FEDERAL ELECTI()~ COrv\~1ISSI0N

September 11.1996

MEMQRr\NDlI~1

N

TO:

FROM:

Sl'BJECT:

RON M. HARRJS

PRESS OFFICER

PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISIOf'

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON THE

DEMOCRATIC STATE CENTRAL COMMIITEE OF CALIFORNIA - FEDERAL

o

to

N

c

Attached please find a copy of the final audit repon and related documents on the

Ikmocratic State Central Committee ofCalifc'mia - Federal which was approved by the

Commission on August ~Q. 19%.

Infonnational copies ofthe repon have been received by all parties involved and

the repon may be released to the public.

C :\ttachmcnt as slated

cc' Office of General Counsel

OOice of Public Disclosure

Repons Analysis DiviSion

FEe Librar)

..... " ...f \.4, \, .... "

, , • \, \'", ' : I I'\H ,,,... 1\.

''': I'...... 1,1: J'\ h, t "~I ()~"I:'
REPORT OF THE AVDIT DIVISION

ON THE

o

Democratic State Central Committee

of

California - Federal

Approved August 29.1996

FEDERAL ELECTIO" COMMISSION

999 E STREET. N.\\'.

\\·ASHI~GTOJ';.D.C.
TABLE OF CONTENTS

DEMOCRATIC STATE CENTRAL COMMITIEE

OF CALIFORNIA - FEDERAL

Page

Executive Summary 1

Final Audit Report 5

-qBackground 5 ..

:"-...... Findings 7

0

Legal Analysis 47 ....;-'}

N TransmittaJ to Committee S3

\.,.... Chronology S5 "

0

,

o.
FEDERAL ELECTI()~ C()\'f\"SSI()'

o

-'--

c

FINAL AUDIT REPORT

ON THE

DEMOCR-\TIC STATE CE1''TRAL COl\tMllTEE

()F C.4.LIFOR~IA- FEDERAL

EXECUTIVE SUMMAR\·

The Democratic State Central Committee (ofCalifomia) Federal Candidates Fund

registered \\ith the Comptroller General ofthe United States on September 16.1975 and

filed subsequent amended Statements ofOrganization to change its name. In December

19Q1. the Comminee filed an amended Statement of Organization changing its name to the

Democratic State Central Comminee ofCalifornia - Federal.

The audit \\·as conducted pursuant to tJ .S.C. Section 438(b). \\'hich states. that the

Commission may conduct audits of any political comminee whose reports fail to meet the

threshold level of compliance set by the Commission.

The findings ofthe audit were presented to the Committee at an e:;dt conference

held at the completion of field "·ork and later. in an interim audit report.

The follo\\ing is an o\'ervie\\' ofthe findings contained in the final audit report.

ApPARE:'ST PROHIBITED CO:STRIB1TIQ!SS - 2 U.S.C. Sections 44 tb(a) and

441b(b)C!): 11 CFR Sections 116.3fbl and (c) and 116.8(a). The Committee received a

prohibited corporate contribution totaling approximately $690.000. This contribution

resulted from Gordon and Sch"'enkmeyer. Inc.·s (GSI) granting credits totaling $290.000

and extending credit. \\'hich for the audit period. a\'eraged in excess of $400.000. The

Comminee dIsagreed saying that the extension of credit and the granting of credits had

been done in the ordInary course of huslness

GSI REPORTI"G PROBLE\1' - : L.S.C. Section 434(b)(4)(A)~ 11 CFR Sections

104.3( a)(:!){ vii)(.~) and (d) and 104.11 In addition to the prohibited contribution discussed

above. a number of reportIng errors "'ere associated \\;th GSI. These included inconsistent

debt reporting. underreponlng of debt b~ more than S200.000. incomplete and incorrect

reportIng of offsets receIved from GSI. and a failure to report receIpts of $34.920 and

dIsbursements of S36.07 =' related to the Canv3SS Program On October 27. 1995. the

CommIttee. filed amended r~rorts \\hlCh matenall~ corrected these reporting deficiencies.

... . ... ,

..... I '10'

........ "\,t

Paa€: :, ApproveC 8,.29/96
c

"-'

.......

FAILURE TO ALLOCATE GENERIC VOTER REGISTRATION/GOTV EXPENSES11 CFR Sections 106.5(d)( 1)(i) and (g)( 1)(i). The Committee was required to allocate

disbursements for voter registration.. voter identification and get-out-the-vote on a 50010

basis between its federal and non-federal accounts. During the audit period the Committee

made disbursements totaling $1.102.261 solely from its non-federal accounts in suppon of

such activity. The Committee. in its October 26. 1995 response to the interim audit repon.

refused to ackno\vledge that disbursements totaling $895.000 y.'ere allocable. The

Committee. ho\\'ever. agreed that the balance ofS207.261 was allocable and reponed half

of th1s anlount. $103.630. as a debt to its non-federal account on amended reports. There

remains $~47.500 ($8 Q 5.000-2) \~..hich the Committee's federal account still owes the nonfederal account.

PROHIBITED CORPORATE CONTRIBUTION - 2 U.S.C. Sections 441 b(a) and

(b)(2): 11 CFR Sections 100.7(a)(1)(iii) and (4) and 116.3(b). The Committee received a

prohibited corporate contribution of $4~.183 in the form of advances from a corporation

solely ov;ned by the Party Chair. The Committee disputed this response to the interim

audit report stating that these advances had been made in River Wesfs normal course of

business.

EXCESSIVE COSTRIBUTIOSS RESULTING fROf\1 STAFF ADVANCES - 2 U.S.C.

Section 441 a(a)( I He) and 11 CFR Section 116.5(b). Philip Anglides. through his

partnership interest in King Air and his subsequent meIrb-~rshipin the association King Air

II. and by money personally advanced on behalfofthe Comminee.. was untimely

reimbursed for some expenses and apparently not reimbursed for others. The largest

amount outstanding \\"as S~7.426.1 In its response to the interim audit repo~ the

Comminee insisted that no excessive contribution occurred despite being unable to

demonstrate that ~tr. Angelides had been timely or completely reimbursed.

SO'-FEDEBAL Fl"~DS DEPOSITED INTO FEDERAL ACCOlllfiS - 11 CFR Sections

i 0~.5( a)( 1)( i). 1O::!.6( a)( 1)( ii). I 06.5(a )(1)( iv) and 106.5(g)(' ~(i) and (2)(8). In a nmnber

of instances. non-federal funds \\'ere deposited Into the federal account. These included

expenses counted t\\"lce in the calculation of amounts due from the non-federal account for

shared expenses ($"+7.185). and offsets to shared expenses ($57.298). The Committee

ackno\\ ledged these amounts and In amended repons disclosed a debt owed to the nonfederal account In additton. the Comminee made a \\"ire transfer to the San Francisco

Democratic Counly Central Commlttee (SFDCCC) in the amount of $70..000 on October

30. 199~ from Jts non-federal account. On October 31. 199:!. the Comminee deposited to

its federal account a check dated October 29. 1':'9: for $58.000 received from the

SFG\.. CC. Documentatton revealed that the CommJttee's non-federal transfer was

deposited to the sanlC SFDCCC account from "'hlch the $58.000 check had been wrinen.

Ponlons of m\olced amount" trom ~m~ Air "ere not reimbursed b) the Committee It IS presumed

the~ "ere paid b~ \1r An~eltde~ \\ho theretore has an outstandmg exceSSI\e contribution of

S:4.18~

Pa?e :, Approved 8/29196
o

L{)

3

The Committee in its response to the interim audit report.. asserting the permissibility of

unlimited transfers between party committees.. disagreed \\rith the finding" but failed to

establish that funds received from the Sr )CCC were federally pennissible. As a resull

the Committee owes its non-federal account S58..00r. Finally.. the Committee was cited for

an impermissible transfer of$15..0oo in non-federal iinds to the Committee"s federal

account.. effected by a non-federal contribution made by the Committee at the request of

two U.S. Representatives and the deposit to the Comminee's federal account of payments

made from the representatives' authorized comminees. ()n August 22. 1996.. tite

Commission decided to take not further action v;ith respect to this maner.

B.E.f.oRTING 4ND ITt1\UZ4TION OF 8-3 TRANSFERS - 11 CFR Section

104.1 O(b)(3). The Committee failed to itemize t\\'O transfers from the non-federal account

for shared expenses made in 1q91 totaling $26..563 and five transfers made in 1992 totaling

$509.072. One H-3 transfer made In 1Q9:! for $49.767 \\'as not included in the

Comminee"s reported totals. The Comminee corrected these d~ficiencies in amended

reports filed October '27. 1995

Pact. ~, hp~:)l."')ved 8:'29/96
Page 4, Approved 8/29/96
FEDERAL ELECTIOf\: COf\1MISSION AR#93-68

r

c

cc

REPORTOF THE AUDIT DIVlSIOlV

ON

DEMOCRA TIC STATE CENTRAL COMMI1TEE

OFCALIFORNIA - FEDERAL

I. BACKGROUND

A. OVERVIE\\'

This repon is based on an audit ofthe Democratic State Central Committee

ofCalifornia-Federal (the Committee) undertaken by the Audit Division ofthe Federal

Election Commission in accordance with the provisions ofthe Federal Election Campaign

.~ct of 1971. as amended (the Act). The audi\ VI3S conducted pursuant to Section 438(b) of

Title:! ofthe United States Code which stales.. in that the CommissioDmay-concba:t

audits and field investigations ofany political committee required to file a report under

Section 434 orthis title. Prior to conducting any audit underthis subsection. the

Commission s-lWl perform an internal review ofreports filed by selected committeesto

determine ifthe repons filed by a particular committee meet the threshold requirements for

substantial compliance \\itb the Act.

The audit covered the period from January 1. 1991 through December 31.

1992. The Committee reponed 3 beginning cash balance at January 1. 1991 0(52.104;

total receipts for the period ofS1:!.667.581: total disbursements for the period of

$1 :!.63~.630: and an ending cash balance on December 31. 1992 of S35~874.1 The

Commlnee used sixteen bank accounts for its federal activity during this period.

.\ II figures an thl~ repon ha"'(" been rounded to the nearest dollar. The amounts do not foot due to a

dIscrepancy of S1.181 between the reponed ending cash balance at September 30. 1992 and the

begmnang cash balance at October 1. 'Qq~

.... 1 1 .... 1\\ 1\ I! 1\, -\ ..... ;, I( l",f )"'~( I\.\

}; • t,; \ ' i : I Tt I tI.. i f PI"" l . 1t !: I" t\ l l( I"f f )10{ \.H :

P~e 5, Approved 8/29/96
2

B. CAMPAIGN ORGANIZATION

The Democratic State Central Committee (ofCalifomia) Federal Candidates

Fund registered with the Comptroller General of the United States on September 16, 1975

and filed subsequent amended Statements of Org~izationto change its name. In

December 1991. the Comminee Iiled an amended Statement of Organization changing its

name to the Democratic State Central Comminee ofCalifornia - Federal. The COlnmittee

maintains its headquaners in Sacramento, CalifornIa.

C. KEY PERSON~EL

The Treasurer ofthe Comminee at the beginning ofthe audit period was

Ms. Laurie Talcon. She was succeeded on December 19. 1991 by Mr. Manin H. Eber who

served through the end ofthe audit period. On July 8. 1994. Gary Paul became Treasurer

ofthe Committee. The Comminee Chainnan at the beginning ofthe audit period was

Edmund G. Bro\\ll. Jr On April 1. 1991. t\1r. Philip Angelides succ'~eded Mr. Brown and

continued as chairman through the audit period.

c

D.

1.

Al'DIT SCOPE A~D PROCEDl;R£S

The audit covered the following general categories:

The receipt of contributions or loans in excess ofthe statutory limitations

(see Finding 11.0.):

..,

_.

''',

3. r---

"-

C'

4.

6.

8

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

corporations or labor organizations (see Findings II.A.2. and II.C.);

proper disclosure of contributions from individuals. political committees

and other entities. to include the itemization of contributions when required..

as well as. the completeness and accuracy ofthe information disclosed (see

Findings II.A.3.b. and 1I ..--\.3.c.):

proper dIsclosure of disbursements including the itemization of

dIsbursements "'hen requIred. as \.vell as. the completeness and accuracy of

the tnfonnation dIsclosed (see Finding II..~.3.c.).

reVle\.\ of expenditures made on behalf of federal ca~\.rd~tPs:

proper dIsclosure of campatgn debts and obli~.. ~.Uf1S (see Finding Il.A.3.a.);

accurac~ of total reported receipts. dlsbursemt'::- -' :.nd cash balances as

compared to campaIgn bank records,

adequate recordkeeplng for campaIgn tran~;j p. I ::..

Pace 6, Approved 8/29/96
3

9. proper disclosure ofthe allocation of costs associated with administrative

expenses and activities conducted jointly on behalf offederal and

non...federal elections and candidates (see Findings I1.B.. II.E.. and II.F.);

and.

10. other audit procedures that \\'ere deemed necessary in the situation (see

Findings I1.B. and I1,E.)

Although the Committee appears to have met the minimum requirements of

11 CFR §102.9. tne scope of our testing regarding contributions received from individuals

"'as limited. The Comminee maintained detailed records for only those individual

contributions greater than fifty dollars. In addition. as discussed at Il.A.. contribution

records for receipts raised and deposited by Gordon and Sch\\'enkmeyer.lnc. were limited

to bank statements and a computer tape \\'hich contained infonnation such as name.

address. date and amount of each contribution.

Unless specifically discussed belo"'. no material non...compliance was

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

discussed in this report in an enforcement ac~ion. ,

c· II.

1(""\..

N

AUDIT fiNDINGS AND RECQI\JMENDATIONS

A. TRASSACTIONS \VITH GORDOS AND SCHWENKMEYER, INC.

1. BackgrQund

Gordon and Schwenkmeyer.lnc_ C"GSr--) is a fundraising and

telemarketing. firm located in El Segundo. California_ Its two principals~ Mr. Michael

Gordon and f\1s. Kris Sch\\·enkmeyer. arc a former Executive and Political Director..

respectively. for the Committee. The~ left the Comminee in 1985 and incorporated their

telemarketing firm. The ..\udit staff re\'iev.ed a contract between aSI and the Committee

covenng the period bet\\-een .A.ugust 1. 1987 and Jul~ 3], 1989,

For the audIt period GSI operated under a 1989 contract with the

Comnlluee ThiS contract specified some of the ser\'lces GSI was to provide the

Comminee and the compensation rates to be paid to GSI. GSI "'orks from phone lists and

solicits contributions for the Commluee There are t\\"O compensation rates. one for the

solicitation of prevIous donors and a 1<.1\\ er rate for the solicitation of prospective donors.

:\s outlined in the earher contract. GSI \\Quld open a custodial checking account into

\\"hlCh all donations received through the telephone sohcnation program would be

deposited. GSI ""as to ser\'e as custodian of such account( s). GSI opened and maintained

a total of four such custodtai accounts for fedf"ral telemarketing programs conducted during

the audit period.

Page "7, App!"oveC 8,'29/9E
c

c

C'"

4

At the beginning of 1991. GSI operated three distinct telemarketing

programs for the Committee. The programs were identified as RUM. RM2 and RM3. A

program consisted of a file of contributors to whom OSI periodically appealed for

contributions to the Committee. These s(llicitations generally occUlTed thJee times a year.

in the winter. spring and fall. According ~(~ program summaries which OSI provided to the

Committee. RUM. RM2 and RM3 returned a net profit for 1991 and 1992.2 The

contribu..ions received from each ofthese programs (RUM. RM2 and RM3) were depos;ted

into a single custodial account hereafter referred to as the first custodial account. When

OSI initiated prospecting program ~M4 in 1991. it opened an additional custodial account

to be used exclusively as a depository for that program. In 1992 OSI opened two more

custodial accounts to be used exclusively as depositories for prospecting programs RM5

and RM6. GSI accounted for each program separately and did not use profits from one

program to pay the operating shortfall of another. The funds GSI forwarded to the

Comminee came only from the first custodial account.

The Comminee. in an effon to comply with 11 CFR §102.9(a).

requested and expected GSI to fOf\"·ard all contributions greater than 550 directly to the

Committee for deposit.J The Committee then entered these contributions into its

contributor database \\ith the required infonnation. It appears that the Comminee did not

receive all ofthe contributions greater than fifty dollars in either 1991 or 1992.4 After

,..\pril 7. 199~. in lieu ofthe actual contributor checks.. the Committee relied on printouts

provided by GSl to document contributions fifty dollars and greater which were received

by GSI and deposited to the custodial accounts. The purpose ofthe printouts was to

provide the Committee \\;th the relevant information which it could then enter into its

contribution database.

GSI deposited contributions (other than those sent to the Committee)

into the custodial account corresponding to the program which generated the contribution.

Funds from the custodial accounts \\'ould then be transferred to GSI's corporate account. In

most instances. this occurred shonly after the contributions were deposited. On occasion..

GSI \"·ould transfer funds to the custodial account from its corporate account to insure a

sufficient balance \\'as available for payment to the Comminee and to itselffor billings to

the Committee. ()f the $436.500 transferred back to the custodial accounts during the audit

R\13. though sull classified as a prospectlng account In tQQ1. was profitable and was apparently

deSignated a proven program an the first sohcltallon an 1991 as eVidenced by the increase in the

hour'~ rate charged from the prospecting rate to the pro\'en rate

3 The Commanee also expected that GSI would forward for deposl! Into non-federal accounts any

corporate or union contribution "h,ch are pennaned under state law

The Comrnanee deposited GSI recelpt\ ofSq6.q6~ for 199~ and S39.180 for 1992

Pace 6, ~-proved 8/29/96
\ ..:-

:11

N

c

5

period. all but $550 \\"35 transferred to the first custodial account.s In the Pre Primary and

'I"ear End 1992 report periods.. the transfers to the custodial accounts from GSl's corporate

account enabled GSI to send funds to the Comminee in excess oftotal contributions raised

by more than $83..850 and $27.800 respectivl:ly.

Prospecting programs played a central role in the creation of a

S678.. 150 debt to GSI reported at December 31. 1990. Prospecting is the process by which

GSI expands the contributor base for its customer by creating established fundraising lists

from nev.' untried lists. GSI contends that prospecting is made necessary due to the

shrinkage that nonnal1y occurs to established hst~ and the expanding needs ofthe

Committee. At the outset. prospecting progran, files are larger than established program

files and these programs are comparatively exrt'nsive to operate because the number of

contributions received is 10\\' \vhile the number of calls made is high. As these program

files are used in successive solicitation rounds und non-contributing individuals are

eliminated. the number of contributions per call increases to the point where the program

becomes profitable..L\ large debt to GSI resulted ht"cause no up front funding or other

payment \\·as provided by the Comminee.6

The contract outlines ho,,; Comminee debt to GSI is to be resolved.

Should debt remain outstanding and the contract expire or be terminated.. GSI retains the

right to solicit funds in the name ofthe Committee until the debt. including the costs to

GSI ofrecovering the debt. is satisfied. GSI has stated that because ofthis provision ofthe

contract. ••.debt" in the ordinary sense:· does not exist hem'ceo GSI and the Committee.

For \\"ork performed in 1990 and 1991 .. GSI granted substantial

credits to the Committee. These credits were billing reductions applied to specific

Invoices. The credits for 1990 services ""ere received by the Comminee in January and

March 1991 and the credits for 1991 services "'ere granted in December 1991 and January

199~. These credits exceeded the Comminee's total debt reduction to GSI for the audit

period.

The credits for I C)90 sen.·lces totaled S157.1 11. The credits for 1991

services and granted in 1991 totaled S109.045. GSI. in response to an Audit staffrequest.

stated that the Committee's outstanding debt at Januar: 1. 1Q91. net ofsubsequent credits

ThIS procedure \\ ~~ nO! outlmed ;n the (emIra.::

6 In AdvlSO~ OpinIon 1QQ 1-' 8 requested b~ the ~e" 't ('If'" Democratic Party which was about to

engage GSI to pro.. Ide telemar~etmg sen Ices. the CommIssIOn concluded that for any prospecting

to be perfonned b~ GS1on behalf of the ~ev. 't or\... Commmee. GSI would have to be reimbursed in

an amount equal their normal e'pense~ and e'\f'ected rr0flt t.'rJor to begmnmg such a program in

order that GSI not make a corporate (ontflbutlOr.

Page 9, A;:?rc\'eC 8 ~9,9c
,-

....

o

c·

6

was 5507..260.' The debt.. excluding the credits from GSl, at January 1, 1991 was

5664..371 (5507..260 + $157.. 111). GSI billed the Committee SI..477,533 and retained

51 ..359..005 for services in 1991. Thus. the debt at year end would have increased by

5118,528 ($1..477..533 - $1..359.005) to 5782.899 ($.664.371 + $118,528) had the credits not

been received. Ho\\'ever. as a result ofthe credits. the debt at December 31 .. 1991 was

$516..743 ($782.899 - $157.111 - $109..045). GSI raised $1..961 ..432 for the Committee in

1991 and during this period GSI forwarded $600..043 to it.

The credits for 19<)1 services and granted in 1992 totaled 524..532.

GS} billed the Committee 5681.617 and retained $746..900 for services in 1992. This

difference $65.283 ($746..900 - $681 ..617) plus the credit 524..532 reduced the debt from

~516.743 to $426.928 at December 31.. 1992. During 1992, GSI raised a total of

SL480.900 for the Committee and during this period forwarded $733,162 to it.

Thus. the Committee received approximately 1.3 million from GSI

during the audit period while the debt was reduced by $237.442. This decrease is less than

the $290.688 in credits received from GSI. Other than funds retained by GSI.. the

Committee made no payments to GSI during the audit period related to the federal

programs mentioned.

In May of 1991 .. GSI began a canvass program for the Committee in

the San Francisco Bay Area. The canvass program operated separately from other GSI

telemarketing programs. In November 1991. the canvass program was taken over by The

Membership Campaign \\'hich continued to run the program through January 1992. The

canvass program involved contacting voters door to door and soliciting contributions for

the Committee. It raised $84.269 betv.teen May 1991 and January 1992. The financial

activity ofthe canvass program is not included in the totals for the telemarketing

operations noted above. The Comminee reponed activity from the canvass program only

through August 15. 1991. The Audit staff \\'as presented with a copy ofan unexecuted

draft contract for the canvass program. Of panicular note is that all funds raised were to be

distributed ten percent to the Committee and the balance to GSI. Our review indicated that

moneys \\'ere disbursed at approximately that ratio.

A final item of note occurred in 1992. The RM3 file. a profitable

program. \\'as convened mid-year from a federal to a non-federal program. The Committee

then from its non-federal accounts paid $100.000 in advance for each oftwo solicitations.

Upon conversion. the program ceased to be profitable in pan due to an increase in the

hourly rate charged by GSI and in pan due to an unusually large number of hours dedicated

to the solicitations. The Comminee provided no reason for the conversion or the increase

in the hourly rate charged or the advance payments made to GSI. In a response received

after field "'ork had been completed. GSI explained the con\'ersion was made at the

ThiS amount matenalll~ agrees" Ith the number developed b~ the Audit staff Therefore. the Audit

staff used thIS figure In determining the subsequt'nt amounts

Page 10, ~-proveC 6/29/96
o

c

7

Committee's request as were the ra.te increase and the two payments of $1 00..000. GSf also

stated that there was no written agreement for this change.

2. AJ2I)iU'Cnt Prohjbited Contributions

Section 441b(a) ofTitle 2 ofthe United States Code states.. in pan.

that it is unlawful for any corporation to make a contribution or expenditure in connection

with any election to federal office and that 1t is unlawful for any political committee

knowingly to accept or receive any contribution prohibited by this section.

Section 441 b(b)(2) ofTitle 2 ofthe United States Code states.. in

part, that the term ~l>contributionor expenditure"· shall include any direct or indirect

payment, distribution.. loan.. advance.. deposit. or gift ofmoney, or any services.. or anything

of value to any political party in connection with any election to any ofthe offices referred

to in this section.

Section 116.3(b) ofTitle 11 ofthe Code of Federal Regulations

states. in part. that a corporation in its capacity as a commercial vendor may extend credit

to a political committee or another person on behalf of a political committee provided that

the credit is extended in the ordinary course ofthe corporation's business and the teons are

substantially similar to extensions of credit to nonpolitical debtors that are ofsimilar risk

and size ofobligation.

Section 116.3(c) ofTitle 11 ofthe Code ofFederal Regulations

states. in pan. that in determining whether credit was extended in the ordinary course of

business. the Commission ~in consider whether the commercial vendor followed its

established procedures and its past practice in approving the extension ofcredit; whether

the commercial vendor received prompt payment in full ifit previously extended credit to

the same political committee: and whether the extension of credit confonned to the usual

and nonnal practice in the commercial vendor's trade or industry.

Section 116.8(a) ofthe Title 11 ofthe Code of Federal Regulations

states. in part. that a creditor may forgive the outstanding balance of a debt owed by an

ongoing comminee ifthe creditor and the ongoing comminee have satisfied the

requirements of 11 CFR §116.3 regarding extensions of credit by commercial vendors~ the

debt has been outstanding for at least tv.enty-four months and the follo~ing conditions

have been met. The creditor has exercised reasonable diligence in attempting to locate the

ongoing comminee and has been unable to do so: or the ongoing comminee does not have

sufficient cash on hand to pay the creditor and has receipts of less than S1000 during the

previous twenty-four months and has disbursements of less than $1000 during the previous

twenty-four months and owes debts to other creditors of such magnitude that the creditor

could reasonably conclude that the ongoing comminee \~,.ill not pay this particular debt.

Page 11, ~raved 8/29/96
o

8

The Committee receivec =redits from OSI totaling 5290.,688. Of

these credits. $266.156 were received by the Committee in 1991 and $24.532 in 1992.

There was no provision in the contract bet~\'een GSI and the Committee which outlined the

circumstances under \\'hich credits might be granted. The Committee failed to report the

receipt of any credits ftufal GSI in 1991 or 1992 (see Finding I1.A.~.b.).

GSI. responding to an Audit staffrequest concerning the granting of

credits. nlade this response through its anomcy:

..·...CDP (the Committee) \\'as dissatisfied \\;th the programs'

performance. COP \vas an important client for GSI because it generated large

business volume~ the more business volume. the more profitable billable hours

for GSI. Moreover. loss ofCDP as a client could have hurt GSI's business

reputation. driving away other clients. Thus. GSI made a business decision to

share the burden of poorer-than-expected perfonnance by reducing the amount

GSI \\'ould retain relative to proceeds it would tum over to CDP. GSI has

similarly made adjustments to bills for its non-political clients for business

reasons,·'

GSI claimed to have granted credits to non-political clients in a

manner comparable to which it granted credits to the Committee~ referenced a program for

a charit~' as an example of a nonpolitical client to whom it made such adjustments (i.e..

granted credits): and provided a spreadsheet \\'hich disclosed its transactions with the

charity over an eighteen month period (November 1992 through April 1994) including

credits. The only similarity between the programs conducted for the Committee aDd the

charity appears to have been that credits were granted to both. However~ OSI rehBDed aDd

advanced more money to the Committee tHim the charity. The credits received by the

Comminee. expressed as percent ofthe total billed for 1991. equaled 9.04% while the

credits received by the charity equaled :!.33°fO of the total billed for the eighteen months.

Out ofSl.961.43:! raised in 1991 for the Committee and $97:.7~2 raised for the charity in

the eighteen month period. the Committee received 30.6:!~'o of the total raised and the

charity 3.11~o. Lastly. the Comminee's outstanding debt to GSI at the end of 1991 was

$516.743 "'hile the charity's at the end of the eighteen month period was $43.880. Further..

GSI did not clearly establish that these clients \vere ofsimilar size or that a similar risk.

existed that the debt would not be paid. Given the disparity of the outstanding debts it

allowed each client. it appeared GSI perceived the risk to be unequal. GS} also granted

credits to the charity nine months after the last credit \\'as granted to the Committee which

does not establish the granting of credIts by GSI as a prior practice, Based on the data

provided. the Audit staff believes that GSI. by granting relatively small credits to the

charity. did not establish as a usual and nonnal bUSIness practIce the granting of large

credits to the Commlnee,

In addition to the credits. the Commlnee o\\'ed a large debt to GSI

for the entire audit penod Records indicated that prospecung programs from 1989 and

1990 \\'ere responsible for generaung the debt .-\s already discussed in the background

Page Apprnved 8/29/96
c

If)

c

9

section and to be discussed at Finding I1.E.2.a.~ between 1991 and 1992" the debt to OSI

was reduced by 5237~442 which is less than the total ofthe credits received by the

Comminee, Had credits totaling $290~688 not been granted. the debt between January 1_

1991 .. and Dece"nber 31. 1992. would have increased by 553.246.

The Audit staff reviewed available correspondence between the

Comminee and GSI. GSI seemed to have a willingness to provide the Committee with

financing and to n13intain a cash flo\\' to the Committee. The correspondence did not

indicate that GSl \\'as as concerned \\;th the recovery ofthe debt. Financing was discussed

in a memo from GSI dated January 3.. 1988:

...As we did last year. our company \\ill be willing to finance the

shortfall that \\ill initially be created from the voter file solicitation, We will

maintain the newly created donors in a separate file and upon resolicitation we

\\'111 raise the capital to offset the initial loss,""

GSI stated its intention to maintain a regular cash flow to the

Committee in a memo dated October 16.1990:

hLastly. our plan is to continue providing the Party $22..000 a \\'eek

from the "6Federal .~ccounf· ..:·

In addition. a copy ofa hand\\rTinen note was found in the OSI file

v.·hich stated:

"'1n telephone call - Dec 6. 1991 before I left for vacation. I confirmed

\\.f Mike Gordon that CDP would continue to receive S22J)OO!wk

pymtiadvance through EGB's 8 tenn'"

.~ January 23. 1Q92 memo outlined the amount and timing ofregular

payments to the Committee.

·· ..Checks ""ill be distributed beginning Friday March 20th in the

amount of $1 :!.OOO every \\'eek.

Please be a\\'are there may be occasional deviation from this

distribution schedule because ofthe cash flo\\' of returns'"

8 EGB IS Edmund G Bro\\n. Jr . formerl~ the Commtnee Chalnnan

Pa?€ 13, Approved 8/29/96
c

10

The Audit staff concluded that the emphasis as demonstrated by

various memoranda between OSI and the Committee was a guaranteed flow offunds to the

Committee irrespective of whether the debt was paid.

The absence of any communication from GSI requesting or

demanding that the Committee make substantial payments to reduce the outstanding debt:

and GSl's apparent failure to pursue the debt repayment as evidenced by the large debt

which retrl.ained outstanding. while proceeds ofthe fundraising continued to flow to the

Committee. led the Audit staff to conclude that credit was not extended in the ordinary

course of business. As such. the extension of credit averaging $400.000 throughout the

audit period and the granting of credits totaling $290.688 appeared to constitute prohibited

corporate contributions made by OSI and received by the Committee.

At the exit conference.. the debt to GSI and the credits were

discussed and a previous request for more infonnation was again presented to the

Comminee. After the exit conference. the Committee forv.rarded material which had been

provided to them by GSI in response to a request ofthe Audit staff. These facts have been

incorporated into the above analysis.

In the interim audit report. the Audit staffrecommended that the

Comminee obtain from GSI and provide to the Audit staff additional documentation or any

other comments to demonstrate that the credits extended and the large outstanding debt

maintained were in the normal course ofGSI's business. The infonnation provided was to

include examples of other customers or clients ofsimilar size and risk for which similar

sen'ices had been provided and similar billing arrangements had been used. Also.

infonnation concerning GSl's billing policies for similar clients and work. advance

payment policies. debt collection policies. and billing cycles \\"as to be included

The Committee responded to the Interim Audit Report by stating

that the apparent prohibited contributions

.. '...reflect a commercially reasonable telemarketing arrangement. This

arrangement benefited both sides. and the amounts ·credited· to the Committee

"'ere not contributions \\'ithin the meaning of the Federal Election Campaign

Act (··the Act·')

UDunng the audit period. GSI solicited contributions on behalf ofthe

Committee. GSI applied a standard marketing technique. GSI got the right to

solicit potential donors using the Committee's name and in return the

Comminee received amounts raised above a certain level. GSI retained the

right to continue soliciting from the lists, even after the contract tennination or

expiration. until GSI recouped Its fees In fact. thiS \'·as GSl's only remedy for

collection of fees o\\cd to It h~ the Committee. !V1oreo\'er. GSI and the

Committee retaIned -,oInt o\\nCrShlr of the ne\\ and developing lists.

Page l~, ApprnveC 8/29/96
,,,,~~".!:,< ~: O-O~::;-c':! ~,,_" _"_~~t~~~~~1'":,-::;""-"·;-_,,,·::n."

.~~

11

"GSI contacted both proven donors and potential new donors. In

contacting potential new donors.. the contribution rate is naturally low, and the

fees GSI charged to the Committee did not cover the monetary donations

received. To make the ne\\" donor lists profitable.. GSI re-solicited the potential

donors who had become proven donors.

··ln order to continue the \\'orking relationship. GSI did not demand all

ofthe fees it incurred up front. To do SG \\'ould make the program's cash flo\\'

appear unattractive to the Comminee. possibly prompting the Committee to

tenninate the relationship. Instead. GSI decided to share in the

poorer-than-expected returns of the early solicitations in order to reap profits

later.

~~This arrangement should not be considered a ·contribution'J or "credit"

extension at all. GSI expects full payment from future solicitations. In

summary. the arrangement between GSI and the Committee was commercially

reasonahle ...

o

c

,.... -.

The Committee's claim that ..the fees GSI charged to the Committee

did not cover the monetary donations received.... is not clear. In the opinion ofthe Audit

staff. the Committee likely meant that monetary donations received from the prospecting

program did not cover the fees charged by GSI. This would be consistent with the facts

kno\\n to the Audit staff.

The Audit staff disagrees with the Committee's assertion that the

·-apparent prohibited contributions.... reflect a commercially reasonable telemarketing

arrangement_ At no time has either GSI or the Committee provided documentation

outlining a relationship bet\\-een GSI and another client ofsimilar size and risk wf'ich

demonstrates that credits and debt of a similar magnitude were extended in the nonna!

course of business. Simply asserting that GSI is applying a standard market technique does

not establish it as fact. particularly in light of _-\dvisory Opinion 1991-18.

The Committee makes several claims in its response regarding GSI

that are at odds \\·tth the facts i\ccording to the 1989 contract bet\\'een GS} and the

Committee. the o\\nership of the contributor lists is not joint. but solely the property ofthe

Committee. The Comminee receIved onl~ funds from programs which had paid offtheir

prospecting debt rather than "an amount above a certaIn lever' as claimed by the

Committee. The prospecting programs returned no funds to the Comminee until the debt

incurred In establtshing the progrJrn had heen paid In full.

The i\udlt staff dIsagrees \\"ith the Comminee's contention that the

amounts credited \\'ere not contnbuttons \\'tthln the meaning of the .A.ct. 2 U.S.C.

~441 b<b)(2) defines a contribUtlon to Include an~ gift ~)f money or services. Without
ii'k~,,:;,.";<;:;;~?~~:::;"'-"" "', ,:

~z:...._:.,- - ~--

12

establishing that the credits were extended in the ordinary course of business,9 it appears

that the credits were a gift since the credits represented fees and expenses which the

Committee did not have to pay and under the .~ct represents a contribution.

o

In spite ofthe fact that the Audit staff agrees that OSI intends that

the expenses incurred in relation to work done for the Committee wilJ be paid by the

Committee. it does not fo II0\\" that this arrangement does not constitute an extension of

credit. Such an eventuality \\"3S not approved hy the Commission in Advisory Opinion

)991-18 which addressed this issue het\\'een GSI and another state party committee. In

that opinion. the Commissi( ; considered a Current Donor Program and intended that long

periods be avoided in \\'hich large sums \\'ere o\ved to GSI. The Cornmission explicitly

required that amounts owed not be outstanding for more than a short defined period of

time" In the case ofthe Prospecting Program. the Commission wrote that "Because ofthe

speculative nature ofthe program as distinguished from the Current Donor Program. and

the consequent possibilities ofshortfall. the Commission cannot give its approval to the

Prospecting Program in the absence of a record by GSI or similar companies ofthe

implementation of a program ofsimilar structure and size in the ordinary course of

business. In tbe absence ofsuch a record. the Committee may remedy this problem by

making a substantial payment in advance ofthe program (or the remainder ofthe program)

adequate to cover the expenses ofGSI's operations for the program and to ensure against

nonpayment of commissions. Alternatively. the Committee and GSI may alter the program

to provide for short. defined periods in \\!hich full payment is made by the period's end to

GSI for the commissions earned..... :\lso noted in the Advisory Opinion was that any

amount outstanding and o\\"ed to GSI "'ould be required to be reponed as a debt or

obligation \\'hen the shon defined period occurred within two reporting periods. Clearly~

the Committee did not follo\\' the guidelines outlined in Advisory Opinion 1991-18.. and in

our opinion. a prohibited contribution results based on the extension of credit.

In addition. the Committee has not complied with the

recommendations cnntained in the interim audit report. No information regarding GSI's

billing poliCies tor similar clients and \\'ork. advance payment policies.. debt collection

policies. or billing cycles. as requested in the interim audit report. \\"as provided. The

.~udit staff believes that the Committee In its response has not established that either the

granting of credits or the extension of credit in the magnitude outlined is in the nonnal

course of bUSiness. Consequently. the extension of credit averaging $400.000 throughout

the audit period and the granting of credIts totaling S~90.688 appear to constitute

prohibited corporate contributions made hy GSI and received by the Comminee,

9 There IS n(\ mentwn 0: credits 0~ IJte~ let: adJustments In the contract between GSI and the

Committee

Paae 16, AF;:;roved 8/29/96
13

Section 434(b)(4)(A) ofTitle 2 ofthe United States Code states.. in

part.. that reports filed unc!er this section shall disclose for the reporting period and the

calendar year.. the total amount of all expenditures made to meet committee operating

expenses.

Section 104.3(a)(2)(vii)(A) ofTitle 11 of the Code of Federal

Regulations states. in pan. that each report filed under 11 CFR 104.1 shall disclose the

total offsets to operating expenditures (such as rebates and refunds).

Section 104.3(d) ofTitle 11 ofthe Code of Federal Regulations

regarding the reporting of debts and obligations states.. in that each report filed under

11 CFR 104.1 shall on Schedule D disclose the amount and nature of outstanding debts

owed by the reporting comminee.

l I

Section 104.11 ofTitle 11 ofthe Code of Federal Regulations states.

in pan. that debts owed by a political comminee "'hich remain outstanding shall be

continuously reported until extinguished. These debts shall be reported on separate

schedules together \\ith a statement explaining the circumstances and conditions under

\\'hich each debt "'as incurred or extinguished.

"-.

o

a. Re.poni0i: of Debt

c

The Committee did not report debt to GSI consistently

bet~'een 1990 and 1991. At December 31. 1990 the Committee reported an outstanding

debt o\ved to GSI of S678.149 and Ytrith no explanation disclosed a beginning outstanding

debt on January 1. 1991 of S~~5.. 155. a difference of $452.994. As previously noted.. early

in 1991. GSI t,,'ice granted credits totaling S157.111 to the Committee for 1990 services.

In December 1991. GSI granted credits for services rendered in 1991 totaling $109.045.

These credits ""'ere not reponed (see finding ILA.:!.b.), The Comminee reported debt owed

to GS1 at June 30. 1<)91 ofS~80.614 and at December 31. 1991 of$284..931. 10

The ..&\udit staff calculated the outstanding debt at the

beginnIng of 1Qq 1 to be S664.371. Over the course of 1991. the debt to GSI averaged

10 The Commmee "'as mfooned b~ GSI In a memo dated Januaf) 24. 1992 that thelT outstanding debt

at December 3 i. 1qQ 1 had been reduced to S:!8~,9~ J In a Februar: 25. J992 memo from the

Comm:nee to GSI. both panles apparentl~ agreed that the debt at December 3 J, 1991 was aetual1)

S~OO.3-:-3

PagE 17, Approved 8/29/96
, . -- (

o

c

14

approximately 5500..000. The debt at December 31.. 1991 was 5516,743. 11 At year end

1991.. the Comminee under reported debt to GSI by 5231.812 ($516.743 - $284,,931).

The Committee reported a debt owed to aSl at January 1"

1992 of 5284..931. This amount was consistent with the prior period report and. as in that

period.. incorrect by $231 ..811. In 1992.. GSI granted credits totaling $24.532 for services

rendered in 1991 \\'hich the Committee also failed to report (see finding II.A.2.b.). The

Committee reported a debt owed to GSI at December 31. 1QQ~ in the amount of 5200..593.

As noted above. the Audit staff calculated ('"'.e outstanding

debt at January 1. 1992 to be $516.743. During 199:!.. the Committee reduced its overall

debt to GSI as a result of GSI retaining amounts in excess of billings ofS65.283 (5746..900

- S681.617) and the credit of $24.. 532 for 1991 services received in January 1992. Thus the

outstanding debt at December 31 .. 1992 was $426..928.12 The Committee again under

reported its dcht to GSI. this time by S:!26..335 ($426..928 - 5200..593).

As a result ofthe errors noted above the Committee's

reported debt to GSI \\'as incorrectly reponed throughout the audit period.

At the exit conference the Audit staff provided the

Comminet \\ito schedules \\'hich summarized the GSI debt. The Committee made no

comment.

In the interim audit report.. the Audit staft recommended that

the Comminee file amended Summary Pages and Schedules D to conect the debt reported

for each ofthe reporting periods.

11

11

Debt beginning of the ~ear lQC)l

add GSJ Blihng.s

less amounts retamed b~ GSI

less GSI credits

Debt~~earend tQQl

Debt beglnnmg of the ~ear IQQ:

and GSI Blllmgs

less amounts retamed b~ GSI

less GSI Credits

Deb~ at ear end 1qQ:

56tH.371

$ 1.477.533

($ 1.359.005)

($IOQ 04")

$516.7~3

S516.743

$681.61 i

($;46.QOO)

($24 "3;)

S4~6.q~8

?age lS, Ap!JrnveC 8/29/96
c

'f)

c

15

In response to the interim audit report.. the Committee.. on

October 27.. 1995, filed amended Summary Pages and Schedules D which materiaBy

corrected the debt reponing deficiencies,13

b, RewnjDi: ofOffsets

As outlined in th~ background discussion of GSI. funds

maintained by GSI were transferred bet'\\"een the Committee's custodial accounts and GSl's

corporate account, The Comminec correctly reported both the contributions deposited into

the custodial accounts and the transfers to GSl's corpo~te account. However. the return

transfers from GS":- .: ~.rp~.rate account to the custodial accounts were not correctly reponed

in either 1991 \.11 .. \Jf ':".

In !Q91 GSI transferred S115..150 into the Committee's

custodial account from its corporate account. The Committee reponed $99..700 ofthis

amount as unitemized contributions, Thus. the Committee failed to repon $15.450

($ 115.150 - S99.700l of the transfers as refunds from GSI. In addition. the $99.700 which

\\'as reponed as unitemized contributions should have been reponed and itemized as

refunds received from GSI.

For 199~. GSI transferred $321 ..350 back to the Committee's

custodial accounts of v.ilich $293.117 \\'as reponed on Detailed Summary Page line ll.a.ii.

as unitemized individual contributions. The Committee failed to report 528.233 ($321.350

• S293.117) ofthe transfers and failed to itemize the $293.117 correctly as reftmds received

from GSI.

,\1 the exit conference. the incorrect reporting ofthe offsets

from GSI \\'as discussed. The Comminee \\'as told that its reports would have to be

amended to correct the reporting inaccuracies for GSI. The Committee had no comment.

In the Interim audit report. the Audit staff recommended that

the Committee file amended Summary Pages. Detailed Summary Pages and Schedules A

to correct the reporting of receIpts for 1991 and 199:!.

In response to the interim audit report. the Committee. on

October :7. 1QQ5. filed amended Summar: Pages. Detailed Summary Pages and Schedules

A \\'hich materially corrected the receIpt reporting deficiencies

13 In the Commlnee's amended report~. an additional S833 In the initial outstanding debt to GSlls

ackno,," ledged at Janua~ 1. I QQ i \\"Ith this. dl'lerence. the debt reponed owed to GSI during

audit penod generail~ confonns to the AudIt staff calculations A combination of the Inittal

difference, an unexplamed SQO dIfference In amount bIlled du~mg the Post General penod and the

mcluslon of a S~.961 tn\Olce for lQQ~ Sef\ICeS \\hlCh "as recel\ed In 1993 resulted In an Increase

In the ending debt reponed a! December: I, I Q9~ of S5."'04

Pace :9, Approved 8/29:'96
16

c. Canvass Proaram Re.ponjoK

A revie\\' ofthe Canvass Program revealed that the

Comminee reported the financial activity ofthe Canvass Program through August 15..

1991. The Committee reponed receipts 01"$47..480 and disbursements of $40..700.

The Audit staff calculated that $34..920 in deposits and

536..075 in disbursements for the period August 16 through December 31. 1991 were not

reponed on the Committee's Year End 1991 disclosure report.

At the exit conference. the maner ofthe Canvass Program

was discussed. The Comminee had previously been provided a description ofthe amounts

omitted from the disclosure reports. The Committee made no comment.

In the interim audit repon. the Audit staffrecommended that

the Committee file amended Summary Page. Detailed Summary Page.. and Schedules A

and B for the Year End 1991 repon to correct the public record.

o

In response to the interim audit repon. the Committee. on

October 27.1995. filed an amended Summary Page. Detailed Summary Page and

Schedules A and B for Year End 1991 \\'hich materially corrected the receipt and

disbursement reporting deficiencies for the GSI Canvass ProgranL

B. ALLOCATIO~ OF GENERIC VOTER REGISTRAnON/GOTV EXPENSES

c

Section 106.5(d)() )(i) ofTitle 11 ofthe Code of Federal Regulations stat~

in pan.. that all state part)" committees shall allocate their administrative expenses and costs

of generic \'oter drives according to the ballot composition method. Under this m~

texpenses shaH be allocated based on the ratio of federal offices expected on the ballot to

total federal and non-federal offices expected on the ballot in the next general election to be

held in the committee's state.

Section 106.5\g)( I )( i) of Title 11 ofthe Code of Federal Regulations states..

in pan. that a committee that has established separate federai and non-federal accounts

under 11 CFR 10~.5 (a)( 1)(i) shall pay the enUre dlTlount of an allocable expense ofjoint

federal and non-federal (allocable. activities from ItS federal account and shall transfer

funds from its non-federal account to its federal account solely to cover the non-federal

share of that allocable expense.

Page 20, Approved 8/29/96
t.r>

o

c·

C'.

17

During the 1991 and 1992 election cycle.. the ballot composition ratio for

the Committee was 50%. 14 Any generic voter registration or get-out·the·vote program

conducted by or supported by the Committee could have been allocated with the

non-federal accounts paying no more than 50%. In addition.. these payments were required

to have been made from the federal accounts and reimbursed by the non-federal accounts.

A re\'ie\\' ofthe Committec's accounts revealed that disbursements totaling

$1..125.688 appeared to have heen made in support of acti\'ities such as voter identification..

voter registration. and get-out·the-vote drives and \\'ere "'holly paid from the non-federal

accounts.

Included in the above amount are contributions totaling $895..000 to three

non-federal committees. Ofthis amount. $709..000 was given to HNo on Proposition 165......

S11 0..000 \\'as given to the ....Committee to Protect the Political Rights of rvtinorities"· and

$76..000 \\'as given to ""L.A. Vote..... A revie\\' ofthe state disclosure reports filed by these

Comminees indicate that the funds provided by the Committee's non-federal accounts were

spent for voter registration and get-out-the-vote (GOTV') activities.

The Comminee also had a ne\\' voter bounty program through \\'hich

Comminee accounting records indicated that the Committee paid $151.336 to local party

and candidate committees. Under this program. the Committee would pay a bounty of a

dollar per new registered voter. The program operated in both 1~91 and 1992.

Finally.. the balance. S79.. 35~. "'as paid to various inc!iriduals. vendors and

local comminees for activities which were variously described on Committee

documentation as GOn' .. local voter surveyor voter r~gistration.

The .~udjt staff concluded that the Comminee was making payments to

these comminees.. individuals and vendors in support of voter registration programs and at

least half ofthe amount should have been paid \\ith federal funds. t. ~I ofthe

disbursements on behal f ofthe programs descri bed above were made from the Committee's

non·federal account. The Comminee should have paid at least $56~.8~ ($1..123..688 X

50% ) from its federal accounts.

14 In Ad\'lso~ OpinIOn' QQ I·:'" requested ~~ the CommlUee. the CommiSSion determmed that. based

on Anlcle II. section 6(b) ofCaltfornlJ's Constitution. the Commluee could not mclude a pomt for

local c,,~didates In Its ballot composition calculatIOn ThIs would result In an allocation ratio of

5.,0 0 federal and 43° 0 non-federal The Ad\',so~ Opinion funher noted that If an injunction was

obtamed to bar enforcement of Anlde. II sectlon 6( bl. the Commluee would become entitled to the

POint for local candIdates retroactive to Janua~ 1. 199 I On August 4. IQQ4. In the case ofthe

California pemocrauc Pan' \ LUD~ren. the Lnlted States DIstnct Court for the Nonhem District of

California granted an inJunctIon enlolDlng the State of CalIfornIa from enforCing Anlcle II. section

6( bI As a result. the AudIt DI\ ISlon has Included a POint for local candidates In Its ballot

compositIOn calculatIOn

Page 21, i\;)::,roveC 8/29/96
o

c

18

At the exit conference. the Committee was provided a schedule ofthe voter

identification. voter registration. get-out-the-vote activity and the bounty program. The

schedule included a breakdown ofthe federal a,~.l :410n-federal shares. The Committee

responded that the bounty program for voters registered was ' 'oluntary and not a voter

registration program.

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

provide documentation. other than documents previously provided to the Commission.. \0

demonstrate that the purposes ofthe programs were not generic voter identification.. voter

registration. or get-out-the-vote activity and did not require allocation between federal and

non-federal accounts. This documentation \\'as to include evidence from the other

comminees and organizations demonstrating that these funds were not used for voter

registration. Absent such documentation.. it was recommended that the federal accounts

reImburse the non-federal accounts $562..844.

The Committee's response to the interim audit report stated that it

"substantially disagrees \\ith this finding and the recommended reimbursement from the

federal accounts·" and it discussed the various payments as follows:

UNo on Proposition 165: The Report finds that the Conuninee paid

$709.000 from its nonfederal account to a California ballot measure committee

formed to oppose Proposition 165. The No on 165 Comminee used the

$709.000 to conduct a Donpartisan voter registration drive. According to the

Federal Election Campaign Act and Federal Election Commission regulations.

such nonpanisan efTons need not come from allocated federal funds.

"'In the context of voter registration drives. a nonpartisan activity means

that 'no effon is or has been made to determine the pany or candidate

preference of the individuals before eDcouragin~ t~m to R'gls~ to vote or to

vote.· (11 C.F.R. 100.8(b)()).) .A.. corporation or labor union may donate funds

for nonpanisan voter registration drives directly to nonprofit organizations

\\'hich are exempt from taxation under 26 U.S.C. § 50t{c)(4) and which do not

support. endorse. or oppose candidates or political panies. (11 C.F.R.

1144(c)(:!).)

"·Here. the No on 165 Comminee conducted a nonpartisan voter

registration drive. Also. the No on 165 Comminee qualifies as an organization

that does not suppon.. oppose or endorse candidates or political panies.

Therefore. the No on 165 Comn11ttee's voter registration funds may come

directly from nonfederal sources. Including those ofthe Committee.

"Committee to Protect the Political Rii:bts of Minorities: The Report

also concludes that payments of $11 0.000 made to the Committee to Protect

the Political Rights of ~11norities r"~1inoritiesCommittee") were for voter

registration regulated by the Commission. This is simply not the case.

Page 22, Approved B/29/96
o

c

\'The Minorities Committee is connected to the Black American Public

Affairs Committee (BAPAC).. a nonprofit 501(c)(3) organization. The

Minorities Committee conducted a nonpartisan voter registration program on

behalfofBAPAC.

"'Similar to the No on 165 registration committee. the Minorities

Committee used this Comrnlnee's funds to conduct strictly nonpartisan voter

registration drives. Once again. this activity is not regulated by the

Commission and it may be funded from nonfederal sources...·

The Committee assumed that because corporations and labor unions are

pennitted under 11 CFR 114,4(c)(2) to directly fund nonpartisan voter registration drives

conducted by nonprofit.. tax exempt organizations. it follows that non-federal funds from

any source may be used to fund such voter drives. The Committee concludes it is therefore

entitled to fund such voter registration programs qualifying under 11 CFR 114.4(c)(2) from

non-federal accounts.

The Audit staff disagrees \\ith the Committee's interpretation, Neither the

Act nor the Regulations discuss nonpartisan voter registration in the context of political

panies. Funher.. it is presumed that a..'y voter registration funded by a political committee

is necessarily panisan. Funding of nonpartisan voter registration conducted by nonprofi~

t.loX exempt entities is.. therefore. not addressed.

The Comminee acknowledges that it made contributions to No on 165 and

the Committee to Protect the Political Rights of Minorities in support of voter registration.

\\'hether or not No on 165 or the Comminee to Protect the Polif:at Rights of Minorities

are legitimately nonprofit.. tax exempt organizations and whether or not the voter

registration they conducted was nonpanisan are not relevant in this case because they do

not affect the character of voter regisl:ation funded by a party comminee, Thus. any voter

registration funded by the Committee must. according to 11 CFR §106,5(d)(1 )(i). be

allocated according to the ballot composition method,

Accordingly. the .-\udit staff still believes that the Comminee should have

paid $409.500 [($709.000 - $110.000) x 500/0J from its federal account.

~ext. the CommIttee addressed the funds paid to L.~ Vote:

uL t\ Vote: The Repol1 concludes that $76.000 paid to this local

organizatIon in Los Angeles should have been allocated, The Comminee

maintains that the LA \'ote committee \\'as primarily fonned to support local

candidates for office \\ithln the County of Los Angeles The purpose ofthe

contribution by the Committee to LA \'ote \\'a5 to assist LA Vote with its

GOT\' effort on hehalf of Yvonne Braith\\'mte Burke v.ho \\'as the Los
20

Angeles County Democratic Central Committee's endorsed candidate for the

Los Angeles County Board of Supervisors.....

The Committee did not support their contention with any documentation.

Despite the fact that focus ofthe GOTV msy have been a local candidate.

the ballot for the election also included candidates for federal office Md thus any GOT\'

etTon """Quid benefit both federal and non-federal candidates. The regulations state that

GOTV funded by state party comminees must be allocated between federal and

non-federal accounts using the ballot composition method. Accordingly. the Audit staff

maintains that the funds sent to LA Vote from the Committee should have been allocated

and that the Committee should have paid 538.000 ($76..000 x 500/0) from its federal

account~

The Committee provided documentation which indicated that GOT\'

expenditures totaling $23..427 was spent on special elections for state offices. There were

no federal candidates running simultaneously in these contests and after reviewing the

documentation the Comminee provided. the Audit staff accepted this GOTV activity as

nonallocable because no federal election was affected.

o

The Committee agreed with the audit staff concerning the remaining items

and disclosed a debt ofSl03..630 owed by its federal acc, :unts to the non-federal accounts.

The Audit staff concludes that the Comminee owes a total ofS551.130

(S409.5~S38..ooo ... S103.630) from its federal accounts to its non-federal 8CCOWlts.

--- c. ApPARENT PROHIBITED CONTRIBUTION

Co.

Section 441 b(a) ofTitle :2 ofthe United States Code states.. in that it is

unla~ful for any corporation to make a contribution or expenditure in connection with any

election to federal office and that it is unla\\ful for any political comminee knowingly to

accept or receive any contribution from a source prohibited by this section.

Section 441 b(b)(2) of Title 2 ofthe United States Code states. in parL that

the term "contribution or expenditure" shall include any direct or indirect payment..

distribution. loan. advance. deposit. or g.ift of money_ or any services.. or anything of value

to any political pany in connection \\'ith any election to any ofthe offices referred to in this

section.

Section 100.7(a)( 1)( iii) of Title 11 ofthe Code of Federal Regulations

states. in pan.. that for the purposes of 11 CFR 100.7(a)( 1).. the term anything of value

includes allin-kind contributions. Linless specifically exempted under 11 CFR 100.7(b)..

the provision of any goods or services v.ithout charge or at a charge which is less than the

usual an nonnal charge for such goods or services is a contribution. If goods or services

are provided at less than the usual and nonnal charge. the amount ofthe in-kind

Page 24, Approved 8/29/96
o

21

contribution is the difference bel'\"eeD the usual and normal charge for the goods or

services at the time ofthe contribution and the amount charged the political committee.

Section loo.7(a)(4) ofTitle I) ofthe Code of Federal Regulations states.. in

part.. that the extension of credit by any person is a contribution unless t.l)e credit is

extended in the ordinary course ofthe person's business and the tenns are substantially

similar to extensions of credit to nonpolitical debtors that are ofsimilar risk and size l ..'

obligation.

Section 116.3(b) ofTitle 11 ofthe Code of Federal Regulations states.. in

part. that a corporation in its capacity as a commercial vendor may extend credit to a

political comminee or another person on behalf of a political committee provided that the

credit is extended in the ordinary course ofthe corporation's business and the tem1S are

substantially similar to extensions of credit to nonpolitical debtors that are ofsimilar risk

and size of obligation.

The Audit staff identified an entity which appeared to have made pronibited

contributions to the Committee. This is in addition to prohibited contributions ofGSI

\\'hich \\'ere discussed at Finding Il.A.I.

During our review ofthe Comminee's expense reimbursements to

Comminee staff: we noted reimbursements to a corporation.. River West Development. Inc.

(Ri"er \Vest). River West is a real estate development company owned by Mr. Philip

.~ngelides.. the Committee Chairman for most ofthe audit period. The Con1J11inee also

rented office space for its Sacramento headquaners from River West.

Expenses ~"ere incurred by ~1r. AngeJides on behalfofthe Committee using

both a River \Vest corporate credit card and his personal credit card. 1be charges made on

Mr..~ngelides· personal credit card included in this finding are those which were

reimbursed first by River \\'est \\ilich \\'''as then reimbursed by the Committee. Individual

reimbursed amounts were outstanding for periods ranging from three to three hundred

se\'ent~-three days and on average for se\'cnty-one days. These reimbursed expenses. both

those incurred on ~1r. AngeJides personal credit card and those incurred on a River West

corporate credit card. \\·ere primarily for Mr. A.ngelides· Committee related traveL

subsistence and telephone charges. Liltimately. the Comminee reimbursed River West and

~1r. .t-\ngelides S4~ .. 183 (see :\ttachment 1) for these charges.

By accepting the corporate advances. the Comminee accepted a corporate

contribution of $4~.183. Not included in this amount "'ere reimbursements to IZ]ver \. est

for salanes oftv.o River \\'esl employees ,,'ho also performed work for the C'll1Uniltee and

rent payments for office space.

A schedule of the advances made by River \Vest on behalf ,Ji ,,:~~. Committee

\\'as presented at the exit conference The Committee made no commen~

Page 25, Approved 8/~9/96
The Audit staff recommended in the interim audit repon that the Committee

demonstrate that no corporate contribution was made to or received by the Committee.

The information was to include. but not limited to. credit card statements, billings to the

Committee and any other documentation tD demonstrate that these advances were not mad~

by River West and accordingly. no corporate contribution occurred. In addition.. the Audit

staffrequested that the Committee provide documentation from River West which

disclosed the type of River \Vest's incorporation (e.g. C-Corp. S-Corp. etc.).

in Us response to the Interim audit report. the Committee stated that it

contested the finding and maintained that:

o

o

t,r)

C'

"River \\iest acted as any commercial vendor and extended credit to the

Comminee in the ordinary course of business. .A..s established by the attached

statement ofJeri Timmons. then corporate Secretary ofRiver West.. the

corporation ""as in the business of providing consultant and project

management services. Those services routinely involved advancing costs for

travel and entertainment. delivery and telephone charges using River West's

and'or ~1r..-\ngelides' established accounts.

"These costs "'ere then billed by River \Ves~ to the clients ofthe

corporation. River \\'est treated the Committee not differently from other

clients as reflected in ~ls. Timmons' statement."

In !\ls. Timmons' statement. she explains that River West is a "L(regular)

corporation and sole.:" o\\l1ed by Mr. f\ngelides. She states "'-River West Developments·

business consists ofserving as a consulting and project management finn. Its clients are

primarily partnerships. corporations. unincorporated associates and individuals owning reai

estate in the Sacramento metropolitan area." She describes the services River West

perfonns for its clients as fol1o\\'s:

"The consulting and proJect management ser\'H.:es provided by River

\\'es! to the lando\\l1ers Include"

coordinating the services of professionals such as land use advocates. land

planners. archuects. engineers. and constructlon finns.

delegating River \\'est staff to nlanage and coordinate particular projects

pro\ tdln~ full accounttng sen ices to the o\\ning entity...

"The methods of purchasing st:n"lCeS and matenals are:

purchaSing dJrectl~ on hehalf of the land-o\&t1l1ng entity. using accounts

established b~ or tunds belonging to the entlt~

Pa~e 26, ~~roved 8/29i96
o

., .. _.J

purchasing on behalf ofthe entity using accounts established by River West

Developments. which are paid for using River West Developments funds;

and subsequently billed to the entity using River West Developments'

computerized accounts receivable system.

o

404o} n general. the indirect project costs such as aerial surveys. blueprints.

photography. rleliveries. and travel and entertainment \\'ere consistently billed

to RIver \Vest Developments' estahlished accounts."

1s. Timmons' statement establishes that River \Vest perfonns a broad range

ofservices on behalf of their clients. These services are rendered (by ~ls. Timmons'

description) because the client who o\\ns ··real estate in the Sacramento metropolitan area"

has engaged River \Vest to consult and manage its real estate's development. River West

may provide a \a.'ide range of ancillary services.. but they are always provided in

conjunction with the prime focus ofRiver ""'est's business \\'hich is real estate development

and management. The services provided to the Committee by River West \\'ere not related

to real estate development or management. but rather to the conduct ofthe Committee's

act~\'ities as a Political Pany. As a result. the services provided by River \Vest were not in

thc ordinary course of its business and the extension of credit for these services constitutes

a corporate contribution.

Based on the above and Mr. t\ngelides' relationship to the Committee. the

..\udit staff concludes that the Comminee received prohibited contributions of$42,,183

from River \\"est in the form of advances.

D. EXCESSIVE CO~TRIBlTIO'RESliLTI~G FRO~I STAFF ADVANCES

Section 441a(a)(1 )(e) ofTitle :! ofthe United States Code states that no

person shall make contributions to any political comminee in any calendar year which, in

the aggregate, exceed S5.000.

Sectior· : 16.5(b) of Tide 11 ofthe Code of Federal Regulations states" in

part. the payment by an individual from his or her personal funds. including a personal

credit card. for the costs incurred In pro\'idlng goods or sen'ices to. or obtaining goods or

services that are used by or on behalf of a poltucal committee is a contribution unless the

payment IS exempted from the definition of a contribut!on under 11 CFR 100.7(b)(8).

Entitles \'ariousl~ Identified as King AIr, King Air .~ssociates.. King Air II

and King AIr .-\Ssoc13tes II provided aIr transportation on thirty-nine occasions between

~1arch 1991 and October 1992 for the Committee. and In particular. for t\tr. Angelides.

From the a\·ailable documentation. the Audit staff calculated that eighty-seven separate

flights "'ere made The Committee paid onl~ coach fare for Its passengers and it appears

that the Committee paid for none of these nl~hts In ad\·ance. Bet"'..een August 1991 and

December 1992. the Committee made n:lnll1ursenlcnts related to King Air totahng

S35.988

Page AppnweC 8,'29/9c
0.

24

Documents found \\ith the invoices from King Air indicated that a

connection \\rith River \Vest may have existed. In response to an Audit staffinquir)'.. the

Committee acknowledged that Mr. Angelides \\'as a "partner in King Air" but were not

more specific about the actual nature of the relationship. The Committee did say that Mr.

Angelides used King Air ~\'hen he traveled on business matters for River West.

Our research tndlcated that no entity named King Air.. King .~ir A.ssociates.

or King .A..ir 11 ~\'as ever incorporated in California. Based on the Comminee's assenion

and the lack of any record of incorporation. the Audit staff believed King Air to be a

pannership. If River \Vest "'as a panner in King Air. the Comminee would have received

a prohibited contribution from River West. If Mr. Angelides was a panner in King Air. the

Commit:ce would have received an excessive contribution from Mr. Angelides. In either

case. the pro rata share ofthe usual and nonnal charge for the flights would have been the

basis for calculating any contribution amount. IS In addition.. none ofthe reimbursements

\\'ere made \\ithin thirty days of incurrence. Thus. if Mr. Angelides was the partner. the

entire pro rata share of the usual and normal charge \lIould be a contribution pwsuant to 11

CFR 116.5.

Complete flight records \,'ere not made available to alloYl the Audit staffto

detennine the Committee's pro rata share of the usual and nonnal charge. As noted above..

the Comrninee reimbursed coach fare instead ofits pro rata share of usual and normal

charge. Therefore. ifthe pro rata share ofthe usual and nonnal charge exceeds the coach

fare paid by the Comminee. an unreimbursed amount would still be outstanding.

. schedule of the King .~ir travel reimbursements on which the Audit staff

outlined this potential problem "'as presented to the Comminee at the exit conference. The

Comminee responded that it "'as ~1r. Angelides and not River West "'ho was the partner in

King AIr. but no documentation \\'3.5 provided in support of this assertion.

In the intenm audit report. the f\udit staff recommended the Comminee

provide documentation demonstrating the nature of King Air's organization and jf a

partnership provide documents such as a PartnershIp .;.\greement to demonstrate whether

River \\'est or ~1r..-\ngelides personally is the "Partner" in King Air. The Audit staff

further recommended that the Committee provide documentation to demonstrate that it did

not receive either a corporate or excessive contribution. This documentation \\'as to

include. but not limned to. the total cost for each leg of the flights. the equivalent charter

cost of each leg ofthe flights. the passengers on each leg. the reason for each passenger's

travel. and the total reImbursed by the Committee for each flight. In addition. the Audit

staft- requested the Commlnee obtaIn from K.lng A.tr. 1r. Angelides or River \\t°est and

provide to the Audit staff documentation \\'hlch explained \vho paid the unreimbursed

Lsual and normal charge f0T the t11~hts "ould be the chaner rate for the flight usmg a Similar

atrcrafl

Pace 26, Ap?raveC 8/29/96
o

c

2S

ponion of each flight. Finally, the Audit staffrecommended that the Committee provide

documentation showing whether King Air routinely provided airtransportation and

services to entities other than the panners and the Committee and, ifso, the nonnal billing

practices for those services.

The Committee responded to the interim audit report as follows:

UNot\vithstanding the multitude of names involving the tenns ··King

Air"" there \'lere in fact only two entities involved in this situation. The first

entity in existence during the audit period until March 18. 1992 was King Air

Associates. This was the name under which a group of owners held an

undivided interest in an airplane (King Air F-90 N IITS). Although a written

partnerslup agreement was never executed.. pannership tax returns were filed

by King Air Associates.

..4Phil Angelides held an individual interest of6.25% in King Air

Associates. as evidenced by the enclosed copies ofIRS fonns K-l tax returns

filed by King Air Associates for calendar years 1991 and 1992.

....On March 18. 1992. King Air Associates sold the airplane to an out of

state entity unrelated to any ofthe owners. Several ofthe prior owners ofthe

plane decided to enter into a group chaner arrangement with a private chaner

corporation known as Continental Sabre Corporation. The pilot who

previously fie\\" for King Air Associates.. David Bell., also flew for Continental.

•••-'\5 a matter ofconvenience Arlen Opper,. the prior managing par'.b~

ofKing Air Associates.. agreed to remain as the 'central billing agent' for those

prior o\\ners who wished to use the services ofContinental. This cemral

billing agent was referred to as King Air II or King Air Associates 11. This

"·entity"· served no purpose other than to act as a clearinghouse for the billings

generated through the use ofContinental's plane.

HThe group billing arrangement consisted ofContinental's billing

quanerly assessments of estimated flight hours at S13..575 per quaner, billed to

the three most frequent users ofits services. Continental would send bills to

King Air II as flights occurred. Continental's invoices deducted fuel charges..

since the pilot purchased fuel personally. The pilot would include the fuel

charges in his ·pilot services· charges. f\1r. Opper would send bills to the users

ofthe plane. charging them I oo~o of the pilot services and for the flight time in

excess of the hours prepaid by the quanerly allotment:·

Based on the available information. it appears that the flights on King Air

Associates (the partnership). and King Air II (the arrangement with Continental Sabre

Corporation). were provided on behalf of the Committee through Mr. Angelides. While

the specifics as to purpose and passengers for each flight remains vague due to the

Page 29, Approved 8/29/96
a

L.0

26

incomplete records.. the invoices indicate that the flignts began after Mr. Angelides became

Party Chair and that he traveled by King Air on party business.

Given the above.. the Audit staff perfonned an analysis to detennine ifMr.

Angelides.. by advancing funds on behalf ofthe Committee, made an excessive

contribution to the Committee. Other advances made by Mr. Angelides not related to the

flights on King Air \"ere included to detennine a total excessive contribution pursuant to

11 CFR §116.5. The other advances considered in the reviev; \\'ere those made personally

by Mr. Angelides and \"ere primarily for travel and subsistence costs i11Curred in the course

of pursuing official Committee business. 16

The Comminee. unable to locate the flight logs.. did not provide the detailed

information the Audit staff requested in the interim audit report. That infonnation was

needed to detennine the pro rata share ofthe usual and nonnal cost of each flight. The cost

ofthe flights to the Comminee "'as.. therefore.. necessarily based on the invoiced flight

costs.)i Thus. the Audit staff does not knOVl the actual cost of many ofthe flights.. the

number of passengers. the pro rata share of cost related to the Committee or the equivalent

charter costs.

Our analysis indicated that !\rtr. :-\ngelides made excessive contributions to

the Comminee during 1992 (see Attachment:!). The excessive ponions of his

contributions range from $501 to $47..426. Included in these totals are the amounts

invoiced for each flight. not necessarily the amounts paid by the Committee. As a resul~

$30.. 184 remains unpaid. Although the Committee did not provide documentation to

demonstrate \I;ho paid the unreimbursed ponions. the Audit staff presumes they were paid

by f\-tr. Angelides since King .A.ir. the pannership~ no longer existed. This results in an

excessive contribution of S24~ 18~ ($30.184 less the $5.000 contribution and $1,000 travel

allo\\'ances) \\'hieh is still outstanding.

16

J"

The amounts mcluded an this reVle\\ \\ere distinct from advances made by ~1r. Angelides· company

RIver \Vest dIscussed at Fandmg II C

ThIs approach IS consIstent \\ Ith mat taken t": the Commmee m a spreadsheet of reimbursements to

Kmg AIr II which the~ prC\\ Ided \\ Ith theIr response The spreadsheet lists a net unpaid balance

o\\ed to Kmg Air II \\hlCh "as defl\ed b~ summmg. the differences of the inVOice amounts less the

respectl\·e amounts bJiled and paid The m\C\lce amounts for each flight may sull not reflect all of

the fllg.ht cost PartnershIps such a5 Ktn~ .001r ASSOCiates are usuall~ fonned to share the

conSIderable expenses of aIrplane ownershlr An .~pnl 24. 19Q2 King Au summar) of charges to

the Commmee "as found amount the Commmee records Included on thiS summary was an annual

maintenance charge of S".58"' dated I ~8 9: On the summal). thiS amount was carried to a

column to indicate that the charge "as paid or b~ "hom Funher. the cost of operatang the aircraft

rr~i~ not be equal to the "usual and normal charge" for the flights The usual and normal charge

"oulj be !he eqUl\alent charter rate fC\f the fllg.hts That amount "ould melude. among other

thmg.s. a profit for the charter compan~

Page 30, .~praved 8/29/9f
27

E. NON-FEDERAL FUNDS DEPOSITED I"'iTO FEDERAL At:COUNTS

Section l02.5(a)(J )(i) ofTitle 11 ofthe Code of Federal Regulations states.

in part. that political committees which finance political activity in connection with both

federal and non-federal elections shall estabE~~ a separate federal account. Only funds

subject to the prohibitions and limitations ofthe Act shall be deposited in such separate

federal account.

Section 1O~.6(a)( 1)(ii) of Title 11 ofthe Code of Federal Regulations states..

in part. that transfers of funds may be made \\ithout limit on amount between a State pany

committee and any subordinate party committee \\'hether or not they are political

committees under 11 CFR §100.5 and whether or not such committees are affiliated.

Section 106.5(a)(2)(i\') ofTitle 11 0fthe Code of Federal Regulations

states. in part. that political comminees that make disbursements in connection with federal

and non-federal elections shall allocate expenses according to this section for the following

categories of activity: Generic voter drives including voter identification. voter

registration. and get-out-the-vote drh'es. or any other acti~ities that urge the general public

to register. vote or support candidates of a particular part): or associated with a particular

Issue. \\ithout mentioning a specific candidate.

c

-"'-

-~-

Sections 106~(g)( 1)(i) and (2)(8) ofTitle 11 ofthe Code of Federal

Regulations state. in pan. that political comminees that have established separate federal

and non-federal accounts shall pay the entire amount of an allocable expense from its

federal account and shall transfer funds from its non-federal account to its federal account

solely to cover the non-federal share ofthat allocable e>epense and that the timing oftbe

transfer of funds from its non-federal account may not be mOfe than ten days in advance

nor more than sixt)' days after the payments for which they are designated are made.

Committees which have federal and non-federal accounts. may pay certain

expenses on an allocated basis, These disbursements must be made from either a federal

account or an allocation account \\'hich is considered a federal account. To reimburse for

the non-federal portion of the expenses. the committee is permitted to transfer funds from

its non-federal account to one of its federal accounts- These transfers are reponed and

itemized on Receipt Schedule H-3 and hence are referred to as H-3 transfers.

.~s discussed belo\\. In addition to the permissible reimbursements. the

Audit staff identified S177.483 In non-federal funds \\'hich the Comminee incorrectly

deposited into Its Federal accounts.

1. ,Al2parent Duplication of ti- Transfer Amounts

Each H-3 transfer made h~ the Comminee \\'as supported by a

detailed schedule of allocable payments fl)f 3 specdie penod For each disbursement.

Page 31, Approved 8!29/9E
c'

N

28

these schedules indicated the non-federal allocation rate and the non-federal allocable

amount,

In the process Jfrevie\\ing the H-3 transfer support schedules.. the

Audit stafffound three instances where duplication occurred. In each instance.. some ofthe

allocable payments found on one schedule \'·ere also found on another. Because ofthe

duplications. the Committee transferred $47.185 n10re than was allowable.

•~t the exit conference. the apparent duplications were explained to

the Comminee and a schedule outltning the duplications "'as presented, The Committee

stated that it va.·as not a\\'are that any duplication had occurred.

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

Comminee provide documentation such as canceled checks and invoices showing that the

funds deposited were not the result of duplicate reimbursements or demonstrate that the

funds "'ere transferred back to a non-federal account.

The Comminee responded to the interim audit report as follows:

"The Committee has checked Its records and does not contest this

iinding. The Committee has amended its 199:! year end disclosure statement

to reflect a debt to its nonfederal comminee ofS47.185. As soon as funds are

available the Comminee \\ill pay this debt...·

The Audit staff revie\\'ed the amended repon and determined this

debt Y.as included in the total reponed oy.ed to the non-federal account.

., Offsets to ,Allocable Expenditures

In the opinion of the .A.udit staff. "'hen a refund or rebate of an

allocated expense IS received. the amount received should be credited between federal and

non-federal accounts on a pro rata basiS equal to the aliucation ratio used to make the

original disbursement. The .A.udlt staff detemllned that the Committee deposited amounts

totaling S57.:!98 Into Its federal accounts y,;hlCh represented the non-federal share of

offsets.

a Insurance

Th~ COmmltlee p~ld premIums of S8.63<) in 1991 and

$24.04~ In 1QQ::: for a master hahl iIt~ Insuranc~ poltc~ v. hlch covered It and the local pany

comminees. The payments \\'ere made at an allocated rate of 500/0/50~o in 1991 and 57°/0

federal ,43~o n,)n-federaJ In 1Qq~ 18 The Commlnee received S5.81 0 In 1991 and $17..867

18 1"0 premIum pa~ments "ere p,,':i "It!" federal tunds oni: ThIS reduced the non-federal allocatlon

from 50° 0 to J~O c
29

in 1992 from local party committees as a reimbursement for the insurance premiums.

These reimbursements were deposited to the Committee's federal account. As a result.

52.905 (S5.810 X .50) ofthe 1991 and 57..677 ($17.867 X .4297) ofthe 1992

reimbursements are non-federal funds. Thus.. in total. $10.582 in non-federal funds were

deposited in the Committee's federal accounts.

b. San Francisco Subl~

In 1989. the Committee signed an office lease which ran

through April 14. 1992 for Its headquaners office space In San Francisco. The rent

payments were allocated 50°/0 federal and 50% non-federal. A change in the Part)'

leadership occurred in March of 1991 and the headquaners was moved from San Francisco

to Sacramento.

To partially offset the rent due for the San Francisco office..

the Committee sub-let the space to fOUT tenants. Initially.. the rent offsets were deposited

into the Committee's non-federal accounts. Beginning in August.. 1991. and continuing

through March. 1992. the offsets were deposited in the Committee's federal accounts. The

rent offsets should have been credited on a pro rata basis to the Committee's federal and

non-federal accounts.

Rent offsets totaling $64~265 were received by the

Committee. Ofthese funds.. S19.. 105 \\"as deposited in the Committee's non-federal

accounts and $45.. 160 \\'35 deposited into its federal accounts. As a result S13.027

{(S64..265 x 500/0)- $19.105] in non-federal funds were deposited into the federal 8CCOlDlts.

c. From selected vendors

I

L__ .

The Audit staffreviewed offsets received from selected

vendors to detennine if moneys due the non-federal accounts were deposited in federal

accounts.

In detennining that the non-federal portion ofthe refunds

from selected vendors were deposited in the federal accounts. the H-3 transfer

documentation and H-4 schedules were examined to detennine what the allocation ratios

were for the initial payment. The Comminee deposited the entire amount ofthe offsets in

its federal accounts although a ponion ofthe moneys constituted non-federal funds.

The allocation ratios used to make the original disbursement

to each vendor were noted. Using those ratios. the Audit staff calculated that $33..689 of

the refunds and rebates represented non-federal funds.

~o adjustments v;ere made to subsequent H-3 transfers from

the non-federal accounts for an~ of the items noted above.

Page 33, Approved 8/29/96
.,

30

At the exit conference. the Audit staff provided the

Committee separate schedules ofthe non-federal insurance, rent and selected vendor

offsets \\·hich had been deposited into its federal accounts. The Committee did not agree

that it should be required to allocate offsets in the same ratio as the original payment.

In the interim audit report. th:'" AudIt staffrecommended that

the Committee provide documentation showing that the funds deposited were federal funds

or document that the non-federal share ()fthe offsets have been transferred to non-federal

accounts.

The Comminee responded to the interim audit report by

stating:

"·The Comminee has amended its 1992 year end report to reflect this

balance as a debt to the Comminee's nonfederal account. As soon as funds are

available the Comminee will pay this debt:'

The f\udit staffreviewed the amended repon and detennined

this debt \\'as also included in the total reponed owed to the non-federal account.

..

.,. San Francisco Democratic CQunt,,' Central Committee

c'

c

The Comminee reponed an offset of $58.000 from the San

Francisco Democratic County Central Committee (SFDCCC) on October 31. 1992. The

check \\'as dated October 29. 1992 and "'''35 deposited by the Committee on October 31.

I 99:!. A revie'" ofthe Comminee's federal accounts revealed no disbursement to the

SFDCCC in 199:!. .4.. re\'ie\\' ofthe Comminee's non-federal accounts identified a wire

transfer to the SFDCCC in the amount of $70.000 on October 30. 1992. Although the

SFDCCC had registered as a federal comminee. it filed no reports in 1992.

Comminee representatives. who had earlier suggested that the

S58.000 may have been the return of moneys the SFDCCC had diverted from a Committee

fundraising program. \\'ere no longer certain that their earlier explanation was correct. The

auditors requested and the Comminee representatives agreed to try to obtain additional

documentation from the San Francisco Democratic Party. At the exit conference, the Audit

staff indicated that the S58.000 should not have been reported as an offset and questioned

\\'hether the funds received \\'ere federally permissible_

~1aterials obtained by the Committee and provided to the Audit staff

after the exit conference included the SFDCCC's bank statements. The documentation

indicated that the S58.000 check \\-as dra\vn on the same bank account to which the

$70.000 "'"as transferred from the Committee's non-federal account.

In the Audit Sl3tTs opinion. all Infonnation provided had indicated

that the SFDCCC used a stngle account and. based on the deposit into that account of

Page 3~, Approved 8/29/96
c

c

-.

\...-- ..

31

funds known to be non-federaL could not be a federal account. Conversely. any funds paid

from this account could not be federally permissible. Therefore. the S58.000 disbursed

from this account and received by the Comminee \\'ere not federally permissible and

should not have been deposited to the Commineets federal account.

The offset from the SFDCCC was discussed with the Committee at

the exit conference. The Comminee commented. referring to the transfer out of $70.000

and the transfer to the Committee of $58.000. "there was a connection. but it was not

conclusive...

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

Comminee provide documentation \\'hich \\'as to sho\\' the reason for the $70.000 transfer

and ho\\' the amount had been calculated. and the reason for the S58.000 offset and how

that amount had heen calculated. Further. the documentation was to demonstrate that the

funds deposited \,"ere federal funds and legitimately deposited into the Committee's federal

;~l~"counts. Finally. documentation from the SFDCCC was to be provided which

demonstrated \\'hether it \\'as a political committee as defined at 11 CFR §100.5(c). Absent

such sho\\'ing. evidence "';as to be provided that S58.000 had been transferred to the

non-federal accounts.

In its response to the interim audit report. the Committee stated:

·'A revie\\' ofthe records previously provided to the Audit Division

reveals that the San Francisco Democratic Central Committee had 558.000

cash on hand at the time it made the transfer to the Committee (the

Committee's contribution of $70.000 to the Central Committee was not the

source ofthe Central Committee's transfer). The records further demonstrate

that the Central Committeets account balance had at least $58.000 in federally

permissible funds at the time ofthe transfer.

"Under Commission regulatIon §11 O.3(c)( 1) such transfers are

permissible and not subject to limitation. Moreover, the Commission's

Campaiiin Guide for Political Committees makes clear that transfers from local

pany organizations. even those unregistered with the Commission. are not

subject to limitauons so long as the funds are federally pennissible (see page

17 of the Guide t. The funds transferred \\'ere federally permissible and under

Commission regulations may be made \\'ithout limitation.

"The Comminee does concede that it misreponed this transaction as an

offset Instead of a transfer from an affiliated comminee. The Committee has

amended its disclosure statement to correct this. 40

The :\udn staff ackno\\ ledges that. provided the source ofthe funds

transferred IS permIssible under the .--\ct. 11 CFR § 102.6(a)( 1uii) and 11 CFR §110.3(c)(1)

allo\\'s unhmtted transfers of funds het\\'een comminees of the same political party whether

Page ~~raved 8/29/9E
o

c·

C"

or not they are political committees. However. it is noted th;..:t in making a transfer in

excess of $1.000. an unregistered party comminee becomes a political committee and is

required to register \\ith the Commission and file disclosure reports. including a report

showing the source of its cash on hand. Also. SFDCCC would be required to maintain

either a single account and deposit only funds pennissible under the Act, or maintain

separate federal and non-federal accounts. The SFDCCC filed a statement of organization

\\ith the Federal Election Commission in 199~. but filed no disclosure reports. Records

reviewed thus far indicate that SFDCCC maintained only one account into which it

deposited both federally pennissible and impennlssible funds.

In order for the transfer to comply with the Act. the SFDCCC's cash

on hand would be required to contain federally pennissible funds sufficient to make the

transfer. 'This determination is made by considering the transferred funds to be comprised

ofthe funds most recently received by SFDCCC. If either the date ofthe Committee's

deposit of the SFDCCC's check (October 31. 1992) or the date that the check cleared

SFDCCC's account (November 4. 1992) is used as the starting point for the analysis. it is

clear that the major source of the S58.000 transfer to the Comminee was the October 30.

1992. $70.000 wire transfer from the Comminee's non-federal account.

If the date of the SFDCCC's check is used (October 29,1992). the

documentation provided is not adequate to allo\\' a complete analysis ofthe pennissibility

ofthe October 29. 1992 cash on hand.19 Ho\\'ever. using the complete versions ofthe last

{";o SFDCCC state disclosure reports for 199~ along with SFDCCC's bank statements, the

following can be determined. The deposits totaling $65.316 made bet\\'een October 14 and

October:!7 comprised the funds from which the 558.000 was drawn. Because the deposit

preceding the October 14 deposits occurred on October 8. the SFDCCC's reported receipts

betv.'een October q and October '27 \\'ere analyzed. During this period the Committee

reported receiving $ 17.551 in what appear to be permissible funds. 52.450 in funds &om

unregistered organizations. $20.901 in impermissible funds20 and $24.414 in unitemized

receipts. Even allo\\ing for the permissibility of the unitemized and funds from

unregistered organizations. the deposits made bet"ieen October 15 and October 27

contained no more than S~4.415 in permissible funds. Consequently. the 558.000 transfer

included impermissible funds.

Regardless of the arguments presented concerning the permissibility

of transfers het\\'een committees of the same political party. these regulations may not be

used to effect a transfer from the Commlnee's non-federal account to its federal account by

20

The bank records pro" Ided consist of the October and '-ovember 19Q:? bank statements for

SFDCCC·s account and selected pag.es trom SFDCCC's reports fiied \\lth the state ofCalifomia,

The Audit staff acquired complete copies of the SFDCCC's reports for the last two reponing period

for 199:

Accordmg to SFDCCC's reports. thiS Includes S6.:50 In corporate funds and S14.651 from the

Commmee's non-federal account

Page 3E, ~proved 8/29/9E
o

c

33

an "exchange offunds·' with the SFDCCC. Since the Committee has elected not to

provide the requested infonnation concerning the reason for the transfers and how the

transfer amounts were determined. the Audit staff concludes that they constitute a

prohibited transfer from the Committee's non-federal account to its federal account by

routing the funds through the SFDCCC.

4. N\ton Propositjon 164

In the revie'" ofreceipts from political committees.. checks of

S10..000 on October 30. 199~ and $5.000 on October 27.1992 from the Nancy Pelosi fOI

Congress Comminee and the Bob Matsui for Congress Committee respectively were

noted.21 In the subsequent review of disbursements from the non-federal accounts. the

stub of a voided check for S15.000. dated October 30. 1992 and made payable to "No on

164'" was noted. The notation on lhis particular check stub was as follows:

700 900 hy the request ofNancy Pelosi S10.ooo

700 900 hy the request ofRobert Matsui $ 5.000

The next check was also \\Tinen on October 30.. 1992 and made out

to tlNo On 164" in the amount of $20.000. The source ofSI5.000 contributed appears to

be the Pelosi and Matsui Comminees. No infonnation concerning the source ofthe

remaining $5.000 was found in Committee records.

'·No on 164" was an organization which opposed Proposition Ib4, a

statewide initiative which would impose term limits on California office holders including

U.S. Senators and Representatives.

\\'hile the Comminee \\'as not required to use federally permissible

funds for the contribution to '·No On 164.·.. the Comminee appeared to have made the

contribution from ns non-federal account at the request ofthe Pelosi and Matsui

Committees and \\'as reimbursed for this contribution. The Committee deposited the

checks from the Pelosi and ~1atsui Committees into its federal account.

Consequently. the .~udit staff believes that these transactions

resulted in the Comminee exchanging $15.000 in non-federal funds for S15.000 in federal

funds.

.0\t the exit conference the Comminee acknowledged the source of

the $15.000 transfer. The Committee disagreed that they should have paid the $15,000

from the federal funds or that they should no\\' be required to repay the non-federal account

$15.000.

21 The ~anc~ PelOSI tor Congress Commtnee and the ~1atsul for Congress CommIttee reponed these

amounts as contnbutlons to the DSCCC-F

Pace 37, Approved 8/29/96
c

c

34

In the interim audit report.. the Audit stafffe\"ommended that the

Committee provide documentation which demonstrated why the transaction should not be

viewed as moving non-federal funds to the federal account or transfer $15.000 to the

non-federal accounts.

In its response to the interim audit report. the Committee stated:

'"The Interim Audit Repon further objects to a contribution made by the

Committee to a state ballot measure committee. UNO on 164...• The

contribution was in the amthrr.. -"'! S15..000. The Report suggests that the

source ofSl5..ooo ofth~ n~~lbution were funds from Congressman Matsui

and Congresswoman PelOSI.

UThe Committee does not agree \\ith this conclusion. The Matsui and

Pelosi funds were om used to make this contribution to the No on 164

committee. The funds received from Matsui and Pelosi were deposited into the

Committee's federal account. The contribution to the No on 164 committee

""as made from the Committee's nonfederaJ account. No transfer from the

federal accounts to the nonfederal accounts ofthe Committee occurre<L and

thus there \\'as no "reimbursement" as the Report concludes.

....The true source ofthe contributions to the No on 164 committee- was

the Comminee's nonfederal account. Matsui and Pelosi were Dot the source.

Furthermore.. as the Report concedes the Committee was under no obligation to

make its No on 164 contribution from its federal accounts.

"'The Report's conclusions are simply wrong. The Report cites no

authority for its findings nor does the Report cite what statute or regulation the

Comminee allegedly violated:"

The Audit staff and the Commit~ee agree that the amount in question

totaled S15.000: that the contribution to No on 164 "'as made from the non-federal

account: and that the Comminee could make a contribution to ··No on 164~" from its

non-federal account. However as noted above. the indirect source ofthe S15,000 was the

campaign comminees of Congressman ~t3tSUI and Congresswoman Pelosi and those funds

v."ere deposited Into the Committee's federal account.

The Audit staff. despite the Committee's assertion to the contrarJ.

cites 11 CFR lOo.5(g)( 1Hi) "'hich prohibIts a commIttee from making any transfer of

funds from Its non-federal accounts to ItS federal accounts for '-.ly purpose other than to

Page 38, ~-proved 8/29/96
o

...." '- '

3~

pay allocable expenses.22 The Audit staff concluded that the transaction involving the

deposit ofthe Matsui an~ Pelosi contributions to the Committee's federal account and the

subsequent contribution to "No on 164" made from the Committee's non-federal account

was indirectly a transfer of ft.!nds from its non-federal to its federal account and thus

required a $15.000 transfer to the non-federal account.

On August 2:!. 1QQo. the Commission decided to take no funher

action on this maUer. Therefore. no transfer from the federal account to the non-federal

account is required

F. REPORTI"lG A'iD ITEMIZ..\TIO' OF H-3 TRANSFERS

Section l04.10<b)(3) of Title 11 of the Code of Federal Regulations states..

in pan. that a political comminee that pays allocable expenses shall report each transfer of

funds from its non-federal account to its federal account for the purpose of paying such

expenses. In the report covering the period in v.·hich each transfer occurred. the committee

shall explain in a memo entry the allocable expenses to which the transfer relates and the

date on \\'hich the transfer \\'as made. If the transfer includes funds for the allocable costs

of more than one activity. the comminee shall itemize the transfer sho\\ing the amounts

designated for administrative expenses and generic voter drives. and for each fundraising

program or exempt activity.

.-\s explained at finding II.E.1 ... this Committee made periodic transfers

(referred to as H-3 transfers) from its non-federal account to its federal accounts to pay the

non-federal ponion of allocable expenses. For 1991. the Comminee made fony-four such

transfers totaling S695.058, For 199~. the Comminee made eighty transfers which totaled

S3.963.785.

During our reviev.' of the Comminee's H-3 transfer records. we noted that

t\\"O transfers made In 1QC) 1 totaling S:!6.563 and five transfers made in 1992 totaling

S509.072 \\"t:re not ttemlzed as required...-\ddiuonali!. an H-3 transfer in the amount of

$49.767 made on ~o\'ember 20. 1QQ::: \\"3S not reponed as requIred,

.-\t the exit conference. a schedule of these H-3 transfers 'A'as presented to

the Committee The Commlnee indicated that It \\3S not a\\'are that It had failed to repon

or Itemize an~ H-3 transfers.

In the Interim audIt report. the :\udn staff recommended that the Committee

file amended Summary and Detailed Sumnlar: Pages for the Post General 1992 reponing

Had Ihe Committee deposited the funds rccel\ed form Congressman ~1atsul and Congresswomen

PelOSI tt"' the non-federal account and then proceeded to ma~e the 'same contnbutlon to the "No on

I {l~ •• no Issue regardmg tht: contrlt"utlOn \40uld hJ\e been made

Pa::e A;:~!'oved 8/29/96
36

period and amended Receipt Schedules H-3 for report periods Year End 1991, October

Quanerly 1992 and Post General 1992 to COtTeCt the public record.

In its response to the interim audit repon. the Committee. on October 27.

1995. filed the requested amended disclosure repons.

G. RECAP OF Al\tOUNTS RECOMMENDED FOR TRANSFER TO THE

NON-FEDERAL ACCOUNT

c

'I)

FindjDi:

11.0. Allocation ofGeneric Voter

RegistrationlGOTV Expenses

II.E.l. Apparent Duplication ofH..3

Transfer Amounts

II.E.~. Offsets to Allocable Expenditures

a. Insurance

b. San Francisco Subleases

c. From Selected Vendors

II.E.3. San Francisco DemOCl'2~ic County

Central Comminee

TOTAL:

AmQum

5551.130

$ 47.185

$ 10.582

S 13.027

$ 33.689

$ 58000

$713613 23

23 The Committee In ItS re~..r!lSC to the interim audit report acknowledged $103.630 ofthe amount

from findtng liB.. and all of the amounts fonn fmdings II.E.I. and II.E.2. (less a credit of$7.460)

as a debt owcd from ItS federal account to its non..federal accounts. This debt reponed in its

amended (I'S'96l 199~ Ycar End repon totaled S200.6SJ. On December 19.1995. the Comminee

stated tts tntcntton to reclasslf~ 1993 transfers made from its federal to non-federal accounts as

payments on thiS debt when It amcnds Its 1993 dISClosure repons. Provided that the funds

transferred were federall~ ~nnlssiblc and that the transfers were made without reservatlon. the

Audit staff finds no reMon to obJcct to the proposed reclassificatlon

Page 40, App~ 8/29/96
Attachment 1

finol Audit Report

Democratic State Centrol Committee of California - Federal

Page 1 of 1

!.n

o

N

Schedule of Apparent Prohibited Contributions

ReImbursement;. of ·~,dvonces from RIVer West made

on t>eholf of the DSCCC-F and Its Chatrmon

ReImbursement Po1d by Check Check Amount Deemed

Commit1ee to: Cneck # "';otol Dote Prohibiteo

River West Development Corp. 5357 8.753.89 06118/92 6.130.71

RIver West Development Corp. 50455 3.737.78 07/02192 2.065.54

River West Developmefl' Corp. 1575 2.314.80 07/30/92 2.291.80

Rrver West Development Corp. 50919 4.418.38 09fYJ/92 3.229.78

River West Devetoomen1 Corp. :J)9'~j I 606.00 10/07/92 606.00

River West Development Corp. 30305 8.909.32 10120192 7.367.99

RIver Wes1 Development Corp. 2538 10.999.09 12/04/92 6.716.37

RIVe" West Devetooment Corp. 2562 ':I.~17.45 12/15/92 4.114.01

Pnll Angeuoes 61652 5.334.64 08102/91 4.380.94

Phil Angehaes 61663 3.608.52 08105/9\ \.863.0...

Pnli Angelloes 5410 3.364.14 07102/92 f209.00} •

Ph!1 Angehaes 1822 i 1.376.49 09107/92 1.021.31

Pn·: Angehoes 50665 1.662.70 09107/92 336.52

Phl~ Angehoes 5~27Q 6.840.42 12/28/92 2.268.38

----~--

ioto!:

• TnlS otfse' was POlO by checf: S.¢ 10 one 61663.

Payments to Phil Angehoes for relmoursements of hIS exoenses

WI"'I<:"" were englnol',; pale ';0' n·m OV '(",er Wes·.

Page 41, Approved 8/29/96

42.183.35

==========
Aft8dl1nent2

FJNlI Audit Report

Page 1 Of4

DemocrabC State Central Commrttee of california - Federal

Phil Angehdes - 116 5 AnalysIs tor 1992

Payee

vcn tncur

# Date

Calc

Date

Incur Exp Ctb Days Balance Dates AmountAmt Cd Date Outstag Outstanding ExcessIve Excessive

Phtllp AngebdeS 10 04/10/91 04/10191 1.22794 4 04/10191 379 1.22794

PhtilP Angel1deS 10 04/13191 04113191 84686 4 04/13191 376 2.07480

Phlhp Angetieles 10 04f20191 04f20J91 2.05359 4 04rl0l91 432 4 12839

PtuliP Angehdes 10 06127191 06f27191 1.234 82 4 06127/91 364 536321

PhthP AngeildeS 10 06f29/91 06f29191 1.13783 4 06129191 369 6.501 04 06/29191 50104

PhIliP Angetldes 22 08102191 08I02J91 30577 4 08102.191 335 6.806 81 08102/91 80681

Phmp Anget1deS 5 05f27191 06127191 17653 6 08fl6I91 311 698334 08f26191 98334

Philip AngelJdeS 5 05f29191 06l27/91 19000 6 08fl6I91 311 7.17334 08f26191 117334 ~lhP Angettdes 5 06104191 06f27191 045 6 08126191 311 7.17379 08126191 117379

PhlhP AngettdeS 5 06104191 06127191 15560 6 08126191 311 7.32939 08126191 132939

PhilIP AngeildeS 5 08105191 0M)5I91 11 50 5 09J04I91 302 7.340.89 09104191 1340.89

Philip AngetldeS 5 08107191 08107191 800 5 09J06J91 300 7.348 89 09106/91 134889

Ph,tap Angehdes 21 09/15191 09115191 92944 4 09/15191 319 8.27833 09115191 227833

PhIliP Angetldes 21 10/27191 10127191 1.151 75 4 10127191 2n 943008 10127191 343008

'0 PhiliP Angehdes 2' ~1t'7191 11/17191 1.14900 4 11/17191 256 10579.08 11/17191 457908 ~dlP AngeflCes 5 08129'91 09f27191 1"': 7 1.4 6 11fl6J91 247 10.696.22 11126/91 4696.22

Philip Angelsdes 5 09105191 090.7191 7900 6 11126J91 247 10.77522 11126/91 4n522

, PhiliP AngetaQes 5 09105191 09/2719.... 5900 6 11f26191 247 10.834.22 11126/91 4834 22 , Ph,hp Angeftdes 5 09/13191 09/27191 6304 6 11f26191 247 10897.26 11f26191 4897.26 -. Pnlhp AngettOeS 54 12103191 12103191 1.06731 4 12103191 240 11.964.57 12103191 5964.57 --- PhdlP AngeltdeS 22 12/13191 12113191 1.37608 4 12113191 230 13.340.65 12113191 7340.65

.;.... PhIliP Angetldes 22 01108J92 01108192 39833 4 01J08192 204 13.738.98 01108192 n38.9l

Pnlhp Angehdes 22 01112192 01/12192 2.34967 4 01/12/92 239 16.088.65 01112192 10088.65

("\J Phlhp AngettOes 22 :'1/15192 01115192 67100 4 01115192 23S 16.-59.65 01115,'92 10759.65

Phlhp Angehdes 22 01/16192 01116192 72750 4 01116192 235 17.487 15 01/16192 1148715

PrlIlIJ) AngehdeS 22 01/18192 01118192 93450 4 01118192 233 18.421 65 01118192 12421.65

Ph,ltp Angeltdes 22 01120192 01120192 1.82321 4 01/20192 231 20.244.86 0112O/9? 14244.86 , Phlhp AngettOeS 4 01129192 01129192 824 4 01129192 222 20.25310 01129192 1425310 r' Philip AngettdeS 4 01129192 01/29192 2266 4 01129192 222 20.27576 01129192 1427fi.76

PhthP AngeltdeS 4 01129192 01r.29192 618 4 01129192 222 20.281 94 01129192 14281.94 ~,,~ PhltIP AngettdeS 22 02101192 02101192 1 406 00 4 02101192 :'19 21 68794 02101192 15687.94

Phlhp AngeltdeS 4 02J04192 02104192 2266 4 02J04192 216 21 71060 02104192 1571060 r~ Phtl1P AngeltdeS 4 02104192 02104192 1442 4 02J04192 216 21 725.02 02104192 1572502

PhiliP An~laes 4 02104192 02104192 6 is 02104192 216 21 731.20 02104192 15731 20

Ph,hP AngeltdeS .4 02/04192 02104192 4 12 4 02104192 216 21 73532 02104192 1573532

PhiliP AngehdeS t 02104192 02104192 618 .4 02104192 216 21 741 50 02104192 15741 50

PhIlip Angelldes 02106192 02106192 4 12 02106192 214 21 74562 02J06J92 1574562

PhilIP Angehaes " 02106192 02106192 .4 .....

I .. 4 02J06J92 214 2" 74974 02106192 1574974

Phlhp AngettdeS 4 02106192 02106192 1854 4 02J06l92 214 21 768.28 02106192 15768 28

Philip AngehdeS 4 02106192 02106192 6 18 4 02J06192 214 21 77446 02106192 1577446 on,"p AngettOes 4 02J06192 02106192 6 18 4 02J06J92 214 21 78064 02J06192 1578064

PhltlP Angettdes t 02106192 02J06J92 3502 4 02106192 214 21 81566 02106192 1581566

Philip Angehaes t 02J06l92 02J06J92 1030 4 02J06l92 214 21 82596 02106192 1582596

PhIlip AngeJtaes 4 02J06192 02J06J92 2060 4 02106192 214 21 84656 02106192 1584656

Phlhp Angehdes .4 02106192 02106192 1030 4 02J06J92 214 21 856 86 02106192 15856 86

Philip Angeltdes " 02/13192 02/13192 824 .4 02/13192 207 21 865 10 02/13192 1586510

Phlhp Angeltdes 4 02/13192 02113/92 3296 4 02113192 207 21 89806 02113192 15898 06

Pt\ihp Angehdes " 02'13192 02/13192 1236

" 02/13192 207 2: 91042 02/13192 159104"

Philip Angeltaes .4 02'13192 02/13192 .4 12 " 02113192 207 2" 91454 02/13192 1591454

Philip Angehoes

" 02/13192 02/13192 ~E 54 4 02/13192 207 2~ 93308 02/13192 1593308

Philip Angehdes " 02124192 02/24192 184 96 4 02124192 196 22 11804 02f24192 1611804

Page "i_, "? Approved 8/29/96
Attachment 2

FtNll Audit Report

Paoe 2 of4

Democratlc State Central Committee ofCatifoml8 - Federal

Phil Angehdes - 116 5 Analysis fOr 1992

Payee

VCh Incur

'# Date

Calc

Date

Incur Exp Ctb Days Balance Dates AmountAmt Cd Date Outstdg Outstanolng Excessive Excessive

Philip Angettdes 76 03/101':f~ 03/10192 1 06307 4 03/10192 181 23.181 11 03110192 1718111

Phlhp AngellCles 1 03/'3192 03113192 6 18 4 03/13192 178 23 18729 03113192 1718729

Philip AngetldeS 1 03/13/92 03113192 618 .1 03113J92 178 23 19347 03113192 1719347

Philip AngehdeS 1 03/13192 03113192 618 4 03/13192 178 23 199 65 03113192 17199 65

King Air 89 03f26192 03f26J92 2.206.20 4 03126/92 165 2540585 03126/92 19405.85

Philip AngehdeS 4 12127191 01129192 54 33 6 03f29192 16: 25460 18 03J29J92 19460 18

PhilIP Angehdes 4 01/10192 01f29192 6500 6 03129192 162 25.525 18 03129192 19525 18

Philip Angetldes 4 01112192 01129192 13639 6 03129192 162 25.661 57 03129192 19661 57

Philip AngehCJes 4 01115192 01f29192 34884 6 03129J92 162 26.01041 03J29J92 2001041

PhtllP AngetldeS 4 01116192 01129192 5844 6 03129192 162 26.068 85 03f29192 20068.85

Phttrp AngehdeS 4 01/18192 01f29192 105.58 6 03129J92 162 26.17443 03J29J92 2017443

Ph'hP Angelloes 4 01/19192 01f29192 16643 e 03129/92 162 26.34086 03129192 2034086

Phlhp AngehdeS 4 04101192 04101192 7210 4 04m1192 159 26.41296 04101192 2041296

Pndtp Anget1des 4 04101192 04101192 1236 4 04J01192 159 2642532 04101192 2042532

:-....... Phlhp Angel1deS 4 0410'192 04101192 1030 4 GW1192 159 2643562 04101192 2043562

PhtllP AngeitOeS 4 04101192 04101192 1648 4 04101192 159 26452 10 04J0~J92 20452 10

KIng AIr 76 04102J92 04102192 2.53204 4 04I02J92 158 2898414 04102192 22984 14

Pn,hP AngeftdeS 65 04/02192 04102192 15868 4 04I02J92 158 2914282 04102192 2314282 "-

;>'lltJp Angetldes 4 041OBJ92 04108I92 3090 4 04108I92 152 29.17~ 72 GW8I92 2317372 ,--..

'-- Pntlap Angetldes 4 04108192 04108192 824 4 04108I92 152 29.181 36 GW8I92 23181 96

Pf'bhp A~' =lEts 4 04108192 GW8I92 412 4 04108I92 152 29. 186.Od 04108I92 23186.08 . r,,- PhiliP AngetlCleS 4 04J08J92 04108192 618 4 04108I92 152 29.192.26 GW8I92 23192.26 Ph'" Angehdes 4 O4J08192 GW8I92 412 4 04108I92 152 29.196.38 GW8I92 23196.38 '"

'"..... PhilIP AngeildeS 4 04108192 04108192 4120 4 04108I92 152 29237.58 04108I92 23237.58

Phthp AngelJdeS 4 GW8I92 04.Q!192 618 4 04108I92 152 29.243.76 044)8192 23243.76

Pnthf) AngetldeS 4 04108192 04108192 824 4 04108I92 152 29252.00 GW8I92 23252.00

Phmp Angehdes 4 04108192 04108192 1648 4 04108I92 152 29.26848 04108I92 2326848

Pflt"p Angehdes 4 GW8I92 04108192 412 4 04108192 152 29.2n.60 GW8I92 232n60

-- Phlhp AngehdeS 4 04108I92 04108I92 6 "8 4 04108I92 152 29.27878 GW8I92 2327878

Phlhp AngetldeS 4 04108192 04108192 1854 4 04108I92 152 29.29732 GW8I92 2329732 -........ Phttto Angettdes 4 04108192 04108192 2060 4 04108I92 152 29.31792 GW8I92 2331792 Pn,tto AngetlCJeS 4 04J08J92 04J08192 1854 4 04108192 152 29.33646 GW8I92 2333646

PhlhD Angeltdes 4 04108192 04108192 4 12 4 04108192 152 29.34058 GW8I92 23340 58

Pnlhp AngeltOes 4 04108192 04108192 618 4 GW8I92 152 2934676 GW8I92 23346 76

King AIr 76 0411019: 04110192 221271 4 04110192 150 31 55947 04110192 2555947

Phlhp Angettaes 4 01125192 02/11192 154 14 6 04/11192 149 3~ 71361 04/11192 257136"1

PhJtJp Angettdes 4 01125192 02/11192 20000 6 04/11192 149 31 91361 04111192 2591361

Phlhp AngeltOes 4 01125192 02/11192 3000 6 04111192 149 31 94361 04/11192 2594361

PhltaP AngeltOes 4 02104192 02f2Ol92 164 90 6 04f.20192 140 32 10851 04120192 26108 51

Pnlhp Angehoes 4 02104192 02120192 2008 00 6 04120192 140 3411651 04f20192 2811651

Phlhp Ange'tdes 4 02106192 02120192 16200 6 04120192 140 34 27851 04120192 2827851

Ph'hP Angehdes 4 ~21'1192 02120192 1606C 6 04120192 140 34 439 11 04120192 28439 11

Phthp Angelldes 4 02113192 02f20192 194 59 6 04120192 140 34 633 70 04120192 2863370

Ph,hp Angehdes 21 04123192 04123192 -2616 75 04123192 3201695 04123192 2601695 Phtl,p Angettdes 4 02/17192 02126192 34 48 6 04126192 134 32051 43 04/26192 2605143

PnlhP Angehoes 4 02/19'92 02126192 6896 6 04126192 134 32 12039 04126192 2612039 King Air 76 04l)()J9: 04130192 239506 4 04130192 236 3451545 04130192 2851545 KIng AIr 57 04130192 04130192 13258 4 04130192 236 34 648 03 04130192 28648 03

Phlhp Angeltaes 4 02/16192 03/12192 51 57 6 05/11192 225 34 699 60 05/11192 2869960

Dr.ltSP Angehaes 4 02/19192 03/12192 30000 6 05'11192 225 34 99960 05/11192 289996e

Phlltp AngeitOeS 4 02121192 03/12192 5231 6 05111192 225 35051 91 05/11192 29051 91

Page ';3, Approved 8,'29/96
AlteeNnent 2

Final Audit Repon

Pao- 3 nf4

Democratic State Central Committee of C8IifomI8 - Federal

Phil Angehdes - 116 5 AnatySls for 1992

Payee

VCh Incur

# Date

Calc

Date

Incur Exp Ctb Days Balance Dates AmountAmt Cd Date Outstdg Outstandtng Excessive ExceSSIve

Phllrp Angekdes 4 02J26J92 03112192 136 98 6 05111192 225 35188 89 05/11/92 29188 89

Philip Angetides 4 03106192 03112192 100 43 6 05111192 225 3528932 05/11/92 29289 32

Philip Angehdes 4 03107192 03112192 10000 6 C5111192 225 3538932 05111/92 29389.32

KIng AIr 57 05114192 05/14192 1.286 2C 4 05/14192 222 36.67552 05/14192 30675.52

Ph.hp Angebdes 54 05120192 05120192 -1067 31 05120192 35.608 21 05120/92 29608.21

Phlhp Angetldes 03119192 03127192 21534 6 05126192 210 358235S 05126/92 2982355

Philip Angehdes 03121192 03127192 101 25 6 05126192 2'H'; 35924.80 05126/92 2992480

Philip Angebdes 03121192 03127192 60 01 6 05126192 210 35.984 81 05126/92 29984.81

PhiliP Angettdes 03J22J92 03127192 2300 6 05126192 210 36.00781 05(26/92 30007.81

Ph,lIp AngebdeS 4 05.'01192 05101192 4900 5 05131192 205 36.056 81 05/31/92 30056 81

King AIr 57 06103192 06J03I92 3.206 80 4 06J03I92 202 39.26361 06103192 33263.61

Phlhp Angel1des 4 03/11192 04111192 5940 6 06110192 195 39.32301 06/10192 3332301

Ph,lIp Angehoes 4 04J06192 04111192 893 6 06110192 195 39.331 94 06110192 33331 S4

Ph,lIp Angehoes 04107192 04/11192 496C 6 06110192 195 39.381 54 06/10192 33381 54

:"') Phlhp Angehoes 4 04J09192 04111192 96401 6 06110192 195 40 345 55 06110192 3434555

King AIr 57 06/16192 06116192 36n29 4 06116192 195 44.022 84 06/16192 38022.84

King Air 32 06f24192 06124192 3352 4 06124192 187 44 056 36 06124192 38056.36

.- King Air 57 06124192 06124192 2.029 92 4 0612~ 190 46.086.28 06124192 40086.28 " KIng Air 32 06124192 06124192 : 12 10 4 06124192 190 46098 38 06124192 40098.38

f' KlngAlf 32 06124192 06f24192 ' 8317 4 06124192 190 46.181 55 06124192 40181 55 .....- King A!r 89 06125/92 06125192 -220620 , 06125192 43.97535 06125J92 37975.35 , ,-, Phthp Angettdes 4 04~1192 04128192 ' 14303 6 06Q7192 187 44,1 ~8.38 06127/92 38118.3E.

Phmp AngeflCJeS 4 04102192 04128192 4564 6 06127192 187 44.164.02 06127192 38164.02

C': PhIliP Angef&Oes 4 04105192 04128192 . 111 38 6 06127192 187 44.27540 06127192 38275.40

PhIlip Angeftaes 1C 07102192 07102/92 -211300 1 07102/92 42.162 40 07102192 36162.40

Philip AngeitOes 5 07102192 07102192 .1'7061 1 07102192 40.991 79 07102192 34991.79

PhilIP AngettdeS 3 04/10192 05111192 . 71850 6 07110192 174 41.710.29 07/10192 35710.29 "- Pn.Ilp AngeftOes 3 04'14192 05111192 . 20333 6 07110/92 174 41.91362 07110192 35913.62 ,- Ptlfhp AngeftOes 3 04/19192 05111192 24575 6 07110192 174 42.159 37 07/10192 36159.37

KIng Alf 76 07f30192 07130192 -820288 , 07130192 33.95649 07130192 2795649 ~"- King AIr ~.., 08lO8I92 08lO8I92 322545 4 08lO8I92 '45 37.181 94 08lO8I92 31181 94 vL

Phfflp Angeftaes 05111192 06I10J92 66530 6 08lO9I92 144 3784724 08109192 31847.24 ~.... Pndlp Angettdes 05/16192 06110192 3902 6 08lO9I92 144 3788626 08109192 31886 26

PhIlip Angehoes 05/16192 06110192 84000 6 08109192 144 38.726 26 08109192 32726.26

PhIlip Angefldes 05/17192 06110192 568 91 6 08109192 144 39.29517 08109192 33295 17

Phlhp Angeltaes 05/18192 06110192 32325 6 08lO9I92 144 3961842 08J09192 3361842

PhdiP Ange'toes 05120192 06110192 500 93 € 08lO9I92 144 40 11935 08109192 3411935

Phlhp Angehoes 05f27192 06110192 234 18 6 08109192 144 4035353 08109192 3435353

King AIr ~,.., 08/16192 08116192 56200 4 08116192 137 4091553 08/16192 3491553 'oJL

King Air 3: 08123192 08123192 669279 4 08123192 130 4; 608 32 08123192 41608 32

Phlttp AngehdeS 06101192 06125192 36 82 6 08124192 129 47645 14 08124192 416A5 ~~

PhiliP Angeltoes 05129192 06129192 281 04 6 08128192 125 4792618 08128192 419:Z6 1ft

King Air 32 09102192 09102192 60945 4 09102192 120 4853563 09102192 ·2S3~.J 63

King Air 32 09105192 09105192 488997 4 09105192 117 5342560 09105192 ~,~425 60

Philip Angehoes ,...", 'L. 09107192 09107192 -3533 77 09107192 49891 83 09107192 L. .sAf'1 83

King Air 5- 09107192 09107192 -7664 8" .. 09107192 4222702 09107192 Jt "',,' 7 02

PhIlip Angelldes 65 09107192 09107192 -158 68 .. 09107192 4206834 09107192 *·C,_,,"".~

Philip Angehaes " 09107192 09107192 -755332 091Oi192 34 51502 09107192 . ~515~"

Philip Angehaes ..., 'J9107192 09107192 -~326 26 .. 09107192 33 18876 09107192 .,'-. .. :,~ -:,. King AIr 3: 09/11192 09/11192 938 4~

" 09111192 , ., 1 34 127 18 09/11192 2di~' .(~

KIng AIr 09/12192 09112192 299000 4 09112192 110 3711718 09/12192 3- . 1; .

Page ,

"'"'i, App~aveC 8/29/96
AW.nent2

Ftn8I Audit Report

Pagt4Of4

Demoa8tiC StIlle central Committee ofC8Ifomia FecJer81

Phil Angelides - 116.5 Analysts for 1992

VCh Incur

• Date

C8Ic

Date

Incur Exp Ctb Days B8I8nce Dates AmoumAmt Cd Date Outstag Outstandlng EXC8SSIVe ExcessIVe

32 09114192 09M4192

32 09116192 09/16192

32 10lO5I92 10105192

32 12122192 12122J92

1 12J28,'92 12128192

738.00 4 09114192

2.488.35 4 09116192

1.956 75 4 10lO5I92

-8208.25 1 12122192

-3907.59 1 12128192

108

106

87

37.855 18 09114192

40.343.53 09116192

42.300.28 10lO5I92

34.092 03 12122192

30.184 44 12128192

3185518

34343.53

36300.28

28092 03

24184 44

c

C-,.

Expense Codes

, 08Ie of rwnbursement.

4 R on ate ofancurence

5 R ~..., thirty dayS of e8lC1l111tiOn d8te.

6 R wilt*' SIxty dayS of cMlCI"abDn date.

Indicates 8mOl.ftS owed encJ outs18i.'Sa at 12131192

ExceSSIVe Amount 8QU8IS outst8I KiItg b8Iance less 55.000 contribubon

amount and a S1.000 anowance for travel and SUbSIStenCe

Page 45, Approved 8/29/96
R£CEIV£D

FEDERAL El£CTION

COMMISS10H

,unIT DIV:SICN

APR ZZ !I 113 AM '96

FEDERAL ELECTION COMMISSION

April 22, 1996

MEMQRANDllM

Robert J. Costa

Assistant Staff Director

Audit Divi

THROUGH: John C. ~1na1

StafT Dira;:1lOliWV

TO:

c·

. ,....., '4 .'

FROJ\1: Lawrence M. Noble

General Counsel

B~. Kim Brigh~cman l~ Associate Coamsel

Rhonda J. Vosdingh (...~ Assistant GenaaI COunKI

Jane J. Whang cwJ

Attorney --0.

'

--........

SUBJECT: Proposed Final Audit Report on the Democratic State Central Committee of

California Federal (LRA ~70)

c.

The Office of General Counsel has fC\o.ewed the proposed Final Audit Report on the

Democratic State Central Committee ofCalifom:a Federal (the "Comminee") submined to this

Office on ~1arch 8_ 1996.' We concur ,,-nh Fandanl!s Il.A. and II.E.I. \\ilich are not discussed

separ3tel~ In thiS memorandum. If you ha\OC any questions concerning our comments. please

contact Jane \\'hang. the anomey assigned to thiS audit

10 ALLOCATION OF GENERJC VOTER REGISTRATION (II.B.)

This Office agrees that the Committee -s ex~nd1ture of funds through L.A. Vote 0 s voter

dnve should have been allocated between ItS federal and non-federal accounts.. even if the

Thl!l orrlc~ has pre~ a scparat~ m~um on confid~nllallssues penatntng to the proposed Repon

\\~ recomm~nd that th~ CommISStO'''s dlSCUSSIOft of Uu~ docum~nt be conducted In open session Sec II C F.R

4 P3r~nlh~lIcal references an 10 the piKemenl of the findan~s In the proposed Repon Throughout our

comments "Act"· or -FECA- ref~1'\ 10 UI~ F~deral Election Campal,;n Act of 1971. as amended.:! U.S C §§ 431-455

, , .. ..1.- ,. f' •• t ,.",n ••".,.... , _'illl. ~ntl~'f·f,-""

'!'"""'" I":.,,, ~'=l lct,,,,WI.:C)\\

I" I)" "II!' II I .d' ,'.". Jtit I'l HI H'" (11.: ....'[ 1\

Page 4i, Approved 8/29/96
c

Memorandum 10 Roben J. Costa

Proposed Final Audit Report on the Democratic Stale Central Commince ofCalifornia Federal (LRA *470)

Page:!

contribution was used solely to assist GOTV local efforts. Because the election at issue involved

federal candidates. the Comminee's local GOTV expenses should have been allocated between

federal and non-federal accounts. and pursuant to the ballot composition method provided in

11 C.F.R. § 106.5. See generally AD 1978-50 (party committee"s local GOTV expenses must be

allocated between federal and non-federal accounts).

II. APPARENT PROHIBITED CONTRJBlJTIONS (ll.C.)

The proposed Repon states that R.Jver \Vest Development" Inc. C'River \VesC") made

apparent prohibited contributions of S42.183 in the form of reImbursed advances to the

Comminee. Most or all of the in-kind contributions appear to have been for the Committee"s

generic or administrative purposes. Thus. 50% of the in-kind corporate contributions for

administrative purposes would have impermissibly benefited the Committee"s federal account.

Sec 11 C.F.R. §§ 100.7 and 106.5{g)(1)~ AD 1992-33 (receIpt of corporate in-kind contributions

for national party comminee fundraJser required transfers of federal funds to non-federal account).

Because the proposed Report does not specifically calculate the amount of prohibited in-kind

contributlons to the federal account. thiS Office recommends that it do so.

The proposed Repon notes that the Comminee reimbursed River \Vest for a ponion ofthe

salanes of two River West employees \II'ho perfonned administrative work for both River West

and the Committee.~ Because the reImbursements occurred on the day ofthe employees" payroll.

the auditors did not include the payments as in-kind contributions by River West. However.

corporate employees rendering 5ef'\'ices to federal candidates must be paid in advance ofservices.

Ser AD 198~·24 C"initial disbursement of corporate treasury monies is a loan. advance. or

something of value"" to a candidate" regardless of later reimbursement). AD 1984-37 (no prohibited

contribution resulted if PAC paid in advance the usual and normal charge of consulting services of

ItS employees) J Therefore. this Office beheves that the Committee may have received an in-kind

corporate contribution from RIver \Vest. to the extent that the employees were not paid by the

Committee In advance for services that benefited federal acuvity.

III. KISG AIR AND J\.1R. ANGELIDES· STAFF AD\'A~CES (II.D.)

Phi hp Angehdes" the Commlnee cnalnnan. made staff advances to the Committee for other

IndIviduals' campaJgn-related subSIstence and CommIttee expenses. He also paid for some ofthe

8i flights taken by the Committee bet~'een March 1991 and October 199:! on an enuty

\'anousl~ Idenufied as KIng Air. KIng Air ASSOCiates. or King An II (""King Air''') The

Committee did not pay for an~ of the flights In advance. and reImbursed King Au or

The audlto~ noted that all pa~,,"enlS to R, ... er ~est were allocated between federal and non-federal accounts

In a recent rulemaklng. the CommlUlon d~.ded that offiCials o!" emplo:v~s of a corporation may darect

subordinates to c~ out fundnusmg for a commln« ~t' E~plana(lon and justification for i J C.F R

§ II~ ~(f)(~.u)(AJ 60 Fed R~~ ~2b4 (Decemtxr I': lQQ5l The CommISSion's ne'-' regulations require that

corporations recc,"'e ad\ance pa\'ment from Ule comm.nee for the faiT mar.... et value of their employees' services an

fundralsm~ Sec l~

Par-.e·- • 0 I n..-'_ 1\ ......prr-I\'~ ..... -- 8 29/96
Memorandum 10 Roben J. COIla

Proposed Final Audit Rcpon on the Democratic State Cennl Comminee ofCalifornia Federal (LRA ~70)

Page)

Mr. Angelides a total of535.988 in coach fare for the flights.· Because it appeared that either Mr.

Angelides or River West might be a panner of King Air. the Interim Audit Repon recommended

that the Committee provide infonnation as to the O\\llers of King Air and whether there were

corporate panners. Further. the Interim Audit Repon recommended that the Comminee provide

information that would show that King Air provided these flights within the ordinary course ofits

business. It also requested infonnation concerning flight logs and the various destinations 110\\11.

The Comminee failed to provide all the infonnation requested by the Interim Audit Repon.

including the identities of all the O\\'1'lers of King Air and flight logs or the actual flights taken. It

responded that King Air Associates was the name under which a group of owners who held

undivided interests in the King Air airplane filed tax returns. but that a pannership was never

formed. Mr. Angelides had an inteh;.:a of 6.~5% in King Air. and Arlen Opper ""as the managing

panner.

c

The Comminee also explained that. on March 18. 1992. the owners sold the King Air

airplane to another entity. Because three fonner O"llers of King Air continued to require use of a

plane. after March 18. 199:!. they paid a S13.575 quanerly billing fee for planes provided by a

private charter corporation called Continental Sabre Corporation ("'Contincntar9). a commercial

vendor.~ The former owners were billed b)' the entity known as King Air II or King Air

Associates II. and Mr. Opper acted as the -central billing agent'" for Continental. After

March 18. 1992. the Comminee also used Continentars planes and was billed by King Air II.

Ho\\·c\'er. the Committee did not explain whether it also paid a quanerly fee for this arrangement

or ,,'hethel' one ofthe (onner o"11Crs of King Air was responsible for the Committee's use ofthe

planes. The audit workpapers sho~" that the Committee paid King Air II directly for the use of

Conunentars planes. with the eXcq>tion of one flight that was initially paid for by Mr. Angelides

on S~tembcr 7. 199~.

This Office disagrees with the proposed Repon·s analysis ofthe flights on King Air. 7

Because the Commlnee was not fonhcomlng ~ith Information concerning the King Air flights. it

IS unclear \\'hlch individuals or entities made excessive or prohibited in-kind contributions to the

Committee.1& Mr. Angelides made staff ad\'ances to the Comminee when he paid for some ofthe

Commlttec·s flights on King Au and King An 11. for \\'hach he "'as reimbursed. See 11 C.F.R.

Of thiS amounL Mr. Angehdn ruel'\led S6.0~ I from the Commlnee for the nights

The Commantt did not Identify the mu~ 10 -hom the ~Irplane was sold

• In March 1993. Contlnenlal sold Its alraaft chaner opeli\tlon to Aerosmlth A"latlon

nus Office also recommends ~t the chan of the flight p~~-ments anached to the proposed Repon an

order to clanfy the facts

The actual amount of the conUlbutlon~ to the (ommanee'!. federal account vane~. dependmg upon whether

the nights we~ nown solel~ for federal .Cll~ I~ or for the benefit of both federal and non·federal candidates Sec 1I

C F R §§ 100 7 and l06 5

Page 49, Approved 8/29/96
C'

Memorandum to Roben J. Costa

Proposed Final Audit Repon on the Democratic State Central Commlnee ofC.lir~ia Federal (LRA #470) '.,e4

§f lOO.7(b) and 116.5. However. without funher infonnation. it cannot be concluded that Mr.

Angelides provided staff advances for all ofthe flights. including ones that the Comminee paid for

directly.

The nights that the Comminee paid for di:,cctly appear to have been in-kind contributions

by Mr. Angelides and the other O\\llers of the King Air airplane. See 11 C.F.R. § 100.7(a). Until

March 18. 1992. King Air "'as comprised of a group of individuals ,,'ho o\\lled an airplane that

the:-' used for their 0\\'11 personal needs. These O\\llers \\'ere not in the business of pro\·iding. air

service. but provided the Commlnee flights \\1thOut advance payment. Thus. it appears that this

~roup of O\\llers. including Mr. Angelides. may have also made in-kind contributions to the

Committee for the nifhts paid for and t.aken by the Comminee before March 18. 199:!. See

11 C.F.R. § loo.7(a).

After March 18. 1992. King Air II acted as the billing agent for the flights provided by

Continental Corporation to the prior owners of King Air and the Comminee. Continental was a

commercial vendor that had a billing arrangement \\ith the prior owners of King Air. See

11 C.F.R. § 116.3. However. the Committee did not have such a billing arrangement \\ith

ContinentaL did not pay for the flights in ad\Oance. and did not appear to have paid Continental the

us~1 :md normal rates. IO Thus. based upon the available infonnation. it appears that the

Committee may have received an in-kind prohibited corporate contribution from Continental for

sen'Ices lh:u "'"ere provided outside ofthe ordinary course of business. See 11 C.F.R.

§§ 100 7(3)( 1) :md 116.3.

1\·. SO~-FEDERAL FUNDS I~IO FEDERAL ACCOU""S (II.E.)

A. Offsets 10 Allocable Es~ndilurn(1I.E.2.)

Il

c

The proposed Rcpon notes that •.(iIn the opinion ofthe Audit staff. when a refund or

rebate of an allocated expense IS received. the amount received should be credited between federal

and non-federtll accounts on a pro rata basiS equal to the allocation ratio of the original

disbursement·' Repon at 30. This Office recommends that the proposed Repon cite

11 C.F.R 106.5 and AO )995':!~ for authont~ th3t refunds of allocated disbursements should be

deposited Into federal and non-federal accounts according to the allocation ratio and should not be

commingled SC~ AO )995-:!~ (panlaJ reimbursements of allocable disbursements may be

reponed as negative dIsbursements and deposited bet\\"een federal and non-federal accounts).

Becaus(' Mr Angehd('s owned 6 ~5·. of lh(' ~.n~ Air plant ht '4ould ha\t(' be('n rcsponslbl(' for 6.~5~. of

the r('malnln~ nights pro",ded by th(' OVtnc~ Ho~('.,('r. If lh('rt 1\ ('\ldtnce that Mr Angchdes guarantecd or ensured

pa~m('nt of the Commmec's nlghu. U\('n h(' v.ould h~,,(' ~d\tanc('d lht full amount of the flights

Accordang to the ~udllor!a ttt~ cNch fue th~t was paid ~ould not be the usual and normal far(' for a chancr

airplane service

Page 50, Ap~raved 8/29/96
I:

c

Memflrandum to Roben J. Costa

Proposed Fanal Audit Repon on the Democratic State Cennl Committee ofCalifornia Federal (LRA al470)

Page 5

B. Sao Fnncisco Democratic COUD~' Central Committee (11.£.3.)

This Office concurs with the proposed Report's conclusion in the section concerning the

funds from the San Francisco Democratic COWlty Central Comminee. bU1 iecommends that the

sentence hthe Audit staff concludes that they constitute a prohibited transfer" be revised to: hit

appears that the S58.000 constitutes a prohibited contribution ..

C. No on Proposition 164 (11.E.4.)

The Intenm Audit Report requested Information that would demonstrate that the

Commlnee had not anempted to transfer S15.000 of non-federal funds to its federal account by

retaInIng S15.000 from Representatives Pelosi and Matsui in its federal accounts and using

S20.0oo of Its non-federal funds to make the contribution to "No on 164.·.. The Comminee

responded that '1.he Matsui and Pelosi funds were not used to make this contribution to No on 164.

. (and) the Report cites no authority for its findings nor ... what statute or regulation the

CommIttee allegedly violated.·' Repon at 37. The proposed Report concludes that the transaction

Involved an Impennlssible uansfer of non-federal funds to its federal account. because the

CommIttee "may not do indIrectly what It is prohibited from doing directly ...· Jd

TIllS Office beheves that the evidence for the proposed Repon's conclusion may be

Insufficient. There is no evidence to mdicate that the Representatives intended for the

contributions to be made to No on 164. besides the stub ofthe Comminee's voided check.

Therefore. the Comminee appears to have pennissibly spent S15..000 in non-federal funds for nonII federal actl\'lt~ .

V. RECLASSIFICATION Of TRANSFERS AS PAYMEI'. ON DEBT (FN. 23)

The Commlnee has nov.: acknowled~ed. ar:d accordingly amended its 199:! year-end

repons to reflect a total of 5200.653 In debt o~-ed from Its federal to non-federal account. Repon

at 39. fn.:3. In 1993. for an WlSpecified fCason.the Commlnee reponed ··transfers- offunds from

ItS federal to non-federal accounts The Committee v.ould like to retroactively reclassify the

""transfers" as "payments"" of the IQ9:! debt ov.ed from federal 10 non-federal accounts. This

Office agrees ,,',th the Audit DIVISion that the Act does not appear to prohibit this proposed

transactIon. presuming the transferred funds v.'ere federall~ pennlsslble However. if the

Commlltee transferred out of the federal account corporate contributions or funds that were

InItially Intended for the non-federal account. then these transfers may not later be characterized as

payment of the 1Q9:! debt

The ""'0 on 164" organlullon w~ form~d 10 d~feat a state mlllatl~e that would Impose term limits on

California office holders. including U S Scnaton and R~pre\('ntatlve~ The initiatiVe. If passed. was antended to

affect federal eandldate~ How~~er. the United Sutrs Supreme Court held recentl~ that states ma~ not Impose

Qualification!.. including term ~strlctton~. upon federal con~resslonal candidates Sec L 5 Term L'"JlIl Inc \

Thornton. I I S (, 18':~ ( I QqS) Bued upon TI'tOl'tt,on. the fund~ contrtDuted to "f',jo on 1bJ" did not require

allocation of fund~ pursuant to II C F R § 106 5

Pase -, :)~, Approved 8/29/96
FEDERAL ELECTION COf\,UvUSSI()N

c

c

September S. 1996

Mr. Gary Paul. Treasurer

Democratic State Central Comminee ofCalifornia - FederaJ

140I Ocean Avenue. #200

Santa Monica. CA 90401

Dear Mr. Paul:

Attached please find the Final Audit Repon on the Democratic State Central Committee

California - Federal. The Commission approved the repon on August 29. 1996.

The Commission approved fmal audit repon will be placed on the public record on

September 11 .. 1996. Should you have an questions regarding the public release ofthe report.

please contact the Commission·s Press Office at (202) 219-4155. Any questions related to the

matters covered during the audit orin the repon should be directed to Many Kuest or Joe

Swearingen ofthe Audit Division at (202) 219·3720 ortoll free at (800)424-9530.

·ncerely.

A!KJIU/II"'f U_I&.a...J.7~~..-tI Costa .,_.~

Assistant StaffDirector

Audit Division

cc: Lance Olson

H'HRP-,\ T' )D'" ""'0 l( )"C )W~( )\\

D[DI( ~TED TO ~fEPI""'~ THE PVHlI( l ..... fOI(M(O

Page 53, Approved 8/29/96
CHRONOLOGY

DEMOCRAT1C STATE CENTRAL <...OMMITIEE

OF CALIFORNIA - FEDERAL

o

Audit Fieldwork

Interim Audit Repon to

the Committee

Response Received to the

Interim Audit Repon

Final Audit Repon Approved

Page 55, Approved 8/29/96

8/8/94 - 10121/94

8/9/95

10/26/95

8129196