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REPORT OF THE AUDIT DIVISION

ON

Friends ofSherrod Brown

Approved Novembern, 1995

FEDERAL ELECTION COMMISSION

99'J E STREET, N.W.

\\'ASHINGTON, D.C.
i'ABLB OP COWl'BldS

FRImms OP SHERROD BRONII

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Executive Summary

Final Audit Report

Background

Findings

Transmittal to Cam.ittee

Chronology

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FEDERAL ELECTION COMMISSION

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FINAL AUDIT REPORT

ON

FRIENDS OF SHERROD BROWN

EXECUTIVE SUMMARY

The Committee first registered with the U.S. House of

Representatives on April 11, 1992 as Brown for Congress. On

June 14, 1994, the Committee filed an amended Statement of

Organization, changing its name to Friends of Sherrod Brown, the

principal campaign committee for Sherrod Campbell Brown,

Democratic candidate for the U.S. House of Representatives,

District 13, from the state of Ohio.

The audit was conducted pursuant to 2 u.s.c. S438(b), which

states, that the Commission may conduct audits of any political

committee whose reports fail to meet the threshold level of

compliance set by the Commission.

The findings of the audit were presented to the Committee

at an exit conference held after the audit fieldwork (6/30/95)

and later in an interim audit report. The Committee'. responses have been included in the findings set forth in this summary.

The following is an overview of the findings contained in

the final audit report.

Misstatement of Financial Activity

Sections 434(b)(1),(2) and (4) of Title 2 of the United

States Code. The CODDDittee understated its receipts by a total

of $21,505 and over-stated disbursements by $908.

Ending cash on hand was understated by a total of $16,913

due to the misstatements in receipts and disbursements noted

above and two errors totaling $5,500 made by the Committee in

computing cash on hand during 1993 and 1994.

The Committee responded by filing amended reports, which

materially corrected the misstatements.

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Apparent Bxcessive Contributions - Individ~a18

Section 441a(e)(1)(A) of Title 2. The audit identified (9)

contributors who exceeded their contribution liaitation by • total of $4,550. The Committee refunded $1,500 to (6)

contributors well beyond the 60 day period provided for making such refunds, leaving $3,050 unresolved.

In response to the interim audit report, the Committee

provided copie. of the front of refund checks for the remaining exces.ive contributions. The Committee's treasurer stated that

he would forward copies of the back of the refund checks upon

receipt.

48 Hour Hotices - Individual and Political COIIIIIlittees

Section 434(8)(6) of Title 2. The Audit identified 16

contributions, totaling $24,500, for which the required 48 hour

notices had not been filed for the Priaary election. All 16

contributions were from Political Action Committees.

The Committee cited a personnel change and inexperience

with campaign finance _regulations as the cause of the problem.

The CODIIIlittee also pointed out tha~ for the General election,

all required notices were filed.

Unti.aely Deposit of Contributions

Section 103.3(a) of Title 11 of the Code of Pederal

Regulations. Contributions in the amount of $94,192, ca.prised

of 230 checks dated from June through December, 1993 were not

deposited until February 4, 1994 ($63,130) and February 7, 1994

($31,062).

In response to the interim audit report the Co_ittee

treasurer, Mr. Daniel Harris, expressed the opinion that the

previous treasurer had become overwhelmed with the

responsibilities of the position and 80 fell behind in his work.

Mr. Harris also stated that the Congressman took iJmBediate

action as soon as he became aware of the problem.

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FEDERAL ELECTION COMMISSION

WASHINCTON, 0 C 204bJ

RIIPOR'1' OP '1'BB ADDI!' DIVISIOII

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PRIBlIDS OF SRBRROD BROIrII

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I • Background

A. Overview

This report is based on an audit of Priends of Sherrod

Brown (the COlIDIlittee) I undertaken by the Audit Division of the

Pederal Election Ca.aission in accordance with the provisions of

the Federal Election Cmapaign Act of 1971, as amended (the Act).

The audit was conducted pursuant to section 438(b) of Title 2 of

the United States Code which states, in part, that the Ca.us8ion

.ay conduct audits and field investigations of any political committee required to file a report under section 434 of this

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

COJlDllission shall perfora an internal review of reports filed by

selected cOJalittees to determine if the report8 filed by •

particular committee meet the threshold requirements for

8ubstantial ca.pliance with the Act.

The audit covered the period froa January 1, 1993, until

December 31, 1994. The Ca.aittee reported a beginning cash

balance of $8,920; total receipts for the period of $965,839;

total disbursements for the period of $974,228; and an ending cash

balance of $6,031.!1

B. Campaign Organization

The Committee first registered with the u.s. Bouse of

Representatives on April 17, 1992 as Brown for Congress. On June

14, 1994, the Cam-ittee filed an amended Statement of

Organization, changing its name to Priends of Sherrod Brown, the

11 The amounts do not foot due to mathematical errors on the

Committee'S disclosure reports. Also, see Finding II.A.,

Misstatement of Financial Activity.

All figures within this report have been rounded to an even

dollar amount.

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principal campaign committee for Sherrod Campbell Brown,

Democratic candidate for the U.S. Houee of Representatives,

District 13, from the state of Ohio. The C~ttee maintained its

headquarters in Elyria, Ohio.

The audit indicated that approximately 33' ($327,180) of

the Committee's receipts were contributions froa individuale, 66'

($650,051) from political action comaittees and other comaittees

such as party committees, candidate c~ttee. and non-regi8tered committees with the remaining l' of receipts from offsets to

operating expenditures and interest.

This report is based on docUJDents and workpapers which

support each of its factual statements. They form part of the

record upon which the Commission based its decisions on the

matters in the report and were available to the Commissioners and

appropriate staff for review.

c. Key Personnel

The treasurers of the Ca.u.ttee during the period

covered by the audit were Phyllis Cullen (January 1, 1993 - February 1, 1993), Hr. Christopher R. Rothgery (March 1993 - February 1994) and Mr. Daniel Harris (April 18, 1994 to

present) .

D. Scope

~he audit included testing of the following general categories:

3. proper disclosure of contributions froa

individuals, political ca.aitteea and other

entities, to include the iteaization of

contributions when required, as well a8, the

completeness and accuracy of the info~ation

disclosed (Finding II.C);

4. proper disclosure of disbursements including the

itemization of disbursements when required, as

well as, the completeness and accuracy of the

information disclosed;

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2.

The receipt of contributions or loans in excess

of the statutory ltaitationa (Finding II.B.);

the receipt of contributions from prohibited

sources, such as those from corporatiop~ or labor

organizations;

5. proper disclosure of campaign debts and

obligations;

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the accuracy of total reported receipts,

disbursements and cash balances .s cc.pared ~o

campaign bank records (FindiDq II.A. ) J

7. adequate recordkeeping for campaign transactions,

8. other audit procedures that vere dee.ed nece••ary

in the situation (Pinding 11.0).

Unless specifically discu8sed below, no material

non-compliance was detected. It should be noted that the

Commission may pursue any of the matters discussed in this report

in an enforcement action.

II. Findi~gs and Recommendations

A. Misstatement of Financial Activity

Sections 434(b)(1),(2) and (4) of ~itle 2 of the United

States Code state, in relevant part, that each report shall

disclose the amount of cash on hand at the beginning of each

reporting period, the total amount of all receipta, and the total

amount of all disbursements for the period and calendar year.

The Audit staff's reconciliation of the Ca..ittee'8

reported activity to its bank activity for the audit period revealed the following ~sstatement8:

1. January 1, 1993 through December 31, 1994

a. Receipts

The COJIDittee reported total receipts of

$965,839. Based on our analysis of the Ca..ittee bank recorda,

the Audit staff determined that the Committee should have reported total receipts of $987,344. Therefore the COJIDitt.ee's reported

receipts were understated by a net amount of $21,505. This

understatement was the result of the following:

• Contributions deposited, not

reported

o Refunds and Rebates not

reported

o Interest Received, not reported

$14,186.00

$ 5,599.00

$ 2,220.00

o Miscellaneous reconciling adjustment $( SOO.OO)

o Total (net) Understatement

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$21,505,09
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b. Disbursements

$(13,363)

$ (164)

$ 6,339

$ (1,577)

$ 4,996

$ 1,550

$ 1,311

S 908

o In-kind contributions not

reported as disbursements

• Refunds made; not reported

• Miscellaneous reconciling adjustment

o Total (net) Understatement

The C,tmmittee reported total di.bur.ementa

of $974,228. Based on the Audit staff's review of the bank

records, it was dete~ined that the Cam-ittee should h~ve

reported total disbursements of $973,320. Therefore, the

Cc.aittee's reported disbursements were overstated by a net

amount of $908. This overstatement resulted from the follovinql

o Reported voided checks

o NSF disbursements reported

o Disbursements made; not reported

• Mathematical Discrepancies

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c. Ending Cash-on-lland Balance

The CODBDittee reported an ending cash on

hand balance on December 31, 1994 of $6,031. The Audit staff

determined that this amount was understated by $16,913. 'I'his

understatement was due to the aisstateJ88nta noted above and two

errors totaling $5,500 made by the Cem.dttee in coaputing cash

on hand during 1993 and 1994.!1

At the exit conference, the COJIIDittee was

provided with workpapers detailing the adjustments. The

Committee treasurer stated that he would review the workpapers

and file any necessary amendments.

In the inter~ audit report the Audit staff

recommended that the Committee file amended reports for calendar

years 1993 and 1994 to correct the misstatements noted above.

In response to the interim audit report, the

Cormnittee filed amended reports for each report period. The

amended reports materially correct problems noted.

~I The Committee was unable to explain the discrepancies in

computing cash on hand.

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B. Apparent Excessive Contributions - Individuals

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Section 441a(a)(l)(A) of Title 2 of the United

States Code states, in relevant part, that no person shall make

contributions to any candidate and his authorized political committees with respect to any election for Pederal office

which, in the aggregate, exceed $1,000.

Section 110.1(k) of the Code of Federal

Regulations states, in relevant part, that any contribution made

by more than one person, except for a contribution made by a

partnership, shall include the signature of each contributor on

the check, money order, or other negotiable instrument or in a

separate writing.

If a contribution to a candidate or political

committee, either on its face or when aggregated with other

contributions from the same contributor, exceeds the Itmitations

on contributions set forth in 11 CFR 110.1(b), the treasurer of

the recipient political committee asks the contributor whether

the contribution is intended to be a joint contribution by more

than one person and informs the contribut~r that he or ahe .ay

request the return of the excessive portion of the contribution

if it is not intended to be a joint contribution; and within

sixty days from the date of the treasurer's receipt of the

contribution, the contributors provide the treasurer with a

written reattribution of the contribution, which is signed by

each contributor, and which indicates the amount to be

attributed to each contributor if equal attribution is not

intended.

Sections 103.3(b){3) and (4) of Title 11 of the

Code of Federal Regulations state, in part, that contributions

which exceed the contribution Itmitation may be deposited into a

campaign depository. If any such contribution is deposited, the

treasurer may request redesignation or reattribution of the

contribution by the contributor in accordance with 11 CPR

110.1(b) and 110.1(k), as appropriate. If a redesignation or

reattribution is not obtained, the treasurer shall, within sixty

days of the treasurer's receipt of the contribution, refund the

contribution to the contributor.

Any contribution which appears to be illegal

under 11 CFR 103.3(b)(1) or (3) and which is deposited into a

campaign depository shall not be used for any disbursements by

the political committee until the contribution has been

determined to be legal. The political committee must either

establish a separate account in a campaign depository for such

contributions or maintain sufficient funds to make all such

refunds.

A review of the Committee's records relating to

contributions equaling or aggregating $1,000 or more, identified

(9) contributors who exceeded their contribution limitation by a

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total of $4,550. The C~ttee refunded $1,500 3/ to (6)

contributors on September 22, 1994, well beyond the 60 day period provided for -.king such refunde, leaving $3,050

unresolved ($4,550.00 - $1,500.00 • $3,050). The Camaittee did

not establish a .eparate account in a campaign depoaltory for

such contributions, however it has maintained sufficient funds

to make the refund. pursuant to 11 CPR 103.3(b)(4).

At the exit conference, the Committee was

supplied with copies of the workpaper8 detailing the excessive

contributors. The Committee treasurer, Daniel Harris, explained that before the implementation of their computer system in 1994,

the Committee had no formal aggregation system. Thus, they were

unable to dete~ine when a contr1butor had reached his

contribution limit. Upon completion of data input procedures, the Committee was able to identify excessive contributions and

they were refunded.

The remaining three excessive contributions were

in the form of $2,000 checks with one signature. The CODDittee

=ommented that it had not fully understood the need for two

signatures, and 80 had not considered the contributions

excessive.

Subsequent to the end of fieldwork, the Ca.aittee

supplied the Audit staff with designation letters for the three

checks. These letters did not contain the necessary signatures and were mailed after both the 60 day period provided and the

identification of the excessive contributions by the Audit staff

and so were unacceptable for designation purposes.

In the interim audit report the Audit staff

recommended that the COJImlittee provide evidence of refunds for

all unresolved excessive contributions in the fo~ of

photocopies of the front and back of negotiated refund checks.

In response to the interim audit report, the

Committee provided copies of the front of refund checks for the

remaining excessive contributions. In a letter included with

the Committee's response, the Committee's treasurer stated that

he would forward copies of the back of the refund checks upon

receipt.

c. 48 Hour Notices - Individual and Political Committees

Section 434(a)(6) of Title 2 of the United States Code

states, in relevant part, that the treasurer of a principal campaign committee of a candidate shall notify the Clerk, the

Secretary, or the Commission and the Secretary of State, as

One contributor had contributed a total of $300 in excess of

the lLmits, but the Committee refunded only $250. The Audit

staff was unable to ascertain the reason for this.

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appropriate, in writing, of any contribution of $1,000 or more " received by any authorized committee of such candidate after the

20th day, but not more than 48 hours before, any election. l'his

notification shall be made within 48 hours after the receipt of

such contribution and shall include the name of the candidate

and the office sought by the candidate, the identification of

the contributor, and the date of receipt and amount of the

contribution.

The Audit staff's review identified a total of 26

contributions totaling $47,500 requiring 48 hour notices for the

Primary election. Of these, the Committee failed to file

notices for 16 contributions totaling $24,500. This produced an

error rate of 52' ($24,500/$47,500). Of the 16 contributions,

all were from Political Action Committees.

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The Audit staff discussed this problem with the

Committee treasurer at the exit conference and workpapers detailing the errors were supplied to the Committee. In a

letter received by the A~dit staff subsequent to the end of

fieldwork (August 16, 1995), the current treasurer, Mr. Daniel

Harris, explained that after taking over the treasurer

responsibilities in March of 1994, he and an assistant had to

reconcile 1993 bank activity, establish their accounting 8ystem and file the first quarter FEe report. In getting acclt.ated to

the Federal Election Commission Regulations, he was not fully clear on the date used to determine 48-hour notice, either

deposit date, check date, or date received. As a result, 48

hour notices for $24,500 in contributions were not filed.

For the General election, all required 48 hour notices

were filed.

In the interim audit report the Audit staff

recommended that the Committee make any additional comments it

believed relevant to the situation.

In response to the interim audit report, the Committee

Treasurer made the following statement:

"Although it is not an excuse for untimely submittal of 48 hour notices and we fully understand the importance of timely filing,

please note that Congressman Sherrod Brown was

unopposed in the primary election, which is

the election in which our error occurred. The

problem was corrected and all required 48 hour

notices for the general election were properly

filed. "

D. Untimely Deposit of Contributions

Section 103.3(a) of Title 11 of the Code of Federal

Regulations states, in relevant part, that all receipts by a

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political committee shall be deposited in account(8) 8stabliahed

pursuant to 11 CPR 103.2. The treasurer of the cOJlBittee .hall

be responsible for making such deposit8. All depo8ita ahall be

made within 10 days of the treasurer'. receipt.

During the entrance conference the Audit staff va.

informed that in 1993, the previous treasurer, had failed to

deposit funds in the amount of $94,192 within the ten day time

frame. The current treasurer explained that he did not know the

reason for the delay in depositing the funds. The deposits were

comprised of 230 checks which were dated from June through

December, 1993. The funds were deposited in two deposits, one for

$63,130 on February 4, 1994 and the other for $31,062 on Pebruary

7, 1994.

In the interim audit report, the Audit staff recommended

that the Committee provide an explanation as to why these

contributions were not deposited in a timely manner.

In response to the interim audit report the Co-.ittee

treasurer, Mr. Daniel Harris, stated that he had spoken to the

previous treasurer about this problem. ~. Harris concluded that

the prior treasurer had been overwhe~ with the coabined

workload of his law practice and the ever increasing work

associated with the treasurer's position. Once Mr. Rothgery got

behind, the problem continued to increase. This situation

continued undetected until the Congressman began to rae.lve calls

from concerned contributors asking why their checks had

not been cashed.

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Mr. Harris also stated that the Conqres.-an took

immediate action as soon as he became aware of the problea. The

result is that the Congressman replaced the treasurer with a

person who had a professional background in accounting. Mr.

Harris ends by stating that Congressman Brown took appropriate and

immediate action after becoming aware that a problem existed.

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FEDERAL ELECTION COMMISSION

November 28, 1995

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Mr. Daniel Harris, ~rea.urer

Priends of Sherrod Brown

111 Bdgefield Drive

Elyria, 08 44035

Dear Mr. Harris'

Attached pl.... find the Pinal Audit Report on Friends of

Sherrod Brown. .,he Cc..is.lon approved the report on November

22, 1995.

The C~••loft approved Final Aud1~ Report. will be placed

on the publJ- 'ntCoEd on Dec.-ber 4, 1995. Should J'OU have any

questions regarding the public rel aacc of the report, pleaee

contact the C~••ioft·.- -Prlt•• Office at -( .02) 219--4155. Any

questions you have related to .att.ers covered during the audit

or 1n the report should be directed to Rhonda Si..-aona or Rus.

Bruner of the Audit D191.10ft at (202) 219-3720 or toll free at

(800) 424-9530.

Sincerely,

-/PI~ Robert J. C sta

As8iatant Staff Director

Audit Division

Attachment .a .t.~ed

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CHROIfOLOGY

PRIENDS OF SHERROD BROWR

Audit Fieldwork 6/12/95 - 6/30/95

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Interim Audit Report to

the Conunittee

Response Received to the Inter~ Audit Report

Final Audit Report Approved

9/25/95

10/2~/9S

11/22/95

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