FROM: Robm J. Costa
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November 19,1998 TO The THROUGH: James A. Pehrkon Acting StaffDircctor FROM: Robm J. Costa Audit Division SUBJECT: REPORT OF THE AUDIT DIVISION ON CLMTQNIGORE '96 PRIMARY COMMITTEE,MC. Attached for your review is the subject audit wrt. Also attached an five memoranda from the Ofice of General Counsel which togetha contain a legal dysisof the audit report. The legal analysis was provided in separate memoranda so that needed revisions could be made more timely. The MIIBtjvc portion of the Committee's response to the Exit Conference Memorandum is also attached. Immediately following this memoramdum is a table of contents for tlre entire package to aid in locating subject matter in all of the documents. In order to provide a convenient page reference. the package has been page numbered consecutively at the bottom of the pages beginning wirh the first page of the audit report. Thox page numbers arc the ones noted on the table of contents. The Qfice of General Counsel and the Audit Division a.: in agreement with the contents of the audit report. Certain portions ofthe Primary Committee's response have been expunged pursuant IO 11 C.F.R. Pari 2. In addition to the documents referenced in the Audit Reports, the Audit Division reviewed the following information in reaching thcx conclusions: (1) documents obtained from the candidate committns. the national and state paxty committees, and media and polling vendors; (2) committee responses to the ECMs; (3) documents made pubiicly-available by the Senate Governmental Affairs Committee Report on the Investigation of Illegal or Improper Activities in Connection with 1996 Federal Election Campaigns; and (4) disclosure reports and other documents available to the Commission. This report is being circulated for placanent on the Agenda for the Opsn Session Meting of Decernba 3,1998. A complete copy of the Primary Committce”~response. including Exhibits. is available in the Commiwion Secretary’s Office. Should you have any questions. pluw contact Tom PJmhcn (Audit Manager) or Leroy Clay (Lead Auditor) at 694-1200. Table of Contents Repon of the Audit Division on ClintodGore ’96 Primary Committee, Inc, Legal Analyses, dated October I, 1998, October 13,1998,October 21,1998. October 26. 1998 and October 27,1998 Nanative Portion of the Primary Committee’s Response to the Exit Codice Memorandum Audit- -A4it Audit Reporp Ld Report wm Adpi3 Exhibit P8gO PrgC Page NWllbcr Mmber Nmkr - - II 1 Audit Authority 1 Audit Covaage 1 Campaign won 2 Audit Scope and 2-6 120-122 procsdum Audit Findings and 6 Recommendations Non-Repayment Manm Receipt of Prohibited 6-9 89-9Q 324-126 Contributions Resulting From Extensions of Credit By Commercial Vendors (Penn 8; Schoen) Audit Findings and 9 Recommendations Repayment Matters Receipt of an Apparent 9-4 4 104- 144-18 73-87 Excessive Contribution - 118 Media Ads Paid For By The Democratic National Committee Apparent Nsn-Qualified 44 CampaignExpenses Bismarck Enterprises 4647 47 89-90 127 AT&T Capital COQ. 47-48 48 89-90 I27 Salary and Overhead 48-50 92-93 127-130 Morris & Carrick, Inc. 50-53 53 -93 130-133 - --Audit Audit Ndveof Report COlllllIittCC Audit Repat - R=P== page p4P Seciion -NUmk NUnnkr Page Numk Shnaton New Yo& 53-56 133-135 Hotel d5 Towas Expendim Limitation 56 Additional 57-58 135 Expencliwes Considered Exempt Legal and Accounting Expenses in the Legal 58-61 95-98 135-137 and in the Matching Fund Departments Not Considered 1Wh Exempt Compliance Refunds Incomaly 61-62 137-138 Offset Against the Expenditure Limitation Amounts Due the 62-63 138-139 GELAC - Salar~yAnd overhead Amounts Due the 63 139 General Committee - Subleax Payments indysis of Expenditures 64-67 67 -. iubject To Limitation 67-70 89-90 139-140 itale Dated Checks 71 71 89-90 141 tecap of Amounts Dw 72 I.S. Trrasurv FEDERAL ELECTION COMMISSION WASHING TO^. D c 2WJ REPORT OF THE AUDITDIVISION ON CLImONIGORE '96 PRIM4RYCOMMITl"E, INC I. ?his rqmrt is based on an audit ofthe ClintonlGore '96 Primary Comminee, Inc. (the Primary Committee). The audit is mandated by Seaion 9038(a) of Title 26 of the United States Code. That section states that "After each matching payment period, the Commission shall conduct a thorough examination and audit of the qualified campaign cxpmscs of every candidate and his authorid committees who received payments under section 9037." Also, Section 9039(b) of Title 26 of the United States Code and Section 9038.1(a)(2) of the Commission's Regulations state that the Commission may conduct other examinations and dtsfrom time to time as it deems necessary. In ddition to examining the receipt and w of Federal funds, the audit seeb to detcnnine if the campaign has matmially complied with the limitations, prohibitions, and disclosure requirements of the Federal Election Campaign Act of 197 1(FECA), as amended. ms rev0rtisastaff document. The ma lvsis of the facts. internretation of abdicabk~ law. and the condusi C ra vcd the .. COmmlSSion. B. AUDIT COVERAG& The audit of the Primary Committee covered the period from its inception. April 10. I995 through December 3 1,1997. The Primary Committee reported an opening cash balance ofS-0-; total receipts of $44,753,599; total disbursements of W.603.1233; and a closing cash balance of $150,476. 1 2 C. CAMPAIGN0RCANIZATION The Primary Committee registered with the Federal Election Commission on April 14,1995. The Tm~trerof the Rimary Committee is Ms. Joan Pollin. The Primary Comminct maintains its headquarters in Washi~gtoaDC. kgthe period audited, the primary Commkts maintained depositories in the District of Columbia, Arkansas, Georgia. New Yo& and Texas. To handle its financial activity, the Primary Committee utilized a total of 9 bank accounts. From these accounts the campaign made approximately 23,654 disbursements. Appxhtcly 293,043 contributions from 190.426 penons wcfe received. These contzibuths totaled $28,987,800. In addition to the above contributions, the ptimary Committee received $13.412.198 in matching funds fiom the United States Treasury. This amount represents __.. 87% the 515,455,000 maximum entitlement ;hat any candidate could nceive. iii of The ,-:: .? 7... Candidate was determined eligible to receive matching hdson Qctok 31, 1995. The ir ;''if Primary Committee made a total of 9 matching fund request%totaling $14,245229. The Commission ceriified 94.15% of the requested amount. For matching fund purposes. the ... i: Commission detnmined that President Clinton's candidacy ended on August 28, 1996. + ii i.._.l This detmination was based on Section 9032(6) of Title 26 of the United States Code which states that the matching payment period ends "on the date on which the national convention of the party whose nomination a candidate seeks nominates its candidate for the ofice of President of the United Sta~es. ..." see alsp 11 CFR 89032.6. On August 2. 1996 the Primq Comminee received its final matching fund payment to defray expenses incurred through August $8.1996 and to help defray the cost of winding down the campaign. D. AUDlT SCOPE AND PROCEDURES In addition PO a review of the committee's expenditures to determine the qualified and non-qualified campaign expenses incunrd by the campaign (set Finding 1ll.B.). the audit covered the folloumg general categories: I. The receipt of contributions or loans in excess of the stslutory limitations; 2. the receipt of contributions from prohibited sources. such as kose from corporations or labor organizations (see Finding 11.A.); 3. proper disclosure of contributions from individuals. political comminees and other entities. to include the itemization of contributions when required, as well as the completeness and accuracy of the information disclosed; 3 4. proper disclosure of disbursements including the itemization of dkb-ents when requid, BS well BS,the completeness and accuacy of the information disclosed, 5. proper disclosure of campaign debts and sbligations; 6. the accuracy of total reponed receipts, disbursements and cash balances BE compared to Campaign bank records; 7. adequate tccordkecping for campaign mnsactio~~s; 8. accuracy of the Statement of Net Outstanding Campaign Obligations filed by the ClintodGore '96 Primary Cotrmminee, Inc. to disclose its financial condition and to establish continuing matching fund entitlement (see Finding 11I.E.); 9. the Primary Committce's compliance with spending limitations (see Finding 1II.D.); and IO. other audit procedures that wnz denned ncccssBly in the situation (see. Finding 1II.F.). As part of the Commission's standard audit process, an inventory of campaign records is normally conducted prior to the audit fieldwork. This inventory is conducted to determine if the auditee's records are materially complete and in an auditable state. The inventory began on January 6.1997. Due to the unavailability of records. heAudit sdsuspended fieldwork on January 22,1997. Prior to laving. an itemized list of records needed was provided-to the Primary Committee. Thew records, consisting of: bank statements and enclosures for thm campaign depositories; check regisien for cenain operating and payroll accounts; records relative to in-kind contributions. campaign travel. campaign materials. Primary Commi~~credit cards, media placemms. public opinion polls. fundraising. event and allocation codes; workpapers detailing FEC npon preparation and components for the Statement of Net Outstanding Campaign Obligations; copies of all Primary Comminee contractdagreements; copies of IRS forms 940 and 941 ;a listing of key personnel, including positions and mponsibilities; and. Computerized Magnetic Media for disbursemenu werc initially requested in writing during the period January 7.1997 through January 22,1997. In a letter dated January 29.1997, the Primary Committee was notified !hat the records werc to be made available on or before February 21,1997; with respect to records not deavailable, the Commission would issue subpoenas for production of the 3 persons in possession of relevant materials.