Final Audit Report of the 

Commission on McCain-Palin 2008 

Inc. and McCain-Palin Compliance 

Fund, Inc. 

March 24, 2008 - December 31, 2008 

Why the Audit 

Was Done 

Federal law requires the 

Commission to audit 

every political committee 

established by a 

Presidential candidate 

who receives general 

fimds for tiie general 

campaign.' llie audit 

determines whether tfae 

candidate was entitled to 

all of tiie general funds 

received, whether the 

campaign used the 

general funds in 

accordance with the law, 

and whether the campaign 

otherwise complied with 

the limitations, 

prohibitions, and 

disclosure requirements 

of tfae 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. 

About the General Committee 

McCain-Palin 2008 Inc. (General Committee) is the principal 

campaign conunittee for Senator John S. McCain, the Republican 

Party's nominee for the office of President of tfae United States. 

The General Conunittee is currently headquartered in 

Washington, DC. For more information, see the chart on 

Campaign Organization, p. 3. 

Financial Activity of the General 

Committee (p. 4) 

• Receipts 

0 Federal Funds Received $ 84,103,800 

o Offsets to Operatmg Expenditures 9,318,570 

o Loans Received 17,076,880 

o Other Receipts 1,154,733 

o Total Receipts $ 111,653,983 

Disbursements 

o Operating Expenditures $ 92,083,836 

o Loan Repayments 17,076,880 

o Other Disbursements 1,491,107 

o Total Disbursements $ 110,651,823 

Additional Issue (p. ll) 

• Campaign Travel Billing for Press 

26 US.C. §9007(a). 
About the Compliance Fimd 

The McCain-Palin Compliance Fund, Inc. (Compliance Fund) was established pursuant 

to 11 CFR §9003.3(a)(l)(i). The Compliance Fund accepts conttibutions to be used 

solely for legal and accounting services to ensure compliance with the Federal Election 

Campaign Act (the Act). These conttibutions include the Compliance Fund's share of 

conttibutions from affiliated joint fundraising committees. The Compliance Fund is 

currentiy headquartered in Washington, DC. An overview of financial activity for the 

Compliance Fund is presented below. 

Financial Activity of the Compliance Fund (p. 4) 

• Receipts 

o Conttibutions $ 9,679,490 

o From Other Authorized Committees 25,046,453 

o Offsets to Operating Expenditures 1,131,139 

o Otiier Receipts 12,471,782 

o Total Receipts $48,328,864 

• Disbursements 

o Operating Expenditures $ 11,675,642 

o All Otiier Disbursements 13,112,237 

o Total Disbursements $ 24,787,879 

Commission Finding for the Compliance Fund (p. 8) 

• Failure to File 48-Hoiir Notic^es 
About Joint Fundraising Committees 

This audit included seven joint fundraismg coinmittees. Each of the joint fundraising 

committees is headquartered in Alexandria, Vurginia, and was an authorized conunittee of 

the candidates, John McCain and Sarah Palin. The combined fmancial activity of these 

joint fundraising conunittees is presented below and the frnancial activity of each of these 

committees is presented on page 5. 

Financial Activity of the Joint Fundraising Committees 

(p. 5) 

• Receipts 

o Conttibutions $ 207,620,125 

o From Other Authorized Conunittees 812,325 

o Offsets to Operating Expenditures 159,926 

o Total Receipts $208,592,376 

• Disbursements 

o Operating Expenditures $ 30,374,903 

o All Otiier Disbursements 167,116,292 

o Total Disbursements $197,491,195 

Commission Finding for the Joint Fundraising 

Committees (p. ll) 

Based on the limited examination of the reports and statements filed and the records 

presented by the seven joint fimdraising committees, the Audit staff did not discover any 

material non-compliance. 
Final Audit Report of the 

Cominission on 

McCain-Palin 2008 Inc. and 

McCain-PaUn Compliance Fund, 

Inc. 

March 24, 2008 - December 31, 2008 
Table of Contents 

Page 

Part I. Backgroimd 

Authority for Audit 1 

Scope of Audit 1 

Inventory of Records 1 

Audit Hearing 1 

Part II. Overview of Campaign 

Campaign Organization 3 

Joint Fundraising Conunittees 3 

Overview of Financial Activity 4 

Overview of Financial Activity for Joint Fundraising Committees 5 

Part III. Smnmaries 

Commission Finding - Compliance Fund 6 

Commission Finding - Joint Fundraising Committees 6 

Additional Issue - General Conunittee 6 

Part IV. Commission Finding for the 

Compliance Fund 

Failure to File 48-Hour Notices 8 

Part V. Commission Finding for the 

Joint Fundraising Committees ll 

Part VI. Additional Issue 

Campaign Travel Billing for Press 11 

Partvn. Attachment 

Statement of Net Outstanding Qualified Campaign Expenses 27 
Parti 

Background 

Authority for Audit 

This report is based on audits of McCain-Palin 2008 Inc. (General Coinmittee), McCainPalin Compliance Fund, Inc. (Compliance Fund), and seven joint fundraising conunittees 

affiliated with the Compliance Fund, undertaken by the Audit Division of the Federal 

Election Commission (the Commission) as mandated by Section 9007(a) of Titie 26 of 

the United States Code. That section states that "after each presidential election, the 

Coinmission shall conduct ia thorough examination and audit of the qualified campaign 

expenses of the candidates of each political party for President and Vice President." This 

includes joint fundraising committees authorized by the candidates. Also, Section 

9009(b) of Title 26 of the United States Code states, in part, that the Conunission may 

conduct otiier examinations and audits as it deems necessary. 

Scope of Audit 

The audits of the General Committee and Compliance Fund examined: 

1. the receipt of excessive conttibutions and loans; 

2. the receipt of conttibutions from prohibited sources; 

3. the receipt of ttansfers from other autiiorized committees; 

4. the disclosure of conttibutions and ttansfers 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 Qualified Campaign Expenses; 

9. the campaigns' compliance with spending limitations; and 

10. other campaign operations necessary to the review. 

The audits of the seven joint fimdraising committees affiliated with the Compliance Fund 

examined: 

1. the receipt of excessive conttibutions and loans; 

2. the proper allocation of conttibutions among joint fundraising participants; 

3. the proper allocation of expenses and net amounts ttansferred to the Compliance 

Fund; and 

4. the consistency between reported figures and bank records. 

Inventory of Records 

The Audit staff routinely conducts an inventory of campaign records before it begins the 

audit fieldwork. The records for each of the audited committees were complete and the 

fieldwork began immediately. 

Audit Hearing 

On June 7,2012, the General Conunittee requested a hearing before tiie Commission to 

discuss the finduigs in the Draft Final Audit Report. The Conunission granted the 
request and held tiie hearing on August 23,2012. At the hearing, tiie General Conunittee 

representatives asserted that the General Committee used a reasonable method to 

determine campaign press ttavel billing and the result amounted to an imbalance in 

collections from Press between the primary and general periods. The representatives 

stated tiiat if required, the General Conunittee could correct the $344,892 imbalance 

through a ttansfer to John McCain 2008, Inc. (the Primary Committee). The 

representatives also said that there was no factual dispute with the Audit staff cx)nceming 

conttibutions not included in the 48-hour reports filed by the Compliance Fund. They 

explained that the oversight in filing some 48-hour reports was caused by an outside 

vendor that miscoded the conttibutions. The representatives requested that the 

Conunission take no further action in connection with both tiie campaign's billing of tiie 

Press as well as the filing of 48-hour reports. 
Part II 

Overview of Campaign 

Campaign Organization 

General Committee Compliance Fund 

Important Dates 

• Date of Registtation 08/12/08 02/25/08 

• Audit Coverage Dates 09/01/08 tinu 12/31/08 03/24/08 tiuru 12/31/08 

Headquarters Washington, DC Washington, DC 

Bank Information 

• Bank Depositories Three Four 

• Bank Accounts Eight Bank Accounts Eight Bank Accounts 

Treasurer Salvatore A. Pupura 

(08/12/08-08/18/08); 

Joseph Schmuckler 

(08/19/08-Present) 

Salvatore A. Pupura 

(02/25/08-03/20/08); 

Joseph Schmuckler 

(03/21/08-Present) 

Joint Fundraising Committees 

Of the seven joint fimdraising committees, four registered with the Federal Election Coinmission 

in April 2008 and three registered in August 2008. These coinmittees are headquartered in 

Alexandria, Virginia and Lisa Lisker is the Treasurer for each committee. Each of six jouit 

fundraising committees maintauied a single bank account, and the seventh joint fundraismg 

conunittee maintained two bank accounts. 
Overview of Financial Activity 

(Audited Amounts) 

General 

Committee 

Compliance 

Fund 

Opening Cash Balance- $0 $0 

Receipts 

• Conttibutions $9,679,490 

• Federal Funds Received $84,103,800 

• From Other Authorized Committees 25,046,453 

• Offsets to operating Expenditures 9,318,570 1,131,139 

• Loans Received 17,076,880 

• Other Receipts 1,154,733 12,471,782 

Total Receipts $111,653,983 $48,328,864 

Disbursements 

• Operating Expenditures $92,083,836 $11,675,642 

• Transfers to Other Authorized 

Conunittees 

222,502 

• Loan Repayments 17,076,880 

• Refunds to Conttibutors 551,599 

• Other Disbursements 1,491,107 12,338,136 

Total Disbursements $110,651,823 $24,787,879 

Closing Cash Balance (@12/31/2008 $1,002,160 $23,540,985 
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Part III 

Summaries 

Commission Finding - Compliance Fund 

Failure to File 48-Hour Notices 

The Compliance Fund failed to file 48-hour notices for 169 conttibutions totaling 

$240,700 that it received prior to the general election. In response to the Preliminary 

Audit Report, the Compliance Fund explained that it had experienced a one-time datamanagement error with an outside vendor relating to the 48-hour notice requirement. The 

Compliance Fund took measures to ensure that this unintentional oversight was corrected. 

The Compliance Fund believed that the C!onunission should have found there was no 

violation of the 48-hour notice requirement and that the Compliance Fund should be able 

to terminate immediately. 

The Commission approved a finding that McCain-Palin Compliance Fund, Inc. failed to 

file 48-hour notices for conttibutions totaling $240,700 that it received before the general 

election. (For more detail, see p. 8.) 

Commission Finding - Joint Fundraising 

Committees 

Based upon the limited examination of the reports and statements fried, and the records 

presented by seven joint fimdraising conunittees, the Audit staff discovered no material 

non-compliance. (For more detail, see p. 11.) 

Additional Issue - General Committee 

Campaign Travel Billing for Press 

The General Committee received reimbursements totaling $344,892 from the Press for 

campaign ttavel, which the Audit staff opined were above the maximum amount billable 

to the Press. The Commission's regulations provide that a 10 percent markup on the 

actual cost of ttansportation and services may be billed to the Press. The General 

Committee denied that tiiere was an imbalance, and stated tiiat any excess reimbursement 

from the Press for ttavel was a misallocation of billing proceeds, requiring the General 

Committee to pay John McCain 2008, Inc. (the Primary Committee) for the excess funds 

collected. 

In response to the Preliminary Audit Report, the General Committee maintained that it 

used a reasonable process for the allocation of Press reimbursements between the two 

committees tiiat is consistent with Commission precedent as well as Generally Accepted 

Accounting Principles (GAAP). The General Committee asserted that the Coinmission 
should have found that the Press reimbursements were calculated correctiy, resulting in no 

violation of the Act, and that the General Conunittee may terminate immediately. In the 

altemative, the General Conunittee explamed its contention that any apparent excess of 

Press reimbursements collected during the term of the conttact could be corrected by 

making a payment to the Primary Committee and requested that the Commission permit a 

ttansfer from the General Committee to the Primary Committee to resolve the matter. In 

the event that the Commission did not permit the ttansfer, the General Committee 

requested that it be allowed to disgorge the excessive Press reimbursements to the U.S. 

Treasury. 

The Commission could not reach a consensus on whether the General Committee's 

metiiod of billing the Press during the campaign resulted in material harm. The 

Commission did not approve the Audit staffs recommended finding by the required four 

votes. 

Pursuant to Commission Directive 70^, this matter is discussed ui the "Additional Issue" 

section. (For more detail, see p. 11.) 

Available at http://www.fec.gov/directives/directive_70.pdf. 
Part IV 

Commission Finding for the Compliance 

Fund 

Failure to File 48-Hour Notices 

Summary 

The Compliance Fund failed to file 48-hour notices for 169 conttibutions totaling 

$240,700 tiiat it received prior to the general election. In response to the Preliminary 

Audit Report, the Compliance Fund explained that it faad experienced a one-time datamanagement error with an outside vendor relating to the 48-hour notice requirement. The 

Compliance Fund took measures to ensure that this unintentional oversight was corrected. 

The Compliance Fund believed that the Conunission should have found there was no 

violation of the 48-hour notice requurement and that the Compliance Fund should be able 

to terminate inunediately. 

The Commission approved a finding that McCain-Palin Compliance Fund, Inc. failed to 

file 48-hour notices for conttibutions totaling $240,700 tiiat it received before the general 

election. 

Legal standard 

48-Hour Notification of Contributions. An authorized conimittee of a candidate must 

file special notices regarding conttibutions of $1,000 or more received less tiian 20 days 

but more than 48 hours before any election in which the candidate is ruiming. This rule 

applies to all types of conttibutions to any authorized committee of the candidate. 11 CFR 

§104.5(f). 

Facts and Analsrsis 

A. Facts 

The general election was held on November 4,2008. Conttibutions of $1,000 or more 

received by the Compliance Fund between October 16,2008, and November 1,2008, 

required the filmg of 48-hour notices (FEC Form 6 - 48-Hour Notice of Conttibutions/ 

Loans Received). The Audit staff isolated 589 conttibutions, totaling $871,260, tiiat 

required the frling of these 48-hour notices. A review of these records identified 169 

conttibutions, totaling $240,700, for whicfa tfae Compliance Fund failed to file 48-hour 

notices. 

B. Preliminary Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter witii Compliance Fund representatives at the exit 

conference and provided a schedule of the conttibutions requiring 48-hour notice filings. 

In response. Compliance Fund representatives stated that the matter had been addressed 

previously in a letter to the Reports Analysis Division and reiterated that "48-hour notices 

were not required for many of tiie identified conttibutions, as they were merely 

redesignations or reatttibutions tiiat took place during the 48-hour notice reporting 

period." Compliance Fund representatives also stated that "the Compliance Fund's 
normal practice of frling a 48-hour notice was not followed for a remaming group of 

conttibutions, due to data-management errors made by its outside vendor. To elaborate, -

the Compliance Fund's outside data-management vendor 'tagged' this group of 

contributions with an incorrect date in its database and consequently failed to locate the 

group in a subsequent, computerized search for conttibutions requiring a 48-Hour Notice. 

The Compliance Fund has now taken measures with this outside vendor to ensure that this 

unintentional oversight is corrected, and Compliance Fund staff believes that this was a 

one-time occurrence." 

Additionally, Compliance Fund representatives emphasized that "48-Hour Notices are 

intended to bring to light any last-minute conttibutions that a candidate might deploy for 

campaign-related activities, such as advertismg and get-out-the-vote efforts, during an 

election's final days. Donations to the Compliance Fund, however, may not be used for 

any candidate's election and may only support legal and accounting services to ensure 

compliance with Federal law. It should also be noted that the Compliance Fund today 

maintains a balance of over $20 million, meaning that tiiese funds received shortly before 

the 2008 general election still have not been spent for any purpose. The Compliance Fund 

was tfaerefore not in material violation of the 48-hour notice requirement when its reliance 

on an outside vendor caused it to delay disclosure of donations that would only fimd 

lawyers' and accountants' legal compliance activities. For these same reasons, the 

Compliance Fund should not be fined for this vendor failure even if tiie Conimission 

somehow finds that a technical mfrmgement of the 48-hour notice requirement occurred." 

The Preliminary Audit Report recommended that the Compliance Fund provide: 

• documentation to demonsttate that the conttibutions in question 

were included properly in 48-hour notices; or 

• documentation establishing that the conttibutions were not subject 

to 48-hour notification; and/or 

• any further written comments it considered relevant. 

C. Committee Response to the Preliminary Audit Report 

In response to the Preliminary Audit Report, tiie Compliance Fund reiterated the 

arguments mentioned above conceming the filing of 48-hour notices. Specifically, the 

Compliance Fund maintained that tiie Conunission incorrectiy identified conttibutions that 

were redesignated during the 48-hour notice reporting period or refunded immediately 

following receipt. For other conttibutions, the Compliance Fund stated that it did not 

follow the normal practice of filing 48-hour notices due to data-management errors by its 

outside vendor. Furthermore, the Compliance Fund again stated that the funds received 

shortly before tiie 2008 general election still have not been spent for any purpose, and it 

reiterated its belief tiiat 48-hour notices are intended to disclose any last-minute 

conttibutions that can be used for campaign-related activities and not for donations to the 

legal and accounting activities of the Compliance Fund. 
10 

The Audit staff acknowledged that the majority of 48-hour notices not filed resulted from 

a data management error as indicated by the Compliance Fund. The Audit staff also 

noted, however, that none of the conttibutions it had identified were redesignated 

conttibutions.^ Also, the conttibutions that the Compliance Fund identified in its response 

to the Preliminary Audit Report, at foomote 56, actually were received during the 48-hour 

notice period but refiinded after the notice period (after November 1,2008). As such, 

tiiese conttibutions required a 48-hour notice. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff stated that the Compliance Fund failed to 

file 48-hour notic:es for 169 conttibutions, totaling $240,700, that it received prior to the 

general election. The Compliance Fund explained that it had experienced a one-time datamanagement error with an outside vendor relating to the 48-hoiir notice requirement and 

that it had taken measures to ensure that this unintentional oversight was corrected. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, the Compliance Fund stated that it had 

discussed thoroughly the 48-hour notice issue in its response to the Preliminary Audit 

Report. The Compliance Fund said the Commission should find that no legal violations 

had occurred and that it may terminate its registtation with the Commission immediately. 

F. Audit Hearing 

During the audit hearing, the General Conunittee stated that there was no factual dispute 

witii tiie Audit staff and tiiat the outside vendor had miscoded the conttibutions. 

Therefore, its representatives maintained, the 48-hour reports fried by the Compliance 

Fund did not include the conttibutions. Also, tiie funds were not used in tiie election so 

the vendor error had no effect on the election itself, the General Committee contended. 

The General Committee requested that the Commission take no further action on this 

matter. 

Commission Conclusion 

On December 6,2012, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended that the Commission find that the 

Compliance Fund failed to file 48-hour notices for conttibutions it received prior to the 

general election. 

The Conunission approved the Audit staffs recommendation. 

^ The Compliance Fund's response to the Preliminary Audit Report mistakenly included the example, at 

footnote 55, of a redesignated contribution from Eileen Kamerick on 10/23/08. This contribution, totaling 

$1,500, was reported as a memo entry redesignation from the primary on the Compliance Fund's PostGeneral 2008 disclosure report and was not included in the Audit staffs review of 48-hour notices. A 

subsequent credit card conttibution made on the committee's website from Eileen Kamerick totaling $1,000 

on 10/29/08 was also reported on the Compliance Fund's Post-General 2008 disclosure report and was 

included in this review. 
11 

Partv 

Commission Finding for the Joint 

Fundraising Committees 

Based upon the limited examination of the reports and statements filed, and the records 

presented by the seven joint fimdraising conunittees, the Audit staff discovered no 

material non-compliance. 

Part VI 

Additional Issue 

Campaign Travel Billing for Press 

Swnmary 

The General Committee received reimbursements totaling $344,892 from the Press for 

campaign ttavel, which the Audit staff opined were above the maximum amount billable 

to the Press. The Conunission's regulations provide that a 10 percent markup on the 

actual cost of ttansportation and services may be billed to the Press. The General 

Committee denied that there was an imbalance, and stated that any excess reimbursement 

from the Press for ttavel was a misallocation of billing proceeds, requiring the General 

Conunittee to pay John McCain 2008, Inc. (the Primary Committee) for the excess fimds 

collected. 

In response to the Preliminary Audit Report, the General Committee maintained that it 

used a reasonable process for the allocation of Press reimbursements between the two 

committees that is consistent with Commission precedent as well as Generally Accepted 

Accounting Principles (GAAP). The General Committee asserted that the Coinmission 

should have found that the Press reimbursements were calculated correctly, resultmg in no 

violation of the Act, and that the General Committee may terminate immediately. In the 

altemative, the General Committee explained its contention that any apparent excess of 

Press reimbursements collected during the term of the conttact could be corrected by 

making a payment to the Primary Conunittee and requested tiiat the Conunission permit a 

ttansfer from the General Conimittee to the Primary Committee to resolve the matter. In 

the event that the Conunission did not permit the ttansfer, the General Committee 

requested that it be allowed to disgorge the excessive Press reimbursements to the U.S. 

Treasury. 

The Commission could not reach a consensus on whether the General Conunittee's 

method of billing the Press during the campaign resulted m material harm. The 

Commission did not approve the Audit staffs recommended finding by the required four 

votes. 

Pursuant to Commission Directive 70, this matter is discussed in the "Additional Issue" 

section. 
12 

Legal standard 

A. Expenditures for Transportation and Services Made Available to Media 

Personnel and Secret Service. Expenditures by an authorized committee for 

ttansportation, ground services or facilities (including air ttavel, ground ttansportation, 

housing, meals, telephone service and computers) provided to media personnel. Secret 

Service personnel or national security staff will be considered qualified campaign 

expenses, and, except for costs relating to Secret Service personnel or national security 

staff, will be subject to the overall expenditure limitations of 11 CFR 9003.2(a)(1) and 

(b)(1). 11 CFR §9004.6. 

B. Billing Media Personnel for Transportation and Services. The committee shall 

provide each media representative, no later than 60 days from the campaign ttavel or 

event, with an itemized bill that specifies the amounts charged for air and ground 

ttansportation for each segment of the ttip, meals and other billable items specified in the 

White House Press Corps Travel Policies and Procedures issued by the White House 

Travel Office. 11 CFR §9004.6(b)(3). 

C. Reimbursement Limits for Transportation and Services of Media Personnel. The 

amoimt of reimbursement sought from media personnel shall not exceed 110 percent of 

the media representative pro rata share (or a reasonable estimate of the media 

representative's pro rata share) of the actual cost of ttansportation and services made 

available. Any reimbursement received m excess of this amount shall be retumed to the 

media representative. 11 CFR §9004.6(b) and (d)(1). 

D. Pro Rata Share Definition. A media representative's pro rata share shall be 

calculated by dividing the total actual cost of the ttansportation and services provided by 

the total number of individuals to whom ttansportation and services were made available 

(to include conunittee staff, media persoimel. Secret Service staff). 11 CFR 

§9004.6(b)(2). 

£. Administrative Costs for Transportation and Services of Media Personnel. The 

committee may deduct from the amount of expenditures subject to the overall limitation 

the reimbursements paid by media representatives for ttansportation and services, up to 

the actual cost of the ttansportation and services provided to the media representatives. 

The committee may deduct an additional amount of the reimbursements received from 

media representatives, representing the mcurred administtative costs of 3 percent. The 

committee may deduct an amount in excess of 3 percent representing the administtative 

costs actually incurred by the committee in providmg services to the media, provided that 

the coinmittee is able to document the total amount of admmisttative costs actually 

incurred. 

For the purposes of the above paragraph, administtative costs include all costs incurred by 

the coinmittee in making ttavel arrangements and seeking reimbursement, whether these 

services are performed by committee staff or independent conttactors. 11 CFR 

§9004.6(c). 
13 

F. Attribution of Travel Costs. Expenditures for campaign-related ttansportation, food 

and lodging by any individual, including a candidate, shall be atttibuted according to 

when the ttavel occurs. If the ttavel occurs on or before the date of the candidate's 

nomination, the cost is a primary election expense. Travel to and from the conventions 

shall be atttibuted to the primary election. Travel by a person who is working exclusively 

on general election campaign preparations shall be considered a general election expense, 

even if the ttavel occurs before the candidate's nomination. 11 CFR §9034.4(e)(7). 

G. Travel Support Documentation. For each ttip, an itinerary shall be prepared and 

made available by the conunittee for Commission inspection. The itinerary shall show the 

time of arrival and departure and the type of events held. 

For trips by govemment conveyance or by charter, a list of all passengers, along with a 

designation of which passengers are and which are not campaign-related, shall be made 

available for Commission inspection. When required to be created, a copy of the 

government's or charter company's official manifest shall also be maintained and made 

available by tiie coinmittee. 11 CFR §9004.7(b)(3) and (4). 

H. Assets Purchased from the Primary Election Committee. If capital assets are 

obtained from the candidate's primary election committee, the purchase price shall be 

considered to be 60 percent of the original cost of such assets to the candidate's primary 

election conunittee. 11 CFR §9004.9(d)(l)(ii). 

Facts and Analysis 

A. Facts 

In 2008, the Press covering the campaign of the Presidential candidate (McCain) and the 

Vice Presidential candidate (Palin) ttavelled predominately on two aircraft chartered by 

the campaign. The aurcraft for the Presidential candidate was the same aircraft used by 

John McCain 2008, Inc. (the Primary Conunittee) and was chartered tiirough Swift Air, 

LLC (Swift Air). The aircraft for the Vice Presidential candidate was chartered through 

JetBlue Airways Corporation shortiy before the Republican National Convention. The 

Press also occasionally ttavelled on aircraft chartered by the General Coinmittee through 

CSI Aviation Services (CSI) and via ground ttansportation throughout the campaign. 

As cited above, the amount of reimbursement sought from media personnel shall not 

exceed 110 percent of the media representative's pro rata share (or a reasonable estimate 

of the media representative's pro rata share) of the actual cost of ttansportation and 

services made available. Any reimbursement received in excess of this amount shall be 

retumed to tiie media representative. 11 CFR §9004.6(b) and (d)(1). 

The General Committee contended that it did not receive Press ttavel reimbursement 

above the 110 percent allowed by the regulations. The General Committee calculated 

total ttansportation costs for tiie Press to be $4,503,658, equaling 106 percent of tiie cost 

calculated by the General Committee. The General Conunittee actually received 

$4,476,728 from tiie Press as reimbursement for ttavel. 

During fieldwork, the Audit staff calculated that tiie General Committee received Press 

ttavel reimbursement in excess of the 110 percent allowed by the regulations. The Audit 
14 

staff calculated the total pro rata ttansportation cost for the Press to be $3,756,215 and a 

maximum amount billable to the Press (110 percent of cost) of $4,131,836.^ Based on the 

Audit staffs calculation of ttansportation costs, the General Committee is required to 

refund to tiie Press $344,892 ($4,476,728 - $4,131,836). 

The mam difference between the General Committee's figure and the Audit staffs figure 

was the calculation for total ttansportation costs. The General Conunittee disagreed with 

the Audit staffs cost calculation methods with respect to charter frights associated with 

the aircraft used by the Presidential candidate. The General Committee also did not agree 

with the Audit staffs initial application of aircraft reconfrguration costs. 

The Audit staff calculated ttansportation costs based on actual hours used only by the 

General Committee during the general campaign. The General Conunittee, in conttast, 

calculated ttansportation costs based on the life of the charter conttact, which covered 

both the primary and general campaign periods. 

Applying Cost on Aircraft for Presidential Candidate 

The Primary Committee and the General Committee chartered a Boemg 737-400 from 

Swift Air for use by the Presidential candidate. The Swift Air conttact covered the period 

from June 30,2008 through November 15,2008. The conttact stipulated payments 

totaling $6,384,000, to be paid in 19 weekly installments of $336,000. The conttact 

covered nine weeks for the Primary Committee and 10 weeks for the General Committee. 

The conttact also requured the General Committee and Primary Committee to pay costs for 

fuel, catering, passenger taxes, and ground handling fees. There was also an aircraft 

reconfiguration cost of $650,000 tiiat was paid initially by the Primary Conunittee. The 

General Committee correctiy reimbursed the Primary Committee $390,000 ($650,000 less 

40 percent depreciation) for these aircraft reconfiguration costs. 

The conttact allowed 22.4 fright hours per week, or a total of 425.6 fright hours for tiie life 

of the conttact. If the frill frigfat hours per week were not frown, the hours rolled over to 

subsequent week(s). If tiie conttacted 22.4 fright hours per week were exceeded and no 

accumulated unused hours were available, there was a charge of $15,000 per additional 

hour. Neither the Primary nor General Committee ever exceeded the 22.4 fright hours in a 

week. The General Conmiittee used 140.3 fright hours and the Primary Committee used 

111.8 fright hours during the conttact. 

The General Committee made its first weekly installment payment of $336,000 on August 

29,2008, and made total payments of $4,047,402 to Swift Air. This amount included 

charges for fuel, catering, passenger taxes, and ground handling fees. 

For the first week of the campaign, the General Committee used the total cost of the 

conttact (primary and general) and divided it by the remaining number of hours available 

under the conttact, includuig unused hours paid for by the Primary Committee. Later 

^ The General Committee billed at 106 percent, but was able to document administrative costs to allow 

billing up to 110 percent for all modes of transportation. In determining the amount billable to the Press, the 

Audit staff credited the Creneral Committee for any under-billing of the Press associated with any one 

aircraft or mode of ttansportation. In other words, any under-billing of the Press for travel on the aircraft for 

the Vice Presidential candidate, CSI chartered aircraft, and ground ttansportation was applied to any 

overbilling of the Press that may have occurred for ttavel on the Presidential aircraft. 
15 

weeks were calculated using the amount yet to be paid on the conttact and dividing it by 

the estimated fright hours that would be used in the future, based on weekly averages. 

The calculation included reconfiguration costs. This method caused a fructuation of the 

hourly charter rate calculated from as low as $11,569 to as high as $39,715. Using tfais 

rate, tiie segment cost was calculated and divided by tiie number of passengers. 

The Audit staff calculated the charter rate per fright hour for Swift Air by taking the 

conttact weekly installment ($336,000) and dividing that by the actual weekly hours 

frown. The Audit staff then added the costs of fiiel, catering, passenger taxes, ground 

handling, and certain reconfiguration costs to determine the total segment cost. The Audit 

staff then calculated the cost per passenger by dividing the total segment cost by the total 

number of passengers on the segment. 

Applying Reconfiguration Costs 

The Audit staff and the General Coinmittee did not initially agree on the amount of 

aircrafr reconfiguration costs billable to the Press. Historically, the Commission allowed 

the Press to be billed only for the aircrafr reconfiguration costs that could reasonably 

considered as having benefited the Press. The General Committee believed all costs for 

reconfiguring an aircraft at the begiiming and at tiie end of the campaign should be 

considered when calculating the billable amount for the Press. The General Committee 

also stated that part of the aircraft reconfiguration cost was to bring the aircraft into 

compliance with Federal Aviation Administtation safety standards that ultimately 

benefited the safety of all passengers including tiie Press. 

B. Preliminary Audit Report & Audit Division Recommendation 

The issue of press travel reimbursement was presented at the exit conference. In response, 

the General Committee submitted the following pomts for the Commission's 

consideration. 

Cost Calculation 

The General Committee compared tiie Swift Air conttact, which spanned botii the primary 

and general election periods, and similar aurcraft conttacts that were analyzed durmg 

previous presidential audits: Dole-Kemp in 1996, Bush-Cheney in 2000, and KerryEdwards in 2004. The General Conunittee specifically referenced the Audit staffs 

calculation of the hourly rate for each aircraft from the 1996 Dole-Kemp audit, which 

accumulated all operating costs and divided that total by the actual number of hours frown 

by each aircraft. By applying the same calculation to the entire amount of tiie Swift Air 

conttact ($6,384,000 divided by 252.1 hours frown), the General Conunittee stated that its 

cost calculations used for billing the Press were accurate. 

The Audit staff agreed tiiat if tiie General Conunittee was using tiie total Swift Aur 

conttact amount for both the primary and general election periods, as well as the full 

aircraft reconfiguration costs, it did not receive ttavel reimbursement from the Press that 

exceeded the maximum allowed by the regulations. However, as in Dole-Kemp, only 

those costs atttibutable to the General Coinmittee should be used in determining the ttavel 

cost tiiat the General Conunittee may bill to tiie Press. This conclusion was consistent 

with ttavel cost calculations in past presidential audits and supported by 11 CFR 

§9034.4(e)(7), which states, m part, tiiat expenditures for campaign-related ttansportation 

shall be atttibuted according to when the ttavel occurs. As in Dole-Kemp, the Audit staff 
16 

used only the general election operatmg cost ($4,047,402) and the actual weekly hours 

frown by the General Committee when calculating the billable cost to the Press. This was 

a more appropriate method when calculating costs and billing for campaign ttavel during 

the general election period. 

The General Committee provided a spreadsheet that spanned the primary and general 

election periods and relied on adjusting the per-hour billing rates on a segment-bysegment basis due to using fewer fright hours than available in the Swift Aur conttact. The 

General Committee made the spreadsheet available to demonsttate that the Primary and 

General Committees' billing allocation was based on total costs ($6,354,859) that were 

lower than the conttact amount ($6,384,000). The General Committee stated that no 

overbilling of the Press could have occurred since tfae difference ($29,141) was never 

billed to the Press by the Primary conimittee during week eight. However, it appeared 

tiiat the General Conunittee did bill this difference to the Press^. Therefore, the General 

Committee included the total conttact amount in calculating the billing allocation. 

The Audit staff used the weekly $336,000 installment divided by the actual hours frown 

weekly during the general election period for billing calculations (plus the fuel, catering, 

taxes, and ground handling fees). The General Committee explained that the Audit staffs 

calculations had the benefit of hindsight because, due to the fast pace of the election 

campaign, the actual frying hours were unknown at the time of billing. Therefore, 

estimates of pro rata share had to be used m order to be in compliance with the regulations 

to bill media representatives within 60 days of ttavel. The General Committee believed 

tiiat tiie Audit staffs metiiodology would be in conflict witii 11 CFR §9004.6(b)(3), which 

says, in part, that media representatives should be given a bill that specifies amounts 

charged for air and ground for each segment. 

The Audit staffs metiiodology did not conflict witii 11 CFR §9004.6(b)(3), given tiiat tiie 

actual flight hours are known soon afrer frights occur and thereby fall within the required 

60 days to provide the Press with an itemized bill that specifies tiie amounts charged for 

air ttansportation for each segment of the ttip. It appeared that the General Committee 

invoiced tiie Press on average 12 days after completion of each ttavel week, allowmg time 

to use tiie actual flight hours for tiie week. Otiier billable ttavel costs known at the time of 

billing also could have been added to determine the cost per passenger. This method 

would incorporate adjusting for weekly flight hours. 

The General Conmiittee also referenced the 2000 Bush-Cheney audit and explained tiiat it 

used the same billing methodology and persoimel in tiiat audit, which did not include an 

adverse audit finding or any informal advice from the Audit staff suggesting that a 

correction to the accounting methods was necessary. The Audit staff acknowledged that 

the same billing methodology was used in 2000 Bush-Cheney; however, the amount of the 

overbilling of the Press was not material. Furthermore, there was no indication that the 

2000 Bush-Cheney General Committee mcluded costs associated with the Bush Primary 

Committee in the calculation of ttavel costs. 

^ During the second week of the general campaign, the General Committee calculated Press billing by using 

the total cost of the contract ($6,384,000) and subtracting the amount of the contract already billed 

($2,140,752) to arrive at the remaining balance of the contract. The helicopter cost ($29,141) was included 

in the $2,140,752 already billed. The remaining balance of the conttact was then divided by the average 

estimated flight hours remaining on the contract to determine the adjusted charter rate for the week. 
17 

Generally Accepted Accounting Principles (GAAP) 

The General Committee explained several accounting principles and standards under 

GAAP to support its methodology for billing the Press. The General Committee believed 

that the Audit staff did not apply the appropriate accounting basis in its analysis. 

Specifically, the General Committee believed that the Audit staff incorrectly applied a 

cash-basis of accounting instead of an accmal-basis in its analysis of Press billing. Under 

cash-basis accounting, revenue is recorded when cash is received and an expense is 

recorded when cash is paid. In accmal-basis accounting, revenue is recognized when it is 

eamed (or when services are performed) and expenses are recognized when they are 

incurred.^ The General Committee contended that under accmal-basis accounting, the 

objective is to ensure that events that change an entity's frnancial statements are recorded 

in the periods in which the events occur, rather than only in the periods during which the 

entity receives or pays cash. The General Committee also stated that the matching 

principle under GAAP dictates that expenses are recognized when the revenue is 

recognized, and therefore that the entire cost of the conttact should be used when 

calculating billing for ttavel. 

The Audit staff agreed that the matchmg principle dictates that expenses be recognized 

when the revenue is recognized. In tum, the revenue recognition principle recognizes 

revenue in the period in which it is eamed. Since the period and activity audited was the 

general election period, the Audit staff correctiy applied tfae $4,047,402 cost for the 

general election portion of the Swift Air conttact and related expenses. 

The issue was not whether the cash- or accmal-basis of accounting is applied to the 

tt'ansportation costs and revenue generated from billing the Press for ttavel; nor was there 

a question of the matching principle under GAAP. At issue was whether the activity of a 

separate reporting and corporate entity (the Primary Committee) should be recognized by 

the General Coinmittee and by this audit. An underlying assumption in GAAP is that 

every entity is separate and, therefore, the revenues and expenses of each entity should be 

recognized as such. As previously noted, recognizing the activity of the two entities 

separately is furtiier supported by 11 CFR §9034.4(e)(7), which states in part that 

expenditures for campaign-related ttansportation shall be atttibuted according to when the 

ttavel occurs. Therefore, the General Committee should have recognized only those 

ttansportation costs from September 1,2008, through November 4,2008, in the 

calculation for billuig the Press. 

Reconfiguration 

The General Coinmittee believed that aircraft reconfiguration costs are a part of placing 

the asset in service and that the reconfiguration costs were included m the value of the 

asset when it was purchased from the Primary Committee. Therefore, the General 

Committee stated that all reconfiguration costs could be billed to the Press pro rata since 

the Press used the asset. 

In response to the Exit Conference and after discussions witii the Audit staff, the General 

Coinmittee stated that all reconfiguration costs incurred, with the exception of decals and 

any item that benefited only campaign staff, such as divider-curtain expenses, should be 

* "Accounting Principles 7* Edition", Jerry J. Weygandt PhD, CPA, Donald E. Kieso PhD, CPA, Paul D. 

Kimmel PhD, CPA, page 90. 
18 

included in the billable amount. After considering the General Committee's response, the 

Audit staff revised its calculation of aircraft reconfiguration costs billable to the Press. 

The Audit staff did not include costs for painting and applying logos, totaling $161,386, 

or the cost for a divider-curtain totaling $1,167 in the calculation for billable 

reconfiguration costs since the General Coinmittee indicated that these items benefited 

only tiie campaign. As a result, tiie Audit sttiff calculated $487,447 ($650,000 - $161,386 

- $1,167) in reconfiguration costs billable to all ttavelers for both the primary and general 

periods. After subttacting 60 percent of the accepted reconfiguration cost because the 

asset was purchased from the Primary Committee, the Audit staff calculated $292,468 

($487,447 X 60%) of aircraft reconfiguration costs as billable during the general period. 

The Audit staff divided this amount by the total 140.3 fright hours frown by the General 

Conunittee to determine the amount of aircraft reconfrguration costs atttibuted to each 

segment. 

Other Considerations 

The General Committee stated that the Audit staff and the Conunission have allowed for 

ttansfers and repayments between primary and general election presidential committees 

with respect to other types of vendors. The General Conunittee believed that any excess 

funds from the Press for ttavel were no different tiian deposits related to other vendors 

such as those for telephone conttacts, media placement refunds, or lease agreements, for 

which repayments sometimes are necessary to ensure that a primary committee does not 

subsidize a general committee. 

The General Committee also stated that it would not be reasonable to force campaigns to 

renegotiate and redraft every legal conttact that exists to separate primary and general 

activity. To refund the Press would uivolve more than 700 separate billing ttansactions 

and would "go against many of the intemal ethics policies of the various news 

organizations.. .who are not allowed to receive passage at discounted rates on campaign 

ttansportation so as to not unduly infruence tfaeur coverage of the candidates." 

The Audit staff acknowledged the administtative burden that may be involved witfa 

refimding the Press. Historically, the Commission allowed refimds to the Press to be 

made on a pro rata basis, such as in the 1996 Dole-Kemp audit, rather than recalculating 

each billing to the Press. The General Committee's altemative suggestion, refimding the 

Primary Coinmittee, would be considered a non-qualified campaign expense subject to 

repayment. The regulations state that a general election committee cannot incuir primaryrelated expenses because these expenses are not in furtherance of the general election. 11 

CFR §9002.11(a). 

The General Committee received reimbursements from the Press for campaign ttavel that 

were above the maximum amount billable to the Press. The Primary Committee appeared 

to have billed an amount that was less than its cost. The Primary and General Conimittee 

each paid its share of the conttact and billed the Press and Secret Service accx)rdingly. 

Although the regulation limits how much can be billed, there is no requirement that any 

billing be made. Thus, the ttavel could be provided at no cost. 

The General Committee was correct that there are ttansactions between the Primary and 

General Committees in many Presidential campaigns in which either the primary or 

general election is publicly funded. Assets, ranging from office equipment to service 
19 

deposits to, as in this case, aircraft configuration, often are purchased. In each case, value 

is ttansferred between the two coinmittees. For example, if the General Committee 

purchases security deposits, it gives cash for the right to continue the service and recover 

the deposit after the campaign. No such exchange was involved in the proposed ttansfer 

to the Primary Committee in this case. 

The General Coinmittee did not dispute that it received more reimbursements from the 

Press during the general election period, but the General Conmiittee believed a more 

appropriate description would be misallocation of Press ttavel reimbursement received 

between the General Committee and the Primary Committee. The General Conunittee's 

metiiodology may have accurately refrected tiie comparative actual use of the aircraft 

between the Primary (111.8 flight hours) and General Committees (140.3 flight hours), 

but it did not reflect the comparative actual costs paid by each conunittee. The General 

Committee did not exceed the overall expenditure limitation, even with the excessive 

Press reimbursements. However, the purpose was to match the cost of the campaign to 

the proper election and spending limit. For these reasons and those noted above, the 

reimbursements totaling $344,892 tiiat the General Conunittee received from the press 

were above the maximum amount billable under the regulations. 

The Preliminary Audit Report recommended that the General Committee demonsttate it 

did not receive reimbursements from the Press for campaign ttavel that were above the 

maximum amount billable. Absent such evidence, the General Committee was to retum, 

on a pro rata basis, $344,892 to Press representatives and provide documentation to 

support the refunds. 

C. Committee Response to Preliminary Audit Report 

The General Committee submitted a response to the Preliminary Audit Report on 

December 20,2011, which addressed the finding conceming Press reimbursement for 

ttavel. The General Committee argued tiiat tiiere was no "overbilling" because "the 

Primary Coinmittee and the General Committee used a reasonable process to predict the 

allocation of Press reimbursements between the conunittees" that was "consistent with the 

Coinmission precedent as well as Generally Accepted Accounting Principles". The 

General Committee also argued tfaat if there was a misallocation of Press reimbursement 

between the two coinmittees, a payment to the Primary Committee could correct it. 

The General Committee discussed the validity of its approach to press billing. The 

General Coinmittee maintained that because the conttact with Swift Air for air ttavel 

spanned nine weeks of the Primary and 10 weeks of the General campaigns, it was 

necessary to bill based on the enture cost of the conttact. The General Coinmittee also 

asserted that the Primary Conunittee and tiie General Conunittee "used a reasonable 

process to predict the eventual, proper allocation of press reimbursements between the 

General Conunittee and tiie Primary Coinmittee." The General Conunittee described in 

some detail tiie difficulty encountered in the billing process due to the fact that while tiiey 

knew what the total costs were for the combined period, they would not know how to 

apply the fixed costs until the conttact was completed and the actual number of hours 

frown was known. Accordingly, the Primary Committee began billing at the rate of 

$15,000 per fright hour, which would have been the actual conttact price per hour had it 

flown all the hours provided for in the conttact. By the time tiie billing began in the 

general election period, the General Committee had to face the fact that the total price of 
20 

tiie conttact less the total for flight hours billed to date required that the remaining hours 

to be flown would have to be valued at a higher rate in order to accoimt for the remaining 

outstanding balance of the conttact. 

The General Committee stated the following: 

'The Audit Division acknowledges that the Committees' method for predicting 

the proper allocation of Press reimbursements between the General Committee 

and the Primary Committee *reflect[s] the comparative actual use of the 

aircraft between the Primary and General Committees...' The Audit Division 

nonetheless advocates a new, never-before-aimounced technique for 

calculating a ttavel segment's hourly rate, and by extension, the proper 

allocation of Press reimbursements: divide each weekly installment of the 

$6,384,000 Swift Air payment 'divided by the actual weekly hours flown 

during the general election period..."' 

"The Audit Division's method is convenientiy simple. But this simplicity is 

wrought by ignoring important realities about the Swift Air conttact. For one, 

the Swift Air conttact was jointly held by the Primary Committee and the 

General Conunittee. It spanned four montfas, sttaddlmg the divide between 

priniary and general-election periods. The Committees and Swift Air intended 

this exact stmcture. A four-month conttact held by two entities is manifestly 

different tiian a two-montii conttact held by one. The Audit Division, 

however, wants to now artifrcially bisect the Swift Air conttact without even 

considering whether the parties would faave stmctured two separate two-month 

conttacts another way. For instance, the amount and frequency of the weekly 

installment payments might have been different, and the costs certainly would 

have been greater since a key factor in the cost of securing a dedicated aircraft 

is the lease's duration. The Audit Division cannot disregard a conttact's 

fimdamental elements without its analysis spinning into the realm of fiction." 

'The Audit Division also ignores that the Swift Air ttansaction was a fixed 

$6,384,000 fee in exchange for up to 425.6 flight hours. The payment and the 

hours were divided into equal weekly installments, but a particular week's 

fixed installment payment was not in exchange for that week's flight hours. 

Dividing a week's installment payment by the week's actual flight hours 

therefore does not reflect what a ttavel segment's hourly rate and "total actual 

cost" were. Yet the Audit Division does that very thing, presumably to 

simplify the hourly rate calculations since one uses only a week's actual flight 

hours rather than waiting until the end of the conttact to determine how many 

actual flight hours over which to spread the $6,384,000 fixed fee. Simplicity is 

indeed atttactive. It interferes with accurately calculating each ttavel segment's 

"total actual cost" here, though." 

"The Committees' calculation metiiod for a ttavel segment's hourly rate, on 

the other hand, does not rely on counterfactuals. It recognizes the Swift Air 

conttact as it is, and in doing so, is more consistent with Commission 

precedent and with Generally Accepted Accounting Principles. The Primary 

Committee and the General Conunittee therefore used a reasonable process to 
21 

predict the eventual, proper allocation of Press reimbursements between tiie 

Conimittees." 

The General Committee then asserted that the calculation method used by tfae Committees 

was more consistent with Conunission precedent. It defrned Commission precedent by 

citing the methods used by tiiree other campaigns. Dole - Kemp 1996, Kerry - Edwards 

2004, and Bush - Cheney 2000, and maintaining that its method coincided closely with 

those of the campaigns cited. The General Committee contended that the Kerry-Edwards 

2004 charter "sttaddled the primary- and general-election periods," like the Swift Air 

conttact. The General Committee also maintained that its methodology was more 

consistent with GAAP. 

Further, the General Committee stated that the Audit staff "relied on non-GAAP cashbasis accounting to estimate the fixed-expense share of each ttavel segment's total actual 

cost of the ttansportation" and pointed out, "The Commission has endorsed GAAP's use 

in presidential campaign audits and cited GAAP to make an adverse audit finding against 

the Kerry-Edwards Campaign." 

The General Coinmittee went on to state: 

"The Primary Conunittee and the General Conunittee used GAAP-compliant 

accmal-basis accounting to calculate the frxed-expense share of each ttavel 

segment's "total actual cost of the ttansportation." Accmal-basis accounting 

requured that the Swift Air conttact expenses (and offsets to those expenses in 

the form of Press reimbursements) were recognized as actual flight hours were 

used. A portion of the Swift Air conttact's frxed cost was assigned to each 

ttavel segment using a depreciation technique called the "units of production" 

method, which is expressed as Cost / Estimated Units = Depreciation Per Unit 

Produced (i.e. $6,384,000 / Estimated Flight Hours = Aircraft Hourly Rate). 

The "units of production" method was most appropriate here because the 

actual flight hours, and thus the actual conttact costs, were not incurred ratably 

over the individual weeks of the conttact." 

"By conttast, tiie Audit Division relied on non-GAAP cash-basis accounting to 

estimate the fixed-expense share of each ttavel segment's "total actual cost of 

the ttansportation. The Audit staff used tiie weekly $336,000 installment as 

the ttigger for recording expenses (and offsets to those expenses in the form of 

Press reimbursements). Like all cash-basis accounting, this simplifies the 

hourly rate calculations since one uses only a week's actual flight hours ratiier 

than waiting until the end of the conttact to determine how many actual flight 

hours over which to spread the $6,384,000 fixed fee. But again, like all cashbasis accounting, this does not offer a fiilly accurate picture of the ttansaction 

here because a week's installment payment was not paid to Swift Air in 

exchange for that week's installment of flight hours." 

The General Committee sununarized its position on GAAP by stating,".. .the calculation 

method used by the Primary Committee and the General Committee is more consistent 

with GAAP. The two Coinmittees therefore used a reasonable process to predict the 

eventual, proper allocation of Press reimbursements between the Conimittees." 
22 

In tiie conclusion of its response, the General Committee offered its rationale in opposing 

the Audit staffs position that a payment to the Primary Conimittee to correct the 

imbalance would constitute an impermissible use of public fiinding resulting in a nonqualified campaign expense subject to repayment. The General Committee made four 

arguments. 

1. Funds received under circumstances outside Part 9005 (conceming the general 

election public grant), such as Press reimbursements, are not similarly 

restticted and therefore their use is not restticted. 

2. Because the primary campaign is long over, the General Conunittee will not 

actually incur any primary-related expenses. The ttansfer is simply to correct 

what the Audit Division views as the original "misdeposit" (sic) of Press 

reimbursements. 

3. The ttansfer would not be a "non-qualified expense" because in the past, the 

Conunission has repeatedly permitted ttansfers from publicly fimded generalelection committees to their affiliated primary-election committees to correct 

misallocation and similar issues. 

4. Finally, a General-to-Primary Committee ttansfer should not be prevented 

under tfae Audit Division's "non-qualified expense" rationale because the only 

reason for this misallocation issue is the Commission's failure to provide 

guidance on how to prospectively calculate the fixed-cost portion of a 

particular ttavel segment's "total actual cost of... ttansportation." The 

Primary Committee and the General Conunittee had no notice that they were 

not using the Conunission's preferred calculation method. 

The Audit staff noted that the General Committee's response to the Preliminary Audit 

Report concedes that an imbalance existed between the reimbursements it sought from the 

Press during the primary portion of the Swift Air conttact and that sought durmg the 

period atttibutable to general portion. The imbalance resulted from the Primary 

Committee billing the Press for reimbursements at a lower hourly rate than actual cost 

would have suggested during the primary period. The Audit staff maintained that the 

amount represented by what the General Conunittee calls an "imbalance" actually 

represents the amount the General Conunittee overcharged the ttavelmg Press during the 

general election period. 

The Audit staff conceded that the General Committee's explanation of the origm of the 

imbalance was accurate. It explained how the Primary Conimittee billed significantly less 

in tiie primary period, and the General Committee billed at a higher rate in the general 

period; this was essentially the problem. The General Committee over billed the Press 

during the general election by exceeding 110 percent of the actual reimbursable cost 

incurred for ttansportation. 

The General Committee described the conttact as a "frxed $6,384,000 fee in exchange for 

up to 425.6 flight hours." The duration of the conttact was 19 weeks with nine weeks 

falling in tiie primary period and the last 10 weeks in the general period. There were 

additional terms in the conttact. The General Conunittee could fly up to 22.4 hours of 

flight time per week. Any additional hours flown would be billed at $15,000 per hour. 

Should the General Committee use the entire allotment of 22.4 hours in a given week, it 
23 

would be entitled to draw on any hours not used in a successive week. This issue never 

arose because neither campaign ever exceeded the weekly allotment of 22.4 hours. 

The General Committee objected to the Audit staffs calculation of fixed costs based only 

on the portion ofthe conttact that applied solely to the general election period. The Audit 

staff noted that the only portion of the Swift Air conttact for which the General 

Conunittee was responsible was the final 10 weeks. The General Conunittee seemed to 

have understood that it was liable for the portion of the contract beginning in tfae 

conttact's tenth week because that is how the conttact obligation was paid. The Primary 

Committee was not permitted to pay for any of the conttact beyond its obligation because, 

in so doing, the Primary Committee would have made a contribution to the General 

Committee. This would not have helped the General Committee since it was limited to 

the federal grant. The Audit staff necessarily focused on the fixed cost incurred and paid 

during the general election period. 

The General Conunittee also objected to the Audit staff calculation of weekly fixed costs 

based on payments each week divided by the hours frown that week. The General 

Conunittee contention that "the payment and the hours were divided into equal weekly 

installments, but a particular week's fixed installment payment was not in exchange for 

that week's fright hours" does not square with the facts. Swift Aur did intend that it be 

paid weekly for services provided under the conttact, and it limited the services to be 

provided on a weekly basis to a maximum of 22.4 fright hours. Swift Aur charged the 

General Conunittee weekly for its services and monitored total use weekly to determine 

whether it had provided services beyond the number of hours prescribed in the conttact. 

As a consequence, the Audit staff believed that its method of dividmg the fixed payment 

by the number of hours frown provided a reasonable calculation of fixed weekly costs. 

Moreover, this method would associate the correct weekly hourly costs based on the 

campaign's use each week. 

The General Committee made a case for its methodology being consistent with the past 

canipaigns of Dole-Kemp 1996, Bush-Cheney 2000 and Kerry-Edwards 2004. The Audit 

staff noted that Dole-Kemp 1996 had a distinct conttact for the general election and is not 

comparable to the problems of a conttact spanning two elections as laid out by the General 

Conunittee. The audit of Bush-Cheney 2000 indicated tiiat tiiis committee did not 

materially overcharge the Press for campaign related ttavel. Finally, the General 

Committee cited the audit of Kerry-Edwards 2004^, whicfa found that the general 

campaign had received bankable flight hours that had been eamed by tiie primary 

campaign. In this instance, the Coinmission determined that the general campaign should 

reimburse the primary campaign for these flight hours. The reimbursement was required 

to avoid a prohibited conttibution from the primary campaign to the general campaign. 

Further, the Audit staff noted that the issue was not of methodology but of results. 

Committees are limited in the amount they may seek as reimbursement for ttavel provided 

^ The audit of Kerry-Edwards 2004 found no material non-compliance with press billing. Apart from the 

fact that the Kerry-Edwards 2004 charter conttact spanned the primary and general election, there was little 

similarity between the two campaigns. The repayment of banked hours was unrelated to press billing in 

Kerry-Edwards 2004. Indeed, Kerry-Edwards 2004 recognized that the banked hours were appropriately an 

asset of the primary campaign and had calculated a repayment equal to 99 percent of the amount identified 

in the audit; this amount eventually was repaid. 
24 

to the Press. Once they establish administtative costs of 10 percent of the total, they may 

receive reimbursement for no more than 110 percent of actual costs. The General 

Conunittee received reimbursements in total that exceeded 110 percent. 

The General Committee objected to the Audit staff calculations based on the period of the 

conttact that coincided with the general election. It maintained that by using these 

calculations, the Audit staff was resorting to (non-GAAP) cash-basis accounting. As 

outiined above, the focus of the review was necessarily the general election period. 

Witiiin the general election period, the Audit staff matched, on a weekly basis, the 

services received with the conttact cost paid. In summary, the amount the Press was 

overcharged is the difference between the maximum amount the Audit staff calculated as 

appropriately billable and the reimbursements actually received in the general election 

period. 

The General Committee made arguments for allowing a ttansfer to the Primary 

Committee to correct the imbalance. The Audit staff acknowledged that ttansfers were 

sometimes permitted between the primary and general committees in Presidential 

campaigns when it had been shown in the course of an audit that fiinds or obligations 

belonging to a primary or general conmiittee were in the possession of the other. This was 

not the case in this instance. 

The General Committee believed that the Commission should find that the Press 

reimbursements were calculated conectly, resulting in no violation of tiie Act, and that the 

General Committee may terminate immediately. 

In tiie final analysis, the focus of the audit was the General Committee. As such, the 

Audit staff maintained that the General Committee received Press reimbursements during 

tiie general election campaign period, which in the aggregate exceeded the maximum 

allowed, and tfaat the General Conimittee should retum, on a pro rata basis, $344,892 to 

Press representatives and provide documentation to support the refiinds. Disgorgement to 

the U.S. Treasury, however, may be acceptable if the General Conimittee is unable to 

reconstmct the precise amounts owed to Press representatives. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff stated the General Committee received 

reimbursements totaling $344,892 from the Press for campaign ttavel, which was above 

the maximum amount billable to the Press. This amount should be refimded to tiie Press 

representatives on a pro rata basis. The General Coinmittee mamtained that it used a 

reasonable process for the allocation of Press reimbursements between the primary and 

general period. The General Conunittee also stated the Commission should find that the 

Press reimbursements were calculated correctiy, resulting in no violation of the Act, and 

that the General Committee may terminate immediately. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, the General Conunittee requested an audit 

hearing to discuss the findings; and provided arguments previously submitted in response 

to the Preliminary Audit Report with one additional argument. The General Committee 

also stated that the Commission should find that no legal violation occurred and the 

conunittee may termmate its registtation with the Conunission immediately. 
25 

The General Committee argued again that "the Primary Committee and the General 

Committee used a reasonable process to predict the eventual, proper allocation of Press 

reimbursements between the General Committee and the Primary Conunittee." The 

General Committee also stated again that "to the extent a misallocation of Press 

reimbursements between the committees still exists, tiie General Committee may correct 

the imbalance through a payment to the Primary Conunittee." 

To support the arguments the General Coinmittee explained that its calculation was: 

• more consistent with Audit precedent from the Conunission, specifically stating 

"the Dole-Kemp Audit staffs methodology for determining a ttavel segment's 

hourly rate for a fixed-rate conttact was to divide the total amount of payments 

made under the aircraft lease by the total number of actual flight hours"; 

• more consistent with Generally Accepted Accoimting Principles (GAAP), 

specifically stating "the Primary Committee and the General Committee used a 

GAAP-compliant accmal-basis accounting to calculate the fixed-expense share of 

each ttavel segment", which,".. .required that the Swift Air conttact expenses (and 

offsets to those expenses in the form of Press reimbursements) were recognized as 

actual fright hours were used"; and 

• more consistent with the "benefit derived" principle, which was a new explanation 

offered by the Committees. 

According to the General Coinmittee, under the "benefit derived" principle a committee 

derived benefit from an aurcraft only when it used an aircraft. Therefore, citing 11 CFR 

§106.1(a)(1), tiie General Coinmittee believed it correctly determined "use" of the aircraft 

by using a "rolling basis by continually adjusting each new ttavel segment's hourly cost 

based on the evolving total of estimated hours to be frown under the Swift Air conttact." 

The General Committee also argued that the Audit staff ignored the aurcraft usage 

altogether and only focused on the timing of the payments. 

The General Conunittee questioned whether "Commission mles and precedents prohibit 

the General Conunittee from correcting a Press reimbursement misallocation through a 

payment to the Primary Committee." The General Committee supported its position again 

with the arguments below. 

• "... (T)hese primary-election Press reimbursements, which offset an initial outlay 

of privately raised frmds by the Primary Committee, are simply not comparable to 

public funds received by the General Conunittee as a general-election grant under 

Part 9005. They are therefore not subject to the "qualified campaign expense" 

resttiction." 

• The General Coinmittee and Primary Conimittee are affiliated and therefore the 

ttansfer of any misallocation Press reimbursement would not be an expense. 

• The General Conunittee would not actually incur any "primary-related expenses" 

due to the fact that the 2008 election was four years ago and the ttansfer is to 

correct a "misdeposit of primary-election Press reimbursements into a General 

Committee account." 

• "... (T)he ttansfer would not be a "non-qualified expense" because the 

Commission has in the past repeatedly permitted ttansfers from publicly funded 

general-election committees to their affiliated primary-election cx)nunittees to 

correct misallocations and similar issues." 
26 

• "... (A) General-to-Primary ttansfer should not be prevented under the Audit 

Division's "non-qualified expense' rationale because the only reason for this 

misallocation issue is the Conunission's failure to provide guidance on how to 

prospectively calculate the frxed-cost portion of a particular ttavel segment's "total 

actual cost of.. .ttansportation." The Primary Conimittee and the General 

Committee had no notice that they were not using the Commission's preferred 

calculation method." 

F. Audit Hearing 

During the audit hearing, the General Committee's presentation centered on the argument 

that it used a reasonable method to determine campaign press ttavel billing and the result 

amounted to an imbalance in collections from Press between the primary and general 

periods. If required, the $344,892 imbalance could be corrected with a ttansfer to the 

Primary Committee. The General Conunittee requested tiie Commission take no fiirther 

action with regard to the campaign ttavel billing for the Press. 

Commission Conclusion 

On December 6,2012, the Conunission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended that the Commission frnd the 

General Committee's method of billing the Press during the campaign did not result in 

material harm. 

The Commission could not reach a consensus on whether the General Committee's 

method of billing the Press during the campaign resulted in material harm. The 

Commission did not approve the Audit staffs recommended finding by the required four 

votes. 

Some Conunissioners concluded that the General Conunittee received Press 

reimbursements during the general election campaign period that exceeded the maximum 

allowed under 11 C.F.R. §9004.6(b). Otiier Commissioners concluded that the General 

Committee's method of billing the Press during tiie campaign did not result in material 

harm. 

Pursuant to Commission Directive 70, this matter is discussed in tiie "Additional Issue" 

section. 
27 

Part VII 

Attachment 

McCain-Palin 2008 Inc. 

Statement of Net Outstanding Qualified Campaign Expenses 

As of December 4,2008 

As Determined on December 31,2012 

Cash in Bank 

Accounts Receivable: 

Due from the Compliance Fund 

Due from the Primary Committee 

Due from Other Vendors 

TOTAL ASSETS 

Obiigations 

Accounts Payable: 

For Qualified Campaign Expenses 

Due to the Compliance Fund 

Due to the Primary Committee 

Payment to Press for Campaign Travel 

$2,772,033 

$339,056 

$4,312,156 

(a) 

(b) 

$3,693,508 

$7,423.245 

$8,448,103 

$100,107 

$167,828 

$344,892 (c) 

$11,116,753 

Amount Due U.S. Treasury: 

Disgorgement of Interest Earned 

Disgorgement of Stale-Dated Checks 

$58,319 (d) 

$2,882 (e) 

Winding Down Costs: 

Actual: December 5.2008 to December 31,2012 

TOTAL OBLIGATIONS 

NET OUTSTANDING QUALIFIED CAMPAIGN EXPENSES (DEFICIT) 

$1.994.622 (f) 

$11,116,753 

($0) 

(a) This amount represents repayments for expenditures paid by General. $87,217 for Secret Service shortfall for campaign travel, $76,841 for 

transfers, and $2,399,908 for S percent allocable portion of media costs. A receivable for $208,067 is due for compliance-related windingdown costs. 

(b) This amount represents Press and Secret Service receipts, media refunds through December 31,2012, interest eamed, capital assets sold, and 

capital assets in-house to be sold. 

(c) This amount represents payment due to Press as discussed in the Campaign Travel Billing for Press (see Additional Issue on page 11). 

(d) This amount represents a disgoigement made on Jan. 2,2009 for tnterest. 

(e) This amount represents a disgorgement made on Jan. 2,2010 for stale-dated checks. 

(0 The General Committee has not exceeded the winding-down cost limitation at 11 CFR §9004.11(b).