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RL87/032888

FEDERAL ELECTION COMMISSION

WASHINGTON. DC 204&3

A87-1

March 28, 1988

MEMORANDUM

ROBERI' J. COSTA

ASSISTANT STAFF

AUDIT DIVISION

TO:

FROM:

FRED EILAND

CH IEF, PRESS OFFICE

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DIRECfoR-'-'

SUBJECT : PUBLIC ISSUANCE OF FINAL AUDIT REPORI' - MECKLENBURG COUNTY DEMOCRATIC PARrY

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Attached please find a copy of the final audit report of

the Mecklenburg County Democratic Party which was approved by

the Commission on March 17, 19&8.

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: FEC Library

RAD

Publi c Disclosure - Office of General Counsel
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RI,87/031088

FEDERAL ELECTION COMMISSION

WASHINCTON, DC 2046)

A87-1

REPORT OF THE AUDIT DIVISION

ON

MECKLENBURG COUNTY DEK>CRATIC PARrY

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I. Background

A. Overview

This report is based on an audit of the Mecklenburg County Democratic Party ("the Commi ttee") undertaken by the Audi t

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. 5 438(b) which states, in part, that the Commission may

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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 section, the

Commission shall perform an internal review of reports filed by selected committees to determine if the reports filed by a

particular committee meet the threshold requirements for

substanti al compli ance with the Act.

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The Committee registered with the Federal Election

Commission on April 25, 1986, and maintains its headquarters in

Charlotte, North Carolina.

The audit covered the period from January 1, 1985

through December 31, 1986. In addition, the Audit staff reviewed

the financial activity of the Committee for the period September 1, 1984 through December 31, 1984.

This report is based on documents and workpapers which

support each of its factual statements. They form part of the

record upon which the Commission based its decisions on the

matters in the report and were available to the Commissioners and

appropriate staff for review.

B. Key'" Personnel

The Treasurer of the Committee during the period • audi ted was Mr. Woodrow E. Nail, Jr.
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C.

The au~it inclu~e~ luch tests as verification of total reporte~ receipts, ~isbursements an~ in~ivi~ual transactions,

review of require~ supporting ~ocumentation, analysis of

Committee debts an~ obligations, an~ such other au~it proce~ures

as deeme~ necessary un~er the circumstances.

II. Audit Findings and Recommen~ationB

Introduction to Fin~ingl

The Audit staff reviewed the Committee's activity for 1985

and 1986 and ~etermine~ that the Committee did not engage in any activity supporting federal candidates except for one

contribution to a political committee in January, 1985 for

$265.45, and one transfer to a political committee in March, 1985

for $2,847.90. The March transaction effected a notice from the

Commission requesting that the Committee register as a political committee or seek a refund of the transfer. The Committee

elected to register as a political committee on April 25, 1986.

rr Through discussion with Committee personnel and a review of

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Committee records, the Audit staff determined that the two

,0 transactions noted above ~ere transfers of unused funds received

by the Committee for use In Get Out The Vote (GOTV) activity - during 1984. The Audit staff reviewed the 1984 GOTV activity and

found the following:

Between September 1, 1984 and December 31, 1984, the

Committee received $12,300 from the North Carolina Democratic

Victory Fund ("the Victory Fund") designated for GOTV and Phone

Bank expenses. In addition, the Committee received $9,875 from

individuals and two non-federal candidate committees for GOTV

activities. Except for the first $500 transfer from the Victory Fund, the receipt and expenditure of these funds were coordinated

by a third party who sent contributions, invoices, and statements

on GOTV expenditures to the Committee for processing.

Committee documentation indicated a projected $20,000 budget for GOTV activities which assigned a $10,000 commitment from a

Senatorial candidate, $1,000 from a House candidate, and $6,000

and $3,000 from two n~n-federal candidates. Although funds were

received from the Victory Fund there was no indication in

Committee records that any share of the budget was assigned to

the Victory Fund.

Of the two non-federal committees, one committee contributed

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at least $1,200 and the other committee contributed at least

$2,700.00. The Audit staff could not find evidence that the

Senatorial candidate committee or the House candidate committee
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contributed any funds for the GOTV activities. The committee

made payments for GOTV activities totaling $15,875.09. These

expenditures included payments for consulting services, radio

advertising, phone bank salaries, expense reimbursement to

Indi viduals, printing, labels, vot·.!r lists and volunteer

expenses.

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The Audit staff determined, by adding an apparent GOTV

deposit on December 27, 1984 to a Committee calculated balance on

December 17, 1984, that the balance of GOTV funds unspent on

December 27, 1984, totaled $5,749.91. Amounts totaling $5,529.91

of these residual funds were written to the Senatorial committee

($2,847.90), the House committee ($265.45), and the two nonfederal candidate committees ($790.77 and $1,625.79) on January

31, 1985. The check to the Senatorial committee was subsequently

voided and then reissued to the Victory Fund on March 4, 1985.

The reissue of the voided check to the Victory Fund, the proposed budget, and the lack of any evidence to demonstrate that the

federal candidates contributed to the GOTV effort all indicate

that the transfers, or portions thereof, to the Committee from

the Victory Fund benefited the two federal candidates.11 Since

the federal activity noted above occurred only in the last • quarter of 1984 and the first quarter of 1985, the findings and

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recommendations noted below pertain to federal activity from

-0 September 1, 1984, through March 31, 1985.

A. Registration Reporting and Termination

Section 431(4) (C) of Title 2 of the United States Code

defines a political committee, in part, as any local committee of

a political party which makes contributions aggregating in excess

of $1,000 during a calendar year or makes expenditures aggregating in excess of $1,000 during a calendar year, or makes

payments exempted from the definition of contribution or

expenditure aggregating in excess of $5,000 during a calendar

year.

Section 104.12 of Title 11 of the Code of Federal

Regulations states that political committees which have cash on

hand at the time of registration shall disclose on their first

report the source(s) of such funds. The cash on hand balance is

assumed to be composed of those contributions most recently

received by the committee.

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The transfers to the Committee were not reported by the

Victory Fund as either contributions to, or as coordinated

expenditures on behalf of, the two federal candidates •
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Sections 434(b) (1), (2) an~ (4) of Title 2 of the

United States Code state in relevant parts that a political committee shall disclose the amount of cash on han~ at the

beginning of the reporting peri~, and all receipts and

disbursements for the reporting peri~ an~ the calendar year.

A review of the Committee's bank activity for the

period September 1, 1984, through December 31, 1984, ~isclose~

reportable activity of beginning cash totaling $184.92, receipts of $21,110.00, disbursements of $22,385.44, and ending cash of

$5,569.48. From January 1, 1985 through March 31, 1985, the

Committee reported receipts of $1,968.14 and disbursements of

$5,941.46, resulting in an ending cash on hand balance of

$1,596.16.

The Committee did not file disclosure reports for the

last quarter of 1984, the Committee filed one report covering the

period January 1, 1985 through December 31, 1985. Within this

period the Committee contributed $265.45 to a House committee in

January, 1985 and transferred $2,841.90 to the Victory Fund in

March, 1985.

The Audit staff expressed the opinion in the interim ,0. audit report that the Commit.tee was a political committee only

during the last quarter of 1984 and the first quarter of 1985.

The Audit staff recommended in the interim audit report that

the Committee file reports disclosing its activity for the period September 1, 1984 through March 31, 1985, including the source of

the funds comprising the cash on hand balance at September 1,

1984. The Audit staff also recommended that the Committee

terminate effective March 31, 1985, pursuant to 11 C.F.R. S 102.3

and include in the termination report a statement as to the

disposition of the cash on hand balance at March 31, 1985.

In addition, the Audit staff recommended that the Committee

report the transaction in January, 1985 to the House candidate as

a contribution, and the transfer in March, 1985 to the Victory

Fund as a refund of unused GOTV funds.

In response to the interim audit report, the Committee filed

reports disclosing the activity noted above. The Committee

terminated effective March 31, 1985.

Recommendation .1

The Audit staff recommends no further action on this matter •

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B.

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Disclosure of Coordinated Expenditures

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Section 441a (d) of Ti tle 2 of the Uni ted States Code

states, in relevant part, that 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 certain

limits. In the case of a candidate for election in North

Carolina to the Office of Senator, the limit was $181,032.40 in

1984, in the case of a candidate for election to the Office of

Representative, the limit was $20,200.

In addition, 2 U.S.C. 5 434(b) (6) (8) (iv) states, in

part, that a political committee shall disclose each person who

receives any expenditure from the reporting committee during the

reporting period in connection with an expenditure under Section

441a(d) of the Title, together with the date, amount, and purpose of any such expenditure as well as the name of and office sought by, the candidate on whose behalf the expenditure is made.

I'''' Sections 100.8(b) (10) and (16) of Title 11 of the Code · r of Federal Regulations states that certain payments by a state or i local committee of a political party are exempt from the • >o.definition of an expenditure provided, in part, that such · payments are not for costs incurred in connection with any · broadcasting, newspaper, magazine, billboard, direct mail or

similar type of general pUblic communication or political advertising.

As noted above, the Committee made payments for GOTV

activity totaling $15,875.09. In order to determine what portion of the GOTV expenses were related to federal candidate activity, the Audit staff calculated a prorata share of expenditures made

on behalf of federal candidates by multiplying the allocated

budget/total budget ratio of each federal candidate by the total

Committee expenditures for GOTV activity. The results are as

follows:

Senatorial candidate: $10,000/$20,000 X $15,875.09

Rouse candidate: $ 1,000/$20,000 X $15,875.09

Total expenditures on behalf of federal candidates

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• $7937.55 • 793.75 • $8731.30
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Based on review of Committee documentation the Audit

staff expressed the opinion in the interim audit report that

these expenditures for GOTV activity are not exempt pursuant to

11 C.F.R. 55 lOO.8(b) (10) and (16). The Audit staff also

expressed the opinion that these expenditures are coordinated

expenditures!! pursuant to 2 U.S.C. 5 441a(d) and should be

reported accordingly.

The Audit staff recommended in the interim audit report that

the Committee report the GOTV activity conducted in 1984 on

behalf of the two federal candidates as coordinated expenditures

pursuant to 2 U.S.C. 5 441a(d)J $7,937.55 on behalf of the

Senatorial candidate and $793.75 on behalf of the House

candidate.

The Committee filed reports correctly disclosing the GOTV

activity noted above as coordinated expenditures.

Recommendation .2

The Audit staff recommends no further action on this matter.

2/ The Audit staff reviewed coordinated e=penditures reported

by the Victory Fund on behalf of the Senatorial and House

candidate and determined that, when added to the

expenditures made by the Committee, the combined limits of

2 U.S.C. 55 441a(a) and (d) are not exceeded •

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