'96 CLINTON, DOLE CAMPAIGNS FACE ISSUE-AD PENALTY.

Byline: Jill Abramson The New York Times

Auditors for the Federal Election Commission have found that the 1996 campaigns of President Clinton and Republican Robert Dole illegally benefited from so-called issue advertising paid for by their political parties. The auditors recommended that the Dole campaign repay more than $17.7 million, and the campaign of Clinton and Vice President Al Gore repay $7 million.

The release of the auditors' findings coincided with a move by Republicans on the House Judiciary Committee to expand their impeachment inquiry into allegations of campaign finance violations by Clinton.

The auditors' nearly 500 pages of findings are to come before the agency's six commissioners for action Thursday. They also could be influential as Attorney General Janet Reno nears a Monday deadline on whether to ask for an independent counsel to investigate allegations of unlawful spending by Clinton and the Democratic Party in the 1996 election campaign. At issue in her decision is the legality of $46.6 million spent by the Democratic National Committee on issue ads that Clinton and his campaign consultants helped design.

The FEC auditors, backed by the agency's legal counsel, found that the party issue ads violated the spending limits of the federal election laws and should have counted as contributions to the presidential campaigns. The auditors also said there was unlawful coordination between the two presidential candidates and their parties in designing the issue ads.

The Republican ad campaign is not part of the attorney general's review because Dole is not a ``covered individual'' under the independent counsel statute. Reno's looming decision on whether to seek an independent counsel to investigate the Democratic issue ads is viewed as pivotal because it touches directly on potential legal wrongdoing by Clinton, who helped write some of the scripts for the Democratic ads and raised money to broadcast them.

The FEC auditors reviewed dozens of Democratic ads and found that three advertisements paid for by the Democratic Party were the same as ads broadcast by the Clinton campaign. The auditors also concluded that 37 Democratic issue ads that prominently featured Clinton ``appeared to convey electioneering messages.''

The auditors recommended that the $46.6 million spent on the ads by the Democratic Party should have counted as in-kind contributions to the Clinton-Gore primary campaign. The repayment formula for Clinton is based on the percentage of taxpayer funds his primary campaign received.

In return for limiting their spending, the presidential candidates each received $13 million in federal matching funds during the primary season and more than $60 million for the general election. The Democratic issue ads began in 1995 and were broadcast during the primary campaign, while the less costly Republican issue ad campaign began later and continued after the primaries.

The auditors found that the Dole campaign exceeded its primary spending limit by $2.9 million and found an additional $14.8 million in issue advertising and other overspending in the general election.

Although the FEC audits the presidential campaigns every four years and has frequently required repayments to the Treasury, the amounts recommended by the auditors for 1996, if approved by the full commission, would be the largest ever sought from the presidential campaigns.

It is far from certain that the FEC will approve the auditors' findings. The six commissioners, who are evenly divided along partisan lines, have wide latitude to make revisions or even to reject the auditors' recommendations.

It would take a majority of four commissioners to adopt the report. In the past, the FEC has modified the findings of its auditors. After the 1992 presidential campaign, for example, the auditors recommended that Clinton repay $4.4 million, but the FEC approved a repayment of only $1.4 million.

``It would not be at all uncommon for the commission to revise the findings,'' said Trevor Potter, a former FEC chairman.

Fred Wertheimer, an advocate of campaign finance overhaul, was one of the first lawyers to question the legality of the 1996 Democratic and Republican issue ad campaigns. ``The big question now is whether the fix is in and whether the FEC commissioners will pull the rug out from under its very own auditors and override their findings,'' he said in an interview Tuesday.

Working with Common Cause, the government reform group, Wertheimer protested the ad campaigns before the 1996 election and unsuccessfully pressed Reno to appoint an independent counsel at that time.