10

| Finding 4. Disclosure of Disbursements

Summary

CDP did not disclose an adequate purpose for 28 coordinated expenditures in support of
three federal candidates, which totaled $263,597. Also, a sample review of allocable
expenditures revealed that CDP did not adequately disclose shared disbursements. The
majority of these errors occurred because CDP did not report the non-federal portion of
these expenditures on Schedules H4 (Joint Federal/Non-Federal Activity Schedule).
Finally, CDP disclosed disbursements with inadequate purposes, incorrect dates, and
missing addresses. In response to the interim audit report, CDP filed amended reports
that corrected the disclosure errors.

Legal Standard

Reporting Operating Expenditures. When operating expenditures to the same
person exceed $200 in a calendar year, the committee must report the:

Amount;

Date when the expenditures were made;

Name and address of the payee; and

Purpose (a brief description of why the disbursement was made). 2 U.S.C.
§434(b)(5)(A) and 11 CFR §104.3(b)(4)(i)(A).

eee

Coordinated Party Expenditures. National party committees and state party
committees are permitted to purchase goods and services on behalf of candidates in the
general election—over and above the contributions that are subject to contribution limits
described above. 2 U.S.C. §441a(d) and 11 CFR §110.7(a)(1) and (b)(1).

Such purchases are referred to as “coordinated party expenditures.” They are subject to
the following rules:

e The amount spent on “coordinated party expenditures” is limited by statutory
formulas that are based on the Cost of Living Adjustment (COLA) and the voting
age population.

e Party committees are permitted to coordinate the spending with the candidate
committees.

e The parties may make these expenditures only in connection with the general
election.

e The party committees—not the candidates—are responsible for reporting these
expenditures.

e If the party committee exceeds the limits on coordinated party expenditures, the
excess amount is considered an in-kind contribution, subject to the contribution
limits described above.

Facts and Analysis

The Audit staff reviewed all disbursements made for coordinated activity. The review
revealed that 28 of the 35 expenditures, totaling $264,597, incorrectly disclosed payments
on behalf of three federal candidates (Feeley, Matsunaka, and Strickland) on Schedules


Part I
Background

Authority for Audit

This report is based on an audit of the Colorado Democratic Party (CDP) 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 disclosure of occupation and name of employer.

The disclosure of disbursements, debts and obligations.

The disclosure of expenses allocated between federal and non-federal accounts.
The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

AUWAWNE

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 6, 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 6, 2002.


14

¢ The Audit staff further recommended CDP provide a written description of system
changes it has implemented to ensure all allocable disbursements are paid from a
federal account.

In response to the interim audit report, CDP submitted documentation for disbursements
from both the federal and non-federal accounts for a significant portion of the
undocumented disbursements. In addition, CDP filed the requested amended reports.
CDP response did not include any narrative addressing the findings or any procedural
changes that have been implemented.

With respect to payments from the non-federal accounts, of the $7,509,641 questioned
CDP provided documentation showing the nature of expenditures totaling $5,239,540.
The documentation indicated that expenditures paid from CDP’s non-federal account
were for 100% non-federal expenses ($796,779), the non-federal portion of shared
expenses ($3,455,579), or the federal share of shared expenses $987,182. Among the
shared expenses were forty payments for media totaling $3,829,600, thirty-three
payments for postage totaling $292,128, nine payments for consulting totaling $105,297,
seven payments for research totaling $131,736, and four payments for legal services
totaling $84,000. For the remainder of the $7,509,641 questioned, $2,270,101, no
additional documentation was provided and they are considered potentially 100% federal.
These expenses included thirty-one payments for media totaling $2,240,045, and three
payments for consulting totaling $30,056.

With respect to disbursements from the federal accounts, CDP submitted documentation
detailing several expenditures which the Audit staff was previously unable to evaluate.
The documentation demonstrated that disbursements totaling $3,824,901 were for shared
expenses rather than for 100% federal activity. There remains a group of these
expenditures that are not adequately documented totaling $265,694 which are still
considered to be potentially 100% federal. These expenditures include seven payments
for media totaling $246,197, seven payments for printing totaling $7,264, four payments
for postage and mailing totaling $8,112, and one payment for consulting totaling $4,121.
Considering these expenditures to be potentially 100% federal contributes $206,102 to
the non-federal over funding.

As a result of the documentation provided, the Audit staff re-calculated the amount of the
over funding by CDP’s non-federal account. A revised Non-federal Funding Analysis is
presented below.

3 These disbursements were not originally reported by CDP but were included in the amended reports
discussed in Finding 4.


Disbursements — 2002

The understatement of disbursements was the result of the following:

e Math Error (reported $343 instead of $343,000) $ 342,657
e Unreported Transfers to Non-Federal account 231,200
e Unreported Media expenses 96,696
¢ Unreported Payroll and Taxes 88,320
e Unreported payments to Voterweb for website hosting 70,000
¢ Other Unreported Operating Expenses 38,040
e Unreported Printing expenses 22,581
e Unreported Telemarketing payments 22,289
e Unreported Rental Car expenses 10,225
e Unexplained Difference + 6,310

Total understatement $928,318

Ending Cash Balance — 2002
The $186,360 overstatement of the closing cash on hand was the net result of the
misstatements described above.

The majority of the difference between reported and actual receipts is a result of several
unreported and under reported transfers from CDP’s non-federal accounts ($4,653 in
2001; $463,012 in 2002). CDP personnel were unable to explain why these transfers
were not reported.

Another large part of the under reported receipts is attributable to unreported
contributions from individuals in 2001 and 2002. CDP used a third party fundraising
company, Gordon & Schwenkmeyer (GSD), to solicit contributions on its behalf.
Contributions received in this manner account for approximately 57%. of unreported
receipts from individuals. CDP did not report receipts from GSI totaling $99,802 in 2001
and $112,700 in 2002. CDP officials were unable to explain why some GSI
contributions were not reported.

A large portion of the disbursement understatement was caused by an apparent data entry
error. A payment for media consulting in the amount of $343,000 was reported as a $343
payment. This error caused reported disbursements to be $342,657 ($343,000 - $343)
less than actual disbursements.

The Audit staff discussed this finding with CDP’s representatives during the exit
conference and provided them with schedules detailing the discrepancies. The
representatives stated that corrective amendments would be filed.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CDP amend its reports to correct the misstatements
noted above, including its most recent report to show the adjusted cash balance with an
explanation that it resulted from audit adjustments from a prior period. In response to the
interim audit report, CDP filed corrective amended reports.


Part III
Summaries

Findings and Recommendations
Finding 1. Misstatement of Financial Activity

CDP misstated receipts, disbursements, and cash balances for calendar years 2001 and
2002. In response to the interim audit report, CDP filed amended reports that corrected
the misstatements. (For more detail, see p. 4)

Finding 2. Disclosure of Occupation/Name of Employer
CDP did not adequately disclose occupation and/or name of employer for 29% of
contributions from individuals itemized on its disclosure reports. Furthermore, evidence
of “best efforts” to obtain, maintain, and submit the information was not available. In
response to the interim audit report CDP attempted to obtain the necessary information.
A copy of a letter requesting the information and a log sheet documenting which
contributors received the letter were submitted along with amended reports containing
the information obtained.

(For more detail, see p. 7)

Finding 3. Receipt of Prohibited Contribution

CDP received a $10,000 contribution from the non-federal account of a non-connected
political committee. In response to the interim audit report, CDP submitted
documentation showing that the contribution had been refunded but not in a timely
manner. (For more detail, see p. 8)

Finding 4. Disclosure of Disbursements

CDP did not disclose an adequate purpose for 28 coordinated expenditures in support of
three federal candidates, which totaled $263,597. Also, a sample review of allocable
expenditures revealed that CDP did not adequately disclose shared disbursements. The
majority of these errors occurred because CDP did not report the non-federal portion of
these expenditures on Schedules H4 (Joint Federal/Non-Federal Activity Schedule).
Finally, CDP disclosed disbursements with inadequate purposes, incorrect dates, and
missing addresses. In response to the interim audit report, CDP filed amended reports
that corrected the disclosure errors. (For more detail, see p. 10)

Finding 5. Non-federal Funding of Federal Activity

A review of expenditures made from federal and non-federal accounts indicated that the
non-federal account potentially paid more than its share of allocable expenses by
$8,436,101. Media expenditures made up a significant portion of this over funding.
Documentation such as invoices, scripts or copies of advertisements were not made
available or did not demonstrate that these media expenditures were for shared expenses.
In addition, CDP made disbursements from its non-federal accounts that appeared to be
either federal or allocable expenses. In response to the interim audit report, CDP
provided additional documentation that reduced its potential liability to the non-federal
account to $3,182,718. (For more detail, see p. 11)


Part II

Overview of Committee
Committee Organization

Important Dates

Colorado Democratic Party

e Date of Registration

September 16, 1982

e Audit Coverage

January 1, 2001 — December 31, 2002

Headquarters

Denver, CO

Bank Information

e Bank Depositories

Two

e Bank Accounts

Five Federal and Ten Non-Federal
Accounts

Treasurer

e Treasurer When Audit Was Conducted

Shawn O’Buckley

e Treasurer During Period Covered by Audit

Lawrence N. Beer

Management Information

e Attended FEC Campaign Finance Seminar

No

e Used Commonly Available Campaign
Management Software Package

Yes

e Who Handled Accounting and
Recordkeeping Tasks

Volunteer Staff and Paid Staff

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ January 1, 2001 $ 26,127
o Contributions from Individuals 800,930
© Contributions from Political Committees 205,909
o_ Transfers from Affiliated Party Committees 2,521,503
o Transfers from Non-federal Account 3,447,566
o Other Receipts 93,512
Total Receipts $ 7,069,420
o Operating Expenditures 6,681,993
o__ Transfers to Affiliates 24,025
o Coordinated Expenditures 293,312
o Refund of Contribution 2,500
o Other Disbursements 10,000
Total Disbursements $ 7,011,830
Cash on hand @ December 31, 2002 $ 83,717



15

Revised Non-federal Funding Analysis

Description
Net Transfers made from Non-federal Accounts per $ 3,216,366
Bank Records
Less: Non-federal Portion of Allocable Expenditures
as Reported (3,497,033

Net (Under funding)/Over funding by the Non-

federal Accounts: $ (280,667)
Adjustments:

Federal portion of shared expenses paid from the non-

federal account $987,182

Potential Federal Expenses paid from the non-federal

account $ 2,270,101

Reported non-federal portion of disbursements from

Federal accounts lacking documentation $206,102

Adjusted Amount of Potential Non-federal OVER

Funding of Allocable Expenses $ 3,182,718

As part of its response to the Interim Audit Report, CDP filed amended Schedules H4 to
correct the disclosure for several of the items from both the federal and non-federal
accounts. The amended reports contained memo entries to disclose a number of
transactions from CDP’s non-federal accounts that were previously unreported. CDP did
not include an amount owed to the non-federal account on its amended Schedules D or its

most recently filed report.

It should be noted that the Commission issued subpoenas on August 26, 2005 to several
firms requiring the production of the records not provided to date. Additional
information will be considered in any subsequent actions taken by the Commission.



e Unreported receipts from Gordon & Schwenkmeyer, Inc., a fundraising firm $ 99,802
e Unreported receipts from Political Committees 10,200
e Unreported Offset of Operating Expense 5,784
e Underreporting of Transfers from Non-federal Accounts 4,653
e Unexplained difference - 1,091
Total understatement 119,34:

Disbursements — 2001
The understatement of disbursements was the net result of the following:

¢ Unreported Legal expenses $ 20,000
¢ Unreported Fundraising expenses 1,725
e Other Unreported expenses 1,492
e Unexplained difference : 2,453

Total understatement $___20,764

Ending Cash Balance — 2001
The $181,404 overstatement of the closing cash on hand was the net result of the

misstatements described above.

2002 Committee Activity
Reported Bank Records Discrepancy
Opening Cash Balance @ $305,278 $66,656 $238,622
January 1, 2002 Overstated
Receipts $5,413,294 $6,393,874 $980,580
Understated
Disbursements $5,448,495 $6,376,813 $928,318
Understated
Ending Cash Balance @ $270,077 $83,717 $186,360
December 31, 2002 Overstated

Opening Cash Balance — 2002

As a result of the prior year’s misstatement and an unsupported change in the cash on
hand balance for January 1, 2002, as compared to the ending cash on hand for
December 31, 2001, the beginning cash balance was overstated by $238,622.

Receipts — 2002
The understatement of receipts was the result of the following:

Underreporting of Transfers from Non-federal Accounts $ 463,012
Unreported receipts from Political Committees 262,289
Unreported receipts from Gordon & Schwenkmeyer, Inc. 112,700
Unreported Receipts from Individuals 85,650
Unreported Offset of Operating Expense 20,927
Unexplained difference 36,002

Total understatement $980,580


FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463

September 15, 2005

MEMORANDUM

TO: ROBERT W. BIERSACK
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ
ASSISTANT ST. ‘CTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
THE COLORADO DEMOCRATIC PARTY

Attached please find a copy of the final audit report on the Colorado Democratic
Party, which was approved by the Commission on September 7, 2005.

Informational copies of the report have been received by all parties involved and
the report may be released to the public on September 15, 2005.

Attachment as stated

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


Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that CDP attempt to contact those individuals for whom
the required information was missing, in accordance with 11 CFR §104.7, provide
documentation of such effort (such as copies of letters to the contributors and/or phone
logs of oral requests), and, file amended Schedules A to disclose any information
obtained from those contacts. In response to the interim audit report, CDP attempted to
obtain the missing information. CDP submitted a copy of a letter requesting contributors’
occupation and name of employer and a log sheet listing the letter’s recipients. In
addition, amended reports were filed disclosing the new information obtained from the
letter.

| Finding 3. Receipt of Prohibited Contribution

Summary

CDP received a $10,000 contribution from the non-federal account of a non-connected
political committee. In response to the interim audit report, CDP submitted
documentation showing that the contribution had been refunded but not in a timely
manner.

Legal Standard
Receipt of Prohibited Contributions — General Prohibition. Candidates and
committees may not accept contributions (in the form of money, in-kind contributions or
loans):

1. Inthe name of another; or

2. From the treasury funds of the following prohibited sources:

e Corporations (this means any incorporated organization, including a non-stock
corporation, an incorporated membership organization, and an incorporated
cooperative);

e Labor Organizations;

National Banks;
Federal Government Contractors (including partnerships, individuals, and sole
proprietors who have contracts with the federal government); and

e Foreign Nationals (including individuals who are not U.S. citizens and not
lawfully admitted for permanent residence; foreign governments and foreign
political parties; and groups organized under the laws of a foreign country or
groups whose principal place of business is in a foreign country, as defined in
22 U.S.C. §611(b)). 2 U.S.C. §441b, 441c, 441e, and 441f.

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


| Finding 2. Disclosure of Occupation/Name of Employer

Summary

CDP did not adequately disclose occupation and/or name of employer for 29% of
contributions from individuals itemized on its disclosure reports. Furthermore, evidence
of “best efforts” to obtain, maintain, and submit the information was not available. In
response to the interim audit report CDP attempted to obtain the necessary information.
A copy of a letter requesting the information and a log sheet documenting which
contributors received the letter were submitted along with amended reports containing
the information obtained.

Legal Standard

Required Information for Contributions From Individuals. For each itemized
contribution from an individual, the committee must provide the contributor’s occupation
and the name of his or her employer. 2 U.S.C. §434(b)(3)(A) and 11 CFR §100.12.

Best Efforts Ensures Compliance. When the Treasurer of a political committee shows
that the committee used best efforts (see below) to obtain, maintain, and submit the
information required by the Act, the committee’s reports and records will be considered
in compliance with the Act. 2 U.S.C. §432(h)(2)(i).

Definition of Best Efforts. The treasurer and the committee will be considered to have
used “best efforts” if the committee satisfied all of the following criteria:
e All written solicitations for contributions included:
o Acclear request for the contributor’s full name, mailing address, occupation,
and name of employers; and
o. The statement that such reporting is required by Federal law.
¢ Within 30 days after the receipts of the contribution, the treasurer made at least
one effort to obtain the missing information, in either a written request or a
documented oral request.
¢ The treasurer reported any contributor information that, although not initially
provided by the contributor, was obtained in a follow-up communication or was
contained in the committee’s records or in prior reports that the committee filed
during the same two-year election cycle. 11 CFR §104.7(b).

Facts and Analysis

The Audit staff reviewed all contributions from individuals itemized on Schedule A and
determined that CDP did not adequately disclose the contributor’s occupation and/or
name of employer for 90 of the 309 itemized contributions requiring this information. In
addition, CDP did not maintain documentation that demonstrated that best efforts were
exercised to obtain the missing information.

The Audit staff presented this matter to CDP representatives during the exit conference,
who stated that they would attempt to retrieve the information and the amended reports
would be filed.


Part IV
Findings and Recommendations

| Finding 1. Misstatement of Financial Activity |

Summary

CDP misstated receipts, disbursements, and cash balances for calendar years 2001 and
2002. In response to the interim audit report, CDP filed amended reports that corrected
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 calendar year;

¢ The total amount of disbursements for the reporting period and for the calendar year; and

© Certain transactions that require itemization on Schedule A (Itemized Receipts),
Schedule B (Itemized Disbursements) or Schedule H4. 2 U.S.C. §434(b)(1), (2), and
(4).

Facts and Analysis

The Audit staff reconciled CDP’s reported activity to its bank records for calendar years
2001 and 2002. CDP was not able to provide us with work papers to support its reported
figures. The following charts outline the discrepancies for the beginning cash balances,
receipts, disbursements, and the ending cash balances. The succeeding paragraphs
explain why the differences occurred, if known.

2001 Committee Activity
Reported Bank Records Discrepancy
Opening Cash Balance @ $306,115 $26,127 $279,988
January 1, 2001 Overstated
Receipts $556,198 $675,546 $119,348
Understated
Disbursements $614,253 $635,017 $20,764
Understated
Ending Cash Balance @ $248,060 $66,656 $181,404
December 31, 2001 Overstated

Opening Cash Balance — 2001
The beginning cash on hand was overstated by $279,988 due to prior period
misstatements which could not be explained by CDP personnel.

Receipts - 2001
The understatement of receipts was the net result of the following:


Table of Contents

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

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

Part III. Summaries

Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Misstatement of Financial Activity
Finding 2. Disclosure of Occupation/Name of Employer
Finding 3. Receipt of Prohibited Contribution
Finding 4. Disclosure of Disbursements
Finding 5. Non-federal Funding of Federal Activity

Page

i

ee


11

H4. CDP should have disclosed such disbursements on Schedules F (Itemized
Coordinated Party Expenditures).

The Audit staff also reviewed shared expenses and determined that a significant portion
of the disbursements were not adequately disclosed. The majority of the errors were
caused by CDP only reporting the federal portion of the expense on Schedules H4. The
non-federal share of the expenses was paid from the non-federal account and not
reported. The remaining errors were due to incorrect amount, purpose, and dates having
been reported. The Audit staff presented this matter to CDP representatives during the
exit conference. Representatives for CDP stated that they would examine the
disbursements in question and amend reports if necessary.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CDP amend its reports to correct the disclosure errors
discussed above. In response to the interim audit report, CDP filed corrective amended

reports.

| Finding 5. Non-federal Funding of Federal Activity

Summary

A review of expenditures made from federal and non-federal accounts indicated that the
non-federal account potentially paid more than its share of allocable expenses by
$8,436,101. Media expenditures made up a significant portion of this over funding.
Documentation such as invoices, scripts or copies of advertisements were not made
available or did not demonstrate that these media expenditures were for shared expenses.
In addition, CDP made disbursements from its non-federal accounts that appeared to be
either federal or allocable expenses. In response to the interim audit report, CDP
provided additional documentation that reduced its potential liability to the non-federal
account to $3,182,718.

Legal Standard

Accounts for Federal and Non-federal Activity. A party committee that finances
political activity in connection with both federal and non-federal elections must establish
two accounts (federal and non-federal) and allocate shared expenses—those that
simultaneously support federal and non-federal election activity—between the two
accounts. Alternatively, the committee may conduct both federal and non-federal
activity from one bank account, considered a federal account. 11 CFR §102.5(a)(1)(i).

Federal vs. Non-federal Account. The federal account may contain only those funds
that are permissible under the federal election law; the non-federal account may contain
funds that are not permitted under the federal law (but are legal under state law), such as
contributions that exceed the limits of the federal law and contributions from prohibited
sources, such as corporations and labor organizations. 11 CFR §102.5(a)(1)(i) and (a)(3).

Transfers. Generally, a political committee may not transfer funds from its non-federal
account to its federal account, except when the committee follows specific rules for


13

amount in question was not sufficiently documented to make a determination on the
proper allocation of the expenses.

Among the disbursements questioned were payments to large vendors from CDP’s non-
federal accounts totaling $7,051,098 that appeared to be for potentially allocable
expenses such as media, postage, consulting, research services and other miscellaneous
expenses. Documentation for these expenses which would have assisted the auditors in
determining the nature of these expenses was not available. Therefore, the Audit staff
considered these disbursements from the non-federal accounts to be potentially for 100%
federal activity.

The Audit staff also reviewed disbursements to large vendors paid from CDP’s federal
accounts, totaling $3,824,901 including some that were not reported. These expenditures
included payments for media, postage, web hosting, legal services, consulting and other
miscellaneous expenses. Due to the very limited documentation available for these
expenses, they were considered to be potentially 100% Federal. Since many were
reported as allocable expenses, $1,665,670 was added to the potential over funding by the
non-federal accounts.

At the exit conference, the Audit staff informed CDP representatives that there were
several expenditures from both federal and non-federal accounts which were lacking
documentation. Schedules of the contributions in questions were provided. It should be
noted that the representatives present during audit fieldwork were not employed by CDP
during the period being audited. The representatives indicated that they would attempt to
retrieve the documentation necessary for the Audit staff to determine the proper
allocation for these expenses.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CDP:

e Provide documentation detailing the nature and purpose of the potentially allocable
disbursements to demonstrate that the disbursements paid from the non-federal and
federal accounts were not allocable or 100% federal expenses. Absent such a
demonstration, CDP was requested to file Schedules B and/or Schedules H4
disclosing as memo entries the allocable expenditures paid from the non-federal
accounts.

e Absent a demonstration there has been no over funding by the non-federal account, it
was recommended that CDP’s federal account reimburse the non-federal account(s)
for the amount of any over funding and provide evidence of such reimbursement. If
CDP lacked the funds to reimburse the non-federal account(s), then the amount owed
was to be disclosed on Schedule D as a debt, until such time that funds were available
to make the reimbursement.


Report of the
Audit Division on the
Colorado Democratic Party

January 1, 2001 - December 31, 2002



Report of the Audit Division on

the Colorado Democratic Party
January 1, 2001 - 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.

' 2 U.S.C. §438(b).

About the Committee (p. 2)
The Colorado Democratic Party is a state party committee

headquartered in Denver, CO. For more information, see chart on

the Committee Organization, p. 2.

Financial Activity (p. 2)
¢ Receipts
o Contributions from Individuals
o Contributions from Political Committees
o Transfers From Affiliated Party Committees
o Transfers From Non-federal Account for
Joint Activity
o Other Receipts
o Total Receipts
¢ Disbursements
o Operating Expenditures
Transfers to Affiliated Party Committees
Coordinated Expenditures
Refund of Contribution
Other Disbursements
Total Disbursements

ooo0o0o°0

Findings and Recommendations (p. 3)
Misstatement of Financial Activity (Finding 1)
Disclosure of Occupation/Name of Employer (Finding 2)
Receipt of Prohibited Contribution (Finding 3)
Disclosure of Disbursements (Finding 4)

Non-federal Funding of Federal Activity (Finding 5)

$ 800,930
205,909
2,521,503

3,447,566
93,512
$ 7,069,420

$ 6,681,993
24,025
293,312
2,500
10,000

$ 7,011,830


2. 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 ina memorandum. 11 CFR
§103.3(b)(1).

5. Within these 30 days, the committee must either:
¢ Confirm the legality of the contribution; or
¢ 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).

Facts and Analysis

The Audit staff reviewed all contributions from political committees and noted a $10,000
check from The New Democrat Network (NDN), dated April 28, 2002. The check
included “THE NEW DEMOCRAT NETWORK” as the accountholder and also included
the FEC Identification number for the federally registered committee. However, the
check was from a NDN non-federal account and was therefore impermissible. The Audit
staff presented this matter to CDP representatives during the exit conference.
Representatives for CDP stated that they would examine the contribution and take the
necessary action to correct the matter.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CDP:
e Provide evidence demonstrating that the contribution in question was not
prohibited; or
e Refund $10,000 to New Democrat Network and provide evidence of the refund
(copy of the front and back of the negotiated refund check); and
e If funds were not available to make the necessary refund, disclose the refund due
on Schedule D (Debts and Obligations Excluding Loans) until funds become
available to make the refund.

In response to the interim audit report, CDP provided the Audit staff with a copy of the
front and back of the negotiated refund check showing that the contribution from NDN
had been refunded on July 14, 2003, over a year from the date of the contribution check.


12

paying for shared federal/non-federal election activity. 11 CFR §§102.5(a)(1)(i) and
106.5(g).

Paying for Allocable Expenses. FEC regulations offer party committees two ways to
pay for allocable, shared federal/non-federal expenses.

e They may pay the entire amount of the shared expense from the federal account
and transfer funds from the non-federal account to the federal account to cover the
non-federal share of that expense; or

e They may establish a separate, federal allocation account into which the committee
deposits funds from both its federal and non-federal accounts solely for the
purpose of paying the allocable expenses of shared federal/non-federal activities.
11 CFR §106.5(g)(1)(i) and (ii).

Reporting Allocable Expenses. A political committee that allocates federal/non-
federal expenses must report each disbursement it makes from its federal account (or
separate allocation account) to pay for a shared federal/non-federal expense.
Committees report these kinds of disbursements on Schedule H-4 (Shared Expenses).
11 CFR §104.10(b)(4).

Allocation Ratio for Administrative & Generic Voter Drive Costs. State and local
party committees must allocate their administrative expenses and generic voter drive
costs according to the ballot composition method. Under this method, a committee
determines the ratio of federal offices to the total number of federal and non-federal
offices expected on the ballot in the next general election in the state or geographic
area. 11 CFR §106.5(d)(1) and (2).

Required Records for Reports and Statements. The treasurer of a political committee
will maintain records, including bank records, vouchers, worksheets, receipts and bills, in
sufficient detail to verify the accuracy and completeness of the information contained in
the reports. 11 CFR §104.14(b)(1).

Facts and Analysis

CDP maintained separate federal and non-federal bank accounts. Generally, it paid
shared expenses from the federal account and transferred funds from the non-federal
account to cover the non-federal share of those expenses. CDP paid allocable expenses
for administrative and generic get out the vote (GOTV) expenses from the federal
account using a ratio of 22% federal and 78% non-federal and disclosed this ratio on its
Schedules H1 (Method of Allocation for Shared Federal and Non-federal Administrative
Expenses and Generic Voter Drive Costs). The Audit staff reviewed disbursements
from both the federal and non-federal accounts and found that the non-federal had
potentially over funded its share of allocable expenses by $8,436,101. Much of the

? The actual ratio disclosed on CDP’s Schedule H1 shows a Federal Allocation of 22.22%. While
reporting shared expenses, CDP routinely rounded down and used 22% as the federal share of
administrative type expenses. The affect on the reported amounts is negligible.