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FEDERAL ELECTION COMMfsSION

\\'ASHINCTON. D.C. 20463

February 11, 1985

MEMORANDUM

'1'0:

PROM:

SUBJECT:

FRED EILAND

PRESS OFFICER

ROBERT J. COSTA

ASSISTANT STAFF DI~~~ AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT -

FRIENDS OF GEORGE MCGOVERN

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Attached please find a copy of the final audit report of

Friends of George McGovern which was approved by the Commission

on February 6, 1985.

Informational copies of the report have been received by

all parties involved and the report may be released to the

public •

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Attachment as stated

cc: I FEC Library . RAD

Office of General Counsel

/Public Record
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FEDERAL ELECTION CO,"1MISSIO~

\\·."'SH1~CTO'. 0 C ~(\';63

FINAL REPORT OF THE AUDIT DIVIS!ON

ON · FRIENDS OF GEORGE MCGOVERN

I. Background

A. Overview

This report is based on an audit of Friends of George

McGovern ("the Committee") to determine whether there has been

compliance with the provisions of the Federal Election Campaign

Act of 1971, as amended ("the Act"). The audit was conducted

pursuant to 26 U.S.C. S 9038(a) which states that "after each

matcning 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."

In addition, 26 U.S.C. § 9039(b) and 11 C.F.R• S 9038.:1 (al (2) state, in relevant part, that the Commission may

conduct other examinations and audits from time to time as it

deems necessary.

The Committee registered with the Federal Election

Commission as the McGovern for President Committee on September

26, 1983. It changed its name to Friends of George McGovern on

April 7, 1984. The Committee maintains its headquarters in

l-lash i ng ton, D.C•

The audit covered the period from the Committee's

inception, September 13, 1983, through June, 30, 1984, the last

day covered by the most recent report filed with the Commission

at the time of the audit. (In addition, certain financial

activity was reviewed through July 26, 1984;) The Committee

reported an opening cash balance of $-0-, total receipts of . $1;543,744.75, total disbursement~ of $1,241,482.41 and a closing

cash balance of ($526.35)on June 30, 1984.1/ However, it is

anticipated that the Committee will continue to receive

contributions and make disbursements. In addition, revised

statements· of Net Outstanding Campaign Obligations will be

submitted with each matching fund submission as required by 11

C.F.R. § 9034.S(d). Under 11 C.F.R. S 9038.1(c) (4) additional

audit work may be conducted and addenda to this report issued as

necessary.

1/ The totals do not foot due to various reporting errors noted

in Finding II.A.i.
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This report is based upon documents and working papeIs which sucnort each of the factual statements. They form part of

the record upon which the Commission based its decisions on the

matters in the "report and were available to. Commissioners and

appropriate staff for review. :

B. Key pe~sonnel

The Treasurers of the Committee during the period

audited were: •

Ms. Helene Mae Bordenick

Ms. Paula M. Kowa1czuk

Ms. Mary T. Curtin

9/13/83 - 6/14/84

6/14/84 1/14/85

1/14/85 - present

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c. Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactionsJ

review of required supporting documentation; analysis of

Committee debts and obligations; review cf contribution and

expenditure limitations; and such other audit procedures as

deemed necessary under the circumstances.

II. Findings and Recommendations Related to Title 2

of the United States Code

A. Misstatement of Financial Activity

1. Unreported Receipts and Disbursements

Under 2 U.S.C. 55 434(b)(1), (2) and (4) a

committee is required to report the amount of cash on hand at the

beginning of each reporting period, and the total sum of all

receipts and disbursements for the reporting period and calendar

year.

The Audit staff's reconciliation of the activity

in the Committee'"s bank accounts to the disclosure reports filed

for the period audited revealed the misstatements shown below.

a. Receipts

The Committee's reported receipts were

understated by a net amount of $45,195.08. A major portion of

the difference was the result of the Committee not reporting the

receipt of a $40,000.00 loan received in March, 1984. In

addition, the Audit staff id~ntified $17,135.53 in itemized

receiots on Schedules A-P which were not carried forward to the

summary pages of the Committee's reports. The difference

($11,940.45) could not be explained.
Recommendation

B. Itemization of Receipts

The Audit staff recommends that no further action be taken

on this matter.

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b. Disbursements

The Committee's reported disbursements were

understated by a net total of $380,939.52. This amount includes

$215,931.27 i~ disbursements made from the Co~&ittee's- . headquarters' accounts and $50,822.53 from the Committee's state

accounts. The remainder of the understated amount resulted from

(1) Committee errors on the summary pages of the disclosure

reports2/, (2) disbursement figures reported incorrectly, (3)

disbursements reported twice, and (4) transfers between Committee

accounts reported as disbursements.

c. Ending Cash

The reporting errors noted above resulted in

a net difference of $21,107.69 in the Committee's reported ending

cash. It should be noted that the Committee made several

attempts to correct its reported cash position during the period

audited, thus the net difference in ending cash is significantly

less than the differences noted for receipts or disbursements.

On November 19, 1984, the Committee filed a

comprehensive amendment reflecting corrected totals for cash on

hand, receipts and disbursements and itemizing the unreported $40,000 loan.

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Section 434(b) (3) (A) of Title 2, United States Code

requires a political committee to report the identification of

each person who makes a contribution to the committee aggregating

in excess of $200.00 per calendar year together with the date and

amount of such contribution. Further, 2 U.S.C. § 431(13) defines

identification to mean in the case of an inaividual, the name,

mailing address, occupation, and the name of his or her empl~yer~

Section 434(b) (3) (B) of "Title 2, United States Code

states that each report under this section shall disclose the

identification of each political committee which makes a

contribution to the reporting committee, together with the date

and amount of any such contribution.

1:./ The Committee itemized $134,191.31 in disbursements on

Schedules B-P which were not carried forward to the summary

pages of the reports.
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The Committee's contribution records were reviewed to

determine whether all contributions aggregating in excess of

$200.00 per calendar year were itemized as required on the

Committee's disclosure reDorts. It was noted that contributions

totaling $19,501.50 were not itemized as required. This amount

represents 9.5% of the total amount of contributions requiring itemization. In addition, contributions of $10,030.00 which were

itemized on the reports d~d not contain adequate contributor

information. ~:

Also noted during th~ review of the Committee's

receipts were contributions from three political committees

totaling $750.00 which were not properly itemized.

The Audit staff presented Committee officials with

schedules of the unitemized contributions and the contributions

lacking adequate disclosure information. The Committee officials

provided no explanation for the omissions noted on the disclosure

reports.

In the comprehensive amendment filed on November 19,

1984 the Committee itemized the previously unitemized

contributions and included the required additional contributor

information•

Recomendation

The Audit staff recommenas that no further action be taken

on this matter.

C. Other Matter

A matter noted in the audit has been referred to the

Commission's Office of General Counsel.

III. Findings and Recommendations Related to Title 26 of the

United States Code

A. Apparen~ Non-Oualified Campaign Expenses

Section 9038(b) (2) (A) of Title 26, United States Code

states that if the Commi,ssion determines that any amount of.any

payment made to a candidate from the matching payment accounc was

used for any purpose other than to defray the qualified campaign

expenses with respect to which such payment was made, it ~hall

notify such candidate of the amount so used, and the candldate

shall pay to the Secretary an amount equal to such amount.
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The Co~~ission, in a Notice of Proposed Rulemaking published in the Federal Register on June 28, 1984, set forth a pro-r~ta formula which would base repa:~ents for non-qualified campalgn expenses on the proportion of federal funds to total

funds received by the candidate. Further, the final version and

the Explanation and Justification was published in the Federal

Register on August 22, 1984 and transmitted to Congress.

The formula and the appropriate calculation with

respect to the Committee's receipt activity is as follows:

Total Matching Funds Certified Through Date of Ineligibility (3/15/84)37

Numerator + Private Contributions Received Through 3/15/84

$ 209,337.38 =.270987

($209,337.J8 + $563,161.69)

Thus, the repayment ratio for non-qualified campaign

expenses is 27.0987\.

1. Convention-Related Disbursements

Section 9032(9) of Title 26, United States Code define~ a qualified campaign expense as a purchase, payment, distribution, loan, advance, deposit or gift of money or anything of value incurred by a candidate, or by his authorized committee,

in c~.lnection with his cam~aign for nomination for ele~tion and

neither the incurring nor payment of which constitutes a

violation of any law of the United States or of the State in

which the expense is incurred or paid (emphasis added).

On March 1S, 1984, Senator George S. McGovern's

candidacy terminated for the purpose of incurring qualified campaign expenses. In a March 15, 1984 letter to the Commission,

the Senator stated that although he was no longer actively pursuing the nomination for president, he would be continuing as

an inactive candidate and that his presidential committee would

be maintained. In a June 4, 1984 letter to. the Commission, the

Committee's Deputy Director stated that the 'Senator planned to

participate in the National Democratic Nominating Convention .and·

this required substantial preparatory work fro~ the staff. In add~tion, during the audit fieldwork, the Audit staff observed

that convention-related activity was taking place. The Committee

Treasurer'was informed by the Audit staff that certain expenses incurred after the Candidate's date of ineligibility would have

to be allocated between campaign-related activity and conventionrelated activity. The Treasurer provided the Audit staff with

percentages for allocating each Committee staff person's salary,

1/ On March 23, 1984, the Commlssion determined that the date

of ineligibility under 11 C.F.R. 5 9033.5(2) for Senator

Georqe McGovern is March 1S, 1984.
$4,098.71

2. Undocumented Disbursements

Repayment Amount:

Section 9033.11(a) of Title 11, Code of Federal

Regulations states that each candidate shall have the burden 'of

proving that disbursements made by the candidate or his or her

authorized committee(s) or persons authorized to make

expenditures on behalf of the candidate or committee(s) are

qualified campaign expenses as defined in 11 C.F.R. S 9032.9.

In addition, the Commission's Regulations under 11

C.F.R. § 9033.l1(b) contain the documentation requirements regarding qualified campaign expenses.

A review of the Committee's disbursements made

through July 26, 1984 disclosed that no documentation or

inadequate documentation was maintained for disbursements

totaling $26,455.85 from the Committee's national accounts and

$3,655.98 from the Committee's state ~ccounts. Many of the

undocumented disbursements from the national accounts were - identified as being made to individuals for reimbursement ofexpenses o~ involved checks made payable to "cash". Also, the

Candidate used his personal credit card to incur campaign related

expenses. The Committee made payments for the cregit card

expenditures but was unable to demonstrate the connection between

the payments and the campaign. Committee officials stated that

they would attem?t to get the required documentation for the

disbursements.

Committee overhead and other expenses between the two(2)

activities. Based on the Audit staff's observation of the

l 'i Committee operations and staff functions, the percentages were ~I found to be reasonable.

Certain disbursements made by t~e Committee

between June 1; 1984 and July 26, 1984 were. allocated between

campaign-related and convention-related activity. The

application of the allocation percentages developed resulted in

the identification of $5,300.00 in salary payments, and $2,175.72

in overhead experis,s related to the convention. Further, our

review identified $7,649.39 in expenses, the purpose of which was

solely for convention-related .ctivities.

Conclusion

On January 29, 1985, the Commission made an initial

determination that the amount ($15,125.11) of convention-related

disbursements are non-qualified campaign expenses and the prorata portion $4,098.71 ($15,125.11 x .270987) be repaid to the

u.s. Treasury within 90 calendar days of receipt of this report in accordance with 11 C.F.R. S 9038.2(d). f.t\

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The Committee was presented wit~ schedules of the

undocumented disbursements at the exit conference.

On November 19, 1984, the Committee submitted

documentation for $2,594.15 of the previously undocumented

disbursements. Disbursements totaling $27,517.68 ($24,227.71

from the national accounts and $3,289.97 from the state accounts) remain undocumented.

Conclusion

On January 29, 1985, the Commission made an initial

determination that the amount ($27,517.68) of undocumented

disbursements are non-qualified campaign expense~ and the prorata portion, $7,456.93 ($27,517.68 x .270987), be repaid to the

u.S. ,Treasury within 90 calendar days of receipt of this report in accordance with 11 C.F.R. S 9038.2(d).

Repayment Amount: $7,456.93

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3. Payment of Personal ComDensation

to the Candidate

Under 11 C.F.R. S 9032.9(a) (2) -qualified campaign expense" means a purchase, payment, distribution, loan, advance,

deposit, or gift of money or anything of value made in connection

with a candidate's campaign for nomination.

The Committee paid the Candidate a $50,000 salary in three installments: 1) $35,000 on March 9 1 1984, 2) $10,000 on

May 30, 1984 and 3) $5,000 on June 8, 1984. !I A Committee

internal memo reviewed by the Audit staff indicates that the

salary was intended to make up for missed income (income the

Senator would have earned from speaking engagements had he not

been a Candidate).

iI, The May 30, 1984 and June 8, 1984, payments were made after

the Candidate's date of inelIgibility.
In the interim audit report, the Audit staff

recommended that the ,Committee provide any written arrangement or cOw~itment with respect to the $50,000 which shows a connection

between the disbursements and the campaign effort.

'On November 19, 1984, the Committee submitted.

letter containing their justification that the salary payments

are qualified campaign expenses. However, the Commission

determined that under these circumstances, salary payments to a

publicly financed ~andidate are not qualified campaign expenses.

Conclusion :

On January 29, 1985, the Commission made an initial

determination that the amount ($50,000) of salary payments to the

Candidate are non-qualified campaign expenses and the pro-rata portion $13,549.35 ($50,000 x .270987) be repaid to the U.S.

Treasury within 90 calendar days of receipt of this report in

accordance with 11 C.F.R. § 9038.2(d).

Repayment Amount: $13,549.35

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4. Impact of Non-Oualified Campaign Expenses

on Candidate's Entitlement

Section 9034.5(a) of Title 11, Code of Federal

Regulations requires that the candidate submit a Statement of Net

Outstanding Campaign Obligations ("NOCO") which contains, among

other items, the total of all outstanding obligations for

qualified campaign expenses and an estimate of necessary, winding down costs within 15 days of the candidate's date of

ineligibility.

Further, 11 C.F.R. S 9034.S(d) requires that a

candidate submit a revised Statement of Net Outstanding Campaign

Obligations with each submission for matching funds payments filed after the candidate's date of ineligibility, reflecting the

financial status of the campaign as of the close of business on

the last business day preceding the date of submission for

matching funds.

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The NaCO statement is the basis for determining

further matching fund entitlement. In the case of Senator

McGovern's candidacy, March 15, 1984 is the date of

ineligibility. Consequently, he may only receive matching

payments to the extent that he has net outstanding campaign

obligations as defined in 11 C.F.R. § 9034.5.

As noted in items III.A.l. 2. and 3., the Audit

staff identified non-qualified campaign expenses a number of

which were incurred and/or paid sUbsequent to the candidate's

date of ineligibility. In order to insure that only the amount

of post-ineligibility qualified campaign expenses is used to

calculate the candidate's remaining entitlement to matching funds, the Audit staff proposes several adjustments to the NOCO

statement prepared by the candidate. These adjuqtments are shown

on the NOCO analysis on page 10 and fall into two areas,

dependent upon whether the non-qualified campaign expense was paid~or remained owing on the statement date.

B. Determination of Net Outstanding Camoaign Obligations

At the inception of the audit fieldwork, the Committee

had filed five (5) NOCO statements covering the period March 15,

1984 through June 15, 1984. To facilitate the verification of

the Committee's net outstanding campaign obligations, the NOCO

statement as of June lS, 1984 was audited. The Audit staff made

necessary adjustments to this statement to properly reflect the

candidate's cash position at June 15, 1984, and to correct

misstatements of accounts payable and the Committee's estimate of

winding down costs. In addition, documentation which was

submitted by the Committee in response to the interim audit

report has been incorporated into the NOCO statement. This NOCO

statement as amended ~/, and the results of our verification of

the items contained thereon, appear below.

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5/' The Committee amended its original 6/15/84 NOCO on June 27,

1984.
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hi.... of ~el. lIaCIanen

.tat_nt of ..t oat.tenc1lng -=-11" Obllg.tlon.

a. of .tun. 15. 1".

AlSRS

C••b In 8ank

Account• ••eel••l.

80n-Qu.llfl.c1 C.-palgn _.,.n•••

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Ron-eapalgn

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In.ufflcl.ntly

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10.314.00

IIOCO

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(, 5,••••0.).11

55,172.11

1,607.3Q!

.,780.05.12/

$ 52,252.00

$ 28,160.00 500.00

2,14'.00

"0.00

200.00

2,100.00 It,456.00

3,000,00

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Account•••y.b1e '106,743.1' for au.1lfled

Cap.lgn

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••tl_t.c1 linalng

Down Co.tdl

S.l.rl•• Stor.g.

Rent

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I'urnltue. "nt.l

"'elepbone

l'undr.l.lng!/

Leg.l 1'•••

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co.t.

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Ret Out.tanc11nl

Cap.lgn Obllg.tlon. (Deficit)

15,ggg,gP)/

• ",52',76 $ 78.660,49

".,740.'0s!

$21,776.50 250.00

1,1'6.81 810.00

150.00

'75.00

20,14'.05

3,000,gg

'4.,3.7.36

($158,"5,") ($147,128,26)

($ P!,4",13) ($ 6.,4'7.77)

N C••b In bank ft. ac1ju.tec1 to .ccur.t.ly r.fl.ct tbe C.nald~t." ca.b

po.ltlon at .lun. 15, 1'84.

~I. .c1ju.~nt I. nece•••ry .0 •• not to allow non~.llfl.a c.~.lgn

....n••• to Incr•••••ntltl...nt.

gJ ft. .ccount. payable bal.nc. va. .c1ju.tec1 to ••cluc1. tb. v.lu. of nonqu.llfled c.-palgn ••pen••• Included In tb. Ca..ltte. figure. In

.adltlon, cert.ln ••,.n••• wer. Incorrectly Inclua.c1 by the Ca-mltt•• •• a payabl.. .

1/ ft. ea-Itt....tlaatetJ wlnc1lng down co.t. througb Augu.t 30, 1'.4,

bowvee, tb. eo.ltt.. offlc•• clo.ec1 on .tuly 31, 1'.4 .na • portion of tbe ea-Itt•• Glee.tlon. c••••c1 Oft tb.t dat••

II ~bl. .-ount repr•••nt. .ctu.l e.pen... paid fra- 6/16/.4 through 7/26/.4.
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Conclusion

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,-,I As noted above, the Audit staff's verification of the items

on the Committee's NaCO statement revealed various differences which

resulted in a net difference (overstatement) in.net outsta~din9 campaign

obligations of $30,998.36. A portion is cooprised of $29,387.39 in nonqualified campaign expenses made by the Committee between March 16, 1984

and June 15, 1984. This inclusion is necessary so as not to allow nonqualified campaign expenses to increase the Candidate's entitlement to

matching funds. Therefore, the Committee's NOCO as of June 1S, 1984 should

have disclosed a deficit of $68,467.77 and not $99,466.13 as stated by the

Committee in its amended NOCO statement. In addition, our review of the

Committee's deposits indicated that for the period June 16, 1984 through JUly 26, 1984, the Committee received $38,588.68 in individual

contributions. Further, on August 1, 1984, the Commission certified a ~atching fund payment of $16,699.01.

Based on our review of the Committee's financial activity through 7/26/84, the Candidate's remaining entitlement was $29,879.09 ($68,467.77 - $38,588.68). Further, after applying the August 1,1984 certification of

$16,699.01, the Candidate's remaining entitlement is reduced to $13,180.08.

,.~;.. Since audit fieldwork of the Committee ended on July 26, 1984, L ris report does not address any NOCO statements filed by the Committee ~bsequent to June 15, 1984. Additional fieldwork will be conducted with

respect to determining the Candidace's remaining entitlement to receipt of

matching funds and an addendum will be issued as appropriate. c

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$ 4,098.71

Recap - Amounts Repayable to the U.S. Treasury

Presented below is a recap of the amounts the Commission

initially determined as subject to the repayment provisions of 26 U.S.C. §

9038(b) (2) as discussed in Section III.

Item A-l Non-qualified Campaign Expenses - Convention-Related Disbursements

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Item A-2 Non-qualified Campaign Expenses - . Undocumented Disbursements 7,456.93

Item A-3~Non-qualified Campaign Expenses - Ppst-Ineligibility Salary Payments

to the Candidate

13,549.35

Total Recommended Repayment '$ 25 , 10 4 • 99

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Transcript of Proceedings

BEFORE THE

FEDERAL ELECTION COMMISSION

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....... ~1f'"" ='\ I l!-Jll- .\ ,-J , '. I '-' I • \ ....

In the Matter of:

FEDE~ ELECTION COMMISSIOK

S?ECIAL OPEN SESSION

ORAL PRESENTATION BY TlfE

FRZENDS OF GEORGE McGOVE~~

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DATE: April 24, 1985

PLACE: Washington, D.C.

PAGES: 1-56

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BEFORE THE FEOERAL ELECTIONS COMMISSION

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3 In the Matter of: ··

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FEDERAL ELECTION COH!lISSION

SPECIAL OPEN SEMSION

ORAL PRESENTATION BY THE

FRIENDS OF GEORGE MC GOVERN

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\vashington, D. C.

April 24, 1985

The above-enti-tled nlatter cane on for open sessior:,

pursuant to notice, before Chair!':1an John l'Jarren !~cGarr~',

at 1325 K Stree~, N.W., Conference Roon, Washington,

D.C~ 20463, at 10:00 a.m.

APPEARAl~ES:

On behalf of The Friends of George UcGovern:

JOHN M. QUINN, Esq.

Arnold & Porter

1200 New Hampshire Avenue, N.S.

Washington, D.C. 20036

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(202) 7'9.081'
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PRO C E E DIN G S

CHAIRMAN MC GARRY: This special 0gen, public

3 hearing will please corne to order. The reason we are here

• today is because the Federal ElectionCo~ission has granted

S a request by former Senator George S. l1cGovern and his

6 1984 Presidential Campaign Co~ittee for a pUblic hearing

1 to appeal a Canmis.,;; '.)1- order for rer>aynent of federal

8 ~atching funds to the ~.s. Treasury.

9 Let me give a little background on this ~atter.

10 The statutory authority underlying the Federal Election

11 Co~ission's administration of the public funding of

12 presidenrial primary campaigns is the Presidential Primary

13 Matching Pa~~ent Account Act. That law requires the

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14 Cornr~ission, among other things, to conduct a thorough

15 exanination and audit of the qualified c~paign expenses

16 of every candidate for nonination for President, and his or

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her authorized cOQnittees whc have received federal natching

pa~TIents pursuant to Title 26 U.S.C. Sec~ion 9037.

One purpose of the Comnission's mandatory audit 0:

publicly funded presidential ~rimar~ candidates is to

determine whether pUblic funds have been used to meet or.ly

qualified campaign expenses. T!1at tern, <,,!ualif ied car.;~ai~:-.

23 expense, is defined by the law as a purchase, p~~~er.t

distribution, loar., advance, de;>osit, or gift. of T.'\oney or

anything of value incurred b~ a candidate, or a candidate'E ~--

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authorized committee, in connection with the candidate's

campaign for e~ection or nomination for election to the

office of President•

After conducting a thorough ex~ination and audit,

the Commission on January 29th, 1985 made an initial

determination that the Friends of George rtcGovern should

repay $25,104.99 which the Coomission had determined to be

non-qualified expenses. Of that a~ount, S13,549.35

represents the portion of p~blic funds used by the COr:i.'i\ittee

to r:take salary payments totalling $50,000 to !!r. HcGovern.

The C~~ission's ini~ial repaynent deterr:tination

reflects the position that the Conrnittee's pa~~ents of

salary to Mr. McGovern were non-qualified expenses. In its

March 5th response to the Camnission's initial determination

t~e !~cGovern Committee dis:",uted the Conrnission' s

deterI:\ination that salary paynents to the candidates '''ere

non-qua~ified c~~paign expenses and that the pro rata

portion of 513,549.35 rn~st be repaid.

In ~hat regard :'1=. !1cGovern through counsel

requested to r:take an oral ~resentation to the C~~ission

on this specific issue. On A!,ril 3rd, 1985, the Co~~ission

granted that request and we are convened today in special

o?en sessior. to hear that oral r-resentation pursu~t to

:1 crR 9038.2(c)(3), as r::a=t of the COr:1nittee's res;,onse

to the Con~ission's ini~:a: repayment deterninatlor..

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The sole purpose of this meeting is to give the

candidate or his representative an opportunity to address

the Commission and to demonstrate that no repaynent, or

a lesser repa~nent, is required. With respect to the

procedure we will follow today, I would like to state that

this is not an adversarial or trial-type hearing. The

cand:i.date's representative, Ur. John Quinn, will have

30 ~inutes to make his re~arks. At the conc:usion of that

preser.tation each commissioner and ex-officio re?resentative

will have a~ o??or~unity ~o ask a~y questions he or she

have.

I will then recognize the General Counsel ,.,ho r:lay

ask whatever questions hp has. Now, before I recogn~ze-

~lr. Quinn, counsel for the Friends of George ~cGcvern and

designated re?resentative of t~. George McGovern, I will

as~ the General Counsel if he has any COMr.1ent or \olould care

to add in any way to the opening statement that I have

juS"; nade.

are General Counsel, Charles S~eele.

1m. STEELE: 7hank you, !1r. Chai:T.'la!";. Ho, I thir.!:

21 that you have s~~'rized the ~roceeding and the reasons

22 I: that He are here, and I see noth'i.ng to add to your st atei.,e:-.:.. I

23 ji CHA!RMA.~ riC GARRY: Thank you.

r

24 I: Hr. Quinn. :,

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2S :·tR. Qun;:..;: Thank yO'-1, :l:r. Ctairr.;a::, :1embers c~

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the Commission. I am Jack Quinn. I am counsel to the

Friends of George HcGovern, Candidate for the -:;.esidency

in 1984. With me is nary Curtin who is the Treasurer of

Friends of George HcGovern.

we appreciate this o~~ortunity to appear before you

to a?:)eal the COInr.lission I s ruling that the HcGovern

Conmittee must repay in excess of S13,000 to the Treasury

as a result of the fuct tha~ ~he Co~~ittee paid Senator

HcGovern a salary during his c~~aign for the ~residency.

The basic iss~e before yo~ is whether ~he ~a~~ent

of S50, 000 in salary to Sena~or ~lcGover:1 \-las a qualified

campaign expense as tha~ ~erm is used in the Federal

Election Campaign Ac~ and your regulations. 'i~e believe it

Flainly was a qualified canpaign eXf'cnse and as s'J,ch did

no~ result in the re~uirerner.t of re~a~~ent. This result,

we submit, is demanded by the plain words of the 5~a~~te

and yo~r o~n regu:a~ions.

In f ac~, in rulir.g as yo'.). did against senator

:lc(;overn, ....e believe that L-.e COr.'J1ission effectivej"y engaqe6.

i:1 retroactl\'e rule-making, changed the rules after the ga-:-,e

,'as played, and thereby failed to provide reaso:1a::>le notice

to Senator McGovern and other ?reside::tial candidates that

salary payments would be regarded by ~'ou as non-qualified

can?aign expenses.

We believe the COr.l.'":1isslo:: has acted unreasor,ably

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and in fact illegally in this respect. Let me just layout

for you the factual background. Before becoming a

to whether the receipt of honoraria would be regarded as

earning honoraria for speeches, typically at a level of

presidency his staff made informal inquiry 0= ~'our staff as

abo~t $5,000 per appearance. When he announced for the

presidential candidate, Senator ~1cGovern made his livelihood I

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contributions. The staff was advised that they likely would

be regarded as contributions, and as a result the Senator

cancelled a series of speec~es tha~ he had made cor.~itrnents

to make.

This put the Senator in a dilemma. He felt it

essential that he run for the presidency, he could not get

.{)

by on no incc:r.;e at all, and he was determined to L~ey the

law in regarding c0ntrib~tion limitations.

Your ruling pits those aspirations aqains~ each

other. It effectively says, you cannot r~n for the

presidency if you cannot afford to do so. In this case

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590,000 and 5100,000 in honoraria, that the c~paign woulc

pay to hin a salary of half that ~ount, 550,000. Tha~

understanding is reflected in internal canpaign conrnittee

~enorw~da ~hich were made available to the auditors and ~~ic~

in fact are referred to in the audit reports.

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It bears emphasis that Senator I1cGovern and his

committee regarded this payment of a salary as essential.

In his mind, and that of the campaign committee, but for the

salary payments-the c~paign'mi9ht:not h~ve_been ~oEsibl~.

This, we think, goes to the heart of the central

legal issue, that the sala~y payments should be regarded as

qualified campaign expenses. They made the cam~aign

possible. This view enjoys the support of your General

Counsel, and again we think it is dictated by the ~lain

words of the statute and is more t.han anply supported by the

legislative history of the Federal Election C~~?aign Act.

As the Chairman noted in his opening state~ent,

the cerro "qualified campaign expense" is defined at

26 u.s.c. section 9032, quite simply as a paynent ~ade in

connection with a campaign and which is not otherwise

i.llegal.

There is nothing in the statutory definition that

remotely authorlz~s tbe Commission to pick and choose among

lawful campaign expenditures and call some qualified and

others non-qualified. If they are made, first, in connec~~c~

wi~h ~he campaign, and second, are legal, then they are

qua~~fied canpaign expenses.

The salary payment was certainly made in connectio~

wi~h the campaign. But for the salary the campaign might

l~terally have terminated. I~ th~s circuns~ance it would

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7 1 utterly defy logic to suggast that a payment necessary to

2 allow a campaign to exist is not nade in connection with the

3 campaign. And as I poir-ted out in my letters to the

Commission, the Commission itself recognized ten years ago

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the fact that a candidate benefits financially from campaign

contributions or expenditures does not violate any law.

This was the holding in Advisory Opinion 1975-15

issued in respect to Governor Wallace's receipt of royalties

9 from his presidential c~paign. Thus, the salary ~aynent

10 ij fully meets the statutory requirenent for a qualified

11 cam~aign expense, that it be in connection with the campaig,-,

12 and that it be no~ other~ise unlawful.

13 The Conmissio~'s regulations essentially repeat

14 the statutory definition of the term "qualified campaign

15 expense." 11 C.P.R. Section 9032.9 includes within the

16 meaning of qualified campaign expense an~r !,a~1JTtent whatsoever

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made during the candidate's eligibility period, made in

connection ~ith the campaign, 50 long as those ~a~~ents do

19 not involve a violation of any law.

20 Again, nothing i~ the regulations even remotely

21 suggeSts that the payment of a salary to a candidate is not

22 a qualified campaign expense, nor is there anything in the

23 audit or repayment prOVisions 0: the s~atute or the

24 regu:ations that suggests that these pa~~ents would be

2S regardec as non-qua~ified. Indeed, the illustrative list

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well, we meant fruit.

Cor:unission wou ld regard a sala~y payMent to a candidate as

While this list is adr.littedly i.llustrative, it

non-qualified, or indeed any expense not within the

It is as though you have said to

apples. And Ser.ator HcGovern bought an orange, and you saie,

That, we think, i~ not enough. The broad definitio~

bu~' Golden Delicio~s a::>ples and you nay not bu~' Granny S:1i-=.::

0: qualified carn?aign expense is consistent with the

candi5ates, you may ~o~ buy I1acIntcsh a?ples a~d you nay ;;'0-:

violation of la~.

ge~eric group identi:ied, namely, pa~~ents involving a

provides no notice whatsoever to a candidate that the

payments that involve a violation of law.

as non-qualified in 11 C.P.R. Section 903(a) includes only

8 1 of payments which the Commission warned would be regarded

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legislative history noted in my letters to you, \ihich r.la]:e s

slear that in the words of the Senate Cornnittee report,

candidates arepernitted full flexibility and discretion i~

their election efforts, a~d the Congress has resisted any

suggestion tha-: those who accept federal ca~paisn fu~ds be

obligated to conduct their campaign in particula~ \vays or

to use federal I'!\o::1ies for srecific pur;>oses that sone may

t1iink are r.lost useful to the electorate. \~ether they

qualif~' for public c>.ssistance and acce!'ta'1ce or not, all

candidates are free to do their o\,"n thing a:-.d decide hm·;

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they will conduct their campaigns and employ their financial

resources.

Accordi~g to the General counsel's memorandum of

April 16th of this year, and the Commission's ruling against

Senator HcGovern, and I quote, "was based on a conclusion

that the policy of pUblic financing ~as not to provide

personal income for a candidate and that there was no

evidence that Congress intended for the statute to provide

for such personal support."

~~~s, ir. our view, is an inadequate basis for you

rUling. ~here is in fact no evidence in the legislative

history tha~ Congress viewed salary pa}~ents to a car.oidate

as non-qualified ca~paign expenses. Rather, as I have

pointed out, the legislative history makes clear instead

that candidates would be free to spend campaign money as

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they best see fit, as long as the expenditures are ~ade in

connection with the campaign and are not otheniise illegal.

Let ne briefly addI'ess the iss:..e of fair notice.

In ruling as it. did against Senator 11cGovern, the Cor.tr.lissio;".

effective:"y engaged in retroactive rulernaking. It thereby

f ai led to pro\-ide reasonable notice to Senator l1cGovern,

and ot.her rresidential candidates, that salary paynents

would De regarded as non-qualified. He believe this actio~.

to be unreasonable and again illegal, beca~se you have

effectively a:':lended the definit.io~. of qualified car.lpaigr.

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expense without providing candidates notice that you

intended to do so.

The Ninth Circuit Court of Appeals addressed an

issue quite similar to this in the case called Montgomery

Ward against the Federal Trade Co~ission. On the subject

of changing rules through adjudication, which is essentially

what we're about here, ~et me read to you from the Ninth

Circuit's opinio~. "The issue is whether a~ adjudicatory

re-staternent of the conduct required by a rule is an

ir.te=?re~ation or a~ anendrnent of the rule. Adjudicatio;.

al~ows an agency to apply a rule to a particular factual

circ~stance and to provide an interpretation of the

=equired conduct in -~ight· ~f those circurns~an~e~,. ,;An

adjudicato~' restatement of the rule becomes an anendment,

hO\vever, if the restatement so alters the requirements of

the rule that the regulated party had inadequate notice of

~he re~uired conduct. An amendnent is proper only when

adequate notice is provided to affected parties pursua~t tc

t~e ap?rcpriate rulernaking procedures."

A s 1.1'::1...L. . '. a= po:.n. _ was made by_ the Di~trict Court',~~

Lo~isiana. lid ~ike to read fron that to you too. This is

a case called Sta~e of Louisiana against the Department c:

Energy, and in fac~ involve~, like this case, a regulatory

definition, in t~is case the definitio~ of the word

";,::roperty. II

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The Court said, "It is clear that the original

property definition was ambiguous and subject to various

good faith interpretations. But even when you play pin the

tail on the donkey, the rules re~Jire that you turn the

blindfolded participant in the right direction. The cases

are clear that a post-hoc agency interpretation of an

ambiguous regulation should not be enforced retroactively

against the reg~lated party who adopted and a?plied an

alterna~e, reasonable interpretation of the regulation

d~ri;)g t :1e period betwee;) the initial proMulgation of the

ambiguous regulatio~ and later agency inter~retation."

I think the importance --

CO!U!ISSIOt;ER !1C DONALD: Excuse ne, !1r. Quinn.

Could I have thE: cit~s, in' these t\70, cases ,-- _ ~:?C?l.o£"i~~..,

Thar: k ~'ou.

rm. Hontgomery l'iard is 691 F.2d 1322,

15 II but would yo~ mind giving us the

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17 Ii and State 0: Lo~isiana against Depar~ment of Energy is

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~8. Q~~~~: Those cases involve economic

regula:io~. In this case the need for advance notice is

even grea:er, when one considers tha: it is a cri~inal

v ~olatio:'l to r::ake a nonqualif ied car.tpaign ex!'ense \lith

federal rnonles, and the law is clear that where there are

criminal co;)se~~ences the nee= for advance notice is even

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greater.

Now, I take the position that the statute would no~

permit the Commission to promulgate a regulation holding

salary pa~~ents to be outside the realm of qualified

campaign expenses, but even if you could, the proper way to

do so would be to conduct a rulenaking more precisely

defining this term so that candidates and potential

candidates woul1ibe on notice..

I car. understand that the Commission might not

approve of salary paymer-Its. You nig!1t want to see the la,-;

changed or you night wa~t to attenpt to change it through

your regula~ions. But here, as in the case of Governor

1S Commission would be less than frank if it failed to note

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Wallace ten years ago, you should only now go so far as to

say, and quoting from Advisory Opinion 1975~15, "~,e

its disapproval in principle of any practice whereby a

candidate personally profits fron campaign contributions.

18! Nonetheless the law is clear."

19 I submit to you that the law also is clear here,

20 il that Senator McGovern' 5 salary payI71ents were qualified

21 cam::>aign expenses ar.d th3.t you should reverse your decisio:-:

22 to require repayment.

23 Again, thank yO'..l for this 0,portur.it~1 to apr'ear

24 and I would be hcppy to anSHer any questions if I car..

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the understanding of the C~ittee that it would pay a

salary, and indeed in this docuoent the figure is $91,000,

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now proceed with the questioning, and the Chair will be

happy to recognize any Member of the Commission who may have

a question.

Commissioner Elliott.

COHlllSSIONER ELLIOTT: Hr. Quinn, you referred to

a document in your files, "campaign cOmI!\ittee memorandum."

Could you tell me if this was, or could ever be construed as

any type of a vlritten or oral agreement bet\.,eer. !lr. ?1cGover:l

and the candidate _committee.:.to- p~y a, stip1Jlaj:.ed· amo\lnt·~for

10 I sorn~ period of time !or specific services rendered to the

COMrnttee(

11 ;1 !l.". QUINN: It is not a written agreement betvleen

12 Senator McGovern and the Cornnittee. It is a c~~paign

13 memorandum from one staff member to another which reflects

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not $50,000, but I a~ informed that by oral agreement the

Senator agreed to take half that ~ount.

CO!U1ISSIOK~~ ELL!OT7: So, there was some sort o!

agreement, oral agreement between the Connitee and the

candidate?

1m. QUINN: There was an oral aqreernent, yes,

certainly.

CO!-UlISSIO!~ER ELLIOTT: '~ould you say that -- \..as

there a specific duty that he was to perforn under this

agreement? Was anything said to hi~, or he to the Con~ittee,

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cover?

do that?

to the income he would othen~ise have earned.

HR. QUINK: Yes. l~e take the positio:1 that the

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I can assure you that,

\'lell, certainly there '-las no \''riting

Wa;;; there anything like that?

MR. QU~NN:

that he would do something like write speeches or take on

r~~. QUINN: I think it was a salary, and the notio~

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be compensated by some other person if they were hired to

C~~1ISSIONER ELLIOTT: There have been several wor~s

CO:UUSSIONER ELLIO':'':': There ,,'ere S15,O~O :>aid

some things ,s part of the Committee obligation that might

that outlined his duties.

at the early stages of his ca~paign, given the resources

that he had, he was effectively his ow~ campaign ~anager.

after the ineligibility date. =believe some 0: your

"compensation," all 0= \"hich have connotations all their

doc~entation indicates tha~ the expenses were incurred

own. So, how do you think -- what word do you thi~k best

anount he was to be paid was deternined in part by reference

used. One is "salary. ,. One is "incone." i\!1other is

before the eligibility date. Is that. correct?

Con..':li ttee I s obligat.ion to r.;a}~e t:'is ~ayr~;ent vas inc'J.rred

of nissed income really arose 9nly fron the fact that the

represents the a~ounts paid to the S~n~tor? !1nat did that

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during the eligibility period, as reflected by the March 3rd

memorandum ttat w~s provided to the auditors, and that in

any event the remaining $15,000 should. be re~erded as 'windingL

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COrU!ISSIONER ELLIOTT: You have just now indicated

that the agreeme~t was for some $90,000 but he only got

paid for $50,000.

!ffi. QUIN~: I'n sorry. Let me correct that.

The $90,000 figure was the estimate of his lost

incone. 7he ne~orandu~ to ~hic~ I re:erred "o~ld a??ear to

have obligated the Conrnittee to pay hin the er.tirety of

that nissed income.

However, I informed that by oral understanding,

he ag=eed with the Committee to take something on the orde=

of ha:f of t~at amount.

COt~lISSIO~~~ ELLIOTT: Is it important for us to

kno", or would it be helpful -- would it be helpful for us

to kno~ whether that reduction was due to the fact that he

did not do everything that he had indicated he would do,

0= t~e Co~~ittee couldn't affo=d it, to pay him the full

amcu::t, or sone reason \o,.~y that was reduced?

~?. QUI~:~: I can only s~eculate but I would bet

it's because the Connittee didn't have much money.

COt£1ISSIONER ELLIOTT: Thank you very much.

CHAIRt·1A!; HC GARRY: Thank yo:.:, Co:nnissioner £L.::.":::'.

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16 1 Any further questions? Commissioner Reiche.

COMliISSIONER REICHE: First I would like to suggest,

3 and I'm sure Mr. Quinn would agree with me, that any comments

is interpret the la".

We are not talking about the nerits. \~at we are

construed as any reflection on the merits of assisting

that's for Congress to determine. All we're trying to do

qualified campaig~ expenditu=es. Ir. terns of the nerits,

which wou~d pern~t the Co~~issio~ to consider these as

talking about, I believe, is finding a regulatory basis

financial se~~e,they can mount that c~a~leng~.

challengers in presidential elections so that indeed,in a

we might make, any questions that may be asked, should not be

I

14 It seems that implicit in your position, !tr. Quir.~,

this with any degree of consistency?

to pay naintenance for a candidate. Hm~ would you deter~i~e

15 is the conclusion that a campaign has some res~onsibility

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18 I: In the case of your candidate, yo~' re talidns;.

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19 I'11 about missed income related to honoraria. In other cases

20 'I perh3.ps it IS salary. B"J.t if you're talkins 0: maintenance I

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21 'I everybody in this world has a different lifestyle. I r.'lea~,

22 \ how would you go about trying to deternine what ",oas needed

23 by a candidate in order to personally naintain himself or

24 herself so that they could mount a campaign?

25 aRe QUIN~;: ~'Jell, let. me say firs:. -:hat I don't

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17 1 take the position that campaigns have a universal obligation

2 to provide maintenance. But your question really gets to

3 the reason why you should reverse yourself.. You can't

." make that decision. Congress hasn't given you the authority

to make that decision. And indeed, ~ou'Qon't hav~ to

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campaign expense, I submit to you that the Commission has no

regulatory basis for regarding it as other than a ~ualified

campaign expense.

~he law, and your o"~ regulatio~s, are clear, if t~e

pa~~er.~ is ~ade in connection with the c~paign, and if it is

otherwise lega~, then you are obligated to regard it as a

qualified campaign expense. If I decide to run for the

presidency and think that the best way to make mysel!

popular is to get on the morning flight every Honday to

P'.1erto Rico and the Friday night flight back and shake as ma~::'

hands on the ~lane as I can, I can use contributions and !

can use federal matching money to do that. And Congress has

made clear ~hat this Commission is not to say this is an

inappropriate ".. ay to spend money.

Look at the analogous general election financing

statute which doesn't speak of ~ualified can~aign ex?enses

~eins i~ cor.nection with the campaign. It speaks even more

narrm-:ly c: qualified car.tpaj.gn expenses being in furtherance

of the ca.'i\paign.

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Well, would I sit here and say that Vice President

Mondale's media advertising suggesting increased taxes

didn't further his campaign and he shouldn't have used money

to de that, that ,~as foolish? No. Congress made clear that

the Cornrnis5ion is not to make those judgments. If candidates

want to spend money ill-advisedly, foolishly, they are free

to do that. That's for them to decide, not the Commission

to decide.

COl~IISSIONER REICHE: Let me just ?ursue this line

of ir.quiry \dth one question, and then I th:"nk CO::l.-:lissione:::-

McDonald has a question. he wants to ask be:ore I continue.

In terms of the Commission's res~onsibility here,

you indicated in your remarks that we had amended the

definition of qualified campaign eX?enses, and then you

proceeded to discuss what you perceived to be the

distinct iO:1 bet,,,een amending and interpreting.

Just how do you see that distinction? l~en is this

Commission trying to interpret that which we have been

handed, namely, a statute, as opposed to a situation in

which we, in your view, are amending or changing that

statute?

;1R. QUI!~~~: Again, you did interpret the statute

when you promulga~ed the :regula·tionl:: ",,·hich icentified a

generic group of expenditures which would not be regarded

as qualified. A comnO:1 ~hread runs through each 0: the

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expenses that you said would not be qualified, the common

thread being that they related to or involved illegality.

There's nothing in that list of examples that

suggests that a legal expenditure, or indeed a salary

payment, would also be regarded as non-qualified, and in

view of tha~ I submit to you that the practical effect of

a rUling now that a s ,lary payment last year is a

~on-qualified campaign expense is effectively. retroa¢tive

ruler.iaking.

CO:·1!!~SSIONER REICHE: Are you suggesting that that

enumeration by the Commission was intended to be ar..

exhaustive listing?

MR. QUINN: Not at all. I acknowledge that it was

illustrative. But that illustrative group of identified

non-qualified campaign expenses again has a common thread,

and if I we=e sitting back, advising someone, there might

be a circu~stance where you did not identify something but

i~ did involve illegality and I would counsel against making

that expend:'ture because the COInr.\ission Hould regard it as

non-qualified.

I ~o~ld not cOuclude from the illustrative list 0:

non-quali:ied c~~aign expenses that you have identified,

that a sala::-~' payment would be regarded by the Commission

as non-qualified. The Commission may not like the idea 0:

campaigns paying candidates salaries. I can understar:d t.:-.a:._

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And it may be that you have the statutory authcrity to engage

in a rulemaking and include that in the list, but the proper

way to do that is to do it prospectively and not

retroactively.

CONMISSIONER REICHE: I think what this may ignore

is the responsibility of the Comrriis~ion to interpret a

statute as best it can.

8 At this point, Commissioner l1cDonald, \"ould you

9 I like to ask a question on this point?

10 comUSSIONER !Ie DON.ru.D: I think you perceived the

11 question I wanted to ask.

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HR. QTJ:iNK: "'leIl, cay I respund to that?

It is frankly beyond me how this is an interpretation of the statute. The statute is quite clear that any

payment whatsoever ~ade in connection with the campaign

and which is othen"ise legal, is to be regarded by you as a

qualified campaign expense.

It is beyond me how one can conclude fran that tha~

the ConmissiO:1 has the authority to regard a salary payrner.~

as non-qualified.

COHHISSIONER REICHE: Nell, as a fellow la\,-yer,

12 lin sure you would agree wi~h ~e that reasonable ner. car.

13 differ, and certainly reasonable nen can differ as ~~ ~~e

24 interpretation of the phrase, "in connection \vi th the

15 campaign." And your position, obViously, is one that

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(2C2) 719·0818
phrase as applied to ~hene i "'~~ct t'ould .xesult- in -the. same

unfortunate result on the nerits, but the Comrnissio~ has to

choose to call them, that these were in connection with t~

the Commission has to take into account, that indeed salary

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cor~lISSIONER REICHE: ~tr. Quinn, in a personal

!1R. QTJINN: Unf'Jrt~lnate:i..y, again, the logical

B~t let.'s move to anot.her point you made. You

not think it ~s a position that is so clear that the

payments or payments for missed honoraria, whatever you

campaign, and that's a perfectly hon9rable:posi~ion. But

it b:' the Congress, and the question is, taking that into

account, what should the Cornnission consider as qualifiec

those who don't need income during the course of their

conclusio~ to-whi~h you co~e~

we wi~l linit cawpaigns to t~ose who can afford them, to

Commission should sit here and not examine whether that

do its level best to interpret the law as it is given to

campaign ex~enses.

and one not contemplated by the statute.

referred to su??ort. in the legislative history for your

campaigns, That, I think, would be an unfortunate result,

result o~ the position you have just articulated is that

sense I might join you in saying that that ~ight be an

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\ffiere co you perceive t.hat. support originati~s?

18. QUJ~~: In nr letter t~ you provides cit?tic::

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-""~~·;o""~;f.'~'~r:'r::;,, ~k""""':::':'~·'.:;~"'-'7·-~~;''><~-'::';:'''' ~f·""':j<,.l ,- •• ~- . /""'" , ....""~:-~,., ">.",",!-r ·,;."-·",<;.;:~,~,-..:>~,;'"\":t'~~";"':"';·' '~~~;~~"7'-"~ ~'''';'''''~:,,""""':'"~_o' _." .. , "~"f'" ',"

_.... .

23

22 1 to the senate Committee Report --

CHAIRMAN MC GARRY: Is that your letter of

3 March 5th, 1985?

MR. QUINN: Yes, indeed.

S CHAIRHAN HC GARRY: And that would be a document

6 that we have identified as 8S-55-B.

7 }ffi. QUINN: In my r~arks : quoted to you from

You do~'t want to hamstring them, particularly

I mean, to give them considerable flexibility, fine.

If yo:.:

But the argument that is

!-1R. QU IN~ : Let me try this jus~ once more.

comUSSJONER REICHE:

8 I Senate Report No. 689.

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10 Ilcont~ine~ there, basicall~ it seens to ne, a~~ please if

11 II you disagree, please say so, but it seeI:ts to me to be sayin~

12 'I that, yes, candidates should be afforded considerable I

13 I flexibility in spending campaign funds as they see bes~.

14 I That still.dp~s not, in ~y vie~! get to the question of

15 II whether a salary pa}~ent or a payMent for nissed honoraria

16 I falls under the heading of a qualified ca~paign expense.

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18 Ii Probably we would 3ll agree that that is a laudable

19 1\ objecth·e.

20 I! where you're talking about the ~se of public funds as we

21 II are here.

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23 I. will accept the proposition that a campaign could not be r'..l:"., Ii

24 Ii a ca:1didate could not run for the !,residency, without

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2S I financial support. fro::\ the campaig~, if that is the case

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23 1 it is simply illogical to say that that is not an

2 expenditure in connection with the campaign. There is no

3

...

logic to that conclusion, on the very face of it.

Indeed, there co~ld be no expenditure more in

s connection with the c~paign than one which makes it

6 possible, than one which enables the candidate to run.

CO!~1ISSIONER REICHE: Let me put it this way, and

I say this \'lithout trying to indicate \-lhere I will cone out

.. this :,ecause I don't know where I will corne out on it,

11 ii to congress. It "Tas well known to theLl at the time the

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12 i' statute and the various amendments were drafted a~d indeed

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b~t this is a fact of political life, that is well know~

13 enacted, a~d it has become tradi~ional -- you can say poor

we have to do is to determine in the statute, in the

legisla-;ive history, some indicatio~ of congressional

tradition, I won't argue with }·o'.:.-·_- b'..~t·_it has' becone

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that in connectio~ wit~ a~ election, mould inclu~e

Again, no discussion on the merits of that. It see;.~

the kinds of paynent that you' re talking about here.

I-IT{ • QU IN~';: I disagree. I think it's not for us

to poir: to a stao;. 'J.tory p r ov i 5 i 0:-. , or lec:islative histor~' ,

that if we are to find, as you would have us find -- w~a-;

intent

~raditional that challengers indeed, at least as a matter 0:

law, have to have the wherewithal to sustain themselves over

the period when they are challenging.

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we believe that the Committee has demonstrated to

also clear that they were not otherwise unlawf~l.

campaign expense?

essential to the life of the ca~paig~, that it is clear

... "'" an affirmative ind~cation of tne type that Congress ~n ... enoe::.

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(~02) 719·0111

expense or not?

to be reflective of whether yo~ have a qualified carnpai~n

CO~U1ISSIONER REICHE: Let me ask you this question.

!iR. QUIN~: well, as you know when the COMmittee

cO!r~ISSIONER REICHE: And you believe that this is

that they were made in connectio~ with the c~paign. It is

It is for you to find a reason in the statute, or

HR. Q~I~~: I'm not s'Jre ::: u:1derstar.d the questic:-..

among other things it would bear the burden of the denon~t~et~~;

the relationship between? payment and ~~ecan?airyn.·.

agreed to accept federal matching money it agreed that

you that in view of the fact that the salary payments were

Upon whom, do you believe, the burden of proof falls in

making the deter::".i::a~ic:1 that these ?a::7le~·~'t:s .."ere a cua~if::ec.

other kind of payment Is not a qualified campaign expense.

in your own regulations, why this kind of payment or any

being qualified campaign expenses, any more than it is for

us to point to a provision that says, flying to Puerto Rico

for a fundraiser is a qualified campaign expense.

24 1 that says salary payments were contemplated by Congress as

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revised or was i~ intended that the S50,000 would cover the

fact of the $50,000. \~at period was intended to be covered

CO?n~ISSIONER REICHE: Let's go just briefly to the

is this, is this purely a negative inference drawn by you,

- l~"t::,

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Septer.\ber -13:th to ~arct. 13

~m. QUINN: I think Sep~etiber through March.

cmnUSSIONER REICHE:

COlntISSIONER REICHE: Well, what I am suggesting

HR. QUIN~: The docu.oo:\ent to which I'm referring

CO~1MISSIONER REICi::E: September?

}m. QUINN: I believe we have affirmatively shown

these are qualified campaign expenses?

by that 550,000 payment?

these are qualified cami).lign expenses.

or do you believe that you ;:2ve affirmatively sho~~ that

McGovern continued as a candidate, would this have been

whenever it was, the date of ineligibility. Had Senator

reflects a period of about six months. from

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entire campaign?

HR. QuINN: I assume it "'ould have been revised,

but I dont~ know the answer to that.

21 C~lllISSIONER REICHE: &~d of course, as Connissione=

22 Elliott preViously pointed out, S15,000 of that was paid

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after the date of ineligibility.

Yo~ gave us a descriptior. in part, of how the

fig~re was determined. Did you take a look at the honoraria

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that the Senator had received, let's say, i.n 1983, or before?

f~. QUINN: 00 you know the answer to that?

MS. CURTIN: What do you mean, did we take a look?

COMMISSIONER REICHE: Well, did you examine the

S extent of the honoraria which he received the previous year

6 in order to set what you thought was a proper figure?

7 MS. CURTIN: Okay, I wasn't the treasurer at the

8 time, but that was looked at and I think that the memo

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reflects that and.ther~ w~re i~_ fact ~n~ageme~ts.th~~,were

contracted for tta~ were b~oken, of the figure 0: 55,000

per lecture, so t~e arnoun~ was determined on the basis of

inco~e tha~ he had received the previous year.

CO~ll~ISSIONER REICHE: Right, and presumably that

honoraria figure woulc have been included on the ethics

statement that had to be filed by the senator when he

becane the presidential candidate, is that correct?

r1S. CURTIN: I assume so, but I don I t

COHI1ISSIONER REICHE: I have examined it. I see

no indication of any at-:.ribution for honoraria. \fuether

this is just something tha~ was onitted simply because the

~oncern was more with the value of assets as opposed to

incane, I don't know the answer to that. But if it is to

serve as a valid basis,~~e~ obviously that information

should have been included as indeed it is required by law

to be included in the sta~ene~~ to be filed with the

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1 Commission.

2 Did Senator McGovern continue to receive honoraria

3 during this period at all, or did he cut.them off completely?

MR. QUINN: He cut them off completely.

5 COMMISSIONER REIGHE: Do you recognize any

6 distinction between what I will call the use of campaign

7 funds in a personal way as opposed to a political way? What

8 I am driving at here is a situation such as this Commission i

9 I had in connection with Mr. LaRouche as opposed to a situation:

10 i where the funds are adrr.it.tedly being used =or political

11 campaign purposes. I mean, do you perceive that there is a

12 II valid distinction to be made by the Commission between those

13 I two uses?

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MR. QUINN: I certainly believe that the Cornmiss~~~

has within its power the determination whether expenditures

are genuinely ~n connection with a campaign, and I think the

LaRouche situation is on its fac e distinguishable in that

there ap9pared to be absolutely no argument that tho~e

pa}~ents 0= rent w~re necessary to further the campaign.

The situation at hand, by contrast, is one In whic~

the expenditures were essentially to the =urtherance of the

campaign.

COM."1ISSIONER REICHE: But doesn't a candidate ha\-e

to maintain, hopefully, a roof, that can be t~lting o~

oc~asion, but doesn't a candidate have to maintain a roof

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over his or her head and have sufficient to eat, in order

to be able to campaign vigorously? I mean, there you.~·re

talking just abo~t personal living expenses, and of course

the Commission has had at least one advisory opinion with

respect to this, 1980-49.

MR. QUINN: Well, if Mr. La~ouche needed a salary

from the campaign in order to conduct the c~aign, the

campaign should have paid hin a salary and in that case you

would have been required to rule, I sUbmit, that it was

a qualified campaign expense.

COl1:lISSIONER REICHE: Thank you very much,

Hr. Quinn.

Thank you, Hr. Chairman.

CHAIro·~ MC GARRY: Thank you, Commissioner Reiche.

Hr. Josefiak.

~L~. JOSEFIAK: Thank you, ~tr. Chairman.

l·~r. Quinn, I totally agree with you that a carnpais:r:

has to have a flexibility and discretion as to how it's

going to spend its I':\oney in connection '-lith the elect.ion,

~n-relationship to' that'particular ca~paign involved.

~he difficulty I'm having is to deI':\ons~rate tha~

~he ~o~ies expended in this regard are in connection witt

~he ca~?aisn, and the reaso~ I'm having ~hat difficulty is,

we have these ~erms floating back ar:d forth it's compenEa~icn

for los~ inco~e, wha~ he would have earned i: he had been

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able to make these lectures. versus a salary.

~C4nyou 9ive~any.othcr evidence

that this was salary in connect~on with that election,

as opposed to something that would have been earned ,.,hether

or not he had been a candidate?

1m. QUINN: Well, again, I submit to you that the

reference to lost income was merely the gauge by which the

:n

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91! ~L'l. JOSEFIAK: But ·salary· is a tern you are using.: 'I

10 Ii Ca~ yo~ de~o~s~rate why you were giving the money, no matter "

11 'I' what the a"':l.our.t ",-as, as to \"hy yO·.l were giving, him that mone:'_ I

12 I MR. QUI~~: Well, the candidate and the Co~ittee It

13 perceived a need to pay h~ a salary in order that he could

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be a candidate.

!L~. JOSEF IkX: Well,- for'example, at pne point you

mentioned that early 0:1 11=. ticGovern ,.,as his o\·m campaign

manager, so obviously if you had hired a canpaign manager

you \-Jould have paid the car.,paig:1 r.',anager a salary and it

would have been .i:1dicated how much he was naking to do ~ertair.

activi~ies ~ithin the ca~~aign.

Af~er t~e date of ineligibility there are windin~-

dow:1 co~ts a:1d you have to have some people around to hand:e

those things. Was that !1r. McGovern at that stage, who \..as

closing do~n the books, ~ho was selling the assets, or was

it somebody else?

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~eceiving t.hose funds?

candidate? I think there is a distinction here.

canpaign expense.

i ~. s t.he f act. that. he \.:ould not be a candidate \dthout.

an expendit:lre

~ffi. QUIN~: Yes, and I think that's as far as t.he

How can you re!ate spending the money to the

made a certain deci~ion, an~ ! totally' aGree. with you

v.'hether it was c;sood J bac~. or indiffe!cnt, th§! fac.t :-that ¥9u

~~. QUINN: He was being given the money because

1~~. JOSEFIAK: I agree with that point. The questic~

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~m. JOSEFIAK: It had nothing .•.:really nothing

be made with regard to, yo... k~lOh', wha-: is a qUC:ll~fied

on that point. But I think there's a distinction here to

i:1 con:1ection \vi t.h that ca':\paign? 1t1d that's \lhat thL

in his mind and that of the Co~~ittee, were he no~, the

I think, the focus, is, however, is this

be going into campaigns and making a deterrninatioh whe~her

campaign might not have been possible.

an advance person was doing a good enough job in connectio~

to do w~th what he was or was not doing within the camp?ign,

campaign and how he was dealing with the campaign, or were

you just giving the money to him because he was the

C0 ~~l'ss~on ....., .J... has to grapple _ _ w;t~ ...... We're not ~oi~q __ to fecide

Co~issio~ should go. I don't think the C~~ission should

with the campaign and should be regarded as a qualified

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campaign expense and there is a definition, and somehow

we 've got to distinguish 'that -between' other- kiilds of :'

MR. QUINN: I appreciate that, but I submit to you

that if a candidate and a committee tell the Conmission that

without tr.e pa:nnent of a salary to the candidate the campaign,

might not occur, that the Commission simply must regard tha~

payment as one made in connection with the canpaign.

!~. JOSEFIAR: I guess I'm going back to the point,

if you nake tha~ comment you ~ake that conce?t, are you

classi:ying this properly? Is it salary?

l~. QUIllli: t~ll, it ~ight be that you think

$50,000 is okay but half a raillion dollars wouldn't be okay.

~L~. JOSEFLAK: I'm trying to get a de=inition of

what this is. Is this salary; is this cornpensction for lost --

disregarding where we come out,

what we're class~fying this as,

bu: as far as

I think the corrirnission has to determine '"ha-; it is before

it can decide whether it is or is not a quali:ied canpaign

expense.

MR. QUINN: Well, the Co~i~tee regarded it as

salary, but again, if the Connissio~ wants to draw some

different lines than presently exist \,'ithin its regulations,

then I suggest to you that you conduct a rulenaking. 7a;,e

cornnents, and amend the regulatory definition of qualified

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campaign expense. But under the statute and the regulations

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~s you have them today, it would be ina~propriate to rule

retroactively that a pa~ent which, from any reasonable

reading of the regulations, should be regarded as qualified,

is now not qualified.

It is a proble~ of process. The proper way to do

what you seem to want to do is to conduct a rulemaking.

It's no~ to adjudicate retroactively t~at in addition to

A, E, C, D and E which are non-qualified cam~aign ex~enses,

we are going to regard X as a non-~ualified ca~paign ex~ense'i

There is no hint in the regulations that a ~a~nent

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of this sort would be regarded as non-~ualified.

~1R. JOSEFIA!~: Thank you. The on I;' o~her comment

I would make, before I could eve~ reach the conclusion

whether I agree 0= disagree with your concept, what I was

trying to get at is, in re!'orting that expenditure ~'OU have

to report the purpose of the ex~enditure. And ~y line of

questioning really \vas, \vha~ \vas -this pr ho\-, are we·

classifying this ex~enditure.

Before I ca~ go ~o your ~osition I've got to

decide what we're tal~ing about first.

MR. QUINN: VEIl, we think \Ve're talking about a

23 salary, a~d I just don't know what else to say to you abou~

24 that.

2S :H~. JOSEFIAK: VE::, l.'l:' co:,.ce/t of salary, I c;uess,

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and yours are a little different because I have a concept

in being involved with ·campaigns,·. as to when you i'ay a salary

there's a specific purpose as to why you're paying a salary j

and what it's for, and there's sooe relationship to somethin~1'

how much you're. paying', 'is it_per,month; is~it'a l~p sum, for

what purpose you're doing this thing, sooe sort of a contract;,

I

oral or written, something that indicates that this is salary

versus something else. I

I' 0 not saying, just hecause it's not a salary \

classification that it's not a q~alified ca~raign e~ense,

but before I can make that decision I've got to find out

what we're talking about.

1m. QUINN: Again, I suggest that it would be

inappropriate for the Cornnission to head dO\ffi the road of

making determinations whether canpaign sala=ies -- and I've

seen many caopaign salaries paid which, believe Me, were

not:. in furtherance 0: the canpaign, and whether the~' should

be regarded as appro;::>riate or not, ! don'~ think that's

the Cor:ur,ission' s role.

MR. JOSEFIAK: I'm not talking about whether the

salary's appropriate or not. I'm just trying to decide

.....hether this is in fact a salary, or is :this compensatio::

for incone that was lost because Hr. r1cGovern was not ab:e

to nake his lectures during a year he was a candidate, c~

.....hether it's paying for living expenses o~ whether -- wha~

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$7 _

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we're talking about before we can make a decision, whether

something is a qualified campaign expense.

Thank you, ttr. Chairman.

CHAIRUAN UC GARRY: Thank you, Mr. Josefiak.

The Chair recognizes Cornnissioner Harris.

COl-mISSIONER HARRIS: One thing that ma~' not have

been made sufficiently clear here is that all we're talking

about is \"hether senator l1~overn could pa:' hir.lself a salary

out of public funds while running fo~ nonination for

Presiden~. If it were paid out of private contributions I

think there is no problem.

What we're saying is that it does have to be so

L;aid. I have a little trouble follmdng your line-of

argul";\ent, ?ir. Quinn. As yO'.1 knO\'l, Section 3007 requires

that after each election the Co~ission conduct a thorough

eXaI'1inatioL and audit of the can~~)aign. One of the specified

~urposes o~ this audit, which is detailed, expensive and

lengthy, is to ascertain whether the disbursenents were

entirely for ~ualified campaign expenses.

It seems to me rather odd to suggest tha~ the·car.Fai~~

has such total discretion in its use of noney as to make

the audit in effect meaningless.

1ffi. QUINN: I'rn not suggesting that at all, but

clearly, there are non-quali:i~c ca~?aign cxpenscs---

co!'rn SSIONER HARRIS: The onl:' non-l1Ua1if ied

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(202) 719·01/'
36

CO:Ull SSIONER HARRIS.. ~';':;:l, I an suggesting to ~'o~

that we list all of the th1ngs that they can do, it's qui~e

that a c~aign nay see fit to make. If it's a suggestio~

that we cannor. ?ossibly foresee every type of disbursene:::.

I

.~&

..... ~--

it ~as not occurred to any !

I \vould. 'n.: _ :;·7:u-:1i5Sio:-. has to live

would you care to c~~ent - ~ha~?

11R. QUINn:

u:1realistic.

the rules it writes, and the r~,~z~o~ --

irn?ecunious than Senator ~1cGovern.

The Commission has allowed candidates wide

we've had these matching pa}~ents in effect in '76, '80 and

Now, you have also suggested that the Commission

ca..,didates 0: all kinds, ma:lY of them s'J.rely r.lo!:e

other candidate to pav hinself a salary, so we have had lots

'84 and no other candidate has

every type of disbursement rhat a candidate might make.

to you that it is impossible for tt.e Conrnission to foresee

ought to have co~ducted a rulenaking proceeding. I s~gges~

discretion. About all that I can recall we disall~~ed was

Lyndon LaRouche's personal living expenses.

seem to give effect to, like parking fines.

qualified campaign expense, but it is the only part that you

incurring or payment constitutes a violation of law. That,

of course, is only a small part of tt.e definition of

34 1 campaign expense you have suggested is one where the

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MR. OUINN: Well,it's also quite unfair to set out

rules and tell all the potential candidates out there that

you don't feel free to live by th~~ you don't-feel otligated

to live by the~ and you'll change them if a~ expenditure is

made that you find personally offensive.

COtlllISSIONER HA.~RIS: Are you aware that there's a

provision in the Act for advisory opinions, and that if made

d~ri~g the course of a campaign the C~~ission is re~uired

to give an answer ~n·20.days?

~-1R. Qt; Im~ : ! 'n aHare of that.

You don't need to re~eat

Nhen y::>u sa~' "they," \'iho a:-e

And senator Uc(;overn could

QUINn: I'n aware of that, but I believe they

COH.'1ISSIONER HARRI S:

CO!-~lI S SIONER HARRI S:

CO:n-1!SSIONER HARRIS:

The Connission --

aRe

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" concl~ded at the time that the law was clear -- I don't thir.~ I

16 II there \.;as an anbiguity here. I dO:1' t think there was

17 t;ncertainty. II.. 18 II

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! !irt. QUIN~: The Committee. The Cor:unission, aca::-:,

11 ,I has wri~te" rules defining qualified canpaign expense __ :1 ~3 !I - i·d

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I! 24!! yo~rself endlessly. You've said that repeatedly. It's

25 Ii" : ust -- on this '1~est i on of doubt you state in your lette:-

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on page 2 that senator McGovern was advised informally by

the FEC staff to cancel speeches for which he would have been

paid substantial honoraria.

~~o was this conversation between, Senator

McGovern himself?

MR. QUINN: No, George Cunningham, who was working

for him, made a call to someone in the General Counsel's

office.

CO~U1ISSIONER HARRIS: who was he talking to?

:fi<.. QU INX: :i: can't te 1 you that. ! don't knot-:

the a~swer to that.

CC*U1ISSIONER HARRIS: A gentleMan in the General

13 I Counsel's office that he was talking to sa~'s he didn't tell

14 hi~ any such thing, that he tole him about the ~ossibility

--- ---.... "

he was advised.

honoraria are not contributions.

COI1!'!! SSIONER HARRI S: \'Ell, the statement here is

HR. QU!N~: \~ll, Co~~issioner Harris, I can

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(202) 7'9·081'

te:l you what the Senator was advised and what he told ~e

431: 3) b) (14)? ':'hat' s the !"rov ision that sa~'s that

HR. QUI~: \'fall, I can onl:: tell ~'ou what I lias

co:::.r ib"Jtions. A=e you aware 0: the r.>rovision in Sectio::

tha~ he was told that the honoraria might be regarded as

told, sir.

15 0: aski~g for an advisory o?inion.

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So, it would not be true that the Senator was in a

situa':io~, Conmissioner Reiche asked you, do you think that

ar.y pa:~ent to then could be regarded as a contribution and

unique position, even if he were told what is here assertej,

t:-,e,

,

data with us, are we going to re:y on the ethics repor~s,

a salary? A=e we going to ask them to file detailed fir.anc~~:

situaticn 0: each candidate who undertakes to pay himself

we a=e su?~osed to inquire into the personal fin~ncial

~ow, o~ the question of his ~ersonal financial

COt-St-lISSIONER HARRIS: This Ur. Cunningham, you

39

COI~1!SS!ONER HARRIS: That this is what

HR. QtT INN: Ye s .

C~~1ISSICNER HARRIS: Well, it seems highl~

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(21'2) 789·0818

l{R. QUINN: Well, I was told this by the Senator.

v]hic~ I do not for O:1e minute believe.

subject to the ceiling.

\"e:' 2., as yO',l prob anI:: kno\\' we ha\'e had problems of

atto=neys have quite ofter. asked for advisory or-inions on

at,:orneys running :or office and the question has cone U'!1 as '

to '-lhether their firns may continue to pay the!!',. These

unique i~ having had to forego his usual sou=ce of incone.

i~~robable. You also say that the Senator nay thus be

·subject, and i~ some circ~stances their firms have been tc:~

Mr. Cunningham was told?

mean?

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or what, and if you regard his personal financial situation

as relevant to the propriety of his !laying himself a salary,

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surely you must intend that we look into his personal

financial situation.

here is \:hether this expenditure Kas a qualified can?aign

proper role of the Commission at all.

at his ethics reports, then, or what?

COMIlISSIONER HARRIS:

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The issue I

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I don't think that's the

l~ll, do you think we look

Yes, that is ano~her matter.

MR. QUINN: Not at all.

HR. QUINN:

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11 expense.

12 COHIUSSIONER HARRIS: \-Jell, ~70U have sugges~ed tha-t

13 it's qualified because he \:~~ldn't otherwise be able to run,

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so that certainly becones a part of the definition of

whether it is a qualified campaign eX?ense, the way you

presented it.

NO\l, \vhen did the -- when did Senator HcGovern

18

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regis-ter as a candidate, do you know?

11R. QUINN: I don It. I was --

20 COHHISSIONER HARRIS: It was Septenber the 26th,

21 1983. The first pa~~ent that he received, of S35,COO, was

22 on Harch the 9th. He was througr: as a cGo: ~idate on narch : 5,

23 six days later.

24 So, when you say it was in?ossible for hin to

25 becone a candidate without these ~a~~ents, he had been a

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(202) 769·0816
39 1 candidate for months without these payments. He got the

first one only just before he ~ithdrew. Is that not so?

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rm. QUINN: That's what the record shows.

CO~~lISSIONER HARRIS: I have no other questions.

CH2\IR!'1AN rIC GARRY: Thank you, Commissioner Harris.

Commissioner McDonald.

COZ.UlISSIONER liC DONALD: Thank yOu' Mr. Chairman.

Well, .I will ,be brief.. I clearly understand the

9 distinctions that you made on nunerous occasions this

10 morning about what you think is at issue here. I dor-'t

11 'vholeheartedly sup?ort, nor do I \-1holeheartedly disniss

11 what you have said, but there are a f~\ol t~i:".Cl::; -,of gre?lt inJ.;:.eres-.:

13 to me about your logic.

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You have spent a great deal of time lecturing us

about our logic, so I thought po£sibly we'would just put the~

side by side and see what ,.;e've got.

You've indicated that you think it would be a bad

move, in f act you sa':'d, I think. initially in ~lour o!,eninc

statement that we would be amending the law in this area.

You made several cites which were not furnished to us,

11 but I certainly have no 9roblen w':'th acce~tinq them, at

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least for the tine being.

The question I have is that, are you not asking us

to do the very thing you are accusing us of? You are sayi:-.c

that in essence, if '-Ie didn't provide a salary to senator

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.~. ';".:~-~~~='-..,....,-:-:..,."ho:-'" .. ·""""~'.""'··.""':',7; '~;.""'.!r-',.,,,":,<"'" ~...-.-.....-.,.,....----~- __---------_--_

42

40 1 McGovern or other candidates, we would in fact, if I follow

your logic correctly, be saying that that is bad for the

3 process, therefore, it shouldn't be construed the way the

Comr:tission has.

5 I would agree with you, going back to a state~ent

6 you ~ade earlier, that the Co~~ission -- and I would assume

this would apply to yo~rself as well -- may think certain

things about any

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area, whether it is U".is C.rea or a!1~' other, ;,:::t

9 that in fact what we're faced with is interpreting the law

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as \.;e see it.

Are you not r.:aybe asking us the sane thing, to

amend the :aw because it would be bad, because individuals

should not or could not run :'f they did b.)t have 'these

salaries? Wi~hout questioning the ~erit 0: i~, and that

~ay be the most meritorious thing in the world, I'm not sure

that that's not right. I'm not sure that I don't agree wit~

it, but that's a problem.

But where I'm having a proble~, witho~t ~oin~

into the Wallace example .which I see virtuall~',. '.

absolutely no corollary at all between that and this

21 question here, even tho"lgh it's cited at SOMe length, I ha':e

that it is obvious t~3:'

that has perceived the la~ in the met~oi

And no',,, you're

that I'm aware of,

that you do.

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, a problem unders-:.anding the logic that you're corning to.

There's not been a candidate in the histor~ Qf the Act, ,I

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43

think there are many we don'.t fotesee ...

I would say to you, since you saw fit earlier on

probler:,,_

perceive it that ~'ay but that t s cert.ai::ly no~ ny ?osture

. : the problem is that we don't allow

this particular circumstance, which I

is to anend the law because we dc~'t like it. You nay

exce~~io~ to anyor:e saying that t~e CO~"':lission's attitude

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(202) 719·0818

I ~ight say to you in ~he s~rongest terns

::,ossible -- I can't speak for ny colleagues -- I tak e dee:-:

la\,: the ot:ter way, \-lhich you fail to bring up when you are

forth, we nay be i~ a ?osition, of co~=se, of anending the

here is the very thing -- we take the ~os~ure that you ~ut

trouble with your logic. I think what you're suggesting

So, l'n sure you,as a la"~er ,can appreciate the

indicated that that's a problen as well, and it is a

giving us advice on wha~ we should do. You haven't

grapple with those matters. But I would only -- I'm having

kind of proble~ that we get into when we're tr~ing to

do~'~ ci~e e~ough exa~?les.

of course, are •. '.':

co~plain~ is that the problem with the Cornnission is, they

more discre't-ion. So then you allo\i r.lore discretion and the

it did not foresee

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to give us sone advice, your advice is probably accurate. Bu~1

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each time we set out nunerous details, the corn~laints we get,;

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and I don't think it's any of my colleagues' posture.

You and I may have an honest difference of opinion

about the law, but I want to say to y~u in the very plainest

terms that I know ho", that that is sioply not the case,

in my o~inion, of either myself or any of my colleagu~~.

We took the postu=e, right or wrong, that we felt like we

were trying to be fair about the matter.

'~en yo~ co~e befo~e this Con~ission ana i~dicate

that we've decided ~o rewrite the law because we don't

agree \·... it~ it., i~ is ~o~ rea:"ly accurate. I t!1ir.i< i:. does

a li~t:e b~~ 0: disservice tc ~he ~rocess. If you a~d I

disagree about the law, tha~'s o~e tting. If you tell ne,

on the o~her hand, that you thi:lk in s-pi te .of. ttle fact~_'~ha~ the:-e

an advisory o!,inion ?rocess that \-.las not sought, by the

fact tha~ yo~ say i~'s clear on its face, eve~ though this

has ne"~er been dO:1e !'re\Yiously, tr ~y knc;.i~~dge, it's the

his~ory of the Act that it. is ::>lai:1 and sinple and it's a

shame we do~' t. understand i ":., ! thir:k nay not be ent.irely

correct. •

I t.ti~k o~e ofthe ?roblens I'~ having with yo~r

log ic ,_ quite :rankly,-· is -::: t:~ir:k naybe you want us to -amer.C:

the law the o~her way based C:1 ~~a~ yo~ ~ersonally thi~% ~~e

law ought to be. A~d yo~ nay be r~0~:, I d~~'t k~o~. !~

may be that all people .should be c:1titlcd to some sor~ c:

salary I cOI':lpensat iO:1, or -- ~~1ese te::.-!':".s ha\·e bee:1 used

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interchangeably. toclay •. I don'.t ~now.•.. J ~ean, that may b.e t ue.

I just simply have not seen in the history of the Act where

that's the case •

Are you asking us to amend the law in your favor?

~ffi. QUI~N: I certainly think not. I think I've

made clear that I think the statute is clear, and I thihk

that the Commission set up rules for people to live by.

If you've amended the law, if you're right and I want to

anend the la~ that way, nobody's hurt.

':'he proble::: is that you have an obligatio~ to 9 :se

people no~ice and i: I' n right and you're anending the 1a'·; ,

then you've done so retroactively. There is a difference

th~re.

COIU1ISSIONER HC DONALD: Are you s~ggesting tha~

we can give notice 0:1 ever~' conceivable question that niS'ht

cone before the Connission or that might later come before

the Cornnission?

!'1.~. QGI~l~\: You have to give reasonable notice as

to what's permit~ed and what's no~ permitted.

CO:lllISSIOKSR !1C DOK;\LD: I don't think there' 5 a

dis?ute about reasonab:e no":. ice . You and ! certainly

don't differ on that score. That's not what I asked yo~.

I said, are you of the opinio~ that we ca:1 give

notice on every conceivable, possible thing t~at might cc~e

before this Co~~issio~. Ca~ you d~ that "i":.~ a clie~~?

cS :x cS G'loup. .ftd. - Couff cR~pott~'u

(202) 7'9·~31'
46

Aikens.

ago, Co~~ssioner Harris and Bob Costa and a fe~ others i~

COnI:10:i t:;read, that you ca!'l:1ot later ho2.d soneone to have

~he roo~ will recall that we atten~ted to define quali: ie::

exhaus~~ve, that we finally gave u~. We realized we could

we found the list so eXha~stive, and yet not

not ever list everyt~ing t~at would be a~alified.

i1r. Quinn, ,.,hen ·.\'e first were SHorn i:1 ten y~ars

cmUH SSIONER AIKEN S: Thank you, r1r. Chairnan.

disDute again. I won't inquire further.

CHAIRHA..~ l-lC GA..l:ffiY: The Chair recognizes Conmissio:1e::-

ir:1?roper agency action.

in co~~o!'l with the four about which y(U warned. That is

COHHISSIONER l1C DONP.LD: ~-Je' have just the 'sane

list fo~r things wtich are not permissible, and they have a

v iolated your la\~' for doing a fifth thing which has nothing

that's being realistic about the process.

None of us \~ould differ around the .t~ble •. I W(>Uldn'rI

differ with you _at'-~ll about trying to give reasonable _n()tic~.

• think that.is exactly right:. I dcn'thave a.problem with 1Ia:. !1..~. QUINN: What I submit to you is that if you !

!

take? If you can, I want to hire you, because I don't think

fallout that they may have on a given position that they

44 1 Can you foresee -- can you tell the client every conceivable

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(202) 769·0316
47 l

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1m. QUINN: Or not qualified.

CO~1ISSIONER AIKENS: Or not qualified. So, we

I set the general ruleS. I don't think it was ever contemPlate,

by the Congress in drafting this law, or by the C~i.sion I

I

in the ten years we've interpreted it, or tried to interpret I

I it, that a candidate would make money from public ~inancing.

And that's where I have the problem. Legally or

not, I don't think it was ever contemplated, and I don't

think the public would like very much to have their mone~

useJ tha:: \·:ay. I think that' 5 the basis of the h'hole thing,

it's the public financing.

H..~. QUINN: May I respond?

C011HISSIONER AIKEHS: As Cor:II'lissio:1er Harris said,

if it was private fund~ that would be a different natter.

HR. QUINN: !1aybe it would, but this is the

similarity with the ";allace case. I1aybe the la,., never

c contenp~ated that.

~he problen facing all of us is that the law never

prohibited it, and you never prohibited it. You may wan::

to prohibit i:: in ::he future, but it is not proper :or a~

age:1cy to pror.ibit t retroactive ::. after the la\~ s!,oke

nothing about i::.

COi·r:ISSIONER AIKENS: senator l1cGovern aside,

can you envision what would ha~pe:1 to ?ublic financing

cS 9< e5 G'lOup. ..ftd - Court cRtpo1.te·u

(202) 719·0818

candidate ~ho wanted to and c;ua:i:ied,

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48

46 1 be paid a salary out of pUblic funds?

2 MR. QUINN: . Commissioner Aikens, I may agree with

3 you and just as the Commission said in 1975, George Wallace

.. receiving royalties may be offensive, we may not like that,

5 but the statute didn't prohibit it and your regulations

6 didll' t pr:.)hibit it. And if you '...ant to change the rules of

7 the game, change them, but you're not permitted to change

8 them retroact~vely.

9

10 IiI 11 .

COI·l1USSIONER AIKENS: I don't think we are changing

then.

Thank you, Mr. Chairman.

here, it wo~ld have been offensive to me .. 1 1 m afraid I'd

your logic, but I must say to you of course that the

difference there was fairly substantial. It was not a

CH..i\IRMA,.1Ij nc GARRY: Conmissioner f1cDonald.

the sane place as the Co~,ission.

mentioned earlier. It \vas a question of hirr,

But there were certainly a different set of

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(202) 789·0818

I

COHtUSSIONER HC DONP.LD: The only other point I made;I

about the Wallace matter that you cited, and I understand

Harris

circunstances. It wasn't a questio~ of him deriving ?ubl~2

deriving benefits, which I nigh~ sa:", I certainly 'laSn't

what Commissioner Aikens has alluded to and Cornnissioner

come out

questio~ of the candidate receiving pUblic monies, wt.ich is

monies. "~at happened was exactly the o~posite, and • t~:~~ .~ ------.........

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Cm1!nSSIONER HC DONALD: That's right, \vhich I

~L~. QUIKK: I understand that differe~ce. The

We may not agree what the end result overall of it

illegal we can't make it illegal.

saying, you oay not like it but if it's not .; .... .....

and someone benefiting froD royalties.

poir.t is very simply that, that advisory o~inion was

righ':

opposed to a candidate receiving pUblic ~oney for a salary,

may be, but there were certai~ly two different aspects as

think we would probably agree nn that.

I didn't mean to offend you, but I was having a great deal

cer~ainly two very different phenoDena involved here, and I

of trouble under&tanding the logic because they are

47 1 when I said earlier -- I didn't, if I did I didn't mean to,

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CHAIR!IA."'J !'1C GAR.-1.Y: lIr. Patton.

cO::L~or.ly call the blood, S\-leat and tears.

of opinion there.

knowledge of his background, he's not only a la~~'er

}L~. PATTO~: To welcome !tt. Quinn here today, having

some

f~r.ancing bills ~n the ho~per both in the House and Se~ate.

are rnar.y public financing bills and have been many rublic

cS ::x cS Group. Ltd. - COU'lt cR~po'lt~'U

(202) 789·08/8

b~~ ~e's beer. in po:itical ca~paigns for reany years so he

I thini<, 11=. Quinr., you're probably a'oJare of, there

k~O\\'s sor::ething 0= -- should knmoJ sonething of ,·:hat we

don't agree with. You and I wouldn't have a difference

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in light of that quasi-intent -- here again, it was private

How do you respond, on \~·hat they specifically did

agree ....ith ne that "e can't render i:leca: ~~ ~~e ~ast

But for those

we're getting into the

B"... ..... 1 .... 0·... :0. hope that Henbers of CO:1gress would

The House side under 439a

context.

~L~. PATTO~: I bet you ~ave a gu~ feeling, thou~h?

contributions. Again, we are not in the pUblic financing

HR. QUIN:,: He:l, I can't di\.·ine how Member~ cf Cor:qress

candidates for publi= office cannot personally ~rofit fron

1m. QUI~~: !\o, I genuine:'y don't. '~e do -- you':-e

quite right, Congress on at least ~hat occasion said that

if Senator !]cGovern ceu Id indeed get a sal~y, and. obvious 1:'

would respond to th~s situation.

think they would respond?

have to amend that fer this particular matter. How do you

I'm sure he has paid taxes on it. Prior to filing, he may

..;n 1979 , as ,to ir.tent?

monies as opposed to, w~at we have here is public monies,

I

I ~~d I guess my question is, how would you think I

the Members of the House of Representatives or their candidates,

!

,

excess campaign funds to personal use.

Members elected prior to January 8th, 1980 could convert

question of intent here -- in the 1979 Amendment said that

I-1embers elected after that ti~e, they could not do that.

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(202) 769.0818
51

17 , that makes reference in the definition of qualified c~?aig~

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what we didn't say was going to be illegal, and that if, if

this situation is one that deserves the attention of

Congress or the attention of this Commission, Congress

should act or ~is Commissiqn ~hQuld-ac~, and it~should do s

so prospectively.

CHAIR~ Me GARRY: Anything further, rtt. Patton?

The Chair recognizes Comnissioner Reiche.

COHHISSIONER REICHE: Very briefly, r1r. Quinn,

yo~ have emphasized throughout your presentation that we

cust be wary, ?rirnarily, of situations in which such

paynents would be illegal for one reason or another.

You also, in your colloquy with Connis~ioner ~cDonal= ~~

wi~h o~hers, myself included, have referred to the fact that

you think we are acending either the statute or the

regulations.

As ! examine Reg. 9032.9(a){2), please note that

ca::1paign for no.'7lination." And this is stated in the

conjunctive, so you've got to be ab:e to satisf~ that.

there's more to this discussion than trying to apply som~

is a matter for interpre~ation by the Co~ission.

standard of la~, be it federal, state, local, and saying

expense to "expenses made in connection with his or her

cS 'J< cS GfOUp. .ltd. - Couff cRepOffef4

(202) 789·0813

that, ~ell, perha?s it's illegal. This, I submit to you,

I centio:1 this just by ''o1ay 0: poi~ting out that

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52

That is not to suggest that our interpretati0~S

will always be perfect in your eyes or anyone else's, but

that's what we have to grapple with, and-by way of

supporting the statement made by Commissioner McDonald, I

firmly do not believe that there is a soul sitting at this

table who is seeking to amend either the statute or the

regulations.

To the contrary, we're trying to give an

interpretation based on intent as we know it, based on

corr~o~ se~se, and thela~ as it is given to us.

CHAIR~AN MC GARRY: Thank you, Mr. Reiche.

Commissioner Elliott.

COMMISSIONER ELLIORRR: Mr. Quinn, please believe

me, m~ remark is facetious and I'm not trying to make your

arg~~ent for you, b~t it just dawned on me, there were

quite a r.umber of candidates who were receiving public funds

for salaries curing the campaign. They are called Senators

and Presidents and any number of other things,so my rema=k

was just facetious, but there are people who are paying the~r

bills with public funds.

COt-1MISSIONER MC Dm;AL~: COI:".nissioners. (Inaudit-:e. I

CHAIR1~AN Me GARRY: YE:S. Anything further?

~~. PATTON: Just a cc~~ent_ It doesn't deserve

an answer but I think Mr. Ju:n~ should be aware of it.

I think the Cor.~issicn is sensitive to the

cS 9( cS GfOUp. ..ftd - Couft cR~POft~f~

(202) 789-0818
S3

COmr.'l.issioner Aikens really nade my case \,Then she said that

I'm struck by the impression that there's just no limit to

a very narrow definition of nor.-qualified ca~?ai9n eX?ense

CQ1o!;HSSIONER AIKENS: I did not say narrow, by t.he

- -,

MR•.QUIID;: -::.'YJe'l+,. did you guess?

I think just about everything has been said,

CRA IRAAN He GARRY: Anything further?

that, he should be aware of the .~en$itiyjty_

up i~s hands and gave up, ar.d as a result it tailored

ter. years ago the CO!nr.'l.ission considered and tried and threh'

and Oile that does not inc lude payments of the tind at

HR. QUINN: Yes, I appreciate that. I think

way. _ said a broad defi.ni. tio:-.. \.;e tried to encompass

issue here.

Do you have any co~ent?

and I really think it's not realistic to think that the

continlJency.

regulatory process could possibly cover every possible

what you \-1ould allmv, and n0 cutoff, as long as it \-las legal

~camp~ign. expenditure. But, without asking for an answer to

~tr. Quinn. You have made your position rather clear.

J.positi:on ':today on. :~riterpretation 'of '\Y'hat 'is quali~eo

df. they"had their drUthers,:wo\rl:d ·not'_.1.ike.~to·.be' ,--i'n' this

Argument that it likes to give very broad discretion to

. candidates, and it doesn't -- I' frankly feel. as though probab'y

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what we thought would fit into that.

MR. QUINN: I m\an a narrow definition of

non-qualified campaign expenses, and you're right, quite a

broad definition of qualified expenses.

CP~IPJ~~ r-1C GARRY: I dontt want to extend it any

further because I think we all understand one another and

I don't want to break the house up in laughter, but'it is a

serio~s ~atter but there could be .a-lot of contin~encies;thati1

as resul~ of the no-limit proposition that you advanced,

that wo~ld rea:ly be quite ludicro~s, a~d you really, i~

effect -- O~ the basis of the argunent that you advance,

and certainly I'm not foreclosing or prejudging, I will

examine everything rather carefully.

You did make some rather cogent points. There's

no que5~ion about it. It's a very difficult issue. But I

think the bot.ton line is that you really hTould render the

entire mandatory audit of candidates and their conrnittees

that receive pUblic funding a nullity, it. really \vould be

nea~i~gless and I don't think i~ was meant to be at all.

I rea:~v want to thank you ~or tak~ng your tine,

you ar~d !1s. Cu.:-tin 1 and the pa~ience. I ca:-. assure you tha:.

i~'s something that we don't do f=ivolcusly or

co~~e~?~~o_s~y 0= without a hig~ regard for everyone and

everything in the process .

\.;e have given it. a grea~ deal 0: t:-io-..Jght ar..1

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(202) 789·0818
4!..

55

we will have further delibera~io~s and consideratio~an~

reasonable period within which to submit an~' additional

Senator HcGovern or the CO!nr.\i ttee, or you of course, \"o'.lld

feel are relevant, and after that the Conrnission will take

I

fruitful.l

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i

There may be many points that I can't

There are some that I think were rather

CHAIRMA..~ liC GARRY: So, if_ there's' nc ot-jectio:: fro:T

So, the way we will close this matter out,

colleagues, the Chair would like to allow until the close I

,~ will have the benefit of this transcri~t of t~~~

a~y and all documentation ~~ ~his case.

transpired, including what took place here this morning,

at tohe co"clusiO:1 0: tha::. we ....;ill eithe.::- a::irn or r.:odi:~·

of business May 10th, 1985, a ~eriod within which former

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(202) 719·0Bl!

oral presentation, and on ~he basis 0: everything that has

Do you still feel that would be a reasonable time?

have \-lithin which to subnit a::y additional naterials you

H...q. QUIN~: Yes, that's fine.

m• :r

••

opening of this hearing, a date of the close of business,

a~d I think you and I discussed inmediately prior to the

!'1ay 10th, 1985.

written information you care, that yO;J feel is relevant,

meaningful and cogent, but I think the exchange was

agree with you on.

to hear from you.

!1r. Quinn, is to -- the Chair wants to alloH you a

53 deliberation, and I personally think it's been very helpful 1

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our determination, our final repayment determination which

has been made.

So, if there's nothing further, that would seem

to conclude our business for today. Once again, thank you

very much.

(Whereupon, the hearing in the above-entitled

matter was adjourned at 11:25 a.m.}

cS 9( cS GfOUp. .etl. _. Couft cR~POft~f~

(202) 7'9·08"

l!
FEDERAL ELECTION COMMISSION

IN "SHINGlO"" 0 C 20463

CERTIFICATION

I, Mary W. Dove, Ad~inistrative Assistant ~o the

\f)

Federal Election Commission, do hereby certify that the

preceding 56-page t~a~script discloses the identity of

eac~ speake~ a~d is adequate tc reccrc =ully ~he Commissicn's proceedings with respect to the Or~l Presentation by the Frie~ds of George McGovern on April 24, 1985.

Attest:

Date ~YnofJ'~ Administrative Assistant
C~~,...,..-~_,~~"~"';;U.i&'"F~·'"''''''---'-1!!!'''''~---~.•. ,-1I.

C E R T T _ ! C A r

This is to ce=~ify that the a~~ache~ ?=cceedi~;s

be:o=e the Federal Election Commission

(~ame 0: Agenc':

'J)

?!.a::::e:

Date:

Federal Election Commission Special O~E~

Session, Oral Presentation

~ashington, D.C.

April 24, 1985

anc. is

the:=eo: z _

- - :i.:"e 0: the Cc:7'..-:-':' 5 S :'c:: .

c

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•

''=!"

MEMORANDUM

'1'0:

FROM:

SUBJECT:

FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C. 20463

March 3, 1986

FRED EILAND

PRESS OFFICER

ROBERT J. COSTA

ASSISTANT STAFF DI~~ AUDIT DIVISION

PUBLIC ISSUANCE OF ADDENDUM TO THE PINAL

AUDIT REPORT - FRIENDS OF GEORGE MCGOVERN

.~

•

Attached please find the Addendum to the Final Audit Report

on Priends of George McGovern which was approved by the

Commission on February 19, 1986.

Informational copies of the report have been received by all

parties involved and the Addendum may be released to the public.

Attachment as stated

CC: FEC Library

fY" RAD

~lic Record

Office of General Counsel

•
• FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 204&3

.

•

•

ADDENDUM TO THE

FINAL REPORT OF THE AUDIT DIVISION

ON

FRIENDS OF GEORGE MCGOVERN

I. Background

A. Overview

On February 11, 1985, the Federal Election Commission

("the Commission") released the final audit report on Friends of

George McGovern (Wthe Committee"). That report was based on an

audit of the Committee conducted pursuant to 26 U.S.C. S 9038(a)

and included the Commission's initial determination regarding

repayment to the U.S. Treasury. The audit covered the period

September 13, 1983 through July 26, 1984 •

The final audit report, Finding III.A. addressed

the Commission's initial determination that the Committee made

disbursements totaling $92,642.79 for non-qualified campaign

expenses: $15,125.11 for disbursements related to the National

Democratic Nominating Convention; $27,517.68 for undocumented

disbursements; and $50,000 for salary payments to the Candidate.

The Commission determined that the pro-rata portion, $25,104.99

is repayable to the U.S. Treasury.

On June 13, 1985, the Commission made a final

determination reaffirming its initial determination. A Statement

of Reasons in support of the Commission's final determination was

issued as required by 11 C.F.R. S 9038.2(c) (4). On July 10,

1985, a check in the amount of $25,104.99 was received from the

Committee.

This addendum is based on the follow-up fieldwork of

the Committee conducted pursuant to 11 C.F.R. S 9038.l(b) (3) which states that the Commission staff may conduct additional

fieldwork after completion of the fieldwork conducted pursuant to

paragraph (b) (1) and (2) of this section.

In addition, 11 C.F.R. § 9038.1(e) (4) states, in part,

that addenda to the audit report may be issued from time to time

as circumstances warrant and additional information becomes

available. Such addenda may be based, in part, on follow-up fieldwork conducted under paragraph (b) (3) of this section.
•

2

The follow-up fieldwork covered the period July 27,

1984 through April 30, 1985, the last day covered by the most

recent report filed with the Commission at the time of the

follow-up fieldwork.

This addendum is based upon documents and working

papers which support each of its factual statements. They form

part of the record upon which the Commission based its decisions

on the matters in the addendum and were available to

Commissioners and appropriate staff for review.

B. Key Personnel

The Treasurers of the Committee during the period reviewed were:

C.

Ms. Paula M. Kowalczuk

Ms. Mary T. Curtin

Scope

7/27/84 - 1/14/85

1/14/85 - 4/30/85

A.

c

•

The fieldwork included an examination of required supporting documentation for receipts and disbursements, analysis of Committee debts and obligations (including winding down costs)

and such other procedures as deemed necessary under the

circumstances to determine whether the Committee received any matching fund payments in excess of the amount to which it was

entitled and whether any amount of any payment made from the

matching payment account was used for any purpose other than to

defray the qualified campaign expenses of the Committee.

II. Findings and Recommendations

Determination of Net Outstanding Campaign Obligations (NOCO)

Section 9034.5(a) of Title 11, Code of Federal

Regulations requires that the candidate submit a Statement of Net

Outstanding Campaign Obligations ("NOCO") which contains, among other items, the total of all outstanding obligations for

qualified campaign expenses and an estimate of necessary winding

down costs within 15 days of the candidate's date of

ineligibility.

Further, 11 C.F.R. § 9034.5(d) requires that a

candidate submit a revised Statement of Net Outstanding Campaign Obligations with each submission for matching funds payments

filed after the candidate's date of ineligibility, reflecting the

financial status of the campaign as of the close of business on

the last business day preceding the date of submission for

matching funds.
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Section 9038(b) (1) of Title 26, United States Code

states that if the Commission determines that any portion of

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 pay to the Secretary an amount

equal to the amount of the excess payments.

Finding III.B. of the final audit report addressed the

Committee's financial position with respect to the Candidate's

entitlement to the receipt of matching funds. The Audit staff

verified the Committee's June 15, 1984 NOCO and determined that

the Committee had net outstanding campaign obligations of

$68,467.77 on that date.

An addendum to the final audit report (forwarded to the

Committee on September 25, 1985) contained the results of the

Audit staff's review of the Committee's financial activity through April 30, 1985, and contained an update of the

Committee's June 15, 1984, NOCO statement using actual expenses paid in lieu of the estimated winding down costs presented in the

final audit report•

In response to that Addendum, the Committee submitted

additional documentation which resulted in changes to the amounts

contained in the NOCO statement and the Apparent Non-Qualified

Campaign Expenses presented at Finding II.B. Specifically, the

Committee submitted documentation for additional winding down

costs beyond April 30, 1985 as well as adequate support for a

disbursement which was previously undocumented.

In addition, disclosure reports were reviewed through October 31, 1985 to determine whether the Committee reported any disbursements which could be includable as additional winding

down costs.

An amended NOCO statement reflecting the changes noted

above appears below•
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Friends of George McGovern

Statement of Net Outstanding Campaign Obligations

as of June 15, 1984

(Prepared by Audit staff)

':;:r

VI'

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Assets

Cash in Bank

Accounts Receivable

Non-qualified campaign

expenses 3/16-6/15/84

. Total Assets

Liabilities

Accounts Payable for

Qualified Campaign Expenses

Winding Down Costs 6/16/84-

10/31/85 (Salaries, Overhead,

Supplies, Legal Fees, etc.)

Fundraising Expenses through 9/11/84

Total Liabilities

Net Outstanding Campaign

Obligations-Deficit

($ 5,899.08)

64,610.65 ~/

29,387.39 R/

$85,250.24 9./

55,911.18 g,/

33,815.97 !A/

$ 88,098.96

(174,977.39)

( 86,878.43)

• 5#./

~/ This amount is comprised of a $48,269.00 matching fund

certification of 7/6/84, offsets to operating expenditures totaling $16,187.34 and interest of $154.31.

B/ This amount is included to ensure that only the amount of

post-ineligibility qualified campaign expenses is used to calcul~te the candidate's remaining entitlement to matching funds.

£/ This amount does not include $18,020.35 in non-qualified

campaign expenses paid by the Committee from 6/16 - 9/11/84.

A pro-rata repayment is requested for the amount paid from

7/27 - 9/11/84. (see Finding II.B.) The Commission's

Statement of Reasons requested repayment for the amount paid

from 6/16 - 7/26/84.

~/ This amount does not contain any estimate for post 10/31/85

winding down costs. Any estimate provided by the Committee

will be considered in the calculation of the Candidate's

remaining entitlement•

The Committee made fundraising disbursements totaling

$23,979.69 after 9/11/84. However, these were not included

as winding down costs because the incurrence of these costs

was not necessary to satisfy debts for qualified campaign

expenses.
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Our review of the Committee's deposits indicated that

for the period June 16 through August 7, 1984 the Committee

received $50,044.23 in contributions from individuals and

interest income. After applying the 8/7/84 matching fund payment of $16,699.01, and the individual contributions and interest

noted above, the Committee had a remaining entitlement of

$20,135.19. In addition, for the period August 8, through September 11, 1984 (the date of receipt of the matching fund

payment certified on September 6, 1984) the Committee received

$17,917.97 in contributions from individuals and interest income.

Therefore, it appears that the Candidate had entitlement to

matching funds of only $2,217.22 of the $24,960.08 payment received on September 11, 1984 and had no entitlement to matching fund payments received subsequent to September 11, 1985.

The amount of matching fund payments in excess of the

amounts to which the Committee was entitled are:

•

Date Paid

September 11, 1984

October 9, 1984

November 2, 1984

December 11, 1984

Total

Amount in Excess

Entitlement

$22,742.86 1/

8,665.00

3,722.99

5,310.00

$40,440.85

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Based on our review of the Committee's financial activity through October 31, 1985, it is the opinion of the Audit staff

that the Committee received $40,440.85 in matching fund payments

in excess of the amount to which it was entitled.

Conclusion

On February 19, 1986, the Commission made an initial

determination that $40,440.85 be repaid to the U.S. Treasury within 90 calendar days of receipt of this addendum in accordance

with 11 C.F.R. § 9038.2(d) (1).

B. Apparent Non-Qualified Campaign Expenses

Section 9038(b) (2) (A) of Title 26, United States Code

states that if the Commission determines that any amount of any

payment made to a candidate from the matching payment account was

used for any purpose other than to defray the qualified campaign

expenses with respect to which such payment was made, i~ shall

notify such candidate of the amount so used, and the candidate

shall pay to the Secretary an amount equal to such amount•

1/ This is the amount received ($24,960.08) minus the amount to

which the Committee was entitled ($2,217.22).
6

The Commission, in a Notice of Proposed Rulemaking published in the Federal RtXigter on June 28, 1984, set forth a

pro-rata formula whIch wou ase repayments for non-qualified campaign expenses on the proportion of federal funds to total

funds received by the candidate. The text of the regulation and

the Explanation and Justification were published in the Federal

Register on August 22, 1984 and transmitted to Congress. On

March 5, 1985 revised regulations were resubmitted for

publication. The proposed regulations were before the Congress for 30 legislative days as of May 20, 1985, and approved by the

Commission for publication in final form on June 11, 1985.

The formula and the appropriate calculation with

respect to the Committee's receipt activity is as follows:

Total Matching Funds Certified Through Date of Ineligibility (3/15/84)2/

Numerator + Private Contributions Received Through 3/15/84

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$ 209,337.38 ~.270987

($209,337.38 + $563,161.69)

Thus, the repayment ratio for non-qualified campaign

expenses is 27.0987'.

Section 9032(9) of Title 26, United States Code

defines a qualified campaign expense as a purchase, payment, distribution, loan, advance, deposit or gift of money or anything

of value incurred by a candidate, or by his authorized committee,

in connection with his campaign for nomination for election and

neither the incurring nor payment of which constitutes a

violation of any law of the United States or of the State in

which the expense is incurred or paid (emphasis added).

Section 9033.11(a) of Title 11, Code of Federal

Regulations states that each candidate shall have the burden of

proving that disbursements made by the candidate or his or her

authorized committee(s) or persons authorized to make

expenditures on behalf of the candidate or committee(s) are

qualified campaign expenses as defined in 11 C.F.R. § 9032.9.

In addition, the Commission's Regulations under 11

C.F.R. S 9033.11(b) contain the documentation requirements

regarding qualified campaign expenses.

•

On March 23, 1984, the Commission determined that toe date

of ineligibility under 11 C.F.R. § 9033.5(a) for Senator

George McGovern was March 15, 1984 •
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A review of the Committee's disbursements made

from July 27, 1984 through September 11, 1984 disclosed that the

Committee made $6,934.61 in additional disbursements for

convention-related expenses. In addition, adequate supporting documentation was not present in the Committee's records for

$2,612.54 in disbursements made during the period.

As noted above, the Committee's response to the

September 25, 1985 Addendum included documentation to support one

disbursement for $1,500.00 which was previously undocumented. No

documentation was presented concerning the convention-related

expenses or to support the remaining undocumented disbursement of

$1,112.54. 1/

Conclusion

On February 19, 1986, the Commission made an initial

determination that the amount, $6,934.61 of convention-related

disbursements and $1,112.54 of undocumented disbursements, be

viewed as non-qualified campaign expenses and the pro-rata portion, $2,180.67 ($6,934.61 + $1,112.54 x .270987 be repaid to

the u.s. Treasury within 90 calendar days of receipt of this

addendum in accordance with 11 C.F.R. § 9038.2(d) (1) •

1/ The Committee maintained only a cancelled check. No

additional information was made available to document the

disbursement, and thus establish whether the disbursement

was made "in connection with" the Candidate's campaign for

nomination •