.,

• FEDERAL ELECTION COMMISSION

WASHINCTON, 0 C. 204&3

'1'01

PROM:

SUBJECT:

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November 4, 1986

MEMORANDUM

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DI~O~ AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT - NATIONAL ORGANIZATION POR WOMEN

POLITICAL ACTION COMMITTEE

Attached please find a copy of the final audit report of the

National Organization for Women Political Action Committee which

was approved by the Commission on October 23, 1986.

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: FEe Library

RAD

Public Disclosure

Offiee of General Counsel
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fEDERAL ELECTION COMMISSION

WASHINC1ON. D.C,-.u

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.PORT or ftE AUDIT DIVISION

, OR " MATJONAL ORGARJIAT!OH roR WOMEN 'OLJ'J'ICAL ACTION COMMITTEE .. . , .e .. . 2.· ' lackarouna :.

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~h!. report 1. ba.ea on an aualt of the Rational

Organl.ation for Women 'olltical Action Committ•• C-the

Committe.-), una.rtaken by the Audit Dlvl.lon of the reaeral

Election Commi••lon in accordance with the provision. of the

rederal Election Camp.19ft Act of 1"1, a. amena.a (-the Act-). ~h. aualt vaa conducted pur.uant to 2 U.S.C. I 438(b) Which

atat••, in part, that the Comml••lon .ay conduct audits and field l~••tlg.tlon. of ,any political committee required to file a

report under ••ctlon 434 of thl. title. 'rior to conaucting any audit under this .ublectlon, the Comml••lon .hall perform an

internal review of reports filed by .elect.a committe•• to

determine if the report. fllea by a particular committee .eet the

thre.hold re;ulrementa for sub.tantlal complla~c. with the Act.

~he Committe. registerea with tbe Peaeral Election

CommlB81on on April 17, 1'78 .n~ maintains its headquarter. in

Washington, D.C.

.. ~he Aualt coverea tbe perloa 3anuary 1, 1983 through December 31, 1984. ~he Committee reported an opening cash on

hana balance on 3anuary 1, 1983 of $17,219.11, total receipt. for

the perlo~ of $364,804.29, total disbursements for the period of '373,294.66.~na a cloaing cash balance on December 31, 1984 of

$8,728.59.V··' . This report Is based on ~ocuments ana workpapers 8upportlng each of its factual statements. They form part of the

record upon which the Commission basea its decision. on the

matters In the report ana were available to the Commissionera ana .pprop~late staff for review.

11 The totals ao not foot due to minor mathematical

dlscrepancl•••
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B. Key Per.onnel

~he ~re••urer of the Committee during tbe perloa

coverea by the auait vas Ms. Alice B. Chapman. • •

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~he auait included aucb teet. 8S verification of total

Eeportea receipt. and disbursements .n~ individual transactions, review of required supporting documentation, analysi8 of

Committee debts and obligations, and such other au~it procedures

8. deemea necessary under the circumstances. ~he Committee's

contribution records did not meet the recordkeeping requirements of 2 U.S.C. S 432(c) and 11 C.P.R. S 102.9(a) or (c), as the

Committee vas not able to furnish complete contributor records

for Inspection. ~herefore, the audit did not Include the

atandard audit procedure of verification of individual receipt transaetiona.

II. Audit Findings and Recommendationa

Sections 434(b) (2) and (4) of ~itle 2, United States

Code, require that a committee report the total Bum of all

receipts and expenditures made during a reporting period ana the

calendar year.

A reconciliation of the Committee~. bank accounts to

its disclosure reports indlcateJ that total receipts .n~ total

disbursements were each understated by $20,000. These , understatements were apparently the result of disclosure errora

made on the monthly reports for April and May, 1984 involving two relate~ transactionsl (1) a payment of $52,797.99 to NOW, Inc., the Committee's connected organization, for costs associated with

a fundraising appeal, and (2) t~e subsequent partial ($20,000) refund of this payment. .'

Por the month of April, 1984, the Committee recorded

expenditures totaling $104,965.48 In their financial records.

The Committee's April monthly report, however, disclosed total

disbursements of only $84,965.48. This $20,000 understatement

was further Isolated in the ·Operating Expenditures· category on

the April' monthly report. Committee f~nanclal records reflected

$53,940.48 In operating expenditures while the April monthly

report disclosed only $33,940.48 •

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A. Missta~ement of Pinancial Activity
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A .I.llar reconciliation of total recordea receipt. to

total Eeportea receipt. for May 1984 revealed that tbe Committee

underatated it. total receipts by '20,000. ~he Committ.. • • recorded '50,513.55 In income on its books for the month yet the

May monthly report di.closed only '30,513.55 In total receipt. f~r th1t perlocS•

: rurtti~r analysla revealed that an April 25, 1984

payment to HOW,' ~nc. in the amount of '52,797.99 was reported a.

'32,797.", or, net of • aUbsequent.$20,OOO partial refund ~.celved from HOW, Inc. on May 2, 1984 (before the April monthly

report wa. filed). While the Committee'. books reflect the

'52,797.99 payment In April ana a $20,000 -transfer- from HOW,

Inc. In May, neither tran.actlon was itemized on the respective di8closure report'. Schedules A or B. (The Committee's failure

to itemi•• theae transactions i. addre••ed at Finding JI.8.3.)

In the interim report the Audit staff recommended that

the Committee correct its di.closure reports for the above

meQtloned items by means of a comprehensive amendment for

calendar year 1984. On May 1, 1986, the recommended amendment

vaa fil.....

Recomenc!atlon

~he Audit .taff recommen~s no further action on this matter.

B. Disclosure of Rece-ipts anc5 Disbursements

1. Itemization of Loans and a Loan Repayment

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•... Section 434 (b) (6) (B) (II) of Title 2, United States

Code, provides that each report under this section shall disclose

the name and address of each person who bas received a loan from . tbe reporting committee, togeth~r· with the date and amount of

8ucb loan. Section 104.2(e) (3) of Title 11, Code of Federal

Regulations, states that -[p]olitlcal committees other than

authorized committees shall file reports on FEe Form 3X·.

Instructions for the Detailed Summary Page of FEe Form 31 dictate

that for each loan repayment the identification of the person making the loan repayment, as well as the date and the amount

ahall be provid.....

'. During April, 1984, the· Committee mac5e loans in

the amounts of $5,000 and $15,000 to NOW Equality PAC (aNEP-), NOW, Inc.'. non-federal committee. Although the total ($20,000)

was 11stea on Line 25 (Loans Made) of the April 1984 Monthly Report's Detailed Summary Page (DSP), a Schedule B itemizing these loans was not provided.
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In aadltloft, Committe. recorda reflect a '20,000 loan repayment from -HEp· on May 31, 1984. Again, although the

total ($20,000) va. listed on Line 14 (Loan Repayments Receive8r

of the May 1984 Monthly Report'. OS,, • Schedule A, with tbe

Ee;ulalte dlaclosure information ... not provldea. . .. It .hould be notea that Schedules C (Loans) were

provided with ,acb of tbe reports, continuously reporting the

atatu. ana term. of the loanl until e.tlnguiabed. .

2. Itemization of Expenditure.

. Sections 434(b) (5) ana (6) of ~itle 2, United

Stat•• Code, require, in relevant part, that each report unaer

thia ••ctlon .hall dlaclose the name and addre•• ofa each peraon

to whom an expenditure In an aggregate amount or value In excess

of '200 within the calen~ar year 1••aa. by the reporting committee to meet a committee operating expense, each authorizea

committee to Which a transfer 18 maae by the reporting committee, and each person who has received a loan from the reporting cammlttee, toget~.r with the date, amount and purpose. . During the course of the audit It was noted that

the Committee failed to itemize 25 operating expenditures, totaling $59,755.52. ~his represents 75.16' of the number and

44.87' of the dollar value of those operating expenditures requiring itemization.

3. Itemization of Operating Expenditures and Related

Refund

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Section 434 (b) (3) (P) of ~itle 2, United States Co~e,·provides that each report under this section shall disclose

the identification of each person who provides a rebate, refuna

or other offset to operating expenditures to the reporting committee In an aggregate amouQt·or value In excess of $200,

together with the date and amount of such receipt. Further, 2

U.S.C. S 434(b) (5) requires each report to disclose the name an~

address of each person to whom an expenditure in an aggregate

amount or value In excess of $200 is made to meet a committee

operating expen•••

. . As dl8cussea In Flnaing II.A. above, the Audit

ataff's reconciliation of bank accounts to disclosure report. indicated the Committee's FEe reports understated total receipts

ana disbursements by $20,000 each. It was noted that these

misstatements were the result of disclosure errors on successive
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~.port. relating to • '20,000 refuna recelvea by the Committee

and a '52,797." ••penaiture .aae by the Committee. Purther, •• neither • leheaul. A nor a lebeaul••, reapectively, ••• filea

with thea. report. providing the re;uialte discloaure Infor••tlon

for ~e two identlfiea It••••

All of tbe above noted omis.lons .eem to bave

re.ulted from an apparent _iaunaerstandlng of ~i.cl0.ur. and lte~iz.tlon requir••ents. · . # •

In the interim repor~ the Auait ataff recommenaea

that the Committee amena it. disclosure reports by filing the

appropriate supplemental Bchedules (Schedule A or B) fully disclosing the above noted receipts ana disbursements a. part of

a comprehensive amenament. On May 1, 1986, the supplemental .chedulea were fllea.

Recommenc!atlon

~he Auait .taff recommends no further action on this matter.

-- c. Loans to a Hon-Federal Committee

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Section 100.7(a) (1)(1) (E) of ~ltle 11, Code of Pederal

Regulations, states, in relevant part, that when a political committee makes a loan, repayment ahall be made from funds Which

are subject to the prohibitions of 11 C.F.R. S 110.4(8) and Part

114. Further, 11 C.F.a. S 102.S(b)(1)(il) provides that

organizations tlaat are not political committees under the Act m.y demonstrate through a reasonable accounting method that whenever

8uch organization makes a contribution, expenditure or exempted

payment, that organization has received sufficient funds SUbject

to the.limitations and prohibitions of the Act from which to make

8uch contribution, expenditure or payment.

As noted In Finding II.B.l., tbe Audit staff determinea

that during Apr!l, 1984 NOW-PA~~ade loans totalling $20,000 to

NOW Equality PAC (-HEP-), NOW, Inc.'s non-federal committee. In

May, 1984, NOW-PAC received repayment of the loan. Neither the

loan nor the loan repayment was itemized in NOW-PAC's reports. Moreover, the repayment of the loan with NOW, Inc. general

treasury monies ralaes a question as to the permissibility of

such a t~ansactlon.

Commission regulations at ll-C.P.R. S 100.7(a) (1)(1)(1) provide that the repayment of such a loan does not constitute a

contribution by the debtor to the lender. It does, bowever, subject the loan to the limitations and prohibitions of 11 C.P.R.

Parts 110 ana 114. A8 such, repayment may only be made from

funds which are permissible under the Act. .' . .
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Committ•• official••avl••d the auditor. tbat .ow

.quality .AC 1. actl•• In non-federal elections throughout tbe

country. ~hey atatea that· .Ince election la.. vary 80 .uch from

atate to .tate, to be .afe, ROW Equality PAC complle. with the atrl~~.st of atate la.., which probibit corporate ana labor

·tuna••

In the Interim .uait report, the Audit staff apprl.ed · the Committe. of our opinion that documentation supporting the

permissibility of the compo.ition of ROW Equality PAC fands would

obviate the fln~lng of violation of 11 C.F.R•••rt 114. Further,

It vas recommended the Committ.e demonstrate through a reasonable

accounting .ethod, or otherwl.e document, that .ufficient

permis.ible funds were contalnea in REP'. account at the time of

the repayment. ~he COmmittee'. r.spon•• of May 1, 1986 provided .uch documentation. .

Recommendation

~he Audit ataff recommena. no furtber action on this matter.

D. ,~ansfer of Punas from Connected Organization to

.' Separate Segregated Fund

Section t41b(a) of ~ltl. 2, United States Code, states, In part, that It 1. unlawful for any corporation to .ake a

contribution or expenditure In connection with. Federal election

or for a political committee to knowingly accept ·or receive a

contribution prohibited by this aectlon. .

.Section 441b(b) (2) (C) of ~itle 2, United States Code,

provides that tbe term ·contribution or expenditure- shall not

include the establishment, administration, and solicitation of

contribution. to a aeparate segregate fund to be utilized for

political purposes by • corporation, labor organization, membership organization, cooperative, or corporation without

capital stock. ..~.

Section l14.5(b) (3) of '~Itle 11, Code of Federal

Regulations, states that if tbe separate segregated fund pays any solicitation or other administration expenses from itl own

account which could have been paid by the collecting agent, the

collecting agent may reimburse the separate segregated fund no

later th.n"30 calendar days after payment by the separate segre9~ted funa. Bowever, 11 C.P.R. S l14.5(b) prohibit. [. connected organization'.] use of the establishment, administration, and solicitation process a•• means of exchanging

treasury monies for voluntary contribution••
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During a reconciliation of Committee bank account. to

di.closure reports, It vas determined that total report.a •• Eecelpt8 ana disbursements were underatated by $20,000. ~bl.

unaeratatement was attributed to the mlsreporting of • . Eelm~u~.ement to NOW, Inc. ana tbe sUbsequent (partial) refuna of

this payment. ~ee Findings II.A. ana II.B.3. . . • • a

~. On Aprll 25, 1984, ROW-PAC transferrea $52,"7.99 to

ROW, Inc. for -administrative services.- (Related documentation

indicates that the transfer was a reimbursement of a NOW-PAC

mailing which appears to have been financed initially by ROW,

Inc.) Soon thereafter, on May 2, 1984, NOW-PAC received a

$20,000 transfer from NOW, Inc. According to Committee

officials, this represented a partial refuna of the

reimbursement, however, they could offer no explanation as to Why

tbe refund was ••a••

As cited above, Commission regulations allow connectea

organizations to.utilize general treasury fun~s In financing the

egtabllshment, aaministrationg and solicitation of contributions

to ita separate segregated fund (11 C.F.R. S l14.5(b». It Is

also permissible for the separate segregated fund to pay these

expenses directly ana receive reimbursement from its connected

organization 1f such reimbursement Is received within 30 calendar

days (11 C.P.R. S 114.5(b) (3». Bowever, In the instant

situation, HOW, Inc. paid for the NOW-PAC mailing initially, received a (voluntary) reimbursement from NOW-PAC, and then

apparently refunded a portion ($20,000) of the reimbursement back

to NOW-PAC.

..... In the interim audit report, the Audit staff notea

that, absent some explanation to the contrary, this refund may be

viewed as having resulted in the introduction of corporate general treasury funds into the separate segregated fund, in

violation of 2 U.S.C. S 441bCa) : •.

In their May 1, 1986 response, the Committee advised

that in NOW-PAC's reimbursement of NOW, Inc. • ••• and (sic) error

was made and an overpayment resultea. This error was discovered

and corrected within a week.- The response indicated that the $S2,797~99 payment to NOW, Inc. was reported as $32,797.99 (or

net of·the $20,000 transfer from NOW, tnc. to NOW-PAC, which was

not reported) •
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Given the clrcum.tance. 8urrounalng thl. tran.actton, el••• , the ahort perloa of tl•••1.p••a betwe.n tb. r.t.bur••••nt

ana th. tranlrer together with the fact that .OW, Inc. could have

per.llalbly funa.d tb••ntlre .mount of the admlnl.tratl._/ .Ql1~1~.tlon .xpena. on. week .arller thul .llmlnatlng any lmpre••lon of the -exchange· of funa.), the Auait Itaff accept. the Committee'. explanation ana flna. that no 2 U.S.C. S 441b

violation ba. o~curred. · e.

Recommenaatlon .

~be'Aualt ataff recammena. ftO further action on this matter.

•• Matters Referrea to tbe Office of General Counsel

Certain matters noted during the .ualt vere referred to

the Office of General Couns.l•

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