Part II
Overview of Committee

Committee Organization

Important Dates

CBOE

e Date of Registration

August 1, 1978

e Audit Coverage

January 1, 2003 — December 31, 2004

Headquarters

Chicago, Illinois

Bank Information

e Bank Depositories

1

e Bank Accounts

1 Checking Account

Treasurer
¢ Treasurer When Audit Was Conducted Alan J. Dean
e Treasurer During Period Covered by Audit Alan J. Dean
Management Information
e Attended FEC Campaign Finance Seminar No
e¢ Used Commonly Available Campaign Management Yes
Software Package
¢ Who Handled Accounting and Recordkeeping Tasks CBOE Staffer

Overview of Financial Activity

(Audited Amounts)

Cash on hand @ January 1, 2003 $ 478,081
o Contributions from Individuals $ 468,961
o Interest Income 4,739
Total Receipts $ 473,700
o Contributions to Federal Candidate Committees

and Other Political Committees $ 432,400

o Bank Charges 2,474
Total Disbursements $ 434,874
Cash on hand @ December 31, 2004 $ 516,907



underreporting occurred on the first twenty of twenty-four disclosure reports filed with
the Commission for the audit period. The combined underreported amount for receipts
was $152,944 and for disbursements was $202,374.

Comparison of Originally Reported 2003 Activity to Reconciled Bank Totals

Reported Bank Records Discrepancy

Receipts $7,177 $127,543 $120,366
understated

Disbursements $192,000 $296,442 $104,442
understated

Comparison of Originally Reported 2004 Activity to Reconciled Bank Totals

Reported Bank Records | Discrepancy

Receipts $313,580 $346,157 $32,578
understated

Disbursements $40,500 $138,432 $97,932
understated

As noted previously, CBOE discovered the problem, and on its own initiative, filed
amended reports which materially corrected the underreporting.

Subsequent to the exit conference, the Audit staff notified a CBOE representative of the
inclusion of this finding.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CBOE provide any additional information or
comments that it considers relevant to this matter.

CBOE representatives believed that their explanation provided to the Commission in
response to the ADR-262 was complete and accurately explained the reporting system
malfunction that resulted in the underreporting.

Finding 2. Inadequate Disclosure of Contributions to
Political Committees

Summary

CBOE did not adequately disclose the office sought, including the state and
congressional district or the state in which senate candidates sought office for 111
contributions to federal candidate committees totaling $180,000. An additional
contribution ($15,000) to a national party committee was disclosed using an incorrect


Part I
Background

Authority for Audit

This report is based on an audit of the Chicago Board Options Exchange, Inc. PAC
(CBOE) 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

This audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

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.

NAM YN



Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

On its reports as originally filed with the Commission, CBOE significantly underreported
receipts and disbursements for calendars years 2003 and 2004. Prior to audit notification,
CBOE discovered this error and filed amended reports which materially corrected this
problem. In response to the interim audit report recommendation that CBOE provide any
additional information or written comments that it considered relevant to this matter,
CBOE stood by the explanation provided to the Commission at the time ADR-262 was
resolved.

(For more detail, see p. 4)

Finding 2. Inadequate Disclosure of Contributions to
Political Committees

CBOE did not adequately disclose the office sought, including the state and
congressional district or the state in which senate candidates sought office for 111
contributions to federal candidate committees totaling $180,000. An additional
contribution ($15,000) to a national party committee was disclosed using an incorrect
name. In response to the interim audit report recommendation, CBOE filed amended
reports that corrected the public record.

(For more detail, see p. 5)


name. In response to the interim audit report recommendation, CBOE filed amended
reports that corrected the public record.

Legal Standard

Reporting Contributions to Federal Candidates or Committees. When making
contributions to federal candidates/committees or other political committees, the
committee must report the:

Full name;

Complete address;

Amount;

Date when the contribution was made;

And in the case of candidate committees the:
e Candidate name and address;
¢ Office sought, (including state and Congressional district if applicable); and
e election designation. 2 U.S.C. §434(b)(6)(B)(i) and 11 CFR §104.3(b)(3)(v).

Facts and Analysis

CBOE’s disbursements consisted almost exclusively of contributions to federal candidate
committees and the congressional and senatorial committees of the two national parties.
The Audit staff reviewed all of these transactions and identified 109 ($195,000)
disclosure errors. All but one, (108 errors totaling $180,000) involved contributions to
federal candidates which failed to adequately disclose office sought, and where
applicable, congressional district and/or state.

The remaining error occurred as the result of CBOE incorrectly reporting a contribution
of $15,000 to the National Republican Congressional Committee on April 30, 2003. In
fact, the check written on that date had been made out to National Republican Senatorial
Committee (NRSC). This amount was reported received by the NRSC.

This matter was discussed at the exit conference. CBOE representatives acknowledged
continuing difficulty with the software used to prepare its disclosure reports. They noted
that they had tried to include the necessary information on the report memo line, but in
many cases, the required information, though entered, had been truncated due to lack of
space.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that CBOE amend its reports to correctly disclose these
disbursements.

CBOE filed amended reports in response to the interim audit report which corrected the
public record.


FEDERAL ELECTION COMMISSION
Washington, DC 20463

March 22, 2007

MEMORANDUM

To: Robert W. Biersack
Press Officer

From: Joseph F. Stoltz iy

Assistant Staff ctor
Audit Division

Subject: Public Issuance of the Report of the Audit Division on Chicago Board
Options Exchange, Inc. PAC

Attached please find a copy of the audit report which was approved by the
Commission on March 13, 2007.

The report may be released to the public on March 22, 2007.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
EC Library
DSDD Website


Part IV
Findings and Recommendations

| Finding 1. Misstatement of Financial Activity

Summary

On its reports as originally filed with the Commission, CBOE significantly underreported
receipts and disbursements for calendars years 2003 and 2004. Prior to audit notification,
CBOE discovered this error and filed amended reports which materially corrected this
problem. In response to the interim audit report recommendation that CBOE provide any
additional information or written comments that it considered relevant to this matter,
CBOE stood by the explanation provided to the Commission at the time ADR-262 was
resolved.

Legal Standard

Contents of Reports. Each report must disclose:

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

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

¢ The total amount of disbursements for the reporting period and for the calendar year;
and

¢ Certain transactions that require itemization on Schedule A (Itemized Receipts) or
Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(1), (2), (3), (4) and (5).

Background

An enforcement action was initiated by the Commission in response to the Reports
Analysis Division’s (RAD) referral of April 4, 2005, to address two specific instances of
increased reported financial activity: (1) an additional $64,500 in disbursements was
reported on the amended 2003 August monthly report; and, (2) an additional $75,518 in
receipts was reported on the 2003 Year End report.

CBOE filed these reports with the Commission on October 20, 2004. This enforcement
action resulted in Alternative Disputes Resolution (ADR) Matter #262 and was resolved
on October 21, 2005. In the settlement agreement, CBOE acknowledged that some
reports were filed during 2003-2004 with incomplete financial data due to an unknown
software default problem apparently present when the software was installed. As a result
of an internal audit, CBOE identified the errors and filed amended reports. CBOE also
agreed to designate a “Committee Compliance Officer” and have the Compliance Officer
attend a Commission campaign finance seminar for political action committees within
twelve months of the settlement.”

Facts and Analysis
As illustrated below, the original disclosure reports filed by CBOE with the Commission
for calendar years 2003 and 2004 underreported both receipts and disbursements. This

The Compliance Officer has not yet attended the campaign finance seminar; the seminar had been
canceled due to a budgetary shortfall.


Report of the Audit Division on
the Chicago Board Options

Exchange, Inc. PAC
January 1, 2003 - December 31, 2004

Why the Audit
Was Done

Federal law permits the
Commission to conduct
audits and field
investigations 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.

' 2US.C. §438(b).

About the Committee (p. 2)

The Chicago Board Options Exchange, Inc. PAC (CBOE) is the
separate segregated fund of the Chicago Board Options
Exchange, Inc. CBOE qualified for multi-candidate status on
October 11, 1978 and is headquartered in Chicago, IL. For more
information, see the chart on Committee Organization, p. 2.

Financial Activity (p. 2)
« Receipts

o Contributions from Individuals $ 468,961
o Interest Income 4,739
o Total Receipts $ 473,700
¢ Disbursements

o Contributions to Federal

Candidate Committees and

Other Political Committees $ 432,400
o Bank Charges 2,474
o Total Disbursements $ 434,874

Findings and Recommendations (p. 3)

¢ Misstatement of Financial Activity (Finding 1)

e Inadequate Disclosure of Contributions to Political
Committees (Finding 2)


Table of Contents

Page

Part I. Background

Authority for Audit 1

Scope of Audit 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. Misstatement of Financial Activity 4
Finding 2. Inadequate Disclosure of Contributions to Political Committees 5