FEDERAL ELECTION COMMISSION

WASHING T0:-.. 0 C 2()'&bl

December 10, 1996

MEMORANDUIv1

TO:

FROM:

Ron M. Harris

Press Officer

Press Office

Robert 1. Costa*-

Assistant Staff Director

Audit Division

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SUBJECT: Public Issuance ofthe Final Audit Report on Friends for Franks

Attached please find a copy ofthe final audit report and related documents on

Friends for Franks \\Ohich \\'as approved by the Commission on November 27, 1996.

Informational copies ofthe report have been received by all parties involved and

the report may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis DIvision

FEe LibraI')
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REPORT OF THE AUDIT DIVISION

ON

Friends for Franks

Approved November 27, 1996

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

FRIENDS FOR FRANKS

Page

Executive Summary

Final Audit Report 3

Background 3

Findings 5 .......

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Transmittal to Committee 19 0

,('~ Chronology 21

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FEDERAL ELECTION CO~1~v1ISSI0N

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FINAL AUDIT REPORT

ON

FRIENDS FOR FRANKS

EXECUTIVE SUMMARY

Friends for Franks registered with the United States House ofRepresentatives on

May 4t 1993 as the principal campaign committee for Gary A. Franks, Republican

candidate for the U.S. House ofRepresentatives from the state of Connecticu~ 5th District.

The audit was conducted pursuant to 2 U.S.C. §438(b). which states that the

Commission may conduct audits of any political committee whose reports fail to meet the

threshold level of compliance set by the Commission.

The fmdings ofthe audit were presented to the Committee at the completion of

fieldwork on September 7, 1995 and later in an interim audit repone The Comminee's

response to those findings is included in the final audit report.

The following is an overview ofthe fmdings contained in the final audit report.

The Audit staffs testing of contributions was limited because DO computerized file or

listing of contributions was provided. Our testing ofdisbursements and debts owed was

also limited because approximately half ofthe records provided were generated by the

payee and the Commi~ had no system in place to track debts.

RECORDKEEPING FOR DISBURSEMENTS AND CHECKS MADE PAYAIL.f: TO

"CASH" - 2 U.S.C. §432(c)(5). The Audit staff identified 165 disbursements, totaling

$194.037. for which a record ofthe payees' address and/or purpose was not maintained, as

required. Much ofthe missing infonnation \\"as included on the Committee's disclosure

reports. The Committee provided listings of disbursements which included the missing

infonnation for all but 29 of the 165 recordkeeping error:>. No vendor generated

documentation \\'as provided (such as invoices. receipted bills. etc.).

The Committee disclosed two $1.500 loans from the Candidate and one $2.500

loan reimbursement to the Candidate. The Committee provided statements from the

Candidate explaining that he made no loans to the Committee and that the S:!.500

reimbursement to him was for campaign expenses he had incurred at his residence. In

response to the interim audit report. the Committee provided a statement from the former

Campaign Manager which claimed that the Candidate had incurred expenses at his

residence for newspapers. meals and mileage in excess of S:!.500. No documentation was

provided relative to these expenses.

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The Committee made 20 payments to the Candidate's spouse, totaling 562,500,

which were noted as payment for services, salary, payroll or consulting on the memo line

oftbe checks and/or the check register descriptions. No consulting agreements or payroll

records were provided. In response to the interim audit report, the Committee provided a

written statement from the Assistant Treasurer which explained that the Candidate's spouse

perfonned as a fundraising consultant. No infonnation \\ra5 provided documenting the

services perfonned.

There were 19 Committee checks. totaling S5.205. made payable to "cash" for

which the required records were not maintained. In response to the interim audit report,

the Committee stated that it ~115 unable to document these paym.ents but that they were for

small items that cost less than $100 such as food and gas money. The Committee also

claimed that it had implemented new procedures so that petty cash is handled properly in

the future.

MISSTATEMENTOE FINt\NCIAL Acrmn' - 2 U.S.C. §§434(b)(1),(2) and (4). The

Audit staffs reconciliation ofthe Committee's reponed financial activity to its bank

activity revealed a misstatement for 1994. The Committee filed amended reports which

materially corrected this misstatement.

DISCLOSURE Of QcCUPATION AND NAME Of EMPLOYER - 2 U.S.C.

§§434(b)(3)(A) and 431 (13(A). The audit identified a material number of errors regarding

the Committee's disclosure ofcontributors' occupation and name ofemployer and the

Committee \\115 unable to demonstrate that it had exercised best efforts to obtain this

information. In response to the interim audit report. the Committee provided a sample

solicitation form which requested this infonnation but there was no evidence provided that

this form was used during the period covered by the audit. The Committee also filed

amended Schedules A (Itemized Receipts) but these amendments did not materially correct

the disclosure omissions.

CONTRIBUTIONS SUBJEO TO 48 HOUR DiSCLOSURE NOTICE - 2 U.S.C. 434(a)(6).

The Audit staff detennined that the Comminee did not file the required 48 hour notices for

16 contributions. totaling 520,000. In response to the interim audit repon.. the Committee

provided a statement from the fonner Campaign ~1anager explaining that he believed all

required 48 hour notices were faxed to the FEe but that he could not recall the dates they

were sent.

?a::e :
FEDERAL ELECTION COMMISSION

\\ASHINCTO.... DC 2f\.&b\

REPORTOF THE AUDITDIVISION

ON

FRIENDS FOR FRANKS

AU9S·12

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I. BACKGROUND

A. AUDIT AUTHOarn

This report is based on an audit ofFriends for Franks (the Committee)

undertaken by the Audit Division ofthe Federal Election Commission in accordance with

the provisions ofthe Federal Election Campaign Act of 1971, as amended (the Act). The

audit was conducted pursuant to Section 438(b) ofTide 2 ofthe United States Code which

states, in that the Commission may conduct audits and field investigations ofany

political committee required to file a report lmder section 434 ofthis title. Priorto

conducting any audit Wlder this subsection, the Commission shall perform an internal

review ofthe repons filed by selected committees to determine ifthe reports filed by a

particular comminee meet the tIuesbold requirements for substantial compliance with the

Act.

B. AUDIT COVERACE

The audit covered the period from the Committee's initial deposit on May

13, 1993 through December 31, 1994. The Committee reported a beginning cash balance

ofSO; total receipts for the period of5630.999; total disbursements for the period of

5527.842; and an ending cash balance on December 31. 1994 ofSI16.684.1

c. CAMPAICN ORGANIZAnoN

The Committee registered with the Clerk ofthe U.S. House of

Representatives on May 4.1993 as the principal campaign committee for Gary A. Franks,

Republican candidate for the U.S. House of Representatives from the state of Connecticu~

Does not foot due to vanous reportmg erTOFS. as well as the Committee's disclosure ofsome

contributions deposited an J993 by the Franks Congress Committee. the committee authorized by

Congressman Gat) A. Franks relative to the 1992 electlon (see Fandmg II.B.). All figures presented

m thiS repon have been rounded to the nearest dollar.

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5th District. The Treasurer ofthe Committee is Mr. Frank Hitchcock, who was also the

Treasurer during the audit period. The Committee maintains its headquarters in

Waterbury, Connecticut.

To handle its financial activity" the Committee used four bank accounts (3

checking and 1 savings) and purchased one certificate of deposit. The Committee made

328 disbursenlents from its main operating account totaling approximately $514,000. The

Committee received approximately 800 contributions from individuals. totaling $240,000

and approximately 438 contributions from political comminees.. totaling $372,000.2

D. AUDIT SCOPE AND PROCEDURES

The audit covered the following general categories.. however, the scope of

our testing regarding contributions received from individuals and political committees was

limited. Although the Committee satisfied the recordkeeping requirements of 11 CFR

§I 02.9 in maintaining its contribution records. these records were not maintained in a

manner \\'hich would have allowed the Audit staffto perfonn the substantive testing

nonnally undertaken when revie\\ing contributions because the Committee could not

produce a computerized file or a listing of all contributions received during the audit period

and the Comminee had no system in place to aggregate contributions (see Finding II.C.).

The scope ofthe Audit staffs testing regarding the Committee's

disbursements and the debts owed by the Committee was also limited because

approximately half ofthe records provided were generated by the Committee rather than

the payee. and the Committee had no system for tracking debts owed.

The audit included testing of the following general categories:

1.

2.

The receipt of contributions or loans in excess ofthe statutory limitations;

the receipt of contributions from prohibited sources~ such as those from

corporations or labor organizations~

3. proper disclosure of contributions from individuals~ political committees

and other entities. to include the itemization of contributions when required.

as well as~ the completeness and accuracy ofthe infonnation disclosed (see

Findings H.C. and D.)~

4. proper disclosure of dIsbursements including the itemization of

disbursements \,,.hen requIred. as well as. the completeness and accwacy of

the infonnation disclosed (see FIndIng Il.A.4.);

2 The Committee overstated ItS r~poned receipts and dlsbUTS~ments (see Flndmg 11.8.).

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5. proper disclosure ofCommittee debts and obligations;

6. the accuracy oftotal reponed receipts, disbursements and cash balances as

compared to Committee bank records (see Finding n.B.);

7. adequate recordkeeping for Committee transactions (see Finding II.A.); and

8. other audit procedures that were deemed necessary in the situation.

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue further any ofthe matters

discussed in this report in an enforcement action.

II. AUDIT FI~'])INGSAND RECOMMENDATIONS

A. RECORDKEEPING FOR DISBURSEMENTS AND CHECKS MADE PAYABLE

TO "CASH"

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Section 432(c)(5) ofTitle 2 ofthe United States Code requires the treasurer

of a political committee to keep an account ofthe name and address ofevery person to

whom any disbursement is made, the date. amount. and purpose ofthe disbursement, and

the narJ1e ofthe candidate and the office sought by the candidate, ifany, for whom the

disbursement Y/as made. including a receipt. invoice, or cancelled check for each

disbursement in excess of 5200.

Section 102.9(b)( 1)(iv) ofTitle 11 ofthe Code ofFederal Regulations

defines "pUJl'Ose" as a briefstatement or description ofwhy the disbursement was made.

Sectiof' 10:.11 ofTitle 11 ofthe Code of Federal Regulations states, in

that a political comminee may maintain a petty cash fund out ofwhich it may make

expenditures not in excess of S100 to any person per purchase or transaction. If a petty

cash fund is maintained. a \\nnen journal of all disbursements shall be maintained which

includes the name and address of every person to whom any disbursement is made. as well

as the date. amoWlt. and pUJl'Ose ofsuch disbursement.

Section 434(b)(5)(A) Title 2 ofthe United States Code states that each

report under this section shall disclose the name and address of each person to whom an

expenditure in an aggregate amount or value in excess of 5200 within the calendar year is

made by the reponing comminee to meet a candidate or committee operating expense.

together \\;th the date. amount. and pUJl'Ose ofsuch operating expenditure.

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I. Rccordkeepini for Disbursements

The Audit staff reviewed all Committee disbursements to determine

ifrecords were maintained as required. The scope ofthis review was limited because

approximately half ofthe disbursement records provided were generated by the Committee

rather than the payees (such as invoices. receipted bills, etc.). Although cancelled checks

were made available for most ofthe remainder. cancelled checks were not available for 34

Committee disbursements. totaling $24.832. at the close of audit fieldwork. Included in

these 34 items was one check to the Candidate disclosed by the Committee as

"Reimbursement of Loan," three checks to the Candidate's spouse and six checks made

payable to "Cash."

The Audit staff detennined that the records maintained for 165

disbursements, totaling $194,037, did not contain the payees' address, as required. This

accounts for 38% ofthe total dollar value ofthe Committee's disbursements. In addition to

the address omissions, the purpose for 33 ofthe items \\pas missing or inadequate.

At the exit conference, the Audit staff explained that the missing

information was disclosed on the Committee's reports for many ofthe recordkeeping errors

(47% ofthe items, which accounted for 790/0 ofthe total dollar value ofthe errors). A

listing ofthe 165 recordkeeping errors was provided to the Committee. The Committee's

Counsel stated that in his opinion, ifthe Committee maintained a copy ofits reports that it

has met the recordkeeping requirements. The Audit staff explained that docwnentation

with which to verify the accuracy ofthe information disclosed by the Committee is

necessary; copies ofthe disclosure reports are not sufficient.

Subsequent to the exit conference.. the Committee provided a listing

which contained the missing infonnation for 113 ofthe 165 recordkeeping errors.3 This

accoWlts for 640/0 ofthe total dollar value of the 165 errors. Additional documentation

relative to 20 payments to the Candidate's spouse (see Section Il.A.3.) or the 19 checks

made payable to "cash" (see Section II.A.4.) \\'as not provided. A listing ofthe 52 items,

totaling $70,365.. for which no documentation was provided "'as attached to the interim

audit repone

In the interim audit report. the Audit staff recommended that the

Committee submit the reqUired infonnation relative to the remaining 5~ recordkeeping

errors. It was further recommended that the Comminee submit photocopies ofthe 34

cancelled checks (front and back) not previously made available to the Audit staff.

3 The majority ofthis information corrected Items for which no payee addresses were maintained in

the Committee's files No vendor generated documentation \\a5 provJded (such as Invoices.

receipted bills. etc.)

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In the Committee's response to the interim audit report, the

Committee submitted a listing ofthe 52 items noted by the Audit staff as recordkeeping

elTOrs. The Committee also submitted photocopies of 24 ofthe 34 cancelled checks (front

and back) not previously made available to the Audit staff.

The listing of 52 items submitted by the Committee included the

purpose "Campaign Consultant Fundraiser" relative to the 20 payments to the Candidate's

spouse (see Section II.A.3.). Although the Committee met the minimum recordkeeping

requirements of 11 CFR §102.9(b) relative to 19 ofthese 20 payments (no cancelled check

was provided for one $5..000 payment).. the Audit staff notes that the Committee did not

provide documentation which demonstrated that bona fide services were provided by the

Candidate's spouse (see Section II.A.3.). In addition.. the Committee provided payees'

addresses related to four ofthe 52 recordkeeping errors. Ofthe remaining 29 errors (52 •

19 .4). 19 were checks made payable to "cash" (see Section II.A.4.).

Additionally.. no explanation was provided by the Committee

regarding the 10 (34 • 24) remaining cancelled checks requested by the Audit staff.

Among the 10 disbursements for which no cancelled checks were submitted were a $2..500

reimbursement to the Candidate in June 1994 (see Section I1.A.2.) and the 55..000 payment

to the Candidate's spouse noted above.

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.;.. Candidate Loan Reimbursement

The Committee disclosed the receipt of a $2.500 loan from Gary A.

Franks (the Candidate).. once on its April 1994 Quanerly repon and again on its July 1994

Quanerly repone The Audit staff\\'3.5 unable to locate or identify any deposits related to a

Candidate loan. The Comminee disclosed a S1..5oo pa~,r,ent to the Candidate with the

purpose noted as "Reimbursement ofLoan" on its July 1994 Quarterly report. No

cancelled check was available to suppon this reponed transaction.. however~ on June 22,

1994 a S:!.500 check did clear the Committee's account - the check number as recorded in

the check register matched the check number recorded on the bank statement.

The Comminee's Counsel explained that the Candidate did not make

a loan to the Comminee. A SIgned statement from the Candidate was provided to the

Audit staff on August ~5. 1995 v;hich explained that in ~tarch 1994 he had written a

$1..500 check to the Comminee to meet a campaign goal but that when he leamed that the

goal had already been reached.. he asked the Comminee to nullif)' the loan. He then stated

that he '\\'as lnfonned that the check had been" inadvenently misplaced" but the FEe report

\\'hich contained the disclosure of the loan had already been sent. The Candidate added

that "[t]he repayment ofthe loan on the subsequent repon \\'as ShO\\11 in order to balance

the campaign books from an accounting perspectlve It
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The Candidate then explained in his statement that "[a]fter

submitting campaign expenses covering several months, I received a check dated June 22,

1994 for reimbursement to me for travel, phone, ren~ meals, utilities and miscellaneous

expenses." At the exit conference, the Committee's Counsel explained that these expenses

were incurred by the Candidate when the Comminee \\1lS nmning its operations from the

Candidate's residence.4

The only infonnation contained in the Committee's records relative

to expenses apparently incurred by the Candidate ,,·hen using his residence for the

Comminee's headquarters were two cancelled checks. The Comminee disclosed two

reimbursements to the Candidate during the audit period. One reimbursement check was

dated September 20, 1993 for which the Comminee disclosed the purpose as "Phone

Charges." The second check was dated September 8~ 1994 for which the Committee

disclosed the purpose as "Reimbursement phone. faxes~ mileage."

The Candidate also added in this statement that "I can readily

understand the present mix-up. therefore I will do the following: I will contribute

52500.00 to my campaign and I will take all the aforementioned incurred expenses as an

in-kind contribution to my campaign. and I \\ill forego the 52500 reimbursement." The

Comminee submined a photocopy of a check (front only) from Congressman Franks to the

Comminee. in the amount of $2.500.

No explanation was provided regarding the disclosure ofthe $2.500

loan twice. At the exit conference the Audit staffrequested documentation in support of

the expenses for incidentals described in the Congressman's statement but the Committee's

Counsel stated that these records were not available. He added tt.3t the Committee

"stopped doing incidentals out ofthe Congressman's residence after the 10a.!1 repayment" -

which \\'as received on June 22~ 1994 per the Candidate's statement. The Committee's

Counsel also stated that an additional statement from the Candidate would be provided.

The Comminee \\'as afforded 10 days to submit documentatiort

related to the maners presented at the exit conference. An additional signed statem\: .~.

from the Candidate was provided to the Audit staff \\ithin this 10 day period. In thh.

statement the Candidate provided the same details 3S described in his first statemen~ at~C

added that U[i]n an abundance of caution. on August 25. 1995. I \\Tote a chee;: in r~,~

amount of $2.500 to my campaign so that the record is clear that I did not ben(·f,f in ally

,,'ay as a result ofthe inadvertent mix-up regarding the loan." He continued that lethe

campaign "'ill amend its repons to (1) ehminate the two references to the S2.5OO loans. (2)

sho\\· that the June 22. 1994 $2.500 payment \\'as a reimbur~ement for campaign expenses I

4 The Audit staff noted that there was onl~ one payment made by the Committee f.,r rent during the

audit penod whIch was paid b~ a check dated Jul~ 5. 19Q~ In the amount of $900 to a vendor TIle

purpose noted on the cancelled check relatIve to thiS pa~1Tlent was ·'3 months rent."'
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incurred in the months prior rather than a repayment of a loan" md (3) revise the reports

leading up to the June 22" 1994 payment to me. The revised report will show the expenses

I incurred on behalfofthe campaign."

Although not in effect during t.he period covered by the audit" the

"personal use of campaign funds" regulations at I } CFR §113.1 (g)(1)(i)(E), effective April

S, 1995, state that "personal use" includes but is not limited to the use offunds in a

campaign account for mort.gage. rent or utility payments: (1) for any pan of any personal

residence ofthe candidate or a member of the candidate's family; or (2) for real or personal

property that is owned by the c~'ldidate or a member ofthe candidate's family and used for

campaign purposes, to the extent the payments exceed the fair market value ofthe property

usage.

Prior to these revised regulations.. the COinmission's legal

interpretation of "personal use" "'·as set forth in the Commission's advisory opinions.

Advisory Opinion (.~O) 1988-13 allowed a candidate to rent space to his campaign

committee. as long as such rental payments were the usual and nonnal charge for the

facilities in question and AD 1985-$:! allowed for campaign funds to be used to pay the

rent on an apartment used by a candidate and his campaign staff. AD 1992-1 allowed a

candidate to be reimbursed by his campaign committee for the following campaign-related

expenses: traveL subsistence. telephone. postage and photocopying. as well as requiring the

candidate to provide the Committee \\'ith the documentation required by 11 CFR

§102.9(b).

In the interim audit report.. the Audit staffrecommended that the

Committee submit docwnentation. such as receipts and utility bills. to document any

campaign expenses incurred at the Candidate's residence. The report further noted that

additional recommendations may be \\1lmlIlted regarding any campaign expenses incurred

at the Candidate's residence once this infonnation had been reviewed by the Audit staff.

In the Commincc's response to the interim audit repo~ the

Committee submitted a \\Titten statement from the Committee's fonner Campaign Manager

stating that he had personal kno\\'ledge that the Candidate incurred at least 52,,500 in

expenses on behalf ofthe Comminee prior to the Committee issuing a 52.500

reimbursement check to the CandIdate In June 1994 relative to these expenses. He added

that these expenses were as fo11o",'s

Ne\\'spapers

~1eals

Mileage

S12.00 per \\'eek x 78 \\'eeks =$936.00

S11.50 per \\'eek x 78 weeks = $897.00

40 miles at .26 x 78 \\'eeks =$811.20

The fonner Campaign Manager further stated that although these

expenses on behalf ofthe Commlnee exceeded $2.500. the Candidate only received

reimbursement of $2.500. He added that the $~.SOO check from the Candidate to the

Committee in August 1995 "'as made .....because ofthe confusion over the series of
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tnDsactiODS involving these funds." The Committee filed an amended Schedule B

(Itemized Disbursements) which revised the "purpose ofdisbursement" telative to the June

1994 payment to the Candidate from "Reimbursement ofLoan" to "Reimbursement for 78

wits ofmeals, mileage, and newspapers."

The Audit staff DOtes that no documentation. otherthan this written

statement, was provided relative to the campaign expenses incurred by the Candidate at his

residence. Currently, 11 CFR §113.1(g)(1 )(ii) states, in that the Commission will

detc:rmine on a case by case basis whether payments from campaign funds for expenses

such as meals, travel and subsistence would fulfill a commitmen~ obligation or expense

that would exist irrespective ofthe candidate's campaign or duties as a Federal

officeholder, and therefore are personal use.

3. Disbursements to the Candidate's Spouse

Twent)' ofthe 165 recordkeeping errors, totaling $62,500, were

payments made to the Candidate's spouse. Examples ofthe purposes noted by the

Committee on the memo line ofthe checks and/or recorded in the check register for these

payments were as follows: services, salary, payroll and consulting. No consulting

agreements or payroll records were provided to the Audit staffin support ofthese

payments. As a result, we were unable to determine whatserviees-were provided.

Cancelled checks were available for 17 ofthese 20 payments.

At the exit conference. the Committee's Counsel explained that the

20 disbursements to the Candidate's spouse were related to consuItiag services she

provided in the fundraising area and that no consulting agrament WIIS available. He added

that there were some press inquiries into this situation during the audit period and that

records exist to suppon the consulting services she performed.

Although not in effect during the period covered by the audi~ the

"personal use of campaign funds" regulations at 11 CFR §113.1(gXIXi)(H), effective April

S., 1995, state that "personal use" includes but is not limited to the use offunds in a

campaign account for salary payments to a member ofthe candidate's family, \Dlless the

family member is providing bona fide services to the campaign. The regulation adds that if

a family member (which includes the spouse ofthe candidate) provides bona fide services

to the campaign, any salary payment in excess ofthe fair market value ofthe services

provided is personal use.

As discussed above in Section I1.A.2., prior to these revised

regulations. the Commission's legal interpretation of "personal use" was set forth in the

Commission's advisory opinions. Advisory Opinion (AO) 1992-4 concluded that a

campaign comminee could hire the candidate's wife and pay her a salary to compensate her

for services provided to the campaIgn.

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In the interim audit report.. the Audit staffrecommended that the

Committee submit documentatio~ such as consulting agreements, payroll records or other

infonnation, to document the services provided to the Committee by the Candidate's

spouse. The report further noted that additional recommendations may be warranted

regarding the services provided to the Committee by the Candidate's spouse once this

infonnation had been reviewed by the Audit staff.

In the Comminee's response to the interim audit report, the

Committee submitted a wrinen statement from the Committee's Assistant Treasurer,

explaining that the consulting arrangement with the Candidate's spouse covered calendar

year 1994 5 and is still in effect. She stated that the Candidate's spouse acted as a

fundraising consultant whose duties included arranging fundraising events, soliciting

contributions.. preparing thank you notes and purchasing media time for the campaign.

The Audit staff notes that other than this written statemen~ no

consulting agreements.. or other information documenting the activities perfonned by the

-:0 Candidate's spouse~ were provided.

4. Cbecks Made Payable to "Cash"

c Also included in the 165 recordkeeping errors were 19

totaling $5.205.. made payable to "cash." The Audit staffdetennined that the required

records were not maintained relative to these payments. The recordkeeping deficiencies

were in the following categories: (1) missing or inadequate pmpose; (2) no record ofthe

name ofthe recipient ofthe cash; and.. (3) no record oftbe cash recipients address. 1be

Comminee did not maintain a written journal relative to the distribution ofcash.

The Comminee itemized all 19 ofthese payments on its disclosure

repons. One was disclosed as "Petty Cash" and the remaining 18 were disclosed as

"Cash. tl Purposes were disclosed for an 19 payments but none ofthe names and addresses

ofthe recipients ofthe cash were disclosed. The Comminee also disclosed a $ 1,000

receipt as a "Refund to petty cash" on March 31. 1994 which was possibly related to two

checks made payable to "cash." totaling 52.000. dated March 24~ 1994 and March 25,

1994. The purpose disclosed for these two payments "'as "Chicago Trip." At the exit

conference, Comminee representatIves stated that the Comminee did not know who

received this cash and that at this time it would be difficult to determine.

Seventeen of the 19 checks made payable to "cash" were in excec;s

of S100. The excessive ponions ofthese payments totaled $3~32 5. At the exit conference,

the Comminee was provided \\ith a listing ofthe 19 items made payable to "cash." The

Comminee's Counsel stated that it \\'as unlikely that the 17 payments noted by the Audit

s The Audit staff notes that nme of the payments to the Candidate's spouse were made in calendar

year 1993

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staff as in excess of51 00 were excessive because each payment could conceivably be

broken down into several payments ofless than 5100. We responded that until the

Committee provided documentation which details how the funds were spent. the Audit

staff would treat each check made payable to cash as a single purchase or transaction.

In the interim audit report the Audit staff recommended that the

Committee submit amended Schedules B (Itemized Disbursements). ifrequired. disclosing

the names and addresses ofthe persons \\tho receiv,.:j the cash from the 19 checks made

payable to "cash" noted above. It was funher recommended that Comminee provide

documentation which demonstrated that the 17 cash payments in excess of 51 00 complied

with 11 CFR §102.11.

It was also recommended that in the future. the Committee should

adopt and implement procedures to insure compliance with 11 CFR §102.11 relative to

checks payable to "cash." Furthermore, ifthe Committee decided to set up a petty cash

fund~ no disbursements should be made to any person in connection with a single purchase

or transaction in excess ofS100 and a written journal of all disbursements should be

maintained which includes the name and address of every person to whom any

disbursement is made, as well as the date, amounl and purpose ofsuch disbursement.

In the Committee's response to the interim audit report" the

Committee Counsel stated that "[d]espite diligent effons to determine the purpose ofeach

cash disbursement from the t 994 campaign, it is impossible to reconstruct that infonnation

with specificity" and that "Committee staff generally recalls that many cash payments were

for small items that cost less than 5100 such as food and gas money. It He added that the

Candidate's current authorized Committee has implemented new procedures so that petty

cash is bandied properly in the future.

The Committee also submitted a written statement from the

Committee's Assistant Treasurer stating that these revised procedures require that the date,

amoun~ payee and purpose for each petty cash disbursement be recorded in a journal and

that if payments to the same payee aggregate in excess of $200 in a calendar year. the

disbursement is itemized on the Committee's disclosure repons.6 She added that

disbursements are also monitored to ensure that no cash payments exceed $100.

B. MISSTATEMENT OF FINANCIAL AcrIVIT\,

Sections 434(b)(1 ).(2) and (4) ofTitle :! ofthe United States Code require a

political committee to disclose the amount of cash on hand at the beginning of each

reporting period and the total amount of all receipts and disbursements for each reponing

period and the calendar year.

6 A record of each payee's address IS also requIred ( lIeFR §1O:!. 11)

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II

The Audit staffreconciled the Committee's reponed financial activity to its

bank activity for the period May 13, 1993 through December 31, 1994 and determined that

a material misstatement occurred relative to reports filed covering 1994 activity.

1. Be&innina Cadl-on-Hand Balance

The Committee reported a beginning cash balance at January 1

1994 ofS120,411. The Audit staffdetennined the correct balance to be $101,164. This

n':~i~1atementwas due to mathematical errors made in 1993~ as well as some contributions

·0 the Franks Congress Committee, deposited in 1993 by the Franks Congress Committee,

\vhich were disclosed by the Committee.

2. Receipts

3. Disbursements

The Committee overstated reported receipts by 58,998. This net

overstatement \vas due to the following: a 52..500 loan from the Candidate was reported

twice, although funds were never deposited (see Finding II.A.2.); reported contributions,

totaling 56..000, which later became uncollectihle and were never adjusted for on the

repons; and, miscellaneous reporting errors resulting in a net understatement of 52,002.

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cThe Committee overstated reponed disbursements by 56..570. This

net overstatement was due to the following: a reponed disbmsement. in the amount of

$4.900.. which was later voided but was not adjusted for on the reports; a disbursement

reponedly made to a state party committee, in the amount ofS2.SOO. which was not

supported by Comminee bank documentation7 and.. miscellaneous reporting errors

resulting in a net under- statement of5830.

4. EndjoK Casb-on-Hand Balance

The Comminee reported an ending cash balance at December 31,

1994 ofS116,684. The Audit staff detennined the correct balance to be $95..009. This

overstatement was due to mathematical errors in the Committee's reported figures and the

misstatements described above.

7 The Committee dlsclo~d the receipt ofthree S2.500 contributaons from the Connecticut Republican

Federal Campaign Committee (CRf) and disclosed two S2.500 disbursements to the CRF. Our

review of the documentation avaalable In the Committee's records did not reveal the nature ofthese

transactions. The Audit staff noted that a stop payment was Issued relative to one ofthe

contributions received form the CRf At the exit conference. the Committee's Counsel stated that

he had no mfonnatlon about an~ of these transactions

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At the exit conference the Committee Counsel agreed to file the

necessary amendments to corteet the Committee's reported activity.

In the interim audit report, the Audit staffrecommended that the

Committee file a comprehensive amendment covering 1994 activity to correct the

misstatement offinancial activity noted above. The Audit stafffurther recommended that

the Committee provide an explanation regarding the disclosure oftransactions between the

Committee and-the CRF, as discussed above. The Committee filed amended reports which

materially corrected these misstatements. Additionally. the Committee provided a

satisfactory explanation relative to the CRF transactions.

c. DISCLOSURE OF OCCllPATION AND NAME OF EMPLOYER

Section 434(b)(3)(A) ofTitle 2 ofthe United States Code states.. in that

each report under this section shall disclose the identification of each person (other than a

political comminee) who makes a contribution to the reporting committee during the

reponing period. whose contribution or contributions have an aggregate amount or value in

excess ofS2oo within the calendar year.. together with the date and amount of any such

contribution.

Section 431( 13)(A) ofTitle 2 ofthe United States Code defines the term

"identification" as, in the case of any individual, the name, the n""1!Uing ad~ and the

occupation ofsuch individual.. as well as the name ofhis or her employer.

Section 432(i) ofTitle 2 ofthe United States Code states. in that when

the treasurer of a political committee shows that best effons have been used to obtain,

maintain. and submit the infonnation required by this Act for the political committee. any

report or any records ofsuch committee shall be considered in compliance with this Act.

Sections 104.7(a) and (b) ofTitle 11 ofthe Code of Federal Regulations

state, in part. that when the treasurer of a political committee shows that best efforts have

been used to obtain. maintain. and submit the infonnation required by the Act.. any report

ofsuch comminee shall be considered in compliance with the Act. The treasurer and the

comminee \\;11 only be deemed to have exercised best efforts if all written solicitations for

contributions include a clear request for the contributor's full name. mailing address.

occupation and name of employer~ the treasurer makes at least one etTon after the receipt

ofthe contribution. in either a wrinen request or documented oral request.. \vithin thirty

days ofthe receapt ofthe contribution. to obtain the information~ and. the treasurer reports

all contributor infonnation not provided by the contributor. but in the comminee's

possession. including information in contributor records. fundraising records and

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previously filed reports, in the same two year election cycle. (The effective date ofthis

regulation was March 3, 1994).8

The Audit staff reviewed contributions received from individuals on a

sample basis. This review was limited because no computerized file or listing of all

contributions received during the audit period was made available. In addition.. the

Committee had no system in place to aggregate contributions.

The sample results indicated that for a material number ofthe reported

entries tested., the occupation and name of employer was not disclosed. Our review also

indicated that fOT 450;0 ofthe items tested, no record was maintained detailing the

contributor's occupation and name of employer.

The Committee was unable to demonstrate that it had exercised best effons

to obtain, maintain and submit the required occupation and name of employer infonnation

because no written solicitations or response materials requesting this infonnation were

made available to the Audit staff. Also. no evidence ofwritten or oral requests to --

contributors for the missing information was provided.' At the exit conference. the

Committee's Counsel stated that the Committee was unable to locate these materials.

In the interim audit repo~ the Audit S1affrecommended that the Committee

pro\ ide the following documentation or corrective amendments:

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Solicitation materials which demonsuated that best effons had been used to

obtai~ maintain and submit the required disclosure infonnation, as weD as

any evidence ofwritten or oral requests to contributors for thi~ 7'lfonnation;

or

Absent such demonstration. the Committee was requested to make an effort

to contact those individuals ,,'hose contributions aggregated in excess of

$200 in a calendar year and whose required infonnation \\115 missing or

incomplete. These contributors were to be requested to ~abmit this

8

9

TIus regulation also includes the proVISion that to demonstrate best efforts. the wnnen solicitations

must contain a statmlent that the reQuested conmbutor Information IS required by Federal law.

However. on February 20. 1996. the Coun of Appeals for the DC. Circuit mvalidated the

mandatory statement proVISion [Republican National Commlnee \" FEC. 76 F.3d 400 (D.C Clr

1996)] The cou" provided that the follOWing language appears to sausfy the best effons

requirement· "Federal law requires us to use our best efforts to collect the mfonnauon." (RNC.76

F 3d at 406]

The maJont) ofthe errors mvolved contributions dated after the effective date ofthe change to II

CFR §104 7 The Commlnee did not satlSf) the best efforts prOVISion of either the current or

former regulation

Pac€' 15
14

information and to he informed that Federa11aw required the Committee to

disclose such inic..aation;

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Documentation of any such contacts: and

Amended Schedules A (ltemized Receipts) to disclose any infonnation

obtained from tho~ contacts.

c

In the Committee's response to the interim audit report. the Committee

submitted a written statement from the Committee's Assistant Treasurer explaining that the

Comminee is exercising best efforts to obtain contributor information and that when a

contribution is made in excess of S200 \\ithout the occupation and name of employer,

written communication is made to the contributor to seek the information from the

contributor. A sample form requesting this information was enclosed~ but there is no

evidence that this form was used during the period covered by the audit. It appears that

this form is being utilized by the current authorized campaign committee for this

Candidate.

The Committee also submitted a listing ofsome individuals who

contributed to the Committee in 1994 along \\ith their occupation and name of employer

information. However this listing did not materially correct the errors noted by the Audit

staff during our review. In addition~ the Committee filed amended Schedules A relative to

the period covered by the audit. but these amendments did not materially correct the

disclosure omissions noted during our revie\\'.

D. CO~IRlBL'TIOSS SUBJECT TO 48 HOUR DISCLOSURE NoncES

Section 434(a)(6) ofTitle 2 i;fthe L ~'ted States Code requires that each

treasurer ofthe principal campaign committee of a candidate shall notify the CI~ the

Secretary.. or the Commission.. and the Secretary of State.. as appropriate. in writing.. of any

contribution of S1~OOO or more received by any authorized committee ofsuch candidate

after the 20th day~ but more than 48 hours before.. any election. This notification shall be

made \\ithin 48 hours after the recei:lt ofsuch contribution and shall include the name of

the Caiadidz!e and the office sought by the candidate. the identificatIon ofthe contributor..

and the date ofreceipt and the amount of the contribution. The notification required under

this paragraph shall be in addition to all other reporting requirements under this Act.

The Audit staff revie\\'ed all contributions received by the Conur.ittee

\\ithin two and twenty days ofthe Connecticut Convention and General Election to

identify all contributions of S1.000 or more. On Jul~ 1. 1994. t~e Candidate ran

unopposed in the Convention and as a result. \\'as required to file 48 hour notices for
c

IS

contributions of 51,000 or more received between July 2, 1994 and July 18, 1994.10 Since

the date ofthe General Election was November 8. 1994. the Committee was required to file

48 hour notices for contributions of St .000 or more received between October 20, 1994

and November 5. 1994. Tne Audit staff detennined that the Committee did not file the

required 48 hour notices for 16 contributions. totaling 520.000.

•~t the exit conference. the Committee "'as provided "ith a schedule of

these items. No explanation \'\'as provided by ~~ Committee regarding this matter.

In the interim audit report. the Audit staff recommended that the Committee

provide an explanation. including an account of any mitigating circumstances. as to why

these notices were not filed or were filed late. In the Committee's response to the interim

audit report. a signed statement from the fonner Campaign Manager was submitted which

stated that he believed that all required 48 hour notices were "...faxed to the Repons

Analysis Division ofthe Federal Election Commission" and that he could not recall the

exact dates on which they were sent.

10 As a result of the ConventIon. no PTlm~ Run-off Election cscheduled for September 13. 1994) was

neeessat') for the Candidate

?~aE 1-
FEDERAL ELECTION COMMISSION

W ASH'NCTON. 0 C 2O-Ib l

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December 3,1996

Mr. Frank Hitchcock, TreasUft:r

Friends for Franks

P.O. Box 2743

V/aterbW)', CT 06223

Dear Mr. Hitchcock:

Attached please find the Final Audit Report on Friends for Franks. The

Commission approved the report on November 27, 1996.

The Commission approved Final Audit Report will be placed on the public record

on December 10, 1996. Should you ha·\'e any questions regarding the public release ofthe

repo~ please contact the Commission's Press Office at (202) 219-41 S5 or toll-free at (800)

424-9530. Any questions you have related to maners covered during the audit or in the

repon should be directed to Many Favin ofthe Audit Division at (202) 219-3720 or at the

above to~l free number.

Sincerely,

~)&:- Roben J. Costa

Assistant Staff Director

Audit Division

Attachment as stated

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CHRONOLOGY

FRIENDS FOR FRANKS

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Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Repon

Final Audit Repon Approved

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7/5195 - 9n/95

4/2/96

6/24196

11127/96
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