Part I
Background

Authority for Audit

This report is based on an audit of the Paul Williams Campaign (PWC), 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

Following Commission approved procedures, the Audit staff evaluated various factors
and as a result, 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.

TAWA

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act
of 2002 (BCRA). The BCRA contains many substantial and technical changes to the
federal campaign finance law. Most of the changes became effective November 6, 2002.
Except for the period November 7, 2002, through December 31, 2002, the period covered
by this audit pre-dates these changes. Therefore, the statutory and regulatory
requirements cited in this report are those that were in prior to November 7, 2002.


e The election-to-date (or election cycle-to-date in the case of authorized candidate
committees) total of all contributions from the same individual or political committee.
11 CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A).

C. Election Cycle. The election cycle begins on the first day following the date of the
previous general election and ends on the date of the next general election. 11 CFR
§100.3(b).

Facts and Analysis

The Audit staff's examination of Schedules A (Itemized Receipts) filed as part of PWC’s
disclosure reports identified 36 disclosure errors relating to contributions totaling
$20,140. The disclosure errors consisted of 30 instances where the election cycle-to-date
totals were omitted (two of which also contained name discrepancies), four instances
where there were incorrect contributor names, one omission of occupation and name of
employer and one incorrect contribution amount.

Interim Audit Report Recommendation and Committee Response

In response to the interim audit report, PWC amended its Schedules A to correct the
disclosure errors.

| Finding 3. Disclosure of Disbursements

Summary

PWC did not itemize disbursements totaling $19,634 or 38% of those required to be
itemized. In addition, 13% of disbursements ($6,633) itemized on PWC’s reports were
not properly disclosed. Most of the errors were caused by the failure to correctly disclose
payees’ addresses. In response to the interim audit report, PWC amended its reports
disclose these disbursements correctly.

Legal Standard

Reporting Operating Expenditures. When operating expenditures to the same person

exceed $200 in an election cycle, the committee must report the:

e Amount;

e Date when the expenditures were made;

« Name and address of the payee; and

¢ Purpose (a brief description of why the disbursement was made). 2 U.S.C.
§434(b)(5)(A) and 11 CFR §104.3(b)(4)(i)(A).

Facts and Analysis

The Audit staff reviewed the available records to identify disbursements that were
required to be itemized. The disbursements were identified using bank statements and
tissue copies of checks. An examination of Schedules B revealed that disbursements
totaling $19,634, or 38% of those identified were not itemized as required. As stated
below at Finding 5 (Recordkeeping for Disbursements), not all records were available for
review and there may be other disbursements required to be itemized that the Audit staff
was not able to identify.


Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

A comparison of PWC’s reported activity to bank records revealed a misstatement of
financial activity for receipts and disbursements in calendar year 2002. In response to the
interim audit report, PWC amended its reports to correct the misstatements. (For more
detail, see p. 4)

Finding 2. Disclosure of Contributions from Individuals
PWC failed to properly disclose 36 contributions from individuals, totaling $20,140. The
majority of the errors resulted from the omission of election cycle-to-date totals. In
Tesponse to the interim audit report, PWC amended its reports to correct the disclosure
errors. (For more detail, see p. 5)

Finding 3. Disclosure of Disbursements

PWC did not itemize disbursements totaling $19,634 or 38% of those required to be
itemized. In addition, 13% of disbursements ($6,633) itemized on PWC’s reports were
not properly disclosed. Most of the errors were caused by the failure to correctly disclose
payees’ addresses. In response to the interim audit report, PWC amended its reports
disclose these disbursements correctly (For more detail, see p. 6)

Finding 4. Cash Disbursements

PWC made 34 cash withdrawals from its bank account. The withdrawals totaled
$12,610. All but one was made by cash withdrawal from an ATM. The Act requires
political committees to make all disbursements, except those from a petty cash fund, by
check or similar draft drawn on a committee account. In response to the interim audit
report, PWC offered an explanation for the cash transactions but did not demonstrate
compliance with the law. (For more detail, see p. 7)

Finding 5. Recordkeeping for Disbursements

Our review indicated that 18% of PWC’s disbursements ($10,757) were not documented
adequately. In response to the interim audit report, PWC provided adequate supporting
documentation.(For more detail, see p. 8)


Part II

Overview of Campaign

Campaign Organization

Important Dates

Paul Williams for Congress

nN

e Date of Registration

March 5, 2002

e Audit Coverage

January 1, 2001 - December 31, 2002

Headquarters

Kemah, Texas

Bank Information

e Bank Depository

1

e Bank Account

1 Checking Account

Treasurer

e Treasurer When Audit Was Conducted

Rick Trapp

e Treasurer During Period Covered by Audit

Fred Ashmead and Rick Trapp

Management Information

e Attended FEC Campaign Finance Seminar | No

e Used Commonly Available Campaign No, the Candidate manually filed the
Management Software Package reports?

e Who Handled Accounting and The Candidate

Recordkeeping Tasks

Overview of Financial Activity

(Audited Amounts)

Cash on hand @ January 1, 2001 $0
Receipts

o From Individuals 55,050
o From Political Party Committees 2,499
o From PAC’s 1,000
Total Receipts $ 58,549
o Operating Expenditures 59,024
Total Disbursements $ 59,024
Cash on hand @ December 31, 2002 $ -475

> PWC failed to file Pre-General, Post General and Year-End 2002 reports in an electronic format as
required under 11 CFR 104.18. In response to the interim audit report, the aforementioned reports were

filed in an electronic format.


Explanation of Discrepancies

Receipts — 2002

The understatement of receipts was the net result of the following:
¢ Documented contributions >$200, not itemized on report and

presumed to be unreported. +$ 2,275
¢ Unidentified receipts on PWC bank statements not reported + 3,325
« Net understatement +

Disbursements — 2002
The understatement of disbursements was the net result of the following:

e Disbursements itemized but not clearly identifiable per bank - $

e Bank statement entries not found on reports + 6,634
e Math error + 1,014
e Net understatement +$ 6,897

Closing Cash on Hand — 2002
The $1,621 overstatement of the closing cash on hand was the net result of the
misstatements described above.

Interim Audit Report Recommendation and Committee Response

In response to the recommendation in the interim audit report, PWC filed the reports
necessary to correct the misstatements noted above.

| Finding 2. Disclosure of Contributions from Individuals

Summary

PWC failed to properly disclose 36 contributions from individuals, totaling $20,140. The

majority of the errors resulted from the omission of election cycle-to-date totals. In
response to the interim audit report, PWC amended its reports to correct the disclosure
errors.

Legal Standard

A. When to Itemize. Authorized candidate committees must itemize:

e Any contribution from an individual if it exceeds $200 per election cycle either by
itself or when aggregated with other contributions from the same contributor;

e Every contribution from any political committee, regardless of the amount; and

¢ Every transfer from another political party committee, regardless of whether the
committees are affiliated. 2 U.S.C. §434(b)(3)(A), (B) and (D).

B. Required Information for Contributions. For each itemized contribution, the
committee must provide the following information:

e The contributor’s full name and address (including zip code),

e The contributor’s occupation and the name of his or her employer (if an individual);
e The date of receipt (the date the committee received the contribution);

¢ The amount of the contribution; and


FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20463

March 30, 2004

MEMORANDUM
TO: PRESS OFFICE
. AG
FROM: JOSEPH F. STOLTZ :/ =
ASSISTANT STAFF ECTOR
AUDIT DIVISION

SUBJECT: | PUBLIC ISSUANCE OF THE AUDIT REPORT ON
PAUL WILLIAMS CAMPAIGN (A03-03)

Attached please find a copy of the audit report and related documents on Paul
Williams Campaign, which was approved by the Commission on March 17, 2004.

The report may be released to the public on March 30, 2004.

Attachment as stated

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


Committee's Response to Recommendation and Audit Staff's

Assessment

In response to the recommendation, PWC stated:

e “Disbursements by Check was impractical;”

e “Funds were withdrawn as a courtesy to staff...where there was a concern that checks
might not clear the bank;”

¢ “The only cash withdrawals that were made were made specifically to pay campaign
staff (campaign manager, coordinator, block walker, and consultant).”

This explanation demonstrates that PWC did not comply with 2 U.S.C 432(h) regarding
cash disbursements.

| Finding 5. Recordkeeping for Disbursements

Summary
Our review indicated that 18% of PWC’s disbursements ($10,757) were not documented

adequately. In response to the interim audit report, PWC provided adequate supporting
documentation.

Legal Standard

A. Required Records for Disbursements. For each disbursement, the treasurer of a

political committee must keep records on the:

e Name and address of the payee;

Amount;

Date;

Purpose (a brief description of why the disbursement was made—see below); and

If the disbursement was made on behalf of a candidate, the candidate’s name and the

office sought by the candidate.

e If the disbursement was in excess of $200, the records must include a receipt or
invoice from the payee, or a cancelled check or share draft to the payee. If the
disbursement was by credit card, the record must include the monthly statement or
customer receipt and the cancelled check used to pay the credit card bill. 2 U.S.C.
§$432(c), 11 CFR §102.9(b)

B. Examples of Purpose

e Adequate Descriptions. Examples of adequate descriptions of “purpose” include the
following: dinner expenses, media, salary, polling, travel, party fees, phone banks,
travel expenses, travel expense reimbursement, catering costs, loan repayment, or
contribution refund. 11 CFR §§104.3(b)(4)(i)(A).

e Inadequate Descriptions. The following descriptions do not meet the requirement for
reporting “purpose”: advance, election day expenses, other expenses, expense
reimbursement, miscellaneous, outside services, get-out-the-vote, and voter
registration. 11 CFR §§104.3(b)(4)(i)(A).


In addition, the Schedules B included in reports filed by PWC contained 29 disbursement
entries, totaling $32,394, eight of which ($6,633), contained an incomplete address.

Interim Audit Report Recommendation and Committee Response

In response to the interim audit report, PWC filed amended Schedules B to disclose the
disbursements correctly.

| Finding 4. Cash Disbursements

Summary

PWC made 34 cash withdrawals from its bank account. The withdrawals totaled
$12,610. All but one was made by cash withdrawal from an ATM. The Act requires
political committees to make all disbursements, except those from a petty cash fund, by
check or similar draft drawn on a committee account. In response to the interim audit
report, PWC offered an explanation for the cash transactions but did not demonstrate
compliance with the law.

Legal Standard

Disbursement by Check. A political committee may only make expenditures in cash,
not to exceed $100 from a petty cash fund. A written journal for such cash expenditures
is to be maintained by the treasurer. All other disbursements shall be made by check or
similar draft drawn on account(s) established at the committee’s campaign
depository(ies). 2 U.S.C. §432(h).

Facts and Analysis

Our examination of bank records and related information identified 34 transactions,
totaling $12,610, involving cash disbursements. One check was made payable to cash in
the amount of $2,600; the remaining transactions consisted of ATM withdrawals of cash
from the campaign depository.

At the exit conference, the Candidate explained that the withdrawals were made to cover
campaign related expenses paid to various individuals and vendors. He provided
affidavits from three individuals attesting that they received cash payments totaling
$7,930 for services rendered to the campaign. In addition, invoices from a vendor and
ATM receipts annotated by PWC indicated that cash payments totaling $4,680 were
made to the vendor.

Interim Audit Report Recommendation

The Audit staff recommended that PWC:

¢ Demonstrate it complied with the provisions of 2. U.S.C. §432(h) regarding cash
disbursements; and

¢ Make any comment it deemed relevant or offer an explanation regarding the cash
disbursements.


Part IV
Findings and Recommendations

| Finding 1. Misstatement of Financial Activity

Summary

A comparison of PWC’s reported activity to bank records revealed a misstatement of
financial activity for receipts and disbursements in calendar year 2002. In response to the
interim audit report PWC amended its reports to correct the misstatement.

Legal Standard

Contents of Reports. Each report must disclose:

. 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; and

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

Facts and Analysis

The Audit staff reconciled PWC’s reported activity to its bank records and determined
that receipts, disbursements and ending cash-on-hand were misstated in calendar year
2002. The misstatements were due to unreported receipts and unreported disbursements.
Due to the condition of PWC’s records, a portion of the misstatements could not be
identified beyond entries on banks statements.

The following chart details the discrepancies between the totals on PWC’s disclosure
reports and the bank activity.

2002 Activity
Reported Bank Records Discrepancy
Receipts $52,949 $58,549 $5,600
Understated
Disbursements $52,126 $59,024 $6,897
Understated
Ending Cash Balance 1,146 -475* 1,621
Overstated

* The negative ending cash figure is due to outstanding checks for which there are insufficient funds in the
checking account to pay.



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Changes in the Law

Part II. Overview of Campaign

Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Misstatement of Financial Activity
Finding 2. Disclosure of Contributions from Individuals
Finding 3. Disclosure of Disbursements
Finding 4. Cash Disbursements
Finding 5. Recordkeeping for Disbursements

Page

OID


Report of the

Audit Division on the

Paul Williams Campaign
January 1, 2001 - December 31, 2002

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
Teport.

' 2U.S.C. §438(b).

? The Candidate's 2000 committee, Paul Williams for Congress, was audited and the following Findings were noted:

About the Committee (p. 2)

The Paul Williams Campaign (PWC) is the principal campaign
committee for Paul Williams, Republican candidate for the U.S.
House of Representatives from the state of Texas, Ninth District.
PWC is headquartered in Kemah, TX. For more information, see
the chart on the Campaign Organization, p. 2.

Financial Activity (p. 2)

e Receipts
o From Individuals $ 55,050
o From Political Party Committees 2,499
o From PACs 1,000
o Total Receipts $ 58,549
¢ Disbursements
o Operating Expenditures $ 59,024
co Total Disbursements $ 59,024

Findings and Recommendations (p. 4)
¢ Misstatement of Financial Activity (Finding 1)
Disclosure of Contributions from Individuals (Finding 2)
Disclosure of Disbursements (Finding 3)

Cash Disbursements (Finding 4)

Recordkeeping for Disbursements (Finding 5)

Failure to Maintain Records (receipts and disbursements), Disclosure of Receipts and Disbursements, Excess
Disbursements of Cash, Personal Use of Excess Campaign Funds and Misstatement of Financial Activity.


Report of the
Audit Division on the
Paul Williams Campaign

January 1, 2001 - December 31, 2002



Facts and Analysis

PWC did not maintain adequate documentation for 13 disbursements totaling $10,757 or
18% of total disbursements. These disbursements were made by checks drawn on the
PWC’s bank account. For all except one of the disbursements, PWC did not maintain
canceled checks, a check register or any documentation to identify the payees. The check
numbers, dates and amounts were itemized on PWC’s bank statements. For one $300
disbursement, a tissue copy of the check that identified the payee was provided; however,
it lacked an adequate purpose for the disbursement. Four of the disbursements appear to
relate to entries on Schedule B of the disclosure reports.

This matter was presented to the Candidate during the exit conference. The candidate
expressed a willingness to obtain the documentation. Subsequent to the exit conference,
he provided copies of letters (dated September 2003) written to four vendors requesting
invoices for disbursements totaling $9,061.

Interim Audit Report Recommendation and Committee Response
In response to the interim audit report, PWC provided copies of canceled checks,
invoices and receipts to adequately document the disbursements.