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FEDERAL ELECTION COMMISSION

WASHINGTON 0 C 20';63

November 7, 1989

MEMORANDUM

Informational copies of the report have been received by all

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

Attached please find a copy of the Final Audit Report on

Lenora B. Fulani's Committee for Fair Elections which was approved

by the Commission on November 2, 1989.

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TO:

FROM:

SUBJECT:

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA -

ASSISTANT STAFF DIR~~~ AUDIT DIVISION

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON LENORA B.

FULANI'S COMMITTEE FOR FAIR ELECTIONS

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library
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FFP /110389

FEDERAL ELECTION COMMISSION

.\ASHINCTO:-. 0 C ~04bj

REPORT OF THE AUDIT DIVISION

ON LENORA B. FULANI'S

COMMITTEE FOR FAIR ELECTIONS

I. Background

A. Overview

This report is based on an audit of Lenora B. Fulani's

Committee for Fair Elections ("the Committee") to determine

whether there has been compliance with the provisions of the

Federal Election Campaign Act of 1971, as amended ("the Act") and

the Presidential Primary ~atching Payment Account Act. ~he audit

was conducted pursuant to 26 U.S.C. § 9038(a) which states that

"After each matching payment period, the Commission shall conduct

a thorough examination and audit of the qualified campaign

expenses of every candidate and his authorized committees who

received payments under section 9037."

In addition, 26 U.S.C. § 9039(b) and 11 C.F.R. §

9038.1(a) (2) state, in relevant parts, that the Commission may

conduct other examinations and audits from time to time as it

deems necessary.

The Committee registered with the Federal Election

Commission on July 2, 1987. 7he Committee maintains its

headquarters in New York, New York •

~he audit covered t~e period from the Committee's

inception, July 9, 1987, through-December 31, 1988. During this

period the Committee reported an opening cash balance of $-0-,

total receipts of $2,184,674.17, total disbursements of

$2,162,581.55, and a closino cash balance of $22,332.G2~/ on

December 31, 1988. In addition, data relating to the Statement

of ~et Outstanding C~~paign Obligations (NOCO) were reviewed

through July 31, 1989. Under 11 C.F.R. § 9038.1(e) (4) additional

audit work may be conducted and addenda to the report issued as

necessary.

This report is based upon documents and workpapers

which support each of the factual statements. ~hey torm part of

the record upon which the Commission based its decisions on t~e

matters in the report and were available to Commissioners and

appropriate staff for review.

~/ These figures do not foot due to mathematical errors made by

the Commi ttee .
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B. Key Personnel

From the inceotion of the Committee to May 12, 1988 the

Treasurer of the Committee was Francis X. Zuback. Since May 13,

1988, the Treasurer has been Deborah A. Green.

C. Scope ~,

The audit included such tests as verification of total

reported receipts, disbursements and individual transactions;

review of required supporting documentation~ analysis of

Committee debts and obligations; review of contribution and

expenditure limitations~ and such other audit procedures as

deemed necessary under the circumstances~ except that the

Committee's recordkeeping with respect to currency contributions,

the aggregate amount of which represented a significant portion

of total contributions received from individuals, appears to be

in compliance with 2 U.S.C. §432(c), although sufficient

documentation was not available with which to perform any

substantive testing.

II. Finding and Recommendation Related to Title 2 of the

United States Code

Failure to Disclose Matching Fund Payment Received

Section 434 (b) (2) (K) of Ti tle 2 of the Uni ted States

Code states, in relevant part, that each report filed under this

section by an authorized committee of a candidate for the office

of President shall disclose the total amount of all Federal funds

received under chapter 96 of title 26.

The Audit staff's review of matching fund payments

received by the Committee indicated that the receipt of

$79,482.19 for Letter Request ~umber 2 ("LR-02"), certified by

the Commission on June 29, 1988, was not disclosed prope rly on

reports filed by the Committee. The Audit staff cetermined that

LR-02 was deposited into a Committee bank account on July 5, 1988

and reported as part of unitemized contributions from individuals

on the Committee's 1988 report covering the period July 1 through

J ul y 31, 1 98 8 •

The Committee representative stated during the exit

conference that an amendment would be filed.

On March 13, 1989, the Committee filed amendments

correcting the above noted discrepancy.

Recommendation *1

The Audit staff recommends that no further action be taken

on this matter.

III. Findings and Recommendations Related to Title 26 of the

United States Code

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A. Stale-dated Committee Checks

Section 9038.6 of Title 11 of the Code of Federal

Regulations states that if the committee has checks outstanding

to creditors or contributors that have not been cashed, the

committee shall notify the Commission. The committee shall

inform the Commission of its efforts to locate the payees, if

such efforts have been necessary, and its efforts to encourage

the payees to cash the outstanding checks. The committee shall

also submit a check for the total amount of such outstanding

checks payable to the United States Treasury.

During reconciliation of Committee bank accounts, the

Audit staff identified 18 checks totaling $1,766.93, dated prior

to July 30, 1988 and which remained outstanding as of December

31, 1988.

At the exit conference, the Committee representative

was provided a schedule detailing the stale-dated checks. The

Committee representative stated that efforts were currently being

made to clear the outstanding checks and the Audit staff would be

informed of the outcome.

In the interim audit report, the Audit staff

recommended that within 30 calendar days after service of the

report the Committee (1) inform the Commission of its efforts to

encourage the payees to cash the outstanding checks or provide

evidence documenting the Committee's efforts to resolve these

items; and (2) submit a check payable to the United States

Treasury for the total amount of such checks which are still

outstanding at the conclusion of the response period.

The Committee's response to the interim audit report,

received August 18, 1989, documented its efforts to resolve

$1,573.62 in stale-dated checks.

On October 20, 1989, the Committee submitted a check

payable to the United States Treasury in repayment of unresolved

s tal e-dated checks ($193.31).

Recommendation #2

On November 2, 1989, the Commission made an initial

determination that $193.31 in stale-dated checks is repayable to

the United States Treasury pursuant to Section 9038.6 of Title 11

of the Code of Feder a1 Reg u1ations. The repayment has been

received by the United States Treasury.

B. Matching Funds Received in Excess of Entitlement

Section 9038(b) (1) of Title 26 of the United States

Code states, in part, that payments made to a candidate from the

matching payment account in excess of the candidate's entitlement

shall be repaid to the Secretary upon notification by the

Commission.
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Section 9038.2(a) (1) of Title 11 of the Code of Federal

~egulations states, in part, that a candidate who has received

payments from the matching payment account shall pay the United

States Treasury any amounts which the Commission determines to be

repayable under this section.

Section 9038.2(b) (1) (i) of Title 11 of the Code of

Federal Regulations states that the Commission may determine that

certain portions of the payments made to a candidate from the

matching payment account were in excess of the aggregate amount

of payments to which such candidate was entitled. Included are

payments made to the candidate after the candidate's date of

ineligibility where it is later determined that the candidate had

no net outstanding campaign obligations as defined in 11 C.F.R. §

9034.5.

As presented in Finding III.E., the candidate's audited

NOCO statement reflected a deficit on August 18, 1988, the

candidate's date of ineligibility. The Audit staff determined

that contributions received from individuals and matching funds

received after the date of ineligibility resulted in the deficit

being eliminated on December 13, 1988, the date on which the

payment relative to Matching Fund Request *12 (the last matching

fund request made by the Committee) was received. The Audit

staff calculated the Committee's remaining entitlement (deficit)

on December 5, 1988 to be $17,989.79. By applying the next

deposit made by the Committee (Matching Fund Request #12 for

$33,054.29) to this deficit, the Audit staff determined that

$15,064.50 of this matching fund payment was in excess of the

amount to which the candidate was entitled.

The Committee representative was provided with the

Audit staff's revised figures. On October 20, 1989, the

Committee submitted a check payable to the United States Treasury

in repayment of matching funds received in excess of entitlement.

0' Recommendation #3

OC On November 2, 1989, the Commission made an initial

determination that $15,064.50 in matching funds received ~y the

Committee on December 13, 1988 represents matching funds received

in excess of entitlement and that an equal amount must be repaid

to the United States Treasury 'pursuant to 26 U.S.C. §9038(b) (1).

The repayment has been received by the United States Treasury.

C. Calculation of Repavment Ratio

Section 9038(b) (2) (A) of Title 26 of the United States

Code states that if the Commission determines that any amount of

any payment made to a candidate from the matching payment account

was used for any purpose other than to defray the qualified

campaign expenses with respect to which such payment was made it

shall notify such candidate of the amount so used, and the

candidate shall pay to the Secretary an amount equal to such

amount.
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The Regulations at 11 C.F.R. § 9038.2(b) (2) (iii) state

that the amount of any repayment sought unrler this section shall

bear the same ratio to the total amount determined to have been

used for non-qualified campaign expenses as the amount of

matching funds certified to the candidate bears to the. total

amount of deposits of contributions and matching funds, as of the

candidate's date of ineligibility.

On August 24, 1988, the Commission determined Dr.

Fulani's date of ineligibility to be August 18, 1988.

The formula and the appropriate calculation with

respect to the Committee's receipt activity is as follows:

Total Matching Funds Certified through

the Date of Ineligibility - 8/18/88

Numerator plus Private Contributions Received

through 8/18/88

$771, 415.98

= .416437

$1,852,417.96

Thus, the repayment ratio for non-qualified campaign

expenses is 41.6437%.

D. Apparent ~on-Qualified Camoaign Expenses

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Section 9038.2 (b) (2) of Ti tle 11 of the Code of Federal

Regulations states, in relevant part, that the Commission may

determine that amounts of any payments made to a candidate from

the matching payment account were used for purposes other than to

defray qualified campaign expenses.

Section 9032(9) of ~itle 26, United States Code, and

Section 9032.9 of Title 11, Code of Federal Regulations, in part,

define a qualified campaign expense as a purchase, payment,

distribution, loan, advance, deposit or gift of money or anything

of value incurred by a candidate or his authorized committee in

connection with his campaign for nomination for election from the

date the individual became a candidate through the last day of

the candidate's eligibility.

The Audit staff identified 41 payments totaling

$3,520.85, which upon examination of the supporting

documentation, appear to be for other than qualified campaign

expenses.

During the exit conference, the Committee

representative was supplied with a schedule detailing these

items. The Committee representative made no comment with respect

to this matter. By letter dated March 7, 1989, the Committee

stated that it does not wish to dispute these disbursements

identified as non-qualified campaign expenses.
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The following recommendation was presented to the Commission

on July 11, 1989:

"The Audit staff recommends that within 30 calendar days

after service of this report the Committee submit evidence

demonstrating that the payments in question are qualified campai~n expenses. Absent such a showing, the Audit staff will

recommend that the Commission make an initial determination that

the pro rata portion of $1,466.21 ($3,520.85 x .416437) be repaid

to the United States Treasury."

During the Commission's consideration of this

recommendation, the Commission could not reach a conclusive

decision. The discussion related to the recommendations involved

the appropriateness of seeking a repayment under 26 U.S.C. §

9038(b) (1) as found at Finding IIIoB., pps. 3-4~ while at the

same time seeking a repayment under 26 U.S.C. § 9038(b) (2) for a

portion of the total non-qualified campaign expenses. ~he

Commission focused on the question of whether or not a "double

counting" existed since as part of the calculation of the

Committee's remaining entitlement, non-qualified campaign

expenses were not recognized for purposes of determining the

Candidate's deficit in accordance with 11 C.F.R. § 9034.5(b)

(refer to NOCO statement at page 7). Also, a pro rata repayment

was being sought for the amount of non-qualified campaign

expenses paid with matching funds but not permitted to be

recognized for NOCO purposes.

A motion was made to approve the recommendation provided the

full original amount ($3,520.85) of non-qualified campaign

expenses be reduced by $76.64, which represents the value of nonqualified campaign expenses paid with matching funds after the

candidate's date of ineligibility and also deducted from the NOCO

statement at page 7 of this report. The pro rata portion to be

repaid to the United States Treasury would in turn decrease to

$1,434.30. This motion failed bv a vote of 3-3 [Commissioners

McDonald, McGarry and Thomas voting in the affirmative and

Commissioners Aikens, Elliott and Josefiak voting against.]

A second motion was made to approve the recommendation as

written~ that motion failed by a vote of 3-3 [Commissioners

Aikens, Elliott and Josefiak voting in the affirmative and

Commissioners McDonald, ~cGarry and Thomas voting against].

A third motion was made to require repayment under 26 U.S.C.

S 9038(b) (2) with respect to all but $76.64 in non-qualified

campaign expenses and to add language in the report to explain

the issue on which the Commission did not reach a majority

decision. This motion passed by a vote of 6-0.:/

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*/ In accordance with this motion, revised language which

appears on page 6 of this report was circulated for a tally

vote. The vote was 5-1, Commissioner Aikens dissenting.
In response to the interim audit report, the Committee

presented a check for $1,434.30 payable to the United States

Treas ur y.

Recommendation *4

On November 2, 1989, the Commission made an initial

determination that the pro rata portion of $1,434.30 {($3,520.85

-$76.64) x .416437] is repayable to the United States Treasury.

The repayment has been received by the United States Treasury.

E. Determination of Net Outstanding Campaign Obligations

Section 9034.5(a) of Title 11 of the Code of Federal

Regulations requires that the candidate submit a Statement of Net

Outstanding Campaign Obligations (NOCO) which contains, among

other items, the total for all outstanding obligations for

qualified campaign expenses and an estimate of necessary winding

down costs within 15 days of t~e candidate's date of

ineligibility.

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On August 24, 1988, the Commission determined Dr.

Fulani's date of ineligibility to be August 18, 1988. The

Committee filed a NOCO Statement on September 7, 1988, which

reflected the Committee's estimated NOCO as of the date of

ineligibility. The Audit staff reviewed the Committee's

financial activity through July 31, 1989 and their estimates of

winding down costs. The NOCO Statement, as adjusted by the Audit

staff, appears below:
LENORA B. FULANI' S COMMITTEE

FOR FAIR ELECTIONS

Audit Analysis of August 18, 1988 NOCO Statement

Determined as of July 31, 1989

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Assets

Cash in Bank

Accounts Receivable

Capi tal Assets

Total Assets

Obligations

Accounts Payable - Qualified

Campaign Expenses

Actual Winding Down

Costs (8/19/88 - 7/31/89)

Less: NQCE included above

Estimated Winding Down

Costs (post 7/31/89)

Express Mail

Legal and Accounting

Fees

Moving

Storage

Total Estimated Winding

Down Costs

Total Obligations

Net Outstanding Campaign

Obligations (Deficit) as of

August 18, 1988

{~f.".~~t.:~~~?fI~;~~~;f~~ft~Kt~~~~7~}1i~!~' .,.,- ..:

$49,421.97

38,145.27

7,918.16

$95,485.40

$ 278,404.55

$97,077.03

(76.64)1/ 97,000.39

25.00

250.00

50.00

150.00

475.00

375,879.942/

$(280,394.54)

1/ Under 11 C.F.R. §9034.4(b)(3), any expenses incurred after a

candidate's date of ineligibility, as determined under 11 C.F.R.

§9035.5, are not qualified campaign expenses except to the extent

permitted under 11 C.F.R. §9034.4(a) (3).

~/ Since estimates were used in computing this amount, the

Audit staff will review the Committee's reports and records

to compare the actual figures with the estimates and prepare

adjustments as necessary.
Shown below is an adjustment for private contributions

and matching funds received after August 18, 198~, based on the

most current financial information available at the close of

fieldwork.

Net Outstanding Campaign

Obligations (Deficit) as

of 8-18-88

Net Private Contributions

Received

(through 12-13-88)

Matching Funds Received

(through 12-13-88)

Matching Funds Received in

Excess of Entitlement as of

December 13, 1988 (See

Finding III.B.)

$(280,394.54)

128,076.57

167,382.47

$15,064.50

Additional fieldwork may be required to assess the

impact of future financial activity on the NOCO Statement.

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