FEDERAL ELECTION COMMISSION

WASHINGTON. OL 20463

April 14,2000

MEMORANDUM

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

MISSOURI DEMOCRATIC STATE COMMITTEE

Attached please find a copy ofthe final audit report and related documents on

Missouri Democratic State Committee which was approved by the Commission on

April 5, 2000.

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERTlCOSTA

ASSISTANT STAFF DI~~ AUDIT DIVISION

FROM:

TO:

Informational copies ofthe report have been received by all parties involved and

the report may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library

Information Division
REPORT OF THE AUDIT DIVISION

ON

MISSOURI DEMOCRATIC STATE COMMITTEE

Approved April 5,2000

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

MISSOURI DEMOCRATIC STATE COMMITTEE

PAGE

Executive Summary

Final Audit Report 3

Background 3

Findings 5

Legal Analysis 13

Transmittal to Committee 17

Chronology 19
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

REPORT OF THE AUDIT DIVISION

ON THE

MISSOURI DEMOCRATIC STATE COMMITTEE

EXECUTIVE SUMMARY

The Missouri Democratic State Committee (the Committee) registered with the

Federal Election Commission (the Commission) on September 15, 1980 and maintains its

headquarters in Jefferson City, Missouri. 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 ofthe audit were presented to officials at an exit conference

held subsequent to the completion offieldwork on April 9, 1999 and later in an interim

audit report. The Committee's response to those findings is included in this final audit

report. The following is an overview of the findings contained in the final audit report.

RECEIPT OF ApPARENT EXCESSIVE CONTRIBUTIONS - 2 USC §§441a(a)(I)(C)

and (2)(C), 11 CFR §§I03.3(b)(3), I 10. 1(k)(3). The audit identified excessive

contributions from 16 individuals and 2 political committees totaling $80,250. Nine were

timely transferred to the Committee's non-federal account, and 4 were reattributed by the

Committee to the spouses ofthe contributors. Evidence that the contributors were

informed ofthe transfers or ofthe option to receive a refund was not presented during the

audit, nor was there evidence ofthe contributors' authorizations to reattribute their

contributions. In response to the interim report, the Committee refunded 3 contributions

totaling $25,250 and received authorization to transfer or reattribute 13 contributions; 2

contributions were not addressed. Since the Committee's contact with the contributors

concerning the transfers and reattributions was not made within 60 days ofthe

Committee's receipt ofthe contributions, this remedy is not available.

ALLOCATION OF FEDERAL AND NON-FEDERAL EXPENSES -- 11 CPR

§§106.5(g), 104.1O(b)(4), 104.3(a)(4). During a review ofthe non-federal accounts, the

Audit staffidentified disbursements totaling $223,458 which were for allocable expenses.

The federal share ofthe disbursements was $49,161. Documentation to demonstrate that

the expenses were exclusively non-federal was not provided nor was evidence that the

Committee reimbursed the non-federal account. In addition, $39,584 in refunds and

rebates received by the Committee for allocable expenses were deposited into the

Committee's federal account. The non-federal share of this amount, $30,662 should have

been transferred to the non-federal account. The Committee has not demonstrated that the

Page 1 of 20 Approved 04/05/00
non-federal account received its share ofthe $39,584 in refunds/rebates. Evidence of a

transfer of $30,662 to the non-federal account was also not provided.

JOINT FUNDRAISING ACTIVITIES - REPORTING AND RECORDI<EEPING -

11 CFR §§ 102.I7(c)(4) and (c)(8), 102.8(b)(2). The Committee participated in 3 joint

fundraising activities and received transfers totaling $150,582, representing the

Committee's share ofthe net proceeds from each joint fundraising activity. Although, the

Committee on its disclosure reports disclosed receipt ofthe net proceeds, it did not in

each case file memo Schedules A itemizing its share of the gross proceeds as

contributions from the original contributors. In addition, the Committee did not maintain

records, for contributors to the joint fundraisers, which satisfied the recordkeeping

requirements for contributions greater than $50. In response to the interim report, the

Committee filed the required memo Schedules A and provided copies ofthe necessary

records.

Page 2 of 20 Approved 04/05/00
FEDERAL ELECTION COMMISSION

WASHINGTON. DC. 204&3

A# 97-102

This report is based on an audit of Missouri Democratic State Committee

(the Committee), undertaken by the Audit Division ofthe Federal Election Commission

in accordance with the provisions ofthe Federal Election Campaign Act of 1971, as

amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle 2 ofthe

United States Code 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

ofthis title. Prior to conducting any audit under this subsection, the Commission shal1

perform an internal review ofreports filed by the selected committees to determine if

reports filed by a particular committee meet the threshold requirements for substantial

compliance with the Act. .

I. BACKGROUND

A.

REPORT OF THE AUDITDIVISION

ON

MISSOURI DEMOCRATICSTATE COMMITTEE

AUDIT AUTHORITY

B. AUDIT COVERAGE

The audit covered the period January I, 1995 through December 31, 1996.

During this period, the committee reported a beginning cash balance of $ 3,827; total

receipts for the period of $4,932,550; total disbursements for the period of$4,933,927;

and an ending cash balance of $2,4491

•

C. CAMPAIGN ORGANIZAnON

The Committee registered with the Federal Election Commission as

Missouri Democratic State Committee on September 15, 1980. The Treasurer for the

Committee, during the audit period and currently, is Ms. Donna Knight. The Committee

maintains its headquarters in Jefferson City, Missouri.

To manage its financial activity, the Committee maintained three active

federal checking accounts and two non-federal checking accounts2

• The Committee did

not maintain a separate allocation account to pay for shared federal/non-federal expenses.

I The amounts presented in this report have been rounded to the nearest dollar.

2 The Committee had two inactive accounts from prior years.

Page 3 of 20 Approved 04/05/00
•

2

The Committee's receipts were composed of contributions from individuals, other

political committees (such as PACs), transfers from affiliated and other party committees,

and offsets to operating expenditures (such as refunds and rebates).

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following categories:

t. The receipt of contributions or loans in excess of the statutory limitations

(see Finding II.A.) ;

2. the receipt of contributions from prohibited sources, such as those from

corporations or labor organizations;

3. proper disclosure of contributions from individuals, political committees

and other entities, to include the itemization of contributions when

required, as well as, the completeness and accuracy ofthe information

disclosed;

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and accuracy of

the information disclosed;

5. proper disclosure of campaign debts and obligations, including loans;

6. the accuracy oftotal reported receipts, disbursements and cash balances as

compared to bank records;

7. adequate recordkeeping of committee transactions (see Finding II.C).;

8. Proper reporting and funding of allocable expenses (see Findings II.B.

and D.); and

9. other audit procedures that were deemed necessary in the situation.

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue any ofthe matters

discussed in this report in an enforcement action.

In the Audit Report on Clinton/Gore '96 Primary Committee, Inc. (the

Primary Committee), a media program sponsored by the Democratic National Committee

(DNC) was discussed. The program was used to air a number oftelevision commercials

between August, 1995 and August, 1996 that featured President Clinton, or President

Clinton and Senator Dole. The Primary Committee Audit Report placed the cost ofthis

program at $46,580,358. It was also explained that DNC funds were routed through the

state party committees which in tum effected payment to the media vendors. The DNC

Page 4 of 20 Approved 04/05100
3

would have been required to use 65% federal funds and 35% non-federal funds to pay for

the program. These state party committees involved in effecting payment, on average

operated under more favorable FederallNon-Federal allocation ratios than the DNC.

The Missouri Democratic State Committee was one of 35 state party

committees involved with the DNC program, and paid out $2.2 million to the media

vendors which placed the television commercials. In addition, the DNC also routed

$160,000 through the Missouri Democratic State Committee for ads placed related to the

general election campaign for the Ninth Congressional District ofMissouri.3

Section 44Ia(a)(l)(C) of Title 2 ofthe United States Code and Section

IIO.l(d) of Title II ofthe Code of Federal Regulations state that no person shall make

contributions to any other political committee in any calendar year which, in the

aggregate, exceed $5,000.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. RECEIPT OF ApPARENT EXCESSIVE CONTRIBUTIONS

Section 44 Ia(a)(2)(C) ofTitle 2 ofthe United States Code and Section

110.2 (d) of Title 11 ofthe Code of Federal Regulations state that no multicandidate

political committee shall make contributions to any other political committee in any

calendar year which, in the aggregate, exceed $5,000.

Section 103.3(b)(3) ofTitle II ofthe Code of Federal Regulations states,

in part, that contributionswhich on their face exceed the contribution limitations set forth

in 11 CFR 110.1 or 110.2, and contributions which do not appear to be excessive on their

face, but which exceed the contribution limits set forth in II CFR 110.1 and 110.2 when

aggregated with other contributions from the same contributor ... may be either deposited

into a campaign depository under II CFR 103.3(a) or returned to the contributor. If any

such contribution is deposited, the treasurer may request redesignation or reattribution of

the contribution by the contributor in accordance with 11 CFR 110.1(b), 110.1(k) or

110.2(b), as appropriate. If a redesignation or reattribution is not obtained, the treasurer

shall, within sixty days ofthe treasurer's receipt ofthe contribution, refund the

contribution to the contributor.

Section 110.1(k)(3)(i)(ii)(A) and (B) ofTitie 11 ofthe Code of Federal

Regulations states that if a contribution to a candidate or political committee, either on its

face or when aggregated with other contributions from the same contributor, exceeds the

limitations on contributions set forth in II CFR 110.I(b), (c) or (d), as appropriate, the

treasurer ofthe recipient political committee may ask the contributor whether the

contribution was intended to be joint contribution by more than one person. A

, In its response to the Interim Audit Report the Committee stated that there is no justification for including

this issue in the Audit Report !t stated that the Commission concluded that the procedures used by the

DNC and the state parties are consistent with the regulations that permit national party committees to make

unlimited transfers to state party committees.

Page 5 of 20 Approved 04/05/00
4

contribution shall be considered to be reattributed to another contributor if - the treasurer

of the recipient political committee asks the contributor whether the contribution is

intended to be ajoint contribution by more than one person, and informs the contributor

that he or she may request the return of the excessive portion of the contribution ifit is

not intended to be ajoint contribution; and within sixty days from the date ofthe

treasurer's receipt ofthe contribution, the contributors provide the treasurer with a written

reattribution ofthe contribution, which is signed by each contributor, and which indicates

the amount to be reatlributed to each contributor if equal attribution is not intended.

The Audit staffs review of contributions revealed that the Committee

received contributions from sixteen individuals and two political action committees

(PAC's), which exceeded the limitation by $80,250. For 9 ofthe contributions, the

excessive portions totaling $50,000 were transferred timely (within sixty days of their

receipt) into a non-federal account. The excessive portions of 5 ofthe 9 remaining

contributions from individuals, totaling $25,000, were reattributed to spouses of the

contributors. Evidence that the Committee requested permission from the contributors to

either make the transfers to the Committee's non-federal account or reattribute the

excessive portions ofthe contributions was not presented. Nor was evidence presented to

document that the Committee informed the contributors that they may request refunds of

the excessive contributions. As of the close of audit fieldwork, no information had been

provided for the remaining 4 contributions totaling $5,250.

The Audit staff provided schedules ofthe excessive contributions to

Committee representatives during the audit fieldwork and at the exit conference and

asked them to present evidence that the contributions were not excessive. The Committee

was informed that absent such evidence, refunds to the contributors would be required.

The Committee representatives agreed to refund the excessive contributions.

In the Interim Audit Report the Audit staffrecommended the Committee

present evidence that the $72,250 in contributions from individuals and the $8,000 in

contributions from PACs were not excessive contributions. Absent such evidence, the

Audit staffrecommended that the Committee refund the excessive contributions to the

contributors and submit evidence of the refunds (copies ofthe front and back ofthe

negotiated refund checks).

The Committee stated in its response to the interim audit report that

neither the regulations nor any Federal Election Commission guidance prohibits the

transfer of the excessive portions of contributions to its non-federal account. In addition

the Committee stated that the rules governing the treatment of excessive contributions are

intended to prevent the use of funds in excess ofthe limits in federal election activity. It

further stated that while not required, the Committee requested and received written

authorization from eight contributors confinning their consent to redesignate their

contributions to its non-federal account. The Committee requested and received written

authorization from five contributors to reattribute the excessive portions of their

contributions to spouses. Three contributors requested refunds of their contributions

which totaled $25,250 and two contributions were not addressed.

Page 6 of 20 Approved 04/05/00
5

Regarding the Committee's statement that there is no regulation or Federal

Election Commission guidance that prohibits the transfer of excessive contributions to its

non-federal account, II CFR I03.3(b) states that if an excessive contribution is deposited,

the treasurer may request redesignation or reattribution of the contribution and if the

redesignation or reattribution is not obtained the treasurer shall, within sixty days of

receipt ofthe contribution, refund the contribution to the contributor.

Although requests for redesignations and reattributions from contributors

have been received, this remedy is not available to the Committee because the requests

were not made within 60 days ofthe Committee's receipt ofthe contributions. The

redesignation and reattribution letters are dated October 28 and November 9, 1999.

Ofthe $80,250 in excessive contributions identified by the Audit staff, the

Committee has refunded $25,250. Thus, excessive contributions totaling $55,000 have

not been refunded as recommended.

B. ALLOCATION OF FEDERAL AND NON-FEDERAL EXPENSES

Section 106.5(g)(I) (i) and (ii) (A) of Title 11 ofthe Code ofFederal

Regulations states, in part, that committees that have established separate federal and

non-federal accounts under 11 CFR 102.5(a)(I)(i) or (b)(l)(i) shaH pay the expenses of

joint federal and non-federal activities described in paragraph (a)(2) ofthis section

according to either paragraph (g)(l)(i) or (ii), as foHows: the committee shaH pay the

entire amount of an allocable expenses 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 the committee shall establish a separate allocation account into

which funds from its federal and non-federal accounts shall be deposited solely for the

purpose ofpaying the allocable expenses ofjoint federal and non-federal activities. Once

a committee has established a separate allocation account for this purpose, all allocable

expenses shall be paid from that account for as long as the account is maintained.

Section 106.5(a)(2) (i) and (ii) ofTitle II ofthe Code of Federal

Regulations states that committees that make disbursements in connection with federal

and non-federal elections shall allocate expenses according to this section for the

following categories of activity: Administrative expenses including rent, utilities, office

supplies, and salaries, except for such expenses directly attributable to a clearly identified

candidate; and Generic voter drives including voter identification, voterregistration, and

get-out-the-vote drives, or any other activities that urge the gencral public to register, vote

or support candidates of a particular party or associated with a particular issue, without

mentioning a specific candidate.

Section 104.10(b)(4) ofTitle 11 ofthe Code of Federal Regulations states

that a political committee that pays allocable expenses in accordance with II CFR

106.5(g) or 106.6(e) shall also report each disbursement from its federal account or its

separate allocation account in payment for joint federal and non-federal expense or

Page 7 of 20 Approved 04/05100
6

activity. In the report covering the period in which the disbursement occurred, the

committee shall state the full name and address of each person to whom the disbursement

was made, and the date, amount and purpose of each such disbursement. Ifthe

disbursement includes payment for the allocable costs ofmore than one activity, the

committee shall itemize the disbursement, showing the amounts designated for

administrative expenses and generic voter drives, and for each fundraising program or

exempt activity, as described in II CFR 106.5(a)(2) or 106.6(b). The committee shall

also report the total amount expended by the committee that year, to date, for each

category of activity.

Section 104.3(a)(4)(v) ofTitle II ofthe Code of Federal Regulations

states, in part, that unauthorized committees must report the identification of each

contributor and the aggregate year to date total for such contributor including each person

who provides a rebate, refund, or other offset to operating expenditures to the reporting

committee in an aggregate amount or value in excess of$200 within the calendar year,

together with the date and amount of any such receipt.

If a committee receives a refund or a rebate of an allocable expense, the

refund or rebate must be deposited in the federal account or allocation account. The

refund or rebate must then be allocated between the federal and non-federal accounts

according to the same allocation ratio used to allocate the original disbursement. The

federal account must transfer the non-federal portion to the non-federal account. Advisory

Opinion (AO) 1995-22 discusses methods for reporting refunds and rebates of allocable

expenses.

I. Payment ofAllocable Expenses From the Non-Federal

Accounts

The Committee maintained separate federal and non-federal

accounts and did not utilize a separate allocation account. Under this account structure,

the regulations require that all allocable activity be paid initially from a federal account

and reimbursements may be made from a committee's non-federal accounts solely to

cover the non-federal share ofthe allocable expense.

According to the Commission's Disclosure Database

approximately $4.3 million in shared expenses for AdministrativeNoter Drive activity

were identified; the federal share ofthis activity was $942,531 and the non-federal share

was approximately $3.3 million. In addition, $242,547 in disbursements for exempt

activity were identified; the federal share was $79,671 and the non-federal share was

$169,456. The exempt activity included payments for yards signs and direct mail pieces

which addressed issues and support for Bill Clinton and Democratic nominees for State

offices. The Committee reported direct contributions to federal candidates totaling

$5,500. No coordinated expenditures to federal candidates were reported.

The Audit staffreviewed disbursements from the non-federal

accounts during the audit period and identified 115 disbursements totaling $223,458

Page 8 of 20 Approved 04/05100
7

which were for allocable expenses. The disbursements were for administrative and

generic voter drive expenses such as contract services, travel reimbursements, salaries,

bonuses, printing and voter registration. In some cases the same payee received payment

from the Committee's federal account for the same type of expenses. Based on the ballot

composition ratio, the correct allocation percentage for these expenses for the audit period

was 22% federal and 78% non-federal. As a result, the federal share of these allocable

expenditures made from the non-federal accounts was $49,161.

During the fieldwork and the exit eonference, the Audit staff

provided a schedule ofthese payments to the Committee representatives. In addition, the

Audit staffrequested that the Committee provide documentation such as contracts,

memoranda or other information to demonstrate that the expenses at issue did not require

allocation and were, therefore, properly paid from the non-federal accounts. The

Committee representatives had no comment at the exit conference.

In response to the exit conference the Committee provided phone

scripts, invoices, radio and television advertisement scripts, affidavits and statements

from vendors which demonstrated that $419,119 ofthe $642,577 in expenses initially at

issue during fieldwork were attributable directly to non-federal races such as state

representative, secretary ofstate, lieutenant govemor and governor as well as for the

development ofstrategies to elect non-federal candidates, state legislative issues and

referendum initiatives on the ballot in the spring of 1996. No documentation or other

evidence was provided for the remaining $223,458 in expenses.

In the Interim Audit Report, the Audit staff recommended the

Committee:

• provide evidence that the aforementioned $223,458 in expenses paid from the

.non-federal accounts related solely to non-federal activities; or absent such a

demonstration, reimburse the non-federal account $49,161, representing the

federal portion ofthe allocable expenses paid for by the non-federal account.

In response to the Interim Audit Report, the Committee stated that

there were three special non-federal elections in 1995 and that many ofthe expenses

incurred by the Committee were exclusively non-federal. The Committee stated further

that it was unable to doeument every expense, to obtain affidavits or statements from

every vendor to document the content oftheir work. The Committee believes that the

regUlations do not require a committee to make this demonstration, but that the

regulations simply require that a committee allocate the payment ofjoint federal and nonfederal expenses. It is the opinion ofthe Committee that the Audit staff has simply

presumed, without stating a basis, that certain expenses were allocable unless the

Committee can prove otherwise.

The Committee did not provide any documentation in its response

to the Interim Audit Report which demonstrated that any of the $223,458 in expenses

were exclusively non-federal, and thereby not allocable; the recommended

Page 9 of 20 Approved 04/05/00
8

reimbursement of$49,161 was not made to the Committee's non-federal account. As

noted above these expenses were for administrative and generic voter drive costs, which

pursuant to 11 CFR 106.5(a)(2)(i) & (iv) are allocable expenses. Therefore, absent

sufficient, competent, relevant evidence to support the Committee's position, the

Committee's response is not persuasive and it remains our opinion that the Committee

must reimburse the non-federal account the federal portion of the allocable expenses paid

by the non-federal account.

2. Allocation ofRefunds and Rebates

The Audit staffs review of offsets to operating expenditures

(refunds/rebates) revealed that the Committee received and deposited into a federal

account 61 allocable refunds/rebates from vendors totaling $39,584. The refundslrebates

were related to payments ofshared federal/non-federal expenses. The non-federal share

of this amount was $30,662 which consisted of$2,172 for 11 refunds/rebates traced to the

1994 election cycle, and $28,490 for the refundslrebates related to the 1996 election

cycle.' The Committee did not reimburse or otherwise make any adjustments to account

for the non-federal share ofthese receipts.

During the fieldwork and also at the exit conference the Audit staff

provided a schedule of the refunds and rebates to the Committee representatives and

asked them to provide evidence that $30,662 was reimbursed to the non-federal account,

representing its share. The Committee representatives had no comment.

In the Interim Audit Report, the Audit staffrecommended the

Committee:

• provide evidence that the non-federal account received its share ofthe $39,584 in

refunds/rebates; or absent such a demonstration, transfer to the non-f~deral

account $30,662, representing the non-federal share ofthe refunds/rebates

deposited into the Committee's federal accounts.

In its response to the Interim Audit Report the Committee stated,

"...It is extremely difficult to track the refunds and rebates to the original

expenditures. Therefore, clerical errors are often made in redepositing

these funds... While the Committee takes the position that this transfer is

not required, it has in effect already been made. From the period January

through May 1999, the Committee a[[ocated expenditures on the following

percentages: federal 51 %, non-federal 49%. Based on the ballot

composition formula, the actual allocation should have been federal 30%

and non-federal 70%. As a consequence of this error, the Committee

, During the 1994 election cycle, the Conunittee's non-federal allocation was 71% ($3,059 x 71%

=$2,172). During the 1996 election cycle, the Conunittee's non-federal allocation was 78% ($36,525 x

78% = $28,490).

Page 10 of 20 Approved 04/05/00
9

expended approximately $25,000 more in federal funds than was required

under the regulations. Therefore, an amount almost equivalent to any

transfer that may be required based on the Audit staffs recommendation

has, in effect, already been made by the Committee. "

The Committee did not provide sufficient, competent, relevant

evidence to support this allocation error or to support that the federal account expended

approximately $25,000 more in federal funds than required. It remains our position that

the Committee must transfer $30,662 to the non-federal account, for the non-federal share

of the refunds/rebates deposited into the Committee's federal accounts.

c. JOINT FUNDRAISING ACTIVITIES - REpORTING AND RECORDKEEPING

Section 102.17(c)(8)(B) ofTitle 11 ofthe Code of Federal Regulations

states that after distribution of net proceeds, each political committee participating in a

joint fundraising activity shall report its share ofnet proceeds received as a transfer-in

from the fundraising representatives. Each participating political committee shall also

file a memo Schedule A itemizing its share of gross receipts as contributions from

original contributors to the extent required under II CFR 104.3(a).

Section 102. I7(c)(4)(ii) ofTitJe I10fthe Code of Federal Regulations

states that the fundraising representative shall collect and retain contributor information

with regard to gross proceeds as required under 11 CFR 102.8 and shall also forward such

information to participating political committees. The fundraising representative shall

also keep a record ofthe total amount of contributions received from prohibited sources,

if any, and of all transfers of prohibited contributions to participants that can accept them.

Section 102.8(b)(2) ofTitle Ilofthe Code of Federal Regulations states

that every person who receives a contribution in excess of$50 for a political committee

which is not an authorized committee shall, no later than 10 days after receipt ofthe

contribution, forward to the treasurer ofthe political committee: The contribution; the

name and address ofthe contributor; and date ofreceipt ofthe contribution. Ifthe amount

ofthe contribution is in excess of$200, such person shall forward the contribution, the

identification ofthe contributor in accordance with 11 CFR 100.12, and the date of

receipt ofthe contribution. Date ofreceipt shall be the date such person obtains

possession ofthe contribution.

I. Disclosure ofJoint Fundraising Activity

The Committee participated in three separate joint fundraising

actiVIties. One activity involved the Association of State Democratic Chairs/Dollars for

Democrats (ASDC); the other two involved the Democratic National Committee and

various state party committees, hereinafter the Democratic State Party Victory Fund, and

the Birthday Victory Fund. The Committee received transfers from these entities totaling

$150,582, which represented the Committee's share ofthe net proceeds from eachjoint

fundraising activity. Although the Committee on its disclosure reports disclosed the

Page II of 20 Approved 04/05/00
10

receipt ofthe net proceeds, it did not, in each case file memo Schedules A itemizing its

share of the gross receipts as contributions from the original contributors. Memo

Schedules A were filed in support of transfers received from the Democratic State Party

Victory Fund and the Birthday Victory Fund. Transfers from ASDC for the Committee's

share ofnet proceeds totaled $97,083. However, the Committee filed memo Schedules A

for contributions totaling only $18,427.

2. Recordkeeping for Joint Fundraising Activity

Not present in the Committee's records were itemized listings,

from ASDC, Democratic State Party Victory Fund, and the Birthday Victory Fund, of

each contributor making a contribution greater than $50 along with the date amount and

address, or for those contributors making a contribution greater than $200, name, address,

date, amount, occupation, and name of employer, as required pursuant to II CFR

I02.17(c)(4). The Committee maintained copies ofmemo Schedules A, however, these

schedules only contained the required information for contributors whose contributions

aggregated in excess of$200. Contributions oflesser amounts were included on the

Schedules A on one line labeled "unitemized receipts." Copies ofSchedules A do not

satisfy the recordkeeping requirements.

During the fieldwork and at the exit conference, the Audit staff

provided a schedule ofthe transfers to the Committee representatives and also informed

them ofthe inegularities in the reporting and recordkeeping noted above. The

Committee representatives had no comment.

In the Interim Audit Report, the Audit staffreconunended that, the

Committee:

• File the necessary memo Schedules A, itemizing as contributions from the

original contributors, its share ofthe gross receipts related to joint fundraising

activities with the Association ofState Democratic ChairslDollars For Democrats;

and

• obtain itemized listings fTOm the Association of State Democratic ChairslDollars

for Democrats, Democratic State Party Victory Fund, and the Birthday Victory

Fund of each contributor who made a contribution greater than $50 along with the

date amount and address, and for those contributors who made a contribution

greater than $200, the occupation, and name of employer, in support of the

transfers made to the Committee and submit copies ofthe listings to the Audit

staff.

In its response to the Interim Audit Report, the Committee filed the

necessary memo Schedules A related to joint fundraising activities, as well as,

itemized listings from the joint fundraising representatives of contributors who made

a contribution greater than $50.

Page 12 of 20 Approved 04/05/00
FEDERAL ELECTION COMMISSION

WASHINGTON. O,c. 20463

February 29, 2000

MEMORANDUM

Lawrence M. Noble

General Counsel

Kim Leslie Bright lfJ\

Associate General ~~sel

Rhonda J. vosdingh'?(

Assistant General Counsel

Robert J. Costa

Assistant StaffDirector

Audit Division

BY:

FROM:

THROUGH: James A. Pehrkon

Staff Director

TO:

•

Albert R. Veidlmyzen /i~V

Attorney ,

SUBJECT: Proposed Final Audit Report on the Missouri Democratic State Committee (LRA

#539)

I. INTRODUCTION

The Office ofGeneral Counsel has reviewed the proposed Final Audit Report ("Report")

on the Missouri Democratic State Committee ("Committee") dated January 24,2000. The

following memorandum provides our comments on the Report.l We concur with the findings in

the Report. If you have any questions, please contact Albert R. Veldhuyzen, the attorney

assigned to this audi1.

The Conunission's discussion ofthis document is not exempt from disclosure under the Commission's

Sunshine Act regulations, and the document should be considered in open session. 11 C.F.R. § 2.4.

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Memorandum to Robert J. Costa

Missouri Democratic State Committee Proposed Final Audit Report (LRA 539)

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II. MEDIA EXPENDITURES

The Audit Division has included infornlation in the proposed Report that relates to the

Committee's participation in a media program sponsored by the Democratic National Committee

("DNC"). The Audit Division considered these advertisements to be in-kind contributions by the

Democratic National Committee to the Clinton/Gore '96 Primary Committee ("Clinton Primary

Committee") in the context ofthe Clinton Primary Committee. According to infonnation

available to the Audit Division, and included in the Clinton Primary Committee Audit Report,

the DNC transferred funds to state party committees, including the Missouri Democratic State

Committee, for the purchase of media advertisements in order to benefit from the more favorable

federaVnon-federal allocation ratios ofthe state party committees. The Audit staffhas not

included a finding against the Committee related to these disbursements in view ofthe position

taken by the Commission with respect to these advertisements in the Clinton Primary Committee

Audit and other recent Commission decisions. While it may be appropriate to include this

summary ofthe issue in the Report of the Committee so that the Report is complete and accurate,

this issue is no longer being considered by the Commission in any context. In accordance with

the memorandum on this issue from Kim Leslie Bright to Robert 1. Costa, dated February 18,

2000, this Office recommends that the Audit Division raise with the Commission the question of

the advisability ofincluding a discussion of the media programs in the proposed Report.

Ill. PAYMENT OF ALLOCABLE EXPENSES FROM THE NON-FEDERAL

ACCOUNTS (II.B.1.)

The Audit Division identified 115 disbursements totaling $223,458 which the Committee

paid from its non-federal account that it believes should have been allocated between federal and

non-federal accounts. See 11 C.P.R. § 106.5(a)(2). Based on checks and other documents, the

Audit staff identified more than $600,000 worth of expenses which might be administrative or

voter registration drive expenses. Also, some payees who were paid from exclusively nonfederal accounts were at other times paid from federal accounts. During fieldwork, the Audit

staff requested that the Committee provide documentation that these expenditures were related

solely to non-federal activities. The Committee then supplied Audit with invoices, affidavits,

and other evidence which demonstrated that expenses amounting to approximately $400,000

were 100% non-federal. Despite the reporting and recordkeeping requirements/ the Committee

did not present any evidence that the remaining expenses in the amount of $223,458 were nonallocable. Had the Committee maintained records and properly presented the Audit staffwith

affidavits, invoices, and other evidence supporting its contention that the expenses were not

allocable, the Audit Division might have found that the expenses did not need to be allocated.

The proposed Report, however, does not explain the Audit Division's bases for concluding that

any ofthe expenses at issue should have been allocated between the federal and non-federal

accounts. Therefore, this Offlce recommends that the proposed Report be revised to show in

greater detail how the Audit Division initially identified the expenses in question as being

connected to a federal election.

The Corrunittee must report allocated disbursements and maintain all records supporting them for three

years. See I I C.F.R. §§ I04.10(b)(4), 104.1O(b)(5).

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Missouri Democratic State Committee Proposed Final Audit Report (LRA 539)

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IV. ALLOCATION OF REFUNDS AND REBATES (II.B.2.)

The Audit Division found that the Committee received and deposited into a federal

account 61 allocable refunds/rebates from vendors totaling $39,584. See 11 C.F.R. § 106.5(a)(2).

In addition to contesting the validity of requiring the allocation ofrefunds and rebates, the

Committee contends that it should be entitled to an offset as a result of an allocation ratio error

from January to May 1999, resulting in an expenditure of $25,000 more in federal funds than was

required. Although no evidence of this allocation en'or has been presented, the Committee

essentially asserts that the allocation error amount be offset against the misallocated refunds and

rebates from the 1995-96 election cycle.

This Office agrees with the Audit Division's conclusion that such an offset, at this point,

would be inappropriate. 3 Certain categories of expenses are allocable and political committees

must keep a record ofsuch allocable expenses. See 11 C.F.R. §§ 106.5(a)(2), 104.10(b)(5).

Likewise, refunds and rebates which originated from those same categories should be credited

back to the federal and non-federal accounts in the same proportions as when they were initially

disbursed as expenditures. Ot!lelwise, political committees, through refunds and rebates, could

indirectly augment their federal accounts for the purpose ofinfluencing federal elections with

non-federal funds 4

In Advisory Opinion ("AO") 1991-15, the Commission allowed a party committee to transfer an additional

$16,353.43 from its nonfederal to its federal funds to correct the effects of an erroneous allocation ratio despite the

provisions of II C.F.R. § I06.5(g)(2)(ii)(B) which provide a time limit "during which a nonfederal account may

reimburse a Federal account for the nonfederal portion of its allocable expenditures." AO 1991-15 at 2. This

transaction was pennitted because of "a good faith miscalculation ofthe proper ballot composition ratio which

resulted in an underpayment to a Federal from a nonfederal account." [d. at 3. Missouri Democratic State

Committee is distinguishable because the original allocation ratio was not in error and the underpayment (of the

refunds/rebates) was to a nonfederal account. Furthennore, at the time it issued AO 1991-15, the Commission

allowed specific retroactive changes in recognition of the fact that the new allocation regulations were significant

revisions to past practice and required a brief period of adjustment. AO 1992-2 at 4. Such is not the case in this

instance. There appears to be no Commission precedent for allowing a committee to rectify an indirect diversion of

funds (by the use of refunds/rebates) by offsetting them against an alleged faulty allocation ratio used two election

cycles later.

Arguably, the Committee's failure to properly allocate the refunds and rebates within the 60-day

requirement of II C.F.R. § I06.5(g)(2)(ii)(B) render the transactions loans or contributions "from the non-federal

account to a federal account, in violation ofthe Act." II C.F.R. § I06.5(g)(2)(iii).

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FEDERAL ELECTION COMMISSION

WASHINGTON. O.c. l04(,J

April 7, 2000

Ms. DOima Knight, Treasurer

Missouri Democratic State Committee

419 East High Street

Jefferson City Missouri 65102

Dear Ms. Knight:

Attached please find the Report ofthe Audit Division on Missouri Democratic

State Committee. The Commission approved the report on April 5, 2000.

The Commission approved Final Audit Report will be placed on the public record

on April 14,2000. Should you have any questions regarding the public release ofthe

report, please contact the Commission's Press Office at (202) 694-1220. Any questions

you have related to matters covered during the audit or in the report should be directed to

Leroy Clay or Wanda Thomas ofthe Audit Division at (202) 694-1200 or toll free at (800)

424-9530.

Robert J. Costa

Assistant StaffDirector

Audit Division

Attachment as stated

cc: B. Holly Schadler, Counsel

Ms. Whitney Bums, Consultant

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CHRONOLOGY

MISSOURl DEMOCRATIC STATE COMMITTEE

Audit Fieldwork

Interim Audit Report to the

Committee

3/1/99-4/9/99

9/20/99

•

•

Response Received to the Interim 11/9/99

Audit Report

. Final Audit Report Approved 4/5/00

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