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FEDERAL ELECTION COMMISSION

WASHINGTON, 0 C 20463

January 21, 1981 " ,.-..., -- --7 Y •• ... .. ,-.... .1._ .. '.' ,- y --- --_. -.- -~ - __ - -_.- --

MEMORANDUM

TO:

FROM:

SUBJECT:

, ,

FRED EILAND

PRESS OFFICE

BOB COSTA fJ(~

PUBLIC ISSUANCE OF FINAL AUDIT REPORT

AUTOMOBILE AND TRUCK DEALERS ELECTION

ACTION COMMITTEE

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Attached please find a copy of the final audit report

of the Automobile and Truck Dealers Election Action Committee

which was approved by the Commission on October 7, 19800

Informational copies of the report have been received by

all parties involved and this report may be released to the

public .

Attachment as stated

cc: FEC Library

..

\/ublic Record
• FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C 204&3

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REPORT OF THE AUDIT DIVISION - . ON THE

AUTOMOBILE AND TRUCK DEALERS ELECTION ACTION COMMITTEE

I. Background

A. Overview

This report is based on an audit of the Automobile

and Truck Dealers Election Action Committee (lithe Committee"),

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 ("the Act"). The audit was conducted pursuant to

Section 438(a) (8) of Title 2 of the 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 Secretary of the

United States Senate on July 17, 1975, reporting the National

Automobile Dealers Association (NADA), a trade association,

as its connected organization. The Committee maintains its

headquarters in McLean, Virginia.

The audit covered the period from January 1, 1977

through March 31, 1979, the final coverage date of the most

recent report filed by the Committee at the time of the aUdit.

The Committee reported a beginning cash balance on January 1,

1977 of $316,146.03, total receipts for the period of

$1,568,867.72, total expenditures for the period of $1,601,953.72

and a closing cash balance on March 31, 1979 of $283,060.03.

This audit report is based on documents and working

papers which support each of the factual statements. They

form part of the record upon which the Commission based its

decisions on the matters in the report and were available to

Commissioners and appropriate staff for review •
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• . B. Key Personnel

The principal officers of the Committee during the

r-.r f c ....... -.• i'G".r~od· a-Ua~"fad"~~e·~l-tl~a'tn·E;' "HAhd6cx; ~~r-:-·, "-Ch-&lrinan;---ciria- _. --- --~-.

Edwin J. Mullane, Treasurer.

C. Scope

The audit included such tests ·as verification of

total reported receipts and expenditures and individual

transactions: review of required supporting documentation and

analysis of Committee debts and obligations; and such other

audit procedures as deemed necessary under the circum~~ances.

II. Audit Findings and Recommendations

A. Solicitation of Non-Members

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Section l14.8(a) of Title 11, Code of Federal

Regulations, defines, in part, a trade association as a membership

organization of persons engaging in a similar or related line of

commerce, organized to promote and improve business conditions

in that line of commerce •

Section 114.7(a) of Title 11, Code of Federal

Regulations, states in relevant part, that membership organizations, or their separate segregated funds may solicit contributions to the fund from members of the organization.

Section 114.1(e) of Title 11, Code of Federal

Regulations, defines "members" as all persons who are currently

satisfying the requirements for membership in a membership

organization, trade association, co-operative, or corporation

without capital stock. Further, Section l14.l(g) of Title 11,

Code of Federal Regulations defines "soliciting" as the manner

in which the solicitation is undertaken including, but not

limited to, mailings, oral requests for contributions, and hand

distribution of pamphlets.

We determined that during the audit period, the

Committee utilized two (2) major fundraising methods. In

February of 1977 and 1978 the Committee held large fundraising

dinners (Diamond Dinners) at the conclusion of the annual NADA

convention, to which former Committee contributors were invited

and urged to purchase tickets at $150 a ticket. The second

fundraising method revolved around a formally established pledge

system which functions with the assistance of regional and state

volunteer ~hairpersons. These people are requested by the

Committee to hold meetings to which area auto dealers are invited
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and, after obtaining the required permission form in the case

of dealers who operate their businesses as corporations, the

solicitation is made on behalf of the Committee. Dealers in

attendance are asked to sign a pledge form on which they agree

to contribute a c~rtain amount, usually annually or quarterly,

to the Committee. The pledge is considered perpetually in effect

until revoked by the contributor. The Committee itself supports

this system by quarterly pledge reminders and various solicitation mailings. Committee officials have stated that under this

method, the solicitations, both personally and by mail, are

directed at the NADA "representative" at the particular dealerships

which in almost all cases is the dealer/owner himself. They have

added that the policy of the Committee regarding solicitation of

personnel of corporate members of NADA is to solicit the dealer/

owner only and not go beyond him to solicit the dealership's

stockholders, executive and administrative personnel, or their

families. Under both solicitation methods, contribution checks

and pledge forms were and are sent directly to the Committee •

It should be noted, however, that the requirement

of membership in NADA was neither implicitly nor explicity

stated in any of the Committee's solicitation material viewed

by the Audit staff during the course of the audit. When

questioned about this issue, an official admitted that the

Committee exercised no real control over who attends the pledge

solicitation meetings for the Committee. Regarding the Diamond

Dinners, the responsible Committee official stated that one of

the major reasons why the Committee has decided to discontinue

these functions was the lack of control over who was being

solicited. When discussing the method of processing contributions

made to the Diamond Dinners, the official stated that NADA

membership status was not checked.

During our review of the Committee's receipts, we

noted 13 items that were received from non-members of NADA,

indicating apparent solicitation of individuals whose dealerships were not dues-paying member of NADA at the time of

solicitation. In 12 instances contributions were actually

accepted by the Committee from individuals involved and one

(1) instance involved a pledge to contribute only. Total

contributions accepted during the audit period from non-member

regular pledge/contributors identified amounted to $1,355.00 •
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Our review of Diamond Dinner contributions disclosed

10 contributions from 10 individuals and organizations, totaling

,1\ " • __..... .$~.L<t~g ••00, .J!.Ot-~..~ela~e.~ ~~ith ~em1?er ~~ale:t:_sh.i_p~s of .N1\~A at the ., .... ~~ . tJ.me 'of the contr1Ou~10n.···Inc!ud'ed' 111 l:.nese to~a"ls weye' three' o

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(3) automobile dealer associations operating on a statewide level

as political action committees (State Pacs), that contributed a

total of $2,100, with no single contribution being in excess of $1,0~(j.!/ It

The Audit Division recommended in our letter of

audit findings that the Committee:

1) Refund the $1,355 of contributions received from

non-member solicitees in connection with the Committee ' s regular

pledge/contribution program, and provide evidence of the refunds

to the Audit staff.

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2) Refund to the contributors involved the $4,050 of

contributions received from non-member solicitees (both

individuals and the three (3) State Pacs) in connection with

the Diamond Dinner fundraisers and provide evidence of the refunds

to the Audit staff•

3) With respect to non-member solicitees who are

part of the regular pledge/contribution program, remove all those

individuals from the Committee's pledge system files and provide

documentation of the deletion or provide documentation of present

membership status in NADA.

4) Implement procedural changes and revise the

Committee's solicitation literature to reduce the incidence

of solicitation of non-members, and provide documentation of

the Committee's efforts to the Audit staff for review.

5) Disclose all refunds made in the Committee's

next disclosure report in accordance with 2 U.S.C. 434(b) (7).

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!./ State Pac officials, acting as volunteer Chairpersons, assist

the Committee by holding dealer meetings and sOliciting pledges

(with contributions under the system sent directly to the

Committee) and, in exchange, the State Pac receives 20% of the

resulting contributions thus raised for the Committee from

dealers in the particular state. Funds are transferred from

the Committee to the various participating State Pacs on the

conditions that receipt of such monies does not violate any

applicable state law and the State Pac agrees to use the funds

in connection with State and local campaigns only •
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On February 6 and May 6, 1980, the Committee

submitted acceptable documentation demonstrating refunds of

all the contributions received from non-members noted above.

The Committee has also disclosed the refunds in its reports

to the Commission. In addition, the Committee submitted

evidence of procedural changes and copies of revised solicitation 1iteratur~aimed at preventing the future solicitation

of non-members of NADA.

Recommendation

Based on the Committee's response as noted above, the

Audit staff recommends no further action in this matter.

B. Improper Use of Solicitation Guideline

Section ll4.8(e) (4) of Title 11, Code of Federal

Regulations, states that solicitations made by a trade

association and/or its separate segregated fund are subject

to the provisions of Section 114.5(a) of the Regulations.

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

Regulations, states that a guideline for contributions may

be suggested (by a trade association or its separate

segregated fund), provided that the person soliciting or

the solicitation informs the persons being solicited -

(i) that the guidelines are merely suggestions;

and

(ii) that an individual is free to contribute

more or less than the guidelines suggest

and that the (trade association) will not

favor or disadvantage anyone by reason of

the amount of their contribution or their

decision not to contribute.

During our review of the Committee's solicitation

material we noted the contribution pledge form utilized by the

Committee suggested a guideline for contributions based on the

dealer's number of new car sales during the previous year.

In discussions with Committee officials, Auditors were informed

that this was patterned after the dues structure established by

NADA in computing membership dues for automobile and truck

dealers throughout the country .
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The pledge form provided for the contributor to

indicate whether he wished to contribute on his pledge quarterly or annually, but allowed no flexibility in

determining the amount of his contribution which was rigidly

geared to the dealer's number of new car sales, as mentioned , 'dIj'o"e.- ' ~" '.-.. ,.~ -•. ." , "'j. y~_._..L __ ,.-. ,., y." -. ----.-. "" - -----~

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The Audit staff recommended in our letter of audit

findings that the Committee revise its contribution pledge

form. to comply with the requirements se~ forth apove, and

furnish the Audit staff with copies of appropriate documentation

for review.

On February 6, 1980, the Committee filed a copy of

its revised contribution pledge form which complies w~~h the

requirements of 11 C.F.R. 114.5(a) (2).

Recommendation

Based on the Committee's response as noted above, the

Audit staff recommends no further action in this matter.

C. Reporting of Interest and Investment Income

During the period of the audit, Section 434(b) (7)

of Title 2, United States Code, stated that each report of

receipts and expenditures filed with the Commission shall

disclose each contribution, rebate, refund, or other receipt

in excess of $100 not otherwise listed under Section 434(b),

paragraphs (2) through (6).

During the course of the audit we noted that the

Committee reported interest and investment income, totaling $47,212.74 for the audit period, on the detailed Summary

Schedule line for unitemized contributions, where the total

for the reporting period was listed with the notation "Interest

Income." Our audit confirmed that each instance of interest

receipt, except one (1), was in excess of $100.

The Audit staff recommended in our letter of audit

findings that the Committee file comprehensive amendments for

the periods 1977, 1978, and the first quarter of 1979, itemizing

the interest and investment income receipts as required.

On June 19, 1980, the Committee filed supplements to

its comprehensive amendments for 1977, 1978, and 1979, filed

on February 6, 1980, which included the required information.

Recommendation

Based on the Committee's response as noted above, the

Audit staff recommend~ no further action in this matter.
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Reporting of Transfers to Federal Candidates

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During the period of the audit, Section 434(b) (4) of

Title 2, United States Code, required political committees to

disclose in reports filed with the Commission the name and

address of each committee or candidate to which the committee

made a transfer of funds, together with the amount and dates

of all transfers.-

During our review of Committee expenditures, we

noted one (1) instance where the Committee failed to itemize

a $2,000 transfer to a Federal candidate, and two (2) instances

where the Committee misreported the amounts of transfers to

Federal candidates by $900 each.

The Audit staff recommended in our letter of audit

findings that the Committee include the omitted transaction

and correcting entries in its 1978 comprehensive amendment.

The omitted transaction and correcting entries were

included in the Committee's comprehensive amendment which was

filed with the Commission on February 6, 1980.

Recommendation

Based on the Committee's response as noted above, the

Audit staff recomends no further action in this matter.

E. Other Matters

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Certain other matters noted during the audit were

referred to the Office of General Counsel for their consideration •
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FEDERAL ELECTION COMMISSION

1325 K SlREET N.VV.

WASHI"'CTON.D.C. 204&3

ADDITIONAL ~ATION REG\RDING '!HIS ORGANIZATION

MAY BE LOCATED IN A OOMPLE'IED OOMPLIANCE ACrIC!t

FILE RELEASED BY 'mE cnMISSICN AND ldADE PUBLIC IN

mE PUBLIC RECDRDS OFFICE. :roR '!HIS PARTICULAR

ORGANIZATION'S COMPLETED OOMPLIANCE ACrION FILE

S1M.'LY EUR mE PRESS SlM1ARY OF MIJR /1 1~7

'mE PRESS SUMdARY WIU. PROVIDE A BR1EF HIS'IORY OF

'!BE CASE AND A ~~ OF '1BE ACrIONS TAKEN, IF }.BY.

Audit ~i!fft1

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