FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

Mays, 2015 

MEMORANDUM 

To: 

Through: 

From: 

The Commission 

Alec Palmer 

Staff Director 

By: 

Subject: 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister-Ws, 

Assistant Staff Director 

Audit Division 

Douglas Kodishx^ 

Audit ManagerGi^ 

Jeff Spilizewski 

Lead Auditor 

Audit Division Recommendation Memorandum on New American City, 

Inc. (NAC) 

Pursuant to Commission Directive No. 70 (PEC Directive on Processing Audit Rq)orts), 

the Audit staff presents its recormnendations below and discusses the fmdings in theattached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendations. 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of NAC's reported financial activity with its 

bank records revealed a misstatement of financial activity for disbursements 

during 2011 through 2012. The total of the misstated amounts was $2,024,213. In 

response to the Preliminary Audit Report (PAR) recommendation, NAC filed 

amended disclosure reports that materially corrected its misstated activity. NAC 

had no additional comments in response to the DFAR. 

The Audit staff recommends that the Commission find that NAC misstated its 

financial activity for disbursements during calendar years 2011 and 2012. 
Finding 2. Disclosure of Receipts 

During audit fieldwork, the Audit staff identified 16 receipts totaling $2,704,569 

that were missing or lacked required disclosure information. In response to the 

PAR recommendation, NAC filed amended disclosure reports that corrected the 

receipt disclosure errors. NAC had no additional conunents in response to the 

DFAR. 

The Audit staff reconunends that the Commission find that NAC failed to 

correctly disclose receipt information totaling $2,704,569. 

Finding 3. Disclosure of Disbursements 

The Audit staff identified 653 disbursements totaling $4,188,384 that were either 

missing or lacked required disclosure information. In response to the PAR 

recommendation, NAC filed amended disclosuris reports that materially corrected 

the disbursement disclosure errors. NAC had no additional comments in response 

to the DFAR. 

The Audit staff recommends that the Commission find that NAC failed to 

correctly disclose disbursement information totaling $4,188,384. 

Finding 4. Reporting of Debts and Obligations 

The Audit staff identified a debt to an equipment rental vendor, in the amount of 

$25,425, that was not itemized on Schedule D (Debts and Obligations) as required. 

In response to the PAR recommendation, NAC filed amended disclosure reports 

to properly itemize the debt. NAC had no additional comments in response to the 

DFAR. 

The Audit staff recommends that the Commission find that NAC failed to itemize 

a debt totaling $25,425. 

NAC did not request an audit hearing. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 

30 days of the Commission's vote. 

In case of an objection. Directive No. 70 states that the Audit Division Recommendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Jeff Spilizewski or Douglas Kodish at 694-

1200. 

Attachment: 

Draft Final Audit Report of the Audit Division on New American City, Inc. 

cc: Office of General Counsel 
Draft Pinal Audit Report of the 

Audit Division on 

New American City, Inc. 

(May 4, 2011 - December 31, 2012) 

Why the Audit 

Was Done 

The Commission audits 

each host committee or 

municipal iund that 

represents a city where a 

publicly financed 

nominating convention 

was held. The audit 

seeks to determine 

whether the committee 

has materially complied 

with the proMbitions and 

disclosure requirements 

ofthe election law.' 

Future Actio 

The Commission may 

initiate 

action, 

with 

mattefsJ 

report. 

w • J. 

to any of 

ised in this 

About the Committee 

New American City, Inc. 

Carolina, is a committee 

National Convention. For 

Commi^e Organizatioprp. 2 

Financial ^d|:ivity 

• Receipts 

[uartered in Charlotte, North 

^for hosting the 2012 Democratic 

ion, see the chart on the 

Contributions ly Convention 

ittees 

of Deposits 

senditures 

o umei^iSDursements 

' V 1 iiliil Disbursements 

$ 19,008,773 

8,783 

1,000,000 

49,669 

950 

$ 20,068,175 

$ 20,056,269 

10,775 

$20,067,044 

r 

.findings and Recommendations (p. 3) 

Misstatement of Financial Activity (Finding 1) 

Disclosure of Receipts (Finding 2) 

Disclosure of Disbursements (Finding 3) 

Reporting of Debts and Obligations (Finding 4) 

IICFR §9008.54. 
Draft Final Audit Report of the 

Audit Division on 

New American City, Inc. 

(May 4, 2011 - December 31, 2012) 

•m 

1. 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 

Scope of Audit 

Inventory of Committee Records 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recommem 

Finding 1. Misstatement of Financial Activity 

Finding 2. Disclosure of Receipts; . . 

Finding 3. Disclosure of Disbursemi^. , 

Finding 4. Reporting of Debts and C^lij^t^ms 

\ 

2 

2 

4 

5 

6 

8 
Parti 

Background 

Authority for Audit 

This report is based on an audit of New American City, Inc. (NAG), undertaken by the 

Audit Division of the Federal Election Commission (the Commission) as mandat^ by 

Section 9008.54 of Title 11 of the Code of Federal Regulations. That section states that 

the Commission shall conduct an examination and audit of each host committee 

registered under 11 CFR §9008.51. •^v % 

Scope of Audit 

This audit examined: 

1. the receipt of contributions from prohibited soun^;, ' 

2. the disclosure of contributions and other receiptti^l 

3. the disclosure and nature of disbursements 

4. the disclosure of debts and obligations; 

5. and the completeness of records; 

6. the consistency between reportedfigures and bi 

7. other committee operations necesS^.to the review. 

Inventory of Committee 

The Audit staff routinely conducts an invd^or^f < 

audit fieldwork. NAC,r^^^ere materisi^comple 

thereafter. 

••v.v."'--

F 

r 

# 

-i^; and 

records before it begins the 

the fieldwork began 
> l- > .«... 

Part II 

Overview of Committee 

Committee Organization 

Important Dates 

Date of Registration 

Audit Coverage 31,2012 

Headquarters 

Bank Information 

Bank Depositories 

Bank Accounts 

Treasurer 

• Treasurer When Audit Was Conducted 

Treasurer During Period Covered by Audit 

Management Information 

• Attended Commission Campaign Fint^g^^. 

Who Handled Accounting and Recordke^jing'^'^l ispaid Staff 

Tasks t: 

i'y 

vy.'- • 

-•m 

of F1 

dited 

ial Activity 

bunts) • •••••• 

Cash-onTJbanil® April ,• $ 0 

Receiptr=^ 'm. 

o Contril- •:."'n^,to Defray C^gVentidr " Kpenses 19,008,773 

o Transfers frdW^iyfiliated C^^tnmittees 8,783 

o Loans Receivetf^iSj^,. 1,000,000 

o Refunds, Rebates,of Deposits 49,669 

o" Other Income W 950 

Total Receipts $ 20,068,175 

Disbursements 

o Convention Expenditures 20,056,269 

o Loan Repayments Made 0 

o Other Disbursements 10,775 

Total Disbursements $20,067,044 

Cash-on-hand @ December 31,2012 $ 1,131 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of NAC's reported financial activity with its bank 

records revealed a misstatement of financial activity for disbursements during 2011 

through 2012. The total of the misstated amounts was $2,024,213^ In response to the 

Preliminary Audit Report recommendation, NAC filed amc- i-lblgsure reports that 

materially corrected its misstated activity. (For more detai • 4.)" 

Finding 2. Disclosure of Receipts # 

During audit fieldwork, the Audit staff identified totali 

were missing or lacked required disclosure infoippStion. In response 

Audit Report recommendation, NAC filed anie£|^ disci 

receipt disclosure errors. (For more detail, see p."^ 

Finding 3. Disclosure of:^]?isbursemi 

The Audit staff identified 653 disburse^a^^taling $4,1 

or lacked required disclosure informatid^'^m1^|^.nse to 

recommendation, NAC filed amended di%osur^^|9.i;tsjthat 

disbursement disclosure err-'" - For more%et^^see 

^.704,569 that 

liminary 

reports 

were either missing 

linary Audit Report 

ially corrected the 

Finding 4. 

The Audit staff identii^:;a deb 

that was not itemized on' 

thePrelir 

properMtemize the'^ft), (For 

>rting pf DebtJbnd Obligations 

I an equipmenmntal vendor, in the amount of $25,425, 

1 Obligations) as required. In response to 

, NAC filed amended disclosure reports to 

: detail, see p. 8.) 
• UM.'.'i.-> .. . 

Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of NAC's reported financial activity with its bank 

records revealed a misstatement of financial activity for disbursements during 2011 

through 2012. The total of the misstated amounts was $2,024,213. In response to the 

Preliminary Audit Report recommendation, NAC filed amended d^losure reports that 

materially corrected its misstated activity. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amount of cash on hand at the beginnin^j^::(gird of 1'.:J rj|^ing period; 

• the total amount of receipts for the reporl^ period and for the^^jdar year; 

• the total amount of disbursements for |l;^ < .•| ->-'ting'||eriod and for '1 

year; and 

• certain transactions that require itemizatii -'••^j^edule A (Itemized Receipts) or 

Schedule B (Itemized Disbur^ents). 52 U.s!^ipl04(b)(l), (2), (3), (4) and 

(5) (formerly 2 U.S.C. §434 (®|fe.(; i. (• • 4) i 

Facts and Analysis 

A. Facts 

The Audit staff recqg^^ed NAi^il reported rity with its bank records and identified a 

misstatement of diSbl^^ents 2011 thr ^^^612? The following chart details the 

discrepancies and succe^^g pl^mphs ex n the reasons for the misstatements. 

Beginnih] 

@ May 4, 

Receipts 

Disbursements 

Ending Cash Balance 

@ December 31,2012 

Bank Records 

$0 

$20,068,175 

$20,067,044 

$1,131 

Discrepancy 

$0 

$6,297 

Understated 

$31,838 

Understated 

$25,541 

Overstated 

As indicated in the chart above, reported disbursements for 2011 through 2012 were 

understated by $31,838. Furthermore, the Audit staff identified the following 

adjustments that should be made to correct the reporting of disbursements: 

' NAC's first receipt of iiinds was on May 4,2011. 
U-I.'.MS 

• Salary, payroll taxes, and processing fees under or not reported $ 1,022,043 

• Salary and payroll taxes over reported 884,529 

• Duplicate disbursement transactions reported 72,855 

• Correction to reports for checks that were voided 24,260 

• Disbursement amounts over reported (or not debited by the bank) 11,640 

• Disbursements not reported 5,968 

• Bank corrections erroneously reported as disbursements 2.918 

Sum of Reporting Adjustments S2.024.213 

NAG regularly misreported its payroll and payroll taxes over the entire reporting period 

which resulted in a salary and payroll tax understatement of $1,022,043. This consisted 

of payroll tax understatements totaling $885,609 and salary und^^tements totaling 

$136,434. Conversely, salary and payroll taxes over reported^^S84,S^9, coiuisted of 

salary payments totaling $872,394 and payroll taxes totalijq^^^35. This resulted from 

reporting individual gross salary amounts instead of the n^'salarj^^ounts. 

B. Preliminary Audit Report & Audit Divisio^^W&mendation^ 

At the exit conference, the Audit staff discuss^ij|hd provi4ed a schedul^^^e jmisstated 

amounts to NAC representatives. NAC represieSlaiSyes saidiithey would arrii^ their 

disclosure reports in response to the Preliminary At 

The Preliminary Audit Report recoi 

correct the misstatements noted above!' 

that NAC ( 

C. Committee Response to Preiiminary^ui 

In response to the Preliiruni^Ey^udit 

disclosure reports 

1 its disclosure reports to 

'y. -rrected i^misstated^activity. 

in 

! -I 

•f-

:>•!!, NAC filed amended 

udit identified 16 receipts totaling $2,704,569 that 

disclosure information. In response to the Preliminary 

, NAC filed amended disclosure reports that corrected the 

Durihg-a^dit fieldwork, 

were misSi^or lacked 

Audit Repoi¥^r|^mmeni 

receipt disclositH£|CTors. ^ 

Legal Standard 

Required Information for Contributions. For each itemized contribution, the 

committee must provide the following information: 

• the contributor's full name and address (including zip code); 

• the contributor's occupation and the name of his or her employer (for individual 

contributors); 

• the date of receipt (the date the committee received the contribution); 

• the amount of the contribution; and 

• the calendar year-to-date total of all contributions from the same individual. 

11 CFR §§100.12 and 104.3(a)(4) and 52 U.S.C. §30104(b)(3)(A) (formerly 2 U.S.C. 

§434(b)(3)(A)). 
Facts and Analysis 

A. Facts 

The Audit staff identified 16 receipts reported on Schedule A totaling $2,704,569 

(approximately 13 percent of total receipts) that were missing or lacked the required 

disclosure information. These reporting errors consisted of the following: 

• 15 receipts, from 1S different contributors, for $2,699,394 that did not disclose or 

inadequately disclosed the correct address; and 

• One receipt for $5,175 that incorrectly disclosed the contributor's name. 

B. Preliminary Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff discussed the disclosure itf^^ with NAC 

representatives and provided a schedule of the receipts discloi 

representatives said they would amend their disclosure 

Preliminary Audit Report. 

The Preliminary Audit Report recommended that 

correctly disclose these receipts on Schedule A. 

ly. NAC 

response to the 

reports to 

C. Committee Response to Preliminary Audit 

In response to the Preliminary Audit Report recoi 

disclosure reports that corrected the l^ipt disclosure 

I Finding 3. Disclosure of Disburse 

Summary 

The Audit staff i 

or lacked required di 

reconimenda^op»:NAC fil^ 

disburseipel^'^l^^to 

ion, NAC filed amended 

^ursements ti|t^ipg $4,188,384 that were either missing 

tion. In rdl^bnse to the Preliminary Audit Report 

reports that materially corrected the 

dard 

Expendii WhiSh expenditures to the same person exceed $200 in a 

the comr|i^ee must report the: 

• date when i^^^hhdituies were made; 

• name and ad^^s of the payee; and 

• purpose (a brief description of why the disbursement was made). 52 U.S.C. 

§30104(b)(5)(A) (formerly 2 U.S.C. §434(b)(5)(A)) and 11 CFR §104.3(b)(3)(i). 

B. Examples of Purpose. 

• Adequate Descriptions. Examples of adequate descriptions of "purpose" include 

the following: dinner expenses, media, salary, polling, travel, party fees, phone 

banks, travel expenses, travel expense reimbursement, catering costs, loan 

repayment, or contribution refund. 11 CFR §104.3 (b)(4)(i)(A). 

• Inadequate Descriptions. The following descriptions do not meet the requirement 

for reporting "purpose": advance, election-day expenses, other expenses, expense 
reimbursement, miscellaneous, outside services, get-out-the-vote and voter 

registration. 11 CFR §104.3 (b)(4)(i)(A). 

C. Reporting Credit Card Transactions. A committee must itemize a payment to a 

credit card company if the payment exceeds the $200 aggregate threshold for 

itemization. The committee must also itemize, as a memo entry, any specific 

transaction charged on a credit card if the payment to the actual vendor exceeds the 

$200 threshold. The memo entry must include the name and address of the vendor, 

the purpose of the disbursement, and the amount of the disbursement. 11 CFR 

§§102.9(b)(2) and 104.9. 

D. Reporting Reimbursements to Individuals. When an im •:.! (al who is not acting 

as a vendor advances his or her personal funds (or uses a pi- i^'credit card) to pay 

for goods or services on behalf of a political committee,^u -ciiiibursement must be 

reported as follows: 

• Nontravel Advances. Report the individual as^a^, a - the payments 

aggregating over $200 to any one vendor ^tries oii'^|dule B; and 

• Travel and Subsistence Advances. If th^ltal amount reimburse'^^^SOO or less, 

the committee should report the indivjdiii^^ paye^Jf the total ai^^^^xceeds 

$500 and payments to any one vendor usecI^I^^Ag^^ses total ov» $200 for 

the calendar year, report the individual as paye$|ij|ad report the payments 

aggregating over $200 to any '-pg^ vendor as meirtSl^tries on Schedule B. Each 

memo entry must include the address of ra^;|iffinc|pr, as well as the date, 

amount and purpose of the payrri^if^'^ljigiF^ §§104.j^p?^)(i) and 104.9. 

Facts and Analysis 

A. Facts 

The Audit staff identinj^.^' disbursements lig $4,188,384 (approximately 21 

percent of total disburseni|n:.v missing or lacked the required disclosure 

informatiopiSiii^^^rity Wd:-*lo.^.:. .Ti.r • were related to the reporting of addresses 

and p .•i-.Jses. See'tfii^hle -ijic 

^^Description Number of 

Transactions Dollar Value 

Payments wi^'^^igsing on.. • • iplete 

address disclosur&i^x%. 224 $1,099,179 

Payments missing oi^^^g'an 

inadequate disclosure ^'fiurpose. 208 $2,671,674 

Credit card payments taking memo 

entry disclosures. 71 $268,473 

Other payment disclosure errors.^ ISO $149,058 

Total $4,188,384 

Seventy-one transactions totaling S93,312 had tnissing or incomplete addresses and inadequate purposes. 

Seventy-nine reimbursements to individuals totaling SSS,746 lacked memo entries to the ultimate payee. 

Of these transactions, some also improperly or inadequately disclosed the address and/or purpose of the 

transactions. For the 79 transactions described above, 33 were for employee travel/subsistence expense 

reimbursements exceeding the SSOO reporting threshold and 46 were for non-travel reimbursements 

exceeding the S200 aggregate memo reporting threshold. 
.m.. 

8 

B. Preliminary Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff discussed the disclosure items with NAC 

representatives and provided a schedule detailing these items. NAC representatives said 

they would amend their disclosure reports in response to the Preliminary Audit Report. 

The Preliminary Audit Report recommended that NAC amend its disclosure reports to 

correctly disclose these disbursements on Schedule B. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, NAC filed amended 

disclosure reports that materially corrected the disbursement disclosure errors. 

I Finding 4. Reporting of Debts and Ob: 

Summary 

The Audit staff identified a debt to an equipment i 

that was not itemized on Schedule D (Debts i 

the Preliminary Audit Report recorrunendatiori;''!' 

properly itemize the debt. 

Legal Standard 

Reporting of Debts and Obligations. 

A. Continuous Reporting Required. J 

nature of outstanding debts and obli; 

U.S.C §30104(b)(8).CfiM!BuT > 2 U.S.C: 

andl04.11(a). 

It of $25,425, 

snseto 

B. Separate Scheduli 

owed by ft(5,^mmr 

^ml vendor, in the' 

bligatiops) as required! 

filed S^ended discloi 

ittee n '!-• >: sclose the amount and 

are extinguished. 52 

(b)(8)ypa 11 CFR §§104.3(d) 

rxal comrmttee 

• -Jii 

file separate schedules for debts 

corrunittee, together with a statement 

explaiEpig'tfle.eili^^ :md cdndiltdns under vdiich each debt and obligation 

was Incurred or eji||^is"- CFR §104.11(a). 

Debts and O^^ations. 

)0 or 1^ must be reported once it has been outstanding 60 days fixrm 

the datei^prred (t^ date of the transaction); the committee reports it on the next 

regularly s|^edi^<^ report 

A debt exce^l^' $500 must be disclosed in the report that covers the date on 

which the debt was incurred. 11 CFR §104.11(b). 

Facts and Analysis 

A. Facts 

The Audit staff identified a debt to an equipment rental vendor, in the amount of $25,425, 

arising fix>m a transaction on August 21,2012 that was outstanding until October 26, 

2012. NAC did not report this amount as an itemized debt Schedule D, as required, for 

both its Post Convention and Year End reports.. 
B. Preliminary Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided details and discussed the undisclosed debt 

with NAC representatives. NAC representatives said they would amend their disclosure 

reports in response to the Preliminary Audit Report. 

The Preliminary Audit Report reconunended that NAC amend its disclosure reports to 

itemize this debt on Schedule D. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, NAC filed amended 

disclosure reports to properly itemize the debt. 

K. 

m 

\ • P''