TABLE OF CONTENTS

CHICAGO BOARD OPTIONS EXCHANGE, INC. PAC

Page

Final Audit Report 1
Background 1
Transmittal to Committee 5

Chronology 7


amended report could be confirmed, the misstatement finding would be adjusted
accordingly in the interim audit report.

The Audit staff determined that, during 2001, CBOE and the Commission's
Reports Analysis Division had corresponded by telephone and by mail in an attempt to
resolve discrepancies on CBOE’s disclosure reports for 2000. The Audit staff reviewed
all filings made by CBOE during 2001 and made inquiries of the Reports Analysis
Division concerning the amended Post-General report. No evidence was located that
such an amendment had been filed and CBOE was so notified.

The interim audit report recommended that CBOE amend its reports by
filing comprehensive Summary and Detailed Summary Pages for calendar year 2000
along with amended Schedules B (Itemized Disbursements) by reporting period.

In response to the interim audit report, CBOE filed amended reports that
materially corrected the misstatements noted above.

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FEDERAL ELECTION COMMISSION
WASHINGTON, DC 20464 A01-29

REPORT OF THE AUDIT DIVISION
ON THE
CHICAGO BOARD OPTIONS EXCHANGE, INC. PAC

L BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit of the Chicago Board Options Exchange,
Inc. PAC (CBOE), the separate segregated fund of the Chicago Board Options Exchange,
Inc., undertaken by the Audit Division of the Federal Election Commission
(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 the selected committees
to determine if 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 January 1, 1999 through December 31,
2000. During this period, CBOE reported a beginning cash balance of $287,405: total
receipts for the period of $854.350; total disbursements for the period of $544,500, and
an ending cash balance of $597,255.

Cc. COMMITTEE ORGANIZATION

CBOE registered with the Commission on August 1, 1978 as the Chicago
Board Options Exchange PAC. On June 23, 1988. its name was changed to Chicago
Board Options Exchange, Inc. PAC. The Treasurer for CBOE during the audit period
was Mr. Alan J. Dean; he continues to serve in that capacity. CBOE maintains its
headquarters in Chicago, Illinois.

To manage its financial activity, CBOE maintained one bank account
during the audit period. It made 371 disbursements totaling $563,921. These were
mostly for contributions to candidate/committees. CBOE received approximately 775
contributions from individuals totaling $807,711, interest of $41,447, offsets to operating

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Unless specifically discussed below, no material non-compliance was
detected. It should be noted that the Commission may pursue the matter discussed below

in an enforcement action.

Il. AUDIT FINDING AND RECOMMENDATION - MIsSTATEMENT OF
FINANCIAL ACTIVITY

Section 434(b) of Title 2 of the United States Code states, in relevant part, that
each report shall disclose the amount of cash on hand at the beginning of each reporting
period, the total amount of all receipts, and the total amount of all disbursements for the
reporting period and calendar year.

The Audit staff compared CBOE’s reported figures with its bank activity and
found that, for the period January 1, 2000, through December 31, 2000, CBOE had
misstated its disbursements and ending cash on hand. CBOE did not maintain records to
show the derivation of its reported amounts. Absent such records, the Audit staff could
not identify all differences between bank activity and reported activity.

Total reported disbursements for calendar year 2000 were $474,000. CBOE
should have reported total disbursements of $491,400. Therefore, disbursements were
understated by $17,400. This net understatement stemmed from CBOE’s:

¢ failure to report 13 disbursements totaling $24,500;

© reporting of disbursements totaling $13,000 which had either been
voided or were not supported by checks or debit memos from CBOE’s
bank account;

¢ failure to report bank fees associated with contributions made by credit
card totaling $4,650;

e and an unexplained understatement of $1,250.

CBOE reported ending cash on hand of $597.255 on December 31, 2000, an
overstatement of $17,686. The correct cash balance was determined to be $579,569. The
overstatement resulted from the misstatements detailed above, as well as from immaterial
discrepancies in the reported figures for beginning cash on hand (January 1, 2000) and
receipts.

During fieldwork, CBOE provided the Audit staff with a copy of an
amendment for the 30-Day Post-General Election report (the amended Post-General
report) for calendar year 2000. It disclosed $11.000 of the $24,500 unreported
disbursements discussed above. The CBOE representative stated that this report had
been filed with the Commission in 2001. Prior to the commencement of fieldwork the
Audit staff had not located this report in Commission files.

At the exit conference, the Audit staff advised CBOE representatives of the
misstatements noted above and explained that. upon their return to the Commission, they
would determine if the amended Post-General report had been filed. If receipt of that

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Choy

FEDERAL ELECTION COMMISSION

WASHINGTON, DC. 20463

October 9, 2002

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ WY
ASSISTANT STAFFPDIRECTOR
AUDIT DIVISION /

SUBJECT: PUBLIC ISSUANCE OF THE AUDIT REPORT ON
CHICAGO BOARD OPTIONS EXCHANGE, INC. PAC

Attached please find a copy of the audit report and related documents on
Chicago Board Options Exchange, Inc. PAC, which was approved by the Commission on
October 1, 2002.

All parties involved have received informational copies of the report and 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



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FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20463 01-29

October 3, 2002

Mr. Alan J. Dean, Treasurer

Chicago Board Options Exchange, Inc. PAC
400 South LaSalle Street

Chicago, IL 60605

Dear Mr. Dean:

Attached please find the Report of the Audit Division on Chicago Board Options
Exchange, Inc. PAC. The Commission approved the report on October 1, 2002.

The Commission approved Final Audit Report will be placed on the public record
on October 8, 2002. Should you have any questions regarding the public release of the
report, please contact the Commission's Press Office at (202) 219-4155.

Any questions you have related to matters covered during the audit or in the report
should be directed to Henry Miller or Alex Boniewicz of the Audit Division at (202)

694-1200 or toll free at (800) 424-9530.

aie h F. (a.
Assistant Staff Director
Audit Division

-

Attachment as stated

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expenditures of $6,434, and a refund of a $500 contribution CBOE made to a candidate’.
The contributions were collected through an annual fundraising drive that was limited to
the connected organization (Chicago Board Options Exchange) membership. CBOE
utilized common accounting software in 1999 and reports were prepared and filed by the
connected organization’s accounting staff. In 2000, CBOE changed to a custom designed
campaign management application that was used to prepare and file its reports. Neither
the Treasurer nor any of the CBOE staff have attended a Commission seminar.

D. AUDIT SCOPE AND PROCEDURES

The Audit included testing of the following general categories:

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

from corporations or labor organizations;

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;

4. proper disclosure of disbursements including the itemization of
disbursements when required, as well as, the completeness and
accuracy of the information disclosed;

5. proper disclosure of debts and obligations, including loans;

6. accuracy of total reported receipts, disbursements and cash
balances as compared to bank records (see Finding II.);

7. adequate recordkeeping for transactions; and,
8. other audit procedures that were deemed necessary in the situation.

As part of the Commission’s standard audit process, an inventory of
CBOE records was conducted prior to the audit fieldwork to determine if its records were
materially complete and in an auditable state. Based on our review of the records
presented, it was concluded that they were matenally complete and fieldwork began
immediately.

This figure for disbursements ($563,921) differs from reported disbursements ($544,500) by
$19.421. (see Finding II.) In addition. the sum of the receipt categories ($856,092) differs from
reported receipts ($854,350) by $1.742. This discrepancy is considered immaterial by the Audit

staff.
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REPORT OF THE AUDIT DIVISION
ON
Chicago Board Options Exchange, Inc.
PAC

Approved October 1, 2002

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





CHRONOLOGY

CHICAGO BOARD OPTIONS EXCHANGE, INC. PAC

Audit Fieldwork July 15 -
July 26, 2002
Exit Conference July 26, 2002
Final Audit Report Approved October 1, 2002
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