FEDER ·\L ELECTIO, C()I\',\\lSSI()~

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AK006167

April 12, 1995

MEMORANDUM

TO:

FROM:

RON M. HARRIS, PRESS OFFICER

PRESS OFFICE

ASSISTANT

ROBERT J. COSTA

STAFF DlRECT6RJr~ ~~

AUDIT DIVISION

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SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

HERSCHENSOHN FOR U.S. SENATE 1992

Attached please find a copy of the final audit report

and related documents on Herschensohn for U.S. Senate 1992

which was approved by the Commission on April 3, 1995.

Informational copies of the 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

FEe Library

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REPORT OF THE AUDIT DIVISION

ON

Herschensohn for U.S. Senate 1992

Approved April 3, 1995

FEDERAL ELECTION COMMISSION

999 E STREET, N.w.

WASIUNGTON, D.C.
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TABLE OF CONTENTS

HBRSCHENSOHN POR U.S. SENATE 1992

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Executive Summary

Pinal Audit Report

Background

Findings

Transmittal to Committee

Chronoloqy

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3

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5

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FEDERAL ELECTION COtv1MISSION

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FINAL AUDIT REPORT

ON

HERSCHENSOHN FOR U.S. SENATE 1992

EXECUTIVE SUMMARY

Herschensohn for u.s. Senate 1992 (the Commit~ee) registered

with the Secretary of the Senate on April 26, 1991, as the

principal campaign committee for Bruce Herschensohn, Republjcan

candidate for the u.S. Senate from the state of California.

T~e 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 of the audit were presented to the Committee at

an exit conference held after the field work, on OCtober 19, 1993,

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

to those findings are included in this final audit report.

The following is an overview of the findings contained in the

final audit report .

Apparent Excessive Contributions - 2 U.S.C Section

441a(a)(I)A; 11 CFR Sections; 103.3(b)(3) and (4); 110.1(b)(S);

:10.1(k); 110.1(1); and 110.2(b)(5). The Committee received

contributions which exceeded the donor's limitations by $130,964.

The Committee took steps to resolve $88,565 of this amount,

through redesignations, reattributions and refunds, but failed to

provide evidence that the corrective measures had been taken

within the required time limits. As a result, the excessive

contributions were considered to be untimely resolved. As to the

remaining $42,399, the Committee complied with an interim audit

report recommendation by reporting the majority of the amounts as

debts (since the Committee did not have the necessary funds to

make Lmmediate refunds). With respect to excessive contributions

that had been refunded, the Committee provided copies of canceled

refund checks as r9commended in the interim audit report.

Itemization of Contributions - 2 U.S.C. Sections 434(b) , 431(13). The Committee did not itemize a material number of

contributions for which itemization was required. The errors were

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the result of the Committee maintaining records of contributions

on two separate data bases. In response to an interim audit

report recommendation, the Committee filed comprehensive

amendments which corrected the itemization errors.

Disclosure of Disbursements - 2 U.S.C. Section 434(b)(S) and

11 CFR 104.3(b)(3)(i)(A). In disclosure reports filed by the

Committee, a material number of itemiz£d disbursements were

disclosed with inadequate statements describing why the

disbursements had been made (i.e., the "purpose"). The Committee

complied with an interLm audit report recommendation by filing

amended disclosure reports which provided adequate "purpose"

descriptions.

48 Hour Notification of Contributions - 11 CFR Section

104.5(f). The Committee did not file 48-hour notices for 23

contributions totaling $32,500. In response to the interim audit

report, the Committee provided documentation showing that one

notice was filed as required. However, the Committee failed to

provide an explanation for its failure to file the other notices.

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FEDERAL ELECTION COj~"'1ISSJON

REPORT OF THE AUDIT DIVISION

ON

HERSCHENSOHN FOR U.S. SENATE 1992

8J006626

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I. Background

A. Overview

This report is based on an audit of Herschen80hn for

U.S. Senate 1992 ("the Committee"), undertaken by the Audit

Division of the 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) of Title 2 of the 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 of this title. Prior to conducting any audit under this

subsection, the Commission shall perform an internal review of

reports filed by selected cOIIIDlittees to determine if the reports

filed by a particular commdttee meet the threshold requirements

for substantial compliance with the Act.

The audit covered the period from May 6, 1991, the date

of the Committee's first recorded transaction, through December

31, 1992. The Committee reported a beginning cash balance of $0;

total receipts for the period of $7,872,379 total disbursements

for the period of $7,859,077: and an ending cash balance of

$56,187 !/

B. Campaign Organization

The Committee registered with the Secretary of the

Senate on April 26, 1991, as the principal campaign committee for

Bruce Herschensohn, Republican candidate for the u.s. Senate from

the state of California. The Committee maintained its

headquarters in Irvine, California.

!/ These amounts represent calendar year to date totals reported

on disclosure report summary pagese The amounts do not foot

due to mathematical errors on the Committee's disclosure

reports. The amounts as disclosed by report period total

$1,915,263 for receipts and $7,859,077 for disbursements; and

an ending cash balance of $56,186.

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The audit indicated that the Committee was financed

primarily through contributions from individuals ($6,812,908),

contributions from Political Party Committees ($20,678),

contributions from Other Political Committees ($627,159), and

loans flom the candidate ($300,000).

This report is based on documents and workpapers which

support each of its factual statements. They form part of the

record upon which the Commission based its decisions on matters in

the report and were available to the Commissioners and appropriate

staff for review.

c. Key Personnel

The Treasurer of the Committee during the period covered

by the audit was MS. Betty Presley.

D. Scope

The audit included testing of the following general

categories:

1.

2.

The receipt of contributions or loans in excess of

the statutory lLaitations (see Finding II.A.);

the receipt of contributions froa prohibited

sources, such as those frca corporations or labor

organizations;

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4.

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"- proper disclosure of contributions froindividuals, political ca..ittee8 and other

entities, to include the ite.ization of

contributions when required, as well as, the

completeness and ~~curacy of the info~tion

disclosed (see Pinding II.B.);

proper disclosure of disbursements including the

itemization of disbursements when required, as well

as, the cOlPpleteness and accuracy of the

information disclosed (see Pinding II.C.);

s. proper disclosure of campaign debts and

obligations;

6. the accuracy of total reported receipts,

disbursements and cash balances as compared to bank

records;

7. adequate recordkeeping for campaign transactions;

and

8. other audit procedures that were deemed necessary

in the situation.

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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.

II. Audit Findings and Recommendations

A. Apparent Excessive Contributions

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

Code states that no person shall make contributions to any

candidate and his or her authorized political committees with

respect to any election for Federal office, which in the aggregate

exceed $1,000.

Section 110.1(k) of Title 11 of the Code of Federal

Regulations states, in part, that any contribution made by more

than one person, except for a contribution made by a partnership,

shall include the signature of each contributor on the check,

money order, or other negotiable instrument or in a separate

writing.

If a contribution made by more than one person does not

indicate the amount to be attributed to each contributor, the

contribution shall be attributed equally to each contributor.

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 1BOre than one person, and

informs the contributor that he or she may request the return of

the excessive portion of the contribution if it is not intended to

be a joint contribution and within sixty days from the date of the

treasurer's receipt of the contribution, the contributors provide

the treasurer with a written reattribution of the contribution,

which is signed by each contributor, and which indicates the

amount to be attributed to each contributor if equal attribution

is not intended.

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 face, but which exceed the contribution limitations 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 11 CFR 103.3(a) or returned to

the contributor. If any such contributions are deposited, the

treasurer may request redesiqnation or reattribution of the

contribution by the contributor in accordance with 11 CFR

110.1(b), 110.1(k) or 110.2(b), as appropriate. If a

redesignation or reattribution is not obtained, the treasurer

shall, within sixty days of the treasurer's receipt of the

contribution, refund the contribution to the contributor.

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Sections 110.1(1)(2)(3) and (5) of Title 11 of the Code

of Federal Regulations state that if a political committee

receives a written redesignation of a contribution to a different

election, the treasurer shall retain the written redesignatlon

provided by the contributor, as required by 11 CFR 110.I(b)(S) or

110.2(b)(S), as appropriate.

If a political committee receives a written

reattribution of a contribution to a different contributor, the

treasurer shall retain the written reattribution signed by each

contributor, as required by 11 CFR 110.1(k).

If a political committee does not retain the written

records concerning redesignation or reattribution required under

11 CFR 110.1(1)(1),(2),(3) or (6), the redesignation or

reattribution shall not be effective and the original designation

or attribution shall control.

Section 103.3(b)(4) of Title 11 of the Code of Federal

Regulations states, in part, that any contribution which appears

to be illegal and which is deposited into a campaign depository

shall not be used for any disbursements by the political committee

until the contribution has been determined to be lega.l. The

political committee must either establish a separate account in a

campaign depository for such contributions or maintain sufficient

funds to make such refunds.

The Committee's receipt records consisted of copies of

contributor checks in deposit order and two computerized data

bases. One data base was maintained by the COBIittee for

contributions received at Committee headquarters. The other data

base was maintained by a direct mail firm and contained

contributions solicited through a direct mail program. During the

audit field work the two data bases were merged.

The Audit staff's testing of the merged data and copies

of contributor checks maintained by the Committee and the direct

mail firm identified 200 contributors who exceeded their

contribution l~itations by a total of $130,964. The Audit staff

could find no evidence that the Committee had taken any action

regarding $42,399 of this amount. With regard to the remaining $88,565, the Committee attempted to either reattribute and/or

redesignate the contributions by contacting the contributors by

letter or refunding the excessive portions of the contributions to

the contributor. Refunds totaling $22,700 were identified by the

Audit staff, however, at the time of fieldwork, for the majority

of the refunds the only record available was the Committee's check

register.

The Audit staff reviewed copies of the letters sent to

and/or returned by the contributors and determined that the

majority of the responses were not receipt dated by the Committee

nor did the Committee retain the return envelopes. Therefore the

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Audit staff was unable to determine whether the

reattribution/redesignation letters were received t~ly 8S

required under 11 CPR SllO.1(b)(S) and 110.1(k)(3). A review of

the check register was also performed to determine whether the

refunds were made timely. In the absence of evidence of a timely

reattribution/redesignation or refund, the excessive contributions

were considered untimely resolved.

In the inter~ audit report the Audit Staff recommended

that the Committee take the following action:

o Refund to the contributors the $42,399 for which the

Committee had taken no action and present evidence of

the refunds (copies of ~he front and back of the

negotiated refund checks);

if funds are not available to make such refunds,

disclose the required information relative to the

excessive contributions as debts owed by the Committee

on Schedule D;

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o the Committee should also provide copies of the

negotiated refund checks (front and back) for the

$22,700 in excessive contributions which were previously

refunded.

In response to the inter~ audit report, regarding the

$42,399 in unresolved excessive contributions, the Cam.dttee

disclosed $31,908 as debts owed to the contributors. In addition

seven copies of cancelled refund checks were provided for an

additional $3,780 in refunds, however all of the refunds were made

untimely. The Committee also provided documentation to verify

that a $300 contribution attributed to an individual was actually

a partnership contribution which should have been allocated to

other partners. The Audit staff did not accept docuaentation

provided by the CODDDittee to support reattributions of three

contributions totalling $1,511 because the documentation did not

provide evidence of a t~ly reattribution/redesiqnation. Finally $4,900 in excessive contributions were not disclosed as debts nor

were copies of refund checks provided.

Regarding the $22,700 previously refunded, the Committee

provided copies of cancelled refund checks for $21,750 and voided

$950 in refund checks. The amounts of the refund checks which

were voided were reported on Schedules 0 as debts owed to ~~z

contributors.

B. Itemization of Contributions

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

states that each report, filed by a committee, shall disclose the

identification of each person (other than a political committee)

who makes a contribution to the reporting committee during the

reporting period, whose contribution or contributions have an

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aggregate amount or value in excess of $200 within the calendar

year, or any lesser amount if the reporting committee should 80

elect, together with the date and amount of any such contribution.

Section 431(13) of Title 2 of the United States Code

defines identification in the case of any individual, as the name,

the mailing address, and the occupation of such individual, as

well as the name of his or her employer.

The Audit staff's testing of a sample of the Committee's

contributions identified material problems regarding the

itemization of contributor information.

An analysis of the sample errors indicated that the

errors were the result of the Committee's direct mail firm

maintaining contributions on a separate receipts data base which

were not properly aggregated with the contributions on the

Committee's receipts data base.

Committee officials were informed by the Audit staff of

the itemization problems and stated that amended reports would be

filed.

In the inter~ audit report the Audit staff recommended

that the Committee file comprehensive amendments for calendar

years 1991 and 1992 to correct the itemization errors noted above.

In response to the interim report, the Committee filed a

comprehensive amendment which corrected the itemization errors.

c. Disclosure of Disbursements Information

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Section 434(b)(S) of Title 2 of the United States Code

requires a political committee to disclose the name and address of

each person to whom an expenditure in an aggregate amount or value

in excess of $200 within the calendar year is made by the

reporting committee to meet a candidate or Committee operating

expense, together with the date, amount and purpose of such

operating expenditure.

Section 104.3(b)(3)(i)(A) of Title 11 of the Code of

Federal Regulations states that "purpose" means a brief statement

or description of why the disbursement was made. Examples of

statements or descriptions which meet the requirements of 11 CFR

l04.3(b)(3) include the following: dinner expenses, media,

salary, polling, travel, party fees, phone banks, travel expenses,

travel expense re~ursement and catering costs. However,

statements or descriptions such as advance, election day expenses,

other expenses, expenses, expense re~ursement, miscellaneous,

outside services, get-out-the-vote and voter registration would

not meet the requirements of 11 CFR l04.3(b)(3) for reporting the

purpose of an expenditure.

The Audit staff tested a sample of Committee

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disbursements and found that a material number contained

inadequate purposes. In most cases a purpose was included on the

disclosure reports; however, vague descriptions such as "election

event," "event cost," and fCHq and 8UPP01.~" were used. At the exit

conference, the Audit staff provided Committee representatives

with examples of the inadequate purposes.

In the inter~ audit report, the Audit staff recommended

that the Committee file amended Schedules B to correct/clarify the

purposes of the disbursements.

In response to the audit report, the Committee filed a

comprehensive amendment which materially corrected the disclosure

errors.

D. 48 Hour Notification of Contributions

Section 104.5(f) of Title 11 of the Code of Federal

Regulations states, in part, if any contribution of $1,000 or

more is received by any authorized committee of a Senate

candidate after the 20th day, but more than 48 hours before 12:01

a.m. of the day of the election the principal caapaign ca.aittee

of that candidate shall notify the Secretary of the Senate,

within 48 hours of receipt of the contribution. The notification

shall be in writing and shall include the name of the candidate

and office sought, the identification of the contributor and the

date of receipt and amount of the contribution. The notlfication

shall be in addition to the reporting of these contributions on

the post-election report.

The California Senate Republican pr~ elections were

held on June 2, 1992, and the General election was held on

November 3, 1 32 • Therefore, the Ca.aittee was required to

notify the Secretary of the Senate of any contributions of $1,000

or more received froa May 14, 1992 through May 30, 1992 and from

OCtober 15, 1992 through OCtober 31, 1992, within 48 hours of

receipt.

The Audit staff reviewed the Committee'S receipt records

and determined that the Committee did not file the required

notices for 23 contributions totaling $32,500 received for the

Primary and General elections. Of this amount, five

contributions, totaling $6,500, were received between May 14,

1992 and May 30, 1992; and 18 contributions totaling $26,000 were

received between OCtober 15, 1992 and October 31, 1992.

Committee representatives were provided a schedule of

the contributions subject to the 48 hour notice at the exit

conference.

In the inter~ audit report the Audit staff recommended

that the Committee provide evidence which demonstrates that it

complied with 11 CFR, 104.5 (f) or any other comments or

explanation regarding the failure to file the required notices.

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In response to the interim audit report, the Committee

provided doc~ntation to verify that one c~ntribution had been

timely reported. In addition the C~ttee fJrovided a copy of a

page of a JIleDIOrandua addressed to the Office of the Secretary of

the Senate which listed three additional contributions, however

according to documentation on file at the Secretary's Office, it

does not appear that the page was received. The C01IIIIlitt.e

prOVided no explanation a8 to why the remaining contributions

were not timely reported.

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FEDERAL ELECTION COMMISSION

AK006124

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April 5, 1995

Ms. Betty Presley, Treasurer

Herschensohn for u.s. Senate 1992

1251 E. Dyer Road, Suite 100

Santa Ana, CA 92705

Dear Ms. Presley:

Attached please find the Final Audit Report on Herschensohn

for u.s. Senate 1992. The C~8.ion approved the report on April

3, 1995.

The Commission approved Final Audit Report vill be placed on

the public record on April 12, 1995. Should you have any

question. regarding the public release of toile report, please

contact the Ca.mission'8 Press Office at (202) 219-4155. Any questions you have related to ..tters covered during the audit or

in the report should be directed to Ray Lisi of the Audit Division

at (202) 219-3120 or toll free at (aOO) 424-9530.

Sincerely,

-;r::i~ Robert • Costa

Assistant Staff Director

Audit Division

Attachment as stated

) E~TERD~'l TOO-\" "'.... 0 TOl\"ORRO\\

DEDIC-\TED TO ",EEP'''G THE Pl BlIC "fORMED

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CHRONOLOGY

HERSCHENSOHN POR U.S. SENATE 1992

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Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Pinal Audit Report Approved

9/14/93 - 10/19/93

10/13/94

12/20/94

4/3/95

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