Part I
Background

Authority for Audit

This report is based on an audit of the Committee to Elect Patsy Keever (CPK),
undertaken by the Audit Division of the Federal Election Commission (the Commission)
in accordance with the Federal Election Campaign Act of 1971, as amended (the Act).
The Audit Division conducted the audit pursuant to 2 U.S.C. §438(b), which permits the
Commission to conduct audits and field investigations of any political committee that is
required to file a report under 2 U.S.C. §434. Prior to conducting any audit under this
subsection, the Commission must perform an internal review of reports filed by selected
committees to determine if the reports filed by a particular committee meet the threshold
requirements for substantial compliance with the Act. 2 U.S.C. §438(b).

Scope of Audit

Following Commission approved procedures, the Audit staff evaluated various risk
factors and as a result, this audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

AYPYWNS



the Canary Coalition. Had she known about the need to make refunds, she would have
held back sufficient funds.

The response points out a complicating factor. For this race the primary election in North
Carolina was postponed from May, 2004 until July, 2004 as the result of court rulings.
The Candidate contends that had the primary election occurred in May, there would have
been no excessive contribution problem.?> CPK was aware that donations above $2,000
collected prior to the primary election could not be spent during the primary election and
must be reported for use in the general election. However the Candidate contends that
CPK was not aware of the requirement for donors to designate the contribution to a:
particular election or receive a letter informing them of CPK’s designation if not for the
next election. The Candidate notes the campaign’s inexperience with “obscure federal
elections regulations;” and states that by the time she found out about this rule on
October 24, 2005, it was too late to contact the donors who would have gladly verified
their understanding that the donations were meant for the general election cycle.

The Commission’s regulations on the election designation of contributions are not
complicated or obscure. Rather, for the 2004 election cycle they were relaxed allowing
the campaign to make designations without prior approval of the contributor. Instead, a
simple unacknowledged notification to the contributor is all that is necessary in most
cases, That requirement appears not only in the published regulations, but is explained in
less technical terms in the campaign guides available from the Commission in either print
or from the Commission Web site. The requirements are also contained in the
instructions for the disclosure forms.

However, the Candidate’s response concluded that; in order to comply with the audit
recommendation, she has enclosed copies of the checks written from the campaign
account in the amount of $14,140. The Candidate states these will be sent to the
contributors and the remaining refunds will be issued from her personal account once the

recommendation is final.

| Finding 2. Misstatement of Financial Activity

Summary
CPK understated its December 31, 2004, cash-on-hand balance by $9,914. The Audit
staff recommended that CPK amend the cash balance on its most recently filed report
with an explanation that the change resulted from a prior period audit adjustment. In
response to the interim audit report, CPK amended its latest report.

Legal Standard
Contents of Reports. Each report must disclose:
e The amount of cash on hand at the beginning and end of the reporting period;

3 The Audit staff's analysis indicates that even if the primary had been held on May 4th, a material, albeit
lessened ($9,390), problem would have existed.



Part III
Summaries

Findings and Recommendations

Finding 1. Receipt of Contributions that Exceed Limits
CPK received $18,890 in excessive contributions from 12 individuals. The Audit staff
recommended that CPK demonstrate that these contributions were not excessive or make
appropriate refunds to the identified donors. In response to the interim audit report, the
Candidate offered why she felt the contributions were not excessive. In addition, the
Candidate ‘Provided copies of refund checks prepared, but not negotiated, for $14,140 of

~ the excessive contributions; and, stated the refund checks will be sent to the contributors
and the remaining refunds will be issued from her personal account once the final audit
report is approved. (For more detail, see page 4.)

Finding 2. Misstatement of Financial Activity

CPK understated its December 31, 2004, cash-on-hand balance by $9,914. The Audit
staff recommended that CPK amend the cash balance on its most recently filed report
with an explanation that the change resulted from a prior period audit adjustment. In
response to the interim audit report, CPK amended its latest report. (For more detail, see

page 6.)

Finding 3. Documentation for Receipts

A sample review of contributions from individuals indicated that almost 16% were not
properly documented. All errors represented contributions in excess of $50 for which a
copy of the contributor’s check was not retained. The Audit staff recommended that
CPK provide any comments it may have relative to this matter. In response to the interim
audit report, the Candidate reiterated that checks were not copied during the initial
months, but could not explain why other copies of checks were missing from campaign
records. (For more detail, see page 7.)

Finding 4. Inadequate Disclosure - Form 3Z-1

CPK failed to file Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with its 2003 Year End Report. The Audit staff recommended that CPK
demonstrate that the required forms were correctly filed or provide any comments it may
have relative to this matter. In response to the interim audit report, the Candidate stated
CPK staff were not aware of this form. (For more detail, see page 8.)



Part II

Overview of Campaign

Campaign Organization

Important Dates

Committee to Elect Patsy Keever

¢ Date of Registration

October 21, 2003

e Audit Coverage

October 7, 2003 through December 31, 2004

Headquarters Asheville, North Carolina
Bank Information
e__ Bank Depositories 2
e Bank Accounts 3 Checking
Treasurer
¢ Treasurer When Audit Was Conducted Frances Ellis
¢ Treasurer During Period Covered by Audit | Frances Ellis
Management Information
¢ Attended FEC Campaign Finance Seminar {| No
¢ Used Commonly Available Campaign Yes
Management Software Package
© Who Handled Accounting, Recordkeeping | Paid Staff, Volunteer CPA

Tasks and Other Day-to-Day Operations

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ October 7, 2003 $0
Receipts
o From Individuals $ 883,689
o__From Political Committees 329,777
o__From the Candidate 9,479
o Loans 43,153
o Other Receipts 748
o_ Total Receipts $1,266,846
Disbursements
o Operating Disbursements $ 1,175,394
o Loan Repayments 43,153
o Total Disbursements $ 1,218,547
Cash on hand @ December 31, 2004 $ 48,299



+ As redesignated, does not cause the contributor to exceed any other contribution
limit. :
Also, the excessive portion of an undesignated contribution made after the primary, but
before the general election may be automatically applied to the primary if the campaign’s
net debts outstanding from the primary equal or exceed the amount redesignated.

The committee is required to notify the contributor in writing of the redesignation within
60 days of the treasurer’s receipt of the contribution and must offer the contributor the
option to receive a refund instead. For this action to be valid, the committee must retain
copies of the notices sent as required. Presumptive redesignations apply only within the
same election cycle. 11 CFR §110.1(b)(5)(ii)(B) & (C) and (1)(4)(ii).

Facts and Analysis

Prior to the primary election, CPK received contributions from twelve individuals that
exceeded the $2,000 limitation for individuals for the primary election. ‘The amounts in
excess of the limitation totaled $18,890. Copies of the contributors’ checks located by
the Audit staff carried no election designation; no other supporting documentation, such
as response cards, was made available. CPK presumptively redesignated the excessive
portions of these contributions, but failed to notify contributors of its actions by a written
notification that also offered a refund.

At the exit conference, the Audit staff discussed the matter with the Candidate and she
was provided a schedule of the excessive contributions. The Candidate indicated that
required refunds would be made to the extent funds were available.

Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that CPK: :

¢ Provide evidence that the identified contributions were not excessive; or,

¢ Refund $18,890 and provide evidence of such refunds (copies of the front and back of
the negotiated checks); or :

e If funds were not available to make the necessary refunds, CPK should report the
amounts to be refunded as debts on Schedule D (Debts and Obligations Excluding
Loans) until funds became available to make the refunds.

In response to the interiin audit report, the Candidate expressed concern that the Audit
staff recommended that refunds be made to donors who had not contributed more than
allowed by law; noting that none of the contributors had given more than the total
allowable amount for the primary and general elections combined. She stated that these
donations were accurately reported to the FEC and that refunds appeared unnecessary. In
addition, since the Candidate was unaware of this potential liability until well after the
election, she had donated much of her excess campaign funds. CPK’s 2005 October 15“
Quarterly Report” discloses donations of: $10,000 to the North Carolina Democratic
Party, $5,000 to Emily’s List, $1,000 to Friends of Nussbaum for Congress and $1,000 to

2 This disclosure report was filed eight days prior to the Candidate being advised of the excessive
contributions.



FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463

February 7, 2006

MEMORANDUM

TO: ROBERT W. BIERSACK
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ
ASSISTANT STAFF, CTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE REPORT OF THE AUDIT DIVISION ON
THE COMMITTEE TO ELECT PATSY KEEVER

Attached please find a copy of the audit report on the Committee to Elect Patsy
Keever which was approved by the Commission on January 27, 2006.

All parties involved have received informational copies of the report and the report
may be released to the public.

Attachment as stated.

ce: Office of General Counsel
Office of Public Disclosure :
Reports Analysis Division
FEC Library
Web Manager



C. Preserving Documents. Committees must preserve these records for 3 years after a
report is filed. 2 U.S.C. §432(d).

Facts and Analysis

The Audit staff reviewed contributions from individuals on a sample basis and
determined that almost 16% of the items tested lacked a copy of the contributor’s check.
A significant portion of the errors resulted from the lack of copies of contributor checks
during the initial months of the campaign.

The Audit staff discussed this matter with CPK representatives at the exit conference,
who indicated they were surprised that some of the check copies could not be located.
Subsequently, representatives acknowledged that campaign staff did not make copies of
contributor checks deposited during the initial months of the campaign; rather they
simply recorded the contributor information.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CPK demonstrate the documentation was maintained
or submit any comments it may have relative to this matter. In response to the interim
audit report, the Candidate reiterated that campaign staff did not make copies of
contributor checks deposited during the initial months of the campaign; rather they
simply recorded the contributor information; further, she had no idea why the other
copies of checks were missing from campaign records.

| Finding 4. Inadequate Disclosure —- Form 3Z-1

Summary . :
CPK failed to file Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized

Committees) with its 2003 Year End Report. The Audit staff recommended that CPK.
demonstrate that the required forms were correctly filed or provide any comments it may
have relative to this matter. In response to the interim audit report, the Candidate stated
CPK staff were not aware of this form.

Legal Standard

Special Reporting Requirements. Principal campaign committees of candidates for the
U.S. House and the U.S. Senate must file FEC Form 3Z-1 as part of their July Quarterly
and Year-End Reports in the year preceding the year in which the general election for the
office sought is held. The information in this form allows opposing candidates to
compute their “gross receipts advantage” used to determining whether a candidate is
entitled to an increased contribution limit. The following information must be disclosed:

1. Gross receipts to date for the primary and general elections,

2. Aggregate amount of contributions from personal funds of the candidate for the
primary and general elections, and,

3. A calculation of gross receipts less the candidate’s personal contributions for each
election.. 11 CFR §104.19.



¢ The total amount of receipts for the reporting period and for the election cycle; and
¢ The total amount of disbursements for the reporting period and for the election cycle.
2 U.S.C. §434(b)(1), (2) and (4).

Facts and Analysis
The Audit staff reconciliation of reported activity to bank records for the audit period
indicated that the ending cash-on-hand balance for calendar year 2004 had been misstated

by $9,914.

It appears that this misstatement resulted primarily from CPK under reporting receipts
and reporting disbursements that were not supported by a cancelled check or bank debit.

At the exit conference, the Audit staff discussed the misstatement and provided CPK with
copies of our bank reconciliations. CPK representatives indicated-a willingness to correct
the misstatement. Although CPK filed amended reports during the response period
following the exit conference, those amendments did not correct the misstatement.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CPK amend the cash balance on its most recent report
with an explanation that the change resulted from an audit adjustment from a prior
period. In response to the interim audit report, CPK amended its report as recommended.

| Finding 3. Documentation for Receipts

Summary ,
A sample review of contributions from individuals indicated that almost 16% were not

properly documented. All errors represented contributions in excess of $50 for which a
copy of the contributor’s check was not retained. The Audit staff recommended that
CPK provide any comments it may have relative to this matter. In response to the interim
audit report, the Candidate reiterated that checks were not copied during the initial
months, but could not explain why other copies of checks were missing from campaign
records.

Legal Standard -
A. Recordkeeping Requirements for Receipts. Political committees must keep
records of:
e All contributions received by or on behalf of the committee;
¢ The name and address of any person who makes a contribution in excess of $50,
together with the date and amount of the contribution; and
¢ The occupation and name of employer of any individual whose contributions
aggregate more than $200 during a calendar year, together with the date and
amount of any such contributions. 2 U.S.C. §432(c).

B. Retention of Check Copies. For contributions in excess of $50, committees must
maintain a photocopy or digital image of the check or written instrument. 2 U.S.C.

§102.9(a)(4)



Part IV
Findings and Recommendations

|Finding 1. Receipt of Contributions That Exceed Limits

Summary
CPK received $18,890 in excessive contributions from 12 individuals. The Audit staff

recommended that CPK demonstrate that these contributions were not excessive or make
appropriate refunds to the identified donors. In response to the interim audit report, the
Candidate offered why she felt the contributions were not excessive. In addition, the
Candidate provided copies of refund checks prepared, but not negotiated, for $14,140 of
the excessive contributions; and, stated the refund checks will be sent to the contributors
and the remaining refunds will be issued from her personal account once the final audit
Teport is approved.

Legal Standard ~
A. Authorized Committee Limits: An authorized committee may not receive more

than a total of $2,000 per election from any one person or $5,000 per election from a
multicandidate political committee. 2 U.S.C. §441a(a)(1)(A), (2)(A) and (f); 11 CFR
§§110.1(a) and (b) and 110.9(a).

B. Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:

e Return the questionable check to the donor; or

© Deposit the check into its federal account and:

o Keep enough money in the account to cover all potential refunds;

o Keep a written record explaining why the contribution may be illegal;

o Include this explanation on schedule A if the contribution has to be itemized
before its legality is established;

o Seek a reattribution or a redesignation of the excessive portion, following the
instructions provided in Commission regulations (see below for explanations
of reattribution and redesignation); and

0 Ifthe committee does not receive a proper reattribution or redesignation
within 60 days after receiving the excessive contribution, refund the excessive
portion to the donor. _11 CFR §§103.3(b)(3), (4) and (5) and

110.1(k)(3)Gi)B).

C. Presumptive Redesignation of Excessive Contributions: When an authorized
political committee receives an excessive contribution from an individual or a non-multi-
candidate committee, the committee may presumptively redesignate the excessive portion
to the general election if the contribution:

+ Is made before that candidate’s primary election;

+ Is not designated in writing for a particular election;

* Would be excessive if treated as a primary election contribution; and



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Receipt of Contributions that Exceed Limits
Finding 2. Misstatement of Financial Activity
Finding 3. Documentation for Receipts
Finding 4. Inadequate Disclosure - Form 3Z-1

Page

CONIA



Report of the Audit Division
on the Committee to
Elect Patsy Keever

October 7, 2003 - December 31, 2004



Report of the Audit Division on the

Committee to Elect Patsy Keever
October 7, 2003 - December 31, 2004

Why the Audit
Was Done

Federal law permits the
Commission to conduct
audits and field
investigations of any
political committee that is
required to file reports
under the Federal
Election Campaign Act
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
requirements for
substantial compliance
with the Act.! The audit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requirements
of the Act.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

' 2US.C. §438(b).

About the Campaign (p. 2)

The Committee to Elect Patsy Keever is the principal campaign
committee for Patricia Keever, Democratic candidate for the U.S.
House of Representatives from the state of North Carolina, Eleventh
District, and is headquartered in Asheville, North Carolina. For more
information, see chart on the Campaign Organization, p. 2.

Financial Activity (p. 2)

¢ Receipts
o From Individuals $883,689
o From Political Committees 329,777
o From the Candidate 9,479
o-: Loans 43,153
o. Other Receipts perc 748
©. Total Receipts $ 1,266,846
¢ Disbursements
o Operating Expenditures $ 1,175,394
o Loan Repayments 43,153
o. Total Disbursements $ 1,218,547

Findings and Recommendations (p. 3)
Receipt of Contributions that Exceed Limits (Finding 1)
Misstatement of Financial Activity (Finding 2)
Documentation for Receipts (Finding 3)

Inadequate Disclosure — Form 3Z-1 (Finding 4)



Facts and Analysis
The Audit staff reviewed all filings by CPK and noted that it did not provide a a Form 3Z-1

with its 2003 Year End Report, as required.

Using the electronic data provided by CPK, the Audit staff determined that gross receipts
for the primary of $82,538 should have been disclosed on Form 3Z-1. There were no
receipts that had been designated for the general, and there were no personal
contributions by the Candidate as of this date.

The Audit staff discussed this matter with CPK representatives at the exit conference; the
representatives indicated they were unfamiliar with this filing requirement.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CPK demonstrate that Form 3Z-1 was correctly filed
or provide any comments it may have relative to this matter. In response to the interim
audit report, the Candidate stated, “According to the auditors, the 3Z-1 form is new. We
did not know anything about it, and it is obviously too late to file it now.”