FEDERAL ElECTION COMMISSION

WASHINGTON, DC 204&3

May 29,2001

MEMORANDUM

TO:

FROM:

SUBJECT:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERTJ.COSTA 4r.

ASSISTANT STAFF D~~T(k:--- AUDIT DIVISION

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

THE DEMOCRATIC PARTY OF ILLINOIS

Attached please find a copy ofthe final audit report and related documents on the

Democratic Party ofIllinois, which was approved by the Commission on MAY 18, 2001.

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 of Public Disclosure

Reports Analysis Division

FEe Library
REPORT OF THE AUDIT DIVISION

ON THE

Democratic Party ofIllinois

Approved May 18,2001

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

DEMOCRATIC PARTY OF ILLINOIS

Page

Executive Summary

Final Audit Report

Background

Findings

Transmittal to Committee

Chronology

3

3

5

II

13
FEDERAL ElECTION COMMISSION

WASHINGTON. DC 2046.1

REPORT OF THE AUDIT DIVISION

ON THE

DEMOCRATIC PARTY OF ILLINOIS

EXECUTIVE SUMMARY

The Democratic Party ofIllinois (the Committee) registered with the Federal

Election Commission on May 4, 1983 as the Democratic State Central Committee of

Illinois. The Committee changed its name to the Democratic Party ofIllinois in 1990.

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 of any political

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

Commission.

The period covered by the audit was January 1, 1997 through December 31, 1998.

The findings of the audit were presented to the Committee at an exit conference and later,

in an interim audit report. The Committee's responses to those findings are included in

the final audit report.

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

ApPARENT CORPORATE CONTRIBUTIONS - 2 U.S.C. §441 b(a);

11 CFR §§ I03.3(b)(2) and (4). The audit identified 24 contributions totaling $38,800

received from 22 incorporated entities. In response to the interim audit report, the

Committee stated that refunds totaling $38,400 were made to the donors. The Committee

was unable to make refunds to two donors for contributions totaling $400. For these, the

Committee issued checks to the US Treasury. I

INACCURATE DISCLOSURE OF EXPENDITURES -11 CFR § I06.5(g)(1);

11 CFR §§106.5(a)(2)(i) and (iv); 11 CFR §§104.10(b)(1)(i) and (ii). The Committee

incorrectly reported on Schedule B (Other Federal Operating Expenditures) a $48,000

disbursement for GOTV Election Day activities and two other GOTV expenditures in the

amounts of$30,000 and $145,000. These allocable expenses were partially funded by the

Committee's non-federal account and should have been reported on Schedule H-4 (Joint

FederaIlNon-federal Activity Schedule). In response to the interim audit report, the

Committee filed an amended report to correct the public record.

1 Subsequent to the Commission's approval of the Final Audit Report, the Comminee provided copies of

negotiated checks totaling $38,200.

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NON-FEDERAL FUNDS DEPOSITED INTO FEDERAL ACCOUNTS - OFFSETS OF

ALLOCATED EXPENDITURES- 11 CFR §102.5(a)(1 )(i); 11 CFR §106.5(a)(2)(iv);

11 CFR §§ 106.5(g)(1 )(i) and (2)(B). The Committee received and deposited into its

federal account(s) three offsets to expenditures totaling $15,557. The original

disbursements had been paid on an allocated basis using federal and non-federal funds.

The non-federal share ofthe offsets totaled $11,196. The Committee had not reimbursed

the non-federal account or made any adjustments to subsequent transfers from the nonfederal account to account for these receipts. In response to the interim audit report, the

Committee provided evidence that $11,196 was transferred from the federal account to

the non-federal account.

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FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

A99-60

This report is based on an audit ofthe Democratic Party ofIllinois (the

Committee), undertaken by the Audit Division of the 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 the selected committees

to determine ifreports filed by a particular committee meet the threshold requirements for

substantial compliance with the Act.

I. BACKGROUND

A.

REPORT OF THE AUDIT DIVISION

ON THE

DEMOCRATICPARTY OF ILLINOIS

AUDIT AUTHORITY

B. AUDIT COVERAGE

The audit covered the period January 1, 1997 through December 31,1998.

During this period, the Committee reported a beginning cash balance of$35,996; total

receipts for the period of$4,833,250; total disbursements for the period of$4,767,717;

and an ending cash balance of$l 01 ,529,1

According to reports filed with the state ofIllinois detailing its non-federal

financial activity for the audit period, the Committee's receipts totaled $9,370,326 and

disbursements totaled $9,162,000; and the cash balance at December 31, 1998 was

$220,705.

All figures in the report have been rounded to the nearest dollar.

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2

C. CAMPAIGN ORGANIZATION

The Committee registered with the Federal Election Commission on May

4, 1983 as the Democratic State Central Committee of Illinois. On July 2, 1990, the

Committee filed an amended Statement ofOrganization and changed its name to the

Democratic Party ofIllinois. The Treasurer for the Committee at the beginning ofthe

audit period was Mr. John A. Gianulus. On April 15, 1998, he was succeeded by Mr.

Michael Kasper, the current Treasurer. The Committee maintains its headquarters in

Springfield, Illinois.

To manage its financial activity, the Committee maintained 12 bank

accounts during the audit period: 7 federal and 5 non-federal. The Committee made its

allocated expenditures from its federal account, which was reimbursed with transfers

made from its non-federal accounts. A separate allocation account was not used. The

Committee's receipts were composed of contributions from individuals, political party

committees, other political committees (such as PACs), transfers from affiliated

committees, offsets to operating expenditures (such as refunds and rebates), and transfers

from non-federal accounts for joint activity.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following categories:

1. the receipt of contributions or loans in excess of the statutory limitations;

2. the receipt of contributions from prohibited sources, such as those from

corporations or labor organizations (see Finding II.A.);

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;

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and accuracy of

the information disclosed (see Finding II.B.);

5. proper disclosure of campaign debts and obligations, including loans;

6. the accuracy oftota] reported receipts, disbursements and cash balances as

compared to bank records;

7. adequate recordkeeping of committee transactions;

Page 4 of 14 Approved 05/18/0 I
3

8. proper reporting and funding of allocable expenses (see Finding II.C.);

9. other audit procedures that were deemed necessary in the situation.

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.

While the Committee met the minimum requirements for recordkeeping,

certain materials that are generally provided during audits were, according to Committee

representatives, not in their possession. Materials such as bank reconciliations and

workpapers in support oftransfers from non-federal accounts used to pay allocated

expenses were not provided for 1997 or for January through March 1998. Consequently,

the Audit staff was unable to verify reported beginning cash on hand, to identify total

outstanding checks at the beginning ofthe audit period or to verify whether certain

transfers from the non-federal to federal accounts were made timely.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. ApPARENT CORPORATE CONTRIBUTIONS

Section 441b(a) of Title 2 of the United States Code states, in part, that is

unlawful for any corporation to make a contribution or expenditure in connection with

any election to political office or in connection with any election at which a

Representative in Congress is to be voted for or in connection with any primary election

held to select candidates for the foregoing office, and for any candidate, political

committee or other person to knowingly accept or receive any contribution prohibited by

this section.

Sections 103.3(b)(2) and (4) ofTitle 11 of the Code of Federal

Regulations state, in part, that the treasurer shall refund any contribution determined to be

illegal to the contributor within thirty days of the date on which the illegality is

discovered. Further, any contribution which appears to be illegal and which is deposited

into a campaign depository shall not be used for any disbursements by the political

committee until the contribution has been determined to be legal. The political

committee must either establish a separate account in a campaign depository for such

contributions or maintain sufficient funds to make all such refunds.

Our review ofsource documentation made avai lable during fieldwork

identified 24 apparent corporate contributions, amounting to $38,8002

, received from 22

Reported cash balances were in excess of the value of the apparent corporate contributions held in

the Committee's account(s). See II CFR §103.3(b)(4).

Page 5 of 14 Approved 05118/01
4

entities verified through the Illinois Secretary of State's office as corporations at the time

the contributions were made. Most, ofthe contributions were drawn on the accounts of

incorporated law finns or the accounts of named individuals (e.g., Richard B. Last Name,

LTD.). No documentation was located within the Committee's files relative to the

pennissibility ofthese contributions.

This matter was discussed with the Committee's representative during

fieldwork and at the exit conference held on August 9, 2000; a schedule ofthe items

along with documentation obtained from the Secretary of State's office was provided.

Following the exit conference, the Committee responded twice to this issue. First, it

provided a copy of a fonn that was described as the "script Mike3 used." It stated:

"1 hereby certify that I had a telephone conversation with the above

referenced member ofthe partnership indicated herein on the date set forth

and that the partnership attributed the contribution amongst the partners as

indicated herein, and that the partner with whom 1spoke indicated that such

attribution complied with the Federal Election Campaign Act."

Secondly, a Committee representative stated that the contributors who had made

contributions using corporate checks had been contacted to make certain that the funds

contributed represented personal funds.

Based on the Committee's responses to this finding, it appears that the

Committee was aware that the receipt of contributions from corporate sources was

impennissible. However, neither response establishes that the contributions, which were

made by checks drawn on accounts of corporations, were made from pennissible funds,

i.e., personal funds ofthe contributor.

In the interim audit report, the Audit staffrecommended that the

Committee provide documentation sufficient to demonstrate that the contributions in

question were not from prohibited sources. Absent such a showing, the Audit staff

recommended that the Committee refund the $38,800 in contributions discussed above

using funds from the Committee's federal account(s) and present evidence ofsuch

refunds (i.e., copies of the front and back ofthe negotiated checks).

Ifsufficient funds were not available, the amount of refunds due to each

contributor must be itemized as a debt owed by the Committee on Schedule D, Debts

and Obligations.

In response to the interim audit report, the Committee stated that it had

refunded to the contributors all ofthe $38,800 contributions with the exception oftwo:

one in the amount of$150, from Richard P. Bogusz who is now deceased, and another in

The reference to Mike is a reference to Mike Kaspar. the Party Treasurer.

Page 6 of 14 Approved 05118/01
5

the amount of$250, from Robert J. Smoler, whose firm closed. For these two amounts,

the Committee issued checks to the US Treasury.

Regarding the remaining $38,400, the Committee did not provide copies

of negotiated refund checks as requested by the Audit staff. Instead, the Committee

provided copies ofthe original contribution checks totaling $38,800 as well as copies of

letters dated March 9, 200 I, that accompanied refund checks to the 20 remaining

contributors. The Committee stated that it would supply the Audit staff with copies ofthe

negotiated refund checks once they clear the Committee's federal account(s). As of May

11, 2001, the check copies had not been provided.

B. INACCURATE DISCLOSURE OF EXPENDITURES

Section 106.5(g)(1) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that committees that have established separate federal and non-federal accounts

under 11 CFR I02.5(a)(1 )(i) or (b)(l)(i) shall pay the expenses ofjoint federal and nonfederal activities described in paragraph (a)(2) of this section according to paragraph

(g)(I)(i), as follows: the committee shall pay the entire amount of an allocable expense

from its federal account and shall transfer funds from its non-federal account to its federal

account solely to cover the non-federal share ofthat allocable expense.

Sections 106.5(a)(2)(i) and (iv) ofTitle II of the Code of Federal

Regulations state that committees that make disbursements in connection with federal and

non-federal elections shall allocate expenses according to this section for the following

categories of activity: administrative expenses including rent, utilities, ol11ce supplies,

and salaries, except for such expenses directly attributable to a clearly identified

candidatc; and gcneric votcr drives including votcr identification, voter registration, and

get-out-the-vote drives, or any other activities that urge the general public to register, vote

or support candidates of a particular party or associated with a particular issue, without

mentioning a specific candidate.

Sections 104. IO(b)( I)(i) and (ii) ofTitle I lorthc Code of Fcderal

Regulations state, in part, that a political committee that pays allocable expenses in

accordance with II CFR I06.5(g) shall also report each disbursement from its federal

account in payment for joint federal and non-federal expense or activity. In the first

report in a calendar year disclosing a disbursement for administrative expenses or generic

voter drives, as described in II CFR 106.5(a)(2), the committee shall state the allocation

ratio to be applied to these categories of activity according to 11 CFR I06.5(d) and the

manner in which it was derived. In each subsequent report in the calendar year itemizing

an allocated disbursement for administrative expenses or generic voter drives thc

committee shall state the category of activity for which each allocated disbursement was

made, and shall summarize the total amount spent by the federal and non-federal accounts

that year, to date, for each such category.

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6

In late October 1998, the Committee opened an account at Amalgamated

Bank of Chicago to fund its November 1998 election day volunteer GOTY activities.

The account was funded by transfers from another federal account: $26,000 on October

301h , $15,000 on November lSI and $10,000 on November 3'd. On November 2nd and 3'd

the Committee withdrew from this account $48,000 in the form of eleven hundred money

orders totaling $40,000 (500 in denominations of$50 and 600 in denominations of$25)

and $8,000 in cash. After the election, on November 91h, the Committee redeposited

$8,800 consisting of$6,000 in money orders and $2,800 in cash. The net ofthese

transactions, $39,200, was reported on Schedule B for line 21 b (Other Federal Operating

Expenditures), on November 23'd and described as "UNITEMIZED EXPEN-POSr

ELECEXP."

Documentation supporting the Committee's transfers of non-federal funds

for allocated expenses indicated that specific amounts were transferred to cover the nonfederal component ofthe above described project and two other GOry expenditures. 4

The other GOry expenditures in the amounts of$30,000 and $145,250 were made to

Gordon & Schwenkrneyer. These disbursements were itemized, incorrectly, on Schedule

B ofthe Committee's Post General report (10/15/98 through 11/23/98). All three ofthese

disbursements should have been itemized on Schedule H-4 (Joint FederallNon-federal

Activity Schedule) in order that the non-federal component ofthe funding be reported as

required by 11 CFR 104.1 O(b)(1 )(ii).

In addition to being itemized on the incorrect schedule, the date and

amount of the withdrawal of money orders and cash for election day GOry expenses

were not correctly reported. The expenditures were made on November 3'd, not

November 23'd, and rather than reporting the net figure of$39,200 ($48,000 withdrawn

less the $8,800 redeposited), the total amount withdrawn, $48,000, should have been

reported as the disbursement. 5

In the interim audit report, the Audit staff recommended that the

Committee file an amended report for 1998, including an amended Summary Page and

Detailed Summary Page; an amended Schedule B with amounts misreported, corrected;

and a Schedule H-4 to disclose correctly, disbursements to Gordon & Schwenkmeyer and

for election day GOTY activities.

In response to the interim audit report, the Committee filed the requested

amended report and disclosed on Schedule A the redeposit of $8,800 on November 9,

1998, amended Schedule B by eliminating the incorrectly reported amounts, and amended

Schedule H-4 by disclosing the $48,000 disbursement for expenses paid to volunteers on

Sufficient non-federal funds were transferred from the Committee's non-lCderal accounts to pay

these expenses according to its allocation ratio for administrative and gene,ic voter drive expenses:

22';'0 federal and 78°;', non-federal.

The apparent over reportIng of this transaction will be balanced by the request that the Committee

report the redeposit ofS8,800 as an offset to expenditures. (See Finding II.C.)

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7

November I, 1998 and the other GOTV expenditures in the amounts of $30,000 and

$145,250 made to Gordon & Schwenkmeyer.

C. NON-FEDERAL FUNDS DEPOSITED INTO FEDERAL ACCOUNTS -

OFFSETS OF ALLOCATED EXPENDITURES

Section 102.5(a)(1 )(i) ofTitle 11 of the Code of Federal Regulations

states, in part, that political committees which finance political activity in connection with

both federal and non-federal elections shall establish a separate federal account. Only

funds subject to the prohibitions and limitations ofthe Act shall be deposited in such

separate federal account.

Section 106.5(a)(2)(iv) ofTitie 11 ofthe Code of Federal Regulations

states, in part, that political committees that make disbursements in connection with

federal and non-federal elections shall allocate expenses according to this section for the

following categories of activity: Generic voter drives including voter identification, voter

registration, and get-out-the-vote drives, or any other activities that urge the general

public to register, vote or support candidates of a particular party or associated with a

particular issue, without mentioning a specific candidate.

Sections I06.5(g)(1 )(i) and (2)(B) ofTitle 11 ofthe Code of Federal

Regulations state, in part, that political committees that have established separate federal

and non-federal accounts shall pay the entire amount of an allocable expense from its

federal account and shall transfer funds from its non-federal account to its federal account

solely to cover the non-federal share ofthat allocable expense and that the timing ofthe

transfer offunds from its non-federal account may not be more than ten days in advance

nor more than sixty days after the payments for which they are designated are made.

Committees that have federal and non-federal accounts may pay certain

expenses on an allocated basis. These disbursements must be made from either a federal

account or an allocation account that is considered a federal account. To reimburse for

the non-federal portion ofthe expenses, the committee is permitted to transfer funds from

its non-federal account to one ofits federal accounts. When a refund or rebate of an

allocated expense is received, the amount received should be credited between federal

and non-federal accounts on a pro rata basis equal to the allocation ratio llsed to make the

original disbursement. Advisory Opinion (AO) 1995-22 discusses methods for reporting

refunds and rebates of allocable expenses.

The Audit staffs review of offsets to operating expenditures revcaled that

the Committee received and deposited into its federal account(s) three offsets totaling

$15,557. Each ofthe original disbursements had been paid on an allocated basis, using

federal and non-federal funds. Applying the allocation ratios used to make the original

disbursement to the amounts received from each vendor, the Audit staff calculated that

the non-federal share ofthe offsets totaled $11,196. The Committee did not reimburse

Page 9 of 14 Approved 05/18/0 1
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the non-federal account this amount or otherwise make any adjustments to subsequent

transfers from the non-federal accounts to account for these receipts.

One ofthe three offsets was not reported - the November 9, 1998 redeposit

of money orders and cash in the amount of$8,800 discussed above at Finding II.B.

At the exit conference, the Audit staff provided the Committee a schedule

ofthe offsets that had been deposited into its federal accounts.

In the interim audit report, the Audit staff recommended that the

Committee:

a) provide evidence that the non-federal account subsequently received from the

federal account its share ofthe offsets; or

b) absent such a demonstration, transfer to the non-federal account $11,196,

representing the non-federal share ofthe offsets and provide evidence ofsuch

transfer (i.e., a copy ofthe front and back ofthe negotiated check used to make

the transfer); and

c) file an amendment for 1998 to include an amended Summary Page and Detailed

Summary Page and a Schedule A itemizing the November 9 offset.

Ifsufficient funds were not available to make the transfer, the amount of

funds due to the non-federal account must be itemized as a debt owed by the Committee

on Schedule D, Debts and Obligations.

In response to the interim audit report, the Committee provided a copy of

the negotiated check used to make the transfer of $11,196 from the federal account to the

non-federal account as well as the deposit slip for the non-federal account. As previously

noted, the Committee filed an amended Schedule A that disclosed the November 9, 1998

offset of$8,800.

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FEDERAL ELECTIOI\: COMMISSION

May 21. 2001

•

Mr. Michael Kasper, Treasurer

Democratic Party ofIllinois

PO Box 518

Springfield. IL 62705

Dear Mr. Kasper:

Attached please find the Final Audit Report on Democratic Party ofIllinois. The

Commission approved the report on May 18. 2001.

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

on May 29, 2001. Should you have any questions regarding the p"blic release of the

report. please contact the Commission's Press Office at (202) 694-1220. Any questions

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

Marty Kuest or Wanda Thomas of the Audit Di\·ision at (202) 694-1200 or toll free at

(800) 424-9530.

Sincerely.

Robert J. Costa

Assistant Staff Director

Audit DI\·ision

Attachment as stated

cc: Dennis Kenny. CPA

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.... , .

. .

, , f!

, ..

Page 12 of 14 Approved 05/18/01
CHRONOLOGY

DEMOCRATIC PARTY OF ILLNOIS

•

i.

•

Audit Fieldwork

Interim Audit Report to the

Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

July 5,2000-

July 28,2000

February 12, 2001

March 16,2001

May 18,2001

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•

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