Interim Report of the 

Audit Division on 

Tennessee Democratic Party 

January 1. 2005 - December 31 , 2006 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that is 

required to file reports 

under the Federal 

Election Campaign Act 

(the Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

with the AcL^ The audit 

determines whether the 

conmiittee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About tlie Committee (p. 2) 

Tennessee Democratic Party is a state party committee 

headquartered in Nashville, TN. For more information, see the 

chart on the Committee Organization, p. 2. 

Financial Activity (p. 2) 

• Federal Receipts 

Contributions from Individuals $ 1,771,653 

ConU-ibutions from Other Political Committees 234,775 

Transfers from Affiliated Party Committees 3,022,463 

Transfers from Non-federal and Levin Funds 797,430 

Other Receipts 48,176 

o Total Federal Receipts $ 5,874,497 

• Federal Disbursements 

Operating Disbursements $1,691,580 

Transfers to Affiliated Committees 211,950 

Independent Expenditures 912,496 

Coordinated Party Expenditures 712,459 

Federal Election Activity 2,237,958 

Other Disbursements 160,981 

Total Federal Disbursements $5,927,424 

• Levin Receipts 

• Levin Disbursements 

$319,869 

$319,869 

Findings and Recommendations (p. 3) 

• Non-allocable Federal Election Activity Disclosed on 

Schedule H6 (Finding 1) 

• Disclosure of Disbursements (Finding 2,') 

2 U.S.C. §438(b). 
Interim Report of the 

Audit Division on 

Tennessee Democratic Party 

January 1, 2O05 - December 31, 2006 
Table of Contents 

Parti. Baokground 

Authority fo r Audit 

Scope of Audit 

Page 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. SiMimaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Non-allocable Federal Election Acdvity Disclosed on 

Schedule H6 4 

Finding 2. I>isclosure of Disbursements 8 
Parti 

Background 

Authority for Audit 

This report is based on an audit of Tennessee Democratic Party (TDP), undertaken by the 

Audit Division o f the Federal Election Commission (the Conmiission) in accordance with 

the Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division 

conducted the audit pursuant to 2 U.S.C. §438(b), which permits the Commission to 

conduct audits and field investigations of any political conunittee that is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit under this subsection, the 

Conmiission must perform an intemal review of reports filed by selected committees to 

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

for substantial compliance with the Act. 2 U.S.C. §438(b). 

Scope of Audit 

This audit examined: 

1. The receipt of excessive contributions and loans. 

2. The receipt of contributions from prohibited sources. 

3. The disclosure of contributions received. 

4. The disclosure of disbursements, debts and obligations. 

5. The disclosure of expenses allocated between federal, non-federal, and Levin 

accounts. 

6. The consistency between reported figures and bank records. 

7. The completeness of records. 

8. Other committee operations necessary to the review. 
Part II 

Overvie'w of Committee 

Committee Organization 

Important Dates Tennessee Democratic Party 

• Date of Registration May 18,1983 

• Audit Coverage January 1,2005 - December 31, 20O6 

Headquarters Nashville, Tennessee 

Bank Information 

• Bank Depositories 2 

• Bank Accounts 7 federal, 3 non-federal, 1 Levin 

Treasurer 

• Treasurer When Audit Was Conducted Chip Forrester 

• Treasurer During Period Covered by Audit Robert Tuke & Delainia Davis 

Management Information 

• Attended FE C Campaign Finance Seminar Yes 

• Used Commonly Available Campaign 

Management Software Package Yes 

• Who Handled Accounting and Recordkeeping 

Tasks 

Overview of Financi; 

(Audited Amoiu 

Federal Cash on hand @ January 1,2005 

Paid Staff 

Ed Activity^ 

Its) 

$128,779 

o Contributions from Individuals $1,771,653 

o ConU-ibutions from Other Political Committees 234.775 

o Transfers from Affiliated Party Committees 3,022,463 

o Transfers .from Non-federal and Levin Funds 797.430 

o Other Receipts 48.176 

Total Federal Receipts $6,003,276 

o Operating Disbursements $1,691,580 

o Transfers to Affiliated Committees 211.950 

o Independent Expenditures 912,496 

o Coordinated Party Expenditures 712.459 

o Federal Election Activity 2,237.958 

o Other Federal Disbursements 160.981 

Total Federal Disbursements $5,927,424 

Federal Cash on hand @ December 31,2006 

Levin Cash on hand @ September 26,2006 

$75,852 

$0 

Total Levin Receipts $319,869 

Total Levin Disbursements $319,869 

Levin Cash on hand @ December 31,2006 $0 
Part III 

Summaries 

Findings and Recommendations 

Finding 1 - Non-allocable Federal Election ActivityDisclosed on Schedule H6 

A review of disbursements revealed that non-allocable federal election activity was paid 

with Levin funds and reported on Schedule H6 (Disbursements of Federal and Levin 

Funds for Allocated Federal Election Activity). Payments, totaling $98,321, for polls, 

automated phone banks, and campaign rallies were allocated as 21% federal and 79% 

Levin. As a result, the Levin fund paid $77,674. However, a clearly identified candidate 

running for federal office was addressed in each of the above activities/programs. The 

Audit staff recommends that TDP demonstrate that each payment represents allocable 

federal election activity. (For more detail, see p. 4) 

Finding 2. Disclosure of Disbursements 

A sample review of itemized expenditures revealed that for approximately 18% of the 

items tested TDP did not disclose the payees' addresses. The Audit staff recommends 

that TDP file amended reports to disclose the missing information. (For nnore detail, see 

p. 8) 
Part TSr 

Findings and Recommendations 

Finding 1 • Non-allocable Federal Election Activity 

Disclosed on Schedule H6 

Summary 

A review of disbursements revealed that non-allocable federal election activity was paid 

with Levin funds and reported on Schedule H6 (Disbursements of Federal and Leyin 

Funds for Allocated Federal Election Activity). Payments, totaling $98.321, for polls, 

automated phone banks, and campaign rallies were allocated as 21% federal and 79% 

Levin. As a result, the Levin fund paid $77,674. However, a clearly identified candidate 

running for federal office was addressed in each of the above activities/programs. The 

Audit staff recommends that TDP demonstrate that each payment represents allocable 

federal election activity. 

Legal Standard 

A. Reporting Allocable Expenses between Federal Funds and Levin Funds. A State, 

district, or local political party committee that makes a disbursement for Federal 

election activity that is allocated between Federal funds and Levin fund[s must state 

the category of Federal election activity for which each allocable disbursement was 

made. 11 CFl l §300.36(b)(2)(i)(B). 

B. Categories of Allocable Federal Election Activity. A State, district, or local 

political party committee may allocate disbursements between Federal funds and 

Levin funds for: 

• Voter Registration Activity; 

• Voter Identification; 

• Get-Out-The-Vote Activity; and 

• Generic Campaign Activity. 11 CFR §3O0.33(a)(l) and (2). 

C. Categories of Non-AUocable Federal Eiection Activity^ The following costs 

incurred by State, district, and local party committees and organizations must be paid 

for only with federal funds: 

• A public conmiunication that refers to a clearly identified candidate for federal 

office and that promotes, attacks, supports or opposes any candidate for federal 

office. (11 CFR §300.33(0)). 

D. Coordinated Party Expenditures. National party committees and state party 

committees are permitted to purchase goods and services on behalf of c iandidates in 

the general election—over and above the contributions that are subject to contribution 

limits described above. 

Such purchases are referred to as "coordinated party expenditures." TKey are subject 

to the following rules: 
• The amount spent on "coordinated party expenditures" is limited by statutory 

formulas that are based on the Cost of Living Adjustment (COLA) arid the voting 

age population. 

• Party committees are permitted to coordinate the spending with the candidate 

committees. 

• The parties may make these expenditures only in connection with the general 

election. 

• The party committees—not the candidates—are responsible for reporting these 

expenditures. 

• If the party committee exceeds the limits on coordinated party expenditures, the 

excess amount is considered an in-kind contribution, subject to the contribution 

limits described above. 

• A national or state party committee may assign all or part of its coordinated party 

spending authority to another party committee. 2 U.S.C. §441a(d) and 11 CFR 

§§ 109.32(b) and 109.33(a). 

E. Assignment of Coordinated Party Expenditure Limit. A political party may 

assign its authority to make coordinated party expenditures authorized by 11 CFR 

§109.32 to another political party committee. Such an assignment must be' made in 

writing, must state the amount of the authority assigned, and must be received by the 

assigned committee before any coordinated party expenditures is made pursuant to 

assignment. 11 CFR § 109.33(a) 

Facts and Analysis 

During our review, the Audit staff identified payments, totaling $98,321. for polls, 

automated phone banks, ahd campaign rallies. TDP considered these expenditures to be 

allocable federal election activity and allocated each payment as 21% federal and 79% 

Levin. As a result, the Levin fund paid $77,673 

The poll questions and the automated phone bank scripts both refer tb a clearly identified 

candidate for federal office. Invoices for expenses associated with campaign rallies were 

billed to the federal candidate's campaign but paid by TDP. It is the opinion of the Audit 

staff that these types of expenditures do not qualify as allocable federal election activity 

and should have been paid entirely by the federal account; some of which appear to 

represent coordinated party expenditures. 

Polls - TDP paid $24,500 for two statewide tracking polls conducted during the period 

October 14,2006 through October 28,2006. Poll questions related to a candidate 

running for election to the United States Senate and a candidate for Governor of 

Tennessee. The majority of the questions related to the senate election. The cost of die 

polls can not be allocated between the federal account and Levin fund since both polls 

refer to a clearly identified candidate mnning for federal office. As such, the cost should 

have been paid entirely by the federal account. The federal account should reimburse the 

Levin fund $19,355 ($24,500 x 79%). 
Automated Phone Banks - TDP paid $36,400 for two automated phone bank programs. 

The phone scripts for both programs refer to a clearly identified candidate mnning for 

federal office. such, this cost can not be considered allocable federal election activity 

and paid for with Levin funds. The federal account should reimburse the Levin fund 

$28,756 ($36,400x79%). 

Further, the cost of this program ($36,400) appears to represent coordinated party 

expenditures on behalf of Harold Ford, Jr., candidate for the United States Senate. The 

first phone script was narrated by the Governor of Tennessee (Governor Script), who was 

mnning for re-election. He asked for "your support and vote." He also asked that "you 

support Harold Ford, Jr.", and continued to speak on his behalf He closes by stating, 

"vote for me, Harold Ford, Jr., and the remaining democratic candidates running for 

election." The script concluded with a second speaker stating paid for by the Tennessee 

Democratic Party; approved and authorized by Harold Ford, Jr. for Tennessee. 

The second phone bank script was narrated by former president Bill Clinton (Clinton 

Script). He asked that "everyone go to the polls and take someone with you who hasn't 

voted." He also stated that *Tennessee has an historic chance to send Harold Ford. Jr. to 

the United States Senate," and continued talking on his behalf He ended by telling 

"everyone to go to the polls and vote." The script concluded with a second speaker 

stating paid for by the Tennessee Democratic Party; approved and authorized by Harold 

Ford, Jr. for Tennessee. 

It appears that the automated phone program was coordinated with Harold Ford. Jr. since 

the caller stated that the candidate approved and authorized each phone script. Further, 

the contracts for each phone bank program were signed by Jim Hester, representing TDP. 

And, his email addresses at both TDP and at the candidate's campaign headquarters were 

listed on one of the contracts. Finally, prior to the date of each contract. Mr. Hester was 

employed by the candidate's campaign. 

The Audit staff has allocated the cost of the Governor Script one-third (Governor), onethird (Harold Ford. Jr.), and one-third to all other (unnamed) candidates mnning for 

election. Therefore, $6,300 ($18,900 x 33%) represented a coordinated expenditure on 

behalf of Harold Ford, Jr. Further, since Harold Ford, Jr. is the only candidate named in 

the Clinton Script, the entire cost ($17,500) represents a coordinated expenditure oir 

behalf of Harold Ford, Jr. 

rampaipn Rallies - The Audit staff identified payments, associated with IZ invoices, 

totaling $37,421, which were dated in October 2006 and addressed to Harold Ford's 

campaign. The invoices denoted, "Bill to Harold Ford Jr." or "Prepared for Harold Ford 

for Senate Campaign" or "Sold to Harold Ford Jr. Campaign." Each disbursement was 

reported as generic get-out-the-vote activity and disclosed on Schedule H6 as allocable 

federal election activity. 

These payments do not appear to represent the cost of generic get-out-the-vote activities 

since the rallies appear to benefit Harold Ford, Jr. Therefore, the cost of thi s activity 
should have been paid entirely by the federal account. As such, the federal account 

should reimburse the Levin fund $29,563 ($37,421 x 79%). 

Further, the Audit staff believes these disbursements represent coordinated party 

expenditures on behalf of Harold Ford, Jr. As previously stated, the invoices contained 

notation as either billed to, prepared for, or sold to the Harold Ford Campaign. The 

invoices represented expenditures for Harold Ford campaign rallies, such as, tents, 

staging, refreshments, audio, parking and clean-up. One invoice was for custom labeled 

bottied water - label name "Ford for Tennessee Bottled Water." Another invoice 

described the event name as a "Political Rally for Harold Ford, Jr." 

Coordinated Party Expenditure Limit - TDP's coordinated expenditure limit for a United 

State Senate candidate from the state of Tennessee was $362,200. The national party 

committee has the same limit; which was assigned to TDP. Therefore, TDP could make 

coordinated expenditures of behalf of Harold Ford, Jr. in the amountof $724,400. 

TDP reported on Schedule F (Itemized Coordinated Party Expenditures Made by Political 

Party Committees or Designated Agent(s) on Behalf of Candidates for Federal Office) 

coordinated party expenditures on behalf of Harold Ford, Jr. totaling $712,459. With the 

addition of the cost for the automated phone bank ($23,800 [$6,300 + $17,500]) and 

campaign rallies ($37,421), it appears that TDP exceeded the limitation by $49,280 

($773,680 - $724,400). The normal remedy would be for the Ford campaign to 

reimburse TDP $49,280. However, since the Ford campaign transfemed $ 154,000 in 

excess campaign funds to TDP on November 6, 2006, the Audit staff considers this 

matter to be timely resolved; requiring no further action. 

This matter was discussed at the exit conference. TDP representatives received copies of 

the documentation in order to further review these issues. 

In response to the exit conference, the former director of Tennessee Victory 2006 

submitted a signed statement that addressed four campaign rally invoices, totaling 

$17,401. With respect to each, he stated Tennessee Victory 2006 expenditures were 

incorrectly invoiced to the Harold Ford Jr. campaign; the expenditures were related to 

generic get-out-the-vote activities; activities were not planned or conducted in 

coordination with any federal candidates; and, no federal candidates attended these 

events. The response did not address the polls or automated phone banks. 

Two of the invoices addressed in the response, Jackson Centre ($1,522) and Royal Reed 

Catering (Jackson Centre Menu - $8,120) contain references to Harold Ford, Jr. The 

Jackson Centre invoice refers to the event name as "Political Rally for Harold Ford. Jr." 

The Royal Reed Catering invoice "order info" section appears to have had Harold Ford, 

Jr.'s name on the first line but that information has been redacted. 

Interim Audit Report Recommendation 

The Audit staff recommends that, within 30 calendar days of service of this report, TDP 

demonstrate that expenditures: 
For polls, automated phone banks, and campaign rallies represent allocable 

federal election activity; or 

Absent such evidence, the federal account should reimburse the Levin Fund 

$77,674 (polls $19,355, automated phone banks $28,756, campaign rallies 

$29,563^ and file amended reports disclosing the expenditures on Schedule B or 

Schedule F as appropriate (see below). 

• For automated phone banks and campaign rallies do not represent coordinated 

party expenditures on behalf of Harold Ford, Jr.; or 

Absent such evidence, TDP should file amended reports disclosing expenditures 

for the automated phone banks $23,800 ($6,300 + $17,500) and campaign rallies 

($37.421) as coordinated party expenditures on Schedule F. 

Finding 2> Disclosure of Disbursements 

Summary 

A sample review of itemized expenditures revealed that for approximately 18% of the 

items tested TDP did not disclose the payees* addresses. The Audit staff recommends 

that TDP file amended reports to disclose the missing information. 

Legal Standard 

Reporting Operating Expenditures. When operating expenditures to the same person 

exceed $200 in a calendar year, the committee must report the: 

• Amount; 

• Date when the expenditures were made; 

• Name and address of the payee; and 

• Purpose (a brief description of why the disbursement was made). 2 U.S.C. 

§434(b)(5)(A) and 11 CFR §104.3(b)(3)(i). 

Facts and Analysis 

A sample review of itemized expenditures revealed that for 18% of the items testedj TDP 

did not disclose the payees' addresses. The majority of the disbursements lacking 

addresses related to canvassers whose mailing address was noted in TDP* s records. This 

issue was discussed during the exit conference. TDP representatives had no significant 

comments. 

Interim Aiidit Report Recommendation 

The Audit staff recommends, within 30 days of service of this report, TDP file amended 

reports to disclose the missing information.