Preliminary Audit Report of the 

Audit Division on McCain-Palin 2008 

Inc. and McCain-Palin Compliance 

Fund, Inc. 

March 24, 2008 - December 31, 2008 

Why the Audit 

Was Done 

Federal law requires the 

Coinmission to audit 

every political committee 

established by a 

Presidential candidate 

who receives general 

funds for the general 

campaign.' The audit 

determines whether the 

candidate was entitled to 

all of the general funds 

received, whether the 

campaign used the 

general funds in 

accordance with the law, 

and whether the campaign 

otherwise complied with 

the limitations, 

prohibitions, and 

disclosure requirements 

of the election law. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report". 

About the General Committee 

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

campaign committee for Senator John S. McCain, the Republican 

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

The General Coinmittee is currently headquartered in 

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

Organization, p. 2. 

Financial Activity of the General 

Committee 

Receipts 

o $ 84,103,800 Federal Funds Received $ 84,103,800 

o Offsets to Operatmg Expenditures 9,318,570 

o Loans Received 17,076,880 

o Other Receipts 1,154,733 

o Total Receipts $ 111,653,983 

Disbursements 

o Operating Expenditures $ 92,083,836 

0 Loans Repayment 17,076,880 

0 Otiier Disbursements 1,491,107 

o Total Disbursements $ 110,651,823 

Finding and Recommendation for the 

General Committee (p. 5) 

• Campaign Travel Billing for Press 

26 U.S.C. §9007(a). 
About the Compliance Fund 

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

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

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

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

contributions from affiliated joint fimdraising committees. The Compliance Fund is 

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

Compliance Fund is presented below. 

Financial Activity of the Compliance Fund 

• Receipts 

o Contributions $ 9,679,490 

o From Other Authorized Committees 25,046,453 

o Offsets to Operating Expenditures 1,131,139 

o Other Receipts 12,471,782 

o Total Receipts $48,328,864 

Disbursements 

o Operating Expenditures $11,675,642 

o All Other Disbursements 13,112,237 

o Total Disbursements $24,787,879 

Finding and Recommendation for the 

Compliance Fund (p. 5) 

Failure to File 48-Hour Notices 
About Joint Fundraising Committees 

This audit included seven joint fundraising committees. Each of the joint fimdraising 

committees is headquartered in Alexandria, Virginia and was an authorized committee of 

the candidates John McCain and Sarah Palin. The combined financial activity for these 

joint fundraising committees is presented below and the financial activity for each of 

these committees is presented on page 4. 

Financial Activity of the Joint Fundraising 

Committees 

• Receipts 

o Conttibutions $ 207,620,125 

o From Other Authorized Committees 812,325 

o Offsets to Operating Expenditures 159,926 

o Total Receipts $208,592,376 

• Disbursements 

o Operating Expendittu-es $30,374,903 

o All Otiier Disbursements 167,116,292 

o Total Disbursements $197,491,195 

Finding and Recommendation for the Joint Fundraising 

Committees (p. 5) 

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

presented by seven joint fundraising coinmittees, the Audit staff did not discover any 

material non-compliance. 
Audit Report of the 

Audit Division on 

McCain-Palin 2008 Inc. and 

McCain-Palin Compliance Fund, 

Inc. 

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

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Inventory of Campaign Records 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 3 

Part III. Summaries 

Finding and Recommendation - General Committee 5 

Finding and Recommendation - Compliance Fund 5 

Finding and Recommendation - Joint Fundraising Committees 5 

Part IV. Finding and Recommendation for the 

General Committee 

Campaign Travel Billing for Press 6 

Part V. Finding and Recommendation for the 

Compliance Fund 

Failure to File 48-Hour Notices 14 

Part VI. Finding and Recommendation for the Joint 

Fundraising Committees 

Based upon the limited examination ofthe reports and statements filed and the 

records presented, the Audit staff disco vered no material non-compliance. 16 

Part VII. Attachment 

Statement of Net Outstanding Qualified Campaign Expenses 17 
Part I 

Background 

Authority for Audit 

This report is based on audits of McCain-PaUn 2008 Inc. (General Committee), McCainPalin Compliance Fund, Inc. (Compliance Fund), and seven joint fundraising committees 

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

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

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

Commission shall conduct a thorough examination and audit of the qualified campaign 

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

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

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

conduct other examinations and audits as it deems necessary. 

Scope of Audit 

The audits ofthe General Committee and Compliance Fund examined: 

1. The receipt of excessive contributions and loans. 

2. The receipt of contributions from prohibited sources. 

3. The receipt of transfers from other authorized committees. 

4. The disclosure of conttibutions and ttansfers received. 

5. The disclosure of disbursements, debts and obligations. 

6. The recordkeeping process and completeness of records. 

7. The consistency between reported figures and bank records. 

8. The accuracy of the Statement of Net Outstanding Qualified Campaign Expenses. 

9. The campaigns' compliance with spending limitations. 

10. Other campaign operations necessary to the review. 

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

examined: 

1. The receipt of excessive contributions and loans pertaining to the Compliance Fund. 

2. The proper allocation of contributions among joint fimdraising participants. 

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

Fund. 

4. The consistency between reported figures and bank records. 

Inventory of Records 

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

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

fieldwork began immediately. 
Part II 

Overview of Campaign 

Campaign Organization 

General Committee Compliance Fund 

Important Dates 

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

• Audit Coverage Dates 09/01/08 tiuii 12/31/08 03/24/08 tiun 12/31/08 

Headquarters Washington, DC Washington, DC 

Bank Information 

• Bank Depositories 3 4 

• Bank Accounts 8 Bank Accounts 8 Bank Accounts 

Treasurer Salvatore A. Pupura 

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

Joseph Schmuckler 

(08/19/08-Present) 

Salvatore A. Pupura 

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

Joseph Schmuckler 

(03/21/08-Present) 

Joint Fundraising Committees 

The audit included seven joint fimdraising committees affiliated with the Compliance Fund. 

Four of the joint fundraising committees registered with the Federal Election (Commission in 

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

Alexandria, Virginia and Lisa Lisker is the Treasurer for each committee. Six ofthe joint 

fundraising committees each maintained a single bank accoimt, and the seventh joint fundraising 

committee maintained two bank accounts. 
Overview of Financial Activity 

(Audited Amounts) 

General 

Committee 

Compliance 

Fund 

Opening Cash on Hand $0 $0 

Receipts 

• Contributions $ 9,679,490 

• Federal Funds Received $84,103,800 

• From Other Authorized Committees 25,046,453 

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

• Loan Received 17,076,880 

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

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

Disbursements 

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

• Transfers to Other Authorized 

Committees 

222,502 

• Loan Repayment 17,076,880 

• Refunds to Conttibutors 551,599 

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

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

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

Summaries 

General Committee 

Campaign Travel Billing for Press 

The General Conimittee apparently received reimbursement from the Press for campaign 

ttavel that was above the maximum amoimt billable to the Press. The Commission's 

regulations provide that a 10 percent markup on the actual cost of ttansportation and 

services may be billed to the Press. The General Committee believes the excess 

reimbursement fijom the Press for ttavel is a misallocation of billing proceeds, requiring 

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

overage collected. The Audit staff recommends the General Committee refund $344,892 

to the Press for reimbursements received in excess ofthe maximum amount billable. (For 

more detail, see p. 6.) 

Compliance Fund 

Failure to File 4S-Hour Notices 

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

$240,700 received prior to the general election. The Audit staff recommends that the 

Compliance Fund provide evidence that 48-hour notices were timely filed or submit any 

written comments it considers relevant. (For more detail, see p. 14.) 

Joint Fundraising Committees 

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

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

non-compliance. (For more detail, see p. 16.) 
Part IV 

Finding and Recommendation for the 

General Committee 

I Campaign Travel Billing for Press 

Summary 

The General Committee apparently received reimbursement from the Press for campaign 

ttavel that was above the maximum amount billable to the Press. The Commission's 

regulations provide that a 10 percent markup on the actual cost of ttansportation and 

services may be billed to the Press. The General Committee believes the excess 

reimbursement from the Press for ttavel is a misallocation of billing proceeds, requiring 

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

overage collected. The Audit staff recommends the General Conimittee refimd $344,892 

to the Press for reimbursements received in excess of the maximum amoimt billable. 

Legal standard 

A. Expenditures for Transportation and Services Made Available to Media 

Personnel and Secret Service. Expenditures by an authorized committee for 

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

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

Service personnel or national security staff will be considered qualified campaign 

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

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

(b)(1). 11 CFR §9004.6. 

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

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

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

ttansportation for each segment of the trip, meals and other billable items specified m the 

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

Travel Office. 11 CFR §9004.6(b)(3). 

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

The amount of reimbursement sought from media persoimel shall not exceed 110 percent 

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

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

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

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

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

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

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

(to include committee staff, media personnel. Secret Service staff). 11 CFR 

§9004.6(b)(2). 
E. Administrative Costs for Transportation and Services of Media Personnel. The 

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

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

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

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

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

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

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

the committee is able to document the total amount of administtative costs actually 

incurred. 

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

by the committee in making ttavel arrangements and seeking reimbursement, whether 

these services are performed by committee staff or independent contractors. 11 CFR 

§9004.6(c). 

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

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

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

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

shall be attributed to the primary election. Travel by a person who is workmg exclusively 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Facts and Analysis 

A. Facts 

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

and the Vice Presidential candidate (Sarah Palm) ttavelled predominately on two aircraft 

chartered by the campaign. The aircraft for the Presidential candidate was the same 

aircraft used by John McCain 2008, Inc. (the Primary Committee) and was chartered 

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

chartered through JetBlue Airways Corporation shortly before the Republican National 
Convention. The Press also occasionally ttavelled on aircraft chartered by the General 

Committee through CSI Aviation Services (CSI) and via ground ttansportation 

throughout the campaign. 

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

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

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

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

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

According to the General Conunittee, it did not receive Press ttavel reimbursement above 

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

ttansportation costs for the Press to be $4,503,658. The total billing to the Press equals 

106 percent of the cost calculated by the General Conunittee. The General Committee 

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

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

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

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

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

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

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

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

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

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

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

with the Audit staffs initial application of aircraft reconfiguration costs. 

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

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

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

both the primary and general campaign periods. 

Applying Cost on Aircraft for Presidential Candidate 

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

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

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

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

covered nine weeks for the Primary Committee and ten weeks for the General 

Committee. The conttact also required the General Committee and Primary Committee 

to pay costs for fuel, catering, passenger taxes, and ground handling fees. There was also 

an aircraft reconfiguration cost of $650,000 that was paid initially by the Primary 

^ The General Committee billed at 106 percent, but was able to document administrative costs of 110 

percent for all modes of transportation. In detennining the amount billable to the Press, the Audit staff 

credited the General Committee for any under billing of the Press associated with any one aircraft or mode 

of transportation. In other words, any under billing of the Press for travel on the aircraft for the Vice 

Presidential candidate, CSI chartered aircraft, and ground transportation was applied to any overbilling of 

the Press that may have occurred for travel on the Presidential aircraft. 
Committee. The General Committee correctiy reimbursed the Primary Committee 

$390,000 ($650,000 less 40 percent depreciation) for these aircraft reconfiguration costs. 

The conttact allowed 22.4 fright hours per week, or a total of425.6 fright hours for the 

life of the conttact. If the full fright hours per week were not frown, the hours rolled over 

to subsequent week(s). If the conttacted 22.4 fright hours per week were exceeded and 

no accumulated unused hours were available, there was a charge of $15,000 per 

additional hour. Neither the Primary nor General Committee ever exceeded the 22.4 

fright hours in a week. The General Conunittee used 140.3 fright hours and the Primary 

Committee used 111.8 fright hours during the conttact. 

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

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

included charges for fiiel, catering, passenger taxes, and ground handling fees. 

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

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

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

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

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

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

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

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

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

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

frown. The cost for fiiel, catering, passenger taxes, ground handling, and certain 

reconfrguration costs were then added to determine the total segment cost. The cost per 

passenger was then calculated by dividing the total segment cost by the total number of 

passengers on the segment. 

Applying Reconfiguration Costs 

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

aircraft reconfrguration costs billable to the Press. Historically, the Commission has 

allowed the Press to be billed only for the aircraft reconfrguration costs that could be 

reasonably considered as having benefrted tiie Press. The General Committee believes all 

costs for reconfrguring an aircraft at the beginning and at the end of the campaign should 

be considered when calculating the billable amoimt for the Press. The General 

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

aircraft into compliance with FAA safety standards that ultimately benefited the safety of 

all passengers including the Press. 

B. Preliminary Audit Report & Audit Division Recommendation 

The issue of press ttavel reimbursement was presented at the exit conference. In 

response, tiie General Committee submitted the following points for the Commission's 

consideration. 
10 

Cost Calculation 

The General Committee made a comparison between the Swift Air conttact, which 

spanned both the primary and general election periods, and similar aircraft conttacts that 

were analyzed during previous presidential audits: Dole-Kemp in 1996, Bush-Cheney in 

2000, and Kerry-Edwards in 2004. The General Committee specifically referenced the 

Audit staffs calculation of the hourly rate for each aircraft from the 1996 Dole-Kemp 

audit, which accumulated all operating costs and divided that total by the actual number 

of hours flown by each aircraft. By applying the same calculation to the entire amount of 

the Swift Air conttact ($6,384,000 divided by 252.1 hours frown), the General Committee 

contends its cost calculations used for billing the Press were accurate. 

The Audit staff agrees that when using the total Swift Air conttact amount for both the 

primary and general election periods, as well as the fiill aircraft reconfrguration costs, the 

General Coinmittee did not receive ttavel reimbursement from the Press that exceeded 

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

attributable to the General Committee should be used in determining the ttavel cost the 

General Committee may bill to the Press. This conclusion is consistent with ttavel cost 

calculations in past presidential audits and supported by 11 CFR §9034.4(e)(7), which 

states, in part, that expenditures for campaign-related ttansportation shall be attributed 

according to when the ttavel occurs. As in Dole-Kemp, the Audit staff used only the 

general election operating cost ($4,047,402) and the actual weekly hours frown by the 

General Committee when calculating the billable cost to the Press. This is a more 

appropriate method when calculating costs and billing for campaign ttavel during the 

general election period. 

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

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

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

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

were lower than the conttact amount ($6,384,000). The General Committee contends 

that no overbilling of the Press could have occurred since the difference ($29,141) was 

never billed to the Press by the Primary committee during week eight. However, it 

appears that the General Committee billed this difference to the Press^. Therefore, the 

Cieneral Committee included the total conttact amount in calculating the billing 

allocation. 

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

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

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

staffs calculations had the benefit of hindsight because during the fast pace of the 

election campaign the actual flying hours were unknown at the time of billing. 

Therefore, estimates of pro rata share had to be used in order to be in compliance of the 

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

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

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

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

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

estimated flight hours remaining on the contract to determine the adjusted charter rate for the week. 
11 

Committee believes the Audit staffs methodology would be in conflict with 11 CFR 

§9004.6(b)(3), which says, in part, that media representatives should be given a bill that 

specifies amounts charged for air and ground for each segment. 

The Audit staffs metiiodology does not conflict with 11 C.F.R. §9004.6(b)(3), given tiiat 

the actual flight hours are known soon after flights occur and thereby falling within the 

required 60 days to provide the Press an itemized bill that specifies the amounts charged 

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

invoiced the Press on average 12 days after completion of each ttavel week, allowing 

time to use the actual flight hours for the week. Other billable ttavel costs known at the 

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

method would incorporate adjusting for weekly flight hours. 

The General Committee also referenced the 2000 Bush-Cheney audit and explained that 

it used the same billing methodology and personnel in that audit, which did not include 

an adverse audit finding or any informal advice from the Audit staff suggestmg a 

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

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

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

associated with the Bush Primary Conimittee was included in the calculation of ttavel 

cost ofthe 2000 Bush-Cheney General Committee. 

Generally Accepted Accounting Principles 

The General Committee explained several accounting principles and standards under 

Generally Accepted Accounting Principles (GAAP) to support its methodology for 

billing the Press. The General Committee believes that the Audit staff did not apply the 

appropriate accoimting basis in its analysis. Specifrcally, the General Coinmittee 

believes the Audit staff incorrectly applied a cash-basis of accounting instead of an 

accrual-basis in its analysis of Press billing. Under cash-basis accounting, revenue is 

recorded when cash is received and an expense is recorded when cash is paid. In accrualbasis accounting, revenue is recognized when it is eamed (or when services are 

performed) and expenses recognized when incurred.^ The General Committee explains 

that under accrual-basis accounting, the objective is to ensure that events that change an 

entity's financial statements are recorded in the periods in which the events occur, rather 

than only in the periods the entity receives or pays cash. The General Conunittee also 

states the matching principle under GAAP dictates that expenses are recognized when the 

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

calculating billing for ttavel. 

The Audit staff agrees that the matching principle dictates that expenses are recognized 

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

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

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

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

The issue is not whether the cash or accrual-basis of accounting is applied to tiie 

ttansportation costs and revenue generated from the billing of the Press for ttavel; nor is 

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

Kimmel PhD, CPA, page 90 
12 

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

of a separate reporting and corporate entity (the Primary Committee) should be 

recognized by tiie General Committee and by this audit. An underlying assumption to 

GAAP is that every entity is separate and, therefore, the revenues and expenses of each 

entity should be recognized as such. As previously noted, recognizing the activity ofthe 

two entities separately is fiirther supported by 11 CFR §9034.4(e)(7), which states in part 

that expenditures for campaign-related ttansportation shall be attributed according to 

when tiie ttavel occurs. Therefore, the General Committee should recognize only tiiose 

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

for billing the Press. 

Reconfiguration 

The General Committee believes that aircraft reconfiguration costs are a part of placing 

the asset in service and reconfiguration costs were included in the value ofthe asset when 

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

contends that all reconfrguration costs could be billed to the Press pro rata since the Press 

used the asset. 

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

Committee stated that all reconfrguration costs incurred, with the exception of decals and 

any item that benefrted only campaign staff, such as dividing curtain expenses, should be 

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

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

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

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

reconfrguration costs since the General Committee indicated that these items benefrted 

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

$161,386 - $1,167) in reconfrguration costs billable for all ttavelers for both the primary 

and general periods. Afrer taking 60 percent of the accepted reconfrguration cost because 

the aircraft was purchased from the Primaiy Committee, the Audit staff calculated 

$292,468 ($487,447 x 60%) of aircraft reconfrguration costs as billable during tiie general 

period. The Audit staff divided this amount by the total 140.3 flight hours flown by the 

General Committee to determine the amount of aircraft reconflguration costs attributed to 

each segment. 

Other Considerations 

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

ttansfers and repayments between primary and general election presidential committees 

with respect to other types of vendors. The General Committee believes that any excess 

funds from the Press for ttavel are no different than deposits related to other vendors such 

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

repayments sometimes are necessary to ensure a primary committee does not subsidize 

the general committee. 

The General Conunittee also contends it would not be reasonable to force campaigns to 

renegotiate and redraft every legal conttact that exists to separate Primary and General 

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

and it would "go against many of the intemal ethics policies of the various news 
13 

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

ttansportation so as to not unduly influence their coverage ofthe candidates." 

The Audit staff acknowledges the administtative burden that may be involved with 

refunding the Press. Historically, the Commission has allowed refiinds to the Press to be 

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

each billing to the Press. The altemative suggestion, refunding the Primary Committee, 

would be considered a non-qualifred campaign expense subject to repayment. The 

regulations state that a general election committee cannot incur primary-related expenses 

because they are not in furtherance of the general election. 11 C.F.R. §9002.11(a). 

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

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

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

each paid its share ofthe conttact and billed the Press and Secret Service accordingly. 

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

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

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

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

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

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

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

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

the deposit after tiie campaign. No such exchange is involved in the proposed ttansfer to 

the Primary Committee in this case. 

The General Committee does not dispute that it received more reimbursements from the 

Press during the general election period, but the General Committee believes a more 

appropriate term is misallocation of Press ttavel reimbursement received between the 

General Committee and the Primary Committee. The General Committee's methodology 

may accurately reflect the comparative actual use of the aircraft between the Primary 

(111.8 flight hours) and General Committees (140.3 flight hours), but it does not reflect 

tiie comparative actual costs paid by each committee. The General Committee did not 

exceed tiie overall expenditure limitation, even with the excessive Press reimbursements. 

However, the purpose is to match the cost of the campaign to the proper election and 

spending limit. For these reasons and those noted above, the General Committee 

received reimbursements totaling $344,892 from the Press that were above the maximum 

amount billable under the regulations. 

The Audit staff recommends that, within 60 calendar days of service of this report, the 

General Committee demonsttate it did not receive reimbursements from the Press for 

campaign ttavel that were above the maximum amoimt billable to the Press. Absent such 

evidence, the General Committee should retum, on a pro rata basis, $344,892 to Press 

representatives and provide documentation to support the refunds. 
14 

Partv 

Finding and Recommendation for the 

Compliance Fund 

I Failure to File 4S-Hour Notices 

Summary 

The Compliance Fund failed to frle 48-hour notices for 169 contributions totaling 

$240,700 received prior to the general election. The Audit staff recommends that the 

Compliance Fund provide evidence that 48-hour notices were timely fried or submit any 

written comments it considers relevant. 

Legal Standard 

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

frle special notices regarding contributions of $1,000 or more received less than 20 days 

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

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

CFR§104.5(f). 

Facts and Analysis 

A. Facts 

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

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

required the frling of 48-hour notices. (FEC Form 6 - 48-Hour Notice of Contributions/ 

Loans Received). The Audit staff isolated 589 contributions, totaling $871,260, which 

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

contributions, totaling $240,700, for which the Compliance Fund failed to file the 48-

hour notices. 

B. Preliminary Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter with Compliance Fund representatives at the Exit 

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

In response. Compliance Fund representatives stated the matter had been previously 

addressed in a letter to the Reports Analysis Division and reiterated that "48-Hour 

Notices were not required for many ofthe identified contributions, as they were merely 

redesignations or reatttibutions that took place during the 48-Hour Notice reporting 

period." The Compliance Fund representatives also stated that "the Compliance Fund's 

normal practice of filing a 48-Hour Notice was not followed for a remaining group of 

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

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

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

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

The Compliance Fund has now taken measures with this outside vendor to ensure that 
15 

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

a one-time occurrence." 

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

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

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

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

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

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

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

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

Fund was therefore not in material violation of the 48-hoiir notice requirement when its 

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

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

Compliance Fund should not be fined for this vendor failure even if the Commission 

somehow finds that a technical infringement of the 48-hoiir notice requirement occurred." 

The Audit staff recommends that, within 60 calendar days of service of this report, the 

Compliance Fund provide: 

• documentation to demonstrate the contributions in question were 

properly included in 48-hoiir notices; or, 

• documentation establishing the contributions were not subject to 

48-hour notification; and/or, 

• any furtiier written comments it considers relevant. 
16 

Part VI 

Finding and Recommendation for the 

Joint Fundraising Committees 

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

presented by seven joint fundraising committees, the Audit staff discovered no material 

non-compliance. 
17 

Part VII 

Attachment 

McCain-Palin 2008 Inc. 

Net Outstanding Qualified Campaign Expenses 

As of December 4,2008 

As Determined on June 30,2011 

Assets 

Cash in Bank 

Accounts Receivable: 

Due fi'om the Compliance Fund 

Due fi'om the Primary Committee 

Due firom other Vendors 

TOTAL ASSETS 

Obligations; 

Accounts Payable: 

For (^alified Campaign Expenses 

Due to the Compliance Fund 

Due to the Primary Committee 

Payment to Press for Campaign Travel 

$2,661,115 

$339,056 

$4,234,755 

(a) 

(b) 

$3,693,508 

$7.234.926 

$10,928,434 

$8,448,103 

$100,107 

$167,828 

$344,892 (c) 

Amount Due U.S. Treasury: 

Disgorgement of Interest Earned 

Disgorgement of Stale-Dated Checks 

$58,319 (d) 

$2,882 (e) 

Winding Down Costs: 

Actual: December 5,2008 to June 30.2011 

TOTAL OBLIGATIONS 

NET OUTSTANDING QUALIFIED CAMPAIGN EXPENSES (DEFICIT) 

$1.806,303 (f) 

$10,928,434 

($0) 

(a) 

(b) 

(c) 

(d) 

(e) 

(0 

This amount represents repayments for expenditures paid by General, S87,217 for Secret Service shortfall for campaign travel, $76,841 for 

transfers, and 12,399,908 for S percent allocable portion of media costs. A receivable for $97,149 is due for compliance- related winding 

down costs. 

This amount represents Press and Secret Service receipts, media refimds through June 30,2011, interest eamed, capital assets sold, and capital 

assets in-house to be sold. 

This amount represents payment due to Press as discussed in the Campaign Travel Billing for Press finding on page 6. 

This amount represents disgorgement made on Jan. 2,2009 for interest. 

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

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