Part II
Overview of Committee

Committee Organization

Important Dates DNCC

e Date of Registration August 16, 2002

e Audit Coverage September 30, 2002 — December 31, 2004
Headquarters Washington, DC

Bank Information

¢ Bank Depositories Five

e Bank Accounts Seven Checking Accounts

Treasurer

e Treasurer When Audit Was Conducted Andrew Tobias

¢ Treasurer During Period Covered by Audit _| Andrew Tobias

Management Information

e Attended FEC Campaign Finance Seminar _| No

e Used Commonly Available Campaign Yes
Management Software Package

e Who Handled Accounting and Paid Staff
Recordkeeping Tasks

Overview of Financial Activity

(Audited Amounts)

Cash on hand @ September 30, 2002 $0
Receipts

o Federal Funds $ 14,924,000
o Loans Received 753,214
o Offsets to Convention Expenditures 197,721
Total Receipts $ 15,874,935
Disbursements

o__Convention Expenditures $ 15,097,469
o Loan Repayments 753,214
Total Disbursements $ 15,850,683
Cash on hand @ December 31, 2004 $ 24,252



Finding 3. Inadequate Disclosure - Statement of
Organization

Summary

The DNCC failed to adequately disclose certain depositories on its original Statement of
Organization. During the audit, it filed an amended Statement of Organization that
disclosed all the depositories. The Audit staff recommended the DNCC provide any
comments it may yet have relative to this matter. In response to the preliminary audit
teport recommendation, the DNCC acknowledged it did not timely disclose bank
depository information and indicated it had taken steps to ensure that such disclosures are
made timely.

Legal Standard

Registration. Each convention committee established by a national committee shall
register with the Commission on FEC Form 1 as a political committee. FEC Form 1 is
the Statement of Organization. 11 CFR §§102.2(a) and 9008.3(b).

Contents. The Statement of Organization shall be signed by the treasurer and include a
listing of all banks, safe deposit boxes, or other depositories used by the committee.
11 CFR §102.2(a)

Facts and Analysis

On August 12, 2002, the DNCC filed a Statement of Organization (the Statement) with
the Commission. In the Statement, the DNCC listed one depository (NationsBank),
which was the operating account. In 1998, NationsBank merged with Bank of America
and assumed its name. The Statement did not reflect this name change, nor was an
amendment filed to correct this matter. In addition, the Audit staff identified five
additional depositories utilized by the DNCC for convention purposes that had not been
disclosed on the Statement; one of which (Fleet Bank) also merged with Bank of America
during the audit period.

At the Entrance Conference, the Audit staff discussed this matter with DNCC
representatives. Shortly thereafter, the DNCC amended its Statement of Organization to
disclose all the depositories; however, the name change had not been properly addressed.

Preliminary Audit Report Recommendation and Committee Response
The Audit staff recommended the DNCC provide any comments it may yet have relative
to this matter. In its response to the preliminary audit report, the DNCC acknowledged it
did not timely file an amended statement of organization to disclose the additional
depositories. The DNCC states that although such an amendment had been prepared on
its electronic filing software, for reasons unknown, this information was inadvertently not
“uploaded” to the Commission. The response further notes that the DNCC has filed a
miscellaneous report with the Commission to clarify the name changes with respect to
Fleet Bank and Bank of America.


Part IV
Findings and Recommendations

| Finding 1. Net Outstanding Convention Expenses - Surplus |

Summary

The DNCC received $14,924,000 to finance the Democratic National Convention. The
preliminary audit report presented a Statement of Net Outstanding Convention Expenses
(NOCE), as calculated by the Audit staff, which showed a surplus or unspent funds of
$8,621. In response to the preliminary audit report, the DNCC has submitted two NOCE
statements. The latter NOCE reflected unspent funds of $14,002 and included $14,000 in
estimated wind down expenses for legal fees. Since all legal matters have been resolved,
the Commission determined that $28,002 is repayable to the United States Treasury.

Legal Standard

Entitlement to Payments From the Fund. The national committee of a major party
shall be entitled to payments with respect to any presidential nominating convention, in
amounts that, in the aggregate shall not exceed $4,000,000, as adjusted by the Consumer
Price Index. The major party entitlement for the 2004 nominating convention was
$14,924,000. 26 U.S.C §9008(b)(1).

Unspent Funds - Any portion of the entitlement that remains unspent after all
convention expenses have been paid shall be returned to the Secretary of the Treasury.
The national committee or convention committee shall make an interim repayment of
unspent funds based on the financial position of the committee as of the end of the ninth
month following the last day of the convention, allowing for a reasonable amount as
determined by the Commission to be withheld for unanticipated contingencies. The
interim repayment shall be made no later than 30 calendar days after the end of the ninth
month following the last day of the convention. 11 CFR §9008.12(b)(5).

Repayment Determination Procedures. The Commission will follow the same
tepayment determination procedures, and the committee has the same rights and
obligations as are provided for repayment determinations involving publicly funded
candidates under 11 CFR 9007.2(c) through (h). 11 CFR §9008.12(c).

Net Outstanding Convention Expenses (NOCE). A convention committee shall file,
no later than sixty days after the last day of the convention, a statement of that
committee’s “net outstanding convention expenses”. This statement must contain, among
other things:

¢ The total of all committee assets, including cash on hand, amounts owed to the

committee and capital assets listed at their fair market value;
¢ The total of all outstanding obligations for qualified convention expenses; and
¢ Anestimate of necessary winding-down costs. 11 CFR §9008.10.


Part III
Summaries

Findings and Recommendations

Finding 1. Net Outstanding Convention Expenses - Surplus
The DNCC received $14,924,000 to finance the Democratic National Convention. The
preliminary audit report presented a Statement of Net Outstanding Convention Expenses
(NOCE), as calculated by the Audit staff, which showed a surplus or unspent funds of
$8,621. In response to the preliminary audit report, the DNCC has submitted two NOCE
statements. The latter NOCE reflected unspent funds of $14,002 and included $14,000 in
estimated wind down expenses for legal fees. Since all legal matters have been resolved,
the Commission determined that $28,002 is repayable to the United States Treasury. (For
more detail, see p. 4)

Finding 2. Receipt of an Impermissible Contribution

The cost of a biographical film ($207,000), produced for use at the Democratic National
Convention, was split between the DNCC, the Democratic National Committee (DNC)
and Kerry-Edwards 2004, Inc. (KE04). The Commission considered whether the
allocation percentages used by the three committees were reasonable. After considering
the available information the Commission concluded that the cost of the film had been
reasonably allocated. (For more details, see p. 6)

Finding 3. Inadequate Disclosure - Statement of Organization
The DNCC failed to adequately disclose certain depositories on its original Statement of
Organization. During the audit, it filed an amended Statement of Organization that
disclosed all the depositories. The Audit staff recommended the DNCC provide any
comments it may yet have relative to this matter. In response to the preliminary audit
report recommendation, the DNCC acknowledged it did not timely disclose bank
depository information and indicated it had taken steps to ensure that such disclosures are
made timely. (For more detail, see p. 9)

Amount Owed to the U.S. Treasury

e Finding 1 | Net Outstanding Convention Expenses - Surplus $ 28,002
Less Payment Received 1/19/06 13,453
Net Amount Owed to the U.S. Treasury $ 14,549



indicates that they were properly voided. In addition, an unanticipated vendor refund of
$549 was received. The remaining difference of $819 is not explained, but not material.

Recommendation

The Commission made a determination that unspent funds of $28,002 are repayable to
the U.S. Treasury.

| Finding 2. Receipt of an Impermissible Contribution

Summary

The cost of a biographical film ($207,000), produced for use at the Democratic National
Convention, was split between the DNCC, the Democratic National Committee (DNC)
and Kerry-Edwards 2004, Inc. (KE04). The Commission considered whether the
allocation percentages used by the three committees were reasonable. After considering
the available information the Commission concluded that the cost of the film had been
reasonably allocated.

Legal Standard

Cost of Biographical Films. The convention committee is permitted to produce
biographical films, or similar materials, of the candidate for nomination for use during
the convention. However, if any other committee uses part or all of the films or similar
materials, it shall pay the convention committee for the reasonably allocated cost of the
films. 11 CFR §9008.7(a)(4)(xiii).

Payment of Convention Expenses. The convention committee shall receive all public
funds for the purpose of defraying convention expenses. All expenditures on behalf of
the national committee for convention expenses shall be made by the convention
committee. 11 CFR §9008.3(a)(2).

Repayments. If the national committee accepted contributions to defray convention
expenses which, when added to the amount of payments received, exceeds the
expenditure limitation of such party, the national committee shall make a payment to the
U.S. Treasury of the amount of such contributions. 11 CFR §9008.12(b)(3).

Facts and Analysis

The Audit staff reviewed the cost allocation of a biographical film, “A Remarkable
Promise”, about Senator John Kerry. The DNCC showed the film during the 2004
Democratic National Convention. Both the DNC and KE04 represent that they utilized
excerpts in ads. The cost of the film was allocated 29% to the DNC, 29% to KE04 and
42% to the DNCC.

The Commission considered whether the derivation of the allocation percentages was
reasonable. It concluded that the cost of the biographical film had been reasonably
allocated among the DNC, KE04 and the DNCC. As such, the DNCC did not receive an
impermissible contribution from the DNC or KE04.


FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463

September 26, 2006

MEMORANDUM

TO: ROBERT W. BIERSACK
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLT.:
ASSISTANT STAFF) CTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON THE
2004 DEMOCRATIC NATIONAL CONVENTION COMMITTEE, INC.

Attached please find a copy of the audit report on the 2004 Democratic National
Convention Committee, Inc. which was approved by the Commission on August 3, 2006.

All parties involved have received informational copies of the report and the report
may be released to the public.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library
Web Manager 4


Facts and Analysis

The 2004 Democratic National Convention ended July 29, 2004. The DNCC filed a
Statement of Net Outstanding Convention Expenses as of September 12, 2004. In the
preliminary audit report, the Audit staff's NOCE reflected a surplus of $8,621. The
figures below reflect the DNCC’s NOCE prepared using actual transactions except that
windown costs of $14,000 have been exclude as directed by the Commission.

Statement of Net Outstanding Convention Expenses
As of September 12, 2004
Prepared on March 31, 2006

Assets
Cash on Hand $645,044
Accounts Receivable 154,447
Total Assets $799,491
Obligations
Accounts Payable for Qualified Convention Expenses _ $ 211,978
Actual Wind Down Expenses 559,511
Total Obligations $771,489
Net Outstanding Convention Expenses (Surplus) $_28,002”

The NOCE as calculated by the DNCC, and adjusted by the Audit staff, shows a surplus
or an amount of unspent funds of $28,002. Pursuant to 11 CFR §9008.12, the Committee
shall make an interim repayment of unspent funds no later than 30 calendar days after the
end of the ninth month following the last day of the convention. For the DNCC, this
interim repayment was due May 30, 2005; however, no payment was made.

Preliminary Audit Report Recommendation and Committee Response
The Audit staff recommended that the DNCC provide documentation demonstrating that
either: (a) no repayment of unspent funds is due, or (b) a lesser amount is due. The
DNCC submitted two NOCE statements in response to the preliminary audit report. The
first calculated an unspent funds balance of $13,453 and included a check made payable
to the U.S. Treasury in the same amount. The second increased the unspent funds
amount to $14,002. Both of these NOCE statements included estimated wind down
expenses of $14,000 for legal fees.

Audit Staff Analysis of the Committee’s Response

After reviewing the DNCC’s response to the preliminary audit report, the Audit staff
updated its NOCE statement. The majority of the difference between DNCC’s
calculation and the calculation in the preliminary audit report calculation is due to voided
checks totaling $4,531 that had been classified as outstanding. A review of the checks

? There is a minor difference between the Audit staff's updated NOCE surplus ($27,183) and the DNCC’s
NOCE surplus ($28,002) of $819. The Audit staff considers this difference immaterial.


Part I
Background

Authority for Audit

This report is based on an audit of the 2004 Democratic National Convention Committee,
Inc. (DNCC), undertaken by the Audit Division of the Federal Election Commission (the
Commission) as mandated by Section 9008(g) of Title 26 of the United States Code.
That section directs the Commission to conduct an examination and audit of the
payments for presidential nominating conventions no later than December 31 of the
calendar year in which the presidential nomination convention is held.

Scope of Audit

This audit examined:

The disclosure of receipts and loans.

The disclosure of disbursements, debts and obligations.

The recordkeeping process and completeness of records.

The consistency between reported figures and bank records.

The accuracy of the Statement of Net Outstanding Convention Expenses.
The committee’s compliance with requirements concerning expenditures for
convention expenses.

7. Other committee operations necessary to the review.

ANAPYWN

Inventory of Committee Records

The Audit staff routinely conducts an inventory of committee records before it begins the
audit fieldwork. The DNCC records were materially complete and the fieldwork began
immediately.


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Inventory of Committee Records

Part II. Overview of Committee
Committee Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations
Amount Owed to the U.S. Treasury

Part IV. Findings and Recommendations
Finding 1. Net Outstanding Convention Expenses - Surplus
Finding 2. Receipt of an Impermissible Contribution
Finding 3. Inadequate Disclosure - Statement of Organization

Page

w

ont


Report of the
Audit Division on the
2004 Democratic National

Convention Committee, Inc.
September 30, 2002 - December 31, 2004

Why the Audit

Was Done

Federal law requires the
Commission to audit the
national committee of a
party who receives
payments for presidential
nominating conventions.!
The audit examines the
receipt and use federal
funds and whether the
committee otherwise
complied with the
limitations, prohibitions,
and disclosure
requirements of the
election law.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

About the Committee (p. 2)

The 2004 Democratic National Convention Committee, Inc.
(DNCC) was responsible for the day to day arrangements and
operations of the Democratic Presidential nominating convention.
The DNCC is headquartered in Washington, DC. For more
information, see chart on the Committee Organization, p.2.

Financial Activity (p. 2)
« Receipts

o. Federal Funds $ 14,924,000
o Loans Received 753,214
o Offsets to Convention 197,721
Expenditures
o Total Receipts $ 15,874,935
¢ Disbursements
o Convention Expenditures $ 15,097,469
o Loan Repayments 753,214

o Total Disbursements $ 15,850,683

Findings and Recommendations (p. 3)

¢ Net Outstanding Convention Expenses - Surplus (Finding 1)

¢ Receipt of an Impermissible Contribution (Finding 2)

¢ Inadequate Disclosure — Statement of Organization (Finding 3)

' 26 U.S.C. §9008(g).