fEDERAL ELECTION COMTv\ISSION

A1t007594

February 22, 1996

MEMORANDUM

TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERT J. COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

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SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

MINNESOTA DEMOCRATIC FARMER LABOR PARTY

Attached please find a copy of the final audit report

and related documents on Minnesota Democratic Farmer ~r

Party which was approved by the Commission on February 12,

1996.

Informational copies of the report have been received by

all parties involved and the report may be released to the

public.

Attachment as stated

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cc: Office of General Counsel

Office of Public Disclosure I

Reports Analysis Division

FEe Library

, . ,\. \', . II ,..." '~"'l 1\',

:1; I.' \ .• ill-..:II'" Itti I'l Hilf I'Hn~"'Hll
REPORT Of THE AUDIT DIVISION

ON

Minnesota Democratic Farmer Labor

Party

Approved February 12.1996

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FEDERAL ELECTIO!" CO!\tl\fISSIOl"

999 E STREET" ~.\\'.

\\'ASHI~GTO~" D.C.

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TABLE OF CONTEH'l'S

MINNESOTA DEMOCRATIC FARMER LABOR PARTY

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Executive Summary

Final Audit Report

Background

Findings

Legal Analysis

Transmittal to Committee

Chronology

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FEDERAL ELECTIO!\: corv1f\'ISSIO~

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FINAL AUDIT REPORT

ON

MINNESOTA DEMOCRATIC FARMER LABOR PARTY

EXECUTIVE SUMMARY

The Committee registered with the Comptroller General of

the United States on July 15, 1975, as the State committee of

the Minnesota Democratic-Farmer-Labor State Party.

The audit was conducted pursuant to 2 U.S.C. S438(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 of the audit were presented to the Committee

at an exit conference held after the audit fieldwork (4/15/94)

and later in an interim audit report. The Committee's

responses have been included in the findings set forth in the

final audit report.

The following is an overview of the findings contained in

the final audit report.

Misstatement of Financial Activity-tNan-Federal Portion)

2 U.S.C. 434(b)(I},(2) and (4): 11 CFR 102.5(a)(1)(i) and

106.5(9)(1). The Committee did not disclose 23 payments,

totaling $25,761, made from its non-federal account for shared

federal/non-federal expenses: nor did it handle these

transactions in accordance with the regulations governing the

allocation of shared expenses. Amendments were filed in

response to the interim report to complete the public record.

Reporting of Receipts

2 U.S.C. 434(b)(3)(A) and (B). Approximately 76\ of the

dollar value of contributions from individuals itemized on

reports lacked required contributor information. Most of the

errors involved instances where no street address was disclosed

and/or the name of the contributor was incorrect. Amendments

were filed which corrected these irregularities.

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Regarding contributions received from political committees/organizations, approximately SO, of the dollar value

of contributions itemized on reports lacked complete addre.8 info~ation and/or correct aggregate year-to-date figures. The

Committee filed amended reports which materially corrected

these errors.

Reporting of Disbursements

2 u. S •C. 434 (b) ( 5 ) (A); 11 CFR 1. 04 • 10 (b) ( 3) and (4).

Material error rates were identified regarding the Cammittee/s

reporting of payee addresses and the purpose of disbursements,

as well as the identity of the non-federal bank account which

funded certain allocable expenses. Amended reports were filed

which materially corrected these irregularities.

The Committee failed to itemized approx~ately 2,200

entries related to Committee payroll transactions. The

Committee disclosed the amounts transferred to its payroll

account but did not disclose payee information for the checks

issued from its payroll account. The Committee filed

amendments which materially corrected these omissions.

Exoenditures Made on Behalf of Clinton/Gore

2 U.S.C. 441a(d){I); 11 CFR 100.8(b)(16)(i),(iv) and

110.7(a)(1)-(4). Disbursements totaling $44,369 appeared to

have been made on behalf of the Clinton/Gore general election

committee, based on records made available during audit

fieldwork. Items such as pins, T-shirts, hats and other

campaign paraphernalia were purchased. No documentation was

made available during audit fieldwork to demonstrate that the

materials were used for exempt activities, as maintained by the

Commitc.E'e.

In response to the interim report, the Committee provided

documentation which demonstrated that the expenses in question

were for exempt activities r3ther than expenditures made on

behalf of Clinton/Gore.

Apparent Excessive In-Kind Contribution From a

Political Committee

2 U.S.C. 441a(a)(1)(C). The Committee entered into an

agreement with Friends of Sikorski (FOS) whereby six FOS

employees were loaned to the Committee to perform professional

and administrative services under the exclusive direction of

the Committee's political director. Information made available

during audit fieldwork was not sufficient to determine whether

or not the Committee reimbursed FOS for the full cost of the

services. It appeared that the Committee had received some

free services, resulting in a $2,539 excessive contribution

from FOS.

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Based on the COIIIIlittee'8 response to this finding --and

qiven that the amount in question could be characterized as a

disputed debt that had been resolved -- no further action va.

warranted.

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AK001540

AR.93-49

FEDERAL ELECTIOI': COf\,1MISSIOf\:

REPORT OP 'J.'lIE AUDIT DIVISION

ON

KIHNESOTA DEMOCRATIC PARlIER LABOR P.A.R'l'Y

I. Backgroug.d

A. Audit Authority

This report is based on an audit of the Minnesota

Democratic Farmer Labor Par~y (the Committee) undertaken by the

Audit Division of the Federal Election Commission in· accordance

with the provisions of the Federal Election Campaign Act of 1911,

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

Section 438(b) of Title 2 of the United States Code which states,

in part, that the Commission may conduct audits and field

investigations of any poli~ical committee required to file a

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

audit under this subsection, the Commission shall perform an

internal review of the 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.

'..!) B. Audit Coverage

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The audit covered the period from January 1, 1991

through December 31, 1992. The Committee reported a beginning

cash balance at January 1, 1991 of $2,645; total receipts for the

period of 53,361,375; total disbursements for the period of

53,334,487; and an end~ng cash balance on December 31, 1992 of

$29,433.!1

c. Campaign Organiza~ion

The ~~nnesota Dollars for Democrats registered with the

Comp~roller General of the Un~ted States on July 15, 1975, as the

State committee of the M~nnesota Democratic-Farmer-Labor State

Party. In 1980, the Comm~~~ee f~led an amended Statement of

11 All figures in th~s report have been rounded to the nearest

dollar. The amount.s do no~ foot. due to a S100 reporting

error in the beg~n~~ng cash at January 1, 1992.

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Organization changing its name to the ~nn••ota Democratic-Fa~r-LaborState Party.~1 ~e cam.ittee maintains

its headquarters in Saint Paul, Minnesota.

The Treasurer of the Committee during the period

covered by the audit was Mr. William J. Davis. The current

Treasurer of the Committee is Mr. Paul K. Schulte. Mr. Schulte

became Treasurer on July 18, 1994.

To handle its federal financial activity, the Commit~ee

used eight bank accounts during this period. The Committee

received contributions from individuals, political party

committees and other political committees, as well as transfers

from its non-federal ~ccoun~s for shared expenses.

o. Audit Scope and Procedures

The audit covered the following general categories,

however, the scope of our testing regarding contributions

received from individuals was l~ited. Although in maintaining

its contribution records, the Committee satisfied the

recordkeeping requirements of 11 CFR 5102.9, the records were not

maintained in a manner which would have allowed the Audit staff

to perform the substantive testing nor8Ally undertaken when

reviewing this category of contributions (8ee Finding II.B.l.).

1. The receipt of contributions or loans in excess of the

statutory l~itations (see Finding II.E.);

2. the receipt of contributions from prohibited sources,

such as those from corporations or labor organizations;

3. proper disclosure of contr~ution8 f~ individuals,

political committees and other entities, to include the

itemization of con~ributions when required, as well as,

the completeness and accuracy of the information

disclosed (see F~nd~ng II.B.):

4. proper disclosure of disbursements including the

itemization of d~sbursements when required, as well as,

the completeness and accuracy of the information

disclosed (see F~nd~ng II.C.);

5. review of expend~~ures made on behalf of federal

candidates (see F~nd~ng II.A.);

6. proper disclosure of Committee debts and obligations;

2/ On July 18, 1994, a~ amended Statement of Organization was receive~ by the Feae~a: Elect~on Commission changing the

Committee's name to the M~nnesota Democratic Farmer Labor

Party.

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accuracy of total reported receipts, disbur....nt. and

cash balances as compared to Committee bank recorda

(see Finding 11.0.);

adequate recordkeeping for Committee transactions;

pro~r disclosure of the allocation of costs a.sociated

with administrative expenses and activities conducted

jointly on behalf of federal and non-federal elections

and candidates (see Finding II.C.); and

othir 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 further any of the matters discussed in

this report in an enforcement action.

II. Audit Findings and Recommendations

A. Expenditures Made on Behalf of Clinton/Gore

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Section 441a(d)(1) of Title 2 of the United States Code

states, in part, that notwithstanding any other provision of law

with respect to l~itations on expenditures or limitationa on

contributions, the national committee of a political party and a

State committee of a po:itical party, including any subordinate

committee of a State committee, may make expenditures in

connection with the general election campaign of candidates for

Federal office.

Sections 110.7(a)(1) and (4) of Title 11 of the Code of

Federal Regulations state that the national committee of a

political party may make expenditures in connection with the

general election campaign of any candidate for President of the

United States affiliated witn the party and that such national

committee may make expenditures authorized by this section

through any designated agen~, ~ncluding State and subordinate

party committees.

Sections 100.8(b)(16)(~) and (iv) of Title 11 of the

Code of Federal Regulations s~ate, ~n part, that the payment by a

state or local committee 0: a pol~t~cal party of the costs of

campaign materials (such as plns, bumper stickers, handbills,

brochures, posters, party tablo~ds or newsletters, and yard

signs) used by such comm~ttee ~n connection with volunteer

activities on behalf of any nOmlnee(S) of such party is not an

expenditure, provided tha~: (1) such payment is not for costs

incurred in connect~on wlth any broadcasting, newspaper, magaz~ne, billboard, dlre=t ma~:, or similar type of general

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public camaunication or political advertising and (2) such

.aterials are distributed by volunteers and not by commercial or

for-profit operations.

During the review of Committee disbursements, the Audit

staff identified payments, totaling $44,369, that according to

information contained in the Committee'S disbursement recorda,

appeared to have been made on behalf of Clinton/Gore. Committee

purchase orders related to these payments were dated between July

31, 1992 and OCtober 29, 1992.

Mos_ of the purchase orders and invoices associated

with these payments indicated that they were ~elat~d t~ the

purchase of Clinton/Gore campaign paraphe~a11~ wh1ch 1ncluded

such items as pins, T-shirts, hats, campa1qn 11terature, bumper

stickers, rally signs and lawn signs. To qualify as exempt

activities, these materials would have to have been distributed

by volunteers.

According to notations on the invoices, Clinton/Gore

campaign paraphernalia, totaling $16,287, were to be shipped from

various vendors directly to "Clinton/Gore oem HOW or

'~Clinton/Gore '92 Committee- at 1600 Univer8ity Avenue in St.

Paul, Minnesota. Items totaling $9,170 vere to be shipped to the

Minnesota DFL at this same address. The Audit staff was unable

to verify that the Committee had an office at this location.

Additional items totaling $672 were to be shipped to an address

in Wausau, Wisconsin.

The Audi~ staff also noted an invoice fraa a radio

station which acknowledged an agreement between the radio

station, the Committee and Clinton/Gore for a -rally ad" to be

run between October 29, 1992 and November 1, 1992. The Ca..ittee

paid $966 to have this ad run.

A listing of the items apparently delivered to

addresses other than the Committee's headquarters address, as

well as the radio ad paid for by the Committee, was provided to

the Committee at the exi~ conference. For the remainder, $17,274

in materials apparently del~vered to the Committee's headquarters,

no documentation was present to demonstrate that the materials

were distributed by volunteers or otherwise qualified as exempt

activity. The Committee ma~nta~ned that this activity was exempt

from the definition of contribut~on/expenditurebecause the

materials were used by volunLeers in connection with volunteer

activities.

The Committee was afforded 10 days to submit

documentation related to the matters presented at the exit

conference. A response was received in which the Committee's

counsel stated that items sh~pped to 1600 University Avenue in

St. Paul were not sh~pped d~rec~ly to Clinton/Gore headquar~ers

but were shipped to the Comm~ttee's St. Paul field office located

at the same address. He added that these items were shipped to

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Glenda Murphy at this address and he described Ms. Murphy as a

part-time Committee employee who was in charge of campaign

paraphernalia at this field office.1' Counsel further s~ated that

these materials were used by party volunteers in connect1on with

volunteer activities and that the notation of "Clinton/Gore" before

"oem HO" on the invoices questioned by the auditors was in error.

~80 included in the 10 day response were the following

comments relative to Glenda Murphy provided by the Committee's

former political director to the Committee's counsel:

·'Glenda was employed by the Minnesota DFL Party

as an office manager for our St. Paul field

office during the 1992 campaign. During that t~e, she independently decided to purchase

Clinton/Gore paraphernalia and sell them, paying

for the paraphernalia through her personal bank

account and depositing the proceeds in the same

account.

When notified of this, you and I met with Glenda

and her attorney to inform her that these

actions were not on behalf of or sanctioned by

the Minnesota DFL Party; rather, she should

consider this an independent business operation

of which she was the owner.

All funds used by the Minnesota DFL Party to

purchase Clinton/Gore paraphernalia were

permissible under federal election law. At no t~e did the Minnesota DFL Party require a

payment for volunteers to use or keep

paraphernalia."

The Audit staff saw no documentation demonstrating that

there was e Committee field office located at 1600 University

Avenue, the same address as the apparent Clinton/Gore

headquarters in St. Paul. The leases reviewed during the

fieldwork pertained only to the Committee's headquarters. In

addition, no evidence was prov~ded demonstrating that the

paraphernalia shipped to other than the Committee's headquarters

were distributed by volunteers and not by commercial or

3/ The Committee's Amended 1992 October 15 Quarterly and

Pre-General Reports ~ncluded payroll disbursements to Glenda

Murphy. Accord~ng to ~ntormat~on developed during other

audits, Ms. Murphy received payments totaling $1,712 from the

Clinton/Gore general election comm~ttee for "Paraphanalia/

Visiblt" [sic] S50C, "Paper , Supplies" $212, and "Campaign

Consultants" S:,OOC. Ms. Murphy also received a payment from

the Clinton pr~a=J' comm~ttee ~n the amount of $351 for

"overhead ...

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for-profit operations. Finally, the st.•ted activities undertaken

by Glenda Murphy may have constituted contributions/expenditures

under the Act.

Since the Committee did not demonstrate that materials

shipped to the 1600 University Avenue address were distributed by

volunteers in accordance with 11 CFR SlOO.8(~)(16)(iv), the

purchase of these materials does not qualify ~S exempt activity.

In summary, it appeared that the Committee made

expenditures on behalf of Clinton/Gore, totaling $44,369

(paraphernalia; S16,28i • $9,170 • 5672; radio ad: 5966; other

materials: S17~274), which did not qualify as exempt party

activities.!/

In the inter~ audit report the Audit staff recommended

that the Committee demons~rate that it did not make 544,369 in

expenditures on behalf of Clinton/Gore and that the documentation

provided should include but not be l~ited to:

Evidence, such as volunteer sign-in sheets

maintained by the Committee at the field office,

which demonstrated that paraphernalia purchased by

the Committee were distributed by volunteers and

not by commercial or for-profit operations (see 11

CFR S10a. 8 (b) ( 16 ) ) ;

Documentation showing that the invoices addressed

to "Clinton/Gore Dem HQ" or ·Clinton/Gore '92

Commit tee·' were incorrectly addressed;

Materials, such as a lease and/or utility bills,

document~ng that the Committee had a field office

at the same location as the apparent Clinton/Gore

headquarters (1600 University Avenue, St. Paul,

!'!.innesot.a); and

Informat~on relat~ve to the activities performed

by Glenda ~urphy as a part-time Committee employee

in charge a! paraphernalia and the demonstration

that act.~v~~~es conducted by Ms. Murphy on her own

did no~ cons~~~ute contributions/expenditures

under the A~~. Cop~es of relevant bank statements

and all en~~osu~es, as well as invoices, purchase

4/ According to an Augus~ 2~, 1992 memorandum from the

president of the Assa~~a~~on of State Democratic Chairs,

the state party cha~~s were adv~sed that they d~d not have

authority to make 44:d(d) expenditures on behalf of

Clinton/Gore.

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orders and other documents related to the purchase

and sale of the paraphernalia, were to be provided

for the accounts used by Glenda Murphy in

conducting the above activities.

In the Committee's response to the interim audit report

the Committee counsel contended that the Clinton/Gore

paraphernalia purchased by the Committee wer~ distrib~ted by

volunteers and not by commercial or for-prof~t operat~ons. To

support this contention, counsel submitted photographs ~hich,

according to the written response, showed ...the campa~gn

ma~erials beiag reviewed, sorted, stuffed and taken to the post

office for mai~ing.·· Also included were two samples of campaign

brochures which, according to the response, were distributed by

these volunteers. He stated that the nature of these brochures

varied depending on which district was being targeted and were

used for multi-candidate efforts. Counsel added that the

Committee had sign-in lists of the volunteers who participated in

these activities but that these lists were nc longer in the

Committee'S possession.~/

The response also included a photocopy of each invoice

associated with the $44,369 considered by the Audit staff to be

expenditures made on behalf of Clinton/Gore. Committee counsel

included written explanations relative to each invoice discussing

what was purchased and how the items purchased were used by the

Committee, e.g., T-shirts distributed by volunteers.

Committee counsel also explained that the invoices for

paraphernalia purchases which were addressed to "Clinton/Gore Dem

HQe. or ··Clinton/Gore ' 92 Committee" at 1600 University A,Yenue

were incorrectly addressed. He stated that the facility at this

address was known as the "Clinton/Gore Democratic-Farmer-Labor

Pa=ty headquarters" because both Clinton/Gore and the Committee

had an office at this address. He included evidence that the

Committee leased space at this address by submitting a photocopy

of a lease for office space at this location signed by the

Committee chairman at that time for the stated purpose: "Local

office of Political Campaign.·' He also supplied two bills which

demonstrated that the Comm~~tee had an office at this address.

With respect to the activities of Glenda Murphy, the

part ~ime Committee employee ~n charge of paraphernalia at this

location, Committee counsel made the follOWing comments:

"Glenda Murphy'S duties. Ms. Murphy was a part-t~e DFL !~eld worker during part of

1992. Her Job duties included supervision

SlOne of the photograpns showed ~ndividuals at a table

apparently sort~ng campa~gn materials. On the wall behind th~s table were long sheets of paper with a sign above

which read, "volunteers please s~gn in here.~

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of volunteers at the DFL's ~in Cit~e&

field office and providing paraphernalia

and campaign materials for use by those

volunteers. She was also the office

manager of that field office. The

committee has been unable .,~- yet to secure

her personal records. The DFL did not

control Ms. Murphy's activities other than

when she worked for it."

It is the opin~on of the Audit staff that based on the

documentation~rovided in its response to the inter~ audit

report, the Committee appears to have d~monstrated that the

paraphernalia purchasea was dis~ributed by volunteers ~nd not by

commercial or for-profit operat~ons, and that the Comm~ttee has

demonstrated that it had a field office at the same location as

the apparent Clinton/Gore headquarters. As a result, it appears

the Committee did not make $44,369 in expenditures on behalf of

Clinton/Gore.

Given that the Committee provided documentation

relative to the $44,369 in expenditures which demonstrated that

these expenditures were apparently not made on behalf of

Clinton/Gore, it appears unnecessary to continue to question

whether Glenda Murphy'S activities constituted contributions or

expenditures under the Act.

B. Reporting of Receipts

1. Disclosure of Contributions from Individuals

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

S~ates Code requires a polit~cal committee to report the

~dentification of each person who makes a contribution to the

committee in an aggrega~e amount or value in excess of $200 per

calendar year together with the date and amount of such

contribution. Section 431(13)(A) of Title 2 of the United States

Code defines the term ~~dentif~cation" to be, in the case of any

individual, the name, the mail~ng address, and the occupation of

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

Under 2 U.S.C. S453 and 11 CFR Sl08.7(a), the

provisions of the Act, and rules and regulations issued

~hereunder, supersede and pre-empt any provision of state law

with respect to election to Federal office.

Section 1IO.I(k) of Ti~le 11 of the Code of

Federal Regulations states, ~n relevant part, that any

contribution made by more than one person shall include the

signature of each contr~Dutor on the check, money order, or other

negotiable instrument or ~n a separate writing. A contribution

by more than one person that does not ind~cate the amount to be

attributed to each contr~butor shall be attributed equally to

each contributor.

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The Audit staff performed a l~ited reviewil

of contributions from individuals. The Committee itemized 236

contributions from individuals, totaling $66,159, on its

disclosure reports. Based on our review, 154 of these

contributions, totdling $49,919, were disclosed incorrectly.

More than 90' of the dollar value of these errors involved

instances where no street address was disclosed and/or the name

of the contributor was disclosed incorrectly.

There were two types of errors associated with the

disclosure of:contributor names. The first type resulted from

contribution checks bearing one signature made from joint

accounts which the Committee disclosed as being from both account

holders (e.g., Mr. and Mrs.). The second type occurred when the

Committee disclosed contributions made on joint accounts to the

account holder who had not signed the contr1bution check.

The Committee's deputy treasurer stated that for

state reporting purposes, Minnesota state law pe~its the

attribution of contrib~tions made on a joint checking cccount to

both account holders (e.g., Mr. and Mrs.) without both

signatures.-11 In an interim conference, this C01IIIDittee official

stated that the Committee had received complaints from

contributors who had received at their household duplicate

solicitations addressed to each spouse. The Committee's

computerized contributor files were set up to merge into a single

record names of individuals from the same household so only one

solicitation would be sen~ to each address.

At the exi~ conference, the deputy treasurer

explained that the incomplete addresses disclosed on the reports

resulted from a computer software problem where the address

information was no~ always transferred correctly from the

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6/ The Committee met the minimum recordkeeping requirements of

2 U.S.C. S432(c) and 11 CFR S102.9(a); however, the

Committee could not produce a computerized file or a listing

of all contributions recelved in 1991: the computerized

file made available for 1992 proved to be inaccurate and

incomplete.

7/ According to Minnesota Rules Ch. 4500.2400, "when a

contribution ~s glven on a check written on a joint account,

it shall be deemed a contr~bution by the signator(s) of the

check unless otherwise spec~fied by the signator(s)." The

Audit staff contacted the M~nneso~a Ethical Practices Board

and confirmed tnat for state dlsclosure purposes, committees

are permitted to dlsclose both account holders relative to a

joint contribu~ion Wl~hout obtalning both signatures:

however, some lnformatlon (e.g., notation on check) is

necessary to attribute the contribution to other than the

signator.

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contributor data file to the disclosure reports. The Audit staff

va. able to locate the correct addre.... for a majority of th••e

errors in the Committee's contributor data files.

The Audit staff notes that the regulations at 11

CFR SllO.1(k) require the signatures of each contributor to whom

a contribution is attributed when attributing joint contributions

to both spouses and that the contributors' names should have been di~~losed accordingly. State law permits, but does not require, the disclosure of both account holders as the contributors

without having the signatures of each: however, so~e indication

is required t~ attribute the contribution to other than the

individual who-signed the check. At the exit conference

Committee counsel noted his concern regarding the Committee'S

responsibility to differentiate between state and federal

requirements in this area.

Subsequent to the exit conference, the Committee

filed amended reports which materially corrected the disclosure

errors noted above.

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2. Disclosure of Contributions from Political

Committees/Organizations

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Section 434(b){3)(B) of Title 2 of the United

States Code states, in part, tha~ each report shall disclose the

identification of each political committee which makes a

contribution to the reporting committee during the reporting

period. Sections 431(11) and (13)(8) of Title 2 of the United

States Code state, in part, that the term -identification- .eans

in the case of a political committee, the full name and address

of such committee.

In addition, Section 104.3(a)(4)(ii) of Title 11

of the Code of Federal Regulatio"~ requires that the aggregate

year-to-date tc~al for each con~_~butin9 committee be reported.

During our review of receipts, the Audit staff

noted that the Committee itemized 168 contributions from

political committees/organiza~~ons, to~aling $455,185. We de~ermined that 78 of thes~ ~tems, totaling $224,520, were not

disclosed properly. Errors noted included incomplete adtiress

information and incorrect aggregate year-to-date totals.

At the ex~t conference, the deputy treasurer

explained that the computer software utilized to prepare the FEe ~eports caused the disclosure errors. The software did not ~g9re9ate contributions from pr~or report periods within the

calendar year and only one of the two address fields was

transferred from the contributor data files to the reports. She

stated that these software problems have since been corrected and

that amended reports would be filed.

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A schedule of the disclosure errors was provided

to the Committee at the exit conference. Subsequent to the exit

conference, the Committee filed amended reports which corrected

most of the disclosure errors noted above.

c. Reporting of Disbursements

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

Code states that each report shall disclose the name and address

of each person to whom an expenditure in an aggre~ate amount or

value in excess of $200 within the calendar year ~s made by the

reporting comaittee to meet a candidate or committee oper~ting

expense togetfier with the date, amount and purpose of sucn

operating expenditure.

Section 104.10(b)(4) of Title 11 of the Code of Federal

Regulations requires a political committee that pays allocable

expenses in accordance with 11 CFR 106.5(g) to also report each

disbursement from its allocation account in payment for a joint

federal and non-federal expense or activity~ In the report

covering the period in which the disbursement occurred, the

committee shall state the full name and addz~ss of each person to

whom the disbursement was made, and the date, amount and purpose

of each such disbursement. If the disbursement includes payment

for allocable costs of more than one activity, the committee

shall itemize the disbursement, showing the amounts designated

for payment of administrative expenses and generic voter drives,

and for each fundraising program or exempt activity, as described

in 11 CFR 106.5(a)(2). The committee shall also report the total

amount expended by the committee that year, to date, for each

category of activity.

Section 104.10(b)(3) of Title 11 of the Code of Federal

Regulations requires a political committee that pays allocable

expenses in accordance with 11 CFR 106.5(g) to also report each

~ransfer of funds from its non-federal account to its separate

allocation account for the purpose of paying such expenses.

1. Disclosure Errors

The Audi~ staff conducted a sample review of

disbursements made by the Committee during 1991 and 1992:

material error rates rela~ive to the disclosure of payee

addresses and p:;rpose of disbursements on Schedules B (Itemized

Disbursements) and H-4 (Jo~n~ Federal/Non-Federal Activity

Schedule) were noted. In addlt~on, a material error rate was

noted relative to the disclosure on Schedules H-3 (Transfers From

Non-Federal Accounts) of the ~dentity of the non-federal accounts

from which funds were transferred to federal accounts to pay

allocable expenses. The name of the bank was disclosed on

Schedules H-3, but no~ the narne of the bank account.

ApproveC 2/12/9£
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The Committee opened two allocation accounts on March

7, 1991 and April 29, 1991, respectively. During the first four

months of 1991, the Committee paid allocable expenses by checks

written from both the federal and non-federal accounts for the

proportionate shares (see Finding 11.0.).

The Audit staff reviewed the Committee's reports

as originally filed for the.audit period. SUbsequ~nt to th~ exit

conference, the Committee f~led amended reports wh1ch mater~ally

corrected the disclosure errors noted above.

2. = Disclosure of payroll Transactions

Our review of payroll account records indicated

that reports originally filed did not contain itemized entries on

Schedules H-4 for individual checks issued from this account, as

required. Rather, as confirmed by the Committee's deputy

treasurer, a single entry representing the amount of the funding

transfer from the Committee's operating account to its payroll

account was itemized on each disclosure report filed.!/

Approximately 2,200 transactions were involved.

Subsequent to the exit conference, the Committee

filed amended reports which materially corrected the payroll

disclosure errors.

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D. Misstatement of Financial Activity -(Non-Federal

Portion)

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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 on hand at the beginning of the

reporting period, and the total amount of all receipts and

disbursements for each reporting period and calendar year.

Section 102.5(a)(1)(i) of Title 11 of the Code of

Federal Regulations states, ~n part, that if party committees

which finance political act~v~ty in connection with federal and

non-federal elections establ~sh a separate federal account in a

depository, no transfers may be made to such federal account from

any other accounts ma~nta~ned by such organization for the

purpose of financing act~v~ty ~n connection with non-federal

elections, except as prov~ded ~n 11 CFR 106.5(g).

Section 106.5(g)(1) of ~itle 11 of the Code of Federal

Regulations provides that comm~ttees that have established

separate federal and non-federal accounts under 11 CFR 102.5

shall pay the expenses of Jo~nt federal and non-federal

8/ The Committee t\;llot.ed pre-1991 regulations which only

required comm~ttees to ltemlze ~he federal portlon of

transfers when payroll checks were issued from a

non-federal account.

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activities as follows: (i) pay the entire amount of an allocable

expense from its federal account and transfer funds from its

non-federal account to its federal account solely to cover the

non-federal share of that allocable expense; or (ii) establish a

separate allocAtion account into which funds from its federal and

non-federal accounts shall be deposited solely for the purpose

paying the allocable expenses of joint federal and non-federal

activities.

The Audit staff reconciled the Committee's reported

activity to its bank ac~~vity for the period January 1, 1991

through Dece~r 31, 1992. Our review revealed a material

misstatement in 1991 which occurred because the Committee did not

report the payment of allocable expenses from its non-federal

account.

The Committee did not open its two allocation accounts

until March 7, 1991 and April 29, 1991. During the first four

months of 1991, the Committee paid allocable expenses by checks

written from both the federal and non-federal accounts for the

proportionate shares. A review of the Committee'S disbursement

records indicated that 23 such payments were made during this

time period. Rather than paying expenses from both the federal

and non-federal accounts prior to opening an allocation account,

the Committee should have paid all shared expenses from the

federal account and then seek reimbursement from the non-federal

account for its allocable share in accordance with 11 CFR

106 . 5 (g) ( 1 ) ( i) .

Although these transactions were not handled in

accordance with the regulations, nevertheless, the non-federal

portions of these payments totaling $25,761, should now be

reported as memo entries on Schedules H-4 (Joint

Federal/Non-Federal Activity Schedule).

The Committee'S deputy treasurer stated that payments

were made this way prior to the opening of the allocation

accounts. A listing of the 23 payments, totaling $25,761, was

prOVided to the Comm~ttee a~ the exit conference.

In the inter~ aud~t report the Audit staff recommended

that the Committee file amended Schedules H-4 listing as memo

entries the non-federal port~ons of these payments, totaling

$25,761. The Committee compl~ed with this recommendation.

E. Apparent Excess~ve In-Kind Contribution From

A Political Comm~~~ee

Section 441a(a)(1)(C) of T~~e 2 of the United States

Code prohibits a person from making contributions to any other

political committee ~n any calendar year which, in the aggregate,

exceed $5,000.

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Section 431(11) of Title 2 of the United States Code

states that the term -person" includes an individual,

partnership, committee, association, corporation, labor

organization, or any other organization or group of persons, but

such term does not include the Federal Government or Bny

authority of the Federal Government.

Section 100.7(a)(1) of Title 11 of the Code of Federal

Regulations states, in ~ar~, that the term "contribut~on,. includes a gift, subscr~pt~on, loan, advance or depos~t of money

or anything of value made by any person for the purpose of

influencing aay election for Federal office. The term "anything

of value" incrudes all in-kind contributions. Unless

specifically exempted under 11 CFR lOO.7(b), the provision of any

goods or services without charge is a contribution.

Section 441a(f) of Title 2 of the United States Code

states that no candidate or political committee shall knowingly

accept any contribution or make any expenditure in violation of

the provisions of this section.

Congressman Gerry Sikorski was the incumbent from

Minnesota's 8th Congressional District in 1992.!1 According to

documentation made available by the Committee, an agreement was

made between his authorized committee, the Friends of Sikorski

(FOS), and the Committee where six FOS employees were loaned to

the Committee to perform professional and administrative services

and to conduct multiple candida~e campaigning beginning OCtober

1, 1992. According to documentation attached to the agreement,

five of these individuals, described as "field staff,· were to

provide 60\ of their regular work hours to the Committee and

would t' •••spend 3.5 hours per day recruiting volunteers for mult~ple candidate doorknocks and 3 hours per day doorknocking

for mul tiple candidat.es. ,. One individual, noted as "phone bank supervisor,~ was to prOVide 100\ of his regular work hours to the

Committee. The agreement s~ipulated that these individuals were ftsubjec~ t.o the exclus~ve d~rect~on~ of the Committee's political

director at that t~e.

The agreemen~ fu~~he~ specified that FOS would be ' ... liable for all payrol: ~axes, compensation and other costs

associated with main~a~n~ng each of the employees.~ The

agreement, which was to term~nate November 3, 1992 (Election

Day), also directed the Comm~~~ee to pay FOS $12,000 for the

services of these FOS employees. A payment in the amount of Sl~,OOO was made on that date.

9/ Congressman Sikorsk~ won the Democrat~c pr~ary elect~on on

September 15, 1992 w~th 49\ of the vote, but lost in the

general election w~~h 33% of the vote.

Pa?E 18, Approved 2/12/96

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The Audit staff reviewed the disclosure reports fil~d

by FOS during this t~ period and noted that FOS reported salary

payments to these six individuals on OCtober 29, 1992 totalin;

$5.636. Since all salary payments reportedly made to the.e

individuals were dated at the end of each month relative to the

July through OCtober 1992 t~e frame, the Audit staff viewed the

OCtober 29, 1992 salary payments as covering services for the

month of OCtober - which covered most of the t~e period these

services were to be provided to the Committee. Payments were

also reportedly made by FOS during this t~e period relative to

federal and state withholding, workmen's compensation and

unemployment ~axes.

An undated rebnbursement request made to the Committee

from FOS itemized 518,139 in costs relative to the phone bank

operations and field staff services performed by these six FOS

employees. The request noted that $12,000 had been paid on

November 2, 1992, leaving an amount due of $6,139. No

documentation was located indicating that this obligation was

ever paid.

If the Committee received goods and services from these

FOS employees valued at 518,139, it appears an in-kind

contribution in the amount of $6,139 occurred. Since FOS had

already made a $1,400 contribution on July 24, 1992, the

Committee apparently accepted an excessive contribution totaling

S2,539 ($1,400 • $6,139 - $5,000).

In the inter~ audit report the Audit staff recam.ended

that the Committee present documentation demonstrating that no

excessive in-kind contribution was accepted and that the

documentation should ~nclude but not be l~ited to:

A desc:~ption of the services prOVided to the

Committee by the six FOS employees;

the dates these services were provided;

a valuat~on of the actual services provided;

the amoun~s pa~d to these individuals by FOS relat~ve to ~hese services;

the amoun~(s: ~he Committee re~ursed FOS for

these se~·~ces; and

a descrip~~o~ of materials distributed, samples of

scripts used and an explanation as to why no allocat~ons to cand~dates were disclosed.

It was also noted ~~ the ~nterim audit report that

additional recommendat~on£ may oe forthcom~ng based on the Audit

staff's review of any documen~at~on provided.

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In the Committee's response to the interim audit report

the Committee counsel stated that after the election, the

Committee received a "billing" from FOS which indicated that the

Committee owed FOS a total of $18,139 broken down A~ follows I

$6,600 for the use of FOS field staff [he pointed 01.t that the

amount should have been $6,660 (60t of $11,100)]; $2,500 for the

phone bank supervisor; $1,000 for another individual; and total

phone bank charges of $8,039. He added that the committee

decided to only pay $12,000 for the following reasons: the

$18,139 amount per invoice exceeded the $12,000 ~~unt agreed

upon in the contract; the scope of the contract d~t: not cover any

employees other than field staff~ 100' of the phone bank ~osts,

totaling S11,5)9, were included ~nstead of the 60' noted ~n the

contract.

The Committee counsel concluded that the Committee did

not owe FOS 56,139 as stated in the inter~ audit report, which

was the difference between S12,000 and $18,139. He stated that

this position was conveyed to F~S and that this matter was

resolved by the Committee maki~g no further payments to FOS.

Counsel added that even if the Committee owed additional payments

to FOS, the highest amount they would owe would be 60' of the

$22,639 ($13,584) in total phone bank-related charges less the

S12,000 already paid, or $1,584. However, he reiterated that it

is the Committee's position that it owed FOS nothing in excess of

the 512,000 already paid.

Also enclosed with the Committee'S response was an

affidavit from the Committee'S former political director who

stated that in that capacity he had entered into a contract with

FOS to aid in multi-candidate campaigning. He stated in the

affidavit that after the election he received a memorandum from

the FOS director from which he interpreted that the phone bank

charges ($8,039), phone bank superJisor charge ($2,500) and the

charge for another individual (Sl,OOO) were not part of the

contract. He added that the Committee was billed 100' for the

phone bank supervisor and phone bank employees rather than the

maximum 60\ which he would have agreed to had the subject been

raised in the initial con~rac~.

He then stated ~n the affidavit that he advised the FOS

director that the invo~ce was ~r. error because the contract price

was l~ited to S12,OOC, the con~rac~ provided that 60' of the

joint expenses would be pa~d by the Committee and that although

the field staff had been work~ng on multi-candidate work, not

just on FOS work, he had n~ suc~ proof that the phone bank staff

had spend 60\ of their tLme or. multi-candidate projects. He adds

that they agreed to comprom~se on the matter by haVing the

Committee pay no more than the S:2,000 contract price.

The Aud~~ staff notes tha~ the agreement between the

Committee and FOS, wn~ch was rev~ewed ~ur~~g the fieldwork and

again subm~tted w~~h the Comml~tee's res~onse, was signed by the

Committee's forme~ pol~~~~a: d~rector but not by a representative
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from FOS. It is stated in the agreement that the Committee " .•.shall be entitled to no more than 60\ of the no~al and

regular t~e of each of the employees listed on Exhibit A."

Although no Exhibit A was attached, other documentation indicated

that six FOS staff were involved with this project - five field

staff and one supervisor. There was also another individual

involved with this project but the Audit staff was unable to

determine if he was associated with FOS. It is further stated in

the agreement that the Committee shall pay $12,000 for these

services.

One~f the documents attached to the agreement reviewed

during the fieldwork was an undated and unsigned memorandum from

the director of F05 to the former political director of the

Committee which stated tha~ the field staff salary was to be

re~ur8ed to FOS at 60\, the phone bank supervisor salary at

100' and the phone bank employees at 100%. It was indicated on

this memorandum that a listing of phone bank employees and copies

of phone bank scripts were attached at one time but no listing or

scripts were attached when the Audit staff reviewed this

document.

There appears to be some disagreement between the Commi~tee representatives' comments in the Committee's response

to the interim audit report and the documentation attached to the

agreement reviewed by the Audit staff during the fieldwork. The

documentation indicated tha~ the Committee owed 100\ of the

costs relative to phone bank charges, the phone bank supervisor

and another individual, whereas Committee counsel and the former

political director contended that the Committee owed only 60' for

these charges.

The Audit staff notes that the Committee's response did

not include any informa~ion relative to the amounts paid by FOS

to tn~ :05 staff involved wlth this project, nor did the

Committee include a desc:~p~~on of materials distributed, samples

of scripts used or a~ explana~lon as to why no allocations to

candidates were disclosed. In addltion, no evidence from FOS was

included by the Committee WhlCh demonstrated that the $12,000

paid by the Committee fo~ tnese services was considered by FOS to

be payment in full. Glve~ tha~ ~he amount ~n question is at most

$2,539 and that based on tne Commlttee'S response, this amount

could be characterized as a dlsputed debt that has been resolved,

it now appears that no fu~the~ actlon is warranted.

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Page 22, Approved 2/12/96
FEDERAL ELECTION COMMISSION

January 5, 1996

MEMQRANDlTM

La\\Tence M. oble

General Co sel

I VI 'L

Kim Bright-Foleman \..,.\'J

.~ssociate General Counsel

BY:

THROl~GH: John C. S .

StaffDir

TO:

FROr-.1:

.!)

o

Lorenzo Hollo\.\°ay ... .

.~ssistant General Counsel

.-\bel P Montez

.~nome~

.,If

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..

SUBJECT: Proposed Final .-\udit Repon on Minnesota Democratic Farmer Labor

Pan~ (LR.o\ =~6~)

I. I~TRODllCTIO~

The Office of General Counsel has re\*le\\'ed the proposed Final Audit Repon on

the MInnesota Democratlc Fanner Labor Pany ("the Committee") submitted to this Office

on November::! 1. 1995 I The follo""'ing memorandum summarizes our comments on the

proposed report \\'e concur ""ith findings In the proposed repon which are not discussed

Because the proposed Fmal AudIt Reoon does not mclude any maners exempt from public

disclosure under lie F R .:. e recommend that the CommIssion·S diSCUSSion of thiS document be

conducted an open session

Page 23, Approved 2/12/96
c

Memorandum to Robert J. Costa

Final Audit Report for

MiDnesota Democratic Fanner Labor Party (lRA #I 462)

Page 2

separately in the following memorandum. 1f you have any questions conceming oW'

comments, please contact Abel P. Montez. the anomey assigned to this audit.

II. EXPENDITURES ON BEHALF OF THE PRESIDENTIAL AND VICE

PRESIDENTIAL NOMINEES (lI.A.)

The proposed feJX>n raises the issues of: (1 ) "'hether the Comminee detnonstrated

that it did not make certain disbursements on behalf of the Clinton/Gore 492 Comminee

C"ClintonlGoren

) in violation of 2 U.S.C. § 441a(d) by purchasing Clinton/Gore

paraphernalia. and (2) further questioning ofthe activities of a pan-time committee

employee, who handled such paraphernaha. is \\'arranted. The Comminee \\'as not

authorized by the national comminee to make expenditures on behalf ofClinton/GoTe.

11 C.F.R. § 110.7(a)(4). The Interim Audit Repon identified seven invoices showing that

the Comminee had spent a total of $44.369 on behalf ofClintonlGofe for bumper stickers.

printing services. brochures, and T-shirts. and concluded that the amounts spent on the

paraphernalia on behalf ofClinton/Gore did not qualify as exempt party activities.

11 C.F.R. § 100.8(b)(16).

These amounts, which \\'ere found in the Comminee·s disbu:-sement records. are

associated \\ith purchase orders and invoices dated bet\\'een July 31, 1992 and

October 29. 1992. Most ofthe purchase orders and invoices indicated that the Comminee

purchased the ClintonlGore campaign paraphernalia. Some ofthe invoices indicate that

various vendors ofClinton/Gore campaign paraphernalia billed the Comminee at its

headquaners at "352 \\iacouta·· in S1. Paul. but shipped the items directly to ··Clinton/Gore

Oem HQ·· or ·"Clinton/Gore ·92 Committee:olocated at "·1600 University Avenue·· in St.

Paul. Some invoices indicate that the vendors billed "'~1innesota DFL,. at ""1600 University

1\venue. and shipped items to ··Minnesota DFL·· at "'1600 University .-\"e.·'

Most ofthe invoices were "nnen to the ··.A.ttentaon·· of Glenda Murphy. \\'ho

apparently "'orked at "'1600 Universit) .-\venue o. According to the Comminee. Ms.

Murphy "'as a part-time Comminee employee In charge of campaign paraphernalia at the

field office. The Comminee maintains that f\1s ~1urphy deCided to purchase and sell

Clinton/Gore paraphernalia. The Committee states thjt ~1s tv1urphy used her personal

bank account to deposit the proceeds from the sales

The Interim Audit Repon recommended that the Commlnee demonstrate that:

(1) it did not make expenditures on behalf of Cltnton/Gore by prOVIding evidence that the

paraphemaha was distributed by volunteers. (~ )the Commlnee had a field office at the

same locatlon as the Chnton/Gore headquaners. and (3) In\'oices addressed to

Clinton/Gore should have been correcll~ addressed to the Committee. The Interim Audit

Repon also recommended that the Commtnee prOVide more Infonnauon with regard to Ms.

~·1urphy· s business activity ofselling paraphe-malla. Based on the Comminee's response to

Page 2~, Approved 2/12/96
Memorandum to Robert J. Costa

final Audit Report for

Minnesota Democratic Fanner Labor Pany (LRA # 462)

Page 3

the Interim Audit Report. the proposed Final Audit Report concludes that the Committee

demonstrated that the pmchase of campaign paraphernalia was exempt because the

materials were distributed by volunteers.. the Comminee had a field office at the same

location as the presidential candidate headquaners. and the Clinton/Gore invoices had been

incorrectly addressed. Because the Audit Division did not receive additional information

regarding Ms. Murphy's activities. the proposed report continues to question whether her

activities constituted co_ntributions or expenditures under the Act.

After reviewing the Conuninee's response to the Interim .~udit Repon.. this Office

concurs with Audit Division·s analysis thai the Comminee demonstrated that it did not

make certain disbursements on behalf ofClintonlGore. The Comminee provideL

photographs showing volunteers revie\\ing. soning. stuffing.. and mailing campaign

materials. One photograph shows individuals at a table apparently soning campaign

materials; the wall behind the table has a long sheet of paper with a sign stating "'volunteers

please sign in..... The comminee included 1\\'0 samples of campaign brochures. which

apparently \\'ere distributed by the volunteers. Therefore.. it appears that the Committee

used volunteers to distribute campaign materials and that the related expenses for the

materials are exempt from the definition of expenditure. 11 C.F.R. § lOO.8(b)(16).

The Comminee also included photocopies of each invoice. and explained ho\\' the

items purchased were used by the Comminee. The Comminee also provided copies of

leases. sho\\..ing that it leased space at "1600 University .4..venue.·· The Comminee

explained that because it and Clinton/Gore had an office at .... 1600 University Avenue."

some invoices were inaccuratel)' addressed to Clanton/Gore. The Comminee states that the

"1600 University Avenue·" address ""as knO\\ll as the ··ChntonlGore Democratic-FarmerLabor Pany headquaners.·· In light of this explanatory infonnation. the Office ofGeneral

Counsel does not believe that the disbursements at Issue were made on behalf of

Clinton/Gore.

Because the Comminee has prOVided Information relative to the $44.369 in

expenditures and demonstrated that it did not make disbursements on behalf of

Clinton/Gore.. this Office believes 1t is not necessa.,: to continue to question whether Ms.

Murphy·s activities constituted contributions or e\penduures under the Act. The

Comminee·s documents and infonnatlon made a\'31 iable In response to the Interim Audit

Repon do not appear to provide any eVidence that ~1s. ~'1urphy's actlvities constituted

contributions or expenditures under the Act Therefore. thIS Office recommends that the

Audit Division revise its repon to reflect thiS Vlev. .

III. Il't-KIND CONTRIBUTIO~ Ff<.O:\1 A POLITIC.-\L CO!\11\1ITTEE

The proposeJ repon raIses the Issue of" hether the Cornmlnee has sufficiently

demonstrated or explained that It did not accept an In-kind contnbutlon fro:n Friends of

Pa~e 25, ~-p~oveC 2/12/96
Memorandum to RobertJ. Costa

rmal Audit Repon for

Minnesota Democratic Fanner Labor Pany (LRA # 462)

Page 4

Sikorski \FOS"), a congressional candidate"s political committee, FOS entered into an

agreement with the Committee to provide FOS employees to the Committee to perform

professional and administrative services and to conduct multiple candidate campaigning.

The agreement called for tbe payment of $12.000 for the services ofthese employees from

October 1 t 992 to November 3. 1992. The agreement stated that the Committee would be

uentitled to no more than 6~o of the normal and regular time'· of each offive employees

listed in a separate doc'!D1ent. A document. dated October 1. 1992. stated that the five

~,dividua1s, tenned "the1ield staff." would be "spending six and a halfhours per day. 6()O/o

oftheir time, on multiple candidate campaigning..... These five employees were also

required to ··spend 3.S hours per day recruiting volunteers for multiple candidate

doorknocks and 3 hours per day doorknocking for multiple candidates."

On November 3, 1992. the Comminee paid the S12.000. During fieldwo~ the

Audit Division found an undated memorandum from FOS's Ruth Stanoch. Ms. Stanoch

billed the Comminee $18.139 in costs relative to phone bank operations and field staff

services pcrfonned QY FOS mlployees as follows:

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United Democratic Front Phone Bank

Phone Bank Supervisor

Field staff

Gary Cerkvenik

S 8.039.24

S 2.500.00

S 6.600.00

S 1.000.00

C'I

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The memorandum accounted for the $12.000 payment FOS had received from the

Comminee. The request stated that 56.139 was due. The Audit Division did not find

documents showing that the Comminee paid the 56.139.

The Interim Audit Repon recommended that the Comminee present documentation

to demonstrate that it did not accept an excessive in-kind contribution. In response to the

Interim Audit Report. the Comminee s counsel stated that the Committee had received Ms.

Stanoeh's memorandum, but had not paid the difference between the $18.139 and the

S12.000 payment because the contractual amount "'as for S12.000. In a signed aflidavi~

Todd Rapp. the Comminee·s political director. states that when he received Ms. Stanoch's

memorandum. ··it was clear to me that the [United Democratic Fund] phone bank charges.

phone bank supervisor charge and Gary Cerkvenik charge were not pan ofthe contract."

He states that he contacted Ms. Stanoch and adVIsed her that he believed that the invoice

was in error because. among other things. the contractual price was limited to S12.000 and

that he knC\\' that the field staff workers had been \\'orking on multi-candidate work and not

just FOS work.'~ He states that he told ~1s Stanoch that he had ··no such evidence

regarding the telephone bank projecC· and that he "lacked proof that the phone bankers..

their supervisor. and/or Mr. Cerk"enik had spent 60~o of their time on multi-candidate

projects.·~

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Memorandum 10 Robert J. Costa

Final Audit Report for

Minnesota Democratic Fanner Labor Pany (LRA #I 462)

PageS

The proposed Final Audit Report notes that the Comminee's response to the

Interim Audit Report did not include fL lYinfonnation relative to the amounts paid by FOS

to jt~ staff involved with this projec~ nor did the Comminee include a description of

materials distributed, samples ofscripts used or an explanation as to why no allocations to

candidates were disclosed. In addition. the proposed report c:tates that there is no evidence

from FOS which demonstrated that the $ 1~.OOO payment y.. "onsidered by FOS to be

payment in full, As a r~sult. the proposed report concludes that the Comminee accepted an

excessive contribution from FOS.

This Office believes that the Comminee has sufficiently demonstrated or explained

that it did not accept an in-kind contribution from the political comminee. The agreement

between the Comminee and FOS did not provide for or mention a phone bank operation.

The agreement stated that the Comminee would ·'lease·· employees from FOS for

"professional and administrative services," The agreement made clear that "[a]5 and for

compensation for the loaned servants..... the Comminee "'ould pay $1 :!.OOO to FOS. The

Comminee paid the S1:!.OOO. According to a signed affidavit from the Comminee·s

director. FOS's charges itemized in the Stanoch memorandum for a phone bank and

employees associated \\ith the phone bank "·ere in error.~ Except for the Stanoch

memorandum. there is no evidence that the Comminee was obligated to pay for the phone

bank operation or that the Committee y;as a"·are prior to the time ofthe Stanoch

memorandum that these employees would "'ork on the phone bank operation. Therefore,

this Office recommends that the Audit Division revise its repon to reflect the position that

the FOS/Comminee transaction may have involved a disputed debt that has been

apparently resolved. See 11 C.F.R. § 116.1(d) <-·disputed debt·· defined as "'obligation

arising from a "Tinen contract. promise or agreement to make an expenditure. where there

is a bona fide disagreement between the creditor and the political comminee as to the

existence or amount ofthe obligation ov.'ed by the pohtical comminee..).

'We note that the cop~ of the F05 1(ommJnee agreement ~as Signed onl~ b} Mr Rapp. The fact

that representatl\'es of SOR did not sign the agr~ement IS not determinative of whether an obligation eXisted.

See generalb.. nels;' \ Barnes-Duluth Shlpblltld/f1~ C" :~ 1 ~1anr. 3-:".43 (IQ45) (contract may be bandang

on a p~ even though not Signed D~ It. assent to contract s terms can be shown by the fact that the panles

accepted the wrltmg as a bandang contract and acted on It as suer., even though It was not Signed)

Page ~proved 2/12/96
o

I.f)

Page 28, Approved 2/12/96
FEDERAL ELECTION CO~1MISSJON

\\'~SHI""GT()" 0 C .!U-Ih'

AK007561

February 13, 1996

Mr. Paul K. Schulte, Treasurer ~nnesota Democratic Farmer

Labor Party

352 Wacouta Street

St. Paul, MN 55101

Dear Mr. Schulte:

Attached please find the Final Audit Report on the

Minnesota Democratic Farmer Labor Party. The Commission

approved the report on February 12, 1996.

The Commission approved Final Audit Report will be placed

on the public record on February 21, 1996. Should you have any

questions regarding the public release of the report, please

contact the Ca.mission's Press Office at (202) 219-4155. Any

questions you have related to matters covered during the audit

or in the report should be directed to Martin Pavin of the Audit

Division at (202) 219-3720 or toll free at (800) 424-9530.

Sincerely,

~7~ Robert J. eosta

Assistant Staff Director

Audit Division

Attachment as stated

';"'~'''··I.lI. ~I}'I"'\ ... ,:) lC,I\r1()WW()\;\

[)[D:( ~ilr' 11 ' ..EP)I'(. THf PutSlI( r,fOI(M([,

Page 29, Approved 2/12/96
o

Page 30, Approved 2/12/96
CHRONOLOGY

MINNESOTA DEMOCRATIC FARMBER LABOR PARTY

o

tr- " -

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

2/15/94 - 4/15/94

7/6/9S

10/2/95

2/12/96

Page 31, App~ed 2/12/96