FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

February 3, 2009 

MEMORANDUM 

To: Judith Ingram 

Press Officer 

From: Wanda J. Thomas~ Acting Assistant Staff Director 

Audit Division 

Subject: Public Issuance of the Audit Report on the Missouri Democratic State 

Committee 

Attached please find a copy of the audit report on the Missouri Democratic State 

Committee, which was approved by the Commission on January 27,2009. 

All parties involved have received informational copies ofthe report and the report 

may be released to the public on February 3, 2009. 

Attachment as stated 

cc:	 Office of General Counsel 

Office of Public Disclosure 

Reports Analysis Division 

FEC Library 

DSDD Website 
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. I 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. 

Report of the 

Audit Division on the Missouri 

Democratic State Committee 

January 1, 2003 - December 31, 2004 

About the Committee (p. 2)
 

The Missouri Democratic State Committee (MDSC) is a state
 

party committee headquartered in Jefferson City, Missouri. For
 

more information, see the chart on the Committee Organization,
 

p.2. 

Financial Activity (p. 2) 

• Federal Receipts 

o Contributions from Individuals $ 1,177,122 

o Contributions from Other Political Committees 561,350 

o Transfers from Affiliated Party Committees 1,422,236 

o Transfers from Non-federal and Levin Funds 1,293,963 

o Offsets to Operating Expenditures 55,250 

o Other Federal Receipts 35,378 

Total Federal Receipts $4,545,299 

• Federal Disbursements 

o Operating Expenditures $ 1,899,952 

o Contributions to Federal Candidate 6,000 

o Coordinated Party Expenditures 311,334 

o Federal Election Activity 2,048,977 

o Other Federal Disbursements 128,809 

Total Federal Disbursements $4,395,071 

• Levin Receipts $ 330,013 

• Levin Disbursements $ 296,132 

Findings and Recommendations (p.4) 

• Cash Disbursements (Finding 1) 

• Non-Federal Disbursements (Finding 2) 

I 2 U.S.c. §438(b). 
Table of Contents 

Part I. Background 

Authority for Audit 

Scope of Audit 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recommendations 

Finding 1. Cash Disbursements 

Finding 2. Non-Federal Disbursements 

Page
 

1
 

1
 

2
 

3
 

4
 

5
 

6
 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Missouri Democratic State Committee (MDSC), 

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 

This audit examined: 

1.	 The receipt of excessive contributions and loans. 

2.	 The receipt of contributions from prohibited sources. 

3.	 The disclosure of contributions received. 

4.	 The disclosure of disbursements, debts and obligations. 

5.	 The disclosure of expenses allocated between federal, non-federal, and Levin 

accounts. 

6.	 The consistency between reported figures and bank records. 

7.	 The completeness of records. 

8.	 Other committee operations necessary to the review. 
2 

Part II 

Overview of Committee 

Committee Organization 

Important Dates MDSC 

• Date of Registration September 15, 1980 

• Audit Coverage January 1,2003 ­ December 31,2004 

Headquarters Jefferson City, Missouri 

Bank Information 

• Bank Depositories 

• Bank Accounts 

One 

Five Federal, Two Non-federal, Two Levin 

Treasurer 

• Treasurer When Audit Was Conducted Rod Anderson 

• Treasurer During Period Covered by Audit Michael Kelly (1/1/03 - 6/19/04) 

Rod Anderson (6/20/04 - Present) 

Management Information 

• Attended FEC Campaign Finance Seminar Yes 

• Used Commonly Available Campaign Management 

Software Package 

Yes 

• Who Handled Accounting and Recordkeeping Tasks Paid Staff 
3 

Overview of Financial Activity 

(Audited Amounts) 

Federal Cash on hand (ji), January 1,2003 $ -99,666 2 

o Contributions from Individuals $ 1,177,122 

o Contributions from Other Political Committees 561,350 

o Transfers from Affiliated Pam Committees 1,422,236 

o Transfers from Non-federal and Levin Funds 1,293,963 

o Offsets to Operating Expenditures 55,250 

o Other Receipts 35,378 

Total Federal Receipts $ 4,545,299 

0 Operating Expenditures 

0 Contributions to Federal Candidates 

0 Coordinated Party Expenditures 

0 Federal Election Activity 

0 Other Federal Disbursements 

Total Federal Disbursements 

Federal Cash on hand (iiJ December 31, 2004 

Levin Cash on hand (iiJ January 1,2003 

Total Levin Receipts 

Total Levin Disbursements 

Levin Cash on hand @ December 31,2004 

$ 1,899,952 

6,000 

311,334 

2,048,977 

128,809 

$ 4,395,071 

$ 50,562 

$ 

330,013 

°

296,132 

$ 33,881 

2 MDSC's bank statements did not show a negative balance because of a large amount of outstanding checks as of 

December 31, 2002. 
4 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Cash Disbursements 

MDSC made 408 cash disbursements totaling $62,552, each of which exceeded the $100 

transaction limit for cash disbursements. The Act requires political committees to make 

all disbursements, except those from a petty cash fund, by check or similar draft drawn 

on a committee account. In its response to the interim audit report, MDSC states that the 

amount in excess of the per-transaction limit was modest, that its log of the payments was 

scrupulously kept and that the facts present nothing untoward about the payments, but for 

the issue of the per-transaction limit. (For more detail, see p. 5) 

Finding 2. Non-Federal Disbursements 

Initially, MDSC appeared to have improperly made payments totaling $5,099,909 from 

its non-federal operating account for federal expenses. In its response to the interim 

report, MDSC provided documentation demonstrating that some of the disbursements 

were solely non-federal in nature. However, for other disbursements, the documentation 

was insufficient to support them as solely non-federal in nature. If these disbursements 

were considered to be federal in nature, the MDSC would be required to transfer 

$1,235,054 to its non-federal operating account for its share of federal expenses and, 

amend its reports to show these transactions as memo entries. Neither evidence of the 

transfer nor amended reports were submitted as part of the response. (For more detail, 

see p. 6) 
5 

Part IV
 

Findings and Recommendations
 

I Finding 1. Cash Disbursements 

Summary 

MDSC made 408 cash disbursements totaling $62,552, each of which exceeded the $100 

transaction limit for cash disbursements. The Act requires political committees to make 

all disbursements, except those from a petty cash fund, by check or similar draft drawn 

on a committee account. In its response to the interim audit report, MDSC states that the 

amount in excess of the per-transaction limit was modest, that its log of the payments was 

scrupulously kept and that the facts present nothing untoward about the payments, but for 

the issue of the per-transaction limit. 

Legal Standard 

Disbursement by Check. A political committee may only make expenditures in cash, 

not to exceed $100 from a petty cash fund. A written journal for such cash expenditures 

is to be maintained by the treasurer. All other disbursements shall be made by check or 

similar draft drawn on account(s) established at the committee's campaign 

depository(ies). 2 U.S.c. §432(h). 

Facts and Analysis 

MDSC made 408 cash disbursements totaling $62,552, each of which exceeded the $100 

transaction limit. These expenditures were to pay canvassers and vendors during the 

general election period. These cash expenditures were funded by eight checks and three 

wire transfers totaling $120,175. Seven of the eight checks totaling $70,562 were made 

out to "Cash." According to MDSC officials, a petty cash fund was not maintained. 

MDSC maintained records of the name, address, date, and amount paid for each 

canvasser. 

The Audit staff presented this matter at the exit conference along with workpapers. 

MDSC representatives had no comment. 

Interim Audit Report Recommendation and Committee's Response 

The Audit staff recommended that MDSC: 

•	 Demonstrate it complied with the provisions of 2 U.S.c. §432(h) regarding cash 

disbursements; or 

•	 Provide any comments it deems relevant regarding the cash disbursements. 

In its response, MDSC stated that the amount in excess of the per-transaction limit was 

modest, that its log of the payments was scrupulously kept and that the facts present 

nothing untoward about the payments, but for the issue of the per-transaction limit. 

MDSC also stated that due to logistical burdens in making payments for election-day and 

canvassing activities, the use of petty cash is a practical necessity and while the petty 
6 

cash per-transaction limit has stayed static over the years, the costs of election-day
 

activities have risen with inflation.
 

I Finding 2. Non-Federal Disbursements 

Summary 

Initially, MDSC appeared to have improperly made payments totaling $5,099,909 from 

its non-federal operating account for federal expenses. In its response to the interim 

report, MDSC provided documentation demonstrating that some of the disbursements 

were solely non-federal in nature. However, for other disbursements, the documentation 

was insufficient to support them as solely non-federal in nature. If these disbursements 

were considered to be federal in nature, the MDSC would be required to transfer 

$1,235,054 to its non-federal operating account for its share of federal expenses and, 

amend its reports to show these transactions as memo entries. Neither evidence of the 

transfer nor amended reports were submitted as part of the response. 

Legal Standard 

A. Accounts for Federal and Non-federal Activity. A party committee that finances 

political activity in connection with both federal and non-federal elections must 

establish two accounts (federal and non-federal) and allocate shared expenses--those 

that simultaneously support federal and non-federal election activity-between the 

two accounts. Alternatively, the committee may conduct both federal and non-federal 

activity from one bank account, considered a federal account. 11 CFR 

§102.5(a)(l )(i). 

B.	 Paying for Allocable Expenses. Commission regulations offer party committees two 

ways to pay for allocable, shared federal/non-federal expenses. 

•	 They may pay the entire amount of the shared expense from the federal account 

and transfer funds from the non-federal account to the federal account to cover the 

non-federal share ofthat expense; or 

•	 They may establish a separate, federal allocation account into which the 

committee deposits funds from both its federal and non-federal accounts solely 

for the purpose of paying the allocable expenses of shared federal/non-federal 

activities. 11 CFR §"l 06.7(b). 

C.	 Reporting Allocable Expenses. A political committee that allocates federal/nonfederal expenses must report each disbursement it makes from its federal account (or 

separate allocation account) to pay for a shared federal/non-federal expense. 

Committees report these kinds of disbursements on Schedule H-4 (Disbursements for 

Allocated FederalINonfederal Activity). 11 CFR §104.10(b)(4). 

D. Allocation Ratio for Administrative & Generic Voter Drive Costs. State and local 

party committees must allocate their administrative expenses and generic voter drive 

costs dependent upon which federal offices appear on the ballot for the election year. 

The minimum percentage of federal funds would be at least: 
7 

•	 36%, if both a Presidential candidate and a Senate candidate appear on the 

ballot; 

•	 28%, if a Presidential candidate but not a Senate candidate appears on the 

ballot; 

•	 21%, if a Senate candidate, but no Presidential candidate appears on the 

ballot; and, 

•	 15% if neither a Presidential or a Senate candidate appears on the ballot.. 11 

CFR §106.7(d)(2) and (3). 

E.	 Allocation of Costs of Federal Election Activity. State and local party committees 

may allocate disbursements or expenditures, except salaries and wages for employees, 

between Federal funds and Levin funds for voter registration activity that takes place 

during the period that begins on the date that is 120 days before the date of a regularly 

scheduled Federal election and ends on the date of the election, provided that the 

activity does not refer to aclearly identified Federal candidate. 11 CFR 

§300.33(a)(l) 

State, and local party committees and organizations may allocate disbursements or 

expenditures, except salaries and wages for employees, between Federal funds and 

Levin funds for voter identification, get-out-the-vote activity, or generic campaign 

activities that are conducted in connection with an election in which a candidate for 

Federal office is on the ballot provided that the activity does not refer to a clearly 

identified Federal candidate. 11 CFR §300.33(a)(2) 

If a Presidential candidate and Senate candidate appear on the ballot, State and local 

party committees must allocate at least 36% of expenses to their Federal funds. 11 

CFR §300.33(b)(2) 

F.	 Salaries and Wages. Committees must keep a monthly log of the percentage of time 

each employee spends in connection with a Federal election. Salaries and wages for 

employees who spend more than 25% of their compensated time in a given month on 

Federal election activity or activities in connection with a Federal election must be 

paid only from a Federal account. 11 CFR §106.7(d)(I)(ii) 

G.	 Reporting Expenses Allocated Between Federal Funds and Levin Funds. A 

State, district, or local political party committee that makes a disbursement for 

Federal election activity that is allocated between Federal funds and Levin funds must 

state the category of Federal election activity for which each allocable disbursement 

was made. 11 CFR §300.36(b)(2)(i)(B) 

Facts and Analysis 

MDSC made payments from its non-federal operating account totaling $5,099,909 that 

appeared to be for federal election expenses. MDSC maintained several federal, nonfederal and Levin bank accounts. Shared expenses were paid from the federal accounts 

and funds were transferred from the non-federal and Levin accounts to the federal 

accounts to cover the non-federal and Levin share of those expenses. To allocate 
8 

administrative and generic voter drive expenses, MDSC correctly utilized the fixed 

percentage ratio of 36% federal and 64% non-federal. Allocable federal election activity 

is allocated between federal and Levin funds according to the fixed percentage method 

noted above. The Audit staff reviewed disbursements from both the federal and nonfederal accounts. 

Payment and Disclosure of Salaries and Related Expenses 

MDSC made payments from its non-federal operating account totaling $1,376,575, which 

appeared to be for non-allocable expenses such as salaries, payroll taxes, healthcare and 

insurance. However, MDSC failed to maintain time sheets, employee logs or other 

documentation demonstrating the portion of their time spent on federal versus nonfederal tasks. Absent such documentation, MDSC should have made these payments 

from its federal account. Since this activity was not reported, MDSC should disclose 

these salary payments as memo entries on Schedule B (Itemized Disbursements), Line 

30b. 

Payment and Disclosure of Non Allocable Federal Election Activity 

and Other Federal Expenses 

Other expenses totaling $3,408,722 were disbursed from the non-federal operating 

account for television and radio ads, phone banks, and lodging for the national party 

convention. Television and radio ads represent $2,062,000 of that amount. Available 

documentation did not indicate that any of these payments were for solely non-federal 

activities. Absent documentation detailing the nature of these expenditures, it appeared 

they should have been made from the federal account. Since this activity was not 

reported, MDSC should disclose the federal portion of these payments as memo entries 

on Schedule B, Line 21b or 30b, as appropriate, once the nature of these expenses is 

determined. 

Payment and Disclosure of Administrative/Generic Voter Drive 

Additional expenses totaling $311,212 disbursed from MDSC's non-federal operating 

account for postage, building repairs, consulting, taxes, legal services and state 

convention planning, were identified as apparent allocable administrative/generic voter 

drive activity. Available documentation did not indicate that any of these payments were 

for solely non-federal activities; therefore, they were treated as allocable administrative _ 

expenses. The federal share for these expenses is $112,036 ($311,212 x .36). Unless 

documented as wholly non-federal, MDSC should disclose these payments ($311,212) as 

memo entries on H-4 (Joint Federal/Non-federal Activity Schedule). 

Funding by the Non-federal Account for Shared Activity 

The Audit staffs analysis indicated that during the audit period the non-federal account 

transferred less than it could have to the federal account for its share of allocable 

expenses. A total of $1,012,873 was transferred; however, the non-federal share of 

allocated costs was $1,123,535, leaving an additional $110,662 which could have been 

transferred. In addition MDSC made transfers to its non-federal account totaling 

$87,120. Therefore, the interim audit report noted that MDSC would be required to 
9 

transfer $4,699,551 ($1,376,575 + $3,408,722 + $112,036 - $110,662 - $87,120) from its 

federal account to pay for its share of expenses paid from the non-federal account. 

At the exit conference, the Audit staff addressed these matters and provided schedules 

identifying the transactions noted above to the MDSC representatives. MDSC 

representatives stated that MDSC's focus for 2003 and part of2004 was geared toward 

the gubernatorial race and that no employee spent more than 25% of his/her time on 

federal related activity. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that MDSC: 

•	 Provide signed and notarized affidavits from employees stating that they did not 

spend more that 25% of their time on Federal election activities or activities in 

connection with a Federal election. 

•	 Demonstrate that the identified disbursements paid from non-federal accounts are 

solely non-federal expenses. 

•	 Absent such a demonstration, MDSC should reimburse the non-federal operating 

account $4,699,551. 

•	 In addition, MDSC should file Schedules B (Itemized Disbursements) or H-4 

(Joint FederallNon-federal Activity Schedule), as appropriate, disclosing as memo 

entries the expenditures paid from the non-federal account. 

MDSC's initial response to the interim audit report consisted of a narrative which listed 

various vendors and discussed the services/goods provided, some documents and copies 

of reports filed by its non-federal committee. 

MDSC stated that in 2003, and the first half of2004, MDSC engaged in a public media 

campaign to inform the public on non-federal issues. This activity included polling, radio 

advertising, press and communications spokesmen, print advertising, direct mail, 

outreach via the internet with a website, and a statewide canvassing effort. Further, 

MDSC conducted a multi-million dollar campaign to support the 2004 democratic 

gubernatorial nominee as well as candidates for the state legislature. MDSC provided 

copies of its non-federal reports filed with the Missouri State Ethics Commission to 

support this argument. The response also notes that copies of ads were presented to the 

Audit staff demonstrating that the communications were promoting its gubernatorial 

candidate. 

Finally, MDSC argues that the Audit staff disregards the law allowing MDSC to pay for 

convention and building fund expenses 100% with non-federal funds. MDSC refers to 2 

USC Section 431(20) which states that the costs of a state, district, or local political 

convention is excepted from the definition of federal election activity and thus may be 

paid 100% from its non-federal account. MDSC also cites 2 USC 453(b) which excludes 
10 

the purchase or construction of an office building for a state or local committee. MDSC 

also states that advisory opinions allowed parties to pay expenses described as capital 

expenditures under the Internal Revenue Code out of the non-federal account. 

Although MSDC provided some schedules it had apparently generated, the response did 

not include any documentation, such as invoices, from vendors. 

The Audit staff contacted MDSC to inform them that their response was not sufficient. 

The Audit staff agreed to meet with MDSC to discuss what documentation would be 

required to resolve this matter. 

Subsequent to that meeting, MDSC provided documentation from 14 vendors and salary 

documentation consisting of partial timesheets for seven staff members, and one 

affidavit. Although additional documentation has been promised, MDSC has not 

provided any additional invoices, documentation or contracts from the other vendors, or 

samples of the goods provided demonstrating that the expenses incurred for polling, radio 

advertising, print advertising, direct mail, and canvassing were to promote the election or 

defeat of non-federal candidates. 

Audit Staff Analysis of Committee Response 

MDSC provided documentation from 14 vendors that demonstrated the services provided 

were for solely non-federal activities. The amount covered by the documentation is 

$2,542,961. In addition, MDSC provided partial timesheets for seven staff members, and 

one affidavit, for salaries totaling $889,280 detailing that each staff member spent 25% or 

less of their time on federal election activity or activities in connection with a Federal 

election. 

In addition, except as described above, MDSC did not provide affidavits or timesheets 

from other staff stating that they did not spend more than 25% of their time on federal 

election activity, as recommended in the interim report. Clearly, 11 CFR §106.7(d)(l)(ii) 

specifies that a log documenting the percentage oftime spent by staff on non-federal 

activity must be maintained. Again, MDSC did not maintain such logs. 

Although the regulation appears only to exclude convention expenses from the definition 

of federal election activity; the Audit staff has excluded convention costs as allocable 

expenses based on language contained in the Explanation & Justification (E&J) arising 

from revisions to 2 U.S.c. §431(20)(B). The E&J states, "In BCRA, Congress 

specifically excluded certain activities from the definition of Federal election activities, 2 

U.S.c. 43 1(20)(B). Activities falling within one of the exceptions may be paid for 

entirely with non-Federal funds." One of these activities is the cost of state, district or 

local political conventions. 

Finally, the Audit staff does not dispute that capital expenditures may be paid from 

MDSC's building fund. However, the documentation provided was not sufficient for the 

Audit staff to determine if these were capital expenditures. The invoices provided were 

for painting, plumbing, changing door locks and flooring. These types of expenses if 

incurred as part of a building improvement could qualify as a capital expenditure under 
11 

the Internal Revenue Code. These same types of expenses could be for repairs and 

maintenance and thus administrative expenses. 

Based on the review of documentation submitted, the Audit staff reduced the amount of 

disbursements for which the non-federal nature could not be adequately determined from 

$4,699,551 to $1,235,054. The documentation provided for these remaining 

disbursements, included narrative assertions, MDSC prepared charts and copies of 

disclosure reports filed with the State of Missouri. These documents affirm MSDC's 

assertion of the non-federal nature of the disbursements. However, documentation such 

as contracts, invoices or other such vendor prepared documentation, that would establish 

that the disbursements were, in-fact, non-federal were not provided. If these 

disbursements were considered to be federal in nature, the MSDC would be required to 

transfer $1,235,0543 to its non-federal account and file Schedules B, or H-4, as 

appropriate, disclosing as memo entries the disbursements paid from the non-federal 

account. 

Neither evidence of transfer nor amended reports were submitted as part of the response. 

3 Some of the expenditures were allocable; therefore, the reduction of the amount which could be subject to 

transfer by MDSC is not dollar for dollar.