REPORT OF THE AUDIT DIVISION

ON

Carol Moseley Braun for U.S. Senate

Approved I\la~' 6.. 1996

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FEDERAL ELECTIO~ CO~t~1ISSI0'"

999 E: STREET. !".\\'.

\\·ASHI~GTO'.D.C.
TABLE OF CONTENTS

CAROL MOSELEY BRAUN FOR U.S. SENATE

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Executive Summary

Final Audit Report

Background

Findings

Legal Analysis

Transmittal to Ca.mittee

Chronology

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29

35

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FEDERAL ELECTIOl' COf\-1tv1ISStON

FINAL AUDIT REPORT

ON

CAROL MOSELEY BRAUN FOR U.S. SENATE

EXECUTIVE SUMMARY

Carol Moseley Braun for u.s. Senate (the Committee)

registered with the Secretary of the Senate on December 6, 1991

as the principal campaign committee for Carol Moseley Braun,

Democratic candidate for the u.S. Senate, from the state of

Illinois.

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.

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The findings of the audit were presented to the Committee

at an exit conference held after the audit fieldwork on February

16, 1995 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.

Misstatement of Financial Activity - 2 U.S.C Sections

434(b)(1), (2) and (4). The Committee overstated both receipts

and disbursements by a total of $283,336 and $249,212

respectively.

Ending cash on hand was overstated by a total of $34,124

resulting from the misstatements detailed in the Final Audit

Report and an addition error on the reported totals of $493.

Subsequent to the commencement of fieldwork, the Committee

filed amended disclosure reports which materially corrected the

disbursement misstatements but did not correct the receipts

misstatements. In response to the interim report, the Committee

filed amended reports which materially corrected the receipts

misstatements.

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Apparent Exc~ssive Contributions - Individuals - 2 U.S.C.

Sections 441a(a)(1)(A) and (2)(A). The audit identified 138

individuals who exceeded their con~ribution l~itations by a

total of $85,542. The Audit staff also noted four individual.

who exceeded their contribution limitations for the 1998 primary

election by a total of $3,338. Further, an unregistered

committee made an in-kind contribution which exceeded its

contribution limitation by $3,500.

In response to the interim audit report, the Committee

refunded 69 contributions totaling $54,648, reported 58

contributions as debts (due to the fact that funds were not

available to make immediate refunds) and provided evidence that

7 contributions totaling $4,228 were not excessive. In

addition, the three remaining excessive 1998 contributions were

also reported as debts. The Committee did not adequately

resolve the remaining excessive contributions ($4,900) nor the

excessive in-kind contribution received from the unregistered

conunittee.

Contributions Received to Retire Primary Debt - 11 CFR

Section 110.1(b)(3)(i). The Committee solicited contributions

from political action committees to retire its net primary debt.

The Committee calculated its primary net debt to be $125,357.

Contributions totaling $106,500 were received from political

action committees to retire the debt, leaving $18,857 in debt

remaining. The Audit staff determined that the Committee~s net

primary debt totaled $73,776, with $143,875 in contributions

received for debt retirement which resulted in the Committee

receiving $70,099 in excess of the allowable limit.

In response to the interim audit report, the Committee

stated that sufficient documentation had been supplied to

support its original primary debt calculation. The Committee

also stated that the Audit staff had not allowed for expenses

such as post-primary per-diem payments, post-election

fundraising expenses relating to debt retirement and

post-election legal and accounting costs attributable to the

primary. The Committee did supply additional limited

documentation relating to these issues. Based on a review of

this documentation, the Audit staff revised the net primary debt

total to $86,934. This amount when compared to total

contributions received to retire debt ($143, 875) results in

$56,941 in contributions in excess of the allowable limit.

Receipt of Anonymous Contributions of Currency in Excess of

the Limitation - 11 eFR Section 110.4(c)(3). The Audit staff's

review revealed six deposits totaling $13,085 which included

currency in excess of $50 and inadequate documentation as to the

source of funds. The Audit staff concluded that the portion in

excess of the $50 {13,085 - 300 (6 x 50]) limitation was

$12,785. The Committee contends that they had established and

provided to their fundraisers, clear written procedures in

compliance with FEe regulations for collection of small cash

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contributions at grass roots events and for the sale of campaign

materials. These fundraisers were required to fill out receipts

which would provide an audit trail.. However, the Committee was

unable to provide any such evidence for the six deposits noted

in the report.

Contributions from Individuals: Itemization and Disclosure

2 U.S.C Section 434{b)(3)(A). A sample review of

contributions from individuals received by the Committee revealed~material problems relating to itemization and improper disclosure of itemized individual contributions. Amendments

filed during fieldwork materially corrected the itemization

problems, but material disclosure problems remained.

In response to the interim report, the Committee filed

amended reports which materially corrected remaining disclosure

problems.

Telemarketing and Direct Mail - A review of contributions

from individuals raised by telemarketing and direct mail firms

revealed material itemization and disclosure problems. The

majority of the disclosure errors were the result of incorrect

aggregate year-to-date amounts. Amended reports filed during

fieldwork did not correct these problems. In response to the

interim report, the Committee filed amended reports which

materially corrected the problems.

Joint Fundraisers - A review of contributions from

individuals raised by joint fundraising entities, Faces of

Change and Hollywood Women for a Change, revealed that the

Committee had not itemized any of the required contributions,

but had included the entire amount on line 11(a)(ii) (unitemized

contributions from individuals). Amendments filed during

fieldwork correctly itemized these cOIl~£ibutions.

Partnership Contributions - 11 CFR 110.1(e). The Committee

did not itemize 15 partnership contributions ($10,480) and

incorrectly disclosed 13 partnership contributions ($10,600).

The disclosure problems related primarily to the Committee's

omission of memo entries to disclose the individual partner's

share of each partnership contribution. Amended reports filed

during fieldwork did not materially correct these problems. In

response to the interim report, the Committee commented that

"the original software did not have the capacity to produce the

memo entries required for partnership contributions but all such

contributions were disclosed.·' Additionally, the Conunittee

filed amendments which materially corrected the itemization and

disclosure problems noted above.

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In-Kind Contributions - 11 CFR Section 104.13(a)(1).

In-kind contributions totaling $32,148 and in-kind disbursements

totaling $37,678 were not itemized. on the Committee's disclo8ure

reports. Reports filed during fieldwork did not correct the

problems noted. In response to the interim report, the

Committee filed amendments which materially corrected these

problems.

Contributions From Political Committees Disclosure - 2

U.S.c. Sections 434(b)(2)(D) and (3)(8). The Committee did not

itemize cont~ibutions t~taling $160,729 from other political

committees. Reports filed during fieldwork corrected $46,358 of

the errors. In respon~e to the interim report, the Committee

filed an amended report which corrected the remaining errors.

Disbursements - Itemization and Disclosure - 2 U.S.C.

Section 434(b)(S)(A) and 11 CFR Section 104.3(b}(4)(i)(A).

Material problems for both itemization and disclosure of

disbursements were noted. The majority of the itemization

problems were related to activity included in the July 1,

through September 30, 1992 report period. The errors were

primarily expenditures of less than $200 which aggregated in

excess of $200. The majority of the disclosure problems were

related to activity included in the January 1, through March 31,

1992 report periods. The Committee asserted in a letter that a

flood denied the campaign staff access to disbursement records

for the first quarter of 1992. Reports filed during fieldwork

materially corrected these problems.

Amalgamated Mastercard - The Committee did not itemize

seven payments ($6,906) and 67 associated memo entries ($36,677)

related to credit card transactions. Fur~hermore, disclosure

errors were identified relative to information regarding the

payments and charges which were itemized on the Cor~ittee's

reports. Reports filed during fieldwork materially corrected

the itemization and disclosure problems.

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AK007596

ARt93-32

REPORT OF THE AUDIT DIVISION

ON

CAROL MOSELEY BRAUN FOR U.S. SENATE

I. Background

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A. Audit Authority

This report is based on an audit of Carol Moseley Braun

For U.S. Senate (the Committee), undertaken by ~he 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 Commiss~on shall perform an internal review of

reports filed by selected committees to determine if the reports

filed by a particular committee meet the threshold requirements

for substantial compliance with the Act.

The audit covered the period from November 15, 1991, the

date of the Committee's first recorded transaction, through

December 31, 1992. In addition certain transactions were reviewed

through June, 1993. The Committee reportad a beginning cash

balance of SO; total receipts for the period of $6,777,135; total

disbursements for the period of $6,744,473; and an ending cash

balance of $30,144 !/

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1/ All figures in this report have been rounded to the nearest

dollar. The amounts do not foot due to mathematical errors

on the Committee's disclosure reports. These errors stem

from a reported understatement of receipts in the amount of

Sl,825, an understatement of disbursements in the amount of

S3,850 and a carry-over error of $493 in computing cash on

hand for the October quarterly report (see Finding II.A.).

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B. Campaign Organization

The Committee registered·~ith the Secretary of the

Senate on December 6, 1991 as the principal campaign committee

for Carol Moseley Braun, Democratic candidate for the u.s. Senate,

from the state of Illinois. The Committee maintained its

headquarters in Chicago, Illinois.

The audit indicated that 86% ($5,598,523) of the

Committee'S receipts were contributions from indiViduals, 13%

($834,236) from political party committees and other party

committees, with the remaining 1\ ($62,866) of receipts from

offsets to operating expenditures and interest.

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 the

matters in the report and were available to the Commissioners and

appropriate staff for review.

c. Key Personnel

The treasurers of the Committee during the period

covered by the audit were Senator Ethel Skyles Alexander (December

6, 1991 through February 6, 1992) and ~~. Earl Hopewell (February

7, 1992 until present).

D. Scope

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Although the receipt records maintained by the Committee

met the minimum recordkeeping requirements of Section 432(c) of

Title 2 of the United States Code and Section 102.9 of Title 11

the Code of Federal Regulations, contribution records supplied by

telemarketers and direct mail vendors, which comprised 23% of

total receipts, consisted of magnetic media only without third

party source documents. As a result, testing of contributions

received from telemarketers and direct mail vendors was l~ited to

the information provided.

The audit included testing of the following general

categories:

1. The receipt of contributions or loans in excess

of the statutory limitations (Finding II.B.);

2. the receipt of contributions from prohibited

sources, such as those from corporations or labor

organizations;

3. proper disclosure of contributions from ~ndlviduals, political committees and other

entltles, to include the itemization of

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contributions when required, as well as, the

completeness and accuracy of the information

disclosed (Finding ~I.C. and 11.0.);

4. proper disclosure of disbursements including the

itemization of disbursements when required, as

well as, the completeness and accuracy of the

information disclosed (Finding II.E.);

5. proper disclosure of campaign debts and

obligations;

6. the accuracy of total reported receipts,

disbursements and cash balances as compared to

campaign bank records (Finding II.A.);

7. adequate recordkeeping for campaign transactions;

8. other 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 any of the matters discussed in this report

in an enforcement action.

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II. Findings and Recommendations

A. Misstatement of Financial Activity

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

States Code require, in part, a committee to disclose the amount

of cash on hand at the beginning of each reporting period and the

total amount of all receipts and disbursements for the

reporting period and the calendar year.

The Audit staff·s reconciliation of reported financial

activity to bank activity for calendar years 1991 and 1992

revealed the following misstatements:

1. Receipts

The Committee's reported receipts were overstated

by a net amount of 5283,336. The components of the misstatement

are as follows:

Reported Receipts

Inter-account Transfer

Reported as a Loan (150,000)

$6,778,960 2/

2/ The reported financial activity has been adjusted for the

math errors noted 1n Footnote 1.

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Mathematical Errors

NSF Contributions Reported'

as Receipts Without Proper

Adjustment

Receipts Reported Twice

Joint Fundraising Proceeds

Reported Twice

PAC Contributions Reported

Twice

In-kind Contributions not

Reported

Reconciling Item

Correct Reportable Receipts

4,671

(36,801)

(23,565)

(68, .... 00)

(9,800)

31,278

(31,119) (283,336)

56,495,625

2. Disbursements

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The Committee·s reported disbursements were overstate~ by a net amount of $249,212. The components of the

misstatement are as follows:

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Reported Disbursements

Inter-account Transfer

Reported as a Loan Repayment

Reported Void and

Stop Payment Checks

Not Properly Adjusted

Disbursements Not Reported

Disbursements Reported Twice

NSF Contributions Reported

as Disbursements

Disbursements Reported

but No Checks Were Issued

Incorrect Disclosure Amounts

Disbursements to Telemarketers

Not reported

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(150,000)

(llS,977)

177,849

(91,825)

(11,736)

(14,552)

(13,689)

12,059

$6,748,323 '£...1
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~afunds Reported, but Refund

Checks Were Not Issued, or

Refund Checks Were Not

Negotiated

Reported Stale-dated Checks

Not Properly Adjusted

In-kind Contributions not

Reported

Reconciling Item

\:01:rect Reportable Disbursements

(13,420)

(5,105)

32,380

(55,196) (249,212)

S6,499,111

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3. Ending Balance

The reported ending balance at December 31, 1992

was overstated by $34,124, resulting from the misstatements

detailed above and an addition error on the reported totals

of $493. The correct ending balance was ($3,486).

Subsequent to the commencement of fieldwork, the

Committee filed amended disclosure reports which materially

corrected the disbursement misstatements but did not correct the

receipts misstatements,

At an interim conference on December 28, 1994, the

Audit staff provided the Committee representatives schedules

detailing the misstatements for both the original and amended

reports. Remaining problems with receipts were also discussed.

At the February 16, 1995 exit conference, Committee

representatives prOVided the Audit staff a memorandum detailing

corrections to reported receipts and agreed to file comprehensive

amendments to correct the errors.

In the interim audit report, the Audit staff

recommended the Committee file a comprehensive amendment to

correct the receipts misstatements noted above.

In the response to the interim audit report, the

Committee indicated disagreement with the proposed finding because

"the data the auditors refer ~o was based on the financial

activity of the Committee at the time of the original report and

not on the amendments filed sUbsequently.·' However, as part of

its response, the Committee did file amended disclosure reports

which materially corrected the remaining receipts misstatements.

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B. Apparent Excessive Contributions

Introduction

The Committee's receipt records consisted of a data base

containing contributions from all sources and copies of

contributor checks for contributions received directly at the

campaign headquarters. For contributions totaling $1,473,141 (23\

of total receipts) raised by telemarketers and direct mail firms

under contract to the Committee, copies of contributor checks were ~ot available. At the commencement of audit fieldwork on Janua~~

25, 1994, the Committee'S treasurer informed the Audit staff that

the receipts data base was unavailable at that time due to damage

to the Committee's computer equipment. The treasurer explained

that in December 1993 the Committee's headquarters experienced a

power surge which resulted in damage to its computer files.

Committee personnel and the computer vendor attempted to repair

the damage to the files.

On March 17, 1994, at an interim conference, Committee

officials notified the Audit staff that the receipts data base

could not be salvaged. No back-up documentation had been

maintained. An agreement was reached that the receipts data would

be re-entered by the Committee using the copies of the contributor

checks as a source. The Audit staff also contacted a number of

the Committee's direct mail firms and telemarketin~ firms to

obtain computer files related to Committee receipts. In August,

1994 a new receipts data base containing the re-entexcd

information was provided to the Audit staff. The Audit staff

merged the receipts data base with the computer files prOVided by

the direct mail firms and telemarketing firms. The combined data

base amounts were reconciled to the Committee's bank activity and

were found to be materially complete.

The Audit staff based all receipts testing on the

combined data base and other available documentation supplied by

the Conunittee.

1. Excessive Contributions - Individuals and

Political Action Committees

Sections 441a(a)(1)(A) and (2)(A) of Title 2 of the

United States Code state, in relevant part, that no person or

multicandida~e political committee shall make contributions to any

candidate and his authorized political committees with respect to

any election for Federal office which, in the aggregate, ~xceed

$1,000 or $5,000 respectively.

Section 100.10 of Title 11 of the Code of Federal

Regulations states that the term person means an individual,

partnership, committee, association, corporation, labor

organization, and any other organization, or group of persons, bu~

does not include the Federal government or any authority of the

Federal government.

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Section 100.7(8)(1) of Title 11 of the Code of

Federal Regulations states, in part, that the term "contribution"

includes a gift, subscription, loan, advance, or deposit of money

or anything of value.

Section 110.1(k) of the Code of Federal Regulations

states in relevant 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 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 ~ecipient political committee

may ask the contributor whether the contribution was intended to

be a joint contribution by more than one person. The treasurer

must inform 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. Within sixty days from the date of

the treasurer's receipt of the contribution, the contributors must

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 concributions which

exceed the contribution limitation set forth in 11 CFR 110.1 or

110.2 may be deposited into a campaign depository. If such

contributions are deposited, the treasurer may request

redesignation or reattribution of the contributio~ by the

contributor in accordance with 11 CFR 110.1(b), 110.1(k) or

110.2(b), as appropriate. If a redesignatio~ or reattribution is

not obtained, the treasurer shall, within sixty days days of the

treasurer's receipt of the contribution, refund the contribution

to the contributor.

Section 103.3(b)(4) of Title ~1 of the Code of

Federal Regulations states, in part, that any contribution which

appears to be illegal under 11 CFR 103.3(b)(1) or (3), and which

is deposited into a campaign depos~tory shall not be used for any

disbursements by the political committee until the contribution

has been determined to be legal. T~e political committee must

either -stablish a separate account in a campaign depository for

such contributions or maintain sufficient funds to make such

refunds.

a. Contributions from Indlviduals

A 100\ review of the Committee's receipt

records iden~ified 138 individuals who exceeded their contribution limi~ations by a total of 585,542. This amount represented 1.5%

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of the total amount of receipts from individuals. Thirteen

excessive contributions totaling $7,635 related to the 1992

prtmar}· election. The remaining -~7 excessive contributions

totaling $77,907 related to the 1~92 general election.ll The Audit

staff also noted four individuals who exceeded their contribution l~itations for the 1998 primary election by a total of $3,338.

Further, an unregistered committee made an in-kind contribution

which exceeded its contribution limitation by $3,500. The Audit

staff could find no evidence in the Committee's files that any

attempt was madf:' to refund, reattribnte, or redesign~te these

contributions.

The Committee's attorney explained at an

interim conference, that the Committee's internal control

structure, established when "the campaign was operating on a shoest~ing," was unable to keep pace with the candidate's sudden

success and appeal to contributors after winning the primary.

In the interim audit report, the Audit staff

recommended that the Committee:

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Provide evidence that the contributions in question

were not excessive: or

Refund the excessive contributions and provide

evidence of such refunds (i.e., copies of the front

and back of the negotiated refund checks); or

If funds were not available to make such refunds,

the Committee should disclose the excessive

contributions as debts owed by the Committee on

Schedule 0 (Debts and Obligations).

In response to the inter~m audit report, the c~ Committee supplied canceled refund checks ar~d front copies of

refund checks (not yet cleared) along with amended debt schedules.

The Committee also maintains that some of the

apparent excessive contributions were actually:

1) duplicate pos~ings of one check; or

2) separa~e contributions made by individuals with

similar names: or

3) intended by contributors to be allocated to more

than one person.

3/ Two contributors were found to have made excessive

contributions with respect to both the 1992 primary and the

1992 general elections.

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The Committee also contends that "the alleged

excessive in-kind contribution was actually not a contribution to

the Committee but a contribution to the Illinois Democratic Party

Coordinated Campaign. Only a very modest portion of it was

allocated to the Committee."

Finally, while the Committee does admit ~some

supporters unintentionally exceeded the FEe limit, because of the

overwhelming number of contributions to retire the primary debt

and mount a general campaign, the total amount of the

contributions over the limit represented just over 1% of the

Committee's receipts from individuals and that the Committee has

refunded every single one of those contributions.-

Audit Analysis

The Audit staff reviewed all documentation and

written rebuttal supplied by the Committee and made the following

determination relating to the $85,542 in excessive contributions.

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5.

43 contributions totaling $37,148 were refunded

(front and back copies of canceled checks

supplied) :!I

26 contributions totaling $17,500 were also

refunded, (front copies of checks only were

supplied) ;

58 contributions totaling $22,104 were reported on

Schedules D as debt;

6 contributions totaling $3,890 were determined to

be not excessive based on documqntation supplied by

the Committee and;

8 contributions totaling $4,900 for which the

Committee sup~lied additional documentation were

4/

The Audit staff found that ten checks, totaling $10,250, were

written to LaRabida Hospital on behalf of the original

contributors. The Committee indicated it had been unable to

locate the orig~nal donors and so had contributed the excess

contribut~ons to a tax-exempt, non-profit organization. In

the future, such money should be paid to the U.S. Treasury.

(See generally, Adv~sori Opin~on 1996-05.)

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still considered excessive by the Audit staff after

review of the documentation.~/

The Committee also supplied documentation

which indicated that 17 additional contributors made excessive

contributions totaling $6,540 for the 1992 general election. This

amount added to previous amounts noted, brings the adjusted total o~ excessive contributions to $88,192.

Of the 4 excessive contributions totaling

$3,337 designated for the 1998 primary election, $3,000 were

reported on Schedule 0 as deb~. The Committee provided

documentation to verify that the remaining $337 was not excessive.

Regarding the in-kind contribution from

the unregistered committee, the Committee stated that the

excessive contribution valued by the Audit staff at $3,500, should

be at the most $160. The Committee argues that while the

unregistered co~ittee provided office space for approximately 4

months from August 3, 1992, through November 30, 1992, the space

was used in connection with the general election coordinated

campaign for both the candidate and President Clinton. The

Committee provided a letter dated November 16, 1992 from the

chairman of the unregistered committee in which he states that the

value of the space ($4,500) is an in-kind contribution to the

coordinated campaign. The letter dO€3 not provide an amount

allocable to each campaign but does state that the agreement was

initiated on July 30, 1992.

The Committee also provided an affidavit from

its treasurer, dated December 13, 1995, in which he states that

the fair market value of the rental was approx~ately $200 to $240

per month for a period not to exceed 4 months for a total of

between S800 to 5960. Since the Committee paid $800 the remaining

liability is approximately 5160. In the affidavit the treasurer

does not prOVide any information as to how he arrived at the fair

market value.

This affidavit contradicts an October 25,

1992 let~er from the treasurer to the office manager of the

unregistered committee which includes an agreement by th~

Committee to lease the entire space occupied by the unregistered

committee between August 3, 1992 through November 30, 1992 at a

fair market value of $2,400. The agreement also called for the

51 These numbers total 141 rather than 138 because one

contribution was partially explained and the difference

refunded; one contribution was partially explained and the

remainder was listed on the debt schedule; and, for a third

contribution the Committee had provided inadequate

documentation to explain part of the contribution and the

remainder was reported on the debt schedule.

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Committee paying utilities, telephones and $40 per week for

janitorial services. The use of furniture in the office was

provided as an in-kind contribution.

During the period the Audit staff was

reviewing the Committee's response, counsel for the Committee

informed the Audit staff that an affidavit would be provided from

someone associated with the unregistered committee h~~~ver counsel

has now informed the Audit staff that the affidavit cannot be

provided.

Based on the information prOVided by the

Committee, it is the opinion of the Audit staff the excessive

in-kind contribution fro~ the unregistered committee is at least

$2,700 (S4,500 - S800 payment - Sl,OOO contribution l~it). The

Committee has not prOVided sufficient documentary evidence to

support a reduction of this amount.

b. Contributions Received To Retir~ Pr~ary Debt

Section 110.1(b)(3)(i) of Title 11 of the Code

of Federal Regulations states, in part, a contribution designated

in writing for a particular election, but made after that

election, shall be made only to the extent that the contribution

does not exceed net debts outstanding from such election. To the

extent that such contribution exceeds net debts outstanding, the

candidate or the candidate's authorized political committee shall

return or deposit the contribution within ten days from the date

of the treasurer's receipt of the contribution as provided by 11

crR 103.3(a), and if deposited, then within sixty days frem the

date of the treasurer's receipt the treasurer shall take the

following action:

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Either refund the contribution; or,

obtain a written redesignation by the contributor

for another election in accordance with 11 CFR

110.1(b)(5); or

Section 110.1(b)(5)(ii) of Title 11 of the

Code of Federal Regulations states, in part, that a contribution

shall be considered to be redesignated for another election if:

o The treasurer of the recipient authori%ed political

committee requests that the contributor provide a

written redesignation of the contriou ion and

informs the contributor that he or ~he n,ay request

the refund of the contributio~ a~ an alternative to

prOViding a redesignation; an~

Pa~e 15, Apprnved 5/6/96
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o within sixty days from the date of the treasurer's

receipt of the contribution, the contributor

provides the treasurer with a written redesignation

of the contribution for another election, which is

signed by ~he contributor.

Contributions were received to payoff

outstanding debts incurred in connection with the pr~ary election

(March 17, 1992). The Committee provided information to the Audit

staff concerning the primary debt position and the total amount of

contributions received for the extinguishment of this debt.

According to the Committee, as of March 17, 1992, cash on hand

totaled $7,216 and outstanding debt totaled $132,573 leaving net

debt of 5125,357. The Committee's workpapers showed a total of

$106,500 in contributions received from political action

committees for debt retirement, leaving a remaining net debt of

$18,857 as of May 28, 1992.

Audit Staff Analysis - Net Debt

The Audit staff's analysis revealed actual

cash on hand as of 3/17/92 to be a negative $4,157.

In addition, the ~udit staff reviewed

documentation supporting the Committee's calculation of prtmary

debt includ~ng invoices, receipts, and canceled checks. Of the

$132,573 initially listed as debt, the Audit staff disallowed

$40,318 for the following reasons:

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There was no supporting documentation;

the documentation provided did not support the

Committee's position that the expenses should be

included in its pr~ary debt position; or

the documentation provided indicated that the item

was related to the general election.

The Audit staff's review further revealed

$3,162 of primary debt that the Committee had not included in its

debt calculation. The review also found $6,394 in telephone and

lease deposits which the Committee did not include as assets in

computing the net debt position.

Given the information noted above, the Audit

staff determined that the Committee's net debt position as of the

date of the primary to be $73,776.

Contributions from political action committees

and individuals which were received after the date of the primary

and designated for primary debt were reviewed. This review

revealed that the Committee accepted 54 contributions totaling

$143,875 designated by the contributors to retire primary debt.

The contributions were comprised of 46 contributions ($133,075)

Page 16, Approved 5/6/96
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received in 1992 from political action committees, 6 contributions

from 5 individuals ($4,800) and 2 contributions ($6,000) received

in 1993 from political action committees. When compared with the

net debt at the date of the primary; it appears that the Committee

solicited and received contributions in excess of net pr~ary debt

in the amount of $70,099.

Prior to the exit conference, Committee

representatives were provided copies of workpapers detailing the

Audit staff's calculations. At the exit conference, Committee

representatives stated that additional information would be

provided to the Audit staff which would show that the

contributions were acceptable.

In the interim audit report, the Audit staff

recommended that the Committee:

o Provide evidence that the $70,099 of contributions

were not received in excess of net primary debt; or

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In its response to the interim audit report,

the Committee stated that it had provided sufficient documentation

to support its original primary debt calculation. Furthermore, in

computing the net debt position, the Audit staff did not give the

Committee credit for approximately $30,000 in post-pr~ary

per-diem payments for which the Committee is now submitting

affidavits from the recipients. In fact, the Audit staff had

previously reviewed the available documentation including

affidavits and had allowed approx~ately $15,598 of this amount.

After reviewing affidavits submitted with the Committee's

response, the Audit staff allowed an additional $3,784 to be

included in the net primary debt figure. In addition, the

Committee supplied an invoice for 5240 which related to primary

debt.

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refund the contributions and provide evidence of

such "refunds (i.e., copies of the front and back of

the negotiated refund checks); or

if funds are not avai~able to make such refunds, it

is further recommended that the Committee disclose

these contributions as debts owed by the Committee

on Schedule 0 (Debts and Obligations).

The Committee also contends that at the t~e

of the interim audit report, the Audit staff had not allowed for

calculation of post-election debt retirement fundraising costs

relating to primary debt or post-election legal and accounting

costs attributable to the primary. The Committee provided a

summary schedule of 1992 primary fundraising and legal and

accounting expenses total~ng $167,188. The Committee's current

position is that the original net debt was understated by over

$165,000.

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In support of its position, the Committee

submitted a copy of a contract with a fundraising entity and

c~pies of checks made payable to the firm and three individual.

including the Finance Dir~ctor and assistant to Finance Director.

Payments for fundraising expenses total $49,838. The remaining

$117,950 relates to a portion of legal and accounting fees and

fees paid to the Committee's treasurer for work considered prtmary

related. No supporting documentation was supplied for the

Committee's calculation of numbers for these legal and

professional fees allocable to primary debt. The Committee's

position is that under 11 erR Section 110.1(b)(3)(ii), it is

entitled ~o treat these costs as primary debt.

Section 110.1(b)(3){ii) of Title 11 of the

Code of Federal Regulations states in part, net debts outstanding

means the total amount of unpaid debts and obligations incurred

with respect to an election, including the estimated cost of

raising funds to liquidate debts incurred with respect to the

election and, if the candidate'S authorized committee terminates

or if the candidate will not be a candidate for the next election,

estimated necessary costs associated with termination of political

activity, such as the costs of complying with the post-election

requirements of the Act and other necessary administrative costs

associated with winding down the campaign, including office space

rental, staff salaries and office supplies. The Explanation and

Justification for the above Regulation (Federal Register, Volume

52, NO.6, PAGE 162J states, -It would be difficult to

distinguish post-election expenses legit~ately related to that

election from expenses that are intended to benefit the candidate

in future elections.-

After consideration of the documentation

supplied by the Committee, the Audit staff determined that

approximately $11,134 of the fundraising costs would be allowed

for inclusion in the net primary debt calculation. This amount

was based upon the ratio of moneys raised to retire primary debt

to total funds raised during the period from the day after the

primary until sufficient money had been raised to retire existing

primary debt.~/ This ratio was then applied to the summary of

fundraising fees supplied by the Committee.

Regarding the Committee's contention that

legal and accounting fees incurred subsequent to the date of the

primary should be included ~n the pr~mary debt total, it is the

opinion of the Audit staff that these fees are windi~g down costs

and are not permissible under 11 CrR 110.1(b)(3)(ii).

6/ Th~s rat~o was used because the documents do not indicate

that the cost for fundraising was solely to retire the

primary debt, nor do they specifically mention the

Committee's pr~mary debt.

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Furthermore, at the time the primary debt was revised (May 28,

1992) and the Committee solicited contributions for debt

retirement, these costs had not been incurred.

As a final note, the Audit staff had

originally allowed a payment for $10,000 written on 4/10/92 for

consulting services to be included in the net pr~ary debt figure,

but has now revised this figure down to $8,000 based upon

documentation supplied by the Committee in its response to the

interim audit report.

Based on the adjustments noted above the Audit

staff's revised net pr~ary debt figure totals $86,934. This

amount, when compared to the total contributions received to

retire dpbt ($143,875) results in a total of $56,941 in

contributions in excess net pr~ary debt.

c. Receipt of Anonymous Contributions of

Currency in Excess of the L~itation

Section 110.4(c)(3) of Title 11 of ~he Code of

Federal Regulations states that a candidate or committee receiving

an anonymous cash contribution in excess of $50 shall promptly

dispose of the amount over $50. The amount over $50 may be used

for any lawful purpose unrelated to any Federal election,

campaign, or candidate.

The Audit staff's review of Committee receipt

documentation identified six deposits which included currency in

excess of S50 and inadequate documentation as to the source of

funds. Based upon the documentation provided, the Audit staff was

unable to determine how many individual contributors were

represented by these totals. Each deposit was greater than

$1,000. The six deposits, totaling $13,085, appear to consist of

revenues from fundraising events or sale of campaign materials.

The Audit staff concluded that the portion in excess of the $50

(13,085 - 300 [6 x 50]) limitation was $12,785.

At the exit conference, Committee

representatives were prOVided with a list of the currency deposits

in question.

In the interim audit report the Audit staff r~~v.~ended that the Committee:

o Provide evidence that the currency deposits in

excess of S50 are not excessive anonymous

contributions of currency or;

dispose of the excessive portions for any lawful

purpose unrelated to any federal election,

campalgn, or candidate.

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o If funds are nn~ available to make such

disposition, it is further recommended that the

Committee disclose the excessive contributions as

debts owed by the Committee on Schedule 0 (Debts

and Obligations).

In its response to the interim audit report

the Committee supplied one affidavit for a deposit totaling $561

collected at a fundraiser on or about August 5, 1992. In this

affidavit, the fundraiser attests that the money was collected in

accordance with 11 CFR l02.6(c)(5), as to contributor information

for mass contributions of S50.00 or less.

Although 11 CFR l02.6(c)(S) refers to separate

segregated funds and not to authorized committees, Advisory

Opinions 1980-99 and 1981-48 detailed similar accounting

requirements for gate receipts and small cash contributions. In

these Advisory Opinions the Commission suggested that an

alternative method for accounting for contributions under $50

received at mass collections was to record the name of the event,

the date the contributions were received for that event and the

total amount of contributions received on each day for that event.

This affidavit does not supply any additional

information for the 6 deposits mentioned above. It should also be

noted that this affidavit does not list the exact date or name of

the fundraiser to which it refers as is suggested in the Advisory

Opinions noted above.

In addition tc this affidavit, the Committee

made the following statements attesting to its belief that every

precaution was taken to ensure that the collection of cash

contributions fully complied with FEe regulations:

C" 1 . The Committee established clear written

procedures in compliance with FEe

regulations for collection of small cash

contributions at grass roots events and

for the sale of campaign materials such

as T-shirts.

2. Each individual who collected these funds

was furnished a copy of the Committee's

compliance manual and specifically

instructed abou~ the anonymous cash limit

of S50 and the S100 limit on cash.

3. Pursuant to the compliance manual, the

individuals who collected these funds

filled out receipts providing an audit tra~l that ~ndlcates the collector and

source of each cash deposit.

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4. These receipts were previously provided

to the auditors.

S. The Committee has obtained an affidavit

from an individual collector explaining

compliance w~th the Committee's

procedures. This affidavit confi~s that

the Committee's procedures were made

known to the individuals who collected

cash and filled out receipts.

6. Inasmuch as the Committee promulgated

written rules relating to the collection

of small contributions, the Committee's

procedures were followed, and receipts

were obtained, it is clear that these

collections complied with the

regulations, and no further action should

be required.

It is the Audit staff's position that although the

Committee did supply substantial documentation relating to

currency deposits prior to the issuance of the interim audit

report, the information did not pertain to the six deposits listed

or was inadequate to supply necessary clarifying information. Fur~her, the Committee has supplied no new information relating to

the deposits mentioned in the report. While the Commit~ee~s

compliance manual does provide procedures for the collection of

cash contributions, the Committee has admitted that for other

areas such as the refunding of prohibited or excessive

contributions the procedures listed in the manual were not always

followed. Finally, if procedures listed in the manual had been

followed, the Committee should have been able to provide the

requested receipts. To date, it has not done so.

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c. Contributions from Individuals: Itemization and

Disclosure

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

Code states, in part, that each report under this section 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 aggregate amount or value in excess of $200 within the

calendar year, together with the date and amount of any such

contribution.

Section 104.3(a)(4) of Title 11 of the Code of Federal

Regulations states, in part, that the identification of each

contributor and the aggregate year-to-date total for such

contributor shall be reported .

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

states that the term "identification" means in the case of any

individual, the name, the mailing address, and the cccupation of

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

OVERVIEW

The Audit staff tested the Committee's contributions

from individuals for proper itemization and disclosure on a sample

basis. During the review, the Audit staff noted material problems

relating to itemization and disclosure of itemized individual

contributions. The itemization problems with individual

contributions appeared to be associated primarily with

contributions received by the Committee's direct mail firm, the

Committee'S telemarketing firms, and two joint fundraising

entities. These contributions were removed from the sample and

were tested separately.

1. Contributions from Individuals: Sample

The sample review of the Committee's contributions

from individuals, after the removal of the contributions noted

above, revealed material problems relating to itemization and

improper disclosure of itemized individual contributions. The

majority of the disclosure errors related to disclosure of

aggregate year-to-date totals. Other errors noted were related to

name, address or amount. According to the Committee treasurer,

the majority of the itemization errors resulted from the coaputer

system software's inability to accurately compute the individual

contributors' aggregate year-to-date totals.

The Committee filed amended disclosure reports

subsequent to the commencement of audit fieldwork which materially

corrected the itemization problems noted above. However, the

amended reports did not materially correct the disclosure

problems. The majority of the remaining disclosure errors related

to disclosure of aggregate year-to-date totals.

At the exit conference the Committee was provided

with workpapers which indicated the types of disclosure errors

noted during the review. The Committee agreed to file amendments

to correct the disclosure errors.

In the interim audit report, the Audit staff

recommended that the Committee file a comprehensive amendment

correcting the disclosure errors.

The Committee stated that software limitations and

failures made it difficult for the Committee to properly aggregate

some individual contributions. In response to the interim audit

report, the Committee did file amended reports which materially

corrected the disclosure problems noted above.

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2. Telemarketing and Direct Mail

The Committee contracted with one direct mail firm

and three telemarketing firms to conduct fundraising on its

behalf. The receipt records for these contributions were tested

separately from the contributions received at the Committee

headquarters.

The review of these receipts revealed that 154

contributions totaling $59,960 were not itemized as required. The

Committee filed a number of amended reports, however these errors

were not materially corrected.

The review also revealed a material problem with

disclosure of itemized contributions from individuals. The

majority of the errors were the result of incorrect aggregate

year-to-date amounts. Amended reports did not materially correct

these errors.

At the exit conference, the Committee was supplied

with examples of the itemization and disclosure errors. The

Committee stated that an amended report would be filed to correct

the errors.

In the interim audit report, the Audit staff

recommended that the Committee file a comprehensive amendment

correcting the itemization and disclosure problems noted above.

In response to the interim audit report, the

Committee contends that only after the FEC auditors intervened,

did the Committee's telemarketers forward to the Committee

itemized contributor information required for $59,000 in

contributions. The telemarketing firms had deposited the funds to

Committee bank accounts but had not responded to the Committee'S

request for itemized data. The Committee did file amended reports

which materially corrected itemization and disclosure errors noted

above.

3. Joint Fundraisers

The Committee also participated with four entities

to conduct joint fundraisers. Two of these entities, Faces of

Change (FOCUS) and Hollywood Women for a Change maintained

separate bank accounts into which the contributions were

apparently deposited. After the funds were received and

deposited, a check for the net proceeds was forwarded to the

Committee along with a list of the contributors.

The remaining two entities, Emily'S List and

Council for a Livable World forwarded the contributors' checks

directly to the Committee where they were deposited into the

Committee's account. Expenses related to the fundraisers were

paid from the joint fundraisers' bank accounts.

Page 23, Approved 5/6/96
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The Audit staff tested receipts from Faces of

Change and Hollywood Women for a Change on a 100% basis.!1 The

results showed that the Committee had not itemized any of the

required contributions from Faces of Change and Hollywood Women

for a Change. A September 23, 1994 memorandum from the

Committee'S treasurer states, "In the original filing of September

30, 1992, signed October 15, 1992, the Joint fundraising was

included in line ll(a)(ii) which is for contributions by

individual, unitemized ... The Aggregate joint fundraising checks

were deposited into the Amalgamated Bank Account, and the detailed

contribution records supporting the aggregate checks had not been

made available to the Committee. Thus, we had no detailed

itemized information to record the joint fundraising contributions

as of October 15, 1992.~

When the Audit staff reviewed the Committee's

amended reports, filed subsequent to the commencement of audit

fieldwork, the Audit staff found that all required contributions

had been itemized correctly.

4 . Partnership Contributions

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Section 110.1 (e) of Title 11 of the Code of

Federal Regulations states, in part, a contribution by a

partnership shall be attributed to the partnership and to each

partner.

The Audit s~aff performed a separate review of

contributions from partnerships. The results of this review

identified 15 contributions from par~nerships, totaling $10,480,

that were not itemized as required. Amended reports, filed

subsequent to commencement of fieldwork, did not materially

correct the errors.

In addition, the review identified 13 errors,

totaling $10,600, relating mainly to the Committee's omission of

memo entries to disclose the individual partner's share of each

partnership contribution. Other problems noted were incorrect

individual partner allocation on memo entries, incorrect

partnership names and incomplete disclosure information, such as

missing first names of individual partners, on memo entries.

Amended reports did not correct these problems.

At the exit conference, Committee representatives

were provided with workpapers that listed remaining itemization

and disclosure problems. The Committee indicated a comprehensive

amendment would be filed to correct the remaining errors.

7/ Receipts from Emily'S List and Council for a Livable World

were tested on a sample basis along with other individual

cont.ribut.\.ons .

Page 2~, Apprnved 5/6/96
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In the interim audit report, the Audit staff

recommended that the Committee file a comprehensive amendment

correcting the itemization and disclosure errors noted above.

In response to the inter~ audit report, the

Committee commented that "the original software did not have the

capacity to produce the memo entries required for partnership

contributions but all such contributions were disclosed.~

Additionally, the Committee did file amended reports which

materially corrected itemization and disclosure problems noted

above.

5. In-Kind Contrioutions

Section 104.13(a)(1) of Title 11 of the Code of

Federal Regulations states in relevant part, each in-kind

contribution shall be reported as a contribution in accordance

with 11 CFR 104.3(a). In addition, Section 104.13(a)(2) states,

in part, each in-kind contribution shall also be reported as an

expenditure at the same usual and normal value and reported on the

appropriate expenditure schedule.

The Audit staff performed a 100\ review of in-kind

contributions from both individuals and political committees. The

~ources available for the review were original and amended reports

filed by the Committee, conduit reports, contracts for contributed

office space, and files relating to the in-kind contributors

supplied by the Committee. The review revealed that a total of

$32,148 of in-kind contributions were not itemized as

contributions and 537,678 were not itemized as expenditures.

These consisted primarily of contributions from political action

committees. The Audit staff also noted differences between the

amounts itemized by the Committee and the records maintained by

the Committee for certain in-kind contributions. Amended reports

did not materially correct these problems.

At the exit conference, the Audit staff supplied

the Committee with workpapers detailing necessary adjustments.

The Committee representatives stated that a comprehensive

amendment which included adjustments for political committee

in-kind contributions not item~zed would be filed.

In the inter~m audit report, the Audit staff

recommended that the Committee file a comprehensive amendment

correcting the itemization problems noted above.

In response to the interim audit report, the

Committee filed amended reports which materially corrected the

problems noted above.

Paqe 25, Approved 5/6/96
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D. Contributions From Political C~mmittees -

Disclosure

Sections 434(b)(2)(D) and" (3)(B) of Title 2 of the

United States Code state that each report under this section shall

disclose for the reporting period and calendar year the total

amount of all contributions from other political committees and

the identification of each political committee which makes a

contribution to the reporting committee during the reporting

period, together with the date and amount of any such

contribution.

The Audit staff reviewed contributions from other

political committees such as political action committees on a 100%

basis. Since the Committee had filed amended reports as of the

date the review was performed, the Audit staff reviewed both sets

of reports, original and amended. The review revealed that

contributions from other political committees, totaling $160,729,

were not itemized as required on the o~iginal reports. Amended

reports filed subsequent to the commencement of fieldwork

corrected $46,358 of the errors.

At the exit conference, the Audit staff notified the

Committee of its finding. The Committee indicated a willingness

to file a comprehensive amendment to correct the remaining errors.

In the interim audit report, the Audit staff recommended

that the Committee file a comprehensive amendment correcting the

remaining itemization errors noted above.

In response to the interim audit report, the Committee

filed a comprehensive amendment which materially corrected the

remaining political committee itemization problems.

E. Disbursements - Itemization and Disclosure

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

Code states that each report under this section shall disclose the

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

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

year is made by the reporting committee to meet a candidate or

committee operating expense, together with the date, amount, and

purpose of such operat~ng expenditure.

Section 104.3(b)(4)(i)(A) of Title 11 of the Code of

Federal Regulations states, ~n part, that purpose means a brief

descr~ption of why the disbursement was made.

The Audit staff reviewed 12 accounts relating to the

Committee's financ~al a=t~vity. The audit indicated that 73%

($4,728,474) of all d~sbursements made by the Committee during the

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period covered by the audit came from the general operating fund.

The remainder were drawn on eight smaller accounts; five of these

related to telemarketing or direct. mail activities.!1

1. Itemization

A sample review of the Committee's general

operating account disclosed a material problem relating to

itemization of expenditures on the original disclosure reports.

During the review it became apparent that the majority of

itemization errors appeared to be in the OCtober Quarterly .:eport

which covered the period July I, 1992 through September 3D, 1992.

The errors were primarily expenditures less than $200 which

aggregated in excess of $200.

2. ~isclosure

A sample review of the Committee's general

operating account revealed a material problem with disclosure in

the original reports. The majority of the disclosure errors

appeared to be related to activi~y included in the January 1,

through March 31, 1992 report periods. The Committee asserted in

a letter that a flood denied the campaign staff access to

disbursement records for the first quarter of 1992. Because of

this, the Committ<e filed what appeared to be a disbursement

ledger, instead of the required Schedules B. This ledger did not con~ain required addresses nor did it provide a purpose for all

disbursements listed.

At the exit conference on February 16, 1995, the

Committee was informed of the results of this review.

Subsequent to the commencement of audit fieldwork,

the Committee filed amended reports which materially corrected

both the itemization and the disclosure problems noted above.

3. Amalgamated Mastercard

c. In March of 1992, the Committee applied for and

received two Mastercard credit card accounts, one for the

8/ Three accounts, Franklin National Money Market Account,

Seaway National NOW Account, and Seaway National Money Market

Account had only limited activity, mostly comprised of

inter-account transfers to and from other accounts. These

transfers were reviewed in the bank reconciliation process.

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Candidate and the ot~8r for the Campaign Manager.!1 These cards

were then used pr~ar~ly for campaign-related expenses.

In correspondence with the Commission, the campaign

initially described the credit cards as "Debit cards·' and stated

that the Committee made advance payments against which the card

holders would then charge campaign expenses. In a Summary of

Debit Card Transactions filed with the Commission on May 25, 1992,

the Committee Treasurer, Earl Hopewell stated that "Each debit

card is secured and activated by an amount placed with Amalgamated

Bank. By making advance payments for authorization to use the

Mastercard debit card, the Braun Campaign is able to establish a

record of how each do]:~~ _s utilized on the Mastercard account,

while avoiding cred:~ ~~5ks to the Campaign. In contrast, if the

Campaign were to uti!.~~ credit cards or cash advances, there

would be less control, m~~e risks and possibly fewer records."

The Audit staff's review of these bank cards

disclosed that the cards were not debit cards but rather credit

cards. This conclusion is based on the fact that except for a few

instances no advance payments were made on the accounts, interest

was charged on unpaid balances, and the bank refers to a credit

line in correspondence to the Committee.

The Audit staff performed a 100\ review of all

credit card activity. That review revealed that seven payments to

the credit card vendor, totaling $6,906 were not itemized. In

addition, 67 associated memo entries to the individual vendors,

~otaling $36,677, were no~ itemized. Further, irregularities were

identified relative to information disclosed regarding the

payments and charges which were itemized on the Committee's

reports.

Subsequent to the commencement of audit fieldwork,

the Committee filed amended reports which materially corrected the

itemization and disclosure problems noted above.

9/ The first account for the Campaign Manager was closed and its

balance was transferred to a new card number on August 16,

1992. The Campaign Manager used this account throughout the

remainder of the campaign. As of November 3, 1992, this

account became a personal account of the Campaign Manager.

Page 28, Approved 5/6/96
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FEDER;;\L ElECTIO~ COMtv\ISSION

!:£C;'lI,~~

FEDERAL ELECTION - COMHISSIO~

AlJDIT O'Vi";'O~

Afit ZZ GS8 ~fi '~~

April 19. 1996

MEMQRANDl1l\1

I

Lorenzo Hollo",oay -~ .:J

Assistant General Coun~1

Roben J. Costa

Assistant Sm-.........L-JI· ..--ctor

Audit Divisi

.~bcl P. ~1onlcz -1 o~ttome~ ,-;'/)/

Proposed Final Audit Rerun on Carol Moseley Braun for U.S. Senate

Committee (LRA u~7..a)

THROUGH: John C. Su 0'

Staff Direeto

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La\\TenCe ~1.. Noble

General Cotlnsc:1

Kim Bright-Colcm:m l~ Associate General CounseI

TO:

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FROM·

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-- SLtBJECT

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I. I~TRODl:CTIOS

The Onicc of Gener:ll ("oun~~1 ha~ r~\ Ic\\ed the proposed Fin:li Audit Rcpon on

the Carol Mosele\ Braun lor to.s Scnat\." ("ummluc:e (""the Comnllttc:e··) submitted to this

Office on ~1arch 60 1C)Q6 I The follo\\ log nlcr.lor:Jndum summarizes our comments on

th~ proposed repan \\ e concur \\ nh tindln~~ In the rroJlOsc:d rcpon \,-hich are not

discussed sc:parate;:l~ in the foBo\\ Ing nlcmurandunl If you have any questions

concernIng our comments. please COnla,,! Ahcl P Montez. the attorney assIgned to this

audll.

Becau\l: the' proposcd ... 1031 Audit kcrnn dO('\ not aneludc 3n~ m3ttcr~ c\cmpt from public

dlsclosurc undcr I I C f R 2 ..a. c: recommcnd Ih.3t th\." Commission·s diSCUSSion of thiS document be

conducted an open session

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Page 29, Approved 5/6/96
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Memcnndum to Roben J. Costa

Final Audit Repon for Carol Moseley Braun

for U.S. Senate Comminee (LRA *474)

Paae2

II. EXCESSI\'[ CONTRIBUTIONS FROM 4NDI\'IDUALS (11.1.a.)

The Interim Audit Repon found that the Comminee received $85.542 in

contributions from 138 individuals. who exceeded their contribution limitations. In its

response to the Interim Audit Report. the Comminee provided documents showing that it

refunded 69 contributions totaling $54.648 As pan ofthese refunds. the Comminee

wrote ten checks. totaling S1O.::!50. to LaRablda Hospital. a tax·exempt. non-profit

organization. The Committee pasd LaRablda Hospital \\'hen the Committee \\·as unable

to Incate ten contributors in order to make refunds to them. HO\\lever. the proposed report

states ~hat future refunds "should be paid to the t..: .S Treasury.·'

The Office of General Counsel recommends that the Audit Division revise its

proposed repon to reflect the Commission·s current policy on the refunding of excessive

contributions. In Advisory Opinion 1996-05. the Commission allowed a comminee the

option of either refunding an illegal c~ntributlon to the contributor or submining the

amount to the United States Tre3Su~·.· Therefore. if in the present case the Comminee

disco\'ers that it is unable to locate additional contributors. then the Comminee should

submit the amount to the United States Treasu:')". Thus. the Office of General Counsel

recommends that the Audit Division re\'l~ its proposed repon to include a cite to

Ad\-isory Opinion ]996-05.)

III. CONTRIBUTIONS RECEIVED TO RETIRE PRlMAR\' DEBT:

ANALYSIS OF NET DEBT (11.I.b.)

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The proposed rcpon raises the issue of "'hat costs may be considered in

calcul:ning the Comminee·s ··net debts outstanding·' for the purpose of detennining

""hether the Committee m:sy continue to recel\,e contributions after the primary ,:~tion.

Sec.' II C.F.R. 110.1(b)(~)(i.. The Intcnm Audit Repon found that the Comn-,inee

accepted 54 contributions totaling Sl.a3.875 desl~nated by the contributors to retire

primal')' debt. The rcpon found that the Commltlee·s net debt position as of the date of

the primary \\"35 $73.776 Thus. the rcpon found that the Committee solicited ZI':d

received contributions In excess of net pnmary debt In the amount of $70.099 tS) 43.875

contributions to reure pnmary debt· S73.i76 net debt position as of date of primary).

The repon recommended that the Committee prOVide eVidence that $70.099 in

In Advlso') OptnIOf'S Iqq~·IQ and 19Q1-)Q. the CommisSion e:\platned that when the source of

the contribution cannot be aetcmuned the ~QuI~d pa~ments could be made to a government entity at the

Federal. State or localle\'el. or to a public ch~rat~ that qualified under ~6 L' S C ,70(c) In the present

case. these options are not a\atlable to the Committee because the aetuJI sources of the contnbuuons an

question have ~en determaned. but cannot be located

Although the acttvlt~ at Issue prt'-cUles the cUr!ent polle) "v-e note that the current pohc~ IS less

burdensome for the Committee than the prt>.. tOUS practice

Page 30, Approved 5/6/96
MemoranckaIn to Robert J. COIla

Final Audit Report for Carol Moseley Braun

for U.S. Smale Commlnee (LIlA ....'4)

PaIC 3

contributions were not received in excess of the net primaJ')' debt. Ifthe Comminee did

not provide this evidence. the repon recommended thaI it :c .. ~d the conuibutions and

provide evidence ofsuch refunds. If the Committee could not make thr refunds for lack

funds. the Interim Audit Repon recommended that it repon these contributions as debts.

In its response to the !ntenm AudIt Repon. the Comminee contends that the Audit

Division has not allo\\'ed for c~kuI3t1on of post-election (1) le~al and accounting costs

anributable to the pnm~. and ('2) dt:bt retirement fundraising costs relating to prim~'

debt. The CommIttee provided a summary schedule of 1992 le~al and accounting

expenses (totaling S) 17.950) incufTed subsequent to the date ofthe primary.a and primary

fundralsins (totaling $49.838) Thus. the Committee argues that the Audit Division

understated ItS orig!nal net debt by O\'er S165.000.

Based on information provided by the Committee in response to the Interi17l Audit

Repon. the proposed Final Audit Repon Increased the Commincc·s net prim~' debt to

586.934. 5 Thus. the proposed repon reduced the Committee·s contributions received in

excess of net pnm~ debt to S56.Q41 ($ 143.875 contributions to retire primary debt -

586.934 net debt position as of date of pnmary).

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In the proposed repan. the Audn DJ\'islon does not include the legal and

accounting expenses in the calculation of the Committee·s net debt because the expenses

were Incurred subsequent to the cbu: of the pn~' and are expenses disallowed by the

re~ulation. Ser 1J C.F.R. § 110. Hb)(3Kii) In the proposed repon. the Audit Division

also considered the Committee·s documen~uon and estimated that approximalel~'

S11.J3~ of the 549.838 In fundralsln.: costs to.:ld be Included in the net pri~' debt

calculation

CommiSSion repulatlons hmlt the: contributions that an au~trlrized cc.nl-nittee may

accept wnh respect to 311 election alrc3d~ held An authonud committee may ,,-:cept

contributions made after the dale of the election if such contributions 3re designated in

~nung by the contributor for th3t election. hut onl~ 10 the extent such contributions do

not exceed the amount of net debts oUlst3ndln~ from such election. 11 C.F.R.

§ 110 1( b)( 3)( I) ··Il'}et debts outstandln~··;Ire defined as the IOlal unpaid debts and

obligations Incurred \\'Jth respecl to .3 p.1l11cu13f election (Including the estimated cost of

The Commlne~ did not pro~.dt aft~ ",pponlft~ documefttalton for liS calculation of thcse lcg.al

and profeSSional ftt~

Tht Audit Ol\llSIOn adjusted Iht (ommlU« s net debt position of the datt of the pnmary to

S86.Q)J from the S73.776 f'l,:ure conta,ne" In tht Inteum Audit Repon To detemune the Commlttec's

rC\llsed net dtbt position tnt Audit O'\lI~.on (I» added Si .71.1 10 account for post-prama') per-dlcm

pa~ment~. (~» added S1.aO based on an In~OICt rel:altd 10 p,.m:a~ deb: (3) added S11.13J to account tor

fundralstng costs and (J) sublr:lCltd S: 000 10 account for a SIO.OOO pa~ment for consullang ser~lce~

pre\llousl~ Included an Iht nt! prlm:a'" debl fl~urt thJ! should ha\le ~cn S8.000

Page 31, Approved 5/6/96
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Memorandum to Robert J. Costa

Fenal Audit Report for Carol Moseley Braun

for U.S. Senate Commlnet (LRA -.474)

Palc4

raising funds to liquidate such debts) mInus cash on hand and receivables available to pay

those expenses as of the date of the election 11 C.F.R. § 110.l(b)(3)(ii).

In calculating the net debts outstanding. a candidate can account for the total

amount of unpaid debts and obligauons Incurred "'ith respect to an election. including the

estimated cost of raising funds to liquidate debts Incurred "'nh respect to the election. 11

C.F.R. § 110.1(b){3)(in In calculating election-related expenses, 3 candIdate \\'ho ""ill

not be panlCtp3ung In the next election. or "'hose authonzed committee 1;; ierminaung.

may include necessary costs associated \l...th tenntnatlon of political activity and

necessary ""indlng down costs 11 C.F.R § 110 1(b)(3)(ii).b Explanation and

JustificatIon of 11 C.F.R § 110. Hb)(3)(n). 5~ F"d Rc~ 761 (January 9.1987).

However. a candIdate ,,-ho '" i11 be runnIng In the next election may not include such costs

because he or she is not termlnaung pohtlcal acu\'u). Jd The Commission has stated its

rationale for not allo" lng such costs to be Included in the calculation: ··It \"ould be

difficult to distinguish post-election e~penses that are intended to benefit the candidate in

future elections·' E"planatIon and Justification of 11 C.f.R § 110.1 (b)(3 )(ii). 5~ F"d

Rc~ 7t~ (Janu~ 9. lqg7)

The Office of General Counsel concurs "'uh the !\udit Division·s analysis that

""'Inding do"n costs (legal and accounting expensesl may not be included in determining

the Commincc·s net debts outstanding. becaus-e the Comminee is not terminating

politlca) activIt) 11 C.F .R, § 110 1(h){ J)(.. ) The Committee did not file a termination

rcpon.

1 See Ad\'~so~' OpinIon 1990-17 (Funds provided to pay for legal expenses

Incurrc'': In connection ""'uh :1 compl:unt filed ",ath the CommisstJn are consi~red

contnbut,ons. commIttee \'Icwed 3.S not termuutlnl; political activity because its filings

did not dlsclose:1 temllnauon repon) Funhermorc. on Feb~ 8. 1994. the candidate

fi led a sutement of candidac~ for the ,QQ8 UnIted States Senate election. Therefore.

some of the Committee's post-election e'pC'nses could be used to benefit 3 future

electlon S~~ Explanation and JustlflCJtlOn of 11 C.F.R § 110.1(b)(3)(ii). 5~ Fed Reg

76~(Janu~ 9. lQ87)

The Office of Gener:ll Counscl 3t~ concurs v.'uh the Audit DIvIsion·s treatment

of the fundralslng expenses In thc proJ"Oscd repone the Audit DIVIStOn conSidered the

Commlttee's documentation for fundr:1lsln~ c'pcnscs. "'hlch cons,sted of a summary of

fundralslng fees paid to an entlt~ calkd Camp.Jl~n Finance Consultants and three:

The re~ulatlon defines these CO\I\ a~ U,o\e ··.uoclaled Ilh termination of poll'Ical actlvn~. such

as costs associated ~'th the post·electton reQulremenu of the IFederal Election CampaIgn} Act and other

nC'cessa~ adm,"lstntl~ecosts asSoOC,altd nt\ -Indln~ do,. n tne campa,~n me ludan~ office space rental.

StarT salafles anC: office iuppi,es·· I I C F R I 10 I(b .. ))C III

'" e note th~~ the Commlnet c~nno! termInate ~caust the CommiSSion's regulations st:Ut Iha:

. onl~ a commlnee ~"ICh ,.111 no lont=e r rtCC'IH' an, contrlDullon~or ma"e an" diSbursements lnal ,",oulc

otherv.lse Quailf~ If as a poi,tlcal comml!ttt' mJ" tt""'ln~llt prO,"lded Ih3t such committee has no

outstand,"~ dtt){S and obll~allon~' .C:;n lie f R 10: Jt a I )

Pa?E A??roveC 5/6/9E.
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M..onndum to Roben J. Costa 'ina, Audit Report for Carol Moseley Braun

for U.S. Senate Commlftee (LRA .414)

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individuals, along with the canceled checks issued to the entity and the individuals.I The

Comminee also provided the contract it entercd Into "'ith Campaign Finance Consultants

on Ma~' 5. 199~. The Audit Division then esumated that approximatcly S11.134 ofthe

S49.838 in fundraising costs could be included in the net primary debt calculation. The

Audit Di\'i~'on's estimation ~"as based upon the ~tlO of moneys ra\sed to retire prima~

debt to total ronds raised dunng the penod from the d3~ after the pnmary until sufficient

money had been raised to retire eXlstHl£. pnmary debt The Audit Division then applied

this rallO to the $49.838 In fundralsing fees documented ~~ the Committee to produce the

SI 1.134 figure.

This Office believes that the Audit Dl\'IS10n's method of calculation is consistent

""lth the Commission's regulation at 11 C.F.R § 110.l(b)(3)(ii). "'hieh provides that the

·'esumated cost ofraising funds to liquidate debts incurred ,...'ith respect to the election"

should be included in ··net debts outstanding .. The supponing documents. i,e. the

Campaign Finance Consultants conb-act and the canceled checks. do not indicate that the

cost for fundraising ..as solely to reure the pnmary debt Q The Committee merel)

provided a summa.ry of expenses st3ting that the fees paid to the entity and the individuals

were for primaJ')' fundraising. Therefore. this Office believes it \\'as reasonable for the

Audit Division to pro-rate the cost of fundr;uslng to reflect the cost that is estimated for

the pnmary election. See 11 C,F.R. § 110. )(b}(3)(ii), Howe\'er. ir' order to sho",· that the

methodology of pro-rating the fundraisln~ cost IS \\·arra.nted, the Of:~ce of General

Counsel recommends that the Audit Ol\'.slon re\'lSe us repon to specifically note that it

estimated the amount because the Commltt~ failed to demonstrate that the entire amount

CS4Q.838) "'as for ralsln~ funds to retire the pnm~ debt

The sr.d'~ldu~l~ Include Jan Htn\&e~ h\Ied &S "Con~uh~nl'DtreCl0r of Finance·' on checks she

recet~ed from the Commtnec, S'~han'c HOltz. It\ted . AS~I\IJnl F,nanee Director' on chec~s. Tana S

Sloll. lasled &S usoclJte~ ~Ilh Cam~l~n f,n.ll\CC' Con\uhanh

Ir. a1dltlon ~t note thlt lhe\t documC'nt~ do not ~pcclflcall~ mention tht Commanee s pramar:

Page 33, Approved 5/6/96
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Page 34, Approved 5/6/96
FEDERAL ElECTIC)' C()~'~'ISSIO'

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May i, 1996

Ms. Billie Paige, Treasurer

clo Braun for u.s. Senate, Suite 600

B19 South Wabash Avenue

Chicago, IL 60605

Dear Ms. Paige:

Attached please find the Final Audit Report on Carol

Moseley Braun for u.s. Senate. The Commission approved the

report on May 6, 1996.

The Commission epproved final audit report will be

placed on the public record on May 8, 1996. Should you have

any questions regarding the public release of the report,

please contact the Commission's Press Office at (202)

219-4155. Any questions you have related to the matters

covered during the audit or in the report should be directed

to Rhonda Simmons or Raymond Lisi of the Audit Division at

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

Sincerely, " /

... 1' / /

'. 1',-....,1,., \.c""",

/ . 1·-... Robert J. Costa

Assistant Staff Director

Audit Division

Attachment as stated

cc: Lyn Utrecht

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Page 36, Approved 5/6/96
CHRONOLOGY

CAROL MOSELEY BRAUN FOR U.S. SENATE

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Audit Fieldwork

Inte~im Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

Page 37, Approved 5/6/96

1/26/94 - 2/16/95

9/25/95

12/14/95

5/6/96