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FEDERAL ELECTION COMMISSION

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December 3~ 1996

MEMORANDUb-1

TO: Ron M. Harris

Press Officer

Press Office

FROM: Robret J. Costa

Assistant Staffrm:to(

Audit Division

SUBJECT: Public Issuance ofthe Final Audit Report on the North C.arolina

Democratic Victory Fund

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

North Carolina Democratic Victory Fund which was approved by the Commission on

November 26.. 1996.

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

the report may be released to the public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEe Librar)'
REPORT OF THE AUDIT DIVISION

ON THE

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North Carolina Democratic

Victory Fund

Approved November 26, 1996

FEDERAL ELECTION COMMISSION

999 E STREET, N.\\'.

\\'ASHINGTON, D.C.
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TABLE OF CONTENTS

NORTH CAROLINA DEMOCRATIC

VICTORY FUND

Page

Executive Summary

Final Audit Repon 3

Background 3

Findings 5

Transmiual to Committee 17

Chronology 19
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FEDERAL ELECTION COMMISSION

WASHINCTON DC 204b\

FINAL AUDIT REPORT

ONTRE

NORTH CAROLINA DEW.OCRATIC VlCfORY FUND

EXECtrrIVE SUMMARY

The North Carolina Democratic Victory Fund registered with the Federal Election

Commission on FebnIary 24, 1983 and maintains its headquarters in Raleigh, North

Carolina.

The Audit was conducted pursuant to Section 438(b) ofTide 2 ofthe United

States Code, which states, in part, that the Commission may coDduet audits and field

investigations oflilly political committee required to file a report under Section 434 of

this title. The audit covered the period from January 1, 1993 through December 31, 1994.

The findings were presented to the Committee at an exit conference held at the

conclusion of audit fieldwork and later in an interim audit report. The Committee's

response to those fiDdiDgs are included in the final audit report.

The fmcJiDp contained in the final audit report are summarized below.

REPOBDNC OfImyHNc FtJND ACCOUNT Ac]yJTy - 2 U.S.C.

§431(8)(BXviii).. 11 CFR §§IOO.7(b)(12), 104.3(g),IOO.I(bX13), 100.5(8) and 2 U.S.C.

§431(11). O!l~ hundred lila:! fifty-eight operational and administrative expenditures

totaling $73.350 were made from three building fund bank accounts. These expenditures

were not made to defray the purchase or construction of an office facility and do not fall

within the building fund exemption. Therefore, the Committee must report all receipts

and disbursements made from the building fund accounts.

In response to the interim audit repo~ the Committee filed memo Schedules A

and memo Schedules B disclosing the building fund receipts and disbursements. The

Committee also provided a narrative which described the changes it has implemented in

order to comply with federal regulations.

MISSTATEMENTOFFINANCIALAcroon - 2 U.S.C. §§434(b)(1),(2) and (4).

For 1993, reported totals for receipts were understated by $30,130 and disbursements

were understated by S22.210. For 1994, reponed totals for receipts were understated by

S64,OO4 and disbursements were understated by $87,161. These misstatements caused

reponed cash balances to also be misstated. The Committee filed comprehensive

amended reports for calendar years 1993 and 1994 which corrected these misstatements

offinancial activity.

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REPORTING OF RECEIPTS - 2 U.S.C. §§434(b)(3)(A),(B), and (F); 431(13XA).

The Committee neither reported nor itemized seven contributions from candidate

committees totaling $29,500, as well as five offsets to operating expenditW'estotaling

524,900. Further, the Committee did not report the portions of contributions from

individuals which exceeded 55,000. As a resul~ fifteen contributions from individuals

totaling 585,000 were incorrectly disclosed. The transfers ofthe excessive portions of

these contributions to a non-federal account were also neither reponed nor itemized. The

Committee filed the appropriate Schedules A and Schedules B to correctly disclose these

transactions.

REPORTING OF TRANSFERS FROM NON-FEDERAlt TO fEDERAL ACCOUNTS FOB

SHARED AClJYID' (SCHEDULE 8-3) - 11 CFR §§t 06.5(g)(t) and (3). The Committee

did not itemize one transfer in the amount of 51 09.379 from a non-federal account to a

federal account for shared activity. In response to the interim audit repo~ the Committee

filed an amended Schedule H-3 which disclosed the transfer.

REPORTING OF LOANS. DEBTS ANDOBL'CAT'ONS - 2 U.S.C. §§434(b)(8);

434(b)(2)(H) and (3)(E)~ 11 CFR §104.11. The Committee did not disclose outstanding

debts and obligations to eleven vendors totaling 567,151. The Committee filed amended

Schedules D to correct the public record.

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FEDERAL ELECTION COMMISSION

WASHINCTON. 0 C 204b'

AR1195-73

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REPORTOF THE AUDITDWISION

ON THE

NORTH CAROUNA DEMOCRATIC VICTORY FUND

I. BACKGROUND

A. AUDIT AtmlOIUTV

This report is based on an audit ofthe North Carolina Democratic Victory

FWld ("the Committee").. undertaken by the Audit Division oftile Federal Election

Commission in accordance with the Federal Election Campaign Act of 1971, as amended

(the Act). The audit was conducted pursuant to Section 438(b) ofTitle 2 ofthe United

States Code which sta~ in that the Commission may conduct audits and field

investigations ofany political committee required to file a report under Section 434 ofthis

title. Prior to conducting any audit under 1bissubsecIioD. the Commission shall perform an

internal review ofreports filed by selected c:ommittecsto detamiDe ifthe reports filed by a

particular committee meet the dueshold requiJeoaalls forsubstenti.1 compliance with the

Act.

B. AUDIT COVUAGE

c

The audit covered the period &om January 1, 1993, through December 31,

1994. The Committee reported a beginning cash balance on January 1, 1993 of$85.256,

total receipts for the period of$2.101.219.. total disbursements for the period of

52,188,188, and an ending cash balance of($1.514).1

c. COMMrnEE ORGANIZAnON

The Committee registered with the Federal Election Commission on

February 24, 1983 and maintains its headquaners in Ralei~ North Carolina. The

Total receipts and disbursements were calculaled by the summation ofthe Detailed Summary page

Lane 19. Column A and Line 30. Column A, respectively. The figures cited in this report were

rounded to the nearest dollar. The amounts do DOt foot due to • mathematical discrepancy in the

Committee's reponed figures.

AIDIC'W-all»•.-

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Treasurers ofrecord during the period covered by the audit were Mr. James H. Young &om

January 1, 1993 to January 31, 1993. and Mr. Lyndo Tippen from February 1, 1993 to the

present. 2

To manage its federal financial activity, the Coltlll"!ittee maintained four

bank accounts. In addition. two bank accounts were maintained in conjunction with a

telemarketing firm in California. From these accounts the Committee made approximately

2,024 disbursements. Approximately 16.776 contributions (about S1.292.408) from

individuals were received. In addition. the Committee received 419 contributions

($162,058) from political committees. six transfers ($ 198,491) from its non-federal

accoUa"1ts for shared expenses, 38 transfers ($427,462) from affiliated committees, two

loans ($24,592),64 offsets to operating expenditures ($89,324) and other federal receipts

($1,,017).3 The North Carolina Democratic Executive Committee (DEC) maintained three

building fund accounts from which some federal operating and administrative expenditures

were paid. The building fund bank accounts are discussed in Fi!1ding II.A. below.

D. AUDIT SCOPE AND PROCEDURES

The audit covered the following general categories: l~

C 1.

!.r: 2.

C'I

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,..... 4. "-

The receipt of contributions or loans in excess ofthe statutory limitations;

the receipt of contributions from prohibited sources, such as those

from corporations or labor organizations;

proper disclosure of contributions from individuals, political

comminees and other entities. to include the itemization of

contributions ,,'hen required. as well as" the completeness and

accuracy ofthe infonnation disclosed (see Finding II.C.);

proper disclosure of disbursements including the itemization of

disbursements when required. as well as, the completeness and

accuracy ofthe infonnation disclosed (see Finding Il.A.)~

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5. proper disclosure ofComminee debts and obhgations (see Finding

I1.E.):

The CommiSSion was anfonned that Mr Tippen became C( rl m':tee Treasurer effective Februarv I,

1993 m a lener receIved on August 3.1993 ..

As presented at Fmdmg 11.8.. the Commtnee's reports unCe-- ~-':_'1 ;':~:lpG znd GlsbtJrsements.
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6. accuracy oftotal reported receipts, disbursements and cash balances

as compared to Committee bank records (see Finding 11.8.);

7. adequate recordkeeping for Committee transactions;

8. proper reporting and funding of activities conducted jointly on

behalf offederal and non-federal elections and candidates (see

Findings II.A. and D.)~ and

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

Unless specifically discussed below, no material non-compliance with

statutory or regulatory requirements was detected. It should be noted that the Commission

may pursue further any ofthe matters discussed in this report in an enforcement action.

II. AUDIT DNDINGS AND RECOMMENDATIONS

A. REPORTING OF BUILDING FtJND ACCOUNT ACTIVIT\'

Section 431(8)(B)(viii) ofTitle 2 ofthe United States Code states. in

that the tenn "contribution" does not include any gi~ subscriptio~ loan. advance., or

deposit of money or anything of value to a State committee ofa political party specifically

designated to defray any cost for construction or purchase of any office facility not

acquired for the purpose ofinfluencing the election of any candidate in any particular

election for Federal office.

Section lOO.7(b)(12) ofTitle 11 ofthe Code ofFederal Regulations

in relevant that ifsuch gift, subscription.. loan.. advance. or deposit ofmoney or

anything of value is made to a committee which is not a political committee under 11 CFR

§100.5, the amount need not be reported. However. ifsuch gift subscription, lo~

advance. or deposit of money or anything of value is made to a poiitical committee" it shall

be reponed in accordance with 11 CFR §104.3(g).

Section 104.3(g) ofTitle 11 of the Code of Federal Regulations provides. in

pan, that gifts. subscriptions. loan. advances. or deposits of money or anything of value to

defray costs of construction or purchase of office facilities received by a political

committee shall be reponed as a memo entry on Schedule A.

Section lOO.8(b)(13) of Title 11 of the Code of Federal Regulations states,

in pan. that a purchase, paymenl distribution. loan. advance. or deposit of money or

anything of value made to a national comnunee or a state comminee of a political party is

not an expenditure if it is specifically designated to defray any cost incurred for

construction or purchase of any office facility which is not acquired for the purpose of

influencing the election of any candidate in any panicular electlon for Federal office.

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However, ifsuch purchase, paymen~ distribution., loan. advance, or deposit ofmoney or

anything ofvallie is made to a political committee. it shall be reponed in accordance with

11 eFR §104.3(g).

Section loo.5(a) ofTitle 11 ofthe Code of Federal Regulations states, in

tlat the tenn "political committee" includes any committee. club, association, or ether

group of persons which receives contributions aggregating in excess ofS1,000 during a

calendar year or which makes expenditures aggregating in excess ofS1.000 during a

calendar year. Further, 2 U.S.C. §431(11) defines.. in pa~ "person" to include an

individual, partnership. committee. association. corporation, labor organization, or any

other organization or group of persons.

The North Carolina Democratic Executive Committee (DEC) is the

governing body of the North Carolina Democratic Party. The North Carolina Democratic

Victory Fund (the Commintt) is a separate federal political committee fonned to handle

the federal election activity for the Pany. The DEC also maintains non-federal accounts

which file reports \\ith the State ofNorth Carolina.

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The DEC leased an office facility, the Historic Goodwin House (HOH), as

its headquarters from the Historic Good\\in House" Inc. (HGH, Inc.). HGH, Inc. was

formed to o~ main~ operate and lease space in HGH, pursuant to 2 U.S.C.

§431(8)(B)(viii) and 11 §§CFR 1OO.7(b)(1 2) and lOO.8(b)(13). As a result, none ofHGH

Inc. 9s receipts and disbursements were reponed. HGH., Inc. is managed by a board of

directors elected by the DEC.

A Committee representative has stated that the lease payments covered rent,

utilities and other services. The Committee provided an unsigned copy ofa lease

agreement. The term ofthe lease \\"85 to be five (S) years commencing January I, 1987.

The lease provided for rent payments ofS3.ooo per month and noted that HGR, Inc. would

be responsible for expenses such as lighting. heating. water and cleaning through

Decem~r 31, 1991. Although this lease suppons Committee representations. this

document penains to a period oftime prior to the audit period. A Committee

representative offered that the current lease arrangements may be based on an oral

agreement and. to date. have not provided a current lease agreement. During the audit

period the Cornminee made 19 rent payments totaling S83.500.

Three building fund bank accounts were utilized during the audit period for

the purchase and maintenance ofHGH. Receipts for these accounts totaled $148.562 4.

and were comprised of 19 transfers from the federal operating account for lease payments

($83.500). one other federal transfer ($4.592), a draw on the federal line of credit

Total receipts do not mclude mteraccount transfe~ of $3.995. which are not required to be

disclosed

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($t7,420)~ contributions from individuals ($2,298), contributions from corporate sources

($21,875), contributions from politi-:al and other committees (53,775), interest earned

(5123) and contributions from unknown sources ($14,919).

Disbursements from the building fund accounts, which totaled $127,434 5

,

included 20 mortgage payments to the financing entity ($53.680), 158 operational and

administrative expenditures ($73.350) and service charges ($404).

Operational and administrative expenditures disbursed from the building

fund accounts are not for the purchase or construction of an office facility. Therefore, in

the opinion ofthe Audit staff, the exemption provided at 2 U.S.C. §431(8)(B)(viii) and 11

CFR §§ lOO.7(bX12) and l00.8(b)(13) is voided and the Committee must report all receipts

and disbursements made from the building fund 8CCOlDlts.

Commission Advisory Opinions (AOs) have provided some guidance in this

area. In AO 1983-8. the Commission noted that property taxes, assessments, and charges

and other expenses incurred by a tnlSt established to acquire property, were not for the

construction or purchase of an office facility. Additionally, any donations received to

defray operating expenses or other administrative expenses ofthat trust are subject to the

Act's contribution limitations and prohibitions.

Pursuant to 2 U.S.C. §431(8)(B)(viii)~ the building fund can accept

contributions from corporate sources to pay for the purchase or consttuetion ofan office

facility. Although the building fund exemption has been voided., the Audit staffhas DOtCd

that the mortgage payments disbursed by the building fund (S53,680) exceed the amount of

contributions received from corporate and unknown sources ($36,854). In addition, theJe

were sufficient permissible funds received from the fedelal operating account to cover the

operational and administrative expenditures disbursed from the building fund 8CCOtmts.

Disbursements from the three building fund bank 8CCO\Ults are summarized

as follo\l,'5:

1. First Cit;zcns Bank

The majority of building fund activit~· went through the First

Citizens Bank account. named Historic Good\\~ House Inc.. The First Citi2X~ Bank

account was active throughout the audit period. Disbursements for this account totaled

598,998, which included 156 operating and administrative expenditures totaling $49.676~

19 mortgage payments for the purchase ofHGH totaling S49,i92 and service charges

totaling S130.

Total disbursements do not mcJude mteraccount transfers of $3.995. which are not required to be

dIsclosed

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The 156 disbursements for operating and administrative expenses

were incurred for such goods/services as: pest control, lawn C8le1l cleaning services and

Sl6"PPli~ and utilities. When questioned about these expenses, a Committee representative

maintained that the lease payments included the cost ofthese services and utilities.

As stated above.. it is the opinion ofthe Audit staffthat these

expenditures were not made to defray the purchase or construction of an office facility; and

do not fall within the building fund exemption.

2. Na1iODsBank

This accoun~ named the Historic Goodwin House Inc. Restoration

Accoun~ was active at the beginning ofthe audit period through June 30, 1994.

Disbursements totaled 524,572, which included a $22,520 payment for the installation of a

new heating system, a $1,155 payment to an appliance company, service charges totaling

S190 and a $707 interaccount transfer to the First Citizens Bank account to close out the

account.

The disbursement for a new heating system is not a disbursement for

the pmchase or construction of an office facility that falls within the building fund

exemption.

3. IOanele Fast Bank

This accoun~ named the NC Democratic Executive Committee

Building Fund, was opened during October, 1994. Disbursements totaled 57,860, which

included a double mortgage payment in the amount of$4.,488, service charges totaling $84,

and an interaccount transfer to the First Citizens Bank account of $3.288.

:'-..

.. A Committee representative stated that the mortgage was paid from

the Triangle East Bank account because the account had sufficient funds to cover the

check, and the Committee's policy was to pay its bills out of whichever account had the

available funds at the time a bill \\'as to be paid. Disbursements from this account do not

vi"iate the building fund exemption. However.. disbursements made from the first two

building fund accounts violate the exemption. making all HGH Inc. disbursement activit)'

reponable.

During the exit conference. the Audit staff discussed this matter with

Committee representative~~,

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In the interim audit report, the Audit staffrecommended that the Committee

demonstrate that the above expenditures were related to the purchase or construction ofan

office facility; or file memo Schedules A to disclose all building fund receipts and file

memo Schedules B or memo Schedules H-4 to disclose all building fund disbursements '

from January 8, 1993, the date 0n which the check for the first non-exempt disbursement in

the audit period was written, through the date that the changes recommended below are

implemented; and detail in writing the changes it has implemented to assure that only

expenditures relating to the purchase or construction ofan office facility are disbursed

from its building fund accounts in compliance \\ith 11 CFR §tOO.8(b)(13), as well as, any

other comments and/or documentation it believes relevant to this matter.

In response to the interim audit repon, the Committee filed memo

Schedules A and memo Schedules B which materially disclosed the building fund receipts

and disbursements from January 8,1993 through June 21,1995. Funher, a Committee

representative wrote:

"Upon obtaining appropriate financing.. the North Carolina

Democratic pany Building Fund., in 1996, completed the acquisition

ofthe Goodwin House upon the filing of Articles ofdissolution of

Historic Goodwin House.. Inc.. Prospectively.. all contributions

designated for the construction or purchase ofthe office facility will

be deposited to the North Carolina Democratic Party Building F\U1d

account and Historic Goodwin House. Inc. will.. in accordance with its

charter and its Articles ofDissolution.. cease all activities.

Prospectively.. activity in the party Building Fund account will

consist only ofthe receipt offunds designated to defray the cost (of]

acquisition ofthe Goodwin House and the disbursement[s] will be

only those permissible pursuant to 11 C.F.R. l00.8(b)(13)."

c. B. MISSTATEME~T Of FINANCIAL ACTIVln"

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

relevant p~ that each report shall disclose the amount of cash on hand at the beginning of

each reponing period, the total amount of all receipts. and the total amount of all

disbursements for the period and calendar year.

The Audit staffs reconciliation ofthe Comminee's reported activity to its

bank activity for the audit period revealed the following misstatements:

6 The two mteraccount transfer5 mentIoned above are not requrred to be dIsclosed

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1. JIDUIJ)' 1t ) 993 _neb Qc<;cmbcr 31, J993

a. Bc&innina Cmb 00 Hand Balance

The Committee reported a beginning cash balance at January

1, 1993 of585,256. Utilizing bank records, the Audit staffdetermined the correct

beginning cash balance to be 5101,806. Therefore, the Committee's beginning cash

balance was understated by a net amount of516.550. The Audit staffwas unable to

identify the rason(s) for this adjustmenL since the Committee did not maintain

workpapers or other records which demonstrated how this amount was obtained.

b. Rc;ccipts

The Committee reported total receipts of 5868,618 for 1993.

Based on our analysis ofCommittee bank records, the Audit staffdetennined that the

Committee should have reported total receipts of $898,748. Therefore, the Committee's

reponed receipts were understated by a net amount of530,130. This understatement was

the result ofthe following:

o

'D

o

o

o

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Offsets to operating expenditures

received ftom Gordon and Scbwenkmeyer

not reported (see Finding II.C.)

Gordon and Schwenkmeyer receipts from

individuals over-reponed

Excessive ponions of contributions

from individuals not reponed

(see Finding II.C.)

Miscellaneous reconciling adjustment

Total (Net) Understatement

c. Disbursements

$ 24,900

(955)

8,000

(} 815)

$ 30 130

The Committee reponed total disbursements of $893,511 for

1993. Based on the Audit staffs review of bank records. it was determined that the

Committee should have reponed total disbursements of $915,721. Therefore, the

Committee's reported disbursements were understated by a net amount of $22,21 O. This

understatement resulted from the following:

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Write-offofreported outstanding

checks from 1992

Disbursements to Gordon and

Schwenkmeyer not reported

Voided payroll check reported

Transfer of excessive portions of

contributions from individuals to

non-federal account not reponed

(see Finding II.C.)

Credit card service ciw'ges not

reported

Miscellaneous reconciling adjustment

Total (Net) Understatement

S (8,013)

23,711

(1,578)

7,000

1,466

(376)

$ 22 21P

o d. EDdins Cash on Hand Bal.,"

The Committee reported an ending cash on band balance on

December 31, 1993 ofS6O,363. The Audit staffdetermined that this amount was

understated by a net amount ofS24,470. This overstatement was primarily due to the

misstatements noted above. 1be correct ending cash balance was determined to be

$84.833. Further, the Committee's beginning cash on band for J8D\8'Y 1, 1994 should be

corrected to reflect the same amount. S84.833.

2. Januao' 1 1994 throuab December 31, J994

C-.

a. Receipts

The Comminee reported total receipts ofSl,232,6oo for

1994. The Audit staff determined that, based upon bank records, the Comminee should

have reported total receipts ofS1.296.604. Therefore, the Comminee's receipts were

understated by a net amount of564,004. This understatement resulted from the following:

.......

o

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Math error in calculating reported

activity

NSF contributions reponed

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5 (1,000)

(632)
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Excessive portions ofcontributious

from individuals DOt reported

(see Finding D.C.)

Contributions from Candidate

committees not reported

(see Finding II.C.)

Contributions from individuals

not reported

Deposit DOt reported

Interaeco\D1t transfer reported as an

offset to operating expenditure

Miscellaneous reconciling adjustment

Total (Net) Understatement

17,150

17,984

500

(310)

812

S 64004

o b. Dishwzrnmts

The Committee rqkWIed total disbInements ofS1;1.94.677

for 1994. The Audit staft's review ofbank records re'Ve8Ied that the Cnmmiuee should

have reported total disbursements ofS1.381,831. 1'herefore, the Committee's reported

disbursements were understated by S17.,161. The undastatement raulteel 110m the

following:

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o

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Math error in calculating reported

activity

Voided checks reported

Disbursements and service charges

not reponed

Transfers of contributions to the

non·federal account not reponed

Miscellaneous reconciling adjustment

Total (Net) Understatement

Page 12

S 2.294

(793)

20.. 186

64..350

1 124

$ 87.161
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c. EDdina CMb OD Hand BaJansc

The reported ending cash balance at December 31t 1994 of

S(1,S14) was understated by $1 t 113. The correct ending cash balance was determined by

the Audit staff to be $(401). This understatement resulted from the effects ofthe receipt

and disbursement misstatements noted above.

At the exit conference. the Audit staff provided copies ofthe

consolidated bank reconciliations to the Committee. The Committee's representative

agreed to file amended reports.

Subsequent to the exit conference, the Committee filed

comprehensive amended reports for calendar years 1993 I!Dd 1994 which materially

corrected the misstatements offinancial activity described above.

c. REPORTING OF RECEIPTS

Sections 434(b)(J)(A),(B) and (F) ofTitJe 2 oftile United States Code state,

in part, that each report under this section shall disclose the identification ofeach person

who makes a contribution to the reporting committee during the reporting period, whose

contributions have an aggregate amount or value in excess of$200 within the caleDdar

year, together with the date and amount ofany such CODtributiO~ the identification ofeach

political committee which makes a contribution to the reporting committee during the

reporting period, together with the date and amount ofany such contribution; and the

identification ofeach person who provides a rebate, refund. or other offset to operating

ex~ituresto the reporting committee in an aggregate amount or value in excess ofS200

,..ithin the calendar year, together with the date and amount ofsuch receipL

Section 431(13)(A) ofTitle 2 ofthe United States Code states that the term

"identification" means, in the case of any individual. the name, the mailing address. and the

occupation ofsuch individual. as well as the name of his or her employer.

During our review ofthe Comminee's receipts. the Audit staff noted 12

transactions totaling S54,400 that the Comminee failed to itemize. In addition., the Audit

staff also noted 18 transactions totaling $96,.250 that were disclosed improperly.

1. Itemization of Receipts

a. Contributions from Candidate Committees

During the Audit staffs reconciliation ofthe Committee's

reported activi~' to its bank activi~' for 1994 it was discovered that seven contributions,

totaling $29~500, were received from candidate committees but were neither included in

reported totals nor itemized on Schedules A..

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b. Receipt ofOfIsels to Qpcratjoa Expc"ditures

During our preparation ofthe 1993 ba.nk reconciliation the

Audit staff noted five offsets to ~perating expenditures totaling 524..900 that were neither

included in reported totals nor itemized on the Committee's Schedules A. All unitemized

offsets were received in 1993 from Gordon and Schwenkrneyer.. Incorporated. a

telemarketing firm contracted by the Committee during the audit period.

2. DisclQsure ofReceipts

Due to a problem identified during the 1994 bank reconciliation, all

contributions from individuals aggregating $5.000 on the disclosure reports were reviewed.

The Audit staff noted that the Committee only reported contributions from individuals up

to 55,000. The portions ofthe contrib\,;tions which exceeded 55.000 were not reported.'

As a result. the Audit staff noted fifteen contributions.. totaling

585..000, for which the amounts were incorrectly disclosed. This also caused the aggregate

year-to-date for these contributions to be misstated. The Audit stafffurt.lter noted that one

ofthese contributions was disclosed without the proper address. In addition to the enors

mentioned above, the Audit staff also noted three disclosure errors, totaling $11.250, for

which the incorrect aggregate year-to-date was disclosed.

At the exit conference.. the Audit staff provided copies ofworkpaper

schedules detailing the errors mentioned above. The Committee's representative agreed to

file amended Schedules A to correct the receipts errors mentioned above.. along with

amended Schedules B. to disclose the ttansfers of contributions to the Committee's nonfederal account.

Subsequent to the exit conference. the Committee filed the

appropriate Schedules A and Schedules B. which materially corrected the errors mentioned

above.

D. REPORTING OF TRANSFERS FROM No~-FEDERALTO FEDERAL ACCOUNTS

FOR SHARED ACTI\'ITY (SCHEDULE 8-3)

Sections l06.5(g)(1) and (3) ofTitle 11 of the Code of Federal Regulations

provide. in relevant part. that comnllnees that have established separate federal and non-

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Pa:Je 1';

7 As a result ofthe Commlnee transfernng ponlOns of the contnbutlons which exceeded $5.000 to its

non-federal account In a tunel~ manner. no excessive contributions problem eXIsts. However. it

should be noted that these transfers to the non-federal account were neither mcluded 10 reponed

totals nor ltemtZed on the Committee s Schedules B (see FmdlOg ItB )
13

federal accounts under 11 CFR 102.5 shall report each transfer offunds from its nonfeclera) account to its federal account or to its separate allocation account for the purpose of

paying such expenses.

During the Audit period the Committee made a total ofsix transfers

($1989491) from its Don-federal accounts to its federal accounts for shared activity. All

transfers were itemized as required on Schedules H-3. except for one transfer from the

Unity Non-Federal account to the Unity 92 Federal account in the amount of $109..379.

At the exit conference. this matter was discussed with Committee

representatives.. who agreed to file the appropriate amended report.

In the interim audit repo~ the Audit staffrecommended that the Committee

file an amended Schedule H-3 to correctly itemized the above noted transfer.

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

Schedule H-3 which correctly disclosed this transfer.

E. REPORTING OF LoAN~ DEBTS AND OBUGATIONS

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Section 434(b)(8) ofTitle 2 ofthe United States Code states that each report

shall disclose the amount and nature of outstanding debts and obligations owed by or to

such political committee; and where such debts and obligations are settled for less than

their reponed amount or value~ a statement as to the circumstances and conditions under

which such debts or obligations were extinguished and the consideration therefor.

Sections 434(b)(2)(H) and (3)(£) ofTitle 2 ofthe United States Code state

that each repon shaH disclose all loans along ~ith the identification of each person who

makes a loan to the reporting committee during the reporting peri~ together with the

identification ofany endorser or guarantor ofsuch loan. and date and amount or value of

such loan.

Section 104.11 ofTitle 11 of the Code of Federal Regulations states~ in part,

that debts and obligations owed by or to a political comminee which remain outstanding

shall be continuously reported until extinguished. In addition. a deb~ obligation.. or written

promise to make an expenditure. the amount of which is 5500 or less, shall be reponed as

ofthe time payment is made or no later than 60 days after such obligation is incurred~

whichever comes fmt. Any loan. debt or obligation.. the amount of which is over 5500,

shall be reported as ofthe date on which the debt or obligation is incurred.

From the Audit staffs leVIe\'.' of Comminee disbursements, we detennined

that the Committee did not materially dIsclose its debts and obligations on Schedule D.

Our review ofComminee invoices and related payments indicated outstanding debts and

AlUI("lIlIf""'.''''

PaOE 15
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obligations to eleven (11) vendors totaling $67,151 which were Dot reported as required on

Committee disclosure repons.

The Audit staffreviewed all activity associated with a SI00,000 line of

credit established by the Committee at Branch Banking and Trust. During the audit period,

the Committee made draws of$20,000 on 1120193 and $4,593 on 6nl94. Both dra\\'S

remained outstanding through the end ofthe audit period (12/31/94) until repaid in 1995.

The Committee disclosed these draws as outstanding loans through the 1994

Pte-General election reporting period. However, these loans were not disclosed on

Schedule C nor reported on Line 10 ofthe Conn ~jtteets Smnmary Page for its 1994 Post

General Election and Year End reports.

At the exit conference, Committee representatives were advised ofthe loan

issues, and were provided a schedule detailing the other debts and obligations that should

have been disclosed. Comminee officials, who provided DO explanations for these

omissions. agreed to file amended Schedules D to correct this problem.

Subsequent to the exit conference, t1-- t:ommittee filed amended Schedules

D which disclosed the majority ofthe debts and obligations noted above.

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Paoe 16
FEDERAL ELECTION COMMISSION

WASHINCTON. D.C. 204&3

AU9S·73

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November 27. 1996

Mr. Lyndo Tippett, Treasurer

North C8roIiDa Democratic Victory Fund

220 Hillsborough Street

Raleigh. NC 27603

Dear Mr. Tippett:

Attaehed please find the Final Audit Report on the North CaroIiDa Democratic

Victory Fund. The Commission approved the report on November 26, 1996.

The Commission approved fmal audit repon will be placed on the public record

on December 3, 1996. Should you have any questions regarding the public release ofthe

repo~ 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 report should be

directed to Alex Boniewicz or William Antosz ofthe Audit Division at (202) 219·3720 or

toll free at (800) 424-9530.

Assistant StaffDirector

Audit Division

Attachment as stated

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D(OIC -\T[U 1<) II.(£PI'C THE PUBLIC INfORMED

Page 17
CHRONO~. 0GY

NORTH CAROLINA DEMOCRATIC

VICTORY FUND

Audit Fieldwork 1214195 - 1126/96

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vInterim Audit Report to

the Committee

Response Received to the

Interim Audit Repon

Final Audit Repon Approved

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