Part I
Background

Authority for Audit

This report is based on an audit of the Democratic Party of Wisconsin Federal Account
(DPW), undertaken by the Audit Division of the Federal Election Commission (the
Commission) in accordance with the Federal Election Campaign Act of 1971, as amended
(the Act). The Audit Division conducted the audit pursuant to 2 U.S.C. §438(b), which
permits the Commission to conduct audits and field investigations of any political
committee that is required to file a report under 2 U.S.C. §434. Prior to conducting any
audit under this subsection, the Commission must perform an internal review of reports filed
by selected committees to determine if the reports filed by a particular committee meet the
threshold requirements for substantial compliance with the Act. 2 U.S.C. §438(b)

Scope of Audit

Following Commission approved procedures, the Audit staff evaluated various risk factors
and as a result this audit examined:

. The receipt of excessive contributions and loans.

. The receipt of contributions from prohibited sources.

. Disclosure of contributions and other receipts.

. Disclosure of disbursements, debts, and obligations.

. Disclosure of expenses allocated between federal and non-federal accounts.
. Consistency between reported figures and bank records.

. The completeness of records.

. Other committee operations necessary to the review.

POHNIDNARWNH

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. 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 during the audit period.

Limitations

In maintaining its disbursement records, the DPW did not satisfy the minimum
recordkeeping requirements of 11 CFR $102.9 for some of its disbursements (Sec Finding
2). In addition, the Audit staff's testing of disbursements was limited by the lack of external
documentation, such as invoices, bills or receipts. for about 50% of the disbursements
selected for review on a sample basis. This lack of records limited the testing for the proper
reporting of debts and obligations as well as the disclosure of the required information for
disbursements, such as name of payee, address and purpose.


| Finding 2. Recordkeeping for Disbursements

Summary

The DPW lacked documentation, such as invoices, receipted bills or canceled checks, for
approximately 11% of operating expenditures tested in our sample. In addition, a separate
review indicated the DPW did not maintain such documentation for six disbursements made
to two vendors amounting to $660,677.

In response to the interim audit report recommendation the DPW provided documentation
for the six disbursements totaling $660,677. However, DPW failed to provide
documentation to resolve the recordkeeping errors identified by our sample. (For more
detail, see p. 5)

Legal Standard

Required Records for Disbursements. For each disbursement in excess of $200, the
treasurer of a political committee must maintain a receipt, invoice or canceled check.
2 U.S.C. §432(c)(5) and 11 CFR §102.9(b).

Preserving Records and Copies of Reports. The treasurer of a political committee
must preserve all records and copies of reports for 3 years after the report is filed.
2 U.S.C. §432(d).

Facts and Analysis
Based on a sample review of disbursements, the DPW did not maintain a canceled check,
invoice or receipt for approximately 11% of disbursements in excess of $200.

In addition, a separate review of all disbursements made to two vendors, a media firm
and a polling firm, revealed that the DPW failed to maintain a receipt, invoice or
canceled checks, for six disbursements totaling $660,677.

At the exit conference, the Audit staff advised the DPW representative of these matters.
The representative stated that canceled checks would be requested from the bank in the
future.

Interim Audit Report Recommendations

The Audit staff recommended that the DPW review its disbursement records and identify
those payments in amounts greater than $200 for which there is no canceled check,
invoice or bill and obtain and submit the required documentation for the Audit staff's
review.

Committee Response to Recommendation and the Audit Staff ‘s
Assessment

In its response, documentation was submitted for the six payments ($660,677) made to a
media firm and a polling firm. The DPW provided copies of the front and back of the
negotiated checks for three payments totaling $62,886 and copies of three wire transfers,
totaling $597,791, resolving this matter.


Part ITI
Summaries

Findings and Recommendations

Finding 1. Apparent Allocable Expenses Paid from a Non-
Federal Account

The DPW made ten disbursements ($362,712) from a non-federal account that appear to

be for allocable expenses.

In response to the interim audit report recommendation the DPW provided
documentation indicating six of the payments were solely non-federal in nature; and,
disclosed two other payments as allocable expenses. (For more detail, see p. 4)

Finding 2. Recordkeeping for Disbursements

The DPW lacked documentation, such as invoices. receipted bills or canceled checks, for
approximately 11% of operating expenditures tested in our sample. In addition, a separate
review indicated the DPW did not maintain such documentation for six disbursements made
to two vendors amounting to $660,677.

In its response to the interim audit report recommendation the DPW provided
documentation for the six disbursements totaling $660,677. However, DPW failed to
provide documentation to resolve the recordkeeping errors identified by our sample. (For
more detail, see p. 6)

Finding 3. Disclosure of Receipts and Disbursements
The DPW did not disclose:
e addresses for 15 contributions, totaling $281,250. from other political committees;

¢ acomplete address and/or the correct aggregate year-to-date total for 16 offsets to
operating expenditures (refunds, rebates, etc.), which totaled $14,647; and

e the complete address or the correct vendor name for 15 disbursements that totaled
$1,237,019.

In response to the interim audit report recommendation the DPW amended its reports to
correctly disclose the receipts and disbursements noted above. (For more detail, see p. 7)


Part II

Overview of Committee

Committee Organization

Important Dates

Democratic Party of Wisconsin
Federal Account

e _Date of Registration

June 28, 1974

Audit Coverage

January 1, 1999 — December 31, 2000

Headquarters

|. Madison, WI

Bank Information

e __Bank Depositories

[2

Bank Accounts

| 5 Federal and 3 Non-Federal Accounts

Treasurers

e __ Treasurer When Audit Was Conducted

Steven T. Kean

e __ Treasurer During Period Covered by Audit

Colleen McGuigan

Management Information

e Attended FEC Campaign Finance Seminar | No
e Used Commonly Available Campaign Yes
Management Software Package
e Who Handled Accounting and Paid Staff
Recordkeeping Tasks
Overview of Financial Activity
(Audited Amounts)
Cash on Hand @ January 1, 1999 $24,688
Receipts
° Contributions from Individuals 622,723
° Contributions from Political Committees 627,890
° Transfers from Party Committees 2,857,132
e Offsets to Operating Expenditures 57,996
° All Other Receipts 122,783
° Transfers from Non-Federal Account for Joint Activity | 3,044,123
Total Receipts $7,932,647
Disbursements
° Operating Expenditures 7,874,909
° All Other Disbursements 21,975
Total Disbursements $7,896,884
Cash on Hand @ December 31, 2000 S$ 60,451



Facts and Analysis

The Audit staff identified 10 payments ($362,712) made from a non-federal account
recorded on the DPW’s database as being for polling, generic polling, mailing, radio
production and party building. Documentation, such as invoices, bills and receipts, was
not available to demonstrate that these were for solely non-federal activities. As such,
these payments appear to be for allocable expenses that should have been paid from the
DPW’s federal account and partially reimbursed by the non-federal account.

As administrative/generic voter drive activities, these expenses should have been
allocated using the ballot composition ratio of 42.86%. The Audit staff determined that
the possible federal portion was $155,459 ($362,713 x 42.86%). Our analysis indicated
that during the audit period the non-federal account could have transferred $4,388,167 to
the federal account for its share of joint activity. Only $3,644,123 was transferred,
$744,044 less than the amount that could have been transferred. Since the federal portion
of the apparent allocable expenses ($155,459) is less than the underpayment by the non-
federal account for its portion of allocable expenses, no transfer of funds is
recommended.

At the exit conference, the DPW representative was provided a schedule of these
disbursements and was advised to provide documentation to demonstrate that they are not
allocable expenses paid from the non-federal account. The representative was also
advised that, absent such documentation, the DPW would be requested to file memo
entries on Schedules H-4 by reporting period to disclose the payments.

Interim Audit Report Recommendations

The Audit staff recommended that the DPW provide documentation for these expenses
paid from the non-federal account and provide it for our review. If the documentation
supports that these expenses are shared federal/non-federal expenses or wholly federal
expenses, it was further recommended that the DPW file the appropriate memo Schedules
H-4 or B by reporting period to disclose them.

Committee Response to Recommendation and the Audit Staff's
Assessment

In its response to the interim audit report, the DPW provided invoices, receipts and other
supporting documentation that indicated that six payments, totaling $252,975, were
solely non-federal in nature. The DPW was unable to locate such documentation for two
other payments totaling $77,600 and filed amended memo Schedules H-4 disclosing
these payments as shared expenses. For the remaining two payments ($32.137) no
documentation was provided; however, the response stated that invoices had been
requested from the vendor, but the DPW’ had not yet received them. The DPW has
substantially complied with our recommendation.


FEDERAL ELECTION COMMISSION
Washington, DC 20463

April 22, 2003

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ { (g
ASSISTANT STAF CTOR
AUDIT DIVISION |,

SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON THE
DEMOCRATIC PARTY OF WISCONSIN FEDERAL ACCOUNT

Attached please find a copy of the audit report and related documents on the
Democratic Party of Wisconsin Federal Account, which was approved by the Commission
on April 10, 2003.

The report may be released to the public on April 22, 2003.

Attachment as stated

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

CrKov


Facts and Analysis

¢ Disclosure of Contributions from Political Committees
The Audit staff reviewed all contributions from political committees and noted
that there were fifteen, totaling $281,250, for which the address was not disclosed
on Schedule A (Itemized Receipts). Of these 15 contributions, 14 ($279,250)
were from political action committees and one ($2,000) was from a candidate
committee.

¢ Disclosure of Offsets to Operation Expenditures
The review of all offsets to operating expenditures identified 16 offsets
($14,647) that were not adequately disclosed. For seven of these items ($6,968),
an incomplete mailing address was disclosed; for eight items ($5,771), the
aggregate year-to-date total was disclosed incorrectly; and, for one ($1,908),
both the mailing address and the aggregate year-to-date total were disclosed
incorrectly.

e Disclosure of Disbursements
A review of all disbursements made to two vendors, a media firm and a polling
firm, indicated that the DPW incorrectly disclosed the vendor name or disclosed
an incomplete address for fifteen disbursements totaling $1,237,019.

The DPW representative stated that the inadequate disclosure of addresses resulted from
the addresses not having been entered into its electronic vendor file but believed the
problem had been corrected. It appear that the incorrect aggregate totals were the result
of the electronic vendor file containing more than one entry for each of these vendors.
The multiple entries were treated as if they were different vendors.

At the exit conference, the DPW representative was provided a list of these items. The
Tepresentative was requested to file amended Schedule A (Itemized Receipts) and
Schedules H-4 (Joint Federal/Nonfederal Activity) to correct the disclosure of these
transactions. The representative stated that DPW would comply with the
recommendation.

Interim Audit Report Recommendations and Committee Response
The Audit staff recommended that, the DPW file Schedules A and H4 (by reporting
period) to correct the disclosure of the transactions noted above.

In response to the interim audit report. the DPW amended its reports to correctly disclose
the receipts and disbursements noted above.


However, DPW failed to provide any documentation to resolve the recordkeeping errors
identified by our sample. Rather, the DPW stated in its response that it would be cost
prohibitive to order canceled checks. The response further stated that the DPW would be
reinstating procedures to receive all canceled checks from the bank in the future.

Finding 3. Disclosure of Receipts and Disbursements

Summary
The DPW did not disclose:

e addresses for 15 contributions, totaling $281,250, from other political committees;

¢ acomplete address and/or the correct aggregate year-to-date total for 16 offsets to
operating expenditures (refunds, rebates, etc.), which totaled $14,647; and

e the complete address or the correct vendor name for 15 disbursements that totaled
$1,237,019.

In response to the interim audit report recommendation the DPW amended its reports to
correctly disclose the receipts and disbursements noted above

Legal Standard

Required Information for Contributions from Political Committees. For each

itemized contribution from a political committee, the committee must provide the

following information:

¢ The political committee’s full name and address (including zip code);

© The date of receipt (the date the committee received the contribution);

e The amount of the contribution; and

e The year-to-date total of all contributions from the same political committee. 11 CFR
§§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(B).

Required Information for Offsets To Operating Expenditures. For each itemized

offset, the committee must provide the following information:

e The full name and address (including zip code):

e The date of receipt (the date the committee received the offset);

e The amount of the offset; and

e The aggregate, year-to-date total of all offsets from the same persons. 11 CFR
§§100.12 and 104.3(a)(4)(v)and 2 U.S.C. §434(b)(3)(F).

Reporting Operating Expenditures. When operating expenditures to the same person

exceed $200 in a calendar year, the committee must report the:

e Amount;

e 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).


Part IV
Findings and Recommendations

Finding 1. Apparent Allocable Expenses Paid from a Non-
Federal Account

Summary
The DPW made ten disbursements ($362,712) from a non-federal account that appear to
be for allocable expenses.

In response to the interim audit report recommendation the DPW provided
documentation indicating six of the payments were solely non-federal in nature; and,
disclosed two other payments as allocable expenses.

Legal Standard
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).


Page

aL

Table of Contents

Part I. Background
Authority for Audit
Scope of Audit

Changes to the Law
Limitations

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

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations

Finding 1. Apparent Allocable Expenses Paid from a Non-Federal Account
Finding 2. Recordkeeping for Disbursements

Finding 3. Disclosure of Receipts and Disbursements


Report of the

Audit Division on the
Democratic Party of Wisconsin
Federal Account

January 1, 1999 - December 31, 2000



Report of the Audit Division on the
Democratic Party of Wisconsin

Federal Account
January 1, 1999 - December 31, 2000

Why the Audit

Was Done

Federal law permits the
Commission to conduct
an audit and field
investigation 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.

About the Committee (p. 2)

The Democratic Party of Wisconsin Federal Account is a state party
committee headquartered in Madison, WI. For more information, see
chart on the Committee Organization, p.2.

Financial Activity (p. 2)

e Receipts
o Transfers from Non-Federal Accounts S$ 3,644,123
o Transfers From Other Party Committees 2,857,132
o Contributions from Political 627,890
Committees
o Contributions from Individuals 622,723
o All Other Receipts 180,779
o Total Receipts $ 7,932,647
¢ Disbursements
o Operating Expenditures $ 7,874,909
o All Other Disbursements 21,975
o Total Disbursements $ 7,896,884

Findings and Recommendations (p.3)
e Apparent Allocable Expenses Paid from a Non-Federal Account
(Finding 1)
¢ Recordkeeping for Disbursements (Finding 2)
¢ Disclosure of Receipts and Disbursements (Finding 3)

"2US.C. §438().