Part I
Background

Authority for Audit

This report is based on an audit of Clay Jr. For Congress, undertaken by the Audit Division of
the Federal Election Commission (the Commission) in accordance with the Federal Election
Campaign Act of 1971, as amended (the Act). The Audit Division conducted the audit pursuant
to 2 U.S.C. §438(b), which permits the Commission to conduct audits and field investigations of
any political committee that is required to file a report under 2 U.S.C. §434. Prior to conducting
any audit under this subsection, the Commission must 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. 2 U.S.C. §438(b).

Scope of Audit

Following Commission approved procedures, the Audit staff evaluated various risk factors and
as a result this audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

The disclosure of disbursements, debts and obligations.

The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

NAW YNE

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act of
2002 (BCRA). The BCRA contains many substantial and technical changes to the federal
campaign finance law. Most of the changes became effective November 6, 2002. Except for
November 7, 2002 through December 31, 2002, the period covered by this audit pre-dates these
changes. Therefore, the statutory and regulatory requirements cited in this report are those that
were in effect prior to November 7, 2002.



Committee Response to Recommendation and Audit Staff's Assessment

In response to the interim report, CJFC filed amended reports for the period covered by the audit.
The reports corrected the disclosure of PAC contributions and also corrected the omission of
occupation and name of employer.

| Finding 2. Disclosure of Disbursements

Summary

A review of credit card disbursements showed that CJFC failed to disclose as memo entries the
actual vendors for disbursements made by credit card. A sample review of operating
disbursements revealed that for 24% of the disbursements tested, CJFC did not disclose
acceptable purposes. CJFC complied with the Audit staff’s recommendation by filing amended
Schedules B itemizing as memo entries the vendors paid by credit card and by disclosing
acceptable purposes for disbursements.

Legal Standard
Reporting Operating Expenditures. When operating expenditures to the same person exceed

$200 in an election cycle, the committee must report the:
e Amount;
e Date when the expenditures were made;
e¢ Name and address of the payee; and
© Purpose (a brief description of why the disbursement was made). 2 U.S.C. §434(b)(5)(A)
and 11 CFR §104.3(b)(4)(i).

Examples of Purpose

e 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).

e 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).

Credit Card Transactions. In the case of operating expenditures charged on a credit card, 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, and
the amount of the disbursement. 11 CFR §§102.9(b)(2) and 104.9.

Facts and Analysis

A. Omission of Memo Entries for Credit Card Disbursements

The Audit staff reviewed all disbursements to American Express Co. and found that for 21
payments totaling $22,690, CJFC failed to disclose as memo entries on Schedules B payments to


Part III
Summaries

Findings and Recommendations

Finding 1. Disclosure of Receipts

CJFC failed to properly disclose 16% of contributions received from political action committees
(PACs), totaling $36,050. The majority of the errors resulted from reporting incorrect election
cycle-to-date totals and missing or incorrect contributor addresses. CJFC also failed to disclose
occupation and name of employer 44% of the time for itemized contributions from individuals.
CJFC complied with the Audit staff’s recommendation by filing amended reports to correct the
disclosure errors. (For more detail, see p. 4)

Finding 2. Disclosure of Disbursements

A review of credit card disbursements showed that CJFC failed to disclose as memo entries the
actual vendors for disbursements made by credit card. A sample review of operating
disbursements revealed that for 24% of the disbursements tested, CJFC did not disclose
acceptable purposes. CJFC complied with the Audit staff’s recommendation by filing amended
Schedules B itemizing as memo entries the vendors paid by credit card and by disclosing
acceptable purposes for disbursements. (For more detail, see p. 6)

Finding 3. Itemization of Disbursements

A sample review of disbursements revealed that CJFC did not itemize 23% of those required to
be itemized. CJFC complied with the Audit staff’s recommendation by filing amended reports
that included Schedules B to itemize the disbursements. (For more detail, see p. 7)

Finding 4. Misstatement of Financial Activity

A comparison of CJFC’s reported financial activity to bank records revealed a misstatement of
cash on hand, receipts, and disbursements in calendar year 2001 and a misstatement of cash on
hand and disbursements in 2002. CJFC complied with the Audit staff’s recommendation by
filing amended reports for calendar years 2001 and 2002 correcting the misstatements. (For
more detail, see p. 8)


N

Part II
Overview of Campaign

Campaign Organization

Important Dates Clay Jr. For Congress

e Date of Registration June 15, 1999

e Audit Coverage January 1, 2001 —- December 31, 2002
Headquarters St. Louis, MO

© Correspondence Address Silver Spring, MD

Bank Information

e Bank Depositories 3

e Bank Accounts 2 Checking, 4 Savings

Treasurer

e Treasurer When Audit Was Conducted Charles A. Stewart, Jr., CPA

e Treasurer During Period Covered by Audit _| Rochelle D. Tilghman (until 2/6/01)

Charles A. Stewart, Jr., CPA

Management Information

© Attended FEC Campaign Finance Seminar _| No

¢ Used Commonly Available Campaign Yes
Management Software Package

¢ Who Handled Accounting and Paid staff
Recordkeeping Tasks

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ January 1, 2001 $ 46,916
o From Individuals 125,501
o From Political Party Committees and PACs 224,930
o From Other Receipts 2,827
Total Receipts $ 353,258
o Operating Expenditures 279,666
o Other Disbursements 72,227
Total Disbursements $ 351,893
Cash on hand @ December 31, 2002 $ 48,282



o. The statement that such reporting is required by Federal law.

¢ Within 30 days after the receipt of the contribution, the treasurer made at least one effort
to obtain the missing information, in either a written request or a documented oral
request.

¢ The treasurer reported any contributor information that, although not initially provided by
the contributor, was obtained in a follow-up communication or was contained in the
committee’s records or in prior reports that the committee filed during the same two-year
election cycle. 11 CFR §104.7(b).

Facts and Analysis
A. PAC Contributions
A review of all contributions from PACs determined that CJFC failed to adequately disclose
16% of such contributions, totaling $36,050. A majority of these reporting errors resulted from
incorrect election cycle-to-date totals and missing or incorrect contributor addresses. The Audit
staff determined there were three main reasons why CJFC reported the wrong aggregate election
cycle-to-date total for contributions from PACs, all related to their use of electronic filing
software:
1. During the audit period CJFC created three separate data files to file FEC reports rather
than one file updated for the current reporting period.
2. CJFC did not always use the same spelling of the name for each PAC. CJFC alternated
in the reports between the acronym for the PAC and the full name of the PAC.
3. CJFC did not include contributions from the first day after the general election for 2000
when calculating the aggregate election cycle-to-date totals. CJFC performed
aggregation of the contributions on a calendar-year-to-date basis.

At the exit conference, the Audit staff provided CJFC representatives a workpaper that identified
each PAC contribution disclosure error. Representatives for CJFC stated that they were aware of
the issue and have worked with the Commission to combine the three files so that the necessary
amendments could be made.

B. Omission of Occupation and Name of Employer

A sample review of itemized contributions from individuals determined that CJFC failed to
disclose occupation and name of employer 44% of the time. All of the solicitation devices
examined by the Audit staff contained the necessary request for the information. CJFC also
provided a log, which was a record of CJFC’s attempt to obtain the missing information. The
log consisted of a listing of the occupation and name of employer for some of the contributors.
In cases where the contributor had not responded, the log showed CJFC sent follow up letters.
The follow up letters were dated January 24, 2003.

Although CJFC took the proper steps to obtain the missing occupation and name of employer
information, it did not amend its reports to include the information. Best efforts is not
demonstrated if the treasurer obtains the missing information through follow up communication
but does not report the information. This matter was discussed at the exit conference.
Representatives for CJFC said the reports would be amended.


FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

November 17, 2003
MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ.
ASSISTANT STA IRECTOR
AUDIT DIVISION

SUBJECT: | PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
CLAY JR. FOR CONGRESS
Attached please find a copy of the final audit report and related documents on

Clay Jr. for Congress that was approved by the Commission on November 14, 2003.

The report may be released to the public on November 21, 2003.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library


Committee Response to Recommendation and Audit Staff's Assessment
CJFC complied with the Audit staff's recommendation by filing amended reports that included
Schedules B to itemize the disbursements.

| Finding 4. Misstatement of Financial Activity

Summary

A comparison of CJFC’s reported financial activity to bank records revealed a misstatement of
cash on hand, receipts, and disbursements in calendar year 2001 and a misstatement of cash on
hand and disbursements in 2002. CJFC complied with the Audit staff's recommendation by
filing amended reports for calendar years 2001 and 2002 correcting the misstatements.

Legal Standard

Contents of Reports. Each report must disclose:

¢ The amount of cash on hand at the beginning and end of the reporting period;

¢ The total amount of receipts for the reporting period and for the election cycle; and

¢ The total amount of disbursements for the reporting period and for the election cycle.
2 U.S.C. §434(b)(1), (2) and (4).

Facts and Analysis

The Audit staff reconciled the reported activity to the bank records and determined there was a
misstatement of cash on hand, receipts, and disbursements in calendar year 2001 and a
misstatement of cash on hand and disbursements in 2002. The following chart details the
discrepancies between the totals on CJFC’s disclosure reports and the bank records. The chart
lists the amount CJFC reported, the amount listed on the bank statements, and the differences.

Comparison of Disclosure Reports and Bank Records

2001 Activity
Reported Bank Records Discrepancy
Opening Cash Balance $40,839 $46,916 $6,077
Understated
Receipts $157,203 $164,178 $6,975
Understated
Disbursements $107,157 $110,317 $3,160
Understated
Ending Cash Balance $90,884 $100,778 $9,894
Understated

? Net of interaccount transfers.


actual vendors. CJFC disclosed American Express as the payee. The credit card disbursements
were for meals, travel, and entertainment for the candidate, the candidate’s spouse, and an
independent contractor of CJFC.

B. Inadequate Purpose For Disbursements

A sample review of disbursements revealed that for 24% of the entries, CJFC did not disclose an
acceptable purpose on Schedules B (Itemized Disbursements). Most of the inadequate purposes
reported for disbursements were “canvassing fees” and “professional fees.” The Audit staff
explained to CJFC representatives that the reports have to include more detailed purposes of why
the disbursements were made.

The Audit staff presented these matters to CJFC during the exit conference along with
workpapers to show the credit card disbursements in question and a list of acceptable purposes.
Representatives for CJFC stated that amended reports would be prepared and submitted to
disclose the vendors paid by credit card and more descriptive purposes.

Committee Response to Recommendation and Audit Staff's Assessment
In response to the interim report, CJFC filed amended reports that included as memo entries on
Schedules B the actual vendors paid $200 or more using the American Express card, and more
descriptive purposes for disbursements aggregating greater than $200.

| Finding 3. Itemization of Disbursements

Summary

A sample review of disbursements revealed that CJFC did not itemize 23% of those required to
be itemized. CJFC complied with the Audit staff’s recommendation by filing amended reports
that included Schedules B to itemize the disbursements.

Legal Standard
Reporting Operating Expenditures. When operating expenditures to the same person exceed
$200 in an election cycle, the committee must report the:

e Amount,

e Date when the expenditures were made,

e Name and address of the payee; and

¢ Purpose (a brief description of why the disbursement was made). 2 U.S.C. §434(b)(5)(A)

and 11 CFR §104.3(b)(4)(i).

Facts and Analysis

The Audit staff reviewed disbursements on a sample basis and determined that CJFC did not
itemize 23% of the disbursements that required itemization. As stated earlier, CJFC used three
separate data files to prepare its FEC reports as well as different spellings of names of the
payees. As a result, disbursements were not correctly aggregated for itemization on Schedules B
(see Finding 1, p. 4). The Audit staff presented this matter to CJFC representatives at the exit
conference and provided a workpaper that CJFC can use to identify which disbursements are
required to be itemized.


Part IV
Findings and Recommendations

| Finding 1. Disclosure of Receipts

Summary

CJFC failed to properly disclose 16% of contributions received from political action committees
(PACS), totaling $36,050. The majority of the errors resulted from reporting incorrect election
cycle-to-date totals and missing or incorrect contributor addresses. CJFC also failed to disclose
occupation and name of employer 44% of the time for itemized contributions from individuals.
CJFC complied with the Audit staff’s recommendation by filing amended reports to correct the
disclosure errors.

Legal Standard
When to Itemize. Authorized candidate committees must itemize:
e Any contribution from an individual if it exceeds $200 per election cycle either by itself
or when aggregated with other contributions from the same contributor; and
Every contribution from any political committee, regardless of the amount.
Every transfer from another political party committee, regardless of whether the
committees are affiliated. 2 U.S.C. §434(b)(3)(A), (B) and (D).

Required Information for Contributions. For each itemized contribution, the committee must
provide the following information:
e The contributor’s full name and address (including zip code);
The contributor’s occupation and the name of his or her employer (if individual);
The date of receipt (the date the committee received the contribution);
The amount of the contribution; and

The aggregate election-to-date total of all contributions from the same individual or
political committee. 11 CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A).

Election Cycle. The election cycle begins on the first day following the date of the previous
general election and ends on the date of the next general election. 11 CFR §100.3(b).

Best Efforts Ensures Compliance

When the treasurer of a political committee shows that the committee used best efforts (see
below) to obtain, maintain, and submit the information required by the Act, the committee’s
reports and records will be considered in compliance with the Act. 2 U.S.C. §432(h)(2)(i).

Definition of Best Efforts
The treasurer and the committee will be considered to have used “best efforts” if the committee

satisfied all of the following criteria:
e All written solicitations for contributions include:
o Acclear request for the contributor's full name, mailing address, occupation, and
name of employer; and



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Changes to the Law

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries

Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Disclosure of Receipts
Finding 2. Disclosure of Disbursements
Finding 3. Itemization of Disbursements
Finding 4. Misstatement of Financial Activity

Page

ONDA


Report of the Audit Division
on
Clay Jr. For Congress

January 1, 2001 - December 31, 2002



Report of the
Audit Division on

Clay Jr. For Congress
January 1, 2001 - December 31, 2002

Why the Audit

Was Done

Federal law permits the
Commission to conduct
audits and field
investigations of any
political committee that is
required to file reports
under the Federal
Election Campaign Act
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
requirements for
substantial compliance
with the Act.' The audit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requirements
of the Act.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

' 2 U.S.C. $438(b).

About the Committee (p. 2)

Clay Jr. For Congress (CJFC) is the principal campaign
committee for William Lacy Clay, Jr., Democratic candidate for
the U.S. House of Representatives from the state of Missouri,
First District. CJFC is headquartered in St. Louis, MO. For more
information, see chart on the Campaign Organization, p. 2.

Financial Activity (p. 2)
¢ Receipts

o From Individuals $ 125,501
o From Political Party Committees

and PACs 224,930
o Other Receipts 2,827
o Total Receipts $ 353,258

« Disbursements

o Operating Expenditures $ 279,666
o Other Disbursements 72,227
o Total Disbursements $ 351,893

Findings and Recommendations (p. 3)
Disclosure of Receipts (Finding 1)

Disclosure of Disbursements (Finding 2)
Itemization of Disbursements (Finding 3)
Misstatement of Financial Activity (Finding 4)


2002 Activity
Reported Bank Records Discrepancy
Disbursements $228,374 $241,576 $13,202
Understated
Ending Cash Balance $55,001 $48,282 $6,719
Overstated

Explanation of Discrepancies

Opening Cash Balance - 2001

The understatement of beginning cash on hand was the result of an unexplained misstatement of
ending cash at December 31, 2000 in the amount of $6,077.

Receipts — 2001
The understatement of receipts was the result of the following:

e Unreported receipts from Political Committees + 5,775
e Unreported receipts from Individuals and Interest Income + 1,110
e Unexplained difference + 90
¢ Understatement $ 6,975

Disbursements — 2001
The understatement of disbursements was the result of the following:

¢ Unreported disbursements +$ 1,350
e Unexplained difference + 1,810
¢ Understatement $ 3,160

Ending Cash Balance - 2001
The understatement of ending cash on hand in the amount of $9,894 was the result of the
misstatements described above.

Disbursements — 2002
The understatement of disbursements was the net result of the following:

e Unreported disbursements +$ 17,209
¢ Over reported disbursements - 6,900
e Unexplained difference + 2,893
¢ Net Understatement $ 13,202

Ending Cash Balance - 2002
The overstatement of ending cash on hand in the amount of $6,719 was the net result of the
misstatements described above, and a minor discrepancy in reported receipts.

During the exit conference the Audit staff provided CJFC representatives a workpaper detailing
the misstatements of financial activity.

Committee Response to Recommendation and Audit Staff's Assessment
CJFC complied with the Audit staff’s recommendation by filing amended reports for calendar
years 2001 and 2002 correcting the misstatements.