FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20463

February 11, 2002

Mr. Earl Soetaert, Treasurer
Citizens for Danner

1601 South 169 Highway, Suite E
P.O. Box 838

Smithville, MO 64089

Dear Mr. Soetaert:

Attached please find the Final Audit Report on Citizens for Danner. The
Commission approved the report on February 7, 2002.

The Commission approved Final Audit Report will be placed on the public record
on February 19, 2002. Should you have any questions regarding the public release of the
report, please contact the Commission's Press Office at (202) 694-1220. Any questions
you have related to matters covered during the audit or in the report should be directed to
Mr. Alex Boniewicz of the Audit Division at (202) 694-1200 or toll free at (800) 424-
9530.

Sidicerely,

Py LEM

Josey ' stottz

/ Assistant Staff Directo

Audit Division

Attachment as Stated

Page 11 of 13
Approved February 7, 2002


Page 2 of 13
Approved February 7, 2002


The documentation submitted indicated that three of the contributions
($1,000) were refunded; however, the copies of the checks provided were made prior to their
negotiation. For 11 contributions ($10,500) from LLCs, CFD submitted signed statements
from the contributors indicating the entities are not taxed as corporations. Based on the
documentation provided by CFD, three apparent prohibited contributions ($2,150) remain
unresolved.

B. DISCLOSURE OF OCCUPATION/NAME OF EMPLOYER

Section 434(b)(3)(A) of Title 2 of the United States Code requires, in part, a
political committee to disclose the identification of each person who makes a contribution
during the reporting period to the committee in an aggregate amount or value in excess of
$200 within the calendar year, together with the date and amount of any such contribution.

Section 431(13)(A) of Title 2 of the United States Code defines the term
“identification” to mean, in the case of any individual, the name, the mailing address, and the
occupation of such individual, as well as the name of his or her employer.

Section 432(i) of Title 2 of the United States Code states, in part, that when
the treasurer of a political committee shows that best efforts have been used to obtain,
maintain, and submit the information required by this Act for the political committee, any
report or any records of such committee shall be considered in compliance with this Act.

CFD disclosed 345 contributions from individuals on Schedules A. The Audit
staff reviewed these reported entries, along with amendments thereto that included additional
contributor information, to determine if the CFD had disclosed the contributors’ occupation
and/or name of employer. We determined that for 119 of the 345 items (34%), the required
information was not disclosed.

CFD responses to Commission Requests for Additional Information (RFAI)
indicate they attempted to file amended reports electronically, but were precluded from doing
so, receiving error messages. CFD uses the Commission’s electronic filing software. One
RFAI response also indicates “printouts” were attached in an effort to provide this
information. The RFAI responses also indicate CFD has made follow up requests for missing
information; and, in some cases, two follow up requests.

Like the previous matter. the CFD Treasurer was advised of this matter via
email. In his email response. the Treasurer stated that the information had been previously
requested and had reported all information that was furnished. He also stated that an
additional attempt would likely not be any more effective than the original attempt. The
Audit staff noted that, in most instances, the contributors’ occupation and/or name of
employer information was available on the receipt database files provided by CFD.

In the interim audit report. the Audit staff recommended that CFD, as an
electronic filer, amend its disclosure reports pursuant to 11 CFR §104.18 to disclose any
required contributor information not filed to date.

Page 7 of 13
Approved February 7, 2002


To manage its financial activity, CFD used one bank account. CFD made
approximately 280 disbursements, totaling $808.864. CFD received contributions from
individuals totaling $264,747. In addition, CFD received contributions from political action
committees and other political committees, such as party committees and candidate
committees ($425,030); loans ($120,000) and contributions ($1,032) from the Candidate;
and, offsets to operating expenditures of $1,1012 CFD utilized the Commission's electronic
filing software to prepare and file its reports electronically. Paid and volunteer campaign
staff apparently performed accounting, recordkeeping and reporting functions. The Treasurer
has not attended an FEC Seminar, but has worked previously for a congressional campaign
committee.

D. AUDIT SCOPE AND PROCEDURES

Following Commission approved procedures, the Audit staff evaluated
various risk factors and as a result, the scope of the audit included the following general
categories:

1. the receipt of contributions or loans in excess of the statutory
limitations;
2. the receipt of contributions from prohibited sources, such as those

from corporations or labor organizations (see Finding II.A.):

3. proper disclosure of contributions from individuals, political
committees and other entities, to include the itemization of
contributions when required, as well as the completeness and accuracy
of the information disclosed (see Findings II.B. and C.);

4. the accuracy of total reported receipts, disbursements and cash
balances as compared to CFD’s bank records;

5. adequate recordkeeping for CFD’s receipt transactions; and,
6. other audit procedures that were deemed necessary in the situation.
Unless specifically discussed below, no material non-compliance with

statutory or regulatory requirements was detected. It should be noted that the Commission
may pursue further any of the matters discussed in this report in an enforcement action.

> Based on the 2001 Mid Year Report. these loans remained outstanding as of 6-30-01

These categories of receipts total $811,910 or $6,355 more than reported receipts of $805.555. The
difference was not considered material.

Page 4 of 13
Approved February 7, 2002


FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20465

AOI-13

REPORT OF THE AUDIT DIVISION
ON
CITIZENS FOR DANNER

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit of Citizens for Danner (CFD), undertaken by
the Audit Division of the Federal Election Commission (the Commission) in accordance with
the provisions of the Federal Election Campaign Act of 1971, as amended (the Act). The
audit was conducted pursuant to Section 438(b) of Title 2 of the United States Code, which
states, in part, that the Commission may conduct audits and field investigations of any
political committee required to file a report under Section 434 of this title. Prior to
conducting any audit under this subsection, the Commission shall perform an internal review
of reports filed by selected committees to determine if the reports filed by a parucular
committee meet the threshold requirements for substantial compliance with the Act.

B. AUDIT COVERAGE

The audit covered the period from June 7, 2000, the date of the first financial
transaction, through December 31, 2000. CFD reported a beginning cash balance of $0; total
receipts for the audit period of $805,555; total disbursements for the audit period of
$811,062; and an ending cash balance of $(5,507) on December 31. 2000."

Cc. COMMITTEE ORGANIZATION

CFD registered with the Federal Election Commission on June 5, 2000, as the
principal campaign committee for Stephen L. Danner (the Candidate), Democratic candidate
for the U.S. House of Representatives from the State of Missouri, 6" District. The Treasurer
for CFD from inception through September 27, 2000 was Sharon Dale. On September 28,
2000, Justine E. Ward became Treasurer and served until November 14. 2000. On November
15, Earl Soetaert became Treasurer and continues to serve in that capacity. CFD maintains
its headquarters in Smithville, Missouri.

, The correct ending cash on hand balance was determined to be $3.046. The negative cash on hand

balance reported resulted from understating receipts by $6.355 and overstating disbursements by
$2,198. These misstatements were determined to be immaterial.

Page 3 of 13
Approved February 7, 2002


that does not elect to be treated as a corporation by the Internal Revenue Service pursuant to
26 CFR 301.7701-3 shall be attributed only to that single member. Section 110.1(g)(5)
states, in part, that an LLC that makes a contribution pursuant to paragraph (g)(2) or (4) of
this section shall, at the time it makes the contribution, provide information to the recipient
committee as to how the contribution is to be attributed, and affirm to the recipient
committee that it is eligible to make the contribution.

During the review of contributions from individuals, the Audit staff identified
17 contributions, totaling $13,650, made by possible incorporated entities. These
contributions were made by 14 entities of which 9 appear to be LLCs. The Audit staff
contacted the appropriate Secretary of State’s office to verify the corporate status of all
entities. Five of the entities, in all but one instance, appear to be active corporations. The
remaining 9 entities registered as limited liability companies. The information obtained from
the Secretaries of State does not comment on how any of these entities elected to be classified
with the Internal Revenue Service. No separate account was maintained by CFD for
questionable contributions. Although CFD maintained a sufficient balance to cover the
refund of these contributions until November 17, 2000; subsequent to this date CFD did not
maintain sufficient funds to make the refunds. The Audit staff determined the available cash
balance to be $3,046 on December 31, 2000. *

As a result of difficulties in scheduling an exit conference, the Treasurer was
advised of this matter via electronic mail (email). In his email response, the Treasurer stated
that the twelve contributors, whose status is in question, have been contacted. At that time,
four contributors had responded that they file as partnerships. The response stated that
additional status reports can be furnished as they become available. The Audit staff
requested the Treasurer to provide the documentation as it is received.

In the interim audit report, the Audit staff recommended that the CFD
demonstrate that the 17 contributions in question were not from prohibited sources.
Regarding the LLCs, the evidence was to include information from the contributing entities
that verifies that they had not elected to be treated as corporations for IRS purposes, such as
IRS Form 8832 (Entity Classification Election), and that affirms that they were eligible to
make these contributions pursuant to 11 CFR 110.1(g). Absent such evidence, it was
recommended that the CFD refund these contributions and provide evidence of such refunds
(copies of the front and back of the negotiated refund check) for review. If funds were not
available to make the necessary refunds, those contributions requiring refunds were to be
disclosed as debts on Schedule D (Debts and Obligations) until such time that funds became
available to make the refunds.

In its response to the interim audit report, CFD stated that, with regard to the
seventeen questioned contributions, to date, it has been determined that twelve are LLCs that
should not be treated as corporations, but as allowable contributions. The response also notes
that the documentation would be provided to the Audit staff.

* The 2001 Mid Year report filed by CFD discloses cash on hand of $ 6.317 on 6-30-01

Page 6 of 13
Approved February 7, 2002


Fm ane

FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20464

February 19, 2002

MEMORANDUM
TO: RON M. HARRIS

PRESS OFFICER

PRESS OFFICE ,
FROM: JOSEPH F. STOLTZ LY

ASSISTANT STAFF CTOR

SUBJECT: | PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
CITIZENS FOR DANNER

Attached please find a copy of the final audit report and related documents on
citizens for Danner that was approved by the Commission on February 7, 2002.

Informational copies of the report have been received by all parties involved and
thé report may be released to the public on February 19, 2002.

Attachment as stated

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

he


states that amended reports would be filed when specific written instructions are provided on
how this may be successfully done.

The Audit staff has provided CFD with written instructions and the
Commission’s 24-hour software assistance phone number. The Treasurer has recently sought
such assistance, but, to date, Commission records do not indicate that the recommended
amendments have been filed. The Audit staff will continue to provide assistance in getting
this matter resolved.

Page 9 of 13
Approved February 7, 2002


In its response to the interim audit report, CFD stated that it would attempt to
comply with this recommendation when specific written instructions are provided on how
this may be successfully done. The response notes that it had previously informed the Audit
staff of the difficulties encountered during prior attempts to amend its reports using the
Commission’s electronic filing software. The response concludes that CFD believes it has
made best efforts to obtain and report these items.

The Audit staff has provided CFD with written instructions and the
Commission’s 24-hour software assistance phone number. The Treasurer has recently sought
such assistance, but, to date, Commission records do not indicate that the recommended
amendments have been filed. The Audit staff will continue to provide assistance in getting
this matter resolved.

Cc INADEQUATE DISCLOSURE OF RECEIPTS FROM POLITICAL COMMITTEES

Section 104.3(a)(4)(ii) of Title 11 of the Code of Federal Regulations states. in
relevant part, that the identification of each contributor and the aggregate year-to-date total
for such contributor shall be reported for all committees (including political committees and
committees which do not qualify as political committees under the act).

The Audit staff's review of all contributions from political committees
indicated that for 24 such receipts, totaling $53,502, CFD failed to disclose the correct
aggregate year-to-date (AYTD) total for the contributor. This represents approximately 13%
of the receipts from political committees.

It appears that for 22 of these contributions ($50,002) the cause for the
disclosure errors was differing contributor identification numbers assigned by CFD for the
same contributor. For the two remaining items ($3,500), the AYTD disclosure error results
from differing transaction codes* assigned by CFD to receipts from the same contributor.

As with the other matters in this report, the CFD Treasurer was advised of this
matter via email. In his email response, the Treasurer stated that the AYTD totals were
assumed to be properly accumulated by the FECfile software utilized and noted that CFD will
amend its reports as required.

In the interim audit report, the Audit staff recommended that CFD, as an
electronic filer, amend its disclosure reports pursuant to 11 CFR §104.18 to correctly disclose
the contributions noted above.

In its response to the interim audit report, CFD stated that it used listings
supplied by the FECFile software to make the PAC entries referenced. CFD’s response again

Contributor identification number and transaction code are data fields utilized by the FEC File software
to aggregate receipts by contributor.

Page 8 of 13
Approved February 7. 2002


Il. AUDIT FINDINGS AND RECOMMENDATIONS

A. RECEIPT OF APPARENT PROHIBITED CONTRIBUTIONS

Section 441b(a) of Title 2 of the United States Code states. in relevant part,
that it is unlawful for any corporation organized by authority of any law of Congress, to make
a contribution in connection with any election to any political office, or for any corporation or
labor organization, to make a contribution in connection with any election to federal office
and that it is unlawful for any candidate, political committee or any person knowingly to
accept or receive any contribution prohibited by this section.

Section 103.3(b)(1) of Title 11 of the Code of Federal Regulations states, in
part, that the treasurer shall be responsible for examining all contributions received for
evidence of illegality. Contributions that present genuine questions as to whether they were
made by corporations may be, within ten days of the treasurer's receipt, either deposited into a
campaign depository or retuned to the contributor. If any such contribution is deposited, the
treasurer shall make his or her best efforts to determine the legality of the contribution. The
treasurer shall make at least one written or oral request for evidence of the legality of the
contribution. Such evidence includes, but is not limited to, a written statement from the
contributor explaining why the contribution is legal, or a written statement by the treasurer
memorializing an oral communication explaining why the contribution is legal. If the
contribution cannot be determined to be legal, the treasurer shall, within thirty days of the
treasurer's receipt of the contribution, refund the contribution to the contributor.

Sections 103.3(b)(2) and (4) of Title 11 of the Code of Federal Regulations
provide, in part, that the treasurer shal] refund any contribution determined to be illegal to the
contributor within thirty days of the date on which the illegality is discovered. Further, any
contribution which appears to be illegal and which is deposited into a campaign depository
shall not be used for any disbursements by the political committee until the contribution has
been determined to be legal. The political committee must either establish a separate account
in a campaign depository for such contributions or maintain sufficient funds to make all such
refunds.

Section 110.1(g)(1) of Title 11 of the Code of Federal Regulations defines a
“limited liability company” (LLC) as a business entity that is recognized as a limited liability
company under the laws of the state in which it is established. Section 110.1(g)(2) states that
a contribution by an LLC that elects to be treated as a partnership by the Internal Revenue
Service pursuant to 26 CFR 301.7701-3, or does not elect treatment as either a partnership or
a corporation pursuant to that section, shall be considered a contribution from a partnership
pursuant to 11 CFR 110.1(e). Section 110.1(g)(3) states that an LLC that elects to be treated
as a corporation by the Internal Revenue Service, pursuant to 26 CFR 301.7701-3, or an LLC
with publicly-traded shares shall be considered a corporation pursuant to 11 CFR Part 114.
Section 110.1(g)(4) states that a contribution by an LLC with a single natural person member

Page 5 of 13
Approved February 7, 2002


FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20463

REPORT OF THE AUDIT DIVISION
ON
CITIZENS FOR DANNER

EXECUTIVE SUMMARY

Citizens for Danner (CFD) registered with the Federal Election Commission on June 5. 2000. as
the principal campaign committee for Stephen L. Danner. Democratic candidate for the U.S. House of
Representatives from the State of Missouri, 6" District. The Treasurer for CFD from inception through
September 27. 2000 was Sharon Dale. On September 28, 2000. Justine E. Ward became Treasurer and
served until November 14. 2000. On November 15, Earl Soetaert became Treasurer and continues to
serve in that capacity. CFD maintains its headquarters in Smithville. Missouri. The audit was conducted
pursuant to 2 U.S.C. §438(b), which states that the Commission may conduct audits of any political
committee whose reports fail to meet the threshold level of compliance set by the Commission

The three audit findings summarized below were presented to Citizens for Danner at the
completion of fieldwork on October 22, 2001 and later in the interim audit report. CFD’s responses to the
findings are contained in the audit report.

RECEIPT OF APPARENT PROHIBITED CONTRIBUTIONS - 2 U.S.C. Section 441b(a): 11 CFR §§103.3(b)
and 110.1(g). The audit questioned 17 contributions. totaling $13.650. from possible incorporated
enuties. The contributions were from14 entities of which 9 were Limited Liability Companies (LLC).

In response to the interim audit report. documentation submitted indicated that three of the
contributions ($1,000) were refunded. For 1] contributions ($10,500) from LLCs. CFD submitted signed
statements from the contributors indicating the entities are not taxed as corporations. Three apparent
prohibited contributions ($2.150) remain unresolved.

DISCLOSURE OF OCCUPATION/NAME OF EMPLOYER - 2 U.S.C. §434(b)(3)(A). A review of
contributions from individuals indicated that the contributors’ occupation and/or name of employer for
119 of the 345 items (34%). was not disclosed.

CFD’s response to the interim audit report states that amended reports would be filed when
specific written instructions are provided on how this may be successfully done. CFD has been provided
written instructions and the Commission's 24-hour software assistance phone number. The Audit staff
will continue to provide assistance im getting this matter resolved.

INADEQUATE DISCLOSURE OF RECEIPTS FROM POLITICAL COMMITTEES - 11 CFR §104.3(a)(4)(ii).
The review of all contributions from political committees indicated that for 24 such receipts. totaling
$53.502, CFD failed to disclose the correct aggregate year-to-date total for the contributor

CFD’'s response again states that amended reports would be filed when specific written
instructions are provided on how this may be successfully done. CFD has been provided written
instructions and the Commission's 24-hour software assistance phone number. The Audit staff will
continue to provide assistance in getting this matter resoived.

Page | of 13
Approved February 7, 2002


Page 12 of 13
Approved February 7, 2002


TABLE OF CONTENTS

CITIZENS FOR DANNER
Page
Executive Summary 1
Final Audit Report 3
Background 3
Findings 5
Transmittal to Committee 11

Chronology 13


REPORT OF THE AUDIT DIVISION
ON

CITIZENS FOR DANNER

Approved February 7, 2002

FEDERAL ELECTION COMMISSION
999 E STREET, N.W.
WASHINGTON, D.C.



Page 10 of 13
Approved February 7, 2002


CHRONOLOGY

CITIZENS FOR DANNER

Audit Fieldwork
Interim Audit Report
to the Committee

Response Received to the
Interim Audit Report

Final Audit Report Approved

Page 13 of 13
Approved February 7, 2002

July 20 -
October 19, 2001

December 1, 2001

January 6, 2002

February 7, 2002