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FED[Rt\l ELECTION COMfv\lSSION

lUS SIf.:H' N.W.

W/\SI tl~C ION,U C. 20·1&3

REPORT OF THE AUDIT DIVISION

ON

THE PRESIDENT FORD CO~n1ITTEE

(Primary Election)

I. Background

This report covers an audit of the President Ford

Committee ("PFC") undertaken by ~he Audit Division to determine

whether there has been compliance with the provisions of the

Federal Election Carepai~n Act of 1971, as amended (the Act).

The nudit was conducted pursuant to Section 433(a) (8) of the

Act and Section 9038(a) of Chapter 96 of the Internal Revenue

Code of 1954. Section 438(a)(S) of the Act directs the Commission "to make froln titHe to time audits and field inves tigations

with respect to reports and statements filed under the provisions

of this chapter, and with respect to alleged failtlres to file any

report or statement required under the provisions of this chapter,

and to £ive priority to auditing and field investigating of the

verification for, and the receipt and use of, any payments received

by a candidate under Chapter 95 or Chapter 96 of the Internal

Revenue Code of 1954." Section 9038(a) of Chapter 96 states that

"after each matching payment period, the COMuission shall conduct

a thorough examination and audit of the qualified campaign e:-:pcnses

of every candidate and his authorized committees who received

paylllents under Section 9037."

The audit covered the period from June 20, 1975, PFC's

date of reeistration, through February 10, 1978. ~he PFC reported

beginning cash-on-hand of $0.00, total receipts of $14,692,435.85,

total expenditures Qf $14,448,808.92 and ending cash-on-hand

of $243,846.93. 1/ Total expenditures of $14,448,808.92 is

conlpriscd of $10:b"90,744.84 subject to the $10,910,000 spending

limitation contained in Section 441(b)(l) (A) of Title 2, of the

United States Code (2 U.S.C 44l(b)(1)(A) with the remainder consistin~ of expenditures for exempt fundrnising and legal

and accountin~ expenses. Expenditures subject to the limitation

have not been adjusted for $24,993.64 in unqualified campaign

expenses included therein.

1/ i\pparent ovcrr,tateluent of $220.00 cndinb cash due to an

arithemetical error in report figures.

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The principal officers of the PFC during the period

covcrl'd by the audit included !vIr. Dean Burch (6/20/75-

7/8/75), t-tr. Howard U. Calloway (7/9/75-4/5/76), Mr. Rogers C. B. Morton (4/6/76-9/6/76), and Mr. James A. Baker, III

(9/7/76 to present), Chairmen, and Mr. David Packard (6/20/75-

7/8/75), and Mr. Robert C. Moot (7/9/75 to present), Treasurers.

This report is based on documents and working papers supporting each of its factual statements. They form part

of thl~ record upon which the Commission based its decisions

on the matters in this report, and were available to Commissioners and appropriate staff for review. .. II. Findings and Conclusions

A. Disclosure

Listed below are items noted during the audit that

deal with Title 2 disclosure problems. The items are divided

into two categories: (1) those for which the staff recommend~d

amendments to PFC's report; and (2) those for which the staff

feels no amending action is required.

(1) Items for which amended reports have been

recommended:

(a) Itemization of Contributors

2 U.S.C. 434(b)(2) requires itemization of

contributors whose aggregate contributions during the calendar

year exceed $100.00.

Due to a pro~rnm instruction error, the Committee's

computer processin~ unit selected only contributions ag~regatin~

in excess of $100. 00 per contributor per ·10nth to itemize on

Schedule A, Line 15a FEe Form 3. This error occurred during

February 1. 1976 to August lS, 1976 (reflected on the ~larch 10

through September 10, 1976 FEe monthly reports). The projected

error range of unreported contributions was between 10.0 and 16.6~:; sample results indicated that approxirn~tely 1,200

contributors were not disclosed on the FEC reporting schedules

as required by 2 U.S.C. 434{b)(2). In addition, other processing

errors resulted in certain input irregularities affecting

disclosure of contributors: such as, the same batch was processed twice, several batches were not entered, a batch was processed with

an extra digit. zero (0) added to the contribution amounts, and

keypunching errors.

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, The PFC, following our recommendation and

guidance, submitted on February 22, 1977, comprehensive

amendments for the period Jnnuary 1, 1976 through August

18, 1976 amending the irregularities noted above.

Rccommendntion

No further action recommended.

(b) Itemization of Transfers "Received

Section 43 /.(h) (4) of Title 2, United States

Code (2 U.S.C. 434(b)(l.) r('quires the committee to itemize

the name and addrc~,s of each political committee or candidate

from which the committee r('ceived anv transfer of funds, together with the amounLn and dates of" each transfer.

Fifteen trall!';fers-in from political action

conunittees either were reported under the name of the signatory

on the check on Line l5a entitled "Itemized Contributors"

or reported on Line 15b entitled "Unitenlized Individual. Con~-

butions. " (See Attachment I)' . " ". ~: t·

Based on our recommendation, the Committee's

comprehensive amendments reclassified these transfers-in to

Line lSb of FEe Form 3 as required.

Rcconunendation

No further action is rcconwcndcd.

(c) Disclosure of Earmarked Funds

Section 441n(a)(S) of Title 2, of the United

States Code (2 U.S.C. 44la(a)(S» requires in part that all

contributions made by a person which arc in any way earmarked

or othenvise directed throUi~h an intermediary shall be

identified as contributions [rom that person.

Six transfers-in were reported without indicating

that a portion of the amount transferred was earmarked for the

PFe by an individual. The Committee indicated that these items

apparently were the result of a processing error.

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Based on our recommendation, the six items

totalinB $620.50 were reported in the comprehensive amendments

subnlittcd February 22, 1977.

Rcconlmenda t ion

No further action is recommended.

(d) Itemization of Contributions In-Kind

Section 434(b) (2) of Title 2 of the United

States Code (2 U.S.C. 434(b)(2» requires in part that a

committee report the full name anu mailing address of each

person who h~s made one or more contributions to or for such

committee within the calendar year in an agerceate amount or

value in excess of $100, together with the amount and date of

such contributions.

During the audit seven contributions in-kind

were noted which had not been reported. In all cases the

value of the contribution exceeded $100.00. (See Attachment

II) •

It was our reconullcndation that the PFC establish

the fair market value of these itcms and reflect these items

in their reports as soon as the information was available.

The Committee has amended their reports to reflect six of the

contributions in-kind.

The seventh contribution in-kind was a mailing

list used by the ~ixon Can~paign \·.,hich \-13S received by the PFC

in the Fall of 1975. The value placed on t:1C list by the PFC

was $540.00. In lieu of rc?ortir~ a contribution in-kind, on

January 7, 1978, the PFe paid $5l~O.OO to the 1972 Calnpaign

Liquidation Trust for the mailing list.

Recotnmenda t ion

Since the Committee has reported or accounted for all

"contributions in-kind" noted above, \-le rcconuncnd no further

action.
(f)

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(e) Contributions in Excess of 1 000

1mLtntion

. Section 441a(n) (l) (A) of Title 2 of the United

States Code (2 U.S.C. 44la(n)(1)(A» requires that no person

shall nl:lke contributions to any candidate or his authorized

politicnl committees with respect to any election for Federal

office which, in the aggregate, exceed $1,000. PFC identified,

through their own internal procedures, many contributors

donatinB in excess of $1,000 per election and refunded the excess

amount. During the course of our audit, two additional contributions ($1,100.00 and $1,750.00) in excess of the $1,000 limit

were identified and brought to the Con~ittec's attention. All of

the it~nlS have been rectified either through refunds of excess

amounts or proper identification of contributors originally

listed incorrectly in the PFC reports.

Recommendation

Since the PFC has corrected these matters, it is our

recommendation that no further action is necessary .

Transfer Received In Excess Of

$1,000 Limitation

Section 44la(a) (4) of Title 2 of the United States

Code (2 U.S.C. 44la(a)(4» defines a multi-candidate political

committee in part as a political committee which has been registered under Section 433 for a period of not less than 6 months.

SEDCO, a political committee which registered with FEC on

December 11, 1975, contributed a total of $1,250.00 to PFC as of

l-larch 17, 1976, prior to becomin~ a "multi-candidate committee."

As a result, the PFC refunded $250.00 to SEDCO.

Recolr.mcndn tion

It is our recolmnendation thnt no further action is necessary.

(g) Disclosure of Repositories

Section 433(c) of Title 2 of the United States

Code (2 U.S.C .. 433(c» requires that any chnnec in information

previously submitted in a Statement of Organization shall be

reported to the Conunission within a 10 day period fo11owinB

the change.

Our review of bank records presented for inspection revealed 22 repositories which were not disclosed

by the PFC.

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Recommendation

Since the PFC amended its St~tcmcnt of Organization on

July 12, 1977, listing the previously undisclosed repositories

mentioned above, we recommend that no further action is

necessary.

(2) Listed below are items noted during the audit

which in the opinion of the Audit staff do no require ~ny

action by the President Ford Committee (PFC). Correcting

these items would require costly and time consuming reclassification of datu but would not change the actual dollars spent

or reported; correcting these items would result only in moving

report entries from one line to another or from one report to

another. .

(a) Inaccurate Reporting Dates

Attachment III lists the actual coverage dates

used by the PFe to close their books and generate the FEC reports.

In the cases where the PFC closed their books prior to the

prescribed closing date, the FEC reports listed the prescribed

coverage dates. The reason given by PFC for this practice was

that additional time was needed to insure timely filing of

disclosure reports given the necessary lead time for computer

input and processing. No gaps in reporting occurred.

(b) Reporting of Refunds and Rebates

During the primary campaign, PFC reported on Line 17

refunds and rebates received and deposited in PFe Washington

Headquarters accounts which related to expenditures made subject

to the spendin~ limitation in 2 U.S.C. 441a(b)(1)(A). Refunds and

rebates relating soluly to exempt fundraising expenditures were

deducted from the reported fundr~ising expenditures rather than

reported as a receipt on Line 17. The deduction was accomplished by reporting a ncgat~ve expenditure entry on the Schedule B [or

Line 23, "Exenlp t Fundrais in~ Expendi tures." This practice preven t."u

an understatement of expenditures subject to limitation by including

only those refunds and rebates applicable to operating expenditures

on Line 17. This resulted in a reported difference of approximately $10,000.

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Proper reporting of rcfundn and rebates relating

to fundraising expenses in the receipts portion of FEe reports

would.require a ch3nge in the forms to nllow differentiation

between operating and fundraising related refunds and rebates.

Refunds and rebates received and deposited in

PFC non-Washington Headqu~rters accounts were netted from reported expenditures for the respective advance account. This

was accomplished in the expenditure section of the report by

reportin~ a negative entry for the respective vendor/payee,

rather than a refund or rebate as a line 17 receipt. This

resulted in a reporting difference of approximately $40,000.00.

The two procedures mentioned above did not result

in a misstatement of expenditures chargeable to the expenditure limitation but rather an understatement in refunds and

rebates received and a like understatement in ~rOS5 e:.:penditures per report.

(c) Consolidation of Expenditures

(i) The PFC in processing expense reports

received from state advance accounts sometimes grouped together

several separate expenditures to a single vendor and reported

them as one expenditure in the a~gregate amount, thus reducing processing time, hence cost, by keeping line entries to a

mininlum. A fe\-1 state advance accounts, in reporting back to

PFe, also grouped expenditures together on their expense reports.

This practice, either by PFC or the state advance

accounts, while not 100% consistent with the provision of reporting each expenditure in excess of $100.00 or a~gregating in

excess of $100.00 in a calendar year, did not in the end result

materially distort dis1osure.

(ii) A similar pr~ctice was noted in the PFC's

processing of state advance accotmt expense reports. On several

oceanions, PFC eroupco incident~l expenses (usually less than

$25.00) or occasionally larger expenditures, for which adequate

information (name and address of vendor, etc.) was not available

at time or processing, under the name of the state chairman or

person in ch3rgc of the advance account as the vendor/payee. This

practice allowed timely processing of state expense reports with

catcgori::ation of expenses (supplies, travel, etc.) when available.

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While there is a possibility that certain

expenses processed in this manner could conceivably aggreB3te , in excess of $100.00 per actual vendor per calendar year, thus

requiring itemization, this practice did not have a material

effect on disclosure.

(d) Advance Reportin~ System

PFC, throughout the primary campaign, reported

as an expenditure the amount of an advance of funds made to

PFC :;late bnnk accounts. As the state entities submitted e:<pcnsc

reports to account for their advances, the PFC would enter these

vendors' expenses into their,cxpenditurc rcportine system and usc

a reversing entry to reduce the previously reported advance.

While the advance payments were reported on a timely basis, the

expense reports of the state enti~ies were processed between 1

month and 9 months after the actual state check was written to

the ultimate vendor/payee. Balances in the advance accounts were

fully liquidated and reported as of the April 10, 1977 report.

(e) Reporting of Debts and Obligations

A review of the PFC's outstandine debts and ob1i~ntions revealed that while these were itemized at the

close of each respective reporting period, their subsequent liquid~tion was evidenced only in the receipts' and

expenditures' sections of later reports, and not reflected,

as required on Schedule C for Lines 26 and 27. Since testing

has eivcn assurance that all reported debts and obligations

were liquidated, no amending action is believed to be necessary

on an item by item basis. HO~'1cver, 1;o1e sug~~C'sted that the PFe

subtnit a statement signed by the Treasurer, for the public record,

indicating that all reported debts and obl.i.~~ntions have been

liquidated as of a given reportin~ date and that in future reports, debt~; and obli~ations will be rcpo)'tcd as required by the Act. The

PFC submitted this statement on July 12, 1977.

B. Other Matters

(1) Cash Expenditures in Excess of $100

Section 437b(b) of Title 2 of the United States Code

(2 U.S.C. 437b(b)) allows a political conmlittcc to maintain a

petty cash fund from which no expenditures in excess of $100 m~y

be made in connection with one purchase or transaction.

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Based on this formula and the audit work completed

to date, the Cow~ittce's rcp~ymunt of excess funds is as follows:

Total Matchinq Funds Receivcd* X Surplus = Repayment

Total Deposits Through Incliglbility*

On August 13, 1976, the Commission advised

President Ford that his date of ineligibility would be August 18,

1976. The audit work has determined that on this date the

Committee had an adjusted surplus cash position of $399,934.01.

Repayment under this section of the Act is based on the following

formula:

X $399,934.01* = $132,684.60

These figures arc after m~lking adjustments for the two

items noted in C (l) above ~nd C (4) below• *

$ 4,650,246.27*

$14,016,635.55*

(3) Application of Formula

Section 9038(b) (3) o[ Title 26, of the United States

Code (26 U.S.C. 9038(b) (3» requires the candidate to repay

that portion of any unexpended balance remaining in the

candidate's account which bears the same ratio to the total

unexpended b~lc:lncc as the tot~l .:lffiOunt received from the

matching pnymcnt account bears to the total of all deposits

made into the candidate's account.

The audit work has disclosed that $5,625.64 expended

from a state bank account w~s ~upportcu by (1) a cancelled check

or bank wire and (2) cash disbursement voucher containing the

check number, ~mount, date, payee and intended purpose and (3)

a statement signed by two VFC st~tc officials pertaining to

$4,275.64 of the total. The Audit staff feels that the documcnt"tion provided docs not disclose the purpose in sufficient detail

to allow us to determine whether the expenditures were campaign

rplatcd. lienee, no dcterminntion regarding qualified campaign

cxpcnse~ can be made. In addition, $92.00 of the PFC's funds

were used to pay parking violation fines.

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6,761.55

5,717.64

132,684.60

957.84

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(4) Other Adjustments

The PFe repaid the United States Trcasury $957.84 which

represents the value of cleven checks issued by the PFe in payment

for (1) services rendered in connection with the primary cnmpai~n

by apparent corporate entities and (2) a contribution refund of

$500.00 to an individual who had exceeded thc $l,~OO contribution

limitation contained in Section 441a(b) of Title 2 of the United

States Code. These checks, dated between March 31, 1976 and

September 16, 1976 were outstanding when the account was closed

on January 12, 1978. In lieu of reissuing these checks, the rfG

paid the United States Treasury the full amount as part of the

payback, thereby, precludint the application of Sections 441a(f)

and 441b(a) of Title 2 of the United States Code. The Audit staff

has reviewed this matter and believes the approach was a rcason3blc

and equitable method of disposing of these outstanding checks.

Recommendation

Based on the above calculation and the findings listed

under (1), (2) and (4), the PFC would De required to repay $146,121.63 comprised of the following:

Item C (1) - NSF checks matched and overpayment $

Item C (2) - Unqualified Campaign Expenses

Item C (3) - Amount Per Formula

Item C (4) - Other Adjustments

$146,121.63

On February 17, 1978, the Committee Controller hand

delivered a check, dr':l\-ffi on the account of The President Ford

Committee and made payable to the United States Treasury in

the amount of $146,121.63. This represents payment in full

of the Conunittce' s repayl11cnt obligation under Section 9038

(b)(l), (2), and (3)· of Title 26 of the United States Code.

III. Auditor's Statement

Except for the matters specifically noted in this report,

the audit disclosed that the President Ford Committee (Primary

Election) conducted their activities in conformity with the

Federal Election Campai~n Act of 1971, as amended, and in

conformity with Chapter 96 of Title 26, United SCates Code,

in all material aspects.

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*Payment made on January 7, 1978 .

1. Office space and travel expense $ 983.80 11*

2. 25 Cases of apples 200.00

3. 25 Cases of apples 200.00

4. 25 Cases of apples 200.00

5. 22 and one-half Cases of apples 180.00

6. Office space, telephone calls & mai1grams 592.50

7. Mailing List 540. OO~':

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Fair Market Value

$2,896.30

ATTACl1t'tENT II

CONTRIBUTIONS-IN-KIND

Total

Description

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Report Type

ATTACIl~t~NT III

EFFECTIVE DATES FOR FEC REPORTS

Actual Coverage Dates

Used By PFC

Correct Covcra~c

Dates As Required

2/10/76 1/1 - 1/31/76 Same

3/10/76 2/1 - 2/25/76 2/1 - 2/29/76

1_/10/76 2/26 - 3/26/76 3/1 - 3/31/76

5/10/76 3/29 - 4/28/76-1: 4/1 - 4/30/76

6/10/76 4/29 - 5/26/76 5/1 - 5/31/76

7/10/76 5/27 - 6/25/76 6/1 - 6/30/76

8/10/76 6/28 7/28/76~': 7/1 - 7/31/76

9/10/76 7/29 8/18/76 8/1 - 8/31/76 I 10/10/76 8/19 - 9/28/76 9/1 - 9/30/76

11/10/76 9/29 - 10/26/76 10/1 - 10/31/76

12/10/76 10/27 - 11/30/76 11/1 - 11/30/76

1/31/77 12/1 - 12/31/76 12/1 - 12/31/76

* Both two day gnps reprlsent Saturdays and Sunduys on which

no activity occurred.

Auditor's Note: No gaps, either per books or per reports

Cor period 1/1 12/31/76 .

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·0 A'ITAClt~lENT I

TRANSFERS- Il~

1. Mitchell, Huggins Voluntary Political Fund

2. Chevron Committee for Political Particip~tion

3. Hughes Active Citizenship Fund

4. Hickory Street Fund

5. Good Govcrnnlcnt Program for .Employees of Standard Oil

6. Burlineton Northern Employees Voluntary Good Governnlcnt Fund

7. Canoco Employecs Good Government Fund

8. Dillingham Employees Citizen Action Program

9. G-P Employees Fund

10. Government Improvement Group

11. Northwestern Officers Trust Account

12. ~~cns-Illinois Employees Good Citizenship Fund

13. Southern Pacific Management Officers Good

Government Fund

14. Tacoma Fund . 15. Voluntary Contributors for Better Government

Total

$1,000.00

250.00

2,000.00

500.00

50.00

500.00

500.00

60.00

600.00

1,000.00

1,500.00

500.00

50.00

250.00

2,000.00

$10,760.00

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It was noted in the review of the Texas and

Illinois state records that certain agent~ operating at the

district level nl~de cash disbursements in excess of $100.

However, detailed tcstin~ has given assurance that the

expenditures are thoroughly supported by independent documentation statin~ the p~rticulars of the expenditures, as required by 2 U.S.C. 432, and also reported in accordance with 2 u.s.c.

434. The total doll~r value of this ~ctivity is estimated not

to exceed $20,000.00. It is the opinion of the staff that the Pl~C lIcadqunrtcrs staff was not aware of this activity at the

time it was occurring.

Recommendation

It is our recomr.lcndation that these cash disbursements

in excess of $100 be viewed as qualified campaign expenses.

c. Repayment to the Treasurv

(1) Excessive Matching Fund Payments

Section 9038(b)(l) of Title 26, of the United States

Code (26 U.S.C. 9038(b)(1» requires the candidate to repay

any amounts determined by the Commission to be in excess of

the aggregate alnount of payments to 1;vhich he was entitled.

Durine our review of the receipts records of the

PFC, it was determined that $3,089.73 of the contributions

matched during the matching funds process were supported by

written instrumcncs which were not collectible due to Non

Sufficient Funds of the contributor. Based on this information, these contributions were not matchable.

In addition, a review of the payments made during

the matching funds process indicated that an inadvcrtant overpayment of Federal funds was made to the PFe on August 5, 1976.

rrhis overpayment anlounted to $3,671.82.

(2) Unqualified Campaign Expenses

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

Code (26 U.S.C. 9038(b)(2» requires the candidate to repay any

amounts deterlnincd to have been used for payments of other than

qualified campaign expenses .

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