MEMORANDUM

TO:

FROM:

FEDERAL ELECTION CO~"'MISSION

March S, 1992

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA ASSISTAl~T STAFF DIR{C~R~ AUDIT DIVISION

MH002S94

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT

ON CARDINO '88

_ _ Attac_hedplease find a copy of the Final Audit Report on

Cardino ' 88, which was approved -by- the- -Co..i-s-s-itrn----ou---rebruary --2-1-,

1992.

Informational copies of the report have been received by all

parties involved and the report aay be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure--

Reports Analysis Division

FEe Library
FEDERAL ELECTION CO~~MISSION

REPORT or THE AUDIT DIVISION

ON

CARDINO '88

MI002467

A89-6

._.....

I. Background

A. Overvie"

This report is baa.d on an audit of Cardino '8. ("the

Co..itt••") undertaken by the Audit Division of the rederal

Election Co..i ••ion in accordance with the provisions of the

Federal Election Ca.paign Act of 1971, .s ...nded ("the Act-). ------~.-__aucll_t.-_wa.--_cORCluc_t..cl---pu~.uant--to--..e~ion--4_1a_<_hl-of-- ~1_t1. 2 of

the Uni~.d Stat•• Code whicb atate., in part, that tbe Co..i ••ion ..y conduct audits and field inv••tigation. of any political e~t~.e required to fil. a report under ••c~ioft 434 of this

title. prior to eonduetlnq any audit under this ••ction, the

C08ai••lon aball perfora an internal re.iew of reports filed by .elected c~itt••• to d.~er.ln. if the r.por~. filed by a pa~~leul.r eo..itt•••••t the thresbold r~1re••ftt. for .ub.t.ft~ial coapllaace with tbe Act.

The Co~t~e. r.,iatered with the rederal Election Co~••lon on July 18, 198', and ..lnteins ita h••dquarters in

Copia9Ue, Mev York.

The audit covered the period June 6, 1988 through

Dec.aber 31, 19". The Co..itte. reported a be,innin9 cash

balance of $-0-, total receipts of $61,596.28, total di.bur••••ntl

of $'~-S9'.28J and an ending ca.h balance Oft Deceaber 31, 1988 of $_0_._'-

~/ As of the clos. of fieldwork, no reports for the period

October 20, 1988 through Deceabet 31, 1988 had b.en filed.

On Auquat 15, 1991, tbe Co..ittee filed a report discloainq

the previoualy undisclos.d activity (••• rinding II.A.).
2

This report is ba.ed on documents and workpaperl

lupport1nq each of it. factual stat•••nta. They form part of the

record upon which the Coasi••1on baaed ita d.cisions on the

matter. 1n this recort and were available to the COmmi.lioners and

appropriate staff for review. - -

B. Key Personnel

Durinq the period covered by the audit, ~he Committe.'s

Treasurer was Jo.eph B. Gaqliardo.

c. Scope

The audit included such t.sts aa verification of total

reported receipts, disbursements and individual transactions:

review of required supporting doeumentation: analysis of debts and

obligations: and such other audit procedures-as deemed necessary

under the circumstances.

II. Audit Findinas and Recommendations

A. r11inq of Disclosure Reports

Sections 434(a)(1), (2)(A)(ii) and (iii) of Title 2 of

the United Stat•• Cod. state, in part, that the tre••urer shall

file reports of receipts and di.bur••••nt. in aeeordane. with the

provision. of the Act. If the politieal co.-itte. is the

principal eaapaign coaaitt•• of a candidate for the Hous. of

Repre••ntative. or for the Senate in any calendar year during

which there i. a re9Ularly scheduled election for which such

candidat. ia ••eking election a POlt-9.neral election report and a

r.port for the quarter ending Dec.aber 31 aball be filed.

A review of the Coaaitte.'. filin91 reve.led that the

Coaaitt•• did not file di.closure reports for the period October

20, 1988 throu9h D.c.ab.r 31, 1988. According to bank stat••ents

and otb.r Co..itt•• recorda, the Audit Itaff identifi.d receipt

activity totalin9 $5,919 and di.bur••••nt activity totaling $27,867.79 which sbould have b••n report.d.

-, Neith.r the Candidate nor the A••iltent Tr•••urer~/ was

aware that the reports vere not filed but .xpr••••d a willingne•• to file the disclosur. reports for the period not.d above.

In the interia audit report, the Audit staff r.co..ended

the Coaaitt•••ub.it discloaure reports covering the period

October 20, 1988 through Deceab.r 31, 1988, a. well .a filing. for

any r.quir.d diacloaure reporta suba.quent to Deceaber 31, 1988.

On Auquat 15, 1991, the Coaaitte. filed a coapt.hen.ive

a.end••nt for cal.ndar year 1988 which included the undisclo.ed

~/ The Tr••aur.r did not attend the exit conference.
3

financial activity for the period October 20, 1988 throu9h

Dee.aber 31, 1988. Further, the Comaitt•• filed disclosure

reportl for the calendar year. 1989 and 1990.

a.co..endation _1

Ba••d on the above. the Audit staff reeommends no

action on this matter.

8. Loan Activity

Section 431(8)(B)(vii) of Title 2 of the Unit.d Stat•• Cod. atat••, in part, that the term contribution does not include

any loan of money by a State bank or a federally chartered

depository institution made in accordance with applicable law and

in the ordinary course of busines., but such loan shall be made on

a basis which assures repayment, evidenced by a written

instru••ne, and subject to a due date or amortization schedule,

and such loan shall be consldered a loan by each endorser or

quarantor, in that proportion of the unpaid balance that each

endorser or quarantor bears to the total number of endor.s.rs or

9uarantors.

Section 441b(a) of Title 2 of the United State. Code

.tate., in part, that it i. unlawful for any national bank, or any

corporation or9anized by authority of any la" of -CofteJr•••, to.ake

a contribution in connection with any pri••ry election or caucus

held to ••lect candidate. for any political office, or for any

candidate, political eo..itte., or other person knovin91y to

accept or receive any contribution prohibited by the .ection.

S.etion lOO.7(b)(11) of Title 11 of the Code of

rederal Requlation. stat••, in part, that a loan will be d••••d to

b. aade in the ordinary cours. of bu.ine•• if it: bears the usual

and cuatoaary intere.t rate of the lendin9 in.titution for the

cate90ry of loan involved, i ••ade on a baai. which a ••ures

repayaent, ia evidenced by a vritten.1D.truaent: and is sUbject to

a due date or a.ortization Icbedule.-

On or about June 22, 1988, the Candidate obtained a $10,~OO loan fro. The Sank of New York (-the Bank"). Th. loan

proceed. vere depo.ited into the Candidate'. personal checking

account. On June 22, 1988, the Candidate i ••ued hil per.onal

cbeek for $10,000 to the Coaaitt... The Co..itt.e reported the

$10,000 loan .a a debt owed to the Bank, and endorsed or

quaranteed by the Candidate.

A photocopy of the proai••ory note si9ned by the

Candidate wa. not dated, atat.d an annual pereentaq. rat. of 12.90

percent and required 12 monthly payaent. of $895.65 co...ncinq on

~/ Citationa to 11 c.r.R. SI100 - 116 refer to the regulation.

in effect for the 1988 cycl., unl••• otherwi•• noted.
4

July 22, 1988. Aceordinq to the pro.i••cry note, no collateral

wa. p1edged and there were no quarantora.

By eheeks dated October 14, 1988 and October 21, 1988;

the Committe. paid the Candidate $900 and $6,000 re.pectively,

however, it ia not known if the Candidate repaid the Bank. Since

the Committe. had not filed a disclosure report covering activity

sub.equant to the cloain9 date of its last report (10-19-88), the

disposition of the loan was not known durinq audit fieldwork.

When questioned by the Audit staff, the Candidate stated

initially that the loan was repaid timely. However, the Candidate

then atated the loan may not have been repaid timely, since he and

the Bank diaaqr••d on the final amount due on the loan. The

Candidate then stated that the Bank, in an attempt to secure the

final pays.nt, attached a busine•• escrow acco~nt that the

Candidate maintained at the Bank. Finally, when asked, the

Candidate Itated that the Bank was not aware it was makinq a loan

to a political committee.

Due to the Comaittee's failure to file di.clo.u~.

reportl and the lack of bank documentation available for review,

many alpect. of this loan are not known. Rowever, it app.ar. that

the loan may not have been aade in the ordinary cour•• of

busin•••, linee no doeuaentation was provided indicating that the

loan w••••de on a b••is which assured repayaent.

In the interi. audit report, the Audit staff r.e~nded

the Coaaittee prOVide the following:

a copy of the loan application on file at the lank;

copi•• of all other bank docu.ent. with respect to

this loan to include but not be liaited to, a dated

copy of the proais.ory not., copi•• of any .ecurity

related docuaent and the Bank'. perfection of ...., etc. J

a detailed explanation fro. tbe Candidate concerning

the di.crepancy with the Bank relative to the final

paya.nt on the 10anJ

an official schedule fro. the Bank lilting the date.,

aaount., and source of all loan payaenta (personal

eheck of the Candidate, Co..itt•• check, etc.); and,

an explanation froa the .ank .s to why the loan

should be considered a.d. in the ordinary cour.e of

bulin••••

In r.sponae to the interi. audit report, the Coaaitt•• mad. available the requ••ted docuaentatlon fro. the Candidate .s

well .s fro. Th. Bank of N.w York. The docuaentation included a

copy of the loan application, a dated proais.ory note, a detailed
·t

s

.en.aul. of loan payaent. provided by the .ank, a letter fro. the

Bank atatinq that the loan was a nora.l un••cured personal loan

and made in the "ordinary cours. of bu.in•••• and a letter of

explanation of late payment on loan fro. Jo••ph Cardino, Jr. As l

r••ult, it il the opinion of the Audit staff that tbe lank did not

know it waa makinq a loan to a political eoaaitt••, and, ba••d on

a review of all docum.ntation made available, it appears that the

loan va. made in accordanee with applicable law and-in the

ordinary cour•• of bu.in••••

aeeo...ndation .2

Baaed on the above, the Audit staff reco...nds no further

action on this matter.

c. Misstate••nt of Financial Activit~ _

Sections 434(b)(2} and (4) of Title 2 of the United

States Code state, in part, that each report shall disclos., for

the reporting period and calendar year, the total a.aunt of all

receipts and the total a.aunt of all di.bur••••nt••

A reconciliation of bank activity to the disclosur.

r.ports filed by the Coaaitt.e fro. inc.ption tbrough Octob.r 19,

1988 rev••led the following ai••tat•••nts:

aeeeipta

.eported receipt. were understated by a net aaoUftt of

$4,323.58 ($4,446.99 - $150 + $26.59). Tb. understat•••nt wa. a

re.ult of the following:

the Co..itt•• failed to report contribution.

totaling $4,446.99,

the Co-.dtte. reported .s contributions N.s.r.

check. totaling $150, and

an unexplained differ.nce of $2'.59.

Di.bur••••nt•

• eported di.bur••••nt. were understat.d by a n.t a.ount

of $196.31 ($457.80 - $236.50 - $24.99). The under.tat••ent wa. I

r••ult of the following:

the Coaaitt•• failed to report di.bur••••nt.

totaling $457.80,

the Coaaitt•• reported a check, totaling $236.50,

which va. later voided and ..de no adju.t.ent; and,

the Coaaittee incorrectly r.port.d di.bur••••nt. ir.

an a.ount totaling $24.99 (net).
6

It should be noted that the Co.-itt•• did not make

available to the Audit staff two bank state.ents which covered the

period June 14, 1988 throuqh Auqult 11, 1988. Uling deposit

recorda in conjunction with di.bur••••nt records (caneeled eheek.,

check reqiater, etc.) the Audit staff developed the dollar value

of raceipt and di.bur••••nt activity for this period.

The A••istant Treasurer was given a detailed list of the

above reeoncilinq it••s and indicated hi. willinqn••• to file

a.end••nts.

In the interim audit report, the Audit staff recomm.nded

that the Comaittee, file a comprehenalve amendment to disclose the

above receipts and disburse.ents, aa well as, provide copi•• of

the two mi••inq bank statements (state.ents only).

On Auqust 15, 1991, the Committee filed a comprehensive

a••nd.ant for calendar year 1988 which materially corrected the

mi••tated receipts and disbur••••nt.. Further, on October 4,

1991, the Co..ittee provided the Audit staff with the mi.-tng bank

recarda. Our review indicated that the dollar value of the

activity developed by the Audit staff for the period June 14, 1988

tbrou9b Auquat 11, 1988 wa. materially correct •

••co..end.tioD 13

••••d on the above, the Audit ataff r.co...nds no further

action on tbi••atter.

D. Docuaentation for Di.bur••••nt.

Section 432(c)(S) of Title 2 of the United Stat•• Code

atat•• that the tre.surer of • political co..itt•• shall k.ep an

account of the naa. and addr... of ev.ry p.r.on to whoa any

di.bur••••nt i. aade, the dat., ••ount, and purpo•• of the

di.bur••••nt, and the n••• of the candidate and the office .oU9ht

by the candidat., if any, for whoa the di.bur••••nt wa. aade,

including a receipt, invoice, or canc.led check for each dl.b~••••nt in exce•• of $200.

Durinq our review of di.bur••••nt., the Audit staff

id.ntified 9 exp.nditure., in exc••• of $200, totalinq $8,179,

which lacked .upportinq docuaentation (i.e., receipted bill,

invoice or canceled ch.ck).

At the exit confer.nc., the A••iatant Treasurer was

provided with a photocopy of a .chedul. of di.bur••••nt. which

lacked the required .upporting docu.entation. The Coaaitte.

indicated a willinqne•• to obtain and .ub.it the appropriate documentation.

In the interim audit report, the Audit .taff reco...nded

that the Coaaitt••, obtain and sub.it doeuaentation to support the
7

di.bur••••nt. and/or provide evidence that d••onatrat.. the

Co.-itt••'. efforts to obtain ••id docu••ntation.

On October 4, 1991, in r••pon.e to the inter1. audit

report, the Committe. made available the caneeled cheeka (front

and back) which in this instance were sufficient for doeu••ntation

purpo••••

aeeo...ndation .4

Baa.d on the above, the Audit staff recommends no further

action on thil matter.

!. Disclosure of Required Information

1. Receipts

Sections 434(b)(2)(A) and (3)(A) of Title 2 of the

United State. Code state, in part, that each report under this 8ec~ion shall disclose, for the reportin; period and calendar

y••r, the total a.ount of all receipts/contributions fro~_p.rsons

other than political co.-itt•••, and the identification of each

person (other than a pol"itteal eo.-itte.) who mak•• a contribution

to the reporting co.-itte. during the reporting p.riod, who•• contribution or contributions have an a9gregate ••ount or value in

--.aces. of $200- within -the--eale-ndar---year,- -or--in----any--l-....r-- aaount

if the reporting co..itt•• should so elect, t0ge~her with the date

aad •.aunt of any such contribution.

Section 431(13)(A) of Title Z of the united Stat•• Code atat•• that the tera -identification- •••n. in the ca•• of

any indiVidual, the n..., the aailia9 addr•••, and the occupation

of .uch individual, .a vell .a the ft... of bis or her ••ployer.

Section 10•• 3(&)(4) of Title 11 of the Code of r~.r.l ••,ulationa stat••, 1n part, that the identification of

each contributor and the a9gre,ate y.ar-to-date total for .uch

contributor .hall be reported.

A co.pari.on of Co..itte. contribution records to r.po~t.d actiVity rev••led tbat for 40 contributions, totalin9

$18,625, tb. Co..itte. feiled to di.clo•• certain information.

Tbe Audit staff identified tbe aajority of preble•••• havlnq occurred within n••e, mail1ng addre••, occupation/ne.e of ••player

and a99re9at. year-to-date total••

On January 22, 1991, the Candidate v•• prOVided, via facaiaile tran••ission, a photocopy of a schedule on whieh the

.for•••ntloned irr.,ulariti•• were detailed. At the exit

conference, the A••i.tant Trea.urer indicated the Coaaitte.'.

villinqn••• to ••end its report. to correct the public record.
8

In the interi. audit report, the Audit staff

r.co...nd.d the Comaitt•• file ."nded schedul•• A to dl.clo•• the

requited infor••tion.

On Auqust 1S, 1991, in r••pon•• to the interim

audit report, the Comaitt•• filed. eoaprehensive a.end••nt which m.~.rially corrected the mi••in9 diiclo8ure information noted

above.

aeco...ndation .5

Ba••d the above, the Audit staff recommends no further action

on this matter.

2. Di.bur••••nts

Sections 434(b)(4)(A) and (S)(A) of Title 2 of the

United Stat.s Code state, in part, that each report under this ••ction shall disclos., for the reportin9 period and the calendar

year, the total aaaunt of all di.bur••••nt.' expenditure. made to

•••t candidate or co..itt•• op.ratlnq expen•••, and, the-ria•• and

addre•• of each person to whoa an exp.nditure in an &99re,ate a~UDt or value in exce•• of $200 within the calendar year is aade

by the reporting co..itt•• to •••t a candidate or ea.-itt•• -operatinq -expens., to~he-r---w-i~-~-h-e--- ~.--,-aaoutl-t-,-- --a-nd---pUl'PO.. of

.uch operatin9 expenditure.

OUr revie. of dl.clo.ure reports noted that the C~tt•• oaitted addr••••• for 51 pay••• wbo•• di.bur••••nt.

totaled $28,581.10. In aany instanc••• tbe pay•••' addr••••• were

aalntained in the Co..itt••'. di.bar....at fil•••

At the exit conf.r.ace, the A••lstant Tr•••urer

.xpr••••d the Co..itt••'. vl11in9Q••• to a..ad ita report. to

correct the public record.

In the int.ria audit report, the Audit staff

r.co...ad.d that the Co~tt•• file ...nded Schedul•• 8 to

disclos. the oaitted addr•••••• -,

On August 15, 1991, the Co..itt•• filed a

coapr.b.n.iv. a••na-ent wbich properly di.clo••d the oaitted

addr••••••

••co..endatioD 16

aa••d on the above, the Audit ataff r.co...nds no further

action on this matter.

3. D.bt. and Obligation.

Seetions 104.11(a) and (b) of Titl. 11 of the Code

of rederal aequlationa .tate, in part, that d.bt. and obli9ationl
..........

9

owed by or to a political committee which r•••in outstanding Ihall

be continuously reported until extinguished and shall be reported

on ••parate schedule. t0gether with a state.ent explainin9 the

circumstance. of the debt and obliqatton: and debts of $SOO or

1e•• muat be disclo••d on the first report filed after the debt

has been outstanding 60 days and debts over $500 must be disclosed

on the report covering the reportinq period during which the debt

was incurred.

It should be noted that for the period covered by

the di.closure reports initially filed tJune 1, :988 throu9h

October 19, 1988) no Schedules 0 for line 10 (Oebts and

Obligations owed by the Committee) were included. However, our

review of disburse.ent files (invoices, canceled cheeK', etc.)

made available revealed that the Committ.e had ou~standin9 debts

and obliqations which should have been disclosed. A recap of r.por~abl. debts and obligations outstanding-at the clos. of the

specified reporting peelod is as follows:

aeport. Number of Am.ount~/

Period Reportable to_ be

EndinQ Debts' Oblig. Reported

09/03/88 7 $3,710.26

10/19/88 14 2,520.41

11/28/88 9 3,'164.49

12/31/88 6 631.11

As required by 11 c.r.R. S 104.11 (a) debts or

obliqations which re..in outstanding at the clo•• of a reporting

period aust be continuously reported until extinguished.

At the exit conferenc., the Assiatant Tre••urer was

provided with a pbotocopy of a scbedule which detailed the debts

and obl19ations not disclo.ed. The Coaaitt•• indicated • willinqn••• to file ••efta-enta to correct the public record.

In the interia audit report, the Audit staff

r.co...nded the Co..itte. file •••nded report. to include

Sehe9ule. D, identifying debts and obligation. for the period. not~ above, and to continuou.ly report such debts and obllqations

until extinguiahed.

On Auquat 15, 1991, the Co..itt•• filed a

coaprehen.ive ••endaent which dilclo.ed 5 debts to four vendors,

totaling $1,916.77. On October 11, 1991, the Coaaittee prOVided

~/ The a.aunts repr•••nt only tho.e debt. and obliqation.

which require disclosure for the first tta., i.e., a debt

required to be disclo••d at the clo.e of the 9/3/88

reporting period and not paid at the cia•• of the 10/19/88

reportlnq period i. not included in the above total for

10/19/88.
10

docuaentatloft whicbd••oustrat.d that 15 other debts were not

owed. However, the eo~t~••'. r••pon•• failed to addr••• 16

debts to s1x vendora, to~.11n9 $1,-441.44. The A••istant Trea.urer

va. infor..d of tb••bov. oat••loft., bu~ haa not r••pOftd.d to

date. It should b. noted that the 16 undiselo••d debt. were all

paid prior to Dec.aber 31, 1988, and the related expenditur•• were

it••ized on Sehedule e .s re~~ir.d•

••co..end_tieD .7

••••d on the abov•• it is the Audit staff's opinion that no

further action is nece••ary_