MLF002200

A91-06

:993

MEMORANDUM

TO:

FROM:

SUBJECT:

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA ~~ ASSISTANT STAFF DI:E~ AUDIT DIVISION

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

MILDER FOR CONGRESS EXPLORATORY COMMITTEE

Attached please find a copy of the final audit report on

Milder for Congress Exploratory Committee which was approved by

the COlllllllssion on May 18, 1993.

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: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library
.., ' ~,...... .. .... ~t

MLFC'C206E

1\91-06

, .-,

REPORT OF THE A~~IT DIVISION

ON

MILDER FOR CONGRESS EXPLORATORY COMMITTEE

I. Background

A. Overview

This report is based on an audit of Milder for

Congress Exploratory Committee, ("the Committee"), undertaken by

the Audit Division of the Federal Election Co..ission in

accordance with the provisions of the Federal Election Campaign

Act of 1971, as amended (-the Act"). The audit was conducted

pursuant toSe~t:ion 438(b) of Title 2 of the United States Code

which states, in part, that tne Co_ission may-conduct audits

and field investigations of any political comaittee required to

file a report under section 434 of this title. Prior to

conducting any audit under this Section, the Co..ission 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 Clerk of the House

of Representatives on December 27, 1989 and maintains its

headquarters in Omaha, Nebraska. The audit covered the period

from November 14, 1989, the inception date of the Committee's

bank activity, through December 31, 1990. The Committee

reported a beginning cash balance on November 14, 1989 of SO;

total receipts of $631,841.53; total disburse.ents of

$625,386.47; and a closing cash balance on December 31, 1990 c:

S6,449.06.!1

This report is based c~ documents and workpapers

suppcrting each of its factual s:atements. The documents and

workpapers form part of the record upon which the Commissic~

based lts decisions on the mat~ers in this report and were

avai:able to Commissioners and appropriate staff for review.

1/ The amounts do not foot cecause the Commlttee's reported

beginning balance at January 1, ~990 was $6.00 less than

lts reported ending balance a~ ~ecember 31, 1989.
.... - .. -

8. Key Pe r sonne 1

During the perlod :overed by the audlt, the Treasurer

of the Commlttee ~as Mr. Ed Fogarty.

The audit lnc:uded such tests as verlfication of total

reported receipts and dlsbursements and individual transactions;

review of required support:ng documentation; analysis of

Committee debts and obligations; and such other audit procedures

as deemed necessary under the circumstances.

II. Audit Findings and Recommendations

A. Apparent Prohibited Contributions

Section 441b(a' of Title 2 of the United States Code

states, in relevant part, that it :s unlawful for any

corporation to make a contribution in connection with any

election at which a Representative in Congress is to be voted

for, or in connection with any primary election to select

candidates for the foregoing office. In addition, this cite

makes it unlaw~ul for any candidate, political committee, or

other person knowingly to accept orreceiveanycontributiQ!'l

prohibited by this section.

Section lOO.7(A)(1)(iii} of Title 11 of the Code of

Federal Regulations states that the term "contribution" includes

a gift. subscription, loan, advance, or deposit of money or

anything of value. The term "anything of value" includes all

in-kind contributions. Unless speclfically exempted under 11

C.F.R. SlOO.7(bl, the provision of goods or services without

charge or at a charge which is less than the usual and normal

charge foc such goods or services is a contribution.

Section l03.3(b)(1) of Title 11 of the Code of federal

Regulations states that, contributlons that present genuine

questions as to whether they were made by corporations may be,

within ten days of the treasurer's receipt, either deposited

into a campaign depository or ret~:ned to the contributor. .~

any such contribution is deposited. the treasurer shall make hlS

or her best efforts to determlne ~~e legality of the

contribution. If the contributlc~ :annot be determined ~~ be

legal, the treasurer shall, ~ith:n thirty days of the

treasurer's receipt of the cont:l:~tion, refund the ccn:rib~:l:~

to the contribut:r.

Section l03.3(b\~~\ :: 71t~e 11 of the Code cf Federal

Regulat10ns states, in pact, that any contribution which appears

to be illegal and which 1S deposl~ed into a campaign depcslt~:y

shall net be used for any dlsburse~ents by the political

commlttee untll t~e contributi:n has been determined to be

legal. The pol:tical com~l~tee m~st either establish a separate
acccunt in a campaign depository for s~ch ccn~~ibutions cr

maintain s~fficient funds to make a:l such re:~~js.

7~e Audit staff revleN~d the :~mmlttee's co~trlb~tion

records f~: t~e period November :4, :959 through December 31,

1990 and ldentified 34 contributions frc~ :- :arporations,

totallng $3,693.8:, ~hi~h had not been refur.ded. I~cl~ded in

this total were four In-klnd co~tribut:~ns, totallng $:,618.8:.

A Committee official stated t~at the Commlttee was

very careful about asking contributors If questionable

contrlbutions were drawn on corporate accounts. She thought

that lome of the ltems noted as prohibited by the auditors were

drawn on the contributors' professional drawing accounts

containing their personal funds. She stated that it was the

Committee's practice to review all contribution checks and if

any appeared to be corporate, to return them undeposited. She

added that it was possible that certain types of prohibited

contributions, such as those from incorporated doctors or law

firms, may have slipped through undetected.

The Audit staff found neither a separate account for

the deposit of contributions which were possibly prohibited, nor

a-meth_oci to moni tor an amount requi red to be kept in the

Committee's regular accounts while the acceptability

determination was being made.

A schedule of the prohibited contributions was sent to

the Committee approxiaately two weeks after the end of fieldwork

once the Audit staff had verified with the appropriate

Secretaries of State that these entities were incorporated.

In the interim audit report the Audit staff

recommended that the Committee take the foll~wing action:

Provide evidence that the contributions discussed above

~ere not prohibited; or

Refund the prohibited contributions and provlde evidence

of such refunds {i.e., copies of the front and back of

the negotiated refund checks'; or

Disclose the prohiblted con~r:butions as deb:s owed cy

the Committee en Sched~:e ~:ebts and Obliga:lons .

funds were net avai:ab:e t~ make s~c~ refunds.

:~ ~esponse to the :~:e~:~ a~d:~ report :~e Ccmm:t~ee

provlded letters slgned by ccn:rlbutQ:s for several :f the

contributions from entities ve::fied as corporations which

stated that the contrlbutions were drawn from a nonrepayable

corporate drawlng account and ~ere :~erefore permisslble. These

letters, dated July 3, 1992, ~ere se~: to the contr:butors afte~

the Commlttee received the :nterim audit report.

-- ),

I

i
-4-

Based on our :~VleW cf this ~ocu~en~a~io~, the Audlt

staff concurs that the c~~~rlbutions covered by ~~ese letters

are not prohibited. It 15 permissible for corporate employees

:0 contrlbute by making personal draws against salary, profits

~r comm~SSlcns. As a res~l~, ~he Cc~~ittee has materially :~mplied ~lth the i~te::~ audlt report re~Qmmendati~~.

Recommendat~on .1

The Audlt staff reccmmends no further actlon with regard to

this matter.

B. :temization of Contributions from Politlcal Commlttees

and An Unregistered Organization

Section 434(b)(3)(B} of Title 2 of the United States

Code states that each report shall dlsclose the identification

of each political commlttee which makes a contribution to the

reporting committee during the reporting period, together ~ith

the date and amount of any such contribution. In addition, 2

u.s.c. 5431(13)(8) defines "identification", for other than an

individual, as the full name and address of such person.

Section lOO.7{A}(1)( iii~ of Title 11 of the Code of

Federal Regulations states that the term "cont-ribution-" includes

a gift, subscription, loan, advance, or deposit of money or

anything of value. The term "anything of value" includes all

in-kind contributions. Unless specifically exempted under 11

C.F.R. SlOO.7(b), the provision of goods or services without

charge or at a charge which is less than the usual and normal

charge for such goods or services 15 a contribution. Furthermore, 11 C.F.R. Sl04.13<al states that each in-kind contribution

be reported as both a contribution and an expenditure.

The Committee's recelpts records were reviewed to

determine whether all contributions from polit1cal committees

were itemized. The Audit staff determined that 25 contributions

from 22 committees and an unregistered organization, totaling

$12,755.80, had not been item1zed on Schedule A (Itemlzed

Receipts). Included in this total were seven in-kind

contributions, totaling Sl,405.~4, frcm four polltlcal

committees and one unregistered organization, which ~n addition

to not being ltemized cn Sched~:e A were also ~ct l~e~lzed on

Schedule B (!temized Disburseme~:s as required ty :: C.F.R.

S104.13.

:~e Audit sta:f f~rt~er ~eterml~ed that e:e~en :~-~:~=

contribut:ons from three po::tlca: ~amm:t~ees, t~taling

S4,257.36, were correct:y ~tem:zed ~y the Comm::tee on Sched~:e

A, but the corresponding Schedu:e B en~ries we~e omitted.

At the exit co~fere~:e, :~e Comm~ttee was ~rovlded

~ith a s~hedule of the c~nt::t~t:~~s !:om pol:t:cal commlttees
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~hlCh were nct itemized ccrre=tly. :ommittee Qffi~ials provided

~c explanation for these omiSSlcns.

In the interim aud~: rep2rt the Audlt staff

:e~=mmended that the Commi:tee file ame~ded Schedule A's

:temized Receipts) and Schedule S's ::emlzed Dlsbursements~

=crre=:ing these omissions. :n response to the interim audit

report, the Committee filed the requested amended reports.

Recommendation .2

The Audit staff recomme~ds nc further action ~ith regard tc

~hlS matter.

c. Misstatement of Financial Activity

Sections 434(b){1), (2) and (4) of Title 2 of the

united States Code state, in part, that each report shall disclcse

the amount of cash on hand at the beginning of each reporting

period, the total amount of all receipts, and the total amount of

all disbursements for the period and calendar year.

The Audit staff reconciled the Committee's reported

activity to its __ bank activity from November 14, 1989 through

December 31, 1990. The --reconc-iliation reve-al~d -that. the -

Committee overstated its reported cash balance as of December

31, 1990 by $9,066.63 (net).
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The compo~ents of this end:ng cash balance missta~ement

are as follows:

1990 Endlng Balance as Reported

Sixteen In-Kind Cc~tribut:ons

nct l~cluded in 1990 Repcrted

Dlsbursements~1

NSF Contributcr Checks Not

Adjusted Out of 1990 Reported

Receipts11

< 6,2~7.36)

< 2,500.00>

$6,449.'2'5

Over Reported Contribution

unreported Contributions and

Interest Earned

unreported Bank Charges

unexplained Difference

Subtotal

Adjusted 1990 Ending Balance

<

<

soo.oo>

240.09

39.46>

.10

<9,066.63>

502.617.57>

At the exit conference the Committee was provided with

a listing of the in-kind contributions not included in reported

Disbursements. Committee officials did not provide any

explanations for these misstatements.

In the interim audit report the Audit staff recommended

that the Committee amend its most recently filed report (1991

,~ Year End Report) to correct this ending cash balance

misstatement. In response to the interim audit report, the ~. Committee filed the requested amended report.

Recommendation • 3

The Audit staff recommends no further action with regard to

this matter.

~I E:eve~ of these sixteen In-~ind contributions, totaling S4,2~-.36, were from three political committees and were

not item12~ed on Schedu:'e 8 'Itemized Dlsbursements).

iSee Finding II.8.)

11 The two contributor checks WhlCh comprlsed this $2,500 ~ere

reported as c~earing en : :9 91 per the Committee'S 199~

~ld-Year Report.
- - - -- - - - ---

~. Dlscl~sure of :oa~ f~~m the Cand:cate

Section 432;e" 2) of Title 2 of :he United States Code

states, in relevant part, that any candida:e for Federal office ~ho ~e:eives a loan for use 1n ccnnectlCr. ~::h the campaign of

such =andidate for e:ection, or makes a d:st~rsement in

connectlcn w1th such campaign, shall te co~sidered as haVing

recelved the loan, or as having made the c:sbursement, as an

agent of the authorized committee.

Section l04.3(a)\4)(ivl of Title 11 of the Code of

Federal Regulations requires the identlfication of each

contributor and the aggregate year-ta-date total for such

contributor, fer each person who makes a loan to the reporting

committee or to the candidate acting as a~ agent of the

committee during the reporting period, together with the

identification of any endorser or guarantor of such loan, the

date such loan was made and the amount or value of such loan.

The Act at 2 U.S.C. S431(131(B) define "identification", for

other than an individual, as the full name and address of such

person.

In accordance with 11 C.F.R. Sl04.3;~1(3)(vii)(B) and Sl04.3(b}(2)(~ii)(A) an authorized committee or a candidate for

Federal offiCI ~hall r~port all loans made, guaranteed, or

endorsed by a candidate to his or her committee, as well as all

repayments of such loans.

Section lOO.7{a)(1)(iii) of Title 11 of the Code of

Federal Regulations states that the term "contribution ft includes

a gift, subscription, loan, advance, or deposlt of money or

anything of value. The term "anything of value" includes all

in-kind contributions. Unless specifically exempted under 11

C.F.R. SlOO.7!b) I the provision of goods or services without

charge or at a charge which is less than the usual and normal

charge for such goods or services is a contribution.

Furthermore, 11 C.F.R.S104.13(a) states that each in-kind

contribution be reported as both a cont:lbution and an

expenditure.

On May 9, 1990, the Candidate obtained a SlQ,OJO loan

from the Bank of Nebraska, the proceeds c! ~hlCh were deposited

into the Committee's bank account on tha~ same date. According

to the loan agreement, t~e o~lglnal lca~ had a 13% interest rate

and was due on 68;90 (30 days;. The f:~ance charge for the

initial 30 day term was 5132.:2. 7he A~~:t staff was provided

documentation in support of cne :can re~ewa: from 7 12/90

through 8. 1L'90, but no additiona: loa~ d::::umentation was made

available. The Committee repald S:O,O:J ~c the Candidate by

check on 9/28 "90.

The Commlttee disclosed the re::eipt of th:s lean cn a

Schedule A (Itemlzed Recelpts' and Schedule C !Loans\ with the

source of the :oan disclosed as :~e Candldate instead of
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correctly disclosing the ba~k as the source of the loan with the

:andidate as endorser or gua:antor. The Committee ~:sclosed the

repayment of the loan to the Candidate on a Schedule C instead

cf to the bank but did no: ::em:ze the repayment on its Schedule

a {Itemized Disbursements. ~t shculd be noted that the

:ommittee initia~ly disc:~sed a :epayment to the Candidate cn

:ts FEe report but lined through :: C~ t~e repor:.

No documentation relating to the payment of interest

associated with this loan ~as made available to the auditors. A

Committee official stated that the Candidate paid all the

interest on the loan from her personal funds. The Committee did

not report any in-kind contributions from the Candidate for

these interest payments.

At the exit conference, Committee officials provided

no explanation for these discrepancies.

In the interim audit report the Audit staff

recommended that the Committee file amended Schedule A's

(Itemized Receipts), 5ched~le S's (Itemized Disbursements),

Schedule C's (Loans) and D~tciled Summary Pages (FEC Form 3,

Paqe 2) correcting the at,'v '! noted problems. In response to the

interim audit report, th~ .-~mmittee filed amended reports which

safe r fall y' co erected thesf' tHai 55 ions- ..

Recommendation .4

The Audit staff rec~~z~nds no further action with regard to

this matter.

E. Reporting of D~~~~ and Obligations

Section 434(b)(8' of Title 2 of the United States Code

states that each report sha3.1 disclose the amount and nature of

outstanding debts and obligations owed by or to such political

committee; and vhere such debts and obligations are settled for

less than their reported amount or value, a statement as to the

circumstances and conditions under which such debts or

obligations were extinguished and the consideration therefor.

Section 104.11 of Tltle 11 of the Code of Federal

Regulations states, in part, that d~bts and obligations owed by

or to a political comm~ttee which remain outstanding shall be

continuously reported unt:: extinguished. In addition, a deb:,

obligation, or other prom:se t~ make an expendit~re, the amcu~~

of which is $500 or less, sha:l be reported as of the time

payment lS made or no late~ than 60 days after such obligati~~

is incurred, whichever comes f:rst. Any loan, debt or

obligation. the amount of which is over S500, shall be repor:ed

as of the time of the transaction.

Our review of Ccmm:ttee l~~oices and related payments

revealed 13 debts, tota::~g S:~,39:.:5f which were outstand:n~
---------------- --~~~~--------~----------

-9-

a~ the close of four 1990 reporting periods a~d not discl~sed on

Schedule 0 \Debts and Obllgations Owed by a :~mmittee·.

A listing of these items ~as provided to the :=mmittee

a~ ~te exit co~ference. Committee ~=ficials provided n~

~x~:a~ation for these emissions.

In the interlm audlt report the A~dlt staff

recommended that the Committee file amended Schedule D's t~

=orrect these omissions. In response to the interim audit

report, the Committee filed amended reports which materially ~orrected these omissions.

Recommendation .S

The Audit staff recommends no further action with regard ts

this matter.

F. Matter Referred to the Offlce of General Counsel

A certain matter noted during the audit has been

referred to the Commission's Office of General Counsel.