" ".

APl:003843

June 16, 1993

~EMORANDUM

TO:

FROM:

FRED EILAND

CHIEF, PRESS OFFICE

ASSISTANT

ROBERT J. COSTA

STAFF DIRECTOR-~I

AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

THE GEORGIA REPUBLICAN PARTY

At-tached please find a copy of the final audit report on

Georgia Republican Party which was approved by the Commission

on June 10, 1993.

Informational copies of the report have been received by

all parties involved and the report may be released to the

public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
.\ \ "'_..... . "-' .; ...

MW004596

A69-36

REPORT OF THE AUDIT DIVISION

ON THE

GEORGIA REPUBLICAN PARTY

I. Background

A. Overview

This report is based on an audit of the Georgia

Republican Party ("the Committee W ), undertaxen by the Audit

-Oi-v-i-sion of-the Feder_al e:lection Co_ission in accordance 'lith the

provisions of the Federal ElectionCaapaigrl )\<:\:--0£ -1971, as

amended ("the Act"). The audit was conducted pursuant to section

438(b) of Title 2 of the United States Code, vhich states, in

part, that the Coaaission may conduct audits and field

investigations of any political coaaittee required to file a

report under section 434 of this title. Prior to conducting any

audit under this section, the Commission shall perfora an internal

reviev of reports filed by selected co..ittees to determine

whether the reports filed by a particular committee meet the

threshold requirements for substantial compliance with the Act.

The Committee registered with the Federal Election

Commission on February 23, 1982. The Committee maintains its

headquarters in Atlanta, Georgia. The audit covered the period

January 1, 1987 through December 31, 1988. The Committee reported

a cash balance on January 1, 1987 of $131,223.79; total receipts

of $1,497,571.88; total disbursements of $1,496,022.56; and a cash

balance on December 31, 1988 of $132,773.11.

This audit :eport lS based cn documents and workpapers

which support each of its fac:~al statements. !hey form part ~f

the record upon which the Co~~:ssic~ based its decisions on t~e

matters l~ the report and were avai:able to the Commissioners ar.~

approprlate staff for review.

B. Key Personnel

The Treasurer of t~e :ommlttee during the period covered

by the audlt was MarVln H. S~l~~, who continues to serve as t~e

current Treasurer.
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c. Scope

The audit included such tests as ~erificati=n of total

receipts and dlsbursements and individual transactions; review of

required supporting documentation; analysis of Committee debts and

obligations; and such other audlt procedures as deemed necessary ~nder the circumstances; ~lth the exception that although the ~ommittee's recordkeeping with respect to receipt records (for the

period January 1, 1987 through June 30, 1988) and disbursement

records (for the period January 1, 1987 through Dec.aber 31,19B7}

appeared to be in compliance with the requirements of 2 u.s.c.

S432(c), bank accounts and supporting documentation were not

maintained in a manner that allowed for the separation of federal

and non-federal financial activity in accordance with the

requirements of 11 c.r.R. Sl02.5, thereby limiting substantive

testing of: total reported receipts and expenditures; proper

disclosure of receipts/disbursements; and limitations/prohibitions

on contributions. Further, the Committee did not appear to be in

compliance with the provisions of 11 C.F.R SSl02.9(a) and (b)

which require, in part, that the treasurer keep an account of

"Committee receipts and disbursements by any reasonable accountlng

procedure.

II. Audit Findings and Recommendations

A. Separation of FederaljNon-Federal Activity and

Misstateaent of Financial Activity

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

States Code require that each report disclose, for the reporting

period and calendar year, the total amount of all receipts and the

total amount of all disbursements.

Sections l02.5(a}(1)(i) and (ii) of Title 11 of the Code

of Federal Regulations state, in part, that a political committee

shall establish a separate federal account in a depository and

that such account shall be treated as a separate federal political

committee which shall comply with the requirements of the Act: or

establish a political committee which shall receive contributions

subject to the prohibitions and limitations of the Act, regardless

of whether such contributions are for use in connection with

federal or non-federal e~ect:ons.

In addition, Se:t:cr:s :':2.9ia\ a:"'.d It c: Title 11 cf

~he Code of Federal Regu:at:ons pr=~lde, In re:evant parts, that

the treasurer of a political commlt~ee shall keep an account by

any reasonable accounting procedure af all contrlbutions recelved

by or on behalf of the politlcal committee, and of all

disbursements made by or cn behalf cf the poli~ical commi~~ee.

Durlng fie:dwcrk, ':he Aud:..: staff determlned that, f'Jr

198~, the Committee malntalned fc~r accounts wlth respect to

federal activity. Two accounts appeared to contain solely federal
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a=tivity. The two remainlng accoun~s were shared accounts with the

ncn- fede ra 1 ccmmi t tee', one used fc:: t'aymer;. t 0 f payroll and the

ether used for payment of operating and ether expenditures. Since

the shared payroll account was use= solely for this purpose, the

Audit staff is of the cpinion that the Committee wou:d be required

to report each transfer from its federal account which reimburses

this non-federal account. Therefore, the shared payroll account

actlvity was not considered in the Audit staff's bank

reconciliation to determine correct reportable activity for 198~.

With respect to the shared operating account, from which

disbursements appear to have been aade for other than allocable

COlts, the Audit staff is of the cplnion that this is a separate

federal account as described at 11 C.F.R. Sl02.S(a)(1){i), which

shall comply with the reporting :eq~lrements of 11 eFR part 104.

Additionally, only funds subject to the prohibitions and

limitations of the Act shall be deposited to such account.ll The

Audit staff has included this account as part of the 1987 bank

reconciliation to determine correct reportable activity.

In addition, Committee records with respect to

contributions from individuals and disburseaents were maintained

in such a manner as to preclude the Audit staff from

diStinqu-ishinqwhich transactions were associated with the federal

co..ittee as opposed to those associated with the- n-on-federal

committee.

The Committee did not provide all 1987 bank statements

until after the exit conference. The Audit staff performed a

limited reconciliation of Committee bank accounts to its

disclosure reports filed for 1987. Based upon the adjusted bank

activity for all four accounts, the Coamittee's beginning cash was

overstated by $367.23, receipts we~e understated by $184,355.43,

disbursements were understated by S175,913.08, and the cash

balance at December 31, 1987 was understated by $8,015.12. The

Audit staff could not perform an in-depth analysis of the

differences; it is our opinion that these diff@rences reflect the

non-federal activity within the shared accounts.

The Audit staff performe= a reconciliation of the

Committee'S bank activity to reported financial activity for 1988

based upon the most recent reports filed by the Committee prior t:

notlfication of the lmpending audl:. The reconciliation revealed a

592,172.35 overstatement cf recel~:s, a S33,605.20 understateme~:

of disbursements, and the cash ba:a~ce at December 3:, 1988 was

overstated by 5125,378.82. The A~~:: s:a!! did not perform an

in-depth analysis re:a~lve to the abcve jifference since the

Committee had filed an amended re~~r: on :anuary 9, 1990 which

corrected in all material aspects, t~e m:sstatements of financla:

activity for 1988 as detailed above.

!I Under the Campaign Flnance La. 2f Georgia, corporate

contributions are permltted.
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Additionally, ~~e A~dit staff was unable to ~erfc~m a~y

s~bstantive tests with respect to the Committee's receipts fer :~e period 1-1-87 to 6-30-88 and disbursements (for the period

:-1-87 t~ :2-3~-87) as a result of ~he difficulties noted above ~lth respect to the bank reconciliations, as well as the inablli~y

~~ dist:~g~lSh fed@ral from non-federal activity. Tr.e Committee's

receipt d~cumentatlon, for the above noted period, consisted ~f

photocoples of contributor checks maintained separately from

deposit slips. The deposit slips only noted total dollars by

fundraising code. Further, there was no indication on the copy 0:

the check as to whether it was deposited to a federal or a

non-federal account; nor does it appear that the check copies ~~re

annotated with a fundraising code. For disbursements made durlng

:987 from the shared payroll account described above,

documentation or worksheets, from which the Audit staff cou:d

identify the federal from the non-federal payroll, were not

available to the Audit staff. Also, documentation for the shared

operating account, for 1987, was maintained by vendoe and the

~. attached invoices contained no notations as to whether the

disburseaent was federal or non-federal in nature.

At the exit conference, Committee representatives were

advised of the above matters.

In the interia audit report, the Audit staff reco..ended~

~, that within 30 calendar days of service of that report the

Committee organize its financial records for 1987 and its receipt

records through 6-30-88, so federal and non-federal activity could

be separated. Alternatively, the Committee could amend their

disclosure reports for 1987, adjusting for the misstatements

mentioned above, and filing amended Schedules A and B for 1987,

correctly iteaizing receipt and disburseaent activity. In

addition, based upon the corrective action taken by the Committee

with respect to this matter, the Audit staff recommended that the

Committee make available for the Audit staff's review appropriate

receipt docuaentation for the period 1-1-87 through 6-30-88 as

well as disbursement documentation for 1987. For 1988, except as

noted above, the Audit staff recommended no further action at that

time. The Audit staff also noted that further recommendations may

be forthcoming.

The Committee's response included rece:pt documentat:cn

and a~ended disclosure reports. Wlthln the narrative portlcn s~

its response, the Committee states that all transfers from ~ts

federal accounts to its ncn-federa: operating a:count have 3:S~

been :~cluded on the amended repo~ts and tfs:renuously qbJects t~

the classification by the Audlt Report of the c~eratlng ac~~u~: as

a federal account." The Committee notes that tfthe function and

operaticn of this account was to se~ve as the account out of WhlCh

allocable expenditures were made, f~:lowlng receipt of transfe~s

from the federal account, uSlng both fede~al and ncn-federa: f~nds

in prop~rtion under the ballet composition method. The accc~nt 4as

not used to pay non-allocable federa: expenditu~es, and the
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activity from this account was not repcr~able under FEC

regulations then in place."

The Audit staff notes that the fieldwork review of

available disbursement documentation shoved no federal actiVity

with respect to the operatlnq account c~her than the three

payments described in Finding II.C.. In addition, there were no

federal or state-level elections held in Georgia during 1987.

Finally, for 1988, the Committee discon~inued its practice of

using a joint operating account, confor.~n9 to the regulations

then in effect. The Audit staff is of the opinion the Committee

has substantively complied with the recommendation with respect to

this matter.

Recommendation 11

The Audit staff recommends no further action with respect to

~~ this matter.

B. Disclosure of Disbursements

Section 434(b)(S)(A) of Title 2 of the United States

Code requires that each report under this section disclose the

naae and address of eacb person to whoa an expenditure in an

aqqregate amount or value in excess of $200 within the calendar

year is made to meet a candidate or coaaittee operating expense,

together with the date, amount and purpose of such operating

expenditure.

As discussed in Finding II.A. above, Committee

disbursement records for 1987 were such that federal activity

could not be distinguished from non-federal activity. The Audit

staff was able to perfora a liaited review of expenses lncurred

during 1987 utilizing a partial check register and bank statements

for accounts containing federal activity provided after the close

of fieldwork. By co.paring the check reqister entries to bank

statements for the joint operating account, and disbursements

disclosed on Schedule B of reports filed by the Committee, the

Audit staff determined there were 46 disbursements totalino

S44,628.97 that were not itemized on the Committee's discl;sure

reports, for which the payee could also ~e determined. The Audl~

staff then accounted for the remaining dlsbursements in excess 2:

$200 on the bank statements a~d ident~!led an addit:ona: 148

disbursements totaling $160,54;.19 WhlCh were not itemlzed c;.

Committee reports. Since these 148 dlsbursements were identifle=

using only bank statements provided subsequent to the close of

fieldwork, only check number and amou~~ are available for these

disbursements. Altogether, the Audit staff noted 194

dlsbursements, totaling $205,176.16, made during 1987, fer which

records maintained by the Committee d:d not allow for a

determination of the federal or non-federal nature of these
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disbursements; and for which there were not itemized entries on

Schedule B of the Commi~teets disclosure reports.

In addition, the Audit staff notes that transfers from

the Committee's federal accou~~ to the shared payroll account, ~ota:lng $105,400.00, representing the federal portion of

allocable payroll costs, appear not to have been reported on

Committee disclosure reports for 1987. It should be noted that

the Committee reported S117,585.32 in Other Disbursements on its

1987 Year-End report; however, this amount was not supported by

itemized entries on Schedules B. Further, absent Committee ~orkpapers detailing the source of its reported figures, the Audl~

staff was unable to determine which disbursements were included as

Other Disbursements.

For 1988, the Audit staff performed a sample review of

Committee disbursements. The results indicated that a material

number of disbursements were not itemized as required on the most

recent reports filed prior to notification of the impending audlt.

On Ja~uary 9, 1990, as part of a comprehensive amendment filed by

the Coaaittee, Schedules B were submitted which aaterially

corrected the itemization proble. identified for 1988.

-At the exit conference, Comaitt.e representatives_we__~e

made aware of the problems associated with the 1988 disbursements.

In the interia audit report, the Audit staff recommended

that within 30 calendar days of service of that report, contingent

upon the corrective action taken with respect to FindiDg

II.A.(Separation of 'ederal/Non-Federal Activity and Misstatement

of Financial Activity) for 1987, the Committee file appropriate

Schedules B disclosing disbursements not itemized as noted above.

For 1988, the Audit staff recommended no further action.

As part of the Committee's response received Kay 4,

1992, amendments were filed to correct the reporting of federal

activity for 1987 which included Schedules B disclosing

disbursements requiring itemization.

The Audit staff's review of these amendments indicated

the Committee has materially corrected the disclosure of

disbursements.

Recommendation .:

The Audlt staff recc~~ends no f~rther actlon with

respect to this matter.
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c. Contributions to Federal Candidates from the

Non-Federal Account

S@ction l02.S(a\: i - '_1 \ of Title 1: cf the Code of Fede~a: Reg~lations states, in part, that al: dlsbursements,

contributions, expenditures and transfers by a committee in

connection with any federal electlon shall be made from its

federal account.

The Audit staff's limited review of disbursements noted

that the Coamittee made three contributions totalling 52,300 to

federal candidates from its State Operating account.

At the Exit Conference, a Committee representative was

provided with copies of the checks in question. In its 1990 April

Quarterly Report, filed with the Commission on April 17, 1990, the

Committee reported the transfer of $2,3002/, the amount of the

aforementioned contributions, to its State Account, and provided

copies of the bank memoranda.

_RecODlmepdation 13

The Audit staff recommends no further action with respect to

:~ this matter.

o. Reporting of Interest Income Received

Sections 434(b)(2){J) and (3){G) of Title 2 of the

United States Code provide, in relevant parts, that each report

under this section shall disclose for the reporting period and

calendar year the total amount of all dividends, interest and

other foras of receipts, as ~ell as the identification of each

person who provides any dividend, interest or other receipt to the

reporting committee in an aggregate value or amount in excess of

$200 within the calendar year, together with the date and amount

of any such receipt.

Section 431(13)(B} of Title 2 of the United States Code

defines the term Widentification" to be, in the case of any

person, to be the full name and address of such person.

Section 431(11\ of ~i~:e 2 of the United States Code

defines the term "person" t~ :~c:ude an indiv:dual, pa=~~ersh:p,

C 0 mm itt. e e, ass 0 cia t ion, cor po rat. :. () ~, : abc r :;:: gan 1 Z a t 0 ~, :; = a:-'. 'yO

other organlzation or group cf persons.

2/ In the Audit staff's O~:~:8~, ~h:s action obviates the need

for the non-federal acccur.: tJ reg:ster as a polltlcal

committee.
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The Audit staff's review of available bank statements

!~r the Committee's ~ederal money market and Victory 'S8 accounts,

determined that all 28 transac~:~~s :~volving receipt of interest

income, totaling 513,230.79, ~ere nc~ :temized as required.

:~ addition, the Detailed S~mmary Pages flled as part of

the Commlttee's 198? a~d 1988 Year-E~d disclosure reports disclose

a total of only S10,209.35 in Other Receipts. The Audit staff ~cted that the Commit~ee appears to have understated other

receipts by $2,775.78 for 198~; and, understated other receipts by

$245.66 for 1988.

In the interim audit repor~, the Audit staff recommended

that within 30 calendar days of service of that report the

Committee file appropriate Schedules A disclosing interest income

not itemized as noted above.

On May 4, 1992, as part of :ts response to the interim

audit report, the Committee submitted amended reports that

included Schedules A which materially disclosed interest income

received.

Recommendation .4

The Audit staff recommends no further action with respect to ~, this matter.

E. Disclosure of Contributions from Individuals

Section 434(b}{3)(A) of Title 2 of the United States

Code requires that each report disclose the identification of each

person who makes a contribution to the reporting coaaittee during

the reporting period, whose contribution or contributions have an

aggregate amount or value in excess of 5200 within the calendar

year, together with the date and amount of any such contribution.

Section 431(13) of Title 2 of the United States Code

defines the term "identification" to be, 1n the case of any

individual, the naae, sailing address, and the occupation of such

individual, as well as the name of his or her employer.

The Audit staff was unable to perform any substantive

testing for the period fro~ January:, 198: to J~ne 30, 1988 s:nce

federal and non-federal contrlbutcr :ecords cou:d not be

separated, as detailed at Finding ::.A .. 7he Audlt staff ~as a=:e

to perform a limited revie~ of cont=~butions re:e:ved from

lndivlduals during the period July:, 1988 through December 3:.

1988. This review, performed cn a sample basis, identlf1ed a

material number of itemizat10n and dlsclosure errors. The

disclosure errors appear to be at~:ibutable to data input err~rs.

Specifically, dollar amounts had ~ee~ entered lncorrectly or, :~r

contributions made from joint acccun~Sf the contribution had been

attr1buted to the husband when the -:fe signed the check. The

disclosure errors ~ere conflned t~ :~e 1988 October Quarter:y
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reporting period. This is ~~e f::s~ reporting period in which the

Committee utilized co~pute(-generated Schedules A.

At the exit conference, a Ccmmlttee spokesperson stated

that the itemization problem may ~ave been due to a

computer-programming error. The C:mmittee spokesperson also was

a~are of the data entry prcclem c: attributing checks signed by

the wife to the husband.

In the interim audit report, ~he Audit staff recommended that

within 30 calendar days of service of that report the Committee

file amended Schedules A to correct the problems noted above.

Based upon the review of documentation submitted by the Committee

in response to Finding II.A., the Audit staff also noted that

further recommendations may be f=rthcoming~

In its response to the interim audit report, the Committee

notes that it "has compared its :~mputer records with the depos:t

records and amended its October :988 quarterly report as

necessary."

The Audit staff's reVlew cf the amended report indicated that

the Committee had materially corrected the problems noted above.

Recommendation IS

The Audit staff recommends no further action with respect to

this matter.

F. Matters Referred to the Office of General Counsel

Certain matters noted during the audit have been

referred to the Commission's Office of General Counsel.