Part II
Overview of Campaign

Campaign Organization

Important Dates

Daniel Mongiardo for U.S. Senate

e Date of Registration

November 24, 2003

e Audit Coverage

November 7, 2003 — December 31, 2004

Headquarters

Frankfort, Kentucky

Bank Information

e Bank Depositories

Two

e Bank Accounts

Two Checking Accounts

Treasurer

e Treasurer When Audit Was Conducted

Robert W. Kellerman

e Treasurer During Period Covered by Audit

Robert W. Kellerman

Management Information

e Attended FEC Campaign Finance Seminar

No

e Used Commonly Available Campaign
Management Software Package

Yes

e Who Handled Accounting and
Recordkeeping Tasks

Paid staff and volunteers

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ November 7, 2003 $0
o Contributions from Individuals $1,813,162
o Loans Received 776,050
o Contributions from Political Committees 456,841
o Other Receipts 7,528
Total Receipts $3,053,581
o Operating Expenditures $2,764,897
o Loan Repayments 249,367
o Other Disbursements 8,011
Total Disbursements $ 3,022,275
Cash on hand @ December 31, 2004 $ 31,306



¢ Thirty-two contributions (57%) totaling $48,500 were made directly to DMUS by
check.

For the fourteen contributions totaling $19,000 received from conduit entities, DMUS
received both the contributor information and funds from the conduit entities by the end
of the 48-hour reporting period. Accordingly, the Commission determined DMUS was
required to file 48-hour notices for these contributions. Ten contributions totaling
$14,000 were made directly to DMUS via the committee's website. These transactions
were processed by a DMUS credit card processing vendor. The vendor transmitted the
individual transactions to the appropriate credit card companies for payment, and
forwarded lump sum payments from the credit card companies to DMUS. The vendor
also compiled a database of contributor information for the transactions it processed.
DMUS was provided with real time access to this database, and used the database to
compile credit card contributor information for its FEC reports. Periodically, DMUS was
also provided electronic updates of contribution activity from the vendor. During the 48-
hour reporting period, contributor information for the ten contributions at issue was
available to DMUS on the database. The funds from these transactions were not
forwarded to DMUS until several days later. Because DMUS’s credit card processing
vendor was an agent of DMUS with respect to receipt of the contributions on the DMUS
website, DMUS received the contributions at issue by the end of the 48-hour reporting
period. Accordingly, the Commission determined that DMUS was required to file 48-
hour notices for these contributions.

| Finding 3. Failure to File Form 3Z-1

Summary

DMUS failed to file Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with its 2003 Year-End report. The Audit staff recommended that DMUS
provide any relevant information as to why the Form 3Z-1 for the 2003 Year-End report
was not filed. In response to the recommendation in the interim audit report, DMUS
submitted a statement explaining why the Form 3Z-1 was not filed.

Legal Standard

Special Reporting Requirements. Principal campaign committees of candidates for the
U.S. House and the U.S. Senate must file FEC Form 3Z-1 as part of their July Quarterly
and Year-End reports in the year preceding the year in which the general election for the
office sought is held. The information in this form allows opposing candidates to
compute their “gross receipts advantage” used to determine whether a candidate is
entitled to an increased contribution limit. The following information must be disclosed:

1. Gross receipts to date for the primary and general elections,
2. Aggregate amount of contributions from personal funds of the candidate for the
primary and general elections, and,


Part IV
Findings and Recommendations

| Finding 1. Misstatement of Cash-on-Hand

Summary

A comparison of DMUS’s reported figures to its bank records revealed that the ending
cash-on-hand balance had been misstated for calendar year 2004. The Audit staff
recommended that DMUS amend its most recent disclosure report. In its response to the
interim audit report, DMUS complied with the recommendation and corrected the
misstatement.

Legal Standard
Contents of Reports. Each report must disclose:

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

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

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

Facts and Analysis

A comparison of DMUS’s reported figures to its bank records revealed that the ending
cash-on-hand balance for calendar year 2004 had been understated by $53,341. As
detailed by the chart below, the ending cash balance discrepancy was primarily due to
understated receipts and overstated disbursements.

2004 Activity
Reported Bank Records Discrepancy
Opening Cash Balance $ 268,825 $ 268,875 $50
Understated
Receipts $ 2,704,853 $ 2,746,673 $ 41,820
Understated
Disbursements $ 2,995,713 $ 2,984,242 ($ 11,471)
Overstated
Ending Cash Balance ($22,035) $ 31,306 $ 53,341
Understated

The understatement of receipts was primarily due to unreported contributions from
individuals and unreported in-kind contributions totaling $41,379. The net
overstatement of disbursements was caused primarily by DMUS reporting
disbursements totaling ($34,128) which were not supported by checks or debit memos
and not reporting disbursements totaling $22,905. The understatement of ending cash
was primarily the result of these misstatements.


Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Cash-on-Hand

A comparison of DMUS’s reported figures to its bank records revealed that the ending
cash-on-hand balance had been misstated for calendar year 2004. The Audit staff
recommended that DMUS amend its most recent disclosure report. In its response to the
interim audit report, DMUS complied with the recommendation and corrected the
misstatement.

(For more detail, see p. 4)

Finding 2. Failure to File 48-Hour Notices

DMUS failed to file 48-hour notices for 56 contributions totaling $81,500. The Audit
staff recommended that DMUS provide evidence that 48-hour notices were timely filed
or submit any written comments it considers relevant. In its response to the interim audit
report, DMUS explained why it failed to file the above 48-hour notices.

(For more detail, see p. 5)

Finding 3. Failure to File Form 3Z-1

DMUS failed to file Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with its 2003 Year-End report. The Audit staff recommended that DMUS
provide any relevant information as to why the Form 3Z-1 for the 2003 Year-End report
was not filed. In response to the recommendation in the interim audit report, DMUS
submitted a statement explaining why the Form 3Z-1 was not filed.

(For more detail, see p. 7)

Finding 4. Disclosure of Outstanding Debt

DMUS failed to itemize outstanding debt totaling $53,539, on its 2004 July Quarterly
report, to its largest media vendor. The Audit staff recommended that DMUS amend
Schedule D (Debts and Obligations) and the corresponding Summary Pages for its 2004
July Quarterly report to disclose this debt. In its response to the interim audit report,
DMUS amended the above report correcting this omission.

(For more detail, see p. 8)


DMUS Treasurer referred to his letter submitted in response to a January 11, 2005
Request for Additional Information (RFAI) from the Commission’s Reports Analysis
Division” in which he explained why DMUS had not filed all the required 48-hour
notices. In this letter, the Treasurer explained that DMUS’ failure to comply with the 48-
hour filing requirements was caused by the timing of the receipt of two categories of
contributions. He stated the following:

The first category is composed of contributions that were actually
made to other organizations, such as MoveOn.org, but designated for
the Mongiardo campaign. The organization provides for campaign
access to its database to electronically transfer the contributor
information into the campaign database. The reported contribution
dates are the dates of the contributions by the individuals to the
organization that are contained in the database transfer information
to the campaign. As you may know, these contributions are received
in a lump sum check from the organization several days after the
contributions are actually made to the organization. The
organization is the campaign’s sole source of contributor
information...[T]he campaign staff advises that it did not even learn
of these contributions until after the cut off date for 48 hour
reporting. The funds were not actually received and deposited by the
campaign until after the cutoff.

The second category of contributions is for contributions made
directly to the campaign...[T]he information was either not
accessible in a timely manner from the credit card processor by the
campaign staff, or were not reported by the campaign staff to the
Treasurer in a timely manner. In all cases of the credit card
contributions, the funds are not actually received by the campaign
from the credit card processor until several days after the date of
actual contribution, and it is impossible to determine exactly what
contributions are contained in which lump sum payment from the
credit card company (a source of continuing frustration for us).

The Audit staff reviewed DMUS’s receipts database and determined that of the 56
contributions, totaling $81,500, for which 48-hour notices were not filed as required:

e Fourteen of these contributions (25%) totaling $19,000 were received through the
conduit entities’;

e Ten contributions (18%) totaling $14,000 were made directly to DMUS through the
credit card processor;

2 The letter from RAD pertained to the 2004 Post General Report which lacked 48 notices totaling

$68,500.
3 All proceeds received through the conduit entities were deposited into DMUS’s account by the end of the

48-hour reporting period.


FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463

October 12, 2006

MEMORANDUM

TO: Robert W. Biersack
Press Officer

FROM: Joseph F. Stoltz,
Assistant Staff Prrector
Audit Divisio:

SUBJECT: Public Issuance of the Report of the Audit Division on Daniel Mongiardo
for U.S. Senate

Attached please find a copy of the final audit report and related documents on
Daniel Mongiardo for U.S. Senate, which was approved by the Commission on October 4,
2006.

The report may be released to the public.

Attachment as stated

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


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 of the 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

The Audit staff reconciled the account? of the largest DMUS media vendor and
determined that DMUS had an unreported outstanding debt balance at the end of June 30,
2004.

According to the reconciled vendor account, DMUS received three invoices totaling
$63,539 from April 1, 2004 through June 30, 2004. Since DMUS made only one
payment of $10,000 during that period, $53,539 of the invoiced amount remained unpaid
at June 30, 2004. While DMUS paid off this debt in September 2004, the amounts owed
should have been disclosed on Schedule D of the 2004 July Quarterly® report. DMUS
failed to do so.

At the exit conference, the Audit staff provided the DMUS representatives a reconciled
vendor account detailing the unreported debt for the 2004 July Quarterly reporting
period. In their response, the DMUS representatives obtained from the vendor and
submitted to the Audit staff a complete vendor account history. The Audit staff reviewed
the document which further confirmed that DMUS owed the vendor $53,539 as of June
30, 2004. The document did not address DMUS’s failure to itemize its debt on Schedule
Dz.

Interim Audit Report Recommendations and Committee Response
The Audit staff recommended that DMUS amend Schedule D and the corresponding
Summary Pages of its 2004 July Quarterly report to disclose the outstanding debt. In
response, the DMUS Treasurer explained that the DMUS’s failure to itemize the
outstanding debt was inadvertent, and was due to incomplete information furnished to the
Treasurer’s office by the campaign finance staff. Nevertheless, the Treasurer agreed with
the Audit staff’s recommendation and amended the 2004 July Quarterly report.

5 The reconciliation consisted of calculating invoiced and paid amounts for individual reporting periods in
the 2003 - 2004 campaign cycle. The Audit staff then determined whether any outstanding debts were
correctly disclosed on Schedules D.

© The 2004 July Quarterly report covers the second quarter of calendar year 2004 - from April 1, 2004
through June 30, 2004.


3. A calculation of gross receipts less the candidate’s personal contributions for each
election. 11 CFR §104.19.

Facts and Analysis
DMUS failed to file Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with its 2003 Year-End report.

The Audit staff determined gross receipts for the primary election of $293,944 and for the
general election of $12,964 should have been disclosed on Form 3Z-1 of the 2003 Year-
End report. The candidate made personal contributions totaling $1,522 and loaned
DMUS $206,000 during this report period, all designated to the primary election.

The Audit staff presented this matter to the DMUS representatives at the exit conference;
DMUS representatives had no comment.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that DMUS provide any relevant information as to why the
Form 3Z-1 for the 2003 Year-End report was not filed. In response to the
recommendation in the interim audit report, the DMUS Treasurer explained that DMUS
failed to file Form 3Z-1 as it incorrectly believed that the candidate was filing this form.
The Treasurer, however, concluded that all the necessary information that would have
been included in Form 3Z-1 was indeed timely reported in the required quarterly report.
Although the information needed for the Form 3Z-1 may be included in the regular
quarterly report, DMUS was required to file the correct form.

| Finding 4. Disclosure of Outstanding Debt

Summary

DMUS failed to itemize outstanding debt totaling $53,539, on its 2004 July Quarterly
report, to its largest media vendor. The Audit staff recommended that DMUS amend
Schedule D (Debts and Obligations) and the corresponding Summary Pages for its 2004
July Quarterly report to disclose this debt. In its response to the interim audit report,
DMUS amended the above report correcting this omission.

Legal Standard

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) and104.11(a).

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).

* This regulation became effective January 27, 2003; as such, this election cycle is the first that required
the filing of this form.


At the exit conference, the Audit staff provided DMUS representatives with schedules
explaining the misstatement. The representatives offered no comments.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that DMUS correct the cash misstatement by amending its
most recently filed disclosure report with an explanation that it resulted from audit
adjustments from a prior period. In response, the DMUS Treasurer corrected the
misstatement by amending the most recent disclosure report. He stated that the errors
were inadvertent and, in his opinion, the total amounts were minimal in proportion to the
total financial activity of the campaign.

| Finding 2. Failure to File 48-Hour Notices

Summary

DMUS failed to file 48-hour notices for 56 contributions totaling $81,500. The Audit
staff recommended that DMUS provide evidence that 48-hour notices were timely filed
or submit any written comments it considers relevant. In its response to the interim audit
teport, DMUS explained why it failed to file the above 48-hour notices.

Legal Standard

Last-Minute Contributions (48-Hour Notice). Campaign committees must file special
notices regarding contributions of $1,000 or more received less than 20 days but more
than 48 hours before any election in which the candidate is running. This rule applies to
all types of contributions to any authorized committee of the candidate. 11 CFR
§104.5(f).

Facts and Analysis

The Audit staff reviewed 336 contributions ($620,850) of $1,000 or more that were
received during the 48-hour notice filing period for the primary and general elections. Of
these contributions, DMUS failed to file 48-hour notices for 56 of them totaling $81,500
as summarized below.

Election Type Number of Notices Total

Primary 1 $1,000
General 55 $80,500
48-Hour Notices Not Filed 56 $81,500

At the exit conference, DMUS was provided a schedule of the 48-hour notices not filed.
The DMUS representatives stated they were aware of this issue but offered no further
comments.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that DMUS provide evidence that 48-hour notices were
timely filed or submit any written comments it considers relevant. In response, the


Part I
Background

Authority for Audit

This report is based on an audit of Daniel Mongiardo for U.S. Senate (DMUS),
undertaken by the Audit Division of the Federal Election Commission (the Commission)
in accordance with the Federal Election Campaign Act of 1971, as amended (the Act).
The Audit Division conducted the audit pursuant to 2 U.S.C. §438(b), which permits the
Commission to conduct audits and field investigations of any political committee that is
required to file a report under 2 U.S.C. §434. Prior to conducting any audit under this
subsection, the Commission must perform an internal review of reports filed by selected
committees to determine if the reports filed by a particular committee meet the threshold
requirements for substantial compliance with the Act. 2 U.S.C. §438(b).

Scope of Audit

This audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

The disclosure of disbursements, debts and obligations.
The consistency between reported figures and bank records.
The completeness of records.

Other committee operations necessary to the review.

NAWARWNE


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit

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 Cash-on-Hand
Finding 2. Failure to File 48-Hour Notices
Finding 3. Failure to File Form 3Z-1
Finding 4. Disclosure of Outstanding Debt

Page

onns


Report of the
Audit Division on

Daniel Mongiardo for U.S. Senate
November 7, 2003 - December 31, 2004

Why the Audit

Was Done

Federal law permits the
Commission to conduct
audits and field
investigations of any
political committee that is
required to file reports
under the Federal
Election Campaign Act
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
requirements for
substantial compliance
with the Act.' The audit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requirements
of the Act.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

' 2US.C. $438(b).

About the Campaign (. 2)

Daniel Mongiardo for U.S. Senate is the principal campaign
committee for Daniel Mongiardo, Democratic candidate for the
U.S. Senate from the state of Kentucky and is headquartered in
Frankfort, Kentucky. For more information, see the chart on the
Campaign Organization, p. 2.

Financial Activity (p. 2)
e Receipts

o Contributions from Individuals $ 1,813,162
o Loans Received 776,050
o Contributions from Political

Committees 456,841
o Other Receipts 7,528
o Total Receipts $ 3,053,581

¢ Disbursements

o Operating Expenditures $ 2,764,897
o Loan Repayments 249,367
o Other Disbursements 8,011
o Total Disbursements $ 3,022,275

Findings and Recommendations (p. 3)
Misstatement of Cash-on-Hand (Finding 1)

Failure to File 48-Hour Notices (Finding 2)

Failure to File Form 3Z-1 (Finding 3)

Disclosure of Outstanding Debt (Finding 4)