FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

October 20, 2008 

MEMORANDUM 

To: Robert W. Biersack 

Press Officer 

From: Wanda J. ThomaS"-~ Acting Assistant Staff Director 

Audit Division 

Subject: Public Issuance of the Audit Report on the 21st Century Democrats 

Attached please find a copy ofthe audit report on the 21st Century Democrats, 

which was approved by the Commission on October 8, 2008. 

All parties involved have received informational copies of the report and the report 

may be released to the public on October 20, 2008. 

Attachment as stated 

cc:	 Office of General Counsel 

Office of Public Disclosure 

Reports Analysis Division 

FEC Library 

DSDD Website 
Report of the 

Audit Division on the 

21s t Century Democrats 

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. I 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 ofthe 

matters discussed in this 

report. 

About the Committee (p. 2)
 

21st Century Democrats (21CD) is a non-connected committee.
 

21CD qualified for multi-candidate status on June 20, 1990 and
 

is headquartered in Washington, DC. For more information, see
 

chart on the Committee Organization, p. 2.
 

Financial Activity (p. 2) 

•	 Receipts 

o	 Contributions from Individuals $ 5,030,878 

o	 Contributions from Other Political 

Committees 73,055 

o	 Offsets to Operating Expenditures 14,813 

o	 Other Federal Receipts 56,384 

o	 Transfers from Non-federal Funds 1,777,726 

o	 Total Receipts s 6,952,856 

•	 Disbursements 

o	 Operating Expenditures $ 6,726,120

o	 Contributions to Federal 

Candidates/Committees	 40,982 

11,982 o	 Refunds of Contributions 

o	 Other Federal Disbursements 52,128

o	 Total Disbursements $ 6,831,212

Findings and Recommendations	 (p.3) 

•	 Documentation for Receipts (Finding 1) 

•	 Reporting of Debts and Obligations (Finding 2) 

•	 Disclosure ofStatement ofOrganization (Finding 3) 

•	 Misstatement of Financial Activity (Finding 4) 

I 2 U.S.c. §438(b). 
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. Documentation for Receipts 4
 

Finding 2. Reporting of Debts and Obligations 6
 

Finding 3. Disclosure of Statement of Organization 7
 

Finding 4. Misstatement of Financial Activity 8
 
Part I 

Background 

Authority for Audit 

This report is based on an audit of 21st Century Democrats (21CD), undertaken by the 

Audit Division of the Federal Election Commission (the Commission) in accordance 

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: 

1. The receipt of excessive contributions and loans. 

2. The receipt of contributions from prohibited sources. 

3. The disclosure of contributions received. 

4. The disclosure of disbursements, debts and obligations. 

5. The disclosure of expenses allocated between federal and non-federal accounts. 

6. The consistency between reported figures and bank records. 

7. The completeness ofrecords. 

8. Other committee operations necessary to the review. 

Limitations 

21CD did not comply with the recordkeeping requirement, 11 CFR §102.9(a)(4), which 

requires committees to maintain a copy of contributor checks in excess of $50 (see 

Finding 1). The lack of these records limited the Audit staff's testing ofprohibited 

contributions, the timeliness of deposits, the accuracy of election designations and 

contributor attributions, and the adequacy of disclosure information such as contributor 

name and address. It also limited the Audit staff in identifying and explaining differences 

between reported activity and bank activity. ­
2 

Part II 

Overview of Committee 

Committee Organization 

Important Dates 21st Centurv Democrats 

• Date ofRegistration July 28, 1988 

• Audit Coverage January 1,2003 - December 31,2004 

Headquarters Washington, District of Columbia 

Bank Information 

• Bank Depositories Four 

• Bank Accounts Two Federal & Nine Non-federal 

checking accounts 

Treasurer 

• Treasurer When Audit Was Conducted Bill Combs 

• Treasurer During Period Covered by Audit Michael Lux 

Management Information 

• Attended FEC Campaign Finance Seminar Yes 

• Used Commonly Available Campaign Management 

Software Package 

Yes 

• Who Handled Accounting and Recordkeeping Tasks Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash on hand (jiJ January 1, 2003 - $ 22,788 

0 Contributions from Individuals 5,030,878 

0 Contributions from Other Political Committees 73,055 

0 Offsets to Operating Expenditures 14,813 

0 Other Federal Receipts 56,384 

0 Transfers from Non-federal Funds 1,777,726 

Total Receipts $ 6,952,856 

0 Operating Expenditures 6,726,120 

0 Contributions to Federal Candidates/Committees 40,982 

0 Refunds ofContributions 11,982 

0 Other Federal Disbursements 52,128 

Total Disbursements $ 6,831,212 

Cash on hand @ December 31, 2004 $ 144,432 
3 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Documentation for Receipts 

21CD did not maintain adequate documentation for its contributions from individuals in 

excess of$50. In an attempt to locate the necessary records, 21CD authorized the Audit 

staffto obtain contribution records directly from its bank. Through its bank, the Audit 

staff was able to obtain some additional contribution records. Further, in its response to 

the interim audit report, 21CD provided documentation for additional contributions. The 

required records still have not been provided for 37.5% of contributions from individuals. 

(For more detail, see pA) 

Finding 2. Reporting of Debts and Obligations 

21CD did not report most of its debts and obligations on Schedules D (Debts and 

Obligations) during the audit period. From just one vendor, the Audit staff identified 

debts and obligations totaling $638,361 that were not reported. In its response to the 

interim audit report, 21CD agreed with the Audit staff and is reviewing its vendor records 

in preparation for amending its disclosure reports. 21CD filed amended reports 

approximately four months and, again, eight months after the final audit report was 

submitted to the Commission for approval which materially corrected the reporting errors 

noted above. (For more detail, see p.6) 

Finding 3. Disclosure of Statement of Organization 

21CD did not disclose bank depositories on its amended Statement of Organization filed 

during the audit period. 21CD amended its Statement of Organization to include its most 

current bank depositories. No further comments were included in 21CD's response to the 

interim audit report. (For more detail, see p.7) 

Finding 4. Misstatement of Financial Activity 

A comparison of21CD's reported figures to its bank records revealed that receipts for 

calendar year 2004 were misstated. 21CD had both receipts which were not reported and 

receipts which were reported in error. This resulted in a net understatement of receipts 

totaling $32,308. In its response to the interim audit report, 21CD accepted the Audit 

staffs recommendation and agreed to amend its disclosure reports to correct the 

misstatement. 21CD filed amended reports approximately four months and, again, eight 

months after the final audit report was submitted to the Commission for approval which 

materially corrected the misstatement noted above. (For more detail, see p.8) 
4 

Part IV
 

Findings and Recommendations
 

IFinding 1. Documentation for Receipts 

Summary 

21CD did not maintain adequate documentation for its contributions from individuals in 

excess of $50. In an attempt to locate the necessary records, 21CD authorized the Audit 

staff to obtain contribution records directly from its bank. Through its bank, the Audit 

staff was able to obtain some additional contribution records. Further, in its response to 

the interim audit report, 21CD provided documentation for additional contributions. The 

required records still have not been provided for 37.5% of contributions from individuals. 

Legal Standard 

A.	 Recordkeeping. The treasurer of a political committee shall keep an account of: 

•	 All contributions received by or on behalf ofsuch political committee; 

•	 The name and address of any person who makes any contribution in excess of 

$50, together with the date and amount of such contribution by any person. In 

addition, a full-size photocopy or digital image of each check or written 

instrument must be maintained; 

•	 The identification of any person who makes a contribution or contributions 

aggregating more than $200 during a calendar year, together with the date and 

amount of any such contribution; and 

•	 The identification of any political committee which makes a contribution,
 

together with the date and amount of any such contribution.
 

2 U.S.c. §432(c) and 11 CFR §102.9(a)(l), (2), (3) and (4).
 

B. Preservation of Records.	 The treasurer shall preserve all records required to be kept 

for 3 years after the report is filed. 2 U.S.C. §432(d). 

Facts and Analysis 

During the inventory of 21CD records prior to the start offieldwork, it became apparent 

to the Audit staff that a majority of contributor check copies and documentation for credit 

card contributions had not been maintained by 21CD. The receipts database provided by 

21CD contained more than 150,000 contributions from individuals, yet only 1 boxes of 

contribution records were made available to the Audit staff. Most records maintained 

appeared to be contributions greater than or equal to $100. It should be noted that while 

most contributions to 21CD were in amounts less than $50, its receipts database indicated 

that more than 13,700 contributions were greater than $50. A sample review of 

contributions from individuals indicated that 90% of contributors check copies were not 

maintained for contributions greater than $502

. 

2 2leD's receipts database did not distinguish credit card contributions, and, because nearly all of its 

receipts were from deposits of contribution checks, the Audit staff initially treated all sample items as 

contributions by check. 
5 

The Audit staff discussed this matter with 21CD representatives during the audit and at 

the exit conference. 21CD representatives stated that most contribution records had been 

destroyed by the vendor responsible for entering all contributions into its main database, 

Data Direct, Inc. They stated that the only copies maintained were of contributions $100 

or larger which were received directly by the committee. 21CD was unable to provide a 

vendor contract for Data Direct, Inc. to establish what records were supposed to be kept. 

Subsequently, 2lCD authorized the Audit staff to contact its bank in an attempt to obtain 

copies of the missing contributor checks for the contributions included in the sample. 

The bank was only able to locate and provide check copies for 58% of those 

contributions". The bank did not indicate that its search had determined that any of these 

items were contributions made by credit card (see footnote 3, below). Bank 

representatives, using the provided deposit date", indicated they visually scanned 

microfilm copies ofdeposits in an attempt to locate these items. Some of these deposits 

contained hundreds of checks making the review difficult. In addition, bank 

representatives stated that no deposits were made on some dates indicated in 21CD's 

contribution database. This suggests that dates were not consistently or accurately 

recorded by 21CD. 

A list of the sample contributions which were not located by the bank was provided to 

21CD. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that 21CD further attempt to locate the missing contributor 

records by contacting its bank and/or credit card processing companies and having all 

copies produced in the search sent directly to the Audit staff. Also, it was recommended 

that 21CD implement practices to ensure the maintenance ofreceipt documentation and 

provide any comments it may yet have relative to this matter. 

In its response to the interim audit report, 21CD was able to determine that some ofthe 

missing contribution records were for contributions made by credit card. 21CD was also 

able to trace some ofthese contributions to deposits. However, 2ICD was unable to 

provide any credit card processing records, solicitation devices, etc. for these 

contributions. As such, 21CD failed to provide the required documentation for its credit 

card contributions. 

For contributions made by check, 2ICD provided some supporting check copies. 

However, the Audit staff had already obtained this documentation from 2ICD's bank for 

nearly all ofthose contributions. In summary, the required check copies were not 

provided for 12% of contributions in the sample that appear to have been made by check. 

3 Although the available documentation provided no indication that any of the sample contributions were 

made by credit card, some sample items may be credit card contributions which would explain why the 

bank could not locate contributor check copies. The Audit staffestimates that approximately 14% of all 

contributions were made by credit card. 

421 CD's contribution records did not afford the Audit staff an opportunity to verify that the date utilized 

for reporting was the deposit date. 
6 

However, over all the required documentation was not provided for 37.5% of
 

contributions in excess of $50.
 

In addition, 2lCD's response outlined recently implemented practices to ensure the
 

maintenance ofreceipt documentation.
 

IFinding 2. Reporting of Debts and Obligations 

Summary 

21CD did not report most of its debts and obligations on Schedules D (Debts and 

Obligations) during the audit period. From just one vendor, the Audit staff identified 

debts and obligations totaling $638,361 that were not reported. In its response to the 

interim audit report, 21CD agreed with the Audit staff and is reviewing its vendors in 

preparation of amending its disclosure reports. 21CD filed amended reports 

approximately four months and, again, eight months after the final audit report was 

submitted to the Commission for approval which materially corrected the reporting errors 

noted above. 

Legal Standard 

A.	 Continuous Reporting Required. A political committee must disclose the amount 

and nature of outstanding debts and obligations until those debts are extinguished. 

2 U.S.C. §434(b)(8) and 11 CFR §§104.3(d) and 104.11(a). 

B.	 Separate Schedules. A political committee must file separate schedules for debts 

owed by the committee and debts owed to the committee, together with a statement 

explaining the circumstances and conditions under which each debt and obligation 

was incurred or extinguished. 11 CFR §104.11(a). 

C.	 Itemizing Debts and Obligations. 

•	 A debt of $500 or less must be reported once it has been outstanding 60 days from 

the date incurred (the date ofthe transaction); the committee reports it on the next 

regularly scheduled report. 

•	 A debt exceeding $500 must be disclosed in the report that covers the date on 

which the debt was incurred. 11 CFR §104.11(b). 

Facts and Analysis 

During a review of21CD's operating expenditures, the Audit staff became aware that 

very limited debts and obligations had been reported during the audit period. The review 

indicated that debts should have been reported for many vendors, such as OMP, Sheads, 

Strategic Marketing and Mailing, Data Direct, and Integral Resources. Of these vendors, 

21CD only reported debts to Integral Resources. A further review ofone ofthese 

vendors, OMP, indicated that debts and obligations totaling $638,361 should have been 

reported during the audit period. 

The Audit staff discussed this matter with 21CD representatives at the Exit Conference 

and provided them with a schedule ofthe OMP debts noted above. They stated that the 
7 

debt reporting issues stem from their monthly reporting practice, and they added that they 

would review this matter. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that 21CD amend its reports to include debts of$638,361 

to OMP. In addition, it was recommended that 21CD review other vendors for possible 

reportable debts and obligations, and if any such debts were determined, these should 

also be included in the amended reports. In its response to the interim audit report, 21CD 

accepted the Audit staffs recommendation and agreed to amend its reports to include the 

debts to OMP of$638,361 as well as other vendors to which debts were owed. 

21CD filed amended reports approximately four months and, again, eight months after 

the final audit report was submitted to the Commission for approval which materially 

corrected the reporting errors noted above. 

IFinding 3. Disclosure of Statement of Organization 

Summary 

21CD did not disclose bank depositories on its amended Statement ofOrganization filed 

during the audit period. 21CD amended its Statement ofOrganization to include its most 

current bank depositories. No further comments were included in 21CD's response to the 

interim audit report. 

Legal Standard 

Registration. A non-connected committee must file a Statement of Organization no later 

than 10 days after becoming a political committee. 2 U.S.C. §433(a). 

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

deposit boxes, or other depositories used by the committee. 2 U.S.C. §433(b). 

Facts and Analysis 

On March 18,2003, 21CD filed an amended Statement ofOrganization (Statement) with 

the Commission. In the Statement, 21CD did not list any banks or other depositories. No 

subsequent amendments had been filed. 

During audit fieldwork, the Audit staff informed 21CD representatives ofthis matter. At 

the Exit Conference, 21CD representatives presented the Audit staff with an amended 

Statement that disclosed all depositories utilized by 21CD. This Statement was filed with 

the Commission on February 26, 2007. 

Interim Audit Report Recommendation and Committee Response 

The Audit staffrecommended that 21CD provide any further comments relative to this 

matter. None were included in its response. 
8 

IFinding 4. Misstatement of Financial Activity 

Summary 

A comparison of 21CD's reported figures to its bank records revealed that receipts for 

calendar year 2004 were misstated. 21CD had both receipts which were not reported and 

receipts which were reported in error. This resulted in a net understatement ofreceipts 

totaling $32,308. In its response to the interim audit report, 21CD accepted the Audit 

staff's recommendation and agreed to amend its disclosure reports to correct the 

misstatement. 21CD filed amended reports approximately four months and, again, eight 

months after the final audit report was submitted to the Commission for approval which 

materially corrected the misstatement noted above. 

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; 

•	 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), 

Schedule B (Itemized Disbursements) or Schedule H-4 (Joint Federal/Non-federal 

Activity Schedule). 2 U.S.c. §434(b)(l), (2), (3), (4), and (5). 

Facts and Analysis 

The Audit staffreconciled 21CD'sreported activity to bank records for calendar year 

2004. The reconciliation revealed that reported receipts were understated by $32,308. 

The net understatement of receipts resulted from the following: 

• Transfers from Non-federal Accounts not reported	 $179,761 

• Erroneously reported Transfers from Non-federal Accounts (106,448) 

• Other Political Committee Contributions not reported	 15,805 

• Unexplained Difference (56,810)5 

Total Net Understatement of Receipts. $ 32.308 

The Audit staff discussed this matter with 21CD representatives at the exit conference 

and provided a schedule outlining the misstatement. 21CD representatives stated they 

would further review this matter and respond appropriately. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that 21CD amend its reports to correct the misstatement 

noted above. In its response to the interim audit report, 21CD accepted the Audit staff's 

5 It should be noted that this Unexplained Difference is the result of 21CD's failure to maintain adequate 

receipt and deposit records (see Limitations, p.l and Finding 1, pA). With 150,000+ contributions and very 

limited receipt records, any differences were extremely difficult and time consuming to explain. 21CD 

acknowledged its reporting and recordkeeping shortcomings and has taken steps to comply with these 

requirements in the future. 
9 

recommendation and agreed to amend its reports to correct the misstatement. To date, no 

amended reports have been filed. 

21CD filed amended reports approximately four months and, again, eight months after 

the final audit report was submitted to the Commission for approval which materially 

corrected the misstatement noted above.