FEDERAL ELECTION COMMISSION

W~SHINCTO~ 0 C 200&b\

l

!

/

December 9, 1996

MEMORANDUM

o

o

TO:

FROM:

SUBJECT:

Ron M. Harris

Press Officer

Press Office

Robert J. Costa

Assistant StaffDirector

Audit Division

Public Issuance ofthe Final Audit Report on Dan Hamburg for Congress

c

~-.

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

Hamburg for Congress which was approved by the Commission on November 2St 1996.

Informational copies ofthe report have been r=eived by all parties involved and

the repon may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Repons Analysis Division

FEe Librai')'
REPORT OF THE AUDIT DIVISION

ON

Dan Hamburg for Congress

o

c

Approved November 25, 1996

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

DAN HAMBURG FOR CONGRESS

Page

Executive Summary

Final Audit Repon 3

Background 3

Findings 6 -A. '

Transmittal to Comminee C 21

·n Chronology 23

C'l

c
AR#9S-04

FEDERAL ELECTI01' CQi\t"'1ISSION

FINAL AUDIT REPORT

O~

D.4.N HAMBURG FOR CONGRESS

EXEClJTIVE SUMMAR"

The Committee to Elect Dan Hamburg registered \\ith the United States House of

Representatives on August 1" 1991 as the principal campaign committee for Dan Hamburg, 1992

Democratic candidate for the u.s. House ofRepresentatives from the stnte ofCalifornia's 1st

district. Dan Hamburg for Congress (tt ~ommittee) began filing reports \'ith the Federal

Election Commission on January 1.. 1994.. the beginning ofthe Candidate's campaign for

re-election in 1994. and filed an amended Statement ofOrganization on April 18.. 1994.

The audit was conducted pursuant to 2 U.S.C. §438(b).. \\'ruch states that the Commission

may conduct audits of any political committee whose reports fail to meet the threshold level of

compliance set by the Commission.

The findings ofthe audit were presented to the Committee at the completion offieldwork

on May 10. 1996 and later in an interim audit report. The Committee's response to those

findings is included in this final audit report.

The following i~ "n overview of the findings contained in the final audit report. The

Audit staffs testing of contributions. disbursements. and debts owed \\'as limited due to a lack of

records and incomplete computerized files. Subpoenas were issued and the documentation

obtained via subpoena \\115 materially complete.

APPABE!'(f PROHIBITED CO:STRJBt710SS - CORPORATE - l'.S.C. §441 b(a). The audit

identified 28 app.:.Jent prohibited contributions from 19 entities. totaling $4,,950. In response to

the interim audit report.. the Comminee submitted evidence which demonstrated that 13 ofthe 28

items were from pennissible sources. The TemaJnlng 15 items totaled $~.710. The Committee

also filed amended Schedules D (Debts and Obligations) which disclosed all 28 contributions as

debts owed by the Comminee. The Commlnee Treasw-er stated that there were no funds

available to pay these debts.

APPARENT EXCESSIYE CO:STRJBl'TIQ~S• 2 C.S.C. 441 (a). The audit identified apparent

excessive contributions from individuals totaling $5.985 and from political committees totaling

$3..700. In response to the Interim audit repon. the Comminee filed amended Schedules D which

disclosed all apparent excessive contributIons as debts o\\'ed by the Comminee. The Committee

Treasurer stated that there were no funds available to pay these debts.

Pace 1
c

, ,..,.,

J ,

2

ITEMIZADON OF DEBTS AND OBLIGATIONS - 2 U.S.C. §434(b)(8) and 11 CFR §104.11.

The Committee disclosed debts owed to two vendors. totaling $96,499, that were DOt reported

correctly. Also, Committee repons indicated that disputed debts had been resolved which

reduced the Committee's outstanding debts and obligations by $36,000. No evidence was

available in the Committee's files documenting the nature ofthe dispute and corresponding

reduction in the amou~!s owed.

In response to th~ inte:-i~n audit report. the Committee filed amended Schedules D which

materially corrected the reporting errors. The Committee also submitted docwnentation which

materially detailed its reduction in debts o\\'ed due to a settlement of certain disputed debts from

the 1992 campaign.

DISCLOSURE OF CO!\TBlRLTTION AND DISBL!RSEMENI INfORMATION - 2 U.S.C.

§§434(b)(3) and (b)(S)(A). The audit identified a material number of errors regarding the

Committee's disclosure of contributions from individuals and political committees, as well as the

disclosure of disbursement infonnation. Also. the Committee disclosed three apparent

contributions from unregistered committees \\'hich it disclosed as offsets to opera\ing

expenditures instead of as contributions.

In response to the interim audit report. the Comminee provided evidence that it had

recently attempted to obtain the required disclosure infonnation from contributo~ The

Committee filed amended Schedules ..\ (Itemized Receipts) which corrected several oftbe errors,

hO\\'ever. a material number of errors still remain regarding the names and addresses of

contributors. as well as the dates and aggregate year-to-date totals for contributions. Regarding

the three apparent contributions disclosed as offsets to operating expenditures, the Committee

was unable to claril)- these items. The amended Schedules A correctly disclosed two oftbese

items as contributions. The Committee also filed amended Schedules B (Itemized

D~$hursements) which corrected several ofthe incorrect disbursement entries. however9 the error

rate relative to the Comminee's overall disclosure of disbursement infonnation is still material.

MISSTATE!\tEST Of FINANCIAL AOIYJD- - :; L' .S.C. §§434(b) (1 ),(2) and (4). The

Audit staffs reconciliation of the Committee's reported financial activity to its bank activity

revealed misstatements for 1993 and 1994. The Committee filed amended reports which

materially corrected these misstatements.

DOCUMESYATION FOR DISBl;RSEME:srs -:! C.S.C. §~32(c)(5). The Audit staff

determined that the Committee did not satisfy the minimum recordkeeping requirements for a

material number of its disbursc:ments Cancelled checks \\r("re maintained but these checks did

not detail the purpose ofthe disbursement and or contain the payee's address. The Comminee

did not respond to this finding.

Pace :
FEDERAL ELECTION COMlv1lSSIO"l

'J"}

c

'0

REPORTOF THE AUDITDIVISION

ON

DAN HAMBURG FOR CONGRESS

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit orOan Hamburg for Congress (the Committee)

undenaken by the Audit Division ofthe Federal Election Commission in accordance with the

provisions ofthe Federal Election Campaign Act of 1971, as amended (the Act). The audit

was conducted pursuant to Section 438(b) ofTitle 2 ofthe United States Code which states, in

parl that the Commission may conduct audits and field investigations ofany political

committee required to file a n:port under section 434 ofthis title. Prior to conducting any

audit under this subsection. the Commission shall perfonn an internal review ofthe reports

filed by selected committees to determine ifthe reports filed by a particularcommiuee meet

the threshold requirements for substantial compliance with the AcL

B. AUDIT COVERAGE

The ~'Jdit covered the period from January 1, 1993 through December 31.,

1994. The Committee reported a beginning cash balance of55,058; total receipts for the

period of5834.453: total disbursements for the period of 5834,612; and an ending cash

balance on December 31. 1994 of52.020.1

c. CAMPAIGN ORGANIZATION

The Committee to Elect Dan Hamburg - U.S. Congress registered with the

Clerk ofthe U.S. House ofRepresentatives on August 1. 1991 as the principal campaign

committee for Dan Hamburg, Democratic candidate for the U.S. House ofRepresentatives

from the state ofCalifornia.. 151 Distric~ in 1992. The Comminee began filing reports as Dan

Hamburg for Congress on January 1. 1994. the beginning ofthe Candidate's

The Committee overstated its reponed receipts and disbursements (see Fmding II.F.).

~uaOF__ IUI'"

Page 3
c

!l)

2

campaign for re-election in 1994; however, an amended Statement ofOrganization was not

filed until April)8, 1994. The Treasurer ofthe Committee from January 1, 1993 to April 18,

1994 was Mr. Antonio Andrade. The Treasurer from April 18, 1994 to the present is Mr. Ted

Loring, Jr. The Committee maintains its headquarters in St. Helena. California.

To handle its financial activity, the Committee used three bank accounts and

purchased one certificate of deposit. The Committee made 791 disbursements from its main

operating account.. totaling approximately $798..000. The Committee received approximately

3,512 contributions from individuals, totaling 5359.000.. and approximately 411 contributions

from political committees, totaling 5425,000.

D. AUDIT SCOPE AND PROCEDURES

As detailed below, the audit includl-d such tests as verification oftotal reported

receipts and expenditmes; review ofrequired supporting documentation. and analysis of

Committee debts and obligations and such other audit procedures as deemed necessary under

the circumstances.

The Audit staff performed an inventory ofthe Committee's records which

identi£ed three bank accounts (2 checking and 1 cenificate ofdeposit), in a depository that

was not disclosed on the Comminee's Statement ofOrganization. Based on our review, we

determined that a material portion ofthe financial activity in the three 8CCO\U1ts was not

reported on the Committee's disclosure repons. The Audit staffalso determined that the

receipt and disbursement records for the activity in the Committee's main operating account

was materially incomplete, as well as documentation relative to a loan made by the candidate.

The Audit staffmade several requests for the missing documentation including

two written requests on June 21, 1995 and June 27, 1995. respectively. It should be noted that

a portion ofthe missing contributor records was provided in response to the June 21st req~

however, the Committee's receipt records were still materially incomplete. The Committee

was infonned that if at the conclusion of a ten day period ending July 13, 1995, the items

requested had not been provided. the Commission would issue subpoenas for the production

ofthe records. The Committee did not respond to the June 27th request.

In a memorandum dated September 6. 1995, the Audit Division requested that

the Office of General Counsel prepare subpoenas requesting the production of missing

documentation. In a memorandum dated November 14. 1995. the Office of GeneraJ Counsel

recommended that subpoenas be issued to Mr. Loring.. severa! banks and various vendors.

The subpoenas were approved by the Commission on November 22. 1995.

Page .;
c

3

Several responses to the subpoenas were received between December 31, 1995

and March 11 .. 1996. The documentation received in response to the subpoenas was

considered in preparing this report. Funher, it should be noted that the documentation

received in response to the su~poenas was materially complete.

The Audit staff's review of u'1e undisclosed bank accounts (2 checking and 1

certificate ofdeposit) was limited to bank statements. Apparently. the accounts were opened

during the 1991·1992 campaign and \vere closed during lQ93.

Further, the scope of the Audit staffs testing of contributions received from

individuals was limited. The Comminee's records included an incomplete computerized file

of contributions and copies of a ponion ofthe contributor checks deposited into the

Committee's account. Although the Committee satisfied the minimum recordkeeping

requirements of 11 CFR §102.9 in maintaining its contribution records for the items tested,

these records were not maintained in a manner which would have allowed the Audit staffto

perfonn the substantive testing normally undenaken when reviewing contributions.

The scope ofthe Audit staffs testing regarding the Committee's disbursements

and the debts owed by the Comminee was also limited. The Committee did not satisfy the

recordkeeping requirements of 11 CFR §102.9 in maintaining its disbursements records (see

Finding II.G.). Nonetheless" the Audit staff was able to test a limited number of

disbursements regarding the debt reporting requirements of 11 CFR §104.11 using the

documentation received in response to the subpoenas (see Finding II.C.).

The audit included testing ofthe following general categories:

f' '- '

1.

.,

The receipt of contributions or loans in excess ofthe statutory limitation4; (see

Finding II.B.):

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

corporations or labor organizations (see Findillg ILA):

3. proper disclosure of contributions from individuals. political committees and

other entities. to include the itemization of contributions \\'hen required.. as well

as. the completeness and accuracy ofthe Information disclosed (see Finding

II.D.):

4. proper disclosure 0: di~t~r',eh1ents Including the itemization of disbursements

\\'hen required. at" ~'~ i! 35. the completeness and accuracy ofthe infonnation

disclosed (see Fi!. ~H)~~ Il.E.):

5. proper disclosure ("'1 \ :'mmlnee debts and obhgations (see Finding II.C.):
4

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

compared to Committee bank records (see Finding n.F.);

7. adequate recordkeeping for Committee transactions (see Finding 11.0.); and

8. 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 further any ofthe matters discussed in

this report in an enforcement action.

II. AUDIT FINDINGS AND RECOM&JENDADONS

A. APPARENT PROHIBITED CONTRIBUTIONS - CORPORATE

Section 441b(a) ofTitle 2 ofthe United States Code states, in relevant

:0 that it is unlawful for any corporation organized by authority ofany law ofCongress, to make

a contribution or expenditure in connection \\ith any primary election or political convention

or caucus held to select candidates for any political office.

1\

c

'J)

N

c

Section 103.3(b)( I) and (2) ofTitle 11 ofthe Code ofFederal Regulations

states, in that the treasurer shall be responsible for examining all contributions received

for evidence ofillegality.

Further.. contributions that present genuine questions as tt' whetbertbey were

made by corporations.. labor organizations.. foreign nationals, or Federal COD1raCtOrs may be,

within ten days ofthe treasurer's receipt.. either deposited into a campaign depository or

returned to the contributor. If any such contribution is deposited. the treasurer shall make at

least one written or oral request for evidence ofthe legality ofthe contribution. Such

evidence includes.. but is not limited to. a written statement from the conbibutor explaining

""by the contribution is legal. or a written ~1atement by the treasurer memorializing an oral

communication explaining "'hy the contribution is legal. Ifthe contribution cannot be

determined to be legaL the treasurer shall. \\ithin thiny days ofthe treasurer's receipt ofthe

contribution. refund the contribution to the contributor.

In addition.. ifthe treasurer In exercising his or her responsibilities determined

at the time a contribution \\'as received and deposited. it did not appear to be made by a

corporation. labor organization.. foreign national or Federal contractor.. or made in the name of

another. but later discovers that it is illegal based on new evidence not available to the

political committee at the time of receipt and deposit. the treasurer shall refund the

contribution to the contributor \\;thin thirty days ofthe date on which the illegality is

discovered.

Page 6
c

c

s

Section 103.3(b)(4) ofTitle 1t ofthe Code ofFederal Regulations states. in

pan, that any contribution which appears to be illegal and which is deposited into a campaign

depository shall not be used for any disbursements by :he political committee until the

contribution bas been d~tennined to be legal. The political committee must either establish a

separate account in a campaign depository for such contributions or maintain sufficient funds

to make all such refunds.

The Audit staffs revie\\' of contributions identified 28 apparent prohibited

contributions from 19 entities. totaling $4,950. The Audit staff verified the corporate status of

the entities with the appropriate Secretaries of State. It should be noted that the Committee

did not maintain a separate account to deposit the questionable contributions nor did it

maintain sufficient funds to make such refunds as required by 11 CFR §103.3(b)(4).

According to a Comminee representative, contributions were reviewed upon

receipt and any questionable contributions ""ere noted, He added that the Committee

contacted the contributor and refunded the prohibited contributions. when necessary.2 It

should be noted that none ofthe refunds disclosed by the Committee were for the apparent

prohibited contributions identified by the Audit staff.

On May 10. 1996, the Committee was presented with a schedule ofthe

prohibited contributions. The Comminee made no related comments at that time.

In the interim audit report. the Audit staffrecommended that the Committee

provide evidence that the contributions in question were not prohibited. Ifunable to provide

such evidence. it was further recommended that the contributions be refunded to the

contributors and evidence ofsuch refunds (copies ofthe front and back ofthe negotiated

refund checks) were to be submined to the Audit staff. The report further noted that iffunds

were not available to make the necessal1' refunds. the contributions should be disclosed as

debts owed by the Comminee on Schedules D (Debts and Obligations) until such time that

funds were available and the debts extinguished.

In the Commincc·s response to the interim audit repo~ the Committee

submined evidence \\'hich demonstrated that 13 of the 28 items were from pennissible

sources. The remaining 15 items totaled $::.710.3

Duong the period covered by the audit. the Committee reponed refunds of prohibited. excessive and

other quesuonable contributions totaling S~.685

3 The Comminee filed amended Scheoules 0 whIch disclosed all 28 contributions as debts o,,-ed by l·he

Commlnee. The Committee Treasurer stated that there were no funds available to pay these debts and

that even though some ofthem may have been legitimate contributions. he .....decided to elT on the side

of caution..:' and disclose them as debts of the campaign

Page '7
o

c

6

B. ApPARENT EXCESSIVE CONTRIBUTIONS

Sections 441a(a)(1 )(A) and (a)(2)(A) ofTitle 2 ofthe United States Code state,

that no person shall make contributions to any candidate and his authorized political

committees with respect to any election for Federal office which. in the aggregate, exceed

$1,000 and that 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 lOO.7(a)(1)(iii) ofTitle 11 ofthe Code of Federal Regulations states, in

part, that the tenn "contribution" includes a gift subscriptio~ I~ advance. or deposit of

money or anything ofvalue made by any person for the purpose ofinfluencing any election

for Federal office. The term "anything of value" includes aU in-kind contributions.

Section l03.3(b)(3) ofTitle 11 ofthe Code ofFederal Regulations states, in

pan. that any contributions which on their face exceed the contribution limitation set forth in

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

but which exceed the contribution limits set forth in 11 CFR 110.1 or 110.2 when aggregated

with other contributions from the same contributor. and contributions which cannot be

accepted under the net debts outstanding provisions of 11 CFR 110.1(b)(3) and 110.2(bX3)

may be either deposited into a campaign depository under 11 CFR 103.3(a) or returned to the

contributor. Ifany such contribution is deposited. the treasurer may request redesignation or

reattribution ofthe contribution by the contributor in accordance with 11 CFR 110.1(b),

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

treasurer shall. within sixty days ofthe treasurer's receipt ofthe contributio~ reftmd the

contribution to the contributor.

Section I03.3(b)(4) ofTitle 11 ofthe Code of FederaJ Regulations in

pan.. that any contribution which appears to be illegal and which is deposited into a campaign

depository shall not be used for any disbursements by the political committee until the

contribution has been detennined to be legal. The political committee must either establish a

separate account in a campaign depository for such contributions or maintain sufficient funds

to make all sl~ch refunds.

Section 110.1(k) of Title 11 ofthe Code of Federal Regulations states.. in pan.

that any contribution made by more than one person. shall include the signature of each

contributor on the check.. money order.. or other negotiable instrument or in a separate writing.

A contribution made by more than one person that does not indicate the amount to be

attributed to each contributor shall be attributed equally to each contributor. If a contribution

to a candidate on its face or when aggregated \\ith other contributions from the same

contributor exceeds the limitations on contributions.. the treasurer may ask the contributor

whether the contribution ""as intended to be a joint contribution by more than one person. A

contribution shall be considered to be reanributed to another contributor ifthe treasurer ofthe

\

!
c

'1-;'

7

recipient political committee asks the contributor whether the contribution is intended to be a

joint contribution by more than one person.. and informs the contributor that he or she may

request the return ofthe excessive portion ofthe contribution ifit is not intended to be a joint

contribution; and within sixty days from the date ofthe treasurer's receipt ofthe contributio~

the contributors provide the treasurer with a \\Tinen reattribution ofthe contribution.. which is

signed by each contributor. and which indicates the amount to be attributed to each

contributor if equal attribution is not intended.

The Audit staffs revie,,' of contributions identified apparent excessive

contributions from individuals totaling $5.985 and apparent excessive contributions from

other political committees (PACs) totaling $3.700. We did not find any evidence that the

Committee attempted to contact contributors for the purpose of obtaining reattributions or

redesignations ofthe contributions pursuant to 11 CFR 110.1(1<)(3) or 110.1(b)(5). It should

be noted that the regulatory period in \\iUch the Committee may seek and obtain proper

reattributions or redesignations has expired. Further. the Committee did not maintain a

separate account to deposit the questionable contributions nor did it maintain sufficient funds

to make refunds ofsuch contributions.

According to a Committee representative. contributions were aggregated by

revie\\ing previous disclosure report entries and by using a computerized database." He

added that the Committee DOted any excessive contributions. contacted the contributor to

obtain a redesignation or reattribution or.. ifnecessary. made a refund ofthe excessive portion

ofthe contribution.5 It should be noted that none ofthe reported refunds were for the apparent

excessive contributions identified by the Audit staff.

The Audit staff identified several factors that resulted in the Committee

recei,ring excessive contributions. In several instances. individuals made contributions from

both their personal accounts and business accounts: the contributions were not aggregated

correctly. For example. the contributions from the individual's business were either recorded

in the Comminee's database under the business name or \\'ere omitted from the database. The

Audit staff vie\\'ed such contributions as having been made by the signatory on the check,

\\"hen available. or by the apparent O\\ller ofthe business as recorded in the Committee's

receipt documentation.

In other instances contributions \\'ere attributed to individuals and/or spouses

\\;thout the required signatures. The Audit staff considered the contributions to be made by

4 As discussed In Section 1.0 of thiS repon. the Comf"llnee's database v. as incomplete and. as a result.

the Audit staff was unable to use It for testing purposes

Dunng the ~nod covered b~ the audit. the Commmee reponed refunds of prohibited. excessive and

other questionable contnbutlons totahng S~.685
8

the individual who signed the contributor check unless documentation to the contrary was

made available for review.

Further, it appears that the Committee aggregated for limitation pl.up0se5

certain contributions from other political committees (PACs) on a calendar year basis, as

opposed to, on a per election basis. According to FEC Disclosure Reports filed by the PACs,

the contributions noted as excessive by the Audit staff were designated by the PACs as

contributions to the General election: however. the Committee attributed the contributions to

the Primary election. It should be noted that in instances where no documentation containing

the contributor's election designation was made available for review or when there was a

conflict between the contributor's and the Committee's reports, the Audit staff compared the

date ofthe contribution t~ the date ofthe Primary Election to detennine whether a

contribution was for the Primary or General Election. (See 11 CFR §110.1).

On May 10. 1996. the Committee was presented with a schedule ofthe

apparent excessive contributions. The Committee made no related comments at that time.

In the interim audit report.. the Audit staffrecommended that the Committee

provide evidence that the contributions in question were not in excess ofthe limitations. If

unable to provide such evidence, it was further recommended that the contributions be

refunded to the contributors and evidence ofsuch refunds (copies ofthe front and back ofthe

negotiated refund checks) were to be submitted to the Audit staff: The report further noted

that iffunds were not available to make the neressary refunds, the contributions should be

disclosed as debts owed by the Committee on Schedules D (Debts and Obligations) until such

time that funds were available and the debts extinguished.

In the Committee's response to the interim audit report, the Committee filed

amended Schedules D which disclosed all apparent excessive contributions from individuals

and P.ACs noted above as debts owed by the Committee. The Committee Treasurer stated that

there were no funds available to pay these debts.

c. ITE~IIZATION OF DEBTS AND OBLIGATIONS

Section 434(b)(8) of Title 2 of the United States Code states, in part, that each

repon filed under this section shall disclose the amount and nature of outstanding debts and

obligations owed by or to such political comminee~ and ""here such debts and obligations are

settled for less than their reponed amount or value. a statement as to the circumstances and

conditions under which such debts or obligations were extinguished and the consideration

therefor.

Sections 104.11(a) and (b) of Title 11 ofthe Code of Federal Regulations state.

in pan. that debts and obligations owed by or to a political committee which remain

outstanding shall be continuously reponed until extinguished. These debts and obligations

Pa~e 10

\

I

\
c·

9

shall be reported on separate schedules together with a statement explaining the circumstances

and conditions under which each debt or obligation was incurred or extinguished. A debt or

obligatio~the amount ofwhich is over $500 shall be reported as ofthe date on which the

debt or obligation is incurred, except that ally obligation incurred for rent, salary or other

reoccurring administrative expense shall not be reported as a debt before the payment due

date.

As noted in the Scope section ofthis Repon, the Audit staffs testing ofthe

Committee's reporting of debts and obligations was limited. The Committee did not maintain

documentation from its vendors (i.e., invoices and/or receipted bills) that detailed when

expenses were incurred for a material number ofits disbursements. (See Finding II.G.) Thus..

the Audit staffwas unable to detennine whether or not the Committee was accurately

reporting its debts.

Nonetheless, the Audit stafftested for compliance with the debt reporting

requirements ofthe Act by reviewing documentation received in response to a Commission

subpoena relative to a limited group of disbursements. The testing identified debts incurred.,

totaling $96..499.. related to two vendors that were not reported correctly.

Further, in its Mid-Year 1993 disclosure reports, the Committee indicated that

disputed debts were resolved which reduced the Committee's outstanding debts and

obligations by 536.000. No evidence was found in the Committee's records which explained

the nature ofthe dispute and corresponding reduction in the amoUDts owed. It should be

noted that the Committee's 1992 disclosure repoJ1S indicated that the Committee made

payments to these vendors during the 1992 campaign.

A schedule ofthe debt reporting errors was presented to the Committee on

May 10, 1996. The Committee made rIO related comments at that time.

In the interim audit repo~ the Audit staffrecommended that the Committee

provide documentation which detailed the circumstances surrounding the disputed debts.,

including., but not limited to" a copy of any correspondence relating to the resolution ofthe

disputed amounts. The Audit stafffurther recommended that the Committee file amended

Schedules D (Debts and Obligations) to disclose the amount of debts outstanding.. additional

amounts incurred" and related payments for the reports filed during the period January 1.. 1993

through December 31" 1994.

In the Committee's response to the interim audit report, the Committee

submitted documentation which materially detailed its reduction in debts owed due to the

settlement of cenain disputed debts from the 1992 campaign. In addition.. the Committee filed

amended Schedules D which materially corrected the debt and obligation omissions noted

above.

Page 11
c

I.I}

10

D. DISCLOSURE OF CONTRIBtnlON INFORMAnON

Section 434(b)(3) ofTitle 2 ofthe United States Code states, in part, that each

report under this section shall disclor.e the identification of each person (other than a political

committee) who makes a contribution to the reporting committee during the reporting period't

whose conttibution or contributions have an aggregate amount or value in excess of$2oo

within the calendar year.. or in an)' lesser amount ifthe reporting committee should so elect.

together with the date and amount ofany such contribution.

Further.. each report shall disclose the identification ofeach political committee

which makes a contribution to the reporting committee during the reporting period, together

with the date and amount ofany such contribution.

Section 431 (13) ofTitle 2 ofthe United States Code states, in part, that the

term "identification" means in the case of any individual, the name, the mailing address, and

the occupation ofsuch individual. as well as the name ofhis or her employer; and in the case

ofany other person. the full name and address ofsuch person.

Section 104.7(8) and (b) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that if best efforts have been used to obtain, maintain and submit the infonnation

required by the Act for the political committee, any report ofsuch committee shall be

considered in compliance with the Act. With regard to reporting the identification ofeach

person whose contribution(s) to the political committee and its affiliated committees

aggregate in excess of5200 in a calendar year" the treasurer and the committee will only be

deemed to have exercised best efforts if all ofthe following are present: all written

solicitations for contributions include a clear request for the contributor's full name. mailing

address, occupation and name ofemployer; the treasurer makes at least one effon, in either a

written request or a documented oral request. within thirty days ofthe receipt ofthe

contribution. to obtain the information~and. the treasurer reports all contributor infonnation

not provided by the contributor. but in the committee's possession, including information in

contributor records.. fundraising records and previously filed reports.. in the same two year

election cycle. (The effective date ofthis regulation was March 3. 1994.6

As noted in Section I.D. ofthis repan. the Comminee's contribution records

were not maintained in a manner which would have allowed the Audit staffto perfonn the

substantive testing normally undenaken when reviewing contributions. However. the Audit

6 This regulation also includes the prOVIsion that to demonstrate best ~fTons. the wrinfen solicitations

must contain a statement that the requested contributor infonnation is required by Federal law.

However. on February 20. 1996. the Coun of appeals for the D.C. Circuit invalidated the mandatory

statement proVISion. (Repubhcan National Commmee ~'. FEC. 76 F.3d 400 (D.C. Cir. 1996)1 The

coun provided that the followang language appears to satisfy the best efTons requirement: 66Federal law

requires us to use our best efTons to coU~ct the mfonnatton:' [RNC. 76 F.3d at 406]

Page 12
c

11

staffwas able to use the available copies of contributor checks and the Committee's disclosure

reports to reconcile the Committee's database to the bank activity. It should be noted that the

database contained duplicate entries~ inaccurate contribution amounts, and other errors

involving the data recorded. In addition~ severa! contributions were omitted from the

database.

The Audit staffs revie\\' of contributions received from individuals revealed a

material number of errors regarding the disclosure of contributor names. contribution datec:,.

aggregate year-to-date totals, contributor addresses and earmarked contributions.

With respect to disclosure of occupation and name of employer infonnation.

the Audit staffs testing also revealed a material number of errors. In many instances the

words "Best Efforts" were included in the Name of Employer field on Schedules A

(Contributions from Individuals). It should be noted that the Committee did provide a few

solicitation devices to the Audit staff. some of ",ilich contained a request for the contributor's

occupation and name of employer. while others did not.

Nonetheless" the Comminee was unable to demonstrate that it had exercised

best efforts to obtain" maintain and submit the required occupation and name ofemployer

infonnation. The Comminee did not provide any evidence of a second 'Minen or oral request

to obtain the missing information as required by 11 CFR §104.7.7

Further. the Audit staffs testing of contributions from other political

committees (PACs) revealed a material number of errors invo~ving disclosure of contributor

addresses and aggregate year-to-date totals.

Included in the Audit staffs review of contributions \\'85 a 5500 receipt from an

unregistered political comminee. Napa County Democratic Caucus (NCDC). The Committee

reponed this contribution as an offset to operating expenditures. Specifically the Committee

disclosed the contribution as a ftRental Deposit Refund" in its 1993 Mid-Year report. The

Audit staff found a lener from the treasurer of the NCDC \\'hich stated:

"At its regular meeting on February 6. 1993. our membership

voted to contribute $500 to your comminee. Since them (sic] I

have been In contact \\1th the California FPPC Consultants for

guidance in the procedure \\'e are obligated to follo\\' "'hen

such contnbutions have been made. They suggested that \\'e

would be responsible for making repons to the FEe.

The maJonty of the errors mvol\-ed contnbutlons dated after the effective date of the change to 1) CFR

§ 104.7 The Commmee did not satlS~ the best efforts prOVIsion of either the current or fonner

regulation" Ith respect to the contnbutlons In question

Pace .. _
12

"I also called your 800 number and requested your 10# as well

as any guidance you may be able to provide. We hoped to

complete this business prior to our next meeting, and., since I

have not heard from you to date I have decided to identify this

contribution as a 'refund ofrent paid to our Headquarters

during the campaign.'

"Perhaps. that may eliminate the necessity for making

whptever FEC reports wO\lld be required. 1repeat~ we

welcome any guidance from your committee in our obligations

according to FEC requirements."

In our review ofthe available disbursement documentation.. the Audit staffdid

not find any evidence ofpayments made from the Committee's accounts to the NCDC.

"0 Further.. the Committee reported receiving $1,000 from Ukiah Valley

Democratic Club (one 5500 check on October 12. 1994 and another 5500 check on October

20, t 994) as "Offsets to Operating Expenditures". These receipts were disclosed as a

C' "Refund" and "Refund ofRent" .. respectively: however, the Committee's disbursement records

o indicate that a single payment ofS356 on December 12~ 1994 was made to the Ukiah Valley

Democratic Club for "Rent."

I])

Based on the infonnation made available during fieldwork, it appears that the

SSOO received from the NCDC was a contribution and not a "Rental Deposit Refund" as

disclosed by the Committee. Furthcr~ the correspondence from the NCDC treasurer,. wherein

he -decided to identify this contribution as a 'refund ofrent paid to our Headquarters during

the campaigntt'[emphasis added]. raises the question as to whether the Committee knowingly

misreponed the transaction at issue.

As for the $1.000 received from Ukiah Valley Democratic Club.. the disclosure

ofthese transactions as offsets. rather than contributions, is questionable.

A schedule of the disclosure errors "'as presented to the Comminee on May 10.

1996. The Comminee made no related comnlents at that time.

In the interim audit repon. the Audit staff recommended that the Committee

provide the following documentation or corrective amendments:

\

\

\,

o Evidence which demonstrated that best efforts had been used to obtain.

maintain. and submit the required disclosure infonnation and any evidence of

follow up "nnen or oral requests to contributors for this infonnation; or.

Pasr€ l~
o

o

o

o

13

Absent such demonstration. the Committee was requested to make an effort to

contact those individuals whose contributions aggregated in excess of$200 in

a calendar year and whose required information was missing, incomplete, or

designated "Best Effons" in the reports. These contributors were to be

requested \0 ~-ubmit this infonnation and to be infonned that Federal law

required the Committee to disclose such information:

Documentation of any such contacts:

Copies ofany contributor responses: and

Amended Schedules A (Itemized Receipts) to disclose any information

obtained from these contacts and/or to conect information originally reported

incorrect)y.

c

'1')

c

The Audit stafffurther recommended that the Committee provide an

explanation ofthe circumstances surrounding the receipt of apparent contributions from

various sources that it disclosed as Offsets to Operating Expenditures.

In the Comminee's response to the interim audit report. the Committee

submitted the following: a photocopy of a form le-tter, dated July 25. 1996! from the

Treasurer to individuals requesting missing contributor information; a listing of contributors

to whom the letter ,,-as sent; and, written responses from some ofthe recipients ofthe fonn

letter. The Committee also filed amended Schedules A which corrected the disclosure of

several ofthe contributions from individuals and PACs. Although the Committee provided

infonnation on these amendments. a material number of errors still remain regarding the

names and addresses of contributors. as well as the dates and aggregate year-to-date totals for

contributions.

Regarding the three items.. totaling S1..500.. disclosed by the Committee as

offsets to operating expenditures.. but noted by the Audit staff as contributions. the Treasurer

stated that in an effon to clarify these transactions. he searched the campaign files and talked

with ex-campaign staff but \\'as unable to detennine why these items were disclosed in this

manner. He added that as a result.. he re-characterized them as contributions on the amended

disclosure repons. The Audit staff notes that the disclosure ofthe $500 item from Napa

County Democratic Caucus did not change - it was still disclosed as an offset to operating

expenditures. The two items from Ukiah Valley Democratic Club.. totaling S1.000.. originally

disclosed as offsets were disclosed as contributions on the amended Schedules .A...

E. DISCLOSlJR£ or DISBllRS[!\tENT INFOR'tATIO~

Section 434(b)(S){A) of TnIe :! ofthe United States Code states. in pan. that

each repon under this section shaJJ disclose the name and address of each person to whom an

Page 15
14

expenditure in aggregate amount or value in excess of5200 within the calendar year is made

by the reponing committee to meet a candidate or committee operating expense, together with

the date, amount. and purpose ofsuch operating expenditure.

Section 104.3(bX3)(i)(A) and (8) ofTitle 11 oftbe Code of Federal

Regulations states~ in that purpose means a briefstatement or description ofwhy the

disbursement was made. Examples ofstatements or descriptions which meet the requirements

include the following: dinner expenses~ medi~ salary.. polling. travel.. party fees, phone

banks. travel expenses, travel expense reimbursement.. and catering costs. However,

statements or descriptions such as advance. election day expenses, other expenses.. expenses..

expense reimbursement, miscellaneous~outside services.. get-out-the-vote and voter

registration would not meet the requirements of 11 CFR 104.3(bX3) for reporting the purpose

of an expenditure.

As noted in the Scope section ofthis repo~ the Audit staffs testing of

disbursements was limited. The Committee did not maintain documentation from its vendors

(i.e." invoices and/or receipted bills) that detailed the addresses and/or the purposes disclosed

on its Schedules B for a material number ofits disbursements. Thus, the Audit staff was

unable to determine whether the addresses and purposes disclosed on the reports were

accurate.

The Audit staffs testing ofdisbursements itemized on Schedules B ofthe

Committee's reportS revealed a material error rate for the 'required disclosure information.

The errors involved inadequate purposes. incomplete or omined addresses and combining two

separate disbursements into a single itemized entry.

The Audit staffnotified the Committee ofthe reporting problems on May 10,

1996. The Committee made no related comments at that time.

In the interim audit report. the Audit staffrecommended that the Committee

file amended Schedules B (Itemized Disbursements) providing complete and accurate

infonnation for the itemized disbursements.

In the Committee's response to the interim audit repon.. the Committee filed

amended Schedules B which corrected ~veral ofthe errors noted above. However. the error

rate relative to the Committee's overall disclosure of disbursement information is still

material.

F. l\1ISSTATEMENT OF FINANCIAL ACTIVIT\"

Section 434(b)(1). (2) and (4) ofTitle 2 ofthe United States Code require a

political committee to disclose the amount of cash on hand at the beginning of each reporting

Page IE-
c

'.r:

IS

period and the total amount of all receipts and disbursements for each reporting period and the

calendar year,

The Audit staffs reconciliation ofthe Committee's reported financial activity

to its bank activity revealed misstatements for 1993 and 1994.

A Committee representative indicated that he had essentially prepared the

disclosure reports using only the Comminee's bank statements.. canceled checks.. and

incomplete deposit tickets forwarded to him by campaign personnel. He also indicated that

the reponed totals for the unitemized receipts and unitemized disbursements were derived in

an attempt to reconcile the reponed activity· {) the bank activity. The Committee did not

maintain records that detailed the calculation ofits reported activity for the entire audit period.

Absent such records, and given the unitemized amounts were used as reconciling items, the

Audit staff could not identify all differences between the reponed activity and bank activity.

1, 1993 Misstatement

The Audit staffs 1993 bank reconciliation detennined that the

Comminee's reponed beginning cash balance -,. ~5.058 "'as understated by $1 ..381; reported

receipts of $1 14.. 142 were understated by S~..820; reported disbursements of $1 v 1..200 were

understated b)· $4,172: and reponed ending cash balance of $19,708 was understated by

S2.493.

N The beginning cash misstatement relates to an unexplained prior period

adjustment. It is likely that the Committee did not report the beginning cash balance ofone of

its accounts,

c: The understatement ofreceipts was the result of unreported receipts

totaling $700. unreponed interest of S55 (credited to the Committee's certificate of deposit)..

and an apparent understatement of unitemized receipts totaling $2.065,

The understatement of disbursements \\'as the result of unreported

disbursements totaling $4.. 118 and unreponed bank charges of $54.

The ending cash misstatement "'as the net result ofthe receipts and

disbursements differences.. along "ith an error of $2.464 in the amount recorded as the 1993

Year-End Beginning Cash on Hand.

., 1994 b-1 isstatement

The Audit staffs 1Q94 bank reconciliation determined that the

Comminee's reponed beginning cash halance of $19.~9~ \\'as understated by $2.909~ reported

Paae 1-
o

o

,r-' ,

'-

16

receipts of$720,311 were overstated by $28.475; reported disbursements of$737,584 were

overstated by 525,677; and reported ending cash of$2,020 balance was understated by SIlO.

The beginning cash misstatement was the result of prior period

adjustments totaling 52.493 and an error in the amount recorded as the April 15th Quarterly

Beginning Cash on Hand of$416.

'The overstatement ofreceipts \\115 the net result of overstated PAC

contributions ofS1.500, unreported PAC contributions ofSlO.6~5. duplicate reporting of

PAC contributions totaling $3,000, and an apparent overstatement ofunitemized receipts

totaling S34,600.

The overstatement of disbursements was the net result of unreported

disbursements totaling $720, disbursements that were reported twice of58,292. and an

apparent overstatement of unitemized disbursements totaling S18,1 05.

The ending cash misstatement was the net result ofthe receipts and

disbursements differences.

It should be noted that the Audit staffmade an adjustment to the 1994

bank activity in the amount of $28,649 to account for Committee checks that were debited

from the Committee's accoun~ redeposited and then debited from the account a second time.

The checks were payments to the same vendor (Erickson & Company) who, apparently, was

not endorsing the checks before depositing them into its account. The vendor's bank returned

the checks to the Committee's bank because oflack of proper endorsement. These payments

were correctly reported (only once) as itemized disbursements by the Committee. However, it

appears that the unitemized receipts and disbursements totals were derived without

considering the effects ofthese transactions on the bank activity totals; thus, the reported

unitemized receipts and disbursements totals were overstated.

,

C", On May 1O. 1996. the Comminee \\"as presented with a copy ofthe Audit

staffs 1993 and 1994 reconciliation workpapers. The Committee made no related comments

at that time.

In the interim audit report. the Audit staff recommended that the Committee

file amended Summary and Detailed Summary Pages and accompanying schedules for the

1993 and 1994 calendar years to correct the misstatement of financial activity noted above.

The Comminee filed amended repons \\'hich materially corrected these misstatements.

G. DOCUMEl''TATIOS FOR DISBURSEMENTS

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

a political committee to keep an account of the name and address of every person to whom

Page IS
c

17

any disbursement is made. the date, amount, and purpose ofthe disbursement, and the nam~

ofthe candidate anC the office sought by the candidate, ifany, for whom the disbursement

was made, including a receipt, invoice, or canceled check for each disbursement in excess of

$200.

Section 102.9(b)(1) and \.:! J ~f Title 11 ofthe Code ofFederal Regulations

states. in part. that an account shall be kept of all disbursements made by or on behalfofthe

political committee. Such account shall consist of a record ofthe rlWlle and address of every

person to whom any disbursement is made and the date, amount and purpose ofthe

disbursement. In additio~ a receipt or invoice from the payee or a canceled check to the

payee shall be obtained and kept for each disbursement in excess of$200 by or on behalf of,

the committee.

Section 104.3(b)(4)(i)(A) ofTitle 11 ofthe Code of Federal Regulations

defines "purpose" as a briefstatement or description ofwhy the disbursement \\~ made.

The Audit staffreviewed the Committee's disbursements on a sample basis and

determined that the Committee did not satisfy the minimum recordkeeping requirements for a

material number ofits disbursements. The Committee did maintain canceled checks for most

ofits disbursements, however.. the checks did not detail the purpose ofthe disbursement

and/or contain the payee's address.S

1be Committee \\'85 notified on May 109 1996 that it did not satisfy the

minimum recordkeeping requirements. The Committee made no related comments at that

lime.

In the interim audit report.. the Audit staffrecommended that the Committee

obtain and submit documentation which provided the addresses and purposes fOi its

disbursements or provide evidence of its efTons to obtain such documentation. The

Comminee did not respond to this finding.

8 As noted in the Scope section of thiS report. the CommiSSion had to Issue subpoenas to the Committee's

treasurer and financial institutions for production of cenam documents ancludmg several canceled

checks

Page 19
FEDERAL ELECTION COMMISSION

December 2~ 1996

-.. '- .

c

Mr. Ted Loring. Jr., Treasurer

Dan Hamburg for Congress

c/o SERA Group

710 E Street.. Suite 230

Eureka, CA 95502

Dear Mr. Loring:

Attached please find the Final Audit Report on Dan Hamburg for Congress. The

Commission approved the repon on November 25, 1996.

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

on December 9~ 1996. Should you have any questions regarding the public release ofthe

report. please contact the Commission's Press Office at (202) 219-4155 or toJl-free at (800)

424-9530. Any questions you have related to matters covered during the audit or in the

repon should be directed to Brian Dehoffor Marty Favin ofthe Audit Division at (202)

219-3720 or at the above loll free number.

Sincerely,

-#L-Ij£;f- R·,hen J. Costa

Assi:;tant Staff Director

Audit Division

Attachment as stated

Paoe 21
CHRONOLOGY

DAN HAMBURG FOR CONGRESS

o

-:j

c

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Repon

Final Audit Report Approved

Page 23

615195 - 6/27/95

6/18/96

9/3/96

11125/96