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FEDERAL ELECTION COMMISSION

December 4, 1996

MEMORANDUM

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TO:

FROM:

SUBJECT:

Ron M. Harris

Press Officer

Press Office

Robret J. Costa"* ," Assistant StaffDirector

Audit Division

Public Issuanc~ ofthe Final Audit Report on the Massachusetts

Republican State Committee

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

Massachusetts Republican State Committee wbidI was approved by the Commission on

November 20. 1996.

Im~rmational copies ofthe report have been received by all parties involved and

the repon may be released to the public.

C>. Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Repons Analysis Division

FEe Library
REPORT OF THE AUDIT DIVISION

ON THE

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Massachusetts Republican

State Committee

November 20. 19%

FEDERAL ELECTION COMMISSION

999 E STREET, N.\\'.

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TABLE OF CONTENTS

MASSACHUSETTS REPUBLICAN STATE COMMIITEE

Page

Executive Summary 1

Final Audit Report 3

Background 3

Findings 5

Transmittal to Committee 13

Chronology 15
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FEDERAL ELECTION COMMISSION

FINAL AUDIT REPORT

ON THE

MASSACHUSETTS REPUBLICAN STATE COMMITfEE

EXEClTTIVE SUMMAR\'

The Massachusetts Republican State Comminee (the Committee) registered with

the United States General Accounting Office on February 19, 1974.

The audit was conducted pursuant to Section 438(0) ofTitle 2 ofthe United States

Code \\'hich states. in part. that the Commission may conduct audits of any political

comminee whose repons fail to meet the threshold level of compliance set by the

Commission.

The findings ofthe audit were presented to the Comminee at an exit conference

held at the c(!'t1pletion offieldwork on November 9. 1995 and later. in an interim audit

repon. The Ccmminee·s responses to those findings are included in the final audit

repon.

The follo\\ing is an overvie\\' ofthe findings contained in the final audit report.

DISCLOSlIR£ OF SHAUB fEDERAL AND NON-fEDERAL ACT'ymES - 11 CFR

Sections 106.5 and 104.1O(b). The Comminee filed Schedules H2 in calendar years 1993

and 1994 disclosing allocation ratios for fundraising programs and events using the ballot

composition method instead ofratios calculated using the funds received method. In

addition.. the Comminee filed Schedules H4 allocating payments made for shared

fundraising and event expenses using the ratio derived from the ballot composition

method. The Comminee should have disclosed and allocated such payments using ratios

developed from the funds received method for each program or event. Finally. the

Comminee failed to repon $161.773 in shared administrative expenses expended from

the non-federal account. In response to the intenm audit repon. th~ Comminee filed

amendments which corrected the public record.

~'IlOotll::I" Pace 1, Approved 11/20/96
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APPARENT EXCESSIVE EX'ENQJTUR£$ ON BEHA' FOf ROMNEY foR U.S.

SENATE COMMITIE.E - 2 U.S.C. Section 441a(d)(1) and 11 CFR Sections

1OO.8(b)(16)(i) and (iv). The Committee made r~ymentstotaling $10,799 for

goods/services on behalfofthe Romney For U.S. Senate Committee that were not exempt

from the definition ofexpenditure pursuant to 11 CFR §100.8(b)(16). These

goods/services did not appear to be campaign materials used in connection with volunteer

activities and/or there was no docwnentation related to the Committee's use of

volunteers. As a resu1~ the Committee made payments totaling $4,453 in excess ofthe

coordinated expenditure limitation. The Committee has since obtained a reftmd of

$4,453 from the Romney For U.S. Senate Committee.

MISSTATEMENT OF FINANCIAL AOlYlD:: - 2 U.S.C. Sections 434(b)(1 ),(2) and

(4). Reponed beginning cash on hand was ~d~TStatedby $679. Also.. reported receipts

and disbursements were understated by $24~641 (net) and 527..906 (net) respectively, for

calendar year 1994. Ending cash on hand was overstated by 52.586. In response to the

interim audit repon. the Committee filed a comprehensive amendment for 1994 which

materially corrected the reponing deficiencies.

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REPORT OF THE AUDITDIVISION

ON

MASSACHUSETTS REPUBLICANSTATE COMMI1TEE

I. BACKGROUND

A.. AUDIT AUTHORITY

-fhis report is based on an audit ofthe Massachusetts Republican State

Committee (the Comminee). undenaken 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) ofTitJe 2

ofthe United States Code which states, in that the Commission may conduct audits

and field investigations Gfany political committee required to file a report under Section

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

repons filed by a particular committee meet the thJesbold requirements for substantial

compliance \\ith the Act.

B. AUDIT COVERAGE

c The audit covered the period JanWlJ)' I. 1993 through December 31, 1994.

During this period. the Committee reponed a beginning cash balance of$2..842; total

receipts for the period of$1.974.895; total disbursements for the period of $1.976..393; and

an ending cash balance ofS1..344.

c. CA~tPAIGN ORGANIZATION

The Comminee registered \\;th the United States General Accounting

Office as the Massachusetts Republican State Comminee on February 19, 1974. The

Treasurer of the Comminee is Lay.rence Novak. The Committee maintains its

headquaners in Boston. Massachusetts.

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To IJUID88e its financial activity, the Committee maintained two federal checking

1CCOUDts.1 Committee's receipts were composed ofconttibutioDS from individuals,

political committ~ transfers from party committees, reftmdslrebates, interest and

transfers from its non-federul account.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following general categories:

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

limitations;

2. the receipt of contributions from prohibited sources;

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5.

6.

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proper disclosure ofcontributions 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 dis<..losure ofdisbursements including the itemization of

disbursements when requirecL as well as, the completeness and

accuracy ofthe infonnation disclosed;

proper disclosure of campaign debts and obligations;

the accuracy oftotal reported receipts. disbursements and cash

balances as compared to bank records (see Finding lI.C.);

adequate recordkeeping of campaign transactions;

proper reponing and funding of allocable expenses (see Finding

II.A.); and.

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

(see Finding II.B.).

Unless specifically discussed belo"". no materia) non-compliance was

detected. It should be noted that the Commission may pursue any ofthe matters discussed

in this repon in an enforcement action.

I One ofthe accounts. GOP Vlcto~ ·9~. had minimal actavlty and was closed April I. 1993.

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II. AUDIT FINDINGS AND RECOMMENDATIONS

A. DISCLOSURE OF SHARED FEDERAL AND NON-FEDERAL ACTIVITIES

IDtroduetioD

Our revie\\' encompassed activity related to two bank accounts; one of

\\itich was a federal account and one a non-federal account. The Committee paid all

shared expenses from the federal account. The federal account \\-as then reimbursed from

the non··federal account for the non-federal share of allocable expenses. The Committee

used the ballot composition method (250/0 federal and 750/0 non-federal) to allocate shared

expenses. administrative as well as fundraising. The various fundraisers that were

allocated using the ballot composition method included direct mail. telemarketing

programs and events.

o 1. Allocation Ratios for Fundraisini Eyents • Schedule H2

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Section 106.5(a)(2)(ii) ofTitle 11 ofthe Code ofFederal

Regulations states committees that make disbursements in connection with federal and

non-federa; elections shall allocate expenses according to this section for the direct costs of

a fundraising program or event including disbursements for solicitation offimds and for

planning and adminisuation of actual fundraising events.. where federal and non-federal

funds are collected by one committee through such program or event.

Section 106.5(0 ofTitle 11 ofthe Code of Federal Regulations

states.. in pan... iffederal and non-federal funds are collected·by one committee through a

joint activity.. that committee shall allocate its direct costs offundraising, as described in

paragraph (a)(2) ofthis section.. according to the funds received method. Underthis

method. the committee shall allocate its fundraising costs based on the ratio offunds

received into its federal account to its total receipts from each fundraising program or

event.

Section 1Q·t 1O(b)(1) of Title 11 of the Code of Federal Regulations

states. in part. that in each repon dIsclosing a disbursement for the direct costs of a

fundralsing program or an exempt activIt)". the comminee shall assign a unique identifying

title or code to each such program or aCtIVIty and shall state the allocation ratio calculated

for the program or activit)".

In calendar years 1993 and 1994. the Committee held 33 fundraising

programs or events. The CommIttee filed Schedules H2 disclosing allocation ratios for

these fundraisers using the ballot compositIon method C:~5% federal and 750/0 non-federal).

SInce certain programs \\'ere ongoing and indlstlnguishable. the Audit staff consolidated

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such activity into 17 separate programs and/or events. The Audit staff, using Committee

receipt records, solicitation materials and invitations, calculated allocation ratios and

assigned unique identifiers for each fundraising event or program based on the funds

received method.

Workpapers detailing the above \\~re provided to the Committee at

the exit conference. The Committee agreed \\ith the consolidation of programs/events and

allocation ratios developed by the Audit staff and further agreed to file amended reports.

2. Reponi0i: of Shared Actiyitr - Schedule H4

Section 106.5(g)( 1) ofTitle 11 ofthe Code of Federal Regulations

states. in part, committees that have established separate federal and non-federal accounts

under 11 CFR 102.5(a)(1)(i) or (b)( 1)(i) shall pay the entire amount of an allocable

expense from its federal account and transfer funds from its non-federal account to its

federal account solely to cover the non-federal share ofthat allocable expense; or shall

establish a separate allocation account into which funds from its federal and non-federal

accounts shall be deposited solely for the purpose of paying the allocable expenses ofjoint

federal and non-federal activities.

Section 104.10(b)(4) ofTitle 11 ofthe Code of Federal Regulations

states. in part. a political committee that pays allocable expenses in accordance with 11

CFR 106.5(g) or l06.6(e) shaH also report each disbursement from its federal account or

separate allocation account in payment for a joint federal and non-federal expense or

activity.

The Comminee filed Schedules H4 in calendar years 1993 and 1994

on which all payments made for shared fundraising and event expenses were allocated

using the ballot composition method (25~o federal and 750;0 non-federal). The Committee

should have disclosed and allocated such payments on Schedules H4 based on ratios

developed from the funds received method for each specific program or event.

During the period January 1. 1993 through December 31 9 1994 the

Comminee reponed that the non-federal amoW"t ofshared expenses totaled $1.452.752.

The Audit staff calculated. based on correct allocation ratios. $1.436.361 as the non-federal

amount ofshared expenses. A reVle~: ofthe federal and non-federal accounts identified

$ 1.191.500 in transfers actually made from the non-federal account to the federal account

for all shared expenses. As a result. the federal account overpaid its share of expenses.

Conversely. transfers from the non-federal account did not exceed the non-federal share of

expenses.

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Further, the Audit determined that contrary to the regulatory

requirement stated above the non-federal account paid directly to vendors S161,773 in

shared administrative expenses.2 Funds expended from the non-federal account to pay

shared administrative expenses were not reponed.

As previously stated, the Committee was given schedules of all

fundraising and event programs. along with allocation ratios developed by the Audit staff.

Further, a schedule ofshared administrative expenses originating from the non-federal

account was also provided to the Committee. The Committee stated that it agreed with our

calculations and it will file amended reports to correct the reponing irregularities noted

above.

In the interim audit report the Audit staffrecommended that the

Committee:

file amended Schedules H2 for calendar years 1993 and 1994

disclosing the federal/non-federal allocation ratio and unique event identifier for each

program or event;

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file amended Schedules H4 for calendar years 1993 and 1994

correctly disclosing all shared fundraisinglevent expenses including their respective unique

identifier; and

file memo Schedules H4 to include all shared administrative

expenses. not disclosed on Schedules H4. made from the non-federal account.

In response to the interim audit report. the Committee filed amended

Schedules H2 for calendar years 1993 and 1994 correctly disclosing the allocation ratio

(federalJnon-federa1) and unique event identifier for each program or event.

The Comminee also filed amended Sched\lles H4 for calendar year

1993 and 1994 disclosing all shared fundraisingJevent expenses. including their respective

unique identifiers and memo Schedules H4 for 1993 and 1994. all ofwhich materially

corrected the reponing errors noted above.

B. ApPARENT EXCESSIVE EXPENDITURES ON BEHALF OF ROMNEY FOR U.S.

SENATE COMMlnEE

Section 441a(d)(l) ofTitle 2 ofthe United States Code states

notwithstanding any other provision of la\\' with respect to limitations on expenditures or

limitations on contributions. the national comminee of a political party and State

During the audit period the federal account overfunded allocable expenses ofjOint federal and nonfederal activity by $279.361 Therefore. no reImbursement from the federal account to the non·

federal account is due.

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committee ofa political party including any subordinate committee ofa State committee.

may make expenditures in connection with the general election campaign ofcandidates for

Federal office, subject to the limitations contained in paragraphs (2) and (3) ofthis

subsection.

Sections tOO.8(b)(16)(i) and (iv) ofTitle 11 ofthe Code ofFederaJ

Regulations state, in part, that the payment by a state or local committee ofa political party

ofthe costs ofcampaigns materials (such as pins. bumper stickers, handbills, brochures..

posters, party tabloids or newsleners, and yard signs) used by such committee in

connection with volunteer activities on behalf of any nominee(s) ofsuch party is not an

expenditure, provided that such payment is not for costs incurred in connection with any

broadcasting, newspaper, magazine, billboard, direct mail, or similar type of general public

communication or political advertising and such materials are distributed by volunteers and

not by commercial or for-profit operations.

Our review ofComminee vendor files indicated expenditures totaling

$10.799 were made on behalf ofthe Romney For U.S. Senate Committee (the Romney

Comminee). These payments \\'ere made for services and materials that appeared to have

been shipped directly to the Candidate or to commercial vendors.3

o The Committee paid an invoice ($2,414) from Voter Contact Services

for "TapefRomney File With one selection.." "4 Mailings." These materials were sent to a

company named Imagtech. The Comminee responded that Imagtech, inU. made

telephone calls "on behalf ofthe Republican slate." The Committee stated further that the

"tape \\-as a list ofregistered Republican voters in certain towns that had been previously

identified as Romney supponers." The Committee's Executive Oirector stated that WI

cannot explain the \\'ord 'mailings' at the top ofthe invoice since the invoice related to a

telephone effon and n~t to any mailings."

C Another invoice ($352) from Voter Contact Services states "2 Phone

List[sic]/Shipped to Romney 10/14/94. volunteer Phone List 4 MA towns." The

Comminee stated that these telephone lists were shipped to the Romney Committee's

campaign office and that the "calls were made by volunteers from their homes or in a local

office in four to\\T1S in the state. II

3 The Commlttee·s coordmated expendIture hmnataon for the 1994 general election for senate

nommees was S210.673. At the exit conference, the Committee's Executive Direttor stated that he

Signed a lener as~lgnmg the Committee's coordanated expenditure hmit to the National Pany. The

National Republican Senatonal Committee (NRSC) reponed spendmg $540.000 on behalf ofthe

Romney for U.S. Senate Commlnee through November 3, 1995 Payments in the amount of

S316.0oo and S124.0oo were made to National Media.. Inc in Alexandria.. VA.

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o The Committee paid two additional invoices from Voter Contact

Services (5425 and 5619) for voter lists shipped to the Romney Committee. The

Committee stated that voter lists were "shipped to the Romney Headquarters in Cambridge.

The lists were used by volunteer telephone callers who made calls for the Republican party

candidates from a Republican Party office at 7 Central Street in Arlington, Massachusetts."

The expenditures to Voter Contact Services for the votet telephone

lists ($352, $425 and 5619) do not appear to satisfy the 11 CFR §100.8(b)(16) exemption

for campaign materials. A voter telephone list is not the type of material that can be

distributed by volunteers as traditionally done with pins. bwnper stickers. brochures,

posters. etc. Therefore. it appears the Committee made expenditures on behalfofthe

C . .- Romney omuuttee.

The other expenditure ($2.414) to Voter Contact Services involved a

"TapelRomney File With one selection," "'4 Mailings'" which was shipped to another

vendor. At the close offieldwork. it was unclear whether the telephone script provided by

the Committee was associated with that ponion ofthe invoice in question. Further, the

invoice contained the contradictory language U 4 Mailings.·' Absent additional

documentation to the contrary, it is also possible that this expenditure does not satisfy the

11 CFR §100.8(b)(16) exemption for campaign materials.

o The Committee paid invoices from Wellesley Printing for l'6.000

'Newton for Romney' Flyers" ($525) and "30,000 'Must Reading' Newspaper reprint"

($2.400). The Comminee stated that the Newton for Romney flyers were shipped to the

Candidate's campaign headquaners where they were picked up by "Newton residen~ and

distributed by volunteers - principally Newton residents - door-to-door in Newton." The

Comminee stated further that the reprints were shipped to the Romney home and

"distributed door-to-door by volunteers in cities and towns throughout the state."

o The Comminee paid Cambridge Lumber & Supply Company $488

for materials shipped to "Romney" and "Romney Campaign.'t The Committee responded

that the materials were "wood and supplies required to construct political signs which were

held by volunteers at busy intersections in the final days ofthe Romney campaign. The

material \\'as delivered directly to the Romney campaign headquaners in Cambridge and

distributed and used by campaign volunteers.· t

o The Comminee paid two invoices. totaling $3.576. to Boston Sweats

for campaign bunons and yard signs. The Comminee stated that lithe buttons and signs

were delivered to the Romney headquarters where they "'ere by their nature distributed and

used by campaign volunteers and private citizens."

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It should be noted that the get-out-the-~o!e exemption. which mcludes the use of phone banks.

pursuant to 2 U.S C. §431(9)(1).) and 11 CFR §IOO.8(b)(18) IS mappllcable. given that thiS activit),

occurred dunng the 1994 election cycle, a non-Presidential election

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Subsequent to the exit conference, ,he Executive Director stated that "While

place ofdelivery ofproducts from vendors may be an issue, we relied on the pamphlet

published by the Federal Elections [sic] Commission (copy of cover enclosed), which does

not mention place ofdelivery." (Local pany Activity - Federal Election CommissionFebruary 1993)

It is the opinion ofthe Audit stafftl.at the exemption from the definition of

expenditure at 11 CFR §1OO.8(b)( 16) is not applicable to the activities described above

because the goods/services purchased do not appear to be campaign matenetls used in

connection with volunteer activities and/or there was no documentation related to the

Committee's use of volunteers. As a result, the Committee made payments totaling $4,453

($540,000 + $10,799 - S546,346)5 in excess ofthe coordinated expenditure limitation.

In the interim audit report the Audit staffrecommended that the Committee

provide documentation from Voter Contact Services with respect to invoice #4 which

explains the annotation "'4 mailings'" and clarify whether the script provided with invoice

#4 applies to both items listed; and provide evidence which demonstrates that the

expenditures for the activity described above were exempt pursuant to 11 CFR

§1OO.8(b)(16). to include but not be limited to volunteer sign-up sheets, pictures. etc., all of

which must relate to specific programs noted above: or demonstrate that the expenditures

were independent in nature, such that the Committee did not exceed the 2 U.S.Co

§441a(d)(1) limitation; or obtain a refund in the amount ofS4,453 from the Romney For

u.s. Senate Committee.

In response to the interim audit report.. the Committee submitted a copy ofa

reimbursement check in the amount of $4.453 from the Romney For U.S. Senate

Committee. along \\ith a copy ofthe bank validated deposit ticket.

c. MISSYATEMEST OF FINANCIAL ACTIVITY

Sections 434(b)(1). (2) and (4) ofTitle 2 ofthe United States Code state, in

part, that a political comminee shall disclose the amount of cash on hand at the beginning

ofthe reporting period and the total amount of all receipts and all disbursements for the

reporting period and calendar year.

The Audit staffs reconciliation of the Comminee's reponed activity to its

bank activity revealed that material misstatements occurred \\;th respect to reports filed

covering calendar year 1994.

Beginning cash on hand \\'as understated by $679. This error was a carry

over from the 1993 reponing period.

5 TIus amount ($546.346) IS the sum ofthe l' S C §§44l(a)(1)(A) limit ($5.000), 441a(d)(2) limits

($170.673 state party and $:70.673 national part) )

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Receipts were understated by a net amount of$24,641, due to not reporbna

receipts totaling $35,141 and the over-reponing of 510,500 in receipts.

Disbursements were understated by 527,906, primarily due to an unreported

transfer to the non-federal account in the amount of525,000 and not reporting

disbursements made from a petty cash fund totaling 52242.

Ending cash on hand ~11S overstated by $2.586. the net result ofthe

reporting errors noted above.

The Con minee was provided schedules ofthe above reporting errors at the

exit conference. The Comminee officials agreed to file a comprehensive amendment for

1994 to rectify the errors.

In the interim audit report the Audit staffrecommended that the Comminee

file a comprehensive amendment for t 994 to correct the reponing deficiencies noted.

In response the interim audit report.. the Comminee filed a comprehensive

amendment for 1994, which materially corrected the reporting deficiencies.

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November 25, 1996

Alfred Fondacaro. Jr.

Assistant Treasurer

Massachusetts Republican State Comminee

34 Boynton Road

Medford. MA 02155

Dear Mr. Fondacaro:

Attached please find the Final Audit Report on the Massachusetts Republican

State Comminee. The Commission approved the report on November 20, 1996.

The Commission approved final audit report will be placed on the public record

on December 4. 1996. Should ?OU have any questions regarding the public release ofthe

repon. please contact the Commission·s Press Office at (202) 219-4155. Any questions

you have related to the matters covered during the audit or in the repon should be

directed to Tom Nurthem ofthe Audit Dh-ision at (202) 219-3720 or toll free at (800)

4:!4-9530.

-?2/j/t:;;(:--

Roben J. Costa

Assistant Staff Director

Audit Division

.-\nachment as stated

CC: ~1r. \\·ilham B. Vernon. Exccul1ve Director

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CHRONOLOGY

MASSACHUSEITS REPUBLICAN STATE COMMITTEE

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Audit Fieldwork

Interim Audit Repon to

the Committee

Response Received to the

Interim Audit Repon

Final Audit Repon Approved

10/10/95 - 11/09195

09/13/96

10/11/96

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