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 

(tiie Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

witii tiie Act.' The audit 

determines whether the 

conunittee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of tiie 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. 

Interim Audit Report of the 

Audit Division on the 

Los Angeles County Democratic 

Central Committee 

January 1, 2007 - December 31, 2008 

About the Committee (p. 2) 

Los Angeles County Democratic Central Committee is a local 

party committee headquartered in Burbank, CA. For more 

information, see the chart on the Committee Organization, p.2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions 

o Loans Received 

o Other Receipts 

o Transfers from Non-Federal Funds 

o Transfers from Levin Funds 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Loan Repayments 

o Otiier Disbursements 

Total Disbursements 

• Levin Receipts 

• Levin Disbursements 

$ 297,749 

7,700 

10,025 

503,595 

38,845 

$ 857,914 

$ 787,495 

7,700 

79,573 

$ 874,768 

$153,473 

$156,930 

Findings and Reconunendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Misstatement of Levin Financial Activity (Finding 2) 

2 U.S.C. §438(b). 
Interim Audit Report of the 

Audit Division on the 

Los Angeles Coimty Democratic 

Central Committee 

January 1, 2007 - December 31, 2008 
Table of Contents 

Page 

Part I. Backgroimd 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 4 

Finding 2. Misstatement of Levin Financial Activity 9 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Los Angeles County Democratic Central 

Committee (LACDCC), undertaken by tiie Audit Division of tiie Federal Election 

Commission (tiie 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 intemal 

review of reports filed by selected conunittees 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 

Following Commission approved procedures, the Audit staff evaluated the following 

areas in this audit: 

1. The consistency between reported figures and bank records. 

2. The disclosure of individual contributors' occupation and name of employer. 

3. The disclosure of disbursements, debts and obligations. 

4. The disclosure of expenses allocated between federal, Levin and non-federal 

accounts. 

5. The completeness of records. 

6. Other committee operations necessary to the review. 

Scope Limitation 

The treasurer of LACDCC (the Treasurer) operates an accounting firm tiiat handles 

LACDCC s accounting, recordkeeping and reporting. The firm also acts as LACDCC s 

credit card processor. The same credit card merchant account is used to process 

contributions for LACDCC and a number of other clients. The Audit staff did not have 

access to complete records for this account and therefore was limited in its ability to 

verify the proper accounting of transactions relating to the account. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates LACDCC 

• Date of Registration September 6,1994 

• Audit Coverage January 1,2007 - December 31,2008 

Headquarters Burbank, CA 

Bank Information 

• Bank Depositories 1 

• Bank Accounts 4(1 Federal Account, 1 Levin Account and 2 

Non-Federal Accounts) 

Treasurer 

• Treasurer When Audit Was Conducted Kinde Durkee 

• Treasurer During Period Covered by Audit Kinde Durkee 

Management Infonnation 

• Attended FEC Campaign Finance Seminar Yes 

• Used Commonly Available Campaign 

Management Software Package 

Yes 

• Who Handled Accounting and Recordkeeping 

Tasks 

Paid staff and volunteer 

Overview of Financial Activity 

(Audited Amounts) 

Federal Cash on hand @ January 1,2007 $ 18,888 

o Contributions 297.749 

o Loans Received 7.700 

o Other Receipts 10,025 

o Transfers from Non-Federal Funds 503.595 

o Transfers from Levin Funds 38,845 

Total Federal Receipts $ 857,914 

o Operating Expenditures 787,495 

o Loan Repayments 7,700 

o Other Disbursements 79,573 

Total Federal Disbursements $ 874,768 

Federal Cash on hand @ December 31,2008 $ 2,034 

Levin Cash on Hand @ January 1,2007 $381 

Total Levin Receipts $ 153,473 

Total Levin Disbursements $ 156,930 

Levin Cash on hand @ December 31,2008 -$ 3,076 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

A comparison of LACDCC s reported federal activity to bank records revealed a 

misstatement of cash on hand, receipts and disbursements in 2007 and 2008. In 2007, 

LACDCC overstated beginning cash on hand by $5,228, understated receipts by $8,920, 

understated disbursements by $9,311 and overstated ending cash on hand by $5,619. In 

2008, LACDCC understated receipts by $34,278, disbursements by $33,411 and ending 

cash on hand by $25,661. The Audit staff recommends that LACDCC file amended 

reports to correct tiie misstatements. 

The Audit staff also identified an apparent prohibited or excessive contribution contained 

within the 2008 misstated receipts. The Audit staff recommends tiiat LACDCC provide 

evidence that the receipts not be considered contributions. 

(For more detail, see p. 4) 

Finding 2. Misstatement of Levin Financial Activity 

A comparison of LACDCC s reported Levin activity to bank records revealed a 

misstatement of cash on hand, receipts and disbursements in 2008. Specifically, 

LACDCC understated receipts by $16,328 and disbursements by $101,669 and overstated 

ending cash on hand by $85,341. The Audit staff reconunends tiiat LACDCC file 

amended reports to correct the misstatement of Levin financial activity. 

(For more detail, see p. 9) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

A comparison of LACDCC s reported federal activity to bank records revealed a 

misstatement of cash on hand, receipts and disbursements in 2007 and 2008. In 2007, 

LACDCC overstated beginning cash on hand by $5,228, understated receipts by $8,920, 

understated disbursements by $9,311 and overstated ending cash on hand by $5,619. In 

2008, LACDCC understated receipts by $34,278, disbursements by $33,411 and ending 

cash on hand by $25,661. The Audit staff recommends that LACDCC file amended 

reports to correct the misstatements. 

The Audit staff also identified an apparent prohibited or excessive contribution contained 

within the 2008 misstated receipts. The Audit staff recommends that LACDCC provide 

evidence that the receipts not be considered contributions. 

Legal Standard 

A. Contents of Reports. Each report must disclose: 

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

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

• The total amount of disbursements for the reporting period and the calendar year; 

• Certain transactions that require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(l), (2) and (4). 

B. Receipt of Prohibited Contributions - General Prohibition. 

Candidates and committees may not accept contributions (in the form of money, in-kind 

contributions or loans) from the treasury funds of the following prohibited sources: 

• Corporations (i.e. any incorporated organization, including a non-stock corporation, 

an incorporated membership organization or an incorporated cooperative); 

• Labor Organizations; or 

• National Banks. 2 U.S.C. §441b. 

C« Extension of Credit by Commercial Vendor. 

A commercial vendor, whether or not it is a corporation, may extend credit to a candidate 

or political committee provided that: 

• The credit is extended in the vendor's ordinary course of business (see below); and 

• The terms of the credit are similar to the terms the vendor observes when extending a 

similar amount of credit to a nonpolitical client of similar risk. 11 CFR §116.3(a) and 

(b). 
D. Definition of Ordinary Course ofBusiness. 

In determining whetiier credit was extended in the ordinary course of business, the 

Conunission will consider whether: 

• The commercial vendor followed its established procedures and its past practice in 

approving the extension of credit; 

• The conunercial vendor received prompt, full payment if it previously extended credit 

to the same candidate or political committee; and 

• The extension of credit conformed to the usual and normal practice in the commercial 

vendor's industry or trade. 11 CFR §116.3(c) 

E. Party Committee Limits. 

A party committee may not receive more than $5,000 per year from any one contributor. 

2 U.S.C. §441a(a)(l)(C), (2)(C) and (f); 11 CFR §§110.1(d) and 110.9. 

F. Contributions by Limited Liability Companies (LLCs). 

A limited liability company is a business entity that is recognized as an LLC under the 

laws of the state in which it is established. An LLC that elects to be treated as a 

corporation by the Intemal Revenue Service under 26 CFR 301.7701-3 shall be 

considered a corporation pursuant to 11 CFR Part 114. An LLC that makes a 

contribution to a candidate or committee shall provide information as to how the 

contribution is to be attributed and affirm that it is eligible to make the contribution. 11 

CFR§110.1(g) 

Facts and Analysis 

A. Facts 

The Audit staff reconciled the reported financial activity to the bank records for 2007 and 

2008. It determined that LACDCC misstated cash on hand, receipts and disbursements 

for both years. The following charts outline the discrepancies and provide explanations 

for tiie differences. 

2007 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance $24,116 $18,888 $5,228 

Overstated 

Receipts $312,959 $321,879 $8,920 

Understated 

Disbursements $299,683 $308,994 $9,311 

Understated 

Ending Cash Balance $37,392 $31,773 $5,619 

Overstated 
The net imderstatement of receipts resulted from the following: 

• Offset to operating expenditures not reported + $9,245 

• Unexplained differences z 325 

Net Understatement of Receipts $8,920 

The net understatement of disbursements resulted from the following: 

• Disbursements not reported + $847 

• Disbursements reported witii incorrect amounts + 9,389 

• Reported disbursements tiiat did not clear bank - 98 

• Reported voided disbursements : 827 

Net Understatement of Disbursements $9,311 

2008 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance $37,392 $31,773 $5,619 

Overstated 

Receipts $501,758 $536,035 $34,277 

Understated 

Disbursements $532,364 $565,774 $33,410 

Understated 

Ending Cash Balance $6,786 $2,034 $4,752 

Overstated 

The net understatement of receipts resulted from the following: 

• Unreported advance from credit card processor, (see below) + $7,700 

• Unreported transfers from non-federal account, (see below) + 42.596 

• Reported transfer from Levin fund tiiat was never made - 16.272 

• Unexplained differences ± 253 

Net Understatement of Receipts $34,277 

The net understatement of disbursements resulted from the following: 

• Unreported repayment of advance from credit card processor 

• Unreported disbursements to credit card processor, (see below) 

• Unreported disbursements 

• Reported disbursements with incorrect amounts 

• Reported disbursements that did not clear bank 

• Reported voided disbursements 

• Reported disbursement paid from Levin account 

Net Understatement of Disbursements 

+ 

+ 

+ 

+ 

$7,700 

15.000 

7,877 

26.873 

1,374 

66 

22.600 

$33,410 

$15,000 of tiiis amount is the transfer discussed below in this finding. 
LACDCC misstated tiie cash balances tiiroughout 2007 and 2008 due to tiie errors 

outlined above and unknown adjustments from prior reporting periods. On December 31, 

2008. the cash balance was overstated by $4,752. 

Advance from and Repayment to Credit Card Processor-$7,700 

LACDCC s federal account received advances from its accounting firm and credit card 

processor. Durkee & Associates.^ on credit card proceeds that were being delayed. The 

advances totaled $7,700 and occurred between December 22 and December 26,2008. 

Checks to repay the advances were prepared and dated on the days the advances were 

received, but did not clear tiie bank until Febmary 17.2009. The advances of $7,700 and 

the repayments of the same amount were not reported, as noted above. 

In addition to the reporting issues relating to these transactions, the Audit staff considers 

tiie $7,700 received from Durkee & Associates an advance or an extension of credit 

outside tiie ordinary course of business. See 2 U.S.C. § 431(8)(A)(i) or see 11 C.F.R. §§ 

100.55.116.1(e). 116.3. As such, tiie $7,700 received by LACDCC is a contribution and 

either an excessive contribution of $2,700 ($7,700 less the allowable contribution limit of 

$5,000) or a prohibited contribution of $7,700. depending upon whetiier Durkee & 

Associates, as a limited liability company, elected to be treated as a parmership or a 

corporation for tax purposes. 

Disbursed to Credit Card Processor-$15,000 

On December 31.2008. tiiree checks totaling $15,000 were drawn from tiie federal 

account. Each check was payable to Durkee & Associates. The checks were not reported 

on LACDCC s disclosure reports. LACDCC s counsel explained that the funds were 

witiidrawn from the federal account by tiie Treasurer as part of tiie reconciliation process 

to identify possible errors involving the deposit of credit card contributions. The funds 

were retumed to tiie federal account once it was determined that there were ho problems 

with credit card contributions. As was the case witii the redeposit of the $45,000 to the 

Levin account (see Finding 2). however, tiie $15,000 was redeposited to the federal 

account months later. Durkee & Associates retumed the money in four increments 

between May and December of 2009. 

The Treasurer provided a listing of credit card contributions totaling $61,491 that were 

deposited into the shared credit card merchant account and identified as contributions to 

LACDCC. These credit card contributions apparently represent the funds Durkee & 

Associates withdrew from LACDCC s bank accounts (Levin account ($45,000) and the 

federal account ($15,000)) while reconciling the credit card merchant account. Based on 

available records of Durkee & Associates, tiie Audit staff could not determine whether 

LACDCC funds were used by Durkee & Associates during the period it held them. 

^ Durkee & Associates is operated by LACDCC's Treasurer, Kinde Durkee. Durkee & Associates is an 

accounting and business management fu:m with clients including political and non-profit organizations, as 

well as, small businesses. 
Transfer from Non-federal Account-$15,000 

LACDCC failed to report a transfer received from its non-federal account in the amount 

of $15,000. According to LACDCC's counsel, the $15,000 was erroneously transferred 

from LACDCC's non-federal account to its federal account on December 31,2008, the 

same day that the checks were written to the credit card processor. Without receipt of 

tiiis transfer. LACDCC's federal bank account would have had a negative balance of 

$7,044 on December 31,2008. 

A transfer of $15,000 was made on November 9. 2009 to retum the fiinds to the nonfederal account. LACDCC's counsel stated tiie purpose for the original transfer was 

unclear, and tiiat no one from LACDCC's management was informed of. or consulted 

about, the erroneous $15,000 transfer or the retum of those funds. Rather. LACDCC 

management became aware of these transactions solely as a result of this audit. The 

Audit staff could not determine the reason for the transfer from the non-federal account 

based on available records. The Audit staff verified that the fimds were retumed to the 

LACDCC's non-federal account. 

The non-federal account transferred less than its share of allocated federal/non-federal 

costs during the audit period. As such, the federal account could have accepted the nonfederal transfer without resulting in overfunding. 

B. Interim Audit Report & Audit Division Recommendation 

The misstatements noted above were presented to the representatives for LACDCC 

during the exit conference. The representatives did not provide any information to 

explain the misstatements, but indicated that they would file amended reports to correct 

these errors. 

The Audit staff recommends that, within 30 calendar days of service of this report. 

LACDCC file amended reports to correct the misstatements. LACDCC should amend 

tiie cash balance of its most recent report with an explanation that the amendments are 

due to audit adjustments from a prior reporting period. 

LACDCC should also provide information conceming the $7,700 advance from its credit 

card processor to establish that it was made in the ordinary course of business. The 

information should include: 

• The specific terms that Durkee & Associates apply to such extensions of credit; 

• Whether similar terms are offered to nonpolitical customers of similar size and 

risk of obligation; 

• Rationale for why Durkee & Associates chose the time it did to negotiate 

LACDCC's checks representing repayment; 

• Information about Durkee & Associates' tax status; and 

• Any otiier information LACDCC believes might clarify tiie transactions. 
Finding 2. Misstatement of Levin Financial Activity 

Summary 

A comparison of LACDCC's reported Levin activity to bank records revealed a 

misstatement of cash on hand, receipts and disbursements in 2008. For 2008, LACDCC 

understated receipts by $16,328 and disbursements by $101,669 and overstated ending 

cash on hand by $85,341. The Audit staff recommends that LACDCC file amended 

reports to correct tiie misstatement of Levin financial activity. 

Legal Standard 

A. Reporting. 

If a state, district or local party committee's combined annual receipts and disbursements 

for federal election activity (FEA) total $5,000 or more during the calendar year, the 

committee must disclose receipts and disbursements of Federal funds and Levin fimds 

used for FEA. 11 CFR §300.36 (b)(2). 

B. Contents of Levin Reports. Each report must disclose: 

• The amount of cash on hand for Levin fiinds at the beginning and end of the reporting 

period; 

• The total amount of Levin fimd receipts for the reporting period and the calendar 

year; 

• The total amount of Levin fund disbursements for the reporting period and the 

calendar year; and 

• Certain transactions that require itemization on Schedule L-A (Itemized Receipts of 

Levin Funds) or Schedule L-B (Itemized Disbursements of Levin Funds). 11 CFR 

§300.36 (b)(2). 

Facts and Analsrsis 

A. Facts 

The Audit staff reconciled the reported Levin financial activity with the bank records for 

2007 and 2008. Staff determined tiiat LACDCC misstated cash on hand, receipts and 

disbursements for 2008. The following chart outlines the discrepancies for 2008 and 

provides explanations for the misstated Levin activity. 
10 

2008 Levin Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance $960 $960 $0 

Receipts $135,990 $152,318 $16,328 

Understated 

Disbursements $54,685 $156,354 $101,669 

Understated 

Ending Cash Balance $82,265 $(3,076)'' $85,341 

Overstated 

The understatement of receipts resulted from the following: 

5.000 

• Unreported transfer from federal account + $6,328 

• Unreported contribution -»- 5.000 

• Refund of contribution reported as a negative receipt instead 

of a disbursement 

Understatement of Receipts 

The understatement of disbursements resulted from the following: 

• Unreported disbursements to Durkee & Associates (see below) 

• Unreported transfer to non-party conunittee (see below) 

• Other unreported disbursements 

• Disbursement incorrecdy reported as transfer to federal account^ 

• Refiind of contribution reported as a negative receipt instead 

of a disbursement 

Net Understatement of Disbursements $101,669 

$16,328 

+ $45,000 

+ 35.000 

-1- 32,941 

- 16,272 

+ 5.000 

LACDCC misstated its Levin ending cash balances for 2008 due to the errors outiined 

above. On December 31. 2008, the Levin cash balance was overstated by $85,341. 

Amount Disbursed from Levin Fund-$45,000 

Between December 5 and December 22.2008, four checks made out to Durkee & 

Associates and totaling $45,000 were drawn on tiie Levin account. Each check was made 

out to Durkee & Associates. The checks were not reported on LACDCC's Schedules L. 

^ The negative ending cash balance was due to an outstanding check tiiat was not negotiated until February 

2009. During the period tiiat it was outstanding, the Levin bank statements showed a positive cash balance. 

^ LACDCC disbursed $22,600 from its Levin account to a vendor, but it reported tiiis transaction as a 

$16,272 transfer to the federal account, which is the amount that could have been transferred from the 

Levin account if the disbursement had been paid properly from the federal account. The $22,600 is 

included in the $32,941 amount of disbursements tiiat were not reported. LACDCC also did not report tiie 

transfer of $6,328 - the federal share of the $22,600 expenditure - from its federal account to the Levin 

account. 
11 

According to LACDCC's counsel. Durkee & Associates closely examined its credit card 

merchant account^ at the end of 2008 and determined that a number of clients had 

received duplicate transfers relating to credit card contributions. Durkee & Associates 

concluded that reversing all credit card transfers made to its clients was the best way to 

avoid potential reporting issues. Durkee & Associates would then re-transfer the correct 

amount of credit card contributions based upon a reconciliation of its merchant account. 

However, credit card contributions were not deposited into the Levin account during the 

audit period. As such, there seemed to be no reason for Durkee & Associates to 

withdraw funds from this account. Credit card contributions were deposited in the 

federal account. However, between December 5 and December 22,2008, LACDCC did 

not have $45,000 in its federal bank account (See Finding 1. above). The $45,000 

withdrawn from the Levin account was not re-deposited until March 23.2010. 

The conunittee made an earlier attempt to re-deposit the money in March 2009. 

LACDCC's counsel provided a check in the amount of $45,000 made out to the Levin 

Fund, along with a deposit ticket dated March 13. 2009. However, this check never 

cleared and was not posted to the account. 

LACDCC's counsel states that LACDCC management was not informed of, or consulted 

about, the $45,000 originally withdrawn from the Levin Fund account, the merchant 

account check issued to LACDCC in March 2009 or tiie merchant account check issued 

to LACDCC in March 2010. LACDCC management became aware of these transactions 

only as a result of the audit. The Treasurer contends that Durkee & Associates has since 

improved its intemal controls to avoid this type of situation in the future. LACDCC 

forwarded a description of tiie intemal control improvements to tiie Audit staff. These 

intemal controls include general changes to accounting and recordkeeping procedures, 

but do not specifically detail procedures that would minimize the risk of conuningling 

LACDCC proceeds with those of other committees and Durkee & Associates. 

Amount Transferred from Levin Account-$35,000 

On November 25,2008, a transfer of $35,000 was made from tiie Levin account to a nonparty committee, Pasadena Area United Democratic Headquarters (Pasadena United), 

which is another Durkee & Associates client. The transfer was not reported on 

LACDCC's Schedules L. LACDCC's counsel explained that the transfer was supposed 

to be made from Durkee & Associates' credit card merchant account to Pasadena United, 

but the funds were taken from the Levin account in error. 

The Treasurer refunded the $35,000 to the Levin Fund account from the Durkee & 

Associates merchant account in three increments between December 17.2009 and 

January 28.2010. The Treasurer explained that this was more efficient than transferring 

$35,000 from Pasadena United to the Levin account and then transferring $35,000 to 

^ This merchant account was a shared account tiiat received credit card contributions for LACDCC and 

Durkee & Associates' otiier political committee clients, many of which had tiie same treasurer as 

LACDCC. 
12 

Pasadena United from the Durkee & Associates merchant account. The Treasurer 

believed this was an appropriate resolution because the merchant account was the 

intended source of the fiinds 

LACDCC's counsel states that no one from LACDCC management was informed of. or 

consulted about, the error, tiie method of reversing tiie erroneous transaction, the timing 

or reporting of the error, the retum of fimds or any other aspect of the corrective effort 

undertaken by the Treasurer. 

B. Interim Audit Report & Audit Division Recommendation 

The misstatements of Levin activity were presented to the representatives for LACDCC 

during the exit conference. The representatives did not provide any information to 

explain the misstatements, but indicated that they would file amended reports to correct 

the errors. 

The Audit staff recommends tiiat. witiiin 30 calendar days of service of tiiis report, 

LACDCC file amended reports to correct the misstatements of Levin activity. The Audit 

staff also recommends that LACDCC reconcile the cash balance on its most recent report 

to identify any subsequent discrepancies that could affect the recommended adjustments 

to cash.