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FEDERAL ELECTION COMMISSION

WASHINCTON, DC 204M

A8S-27

1lA87/030188

March l, 1988

MEMORANDUM

TO:

FROM:

SUBJECT:

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA --~ ASSISTANT STAFF D(~ AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORTMICHIGAN REPUBLICAN STATE COMMITTEE

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Attached please find a copy of the final audit report on

Michigan Republican State Committee which was approved by the

Commission on February 23, 1988.

Informational copies of the report have been received by all

parties involved and the report may be released to the pUblic.

Attachment as stated

cc: FEe Library

RAe

Pub1 i c 0 isclosure ./

Office of General Counsel
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BAB7/0203BB

FEDERAL ELECTION COMMISSION

WASHINGTON. 0 C 204M

A8S-27

REPORT OF THE AUDIT DIVISION

ON THE

MICHIGAN REPUBLICAN STATE COMMITTEE

I. Background

A. Overview

This report is based on an audit of the Michigan Republican State Committee ("the Committee"), undertaken by the

Audit Division of the Federal Election Commission in accordance

wi th the provisions of the Federal Election Campaign Act of 1971,

as amended (lithe Act"). The audit was conducted pursuant to

Section 438(b) of Title 2 of the 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 of this title. Prior to conducting any audit under this subsection, the Commission shall 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.

The Committee registered with the Comptroller General

of the United States on April 17, 1972. The Committee maintains

its headquarters in Lansing, Michigan. The audit covered the

period January 1, 1983 through December 31, 1984. The Committee

reported a cash balance on January 1, 1983 of $739.97 total

receipts of $1,4l9,443.73J total expenditures of $1,39S,836.02J

and a cash balance on December 31,1984 of $24,347.68.

This audit report is based on documents and workpapers

which support each of its factual statements. They form part of

the report upon which the Commission based its decisions on the

matters in the report and were available to the Commissioners and

appropriate staff for review.

B. Key Personnel

The Treasurer of the Committee during the period covered by the audit was Mr. Denzil Hammond.
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C. Scope

The audit included such tests as verification of total

reported receipts and 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. However, although

the contribution records provided by the Committee for 1983 meet

the recordkeeping requirements of 2 U.S.C. § 432(c) and 11 C.F.R.

S 102.9(a), the records were not maintained in a manner which

allowed testing for correct aggregate contributor totals and

proper itemization.

II. Audit Findings and Recommendations

A. Contributions to Candidate in Excess

of the Limitations

Section 44la(a) (2) (A) of Title 2 of the united States

Code states that no multicandidate political committee shall make

contributions to any candidate and his authorized political

committees with respect to any election for Federal office which,

in the aggregate, exceed $5,000 •

Section 44la(a) (4) of Title 2 of the United States Code

defines the term "multicandidate political committee" as a

political committee which has been registered for a period not

less than 6 months, which has received contributions from more

than 50 persons, and except for any State political party organization, has made contributions to 5 or more candidates for

Federal of f i ce.

Under 11 C.F.R. § 110.3(b) (2) (ii), all contributions

made by the political committees established, financed,

maintained or controlled by a State party committee and by

subordinate State party committees shall be presumed to be made

by one political committee unless: (A) the political committee in

question has not received funds from any other political

committee established, financed, maintained or controlled by any

party unit, and (B) the political committee in question does not

make its contributions in cooperation, consultation or concert

with, or at the request or suggestion of any other party unit or

political committee established, financed, maintained or

controlled by another party unit.

The Audit staff obtained a listing of all contributions

from committees made to the Jack Lousma for U.S. Senate committee

("the Lousma Committee") for the period covered by the audit.

Contributions made by the Committee and its affiliated local

party committees in Michigan were identified. In addition, the

Audit staff noted four contributions in-kind made by the

Committee for the Lousma Committee. When aggregated, these
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contributions exceed the limitation for the general election by $4,318.29 •

Committee representatives were given a schedule of all

contributions discussed above at the conclusion of the audit

fieldwor k.

In the Commission approved interim audit report, the

Audit staff recommended that the Committee, within 30 days of

receipt of this report, provide evidence that the contributions

in question were not excessive or seek a refund from the Jack

Lousma for U.s. Senate committee in an amount equal to the

excessive portion of contributions made to the Lousma Committee

for the general election.

In its response, the Committee explained that $6,669.20

of the $6,868.30 categorized by the Audit staff as in-kind

contributions to the Jack Lousma for U.S. Senate committee

represented expenses associated with a "volunteer intensive"

mailer for Lo~sma. According to the Committee, a letter was sent

to an in-house list, stuffed by volunteers and mailed by the

Committee. A copy of the letter was not provided as part of the

response.

It would appear that based on the above information

coupled with the information included on invoice records reviewed

during fieldwork, the mailing in question falls within the

exception to the definition of expenditures at 11 C. F. R. §

100. 8(b) (16) •

Therefore, the amount ($6,868.30) of apparent in-kind

contributions addressed in the interim report is reduced by $6,669.20. The remainder, $199.10, is viewed as an in-kind

contribution to the Lousma campaign.

Recommendation 11

Based on the representation made by the Committee concerning

the $6,669.20 in expenses i ni ti ally questioned by the Audi t

staff, it now appears that the Committee did not exceed the 2

U.S.C. § 44la(a) (2) (A) limitation with respect to the

transactions discussed above.

B. Misstatement of Financial Activity

Sections 434(b) (2) and (4) of Title 2 of the United

States Code, require that each report shall disclose for the

reporting period and calendar year, the total amount of all

receipts and disbursements.
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The Audit staff performed a reconciliation of the

Committee's financial activity per bank records to reported

activity for calendar years 1983 and 1984. Our review revealed

that Committee reports depicting the 1983 activity were

materially correct1 however, certain misstatements with respect

to calendar year 1984 reports were noted.

Specifically, reported receipts were understated by $28,463.81, reported disbursements were understated by $3,522.00

and the reported cash balance at 12/31/84 was understated by $24,527.51. ~/ These discrepancies in reported totals were . caused, for the most part, by errors in the recording of deposlts

and disbursements in the Committee's books, the effect of which

carried forward to report totals.

The Committee performed an extensive review of its

financial activity for both 1983 and 1984 and prepared amended

reports covering the period 1/1/83 through 12/31/84. These

amended reports, filed on 10/7/85 and 10/8/85, corrected the

deficiencies noted above. Further, new procedures have been

designed in an effort to preclude a reoccurrence of this nature.

Recommendation #2

The Audit staff recommends no further action on this matter.

C. Itemization of Contributions from Individuals

Section 434(b) (3) (A) of Title 2 of the United States

Code states, in part, that each report shall disclose the

identification of each person who makes a contribution to the

reporting committee during the reporting period, whose

contribution or contributions have an aggregate amount or value

in excess of $200 within the calendar year.

During the course of the review of receipts, it was

noted that the Committee failed to itemize 22 contributors whose

contributions totaled $23,200.00. The Committee filed amended

reports on 10/7/85 and 10/8/85 which included the contributors

not itemized on their original reports.

Recommendation 13

The Audit staff recommends no further.

~/ See Finding C. concerning transactions requiring

itemization.
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D. Itemization of Contributions Received

from Poli tical Commi ttees

Under 2 U.S.C. S 434(b) (3) (B) each report shall

disclose the identification of each political committee which

makes a contribution to the reporting committee during the

reporting period, together with the date and amount of any such

contribution.

The Committee's contribution records were reviewed to

determine whether all contributions received from political

committees were itemized on the Committee's disclosure reports.

It was noted that 19 contributions, totaling $20,975.00, were not

i temi zed as requi red.

The Committee was provided with a schedule of these

contributions during fieldwork. Amended reports filed by the

Canmi ttee on 10/7/B5 and 10/B/B5 i ncl uded proper i temi zation for

these contributions.

Recommendation #4

The Audit staff recommends no further action.

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E. Disclosure of Debts Owed by the Commi ttee

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Section 434 (b) (8) of Ti tle 2 of the Uni ted States Code

requires that the amount and nature of outstanding debts and

obligations owed by or to such political committee be disclosed.

A review of reports filed by the Committee indicated

that no debts were disclosed on Schedule D (Debts and Obligations

Owed by a Committee). However, our review of Committee invoices

and payments related thereto, revealed that in 7 instances,

invoiced amounts in excess of $500 were not disclosed as

required. The value of these debts totaled $61,391.19 and

pertained to activity in both 1983 and 1984.

During the exit conference, Committee officials were

advised of this matter and provided with a schedule of the debts.

A Committee official stated that amendments to its reports would

be filed in the near future. Further, the Audit staff noted that

accounting system revisions with respect to the recording and

reporting of accounts payable were in place for calendar year

1985.
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Amended reports properly disclosing the aforementioned

debts were filed on 10/7/85 and 10/8/85.

Recommendation 15

The Audit staff recommends no further action on this matter.

F. Disclosure of Loans

Section 434(b) (3) (E) of Title 2 of the United States

Code requires that each report shall disclose the identification

of each person who makes a loan to the reporting committee during the reporting period, together with the identification of any

endorser or guarantor of such loan, and date and amount or value

of such loan.

In addition, 11 C.F.R. § 104.3(d) requires the

disclosure of the amount and nature of outstanding debts and

obligations on Schedule C (Loans) or Schedule D (Debts and

Obligations), as appropriate.

During the pre-audit review of loan activity, the Audit

staff noted that the Committee failed to disclose a $30,000 loan

received from the Republican National Committee on Schedule C

(Loans) for reports filed for the period 4/1/83 through 12/31/83.

Amendments presented to the Audit staff and filed on

10/7/85 and 10/8/85 included all loan schedules missing from the

original reports.

Recommendation #6

The Audit staff recommends no further action.

G. Matters Referred to the Commission's

Office of General Counsel

Certain matters noted during the audit were referred to

the Commission's Office of General Counsel.