Part II

Overview of Campaign

Campaign Organization

Important Dates

Bill Spadea for Congress

e Date of Registration

December 24, 2003”

e Audit Coverage

August 18, 2003 through December 31, 2004

Headquarters

Washington, DC

Bank Information

e Bank Depositories

3

e Bank Accounts

3 Checking

Treasurer

¢ Treasurer When Audit Was Conducted

Scott Mackenzie

¢ Treasurer During Period Covered by Audit | Josh Lignana

Management Information

e Attended FEC Campaign Finance Seminar | Yes

¢ Used Commonly Available Campaign Yes
Management Software Package

¢ Who Handled Accounting, Recordkeeping | Volunteer

Tasks and Other Day-to-Day Operations

Overview of Financial Activity
(Audited Amounts)

Cash on hand @ August 18, 2003 $ 0
Receipts
o From Individuals $ 250,599
o_ From Political Committees 36,133
o Loans from the Candidate 62,831
o Other Loans 4,000
o Total Receipts $ 353,563
Disbursements
o Operating Expenditures $ 344,389
o_ Total Disbursements $ 344,389
Cash on hand @ December 31, 2004 $ 9,174

? It appears the Candidate was testing the waters and registered timely.


| Finding 3. Inadequate Disclosure - Form 3Z-1

Summary

BSC failed to file Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with its 2003 Year End Report. In response to the interim audit report, BSC
stated the treasurer at the time was preparing his first report and there was some
confusion as to whether the form needed to be filed.

Legal Standard

Special Reporting Requirements. Principal campaign committees of candidates for the
U.S. House and the U.S. Senate must file FEC Form 3Z-1 as part of their July Quarterly
and Year End Reports in the year preceding the year in which the general election for the
office sought is held. The information in this form allows opposing candidates to
compute their “gross receipts advantage” used to determine whether a candidate is
entitled to an increased contribution limit.

The following information must be disclosed:
1. Gross receipts to date for the primary and general elections,
Aggregate amount of contributions from personal funds of the candidate for the
primary and general elections, and,
3. A calculation of gross receipts less the candidate’s personal contributions for each
election. 11 CFR §104.19.°

Facts and Analysis
The Audit staff reviewed all filings by BSC and noted that it did not provide a Form 3Z-1
with its 2003 Year End Report, as required.

Using the electronic data provided by BSC, the Audit staff determined that gross receipts
for the primary election of $30,329, which included a $3,473 contribution from the
Candidate’s personal funds, should have been disclosed on Form 3Z-1. There were no
receipts that had been designated for the general election.

The Audit staff discussed this matter with a BSC representative who indicated that the
treasurer did not have previous congressional experience, which may have caused some
confusion as to whether this form needed to be filed. The representative indicated that
BSC would comply with the Audit staff's recommendation.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that BSC demonstrate that Form 3Z-1 was correctly filed
or provide any comments it may yet have relative to this matter.

In response to the interim audit report, BSC stated the treasurer at the time was preparing
his first report and reiterated that there was some confusion as to whether the form
needed to be filed.

> This regulation became effective January 27, 2003; as such, this election cycle is the first where this form
was required.


Part IV
Findings and Recommendations

|Finding 1. Receipt of Contribution that Exceeds the Limit

Summary

BSC received a contribution from a political action committee which exceeded the limit
by $3,000. In response to the interim audit report recommendation, BSC refunded the
excessive amount and provided a copy of the negotiated refund check.

Legal Standard

A. Authorized Committee Limits: An authorized committee may not receive more
than a total of $2,000 per election from any one person or $5,000 per election from a
multicandidate political committee. 2 U.S.C. §441a(a)(1)(A), (2)(A) and (f); 11 CFR
§§110.1(a) and (b) and 110.9(a).

B. Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:

e Return the questionable check to the donor; or

¢ Deposit the check into its federal account and:

o Keep enough money in the account to cover all potential refunds;

o Keep a written record explaining why the contribution may be illegal;

o Include this explanation on schedule A if the contribution has to be itemized
before its legality is established;

o Seek a reattribution or a redesignation of the excessive portion, following the
instructions provided in Commission regulations (see below for explanations
of redesignation); and

o Ifthe committee does not receive a proper reattribution or redesignation
within 60 days after receiving the excessive contribution, refund the excessive
portion to the donor. 11 CFR §§103.3(b)(3), (4) and (5) and
110.1(k)(3)Gi)(B).

C. Redesignation of Excessive Contributions. When an authorized candidate
committee receives an excessive contribution (or a contribution that exceeds the
committee’s net debts outstanding), the committee may ask the contributor to redesignate
the excess portion of the contribution for use in another election. The committee must
inform the contributor that:
1. The redesignation must be signed by the contributor;
2. The redesignation must be received by the committee within 60 days after the
committee received the original contribution; and
3. The contributor may instead request a refund of the excessive amount. 11 CFR
§110.1(b)(5).
Within 60 days after receiving the excessive contribution, the committee must either
receive the proper redesignation or refund the excessive portion to the donor. 11 CFR


Part III
Summaries

Findings and Recommendations

Finding 1. Receipt of Contribution that Exceeds the Limit
BSC received a contribution from a political action committee which exceeded the limit
by $3,000. In response to the interim audit report recommendation, BSC refunded the
excessive amount and provided a copy of the negotiated refund check. (For more detail,
see page 4.)

Finding 2. Misstatement of Financial Activity

A comparison of BSC’s reported figures to its bank records revealed that receipts and
disbursements had been materially misstated for calendar year 2003 as well as the ending
cash balance for calendar year 2004. In response to the interim audit report, BSC filed
amended disclosure reports to correct the misstatements. (For more detail, see page 5.)

Finding 3. Inadequate Disclosure - Form 3Z-1

BSC failed to file Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with its 2003 Year End Report. In response to the interim audit report, BSC
stated the treasurer at the time was preparing his first report and there was some
confusion as to whether the form needed to be filed. (For more detail, see page 7.)


Facts and Analysis

The Audit staff reconciled reported activity to bank records for calendar years 2003 and
2004. The following chart outlines the discrepancies for receipts and disbursements for
2003. Succeeding paragraphs address the reasons for the misstatements for both 2003
and 2004.

2003 Committee Activity
Reported Bank Records | Discrepancy
Beginning Cash Balance @ August 18, 2003 $0 $0 $0
Receipts $ 26,856 $ 30,327 $ 3,471
Understated
Disbursements $ 6,555 $ 10,026 $ 3,471
Understated
Ending Cash Balance @ December 31, 2003 $ 20,301 $20,301 $0

For 2003, the misstated activity for both receipts and disbursements resulted from
campaign expenses totaling $3,473 that were paid by the Candidate using his personal
credit cards, checks and cash but were not reported. On its 2004 April 15 Quarterly
Report, BSC disclosed a loan from the Candidate for $3,473. In addition, documentation
provided by BSC indicated these transactions were an in-kind loan from the Candidate
and should have be disclosed on Schedule A (Itemized Receipts), Schedule B (Itemized
Disbursements) and Schedule C (Loan Information).

For 2004, the ending cash balance was reported to be $6,708; the Audit staff determined
it should be $9,174. The $2,466 understatement of the ending cash balance on December
31, 2004, was the result of not reporting four contributions from political committees
totaling $2,400 and an unidentified understatement of $66.

At the exit conference, the Audit staff explained the misstatements and provided BSC’s
representative with schedules detailing these discrepancies. The representative stated that
BSC would amend its reports accordingly.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that BSC amend its reports to correct the misstatements
noted above and that the most recent report should be amended to show the adjusted
ending cash balance with an explanation that it resulted from audit adjustments from a
prior period.

In response to the interim audit report, BSC filed amended disclosure reports to correct
the misstatements and corrected cash balances on all reports filed during 2005.


FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463

January 23, 2007

MEMORANDUM
To: Robert W. Biersack
Press Officer

Through: Margarita Maisonet Y4—

Chief Compliance Officer

From: Joseph F. Stoltz;
Assistant Staff Pitector
Audit Division

Subject: Public Issuance of the Audit Report on Bill Spadea for Congress
Attached please find a copy of the audit report on Bill Spadea for Congress which
was approved by the Commission on January 8, 2007.

The report may be released to the public on January 23, 2007.

Attachment as stated

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


§§103.3(b)(3) and 110.1(b)(5)(ii)(A). Further, a political committee must retain written
records concerning the redesignation in order for it to be effective. 11 CFR §110.1(1)(5).

Facts and Analysis

Prior to the primary election, BSC received a $5,000 contribution from a political action
committee that exceeded the $2,000 limitation for a non-multicandidate committee by
$3,000. A copy of the check, dated June 4, 2004, carried a primary election designation;
no other supporting documentation was made available. In addition, no written
redesignation was located in BSC’s files.

At the exit conference, the Audit staff discussed the matter with the BSC representative.
The representative stated that BSC would make the refund.

Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that BSC:

e Provide evidence that the identified contribution was not excessive; or,

¢ Refund $3,000 and provide evidence of such refund (copy of the front and back of the
negotiated check); or

¢ If funds were not available to make the necessary refund, BSC should report the
amount to be refunded as debt on Schedule D (Debts and Obligations Excluding
Loans) until funds became available to make the refund.

In its response to the interim audit report, BSC stated that, in accepting the contribution,
it did not realize that the contributing committee had not yet qualified for multi-candidate
status. In addition, BSC refunded the excessive amount and provided a copy of the
negotiated refund check.

|Finding 2. Misstatement of Financial Activity

Summary

A comparison of BSC’s reported figures to its bank records revealed that receipts and
disbursements had been materially misstated for calendar year 2003 as well as the ending
cash balance for calendar year 2004. In response to the interim audit report, BSC filed
amended disclosure reports to correct the misstatements.

Legal Standard

Contents of Reports. Each report must disclose:

¢ 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;

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

¢ Certain transactions that require itemization on Schedule A (Itemized Receipts) or
Schedule B (Itemized Disbursements).
2 U.S.C. §434(b)(1), (2), ) and (4).


Part I
Background

Authority for Audit

This report is based on an audit of Bill Spadea for Congress (BSC), 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 risk
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 consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

DAWPWND



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit

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

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Receipt of Contribution that Exceeds the Limit
Finding 2. Misstatement of Financial Activity
Finding 3. Inadequate Disclosure - Form 3Z-1

Page


Report of the Audit Division on Bill

Spadea for Congress
August 18, 2003 —- December 31, 2004

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.

' 2 U.S.C. §438(b).

About the Campaign (p. 2)

Bill Spadea for Congress is the principal campaign committee for Bill
Spadea, Republican candidate for the U.S. House of Representatives
from the state of New Jersey, Twelfth District, and is headquartered in
Washington, DC. For more information, see chart on the Campaign
Organization, p. 2.

Financial Activity (p. 2)
¢ Receipts

o From Individuals $ 250,599
o From Political Committees 36,133
co Loans from the Candidate 62,831
o Other Loans 4,000
o Total Receipts $ 353,563
¢ Disbursements
o Operating Expenditures $ 344,389
o Total Disbursements $ 344,389

Findings and Recommendations (p. 3)

¢ Receipt of Contribution that Exceeds the Limit (Finding 1)
¢ Misstatement of Financial Activity (Finding 2)

e Inadequate Disclosure — Form 3Z-1 (Finding 3)