Ethics Commission
City and County of San Francisco

San Francisco Ethics Commission Audit Report: San Francisco Neighbors for Better Government, FPPC ID #981128

SAN FRANCISCO ETHICS COMMISSION AUDIT REPORT:

SAN FRANCISCO NEIGHBORS FOR BETTER GOVERNMENT

I. Introduction

This Audit Report contains information pertaining to the audit of the committee San Francisco Neighbors for Better Government, Identification Number 981128 ("the Committee") for the period from January 1, 1998 through December 31, 1999. The audit was conducted to determine whether the Committee materially complied with the requirements and prohibitions imposed by the Political Reform Act ("the Act") (Government Code Section 81000, et seq.) and San Francisco's Campaign Finance Reform Ordinance ("CFRO") (S.F. Campaign and Governmental Conduct Code Section 1.100, et seq., formerly S.F. Administrative Code Section 16.501, et seq.).1

For the period covered by the audit, the Committee received total contributions of $113,575 and incurred expenditures of $112,412. There were six material findings with respect to this Audit Report: 1) the Committee failed to send major donor notices in violation of Government Code Section 84105; 2) the Committee failed to report non-monetary contributions in violation of Government Code Section 84211(f); 3) the Committee failed to file Late Independent Expenditure Reports in violation of Government Code Section 84204; 4) the Committee failed to file Supplemental Independent Expenditure Reports in violation of Government Code Section 84203.5; and 5) the Committee failed to file an electronic campaign statement in violation of the Campaign and Governmental Conduct Code § 1.310.

II. Committee Information

The Committee was formed in April 1998 to support and oppose candidates and ballot measures on an on-going basis. The Committee executed its initial Statement of Organization on April 6, 1998, indicating that it had not yet qualified. Thereafter, the Committee qualified as a committee on April 8, 1998. The Committee has not terminated as of the date of this report. Jeffrey Wong served as the Committee's treasurer from April 1998 through October 19, 1999. Daniel Lau replaced Mr. Wong as treasurer and still is the Committee's current treasurer.

III. Audit Authority

San Francisco Charter Section C3.699-11(4) mandates that the Commission audit campaign statements and other relevant documents to determine whether campaign committees comply with applicable requirements and prohibitions imposed by State and local law.

IV. Audit Scope and Procedures

This audit was performed in accordance with generally accepted auditing standards. The audit involved a thorough review of the Committee's records for the time period covered by the audit. This review was conducted to determine:

1. Compliance with all disclosure requirements pertaining to contributions, expenditures, accrued expenditures, and loans, including itemization when required;

2. Compliance with applicable filing deadlines;

3. Compliance with restrictions on contributions, loans and expenditures;

4. Accuracy of total reported receipts, disbursements and cash balances as compared to bank records; and

5. Compliance with all record-keeping requirements.

V. Summary of Applicable Law

Government Code Section 84105: Requirement to Send Major Donor Notification

Individuals and entities that contribute more than $10,000 to any committee in a calendar year must file "major donor" statements. (Government Code Sections 82013(c) and 84211(v)). The Act requires committee treasurers to notify donors who contributed $5,000 or more in a calendar year that the contributor is required to file a "major donor" statement if the $10,000 threshold is met. (Government Code Section 84105). Treasurers must send the major donor notification within two weeks of receipt of the contributions. (Government Code Section 84105).

Government Code Section 84211(f): Reporting Non-Monetary Contributions

A non-monetary contribution is a transfer of anything of value that is received by a committee, unless full and adequate consideration is made. (Government Code Section 82015(d)). The amount of a non-monetary contribution is the fair market value of the item or service that is donated. The Act requires that all contributions that are received be reported on the campaign disclosure statements. (Government Code Section 84211(a), (c), (d)). Detailed information, such as contributor name, contributor address, contributor occupation and employer information, a description of the non-monetary contribution received, date contribution received, contribution amount and cumulative amount of contribution is required for contributions valued at $100 or more. (Government Code Section 84211(f)).

Government Code Section 84204: Filing of Late Independent Expenditure Reports (Form 496)

"Late independent expenditure" means any independent expenditure which totals in the aggregate $1,000 or more and is made for or against any specific measure or candidate involved in an election before the date of the election but after the closing date of the last campaign statement required to be filed prior to the election by a candidate or committee participating in such election. (Government Code Section 82036.5).

Late independent expenditures must be reported within 24 hours by facsimile transmission, telegram, guaranteed overnight mail through the United States Postal Service or personal delivery. (Government Code Section 84204(a)). A Late Independent Expenditure Report must include: 1) the full name and street address of the candidate or committee making the late independent expenditures; 2) the name, office and district of the candidate if the report is related to a candidate; 3) the number or letter of the measure and the jurisdiction in which the measure is to be voted upon, if the report is related to a measure; and 4) the amount, date and description of goods or services for which the late independent expenditure was made. (Government Code Section 84204(b)). Late Independent Expenditure Reports must be filed in the same jurisdictions the candidate supported or opposed, or the committee primarily formed to support or oppose the measure, is regularly required to file campaign statements. (Government Code Section 84204(c)).

Government Code Section 84203.5: Filing of Supplemental Independent Expenditure Reports (Form 465)

If a candidate or committee makes independent expenditures totaling $500 or more in a calendar year to support or oppose a candidate, a measure or qualification of a measure, it must file Supplemental Independent Expenditure Reports at the same time, covering the same periods and in the same jurisdictions the candidate supported or opposed, or the committee primarily formed to support or oppose the measure regularly files it campaign statements.2 (Government Code Section 84203.5(a)).

A Supplemental Independent Expenditure Report must include: 1) the name, address, telephone number, and identification number of the candidate or committee making the expenditure and of the committee's treasurer; 2) the candidate's name and the office and district for which the candidate seeks nomination or the number or letter of the measure and the jurisdiction in which the measure is to be voted on; 3) the total amount of expenditures made during the period to persons who received less than $100; 4) the total amount expenditures made during the period to persons who received $100 or more and such persons' name, address, identification number if such person is a committee, the date and amount of the expenditure, a description of the expenditure, and the cumulative amount of expenditures to such person; and 6) a list of filing officers with whom the committee filed its most recent campaign statements. (Government Code Section 84203.5(b)).

Campaign and Governmental Conduct Code Section 1.310: Filing of Electronic Campaign Statements

The Electronic Filing Ordinance requires that whenever an elected City and County officer, candidate or committee is required by the Act to file campaign statements with the Ethics Commission, such elected officer, candidate or committee must file at the same time a copy of the report on a computer diskette, or other electronic media, in a format prescribed by the Ethics Commission if such committee receives contributions or makes independent expenditures totaling $5,000 or more in a calendar year. (Campaign and Governmental Conduct Code §1.310).

VI. Material Findings

a. Government Code Section 84105: Failure to Send Major Donor Notification

The Committee was required to send notice regarding major donor filing obligations to four contributors. These contributors donated the following amounts to the Committee: 1) $5,000; 2) $5,000; 3) $5,000; and 4) $30,000, respectively. The Committee did not send notice to any of these contributors. The Committee's treasurer, Daniel Lau, stated that he was not aware of the requirement to send major donor notices.

b. Government Code Section 84211(f): Failure to Report Non-Monetary Contributions

The Committee mailed two pieces of mass mailings advocating support for Proposition J in the November 2, 1999 election. It paid for the labeling, sorting and postage for a total of 150,435 pieces of these two mailers. The Committee did not pay for the costs of designing and printing these mailers. In this manner, the Committee received non-monetary contributions, which it did not report.

Mr. Lau is uncertain of exactly what may have happened. He explained that a number of volunteers helped the Committee to produce and mail campaign literature by communicating with vendors, which sometimes caused confusion for the vendors since some volunteers also assisted other committees. Mr. Lau speculated that the Committee may have put in an order to have the two pieces of literature printed. The vendor may have gotten confused and billed another committee for the printing costs. (A number of committees supported Proposition J, including one that was formed primarily for that purpose.)

c. Government Code Section 84204: Failure to File Late Independent Expenditure Reports (Form 496)

The Committee made late independent expenditures to support or oppose candidates and measures in the following elections: 1) June 2, 1998; 2) November 3, 1998; 3) November 2, 1999; and 4) December 14, 1999. The Committee failed to file Late Independent Expenditure Reports relating to five payments totaling $5,415 in late independent expenditures. (Late Independent Expenditure Reports were filed for 12 payments totaling $47,777.) Please see Attachment 1 for a list of the late independent expenditures for which Reports were not filed.

Mr. Lau noted that although he and the Committee's previous treasurer, Jeffrey Wong, attempted to learn about and comply with the Committee's reporting obligations, there were some requirements, which they did not fully understand. Mr. Lau also noted that during the late reporting period (the 16 days preceding an election), various volunteers incurred expenditures on the Committee's behalf for which he had to track and obtain documentation.

d. Government Code Section 84203.5: Failure to file Supplemental Independent Expenditure Reports (Form 465)

As stated above, the Committee made independent expenditures to support or oppose candidates and measures on an on-going basis. As a result, the Committee was required to file Supplemental Independent Expenditure Reports. The Committee failed to file 40 Supplemental Independent Expenditure Reports totaling $68,840.3 (Supplemental Independent Expenditure Reports were filed for five candidates and measures for independent expenditures totaling $9,000.) Please see Attachment 2 for a list of the independent expenditures for which Reports were not filed.

Mr. Lau noted that the bulk of the Reports that were not filed pertained to independent expenditures relating to the June 2, 1998 election. The Committee had formed shortly before that election. Mr. Lau explained that both he and Mr. Wong, the Committee's previous treasurer, did not have prior experience with political reporting requirements. Mr. Lau also noted that the Committee did not receive professional assistance from persons experienced in this type of reporting. He stated that the Committee engaged in quite complex activity without realizing it (i.e., payments for a single slate card resulted in independent expenditures for each of the candidates and measures that appeared on the slate card, which in turn prompted additional filing obligations). He added that after one year of serving as treasurer, he began to file the Late Independent Expenditure Report and Supplemental Independent Expenditure Report diligently.

e. Campaign and Governmental Conduct Code Section 1.310: Failure to file Electronic Campaign Statement

For the reporting period ending May 16, 1998, the Committee received more than $5,000 in contributions and made independent expenditures of more than $5,000. Per the Electronic Filing Ordinance, the Committee was required to file its campaign statement in electronic form for the period ending May 16, 1998, by May 21, 1998. However, the Committee did not file its electronic statement for this period.

Mr. Lau stated that the Committee did not intentionally fail to file its electronic statement. He said that the non-filing was an oversight.

Although the Committee's failure to file electronically is considered to be a material finding, the Ethics Commission will not take enforcement action against the Committee because technical difficulties during the above-referenced period made it difficult for most committees to comply with the electronic filing requirements.

VII. Conclusion

Through the examination of the Committee's records and campaign disclosure statements, the Auditor found the following material findings: 1) the Committee failed to send major donor notices in violation of Government Code Section 84105; 2) the Committee failed to report non-monetary contributions in violation of Government Code Section 84211(f); 3) the Committee failed to file Late Independent Expenditure Reports in violation of Government Code Section 84204; 4) the Committee failed to file Supplemental Independent Expenditure Reports in violation of Government Code Section 84203.5; and 5) the Committee failed to file an electronic campaign statement in violation of the Campaign and Governmental Conduct Code § 1.310.

Audit reports are posted to the Commission's web site and are forwarded to the Members of the Ethics Commission and, in cases of a violation of law, to the appropriate enforcement agency.

Date:  March 30, 2001

1 During the period covered by the audit, the section of law was codified in the Administrative Code at Section 16.501, et seq. However, the section has since been recodified in the Campaign and Governmental Conduct Code at Section 1.100, et seq.

2 Please note that as a result of a legislative change (AB 974, Pappan Bill) effective January 1, 2001, the $500 threshold has been raised to $1,000.

3 As explained in the Summary of Applicable Law section, a separate Report was required for each candidate and measure that was supported or opposed. For the June 2, 1998 election alone, the Committee was required to file 35 Reports since it supported or opposed 35 candidates and measures on its slate card.

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