FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 204&3

July 8, 1997

MEMORANDUM

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

THE NEW JERSEY DEMOCRATIC STATE COMMIITEE

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TO:

. FROM:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE ~/

ROBERT J. COSTA -"A.~ ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

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

New Jersey Democratic State Committee which was approved by the Commission on June

20, 1997.

Infonnational 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 ADalysis Division

FEC Library
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REPORT OF'THE AUDIT DIVISION

ON THE

New Jersey Democratic

State Committee

Approved JUDe 20, 1997

FEDERAL ELECI10N COMMISSION

999 E STREET, N.W.

WASBINGTON, D.C.
TABLE OF CONTENTS ..

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NEW JERSEY DEMOCRATIC STATE COMMI'ITEE

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I' Page ... 07 Executive Summary 1

... 0 Final Audit Report

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..i Background

3 ... 1 Findings 5 458 Legal Analysis 25

Transmittal to Committee 27

Chronology 29
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

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FINAL AUDIT REPORT

ON TIlE

NEW JERSEY DEMOCRATIC STATE COMMl'ITEE

EXECUTIVE SUMMARY

The New Jersey Democratic State Committee (the Committee) registered with

the Federal Election Commission on October 16, 1978 and maintains its headquarters in

Trenton, New Jersey. The audit was conducted P1D'SU8Dt to 2 U.S.C. Section 438(b),

which states that the Commission may conduct audits ofany political committee whose

reports fail to meet the threshold level ofcompliance set by the Commission. The

findings ofthe audit were presented to the Committee at an exit conference held

subsequent to the completion offieldwork and later in an interim audit report. The

Committee's responses to those findings are included in this tiDal audit report.

SBABEDFEDEBA! ANDNON-FEPERAI,ACTMTY-l1 CFR§§102.S(a),

104.1O(b)(4), 106.S(gXl), 106.S(dX2). On its Joint FederaVNon-federalActivity

Schedules (H4) filed during the audit period, the Committee misclassified allocable

expenses totaling 5667,161; failed to report allocable expenses totaling $149,381; and

paid for 5253,294 in allocable expenses from the Committee's state operating account, a

non-federal account In response to the interim audit report the Committee provided

information which reduced the amount paid from the non-federal account to S108,331.

The recommended amended Schedules H4 to correct the public record were not filed.

ApPARENT OyER-FUNDING BY mE NON-FEDERAl, ACCOUNTS - 11 CFR

§§102.5(a), 106.5(gXl) and (2), 104.3(d), 104.11. The audit identified payments for

allocable expenses made by the Committee's non-federal accounts which exceeded the

non-federal share by 5238,915. Based on the Committee's response to the previous

finding, the excessive amount has been reduced to 5180,476. Evidence that the DODfederal account did not make the excessive payments was Dot provided. Also not

provided was evidence ofa reimbursement by the federal account to the DOn-federal

accounts or a Schedule D (Debts and Obligations) disclosing the amount as a debt to the

non-federal accounts.

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REoJIESTFOBREcORDS-2 U.S.C. §441a(dXI), II CFR §§104.l4(bX1),

110.7(aXl) and (4), lOO.8(b)(18). The interim audit report requested that the Committee

submit records related to six vendors who provided campaign ltnaterials, phone bank, and

voter registration services. The materials were necessary to determine whether payments

for the services represented contributions to candidates. The documents submitted _

indicate that some ofthe payments qualified as exempt activity under II CPR _. --

lOO.8(b)(18)1 but others did not, including, 5203,363 in direct mail expenses and S71,000

in phone bank activity. The Committee stated that it was unable to provide

documentation from 3 vendors whose services related to voter files.

MISSTATEMENT OF FINANCIAL ACTMTY - 2 U.S.C. §434(b)(1), (2), and (4).

Reported totals ofreceipts and disbursements for calendar year 1991, were overstated by

net amounts ofS214,438 and 5782,615 respectively. Reported totals ofreceipts and

disbursements for calendar year 1992, were overstated by net amounts of5255,764 and

51,119,839 respectively. Ending cash was also misstated for both calendar years.·The

interim audit report recommended that the Committee file amended reports. However,

none were filed.

CASH DISBURSEMENTS TO ELECIlON DAy WORKERS - 2 U.S.C. §432(hXI);

II CPR §102.9(b) and (d) and §102.l0. Three Committee checks totaling $400,000 were

cashed and the cmrency was distributed to defray the expenses ofelection day workers.

In response to the interim audit report, the Committee presented information to show that

this activity appeared to be akin to petty cash disbursements documented by a written

journal. Nonetheless, docmnentation in support ofS128,217 ofthe $400,000 was not

provided.

DISCLOSURE OF EXEMPT LEGAL AND ACCOIJNDNG SERVICES - 11 CFR

§104.3(h). The Committee failed to disclose exempt legal services valued at S34,020.

The interim audit report recommended that the Committee file memo Schedules A to

disclose the information. However, none were filed.

DISCLOSURE OF CoNTBIBIITIONS FROM INDMDUAl$ - 2 U.S.C. §§434(b)(3)

(A), 431(13XA), 432(i) and ) 1CFR §104.7(b). The Committee failed to disclose

occupation and name of employer on its schedules ofitemized contributions. The interim

audit report recommended that the Committee provide evidence ofits best efforts to

obtain and submit the information along with amended Schedules A to correct the public

record. In response to the interim audit report, the Committee stated that best efforts had

been made but documentation to support the statement and amended Schedules A were

not provided.

I Under II CFR §§lOO.7(bX9), (IS) and (17) and lOO.8(bXlO), (16), and (18) certain party expenditures

are exempt from the definition of "contribution" and "expenditure" and are therefore Dot contributions to

or expenditures OD behalfof a candidate(s).

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I.

REPORTOF THE AUDITDIVISION

ON THE

-NEWJERSEYDEMOCRATICSTATECOMMI1TEE

BACKGROUND

A. AUDIT AUTHORITY

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;-- This report is based on an audit ofthe New Jersey Democratic State

Committee (the Committee) undertaken by the Audit Division ofthe Federal Election

Commission (FEC) in accordance with the provisions ofthe Federal Election Campaign

Act of 1971, as amended (the Act). The audit was conducted pursuant to Section 438b of

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

audits and field investigations ofany 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. AUDIT COVERAGE

The audit covered the period January 1, 1991 through December 31, 1992.

The Committee reported a beginning cash balance on January 1, 1991 of$32,795; total

receipts for the period of52,955,719; total disbursements for the period of$4,136,393; and

an ending cash balance of5282,568.1

c. COMMITIEE ORGANIZATION

The Committee registered with the Federal Election Commission on

October 16, 1978 and maintains its headquarters in Trenton, New Jersey. The Treasurers

1 The fipres do not foot due to VIrious reportina errors. In addition, the reported fiaures for receipts

and disbursements inaccurately include tnnsactions which never occurred as well as transactions

paid solely from the Committee·s non-federal accounts. See Finding 11.0. All amounts have been

rounded to the nearest dollar.

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ofthe Committee during the period covered by the audit were: Robert Menendez &om

October 19, 1990 until April 17, 1992 and Raymond 1. Lesniak from April 18, 1992

through December 31, 1992. The cUlTent treasurer is Raul "Rudy" Garcia.

D. AUDIT SCoPE AND PROCEDURES

The Committee was engaged in activities which the COJDnlittee represented

met the requirements for exempt activities outlined at 11 CFR §100.7(b)2 and 11 CFR

§IOO.8(b). However, the scope ofour testing ofCommittee Phone Bank and

Get-Out-the-Vote activities was limited because descriptive supporting documentation was

not provided (see Finding n..c.).

The scope ofour testing ofcertain Committee disbursements was limited

due to a lack ofCommittee records related to approximately $400,000 in cash

disbursements. The regulations at II CFR §102.10 require political committees to make

all disbursements, except for disbursements from a petty cash fund, by check or similar

dr8ft drawn on account(s) established at the committee's campaign depository (see Finding

II.E.).

Although the Committee minimally met the recordkeeping requirements of

11 CFR §102.9, our testing ofcontributions from individuals was limited relative to

compliance with limitations and itemization ofcontributor information, as well as the

verification offundraising allocation ratios reported on Schedule 81. The manner in which

contribution records were maintained made testing impractical. Although in some cases

aggregate totals for contributions were reflected on schedules included in the Committee's

reports, no record or documentation was made available to support those entries or fonn a

basis for testing. In addition, for certain time periods, Committee records consisted ofonly

bank deposit tickets containing last names and amounts.

The audit covered the following general categories:

1. The receipt ofcontributions or loans in excess ofthe statutory limitations;

2. the receipt ofcontributions from prohibited sources, such as those from

corporations or labor organizations;

3. proper disclosure ofcontributions from individuals, political committees

and other entities, to include the itemization ofcontributions when J:eCluired,

as well as, the completeness and accuracy ofthe information disclosed (see

Findings D.F. and G.);

2 The regulations cited and referenced thereto in this report refer to regu1ations in effect for the period

111191 through 1213 1/92.

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proper disclosure ofdisbursements including the itemization of

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

the information disclosed;

proper disclosure ofcommittee debts and obligations;

6. accuracy oftotal reported receipts, disbursements and cash balances as

compared to committee bank records (see Finding n.D.);

.. 1..- --adequate recordkeeping-for-committee transactions (see·Findings II.C. and

E.);

10. 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 further any ofthe matters

discussed in this report in an enforcement action.

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proper disclosure ofthe allocation ofcosts associated with administrative

expenses and activities conducted jointly on behalfoffederal and

non-federal elections and candidates (see Findings II.A. and B.);

review ofexpenditures made on behalfoffederal candidates; and

II. AUDIT FINDINGS AND RECOMMENDATIONS

BACKGROUND

During the audit period, the Committee maintained three federal bank accounts and

ten non-federal accounts. Activity in "the FEe account", opened prior to 1991, coJisisted

mainly ofreceipts from individuals and political committees as well as disbursements

made to reimburse the non-federal account, transfers to other Committee accounts, and

payments for day-to-day administrative expenses. A second federal account, "the FED 1

account", was established in September 1992 for the purpose offunding exempt activity,

such as campaign materials and mailings handled by volunteers, voter ID, and

Get-Out-the-Vote (GOTV) phone banks staffed by volunteers. A third federal account,

"the FED 2 account" was established on September 16, 1992. The FED 2 account was set

up to accept transfers from the Democratic National Committee (ONC) and make

payments related to administrative, operating, and payroll expenses. Receipts of

52,485,518 were deposited and $2,233,938 in expenditures were made from the three

federal accounts.

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One Don-federal account, the state operating account, was used to fund strictly state

and local operating expenses and also expenses for shared federal and nOD-federal .

activities. Approximately, $4,033,027 in receipts were deposited and 53,570,151 in

expenditures were made from this Don-federal account

The opening ofthe two federal accounts in September 1992 may have resulted frOm

instructions contained in correspondence dated August 24, 1992 received from the

Association ofState Democratic Chairs (ASDC). According to this correspondence, state

parties were to maintain two federal bank accounts - one for generic/administrative

. expenses and one forexempt activities;.all-transfersfrom-the-Democratic National

Committee (ONe) were to be deposited into the generic/administrative federal account and

all other money raised, into the exempt account This mangement was intended to insure

that the costs of"exempt" activities were not paid by money transferred to the state party

bytheDNC.

The Committee did DOt handle its shared federal/non-federal expenses in

accordance with 11 CFR §106.5, either by establishing a separate allocation account into

which funds from its federal and non-federal accounts were deposited solely for the

purpose ofpaying the allocable expenses or by paying all shared expenses from its federal

account and transferring funds from its non-federal account to cover the non-federal share

ofthe allocable expenses.

For the period 1/1/91 through 6130/92, shared expenses were paid entirely from the

Committee's non-federal accounts, a practice not in compliance with 11 CFR §106.5.

According to Committee officials, this occurred because there was a lack ofsufficient

funds in the FEC account A record ofthe payments from the non-federal accounts for

shared expenses was maintained; as funds became available the amount ofthe federal

portion was reimbursed to the non-federal accounts.

During 1991, the FEC account was the only federal account open. The account had

deposits totaling $48,323 and disbursements totaling $34,198. A payment of526,707 was

made to the non-federal account representing the federal portion ofshared expenses paid

by the non-federal account during the 1st quarter of 1991. In addition to these

disbursements, the Committee reported that 5782,561 in disbursements for shared

federal/non-federal activity were made from the non-federal accounts.3

The Committee's disclosure reports for calendar year 1991 include the

disbursements made from the non-federal accounts. The federal share oftbe disbursements

was reportedly 5238,944 and the non-federal share was reportedly S570,323. The reports

also contain entries Ieplesenting fictitious transfers from the non-federal account tOtaling

$212,238. According to Committee officials, these entries 'Wel'e intended to represent the

3 In addition, other disbursements for shared activity were made from the non-federal accounts which

were Dot reported (see FindiDl U.A.2.).

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federal share ofallocable expenses paid by the non-federal accounts. The Committee also

reported debts of$212,238 owed by the federal account to the non-federal account at

December 31, 1991.

During 1992, the Committee's federal accounts had deposits totaling 52,437,195

and disbursementstotaling $2,199,740. In addition to these disbursements, the Cominitte;

reported that S1,204,778 in disbursements for shared federal/non-federal activity were

made from the non-federal accounts.4

- - The Committee's reports for theperiod-l/l/92-through 6130/92 disclose total

disbursements of$829,795. This amount includes 5646,884 in disbursements which were

made from the non-federal accounts for shared activity. The federal share ofthe .

disbursements was reportedly $191,402 and the non-federal share was reportedly

$455,481. These reports also contain entries representing fictitious transfers of$191,402

from the non-federal accounts. During this period, the Committee reported the incurrence

ofadditional debts of$191,402 owed by the federal account to the non-federal accounts. It

also reported payments ofS182,253 against the debts owed to the non-federal accounts.

For the period 7/1/92 through 12/31/92, the Committee's reports disclosed total

disbursements ofS2,489,785, ofwhich 51,615,807 was reportedly for shared expenses. Of

this amount 5557,894 in payments were made from the non-federal accounts. The

Committee's reported receipts include transfers of5894,649 from the non-federal accounts,

including 597,166 in fictitious transfers. During this period, the Committee reported the

incurrence ofadditional debts ofS67,928 owed by the federal account to the non-federal

accounts and made payments ofS268,553 against the debts owed to the non-federal

accounts.

Findings II.A.I. through ll.A.3. detail other irregularities with respect to the

reporting ofshared federal/non-federal activities. Finding II.B. addresses over-funding by

the non-federal accounts and the reporting ofdebt relating thereto. Finding 11.0. addresses

the Committee's Misstatement ofFinancial Activity on FEC disclosure reports.

A. REPORTING OF SHARED FEDERAL AND NON-FEDERAL ACTIVITY

Section 102.5(a) ofTitle 11 ofthe Code ofFederal Regulations states, in

part, that organizations that are political committees under the Act, including a party

committee, which finances political activity in connection with both federal and

non-federal elections sbaI1 establish a separate federal account in a depository. Such

account shall be treated as separate federal political committee which shall comply with the

requirements ofthe Act All disbursements, conbibutions, expenditures and transfers by

4 See footnote '2J above.

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the committee in connection with any federal election shall be made from its federal

account; or, establish a political committee which shall receive contributions subject to the

prohibitions and limitations ofthe Act, regardless ofwhether such contributions are for use

in connection with federal or non-federal elections. .

Section 104.10(b)(4) ofTitle 11 ofthe Code ofFederal Regulations states;

in part, that a political committee that pays allocable expenses shall also report each

disbursement from its federal account in payment for a joint federal and non-federal

expense or activity. In the report covering the period in which the disbursement occurred,

the committee"shall "State the full name-and address ofeach person" to whom the

disbursement was made, and the date, amount and purpose ofeach such disbursement. If

the disbursement includes payment for the allocable costs ofmore than one activity, the

committee shall itemize the disbursement, showing the amounts designated for payment of

administrative expenses and generic voter drives, and for each fundraising program or

exempt activity. The committee shall also report the total amount expended by the

committee that year, to date, for each category ofactivity.

Section 106.5(g)(1) ofTitle 11 ofthe Code ofFederal Regulations states, in

relevant part, that committees that have established separate federal and Don-federal

accounts, shall pay the expenses ofjoint federal and non-federal activities by either ofthe

following: The committee shall pay the entire amount ofan 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; or the committee sh8II

establish a separate allocation account into which funds from its federal and non-federal

accounts shall be deposited solely for the purpose ofpaying the allocable expenses ofjoint

federal and non-federal activities. Once a committee establishes a separate allocation

account, all allocable expenses shall be paid from that account for as long as the account is

maintained.

Section 106.5(d)(2) ofTitle 11 ofthe Code ofFederal Regulations states, in

relevant part, that state and local party committees in states that do not hold federal and

non-federal elections in the same year shall allocate the costs ofgeneric voter drives

according to the ballot composition method based on a ratio calculated for that calendar

year. These committees shall allocate their administrative expenses according to the ballot

composition method based on the ratio calculated for the two-year Congressional election

cycle.

1. Schedule 84 RcportiDa Ill'Cplarities

During the review ofthe Committee's shared activity expenses, the

Audit staffdetermined that the Committee bad reported on itsjoint federallnon-fecleral

activity schedule (SchedJ.!le H4) allocable expenses totaling approximately $667,161 which

appeared to be classified incorrectly. Although the Committee's reports disclosed specific

expense purposes such as generic slate cards, GOlV calls, volunteer expenditures-election

day, and VanslGOTV rally, all ofthe above expenses were allocated at the percentage for

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administrative expenses on the Committee's pre and post general election reports. These

expenses appear to be generic voter drive expenses. In calculating the federal share for

these expenses, the Committee incorrectly applied the admjnistrative eXIMmSe ratio

(33.34% Federal, 66.66% Non-federal) rather than the correct ratio (50%) for the allocation

ofgeneric voter drive costs.S _

Based on the above, the Audit staffcalculated an overpayment of

$111,150 made by the non-federal account to fund shared expenses. This amount is

mcluded in the total overpayment by the non-federal accounts discussed at Finding B.

At the exit conference, the Committee was provided with copies of

the Audit stairs workpapers detailing the above misclassified expenses. Committee

officials were surprised that staffmembers had not classified shared activity transactions as

previously instructed.

The interim audit report recommended that the Committee file

amended Schedules 84 showing the correct allocation for $667,161 in expenses identified

by the Audit staffas incorrectly classified.

In response to the interim audit report, the Committee acknowledged

that errors were made with regard to the reporting ofexpenditures, but does not agree with

all ofthe adjustments proposed by the Audit staff. Forthis reason, the Committee stated

that it desired to reach an agreement with the Commission regarding the proper

adjustments before amending the reports.

Regarding the 5667,161 in expenses incorrectly classified, the

response included a schedule of 13 expenditures to NJ Bell and AT & T which the

Committee states are incorrectly classified by the Audit staffas Voter Drive rather than

Administrative expenses. With respect to 4 ofthe expenditures totaling $24,519, the

Committee states that they represent charges for actual phone usage. The response states:

"The payments ofthe invoices, while near election day, simply

reflect the grace period provided by these vendors. Because ofthe period

these invoices covered, the NJDSC [New Jersey Democratic State

Committee] believes its original classification is accurate and that the

adjustments recommended by the Interim Audit are invalid."

Regarding the 9 remaining items totaling 517,900, the Committee

states that these are clearly described as deposits and, "the round dollar amount ofeach

expenditure, especially when contrasted with other payments for usage, would support this.

While these deposits were made for activities that would support the Interim Audit's

5 State party committees in states like New Jersey which held a non-federal election in 1991 and then

• federal election in 1992. must allocate generic voter drive costs using a ratio calculated separately

for each calendar year based on the ballot composition for that election.

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reclassification as Voter Drive activities, because these deposits were ultimately refunded,

the NIDSC believesthat the act ofthe refunding ofthese expenditures ultimately reverses

the Interim Audit's reallocation for these items rendering the initial allocation

unnecessary."

The Committee proposed reducing the allocation detailed in the .-

interim report by S7,067. Otherthan statements included in the response, the Committee

provided no documentation, such as telephone bills or evidence ofreftmds to support its

position. Therefore, the Audit staft"s conclusion remains unchanged.6

2. Unreported Shared E'Q)CDSCS Paid by the Non-Federal Account

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As noted earlier, the Committee utilized non-federal accounts to

fund expenses for shared federal and non-federal activities. The Audit staffdetermined, for

the period under audit, that the Committee failed to allocate and report approximately

S2~3,294 in shared activity expenses paid by the state operating account. Ofthis total,

$98,759 should have been allocated to the federal account

The S253,294 in expenses is comprised 0($158,440 in

administrative expenses, ofwhich S52,819 is the federal share; $88,904 in GOTV and

voter registration expenses (federal share totaling $44,452); and SS,9S0 in fundraising

expenses (federal share totaling S1,488).

At the exit conference, the Audit staffprovided the Committee with

workpapers detailing the above OOTV, Voter registration, and fundraising activity

expenses.

The interim audit report recommended that the Committee file

memo schedules H4 to disclose the $253,294 in allocable expenses paid from the

non-federal account

In response to the interim report, the Committee submitted two

schedules ofdisbursements which it states were incorrectly included on the Audit staff's

schedules ofdisbursements from the non-federal account which should have been allocated

and reported. The Committee stated that the items listed on the schedules submitted

l'represent expenditures that were made solely for the purpose ofstate political issues.

Most notable ofthese expenditures were those to Carville" BegalL" The Committee

attached a letter from this firm which references its consulting work for the Committee.

The letter states that the finn's consultation in New Jersey was in no way related to the

1992 federal election.

, The Committee reponed the receipls 0($11,000 in refunds &om NJ Bell and $238 from AT&T on

its disclosure report for the period 111/93 • 3131/93.

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Given the Committee's explanations with regard to the items on the

Committee'sschedules and the Audit staff's review ofthe related documentation, the

Audit staffhas adjusted the amount ofthe allocable expenses paid from the non-federal

account by 5144,964, leaving a balance of $108,331 in allocable expenses which must be

disclosed on memo schedules H4. Ofthe S108,331, $40,320 is allocable to the federal

account

The Committee did not file amended reports in response to the

interim audit report.

During our review ofthe Committee's FED 2 account, the Audit

staffdetermined that the Committee failed to report a total of5149,381 in shared activities

transactions on its Schedule H4. In addition, our review indicated that the Commit:tee had

prepared revised Schedules H4 which were materially correct. However, these schedules

have not been filed with the Commission.

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The interim audit report recommended that the Committee file

Schedules H4 to disclose the 5149,381 in disbursements from the FED 2 account which

were not previously reported. As stated, no amended reports were filed.

B. ApPARENT OVER-FUNDING BY THE NON-FEDERAL ACCOUNTS

Section 102.5(a) ofTitle 11 ofthe Code ofFederal Regulations states, in

that organizations that are political committees under the Act, including a party

committee, which finances political activity in connection with both federal and

non-federal elections shall establish a separate federal account in a depository. Such

account shall be treated as a separate federal political committee which shall comply with

the requirements ofthe Act. All disbursements, contributioDS, expenditures and transfers

by the committee in connection with any federal election shall be made from its federal

account; Of, establish a political committee which shall receive contributions subject to the

prohibitions and limitations ofthe Act, regardless ofwhether such contributions are for use

in connection with federal or non-federal elections.

Section 106.5(g)(1) ofTitle 11 ofthe Code ofFederal Regulations states, in

relevant part, that committeesthat have established separate federal and non-federal

accounts, shall pay the expenses ofjoint federal and non-federal activities by either ofthe

following: The committee shall pay the entire amount ofan allocable expense from its

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

solely to cover the non-federal share ofthat allocable expense; or the committee shall

establish a separate allocation account into which funds from its federal and non-federal

accounts shall be deposited solely for the purpose ofpaying the allocable expenses ofjoint

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federal and non-federal activities. Once a committee establishes a separate allocation

account, all allocable expenses shall be paid from that account for as long as the account is

maintained.

Section 106.S(g)(2) ofTitle 11 ofthe Code ofFederal Regulations states, in

part, that any portion ofa transfer from a committee's Don-federal account to its allocation

account that does not meet the requirements ofparagraph (g)(2Xii) ofthis section shall be

presumed to be a loan or contribution from the non-federal account to a federal account, in

violation ofthe Acl

Section I04.3(d) oeTitle II ofthe Code ofFederal Regulations states, in

part, that each report filed under 11 CFR 104.1 shall, on Schedule D, disclose the amount

and nature ofoutstanding debts owed by the reporting committee.

Section 104.11 ofTitle 11 oftile Code ofFederal Regulations states, in part,

that debts owed by a political committee which remain outstanding shall be continuously

reported until extinguished. These debts shall be reported on separate schedules together

with a statement explaining the circumstances and conditions under which each debt was

incurred or extinguished.

Based on our analysis at the conclusion offieldwork, the Audit staff

identified allocable expenses totaling 53,447,124, ofwhich 51,240,263 represents the

federal share, and 52,206,862 the non-federal share. Against these expenses, the Audit

staffdetennined that the federal account paid 51,001,348 and the non-federal account paid

$2,445,777. Therefore, it appeared that the non-federal account made payments for

allocable expenses in excess orits allocable share by 5238,915 (52,445,777 - 52,206,862).

During the period 1/1191 through 9/30/92, the Committee recognized and

reported as debts, amounts owed by the federal accounts to the non-federal accounts for the

federal share ofshared expenses paid by the non-federal account. (See Section II.

Background above.) However, for the period 10/1/92 through 12/31/92, the Committee

ceased to recognize and report as debts amounts paid solely by the non-federal accounts for

shared expenses.

Copies ofworkpapers were provided to the Committee detailing the

apparent overpayment Committee officials had no comment.

The interim audit report recommended that the Committee provide evidence

which demonstrates that the non-federal account did not make payments of5238,915 in

excess ofits share for allocable expenses. Absent such evidence, the report recommended

that the federal account repay the non-federal account $238,915 and provided evidence of

such repayment (copies ofthe front and back ofthe negotiated check). Iffunds were not

available to make the repayment, the amoWlt is to be continuously reported as a debt until

extinguished.

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,- In additiOn, the report recommended that the Committee include as part of

the amended January 31 Year End Report (1992) requested for Section n.D. Misstatement

ofFinancial Position, a Schedule D (Debts and Obligations Excluding Loans) which

discloses the debt ($238,915) owed to the non-federal account.

As previously stated, no amended reports were filed in response to the- ..-"

interim report. Moreover, the response makes no reference to the recommended

reimbursement to the non-federal account However, based on the Committee's response

to Section n.A.2. above, the amount which must be reimbursed to the non-federal account

has been reduced to S180,476.

c. REQUEST FOR RECORDS

Section 104.14(b)(1) ofTitle 11 ofthe Code ofFederal Regulations requires

each political committee or person required to file any report or statement under this

subchapter to maintain all records relevant to such reports or statements. Those records,

with respect to matters required to be reported, include 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.

Section 441a(d)(l) ofTitle 2 ofthe United States Code states, in part, that

the national committee ofa political party and a State committee ofa political party,

including any subordinate committee ofa State committee may make expenditures in

connection with the general election campaign ofcandidates for Federal office subject to

the limitations contained within this subsection.

Sections 110.7(a)(l) and (4) ofTitle 11 ofthe Code ofFederal Regulations

state that the national committee ofa political party may make expenditures in connection

with the general election campaign of any candidate for President ofthe United States

affiliated with the party. The national committee ofa political party may make

expenditures authorized by this section through any designated agent, including State and

subordinate party committees.

Sections lOO.8(b)(18)(i), (ii), (v) and (vii) ofTitle 11 ofthe Code of Federal

Regulations state, in part, that payment by a State or local committee of a political PartY of

the costs ofvoter registration and get-out-the-vote activities conducted by such committee

on behalfofthe Presidential and Vice Presidential oominec(s) ofthat party is not an

expenditure for the purpose ofinfluencing the election ofsuch candidates provided that the

following conditions are met:

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Such payment is not for the costs incurred in connection with any

broadcastina. DeWSpapeI'. magazine, billboard, direct mail, orsimilar

type ofgeneral public communication or political advertising. For

purposes oftbissection, the term "direct ~" meaDS any maiJing(s)

by a commercial veDdor or any majljng(s) made from commercial

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(li) The portion ofthe costs ofsuch activities allocable to Federal

candidates is paid from contributionssubject to the limitations and

_.4 prohibitioDS.ofthe Act. .

(v) Payment ofthe costs incurred in the use ofphone banks in

connection with voterregistration and get-out-the-vote activities is

not an expenditure when such phone banks are operated by volunteer

workers. The use ofpaid professionalsto design the phone bank

system, develop calling instructions and train supervisors is

permissible. The payment ofthe costs ofsuch professioual services

is not an expenditure but sbal1 be reported as a disbursement in

accordance with 11 CPR 104.3.

(vii) Payments made from funds donated by a national committee ofa

political party to a State orlocal party committee for voter

registration and get-out-tbe-vote activities shall not qualify under

this exemption. Rather, such funds sbal1 be subject to the limitations

of2 U.S.C. 441a(d) and 11 CPR 110.7.

The Audit staffidentified six vendors that provided various campaign

materials, phone bank and voter registration services to the Committee. The Committee

generally maintained copies ofrelated invoices and vendor statements, however, no

samples or copies ofphone baDklGOlV materials (i.e., C;r()TV literature, description of

direct mail projects, a description oftile phone bank program or phone bank scripts) were

available for review. Without such materials, the Auditstaffwas unable to determine

whether payments for any ofthese expeuses represented contributionsto candidates or

verify that the Committee's allocation and reporting ofthe expenses for these activities was

correct.

The payments included approximately $284,000 to Message and Media.

Inc., a direct mail vendor. Invoices available for review by the Audit staffduring audit

fieldwork indicated that the payments were for "Clinton Mail Costs." In addition to the

$284,000 paid by the Committee, IIDOtber S46,OOO was billed to the Committee but DO

disbursement for thisID10UDt was ideatified • paid by the Committee. The Committee

reported the payments on Schedule B as exempt activity (pursuant to 11 CPR §IOO.8(16)

and (18». Based on references on the invoices to Clinton Mail and in the absence of

evidence to document the exempt nature ofthe disbursements, it appeared that expenses of

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5330,000 (5284,000 +$46,000) related to services provided by Message and Media, Inc.

may have been made on behalfofthe Clinton/Gore campaign.7 .

Payments to the other vendors noted above included S189,000 to a

telecommunications company for phone bank activity; and approximately S129,000 to the

remaining four vendors for printing and production ofcampaign materials and voter file . '"!

enhancement The paymentsto the telecommunications company and those for voter file

enhancement were reported on Schedule 848• The remaining payments were reported as

exempt activities on Schedule B ofthe Committee's disclosure reports.

The Auditstaffprovided the Committee with a list ofthe vendors and

requested copies ofdocuments. In addition, the matter was addressed during a discussion

with a Committee staffperson and at the exit conference. At the exit conference, the

Committee provided copies ofa phone bank script relative to one ofthe vendors.

The interim audit report recommended that the Committee obtain from its

phone banklGOTV vendors the following documentation:

a. With respect to the direct mail, copies ofdirect mail pieces;

documentation which details the number ofpieces mailed, the origination point ofeach

mailing, the drop date(s), postage costs, costs ofmailing lists used, cost oflabels, ifused;

documentation for the $46,000 billed but not paid as noted above, and any other relevant

costs associated with the mailings.

b. With respect to the phone bank activity, copies ofphone bank

scripts; a detailed analysis ofall phone bank costs, including the location ofthe phone

banks, the dates, number ofcalls made, documentation which associates the cost ofeach

phone bank program with a particular script and documentation which details whether the

phone banks were used in connection with volunteer activities.

c. With respect to the voter file enhancement, documentation which

details how the voter files were used (i.e., in relation to GOTV activity, phone banks, direct

mail, etc.).

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According to the documentation made available to the Auditstaff, the Committee was not

authorized by the DNC under 11 CFR §110.7(aX4) to make expenditures pursuant to 2 U.S.C.

§441a(dXl). The DNC reported that $9,682,711 ofits S10,331,703 National PIny Limit for the

1992 Presidential election had been expended through December 31, 1994.

One payment to the telecommunications company in the amount of$36,250 was not reported.

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cl. With respect to the campaign materials, documentation which details

how the campaign materials were used (i.e., on behalfofa candidate, in relation to GOTV

activityt in connection with volunteer activities, as direct mail, etc.); copies ofor a

description oftile materials.

The Committee's!eSpOuse to the interim report states: "The records -

available all comply with FEC regulations and are either federal exempt volunteer activity

or permissible GOTV activity. Based upon an evident pattern, the NJDSC respectfully

submits that the activities ofthe 1992 election were executed according to the pertinent

gut • " . re ation. ..

a. Direct Mail

With respect to item a. on page 13, the Committee submitted

copies oftwo invoices from Message and Media which detail certain costs associated with

various mailers. Also submitted were copies ofthe mailers. The mailers are identified on the invoices as "Persuasion mailers," "FamilylWomen's Mailer," "Hispanic Mailers and

"ooTV Slate Mail." Except for the GOTV Slate Mail, the mailers generally contain

language in support of the election ofBill Clinton and AI Gore. The GOTV Slate Mail

also lists candidates for Congress and some state and local offices. No documentation was

provided for the $46,000 billed to but not paid by the Committee.

The invoices provided total 5361,260. One invoice in the

amount of5157,897 related to the GOlV Slate mail. These expenses appear to qualify as

exempt activity under 11 CPR lOO.8(bXI0) and need not be allocated to any specific

candidate. The other invoice, in the amount of5203,363 relates to the other mailers.

Except for statements included in the Committee's response, no documentation was

provided to support the exempt Dature ofthese expenses. Thus, it appears that 520~,363 in

expenses for direct mail do not qualify for the exemption under 11 CPR l00.8(bX18) and

are therefore contributions on behalfthe Clinton/Gore campaign.

As previously stated, the Audit staffidentified payments of

approximately 5284,000. Information to relate the payments to the invoices was not

provided.

b. Phone Bank Activity

With respect to item b. on page 13, the Committee submitted

vendor invoicestotaling S187,750, copies ofscripts, and documentation which details

dates and nmnbers ofcaI1s made by Naticmal Telecommunications Services, Inc.

AccordiDs to the documentation, &om October 19·24, 1992

calls were made in conjunction with a ~ew Jersey Voter File Enhancement Project." The

documentation indicates that this wu a voter identification program. Separate scripts for

each of 13 Congressional districts contained 3 questions.

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The first asked ifthe election for President ofthe United

States were held today, would you vote for: Bill Clinton, George Bush, or Ross Perot

The second asked, in the race for Congress, would you vote for the Democratic or the

Republican candidateGl The candidate's name for each CoDgreSSnonal district was

identified. The third question asked ifyou would vote for the Democratic orRepublican

slate ofcandidates for certain county and local offices. Associated payments for these eatiS

totaled $71,000. The Committee'sresponse statesthat "The records available all comply

with FEe regulations and are either federal exempt volunteer activity or pennissible

GOTV activity." The Audit staffDOtes that the documentation states that the calls were

.. made from-Silver- Spring,-Maryltmcl and GinciDnati;.Qbio,it is ~forehighly unlikely

that the phone banks were Opelated by volunteers.

Because specific candidates were mentioned in calls made

from Octobc:r 19·24 and the phone bank was apparendy not a volunteer activity, the costs

associated with its operation do not meet the criteria for exempt activity under 11 CFR

. lOO.8(b)(18). The costs are allocable contributions on behalfofPresidential candidate Bill

Clinton, the Democratic CongressioD81 candidates and the county and local candidates.

Accordingly, one third ofthe costs or $23,667 represents a contribution on behalfofBill

Clinton, S1,821 representsthe amount ofthe contributioDS made on behalfofeach ofthe

13 Congressional candidates ($23,667/13), and $23,667 may be allocated to countY and

local candidates.

Calls made from October 29 through November 3, 1992

contained a "Get Out the Vote"messase. No candidates were identified. Costs associated

with these call totaled $118,250 and need not be allocated to any specific candidate.

c. Voter Files

With respect to item c. on page 13, the Committee's response

to the interim report, states, "A request has been made ofFinancial Innovations to provide

the necessary items; however, as they are busy meeting the demands ofthe current election

cycle, they will only be able to search for the applicable information afterNovember S,

1996. Both the Writing CompaDY and Mid-Atlantic Voter Contact, Inc. are no longer in

business, and although a good faith effort has been made to locate the requested

information, we were unable to obtain records from these entities." No other information

was provided with the Committee's response.

d. Campaign Materials

With respect to item d. on page 14, the Committee submitted

copies ofmaterials produced by Royal Printing Company. The materials included a yard

sign, handouts aDd a leaflet which generally advocate voting for Bill Clinton and AI Gore.

The cost ofthe materials appear to be exempt under 11 CPR l00.8(b)(16).

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D. MlssTATEMENTOJl'FlNANClALACI1VITY.

SectiODS 434(bXl), (2) and (4) otTItle 2 ofthe United States Code state, in

relevant part, that each IepOrt sbaI1 disclose the amount ofcash on hand at the beginning of

each reportiDg period, the total amount ofall receipts, and the total am01Dlt ofall

disbursements for the period aDd calendar year.

As previously stated, the Committee's IepOrted activity includes receipts and

disbursements which are attributable to the Committee's DOD-federal accounts. (See Section

-nBackgro1JDd.above:)-As a ·result oE-this-snd otheJLirreguIarities,-tbeCommittee'sIepOrts

contain the following misstatements.

1. ll1Ul1Q' 1. 1991 tbmuab Qc;c;ember 3J. J99J

a. Bcaioojoa CaSh on Hand

The IepOrted beginning cash on hand balance was

understated by 52,200, a result ofthe Committee not including in the balance a deposit

received in 1990.

b. Rcrcejpts

Reported total receipts were overstated by 5214,438,

primarily the result oflepOrting 5212,238 in fictitious transfers fiom the non-federal

accounts.

c. Diab'U'SCD"CDts

Reported total disbursements were overstated by 5782,615,

which resulted from reporting 5782,561 in disbursements actually paid from the .

Committee's non-federal accounts.

d. Endjoa CaM on Hand

The reported ending cash on hand balance was understated

by S570,347 due to the misstatements noted above.

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2. Janwgy 1 1992 tbmuah Per&mber 31 J992

L Receipts

The Committee reported total receipts of52,692,959 for

1992. The Audit staffdetermined that the Committee should have reported total receipts 1>t

52,437,195. Therefore, the Committee's receipts were overstated by a net amount of

$255,764. The overstatement was the result ofthe following:

The Committee reported total disbursements of$3,319,580 for 1992.

The Audit staffdetermined that the Committee should have reported total disbursements of

$2,199,740. Therefore, the Committee's reported disbursements were overstated by a net

amount of$I,119,839. This overstatement was the result ofthe following:

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. ~·A. - _. reported transfers from. . _._-- .

non-federal accounts not made

B. unreported receipts

C. miscellaneous reporting errors

and reconciling adjustment

Total (net) overstatement

b. pisbtmiemenu

($288,569)

53,857

(21.052)

($255.764)

Total (net) overstatement

A.

B.

C.

D.

reported disbursements made

from non-federal accounts

disbursements not reported

(See Finding ll.A.3.)

disbursement reported twice

miscellaneous reporting errors

and reconciling adjustment

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($1,204,778)

149,518

(46,365)

(18.214)

(1.119.839)
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c. Endio& Casb 00 Hand

The reported ending cash on hand balance was understated

by $4,006, due to the misstatements detailed above.

At the exit conference, the Audit staffexplained that the ..

misstatements were caused primarily by the Committee's practice ofreporting as

disbursements, payments actually made from its non-federal accounts and reporting as

receipts, fictitious transfers from the non-federal accounts. The Committee was provided

- r - copies ofthe-Audit statrs workpapers-whi~hdetailed·the-misstatements..With regards to

the above reporting errors, Committee officials expressed a willingness to file corrected

disclosure reports.

The interim audit report recommended that, the Committee file

amended reports for calendar years 1991 and 1992, as described below, to correct the

misstatements offinancial activity.

a. For calendar year 1991, file a comprehensive amendment

which includes the Committee's activity for the entire year. The summary pages must

reflect activity in the Committee's federal accounts only, together with the appropriate

supporting Schedules A (Itemized Receipts) and B (Itemized Disbursements). In addition,

the Committee must include memo entries on Schedules H4 (Joint Federal! Non-Federal

Activity Schedule) to disclose the disbursements for shared activity paid from the

non-federal accounts. In lieu offiling a comprehensive amendment, the Committee may

file an amended report for each reporting period.

b. For the period 1/1/92 through 6/30/92, file a comprehensive

amendment which includes the Committee's activity for the period. The summary pages

must reflect activity in the Committee's federal accounts only, together with the appropriate

supporting Schedules A and B. In addition, the Committee must include memo entries on

Schedules H4 to disclose the disbursements for shared activity paid from the non-federal

accounts. In lieu offiling a comprehensive amendment, the Committee may file an

amended report for each reporting period.

c. For the remainder of 1992, file an amended report for each

reporting period (October 15th Quarterly Report, Twelfth Day Report Preceding the

General Election, Thirtieth Day Report Following the General Election and the January 31

YearEnd Report) The report summary pages must reflect the Committee's federal activity

only, together with the appropriate supporting Schedules A, B, D, H3 (Transfers from

Non-federal AccoUDts) and H4 correcting the errors noted above. In addition, the

Committee must include memo entries on Schedules H4 to disclose the disbursements for

shared activity paid from the non-federal accounts.

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As previously stated, no amended reports were filed in response to

the interim audit report. In its response the Committee stated, "It is oursincere desire to

reach agreement with the Commission regarding the proper adjustments before we amend

and carry through the appropriate adjustments." .

E. CASH DISBURSEMENTS TO EUCl10N DAY WORKERS

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Section 432(hXl) ofTitle 2 ofthe United States Code states, in part, each

political committee shall designate one or more depository institutions, the deposits or

_. accounts ofwhich· are-insured by th~Federai Deposit-Insurance C-orporation or National

Credit Union Association, as its campaign depository. Each political committee shall

maintain at least one checking account and no disbursements may be made (other than

petty cash disbursements) by such committee except by check drawn on such account in

accordance with this section.

Section 102.9(b) and (d) ofTitle II ofthe Code ofFederal Regulations

requires the treasurer ofa political committee to keep an account ofall disbursements made

by or on behalfofthe political committee. Such account shall consist ofa record ofthe

name and address ofevery person to whom any disbursement is made and the date,

amount, and purpose ofthe disbursement In addition to the account to be kept, 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 behalfofthe committee. In perfonning

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.

Section 102.10 ofTide 11 ofthe Code ofFederal Regulations states that

"All disbursements by a political committee, except for disbursements from the petty cash

fund under 11 CFR 102.11, shall be made by a check or similar draft drawn on account(s)

established at the committee's campaign depository or depositories under II CFR part 103.

The Audit staffexamined three checks totaling S400,OOO, drawn on the

Committee's FED 2 account which were made payable to a Committee staffmember.

According to Committee officials, the checks were cashed and the currency was distributed

to defray the expenses ofelection day workers. Ofthe $400,000 disbursed, $69,476 was

returned to the Committee and redeposited into the Committee's FED 2 account on

November 4, S, 8, and 20, 1992.

During the fieldwork, the Committee provided no records to account for the

$400,000 except for 569,476 which was returned. Although a Committee document

indicated that an additional SSOO was returned and deposited, the Audit staffcould.fmd no

record ofthat deposit

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With respect to the Committee's currency distribution procedures, no

documentationfmformation for the period under audit was available during the fieldwork,

however, the Audit staffwas provided copies ofthe Committee's 1993 written procedures

for distributing currency. According to Committee officials these procedures were similar

to procedures used in 1992. The written procedures indicated that cash was counted out

into amounts ranging from S10 to $1SO and placed in envelopes for distribution to a -

network ofCounty coordinators in various County precincts. Upon receipt ofthe cash

envelopes, County coordinators signed a coordinator receipt form which identified the

coordinator receiving the cash, related region to be worked, itemization of amounts

.. received,-and purpose-{i.e.,GO,:v: operations)·ofthe cash advancer-Committee documents

also noted that excess cash was returned to the cash coordinator for subsequent redeposit.

At the exit conference, Committee officials stated that the cash advances to

election day workers were traditional, however the procedure was changed in 1994-.

The interim audit report recommended that the Committee provide records

to support that the payments described above were made in compliance with 2 U.S.C.

§432(h)(1), II CFR §102.9(b)and (d) and II CPR §102.10.

In response to the interim report the Committee submitted copies of

documents relative to cash disbursements totaling at least S202,307 which included fonns

used by volunteers to acknowledge receipt offunds generally containing the volunteers'

names, addresses, amounts, and signatures. Amounts indicated on the fonns ranged from

$10 to 575. In addition to forms on which an amount was indica~ the Committee

submitted 763 forms which were signed by the recipient but the amount was not indicated.

It appears the disbursement of currency to volunteers in amounts ofless

than S100 in conjunction with the use ofthe volunteer forms is akin to petty cash

disbursements documented by a writtenjoumal.' However, it should be noted that

documentation in support ofS128,217 ofthe $400,000 ($4·00,000 - $202,307 - 569,476)

disbursed has still not been provided.

F. DISCLOSURE OF EXEMPT LEGAL AND ACCOUNTING SERVICES

Section 104.3(h) ofTitle 11 ofthe Code ofFederal Regulations requires a

committee which receives legal or 8CCOWlting services pursuant to 11 CFR 100.7(b)(13)

and (14) shall report as a memo entry, on Schedule the amounts paid for these services

by the regular employer ofthe person(s) providing such services; the dates(s) such services

were perfonned; and the name ofeach person performing such services.

, See the Office ofGeneral Counsel's Memorandum to Robt.rt J. Costa regarding the Final Audit

Report on the North Carolina Victory Fund (LRA 11473), pile 2. In that document, the Counsel's

office stated that "Volunteer Reimbursement Requests" used to document the disbursement of

money orden is akin to petty cash disbursements documented by a written journal.

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Our analysis indicated that the Committee received exempt legal services

valued at 534,020, but failed to disclose this activity. The value ofthe services provided

by a law firm, the dates ofthe services, and the name(s) ofthe individual(s) providing such

services should be disclosed as a memo entry on Schedule A.

At the exit conference, the Committee was provided a copy ofthe Audit .-"

staffworkpapers, detailing the above omission.

The interim report recommended that the Committee file memo Schedules

- ". --A to disclose the required information-as-it relates~ tho~lega1 services mentioned above.

In response to the interim audit report, the Committee acknowledged that

disclosure ofpro bono legal services was inaccurate and stated that at the time that

amended reports are filed, memo entries for the amount ofpro bono legal services will be

included. As previously stated, no amended reports were filed.

G. DISCLOSURE OF CONTRIB1JTI0NS FROM INDmDuALS

Section 434(b)(3)(A) ofTide 2 ofthe United States Code requires a

political committee to report the identification ofeach person who makes a contribution to

the committee in an aggregate amount or value in excess of$200 during a calendar year,

together with the date and amount ofany such contribution. Section 431(13)(A) ofTitle 2

ofthe United States Code defines the term "identification" to be, in the case ofan

individual, the name, mailing address and occupation ofsuch individual as well as the

name ofhis or her employer.

Section 432(i) ofTitle 2 ofthe United States Code states, in part, that when

the treasurer ofa political shows that best efforts have been used to obtain, maintain, and

submit the information required by this Act for the political committee, any report or any

records ofsuch committee shall be considered in compliance with the Act.

With regard to reporting the identification ofeach person whose

contribution(s) to the committee aggregate in excess of$200 in a calendar year, II CPR

§104.7(b) states that the treasurer will not be deemed to have exercised best efforts unless

he or she has made at least one effort per solicitation either by a written request or by an

oral request documented in writing to obtain such information from the contributor. Such

effort shall consist ofa clear request for the infonnation (name, mailing address, ·

occupation and name ofemployer) which informs the contributor that the reporting ofsuch

information is required by law.

In a sample review ofthe Committee's receipts, a material error rate was

observed with respect to the disclosure ofcontributors' occupations and names of

employers. The high error rate is apparently the result ofthe Committee's failure to

maintain records containing the required information. For some ofthe contributions,

copies ofsolicitation devices were maintained but did not request all ofthe required

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information. For other contributions, the information was present in the Committee's

records but not disclosed. The Auditstaffsaw DO evidence that the Committee made any

additioDal attempts to obtain tbe information. Therefore, it does not appear that the

Committee demonstrated "Best Efforts" to obtain, maintain and submit the information.

At the exit conference, Committee officials stated that they thought those .

areas ofconcern have now been corrected.

The interim audit report recommended that the Committee provide evidence

- to demonstrate-that it exercised best efforts to obtain the required contributor infonDation,

or absent such a showing, contact all contributors for which no record was maintained or

information request made and provide copies ofresponses to these requests along with

amended Schedules A to correct the public record.

In response to the interim report, the Committee stated:

"The NJDSC [New Jersey Democratic State Committee] did use

best efforts to obtain contribution information. One senior campaign

finance official was assigned full time to obtain all the information needed

to comply with FEC guidelines for disclosure. In addition to following

normal procedures ofsoliciting the required information, including an

initial written request in the form ofa contribution card, contributors were

telephoned, solicitors ofthe contributions were contacted and letters were

written where necessary to obtain missing information.

Despite these efforts, the New Jersey Democratic State Committee

was not 100010 successful in obtaining complete infonnation for all

contributors. 'Best Efforts', however, were expended to acquire address .

and employer infannation.tt

Documentation to support the Committee's statements regarding best efforts

used during the audit period, such as telephone logs or copies ofletters to contributors, was

not provided. Also not provided was evidence in support ofany current efforts by the

Committee to obtain the infonnation.

As previously stated, no amended reports were filed.

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'f;:.J~ f~.;,'t .·I'l-.·l, t. '1,·,I~1

FEDERAL ELECTION COMMISSION

WASHINGTON. D.C. 2CM63

June 11, 1997

MEMORANDUM

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o TO:

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o2 THROUGH: John C. ..,.....,,,.,

5 StafTDIR·:etoJPJIP(

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1 FROM:

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3 BY: KimBri ~Ieman -f...~ ~IJ'­

Associatepenera1 eouryel

RhondaV~gh" Assistant General Counsel

Joel J. Roessner

Attorney

SUBJECT: Proposed Final Audit Report on the New Jersey Democratic State

Committee (LRA #SOl)

L INTRODUcnON

The Office ofGeneral Counsel has reviewed the proposed Final Audit Report on

the New Jersey Demoaatic State Committee (~ Committee")submitted to this Office

on May 7s 1997.1The Office ofGearnI CouDseI concurs with III ofthe fjndinp in the

proposed report. However, die Office ofGeaeraI CouDIeI DD1eS several matters. wbicb

are set forth below ill tbillIleIIlCJRMt"" Ifyou lave.,questions concemiDs our

comments. please coatIICtJoel J. ROtl..., the Ittomey assiped to this audit.

Becat..the ptopolld y.... Audit Report doeI DOt iDdude.,..uen exempt tom public

diIdoIure UDder 11 C.F.1l12.4, the 08ice ofa.-aJ CouDIeI reea.....'" that the Ccxamillion'.

discuuion ofthis doc:uIMnt be conducted in open IIIIion.

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Memorandum to Raben J. COllI

Fmal Audit Report for New Jersey Demoaatic StateCommittee (LIlA #I SOl)

Pqe2

0. REPORTING IRREGULARITIES (B.A.)

The Audit staffconcluded that the Committee (1) iDcorrectIy reported

administrative expenses as generic voter drive costs totaling $667,161, resulting in an

overpayment of51 II,150 made by the DOn-federal account to fimd shared expenses; and

(2) failed to report shared expenses paid by the federal and nonfedcral accounts. In its

response to the Interim Audit Report, the Committee stated that it agreed with ~me, but

not all, ofthe Audit staff's conclusions, and that it desired to reach agreement with the

Commission regarding the proper adjustments before filing an amended joint

federal/non-federal activity schedule (Schedule H4).2

The Committee is required to report properly all shared expenses. 11 C.F.R.

§ 104.1O(b). This obligation is in no way contingent on the Commission first acceding or

agreeing to the Committee's position on particular matters, and the Committee is not

entitled to negotiate the amoUDt and allocation ofsuch expenses. The Interim Audit

"Report sets forth the Commission's position based upon the information already

submitted by the Committee. The Committee has DOt provided additional documentation

to refute the fmdings in the Interim Audit Report, DOr bas it amended its reports as

recommended in the Interim Audit Report.

ID. CASH DISBURSEMENTS TO ELECI10N DAY WORKERS (D.£.)

The Audit staffconcludes that actual cash disbursements to election day workers,

in amounts ranging from 510 to 57S, were petty cash disbursements within the meaning

of 11 C.F.R. § 102.11. The Office ofGeneral Counsel notes that the Committee's

written procedures for cash disbursements to election day workers, in effect during the

audit period, applied to amounts up to 5150. To the extent that the Committee disbursed

an amount in excess of5100, that amount could not be considered a petty cash

disbursement within the meaning of 11 C.F.R. § 102.11.

With respect to the vat.- ckive COllI inc:oIT-=tJy reported u Idmiailt'8live expenses. the response

10 the Interim Audia Report ..eel that the Audia lIdimpoperly "" h·eified U voter drive expenditures

amounts paid to NJ. IWI aDd AT&T __the tilDe oftile eIectioa. .,....that the paymeat ....eJection

day merely re8ec:Ied period far ,.,.-. The~to the _erial Audit Report fiatber claimed

that other1ft'OI" for ' were GI*Ided ill mnnection with WII8' ckive expel.... but were merely

clepDlill wIicb ....Iller........ No doa. •••1IIppOI1iIta.......WII provided to the Audit

I&af[ The Committee did provide cIoa.....1tioa tuppOItiaa ita dIim that certaiD unreported .,...paid

by the non-fedcnIlCCOUIlt, wIicb the Audit iliffd"lified ......KtMty expenses, were in fact

unrelated to the 1992 fedcn1 eIectioa. and the Audit IlafFldjusted itl conclusions. With respect to the

unreported shared experIIeI paid by the fedcn11CCOU11l, the Ccmminee indicated only that it would prepare

amended scbeduJes, but no IUCh ICbeduIes have been lUbmitted.

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FEDERAL ELECTION COMMISSION

WASHINGTON. D.C. 20463

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July 1, 1997

Mr. Raul Garcia, Treasurer

New Jersey Democratic State Committee

ISO West State Street

Trenton, NJ 08608

Dear Mr. Garcia:

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

Committee. The Commission approved the report on June 20, 1997.

The Commission approved final audit report will be placed on the public record

on July 8, 1997. Should you have any questions regarding the public release ofthe

report, please contact the Commission's Press Office at (202) 219-4155. Any questions

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

Wanda Thomas ofthe Audit Division at (202) 219-3720 or toll free at (800) 424-9530.

Sincerely,

JJ-Wtt~.

~Robert J. Costa

Assistant StaffDirector

Audit Division

Attachment as stated.

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CHRONOLOGY

NEW JERSEY DEMOCRATIC SlATE COMMITIEE

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Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

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