under the new allowance system. For instance, it is the Clerk's understanding that the criteria for official expenses outside the District of Columbia are based on whether or not they would qualify as ordinary and necessary business expenses under the IRS Code and Regulations. These criteria must be applied on a case-by-case basis and can only be determined by the individual Member.

This concludes my formal statement and I would be happy to answer any questions you or the members of the Commission may have.

Chairman OBEY. Thank you very much.

Next could we hear from Mr. Potter?

STATEMENT OF ORLANDO B. POTTER, STAFF DIRECTOR, FEDERAL ELECTION COMMISSION 1

Mr. POTTER. Thank you, Mr. Chairman.

On behalf of the Commission, I would like to express our appreciation for this opportunity to come here to talk to you about our role in this, especially with respect to unofficial office accounts with Members of the House.

With me today is Mr. David Osterhout, who is Executive Assistant to Commissioner Tiernan, who chaired the Federal Election Commission Task Force on Office Accounts and who is one of our in-house experts in this area. I may wish to call on him to help answer any questions you may have.

Mr. Chairman, I propose to highlight the statement you have before you, which is an outline of the chronology of the Commission's involvement in this whole area. [The text of Mr. Potter's prepared statement appears on p. 304.]

I will begin at the end of the chronology.

Your Commission will be interested to know, I am sure, that the Federal Election Commission this week, on Tuesday, January 11, transmitted for the fifth time an office account regulation which represents the culmination of nearly 2 years of dialogue between the Congress and the FEC.

The pending regulation is simpler than its predecessors, requiring only disclosure of receipts and expenditures and limiting the use of such accounts when used for political purposes only to the extent any other receipts and expenditures are limited by law.

One of the first issues that the FEC had to deal with when it began in the spring of 1975 was this thorny problem of the treatment of excess campaign funds and so-called office accounts. In fact, some 22 Members of Congress requested guidance from the Commission on the proper use of such funds, and a common theme was the effect of the statutory limitations which then were prevailing on political expenditures. Did those limitations apply to the expenditures from office funds?

Rather than deal with these questions independently, the Commission decided early that it should address the matter by general regulation as the statute allowed.

1 Note: Copies of all documents referred to in Mr. Potter's statement were supplied to the Commission for its review prior to the hearing date.

The members of this Commission who were members of the task force that preceded it were very instrumental in creating the philosophical framework under which the Committee on House Administration operated in creating this set of allowances.

I think it would be appropriate to talk about some of the areas where we at the level of the Commission have been made aware of problems that relate to problems that currently exist.

At the end of my prepared statement, I list four or five areas of concern with the current allowances. The first one is one that has popped up all over the House, and that is the practice of paying for things like newspaper subscriptions, recording studio charges, and other official expenses that are incurred within the District of Columbia but are not reimbursable to a Member.

There is a combination of problems. Basically, the decision to eliminate the ability to get cash out of the allowance system, coupled with what I perceive as an unfortunate decision to not allow a consolidated allowance, is what creates the problem. There is no authority under current allowances to pay for official expenses incurred within the District of Columbia.

Previously, Members could take cash out of their stationery account and pay for the subscriptions, or pay for the recording studio fees, but that can't be done under the current system..

The second area where Members are expressing a substantial concern is that the limitation on 1,500 square feet of office space in the congressional district is not enough. Approximately half of the House has seized that limitation right now. That is why the committee decided to put a 1-year grandfather clause in in terms of paying for office space that exceeds that amount for the calendar year we are now

in.

The third area is the concern that is expressed both in terms of the practicality and legality of transferring funds from the clerk hire allowance to either establish a computer services allowance or an increase in equipment leasing allowance.

Most of the Members who discuss this area think we ought to admit to the fact that we are in an age where computers are something that is a day-to-day operation in the House and the Members ought to be allowed to have an allowance, without reducing their staffs to create a computer allowance.

On the other side of the coin in terms of leased equipment, the argument goes that Members should not be required to reduce their staffs in order to lease a memory typewriter or a text-processing device, which is the option they are given under the current structure of allowances.

Finally, there have been suggestions that the size and the numberthe dollar value and the number limitation on the clerk hire allowance ought to be raised. You ought to have more money to hire more people in order to serve what is now close to a half-million constituents in each congressional district.

These questions, I think, are relevant to our discussion of unofficial office accounts because they are the kinds of pressures that Members are put under to pay for services for which the House will not allow them to be reimbursed. Those are the areas of which we have been

Supreme Court's decision in Buckley v. Valeo, handed down January 30, obviated further congressional consideration of the proposed regulation. It did so because the decision, by ruling that expenditure limits altogether were unconstitutional, nullified a major portion of our regulation on office accounts.

Thus, one of the greatest stumbling blocks to regulation was removed by the Court's decision.

Following the Federal Election Commission's reconstitution last spring, in May, the Commission began a total redrafting of all its regulations, including a fourth version of an office account regulation. A comprehensive set of regulations, including this now fourth office account regulation, was approved by the Commission in the last week of July and transmitted to Congress on August 3. In this most recent final version of the regulation, the main feature was twice-annual reporting of office account transactions and, reflecting the Supreme Court's decision in Buckley v. Valeo, the only contribution and expenditure limits in this proposed regulation are those which apply when any funds are used for political purposes; namely, the prohibition on use of corporate and union treasury funds, transactions made for influencing a Federal election, and the dollar limitation on contributions.

But they apply only in the event office account funds flow back into the political process. There are no limits on overall expenditures.

As the necessary 30 days for congressional review of the Commission's proposed regulations did not expire before the adjournment of the 94th Congress, the regulations, including the office account regulation, were not promulgated as prescribed by the Commission, which brings us down finally to the fifth version of the regulation which is now before Congress.

That was approved by the Federal Election Commission on January 5 for transmittal again to the Congress and it is now before you for 30-day review.

So, just briefly, to recapitulate, the Federal Election Commission has proposed regulations in five instances now to regulate the handling of unofficial office accounts. The first three dealt with this thorny question of whether such expenditures fell under the statutory limitations then existing on campaign expenditures. That problem was eliminated by the Supreme Court. The fourth and fifth versions simply required disclosure, but they do say, if and when office account regulations flow back into the political processes, they are subject to the same limitations as govern all other political funds.

That, in a nutshell, is what the Commission has done so far. We will be here to answer your questions.

STATEMENT OF WILLIAM H. CABLE, STAFF DIRECTOR, COMMITTEE ON HOUSE ADMINISTRATION

Mr. CABLE. I have a prepared statement I will not read. I think the only light it may add to the discussion is to put into hopefully understandable terms a relatively complex set of regulations relating to the limits on expenditure, on the accounts that are officially established for Members under the rules of the House Administration Committee. [The text of Mr. Cable's prepared statement appears on p. 281.]

The members of this Commission who were members of the task force that preceded it were very instrumental in creating the philosophical framework under which the Committee on House Administration operated in creating this set of allowances.

I think it would be appropriate to talk about some of the areas where we at the level of the Commission have been made aware of problems that relate to problems that currently exist...

At the end of my prepared statement, I list four or five areas of concern with the current allowances. The first one is one that has popped up all over the House, and that is the practice of paying for things like newspaper subscriptions, recording studio charges, and other official expenses that are incurred within the District of Columbia but are not reimbursable to a Member.

There is a combination of problems. Basically, the decision to eliminate the ability to get cash out of the allowance system, coupled with what I perceive as an unfortunate decision to not allow a consolidated allowance, is what creates the problem. There is no authority under current allowances to pay for official expenses incurred within the District of Columbia.

Previously, Members could take cash out of their stationery account and pay for the subscriptions, or pay for the recording studio fees, but that can't be done under the current system..

The second area where Members are expressing a substantial concern is that the limitation on 1,500 square feet of office space in the congressional district is not enough. Approximately half of the House has seized that limitation right now. That is why the committee de-' cided to put a 1-year grandfather clause in in terms of paying for office space that exceeds that amount for the calendar year we are now in.

The third area is the concern that is expressed both in terms of the practicality and legality of transferring funds from the clerk hire allowance to either establish a computer services allowance or an increase in equipment leasing allowance.

Most of the Members who discuss this area think we ought to admit to the fact that we are in an age where computers are something that is a day-to-day operation in the House and the Members ought to be allowed to have an allowance, without reducing their staffs to create a computer allowance.

On the other side of the coin in terms of leased equipment, the argument goes that Members should not be required to reduce their staffs in order to lease a memory typewriter or a text-processing device, which is the option they are given under the current structure of allowances.

Finally, there have been suggestions that the size and the numberthe dollar value and the number limitation on the clerk hire allowance ought to be raised. You ought to have more money to hire more people in order to serve what is now close to a half-million constituents in each congressional district.

These questions, I think, are relevant to our discussion of unofficial office accounts because they are the kinds of pressures that Members are put under to pay for services for which the House will not allow them to be reimbursed. Those are the areas of which we have been

made aware, the need for revision or actual use of other funds in order to pay for those services.

At that point I will retire to questions, if that meets with your approval.

Chairman OBEY. Mr. Hughes.

STATEMENT OF PHILLIP S. HUGHES, ASSISTANT COMPTROLLER GENERAL, SPECIAL PROGRAMS, GENERAL ACCOUNTING OFFICE

Mr. HUGHES. Mr. Chairman, I have a very brief statement that will be well under the 10 minutes that you have suggested. I really will talk about three areas in which you expressed interest: The auditing and enforcement of regulations pertaining to official House allowances, the acceptance of gifts by Members of Congress, and the GAO position on S. 495, as passed by the Senate in the 94th Congress.

We are pleased to be here and are anxious to be of any help that

we can.

With respect first to the auditing and enforcement of regulations. pertaining to official House allowances, I might say, not really parenthetically, but to interpolate, we have no role with respect to unofficial allowances, or unofficial funds.

The GAO maintains a professional staff at the Capitol to audit the various revolving funds and other activities of the House and Senate and the activities of private organizations doing business on the Capitol grounds.

I have behind me Mr. Harry Sanger, who is the head of that staff. Our staff also responds to requests from Members or officials of the Congress for reviews of legislative branch activities. Our role in auditing expenditures in connection with official House allowances. paid from the contingent fund of the House involves ascertaining, on a check-test basis, that vouchers submitted by Members: one, were properly certified and authorized for payment, two, show that the correct appropriation has been charged, and three, are properly documented-supported by invoices, receipts, or other evidence of expenses incurred in accordance with the particular House regulations that apply. We also check the accuracy of the mathematical computations and other data on the vouchers as part of our assistance in the preparation of the semiannual report of the Clerk of the House.

In addition, during our annual audits of the House Finance Office, we review the various controls maintained by that office over individual Members' allowances to see that limitations concerning the use of allowances have been adhered to.

We are precluded, by the provisions of 2 U.S.C. 95, from taking formal exception to payments from these allowances, but we call errors we find to the attention of the Finance Office or the Committee on House Administration for corrective action. Generally speakingand this is in line with Mr. Henshaw's statement-we do not go behind the basic records and certifications of Members, either with respect to staff, payroll, or other objects of expenditure."

In April 1974, the Senate Committee on Foreign Relations requested GAO to review the administration and operations of the Foreign Gifts and Decorations Act of 1966. On March 26, 1975, GAO issued