Part IT

Overview of Committee
Committee Organization

Important Dates

North Dakota Democratic-Nonpartisan
League Party

© Date of Registration

August 29, 1972

e Audit Coverage

January 1, 2001 —- December 31, 2002

Headquarters

Bismarck, ND

Bank Information

« Bank Depositories

1

« Bank Accounts

6 federal and 2 non-federal accounts

Treasurer

¢ Treasurer When Audit Was Conducted Ken Ziegler

e Treasurer During Period Covered by Audit__| Ken Ziegler

Management Information

© Attended FEC Campaign Finance Seminar __| No

* Used Commonly Available Campaign Yes
Management Software Package

« Who Handled Accounting and Paid Staff

Recordkeeping Tasks

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ January 1, 2001 $ 17,647
o Transfers from Non-federal Accounts for 1,256,645
Joint Activity
o Transfers from Affiliated/Other Party 579,480
Committees
o Contributions from Individuals 442.569
o Other Political Committees 179,935
o All Other Receipts 47,959
Total Receipts $2,506,588
o Operating Expenditures 2,218.664
o Coordinated Expenditures 92.727
o All Other Disbursements 176,752
Total Disbursements $ 2,488,143
Cash on hand @ December 31, 2002 $ 36,092



¢ They may establish a separate, federal allocation account into which the
committee deposits funds from both its federal and non-federal accounts solely
for the purpose of paying the allocable expenses of shared federal/non-federal
activities, 11 CFR §106.5(g)(1){i) and (i1)(A).

C. Reporting Allocable Expenses. A political committee that allocates federal/non-
federal expenses must report each disbursement it makes from its federal account (or
separate allocation account) to pay for a shared federal/non-federal expense. Committees
report these kinds of disbursements on Schedule H-4 (Joint Federal/Non-federal Activity
Schedule). 11 CFR §104.10(b)(4).

D. Allocation Ratio for Administrative & Generic Voter Drive Costs. State and local
party committees must allocate their administrative expenses and generic voter drive
costs according to the ballot compusition method. Under this method, a committee
determines the ratio of federal offices to the total number of federal and non-federal
offices expected on the ballot in the next general election in the state or geographic area.
11 CFR §106.5(d)(1) and (2).

E. Disclosing Refunds of Allocable Expenses. Advisory Opinion 1995-22 describes
two methods of reporting refunds. Method | discloses the refund and the federal and
non-federal shares as negative entnes on the Schedules H4. Method 2 discloses the
receipt of the refund as an offset to operating expenditures on the Schedules A and the
federal account transfer to the non-federal account for the non-federal share is disclosed
on Schedules H4.

Facts and Analysis

NDP maintained several federal and non-federal bank accounts. It paid shared expenses
from the federal accounts and transferred funds from the non-federal accounts to the
federal accounts to cover the non-federal share of those expenses. NDP utilized a ballot
composition ratio of 16.67% federal and 83.33% non-federal which was verified by the
Audit staff to be correct. The Audit staff reviewed disbursements from both the tederal
and non-federal accounts and found that the non-federal had potentially over funded its
share of allocable expenses by $331.246.

The Non-federal Funding Analysis (the Analysis) below presents transfers made from the
non-federal accounts for allocable expenses, the non-federal portion of allocable
expenditures reported by NDP, and adjustments based on the reviews of expenditures
from the federal and non-federal accounts. Succeeding paragraphs address the
adjustments presented in the Analysis.

Non-federa! Funding Analysis
Description Finding Index
Transfers fram Non-federal Accounts $ 1,256,645

Less: Non-federal Portion of Allocable
Expenditures (1.765.749)



Part IV
Findings and Recommendations

| Finding 1. Misstatement of Financial Activity

Summary

A comparison of NDP’s reported figures to its bank records revealed that receipts,
disbursements and the ending cash balance had been misstated for calendar year 2002.
The Audit statf recommended that NDP amend its disclosure reports to correct the
misstatements. In response to the interim audit report, NDP filed amended disclosure
reports. Although the amendments corrected some of the errors noted, the amendments
did not materially correct the misstatements.

Legal Standard

Contents of Reports. Each report must disclose:

© = The amount of cash on hand at the beginning and end of the reporting period:

«= The total amount of receipts for the reporting period and for the calendar year;

* The total amount of disbursements for the reporting period and for the calendar year:
and,

* Certain transactions that require itemization on Schedule A (Itemized Receipts) or
Schedule B (Itemized Disbursements).
2 U.S.C. §434(b)(1), (2) and (4).

Facts and Analysis

The Audit staff reconciled reported activity to bank records for 2002. The following
chart outlines the discrepancies for beginning cash on hand, receipts, disbursernents and
the ending cash balance on December 31, 2002. Succeeding paragraphs address the
reasons for the misstatements.

2002 Committee Activity
Reported Bank Records Discrepancy
Beginning Cash Balance $7.866 $7,598 $268
@ January 1, 2002 Overstated
Receipts $2.004.451] $2,173,428 $168.977
Understated
Disbursements $4.937,997 $2,144,934 $206.937
Understated
Ending Cash Balance @ 374,320 $36,092 $38,228
December 31, 2002 Overstated

The $268 overstatement of the beginning cash balance on January 1, 2002 was
considered immaterial.


Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

A comparison of NDP’s reported figures to its bank records revealed that receipts.
disbursements and the ending cash balance had been misstated for calendar year 2002.
The Audit staff recommended that NDP amend its disclosure reports to correct the
misstatements. In response to the interim audit report, NDP filed amended disclosure
reports. Although the amendments corrected some of the errors noted, the amendments
did not materially correct the misstatements.

(For more detail, see p. 4)

Finding 2. Non-federal Funding of Federal Activity

The Audit staff’s review of disbursements from the federal and non-federal accounts
indicated that the non-federal account potentially over funded its share of allocable
activity by $331,246. Media expenditures made up a significant portion of this over
funding. Documentation such as invoices, scripts or copies of advertisements were not
made available or did not demonstrate that these media expenditures were for shared
expenses. In addition, NDP made disbursements from its non-federal accounts that
appearcd to be for allocable expenses. The Audil staff recommended that NDP either
demonstrate that there had been no over funding by the non-federal account or reimburse
the non-federal account $331,246 and correct its disclosure of the expenditures. In
response to the interim audit report, NDP provided documentation which demonstrated
that some of the media expenditures were shared expenses and that some of the
disbursements from its non-federal account were not for allocable expenses. As a result,
NDP demonstrated that there had been no over funding by the non-federai accounts.
Absent documentation for the remaining expenditures. NDP filed amended Schedules
H4; however, thase amendments did not materially correct the disclosure of those
disbursements.

(For more detail, see p. 6)


Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that NDP amend its reports to correct the misstatements
noted above, to include amended Schedules A and B as appropriate, and to amend ali
subsequent reports in order to correct reported cash balances. In response to the interim
audit report, NDP filed amended reports. Although the amendments corrected some of
the crrors noted above, the amendments did not materially correct the misstatements.
With respect to receipts, the remaining misstatement was primarily due to one transfer
($103,950) from an affiliated/other party committee and several transfers of funds from
non-federal accounts not reported or reported incorrectly. With respect to disbursements,
the remaining misstatement was primarily due to one transfer ($103,950) to the non-
federal account not reported.

[ Finding 2. Non-federal Funding of Federal Activity |

Summary

The Audit staff's review of disbursements from the federal and non-federal accounts
indicated that the non-fedcral account potentially over funded its share of allocable
activity by $331,246. Media expenditures made up a significant portion of this over
funding. Documentation such as invoices, scripts or copies of advertisements were not
made available or did not demonstrate that these media expenditures were for shared
expenses, In addition, NDP made disbursements from its non-federal accounts that
appeared to be for allocable expenses. The Audit staff recommended that NDP either
demonstrate that there had been no over funding by the non-federal account or reimburse
the non-federal account $331,246 and correct its disclosure of the expenditures. In
response to the interim audit report, NDP provided documentation which demonstrated
that some of the media expenditures were shared expenses und that some of the
disbursements from its non-federal account were not for allocable expenses. As a result,
NDP demonstrated that there had been no over funding by the non-federal accounts.
Absent documentation for the remaining expenditures, NDP filed amended Schedules
H4; however, those amendments did not materially correct the disclosure of those
disbursements.

Legal Standard

A. Accounts for Federal and Non-federal Activity. A party committee that finances
political activity in connection with both federal and non-federal elections must establish
two accounts (federal and non-federal) and allocate shared expenses--those that
simultaneously support federal and non-federal election acti vily—between the two
accounts. Alternatively, the committee may conduct both federal and non-federal activity
from one bank account, considered a federal account. 11 CFR §102.5(a)(L)(i).

B. Paying for Allocable Expenses. Commission regulations offer party committees two
ways to pay for allocable, shared federal/non-federal expenses.
« They may pay the entire amount of the shared expense from the federal account
and transfer funds from the non-federal account to the federal account to cover the
non-tederal share of that expense: or


FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

March 10, 2005

MEMORANDUM

TO:

FROM:

SUBJECT:

ROBERT W. BIERSACK
PRESS OFFICER

PRESS OFFICE Lio fs
kA pS
JOSEPH F. STOLTZ Le

ASSISTANT STAFF DIRECTOR
AUDIT DIVISION

PUBLIC ISSUANCE OF THE AUDIT REPORT ON THE NORTH
DAKOTA DEMOCRATIC-NONPARTISAN LEAGUE PARTY

Attached please find a copy of the audit report on the North Dakota Democratic-
Nonpartisan League Party, which was approved by the Commission on March 2, 2005.

The report may be released to the public on March 10, 2005.

Attachment as stated

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


allocated between the federal and non-federal accounts according to the same
ratio used to allocate the original disbursements. The federal account must
transfer the non-federal portion to the non-federal account and disclose the
transfer on Schedules H4. NDP did not transfer $10,180 (83.33% of $12,757) to
the non-federal account as required. An adjustment was made to the Analysis to
reflect this.

Al the exit conference, the Audit staff provided workpapers detailing the adjustments
noted above to the NDP representatives. The representatives indicated that they would
demonstrate that NDP's non-federal account under funded allocable activity rather than
over funding it by providing evidence that the media disbursements were shared
expenditures and that the disbursements paid from the non-federal account(s) were not
allocable expenses.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that NDP:

¢ Provide documentation detailing the nature and purpose of the disbursements made to
media vendors to include but not be limited to contracts, statements of account,
invoices, copies of media ads and scripts. Absent documentation demonstrating these
were shared expenses, NDP should have amended its reports to correctly disclose
these disbursements.

« Demonstrate that the identified disbursements paid from non-federal accounts were
not allocable expenses. Absent such a demonstration, NDP should have filed
Schedules H4 (Joint Federal/Non-federal Activity Schedule) disclosing as memo
entries the allocable expenditures paid from the non-federal accounts.

e Demonstrate that the refunds/rebates were not for allocable expenditures. Absent
such documentation, the federal account was to tansfer the non-federal portion to the
non-federal account and disclose the transfer on Schedules H4

@ Absent a demonstration there had been no over funding by the non-federal account,
NDP’s federal account should have reimbursed the NDP non-federal account(s) for
the amount of any over funding and provided evidence of such reimbursement. Hf
NDP lacked the funds to reimburse the non-federal account(s), the amounts owed
should have been disclosed on Schedule D (Debts and Obligations) as a debt, until
such time that funds were available to make the reimbursement.

* The Audit staff further recommended that NDP provide a written description of
system changes it implemented to ensure all allocable disbursements were paid from
a federal account.

In response to the interim audit report, NDP provided documentation detailing the nature
and purpose of some disbursements made to media vendors. This documentation
demonstrated that those expenditures were shared expenses. In addition, NDP
demonstrated that some of the disbursements paid fram non-federal accounts were not


Net (Under funding)/Over funding by the |
Non-federal Accounts: $ (509,104) i
Adjustments;

Non-federal Portion of Media Expenditures Finding 2.A. $ 782.110
Federal Share of Allocable Expenses Made

from Non-federal Account Finding 2.B. $ 68,420
Non-federal Share of Refunds & Rebates of

Allocable Expenses Deposited in Federal

Account Finding 2.C. S$ (10,180)
Adjusted Amount of Potential Non-federal

OVER Funding of Allocable Expenses § 331,246

A. Federal Share of Media Expenditures Disclosed as Non-federal

The Audit staff’s review of disbursements identified 27 payments totaling
$938,570 to media vendors for print advertisements, placement of television/radio
spots and other media expenses. These disbursements were made from the
federal account and were disclosed on Schedules H4 as shared expenditures. The
Audit staff made repeated verbal and written requests to NDP for invoices, copies
of the ads, printed material and scripts. However, the limited documentation
provided did not allow the Audit staff to determine the nature of these
disbursements. Absent documentation to the contrary, the Audit staff considered
these payments to be 100% federal expenditures. An adjustment was made to the
Analysis for the non-federal portion of these allocable expenditures ($782,110 or
83.33% of $938,570).

. Federal Share of Allocable Expenses Made from Non-federal Account

The review of all payments from NDP’s non-federal accounts identified
disbursements totaling $410.440, which appeared to be allocable expenses such as
compensation, staff expense, media. and other miscellaneous expenses. NDP
provided limited or no external documentation supporting these expenditures.
Available documentation did not indicate that any of these payments were for
solely non-federal activities; therefore. they were treated as allocable expenses in
the Analysis. An adjustment was made to the Analysis for the federal portion of
the allocable expenditures ($68.420 or 16.67% of $410,440). These expenditures
required (memo) disclosure on Schedules H4.

. Non-federal Share of Refunds and Rebates of Allocable Expenses Deposited in
the Federal Account

The Audit staff reviewed refunds/rebates received by NDP and deposited in the
federal account. Refunds of payments for shared expenses were required to be


Explanation of Discrepancies

Receipts — 2002
The understatement of receipts was the net result of the following:

Transfers from affiliated/other party committee not reported or
reported incorrectly

Unidentified receipt from a party committee not reported. No
documentation was available except for a credit entry on bank
statement. NDP asserted this was a contribution from a party
committee.

Transfers of funds from non-federal accounts not reported or
reported incorrectly

Contribution from an individual not reported

Unexplained differences

Net Understatement of Receipts

Disbursements — 2002
The understatement of disbursements was the net result of the following:

Operating expenses not reported. Most of these errors involved
sequentially numbered checks which should have been reported
in NDP’s Year-End report. In addition, most were not found in
the database provided by the NDP.

Transfers to non-federal account not reported. One transfer
($103,950) involved incorrectly deposited receipts and neither
transaction was reported.

Reported operating expense nol supported by a check/debit
Contribution to Mondale for Senate not reported

Refund of contribution from Democratic Congressional
Campaign Committee not reported.
Unexplained differences

Net Understatement of Disbursements

Ending Cash Balance
The $38,228 overstatement of the ending cash balance on December 31, 2002, was the

net result of the misstatements detailed above.

+ $126,153
+ 29,783
+ 16,322

$168,977

+ $108,798
+ 112,250
— 27,195
+ $,000
+ 2,802
+ 5,282

$206,937

At the exit conference, the Audit staff explained the misstatements and provided NDP’s
representatives with schedules detailing the discrepancies. The representatives were

unaware of the misstatements but agreed to review the spreadsheets provided and to file
amended disclosure reports.


Part I
Background

Authority for Audit

This report is based on an audit of the North Dakota Democratic-Nonpartisan League
Party (NDP), undertaken by the Audit Division of the Federal Election Commission (the
Commission) in accordance with the Federal Election Campaign Act of 197t, as
amended (the Act). The Audit Division conducted the audit pursuant to 2 U.S.C.
§438(b), which permits the Commission to conduct audits and field investigations of any
political committee that is required to file a report under 2 U.S.C. §434. Prior to
conducting any audit under this subsection, the Commission must perform an internal
review of reports filed by selected committees to determine if the reports filed by a
particular committee meet the threshold requirements for substantial compliance with the
Act. 2 U.S.C. §438(b).

Scope of Audit

This audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions and other receipts.

The disclosure of disbursements, debts and obligations.

The disclosure of expenses allocated between federal and non-federal accounts.
The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

SN ANR Wh

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act
of 2002 (BCRA). The BCRA contains many substantial and technical changes to the
federal campaign finance law. Most of the changes becume effective November 6, 2002.
Except for the period November 6, 2002. through December 31, 2002, the period covered
by this audit pre-dates these changes. Therefore, the statutory and regulatory
requirements cited in this report are primarily those that were in effect prior to November
6, 2002.


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Changes to the Law

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

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Misstatement of Financial Activity
Finding 2. Non-federal Funding of Federal Activity

Page

wr


Report of the Audit Division on
the North Dakota Democratic-

Nonpartisan League Party
January 1, 2001 - December 31, 2002

Why the Audit

Was Done

Federal law permits the
Commission to conduct
audits and field
investigations of any
political committee that is
required to file reports
under the Federal
Election Campaign Act
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
Tequirements for
substantial compliance
with the Act.! The audit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requirements
of the Act.

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 North Dakota Democratic-Nonpartisan League Party is a
state party committee headquartered in Bismarck, ND. For
more information, see the chart on the Committee
Organization, p. 2.

Financial Activity (p. 2)

« Receipts
co Transfers from Non-federal Accounts for — $ 1,256,645
Joint Activity
o Transfers from Affiliated/Other Party 579,480
Committees
o Contributions from Individuals 442,569
o Other Political Committees 179,935
co All Other Receipts 47,959
o Total Receipts $ 2,506,588
« Disbursements
o Operating Expenditures $ 2.218.664
o Coordinated Expenditures 92,727
o All Other Disbursements 176,752
o Total Disbursements $ 2,488,143

Findings and Recommendations (p. 3)
e Misstatement of Financial Activity (Finding I)
e = Non-federal Funding of Federal Activity (Finding 2)

' 2ULS.C. §438(b)


10

allocable expenses. As a result of the documentation provided, NDP demonstrated there
had been no over funding by the non-federal account. A revised Non-federal Funding
Analysis is presented below.

Revised Non-federal Funding Analysis
Description Finding Index
Transfers from Non-federal Accounts $ 1,256,645

Less: Non-federal Portion of Allocable

Expenditures (1,765,749)
Net (Under funding)/Over funding by the

Non-federal Accounts: $ ($09,104)
Adjustments:

Non-federal Portion of Media Expenditures Finding 2.A. $236,723

Federal Share of Allocable Expenses Made
from Non-federal Account Finding 2.B. $51,694

Non-federal Share of Refunds & Rebates of
Allocable Expenses Deposited in Federal
Account Finding 2.C. $ (10.180)

Adjusted Amount of Potential Non-federal
UNDER Funding of Allocable Expenses S (230.867)

NDP also provided a written description of system changes it had implemented to ensure
all allocable disbursements were paid from the federal account. NDP filed amended
Schedules H4 to disclose those disbursements made from the non-federal accounts. For
those media expenditures where documentation was provided demonstrating the expenses
were shared, disclosure did not need to be corrected. However, for the remaining
expenditures totaling $284,079, the non-federal portion of which is $236,723 us noted
above, disclosure has not been adequately corrected. For $189,966 of these
disbursements, documentation has not been provided demonstrating these should be
shared expenditures, nor was the disclosure of these items changed. The remaining
$94,113 appear to be independent expenditures not disclosed on Schedule E.