FEDERAL ELECTION COMMISSION

WASHINGTON. DC 2046.1

January 29,2001

MEMORANDUM

TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERT

ASSISTANT

J. COSTA

STAFF DIRECTOR

*

AUDIT DIVISION

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

North Carolina Democratic Victory Fund which was approved by the Commission on

January 19, 2001.

, SUBJECT: PUBLIC ISSUANCE OF THE FINAL ALTIIT REPORT ON

f\ NORTH CAROLINA DEMOCRATIC VICTORY FUND ;=,

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•

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Infonnational copies ofthe report have been recei\"ed by all parties involved and

the report may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library
REPORT OF THE AUDIT DIVISION

ON THE

NORTH CAROLINA DEMOCRATIC

VICTORY FUND

Approved January 19, 2001

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

NORTH CAROLINA DEMOCRATIC

VICTORY FUND

Page

Executive Summary 1 ~~;Iij

f~.;..~

Final Audit Report 3 h

ftli~: Background 3

U~

r~ Findings 5

U

Legal Analysis 13

['-"

g Transmittal to Committee 17

ru

ru Chronology 19
A99-51

FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

REPORT OF THE AUDIT DIVISION ON

NORTH CAROLINA DEMOCRATIC VICTORY FUND

EXECUTIVE SUMMARY

The North Carolina Democratic Victory Fund (the Committee) registered with

the Federal Election Commission on February 24, 1983 and maintains its headquarters in

Raleigh, North Carolina, The audit was conducted pursuant to 2 U.S.c, Section 438(b),

which states that the Commission may conduct audits of any political committee whose

reports fail to meet the threshold level ofcompliance set by the Commission,

The findings from this audit were presented to the Committee at an exit

conference held subsequent to the completion offieldwork on December 10, 1999, and

later in an interim audit report. The Committee's response to the findings are included in

this final audit report.

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

POSSIBLE IMPERMISSIBLE EXPENDITURES ON BEHALF OF EDWARDS FOR

SENATE -2 U.S.c. §§441a(d)(I) and (3); 441a(a)(2)(A) and (7)(B)(i); 441a(f); and 11

c'P.R §§ l1O.7(a)(4), (b)(3), and (c). The Audit staffidentified expenditures that

appeared to exceed the Committee's spending authority for 441a(d) coordinated

expenditures on behalf ofJohn Edwards, the Democratic candidate for U.S. Senator in the

1998 general election, by $63,130. However, documentation provided in response to the

interim audit report established that certain ofthese expenditures should not have been

attributed to the Committee's 44la(d) limitation. Therefore, the Committee did not

exceed its spending authority relative to the Edwards campaign.

DISCLOSURE OF JOINT FUNDRAISING ACTIVITIES - II C.F.R §§

102.I7(c)(4)(ii) and (c)(8)(B). The Committee participated in two separate joint

fundraising activities. On its disclosure reports, the Committee disclosed the receipt of

net proceeds from the fundraisers but did not in each case file memo Schedules A

(Itemized Receipts) itemizing its share ofthe gross receipts as contributions from the

original contributors. Subsequent to the exit conference held at the conclusion of audit

fieldwork, the Committee filed the necessary memo Schedules A.

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Approved January 19,2001
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Approved January [9, 2001

,.~.-,,_ ..,
FEDERAL ELECTION COMMISSION

WASHINGTON, DC 204(,]

A99-51

REPORT OF THE AUDITDIVISION

ON THE

NORTH CAROLINA DEMOCRATIC VICTORY FUND

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit of the North Carolina Democratic Victory Fund

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

(the Commission) in accordance with the provisions ofthe Federal Election Campaign

Act of 1971, as amended (the Act). The audit was conducted pursuant to Section 438(b)

ofTitle 2 ofthe United States Code which states, in part, that the Commission may

conduct audits and field investigations of any political committee required to file a report

under section 434 ofthis title. Prior to conducting any audit under this subsection, the

Commission shall perform an internal review ofreports filed by the selected committees

to determine ifreports filed by a particular committee meet the threshold requirements for

substantial compliance with the Act.

B. AUDIT COVERAGE

The audit covered the period January 1, 1997 through December 31, 1998.

During this period, the Committee reported a beginning cash balance of $4,681; total

receipts for the period of$5,123,440; total disbursements for the period of$5,083,654;

and an ending cash balance of$44,467 1

•

C. CAMPAIGN ORGANIZATION

The Committee registered with the Federal Election Commission on February 24,

1983. The Treasurer for the Committee, during the audit period and currently, is Mr. W.

Lyndo Tippett. The Committee maintains its headquarters in Raleigh, North Carolina.

To manage its financial activity, the Committee maintained 12 bank accounts

during the audit period; 4 federal and 8 non-federal. The Committee did not maintain a

separate allocation account to pay for shared federal/non-federal expenses. The

I All figures in the report have been rounded to the nearest dollar.

Page 3

Approved January 19, 200 I
Committee's receipts were composed of contributions from individuals, political party

committees, other political committees (such as PACs), transfers [rom affiliated

committees, loans, loan repayments, offsets to operating expenditures (such as refunds

and rebates), and transfers from non-federal account for joint activity.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following categories:

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

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

corporations or labor organizations;

3. proper disclosure of contributions from individuals, political committees

and other entities, to include the itemization of contributions when

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

disclosed (see Finding lI.B.);

4. proper disclosure of disbursements including the itemization of

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

the information disclosed (see Finding ILA.);

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

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

compared to bank records;

7. adequate recordkeeping of committee transactions;

8. proper reporting and funding of allocable expenses;

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

Unless specifically discussed below, no material non-compliance was

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

discussed in this report in an enforcement action.

Page 4

Approved January 19, 2001
II. AUDIT FINDINGS AND RECOMMENDATIONS

A. POSSIBLE IMPERMISSIBLE EXPENDlTlJRES ON BEHALF OF EDWARDS

FOR SENATE

Section 441a(d)(1) ofTitle 2 ofthe United States Code and Section

IIO.7(b)(1) ofTitle 11 ofthe Code of Federal Regulations states, in part, notwithstanding

any other provisions oflaw with respect to limitations on expenditures or limitations on

contributions, the national committee ofthe political party and a State conmlittee ofthe

political party, including any subordinate committee of a State committee, may make

expenditures in connection with the general election campaign of candidates for Federal

office in that State who is affiliated with the party.

Section 441a(d)(3) ofTitle 2 ofthe United States Code and Section

I IO.7(b)(2) ofTitle II ofthe Code ofFederal Regulations states, in part, the national

committee of a political party, or 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 ofSenator, the greater of-Two cents multiplied by the voting age

population ofthe State; or Twenty thousand dollars.

Sections llO.7(b)(3) and llO.7(c) ofTitle 11 ofthe Code ofFederal

Regulations state "Any expenditure under paragraph (b) shall be in addition to any

contribution by a committee to the candidate permissible under §II 0.1 or §11 0.2;" and

"For limitation purposes, State committee includes subordinate State committees. State

committees and subordinate State committees shall not exceed the limits in paragraph

(b)(2) ofthis section."

Section 110.7(a)(4) ofTitle II ofthe Code ofFederal Regulations allows

the national committee of a political party to make expenditures authorized by this

section through any designated agent, including State and subordinate party committees.

Section 441a(a)(2)(A) ofTitle 2 ofthe United States Code states no

multicandidate political committee shall make contributions to any candidate and his

authorized political committees with respect to any election for Federal office which, in

the aggregate, exceed $5,000.

Section 441a(a)(7)(B)(i) ofTitle 2 ofthe United States Code states

expenditures made by any person in cooperation, consultation, or concert, with, or at the

request or suggestion of, a candidate, his authorized political committees, or their agents,

shall be considered to be a contribution to such cffildidate.

Page 5

Approved January 19, 2001
Section 441a(f) ofTitle 2 ofthe United States Code states no candidate or

political committee shall knowingly accept any contributions or make any expenditure in

violation of the provisions ofthis section. No officer or employee of a political

committee shall knowingly accept a contribution made for the benefit or use of a

candidate, or knowingly make any expenditure on behalf of a candidate, in violation of

any limitation imposed on contributions and expenditures.

The 1998 coordinated expenditure limit in the case of a candidate for

election to the office of U.S. Senator from the State of North Carolina was $361,435. The

Democratic Senatorial Campaign Committee (DSCC) assigned, in writing, its spending

authority to the Committee. Accordingly, the Committee's spending authority for

coordinated expenditures was limited to $722,870 on behalfofJohn Edwards, the

Democratic candidate for U.S. Senator in the 1998 general election.

The Committee's repm1s reflected coordinated expenditures in the amount

of $702,858 on behalf ofJohn Edwards. Our review of Committee expenditures made to

selected vendors identified the payment of additional expenses which appeared to be

made on behalf ofJolm Edwards; these payments were not reported as coordinated

expenditures.

1. Hickman Brown

Hickman Brown, a public opinion research firm, conducted polls and

focus groups for the Committee. Total payments of$392,902 were reviewed for this

vendor consisting of $242,902 for the cost of polls and $150,000 in consulting fees. Our

review determined that $219,702 ofthe costs ofthe polls was allocable to Senatorial

candidate, John Edwards' campaign and $23,200 was allocable to the Committee. It

should be noted that the Audit staff agrees with the Committee's allocation of the polls.

Allocating the $150,000 in consulting fees on the same basis that the polls were allocated

to the committees results in $135,000 allocable to Edwards for Senate and $15,000

allocable to the Committee.

Ofthe $354,702 (219,702 + $135,000) allocable to Edwards for Senate,

$135,402 was disclosed by the Committee as coordinated expenditures on Schedule F,

"Itemized Coordinated Expenditures Made by Political Party Committees or Designated

Agents on Behalf ofCandidates for Federal Office (2 U.S.C. §441a(d))." Edwards for

Senate reimbursed the Committee $159,3002

, leaving a balance of $60,000 paid by the

Committee but not recognized as a coordinated expenditure. At the time ofthe interim

audit report, it was our opinion that this $60,000 was applicable to the coordinated

expenditure limitation.

2 Edwards for Senate committee reported these reimbursements as "polling

reimbursements." The reimbursements were reported as follows: $60,000 on 1017/98,

$35,000 on 10/15/98, $10,000 on 10130/98, and $54,300 on 5/11199.

Page 6

Approved January 19, 2001
Evidence of coordination exists in the forn1 of a Committee response to a

Commission Request for Additional Inforn1ation (RFAI) regarding the Committee's

disclosure of a debt from Edwards for Senate. In the response dated June 3, 1999, the

Committee stated, "the remaining payments to Hickman Brown resulted in reimbursable

expenditures by John Edwards Campaign hence the debt showing on Schedule C. The

debt did not arise from direct contributions to the candidate's committee." Regarding

$75,000 ofthe consulting fees, the response stated the following:

"...further review by our staffin conjunction with our vendor,

consultants and the John Edwards Campaign established that there was a

$75,000 retainer paid by NCDP [North Carolina Democratic Party] that

related to activities conducted on behalf ofthe entire democratic ticket."

Based on the above information, it was our opinion that $60,000 was applicable to

the coordinated expenditure limitation.

2. Pearce Research Associates

Our review indicated that the Committee made $125,000 in payments to

this vendor; $50,000 was disclosed as coordinated expenditures on Schedule F, and

$75,000 was disclosed as joint federaVnon-federal activity on Schedules H4. The

reported purpose, for all expenditures to this vendor was "media consulting." A

memorandum to the Governor ofNorth Carolina that was contained in the Committee's

records, indicated that the Committee may have paid $25,000 ofthe $75,000 on behalf of

Edwards for Senate. The memorandum stated that there were several outstanding "addon" expenditures the Edwards for Senate campaign was responsible for such as, Pearce

Research Associates for $25,000. The memorandum also stated that the Edwards

campaign agreed to fund the "add-on" expenditures. Except for a canceled check and an

invoice lacking detail, documentation to detail the purpose ofthe expenditures was not

present in the Committee's records. Thus the Audit staff was unable to verify that the

$25,000 expenditure was made on behalf ofthe Edwards campaign. However, based on

the memorandum in the Committee's records, the Audit staffincluded the amount in the

total amount ofexpenditures made on behalfofJolm Edwards.

3. Bill Romjue

The memorandum to the Governor ofNorth Carolina discussed above,

also makes reference to a $6,000 expenditure to Bill Romjue as one ofthe "several

outstanding add-on expenditures that Edwards for Senate was held responsible for and

agreed to fund. Our review identified an expenditure for $6,000 to Bill Romjue disclosed

by the Committee as joint federaVnon-federal activity on Schedule H4. The reported

purpose ofthe expenditure was "campaign consulting." Except for a canceled check,

documentation to detail the purpose ofthe expenditure was not present in the

Page 7

Approved January 19, 200 I
Committee's records. Thus the Audit staff was unable to verify that the expenditure was

made on behalf of the Edwards campaign. However, based on the memorandum in the

Committee's records, the Audit staffincluded the amount in the total amount of

expenditures made on behalf ofJohn Edwards.

At the exit conference, the Committee was asked to provide additional

infol1l1ation regarding the consulting payments to Hickman Brown as well as additional

documentation in the form ofinvoices or other vendor generated documents detailing the

particulars ofthe $25,000 and $6,000 disbursements discussed above. Committee

officials stated that the necessary documentation would be provided. As of 8/25/00, the

date ofthe interim audit report, no documentation had been provided.

In summary, at the time ofthe interim audit report, it appeared that the

Committee made expenditures on behalf ofEdwards for Senate which exceeded the

Committee's 44 Ia(d) expenditure limitation and contribution limitation by $63,130.

Amount Spent on Behalf ofJohn Edwards

441a(d)(3)(A) Spending Limit (2 x $361,435)

441 a(a)(2)(A) Contribution Limit

Total Pennissible Amount

$722,870

5,000

$727,870

Reported 441a(d)(3)(A) Expenditures

Reimbursement from Edwards for Senate3

Additional Expenditures Identified:

Hickman Brown

Pearce Research Associates

Bill Romjue

Total Expenditures Identified

Excessive Amount

$702,858

(2,858)

60,000

25,000

6,000

$791,000

$ 63,130

The Interim Audit Report recommended that the Committee provide evidence that

the $63,130 in expenditures described above were not in excess ofthe Committee's

limitation for expenditures which could have been made on behalfofEdwards for Senate.

The Committee was requested to provide documentation in the fonn of detailed invoices

or other vendor generated infonnation for the $25,000 consulting payment to Pearce

Research Associates, and the $6,000 payment to Bill Romjue as noted above. Absent

evidence to the contrary, the Committee was requested to seek a refund from Edwards for

Senate in the amount of$63,130 and present evidence ofsuch refund. IfEdwards for

Senate lacked the funds necessary to make the reimbursement, the Committee was

3 Edwards for Senate reimbursed the Committee this amount for media production

expense.

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Approved January 19, 2001
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requested to report the amount as a debt owed from Edwards for Senate until such time

that the reimbursement is made.

In response to the Interim Audit Report, the Committee did not provide detailed

invoices or other vendor generated documentation, as requested. Instead, the

Committee's Counsel submitted a statement accompanied by notarized affidavits from

Mr. Stephen Bryant, the 1998 Executive Assistant to North Carolina Governor James B.

Hunt; Mr. Gary Pearce, a principal in Pearce Research Associates; and Mr. Harrison

Hickman, a principal in Hickman Brown Research, Incorporated.

According to the Committee's Counsel, these affidavits establish that services

procured by the Committee from Hickman Brown and Pearce Research Associates in

cormection with the activities ofthe Coordinated Campaign ofthe North Carolina

Democratic Party were for the benefit ofthe Coordinated Campaign and not for the

benefit ofthe Edwards for Senate committee. In addition, the response states,

"In particular, the Committee observes that it is inappropriate to apportion the

consulting fee charged to the Party by Hickman Brown Research, Incorporated

based on the charges associated with the apportionment of polling information.

The consulting fee was in the nature of a retainer, and was not in any way based

upon the volume ofpolling services sought or received by the Party. Likewise,

the services ofPearce & Associates were provided to the Party in connection with

the activities ofthe Coordinated Campaign. The affidavit ofMr. Bryant makes

clear that the fundraising assignment with which the Edwards Committee was

charged was not tied to services received by the Edwards Committee."

The affidavit ofMr. Bryant explains that the Jim Hunt Committee, Edwards for

Senate committee and other Democratic candidate committees agreed to assist in raising

funds for the North Carolina Democratic Party to assist the Party in conducting the

coordinated campaign on behalf of all Democratic candidates on the general election

ballot in 1998. Each committee committed to raising certain sums. However, Edwards

for Senate committee had not, as of election day, met their fundraising goal for the

coordinated campaign. As afthe date ofthe 1998 general election, the Party had debts

outstanding to vendors including Hickman Brown and Pearce Research Associates for

services rendered by these vendors to the North Carolina Democratic Party. The

allocation offundraising responsibility was based on the perceived ability of each

committee to raise funds, rather than upon some contractual responsibility, or upon the

allocation ofservices used.

According to the affidavit ofMr. Hickman, the consulting work done by his Firm

was performed on behalfofthe entire Democratic ticket as well as the image ofthe Party

in general. This work comprised a broad range ofservices, including strategic advice,

polling, the content of advertising, the demographic groups to target in advertising, and

general strategy. The Firm had an understanding with Edwards for Senate Committee

that the Firm would perform services for Edwards for Senate and Edwards for Senate

Page 9

Approved January 19, 2001
agreed to pay a consulting fee. Mr. Hickman understood that the Party would pay this fee

as a §441 (a)(d) expenditure. The Fiml billed the Party and Edwards for Senate separately

for services rendered to each client. Each fee was independently established. Also, the

Fim1 had an understanding with the Party that the Firm would perform services for the

Party for which the Party agreed to pay a consulting fee.

The affidavit of Mr. Pearce states that Mr. Pearce negotiated separate oral

contracts with Edwards for Senate and the NOlih Carolina Democratic Party for political

consulting work rendered during the 1998 election. The fees charged and agreed lipon

were negotiated with each of the parties. The fee charged the North Carolina Democratic

Pariy was established independently of any fee for the Edwards for Senate. The fees were

charged for services rendered to the Coordinated Campaign and did not included services

rendered to the Edwards Committee. The consulting work involved overall political

consulting, including advice with respect to media, GOTV, and every other meaningful

aspect ofthe 1998 political campaign.

The Audit staffreviewed reports filed by Edwards for Senate committee and

identified payments to Hickman Brown during the 98 election cycle totaling $177,156.

The reported purposes for the payments included "polling", "focus groups", aI1d "travel

reimb.". Likewise, payments to Pearce Research Associates totaling $126,790 were

reported. The reported purposes for these payments included "consulting", "campaign

strategy", "strategy consultaI1t", and "travel". These payments by the Edwards for Senate

committee appear to be consistent with statements in the affidavits that the committees

were billed independently for services rendered.

The Committee's response did not address the $6,000 payment to Bill Romjue.

Based on the representations included in the Hickman and Pearce affidavits, it

now appears that the amounts questioned in the interim audit report (Hickman Brown

$60,000 and Pearce Research Associates $25,000) should not be attributed to the

Committee's 441 a(d) spending on behalfofEdwards for Senate. Accordingly, the

Committee did not exceed its available 441a(d) spending limit relative to the Edwards

campaign.

B. DISCLOSURE OF JOINT FUNDRAISING ACTIVITIES

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

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

joint fundraising activity shaH report its share of net proceeds received as a transfer-in

from the fundraising representatives. Each participating political committee shall also

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

original contributors to the extent required under 11 CFR 104.3(a).

Section 102.17(c)(4)(ii) ofTitle II ofthe Code ofFederal Regulations

states that the fundraising representative shall collect aI1d retain contributor information

Page 10

Approved January 19,2001

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

infom1ation to participating political committees. The fundraising representative shall

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

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

The Committee participated in two separate joint fundraising activities.

One activity involved the Association of State Democratic ChairslDollars for Democrats

(ASDC); the other activity involved the Democratic National Committee (DNC). The

Committee received transfers from the ASDC totaling $194,530 and fi'om the DNC

totaling $167,589, which represented the Committee's share of the net proceeds from

each joint fundraising activity. Although the Committee, on its disclosure reports,

disclosed the receipt ofthe net proceeds, it did not, in each case file memo Schedules A

itemizing its share ofthe gross receipts as contributions from the original contributors.

During the exit conference, the Audit staff provided a schedule ofthe

transfers to the Committee representatives, and also informed them ofthe irregularities in

the reporting as noted above. The Committee representatives agreed to file the necessary

memo Schedules A, showing its itemized share ($32,635) ofthe gross receipts as

contributions from the original contributors.

During the 10 day period following the exit conference, the Committee

filed the necessary memo Schedules A for each joint fundraising activity. The memo

Schedules A materially corrected the public record.

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Approved January 19, 2001
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Approved January 19, 2001
FEDERAL ELECTION COMMISSION

WASHINGTON. DC. ~046J

December 15, 2000

MEMORANDUM

Robert J. Costa

Assistant StaffDirector

Audit Division

THROUGH: James A. Pehrkon

StaffDirector

TO:

FROM: Lawrence M. Noble

General Counsel

BY: Kim Leslie Bright~ Associate General1:~u~sel

RllOndaJ. Vosdingh

Assistant General Counsel

Delanie DeWitt Painter (\ £y{)

Attorney f\(ljJ \\

SUBJECT: Final Audit Report on the North Carolina Democratic Victory Fund (LRA # 576)

I. INTRODUCTION

The Office of General Counsel has reviewed the proposed Final Audit Report ofthe North

Carolina Democratic Victory Fund (the "Committee"), which was submitted to this Office on

November 27,2000. 1 This memorandum presents our comments on the proposed Report. If you

have any questions concerning our comments, please contact De!anie DeWitt Painter, the attorney

assigned to tins review.

This Office recommends that the Commission consider the proposed Final Audit Report in open session

because the document does not include matters exempt from public disclosure. See 11 C.F.R § 2.4.

Page 13

Approved January 19, 2001
(LRA # 576)

Page 2

II. POSSIBLE IMPERMISSIBLE EXPENDITURES ON BEHALF OF EDWARDS

FOR SENATE (II. A.) 2

This Office concurs with the proposed finding that the Committee did not make

expenditures on behalf ofEdwards for Senate in excess ofthe expenditure limitation at 2 US.C.

§ 44Ia(d). However, this OffIce recommends that the recitation ofthe law in the proposed

Report be expanded to include 2 USc. § 441a(d)(3) and 11 C.F.R. § 1IO.7(b)(2), (b)(3) and (c),

which will make the discussion more legally accurate and complete. Specifically, the recitation of

law should include 2 US.C. § 441 a(d)(3) because it delineates the coordinated party expenditure

limitations applicable to Senate candidates and 11 C.F.R. § II0.7(b)(2), (b)(3) and (c) because

they provide additional clarification and guidance on the limitations]

The Interim Audit Report concluded that the Committee exceeded the 2 U.S.C. § 44Ia(d)

expenditure limitation on behalf of Democratic Senate candidate John Edwards by $63,100

because it apparently made coordinated expenditures on behalf ofMr, Edwards to Hickman

Brown Research, Inc. ("Hickman Brown") ($60,000), Pearce Research Associates ("Pearce

Research") ($25,000) and Bill Romjue ($6,000), which it did not report as coordinated

expenditures,4 The Interim Audit Report recommended, inter alia, that the Committee provide

evidence that the expenditures were not in excess ofthe coordinated party expenditure limitation

and provide detailed invoices or other vendor-generated information for the payments to Pearce

Research and Bill Romjue. In response, the Committee contends that the services ofHickman

Brown and Pearce Research were on behalf ofthe Democratic Party's coordinated campaign, not

Edwards for Senate, and consulting fees paid to Hickman Brown were not based on the amount

of polling services, The Committee provided notarized affidavits from Stephen Bryant, Gary

Pearce and Harrison Hickman to support its contentions, The Committee did not provide detailed

invoices or other vendor-generated documents or address the payment to Bill Romjue, Based

upon the affidavits, the Audit staff conclude that payments of$60,000 to Hickman Brown and

$25,000 to Pearce Research should not be attributed to the 2 US,C, § 44Ia(d) limitation on

The parenthetical reference corresponds to the section number in the proposed Report,

The proposed Report cites 11 C,F.R. § 110,7(a)(4), which permits a national party committee to make

coordinated expenditures for presidential candidates through a designated agent. Section 110.7(b) permits a

national party committee and a slate party committee or its subordinate committee to make coordinated

expenditures for federal candidates in that slate, but does not explicitly provide that such expenditures may be

made through a designated agent. Since the national committees may designate agents to use their 2 U,S,C,

§ 44Ia(d) spending authority for presidential campaigns, they should also be able to designate agents for

campaigns for the United States Senate.

The auditors allocated Hickman Brown consulting fees between the Committee and Edwards for Senate in

the same manner as polling expenses paid to that firm, Payments to PearceResearch and Bill Romjue were

considered coordinated expenditures on behalfofMr. Edwards based on a memorandum which slates, "[t]here are

several outstanding add-on expenses the Edwards campaign is responsible for such as Harrison Hickman

($75,000), Gary Pearce ($25,000), and Bill Romjue ($6,000)." Memorandum to Governor Hunt and Franklin

Freeman from Stephen Bryant, "Democratic Party Finances" (November 4, 1998), Documenlation was

insufficient to verify whether these expenditures were made on behalfofEdwards for Senate,

Page 14

Approved January 19,2001
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(LRA 11576)

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behalf ofEdwards for Senate, and thus, the Committee did not exceed the 2 U.s.c. § 441 a(d)

limitation.

This Offke concurs that the affidavits adequately demonstrate the expenditures were not

coordinated expenditures on behalf ofEdwards for Senate. Although the Interim Audit Report

requested detailed invoices and other vendor documents, the affidavits submitted are sufficient to

resolve this issue. This Office believes that whether an affidavit or statement is sufficient to

resolve an issue in an audit depends on the contents ofthe affidavit, the identity ofthe affiant, and

the nature ofthe issue 5 For example, in John Glenn Committee v. FEC, the court held the

Commission's rejection of a committee's argument was not arbitrary where the argument was

supported only by a one-sentence affidavit, signed by an individual whose relationship to the

campaign was not provided, which stated, "It was common knowledge that undistributed buttons

in New Hampshire were sent to the southern states." 822 F.2d 1097, 1103 (D.C. Cir. 1987) The

coul1 focused on the facts that the individual's connection to the campaign was unknown, the

affidavit concerned common, not personal knowledge, and the affidavit did not address all the

facts asserted. Id.

Here, the affidavits are from individuals who had personal knowledge concerning the

purpose and payment ofthe expenditures at issue and provide a detailed, plausible explanation of

what occurred, which is consistent with other available evidence. Stephen Bryant, the North

Carolina Governor's Executive Assistant and liaison with the state party, clarifies in his affidavit

the meaning of his 1998 memorandum noting that Edwards for Senate was "responsible" for

debts. He states Edwards for Senate and other committees agreed to raise funds for "the

coordinated campaign on behalf of all Democratic candidates on the general election ballot in

1998." Further, he states that after the general election, the Committee owed debts to vendors

including Hickman Brown and Pearce Research, and fundraising responsibility for these debts was

assigned to committees including Edwards for Senate. Finally, he states the "request to the

Edwards Committee for fundraising was not based upon the actual services ofvendors that the

Edwards Committee had used during the 1998 election campaign, but was instead based upon the

perceived ability to raise funds on behalf ofthe Party after the election." Mr. Bryant had personal

knowledge ofthe fundraising arrangeJ;Tlents, and his explanation clarifies that Edwards for Senate

was responsible for raising funds to pay debts owed by the Committee.

The other affldavits, from Gary Pearce, a principal in Pearce Research, and Harrison

Hickman, a principal in Hickman Brown, are consistent with Mr. Bryant's explanation.

Mr. Pearce explains that both the Committee and Edwards for Senate were his clients in the 1998

campaign, and he negotiated separate oral contracts and fees with each ofthem. He further states

that he provided consulting services to the Committee on behalf ofthe entire Democratic Party

For example, in the Statement ofReasolls following the Commission's audit ofBuchanan for President,

Inc. ("Buchanan Committee") pursuant to 26 U.S.C. § 9038(a), a statement signed by an individual and the

Buchanan Committee's treasurer that the Buchanan Committee had agreed to pay the individual a stipend for

living expenses was used as evidence of the purpose ofthe disbursement. See Statement ofReasons, Buchanan for

President, Inc. (March 16,2000) at 8-9.

Page 15

Approved January 19,2001
.. - _ ••• ... .......... y ...... ~u ..J J. UllU

(LRA # 576)

Page 4

ticket in 1998, and his fee was for services "rendered solely to the Coordinated Campaign" not for

services to Edwards for Senate, which he billed separately. Similarly, Mr. I-rickman states that his

firm provided a "broad range" of consulting services to the Committee including strategy,

advertising and polling, which "focused on the entire Democratic ticket, as well as the image of

the Party in general." He states the firm also performed services for Edwards for Senate, which

were billed separately and paid by the Committee as 2 U. S C. § 441 a(d) expenditures. Finally, he

states the Committee paid Hickman Brown the consulting fees for services rendered to the

Committee, not for services rendered to Edwards for Senate.

Both Mr. Pearce and Mr. Hickman have personal knowledge oftheir firm's negotiations

with the Committee and Edwards for Senate, and the work performed and fees charged to those

clients. Their affidavits indicate that services and fees for the Committee and Edwards for Senate

were separate, and the services provided to the Committee were related to the entire Democratic

party ticket. Moreover, Mr. Hickman's explanation of the "broad range" of consulting services

provided to the Committee supports the conclusion that his firm's consulting fee should not be

allocated between the Committee and Edwards for Senate in the same way as payments for

polling services. Therefore, based on these affidavits, this Office concurs that the additional

amounts the Committee paid these vendors should not be considered coordinated expenditures on

behalf ofEdwards for Senate.

Finally, the Committee's response and attached affidavits do not address the expenditure

paid to Bill Romjue. Therefore, because no additional information has been provided concerning

this expenditure, it appears to be a coordinated expenditure on behalf ofJohn Edwards; however,

adding it to the Committee's other coordinated expenditures would not cause the Committee to

exceed the 2 U.S.C. § 441a(d) limitation.

Page 16

Approved January 19, 2001
FEDERAL ELECTION COMMISSION

WASHINGTON. DC. 20463

FJ.

January 22, 2001

Mr. W. Lyndo Tippett, Treasurer

North Carolina Democratic. Victory Fund

220 Hillsborough Street

Raleigh, NC 27603

Dear Mr. Tippett:

Attached please find the Final Audit Report on North Carolina Democratic

Victory Fund. The Commission approved the report on January 19, 2001.

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

on January 29,2001. Should you have any questions regarding the public release ofthe

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

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

Wanda Thomas ofthe Audit Division at (202) 694-1200 or toll free at (800) 424-9530.

Sincerely,

Assistant StaffDirector

Audit Division

Attachment as stated

cc: Mr. John R. Wallace, Counsel

Page 17

Approved January 19, 2001
Page 18

Approved Janua....J

, 10", ZO~:
CHRONOLOGY

NORTH CAROLINA DEMOCRATIC

VICTORY FUND

Audit Fieldwork 10/25/1999 - 12/1 0/1999

Interim Audit Report to the Committee

Response Received to the Interim Audit Report

Final Audit Report Approved

Page 19

8/25/2000

10/12/2000

1/19/2001

Approved January 19, 2001