10

Interim Audit Report Recommendations and Committee Response
In response to the recommendation in the interim audit report, AFSEP filed Schedules B
that properly disclosed the disbursements noted. However, these schedules were filed
past the extended due date for the response to the interim audit report.



Part I
Background

Authority for Audit

This report is based on an audit of the Americans for Sound Energy Policy (AFSEP),
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

The audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received and other receipts.
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.

NAYWRYNS

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.
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 during the audit
period.


6

The Audit staff asked AFSEP numerous times to document the costs associated with
these events. Subsequent to the exit conference, AFSEP submitted documentation of the
total costs of each of the events and the corporations who paid for them. They did not
submit information detailing what makes up the total costs.

AFSEP did not maintain a separate account for all the questionable contributions, nor did
it maintain a sufficient bank balance to cover the refund of these contributions throughout
the election cycle.

At the exit conference and in subsequent communications, the Audit staff detailed the
possible prohibited contributions.

Following the exit conference, AFSEP submitted copies of non-negotiated refund checks
totaling $10,500.

Interim Audit Report Recommendations

The Audit staff recommended:

e That AFSEP submit documentation detailing the expenses of the 1999 and the 2000
Dinners;

e That AFSEP demonstrate that the $8,802 (or other amount documented in response to
the item above) paid by corporations for expenses associated with the 1999 and 2000
Dinners do not represent contributions or that AFSEP refund these contributions and
provide evidence of the refunds (copies of the front and back of the negotiated refund
check);

¢ If funds are not currently available to make the necessary refunds, that AFSEP
disclose those contributions requiring refunds as debts on Schedule D (Debts and
Obligations) until such time that funds become available to make the refunds; and

e That AFSEP supply copies of the front and back of the negotiated refund checks
issued to date ($10,500).

Committee Response to Recommendations and Audit Staffs

Assessment

In response to the recommendation:

e AFSEP submitted copies (front and back) of refund checks totaling $9,000.

e AFSEP did not submit the negotiated refund check for one $1,500 check.

e AFSEP did not refund the cost of the dinners ($8,802) to the corporations. It believes
the cost of the dinners are not contributions to the committee. According to AFSEP,
Senator Murkowski and his wife have hosted a charity fundraiser for Breast Cancer in
Ketchikan, Alaska since 1993 and these dinners have occurred the night before the
charity event since its inception in 1993. Furthermore, they assert participants had to
arrive in Alaska the night before in order to participate in the events the following
day. Lastly, AFSEP contends that only one-third (approximately) of those who
attended the 1999 and the 2000 Dinners were participants in the AFSEP events that
occurred the proceeding day, the rest were members of the local community or
members of Congress and had these AFSEP participants not attended, the Dinners
would have still been held.



Part III
Summaries

Findings and Recommendations

Finding 1. Receipt of Apparent Prohibited Contributions
The Audit staff identified ten contributions, totaling $19,302, that appear to be illegal.
Subsequent to the exit conference, AFSEP submitted copies of non-negotiated checks
totaling $10,500 to refund eight of these contributions. In response to the interim audit
report, AFSEP contended that the remaining transactions ($8,802) were not contributions.
The Audit staff disagrees with this assessment. (For more details, see p. 4)

Finding 2. Misstatement of Financial Activity

A comparison of AFSEP’s reported figures with its bank records revealed that AFSEP
misstated its receipts and disbursements on its disclosure reports for calendar years 1999
and 2000, and its cash balances in 2000. In response to the interim audit report, AFSEP
filed amended reports but substantial differences remain. (For more details, see p. 7)

Finding 3. Timely Deposit of Contributions

The Audit staff determined that 67% of the contributions from individuals and 66% of the
contributions from political committees were not deposited within ten days of receipt, as
required by law. In response to the interim audit report, AFSEP demonstrated that
internal control procedures have been established and implemented to correct this
problem. (For more details, see p. 8)

Finding 4. Disclosure of Disbursements

AFSEP failed to properly disclose 13% of its disbursements totaling $30,673. The
majority of the errors resulted from insufficient purposes for disbursements. In response
to the interim audit report, AFSEP filed amended reports that correctly disclosed the
disbursements. (For more details, see p. 9)


Part II
Overview of Committee

Committee Organization

Important Dates

© Date of Registration

April 21, 1987

e Audit Coverage

January 1, 1999 —- December
31, 2000

Headquarters

Washington D.C.

Bank Information

¢ Bank Depositories

e Bank Accounts

Treasurers

e Treasurer When Audit Was Conducted

Gregg D. Renkes

e Treasurer During Period Covered by Audit

Gregg D. Renkes

Management Information

e Attended Commission Campaign Finance Seminar

No

e Used Commonly Available Campaign
Management Software Package

Yes

e Who Handled Accounting and Recordkeeping
Tasks

A consultant

Overview of Financial Activity

(Audited Amounts)

Cash on hand @ January 1, 1999 $575
Receipts

e Contributions from Individuals $58,275
¢ Contributions from Political Committees 75,000
e Other Receipts 11,500
e In-Kind Contributions 14,332
Total Receipts $159,107
Disbursements

e Operating Disbursements $133,959
e In-Kind Expenditures 14,332
Total Disbursements $148,291
Cash on hand @ December 31, 2000 $ 11,391


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:

e 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

The review of AFSEP’s receipt records identified:

e Six contributions totaling $8,000 from incorporated businesses,

¢ One check made payable to the Friends of Senator Frank Murkowski Committee for
$1,000 and deposited into the AFSEP bank account and,

e Three in-kind contributions totaling $10,302 from corporations.

Corporations paying for dinners associated with AFSEP fundraising events made two of
the prohibited in-kind contributions totaling at least $8,802. AFSEP contends that these
dinners were not committee events rather they were community events. As a result, they
believe corporations could sponsor these dinners and they are not corporate in-kind
contributions.

Information about the Dinners:

1999 Dinner

The AFSEP 1999 solicitation stated that AFSEP would “plan a dinner and reception” to
be held the night before the AFSEP fundraising cruise. The Treasurer argued that this
dinner was not political and not an AFSEP event. He stated “[t]his is a community
dinner for the visiting members of Congress and those who have arrived in Ketchikan for
the PAC event along with members of the local community...” The Audit staff disagrees
that the dinner and reception were not AFSEP events because the AFSEP solicitation
specifically identified “a dinner and reception” for the participants and gave no indication
that another entity sponsored this event or that the event might have been a joint activity.

2000 Dinner

The AFSEP 2000 solicitation invited the possible participants to join Senator Murkowski
who invited “ Senate Majority Leader Trent Lott and House Speaker Dennis Hastert and
Senators Kit Bond and Phil Gram ... for dinner in Ketchikan Friday evening and a
special brunch Saturday morning.” AFSEP does not acknowledge this dinner as political
and argues that in order to participate in the AFSEP-sponsored brunch the following day
it was necessary for attendees to arrive in Alaska the night before.

The solicitation specifies the necessary arrangements needed to ensure participation for
both the dinner and the brunch; it makes no distinction between the two events. The
Audit staff is of the opinion that the dinner is an AFSEP event for the same reasons
mentioned above.



CHEoN

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C 20463

June 30, 2003

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ
ASSISTANT STAFFIPIRECTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON THE
AMERICANS FOR SOUND ENERGY POLICY

Attached please find a copy of the final audit report and related documents on the
Americans For Sound Energy Policy that was approved by the Commission on June 19,
2003.

All parties involved have received informational copies of the report and the
report may be released to the public.

Attachment as stated

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


Explanation of Discrepancies

Receipts and Disbursments-1999
The understatement of receipts and disbursements was the result of in-kind
contributions reported as neither receipts nor disbursements.

Receipts-2000

The understatement of receipts was the result of the following transactions:

¢ Contribution Not Reported 2,000
¢ Contribution under Reported 1,000
e In-kind Contributions Not Reported as a Receipt 6,343
e Net Understatement $9,343

Disbursements-2000
The understatement of disbursements was the result of the following transactions:

e In-kind Contributions Not Reported As an Expenditure $6,343

Closing Cash on Hand
The understatement of the closing cash on hand resulted from the understatement

($3,000) of receipts.

The unreported in-kind contributions relate primarily to expenses for the AFSEP dinners
discussed in Finding 1.

The Audit staff provided AFSEP representatives with a schedule explaining the
misstatements.

Interim Audit Report Recommendations and Committee Response

In response to recommendations in the interim audit report, AFSEP filed amended reports
for calendar years 1999 and 2000. However, as discussed in Finding 1 above, AFSEP
disputes that the Dinners were AFSEP events and did not include the in-kind
contributions associated with them in the amended reports.

| Finding 3. Timely Deposit of Contributions

Summary
The Audit staff determined that 67% of the contributions from individuals and 66% of the

contributions from political committees were not deposited within ten days of receipt, as
required by law. In response to the interim audit report, AFSEP demonstrated that
internal control procedures have been established and implemented to correct this
problem.

Legal Standard
Deposit of Receipts. Within 10 days after the treasurer receives a contribution, it must

be either:
e Returned to the contributor without being deposited; or
¢ Deposited into a committee bank account. 11 CFR §103.3


7

The AFSEP solicitation is the only invitation or reference to the Dinners in any of the
materials submitted to date. The solicitations suggest that AFSEP was the sponsor of the
Dinners and no documentation has been submitted demonstrating that any other entity
played arole. Those attending the Dinners did include members of the Ketchikan
community along with members of Congress and individuals associated with AFSEP.
Many of those individuals were representatives of the energy industry. None of these
facts establishes that the Dinners were other than what the solicitation suggests, AFSEP
events. The cost of the Dinners ($8,802) is still considered a prohibited in-kind
contribution to AFSEP. Finally, AFSEP did not provide the requested breakdown of the
expenses that make up the $8,802.

| Finding 2. Misstatement of Financial Activity

Summary

A comparison of AFSEP’s reported figures with its bank records revealed that AFSEP
misstated its receipts and disbursements on its disclosure reports for calendar years 1999
and 2000, and its cash balances in 2000. In response to the interim audit report, AFSEP
filed amended reports but substantial differences remain.

Legal Standard

Each report must disclose:

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

e The total amount of receipts for the reporting period and for the calendar year; and

e The total amount of disbursements for the reporting period and for the calendar year.
2 U.S.C. §434(b)(1), (2) and (4).

Facts and Analysis

A comparison of AFSEP’s reported financial activity to its bank records for calendar
years 1999 and 2000 revealed misstatements of reported receipts, disbursements and
ending cash on hand. The chart below explains the misstatements in more detail.

Calendar Year Reported Bank Records Discrepancy
0195 8575 sr °
1999 Receipts $40,962 $46,489 Unnnawed
1999 Disbursements $7,056 $12,583 Unnated
2000 Receipts $103,275 $112,618 Uniented
2000 Disbursements $129,365 $135,708 Uneetated
bee van Hand at $8,391 $11,391 Undertated



Part IV
Findings and Recommendations

| Finding 1. Receipt of Apparent Prohibited Contributions

Summary

The Audit staff identified ten contributions totaling $19,302 that appear to be illegal.
Subsequent to the exit conference, AFSEP submitted copies of non-negotiated checks
totaling $10,500 to refund eight of these contributions. In response to the interim audit
report, AFSEP contended that the remaining transactions ($8,802) were not contributions.
The Audit staff disagrees with this assessment.

Legal Standard
Receipt of Prohibited Contributions — General Prohibition. Candidates and
committees may not accept contributions (in the form of money, in-kind contributions or
loans):
1. In the name of another; or
2. From the treasury funds of the following prohibited sources:
© Corporations (this means any incorporated organization, including a non-stock
corporation, an incorporated membership organization, and an incorporated
cooperative);
Labor Organizations;
National Banks;
e Federal Government Contractors (including partnerships, individuals, and sole
proprietors who have contracts with the federal government); and
e Foreign Nationals (including individuals who are not U.S. citizens and not
lawfully admitted for permanent residence; foreign governments and foreign
political parties; and groups organized under the laws of a foreign country or
groups whose principal place of business is in a foreign country, as defined in 22
U.S.C. §611(b)). 2 U.S.C. §§441b, 441c, 441e, and 441f.

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:

e Return the contribution to the contributor without depositing it; or
e 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 the refunds or establish a separate account in a campaign depository for
possibly 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).


Page

Corn

Table of Contents

Part I. Background
Authority for Audit
Scope of Audit

Changes to the Law

Part Il. Overview of Committee
Committee Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Receipt of Apparent Prohibited Contributions
Finding 2. Misstatement of Financial Activity

Finding 3. Timely Deposit of Contributions

Finding 4. Disclosure of Disbursements


Report of the
Audit Division on
Americans for Sound Energy Policy

January 1, 1999 - December 31, 2000



Report of the Audit Division

On

Americans for Sound Energy Policy

January 1, 1999 - December 31, 2000

Why the Audit

Was Done

Federal law permits the
Commission to conduct an
audit and field
investigation 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.

About the Committee (p. 2)

Americans for Sound Energy Policy (AFSEP) is a non-connected
political committee headquartered in Washington, DC. AFSEP

achieved multi-candidate status on May 30, 2000. For more

information, see the chart on the Committee Organization, p.2.

Financial Activity (p.2)

e Receipts
o. From Individuals

In-kind Contributions
Contribution Refund
Other Receipts
o Total Receipts
¢ Disbursements
o Operating Expenses
o In-kind Expenditures
o Total Disbursements

o0oo0oo

Findings and Recommendations (p.3)

From Political Committees

$58,275
75,000
14,332
2,500
9,000
$159,107

$133,959
14,332
$148,291

¢ Receipt of Apparent Prohibited Contributions (Finding 1)

e Misstatement of Financial Activity (Finding 2)
e Timely Deposit of Contributions (Finding 3)
e Disclosure of Disbursements (Finding 4)

"2 U.S.C. §438(b).


Facts and Analysis

The Audit staff reviewed all contributions from individuals and political committees and
determined a majority of contributions was not deposited timely. The date on the check
was compared to the date of deposit”. The number of days between the check date and
deposit date ranged from 21 to 110 days for 67% of the contributions from individuals
and 21 to 122 days for 66% of the contributions from political committees.

At the exit conference, the Audit staff provided AFSEP representatives a schedule
detailing the untimely deposits. The representatives stated a new consulting firm has
been hired to correct this problem and to manage AFSEP’s reporting.

Interim Audit Report Recommendations and Committee Response
In its response to the interim audit report, AFSEP explained that in addition to a new
consulting firm mentioned at the exit conference, it plans to terminate its activities and
will not be collecting contributions in the future.

| Finding 4. Disclosure of Disbursements

Summary

AFSEP failed to properly disclose 13% of its disbursements totaling $30,673. The
majority of the errors resulted from insufficient purposes for disbursements. In response
to the interim audit report, AFSEP filed amended reports that correctly disclosed the
disbursements.

Legal Standard

Reporting Operating Expenditures. When operating expenditures to the same person

exceed $200 in a calendar year, the committee must report the:

e Amount;

e Date when the expenditures were made;

© 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)(A).

Facts and Analysis

A review of all disbursements that required itemization on AFSEP’s disclosure reports
determined that AFSEP failed to adequately disclose 13% of its disbursements, totaling
$30,673. A majority of these errors was the result of not identifying the purpose of these
expenditures as costs associated with fundraising. AFSEP reported the purposes as
“administrative fees”. Thus, the public record did not reflect the fact that AFSEP held
fundraising events and incurred other fundraising costs. Other errors included incorrect
name and purpose.

At the exit conference the Audit staff provided AFSEP representatives a schedule of the
omission of disclosure errors. Representatives stated they would file amended disclosure
reports to correct the errors.

2 AFSEP did not maintain the date that it received contributions.