17

expenses included vehicle repair service, satellite radio fees, and fees for custom license
plates.

In following the advisory opinion (AO 2001-3) requested by MFC and pursuant to 11
CFR §113.1(g)(ii)(D), the Audit staff maintains MFC was required to keep a mileage log
or some other record to document the use of vehicles for campaign and non-campaign
activities. Absent such documentation, the Audit staff considers all expenses associated
with these vehicles that were used for personal activities beyond a de minimis amount to
be personal use, including lease payments, and expenses for repairs and maintenance.

C. Personal Use — Miscellaneous Expenses

The Audit staff also identified personal expenses totaling $916 that were purchased with
an MFC credit card. According to the credit card statements, these charges were each
under $200 and made by the Candidate or his spouse. The charges included an airline
ticket, lodging, clothing, and cell phone accessories.

The Audit staff presented these matters to the treasurer during the exit conference along
with a schedule of those transactions noted above. The treasurer stated that MFC would
provide further documentation on this matter.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended MFC provide evidence that the $20,650 ($6,230 + $7,444
+ $6,060 + $916) in disbursements described above were for campaign or officeholder
expenses and not for the Candidate’s personal use. Absent such evidence, it was
recommended that the Candidate reimburse MFC for any personal expenses.

In response, MFC concurred with the Audit staff that the payments to the personal trainer
of $6,230 and the miscellaneous credit card expenses of $916 were for the Candidate’s
personal use.

Regarding the use of vehicles, the treasurer clarified that the Candidate had use of one
vehicle in Washington and another vehicle in his congressional district during the period
covered by the audit. According to the treasurer, the vehicle located in Washington was
used less than 3,000 miles per year. The vehicle was used 95% of the time for campaign
purposes and 5% of the time for personal activities. In addition, the treasurer explained
that the vehicle was titled in New York to maintain the identity of the Candidate’s home
state and in the Candidate’s name because the insurance company would not insure the
vehicle in the name of the committee. The treasurer stated that personal use of this
vehicle was de minimis and that a mileage log was not maintained due to the infrequent
use of the vehicle.

In addition, the treasurer indicated that some maintenance and repair expenses for this
vehicle were paid with the MFC credit card. The Audit staff determined that $3,692 of
the $6,060 in vehicle expenses charged on the MFC credit card were with vendors in
Washington and therefore could be reasonably associated with this vehicle. The
remaining $2,368 in vehicle expenses were associated with the vehicle maintained in the
Candidate’s congressional district and considered personal expenses of the Candidate.



11

| Finding 4. Disclosure of Occupation/Name of Employer |

Summary

MEC did not adequately disclose occupation and/or name of employer for 24% of
contributions from individuals itemized on its disclosure reports. Furthermore, there was
no evidence that “best efforts” to obtain, maintain, and submit the information for these
individuals had been exercised. In response to the interim audit report recommendation,
MFC was able to demonstrate that “best efforts” had been exercised for the missing
information.

Legal Standard
A. Recordkeeping Requirements for Receipts. Political committees must keep
records of:
e All contributions received by or on behalf of the committee;
e The name and address of any person who makes a contribution in excess of $50,
together with the date and amount of the contribution; and
¢ The occupation and name of employer of any individual whose contributions
aggregate more than $200 during a calendar year, together with the date and
amount of any such contributions. 2 U.S.C. §432(c).

B. Preserving Documents. Committees must preserve these records for 3 years after a
report is filed. 2 U.S.C. §432(d).

C. 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)().

D. Definition of Best Efforts. The treasurer and the committee will be considered to
have used “best efforts” with respect to contributions if the committee satisfied all of the
following criteria:

e All written solicitations for contributions included:

o Aclear request for the contributor's full name, mailing address, occupation,
and name of employer; and
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.

e 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
Available solicitations indicate MFC requested disclosure information from contributors

initially and had made follow up requests to some contributors. However, MFC failed to



Part II
Overview of Campaign

Campaign Organization

Important Dates

Meeks for Congress

e Date of Registration

August 20, 1997

e Audit Coverage

January 1, 2003 — December 31, 2004

Headquarters

Springfield Garden, New York

Bank Information

e Bank Depositories

One

e Bank Accounts

One Checking Account

Treasurer

e Treasurer When Audit Was Conducted

Ms. Joan E. Flowers

e Treasurer During Period Covered by Audit

Ms. Joan E. Flowers

Management Information

e Attended FEC Campaign Finance Seminar __| Yes

¢ Used Commonly Available Campaign Yes
Management Software Package

¢ Who Handled Accounting, Recordkeeping | Volunteer

Tasks and Other Day-to-Day Operations

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ January 1, 2003 $ 113,357
Receipts
o Contributions from Individuals $332,565
o Contributions from Other Political Committees 373,470
o Offsets to Operating Expenditures 474
Total Receipts $ 706,509
Disbursements
o Operating Expenditures $596,457
o Other Disbursements 35,455
Total Disbursements $ 604,912
Cash on hand @ December 31, 2004 $ 214,954



18

Regarding the vehicles located in the congressional district, the treasurer confirmed that
two vehicles were leased at different times during the period covered by the audit. The
treasurer stated that lease payments and insurance for these vehicles were divided equally
between the campaign and the Candidate’s personal funds. According to the treasurer,
this payment arrangement demonstrated the actual usage of the vehicles. In addition, the
treasurer stated these vehicles were leased and registered in the name of the Candidate.
Since MFC did not provide mileage logs to substantiate the use of either vehicle or other
records to indicate that the expenses resulted from campaign or officeholder activities,
the Audit staff maintains that the portion of the lease payments paid by MFC totaling
$7,444 are personal expenses of the Candidate. Therefore, expenses totaling $9,812
($7,444 + $2,368) were associated with the vehicles located in the Candidate’s
congressional district and considered personal expenses of the Candidate.

In summary, the Audit staff concludes that MFC funds were used to pay a total of
$16,958 ($6,230 + $7,444 + $2,368 + $916) in personal expenses of the Candidate.

| Finding 9. Failure to File Form 3Z-1

Summary

MFC did not file a Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with either its 2003 July Quarterly Report or 2003 Year End Report. In
response to the interim audit report recommendation, MFC indicated that the non-filing
may have been due to their assumption that filing software would generate the form
automatically. MFC also filed amended reports to include Form 3Z-1.

Legal Standard

Special Reporting Requirements. Principal campaign committees of candidates for the
U.S. House and the U.S. Senate must file FEC Form 3Z-1 as part of their July Quarterly
and Year-End Reports in the year preceding the year in which the general election for the
office sought is held. The information in this form allows opposing candidates to
compute their “gross receipts advantage” used to determining whether a candidate is
entitled to an increased contribution limit. The following information is to be disclosed:

1. Gross receipts to date for the primary and general elections,

2. Aggregate amount of contributions from personal funds of the candidate for the
primary and general elections, and,

3. A calculation of gross receipts less the candidate’s personal contributions for each
election. 11 CFR §104.19.

Facts and Analysis
The Audit staff reviewed all filings by MFC and noted that it did not provide a Form 3Z-
1 with its 2003 July 15" Quarterly Report and with its 2003 Year-End Report.

5 This regulation became effective January 27, 2003; as such, this election cycle was the first that required
filing of this form.


15

B. Itemizing Debts and Obligations.

A debt of $500 or less must be reported once it has been outstanding 60 days from
the date incurred (the date of the transaction); the committee reports it on the next
regularly scheduled report.

¢ A debt exceeding $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

The Audit staff tested all MFC disbursements that had associated records to substantiate
the incurrence date for the goods and services provided. From this review, the Audit staff
identified debts totaling $28,791 to 19 vendors that were not reported on Schedules D.

Of this amount, debts totaling $1,147 remained outstanding at the end of the audit period.
In determining the total for debts not reported, each debt was counted only once even if it
was outstanding for several reporting period.

The Audit staff presented this matter to the treasurer during the exit conference along
with a schedule of debts and obligations requiring disclosure. The treasurer stated that
MFC would amend its reports to disclose the correct amount of debt for each report.

Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that MFC amend its reports to disclose these debts.
In response, MFC filed amended reports to correctly disclose these debts.

| Finding 8. Personal Use of Campaign Funds

Summary

MFC used $20,650 of campaign funds to pay for what appeared to be personal expenses
of the Candidate, including payments to a personal trainer and for vehicle leases, repairs
and maintenance. The Audit staff recommended that MFC provide evidence that the
payments were for campaign or officeholder expenses and not for the Candidate’s
personal use. Absent such evidence, it was recommended that MFC seek reimbursement
from the Candidate for any personal expenses. In response, MFC acknowledged
expenses totaling $7,146 were mistakenly paid by MFC and would be reimbursed by the
Candidate. In addition, MFC demonstrated that $3,692 of vehicle expenses were related
to a vehicle used predominately for campaign or officeholder purposes. Therefore, the
Audit staff maintains that $16,958 ($20,650 - $3,692) of campaign funds were used to
pay for personal expenses.

Legal Standard
A. Use of Campaign Funds. Using campaign funds for personal use is prohibited. 2

U.S.C. §439a(b)(1).

B. Personal Use Defined. Personal use is defined as any use of funds in a campaign
account of a present or former candidate to fulfill a commitment, obligation, or expense



The Audit staff presented this matter to MFC’s treasurer during the exit conference along
with schedules detailing the discrepancies. The treasurer stated that MFC would amend
its reports to correct the misstatement.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended MFC file amended reports to correct the misstatements.
In response, MFC amended its reports but failed to correct the misstatements in 2004.
The Audit staff provided MFC with schedules to assist in correctly amending its reports.
MFC indicated that more amendments were forthcoming to bring their reports into
compliance. To date, no additional amendments for these reporting periods have been
received.

| Finding 2. Receipt of Contributions That Exceed Limits

Summary

MFC received contributions from individuals, totaling $22,900 in excess of their primary
election limit and disclosed them as general election contributions. MFC did not inform
the contributors of the redesignations and offer them refunds. The Audit staff
recommended that MFC submit documentation to show that the contributions were not
excessive or refund the contributions. In response, MFC provided a copy of a recent
affidavit from the fundraiser that states contributors were verbally informed of how their
contributions were to be designated. Since MFC did not refund or inform the contributor
of their redesignation in writing and within 60 days of receipt of the contribution, the
Audit staff maintains these contributions are excessive.

Legal Standard

A. Authorized Committee Limits. An authorized committee may not receive more
than a total of $2,000 per election from any one person. 2 U.S.C. §441a(a)(1)(A); 11
CFR §§110.1(a) and (b).

B. Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:

e Return the questionable check to the donor; or

¢ Deposit the check into its federal account and:

o Keep enough money in the account to cover all potential refunds;

o Keep a written record explaining why the contribution may be illegal;

o Include this explanation on Schedule A if the contribution has to be
itemized before its legality is established;

o Seek a reattribution or a redesignation of the excessive portion, following
the instructions provided in the Commission regulations (see below for
explanations of reattribution and redesignation); and

o If the committee does not receive a proper reattribution or redesignation
within 60 days after receiving the excessive contribution, refund the
excessive portion to the donor. 11 CFR §§103.3(b)(3), (4) and (5) and
110.1(k)(3)@i)(B).


Finding 5. Recordkeeping for Disbursements

A sample review of operating expenditures indicated that 28% of expenditures were not
properly documented. Further, a review of contributions made to other political
committees indicated that 4 transactions totaling $3,850 were also not properly
documented. The Audit staff recommended that MFC obtain and provide the missing
records for disbursements. In response, MFC indicated that efforts were being taken to
contact the bank and payees to obtain missing records. To date, none of the missing
documentation has been provided to the Audit staff. (For more detail, see p. 12)

Finding 6. Disclosure of Operating Expenditures

A sample review of operating expenditures itemized on Schedules B (Itemized
Disbursements) revealed that 14% of the transactions lacked or inadequately disclosed
required information. In addition, a 100% review of payments to a credit card company
revealed that charges to vendors aggregating in excess of $200 were not properly
disclosed as memo entries on Schedules B of the disclosure reports. In response to the
interim audit report recommendation, MFC filed amended reports to correctly disclose
the information. (For more detail, see p. 13)

Finding 7. Failure to Properly Disclose Outstanding Debts
MFC failed to report debts on Schedules D (Debts and Obligations) owed to 19 different
vendors in the amount of $28,791. In response to the interim audit report
recommendation, MFC filed amended reports to disclose these debts.

(For more detail, see p. 14)

Finding 8. Personal Use of Campaign Funds

MEC used $20,650 of campaign funds to pay for what appeared to be personal expenses
of the Candidate, including payments to a personal trainer and for vehicle leases, repairs
and maintenance. The Audit staff recommended that MFC provide evidence that the
payments were for campaign or officeholder expenses and not for the Candidate’s
personal use. Absent such evidence, it was recommended that MFC seek reimbursement
from the Candidate for any personal expenses. In response, MFC acknowledged
expenses totaling $7,146 were mistakenly paid by MFC and would be reimbursed by the
Candidate. In addition, MFC demonstrated that $3,692 of vehicle expenses were related
to a vehicle used predominately for campaign or officeholder purposes. Therefore, the
Audit staff maintains that $16,958 ($20,650 - $3,692) of campaign funds were used to
pay for personal expenses. (For more detail, see p. 15)

Finding 9. Inadequate Disclosure - Form 3Z-1

MEC did not file a Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with either its 2003 July Quarterly Report or 2003 Year End Report. In
response to the interim audit report recommendation, MFC indicated that the non-filing
may have been due to their assumption that filing software would generate the form
automatically. MFC also filed amended reports to include Form 3Z-1.

(For more detail, see p. 18)


Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

A comparison of MFC’s reported activity to bank records revealed a misstatement of
cash on hand, receipts and disbursements in years 2003 and 2004. In response to the
interim audit report recommendation, MFC filed amended reports but failed to correct the
misstatements in 2004. (For more detail, see p. 5)

Finding 2. Receipt of Contributions that Exceed Limits
MFC received contributions from individuals, totaling $22,900 in excess of their primary
election limit and disclosed them as general election contributions. MFC did not inform
the contributors of the redesignations and offer them refunds. The Audit staff
recommended that MFC submit documentation to show that the contributions are not
excessive or refund the contributions. In response, MFC provided a copy of a recent
affidavit from the fundraiser that states contributors were verbally informed of how their
contributions were to be designated. Since MFC did not refund or inform the contributor
of their redesignation in writing and within 60 days of receipt of the contribution, the
Audit staff maintains these contributions are excessive. (For more detail, see p. 7)

Finding 3. Receipt of Apparent Prohibited Contributions
MFC received contributions totaling $7,070 from corporations and limited liability
companies (LLC). Contributions from corporations and from LLCs that elect to be
treated as corporations under IRS rules are prohibited. The Audit staff recommended that
MFC provide documentation demonstrating that the contributions are not prohibited or
refund the contributions to the contributors. In response, MFC provided copies of letters
recently sent to some of these contributors to confirm the legality of their contribution.
To date, none of these confirmations have been returned nor have the contributions been
refunded; therefore, the Audit staff maintains these contributions are prohibited. (For
more detail, see p. 9)

Finding 4. Disclosure of Occupation/Name of Employer
MFC did not adequately disclose occupation and/or name of employer for 24% of
contributions from individuals itemized on its disclosure reports. Furthermore, there was
no evidence that “best efforts” to obtain, maintain, and submit the information for these
individuals had been exercised. In response to the interim audit report recommendation,
MFC was able to demonstrate that “best efforts” had been exercised for the missing
information. (For more detail, see p. 11)


16

of any person that would exist irrespective of the candidate’s campaign or duties as a
Federal officeholder. Personal use includes but is not limited to the use of funds in a
campaign account for household food items or supplies and clothing beyond a de minimis
value.

The Commission will determine on a case-by-case basis whether certain uses of funds in
a campaign account are personal use. Examples of such uses includes travel expenses
associated with both personal and campaign or officeholder activities and expenses
associated with a vehicle that is used for both personal activities beyond a de minimis
amount and campaign or officeholder activities. 11 CFR §113.1(g)(1)(i) and (g)(1)(ii).

C. AO 2001 - 3. MFC requested an advisory opinion dealing with the use of campaign

funds to purchase a vehicle. The request proposed that:

e MFC purchase a vehicle which would be used 95% for the campaign and 5% for
personal use.

¢ The vehicle would be titled to MFC and registered in the state of Maryland.

e Campaign funds would be used to pay insurance.

e The Candidate would reimburse MFC for personal use at $.325 per mile.

The Commission ruled that this proposal was permissible under the Act and Regulations
but their opinion was limited to the circumstances presented where the personal use of the
vehicle was de minimis. The Commission stated that to document the campaign and non-
campaign use of the vehicle, a mileage log that was updated with each use of the car
would satisfy recordkeeping requirements.

Facts and Analysis

A. Personal Use - Personal Trainer

MFC used campaign funds totaling $6,230 to pay for a personal trainer for the Candidate.
The trainer’s fee was $45 per one hour session. The treasurer stated that the personal
trainer was necessary to alleviate stress brought on by the Candidate’s duties.

B. Personal Use - Car

In October 2001, the Candidate leased a vehicle. According to the lease agreement, the
monthly payments were $521. From January 2003 to October 2004, MFC made monthly
lease payments of $285 and one final payment of $891 in December 2004, for a total of
$7,161. The treasurer stated that MFC and the Candidate each paid 50% of the monthly
payment.> When the lease expired, the Candidate returned the vehicle and leased another
vehicle in December 2004 for which MFC made a payment of $283 representing 50% of
the payment for the first month‘, In summary, MFC made vehicle lease payments
totaling $7,444 ($7,161 + $283) during the period covered by the audit.

In addition to vehicle lease payments, MFC paid for vehicle expenses totaling $6,060
with an MFC credit card. According to MFC credit card billing statements, these

3 MFC payments of $283 actually represents approximately 55% of the monthly vehicle lease.
* According to reported activity through the 2006 July Quarterly Report, MFC has continued making lease
payments on this vehicle totaling $5,054.


The understatement of receipts was the result of the following:

¢ Contributions from Individuals Not Reported + $14,580
¢ Contributions from Political Committees Not Reported + 20,441
¢ Offset to Operating Expenditure Not Reported + 474
e Understatement of Receipts $35,495
The net understatement of disbursements was the result of the following:
e Operating Expenditures Not Reported + $22,960
¢ Operating Expenditures Reported Twice - 405
¢ Voided Operating Expenditures Reported - 1,250
¢ Net Understatement of Disbursements $21,305
2004 Activity
Reported Bank Records Discrepancy
Beginning Cash Balance $179,222 $179,174 $48
@ January 1, 2004 Overstated
Receipts $263,060 $374,002 $110,942
Understated
Disbursements $291,706 $338,221 $46,515
Understated
Closing Cash Balance $150,576 $214,955 $64,379
@ December 31, 2004 Understated
The net understatement of receipts was the result of the following:
¢ Contributions from Individuals Not Reported (Net) + $46,445
© Contributions from Political Committees Not Reported (Net) + 69,127
¢ Unexplained Differences - 4,630
e Net Understatement of Receipts $110,942
The net understatement of disbursements was the result of the following:
© Operating Expenditures Not Reported + $52,963
© Other Disbursements Reported in Error - 1,000
¢ Operating Expenditures Reported Twice - 5,000
¢ Math Discrepancies : 448
¢ Net Understatement of Disbursements $46,515
Closing Cash on Hand:

MFC misstated the cash balances throughout 2003 and 2004 because of the errors
described above. On December 31, 2004, the cash balance was understated by $64,379.


FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463

August 24, 2006

MEMORANDUM

TO: ROBERT W. BIERSACK
PRESS OFFICER
PRESS OFFICE

fh
FROM: JOSEPH F. STOLTZ /
ASSISTANT STAFF, ICTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON
MEEKS FOR CONGRESS COMMITTEE

Attached please find a copy of the audit report on the Meeks for Congress
Committee which was approved by the Commission on August 17, 2006.

All parties involved have received informational copies of the report 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
Web Manager SY


| Finding 3. Receipt of Apparent Prohibited Contributions

Summary

MEC received contributions totaling $7,070 from corporations and limited liability
companies (LLC). Contributions from corporations and from LLCs that elect to be
treated as corporations under IRS rules are prohibited. The Audit staff recommended that
MFC provide documentation demonstrating that the contributions were not prohibited or
refund the contributions to the contributors. In response, MFC provided copies of letters
recently sent to some of these contributors to confirm the legality of their contribution.
To date, none of these confirmations have been returned nor have the contributions been
refunded; therefore, the Audit staff maintains these contributions are prohibited.

Legal Standard

A. Receipt of Prohibited Contributions - General Prohibition. Candidates and
committees may not accept contributions (in the form of money, in-kind contributions or
loans) from the treasury funds of corporations (this means any incorporated organization,
including a non-stock corporation, an incorporated membership organization, and an
incorporated cooperative. 2 U.S.C. §441b(a).

B. Definition of Limited Liability Company. A limited liability company (LLC) is a
business entity recognized as an LLC under the laws of the state in which it was
established. 11 CFR §110.1(g)(1).

C. Application of Limits and Prohibitions to LLC Contributions. A contribution
from an LLC is subject to contribution limits and prohibitions, depending on several
factors, as explained below.

e LLC as Partnership. The contribution is considered a contribution from a partnership
if the LLC chooses to be treated as a partnership under the Internal Revenue Service
(IRS) tax rules, or if it makes no choice at all about its tax status. A contribution by a
partnership is attributed to both the partnerships and to the partners. 11 CFR
§110.1(e)(1) and (g)(2).

e LLC as Corporation. The contribution is considered a corporate contribution, and is
barred under the Act, if the LLC chooses to be treated as a corporation under IRS rules,
or if its shares are publicly traded. 11 CFR §110.1(g)(3).

e@ LLC with Single Member. The contribution is considered a contribution from a
single individual if the LLC is a single-member LLC that has not chosen to be treated
as a corporation under IRS rules. 11 CFR §110.1(g)(4).

e Limited Liability Company’s Responsibility to Notify Recipient Committee. At
the time it makes a contribution, an LLC must notify the recipient committee:
o. That it is eligible to make the contribution; and
o Inthe case of an LLC that considers itself a partnership (for tax purposes), how
the contribution should be attributed among its members. 11 CFR §110.1(g)(5).



C. Presumptive Redesignation of Excessive Contributions: When an authorized
political committee receives an excessive contribution from an individual or a non-multi-
candidate committee, the committee may presumptively redesignate the excessive portion
to the general election if the contribution:

¢ Is made before that candidate’s primary election;

«Is not designated in writing for a particular election;

* Would be excessive if treated as a primary election contribution; and

¢ As redesignated, does not cause the contributor to exceed any other contribution

limit.

The committee is required to notify the contributors in writing of the redesignation within
60 days of the treasurer’s receipt of the contribution, and must offer the contributor the
option to receive a refund instead. For this action to be valid, the committee must retain
copies of the notices sent as required. Presumptive redesignations apply only within the
same election cycle. 11 CFR §110.1(b)(5)(i)(B) & (C) and (1)(4)qi).

Facts and Analysis

MFC accepted contributions from 16 individuals that exceeded their primary election
limits by $22,990. The contribution checks were received before the primary election
and were not designated by the contributors; however, MFC redesignated the excess
portions to the general election. Evidence that MFC sought and received signed
redesignation letters was not provided nor was evidence provided that the contributors
were notified that their contributions were presumptively redesignated and offered a
refund. It should be noted that MFC maintained a sufficient balance in its bank account
to refund the excessive contributions.

The Audit staff presented this matter to MFC’s treasurer during the exit conference along
with a schedule of possible excessive contributions. The treasurer stated that she would
search her files and provide the Audit staff with any redesignation letters that were
available.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that MFC provide evidence that the contributions were not
excessive or were timely redesignated or refunded. In response, MFC provided a copy of
an affidavit from the fundraiser for the contributions in which it stated that contributors
were informed verbally of how their contributions would be designated. In accordance
with 11 CFR §110.1(b)(5)(ii)(B), MFC was required to inform contributors of the
redesignation in writing within 60 days of receipt of the contribution and retain a record
of such efforts. Therefore, the Audit staff maintains MFC accepted contributions from
these individuals that exceeded the limits.


Part IV
Findings and Recommendations

| Finding 1. Misstatement of Financial Activity

Summary

A comparison of MFC’s reported activity to bank records revealed a misstatement of
cash on hand, receipts and disbursements in years 2003 and 2004. In response to the
interim audit report recommendation, MFC filed amended reports but failed to correct the
misstatements in 2004.

Legal Standard

Contents of Reports. Each report must disclose:

e 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;

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

¢ Certain transactions that require itemization on Schedule A (Itemized Receipts) or
Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(1), (2), (3), and (4).

Facts and Analysis
The Audit staff reconciled MFC’s reported financial activity to its bank records for 2003
and 2004. The following charts outline the discrepancies.

2003 Activity
Reported Bank Records Discrepancy
Beginning Cash Balance $127,596 $113,357 $14,239
@ January 1, 2003 Overstated
Receipts $297,012 $332,507 $35,495
Understated
Disbursements $245,386 $266,691 $21,305
Understated
Closing Cash Balance $179,222 $179,174 $48
@ December 31, 2003 Overstated

Beginning Cash Balance — 2003
The overstatement of beginning cash on hand in the amount of $14,239 was the result of
prior period transactions.


19

Using the electronic data provided by MFC, the Audit staff determined gross receipts for
the primary of $115,700, and for the general of $6,000, that should have been disclosed
on the Form and included with its 2003 July 15" Quarterly report. There were no
personal contributions by the Candidate.

For the 2003 Year-End Report, the Form 3Z-1 should have disclosed gross receipts for
the primary of $319,058 and for the general of $14,500. Again, there were no personal
contributions by the Candidate.

The Audit staff discussed this matter with the MFC at the exit conference. The treasurer
stated that amendments would be filed to include Form 3Z-1.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that MFC demonstrate that Form 3Z-1 was filed correctly
or provide any comments it may have relative to this matter. In response, MFC indicated
the non-filing may have been due to their assumption that their filing software would
generate the form automatically. MFC also filed amended reports to include Form 3Z-1.


Part I
Background

Authority for Audit

This report is based on an audit of Meeks for Congress (MFC), 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
teport 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

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.

NAYMRYNS

Inventory of Records

At the beginning of audit fieldwork, the auditors conducted an inventory of MFC records
to determine whether they were materially complete and in an auditable state. The Audit
staff determined that records were incomplete for 23% of the dollar amount of receipts.
At the time, disbursement testing also revealed a significant number of disbursements for
which documentation such as a canceled check or invoice was not available. As a result,
audit fieldwork was suspended and MFC was allowed 30 days to obtain the records.
Fieldwork resumed after the expiration of the 30-day period and further testing results
indicated that recordkeeping for receipts was substantially complete; however, a
significant number of disbursements were still not documented. See Finding 5.


12

disclose occupation and/or employer or provide evidence that “best efforts” to obtain and
submit the information had been exercised for 24% of itemized contributions for
individuals.

The Audit staff presented this matter to the treasurer during the exit conference. She
stated that MFC would provide letters showing its attempts to get the name of employer
and occupation information from each individual.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended MFC provide evidence that it exercised “best efforts” to
obtain and disclose the missing contributor information or contact the contributors and
disclose any information received. In response, MFC provided additional copies of
letters dated within 30 days of the contributions that were apparently sent to contributors
to obtain the missing information. As a result, the Audit staff determined that MFC
exercised “best efforts” for the missing information.

| Finding 5. Recordkeeping for Disbursements

Summary

A sample review of operating expenditures indicated that 28% of expenditures were not
properly documented. Further, a review of contributions made to other political
committees indicated that 4 transactions totaling $3,850 were also not properly
documented. The Audit staff recommended that MFC obtain and provide the missing
records for disbursements. In response, MFC indicated that efforts were being taken to
contact the bank and payees to obtain missing records. To date, none of the missing
documentation has been provided to the Audit staff.

Legal Standard
A. Required Records for Disbursements. For each disbursement, the treasurer of a
political committee must keep records on the:

e Amount;

e Date;

e Name and address of the payee;

e Purpose (a brief description of why the disbursement was made); and

e If the disbursement was made on behalf of a candidate, the candidate’s name and

the office sought by the candidate.

e If the disbursement was in excess of $200, the records must include a receipt or
invoice from the payee, or a cancelled check or share draft to the payee. If the
disbursement was by credit card, the record must include the monthly statement
or customer receipt and the cancelled check used to pay the credit card bill. 2
U.S.C. §432(c)(5) and 11 CFR §102.9(b).

B. Preserving Records and Copies of Reports. The treasurer of a political committee
must preserve all records and copies of reports for 3 years after the report is filed. 2
U.S.C. §432(d).


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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. 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 explained above. 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 also 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.

Facts and Analysis

A sample review of operating expenditures resulted in a 14% error rate for disclosure
information. Most of these errors were due to not reporting a purpose or the complete
vendor address for the disbursement.

In addition, MFC made payments for credit card charges to American Express totaling
$99,246. Of this amount, credit card charges totaling $86,066 required disclosure as
memo entries to the original vendor on Schedules B. However, MFC did not disclose
memo entries totaling $82,021.

The Audit staff presented this matter to the treasurer. The treasurer did not explain the
reason for the omissions but stated that MFC would amend its reports to properly disclose
operating expenditures and the memo entries for credit card charges on Schedules B.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that MFC amend its reports to correctly disclose operating
expenditures and memo entries associated with credit card payments. In response, MFC
filed amended reports to correctly disclose the information.

| Finding 7. Failure to Properly Disclose Outstanding Debts |

Summary

MFC failed to report debts on Schedules D (Debts and Obligations) owed to 19 different
vendors in the amount of $28,791. In response to the interim audit report
recommendation, MFC filed amended reports to disclose these debts.

Legal Standard

A. Continuous Reporting Required. A political committee must disclose the amount
and nature of outstanding debts and obligations until those debts are extinguished. 2
U.S.C §434(b)(8) and 11 CFR §§104.3(d) and 104.11(a).


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Inventory of Records

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

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Misstatement of Financial Activity
Finding 2. Receipt of Contributions That Exceed Limits
Finding 3. Receipt of Apparent Prohibited Contributions
Finding 4. Disclosure of Occupation/Name of Employer
Finding 5. Recordkeeping for Disbursements
Finding 6. Disclosure of Operating Expenditures
Finding 7. Failure to Properly Disclose Outstanding Debts
Finding 8. Personal Use of Campaign Funds
Finding 9. Failure to File Form 3Z-1

Page

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12
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15
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Report of the
Audit Division on

Meeks for Congress
January 1, 2003 - December 31, 2004

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 Campaign (p. 2)

Meeks for Congress (MFC) is the principle campaign committee
for Gregory Meeks, Democratic candidate for the U.S. House of
Representatives from the state of New York, 6" District. MFC
maintains its headquarters in Springfield Garden, New York. For
more information see the Campaign Organization Chart, p. 2.

Financial Activity (p. 2)
e Receipts

o Contributions from Individuals $ 332,565
o Contributions from Political

Committees 373,470
o Offsets to Expenditures 474
o Total Receipts $ 706,509

« Disbursements

o Operating Expenditures $ 569,457
o Other Disbursements 35,455
o Total Disbursements $ 604,912

Findings and Recommendations (p. 3)
Misstatement of Financial Activity? (Finding 1)

Receipt of Contributions That Exceed Limits (Finding 2)
Receipt of Apparent Prohibited Contributions (Finding 3)
Disclosure of Occupation/Name of Employer’ (Finding 4)
Recordkeeping for Disbursements (Finding 5)

Disclosure of Operating Expenditures” (Finding 6)

Failure to Properly Disclose Outstanding Debts (Finding 7)
Personal Use of Campaign Funds (Finding 8)

Inadequate Disclosure - Form 3Z-1 (Finding 9)

2 The audit of MFC for the 1999-2000 election cycle contained a similar finding.


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D. Questionable Contributions. If a committee receives a contribution that appears to
be prohibited (a questionable contribution), it must follow the procedures below;

1. Within 10 days after the treasurer receives the questionable contribution, the
committee must either:

Return the contribution to the contributor without depositing it; or
© Deposit the contribution (and follow the steps below). 11 CFR §103.3(b)(1).

2. If the committee deposits the questionable contribution, it may not spend the
funds and must be prepared to refund them. It must therefore maintain sufficient
funds to make refunds or establish a separate account in a campaign depository
for possible illegal contributions. 11 CFR §103.3(b)(4).

3. The committee must keep a written record explaining why the contribution may
be prohibited and must include this information when reporting the receipt of the
contribution. 11 CFR §103.3(b)(5).

4. Within 30 days of the treasurer’s receipt of the questionable contribution, the
committee must make at least one written or oral request for evidence that the
contribution is legal. Evidence of legality includes, for example, a written
statement from the contributor explaining why the contribution is legal or an oral
explanation that is recorded by the committee in a memorandum. 11 CFR
§103.3(b)(1).

5. Within these 30 days, the committee must either:

© Confirm the legality of the contribution: or
¢ Refund the contribution to the contributor and note the refund on the report
covering the period in which the refund was made. 11 CFR §103.3(b)(1).

Facts and Analysis

MFC accepted 13 contributions totaling $7,070 from apparent prohibited sources. Eight
contributions, totaling $5,250, were received from LLCs, and five contributions, totaling
$1,820, were received from corporations. The corporate status of the entities at the time
the contribution was made was verified with the Secretary of State. Documentation
regarding the permissibility of the contributions from the LLCs was not provided. It
should be noted that MFC maintained a sufficient balance in its bank account to refund
the prohibited contributions.

The Audit staff presented this matter to MFC’s treasurer during the exit conference along
with a schedule of the apparent prohibited contributions. The treasurer stated that she
would provide letters demonstrating that the LLCs were treated as partnerships.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended MFC provide evidence that these contributions were not
prohibited or refund the contributions. In response, MFC provided copies of letters,
dated March 15, 2006, to the contributors to confirm the legality of their contribution. To
date, none of these confirmations have been returned nor have the contributions been
refunded; therefore, the Audit staff maintains these contributions totaling $7,070 are
prohibited.


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Facts and Analysis

A sample review of operating expenditures indicated a significant number of
expenditures were not adequately documented. Twenty-eight percent of the sample items
lacked documentation such as canceled checks, invoices or receipts from the vendor.

In addition, a review of contributions made to other political committees indicated that
MFC failed to maintain a canceled check or any other documentation for 4 of these
transactions totaling $3,850.

As previously noted, MFC was made aware of the lack of documentation for
disbursements at the beginning of audit fieldwork and was allowed time to obtain
records. (See Inventory of Records above at page 1.)

The Audit staff presented this matter to the MFC treasurer again at the exit conference.
The treasurer stated that she would either contact the bank in an attempt to obtain copies
of the canceled checks, or contact the payees to obtain the necessary documentation.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that MFC obtain and submit the missing documentation for
the disbursements. In response, MFC indicated that efforts were being made to contact
the bank and payees to obtain missing records. To date, none of the missing
documentation has been provided to the Audit staff.

| Finding 6. Disclosure of Operating Expenditures

Summary

A sample review of operating expenditures itemized on Schedules B (Itemized
Disbursements) revealed that 14% of the transactions lacked or inadequately disclosed
required information. In addition, a 100% review of payments to a credit card company
revealed that charges to vendors aggregating in excess of $200 were not properly
disclosed as memo entries on Schedules B of the disclosure reports. In response to the
interim audit report recommendation, MFC filed amended reports to correctly disclose
the information.

Legal Standard
A. 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;

¢ Name and address of the payee; and

e Purpose (a brief description of why the disbursement was made—see below). 2

U.S.C. §434(b)(5)(A) and 11 CFR §104.3(b)(4)(i)

B. Examples of Purpose.
e Adequate Descriptions. Examples of adequate descriptions of “purpose” include
the following: dinner expenses, media, salary, polling, travel, party fees, phone