• FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C. 20463

-

August 22, 1985

MEMORANDUM

TO:

FROM:

SUBJECT:

FRED EILAND

PRESS OFPICE

ROBERT J. COSTA

ASSISTANT STAFF DI TOR

AUDIT DIVISION

PUBLIC ISSUANCE OP FINAL AUDIT REPORT - CRANSTON FOR PRESIDENT COMMITTEE, INC.

Attached please find a copy of the final audit report of

Cranston for President Committee, Inc. which was approved by the Commission on August 14, 1985. •

Informational copies of the report have been received by all parties involved and the report may be released to the

public.

er Attachment as stated

cc: FEC Library

~lic Record

Office of General Counsel

•
• FEDERAL ELECTION COMMISSION

\\'ASH'NC10N. D.C. 2CM63

-

•

•

REPORT OF THE AUDIT DIVISION

ON

CRANSTON POR PRESIDENT COMMITTEE, INC.

I. Background

A. Overview

This report is based on an audit of Cranston for

President Committee, Inc. ("the Committee") to determine whether

there has been compliance with the provisions of the Federal

Election Campaign Act of 1971, as amended ("the Act") and the

Presidential Primary Matching Payment Account Act. The audit was

conducted pursuant to 26 U.S.C. S 9038(a) which states that

"after each matching payment period, the Commission shall conduct

a thorough examination and audit of the qualified campaign

expenses of every candidate and his authorized committees who

received payments under Section 9037."

In addition, 26 U.S.C. S 9039lb) and 11 C.F.R. S

9038.l(a) (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 on November 22, 1982 as the Cranston Presidential

Advisory Committee, Inc. In addition, the Committee conducted

testing of the waters activity commencing January 1, 1982. The

Committee changed its name to Cranston For President Committee,

Inc. on March 24, 1983. The Committee maintains its headquarters in Washington, D.C.

. The audit covered the period from January 1, 1982,

through May 31, 1984, the last day covered by the most recent

report filed with the Commission at the time of the audit. In

addition, certain activity was reviewed through July 13, 1984 for

the Statement of Net Outstanding Campaign Obligations and through August 31, 1984 for allocation of expenditures to States. The

Comrr!ittee reported an opening cash balance of $-0-, total
---:-~----------1!2------ _ •

receipts of $7,294,652.16, total disbursements of $7,279,893.52,

and a closing cash balance of $14,758.64 on May 31, 1984.·

However, the Committee continued to receive contributions and

make disbursements. In addition, revised Statements of Net

Outstanding Campaign Obligations have been submitted with each

matching fund submission as required by 11 C.P.R. S 9034.5(4).

Under 11 C.F.R. § 9038.1(b) (3) and (e) (4), additional audit work

may be conducted and addenda to this report issued as necessary.

This report 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 report and were available to Commissioners an~

appropriate staff for review.

B. Key Personnel

The Treasurers of the Committee during the period

audited were:

The audit included such tests as verification of total

reported receipts, disbursements and individual transactions~

review of required supporting documentation; analysis of

Committee debts and obligations; review of contribution and

expenditure limitationsJ and such other-audit procedures as

deemed necesssary under the citcumstances.

II. Finding and Recommendation Related to Title 2,

United States Code

Matters Referred to the Office of General Counsel

c.

A.

Mr. Ronald C. Peterson

Mr. William M. Landau

Scope

11/22/82 - 3/23/83

3/23/83 - present

•

Certain matters noted during the audit were referred to

the Commission's Office of General Counsel.

III. Findinas and Recommendations Related to

Title 26, United States Code

A. Calculation of Repayment Ratio

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

states 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 or to repay loans the proceeds of which were used to defray qualified campaign expenses, it shall notify such candidate of the amount

so used, and the candidate shall pay to the Secretary an amount

equal to such amount.
•

-3-

The Commission, in a Notice of Proposed Rulemaking published in the Federal Register on June 28, 1984, set forth a

pro-rata formula which would base 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, the 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 the Date of Inelig ibility "(3/1/84) 1/

Numerator + Private Contributions Received Through 3/1/84

Thus, the repayment ratio for non-qualified campaign

expenses is 33.2385% •

B. Use of Funds for Non-Qualified CamDaign Expenses

Section 9038.2(b) (2) (i) (A) of_Title 11, Code of Federal

Regulations provides, in part, that the Commission may determine

that amount(s) of any payments made to a candidate from the

matching payment account, or contributions received by the

candidate, were used for purposes other than qualified campaign

expenses. Further 1 11 c. F.R. S 9038.2 (b) (2) (ii) ee) provides, in

part, that an example of a Commission repayment determination

under paragraph (b) (2) of this section includes determinations

that funds were expended for expenses resulting from a violation

of state or federal law, such as the payment of fines or

penalties.

•

$ 1,697,633.91 &

($1,697,633.91 + $3,409,801.88)

.332385

•

l_

1/ On March 8, 1984, the Commission determined that the date of

ineligibility under 11 C.F.R. § 9033.5(a) for Senator Alan

Cranston is March 1, 1984 •
• 1.

-4-

Disbursements for Fines and Penalties

•

_..

,..,

-

A review of the Committee's disbursement activity revealed that the Committee disbursed $875.00 for traffic and

parking ticket fines. Additionally, the Committee disbursed

$6,076.96 for penalties for filing their Federal and State taxes

on an untimely basis. These apparent non-qualified campaign

expenses totaled $6,951.96.

At the exit conference on October 19, 1984, the

Audit staff presented Committee officials with schedules of the

apparent non-qualified campaign expenses.

In the interim audit report, the Audit staff

recommended that, absent a showing to the contrary, the

Commission make an initial determination that the amount of

payments of fines and penalties ($6,951.96) be viewed as nonqualified campaign expenses and the pro-rata portion of $2,310.73

($6,951.96 x .332385) be repaid to the U.S. Treasury pursuant to

26 u.s.c. § 9038 (b) (2).

The Committee's response to the interim audit

report dated May 2, 1985 did not address this issue •

Conclusion

On August 14, 1985, the Commission made an initial

determination that the amount ($6,951.96) of payments for fines

and penalties be viewed as non-qualified campaign expenses and

the pro-rata portion of $2,310.73 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: $2,310.73

•

2. Bank Charaes Assessed for Issuance of Checks

Drawn on Accounts with Non-Sufficient Funds

During the audit, the Audit staff noted $5,502 in

bank charges for Committee checks which were drawn on 3 bank

accounts with insufficient funds. These charges occurred from

October, 1983 through March, 1984. A Committee worksheet

entitled "Bad Check List-Final" lists 736 checks, totaling $166,498.07, that were drawn on these accounts•
•

·ft

•

•

In the interim audit report, the Audit staff

recommended that, absent a showing to the contrary, the

Commission make an initial determination that the amount of bank

charges ($5,502) be viewed as non-qualified campaign expenses and

the pro-rata portion, $1,828.78 ($5,502 x .332385), be repaid to

the U.S. Treasury pursuant to 26 U.S.C. § 9038(b) (2).

On May 2, 1985, the Committee responded that:

ftsection 9032(a) of Title 26, United States Code defines a

qualified expense as a purchase, payment, distribution, loan,

advance, deposit or gift of money or of anything of value

incurred by the candidate, or by his authorized committee, in

connection with his campaign for nomination or 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. These bank charges fall squarely

within this statutory definition. They constitute payments due

under a contract between the banks and the Committee and are not

expenses which arise from a violation of law. Thus, they are

analogous to finance charges charged on credit card accounts,

which are clearly qualified expenses, rather than governmental

fines or penalties."

The Commission has not previously encountered the issuance

of insufficient fund checks on such a large scale by a publiclyfunded committee. Bere, the Committee issued hundreds of bad

checks under circumstances suggesting eitr?r knowled~a that the

checks were unsupported or at least dis~e9ard for whether there

would be sufficient funds to cover the checks. Although the

Commission has accorded wide discretion to candidates in how to

conduct their pUblicly-funded campaigns, and therefore in what

costs are qualified campaign expenses, it has also found in

specific cases certain expenses are not legitimate ones to be

paid for with public funds. Thus, in contrast to legitimate

finance charges mentioned by the Committee, the bank penalties result here from behavior which is not the type of activity

Congress intended to finance with public funds in enacting the

Matching Payment Account Act, and in fact could be illegal. While not intruding on the Committee's legitimate discretion in

how to run its publicly-funded campaign, the Commission believes

that pUblic funds should not subsidize bank charges for

widesp!ead issuance of bad checks.

Conclusion

On August 14, 1985, the Commission made an initial

determination that the amount ($5,502) of bank charges be viewed

as non-qualified campaign expenses and the pro-rata portion of

$1,828.78 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: $1,828.78
•

RECAP OP RBPAYMBN'l' AMOUlft'S

III.B.l. Disbursements for Fines and 2,310.73

Penalties

11I.B.2. Bank Charges Assessed for

Issuance of Checks Drawn on

Accounts with Non-Sufficient

Funds

Repayment Pursuant to 26 U.S.C. S 9038(b) (2)

1,828.78

$4,139.51 1/

C. Determination of Net Outstanding Campaign Obligations

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 discloses among other items, the total of all outstanding obligations for

qualified campaign expenses and an estimate of the necesssary wincing down costs within lS days of the candidate's date of

ineligibility.

On March 8, 1984, the Commission determined that the

date of ineligibility for Senator Alan Cranston was March 1,

1984. Pursuant to 11 C.F.R. S 9033.S{a), that is the date

Senator Cranston's candidacy terminated for the purpose of

incurring qualified campaign expenses. -

The Committee submitted the original NOCO on March 15,

1984 and has continued to submit a revised NOCO with each

matching fund submission.

•

2/ The potential for an additional repayment(s) exists regarding

expenses incurred by the Committee with respect to the Iowa

state spending limitation (11 CFR S 9038.2(b) (2) (ii) (A».

Based on audit fieldwork performed through August 31, 1984,

the Committee made $641,424.40 in payments deemed allocable to

the Iowa limit of $684,537.50. In addition, approximately $178,000 in accounts payable allocable to Iowa were noted.

The Audit Division plans to perform follow-up fieldwork

covering the period from September 1, 1984 through the

disposition of the Committee's last matching fund payment

(3/20/85) to verify the additional amounts paid and allocable

to the Iowa state limit. After this audit work is completed,

an addendum to this report will be prepared.
The Audit staff reviewed the NOCO dated July 13, 1984. This

•

reView was limited to verifying cash on hand, accounts receivable,

capital assets and certain large accounts payable. 3/ The audited NOCO

statement is included at Exhibit A.

In its response to the interim audit report, the Committee did

not address the NOCO statement. Should the Committee's financial

position change substantially, additional fieldwork may be required

to assess the impact of the change on the deficit and to verify additional components of the NOCO.

Conclusion

The Committee received individual contrib~tions totaling $89,103.14

and a matching fund payment totaling $34,131.07 during the period July 13, 1984 through August 31, 1984. Therefore, the Committee's

remaining entitlement as of August 31, 1984, as audited, is

$1,100,472.72 ($1,223,706.93 - $123,234.21).

•

1/ The Committee's NOCO included other payables, however, these

items were excluded since the Committee did not present documentation supporting these items prior to the completion of

audit fieldwork •
e. Cranston

• Cranston for President Committee, Inc.

Revised Statement of Net Outstanding Campaign Obligations July 13, 1984 (Audited Statement)

•

o

Assets

Cash

Accounts Receivable

Capital Assets

Total Assets

Obligations

Accounts Payable for

Qualified Campaign

Expenses

Estimated Winding

Down Costs 7/13/84

to 12/31/84

Salaries,

Consulting $40,000.00

Rent 15,000.00

Supplies, Postage,

Xerox, Furniture

Rental 7,151.40

computer Services 10,000.00

Telephones 5,000.00

$ 44,572.09

15,520.36

10,000.00

1,212,647.98

$ 70,092.45

Travel Expenses 4,000.00

81,151.40

Total Obligations

Net Outstanding Campaign AI

Obligations - Deficit

1,293,799.38

($1,223 r 706.93) •

•

Since certain estimates were used in computing this amount,

the Audit staff will review the Committee's reports and

records as necessary to compare the actual figures with the

estimates ana prepare adjustments accordingly.

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

December 1, 1987

MEf\10RANDUM

TO: FRED EILAND

CHIEF, PRESS OFFICER

FROM: ROBERT J. COSTA /

ASS ISTANT STAFF DI RECr!O;J '--"'"

AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF ADDENDUM TO THE FINAL AUDIT REPORT -

CRANSTON FOR PRESIDENT COMMITTEE, INC.

Attached please find a copy of the Addendum to the Final

Audit Report of the Cranston for President Committee, Inc. which

was approved by the Commission on October 27, 1987.

Informational copies of the report have been received by all

parties involved and the report may be released to the public.

Attachment as stated

cc: FEC Library

RAn

Public Disclosure

Office of General Counsel

/
CR3/l02087

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

ADDENDUM TO THE

FINAL REPORT OF THE AUDIT DIVISION

ON

CRANSTON FOR PRESIDENT COMMITTEE, INC.

I. Background

A. Overview

On August 22, 1985, the Federal Election Commission

("the Commission") released the final audit report on Cranston

For President Committee, Inc. ("the Committee"). That report was

based on an audit of the Committee conducted pursuant to 26

U.S.C. § 9038(a) and included an initial determination regarding

repayment to the U.S. Treasury. The audit covered the period

January 1, 1982 through May 31, 1984.

The final audit report, Finding III.B. addressed the

Commission's initial determination that the Committee made

disbursements totaling $12,453.96 for non-qualified campaign

expenses; $6,951.96 for disbursements related to fines and

penalties and $5,502 in bank charges assessed for issuance of

checks drawn on accounts with non-sufficient funds. The

Commission determined that the pro-rata portion, $4,139.51 was

repayable to the U.S. Treasury.

On October 1, 1985, the Commission notified the

Committee that since no response to its initial determination had

·been received, the Commission's initial repayment determination

became final (11 C.F.R. § 9038.2 (c) (1». On October 10, 1985, a

check in the amount of $4,139.51 was received from the Committee

and forwarded to the u.s. Treasury for deposit into the matching

payment account (26 U.S.C. § 9038(d».

This Addendum is based on the follow-up fieldwork of

the Committee conducted pursuant to 11 C.F.R. § 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. The follow-up

fieldwork covered the period June 1, 1984 through December 31,

1985.

In addition, 11 C.F.R. § 9038.l(e) (4) states, in part,

that addenda to the audi t report may be issued' from time to time

as circumstances warrant and additional information becomes
2

available. Such addenda may be based, in part, on follow-up

fieldwork conducted under paragraph (b) (3) of this section.

This Addendum is based upon documents and workpapers

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. Rey Personnel

The Treasurer of the Committee during the period of

this review was Mr. William M. Landau.

C. Scope

The fieldwork included an examination of the 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. Findin9.s and Recommendations Related to

Title 26, United States Code

A. Apparent Non-Qualfied 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, it shall

notify such cand idate of the amoun t so used, and the candidate

shall pay to the Secretary an amount equal to such amount.

The Commission, in a Notice of Proposed Rulemaking

published in the Federal Register on June 28, 1984, set forth a

pro-rata formula which would base 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, the 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.
3

The formula and the appropriate calculation with

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

Total Matching Funds Certified Through the Date of Ineli~ibility (3/1/84)*/ Numerator + Prlvate Contributions ReCelVed Through 71784

$1,697,633.91 = .332-385

"

Thus, the repayment ratio for non-qualified campaign

expenses is 33.2385%.-

B. Allocation of Expenditures to States

As stated in footnote 2 on page 6 of the final audit

report, the Audit staff noted that the potential for an

additional repayment(s) exists regarding expenses incurred by the

Committee with respect to the Iowa state spending limitation.

Based on audit fieldwork performed through August 31, 1984 **/,

the Committee made $641,424.40 in payments deemed allocable to

the Iowa limit of $684,537.50. In addition, approximately $178,000 in accounts payable allocable to Iowa were noted.

The following pages 6 through 16 contain the -results of

the initial audit fieldwork relative to the Iowa state spending

limitation as presented in the interim audit reportl the

Committee's response to the interim audit reportl and the amount,

as calculated by the Audit staff, by which the Committee exceeded

the spending limitation. Found at pages 17 through 19 are the

results of the Audit staff's review of additional documentation

made available during the follow-up fieldwork.

Section 9035 (a) -of Ti tIe 26, Uni ted States Code states,

in part, that no candidate shall knowingly incur qualified

campaign expenses in excess of the expenditure limitation

applicable under section 44la(b) (1) (A) of Title 2.

Sections-44la(b) (1) (A) and 44la(c) of Title 2, United

States Code provide, in part, that no candidate for the office of

President of the United States who is eligible under section 9033

of Title 26 to receive payments from the Secretary of the

Treasury may make expenditures in anyone State aggregating in

'!../ On March 8, 1984, the Commission determined that the date of

ineligibility under 11 C.F.R. § 9033.5(a) for Senator Alan

Cranston is March 1, 1984. .

~/ During initial fieldwork, the Audit staff's review relative

to state allocations covered the period 1/1/82-8/31/84.
4

excess of the greater of 16 cents multiplied by the voting age

population of the State, or $200,000, whichever is greater, as

adjusted by the Consumer Price Index.

Section 9038.2(b) (2) (i) (A) of Title 11, Code of Federal

Regulations provides, in part, that the Commission may determine

that amounts of any payments made to a candidate from the

matching payment account were used for purposes other than

qualified campaign expenses. Further, 11 C.F.R. § 9038.2(b) (2)

(ii) (A) provides, in part, that an example of a Commission

repayment determination under paragraph (b) (2) of this section

includes determinations that a candidate, a candidate~s

authorized committee(s) or agents have made expenditures in

excess of the limitations set forth in 11 C.F.R. § 9035.

The Commission's Regulations at 11 C.F.R. § 106.2(a) (1)

apply to Presidential primary candidates receiving or expecting

to receive Federal matching funds. Except for expenditures

exempted under 11 C.F.R. § 106.2(c), expenditures incurred by a

candidate's authorized committee for the purpose of influencing

the nomination of that candidate for the office of President with

respect to a particular State shall be allocated to that State.

An expenditure shall not necessarily be allocated to the State in

which the expenditure is incurred or paid.

Section l06.2(b) (1) of Title 11, Code of Federal

Regulations states that an expenditure incurred by a candidate's

authorized committee for the purpose of influencing the

nomination of that candidate in more than one State shall be

allocated to each State on a reasonable and uniformly applied

basis.

The Committee's FEC Form 3P, page 3, covering activity

through May 31, 1984, disclosed $699,678.35 as allocable to the

Iowa e'xpendi ture limitation of $684,537.50. However, the sum of

the periodic report totals filed by the Committee through May 31,

1984, is $712,118.98.

At the entrance conference on July 3, 1984, the matter

of the allocation of expenditures to Iowa was discussed.

Committee officials stated that they were presently reviewing

expenditures, reports, and allocation methods and that amendments

may be filed. On July 25, 1984, the Committee filed an amended

FEC Form 3P, page 3, changing the allocated amount for Iowa to

$553,194.24.

Dur ing the audi t fieldwork, the Commi ttee provided the

Audit staff with its internal worksheets on which $624,972.10 was

recorded as allocable to Iowa. It should be noted that the

amount allocated by the Committee on Form 3P, page 3, (Iowa)

could not be reconciled to the Committee's internal worksheets.
5

Committee officials stated that with respect to its Iowa

allocations their internal worksheets were not accurate.

A review of the Committee's allocation procedures

indicated that a computerized general ledger was used to record

allocated costs for the pe·riod January '1, 1983 through September

30, 1983. From October 1, 1983, through February 29, 1984, the

Committee manually recorded allocated costs on spread sheets

which listed disbursements by check number and amount. Each

disbursement, or portion thereof, was then allocated to

fundraising, legal and accounting, national campaign, Iowa, New

Hampshire, etc. The Audit staff noted that the Committee did not

allocate any expenses paid from its two (2) Iowa bank accounts in

January, 1984. Further, disbursements made after February 29,

1984, were not recorded by the Committee, since a separate spread

sheet was used to record allocable debts outstanding as of

February 29, 1984.

In view of the irregularities noted in the Committee

procedures and allocations, the Audit staff reviewed all costs

incurred by the Committee and determined that $951,825.65

required allocation to Iowa.

The interim audit report recommended that, absent a

showing to the contrary, the Committee adjust its accounting

records and, where necessary, file amendments to reflect the

expenditures not previously allocated to Iowa. As part of its

response to the interim report recommendations, the Committee

presented additional expenditure documentation which not only

challenged expenses allocated by the Audit staff to Iowa, but

also expenses previously recorded by the Committee on its

internal worksheets as allocable to Iowa.

The Audi t staff reviewed the additional documentation

and made certain adjustments to the interim report allocations.

Presented below are categories of expenses (amounts paid or

amounts outstanding) which were not recorded on the Committee's

internal worksheets as allocable to Iowa.

1. Salaries, Employer FICA and Consul tant F.ees

Section 106.2(b) (2) (ii) of Title 11, Code of

Federal Regulations requires that, except for expenditures

exempted under paragraph (c) of this section (relating to

national campaign expenditures exempted from allocation),

salaries paid to persons working in a particular State for five

consecutive days or more, including advance staff, shall be

allocated to each State in proportion to the amount of time spent

in that State during a payroll period. Further, 11 C.F.R. §

106.2(a) (1) states, in part, that expenditures incurred by a

candidate's authorized committee(s) for the purpose of
6

influencing the nomination of that candidate for the office of

President with respect to a particular State shall be allocated

to tha t Sta te •

The Audit staff's review identified persons who

had incurred expenditures while working in Iowa for five or more

consecutive days. Their names were traced to payroll records to

determine whether their salaries, employer FICA, or consultant

fees had been allocated to Iowa.

Based upon this review, the Audit staff determined

that additional salaries, employer FICA, and consultant fees

allocable to Iowa totaled $142,407.53. The Committee did not

allocate certain salaries, employer FICA, consultant fees, and

payroll taxes paid from its national account: and salaries,

employer FICA and consultant fees paid from its Iowa bank

accounts during January, 1984. In certain instances, the

Committee allocated net salaries to Iowa but not the associated

payroll taxes and employer FICA.

The Committee, in its response to the interim

audit report, questioned the inclusion of $73,684.30 in staff

salaries, employer FICA and consulting fees applied to the Iowa

limitation by the Audit staff.

For expenses totaling $56,405.98, the Committee

submitted documentation which consisted of written statements

from Committee officials, check request authorization forms,

copies of expense reimbursement vouchers (some with copies of

receipts attached) to support its contention that these expenses

did not require allocation to Iowa.

For the remaining $17,278.32, the Committee states

that "the Committee did not pay salaries to many of its staff

primarily for the month of February and considered this to be

voluntary services to the campaign. These unpaid salaries which

amounted to $17,278.32 were allocated by the A.udit staff to Iowa.

Accordingly, the amount of expenditures for Iowa should be

reduced by $17,278.32, which is the amount of unpaid salaries in

Iowa."

With respect to the $56,405.98 in expenditure documentation made available, the Audit staff analyzed this

information and found in several instances that the documentation

submitted was not sufficient to demonstrate that an expense(s)

did not require allocation to Iowa. For example, if only a

statement, signed by a Committee official, was provided without

copies of travel vouchers signed by the individual in question or

other documentation to demonstrate that this individual was not

working in Iowa during the relevant time period (or portion

thereof), the Audit staff did not reduce the amount allocable to
7

Iowa. In cases where adequate supporting documentation

demonstrated that the traveler was not working in Iowa, the

amount originally determined as allocable to Iowa by the Audit

staff was reduced accordingly. Thus, it is the Audit staff's

opinion that the Committee's submission of these statements,

signed by Committee officials, without further documentation or

proof are not sufficient to meet the Committee's burden that the

expenses in question are qualified campaign expenses (i.e., not

chargeable to the Iowa limit). Based on the application of this

criteria, the Audit staff concluded that $36,193.33 of the

$56,405.98 in documentation submitted by the Committee is

sufficient to reduce the amount allocable to the Iowa limit. The

remainder ($20,212.65) of the expenses challenged by the

Committee, are still considered allocable to Iowa.

The Audit staff disagrees with the Committee's

position that the amount of unpaid salaries ($17,278.32) for

staff working in Iowa does not require allocation to Iowa.

It should be noted that the Committee did not present any documentation from its staff verifying that their services for

the month of February 1984 were voluntary. It is the opinion of

the Audit staff that the Committee may not exclude these expenses without sufficient documentation from its staff.

Therefore, the amount required to be allocated to

Iowa has been reduced to $106,214.20 ($142,407.53 - $36,193.33),

based on the Audit staff's analysis of the Committee's response

to·the interim report.

2. Intra-State Travel and Subsistence

Expendi tures

Sec t i on 1 06 • 2 (b) (2) (i i i) 0 f Tit1e 11, Ccd e 0 f

Federal Regulations states that travel and subsistence

expenditures for persons working in a State for five consecutive

days or more shall be. allocated to that State in proportion to

the amount of time spent in each State during a payroll period. This same allocation method shall apply to intra-State travel and

subsistence expenditures of the candidate and his family or the

candidate's representatives.

A review of supporting documentation revealed that

expenditures for intra-State travel and subsistence had been

incurred by persons working in Iowa for five or more consecutive

days. Based upon this review, the Audit staff determined that

additional intra-State travel and subsistence expenditures

totaling $71,329.01 should be allocated to Iowa.

In response to the interim audit report, the

Committee provided additional documentation consisting of expense

reimbursement vouchers and vendor receipts totaling $25,435.27.

'.
8

This documentation, presented for the first time in the

Committee's response, indicated that $24,787.62 in expenses

initially deemed allocable to Iowa are exempt from allocation in

accordance with 11 C.F.R. § 106.2(c) (4) (the exemption for

interstate travel expenses).

Therefore, the amount requiring allocation to Iowa

has been reduced to $46,541.39 ($71,329.01 -$24,787.62), based on

the Audit staff's analysis of the Committee's response to the

interim report.

3. Media and Polling Expenditures

Section 106.2(b) (2) (i) (B) of Title 11, Code of

Federal Regulations requires that expenditures for radio,

television and similar types of advertisements purchased in a

particular media market that covers more than one State shall be

allocated to each State in proportion to the estimated audience.

This allocation of expenditures, including any commission charged for the purchase of broadcast media, shall be made using industry

market data.

Also, 11 C.F. R. § 106.2 (b) (2) (vi) states, in part, that expenditures incurred for taking of a public opinion poll

covering only one State shall be allocated to that State.

The Committee paid a vendor $131,699.20 for media

buys. In a letter dated July 9, 1984, the vendor notified the

Committee of the amount of each buy and the percentage of each

buy that required allocation to Iowa.

The vendor's allocable percentages were based on

the 1983-84 Arbitron Ratings Universe Estimates Summary, published by the Arbitron Ratings Company. Application of such

percentages require that $100,241.74 be allocated to Iowai

however, the Committee only allocated $95,598 to Iowa, leaving a

difference of $4,643.14.

With respect to polling expenses, the Committee

paid $10,874 to a vendor for a telephone poll targeted at a

select group of potential Iowa caucus participants. According to

the contract, the poll was conducted between September 10, 1983

and October 2, 19831 however, the Committee did not allocate this

cost ($10,874) to Iowa.

In summary, the Audit staff determined that an

additional $15,517.74 should be allocated to Iowa (media

$4,643.74 and polling $10,874).

In its response to the interim audit report, the

Committee did not question the allocation of $15,517.74 in media

.and polling expenditures to the Iowa limit.

'.
9

4. Overhead and Miscellaneous Expenditures

Section 106.2(b) (2) (iv) of Title 11, Code of

Federal Regulations states that except for expenditures exempted

under paragraph (c) of this section, overhead expenditures of

offices located in a particular State shall be allocated to that

State. For purposes of this section, overhead expenditures

include, but are not limited to rent, utilities, office

equipment, furniture, supplies, and telephone service base

charges.

a. General Overhead and Miscellaneous

Our review also disclosed that expenditures

were incurred in Iowa for office rent, telephones, postage,

shipping, printing, office supplies, utilities, voter lists,

furniture, equipment and miscellaneous expenses.

Based upon this review, the Audit staff

determined that an additional $97,599.27 should be allocated to

Iowa.

In its response to the interim audit report,

the Committee provided documentation for expenditures totaling $3,121.45. The documentation submitted consisted of individual

expense vouchers and vendor receipts, our review of which

indicated that $3,023.43 of the expenses in question were not

allocable to Iowa.

Therefore, the amount requiring allocation is

reduced to $94,575.84 ($97,599.27 - $3,023.43), based on the

Audit staff's analysis of the Committee's response to the interim

report.

b. Iowa Designated as a Regional Headquarters

Under 11 C.F.R. § 106.2 (b) (2) (iv) (B), except

for expenditures exempted under paragraph (c) of this section,

overhead expenditures of a regional office or any office with

responsibilities in two or more States shall be allocated to each

State on a reasonable and uniformly applied basis. For purposes

of this section, overhead expenditures include but are not

limited to, rent, utilities, office equipment, furniture,

supplies, and telephone service base charges.

At an interim conference on July 25, 1984,

Committee officials stated that in accordance with 11 C.F.R. §

106.2(b) (2) (iv) (B), Iowa was being designated as "the regional

headquarters" for eight other States. The states in the "region"

and their respective primary/caucus dates, as defined by the

Committee, are as follows: Iowa as headquarters (2/20/84);
10

Illinois (3/20/84); Kansas (3/24/84); Michigan (3/17/84);

Minnesota (3/20/84); Missouri (4/17/84); Nebraska (5/15/84); Ohio

(5/8/84); and Wisconsin (4/3/84). As a result, overhead expenses

incurred at the Iowa office totaling $95,950.95 were reallocated

among these states on the Voting Age Population basis. This

resulted in $90,577.71 of Iowa overhead expenses being

reallocated to these other states.

In order to evaluate the reasonableness of

the designation of the office as a "regional office", the Audit

staff performed a number of analyses to identify the activities

which related to more than one state.

The long-distance billing for the Iowa office

wa.s reviewed to determine whether there was a significant level

of telephonic communication between Iowa (headquarters) and the

other states in the "region." These billings listed 120 r 543 long

distance telephone calls. The result of this review was that

there were 1,276 telephone calls, or only 1.05%, to all the

States in the "region". ~/ The telephone records from the other

States were also reviewed and no significan~*1eve1s of telephone

activity relating to Iowa were discovered. --

Except for Iowa, the Committee did not

maintain bank accounts in any of the states within the "region." The activity in the Iowa bank accounts was reviewed for

disbursements made in or on behalf of these other states. Our

review disclosed no activity on behalf of the other states.

The Audit staff reviewed all the

correspondence, notes, contemporaneous memoranda, and other

organizational and budgetary documentation 'forinformation

concerning the administration, control or operation by Iowa as a

regional headquarters. This review did not produce any

information regarding Iowa functioning as a regional

headquarters.

~/ The results of the review of telephone calls made,

represented by percentages, are: Iowa (intra-State) -93.12%;

Illinois -.36%; Kansas - .02%; Michigan - .04%; Minnesota - .06%; Missouri -.03%; Nebraska - .4%; Ohio -.04%; Wisconsin

-.1%; and all other States - 5.83%.

~/ These records consisted of telephone reimbursements to

Committee staff and telephone billings for one of the states

in which a telephone was maintained by the Committee.

'.
11

On July 26, 1984, the Audit staff requested,

in writing, that the Committee provide the planning documents for

the set-up and operation of Iowa as a regional headquarters. The

Committee did not provided the planning documents, as requested.

On August 30, 1984, Committee officials

provided a memorandum titled "TERMS OF EMPLOYMENT". This

memorandum confirmed an offer.of employment to an individual for

the position of Midwest Coordinator. The memorandum was dated

January 3, 1983 and describes the duties of the "Midwest

Coordinator" as having responsibility for the following States:

North Dakota, South Dakota, Nebraska, Kansas, Missouri, Iowa,

Minnesota, Wisconsin, Illinois, Indiana, Michigan and Ohio. */ In

addition, the memorandum also discussed the establishment of a

Midwest Regional Headquarters and support staff to service the

above states.

The Audit staff found no evidence that a

Midwest Regional Headquarters was established as outlined in the

memorandum, or that the Iowa state office functioned as the

Regional ·Office as alleged by the Committee.

In its May 2, 1985 response to the interim

report, the Committee stated that:

"its designation of Iowa as regional headquarters is

appropriate under 11 C.F.R. § 106.2 (b) (2) (iv) (B).· This

regulation states 'that overhead expenditures of a regional

office •••shall be allocated to each State on a reasonable and

uniformly applied basis.' (emphasis added). It is clear from the

regulation that the right to designate an office as a regional

office lies with the Committee. The Audit staff may then review

the allocation to determine whether the expenses have been

allocated on a reasonable and uniform basis, but the regulation

does not provide for a challenge to the Committee's designation of its Iowa office as a regional office.

"The Audit Report reaches the conclusion that

the Iowa office could not be a regional office based primarily on

the admittedly low telephone billings to other states within the

region. However, the Audit staff omitted to factor in its ---- -_analysis thecr-uclal f-act that the .prima--rie-s- i-no. -t;-h-e--e·t;h-e-r-s-t;-a-te-swithin the region were not scheduled until after March 1, 1984,

the day on which Senator Cranston withdrew his candidacy (3).

~/ Based on the document, the "Midwest Coordinator" had

responsibility for three states not included in the

"region", specifically, North Dakota, South Dakota and

Indiana.
12

Thus, the Committee lacks detailed documentation of activity in

other states in the region only because the campaign did not last

through those primaries, not because the Iowa office was not

expected to function as a regional office.

"The Committee should not be deprived of its

right to designate Iowa as a regional office and allocate certain

overhead expenses accordingly. To do so would penalize

unsuccessful candidates disproportionately vis a vis successful

candidates, a disparity for which there is no rationale in law or

policy (4).

"(3) In fact, the next primary in the region

was not scheduled until March 20, 1984, a month after the Iowa

caucuses.

"(4) The Commi ttee allocated the expendi tures

based on the voting population of each State, which results in

$90,577.71 allocated to the region. While this result is both

reasonable and uniform, the Audit staff, if it disagrees with

this method, has other measures available. It could, for

example, allocate the expenditures based on the work which was

directly attributable to other states within the region. Thus,

for example, if it were to allocate the expenses on the basis of

phone calls alone, at least 7% should be allocated to other

states. "

There are two points contained in the above

cited response to which the Audit staff takes exception. First,

the Committee asserts that the regulation, (referring to 11

C. F. R. 106.2 (b) (2) (i v) (B» does not provide for a challenge to

the Committee designation of its Iowa office as a regional office.

It is the opinion of the Audit staff that the

issue is not whether the Commission may look behind the

Committee's designation, but rather whether such designation has

significance, i.e. whether the Committee has shown that its Iowa

office functioned as a regional headquarters so that its

allocation of Iowa overhead to other states is reasonable.

It is evident, based on our review of

materials made available, that the Committee has not demonstrated

that the Iowa office ever functioned as a regional office. By

the Committee's own admission in the response (n ••• the crucial

fact the primaries in the other states within the region were not

scheduled until after March 1, 1984, the day on which Senator

Cranston withdrew his candidacy (3). Thus the Committee lacks

detailed documentation of the activity in other states in the

region only because the campaign did not last through those

primaries, not because the Iowa office was not expected to

"
13

function as a regional office" [footnote (3) omitted]), it

demonstrates its failure to satisfy the regulatory requirements. The regulations refer to "a regional office with responsibilities

in two or more states ••• n (emphasis added). The Committee

admits there is a lack of documentation' of activity in other

states in the region only because the campaign did not last

through those primaries. Given the fact that organizational

work, staffing and preparations attendant to the 2/20/84 Iowa

caucus began as early as mid-19B3 (8 months prior to the date of

the caucus), it seems as if similar activity should have occurred

with respect to Illinois (date of primary 3/20/84), as well as

other primaries occurring in March and April, 1984. Theadmitted

lack of activity with respect to the other states in the

"region", (given the proximity of the other states' primary

dates) demonstrates that the Iowa office was not intended to

function as a regional office.

Second, the Committee suggested (in footnote

(4) of its response) that at a minimum at least 7% of Iowa

overhead expenses should be allocated elsewhere "on the basis of

phone calls alone". It should be noted that the Audit staff's

analysis of long-distance billings for the Iowa office concluded

that only about 1% of long-distance phone calls from the Iowa

office went to states in the asserted "region"; the 7% figure

cited by the Committee is the approximate percentage of all longdistance calls to states outside Iowa. The implicit suggestion

that overhead may be diverted from a state under the "regional

headquarters" regulation solely on the basis of a relatively

small number of interstate phone calls, especially in view of the

regulation's specific exclusion of such expenses from state

allocation, 11 C.F.R. § l06.2(b) (2) (v) (B) , appears beyond the

regulation's intent.

For.the reasons stated above, in the Audit staff's

opinion the reduction by the Committee of expenses originally

charged to the Iowa state limit based on its contention that the

expenses are classifiable under the regional headquarters

exclusion is without merit. Therefore, such reduction is

disallowed for purposes of calculating amounts chargeable to the

Iowa limit.

5. Allocation of Compliance Costs and

Fundraising Expenditures

Section 106.2(c) (5) of Title 11, Code of Federal

Regulations states, in part, that an 'amount equal to 10% of

campaign workers' salaries and overhead expenditures in a

particular State may be excluded from allocation to that State as

an exempt compliance cost. An additional amount equal to 10% of

such salaries and overhead expenditures in a particular State may

be excluded from allocation to that State as exempt fundraising
14

expenditures, but this exemption shall not apply within 28

calendar days of the primary election as specified in 11 CFR

110. 8 (c) (2) •

In the preparation of the state allocation

amendment filed on July 25, 1984, which disclosed an amended

allocation of $553,194.24 to Iowa, the Committee attempted to

apply the 10% allocation for compliance costs and fund raising

expenses.

The Committee calculated the 10% compliance

exemption based on their determination of the gross amount

allocable to Iowa rather than on payroll and overhead

expenditures, as required. The Committee's calculation resulted

in an exemption of $55,366.04.

The Committee also calculated the 10% exemption

from allocation for fund raising expenses on this same basis and

did not exclude payroll and overhead expenditures which occurred

within 28 days of the caucus. The Committee's 10% exemption for

fundraising expenses relative to Iowa totaled $55,366.04.

Based on the records made available during the

initial fieldwork, the Audit staff calculated the 10% compliance

exemption. The base figure ($553,194.24) utilized by the

Committee was adjusted downward to $367,686.40, resulting in a

compliance exemption of $36,768.60.

The interim report advised the Committee that it

may recompute the fundraising exemption1 however, all relevant

documentation in support of this calculation should be provided with its response to the interim report.

In its response to the interim audit report, the

Committee revised its original base figures for both the

compliance and fundraising exemptions. The original base figure

($553,194.24) for the compliance exemption was reduced to

$315,792.70, resulting in an exemption to the Iowa s·tatelimit of

$31,579.27. The Audit staff reviewed the information presented

and reduced the Committee's figure to $293,385.40, resulting in

an exemption of $29,338.54. Certain disbursements included in

the Committee's figure were not classifiable as overhead and

payroll expenses relative to Iowa. .

With respect to the 10% exemption for overhead and

payroll related to fundraising in Iowa, the Committee submitted

worksheets in support of an exemption of $11,692.33. The

reduction of approximately $43,000 from its original calculation

($55,366.04) resulted from the Committee's attempt to delete from

the original base figures: (1) expenses not allocable to Iowa,

(2) expenses (allocable to Iowa) not considered overhead or

'.
15

payroll, and (3) the costs associated with fundraising occurring

within 28 days of the Iowa caucuses (see 11 C.F.R. § 110.8(c)

(2». The Audit staff reviewed the worksheets supporting this

calculation and found that approximately $80,000 in fundraising

expenses had been incorrectly excluded from the Committee's base.

After adjusting for this error, the fundraising exemption

increased from $11,692.22 to $19,632.23.

Thus, based on our analysis of the materials

presented in response to the interim report, the Committee is

entitled to exempt from allocation to the Iowa state limit,

.$29,338.54 in compliance related expenses and $19,632.23 in

expenses related to fundraising pursuant to 11 C.F.R. §

106.2 (c) (5).
16

Recap of Allocable Expenditures

Audi t Analys is

Expenditures recorded by the

Committee as Allocable to Iowa

on its internal worksheets

Expenditures Not Recorded by the

Committee as Allocable to Iowa on

its Internal Worksheets:

II.A.l. Salaries, Employer FICA and

Consultant Fees

II.A.2. Intra-State Travel and Subsistence

II.A.3. Media and Polling Expenditures

II.A.4. Overhead and Miscellaneous

Total

II.A.5. less 10% Exemption for

Compliance Costs

less 10% Exemption for

Fundraising Costs

Total

less. 2 U.S.C. § 44la Iowa

State Spending limitation

Total Expenditures Incurred

in Excess of State Limitation

$606,208.69 ~/

106,214.20

46,541.39

15,517.74

94,575.84

869,057.86 ,!!-/

(29,338.54)

(19,632.23)

820,087.09

(684,537.50)

$135,549.59

~/ As noted on page 5, $624,972.10 was recorded by the

Committee on its internal worksheets as allocable to Iowa.

However, the Committee submitted documentation in its

response to the interim report which demonstrated that

$18,763.41 in expenditures were erroneously recorded by the

Committee as allocable to Iowa. Therefore, the amount

recorded as allocable to Iowa has been reduced accordingly ($624,972.10 -$18,763.41).

~/ Since the Committee failed to demonstrate that its Iowa

served as a regional headquarters, no adjustment is

necessary.
17

The following adjustments to the Audit staff's

recap at page 16 were developed based on our review of additional

documentation/activity during follow-up fieldwork.

Expenditures recorded by the Committee as allocable to Iowa

on its internal worksheets

During the follow-up fieldwork, the Audit staff identified

expenditures totaling $1,481.09 that the Committee erroneously

allocated to Iowa. The majority of this amount represents

duplicative entries on the Committee's internal worksheets.

Furthermore, Committee documentation was reviewed in the

form of signed statements from individuals who attest, that for a

specific period usually in February 1984, "I worked as a

volunteer in the Cranston for President Committee's Iowa

campaign. Therefore, the Cranston Committee does not owe me any

salary for my work in Iowa during that period." The amount in

question totals $13,458.32.

It should be noted that the Committee originally carried

these salaries as debts owed by the Committee on its internal

worksheets and on its reports filed with the Commission through

October 31,1984 (Schedule D-P). Committee officials did not

advise the Audit staff that these debts were being converted to

volunteer services until the Committee submitted its response to

the interim audit report. At that time the Audit staff

recommended that the Committee's position be rejected since the

Committee did not present any documentation from its staff

verifying that their services were voluntary (see discussion on

·p.6 concerning unpaid salaries totaling $17,278.32).

As a result of our review of the documentation noted above,

a downward adjustment of $14,939.41 ($1,481.09 + $13,458.32) has

been made to the amount on page 16 recorded as allocable to Iowa

which results in a figure of $591,269.28 as allocable to Iowa on

Committee's internal worksheets.

Salaries, Employer FICA and Consulting Fees

Additional documentation indicated that an individual was

not working in Iowa for a portion of a pay period. This resulted

in a downward adjustment of $419.52. The amount allocable to

Iowa re1ati ve to this category of expenditures is now

$105,794.68.

Committee documentation for salary expenses totaling $17,466.22 was reviewed and is identical to the documentation

relative to the $20,212.65 in expenses submitted by the Committee
18

in its response to the interim audit report (see pages 6-7 for

detailed discussion). The Committee continues to assert that

signed statements from supervisors are sufficient evidence to

demonstrate that certain salaries do not require allocation to

Iowa.

Again, it is our 0plnlon that a signed statement from a

supervisor, without additional documentation or proof to

demonstrate the individual was not in Iowa (i.e., copies of check

request authorization forms, expense reimbursement vouchers,

receipts, etc.) is not sufficient to meet" the Commi ttee' s burden

that the expenses in question are not chargeable to the Iowa

limit.

As a result no further adjustment has been made with respect

to salaries, employer FICA, and consulting fees allocable to

Iowa.

Intra-State Travel and Subsistence

Based on our analysis of additional documentation made

available during the follow-up fieldwork, the Audit staff has

made a downward adjustment of $1,195.84 to the amount chargeable

to the Iowa limit. Our analysis of the documentation made

available revealed that certain entries had been duplicated on

the Committee's internal worksheets and that two other

disbursements were for inter-state travel. Thus, the amount now

allocable to Iowa for this category is $45,345.55.

Media and Polling

The Committee did not question the allocation of these

expenses. Hence, the figure cited in the recap at page 16

remains unchanged.

Overhead and Miscellaneous Expenditures

During the follow-up fieldwork the Audit staff obtained

additional documentation which supported a downward adjustment of

$9,482.05. Approximately $9,400 of the reduction is necessary to

correct an overstatement in the amount recorded by the Committee

as payable to a telephone company.

The amount allocable to Iowa relative to Overhead and

Miscellaneous Expenditures is now $85,093.79.
$591,269.28

19

Recap of Allocable Expenditures

Audit Analysis as of December 31, 1985

Expenditures recorded by the Committee

as allocable to Iowa on its internal

worksheets

Expenditures Not Recorded by the

Committee as Allocable to Iowa

on its Internal Worksheets

Salaries, Em~loyer FICA and

Consulting Fees

Intra-State Travel and Subsistence

Media and Polling Expenditures

Overhead and Miscellaneous

Total

Less 10% Exemption for

Compliance Costs

Less 10% Exemption for

Fundraising Costs

Total

Less 2 U.S.C. § 44la Iowa

State Spending Limitation

Total Expenditures Incurred

in Excess of State Limitation

105,794.68

45,345.55

15,517.74

85,093.79

$843,021.04

(31,260.03) '!.../** /

(19,665. 66)!"/** /

$792,095.35

(684,537.50)

$107,557.85

'!./ ,Salaries totaling $20,551 were inadvertently excluded from

the base number used to calculate the Committee's compliance

and fundraising exemptions at page 16, therefore, the

exemptions for compliance and fund raising have increased

accordingly. It should 'be noted that these salaries were

included in the recap on page 16 as "expenditures recorded

by the Committee as allocable to Iowa on its internal

worksheets -$606,208.69.

~/ The base numbers from which the amount of the 10% exemption

was calculated did not include the costs of intra-state

telephone calls made within Iowa. Upon receipt of

documentation supporting such charges (telephone bills with

detailed itemizations), the Audit staff will make the'

necessary adjustments.
20

In the interim addendum, the Audit staff recommended that,

absent a showing to the contrary within 30 days of the

Committee's receipt of the addendum, the Commission make a

determination that the Committee exceeded the Iowa spending

limitation by the amount of $107,557.85. Further, an amendment

to the Committee's FEC Form 3-P, Page 3 (Allocation of Primary

Expenditures by State) should be filed to correct the public record.

Analys.is of Commi t tee's Response to the I nte r im Addendum

On June 22, 1987, the Committee submitted comments on four

items involving the amount determined as allocable to the Iowa

state limit. Each is discussed separately below.

o Total Value of Services Volunteered

The Committee questioned the accuracy of the $13,458.32

figure cited on page 17 of this Addendum. The Committee

correctly points out that signed statements from 13 individuals

were submitted to show that services, the value of which totaled

$14,458.32, were voluntary and thus, that value should not be

allocated to the Iowa limit. The Committee then concludes,

"Since the Report does not explain this $1,000 discrepancy [$14,458.32 - $13,458.32], the Committee assumes that it is due

to clerical error and requests that the appropriate correction be

made."

The $1,000 discrepancy is present because one of the

individuals who submitted a signed statement in support of $3,600

in volunteer services, had already received a $1,000 payment. Thus, the most that individual (and the Committee) could ascribe

to the volunteer exemption was $2,600.

o Total Value of Staff Salaries Reallocable to States

Other than Iowa, Based on Supervisor Statements and Receipt Documentation ---

The Committee questioned the Commission's decision to

reject the Committee's position that $623.30 in expenses was not

allocable to Iowa. According to the Committee these expenses

were documented with receipts showing that allocation to Iowa was

not required.

As stated on page 17, the Audit staff reviewed the

expenses, totaling $1,042.82, identified by the Committee as

documented with receipts, and determined that adequate documentation demonstrating that allocation to Iowa was not

required was present for $419.52. The remainder, $623.30,

represented expenses which were either (1) previously determined

as not allocable to Iowa based on our previous reviews of

allocable expenses, or (2)'lacking documentation sufficient to

demonstrate that no allocation to Iowa is required.

"
21

o Salary Reallocations Supported Only by Supervisor

Statements

In its response, the Committee urges the Commission to

reexamine its position relative to $16,423.40 in expenses which

the Committee maintains are not allocable to Iowa. In support of

its position, the Committee believes that the statements signed

by supervisors provided to support its contention that an

individual was not working in Iowa during the relevant time

period should be deemed as acceptable documentation and the

amount of expenses initially allocated to Iowa be reduced

accordingly. The Committee offers three arguments:

First, the Committee contends that it was "initially assured" by the Commission auditors that supervisor statements

would be sufficient documentation to support these reallocations.

While Committee officials were informed that statements signed by

supervisors may be submitted to support reallocations,

documentation in the form of travel vouchers, receipts etc.

should accompany the signed statements. In the Audit staff's

opinion, the Committee's argument that "It is unfair for the

Commission now -- literally years after the fact -- to require

additional documentation" is not persuasive.

Second, the Committee states ",the reallocations

requested by the Committee are not amenable to additional

documentary "proof", especially of the types suggested on page 18

of the Report. When an individual is working in his or her base

office, his or her employer often pays no expenses and, hence,

does not have the types of documents sought by the Commission."

Examination of copies of cancelled checks relative to

some of the payments in question revealed that an Iowa address

was used. This does not support the claim that the individuals

were "D.C. staffers ••• working in Washington". In addition, the

checks appear to have been cashed at a number of different

locations, including Iowa. If anything, the Iowa address and

lack of documentary support suggest that the individuals were

working in Iowa, and thus the associated payments should be

allocated to Iowa.

Third, the Committee states that, "the Commission has

given no reason, and none exists, to question the veracity of the

signed statements of supervisors which the Committee has

provided." The signed statements, as given, make a number of

omissions which result in que$tions being raised about specifics.

With respect to the signed statement for Monica McFadden, the

time periods for the checks in question were not specifically

mentioned in the statement, and the wording of the statement is

such that it could well cover time in Iowa. The signed statement

for Robert Schroth contains one demonstrable misstatement of

fact, stating that he was not in Iowa during October 1983 after
22

the 9th of that month, when a supporting voucher attached states

that he did not leave Iowa until the 11th. In view of the

inaccuracy of a supported statement, it appears reasonable to

doubt unsupported statements. The wording of the signed

statement for Willie Logan also leaves open the question of his

location during the period covered by the check. In view of the

apparent inadequacies of the signed statements, the Audit

Division believes that additional documentation is needed to

support the non-allocation of the payroll expenditures to Iowa.

Therefore, it is the opinion of the Audit staff that no

adjustment is warranted.

$792,095.35

Iowa telephone refunds o

As part of its response, the Committee provided copies

of refund checks, totaling $680.16, received from Northwestern

Bell relative to telephone service in Iowa. The payments to

Northwestern Bell were allocated to Iowa at 93.12% of face value

to reflect the portion of the service allocable to Iowa,

accordingly, 93.12% of the value of the refunds received is

viewed as a reduction to the amount originally charged to Iowa.

Expenditures allocable to Iowa

state spending limit, page 20

Less: Pro-rated share of Iowa

telephone refunds ($680.16 x

93.12 %) (633.36)

Sub-Total $791,461.99

'Less: 2 U.S.C. § 44la Iowa

State Spending Limitation

(Revised) Total Expenditures

Incurred in Excess of State

Limitation

(684,537.50)

$106,924.49

As discussed above, the Audit staff noted that the

COmmittee incurred expenditures allocable to the Iowa state

spending limitation totaling $791,461.99. As part of the followup fieldwork, the Audit staff reviewed Committee records to

determine:
In the interim addendum, the Audit staff recommended that,

absent a showing to the contrary within 30 days of the

Committee's receipt of the addendum, the Commission make a

determination that the amount paid in excess of the Iowa state

spending 1imi tation be viewed as non-qualified campaign expenses and the pro-rata portion be repaid to the U.S. Treasury pursuant

to 26 u. S • C • § 903 8 (b) (2) •

o

o

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o

23

the date the last dollar of the last matching

fund payment was expended - (May 1, 1985);

the disposition of all accounts payable allocable

to the Iowa limit as of May 1, 1985;

the disposition of all Committee checks

written on closed accounts or accounts with nons,ufficient balances (considered as accounts

payable) and allocable to Iowa as of May 1, 1985;

and

what portion of the $791,461.99 in expenses chargeable to the Iowa state limit were

outstanding (not paid) as of May 1, 1985.~/

"

-- / _. I' "~..,;r.

,/

/

*/ The Audit staff considers, any expenses chargeable to the

Iowa ,sta te limit, the amount (s) [or portions thereof] which

were (a) considered by the Committee as forgiven/settled,

(b) paid via an in-kind contribution, (c) settled in

accordance with 11 C.F.R. § 114.10, or fd) paid by the

Committee after 5/1/85 to be outstanding as of May 1, 1985

for purposes of calculating the repayment to the u.s. , Treasury pursuant to 26 U.S.C. S 9038(b) (2) and 11 C.F.R.

§ 9038.2 (b) (2) (iii). 1 ,

hat its payable records were

disorder,therefore, confirmations were sent to all know

vendors requesting verification of amounts believed to be

owed. If a vendor did not respond to the confirmation

request, the Committee considered the amount (recorded in

its records) forgiven. A review of the items in question

revealed that only $1,'589.75 of the $8,827.79 in this

category actually represents debts considered forgiven, via

no 'response to the Commi ttee' s confirmatlon letter. The

remaining debts (approximately $7,200) were actually settled

with the individuals/vendors or not paid as of December 31,

1985.

v

/
24

The recap below has been revised and reflects

adjustments necessary to expunge those expenses incurred and

allocable to the Iowa state spending limitation but not paid as

of May 1, 1985.

Amount incurred in excess of Iowa

state spending limitation

(See page 23)

Less: amount included above

but not paid as of May 1, 1985

Plus: difference between the

Compliance and Fundraising

exemptions under Title 2

versus under Title 26

Amount paid in excess of Iowa

state spending limitation

Repayment ratio

Repayment Amount

Less: Repayments received

March 13, 1987

June 18, 1987

Repayment Amount Due

Conclusion

$106,924.49

(40,548.52)

1,015.90

$ 67,391.87

.332385

$ 22,400.05

(11,500.00)

(5,000.00)

$ 5,900.05

On October 27, 1987, the Commission made an initial

determination that the amount ($67,391.87) paid in excess of the Iowa~state spending limitation be viewed as non-qualified

campaign expenses and the pro-rata portion $22,400.05 be repaid

to the u.s. Treasury within 90 calendar ~ays of receipt of this

addendum in accordance with 11 C.F.R. § 9038.2(d). As noted

above, after applying the $16,500 in repayments received, the net

amount due is $5,900.05
INlI

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25

B. Determination of Net .Outstanding Campaign Obligations

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 NOCO Statement with each submission

for matching fund 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.

Finding III.C. 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 July 13, 1984 revised NOCO and

determined that the Committee had net outstanding campaign obligations of $1,223,706.93 on that date and that as of August

31, 1984, the Committee's remaining entitlement was

$1,100,472.72.

The Audit staff updated the Committee's financial

position through March 26, 1985, the date on which the Committee

received its last matching fund payment. During the period

9/1/84 through 3/26/85, the Committee received a total of

$557,221.47 in contributions from individuals and matching funds.

Thus, even after applying the $557,221.47 to the calculated

entitlement [as of 8/31/84] of $1,100,472.72, the Committee had

an adjusted entitlement in excess of $500,000. As noted above,

the Committee did not receive any matching fund payments

subsequent to the March 26, 1985 payment. Therefore, the

Committee did not receive any matching funds in excess of

entitlement.

"