FEDERAL ELECTION COMMISSION

\\' "SHI~GlON, 0 C 204&3

AS2-S

January 12, 19S3

MEMORANDUM

TO:

FROM:

SUBJECT:

FRED EILAND

PRESS OFFICE~

BOB COSTA -"{'-I ""-'"

PUBLIC ISSUANCE OF FINAL AUDIT REPORT - CALIFORNIA REPUBLICAN PARTY

Attached please find a copy of the final audit report of the

California Republican Party which was approved by the Commission

on January 4, 1983.

Informational copies of the report have been received by all

parties involved and the report may be released to the public.

Attachment as stated

cc: FEe Library

RAD

Public Record
FEDERAL ELECTION COMMISSION

\\'ASHINelON, DC 204&3

A81-8

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REPORT OF THE AUDIT DIVISION

ON THE

CALIFORNIA REPUBLICAN PARTY

I. Background

A. Overview

This report is based on an audit of the California

Republican Party ("the Committeen), undertaken by the Audit

Division of the Federal Election Commission in accordance with the

Commission's audit policy to determine whether there has been

compliance with the provisions of the Federal Election Campaign Act of 1971, as amended (nthe Act n ). 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 section, the Commission 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 Committee registered with the Office of the

Secretary of the Senate on August 7,1974. The.Committee

maintains its headquaraters in Burbank, California.

The audit covered the period January 1, 1980 through December 31, 1980. During the period of the audit, the Committee

reported a beginning cash balance of $-0-, 1/ total receipts for

the period of $1,930,626.051 total expenditures for the period of

$1,907,013.20 and an ending cash balance on December 31, 1980 of

$23,612.00.

This audit report is based on cocuments and working

papers which support each of the 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.

1/ The Committee had no activity between January 1, 1980

and March 10, 1980.
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B. Key Personnel

The Treasurer of the Committee during the period covered by the audit was Mr. Michael Donaldson.

c. Scope

The audit included such tests as verification of total

reported receipts, expenditures and individual expenditure transactionsJ review of required supporting documentation,

analysis of Committee debts and obligations; and such other audit

procedures as deemed necessary under the circumstances. Due to

the Committee's inability to provide adequate information

pertaining to individual contributions, the Audit staff was

precluded from conducting tests of the Committee's compliance with

the Act's recordkeeping, disclosure and individual contribution

limitation requirements (see Finding A).

II. Audit Findings and Recommendations

A. Recordkeeping for Receipts

Section 432(c) of Title 2 of the United States Code,

requires the treasurer of a political committee to keep an

account of (1) all contributions received by or on behalf of such

political committee; (2) the name and address of any person who

makes any contribution in excess of $50, together with the date

and amount of such contribution by any person, and (3) the

identification of any person who makes a contribution or

contributions aggregating more than $200 during a calendar yearJ together with the date and amount of any such contribution.

Section l02.9(a) of Title 11 of the Code of Federal

Regulations, requires the treasurer of a political committee to

keep an account by any reasonable accounting procedure of all

contributions received by or on behalf of the political committee.

(1) For contributions in excess of $50, the account shall include

the name, adress, date of receipt and amount of the contribution.

(2) For contributions from any person which aggregate more than

$200 within a calendar year, the account shall include the

identification of the contributor and the date of receipt and

amount.

The receipt records maintained by the Committee for

individual contributions consisted of approximately 40-50 cartons

of solicitation response documents which·had accompanied the

contributions when received and a computerized file prepared from

the response documents.
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The response documents for the non-federal and federal

accounts were combined with no designation and in no discernible

order. Due to the condition of these records the Audit staff was

unable to make use of them for testing the Committee's compliance with the recordkeeping, disclosure, and contribution limitation

requirements of the Act.

The Committee controller was therefore asked to obtain

an alphabetical print-out, from their computer ~irm, of all

contributions received by the Committee during the period covered

by the audit. However, the print-out that was obtained and

presented contained both federal and non-federal contributions.

Because the print-out did not distinguish the federal

contributions from the non-federal contributions, the Audit staff

was still unable to test the Committee's individual receipt processing system. At the conclusion of the fieldwork, the

Committee still had not provided a print-out containing only federal contributions received by the Committee to the Audit

staff but stated that the computer firm would continue their

efforts to produce such a listing.

In the interim audit report the Audit staff recommended

that the Committee, within 30 days of receipt of the report, obtain and submit, for the Audit staff's review, an alphabetical print-out of all contributions received by the Committee between

January 1, 1980 and December 31, 1980, excluding or designating

any contributions received into the non-federal accounts.

On October 26, 1981 the Committee provided the Audit

staff with a computer generated alphabetical listing of

contributors and the amounts contributed to the federal account.

A review of the print-out revealed that it substantially reflected the total reported receipt activity of the Committee.

Recommendation

The Audit staff recommends no further action on this matter.

B. Omission of Disclosure Information

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

Code states, in part, that each report under this section shall

disclose the name 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 committee

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

such operating expenditure.
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In addition, Section l04.3(b)(3)(i) (A) and (8) of Title

11 of the Code of Federal Regulations states, in part, that

"purpose" means a brief statement or description of wby the

disbursement was made. Statements or descriptions which meet the

requirements of this section include dinner expenses, media,

salary, polling, travel expenses, and travel expense reimbursement. Descriptions such as "advance", "election day expenses", "expenses", "other expenses", "expense reimbursement-,

and "miscellaneous", would not meet the requirements of this

section for reporting the purpose of an expenditure.

The pre-audit review of the Committee's disclosure

reports indicated that 248 itemized expenditures totaling $420,729.74 lacked certain required disclosure information.

These disbursements comprised 32% of the dollar value and 48\ of

the number of disbursements requiring itemization.

Detailed below are the itemized expenditures for which

various disclosure information was omitted.

1. Purpose of Disbursement

The purpose for 205 of the Committee's itemized

disbursements totaling $369,102.53 was listed only as expenses or

fee. On two occasions, the Committee was notified by the

Commission's Reports Analysis Division that the reports failed to

disclose an adequate purpose for expenditures however, the

Committee did not respond to the notices. The majority of the

disbursements disclosed in this manner were payments to

individuals.

t" ... 2. Dates of Disbursement

The Committee's reports also neglected to disclose

the date(s) for nine disbursements totaling $10,134.65.

Committee records indicate that the disbursements were for

salaries for two separate pay periods in December 1980.

3. Payees

The Committee did not disclose the payees for five

disbursements totaling $29,460.15. The identification of the

payees was contained in the Committee records.

4. Payees, Addresses, and Amount of Disbursements

In addition, the Committee did not disclose

payees, addresses, and the amounts for the May 31, 1980 payroll totaling $7,526.34 and June 30, 1980 payroll totaling $6,059.88.

This information was contained in the Committee records.
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Committee officials offered no explanations as to

why adequate purposes as listed in 1. above, or the dates, payees, addresses and amounts as listed in 2, 3 and 4 above respectively

were not disclosed.

In the interim audit report the Audit staff recommended

that the Committee, within 30 days of receipt of the report, file

a comprehensive amendment for calendar year 1980 disclosing:

(1) adequate purposes as defined pursuant to 11 C.F.R.

104.3(b) (3) (i) (A) and (B) for the 205 disbursements noted in 1.

above,

(2) the dates of the nine (9) salary disbursements

noted in 2. above,

(3) the payees for the five disbursements noted in 3.

above, and

(4) the payees, addresses, and amounts for each

disbursement in excess of or aggregating in excess of $200 noted

in 4. above •

On October 1, 1981, 30 days prior to the due date, the

Audit staff received amendments disclosing the information

requested in the interim report. Based on a review of the

amendments, the Audit staff concluded that the Committee has

substantially complied with the recommendations.

Recommendation

The Audit staff recommends no further action on these

matters.

C. Misstatement of Transfers

Section 434(b) (2) (F) and (4) (c) of Title 2 of the

United States Code requires that each report under this section

disclose the total amount of all receipts transferred from other

political party committees and the total amount of all

disbursements including transfers to other political party committees, regardless of their affiliation.

The Committee reported the receipt of transfers

totaling $118,600 from the Republican National Committee and

$40,000 from the California Republican victory Fund on October

17, 1980. The Committee also disclosed on the same date two

disbursements to the California Republican Party non-federal

account in the amounts of $118,600 and $40,000.
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The bank reconciliation disclosed that the two reported transfers were not deposited into or disbursed from the

Committee's account. When questioned concerning the two

transfers, the Committee's controller produced bank statements

which indicated that the transactions were actually handled

through the California Republican Party's non-federal account.

In· the interim audit report the Audit staff recommended

that the Committee, within 30 days of receipt of the report, file

a comprehensive amendment deleting the receipt and disbursement

of the two transactions noted above.

On November 9, 1981, the Committee provided the Audit

staff with amended reports deleting the two transactions.

. Recommendation

The Audit staff recommends no further action on this matter.

D. Disclosure of Debts and Obligations

Section 44lb(a) of Title 2 of the United States Code

states, in part, that it is unlawful for any national bank, or

any corporation organized by authority of any law of congress, to

make a contribution or expenditure in connection with any election to any political office or for any corporation whatever,

to make a contribution or expenditure in connection with any election at .which presidential and vice presidential electors or

a senator or representative in, Congress are to be voted for, or

in connection with any primary election held to select candidates

for any of the foregoing offices, or for any political committee,

knowingly to accept or receive any contribution prohibited by

this section.

In addition, Section 102.5(a) (1) (i) of Title 11 of the

Code of Federal Regulations requires that each organization including a party committee, which finances political activity in

connection with both federal and non-federal elections and

qualifies as a political committee under 11 C.F.R. 100.5 and

establishes a separate federal account in a depository in

accordance with 11 C.F.R. Part 103 shall be treated as a separate federal political committee which shall comply with the

requirements of the Act.
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During the period covered by the audit, the Committee

reported eight debts and obligations totaling $395,970. The

Audit staff determined during the review of the Committee's'

expenditure records that the California Republican Party's nonfederal account paid $271,021 2/ of these reported debts.

Committee officials stated that they were aware that the debts

paid by the non-federal account were disclosed on the Committee's

reports. 3/ The Committee maintained invoices for some of the

payments,-however, the invoices did not contain sufficient

information in order to make a determination as to whether the

debts were incurred by the Committee's federal or non-federal

account.

In the interim audit report the Audit staff recommended

that the Committee provide documentation to support that the

amounts paid by the non-federal account were in fact for nonfederal goods and/or services.

On July 9 and September 2, 1982 the Committee provided documentation consisting of bills, invoices, and check copies. As a result of a review of this documentation, it was determined

that the payments from the non-federal account related to goods

or services that were administrative in nature subject to

allocation betwen the federal and non-federal accounts. A review

of the Committee's method of allocating administrative expenses between the federal and non-federal accounts indicated that the

payment of the debts by the non-federal account did not cause the

non-federal account to exceed its allocable portion. This

determination was based on a review of total administrative

expenses, irrespective of the amounts paid by the federal and

non-federal accounts on individual bills or invoices.

Recommendation

The Audit staff recommends no further action on this matter.

$157,176 was paid in 1981.

On October 1, 1981, the Committee amended their FEe

reports to delete the non-federal portion of the debts.