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FEDERAL ELECTION COMMISSION

WASHINCTON, D.C. 20463

REPORT OF THE AUDIT DIVISION

ONTRE

DNC SERVICES CORPORATION/DEMOCRATIC NATIONAL COMMIT'l'EE

I. Background

A. Overview

This report is based upon an audit of the DNC Services

Corporation/Democratic National Committee (Wthe CommitteeW) undertaken by the Audit Division of the Federal Election

Commission in accordance with the Commission's audit policy to

determine whether there has'been compliance with the provisions of the Federal Election Campaign Act of 1971, as amended (Wthe

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 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 committees to determine if the reports filed by a

particular committee meet the threshold requirements for substan~ia1 compliance with the Act.

The Committee registered with the Clerk of. the united

States House of Representatives on September 25, 1972, as an

affiliate of the Democratic National Committee. 11 The Committee'

maintains its headquarters in Washington, D.C.

The audit covered the period January 1, 1980, through December 31, 1980. The Committee reported a beginning cash

balance at January 1, 1980 of $192,.513.07; total receipts for the'

period of $11,204,365.05; total expenditures for the period of

$10,985,734.81; and an ending cash balance at December 31, 1980

of $411,143.41.' . . ..

This report is based.upon documents and working papers which support each of its factual statements. They form part of

the record upon which the Commiss;on based its decisions on the

matters in the 'report and were available to Commissioners and

appropriate staff for review. .

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!I The Committee operated as the e~enditure arm of the

national party prior to September 30, 1978 in concert

with the contribution committees: the Democratic National

Committee (DNC) and Democratic·Finance Committee (DFC). On September 30, 1978, the DNC and DFC merged into the

Committee.
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B. Key personnel

The Treasurer of the Committee for the period of t~e

audit was Peter G. Kelly., Por the period March 17, 1981 to the

pr.sent, the Treasurer is Mr. Charles E. Curry.

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.

II. Audit Findings and Recommendations

Use of Non-Segregated Account/prohibited Punds

on ~ehalf of Federal Candidates '

Section 102.5(a) (1) of Title 11 of the Code of Federal

Regulations states, in part, that a political party committee

which finances political activity in connection with both federal

and non-federal elections shall either: (i) Establish a separate federal account in a depository and such account shall be treated

as a separate federal politic.l committee which shall comply with

the requirements of the Act, or (ii) Establish a political committee which shall receive only contributions subject to the

prohibitions and limitations of the Act, regardless of whether

such contributions are for use in connection with federal or nonfederal elections.

Section 44lb(a) of Title 2 of the United States Code

states, in part, that it is unlawful for any corporation to make

a contribution or expenditure in connection with any election to

any political office, or in connection with any primary election

or political convention or caucus held to select candidates for

political office.

The Committee made transfers totaling $41,500.00 from

its federal accounts, and $57,000.00 from a non-federal account

established to receive funds from corporate sources, to an

account in New Jersey. The Committee also transferred $25,000.00

from its federal accounts, and $75,000.00 from a non-federal

account established to receive funds from union sources, to an

account in Illinois. The Committee stated that these transfers

were used to fund voter registration and get-out-the-vote activities in the respective states.
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The Committee reported a percentage of the activity in

each account as federal activity. The percentages were

apparently determined baled on the ratio of federal money depolited to the account as a percentage of the total amount

depo.ited (approximately 42. reported in New Jersey and 26. in

Illinois).

Further review of the disburlements made from the

Illinois account revealed that of the total disburled from thil

account ($98,110.85) $61,321.82 wal either included on invoices

which were addressed to the Carter Mondale Re~election Committee,

Inc., or itemized on that committee's stationery and therefore

apparently expended on behalf of the Carter Mondale Re-election

Committee, Inc. As a result, the amount of the disbursements in

excess of $25,000.00 (the amount of funding from permissible

sources) or $36,321.82 were'apparently paid with prohibited funds.

In addition, if the remaining expenditures of

$36,789.03 ($98,110.85 - $61,321.82) in the Illinois ~ccount and

the entire amount of ,funds expended from the New Jersey account

were for voter registration and get-out-the-vote activities, it

would be our opinion that a portion of these expenses should also

have been allocated between federal and non-federal activities.

During the course of the audit, Committee ofticials . stated that these accounts were transmittal accounts which were

established to receive predetermined amounts for federal and nonfederal activities. Expenditures from these accounts were to be

made in direct proportion to the amount of federal and nonfederal, funds deposited.

In response to the interim audit report at the end of

the response period, December 9"l982, the Committee submitted

additional, more. specific explanation of the Illinois and New

Jersey account arrangements, new documentation in support of

allocation of expenses, and an affidavit concerning expenditures made in New J~r~ey. From our review of the additional

documentation and allocation formula used by'the Committee, we

believe that the original allocations of federal funds to

Illinois and New Jersey were made on a reasonable basis.

On December 20, 1982, the committ~~ submitted an

affidavit from a volunteer who worked with other Committee

personnel to coordinate activities in. Illinor,. The affidavit

states that the only expenditures made by thi~ volunteer staff

member, materially all of the Illino~s expenditures, were in

connection with the Illinois GOTV program or other ticket-wide or

party-wide activities. And, expenditures billed to the Carter

Mondale Re-election Committee, Inc., were done so as a result of

mistakes by the vendors.
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After consideration of the affidavit arid detail

explanation provided by the Committee, the Audit staff believes

that the Illinois activity was apparently not made on behalf .of

the presidential candidate. Although the Committee did not

provide samples of printed material, etc., the Committee did

state that in the worst case situation a total of $1,385.71 could

be allocable to the 441a(d) limit. The Audit staff's review

revealed that this amount should be $1,738.84.

Given that apparently only $1,738.84 could have been

expended on behalf of the Carter Mondale Re-election Committee,

Inc., the Committee's use of a single account to finance both

44la(d) and GOTV activity is not felt to be material.

Recommendation

The Audit staff recommends no further action on this matter.·

B. Settlement of Debts

Section l14.10(c) of Title 11 of the Code of Federal

Regulations states, in part, that the debtor mtist file a

statement of settlement with the Commission including the initial

terms of credit, the steps the debtor has taken to satisfy the

debt, and remediep pursued by the creditor. This statement must

be filed prior to the termination of the reporting status of the

debtor.

As a result of the Audit staff's review of the

Committee's debts and obligations, it was determined that the

Committee settled five (5) debts thereby reducing the Committee's

obligations by $139,682.73. One debt settled by the amount of

$102,494.30, which represented a loan made prior to 1975 from an

individual, was adequately' reported as a contribution after

settlement. However, the Committee had not filed debt settlement

statements with the Commission for any of the remaining four (4) settlements.

, . In response to the interim audit report, the Committee

stated that one (1) debt in the amount of $3,665.95 was

mistakenly listed on two (2) accounts payable vouchers. Another

debt in the amount of $5,042.00 from a partnership was converted

to an in-kind contribution. According to the Committee, debt

settlement statements were inadvertently not filed for the

remaining two (2) debts totaling $28,480.48 (amount original debt

was reduced) but will be submitted to the Commission forthwith.