e· FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C. 204&3

REPORT OF THE AUDIT DIVISION

ON THE

NATIONAL EDUCATION ASSOCIATION POLITICAL ACTION COMMITTEE

I • Background

A. Overview

This report is based upon an audit of the National

Education Association Political Action Committee (lithe Committee ll)

undertaken by the Audit Division of the Federal Election

Commission in accordance with the Commission's audit policy to

determine whether there has been compliance with the provisions

of the Federal Election Campaign Act of 1971, as amended (lithe

Actll). The audit was conducted pursuant to Section 438(a) (8) of

Title 2, United States Code, which, at the time of the audit,

directed the. Commission to make from time to time audits and

field investigations with respect to reports and statements filed

under the provisions of the Act.

The Committee registered with the Office of the

Secretary of the United States Senate on April 17, 1972. The Commit~ee maintains its headquarters in Washington, D.C.

The audit covered the period January 1, 1977 through

April 30, 1979, the coverage date of the most recent report filed

by the Committee at the time of the audit. The Committee reported

a beginning cash balance at January 1, 1977 of $41,916.72, total

receipts of $835,843.22, total expenditures of $416,436.97, and

a closing cash balance at April 30, 1979 of $461,322.97.

The National Education Association (NEA) is a nationwide teachers organization with an NEA association in each

state, further divided into approximately 10,500 local NEA

associations at the school district level. As of JUly, 1977,

NEA me~bership totaled approximately 1.7 million individuals.
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Generally, contributions are solicited at the local

level by payroll deduction whereby the local school district

deducts Committee contributions from members' salaries along

with ~ocal, state, and NEA dues and contributions for NEA local

and state political action committees, if any. These funds are

transmitted to the local NEA associations where local dues and

political contributions, if any, are retained. The remaining.

funds are than transmitted to the state NEA associations where

they are deposited, split, and contributions forwarded to the

Committee. Committee officials estimated that approximately

75% of the Co~ittee's contributio~s were collected by the

payroll deduction method.

Since a significant portion of the Committee's receipts

are raised at the local level and transmitted through the state

NEA associations, the Audit staff determined that, in order to test

the Committee~s overall compliance with the Act and Commission

regulations concerning solicitation and recordkeeping for contributions, a review of records maintained at the state level

would be necessary. Accordingly, two (2) state NEA associations

.were selected for review, based on their relatively large proportion of receipts transmitted to the Committee, as follows:

(l) The Pennsylvania State Education

Association, (PSEA) Harrisburg, Pa.

(2) The Michigan Education Association,

(MEA) East Lansing, Mi •.

The findings resulting from our review of records

at the state NEA affiliate level are presented following the

Committee's (Headquarter's) section of this report.

This audit report is based on documents and working

papers supporting each of its factual statements. They form part

of the record upon which the Commission based its decisions on the

matters in this report and were available to Commissioners and

appropriate staff for review.

B. Key Personnel

The principal officers of the Committee for the period

covered by the audit were Mr. John Ryor, Chairman and Mr. Terry

Herndon, Treasurer.

C. Scope

The audit included such tests as verification of total

reported receipts and expenditures and individual transactions:

review of required supporting documentation: analysis of

Committee debts and obligations; and, such other audit procedures

as deemed necessary under the circumstances.
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II. Audit Findings and Recommendations

A.' 'National Headquarters Activity'

1. Solicitation and Collection of Contributions

by Reverse Check-off Payroll Deduction Method

Section 44lb(b) (3) (A) of Title 2, United States

Code, in part, prohibits a separate segregated fund from making

a contribution or expenditure by utilizing money or anything of

',value secu~ed py dues, fees" or other monies required as a

'condition of membership in a labor organization or 'as a condition"

,of employment. Section l14.5(a) of Title 11, Code of Federal ' ,Regulations, in part, provides that fees or monies paid as a . condition of acquiring or retaining membership or employment are

monies so required even though they are refundable upon request of the payor. ' ' ",.

," ' On September 28, 1977" the Federal Election ,"

Commission filed suit against the National Education Association;

", et al, alleging that the Committee's method of soliciting and

collecting contributions by payroll deduction constituted a reverse

check-off method and, therefore, was prohibited by 11 CFR l14.5(a). ,,'Under the Committee's method which was in effect during part of

". the audit period, when a teacher signed his NEA membership application, he thereby automatically agreed, in addition to a , "deduction for dues, to a deduction for the $1.00 annual political,

contribution. If the NEA member did not want to make the contribution, he had to submit a separate written request for a refund

'rather than being able to disallow the deduction in the first place.

On July 20,1978, the U.S. District Court of the

District of Columbia granted the Commission's motion for summary

jUdgement, and held that NEA,had violated the Act when they used.

the reverse check-off system to collect contributions for'the " Committee. The Court enjoined NEA from further use of· the method " and directed them to inform their members of the lawsuit and the

Court's, decision, and to afford NEA members the opportunity of

obtaining refunds. ' . ,

B. State NEA Affiliate Activity

Overview

As indicated previously, Committee contributions are

solicited and collected at the local school district level,via

payroll deduction together with NEAdues and transmitted to

the Committee through the local association's state NEA affiliate.

In order to review this process, two (2) state NEA affiliates ' were selected for review by the Audit'staff. Their records

pertaining to Committee activity were reviewed and NEA officials

on site were interviewed. The findings resulting from this

review of Committee activity at the state NEA affiliate level

are presented below. ' " .
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Timely Deposit of Contributions Into Campaign

Depository

Section 103.3(a) of Title 11, Code of Federal

Regulations requires, in part, that all contributions received

by political committee(s) shall be deposited in a checking

account in the appropriate campaign depository by the treasurer

of the committee or his/her agent, within 10 days of receipt."

Subsequent to the audit fieldwork, Section 432(b)(2) of Title 2,

United States Code was amended to require, in part, that contributions be forwarded to the Committee treasurer within 30 days

of receipt,· or in the case of cont~ibutions in excess of $50.00,

within 10 days of receipt.

Our review of the Pennsylvania State Education

Association (PSEA) and Michigan Education Association (MEA)

payroll deduction plans indicated that Committee contributions

were deposited along with NEA dues into the state associations'

general treasury accounts. In neither instance were Committee

contributions subsequently split and transferred on to the

Committee within the 10 (30) day period as was previously (is

now) required by 11 C.F.R. 103.3(a) (2 U.S.C. 432(b) (2». In

the case of the PSEA, Committee contributions were held at the

state level and transferred in one lump sum at the end of ~he

membership year.

During our revie\'1 of the HEA, we also noted that

when the reverse check-off deduction was ruled illegal, the MEA

turned to a "special projects" concept of soliciting and raising

funds on the Committee's behalf which consisted of various

fundraising events, such as rallies and dances. Our review of

MEA records revealed that contributions raised through these·

events were deposited in a special segregated account but the

funds were not always transferred to and deposited by the

Committee in a timely manner. The length of time elapsed ranged from 7 to 79 days. .

In the interim audit report, dated November 21,

1980, the Audit staff recommended that the Committee devise and

implement written procedures to insure that contributions are

collected and forwarded within the required time periods as

cited above. It was further recommended that these written

procedures be submitted to the Audit staff for review prior to

distribution to the Committee's collection agents, locals, and

state affiliates.

On January 9, 1981, the Audit staff received

correspondence from the Committee stating that corrective

action had been taken soon after the conclusion of the audit

fieldwork to comply with the then in effect "IO-day rule" by

sending a memorandum to state affiliate officials. This
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memorandum has since been revised as a result of recent

amendments to the Act. Copies of these memoranda and related

attachments were included in the Committee's response to the

interim audit_report.

Recommendation

Since the Committee has submitted copies of written

procedures. fur-nished to off~cials of the state affiliates

advising them of the provision for timely deposit of

contributions, including guidelines for implementation,

the Audit staff recommends that no further action be taken

on this matter.

2. Payment of Fundraising Expenditures

Section 44lb(b) (2) (C) of Title 2, United States

Code, provides that a labor organization may make expenditures

for the establishment, administration, and solicitation of

contributions to a separate segregated fund to be utilized for

political purposes.

Section ll4.5(b) (2) of Title 11, Code of Federal

Regulations, provides that a labor organization may utilize

a raffle or fundraising device which involves a prize, as long

as State law permits and the prize is not disproportionately

valuable. Dances, parties, and other types of entertainment

may also be used as fundraising devices. 11 C.F.R. l14.5(b) (2)

further provides that when using raffles or entertainment to

raise funds, a reasonable practice to follow is for the separate

segregated fund to reimburse the labor organization for costs

which exceed one-third of the money contributed.

During our review of MEA fundraising events held

on behalf of the Committee, we noted that expenditures associated

with the events were paid by the MEA from general treasury funds.

Through our analysis of the proceeds and expenditures relating to

each event, we determined that the MEA paid total expenses which

exceeded 1/3 of the money contributed by $3,874.03.

As previously mentioned, on January 9, 1981, the

Committee submitted copies of written procedures which had been

furnished to Committee officials at the state affiliate level.