)

FEDERAL ELECTION COMMISSION

WASHINGTON. D.c. 204&3

September 8, 1999

MEMORANDUM

•

TO:

FROM:

SUBJECT:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERTI.COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

TEXANS FOR RUDY IZZARD

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

Texans for Rudy Izzard which was approved by the Commission on August 26, 1999.

Informational 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

,9fficeof,P4bU¢'])I$qlosure \

Reports Analysis Division

FECLibrary
REPORT OF THE AUDIT DIVISION

ON

TEXANS FOR RUDY IZZARD

Approved August 26, 1999

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

TEXANS FOR RUDY IZZARD

r~u

~j Page r~E

iie~~

. Executive Summary 1

Lt~ -,

.lJ R" Final Audit Report 2

a

Background 2 :Il.

j":r,

a Findings 4

r~

FlJi Transmittal to Committee 11

Chronology 12
REPORT OF THE AUDIT DIVISION

ON

TEXANS FOR RUDY IZZARD COMMITTEE

EXECUTIVE SUMMARY

The Texans for Rudy Izzard Committee (TRI) registered with the Federal Election

Commission on November 27, 1995, as Izzard for Congress, the principal campaign

committee for Rudy Izzard, Republican candidate for the U.S. House ofRepresentatives

from the state ofTexas for the Seventeenth District. TRI filed an amended statement of

organization to change the name to Texans for Rudy Izzard for the 1998 election cycle.

The audit was conducted pursuant to 2 U.S.C. Section 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 TRI at an exit conference held at the

completion offieldwork on May 7,1999 and later, in an interim audit report. The TRI's

responses to those findings are included in this final audit report.

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

Apparent Excessive Contributions - 2 U.S.C. Section 441a(a)(l)(A); 11 CFR

Sections: I 10.1(b)(l) , (3) and (5), 110.1(k), and llO.9(a). TRI received contributions

which exceeded the donor's limitations by $17,325. TRI complied with an interim audit

report recommendation by reporting the amounts as debts (since TRI did not have the

necessary funds to make immediate refunds) until such time that funds become available

to make refunds to the contributors.

Commingling ofFunds and Unreported Receipts and Disbursements - 2 U.S.C.

Sections: 432(b)(3) and (h);and 434(b)(2); II CFR Sections: 103.3(a); and I02.7(d).

The Candidate deposited contributions totaling $13,950 first into his business account

before transferring the funds to TRI, and also deposited $1,650 into the same account

which he applied to campaign expenses paid from it. Also disbursements were made

from the account on behalf ofthe campaign totaling $17,108. These disbursements were

not reported. In response to an interim audit report recommendation TRI filed amended

reports fully disclosing the disbursements made from the Candidate's account and

explained that the use ofthe business account for some ofthe transactions was strictly a

matter of convenience.

Itemization ofReceipts from Political Organizations - 2 U.S.C. Sections:

434(b)(3)(B); and 431(13); 11 CFR Section 102.17(c)(8). TRI failed to itemize as memo

entries 29 contributions totaling $7,675 from political committees relating to a $6,000

transfer from ajoint fundraising committee (New Conservative Leadership Fund). In

response to the interim audit report recommendation TRI filed amended schedules

itemizing these receipts.
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C 20463

REPORT OF THE AUDITDIVISION

ON

TEXANS FOR RUDYIZZARD COMMITTEE

A99-13

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofthe Texans for Rudy Izzard Committee

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

accordance with the provision 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 of

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

perform an internal review ofreports filed by selected committees to determine 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 January 1, 1997, through December 31,

1998. The TRI reported a beginning cash balance of$123, total receipts for the audit

period of$581,426; total disbursements for the audit period of$572,257; and an ending

cash balance of$234 on December 31, 1998.'

The figures cited in this report are rounded to the nearest dollar. Totals do not foot due to a

reporting discrepancy for ending cash on hand and subsequent beginning cash on hand between

two reporting periods.

2
C CAMPAIGN ORGANIZATION

TRl registered with the Federal Election Commission on November 27,

1995, as Izzard for Congress, the principal campaign committee for Rudy Izzard,

Republican candidate for the U.S. House ofRepresentatives from the state ofTexas for

the Seventeenth District. TRl filed an amended statement of organization on November

10,1997 to change the name to Texans for Rudy Izzard for the 1998 election cycle.

On April 7, 1998 TRl filed an amended statement of organization to

include, as an affiliated committee, Izzard for Congress - 96. This committee was

established to assume the debt from the 1996 campaign.

The Treasurer ofTRl during the audit period was Freddy L. Moore. TRl

maintained its headquarters in Abilene, Texas.

To manage its financial activity, TRl maintained three principal bank

accounts. From these accounts, it made approximately 647 disbursements. Into these

accounts TRl deposited contributions from individuals totaling approximately $409,500,

contributions from political committees and political party committees approximating

$112,000, transfers from ajoint fundraising committee totaling $10,000, and loans and

contributions from the Candidate totaling $22,350.

D. AUDIT SCOPE AND PROCEDURES

The Audit staff was unable to test the proper disclosure of debts and

obligations. TRl did not maintain an accounts payable or invoice file in an order which

would allow the auditors to reference a vendor payment to an invoice. Therefore, timely

payments could not be verified and adequate disclosure of obligations could not be tested.

The audit included testing ofthe following general categories:

1. 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 ofreceipts from individuals, political committees

and other entities, to include the itemization of contributions or

other receipts when required, as well as, the completeness and

accuracy ofthe infonnation disclosed (see Finding II.C.);

3
4. Proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and

accuracy ofthe information disclosed;

5. The accuracy oftotal reported receipts, disbursements and cash

balances as compared to campaign bank records (see Finding

II.B.);

6. Adequate recordkeeping for campaign transactions; and

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

(see Finding II.B.)

:1

This report is based on documents and workpapers which support

each ofits factual statements. They form part ofthe record upon which the Commission

based its decisions on the matters in the report and were available to the Commissioners

and appropriate stafffor review. 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 CONTRIBUTIONS IN EXCESS OF THE

LIMITATION

Section 441a(a)(I)(A) ofTitle 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 §110.1 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 1I0.l(b)(5)(i) and (ii) ofTitle 11 ofthe Code ofFederal

Regulations states, in part, that the treasurer ofan authorized political committee may

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

if:

Q

the contribution was designated in writing for a particular election, and the

contribution, either on its face or when aggregated with other contributions

from the same contributor for the same election, exceeds the limitation at

11 CFR §llO.I(b)(I);

4
Further, a contribution shall be considered to be redesignated for another

election ifthe treasurer ofthe recipient authorized political committee requests that the

contributor provide a written redesignation ofthe contribution and informs the

contributor that the contributor may request the refund ofthe contribution as an

alternative to providing a written redesignation and within sixty days from the date ofthe

treasurer's receipt ofthe contribution, the contributor provides the treasurer with a written

redesignation ofthe contribution for another election, which is signed by the contributor.

o

o

o

the contribution was designated in writing for a particular election and the

contribution was made after that election and the contribution cannot be

accepted under the net debts outstanding provisions of 11 CFR

§11O.1(b)(3);

the contribution was not designated in writing for a particular election, and

the contribution exceeds the limitation on contributions set forth in

11 CFR §110.1(b)(I); or

the contribution was not designated in writing for a particular election,

and the contribution was received after the date ofan election for which

there are net debts outstanding on the date the contribution is received.

Section llO.l(k) ofTitle II ofthe Code ofFederal Regulations states 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 and if a contribution made by more

than one person does not indicate the amount to be attributed to each contributor, the

contribution shall be attributed equally to each contributor.

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

limitations on contributions set forth in 11 CFR §11 0.1 (b), (c) or (d), as appropriate, the

treasurer ofthe recipient political committee 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 of

the 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 ofthe contribution ifit is not intended

to be a joint contribution, and within sixty days from the date ofthe treasurer's receipt of

the contribution, the contributors provide the treasurer with 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.

5
Section 110.9(a) ofTitle 11 ofthe Code of Federal Regulations states that

no candidate or political committee shall accept any contribution or make any

expenditure in violation ofthe provisions ofpart 110. No officer or employee of a

political committee shall accept a contribution made for the benefit or use of a candidate,

or make any expenditure on behalf of a candidate, in violation of any limitation imposed

on contributions and expenditures under this part 110.

A review ofTRI's receipt records identified 21 contributions from 15

individuals which exceeded the contribution limitations by $17,325. Eight excessive

amounts totaling $7,750 related to the primary election. The remaining 13 contributions

totaling $9,595 related to the general election. The Audit staff could find no evidence in

the TRl's files that any attempt was made to obtain or maintain any written reattribution

or redesignation documentation.

At the Exit Conference the Audit staff provided TRI a schedule ofthe

identified excessive contributions and copies of all available supporting documentation

(copies of contributor checks, deposit tickets, or entries on contributor lists). The

Treasurer and Candidate insisted that there was never any attempt to solicit or knowingly

accept excessive contributions and that the campaign staff was instructed to contact any

contributor whose contribution was in doubt. In a written response to the Exit

Conference the Candidate and Treasurer reaffirmed this contention. They acknowledged

that "When a single contributor's aggregate contribution exceeded $1,000; the campaign

staff attributed $ I,000 to the primary and the remainder to the general election. Also,

when a contributor and hislher spouse sent $2,000, the campaign staff attributed $1,000

to each spouse." With respect to supporting documentation, the Candidate stated

" ...campaign staff contacted many contributors for clarification ofinformation and

allocation instructions. Unfortunately and unknowingly, in many cases, [campaign] staff

did not retain written documentation ofthis correspondence, as required by FEC

regulations." The receipt ofapparent excessive contributions is attributed to " ...a lack of

in-depth understanding ofFEC rules and regulations by inexperienced campaign staff."

The interim audit report recommended that TRl provide evidence that the

contributions were either not excessive, or were reattributed, redesignated or refunded in

a timely manner. Iffunds were not available to make refunds the report recommended

that TRI disclose the excessive contributions as refunds owed to the contributors until

such time that funds become available.

In its reponse to the interim report, TRI stated:

" ...there was never any attempt to solicit or accept excessive

contributions. The campaign staffwas instructed to and did on numerous

occasions contact donors for clarification and allocation instructions. The

campaign staff corresponded with these donors by phone, fax, and mail.

Unfortunately, campaign staff did not retain written documentation ofthese

6
correspondences. None ofthese individuals contributed more than the aggregate

maximum amount for individuals ($2,000) or couples ($4,000).

"These contributions appear excessive only because campaign staffdid not

retain correspondence allocating contributions to the primary or general elections,

or to one spouse or the other. There is certainly no pattern ofsolicitation or

receipt oftrue excessive contributions."

Section 110.1 (1)(5) ofthe Commission's regulations is clear. It states that ifa

political committee does not retain written records concerning redesignations or

reattributions, such redesignations and reattributions shall not be effective and the

original designations and attributions shall control. As a result ofTRl's response no

adjustment to this finding has been made.

On August 2, 1999 TRI filed amended debt schedules for year end 1997 and 1998

which listed the $17,325 ofexcessive contributions as debts owed to the respective

individuals.

B. COMMINGLING OF FUNDS AND UNREPORTED RECEIPTS AND

DISBURSEMENTS

Section 432(b)(3) ofTitle 2 ofthe United States Code states that all funds

of a political committee shall be segregated from, and may not be commingled with, the

personal funds of any individual.

Section 432(h) ofTitle 2 ofthe United States Code states, in relevant part,

that each political committee shall maintain at least one checking account and such other

accounts as the committee determines at a depository designated by such committee. All

receipts received by such committee shall be deposited in such accounts. No

disbursements may be made (other than petty cash disbursements) by such committee

except by check drawn on such accounts in accordance with this section.

Section 103.3(a) ofTitle II ofthe Code of Federal Regulations states, in

part, that all receipts by a political committee shall be deposited into account(s)

established pursuant to 11 CFR 103.2, except that any contribution may be, within 10

days ofthe treasurer's receipt, returned to the contributor without being deposited. All

deposits shall be made within 10 days ofthe treasurer's receipt.

Sections 434(b)(2) and (4) ofTitle 2 ofthe United States Codes state, in

relevant part, that each report shall disclose the total amount of all receipts and the total

amount of all disbursements for the reporting period and the calendar year.

Section 102.7(d) of II CFR states, in relevant part, that any candidate who

receives a contribution, or makes any disbursement in connection with his campaign,

7
shall be considered as having received the contribution or made the disbursement as an

agent ofsuch authorized committee.

The review ofTRI bank reconciliations indicated that not all contributions

were deposited directly into a TRI account. The Treasurer's workpapers identified

$1,350 in contributions and a $300 vendor refund which the Candidate deposited first

into his business account. The Candidate acknowledged that he did not transfer these

funds to TRl but kept this deposit to offset campaign expenses which had been paid out

ofthe same account2

• At an interim conference the Candidate identified two other

deposits totaling $13,950 which he deposited first into his business account. The

Candidate explained that he copied the checks and deposited them into his business

account and promptly transferred the funds and the copies to TRI. The Candidate also

made advances to vendors, in kind contributions, a direct contribution ($7,350), and a

loan ($15,000) to TRI.

The Candidate explained that he deposited the funds into his business

account solely for expediency. He stated that when the contributions were received, he

was a distance from campaign headquarters and returned directly to his office due to the

press of business. That office is an hours drive from the campaign office so he found it

more expedient to deposit the checks into his business account, and mail one check and

copies ofthe contributor checks to the campaign office. He also asserted that he did not

gain financially from the campaign. To support this contention the Candidate provided

bank statements, copies of checks and some invoices from his business account, and

credit card statements. He identified expenditures totaling $64,421 ($37,550 in 1997 and

$29,834 in 1998) which were incurred on behalfofthe campaign. The staffreviewed the

available documentation and determined that the Candidate incurred expenses in excess

ofreimbursements of $37,841. Ofthe expenditures, 46 disbursements totaling $15,271

made from his business account in 1997 were not reported and 10 disbursements totaling

$2,907 made from the same account in 1998 were not reported, resulting in an

understatement ofreceipt and disbursement activity for both calendar years of $18,178.

A schedule of disbursements not reported was provided to TRI subsequent

to the Exit Conference.

The interim audit report recommended that TRI file amended schedules

for 1997 and 1998 disclosing as in kind contributions and expenditures the campaign

related disbursements made from the business account; file amended summary and

detailed summary pages for 1997 and 1998 disclosing the corrected receipts and

disbursements; and explain why the deposit ofthe contributions noted above should not

be considered a violation ofTitle 2 §432(b)(3).

The Candidate may be referring to a $1,650.32 tax liability paid from the business account on

March 18, 1998. This payment was not reimbursed to the Candidate but was reported as an

apparent in kind contribution and expenditure.

8
In response to the interim audit report, the Candidate states:

"I deposited contribution checks into my business account on only

three occasions. Two ofthese occasions followed lengthy campaign trips during

which I was personally given checks by contributors. I returned from these trips

directly to my dental office (some sixty miles from the campaign office) and felt it

more expedient and safer to deposit the contributor checks into my business

account and then forward one check with complete documentation [copies of

contributor checks] to the campaign office.

"On the third occasion that I deposited contributor checks into my

business account, I did so in order to reimburse my business account for a

campaign payroll check written just prior to the receipt ofthese contributions.

The transaction in this instance totaled $1,650."

With regard to the disbursements made from the candidates personal funds, TRI

identified three disbursements totaling $1,070 which were unrelated to the campaign.

Consequently the amount ofthe disbursements requiring disclosure has been reduced to

53 items totaling $17, I08.

No other modification has been made to this finding based on TRI's response.

On August 2, 1999 TRI filed amended schedules for both 1997 and 1998

disclosing the disbursements from the business account as in kind receipts and

expenditures, and filed amended summary and detailed summary pages materially

disclosing the additional activity.

c. ITEMIZATION OF RECEIPTS FROM JOINT FUNDRAISING PROCEEDS

Section 434(b)(3)(B) ofTitle 2 ofthe United States Code states, in

relevant part, 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 a political organization, the full name and address

ofsuch organization.

If contributions from political organizations are received through ajoint

fundraising representative, Section 102.17(c)(8) ofTitle 11 ofthe Code of Federal

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

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.

9
TRI was a participant in the New Conservative Leadership Fund (NCLF),

and received two transfers totaling $10,000. TRI failed to itemize as memo entries on

Schedule A, 29 contributions from political committees totaling $7,675 as gross proceeds

from joint fundraising associated with a $6,000 transfer of net proceeds from the joint

fundraising representative.

Subsequent to the Exit Conference the Audit staffprovided TRI a list of

the contributions requiring itemization.

The interim audit report recommended that TRI file an amended memo Schedule

A disclosing the contributions requiring itemization from political committees.

On August 2, 1999 TRI filed an amended schedule disclosing the contributions

from political committees.

10
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

August, 27,1999

Freddy Moore, Treasurer

Texans for Rudy Izzard

Annstrong, Backus & Co.

P.O Box 71

San Angelo, Texas 76902-0071

Dear Mr. Moore:

Attached please find the Report ofthe Audit Division on Texans for Rudy Izzard.

The Commission approved the report on August 26, 1999.

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

on September 3, 1999. Should you have any questions regarding the public release ofthe

report, please contact the Commission's Press Office at (202) 694-1220. Any questions

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

Cornelia Riley or Russ Bruner ofthe Audit Division at (202) 694-1200 or toll free at (800)

424-9530.

Sincerely,

~~~ Robert J. Costa

Assistant StaffDirector

Audit Division

Attachment as stated

11
CHRONOLOGY

TEXANS FOR RUDY IZZARD

•

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

12

April 26 - May 7 1999

June 23, 1999

August 2, 1999

August 26, 1999