"

)

FEDERAL ELECTION COMMISSION

Washington, DC 20463

October IS, 1999

MEMORANDUM

TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFFD~~ AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

THE COMMITTEE TO ELE€TMlKE BURKHOLD TO CONGRESS

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

Committee to Elect Mike Burkhold to Congress which was approved by the Commission

on October 7, 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 of General Counsel

Office ofPublic Disclosure

Reports Analysis Division

FECLibrary
)

TABLE OF CONTENTS

THE COMMITTEE TO ELECT MIKE BURKHOLD TO CONGRESS

~i" Page ""~,~q,

i' ti

(\I'ft Executive Summary \ 1 •

iJ1 Final Audit Report 3 iJ

=

bJ

:r: Background 3

~";,

0 Findings 5

•

fti Transmittal to Committee 12 rJ

Chronology 13
)

FEDERAL ELECTION COMMISSION

Washington, DC 20463

REPORT OF THE AUDIT DIVISION

ON

THE COMMITTEE TO ELECT MIKE BURKBOLD TO CONGRESS

EXECUTIVE SUMMARY

The Committee to Elect Mike Burkhold to Congress (CEMB) registered with the

Federal Election Commission on July, 7,1997, as the principal campaign committee for

Michael B. Burkhold, Jr., Republican candidate for the U.S. House ofRepresentatives

from the state ofSouth Carolina for the Fifth District.

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 the CEMB at an exit conference held

at the completion offieldwork on May 20, 1999 and later, in an interim audit report. The

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

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

Apparent Excessive Contributions - 2 U.S.C. Section 441a(a)(1)(A) and (2)(A);

11 CFR Sections: 1l0.I(b)(1), (3) and (5), 110.1(k), and 110.9(a). The CEMB received

contributions which exceeded the individual donor's limitations by $18,025 and $2,375

for political committees. The CEMB complied with an interim audit report

recommendation by refunding $12,700 in individual excessive contributions and $1,000

in excessive contributions to political committees. The remaining excessive amounts

were reported as debts.

Misstatement ofFinancial Activity - 2 U.S.C. Section 433(b)(I), (2) and (4).

The CEMB understated receipts and disbursements by ,$15,825 and $15,120, respectively

for calendar year 1998, which result in an understatement of ending cash on hand by

$1,555. In response to the interim audit report the CEMB filed a comprehensive

amendment for calendar year 1998, correcting the misstatement offinancial activity.

Disclosure ofContributions from Political Organizations - 2 U.S.c. Sections:

434(b)(3)(B); and 431 (13)(B); II CFR Section 104.7(a). The CEMB failed to itemize

1
nine contributions, totaling $11,281. In addition nineteen contributions were not

properly disclosed. Sixteen contributions, totaling $35,265, lacked or contained

erroneous aggregate year to date amounts, addresses, and names. Also, the CEMB failed

to file the memo schedules to accompany two transfers, totaling $10,000, from the New

Conservative Leadership Fund, a joint fundraising committee. One contribution, totaling

$4,500 was reported twice. In response to the interim audit report recommendation, the

CEMB filed amended schedules to correct the errors and omissions.

Debts and Obligations - 2 U.S.C. Section 434(b)(8); llCFR Section 104.11(a)

and (b). The CEMB failed to itemize obligations totaling $30,914. Debts and

obligations with reported ending balances of $2,494 were not itemized adequately. The

CEMB complied with the interim audit report recommendation by filing debt schedules

to correctly disclose outstanding obligations.

2
AR99-11

FEDERAL ELECTION COMMISSION

Washington, DC 20463

Ii

I.

REPORTOF THE AUDITDIVISION

ON

THE COMMITTEE TO ELECTMIKE BURKHOLD TO CONGRESS

BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofThe Committee to Elect Mike Burkhold

to Congress (CEMB), 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 ofany political committee

required to file a report under Section 434 ofthis 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 CEMB reported a beginning cash balance of $0; total receipts for the period

of $496,5751

; total disbursements for the period of $494,047; and an ending cash balance

of$I,678. 2

The figures cited in this report are rounded to the nearest dollar.

2 The totals do not foot due to a reporting discrepancy.
C. CAMPAIGN ORGANIZATION

The CEMB registered with the Commission on July 7, 1997, as the

principal campaign committee for Michael B. Burkhold, Jr., Republican candidate for the

U.S. House ofRepresentatives, Fifth District, from the state of South Carolina. Mr.

Burkhold, Jr., filed a Statement ofCandidacy for the 1998 election on July 7, 1997.

The Treasurer ofthe CEMB for the period July 1, 1997 through May 20,

1998, was Terry G. Livingston. Hulic Ratterree replaced Mr. Livingston on May 22,

1998 as the Treasurer, and is currently serving in that capacity. The CEMB maintains its

headquarters in Rock Hill, South Carolina.

To manage its financial activity, the CEMB maintained two checking

accounts, one money market account, and ofie certificate ofdeposit. From these accounts

the CEMB made approximately 500 disbursements. Into these accounts the CEMB

deposited contributions from individuals of approximately $308,500, contributions from

political party and other committees totaling approximately $88,200, contributions from

ajoint fundraiser of$11,223, loans received from the Candidate of$93,000, and

contributions from the Candidate of $5,328.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following general categories:

1. The receipt of contributions or loans in excess of the 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.C.);

4. proper disclosure ofdisbursements including the itemization of

disbursements when required, as well as, the completeness and

accuracy ofthe information disclosed;

5. proper disclosure of campaign debts and obligations (see Finding

II.D.);

6. the accuracy oftotal reported receipts, disbursements and cash

balances as compared to bank records (see Finding n.B.);

4
7. adequate recordkeeping for campaign 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 any ofthe matters

discussed in this report in an enforcement action.

ll. FINDINGS AND RECOMMENDAnONS

In a written response to the exit conference, the CEMB noted that the

mistakes and omissions determined during the audit were mainly due to paperwork

errors, high staffturnover which resulted in some confusion in paperwork management,

and staff inexperience with federal electionlfinance laws. The CEMB further stated that,

any and all findings noted in the audit were a result ofmistakes made by a novice

campaign.

A. ApPARENT EXCESSIVE CONTRIBUTIONS

Section 44 la(a)(l)(A) of Title 2 ofthe United States Code states, in part,

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)(2)(ii) ofTitle 11 ofthe Code of Federal Regulations

section 110.1 explains with respect to any election means, ifthe 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

(emphasis added). A contribution is considered to be made (subsection (6) of this

section) when the contributor relinquishes control over the contribution by delivering the

contribution to the candidate, the political committee, or an agent ofthe committee. A

mailed contribution is considered made on the date ofthe postmark.

Section I 10. 1(b)(5)(i) and (ii) ofTitle 11 ofthe 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 if:

o

o

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 on contributions set forth in II CFR §11 0.1 (b)(1);

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

contribution was made after that election and the contribution cannot be

5
o

o

accepted under the net debts outstanding provisions of II CFR

§IIO.I(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 §llO.I(b)(I); or

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

and the contribution was received after the date of an election for which

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

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.

Section 1IO.I(k) ofTitle II ofthe Code of Federal Regulations states, in

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. Furthermore, a

contribution made by more than one person that 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, either on its face or when aggregated with

other contributions from the same contributor, exceeds the limitations on contributions

set forth in II CFR §110.1(b) or (d), as appropriate, 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 a joint 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 ofthe 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.

Section 44Ia(a)(2)(A) ofTitle 2 ofthe United States Code states, in part,

that no multicandidate political committee shall make contributions to any candidate and

6
his authorized political committees with respect to any election for Federal office which,

in the aggregate, exceed $5,000.

Section llO.9(a) ofTitle II ofthe Code of Federal Regulations states, in

part, 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 behalfofa candidate, in violation of any limitation imposed

on contributions and expenditures under this part 110.

A review ofthe CEMB's receipts data file, check copies, deposit tickets,

and disclosure reports relating to contributions from individuals, identified contributions

from 22 individuals, which exceeded the contribution limitation by $18,025. Gfthis

amount, $11,750, was excessive for the General Election; the balance, $6,275, was

excessive for the Primary Election.

In addition, four registered political action committees exceeded the

contribution limitations by a total of $2,375. These contributions were excessive for the

General Election.

A schedule ofthe excessive contributions was presented to the Finance

Director at the exit conference. The CEMB did not comment at the exit conference,

however, in a written response to the exit conference, it states that with the exception of

three individuals, the potential excessive contributions noted in the audit were the result

ofmisplaced paperwork. The CEMB defines "misplaced paperwork" as "checks

contributed during the right time during the campaign, but missing a primary/general

election designation" or "donations made by married couples but missing a letter

designating all, or part ofthe contribution to one spouse or the other." The CEMB states

that it has begun fundraising and has refunded as many "potentially excessive"

contributions as possible. To date CEMB states that it has refunded $11,525, in

excessive contributions from individuals and that copies ofthe canceled checks will be

provided as soon as they are received. With regard to the excessive contributions from

political committees, the CEMB noted the mistakes were "a result of a quite confusing

process" involving a joint fundraiser. Each excessive contribution was received through

the joint fundraising committee and not identified by the CEMB.

The interim audit report recommended that the CEMB provide evidence

that the contributions were either not excessive, or were reattributed, redesignated or

refunded in a timely manner. I[funds were not available to make refunds the report

recommended that the CEMB disclose the excessive contributions as refunds owed to the

contributors until such time that funds became available.

In its response to the interim audit report, the CEMB submitted copies of

bank statements along with canceled checks to demonstrate its actions to date. Refunds

7
were made totaling $12,7003 to individuals and $1,000 to political committees. The

CEMB reported the remaining excessive contributions from individuals of $5,325 and

political committees of$I,375, as debts owed to the contributors. Further in a written

response the CEMB noted, an additional excessive contribution was refunded on June 4,

1999, however, that check had not cleared the bank, as of September 20, 1999. The

CEMB states that it is diligently tracking the outcome ofthis disbursement.

B. MISSTATEMENT OF FINANCIAL ACTMTY

Sections 434(b)(l), (2) and (4) ofTitie 2 ofthe United States Code state,

in part, that a political committee shall disclose the amount ofcash on hand at the

beginning ofthe reporting period and the total amount of all receipts and all

disbursements for the reporting period and the calendar year.

\\

The reconciliation ofreported financial activity to bank records for

calendar year 1998 revealed the following misstatements:

L Receipts

The CEMB's reported receipts were understated by $15,825. The

components ofthe misstatement are as follows:

Reported Receipts $474,971

In-Kind Contributions Not Reported $309

Contributions Reported Twice (4,500)

Addition Error on Report (850)

PAC Contributions Not Reported 10,973

Other Contributions Not Reported 11,127

Interest Income Not Reported 748

Refunded Deposits Not Reported 654

NSF Contribution Reported (2;000)

Reconciling Item $(636) 15,825

Correct Reportable Receipts $ 490,795

3 Included in this amount is a $500 refund that the Audit staffwas unable to determine whether it cleared the

bank, due to lack ofdocumentation.

8
'.

2. Disbursements

Reported disbursements were understated by $15,120. The

components ofthe misstatement are as follows:

•

•

Reported Disbursements

In-Kind Contributions Not Reported

Bank Fees and Interest Not Reported

Disbursements Not Reported

Reconciling Amount

Correct Reportable Disbursements

$ 2,037

181

14,582

$(1,679)

$ 480,183

15,120

$ 495302

3. Ending Cash On Hand

The reported ending cash on hand at December 31, 1998

was understated by $1,555, resulting from the misstatements detailed above. The correct

ending cash on hand was $3,233.

At the exit conference, the Audit staff provided the CEMB with schedules

detailing both the bank activity and the noted adjustments. The CEMB declined to

comment on the misstatement finding during the conference.

In the interim audit report, the Audit Staffrecommended the CEMB file a

comprehensive amended report for calendar year 1998 correcting the misstatements

noted above.

The CEMB complied with the Audit recommendation by filing a

comprehensive amended report for calendar year 1998. This report materially corrects

the problems noted above.

C. DISCLOSURE OF CONTRIBUTIONS FROM POLITICAL COMMfITEES

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

a political committee to disclose the identification ofeach political committee which

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

with the date and amount of any such contribution.

9
Section 431(13)(B) ofTitle 2 ofthe United States Code defines the tenn

"identification" to be, in the case of any other person, the full name and address ofsuch

person.

Section 104. 7(a) ofTitle II ofthe Code ofFederal Regulations states, in

part, that when the treasurer of a political committee shows that best efforts have been

used to obtain, maintain and submit the infonnation required by the Act for the political

committee, any report ofsuch committee shall be considered in compliance with the Act.

The Audit staffreviewed 60 contributions from political committees and

other committees, totaling $100,144. Reports filed with the Commission by other

political committees, contributor check copies, and other correspondence were compared

to reports filed by the CEMB. Nine contributions, totaling $11,281, were not itemized on

Schedules A. \\

The review also identified 19 disclosure errors. Sixteen contributions,

totaling $35,265, lacked or contained erroneous aggregate year to date amounts,

addresses, and names. Also, the CEMB failed to fIle the memo schedules A to

accompany two transfers, totaling $10,000, from The New Conservative Leadership

Fund, ajoint fundraising committee. Finally, one contribution in the amount 0[$4,500

was reported twice.

The CEMB was provided schedules detailing the reporting errors and

omissions at the exit conference, but offered no comment at that time.

In the interim audit report, the CEMB was requested to file, as part of a

comprehensive amended report, Schedules A to correct the itemization and disclosure

problems noted above.

In response to the recommendation, the CEMB filed the required

schedules. These amended schedules materially corrected the itemization and disclosure

problems noted above.

D. DEBTS AND OBLIGATIONS

Section 434(b)(8) ofTitle 2 ofthe United States Code states, in part, that

each report filed under this section shall disclose the amount and nature of outstanding

debts and obligations owed by a political committee.

Sections 104.II(a) and (b) ofTitle II of the Code ofFederal Regulations

state, in part, that debts and obligations owed by or to a political committee which

remain outstanding shall be continuously reported until extinguished. These debts and

obligations shall be reported on separate schedules together with a statement explaining

the circumstances and conditions under which each debt and obligation was incurred or

extinguished. A debt or obligation, the amount of which is $500 or less, shall be reported

10
as ofthe time payment is made or not later than 60 days after such obligation is incurred,

whichever comes first. A debt or obligation which is over $500 shall be reported as of

the date on which the debt or obligation is incurred, except that any obligation incurred

for rent, salary or other regularly reoccurring administrative expense shall not be reported

as a debt before the payment due date.

The CEMB's disbursements were reviewed to determine ifit had correctly

reported debts and obligations owed to vendors. In order to derive the total obligations,

each outstanding obligation was counted only once, even ifit was outstanding for several

periods. The review identified obligations totaling $30,914.

The CEMB also reported incorrect beginning balances, amounts incurred,

payments made, and ending balances for a number of obligations beginning with the

Year End 1997 Report through the October\15, 1998 Quarterly Report. Debts and

obligations with reported ending balances of$2,494 were not itemized adequately.

At the exit conference, the Audit staff provided the CEMB with schedules

detailing the issues discussed above. The CEMB did not comment during the

conference.

In the interim audit report, the staff recommended that the CEMB file

amended Schedules D for the Year End 1997 Report through the Year End 1998 Report

to correctly disclose outstanding obligations.

In response to this recommendation the CEMB demonstrated that one of

the transactions noted for one ofthe vendors was not an outstanding obligation. For the

remaining items amended Schedules D were filed.

II
FEDERAL ELECTION COMMISSION

Washington, DC 20463

II

I

October 8,1999

Hulic Ratterree, Treasurer

The Committee to Elect Mike Burkhold to Congress

P.O. Box 10488

Rock Hill, South Carolina 29731

Dear Mr. Ratterree:

Attached please find the Report ofthe Audit Division on The Committee to Elect

Mike Burkhold to Congress. The Commission approved the report on October 7,1999.

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

on October 15, 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

Nicole Clay 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

12
CHRONOLOGY

THE COMMITTEE TO ELECT MIKE BURKHOLD TO CONGRESS

•

•

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

13

May 3 - May 21, 1999

July 21, 1999

September 8, 1999

October 7, 1999
I t~

I Fo,=

iii

r;1

I fu

i :