September 20, 1993

A~004136

FRED EILAND

CHIEr, PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DIR~C~~ AUDIT DIVISION

FROM:

MEMORANDUM

TO:

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

TERRY EVERETT FOR CONGRESS

-Attache_d_ p~e~~_e find a copy of the final audi t report on

Terry Everett for Congress -wh-rchwas approved- by the

Casai••ion on Septeaber 13, 1993.

Informational copies of the report have been received by

all parties involved and the report may be released to the

public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
FEDERAL ElECTtO~ CO,'1,\t\IS510~

REPORT OF THE AUDIT DIVISION

ON

TERRY EVERETT FOR CONGRESS

AK00411S

I Back9roun~

A. Overview

This report is based on an audit of Terry Everett

for COn9reS& (the ·Co.-itt•• "), undertaken by the Audit

Divi.ion of the r.deral Election Coaaission in accordance

with the provisions of the rederal Election C••paign Act of

19-11, -&a a.ended 1 "_t.he Act"). The audi t waa conducted

pur8uant to Section 438-{b) -of -Tft-le- 2- -of tbe---Un-i--t.ed--State-s_

Code which states, in part, that the Coaai.sion aay conduct

audits and field investigations of any political co..ittee

required to file a report under section 434 of this title.

Prior to conducting any audit under this section, the

CODUlission shall perfora an internal review of reports filed

by selected committees to deter.in. if the reports filed by a

particular co.-itt••••et the threshold requireaents for

substantial co.plianee with the Act.

The audit covered the period froa Karch 17, 1992,

the date of the Coaaittee', first recorded transaction,

through Dec.aber 31, 1992, the closing date for the latest

report filed at the tiae of the audit. The Coaaitte.

reported a beginning caah balance of $0; total receipts for

the period of $1,070,472 1/: total disburse.ants for the

period of $1,042,083; and-an ending cash balance of

$28,389 ~/.

l/Amounts disclosed by report periods totaled $1,084,355 and

$1,049,779 respectively for receipts and disbursements.

2/These amounts will not foot because of a $6,187 mathematical

discrepancy in carrying forward ending cash on hand from the

Pre-General Election report to the Post-General Election report.
2

B. Campaign organization

The Committee registered with the Clerk of the

~.s. House of Representatives on April 14, 1992 as the ~rincipal campaign committee for Robert Terry Everett,

Republican candidate for the u.s. House of Representatives

fro. the state of Alabama, District 2. The Coamittee

maintained its headquarters in Enterprise, Alabama.

The audit indicated that the Committee was

financed priaarily throuqh loans fro. the candidate

($320,582.50) and fro. the Central Bank of the South

($584,120.23). Together these loans represented 86\ of total

receipts. The reaaininq 14\ was derived fro. in-kind

contributions from the candidate, contributions fro.

individuals and fro. political party coaaittee••

This report is based on docuaents and workpapers

which support each of its factual stat••ents. They fora part

of the record upon which the Coaaission based its decisions

on the aatters in the report and were available to the

Commissioners and appropriate staff for reviev.

c. Key Personnel

The Treasurer of the Co.-ittee durin9 the period

covered by the audit was Mr. Robert Terry Everett.

o. Scope

The audit included testing of the following

general categories:

1. The receipt of contributions or loans in excess of

the statutory limitations;

2. the receipt of contributions fro. prohibited

source., such as those fro. corporations or labor

organizations;

3. proper disclosure of contributions from

individuals, political co••itt••• and other

entities, to include the itemization of

contributions when required, as well as, the

completeness and accuracy of the information

disclosed;

4. proper disclosure of disbursements including the

itemization of disbursements when required, as

well as, the completeness and accuracy of the

information disclosed (see 1inding 11.0.);
5.

6 .

8 .

3

proper disclosure of campaign debts and

obliqations {see Finding II.B.)i

the accuracy of total reported receipts,

disbursements and cash balances as compared to

campaign bank records (see Finding II.A.);

adequate recordkeeping for campaign transactions;

and

other audit procedures that were deemed necessary

in the situation.

Unless specifically discussed below, no material

non-compliance vas detected. It should be noted that the

Commission may pursue any of the matters discussed in this

report in an enforceaent action.

I I . Audit Findings

Mi••tate.eDt of Financial Activity

Se c_t ion__ __4 3 4 ( b ) (1), (2) and (4) 0 f Tit1e 2 0 f

the united Stat•• Code require a political co.-itt•• to

report the a.ount of cash on hand at the beginning and ending

of each reportin9 period and the total a.ount of all receipts

and disburs•••nts for the reportinq period and calendar year.

The Audit staff's reconciliation of the

Coaaittee's reported activity to its bank activity revealed

the following aisstateaents:

Receipts

By suaaing the current period totals for each

reporting period, it was determined that the Co..ittee

reported $1,084,355 for 1992.1/ The Audit staff's bank

reconciliation deterained that the Coaaittee should have

reported total receipts of $1,054,982.15. Therefore, the

Coaaitt••'. reported receipts were overstated by a net amount

of $39,491.85. The Audit staff's analysis of receipt

activity identified the following errors which caused the

misstate.ant:

--an in-kind contributi~n from the candidate

reported in error S:S:O) in the Pre-Primary

Election report;

3/0n its 1992 Year End R@port the Committee reported calendar year

to date receipts for 1992 of Sl,070,472. The difference is an

apparent mathematical error withln its 1992 Post-General Election

report.
4

--overr.ported in-kind contributions fro. the

candidate in the October Ouarterly report

($39,159);

--unreported loans from the candidate in the

Pre-General Election report ($10,000);

--a non-sufficient funds check reported in the

Pre-General Election report ($1000);

--reconciling adjustaents ($1786.15).

Overreporting of in-kind contributions from the

candidate resulted from the Coaaittee using in-kind receipts

from the candidate as a reconciling amount to ending

cash-on-hand per the bank stateaents and disburse.ents per

schedules B.

Disburseaents

The Coaaittee reported total disbur••••nts of

$1,049,779 for 1992.4/ The Audit staff's bank reconciliation

determined that the Co.-itte. should have reported total

disbursements of _$1,021,754.32. Therefore, the Co..itt••'.

reported disburseaents were ov-erst-at-ed by a -net aaount--o-f

522,024.68. The Audit staff's analysis of Coaaitte.

disbursements identified the fo.llowinq errors which caused

the misstatement:

--five in-kind contributions reported as receipts

but not as disburseaents/underreported as

disburseaents in the Pre-Primary Election report

(S16,499.84) ;

--four disburseaents overstated in the July

Quarterly report ($65,655.35);

--four disburseaents not reported in the

Pre-General Election report ($18,695.00);

--three interest payments on bank loans not

reported in the July Ouarterly, Pre-General and

Post-General Election reports ($8,340.59);

--net reconciling adjustments ($95.24).

4/0n its 1992 Year End report the Committee reported calendar year

to date disbursements for 1992 totaling $1,042,083. The

jifference is an apparent mathematical error within its 1992 Post ~eneral Election report.
5

~nding Cash on Hand Balance

The coaaittee reported an ending cash on hand

balance on Dece.ber 31, 1992 of $28,389. The Audit staff

determined this vas overstated by a net amount of $1,161.17

which resulted fro. the misstatements detailed above; it was

allo a result ot the failure to carry forward the correct

ending cash-an-hand fro. the Pre-General to the Post-General

reportinq periods, a difference of $6,187.00. The correct

ending balance was deterained by the Audit staff to be

$27,221.83.

Copies of workpapers detailing the above noted

difference5 w@re provided to Coaaittee representatives at the

exit conference. Committee representatives stated that they

would amend their reports to properly disclose the

Committee's financial activity.

Subsequent to the Coaaittee's receipt of the

Interia Audit Report, Coaaittee representatives filed a

coaprehensive a.end.ent on August 25, 1993 which materially

corrected the aisstat.aentse

B. Debts and Obligations

Seetion 434(b){3)(E) of Title 2 of the United

State. Code stat•• that each report shall disclose the

identification of each person who aakea a loan to the

reporting co.-ittee during the reporting period, together

with the identification of any endorser or guarantor of such

loan, and date and a.ount or value of such loan.

Section 431(11)(A) of Title 2 of the United

States Code stat•• that the tera "person" includes any

individual, partnership, co..itt••, aSlociation, corporation,

labor organization, or any other organization or group of

personl.

Section 434(b)(8) of Title 2 of the United States

Code, in part, requires each report filed under this section,

by the treasurer of a political committee to disclose the

amount and nature of outstanding debts owed by the Committee.

Section l04.11(a) of Title 11 of the Code of

Federal Regulations states, in relevant part, that debts and

obligationa owed by a political committee which remain

outstanding shall be continuously reported until

extinguished.
6

The Audit staff's review of the available records

for loan receipts fro. the candidate and fro. the Central

Bank of the South indicated that none of the loan receipts

were iteaized as required on Schedules A. The Committee

received three bank loans totaling $584;120.23 and nine loans

fro. the candidate totaling $320,582.50. Through the close

of the audit period, no repayments were made on the principal

amounts of the loans.

It was also noted that the correct amount of the

outstanding balances of the loans fro. the candidate and fro.

the bank were not reported on Schedules C and that the

correct total a.ount of outstandinq loans from all sources

was not reported on line 10 of the Suaaary Page for any

reportin9 period in the calendar year 1992. It appeared that

the Committee reported on Schedules C only the amount{s) of

loans teceived in each period; no Schedules C were filed to

continuously report these loans in subsequent periods.

At the exit conference, Coaaittee representatives

were provided schedule. of the loans requiring iteaization

and copies of the auditor's workpapers detailing the

d-i-scr-epanci•• noted _~b9Y.. ~o..ittee representatives stated

that they would ••end their reports to properly disclose --the

above noted obliqations.

Subsequent to the Coaaitte.'s receipt of the

Interia Audit Report, Coaaittee representatives filed a

co_prehen.ive a.end.ent on August 25, 1993 which correctly

reported the debts and obligations.

c. Inadequate Disclosure of Disburse.ents

Section 434(b)(S)(A) of Title 2 of the United

States Code state., in part, that each report under this

section shall disclo.e the naa. and address of each person to

whoa an expenditure in an aq9regat. a.ount or value in excess

of $200 within the calendar year is aade by the reporting

coaaitt•• to •••t a candidate or coaaittee operating expense,

together with the date, amount, and purpose of such operating

expenditure.

A sample review of those disbursements itemized

on the Coamittee's reports indicated that the Committee

failed to adequately disclose the required information for a

material nuaber of iteaized disbursements. Most of the

errors resulted fro. the Committee's failure to disclose an

adequate purpose for disbursements relating to reimburseaent.

to Coaaittee employ.es for expenses incurred on behalf of the

campaign in the Pre-Primary Election, July Quarterly, and

October Ouarterly reports.
7

At the exit conference, Committee representatlves

stated that they would amend their reports to correctly

disclose the purpose of these disbursements as part of a

comprehensive amendment.

Subsequent to the Committee's receipt of the

Interia Audit Report, Committee representatives filed a

comprehensive amendment on August 25, 1993 which materially

corrected the disclosure of disbursements.