and related
vendor contracts as directed for the presidential nominating convention. The original
Letter included location options of San Diego, CA, Anaheim, CA and Las Vegas, NV for
the period August 10-13, 2000. This document was signed by Ronald Young, the RPCC
treasurer at the time, but was not signed by a representative of CPU. An addendum to the
original Letter was signed by both Mr. Young and the CEO of CPU in early December
1999 and provided for “...the planning of their 2000 Convention and Conference
requirements as directed.” No locations or dates were specified; this addendum appeared
to be an extension and contained a $10,000 cancellation clause. By letter dated January
10, 2000, Mr. Young informed CPU to “...go ahead with the Planning Convention we
discussed. Please check out Las Vegas and Chicago in March and see what you can do.
This should give us plenty of time to prepare for our Nominating Convention to be held
later in the summer.” As discussed above, the Las Vegas convention was not related to
any degree with the conduct of the Reform Party’s national nominating convention,
consequently expenses related to the Las Vegas convention are not convention expenses.

On February 8, 2000 a check in the amount of $150,000 was issued to
CPU. Subsequently, on March 21, 2000, $92,000 was deposited into the Registry of the
Court, apparently representing unexpended funds from the $150,000. CPU issued an
invoice, dated April 1, 2000, wherein it specified fees of $42,960 (including a $10,000
cancellation fee) related to planning for the presidential nominating convention. Also
included on this invoice were fees associated with an event in Las Vegas on March 15-18,
2000, coordination for which covered the period December 15, 1999 through April 5,
2000. The fees ($42,960) associated with planning for the presidential nominating
convention are convention related, fees ($15,040) associated with the Las Vegas
convention are not. Mr. Young in his response acknowledged that CPU performed work
related to both the national nominating convention and the Las Vegas convention. He
also stated that “[t]he $58,000 retained by Corporation [sic] Planners and the breakdown
of expenses should be questioned as it is felt the amount retained is more than that which
was actually earned according to the contract.”

In the Audit staff’s opinion, of the net $58,000 ($150,000 - $92,000) paid
to CPU, $15,040 ($58,000 - $42,960) related to work performed on the emergency Las
Vegas convention and is viewed as not related with the conduct of the Reform Party’s

Page 18 of 25 Approved September 26, 2002






19

Commission determine that $23,114 ($23,457 x .985411) is repayable to the United
States Treasury pursuant to 26 U.S.C. §9008(h) and 11 CFR §9008.12.

In response to the PAR, RPCC Counsel stated that “[t]he miscellaneous,
undocumented or non-convention related expenses set out in the draft Report, which the
audit staff concludes were improper, are once again expenses made by Mr. Young, the
propriety of which we question. In that we have no principled basis to contest the audit
staffs findings on those expenses, we must conclude that the staff's conclusions in that
regard are correct and therefore, no additional documentation ...will be forthcoming.”

Recommendation #3
The Audit staff recommends that the Commission determine that $23,114

($23,457 x .985411) is repayable to the United States Treasury pursuant to 26 U.S.C.
§9008(h) and 11 CFR §9008.12.

Iv. SUMMARY OF AMOUNTS DUE TO THE UNITED STATES TREASURY

Finding I.B.1. Payments to the Performance Group $295,623
Finding I.B.2. Payments to Corporate Planners Unlimited $ 14,821
Finding III.B.3. Miscellaneous Undocumented or $ 23,114

Non-Convention-related Expenses

TOTAL 333,558

Page 21 of 25 Approved September 26, 2002


9. compliance with requirements concerning expenditures for
convention expenses (Finding III.B.);

10. | RPCC’s compliance with spending limitations; and,

11. other audit procedures that were deemed necessary in the situation
(Finding I1.B.).

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue further any of the matters
discussed in this report in an enforcement action.

Il. AUDIT FINDINGS AND RECOMMENDATIONS

A. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(1), (2), and (4) of Title 2 of the United States Code state,
in part, that a political committee shall disclose the amount of cash on hand at the
beginning of the reporting period and the total amount of all receipts and the total amount
of all disbursements for the reporting period and calendar year.

Section 434(b)(5)(A) of Title 2 of the United States Code requires each
report under this section to disclose the name and address of each person to whom an
expenditure in an aggregate amount or value in excess of $200 within the calendar year is
made by the reporting committee to meet a candidate or committee operating expense,
together with the date, amount and purpose of such operating expenditure.

Section 104.3(b)(4)(i)(A) and (B) of Title 11 of the Code of Federal
Regulations defines "purpose" as a brief statement or description of why the disbursement
was made, and gives examples of acceptable descriptions.

Sections 434(b)(3)(F) and (G) of Title 2 of the United States Code require
each report under this section to disclose the identification of each person who provides a
rebate; refund; or other offset to operating expenditures; or, any dividend; interest; or
other receipt, to the reporting committee in an aggregate value or amount in excess of
$200 within the calendar year, together with the date and amount of any such receipt.

The Audit staff's reconciliation of RPCC’s reported activity to its bank
records revealed material misstatements with respect to reports filed covering the period
January 1, 2000 through September 30, 2000. Specifically, reported receipts were
understated by $2,033,262, reported disbursements were understated by $2,023,129, and
cash at September 30, 2000 was understated by $10,133. The understatement of receipts
resulted mainly from not reporting $2,033,496 in funds returned to the RPCC that were

Page 5 of 25 Approved September 26, 2002


(c) An explanation, including receipted bills and/or other documentary
evidence relative to the disposition of the $23,000 withdrawal posted on
February 29, 2000 to Mr. Young’s account;

(d) An explanation, including invoices, statements and other documentary
evidence pertaining to the reason(s) for payment and deposit of the $1,800
cashiers check discussed above;

(e) An explanation, including a statement from the recipient, pertaining to the
$10,500 currency transaction; and,

(f) Any additional information pertaining to the operation of Mr. Young’s
account not already provided or otherwise requested in items (a) through
(e) above.

In response to the PAR, RPCC Counsel stated that neither RPCC nor the
Reform Party have the power to produce the information requested. He further stated that
“{w]e have, however, forwarded your request to Mr. Young and assume that he will
satisfy your concerns directly.” Although no further documentation was provided with
the response to the PAR, it is the opinion of the Audit staff that it is unlikely that any
material amount is unaccounted for.

Ill. AUDIT FINDINGS AND RECOMMENDATIONS - AMOUNTS DUE TO
THE UNITED STATES TREASURY

A. DETERMINATION OF NET OUTSTANDING CONVENTION EXPENSES

Section 9008.10(g) of Title 11 of the Code of Federal Regulations states,
in part, a convention committee shall file, no later than sixty days after the last day of the
convention, a statement of that committee’s net outstanding convention expenses.

The 2000 Reform Party Convention ended on August 13, 2000. RPCC
filed a Statement of Net Outstanding Convention Expenses, as of September 27, 2000.
The Audit staff reviewed financial activity through June 30, 2002, analyzed winding
down costs, and prepared the figures shown on the next page.

Page 8 of 25 Approved September 26, 2002