AUGUSTA (AP) – The executive director of the state’s election watchdog panel says an audit of independent Barbara Merrill’s 2006 publicly funded gubernatorial campaign shows she “complied with the major requirements of Maine’s campaign finance law” but that he had “my own concern about the forthrightness of the campaign’s financial reporting.”

In a memo prepared in advance of Monday’s meeting of the Maine Commission on Governmental Ethics and Election Practices, Jonathan Wayne writes that “more than one-ninth of Barbara Merrill’s total campaign expenditures were paid to her husband as compensation for his services, but one would not know that by reading her campaign finance reports.”

Merrill received $915,732 for her campaign as a qualified candidate under the Maine Clean Election Act, $400,000 as an initial payment for the election and $515,732 in matching funds, according to the audit.

Of that amount, Merrill’s husband – veteran political campaign organizer Philip Merrill – was “apparently” paid more than $109,000 while serving as both the campaign’s assistant treasurer and the operator of a business to produce and place the campaign’s advertising, according to the ethics commission staff.

“Mr. Merrill’s business is listed only as Mountain Top Productions without further explanation,” Wayne writes.

The commission case file shows that the candidate strongly defended the campaign’s arrangement with her husband in correspondence with the panel’s staff since at least February.

“I needed someone with wide Maine campaign experience, someone with experience in all aspects of campaigns including producing ads and purchasing time and someone who could also oversee any polling I decided to do,” Barbara Merrill wrote to commission staff auditor Vincent Dinan on Feb. 8.

“Also if possible this person should be very familiar with the major public policy issues facing the state because I wanted ads which would be very issue-oriented,” Merrill wrote.

Noting her husband’s involvement in decades of top-of-the-ticket Democratic campaigns on behalf of the candidacies of William Hathaway, Edmund Muskie, Joseph Brennan and U.S. Rep. Michael Michaud as well as his experience as a state senator and state Senate legal counsel, Barbara Merrill added, “The only person available that fit that bill was Phil Merrill.”

While not prohibited by law or commission rules, Wayne writes that the matter “goes to the sufficiency of current legal requirements for disclosing campaign expenditures.”

In a finding headlined Conflict of Interest, the audit report states:

“Mountain Top Productions became the largest single vendor to the Merrill campaign, with billings of $211,215, which included $109,427 apparently paid as compensation to Mr. Merrill for his production and placement services and $101,785 paid to MTP as a pass-through to media companies …”

MTP was essentially Mr. Merrill himself. The company had no corporate registration, bank accounts or tax identification numbers, and appears to have no other clients.”

Dinan went on to say: “Mr. Merrill’s dual roles as the campaign’s deputy treasurer and as the principal vendor to the campaign created, in the auditor’s opinion, a critical conflict of interest. Fundamental principles of financial management dictate that there should be an ‘arm’s length’ relationship between buyer and seller.”

Responding to Dinan’s draft report on June 28, Philip Merrill noted that it found no evidence of misuse or misappropriation of public funds and wrote in part “there is not a lot we can add to that statement.”

Merrill also said the campaign’s results demonstrated the effectiveness of its media activity, which had been based on an agreement “worked out with Jim Webster, the campaign manager, and Barbara Merrill on behalf of the campaign and Phil Merrill on behalf of Mountain Top Productions.”

Merrill asserted: “Given the undisputed fact that retention of a family member is clearly permitted by Maine law, coupled with the fact that our media campaign was clearly effective as evidenced by the candidate’s sharp surge in the latter days of the campaign, both my wife and I feel strongly that the criticism in this finding is unwarranted and patently unfair.”

The staff audit offers no specific recommendation on the issue but suggests that the commission consider ways “to prevent conflicts of interest in the management of campaign financial affairs.”

In his separate memo, Wayne writes that the commission staff “does not wish the findings in the audit report to detract from Ms. Merrill’s accomplishments as a candidate or her successful participation in the Maine Clean Election Act as an independent candidate.”

Wayne also writes, however, “One major purpose of Maine’s campaign finance law is public disclosure – both of the sources of a campaign’s revenue and how it is spent. We believe a publicly funded campaign is under a special obligation to provide taxpayers with a clear understanding of how their tax dollars have been spent in a political campaign.

“If it was publicly known that the campaign was making large payments to Phil Merrill as a principal of Mountain Top Productions, it seems likely that this arrangement would have been the subject of public comment. Because the arrangement was not known until after the election, there was no discussion of this during the campaign,” Wayne writes.

Last August, in advance of the general election, the Commission of Governmental Ethics and Election Practices issued two $5,000 fines against Merrill’s campaign after deciding that it illegally used Clean Election Act money to reimburse two campaign workers for services they provided during the qualifying period for public funding.

Merrill said she believed the ethics commission erred in its decision but would not appeal.

Last November, Democratic incumbent John Baldacci won a second gubernatorial term besting Republican Chandler Woodcock, Merrill, who is a lawyer and served a term as a state representative from Appleton, and Green Independent Pat LaMarche.

Baldacci took 38.1 percent of the vote, Woodcock 30.2 percent, Merrill 21.6 percent and LaMarche 9.6 percent, according to the Maine secretary of state’s office.

A report by the ethics commission in April said the optional system for public financing of election campaigns “appears to be settling itself into the political landscape” after four election cycles.

Under Maine’s Clean Election system, approved by voters in 1996, qualified candidates must agree to forgo most private funds and to limit spending. Nonparticipating candidates may raise and spend money without limitation. If a participating candidate is outspent by a candidate raising private funds, matching money becomes available.

AP-ES-07-12-07 1228EDT