K£rlORANDtrM

AK004654

February 8, 1994

SHARON SNYDER

PRESS OFFICE

TO:

FROM:

SUBJECT:

ROBERT J. COSTA ,-kY ......... ASSISTANT STAFF DIRECTOR

AUDIT DIVISION

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

KEN BELL FOR CONGRESS COKMITTEE

Attached please find a copy of the final audit report

on ~en Bell for Con9ress Co..ittee which was approved by the

Coamission on February 1, 1994.

Informational copies of the report have been received by

all parties involved and the report may be released to the

public.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library
Af(003S07

A91-23

REPORT OF THE AUDIT DIVISION

ON KEN BELL FOR CONGRESS COMMITTEE

T. Background

A. Overview

This report is based on an audit of len Bell for ~~ congress Coaaittee (the Coaaittee), undertaken by the Audit

Division of the Federal Election Commission in accordance with the

provisions of the rederal Election Campaiqn Act of 1971, as

amended (the Act). The audit was conducted pursuant to section

_438{b)_Qf 1:'1_';1,_2 _of the_t.!nited States Code which states, in part,

tha t the Commi 55 ion aay conduc-f- .-udits--and--field---l nves-t:-feJatlcfns -of

any political committee required to file a report under section

~, 434 of this title.

Prior to conducting any audit under this section, the

Commission shall perform an internal review of reports filed by

selected coamittees to deteraine if the reports filed by a

particular committee aeet the threshold requir••ents for

substantial compliance with the Act.

The Committee reqistered with the Office of the Clerk,

United States Bouse of Representatives on rebruary 22, 1990 and

maintains its headquarters in Winston-Salea, North Carolina, The

audit covered the period January 1, 1990 to December 31, 1990.

The Committee reported an opening cash balance of $0, total

receipts of $178,202.67, total disburseaents of $174,576.96 and a

closing cash balance on December 31, 1990, of $3,625.71.

This report is based on documents and workpapers

supporting each of its factual statements. The documents and

workpapers form part of the record upon which the Commission based

its decisions on the matters in this report, and were available to

Commissioners and appropriate staff for review.

B. Key Personnel

The Treasurer of the Committee during the audit period

was Mr. Mark N. Poovey. The current Treasurer of the committee is

also Mark N. Poovey.
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'", . Scope

The audit included such tests as verification of total

reported receipts, disbursements and individual transactions;

review of required supporting documentation; review of loans rece~\"ed from the Candidate, and other audit procedures as deemed

necessary under the circumstances.

Although the Committee generally satisfied the minimum

recordkeeping requirements set forth at 11 C.F.~. 5102.9, the lack

of vendor generated documents (i.e., invoices, receipted bills,

etc.) precluded substantive testing of disbursements, and debts

and obligations.

II. Audit Findings and Recommendations

A. Loans from the Candidate

Section 441a(a)(1)(A) of Title 2 of the United States

Code states that no person shall make contributions to any

candidate and his authorized political coaaittees with respect to

any election for Federal office which, in the aggregate, exceed

--$1 TOOO~

Section 431(8)(A)(i) of Title 2 of the United States

Code defines the term "contribution R to include Many gift.

subscription, loan, advance, or deposit of aoney or anything of

value made by any person for the purpose of influencing any

election for Federal office."

Sections lOO.7(a)(1)(i){A) and (8) of Title 11 of the

Code of Federal Regulations state that, "A loan which exceeds the

contribution limitations of 2 U.S.C. 441a and 11 erR part 110

shall be unlawful whether or not it is repaid. A loan is a

contribution at the time it is made and is a contribution to the

extent that it remains unpaid. The aggregate amount loaned to a

candidate or committee by a contributor, when added to other

contributions from that individual to that candidate or committee,

shall not exceed the contribution limitations set forth at 11 eFR

part 110. A loan, to the extent it is repaid, is no longer a

contribution."

Section 110.lO(a) of Title 11 of the Code of Federal

Regulations states, in part t that a candidate for Federal offlce

may make unlimited expenditures from personal funds.

Section 110.10(b) of Title 11 of the Code of Federal

Regulations defines "personal funds", in part, as any assets which

under applicable state law, at the time he or she became a

candidate, the candidate had legal right of access to or control

over, and with respect to which the candidate had either 1) legal
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and rightful title or 2) an equltable interest. A candidate may

use a portion of assets jointly owned with his or her spouse as

personal funds. The portion of the jointly owned assets that

shall be considered as personal funds of the candidate shall be

that portion which is the candidate's share under the

instrument(s) of conveyance or ownership. If no specific share is

indicated by an instrument of conveyance or ownership, the value

of one-half of the property used shall be conSidered as personal

funds of the candidate.

Section lOO.7(a}(1)(i){D} of Title 11 of the Code of

Federal Regulations states that, ft A candidate may obtain a loan

on which his or her spouse's signature is required when jointly

owned assets are used as collateral or security for the loan. The

spouse shall not be considered a contributor to the candidate's

campaign if the value of the candidate's share of the property

used as collateral equals or exceeds the amount of the lean which

is used for the candidate's campaign."

Section lOO.7(b)(11) of Title 11 of the Code of Federal

Regulations states, in part, that a loan of aoney by a State bank,

a federally chartered depository institution, (including a

national_bart~) is not a contribution if such loan is made in the

ordinary course of business. A loan will be deemed made in theordinary course of business if it: bears the usual and customary

interest rate of the lending institution for the category of the

loan involved; is made on a basis that assures repayment; is

evidenced by a written instrument; and is subject to a due date or

amortization schedule.

The Candidate made 14 loans to the Committee totaling

$44,675.97. The loans were drawn on the joint personal checking

accounts of the Candidate and his spouse, except one for 55,000,

for which the Candidate obtained a personal loan.

Documents examined by the Audit staff received in

January, 1992, after the completion of fieldwork, indicate that

four of the loans totaling $19,105, were made from an equity

account which (according to the Candidate) was secured by the

equity in the Candidate's home. Since the Candidate and his

spouse are joint account holders, the Candidate was asked to

provide documentation that the loans were made using his perso~a:

funds.

The Candidate provided a notarized statement which

details the dates, amounts, sources (checking account and check

number) of the loans and photocopies of statements from the joint

checking accounts showing payment of each loan check.

The Audit staff examined the personal checking account

statements of the Candidate for the months 1/90, 3/90 throuQh 8/90

and 10/90, and noted the follo~ing: ;
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Savings account activity included on the

statements of the personal checking account

indicated that transfers in the amount of

$13,550 were made from the savings account to

the personal checking account. One transfer of

56500 was transferred to the personal checking

account on the same date a loan for that amount

was made to the campaign;

Deposits into the personal checking account in

the amount of $18,600 are from what app~ars to

be a mutual fund account. The deposits were

made within one to two days of three loans made

by the Candidate;

Seven deposits totaling $800 are identified as

"Transfer from Instant Cash Reserve ft;

One deposit of Sl,775.58 is from an apparent

payroll deposit;

The source of deposits in the amount of

$60,998.47, into the personal checking account

rsunkn()wn.

The documents submitted by the Candidate as described

above did not establish the Candidate's ownership over the funds

used to make the loans. Absent such a showing, it was the opinion

of the Audit staff that a portion of the loans made to the

Committee may be loans in excess of the limitation from the

Candidate's spouse. Since the Audit staff did not have access to

the complete bank records (such as check registers for determining

account balances on the dates on which the loans were made), we

were unable to determine the extent to which the contribution

limitation was exceeded.

In the interim audit report the Audit staff recommended

that the Committee submit the following documents:

From the Prime Equity Line Account:

loan application;

loan agreement s; and/or agreements

establishing the lending limit;

deed for property used to secure the loan;

appraisal of property used to secure the loan;

account statements from inception to 12/31/90

(excluding those already presented);
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check register fer the account, or a Ichedule

showing check numbers, payees, dates .nd

amounts for checks written from the a~ccuntrs

inception through number 112;

source of payments and copies of all

instruments applied against the equity line.

rrom the Personal Checking account:

all account agreements and applications used

to open or establish the account;

all account statements from January 1, 1990

through December 31, 1990 (excluding those

statements already presented);

check register showing daily account balance;

a description of the source of the deposits.

Fr08 the Savings account and Mutual Fund account:

all account ag~ee~ents and applicatiQn~ used

to open or establish the accounts;

all account stateaents fro. January I, 1990

through December 31, 1990 from what appears to

be a mutual fund account;

a description of the source of each deposit

made into the savings account and the mutual

fund account.

In response to the interim audit report, the Candidate

submitted documents which provided evidence that the loans made to

the Committee were made from the candidate's personal funds.

Recommendation t1

The Audit staff recommends no further action.

B. Other Matters

Other matters noted during the audit have been referred

to the Commission's Office of General Counsel.