FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

April 9, 2001

MEMORANDUM

TO: RON M. HARRIS

PRESS OFFICER

PRESS OFFICE •

FROM: ROBERT J. c,OSTA~i~ .;: ••:(~, ASSISTANT STAF CTOR

AUDIT DNISION I

,

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

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

Oakland Democratic Campaign Committee which was approved by the Commission on

March 28, 2001.

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

the report may be released to the public on April 9, 2001.

Attachment as stated

cc: Office of General Counsel

Office ofPublic Disclosure

Reports Analysis Division

FEC Library
REPORT OF THE AUDIT DIVISION

ON

Oakland Democratic Campaign Committee

Approved March 28, 2001

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

Page

Executive Summary

Final Audit Report

Background

Findings

Transmittal to Committee

Chronology

3

3

5

17

19
FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20461

REPORT OF THE AUDIT DIVISION

ON THE

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

EXECUTIVE SUMMARY

The Oakland Democratic Campaign Committee (the Committee) registered with

the Federal Election Commission on June 14, 1976.

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

Code, which states, in part, that the Commission may conduct audits of any political

committee whose reports fail to meet the threshold level of compliance set by the

Commission.

The period covered by the audit was January 1, 1997 through December 31, 1998.

The findings ofthe audit were presented to the Committee at an exit conference and later,

in an interim audit report. The Committee's responses to those findings are included in

the final audit report.

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

FUNDING OF ALLOCABLE EXPENSES FROM A NON-FEDERAL ACCOUNTII CFR §§106.5(a)(2), and (g)(I), and 104.1O(b)(4)

From January 1,1997 through July 14,1997, allocable expenses totaling $89,265

were defrayed from a non-federal account. The non-federal account was later reimbursed

for the federal share. The Auditstaffs analysis ofshared expenses indicated that the

federal account paid more than its allocable share ofthe expenses; in the aggregate, no

overfunding of expenses by the non-federal account occurred. Nonetheless,

disbursements made directly from a non-federal account for allocable expenses are not

permitted under the Commission's regulations.

DISCLOSURE OF JOINT FEDERAL/NoN-FEDERAL EXPENSES11 CFR §§104.3(b)(3)(i)(A), 104.IO(b)(4)

Rather than disclosing on Schedule H-4 each disbursement made for ajoint

federal/non-federal expense, the Committee aggregated as one entry, multiple

disbursements to the same payee. In addition, certain other disbursements from a nonfederal account, identified as payments for allocable expenses, were not disclosed at all.

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The interim report recommended that the Committee file amended Schedules H-4.

However, amended reports filed by the Committee did not include the recommended

Schedules H-4.

MISSTATEMENT OF FINANCIAL ACTIVITY - 2 U.S.C. §434(b)(1), (2) and (4)

The Committee's disclosure reports were materially understated primarily as a

result ofthe Committee's failure to disclose the activity in 2 accounts maintained for

Bingo activity and another Committee account. The Committee filed amended reports to

address this issue, however, the amended report totals for receipts and disbursements

appear to be overstated.

DOCUMENTATION FOR DISBURSEMENTS- 2 U.S.C. §432(c)(5) and 11 CFR

§102.9(b)(2)

The Committee failed to maintain adequate records for a material number of

disbursements. The interim report recommended that the Committee provide copies of

canceled checks or payee generated receipts or invoices for the disbursements, however,

these materials were not provided.

ITEMIZATION OF DEBTS AND OBLIGATIONS-ll CFR §104.11(a)

The Audit staffidentified 22 disbursements to five vendors that appeared to be

partial payments on outstandi')-g debts; however, no debts to these vendors were disclosed

on Schedules D (Debts and Obligations Excluding Loans) ofthe Committee's reports.

Vendor-generated documentation to confirm whether there were reportable debts to these

vendors was not presented for Audit staffreview. The interim report recommended that

the Committee provide documentation that the disbursements were not reportable as

debts or file Schedules D to disclose the details ofthe debts related to the disbursements.

The Committee filed amended reports to disclose debts to three of the five vendors and

accounted for 16 ofthe 22 disbursements at issue.

RECEIPT OF CONTRIBUTIONS FROM AN UNREGISTERED POLITICAL PARTY

ORGANIZATION -11 CFR §102.5(b)

During 1998, the Committee received 16 contributions totaling $18,800 from an

unregistered political party organization. Evidence to demonstrate that permissible funds

were used to make the contributions was not presented to the Audit staff. The interim

report recommended that the Committee present such evidence or refund the

contributions. The Committee presented evidence that $5,500 had been refunded, albeit

untimely. The Committee's response did not address the remaining $13,300.

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•

A# 99-73

FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20463

REPORT OF THE AUDITDIVISION

ON THE

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofthe Oakland Democratic Campaign

Committee (the Committee), undertaken by the Audit Division ofthe Federal Election

Commission in accordance with the provisions of the Federal Election Campaign Act of

1971, as amended (the Act). The audit was conducted pursuant to Section438(b) ofTitle

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

audits and field investigations of any political committee required to file a report under

Section 434 ofthis title. Prior to conducting any audit under this subsection, the

Commission shall perform an internal review ofreports filed by selected committees to

determine ifthe reports filed by a particular committee meet the threshold requirements

for substantial compliance with the Act.

B. AUDIT COVERAGE

The audit covered the period January 1, 1997, through December 31, 1998.

The Committee reported a beginning cash balance on January I, 1997 of$137; total

receipts for the audit period of $203,842; total disbursements for the audit period of

$201,297; and an ending cash balance 0[$2,682 on December 31,1998.'

C. CAMPAIGN ORGANIZATION

The Committee registered with the Federal Election Commission on June

14,1976 and maintains its headquarters in Berkley, Michigan. The Committee had two

Treasurers during the period covered by the audit: Ms. Martha Blom from January I,

1997 until February 9, 1998, Ms. Marcia Femrite from February 10, 1998 until December

31, 1998. The current Treasurer is Mr. David Woodward.

To manage its financial activity, the Committee maintained nine bank

accounts during the audit period; however, it did not maintain a separate allocation

All amounts presented in this report were rounded to the nearest dollar.

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account to pay for shared federal/non-federal expenses. Nine bank accounts were

maintained by the Committee or its parent organization, the Oakland Democratic Party,

eight of which it considered as non-federal. Based on our review of each accounts'

purpose and activity it appeared that only five accounts were non-federal while four

accounts are properly classifiable as federal. See Finding n.B.

The Committee's receipts were composed of contributions from

individuals, political party committees, other political committees (such as PACs),

transfers from affiliated committees, offsets to operating expenditures (such as refunds

and rebates), and transfers from non-federal accounts for joint activity.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following general categories:

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

limitations;

2. the receipt of contributions from prohibited sources, such as those

from corporations or labor organizations (see Finding II.E.);

3. proper disclosure of contributions from individuals, political

committees and other entities, to include the itemization of

contributions or other receipts when required, as well as, the

completeness and accuracy of the information disclosed;

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and

accuracy of the information disclosed;

5. proper disclosure of debts and obligations, to include

loans (see Finding II.D.);

6. accuracy oftotal reported receipts, disbursements and cash

balances as compared to committee bank records (see Finding

II.B.);

7. adequate recordkeeping for transactions (see Finding II.C.);

8. proper disclosure ofthe allocation of costs associated with

administrative expenses and activities conducted jointly on behalf

of federal and non-federal elections and candidates (see Finding

II.A.); and,

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

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i":::

iY

Testing of disbursements was limited because the Committee failed to

maintain canceled checks or vendor generated documentation for a material number of

disbursements.

Unless specifically discussed below, no material non-compliance was

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

discussed in this report in an enforcement action.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. JOINT FEDERAL/NoN-FEDERAL ACTIVITY

Section 106.5(g)( 1) ofTitle 11 of the Code of Federal Regulations states,

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

II CFR 102.5(a)(I)(i) shall pay the expenses ofjoint federal and non-federal activities as

follows: (i) 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 (ii) establish a separate allocation account

into which funds from its federal and non-federal accounts shall be deposited solely for

the purpose of paying allocable expenses. Once a committee establishes a separate

allocation account, all allocable expenses shall be paid from that account for as long as

the account is maintained.

Section I06.j(a)(2)(i) and (iv) ofTitle II of the Code of Federal

Regulations states that committees that make disbursements in connection with federal

and non-federal elections shall allocate expenses according to this section for the

following categories of activity: administrative expenses including rent, utilities, office

supplies, and salaries, except for such expenses directly attributable to a clearly identified

candidate; and generic voter drives including voter identification, voter registration, and

get-out-the-vote drives, or any other activities that urge the general public to register, vote

or support candidates of a particular party or associated with a particular issue, without

mentioning a specific candidate.

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

that a political committee that pays allocable expenses in accordance with II CFR

I06.5(g) or 106.6(e) shall also report each disbursement from its federal account or its

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

activity. In the report covering the period in which the disbursement occurred, the

committee shall state the full name and address of each person to whom the disbursement

was made, and the date, amount and purpose of each such disbursement. If the

disbursement includes payment for the allocable costs of more than one activity, the

committee shall itemize the disbursement, showing the amounts designated for payment

ofadministrative expenses and generic voter drives, and for each fundraising program or

exempt activity, as described in II CFR I06.5(a)(2) or I06.6(b). The committee shall

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also report the total amount expended by the committee that year, to date, for each

category of activity.

1. Funding of Allocable Expenses by a Non-federal Account

Our review indicated that for the audit period the Oakland

Democratic Party, the Committee's parent organization, maintained nine bank accountsone account that it considered federal and eight accounts that it considered non-federal.

Our review ofthe associated documentation made available for these accounts identified

shared expenses paid directly from one ofthe non-federal accounts. As noted above, a

party committee engaging in both federal and non-federal activities may either pay the

entire amount ofan allocable expense from its federal account and transfer funds from its

non-federal accounts to its federal account solely to cover the non-federal share ofthat

allocable expense, or establish a separate allocation account into which funds from its

federal and non-federal accounts are deposited solely for the purpose ofpaying the

allocable expenses. The Committee did not follow either ofthe prescribed methods for

payment of allocable expenses.

Instead, from 1/1/97 through 7/14/97, allocable expenses totaling

$89,265 were defrayed using funds from a non-federal account. The federal share ofthese

expenses was $9,917. The non-federal account was later "reimbursed" $33,200 by the

federal account for the federal share of allocable expenses as determined by the

Committee. Subsequent to 7/14/97, the Committee paid for all shared expenses from its

federal operating account without receiving reimbursement from the non-federal account

for the non-federal share. The Audit staffs analysis ofshared expenses indicated that the

federal account paid more than its allocable share ofthe expenses; in the aggregate no

over funding of expenses by the non-federal account occurred. Nonetheless,

disbursements made directly from a non-federal account in payment of allocable expenses

are not permitted under the Commission's allocation re?ulations.

2. Disclosure Of Joint Federal/Non-Federal Expenses

Section 104.10(b)(4) of Title 11 ofthe Code of Federal

Regulations states, in part, that "a political committee that pays allocable expenses in

accordance with 11 CFRI06.5(g) or 106.6(e) shall also report each disbursement from its

federal account or its separate allocation account in payment for a joint federal and nonfederal expense or activity. In the report covering the period in which the disbursement

occurred, the committee shall state the full name and address of each person to whom the

disbursement was made, and the date, amount and purpose of each such disbursement."

At II CFR §104.3(b)(3)(i)(A)plllpose is defined as a brief

statement or description of why the disbursement was made. Examples ofstatements or

descriptions which meet the requirements of II CFR I04.3(b) include the following:

dinner expenses, media, salary, potting, travel, partyfees, phone banks, travel expenses,

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travel expense reimbursement, and catering costs. However, statements or descriptions

such as advance, election day expenses, other expenses, expenses, expense

reimbursements, miscellaneous, outside services, get-out-the-vote, and voter registration

would not meet the requirements of 11 CFR 104.3(b)(3) for reporting the purpose of an

expenditure.

Although shared expenses were paid initially from a non-federal

account, the Committee itemized the expenses on Schedules H-4 (Joint FederalINonFederal Activity Schedule), which reflected the federal and non-federal share ofthe

allocable expenses. However, the totals reported on these Schedules H-4 were not

included in total reported receipts and disbursements, rather, the itemized transactions

were labeled "memo worksheet."

A review ofthe Committee's disbursements itemized on Schedules

H-4 identified entries for which multiple disbursements to the same payee were

aggregated as one entry for the reporting period. For example, six separate payments to

one vendor were itemized as a single payment in the amount ofthe sum ofthe six

payments. This reporting practice occurred during both reporting periods in 1997.

For the reporting period covering 1/1/97 through 6/30/97, the

Committee filed Memo Schedules H-4 to disclose expenditures for joint federal/nonfederal activity paid from a non-federal account. The Audit staff identified 164

disbursements totaling $76,714 that were disclosed improperly. The date reported for the

disbursements was "111/97 thru 6/30/97." Likewise, for the reporting period covering

7/1/97 through 12/31/97, the Audit staff identified 108 disbursements totaling $46,626

that were disclosed improperly. The dates for these disbursements were reported as a

range of dates. The range varied from entry to entry.

In addition, during the period 711/97 through 7/14/97, the

Committee made 16 disbursements for shared administrative expenses totaling $4,630

from a non-federal account. These disbursements were not disclosed. Although

disbursements made directly from a non-federal account in payment of allocable expenses

are not permitted under the Commission's allocation regulations, such transactions should

be disclosed, albeit in "memo schedule" fashion, to complete the public record.

For 43 other disbursements totaling $8,724, the reported purpose

was either missing, inaccurate or was described as "General Office," a term, which in the

Audit staffs opinion, does not meet the requirement of II CFR § I04.3(b) for reporting

the purpose of an expenditure.

At the Exit Conference, the Committee was informed ofthe

disclosure errors and advised ofthe proper way to itemize disbursements.

In the interim audit report, the Audit staff recommended that the

Committee file amended Schedules H-4 to correct the disbursement irregularities

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discussed above. Further, it recommended that the Committee implement procedures to

ensure that, in the future, shared expenses are defrayed in accordance with the

Commission's regulations and provide a copy ofsaid procedures as part ofits response to

this report.

The Committee filed amended reports for the audit period;

however, the amendments did not include the amended Schedules H-4 recommended in

the interim report. Also, the Committee did not provide a copy ofprocedures for ensuring

that shared expenses are defrayed in accordance with Commission regulations.

B. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(I), (2) and (4) ofTitle 2 ofthe United States Code state,

in part, that a political committee shall disclose the amount of cash on hand at the

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

for the reporting period and calendar year.

The Committee reported financial activity from its federal operating

account and certain shared expenses, as memo entries, from one ofits non-federal

accounts. However, as described below, the Committee maintained other accounts,

transactions from which should have been reported as well.

]. Bingo Accounts

The Oakland Democratic Party is licensed by the State ofMichigan to

operate two Bingo games per week, Special Bingo on Thursday and Executive Bingo on

Saturday. In 1995, the Committee received authorization from the State ofMichigan

Bureau of State Lottery to designate the proceeds from these games for federal rather than

local elections. The Bingo licenses, which are required to be prominently displayed at the

licensed premises where the games are conducted, state that the licenses have been issued

to the Democratic Executive Committee Oakland County. However, evidence to

demonstrate that the Bingo participants were aware that the proceeds ofthe Bingo games

would be used to fund federal election activity was not present in the records presented

for Audit staff review.

In accordance with state guidelines, a separate bank account was used

to facilitate each night's game: the Oakland County Democratic Party Special Bingo

Account for the Thursday night games and the Executive Committee of the Oakland

Democratic Party account for the Saturday night games. Deposits into each account

consisted only ofreceipts from each night's Bingo. These receipts consisted of admission

charges and were paid in cash. According to the Committee official who administered

the Bingo games, customers playing Bingo were allowed to purchase Bingo cards valued

at no more than $23 a night.

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Disbursements from each account were only for expenses associated

with operating the Bingo and for transferring the net proceeds to another Committee

account. Expenses included rental of the Bingo facilities (hal1s); security guards, printing

oftickets, game cards etc., payments to workers (who are limited by law to $10 per night,

each); advertising and payment of prizes. According to MI guidelines, payments for

prizes exceeding $50 must be made by written instrument. In addition to bank records,

the Committee was required by state law to maintain records of the transactions of each

game including lists of names ofindividuals who won prizes and the amounts won. The

bank and other Bingo records were maintained at the Bingo location. The Committee

filed quarterly or monthly reports with the Bureau of State Lottery, disclosing the receipts

and disbursements pertaining to the Bingo games.

During the audit period, the Committee paid prizes using the cash

received from the sale ofthe Bingo cards. Winners of prizes completed a written voucher

with their name, address, and signature and name ofthe cashier. This written voucher

was apparently sufficient to meet the requirement that prizes be paid by a written

instrument. If the funds received from the sale ofthe Bingo cards were insufficient to pay

the prizes in cash, checks were written from the applicable Bingo account. Using the

reports filed with the MI Bureau of State Lottery and the Bingo bank accounts, the Audit

staff calculated that approximately $1.43 mil1ion in gross receipts and disbursements

related to Bingo activities; about $790,000 in activity did not pass through the

Committee's accounts. This amount represented the payment of prizes in cash using

funds collected as admission charges.

Net proceeds from the Bingo games, totaling $106,900 were

transferred to the Oakland Democratic Campaign Committee Federal Operating Account.

The transfers, $50,400 in 1997 and $56,500 in 1998, generally were itemized on

Schedule A ofthe Committee's disclosure reports on line II.a.i., Contributions from

Individuals, as lump sum transfers. Information pertaining to the individual contributors

was not included. Most of the receipts and all of the disbursements associated with the

Bingo games were not reported.

Guidance on the reporting of Bingo activity can be found in

Commission AO 1981-48, which, among other things, states that one method to account

for the proceeds would be to record the name ofthe event, the date(s) contributions were

received for that event, and the total amount of contributions received on each day for that

event. The Commission did not require the political committee to record the names and

address ofindividuals contributing less than $50 at a single event, although it did state

that ifthe political committee retains information on the names of its contributors, it

should also track the amount donated by such persons to the committee on a calendar year

basis for aggregation purposes in accordance with 2 USC §432(c)(3) and II CFR

102.9(a)(2).

This AO does not address the reporting of expenses related to the

Bingo activity but it references an earlier Commission AO, AO 1976-22, which also

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addresses the reporting ofBingo activity. AO 1976-22 states that expenditures for bingo

events are considered expenditures by the sponsoring committee and must be reported. It

further states that the awarding of cash prizes in currency rather than by written

instrument is permissible under the Act, provided that currency for cash prizes in amounts

exceeding $100 for anyone bingo event is obtained by a check payable to petty cash

which is drawn on the Committee's Bingo account or its federal account.

According to AO 1981-48 the Committee was not required to

itemize individual contributors since receipts from each individual were less than $50.

However, since all net proceeds were transferred into a federal account, it appears that the

Bingo accounts should have been considered federal bank accounts, and therefore gross

receipts and expenses should have been reported.

During 1997, the Committee had gross Bingo receipts totaling

$729,055 and gross disbursements totaling $719,580. Therefore, for 1997, the

Committee's receipts were understated by a net amount of$678,655 ($729,055 less

reported net proceeds of$50,400) and disbursements were understated by $719,580.

During 1998, the Committee had gross Bingo receipts totaling $708,848 and gross

disbursements totaling $716,086. Therefore, in 1998, the Committee's receipts were

understated by a net amount of$652,348 ($708,848 less reported net proceeds of

$56,500) and disbursements were understated by $716,086.

In the interim report, the Audit staff recommended that the Committee:

• provide an explanation as to why the Bingo accounts (Oakland County

Democratic Party Special Bingo Account and the Executive Committee of the

Oakland Democratic Party account) should not be considered federal accounts; or

• disclose all ofthe financial activity which resulted from the operation ofthe Bingo

games (cash transactions as well as those reflected in the Bingo bank accounts),

including Schedules A (Itemized Receipts) and Schedules B (Itemized

Disbursements) detailing those receipts and disbursements that were required to

be itemized.

The Committee filed amended reports for each reporting period.

However, the amounts for total receipts and disbursements were greater than the totals

calculated by the Audit staff. The amended reports for calendar year 1998 included

copies of "Bingo Weekly Cash Reconciliation" forms corresponding to each report

period. These forms were required by State ofMichigan Bureau of State Lottery to be

completed to account for receipts and disbursements relative to each bingo game and are

the same forms that were reviewed by the Audit staff during audit fieldwork. The Audit

staff was unable to reconcile information on theses forms with the totals reported by the

Committee on the amended reports and therefore cannot comment on the accuracy of the

amended report totals. See Section 4, Summary, below.

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The amended reports also included Schedules A and B itemizing

receipts and disbursements related to the bingo activity. However, the Schedules B did

not include itemization ofindividuals who received prizes in amounts aggregating in

excess of $200 in the calendar year. Based on a review ofthe bingo bank account records

available during audit fieldwork, the Committee paid at least $44,800 in prizes in

amounts requiring itemization.

2. Oakland County Democratic Committee Regular Account

The Committee maintained this account to accept payments for

Democratic Party membership dues and federal fundraising events made by MasterCard

or Visa credit cards. During the audit period, deposits into this account totaled $ I 0, 183

and consisted of payments from individuals. Disbursements totaled $10,655 and included

$4,900 in transfers to the federal operating account, $2,150 in transfers to a non-federal

account and the remaining $3,605 in fundraising and miscellaneous expenses. Except for

the $4,900 in transfers to the federal operating account, the Committee's reports did not

reflect the activity in this account. The transfers were itemized on Schedule A for line

11.a.i., Contributions from Individuals, as lump sum transfers.

Based on the nature ofthe receipts (payments from individuals for

membership dues and federal fundraisers) and the disbursements (transfers to a federal

account, expenses for fundraisers, etc.) the Audit staff concludes that during the audit

period, this account was a federal account and its activity should have been included on

the Committee's disclosure rep0l1s. Therefore, the Committee's reported receipts and

disbursements were understated. In 1997 receipts were understated by a net amount

$4,643 (total receipts of$5,393 less reported transfers of$750) and disbursements by

$5,851. In 1998 receipts were understated by a net amount $695 (total receipts of $4,845

less reported transfers of$4,150) and disbursements by $4,804.

In the interim report, the Audit staffrecommended that the

Committee provide an explanation as to why the Oakland County Democratic Committee

Regular Account should not be considered a federal account; or file amended reports for

each reporting period in calendar years 1997 and 1998 to disclose all of the financial

activity which occurred in the Oakland County Democratic Committee Regular Account

including Schedules A (Itemized Receipts) and Schedules B (Itemized Disbursements)

detailing those receipts and disbursements that were required to be itemized.

As stated above, the Committee filed amended reports for each

reporting period disclosing amounts for total receipts and disbursements that are greater

than those calculated by the Audit staff. Therefore, it appears that total activity from this

account was included. Schedules A and B filed with the amendments include those

receipts and disbursements required to be itemized from this account.

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3. Oakland Democratic Operating Fund

According to a Committee official, this account was established

solely as an accommodation to another organization that also conducted Bingo games. A

Committee staff person would cash a check drawn on this account for the estimated

amount ofprizes to be paid at the other organization's Bingo game. The staff person

would then take the currency to the Bingo hall where the game was conducted. Winners

were paid with checks drawn on the organization's bank account, and could in tum cash

their checks. The Committee staff person, after cashing the winners' checks, deposited

the negotiated prize checks into the Oakland Democratic Operating Fund. According to

the Committee official, no profit was received from this arrangement that was apparently

approved by the State ofMichigan Bureau of State Lottery.

The Audit staff examined copies of deposits into this account and

copies of canceled checks. However, the bank statements for this account were not made

available for Audit staffreview. Although no federal activity appears to have resulted,

the Audit staffis unable to state conclusively whether the account is a federal account and

subject to the recordkeeping and reporting requirements ofthe Act.

In the interim report, the Audit staffrecommended that the

Committee provide copies of bank statements for the audit period and an explanation of

why the account was not a federal account. The response to the interim report did not

address this recommendation and copies ofthe requested bank statements were not

provided.

4. Summary

During the audit period, the Committee's disclosure reports were

materially understated, primarily as a result ofthe Committee's failure to disclose the

activity in the two Bingo accounts and the Oakland County Democratic Committee

Regular Account as described above. The misstatements for each calendar year as

calculated by the Audit staff and the Committee's adjustments as disclosed on the

amended reports are summarized below. The amended reports now appear to be

overstated.

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1997 Misstatement of Financial Activity

A B C D E

Original Correct Amount Amended Amount

Reported Balance Misstated Report Misstated

Balance per Audit per Balances per

Original Amended

Reports Reports

Col. D less B

Beginning Balance $ 137 ($ 144) ($ 281 ) $ 2,997 $ 3,141

Receipts 82,855 766,163 683,308 823,058 56,895

Disbursements 82,527 756,818 674,291 816,402 59,584

Ending Balance 465 9,201 8,736 9,654 453

1998 Misstatement of Financial Activity

A B C D E

Original Correct Amount Amended Amount

Reported Balance Misstated Report Misstated

Balance per Audit per Balances per

Original Amended

Reports Reports

Col. D less B

Beginning Balance $ 465 $ 9,201 $ 8,736 $ 9,654 $ 453

Receipts 120,987 769,247 648,260 784,504 15,257

Disbursements 118,769 774,608 655,839 789,359 14,751

Ending Balance 2,683 3,839 1,156 4,798 959

Other items included in the Committee's response were copies of

signs posted at the Bingo halls informing participants that funds from the bingo activity

were used to fund federal election activity.

C. DOCUMENTATION FOR DISBURSEMENTS

Section 432(c)(5) ofTitle 2 of the United States Code requires the

Treasurer of a political committee to keep an account ofthe name and address of each

person to whom any disbursement is made, the date, amount and purpose ofthe

disbursement, and the name ofthe candidate and office sought by the candidate, if any,

for whom the disbursement was made, including a receipt, invoice or canceled check for

each disbursement in excess of $200.

Section 102.9(b)(2) ofTitle II of the Code of Federal Regulations states

that in addition to an account of all disbursements kept under 11 CFR I02.9(b)( 1), the

treasurer of a political committee must keep for each disbursement in excess of $200

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made by or on behalf ofthe committee, a receipt or invoice from the payee, or a canceled

check to the payee.

During the review ofthe Committee's disbursements, the Audit staff

identified 24 disbursements totaling $30,577 for which the Committee failed to maintain

adequate records. For most ofthese disbursements, an accounting ofthe transaction was

detailed in a check register and the Committee maintained a tissue copy of the check.

However, there were no receipts or invoices generated by the payees or canceled checks.

At the Exit Conference held at the completion of audit fieldwork, the

Committee was presented with a schedule ofthe disbursements. A Committee official

stated that she would attempt to locate the documents. However, prior to the issuance of

the interim audit report no additional documentation had been provided.

In the interim audit report, the Audit staffrecommended that the

Committee provide copies ofthe canceled checks for the disbursements noted above or

payee generated receipts or invoices. These materials were not provided in the

Committee's response.

D. ITEMIZATION OF DEBTS AND OBLIGATIONS

Section 104.II(a) ofTitle 11 ofthe Code of Federal Regulations states

that, "Debts and Obligations owed by or to a political committee which remain

outstanding shall be continuously reported until extinguished. See 11 CFR I04.3(d).

These debts and obligations shall be reported on separate schedules together with a

statement explaining the circumstances and conditions under which each debt and

obligation was incurred or extinguished. Where such debts and obligations are settled for

less than their reported amount or value, the reporting committee shall include a

statement as to the circumstances and conditions under which the debt or obligation was

extinguished and the amount paid."

During the review ofthe Committee's disbursements, the Audit staff

reviewed documentation (check registers) that appeared to indicate that partial payments

were being made on outstanding debts. At issue were 22 disbursements totaling $7,156

that were made to 5 vendors. Notations in the Committee's check register describe the

purpose for the disbursements as "old debt, on account, partial payment," and referenced,

in some instances, a specific fundraiser. The Committee did not file Schedules D (Debts

and Obligations Excluding Loans) to disclose these debts. Documentation, such as vendor

invoices, receipted bills, or contracts, was not available for Audit staff review. It should

be noted that some ofthese disbursements are included in Finding c., Documentation for

Disbursements, discussed above.

At the Exit Conference, the Committee was informed of the requirement

to report debts. The Committee official stated she understood why some of these

disbursements would have been required to be reported as debts, and she would continue

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looking for information pertaining to agreements and invoices. However, prior to the

issuance ofthe interim audit report, no additional documentation had been provided.

In the interim audit report, the Audit staffrecommended that the

Committee provide documentation from the vendors demonstrating that the 22

disbursements noted above were not reportable as debts; or file Schedules D to disclose

the details ofthe debts related to the 22 disbursements noted above.

The Committee filed amended repons that included Schedules D for each

ofthe reporting periods. The Schedules D disclosed debts to three ofthe five vendors

identified by the Audit staff and accounted for 16 of 22 payments ($5,357) at issue.

E. RECEIPT OF CONTRIBUTIONS FROM AN UNREGISTERED POLITICAL PARTY

ORGANIZATION

Section 102.5(b) of Title 11 ofthe Code ofFederal Regulations states that

organizations, that are not political committees under the Act, that make contributions or

expenditures must either: establish a separate account to which only funds subject to the

prohibitions and limitations of the Act are deposited and from which contributions and

expenditures are made; or, demonstrate through a reasonable accounting method that

when contributions are made by such organization, sufficient funds subject to the

prohibitions and limitations ofthe Act were received.

During 1998, the Committee received 16 contributions totaling $18,800

from the Troy Democratic Club, an unregistered political party organization. Evidence to

demonstrate that permissible funds were used to make the contributions was not

presented during the audit. At the Exit Conference held at the end of audit fieldwork, a

Committee official stated that she would find out whether the Troy Democratic Club used

federal funds to make the contributions.

In the interim audit report, the Audit staff recommended that the

Committee present evidence which demonstrates that the funds used to make the

contributions were permissible under the Act or refund $18,800 to the Troy Democratic

Club and present evidence ofsuch refund, such as a copy ofthe front and back of the

negotiated refund check.

The response to the interim audit repon included copies offive checks

(front only) totaling $5,500 that were made payable to Troy Democratic Club. The check

copies, dated June 7,2000 through July 18,2000, had been previously submitted to the

FEC in response to a request for additional information (RFAI) regarding five

contributions from Troy Democratic Club totaling $5,500 reponed on the Committee's

3'd quarter 1998 report. These refunds were untimely, occurring between 662 and 693

days after the contributions were received. The response to the interim report contained

no other evidence ofrefunds of the remaining $13,300.

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•

A review ofreports filed by the Committee subsequent to the audit period

produced no evidence ofrefunds to Troy Democratic Club except the $5,500 noted. Since

the Committee did not demonstrate that the funds used by Troy Democratic Club to make

the contributions were permissible under the Act, and the Committee chose to refund

some ofthe contributions, the Audit staff now views these contributions as

impermissible.

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FEDERAL ELECTION COMMISSION

WASHII';CTO,'" DC 20~61

March 29, 2001

•

Mr. David Woodward, Treasurer

Oakland Democratic Campaign Committee

PO Box 423

Troy, M148099-0423

Dear Mr. Woodward:

Attached please find the Final Audit Report on Oakland Democratic Campaign

Committee. The Commission approved the report on March 28, 2001.

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

on April 9. 2001. Should you have any questions regarding the p\lblic release ofthe

report, please contact the Commission's Press Office at (202) 694-1210. Any questions

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

Wanda Thomas ofthe Audit Division at (202) 694-1200 or toll free at (800) 424-9530.

Robert]. Co ta

Assistant Staff Director

Audit Division

Attachment as stated

cc: Ms. Wanda Reager

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18

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CHRONOLOGY

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

Audit Fieldwork

Interim Audit Report to the

Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

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January 11,2000-

January 20, 2000

October 3, 2000

November 27, 2000

March 28, 2001