FEDERAL ELECTION COMMISSION

WASHINGTON, D.C 20463

February 26, 1999

MEMORANDUM

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TO:

FROM:

SUBJECT:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

ROBERTJ.COSTA

ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF THE AUDIT REPORT ON

METROPOLITAN LIFE INSURANCE COMPANY (METLIFE)

EMPLOYEES' POLITICAL PARTICIPATION FUND A

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

Metropolitan Life Insurance Company (METLIFE) Employees' Political Participation

Fund A, which was approved by the Commission on February 16, 1999.

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

the report may be released to the public.

Attachment as stated

cc:

Reports Analysis Division

FEC Library
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REPORT OF THE AUDIT DIVISION !

ON THE

METROPOLITAN LIFE INSURANCE I

I COMPANY

(METLIFE),EMPLOYEES'

~ARTICIPATION

I FUND A

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Approved February 16, 1999

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

METROPOLITAN LIFE INSURANCE COMPANY

(METLIFE) EMPLOYEES' POLITICAL PARTICIPATION

FUND A

Page

Executive Summary 1

Final Audit Report 3

Background 3

Finding 4

Legal Analysis 7

Transmittal to Committee 11

Chronology 13
•

REPORT OF THE AUDIT DIVISION

ON THE

METROPOLITAN LIFE INSURANCE COMPANY

(METLIFE) EMPLOYEES' POLITICAL PARTICIPATION

FUND A

EXECUTIVE SUMMARY

The Metropolitan Life Insurance Company (Metlife) Employees' Political Participation

Fund A registered with the Federal Election Commission on November 25,1975.

The audit was conducted pursuant to 2 U.S.C. Section 438(b), which states that the

Commission may conduct audits of any political committee whose reports fail to meet the

threshold level of compliance set by the Commission.

The one finding arising from the audit was presented to representatives ofMetlife at an

exit conference held at the conclusion offieldwork on July 24, 1998, and later in an interim

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

MAINTAINING EMPLOYEE PAYROLL DEDUCTION AUTHORIZAnON FORMS

II CFR §104.l4(b)(l). Metlife was unable to locate about 50% ofits employee payroll

deduction authorization forms. Metlife asserts that there is no legal basis for the finding

because the cited regulation does not specify that employee payroll deduction authorization

forms must be maintained. Metlife set forth an alternative argument that even ifthey were

required to keep such forms, the records need only be maintained for three years. Metlife did

not comply with the recommendation in the Interim Audit Report, which requested that the

missing forms be located or that written confirmations be obtained from contributors regarding

their authorizations. The finding concluded that the cited regulatory provisions both require the

payroll authorizations to be kept, and that the three year record retention requirement does not

begin to run while the authorizations are in effect.
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FEDERAL ELECTION COMMISSION

WASHINGTON. D.C. 204&3

REPORTOF THE AUDITDIVISION

ONTHE

METROPOLITANLIFEINSURANCE COMPANY (METLIFE)

EMPLOYEES' POLITICAL PARTICIPATIONFUND A

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofthe Metropolitan Life Insurance Company

Employees' Political Participation Fund A (MetLife), the separate segregated fund ofMetropolitan

Life Insurance Company, undertaken by the Audit Division ofthe Federal Election Commission in

accordance with the provisions ofthe Federal Election Campaign Act of 1971, as amended (the

Act). The audit was conducted pursuant to Section 438(b) ofTitle 2 ofthe United States Code

which states, in part, that the Commission may conduct audits and field investigations of any

political committee required to file a report under Section 434 ofthis title. Prior to conducting any

audit under this subsection, the Commission shall perform an internal review ofreports filed by

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 from January I, 1995 through December 31, 1996.

MetLife reported a beginning cash balance of$36,036; total receipts for the period of$355,150;

total disbursements of$360,940; and an ending cash balance of $30,246. 1

C. CAMPAIGN ORGANIZATION

MetLife registered with the Federal Election Commission on November 25, 1975.

The Treasurer ofrecord during the audit period was Robert C. Tarnok, who continues to serve in

that capacity. MetLife maintains its headquarters in New York, New York.

To manage its financial activity, MetLife used three bank accounts (two checking

and one money market). It made approximately 390 disbursements totaling about $360,900.

MetLife received contributions from individuals of approximately $353,300, the m1\iority of which

were collected through payroll deduction. In addition, it received refunds of contributions

($1,500) and interest ($313).

All amounts in this report have been rounded to the nearest dollar.

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D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following general categories:

1. The receipt of contributions or loans in excess ofthe statutory

limitations;

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

corporations or labor organizations;

3.

4.

proper disclosure of contributions from individuals, political committees

and other entities, to include the itemization of contributions when required,

as well as, the completeness and accuracy ofthe information disclosed;

proper disclosure of disbursements including the itemization of

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

the information disclosed;

5. proper disclosure of committee debts and obligations;

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

compared to committee bank records;

7. adequate recordkeeping of committee transactions; and

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

Testing of contributions was limited due to MetLife's inability to locate

approximately 50% ofthe contributor authorizations for payroll deduction. (see Audit Finding

and Recommendation)

Unless specifically discussed below, no material non-compliance was detected. It

should be noted that the Commission may pursue the matter discussed below in an enforcement

action.

II. AUDIT FINDING AND RECOMMENDATION - MAINTAINING EMPLOYEE

PAYROLL DEDUCTION AUTHORIZATION FORMS

Section 104.14 (b) (1) ofTitle II ofthe Code of Federal Regulations provides that each

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

shall maintain all records relevant to such reports or statements. Records to be maintained with

respect to the matters required to be reported, include bank records, 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.

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As noted above, the majority ofthe contributions received by MetLife were made through

payroll deduction. The Audit staffreviewed these contributions on a sample basis. For 53% of

the sample items, the related payroll deduction authorization form was not available. Those that

were available were dated between 1995 and 1997. The forms reviewed implemented changes in

the amount to be deducted, enrolled new participants, or canceled prior authorizations.

Authorization forms prior to 1995, although apparently still in effect, could not be located.

This matter was discussed with the Treasurer at an interim conference and at the exit

conference. The Treasurer stated that the person responsible for the authorization forms prior to

1995 had been replaced and that a search for the missing records would be made. No additional

authorization forms had been provided at the time ofthe interim audit report.

The interim audit report recommended that MetLife locate the missing employee payroll

deduction authorization forms or obtain written confirmations from contributors regarding their

authorizations and provide copies for review. The written confirmations were to include the

employee's name, address, amount authorized for payroll deduction (or lump sum amount), and

the date ofthe authorization.

In response to the interim audit report, Metlife's attorney submitted a letter which

requested that the Commission delete from the Final Audit report the finding regarding Metlife's

failure to keep records of payroll deduction authorization forms. The response stated, in part, that:

"There is no legal basis for the Report's finding or recommendations. The

Report relies on 11 CFR § I04.14(b) which requires a PAC to maintain for

three years records, 'including vouchers, worksheets, receipts, bills and

accounts,' which provide in sufficient detail the necessary information to

verifY the reports which the PAC filed with the FEC. However, nowhere in

that rule, or anywhere else in the FEC regulations, are PACs required to keep

records of Authorization Forms....

It is important to note that although not required by law, Metlife PAC

maintained the Authorization Forms going back three years. As confirmed in

the Report, Metlife PAC has on file Authorization Forms 'dated between 1995

and 1997' and is only missing Authorization Forms signed before 1995.

Thus, even ifMetlife was required to keep payroll authorization forms,

nothing specifies that those records must be maintained three years.... The

auditors are now seeking forms they have no authority to demand under the

rules, outside the time for maintaining any records, and outside the coverage

dates ofthe audit."

"For the above reasons, the Commission should delete from the Final Audit

Report the finding regarding Metlife PAC's failure to keep records of

Authorization Form. Ifthe Commission desires PACs to maintain records of

payroll deduction authorization form, particularly those beyond the three year

period in Section 104.14(b), we suggest that the Commission amend its

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regulations to specify that payroll deductions authorization forms must be

maintained and because ofthe continuing nature ofpayroll deduction, further

specify the retention period for those forms."

Metlife attempts to apply 11 CFR §104.14(b) very narrowly, by stating that it does not

explicitly require that authorization forms be maintained. The examples of documentation

contained within in the cite are not an all encompassing list; rather they are intended to be

illustrative. An attempt to create such a list would be cumbersome and inevitably miss some

necessary document referred to by some name by some reporting entity. The substantive wording

ofthe cite requires records be maintained" ...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." The authorization forms, which are used

to implement employees payroll deductions, provide the "necessary information" needed to verify

the "accuracy and completeness" ofthe reports filed.

Additionally, the response argues that even ifMetlife was required to keep authorization

forms, nothing specifies that those records must be maintained for more than three years and that

authorizations had been maintained for the period 1995 - 1997. Again, Metlife errs in its

interpretation ofthe requirements. Under 11 CFR §104.l4(b), all reports are required to be

preserved for not less than three years after the report is filed, and 11 CFR §102.9(c) requires the

supporting records to be maintained for the same period. A payroll deduction authorization form

is a record supporting each report on which a contribution made pursuant to that authorization is

reported. Therefore, it is not the age ofthe authorization form that governs, but the age ofthe last

report on which a related contribution is reported. All ofthe authorization forms sought during the

audit were current records supporting the reports filed during the audit period. There is no reason

for the Commission to amend its regulations regarding retention ofpayroll deductions

authorization forms. Records must be maintained three years from the date ofthe report to which

they pertain.

Finally, although not discussed in the interim audit report, the response raises the issue of

the FEC's prohibition on reverse check-off payroll deduction plans which result in involuntary

contributions. See, FEC v National Education Ass'n ("NEA"), 457 F. Supp. 1102, 1106-1107

(D.C.D.C. 1978); 2 USC § 441b(b)(3); 11 CFR § 114.5. Metlife notes that the FEC prohibition

does not require a PAC to maintain records of authorization forms and that "it is inappropriate and

outside the scope ofthe NEA decision to bootstrap a recordkeeping requirement on a prohibition

against involuntary contributions." We agree that NEA does not require a PAC to maintain

records of authorization forms. However, Metlife fails to note that NEA did require that written

affirmations ofintent to contribute be obtained and, that absent receipt ofsuch affirmations,

money collected through the reverse check-off plan was required to be returned.

It is concluded that Metlife was required to maintain the payroll deduction authorization

forms to support the contributions it reported during the audit period. It is also concluded that

Metlife did not comply with the recommendation in the Interim Audit Report.

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FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

February 10, 1999

MEMORANDUM

Lawrence M. Noble

General Counsel

Kim Bright-Coleman 'JfIP

Associate General Counsel

Lorenzo Holloway f:. iJI

Assistant General Counsel

FROM:

BY:

THROUGH: James A. Pehrkon

Acting StaffDirector

TO: Robert J. Costa

Assistant StaffDirector

Audit Division

Jamila I. Wyatt L1 0

Attorney CJ

SUBJECT: Final Audit Report on the Metropolitan Life Insurance Company

Employees' Political Participation Fund A (LRA #524)

The Office ofGeneral Counsel has reviewed the Final Audit Report on

Metropolitan Life Insurance Company Employees' Political Participation Fund A

("MetLife") that was submitted to this Office on January 6,1999. The following

memorandum provides our comments on the Final Audit Report. We concur with the

finding in the Report. Ifyou have any questions concerning our comments, please

contact Jamila Wyatt, the attorney assigned to this audit.'

The proposed Audit Report found that a majority of contributions to MetLife

were received through payroll deductions. However, the Audit Report found that

This Office recommends that the Commission consider this document in open session since the

proposed Final Audit Report does not include matters exempt from pUblic disclosure. See II C.F.R. § 2.4.

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Memorandum to Robert J. Costa

MetLife Audit Report

LRA 11524

Page 2

MetLife did not maintain payroll deduction authorization forms to support the

contributions it reported during the period covered by the scope ofthe audit.2

MetLife asserts that there is no legal basis for requiring separate segregated funds

to keep records of authorization forms, and that absent a statutory or regulatory provision,

the Commission cannot require MetLife to keep records ofauthorization forms.

Furthermore, MetLife argues that authorization forms are not necessary to verify the

accuracy and completeness ofdisclosure reports. MetLife sets forth an alternative

argument that even ifthey were required to keep the authorization forms, the records need

only be maintained for three years. The Committee states that some ofthe records sought

by the auditors are outside ofthe three year period for maintaining records.

Section 114.5(a) ofthe Commission's regulations prohibit committees from using

contributions that were obtained involuntarily or secured by the threat offorce or job

reprisals. 11 C.F.R. § 114.5(a). While the Commission's regulations do not specifically

require committees to utilize authorization forms, in the case of payroll deductions where

the donative intent may not be apparent when the contribution is made/ such written

authorization is necessary to insure that the funds that are being collected were not

secured by physical force, job discrimination, financial reprisals, or the threat ofsuch

acts. 11 C.F.R. § 114.5(a).4

Payroll authorization forms include the contributors name, the amount and date of

the contribution, type ofcontribution/ and the contributor's signature. Accordingly, the

authorization form is a record ofthe employee's contribution to the separate segregated

fund. II C.F.R. § I04.I4(b)(l). The Commission's regulations provide that each political

committee or other person required to file any report or statement "shall maintain all

records including bank records, with respect to the matters required to be reported,

including 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

The Interim Audit Report recommended that MetLife either find the missing authorization forms,

or obtain written confirmations from contributors regarding their authorizations and provide copies for

review.

A contribution is not made until the contributor relinquishes control of the funds. II C.F.R.

§ I 10. I(b)(6).

Section 114.5(a)(2) provides other various safeguards to ensure contributions are made freely.

"Type of contribution" refers to either a lump sum contribution, or a spccilic all1ountlo be

deducted from each pay period.

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Memorandum to Robert J. Costa

MetUfe Audit Report

LRA #524

Page 3

completeness." 11 C.F.R. § 104.14(b)(I). Payroll authorization forms are examined in the

context ofthe audit to verify the accuracy and completeness ofcontributions to the

separate segregated fund on the disclosure reports. While section 104.l4(b)(l) does not

explicitly list authorization forms, the items in the regulation merely cite examples of

records that must be maintained to verifY the accuracy and completeness ofthe disclosure

reports, and is not exhaustive. [d. Generally, in statutory construction there is the

doctrine of expressio unius which states that a list within a statute should be deemed

exhaustive unless there is language in that portion ofthe statute to indicate otherwise.

See Singer, Sutherland Statutory Construction § 45 (Sib ed. 1992). The list of necessary

records to be kept in section 104.14(b)(l) is preceded by the term "including." This

language indicates that the list is not intended to be exhaustive. Therefore, the Office of

General Counsel believes there is a basis to require the Committee to maintain records of

authorization forms.

MetLife's second argument is that even ifthey were required to keep payroll

authorization forms, MetLife is only required to preserve these documents for three years.

MetLife's argument relies on the date ofthe authorization forms for the purpose of

calculating the beginning ofthe three year period. However, the Commission's

regulations set out that the treasurer shall preserve all records and accounts required to be

kept under 11 C.F.R. § 102.9 for three years after the report to which such records and

accounts relate is filed. II C.P.R. § I02.9(c); see also II C.F.R. § 104.l4(b)(3).

Therefore, the date ofthe authorization forms is not relevant. The date that is

determinative is the date ofthe most recent disclosure report that relies on the information

contained in the authorization form.

MetLife filed monthly disclosure reports from February 21, 1995 until January 24,

1997. MetLife received notice ofan audit in June 1998. The authorization forms

contained information about contributions disclosed in monthly reports for February 1995

through June 1995. Some ofthe records supporting these disclosure reports are older

than three years. Payroll deduction contributions are unique in that the expressed

donative intent in the authorization forms and the receipt ofthe contribution may not be

simultaneous.6 Payroll deduction authorization is also unique because the forms are

indicative ofdonative intent for subsequent contributions.7 Because ofthis continuing

nature of authorization forms supporting subsequent contributions, the authorization

A contribution is considered received on the date the committee obtains possession ofthe

contribution. II C.F.R. § 102.8(a).

The Commission has stated that when contributions made through payroll deductions are

authorized by the contributor for an indefinite period or ifthe authorization is subject to termination at any

time, the deduction from the payroll check rather than the authorization ofthe deduction, constitutes a

contribution. See Advisory Opinion 1978-16. (authorization of payroll deductions would not in itself be a

contribution before the proceeds are actually distributed since the authorization is subject to termination at

any time, and no certain total amount is assured).

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Memorandum to Robert 1. Costa

MetLife Audit Report

LRA #524

Page 4

fonns are necessary to verify disclosure reports that were filed inside ofthe three year

period.s

Many ofthe employee contributors had contributions deducted from their payroll checks over an

extended period oftime.

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FEDERAL ELECTION COMMISSION

WASHINGTON, O.c. 204&3

February 19, 1999

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Mr. Robert C. Tamok, Treasurer

Metropolitan Life Insurance Company

(METLIFE) Employees' Political

Participation Fund A

One Madison Avenue

New York, NY 100lD

Dear Mr. Tamok:

Attached please find the Report ofthe Audit Division on the Metropolitan Life

Insurance Company (METLIFE) Employees' Political Participation Fund A. The

Conunission approved the report on February 18, 1999. As noted on page 2, the

Conunission may pursue the matter discussed in an enforcement action.

The Conunission approved Audit Report will be placed on the public record on

February 25, 1999. Should you have any questions regarding the public release ofthis

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

Any questions you may have related to matters covered during the audit or in the

audit report should be direc,ted to Henry Miller or Alex Boniewicz ofthe Audit Division at

(202) 694-1200 or toll free at (800) 424-9530.

Sincerely,

·~.2r:::z:: RobertJ.~a Assistant Staff Director

Audit Division

Attachment as stated

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CHRONOLOGY

,

METRqPOLITAN LIFE INSURANCE COMPANY

(METLIFE)iEMPLOYEES' POLITICAL PARTICIPATION

FUND A

Audit Fieldwork 7/20/98 - 7/24/98

I

Interim AuditReponI

to the Committee. i

ResponseReceived to the

InterimAudit Re~ort ,.1

Final Audit Report/APproved

I

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10/20/98

11/23/98

2/16/98