FEDERAL ELECTION COMMISSION

WASHINGTON, O.C :/0463

October 30, 2000

MEMORANDUM

TO:

FROM:

RON M, HARRIS

PRESS OFFICER

fiPRE::::F~:STA ~/J ASSISTANT STAF~.fiECTOR AUDIT DIVISION J

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

GARY HOFMEISTER FOR CONGRESS COMMITTEE

Attached please find a copy of the final audit report and related documents on

Gary Ho±ineister for Congress Committee which was approved by the Commission on

October 19,2000.

Infonnational copies ofthe report have been received by all parties involved and

the report may be released to the public on October 30, 2000.

Attachment as stated

cc: Office of General Counsel

Office of Public Disclosure

Reports Analysis Division

FEC Library
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FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

GARY HOFMEISTER FOR CONGRESS COMMITTEE

~~:

t~1 Page fii ,:r:J!

r'!i Executive Summary

(~ Final Audit Report 3

W

Background 3

r\

:?",.

\d Findings 5

r~ Transmittal to Committee 17 ru

Chronology 19
if
A99-05

FEDERAL ELECTION COMMISSION

WASHINGTON, DC. 204&3

GARY HOFMEISTER FOR CONGRESS COMMITTEE

EXECUTIVE SUMMARY

Gary Hofineister for Congress Committee (the Committee) registered with the

Federal Election Commission on January 24, 1997 as the principal campaign committee

for Gary A. Hofineister (the Candidate), Republican Candidate for the U.S. House of

Representatives from the state ofIndiana for the Tenth District. The Committee

maintained its headquarters in Indianapolis, Indiana.

The audit was conducted pursuant to 2 U.S.C. Section 438(b), which states that

the Commission may conduct audits of any political committee whose reports fail to meet

the threshold level ofcompliance set by the Commission.

The findings from this audit were presented to the Committee at an exit

conference held subsequent to the completion offieldwork on June 22, 1999, and later in

an interim audit report. The Committee's response to the findings are included in this

final audit report.

The following is an overview ofthe findings contained in the final audit report.

CANDIDATE LOAN TO CAMPAIGN - POSSIBLE CORPORATE CONTRIBUTION AND

REPORTING OMISSIONS- 2 U.S.C. §§ 431(8)(A) and 441b(a) and 11 CFR §§

100.7(b)(1l), IOO.8(b)(12), I02.7(d), I04.3(a)(4)(iv) & (d)(I), I04.11(a), and llO.IO(a)

& (b)(l).

In December 1997, the Candidate made the first of eight instal1ments ofwhat was to be a

Joan to his campaign totaling $132,628. In June 1998, the Committee revealed to the

FEC Reports Analysis Division that the Candidate had received a personal loan of

$150,000 on March 31, 1998. Subsequently, the Committee reported the personal loan

on a Schedule C-I on April 15, 1999. This personal loan was secured by real property

solely owned by the Candidate. After reviewing the Candidate's bank records and other

information obtained via subpoena, the Audit staffidentified three loan installments

totaling $31,712 whose source may have been impermissible corporate funds.

Additional1y, the Audit staffrequested that the Committee, for the portion ofthe

Candidate's personal loan related to the amounts he used to make loans to his campaign,

Page I Approved 10/19/00
provide evidence that permissible funds [either ofthe Candidate or the Committee] had

been used to make the repayment ofthe personal loan. In its response to the interim audit

report, the Committee provided no additional information relative to the issues raised.

On the April Quarterly and Pre-Primary Reports filed with the FEC in 1998, the

Committee failed to continuously disclose the Candidate's loans to his principal

campaign committee. Amended reports for these periods filed June IS, 1999 corrected

this omission.

DISBURSEMENTS - OMISSION OF DISCLOSURE INFORMATION, ITEMIZATION OF

DISBURSEMENTS - 2 U.S.C § 434(b)(5)(A).

The Audit staffreviewed itemized disbursements and found that the Committee had

materially failed to provide adequate vendor address information. Additionally, the

Committee failed to itemize disbursements of approximately $187,000 on the PostGeneral and Year-End reports. The disclosure and itemization deficiencies were

corrected by amended reports for 1998 which the Committee filed on June IS, 1999.

FORTY-EIGHT HOUR NOTICES - 2 U.S.C. 434(a)(6)(A).

The Committee failed to file properly forty-eight hour notices for contributions in the

amount 01'$43,713. Notice ofreceipt of a $30,000 loan from the Candidate was filed late

and no forty-eight hour notices were filed for contributions totaling $13,713. In response

to the interim audit report, the Committee stated that it was its policy to comply fully

with the law.

MISSTATEMENT OF FINANCIAL ACTIVITY - 2 U.S.c. § 434(b)(I), (2) and (4).

For Year-End 1998, beginning cash and ending cash at December 31, 1998 was

overstated by $132,769. The Committee corrected the misstatement when it filed

amended reports for 1998 on June 15,1999.

Page 2 Approved 10/19100
A99-05

FEDERAL. ElECTION COMMISSION

WASHINGTON, D.C. 20463

REPORT OF THE AUDITDIVISION

ON

GARYHOFMEISTER FOR CONGRESS COMMITTEE

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit of Gary Hofineister for Congress

Committee (the Committee), undertaken by the Audit Division ofthe Federal Election

Commission in accordance with the provisions ofthe Federal Election Campaign Act of

1971, as amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle

2 ofthe 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 ofthis title. Prior to conducting any audit under this subsection, the

Commission shall perform an internal review ofreports filed by selected committees to

determine ifthe reports filed by a particular committee meet the threshold requirements

for substantial compliance with the Act.

B. AUDIT COVERAGE

The audit covered the period from the inception of bank activity 011

February 7, 1997, through December 31,1998. The Committee reportedl a beginning

cash balance of $0; total receipts for the audit period of $779, 172; total disbursements for

The figures cited in this report are rounded to the nearest dollar. The amounts reported do not

foot. The financial activity for the audit period as reflected in amended reports for 1998, filed in

June of 1999 by the Committee, was beginning cash of$O; total receipts of $785,279, total

disbursements of$771,500; and an ending cash balance of $13,779 at December 31, 1998.

Page 3 Approved IO/l9/00
•

2

the audit period of$773,594; and an ending cash balance of$138,346 on December 31,

1998.

C CAMPAIGN ORGANIZATION

The Committee registered with the Federal Election Commission on

January 24, 1997 as the principal campaign committee for Gary A. Hofmeister (the

Candidate), Republican Candidate for the U.S. House ofRepresentatives from the state of

Indiana for the Tenth District.

The treasurer ofthe Committee at the beginning ofthe audit period was

Dennis Kenley. On Julyl, 1998, Curtis L. Coonrod formally notified the Commission

that he had been appointed to succeed Mr. Kenley as treasurer on June 12'11. Mr. Coonrod

continues to serve as treasurer. The Committee maintained its headquarters in

Indianapolis, Indiana.

To manage its financial activity, the Committee maintained two bank

accounts. From these accounts, the Committee made approximately 610 disbursements.

Into these accounts the Committee deposited approximately 2,300 contributions totaling

$783,378.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe 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 ofreceipts from individuals, political committees

and other entities, to include the itemization of contributions or

other receipts when required, as well as, the completeness and

accuracy ofthe information disclosed; [see Finding II.C.]

4. proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and

accuracy ofthe information disclosed; [see Finding II.B.]

5. proper disclosure of campaign debts and obligations; [see Finding

II.A.]

Page 4 Approved 10/19/00
3

6. the accuracy oftotal reported receipts, disbursements and cash

balances as compared to campaign bank records; [see Finding

II.D.]

7. adequate recordkeeping for campaign transactions; and

8. other audit procedures that were deemed necessary in the situation.

This report is based on documents and workpapers which support

each ofits factual statements. They form part ofthe record upon which the Commission

based its decisions on the matters in the report and were available to the Commissioners

and appropriate stafffor review. Unless specifically discussed below, no material

non-compliance was detected. It should be noted that the Commission may pursue

further any ofthe matters discussed in this report in an enforcement action.

During fieldwork, neither the Committee nor Candidate were able

to provide full documentation ofthe Candidate's personal loan or ofthe source of all

funds used by the Candidate to make advances to his principal campaign committee as

requested by the Audit staff. Subpoenas were issued to the Committee, the Candidate,

the Candidate's business and two banks at which the Candidate was known to hold

accounts requesting materials necessary to establish whether the Candidate had used

permissible funds to make loans to his campaign. Materials provided under subpoena

indicate that some funds were transferred from a previously unidentified account. The

source ofthe funds in this account remains unknown.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. CANDIDATE LOAN TO CAMPAIGN - POSSIBLE CORPORATE

CONTRIBUTION AND REpORTING OMISSIONS

Section 43 I(8)(A) ofTitle 2 ofthe United States Code states, in part, that

the term "contribution" includes any loan made by any person for the purpose of

influencing any election for Federal office.

Section 441b(a) ofTitle 2 ofthe United States Code states, in part, that is

unlawful for any corporation to make a contribution or expenditure in connection with

any election to political office or in connection with any election at which a

Representative in Congress is to be voted for or in connection with any primary election

held to select candidates for the foregoing office, and for any candidate, political

committee or other person to knowingly accept or receive any contribution prohibited by

this section.

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4

Section 100.7(b)(II) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that a loan ofmoney by a federally chartered depository institution is not a

contribution by the lending institution ifsuch loan is made in accordance with applicable

banking laws and regulations and is made in the ordinary course of business. A loan will

be deemed to be made in the ordinary course ofbusiness ifit: Bears the usual and

customary interest rate ofthe lending institution for the category ofloan involved; is

made on a basis which assures repayment; is evidenced by a written instrument; and is

subject to a due date or amortization schedule. Such loans shall be reported by the

political committee in accordance with II CFR I 04.3(a). Each endorser or guarantor

shall be deemed to have contributed that portion of the total amount of the loan for which

he agreed to be liable in a written agreement. A loan shall be considered made on a basis

which assures repayment ifit is obtained as follows: The lending institution making the

loan has perfected a security interest in collateral owned by the candidate receiving the

loan, the fair market value ofthe collateral is equal to or greater than the loan amount and

any senior liens as determined on the date ofthe loan and the candidate provides

documentation to show that the lending institution has a perfected security interest in the

collateral.

Section 100.8(b)(12) ofTitle II ofthe Code ofFederal Regulations states,

in part, that a loan ofmoney by a federally chartered depository institution is not an

expenditure by the lending institution if the loan is made as outlined above in 11 CFR

100.7(b)(1l).

Section 102.7(d) ofTitle 11 ofthe Code of Federal Regulations states, in

part, that any candidate who obtains any loan in connection with his or her campaign

shall be considered as having obtained the loan as an agent ofsuch authorized committee.

Section 104.3(a)(4)(iv) ofTitle 11 ofthe Code of Federal Regulations

states, in part, that the itemization ofreceipts for authorized committees will include the

identification of each contributor and the aggregate year-to-date total for each person

who makes a loan to the reporting committee or to the candidate acting as an agent of the

committee, during the reporting period, together with the identification of any endorser or

guarantor ofsuch loan, the date such loan was made and the amount or value ofsuch

loan.

Section 104.3(d)(l) ofTitle 11 ofthe Code of Federal Regulations states,

in part, when a candidate or political committee obtains a loan from, or establishes a line

of credit at, a lending institution as described in 11 CFR 100.7(b)(l1) and 100.8(b)(l2), it

shall disclose in the next report due the following information on schedule C-l: the date;

amount of loan; interest rate and repayment schedule; types and value of collateral to

secure the loan or explanation of basis upon which the loan was established; and a

certification from the lending institution ofthe accuracy ofthe borrower's statements.

Page 6 Approved 10119/00
5

Section 104.11(a) ofTitle 11 ofthe Code of Federal Regulations states, in

part, that debts and obligations owed by a political committee which remain outstanding

shaH be continuously reported until exhausted.

Section llO.IO(a) ofTitle 11 ofthe Code ofFederal Regulations states

that except as provided in II CFR parts 9001, et seq. and 9031, et seq., candidates for

Federal office may make unlimited expenditures from personal funds.

Sections 1l0.10(b)(l) and (2) ofTitle 11 ofthe Code of Federal

Regulations state, in part, that for purposes ofthis section, personalfunds means any

assets which, under applicable state law, at the time he or she became a candidate, the

candidate had legal right of access to or control over, and with respect to which the

candidate had either legal and rightful title, or an equitable interest. Also included as

personal funds are salary and other earned income from bona fide employment and

dividends and proceeds from the sale ofthe candidate's stock or other investments.

1. Background

Over the course ofsix months beginning in late December 1997,

the Candidate loaned his campaign $132,628. The loan was reported in eight

installments. During fieldwork, neither the Candidate nor the Committee was able to

provide sufficiently detailed documentation which would establish that the source of the

funds loaned to the campaign were from the Candidate's personal funds.

Loan Schedule

Amount Date Description

I $ 25,000 12/31/97 Advancc by Candidate

2 20,000 04/09/98 Advance by Candidate

3 30,000 04/17/98 Advance by Candidate

4 4,000 04/22/98 Payment to 81' Productions.

5 20,000 * 04130198 Advance by Candidate

6 19,500 04/24/98 Payment to Perkins Nichols

7 3,712 04/28/98 Paymentlo Perkins Nichols

8 10,416 * 06/30/98 Travel Advanccs made between 5/97 and 6/98

$ 132,628 * Installment made by Candidate using permissible funds.

Among the eight installments were four advances to the campaign

of $25,000, $20,000, $30,000 and $20,000 made respectively on December 31, 1997,

April 9, 17 and 30, 1998. Payments to various vendors of$4,000, $19,500 and $3,712 on

April 22, 24 and 28, 1998 respectively were also reported by the Committee as loans

made by the Candidate to the campaign. Lastly, the Committee reported a final loan

amount of $ I 0,4 I 6 which was documented as a series of advances for travel expenscs

made by the Candidate on behalf of his campaign beginning in May of 1997 and running

Page 7 Approved 10/19/00
6

through June 1998. The Committee made two repayments to the Candidate in the

amounts of $1 0,000 and $5,000 on November 5 and November 24, 1998 respectively.

Beginning in June 1998, FEC Reports Analysis Division (RAD)

made requests for additional information from the Committee regarding the Candidate's

loans to the campaign. Questions had arisen out ofRAD's routine review ofthe

Committee's disclosure reports. In two Committee communications dated September

1998, the treasurer stated that the Candidate had, in addition to making loans to the

Committee, taken out a personal loan from a financial institution. Later discussions about

this loan occurred in Febmary and March of 1999 between RAD and the Committee's

treasurer.

Following these discussions and a specific request, the Committee

on April 15, 1999 reported the personal loan on a Schedule C-l. By the time this loan

was reported, it had apparently been repaid. On the form filed by the Committee

disclosing the terms ofthe loan, an interest rate of 8.5% per year was listed. According to

the information submitted by the Committee, the Candidate had applied for and received

a line of credit from National City Bank in Indianapolis on March 31, 1998. The

Candidate made two draws on this line ofcredit, the first in the amount of $1 00,000 on

April 3, 1998 and the second, thirteen days later on April 16, in the amount of $50,000.

These draws were deposited into the Candidate's personal checking account at National

City Bank. From this account, a total of $130,000 was transferred to a second personal

checking account at Bank One, also in Indianapolis. The $150,000 personal loan was

secured by real property owned solely by the Candidate; and thus, proceeds from this

loan could be used to make permissible loans to the campaign. However, when a

Candidate secures a personal loan in order to loan a portion of the proceeds to his

campaign, he must repay the relevant portion of the personal loan with permissible funds.

Permissible funds are limited to the Candidate's personal funds or funds ofhis principal

campaign committee. Evidence was not provided to establish that repayment ofthis

portion ofthe candidate's personal loan was made with permissible funds.

2. Possible Corporate Contributions Resulting from

Candidate Loans to the Campaign

The Candidate owns Hofmeister Personal Jewelers (HPJ), a

business incorporated in Indiana. The Act prohibits a Candidate from using funds in

connection with his campaign for federal office which were advanced or loaned to him by

a corporation. Initial concern that such an event may have occurred in this campaign

arose, when, during fieldwork the Audit stafffound that the April 30'h advance of$20,000

was effected via a qualified endorsement by the Candidate of a $20,000 check made

payable to him and written on an account ofHPJ. The Committee and the Candidate

were requested to provide documentation to show that the funds used to make this

advance and the other advances were the personal funds ofthe Candidate. Failure to

provide the requested documentation during fieldwork resulted in subpoenas being issued

to the Committee, the Candidate, HPJ and two banks at which the Candidate was known

Page 8 Approved 10/19/00
7

to hold accounts. Specific information was requested, which, ifprovided, would enable

the Audit staffto ascertain whether the funds transferred were the personal funds ofthe

Candidate.

Based on our review ofmaterials obtained via subpoena, the April

30'h advance was deemed to be an acceptable advance, the source of which was the

Candidate's personal funds. The check endorsed over to the campaign was among the

checks listed by HPJ, in response to a subpoena, as payments made to the Candidate and

was included in the amount ofincome reported on his Federal Tax Form 1099 for 1998.

The last installment, $10,416 in travel advances made between May 1997 and June 1998

and reported on June 30, 1998, also appears to have been paid over time by the Candidate

using his personal funds. 2 Our review raised the following questions about the six

remaining installments ofthe Candidate's loan to the Committee.

Dreamtech, Inc. Check

Before making the December 31,1997 advance of$25,000 from

his personal account at Bank One, an equal amount was deposited on December 30th .

Without this deposit, the account balance (being approximately $4,700) was insufficient

to fund the advance to the Committee. The source ofthe ofthe December 30th deposit

was a $25,000 check written on the account ofHPJ and made out to Dreamtech.

Dreamtech's full name is Dreamtech, Inc., a business owned by the Candidate's son

which provides computer related services. The address ofrecord for Dreamtech, Inc.is

the same as that ofHPJ. The Candidate deposited the check to his personal account. The

endorsements on this check executed by the Candidate were:

"Dreamtech, Inc. "

"Gmy A. Hofmeister"

"Pay to the order of

accl # 69-50530"

Based on the documentation currently available, it appears that the funds used to make

the $25,000 advance to the Committee were not the Candidate's personal funds. Rather,

the check appears to be a payment to Dreamtech, Inc. made by HPJ which was then

deposited by the Candidate into his personal account.

Source of Funds Bank One Account Check $59,980

Funds available and used by the Candidate to make the April 22'H'

and 28tl

' payments of$4,000 and $3,712 were traced to an April 15th deposit into his

personal account at Bank One. This deposit of$63,526, consisted oftwo checks, one

The Audit staff notes that these advances should have been reported as debts owed to the

candidate as they were incurred and as such were not timely reported.

Page 9 Approved 10/19/00
8

from HPJ in the amount of$3,5463 and the other from an account at Bank One4

, in the

amount of$59,980. The Candidate wrote and signed this check and subsequently

endorsed it for deposit into his identified personal account at Bank One. On April 19,

2000 the Audit staff became aware ofthis additional account of the Candidate at Bank

One based on our review ofsubpoenaed bank materials. Lacking any infonnation as to

the source ofthe funds in this newly identified account, the Audit staff notes that these

payments may not have been made with pennissible funds.

Source of Funds Used to Repay Candidate's Personal Loan

Funds used by the Candidate to make three ofthe loan installments

(see chart, page 5) were traced to proceeds from his personal loan noted above. Using the

subpoenaed bank records, the Audit stafftraced the loan proceeds to the advances of

April 90

• and 17th for $20,000 and $30,000 and the payment of April 24'h for media

services of$19,500. The Candidate made the advances by writing checks in the

respective amounts on his personal account at Bank One. The payment for media was

made from his personal account at National City Bank from the balance ($20,000) ofthe

personal loan which remained in that account. Based on our review, these loan

installments were deemed to have been made with pennissible funds. The Audit staff

notes that the funds used to make repayments ofloans whose proceeds were used in

connection with a federal election must be from permissible sources. Examples offunds

from pennissible sources are the Candidate's personal funds or funds of his principal

campaign committee. The source ofthe funds used by the Candidate to repay the line of

credit drawn at National City Bank, the proceeds from which he made loans to his

principal campaign committee, is not known. At this time, evidence to establish that the

repayment ofthat portion ofthe line ofcredit loaned to the campaign was correctly paid,

has not been provided.

Summary

When the Interim Audit Report (IAR) was prepared, it was the

opinion ofthe Audit staffthat the evidence, received through that time, strongly

suggested that the December 31, 1997 loan installment was made with corporate funds.

Also, evidence, received through that time,raised questions about

the payments of $4,000 and $3,712 made by the Candidate on April 22 and April 28,

1998. The payments used funds traced to the April 15, 1998 deposit which included the

$59,979 check from the previously undisclosed Bank One account and whose

pennissibility could not be verified.

The Audit staff identified this deposit amount as being personal funds of the Candidate.

This check was writtcn on Bank One Account 11620956748. The check was not numbered and

had no account name imprinted on it.

Page IO Approved 10/19/00
9

And with respect to the three installments of April 9, 17 and 24 for

$20,000, $30,000 and $19,500 which were funded using proceeds ofthe Candidate's

personal loan, evidence to demonstrate that all repayments on his personal loan (related to

these amounts loaned to his campaign) had been made using permissible funds was not

provided during audit fieldwork.

In the IAR,the Audit staffrecommended that the Committee submit evidence:

a) obtained from HPJ such as but not limited to invoices, statements of accounts, written

agreements which establish the purpose for the payment by Hofmeister Personal

Jewelers to Dreamtech, Inc. and tax forms (1040's, W-2's, 1099's), general ledger

entries which record a return of capital, or any other related documentation which

demonstrates that the check from HPJ to Dreamtech and deposited by the Candidate

into his personal account at Bank One represented his personal funds;

b) obtained from Dreamtech, Inc. such as the invoice, billing and related documents

which support the $25,000 payment from HPJ and show the purpose/reason for the

$25,000 "payment" from Dreamtech to the Candidate;

c) that other funds were the source ofthe December 31st advance to the campaign,

absent such documentation, the $25,000 transaction appears to be an impermissible

corporate contribution from HPJ and/or Dreamtech, Inc.;

d) such as but not limited to loan documentation from National City Bank showing all

payments made on the loan, copies of any checks written or documents supporting

wire transfers made to make payments on the loan and the paid/canceled loan note,

which demonstrates that all payments made on the Candidate's personal loan,

including those applied to interest and principal, were made with the Candidate's

personal funds or funds from a permissible source;

e) such as but not limited to bank statements, related enclosures, deposit slips and copies

of checks deposited from January 1998 through ApriI 1998, to demonstrate that the

recently identified bank account at Bank One is a personal account ofthe Candidate,

and that the source ofthe funds transferred were permissible.

In its response the IAR, the Committee provided no additional

information relative to the issues raised in this finding and requested in the

recommendation. The Committee did take the opportunity to make clear its position with

respect to the Audit staffrequest in the Interim Audit Report.

"The recommendation is that we somehow obtain fUliher documents from

corporations with which the Committee has no relationship and over

which the Committee has no control. Also, certain personal records ofthe

former candidate are requested. None ofthese documents arc required to

be maintained by a political committee, nor would there be any reason for

Page I I Approved 10/19/00
10

us to do so. Accordingly, we do not have these documents, and we cannot

provide them to you."

The Audit staff, however, notes that the regulations at 11 CFR

103.3 provide, in part, that the treasurer shal1 be responsible for examining al1

contributions received for evidence ofil1egality, and the treasurer shal1 make his or her

best efforts to determine the legality ofcontributions that present genuine questions as to

whether they were made by corporations. See 11 CFR 103.3(b). Additionally, a

candidate, when contributing to his campaign, should be able to demonstrate that he used

personal funds to make his contribution. See 11 CFR 110.10

Thus, the questions raised in the IAR remain unanswered. In the

opinion ofthe Audit staff, the Candidate failed to establish that personal funds were used

to advance his principal campaign committee as much as $32,712 (the instal1ments of

December 31, 1997 for $25,000 and the payments of April 22, 1998 for $4,000 and April

28, 1998 for $3,712) or that permissible funds were used to make repayments on his

personal loan relative to the amounts loaned to his campaign from this loan.

3. Failure to Continuously Disclose Candidate's Loans to Principal

Campaign Committee

On the first quarter report for 1998, the Committee failed to

disclose the amount ofthe loan on the Summary Page, line 10, and filed no Schedule C

for the loan made by the Candidate in December 1997 of $25,000. This amount was also

omitted on the Pre-Primary report for 1998 although the Committee did report the April

911, installment of $20,000. Beginning with the Committee's report for the Second

Quarter, all loan amounts received from the Candidate were correctly reported on the

Summary Page, the Detailed Summary page, and Schedules A and C.

Amended reports for each reporting period of 1998 were filed by

the Committee on June 15, 1999. These amendments materially corrected the reporting

omissions identified on the first quarter and pre-primary reports as originally filed.

In the IAR, the Audit staffrecommended no further action was

necessary but allowed for the provision of any additional information or explanation

deemed relevant by the Committee. The Committee declined to make any further

comment.

Page 12 Approved 10/19/00
11

B. DISBURSEMENTS

Section 434(b)(5)(A) ofTitle 2 ofthe United States Code states that each

report filed under this section shall disclose the name and address of each person to

whom an expenditure in an aggregate amount or value in excess of$200 within the

calendar year is made by the reporting committee to meet a candidate operating expense,

together with the date, amount and purpose ofsuch operating expenditure.

1. Omission of Disclosure Infonnation

A sample review of disbursements itemized by the Committee

indicated that a material number ofthe entries were inadequately disclosed. For the

majority ofthe disclosure problems identified, the Committee failed to include either an

address or a complete address for each vendor as required. This problem was addressed

on June 15, 1999 when the Committee filed amended disclosure reports for 1998 which

materially corrected the deficiencies identified in the review.

2. Itemization ofDisbursements

Also identified by the same sample review was the Committee's

failure to itemize a material number ofthe disbursements which required itemization.

These irregularities occurred on the Post-General and Year End 1998 reports. In the PostGeneral period, the Committee disclosed operating expenditures of$198,142 on the

Detailed Summary Page, but on Schedule B itemized operating expenditures of only

$6,365. For the Year End 1998 report, the Committee disclosed operating expenditures

of$4,441 on the Detailed Summary Page, but itemized no expenditures.

This problem was also materially corrected by the amended reports

for 1998 filed by the Committee on June 15, 1999.

C. FORTY-EIGHT HOUR NOTICES

Section 434(a)(6)(A) ofTitle 2 ofthe United States Code states that a

principal campaign committee of a candidate shall notify the Secretary, or the

Commission, and the Secretary ofState, as appropriate, in writing, of any contribution of

$1,000 or more received by any authorized committee ofsuch candidate after the 20th

day, but more than 48 hours before, any election. This notification shall be made within

48 hours after the receipt ofsuch contribution and shall include the name of the candidate

and the office sought by the candidate, the identification ofthe contributor, and the date

ofreceipt and amount of the contribution.

The Audit staffidentified eleven contributions totaling $83,213 received

between April 16, and May 2, 1998 for which the Committee should have filed fortyeight hour notices before the primary election. Ofthese, notices for four contributions,

Page 13 Approved 10119/00
12

totaling $9,713, were never filed and a forty-eight hour notice for a loan of$30,000 from

the Candidate was filed eight days late.

Prior to the General election, forty-eight contributions totaling $74,200

received between October 15, 1998 and October 31,1998 were identified which required

forty-eight hour notices. Ofthese, the Committee failed to file notices for four

contributions which totaled $4,000.

Thus, the Committee failed to file properly forty-eight hour notices for

contributions totaling $43,713. Ofthis amount, no forty-eight hour notices were filed for

contributions totaling $13,713.

This matter was discussed at the exit conference. The Committee said that

any omissions were unintentional, having resulted from the inexperience of its staff.

Also, they alluded to some confusion as to just when forty-eight hour notices were

required to be filed.

In the IAR, it was recommended that the Committee submit evidence that

all required forty-eight hour notices were filed or submit any written comment it feels

relevant to the issue.

The Committee replied as follows to the IAR.

"With regard to notices related to the May primary election, the

Committee has no further comment except to say it was the policy ofthe

Committee to comply fully with the law.

"With regard to notices related to the general election, the Committee

notes that we provided your auditors with documentary evidence that

notices were timely filed. We provided our intemal records regarding the

notices as well as independent certification that the Indiana Election

Commission received all ofthe notices on a timely basis. It was our

policy and practice to send the notices as required, and it is our beliefthat

we did so. There would have been no logical reason for us to omit some

Federal notices, but not others, and yet file all the notices with the State.

Accordingly, as we explained to your auditors, it appears to us some ofthe

notices were misrouted or misfiled at the Federal level. That remains our

belief. "

The Audit staff did consider the materials provided by the Committee

related to the forty-eight hour notices and adjusted our preliminary figures accordingly in

the Committee's favor.

Page 14 Approved 10/19/00
13

No evidence was provided to change our opinion as stated in the JAR -

that the Committee failed to file properly forty-eight hour notices for contributions

totaling $43,713; ofthis amount no forty-eight hour notices were filed for contributions

totaling $13,713.

D. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(I), (2) and (4) ofTitie 2 of the United States Code state,

in part, that a political committee shall disclose the amount of cash on hand at the

beginning of each reporting period and the total amount of all receipts and disbursements

for each reporting period and the calendar year.

The Audit staffreconciled the Committee's reported financial activity to

its bank activity for the period February 7, 1997 through December 31,1998. The value

ofthe total activity for receipts and disbursements was materially correct. However, for

the Year End 1998 report beginning cash was overstated by $132,769. Ending cash at

December 31, 1998 was similarly overstated. Apparently, Committee staff failed to

verify that the beginning cash amount for Year End 1998 coincided with the ending cash

amount reported on the Post-General Report.

At the exit conference, Committee officials agreed the cash on hand was

overstated. Committee officials stated that an error in the computer software used to

prepare the report had caused the misstatement. On June IS, 1999, the Committee filed

amended reports for 1998 which corrected the misstatement.

Page IS Approved 10/19/00
•

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FEDERAL ELECTION COMMISSION

WASHINGTON. D.C. 20463

•

October 25,2000

Mr. Curtis L. Coonrod, Treasurer

Gary Hofmeister for Congress Committee

P.O. Box 26247

Indianapolis, IN 46226

Dear Mr. Coonrod:

Attached please find the Final Audit Report on Gary Hofmeister for Congress

Committee. The Commission approved the report on October 19,2000.

The Commission approved Final Audit Report will be placed on the public record

on October 31,2000. Should you have any questions regarding the public release ofthe

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

Marty Kuest or Wanda Thomas ofthe Audit Division at (202) 694-1200 or toll free at

(800) 424-9530.

Sincerely,

~l.~ Assistant StaffDirector

Audit Division

Attachment as stated

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il

Page 18 Approved 10/19/00
CHRONOLOGY

GARY HOFMEISTER FOR CONGRESS COMMITTEE

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

Page 19

June 7 - 22, 1999

August 27, 2000

September 28, 2000

October 19,2000

Approved 10/19/00
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