c

January 3, 2022 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Staff Director 

Dayna C. Brown 

Assistant Staff Di 

Audit Division 

From: Patricia C. Orrock 

Chief Compliance 

Nicole Burgess 

Audit Manager 

ce Offi

irector

 Officer Officer Officer 

rector 

e

By: Robert Morcomb for RM

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on the Democracy Engine, 

Inc., PAC (A19-18) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presented the Draft Final Audit Report (DFAR) to Democracy Engine, Inc., 

PAC (DEI) on October 15, 2021 (see attachment). In response to the DFAR, DEI requested 

an audit hearing on November 1, 2021 and the Commission granted the request on 

November 5, 2021. The audit hearing was held on December 2, 2021. 

This memorandum provides the Audit staff’s recommendation for each finding outlined in 

the DFAR. 

In response to the DFAR, DEI provided additional information, as noted below. 

Finding 1. Failure to Maintain a Bank Depository 

In response to the DFAR, DEI acknowledged that Commission regulations appear 

to require that each political committee must maintain a depository account and 
2 

asked that the Commission determine that the maintenance of an account without 

any funds by a committee which has no receipts or disbursements is unnecessary 

and impractical. DEI stated “it has been our experience that banks are less willing 

to allow their clients to maintain dormant or empty accounts and will force close the 

account after a period of inactivity.” Further DEI stated “it makes no sense to 

require DEI to reopen an account until and unless it has funds to deposit or spend.” 

DEI noted that it reopened an account in 2019 and has been depositing funds into 

and making expenditures from that account. With regard to its 2018 cycle activity, 

DEI indicated that it amended its reports to “properly reflect the activities as memo 

entries since none of the earmarked contributions passed through a bank account of 

DEI” and stated that, “[i]n hindsight, even this level of reporting may have been 

more than necessary since DEI never ‘handled’ any of the contributions and donors 

used a for-profit vendor to process and forward the contributions to the candidates.” 

The Audit staff does not agree with DEI’s assessment of its reporting requirements, 

since the earmarked contributions were in fact deposited and processed through a 

bank account, albeit by Democracy Engine, LLC.’s (DELLC’s) depository rather 

than a DEI depository. The original reporting of deposited earmarked contributions 

is a more accurate representation of DEI’s financial activity. 

During the audit hearing, the Treasurer stated that “through 2018, the PAC has never 

made a contribution to a candidate independently of an earmark and the only funds 

the PAC has had that were for its own use was an initial $5,000 donation deposited 

into the Citibank account to cover a handful of operating expenses.” The Treasurer 

further stated the funds were exhausted by 2012, and sometime after that the bank 

forcibly closed the account. 

The Audit staff noted during the audit hearing that DEI received contributions 

during the audit period for potential nominees and, as such, the nominee funds 

should have been deposited into a DEI bank account and not a DELLC bank 

account. The Treasurer acknowledged that it was factually correct that DEI received 

limited contributions for nominee funds. In a response subsequent to the audit 

hearing, counsel for DEI detailed that DEI received nominee funds totaling 

approximately $377,0001

. Because the DELLC account held the “nominee funds” 

that were reported on DEI’s disclosure reports, the DELLC account served as the 

undesignated campaign depository of DEI.2

 As such, the Audit staff recommends 

that the Commission find that DEI failed to maintain a bank depository for 

earmarked contributions and disbursements. 

Finding 2. Inaccurate Disclosure of Statement of Organization 

This matter was not addressed in DEI’s response to the DFAR nor was it discussed 

during the audit hearing. 

The Audit staff recommends that the Commission find that during the audit period, 

DEI inaccurately disclosed as its depository of record, a depository which was 

closed in 2012. 

1

 This amount could not be verified by the Audit staff, see Finding 3. 

2

 See the Office of General Counsel’s LRA 1110 Democracy Engine, Inc., PAC ADRM Comments dated 

January 3, 2022. 
3 

Finding 3. Failure to Maintain Records Sufficient to Verify Reported Activity 

In response to the DFAR, DEI objected to the DFAR’s assertion that it failed to 

maintain accounts sufficient to verify reported activity. Further, DEI stated DELLC 

has provided the Audit Division with substantial documentation to document the 

transactions that have been disclosed as conduit activity. 

During the audit hearing, the Treasurer stated that DEI provided everything that was 

requested by the Audit staff, from detailed reports by DELLC of every donor 

transaction processed and disbursed, to DELLC bank account statements through 

which the donor funds flowed. 

Although DEI provided DELLC documents, because DEI’s financial activity was 

processed through DELLC’s bank account, the funds were combined with DELLC’s 

other activity, including that of other DELLC clients. As such, the Audit staff 

maintains that it is unable to verify the accuracy and completeness of DEI’s reported 

receipts and disbursements. The Audit staff recommends that the Commission find 

that DEI failed to maintain records, including bank records, to provide sufficient 

detail that would allow its reports filed with the Commission to be reconciled and 

verified for accuracy and completeness. 

The Office of General Counsel has reviewed this memorandum and concurs with the 

recommendations. 

If this memorandum is approved, the Proposed Final Audit Report will be prepared and 

circulated within 30 days of the Commission’s approval. 

If this Audit Division Recommendation Memorandum is not approved on a tally vote, 

Directive No. 70 states that the matter will be placed on the next regularly scheduled 

open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Robert Morcomb or Nicole Burgess at 694-

1200. 

Attachments: 

- Draft Final Audit Report of the Audit Division on the Democracy Engine, Inc., PAC 

- LRA 1110 Democracy Engine, Inc., PAC ADRM Comments dated January 3, 2022 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on the 

Democracy Engine, Inc., PAC 

(January 1, 2017 - December 31, 2018) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that i

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.1 The audit 

determines whether the 

committee complied with

the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

s 

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) 

The Democracy Engine, Inc., PAC is a separate segregated fund - 

corporation. It is a non-qualified committee and is headquartered 

in Washington, DC. For more information, see the chart on the 

Committee Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals $ 5,922,872 

o Offsets to Operating 

Expenditures 284,717 

Total Receipts $ 6,207,589 

• Disbursements 

o Contributions to Federal 

Candidates/Committees $ 5,921,334 

o Operating Expenditures 284,717 

Total Disbursements $ 6,206,051 

Findings and Recommendations (p. 3) 

• Failure to Maintain a Bank Depository (Finding 1) 

• Inaccurate Disclosure of Statement of Organization (Finding 2) 

• Failure to Maintain Records Sufficient to Verify Reported 

Activity (Finding 3) 

1

 52 U.S.C. §30111(b). 
Draft Final Audit Report of the 

Audit Division on the 

Democracy Engine, Inc., PAC 

(January 1, 2017 - December 31, 2018) 
Table of Contents 

Page 

Part I. Background

Authority for Audit 1 

Scope of Audit 1 

Limitations 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Failure to Maintain a Bank Depository 5 

Finding 2. Inaccurate Disclosure of Statement of Organization 8 

Finding 3. Failure to Maintain Records Sufficient to Verify Reported Activity 9 
1 

Part I 

Background 

Authority for Audit

This report is based on an audit of the Democracy Engine, Inc., PAC (DEI), 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 52 U.S.C. §30111(b), which permits the Commission to conduct audits and 

field investigations of any political committee that is required to file a report under 52 U.S.C. 

§30104. 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. 

52 U.S.C. §30111(b). 

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated various risk factors and 

as a result, this audit examined: 

1. the disclosure of individual contributors’ occupation and name of employer; 

2. the consistency between reported figures and bank records; 

3. the completeness of records; and 

4. other committee operations necessary to the review. 

Limitations 

The Audit staff was not able to perform a reconciliation of DEI’s bank records to its disclosure 

reports filed with the Commission because the DEI did not deposit funds nor make 

disbursements from a committee depository (see Finding 1 – Failure to Maintain a Bank 

Depository). Without bank records, the Audit staff was unable to verify the accuracy and 

completeness of the DEI disclosure reports filed during the audit period (see Finding 3 – Failure 

to Maintain Records Sufficient to Verify Reported Activity). In addition, because DEI filed 

amended reports of its financial activity during this election cycle, the Audit staff sought to 

perform an analysis of the original reports as compared to the bank records but was unable to do 

so. 
 

 

2 

Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration October 13, 2009 

• Audit Coverage January 1, 2017 - December 31, 2018 

Headquarters Washington, DC 

Bank Information 

• Bank Depositories2 None 

• Bank Accounts2 None 

Treasurer 

• Treasurer When Audit Was Conducted Jonathan Zucker 

• Treasurer During Period Covered by Audit Jonathan Zucker (10/13/2009 – Present) 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Who Handled Accounting and 

Recordkeeping Tasks 

Treasurer 

Overview of Financial Activity

(Audited Amounts)3 

Cash on hand @ January 1, 2017 $ 276 

Receipts 

o Contributions from Individuals 5,922,872 

o Offsets to Operating Expenditures 284,717 

Total Receipts $ 6,207,589 

Disbursements 

o Contributions to Federal 

Candidates/Committees 5,921,334 

o Operating Expenditures 284,717 

Total Disbursements $ 6,206,051 

Cash on hand @ December 31, 2018 $ 1,814 

2

 See Finding 1 – Failure to Maintain a Bank Depository. 

3

 The amounts are as reported on DEI’s disclosure reports. The Audit staff was not able to verify the accuracy and

 completeness of the amounts given DEI’s lack of a bank depository and corresponding bank records. See 

 Limitations in Part I and Finding 1 – Failure to Maintain a Bank Depository. 
 

 

 

3 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Failure to Maintain a Bank Depository

DEI failed to maintain a committee bank depository (depository). DEI also failed to 

deposit receipts received and disbursements made, as required by federal statute, using a 

committee-maintained depository. Instead, all DEI’s receipts and disbursements were 

processed through the depository of Democracy Engine, LLC4

 (DELLC). DEI’s activity 

was processed through DELLC’s transfer account (Transfer Account) along with the 

activity of other DELLC clients, thus combining DEI’s federal activity with the activity 

of other political and non-political entities. 

During audit fieldwork, DEI provided bank statements showing that DEI established its 

own depository on September 18, 2019 and provided an April 2020 bank statement 

demonstrating that DEI now processed activity through this depository. In response to 

the Interim Audit Report recommendation, DEI stated that it was filing amendments to 

“correctly characterize [its] activity as non-depository bundled contributions for which 

[DEI] served as a conduit.” DEI amended all its reports for the 2018 cycle to reflect all 

activities as “memo entries.” The Audit staff maintains that DEI failed to maintain a 

bank depository for earmarked contributions and disbursements. (For more detail, see p. 

5.) 

Finding 2. Inaccurate Disclosure of Statement of Organization

DEI disclosed a closed depository on its amended Statements of Organization during the 

audit period. DEI filed an amended Statement of Organization on September 19, 20195

, 

disclosing Amalgamated Bank as its committee depository. In response to the Interim 

Audit Report recommendation, DEI acknowledged that it should have filed a 

“miscellaneous disclosure” with the Commission that its depository institution had forced 

closed its account due to inactivity. However, DEI believed that no additional 

information was required until a new depository account was established in September 

2019, at which time it filed an amendment to its Statement of Organization. (For more 

detail, see p. 8.) 

Finding 3. Failure to Maintain Records Sufficient to 

Verify Reported Activity

DEI failed to maintain sufficient records, specifically bank records (see Finding 1 -

Failure to Maintain a Bank Depository), to provide sufficient detail that would allow its 

4

 Democracy Engine, LLC (DELLC) is the sole stockholder of Democracy Engine, Inc. Democracy 

 Engine, Inc. PAC (DEI), the subject of this audit report, discloses Democracy Engine, Inc. as a connected

 organization on its Statement of Organization. 

5

 DEI filed this amended Statement of Organization prior to the October 2, 2019 audit notification. 
4 

reports filed with the Commission to be reconciled and verified for accuracy and 

completeness. As a part of standard audit procedures, total reported receipts and 

disbursements, as well as reported cash balances, are verified through a review of bank 

records. However, since DEI did not maintain its own depository and its activity was 

processed with other DELLC clients, reported receipts totaling $6,207,589 and reported 

disbursements totaling $6,206,051, could not be verified for accuracy and completeness. 

In response to the Interim Audit Report recommendation, DEI stated that “it objects to 

this finding and characterization that it failed to maintain sufficient records to verify 

reported activity.” By filing the amendments described in Finding 1, DEI believes that 

this finding is “moot and that sufficient records have been provided by DELLC to verify 

the conduit activity.” (For more detail, see p. 9.) 
 

 

 

 

5 

Part IV 

Findings and Recommendations 

Finding 1. Failure to Maintain a Bank Depository 

Summary 

DEI failed to maintain a committee bank depository (depository). DEI also failed to 

deposit receipts received and disbursements made, as required by federal statute, using a 

committee-maintained depository. Instead, all DEI’s receipts and disbursements were 

processed through the depository of Democracy Engine, LLC6

 (DELLC). DEI’s activity 

was processed through DELLC’s transfer account (Transfer Account) along with the 

activity of other DELLC clients, thus combining DEI’s federal activity with the activity 

of other political and non-political entities. 

During audit fieldwork, DEI provided bank statements showing that DEI established its 

own depository on September 18, 2019 and provided an April 2020 bank statement 

demonstrating that DEI now processed activity through this depository. In response to 

the Interim Audit Report recommendation, DEI stated that it was filing amendments to 

“correctly characterize [its] activity as non-depository bundled contributions for which 

[DEI] served as a conduit.” DEI amended all its reports for the 2018 cycle to reflect all 

activities as “memo entries.” The Audit staff maintains that DEI failed to maintain a 

bank depository for earmarked contributions and disbursements. 

Legal Standard 

A. Depositories. Each political committee shall designate one or more state banks, 

federally chartered depository institutions (including a national bank), or depository 

institutions, the deposits or accounts of which are insured by the Federal Deposit 

Insurance Corporation, Federal Savings and Loan Insurance Corporation, or the National 

Credit Union Administration, as its campaign depository or depositories. Each political 

committee shall maintain at least one checking account or transaction account at one of 

its depositories. 52 U.S.C. §30102(h)(1) and 11 CFR §103.2. 

B. Deposit of Receipts and Disbursements. All receipts by a political committee shall 

be deposited in account(s) established pursuant to 11 CFR §103.2, except that any 

contribution may be, within 10 days of the treasurer’s receipt, returned to the contributor 

without being deposited. The treasurer of the committee shall be responsible for making 

such deposits. All deposits shall be made within 10 days of the treasurer’s receipt. A 

committee shall make all disbursements by check or similar drafts drawn on an account at 

its designated campaign depository, except for expenditures of $100 or less made from a 

petty cash fund maintained pursuant to 11 CFR §102.11. Funds may be transferred from 

the depository for investment purposes but shall be returned to the depository before such 

funds are used to make expenditures. 11 CFR §103.3(a). 

6

 Democracy Engine, LLC (DELLC) is the sole stockholder of Democracy Engine, Inc. Democracy

 Engine, Inc. PAC (DEI), the subject of this audit report, discloses Democracy Engine, Inc. as a 

 connected organization on its Statement of Organization. 
6 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff learned that DEI did not maintain its own bank 

depository (see Limitations, p.1.), as the Citi[bank] account, disclosed as the depository of 

record on Statements of Organization filed between October 13, 2009 and September 18, 

2019, was closed in January 20127

. DEI’s financial activity was instead processed through 

the depository (the Transfer Account) of Democracy Engine, LLC (DELLC). DELLC is a 

for-profit limited liability company whose principal business is the processing and 

distribution of web-based donations to charities, non-profits and political committees, 

including candidate committees at the local, state and federal level. DELLC’s Transfer 

Account processed DEI’s activity, as well as the activity of its other clients, thus combining 

DEI’s federal activity with the activity of other political and non-political entities. 

During audit fieldwork, DEI’s representative indicated, in a notarized affidavit, that 

“effective on or around March 1, 2020, earmarked donations to [DEI] will be processed 

by DELLC via a [DEI] owned merchant account and deposited to a [DEI] owned bank 

account (the Amalgamated Bank account on [DEI’s] current Form 1); distributions will 

be made from the [DEI] owned account in the form of checks and ACH transfers. 

DELLC will still serve as a vendor to the PAC, but the funds will now be segregated 

from other DELLC donation volume.” DEI’s representative submitted an April 2020 

bank statement demonstrating that effective that month, DEI processed its activity 

through this bank account. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the lack of a committee depository with DEI’s representative 

during the exit conference. 

In response to the exit conference, DEI representatives submitted a response indicating 

that it had no expenditures other than those directly related to earmarked contributions 

after January 2012. DEI representatives stated that 11 CFR §100.6 does not require that 

earmarked contributions, for which a committee serves as a conduit or intermediary, pass 

through the committee’s depository account. As such, the contributions were processed 

and distributed by DELLC in accordance with the services agreement between DELLC 

and DEI. The representatives also noted it was their understanding that it was common 

practice for political committees, without financial activity, but which remain active and 

file reports with the Commission, not to maintain a depository account with a zero 

balance given the practice of financial institutions to assess fees even on zero balance 

accounts. Further, if it intended to receive any contributions or make any expenditures 

that required a depository account, it would have immediately reopened its account at 

Citibank or opened a new account and amended its Statement of Organization as it did in 

September 2019 in anticipation of expenditures for merchant account fees from a new 

merchant processor. DEI representatives noted that the Amalgamated Bank account was 

opened prior to any notice of the audit. 

7

 As noted on a bank statement provided to Audit Staff by DEI representatives, this account was closed in 

 January 2012. 
 

7 

Although DEI cited 11 CFR §100.6, which pertains to connected organizations, the Audit 

staff noted that Democracy Engine, Inc. is DEI’s connected organization, as disclosed on 

each Statement of Organization DEI has filed, whereas DEI itself is a political 

committee, registered with the Commission since October 2009. The statute and 

regulations for political committees require the use of a campaign depository as cited 

above. The Audit staff further noted that DEI’s disclosure reports filed during the audit 

period disclosed earmarked contributions on Schedules A (Itemized Receipts) and B 

(Itemized Disbursements) as though the contributions passed through its depository. DEI 

did not report the earmarked contributions as memo entries per 11 CFR § 110.6(c)(1)(iv). 

The Interim Audit Report recommended that DEI provide any additional comments it 

deemed necessary with respect to this matter. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, DEI stated, “although the 

Commission’s regulations at 11 C.F.R. § 103.2 appear to “require” the maintenance of a 

campaign depository, such requirement should not be placed upon a dormant committee 

that has no receipts or disbursements and no cash on hand. DEI further stated that, since 

none of its conduit activities passed through a committee depository account, DEI should 

have disclosed all such activities during the 2018 election cycle as memo entries in 

accordance with 11 CFR § 110.6(c)(1)(v). DEI amended all its disclosure reports for the 

2018 cycle to reflect all its activity as “memo entries” with $0 in receipt or disbursement 

activity. 

The Interim Audit Report did not recommend that DEI amend its reports; however, DEI 

indicated that it did so to correctly characterize its activity as “non-depository bundled 

contributions for which DEI served as conduit.” DEI amended its reports to change its 

entries from deposited earmarked contributions to undeposited earmarked contributions 

(memo entries). 

Commission regulations require that conduits must comply with special reporting rules, 

which vary depending on whether the contribution was deposited in the conduit’s bank 

account or was passed on directly to the recipient committee. In accordance with 11 CFR 

§ 110.6(c)(1)(v), if the committee deposits the earmarked contribution, the committee 

reports the earmarked contributions on Schedules A (Itemized Receipts) and B (Itemized 

Disbursements). If the committee forwards the contribution without depositing it first, 

the committee must itemize the same information in memo entries on Schedules A and B. 

In the case of DEI, the earmarked contributions were not merely forwarded to recipient 

committees, but were first deposited, not in a DEI depository as required by 11 CFR 

§103.2, but instead in the DELLC depository. This was done, as noted by DEI in its 

notarized affidavit, in accordance with its service agreement. In addition, DEI’s response 

to the Interim Audit Report, stated that, “All funds received and disbursed in connection 

with this conduit activity was done through credit card processing and DEI utilized a 

third-party vendor, [DELLC], to process the credit card contributions to each benefiting 

committee that received contributions in connection with its conduit fundraising 

activities” 
 

8 

The Audit staff does not agree with DEI’s assessment of its reporting requirements. The 

original reporting of the earmarked contributions as deposited earmarked contributions 

was a more accurate representation of DEI’s financial activity. As currently disclosed on 

the amended reports filed in response to the Interim Audit Report, it appears that the 

earmarked contributions were not deposited and processed by a depository, when in fact 

they were, albeit by DELLC’s depository rather than a DEI depository. The Audit staff 

maintains that DEI failed to maintain a bank depository for earmarked contributions and 

disbursements. DEI is a separate segregated fund, and therefore a political committee 

under the Act and is required to maintain at least one campaign depository and deposit all 

receipts and issue disbursements through such account, including earmarked 

contributions received in DEI’s capacity as an intermediary or conduit, as required by the 

Act and Commission regulations. 52 U.S.C. § 30102(h)(1); 11 C.F.R. §§103.2 and 

103.3. 

Finding 2. Inaccurate Disclosure of Statement of 

Organization 

Summary 

DEI disclosed a closed depository on its amended Statements of Organization during the 

audit period. DEI filed an amended Statement of Organization on September 19, 20198

, 

disclosing Amalgamated Bank as its committee depository. In response to the Interim 

Audit Report recommendation, DEI acknowledged that it should have filed a 

“miscellaneous disclosure” with the Commission that its depository institution had forced 

closed its account due to inactivity. However, DEI believed that no additional 

information was required until a new depository account was established in September 

2019, at which time it filed an amendment to its Statement of Organization. 

Legal Standard 

A. Registration. A separate segregated fund must file a Statement of Organization no 

later than 10 days after establishment. 52 U.S.C. §30103(a). 

B. Contents. The Statement of Organization shall include a listing of all banks, safety 

deposit boxes, or other depositories used by the committee. 52 U.S.C. §30103(b)(6). 

Facts and Analysis 

A. Facts 

DEI disclosed a closed depository on its Statements of Organization. DEI filed its original 

Statement of Organization with the Commission in October 2009, disclosing its depository 

as Citi[bank]. As previously noted in Finding 1 above, the Citibank depository was closed 

in January 2012. 

8

 DEI filed this amended Statement of Organization prior to the October 2, 2019 audit notification. 
 

 

9 

From February 2012 through September 18, 2019, DEI continued to disclose Citibank as 

its depository9

. DEI filed an amended Statement of Organization on September 19, 2019, 

to report Amalgamated Bank as its committee depository. Amalgamated Bank is also the 

depository used by DELLC. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter with DEI’s representative during the exit 

conference. 

In response to the exit conference, DEI representatives submitted a response stating that 

as of January 2012, its depository account had a zero balance and while it had no specific 

recollection of requesting that the account be closed, noted that it may have made such a 

request after being informed that Citibank would continue to assess fees on the account. 

DEI representatives stated it was their understanding that it was common practice for 

political committees without financial activity, but which remain active and file reports 

with the Commission, not to maintain a depository account with a zero balance given the 

practice of financial institutions to assess fees, even on zero balance accounts. 

As noted above, 52 U.S.C. §30103(b)(6) requires that committees disclose all bank 

accounts, safety deposit boxes, or other depositories used. The Audit staff noted that 

from February 2012 through September 18, 2019, including two amended Statements of 

Organization filed during the 2017-2018 election-cycle, DEI incorrectly disclosed 

Citibank as the depository it was using, although this depository was closed in January 

2012. 

The Interim Audit Report recommended that DEI provide any additional comments it 

deemed necessary with respect to this matter. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, DEI acknowledged that it 

should have filed a “miscellaneous disclosure” to notify the Commission that its 

depository institution had forced closed its account due to inactivity. Further, DEI stated 

it believed that no additional information was required until a new depository account 

was established in [September] 2019, at which time it filed an amendment to its 

Statement of Organization. 

Finding 3. Failure to Maintain Records Sufficient to 

Verify Reported Activity 

Summary 

DEI failed to maintain sufficient records, specifically bank records (see Finding 1 - Failure 

to Maintain a Bank Depository), to provide sufficient detail that would allow its reports 

filed with the Commission to be reconciled and verified for accuracy and completeness. 

As a part of standard audit procedures, total reported receipts and disbursements, as well 

as reported cash balances, are verified through a review of bank records. However, since 

9

 DEI filed two amended Statements of Organization during the audit period with the incorrect disclosure. 
10 

DEI did not maintain its own depository and its activity was processed with other DELLC 

clients, reported receipts totaling $6,207,589 and reported disbursements totaling 

$6,206,051, could not be verified for accuracy and completeness. In response to the 

Interim Audit Report recommendation, DEI stated that it “objects to this finding and 

characterization that it failed to maintain sufficient records to verify reported activity.” By 

filing the amendments described in Finding 1, DEI believes that this finding is “moot and 

that sufficient records have been provided by DELLC to verify the conduit activity.” 

Legal Standard 

Contents of Reports. Each political committee required to file any report or statement 

shall maintain all records as follows: 

• Maintain records, including bank records, with respect to the matters required to be 

reported, including vouchers, worksheets, receipts, bills and accounts, which shall 

provide in sufficient detail the necessary information and data from which the filed 

reports may be verified, explained, clarified and checked for accuracy and 

completeness; 

• Preserve a copy of each report or statement required to be filed under 11 CFR parts 

102 and 104, and all records relevant to such reports or statements; and 

• Keep all reports required to be preserved under this section available for audit, 

inspection or examination by the Commission or its authorized representative(s) for a 

period of not less than 3 years after the report or statement is filed. 11 CFR 

§104.14(b)(1), (2) and (3). 

Facts and Analysis 

A. Facts 

The Audit staff could not verify the reported receipts and disbursements totaling 

$6,207,589 and $6,206,051, respectively, for accuracy and completeness, due to DEI’s 

failure to maintain sufficient records, specifically bank records.10 Although DEI 

maintained an accounting of receipts and disbursements processed by DELLC, the Audit 

staff notes the regulations go beyond simple documentation requirements and specifically 

require that committee records provide information sufficient to verify, explain and check 

for accuracy and completeness of reports, in addition to the requirement to use a 

campaign depository as cited above. Use of a campaign depository ensures a clear 

financial trail of records linking receipts and disbursements to a third-party financial 

institution and provides a complete and verifiable disclosure history for audit purposes. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the recordkeeping issue with the DEI representative during the 

exit conference. The DEI representative noted that DEI’s practice of using the DELLC 

bank account predated the audit period and offered to provide further detailed 

information related to the reported transfers to candidates. However, DEI’s 

representative stated that DEI would not be able to provide further information regarding 

receipts. 

10 See Limitations, p. 1. 
11 

• DEI reduced the total receipt and disbursement activity reported by $107,049 and 

$584,339, respectively. 

The decrease in total reported receipts was due to the following: 

In response to the exit conference, DEI representatives provided the Audit staff with 

additional disbursement data files from DELLC. The data files contained information 

regarding the gross disbursement amounts paid to candidates and the portion of the 

disbursements attributed to DEI, as DEI’s activity was often a subset of gross amounts 

paid to candidates/committees. The Audit staff was able to trace gross DEI transfer 

amounts and gross DEI check amounts on the DELLC bank statements. However, the 

Audit staff was not able to verify that the data files contained the entire population of DEI 

records since its activity was processed with other DELLC clients on the bank statements. 

The Interim Audit Report recommended that DEI provide any additional comments it 

deemed necessary with respect to this matter. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, DEI stated that it “objects to 

this finding and characterization that it failed to maintain sufficient records to verify 

reported activity.” By filing the amendments described in Finding 1, DEI believes that 

this finding is “moot and that sufficient records have been provided by DELLC to verify 

the conduit activity.” 

The Audit staff notes that DEI provided no additional documentation to verify the 

conduit activity. As noted in Finding 1, DEI filed amendments to change the 

characterization of its activity from deposited earmarked contributions (non-memo 

entries) to earmarked contributions forwarded directly to recipients without first being 

deposited (memo entries). The Audit staff reviewed these amendments and noted that, in 

addition to changing the entries from non-memo entries to memo entries, the amended 

reports also reflect the following changes: 

2017 - 2018 

Amendments 

filed March 23, 

2021 

Audited Reports Difference 

Contributions from 

Individuals 

Schedule A, Line 11(a) 

$6,006,306 $5,922,872 $83,434 

Increase 

Offsets to Operating 

Expenditures (Refunds) 

Schedule A, Line 15 

$0.00 $284,717 ($284,717) 

Decrease 

Refunds of Federal 

Contributions 

Schedule A, Line 16 

$94,234 $0.00 $94,234 

Increase 

Net Decrease in Total 

Reported Receipts 

 ($107,049)

Decrease 

The decrease in total reported disbursements was due to the following: 
• Prior to the audit, DEI reported earmarked contributions from individuals 

received and forwarded totaling $5,922,872 and $5,921,334, respectively, a 

difference of $1,538 ($5,922,872 less $5,921,334). The amended reports now 

reflect, via memo entries, that the earmarked contributions from individuals 

received and forwarded were $6,006,306 and $5,535,57811, respectively, a 

difference of $470,728 ($6,006,306 less $5,535,578). DEI did not provide an 

explanation for the change in disclosure amounts. 

12 

2017 - 2018 Amendments filed 

March 23, 2021 Audited Reports Difference 

Operating Expenditures 

Schedule B, Line 21(b) 

$0.00 $284,717 ($284,717) 

Decrease 

Contributions to Federal 

Candidates 

Schedule B, Line 23 

$5,535,578 $5,921,334 ($385,756) 

Decrease 

Refunds of Contribution s to 

Individuals/Persons other than 

Political Committees 

Schedule B, Line 28(a) 

$86,134 $0.00 $86,134 

Increase 

Net Decrease in Total 

Reported Disbursements 

$584,339 

DEI did not provide an explanation for the change in disclosure amounts. 

Since DEI’s financial activity was processed through the depository of DELLC and 

combined with DELLC’s other activity12, the Audit staff could not verify the total 

original reported receipts and disbursements totaling $6,207,589 and $6,206,051, 

respectively. In addition, the Audit staff was also unable to verify the total reported 

amounts of the receipt and disbursement memo entries totaling $6,100,540 and 

$5,621,712, respectively, that DEI disclosed in the amended reports filed in response to 

the Interim Audit Report. The Audit staff maintains that DEI failed to maintain records, 

including bank records, to provide sufficient detail that would allow its reports filed with 

the Commission to be reconciled and verified for accuracy and completeness. 

11 Recipient committees disclosed on FEC reports approximately $4.5 million from DEI as the conduit 

committee, per the Data Disclosure database. Without DEI bank records, the Audit staff is not able to 

 determine if the material discrepancy is DEI’s error. 12 DELLC had bank receipt and disbursement activity of approximately $71 million and $68 million, 

 respectively. 
el 

WASHINGTON, D.C. 20463 

January 3, 2022 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Dayna C. Brown 

Assistant Staff Director 

Audit Division 

FROM: Neven F. Stipanovic 

Associate General Counsel 

Policy Division 

Margaret J. Forman 

Attorney 

Compliance Advice 

SUBJECT: Audit Division Recommendation Memorandum on Democracy Engine, 

Inc., PAC (LRA 1110) 

The Office of the General Counsel has reviewed the Draft Final Audit Report (“DFAR”) 

and Audit Division Recommendation Memorandum (“ADRM”) on Democracy Engine, Inc., 

PAC (“DEI”), the Audit Hearing of DEI, including supplementary information provided,1

 and 

DEI’s response to the DFAR. The DFAR and ADRM contain three findings: Failure to 

Maintain a Bank Depository (Finding 1), Inaccurate Disclosure of Statement of Organization 

(Finding 2), and Recordkeeping for Receipts and Disbursements (Finding 3). We concur with 

the findings, and comment on Findings 1 and 3. If you have any questions, please contact 

Margaret J. Forman, the attorney assigned to this audit. 

1 Procedural Rules for Audit Hearings, 74 Fed. Reg. 33,140, 33,142 (Jul. 10, 2009) as corrected in 74 

Fed. Reg. 39535 (August 7, 2009). 
LRA 1110 

ADRM for Democracy Engine, Inc., PAC 

Page 2 of 2 

I. NOMINEE FUNDS DISCLOSED AS EARMARKED CONTRIBUTIONS 

HELD BY UNDESIGNATED CAMPAIGN DEPOSITORY OF 

DEMOCRACY ENGINE, INC., PAC (FINDINGS 1 AND 3) 

The Audit Division concludes, and we concur, that DEI failed to maintain and use a 

designated campaign depository during the audit period, as required under the Federal Election 

Campaign Act. 52 U.S.C. § 30102(h)(1); see DFAR at 5-8. As a result, the Audit Division 

cannot verify any of the disclosed activity on DEI’s campaign finance disclosure reports. 

The Audit Division further concludes that DEI received earmarked contributions and 

made disbursements through an account owned and controlled by DEI’s affiliated LLC, 

Democracy Engine, LLC (DELLC). See DFAR at 6. In its response to the DFAR, DEI states 

that it never “handled” any of the contributions and that those contributions thus were, in effect, 

not earmarked contributions as DEI had disclosed on its campaign finance reports, but rather 

contributions processed by a vendor, DELLC. See DFAR Response at 1. However, in its 

supplementary response to the Commission following the audit hearing, DEI acknowledges that 

$377,000 of the funds disclosed by DEI as earmarked funds for the 2018 election cycle were for 

“nominee funds in accordance with Advisory Opinion 2003-23 and subsequent opinions.” 

Email from Neil P. Reiff to Nicole Burgess, December 2, 2021 at 4:40PM. Nominee funds, 

disclosed as earmarked contributions, must be deposited in a campaign depository.2 Here, the 

nominee funds were reported by DEI as earmarked contributions but the funds were deposited 

in the account of DELLC. Because the DELLC account held the “nominee funds” that were 

disclosed on the DEI’s campaign reports, the DELLC account served as the undesignated 

campaign depository of DEI. 52 U.S.C.§ 30102(h)(1); 11 C.F.R. §§ 103.2, 103.3.

2 See Advisory Opinion 2003-23 (WE LEAD). Advisory Opinion 2006-30 (ActBlue); Advisory Opinion 

2014-07 (CrowdPAC).