FEDERAL ELECTION COMMISSION

WASHINCTON, 0 C 20463

August 31, 2001

MEMORANDUM

TO:

FROM:

SUBJECT:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERT 1. COSTA

DEPUTY STAFF DIRECTOR

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

MISSOURl DEMOCRATIC STATE COMMITTEE

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

Missouri Democratic State Committee which was approved by the Commission on

August 23, 2001.

Informational copies ofthe report have been received by all parties involved and

the report may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library

Information Division
REPORT OF THE AUDIT DIVISION

ON

MISSOURI DEMOCRATIC STATE

COMMITTEE

Approved August 23, 2001

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

MISSOURI DEMOCRATIC STATE COMMITTEE

Page

Executive Summary

Final Audit Report 3

Background 3

Findings 5

Legal Analysis 17

Transmittal to Committee 21

Chronology 23
A99-52

FEDERAL ELECTION COMMISSION

WASHINGTOf'. 0 C 20461

MISSOURI DEMOCRATIC STATE COMMITTEE

EXECUTIVE SUMMARY

Missouri Democratic State Committee (the Committee) registered with the Federal

Election Commission on September 15, 1980.

The audit was conducted pursuant to 2 U.S.C. Section 438(b), which states that the

Commission may conduct audits of any political committee whose reports fail to meet the

threshold level of compliance set by the Commission.

The findings arising from the audit were presented to Committee representatives at an

exit conference held at the conclusion of fieldwork on May 17, 2000, and later in an interim audit

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

Possible Earmarked Contributions - 2 U.S.c. §§441 a(a) & (f), 11 CFR §§ 110.1(h),

110.6(a), (b) & (c), and 102.8(a) & (c). The Nixon Campaign Fund was the principal campaign

committee for Jay Nixon, the democratic senatorial candidate for the 1998 election. The Audit

staff identified $183,810 in such contributions that appeared to be earmarked for the Nixon

Campaign Fund deposited into the Committee's federal account and $171,500 deposited into the

non-federal account.

In response to the interim audit report, the Committee stated it received no earmarked

contributions during the 1998 election cycle and that the interim audit report failed to present any

evidence that supported the presence of earmarked contributions.

Apparent Excessive Expenditures on Behalf of a Senatorial Candidate - 2 V.S.c.

§§44Ia(a), (c) & (d), 11 CFR §§110.2(b), and 110.7(b) & (c). The Committee and the DSCC

each could spend up to $260,140 in coordinated expenditures on behalf ofJay Nixon. As ofthe

date of the 1998 general election, the DSCC transferred $79,000 ofits expenditure limitation to

the Committee; the Committee's expenditure limitation increased to $339,140.

The Audit staff identified $372,840 in coordinated expenditures made by the Committee

on behalf ofJay Nixon. Accordingly, as of the date ofthe 1998 general election, the Committee

exceeded the expenditure limitation by $28,700 ($372,840 - $339,140 - $5,000 [441a(a)(2)(A)

limit]). It should be noted that on May 25, 1999, the DSCC transferred an additional $40,000 of

its limit to the Committee.

Page 1 of23
In response to the interim audit report, the Committee stated the report failed to

demonstrate that the Committee made excessive coordinated expenditures in support ofJay

Nixon. The Committee further stated "the fact that both committees together remained within

their combined limit demonstrates the absence of any intent to violate the Act."

RECEIPT OF APPARENT EXCESSIVE CONTRIBUTION - 2 U.S.C. §44Ia(a)(I)

& (2), II CFR §§103.3(b) and IIO.I(k). The Committee received contributions that exceeded

the limitation by $62,965. Excessive portions, totaling $61,000, were transferred to the nonfederal account; however, at the time ofthe transfers, the Committee had neither notified the

contributors of the transfers nor informed the contributors that a refund could have been

requested. The remaining excessive contributions, totaling $1,965, were refunded, albeit

untimely, to the contributors.

The Committee received Requests for Additional Information (RFAl) from the

Commission's Reports Analysis Division related to apparent excessive contributions identified

with respect to activity covering the 1995 - 1996 period. Although a refund ofthe above

excessive contributions ($61,000) would normally be warranted, the Commission is not requiring

refund because the language ofRFAI letters sent to the Committee may not have fully clarified

the requirements for transfers of excessive contributions.

ALLOCATION OF FEDERAL AND NON-FEDERAL EXPENSES - 11 CFR

§§I04.3(a), 104.10(b), and 106.5(a) & (g). The Audit staff reviewed activity from the nonfederal accounts and identified allocable expenses, totaling $189,571. The federal share ofthese

allocable expenses was $54,976. However, in this instance no reimbursement by the federal

account for its share of expenses paid directly from the non-federal account was necessary since

the Committee's federal account paid $194,000 in unrelated expenses that could have been

defrayed using non-federal funds.

In addition, $24,130 representing refunds and rebates of allocable expenses was deposited

into the Committee's federal account; the non-federal share was $17,132. The Committee did

not demonstrate that the refunds and rebates in question were not related to payments for

allocable expenses. Therefore, the $17,132 owed to the non-federal account was offset against

the overpayment ofshared expenses by the federal account discussed above.

REPORTING OF DEBTS AND OBLIGATIONS - 2 U.S.c. §434(b)(8) and 11 CFR

§ I04.11 (a) & (b). Our review identified 76 payments, totaling S140,673, which should have

been reported as debts. In response to the interim audit report the Committee filed amended

Schedules D (Debts and Obligations) that materially disclosed the debts in question.

Page 2 of23
A#99-52

FEDERAL ELECTION COMMISSION

WASHINGTON, DC 204bJ

REPORT OF THE AUDITDIVISION

ON

MISSOURI DEMOCRA TIC STATE COMMITTEE

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofMissouri Democratic State Committee

(the Committee), undertaken by the Audit Division ofthe Federal Election Commission

in accordance with the provisions of the Federal Election Campaign Act of 1971, as

amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle 2 ofthe

United States Code which states, in part, that the Commission may conduct audits and

field investigations of any political committee required to file a report under section 434

ofthis title. Prior to conducting any audit under this subsection, the Commission shall

perform an internal review ofreports filed by the selected committees to determine if

reports filed by a particular committee meet the threshold requirements for substantial

compliance with the Act.

B. AUDIT COVERAGE

The audit covered the period January I, 1997 through December 31, 1998.

During this period, the Committee reported a beginning cash balance of$2,449; total

receipts for the period of $2,666,371; total disbursements for the period of $2,662,216;

and an ending cash balance of $6,604 1

•

C. CAMPAIGN ORGANIZATION

The Committee registered with the Federal Election Commission as

Missouri Democratic State Committee on September 15, 1980, The Treasurer for the

Committee, during the audit period and currently, is Ms. Donna Knight. The Committee

maintains its headquarters in Jefferson City, Missouri,

The amounts presented in thiS repon have been rounded to the nearest dollar.

Page 3 of23
2

To manage its financial activity, the Committee maintained four federal

checking accounts and five non-federal checking accounts. The Committee did not

maintain a separate allocation account to pay for shared federal/non-federal expenses.

The Committee's receipts were composed of contributions from individuals, other

political committees (such as PACs), transfers from affiliated and other party committees,

and offsets to operating expenditures (such as refunds and rebates).

D. AUDIT SCOPE AND PROCEDURES.

The audit included testing ofthe following categories:

I. The receipt of contributions or loans in excess of the statutory limitations

(see Finding Il.A and C.);

2. the receipt of contributions from prohibited sources, such as those from

corporations or labor organizations;

3. proper disclosure of contributions from individuals, political committees

and other entities, to include the itemization of contributions when

required, as well as, the completeness and accuracy ofthe information

disclosed;

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and accuracy of

the information disclosed;

5. proper disclosure of campaign debts and obligations, including loans (see

Finding II.E.);

6. the accuracy of total reported receipts, disbursements and cash balances as

compared to bank records;

7. adequate recordkeeping of committee transactions;

8. proper reporting and funding of allocable expenses (see Finding II.D.);

and,

9. other audit procedures that were deemed necessary in the situation (see

Finding ILB.).

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue any of the matters

discussed in this report in an enforcement action.

Page 4 of 23
3

II. AUDIT FINDINGS AND RECOMMENDATIONS

A Possible Earmarked Contributions

Section 44Ia(a)(8) ofritIe 2 ofthe United States Code states that all

contributions made by a person, either directly or indirectly, on behalf of a particular

candidate, including contributions which are in any way earmarked or otherwise directed

through an intermediary or conduit to such candidate, shall be treated as contributions

from such person to such candidate. The intermediary or conduit shall report the original

source and the intended recipient ofsuch contribution to the Commission and to the

intended recipient.

Section 110.1 (h) of Title II ofthe Code of Federal Regulations states that

a person may contribute to a candidate or his or her authorized committee with respect to

a particular election and also contribute to a political committee which has supported, or

anticipates supporting the same candidate in the same election, as long as the political

committee is not the candidate's principal campaign committee or other authorized

political committee or a single candidate committee; the contributor does not give with

the knowledge that a substantial portion will be contributed to, or expended on behalf of,

that candidate for the same election; and the contributor does not retain control over the

funds.

Section 110.6(a) of Title 11 of the Code of Federal Regulations states that

all contributions by a person made on behalf of or to a candidate, including contributions

which are in any way earmarked or otherwise directed to the candidate through an

intermediary or conduit, are contributions from the person to the candidate.

Section 110.6(b)(I) ofTitle II of the Code of Federal Regulations states

that earmarked means a designation. instruction, or encumbrance, whether direct or

indirect, express or implied. oral or written, which results in all or any part of a

contribution or expenditure being made to, or expended on behalf of, a clearly identified

candidate or a candidate's authorized committee.

Section 110.6(b)(2) of Title II ofthe Code of Federal Regulations states

that a conduit or intermediary means any person who receives and forwards an earmarked

contribution to a candidate or a candidate's authorized committee.

Section 11 O.6(c)( 1) of Title II ofthe Code of Federal Regulations states

the intermediary or conduit of the earmarked contribution shall report the original source

and the recipient candidate or authorized committee to the Commission or the Secretary

of the Senate, as appropriate. and to the recipient candidate or authorized committee.

Page 5 of23
4

Section 102.8(a) and (c) of Title 11 ofthe Code of Federal Regulations

states that every person who receives a contribution for an authorized political committee

shall, no later than 10 days after receipt, forward such contribution to the treasurer. Ifthe

amount of the contribution is in excess of $50, such person shall also forward to the

treasurer the name and address ofthe contributor and the date ofreceipt ofthe

contribution. If the amount of the contribution is in excess of £200, such person shall

forward the contribution, the identification ofthe contributor in accordance with 11 CFR

100.12, and the date ofreceipt ofthe contribution. Date of receipt shall be the date such

person obtains possession of the contribution. The provisions of 11 CFR 102.8

concerning receipt of contributions for political committees shall also apply to earmarked

contributions transmitted by an intermediary or conduit.

During our review ofCommittee receipts, the Audit staff identified 78

contributions, totaling $183,810 that appeared to be earmarked for the Nixon Campaign

Fund. 2 These contributions were deposited between March 25, 1998 and November 2,

1998.3 Even though the contributor checks were made payable to the Committee, certain

deposit batches were annotated "Nixon $." Other deposit batches contained Nixon

Campaign Fund return address envelopes. Furthermore, memo lines on some contributor

checks were annotated Nixon, Jay Nixon Campaign Contribution or J. Nixon Fund. One

contribution included a letter addressed to Jay Nixon stating "enclosed is my check in the

amount of $1 ,000.00 to aid in your campaign." Contributions that are in any way

earmarked or otherwise directed to the candidate through an intermediary or conduit are

contributions ITom the person to the candidate.

Ofthe $183,810 deposited into the Committee's federal account,4 $96,000

was received from 28 contributors who previously gave the maximum amount permitted

by law to the Nixon Campaign Fund. Further, 26 contributions ($106,000) ranged ITom

$2,000 to $5,000. It is evident that the majority ofthe apparent earmarked contributions,

if forwarded by the Committee to the Nixon Campaign Fund, would have resulted in

excessive contributions.

Since the earmarked contributions were not forwarded to the Nixon

Campaign Fund, the Committee may have applied them to coordinated expenditures on

behalf ofJay Nixon. The 1998 coordinated expenditure limitation for the office of

Senator ITom the state ofMissouri was $260,140. Both the Committee and the

Democratic Senatorial Campaign Committee (DSCC) could spend that amount on behalf

ofJay Nixon. The Committee expended a total of $372,840 (See Finding II.B). In part,

transfers from the DSCC funded those expenditures. On four occasions between August

10, 1998 and October 15, 1998 the DSCC transferred a total of £284,000 to the

Committee for the sole purpose of making coordinated expenditures on behalf ofJay

Jay Nixon was the democratic senawrial candidate for the 1998 election. The NIxon CampaIgn

Fund was his authonzed prinCIpal campaign COlTlffiltlee.

The majority of the contnbutions (97%) were deposited between 8118/98 and 1112/98.

It should be noted that the Audit staff identified an additional $17].500 In contributIons. simIlar to

the above, that were deposited In the COlTlffiltlee's non-federal account.

Page 6 of23
5

Nixon. For example, on October 15, 1998, the DSCC transferred $75,000 to the

Committee. On October 16, 1998, the Committee made a $75,000 payment for media

and reported this transaction as a coordinated expenditure on behalf ofJay Nixon5

.

Based on the notations and correspondence described above, it is apparent

that some contributors believed their contributions would be spent on behalf ofJay Nixon

and the Nixon Campaign Fund. If so, the Committee has received eam1arked

contributions for the benefit ofJay Nixon. These contributions may have been part of a

"tally" system. Several newspaper articles published in the state of Missouri during the

election cycle indicated this type of activity occurred. The Commission has determined

that "tallying" in itselfis permissible'" However, the Commission has also determined

that. depending on the circumstances, tallying could result in the receipt of earmarked

contributions from contributors who intend that their contributions will be used to support

the designated candidate.

This issue was discussed with Committee representatives at the exit

conference. Subsequent to the response period following the exit conference, the

Committee stated it does not accept contributions designated for use on behalf ofspecific

candidates and does not act as the agent of a candidate in its fundraising activities. The

Committee stated further, that candidates often raise money for the Party in support ofits

general coordinated campaign activities. Finally, it stated that the contributions raised for

the Party are used at the Party's discretion to pay for all Party activities, including those in

support ofspecific candidates.

In the interim audit report, the Audit staffrecommended that the

Committee demonstrate that it did not receive contributions earmarked for making

coordinated expenditures on behalf ofJay Nixon and/or the Nixon Campaign Fund and

submit any other explanation or documentation that the Committee believed was relevant

to the matter.

In response, the Committee stated, it received no earmarked contributions

during the 1998 election cycle and that the interim audit report fai led to present any

evidence that supported the presence of earmarked contributions. The Committee further

stated the obvious reason why a deposit batch was annotated Nixon $ or why some

On 8110/98 the Committee received $70,000 and made a payment of$70.000 for media on

81I7/98. On 9/8/98 the Committee receIved $9.000 and made a payment of$9,OOO for polling on

9/9/98. On 911 5/98 the Committee received $130.000 and made a payment of $130,000 for media

on 911 6/98.

Some party committees mamtain a record or a "tally" of the amount of money a partIcular

candidate has helped raise for the party committee. The CommIssion has determmed that thIS

practlce IS permissible as long as the contnbutlons are In no way earmarked for a panicular

candIdate or the contnbutors are not led to believe that the contnbutlOns will benefit a speCIfic

candldatc.

Page 70f23
6

contributors placed Jay Nixon's name in the memo lines oftheir checks was because Jay

Nixon raised the funds 7 The Committee also stated the following:

"The Interim Report's calculation of $183 ,810 in earmarked

contributions is so spurious as to cast doubt on the entire claim. For

example, nearly half ofthe contributors in question would have had no

incentive to earmark contributions to Jay Nixon through the Committee.

Because they had not yet given the maximum to Nixon, they could have

given to him directly. Moreover, the Interim Report asserts that most of

the Committee's coordinated expenditures were financed by transfers from

the DSCC, and that the Committee paid for a majority ofthe coordinated

expenditures with earmarked contributions that it raised on its own. See

Interim Report at 5. Obviously, both of these assertions cannot be true at

the same time."

With respect to the calculation of the $183,810 amount, the Committee's

reasoning is flawed. The calculation was a result of batch deposits that contained

annotations for Nixon and is therefore based on the Committee's own records. The

motivation for a particular contributor to make an earmarked contribution and whether or

not the contributor gave the maximum directly to Jay Nixon is not the issue. Further, the

interim audit report (at page 5) did not state as the Committee claims, "most ofthe

Committee's coordinated expenditures were financed by transfers from the DSCC, and

that the Committee paid for a majority of the coordinated expenditures with earmarked

contributions that it raised on its own."

It is the opinion ofthe Audit staff that the Committee's response did not

demonstrate that it did not receive contributions earmarked for making coordinated

expenditures on behalf ofJay Nixon and/or the Nixon Campaign Fund.

B. Apparent Excessive Expenditures on Behalf of a Senatorial Candidate

Section 441 a( d)( I) ofTitle 2 of the United States Code states, in part, that

notwithstanding any other provision of law with respect to limitations on expenditures or

limitations on contributions, the national committee of a political party and a State

committee of a political party, including any subordinate committee of a State committee,

may make expenditures in connection with the general election campaign of candidates

for Federal office, subject to the limitations contained in paragraph (3) ofthis subsection.

According to the Conurunee. Mr. Nixon "was not simply a candidate for the United States Senate

In 1998." but "he was the Attorney General of MISsoufl~oneof the most VIsible and significant

Democrats In the state." In addition, Mr. Nixon "played a SIgnificant role in the Committee's

activitles. IncludIng ItS fundraising. both before and after the 1998 election cycle."

Page 80f23
7

Sections 44Ia(c) and (d)(3) of Title 2 ofthe United States Code states, in

part, that the national committee of a political pany, or a State committee of a political

party, including any subordinate committee of a State committee, may not make any

expenditure in connection with the general election campaign of a candidate for Federal

office in a State who is affiliated with such party which exceeds, in the case of a

candidate for election to the office of Senator the greater of: (i) 2 cents multiplied by the

voting age population ofthe State; or (ii) $20,000, as adjusted for the increases in the

Consumer Price Index.

Section IIO.7(b) and (c) ofTitle II of the Code of Federal Regulations

states that the national committee of a political party, and a State committee of a political

party, including any subordinate committee of a State committee, may each make

expenditures in connection with the general election campaign of a candidate for Federal

office in that State who is affiliated with the party. The expenditure shall not exceed in

the case of a candidate for election to the office ofSenator, or ofRepresentative from a

State which is entitled to only one Representative, the greater oftwo cents multiplied by

the voting age population of the State; or twenty thousand dollars. Any expenditure

under paragraph (b) shall be in addition to any contribution by a committee to the

candidate permissible under §II 0.1 or §110.2. For limitation purposes, State committee

includes subordinate State committees. State committees and subordinate State

committees combined shall not exceed the limits in paragraph (b)(2) ofthis section.

Section 44Ia(a)(7)(B)(i) of Title 2 ofthe United States Code states that

expenditures made by any person in cooperation, consultation, or concert, with, or at the

request or suggestion of, a candidate, his authorized political committees or their agents,

shall be considered to be a contribution to such candidate.

Section 11O.2(b)(1) of Title 11 of the Code of Federal Regulations states

that no multi candidate political committee shall make contributions to any candidate, his

or her authorized political committee or agents with respect to any election for Federal

office which, in the aggregate, exceeds $5,000.

The 1998 coordinated expenditure limitation for the office of Senator from

the state of Missouri was $260,140. The Committee and the Democratic Senatorial

Campaign Committee (DSCC) 8 could each spend up to the legal limit on behalf ofJay

Nixon, Senatorial candidate in the 1998 general election. As of the date ofthe 1998

general election, the DSCC transferred S79,000 of its expenditure limitation to the

Committee. As a result, the Committee's expenditure limitation increased to $339,140

($260,140 + $79,000).

By Jettcr datcd April 24, 1998. thc Dcmocratic ?\iationol Commltlce (DNC) deSIgnated the DSCC

as the agent of the DNC for the exclusive purpose ofm:tkmg expendlture pursumll to 2 USc.

§441 a( d) on behalf of the Democratlc candidates 111 connection wlth the 1998 general elections for

the United Slate Senate. As of December 31, 1998, the DSCC dld not report makll1g :tny

coordinated expendltures.

Page 9 of 23
8

The Audit staff reviewed coordinated expenditures reported by the

Committee, totaling $372,840, made on behalf ofJay Nixon. Documentation in support

of these expenditures indicated they were made for polling and media advertisements. It

appears that as of the date of the 1998 general election, the Committee exceeded the

expenditure limitation by $28,700 ($372,840 - $339,140 - $5,000 [441a(a)(2)(A) limit)).

Further, it should be noted that on May 25, 1999, the DSCC transferred an additional

$40,000 ofits limit to the Committee.

Even though the DSCC authorized the Committee to spend an additional

$40,000 (of its limit), such authorization did not occur until approximately 7 months after

the limit was exceeded.

In the interim audit report the Audit staffrecommended that the

Committee demonstrate that expenditures totaling $28,700 made on behalf ofJay Nixon

were not in excess ofthe expenditure limitation at 2 U.S.c. §441a(d)(I) and (3).

In response, the Committee stated, the interim audit report failed to

demonstrate that the Committee made excessive coordinated expenditures in support of

Jay Nixon. The Committee further stated, "the fact that both committees together

remained within their combined limit demonstrates the absence of any intent to violate

the Act.

The interim audit report does, in fact, demonstrate that the Committee

made excessive coordinated expenditures on behalf ofJay Nixon. Further, the amount in

excess ofthe limitation was not addressed [the DSCC authorized the Committee to spend

an additional $40,000 of the DSCC's limit] until approximately 7 months after the

election. It is the opinion of the Audit staff that the Committee has not demonstrated the

above expenditures did not exceed the limitation at 2 U.s.c. §44Ia(d)(l) and (3).

C. RECEIPT OF ApPARENT EXCESSIVE CONTRIBUTIONS

Section 441a(a)(l)(C) ofTitle 2 of the United States Code and Section

110.1 (d) of Title II ofthe Code of Federal Regulations state that no person shall make

contributions to any other political committee in any calendar year which, in the

aggregate, exceed $5,000.

Section 441a(a)(2)(C) ofTitle 2 of the United States Code and Section

110.2 (d) ofTitle I I ofthe Code of Federal Regulations state that no multicandidate

political committee shall make contributions to any other political committee in any

calendar year which, in the aggregate, exceed $5,000.

Section 103.3(b)(3) of Title 11 of the Code of Federal Regulations states,

in part, that contributions which on their face exceed the contribution limitations set forth

in 11 CFR 110.1 or 110.2. and contributions which do not appear to be excessive on their

Page 10 of23
9

face, but which exceed the contribution limits set forth in 11 CFR 110.1 and 110.2 when

aggregated with other contributions from the same contributor '" may be either deposited

into a campaign depository under II CFR 103.3(a) or returned to the contributor. Ifany

such contribution is deposited, the treasurer may request redesignation or reattribution of

the contribution by the contributor in accordance with 11 CFR 11 0.1 (b), 110.1 (k) or

11 0.2(b), as appropriate. If a redesignation or reattribution is not obtained, the treasurer

shall, within sixty days ofthe treasurer's receipt of the contribution, refund the

contribution to the contributor.

Section 110.I(k)(3)(i)(ii)(A) and (B) ofTitle 11 of the Code of Federal

Regulations states that if a contribution to a candidate or political committee, either on its

face or when aggregated with other contributions from the same contributor, exceeds the

limitations on contributions set forth in 11 CFR 110.1 (b), (c) or (d), as appropriate, the

treasurer of the recipient political committee may ask the contributor whether the

contribution was intended to be a joint contribution by more than one person. A

contribution shall be considered to be reattributed to another contributor if- the treasurer

of the recipient political committee asks the contributor whether the contribution is

intended to be a joint contribution by more than one person, and informs the contributor

that he or she may request the return ofthe excessive portion ofthe contribution ifit is

not intended to be a joint contribution; and within sixty days from the date of the

treasurer's receipt ofthe contribution, the contributors provide the treasurer with a written

reattribution ofthe contribution, which is signed by each contributor, and which indicates

the amount to be reattributed to each contributor if equal attribution is not intended.

The Audit staffs review of contributions revealed that the Committee

received contributions from six individuals and three political action committees which

exceeded the limitation by $62,965. For 7 of the contributions, excessive portions

totaling $61,000 were transferred timely to a non-federal account. However, at the time

of the transfers, the Committee had neither notified the contributors ofthe transfers nor

informed the contributors that a refund could have been requested. As ofthe close of

fieldwork, no action had been taken on the remaining 5 excessive contributions, totaling

$1,965. The Committee maintained sufficient funds in its federal accounts to make the

necessary refunds.

Apparently, in April 2000, the Committee obtained signed statements from

4 contributors which authorized the transfer 0 f $46,000 (excessive portions) to the nonfederal account. These statements also provided the contributors the option ofreceiving a

refund. Three ofthe four statements were dated by the contributors in April 2000.

Although the Committee's letters were not dated, one contributor apparently stamped the

letter as being received on April 25, 2000.

Although the transfers to the non-federal account were timely, the

contributors were not notified of the transfers or of the opportunity to request a refund

until 17 to 25 months after the date of the transfers.

Page II of 23
10

Subsequent to the exit conference, the Committee apparently refunded the

remaining excessive contributions ($1,965) but copies of only the non-negotiated refund

checks were available. In addition, the Committee stated it was not aware of any

requirement to obtain permission from the donor to transfer amounts of a particular

contribution to the non-federal account.

It should be noted that this Committee received Requests for Additional

Information (RFAI) from the Commission's Reports Analysis Division related to

apparent excessive contributions identified with respect to activity covering the 1995-96

period. Although a refund of the above described excessive contributions would normally

be warranted, the Commission is not requiring refund ofthese contributions because the

language ofRFAI letters sent to the Committee may not have fully clarified the

requirements for transfers of excessive contributions.

This finding did not contain a recommendation or require a response from

the Committee. However, the Committee responded stating the interim audit report

repeats a claim made in a previous audit - that the Act requires a political party

committee to obtain a written authorization from donors before transferring the excessive

portion of their contributions from the Federal account to the non-federal account.

Commission regulations do not expressly prohibit the transfer of the excessive share of a

federal contribution into a non-federal account, nor do they expressly require a written

statement from a contributor to authorize such a transfer.

Finally, the Committee stated, "[I]n short, what the Commission described

as a 'recommendation' in 1997 has now become a requirement in 200 I - a classic

example ofretroactive rulemaking. The Committee is not content with the Commission's

decision not to require refunds of the contributions in question. See Interim Report at 9.

Rather, having been forced unfairly to deal with this very same question in a previous

audit and MUR, the Committee respectfully requests that the final audit report contain a

statement acknowledging that the Committee complied with the Act as understood at the

time - both by the Committee and the Commission."

The Commission's position on a Treasurer's responsibility regarding the

receipt of excessive contributions is clear and guidance has been provided in various

contexts (see II CFR 103.3(b) and the Campaign Guide for Political Party Committees,

August 1996 at page 20).

Further, the factual record developed does not support complying with the

Committee's request to include in this report a statement acknowledging "that the

Committee complied with the Act as understood at the time - both by the Committee and

the Commission."

The Committee also asserted that the interim audit report claims "that the

Act requires a political party committee to obtain a written authorization from donors

before transferring the excessive portion of their contributions from the Federal account

Page 12 of23
11

to the nonfederal account." The interim audit report does not claim the Act requires

written authorization. However, the Commission has allowed party committees to

transfer the excessive portion of a contribution to their non-federal account, provided that

the contributor was notified prior to the transfer and informed that a refund could be

requested.

The Committee is correct in stating "Commission regulations do not

expressly prohibit the transfer ofthe excessive share of a federal contribution into a

nonfederaJ account, nor do they expressly require a written statement from a contributor

to authorize such a transfer." Simply stated, the Regulations do not provide expressly for

such an option; however, 11 CFR 103.3(b) states that if an excessive contribution is

deposited, the treasurer may request reattribution ofthe contribution and ifthe

reattribution is not obtained the treasurer shall, within sixty days ofreceipt ofthe

contribution, refund the contribution to the contributor.

D. ALLOCATION OF FEDERAL AND NON-FEDERAL EXPENSES

Section J06.5(g)( I) ofTitle J J ofthe Code of Federal Regulations states,

in part, that committees that have established separate federal and non-federal accounts

under 11 CFR I02.5(a)(l )(i) or (b)( I)(i) shall pay the expenses ofjoint federal and nonfederal activities described in paragraph (a)(2) ofthis section according to either

paragraph (g)( I)(i) or (ii), as follows: the committee shall pay the entire amount of an

allocable expense from its federal account and shall transfer funds from its non-federal

account to its federal account solely to cover the non-federal share of that allocable

expense.

Section 106.5(a)(2)(i) and (iv) of Title 11 of the Code of Federal

Regulations states that committees that make disbursements in connection with federal

and non-federal elections shall allocate expenses according to this section for the

following categories of activity: administrative expenses including rent, utilities, office

supplies, and salaries, except for such expenses directly attributable to a clearly identified

candidate; and Generic voter drives including voter identification, voter registration, and

get-out-the-vote drives, or any other activities that urge the general public to register, vote

or support candidates of a particular party or associated with a particular issue. without

mentioning a specific candidate.

Section 104.1 O(b)(4) of Title 11 of the Code of Federal Regulations states

that a political committee that pays allocable expenses in accordance with II CFR

I06.5(g) or I06.6(e) shall also report each disbursement from its federal account or its

separate allocation account in payment for 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 address of each person to whom the disbursement

was made, and the date, amount and purpose of each sllch disbursement. Ifthe

disbursement includes payment for the allocable costs of more than one activity, the

committee shall itemize the disbursement, showing the amounts designated for payment

Page 13 of 23
12

of administrative expenses and generic voter drives, and for each fundraising program or

exempt activity, as described in 11 CFR 106.5(a)(2) or 106.6(b). The committee shall

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

category of activity.

Section 104.3(a)(4)(v) ofTitle 11 ofthe Code of Federal Regulations

states, in part, that unauthorized committees must report the identification of each

contributor and the aggregate year to date total for such contributor including each person

who provides a rebate, refund, or other offset to operating expenditures to the reporting

committee in an aggregate amount or value in excess of $200 within the calendar year,

together with the date and amount of any such receipt.

If a committee receives a refund or a rebate of an allocable expense, the

refund or rebate must be deposited in the federal account or allocation account. The

refund or rebate must then be allocated between the federal and non-federal accounts

according to the same allocation ratio used to allocate the original disbursement. The

federal account must transfer the non-federal portion to the non-federal account. Advisory

Opinion (AO) 1995-22 discusses methods for reporting refunds and rebates of allocable

expenses.

l. Payment of Allocable Expenses From the Non-Federal

Accounts

The Committee maintained separate federal and non-federal

accounts and did not utilize a separate allocation account. Under this account structure,

the regulations require that all allocable activity be paid initially from a federal account

and reimbursements may be made from a committee's non-federal accounts solely to

cover the non-federal share of the allocable expense.

The Audit staffreviewed disbursements from the non-federal

accounts and identified disbursements totaling $189,571 which were for allocable

expenses. The disbursements were for administrative and generic voter drive expenses

such as contract services, travel reimbursements, salaries, printing and voter registration.

Based on the ballot composition ratio, the correct allocation percentage for these expenses

for the audit period was 29% federal and 71 % non-federal. As a result, the federal share

of these allocable expenditures made from the non-federal accounts was $54,976.

However, based on our testing of shared activities 'originating from the federal accounts,

it was determined that the Committee overpaid its portion ofsuch expenditures by

$194,000. Therefore, no reimbursement by the federal account for its share of expenses

paid directly from the non-federal accounts is necessary.

Although these transactions were not handled in accordance with

the regulations, nevertheless, these payments should be reported as memo entries on

Schedule H4 (Joint Federal/Non-Federal Activity Schedule).

Page 14 of23
13

2. Allocation ofRefunds and Rebates

The Audit staffs review of offsets to operating expenditures

(refunds/rebates) revealed that the Committee received and deposited into a federal

account 35 refunds/rebates from vendors, totaling $24,130. The refunds/rebates were

related to payments of shared federal/non-federal expenses. The non-federal share ofthis

amount was $17,132. The Committee did not reimburse or otherwise make any

adjustments to account for the non-federal share ofthese receipts.

The Audit staffrecommended that the Committee provide

documentation that demonstrates the aforementioned payments from the non-federal

accounts ($189,571) related solely to non-federal activities or file memo Schedules H4

disclosing these shared expenditures. With respect to the refunds and rebates in question,

the Audit staffrecommended that the Committee provide evidence that they were not

related to payments of allocable expenses. Absent such a demonstration, the amount

owed to the non-federal account will be offset against the overpayment ofshared

expenses by the federal account discussed at D.I.

In response to the interim audit report, the Committee filed

amended reports disclosing the shared expenditures on memo Schedules H4. As to

refunds and rebates, the Committee stated it addressed this subject before with the

Commission, and continues to contend that the rules do not specifically prescribe how a

party committee is to dispose of a refund that a vendor has made from a previously

allocated expense, other than to require its disclosure generally.

Again, the Committee's assertion regarding refunds and rebates is

incorrect. The Campaign Guide for Political Party Committee, August 1996, Section 10

[Refunds and Rebates ofAllocable Expenses], page 61 addresses this very subject and

also illustrates two acceptable methods of reporting refunds and rebates of allocable

expenses.

E. REPORTING OF DEBTS AND OBLIGATIONS

Section 434(b)(8) of Title 2 of the United States Code states, in relevant

part, that the amount and nature of outstanding debts and obligations owed by or to such

political committee shall be reported.

Section 104.11 (a) of Title 11 of the Code of Federal Regulations states, in

part. that debts and obligations owed by or to a political committee which remain

outstanding shall be continuously reported until extinguished.

Section 104.II(b) of Title 11 of the Code of Federal Regulations states

that a debt or obligation, including a loan, written contract. written promise or written

agreement to make an expenditure, the amount of which is 5500 or less, shall be reported

as of the time payment is made or not later than 60 days after sllch ohligation is incurred,

Page 15 of23
14

whichever comes first. A debt or obligation, including a loan, written contract, written

promise or written agreement 10 make an expenditure, the amount of which is over $500

shall be reported as ofthe date on which the debt or obligation is incurred, except that any

obligation incurred for rent, salary or other regularly reoccurring administrative expense

shall not be reported as a debt before the payment due date.

The Committee did not report any debts or obligations on Schedule 0

(Debts and Obligations). However, our review of disbursements and associated vendor

documentation identified 76 payments, totaling $140,673, which should have been

reported as debt.

The Audit staffrecommended that the Committee file amended Schedules

o for each reporting period in which debt should have been reported. In response to the

interim audit report the Committee filed amended Schedules 0 that materially disclosed

the debts in question.

Page 16 of23
FEDERAL ELECTION COMMISSION

WASHIr-;CTO~. 0 C :L14b)

AUgust 17, 2001

MEMORANDUM

TO:

THROUGH:

FROM:

BY:

SUBJECT:

Robert J. Costa

Assistant Staff Director

Audit Division

James A. pehrk~ VJ

StaffDirector '-1J"

Lois G. Lerner

Acting General Counsel

I ,Ih Gregory R. Baker ~.

Acting Associate Genera\Counsel

Rhonda J. Vosdingh ~r

Assistant General Counsel

Delanie DeWitt Painter D{l~ of

Attorney llr f.:.

Final Audit Report on the Missouri Democratic State Committee (LRA # 597) -

Revised

I. INTRODUCTION

The Office of General Counsel has reviewed the proposed Final Audit Report of the

Missouri Democratic State Committee (the "Committee"), which was submitted to this Office on

May 18,2001. 1 This memorandum presents our comments on the proposed Report. 2 Generally,

we concur with any findings not specifically discussed in this memorandum. If you have any

questions concerning our comments, please contact Delanie DeWitt Painter, the attorney

assigned 10 this review.

This Office provided comments on the Intenm Audn Repon ("lAR") on October 25, 2000. Based on

developments in other maners following our ITlJtia) corrunems, this Ofllce provided supplemental corrunents dated

January 11,2001.

This Office recommends that the ComnusslOn conSIder the proposed Fmal Audit Repon in open session

because the document does not include maners exempt from publIc dIsclosure. See 11 C.F.R, § 2.4,

Page 170[23
Memorandum to Robert]. Costa

Final Audit Report on the Missouri DemocraucState Committee

(LRA # 597)

Page 2

II. POSSIBLE EARMARKED CONTRIBUTIONS (II. A.)3

This Office concurs with the Audit Division's conclusion that the Committee has not

demonstrated that it did not receive contributions earmarked on behalf of Senate candidate Jay

Nixon and the Nixon Campaign Fund. However, we suggest that the discussion ofthis finding

include specific examples ofthe notations on contribution checks and the letters accompanying

contributions We also suggest that the proposed Report summarize and address more ofthe

Committee's arguments.

For example, in addition to the summary of the Committee's arguments included in the

proposed Report, the Committee contended that the facts in the IAR are consistent with its

explanation that the Committee and candidates raised money to support its general activities and it

spent the funds at its discretion The Committee also asserted that Jay Nixon was not only a

Senate candidate but was also the Missouri Attorney General, "one ofthe most visible and

significant Democrats in the state" who has "played a significant role in the Committee's

activities, including its fundraising, both before and after the 1998 election cycle," and that the

candidate may legally raise funds for the Committee and contributors may state who solicited their

contributions.

The available evidence is not consistent with the Committee's explanation that the

Committee and candidates raised money to support its general activities, that it spent the funds at

its sole discretion, and that none ofthe contributions at issue was earmarked. Although it was

permissible for Mr. Nixon to raise funds for his party, the notations on contribution checks raise

the possibility that contributions received by the Committee were earmarked for his campaign.

See2USC §44Ia(a)(8); II CFR § 1l06;seealso II C.FR § 1101(h)

The Committee's explanation is contradicted by notations on contribution checks referring

to Mr Nixon and letters accompanying some contributions See II CFR § 110.6(b)(I).

Because these notations and letters are inconsistent with the Committee's explanation and indicate

that these contributors intended to make contributions to Mr Nixon, this Office suggests that

examples oflanguage from them be included in the proposed Report. While the annotations of

"Nixon" on deposit tickets are not themselves earmarking, they also provide supporting evidence

that Committee staff may have been aware that the deposited contributions were intended to

benefit Mr. Nixon Although Mr Nixon, as a significant figure in the state Democratic party, may

have raised funds for the Committee's general use, it does not mean that all of the funds he raised

were for the Committee's general use and that none of them were earmarked.

This Office is not convinced by the Committee's arguments concerning the JAR

calculation of possible earmarked contributions Even if a contributor had not contributed the

maximum amount to Mr Nixon directly, the contributor may have had other reasons to make an

earmarked contribution The Committee also ignores the S96,000 from contributors who had

The parenthetical reference corresponds to the section number Itt the proposed Report

Page 18 of23
Memorandum \0 Roben 1. Costa

Final Audit Repon on the Missouri Democratic State COmminee

(LRA # 597)

Page 3

made the maximum amount of contributions to Mr. Nixon. Moreover, the JAR does not state

that either the DSCC or the Committee paid the majority ofthe coordinated expenditures on

behalf ofMr. Nixon. The precise amount ofthe earmarked contributions remains unclear and it is

possible that some earmarked contributions were not used to pay for coordinated expenditures on

his behalf. Further, while the exact amount of earmarked contributions is not clear given the

available evidence, the calculation in the proposed Report is reasonable because it is based on the

amounts of batch deposits that contained references to Nixon on checks, deposit slips or letters

m. APPARENT EXCESSIVE EXPENDITURES ON BEHALF OF A SENATORIAL

CANDIDATE (n. B.)

This Office concurs with the proposed Report's conclusion that the Committee has not

demonstrated that it did not exceed the 2 USC § 441a(d) coordinated party expenditure

limitation by $28,700 for expenditures on behalf of Senate candidate Jay Nixon because the

DSCC did not authorize the Committee to spend an additional $40,000 before the Committee

made the expenditures 4

Finally, we note that the Supreme Court's imminent decision in FEC v. Colorado

Republican Federal Campaign Committee, 213 F.3d 1221 (10th Cif 2000), cert. granted,

68 US.LW 1679 (US Oct 10,2000) (No 00-191) may affect this finding because that case

involves the 2 US.C § 441a(d) expenditure limitations Although Missouri is not in the Tenth

Circuit, the Supreme Court's opinion could have a broad impact The Supreme Court held oral

argument on February 28,2001, and this Office anticipates that the Supreme Court will issue its

decision by the end ofJune 2001. This Office may prepare supplemental comments, if necessary,

to address the effects ofthe Supreme Court's opinion

IV. RECEIPT OF APPARENT EXCESSIVE CONTRIBUTIONS (n. C.) AND

ALLOCAnON OF FEDERAL AND NONFEDERAL EXPENSES (n. D.)

This Office generally concurs with the Audit staffs analysis ofthe Committee's arguments

concerning the transfers of excessive contributions to its nonfederaJ account. The 1AR did not

require refunds ofthese contributions because the language ofRequest For Additional

Information ("RFAI") letters sent to the Committee may not have fully clarified the transfer

requirements for excessive contributions Although the 1AR did not require a Committee

response, the Committee made several arguments and the proposed report addresses those

arguments. We concur that the Committee's arguments are not persuasive

This Office notes, however, that the discussion of the committee treasurer's responsibility

to deal with excessive contributions cites section 1033(b) of the regulations and the Campaign

Gil/de for Political Party Commlltees (August 1996) ("Campaign GUide") Similarly, the

analysis offederal and nonfederal allocation of refunds and rebates in the proposed Report (II D

The Commission approved a consistent analysis of a slmJlar issue In the FInal Audit Repon on the

California State Republican Party on May 24. 200 I.

Page 19 of23
Memorandum to Roben J. Costa

Final Audit Repon on the Missouri Democratic'State Committee

(LRA # 597)

Page 4

2.) also cites the Campaign Guide.·jThe Campaign Guide does not have the legal authority of

the statute and regulations, case law or Commission precedents and should be used with caution.

Where possible, the audit analysis should rely on the statute and regulations and other precedents

rather than the Campaign Guide.

We also note that similar issues concerrung transfers of excessIve contributions to the Committee's

nonfederal account and federal and nonfederal allocatIOn were referred to tills Office from the audit of the

Committee for the preceding election cycle, and tills matter was recently resolved with a concilIation agreement

and closed See MUR 5150

Page 20 of23
FEDERAL ELECTION COMMISSION

WASHINCTON, 0 C 20461

August 28, 200 I

Ms. Donna Knight, Treasurer

Missouri Democratic State Committee

419 East High Street

Jefferson City, Missouri 65102

Dear Ms. Knight:

Attached please find the Report ofthe Audit Division on Missouri Democratic

State Committee. The Commission approved the report on August 23,2001.

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

on August 31, 2001. Should you have any questions regarding the public release ofthe

report, please contact the Commission's Press Office at (202) 694-1220. Any questions

you have related to matters covered during the audit or in the report should be directed to

Leroy Clay or Tom Nurthen ofthe Audit Division at (202) 694-1200 or toll free at (800)

424-9530.

Sincerely, , ~," ,1- ./ 1~'7" ,-I /

;if

f ' ,'.. ,I

,' "0/'( ,/' '--

bert J. Costa

, , Deputy Staff Director

v

Attachment as stated

cc: Brian G. Svoboda, Counsel

Ms. Whitney Bums, Consultant

Page 21 of23
Page 22 of23
CHRONOLOGY

MISSOURI DEMOCRATIC STATE COMMITTEE

A99-52

Missouri Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

Page 23 of23

03113/00--05117/00

03106/01

04/25/01

08123101
Ii

'