Attachment as stated

cc: FEC Library

~D

./PUblic Record

February 2, 1981

FRED ElLARD

PRESS OFFICE

BOBCOS"1'A

PUBLIC ISSUABCE OF FIRAL AUDI"1'

REPOR"1' - REAGAB FOR PRESIDER"1'

FEDERAL ELECTION COMMISSION

WASHINCTON. D.C. 2'M6)

Informational copies of the report have been received

by all parties involved and this report may be released to

the pUblic as of today, February 2, 1981.

MEMonBDUM

SUBJEC"1':

FROM:

"1'0.:

Attached please find a copy of the final audit report

of the Reagan For President committee vhich vas approved by

the Commission on Janu~ry 27, 1981.
A. Overview

I. Background

WASUINGTON, 0 C 20463

FEDERAL ELECTION COMMISSION

A Threshold Audit was conducted covering the period from 2/29/79

through 12/31/79 and a report issued by the Commission on

October 16, 1980. In this report several of the findings relate

to the Committee's activity from inception (Feb. 29, 1979) through

December 19, 1980.

*

The audit covered the period from January 1, 1980

through JUly 31, 1980.* During this period the Committee

reported an opening cash balance of $554,574.98, total receipts

of $20,572,043.05, total expenditures of S17,757,936.04, and

a closing cash balance of $3,368,681.99. In addition, certain

financial activity has been reviewed through December 19, 1980.

This report is based upon documents and working papers

supportinq each of the factual statements contained herein. They

form part of the record upon which the Commission based its

decisions on the matters addressed in the report and were

available to the Commissioners and appropriate staff for review.

REPORT OF THE AUDIT DIVISION

ON

REAGAN FOR PRESIDENT

The Committee registered with the Federal Election

Commission on February 28, 1979, as the principal campaign

committee of the Honorable Ronald Reagan, candidate for the

RepUblican nomination for President of the United States. The

Committee maintains its headquarters in Arlington, Virginia

(formerly, Los Angeles, California).

In addition, Section 9039(b) of Title 26 of the united

States Code and Section 9038.l(b) of Title 11 of the Code of

Federal Regulations state, in relevant part, that the Commission

may conduct other examinations and audits from time to time as

it deems necessary.

This report is based on an audit of Reagan For President

(lithe Committee"), to determine whether there has been compliance

with the provisions of the Federal Election Campaign Act of 1971,

as amended (lithe Act"). The audit was conducted pursuant to

Section 9038(a) of Title 26 of the United States Code which states

that after each matching payment period, the Commission shall

conduct a thorough examination and audit of the qualified campaign

expenses of every candidate and his authorized committees who received payments under Section 9037.

..
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B. Key Personnel

-....,.

The principal officers of the Committee during the

period audited were Senator Paul Laxalt,Chairman, and

Ms. Bay Buchanan, Treasurer.

C. Scope

'The audit included such tests as verification of total

reported receipts, expenditures and individual transactions:

review of required supporting documentation: analysis of Committee

debts and obligations: review of contribution and expenditure

limitations: and such other audit procedures as deemed necessary under the circumstances.

II. Audit Findings and Recommendations. . Relating to Title 2 of the United States Code

Limitation on Expenditures

Section 441a(b) (1) (A) of Title 2, United States Code,

--states, in part, that no candidate for the office of President

of the United States who is eligible under Section 9033 of

Title 26 (relating to eligibility for payments) to receive

payments from the Secretary of the Treasury may make expenditures

in excess of $10,000,000 as adjusted for the change in the

consumer price index since 1974, in the case of a campaign for

nomination for election to such office (also see 2 U.S.C. 441a(c».

Section 9035.l(a) of Title 11, Code of Federal Regulations

states that no candidate or his or her authorized committee(s) shall

knowingly incur expenditures in connection with the candidate's

campaign for nomination, which expenditures, in the aggregate,

exceed $10,000,000 (as adjusted under 2 U.S.C. 44la(c», except that the aggregate expenditures by a candidate in anyone State

shall not exceed the greater of: 16 cents (as adjusted under 2 U.S.C.

44la(c» multiplied by the voting age population of the State (as

certified under 2 U.S.C. 441a(e»: or $200,000.00 (as adjusted under 2U.S~C. 441a(c».

In addition, Section 431(9) (B) (vi) of Title 2, United

States Code excludes from the definition of the term "expenditure":

any costs incurred by an authorized committee or candidate in

connection with the solicitation of contributions on behalf of such

candidate, except that this clause shall not apply with respect to

costs incurred by an authorized committee of a candidate in excess

of an' amount equal to 20 percent of the expenditure limitation

applicable to such candidate under Section 44la(b), but all such

costs shall be reported in accordance with Section 434(b).
l~ : Allocation of Fundraising Expens~s'

,_ The limitations relating to the 1980 primary election

for nomination are: '

Our review of the Committee's documentation· and

worksheets indicated that the following categories of expenses

were, according to the Committee classifiable as exempt· fund-·

raising expenses:

100,215.76

$3,505,914.00

$1,555,093.17

633,160.40

537,700.58

454,090.33

225,653.76

,2 U.S.C~ 44la(b) (1) (A)

'20% fundraising exemption ' totalfundraising plus operating expenditures!

As noted previously, the Committee reported $3,322,829.38

as exempt fundraisingexpenses.

Includes $6,415.66 probably classifiable as exempt legal and accounting.' .

$14,720,000.00

2,944,000.00 , $17,664,000.00' "

!I

Direct Mail Services

FundraisingEvents and associated

',expenses,

Salaries, Consulting Fees and

associated expenses

Allocable portion of National

,Headquarter's expenses

Allocable portion of Tour Travel

expenses

Allocable portion of States'

Mailing expenses

. .",...

The Audit' staff reviewed the Committee's"method of

classifying expenditures as fundraising costs subject to the 20%

fundraising exemption.. During the period February 26, 1979 through . July 31, 1980, the Committee reported on FEC Form 3P, Line 25,

"Exempt Fundraising, Legal and Accounting Expenditures", ','

$3,322,829.38 1/ .in expenditures classified as exempt fundraising costs. - ,

-3-

Section 110.8(c) (2) of Title 11, Code of Federal Regula- tions provides that expenditures for fundraising activities

targeted at a particular State and occurring within 28 days before

that state's primary election, convention, or caucus shall be , .' presumed to be attributable to the expenditure limitation for that

: State, 11 C.F .R. 100.8 (b) (21) (relating to the 20\ fundraising exemption) notwithstanding. ~. ~. .~

Section 100.8 (b) (15) states," in relevant part, that

expenditures for services solely to ensure compliance with the.

Act made by a candidate certified to receive Primary Matching

Funds under 11 C.F.R. Part 9034 do not count against such

'candidate's expenditure.limitations.under 11 C.F.R. 9035 or

11 C.F.R. 110.8.

... '

.....
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* Subsequent to the Committee's receipt of the interim report, $136,691.14 of the $376,252.71 was identified as being costs

related to the exempt legal and accountinq expense category

(see page 9 for adjustment (-$136,691.14) to expenditures

subject to the overall limit).

In summary, given the $2,944,000.00 exemption

for fundraising expenses contained at 2 U.S.C. 431(9) (B) (vi),

it is our opinion that the Committee has included $376,252.71

(net) in expenses on Line 25 which should be reported as

operating expenses on Line 24 and therefore subject to the

overall expenditure -limit contained at 2 U.S.C. 44la(b) (1) (A) •

$ 376,252.71*

( 2,944,000.00)

Overage, reclassifiable to operating

expenditures chargeable to overall

limitation

Less: Fundraisingexpense exemption

. Recap: .

Expenditures reported as exempt fundraising $3,322,829.38

for Line 25, 2/26/79 through 7/31/80

Less: Reported refunds of fundraising (2,576.67)

expenses

Net fundraising expenditures per report $3,320,252.71

It should be noted that the Audit staff does not believe

that the Committee's allocations of 20% of Headquarter's Tour

Travel and States' Mailing Expenses are necessarily reflective

of the actual allocable portion of these expenses attributable

to its fundraising efforts. Based on the Committee documentation

reviewed, it appears that the 20% factor is merely an estimate.

However, in view of the fact that after applying direct charges

of $2,725,954.15 against the $2,944,000 exemption the remaining ,$218,045.85 which may be allocated to exempt fundraising represents

approximately 9.6% of National Headquarter's expense ($218,045.85 7

$2,270,451.66 (total headquarter's expense», ,which appears

reasonable. The allocation of a oortion of Tour Travel and States' . Mailing Expenses becomes irrelevant in light of the above discussion.

2. Limitation on Expenditures 2 U.S.C. 441a(b) (1) (A)

As noted previously, the expenditure limitation is

$14,720,000.00. An analysis of Committee disclosure reports for

the period from February 26, 1979 through August 31, 1980, yielded

the following with respect to expenditures subject to the

$14,720,000 limitation.

'~' ....

.- .

r......
-5-

473,832.59

29,859.58

9,675.36 *

160,060.00)*

$ 14,952,566.12

$ 14,599,258.59

$ 3,320,252.71

$ 15,197,569.10

($ 2,944,000.00)

($ 974,563.22)

Obligations relating to expenses solely to ensure compliance

with the Act may be included in these figures.

Total Expenditures Subject to Limitation

2/26/79-8/31/80 per Committee's reports

Expenditures classified as fundraising

2/26/79 to 7/31/80-Line 25 (net of

reported refunds)

Less: 20% fundraising exemption

Expenditures classified as operating

2/26/79 to 7/31/80-Lines 24 and 26b

*

Based on our preliminary analysis performed in

October, 1980, it appeared that the Committee had exceeded the

expenditure limitation at 2 U.S.C. 441a(b) (1) (A) in the amount of

$232,566.12 ($14,952,566.12 less $14,720,000). It should be noted

that the Committee did not identify on its reports any amounts

chargeable to the exempt legal and accounting expense category • It was suggested that the Committee might wish to review its exempt

legal and accounting costs and reallocate, on a reasonable basis,

an amount from operating expenses to the exempt legal and accounting

category by amending the appropriate expenditures' sections of

disclosure reports filed to date.

On November 18, 1980, the Commission approved the

recommendation of the Audit staff contained in the interim report

that the Committee be requested to show within 30 days of receipt

of the audit report that the overall expenditure limitation had not

been exceeded as set forth in the interim report. Absent such a

showing, a determination would be made regarding an amount required

to be repaid to the U. S. Treasury.

Less: Refunds and Rebates pertaining

to operating expenditures

Expenditures subject to limitation

(Audit analysis) 2/26/79-7/31/80

Adjustments to Reported Figures 2/26/79 through 7/31/80

...-.. '." ..

?'"".
.e

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Analysis of Committee Response

'In its response to the interim report, the Treasurer

indicated that the Committee's compliance expenditures were

summarized and reclassified on the post-election report (covering'

the period 10/16/80-11/24/80). She also stated that Reagan For

President is now well below the expenditure limitation as set

forth in 2 U.S.C. 44la(b) (1) (A). The Audit staff's analysis of

the reclassification of expenditures from operating (i.e. chargeable"to the overall limit) to legal and accounting (exempt from

overall limit) is discussed below.

The Committee's 30 day post general election report was

filed on December 8, 1980. Within this report, the Committee

reclassified (amended) $807,763.61 in expenditures, from operating

expenditures (subject to the limitation, line 24) to exempt legal

and accounting (line 25). The majority of the reclassified expenditures were for salaries, consulting and legal services, interest

expense, and computer services.

The Audit staff's analysis of the disbursements reclassified to exempt legal and accounting by the Committee is as follows:

Payroll and Payroll Taxes

Through discussions with the Assistant Treasurer the Audit

staff has determined that 100% of the payroll and payroll taxes

for the Treasurer's office ($384,556.01) has been reclassified

to exempt legal and accounting. The Assistant Treasurer could

not provide the Audit staff with written job descriptions for

personnel within the Treasurer's office or identify the work areas

where certain individuals were assigned. Therefore, the reason- I

ab1eness of this reclassification could not be determined. However,l

the Audit staff does not believe ,that 100% of the functions performe'

within the Treasurer's office are solely for the purpose of insuring:

compliance with the Act (see 11 C.F.R. 100.8(b) (15». i

i

For example, the following non-compliance accounting functions

must be considered in determining a reasonable allocation:

1) maintaining cash receipt records;

2) writing checks, transmitting funds to field

workers, recording disbursements;

3) reconciling bank statements;

4) preparing cash flow reports~

5) budget preparation and budget performance reports;
( :

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6) keeping payroll records, paying employees,

filing quarterly payroll returns and making

state and federal payroll deposits: and,

7) filing exempt organization return (1120 POL)

with the IRS. Section 527 of the Internal

Revenue Code requires that all unrelated

business income be reported. Consequently,

the Committee must maintain accounting records

sufficient to permit compliance with the IRS

reporting and recordkeeping requirements.

In threshold audit reports issued on two (2) 1980

Presidential.campaigns, the Commission approved an allocation

of 85% of the costs associated with the Treasurer's office as

a reasonable percentage allocable to exempt legal and accounting.

This percentage was developed through studies based on the functions

performed in the Treasurer's office. As previously stated, Committee

records were not available to conduct such a study. However, based

on prior Commission action regarding two campaigns of comparable

size, the Audit staff believes that the percentage (85%) represents

a reasonable allocation of costs to exempt legal and accounting.

Based on the above, the amount of payroll and payroll taxes

chargeable to exempt legal and accounting should be $326,872.60

($384,556.01 x .85), and the amount chargeable to operating should

be $57,683.41 ($384,556.01 x .15).

Headquarters' Overhead

The Committee has reclassified overhead costs, totaling

$171,150.68, to exempt legal and accounting. This reclassification

represents a 100% allocation of overhead costs relating to the

operations of the Treasurer's office. It has been established

that certain functions performed by personnel in the Treasurer's

office are not specifically compliance related. Therefore, the

Audit staff believes that the same percentage applied to payroll

(85%) should apply to overhead costs.

Based on the above, the amount of overhead costs chargeable

to exempt legal and accounting should be $145,478.07 ($171,150.68

x .85), and the amount chargeable to operating should be $25,672.61

($171,150.68 x .15).
"

$807,763.61

$590,492.33

( 4,174.55)

( 129,740.71)

( 57,683.41)

( 25,672.61)

Based on the above, the payments for interest on bank

loans and other routine bank charges should be chargeable to

operating ($129,740.71).

Based on the above, the amount chargeable to exempt'

legal and .accounting should be $6 ,129 01 and the 'amount chargeable, tooperat~ng should be $1,08l~59.

Recap of ' Audit Adjustment of Committee Reclassification

Miscellaneous Items

, ',a) Other disbursements, totaling $3,092.96, . were in our . 'opinion, erroneously reclassified to exempt legal and accounting • . The disbursements were for reimbursed air travel and lodging,

'newspaper advertisements, autopen plates, and employment fees.":',

_" _ ,Based on .the above, $3,092.96 should be chargeable. to,

-operating.'

b) The Committee also reclassified payments totaling $7,210.60 , to exempt legal and accounting., The payments were made to individualsi

assigned to the Treasurer's office. Generally, the payments were for; , per diem expenses and various reimbursed expenses.', As previously" - , .: determined approximately 85% of an individuals"time is 'spent on

compliance related actiyities. " .

,..'" -..

....

.... ~,

Interest Payments and Bank Charges

The Committee reclassified payments made to various banks,-

'. totaling $129,740.71. The payments were for interest on bank

loans ($128,264.61) and other routine bank charges ($1,476.10).·

: The Audit staff disagrees with this reclassification since

payments for interest and other routine bank charges, in our

opinion, are not considered disbursements covered by 11 C.F.R.

100.8(b) (15) and therefore are not exempt from the expenditure'

limitations pursuant to 2 U.S.C. 44la(b) (1) (A) and 26 U.S.C.,

9034.

-8-

Amount reclassified by Committee

Less: Payroll costs not chargeable to exempt

legal and accounting ($384,556.01 x .15)

Less: Headquarter's overhead not chargeable to

exempt legal and accounting ($171,150.68

x .15)

Less: Interest payments and other bank, charges

not chargeable to exempt legal and

accounting

Less: Miscellaneous items not chargeable to

exempt legal and accounting (see (a) and

(b) above)

e -'Total,amount of reclassified, disbursements

determined as reasonable charges to exempt

legal and accounting
-9-

Our analysis of the Committee's response to the interim

report,and review of reports filed for activity through 11/24/80

revealed the following:

~. Expenditures subject to limitation (2/26/79-7/31/80) as

previously. noted on page 5. $14,599,258.59

Adjustments to Reported Figures 2/26/79 through

7/31/80.

Recommendation

See following page for footnotes.

It appears that based on Committee reports filed and audit work

conducted to date that the Committee has exceeded the expenditure

limitation at 2 U.S.C. 441a(b) (1) (A) in the amount of $77,387.82

($14,797,387.82 - $14,720,000.00).

29,859.58

42,059.63*

13,351. 80

(21,434.50)*

142,990.78

718,485.41

(136,691.14)

(590,492.33) ~/

$14,797,387.82 i/

Total Expenditures Subject to the Limitation 2/26/79

11/24/80.

Less: Amount of reclassified expenditures ($807,763.61)

per audit's analysis chargeable to exempt legal

and accounting.

Less: Disbursements erroneously disclosed as exempt

fundraising but chargeable to exempt legal and

accounting.

Add: Disbursements previously allocated to exempt

legal and accounting (line 25) in error.

Less: Reported Debts and Obligations owed to the

Committee as of 11/24/80.

It is the recommendation of the Audit staff that the Committee amend

its post-general election report to reflect the adjustments noted above.

Further, it is recommended that, the Commission make a final determination:

that the amount ($77,387.82) in excess of the overall expenditure limitatia

at 2 U.S.C. 441a(b)(1) (A) be considered a non-qualified campaign ' expense and repayable to the u.S. Treasury (see Finding III.B.2. for

repayment discussion).

Add: Maximum net income realizable for tours *4

through #26.

Add: Reported Debts and Obligations OWed by

the Committee as of 11/24/80.

Add: Expenditures subject to the limitation as

reported for the period 8/1/80-11/24/80.

Add: Expenditure on 8/11/80 for convention

travel not included in the $718,485.41 above.

••'!. •

......

:,. ..
-

..

*

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Se~ footnote ~/ at page 5.

If the entire $807,763.61 were reclassified to exempt legal and

accounting, the Committee would not have exceeded the expenditure limitation at 2 U.S.C. 441a(b) (1) (A).

Findinq III.D.l and D.4 contain recommendations relating to

reimbursements due the Committee from the Candidate's General

Election Committee for the purchase of Primary equipment and

certain expenses paid by the Primary but apparently related

to the Candidate's general election campaign. The value of

these reimbursements due the Committee has not been considered

in arriving at the $14,797,387.82 figure noted above. In

addition, actual receipt and disbursement activity occurring

after 11/24/80 will be incorporated as information becomes

available. Adjustments to total expenditures subject to the

limitation may also be warranted based on unresolved questions relating to the Committee's settlement/negotiation of certain

debts (including checks issued and subsequently voided).
Response to'Threshold Audit" Findings:

.. Allocation of Expenditures to States"

Although State expenditure allocation errors were noted

foi th~_states of Iowa and South Carolina, our extensive review

indicated.that·the:respective"limitationswere not·exceeded.'Noted

below are areas in which allocation errors exist with respect to.

the state of New. Hampshire. " -

, -11-

, During the Threshold audit, the Committee was made •aware of several areas (regional directors' salaries, consulting

fees, and a time delay in receiving the expenditure information

from the state offices) which resulted in state·allocation problems. :

The Audit ,staff recommended that the Committee review its expenditures and file an amended FEC Form 3Pc reallocating the dollar value .. of those expenditures requiring allocation to the 'appropriate state(s),

'and provide copies of detailed: wC?rking 'papers· in support ,~f the' ',""

'reallocation.· As of October 10,1980 the Committee had not filed

an amended FEe, Form 3Pc, however'" in a,letter: "da'ted August~ 20," .19~O, ", ,,~

,the Committee ,Treasurer-indicated,that she felt the allocation of

expenditures'was adequate.

, -,

Section-106.2(a) of Title 11 of the Code of Federal _ ., Regulations states, in part, that expenditures made by a candidate's..., 'authorized committee (s) which seek to influence the nomination of"

that candidate for the Office of President of the United States

with respect to ,a, particular state shall be,allocated to, that state. "

'.. Sections 44la (b) (1) (A) and 44la (c) of Title 2 of the

,,': united States Code provide, in part, that no candidate for. the, ' :'Office of President of the United States who is eligible to ..... - receive and has received matching funds may make expenditures

in anyone state aggregating in excess of the greater of 16 cents'

"multiplied by the $tate voting age population or, $200,000.00, .. " . adjusted by the Consumer Price Index. '"

',''to..-

'n', In addition, Section'l06.2(b) and (c) of Title 11 of the

Code of Federal Regulations states, in part, that expenditures for

",',staff, media, printing and other services used in a campaign in , .'~ ,r ",a specific state shall be attributed to that state, ,and that expenditures by a Presidential candidate for use in two (2) or more states

\', shall be attributed to each state based on the voting age population,

in each state which can reasonably be expected to,be.influence by .. ,'such. expenditures." - .... ,," '

:.
(a) the Audit staff noted that as of the date of the

engineering study performed for the Committee, the U.S. Census

Bureau had published revised Census figures as of 1977.

Our review of the expenditure records pertaining to the

media placements and the related state allocations revealed that

the net payments (published rates less commissions) had been

allocated to states, but the.re1ated consultant fees had not been

allocated. '

On October 1, 1979, the Committee retained the services

of a media consultant. The consultant's duties included assisting

in the planning of all media advertising for the campaign and

ordering the schedules for media advertising. In return for these

services the consultant received a fee of $3,500.00 per week, in

lieu of the standard 15% agency commission on all time and space

placed•.

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Media Expense and Consultant Fees

The Grade" B contour is the area within which the majority

of households can receive a good reception from a television

station's signal as defined in the Federal Communications

Commission's" rules and regulations Sections 73.683 through

73.685 .

1.

~/

(b) one of the states within the Grade B contour is

Rhode Island. The Committee did not allocate any portion of , the Boston television costs to Rhode Island, however it utilized

a portion of Rhode Island's population (per the Grade B contour)

in the base to determine the New Hampshire allocation percentage.

Since the Rhode Island primary occurred on June 3, 1980, it is

our opinion that additional information is needed from the

Committee to support the inclusion of Rhode Island's population

in the base.

In addition, our review disclosed that the Committee used

an unusually low allocation percentage (6%) when allocating a

portion of the Boston television costs to New Hampshire. According

to television industry, information, the allocable percentage to New

Hampshire should be 13.3%. The Committee's allocation of 6% percent

was taken from a study performed by an engineering consulting firm.

The firm based this percentage on the ratio of the population by .state contained within the area of a grade B contour 5/ for one

(1) of the television stations considered reflective of the Boston/

New Hampshire market. However, the population figures used were

taken ,from the 1970 u.s. Census figures. This method of allocating

-the television costs to New Hampshire appears to be deficient for

•

the fo11owing'reasons:

•

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(c) another state within the Grade B contour is

Connecticut. It should be noted that current industry information

(1979-1980, ADI Book) does not consider any portion of the State

of Connecticut within the area of television signal penetration.

(d) for all other states/markets in New England

(except Boston), the Committee utilized the current industry

information (1979-80, ADI Book) cited above, for the allocation

of media.

Assuming that the total population figures used by the Committee

(if adjusted for revised 1977 Census figures) are, in fact,

reflective of the voting age population in the respective states,

we believe for the reasons noted aoove, the method utilized by the

Committee produces an unreasonable allocation with respect to

New Hampshire.

Based on our analysis, utilizing the 1979-1980 ADI Book

figures, of the fees paid and the method of allocating placement

costs to New Hampshire, the Audit staff has determined that an

additional $15,317.49 (fees and placement costs) should be allocated

to New Hampshire.

~.

Analysis of Committee Response

On December 22, 1980, the Committee submitted its response

to the Commission approved interim audit report. In the response,

the Treasurer stated:

liThe Audit Team is of the op1n1on that the method

used by the Committee to allocate media expenses

in New Hampshire is not acceptable. Their argument relies heavily on the fact that the Grade B

Contour method was not applied in other states.

The audit team does agree, however, that the

Committee did not approach the state expenditure

limit in any other state. Since the implementation

of the Grade B Contour method involved a cost factor,

the Committee did not feel it necessary to apply

the more expensive but detailed allocation method

to states other than New Hampshire. In addition,

media costs in other states were generally incurred

after the New Hampshire primary.

It should be noted that prior to the implementation

of the contour method, the general counsel of the

committee contacted the Commission concerning media

allocation methods. He was informed that although

the method used in 1976 by many committees (13.3%)

was acceptable, it was not the only method and that

any reasonable method of allocation was acceptable.

The Committee contracted a firm of engineers-to do

a scientific study of the New England media market.

The Committee used this study as the basis of their

allocation method and feels strongly that it is

reasonable and therefore acceptab1e."
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Recommendation

. The Audit staff recommends that the Commission reaffirm its

determination of November 18, 1980, that an additional $15,317.49

in fees and placement costs be allocated to New Hampshire.

Further, the Committee is to amend its state allocation schedule

to reflect this adjustment within 30 days of receipt of this report.

a. Salary and Consulting Fees

Additional Adjustments to the Committee

Allocated Totals for New Hampshire

2.

Our review initially determined that an additional

$36,079.84 should be allocated to New Hampshire. The additional

amount is based on our analysis of the amount of time spent by

Committee staff in New Hampshire. In addition, costs associated

with the operation of the Committee's New England ~egiona1 office

were allocated by the Committee evenly to three New England states.

The audit staff reviewed the volume of activity in each state and

recalculated the allocable portions based on relative activity

(amount of funds expended) in each state.

The Threshold Report of the Audit Division made

a procedural recommendation that the Committee allocate a portion

of the salary or consulting fee for an individual's time while

assigned and/or traveling within a particular state. During the

Post Primary audit, there appeared to be no change in allocation

of these salaries or consulting fees as a result of the Threshold

finding.

It is the opinion of the Audit staff that, in its

response, the Committee has not demonstrated that its method

of allocating media costs to New Hampshire is reasonable. Specifi~a11y, the Committee has not shown:

that its use of 1970 u.s. Census figures versus

revised Census figures as of 1977 is reasonable. .. . .

the reasonableness of its use of the Grade B

Contour for allocating the cost of Boston television to New

Hampshire, while at the same time NOT using the respective

Grade B Contour for allocating the cost of television advertisements emanating from the other New England states. The

effect of the Committee's method is to preclude any allocation

to New Hampshire for other than media broadcast from the

'. Boston television stations. It should be noted that advertisements were broadcast from stations in several New England

states, the signal penetration of which (per the respective

Grade B Contour) reaches portions of New Hampshire. .

the reasonableness of not allocating the $3,500.00

per week fee received by the consultant to the states. As noted

above, this weekly fee was in lieu of the standard 15% agency

commission on all time and space placed.

·-.
,....

.." ,

f -:.

-15-

In its response, the Committee sets forth several

considerations in support of its position that since it is

impossible to know the percent (sic) of time the national staff

spends on a particular state, that no allocation can be made.

"(1) The Treasurer often does not know

the percentage of time an individual

spends in a state until months after a

primary. There would be no way to monitor

daily travel schedules in the heat of a

campaign and therefore no way to estimate

the allocable expense.

(2) It is often the case that a member

of the national staff may be in a

particular state but in no way influencing

the state primary anymore than if he/she

were in the national headquarters. The

candidate has very few available hours.

In order to properly brief him, or discuss

a sensitive issue, an individual must make

himself available to the candidate wherever

he may be.

(3) In a presidential campaign, planning

plays a major role. The fact that part

of the national staff may be with the

candidate in state A, it is often the case

that they are spending time planning for

the primary in state B or C."··

with respect to the Audit staff's reallocation of

costs associated with the operation of the Committee's New England

Regional office, the Committee's written response is silent on this

matter.

It is the op1n10n of the Audit staff that our

additional allocation is reasonable and with respect to salaries

and consulting fees follows the principle set forth in Advisory

Opinion 1979-73 approved by the Commission on January 10, 1980.

Subsequent to the Committee's response, we met with

the Treasurer and reviewed additional information and Committee

worksheets not previously provided concerning salaries and consulting

fees. As a result of our review, we determined that the additional

amount allocable to New Hampshire should be $24,802.29.

Recommendation

The Audit staff recommends that the Commission make a final

determination that an additional $24,802.29 in staff salaries, and

costs (overhead and salaries) associated with the operation of the

Committee's New England Regional office be allocated to New

Hampshire. Further, the Committee is to amend its state allocation

schedule to reflect this adjustment within 30 days of receipt of this

report.
-16-

A review of the Committee's Outstanding Campaign

Obligations as of July 31, 1980, identified outstanding debts

totalling $3,326.27 which were related to the Committee's campaign

in New Hampshire. Payments were made on these debts totaling $3,326.27.

Introduction to Findings II.B.2(b) through (e)

---''-, ,c_ With respect to items 2 (b) through 2 (e) below, the Committee,

in its written response, made several general statements, but did not

'specifically address the matters therein. The Committee's remarks

were:

Tour Related Disbursements

Outstanding Debt

c.

b.

The disbursements were made from the Massachusetts, New

Hampshire, and Nati6na1 headquarters' accounts. Disbursements'

from the Massachusetts account were allocated to Massachusetts,

certain disbursements from the National headquarters' account

were also allocated to Massachusetts, but disbursements from

the New Ham?shire account were not allocated to New Hampshire.

§../

i) Our review of the Committeeis allocation

of tour costs revealed that disbursements, totaling $10,516.54,

had not been allocated to New Hampshire. 6/ The disbursements

were associated with,a 16 city New HampshTre tour, occurring on

February 4 and 5, 1980, which included payments for hotel rooms,

chartered buses, rental cars, and a representative portion of an

individual's sa1a~y/consu1ting fee earned. during the period of

the tour. The hotel used by the Committee during the .tour is

located in Danvers, Massachusetts which is approximately l5,miles

from the Ne\v Hampshi're state line.' .. . -.

"With respect to New Hampshire, ,there are a number of"

.disagreements. ' After analyzing the FEC findings the

Committee has found $35,000-$45,000 of duplicated or

post primary expenditures allocated to New Hampshire.

I.n addition, another $10,000-$15,000 Maine and Vermont

expenses have been considered New Hampshire. Another

factor overlooked is the press reimbursements which

dramatically affect the allocable expenditures.

I will gladly forward my worksheets to the auditors

for review and request that the Committee and the,

auditors sit down together and review New Hampshire'

expenditures so that we may at least agree to our,

-disagreements. ,At that time the Committee will

gladly adjust its rt2!cords to reflect the changes.'"

-.-- - --" - - -

. ,The Audit staff met with the'Treasurer during the week

of· January 5, 1981 to review additional information and Committee

worksheets not previously provided regarding the New Hampshire

'state allocation. As a result of our review, findings2(b), (c) (i)~

'and (e) remain unchanged from the interim report while finding 2(d)

was revised per the additional information., Further, a repayment ,',

has been incorporated ,in Finding 2(c) (ii);

rj.

.. ,

"

•
-17-

2/ See footnote previous page

The following is a recap of certain disbursements associated with tours apparently originating from the hotel.

$26,810.00

24,346.37

6,846.95

1,435.80

1,213.97

$60,653.09

$10,516.54

$ 5,005.49

3,674.47

1,246.70

589.88

Total

Hotel

Salaries/Consulting Fees

Concord Coach Lines (Eight

(8) Bus Charters)

Rental Cars

Gasoline

Total

Hotel

Salaries/Consulting Fees

Concord Coach Lines (Two (2)

Bus Charters)

Rental Cars

d. Other Vendor Payments

Our initial analysis of payments from the headquarter's operating accounts to vendors for postage, polling, direct

mailing, telephone, office supplies, etc., revealed that additional

payments totaling $76,819.12 should be allocated to New Hampshire.

Based on certain documentation supporting the

above disbursements, (e.g., individual expense vouchers,

invoices documenting charter bus routes, FEC schedules B-P (filed

with the Committee by state offices), the Committee's tour

manifest for the period 2/13/80 through 2/29/80, etc.), the

Audit staff believes a substantial portion of the disbursements

total noted above (c.ii) should be allocated to New Hampshire. 7/

Furthermore, six (6) of the eight (8) invoices supporting the - bus charters did not show the tour routes and a determination of

proper allocation could not be made.

In light of the fact that the Committee did not

provide any additional information or worksheets concerning the

above tour, the Audit staff has included this amount as allocable

to the New Hampshire state limitation.

ii) For the period February 10, 1980, through

February 28, 1980, individuals associated with the Committee

maintained rooms at the Sheraton Rolling Green Motor Inn (the hotel)

located in Andover, Massachusetts which is approximately 10 miles

from the New Hampshire state line.

The following is a recap of disbursements

associated with the 16 city New Hampshire tour apparently origin~ting from the hotel.

-19-

C. Contributions Received after the Primary Election

Section 110.1(a) (1) of Title 11 of the Code of Federal

Regulations states that no person (except multicandidate committees

under section 110.2) shall make contributions to any candidate,

his or her authorized political committees or agents with respect

to any election to Federal office which in the aggregate exceed

$1,000.

Section 110.1(a) (2) of Title 11 of the Code of Federal

Regulations states that "with respect to any election" means -

(i) In the case of a contribution designated in writing

for a particular election, the election so designated, except that

a contribution made after a primary, caucus or convention, and

designated for the primary election, caucus or convention shall

be made only to the extent that the contribution does not exceed

net debts outstanding from the primary election, caucus or

convention.

(ii) In the case of a contribution not designated in

writing for a particular election,

(A) For a primary election, caucus or convention,

if made on or before the date of the election, caucus or

convention, or

(B) For a general election if made after the date

of the primary election.

Based upon 26 U.S.C. 9032. (6) (A), 11 C.F.R. 9032.6 (b) (1)

and 9033.5(c) the Commission determined that the primary election

period for the candidate ended July 16, 1980, when the Republican

Party nominated the candidate for the office of President of the

United States. On July 31, 1980, the Committee filed a Statement

of Net Outstanding Campaign Obligations which reflected a net

surplus of $2,514,000 for the primary election.

The Audit staff's review of deposits between July 17, 1980,

and October 1, 1980, revealed that the Committee deposited contributions (dated after July 16, 1980) totaling $85,946.47 (net of nonnegotiable items) into its campaign depositories and, as of . October 6, 1980, retained the contributions therein. According to

Committee receipt processing personnel, no special treatment was

given these contributions.
'4It b) dispose of the contributions for the purpose(s) outlin~ .at 2 U.S.C. 439a and provide evidence of the disposal, such as that

addressed in item a)~ or

~.

-20-

c) notify the contributors, pursuant to 11 C.F.R. 9003.3

(a) (1) (iii), that the contributions will be deposited in the general

election legal and compliance fund. If after such notification the

contributors object to the funds being so used, or the contributors

have already contributed $1,000 (statutory limit) to the legal and

compliance fund, the contributions should be refunded in the manner

prescribed in item (a).

The committee responded to the interim report on

December 22, 1980. In the response, the Treasurer stated that

"pursuant to 2 U.S.C. 439(a), Reagan for President has disposed . of all contributions received after the date of nomination (emphasis . added). This was accomplished by transferring the $85,946.47, as

well as an additional $164,053.53, to the Presidential Transition

Fund." The Treasurer provided a photocopy of the check.

Our audit work conducted in December, 1980, indicated

that the Committee had received approximately $322,617.39 (net)

in contributions during the period 7/17/80 thru 12/19/80. Of this

amount $156,882.99 represented contributions dated 7/16/80 or

before, while the remainder ($165,734.40) represented contributions

dated 7/17/80 or after. Therefore, it is our opinion that the

Committee has properly disposed of the amount of contributions

($165,734.40) which it could not retain given its surplus position

on July 16, 1980. It should also be noted that while 11 C.F.R.

110.l(a) (2) requires the disposition of the $165,734.40, in view

of the fact that the Committee has a calculated residua1,after

repayment to the u.s. Treasury in excess of $1,800,000.00, the

remainder ($85,946.47) of the $250,000 transferred is also permissible under 2 U.S.C. 439a.

Recommendation

With respect to the transfer of the $250,000.00 to the

Presidential Transition Fund, the Audit staff is of the opinion

that the transfer is permissible under 2 U.S.C. 439(a), and recommend

no further action.
-21-

D. Disclosure of Debts and Obligations

"Loan - No Guarantor

Secured by~atching Funds;

Payable 6/30/80"

..,

a) Line of Credit

Post-Primarv Audit 2. ..

The Audit staff noted a line of credit

established with Riggs National Bank. During the post-primary

audit period the Committee had exercised and received $4,320,000

in loans against the line of credit. As the loans were received,

the Committee disclosed on the applicable Schedules A-P, Line 20:

The review of Schedules _C-P Line 13 of the

applicable reports which contained the debts and obligations

portion of .the loans, revealed that the Committee did not disclose

the nature of the obligations (details of the debt, collateral,

if any, interest rate, etc.)

. " . The Committee did acknowledge the initial $30,000

increment in a letter dated August 20, 1980. However, as of

October 10, 1980, no information had been received concerning the

nature of the bank loan. .

Section 434(b) (8) of Title 2 of the United States Code

(formerly 2 U.S.C. 434(b) (12» requires disclosure of the amount

and nature of debts and obligations owed by or to such political

committee; and a statement as to the circumstances and conditions

under which such debts or obligations were extinguished, and the

consideration therefore.

1. Response to Threshold Audit Findings

The Audit staff noted a $100,000 loan received

from the Santa Monica Bank on September 6, 1979 for which the

reported nature (details of the debt) on Schedule C-P consisted

of only "Bank Loan". Additionally, the staff noted a letter of

credit for which the Committee had not disclosed the $30,000

initial increment~

Section 104.ll(a) and (b) of Title 11 of the Code of

Federal Regulations states, in part, that debts and obligations

which remain outstanding shall be continuously reported until

extinguished. A debt, obligation, or other promise to make an

expenditure, the amount of which is $500 or less, shall be _ reported as of the time payment is made or no later than 60 days

after such obligation is incurred, whichever comes first. Any

loan, debt or obligation, the amount of which is over $500 shall

be reported as of the time of the transaction.

......

....
". ' ; -.

-22-

Moreover, an analysis of this matter performed

subsequent to the Threshold Audit indica~ed that the candidate

provided his conditional guaranty.

b) Accounts Payable

Our examination of the Committee's-documents

and disclosure reports, and a comparison thereof revealed that the

Committee had been improperly reporting debts and obligations

during the period February 1, 1980 through May 31, 1980.

Our testing indicated that debts and

obligations' were 'not properly disclosed on Schedule C-P for'

Line 13 with respect to the itemization of the obligation and

the liquidation thereof. However, it was noted that these debts

and obligations were paid and disclosed on the appropriate

expenditure schedules.

The interim audit report, approved by' the

commission on November 18, 1980, contained...the following

recommendations:

. ., With respect to item 1), the Audit staff

recommends that within 30 days of receipt of this report, the ~Committee file an amended report fully detailing on Schedule C-P

Line 13 the nature of the Santa Monica Bank loan (Threshold audit

finding).

For item 2a relating to the Riggs National Bank

loans, it is recommended that within 30 days of receipt of this

report, 'the Committee file an amended report(s) fully detailing on

Schedule C-P, Line 13 the nature of these loans to include co11atera

interest rates, and endorsements (if any), for each loan exercised'

against the line of credit.

With respect to item 2b), the Audit staff

recommends that since testing has given assurance that all

recognized debts and obligations were liquidated, no amendments

to Schedule C-P are required on an item by item basis. However,

it is the Audit staff's recommendation that within 30 days of

receipt of this report, the Committee submit a statement for the

public record, signed by the Treasurer, indicating that all

recognized debts ,and obligations have been liquidated as of a

given reporting date and that commencing with the next regularly

scheduled disclosure report, debts and obligations will be reported

as required by the Act.

On December 22, 1980, the Committee presented

the amendments noted above in response to the interim report.

Recom.'lIendation

I Since the appropriate amendments have been filed,we recommend

no further action.
E. Earmarked Contributions

The Audit staff recommends no further action regarding this

matter since the requested amendment has been filed.

F. Contributions Received From Non-Affiliated Committees

Recommendation

2~ Post-Primary Audit

Section 434(b) (3) (B) of Title 2 of the united States

Code (formerly 2 U.S.C. 434(b) (4» requires disclosure of the

identification of each political committee which makes a

contribution to the reporting committee during the reporting

period, toqetherwith the date and amount of any such contribution. - .

On December 22, 1980, the Committee filed the

appropriate amendment in response to the recommendation contained

in the interim audit report•

This finding includes matters noted in the Threshold . audit period as well as those noted in the Post-Primary audit period.

The Audit staff noted 134 earmarked contributions, totaling $13,274.?

that were received and reported as though they were individual contr~

butions (i.e., non-earmarked). As of October 10, 1980, the CommitteS

had not disclosed on its reports the conduit(s) through which the . contributions passed.

. ., '.

-.,.

Section 110'.6 (a) of Title 11 of 'the Code of Federal

Regulations states that all contributions by a person made on

behalf of or to a candidate, including contributions which are

in any way earmarked or otherwise directed to the candidate.

througn an intermediary or conduit, are contributions from the

person to the candidate.

Section 110.6(c) (3) of Title 11 of the Code of Federal

Regulations requires the intended recipient to disclose on his

next report each conduit through which the contribution passed.

1. Response to Threshold Audit Findings

The Audit staff notified the Committee that the

conduit(s) through which 49 earmarked contributions, totaling $4,870.00, had passed had not been disclosed. The Audit staff

recommended that an amendment be filed not later than lo.ugust 6,

1980, to disclose the conduit(s). As of October 10, 1980, the

Committee had not filed this amendment, although in a letter

dated August 20, 1980, the Treasurer indicated that an amendment

would be filed. The Treasurer also stated that the conduits were

not disclosed because they were informed by a former Commission '~emp1oyee that disclosure of the conduit was unnecessary.
-24-

1. Response to Threshold Audit Findings

The Audit staff concluded that 17 contributions

totaling $4,755.79 received from non-affiliated committees had

not been itemized on the Committee's disclosure reports. The

Audit staff recommended that an amendment be filed not later

than August 6, 1980. The Committee filed the amendment on

September 12, 1980, itemizing the contributions.

2. Post-Primary Audit

During the receipts-review, the Audit staff-noted

19-contributions,tota1ing $8,018 received from-non-affi1iated

committees which'had not been itemized on-the Committee's

disclosure reports. Additionally, one (1) contribution for $105,

was incorrectly itemized at $800.

~. The Committee also disclosed in memo entry form,

as well as in unitemized receipts" a contribution of,$2,675 as

an earmarked 'contribution. -The contribution was received from a

multi-candidate committee. Based on the ,documentation presented,

this contribution does not meet the criteria for an earmarked

contribution as definediri l1'C.F.R. 110.6(b) and should be

disclosed as-a contribution from a non-affiliated committee.

An_amendment which adequately disclosed the

aforementioned contributions from non-affiliated committees

was filed with the Commission on December 22, 1980 in response

to the interim audit report.

Recommendation

The Audit staff recommends no further action regarding this

matter.

G. Disclosure of Refunds

Section 434(b) (3) (F) of Title 2 of the United States

Code require~ the disclosur~ of the identificatiori 9f e~ch

, person who provides a rebate, refund, or other offset to operating

expenditures to the reporting committee in an aggregate amount

or value in excess of $200 within the calendar year, together with

the date and amount of such receipt.
, .' "

.. '

, "

",... '?.'

..

-25-

The receipts review revealed that the Committee did

not itemize eight (8) refunds totaling $19,109.50 which exceeded,

or when aggregated with other refunds from the same person within

the calendar year were in excess of $200, and incorrectly itemized

a $12,623 refund at $18,623. In the Committee's report for

September, 1980, ,the $12,623 refund was corrected.

On December 22, 1980, the Committee filed an amendment

itemizing, the refunds as required.

Recommendation ,

, Since the requested amendment has been filed, the Audit staff

recommends no further action.

H.Other Income

Section 434(b) (3) (G) of Title 2 of the united States

Code requires the disclosure of any person, who provides any , dividend, interest, or other receipts to the reporting committee,

in an aggregate amount of value in excess of $200 within the

calendar year together with the date and amount. - Additionally,

2 U.S.C. 431(11) defines the term "person" to include an ' individual, partnership, association, corporation, labor,

organization or any other organization or group of persons.

During the receipts review, the Audit staff noted that

the Committee received $1,809.44 in interest income from a time

,certificate of deposit, which was not itemized as required. The . ., interest income represented approximately 29.1% of the total dollar;

amount of such receipts as of July 31, 1980 •

The Assistant Treasurer~stated that this receipt was

inadvertently reported as an unitemized contribution and expressed

a willingness to file an amended report. The Committee included

in its report for September, 1980, the $1,809.44 in interest

income mentioned'above.' .

On November 18, 1980, the Commission approved the Audit

staff's recommendation that no further action is necessary on this

matter.

I. Financial Activity Not Accurately Stated

Section 434(b) (1), (2) and (4) of Title 2 of the United

States Code (formerly 2 U.S.C. 434(b) (1),(8) and (11» requires

,disclosure of the amount of cash on hand at the beginning of

the reporting period; and the total sum of all receipts and expenditures~ .
-26-

'\,.

(" :

1. Response to Threshold Audit Findin~

The Audit staff noted that (a) reported receipts

were understated $11,602.16, (b) reported expenditures were

understated $37,404.13 and (c) ending cash at December 31, 1979

wns overstated $25,801.97. This was primarily caused by the

untimely receipt of expenditures information from state offices

nnd accounts. In addition, one (1) set of bank statements and

cancelled checks was not available for review at the time of the

Threshold audit and the activity for that account could not be

accounted for. The recommendation contained in the Threshold

Audit repor~ stated that the bank records be made available not

later than August 6, 1980. On October 3, 1980, the records were

made available, however, the activity in the account did not

have a material bearing upon the financial activity noted above.

In addition, the Audit staff noted that a substantial amount of

the above activity was included in the 1980 disclosure reports.

Procedural recommendations were made in the Threshold audit

report concerning the time lag in disclosing expenditure activity

relating to state office operations.

2. Post-Primary Audit

The reconciliation of the Committee's bank records

to its disclosure reports covering the period 1/1/80 thru 7/31/80,

indicated that (a) reported opening cash was understated $1,939.29,

(b) reported receipts were understated S22,843.67, (c) reported

expenditures were understated $160,222.52 and (d) reported closing

cash on July 31, 1980, was overstated $135,439.56. It appears

that the differences were primarily caused by including as cash

on hand the value of funds transferred from national headquarters

bank accounts to various state office accounts until receipt of

expense reports from the state offices. Thus, these funds were

classified as "unspent" by the Committee because, as of July 31,

1980, the expenditure documentation/expense reports had not been

received from the state offices and accounts for inclusion in

the disclosure reports. It is apparent that the Committee did

not institute additional control procedures to ensure timely

receipt of expenditure information from state offices, as

recommended in the Threshold audit report.

The Committee disclosed on its reports for the months

of August and September, 1980, receipts of $10,489.64 and

expenditures of $139,192.25 relating to the time lag problem

mentioned above.

Further, the Committee substantially disclosed the

remainder of the receipts and expenditures on its reports covering

the period October 1, 1980 through ~ovember 24, 1980.

Recommendation

In light of the fact that disclosure has been effected,

the Audit staff recommends no further action.
-27-

J. Campaign Tours

!'..

-'..

" ..

Section 9033(a) (1) and (2) of Title 26 of the United

States ~ode requires candidates who receive payments under

Section 9037 to obtain and furnish to the Commission any evidence

it may request of qualified expenses, and keep and furnish to the

Commission any records, books and other information it may request.

Section 432(c) (5) of Title 2 of the United States Code

states, in part, that the Treasurer of a political committee shall

keep an account of the name and address of every person to whom

any disbursement is made, the date, amount and purpose of the

disbursement.

The Audit staff noted that the Committee charges

150% of first class air fare for each media individual and

approximately 100% of first class for United States Secret

Service Agents traveling on Committee chartered aircraft. The

50% charge is added to cover the ground services and facilities

(i.e., ground transportation, meals, telephone service, typewriters,

etc.) which according to the Committee, are made available to these

persons traveling on Committee chartered aircraft. We were unable

to determine the ground costs associated with the Committee tours

#4 through #26. According to the Committee, these costs were

paid by the Committee's state offices, and documentation in

support of the costs could not be readily identified. However,

for tours 14, 16, 17, 18, 19, 20, and 26, the Committee billed

the media and United States Secret Service for reimbursement

equal to or substantially in excess of the actual total cost

of the charter air transportation to be paid by the Committee

for these tours.

Absent Committee demonstration to the contrary, any

income realized in conjunction with the tours may have an impact

on expenditure limitations discussed in Finding II.A.2. and III.B.2.

On November 18, 1980, the Commission approved the

recommendation of the Audit Division contained in the interim

report that within 30 days of receipt of the report the Committee

review the state office records and "identify the ground costs

associated with tours #4 through #26. Further, the Committee

was requested to provide the Audit staff with copies of documentation and working papers (inclusive of bank account and check

number, date, amount, payee, and associated tour) supporting the

associated ground cost for each tour. Upon receipt of the

documentation and working papers, the Audit staff would review

the reasonableness of applying reimbursements received based on

the 150% charge as a reduction of expenditures subject to the

limitation.
-,

-28-

The Committee has not complied with the recommendation

as stated, however, on December 22, 1980, the Committee responded

that:

"Until September of 1980,-presidentia1 campaign

committees were not required to keep separate

records of ground costs to press and secret service.

The Committee billed the press 150% as has been the

practice of a number of presidential committees in

1976 and again in 1980. In the threshold audit no

mention was made by the auditors that separate

records .of tour expenses would be required.

Now, six months after the primary election has ended,

the auditors request that the Committee supply detailed

ground transportation costs to prove that no profit

was made on 7 out of 26 tours. They agree, however,

that the Committee did not make a profit on the other

19, apparently even taking a loss on the 19 tours.

Considering that:

(1) regulations required no such details of records

during that period;

(2) numerous campaigns have in the past used 150%

as a rule of thumb, and the Commission has never

questioned the reasonableness of the practice;

(3) .the. apparent indication that the Committee took

a loss on 19 out of 27 tours; .

(4) the audit team has found no reason to believe

that a profit has been made but has instead told

the Committee to prove none has.

The Committee feels the Audit Team is not

justified in requesting a detailed study

of tour expenses in this after-the-fact

manner to prove something that seems apparent.

It should be kept in mind that when the

Committee agreed to supply records to the

Federal Election Commission, it was done so

with the understanding that the law was premised

on reasonableness, otherwise it would violate the

due process clause of the 5th Amendment."

It should be noted that the Audit staff disagrees

with the Committee's statement that "They agree, however, that

the Co~~ittee did not make a profit on the other 19, apparently

even taking a loss on the 19 tours." Attachment I is a chart of

tours #4 through #26 which details the net profit or (loss) to

the Co~~ittee based solely on air charter costg.
, Further, 11 C~F.R. 9034.l(a) states, in part, that a

candidate who has become ineligible under 11 C.F~R. 9033.5 may

~~ not receive further matching payments regardless of the date of

deposit of the underlying contributions if he or she has no net

outstanding campaign obligations as defined in 11 C.F.R. 9034.5. ~/

Recommendation

-29-

Commission regulations at 11 C.F.R. Section 9032.6 provide

that the. date on which a party nominates its candidate for

president is the end of the matching payment period for a

candidate seeking the presidential nomination of that party.

11 C.F.R. Section 9033.5(c) provides that the last day of the

matching payment period is the date of ineligibility for

candidates who have not previously been determined ineligible'

pursuant to 11 C;F.R. Sections 9033.5(a) or (b). Since Ronald

Reagan was nominated as the Republican Party's presidential

candidate at its national convention on July 16, 1980, that

date is the date of ~'r. Reagan's ineligibility. .

~/

A. Excessive Payments From the ~atching Payment Account

Section 9038(b) (1) of Title 26, United States

Code, states that if the Commission determines that any portion

of the payments made to a candidate from the matching payment

account was in excess of the aggregate amount of payments to'

which such candidate was entitled under section 9034, it shall

notify the candidate, and the candidate shall repay to the

Secretary an amount equal to the amount of excess payments.

Based on the above analysis of tours 14 through 126,

the Co~ittee's maximum net profit realizable totals $142,990.78.

Therefore, it is the opinion of the Audit staff that the operating

expenditures subject to limitation, as reported, are/will be

understated by $142,990.78 when all reimbursements are received.

According to Committee tour.records, as of December

20, 1980, $10,986.00 in billings remain outstanding. "

Since the Committee has failed to identify the ground costs

associated with the tours, the Audit staff recommends that the

Commission determine $142,990.78 be added to the Committee's

expenditures subject to the limitation of 2 U.S.C. 44la(b) (1)

(A) as adjusted by 2 U.S.C. 44la(c) (See Finding II.A.2.).

Further, within 30 days of receipt of this report the Committee'

, is to file an amended report to reflec~this adjustment.

III. Findings Related to Title 26 of the United States Code

Determination of Net Outstanding Campaign Obligations

. and Repayment to the U.S. Treasury

;".,
-30-

,The Committee was in a surplus position (minimum

surplus amount of $2,514,000 per Committee's NOCO statement) on

July 16, 1980. Therefore, the adjustment of -$20,900.83 applied

to the submission of July 14, 1980, is viewed as an overpayment

in the same manner as the S179,292.63 discussed in Item A-I above.

An adjustment of -$20,900.83 was applied to the

submission received on July 14, 1980 to arrive at the amount

paid ($179,292.63) on July 17, 1980. In other words, on July 3,

1980, the Committee received $20,900.83 in matching funds over

and above the amount to which it was entitled, based on the

matchable contributions sUbmitted.' . . .

Amount Repaid (Item A-I) $179,292.63.

Excessive Payment Made Prior to Candidate's

Date of Ineligibility'

2.

1.

On July 3, '1980, a certification for payment of,

$922,128.24 was made to the U.S. Treasury which resulted in the

Commmittee's receipt of a $922,128.24 payment from the U.S. Treasury

on this same date. The amount certified for payment was determined

by applying a holdback percentage of 5.2% to the amount requested

($973,000.16 x 94.8% = $922,404.15 less miscellaneous prior period

adjustments of $275.91 = S922,128.24). The holdback percentage

is based on the average matchable percentage' of the Committee's'

four prior sUbmissions. In this instance, the holdback percentage

when compared to the actual matchable percentage was understated

by 2.15% which resulted in an overpayment of. S20,900.83 (Le.,

actual matchable percentage 92.65 less 94.8%, percentage applied).

Payment of Matching Funds After the

Date of Ineligibility

As noted above, the candidate's date of ineligibility

was July 16, 1980. On July 17, 1980, the Committee received a

matching fund payment of $179,292.63.' The Statement of Net Outstanding Campaign Obligations ("NOCO") which the Committee submitted

on July 31, 1980, reflected a surplus position of $2,514,000.

Since the candidate did not have net outstanding campaign obligations

(debts)", and the Committee received payment after the candidate's

ineligibility date, the matching funds received ($179,292.63)

constituted an excessive payment which is repayable to the U. S.

Treasury pursuant to 26 U.S.C. Section 9038(b) (1).

On November 18, 1980, the Commission approved the

,interim audit report which recommended that $179,292.63 for the

. payment described above was repayable to the U.S. Treasury

pursuant to 26 U.S.C. 9038(b) (1). On December 22, 1980, the

Committee presented a check, a portion of which represented the

repayment of the amount noted above.

!'.
Recommendation

-31-

2. Expenditures in Excess of the Overall Limitation

Amount Repaid (Item A-2) $ 20,900.83.

The Audit staff recommends that these expenditures totaling $137,737.71 be considered non-qualified campaign expenses, and

the value be repaid in full to the u.S. Treasury within 90 days

of receipt of this report. Further, the Committee is afforded

30 days from receipt of this report to present legal or factual

materials to show that a repayment is not required (see 11

C.F.R.9038.2(b» .

As previously noted in Finding II.A.2., the

Audit staff identified expenditures which appeared to be in excess

of the overall limitation for the period 2/26/79 through 8/31/80

totaling $232,566.12 in the interim report.

B. Apparent Non-Qualified Campaign Expenses

1. Expenditures in Excess of State Limitation

As previously reported in Findings II.B.l and

2 the Audit staff identified expenditures in excess of the state

limitation for New Hampshire totaling $137,737.71.

On November 18, 1980, the Commission approved the

recommendation of the Audit staff that the Committee be requested

to show within 30 days of receipt of the interim audit repor~ that

the state expenditure limitations had not been exceeded. Further,

absent such a showing,'a determination would be made regarding an

amount required to be repaid to the u.s. Treasury.

The Audit staff reviewed the Committee response

to the interim report and made revisions to the additional amounts

allocable to the' New Hampshire state limit.

On November 18, 1980, the Commission approved the

interim audit report which recommended that $20,900.83 for the

payment described above was repayable to the u.s. Treasury

pursuant to 26 U.S.C. 9038(b) (1). On December 22, 1980, the

Committee presented a check, a portion of which represented the

repayment of the amount noted above.

.....

-:;;"':.'

_.... !

....
C.

_.

f'..

-32-

On November 18, 1980, the Commission approved the

recommendation of the Audit staff that the Committee be requested

to show within 30 days of receipt of the interim audit report that

the overall expenditure limit had not been exceeded. Further,

absent 'such a showing, a determination would be made regarding an

amount required to be repaid to the u.s. Treasury.

The Audit staff reviewed the Committee response

to the interim report and although a reclassification of certain

expenditures subject to ~he limit to the exempt legal and accounting

category was filed by the Committee, it is our opinion that the

Committee has not adequately demonstrated that it did not exceed

the overall limitation contained at 2 U.S.C. 441a(b) (1) (A).

Recommendation

Therefore, it is recommended that the value ($77,387.82)

of the expenditures in excess of the overall limitation be considered non-qualified campaign expenses, and be repaid in full

to the U. S. Treasury within 90 days of receipt of this report.

Further, the Committee is afforded 30 days from receipt of this

report to present legal or factual materials to show that a

repayment is not required (see 11 C.F.R. 9038.2(b».

Determination of Net Outstanding Campaign

Obligations-Surplus

Section 9038(b) (3) of Title 26, United States Code,

states, in part, that after all obligations have been liquidated,

that portion of any unexpended balance remaining in the candidate's

accounts which bears the same ratio to the total unexpended balance

as the total amount received from the matching payment account

bears to the total of all deposits made into the candidate's

account shall be promptly repaid to the matching payment account.

In addition, Section 9038.3(c) (1) of Title 11, Code of

Federal Regulations provides that if on the last day of candidate.

eligibility the candidate's net outstanding campaign obligations,

as defined in 11 C.F.R. 9034.5 reflect a surplus, the candidate

shall within 30 days of the ineligibility date repay to the

Secretary of the Treasury an amount which represents the amount

of matching funds contained in the candidate's surplus. The

amount shall be an amount equal to that portion of the surplus

which bears the same ratio to the total surplus that the total

amount received by the candidate from the matching payment account

bears to the total deposits made to the candidate's accounts.
.......

, ,

, '

: -.~

-33-

1. Calculations of Surplus and 26 U.S.C. 9038(b) (3)

Repayment Amount

The initial NOCO statement filed on July 31, 1980~

presented the financial position as determined by the Committee

with respect to assets, liabilities and surplus funds as of JUly • 17, 1980. In addition, total matching funds received, total

deposits as described at 11 C.F.R. 9038.3(c) (2), payback % and

an estimated payback amount were listed which were also compiled

by the Committee. During audit fieldwork conducted in August and,' . Septembe~ 1980, the Audit staff reviewed the Committee's books . and records to verify the figures on the Committee's NOCO statement.

The Audit staff prepared a revised NOCO statement. Based on audit'

work conducted as of October 10, 1980, utilizing the records

available, the Audit staff concluded that as of July 16, 1980,

the Committee's assets exceeded liabilities (obligations) by at,

least $3,063,114.67., Further, it was noted that revisions_would __ , be made to this surplus figure upon receipt of additional . ' information relating to certain assets o~the Committee.

"The Audit staff computed a figure for net deposits

as' defined at 11 C.F.R. 9038.3 (c)(2) and total matching funds ,'.'

-received. Adjustments were made to both figures in view of the

'$200,193.46 recommended recovery of, matching funds discussed at ,:'

Item III A-l and A-2.__ - "

---,: On November18~ 1980 ,-the Commission approved, the

,Audit staff's, recommendation that, absent a showing to the

contrary within 30 days of receipt of, the interim audit report,

that $1,033,353.99 was repayable to the u.S. Treasury in

accordance with 26 U.S.C. 9038(b) (3)., This amount represented . the pro rata, portion of Federal funds (based, on audit, work " performed as of October 10, 1980), contained-in the Committee's

surplus ($3,063,l14~67) on the Candidate's date of'ineligibility.

Analysis of Committee Response

On December 22, 1980, the Audit staff received the

Committee's response with respect to the calculation of surplus

and the associated amount to be repaid to the U.S. Treasury. The

Committee presented a revised NOCO statement, as of July 16, 1980~ and a check representing the amount which the Committee

determined as repayable to the U.S. Treasury. The portion of

the check relating to the surplus repayment amounted to $754,044.67.
r-.

.... !

,-.

• t

-34-

The Treasurer stated in the response that the

Committee did not agree with the "Audit Team's" NOCO statement,

but, as noted above, has chosen to repay the Treasury at this time

an amount it has determined is payable.

Subsequent to the receipt of the revised NOCO statement, the Audit staff met with the Assistant Treasurer to discuss

the various differences resulting in the lower repayment amount.

With the exception of the Accounts Receivable figure, agreement

was reached on the remainder of the components making up the

Committee's financial position as of July 16, 1980. (see Attachment

II).

As shown on Attachment II, the Committee disagrees

with the inclusion of $156,882.99 in individual and political

committee contributions dated JUly 16, 1980 or before, but received

July 17, 1980 or after. The Audit staff has included the value of

these contributions based upon our interpretation of 11 C.F.R.

Section 110.1(a) (2) which states that "with respect to any election"

means -

(i) In the case of a contribution designated in

writing for a particular election, the election so designated, except

that a contribution made after a primary, caucus or convention, and

designated for the primary election, caucus or convention shall be

made only to the extent that the contribution does not exceed net

debts outstanding from the primary election, caucus or convention.

(ii) In the case of a contribution not designated in

writing for a particular election,

(A) For a primary election, caucus or convention, if made on or before the date of the election, caucus or

convention, or

(B) For a general election if made after the

date of the primary election.

In our opinion, the contributors' checks which were

dated on or before the date of the nomination (July 16, 1980) were

contributions made for the primary election and therefore includable

as assets of the primary for purposes of calculating net outstanding

campaign obligations (see Finding II.C. for a discussion of contributions dated and received after the primary election (July 16, 1980».
-35-

.. Based on our ana1ysi. of the Committee'. book. and

records, the amount subject to repayment in accordance with

26 U.S.C. 9038(b) (3) is shown below.

total matchinq funds received

total deposIts

x surplus. 26 U.S.C. 9038(b) (3)

repayment amount

....t

$7,094 268.10 x $2,818,512.61 • $952,879.92 $20,981, 024. 22

As stated above, the Committee has repaid $754,044.67,

leaving a balance due the U.S. Treasury of $198,835.25.

Recommendation

It is the recommendation of the Audit staff that the Committee

be required to repay $198,835.25 to the U.S. Treasury within 90

days of receipt of this report pursuant to 26 U.S.C. 9038(b) (3).

Further, the committee is afforded 30 days from receipt of this

report to present legal' or factual materials to show that a repayment is not required (see 11 C.F.R. 9038.2(b» •
-36-"

This amount is subject to change.

Pi~ding. III.B.2. Expenditures In Excess of the Overall Limitation 77,387.82

Pinding III.C.l. Repayment of Surplus Punds 952,879.92

20,900.83)

754,044.67)

179,292.63)

$413,960.78

$1,368,198.91

(

Less Repayment made for

Finding III.A.2. (

Less Partial Repayment made for

Finding III.C.l. (

Total Recommended Repayment

Remaining

Less Repayment made for'

Finding III.A.l.

..• Subtotal-Recommended Repayment

Pursuant to Section 9038.2 of Title 11 of the Code of Federal

Regulations the amount in the above Repayment Summary ($413,960.78)

is repayable to the United States Treasury within 90 days of receipt

of this report. If the candidate disputes the Commission's determination that a repayment is required, he may submit in writing,

within 30 days of receipt of this report, legal or factual materials

to demonstrate that a repayment is not required.

Repayment Summary

Pinding III.A.l. Payment of Matching Punds

After the Date of Ineligibility $179,292.63

Pinding III.A.2. Excessive Payment Made Prior to

Candidate's Date of Ineligibility 20,900.83

Pinding III.B.l. Expenditures In Excess of State

Limitation 137,737.71

,.... , t.~

r,- ••
"if goods or services are provided at less

than the usual and normal charge, the amount

of the in-kind contribution is the difference

between the usual and normal charge for the

goods or services at the time of the contributions and the amount charged the political

committee."

* On August 5, 1980, the name of ~~e general election committee

was changed to Reagan For President General Election Committee

and/or Reagan Bush Committee in an amendment to the Committee's

Statement of Organization filed with the Commission.

In this instance, the GEC is precluded from

accepting a contribution from the Committee in view of the fact

that the GEC received the full entitlement from the Fund

($29,440,000) and the contribution (the usual and normal charge

for the goods, less amount paid) was not specifically solicited

for the candidate's legal and accounting compliance fund (see 11

C.F.R. 9003.2(a) (2), proposed at the time of the transaction).

Rather the equipment is being utilized for and was paid from the

GEC operating account containing federal funds.

It is the opinion of the Audit staff that the

GEC has accepted an in-kind contribution from the Committee equal

to the difference between the "usual and normal charge" for such

goods and the "present worth" purchase price paid for the goods

by the GEC. The Treasurer of the Committee stated that the

valuation method produces a reasonable approximation of the

"present worth" of the equipment.

D. Valuation of Committee Assets

1.' Assets Purchased by Reagan For President

General Election Committee*

-37-

In June, 1980, the Reagan For President General

Election Committee ("the GEC") was invoiced by the Committee for

$10,668.64 representing the "present worth" (as determined by

the Committee) of office furniture and machines purchased by the

GEC for use in the general election campaign. Payment for the

goods was made on October 3, 1980, by check drawn on a GEC account.

The Audit staff reviewed the invoice and believes

the valuation is deficient. The Commission's regulations at

11 C.F.R. 100.7(a) (1) (iii) (A) and (B) may permit a valuation

similar to that utilized by the Committee, however,

.....

I ,

,......

,.,,~ "Usual and normal charge" means the price of those goods in the

market from which they ordinarily would have been purchased at

the time of the contribution (emphasis added, see 11 C.F.R. 100.7

(a) (1) (iii) (B» •
-.

( ....

- ,I

.-

f '~

-38-

It is the Audit staff's opinion that: the Committee's

"present worth" valuation method produces an unrea:'lOnably low

valua'tion. The method "forces" a zero value on the items as of

November 1, 1980, merely four (4) months after being acquired by

the GEC and only 18 months after acquisition by the Committee.

Hence, it is evident that the "present worth" valuation (i.e. 18

month straight line depreciation) of the items differs to a

significant degree from the "usual and normal charge" as defined

at 11 C.F.R. 100.7(a) (1) (iii) (B).

On November 18, 1980, the Commission approved the

Audit staff's recommendation that within 30 days of receipt of

this report, the Committee be required to prepare a valuation

of the items based on the "usual and normal charge" for such goods.

The amount of the contribution, as determined by the Commission,

should be reimbursed to the Committee by the GEC to obviate the

acceptance of a contribution on the part of the GEC and the making

of a contribution by the Committee. Further, the Committee is to

provide the-basis and associated working papers for the Audit staff's

review.

On December 22, 1980, the Committee submitted a

revised valuation. The Audit staff reviewed the valuation and after

adjustments to correct quantities and purchase prices for certain

items listed, it is our opinion that a valuation of $50,260.92*

is reasonable.

In addition, as a result of information developed

during follow-up audit fieldwork in December, 1980, a valuation

for capital assets on hand at 7/16/80 was calculated. The value

($51,378.07) is included in the NOCO calculation at Attachment II•

Recommendation

The Audit staff recommends that within 30 days of receipt of

this report the Committee invoice the GEC $39,592.28 ($50,260.92

less $10,668.64 payment received) and obtain said payment to obviate

the acceptance of a contribution on the part of the GEC and the

making of a contribution by the Committee. Further, the Committee

should within the 30 day period submit documentation (copy of invoice)

to the Audit staff and disclose the said payment on its next regularly

scheduled report.

* The value placed on the items by the Committee amounted

to $45,254.12.
-39-

3. In-kind Contribution to the Reagan For President

General Election Compliance Fund *

Our review of the Committee's assets revealed that

a portion of the office furniture and machines used by the Committee

during the Primary campaign was transferred to the GEC Compliance

Fund for use during the general election campaign. The Committee

did not disclose the transfer on its Report of Receipts and

Expenditures nor did the GEC Compliance Fund disclose the receipt.

The Committee, pursuant to our request, was to prepare a listing

.of the equipment transferred to the GEC Compliance Fund. It was

noted that in all likelihood, the entire value of the equipment

might not be viewed as solely to insure compliance with the Act and

therefore not a permissible contribution in its entirety

(see 11 C.F.R. 9003.3(a)(2». It was requested that the Committee

obtain from the GEC a breakdown showing compliance vs. non-compliance

usage for this equipment. For example, if the GEC's accounting section were utilizing all of the equipment transferred, a breakdown of

85% compliance and 15% non-compliance might exist. If this were the

case, it would be necessary for the GEC to reimburse the Committee

for an amount equal to the pro rata portion of the value (based on

"usual and normal" charge) used for non-compliance activity. Such

reimbursement would have to be made from the GEC federal funds

operating account and charged to the expenditure limitation contained

in 2 U.S.C. 44la(b) (1) (B).

On August 5, 1980, the name of the Reagan For President General

Election Compliance Fund was changed to Reagan For President

General Election Compliance Fund and/or Reagan/Bush Compliance

Fund in an amendment to the Committee's Statement of Organization

filed with the Commission.

*

2. Committee Assets Utilized by the GEC Without

Compensation

In conjunction with our review of the Committee's

NOCO statement, several items were noted which were apparently

being used by the GEC in connection with the candidate's general

election campaign. These items included: two (2) postage machines,

12 electronic communication devices, one (1) word processor, one

(1) mail opening machine and an electric message sending device.

The purchase price of these items is at least $28,566.88 and

these items were apparently purchased during the period March,

1979 through June, 1980. These items were discussed with the

Treasurer of the Committee and she agreed to ascertain whether

or not these items were being used by the GEC and if so, to

invoice the GEC an amount for the usage/value of such items.

On November 18, 1980, the Commission approved the

recommendation of the Audit staff that the Committee place a value

on these goods and bill the GEC accordingly to preclude the accep- ~ance of a contribution by the GEC and the making of a contribution

by the Committee. The Committee placed a reasonable value on the

goods and/or agreed to the classification as capital assets as of

7/16/80. The valuation and disposition of these items are discussed at Finding III.D.l above.
.. " f",

(:..

c·,··..

-40-

The recommendation in the interim audit report , --provided that the Committee place a value on the equipment ' transfe~red equal to the "usual and normal" charge and disclose

the value as an in-kind contribution in its disclosure report.

J"urther, reimbursement would have to be requested from the GEC

for the value of the portion of equipment used for non-compliance

purposes. The reporting and reimbursement, if any, would have to

occur within 30 days of receipt of the interim report.

; . . The Committee did not address this matter in its

written response to the interim audit report. However, the Audit

staff has been able to place an estimate on the value of goods

apparently comprising the in-kind contribution to the GEC Compliance

Fund. Absent a showing to the contrary by the Committee, we feel

that a value of $4,915.86, representing calculators and filing

cabinets, is reflective of the value of the in-kind contribution. " Preliminary agreement ,has been reached with the Committee regarding' this evaluation. ,. ,

Recommendation

It is recommended that the Committee disclose the value of the

in-kind contribution on'its next regularly scheduled report and

advise the GEC Compliance Fund accordingly.

,4. General Election Campaign Expenditures

. _ a. _" Our examination of Committee expenditure

records disclosed certain disbursements relating to travel

outside the United States for which the purpose of the trips

may be considered "in connection with" the general election. The trips~'occurred bet,'1een May 30, 1980, and JUly 5, 1980,

and the cost was $5,230.29. The treasurer stated that the

trips were made to enhance foreign policy positions. However,

due to the timing of the trips the treasurer was not certain

if they related,to the primary or general election campaign,

but indicated that either position could be arguable.

b. During the course of review the Audit staff

noted eight (8) expenditures or portions thereof, totaling $26,969.01, which appeared to benefit the general election campaign.

The disbursements occurred between June 30, 1980, and September 8,

1980, for purposes relating to travel, individual moving expenses,

moving expenses related to the relocation of the committee's

National Headquarters from Los Angeles, California to Arlington,

Virginia in June, 1980, and office supplies.
.'.

,."

-..

. --

.....

-41-

It should be noted that Section 9003.4(h) (4)

(i) of Title 11, Code of Federal Regulations provides that1

a candidate who has received federal funding

under 11 CFR Part 9031, et seq., may borrow

from his or her primary election campaign an

amount not to exceed the residual balance

projected to remain in the candidate's

primary account(s) on the basis of the formula set forth at 11 CFR 9038.3(c). A major

party candidate receiving payments equal to

the expenditure limitation shall reimburse

amounts borrowed from his or her primary

campaign from payments received by the

candidate under 11 CFR Part 9005 within 15

days of such receipt.

Further, Section 9003.4(c) of Title 11, Code

of Federal Regulations states, in relevant part, that1

amounts received or borrowed by a candidate

under 11 CFR 9003.4(b) to defray expenses

permitted under 11 CFR 9003.4(a) shall be

deposited in a separate account used only

for such expenses.

Although, these payments were made directly

from the Committee's primary election accounts, it was our opinion

in the interim report that since the Candidate was in a surplus

position on his date of ineligibility, the transactions may be

viewed as loans to the Candidate's general election committee and

thereby treated in accordance with 11 C.F.R. 9003.4(b) (4) (i) cited

above.

On November 18, 1980, the Commission approved

the Audit staff's recommendation in the interim audit report that

absent a showing to the contrary (i.e., a written explanation from

the Treasurer that demonstrates to the Commission's satisfaction that

the disbursements were, in fact, "in connection with" the primary

election and not "in connection with" the general election), it would,

be necessary for the Committee to prepare an invoice to and obtain . a reimbursement from the Candidate's general election committee,

which would have precluded the applicability of 26 U.S.C. 9003(b),

for the value of the disbursements ($32,199.30) noted in a. and b.

Evidence of the transaction (a copy of both sides of the cancelled

check) was to have been provided to the Audit staff within 30 days

of receipt of the interim report.
_.,

..... "

-42-

The Committee in its response to Finding D-4(a)

stated that it was of the opinion that the expense of the European

trips are primary expenditures. It was further stated that the

trips were planned and taken prior to the date of the convention

and were therefore properly paid by Reagan for President.

In responding to Finding D-4(b),- the Committee

requested an itemization concerning the $26,969.01 in expenses

apparently made in relation to the general election. The Treasurer

also stated that upon review of the invoices the Committee will make

the appropriate transfer of moneys. An itemization of the expenditures is included at Attachment III: however, it should be noted thatthe Committee was informed of these items and provided a listing:

comprising 7 of the eight items, totalling $11,681.61 at the exit

conference conducted on October 24, 1980.

Further, two additional expenditures totalling

$417.57, were identified during our review conducted in December

1980 which appear to relate to the General election campaign. An

itemization of these expenditures is also included on Attachment 111.-

Recommendation

With respect to 4(a), it is recommended that no further action

is required. The Committee's response appears to support its positio:

that the expenses were made in relation to the Primary campaign.

With respect to 4(b), it is recommended that the Committee prepa:

an invoice to and obtain a reimbursement from the Candidate's general:

election committee, which will preclude the applicability of 26 u.s.ci

9003(b) for the value of the disbursements - $27,386.58* ($26,969.01

$417.57) noted above. Evidence of the transaction (a copy of both

sides 6f the cancelled check) is to be provided to the Audit staff

within 30 days of receipt of this report. Further, the Committee is

afforded 30 days to demonstrate that these expenditures were, in fact

related to the Primary campaign.

E. Matters Referred to the Office of General Counsel

Certain other matters noted during the audit were

referred to the Commission's Office of General Counsel on

October 10, 1980 and December 31, 1980, for further consideration.

* Included in this amount is an expenditure for $15,287.40 made _ prior to the Candidate's date of ineligibility which is included

as an accounts receivable for the purpose of calculating the - surplus repayment amsmnt at Finding IILC.l.
, r, - '" \J \i i'P .

" e J (

, " .. "lwr ' l'! ' , , 

,m , , l"~ """" ,"". ,. ""'''l' u """ "'" "" • "'" '"'' ~,.,~" '~! 'l'" .. "

AnAaIIDT I

~. CO "'"on laue 'iDdlq II. L

TGUII 4 tUu 26

1 a 3 4 5 6 7 8 9 10 11 12

.... ....c ItlW 80uDC of Cba~C.~ Coet fOUl lof ... ACTUAL PRO-lATA IIAIlIUI lIlT

--'" , I8IA ,.. ..... VIII hpecced of All GI fOUl COST TO CMTI COST fOI IMCOIII (LOSS)

aaw-- TUllSfCllTAUCli (COL. 7-6) UP STAF' IEALIZAILI

4 105 126 72 32.502.50 12.430.00 44.932.50 65.925.17 4 351 20.992.67 23.073.81 2.081.14

S .. • JJ 11.165.50 3.454.00 16.419.50 37.121.93 5 35 20.709.43 12.99S.13 (7.714.30)

6 .. • 46 22.065.00 7.140.00 2t.IOS.00 41.047.84 6 JJ 17.842.84 15.525.79 (2.317.05)

7 16 174 " H.171.00 5.611.00 32.419.00 42.964.41 7 30 10.475.41 12.889.32 2.413.91

I 51 10 36 11.721.00 3.994.00 15.722.00 46.730.21 I 33 31.001.21 15.420.99 (1S.S17.29)

• 36 10 JS 13.616.00 3.373.00 16.m.oo 22.046.10 9 24 5.047.10 5.291.23 243.43

10 11 1SJ 72 21.175.50 10.374.00 39.54'.50 54.903.17 10 26 15.353.67 14.274.12 (1.071.15).

11 17 173 109 2t.S77.51 10.129.00 40.406.51 74.34S.11 11 24 33.931.53 17.142.13 (16.095.70)

11 JO W 41 13.593.00 3.1S6.00 17.449.00 21.171.16 12 29 11.429.16 1.374.67 U.054.49)
~\ ; \

'" ;

"'J'''' "-""l"

Ich...i1eCo Supporc Tour rllld1Dl II. L

" l ' ",.. '''~''.

" " 'fOUlS 4 chru 26 <';' ;:. ' , 1 -, -' ,::' ,

: ,1 ' 2 3 4 5 6 'I' 8 9 10 U J2 f

UouDC lUI" MIoUDC of c:baI'Cer ColIC TOIII . I of I" . ACTUAL PItO-IATA MAXI",," NET

.-,'" _.16 _ UUI russ· USII lapecce., of All .1 01 'fOUl COST·TO orrE COST FOI INCOH! (LOSS)

f . ..~._C TIAIISl'UIlTATIOI:: (COL. '1-6) IFP STAFr UALIZAlU

160 310 ' 134 32.529.55 7.710.00 40.309.55 53.0:18.91 13. 24 ,12.'129.36 12.'129.34 (.02)

113 353 &11 ' ,62.01'1.5' 14.697.00 '16.'184.59 ' 60.600.14 ,14 ,;' 20; (l6.184.45) , 12.120.03 28.304.48 ,

S

• ,121 12 25.112.00 6.354.00 31.466.00. ,': 34.....21 • < 15 . 24 ' 3.422.21 8.373.1'1 4.950.96 l ,

.. 147 41 37.251.00 8.'136.00': 45.994.00 ".22'1.56 . 16 24 ,(1.766.44) '10.614.61 12.311.05 f

1M 2. 109 ' 60.231.50 1'1.699.00 77.930.50 58.284.58 1'1 21 (1'~645~92) 12.23'.76 31.885.68 ;

•I

,I" 313 1'16 62.374.50 22.666.00' 85.040.50 ,. '14~569.31 18 26 (10.471.19): 19.388.02 29.859.21 l

.

III

- 167 60.'33.50 17.830.00 78.763.50 61.991.32 ;, .. l' . 25 (16.7'12.18) ; 15.4''1.83 32.2'10.01 i

I

. 23

1,'

135 ' ns : 114 59.'U.00 14.549.00 , 74.482.00 . 58.978.60 20 (15.503.40) , 13.565.08 29.068.48 ..I

n 1" 55 28.384.50 6.537.00 :34.921.50 ,. ':18.551.18 21 24 3~629.68 '.252.28 5.622.60

i

l

'. < 22. n5.67

,

" 112 47 ' 10,495.50 3,437.00 13,932.50 22 21 8,783.17 4,770.29 ' (4.012.88)

·54 110 65 27,406.00 11.935.00 39.341.00 48.464.2'1 23 24 ' 9.123.2'1,' 11.631.42 2.508.15

, : , '

13 24 11 6,360.00 2,332.00 ' '8,692.00 10.523.82 24 ·27 1.831.82 ,2.841.43 1.009.61

41 ' f 51 31· 1'1.53'.50 ' 8.01'1.00 '. 25.556.50 35,354.45 ' 25 32 9.79'1.95 1i~313.42 " 1.515.47

24 35 12 . . ' 23,152.50' 5,292.00 ' 28,444~50 2',859.58 26 34 1,415.08 10.152.26 8,'137.18

142,990.78

, . .'

o.

} ( ,

, ~', Ai' e ' . too ~. ...


FEDERAL ElECTION COMMISSION

1.\25'" SIREB ~.w.

Wo\SHI:\CTOi';.D.C. :!04b3

AIDrrDW. REGMIDlNG '!HIS ORGANIZATION

MAY BE UX'ATED IN A CXH'I.ElED aH'LIANCE ACTI(E

FILE RELEASED BY '!HE aMlISSI<E AND MAlE PUBLIC IN

'!HE PUBLIC REOJRDS OFFICE. FOR '!HIS PARTIalLAR

ORGANIZATIOO'S aM'LE'mD CD1PL!ANCE ACl'I(E FILE

SIMPLY ASK R)R '!HE PRESS .st:I+fARY OF MlR ~~ /3(yO Iji:l #-/3L.f1

#/.11 J=:...Fi 'DIE PRESS SlHofARY WIIL PROVIDE A BRIEF HIS'lURY OF D\ oJ....)

'DIE CASE AND A SlM1ARY OF 'mE ACrICm TAKEN, IF 1N'l.

•

.., ,

..

"0

of the

June 3, 1983

0: Rea5~~S -- 5~??C=~

oeterrrlir;at.i:::-: .

FEDERAL ELECTION COMMISSION

WASHINC10N. D c. 2~6]

?lease nete that, unoer 11 C.F.?. § 9038.2(e), the

S='7 ,ie i . S0 51': e i..l C ::.e : e::: Co i C ,.; i t hi:". t ;.;e :: ':::. ( 0 ) cay s f r o:n 'tr; e d ate

c: receipt of trois ~ctice. The payrne~~ should be sent to t~e

Ce~~ission, b~t made payable to the U.S. T:easury •

..

'.

o If you have any questions concerning this matter, please

call Daniel Blessincton or Anne Weissenborn of the Commission's

Office of GeneTal Counsel at (202) 523-4060 or 523-4175,

respectively. . .

cc: Curtis Mack

. .

?ursuant to 26 C.S.C. § 9038(b), o~ May 26 1983, the

?eoeral Election Co~rr.ission made a fi~al cete:rr. nation that

?resicent Rona1c Reagan and the Reagan for ?res dent Committee

should repay an additional $87,707.90 in primary matching funds

plus interest earned on public funds to the United States

::::-.= lc,sec is a :c~~iss:o~'s fi~al

Dear Mr. Robertson:

Ronald E. Robertson, Esquire

Reacan for President Committee

Musick, Peeler and Garrett

Suite 1175, Ring Building

1200 Eighteenth Street, N.W.

Washington, o~C. 20036

,.

,

.-,
c earlier regarding particular allocation issues included in that

-,

....- .... ..

FEDERAL ELECTION COMMISSION

STATEMENT OP REASONS

REAGAN POR PRESIDENT

..

Op May 26, 1983, the Feaeral Election Commission ("the

Commission") made a final determination that the Reagan for ,.

President Committee ("the Committee") should repay $87,707.90 in

prima~y matching funds plus interest earned on pUblic funds to

the Secretary of the United States Treasury. ill 26 U.S.C.

S 9038(b). Pursuant to 11 C.F.R. § 9038.2(d), the Commission

submits to the Committee the following statement of reasons in

s~??ort of the Commission's final re~ayment determination.

A.Procedural Matter

!n a letter dated Decem~er 30, lSE2 aoc:essed to t~e Office

~& Ge~eral Cou~sel, cC~~5el for ~he :c~~:~~ee raised for the

::rs~ t:~e a legal challe~ge to the Cc~~iss:on's initial

:~?a~~e~t 6ete:~inaticn c~er a~d abc~e t~e challenges raise6

determination. This challenge, involving the percentage of .. unqualified c,mpa~9n expenditures required to be repaid pursuant

to 26 U.S.C. § 9038(b) (2), was presented to the Commission more

than one year after the deadline for receipt of the Committee1s

response to the initial repayment determination pursuant to

11 C.F.R. 59038.2(b). No reason has been given by the Committee

for the submission of this new issue more than one year out of

the time set forth at 11 C.F.R. S 9038.2(b). Accordingly, the

Commission has determined that there is no basis for any waiver

of its procedural requirements and that this untimely asserted

C. EXDenditures In Excess of State-By-State Limitations

2 U.S.C. 5 441a(b) (1) (A) also places limitations upon the

. .

"

2,608.66)

4,044.25

1,782.90

6,748.11

10,674.01)

136,691.14)

117,002.68

.'

S 14,696,979.69

,"

~otal Expenditures SUbject to the ~i~itation 2/26/79-6/30/82.

--··-en·s ~C:~" .... ,",-"::Q .',C:,-_ 3/'_-="/=0\ot c:.; --0· 6/'_a:'/~Oe

(Sl,~45.00 + S1,163.66) ~eoortec

as expenditures subject to·1i~it

(i~cluced i .. S1~,599,25e.59 a~o'e) .

Less:Disbursements erroneously disclosed as

operating (subject to the limit) but

chargeable to ey.e~pt legal and accc~nting.

amounts which a presidential candidate receiving public funds may

spend in each state during the primary campaign period. During

Add: Expenditures subject to limitation not

included above.

Based updn the Committee's reports and audit work conducted

on the Commi~tee's expenditures as of March, 1983, the Commission

finds that the Committee is now within the overall expenditure

limitation.

~Ess:E5~illiated :ece:al !~=orne Tax

Less:Disbursements erroneously disclosed as

exempt fundraising but chargeable to

exeillpt legal and accounting.

Add: Voided checks for operating expenditures

not reissued or resolved.

Add: Maximum net income realizable for

tours 14 through 126

($142,990.78-$25,988.10 associated

with ground costs).

Add: Disbursemen~s reported as exempt legal and accounting (line 25)

in error (8/1/80-12/31/80).

-3-

..." ..

-
~. Hau.~shire. Committee counsel has incica~ec the Committee's

......•

•

'. ".

?he :c~~:ss:o~ ~as ~ade the

fi"al ceter~inatic~ that the Corr.~i~tee wc=e S3~S,030.84 in

--.---,.., :"c:_ .. _ ... ~_c... I - ..... __c:c.-'-

-4-

'(1) Media-Related Consulting Fee

The Fina~:post-primary Audit Report contained the

determination...... that the Committee should allocate to New Hampshire

$2,880.97 which represents the portion of the fee paid a media

consultant/time buyer related to that consultant's media time

purchases for New Hampshire. 1/

1/ This figure does not appear as such in the Final PostPrirnaryAudit Report but is a portion of the finding in

Section B-1 that an additional $15,317.49 in fees and replacement

costs was allocable to New Hampshire.

H~I:?sr.ire expenditure limitation.

5293,562.34 as the amount which it agrees is allocable to New

Since the issuance of the above audit report, the Committee

has adjusted its own internal allocation records to re~lect

New Hampshire by $137,737.71. An initial deterrninati9n was made

by the Commission that this same amount ~as repayable to the U.S.

Treasury pursuant to 26 U.S.C. S 9038(b) (~).

willingness to allocate an additional a~mount related to one

1980, this limitation for the state of New Hampshire.totale~

$294,400. The Final Post-Prima~y Audit Repo~t containe~ the

determination that the Committee had exceeded its limitation in

~" analysis of the ~atters still at iss~e =~sarding the New

expenditures allocable to New Ha~?shi:e. 7he following is an

-.t

....

'--
. ".~ . "~",., • > _" ,....': .::_:~':'~~ __P' ,_~ ~~~~ .~ .._~,.,.,....ow, ."~"~, ~"o ,.:.:~ ~:~~~"""'~ .: .~.,~_

. " ..

, -.-" >''''"n

On October 5, 1979, the Committee signe~ a contract with

Ruth Jones, Lt~., which eontaine~ the 'follow~ng language:

Thfsc~nuni.ttee agreest~, engage your firm

effective October 1, 1979, to assist intbe

planning of all'mediaadver'tising for the . Reagan 1980 campaign, and to orde'r the .- s'chedules for 'media advertising •

... For these services, the Committee will pay Ruth" Jones, Ltd~ a fee of $3,500 per week •••

...

~~dia advertising will be billed to the

CO:':lmittee.at net (gross less 15~ agency commission) •

The contract_therefore stipulated that t~e contractor ~as being

~n;a;e6~0 con~uct overall planning o~ ~!~~a a6vertisingan6 to

~ake actual purchases of media time. :n lieu of theco~~ission

earned by media b~yers on each ra6io or ~v spot placed, Ruth

Jones, Ltd. ~as to receive a set fee of 53,500 a week for both

?lace~ent and planning services.

-- In allocating to specific states ,expenditures made to or 0-

. through this vendor, the Committee allocated net payments for . media time purchases (see subsection 2 below) bu:t ,did' not

allocate the consultant f.ees paid to Ruth Jones, Ltd. The

Committee has argued that Mrs. Jones worked as a member .of the

national staff and that part of her duties involved the purchase

of b~oadcast time. "Her fee was not relate~ in any way to ~he

~~ount .or value of the broadcast or other media ti.me s.he
'.

..

-6-

..-..

•,

'.. '.'

= 5.87'

$2,880.97

Derived Commission

Percentage

5.87% X $49,079.52 =

(total media placed in New Hampshire

per Audit staff)

$91,433.50

$1,588,952

Total Fees Paid R.J. =

Total Media Expenditures

.

" should be allocated to New Hampshire:

determining the portion of the fees paid Ruth Jones, Ltd., which

the following formula was applied by 'the Cor:-.:7,ission in

actual time spent related to mecia ex?e~ci~~:es in New Hampshire,

~rc?o:tion of expenaitures involved ~~th "ce~ia".used" in a

In the absence of time sheets or o~~e: oocu~entation showing

?ar~ic~lar state campaign ~ould be ex~m?~ :rom allocation.

11 C.F.R. § 106.2(b) requires that " (e)xpenditures for

commissions earned by media time buyers. Otherwise a sizeable

consul~ant which serve as substitutes for the usual and allocable

advertising on stations whose broadcasts are received in New

Eawpshire. Co~~ittees must allocate fees paid to a media

media • • • used in a campaign in a specific state shall be

attributed to that state." The activities undertaken by Ruth

Jones, Ltd., f?r the Committee included the placement of media

1982) •

purchased or that was purchased at her direction or under her

supervision •••• " (Letter from Committee Counsel of December 30,

r '

- .

,-

..
.

.'

-7-

The Commission reaffirms its determination that. the

Committee must allocate $2,SSO.~7 to New Hampshire with regard to

the consulting f~es paid Ruth Jones, Ltd.

(2) Television Placement Costs

The Final Post-Primary Audit Report also contained the

determination that an additional $12,436.52.11 involving media

placement costs should be allocated to New Hampshire, and the

initial determination that this same amount was repayable. These

oeterrninations involved the application of 11 C.F.R•

• § l06.2(c) (1) which requires that expenditures made ~or media

a6vertisements "distributed in more than one state" be allocated .- . "~~ proportion to t~e viewing aueience c: readership of voting

ase which can reasonably be expected to ~e infl~enced by such

expencitures."

When allocating ~he costs of television broadcasts emanating

fro~ stations in Massachusetts (exclucin; Boston), Maine and

Vermont, and received in New Ham~shire, the Committee used an ..... .. . Area of Domin'nt Influence method ("ADI") to determine the

percentage of: these television costs allocable to New Hampshire.

They used a different method, Grade B Contour, for allocating the

costs of television advertis~ng placed on Boston stations. The

result of the Committee's use of these two different methods,

rather than one consistent approach, was a lower figure for

1/ Again, this figure does not appear as such in the Final

Audit Report. It represents the remaining portion of the finding

in Section B-1.
.. o'

-8-

allocation to New Hampshire of expenditures made to Boston

stations than would have been the outcome of .an ADI approach, and

no allocations or lower allocations to New Hampshire of payments

to other New England stations than would have been the case if a

Grade B Contour approach had been used. i/

11 C.F.R. S 9033.1(a) (1) requires th~t candidates seeking to

become ~ligible to receive presidential primary matching funds

agree to assume the burden of proving that expenditures are

qualified campaign expenditures. With regard to 11 C.F.R.

§ l06.2(c)(1), this means the candidate has the burden of

demonstrating that his allocation of media costs accurately

0, •

:eflec~s ~he porticns of :he viewing a~c:EncE related to each

'receiving state, particularly when allccatio~ to a state will

o cause that candidate to exceed that state's Expenditure

limitation.

The Final ?ost-?rima:y Audit Repcrt contained the

determination that the Committee had not demonstrated that its

use of two inc~nsistent methods was reasonable. In the absence

of data permi~ting use of a Grade B contour for all of the

stations involved, the Commission applied an ADI approach to all

1/ Relying upon the ADI Book, 1979-80, published by the

Arbitron Co., and upon Grade B Contour maps furnished by Public

Records, Federal Communications Commission, the Audit Division

has determined that even though broadcasts from Springfield,

Massachusetts and Burlington, Vermont were received in New

Hampshire, none of the costs associated with these broadcasts

were allocated to that state, and that broadcasts from Portland

and Poland Spring, Maine, were allocated in an appar~ntly lower

amount via an ADI approach than a Grade B contour would have

required.
....-

-..

r- ~eans of another, the Co~mission's r~quirernents have been met.

~/ Moreover, counsel's basis for his claim of reasonableness of

regulatory interpretation is erroneous. Counsel bases this claim

upon his interpretation of the history of Section

106.2(b) (2) (i) (B) of the Commission's revised regulations which

were first published for comment on August 17, 1982, and later

prescribed on April 4, 1983. This provision, which is not

applicable to 1980 campaign activities and expenditures, reads in

(footnote continued)

the regulations to all committees, it· is the Commission's

they are "reasonable". In order to a5s~re a fair application of

ob~~gation to interpret its rules in a uniform manner, and not

merely to defe~ to any "reasonable" approach adopted-by each

committee. ~~. Regarding Section l06.2(b) (2), the Commission

adheres to the view taken in the Fi~al Post-Primary Audit, and

construes this regulation to :require consistent allocation

-9-

Co~~it~ee's implicit argument that the Commission must defer to

cor:5~ruction of the regulation is erro~eous, including the

The Commission concludes that the Committee's proposed

television stations via one method and those to non-Boston by

expenditure allocations on a market by market basis, and that

because the Committee allocated all expenditures to Boston

expenditures involving media broadcasts received in New Hampshire

and initially determined that an additional $12,436.52 should be

allocated to tha~ state.

In its responses to the Final Audit Report, the 90rnmittee

has relied upon the arguments that it was reasonable for it to

have interpreted the Co~~ission's regulations as permitting media

-.-

(j the Cc~rnittee's interpretation of the Co~mission's regulations if
., to.-.the same state in order to arri ve at the most advan.f·ageous

allocation~figure~

'~t ,_ "

·respe=t.iv~::.Grade3, cont'ours for the' stations other. than those in

,. . ~~

Therefor.e ,," in the absence- of cost allocation figures, b~~ed' o~ the

manipulate theit~.selection of method with regard to allocations

regard to media· expendi-tures" 'involvl'ng a particular.

state. Any' other interpretation,would'~permitc.ommi.tteesto-:... " __, _~_ ~'"""; :'_ _~ ,_ ry__ • _ _ T " __ , __ • ••_ , • , _~ ,.

. The, Committee has not met its burden .of" proof as to t~e

.reasonableness" of .its use of inconsistent· allocati.on· ~ethods.

·r·ele.... a:1t:·part;· in both:itsproposed an6its final forms,.

"(e)xpenoiture's for·, racio,- -celevision and sir.:ilar types ,of.'

advertisements Durchased in a Darticular mecia market that covers

.'. more than one State shall be allocated 'to each State in"

'proportion to the'-estimateoauoience." (Emphasis aoded).

r· ... ou:"lse.l·argues -~na .' •.. "-'

-~ne, unoer_lnec .,.., _a:"lguase , .'~s ."mar k e~.- by mar k e~."

~anguage ~', anc' alleges that. its presence .in the proposed

reculationindicateo.the Commission's ...illincness to consider as re~sonable a rnarketby~~arket"allocation of;ediaexpenoitures;

t hus _e;l~lmlzlng , .-' " 'th' e C ' ornrnl~- t ' ee s.a1 '~oca~lon , me~.ocs - h· ln, 19 80 '.It

should be noted," however ,that this'same language remained in the.

final language ,0£ Section 106.2 (b) (2) (1) (B) prescribed by the'

Commission and:'must be read in conjunction with Section . l06.2(b) (2) which states that " (e)xpenditures that fall within,

the categorie~·listed below [including media advertising] shall

be allocated based on, the following methods.;The method used to

,allocate a category of expenditures shall. be based: on consistent

data for each State' to which an allocation is made. ".. (Emphasis

added) •. Section l06.2(b) (2) 'was added following receipt of

reactions to the proposed. regulations, precisely to prevent a

"market by market" interpretation of Section l06.2(b) (2) (i) (B).

Contrary to counsel's assertion, suchan interpretation was not

intended in the proposedregulations,~andwhen the possibility

. for such interpretation was drawn. to the attention of the." _ Commission appropriate clarifying' language was added at Section

'106.2 (b) (2) •. Thus,the Committee cannot rely upon its own·_

\mistaken interpretation of ' the Commission's proposed regulations

.... to support a claim of reasonableness for its "market. by market"

allocation approach tomedi~ expenditures.-

'.'

.... , "

e.,:":
?riwary Audit Report contained the finoing that the Co~~ittee

r

-11-

Boston which are involved in this issue, the Commission has'

determined that the Boston teleYision costs ~nvolved here must be

allocated in acc~rdance with the Boston market figures presented

in the ADI Book and that, based on these figures, $12)405.16 be

allocated to New Hampshire. ~/

(3) Salary of Reqional Director

The Committee allocated the costs of salaries and overhead

related to its New England Regional Office by dividing them

equally among Maine, New Hampshire and Vermont. The Final ?ostshould have allocated these costs based upon the relative

activity of the New England Regional Office with regard to each

of these states (i.e., a funcs-expenceo approach) and that an

adoi~ional $7,509.19 should be allocated to New Hampshire. The

Co~mittee also did not allocate the fee ?aid the director of the

New England Regional Office, arguing instead that he was a member

of .~he Committee's national staff. On the basis again of a

funds-expendedfmethod, the Final Post-Primary Audit Report

contained the, determination that $16,233.50 of the Regional ,

"Director's fee should be allocated to New Hampshire. "

~/ Other problems identified by the Commission in the Final PostPrimary Audit Report regarding the use of a Grade B Contour were (1)

the Committee's employment of 1970 census figures, rather than the

1977 figures then available; and (2) the inclusion of Rhode Island's

population in the Grade B contour used for the broadcasts from Boston:

stations when the Rhode Island primary took place on June 3, 1980 or :

three months after these broadcasts occurred. The requirement that , the ADI allocation method be consistently used renders moot the issue~

of the use of 1970 census figures and the inclusion of Rhode Island's'

population in the Committee's Grade B allocation approach.
This interpretation, however, ignores the second element of the

,....

---.!

:--..

..

-12-

As noted above, on July 2, 1981, the Audit Division notified

all presidential candidate commi.ttees, includ.ing the Reagan for

President Commit~ee, of the Commission's determination that it

would not require allocation of expenditures for sala~ies paid to

certain national campaign staff members while temporarily in a

civen state for a limited purpose not constituting advance or .

field work, but, rather, associated with the national campaign

effort. The Committee has interpreted this language to mean that

only the salaries and other expenses of field and advance

personnel and of the candidate and his or her fa~ily are to be

allocated to individual states, and that expenditures with regard

to other categories of Committee personnel are net allocable no

ma~ter what their involvement in a particular state campaign.

exemption language which specifies t~at allocation will not be

required of those whose purpose for t~ing in a state is

association "with the national campaign effort," i.e., the

planning or ex~cution of national campaign strategy•. (Emphasis

added).

After further analysis, the Commission has determined that

the Committee should be permitted to allocate the costs of the

Regional Office on an equal basis among the three states involved

rather than on a funds-expended basis. The Commission also

requires application of the same approach to the Regional

Director's salary. By definition, his role as director of an

office covering activities in three specific states ~nvolved the

'.
-13-

Final Post-Primary Audit Report to equal $1,059.60. Again,

-

.......

:"".

campaigns in those states. No evidence has been provided by the

Committee showing that his work· while at the: New England Regional

headquarters inv~lved only, or even in part, the planning or

execution of national campaign strategy. As a result; of these

determinations, the additional amount required to be allocated to

New Hampshire with regard to the New England Regional Office is

$10,200 (1/3 of the Regional Director's salary).

(4) Consultant's Fee

The Committee allocated to New Eampshire a portion of the

travel and related expenses of a consultant who worked for at

least twenty days in that state prior to the February primary •

Not allocated, however, was a like proportion of his consultant

fee, such proportion having been deemed by the Commission in the

counsel has argued that this consultant was part of the national

staff. Given this individual's direct involvement in the New

Ha~pshire campaign, as confirmed by the length of his stay in New

Hampshire and ~y the Committee's allocation of his travel and

other expense~, and absent evidence that his work while in New

Hampshire actually involved the national campaign and not New

Hampshire, the Commission has: determined that $1,059.60 of his

total fee must be allocated to New Hampshire.

(5) Tour Related Disbursements

The Final Post-Primary Audit Report also contained the

finding that $71,169.63 in salaries, hotel costs and

transportation costs involved in two series of campaign tours
..

-- .

-,.

,..

".

.0

-14-

into New Hampshire was to be allocated to that state, and the

initial determination that repayment of a like amount was

required. In it$ first response to t~e Final Post-Primary Audit

Report, the Committee acknowledged allocation to New ~ampshire of

$681.82 in' bus and gasoline expenses. The Committee more

recently has agreed that hotel and other ~xpenses associated with

certai~ individuals are also allocable to New Hampshire.

a) The first tour covered 16 Ne~ Eampshire cities on

February 5 and 6, 1980, and originated from Danvers,

Massachusetts. Twenty-eight persons associated with the

Committee stayed at the hotel in Danvers during the period of

this tour; the expenses of eleven are now deemed allocable by the

Commission. The Committee agrees wit~ regard to all of these

individuals.

Therefore, the Commission has determined that the Committee

is required to allocate an additional· $5,245.56 to New Hampshire

with "regard to the costs associated ~ith the Danvers-based tour.

b) The s~cond series of tours in New Hampshire-originated

from a hotel ~n Andover, Massachusetts, and took place during the

period of February 10-28, 1980. Fifty-one persons associated

with the Reagan campaign stayed at this hotel during the period

of the tours; the expenses of thirty-two are deemed allocable by

the Commission. The Committee now agrees to allocate the

expenses associated with all of these individuals.
-..

0,.

. .

-15-

Therefore, the Commission has determined that the Committee

must allocate an additional $2~,177.21 to Ne~ Hampshire with

regard' to expend~tures associated with the Andover-based tour.

(6) Nashua Debate

.'

In the Final Post-Primary Audit Report, the Commission

determined that additional sums involving outstanding debts,

other vendor payments and miscellaneous expenses totaling

$40,482.83 were allocable to New Hampshire. Since the issuance

of this report, the Committee has allocated an additional

$12,516.04 (net) to New Hampshire, and the Audit Division has

calculated that $24,467.78 in other expenditures does not require

allocation based upon documentation reviewed in March, 1981.

Therefore, only $3,500 remains at issue, this figure r~presenting

the costs incurred by the Committee as a result of the candidate

debate held in Nashua, New Hampshire, on February 23, 1980.

Counsel for the Committee initi~lly argued that this $3,500

ex~~nditure represented a cost of complying ~ith the Federal

Election Campaign Act and thus was not allocable. More recently,

without with~rawing this contention, counsel has argued that the

$3,500 cost "should be allocated among all of the candidates who

appeared on the platform witQ. Mr. Reagan, and that no more than

$600 of the cost should be a New Hampshire expense, as far as the

Committee is concerned." (Letter from Committee counsel of

December 30,1982).

No evidence has been presented that the Committee ever

received reimbursements from the other five candidates for their
".

.•

-16-

.-;

$ 293,562.34

2,880.97

12,405.16

10,200.00

1,059.60

25,422.77

3,500.00

$ 349,030.84

($ 294,400.00)

$ 54,630.84

,

Amount Allocated Per Committee

Records

Media-Related Consulting Fee

Television Placement Costs

Salary of Regional Director

Consultant's Fee

Tour Related Disbursements

(Danvers and Andover)

Nashua Debate

Total Amount Allocable to New Hampshire

Less: New Hampshire Limit

AMOUNT IN EXCESS OF LIMIT

follows:

Commission has.determined are allocable to New Hampshire is as

:'

Final Repayment Determination re: Non-Qualified Campaign Ex~encitures and State-by-State Limitations

A summary of the Committee's expenditures which the

New Hampshire.

Committee with regard to the Nashua debate must be allocated to

Earnpshire, and has determined that the $3,500 expended by the

expenditures by the Committee pursuant to 11 C.F.R.

§ 104.13(a) (2). Therefore, the Commission has found no basis for

determining that only $600, rather than the full $3,500, should

be deemed an expenditure by the Committee allocable to New

other committees, such contributions would still be reportable as

alleged shares of the $3,500 in expenditures. It is.unclear why

five other candidates are cited ·as beneficiar.ies since only one,

George Bush, act~ally participated. The other four candidates

present, John Anderson, Philip Crane, Robert Dole and Howard

Baker were not permitted to join the debate. Even if the

Committee were deemed to have made contributions-in-kind to these

~:..:

.-~ .
~.'

r-·

;-'"

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.Therefore, the Commission has determined that the Committee

must repay:to the U.S •.Treasury $54,630.84 p~rsuant to 26 U.S.C.

§ 9038 .(b) (2) 1/..

'1/ Section 9038 (b) (2)" of -the Presidential Primary Matching

Payment Account hct requires the Co~"ission to seek repayment from publicly funded candidates of any amounts used for any

purpose other than to defray qualified campaign expenses.

Section 9038.2(a) (3) specifies that the amount repaid shall be .. equal to the amount improperly expenced. ill 11 C.F .R.

§ 9038.2 (a) (2) (requir ing full repayment of the amount of funds

used to defray expenses other than qualified campaign expenses) • . On December 30, 1982, the Committee asserted for the first time

that a repayment in the full amount of committee expenditures which exceed state limitations and therefore are not qualified

campaign expenses~ is inappropriate. As noted on page 1, supra,

: this issue was not raised in a timely manner, and thus need not

'be addressed by the Commission. The Commission notes, however,

'the Committee's assertion that candidates in a surplus position should be required to repay a lower percentage of their . unqualified campaign expenditures than candidates in a deficit.

?osition. In support of this position, counsel cites the

Commission's explanation and justification fOt 11 C.F.R.

§ 9038.2(a} (2) and (3) that the effect of ey.pencitures of private

funds on non-qualified campaign expenses is to increase the

amount of public funds needed for qualified campaign expenses because of the necessity of restorin~ misused private monies.

See Explanation and Justification, 4' Fed. Reg. 20336 (A?ril 4, 197.~). Counsel argues that this so-called "restoration" theory

is not applicable to a committee which ends a campaign wi th a . surplus. . .:'.' . .. . ..

·The COIlUllission finds the Committee's claim for more

favorable treatment of surplus candidates to be contrary to the

Act and the regulations. Neither the statute nor the regulations

distinguishes between surplus and deficit candidates as to the

.repayment formula to_be applied by the Commission. 11 C.F.R.

S 9038.2(b) (3) requires repayment of the full amount of nonqualified campaign expenses by all committees. Therefore, the

distinction drawn by the Committee is not supportable. In

addition, Section 9038.2 (b) (3) apparently implements the intent

of Congress as to the effect of 26 U.S.C. S 9038 (b) (2), as

'Congress did not exercise its veto power over that regulation. _See FEC v. Dem. Senatorial Camoaicn Committee, 451-:.U.S.-27, 34 .(1981) •.
~~". .,

repay to the Secretary of the Treasury an ~~ount which represents

the amount of matching funds contained in the candidate's surplus

.....'. , '. '.

:

" Commission regulations

repayment.

made into the candidate's accounts

Commission made an initial repayment determination under

Committee made a surplus repayment to the United States Treasury

of $754,044.67. In the Final Post-Primary Audit Report, the

additional surplus funds. The Committee disputed the

Commission's determination and has made no further surplus

the ma~ching payment account bears to the total of all deposits ..

11 C.F.R. § 9038.2 that the Committee repay $198,835.25 in

to the total unexpended balance as the total amount received from

,.

-18-

Ronald Reagan's date of ineli9i~ility was July 16, 1980, the

date 'of Mr. Reagan's nomination as the candidate of the . Republican Par~y for President of the United States.' 2!!

11 C.F.R. S5 9·033.5(c) and 9032.6. On December 22, 1980, the

at 11 C.F.R. S 9038.3(c)(1) provide that "[i]f on the last day of

candidate eligibility the candidate's net outstanding campaign

obligations, as defined in 11 C.F~R. 5 9034.5, reflect. a surplus,

. the candidate shall within 30 days of the ineligibility date

C. Determination of Net Outstandina Campaign Obligations - Surplus Repayment

26 u.S~C.~ 903~(b) (3) provides tha~ a c~ndidate with

surplus funds b~,required to make a repayment to the United

. States Treasury of "that portion of any unexpended balance

remaining in the· candidate's accounts' which bears the same rati-o

."" it

.-
$4,217,131.94

10,000.00

$3,629,268.03

170,000.00

386,518.97

21,344.94

.

f

Analysis of Net Outstanding Campaign Obligations

as of July 16, 1980-Reagan For President

Cash on Hand 7/16/80

Loans R~ceivable

Accounts Receivable

Accrued Interest

Receivable as of

7/16/80

Capital Assets

Total Assets

Assets

. .

-19-

Since the Commission's initial determination, the

Committee's continuing financial activity h~s haa the effect of

reducing the amount of the Committee's surplus. In addition, the

Commission decided on May 19, 1983, to exclude from ~he surplus

calculation certain contributions received by the Co~~ittee after

the candidate's ineligibility date, thereby further reducing the

surplus amount upon which repayment is based. At this point, the

Commission and Committee are in agreement on all but one item

~,

affecting the surplus repayment issue. This item is included in

the analysis of the Committee's financial position as of the

candidate's date of ineligibility, Net Outstanding Campaign

Oblisations ("NOCO"), as updated since the initial determination.

The Committee's NOCO, as determined by the Commission on May 26,

1983, is presented below.
"

"

.340963

$ 9,583.71

763,628.38

754,044.67

13,001.12.

228,784.53

30,000.00*

2,239,622.42

1~977,509.52

$1,705,723.87

-20-

Additional Repayment - Surplus (not including interest)

On the basis of this NOCO analysis, the.Commission has

t'

determined that the Reagan For President Committee must make an

addi tional re'payment of surplus funds to the United States

Treasury of $9,583.71 plus additional net interest earned on the

Federal portion of surplus funds from July 16, 1980 through the

date that the Committee makes full repayment in accordance with

this final repayment determination. Two items are discussed

below. One is the Commission's reconsideration of the position

it took in the initial repayment determination invo~ving the

Less repayment received

12/22/80

Net Outstanding Campaign Obligations-Surplus

26 U.S.C. 9038(b) (3)

repayment amount

Total Liabilities

"

Payback Percentage

Liabilities

Accounts Peyable for

Qualified Campaign

Expenses (Excluding post-ineligibility

Legal Fees)

Actual Legal Fees

7/17/80-3/31/83

Estimated Winding Down

Expenses (Legal fees)

from 4/1/83

to Termination

Federal tax liability on

interest earned

through 7/16/80.

!.... ",

,", ,
~". ,the'de,termination. One of the factors upon which the Commissfon

C~. mace its initial determination involved the treatment of 0'

I

.. : .,

'. I

.~ -"

-21-:, ,

c"", ~_ , < I

and 9032~6. '

notified the Committee of its initial repayment determination

regarding surplus and set forth the legal and factual reasons for

In the Final Post~Prim,ary A~dit,Report~ the Commission.

treatmen~ of contributions received after thecandidate'sd~tiof'

ineligibility;, ~his' itemis,no,-longerin dispute'. The other item.'

, is of more',recent origin, 'a~d dea:l!S 'with the Committee',s

contributions received by the Committee subsequent to the date of

!/ ,Winding down costs are considered qualified campaign expenses " if they are incurred before t,he date of irieligibilityor are

associated with the termination of political activity, 'such as

the costs of complying with the Act's.post-election requirements.

,See 11 C.F.R. ,S 9034.4 (c). After a candidate's date of ' ineligibility~ a publicly-funded committee and Commission staff

will attempt to agree on estimates of winding down costs for , inclusion in the candidate's NOCO.As time passes, the estimates

may be revised to reflect actual costs incurred. Assuming that' . these actual costs are qu'alified campaign expenses any disputes involving the estimates themselves tend to become more sharply

def ined as the wind-down per iod comes to an end.,' ,"

-,~. -

'estimated~winding down costs ,for legal fees from April 1,1983

•untiF theCommi ttee's' te'rmination. '!/

Contributions Received After· the Candidate's

Date of Ineligibility

~Asdiscussed pre~iousi~,R6naldReag~nreceived th~

Republica~~P~rty's Pr~~idential ~omination on,J~~y l~, 1980.

, pursuant' t'o Commissi'on regulations, this date" was, also ,his,date

of ineligibility and the end of" h,is match~ng, p.aymen~::period

rna,r, king ,tl,1e"end' of his, pr. imary campaign • See ,~l C.F .R. §§ 9033. S."

;... ,

.., ...... '
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I"

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ineligibility •. The audit report noted that the Committee had

received $156,882.75 in contributions that we~e received by the

Committee after'~uly 16, 1980 but which were dated July 16, 1980

or before. The Commission's position was that the BrnQunt of

these contributions should be included in the candidate's NOCO

for the purposes of calculating the surplus repayment to the

United. States Treasury. In disputing the Commission's initial

repayment determination, the Committee argued that the Commission

should not have included this amount in its calculation of

surplus repayment.

The Commission has reconsidered this issue, and has not

included these amounts as Committee assets in calculating the

Committee's surplus and in making its final repayment

determination.

Estimated Winding Down Expenses (Leoal Fees)

from 4/1/83 to Termination

Commission regulations 11 C.F.R. § 9034.4(a) and (b) provide

that all contributions received by an individual from the date he

:'

or she becomes a candidate and all matching payments received by

the candidate" shall be used only to defray qualified campaign

expenses, and that any expenses incurred after a candidate

reaches the date of ineligibility are qualified campaign

expenses. 11 C.F.R. S 9034.4(c), however, carves out an

exception to this general rule and provides, in part:

(c) Winding down costs shall be considered

a qualified campaign expense if such costs are:

.~ . ..•,I

~."
•.:' analysis of a cane idate' s NOCO must be adjusted from time to time

to ~eflectactual costs for expenses which were once estimated.

-23-

or her date of eligibility (deficit candidate) or the amount of

further estimates. (This of course assumes that the estimate

:'

(1) Incurred before the date of

ineligibility; or

(2) Associated with the termination

of political activity,- such a's the cost of

complying with post election requirements of the

Act and other necessary· administrative costs,

including office space rental, staff ~~laries,

etc.

turned out to be precise, which is rarely, if ever, the case.)

In the present situation, the publicly-released audit report

contained an estimated winding down figure of $82,652.18. !/

!/ Since that time, the Committee incurred actual expenses far

in excess of this early estimate. Having reviewed the payments

actually made since the First Post-Primary Audit Report, the

Audit Division concluded that they were qualified campaign

expenses, and adjusted the "Accounts Payable" figures to reflect

the additional activity. Consequently, the NOCO analysis

included in this Statement of Reasons differs substantially from

the NOCO analysis contained in the Final Post-Primary Audit

Report.

For instance, a NOCO analysis containing an accounts payable of

$10,000 and estimated winding down costs of $10,000 may, several

months later, contain an accounts payable of $20,000 with no

repayment which must be made to the United States Treasury

(surplus candidate). Since the audit process can be lengthy, the'

Typically, estimates of winding down costs are included in

the analysis of a committee's NOCO included in the pUbliclyreleased audit report, and will have an effect on the amount of

matching fund payments a candidate may receive subsequent to his

...

-
'.

-...'

..

'.

-24-

While this figure was not challenged by the Committee, the

Committee has submitted three revised estima~es to Commission

staff since Janu~ry of this year, the most recent having been

received on April 8, 1983. The first of these submissions

estimated that $410,000 in legal fees might be required before

the Committee terminated its activities•.The second estimate

reduced that amount to $285,000 and the most recent estimate

reduced the amount to $270,250. The basis for these reductions

in the Committee's estimates involved the resolution of certain

proceedings before the Commission. The Commission hereby rejects

the'Committee'~ most recent estimate of $270,250. At this time,

the Commission instead approves an estimate for future legal fees

of $30,000.

The difference between the Committee's estimate and the

Commission's is attributable to the Committee's inclusion of

approximately $240,000 in its estimate which represents the

amount the Committee may expend: if the Committee is unsatisfied . with the resu!t in this and other Commission proceedings; if it

chooses not ~o settle any outstanding issues which remain after

the proceedings are concluded; and instead contests those issues

in the courts in litigation against the Commission. 10/ At this

10/ Confidentiality provisions preclude a specific discussion of

the Committee's estimates at this time. See 2 U.S.c.

5 437g(a) (4) (B) (i) and (12). However, the Commission has decided . that any final decision on the legal fees question should be

deferred until such time as the costs have actually been

incurred. Accordingly, a full review of this issue is premature

at this time.
-25-

;' , the Act and other necessary administrative costs, including

"

point, the Commission believes that these estimates .are too

speculative and uncertain to be accepted and; used in arriving at

..

office space rental, staff salaries, ~tc." 11 C.F.R.

..

§ 9Q34.4(c) (2). While most legal fees incurred with respect to ,., ...

the Commissioi's internal proceedings appear to fall. within this

definition, ~t is less clear that all legal fees for challenging

Commission actions in the courts are within it.

Accordingly, the Commis~ion will defer consideration of the

Committee's litigation costs until such time as the Committee

actually incurs such costs. As stated previously, the Commission

has included a figure of $30,000, representing estimated legal

costs for responding to ongoing proceedings before the

§ 9034.4(b). The one exception to this rule is ~hat winding down

costs shall be considered a qualified campaign expense if they

are tlla)ssociated with the termination of political ac'tivity"

such as the cost of complying with post election requirements of

. a final surplus ~epayment determination. The inclusion of the

litigation fees in the Committee's estimated winding ~own costs

also raises questions as to whether or not these fees, if

ultimately incurred by the Committee, would, be qualified campaign

expenses, and th~s payable with federal matching funds.

Commission regulatlons provide the general rule that

expenses incurred after a candidate reaches his or her date of

_. ineligibility are not qualified campaign expenses. 11 C.F.R.
..~.,

other hand, the Committee does not incur qualified campaign

expenses of at least $30,000, the Con~ission may seek an

~. additional surplus repayment of that portion of the estimate

•..

". .. '.

-26-

Commission, in calculating the Committee's surplus amount arid in

making its final repayment deter·mination. If., subsequent to the

final repayment·.Qetermination, actual events demonstrate that the

Committee incurred in excess of $30,000 in qualified ~arnpaign

expenses, the Commission may certify to the United States

Treasury for payment to the Committee such additional matching

fund payments to which the candidate is entitled. If, on the

which was not incurred for qualified campaign expenses. In

making this final repayment determination, the Commission

expressly allows for possible adjustments to be made at a late~

date based on events which mayor may not occur •

Final Suro1us Repayment Determination

The Commission has determined that the Reagan for President

Committee and President Ronald W. Reagan must repay to the U.S • . Treasury, pursUant to 26 U.S.C. 5 903B(b) (3) and 11 C.F.R.

55 9038.2 and,'9038. 3, $9,583.71 plus net interest earned on the

federal portion of surplus funds from July 16, 1980 through the

date that the Committee makes full repayment in accordance with

this final repayment determination of the Commission. 11/

11/ The precise amount of interest repayable to the United

States Treasury is dependent, in part, on when the Committee makes'

its repayment in accordance with the Commission's final

determination. On May 26, 1983, the Commission determined that

the Committee must repay $23,493.35 in net interest earned on the

federal portion of surplus funds through March 31, 1983.