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REPORT OF THE AUDIT DIVISION

ON

OAKLAND DEMOCRATIC CAMPAIGN

COMMITTEE

Approved April 2, 1999

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
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TABLE OF CONTENTS

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

Page

Executive Summary 3

Final Audit Report 4

Background 4

Findings 6

Transmittal to Committee 10

Chronology 11
FEDERAL ELECTION COMMISSION

Washington, DC 20463

FINAL AUDIT REPORT

ON THE

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

EXECUTIVE SUMMARY

The Oakland Democratic Campaign Committee (ODCC) registered with the

Federal Election Commission (the Commission) on June 14,1976 and maintains its

headquarters in Berkley, Michigan. The audit was conducted pursuant to 2 U.S.C.

Section 438(b), which states that the Commission may conduct audits of any political

committee whose reports fail to meet the threshold level of compliance set by the

Commission. The findings ofthe audit were presented to officials ofODCC at an exit

conference held subsequent to the completion offieldwork on August 13, 1998 and later

in an interim audit report. ODCC's response to those findings is included in this final

audit report. The following is an overview ofthe findings contained in the final audit

report.

JOINT FEDERAL AND NON-FEDERAL AcrlVITY - 11 CPR §§ 106.5(g)(I)

102.5(a)(I)(i), 104.10(b)(4). The audit revealed that ODCC failed to comply with any of

the prescribed methods for paying shared federal/non-federal expenses. Consequently,

shared federal/non-federal expenses were initially paid by using funds from non-federal

accounts. The audit determined that the maximum amount which non-federal accounts

overfunded shared federal/non-federal expenses was $32,513. It also determined that

ODCC failed to classify and report $149,022 in allocable expenses, and did not disclose

on Schedule H2 the allocation ratio for fundraising activity. In addition to correcting the

above, the interim report requested copies of records not produced during the audit for

two non-federal accounts and a written description of procedures to be implemented to

comply with the allocation regulations.

In response to the interim report, ODCC materially complied with all the

recommendations except that records for one ofthe non-federal accounts were not

provided.

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AR#97-166

FEDERAL ELECTION COMMISSION

Washington, DC 20463 .

•

REPORT OF THE AUDITDIVISION

ON THE

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofthe Oakland Democratic Campaign

Committee (ODCC), undertaken by the Audit Division ofthe Federal Election

Commission in accordance with the provisions of the Federal Election Campaign Act of

1971, as amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle

2 ofthe 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 ofthis title. Prior to conducting any audit under this subsection, the

Commission on shall perform an internal review ofreports filed by selected committees

to determine ifthe reports filed by a particular committee meet the threshold

requirements for substantial compliance with the Act.

B. AUDrr COVERAGE

The audit covered the period January 1, 1995, through December 31,

1996. ODCC reported a beginning cash balance on January 1, 1995 of $4,282; total

receipts for the audit period of $98,904; total disbursements for the audit period of

$103,049; and an ending cash balance of$137 on December 31, 1996.1

All amounts presented in this report were rounded to the nearest dollar.

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C. CAMPAIGN ORGANIZATION

ODCC registered with the Federal Election Commission on June 14, 1976

and maintains its headquarters in Berkley, Michigan. ODCC had three Treasurers during

the period covered by the audit: Mr. William G. Wolfram from December 13, 1988 until

January 10, 1995; Mr. Sean Orate from January 10, 1995 until February IS, 1996; and

Ms. Martha Blom from December 17, 1996 through December 31, 1996'. The current

Treasurer is Mr. Jerry L. Bixby.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following general categories, except that

records for one ofODCC's non-federal bank accounts-oak1and County Democratic

Club-were not made available for our review. Although disbursements were

acknowledged in ODCC's reports as shared expenses paid from this account, we are not

in a position to offer an opinion as to whether other shared expenses or other

disbursements subject to the Act were made from this account.

1. The receipt of contributions or loans in excess ofthe statutory

limitations;

2. the receipt of contributions from prohibited sources, such as those

from corporations or labor organizations;

3. proper disclosure of contributions from individuals, political

committees and other entities, to include the itemization of

contributions or other receipts when required, as well as, the

completeness and accuracy ofthe information disclosed;

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and

accuracy ofthe information disclosed;

5. proper disclosure of debts and obligations, to include

loans;

6. accuracy of total reported receipts, disbursements and cash

balances as compared to committee bank records;

7. adequate recordkeeping for transactions;

Ms. Blom became the treasurer of record when ODee filed an amended Statement of

Organization on December 17, 1996. However, there was no treasurer between February 16.

1996 and December 16, 1996; FEe reports were signed by various once staff.

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8. proper disclosure ofthe allocation ofcosts associated with

administrative expenses and activities conducted jointly on behalf

offederal and non-federal elections and candidates (see Finding

II.A. 1.,2., and 3.); and

9. other audit procedures that were deemed necessary in the situation.

Unless specifically discussed below, no material non-compliance was

detected. It should be noted that the Commission may pursue any ofthe matters

discussed in this report in an enforcement action.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. JOINT FEDERAL AND NON-FEDERAL ACTIVITY

Section 106.5(g)(1) ofTitle 11 ofthe Code ofFederal Regulations states,

in part, committees that have established separate federal and non-federal accounts, under

11 CFR 102.5(a)(1)(i) shall pay the expenses ofjoint federal and non-federal activities as

follows: (i) pay the entire amount of an allocable expense from its federal account and

transfer funds from its non-federal account to its federal account solely to cover the

non-federal share ofthat allocable expense; or (ii) establish a separate allocation account

into which funds from its federal and non-federal accounts shall be deposited solely for

the purpose ofpaying allocable expenses. Once a committee establishes a separate

allocation account, all allocable expenses shall be paid from that account for as long as

the account is maintained.

Section 104.10(b)(4) states, in part, a political committee that pays

allocable expenses in accordance with 11 CFR 106.5(g) shall also report each

disbursement from its federal account or separate allocation account in payment for a

joint federal and non-federal expense or activity.

BACKGROUND

Our review indicated that for the audit period the Oakland Democratic

Party, ODCC's parent organization, maintained eleven bank accountS-<lne account

which it considered federal and ten accounts which it considered non-federal. Our review

ofthe associated documentation made available for these accounts identified shared

expenses paid directly from four non-federal accounts. As noted above, party committees

engaging in both federal and non-federal activities may either pay the entire amount of an

allocable expense from its federal account and transfer funds from its non-federal

accounts to its federal account solely to cover the non-federal share ofthat allocable

expense, or establish a separate allocation account into which funds from its federal and

non-federal accounts are deposited solely for the purpose ofpaying the allocable

expenses. oncc did not follow either ofthe prescribed methods for payment of

allocable expenses.

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Instead, the vast majority of allocable expenses were defrayed initially

using funds from non-federal accounts. As funds became available in ODCC's federal

account, transfers would be made to "reimburse" the non-federal accounts for the federal

share of allocable expenses. Based on discussions with ODCC officials concerning its

handling ofshared activity, it appeared a lack of understanding ofthe Commission's

allocation regulations led to ODCC's erroneous approach to its payment ofshared

expenses in 1995 and 1996.

1. OVERFUNDING OF ALLOCABLE EXPENSES BY NON-FEDERAL

ACCOUNTS

Based on our analysis, the Audit staff identified allocable expenses

totaling $ 337,307 paid from four non-federal accounts and its federal account. Ofthis

amount, $111,599 represented the federal share and $225,708 represented the non-federal

share ofthese expenses'. Between March 1995 and December 1996 the ODCC's federal

account made $93,741 in payments to either reimburse the non-federal accounts or pay

the non-federal share of certain allocable expenses. The Audit staffwas able to determine

that ODCC owed the non-federal accounts as much as $32,513 in October of 1995 and as

little as $721 in September of 1996. As ofDecember 31,1995, the balance owed to the

non-federal accounts was $29,045. As ofDecember 31, 1996, the outstanding balance

due the non-federal accounts had been reduced to $14,762.

In the interim audit report, the Audit staffrecommended that ODCC

provide evidence that demonstrates the non-federal accounts did not directly defray

allocable expenses in excess oftheir share. Absent such a showing, it was recommended

that ODCC make reimbursements to the relevant non-federal accounts totaling $14,762.

It was further recommended that ifthe funds were not available to make the

reimbursements, the amount owed must be continuously reported as a debt on Schedule

D until extinguished.

In response to the interim report, the treasurer ofODCC agreed with the

Audit staff's conclusion that non-federal accounts overpaid shared expenses totaling

$14,762. He responded, "We have begun showing this as a debt on Schedule D and will

do so until extinguished." However, a Schedule D has not been filed to date.

2. DISCLOSURE OF SHARED ACTIVITY

Although shared expenses were paid initially from the non-federal

accounts, ODCC did itemize several ofthese expenses on Schedules H4 (Joint

In our analysiS, the ballot composition method was used to allocate administrative expenses; for

expenses related to joint federal and non-federal fundraising we used the funds received method

(see II CFR §§106.S(d) & (i)).

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Federal/Non-Federal Activity Schedule) which reflected the federal and non-federal share

for certain allocable expenses. However, since the totals reported on Schedules H4 were

not included in total reported receipts and disbursements, it appears that the transactions

itemized were intended to be memo entries'.

During 1995, ODCC itemized on Schedules H4 allocable expenses

totaling $145,297; the federal and non-federal shares were reported as $48,384 and

$96,913, respectively. During 1996, ODCC itemized on Schedules H4 allocable

expenses totaling $48,189; the federal and non-federal shares were reported as $16,047

and $32,142, respectively. In addition, the Audit staffidentified other allocable expenses

paid from non-federal accounts which were not itemized on Schedules H4 - $120,724 in

administrative expenses, $5,888 in fundraising expenses and $22,410 in GOTV expenses.

Disbursements made directly from a non-federal account in payment ofallocable

expenses are not permitted under the Commission's allocation regulations, nevertheless,

such transactions should be disclosed, albeit in "memo schedule" fashion, to complete the

public record.

In the interim report, the Audit Staffrecommended that ODCC file memo

entries on Schedules H4 to disclose the $149,022 in unreported administrative, GOTV,

and fundraising expenses. It was also recommended that ODCC amend its Schedules H4

reports for July Quarterly 1996 and Pre-General 1996 to itemize net payroll expenses

instead ofgross payroll expenses. Finally, it was recommended that ODCC file Schedule

H2 (Allocation Ratios) to disclose the ratio for the shared fundraising activity.

In response to the interim audit report, ODCC officials filed memo

Schedules H4 and Schedule H2 which materially corrected the public record.

3. RECORDKEEPING

ODCC made available for our review bank statements, canceled checks,

debit and credit memoranda, disbursement documentation and copies ofitems deposited

for two ofthe four non-federal accounts engaged in shared federal/non-federal activity,

however, such materials for the two other non-federal accounts were not available for our

review. Without such material, the Audit staffwas unable to determine whether any

additional shared expenses were paid by these non-federal accounts. ODCC agreed to

obtain and provide these records in response to our request during fieldwork.

The interim audit report recommended ODCC provide the Audit staffwith

bank statements for the audit period, canceled checks, debit and credit memoranda,

disbursement documentation, copies of deposited items and any related records for the

ODCC disclosed debt owed to the Oakland County Democratic Committee (non-federal account)

for the amount reported on its Schedules H4 as the federal share of allocable expenses.

Approved 04/02/99 Page 8
Oakland County Democratic Party Candidate Assistance Fund and the Oakland County

Democratic Club.

In response, ODCC provided the Audit staffwith bank statements for

1995 and 1996, copies of deposit slips and checks deposited and a copy ofthe 1995 and

1996 check register for the Oakland County Democratic Party Candidate Assistance

Fund. Upon reviewing this account, Audit staffdetermined that the receipts and

disbursements related to non-federal activity. No documentation was provided for the

Oakland County Democratic Fund. Based on a memorandum included in the response,

ODCC's Treasurer related that records for this account are no longer in ODCC's

possession.

Finally, the Audit staffrecommended that ODCC detail in writing the

changes it willlhas implemented to comply with the Commission's allocation regulations.

In response to this recommendation, ODCC submitted a written

description of a compliance and accountability policy detailing standard operating

procedures to be applied when complying with FEC allocation regulations. Ifthe

procedures are followed, it appears ODCC's handling ofshared transactions would be in

compliance with the allocation regulations 11 CFR §106.5(g).

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FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

April 2, 1999

Mr. Jerry L. Bixby, Treasurer

Oakland Democratic Campaign Committee

3260 Coolidge Highway, Suite #1

Berkley, MI 48072

Dear Mr. Bixby:

Attached please find the Report ofthe Audit Division on the Oakland Democratic

Campaign Committee. The Commission approved the report on April 2, 1999. As noted

on page 3, the Commission may pursue the matter discussed in an enforcement action.

The Commission approved Audit Report will be placed on the public record on

AprilS, 1999. Should you have any questions regarding the public release ofthis report,

please contact the Commission's Press Office at (202) 694-1200.

Any questions you may have related to matters covered during the audit or in the

audit report should be directed to Brenda Wheeler or Wanda Thomas at (202) 694-1200, or

toll free at (800) 424-9530.

Attachment as stated

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CHRONOLOGY

OAKLAND DEMOCRATIC CAMPAIGN COMMITTEE

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ji'l

s,

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

Approved 04/02/99 Page 11

08/03/98 - 08/13/98

11/24/98

02/22/99

04/02/99