FEDERAL ELECTION COf\,1MISSION AK007893

April 10, 1996

MEMORANDUM

TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ASSISTANT

ROBERT J. COSTA

STAFF D;;{C~

~­

AUDIT DIVISION

o

'1)

N

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

MONTANA STATE DEMOCRATIC CENTRAL COMMITTEE

Attached please find a copy of the final audit report

and related documents on Montana State Democratic Cen~ral

Committee which was approved by the Commission on April 1,

1996.

Informational copies of the report have been received by

all parttes involved and the report may be released to the

public.

Attachment as stated

cc: Office of Gen-?-:-o.~ ~ounsel

Office of Publ i ~isclosure

Reports Analys~' Divis1.on

FEe Library

••• , "' ... ,f ... _' tt'· " " tJ\'-',.If \

, .' ... " '.,' ,,\ .,,:) 11 l\.\{ It.:i'()\\

/. \ : ... ;11'1'\ ilt! 1\ HlH I'i()~'\fil
o

to

cc...,

o.

REPORT OF THE AUDIT DIVISION

ON

Montana State Democratic Central

Committee

Approved April I~ 1996

FEDERAL ELECTION COMPttlSSION

999 E STREET.. N.\\'.

WASHINGTON. D.C.
TABLE OP CONTENTS

MONTANA STATE DEMOCRATIC CEN'l'RAL COMMITTEE

Page

a

If)

,.'

.......

o.

Executive Summary

Final Audit Report

Backqround

Findinqs

Legal Analysis

Transmittal to Committee

Chronology

1

3

3

5

29

33

35
o

FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 20463

FINAL AUDIT REPORT

ON

MONTANA STATE DEMOCRATIC CENTRAL COMMITTEE

EXECUTIVE SUMMARY

The Montana State Democratic Central Committee (the

Committee) registered with the Comptroller General of the United

States on August 24 I 1972 and maintains its headqua ,..ters in

Helena, Montana.

The audit was conducted pursuant to 2 U.S.C. 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 of the audit were presented to the Committee at

an exit conference held subsequent to the completion of fieldwork

and later in an inter~ audit report. The Committee D response to

those findings are included in this final audit report.

The following is an overview of the findings contained in the

final audit report.

Use of Funds fram a Mon-federal Account - 11 CPR Sections

102.5(a) and 106.5(g). Although 11 CFR S106.5(9)(l} requires expenditures for shared federal and non-federaL expenses to be

paid from a federal account, the Committee paid most shared

expenses from a non-federal account. These expenditures from

the non-federal account were reported on the Committee's federal

disclosure reports. Transfers were made at regular intervals

from a federal account to the non-federal account to fund the

federal portion of shared expenses. Sufficient funds were

transferred to the non-federal account to fund the federal share

of joint expenses during the entire audit period.

Committee representatives noted that changes to the

Committee's system have been implemented to comply with 11 CFR

§l06.5.

Excessive Expenditures on Behalf of a Congressional

Candidate - 2 U.S.C. Section 441(a). The Audit staff reviewed

coordinated expenditures and determined that expenditures were

made on behalf of Representative Pat Williams, which exceeded

allowable l~itations by $7,972. It was also recognized that

't E'"Tf RO",\ Ton", ·;,n lOl\10RRI )\\

DEDi( -\HD T<) ...EEP"G THE PUBLIC l~fORM[O

Page 1, Approved 4/1/96
o

c

-2-

the Pat Williams Campaign Committee donated $39,000 in exce•• campaign funds to the Committee, and that the Committee could

submit a statement designating part of this donation as a refund

of the excess contribution.

In response to the interim audit report, the Committee

stated that it had received the necessary authority from the

national party committee to make additional coordinated

expenditures; but no written record of the transfer of this

authority could be located. Further, in view of conflicting

u.s. Postal regulations, the Committee could only designate a

portion ($2,181) of the transfer from the Williams campaign as a

refund; thereby, reducing the amount in excess of the

expenditure l~itation to $5,791.

Disclosure of Financial Activity, Contributions and

Disbursements - 2 U.S.C. Sections 434(b)(1)-(S). Reported

totals for rece~pts and disbursements were understated by $33,326 and $229,353 ~espectively, for the audit period.

Beginning and ending cash were also misstated. Further,

contributions from individuals in the amount of $11,265 and

contributions from political committees in the amount of $11,874

were not itemized as required. Finally, disbursements amounting

to $537,081 had not been disclosed as required.

In response to the interim audit report, the Committee

filed amended disclosure reports which .aterially corrected the

public record.

Contributions to and/or Expenditures on Behalf of

Candidates Resulting from the Ca-mitteels Get-OUt-The-Vote

Activities - 2 U.S.C. Sections 441a(d) and 11 CPR Sections

100.8(b), 106.1 and 106.5. The Audit staff dete~ned that the

Committee made contributions to and/or expenditures on behalf of

the Pat Williams for Congress which exceeded the allowable

limitations; and, that the Committee made unauthorized

expenditures on behalf of the Clinton/Gore '92 Committee.

In response to the interim audit report, the Committee

noted that there are more than sufficient funds remaining from

the $39,000 donation of excess funds from the Williams campaign

to offset any amounts exceeding allowable limitations. However,

based on the documentation provided, there remained unauthorized

expenditures on behalf of the Clinton/Gore '92 Committee

totaling $5,528.

Page 2, App~ed 4/1/96
FEDERAL ELECTION COMMISSION

WASHfNCTO!"l., 0 C ;:.... <g J

AK007067

AR'93-78

o

REPORT OF THE A~,~·tT DIVISION

ON THE

MONTANA STATE DEMOCRATIC CENTRAL COMMITTEE

I . Background

A. Audit Authority

This report is based on an audit of the Montana State

Democratic Central Committee (the COJIIIIlittee), undertaken by the

Audit Division of the Federal Election Commission in accordance

with the provisions of the Federal Election Campaign Act of 1971,

as amended (the Act). The audit was conducted pursuant to 2

u.s.c. S438(b) 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 of this title. Prior

to conducting any audit under this subsection, the Commission

shall perform an internal review of reports filed by selected

c01lllllittees to determine if the reports filed by a particular

cOIIUDittee meet the threshold requireaent8 for substantial

compliance with the Act.

B. Audit Coverage

The audit covered the period January 1, 1991 through

December 31, 1992. The Ca.aittee reported!1 a beginning cash

balance on January 1, 1991 of $15,027; total receipts for the

period of $910,849; total disbursements for the period of

$1,098,648; and an ending cash balance of ($172,772).

c. Committee Organization

The Committee registered with the Comptroller General of

the United States on August 24, 1972 and maintains its

headquarters in Helena, Montana.

1/ The figures cited in this report are rounded to the nearest

dollar. (t>,rllf.ll:n;.: ttlt' (Ofnm'....'on .. ';Ilfh ~nnl\t·f-..Jn

., f HRn", H )0"' "''''0 H )M( )KR( )\\

DEDI( "TEP T<) ...HP'''<. THE PU8U( INfORMED

Page 3, Approved 4/1/96
-2-

The Treasurers of the Committee during the period

covered by the audit were Kathleen K. Blehm fram January 29, 1990

through December 23, 1991, and Torian Donohoe from December 23,

1991 through December 31, 1992. The current Treasurer is Peggy

Egan.

To manage its federal financial activity, the Committee

utilized nine federal bank accounts during the audit period. From

these accounts the Committee made approxtmately 600 disbursements. Approx~ately 16,000 contributions (about $580,000) from

individuals were received. In addition, the Committee received

211 contributions ($198,000) from political committees as well as

offsets to operating expenditures ($86,000), a loan ($5,900) and

transfers from its non-federal committees ($1,800) for shared

expenses.'ll

c. Audit Scope and Procedures

The audit covered the following general categories:

1. The receipt of contributions or loans in excess of

the statutory l~itations;

c

2. the receipt of contributions from prohibited

sources, such as those from corporations or labor

organizations;

3.

4.

proper disclosure of contributions froa

individuals, political c~ttee8 and other

entities, to include the ite.iaation of

contributions when requ~, as well as, the

completeness and accuracy of the info~tion

disclosed (see Findings 11.0. & E.);

proper disclosure of disburseaents including the

itemization of disbursements when required, as well

as, the completeness and accuracy of the

information disclosed (see Finding II.F.);

5 . proper disclosure of ca&'Ptlign debts and

obligations;

6. accuracy of total reported receipts, disbursements

and cash balances as compared to campaign bank

records (s~e Finding II.C.);

7. adequate recordkeeping for campaign transactions

2/ As presented at Finding II.C., the Committee's reports

overstated receipts and disbursements.

Page 4, Approved 4/1/96
o

:-11

C-.

-3-

8. proper disclosure of the allocation of costs

associated with administrative expenses and

activities conducted jointly on behalf of federal

and non-federal elections and candidates (see

Finding II.F.);

9. contributions to, or expenditu~~s made on behalf of

candidates in excess of statutory limitations (see

Findings II.B. and II.G.): and

10. other audit procedures that were deemed necessary

in this situation, such as the proper accounting

and disclosure of shared activity (see Finding

II .A. ) •

Unless specifically discussed below, no material

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

Commission may purs~·~ further any of the matters discussed in

this report in an £:.~forcement action.

II. Audit Findings and Recommendations

A. Use of Funds from a Non-federal Account

Sections 102.5(a)(1)(i) and (ii) of Title 11 of the Code

of Federal Regulations state, in part, that a political committee

shall either: establish a separate federal account in a

depository, such account shall be treated as a separate federal

political committee which shall comply with the requirements of

the Act and all disbursements, contributions, expenditures and

transfers by the committee in connection with any federal election

shall Pe made from its federal account; or, establish a political committe~ which shall receive contributions sunject to the

prohibitions and l~itations of the Act, regardless of whether

such contributions are for use in connection with federal or

non-federal elections.

Section 106.5(g)(I) of Title 11 of the Code of Federal

Regulations provides that committees that have established se~arate federal and non-federal accounts under 11 CFR 102.5 shall

pay the clxpenses of joint federal and non-federal activities as

follows: (1) pay the entire amount of an allocable expense from

its federal account and shall transfer funds from its non-federal

account to its federal account solely to cover the non-federal

share of that allocable expense: or (ii) establish a separate

allocation account into which funds from its federal and

non-federal accounts shall be deposited solely for the purpose of

paying the allocable expenses of joint federal and non-federal

activity.

Based on our review of the Committee's financial

operations for the audit period, the Audit staff determined that

activity from federal and non-federal accounts was included in

disclosure reports filed with the Commission. The Committee

Page 5, Approved 4/1/96
o

c

c

c.

-4-

maintained as many as eight bank accounts (6 federal and

2 non-federal) with Montana financial institutions. In addition,

the Committee also maintained three bank accounts in conjunction

with a fundraisinq representative in California

(Gordon-Schwenkmeyer).

Although 11 CFR Sl06.S(q)(I) requires joint expenditures

to be paid from a federal account, the Committee paid most shared

expense$ and other joint campaign activities from a non-federal

operating account. These expenditures from the non-federal

operating account were disclosed on Schedules H filed as part of

Committee disclosure reports. Transfers were made at regular

intervals from a Committee federal account to this non-federal

operating account to fund the federal portion of shared expenses.

These transfers were not included in the COMntittee's reported

activity (see Finding II.C.), nor itemized on Schedules B or H

filed as part of its disclosure reports (see Find~ng II.F.). The

Audit staff's analysis indicates that sufficient funds were

transferred to the non-federal account by the Committee to

maintain a positive (or credit) balance with respect to the

federal share of joint expenses during the entire audit period.

Some shared operating expenses and other campaign activities were

paid directly from the federal accounts. These payments were

included as part of Committee disclosure reports and itemized on

Schedules B or H.

Federal and non-federal moneys were deposited into

appropriate accounts maintained by the Committee. Recordkeeping

and documentation with respect to receipts by the Committee were

maintained at its Montana headquarters. Moneys raised for the

Committee by a California fundraising firm were transferred at

regular intervals to one of the Committee's Montana bank accounts.

Information relative to a portion of these monays was maintained

by the fundraising firm on a separate data base; supporting

documentation was not maintained by the fundraising firm (see

Finding 11.0.). Committee disclosure reports failed to include

activity with respect to some federal accounts and, in limited

instances, included information for receipts deposited into

non-federal accounts (see Finding II.C.).

Committee representatives advised the Audit staff th~t

changes to the Committee's system have been implemented to comply

with 11 CFR SI06.5.

Subsequent to the exit conference, the Committee

submitted a narrative which notes that the paying of these

expenses was ·'not done to thwart federal campaign law, but

resulted from making a consistent procedural error of paying

almost all expenses out of the non-federal account (the exact

reverse of current law). to The Conunittee continues by stating that

it "transferred allowable federal monies into the non-federal

account to cover these expenses.~

Page 6, Appvaved 4/1/96
o

If)

o

-5-

The interim audit report recommended that, absent a

demonstration that it did not make disbursements from its

non-federal account for the purpose of financing federal

activity, the Committee detail in writing the changes it haa

implemented to comply with the requirements of -~ CFR

Sl02.S(a)(1) as well as any other comments and documentation it

believed relevant to this matter.

In response to the interim audit report, the Committee

stated that:

"In 1994, the Committee hired and t~ained a full-t~e bookkeeper to further ensure the

Committee's compliance with FEC regulations during

the most intense portion of the campaign cycle.

The bookkeeper position is now a permanent position

within the Committee. The new bookkeeper recently

hired for this position went through an extensive

one month training with a great deal of focus

placed specifically on complying with FEC

requirements.

The bookkeeper is responsible for keeping

abreast of any changes in reporting statutes,

record keeping [sic], as well as working with the

Committee's Treasurer and Assistant Treasurer to

file reports that are required by the Federal

Election Commission. The bookkeeper is also

required to be prepared and organized to provide

any necessary information requested by the FEe.

In addition, the Committee's new Treasurer and

Board members are trained as to the FEe

requirements for shared federal/non-federal

activity ...

\

I

I

I

I

I,

B. Excessive Expenditures on Bthalf of a Congressional

Candidate

Section 441a(d)(1) of Title 2 of the United States

Code states, in relevant part, that notwithstanding any other

provision of law with respect to limitations on expenditures or

lLmitations on contributions, the national committee of a

political party and a state committee of a political party,

including any subordinate committee of a state committee, may

make expenditures in connection with the general election

campaign of candidates for federal office, subject to the

limitations contained in paragraph (3) of this subsection.

Sections 441a(c) and (d)(3) of Title 2 of the United

States Code state, in relevant part, that the national committee

of a political party, or a state committee of a political party,

including any subordinate committee of a state committee, may

not make any expenditure in connection with the general election

Page I, Approved 4/1/96
-6-

campaign of a candidate for federal office in a state who is

affiliated with such party which exceeds, in the case of a

candidate for election to the office of Senator, or of

Representative from a state which is entitled to only one

Representative, the greater of: (i) 2 cents multiplied by the

voting age population of the state; or (ii) $20,000, as adjusted

for the increases in the Consumer Price Index.

Section 441a(a)(7)(B)(i) of Title 2 of the United

States Code states that expenditures made by any person in

cooperation, consultation, or concert, with, or at the request

or suggestion of, a candidate, his authorized political

committees, or their agents, shall be considered to be a

contribution to such candidate.

Section 110.2(b)(1) of Title 11 of the Code of Federal

Regulations states that no multicandidate political committee

shall make contributions to any candidate, his or or authorized

political committees or agents with respect to any election for

federal office which, in the aggregate, exceed $5,000.

Beginning in 1991, Montana's congressional districts

were reduced from two to one. The 1992 expenditure limitation

for a Representative from a state entitled to only one

Representative is $S5,240.~1

The Audit staff reviewed coordinated expenditures

reported by the Committee totaling $50,765, made on behalf of

Representative Pat Williams. Documentation supporting these

expenditures indicated they were made for the production of two

direct mail pieces and the use of space provided by county

democratic committees.

Committee records also contained documentation

detailing postage costs totaling $17,447, associated with the

two direct mail pieces, which were not reported by the Committee

as coordinated expenditures made on behalf of a federal

candidate.

As a result, the Audit staff determined that

coordinated expenditures totaling $68,212 ($50,765 + $17,447)

were made on behalf of Representative Pat Williams, which

exceeds the expenditure limitation by $12,972 ($68,212 - $55,240). The Audit staff also noted that the Committee could

have contributed $5,000 to the Williams campaign but had not.

This would decrease the amount in excess of the expenditure

limitation to $7,972 ($12,972 - $5,OOO).

3/ See FEe Record, Vol. 18, No.3, March 1992. In 1992, states

with more than one representative had a 2 U.S.C. §441a(d)

limit of $27,620 for each candidate.

Paqe 6, Approved 4/1/96
c·

-7-

The Audit staff presented this matter to Committe.

representatives at the exit conference. A Committee

representative said that the state had gone from two

representatives to one, which he believed gave the Committee a

higher limit. The Audit staff advised the Committee that the

higher limit of $55,240 had been used in our analysis.

~ubsequent to the exit conference, the Audit staff was

provided with a copy of a letter, dated June 15, 1993, from the

Democratic Congressional Campaign Committee (OCCC) to the

Commission noting that "the 1992 combined national and state

party limit on behalf of a u.s. House candidate for the state of

Montana is $110,480."!1

However, as of this date, the Audit staff is unaware

of any correspondence authorizing the Committee to avail itself

of the national party l~it prior to the expenditure limitation

being exceeded.

The inter~ audit report recommended that the

Committee demonstrate that expenditures totaling $7,972 made on

behalf of Pat Williams were not in excess of the expenditure

limitations at 2 U.S.C. S441a{d)(1). Evidence submitted was to

include an explanation and documentation to establish the extent

of the Committee's coordination with the Williams campaign or

its agents with regard to these expenditures, and any other

explanation or documentation that the Committee believed was

relevant to this issue.

Absent a demonstration that the Committee did not

exceed the spending l~itation, the inter~ audit report noted

the Committee should seek a refund of $7,972 from the Pat

Williams campaign. However, that report recognized that the Pat

Williams Campaign Committee donated $3 Q .OOO in excess campaign

funds to the Committ~~ on November 6, ~~92, and that the

Committee could submit a statement designating part of this

donation as a refund of the excess expenditures.

In response to the interim audit report, the Committee

stated that:

"Although the Committee believed it had

received the necessary additional authority from

the DCCC to make additional coordinated direct mail

e,penditures (individuals involved in 1992

recollect phone conversations between the Con~ittee

and the DCCC to arrange the transfer of this

authority) neither the Committee nor the DCCC can

find a written record of the transfer of this

authority. The Committee notes that its

1/ The DCCC TPpnrted that $24,802 of its $55,240 limitation had h~en spent dS of 12-31-92.

Page 9, Approved 4/1/96
-8-

coordinated expenditures, when combined with the

DCCC's expenditures, ...do not exceed the combined

aggregate limit of $110,480 that the national and

state party could spend on behalf of a u.s. House

candidate in Montana in 1992.·'

In its response, the Committee also stated that it has

designated $2,181 of the Williams donation as a refund for the

rent expenditures, which lowers the amount in excess of the

expenditure limitation to $5,791 ($7,972 - $2,181).

The Committee's response continued by noting that

"United States Postal Service regulations preclude the Committee

from seeking a specific designation for any mailing costs done

on behalf of the Williams Committee". The Committee has

received a not-for-profit mailing permit and is precluded by

Section E370.5.7, Domestic Mail Manual, from receiving any funds

earmarked for any mailing from any candidate or other outside

source, including a local party committee. The Committee,

noting the conflicts between the two regulatory schemes, states

that if it were to designate a portion of the WilliaF~ Committee

donation as a refund to the Committee as recommended, it "could

re£clt in a serious violation of Postal Service Regulations".

The response further stated that, "based on the

foregoing, the Committee believes that the Audit Division may

itself give consideration to the excess funds donation without

such a designation, and decide to attribute it to the mailing."

Based on its response, the Committee has exceeded the

limitation at 2 u.s.c. S441a(d) by $5,791. Notwithstanding the

above, if the Williams donation is considered, more than

sufficient funds remain to offset the amount i~ excess of the

limitation.

c

c. Misstatement of Financial Activity

c-- Sections 434(b)(1), (2) and (4) of Title 2 of the

United States Code state, in relevant part, that each report

shall disclose the amount of cash on hand at the beginning of

each reporting period, the total amount of all receipts, and the

total amount of all disbursements for the period and calendar

year.

The Audit staff's reconciliation of the Committee's

reported activity to its bank activity for the audit period

indicated the following misstatements:

1. January I, 1991 through December 31, 1991

a. Receipts

The Committee reported total receipts of

$386,654 for 1991. Utilizing bank records, the Audit staff

Paqe 10, Approved 4/1/96
$ 9,654

-9-

determined that the Committee should have reported total receipts of $347,254. Therefore, the Committee's receipts were overetated

by a net amount of $39,400. This overstatement was the result of

the following:

o receipts deposited in Unity '90

and Leadership '90 accounts not

reported

$141,872

o receipts deposited into

California Bank Accounts

under reported

o Refunds and Rebates

not reported $ 405

o

o

o

mathematical errors

non-federal receipts reported

interaccount transfers reported

($135,153)

($4,383)

($50,038)

Total (Net) Overstatement

b. Disburse.ents

o

o miscellaneous reconciling adjustment ($1,757)

($39,400)

The C~ttee reported $393,963 for 1991. Based on our review of

staff determined that the Comaittee should

disbursements of $357,000. Therefore, the

disbursements were overstated by $36,963.

was the result of the following:

total disburse.ents of

bank records, the Audit

have reported ~otal

Co_ittee' 8 reported

The-net overstate.ent

o

o

o

o

disbursements from Unity '90 and

Leadership '90 accounts not reported $24,080

disbursements from California

bank accounts over-reported ($10,000)

interaccount transfers reported ($50,038)

miscellaneous reconciling adjustment ($1,005)

Total (Net) Overstatement

c. Cash on Hand

($36,963)

The Lummi~tee reported an ending cash on hand

balance on December 31 of $7,719. The Audit staff determined that

this was overstated by a net amount of $1,933, which resulted from

Page 11, Approved 4/1/96
-10-

the misstatements detailed above and an understatement ($504) of

the cash balance at 1-1-91. The correct ending cash was dete~ined to be $5,786.

2. January 1, 1992 through December 31, 1992

a. Receipts

The Committee reported total receipts of

$524,194 for 1992. The Audit staff determined, based upon bank

records, that the Committee should have reported total receipts of

$530,268. Therefore, the Committee's receipts were understated by

a net amount of $6,074. This understatement was the result of the

following:

o receipts from Gordon-Schwenkmeyer

(CA) Account '3 not reported $ 9,490

o refunds/rebates not reported $ 590

b. Disbursements

Total (Net) Understatement

o

~.

........

o

o

o

non-federal receipts reported

miscellaneous reconciling adjustment

($5,798)

$1,792

$6,074

The C01IDIlittee reported total disburseaents of

$704,685 for 1992. The Audit staff's review of bank records

determined that the Committee should have reported total

disbursements of $512,295. Therefore, the Comaittee's reported

disbursements were overstated by $192,390. The net overstatement

was the result of the following:

o Committee transfers to

non-federal account not reported

o October checks and wire transfers

not reported

$262,135

$103,444

o

o

o

payments to Gordon-Schwenkmeyer

not reported $ 73,456

non-federal disbursements reported ($631,157)

miscellaneous reconciling adjustment ($268)

Total (Net) Overstatement

c. Cash on Hand

($192,390)

The Committee reported an ending cash on hand

balance on December 31 of ($172,772). The Audit staff determined

Page 12, Approved 4/1/96
o

-11-

that this was understated by a net amount of $196,531, which

resulted from the misstatements detailed above and an

overstatement ($1,933) of the cash balance at 1-1-92. The correct

ending cash was determined to be $23,759.

At the exit conference, the Audit staff

explained that these misstatements were caused pr~arily by the

Committee's reporting of non-federal receipts and disbursements;

as well as the failure to report some federal receipts and

disbursements. Copies of the consolidated bank reconciliations

with adjustments were provided to the Committee. Committee

representatives agreed to file amended reports.

The inter~ audit report recommended that the

Committee file amended reports for calendar years 1991 and 1992 to

correct the misstatements of financial activity described above.

In response to the interim audit report, the

Committee filed amended disclosure reports that materially

corrected the misstatements of financial activity.

D. Failure to Itemize Contributions from Individuals.

Section 434(b)(3)(A) of Title 2 of the United States

Code states that each report under this section shall disclose the

identification of each person who makes a contribution 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 if the reporting cOllllllittee should so

elect, together with the date and amount of any such contribution.

Section 431(13) of Title 2 of the United States Code

states that the term -identification- means: in the case of any

individual, the name, the mailing address, and the occupation of

such individual, as well as the name of his or her employer.

During fieldwork, the Audit Staff's l~ited review of

contributions from individuals identified contributions from 18

individuals, totaling $11,265, which were not itemized as

required. The Audit staff could not discern the reason these

receipts were not itemized, but noted that these contributions all

occurred during 1992.

At the exit conference, Committee representatives were

provided with schedules listing the contributions from individuals

that were not itemized. Committee representatives indicated

appropriate amendments would be filed.

The inter~ audit report recommended that the Committee

file Schedules A to amend its disclosure reports to correctly

itemize the above noted contributions.

In response to the interim audit report, the Committee

filed the recommended Schedules A.

Page 13, Approved 4/1/96
o

tf')

c

-12-

E. Failure to Itemize Contributions from Political

Committees

Section 434(b)(3) of Title 2 of the United States Code,

states, in relevant part, that each report under this section

shall disclose the identification of each: political committee

which makes a contribution to the reporting committee during the

reporting period, together with the date and amount of any such

contribution; and affiliated committee which makes a transfer to

the reporting committee during the reporting period and, where the

reporting committee is a political party committee, regardless of

whether such committees are affiliated, together with the date and

amount of such transfer.

Section 431(13) of Title 2 of the United States Code

states that the term "identification" means: in the case of any

person, other than an individual, the name and the address of such

person.

During fieldwork, the Audit staff reviewed 212

contributions totaling $198,078 from political action committees,

party committees, and other political committees. Of these

contributions, the Committee failed to itemize 105 contributions

totaling $11,874. Many of these receipts were transfers from

democratic county committees of individual memberships to th~

Democratic Party solicited for the Committee. It is likely these

receipts were recorded on the Committee's database as from the

individual members.

At the exit conference, the Audit staff gave Committee

representatives a copy of a schedule identifying the contributions

that were not itemized ~~ assist when filing their amendments.

Committee officials made no direct response to this matter, but

later stated they were willing to file all necessary amendments.

The interim audit report recommended that the Committee

file Schedules A to amend its disclosure reports to itemize the

contributions. In response, the Committee filed the recommended

Schedules A.

F. Reporting of Disbursements

Sections 434(b)(S)(A; and (C) of Title 2 of the United

States Code state, in part, that each report shall disclose the

name and address of each person to whom an expenditure in an

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

year is made by the reporting committee to meet a candidate or

committee operating expenditure. Further, each report shall

disclose any affiliated committee to which a transfer is made by

the reporting committee during the reporting period and, where the

reporting committee is a political party committee, each transfer

Page 14, Approved 4/1/96
c

N

C

c

-13-

of funds by the reporting committee to another political party committee, regardless of affiliation, together with the date and

amount of transfers.

Section 106.5(g)(1) of Title 11 of the Code ot Federal

Regulations provides that committees that have established

separate federal and non-federal accounts under 11 CFR 102.5 shall

pay the expenses of joint federal and non-federal activities as

follows: (i) pay the entire amount of an allocable expense from

its federal account and shall transfer funds from its non-federal

account to its federal account solely to cover the non-federal

share of that allocable expense; or (ii) establish a separate allocation account into which funds from its federal and

non-federal accounts shall be deposited solely for the purpose of

paying the allocable expenses of joint federal and non-federal

activities.

The Audit staff noted that during 1991, the Committee

made 29 transfers totaling $200,894 from its federal accounts to

its non-federal account that were not itemized as required.

During 1992, the Committee made 27 such transfers

totaling $260,468 that were not itemized. In addition, the

Committee made 34 expenditures to vendors totaling, $75,719, from

its federal account, which were not itemized.

The noted errors resulted from the Committee's reporting

of disbursements made from a non-fed9ral account used for joint

expenses and other campaign related activity~ as such the

disbursements were considered interaccount transfers and not

reported (see Finding II.A.).

The Audit staff discussed these .atters with Ca.mdttee

representatives at the exit conference, who indicated a.endments

would be filed.

The inter~ audit report recommended that the Committee

file:

o

o

o

Schedules H-4 (for Line 21a) itemizing only

expenditures for joint expenses disbursed from

federal accounts;

Schedules B (for Line 2Ib) itemizing all transfers

from the federal account to the non-federal

account; and

(Memo) Schedules H-4 which detail all joint

expenses disbursed from the non-federal account (to

support the transfers from the federal account to

be reported on Schedule B for Line 21b).

In response, the Committee filea the recommended

Schedules H-4 and Schedules B.

Page 15, Approved 4/1/96
c

-14-

G. Contributions to and/or Expenditures on behalf of

Candidates Resulting From the Committee's Get-Cut-the

Vote Activities

Section 441a(d)(1) of Title 2 of the United States

Code states that notwithstanding any other provision of law with

respect to l~itations on expenditures or l~itations on

contributions, the national committee of a political party and a

state committee of a political party, including any subordinate

committee of a state committee, may make expenditures in

connection with the general election campaign of candidates for

federal office, subject to the limitations contained in

paragraphs (2) and (3) of this subsection. Section 441a(d)(3)

of Title 2 of the United States Code states, in relevant part,

that the national committee of a political party, or a state

committee of a political party, including any subordinate

committee of a state committee, may not make any expenditure in

connection with the general election campaign of any candidate

for federal office in a state who is affiliated with such party

which exceeds, in the case of a candidate for the election to

the office of Representative from a state which is entitled to

only one Representative, the greater of: (i) 2 cents multiplied

by the voting age population of the state as certified; or,

$20,000, as adjusted for the increases in the Consumer Price

Index provided for under 2 u.s.c. S441a(c).

Sections 100.8(b)(16)(i),(ii),(iii},(iv) and (vii) of

Title 11 of the Code of Federal Regulations provide, in relevant

part, that the payment by a state or local committee of a

political party of the costs of campaign materials (such as

handbills, brochures, posters, party tabloids or newsletters,

and yard signs) used by such committee in connection with volunt~~~ activities on behalf of any nominee(s) of such party

is not an expenditure, provided that the following conditions

are met:

I

I

o

c

Such payment is not for costs incurred in

connection with any broadcasting, newspaper,

magazine, billboard, direct mail, or s~ilar type

of general public communication or political

advertising. For purposes of this section, the

term "direct mail" means any mailing(s) by a

commercial vendor or any mailing(s) made from

commercial lists.

The portion of the cost of such materials allocable

to Federal candidates is paid from contributions

subject to the limitations and prohibitions of the

Act.

Page 16, Approved 4/1/96
o

o

-15-

Such payment is not made from contributions

designated by the donor to be spent on behalf of a

particular candidate or candidates for Federal

office.

Such materials are distributed by volunteers and

not by commercial or for-profit organizations.

o Campaign materials purchased with funds donated by

the national committee to such State or local

committee for the purchase of such materials, shall

not qualify under this exemption. Rather, the cost

of such materials shall be subject to the

limitations of 2 U.S.C. 441a(d) and 11 CFR 110.7.

Sections lOO.8(b)(18){i), (ii), (iv), (v) and (Vii) of

Title 11 of the Code of Federal Regulations state, that the

payment by a state or local committee of a political party of

the costs of voter registration and get-out-the-vote activities

conducted by such committee on behalf of the Presidential and

Vice Presidential nominee(s) of that party is not an expenditure

for the purpose of influencing the election of such candidates

provided that the following conditions are met:

c

c

c

o

o

o

o

Such payment is not for the costs incurred in

connection with any broadcasting, newspaper,

magazine, billboard, direct mail, or s~ilar type

of general public communication or political

advertising. For purposes of this section, the

term "direct mail" means any mailing(s) by a

commercial vendor or any mailing(s) made from

commercial lists.

- The portion of the costs of such activities

alloCable to federal candidates is paid from

contribut.i l:~ns ~ubject to the limitations and

prohibit .. -':-If' 0 f the Act.

If such .::'r_ivities include references to any

candida {S) for the House or Senate, the costs of

such aC~Lv~ti6~ which are allocable to that candi~~t~ 5) shall be an expenditure on behalf of

E"U"::, :- ...l ..didate (s) unless the mention of such cbnd~~3Le(S) is merely incidental to the overall

acti'tic.y.

Payment of the costs incurred in the use of phone

banks in connection with voter registration and

get-out-the-vote activities is not an expenditure

when such phone banks are operated by volunteer

workers. The use of paid professionals to design

the phone bank system, develop calling instructions

and train supervisors is permissible. The payment

of the costs of such professional services is not

Page Ii, Approved 4/1/96
c

c

-16-

an expenditure but shall be reported as a

disbursement in accordance with 11 CFR section

104.3.

o Payments made from funds donated by a national

committee of a political party to a state or local

party committee for voter registration and

get-out-the-vote activities shall not qualify under

this exemption. Rather such funds shall be subject

to the l~itations of 2 U.S.C. 441a(d) and 11 CPR

110.7.

Section 106.1 of Title 11 of the Code of Federal

Regulations provides, in relevant parts, that expenditures made

on behalf of more than one clearly identified federal candidate

shall be attributed to each such candidate according to the

benefit r~asonably expected to be derived, to include payments

made for the cost of certain voter registration and

get-out-the-vote activities exempted by 11 CFR SI00.8(b)(18)

which contain references to any candidate(s) for the House of

Representatives or Senate of the United States, unless such

reference is incidental to the overall activity. Clearly

identified means: the candidate's name appears; a photograph or

drawing of the candidate appears; or the identity of the

candidate is apparent by unambiguous reference.

Section 106.S(e) of Title 11 of the Code of Federal

Regulations provides, in relevant part, that each state party

committee shall allocate its expenses for activities exempt from

the definition of expenditure under 11 CFR IOO.S(b)(lS), when

conducted in conjunction with non-federal election activities,

according to the proportion of t~e or space devoted ic a

communication. In the case of a publication, this ratio shall

be detLrmined by the space devoted to federal candidates or

elections as compared to the total space devoted to all federal

and non-federal candidates or elections. In the case of a phone

bank, the ratio shall be determined by the number of questions

or statements devoted to federal candidates or elections as

compared to the total number of questions or statements devoted

to all federal and non-federal candidates or elections.

1. Background

During fieldwork, the Audit staff obtained a copy

of the Committee's Coordinated Campaign plan (CC Plan) for 1992.

In addition, telephone scripts and disbursement records were

available for our review. The CC Plan described the planned use

of both phone banks and direct mail in support of the

Committee's nominees.

According to the CC Plan, the objective of the

phone banks was to "enhance voter identification, follow-up on

absentee ballot applications, poll for legislative candidates

and make election day GOTV calls." Phone banks would be

Page 18, Approved 4/1/96
!f)

c"

c·

-17-

operated in Montana's twelve largest counties, with a long

distance phone bank out of Helena. "This phone bank will

operate with more paid phoners and will allow for better

polling...In August, paid phone bank supervisors and volunteer

phoners will be hired and trained. Legislative candidates will

provide volunteers for the phone banks in their area. When

necessary, paid phoners will be hired to keep the phone banks

operating at full capacity five nights a week. The phone banks

will begin operation the first week in September and continue

through the election."

In September and early October, the pr~ary

purpose of the phone banks was to be voter identification.

After absentee ballots were mailed October 1, the phone bank was

to follow up on these ballots and begin persuasion and polling

calls. Voter 10 was to continue whenever the phone banks were

available. GOTV reminder calls were to be made the week before

the election to identified Democrats who did not apply for the

absentee ballots. Paid phoners would be hired only if the phone

banks are being run by volunteers at less than 70\ of the

planned level.

A chart in the CC Plan projects the use of 40

phones: 500 calls per hour of which 400 per hour are completed;

1,500 calls per night; for 60,000 total calls of which 48,000

are completed. This was expected to identify 20,400 Democrats

of which 9,600 would be reached prior to election with GOTV

reminder calls. The Committee budgeted $36,000 for the phone

banks.

With respect to the Committee's phone bank

efforts, two documents were provided. One document is entitled

"Polling Script for Phone Banks" and the other~ ·Persuasion Call

Instructions" .

The script for the first effort (Polling Script

for Phone Banks) begins with the caller stating they are "with

Northwest Research"~/; and then asking for a choice if the

election were held today between George Bush the Republican or

Bill Clinton the Democrat. The same is done for Williams or

Marlenee (House) and Bradley or Racicot (Governor). The fourth

question asks which of four positions on abortion most closely

matches your position. Next is a question on Party affiliation

and whether that affiliation is "strong" or "just leaning".

Finally, a verification of the correct mailing address is made,

and, if not available, the birth year is requested.

51 Northwest Research is an assumed business name registered

with the Secretary of State of Montana by the Montana

Democratic Party on September 9, 1992. The registration is to

expire September 9, 1997.

Paqe 19, Approved 4/1/96
,,-.

C'

-18-

The second effort (Persuasion Call Instructions)

consists of three separate scripts to be used dependent upon

whether the calls are made for Clinton, Williams or Bradley.

The Williams and Bradley scripts contain two sets of questions,

one for pro-choice voters and the other for all other voters.

The attached instructions note that volunteers for Williams or

Bradley should use their respective scripts; and all others

should be asked to use the Clinton script. In addition, fact

sheets are provided for each of the candidates detailing their

positions on various issues. The caller identifies the

candidate on whose behalf they are calling, presents the

candidate's position on certain issues, then asks tI ••can we

count on you on Tuesday?~

According to the CC Plan, the voter file would be

used to target independent and persuadable voters. The phone

banks would be used to identify voters and target persuasion mail.

The CC Plan notes at least two pieces of persuasion mail would be

developed. A direct mail consultant was to be retained to help

produce materials and give direction to the project. Use of the

party's bulk mail permit would allow a cost effective means of

delivering the message to Montana voters.

In addition to the copy of the Committee's CC Plan,

the Audit staff obtained copies of printed materials dis~_:~uted

by the Committee, as well as a cost analysis of the printed

matter. This analysis included ratios allocating the cost of

these materials (to include applicable postage costS) between the

federal and non-federal accounts.

The Audit staff notes that all scripts make

specific reference to the candidate for the House of

Representatives by name. Further, printed matter sent out based

on information developed from the phone banks not only mentions

the House candidate by name, but also includes a picture as well

as information about the candidate.

As discussed in Finding II.F., most shared

expenses, to include coordinated campaign expenditures, were paid

from the non-federal account. Deposited into this account during

the period 8/92 to 11/92 were moneys totaling $70,783 received

from the ONe Non-federal Individual Account; transfers from the

Committee's federal account ($93,102); and, contributions from

individuals, other committees, and refunds ($169,648).

The Audit staff performed an analysis of the source

of funds received by all accounts during the period 8/92 to 11/92

and their application to di.~bursements made during the period.

Page 20, Approved 4/1/96
-19-

Our analysis!1 indicated that no national party funds were used for

expenses governed by 11 CFR S100.8(b).

2 • Phone Banks

The Audit staff identified phone bank expenses

totaling $37,852 paid during the period 8/92 to 11/92. Of these

expenses, $8,786 is identified as for "phoners".

At the time of the audit fieldwork, the Audit staff

vaL of the opinion that, based upon the above, the exemption

qr&&ted under 11 CFR S100.8(b)(18) had been voided:

(1) by the use of paid callers, as evidenced by

the payments noted above for "phonerS"i and

(2) by the inclusion of non-incidental references

to the House candidate;

o

c

o

The absence of information during fieldwork, such

as time sheets for all callers, as well as information associating

which script was used; and, the number of phone calls made with

respect to each script, precluded a precise calculation of the

aJIlOunt of expenditures made on behalf of the two federal

candidates (Clinton and Williams). However, under 11 CFR

§106.S(e), as cited above, the costs were allocated equally to

each candidate: 1/3 to Clinton/Gore; 1/3 to Williams; and, 1/3 to

Bradley. This resulted in a S12,617 contribution to each

candidate. '-;

At that t~~- was concluded that all

contributions resulting from the phone bank with respect to the

general election made on behalf of Clinton ($12,617) were

unauthorized expenditures.II Based on the Committee'S excessive

coordinated campaign contributions already presented at Finding

II.B., any additional contributions and/or expenditures on behalf

of Pat Williams for Congress arising from the phone banks

($12,617) exceed the allowable l~itations. The Audit staff notes

that Pat Williams Campaign Committee donated $39,000 in excess

campaign funds to the COJlUDittee by check dated 11-6-92. At the

exit conference, the Audit staff apprised Committee

representatives of these matters.

!I This analysis does not consider other factors such as

budgeting and the Committee's knowledge that party funds

would be available. Nor does the analysis consider the ~pact of these factors on the Committee's decision making

process.

II There is no evidence that the Committee was authorized by the

ONe under 11 CFR §110.7(a)(4) to avail itself of ONC's

spending limitation. Through 3-31-94 the ONe had used

$9,802,789 of its $10,331,703 limitation.

Page 21, Approved 4/1/96
0

'~I)

('oJ (b)

C.

............

0

f',..

c.

-20-

Subsequent to the exit conference, the Committee

submitted a narrative response to clarify and address concerna

relative to its coordinated campaign effort.

According to the Committee's response, phone banks

were used to accomplish three tasks:

(a) Voter identification and polling: "Montana has no

voter registration by party so in th.s:! election cycle

when partisan interest is high the party ran phone banks to identify voter preference on candidates,

issues and party. This information is used both for

voter contact in the nearest and all future elections

and general Party building, appealing to likely

supporters to become members of the Party and to

attend future Democratic events.

To avoid biasing responses we did not refer to the

Democratic Party as the sponsor of these calls, and

o used a registered DBA (Northwest Research) if asked

the source of the calls. No attempt was made in the

call to persuade the respondent to vote in a

particular manner." The CODDllittee notes that paid

supervisors and volunteer callers were used to .ake

calls from the end of August 1992 through Friday,

OCtober 30th.

Persuasion calls: -Beginning Saturday, OCtober 31 and

running through Monday, November 2, the Ca.mittee ran

persuasive phone banks to convince voters to support

Clinton/Gore, Rep. Williams or the candidate for

[G]overnor" . volunteers for Williams. and the governor

called for their respective candidates and the scripts

they used made no mention of any other candidates.

volunteers for Clinton/Gore were joined by paid

callers to do persuasion calls. The Committee spent

approximately $1,447.23 on paid callers who .ade

Clinton/Gore calls. We now believe this expense was

made in error and is not allowable."

(C) Get-out-the-vote calls: "The Committee made calls to

voters on election day Tuesday, November 3, to remind

them to vote. No mention of any candidate was allowed

on these calls. Paid supervisors were used with

volunteer and paid callers."

In addition to its narrative response, the

Committee submitted a copy of a response to an inquiry made by the

Committee to Counsel at the ONe concerning the Committee's CC Plan

as presented above.

ONe representatives also advised the Committee that

the exemption for phone banks is available only with respect to

Paqe 22, App~ed 4/1/96
-21-

activity on behalf of the presidential and vice-presidential

candidates. Phone banks on behalf of other federal candidate. and

the cost of paid phone banks undertaken on behalf of the

presidential and vice-presidential candidates would constitute

expenditures on behalf of those candidates. However, phone bank

costs for voter identification and polling activity would not

constitute a contribution or expenditure on behalf of any specific

candidate since the Democratic Party was not mentioned, nor was

there express advocacy of the defeat or election of a candidate.

The lnter~ audit report recommended that the

Committee submit any additional documentation and/or an

explanation detailing why the use of paid callers and the specific

references to the House candidate do not void the exemption from

the expenditure limitations provided under 11 CFR SlOO.8(b)(18).

It was further recommended that the Committee

provide documentation for phone bank projects to include but not

be limited to:

'.

o

C'

C'.

o

o

o

o

o

scripts used for the voter identification and

get-out-the··vote phases of the CC Plan;

t~e sheets for all paid callers;

information associating each paid caller with a

specific script or phase of the CC Plan;

an allocation of phone bank costs, including

supporting documentation, to each phase of the

program (polling, voter identification,

get-aut-the vote and voter persuasion) based on

the number of calls made for_each phase. For

phases of the program that utilized more than

one script, the cost should be allocated to each

script; and

information detailing how the results of the

polling and voter identification phases were

utilized.

The interim audit report also recommended that for

those expenditures on behalf of the House candidate, the Committee

amend its reports and disclose these as 2 U.S.C. S441a(d)

expenditures.

Finally, the interim audit report, as noted in

Finding II.B., recognized that the Pat Williams Campaign

Committee donated $39,000 in excess campaign funds to the

Committee on November 6, 1992. Absent a demonstration that the

Committee did not make contributions and/or expenditures on

behalf of Pat Williams for Congress, which exceeded allowable

Page 23, Approved 4/1/96
o

-22-

l~itations, it was noted that the Committee could submit a

statement designating part of this donation as a refund of the

excess expenditures.

In its response to the interim audit report, the

Committee acknowledged that unauthorized expenditure~ may have

been made on behalf of federal candidates. With res~~t to

those expenditures on behalf of Pat Williams, the response noted

that "[r]egardless of the amount that the Audit Division deems

allocable to the Williams Committee from the phone bank program

there are more than sufficient funds remaining in the 1992

donation to offset that amount."

The Committee's response continued by disputing

the total cost attributed to the phone bank by the Audit staff.

The Committee identified an expenditure ($1,750), included in

the Audit staff's analysis, for a mailing list which was not

received nor utilized until ~fter the election. This would

lower the total cost of th~ phone bank program to $36,102.

The Committee's response also provided scripts

used for "the GOTV and voter identification phases; information

associating paid callers with specific scripts or phases of the

CC Plan; and a reasonable allocation of all costs associated

with the CC Plan. The response reiterated that the phone bank

program lasted for 72 days and involved three distinct phases:

..r)

r

-

o

o

o

the polling/voter identification phase from

August 24 through OCtober 30, 1992 (68 days),

which was used for " ..•its general mission of

'party building' and to further enhance its

already existing voter file";

the persuasion phase from OCtober 31 through

November 2, 1992 (3 days), made calls on

behalf of the three above mentioned

candidates; and

the generic GOTV phase on November 3, 1992 (1

day), made calls which made no mention of

specific candidates.

The Committee's response concluded by stating

that it "believes that the costs associated with the voter

identification phase of its phone [bank] program should be

deemed as an administrative cost" and as such no candidate

allocation is necessary; however, if the Audit Division

determined that a portion of the first phase of the program is

allocable to federal candidates, the Committee offered its

analysis of such costs based upon the approach taken within the

Commission's MUR (Matter Under Review) 2581. The MUR utilized

an allocation formula for the development costs of a voter file

based upon the number of names used.

Page 2~, Approved 4/1/96
o

c

-23-

Based on its calculations, the Committee believed

it may have made unauthorized expenditures on behalf of

Clinton/Gore totaling $3,510 and excessive expenditures on

behalf of Williams totaling $4,550.

The Audit staff has reviewed the materials

presented by the Committee and has prepared a revised analysis.

The documentation provided clearly indicates paid callers were

used for e;..r-h of the three phases of the phone bank program.

The Committee asserted that the polling/voter

identification phase was for party building and to enhance its

existing voter file. Further, the Committee noted that the

script used during this phase contained "no express advocacy or

electioneering." The Committee believes the costs of enhancing

their voter file are administrative in nature and fall within

the purview of 11 CFR Sl06.S(a)(2)(i). As such, they would not

be allocable to any specific candidates. However, late= in its

response, the Committee acknowledged that the voter file was

used during the persuasion and GOTV phases of this program.

The Audit staff finds no merit in the Committee's

argument that, under 11 CFR 5106.5, these are administrative

costs and therefore not allocable to any specific candidate.

This section addresses the allocation of four categories of

disbursements, made by committees in connection with both

Federal and non-Federal elections. Although one of these

categories discusses administrative costs, it seems clear that,

based upon the examples provided under this section (rent,

utilities, supplies and salaries: except for such expenses

directly attributable to a clearly identified candidate), the

costs of enhancing a voter list were not contemplated as

administrative. Regardless, this section does_not address the

issue of allocating costs among candidates.

It is the Audit staff's opinion that the costs

of the polling/voter identification phase should be apportioned

to the other two phases of the CC Plan which made use of the

enhanced voter file. The Audit staff's revised analysis

utilized the number of calls made with respect to the persuasion

and the GOTV phases to apportion the costs of the polling/voter

identification phase between those phases. The Committee's

response does not note any other use for the information

developed at that stage.

The Audit staff's revised analysis further

allocated the costs associated with the persuasion phase to each

of three candidates identified in the scripts, based on the

number of phone calls made.

The total costs associated with the GOTV phase of

the phone bank program were allocated to each of the three

candidates using the ballot composition method, based on

percentages developed during audit fieldwork.

Page 25, Approved 4/1/96
o

to

c

c.'t-.

-24-

As a result, the Audit staff's revised analysis

of costs associated with the phone bank program determined that

contributions/expenditures were made on behalf of Williams in an

amount which exceeded allowable l~itations by $lO,~~'-

The Audit staff concurs that more than sufficient

funds remain from the 1992 donation from the Williams campaign

to designate as offsetting the contributions/expenditures which

exceeded the limitation. Finally, this analysis indicates

unauthorized expenditures were made on behalf of Clinton/Gore

totaling $5,528.

3. GOTV Direct Mail

Based on available records, the Committee used

Artcraft Printers to print 11 brochures/inserts. Of these 11,

four (4) do not benefit specific federal candidates. The

remaining seven (7) brochures are directed, to varying deqrees,

at two federal candidates and the candidate for governor.

The Audit staff reviewed printing and postage

costs totaling $78,484, as well as the allocation percentages

developed by the Committee for these seven brochures. The only

problem noted was with some of the allocation percentages

developed by the Committee. The Audit staff calculat~d its

percentages for allocating costs based on the proportion of

space devoted to each of the candidates within the brochur£ in

accordance with 11 CFR S106.S(e).

As noted above in the Audit staff's analysis, if

the mailings are part of a GOTV program c~nducted under 11 CFR

SIOO.8(b)(18), then use of the House candidate~s name and

likeness on the printed matter constitutes more than an

incidental reference to the candidate and also voids the

exemption provided under 11 CFR SIOa.8(b)(18).

In that case, the Audit staff determined that:

o

o

o

The Committee made expenditures on behalf of

Dorothy Bradley, candidate for Governor,

totaling $12,648;

the Committee made exempt expenditures on behalf

of Clinton/Gore totaling $45,190; and,

the Committee made contributions to and/or

expenditures on behalf of Pat Williams for

Congress totaling $20,645, which exceed the

allowable limitations.

The Audit staff advised Committee representatives

that, based on our analysis of their printed materials during

fieldwork, it appeared that the Committee made contributions to

Page 26, Approved 4/1/96
a

c

c'

o.

-25-

and/or expenditures on behalf of Pat Williams for Congress in an

amount which exceeded allowable l~itations by $20,645; in

addition to the $12,617 arising from the phone banks and the

$7,972 noted in Finding II.B.!I

Subsequent to the exit conference, the Committee

submitted a narrative response to clarify and address concerns

relative to its coordinated campaign effort.

With respect to the direct mail program, the

Committee stated that it "paid for the layout and printing of

these pieces, but used mailing lists that the Committee developed

to print our own labels and used volunteers to put on the labels

and sort the mailing." The Committee acknowledged that these

"mailings included persuasive material in support of Clinton/Gore,

Rep. Williams and the candidate for Governor, Dorothy Bradley."

In addition to its narrative response, the

Committee submitted a copy of a response to an inquiry made by the

Committee to Counsel at the ONe concerning the Committee'S CC Plan

as presented above.

With respect to direct mail pieces, ONC advised

there can be persuasive pieces that are not considered a part of

GOTV efforts provided that the conditions set forth in

Commission's regulations [11 CFR SS 100.7(b)(IS)and lOO.8(b)(16)]

are met. These conditions do not restrict the content of such

materials or the timing of their distribution. Mail targeted at a

Congressional candidate would be exempt if the conditions set

forth in the regulations are met.

The inter~ audit report recommended that the

Committee submit any additional documentation andlor an

explanation detailing why the specific references to the House

candidate do not void the exemption from the expenditure

limitations provided under 11 CFR SlOO.8(b)(IS); and, (2) why

Committee GOTV activities, which fall within the purview of 11

CFR SlOO.8(b)(1S), should be viewed relative to the provisions

of 11 CFR SlOO.S(b)(16).

The interim audit report also recommended that

for those expenditures on behalf of the House candidate, the

Committee should amend its reports and disclose them as 2 U.S.C.

S441a(d) expenditures.

Finally, as noted in Finding II.B., the interim

audit report recognized that the Pat Williams Campaign Committee

donated $39,000 in excess campaign funds to the Committee on

November 6, 1992. Absent a demonstration that the Committee did

8/ The Audit staff notes that Pat Williams Campaign Committee

donated $39,000 in excess campaign funds to the Committee by

check dated 11-6-92.

Page 27, Approved 4/1/96
-2Snot make contributions and/or expenditures on behalf of Pat

Williams for Congress, which exceeded allowable 1~itation8, the

Committee was advised that it could submit a statement

designating part of this donation as a refund of the excess

expenditures.

The Committee states it "cannot find, and is

unaware oi any objective standards set forth by the PEe that

would distinguish a volunteer mail piece as ~ing campaign

materials or GOTV."

Further, it is the Committee's belief that its

activity was properly designated as campaign materials activity

under section lOO.8(b)(16), which does not restrict the content

of such materials or the t~ing of their distribution. As such,

the mention of the House candidate is not relevant to the

disposition of this recommendation.

The Audit staff acknowledges that some activities

that a party committee engages in can be viewed under either the

provisions of 11 CFR SlOO.8(b)(16) or (b)(lS), and that in such

cases the regulation provides no quidance to determine which

provisions should be applied. It is further acknowledged that

if the direct mail program is viewed seperately from other

portions of the CC plan, it could be analyzed under either

provision. Analyzed under 11 CFR SlOO.S(b)(16), the direct mail

program does not constitute a contribution-to any candidate.

Page 28, Approved 4/1/96
FEDERAl. ELECTION COMMISSION

\V....SHt"'CTON. 0 C .'1l-ah'

March 21. 1996

MEMORANDUM

o

TO:

THROUGH:

FROM:

BY:

Roben J. Costa

Assistant Staff Director

AuditDiviSi=B / i·... lohne. ~I . ) StaffDi~ J

I

Lawrence M,lNoble

General Coemsel

l'

,

Kim Brigbttcoteman ~. t-C... tltAssociate General Counsel

Lorenzo HoUoway -~ ..)J

Assistant General Counsel

l\.bel P. Mim~

.A,.nomey » 1'1

CO. SUBJECT: Proposed Final Audit Report on Montana State Democratic Central

Comminee (LRA #460)

I. Il''TRODUCfION

The Office of General Counsel has reviewed the proposed Final Audit Report on

the Montana State Democratic Central Committee ("the Committee") submitted to this

Office on January 31. 1996. I The following memorandum swnmarizes our comments on

the proposed report. We concur with findings in the proposed report which are not

Because the proposed Final Audit Report does not include any matters exempt from public

disclos~ under 11 C.F R. § 2.4, we recommend that the CommlSSion·s discussion oftbis document be

conducted In open session.

.. ESTERO.." T()D~' "!IIoO T()"()R~(}\\

DE Ot( "no 10 KEEPING THE PUBLIC l~fORM[D

Page 29, Approved 4/1/96
c

c

cMeInornIum 10 Robert J. Costa

Final Audk Report for

Montana State Democratic Cen1ral Commiaec (LRA t460)

Paae2

discussed separately in the following memorandum. If you have any questions concerning

our comments: please contact Abel P. M6ntez, the attorney assigned to this audit.

II. EXCESSIVE EXPENDITURES ON BEHALF OF A CONGRESSIONAL

CANDIDATE (l1.B.)

The Interim Audit Repon found that the Committee made coordinated expenditures

totaling 568.212 on behalfofRepresentative Pat Williams (Uthe Williams Committee'),

which exceeded the expenditure limitation by $7..9n. Documentation indicated that the

Committee expended funds on the production oftwo direct mail pieces and for the use of

space provided by county Democratic committees. According to audit workpapers, ofthe

568.212. the Committee spent $17,447 in postage costs associated with these two direct

mail pieces.

The Interim Audit Repon recommended that the Committee demonstrate that

expenditures were not in excess ofdie limitation at 2 U.S.C. § 441a(dXl) by submitting an

explanation and docwnentation to establish the extent ofthe Comminee's coordination

with the Williams Committee with regard to these expenditures. Ifthe Committee could

not make this demonstration. the Interim Audit Repon noted that it should seek a refund of

57,972 from the Williams Committee. However, the Interim Audit Repon acknowledged

that the Williams Committee donated $39,000 in excess campaign funds to the comnUuee

on November 6, 1992. The Interim Audit Report noted that the Committee could submit a

statement designating part ofthis donation as a refund to the Committee ofthe excess

expenditures.

In its response to the Interim Audit Repo~ the Committee desipated $2,181 oftbe

Williams Committee donation as a refund for rental space that the Committee paid on

behalfofthe Williams Committee. Thus, in the proposed report. the Audit Division

lowered the amount in excess ofthe expenditure limitation to S5,791 (S7,9n-~IBl). For

the remaining amount ofS5,791 .. the Committee did not designate pan ofthe Williams

donation as a refund for postage costs associated with the mail pieces. The Committee

stated that it was reluctant to do so because it would violate United States Postal

Regulations governing special nonprofit bulk rates. In any event.. the Audit Division

stated. uifthe Williams donation is considered. more than sufficient funds remain to offset

the amount in excess ofthe limitation.'·

As a state committee of a political party. the Committee qualified for a pennit that

authorizes it to mail material at special bulk rates. See Domestic Mail Manual

Page 30, Approved 4/1/96
o

c:

c'

'., ~'.' .. "" ,.V4ffRQJit4?bJ};:ii##tJ=-., , ,

MemOlWldum to Robert J. Costa

Final Audit Report for

Montana Slate Democratic Central Comminee (lRA #460)

Page)

§§ E370.3.1-.3.2 (Issue 49, September 1, 1995).2 An organization authorized to mail at the

special bulk rates may mail only its own matter at those rates. DMM § E370.S.1. An

authorized organization may not delegate or lend the use of its authorization to mail at the

special bulk rates to any other person or organization. Jd Political mailings may not be

made at the special rates whenever a political candidate or anyone else not authorized to

mail at the special rates assists the qualifying political committee with the preparation or

mailing ofthe material in question, or pays any of the costs of preparation or mailing, or

provides any consideration whatsoever to the qualifying political committee in return for

the mailing being made. DMM § E3iO.5.9.

Ifthe Committee in a written statement were to designate that the Commission

should offset the excessive amount with a ponion ofWilliams donatio~ then the

Committee may violate DMM § E370.5.9(c). An offset to the Committee that represents

the costs paid for postage will result in the Williams Committee paying for the postage to

mail the material. See DMM § E370.5.9. Therefore. the Office ofGeneral Counsel

understands the Comminee"s refusal to designate S5.791 ofthe Williams Committee

donation as an offset of postage costs. However. the failure to recognize this offset will

cause the Committee to make an expenditure to the Williams Committee in excess ofthe

limitation at 2 U.S.C. § 441a(d)(l). Nevertheless. in light ofthe conflict with the postal

regulations for special bulk rates" the Office of General Counsel believes that the

Commission should not pursue this matter with the Comminee.

III. THE COMMJTrEE'S GET-OUT-THE-VOTE ACTIVITIES (lI.G.)

The Interim Audit Report found that from August 1992 to November 1992, the

Committee spent 537.852 on phone bank expenses on behalf ofthree caadidates. Pursuant

to 11 C.F.R. § l06.S(e). the Interim Audit Repon allocated the costs between three

candidates: the Clinton/Gore campaign committee ($ 12.617). Congressman Pat Williams

($12.617). and a candidate for governor ($ 12.617). The Interim Audit Report

recommended that the Committee submit infonnation to demonstrate that the Committee

did not make contributions or expenditures on behalf ofthe Federal candidates that

exceeded the allowable limitations. The lntenm Audit Repon also recommended that the

Comminee submit a statement designating part of the \Villiams donation as a refund ofthe

excessive expenditures.

Be~ause the Comminee submitted information in response to the Interim Audit

Report to lo\\'er the total cost ofthe phone bank program by SI.750, the proposed Final

Audit Report concludes that the actual cost was 536.102. The Committee also submitted

infonnation that revised the overall allocation of costs for the phone bank. Therefore, the

Political organlutlons. other than the national committee of a pohucal Part)'. a state committee of a

political party. and the national Congressional and Senatonal campaign committees of both major parties. do

not qualify for special bulk rates. DMM § E3'0 4.1 (g)

Page 31, Approved 4/1/96
o

c

V)

Memorandum to Robert J. Costa

Final Audit Report for

Montana State Democratic Centtal Committee (LRA *460)

Page 4

proposed Final Audit Report concludes that the Committee made unauthorized

expenditures on behalfofClinton/Gore totaling $5,528 and excessive contributions or

expenditures on behalfofthe Williams Committee totaling SI0.087. The Committee

acknowledged that sufficient funds existed in the Williams campaign donation to offset the

excessive amount. Therefore. the proposed Final Audit Report concludes that the

excessive amount of $1 0.087 is no longer outstanding.

The Office ofGeneral Counsel concurs with the Audit Division's allocation of

costs for the phone bank. However, this Oflice believes it is necessary to comment on an

issue raised by the Committee. The Committee states that its phone bank program lasted

72 days and involved three distinct phases: (1) polling/voter identification phase for 68

days to enhance its existing voter file; (2) persuasion phase for three days to call on behalf

ofthe three candidates; and (3) phase to get-out-the-vote for one day (with no mention of

specific candidates). The Committee argues that its polling/voter identification phase was

an "administrative expense" under 11 C.F.R. § 106.5(a)(2)(i), because its purpose was to

enhance its existing voter file. Therefore, the Committee contends that no allocation

between the candidates is necessary for this phase.

We concur with the Audit Division's analysis that the polling/voter identification

phase ofthe phone bank does not fall within 11 C.F.R. § 106.5(a)(2)(i). Pursuant to 11

C.F.R. § l06.5(a)(2)(i), committees that make disbursements in connection with federal

and non-federal elections are required to allocate "administrative expenses including rent,

utilities. office supplies, and salaries." The Commission's regulations do not specificaUy

define the tenn '''administrative expenses," but provide a list of examples. The Office of

General Counsel believes that the expenses paid for the enhancement of voter files tbmugh

a phone bank are not similar to "ren~ utilities, office supplies and salaries." II C.F.R.

§ 106.5(a)(2)(i). The examples set forth as administrative expenses relate to the ministerial

functions of an office. There is no indication that costs for polling/voter identification are

the same type of expenses.

We note that the Committee's expenses to enhance its voter files through a phone

bank may qualify as "generic voter drive" expenses under 11 C.F.R. § 106.5(a)(2Xiv).

Generally, state and local party committees are required to allocate generic voter drive

expenses (and administrative expenses) according to the ballot composition method. 11

C.F.R. § l06.5(d)(1). However, the Office of General Counsel understands that the

Comminee has not provided the necessary documents and infonnation to allow the Audit

Division to determine the allocation. i.e., the number of calls actually associated with voter

identification and get-out-the-vote drives that did not reference a specific candidate. 11

C.F.R. § l06.5(a)(2)(iv).

Page 32, Approved 4/1/96
AK007809

FEDERAL ELECTION COMMISSION

w:SHtNGTON. O.c. 20463

-~l..

o

c

April 2, 1996

Ms. Peggy Egan, Treasurer

Montana State Democratic

Central Committee

Steamboat Block, Room 306

Helena, MT 59624

Dear Ms. Egan:

Attached please find the Final Audit Report on Montana

State Democratic Central Committee. The Commission approved

the report on April 1, 1996.

The Commission approved final audit report will be

placed on the public record on April 10, 1996. Should you

have any questions regarding the public release of the

report, please contact the Commission's Press Office at (202)

219-4155. Any questions you have related to the matters

covered during the audit or in the report should be directed

to Alex Boniewicz or Joe Stoltz of the Audit Division at

(202) 219-3720 or toll free at (800) 424-9530.

Director

Attachment as stated

\!'T[J\{).\\ TO[)." -\'OT().... \()~"()\\

[)(Da \lEn T<) ..... [£PI'C lH£ Pl;tHIC l ..... f{ lRMfD

Page 33, Approved 4/1/96
o

Page 34, Approved 4/1/96
CHRONOLOGY

MONTANA STATE DEMOCRATIC CENTRAL COMMITTEE

o

o

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

3/8/94 - 3/25/94

6/6/95

8/29/95

4/1/96

Pag~ 35, Approved 4/1/96