Source: http://nyccfb.org/law/advisory-opinions/2003-4-matter-friends-kendall-stewart/
Timestamp: 2019-04-18 19:29:01+00:00

Document:
Kendall Stewart was a participant in the New York City Campaign Finance Program (the "Program") in connection with his campaign for City Council, District #45, in the 2001 elections, and received $75,350 in public funds from the New York City Campaign Finance Board (the "Board"). Mr. Stewart's principal committee for the 2001 City Council elections, sought review of the finding contained in the final audit report of the Committee that the Committee must return to the Board $45,813 of the $75,350 in public funds received by the Committee for failure to substantiate qualified expenditures. The Board, at a meeting held on September 12, 2003, announced its final determination regarding a Rule 5-02(a) 1 petition (the "Petition") filed by the Friends of Kendall Stewart (the "Committee"), confirming the staff's recommendation that, based on new documentation and information submitted along with the Petition, the Committee had documented an additional $35,669 in qualified expenditures, and thus must return $10,144 in public funds for failure to substantiate qualified expenditures. The Board has determined to issue a numbered determination in connection with this Final Determination to give participating candidates generally the benefit of one detailed account of the Board's and Board staff's evaluation of claimed qualified expenditures.
The Board places a very high value on candidate compliance with the recordkeeping requirements of the New York City Campaign Finance Act (New York City Administrative Code §§ 3-701, et seq.) (the "Act") and the Board's Rules as essential vehicles to give the public meaningful assurance that its tax dollars are being properly spent and to discourage carelessness, misuse, and even fraud with millions of dollars in public funds. If candidates were not held accountable for their expenditures of public funds through the requirements of maintaining detailed, contemporaneous records, the Board's ability to ensure that public funds are spent legitimately would be completely undermined and the integrity of the entire Program would be compromised. As a result, the Program's requirements for candidate recordkeeping are critical, and the Board enforces them rigorously.
Administrative Code §3-704(1) provides that "[p]ublic funds provided under the provisions of this chapter may be used only for expenditures by a principal committee to further the participating candidate's nomination for election or election, either in a special election to fill a vacancy, or during the calendar year in which the primary or general election in which the candidate is seeking nomination for election or election is held."
Administrative Code §3-704(2)(e) provides that public funds may not be used for cash expenditures; Administrative Code §3-704(2)(c) provides that public funds may not be used for payments in excess of the fair market value of services, materials, facilities or other things of value received in exchange.
Administrative Code §3-703(1)(d) provides that, to be eligible for public funds, candidates shall "obtain and furnish to the campaign finance board any information it may request relating to his or her campaign expenditures or contributions and furnish such documentation and other proof of compliance with this chapter as may be requested by such board."
Administrative Code §3-703(1)(g) provides that, to be eligible for public funds, candidates shall "maintain such records of receipts and expenditures for a covered election as required by the board."
Administrative Code §3-708(8) provides that "[t]he board shall have the authority to promulgate such rules and regulations and provide such forms as it deems necessary for the administration of this chapter."
Administrative Code §3-708(11) provides that "[t]he board may take such other actions as are necessary and proper to carry out the purposes of this chapter."
(xii) any expenditure that is not itemized in a disclosure statement submitted pursuant to Rule 3-03.."
[p]articipants must exercise reasonable care to keep records that enable the Board to verify the accuracy of disclosure statements and confirm any matchable contributions claimed. Participants must maintain and may be required to produce copies of checks, bills, or other documentation to verify contributions, expenditures, or other transactions reported in their disclosure statements. Participants shall maintain clear and accurate records sufficient to show an audit trail that demonstrates compliance with the Act and these rules. The records shall be made and maintained contemporaneously with the transactions recorded, and maintained and organized in a manner that facilitates expeditious review by the Board. Nothing in this chapter shall be construed to modify the requirements of New York Election Law §14 118. The records maintained for each campaign finance transaction, whether maintained on paper and/or electronically, shall be accurate and, if necessary, modified promptly to ensure continuing accuracy.
The remainder of Rule 4-01 provides specific recordkeeping requirements for various transactions. However, consistent with the Administrative Code sections cited above and Rule 4-01(a), providing the Board with the authority to request such documentation as it deems necessary, the recordkeeping requirements of the remainder of Rule 4-01 are not intended to be exhaustive, but merely a recordkeeping baseline for candidates to follow. When the Board has reason to request more documentation, it routinely does so pursuant to the Act and the Board's Rules.
Thus, Rule 4-01(d) requires participants to "retain a copy of each bill for goods or services provided."
Rule 4-01(h) requires participants who must "itemize the cost of subcontracted goods and services pursuant to Rule 3 03(e)(3)(ii) [to] obtain and maintain documentation from the consultant or other person who or which subcontracts, containing all information required to be disclosed pursuant to that rule."
(2) if no contemporaneously written contract has been entered into, keep a contemporaneously written record that includes the date the vendor is retained or otherwise authorized by the participant, the name and address of the vendor, and a description of the goods and/or services the vendor is expected to provide.
The success and integrity of the Program are dependent on participant compliance with the Program's substantive rules and requirements and upon the accuracy of the participants' disclosure statements. Central to verification of participant compliance with both the substantive requirements of the Program and with the disclosure requirements is the Board's audit authority, which relies in turn upon participants' production of their own and third parties' contemporaneous, detailed documentation – including invoices, cancelled checks, and contracts – to verify participants' statements, in disclosure statements and elsewhere, regarding campaign activities. Without this documentation, the Board cannot effectively audit a participant's compliance with, and thus the integrity of, the Program. When verification is not possible, the public is robbed of its right to have confidence in the expenditure of tax dollars and in the candidates' conformance to their responsibilities to the public, and opposing candidates are robbed of the "even playing field" they are promised by their and their opponents' participation in the Program.
With respect to expenditures made with public funds, the Program has consistently placed the burden of demonstrating that such expenditures are qualified on the participant. If the participant does not submit documentation substantiating an expenditure as qualified, the expenditure is not qualified. See Administrative Code §§ 3-703(1)(d), 3-704; Rules 1-08(g)(xi), 4-01; Advisory Opinion No. 1989-29 (July 12, 1989) (superseded by subsequent local law) ("[t]he candidate has the burden of demonstrating to the Board that these purchases were made for [one of the purposes for which public funds may be used]"). It is the participant who is in possession of the facts surrounding his or her expenditures and who is in possession of the documentation, such as checks, invoices, and contracts, produced in connection therewith. It would be impossible for the Board, which does not have independent knowledge of candidates' campaign finances, to establish that a participant did not use public funds for qualified expenditures, except that the Rules, consistent with the Act, require candidates to maintain and produce documentation satisfactory to provide an audit trail. If the burden were placed on the Board to disprove that expenditures are qualified, as suggested by the Stewart campaign, the Board would be unable to ensure that public funds were properly used.
For candidates to meet their burden, the Board requires that documentation submitted to substantiate qualified expenditures must be sufficiently detailed for the Board – without supposition or guesswork – to determine that the funds were spent on qualified expenditures, e.g., that the funds were spent in exchange for goods or services related to the participant's campaign, that the expenditure was not made with cash or as reimbursement for an advance, that the expenditure was not made to an entity controlled by the candidate or his or her immediate relatives, that the goods or services were received during the calendar year of the election, and that the participant paid fair market value for the goods or services. If the documentation submitted is not sufficiently detailed for the Board to establish that the expenditures were qualified pursuant to Administrative Code §3-704 and Board Rule 1-08(g), the expenditure is not qualified.
On March 12, 2002, the Board issued to the Committee a standard request for audit documentation commencing the post-election audit process, with a response due March 27, 2002. Included was a request for backup documentation substantiating qualified expenditures. The Committee had received $75,350 in public funds. Therefore, the Committee needed to establish at least $75,350 in qualified expenditures. The Board's standard procedure during the audit process is to request documentation for potentially qualified expenditures in an amount higher than the amount in public funds received. This is to account for public funds already received and additional public funds for which the campaign might turn out to be eligible, and to include a significant additional margin, anticipating that there may be missing documentation or other possible campaign error. Accordingly, in this case, the Board requested documentation substantiating over $170,000 in qualified expenditures. To assist the Committee, an itemized list of these expenditures was included in the March 12, 2002 letter.
The Committee submitted a timely response to the March 12, 2002 letter. The Committee in its response, however, submitted documentation sufficient to substantiate qualified expenditures for only $23,440 of the over $170,000 in requested documentation. As a result, the draft audit report included a finding stating that the Committee had not submitted requested expenditure documentation substantiating $51,910 of the $75,350 in public funds received. The itemized list of over $170,000 in expenditures attached to the March 12, 2002 letter was again attached to the draft audit report, and the Board included notations next to each itemized expenditure indicating whether the Committee had submitted sufficient documentation for the expenditure, and if not, what documentation was missing.
A response to the draft audit report was due February 7, 2003, and the Committee again submitted a timely response. The Committee's response, however, included requested documentation for only $6,097 in additional qualified expenditures. As a result, the final audit report, issued on June 6, 2003, stated that the Committee had documented $29,537 in qualified expenditures, and must return $45,813 in public funds. Throughout the period of the audit, the Committee did not request any additional information from Board staff concerning the documentation required.
certain of the expenditures were made in a manner that is not qualified (advance reimbursements; cash expenditures).
certain of the expenditures were not sufficiently documented (e.g., documentation was not sufficiently detailed for the Board to determine the specific goods or services received, when the goods or services were received, whether the goods or services were related to Mr. Stewart's election campaign, and/or whether the costs incurred represent fair market value).
Although the Board does not anticipate generally providing a narrative analysis of campaign records, in this instance a detailed review of the documentation submitted but not accepted to substantiate qualified expenditures is attached.
It is the Committee's burden to substantiate that the public funds received by the Committee were spent on qualified expenditures. The Committee was given ample opportunity to provide contemporaneous documentation to do so, and on multiple occasions received a detailed list of items requiring documentation. Nonetheless, the Committee failed to provide requested documentation for $10,144 in claimed qualified expenditures that on their face established a sufficiently detailed, unambiguous, contemporaneous record to justify payment of public funds.
The Board confirms the recommendation of the Board staff that the documentation and information contained in the Petition has not satisfactorily documented $10,144 in expenditures claimed as qualified and that this sum must be returned to the Board.
As of the June 6, 2003 final audit report, the Committee had established $29,537 in qualified expenditures, and thus had to repay $45,813 of the $75,350 in public funds received. In support of the Petition, the Committee submitted campaign records purporting to substantiate an additional $134,862 in qualified expenditures.2 The Board staff determined that this documentation was sufficient to substantiate an additional $35,669 in qualified expenditures; the remaining $99,193 was determined to be unqualified. Thus, of the $75,350 in public funds the Committee received, it substantiated $65,206 in qualified expenditures (representing $29,537 substantiated as of June 6, 2003 and $35,669 established in documentation submitted with the Petition). This left $10,144 of the $75,350 unsubstantiated.
The Committee made an expenditure to the Mid Brooklyn Civic Association for $1,500 on May 15, 2001. In response to the March 12, 2002 request for audit documentation, the Committee submitted, among other items, a check made out to cash. The Act clearly provides that cash expenditures are not qualified. Administrative Code §3-704(2)(e). The Board consistently has considered checks made out to cash the equivalent of cash when applying this provision.
The Committee made $11,359 in expenditures to Mr. Cousins as advance reimbursements. In response to the March 12, 2002 request for audit documentation, the Committee submitted invoices that were not sufficiently detailed for the Board to determine what services Mr. Cousins provided to the Committee. In addition, one invoice indicated that Mr. Cousins made advances on behalf of the Committee - he hired and paid campaign workers, for which he was later reimbursed, and he was not compensated for his services. The reimbursement of an advance is not a qualified expenditure because advances present special challenges to a proper audit trail. One of the Board staff's primary audit tools is the examination of a participant's books and records, particularly bank statements, which are difficult to alter. Funds used for an advance, made by a third party and not by a principal committee, never pass through a participant's bank account, and thus the Board would have to rely heavily on the vendor's receipt in determining the circumstances of an advance. However, receipts representing advances are issued to the party making the advance, not to the participant, and these receipts by their nature do not contain any evidence that the goods and services purchased were purchased for use by the participant. As a result, a determination whether the repayment of an advance reflects a reimbursement for a campaign-related expenditure cannot be routinely and easily made. This leaves open too many opportunities for third parties (or candidates) to claim that advances were used for campaign-related activities when in fact the third party purchased the goods or services for his or her personal use. In contrast, when funds pass through a principal committee's bank account and there is a direct purchase for goods and services, the audit trail establishes that those goods and services were provided directly to an entity bound by the Program. Advances should be used sparingly, similar to the manner in which petty cash is used. Cf. 2001 New York City Campaign Finance Handbook, 2003 New York City Campaign Finance Handbook. For these reasons, advances cannot be itemized in disclosure statements, expenditures that are not itemized are not qualified, and, hence, pursuant to Rule 1-08(g)(xii), reimbursements of advances are not qualified.
As a result, the draft audit report indicated that one expenditure to Mr. Cousins was a non-qualified advance reimbursement, and requested more detailed invoices for the other expenditures. In response, the Committee submitted additional documentation that indicated that all of the expenditures to Mr. Cousins were reimbursements of advances, and the final audit report indicated that none of these expenditures was qualified.
The itemized list of expenditures submitted to the Committee in connection with the Petition noted that these expenditures were non-qualified advance reimbursements. This itemized list also included the following two items.
In response to the March 12, 2002 request for audit documentation, the Committee submitted documentation indicating that, as with Mr. Cousins, Mr. Brown made advances on behalf of the Committee to hire campaign workers, and was subsequently reimbursed. As a result, the draft audit report indicated that these expenditures were non-qualified advance reimbursements, and did not request any documentation or information. The Committee did not submit any documentation or information in response to the draft audit report in an attempt to establish that Mr. Brown's expenditures were not advances, and the final audit report noted that the expenditures were not qualified.
In response to the March 12, 2002 request for audit documentation, the Committee submitted nine invoices from Twin Towers Political & Business Consultants ("Twin Towers"), an entity controlled by Omar Boucher (see also fn. 5 below, where Mr. Boucher is identified as a principal of another vendor to the Committee). The invoices were not sufficiently detailed for the Board to determine whether the services provided by Twin Towers were related to Mr. Stewart's campaign and whether the services were purchased for fair market value. The draft audit report requested a consulting agreement between the Committee and Twin Towers, as required by Board Rule 4-01(i), unless adequate contemporaneous invoices are provided. The Committee did not provide any consulting agreement. Rather, the Committee resubmitted the same invoices, and the final audit report accordingly indicated that the expenditures to Twin Towers were not qualified. In the itemized list of expenditures submitted to the Committee in connection with the Petition, the Board again requested a consulting agreement. The Committee submitted the same documentation previously submitted. These invoices are not sufficient to document qualified expenditures.
Similarly, the submission of invoices from K&G Printing and Stationery Inc., indicates that the Committee purchased approximately 75,000 flyers between August 21, 2001 and September 8, 2001. Over the same period of under three weeks, Twin Towers is supposed to have additionally printed approximately 87,000 pieces, not including posters, palm cards, and mailed literature. This is an extraordinary amount of literature over a short period of time in the Board's experience, and highlights the importance of contemporaneous, clear, and unambiguous documentation in substantiating that expenditures are qualified.
The September 8, 2001 invoice ($4,238 expenditure) neither provides the period during which Twin Towers worked, nor does it detail in any manner what consulting services were provided.
As a result, the Board does not have sufficient detailed, contemporaneous documentation to determine that Twin Towers provided specific services for campaign purposes permitted by law at fair market value.
The draft audit report and a request made in connection with the Petition specifically requested more detailed invoices. No additional documentation was provided.
The draft audit report and a request made in connection with the Petition requested detailed invoices for these expenditures, including worker time sheets. No documentation was provided other than what had previously been submitted.
Both the draft audit report and the itemized list of expenditures issued to the Committee in connection with the Petition requested a more detailed invoice for the expenditures to Mr. Bastien. However, no documentation was provided other than what had previously been submitted.
The Committee had three opportunities to submit documentation for the $1,400 in expenditures to Serge Bastien, but did not do so.
In response to the March 12, 2002 request for documentation, the Committee submitted two hand-written invoices from Norwil Productions for advertisements – one dated August 6, 2001 and one dated August 9, 2001. The August 6, 2001 invoice did not indicate when and where the advertisement was placed or the length of the advertisement. Similarly, the August 9, 2001 invoice did not indicate what a $300 charge was for. The invoices did not indicate whether they were for the same project or different projects. Additionally, the Committee reported expenditures to Serge Bastien for very similar services. The Board could not determine from the documentation provided whether the expenditures to Norwil Productions were related to Mr. Stewart's campaign and whether fair market value was provided to the Committee.
As a result, in both the draft audit report and the itemized list of expenditures issued to the Committee in connection with the Petition, the Board requested a detailed invoice, but no additional documentation or other contemporaneous substantiation was provided.
The Committee had three opportunities to submit documentation for $1,700 in expenditures to Norwil Productions. The Committee did not do so.
The documentation submitted by the Committee for Metropolitan Learning Association ("MLA") in response to the draft audit report would on its face be sufficiently detailed to satisfy the Board's requirements. To learn whether this tutoring service is also in the business of providing political consulting services, however, Board staff called MLA to ask what services the company provided, and was told that the organization provides tutoring services. As a result, in the itemized list of expenditures issued to the Committee in connection with the Petition, the Board requested an explanation and/or documentation to demonstrate that the expenditures to MLA were related to Mr. Stewart's election campaign. No additional documentation or information was submitted, and it remains unclear whether the expenditures to MLA could actually be related to Mr. Stewart's election campaign.
The November 6, 2001 invoice from The New Era Community Democratic Club, Inc. appears to indicate that 81people worked for fifteen hours as general election day workers, while only 27 people were hired for the same services for the September 25 primary election, which was the more contested election. Services provided by New Era are unaccountably duplicated by Mid Brooklyn Civic Association.
Two invoices dated June 8, 2001 and July 7, 2001 refer to the same services, but are for very different amounts.
A confused paper trail raises questions about the bona fides of various entities and transactions. New Era PAC, Inc. and The New Era Community Democratic Club, Inc. share the same bank account. Some invoices are from New Era PAC, Inc. and others are from The New Era Community Democratic Club, Inc. Invoices from The New Era Community Democratic Club, Inc. are on letterhead, and the invoices from New Era PAC, Inc. are not.
Omar Boucher, the principal of Twin Towers, and Committee campaign manager Asquith Reid are officers of The New Era Community Democratic Club, Inc.
The total fee for translation of a television advertisement was $400 – equal to Mr. Bastien's fee for unspecified Spanish "translation" services. Spanish and Creole "translation" services are billed at $700 but no information indicates what material was translated.
Mr. Bastien is listed on Lloyd Brown's time sheets (see above) as a September 11, 2001 campaign worker. Thus, the same person on different occasions is supposed to have provided translation services, identified groups of voters (seeAugust 12, 2001 invoice), produced a television advertisement, and worked all day at $7.00 per hour as an election-day worker.
The Committee reported $1,700 in expenditures to Norwil Productions (see below) for production of a television advertisement, an expenditure that overlaps with the expenditures to Mr. Bastien.

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