FEDERAL ELECTION COMMISSION

WASHINGTON, DC 204&3

November 8,1999

MEMORANDUM

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

DRAKE FOR CONGRESS

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERTJ.COSTA -

ASSISTANT STAFF DI~~ AUDIT DIVISION

TO:

FROM:

•

Attached please find a copy ofthe final audit report on Drake for Congress which

was approved by the Commission on October 26, 1999.

Informational copies ofthe report have been received by all parties involved and

the report may be released to the pUblic.

Attachment as stated

cc: Office ofGeneral Counsel

Office of Public Disclosure

Reports Analysis Division

FECLibrary
TABLE OF CONTENTS

DRAKE FOR CONGRESS

r"'lz,

liJ Page

i'~

r~1 Executive Summary

U1 Final Audit Report

3 rL¥ R... Background .)

1~"'=:

6~ Findings

5

•

ru Transmittal to Committee 10

fIJ.

Chronology II
FEDERAL ELECTION COMMISSION

Washington, DC 20463

REPORT OF THE AUDIT DIVISION

ON

DRAKE FOR CONGRESS

EXECUTIVE SUMMARY

Drake for Congress (the DFCC) registered with the Commission on March 4,

1998, as the principal campaign committee ofGrace L. Drake, Republican candidate for

the U.S. House ofRepresentatives from the state of Ohio, 13th District. Ms. Drake filed

a Statement ofCandidacy for the 1998 election on March 5, 1998.

The audit was conducted pursuant to Section 438(b), which states that the

Commission may conduct audits of any political committee whose reports fail to meet the

threshold level of compliance set by the Commission.

The findings ofthe audit were presented to the DFCC at an exit conference held at

the completion of fieldwork on June 18, 1999 and later, in an interim audit report. The

DFCC's responses to those findings are included in this final audit report.

The following is an overview ofthe findings contained in the final audit report.

Misstatement of Financial Activity and Failure to Itemize Disbursements2 U.S.C. §434(b)(1),(2) and (4)and 435(b)(5)(A). The DFCC overstated its 1998 receipts

by a total of$40,266. The majority ofthe problem stemmed from an overstatement of

unitemized receipts in the October quarterly report. Disbursements were understated by a

net amount of$24,602. This resulted from the DFCC reporting $12,440 in disbursements

never made, over-reporting certain disbursements by $304 and not reporting $37,346 in

other disbursements. In addition, the DFCC failed to itemize a total of$32,408

disbursements which were over, or aggregated over $200.

The misstatements noted above and a math error of$1,141 caused ending cash on

hand for 1998 to be overstated by $63,726. The correct cash balance was $6,018.

The DFCC filed amended reports which materially corrected the misstatements

and itemized the required disbursements.

Disclosure of Contributions from Individuals - 2 U.S.C. §434(b)(3)(A).

Contributions lacked or incorrectly reported aggregate year to date amounts, identified
the wrong account holder on checks drawn onjoint accounts, and failed to itemize

contributor addresses. In addition, records for occupation and name of employer were

not maintained nor was this information disclosed for a material number of contributors.

The DFCC filed amended reports and other information materially correcting the

misstatements.

Debts and Obligations - 2 U.S.C. § 434(b)(8); 11CFR §104.1 1(a) and (b). The

DFCC failed to itemize obligations totaling $35,346. The problem appeared to be related

to a general lack ofexperience in filing reports. Amended reports were filed which

itemized all required obligations.

2
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

A99-18

This report is based on an audit of the Drake for Congress Committee

(DFCC), undertaken by the Audit Division ofthe Federal Election Commission (the

Commission) in accordance with the provisions ofthe Federal Election Campaign Act of

1971, as amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle

2 ofthe United States Code which states, in part, that the Commission may conduct

audits and field investigations of any political committee required to file a report under

section 434 ofthis title. Prior to conducting any audit under this subsection, the

Commission shall perform an internal review ofreports filed by selected committees to

determine ifthe reports filed by a particular committee meet the threshold requirements

for substantial compliance with the Act.

REPORT OF THE AUDITDIVISION

ON

DRAKE FOR CONGRESS

..

I. BACKGROUND

A. AUDIT AUTHORITY

\,

B. AUDIT COVERAGE

The audit covered the period from March 16, 1998, the date of the first

deposit into the DFCC's account, through December 31, 1998. The DFCC reported a

beginning cash balance of $0; total receipts for the period of$233,230 1

; total

disbursements for the period of $162,344; and an ending cash balance of $69,745.2

C. CAMPAIGN ORGANIZATION

The DFCC registered with the Commission on March 4, 1998, as the

principal campaign committee ofGrace L. Drake, Republican candidate for the U.S.

House ofRepresentatives from the state of Ohio, 13th District. Ms. Drake filed a

Statement ofCandidacy for the 1998 election on March 5, 1998.

The figures cited in this report are rounded to the nearest dollar.

The totals do not foot due to a reporting discrepancy,

3
The Treasurer ofthe DFCC during the audit period and cUlTently is Susan

J. Kyte. The DFCC maintained its headquarters in Aurora, Ohio from March 4, 1998

until September 16, 1998 at which time an amended Statement of Organization was filed

changing the address to Bainbridge, Ohio.

The DFCC used one checking account to manage its financial activity.

Approximately 250 disbursements were made from this account. The DFCC received

about 510 contributions from individuals, totaling approximately $116,000, which

represented about 60% ofthe its total receipts. In addition, the DFCC received 58

contributions from political action committees and other committees, such as party

committees and candidate committees, totaling approximately $74,000 or 38% oftotal

receipts and $2,431 in refunds (1.3%).

D. AUDIT SCOPE AND PROCEDURES

The audit included testing of the following general categories:

1. The receipt of contributions or loans in excess ofthe statutory

limitations;

2. the receipt of contributions from prohibited sources, such as those

from corporations or labor organizations;

3. proper disclosure of contributions from individuals, political

committees and other entities, to include the itemization of

contributions when required, as well as, the completeness and

accuracy of the information disclosed (see Finding n.B.);

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and

accuracy ofthe information disclosed (see Finding ILA.);

5. proper disclosure of campaign debts and obligations (see Finding

n.c.);

6. the accuracy of total reported receipts, disbursements and cash

balances as compared to bank records (see Finding II.A.);

7. adequate recordkeeping for campaign transactions; and

8. other audit procedures that were deemed necessary in the situation.

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue any ofthe matters

discussed in this report in an enforcement action.

4
II. FINDINGS AND RECOMMENDATIONS

A. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(1), (2) and (4) ofTitle 2 ofthe United States Code state,

in part, that a political committee shall disclose the amount of cash on hand at the

beginning ofthe reporting period and the total amount of all receipts and all

disbursements for the reporting period and the calendar year.

Section 434(b)(5)(A) ofTitle 2 ofthe United States Codes states, in part,

that each report under this section shall disclose the name and address of each person to

whom an expenditure in an aggregate amount or value in excess 01'$200 within the

calendar year is made by the reporting committee to meet a candidate operating expense,

together with the date, amount, and purpose ofsuch operating expenditure.

The Audit staff's reconciliation ofDFCC's reported financial activity to

its bank activity, from the date ofthe first bank transaction, March 16, 1998, through

December 31, 1998 revealed that DFCC had misstated its receipts, disbursements and

cash on hand balances.

1. Receipts

The DFCC reported total receipts of$233,230. Utilizing the

DFCC's financial records, it was determined that the DFCC should have reported receipts

of $192,964. Therefore receipts were overstated by $40,266. The net over-statement of

receipts resulted primarily from a net over-repOliing of unitemized receipts in the amount

of$40,531, with a small unexplained difference of$265 remaining. The majority ofthe

over-reporting occurred during the October Quarterly report period (7/1/98 - 9/30/98).

2. Disbursements

Total reported disbursements were $162,344. The Audit staff

determined that the DFCC should have reported total disbursements of $186,946.

Therefore disbursements were understated by $24,602. The understatement resulted from

a net under-reporting of disbursements totaling $37,346 , the majority of which came

from the October Quarterly report period, ($34,869), the net over-reporting of

disbursements in the amount of $304, and the reporting of disbursements that were never

made totaling $12,440. In addition, $32,408 ofthe unreported disbursements were over,

or aggregated over, $200 and were not itemized, thus creating a significant failure to

itemize.

5
3. Ending Cash On Hand

The reported ending cash on hand at December 31, 1998 was

overstated by $63,726, resulting from misstatements detailed above and a math error of

$1,141. The correct ending cash on hand was $6,018.

Prior to the exit conference, the Audit staff provided the DFCC with

schedules detailing both the bank activity and the noted adjustments. The Treasurer

stated that the problems stemmed from a lack of experience on the part ofthe persons

filing the reports and that they were unintentional mistakes. She commented that it

seemed that most ofthe mistakes for both receipts and disbursements occurred in the

October Quarterly report period and that perhaps some confusion had resulted as to the

proper amounts for receipts and disbursements. As to the itemization problem, the

Treasurer could not explain why so many ofthese disbursements were not itemized.

The Treasurer did assure the Audit staff of her willingness to file amended

Summary, Detailed Summary pages and Schedules B to correct the problems noted

above.

Shortly after the end of fieldwork the DFCC filed amended schedules B

that materially corrected the itemization problem noted above. In addition, amended

Summary and Detail Summary pages were filed individually for the July and October

Quarterly reports covering the periods 4/16 - 9/30/98, and for the Pre-General and PostGeneral reports covering the periods 1011 - 11/23/98 which corrected the misstatements

mentioned above. The DFCC did not file an amended Year End report to show corrected

cash on hand amounts.

In the Interim Audit Report, it was recommended that DFCC file an

amended Summary and Detailed Summary page for the Year End report to correct the

ending cash on hand amount. The DFCC did not file the requested report. However, the

latest report filed, the 1999 Mid-Year-Report (1/1/99 - 6/30/99) discloses as its beginning

cash on hand balance the cOlTect amount as detelmined by the Audit staff.

B. DISCLOSURE OF CONTRIBUTIONS FROM INDIVIDUALS

Section 434(b)(3)(A) ofTitle 2 of the United States Code states that each

report under this section shall disclose the identification of each person who makes a

contribution to the reporting committee during the reporting period, whose contribution

or contributions have an aggregate amount or value in excess of $200 within the calendar

year, or in any lesser amount ifthe reporting committee should so elect, together with the

date and amount of any such contribution.

Section 43I(l3)(A) ofTitle 2 ofthe United States Code states that the

term "identification" means in the case of any individual, the name, the mailing address,

and the occupation ofsuch individual, as well as the name of his or her employer.

6
Sections 104.7(a) and (b) ofTitle 11 ofthe Code of Federal Regulations

state, in part, that when the treasurer of a political committee shows that best efforts have

been used to obtain, maintain, and submit the infonnation required by the Act for the

political committee, any report of such committee shall be considered to be in compliance

with the Act. With regard to reporting the identification of each person whose

contribution(s) to the political committee and its affiliated committees aggregate in

excess of $200 in a calendar year, the treasurer will only be deemed to have exercised

best efforts to obtain, maintain and report the required infonnation if: (1) All written

solicitations for contributions include a clear request for the contributor's full name,

mailing address, occupation and name of employer, and (2) For each contribution

received aggregating in excess of $200 per calendar year which lacks required contributor

infonnation, the treasurer makes at least one effort after the receipt ofthe contribution to

obtain the missing infonnation. Such effort shall consist of either a written request sent

to the contributor or an oral request to the contributor documented in writing. The

written or oral request must be made no later than thirty (30) days after receipt ofthe

contribution. The written or oral request shall not include material on any other subject

or any additional solicitation, except that it may include language solely thanking the

contributor for the contribution.

The review of contributions from individuals identified 59 disclosure

errors related to contributions totaling $30,900. These discrepancies represent a 46%

error rate. The contributions lacked or incorrectly reported the aggregate year to date

amounts, identified the wrong account holder on checks drawn on joint accounts, and

failed to itemize contributor addresses. Further, the DFCC failed to maintain a record of

the occupation and name of employer information for 66 contributions and to disclose

this information for 45 contributions. A review of available response devices revealed

that some solicitations requested the information as required and some only requested the

employcr.

The DFCC was provided a schedule ofthe discrepancies at the exit

conference. At the Entrance Con ference, the Treasurer stated that although letters were

sent to request the information when it was missing, DFCC representatives could not

locate copies. Thus, although the DFCC believed that it had satisfied the requirements of

§104. 7, it was not able to provide the necessary documentation to substantiate this claim.

Shortly after the Exit Conference, the DFCC filed amended Schedules A

which materially corrected the disclosure and occupation, name of employer deficiencies

noted above. The DFCC's response also included a copy of a letter which it states was

sent to request the missing documentation. In a second response letter, the Treasurer

stated:

I have still not completed all ofthe letters requesting name of

employer and occupation for all "best efforts" entries. I will

forward copies of these letters to you once I have completed the

task. Additionally, I will further amend my reports to include this

new infolmation once I receive responses to the letters.

7
The Audit staffs recommendation in the Interim Audit Report was for the

DFCC to file Schedules A to correct the remaining errors and omissions described above

as well as provide copies of "best efforts" letters sent to contributors. No additional

information was provided in response to the Interim Audit Report. However, as noted,

the DFCC's earlier response materially, ifnot completely, corrected its disclosure reports.

C. DEBTS AND OBLIGATIONS

Section 434(b)(8) ofTitle 2 ofthe United States Code states, in part, that

each report filed under this section shall disclose the amount and nature of outstanding

debts and obligations owed by a political committee.

Sections 104.1 1(a) and (b) otTitle 11 ofthe Code ofFederal Regulations

state, in part, that debts and obligations owed by or to a political committee which remain

outstanding shall be continuously reported until extinguished. These debts and

obligations shall be reported on separate schedules together with a statement explaining

the circumstances and conditions under which each debt and obligation was incurred or

extinguished. A debt or obligation, the amount of which is $500 or less, shall be reported

as ofthe time payment is made or not later than 60 days after such obligation is incUlTed,

whichever comes first. A debt or obligation which is over $500 shall be reported as of

the date on which the debt or obligation is incurred, except that any obligation incun'ed

for rent, salary or other regularly reoccurring administrative expense shall not be reported

as a debt before the payment due date.

The DFCC's disbursements were reviewed to detemline ifit had correctly

reported debts and obligations owcd to vendors. In order to derive the total obligations,

each outstanding obligation was counted only once, even if it was outstanding for scveral

periods and therefore should have appeared on more than one disclosure report. The

review identified reportable obligations totaling $42,714. Ofthis amount, $35,346 was

not repOlied.

Prior to the Exit conference, the Audit staff provided the DFCC with a

schedule of the obligations that were not reported or incorrectly reported. The Treasurer

stated that the persons who had created and filed the reports lacked experience and

probably had been unaware of the debt reporting requirements. The Treasurer indicated a

willingness to file amended schedules D to correct this problem.

Shortly after the Exit Conference the DFCC filed amended Summary and

Detailed Summary pages and Schedules D for the July Quarterly through the 30 day PostGeneral Election (Post General) reporting periods (4/16/98 - 11/23/98) which accurately

reported the debts and obligations for those periods. On the Post General report, $7,368

owed to one vendor was disclosed as having been paid, but was not paid until February 3,

1999, resulting in the Post General reported ending balance for Debts and Obligations

8
being understated by this same amount. In addition, the DFCC did not file amended

Summary and Detailed Summary pages for the 1998 Year End repoli, nor Schedules D to

disclose additional payments of debt and the correct ending balance for Debts and

Obligations.

In the Interim Audit Report it was recommended that the DFCC file

amended Summary and Detailed Summary pages, as well as Schedules D for the Post

General through Year End 1998 report to correctly disclose the remaining outstanding

obligations. Although the DFCC did not file the additional amended reports requested,

the Audit staff notes that the original Year End report lists an ending debt amount that,

although not entirely correct, was materially accurate. In addition, the actual payment for

the debt was correctly listed on Schedules Band D in the 1999 Mid-Year report.

9
FEDERAL ELECTION COMMISSION

WASHINGTON. D.C. 204&3

•

November 5, 1999

Susan J. Kyte, Esq., Treasurer

Drake For Congress

57 E. Gay Street

Columbus, OR 43215

Dear Ms. Kyte:

Attached please find the Report ofthe Audit Division on Drake For Congress. The

Commission approved the report on October 26, 1999.

The Commission approved Final Audit Report will be placed on the public record

on November 8, 1999. Should you have any questions regarding the public release of the

report, please contact the Commission's Press Office at (202) 694-1220. Any questions

you have related to matters covered during the audit or in the report should be directed to

Rhonda Simmons or Russ Bruner ofthe Audit Division at (202) 694-1200 or toll free at

(800) 424-9530.

Robert J. osta

Assistant Staff Director

Audit Division

Attachment as stated

10
CHRONOLOGY

DRAKE FOR CONGRESS

•

Audit Fieldwork

Interim Audit Report to

the Committee

Response to the Interim

Audit Report Due

Final Audit Report Approved

11

June 7 - June 18, 1999

August 27, 1999

September 30, 1999

October 26, 1999

I"

, Ii'!

(111