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FEDERAL ElECTION COMMISSIOr--:

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REPORT OF THE AUDIT DIVISION

ON THE

YOUNG REPUBLICAN NATIONAL FEDERATION

I~ Background

A. Overview

_ This report is based on'an audit of the Young . Republican National Federation (lithe Committee"), undertaken by

the Audi t Division of the Federal Election Commission in '. , accordance with the Commission's audit policy to determine ".

'whether there has been compliance with the provisions of the . Federal Election Campaign Act of 1971, as amended (lithe Act").

The audit was conducted pursuant toSectio~ 438(b) of Title 2 of

". the United States Code which states, in pa:'t, 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 unde: this section, the'

Commission shall perform an internal revie~ of reports filed by

,selected committees to determine if the, reports filed by a . particular committee meet the threshold requirements' forsubstantial compliance with the Act.

The Committee registered with the Federal Election

Commission on August 13, 1976. TheCornmittee maintains its

headauarters in Washington, D.C. The audit covered the period January 1, 1981 through October 13, 1982, :he closing date for

the 1ates~ report which:shou1d have been filed at the time of

approval., The Committee reported a 'cash ba.1ance ori January. 1,

1981 of $310.98~ total receipts of $483,523.47~ total

expenditures' of $483,155.25; and a cash ba:ance on June 30, 1982

of $ 1 , 199 97. ,1/

This audit report is based on documents and work papers

which support each of its factual statemen:s. They form part of

the record upon which the Commission based its decisions on the

matters in the report and were available to the Commissioners and

appropriate staff for review.

1/ The reported totals do not calculate correctly due to

math errors. (See Finding II.B.).
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The Committee was audited in 1979 for the period Januaryl,

1976 through December 31, 1978. This audit report contains three

findings and respective recommendations materially indistinguishable from the findings noted in the previous audit report. . "

A report was received from the Committee on June 27,

1983, in which the Co~mittee complied with the recommendation. in

the interirr. audit report. In addition, on July 14, 1983 the.

Corr.mittee filed a r~port covering the period 10/14/82-12/31/82.

A • Failure To File Reports

The Audit Division recommended that the Committee,

within 30 days of receipt of the interim report, file a report

that discloses the financial activity which occurred from July 1,

1982 through October 13, 1982.

B. Key Personnel

The Treasurers of the Committee during the period

covered by the audit were Clark D. Horvath from inception of the

audit period through July 31, 1981, and Kathryn Coe Royce from

July 3l,l98lthrough the present.

C. Scope

The audit included such tests as verification of total

reported receipts and expenditures and individual transactions;

review of required supporting documentation; analysis of

Committee debts and obligations; and such other audit procedures

as deemed necessary under the circumstances.

II. Audit Findings and Recommendations .

.. Introduction to Audi t Findings and Recommendations

. Section 434(a)(4)(A)(i) of Title 2 of the United States

Code states, in part, that all political committees other than

authorized committees of a candidate shall file quarterly

·reports, in a calendar. year in which a regularly scheduled

general election is held, "..hich shall be filed no later than the . 15th day after the last day of each cale~da~ quarter~

. . During the audit, it was noted that the Committee

failed to file disclosure reports after June 3b, 1982. During,

.the July '1, 1982 to October 13, 1982 period, the Committee's bank

records showed $65,844.42 in receipts and $67,689.89 in

disbursements, as adjusted.

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Po J:'commenda t ion

The Audit staff recommends no further action with-respect to

reports required to be filed during the period of the audit.

B~ Misstatement of Financial Activity

Sections 434 (b) (1), (2), and (4) of Title 2 of the

united States Code state, in part, that each report shall

disclose the amount of cash at the beginning of the reporting periodi the total amount of all receiptsi and the total amount of

all disbursements for the reporting period and the calendar year.

During the audit, it was noted that the Committee

understated its financial activity in 1981 for its beginning cash

by $2,168.20i its receipts by $27,678.70i its expenditures by $7,058.60i and its ending cash by $22,788.31. The understatement

of financial activity was caused by several factors, such as,

miscalculation of outstanding checks, underreporting of certain

uank accounts' activity, and failure to include bank charges.

The Audit Division recommended that the Committee,

within 30 days of receipt of the interim report, amend its 1981

report_to accurately depict its financial activity.

An amendment was received on June 27, 1983, in which

the Committee complied with the recommendation iri the interim

audit report. _

. Recommendation

The Audit staff recommends no further action.

C. possible Prohibited Contributions

Section 44lb(a) of Title 2 of t~e United States Code

states, in part, that it is unlawful for any corporation .to make

a contribution in connection with any election to Federal office.

During the audit, it was noted that the Committee

accepted 16 ~I possible prohibited contributions totaling $3,448.00. The Committee sponsored an an~ual leadership

conference for its members f~aturing worksho~s and speeches.

In 1982, the booklets pUblished for the conference included

advertisements apparently funded by corporate monies.

~I At this time, 13 contributions totaling $2,853.00 have been

confirmed as corporations with the Secretari~s of State.
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Recommendation

An amendment was received on June 27, and July 1, 1983

in which the COwmittec complied with the recommendation in the

interim aueit report.

D• Itemization of Contributions

The hudit staff recommended that the Committee, within

30 cays of receipt of the interim report, amend its reports to

cisclos~ the above mentioned contributions.

This problem was noted in the orevious audit. It was

mentioned in the audit report and the Corr~ittee provided

comprehensive amendments which substantially corrected the

problem.

• Durino an examination of contributions, it was noted

that the Committee failed to itemize 50 contributions totaling $15,535.00 or 66.4% of the total dollar value of itemized

contributions.

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

Code states, in part, that each report shall disclose the

identification of each person who makes a contribution to the

reporting committee during the reporting period, whose

contribution or contributions have an aggregate amount or value

in excess of $200 within the calendar year, or in any lesser

amount if the reporting committee should sq elect, together with

the date and amo~~ of any such contribution.

Given the refunds are effected and evidence is provided to

the Audit staff, it is recommended that no further action is

necessary .

In 1979, the Committee was advised of the prohibition

against this type of receipt in an audit report. At that time,

it was recommended that the Committee refund the full amount of

prohibited receipts to the corporate advertisers. The Committee

substantially complied with the recommendation.

The Audit Division recommended that the Committee,

within 30 days of receipt of the interim report, provide documentation to demonstrate that these contributions were not

from prohibited sources, or issue refund checks and provide copies (both front and back) of the negotiated refund checks.

On June 28, 1983, the Committee provided a statement

which indicated that these contributions would be refunded as

soon as the money becomes available. In addition, the Committee

disclosed the contribution refunds as debts.

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Recommendation

The Audit staff recommends no further action.

E. Itemization of Expenditures

section 434(b) (5) (A) of Title 2 of the United States

Code states, in part, that each report shall disclose the name

and address of each person to whom an expenditure in an aggregate

amount or value in excess of $200 within the calendar year is

made by the reporting committee together with the date, amount,

and purpose of such operating expenditures.

Also, Section 104.3(br(3)(i) (A) and (B) of Title 11 of

the Code of Federal Regulations states, in part, that each

political committee report a brief statement-of why ,the

disbursement was made. However, statements or descriptions such,

as "expenses" would not meet the requirements for reporting the

purpose of an expenditure. .

. In the course of the review of expenditures, it was

noted that the Committee failed to either itemize/report 206 . expenditures totaling $125,011.25 or 25.87~ of total reported expenditures. The Committee failed to itemize 55 expenditures

totaling $26,482.83 for 1981. From January 1, 1982 through . October 13, 1982, the Committee failed to report 151 expenditures

totaling $98,528.42. .

In addition, the Committee itemized 38 expenditures

totaling $19,309.79 with a purpose such as "expenses", "partial

payment", "balance due" all of which do not satisfy the

disclosure requirements of the Act.

The Audit staff recommended that the Committee, within

30 days of the receipt of the interim report, amend its reports

to properly disclose the above mentioned expenditures.

An amendment was received on June 27, and July 1,1983

in which the Committee complied with the reco~menaation in the

interim report.

Recommendation

The Audit staff recommends no further action.
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F. Documentation of Disbursements

Section 102.9(b) (1) (i) and (ii) of Title 11 of the

Code of Federal Regulations states that an account shall be kept

of all disbursements made by or on behalf of the political

committee. Such account shall consist of a record of: the name.

and address of every person to whom any disbursement is made: the

date, amount, and purpose of the disburs~illent.

Section 102.9(b) (2) of Title 11 of the Code of Federal

Regulations states, in part, that a receipt or invoice from the,

payee or a cancelled check to the payee shall be obtained and

kept for each disbursement in excess of $200 by or on behalf of,

the committee, or a carbon copy of _a share draft'or·check may be

used as a duplicate record of such draft or check provided that . 'the monthly account statement showing the share draft or check

was paid is also retained. . -, .

Our examination of the Committee's disbursements

'revealed that the Committee made six disbursements totaling $22,400.00 by Cashier's Checks. ~/ The only documentation

provided was a bank prepared debit memoranda which listed the

payees, the Cashier's Checks numbers, and the amounts. In

addition, it was noted that in 1982 the Comwittee had written

three checks totaling $2,500 made. payable to cash~

The audit report for the previous audit noted that the

,Committee failed to provide adequate documentation for,'

expenditures. As recommended, the Committee provided adequate

documentation to support those expenditures.

The Audit staff recommended that t.he Committee, within

30 days of receipt of the interim report, provide documentation

'for the disbursements noted above.

. The documentation was received on June 27, 1983 in

which the Committee complied with the reco~~endation in the

interim report.

Recommendation

The Audit staff recommends no further action.

l/ These disbursements ~ere also included in Finding E, because

the Committee aid not report them.
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G. Debts and Obligations

Sections 434(b) (2) (H) and (8) of Title 2 of the United

States Code state, in part, that each report shall disclose for

the reporting period and the calendar year, the total amount of

other loans.' Also, each report shall disclose the amount and

nature of outstanding debts and obligations owed by such

political committee; and where such debts and obligations are

settled for less than their reported amount or value, a statement

as to the circumstances under which such debts or oblig~tions

were extingui~hed and the consideration ~herefore.

In addition, Section l04.ll(a) and (b) of Title 11 of

the Code of Federal Regulations states, in part; that debts and

obligations .owed by a political commlttee shall be continuously

reported until extinguished. These debts and obligations shall · be reported on separate s~hedules together with a statement' .. explaining the circumstances and conditions under which each debt·

and obligation was incurred or extinguished. Also, a debt, · obligation, or other promise to make an expenditure, the amount · of which i5"$500 or less, shall be reported as to the time

payment is made or no later than 60 days after such obligation is

incurred, whichever comes first. Any loan, debt or obligation,

the amount of which is over $500 shall be reoorted as of the time

of the transaction. -

During the audit, itwas noted that the. Committee " failed to disclose three loans totaling $2~,500.00. In addition,

the Committee failed to provide loan agree~ents for review by

the Audit staff for four loans (including the above three)

totaling $49,500.00. ,

The Audit staff noted that the Com~ittee failed to

d{sclose debts to at least 20 vendors totaling $22,109.14. In

addition, the Committee deleted without explanation nine debts

totaling" $17,702.02 from its disclosure reports.

It was also noted that the Com~i:tee disclosed six.

debts (totaling $57,725.96) with an outstanding balance at the

beginning of a reporting period. None of these debts were

previously reported. Therefore, the indication is that these

debts should have been reported in a F~evious reporting

period(s). Finally, the Committee decreased the closing/opening

balances between consecutive periods for two debts. The amount

the tv.'o debts were decreased .totaled $12,605.98.
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The Committee did not provide the Audit" staff with

complete documentation concerning their debts. Therefore, due to

the lack of records, the Audit staff was unable to accurately

determine the Committee's debt position•

.The Audit staff recommended that the Committee, within

30 days of receipt of the interim report, disclose the requisite

information for the above mentioned loans~ In addition, it was

recommended that the Committee determine and disclose its debt

position as of October 13, 1982. This includes the debts that

were deleted without explanation from the reports, the debts

which had an outstanding balance at the beginning of the

reporting period and were not previously disclosed, the debts - decreased between consecutive periods, and any other debts that

were outstanding and not properly reported as of January 1, 1981,

June 30, 1981, June 30, 1982, and October 13, 1982. Finally, it

was recommended that documentation be provided in support of the

required amendments.

On June 27, 1983, the Committee provided the requisite information for the above mentioned loans. .In addition, the . Committee disclosed its debt position as of October 13, 1982 and . provided the required amendment. The documentation to support

the required amendments was made available for review by the

Audit staff. . . -

Recommendation

The Audit staff recommends no further action.

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H. Outstanding Checks

Our review of bank activity indica'ted that 17 checks

totaling $6,528.79 were listed as outstanding as of October 13,

,"'.' ,1982. These checks were dated between Septemb~r 6, 1979 i/ 'and

October 29, 1981. 'These expenditures were made to both

individual (5) and corporate (12) 'vendors of the Committee.

, The Audit staff recommended that the Committee, within

30 days of receipt of the interim report, provide documentation

that the expenditures noted above are not o~ed by the Committee,

or reissue checks to the vendors and provide copies (front and

back) of the negotiated (reissued) checks.

~/ One check totaling $150.00 was written before July 1, 1979, ho~ever, Co~~ittee records were unavailable to determine the

date that the check ~as written and the identification of

the payee. '
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The documentation was received on June 27, 1983 in

which the Committee complied with the recommendation in the

interim audit report.

Recommendation

The Audit staff recommends no further action.