Interim Report of the

Audit Division on the

AFL-CIO Cope Political

Contributions Committee

January 1, 2005 - December 31, 2006

Why the Audit

Was Done

Federal law permits the

Commission to conduct

audits and field

investigations of any

political committee that is

required to file reports

under the Federal

Election Campaign Act

(the Act). The

Commission generally

conducts such audits

when a committee

appears not to have met

the threshold

requirements for

substantial compliance

with the Act.1 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)

AFL-CIO COPE Political Contributions Committee is a separate

segregated fund of AFL-CIO and is headquartered in Washington,

DC. For more information, see the chart on the Committee

Organization, p.3.

Financial Activity (p. 2)

• Receipts

o From Individuals

o From Other Political Committees

o Transfers from Affiliated Committees

o Other Receipts

o Total Receipts

• Disbursements

o Contributions to Candidates/Committees

o Other Disbursements

o Total Disbursements

$193,546

48,250

1,168,138

8,004

$ 1,417,938

$1,304,452

166,520

$ 1,470,972

Findings and Recommendations (p. 3)

• Misstatement of Financial Activity (Finding 1)

• Transfers Received from Separate Segregated Funds (Finding 2)

2 U.S.C. §438(b).
Interim Report of the

Audit Division on the

AFL-CIO COPE Political

Contributions Committee

January 1, 2005 - December 31, 2006
Table of Contents

Page

Part I. Background

Authority for Audit 1

Scope of Audit 1

Part II. Overview of Committee

Committee Organization 2

Overview of Financial Activity 2

Part III. Summaries

Findings and Recommendations 3

Part IV. Findings and Recommendations

Finding!. Misstatement of Financial Activity 4

Finding 2. Transfers Received from Separate Segregated Funds 5
Part I

Background

Authority for Audit

This report is based on an audit of the AFL-CIO COPE Political Contributions

Committee (AFL-CIO COPE), undertaken by the Audit Division of the Federal Election

Commission (the Commission) in accordance with the Federal Election Campaign Act of

1971, as amended (the Act). The Audit Division conducted the audit pursuant to 2

U.S.C. §438(b), which permits the Commission to conduct audits and field investigations

of any political committee that is required to file a report under 2 U.S.C. §434. Prior to

conducting any audit under this subsection, the Commission must perform an internal

review of reports filed by selected committees to determine if the reports filed by a

particular committee meet the threshold requirements for substantial compliance with the

Act. 2 U.S.C. §438(b).

Scope of Audit

Following Commission approved procedures, the Audit staff evaluated various factors

and as a result, this audit examined:

1. The consistency between reported figures and bank records.

2. The disclosure of individual contributors4 occupation and name of employer.

3. The receipt of transfers received from other separate segregated funds.
Part II

Overview of Committee

Committee Organization

Important Dates

• Date of Registration

• Audit Coverage

Headquarters

Bank Information

• Bank Depositories

• Bank Accounts

Treasurer

• Treasurer When Audit Was Conducted

• Treasurer During Period Covered by Audit

Management Information

• Attended FEC Campaign Finance Seminar

• Used Commonly Available Campaign

Management Software Package

• Who Handled Accounting and

Recordkeeping Tasks

AFL-C1O COPE

March 13, 1975

January 1 , 2005 - December 3 1 , 2006

Washington, DC

1

2 (1 Business Account and 1 Business

Money Market Account)

Richard L. Trumka

Richard L. Trumka

Yes

Yes

Paid Staff

Overview of Financial Activity

(Audited Amounts)

Cash on hand (2> January 1, 2005

o From Individuals

o From Other Political Committees

o Transfers from Affiliated Committees

o Other Receipts

Total Receipts

o Contributions to Candidates/Committees

o Other Disbursements

Total Disbursements

Cash on hand @ December 31, 2006

$ 122,740

193,546

48,250

1,168,138

8,004

$ 1,417,938

1,304,452

166,520

$ 1,470,972

$ 69,706
Part III

Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

A comparison of AFL-CIO COPE's reported activity to bank records revealed a

misstatement of cash on hand and disbursements in years 2005 and 2006. It is

recommended that AFL-CIO COPE file amended reports to correct the misstatement.

(For more detail, see p. 4)

Finding 2. Transfers Received from Separate Segregated

Funds

During the audit period, AFL-CIO COPE received transfers totaling $1,100,000 from two

separate segregated funds. AFL-CIO COPE has not been able to demonstrate that the

two separate segregated funds, CWA COPE Political Contributions Committee (CWA

COPE) and American Federation of Teachers AFL-CIO Committee on Political

Education (AFT AFL-CIO), have met the transmittal and recordkeeping requirements for

collecting agents. AFL-CIO COPE stated that such transfers are a longstanding practice

and that they are in compliance with the Commission's regulations. The Audit staff

recommends that AFL-CIO COPE amend past reports and implement new procedures to

ensure the proper accounting, reporting, and recordkeeping procedures are followed for

these transfers. (For more detail, see p. 5)
Part IV

Findings and Recommendations

| Finding 1. Misstatement of Financial Activity

Summary

A comparison of AFL-C1O COPE's reported activity to bank records revealed a

misstatement of cash on hand and disbursements in years 2005 and 2006. It is

recommended that AFL-CIO COPE file amended reports to correct the misstatement.

Legal Standard

Contents of Reports. Each report must disclose:

• The amount of cash on hand at the beginning and end of the reporting period;

• The total amount of receipts for the reporting period and for the calendar year; and

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

• Certain transactions that require itemization on Schedule A (Itemized Receipts) or

Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(l), (2) and (4).

Facts and Analysis

The Audit staff reconciled the reported financial activity to the bank records for 2005 and

2006. It was determined there AFL-CIO COPE misstated cash on hand and

disbursements for both years. The following charts outline the discrepancies for both

years and provide explanations for the misstated activity.

2005 Activity

Opening Cash Balance

Receipts

Disbursements

Ending Cash Balance

Reported

$105,571

$481,104

$513,314

$70,861

Bank Records

$122,740

$480,675

$530,093

$73,322

Discrepancy

$17,169

Understated

$429

Overstated

$16,779

Understated

$2,461

Understated

The net understatement of disbursements was the result of the following:

• Disbursements not reported + $15,294

• Reported disbursements that did not clear bank + 1,500

• Disbursements reported with incorrect amounts : \5_

• Net Understatement of Disbursements $16,779
2006 Activity

Opening Cash Balance

Receipts

Disbursements

Ending Cash Balance

Reported

$70,861

$931,728

$912,308

$90,282

Bank Records

$73,322

$937,263

$940,879

$69,706

Discrepancy

$2,461

Understated

$5,535

Understated

$28,572

Understated

$20,576

Overstated

The net understatement of disbursements was the result of the following:

• Disbursements reported incorrectly + $27,500

• Disbursements reported with incorrect amounts + 1,051

• Unexplained differences + 21.

• Net Understatement of Disbursements $28,572

Cash Balances:

AFL-CIO COPE misstated the cash balances throughout 2005 and 2006 due to the errors

outlined above and unknown adjustments from prior reporting periods. On December 31,

2006, the cash balance was overstated by $20,576.

This matter was presented to the representatives for AFL-CIO COPE during the exit

conference. The representatives did not provide any comments to explain the

misstatements but later indicated that they would file amended reports to correct these

errors.

Interim Audit Report Recommendation

The Audit staff recommends that, within 30 calendar days of service of this report, AFLCIO COPE file amended reports to correct the misstatements noted above. Also, AFLCIO COPE should amend the cash balance of its most recent report with an explanation

that it resulted from audit adjustments from a prior period.

Finding 2. Transfers Received from Separate Segregated

Funds

Summary

During the audit period, AFL-CIO COPE received transfers totaling $1,100,000 from two

separate segregated funds. AFL-CIO COPE has not been able to demonstrate that the

two separate segregated funds, CWA COPE Political Contributions Committee (CWA

COPE) and American Federation of Teachers AFL-CIO Committee on Political

Education (AFT AFL-CIO), have met the transmittal and recordkeeping requirements for

collecting agents. AFL-CIO COPE stated that such transfers are a longstanding practice

and that they are in compliance with the Commission's regulations. The Audit staff
recommends that AFL-C1O COPE amend past reports and implement new procedures to

ensure the proper accounting, reporting, and recordkeeping procedures are followed for

these transfers.

Legal Standard

A. Affiliated Definition. Established, financed, maintained or controlled by the same

organization. Affiliated political committees are considered one political committee for

purposes of contribution limits. Committees presumed to be affiliated include those

established, financed, maintained or controlled by a single national or international union

and/or its local unions or other subordinate organizations. Also, committees established

by an organization of national or international unions and/or all its State or local central

bodies are presumed to be affiliated. Affiliation is not presumed between unions and

organizations of national or international unions. 11 CFR §§100.5(g) and 110.3(a).

B. Collecting Agent Definition. A collecting agent is an organization or committee that

collects and transmits contributions to one or more separate segregated funds to which

the collecting agent is related. A collecting agent may be the separate segregated fund's

connected organization or an organization or committee affiliated with the SSF, or a

local, national, or international union collecting contributions on behalf of the separate

segregated fund of any federation with which the local, national, or international union is

affiliated. 11 CFR §102.6(b)(l).

C. Requirements for Collecting Agents. The separate segregated fund (SSF) is

responsible for ensuring that the recordkeeping, reporting, and transmittal requirements

are met.

1. Collecting agent may solicit only those individuals who are eligible for

solicitation under the law, and pay the expenses of soliciting.

2. Collecting agent may include a solicitation for contributions to an SSF in a bill for

another payment.

3. Collecting agent may establish a separate transmittal account solely for the SSF's

contributions or use its own account for the temporary deposit and transmittal of

contributions to the SSF. The agent must keep separate records of all receipts and

deposits that represent contributions to the SSF.

4. Collecting agent must transfer the funds within 10 days for all contributions over

$50 and within 30 days for contributions $50 or less.

5. Collecting agent must forward the required recordkeeping information to the SSF

along with the collected contributions, and maintain records of SSF contribution

deposits and transmittals for three years.

6. The SSF receiving contributions collected by a collecting agent shall report the

full amount of each contribution received as a contribution from the original

contributor to the extent required by 11 CFR §104.3(a). 11 CFR §§102.6(c) and

102.8(b).

D. When to Itemize. Political committees other than authorized candidate committees

must itemize:
• Any contribution from an individual if it exceeds $200 per calendar year, either

by itself or when aggregated with other contributions from the same contributor; and

• Every contribution from any political committee, regardless of the amount.

• Every transfer from another political party committee, regardless of whether the

committees are affiliated. 2 U.S.C. §434(b)(3)(A), (B) and (D).

£. Definition of Itemization. Itemization of contributions received means that the

recipient committee discloses, on a separate schedule, the following information:

• The amount of the contribution;

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

• The full name and address of the contributor;

• In the case of contributions from individual contributors, the contributor's

occupation and name of his or her employer; and

• The calendar year-to-date total of all contributions from the same contributor. 11

CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A) and (B).

Facts and Analysis

During the audit period, AFL-CIO COPE received four transfers from AFT AFL-CIO

totaling $800,000 and four transfers from CWA COPE totaling $300,000. These

transfers were reported by AFL-CIO COPE on Line 12 (Transfers from Affiliated/Other

Party Committees) and described as joint fundraising transfers or as payroll deductions

on its Schedules A (Itemized Receipts). The transfers were received and reported by

AFL-CIO COPE without detail as to which individual contributors made up each

transfer, or how much was given by each contributor.

CWA COPE is the separate segregated fund of the international union Communications

Workers of America (CWA). AFT AFL-CIO is the separate segregated fund of the

international union American Federation of Teachers (AFT). Both CWA and AFT are

members of the federation of unions AFL-CIO and, as such, may serve as collecting

agents for AFL-CIO COPE. The separate segregated funds of these unions (CWA

COPE, AFT AFL-CIO and AFL-CIO COPE) are not considered "affiliated" within the

meaning of 11 CFR §110.3 and, therefore, are subject to separate contribution limitations

and must independently report individual contributions to their respective organizations.

CWA COPE and AFT AFL-CIO initially receive and report contributions for their

respective committees as well as AFL-CIO COPE. These contributions are often

received from individuals who sign voluntary payroll deduction authorization cards. The

authorization cards contain a statement that the contributions will be used in a "joint

fundraising" effort and that a portion of their contributions would go to AFL-CIO COPE.

The contributors do not designate specific or separate contribution amounts for AFL-CIO

COPE. Likewise, the timing and amounts transferred to AFL-CIO COPE were based on

periodic discussions with officers of CWA COPE and AFT AFL-CIO.

In accordance with 11 C.F.R. §102.6(c)(l), AFL-CIO COPE was responsible for ensuring

that both AFT AFL-CIO and CWA COPE complied with the collecting agent rules.

Under these rules, CWA COPE and AFT AFL-CIO must:
• Operate a separate transmittal account solely for AFL-CIO COPE contributions,

or maintain records of all such receipts and deposits relating to AFL-CIO COPE

transfers from their own accounts.

• Transfer funds to AFL-CIO COPE within 10 days for contributions over $50 and

within 30 days for contributions $50 or less.

• Forward all recordkeeping information relating to the transfers to AFL-CIO

COPE and maintain documentation of the deposits and transmittals for three

years.

Since AFL-CIO COPE did not provide documentation that identified the individual

contributions supporting the amounts transferred or any documentation that detailed the

timing or calculation of the amounts transferred, it did not ensure that the collecting agent

rules were met. AFL-CIO COPE also did not properly report contributions collected by

collecting agents since they reported these contributions on Line 12 as transfers from the

collecting agents rather than on Line 11 (Receipts from Individuals/Persons) as

contributions from the original contributor.

The Audit staff presented this matter to AFL-CIO COPE representatives during the exit

conference. In response, counsel for AFL-CIO COPE challenged the conclusion of the

Audit staff with the following arguments.

First, counsel for AFL-CIO COPE addresses the timing of the transfers and argues that

the requirements at 11 CFR §102.6(c)(4) are not applicable to the situation because of a

joint fundraising arrangement among the separate segregated funds and their connected

organizations. However, no joint fundraising agreement was presented.

Counsel contends that if 11 CFR §102.6(c)(4) was applicable, the transfers did conform

to the timing requirements. In support of his argument, counsel provided data showing

average daily receipts for both CWA COPE and AFT AFL-CIO. Since contributions

were predominately $50 or less, counsel believes that within the 30 days prior to each of

the transfers to AFL-CIO COPE, both CWA COPE and AFT AFL-CIO received far more

contributions from individuals than was transferred.

Based on its own analysis, the Audit staff concurs that both AFT AFL-CIO and CWA

COPE received sufficient contributions within 30 days prior to each transfer to AFL-CIO

COPE. However, based on the available records, the Audit staff was not able to identify

which contributions were included in the transfers. The Audit staff maintains that the

requirements at 11 CFR §102.6(c)(4) and 11 CFR §102.8(b) are applicable and the

amount of each contribution being transferred is required to be provided to AFL-CIO

COPE within the appropriate time frame along with the required records supporting the

contributions.

Second, counsel discusses the issue of having a separate account solely for AFL-CIO

COPE contributions. Counsel confirms that both AFT AFL-CIO and CWA COPE did

not maintain a separate account solely for AFL-CIO COPE contributions, did not keep
separate records of contributions attributable to its transfers, or give that information to

AFL-CIO COPE. Again, counsel argues that such requirements are not applicable since

11 CFR §102.6 does not recognize the dual roles of AFT AFL-CIO and CWA COPE as

collecting agents for AFL-CIO COPE and as separate segregated funds soliciting and

receiving contributions for themselves. According to counsel, AFT AFL-CIO and CWA

COPE records and reports all disclosure information for AFL-CIO COPE contributions

because the contributors authorize the actual remittance of their contributions only to

AFT AFL-CIO and CWA COPE via standard payroll deduction authorization cards.

These cards also inform contributors of the joint fundraising arrangement and

acknowledge that contributions will be used for "political purposes."

Counsel further explains that reporting the transfers without detailing the associated

individual contributors is sufficient under 11 CFR §104.3(a) and that the regulations do

not plainly require a shift to AFL-CIO COPE of the responsibility to report the individual

contributors. According to counsel, the current practice "underscores that these transfers

are most accurately viewed as comprised of funds that are not attributable to any

particular individual, but are comprised of unitemized aggregate portion of all of them".

The Audit staff believes that 11 CFR §102.6(c)(4) requires AFT AFL-CIO and CWA

COPE to record the full amount and details of each contribution on behalf of AFL-CIO

COPE. Such information is necessary in order to specifically track what amounts are

contributed to the respective organizations, as well as to monitor itemization and

limitation requirements. It is further noted that by viewing the transfer amount as being

comprised of a portion of each contribution instead of the full amount of those

contributions received prior to the transfer would likely not support the argument that the

transfers were made timely.

Finally, counsel explains how the proposed changes would cause a significant

administrative burden on all affected committees and would ultimately result in a

reduction of contributor information on the public record. According to counsel, the

number of individual contributors itemized by AFT AFL-CIO and CWA COPE would be

fewer since a portion of their contributions would be attributed to AFL-CIO COPE.

In summary, the Audit staff accepts that both AFT AFL-CIO and CWA COPE can

function as collecting agents for AFL-CIO COPE. However, as collecting agents, AFT

AFL-CIO and CWA COPE must abide by the rules governing collecting agents at 11

CFR §102.6(c). During the period covered by the audit, AFT AFL-CIO and CWA COPE

did not have separate transmittal accounts or keep separate records of all receipts and

deposits that represent contributions to AFL-CIO COPE, or distinguish these

contributions at the individual level. Given that these records were not kept, the

arrangements with AFT AFL-CIO and CWA COPE did not satisfy the requirements of

the collecting agent regulations. AFL-CIO COPE did not ensure that both AFT AFLCIO and CWA COPE complied with the collecting agent rules in accordance with 11

C.F.R. §102.6(c)(l).
10

Interim Audit Report Recommendation

The Audit staff recommends that, within 30 calendar days of service of this report, AFLCIO COPE document that procedures have been implemented to ensure the proper

accounting, reporting, and recordkeeping in accordance with 11 CFR §102.6(b)(l) and

(c).

Reports covering the audit period and any subsequent periods should be corrected to

reflect all amounts received from collecting agents as contributions on Line 11 (Receipts

from Individuals/Persons) instead of Line 12 (Transfers from Affiliated/Other Party

Committees). Contributions aggregating over $200 should be itemized on Schedule A

supporting Line 1 l(a)(i) and the aggregate amount of unitemized contributions should be

reported on Line 1 l(a)(ii).

AFL-C1O COPE is responsible for ensuring that collecting agents forward contributions

and all contributor and date of receipt information to AFL-CIO COPE within 10 or 30

days depending on the contribution amounts. Records for such contributions are required

to be retained for three years. 11 CFR §§102.6(c)(5) and (6) and 11 CFR §102.8.