10

these letters. Without further evidence, BFC has not established that best efforts were
used to obtain the missing disclosure information.

Interim Audit Report Recommendation and Committee Response

In response to the interim audit report, BFC amended its Schedules A to correct the
disclosure information.

| Finding 5. Itemizing Disbursements

Summary

The Audit staff identified 44 disbursements totaling $24,192 that BFC failed to itemize as
required on Schedules B (Itemized Disbursements) of its disclosure reports. Of these
items, 23 disbursements were required to be itemized on the 2002 April Quarterly report
and 14 disbursements were required to be itemized on the 2002 Year End report which
had not been filed. In response to the interim audit report, BFC amended its reports to
itemize these disbursements.

Legal Standard
Reporting Operating Expenditures. When operating expenditures to the same person
exceed $200 within in election cycle, the committee must report the:

e Amount;

e Date when the expenditures were made;

e Name and address of the payee; and

¢ Purpose of such operating expenditures. 2 U.S.C. §434(b)(5)(A) and 11 CFR

§104.3(b)(4)(i)(A).

Facts and Analysis

The Audit staff reviewed all disbursements by BFC requiring itemization on Schedules
B. This review resulted in the identification of 44 disbursements totaling $24,192 that
were not itemized. Approximately 50% of these disbursements that were not itemized
were made during the 2002 April Quarterly report period and 31% were made during the
period from October 1, 2002 to December 31, 2002 for which no disclosure report was
filed by BFC.

Interim Audit Report Recommendation
In response to the recommendation in the interim audit report, BFC amended its
Schedules B to itemize these disbursements.


Part I
Background

Authority for Audit

This report is based on an audit of Battles for Congress (BFC), undertaken by the Audit
Division of the Federal Election Commission (the Commission) in accordance with the
Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division
conducted the audit pursuant to 2 U.S.C. §438(b), which permits the Commission to
conduct audits and field investigations of any political committee that is required to file a
report under 2 U.S.C. §434. Prior to conducting any audit under this subsection, the
Commission must perform an internal review of reports filed by selected committees to
determine if the reports filed by a particular committee meet the threshold requirements
for substantial compliance with the Act. 2 U.S.C. §438(b).

Scope of Audit

Following Commission approved procedures, the Audit staff evaluated various factors
and as a result, this audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

The disclosure of disbursements, debts and obligations.

The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

NWAWRONS

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act
of 2002 (BCRA). The BCRA contains many substantial and technical changes to the
federal campaign finance law. Most of the changes became effective November 6, 2002.
Except for November 7, 2002 through December 31, 2002, the period covered by this
audit pre-dates these changes. Therefore, the statutory and regulatory requirements cited
in this report are those that were in effect prior to November 7, 2002.



| Finding 2. Receipt of Contributions that Exceed Limits

Summary

BFC received contributions from 20 individuals which exceeded the contribution
limitation for the Primary election by $12,775. In response to the interim report, BFC
stated that funds were not available to make refunds and disclosed the amounts due to
these individuals on Schedule D.

Legal Standard

A. Authorized Committee Limits. An authorized committee may not receive more
than a total of $1,000 per election from any one contributor. A candidate who loses the
primary (or otherwise does not participate in the general election) does not have a
separate limit for the general election. If the candidate accepts contributions for the
general election before the primary is held and loses the primary, then general election
contributions must be redesignated or the contributions must be refunded within 60 days
of the primary. 2 U.S.C. §§441a(a)(1)(A) and (f); 11 CFR §§110.1(a) and (b) and
110.9(a).

B. Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:

e Return the questionable check to the donor; or

e Deposit the check into its federal account and:

o Keep enough money in the account to cover all potential refunds;

o Keep a written record explaining why the contribution may be illegal;

o Include this explanation on schedule A if the contribution has to be
itemized before its legality is established;

o Seek a reattribution or a redesignation of the excessive portion, following
the instructions provided in FEC regulations (see below for explanations
of reattribution and redesignation); and

o If the committee does not receive a proper reattribution or redesignation
within 60 days after receiving the excessive contribution, refund the
excessive portion to the donor. 11 CFR §§103.3(b)(3), (4) and (S) and
110.1(k)(3)Gi)(B).

C. Revised Regulations Applied. The Commission recently adopted new regulations
that allow committees greater latitude to reattribute contributions to joint account holders
and has decided to apply these regulations to current matters. The Audit staff has
evaluated the excessive contributions discussed below using the new regulations.

Facts and Analysis

A review of contributions identified 13 individuals that exceeded the limitation for the
primary election by $8,350. Ten of the individuals contributed more than the limitation
using a check with a single account holder (one name imprinted on the check). For these
individuals, BFC could not presumptively reattribute portions of the contributions to
another individual.> Two of the 13 individuals gave $2,000 each using their joint bank

3 Since the candidate lost in the Primary election, BFC could not redesignate contributions to the General
election.


Part III

Summaries
Findings and Recommendations

Finding 1. Misstatement of Financial Activity

BFC had misstatements of reported activity in 2001 and 2002. In 2001, receipts were
understated and in 2002, misstated activity included receipts, disbursements, and the
ending cash balance. Included in the misstatements for 2002 was activity between
October 1, 2002 and December 31, 2002 for which no report had been filed by BFC. In
response to the interim audit report, BFC amended its reports to correct the
misstatements.

(For more detail, see p. 4)

Finding 2. Receipt of Contributions that Exceed Limits
BFC received contributions from 20 individuals which exceeded the contribution
limitation for the Primary election by $12,775. In response to the interim report, BFC
stated that funds were not available to make refunds and disclosed the amounts due to
these individuals on Schedule D.

(For more detail, see p. 6)

Finding 3. Itemizing Contributions from Individuals

The Audit staff identified 41 contributions from individuals totaling $13,256 that BFC
failed to itemize on Schedules A (Itemized Receipts) of its disclosure reports. In
response to the interim audit report, BFC amended its reports to itemize these
contributions.

(For more detail, see p. 7)

Finding 4. Disclosure of Contributions from Individuals
BFC failed to properly disclose 47 contributions from individuals totaling $24,500. The
majority of the errors resulted from reporting incorrect election cycle-to-date totals. In
addition, BFC itemized 59 contributions from individuals with missing or inaccurate
occupation or name of employer information. For some of these contributions, BFC had
a record of the required disclosure information but failed to amend its reports. In
response to the interim audit report, BFC amended its reports to correct these
contributions.

(For more detail, see p. 8)

Finding 5. Itemizing Disbursements

The Audit staff identified 44 disbursements totaling $24,192 that BFC failed to itemize
on Schedules B (Itemized Disbursements) of its disclosure reports. Of these items, 23
disbursements were required to be itemized on the 2002 April Quarterly report and 14
disbursements were required to be itemized on the 2002 Year End report which had not
been filed. In response to the interim audit report, BFC amended its reports to itemize
these disbursements.

(For more detail, see p. 10)


Part II

Overview of Campaign

Campaign Organization

Important Dates

Battles for Congress

is)

¢ Date of Registration

June 26, 2001

e Audit Coverage

June 12, 2001 — December 31, 2002

Headquarters

East Providence, Rhode Island

Bank Information

e Bank Depositories

1

e Bank Accounts

1 Checking Account

Treasurer

e Treasurer When Audit Was Conducted

Gil Baird

e Treasurer During Period Covered by Audit

Marianne Bradford (until April 16,
2002) Gil Baird (from April 16, 2002)

Management Information

e Attended FEC Campaign Finance Seminar

No

e Used Commonly Available Campaign
Management Software Package

No

e¢ Who Handled Accounting and
Recordkeeping Tasks

Volunteer Staff

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ June 12, 2001 $0
o From Individuals 210,405
o From Politcial Committees 9,600
o Candidate Loan 5,000
o Offsets to Expenditures 682
o Other Receipts 781
Total Receipts $ 226,468
o Operating Expenditures 221,289
Total Disbursements $ 221,289
Cash on hand @ December 31, 2002 $5,179


2002 Activity
Reported Bank Records Discrepancy
Opening Cash Balance $50,944 $51,603 $659
Understated
Receipts $116,421 $121,729 $5,308
Understated
Disbursements $143,422 $168,152 $24,730
Understated
Ending Cash Balance $23,943 $5,180 $18,763
Overstated

In 2002, BFC misstated receipts and disbursements by the amounts of $5,308 and
$24,730, respectively. The misstatement is due, in part, to the failure to file a report for
the period October 1, 2002 to December 31, 2002. The financial activity for that period
is included in the following explanation of 2002 misstatements.

Receipts:

e Receipts Not Reported (1/01/02 — 9/30/02) + $ 3,094
e Year End Receipts Not Reported (10/01/02 — 12/31/02) + 1,070
e Unexplained Differences + 1,144
e Understatement of 2002 Receipts $ 5,308
Disbursements:

e Disbursements Not Reported (1/01/02 — 9/30/02) + $ 18,359
e Year End Disbursements Not Reported (10/01/02 — 12/31/02) + 5,478
e Wrong Amounts Reported on Schedule B + 148
e Unexplained Differences + 745
e Understatement of 2002 Disbursements $_ 24,730
Closing Cash on Hand:

Due to the misstatement of activity described above, BFC misstated the cash balance
throughout the Year 2002. As of September 30, 2002 (the latest date of reported activity
filed by the BFC), the closing cash on hand balance of $7,800 was overstated by $16,143.

Interim Audit Report Recommendation and Committee Response
In response to the recommendation in the interim audit report, BFC filed amended and
initial reports for each reporting period in 2001 and 2002 to correct these misstatements,
and also filed all reports for the Year 2003.



FEDERAL ELECTION COMMISSION
Washington, DC 20463

January 14, 2004

MEMORANDUM

TO: PRESS OFFICE

FROM: JOSEPH F. STOLTZ / Y
ASSISTANT STAFF DIRECTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON
BATTLES FOR CONGRESS

Attached please find a copy of the audit report and related documents on Battles for
Congress, which was approved by the Commission on January 6, 2004.

The report may be released to the public on January 14, 2004.

Attachment as stated

cc: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library
Web Manager


© The date of receipt (the date the committee received the contribution);

e The full name and address of the contributor;

e In the case of contributions from individual contributors, the contributor’s
occupation and the name of his or her employer; and

e The election cycle-to-date total of all contributions from the same contributor. 11
CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A) and (B).

Facts and Analysis

The Audit staff reviewed all contributions from individuals requiring itemization on
Schedules A. This review resulted in the identification of 41 contributions totaling
$13,256 that were not itemized. Twenty-four of these contributions were not itemized
because the BFC aggregated contributions from the same individual by calendar year
instead of by election cycle.

Interim Audit Report Recommendation and Committee Response

In response to the recommendation in the interim audit report, BFC amended its
Schedules A to itemize these contributions.

| Finding 4. Disclosure of Contributions from Individuals |

Summary
BFC failed to properly disclose 47 contributions from individuals totaling $24,500. The
majority of the errors resulted from reporting incorrect election cycle-to-date totals.

In addition, BFC itemized 59 contributions from individuals with missing or inaccurate
occupation or name of employer information. For some of the identified contributions,
BFC had a record of the required disclosure information but failed to amend its reports.
In response to the interim audit report, BFC amended its reports to correct these
contributions.

Legal Standard

A. Itemization Required for Contributions from Individuals. Authorized candidate
committees must itemize any contribution from an individual if it exceeds $200 within
the election cycle, either by itself or when combined with other contributions from the
same contributor. 2 U.S.C. §434(b)(3)(A).

B. Election Cycle. The election cycle begins on the first day following the date of the
previous general election and ends on the date of the next general election. 11 CFR
§100.3(b).

C. Required Information for Contributions from Individuals
For each itemized contribution from an individual, the authorized candidate committee
must provide the following information:

e The contributor’s full name and address (including zip code);

© The contributor’s occupation and the name of his or her employer;



account. Since each spouse had already contributed the maximum amount to the primary
election, no presumptive reattribution could be applied to the excessive amounts. The
remaining individual gave an in-kind contribution in the amount of $1,900. The
excessive portion of this contribution also could not be reattributed to another individual.

In addition, since the candidate was not involved in the general election, BFC was
required to reattribute, redesignate, or refund those contributions designated to the
general election. The Audit staff identified another seven contributors who had given
contributions totaling $4,425 which BFC disclosed as designated to the general election.
These seven individuals had contributed the maximum $1,000 to the primary election.

At the exit conference, the candidate stated that the contributors who had given to the
general election were contacted by BFC and asked to redesignate their contribution to a
future campaign. No evidence has been provided to support this statement or to show
what future campaign was anticipated.

BFC did not establish a separate account for questionable contributions and did not
maintain a sufficient balance during the campaign to refund these contributions for the
periods of June 5 through July 19, 2002, and August 2 through August 30, 2002.
Currently, the campaign account balance is not sufficient to make all necessary refunds.

Interim Audit Report Recommendation and Committee Response

In response to the recommendation in the interim audit report, BFC stated that funds were
not available to make contribution refunds. Therefore, BFC disclosed the refund amounts
due to these individuals as debts on its 2003 July 15" Quarterly Report.

| Finding 3. Itemizing Contributions from Individuals

Summary

The Audit staff identified 41 contributions from individuals totaling $13,256 that BFC
failed to itemize on Schedules A (Itemized Receipts) of its disclosure reports. In
response to the interim audit report, BFC amended its reports to itemize these
contributions.

Legal Standard

A. When to Itemize. Authorized candidate committees must itemize any contribution
from an individual if it exceeds $200 per election cycle either by itself or when
aggregated with other contributions from the same contributor; 2 U.S.C. §434(b)(3)(A).

B. Election Cycle. The election cycle begins on the first day following the date of the
previous general election and ends on the date of the next general election. 11 CFR
§100.3(b).

C. Definition of Itemization. Itemization of contributions received means that the
recipient committee discloses, on a separate schedule, the following information:
e The amount of the contribution;


Part IV
Findings and Recommendations

For each of the following findings, the Audit staff provided appropriate schedules of
identified discrepancies to BFC prior to the conference held at the end of fieldwork. Any
relevant statements made by BFC at the conference are incorporated into the following
findings.

| Finding 1. Misstatement of Financial Activity

Summary

BFC had misstatements of reported activity in 2001 and 2002. In 2001, receipts were
understated and in 2002, misstated activity included receipts, disbursements, and the
ending cash balance. Included in the misstatements for 2002 was activity between
October 1, 2002 and December 31, 2002 for which no report had been filed by BFC’. In
response to the interim audit report, BFC amended its reports to correct the
misstatements.

Legal Standard

A. Contents of Reports. Each report must disclose:

e The amount of cash on hand at the beginning and end of the reporting period;

e The total amount of receipts for the reporting period and for the election cycle; and

e The total amount of disbursements for the reporting period and for the election cycle.
2 U.S.C. §434(b)(1), (2) and (4).

B. Report Filing. In an election year, the treasurer of the principal campaign committee
of a candidate for the House of Representatives is required to file reports which include a
quarterly report for the period ending December 31 and due no later than January 31 of
the following calendar year. 2 U.S.C. §434(a)(2).

Facts and Analysis

The Audit staff reconciled reported financial activity to the bank records and determined
that BFC understated 2001 receipts by the net amount of $735. BFC reported $104,005
in receipts but should have reported $104,740. The net understatement of receipts
resulted from the following:

e Unreported Contributions from Individuals + $ 7,300
e Duplicate Reported Internet Receipts - 4,000
e Over-reported Candidate Contribution - 1,000
e Math Error + 450
e Unexplained Differences : 2,015

Net Understatement of 2001 Receipts $ 735

2 In March 2003, BFC paid a civil penalty (AF #767) for the late filing of its 2002 October Quarterly
covering activity through September 30, 2002. BFC also received FEC non-filing notifications for all
subsequent reporting periods through the 2003 October Quarterly. Apparently, BFC experienced
technical difficulties with the electronic filing of these reports. The filing matters have been resolved and
all reports have been filed to date.



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Changes to the Law

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Misstatement of Financial Activity
Finding 2. Receipt of Contributions that Exceed Limits
Finding 3. Itemizing Contributions from Individuals
Finding 4. Disclosure of Contributions from Individuals
Finding 5. Itemizing Disbursements

Page

N

wv

CHOI BDA


Report of the Audit Division
on

Battles for Congress

June 12, 2001 — December 31, 2002



Why the Audit

Was Done

Federal law permits the
Commission to conduct
audits and field
investigations of any
political committee that is
required to file reports
under the Federal
Election Campaign Act
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
requirements for
substantial compliance
with the Act.’ The audit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requirements
of the Act.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

' 2US.C. §438(b).

Report of the
Audit Division on

Battles for Congress
June 12, 2001 - December 31, 2002

About the Committee (p. 2)

Battles for Congress (BFC) is the principal campaign committee
for Michael J. Battles, Republican candidate for the U.S. House
of Representatives from the state of Rhode Island, First District.
BFC maintains its headquarters in East Providence, Rhode Island.
For more information, see the chart on the Campaign
Organization, p.2.

Financial Activity (p. 2)

¢ Receipts
o Individuals $ 210,405
o Political Committees 9,600
o Candidate Loan 5,000
o Offsets to Expenditures 682
o Other Receipts 781
o Total Receipts $ 226,468

e Disbursements $ 221,289

o Total Disbursements

Findings and Recommendations (p. 3)

e Misstatement of Financial Activity (Finding 1)
e Receipt of Contributions in Excess of Limitation (Finding 2)
e  Itemizing Contributions from Individuals (Finding 3)
e Disclosure of Contributions from Individuals (Finding 4)
e Itemizing Disbursements (Finding 5)


e The date of receipt (the date the committee received the contribution);

e The amount of the contribution; and

e The election cycle-to-date in total of all contributions from the same individual.
11 CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A).

D. Best Efforts Ensures Compliance

When the treasurer of a political committee shows that the committee used best efforts
(see below) to obtain, maintain, and submit the information required by the Act, the
committee’s reports and records will be considered in compliance with the Act. 2 U.S.C.
§432(h)(2)(i).

E. Definition of Best Efforts
The treasurer and the committee will be considered to have used “best efforts” if the
committee satisfied all of the following criteria:

e All written solicitations for contributions included:

o Aclear request for the contributor's full name, mailing address,
occupation, and name of employer; and
co. The statement that such reporting is required by Federal law.

¢ Within 30 days after the receipt of the contribution, the treasurer made at least one
effort to obtain the missing information, in either a written request or a
documented oral request.

e The treasurer reported any contributor information that, although not initially
provided by the contributor, was obtained in a follow-up communication or was
contained in the committee's records or in prior reports that the committee filed
during the same two-year election cycle. 11 CFR §104.7(b).

Facts and Analysis

A review of all itemized contributions from individuals determined that BFC failed to
properly disclose 47 contributions totaling $24,500. A majority of these reporting errors
resulted from incorrect election cycle-to-date totals. As previously noted, BFC often did
not properly aggregate contributions from the same individual received within the
election cycle but rather aggregated contributions on a calendar year basis. Other errors
included the inaccurate reporting of the contributors name and address or the contribution
amount.

The Audit staff reviewed Schedules A and identified 59 contributions with missing or
inaccurate occupation or name of employer information. For approximately 30% of the
individuals, BFC maintained a record of the required information on the contributor
database but it was not included on Schedules A. Also, BFC disclosed “Information
Requested” on Schedules A for approximately 15% of the identified contributions.

At the exit conference, BFC was provided a schedule of the items identified above. In
response, the candidate stated that a follow-up letter was sent to those contributors for
which the committee did not have the required disclosure information. Subsequently, he
provided a copy of the “caging” procedures used by the campaign which includes an
instruction to generate and send a request letter to those contributors for which all
information had not been obtained. However, BFC did not provide copies of any follow-
up letters to contributors nor any record of those contributors that had actually been sent