FEDERAL ELECTION COMMISSION AK007940

April 15, 1996

MEMORANDUM

RON M. HARRIS

PRESS CFFICER

PRESS OFFICE

TO:

FROM:

£);e-- ROBERT J. COSTA --/\;

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

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SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

NEVADA STATE DEMOCRATIC PARTY

Attached please find a copy of the final audit report

and related documents on the Nevada State Democratic Party,

which was approved by the Commission on April 2, 1996.

Informational copies of the 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

FEe Library

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REPORT OF THE AUDIT DIVISION

ON

Nevada State Democratic Party

Approved April 2. 1996

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TABLE OF CONTENTS

NEVADA STATE DEMOCRATIC PARTY

Page

Executive Summary

Final Audit Report

Background

Findings

Legal Analysis

Transmittal to Committee

Chronology

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3

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FEDERAL ELECTIC)' COt\t\1ISSION

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FINAL AUDIT REPORT

ON

NEVADA STATE DEMOCRATIC PARTY

EXECUTIVE SUMMARY

Nevada State Democratic Party (the Committee) registered

with the Federal Election Commission on July 17, 1986 as the

State Committee for the Democratic Party of Nevada.

The audit was conducted pursuant to 2 u.s.c. S438(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 of the audit were prese&ted to the Committee

after the audit fieldwork (June 16, 1994) and later in an

interim audit report. The Committee's responses have been

included in the findings set forth in this summary.

The ~ollowing is an overview of Lhe findings contained in

the final audit report.

Contributions to and/or Expenditures on behalf of Federal

Candidates - 2 U.S.C. S441a(c) and (d), 11 CFR

§110.2(b)(l), SlOO.8(b)(16), (18), SI06.1(d), and S106.5(e).

The Committee did not report any expenditures on behalf of

federal candidates. Although the Committee's records were

incomplete, the auditors determined that the Committee made a

total of $63,075 [$35,000 + $28,075] in expenditures which were

contributions on behalf of the Clinton/Gore Committee. The

auditors also dete~ined that the Committee made expenditures on

behalf of the Frien~s of Harry Reid Committee totaling $51,882

[$17,289 + $34,593]. These expenditures are in excess of the 2

u.s.c. 441a(d) limit by $34,593. However, the Committee may

designate part of the excessive campaign funds received from the

Reid Committee as a refund of excessive campaign expenditures.

Also, the Committee made expenditures on behalf of the Pete

Sferrazza for Congress Committee totaling $38,019 ($17,296 +

$7,501 + $2,422 - $1,200 v $12,000]. That amount is in excess

of the 2 U.S.C. 441a(d) limit by $17,250. In response to the

interim audit report, the Co~mittee did not agree with the

totals but failed to provide the required information requested

in the interim au~it report.

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Use of Funds from a Non-federal ~~count - 11 erR

Sl02.S(a)(I)(i) and (ii), and 11 CFR ~106.5(g)(I). T~e

Committee paid a total of $66,478 in allocable expend~tures from

the non-federal account that should have been paid from the

Committee's allocation account. Also, expenditures for federal

candidates were paid out of the allocation account ~,using the

federal share to be understated by $55,756. Based on these and

other adjustments, the federal account owes the non-federal

account $70,298. In response to the interim audit report, the

Committee agrees that the allocable expenditures should not have

been paid from the non-federal account. However, they disagree

with the allocations in the first finding and other adjustments.

Use of Petty Cash - 2 u.s.c. S432(c)(5), and 11 CFR

Sl02.11. The Committee paid $200,841 expenditures from its

petty cash fund. There was no documentation to support $21,093

of these expenditures. In addition, the Committee paid $52,879

in excess of the $100 per transaction expenditure limitation.

The Committee provided no additional information in response to

the interim audit report.

Misstatement of Financial Activity - 2 U.S.C.

S434(b)(1),(2) and (4). The Committee understated its receipts

by a net amount of $36,385, understated disbursements by a net

amount of $40,976, and overstated ending cash by $626. The

Committee responded by filing amended reports, which materially

corrected the misstatements, but did not provide missing

documentation concerning a $2,000 debit memo.

Reporting of Disbursements - 2 u.s.c. S434{b)(5)(A) and 11

CFR l04.10(b){4). The Committee failed to disclose mailing

addresses for itemized disbursements, itemized expenditures on

Schedules B that should have been itemized on Schedules 8-4, did

not file any Schedules F and were missing Schedules H-2. The

Committee materially corrected these problems by filing amended

reports except for the expenditures on behalf of federal

candidates which are in dispute.

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AK007791

AR'93-64

FEDERAL ELECTI()N C( )"'f\'ISSI0~

REPORT OF THE AUDIT DIVISION

ON

NEVADA STATE DEMOCRATIC PARTY

I. Background

A. Overview

This report is based on an audit of the Nevada State

Democratic Party (the Committee) undertaken by the Audit Division

of the Federal Election Commission in accordance with the

provisions of the Federal Election Campaign Act of 1971, as

amended (the Act). The audit was conducted pursuant to Section

438(b) of Title 2 of the 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 of this title. Prior to conducting any

audit under this subsection, the Commission shall perform an

internal r~view of the reports filed by selected committees to

determine i: the reports filed by a particular committee meet the

threshold requiTements for substantial compliance with the Act.

B. Audit Coverage

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The audit covered the period from January 1, 1991

through December 31, 1992. The Committee reported a beginning

cash balance at January 1, 1991 of $9,595; total receipts for the

period of $980,693; total disbursements for the period of

$982,846; and an ending cash balance on December 31, 1992 of

$3,576.1/ The Committee used three bank accounts for its federal

activity during this period.

c. Committee Organization

The Committee registered with the Federal Election

Commission on July 17, 1986, and maintains its headquarters in

Las Vegas, Nevada. The Treasurer of the Committee during the

1/ All figures i.n this report have been rounded to the nearest

dollar. The amounts do not foot due to discrepancies within

the Committee's reported figures.

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period covered by the audit was Ms. Debbie Todd Johnson.

Although Ms. Johnson was not available during the audit, Mr.

Richard Segerblom, President of the Committee, assisted the Audit

staff during the fieldwork.

The Committee's reports indicated that 49% of the

receipts were from transfers from the non-federal bank account,

20% from the Friends of Harry Reid committee, 16% were

contributions from individuals, 6% from political party

committees, and the rest from political action committee

contributions, loans, offsets to operating expenditures, and

other receipts.

This report is based on documents and workpapers which

support 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 the Commissioners

and appropriate staff for review.

D. Audit Scope and Procedures

The audit covered the following general categories:

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The receipt of contributions or loans in excess of

the statutory l~itations;

the receipt of contributions from prohibited

sources, such as those from corporations or labor

organizations;

proper disclosure of contributions from

individuals, political committees and other

entities, ~o include the itemization of

contributions when required, as well as, the

completeness and accuracy of the information

disclosed (see Finding 11.0.);

proper disclosure of disbursements including the

itemization of disbursements when required, as well

as, ~he completeness and accuracy of the

information disclosed {see Findings II.A., 11.0.,

and II.E.);

5. proper disclosure of Committee debts and

obligations;

6. accuracy of total reported receipts, disbursements

and cash balances as compared to Committee bank

records (see Finding 11.0.);

7. adequate recordkeeping for Committee transactions

(Finding I I .A. ) ;

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8. proper disclosure of the allocation of costs

associated with ad,inistrative expenses and

activities conducted jointly on behalf of federal

and non-federal elections and candidates (Findings

II.A. and II.E.); and,

9. other audit procedures that were deemed necessary

in t~a situation.

Unless specifically discussed below, no material

non-compliance with statutory or regulatory requirements was

detected. It should be noted that the Commission may pursue

further any of the matters discussed in this report in an

enforcement action.

II. Findings and Recommendations

A. Contributions to and/or Expenditures on behalf of

Federal Candidates

Sections 441a(c) and 441a(d) of Title 2 of the United

States Code state, in relevant part, that notwithstanding any

other provision of law with respect to limitations on

expenditures or limitations on contributions, the national

committee of a political party and a State committee of a

political party, including any subordinate committee of a State

committee, may not make any expenditure in connection with the

general election campaign of a candidate for Federal office in a

State who is affiliated with such party which exceeds, in the

case of a candidate for election to the office of Senator, or of

Representative from a State which is entitled to only one

Representative, the greater of: (i) 2 cents multiplied by the voti~; age population of the State; or (ii) $20,000, as adjusted

for ~h~ increases in the Consumer Price Index.

Section 110.2(b}(1) of Title 11 of the Code of Federal

Regulations states that no multicandidate political committee

shall make contributions to any candidate, his or her authorized

political committees or agents with respect to any election for

Federal office which, in the aggregate, exceed $5,000.

Section lOO.S(b){l6) of Title 11 of the Code of

Federal Regulations states, in relevant part, that the payment

by the state or local committee of a political party of the

costs of campaign materials (such as pins, bumper stickers,

handbills, brochures, posters, party tabloids or newsletters, or

yard signs) used by such committee in connection with volunteer

activities on behalf of any nominee(s) of such party is not an

expenditure, provided that the following conditions are met:

Such payment is not for the costs incurred in

connection with any broadcasting, newspaper,

magazine, billboard, direct mail, or similar type

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of general public communication or political

advertising. For purposes of this section, the

term "direct mail" means any mailinq(s) by a

commercial vendor or any mailing(s) made from

commercial lists.

o The portion of the costs of such activities

allocable to Federal candidates is paid from

contributions subject to the limitations and

prohibitions of the Act.

o Such payment is not made from contributions

designated by the donor to be spent on behalf of a

particular candidate or candidates for Federal

office.

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Such materials are distributed by volunteers and

not by commercial or for-profit operations. For

purposes of this section payments by the party

organization for travel and subsistence or

customary token payments to volunteers do not

remove such individuals from the volunteer

category.

Campaign materials purchased by the national

committee of a political party an.d delivered to a

State or local party committee, or materials

purchased with funds donated by the national

committee to such State or local committee for the

purchase of such materials, shall not qualify under

this exemption.

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Sections lOO.9(b)(18)(i), (ii), (iv), (v) and (vii) of

Title 11 of the Code of Federal Regulations state, in part, that

the payment by a State or local committee of a political party

of the costs of voter registration and get-out-the-vote

activities conducted by such committee on behalf of the

Presidential and Vice Presidential nominee(s) of that party is

not an expenditure for the purpose of influencing the election

of such candidates provided that the following conditions are

met:

o Such payment is not for the costs incurred in

connection with any broadcasting, newspaper,

magazine, billboard, direct mail, or similar type

of general public communication or political

advertising. For purposes of this section, the

term "direct mail" means any mailing(s) by a

commercial vendor or any mailing(s) made from

commercial lists.

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o The portion of the costs of such activities

allocable to Federal candidates is paid from

contributions subject to the limitations and

prohibitions of the Act.

o If such activities include references to any

candidate(s) for the House or Senate, the costs of

such activities which are allocable to that

candidate(s) shall be an expenditure on behalf of

such candidate(s) unless the mention of such

candidate(s) is merely incidental to the overall

activity.

o Payment of the costs incurred in the use of phone

banks in connection with voter registration and

get-out-the-vote activities is not an expenditure

when such phone banks are operated by volunteer

workers. The use of paid professionals to design

the phone bank system, develop calling instructions

and train supervisors is permissible. The payment

of the costs of such professional services is not

an expenditure but shall be reported as a

disbursement in accordance with 11 CFR section

104.3.

o Payments made from funds donated by a national

committee of a political party to a state or local

party committee for voter registration and

get-out-the-vote activities shall not qualify under

this exemption. Rather such funds shall be subject

to the limitations of 2 U.S.C. 441a(d) and 11 CFR

110.7.

Section 106.1(d) of Title 11 of the Code of Federal

Regulations states that, for purposes of this section, clearly

identified means: the candidate's name appears; a photograph or

drawing of the candidate appears; or the identity of the

candidate is apparent by unambiguous reference.

Section 106.5(e) of Title 11 of the Code of Federal

Regulations provides, in relevant part, that each state party

committee shall allocate its expenses for activities exempt from

the definition of expenditure under 11 CFR 100.B(b)(lB), when

conducted in conjunction with non-federal election activities,

according to the proportion of time or space devoted in a

conununication. In the case of a publication, this ratio shall

be determined by the space devoted to federal candidates or

elections as compared to the total space devoted to all federal

and non-federal candidates or elections. In the case of a phone

bank, the ratio shall be determinea by the number of questions

or statements devoted to federal candidates or elections as

compared to the total number of questions or statements devoted

to all federal and non-federal candidates or elections.

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During the audit fieldwork the Committee's records did

not contain contracts, invoices, receipts, or bills to establish

the purpose of most of the Committee's disbursements as 'they

related to its efforts on behalf of candidates in the 1992

General Election. This was especially the case for the larger

disbursements the Committee made over the last six months of

1992. Documentation for many of the smaller disbursements made

reference to the Cli~~ton/Gore Committee (Clinton Committee) and

Senator Reid's campaign. In some cases the invoices were made

out to Friends of Harry Reid (Reid Committee). Further,

personnel familiar with these disbursements were no longer with

the Committee. The Committee reported no expenditures on behalf

of federal candidates on Schedule F, Coordinated Expenditures,

in any of their disclosure reports.

At the end of fieldwork, the Audit staff requested

additional documentation and information concerning the

Committee's disbursements. Based on the information submitted,

it was determined that the Conunittee had made expenditures on

behalf of federal candidates in the form of programs requiring

allocation among several candidates as well as disbursements

that were apparently on behalf of a particular candidate. Each

group of disbursements is discussed below.

1 . Expenditures Allocated Among Different Candidates

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The Committee had two programs that involved more

than one candidate. The first was a phone bank operated by

Telemark for which the Committee paid $100,000. After the

conclusion of fieldwork, the Committee submitted a script used

by the vendor. The script contained only four questions. One

question asked what was the most important problem facing

Nevada. The other three questions involved candidates. The

first question asked who the re~pondent supporte~ in the U.S.

Senate race, Senator Reid or the Republican cand1date. The

second question involved the race for the u.s. Congress, and

asked whether the person supported the Democratic candidates,

Bilbray or Sferrazza, or the Rep~blican candidates. The last

question dealt with the State Assembly race. In addition to the

amounts paid to Telemark, there are payments to two other

vendors that appear to be related to this program, Metromail

($2,361) and Passkey ($1,419).

In the Audit staff's 0p1n10n, one-third of these

costs should ~dve been allocated to Senator Reid and one-sixth

to each Co~g~~5sional candidate.~1

2/ The ~,-r~ion of the payments to Telernark allocable to the

Reid ~~~~ittee was $33,333. Telemark was paid in two

ins~~l: ~en~s on September 10, and October 26: 1992.

Betv~.2~ Sep~ember 9 and November 9, 1992, the Reid

Co~!~_· ~c ~~~~sf~~=cd S12~,540 in excess campaign funds to

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The other program invclved a poll for which the

Committee paid Evan McDonough, Inc. $5,490. The Committee did

not supply the script{s) used for this poll. However, they did

supply additional information from the vendor. The

documentation states, in part, that the polling was designed to

assess the political climate in the state of Nevada with regards

to the upcoming general election. Information found in the data

includes responses to specific vote questions (Presidential,

Senate and Congressional races). It appears that the questions

in the poll focused mainly on federal election activity.

Without additional information concerning the

questions asked and the distribution of the results of the poll,

the Audit staff was of the opinion that the costs should be

allocated, one-third Clinton/Gore, one-third Senator Reid, and

one-sixth for each of the two congressional candidates.

In the interim audit report, the Audit staff

recommended that the Committee submit any information or

documentation to demonstrate why the disbursements detailed

above should not be considered 2 U.S.C. S441a(d) expenditures

and allocated among the Senate and Congressional candidates as

specified in the finding. Also, why one-third of the

expenditure to Evan McDonough, Inc. was not a contribution on

behalf of the Clinton/Gore Committee, rather than an exempt

expenditure under 11 CFR SlOO.8(b)(18). Further, with respect

to the poll, the information was to include a copy of the script

used and documentation establishing the distribution of the

information obtained.

In response to the interim audit report, the

Committee submitted an affidavit from the Director of Field

Operations and the Director of the Coordinated Campaign for the

Committee for 1992. According to the affidavit, Telemark called

targeted individuals to ask four political questions. Three of

the questions were about specific candidates. The results of

the polls were used by the Nevada State Democratic Party -for

the purposes of updating the Committee's voter files, to get a

general sense of the voters' views toward the Democratic

candidates and the Democratic Party, and to determine who to

target for the Committee's electi0n day Get-Out-The-Vote

program ...

The Committee states further that the polls were

for the purpose of the long term development of the Committee's

voter file as well as in connection with generic

get-out-the-vote activities, and no allocation to any candidate

is necessary. The Committee goes on to conclude that there is

no basis for the auditors contention that the Committee's

payments were used for anything other than voter identification

pursuant to 11 CFR l06.5la\(2)(iv).

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This regulation cites generic voter drives

including voter identification, voter registration, and

get-out-the-vote drives, or any other activities that urge the

general public to register, vote or support candidates of a

particular party or associated with a particular issue, without

mentioning a specific candidate. As stated above, the script

provided by the Committee for this activity mentioned specific

candidates. Therefore, these costs should be allocated

one-third to Senator Reid and one-sixth to each Congressional

candidat.e.

Also, the Committee supplied the script used by

Evan McDonough, Inc. to conduct a series of political polls.

The script contained 49 questions, a number of which were

general in nature and not related to a specific candidate.

According to the Committee, the 55,490 payment was a partial

payment for invoices totaling approximately $85,000. The

remaining amount was paid by the Reid Committee and the

Democrat~c Senatorial Campaign Committee. The portion paid by

the Committee represe~ted a reasonable allocation (6%) of the

benefit derived by the Committee and was apportioned pursuant to

11 CFR 106. 4 (e) •

After reviewing the additional information, the

Audit staff agrees that there is no need to allocate this

expenditure to any candidate committee.

2 . Clinton/Gore

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The Committee paid another vendor, Joyce

Advertising, a total of $35,000 from the allocation account for

what appeared to be television and radio production, and

possibly air time, for the Clinton Committee. The invoice from

the vendor has printed on it "Re: Clinton/Gore Victory '92

Political (Northern & Southern Nevada Statewide) Television -

Radio - Production". Other information submitted indicates that

this may include air time for television and radio spots.

According to the Committee, this was not an expenditure on

behalf of the Clinton Committee, but a generic party

advertisement: however, no additional documentation beyond the

invoice was provided.

In addition, the Chairman of the Committee

thought that two payments to Bona~za Printing for $28,075 were

expenditures on behalf of the Clinton Committee. However, no

information on the nature or use of the printed material was

available. Based on the information provided, the interim audit

report concluded that the expenditures on behalf of the Clinton

Conunitt€'e totaled $64,905 ($1,830 frofl Section 1 + $35,000 +

$28,075) .

The Committee was not authorized by the

Democratic National Committee to make expenditures on behalf of

the Clinton Committee.
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In the interim audit report, the Audit staff

recommended the Committee demonstrate that it did not make a

contribution on behalf of the Clinton Committee. The Committee

was to submit additional documentation, such as 8 script for the

commercial(s) run or produced by Joyce Advertising and copies of

the materials produced by Bonanza Printing. If any materials

produced qualified as exempt expenses pursuant to 11 CFR

§100.8(b)(18), the material submitted should include information

supporting the exemption claimed.

Contrary to earlier indications, in the response

to the interim audit report, the Committee stated that they were

unable to locate copies of the advertisement. The Committee

submitted an affidavit from the former Chairman of the

Committee. According to the affidavit submitted, the ads

contained generic "Vote Democratic" message. The ads did not

refer to the presidential candidate or any other specific

candidate.

Since the Committee did not supply the specific

information requested in the interim audit report, or submit any

documentation of the attempts made to get this information, the

Audit staff is of the opinion that these expenses should still

be considered a contribution on behalf of the Clinton Committee.

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information regarding the $28,075 paid to Bonanza Printing. The

Committee submitted another affidavit from the former Chairman

stating that $23,824 was for bumper stickers, signs, brochures

and other campaign paraphernalia. Some specifically mentioned

Bill Clinton and Al Gore. The affidavit continues, that since

these materials were distributed by volunteers they are exempt

expenditures on behalf of federal candidates under 11 CFR

§lOO.8(b) (16).

The response continues that the other payment for

$4,251 was for office supplies and administrative materials,

such as Committee letterhead, business cards and voter ballot

cards. The Committee sent in samples of the materials supplied

by Bonanza Printing.

The Committee did not submit copies of materials

produced by Bonanza Printing to support the $23,824 payment and

any docwnentatio{i to support that the materials were distributed

by volunteers. The Committee did not submit documentation from

Bonanza Printing to support that the samples submitted could be

associated with the payment for $4,251.

The Committee has not submitted sufficient

documentation to establish that the $28,075 paid to Bonanza

Printing are not contributions on behalf of the Clinton

Conunittee.

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3. Friends of Harry Reid

The Audit staff noted many smaller expenditures

with invoices made out to Friends of Harry Reid or with a

notation indicating that the expenditure was for Senator Reid.

These disbursements totaled $17,289. The Committee shared

several offices with ~he Reid Committee and some employees were

on the payroll of both committees. Some of these payments were

for phone banks, including phone bank workers, apparently

operated from the joint offices. The Committee did not maintain

records on the phone banks operated from these offices that

would identify the vendors, the personnel involved, and the

scripts used. The expenditures the Audit staff were able to

identify, as made on behalf of the Reid Committee, totaled

$53,712 ($36,423 from Section 1 + $17,289).

The Audit staff noted that the Democratic

Senatorial Campaign Committee (OSeC) reported a total of

$108,961 of 2 U.S.C. §441a(d) expenditures on behalf of the Reid

Committee. The combined national and state party limit on

behalf of a u.s. Senate candidate is $110,480 for the state of

Nevada. The OSCC reported that they had been designated to make

these expenditures by the Democratic National Committee and the

Committee. The Committee Chairman also stated that the DSeC was

designated as the agent of the state party to make 441a(d)

expenditures on behalf of the Reid Committee.

The $5,000 contribution l~it under 11 CFR

S110.2(b)(l) was applied to determine if the Committee exceeded

the l~itations on behalf of the Reid Committee. If the

expenditures made by the DSCC are combined with the Committee'S

expenditures on behalf of the Reid Committee, the Committee

exceeded the limitation by $47,193 ($108,961 + $53,712 -

$110,480 - $5,000).

In the interim audit report, the Audit staff

recommended the Committee demonstrate that it did not exceed the

2 U.S.C. S441a(d) limitation for expenditures made on behalf of

the Reid Committee. The information submitted was to include

documentation for any phone banks operated by Committee

personnel and include scripts, associated telephone charges and

payroll expenses. Evidence submitted was also to include an

explanation and documentation to establish the extent of the

Committee'S coordination with the Reid campaign or its agents

with regard to these expenditures, and any other explanation or

documentation that the Committee believed was relevant to this

issue.

Absent a demonstration that the Committee did not

exceed the spending limitation, since the Reid Committee donated

$204,696 in excess campaign funds, the Committee could submit a

statement designating part of this donation as a refund of the

excessive expenditure.

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In response to the inter~ audit report, the

Committee stated that, as they had previously explained, $36,423

should not be allocated to the Reid Committee. The Committee

agrees with the Audit staff that $17,289 should have been

allocated. The Committee attributed $5,000 of this amount as an

in kind contribution to the Reid Committee. As part of the

$204,696 excess campaign funds transferred to the Committee,

$12,289 was designated as a refund of the excessive

expenditures.

Based on the Committees response to Section 1 of

this finding, the Audit staff is of the opinion that an

additional $34,593 should be allocated as expenditures on behalf

of the Reid Committee. Only the share of the Evans McDonough,

Inc. expenditure, $1,830 ($5,490 x 1/3) should be deleted. As a

result, the Committee would still have to designate an

additional $34,593 ($36,423 - $1,830) as a refund of excessive

expenditures.

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4 . Pete Sferrazza f~r Congress Committee

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The Committee supplied invoices from Passkey,

many of which refer to a mailing of brochures done on behalf of

Pete Sferrazza. The amounts total $8,501. The Committee

Chairman believed that this activity may be related to a payment

by the Committee to the Operating Engineers Local 3 in the

amount of $2,422 for producing the brochures mailed by Passkey.

The cost of the brochures was reported by the Pete Sferrazza for

Congress Committee (Sferrazza Committee) as an in-kind

contribution from the Committee. From information supplied by

the vendor, there was an additional payment of $1,000 paid by

someone other then the Committee. The Audit staff located a

$1,000 payment to this vendor on the Sferrazza Committee's

disclosure report. This leaves a balance of $7,501, apparently

paid by the Committee. It was also noted that an additional

$4,920 was posted as a payment to the Committee's account with

Passkey. The source of this payment was unknown .

The Committee also paid Valley Print and Mail

$12,000 for three mailings on behalf of the Sferrazza Committee.

The Committee did not have any examples of the materials mailed

by this vendor. The expenditures on behalf of Sferrazza

Committee total $40,134 ($18,211 from Section 1 + $7,501 +

$2,422 + $12,000).

The Audit staff noted that the Democratic

Congressional Campaign Committee (DCCC) reported a total of

$34,471 of 2 U.S.C. S441a(d) expenditures on behalf of the

Sferrazza Committee. The combined national and state party

limit on behalf of a u.s. Congressional candidate is $55,240 for

the state of Nevada. The DeCC reported that they had been

designated to make these expenditures by the Democratic National

Committee and the Committee.

Pa~e 13, Approved 4/2/96
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The Audit staff was provided with a copy of a

letter dated October 21, 1992, designating the DCCC to make

441a(d) expenditures up $10,000 on behalf of the Sferrazza

Committee as the agent of the state partYft In addition, the DNe

Services Corporation also reported coordinated expenditures on

behalf of the Sferrazza Committee of $3,058.

The interim audit report concluded that

expenditures on behalf of the Sferrazza Committee were in excess

of the limitation by $22,423 ($34,471 + $3,058 + $40,134

$55,240). The Committee could have contributed up to $5,000

directly to the Sferrazza Committee, but only contributed

$3,800. This would decrease the amount in excess of the limit

to $21,223 ($22,423 - $1,200).

In the interim audit report, the Audit staff

recommended the Committee demonstrate that it did not exceed the

2 U.S.C. §441a(d) limitation for expenditures mad~ on behalf of

the Sferrazza Committee. Evidence submitted was to include an

explanation and documentation establishing the extent of the

Committee's coordination with the Sferrazza campaign or its

agents with regard to these expenditures, examples of the

materials mailed by Valley Print and Mail, whether any of the

materials produced or mailed may be considered exempt pursuant

to 11 CFR SlOO.8(b)(16), and any other explanation or

documentation that the Committee believed was relevant to this

issue. Also, the Committee was requested to identify the source

of the $4,920 payment posted to the Committee's account with

Passkey.

Absent a demonstration that the Committee did not

exceed the spending limitation, it was recommended that the

Committee seek a refund of $21,223 from the Sferrazza Committee.

In response to the interim audit report, the

Committee acknowledged that they did not allocate costs totaling

$21,923, consisting of $7,501 payments to Passkey, $2,422

payment to Operating Engineers Local 3, and $12,000 payments to

Valley Print and Mail. However, they did not think they should

allocate the amounts from Section 1 of this finding totaling

$18,211.

The Committee also disagreed with allocating the

$34,171 the DCCC reported as a 2 U.S.C. §441a(d) expenditure.

The Committee submitted a letter from the candidate stating that

the funds were used for media services for October 16, 1992.

His letter continues, that the OCCC sent generic video spots

which were not used and returned with the understanding that the

$34,171 would be backed out of the report.

The Committee also submitted a letter f~~m the

ONC Deputy General Counsel changing the $3,058 2 u.s.c. ~141a(d)

expenditure to an in-kind contribution.

Pace
Concerning the $34,171 expenditure made by the

eccc, the Committee did not submit anything from that

organization acknowledging that they had incorrectly reported

this activity as a 2 U.S.C. S441a(d) expenditure on behalf of

the candidate.~1

For the reasons previously stated, $17,296 from

Section 1 should still be allocated to the candidate. The

expenditures on behalf of Sferrazza Committee total $38,019

[$17,296 from Section 1 + $7,501 • $2,422 - $1,200 + $12,000].

Until the DCCC acknowledges that the $34,171 was incorrectly

attributed to the candidate and amends their reports, the

$34,171 should be considered an expenditure on behalf of the

candidate. With the additional $34,471 the 2 U.S.C. S441a(d)

expenditures on behalf of the candidate total $72,490. As a

result: expenditures on behalf of the Sferrazza Committee are

still in excess of the l~itation by $17,250 ($72,490 -

$55,240). The Committee did not supply the source of the $4,920

payment to Passkey.

B. Use of Funds from a Non-federal Account

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Sections 102.5(a)(1)(i) and (ii) of Title 11 of the

Code of Federal Regulations state, in part, that a political

committee that finances activity with respect to both federal

and non-federal elections shall either: establish a separate

federal account in a depository, such account shall be treated

as a separate federal political committee which shall comply

with the requirements of the Act and all disbursements,

contributions, expenditures and transfers by the committee in

connection with any federal election shall be made from its

federal account; or, establish a political committee which shall

receive contribution~ subject to the prohibitions and

limitations of the ACL, regardless of whether such contributions

are for the use in connection with federal or non-federal

elections.

Section 106.5(g)(1) of Title 11 0: the Code of Federal

Regulations provides that committees that have established

separate federal and non-federal accounts under 11 CFR 102.5

shall pay the expenses of joint federal and non-federal

activities as follows: (i) pay the entire amount of an

allocable expense from its federal account and transfe~ funds

from its non-federal accoun~ to its federal account solely to

cover the non-federal share of that allocable expense; or (ii)

establish a separate allocation account into which funds from

its federal and non-federal accounts shall be deposited solely

for the purpose of paying the allocable expenses of joint

federal and non-federal activities.

3/ The Audit staff reviewed the indexes and could not locate

an amendment by DCCC reversing the $34,171 previously

reported.

Page 15, ~~raved 4/2/96
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Most of the Committee disbursements during the audit

period were made from an allocation account established under 11

CFR Sl06.5(g)(1)(ii). Except as noted below, approx~tely 43\

of the funds in the allocation account should have come from the

federal account. Most of the disbursements were reported on the

Committee's Schedules H-4, Joint Federal/Non-Federal Activity,

using this percentage. However, during the audit period the

federal account transferred $34,246 more then the required 43\.

The Committee also made disbursements from the

non-federal account that were, in some cases, to the same

vendors or involved the same type of activity as the

disbursements made from the allocation account. The Committee

did not supply invoices, receipts, bills, or an explanation for

most of the disbursements during fieldwork. Most of the

information was obtained from the canceled checks or the

Committee check register.

In reviewing the disbursements made from the

non-federal account, the Audit staff attempted to eliminate

disbursements that appeared to benefit only state and local

candidates. During the period of 1991 and 1992, there were a

total of $227,650 in disbursements, excluding transfers to the

allocation account, made from this account. Based on the

information provided, the Audit staff determined that $151,597

appeared to benefit only state and local candidates. Without

additional documentation, in the Audit staff's opinion, the

remaining disbursements of $76,053 should have been made from

the allocation account. Also, the federal account should

reimburse the non-federal account 43\, $32,703 of the $76,053

that should have been p~id from the allocation acc~unt.

In addition, many of t~3 disbursements in Finding

II.A. were paid from the allocation accoun~. Therefore, only

43\ of the funds used to pay the 2 U.S.C. S441a(d) expenditures

were federal funds. The correct fedEoL' J 1 at.are should have been

50\, 67\, and 100\. Based on these =Q~ustments, the federal

account should reimburse the non-f~G~:~i account an additional

558,885.

In determining the feder~~ )ccount1s total liability

to the non-federal account, t~.~ ·s~~0wina additional adjustments

should be considered: -

The Committee rece~ved $1,600 from the ONC

Non-Federal Corporate Account that was deposited in

the federal bank account (Finding II.O.)i

the Committee transferred a net amount of $18,602

from the non-federal bank account directly to the

federal bank account (Finding 11.0.);

Page 16, ~-pr-oved 4/2/96
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as previously stated, during the audit period the

federal account transferred $34,246 more then the

required 43\ to the allocation bank account.

The total adjusted amount the federal account has

underpaid is $77,544 ($32,703 + $58,885 + 1,600 + $18,602 -

$34,246). The Audit staff provided the Committee with schedules

of the non-federal account disbursements questioned at the close

of fieldwork.

In the interim audit report, the Audit staff

recommended that the Committee submit documentation to establish

that the $76,053 did not represent the allocable portion of

disbursements benefiting both federal and non-federal

candidates, and as such, should have been paid from the

allocation account. Absent such a demonstration, the federal

account should transfer $i7,544 to the non-federal account or

report a debt to the non-federal account on an amended year end

disclosure report for 1992.

In response to the interim audit report, the Co~ittee

di.d not agree that the Committee's federal account owed the

non-federal account $77,544. They do not agree that the

non-federal account made $76,053 in allocable expenditures.

According to the Committee, $9,575 was used for non-federal

purposes. The Committee submitted an affidavit to explain the

reasons for not including these expenditures. The Audit staff

agrees with the Committee's explanation, and only $66,478 should

have been paid from the Committee's allocation account.

Therefore, the federal account owes the non-federal account

$28,586 ($66,478 x 43%) for this activity.

As previously stated, the Committee did not think any

of the expenses in Section A.l. of this report should be

allocated to federal candidates. Based on the Committee

response, the only adjustment should be for the expenditures to

Evans McDonough, Inc. Therefore, the corrected amount is

$55,756.

In the response, the Committee does not think the Audit

staff gave the Committee credit for a $5,000 transfer from the

federal to the non-federal account. In fact, this $5,000 was

part of the $18,602 net amount the Committee transferred from the

non-federal bank account. Therefore, the Committee received

credit for the $5,000 in the interim audit report. The Committee

did not dispute the other adjustments in the interim audit

report. The revised amount the federal account owes to the

non-federal is $70,298 ($28,586 • $55,756 + $1,600 + $18,602 -

$34,246). According to the Committee response, the federal

account only owes $19,296 to the non-federal account.

Page ~. I .~proveC 4/ '96

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C. Use of Petty Cash

Section 102.11 of Title 11 of the Code of Federal

Regulations states, in part, that a political committee may

maintain a petty cash fund out of which it may make expenditures

not in excess of $100 to any person per purchase o~ transaction.

If a petty cash fund is maintained, i~ shall be the duty of the

treasurer of the political committee to keep and maintain a

written journal of all disbursements. This written journal shall

include the name and address of every person to whom any

disbursement is made, as well as the date, amount, and purpose of

such disbursement.

Section 432(c)(5) of Title 2 of the United States Code

states the treasurer of a political committee shall keep an

account of the name and address of every person to whom any

disbursement is made, the date, amount, and purpose of the

disbursement, and the name of the candidate and the office sought

by the candidate, if any, for whom the disbursement was made,

including a receipt, invoice, or canceled check for each

disbursement in excess of $200.

During the audit period the Committee made numerous

cash disbursements. The Committee wrote checks totaling $200,841

to petty cash from the allocation account and paid individuals

and vendors with the funds. During fieldwork the Committee did

not have the petty cash records organized to accommodate an

efficient review of the records. Copies were made of these

records and sent to the Commission where they could be organized

by the Audit staff for review after the fieldwork.

The majority of the petty cash payments were for

"Bounty". Bounty represents payments to individuals of $2 for

each new Democratic voter registered. It should be noted that

the Committee made multiple payments to some individuals on a

given day which were added together for a daily total. In many

of these cases, the daily total was composed of 2 or 3 payments

of $100 each with the last payment less than $100. The

Committee's records contained prenumbered receipts for the

majority of these payments. When multiple payments on a day

occurred the supporting receipts are generally consecutively

numbered.

Another project involving petty cash payments was

election day "Poll Watchers". These individuals would hand out

election day paraphernalia at the polls. They were paid $60

each.

1. Supporting Documentation for Petty Cash

Disbursements

The Committee maintained some type of record for

most petty cash disbursements. However, not all of the

documentation the Committee submitted was associated with a

Page 18, Aoproved .;/2/96
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specific petty cash check. A total of $85,704 in petty cash

checks had supporting documentation attached to the checks. The

Audit staff attempted to associate the remaining documentation

with unsupported ch~cks by date. Through this process, an

additional $90,644 in petty cash disbursements was supported.

Of the Committee's $200,841 petty cash

expenditures, the Audit staff was unable to locate documentation

for $21,093. In addition to the $21,093 not documented, $3,400

was stolen from the Committee on July 10, 1992.

2. Petty Cash Payments in E~~ess of $100 Limitation

There were many disbursements that exceeded the

$100 limit under 11 CFR §102.11. The Audit staff identified 271

petty cash payments to 72 individuals totaling $78,031 of which

$50,931 exceeds the $100 limitation to any person per purchase or

transaction. Given the payment patterns and consecutively

numbered receipts described above, for purposes of this review,

all payments to an individual on a particular day were totaled as

one transaction in order to apply the $100 limitation. Also, the

Committee made 11 petty cash payments to nine (9) vendors

totaling $3,048 of which $1,948 exceeds the $100 limitation.

In the interim audit report, the Audit staff

recommended that the Committee provide records that support the

$21,093 in undocumented petty cash payments and also demonstrate

that the $52,879 ($50,931 + $1,948) of petty cash payments are

not i~ excess of the $100 expenditure limitation.

In response to the interim audit report, the

Committee did not contest the $21,093 and did not comment on the

$52,879.

D. Misstatement of Financial Activity

c"

Sections 434(b)(l), (2) and (4) of Title 2 of the

United States Code state, in part, that each report shall

disclose the amount of cash on hand at the beginning of the

reporting period, and the total amount of all receipts and

disbursements for each reporting period and calendar year.

Section 434(b)(S) of Title 2 of the United States Code

states that each report under this section shall disclose the

name and address of each person to whom an expenditure in an

aggregate amount or value in excess of $200 within the calendar

year is made by the reporting committee to meet a candidate or

committee operating expense, together with the date, amount, and

purpose of such operating expenditure.

The Audit staff reconciled the Committee's reported

receipts, disbursements and cash balances to its bank records for

the period covered by the audit. Our review revealed that the

Committee's reported receipts and disbursements were materially

Page 19, Approved 4/2/96
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misstated for 1992. The Committee's records d~d not contain any

records that demonstrated the derivation of the report amount•.

Absent such records it was not possible to explain all of the

differences between the reported amounts and those indicated by

the bank records.

Receipts

Reported receipts were understated by a net amount of

$36,385. The unrerstatement was a result of the following:

The committee failed to report an in-kind

contribution in the amount of $2,675 received from

Mr. Richard Segerblom for the purchase of a

computer;

the Committee failed to report transfers of funds

from the non-federal bank account to the allocation

account totaling $15,809, and $23,602 in transfers

from the non-federal account to the federal account;

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the Commi~tee failed to report contributions

totaling $11,600 including $5,000 from an

individual, and $5,000 from Eldorado Hotel

Associates, and $1,600 from DNC Non-Federal

Corporate Account deposited into the federal

account;

the Committee over reported transfers of excess

campaign funds from Friends of Harry Reid by

$18,390; and,

an unexplained difference of $1,089.

Disbursements

Reported disbursements were understated by a net amount

$40,976. The understatement was a result of the following:

As with receipts, the Committee failed to report an

in-kind disbursement of $2,675, for the purchase of

a computer by Mr. Richard Segerblom;

the Committee failed to report petty cash

disbursements totaling $25,629;

the Committee over reported three checks totaling

$1,653. One check was returned from the bank for

non-sufficient funds ($28), another check was

reported twice ($625), and the last check appeared

to be a papnent which was never made ($1,000);

the Committee failed to report five disbursements,

totaling $6,546;

Paoe 20, Approved 4/2/96
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I

the COmtitittee failed to report a $2,000 bank debIt

memo dated August 18, 1992 and charged to the

allocation account. There was no information in the

Committee's records to show the nature of the

charge;

the Committee failed to report a transfer of ~5,OOO

from the federal account to the non-federal ~~~ount

on November 17, 1992; and,

an unexplained difference of $779.

Cash on Hand

The reported ending cash balance at December 31, 1992,

was overstated by $626, resulting from the misstatements detailed

above in addition to mathematical discrepancies in the reported

cash balance in the 1992 Year End Report.

The Audit staff provided schedules of the adjustments

mentioned above to the Committee after the completion of

fieldwork.

In the interim audit report, the Audit staff

recommended that the Committee file an amended disclosure report

correcting the errors noted above. The Committee was also to

obtain documentation from the bank to explain the $2,000 debit

memo and provide copies to the Audit staff.

In response to the interim audit report, the Committee

filed amended disclosure reports for 1992 which materially

corrected the misstatement of financial activity. The Committee

did not submit any additional documentation concerning the

$2,000 debit memo.

E. Reporting of Disbursements

Section 434(b}(S)(A) of Title 2 of the United States

Code states, in part, that each report shall disclose the name

and address of each person to whom an expenditure in an

aggregate amount or value in excess of $200 within the calendar

year is made by the reporting committee to meet a candidate or

committee operating expenditure.

Section l04.10(b){4) of Title 11 of the Code of

Federal Regulations requires a political committee that pays

allocable expenses in accordance with 11 CFR 106.5(9) to also

report each disbursement from its allocation account in payment

for a joint federal and non-federal expense or 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. If the disbursement

Page 2l, Approved 4/2/96
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includes payment for allocable costs of more than one activity,

the committee shall itemize the disbursement, showing the

amounts designated for payment of administra'tive expenses and

generic voter drives, and for each fundraising program or exempt

activity, as described in 11 CFR 106.5(a)(2). The committee

shall also report the total amount expended by the committee

that year, to date, for each category of activity.

The Audit staff noted that the Committee failed to

disclose mailing addresses on a number of itemized disbursements

reported during the third and fourth quarters of 1992 on the

Schedules H-4 and Schedules B. Als~, on the Committee's fourth

quarter 1992 report, eight items totaling $4,987 were reported

on Schedules B but were paid out of the federal allocation

account. These items s~ould be eliminated from Schedules Band

reported on Schedules H-4.

As previously mentioned in Finding II.A. and II.B.,

some of the expenditures made on behalf of the four federal

candidates were reported on Schedules H-4, Joint

Federal/Non-Federal Activity, with an allocation for the federal

share at 43%. The Committee did not report the correct amount

of the federal share. In addition to the candidates

specifically addressed in Finding II.A., the Committee also paid

expenditures on beralf of Bilbray for Congress Committee

totaling $17,296. ~#ie Committee did not file any Schedules H-2,

Allocation Ratios, and Schedules F, Coordinated Expenditures,

disclosing these expenditures on behalf of federal candidates.

None of the disbursements made from the non-federal

account that should have been made from the allocation account

described in Finding II.B. were reported by the Committee.

In the inter~ audit report, the Audit staff

recommended that the Committee, as part of the amended

disclosure reports for the third and fourth quarter 1992,

provide the missing mailing addresses on Schedules Band H-4 and

correct the items paid from the federal allocation account

reported on Schedules B which should have been reported on

Schedules H-4.

The Committee should also file Schedules H-2 and F to

disclose the expenditures made on behalf of the four candidate

committees and correct the Schedules H-4 to reflect the correct

federal share.

Memo Schedules H-4 for the disbursements made from the

non-federal account should be included. These amounts should

not be added into the disbursement totals of the other Schedules

H-4.

In response to the interim audit report, the Committee

filed amended Schedules B, F and H-4 which reflected the

reporting of expenditures made on behalf of the four candidate

Page 22, Approved 4/2/96
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committees for the federal share the Committee acknowledged they

were responsible for reporting. Also, the Committee submitted a

vendor listing of mailing addresses which materially corrected

the disclosure of vendor identification. Since some of the

expenditures are in dispute, the Committee did not file

Schedules B-2. Therefore, the Committee did not file correct

amended Schedules B, F, H-2, and 8-4.

Page 23, Approved 4/2/96
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Page 24, Approved 4/2/96
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MEMORANDUM

TO:

THROUGH:

FROM:

BY:

SUBJECT:

FEDERAL ELECTION COMMISSION

March 139 1996

Roben J. Costa

Assistant StaffDirector

Audit DiviS~~

~'\l.l ' JohnC..S~·

Staff 0 tor' .

,

Lawrence'M. Noble

Gen, Counsel /

Kim Bright-Coleman 1Cf?CAssociate General Counsel

Lorenzo Holloway .~ ..;"

Assistant General Counsel

Andre G. Pineda --~,,;. .Ar-. :.1 .4-~

Attorney ..

Proposed Final Audit Report on the Nevada State Democratic

Pany (LRA #492)

c.

I. INTRODUcrIO~

The Office ofGeneral Counsel has reviewed the proposed Final Audit Report on the

Nevada State Democratic Pany ("the Nevada Comminee") submitted to this Office on January

26, 1996.' The following memorandum summarizes our comments on the proposed report. We

concur \!Vith findings in the proposed repon which are not discussed separately in the following

memorandum. If you ha~'e any questions concerning our comments. please contact Andre

Pineda. the attorney assigned to this audit.

Because the proposed Fmal Audit Report does not mclude any matters exempt from publ.:c

disclosure under 11 C.F.R § 24, we recommend that the CommISSion's diSCUSSion of this document be

conducted m open session I, It'" ,I,,,.• ,,.. ( ,."."....." ..... :""- -\'''''\1'''''-\

,1 ... 11..-',,\ II):'" -\':11()"1)~".('\"

')1:\. ,'.', I.....:H·:'\ ltH Pt B:lt "Jl)... •..'i:'

Page 25, App~ed 4/2/96
C'

Memorandum to Roben J. Costa

Final Audit Repon for

Nevada State Democratic Party (LRA 1# 492)

Page 2

II. EXPENDITURES ON BEHALF OF FEDERAL CANDIDATES

The Interim Audit Report found that the Nevada Committee made expenditures on behalf

ofseveral federal committees. The committees include ClintoniGore~ Friends of Harry Reid. and

Pete Sferrazza for Congress Committee. The Interim .A\udit Report notes that all ofthe

committees received contributions as 3 result of~'o programs operated by the Nevada

Committee. One program consisted of a phone bank for \\'hich the Nevada Committee paid a

vendor $100,00 to ask four questions. The ~A\udit staff reviewed the questions contained in the

script that was used for the phone bank. The Interim Audit Report notes that three ofthe four

script questions included ~ferences to the candidates for congressional office. Therefore7 the

auditors allocated a ponion of the cost ofthe phone bank to each congressional candidate. See

11 C.F.R. § lOO.8(b)(18)ti\').

The second program that "'as operated by the Nevada Committee was for a poll. TIle

Nevada Committee paid a vendor $5.490 to conduct this poll. The Audit staffreviewed the

responses from the poll and found that the information showed that poll was related to federal

activity (presidential and congressional). Therefore, the auditors allocated the costs ofthe poll to

Climon/Go~~.~Friends ofHarry Reid) and Pete Sferrazza for Congress Committee.4

In its response to the Interim Audit Repon~ the Nevada Committee claims that all ofthe

questions were political in nature. but three questions were related to specific candidates.

However. the Nevada Comminee argues that the infonnation obtained from the poll was used for

voter files and to detennine the voters to target for its get-out-the-vote activity.

The Office of General Counsel concurs ~ith the conclusion in the proposed Final Audit

Repon to allocate the expenses arising out the phone bank activity to the candidates that were

referenced in the script from the phone bank operation. Although the Nevada Committee claims

: The Intenm Audit Repon found that the Ne-vada Commmee made an additional 528.075 in expenses on

behalf ofthe Clinton/Gore Commmee However. the Nevada Commmee did not submit sufficient infonnation in

response to the Intenm Audit Repon to demonstrate that expenses were not on behalf ofthe Clinton/Gore

Commlnee

:. The Intenm Audit Repon found that the Ne-vada CommlUee made :.n additIonal S17.289 in expenses on

behalf of the Fnends of Ha.~ Reid Commsnee In IU response to the Intenm Audit Repon. the Nevada Committee

agreed that the expenses were made on behalf of the Fnends of Hart) Reid Commlnee.

• The lntenm Audit Repon found that the Nevada Commlnee made a.f1 additional S21.223 in expenses on

behalf of the Pete Sfernzza for Congress Commsnee The Democratic Congre~slonal Campaign Committee

C'DCCC") reponed a total ofS34.471 an expenses on behalf of the Pete Sferrazza for Congress Committee 10

accordance With 1 esc § 441a(d) Therefore, the Nevada Commme-e's exp.endltures exceeded the limit Imposed

at 2 U.S.C. § 441 a(d) The Nevada Commmee contends that the DCCC Incorrectly anTibuted the expenditures to

the hmlt However. the proposed Fmal Audit Repon notes that the DCCC has not acknowledged that the

expendItures were Incorrectly annbuted to the limit Therefore. the Office of General Counsel agrees with the Audit

statTs conclUSion that the DCCC expenditures should remam attributable to the limn at 2 U.S.C. § 441a(d).

1I

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Pa~e App!"()veC 4/2/96
Memorandum to Roben J. Costa

Final Audit Repon for

Nevada State Democratic Party (LRA 1# 492)

Page)

that all ofthe questions were political in nature. the questions still referenced specific candidates.

Since three ofthe four questions referenced the federal candidates. the references were not

merely incidental to the overall activi\._ nf the phone bank. See 11 C.F.R. § 1OO.8(b)( 18)(iv).

Therefore. the activity \\"hich may have been originally intended as a questioning about political

views actually resulted in a benefit to the federal candidates. Jd.

The proposed Final Audit Report notes that the $5.490 that the Nevada Comminee paid

for a poll was a ponion of $85.000 that was paid in total for the poll. The auditors found that the

Friends of Harry Reid Committee paid a ponion and the Democratic Senatorial Comminee

Campaign Comminee paid the remainder. Based on a review of additional documentation, the

Audit staff states that there is no need to 21locate the expenses arising out I)fthe poll to any other

candidates. Ho\,,,ever.. it is unclear \\'hat information has been reviewed to ,,~t a conclusion

that the cost ofthe poll should not t>e allocated to any candidate. The Interim Audit Report noted

that results ofthe poll show that there "'as federal activity. Therefore. the Office of General

Counsel recommends that the Audit Division revise the proposed Final Audit Repon to include a

discussion ofthe information that ""as reviewed that suppons the conclusion that cost; ofthe poll

should not be allocated to any federal candidate.

c~

II . PElT\' CASH PAYMEl'7S IN EXCESS OF Sl00 LIMITATION (l1.C.2.)

Pursuant to 2 U.S.C. § 432(h)( 1l- political comminees are required to make

disbursements in the fonn of checks. HO\\'e\'er_ political comminees may maintain a petty cash

fund for disbursements not in excess of S100 to any person in connection with a single purchase

or transaction. 2 U.S.C. § 432(h)(2).

The proposed Final Audit Repon notes that the Nevada Comminee made 271 petty cash

payments totaling $78.031 to 72 individuals. A ponion of this amount. 550..931, exceeded the

$100 limitation for payments of cash See II (.F.R. § 10~.11. The repon notes that the method

used to calculate the payments to individuals for the purpose of the S100 limitation was to total

all the payments made to an indIVidual dunng the course of a day.

It is the Office of General Counsel's understanding that the Comminee paid individuals

for voter registration work in peny cash payment amounts of S100 or less several times a day.

rather than one payment by ch~ck t"')r the enttre day to such indIviduals. The Comminee

documented some of the p~\'mer,l:; in ~equentlal receipt numbers in its journal of petty cash

disbursements. In ligf't.. \.. f :..~ese facts. the Office of General Counsel believes that it is reasonable

to consider all payme(;~:' h.' a Single IOdtVldualln one day as a Single transaction_ This Office

believes that an oppos"t, \. ':". e.g. to vIe'" each paymenl amount separately from others that

were made on the SaJ"'" t" !~;: ,-"ould defeat the general requirement that all disbursements by

pohtical commlnee~ i." !1; che:~ or similar draft. 2 C.S.C. § 432(h)( 1) and 11 C.F.R.

Pa::e to.. , , ';/2/96
o

If)

o

......Mdum tp Raben J. Costa

,....Aucru Report for

Nevada State Democratic Pany (LRA , 492) "'4

§ 102.10. We recommend. however. that the Audit Division revise the repo11 to include a

discussion ofthe facts that supports the conclusion that all disbursements dwing a day were one

transaction.

Page 28, Approved 4/2/96
AlC007845

FEDERAL ElECTIC)' C( ).\\.\\15510"

\\ "It1"l.tl." ! \ ( .'11..1-

C"

April 3, 1996

Ms. Jan Churchill, Treasurer

Nevada State Democratic Party

409 Horn Street

Las Vegas, NV 89218

Dear Ms. Churchill:

Attached please find the Final Audit Report on Nevada

State Democratic Party. The Commission approved the report

on April 2, 1996.

The Commission approved final audit report will be

placed on the public record on April 12, 1996. Should you

have any questions regarding the public release of the rep~rt, please contact the Commission's Press Office at (202)

219-4155. Any questions you have related to the matters

covered during the audit or in the report should be directed

to Russ Bruner or Joe Stoltz of the Audit Division at (202)

219-3720 or toll free at (800) 424-9530.

Assistant Staff Director

Audit Division

Attachment as stated

cc: Joseph E. Sandler, Counsel of Record

" ".. 'f 1'\' ... t 'i.

Page 29, Approved 4/2/96
Page 30, Approved 4/2/96
CHRONOLOGY

NEVADA STATE DEMOCRATIC PARTY

o

0,

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audi~ Report Approved

5/23/94 - 6/16/94

7/7/95

9/29/95

4/2/96

Page 31, Approved ~/2/96