FEDERAL ELECTION COMMISSION

June 6, 2001

MEMORANDUM

TO:

FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERT J. COSTA ---d.rASSISTANT STAFF D~6o~ AUDIT DNISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

THE NEW YORK STATE DEMOCRATIC STATE COMMITTEE

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

New York State Democratic Committee which was approved by the Commission on May

25,2001.

Informational copies ofthe report have been received by all parties involved and

the report may be released to the public on June 6, 2001.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Library
REPORT OF THE AUDIT DIVISIO,'1

ON THE

NEW YORK STATE DEMOCRATIC

COMMITTEE

Approved May 25, 200]

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

NEW YORK STATE DEMOCRATIC COMMITTEE

Page

Executive Summary

Final Audit Report 3

Background 3

Findings 5

Transmittal to Committee II

Chronology 13
FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 20461

REPORT OF THE AUDIT DIVISION

ON THE

NEW YORK STATE DEMOCRATIC COMMITTEE

EXECUTIVE SUMMARY

The New York State Democratic Committee (NYSDC) registered with the Federal

Election Commission (the Commission) on July 17, 1981 and maintains its headquarters in

New York, New York. The Treasurer for NYSDC at the beginning ofthe audit period was

Marcia Allina. David Alpert, the current Treasurer, succeeded her on September 28, 1998.

The audit was conducted pursuant to 2 U.S.c. §438(b), which states 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 two audit findings summarized below were presented to the NYSDC at the

completion of fieldwork on August 25, 2000 and later in the interim audit report (JAR).

NYSDC's responses to the findings are contained in the audit report.

The NYSDC expended approximately $2.7 million on various types ofmedia that

criticized the Republican candidate for U.S. Senator in the 1998 election. These expenditures

were paid with a combination of Federal and non-federal funds using the ballot composition

ratio applicable to administrative costs and the cost of generic voter drives. The Commission

did not consider in the context ofthe audit whether the costs were contributions to or

coordinated expenditures on behalf ofthe Democratic candidate.

RECEIPT OF CONTRIBUTIONS IN EXCESS OF THE LIMITATION - 2 U.S.c.

Section 441a(a)(l). The audit questioned apparent excessive contributions totaling $12,000

from seven individuals. Within the sixty-day period provided for the resolution of excessive

contributions by 11 CFR 103.3(b)(3), the excessive portions were transferred to a non-federal

account. However, no evidence was found that the contributors were notified ofthe transfer or

advised that a refund was available.

In response to the interim audit report, the NYSDC stated it had obtained written

permission to make such transfers from each of the seven individuals and none ofthese

individuals requested a refund. The NYSDC provided copies ofreallocation letters for six of

the seven contributors. NYSDC also noted that, in the future. such a letter would be sent within

ten days of receipt of said contribution.

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DOCUMENTATION AND DISCLOSURE OF DEBTS AND OBLIGATIONS - 2 U.S.c. §432(c)

and (d). The review of debts and obligations identified debts owed to 56 vendors totaling

$330,775, which had been incurred prior to the beginning ofthe audit period. The Audit staff

was unable to locate documentation to support the existence of these debts in NYSDC's files.

In response to repeated inquiries for documentation supporting these debts, NYSDC personnel

noted that these debts were in dispute and there was no supporting documentation available. In

addition, NYSDC failed to report debts incurred during the audit period to 16 vendors that

totaled $1 10,I 18.

In response to the Interim Audit Report, the NYSDC filed amended Schedules D to

disclose the debt ($ I 10, 118) that was incurred during the audit period. In response to the issue

ofreponed debts totaling $330,775 incurred prior to the audit period, the NYSDC cited 2

U.S.c. §432(d), contending that records must be maintained for three years following a

transaction. Further, it stated that even if it was required to maintain these records these

activities occurred nearly seven years ago and any applicable statute of limitation for collection

has expired. Nonetheless, NYSDC submitted documentation or information for many of

these debts.

The Audit staff notes that 2 USc. §432(d) does not state that records must be

maintained for three years following a transaction, but it does state that all records required to

be kept and copies of all repons shall be preserved for three years after the report is filed. Since

the NYSDC has continued to disclose the debt on its reports through its last tiling, the 2000

Year-End report, the three-year record retention requirement has not expired. The NYSDC

must continue to repon the debt until the Commission has completed a review of a debt

settlement plan pursuant to 1I CFR 116.7(1), until the Commission has completed a review of

the request to forgive the debt pursuant to 11 CFR 116.8, or until it debts are paid.

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FEDERAL ELECTION COMMISSION

WASHINGTON 0 C 204hl

REPORTOF THE AUDITDIVISION

ON THE

NEW YORK STATE DEMOCRATIC COMMITTEE

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofthe New York State Democratic

Committee (the NYSDC), 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) of Title 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.

B. AVDIT COVERAGE

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

1998. During this period, the NYSDC reported a beginning cash balance of$52,932;

total receipts of $10,534,301; total disbursements of $10,526,346; and a closing cash

balance of $60,887. 1

•

C. COMMITTEE ORGANIZATION

The NYSDC registered with the Commission on July 17, 1981 and

maintains its headquarters in New York, New York. The Treasurer for the Committee at

the beginning of the audit period was Marcia Allina. David Alpert, the current Treasurer,

succeeded her on September 28, 1998.

To manage its federal financial activity, the NYSDC used four bank

accounts in 1997 and two accounts in 1998. From these accounts the NYSDC made

approximately 2,400 disbursements. Receipts were mainly composed of contributions

from individuals $757,161; contributions from political party committees $9,000;

All figures In thIS repon have been rounded 10 the nearest dollar.

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contributions from other political committees $150,250; transfers from affiliated/other

party committees $3,267,345; offsets to operating expenditures $100,277; and transfers

from the nonfederal account for joint activities of $6,320,000. The NYSDC also

maintained six non-federal accounts from which it expended $7,342,304.

D. AUDIT SCOPE AND PROCEDURES

The NYSDC expended approximately $2.7 million on various types of

media that criticized the Republican candidate for U.S. Senator in the 1998 election.

These expenditures were paid with a combination of Federal and non-federal funds using

the ballot composition ratio applicable to administrative costs and the cost of generic

voter drives. The Commission did not consider in the context ofthe audit whether the

costs were contributions to or coordinated expenditures on behalf ofthe Democratic

candidate.

A matter noted during the audit is pending before the Commission in

another context. When the Commission concludes its consideration ofthis matter,

information will be made public in accordance with Commission procedures.

The audit included testing ofthe following general categories:

I. The receipt of contributions or loans in excess of the statutory limitations

(See Finding II.A.);

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

rcquired, as well as, the completeness and accuracy of the 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;

5. proper disclosure of debts and obligations (See Finding II.B.);

6. the accuracy of total reported receipts, disbursements and cash balances as

compared to bank records;

7. adequate recordkeeping for committee transactions;

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8. proper disclosure of the allocation of costs associated with administrative

expenses and activities conducted jointly on behalf of federal and nonfederal elections and candidates; and

9. other audit procedures that were deemed necessary in the

situation.

Unless specifically discussed below, no material non-compliance with

statutory or regulatory requirements was detected. It should be noted that the

Commission may pursue further any ofthe matters discussed in this report in an

enforcement action.

II. AUDIT FINDINGS AND RECOMMENDAnONS

A. RECEIPT OF CONTRIBUTIONS IN EXCESS OF THE LIMITATION

Section 441 a(a)( I) of Title 2 of the United States Code establishes

separate contribution limitations for candidates and their authorized committees and for

national party committees. In addition. it states that no person shall make contributions to

any other political committee in any calendar year which, in the aggregate, exceed $5.000.

Section 110.9(a) ofTitle II ofthe Code of Federal Regulations states, in

part. that no political committee shall accept any contribution or make any expenditure in

violation ofthe provisions of part 110.

Section 103.3(b)(3) ofTitle II ofthe Code of Federal Regulations states,

in relevant part. that contributions which on their face, or when combined with other

contributions from the same contributor, exceed the limitations at II CFR §II 0.1, they

may be either deposited into a campaign depository or returned to the contributor. If any

such contribution is deposited, the treasurer may request redesignation or reattribution of

the contribution in accordance with 11 CFR §§ 110.1 (b). 110.1 (k), or 11O.2(b). as

appropriate. If a redesignation or reattribution is not obtained, the treasurer shall, within

sixty days ofthe treasurer's receipt ofthe contribution, refund the contribution to the

contributor. A request for either a redesignation under II CFR §110.1 (b) or a

reattribution under II CFR §II 0.1 (k) must infornl the contributor that a refund is

available.

Section 103.3(b)(4) of Title II of the Code of Federal Regulations states,

in relevant part, that any contribution which appears to be illegal under II CFR

103.3(b)(3), 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.

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A review ofthe NYSDC's receipt records identified seven contributions

from seven individuals that exceeded the contribution limitations by $12,000. These

contributions were deposited into NYSDC's federal account and sufficient funds were

maintained in that account to make any necessary refunds. Within the sixty-day period

provided for the resolution of excessive contributions by 11 CFR 103.3(b)(3), the

excessive portions were transferred to a non-federal account. However, no evidence was

found that the contributors were notifIed of the transfer or advised that a refund was

available.

At the exit conference, the Audit staff provided NYSDC representatives

with a schedule ofthe identified excessive contributions.

In the Interim Audit Report, the Audit staff recommended that the NYSDC

provide evidence demonstrating that the contributions in question were not excessive, as

well as a narrative description of changes implemented with respect to receipt of

contributions in excess ofthe limitation to avoid future problems. Those procedures

should include a written communication with the contributor advising of the action being

taken and ofthe availability of a refund.

In response to the Interim Audit Report, the NYSDC stated "We have

received written permission to make such transfers from each ofthe seven individuals

identified by the FEe. None ofthese individuals have requested a refund. In the future,

such a Ictter will be sent within ten days of receipt of said contribution."

The NYSDC provided copies of reallocation letters for six of the seven

contributors. The letters were all dated August 25, 2000, the date ofthc cxit conference,

and inlomled the contribulors lhallhe excessive portions ofthe contribulions were

deposited into the non-federal account without written permission to do so. The

contributors were asked to sign, date and return the letters to give the NYSDC written

pemlission to allocate the contributions. All six copies of the letters were signed by the

contributors, although only five of thcm wcre dated by the contributors.

B. DOCUMENTATION AND DISCLOSURE OF DEBTS ANI) OIlLlGATIONS

Sections 432(c) and (d) ofTitle 2 of the United States Code state, in

relevant part, that the treasurer of a political committee shall keep: an account of the

name and address of every person to whom a disbursement is made; the date, amount, and

purpose ofthe disbursement; the name of the candidate and the office sought by the

candidate, jf any, for whom the disbursement was made; and, a receipt, invoice. or

canceled check for each disbursement in excess of 5200. The treasurer shall preserve all

records required to be kept by this section and copies of all reports required to be fi led by

this subchapter for 3 years after the report is filed.

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Section 102.9(d) ofTitle II ofthe Code of Federal Regulations states that

in perfonning recordkeeping duties, the treasurer, or his or her authorized agent, shall use

his or her best effort to obtain, maintain and submit the required inforn1ation and shall

keep a complete record ofsuch efforts. If there is a showing that best efforts have been

made, any records of a committee shall be deemed 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 receipt, invoice or canceled check.

Section 104.11(a) and (b) ofTitle l1 of the Code of Federal Regulations

states, in relevant part, that debts and obligations owed by a political committee which

remain outstanding shall be continuously reported until extinguished. A debt or

obligation, the amount of which is $500 or less, shall be reported as of the time payment

is made or not later than 60 days after such obligation is incurred, whichever comes first.

A debt or obligation, the amount of which is over $500 shall be reported as ofthe date on

which the debt or obligation is incurred, except that any obligation incurred for rent,

salary or other regularly reoccurring administrative expense shall not be reported as a debt

before the payment due date.

Section 116.4(1) ofTitle 11 of the Code of Federal Regulations states that

the political committee shall continue to report the debt until the Commission has

completed a review ofthe debt settlement plan pursuant to IJ CFR JI6. 7(1) or until the

Commission has completed a review of the request to forgive the debt pursuant to II

CFR 116.8, or until the political committee pays the debt. whichever occurs first.

As part of its 1997 Mid Year disclosure report. the NYSDC submitted

Schedules D disclosing debts owed to 56 vendors totaling S330,775, which had been

incurred prior to the beginning ofthe audit period. During the audit period, the NYSDC

reported additional debt incurred relative to these vendors, as well as payments and a debt

settlement! resulting in outstanding balances at December 31, 1998 of S33 7,832.

The Audit staff was unable to locate documentation to support the

existence ofthese debts in NYSDC's records. In response to repeated inquiries for

documentation supporting these debts, NYSDC personnel noted that these debts were in

dispute and there was no supporting documentation available.

Ofthis $330,775 in debt disclosed on Schedules D, nearly half relates to

the following six vendors: Conotabs Network (S53,678) for voter files; DNC Travel

Offset (S22,488) for travel; Mead Data CentraliLexis-Nexis (S80,607) for an on-line

computer; Urbach, Kahn & Werlin (SI9.073) for accounting services; Whiteman,

Although the NYSDC reponed that a debt waS settled wJlh Blue Bird Coach Lines on its Schedules

D. the Commission has neither reVIewed a debt settlement plan /lor reVIewed a request to forgIve

the debt with this vendor as IS reqUired 111 II CFR 116A(f)

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Ostennan, and Hanna ($18,007) for legal services; and Zale S. Koff Graphics ($24,614)

for printing. The NYSDC has stated that it filed amended Schedules D to disclose these

debts in response to a question that arose from Matter Under Review (MUR) #46083

The Audit staff has reviewed MUR #4608, as well as disclosure reports and other filings

made by the NYSDC prior to the audit period, and the only document that provides any

infonnation is a debt settlement plan that the NYSDC submitted to the Commission on

July 18,19964 The NYSDC attempted to settle the two largest reported debts with

Conotabs Network ($53,678) and Mead Data Central ($80,607). In the debt settlement

plan, the NYSDC indicates that these two debts were incurred during the 1994 New York

gubernatorial campaign.

Further, the review of debts and obligations incurred during the audit

period revealed that the NYSDC failed to report debts to 16 vendors that totaled

$1 10,118. The vendors provided services such as printing, telephone, fundraising,

accounting, polling and computer services. From the documentation that was available,

debt totaling $12,098 remained outstanding as ofDecember 31, 1998.

At the exit conference, these issues were discussed with NYSDC

representatives. They re-stated that the debt incurred prior to the audit period resulted

from the MUR and was in dispute. The NYSDC representatives did not respond to the

issue ofthe more recent debts.

In the Interim Audit Report, the Audit staff recommended that the NYSDC

provide documentation supporting the reported debt incurred prior to the audit period.

Further, the Audit staff recommended that the NYSDC file Schedules D (by reporting

period) to disclose the S11 0, 118 in debt incurred during the audit period.

In response to the Interim Audit Report, the NYSDC filed amended

Schedules D to disclose the $110,118 debt that was incun'ed during the audit period. In

response to the issue of reported debts incurred prior to the audit period, the NYSDC

cited 2 U.S.c. §432(d), contending that records must be maintained for three years

following a transaction. Further, it stated, "we believe that the State Committee no longer

is required to maintain these records. However, even if the State Committee was required

to maintain these records, please note that as these activities occurred nearly seven years

ago, any applicable statute oflimitation for collection has expired." Nonetheless.

NYSDC submitted documentation or information for many ofthese debts. For Mead

Data Central/Lexis-Nexis ($80.607). NYSDC provided a Stipulation of Settlement dated

June 9, 1999, filed with the Supreme Court of the State of New York. County of Kings.

MUR 4608 was generated internally. allegmg. m part. that the NYSDC did not report $208.000 in

debt. The NYSDC entered into a conciliation agreement to settle thIS matter The CommiSSIOn

closed the file on January 21, 1998.

On August 28.1996. the CommiSSIon concluded that :--lYSDes debt settlement plan did not meet

the criteria set forth in 1J CFR Part 116 and the NYSDC could not senle its debts WIth these

vendors.

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indicating the debt had been settled for the sum of540,000 and had disclosed this on its

Mid-Year 1999 report. The settlement has not been submitted to the Commission for its

approval. In addition, a letter was provided from the New York Amsterdam News that

confirms a debt of 53,935 remains outstanding. Conversely, documentation was provided

indicating no debt exists to DNC Travel Offset (522,488), Oxford Health Plans (55,795)

and Rudin Management Corp. ($ 12,344). Further. NYSDC indicates that for 15 vendors.

owed a total of597.008, no telephone listing could be found when directory assistancc

was contacted. Fina]]y, the NYSDC reported the extinguishment of a 512,250 deht owed

to Skadden, Arps during 1999. All of the other debts remain unchanged.

The Audit staff notes that 2 U.s.c. ~432(d) does not state that records

must be maintained for three years following a transaction, hut it does state that all

records required to be kept and copies of all reports shall be preserved for three years

after the report is filed. Since the NYSDC has continued to disclose the debt on its

reports through its last filing, the :WOO Year-End report, the three-year record retention

requirement has not expired. The NYSDC must continue to report the debt (5330,775)

incurred prior to the beginning of the audit period, as required under II CFR 104.11.

until the Commission has completed a review of a debt settlement plan pursuant to 11

CFR §116.7(f) or until the Commission has completed a review of the request to forgive

the debt pursuant to 11 CFR §116.8, or until the debts are paid.

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FEDERAL ELECTION COMMISSION

May 29,2001

Mr. David Alpert, Treasurer

New York State Democratic Committee

60 Madison Avenue Suite # 120 I

New York, NY 10010

Dear Mr. Alpert:

Attached please find the Final Audit Report on the New York State Democratic

Committee. The Commission approved the report on May 25, 2001.

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

on June 4,2001. Should you have any questions regarding the public release ofthe

report, please contact the Commission's Press Office at (202) 1)94-1220. Any questions

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

Mr. Tesfai Asmamaw or Mr. Alex Boniewicl ofthe Audit Division at (202) 694-1200 or

toll free at (800) 424-9530.

Robe . Costa

Assistant Staff Director

Audit Division

Attachment as Stated

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CHRONOLOGY

NEW YORK STATE DEMOCRATIC COMMITTEE

Audit Fieldwork

Interim Audit Report

to the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

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July 17-

August 25, 2000

April 18,200]

May 11, 2001

May 25,2001
!

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