FEDERAL ELECTION COMMISSION

WASHINGTON. 0 ( 204b \

January 23, 2002

MEMORANDUM

TO: RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

FROM: JOSEPH F. STOLTZ ~m ASSISTANT STAFF~TOR AUDIT DIVISION )

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

DEMOCRATIC PARTY OF NEW MEXICO

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

Democratic Party ofNew Mexico that was approved by the Commission on January 8,

2002.

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

FEC Library
REPORT OF THE AUDIT DIVISION

ON THE

DEMOCRATIC PARTY OF NEW MEXICO

Approved January 8, 2002

FEDERAL ELECTION COl\'1l\1ISSION

999 E STREET, N.'\'.

\VASHINGTON, D.C.
TABLE OF CONTENTS

DEMOCRATIC PARTY OF NEW MEXICO

PAGE

Executive Summary

Final Audit Report 3

,!"'~ Background 3 q)

~r'

~r Findings 5

.,~

~~ Legal Analysis 19

(Z)

'i",~!

a~! Transmittal to Committee 23

f.'»'

I~';~JI Chronology 25
FEDERAL ELECTION COMMISSION

WASHINCTOf\;. 0 <. ~O~bl

REPORT OF THE AUDIT DIVISION

ONTHE

DEMOCRATIC PARTY OF NEW MEXICO

EXECUTIVE SUMMARY

A#99-47

The Democratic Party of New Mexico (the Committ~e) registered with the

Federal Election Commission (the Commission) on Septenlber 17, 1982 and maintains its

headquarters in Albuquerque, NM. The audit was conducted pursuant to 2 U.S.C.

Section 438(b), which states that the Commission may conduct audits of any political

committee whose reports fail to meet the threshold le\'el of conlpliance set by the

Commission. The findings ofthe audit were presented to officials at an exit conference

held subsequent to the completion of fieldwork on March 2, 2000 and later in an interim

audit report. The Committee's response to those findings is included in this final audit

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

RECEIPT OF ApPARENT EXCESSIVE COi'iTRIBllTIONS -" 2 USC §§431(8)(A)(i),

44Ia(a)(I)(C), 11 CFR §§IOO.7(a)n )(iii), l03.3(b)(3) and (4), IIO.I(k). The audit

identified excessive contributions from four individuals totaling $9,600. In response to

the" interim audit report, the Com"inittee refunded the excessive contributions. However,

one refund check ($4,000) has not been negotiated by the payee and renlains outstanding.

EXCESSIVE EXPENDITURES O~ BEHALF OF A FEDERAL CA~DIDATE -1 USC §§

431 (9)(A)(i), (17) and (18), 441 a( a)(2 )(A) and (d)( 1). 434(b)(4 )(H)(iii) and (6)(B)(iii),

441 band d(a), 11 CFR §§ 100.22(a), 100.17. 102.5(a)( I)(i), 106.1(a), 106.5(a). The

Audit staff identified payments to vendors that appeared to be on behalf of a federal

candidate and that" totaled· in excess ofthe coordinated expenditure linlitation. Based on

the Committee's response, the Audit staff concluded that payments totaling 549.165

represented independent expenditures. The remaining paynlents. totaling 572.829.

represent the cost of a generic get-out-thc-\'ote cffon. not allocable to a specific

candidate. As a result. the Comnlittee did not excced the coordinated expenditure

limitation.

SHARED FUNDRAISING E"E~TS - 11 CFR **104.10(b)(2). (4). and (5). The

Committee disclosed 6 shared fundraising evcnts on Schedule H2 (Allocation Ratios).

The Audit staff identified 2 additional shared fundraising events not disclosed on

Schedule H2. The Committee could neither provide an accounting ofthe total receipts or

disbursements for any ofthe 'shared fundraising events nor docunlentation supporting its

Page 1 of25
calculation ofthe allocation ratios for those events disclosed on Schedule H2. In

response to the interim audit report, the Committee provided documentation to support

the allocation ratios and filed an1endedschedules that n1aterially disclosed all shared

fundraising activities.

REPORTING OF JOINT Fl'NDRAISING PROCEEDS - 11 CFR §§ l02.17(c)(8)(B)

and (4)(ii). The Committee participated in separate joint fundraising activities with the

Association of State Democratic Chairs/Dollars for Democrats and with the State Party

Democratic Victory Fund. Although the Committee's reporting ofthe transfers of

$76,916 from these entities was materially correct. it did not in every case file n1en10

Schedules A disclosing the associated contributors/contributions. In response ofthe

interim audit report, the Comn1ittee filed the requested anlended menlO 'Schedules A.

Page 2 of25
FEDERAL ELECTION COMMISSION

WASHINCTOr-.;. U C 204td

REPORT OF THE AUDIT DIVISION

ON THE

DEMOCRATIC PARTY OF NEW MEXICO

A#99-47

I. BACKGROUND

A.' AUDIT AUTHORITY

This report is based on an audit of the Democratic Party of New Mexico (the

Committee), undertaken by the Audit Division ofthe Federal Election Comnlission in.

accordance with the provisions of the Federal Election Campaign Act of 1971, as anlended

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

Code which states, in part, that the Commission may conduct audits and field investigations

of any political committee required to fi Ie a report under Section 434 ofthis title. Prior to

conducting any audit under this subsection, the Conlmission shall perform an internal review

ofreports filed by selected committees to deternline if the 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 1, 1997 of $1, 114~ total

receipts for the audit period of $2, 111.225 total disbursements for the audit period of

$2,096,582~ and ,an ending cash balance of S15.757 on December 31, 1998. 1

C. CAMPAIGN ORGANIZATIOl\

The Committee registered with the Federal Election Conlnlission on

September 17, 1982 and maintains its headquarters in Albuquerque, NM. The treasurers

during the period covered by the audit were Mr. Joseph Cervantes fronl May 8, 1995 to June

24, 1997 and Mr. Thomas Atcitty from June 25. 1997 through the end ofthe audit period.

The current treasurer is Ms. Judy Baker.

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

Page 3 of25
To manage its financial activity, the Committee maintained five federal

accounts and three non-federal accounts. The Committee was financed primarily through

transfers from non-federal accounts for joint activity (Sl .482,245), contributions from

individuals ($285,455), transfers fronl affiliated/other party committees ($261,900), and

contributions from political action conlnlittees (575,600).

D. AUDIT SCOPE AND PROCEDllRES

The testing ofreceipts from individuals with resp_ect to contribution

limitations and itemization on Schedules A (Itemi'zed Receipts) was linlited due to a lack of

any formal aggregation system and the Committee's failure to nlaintain and/or provide a

receipts database. The testing of disbursements with respect to itemization on disclosure

reports and the allocation ofshared federallnon-federal fundraising receipts and

disbursements was also limited. Further, the Committee did not maintain records of all

disbursements, i.e., there was no disbursement database or check register, nor did the

Committee maintain complete records with respect to specific federal/non-federal fundraising

events. With the above limitations considered, the audit included testing ofthe following

general categories:

1. ,The receipt of contributions or loans in excess of the statutory limitations,

(Finding II.A.);

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

corporations or labor organizations~

3. proper disclosure of contributions from individuals, political committees and

other entities, to include the itemization of contributions when required, as

well as the completeness and accuracy of the infomlation disclosed (Finding

II.D.);

4. proper disclosure of disbursements including the itenlization of disburse~ents

when required, as well as the completeness and accuracy ofthe infomlation

disclosed;

5. proper disclosure of conlnlittee debts and obligations~

6. review of expenditures nlade on behalf of federal candidates (Finding II.B.);

7. the accuracy oftotal reported receipts, disbursements and cash balances as

compared to committee bank records;

K adequate recordkeeping of committee transactions;

Page 4 of25
9. proper disclosure ofthe allocation of costs associated with administrative

expenses and activities conducted jointly on behalf of federal and non-federal

elections and candidates (Finding II.C.)~ and,

10. other audit procedures that were deenled necessary under the circunlstances.

Unless specifically discussed below, no material non-compliance with

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

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

A matter noted during the audit is pending before the Commission in another

context. When the Commission concludes its consideration ofthis matter, infornlation will

be made public in accordance with Commission procedures.

II. AUDIT FINDINGS AND RECOl\:IMENDATIONS

A. ApPARENT EXCESSJ\"E CO~TRIBl;TIONS

Section 441a(a)(1 )(C) ofTitle 2 ofthe United States Code states that no

person shall nlake contributions to a political committee that is neither a candidate committee

nor a national party committee in any calendar year which, in the aggregate, exceed $5,000.

Section 431 (8)(A)(i) of Title 2 of the United States Code states that the ternl

"contribution" includes any gift, subscription, loan, ad\"ance, or deposit of money or anything

of value made by any person for the purpose of influencing any election for Federal office.

Section 100.7(a)(l )(iii) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that the tenn "anything ofvaluc" includes all in-kind contributions.

Section 103.3(b)(3) ofTitle II of the Code of Federal Regulations states, in

part, that contributions which exceed the contribution limitations may be deposited into a

campaign depository or returned to the contributor. If any such c~ntribution is deposited, the

treasurer 111ay request redesignation or reattribution ofthe contribution by the contributor in

"a"ccorrlanc·e with II CFR 110.1(b) or 110.I(k). Ifa rcdcsignation or reattribution is not"

obtained, the treasurer shall, within 60 days of the treasurer's receipt ofthe contribution,

refund the contribution to the contributor.

Section 103.3(b)(4) ofTitle II ofthe Code of Fcderal Regulations states, in

relevant part, that any contribution which appears to he illegal under 11 CFR I03.3(b)(3), and

which is deposited into ;;l campaign depository shall not be used for any disbursements by the

political C0111111ittee until the contribution has been detennined to be legal. The political

committee must either establish a separate account in a campaign depository for such

contributions or maintain sufficient funds to nlake all such refunds.

Page 5 of25
Section 110.1 (k) ofTitle 11 ofthe Code of Federal Regulations states. in part.

that any contribution made by more than one person. shall include the signature of each

contributor on the check, money order. or other negotiable instrument or in a separate

writing. A contribution made by nlore than one person that does not indicate the amount to

be attributed to each contributor shall be attributed equally to each contributor. If a

contribution to a candidate or political committee on its face or when aggregated with other

contributions from the same contributor exceeds the limitations on contributions, the

treasurer may ask the contributor whether the contribution was intended to be a joint

contribution by more than one person. A contribution shall be considered to be reattributed

to another contributor: ( 1) ifthe treasurer ofthe recipient political committee asks the

contributor whether the contribution is intended to be a joint contribution by nlore than one

person and informs the contributor that he or she may request a return ofthe excessive

portion ofthe contribution ifit is not intended to be ajoint contribution; and, (2) within 60

days from the date ofthe treasurer's receipt ofthe contribution, the contributors provide a

written reattribution ofthe contribution, which is signed by each contributor, and which

indicates the amount to be attributed to each contributor if equal attribution is not intended.

The Audit staffs review of contributions. although limited by the lack of any

formal aggregation system or receipts database. identified four apparent excessive

contributions from four individuals, totaling 59,600. The Committee did not deposit any of

the excessive contributions into a separate account, nor consistently maintain sufficient funds

to refund these contributions. However. one of the contributors was disclosed on Schedule D

(Debts and Obligations) as being inlproperly deposited into the federal account.

During the exit conference, C0t11mittee representatives were provided with a

schedule detailing the excessive contributions. One representative indicated that she thought

the excessive contributions had been transferred to the non-federal account or refunded to the

contributors.

Subsequent to the exit conference. the Conlnlittee provided docunlentation

that demonstrated excessive contributions ofS4,600 had been transferred to the non-federal

account in January and March, 2000 (well in excess of one year after re.ceipt) and the

remaining excessive contributions $5.000 had been reattributed to another contributor. The

reattribution occurred a.pproximately 16 months after receipt rather than within the 60 day

window provided in the regulations. Based on the records ·made available, the contributors

associated with the $4,600 transferred to the non~federal account were neither notified ofthe

transfers nor advised that they could request a refund of the excessive anloun1.

Notwithstanding the untimely actions on the part ofthe Conlmittee, it is the opinion ofthe

Auditstaffthat refunds to the original contributors relative to the 59,600 in excessive

contributions· cited above remains necessary.

Page 6 of25
In the interim audit report. the Audit staffrecommended that the Committee

provide evidence and/or documentation that demonstrated the contributions were not

excessive. Absent such evidence, it was further recommended that the Committee refund

from the federal account the excessive contributions and provide evidence ofsuch refunds

(copies ofthe front and back ofthe negotiated refund checks). In the case ofthe excessive

contributions transferred to a non-federal account, the Committee was encouraged to reverse

these transfers. Ifsufficient funds were not available to make the refunds. the excessive

contribution amounts should have been disclosed as debts owed to the contributors on

Schedule D ( Debts and Obligations) until such time that funds became available.

With respect to the contribution that was misdeposited into its federal account.

the Committee stated it is baffled as to why it is now being required to refund contributions

that have already been disgorged from its federal account. Further. the Conlnlission's

procedures set forth at 11 CFR §§10J.3(b)(3) and 110.1 are clearly not written to address

committees that maintain both federal and non-federal accounts and on their face apply solely

to candidate committees. The Committee also stated the Commission's Report Analysis

Division notified the Committee that it may have deposited contributions that violated the

law into its federal account and recommended a transfer out to its non-federal account or

refund would be the appropriate courses of action.

With respect to the contribution that was reattributed untinlely, the Committee

stated, assuming, arguendo, that it should be pcnnitted to mitigate any failure to receivc such

redesignation2 by merely transferring the contribution to a non-federal account, rather than

being required to refund the contribution to the contributor.

Finally, the Committee stated notwithstanding the above, itwants to see a

swift resolution to this issue and has decided to follow the Audit staffs reconlnlendation.

As previously stated, thc Committee did not transfer the excessive portions of

the contributions into its non-federal account until January and March 2000. well in excess of

one year after receipt. The Committee's position that the Regulations at 11 CFR**103.3(b)

and 110.1 do not apply to party committees is incorrcct. Thc Regulations at Section 103.3

address receipts deposited by a political committec. whi Ie Scction 11 0.1 (d) speci fically

addresses contributions made to other political comtlllttccs (s'uch as state party conlnlittees):~

Conversely, it is the Audit staffs opinion that the Commission's position on a Treasurer's

responsibility regarding the receipt of excessi\'c contrihutions is clear and guidancc has heen

provided in various contexts (see 11 CFR I03.3(h). 110.1 (k) and the Campaign Guide for

Political Party Committee, August 1996 at page 20).

Redesignation is not an option availahk to Slall' parry commiul'l's. The contrihulion in qUl'slion was

reattributed to another contributor by the Committee.

Section 11 0.1 (b) ofthe Regulations specifically addrcss~s contribulions made 10 candidal~

committees.

Page 7 of 15
The Committee's position· that even though the reattribution was not timely

and it should be permitted to mitigate this nlatter by transferring the contribution to the non-

. federal account is also incorrect. The Regulations do not provide for such an option. Under

11 CFR §103.3(b)(3) ifan excessive contributionis deposited, the treasurer may request

reattribution ofthe contribution and ifthe reattribution is not obtained, the treasurer shall,

within 60 days ofreceipt ofthe contribution, refund the contribution to the contributor.

The Committee provided documentation that it refunded the excessive

contributions. However, one ofthe refund checks (S4,000) has not been negotiated. The

Committee sent a follow:.up letter to the contribut.or on November 20, 200 1. According to a

Committee representative, there has been no response to the letter and the refund check

remains outstanding. The Audit staffsuggested that the Committee disgorge $4,000 to the

U.S. Treasury. The Committee representative advised the Audit staffthat the Committee will

not make a payment to the U.S. Treasury but ",ill continue to attempt to contact the

contributor.

B. .EXCESSIVE EXPENDITlTRES O~ BEHALF OF A FEDERAL CANDIDATE

Section 431(9)(A)(i) of Title 2 ofthe United States Code states. in part, that

the term "expenditure" includes any purchase, paynlent, distribution, loan, advance, deposit-,

or gift ofmoney or anything of value, made by any person for the purpose ofinfluencing any

election for Federal office.

Section 431 (17) ofTitle 2 ofthe United States Code states, in part, that the

term "independent expenditure" means an expenditure by a person expressly advocating the

election or defeat of a cleafly identified candidate which is made without cooperation or

consultation with any candidate.

Section 100.22(a) ofTitle 11 ofthe Code of Federal Regulations states, in

part, that the term express(r advocating means any communication that uses phrases such as

"vote for the President," or "support the Denlocratic nominee" or communications of

campaign slogan(s) or individual word(s), which in context can have no other reasonable

meaning than to urge the election or defeat of one or more clearly identified candidate(s).

Section 431 (18) ofTitle 2 ofthe United States Code states that the term

"clearly identified" means that (A) the nanle of the candidate involved appears; (8) a

photograph or drawing ofthe candidate appears; or (C) the identity ofthe candidate is

apparent by unambiguous reference.

Section 100.17 ofTitle 11 ofthe Code of Federal Regulations states, in part,"

that the term clear~\' idelltifJed nleans the identity ofthe candidate is otherwise apparent

through an unambiguous'reference such as "the President:' "your Congressnlan:' or "the ..

incunlbent," or through an unambiguous reference to his or her statlls as a candidate such as

Page 8 of25
"the Democratic presidential nominee" or "the Republican candidate for Senate in the State

of Georgia."

Section 441a(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 441 a(d)( I) ofTitle 2 of the United States Code states. in part. that a

State committee of a political party nlay make expenditures in connection with the general

election campaign of candidates for Federal office. subject to the limitations contained in 2

U.S.C.441a(d)(3).

Section I02.5(a)(1)(i) of Title 11 of the Code of Federal Regulations states. in

part, that each organization, including a party committee. which finances political activity in

connection with both federal and non-federal elections may establish a separate federal

account in a depository in accordance with II CFR part 103. Such account shall be treated as

a separate federal political committee which shall comply with the requirements ofthe Act.

Only funds subject to the prohibitions and limitations of the Act shall be deposited in such

separate federal account.· All disbursements. contributions. expenditures and transfers by the

commoittee in connection with any federal election shall be made from its federal account. No

transfers. may be made to such federal account from any other account(s) maintained by such

organization for the purpose of financing acti\'ity in connection with non-federal elections.

except as provided in 11 CFR 106.5(g).

Section 106.1 (a) of Title 11 ofthe Code of Federal Regulations states, in part.

that expenditures, including in-kind contributions. independent expenditures, and coordinated

expenditures made on behalf of more than one clearly identified candidate shall be attributed

to each such candidate according to the benefit reasonably expected to be derived. An

expenditure made on behalf of more than one clearly idcnti fied federal candidate shall be

reported pursuant to 11 CFR 104.1 O(a).

Section 434(b)(4)(H)(iii) and (6)(B)(iii) of Title 2 ofthe United States Code

states, in part, that for any political committee other than an authorized comnliltee. each

report filed under this section shall disclose the nanle and address of each person who

receives any disbursement during the reporting period in an aggregate amount or value in

excess of $200 within the calendar year in connection with an independent expenditure by the

reporting committee, together with the date. amount. and purpose of any such independent

expenditure and a statement which indicates whether such independent expenditure is in

support of, or in opposition to, a candidate. as well as the name and office.sought by such

candidate, and a certification, under penalty of perjury. whether such independent

expenditure is made in cooperation. consultation. or concert. with, or at the request or

suggestion of; any candidate or any authorized committee or agent ofsuch conlmittee.

Page 9 of25
Section 441d(a) ofTitle 2 ofthe United States Code states, in part, that

whenever any person makes an expenditure for the purpose of financing comnlunications

expressly advocating the election or defeat of a clearly identified candidate. such

communication shall clearly state who paid for the communication and whether the

communication was authorized by a candidate. or an authorized political conlnlittee of a

candidate.

Section l"06.5(a) of Title II ofthe Code of Federal Regulations states. in part.

that party committees that make disbursements in connection with federal and non-federal

elections shall make those disbursements entirely fronl funds subject to the prohibitions and

limitations ofthe Act, or from accounts established pursuant to II CFR 102.5. Political

committees that have established separate federal and non-federal accounts under II CFR

102.5(a)(l)(i) shall allocate expenses between those accounts according to this section.

Committees shall allocate expenses for the following categories of activity: adnlinistrative

expenses including rent, utilities, office supplies. and salaries. except for such expenses.

directly attributable to a clearly·identi tied tandidate~ the direct costs of a fundrai·sing program·

where federal and non-federal funds are collected~ state and local party activities exenlpt

from the definitions of contribution and expenditure under I I CFR 100.7(b) (9), (15) or ( I 7),

and 100.8(b) (10), (16) or (18) (exemplllCli\'ilics)~and generic \'oter 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 speci tic candidate.

Section 44lb ofTitle 2 ofthe United States Code states, in part, that it is

unlawful for any national bank, corporation, or labor organization to nlake a contribution or

expenditure in connection with any election at which a Representative in~ongress is to be

voted for.

Expenditures On Behalf of Tom Udall

In the state of New Mexico. the coordinated expenditure limitation applicable

to the Committee for a congressional candidate in the 1998 general election was 532.550.

The Democratic Congressional Canlpaign C<?mn~it.tce (D~CC).couldha\'e.also 111ade

coordinated expenditures totaling $32.550 on behalf ofthe same candidate. By letter dated

October 9, 1998, the DCCC assigned· up to 530.0()() of its coordinated expenditure linlitation~

to the Comnlittee for the sole purpose of 111akingexpenditures on behalfofTonl Udall.:'

Accordingly, the Committee had a "conlbined 2 U.·S.C. *441 a(d)(3) limit" on behalfofTom

The Conunittee did not have a copy or the document whICh deSIgnated the DCCe as agent of the

Democratic National Committee forpuipnscs of making coordinated expenditures on its behalf.

However. reports filed by the DCCC contain the following language: This Committet' has been

designated to make coordinated expenditures by the Democratic ~ational Committee.

Tom Udall was the Democratic candidate for tht' l :nited States IJouse of Representatives. from the

State of New Mexico. 3rd District. for the 1995 dection.

Page 10 of25
Udall of $62,550. It should be noted that the Committee reported an expenditure on behalfof

Tom Udall pursuant to 2 U.S.C. §44Ia(d)(3) in the amount of$30,000, while the DCCC

reported making expenditures pursuant to 2 U.S.C. §441a(d)(3) on behalfofTom Udall

totaling $23,155. It is not clear why the DCCC assigned almost all of its limit to the

Committee and then reported making the above expenditures.

Additional expenditures made on behalf of Tom Udall included:

~. Terris & Jaye Politicall\'ledia & Strategy

The Audit staff identified 6 disbursements made from the Con1mittee's

federal account to Terris & Jaye Political Media & Strategy (Terris & Jaye) and the U. S.

Postal Service totaling $49,165 relative to printing and postage costs for 3 brochures. The

Comn1ittee disclosed the purpose for 5 of the payrnents as exempt activities. One payn1ent

for $11,209 was not reported. Records pro\'ided by the Committee included invoices from

Terris & Jaye and copies ofthe 3 brochures. The brochures discussed the differences

between Bill Redmond and Ton1 Udall. (opposing candidates vying for the 3rd Congressional

District seat) and urged the reader to vote for Tom Udall. The records made available to the

Audit staff did not appear to contain any indication that coordination between the Committee

and the candidate or his authorized con1mittee had occurrcd.

The invoices included the following:

Payment must be received before mail drops. Price includes copy, design,

·:concept photography, pre-press, printing, labels, labeling, mail house,

.sales tax and shipping.

In order for such payments to be considered exempt frol11 the definition

of expenditure, the use of volunteers with rcspect to the n1ailing ofthe brochures must be

established.

At the exit conference the Committee was provided with details

pertaining to the Terris & Jaye payn1cnts. In response, theComn1ittee provided a signed

statement from one ofthe owners of Terris & .faye, \\'ho related that he had supervised

production ofthe 3 mail pieces. He further stated:

Hit was the intention ofthe Democratic Party of Ne\\' Mexico that

volunteers would be involved in the mailing of the brochures so that the

activity would be 'exempt' as that tenl1 i.s defined by the Federal Election

Commission. We understood that to qualify as exempt volunteers had to

affix the mailing labels to the brochures. sort the n1ailings into trays and

bundle the mail. When the brochures were ready to be delivered to

Albuquerque, I would contact a representati\'e ofthe party so that

Page 11 of 25
volunteers could be recruited to do the tasks described above. It was my

understanding that volunteers were, in fact, used in connection with these

mailings."

While the above statement sets forth the vendor's understanding ofthe

Committee's intentions concerning the use of Volunteers, it does not demonstrate nor provide

evidence that volunteers were actually used.

Further, the Committee provided pictures of two unidentified

individuals who appear to be handing bulk mail and a picture of one of the individuals

holding a copy of one ofthe three brochures. Both indi,oiduals ha,oe Tom Udall stickers

attached to their attire.

In the interim audit report, the Audit staff recomnlended the

Committee provide evidence that.demonstrated the expenditures in question were not

coordinated expenditures made on behalf of Tom Udall. This docunlentation should have

included affidavits from volunteers and/or Conunittee personnel who had personal

knowledge pertaining to these n1ailings. and statements from Terris & Jaye that explained the

invoices that included such tenns as '~printing, labels, labeling and mail house:' In the

absence ofsuch evidence, the aforementioned expenses. totaling 549,165, would be viewed

as expenditures on behalf ofTom Udall or contributions to his campaign for electiono In

addition, the Audit staffrecommended the Committee file the appropriate anlended Schedule

B to disclose the disbursement of$1 1.209.

In response to the interim audit report, the Committee stated that the

affidavit provided in response to the exit conference from Eric Jaye, consultant for the

Committee, and pictures of volunteers, was a diligent effort to demonstrate volunteer

involvement with the mailings undertaken by Terris & .faye. The Conlmittee further stated

that the documentation provided at the time ofthe exit conference represented their cffort to

obtain sufficient documentation, and it was unlikcly that the Committee can provide any

further documentation. Further, the COillmittec stated. that the documentation provided at the

time ofthe exit conference was sufficient to dcmonstratc the required level of volunteer

involvement in mailings produced by Terris & Jayc.

With respect to the affida"it fronl Eric Jaye ofTerris & Jaye, the

interim audit report was clear as to why the affida"it did not demonstrate nor pro,·ide

evidence that volunteers were actually used. Asstalcd. the affidavit n1ercly reduced to

writing Mr. Jaye's understanding ofthe Committee's intentions with respect to volunteer usc.

More importantly, the Committee's rcsponscdid not address the Terris & Jaye invoices that

described the service provided as printing. labels, labeling and mail house, all of which

indicate that volunteers were not used. In ,·iew of.thc aho,·c. pictures nladeavailable relative

to only one ofthe three mailing is not sufficient to dcnl0nstrate the use of volunteer activity.

Page 12 of25
Finally, the Committee filed an amended Schedule B to include the $11,209 payment to

Terris & Jaye that had not been reported. C

)

Based on the above, the Audit staff has concluded the aforementioned

expenses to Terris & Jaye, totaling 549.165. cannot be viewed as exenlpt. Further. absent

evidence of coordination these expenses cannot be charged to the limitation at 2 U.S.C.

§441a(d)(3). Therefore, the expenses can only be viewed as independent expenditures (in

favor ofTom Udall) that should have been reported on Schedule E (Independent

Expenditures). These expenses were paid from the federal account.

2. Burnside and Associates

The Audit staff identified a payment to Burnside and Associates for

$33,329. The Committee disclosed this payment on Schedule H4 (Joint FederalfNon-federal

Activity Schedule) and allocated the expense between the federal and non-federal accounts

based on the ballot composition ratio. The reported purpose was "generic party mailing

(encouragement to Vote Democratic):' The vendor invoice. dated October 27, 1998, attached

to a copy ofthe Committee's check (533.329) documented only a portion ofthis paynlent

($14,500 for canvass and staff). There ·was no invoice or other vendor generated

documentation for the remainder (5 18.829).

Further, another invoice in the amount of $39,500, dated Septenlber 1,

1998, indicated that a $14,500 paytllent had been nlade relative to a project identified as "AV

Mail (Printing and Postage)". The remainder.of the invoiced amount appears to be related to

the production ofthe "AV Mail." This paynlent ($ 14,500) was disclosed on Schedule H4 and

allocated· based on the ballot composition ratio~ the reported purpose was "Political

Consultant."

In response to our request for a sample ofthe "AV Mail," the

Committee provided a copy ofthe same invoice, with the words "Tonl Udall Door Hanger"

hand printed on the invoice along with a copy of a door hanger. Infornlation pertaining to the

hours of operation for polling places was included as.well as a picture ofTonl Udall, the

words - Tom Udall, U.S. Congress, and the statCI11cnt "It would be a honor and a privilege

to serve you in Congress and I ask for your support." .

The Conmlittee stated that in May 2000. the Tenth Circuit Court of Appeals declared 2 U.S.C. Section

441 a(d)(3) unconstitutional. FEC \.. Colorado Repuhlicans Federal Campaign Committee. 213 F.3d

1221 (10th cir.). cert. granted. 148 L.Ed 238 (2000). argued on February 28. 200L The Committee

also stated that although the Commission has appealed lhis decision to the Supreme Court. the

Commission did not seek a stay from the Circuit Court. Further. since New Mexico is within the) Olh

Circuit. the Commission is pr~cluded fron'l pursing any violation of 44) a( d)( 3) against the DPNM

unless. and until the Supreme Court re\·erses this decision. The recent Supreme Court decision which

held that the coordinated party expenditure limits at 2 C.S.c. Section 441 a(d)(3) are. constitutional

renders the Committee argument moot.

Page 13 of25
At the exit conference, Conlmittee representatives were provided with

a schedule and were requested to provide documentation in support ofthe $33,329 payt11ent

and clarification pertaining to the Tom Udall door hanger.

Subsequently, the Committee stated the following:

"Please note that all activities undertaken by Burnside & Associates were

for generic get-out-the-vote activities. including voter registration and

absentee ballot efforts... Please note that it is our understanding that the

'Udall door hanger,' which was attached to a Bunlside invoice forwarded

to the [Committee] was attached to that invoice in error, and that the door

. hanger was paid for directly by the Udall campaign... Furthermore, the

written notation of 'Udall door hanger' on a Bunlside invoice was a

notation made by [a] current [Committee] staffnlember ... which was

made during the FEC audit process, and was not a notation made by either

Burnside, or any [Committee] staff member during 1998."

The Committee also provided a statenlent signed by the staff member

acknowledging she mistakenly wrote "Tom Udall door hanger" on the invoice.

It should be noted that a review of the disclosure reports filed by the

Udall for Us All Committee, the authorized committee for Tom Udall, for the period July 1,

1998 to December 31, 1999, failed. to identify any paYn1ent to Burnside and Associates.

In the interim audit report, the Auditstaff recommended that the

Committee provide documentation in support ofthe· S18.829 portion ofthe $33,329 payment,

along with clarification from the Udall for Us All Committee pertaining to the Tom Udall

door hanger and a sample copy ofthe "AV Mail." Absent vendor-generated docunlentation

(supporting the payment of $18,829) which should have included sample copies· of printed

materials, if any, and a sample copy ofthe "AV Mail." as \\'ell as further clarification and

evidence concerning the use of volunteers. the aforen1entioned expenses. totaHng $72,829,

would be viewed as either coordinated expenditures on hehalf ofTon1 Udall or contributions

to his campaign for election or indepelldellt expeilditures.

In response to the interim audit report. the Comn1ittee reiterates that it

did not request. authorize or pay for this door hanger and that the absentee ballot program

was generic in nature and did not advocate the election or defeat of any federal candidates.

The Committee subsequently provided an affida\·it from the fornler Chairperson stating that

he has perso·nal knowledge ofthe coordinated campaign run by the Conl,nlittee in 1998. The

affidavit further states that he never authorized- and would not have authorized -

·preparation of a candidate-specific door hanger such as this by the coordinated canlpaign and

that this was not authorized or paid fOf by the coordinated campaign ofthe Committee.

Page 14 of25
The affidavit in conjunction with docunlentation made available in

response to the interim audit report demonstrated that the vendor prepared and distributed

absentee ballot applications and coordinated a telephone and in-person canvassing program in

an effort to identify likely Democratic voters.

The Audit staff agrees that mailing related to the absentee ballot

applications represents a generic get-out-the-vote effort, not allocable to a specific candidate.

With respect to the telephone and in-person canvassing program, the Comnlittee provided a

copy ofthe "Canvass Walk Script." The purpose ofthe script appears to be twofold. The

initial effort is to give a potential voter a vote-by-maiI application, but only if he/she is

willing to support the Party's candidate. Potential voters who state they will not support the

Party's candidate or are undecided are not given a \'ote-by-mail application. The second

phase ofthis effort is to poll the "undecided" and "no" potential voters as to whether they

will vote for the congressional candidate (Tom Udall), its candidate for Governor, Supreme

Court Justice or State Auditor. Each candidate for the above offices is named. A tally is kept

of each potential voter that indicates he or she wi II vole for a particular candidate.

As previously stated. the records made available to the Audit staff

during fieldwork did not appear to contain any indication that coordination between the

Committee and the candidate or his authorized conlmittee had occurred. Even though the

secondary purpose ofthe "Canvass Walk Script" is candidate specific there is still no

evidence of express advocacy. Therefore, it is the opinion ofthe Audit staffthat the cost

represents, a generic 'get-out-the-vote effort, not allocable to a specific candidate and, that the

Committee has not exceeded the 2 U.S.C. 441 a(d)(3) linlitation.

c. SHARED FUNDRAISING EVENTS

Section 104.10(b)(2) ofTitle 11 of the Code of Federal Regulations states, in

part, that a political committee that has established separate federal and non-federal accounts

shall allocate between those accounts its costs for fundraising according to 1.1 CFR 106.5 and

in each report disclosing a disburs.ement for the direct costs of a fundraising program or an

exempt activity, the committee shall state the allocation ratio calculated for the program or

activity and shall explain the manner in which the ratio was derived.

Section 104.1 O(b)(4) of Title II ofthe Code of Federal Regulations states, in

part, that a political committee that pays allocable expenses shall also report each

disbursenlent fronl its federal account or its separate allocation account in paynlent for a joint

federal and non-federal expense or acti\·ity. In the report covcring the period in which the

disbursement occurred, the committee shall statc thc 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 disbursenlent includcs paynlcnt for the allocable costs ofJllore than one

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

Page 15 of25
payment of administrative expenses and generic voter drives, and for each fundraising

program or exempt activity. The committee shall also report the total amount expended by

the committee that year, to date, for each category of activity.

Section 104.1 O(b)(5) ofTitle II ofthe Code of Federal Regulations states that

the treasurer shall retain all documents supporting the committee's allocated disbursenlents

for three years, in accordance with II CFR 104.14.

The Committee disclosed 6 shared fundraising events on Schedule H2

(Allocation Ratios). The Audit staff identified 2 additional events (The Ron Brown

Fundraiser and the Rio Grand Group Lunches)~ the respective contributions were deposited

into both federal and non-federal accounts. The Conlnlittee did not disclose either event on

Schedule H2.

The Corrimitte'e could not provide an accounting ofthe total receipts or

disbursements for any ofthe shared fundraising events. Nor could the Conlmittee provide

documentation supporting its calculation ofthe allocation ratios for those events disclosed on

Schedule H2. The Audit staff identified event expenses that were disclosed on Schedules H4

and allocated between the federal and non-federal accounts based on both the event allocation

ratio (disclosed on Schedule H2) and the ballot ratio (disclosed on Schedule HI).

Committee representatives were provided with schedules detailing the shared

fundraising events..Subsequently, the Conimittee provided a written response in which they

related H[t]he [Committee] is continuing to search for information that will docunlent the

. calculation ofthe fundraising ratios utilized for fundraising. activity during the 1998 election

cycle."

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

provide the folloWing:

• an accounting of all shared fundraising receipts, including workpapers identifYing

deposits made to the federal and non-federal accounts;

• an accounting of all shared fundraising expenses;

• .detailed workpapers supporting the correct allocation nitio for each shared

fundraising event, including the Ron Brown Fundraiser and the Rio Grand Group

Lunches; and,

• based on the above, the Committee. within the same 30 day period, file anlended

Schedules H2 and H4 as appropriate.

Page 16 of25
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In response to the interim audit report. the Committee provided a spreadsheet

that identified 10 shared fundraising events. including the Ron Brown Fundraiser and Rio

Grande Group Lunches. The spreadsheet included: the event nanle; event date; total federal

and non-federal receipts; and, total federal and non-federal expenses. In addition, the

Committee provided a detailed schedule of all receipts. disbursements and the allocation ratio

for each event. The detailed schedules were supported with copies of deposit infomlation

and contributor checks.

Finally, the Committee pro\Oided amended Schedules H2 and Schedules H4

that based on the documentation made a\Oailable in response to the interim audit report

materially disclosed the Committee's shared fundraising acti\·ities.

D. REPORTING OF JOI~T Fl"~DR.-\ISI~G PROCEEDS

Section 102.17(c)(8)(B) of Title II of the Code of Federal Regulations states

that after distribution of net proceeds. each political committee participating in a joint.

fundraising activity shall report its share of net proceeds received as a transfer-in fronl the

fundrais'ing representative. Each participating political committee shall also file a memo

Schedule A itemizing its share of gross receipts as contributions from original contributors to

the extent required under 11 CFR I04.3(a).

Section 102.17(c)(4)(ii) of Title 11 of the Code of Federal Regulations states

that the fundraising representative shall collect and retain contributor infomlation with regard

to gross,proceeds as required under II CFR 102.8 and shall also forward such infomlation to

participating political committees. The fundraising representative shall also keep a record of

the total amount of contributions received from prohibited sources, if any, and of all transfers

of prohibited contributions to participants that can accept them.

The Committee participated in separate joint fundraising activities with the

Association of State Democratic Chairs/Dollars for Democrats (ASDC) and with the State

Party Democratic Victory Fund (VF). The Committee rccei\·ed a nunlber oftransfers from

these entities totaling $33,416 and 543.500 respecti\"c1y. representing its share of the net

proceeds fronl each joint fundraising acti\·ity. Although the Committee nlaterially reported

the transfers, it did not in every case file nlemo Schedules A disclosing the associated

contributors/contributions.

In the interim audit report. the Audit staff recommended that the Comnlittee

file amended memo Schedules A by reporting period related to joint fundraising activities

with ASDC and VF.

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

amended nlemo Schedules A.

Page 170f25
Page 18 of25
FEDERAL ELECTIO\; CO,\1/\lISSI0~

\\'ASHINCTO:\. () ( !tl~t.1

November 20, 2001

MEMORANDUM

Robert J. Costa

Deputy Staff Director

Lawrence H. orton

General Counsel

. /; I:.'~ Gregory R. Baker Lf L

Acting Associate General Counsel

BY:

THROUGH: James A. Pehrkon

Staff Director

TO:

FROM:

Lorenzo Holloway 1J~

Assistant General Counsel

Susan L. KaY.J~~

Attorney

SUBJECT: Proposed Final Audit Report on thc Democratic Party of New f\·1exico .

(LRA# 573)

I. INTRODUCTION

The Office or General Counsel rC\'icwcd thc proposed Final Audit Rcport on the.

Democratic Party ofNew Mexico (""the Committec") submitted to this Officc on Octobcr

19, 2000. The following memorandum summarizes our comments on the proposed

Report. I We concur with the findings in the proposed Report that are not discussed in the

following memorandum. If you have any questions. plcase contact Susan Kay. the

attorney assigned to this audit.

The Office ofGeneral Counsel recommends lhal the CommissIOn consider this document U1 open

session since the rep0rl does not include maners exempt from publac disclosure. Sec: 11 C.r.R.

*2.4.

Page 190f25
Memorandum to Robert J. Costa

Proposed Final Audit Report

Democratic Party ofNew Mexico

Page 2

II. EXCESSIVE EXPENDITURES O~ BEHALF OF FEDERAL

CANDIDATES (Finding II.B.)

The Committee made six disbursements from its federal account for costs

associated "with printing and postage for three brochures that urged the reader to \'oie for

Tom Udall, the Democratic candidate for Congress from New Mexico, 3rJ District. in the

1998 election. These disbursements. totaling 545.165, were made to Terris & Jaye

Political Media & Strategy (Terris and Jaye) and the United States Postal Sen'ice.

The Committee reported these expenditures as exempt acti\'ity. Howe\'er. the

Audit Division concludes that these disbursements do not constitute exempt acti\'ity since

the Committee did not show that volunteers were used with respect to the mailing.

Section 1OO.8(b)(16)(iv) requires that \'olunteers distribute campaign materials in order

for an activity to qualify as exempt. See 11 C.F.R. § 1OO.8(b)( 16)(iv). Invoices ffonl "

Terris and Jaye provided to the Audit Division state that "[pJayment must be received

before mail drops. Price includes copy. design. concept photography, pre-press. printing.

labels, labeling, mail house, sales tax and ~hipping." The Audit Division believes that

this indicates that Terris and Jaye was responsible for distributing the canlpaign materials.

According to the Committee's response to the Interim Audit Report, it provided an

affidavit from an owner of Terris and Jaye stating that \'olunteers were used for the

mailings.:! The Committee's response also indicates that it submitted photographs of

volunteers that were used in connection with the" nlailings. However, nothing was

submitted to explain the invoices and the Audit Division believes the statement by Terris

and Jaye only sets forth the vendor's understanding ofthe Committee's intentions, but

does not demonstrate that volunteers were actually used.

This Office agrees that the a\'ailable e\'idence is insufficient to show the

Committee used volunteers. This Office notes that in addition to setting forth the

Committee's intentions, the statement submitted by Terris and Jaye indicates it was the

owner's understanding that volunteers were used in connection with the mailings.

However, Terris and Jaye does not ha\'e any personal knowledge as to whether volunteers

were used to distributethe"campaign materials. In addition. this Office notes that the

invoice does not conclusively demonstrate that Terris and Jaye actually distributed the

campaign materials. Nevertheless. the Committee does not adequately explain the

The statement by Terris states:

It was the intention of the Democrallc Party of ~ew ~1exlco that volunteers would be

involved in the mailing of the brochures so that the activity would be "exempt' as that

tenn is defined by the Federal Election ComrTusslon. \\"e understand that to qualify as·

exempt volunteers had to affix the: m.uhng labels to the brochures. son the maihng mlo

trays and bundle the mail. \\'hen the brochures were ready to be deltn:rcd to

Albuquerque, I would contact a representatl\'e of the party so that \'olunteers could be

recruited to do the tasks descnbed abo\·c. It was my understandmg that volunteers

were, in fact, used in connection WIth these mJl.lmgs.

Page 20 of25
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Proposed Final Audit Report

Democratic Party of New Mexico

Page 3

language in the invoice that leads the Audit Division to believe that Terris and Jay

distributed the campaign materials.

Further, this Office understands from the Audit Division that the photographs

submitted by the Committee are not sufficient to show that volunteers were used for these

mailings. However, the proposed Audit Repon does not discuss the photographs.

Because the Committee submitted the photographs as evidence to show that \"olunteers

were used to distribute the campaign materials. this Office believes the photographs

should be discussed in the Repon. Therefore. this Office ad\'ises the Audit Di\"ision to

revise the Audit Report to describe the photographs that were submitted and e\'aluate

whether they show that volunteers were used with respect to this mailing.

Since the Audit Division concludes that the expenditures on behalf of federal candidates at Issue

are independent expenditures (Terris and bye) and generic expenditures (Burnside J. the Office of General

Counsel recommends that the Audit Di\"lsion remove the: language on page 9 that states the expenditures

"appear to be either coordinated expenditures made on behalf of Tom L'dall or contributions to hiS

campaign for election." This language is Inconsistent with the Audit DI\"Islon's final conclUSions with

respect to these expenditures.

Page 21 of25
Page 22 of25
FEDERAL ELECTION CO,\1,\1ISSION

January 15. 2002

Ms. Judy Baker, Treasurer

Democratic 'Party of New Mexico

5317 Menaul Blvd, NE

Albuquerque, NM 87110

Dear Ms. Baker:

Attached please find the Report of the Audit Di\"ision on the Democratic Party of

New Mexico. The Commission appro\"cd thc rcport on January 8. 2002.

The Commission appro\"cd Final Audit Rcport will bc placed on the puhlic rccord

on January 23, 2002. Should you ha\"c any qucstions rcgarding the public relcase of the

report, please contact the Commission's Press Office at (202) 694-1220. Any questions

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

Mary Moss or Thomas J. Nurthen of the Audit Di\"ision at (202) 694-1200 or toll free at

(800) 424-9530.

Attachment as stated

cc: Neil P. Reiff. Counsel

j

Sincerely.

"

::flL"j4f Joso{1h F. Stoltz

Assistant Staff Dircctor

Audit Di\"{sion

/

Page 23 of25
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CHRONOLOGY

DEMOCRATIC PARTY OF NEW MEXICO

A#99-47

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report

Approved

10/25/99 -3/2/00

2/8/01

4117/01

1/8/02

Page 25 of25
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