16

presumptive reattribution notice. Noting it would take an exhaustive internal review to
identify other such excessive contributions which could be resolved in this manner, CFP
does not believe it would yield significant results and given the time and cost associated
with such an effort, would not be cost effective.

In addition, CFP states that identifying and refunding all excessive contributions to either
the contributors or to the U.S. Treasury would not be prudent, since it would not reduce
CFP’s overall liability. CFP expressed concerns that there is no legal certainty the
Commission would reduce its repayment obligation in accordance with any refunds it
makes at this time. The response asserts that repaying $247,911 for refunds or
repayments would leave CFP without sufficient funds to pay outstanding debts. The
response notes additional fundraising would be difficult at this time and result in
additional expenses and obligations for CFP.

The response concludes by asking the Commission to reconsider its submission in
response to the preliminary audit report and note its success in after-the-fact reattribution
letters, demonstrating that most of the excessive contributions would have been properly
reattributed.

| Finding 4. Stale-dated Checks

Summary
The Audit staff identified stale-dated checks totaling $12,897 issued by CFP. In response
to the preliminary audit report recommendation, CFP provided evidence that there is no

longer a material amount of stale-date checks outstanding.

Legal Standard
Handling Stale-dated (Uncashed) Checks. If a committee has issued checks that the

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

Facts and Analysis
During our review of CFP’s disbursement activity, the Audit staff identified 35 stale-

dated checks totaling $12,897 dated between January 1, 2004 and June 30, 2004. The
Audit staff provided a schedule of the stale-dated checks to CFP representatives at the
exit conference. There was a discussion on how this schedule was developed. CFP had
no other comments concerning this matter.

Preliminary Audit Report Recommendation and Committee Response
The Audit staff recommended that CFP provide evidence that:
e The checks were not outstanding by providing copies of the front and back of the
negotiated checks along with bank statements; or
e The outstanding checks had been voided by providing copies of the voided check
with evidence that no obligation exists.


CFP reimbursed Cullman Ventures, LLC (Cullman) $2,828 for first-class airfare for two
people who made three trips on its aircraft. The flights occurred on separate days
between January 23 and January 26, 2004; all involved travel between Teterboro, NJ and
Manchester, NH. All of these trips were flown on planes which were certified for
commercial service by the FAA under 14 CFR part 135, and thus, not eligible for this
manner of reimbursement.

It appeared that payment for these flights should have been made at a charter rate which
reflected the usual and normal charges for services. Based on the charter rate advertised
by the company that managed the planes flown, a charter fee of $5,600 for each flight
was calculated.” Thus, for the service provided, CFP would have paid $16,800. By
failing to pay a charter rate, CFP would have received an in-kind contribution from
Cullman of $13,972 (the $16,800 owed less the $2,828 paid).

The preliminary audit report noted that if Cullman Ventures, LLC is taxed as a
corporation the entire amount represents a corporate contribution. However, if Cullman
elected to be treated for tax purposes as a partnership, both Lewis B. Cullman and/or the
partnership would have made a contribution that exceeds the limitation by at least

$13,972.°

During fieldwork, the Audit staff explained to CFP representatives the regulatory change
noted above and requested that tail numbers be provided for several flights flown after
the change. The required information had not been obtained at the time of the exit
conference and the request for this information was renewed. Subsequently, the
prohibited contribution discussed above was identified and CFP representatives were
notified and given an opportunity to respond.

Preliminary Audit Report Recommendation and Committee
Response

The Audit staff recommended that CFP provide documentation from Cullman which
showed how Cullman elected to be treated under Internal Revenue Service rules. Also, if
Cullman was treated as a partnership for tax purposes, information should be provided
showing how the contribution should have been attributed to the various partners and that
only those partners’ profits are decreased or losses are increased as a result of the
contribution. CFP was requested to produce documentation which:

e@ demonstrated a lower charter rate;
e established a different minimum flight time requirement;

7 This amount was calculated using the advertised charter rate of $2,800 per hour for the type of plane
flown from the “Spring 2004 Air Charter Guide” and applying the advertised minimum charge of two
hours per day. The air service company did not advertise this aircraft in the “Fall 2003 Air Charter
Guide.” The Audit staff compared rates charged by other companies for the same aircraft in both
publications and noted the rates were generally unchanged.

® Louis B. Cullman had already contributed the maximum amount allowable to CFP.


Part I
Background

Authority for Audit

This report is based on an audit of Clark for President, Inc. (CFP), undertaken by the
Audit Division of the Federal Election Commission (the Commission) as mandated by
Section 9038(a) of Title 26 of the United States Code. That section states “After each
matching payment period, the Commission shall conduct a thorough examination and
audit of the qualified campaign expenses of every candidate and his authorized
committees who received [matching] payments under section 9037.” Also, Section
9039(b) of the United States Code and Section 9038.1(a)(2) of the Commission’s
Regulations state that the Commission may conduct other examinations and audits from
time to time as it deems necessary.

Scope of Audit

This audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions and transfers received.

The disclosure of disbursements, debts and obligations.
The recordkeeping process and completeness of records.
The consistency between reported figures and bank records.
The accuracy of the Statement of Net Outstanding Campaign Obligations.
The campaign’s compliance with spending limitations.
Other campaign operations necessary to the review.

CP RPNAMNP WN

Inventory of Campaign Records

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


17
Absent such evidence, it was recommended that CFP make a payment of $12,897 to the
USS. Treasury.

In response to the preliminary audit report, CFP provided evidence that materially all of
the checks were either reissued and cleared, or represent instances where no outstanding
obligation exists. Therefore, no payment is required.

Finding 5. Reporting of Press Travel Offsets

Summary

CFP reported the receipt of nine payments ($400,266) representing (net) press
reimbursements collected by Air Charter Team (ACT) as offsets, but failed to disclose as
memo entries the individual press organizations or members of the press which made up
each transfer. In addition, ACT’s collection service fees should also have been disclosed
as memo entries. In response to the preliminary audit report recommendation, CFP filed
amended reports disclosing as memo entries the press reimbursements and service fees

noted above.

Legal Standard

Disclosure Requirements for Committees

A committee will disclose the identification of each person:

e who provides an offset to operating expenditures in an aggregate amount in greater
than $200 within the calendar year (or election cycle, in the case of an authorized
committee of a candidate for Federal Office) , together with the date and amount of
such receipt. 2 U.S.C. §434(b)(3)(F)

e to whom an expenditure in an aggregate amount greater than $200 within the calendar
year (or election cycle, in the case of an authorized committee of a candidate for
Federal Office) is made together with the date. amount and purpose of such
expenditure. 2 U.S.C. §434(b)(5)(A).

Identification in the case of any individual means, the name, the mailing address, and the
occupation of such individual, as wel] as the name of employer; and, in the case of any
other person, the full name and address of such person. 2 U.S.C. §431(13) and

11 CFR §100.12

Transportation Costs to be Reported

The total amount paid by an authorized committee for the cost of transportation, plus the
administrative costs incurred by the committee in providing this service and seeking
reimbursement for them. shal] be reported as expenditures in accordance with 11 CFR
104.3(b)(2)(i).. Any reimbursement received by such committee shall be reported in
accordance with 11 CFR 104.3(a)(3)(ix). 11 CFR §9034.6(e).

Facts and Analysis
CFP utilized Air Charter Team for the majority of the air charter flights during the

campaign. ACT also handled the billing and collection of air transportation costs
incurred by the traveling press. CFP received reimbursements for press travel


19

At the exit conference, CFP representatives were provided a workpaper detailing these
items. The representatives were requested to file amended Schedules A-P to correct the
disclosure of these receipts. The representative stated that CFP would comply with the
recommendation.

Preliminary Audit Report Recommendation and Committee Response
In response to the preliminary audit report recommendation, CFP filed amended reports
that materially corrected the disclosure of the receipts noted above.


14

resulting from contributions made by written instrument with a single accountholder
imprinted on the check or by credit card. There was no evidence that CFP had received a
timely signed reattribution letter or that the excessive portion had been refunded.

The Audit staff provided CFP representatives with a schedule of all the errors supporting
the $249,911 ($178,407 + $71,504) in unresolved excessive contributions. A discussion
ensued relative to the errors on the schedule and the sampling technique utilized by the
Audit staff. CFP representatives indicated they would look into these items.

Preliminary Audit Report Recommendation

The Audit Staff recommended that CFP provide documentation to demonstrate that the
contributions identified are not excessive. Such documentation should have included
copies of timely negotiated refund checks or timely signed and dated reattribution letters.
Absent such documentation, the Audit staff recommended that CFP make a payment of
$249,911 to the U. S. Treasury. It was noted that any amount remaining unresolved will
require payment in a like amount to the U. S. Treasury within 30 calendar days of service
of the final audit report.

Committee Response to Preliminary Audit Report

In its response to the preliminary audit report, CFP presented documentation and
arguments attempting to demonstrate that many of the excessive contributions identified
were joint contributions, untimely reattributed by the contributors. To support this
position, the response included letters and memos from contributors acknowledging that
they intended the contributions to be joint. As such, CFP believes that a reduction in the
payment is warranted.

The response noted that, as a result of CFP’s late entry into the campaign, a consultant,
The Synetech Group (Synetech), was retained to collect, process and record all
contributions to CFP. Synetech also was responsible for reviewing and administering
CFP’s compliance. with the federal contribution limitations; which included sending
timely reattribution letters and notices to contributors whose contributions appeared to
exceed federal limitations. CFP insists that it was not until after the campaign concluded
that it discovered Synetech had failed in many instances to send reattribution requests.
The response noted that in many instances, Synetech sent erroneous requests to
contributors seeking other information rather than a reattribution. In any event, CFP
states that it recognizes its responsibility for Synetech’s actions, but it asks that its overall
compliance record be taken into consideration when determining an appropriate
“penalty” amount. It added that CFP’s serious commitment to compliance with the law
was demonstrated by the inability of the Audit staff to determine any misuse of public
funds or acceptance of prohibited contributions.

In the narrative portion of its response, CFP addressed each of the 54 specifically
identified excessive contribution errors arising from both the sample and 100% reviews.
First, the response stated that 21 of the excessive contributions identified by the Audit
staff are not contested by CFP. Second, the response includes 29 reattribution letters and
memos in which the contributor agrees to the attribution of a portion of the contribution
to another person. All of the letters submitted in the response are dated a year or more


Part IV
Findings and Recommendations

| Finding 1. Net Outstanding Campaign Obligations |

Summary
The Audit staff's review of CFP’s financial activity through December 31, 2006, and
estimated winding down costs indicated that the candidate did not receive matching fund

payments in excess of his entitlement.

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

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

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

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


Overview of Financial Activity
(Audited Amounts)

Cash on hand @ September 16, 2003 $0
o Contributions from Individuals $ 17,342,515 7
o Contributions from Political Committees 58,450
o Matching Funds Received 7,615,360 >
o Loans Received 3,335,000
o Offsets to Operating Expenditures 1,079,520
o Other Receipts _ 91,059
Total Receipts $ 29,521,904
o_ Operating Expenditures $ 25,684,242
o Loan Payments 3,335,000
o Contribution Refunds 39,779
Total Disbursements $ 29,059,021
Cash on hand @ August 31, 2004 $ 462,883

4 Approximately 107,000 contributions ftom more than 68,000 individuals.
* CFP made 5 matching fund submissions totaling $7,649,538 and received $7,615,360 which represents 41% of the

maximum entitlement ($18,655,000).


Part II
Overview of Campaign

Campaign Organization

Important Dates Clark for President, Inc.

¢ Date of Registration October 2, 2003

e Eligibility Period z December 1, 2003 — February 11,-2004

e Audit Coverage September 16, 2003 — December 31, 2006 *
Headquarters Little Rock, AR

Bank Information

e Bank Depositories Two

e Bank Accounts Four Checking, One Investment, One

Certificate of Deposit

Treasurer

e Treasurer When Audit Was Conducted Dorian Vanessa Weaver

e Treasurer During Period Covered by William C. Oldaker (through November 13,
Audit 2003)

Dorian Vanessa Weaver (from November 14,
2003 to present)

Management Information

e Attended FEC Campaign Finance Seminar | No

e Used Commonly Available Campaign Yes
Management Software Package

e¢ Who Handled Accounting and Paid Staff and Campaign Consultants
Recordkeeping Tasks

? The period during which the candidate was eligible for matching funds began on the date of certification of his
matching fund eligibility and ended on the date the candidate announced his withdrawal from the campaign. See

11 CFR §9033.
3 Limited reviews of receipts and expenditures were performed after August 31, 2004, to determine whether the

candidate was eligible to receive additional matching funds.


15

after the receipt of the contribution and after CFP was notified of the audit. The
regulations clearly state that reattributions must be accomplished within 60 days of
receipt of the contributions.

In addition, CFP asserted that checks with a second person written on the check, either at
the top near the imprinted name or on the memo line, should be considered contributions
from multiple contributors (a joint contribution) with no need to contact the contributor.

Third, CFP contends that for the four remaining excessive contributions, the
documentation in hand, displays the contributor’s intent for these to be joint
contributions; therefore, providing additional documentation was deemed unnecessary.

CFP concludes that “11 CFR §110.1(k) is important to preventing circumvention of the
individual contribution limitations, but it should not operate as an absolute bar that
overrides and frustrates contributors’ demonstrated intent where that intent is clear.” In
this case, CFP maintains that the documentation and arguments presented in its response
demonstrated that a large number of the excessive contributions identified by the Audit
staff were intended to be joint contributions by the contributors. As such, it contends that
a reduction of the recommended payment is appropriate.

Audit Staff's Assessment of Committee Response

Consistent with the time periods contained in the Commission’s Regulations, the notice
provided in the audit notification letter, and past practice, the Audit staff has not
recognized the 29 reattribution letters generated after the regulatory time frames and
CFP’s notification of the audit.

Of the remaining four excessive contributions in dispute, the Audit staff agrees that one
excessive contribution ($2,000) was properly attributed; however, CFP’s response does
not resolve the other three excessive contributions. In two instances, the contributor
checks were annotated by hand with a second name, but only contained the signature of
the contributor whose name was imprinted on the check. The final excessive
contribution, made by credit card, was supported only by a contributor card that
contained both spouses name, but the signature of neither. The regulations are clear that
in order for any excessive portion of a contribution to be presumptively reattributed to
another account holder, the check must have each account holder’s name imprinted on it
and a notification must be sent to that contributor within 60 days. No presumptive
reattribution can occur if only one account holder’s name is imprinted on the check and

no notification is sent.

As a result, CFP’s response to the preliminary audit report resolved only one excessive
contribution from the 100% review group, reducing the amount CFP must pay to the U.S.
Treasury within 30 days of receipt of this report to $247,911.

As a result of Commission decisions in other audits, CFP was afforded an additional
opportunity to respond to this matter as it relates to contributions that were eligible for
“presumptive” reattribution pursuant to 1] CFR §110.1(k)(3)(i)(B). In its response, CFP
acknowledges that only one of the errors identified could be resolved by sending a


Finding 6. Reporting of Other Receipts

CFP did not disclose the name, address, date and amount for 55 receipts totaling $31,249
for the sale of equipment. In response to the preliminary audit report recommendation,
CFP filed amended reports to disclose these receipts correctly. (For more detail, see p.
18)

Summary of Amounts Owed to the U.S.
Treasury

e Finding 2 Excessive In-kind Contribution | $ 9,315

e Finding 3 Receipt of Contributions that Exceed 247,911
Limits

Total Due U.S. Treasury | $ 257,226



FEDERAL ELECTION COMMISSION
Washington, DC 20463

April 2, 2007

MEMORANDUM

To: Robert W. Biersack
Press Officer

From: Joseph F, Stoltz yf
Assistant Staff ctor
Audit Division
Subject: Public Issuance of the Report of the Audit Division on Clark for President,
Inc.
Attached please find a copy of the audit report which was approved by the
Commission on March 22, 2007.

The report may be released to the public on April 2, 2007.

Attachment as stated

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


Shown below are adjustments for funds received after February 11, 2004, through May
31, 2004, the date CFP received its last matching fund payment:

Net Outstanding Campaign Obligations (Deficit) as of ] ($ 3,027,779)

2/11/2004

Private Contributions and Other Receipts Received 2/12/04 240,424

through 5/30/04

Matching Funds Received 2/12/04 through 5/31/04 | 2,467,368

Remaining Net Outstanding Campaign Obligations ($ 319,987)
(Deficit) as of 5/31/04 !

As presented above, CFP has not received matching fund payments in excess of its
entitlement.

| Finding 2. Excessive In-kind Contribution

Summary

The review of campaign travel identified six flights on private aircraft that were
reimbursed at the first-class commercial airfare. The first three flights were flown in
November 2003 and the subsequent three were flown in January 2004. It appeared that,
in both instances, the plane travel should have been reimbursed on a charter basis. The
difference between what CFP paid and charter rate could have resulted in the receipt of
an in-kind contribution of $22,098. In response to the preliminary audit report
recommendation, CFP provided documentation which reduced the amount of the
excessive contribution to $9,315. To date, CFP has made no payment to the U.S.
Treasury.

Legal Standard

Contribution defined. A gift, subscription, loan (except when made in accordance with
11 CFR §§100.72 and 100.73), advance, or deposit of money or anything of value made
by any person for the purpose of influencing any election for Federal office is a
contribution. The term anything of value includes all in-kind contributions.

The usual and normal charge for a service is the commercially reasonable rate that one
would expect to pay at the time the services were rendered.

The provision of services at a charge less than the usual and normal charge results in an
in-kind contribution. The value of such a contribution would be the difference between
the usual and normal charge for the services and the amount the political committee was
billed and paid. 11 CFR §100.52 (a) and (d).

Contribution Limits. No individual or group (other than a multicandidate committee)
may contribute more than a total of $2,000, per election, to a federal candidate’s

6 Subsequent to date of ineligibility, CFP incurred and repaid a $440,000 loan. This has no effect on the
analysis and is not included in the above figures.


Facts and Analysis

The Candidate’s date of ineligibility (DOI) was February 11, 2004. The Audit staff
reviewed CFP’s financial activity through December 31, 2006, analyzed estimated
winding down costs and prepared the Statement of Net Outstanding Campaign

Obligations that appears below:

Clark for President, Inc.
Statement of Net Outstanding Campaign Obligations
As of February 11, 2004
Prepared December 31, 2006

Assets

Cash

Matching Funds Receivable
Accounts Receivable
E-Mail List

Capital Assets

Total Assets
Liabilities

Accounts Payable for Qualified Campaign Expenses at
2/11/04
Winding Down Costs:
Paid 2/12/04 — 12/31/06
Estimated Winding Down Costs (1/1/07 - 6/30/07)
Loan Payable at 2/11/04
Amounts Payable to U.S. Treasury for:
Excessive In-Kind Contribution (See Finding 2)
Unresolved Excessive Contributions (See Finding 3)

Total Liabilities

$ 660,650
759,023
641,485
30,000
2,604
$ 1,661,156

$ 928,659
34,500 963,159
2,240,000

$ 9,315
247,911 257,226

Net Outstanding Campaign Obligations (Deficit) as of February 11, 2004

fa]

(b]

{cl

$2,093,762

$5,121,541

($3,027,779)

[a] Based on past Commission experience with presidential audits (Buchanan, Quayle, Bauer), factors such
as the list size and independent appraisals of other lists were used to assess the value and sale price.
Considering the guidance provided by AO 2002-14, it appears the list was unique, having been developed
for its own use; the list’s fair market value was ascertainable; and the list was sold at the usual and normal
charge in a bona fide arm’s length transaction. In addition, the likely range of the fair market value would

not result in a repayment or a contribution.

[b] Does not include disputed invoices totaling $103,868.

[c] Estimated winding down costs include storage for a two year period.


Part III
Summaries

Findings and Recommendations

Finding 1. Net Outstanding Campaign Obligations

The Audit staff's review of CFP’s financial activity through December 31, 2006, and
estimated winding down costs indicated that the candidate did not receive matching fund
payments in excess of his entitlement. (For more detail, see p. 6)

Finding 2. Excessive In-kind Contribution

The review of campaign travel identified six flights on private aircraft that were
reimbursed at the first-class commercial airfare. The first three flights were flown in
November 2003 and the subsequent three were flown in January 2004. It appeared that,
in both instances, the plane travel should have been reimbursed on a charter basis. The
difference between what CFP paid and the charter rate could have resulted in the receipt
of an in-kind contribution of $22,098. In response to the preliminary audit report
recommendation, CFP provided documentation which reduced the amount of the
excessive contribution to $9,315. To date, CFP has made no payment to the U.S.
Treasury. (For more detail, see p. 8)

Finding 3. Receipt of Contributions that Exceed Limits
The sample review of contributions from individuals indicated that CFP failed to resolve
a material number of excessive contributions. The projected dollar value of the
unresolved excessive contributions in the population was $249,911. In response to the
preliminary audit report recommendation, CFP demonstrated only one contribution was
not excessive, and therefore, must make a payment of $247,911 to the U.S. Treasury.
(For more detail, see p. 12)

Finding 4. Stale-dated Checks

The Audit staff identified stale-dated checks totaling $12,897 issued by CFP. In response
to the preliminary audit report recommendation, CFP provided evidence that there is no
longer a material amount of stale-date checks outstanding. (For more detail see p. 16)

Finding 5. Reporting of Press Travel Offsets

CFP reported the receipt of nine payments ($400,266) of (net) press reimbursements
collected by Air Charter Team (ACT) as offsets, but failed to disclose as memo entries
the individual press organizations or members of the press which made up each transfer.
In addition, ACT’s collection service fees should also have been disclosed as memo
entries. In response to the preliminary audit report recommendation, CFP filed amended
reports disclosing as memo entries the press reimbursements and service fees noted
above. (For more detail, see p. 17)


18

expenditures totaling $484,475. A portion of this total, $84,209, was paid directly to CFP
by members of the press or their associated news organizations and disclosed properly.
The remainder of the press travel reimbursements, $400,266, were received by ACT and
transferred to CFP net of its fees ($28,129).

Although, CFP disclosed the payments received from ACT, it should have also disclosed
the individual press organizations or members of the press which made up each payment
as memo entries on Schedules A-P (Itemized Receipts). Further, CFP failed to disclose
on Schedules B-P (Itemized Disbursements), memo entries totaling $28,129 representing
ACT’s fees.

For each amount received from ACT, the Audit staff identified the amount received from
each member of the press and/or press organization. This information along with the
amount of the fee retained by ACT was provided to CFP at the exit conference. CFP
representatives agreed to file the necessary amended reports.

Preliminary Audit Report Recommendation and Committee Response

In response to the preliminary audit report recommendation, CFP filed amended reports
that disclose substantially all of the transactions noted above.

| Finding 6. Reporting of Other Receipts

Summary
CFP did not disclose correctly the name. address, date and amount for 55 receipts totaling

$31,249 for the sale of equipment. In response to the preliminary audit report
recommendation, CFP filed amended reports to disclose these receipts correctly.

Legal Standard

Disclosure Requirements for Committees

A committee will disclose the identification of each person who provides any dividend,
interest or other receipt in an aggregate amount in excess of $200 within the calendar
year (or election cycle, in the case of an authorized committee of a candidate for Federal
Office) together with the date and amount of such receipt. 2 U.S.C. §434(b)(3)(G).

Identification in the case of any individual means, the name, the mailing address, and the
occupation of such individual. as well as the name of employer; and, in the case of any
other person, the full name and address of such person. 2 U.S.C. §431(13) and

11 CFR §100.12.

Facts and Analysis

The Audit staff reviewed all receipts from the sale of equipment and noted that for the
sale of 55 items, totaling $31.249, the name, address, date and amount were not disclosed
on Schedule A-P (Itemized Receipts). CFP disclosed these receipts in a number of lump-
sum amounts which were described as from ‘“‘various persons.”


Table of Contents

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

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

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

Part IV. Findings and Recommendations
Finding 1. Net Outstanding Campaign Obligations
Finding 2. Excessive In-kind Contribution
Finding 3. Receipt of Contributions that Exceed Limits
Finding 4. Stale-dated Checks
Finding 5. Reporting of Press Travel Offsets
Finding 6. Reporting of Other Receipts

Page

12
16

18


11

e proved that the planes were not certified for commercial service by
the FAA at the time the flight occurred under 14 CFR parts 121, 129
or 135; and

Absent such a demonstration, the Audit staff recommended that CFP make a payment of
$13,972 to the United States Treasury.

In its response to the preliminary audit report, CFP contested neither “...that three flights
flown between January 23 and January 26, 2004, by Committee personnel on a private
aircraft provided by Cullman were not reimbursed correctly” nor that “...the difference
between what the Committee paid for these flights and the charter rate is $13,972.”
CFP’s response also stated that it had been unable to obtain information indicating
whether Cullman elected corporate or partnership tax treatment.

However, CFP’s response notes the proximity of the dates of the travel and the effective
date of the regulation and the change in focus of the regulation from ownership of the
aircraft to the licensing of the aircraft. It also notes the proximity to the New Hampshire
primary which occupied CFP’s attention and contributed to the misapplication of the new
regulation. CFP argues that in light of the above, some reduction is appropriate in the
amount of the payment for the misapplication of the Commission’s travel reimbursement
requirements.

In a supplement to its original response, CFP demonstrated that Cullman “was a single-
member Limited Liability Company that had not elected corporate tax status.”

Audit Staff Analysis of Committee Response

CFP failed to note that the revisions to the travel regulation had been in process for some
time before its final publication and that the proposal had been published several times
beginning prior to CFP’s formation. Perhaps most significantly, since Cullman has not
elected corporate tax status, the first class reimbursement rate was not appropriate under
the regulation in effect prior to or after January 14, 2004. CFP’s response does not justify
any reduction to the amount of the excessive contributions.

Additionally, since Cullman had not elected corporate tax status, the Audit staff re-
evaluated three flights in November 2003, for which CFP paid $8,674, the first class rate.
It appeared that those flights’ should also have been paid on a charter basis. Using the
same rates detailed above, the Audit staff determined that CFP should have paid $16,800.
By failing to pay the charter rate, it appeared that CFP received an in-kind contribution
from Cullman of $8,126 (the $16,800 owed less the $8,674 paid).

Mr. Cullman had made the maximum contribution of $2,000 to CFP. Therefore, based
on the Audit staffs re-evaluation and Cullman’s status as a single-member Limited
Liability Company, CFP appeared to have received an excessive in-kind contribution of
$22,098 ($13,972 + $8,126).

° The planes flown in November were also certified for commercial service by the FAA under 14 CFR part
135


13

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

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

Notwithstanding the above, any excessive contribution that was made on a written
instrument that is imprinted with the names of more than one individual may be attributed
among the individuals listed unless instructed otherwise by the contributor(s). The
committee must inform each contributor:

1. How the contribution was attributed; and

2. The contributor may instead request a refund of the excessive amount. 11 CFR

§110.1(k)(3)Gi)(B).

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

Facts and Analysis
The Audit staff's review of contributions from individuals indicated that CFP received a

significant number of excessive contributions. The projected dollar value of the
unresolved excessive contributions in the sample population was $178,407. Sample
errors included contributions made by credit card that were attributed to more than one
individual. The documentation provided in support of these contributions were credit
card authorizations from one individual in amounts exceeding the $2,000 limit. The
excessive portion was reattributed to another individual without obtaining the signature
of the second individual acknowledging both the contribution and joint liability for the
credit card used to make the contribution.

Further, a 100% review of selected contributions from individuals not included in the
sample population identified additional excessive contributions, totaling $71,504,


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

September 16, 2003 - August 31, 2004



Report of the Audit Division on

Clark for President, Inc.
September 16, 2003 - August 31, 2004

Why the Audit

Was Done

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

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

' 26 U.S.C. §9038(a).

About the Committee (p. 2)

Clark for President, Inc. is the principal campaign committee of
General Wesley K. Clark, a candidate for the Democratic Party’s
nomination for the office of President of the United States. The
Committee is headquartered in Little Rock, AR. For more
information, see chart on the Campaign Organization, p. 2.

Financial Activity (p. 3)
« Receipts

o Contributions from Individuals $ 17,342,515
o Contributions from Political 58,450
Committees
o Matching Funds Received 7,615,360
o Loans Received 3,335,000
o Offsets to Operating Expenditures 1,079,520
o Other Receipts 91,059
o Total Receipts $ 29,521,904
« Disbursements
o Operating Expenditures $ 25,684,242
o Loan Repayments 3,335,000
o Contribution Refunds 39,779
o Total Disbursements $ 29,059,021

Findings and Recommendations (p. 4)
Net Outstanding Campaign Obligations (Finding 1)
Excessive In-kind Contribution (Finding 2)

Receipt of Contributions that Exceed Limits (Finding 3)
Stale-dated Checks (Finding 4)

Reporting of Press Travel Offsets (Finding 5)
Reporting of Other Receipts (Finding 6)


campaign (the campaign includes the candidate and his or her agents and authorized
committees). 2 U.S.C. §441a (a)(1)(A).

Contributions by a Limited Liability Company: An LLC not electing treatment as
corporation under federal tax law or not having publicly-traded shares may make
contributions to influence federal elections. Such a contribution will be considered as
having been made from a partnership and governed by the rules pertaining to partnerships
and subject to a single election limit per candidate of $2,000. The contribution is
considered a contribution from a single individual if the LLC is a singleemember LLC
that has not chosen to be treated as a corporation under IRS rules. 11 CFR §§110.1(b)(1)
and (g)(2) and (4).

Travel by Airplane — Prior to January 14, 2004. A candidate or person traveling on
behalf of the candidate who uses an airplane owned or leased by a corporation not
licensed to provide commercial service must reimburse the corporation in advance the
first class air fare for travel between cities with regular commercial service or the usual
charter rate where no regular commercial service exists. 11 CFR §114.9(e).

Travel by Airplane — On or After January 14, 2004. Campaign travelers who use an
airplane that is licensed by the Federal Aviation Administration to operate for hire under
11 CFR part 121, 129 or 135 are governed by the definition of a contribution at 11 CFR

§100.52(a) and (d). 11 CFR §100.93(a)(2).

Due to the change of this regulation during the election cycle, the Commission has
decided to allow presidential primary committees to comply with whichever regulation
was most beneficial in the period prior to January 14, 2004.

Facts and Analysis
As noted above, effective January 14, 2004, the Commission revised its air travel
regulations. Prior to the rule change, air travel was governed by:
¢ 11 CFR §114.9 — for travel on airplanes owned or leased by a corporation or labor
organization and not licensed to offer commercial services between locations
served by regularly scheduled commercial service, the service providers would be
paid first class airfare.
¢ 11 CFR §100.52 — for travel on airplanes not owned or leased by a corporation or
labor organization, the service providers would be paid the usual and normal
charge (the charter rate).

After the rule change, the revised regulations dictate that the reimbursement amount is
based on how the aircraft is licensed to operate, not on the ownership status:
¢ 11 CFR §100.93 — for travel on airplanes not licensed by the Federal Aviation
Administration (FAA) to operate for compensation or hire under 14 CFR Part
121, 129 or 135, the service providers would be paid first class airfare.
e 11 CFR §100.52 — for travel on airplanes licensed by the FAA to offer
commercial service, the service providers would be paid the usual and normal
charge (the charter rate).


12

As a result of Commission decisions in other audits, CFP was afforded an additional
opportunity to obtain from the charter provider information concerning the certification
under which the flights at issue were flown, inaddition to how the planes were licensced.
Flights operated under a non commercial certificate (Part 91) would be excluded from
charter rate requirement. A senior Vice President of the aircraft provider submitted a
letter stating that the first four of the six flights in question were flown under Part 91 and
the remaining two were flown under a commercial certification. The Audit staff
calculated the amount of the excessive contribution, based on the two flights operated
under commercial certification, to be $9,315. That amount is due to the U.S. Treasury.

| Finding 3. Receipt of Contributions that Exceed Limits

|

Summary

The sample review of contributions from individuals indicated that CFP failed to resolve
a material number of excessive contributions. The projected dollar value of the
unresolved excessive contributions in the population was $249,911. In response to the
preliminary audit report recommendation, CFP demonstrated only one contribution was
not excessive, and therefore, must make a payment of $247,911 to the U.S. Treasury.

Legal Standard

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

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

e Return the questionable check to the donor; or

e Deposit the check and:

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

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

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

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

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

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