Attached please find a copy of the final audit report for

the above named committee which was approved by the Commission

on September 16, 1986.

Informational copies of the report have been received by all parties involved and the report may be released to the

pUblic.

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MEMORANDUM

TO:

FROM:

SUBJECT:

FEDERAL ELECTION COMMISSION

WASHINGTON,D.C 204&3

A8S-24

September 30, 1986

FRED EILAND

CHIEF, PRESS OFFICE

ROBERT J. COSTA ~r - ASSISTANT STAFF DI~~R~ AUDIT DIVISION

PUBLIC ISSUANCE OF FINAL AUDIT REPORT - NEW JERSEY EDUCATION POLITICAL ACTION COMMITTEE

Attachment as stated

cc: FEe Library

RAD

Office of General Counsel ~ublic Disclosure

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• FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

A8S-24

REPORT OP THB AUDIT DIVISION

OR 'l'BB

NEW JERSBY EDUCATION ASSOCIATION

POLITICAL ACTION COMMITTEE

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I. Background

A. Overview

This repott is based on an audit of the New Jersey

Education Association Political Action Committee ("the

Committee W), undertaken by the Audit Division of the Federal

·0 Election Commission in accordance with the provisions of the

Federal Election Campaign Act of 1971, as amended ("the Act").

The audit was conducted pursuant to 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

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ommittee required to file a report.under Section 434 of this

itle. Prior to conducting any audit under this sUbsection~ the

ommission 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.

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The Committee registered with the Clerk of the United

States House of Representatives on September 26, 1974 as the New

Jersey Education Association Political Action Committee. The

Committee maintains its headquarters in Trenton, New Jersey.

The audit covered the period January 1, 1983 through

00 December 31, 1984. The Committee reported an opening cash

balance on January 1, 1983 of $28,333.S0J total receipts of

$355,586.861 total disbursements of $362,694.931 an/d a closing cash balance on December 31, 1984 of $21,225.63. 1

This audit report is based on documents and work papers which support each of its factual statements. They form part of

the record upon which the Commission based its decisions on the

matters in the 'report and were available to the Commissioners and

appropriate staff.for review•

• The reported totals do not foot due to a mathematical error.
• B. Key Personnel

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II.

The Treasurers of the Committee during the perloa covered by the audit were Mr. Dennis N. Giordano from 3anuary 1, 1983 through August 31, 1983 and Ms. Betty Kraemer from September 1, 1983 through the close of the audit period. · -.

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, except the

contribution records provided by the Committee met in all

material aspects the recordkeeping requirements of 2 U.S.C.

S432(c) and 11 C.F.R. S 102.9(a), however, the records were not

maintained in a manner which allowed testing for correct

aggregate contributor totals, proper itemization, and limitations

on contributions.

Audit Findings and Recommendations

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A. Documentation for Receipts

Sections 432(c)(1), (2), (3) and (d) of Title 2 o~ the

United States Code state that the treasurer of a political committee shall keep an account of all contributions received by

or on behalf of such political committees, the name and address

of any person who makes any contribution in excess of $50,

together with the date and amount of such contributions by any

person, and the identification of any person who makes a

contribution or contributions aggregating more than $200 during a

calendar year, together with the date and amount of any such

contribution. The treasurer shall preserve all records required

to be kept by this section and copies of all reports required to

be filed by this SUbchapter for 3 years after the report is

filed.

The Audit staff reviewed the Committee's recordkeeping

system relative to contributions received from individuals who

were members of the New Jersey Education Association ( the

Committee's connected organization). Contributions by members

currently emplQyed were effected via payroll deduction. It was

noted that when a member wished to contribute via parrOll deduction, he/she would complete a ·sign-up applicat on form. w

This form would authorize the school district to deduct the

designated amount from the member's earnings on a monthly basis

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ana to forward the amount to the Committee. When a member elects

to cancel the payroll deduction, he/she would so inform the

school district. The school district would then forward this

information to the Committee using an ·up-date form·, 8tating the

effective date of the change.

-, According to the Committee, the ·up-date forms· were

retained for only one year, rather than the three years required by the Act. Thus, the Audit staff was precluded from conducting testing necessary to verify the aggregate year-to-date contributions received from certain members, since the ·up-date forms· which evidenced when a member changed the amount of

his/her contribution were not available for the period from

January 1, 1983 through August 31, 1984. It should be noted that

based on our limited review, it appeared that members'

contributions generally did not exceed $10 per year ($1 per month

for 10 months).

A Committee official explained that due to the large volume of paper generated for the ·up-date forms· received from

the various school districts, the Committee only maintains these

forms for one year after the preceding school year •

It was recommended in the Interim Audit Repor~ that the

Committee modify its current procedures and begin retain'lng the

·up-date forms" received from the various school districts in

support of the reported individual contribution figures for a .

period of three years after the report is filed.

The Committee's response did not address this matter.

Recommendation

The Audit staff recommends no additional action beyond that

contained in the above mentioned Interim Audit Report.

B. Itemization of Disbursements

Section 434(b) (4) (8) (i) of Title 2 of the United States

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

reporting period and the calendar year, the total amount of

contributions made to other political committees.

Section l04.3(b) (3)(v) of Title 11 of the Code of

Pederal Regulations states, in part, that each report shall

disclose in the case of a contribution to an authorized

committee, the candidate's name and office sought (including State and Congressional district, if applicable) •
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During the courle of the review of disbursements, it

vas noted that the Committee transferred $64,000 to 13 Bo-callea

-federal aa hoc committees- and itemized transactiona, totaling '13,500, a. transfers to .ffiliatea committee. (PEe rorm 3X, Line

20), and one transaction of $500 on Line 21 a•• reimbursement to • -federal ad hoc committee. w Bach -ad hoc committeeWva•••t up

to .ake disbursements in 8upport of one federal candidate a.~

evidenced by a federal candidate'. name appearing as part of the

name of the -ad hoc committee· Ce.g., New Jersey Bducation

A.soclation PAC for Plorio). The Committee did include in its

disclosure reports detailed schedules showing the disposition of

the funds transferred. However, bank records pertaining to one

of the 13 Wad hoc committeesw were not provided during fieldwork.

It should be noted that these 13 -ad hoc committeeswere not separate political committees, but bank accounts set up

by the Committee to disburse funds, at the district level, in

8upport of designated federal candidates. Thus, the transmittal

of funds to these accounts is considered an interaccount transfer

C' which is not a reportable transaction. Such transactions involve

the movement of funds between various Committee accounts. Only the actual disbursements made from these accounts should have

ebeen disclosed as disbursements on the appropriate line of PEe

Porm 3X.

A Committee official stated that the Committee was

instructed at an FEC Conference to disclose the activity in this

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Our review of the Committee's disclosure reports disclosed that approximately $26,000 in disbursements were

itemized on FEC Form 3X, Line 21 ·Contributions to Federal

Candidates and Other Political Committees· with no indication as

to the candidate(s) supported. Our analysis of available

documentation indicated that the disbursements in question were

not on behalf of a federal candidate(s), rather it appears the

funds were expended for operating expenses or other expenses.

In view of the fact that the activity emanating from

the -ad hoc· bank accounts was disclosed, the Audit staff noted

in the Interim Audit Report that amending action to reclassify the reported transfers as non-reportable, with appropriate revisions to the various regorted beginning and ending cash

figures was not necessary.17 However, the Interim Audit Report

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In disclosing the disbursements made from the ·ad hoc· bank

accounts, the Committee filed ·Memo· schedules. The amounts

in the "Memo· schedules were not reflected in summary page totals, hence the totals for disbursements as originally reported are not misstated.
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stated that amending action was necessary (1) to recl•••ifI to

Line 21 the itemizations of the funding transfers original y disclosed on Line 20, and (2) to clarify the purpose of the

di.bursements itemized on Line 21 without any candidate

designation.

In addition, the Committee .olicited contribution. for

the National Bducation Association Political Action Committee

(-RBAPACft ) in conjunction with its own solicitations. The

Committee receivea ana reported contributions representing funds

for NBAPAC and itself, which were deposited into the Committee's

account. Generally, a $1.00 contribution would be split $0.85 to

the Committee and $0.15 to RBAPAC. RBAPAC's share was then

forwarded by the Committee and disclosed a8 a transfer to an

affiliated committee.

The Audit staff recommended in the Interim Audit Report that the Committee amend its reports to correct the

irregularities concerning disbursements apparently mleolassified

on PEe Form 3X, Lines 20 and 21. In addition, the required documentation for the 13th 8 ad hoc committee- is to be obtained

and presented for 'review. Additional amendments are to be filed

if necessary, based on the review of the documentation. In the

future, activity involving bank accounts set up to conduct

activity on the local level should be disclosed in accordance

with the Act.

With respect to the disclosure of contributions to be

split between the Committee and NEAPAC, the Audit staff

recommends that future reports should include a memo entry stating that individuals have made contributions to NEAPAC, as

well as NJEAPAC and that the transfer represents that portion of

the contributions attributable to NEAPAC.

On August 18, 1986, the Committee filed amendments to

its disclosure reports to reclassify as required, those

irregularities noted above. In addition, the Committee provided documentation for the 13th Wad hoc committee. w

Recommendation

Based upon the Committee's action, the Audit staff

recommends no further amending action with respect to reports filed for the period covered by the Audit. However, it should be

noted that future reports should include a memo entry stating that individuals have made contributions to NEAPAC, a8 well as

NJEAPAC and that the transfer represents that portion of the

contributions attributable to NEAPAC•
Under 11 C.P.R. S 114.3(a) (1), a labor organi.ation ••y make communications including partisan communications to its

.embers and executive or administrative personnel and tbeir

families on any 8ubject. ·

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c. Partisan Communication Costs

Based on our review of the Committee's documentation

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With respect to these disbursements, the Audit staff deter~ined

that the $40,161.26 in disbursements, the purpose of which was to

expressly advocate the election of a Presidential candidate, meet

the requirements for partisan communication costs under 11 C.P.R.

S 114.30 It is the opinion of the Audit staff that even though these costs were not paid from treasury funds, they are exempt from the contribution limitations.

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., . sections 431(9) (8) (iii) and 441b(b) (2) (A) of Title 2,

United States Code, excludes from the definition of -expenditureany partisan communication cost (a. defined by 11 C.P.R. S

114.3(8) (1» made by a labor organization.

The Committee's disbursement records were reviewed to

determine the total amount expended by the Committee on behalf of

Pederal candidates. It was noted that the Committee expended $40,161.26 in the form of exempt communication costs on behalf of

a Presidential candidate, $11,127.24 for the 1984 primary election and $29,034.02 for the 1984 general electlon.The

Committee reported most of these expenditures on Line 21

(Contributions to Pederal Candidates and Other Political

Committees) and did not identify these disbursements as exempt partisan communication costs.

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The Committee official responsible for the preparation of the disclosure reports stated that these expenditures were

partisan communication costs and therefore exempt from the

contribution limitations as set forth at 2 U.S.C. S

4418(8) (2) (A). She added that these expenditures were paid from

the Committee's account, as opposed to from treasury funds, because at the time of the transactions, she was unfamiliar with

the requirements of the Act.

The Audit staff provided Committee officials with

schedules necessary to clarify the public record.

In the Interim Audit Report, it was recommended that

the Committee file amendments which itemize on Line 19 (Operating Expenditures) those disbursements comprising the $40,161.26 made

to expressly advocate the election of the Presidential candidate.

Finally, the amended schedules should include the information

.reqUired under 11 C.F.R. S 104.6(c).
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• On Augult 18, 1"6, the Committe. fllea ...nd••nt. to

it. d18cl0.ur. report. It••l.lng tb. above dl.bur••••nt••• required.

R,cOIIIIIendation

-~h. Audit ataff recommend. no further action on thl•••tter.

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