FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

April 5, 2000

MEMORANDUM

•

TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERTI.COSTA

ASSISTANT STAFFDI~ AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

MID-AMERICA CONSERVATIVE POLITICAL ACTION

COMMITTEE

Attached please find a copy ofthe final audit report on Mid-America Conservative

Political Action Committee which was approved by the Commission on March 28, 2000.

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 ofGeneral Counsel

Office ofPublic Disclosure

Reports Analysis Division

FEC Library

Information Division
REPORT OF THE AUDIT DIVISION

ON

MID-AMERICA CONSERVATIVE POLITICAL ACTION

COMMITTEE

Approved March 28, 2000

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

Mid-America Conservative PAC

';IJ0 Page 0

1'1

Executive Summary

U1

ru Final Audit Report

3

g• Background

3 I:~.., 0 Findings 7

fU

fij Legal Analysis 15

Transmittal to Committee 19

Chronology 21
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 204&3

•

REPORT OF THE AUDIT DIVISION

ON

MID AMERICA CONSERVATIVE PAC

EXECUTIVE SUMMARY

The Mid America Conservative PAC (MacPac) registered with the Federal

Election Commission on February 3,1981 as a nonconnected organization that achieved

multicandidate status on October 14, 1983.

The audit was conducted pursuant to Section 438(b) ofTitle 2 ofthe United States

Code, which states that the Commission may conduct audits ofany political committee

whose reports fail to meet the threshold level of compliance set by the Commission.

After several atterppts and numerous subpoenas to obtain the Committee records,

the findings ofthe audit were presented to MacPac in an interim audit report sent to the

Committee on February 2, 2000. MacPac did not submit any response.

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

Failure to Report Receipts and Disbursements, Failure to Maintain Records,

and Misstatement of Financial Activity - 2 U.S.C. §432(c), 2 U.S.C. §434(b)(1), (2),

and (4),11 CFR §102.9(b)(2) and (d), 11 CFR §100.l2, 11 CFR §104.l4(b)(1),. As

previously mentioned, after several attempts and numerous subpoenas we were able to

obtain a limited amount ofrecords, mainly from the Committee's bank accounts. It was

determined that MacPac understated receipts by $187,795 and disbursements buy

$191,632. Most ofthe disbursements went to Mr. Corey, his wife, cash, and various

organizations he controlled as opposed to vendors itemized on the reports.

Excessive Contributions to Authorized Committees - 2 U.S.C.

§441a(a)(2)(A) and (4). MacPac contributed $6,593 in excess ofthe $5,000 limitation to

Corey for Senate. Corey for Senate Exploratory Committee only reported contributions

totaling $2,225.

Page 1 of 22 Approved 3/28/00
•

2

Excessive Cash Disbursements - 2 U.S.C. §432(h)(I), 11 CFR §102.11. Mr.

Corey wrote 57 checks totaling $22,325 to cash. Fifty-six were issued in amounts in

excess of$100. MacPac made excessive cash disbursements totaling $16,625.

Documentation was not available to determine the purposes for which these funds were

used; and these expenditures were not reported by MacPac on the FEC disclosure report.

Page 2 of 22 Approved 3/28/00
AR#97-109

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 204&3

•

I.

REPORT OF THEAUDIT DIVISION

ON THE

MID AMERICA CONSERVATIVE PAC

BACKGROUND

This report is based on an audit ofthe Mid America Conservative PAC

(MacPac), undertaken by the Audit Division ofthe Federal Election Commission (the

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) ofTitle

2 ofthe United States Code which states, in part, that the Commission may conduct

audits and field investigations of any political committee required to file a report under

Section 434 ofthis title. Prior to conducting any audit under this subsection, the

Commission shall perform an internal review ofreports filed by selected committees to

determine ifthe reports filed by a particular committee meet the threshold requirements

for substantial compliance with the Act.

•

A. AUDIT AUTHORITY

B. AUDIT COVERAGE

The audit covered the period January 1, 1995 through December 31, 1996.

During this period, MacPac reported a beginning cash balance of$12,464; total receipts

for the period of$467,914; total disbursements for the period of$459,152; and an ending

cash balance of$21,226. 1

C. COMMITTEE ORGANIZATION

MacPac registered with the Federal Election Commission on February 3,

1981. MacPac is a nonconnected organization that achieved multicandidate status on

October 14, 19&3, and maintains its headquarters in Cedar Falls, Iowa. The Treasurer

since its inception was Leroy Corey. 2

Figures in this report have been rounded to the nearest dollar. These reported figures are

substantially understated see section II.A. below.

Mr. Leroy Corey died in an automobile accident on November 17,1999.

Page 3 of 22 Approved 3/28/00
2

To manage its financial activity, it appears that MacPac primarily used one

checking account with Magna Bank', two savings accounts with Norwest Bank4

, and one

checking account with Mercantile Bank Midwest.

D. HISTORY AND AUDIT SCOPE

On September 11, 1998, the Commission voted to audit MacPac and the Audit

staff notified MacPae's Treasurer by letter dated September 15,1998. In the audit

notification letter, the Audit staffsuggested an initial start date ofOctober 13, 1998. In

addition to the suggested start date the audit notification letter serves to inform the

Treasurer as to the scope ofthe audit and the records that will be necessary for the Audit.

As of September 21, MacPac's treasurer, Mr. Leroy Corey had not responded to the

letter.

On September 23, 1998, the Audit staff telephoned Mr. Corey, he stated that he

had received the audit notification letter and would need to request a delay ofthe

scheduled start date. He also agreed to send the Audit staff bank statements and any

computer spreadsheet information for receipts that he had available. The Audit staff

spoke with Mr. Corey again on September 30, 1998 at which time he again agreed to send

copies of the contribution data on a disk and copies of disbursement checks.

On October 1, 1998, the Audit staffreceived a written request for a delay ofthe

start ofthe audit. In his request, the Treasurer suggested a new start date around midNovember citing family problems. The audit was rescheduled to commence on

November 9, 1998. Mr. Corey was informed via teleconference and by letter that the new

start date for the audit would be November 9, 1998. Mr. Corey agreed to the new date.

The Audit staff again requested the computerized contribution information.

As ofOctober 8, 1998, the Audit staff had not received any ofthe documentation

promised and again questioned Mr. Corey, who responded by stating that he would work

on gathering the information over the weekend and get it to the Audit staff by the middle

offollowing week.

Between October 14, 1998 and November 4, 1998, the Audit staffmade numerous

calls to Mr. Corey's office trying to determine if any attempts to send the requested

records had been made. Each time, for various reasons, Mr. Corey was unavailable and a

message was left with his office staffrequesting that he contact the Audit staff. Mr.

Corey did fax several written responses to questions, but did not send any ofthe

requested records. Finally, on November 4, 1998, the Audit staffinformed office staff

Magna has since become a branch of Union Planters Bank.

The Audit staff investigated several other banks to detennine if MacPac held any accounts during

the 1995 - 1996 election cycle. Mr. Corey never returned a signed standard statement verifying

that all bank records had been provided to the Audit staff.

Page 4 of 22 Approved 3/28/00
3

that unless they were able to speak directly with Mr. Corey, they would be at his office on

November 9, 1998 as agreed.

In response to this call, Mr. Corey contacted the Audit Division on November 6,

1998, both by phone and fax. He informed the Audit staffthat due to continuing family

problems he would not be available for the audit and that he did not have any materials to

give the Audit staff. He stated that many ofthe records had been stored in a basement

and had been destroyed during a flood. It should be noted that during the phone call Mr.

Corey stated that he would not cooperate with the Audit staff nor even allow them

entrance into his office ifthey were to arrive on November 9, 1998. He further stated that

he would need to postpone the audit until the end ofthe month. Given the circumstances,

the Audit staff had no choice but to reschedule the start ofthe audit until November 30,

1998.

On November 30, 1998 the Audit staff arrived in Cedar Falls to start the audit but

were unable to meet with Mr. Corey until the following day. Finally, on December 1,

1998, the Audit staffmet with Mr. Corey at which time the available records were

provided.

As part ofthe Commission's standard audit process, an inventory of committee

records is conducted prior to the audit fieldwork. This inventory is conducted to

determine if records are materially complete and in an auditable state. During the

entrance conference, the Audit staffreceived the following records: a handwritten log of

operating and independent expenditures for 1995 and 1996, a tape of an advertisement

against the Harkin for Senate Committee, a copy ofthe Liberate America newspaper,

1995 and 1996 contribution log by solicitation letter, 1995 log oftotal contributions per

day, copies ofsolicitation letters and blank response devices, and a log ofsolicitation

letters sent to contributors. Based on the review ofthe available records presented at an

entrance conference, it was apparent that Mr. Corey had not obtained the records needed

for the audit.

On December 2, 1998, Mr. Corey was presented with a detailed list ofthe

necessary records and informed that these records should be provided by January 8,1999.

It was reiterated that ifthe requested records were not received by this date, the

Commission would be requested to issue subpoenas for the necessary records. Mr. Corey

agreed to obtain and send the records to the FEC.

During December 1998, and the beginning ofJanuary 1999, the Audit staffmade

numerous phone calls to MacPac headquarters but were told that Mr. Corey was either in

a meeting or out ofthe office. The Audit staff did receive some limited documentation

during the 30 day period, such as copies of a newspaper called The American

Conservative, a daily contribution log, bank statements for July 1995 through January

1997, rental agreements and a radio advertisement script. The computerized contribution

records were not received until February 1999, and were incomplete. No other

computerized file was sent.

Page 5 of 22 Approved 3/28/00
4

After January 8, 1999, the Audit staff, in conjunction with the Commission's

Office of General Counsel, prepared subpoenas to Mr. Corey, Magna Bank, several

additional banks that were possibly used by MacPac, and several additional incorporated

entities for which Mr. Corey acted as sole director or member, and that received

payments from MacPac. It is only through the subpoena process that the Audit staff was

finally able to obtain documentation for MacPac activity.

As previously stated, Mr. Corey died in an automobile accident in November,

1999. The Acting Treasurer, Les Borsay , sent a Declaration dated February 8,2000, that

states, "it is my intention as the acting treasurer ofMACPAC to terminate the committee

under federal law as soon as permitted by the FEC. I have no plans, and am aware of no

plans, to revive MACPAC, to collect contributions, or make contributions or

expenditures, in its name." Based on this information the interim audit report was sent to

Mr. Borsay. There was no response by the Committee to the interim audit report.

The scope ofthis audit is therefore limited to the review of bank records (bank

statements5

, checks drawn on MacPac's account and a sample ofthe items deposited into

MacPac's account6

) secured via subpoena, disclosure reports, some records provided by

Mr. Corey and conversations between the Audit staff and Mr. Corey.

E. AUDIT PROCEDURES

The audit included testing ofthe following general categories:

I. The receipt of contributions or loans in excess ofthe statutory

limitations;

2. 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 information disclosed (see Finding ILA.);

Bank statements for the period ofJuly, 1995 through January 1997 were supplied by Mr. Corey,

the remaining statements (January 1995 through June 1995) were supplied by Union Planters

Bank.

Magna Bank was willing to provide copies of deposits. However, a limited review ofthe records

provided evidence that the average contribution was very small, and therefore the volume of

documents very large, making the cost and time required to produce those copies prohibitive.

Page 6 of 22 Approved 3/28/00
5

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and

accuracy ofthe information disclosed (see Finding Il.A.);

5. proper disclosure of campaign debts and obligations;

6. the accuracy oftotal reported receipts, disbursements and cash

balances as compared to bank records (see Finding II.A.);

7.

8.

adequate recordkeeping of committee transactions (see Finding

IIA); and

other audit procedures that were deemed necessary in the situation

(see Findings II.B. and C.).

Unless specifically discussed below, no material non-compliance was

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

discussed in this report in an enforcement action.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. FAILURE TO REpORT RECEIPTS AND DISBURSEMENTS, FAILURE TO

MAINTAIN RECORDS, AND MISSTATEMENT OF FINANCIAL ACTIVITY

Section 432(c) ofTitle 2 ofthe United States Code states that the

Treasurer of a political committee shall keep an account of all contributions received by

or on behalfofsuch political committee; the name and address of any person who makes

any contribution in excess of$50, together with the date and amount ofsuch contribution

by any person; the identification of any person who makes a contribution or contributions

aggregating more than $200 during a calendar year, together with the date and amount of

any such contribution; the identification of any political committee which makes a

contribution, together with the date and amount of any such contribution; and the name

and address of every person to whom any disbursement is made, the date, amount, and

purpose ofthe disbursement, and the name ofthe candidate and the office sought by the

candidate, if any, for whom the disbursement was made.

Section 102.9(b)(2) and (d) ofTitle 11 of the Code of Federal Regulations

states in part, in addition to the account to be kept under 11 Code of Federal Regulations

102.9(b)(1), a receipt or invoice from the payee or a canceled check to the payee shall be

obtained and kept for each disbursement in excess of $200 by or on behalf of, the

committee.

Page 7 of 22 Approved 3/28/00
6

In performing recordkeeping duties, the treasurer or his or her authorized

agent shall use his or her best efforts to obtain, maintain, and submit the required

information and shall keep a complete record ofsuch efforts. Ifthere is a showing that

best efforts have been made, any records of a committee shall be deemed to be in

compliance with this act. With regard to the requirements of II CFR 102.9(b)(2)

concerning receipts, invoices and canceled checks, the treasurer will not be deemed to

have exercised best efforts to obtain, maintain and submit the records unless he or she has

made at least one written effort per transaction to obtain a duplicate copy ofthe invoice,

receipt, or canceled check.

Section 100.12 of Title 11 ofthe Code of Federal Regulation defines

identification in the case of an individual, his or her full name; mailing address;

occupation; and the name of his or her employer; and, in the case of any other person, the

person's full name and address.

Section 104.14(b)(l) ofTitle 11 ofthe Code of Federal Regulations states

in part, each political committee required to file any report or statement shall maintain all

records relevant to such reports or statements as follows: maintain records, including

bank records, with respect to the matters required to be reported, including vouchers,

worksheets, receipts, bills, and accounts, which shall provide in sufficient detail the

necessary information and data from which the filed reports and statements may be

verified, explained, clarified, and checked for accuracy and completeness.

Sections 434(b)(I), (2) and (4) ofTitle 2 ofthe United States Code state,

in part, that a political committee shall disclose the amount of cash on hand at the

beginning ofthe reporting period and the total amount of all receipts and all

disbursements for the reporting period and calendar year.

As previously discussed, on December 1,1998, the Audit staffmet and

received from Mr. Corey a receipts log sheet which listed contribution totals for MacPac,

and other organizations he controlled. No contributor identification was documented on

these logs. Examples ofsolicitation devices and response cards were also provided. At a

later date, MacPac forwarded a computerized file of contributions, but the Audit staffwas

unable to associate it with the disclosed contributions. The information on this file did

not cover the entire election cycle.

As for disbursement records, Mr. Corey provided hand-written

disbursement logs which appear to mirror schedules B from MacPac's disclosure reports.

The only reliable disbursement information available to the Audit staff are copies of

disbursement checks obtained from Magna Bank via subpoena. The Audit staff has

received check copies for approximately 95% ofMacPac's expenditures.

Although Mr. Corey repeatedly stated that he was willing to obtain and/or

provide both receipt and disbursement source documentation, he did not.

Page 8 of 22 Approved 3/28/00
7

During the December 1, 1998 entrance conference, Mr. Corey stated

MacPac only had one bank account, and none of his other companies' finances passed

through that account. Incomplete bank statements were forwarded to the Audit staffon

January 13, 1999. Contrary to his previous statements, in the correspondence

accompanying the bank statements, Mr. Corey stated that it appears that the MacPac

account was used not only for MacPac but "for something else too". Mr. Corey

explained that records would have been maintained to support the additional activity

passing through the account, and that he would look for those records. However he noted

that the records may have been destroyed with the water problem but, he would do his

best to compile them. No additional records were provided.

As noted above, in addition to records provided by Mr. Corey and

MacPac's bank, subpoenas were issued to other organizations that MacPac had dealings

with. Mr. Corey also owned or was an officer ofthese organizations. They are as

follows:

• American Conservative Corporation, a not-for-profit corporation,

which publishes a newspaper called the American Conservative.

Mr. Corey was president ofthe American Conservative

Corporation. MacPac paid American Conservative Corporation for

printing, newspaper advertisements, and mailing costs.

• American Communications Corporation is a for profit corporation.

Mr. Corey was the president. MacPae paid American

Communications Corporation for printing, equipment leases, office

management and labor services.

• Freedom Center Foundation, Inc., is another not-for-profit

organization, established by Mr. Corey. Freedom Center

Foundation paid for contract labor and equipment leases.

The subpoenas to these organizations produced very little useful information7

•

The information presented below comes primarily from records provided by Magna

Bank.

RECEIPTS

In an attempt to determine the source of MacPac's revenues and the

correct reportable receipt figure, copies of deposits to MacPac's account were requested

from the Union Planters bank. However, the bank informed the staffthat due to high

volume and a small average transaction amount, the records would require a substantial

period oftime to produce and the cost would be considerable. Given that information the

In addition Mr. Corey was president of University Properties, L.C. One payment by MacPac to

University Properties, L.C. has been documented during the audit period.

Page 9 of 22 Approved 3/28/00
8

subpoena was limited to two months and part of a third that had already been copied by

the banle Receipts for those periods totaled $122,431, which represented 19% ofthe total

receipts for the two year cycle. The bank was able to produce records for $110,753,

which represents 90% ofthe dollar amount deposited during the periods covered.

Approximately 97% ofthe dollar value ofthe documented receipts were checks made

payable to MacPac. The remaining 3%, totaling $2,933, were written to, the American

Conservative, Leroy and Sue Corey, Sue Corey, Bob Dole, Senator Dole, Students for

America and The Corey Family. Based on this review it is concluded that all ofthe funds

deposited into MacPac's accounts should have been included in MacPac's reported

activity. MacPac reported total receipts of$467,914 for 1995 and 1996. After reviewing

MacPac's bank records it was determined that the correct figure was $655,7108, a

difference of$187,795.

DISBURSEMENTS

The Audit staff reviewed the disbursements reported and the copies of the

canceled checks provided by MacPac's bank. Legible copies of checks were provided for

all but $29,832 ofthe debits on the account. In an attempt to determine which

disbursements had been reported and which had not, a summary by major vendor was

prepared based upon available records, the largest differences are presented below.

Difference

Vendor Report Total Bank Total Report

Under/(Over) the

Bank

Leroy Corey $32,200 $217,538 $185,338

Freedom Center

Foundation 13,462 85,448 72,026

SFA9 0 49,245 49,245

Rental Accouneo 0 47,735 47,735

Sue Corey 0 40,021 40,021

ACIO Pacll 0 37,646 37,646

There was minimal activity in the other three MacPac accounts, therefore the total receipts,

disbursements, and cash figures were adjusted for the additional activity.

Students for America, was listed as an affiliated committee on MacPac's the 1985 Statement of

Organization. It is not registered with the FEC or the Iowa Ethics and Campaign Disclosure

Board. According to Mr. Corey, this organization was no longer in existence during the audit

period.

10

II

The nature ofthis account is not clear. It could be related to Univcrsity Propcrties, L.C., but no

documentation is available.

AC-Impartial Observer PAC is not registered with the FEe or the Iowa Ethics and Campaign

Disclosure Board.

Page 10 of 22 Approved 3/28/00
Vendor

Cash

Corey For Senate

Postmaster'2

ACC Corporation'J

9

Report Total

o

2,225

152,753

80,005

Bank Total

22,325

11,593

o

o

Difference

Report

Under/(Over) the

Bank

22,325

9,368

(152,753)

(80,005)

•

After reviewing MacPac's accounts, it was determined that all ofthe

disbursements drawn on the accounts should have been included on MacPac's disclosure

reports. The reported total was $459,152, the correct total is $650,784, a difference of

$191,632.

In addition to the receipt and disbursement differences discussed above, based on

the available records, MacPac's January 1, 1995, reported cash on hand of$12,464, was

overstated by $14,480. The correct balance was $-2,016. Similarly, December 31, 1996

reported cash on hand was $21,226. The correct reportable amount was $2,910 an

overstatement of $18,317.

In the interim audit report the Audit staffrecommended that MacPac:

• Provide an explanation for the reporting discrepancies discussed

above including the variance in the reported amounts and in the

paye~s on the disclosure reports versus the checks drawn on the

MacPac account;

• provide evidence that it has materially complied with the Act's

recordkeeping requirements, or has exercised best efforts to obtain,

maintain and submit the required records;

• provide a description of procedures that will be put into place in order

to prevent a recurrence ofthese problems; and,

" file comprehensive amended reports for 1995 and 1996, which

include corrected Summary & Detailed Summary pages, as well as

Schedules A and B (by reporting period).

'2

lJ

MacPac reported payments to the post office, as independent expenditures against Clinton/Gore

and Harkin for Senate, however there were no payments made to this vendor, during the audit

period.

Per Mr. Corey, the American Communications Corporation name was changed to the American

Conservative Corporation because the acronym was confusing to the MacPac personnel.

However the Auditstaff does not have any documentation to support this statement.

Page 11 of 22 Approved 3/28/00
10

B. EXCESSIVE CONTRIBUTIONS TO AUTHORIZED COMMITTEES

Sections 441 a(a)(2)(A) and (4) ofTitle 2 of the United States Code state in

part, that no multicandidate political committee shall make contributions to any candidate

and his authorized political committees with respect to any election for Federal office

which, in the aggregate, exceed $5,000. Further, it states that the term "multicandidate

political committee" means a political committee which has been registered under section

433 ofthis title for a period of not less than 6 months, which has received contributions

from more than 50 persons, and, except for any State political party organization, has

made contributions to five or more candidates for Federal Office.

The review of disbursements records indicated that MacPac made

contributions to only two other committees. A $1,600 in-kind contribution for mailing

expenses to People for Lightfoot, Inc., which was not reported, and 22 contributions

totaling $11,593 to Corey For Senate, an authorized committee for MacPac Treasurer

Leroy Corey's 1996 bid for the U.S. Senate. Mr. Corey eventually dropped out ofthe

race and did not run in the primary election'4.

Ofthe 22 checks, 17 totaling $8,875 were written in 1995 for the 1996

Primary Election. The payee on these checks was either "Senate Exploratory

Committee" or "Senate Committee". Nine ofthese checks were endorsed with "Corey

for Senate", three checks were endorsed with a Senate Exploratory Committee

endorsement and one check was endorsed with "University Property". The Audit staff

was unable to determine the endorsement on the remaining four checks. Additionally, ten

checks had a memo entry. designating the money as a contribution, and the remaining

seven checks did not contain a memo entry. All checks written in 1995 appear to have

been deposited into the same account.

Corey for Senate Exploratory Committee reported three contributions

totaling $2,225, from MacPac on its Mid Year 95 Report, none ofthe other contributions

received were reported.

The remaining five checks totaling $2,718 were written during December

of 1996, endorsed with "Corey Senate" and apparently deposited in a different account.

Three ofthese checks had a memo entry designating the money as both a contribution

and an expense reimbursement. The remaining two checks did not contain memo entries.

MacPac contributed $6,593 in excess ofthe $5,000 limitation to Corey for

Senate, of that amount $3,875 was contributed in 1995 and the remaining $2,718 was

contributed in December 1996, six months after the Iowa Senatorial Primary.

14 Leroy Corey failed to file Statements of Organization and Candidacy for the 1996 Iowa Senatorial

race. Corey for Senate raised $331,583 during 1995 and 1996.

Page 12 of 22 Approved 3/28/00
11

In the interim audit report the Audit staffrecommended that MacPac

provide evidence demonstrating that the contributions in question were not excessive.

Absent such evidence, the Audit staffrecommended that MacPac obtain a refund from

Corey for Senate in the amount of $6,593 and provide evidence of the refund (a copy of

the front and back ofthe negotiated refund check) for our review.

C. EXCESSIVE CASH DISBURSEMENTS

Section 432(h)(1) ofTitle 2 of the United States Code states in part, that

each political committee shall maintain at least one checking account and such other

accounts as the committee determines at a depository designated by such committee. No

disbursements may be made (other than petty cash disbursements) by such committee

except by check drawn on such accounts.

Section 102.11 of Title 11 Code of Federal Regulations states in part, if a

petty cash fund is maintained, it shall be the duty of the treasurer of the political

committee to keep and maintain a written journal of all disbursements. This written

journal shall include the name and address of every person to whom any disbursement is

made, as well as the date, amount, and purpose ofsuch disbursement. In addition, if any

disbursement is made for a candidate, the journal shall include the name ofthat candidate

and the office (including State and Congressional district) sought by such candidate.

A review of all check copies supplied by Magna Bank determined that Mr.

Corey wrote 57 checks totaling $22,325 to cash. Fifty-six ofthese checks were issued in

amounts in excess of $100. According to the Mr. Corey, MacPac did not maintain a petty

cash fund. Documentation was not available to determine the purpose for which these

funds were used; and these expenditures were not disclosed on MacPac's FEC reports.

Therefore, it appears that MacPac has made excess cash disbursements totaling $16,625

($22,225 - $5,600).

MacPac was audited for the 1981 and 1982 ejection cycle and during the

audit it was discovered that Mr. Corey, had written checks to cash to pay postal expenses

totaling $42,309. At that time, Mr. Corey told the Audit staffthat he intended to create a

petty cash fund to provide for incidental disbursements. Although this was mentioned in

the audit report, no other action was taken on it at that time.

In the interim audit report the Audit staffrecommended that MacPac

provide an explanation for the continuing practice of making excessive cash expenditures

and provide evidence that proper petty cash procedures have been implemented. The

Audit staff further recommended that documentation be provided for these disbursements

and amended Schedules B (by reporting period) should be filed properly disclosing these

payments.

Page 13 of 22 Approved 3128/00
Page 14 of 22 Approved 3/28/00
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

January 13, 2000

MEMORANDUM

Lawrence M. 00 e

General Counsel

Kim Leslie Bright

Associate General Co~~sel

Rhonda J. Vosdingh q¥-

Assistant General Counsel

Robert J. Costa

Assistant StaffDirector

Audit Division

FROM:

BY:

THROUGH: James A. Pehrkon

StaffDirector

TO:

Joel J. Roessti"er -:-....n

Attorney .- .JQLSUBJECT: Proposed Interim Audit Report on the Mid-America Conservative Political Action

Committee (LRA #532)

I. INTRODUCTION

The Office of General Counsel has reviewed the proposed Interim Audit Report on the

Mid-America Conservative Political Action Committee ("Report") dated December 17, 1999.

The following memorandum summarizes our comments on the proposed Report.l We concur

with the findings in the proposed Report that are not discussed in the following memorandum. If

you have any questions, please contact Joel J. Roessner, the attorney assigned to this audit.

The Office ofGeneral COWlSel recommends that the Commission consider this document in closed session

because the Commission may eventually decide to pursue an investigation ofmatters contained in the report.

11 C.F.R. §§ 2.4(a) and (b)(6).

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Memorandum to Robert J. Costa

Proposed Interim Audit Report

Mid-America Conservative Political Action Committee(LRA 532)

Page 2

II. ISSUANCE OF FINAL AUDIT REPORT

In the cover memorandum to the draft Report you note that on November 17,1999,

Mr. Leroy Corey, the Treasurer ofthe Mid-America Conservative Political Action Committee

("MACPAC"), was killed in an automobile accident. Because Mr. Corey appears to have been

the only person who actively ran MACPAC, the Audit Division does not expect a response to the

Report. The Audit staff therefore recommends that, in lieu ofissuing an interim audit report, the

Commission should issue a final audit report which explains that Mr. Corey died and that there is

no one to answer the findings in the report.

The opinion ofthe Office of General Counsel is that MACPAC is a legal entity separate

from Mr. Corey which, as a matter oflaw, will continue to exist until it is terminated? This

Office is aware of no precedent or procedure for treating an interim audit report as a final audit

report. This Office's view is that the Commission should continue to treat MACPAC as it would

any other registered political committee until such termination occurs. Specifically, the proposed

Report should be issued as an interim audit repoti, and the Committee should be allowed an

opportunity to respond prior to the issuance of the final audit report. This Office notes that

MACPAC at present is involved in litigation with the Commission, and that Mr. Corey's office

manager has indicated that MACPAC has outstanding debts which exceed its liabilities.

Accordingly, the Office of General Counsel does not concur with the Audit Division's suggestion

that the Commission should proceed directly to the issuance of a final audit report without first

issuing an interim audit report.

III. FAILURE TO REPORT RECEIPTS AND DISBURSEMENTS, FAILURE TO

MAINTAIN RECORDS, AND MISSTATEMENT OF FINANCIAL

ACTIVITY (II.A.)

In the cover memorandum to the proposed Report you note that subpoenas issued in this

matter are outstanding, and state that this Office will be notified ifnew material is provided and

"adjustments" are made to the Report. In fact the response to the subpoena issued to Norwest

Bank remains outstanding.)

At the time it prepared and requested that the Commission issue bank subpoenas in this

audit, the understanding ofthis Office was that the information sought by the bank subpoenas

was needed for the Audit staffto ascertain what receipts and disbursements occurred during 1995

MACPAC may be terminated under one of two provisions. First, MACPAC may terminate by filing a

termination report. 2 U.S.C. § 433(d)(I); C.F.R. § 102.3(a)(I). MACPAC would be eligible to file a termination

report only ifit will no longer receive contributions or make disbursements, and if has no outstanding debts and

obligations. [d. Second, MACPAC may be administratively tcrminated by the Commission. 2 U.S.C. § 433(d)(2);

11 C.F.R. § 102.4. Such administrative termination may be done at the request of a committee, or on the

Commission's own initiative. I I C.F.R. § 102.4(a). The administrative termination ofa committee is based on

several factors related to the insolvency and inactivity ofthe committee. [d.

The subpoena waS mailed on December 16,1999, and ordered that a response be submitted within 30 days

of receipt.

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Memorandum to Robert J. Costa

Proposed Interim Audit Report

Mid-America Conservative Political Action Comrnittee(LRA 532)

Page 3

and 1996, and to resolve the discrepancy between the activity reported to the Commission and

the activity which appears to have actually occurred. If, in fact, this information was not needed,

the bank subpoenas should not have been issued. Because you state that, based on the responses

to the outstanding subpoenas, the Report is subject to revision and change, it appears that the

information is in fact necessary to the audit. The MACPAC audit therefore appears not to be

complete, and the opinion of this Office is that it is premature to submit the Report for review by

this Office, approval by the Commission andlor a response from MACPAC.

IV. EXCESSIVE CASH DISBURSEMENTS (ftC.)

The proposed Report indicates that the Audit staff identified 56 checks payable to cash in

amounts in excess of$100. The total amount ofthese checks was $22,225, and the audit staff

determined that it appears that MACPAC made excessive cash disbursements totaling $16,625.

This Office suggests that the Report include an explanation that the $5,600 difference between

the total amount ofthe checks ($22,225) and the excessive disbursement amount ($16,625)

reflects that part of each check which was not an excessive cash disbursement (i.e., $100 x 56

checks).

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FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20403

•

March 30, 2000

Mr. Les Borsay, Acting Treasurer

Mid-America Conservative

Political Action Committee

3722 Cedar Heights Drive

Cedar Falls, lA. 50613

Dear Mr. Barsay:

Attached please find the Report ofthe Audit Division on Mid-America

Conservative Political Action Committee. The Commission approved the report on March

28,2000.

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

on April 5, 2000. Should you have any questions regarding the public release ofthe report,

please contact the Comrnis~ion'sPress Office at (202) 694-1220. Any questions you have

related to matters covered during the audit or in the report should be directed to Nicole

Clay or Russ Bruner ofthe Audit Division at (202) 694-1200 or toll free at (800) 424-9530.

Sincerely,

Attachment as stated

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CHRONOLOGY

MID-AMERICA CONSERVATIVE POLITICAL ACTION COMMITTEE

h

flJ

(j Audit Fieldwork November 30, 1998 - I'll, November 12, 1999 "

iil

Interim Audit Report to !b\

0 the Committee February 2, 2000

"

h Response to the Interim

0 Audit Report Due March I, 2000

ru Response Received No Response iU

Final Audit Report Approved March 28, 2000

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