Attached please find a copy of the final audit report

of theDNC Services Corporation which was approved by the

Commission on September 12, 1980.

Informa~ional copies of this report have been received

by all parties involved and this report may be released to

the public.

Attachment as stated

March 2, 1981

PUBLIC ISSUANCE OF" FINAL AUDIT

REPORT - DNC SERVICES CORPORATION

FRED EILAND

PRESS OFFXCE !1)..JeBOB COSTAp$r t

JUDY HAWKINS

, .

. . WASHINCTON, DC. 204&3

FEDERAL ELECTION COMMISSION

cc: FEC Library

RAD

Public Record ............-..

FROM:

SUBJECT:

MEMORANDUM

THROUGH:

TO:
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I. Background

A. Overview

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WASHINGTON. D.C. 21101"1

FEDERAL ELECTION COMMISSION

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The Committee operated as the expenditure arm of the

National party for the period January 1, 1976 through

September 30, 1978 in concert with the contribution

committees: the Democratic National Committee (DNC)

and Democratic Finance Committee (DFC). On September

30, 1978, the ONC and DFCmerged into the Committee.

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This report is based upon documents and working papers

which support each of the factual statements. They form part

of the record upon which the Commission based its decisions on

the matters in the report and were available to Commissioners

and appropriate staff for review.

The Committee registered with the Clerk of the united,

States House of Representatives on September 25, 1972, as an·

affiliate of the Democratic National Committee. 1/ The

Committee maintains its headquarters'in Washington, D.C.

The audit covered the period from January. 1, 1976

,through June 30, 1979, the final coverage date of the most

recent report filed by the Committee at the time of the audit.

The Committee reported an opening cash balance on January 1,

1976 of $26,190.66, total receipts for the period of

$18,462,292.92, total expenditures for the period of

$18,331,295.58, and a closing cash balance on June 30, 1979

of $157,188.00.

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REPORT OF THE AUDIT DIVISION

ON THE

DNC SERVICES CORPORATION

This report is based upon an audit of the DNC Services

Corporation ("the Committee"), undertaken by the Audit Division

of the Federal Election Commission in accordance with the

Commission's audit policy to determine whether there has been <

compliance with the provisions of the Federal Election Campaign . Act of 1971, as amended ("the Act"). The audit was conducted

pursuant to Section 438(a) (8) of Title 2 of the United States

Code which, at the ·time of the audit directed the Commission

to make from time to time audits and field investigations with

respect to reports and statements filed.under the provisions of the Act. '

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II. Audit Findings and Recommendations

The Democratic National Committee terminated its activities

on September 30, 1978, through merger into the Committee.

At this time all debts were absorbed by the Committee.

TREASURER

Edward Bennett Williams

Joel McCleary

Evan S. Dobelle

Peter G. Kelly

CHAIRMAN

Robert S. Strauss

Kenneth M. Curtis

John C. White

John C. White

1. Interest Not Paid to a Corporate Vendor

A. Unpaid or Negotiated Debts as Corporate Contributions

On June 30, 1977, a note in the amount of

$215,564.00, at an interest rate of 9~% was signed by the

Committee and the Democratic National Committee 2/ consolidating

all debt owed to a vendor who was verified to be-registered as

a corporation. Our review of this arrangement and subsequent

principal and interest payments revealed that as of March 15,

1979, the time of the last payment to the vendor, no debt was

reported as owing to the vendor but our verification of interest

revealed a balance due of $1,943.94. The Committee officials

stated that previous officials had indicated that the vendor's

note had been paid in full.

Section l14.l0(c) (3) of Title 11, of the Code of

Federal Regulations requires that a corporation and/or a debtor

must file a statement of settlement with the Commission for debts

forgiven by a vendor.

. Section 44lb(a) of Title 2 of the United States Code

states, in part, that it is unlawful for any corporation to make

a contribution or expenditure in connection with any Federal

election to political office.

C. Scope

DME

The audit included such tests as verification of

reported receipts, expenditures and individual transactions;

review of required supporting documentation; analysis of

Committee debts and obligations; and such other audit procedures

as deemed necessary under the circumstances.

1/1/76-1/31/77

2/1/77-6/5/78.

6/6/78-4/13/79

4/14/79-6/30/79

B. Key Personnel

The principal officers of the Committee during the

period audited were as follows:

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In accordance with our request, the Committee

paid the debt totaling $1,943.94. The Committee submitted a

copy of-the front of the check si~ce it has not yet cleared - the bank.

Recommendation

Since.the Committee has paid the debt, we recommend that

no further action be·taken on this matter.

- 2. Undisclosed Corporate Invoices

As a result of our review of vendor files,

we discovered that as of June 30, 1979 invoices indicated

a balance due a vendor, who was a verified corporate entity,

.to be $276,524.75 whereas the Committee disclosed a balance

owed of $243,385.75 for a difference of $33,139.00. Further

research.revealed the following undisclosed charges:

.. rendered.

a • A $5,000.00 charge in 1976 for services

b. A $3,139.00 charge in 1977 for miscellaneous

expenses of the president of the corporation.

c. A $25,000.00 charge in 1978 for consulting

servicesiservices which were said by the Committee Administrator

to never have been authorized~

Our review also revealed that nine (9) other

invoices for charges incurred in 1978 and 1979 were not

disclosed for periods ranging from 72 to 381 days.

The Committee officials stated that the three

(3) invoices noted above were disputed by the Committee but

-that there was no correspondence to support the disputes and

that the vendor had made no attempt to collect the amounts

involved. They further stated that the late disclosure of

invoices was due to the torpid routing procedures used to get

the invoices to the accounting department but that those

procedures have been corrected.

In accordance with our request, the Committee

contacted the vendor concerning the invoices. The Committee

states that the vendor made attempts to collect the amounts

involved, but failed to provide the Committee with documentation

of authorization for these expenditures. The Committee believes

that payment of an unsubstantiated invoice is improper. Because

of the disputed nature of these invoices, the Committee has been

unable to obtain a written statement from the vendor which states

that the invoices were issued in error.
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Recommendation

Since the Committee contacted the vendor in an effort

to resolve this dispute and has agreed.to notify the Commission

of the final resolution of this dispute, we recommend that no

further action be taken on this matter. ..'

3. Prohibited Contributions Through Cancellation

of Outstanding Checks For Corporate Debts

. During our review of general journal entries

made by the Committee, we discovered that entries were made

on 12/31/76, 4/17/77, and 7/31/78 to write-off (cancel) 21

stale, uncashed checks totaling $5,313.41. Of this total,

six (6) checks totaling $1,242.54 were verified to be to . corporate entities at the time that the checks were issued

and written-off. There was no evidence in the Committee

records to indicate that checks had been reissued to any of

the corporations or individuals involved •..

In accordance with our request, the Committee

reissued checks for four (4) of the debts totaling $890.80, the

Committee submitted evidence that the services were not rendered

by two (2) of the vendors. The Committee submitted copies of . the front of the checks since they have not yet cleared the bank.

The remaining fifteen (15) cancelled payments totaling $4,070.87

were payable to either individuals, in amounts of $100.00 or less,

or political committees and reclassifiable as an in-kind contribution without a contribution limit being exceeded (2 U.S.C. 44la(a».

On May 2, 1980, the Commission determined that no further action

should be taken concerning this matter.

Recommendation

Since the Committee reissued checks for four (4) of the

corporate debts and provided evidence that the ether two (2)

vendors did.not render service, we recommend no further action

be taken on this matter.

B. Matters Referred to the Office of General Counsel

Certain other matters noted during the audit were

referred to the Commission's Office of General Counsel for consid~ration on February 1, 1980 •
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FEDERAL ELECTION COMMISSION

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