Part II
Overview of Committee

Committee Organization

Important Dates New York City Host Committee 2004

e Date of Registration February 26, 2003

e Audit Coverage July.26, 2002 — December 31, 2004

Headquarters New York, NY
Bank Information

e¢ Bank Depositories Two

e - Bank Accounts Thirteen
Treasurer

e Treasurer When Audit Was Conducted Diane J. Rizzo

e Treasurer During Period Covered by Audit _| Diane J. Rizzo

Management Information

e Attended FEC Campaign Finance Seminar | No

¢ Used Commonly Available Campaign Yes
Management Software Package

e Who Handled Accounting, Recordkeeping | Paid Vendor
Tasks, and Other Day-to-Day Operations

Overview of Financial Activity

(Audited Amounts)

Cash on hand @ July 26, 2002 $0

Receipts

o Contributions to Defray Convention Expenses $ 84,916,063

o Refunds, Rebates, Returns of Deposits Relating to 568,170

Convention Expenses

o Other Receipts 244,759

Total Receipts $ 85,728,992

Disbursements

o Convention Expenses $ 80,702,899

o Other Disbursements 1,614,672

Total Disbursements $ 82,317,571
$ 3,411,421

Cash on hand @ December 31, 2004



information and explained, the letter of credit was set up to support the commercial general
liability coverage, a relatively small insurance policy. Representatives further stated:

“after pricing insurance policies that would cover a national political
convention in New York City, the City of New York decided to self-
insure its, the Host Committee’s, the Committee on Arrangement’s
and the Republican National Committee’s exposure related to the
Convention instead of procuring conventional insurance....The
commercial general liability policy is a fully fronted policy which
means that instead of paying a fee and the insurance company paying
for any losses beyond the deductible amount and up to the policy
limit, the insured pays or otherwise sets aside the full amount of the
policy up front to the insurance company. The letter of credit was
merely a payment feature to a fully fronted insurance policy. It is
essentially a means of buying a service so that small claims may be
efficiently processed. Consequently, the cost of the letter of credit
was reported in the same way the premium on the insurance policy

was reported.”

Preliminary Audit Report Recommendation and Committee Response
The Audit staff recommended that NYCH amend its reports to disclose, and continue to
disclose, the letter of credit on Schedules C and C-1.

Counsel for NYCH (Counsel) stated that the letter of credit does not expire until December
31, 2007; it has no other debts; the City of New York has agreed to indemnify NYCH for
any claim against it; and, the remaining cash on hand will more than likely be donated to a
City project. However, disclosing the letter of credit would then require NYCH to continue
filing disclosure reports through calendar year 2007, even though there would be no
financial activity to report other than the outstanding letter of credit. As an alternative,
Counsel has agreed to disclose the letter of credit, provided that NYCH be allowed to
terminate, with the understanding that in the unlikely event the letter of credit was exercised,

NYCH would register again.

On October 14, 2005, NYCH disclosed the letter of credit on Schedules C and C-1. A
request to terminate by NYCH will be handled in accordance with existing Commission
policy and procedures.



Part I
Background

Authority for Audit

This report is based on an audit of the New York City Host Committee 2004 (NYCH),
undertaken by the Audit Division of the Federal Election Commission (the Commission) as
mandated by Section 9008.54 of Title 11 of the Code of Federal Regulations. That section
states the Commission shall conduct an examination and audit of each host committee

registered under 11 CFR §9008.51.

Scope of Audit

This audit examined:

The receipt of contributions from prohibited sources.

The disclosure of contributions and other receipts.

The disclosure and nature of disbursements.

The disclosure of debts and obligations.

The completeness of records.

The consistency between reported figures and bank records.
Other committee operations necessary to the review.

Nava

Inventory of Committee Records
The Audit staff routinely conducts an inventory of committee records before it begins the
audit fieldwork. NYCH’s records were materially complete and the fieldwork began

immediately.



Part III
Summary

Finding and Recommendation

Reporting of Letter of Credit
NYCH failed to disclose a $3,000,000 letter of credit on Schedules C and Cl. The Keybank

National Association issued the letter of credit on July 21, 2004. The Audit staff
recommended that NYCH amend its reports to disclose the letter of credit. NYCH correctly
disclosed the letter of credit on October 14, 2005.



FEDERAL ELECTION COMMISSION’
WASHINGTON, D.C. 20463 ‘

January 26, 2006

MEMORANDUM

TO: ROBERT W. BIERSACK
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ
ASSISTANT STAFF iCTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON
THE NEW YORK HOST COMMITTEE 2004

Attached please find a copy of the audit report on the New York Host Committee
2004 which was approved by the Commission on January 12, 2006.

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

Attachment as stated

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



Part IV .
Finding and Recommendation

| Reporting of Letter of Credit |

Summary
NYCH failed to disclose a $3,000,000 letter of credit on Schedules C and Cl. The Keybank

National Association issued the letter of credit on July 21, 2004. The Audit staff
recommended that NYCH amend its reports to disclose the letter of credit. NYCH correctly
disclosed the letter of credit on October 14, 2005.

Legal Standard
A. Post Convention Reports. Each host committee is required to register with the

Commission and file a post convention report on FEC form 4. The report must be filed on
the earlier of: 60 days following the last day the convention is officially in session: or 20
days prior to the presidential general election. This report must be complete as of 15 days
prior to the date on which the report must be filed and disclose all the information required
by 11 CFR part 104 with respect to all activities related to a presidential nominating
convention. 11 CFR §9008.51(b)(1).

B. Loans. In addition to a loan of money, a loan includes a guarantee, endorsement, or any
other form of security. 11 CFR §100.52(b).

Facts and Analysis
On July 21, 2004, NYCH obtained an irrevocable letter of credit from the Keybank National

Association (the Bank). The letter of credit established in the amount of $3,000,000 was
issued in favor of 16 insurance related entities and remains in effect through December 31,

2007.

According to a document entitled “Reimbursement Agreement,” NYCH obtained a fully
fronted general liability insurance policy from the AIG Insurance Company (AIG) with
respect to certain potential claims arising from activities related to the 2004 Republican
National Convention. The Reimbursement Agreement states that AIG and NYCH desire to
obtain a letter of credit to provide for payments to be made to AIG in the event NYCH fails

to make such payments when due.

Documentation made available by representatives of the Bank demonstrated that the letter of
credit was never exercised. Even though the letter of credit was not exercised, NYCH
should have disclosed it on Schedules C (Loans) and C-1 (Loans and Lines of Credit from
Lending Institutions), but it did not. As noted above, the definition of a loan includes a
guarantee, endorsement, or any other form of security. The letter of credit at issue
Tepresents a guarantee. NYCH did disclose the fee it paid to obtain the letter of credit.

This matter was addressed at the exit conference. NYCH representative disagreed that the
letter of credit is required to be disclosed. On March 28, 2005, NYCH submitted more



Report of the

Audit Division on the
New York City Host

Committee 2004
July 26, 2002 - December 31, 2004

Why the Audit
Was Done

The Commission audits
each host committee or
municipal fund that
Tepresents a city where a
publicly financed
nominating convention is
held. The audit seeks to
determine if the
committee has materially
complied with the
prohibitions and
disclosure requirements
of the election law.'

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

report.

"11 CER §9008.54.

About the Committee (p. 2)

The New York City Host Committee 2004, headquartered in
New York City, is the committee responsible for hosting the
2004 Republican National Convention: For more information,

see chart on the Committee Organization, p. 2.

Financial Activity (p. 2)

Receipts

© Contributions to Defray Convention

Expenses

o Refunds, Rebates, Returns of Deposits
Relating to Convention Expenses

o .Other Receipts
o Total Receipts

Disbursements

© Convention Expenses
o Other Disbursements
o Total Disbursements

$ 84,916,063
568,170

244,759
$ 85,728,992

$ 80,702,899
1,614,672
$ 82,317,571

Finding and Recommendation (p. 3)

Reporting of Letter of Credit



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Inventory of Committee Records

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

Part III. Summary
Finding and Recommendation

Part IV. Finding and Recommendation
Reporting of Letter of Credit

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