Kerry-Edwards audit

On May 31, 2007, the Commission approved the final audit reports of Kerry-Edwards 2004, Inc. (General Committee) and Kerry-Edwards 2004, Inc. General Election Legal and Accounting Compliance Fund (Compliance Committee).

The Federal Election Campaign Act (the Act) requires the Commission to audit political committees that receive public funding in order to ensure that those funds were spent in accordance with Commission rules and that accurate reports were filed by those committees. If a committee received funds in excess of its entitlement, incurred non-qualified campaign expenses, had surplus funds or committed an apparent violation of the law, the committee must repay public funds to the U.S. Treasury, as determined by the Commission.

Kerry-Edwards 2004, Inc. was the principal campaign committee of Senator John Kerry, the Democratic Party’s nominee for the office of President in 2004. The Kerry-Edwards 2004 Inc. General Election Legal and Compliance Fund was established to accept contributions solely for legal and accounting services to ensure compliance with federal campaign finance laws.

Kerry-Edwards 2004 General Committee

The General Committee’s audit included five findings and recommendations, three of which resulted in payments owed to the U.S. Treasury totaling $1,293,158. The audit found that the committee:

• Invested public funds and used the interest earned on those investments for media expenses;
• Incurred expenditures in excess of the limitations specified by the Act and Commission regulations; and
• Has outstanding stale-dated checks.

Interest earned

Commission regulations permit investment of public funds, provided that an amount equal to all income earned from those investments be paid to the U.S. Treasury. 11 CFR 9004.5. The General Committee’s media vendor invested public funds on the committee’s behalf and earned interest on those investments totaling $41,277. The Committee must therefore make a repayment to the U.S. Treasury for that amount.

Expenditure limits exceeded

The expenditure limit for publicly funded Presidential candidates in 2004 was $74,620,000. 2 U.S.C. §§441a(b)(1)(B) and (c). The Commission’s review of financial activity of the General Committee indicated that the Committee exceeded these expenditure limits and the Commission determined that $1,202,547 is repayable to the U.S. Treasury.

Stale-dated checks

The Commission identified 104 stale-dated checks from the General Committee totaling $50,334. Stale-dated checks are checks that were disbursed by the Committee that the payees (either creditors or contributors) have not cashed. The Commission therefore determined that the Committee must make a repayment of this amount to the U.S. Treasury, in accordance with Commission regulations. 11 CFR 9007.6.

Kerry-Edwards 2004 Inc. Compliance Fund

The Compliance Fund audit report contained two findings, both of which resulted in payments owed to the U.S. Treasury. The audit report concluded that the committee:

• Received impermissible contributions; and
• Had outstanding stale-dated checks.

Receipt of impermissible contributions

The Commission determined that the Compliance Fund had failed to provide evidence that 160 excessive contributions totaling $177,556 received by Senator Kerry’s Primary Committee had been properly redesignated to the Compliance Fund. The Compliance Fund provided documentation that $167,006 had been properly redesignated. The Compliance Fund could not locate the remaining excessive contributors, and the Commission determined that the remaining $10,550 is repayable to the U.S. Treasury.

Stale-dated checks

The Commission identified 14 stale-dated checks of the Compliance Fund totaling $14,800. The Compliance Fund agreed to repay the U.S. Treasury any checks that had not been voided. The Commission recommended that all $14,800 be repaid.

Additional issues

Hybrid ads

The audit considered the treatment of several “hybrid ads” run by the General Committee. These ads referred to Senator Kerry and contained a generic reference to Democrats, or they referred to President Bush and contained a generic reference to Republicans. The General Committee paid 50 percent of the cost of these ads while the Democratic National Committee (DNC) paid the remaining 50 percent. The Commission considered whether a 50 percent allocation was permissible or consistent with Commission regulations.

No determination was made during the audit on whether or not this allocation was appropriate, but the Commission approved a Notice of Proposed Rulemaking (NPRM) regarding hybrid ads during its open meeting of April 19, 2007. The Commission will consider this rulemaking at a public hearing on July 11, 2007. A copy of the NPRM may be found on the FEC’s web site at http://transition.fec.gov/law/law_rulemakings.shtml. See the June 2007 Record, page 1.

Sale of an email address list

The General Committee sold a database of email addresses to Friends of John Kerry, Inc., Senator Kerry’s authorized committee for his 2008 Senate re-election campaign, for approximately $2 million. The Commission considered but did not make a determination on whether the General Committee received income or a contribution from this sale.

Non-qualified campaign expense for candidate biographical film

The General Committee, the Democratic National Campaign Committee (DNCC) and the Democratic National Committee (DNC) spent approximately $207,000 on a biographical film of Senator Kerry. The cost was split between the three committees at 29 percent to the DNC, 29 percent to the General Committee and 42 percent to the DNCC. The Commission concluded that the cost of the film had been reasonably allocated. As such, the film was not considered a non-qualified campaign expense as defined at 11 CFR 9002.11(a).

Copies of the audit reports are available on the FEC’s website.