FEDERAL ELECTION COMMISSION

WASHINGTON. D.C 20463

•

November 23,1999

MEMORANDUM

TO: RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

FROM: ROBERT J. COSTA 4.rASSISTANT STAFF DIRE{T~'-­ AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

McCORMICK FOR CONGRESS

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

McConnick for Congress which was approved by the Commission on November 15,

1999.

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

the report may be released to the public

Attachment as stated

cc: Office ofGeneral Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
"

REPORT OF THE AUDIT DIVISION

ON

McCormickJor Congress

Approved November 15, 1999

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
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Executive Summary

Final Audit Report

Background

Findings

Transmittal to Committee

Chronology

TABLE OF CONTENTS

McCORMICK FOR CONGRESS

Page

3

3

5

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FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

REPORT OF THE AUDIT DIVISION

ON

McCORMICK FOR CONGRESS

EXECUTIVE SUMMARY

McCormick for Congress (MFC) registered with the Commission on October 6, 1997,

as the principal campaign committee for Joseph F. McCormick (the Candidate), Republican

candidate for the U.S. House ofRepresentatives from the State ofGeorgia, 2nd District.

The audit was conducted pursuant to 2 U.S.C. §438(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 ofthe audit were presented to MFC at the completion offieldwork on July

1,1999 and later in the interim audit report. MFC's response to those findings is contained in

the audit report.

The following is an overview ofthe findings contained in the audit report. The Audit

staffs testing of contributions was limited because MFC could not produce a computerized file

or other listing of all contributions received during the audit period.

RECEIPT OF EXCESSIVE CONTRIBUTIONS FROM INDIVIDUALS - 2 U.S.C. §441a(a)(l).

The Audit staffidentified 16 apparent excessive contributions from 14 individuals totaling

$8,800. No evidence was found that MFC attempted to contract these contributors for the

purpose of obtaining reattributions or redesignations.

MFC's response notes its confusion over contribution limitations and acknowledges that

some ofthese excessive contributions resulted from the absence of a spouse's signature on the

check or accompanying letter. The response notes that funds are not currently available to

make the necessary refunds and they will be carried by MFC as debt.

ITEMIZATION OF RECEIPTS FROM POLITICAL ORGANIZATIONS AND JOINT

FVNDRAISING COMMITTEE - 2 U.S.C. §434(B)(3)(A); 11 CFR §102. 17(C)(8). Receipts

from party committees, other political committees and an authorized joint fundraising

committee, totaling $28,894, were not disclosed on Schedule A as required. In addition, MFC
failed to file the memo Schedules A to accompany two transfers, totaling $5,070, from the New

Conservative Leadership Fund, ajoint fundraising committee. The identification ofthe

contributors and the gross amount oftheir contributions was not contained in MFC records.

MFC filed the necessary Schedules A to amend its disclosure reports.

REPORTING OF DISBURSEMENTS - 2 U.S.C. §434(b)(5). During the review ofMFC

disbursements, the Audit staffidentified 194 payments totaling $202,806 which were not

disclosed on Schedule B as required. A subsequent amended report filed July 12, 1999, failed

to correct 33 ofthe disbursements (the swn ofthose disbursements is $97,649). MFC indicated

that the appropriate amended reports would be filed to disclose the remaining 33

disbursements. Additionally, 40 payments, totaling $34,455, were not adequately disclosed on

Schedule B. Most ofthe errors resulted from an inadequately disclosed purpose, or no purpose

being disclosed.

MFC filed the necessary Schedules B to amend its disclosure reports.

REpORTING OF DEBTS AND OBLIGATIONS - 2 U.S.c. §434(b)(8). Based on available

invoices and related payments, it was determined that outstanding debts and obligations to 12

vendors, totaling $84,333, were not disclosed on Schedule D as required. These errors

occurred during 1998.

MFC filed the necessary Schedules D to amend its disclosure reports.

MISSTATEMENT OF FINANCIAL ACTIVITY - 2 U.S.c. §434(b)(1), (2) and (4). A

reconciliation of MFC's reported activity to its bank activity revealed that material

misstatements occurred with respect to reports filed for the period from the inception of

financial activity, July 1, 1997, through December 31, 1998.

MFC filed amended disclosure reports to materially correct the misstatements.

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A99-14

•

FEDERAL ELECTION COMMISSION

Washington, DC 20463

REPORT OF THE AUDITDIVISION ON

McCORMICK FOR CONGRESS

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofMcConnick for Congress

(MFC), undertaken by the Audit Division ofthe Federal Election Commission (the

Commission) in accordance with the provisions ofthe Federal Election Campaign Act of

1971, as amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle

2 ofthe United States Code which states, in part, that the Commission may conduct

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

Section 434 ofthis title. Prior to conducting any audit under this subsection, the

Commission shall perfonn an internal review ofreports filed by selected committees to

detennine ifthe reports filed by a particular committee meet the threshold requirements

for substantial compliance with the Act.

B. AUDIT COVERAGE

The audit covered the period from July I, 1997, the inception offinancial

activity, through December 31, 1998. During this period, MFC reported a beginning cash

balance of$-O-; total receipts of$465,5991

; total disbursements of$433,684; and a

closing cash balance of($28,898).2

Figures in this report are rounded to the nearest dollar.

The amounts do not foot due to mathematical errors on MFC's summary and detailed summary

pages. Total receipts and disbursements were calculated by summing the current period totals for

each reporting period. These amounts differ from the figures for total receipts and disbursements

($272,465 and $301,363, respectively) calculated by summing the calendar year-to-date amounts

reported for 1997 and 1998 (see Finding II.E.).

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C. COMMITTEE ORGANIZATION

MFC registered with the Commission on October 6, 1997, as the principal

campaign committee ofJoseph F. McCormick (the Candidate), Republican candidate for

the U.S. House of Representatives from the State of Georgia, 2nd District. MFC had two

Treasurers during the period covered by the audit. Mr. Will Geer was Treasurer from

inception through August 4, 1998. On, August 5, 1998, Mr. Kent Sole became Treasurer

and held the position until January 22, 1999. Currently the Candidate is serving as

Treasurer. MFC maintains its headquarters in Albany, Georgia.

To manage its financial activity, MFC maintained one bank account.

From this account, MFC made approximately 600 disbursements. Receipts were

composed of contributions from individuals (approximately $359,301); contributions

from other political committees and organizations ($112,278); and, in-kind loans and

contributions received from the candidate in the amount of $43,253. 3

D. AUDIT SCOPE AND PROCEDURES

The testing ofthe proper disclosure of both debts and obligations (see

Finding II.D.) and disbursements (see Finding II.C.) was limited. Although MFC met the

minimum recordkeeping requirements of 2 U.S.C. §432, externally generated

documentation, such as invoices, statements, or receipted bills, was not maintained for

about 35% of the dollar amount of the disbursements. Thus, obligations requiring

disclosure as debts owed by MFC could not be identified for these disbursements, and the

adequate disclosure for these disbursements could not be evaluated.

The audit included testing ofthe following general categories:

I. The receipt of contributions or loans in excess ofthe statutory limitations

(see Finding II.A.);

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

corporations or labor organizations;

3. 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 Finding II.B.);

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and accuracy of

These categories of receipts total $514,832, or about $49,233 more than the amount reported (See

Finding 11.E.).

4
the infonnation disclosed (see Finding II.C.);

5. proper disclosure ofMFC debts and obligations (see Finding n.D.);

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

compared to MFC bank records (see Finding II.E.);

7. adequate recordkeeping for MFC transactions; and

8. other audit procedures that were deemed necessary in the situation.

Unless specifically discussed below, no material non-compliance was

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

discussed in this report in an enforcement action.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. RECEIPT OF EXCESSIVE CONTRIBUTIONS FROM INDIVIDUALS

Section 441a(a)(l)(A) ofTitie 2 ofthe United States Code states that no

person shall make contributions to any candidate and his authorized political committees

with respect to any election for Federal Office which, in the aggregate exceed $1,000.

Subsection (b) of 11 CFR §II 0.1 explains that with respect to any election means that if

the contribution is not designated in writing by the contributor for a particular election

then the contribution applies to the next election for that Federal office after the

contribution is made. A contribution is considered made when the contributor

relinquishes control over the contribution by delivering the contribution to the Candidate,

the political committee, or an agent ofthe committee. A contribution mailed is

considered made on the date ofthe postmark.

Section I03.3(b)(3) ofTitle II ofthe Code of Federal Regulations states,

in part, that contributions which exceed the contribution limitations may be either

deposited into a campaign depository or returned to the contributor. If any such

contribution is deposited, the treasurer may request redesignation or reattribution ofthe

contribution by the contributor in accordance with II CFR 110.1(b) or 110.1(k). Ifa

redesignation or reattribution is not obtained, the treasurer shall, within 60 days ofthe

treasurer's receipt ofthe contribution, refund the contribution to the contributor.

Section 103.3(b)(4) ofTitle II ofthe Code of Federai Regulations states,

that any contribution which appears to be illegal under II CFR 103.3(b)(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

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committee must either establish a separate account in a campaign depository for such

contributions or maintain sufficient funds to make all such refunds.

Section llO.l(k) ofTitle 11 ofthe Code of Federal Regulations states, in

part, that any contribution made by more than one person, shall include the signature of

each contributor on the check, money order, or other negotiable instrument or in a

separate writing. A contribution made by more than one person that does not indicate the

amount to be attributed to each contributor shall be attributed equally to each contributor.

If a contribution to a candidate on its face or when aggregated with other contributions

from the same contributor exceeds the limitations on contributions, the treasurer may ask

the contributor whether the contribution was intended to be a joint contribution by more

than one person. A contribution shall be considered to be reattributed to another

contributor ifthe treasurer ofthe recipient political committee asks the contributor

whether the contribution is intended to be ajoint contribution by more than one person,

and informs the contributor that he or she may request the return ofthe excessive portion

of the contribution ifit is not intended to be a joint contribution; and within 60 days from

the date ofthe treasurer's receipt ofthe contribution, the contributors provide a written

reattribution ofthe contribution, which is signed by each contributor, and which indicates

the amount to be attributed to each contributor if equal attribution is not intended.

Section 110.I(b)(5) ofTitle II of the Code of Federal Regulations states,

in relevant part, that the treasurer of an authorized political committee may request a

written redesignation of a contribution by the contributor for a different election ifthe

contribution exceeds the limitation on contributions set forth in II CFR llO.l(b)(I). A

contribution shall be considered to be redesignated for another election ifthe treasurer of

the recipient authorized committee requests that the contributor provide a written

redcsignation of the contribution and informs the contributor that the contributor may

request a refund ofthe contribution and within 60 days from the date ofthe treasurer's

receipt ofthe contribution, the contributor provides the treasurer with a signed

redesignation ofthe contribution for another election.

Section 110.1(1 )(5) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that if a political committee does not retain the written records concerning

redesignations or reattributions, the redesignation or reattribution shall not be effective

and the original designation or attribution shall control.

The Audit staffs review of contributions identified 16 apparent excessive

contributions totaling $8,800 from 14 individuals. No evidence was found that MFC

attempted to contract these contributors for the purpose of obtaining reattributions or

redesignations. Although MFC did not deposit these excessive contributions into a

separate account it did maintain sufficient funds during most ofthe audit period to refund

the contributions. The cash on hand balance at December 31, 1998, however, was only

$6,001 (see Finding II.E.).

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At the exit conference, the Audit staff provided the MFC's representative

with a schedule detailing the apparent excessive contributions. During a subsequent

telephone conversation, the Candidate indicated that refunds would be made, but

sufficient funds may not be immediately available.

The interim audit report recommended that MFC provide evidence that

demonstrated the contributions noted above were not in excess ofthe limitation. Absent

such evidence, it was recommended that MFC refund these contributions and provide

evidence ofsuch refunds. Iffunds were not immediately available to make the necessary

refunds, those contributions requiring refunds were to be disclosed as debts on Schedule

D (Debts and Obligations) until such time that funds become available to make the

refunds.

In its response to the interim audit report, the Candidate notes that $1,400 ofthe

excessive contributions were made following the completion ofthe election in an attempt

to retire the debt. MFC was under the mistaken beliefthat these funds would not be

counted toward the donor's $1,000 limit. An additional $4,000 were excessive because

the spouse of a donor had not signed the check or accompanying letter to properly

attribute the contribution to each spouse. The Candidate states that funds are not currently

available to make the refunds and that these excessive contributions will be carried as

debt by MFC. Schedules D, which disclose the debt resulting from these excessive

contributions, were included with the latest report filed by MFC.

B. ITEMIZATION OF RECEIPTS FROM POLITICAL ORGANIZATIONS AND

JOINT FUNDRAISING COMMITTEE

Section 434(b)(3)(A) of Title 2 ofthe United States Code requires, in part,

a political committee to report the identification of each person who makes a contribution

to the committee in an aggregate amount or value in excess of$200 per calendar year

together with the date and amount of any such contribution.

Section 434(b)(3)(B) ofTitle 2 ofthe United States Code states that each

report under this section shall disclose the identification of each political committee

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

together with the date and amount of any such contribution.

Section 431(13) ofTitle 2 ofthe United States Code states that the term

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

the occupation ofsuch individual, as well as the name of his or her employer; and in the

case of any other person, the full name and address ofsuch person.

If contributions from political organizations are received through a joint

fundraising representative, Section I02.17(c)(8) of Title II of the Code of Federal

Regulations requires that each participating political committee shall report its share of

7
net proceeds received as a transfer-in from the fundraising representative and shall file a

memo Schedule A itemizing its share of gross receipts as contributions from original

contributors.

The Audit staff reviewed documentation relating to receipts from party

committees, other political committees and an authorized joint fundraising committee.

Ofthese, 27 contributions totaling $28,894 were not disclosed on Schedule A as required.

Also, MFC failed to file the memo Schedules A to accompany two transfers, totaling

$5,070, from the New Conservative Leadership Fund, ajoint fundraising committee. The

identification ofthe contributors and the gross amount oftheir contributions was not

contained in MFC records.

At the exit conference, MFC representatives were provided a schedule

detailing these items. They agreed to file necessary amended disclosure reports.

The interim audit report recommended that MFC file amended Schedules

A (by reporting period) disclosing the contributions.

In response to the interim audit report, MFC filed the requested amended

Schedules to disclose those contributions from party committees and other political

committees noted above.

C. REPORTING OF DISBURSEMENTS

Section 434(b)(5) ofTitle 2 ofthe United States Code requires each report

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

expenditure in an aggregate amount or value in excess of $200 within the calendar year is

made by the reporting committee to meet a candidate or committee operating expense,

together with the date, amount and purpose ofsuch operating expenditure.

During the review of MFC disbursements, the Audit staffidentified 194

payments totaling $202,806 which were not disclosed on Schedule B (Itemized

Disbursements) as required. Most ofthese errors resulted from an incomplete, electronic

filing of MFC's 1998 October 15'h Quarterly disclosure report. A subsequent amended

report filed July 12, 1999, failed to correct 33 of the disbursements (the sum ofthose

disbursements is $97,649). MFC indicated that the appropriate amended reports would

be filed to correct the remaining 33 disclosure problems.

Additionally, 40 payments, totaling $34,455, were not adequately

disclosed. Most of the errors resulted from an inadequately disclosed purpose, or no

purpose being disclosed.

At the conference held at the conclusion offieldwork, MFC

representatives were advised of these matters and were provided schedules detailing the

omissions. MFC representatives presented the Audit staff with Schedules B amending its

8
the 1998 October 15th Quarterly disclosure report. However, these schedules listed the

same disbursements that were on the July 12, 1999 amended report noted above.

The interim audit report recommended that MFC file amended Schedules

B (by reporting period) itemizing the remaining 33 disbursements and correcting the 40

payments that were not adequately disclosed.

In response to the interim audit report, MFC filed amended disclosure

reports which materially corrected the record.

D. REpORTING OF DEBTS AND OBLIGAnONS

Section 434(b)(8) ofTitle 2 ofthe United States Code states that each

report shall disclose the amount and nature of outstanding debts and obligations owed by

a political committee.

Section 104.11 ofTitle II ofthe Code of Federal Regulations states, in

part, that debts and obligations owed by a political committee which remain outstanding

shall be continuously reported until extinguished. In addition, a debt, obligation, or

written agreement to make an expenditure, the amount of which is $500 or less, shall be

reported as ofthe time the payment is made or no later than 60 days after such obligation

is incurred, whichever comes first. Any debt or obligation, the amount of which is over

$500, shall be reported as ofthe date on which the debt or obligation is incurred.

The Audit staff's review ofall disbursements determined that MFC did not

disclose any ofits debts and obligations on Schedules D. Based on available invoices4

and related payments, it was determined that outstanding debts and obligations to 12

vendors, totaling $84,333, were not disclosed on Schedule D as required. These errors

occurred in 1998.

MFC representatives were informed ofthe unreported debt at the exit

conference and agreed to amend its reports, as necessary.

The interim audit report recommended that MFC file Schedules D (by

reporting period) to disclose the debts and obligations addressed above.

In response to the interim audit report, MFC filed amended Schedules 0 as

reconunended.

4 As noted in the Scope section above, significant numbers of invoices were not available. Without

such records, total reportable debts and obligations can not be accurately determined.

9
E. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(1), (2) and (4) ofTitle 2 ofthe United States Code state,

in part, that each report shall disclose the amount of cash on hand at the beginning ofthe

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

reporting period and calendar year.

Sections 434(b)(3)(A) and (B) ofTitle 2 ofthe United States Code states,

in part, that each report under this section shall disclose the identification ofeach person

(other than a political committee) who makes a contribution to the reporting committee

during the reporting period, whose contribution or contributions have an aggregate

amount or value in excess of $200 within the calendar year, together with the date and

amount ofsuch contribution; and, the identification ofeach political committee which

makes a contribution to the reporting committee, together with the date and amount of

any such contribution.

Section 434(b)(5)(A) of Title 2 ofthe United States Code states, in part,

that each report under this section shall disclose the name and address of each person to

whom an expenditure in an aggregate amount or value in excess of$200 within the

calendar year is made by the reporting committee to meet a candidate operating expense,

together with the date, amount, and purpose ofsuch operating expenditure.

Section 431(13) ofTitle 2 ofthe United States Code states the term

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

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

case of any other person, the full name and address ofsuch person.

I. Inception through December 3 I, 1997

The Audit staffs reconciliation of bank activity to reports filed by

MFC, indicated that receipts, disbursements and ending cash on hand had been misstated

for 1997. MFC did not provide workpapers detailing how its reported amounts were

calculated.

MFC reported receipts of $70,163 for this period. MFC should

have reported receipts of $72,688, resulting in an understatement of $2,525. The

understatement was due to under reporting a loan by $4,050, over reporting contributions

from individuals by $1,500 and a reconciling difference of$25.

MFC reported disbursements of$42,092. The correct amount was

$43,676 resulting in an understatement of$I,584. The understatement was due to a

$1,500 payment made to an employee not reported and $84 in bank fees not reported.

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MFC reported a cash on hand balance on December 3I, 1997, of

$28,071. The correct cash balance was $29,013. Therefore, the ending cash on hand

balance was understated by $942. This understatement resulted from the misstatements

detailed above.

2. January 1, 1998 through December 31, 1998

MFC reported receipts of$395,436 in 1998. The correct amount

was determined to be $442,143, resulting in an understatement of$46,707. MFC receipt

records consisted ofloose copies of contributor checks, bank deposit receipts and deposit

slips that did not itemized the contributions. Therefore contributor checks could not be

associated with specific deposits. MFC representatives also indicated receipts may have,

in some instances, been reported based on the date ofthe contributors' check, further

complicating any analysis. Given that contribution date was not consistently defined, the

amounts by which receipts were misstated could not be accurately calculated by

reporting period to assist in locating the cause ofthe differences. Further, absent MFC

workpapers detailing the source ofits reported figures, the Audit staff was unable to

explain this understatement. It is noted that the largest differences appear to have

occurred in the pre and post election reporting periods.

MFC reported total disbursements of$391,591 for 1998. The

Audit staff determined the correct figure to be $465,155, resulting in an understatement

of$73,564. This misstatement resulted in part from a failure to report three wire

transfers totaling $90,745. In addition, MFC overstated 13 disbursements by a net

amount of $14,978. However, absent documentation demonstrating the derivation of

MFC's reported amounts, the remaining difference of $2,203 could not be identified.

MFC's reported ending cash on hand balance was understated by

$34,899. This understatement resulted from the misstatement of ending cash on hand at

December 3 I, 1997, as well as the misstatement ofreceipts and disbursements for 1998,

as detailed above. The correct ending cash on hand should be $6,001.

The Audit staff discussed these matters with MFC representatives at the

exit conference. These representatives indicated a willin!,'Iless to amend disclosure

reports as required.

The interim audit report recommended that MFC file a comprehensive

amended report for calendar year 1998, which included corrected Summary and Detailed

Summary Pages, as well as, appropriate Schedules A and Schedules B by report period.

In response to the interim audit report, MFC filed amended Summary and

Detailed Summary Pages for 1998, as well as, appropriate Schedules A and Schedules B

as recommended.

II
f-EDERAL ELECTION COMMISSION

WASHINGTON. D.C 2U4GJ A9914

November 16, 1999

Mr. Joseph McCormick, Treasurer

McCormick For Congress

1'.0. Box 824

Albany,GA 31702

Dear Mr. McCormicL:

Attached please find the Report ofthe Audit Division on McCormick for Congress.

The Commission approved the report on November 15, 1999.

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

on November 23, 1999. Should you have any questions regarding the public relense of the

repmt, please contact the Commission's Press Office at (202) 219-4155. Any questions

you have related to matters covered during the audit or in the report should be directed to

Philomena Brooks or Alex Boniewicz ofthe Audit Division at (202) 694-1200 or toll free

at (tlOO) 424-9530.

Sincerely,

lW~--

RobertJ.gt~ Assistant Staff Director

Audit Division

Attachment as stated

12
CHRONOLOGY

McCORMICK FOR CONGRESS

:f

Audit Fieldwork 6/21/99-7/1/99 b:::f

1'1

f~~g Interim Audit Report to

the Committee 9/20/99

lJ1

fu Response Received to the 19

"". Interim Audit Report 10/25/99

r-~. Final Audit Report Approved 11/15/99 0

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