FEDER~L ElECTI()' CO.\'\f"1ISSION

August 2. 1996

MErrlQRANDlTt\1

TO:

FROM:

RON M. HARRJS

PRESS OFFICER

PRESS OFFICE

ROBERT J. COSTA A.<-/

ASSISTANT STAFF D1:.r.ir;;;'

AUDIT DIVISIOt'

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Sl'BJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT Of'

ABRAHAM FOR SENATE

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

Abraham for Senate \\·hich \\"35 appro\·ed by the Commission on August 1. 1996.

Informational copies ofthe repon have been received by all panics involved and

the repon may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure:

Repons Analysis DIVISion

FEC Library
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REPORT OF THE AUDIT DIVISION

ON

Abraham for Senate

Approved August 1, 1996

FEDERAL ELECI10N COMMISSION

999 E STREET. N.\\'.

WASIDNGT01\. D.C.
TABLE OF CONTENTS

ABRAHAM FOR SENATE

Page

Executive Summary

Final Audit Report 3

'T' Background 3

, Findings S

C Lqal Analysis 15

~;)

Transmittal to Committee 17

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r- Chronology 19

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FEDERAL ELECTION COMMISSION

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nNAL AUDIT REPORT

ON

ABRAHAM FOR SENAIT

EXECUTIVE SUMMARY

Abraham for Senate (the Committee) registered with the Secretary ofthe Senate on

June 14, 1993 as the principal campaign committee for E. Spencer Abraham (the

Candidate). Republican candidate for the U.S. Senate from the state ofMichigan.

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

held subsequent to the completion offieldwork on June 29.. 1995 and later in an interim

audit report. The Committee's response to those findings are included in this final audit

repone

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

REct'" Of ExCfSSOO: CoNTRIBtmONS - 2 U.S.C. Section 441a(a)(lXA).

Contributions received from two political committees exceeded their limitation by S6~OOO.

In one instance.. the excessive ponion (52.000) was not refunded timely: and.. in the other

instance.. the excessive ponion ($4..000) had not yet been refunded.

In response to the interim audit repon.. the Committee provided a photocopy ofthe

front and back ofthe canceled refund check and noted that Comminee staff were unaware

of the distinction between a registered committee and a qualified comminee.

DISCLOSURE Of DISBURSEMENTS AND DEBTS AND OBLIGATIONS - 2 U.S.C.

Sections 434(b)(S) and (8). Disbursements fOT payroll services totaling $721 9 739 were not

disclosed as required. Finally.. debts and obligations amounting to $46.931 had not been

disclosed as required.

In response to the interim audit repon. the Comminee amended its disclosure

reports to materially corrected the public record.

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D£Dl( "TED T<) "'HP' .... C. 'THE Pl Blll '""f()~MU';

Page 1, Approved 8/1/96
Lo'N noMTIlE CANQlDAU - 2 U.S.C. Section 43I(8XAXi) and 11 CFR

Sections 110.10(8) and (b). The Cmclidate made an S8,000 loan to the Committee on a

joint personal checking maintained by the Cmclidate aDd his spouse at aMichigan bank.

The Committee indicated the source ofthe fuDds used for this loaD were moneys

traDSferred from an account maintained by the Cmclidate at another bank. No

documentation was provided to establish the source oftbe funds used to make this loan.

In response to the interim audit report, the Committee failed to provide bank

statements, check registers and a description ofthe source ofdeposits on and around the

date ofthe loan, as requested for the two bank accounts. Further, the Committee failed to

address how an August transfer ofmoneys could fund a loan made July 20, 1994.

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FEDERAL ELECTION COMMISSION

\VASHI1"I,;GTQ1'. D.C. 200lbJ

REPORTOF THE AUDITDIVISION

ON

ABRAHAM FOR SENATE

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I. BACKGROUND

A. AUDn AUTBORm'

This report is based on an audit ofAbraham for Senate (the Committee),

undenaken by the Audit DivisioD ofthe Federal Election Commission in accordance with

the Federal Election Campaign Act of 1971. as amended (the Act). The audit was

conducted pursuant to Section 438(b) ofTitle 2 oftbe United States Code which states.. in

pan.. that the Commission may CODduet audits and field investigations ofany political

committee required to file a repon under Sec:tiOD 434 ofthis title. Prior to conducting any

audit under this subsectio~ the Commission shall perform an internal review ofreports

filed by selected committeesto determine ifthe reports filed by a particular comaniuee

meet the threshold requirements for substantial compliance with the Act.

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B• AUDIT COVEltAGE

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The audit covered the period &om June 4, 1993. the date ofthe Committee's

first bank transaCtion. through December 31. )994. The Committee reponed a beginning

cash balance -SO-: total receipts for the audit period of54..477.334: total disbursements for

the audit period of$4.453.654: and an ending ca::J1 balance ofS20.271 on December 31 ..

1994.1

c. COMMrnEE ORGANIZATION

The Comminee registered with the Secretary ofthe Senate on June 14, 1993

and maintains its headquancrs in Southfield.. Michigan. The Committee served as the

principal campaign committee for E. Spencer Abraham (the Candidate).. Republican

candidate for the U.S. Senate from the state of Michigan. The Treasurers ofrecord during

the period covered by the audit were Mark Pischea from inception to January 31 .. 1994 and

) The figures cited in this repon were rounded to the nearest dollar. These reported

amounts do not foot as the result ofmathematical errors.

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DEDI( "no l() KEfPI~C THE PUBLIC l!"lifORM[()

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Patrick Harrington from February 1. 1994 to February 6. 1995. The current Treasurer is

Mark Larson.

To manage its financial activity. the Committee maintained one bank

account and four investment accounts. From these accounts, the Cornmittee made

approximately 1360 disbursements. More than 17.000 CODtributions ($3.624.362) from

individuals were received. In addition. the Committee received about 420 contributions

($671,174) from other political committees, two Candidate loans ($23.000), one bank loan

($18,000). offsets to operating expenditures and other receipts ($7.250), as well as four

transfers ($ t64,000) from a joint fundraising committee.

D.. AUDIT SCOPE AND PROCEDURES

The audit covered the following general categories:

1. The receipt ofcontributions or loaDS in excess ofthe statutory

limitations (see Findings ll.A., 8. and C.);

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4.

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the receipt ofcontributions from prohibited sources. such as those

from corporations or labor organi7Jltious;

proper discl~ ofcontributions fiom individuals, political

committees aDd other entities. to iDclude the itemizll60D of

contributions or other receipts whal requiJed. as ~l as. the

completeness and accuracy ofthe iDformation disclosed;

proper disclosure ofdisbursements iDcludiDg the jtcmj:zation of

disbursements when required. as'Well as, the _ and

accuracy ofthe infonnation disclosed (see FiDdiDg UD.);

proper disclosure of Committee debts aDd obligations. to include

loans (see Finding II. E.);

6. accuracy oftotal reponed receipts.. disbursements and cash balances

as compared to Committee bank records;

7. adequate recordkeeping for Committee uansactions; and

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

Unless specifically discussed below. no material non-compliance with

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

rna)' pursue further any ofthe matters discussed in this repon in an enforcement action.

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11. AlJDlT FINDINGS AND RECOMMENDATIONS

A. APPARENT EXCESSIVE CONTRIBUTION Ib ~ULTING FROM STAFF

ADVANCES

Section 441a(a)(1 )(A) ofTitle 2 ofthe United States Code states.. in pan..

that no person shall make contributions to any candidate and his authorized political

committee \\'ith respect to any election for Federal officf" which. in the aggregate. exceed

S1..000.

Section 116.5(b) ofTitle 11 of the Code of Federal Regulations states.. in

p~ that the payment by an individual from his or her personal funds, including a personal

credit carel. for the costs incurred in providing goods or services to, or obtaining goods or

services that are used by or on behalf of, a candidate or a political comminee is a

contribution unless the p3yment is exempted from the definition of contribution under 11

CFR lOO.7(b)(8). Ifthe payment is not exempted.. it shall be considered a contribution by

the individual unless it is for the individual's transponation expenses while traveling on

behalf of a candidate or for usual and nonnal subsistence expenses incurred by an

individual.. other than a volunteer, while traveling on behalf of a candidate; and. the

individual is reimbursed within sixt)· days after the closing date ofthe billing statement on

which the charges first appear ifthe payment was made using a personal credit card., or

within thirty days after the date on which the expenses were incurred if a personal credit

card \\'3.5 not used. "Subsistence expenses" include only expenditures for personal living

expenses related to a particular individual traveling on committee business such as food or

lodging.

During our review ofCommittee disbursements. the Audit staffnoted a

number of reimbursements to Comminee stafffor campaign expenditures such as office

equipmenL supplies.. telephone.. postage.. event expenses and printing. As pan ofthe Audit

staffs analysis ofsuch reimbursements. contributions resulting from the untimely

reimbursement of expenses incurred by individuals \\'ere added to their direct

contributions. Our review indicated that one individual (Sandy Baxter) made an apparent

excessive contribulion.

The Audit staff detemllned that the largest amount in excess for this

individual "'as $10254. on October '1i. 1994. Additionally. during the period September

28 through December 4. 1994. the excessive amount averaged about $5..855. Much ofthe

excessive amount occurred as a result ofthe indIvidual making advances for event

expenses. .~t the conclusion offieldwork. there were no expense reimbursements

outstanding.

This maner \\'as die-cussed \\ith Committee representatives during the exit

conference. The Audit staff pro\'iue-A Corrmlttee representatives with a schedule of

exceSSlve amounts and a cover sheet eApbuning symbols and ITlethodology used by the

Audit staff

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Subsequent to the exit conference.. the Committee submitted a statement

addressing the reimbursements to Ms. Baxter which states..

UThe payments involving Sandy Baxter concern a staff member paying for

necessary expenses., and then being promply (sic) reimbursed by the

Committee. 'While some ofthe instances may have involved expenses of

greater than S1..000, all expenses by Ms. Baxter were submitted in a

timely fashioned (sic) and Ms. Baxter was reimbursed by the Committee

promptly.

While this may not conform with the Commission's strict interpretation

ofthe Federal Election Campaign Act and its Regulations, Ms. Baxter

made these payments as matter of convenience and practicality. In the

heat ofthe campaign and the pressure of putting on events.. it was not

a1\~,"ays possible to have the Cornmittee pay directly for all the expenses.

As a mitigating circumstance. the expenses were always promptly repaid

to Ms. Baxter and.. as the Audit staff has notecL direct payments by a paid

staffer occured (sic) only in the case of Ms. Baxter. In sum.. there is no

pattern and practice of violations; merely a paid staffer trying to insure

that events for a candidate went smoothly."

The interim audit report rxommended that the Committee submit any other

comments or documentation that may be relevant to this maner.

In response to the interim audit repon. the Committee noted that with

respect to the apparent excessive contributions attributed to Sandy Baxter. the I8rpst

arnOW'll in excess was 510.254 on October 27.. 1994~ however. by October 31. 1994 this

amount "Pas reduced to $4..095. Further.. for the period September 28 through December 4,

1994. \\phen the majority of expenditures were incurred by Ms. Baxter, the average period

from the time an expense was incurred until the time it "vas reimbursed was only 29 days.

The response argues that U[e]ven ifsuch expenditures are technically classified as

contributions. such excess contributions were promptly refunded. The regulations permit

60 days for the redesignation or reattributJon of excessive contributions. 11 CFR

§103.3(b)(3) to

The Committee's response also Included an affidavit from Sandy Baxter

which attests that the use of her credit card \\'as never Intended to constitute a contribution

and that .....constant traveling and being m a different place almost every day made it

practJcaHy impossible to obtain checks In advance of every event from the campaign.

Further. the affidavit notes that she was promptly paid "'hen expenses were submitted for

reimbursement and that all expenses were ordmary and necessary expenses ofthe

campaign. In many instances these expenses were Incurred without going through the

formal disbursement approval process and as such the campaign \\'as unaware a

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contribution was being made. Her affidavit concludes that she " ...was merely acting as

most independent fund-raisers operate:"

In the Audit staffs opinio~ the 60 day period provided under 1) CFR

I03.3(b)(3) for reattribution or redesignation of excessive contributions is not applicable in

this situation. Permissible advances and their timely reimbursements are addressed at 11

CFR 116.5 as cited above.

B. RECEIPT OF EXCESSIVE CONTRIBUTIONS

Section 441a(a)(1)(A) ofTitle 2 ofthe United States Code states that no

person shall make contributions to any candidate and his authorized political committees

with respect to any election for Federal office whic~ in the aggregate, exceed $1,,000.

Section 431 (11) ofTitle 2 ofthe United States Code states. in relevant

that the term "person'" includes an individual, partnership, committee, association or any

other organization or group of persons.

Section 441 a(f) ofTitle 2 ofthe United States Code states that no candidate

or political committee shall knowingly accept any contribution in violation ofthe

provisions ofthis section.

Section I03.3(bX3) ofTitle 11 ofthe Code ofFederaI Regulations in

part. that contributions which exceed the contribution limitations may be deposited into a

campaign depository or retm1led to the contributof. If any such contribution is deposited.

the ueasurer may request redesignation Of reattribution ofthe contribution by the

contnbutor in accordance with 11 eFR 110. 1(b). If a redesignation Of reattribution is DOt

obtained. the tre2Surer shall" within 60 days ofthe treasw'er's receipt ofthe conbibution,

refund the contnbution to the c{'ntributor.

Section 10 .. -~(~)'4} ofTitle 11 ofthe Code of Federal Regulations states

that any contribution wr~~tl aD-pears to be illegal under 11 CFR I03.3(b)(3). and which is

deposited into a camr~-i&i•.':..apvsitory shall not be used for any disbursements by the

political comminee ur;tL ·... ie contribution has been detennined to be legal. The political

comminee must either .,~ ~hlish a separate account in a campaign depository for such

contributions O~ m",:~'~'" sufficient funds to make all such refunds.

Tne A ucin staffs review of contributions received from political committees

indicated that two such commlnees exceeded their limitation by $6.000.

In one instance. a $5.000 contribution Vr'8S received from Posthumous

Victory Fund-U.S.A.. a comminee registered with the Conu~ission which had not qualified

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as a multicandidate political committee at the time ofthe contribution.2 Therefore. this

comnrinee exceeded its limitation by $4,000.

The second excessive contribution resulted from the receipt of S3~OOO from

Michigan Independent Political Action Committee (MIPAC). The contributor's check was

dated May 31, 1994; MIPAC did not become a qualified. multicandidate committee until

October 11, 1994. AJthou~ the Committee obtained a letter. dated Septe111Cer 9.. 1994.

redesignating the 52..000 excessive amount to the general election. it was not timely

pursuant to 11 CFR §103.3(b)(3). On November 2.1994. the Committee refunded 51.000

to MlPAC.

The Audit staff discussed this matter with Committee representatives at an

interim conference. At the exit conference, Committee representatives provided the Audit

staff with a photocopy of a $4.000 check issued to "Posthumus Victory Fund".

The interim audit repon recommended that the Committee provide a

photocopy ofthe front and back ofthe negotiated refund check issued to Posthumus

Victory Fund-U.S.A. and provide any other comments or docwnentation that may be

relevant to this matter.

In response to the interim audit repo~ the Committee submitted a

photocopy ofthe front and back ofthe negotiated refund check. The response states that

the Posthwnus Victory Fund-U.S.A. told the Committee it was a multicandidate

committee. Committee staff called the FEe to confirm its status and were told that it was

registered as a multicandidate committee. Committee staffwere "unaware ofthe

distinction between 'registered' and 'qualified' status." The response concludes that the

Committee relied in good faith on the representations ofthe Posthumus Vietory

F::nd-U.S.A. and acceptance ofthe excessive contribution was inadvertent.

C.. LoAN FROM THE CANDIDATE

Section 431(8)(A)(i) ofTitle 2 ofthe United States Code defines the term

"contribution" to include any gift. subscription. loan. advance. or deposit ofmoney or

an~ng of value made by any person for the purpose ofinfluencing any election for

Federal office.

Section 110.10(a) ofTitle 11 of the Code of FederaJ Regulations states that

candidates for Federal office may make unlimited expenditures from personal funds.

2 Under C.S.C. §441a(a)(1). a comnllttec which has qualified as a multicandidate

comminee is entitled to make contribUtlons with respect to elections for Federal

office which do not exceed $5.000.

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Section 110.10(b) ofTitle 11 ofthe Code ofFederal Regulations defines

·'personal funds" as any assets which" under applicable state 18\.\', at the time he or she

became a candidate" the candidate had legal right of access to or control over, and with

respect to which the candidate had either legal and rightful title or an equitable interest.

Section 100.5(a) ofTitle 11 ofthe Code of Federai Regulations

defines a political committee as any committee. club. r~~ociation. or other group of persons

Ylhich receives contributions aggregating in excess ofS1.000 or \\'hich makes expenditures

aggregating in excess of $ J.000 during a calendar year.

During fieldwork. the Audit staffreviewed two loans made by the

Candidate to the Committee. one in the amount ofSlS,OOO and another in the amount of

$8.000 Based on the records available, in suppan ofthe SI5.000 loan. the Audit staff had

no indication that the soW"Ce ofthe funds used to make the loan were anything other than

the ~rsonal funds ofthe candidate. However. the docmnentation for the S8,000 loan

indIcated that the loan had been drawn on a joint personal checking account maintained by

the Candidate and his spouse at the Michigan National Bank (the joint account). The

check. dated July 20. 1994 and signed only by the Candidate. \\'as reported by the

Committee as having been received on July 30. 1994.

In response to the Audit staft's request for additional documentation

establishing that this loan was made using the Candidate'S personal funds. the Committee

stated that the source ofthe funds for this loan was money which had been transferred from

an account the Candidate maintained at Crestar Bank in Washington. DC (the Crestar

account).

The Committee later provided a copy of a bank statement for the joint

account which showed that a wire transfer in the amount of$8.711 had been credited on

.-\ugust 11. 1994. as well as a letter from the Michigan National Bank indicating that the

source ofthese funds v,'as the Crestar account. However. this statement did not show the

balance for the joint account at the time the loan \\'as made.

At the exit conference. the Audit staff requested that the Committee provide

additional documentation demonstrating that the source ofthe moneys transferred from the

CrestaI' account represented the personal funds ofthe Candidate.

Subsequent to the exit conference. the Comminee provided the Audit staff

\\ith an affidavit from the Candidate's spouse which indicated that none ofthe moneys

associated with the Crestar' account represented her funds.

The documentation made available to the Audit staff by the Committee at

the ume of the interim audit repon did not establish the source ofthe funds used to make

this loan. Further. the transfer from the Crestar account \\'as made approximately three

\\'eeks after the date ofthe check Issued from the joint account.

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The interim audit report recommended that the Committee provide

documentation to demonstrate that the loan was made using the Candidate's personal

funds. The docmnentation was to include but not be limited to:

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from the joint account: account statement(s), check register(s) and a

description ofthe source oftbe deposits on and arotmd July 20.. 1994~

and

from the CI'eSW' account: account statement(s) and a description ofthe

source of deposits on and around August 11, 1994; as well as an

explanation clarifyin~ how the August wire transfer from CI'eSW' could

be the source offunds for the Candidate loan made July 20, 1994 from

the joint 8CC01D1t.

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In response to the interim audit the Committee states that the

documents previously submitted:

U •••demonstrate that all the assets in the S8.ooo candidate loan were the

property ofSpencer Abrabam.~

In any event. the amount involved in this loan, which was repaid within

60 days.. is minuscule in a S4 million campaign. Due to the passage of

time (the original bank where the funds were deposited bas since closed

down and merged with another bank).. the Committee is UDable to obtain

any additional documentation. Even in a "worst case scenario", the

Candidate's spouse could not be attributed IDOI'e than one-balf(SO

percent) ofthe loan. or $4.000. Given that she may make a $2,000 (sic),

this loan would represent at the most an excessive contribution of

$2..000.. which was subsequently repaid.~

The Committee's response failed to provide the doc\Dllentation and

explanation needed to determine the source ofthe funds used to make the loan. Therefore,

in order to obtain the necessary documentatio~ subpoenas were issued to the Michigan

National Bank and to CI'eSW' Bank requiring the production ofrelevant records for the

months ofJuly and August 1994.

In response to the Commission's sub~Crestar Bank stated that it bad

located no records that were responsive to the subpoena which requested documents

relating to accounts in the lWDe of E. Spencer or Jane L. Abraham.

The records provided by Michigan National Bank indicated that on July 28,

1994.. two days before the Co&m1ittee reponed receiving the loan from the Candidate, an

S8..ooo deposit was credited to the joint checking account of E. Spencer and Jan~ L.

Abraham. This deposit resulted in a balance ofStO.. 359 in the account and consisted of a

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single check signed by and made payable to Jane .-\braham. The check was written on the

account ofthe Leadership Fund (the Fund) maintained at the City National Bank of

Washington DC. Initially. this check was the source ofthe loan to the Committee. The

preprinted address on the Fund's check was 1911 Crisland Cove, Falls Church, Va. That

address had been crossed-out and replaced by the Candidate's residential address in

Auburn Hills. Michigan. The Fund is not registered with the Commission or with the

equivalent agencies in Virginia or Michigan. Further. there is no telephone listing in the

Auburn Hills area of Michigan for the Fund.

On Friday. July 29. 1Q94. the check effecting the Joan to the Committee

was debited from the joint checking account leaving a balance of $2.070. However,. five

days later. on Wednesday August 3.1994.. the joint checking account was debited S8,OOO

for a retUrned i~ the Fund check. This resulted in a balance of-S6.2303

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obtained do not indicate any overdraft protection on this account. The following day,

August 4. 1994.. the Fund check was redeposited and once again credited to the joint

checking account.. resulting in an account balance ofS1..770.

On August 8.. 1994. four days after its redeposit. the Fund check was again

returned and the joint checking account \\'A.i debited causing the account balance to fall to -

56.432. The joint account remained overdrawn for three days untiL on August 11, 1994. a

wire transfer of$8.711 was received from an account at Cresw Bank. Since the subpoena

to Cresw Bank had produced no infonnation about any account in the name ofE. Spencer

or J:l."le L..~braham.. the account number from the wire transfer credited to the joint

account was used to prepare an additional subpoena to Cresw Bank.. In response to that

subpoena Cresw provided copies ofstatements and associated documents for a business

checking account held in the name ofthe Leadership F\Uld. The address on the statements

is the Candidate's residence in Michigan. The statements cover the period March 1, 1994

to August 11. 1994. the date that the account closed. The onl~' activit), in the account.

other than service charges. is the \\ire transfer to the joint checking account. No

infonnation about the source ofthe funds in this account is available.

Based on the above. the Audit staff concludes that the Committee received

an excessive contribution from the Leadership Fund. an unregistered political committee,.

in the amout of $7.000 ($8.000-$1.000 contribution limitation) and that the contributioin

\\·as disclosed as a loan from the Candidate.

D. DISCLOSURE Of DISBliRSEMESTS

Section 434(b)(5)(A) of Tttle :2 of the Umted States Code states. in that

each repon under tlus seellon shall dIsclose the name and address of each person to whom

It IS nOleo that the bank statements for the ,omt checkmg account also disclosed activity for a

Mone~ Market account ThIs actl"t~ consiSted entr.rely of mterest earned bemg credited. The

Money Market account mamtamed a balance of approximately S5.1 00 dunng the pmod that the

loan transaction took place

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an expenditure in an aggregate amount or value in excess of5200 within the calendar year

is made by the reporting committee to meet a candidate operating expeDSe7 together with

the date. am,ount. and purpose ofsuch operating erpt.3iiture.

Section 431(9XA) ofntle 2 ofthe United States Code states. in part. ·that

the term "expenditure" includes any purchase, payment. distribution. loan.. advance.

deposi~ or gift of money or anything ofvalue., made by my person for t~~ purpose of

influencing any election for Federal office; and a written contraet, promis~:. or &greenlcnt to

make an expenditure.

The Audit staffs review ofCommittee disbursements identified SO

expenditures, totaling 5721,739, made to American Staffing. American Staffing provided

payroll servIces to include issuing payroll checks to Committee employees and making

payments to taxing authorities.

These expenditures were disclosed as payments to American Staffing on

Schedule B \\ith the purpose noted as hemployment services". However, the Committee

did not disclose the payments made to individuals and taxing authorities.

At the exit conference. the Audit staffiDformed Committee rqxesentativcs

ofthis matter and recommended that the Committee file memo Schedules B to suppon the

payments to American Staffing. Committee Rpn:sentatives agreed to file the requested

Schedules B.

Subsequent to the exit confen:nce. the Committee submitted memo

Schedules B which materially corrected the disclosure ofpayments made to American

Staffing.

The interim audit repon recommended no further action.

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E. DISCLOSURE OF DEBTS AND OBUCAnONS

Section 434(b)(8) ofTitle 2 ofthe United States Code states.. in part. that

each repon under this section shall disclose the amount and nature of outstanding debts and

obligations owed by or to such political comminee.

Sections 104.11 (a) and (b) ofTitle 11 ofthe Code of Federal Regulations

state. In part. that debts and obligations owed by or to a political committee which remain

outstanding shall be continuously reported until extinguished. A debt or obligatio~the

amount of which is over 5500 shall be reponed as ofthe date on which the debt or

obligation is incUlTCd.. except that any obligation incurred for rent, salary or other regularly

reoccurring administrative expense shall not be reponed as a debt before the payment due

date.

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The Audit staffreviewed Committee disbursement records to determine

whether debts and obligations were properly reponed. Based on our review, the ~'\udit staff

determined that the Committee should have disclosed debts and obligations totaling

5123,725 as ofDecember 31, 1994. The Committee had disclosed debts and obligations

totaling 576,794. Therefore, the Committee failed to disclose debts and obligations

totaling $46.931.

The Audit staffdiscussed this matter with Committee representatives at the

exit conference and provided them with workpapers detailing the debts and obligations.

The Committee's representatives agreed to file amended Schedules D.

Subsequent to the exit conference.. the Committee submitted amended

Schedules D that materially corrected the disclosure ofdebts and obligations.

The interim audit report recommended no further action.

Page 13, Approved 8/1/96
FEDERAL ELECTIO~ CO~1,\\lSSIOt\:

-July 15, 1996

MEMQRANDllM

BY:

TO: Roben J. Costa

Assistant S~or

Audit DiViSi~ri\.c " : Y

THROUGH: John C. I.LJ

StaffDirceJ't

FROM: Lawrence M.lNoble

:0 General Counsel

Kim Brighi-CoJeman [X?JC

Associate General Counsel

Rhonda J. Vosdingh,gJ

Assistant General Coamsel

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,....

..... -- Matthew J. Tamelian

Anomey 1m

SUBJECT: Proposed Final Audit Report on Abraham for Senate (LRA #483)

The Office of General Counsel has reviewed the proposed Final Audit Repon on

Abraham for Senate (UComminee-) submitted to this Office on July 2. 1996.' The following

memorandum summarizes our comments on the proposed report. This Officc concurs with the

findings of t'.,: proposed repon IK;~ discuued separately in the following memorandum. If you

have any questions concerning our comments. please contaCt Matthew Tanielian. the attorney

assigned to thiS maner.

Reponed LQln (rom the C.gdjd'lc (1I.e.)

On October 19. 1995. the Audit Di\'islon requested this Office prepare subpoenas for the

purpose of determining the source of funds used by the candidate. E. Spencer Abraham. to make

Sance the prOf)OSed Final Audit R~ does not Include matters exempt from pubhc disclosure under

II C.F R § 4. we recommend the Commlsslon's diSCUSSion ofthIS document be conducted In open session

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Page 15, ~mved 8/1/96
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'....:

M....orandum to Roben J. Costa

Proposed Audit Repon on Abraham for Senate fLRA. 413)

Pa,e2

:~I S8,000 loan to the Committee. On December 21. 1995. the Commission issued subpoenas to

Michigan 1'l:ttional Bank and Cresw Bank. Washington. D.C. On January JO. 1996. Crestar

Bank respo(~ded by indicating that it had no accounts in the name ofE. Spencer Abraham or Jane

Abraham. the candidate's spouse. On February 5,1996. Michigan National Bank responded

with documents indicating that the source ofthe funds was a wire transfer from a Crestar Bank

account. After analysis ofthe bank ~ccuments. the Audit Division requested this Office seek

follow-up information from Michigan National Bank concerning the identity the Cresw- Bank

account. On March 28. J996. Michigan National Bank provided the wire transfer documentation

identifying the account number ofthe Cresw Bank account.

On April 24. 1996. the Commission issued a subpoena to Crestal' Bank. \\'·ashington.

D.C., seeking infonnation on the Identified account. On June 11., 1996. Crestar Bank responded

to the subpoen~ providing documents identifying the account by the name "Leadership Fund."

The documents established that the Leadership Fund held a business checking account and the

address ofthe account was the candidate's Michigan residence. The Leadership Fund is not a

registered federal or state political comminee. Neither this Office nor the Audit Division heL'i

information establishing the source of the money in the Leadership Fund account. The proposed

Final Audit Repon concludes. based on the information uncovered by the subpoenas. that the

transactions in question resulted in the Comminee accepting a.~ excessive contribution from the

Leadership Fund. an unregistered political comminee.

The Audit Division's conclusion amends the prior proposed audit repon anached to the

October 19, 1995 subpoena reqUe5L and thus. legal review ofthis report is appropriate. The

OffS~e of General Counsel concurs with the proposed report's conclusion. Because there is no

evidence indicating the source ofthe money in the Leadership Fund. it is reasonable to conclude

the money received by the Comminee \\1lS the result of a contribution from the Leadership Fund.

This Office reco~: ..."ends. however. that the report include statutory suppon for the conclusion

that an excessive .;~ntri butlon occurred. Because the Leadership Fund was not registered as a

political conmllnee, it was an entity subject to the contribution limitations of 2 U.S.C.

§441 a(a)( 1). Therefore. L~e report should Includc a refcrence to 2 U.S.C. § 441a(a)() )(A). which

states no person shall makc contributions to a candidate or a candidatc's campaign committee

which exceed S1.000 per election. and 2 U.S.C. § 431 (1 I). which provides that the definition of

··person·· Includes an IndIvidual. pannershlp. comnunee. asSOCiation. corporation. labor

organization. or any other organization or group of persons The proposed repon also should

include a reference to 11 C.F.R. § 10:.1(d). which requires an entity to file a statement of

organization v.ithin 10 days of becoming 8 politIcal commIttee within the meaning of 11 C.F.R.

§ 100.5(8).

Pace 16, ~roved 8/1/96
FEDERAL ELECTION COMMISSION

\V..\SHtl\.GTO'" O.C :!04b3

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August 2, 1996

Mr. Mark Larson. Treasurer

Abraham for Senate

clo Dykema Gossett

400 Renaissance Center

Detroit, MI 48243

Dear Mr. Larson:

Attached please find the Final Audit Report on Abraham for Senate. The

Commission approved the report on August 19 1996.

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

on August 2~ 1996. Should you have any questionsreprding the public release ofthe

repon, please cont8Ct the-C-ommissjon's Press Office at (202) 219-4155 N toll·free at

(800) 424-9530. Any questioDs you have related to matters covered during the audit or in

the repon should be 10 Melinda MadseD or Alex Boniewicz ofthe Audit Division

ut (202) 219-3720 or at the above 1011 free number.

RobenJ.Costa

Assistant StaffDirector

Audit Division

Attachment as stated

cc: Benjamin L. Ginsberg9 Esq.

'r £~lfRO~' l()D~' ","-OlOMORRO",

DEDl( 0\1[0 TO KEfP',,-C lHE PU811C INFORMEr>

Page 17, Approved 8/1/96
CHRONOLOGY

ABRAHAM FOR SENATE

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Audit Fieldwork

Interim Audit Report to

theCommiuee

Response Received to the

Interim Audit Repon

Final Audit Report Approved

05/15195 • 06108195

08108195

09/11195

08101196

Page 19, Approved 8/1/96