10

C. Separate Schedules. A political committee must file separate schedules for debts
and obligations owed by the committee, together with a statement explaining the
circumstances and conditions under which each debt and obligation was incurred or
extinguished. 11 CFR §104.11(a).

D. Itemizing Loans. Each person who makes a loan to the political committee during
the reporting period must be disclosed with the following information:

¢ Identification of any endorser or guarantor of the loan;

e The date the loan was made;

¢ The amount of the loan. 11 CFR §104.3(a)(4)(iv).

Facts and Analysis

During the period covered by the audit, FMO received a total of $255,000 in loans from
accounts of the Candidate or candidate’s spouse. This amount was comprised of eight
separate loans made to FMO at various times throughout the campaign. FMO must
itemize the initial receipt of each loan on Schedules A (Itemized Receipts) for Line 13
(Loans) in addition to continuously reporting the principal amount owed by FMO for
each loan on Schedules C (Loans). However, a review of FMO’s reports indicated that
the initial receipt of two loans, one for $40,000 and the other for $15,000, were not
itemized on Schedules A or on the Detailed Summary page of the 12 Day Pre-General
report (See misstatement of receipts in Finding 1)*. In addition, FMO did not
continuously report the principal amount of each loan owed on Schedules C for all
reporting periods.

At the exit conference, FMO was informed of the inaccuracies with the reporting of
loans. The Candidate indicated that all necessary amendments would be filed to
accurately disclose each of the loans made to FMO.

Interim Audit Report Recommendation and Committee Response

In response to the recommendation in the interim audit report, FMO amended reports to
itemize each of these loans on Schedules A and Schedules C.

| Finding 5. Failure to File 48 Hour Notices

Summary

FMO failed to file 48 hour notices for 8 contributions totaling $85,000. In response to
the interim audit report, FMO stated these notices were filed; however, they could not
provide evidence of these filings.

* Although FMO never reported $55,000 in receipts on Line 13 of the Detailed Summary Page for the 12
Day Pre-General Report, FMO did subsequently disclose the $40,000 loan from the candidate's personal
funds on Schedule C of the 30 Day Post General Report.


Part I

Background

Authority for Audit

This report is based on an audit of Friends of Marilyn F. O’Grady, undertaken by the
Audit Division of the Federal Election Commission (the Commission) in accordance with
the Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division
conducted the audit pursuant to 2 U.S.C. §438(b), which permits the Commission to
conduct audits and field investigations of any political committee that is required to file a
report under 2 U.S.C. §434. Prior to conducting any audit under this subsection, the
Commission must 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. 2 U.S.C. §438(b).

Scope of Audit

Following Commission approved procedures, the Audit staff evaluated various factors
and, as a result, this audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

The disclosure of disbursements, debts and obligations.

The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

NAWRYWN ES

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act
of 2002 (BCRA). The BCRA contains many substantial and technical changes to the
federal campaign finance law. Most of the changes became effective November 6, 2002.
Except for the period November 7, 2002, through December 31, 2002, the period covered
by this audit pre-dates these changes. Therefore, the statutory and regulatory
requirements cited in this report are those that were in effect prior to November 7, 2002.



prohibited contributions from 13 entities totaling $2,545 ($9,195 - $6,650) have not been
refunded.

Legal Standard

A. Receipt of Prohibited Corporate Contributions. Political campaigns may not
accept contributions made from the general treasury funds of corporations. This
prohibition applies to any type of corporation including a non-stock corporation, an
incorporated membership organization, and an incorporated cooperative. 2 U.S.C.
§441b.

B. Questionable Contributions. If a committee receives a contribution that appears to

be prohibited (a questionable contribution), it must follow the procedures below:

1. Within 10 days after the treasurer receives the questionable contribution, the
committee must either:

e Return the contribution to the contributor without depositing it; or

e Deposit the contribution (and follow the steps below). 11 CFR §103.3(b)(1).

If the committee deposits the questionable contribution, it may not spend the

funds and must be prepared to refund them. It must therefore maintain sufficient

funds to make the refunds or establish a separate account in a campaign
depository for possibly illegal contributions. 11 CFR §103.3(b)(4).

3. The committee must keep a written record explaining why the contribution may
be prohibited and must include this information when reporting the receipt of the
contribution. 11 CFR §103.3(b)(5).

4. Within 30 days of the treasurer’s receipt of the questionable contribution, the
committee must make at least one written or oral request for evidence that the
contribution is legal. Evidence of legality includes, for example, a written
statement from the contributor explaining why the contribution is legal or an oral
explanation that is recorded by the committee in a memorandum. 11 CFR
§103.3(b)(1).

5. Within these 30 days, the committee must either:

e Confirm the legality of the contribution; or
e Refund the contribution to the contributor and note the refund on the report
covering the period in which the refund was made. 11 CFR §103.3(b)(1).

N

Facts and Analysis

A review of contributions received by FMO resulted in the identification of 37
contributions from 33 different corporate entities totaling $9,195. Approximately 38% of
the identified entities were professional corporations.

At the exit conference, FMO was provided a list of those contributions from corporations.
The Candidate recognized many of the professional corporations on the list and explained
that she was unaware that contributions from such entities were prohibited. The
Candidate also stated that these individuals probably intended to contribute using their
personal accounts but may have accidentally used their business checks. Nonetheless, the
Candidate acknowledged that she would contact the individuals to offer refunds.



Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

FMO misstated receipts, disbursements, and cash balances during 2002. In response to
the interim audit report, FMO amended its reports to correct the misstatements.

(For more detail, see p. 4)

Finding 2. Receipt of Prohibited Corporate Contributions
FMO received 37 prohibited contributions from 33 different corporate entities totaling
$9,195. Subsequently, FMO has refunded $6,650 to 20 of these entities. Therefore,
prohibited contributions from 13 entities totaling $2,545 ($9,195 - $6,650) have not been
refunded.

(For more detail, see p. 5)

Finding 3. Receipt of Contributions that Exceed Limits
FMO received what appears to be $23,000 in excessive contributions from the
Candidate’s spouse. The Candidate maintains that the funds used to make the
contributions were her personal funds. Nonetheless, in response to the interim audit
report, FMO refunded $23,000 to the Candidate’s spouse.

(For more detail, see p. 7)

Finding 4. Disclosure of Loans

FMO received a total of $55,000 in loans during the campaign that were not disclosed. In
response to the interim audit report, FMO amended its reports to itemize each of these
loans on Schedules A and C.

(For more detail, see p. 9)

Finding 5. Failure to File 48 Hour Notices

FMO failed to file 48 hour notices for 8 contributions totaling $85,000. In response to
the interim audit report, FMO stated that these notices were filed; however, they could
not provide evidence of these filings.

(For more detail, see p. 10)

Finding 6. Disclosure of Contributions

FMO reported incorrect disclosure information for 42 contributions totaling $24,750. In
response to the interim audit report, FMO amended its reports to correct these
contributions.

(For more detail, see p. 11)



Part II

Overview of Campaign

Campaign Organization

Important Dates

Friends of Marilyn F. O’Grady

¢ Date of Registration

March 21, 2002

e Audit Coverage

January 15, 2002 —- December 31, 2002

Headquarters

Garden City, New York

Bank Information

e Bank Depositories

1

e Bank Accounts

1 Checking Account

Treasurer

e Treasurer When Audit Was Conducted

Thomas Keller

e Treasurer During Period Covered by Audit

Thomas Keller

Management Information

e Attended FEC Campaign Finance Seminar

No

¢ Used Commonly Available Campaign
Management Software Package

FECFile

e Who Handled Accounting and
Recordkeeping Tasks

Volunteer Staff

Overview of Financial Activity

(Audited Amounts)

Cash on hand @ January 15, 2002 $0
Receipts

o From Candidate Loans 255,000
o From Individuals 217,547
o ___ From Political Committees 12,160
o __ Other Receipts 8,825
Total Receipts $ 493,532
Disbursements

o__ Operating Expenditures 493,741
Total Disbursements $ 493,741
Cash on hand @ December 31, 2002 $ -209



The understatement of receipts was the net result of the following:

e Candidate Loan Not Reported (See Finding 4.) +} $ 55,000
© Contributions Reported Twice® - 17,580
e@ Contributions Reported with Wrong Amount - 325
e Contributions Not Reported + 17,430
@ Unexplained Differences + 7,849
e@ Net Understatement of 2002 Receipts $ 62,374

The understatement of disbursements was the net result of the following:

e@ Disbursements Not Reported

a. Media Services +} $ 85,135

b. Campaign Materials + 35,254

c. GOTV Telephone Calls + 6,433

d. Miscellaneous Operating Expenses and Bank Charges + 631
e@ Disbursements Reported Twice® - 37,888
@ Unexplained Differences - 140
e@ Net Understatement of 2002 Disbursements $ 89,425
Closing Cash on Hand:

FMO misstated the cash balance throughout the year 2002 because of the errors described
above. In addition, the correct cash balance was not carried forward from the handwritten
12 Day Pre-Primary Report to the computer generated October Quarterly Report. On
December 31, 2002, the cash balance was understated by $11,561.

At the exit conference, the Audit staff explained the reasons for the misstatements and
provided schedules of the reporting discrepancies. The Candidate expressed a
willingness to make the necessary changes to correct the reported figures.

Interim Audit Report Recommendation and Committee Response

In response to the recommendation in the interim audit report, FMO filed amended
reports to correct the misstatements.

| Finding 2. Receipt of Prohibited Corporate Contributions |

Summary
FMO received 37 prohibited contributions from 33 different corporate entities totaling
$9,195. Subsequently, FMO has refunded $6,650 to 20 of these entities. Therefore,

> FMO overlapped the coverage dates for the 12 Day Pre-Primary and October Quarterly Reports causing a
duplication of financial activity between July 1, 2002 and August 22, 2003. A contribution of $50 was also
reported on the July Quarterly, 12 Day Pre-Primary, and October Quarterly Reports.



FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

March 31, 2004

MEMORANDUM

TO: PRESS OFFICE

FROM: JOSEPH F. STOLTZ j Z
ASSISTANT STAFF CTOR
AUDIT DIVISION

SUBJECT: | PUBLIC ISSUANCE OF THE AUDIT REPORT ON
FRIENDS OF MARILYN F. O’GRADY (A03-04)

Attached please find a copy of the audit report and related documents on Friends of
Marilyn F. O’Grady, which was approved by the Commission on March 22, 2004.

The report may be released to the public on March 31, 2004.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library
Web Manager


1. Any assets which, under applicable state law, at the time he or she became a
candidate, the candidate had legal right of access to or control over, and with respect to
which the candidate had either:

a. Legal and rightful title, or

b. An equitable interest

2. Salary and other earned income from bona fide employment and dividends and
proceeds from the sale of the candidate’s stock or other investments. 11 CFR
§110.10(b)(2).

Facts and Analysis

During October of 2002, FMO received a total of $25,000 in loans from a business bank
account in the name of the Candidate’s spouse. These loans were made by two checks,
one for $15,000 and the other for $10,000, that were imprinted only with the name and
credentials of the Candidate’s spouse as the account holder. According to the Candidate,
this account is maintained for the dental practice operated by her spouse.

At the exit conference, the Audit staff requested further documentation from the
Candidate to support that she had either legal and rightful title or an equitable interest in
the account in her spouse’s name. The Audit staff explained that without such
documentation, the loans would be considered a contribution from her husband solely
and result in a $23,000 excessive contribution to FMO ($25,000 less the $2,000
combined limits for the primary and general elections). The Candidate indicated she
would request the necessary documentation from the bank and stated her understanding
that the account was a joint asset according to laws of the state of New York.

Subsequent to the exit conference, the Candidate stated that she had attempted to obtain
account information from the bank but was told that retrieving the records would be time
consuming because the account was established long ago and before the bank changed
ownership. The Candidate provided a notarized letter from her spouse explaining that
since the account represents income from his dental practice and is reportable as their
combined income for federal taxes, it was their understanding that the funds were a joint
asset and thereby permissible for use in the campaign.

With regards to her comments on joint assets under New York law, the Audit staff sought
legal guidance from the Commission’s Office of General Counsel (OGC). Based on a
review of the available facts, OGC’s provided a legal analysis of applicable New York
marital property laws and determined these laws did not support the Candidate’s
contention that the funds in her spouse’s account were joint assets. OGC’s legal analysis
stated, in part, that New York marital property laws provide that any property acquired by
either spouse during the marriage is “marital property” regardless of how the property
was acquired or titled. The law further provides that, upon dissolution of the marriage,
marital property is equitably divided between the spouses pursuant to certain factors set
forth in the statute. Nevertheless, several courts have concluded that a spouse has no
vested rights in marital property titled in the name of the other spouse unless and until
there has been an entry of judgment dissolving the marriage. Consequently, even if the



Subsequent to the exit conference, FMO provided check copies to support refunds to 12
contributors totaling $3,550.

FMO did not establish a separate account for questionable contributions and did not
maintain a sufficient balance to refund impermissible contributions for a majority of the
period after October 7, 2002.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FMO provide evidence that these contributions are not
prohibited or refund the remaining $5,645 in contributions identified as being prohibited.
If funds were not available to make the necessary refund, then the Audit staff
recommended the refund amount due be disclosed on Schedule D (Debts and
Obligations) until funds become available to make the refunds.

In response to the recommendation in the interim audit report, FMO provided check
copies to support additional refunds to 8 contributors totaling $3,100. To date, FMO has
provided documentation to support refunds to 20 entities totaling $6,650. Therefore,
prohibited contributions from 13 entities totaling $2,545 ($9,195 - $6,650) have not been
refunded.

Finding 3. Receipt of Contributions that Exceed Limits

Summary

FMO received what appears to be $23,000 in excessive contributions from the
Candidate’s spouse. The Candidate maintains that the funds used to make the
contributions were her personal funds. Nonetheless, in response to the interim audit
report, FMO refunded $23,000 to the Candidate’s spouse.

Legal Standard

A. Authorized Committee Limits. An authorized committee may not receive more
than $1,000 per election from any one person. 2 U.S.C. §§441a(a)(1)(A) and (f); 11 CFR
§§110.1(a) and (b) and 110.9(a).

B. Contribution. The term contribution includes any loans (excluding a bank loan), a
guarantee, endorsement, and any other form of security. A loan which exceeds the
contribution limitations of 2 U.S.C. 441a and 11 CFR §110 shall be unlawful whether or
not it is repaid. 11 CFR §§100.7(a)(1)(i)(A)

C. Expenditures by Candidates. Candidates for Federal office may make unlimited
expenditures from personal funds. 11 CFR §110.10(a)

D. Definition of Personal Funds. Personal funds of the candidate include the
following:



Part IV
Findings and Recommendations

| Finding 1. Misstatement of Financial Activity

Summary
FMO misstated receipts, disbursements, and cash balances during 2002. In response to
the interim audit report, FMO amended its reports to correct the misstatements.

Legal Standard
A. Contents of Reports. Each report must disclose:

e The amount of cash on hand at the beginning and end of the reporting period;

¢ The total amount of receipts for the reporting period and for the election cycle;
and

e The total amount of disbursements for the reporting period and for the election
cycle. 2 U.S.C. §434(b)(1), (2) and (4).

B. Reporting Operating Expenditures. When operating expenditures to the same
person exceed $200 within in election cycle, the committee must report the:
e Amount,
e Date when the expenditures were made;
Name and address of the payee; and
Purpose of such operating expenditures. 11 CFR §104.3(b)(4)(i)(A).

Facts and Analysis

The Audit staff reconciled reported financial activity to bank records for 2002. The
following chart outlines the discrepancies for receipts, disbursements, and the ending
cash balance on December 31, 2002. Succeeding charts explain the reasons for the
misstatements.

Comparison of Disclosure Reports and Bank Records

2002 Campaign Activity
Reported Bank Records Discrepancy
Opening Cash Balance $0 $0 $0
@ 1/15/02
Receipts $431,158 $493,532 $62,374
Understated
Disbursements $404,316 $493,741 $89,425
Understated
Ending Cash Balance $-11,770° $-209 $11,561
@12/31/2002 Understated

2 FMO’s reported cash balance on 12/31/02 does not foot due to mathematical discrepancies.



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Changes to the Law

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Misstatement of Financial Activity
Finding 2. Receipt of Prohibited Corporate Contributions
Finding 3. Receipt of Contributions that Exceed Limits
Finding 4. Disclosure of Loans
Finding 5. Failure to File 48 Hour Notices
Finding 6. Disclosure of Contributions

Page

Nv

KH OONWNA



11

Legal Standard

Last-Minute Contributions (48 Hour Notice). Campaign committees must file special
notices regarding contributions of $1,000 or more received less than 20 days but more
than 48 hours before any election in which the candidate is running. This rule applies to
all types of contributions to any authorized committee of the candidate, including:

© Contributions from the candidate;

e Loans from the candidate and other non-bank sources; and

e Endorsements or guarantees of loans from banks. 11 CFR §104.5(f).

Facts and Analysis
The Audit staff reviewed those contributions of $1,000 or more that were received during

the 48 hour notice filing period for the primary and general elections. FMO failed to file
48 hour notices for 8 contributions totaling $85,000 as summarized below.

Contribution Type Primary General Total
Loans from Candidate $50,000 $20,000 $70,000
Loans from Candidate’s $10,000° $10,000
Spouse

Contributions from $1,000 $4,000 $5,000

Individuals & PAC’s

48 Hour Notices Not Filed $51,000 $34,000 $85,000

At the exit conference, the Candidate was informed of the failure to file 48 hour notices.
The Candidate stated that many of the other 48 hour notices were filed properly and the
non filing of these notices was probably a reporting oversight.

Interim Audit Report Recommendation and Committee Response
In response to the recommendation in the interim audit report, FMO stated that it was
their understanding that these notices were filed; however, they could not produce
evidence of these filings.

| Finding 6. Disclosure of Contributions

Summary
FMO reported incorrect disclosure information for 42 contributions totaling $24,750. In

response to the interim audit report, FMO amended its reports to correct these
contributions.

> This amount is included in the total of contributions from the Candidate's spouse discussed in Finding 3.


Report of the Audit Division
‘ on

Friends of Marilyn F. O’Grady

January 15, 2002 —- December 31, 2002



Report of the
Audit Division on

Friends of Marilyn F. O’Grady
January 15, 2002 - December 31, 2002

Why the Audit

Was Done

Federal law permits the
Commission to conduct
audits and field
investigations of any
political committee that is
required to file reports
under the Federal
Election Campaign Act
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
requirements for
substantial compliance
with the Act.' The audit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requirements
of the Act.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

' 2US.C. §438(b).

About the Committee (p. 2)

Friends of Marilyn F. O’Grady (FMO) is the principal campaign
committee for Marilyn F. O’Grady, Republican candidate for the
U.S. House of Representatives from the state of New York,
Fourth District. FMO maintains its headquarters in Garden City,
New York. For more information, see the chart on the Campaign
Organization, p.2.

Financial Activity (p. 2)

« Receipts
o From Candidate Loans $ 255,000
o From Individuals 217,547
o From Political Committees 12,160
o Other Receipts 8,825
o Total Receipts $ 493,532
¢ Disbursements
o Total Disbursements $ 493,741

Findings and Recommendations (p. 3)
Misstatement of Financial Activity (Finding 1)

Receipt of Prohibited Corporate Contributions (Finding 2)
Receipt of Contributions that Exceed Limits (Finding 3)
Disclosure of Loans (Finding 4)

Failure to File 48 Hour Notices (Finding 5)

Disclosure of Contributions (Finding 6)


funds used to make the loans constitute “marital property” under New York law, Ms.
O’Grady does not have any vested right to such property, if it is titled in Mr. O’Grady’s
name, until the marriage is legally dissolved.

The Audit staff’s information on this account was limited to copies of bank statements
and a copy of one of the contribution checks. Without third party documentation to
support the Candidate’s legal and rightful title or an equitable interest in this account, the
Audit staff considers the funds loaned to FMO as solely from the Candidate’s spouse.

FMO did not establish a separate account for questionable contributions and did not
maintain a sufficient balance to refund impermissible contributions for a majority of the
period after October 7, 2002.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FMO provide evidence the contributions were made
from the Candidate’s personal funds. Absent such evidence, it was recommended that
FMO refund $23,000 to the Candidate’s spouse. If funds were not available to make the
necessary refund, then the Audit staff recommended the refund amount due be disclosed
on Schedule D until funds become available to make the refunds.

In response to the recommendation in the interim audit report, the Candidate reiterated
her argument that these funds were her personal assets since they were reportable as
combined income for tax purposes. Nonetheless, FMO provided a copy of a $23,000
check from a joint checking account of the Candidate and her spouse to FMO and a copy
of a check in the same amount from FMO to the Candidate’s spouse for the refund of the
excessive amount.

| Finding 4. Disclosure of Loans

Summary

FMO received a total of $55,000 in loans during the campaign that were not disclosed on
Schedules A. In response to the interim audit report, FMO amended its reports to itemize
each of these loans on Schedules A and C.

Legal Standard

A. Contents of Reports. Each report must disclose for the reporting period and for the

election cycle, the total amount of loans made by or guaranteed by the candidate and the

identification of each person who makes, endorses or guarantees a loan to the committee.
2 U.S.C. §§434(b)(2)(G) and (3)(E)

B. Continuous Reporting Required. A political committee must disclose the amount
and nature of outstanding debts and obligations until those debts are extinguished. 2
U.S.C §434(b)(8) and 11 CFR §§104.3(d) and104.11(a).



Legal Standard

A. When to Itemize. Authorized candidate committees must itemize any contribution
from an individual if it exceeds $200 per election cycle either by itself or when
aggregated with other contributions from the same contributor; 2 U.S.C. §434(b)(3)(A).

B. Election Cycle. The election cycle begins on the first day following the date of the
previous general election and ends on the date of the next general election. 11 CFR
§100.3(b).

C. Definition of Itemization. Itemization of contributions received means that the
recipient committee discloses, on a separate schedule, the following information:
e The amount of the contribution;
¢ The date of receipt (the date the committee received the contribution);
¢ The full name and address of the contributor;
¢ In the case of contributions from individual contributors, the contributor’s
occupation and the name of his or her employer; and
¢ The election cycle-to-date total of all contributions from the same contributor. 11
CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A)

Facts and Analysis

The Audit staff reviewed all contributions from individuals requiring itemization on
Schedules A and identified 42 contributions totaling $24,750 that FMO failed to properly
disclose. The majority of these contributions were errors because FMO incorrectly
aggregated contributions received from the same individuals. FMO’s problem with
aggregating contributions was due, in part, to those contributions reported on handwritten
reports that were not aggregated with those contributions included on later computer
generated reports.

At the exit conference, the Audit staff provided FMO schedules of those contributions
noted above. The Candidate acknowledged that the reporting inaccuracies were the result
of the filing problems encountered by the committee. She also stated her willingness to
amend the reports to correct any inaccuracies.

Interim Audit Report Recommendation and Committee Response
In response to the recommendation in the interim audit report, FMO amended its reports
to correct these contributions.