17

Disbursements — 2004
The understatement of disbursements was the net result of the following:

¢ Disbursements Not Reported + $91,754
FOE] did not report operating expenditures totaling $74,754 and
contributions to other political committees totaling $17,000 that were
made thru the 30 Day Post-General Report period ending November
22, 2004.

¢ Disbursements Overstated 95,707
The 2004 Year End (“YE”) Report (11/23/04 — 12/31/04) disclosed

disbursements totaling $143,209. The correct amount of

disbursements that should have been reported on the YE Report is

$53,491. Therefore, FOEI overstated disbursements on the YE Report

by $89,718 ($143,209 - $53,491). FOEI also reported three

disbursements in other report periods totaling $5,989 that could not be

traced to the bank or FOEI’s check register.

¢ In Kind Contributions Not Reported + 7,323
FOE] did not report twelve In-Kind contributions received from eight
political committees.

e Incorrect Reported Amounts (Net) + 2,754
Amount includes forty-three checks where the amounts reported were
different from the amount clearing the bank.

¢ Unexplained Difference - 1,127

Total Net Understatement of Disbursements $ 4,997

Cash-on-Hand
FOEI misstated cash-on-hand throughout 2003 and 2004 due to the errors described
above. On December 31, 2004 the cash balance was understated by $3,036.

FOEI filed amended reports after notification of the audit that corrected the misstatement
of receipts in 2004; however, disbursements in both years and cash-on-hand amounts
were still misstated.

The Audit staff discussed this matter with the treasurer at the exit conference. In
response, the treasurer stated he would amend the appropriate reports as necessary.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FOEI file amended reports for 2003 and 2004 to
correct the remaining misstatements detailed above and amend its most recently filed
report to correct the cash-on-hand balance. In response to the interim audit report
recommendation, FOEI stated that amended reports would be filed by May 31, 2007 to
correct the remaining misstatements.


Also included are certain personal expenses that were originally paid by FOEI and
subsequently reimbursed by the Candidate and campaign manager.

1. Disbursements totaling $2,204, for items specifically listed at 11 CFR §113.1(g)(1)(@),
constituted personal use per se. These expenses included Broadway theatre tickets
($600) and University of Oklahoma football tickets ($1,604).

2. Disbursements totaling $4,117, for items such as meals, travel, and vehicle expenses,
required a determination on a case-by-case basis as to whether the expense fell within
the regulation's definition of personal use. The Audit staff considered, among other
things, the geographic location (the Candidate’s home state, Washington, DC, or
other locations) where the transactions occurred and the description of the goods or
services. Certain expenditures were considered non-campaign related based on the
type of expenses and the lack of documentation verifying that they were campaign or
officeholder related. Those expenditures requiring a determination on a case-by-case
basis are discussed below:

. Between February 13, 2004 and December 31, 2004, FOEI paid $8,033 for costs
associated with a leased vehicle. These costs consisted of the vehicle lease,
insurance, maintenance, and fuel. The regulations at 11 CFR §113.1(g)(8) state
that when campaign funds are used for expenses involving personal use, as well
as campaign-related or officeholder use, a contemporaneous log or other record
must be kept to document dates and expenses related to the personal use of the
campaign funds. While FOEI did not keep a contemporaneous log of the
mileage and use of the vehicle, the Committee prepared a log, in response to an
exit conference, based on the candidate’s day-to-day schedule for the time in
question. FOEI acknowledged that it could not document all of the expenses for
use of the vehicle, but maintained that it used the vehicle 85% for campaign-
related or officeholder activity, and 15% for personal reasons based on the
mileage driven. FOEI’s calculation included an adjustment for events that were
not pre-scheduled and for which the Committee had no supporting
documentation.’ With respect to the 15% vehicle use for personal reasons, FOEI
believed that some personal use was permissible as long as it was de minimis.

Absent documentation or other pertinent information sufficient to support the
10% added by FOEI for unscheduled campaign-related or officeholder activity,
the Audit staff recalculated the vehicle usage as documented for each use. Based
on documented usage, the Audit staff determined that the vehicle was used 80%
for campaign-related and officeholder activity and 20% for personal reasons.
Applying these ratios to the $8,033 in costs associated with the leased vehicle,
the Audit staff concluded that $1,607 of the costs were for personal use.

With respect to FOEI’s understanding that personal use of the vehicle was de
minimis, the Audit staff concluded that the 15% use of the vehicle for personal

° The Candidate stat Because that schedule does not document everything I did on those days—but
only those thing which had been scheduled in advance—I have added 10% to those 10,060 documented
miles, to allow for those official use/campaign use events that were not pre-scheduled.”



21

Facts and Analysis

A sample review of operating expenditures revealed that FOE] failed to report debts and
obligations totaling $18,781 on Schedules D (Debts and Obligations). These debts were
owed to six vendors that provided primarily catering or printing services to FOEI. To
determine the total amount of debts not reported, each debt was counted only once even if
it was outstanding for several periods. Most of these debts and obligations should have
been reported on FOEI’s 2004 April Quarterly Report. FOEI filed amended reports after
notification of the audit that failed to include the reporting of these items.

The Audit staff discussed this matter with the treasurer at the exit conference. In
response, the treasurer stated he would amend the appropriate schedules as necessary.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FOE] file amended reports to disclose these debts and
obligations. In response to the interim audit report recommendation, FOEI stated that
amended reports would be filed by May 31, 2007 to correct the reporting of debts and
obligations.

| Finding 8. Failure to File 48-Hour Notifications

Summary

FOEI failed to file 48-hour notices prior to the general election for 20 contributions
totaling $26,250. In response to the interim audit report recommendation, the FOEI
treasurer provided a statement wherein he acknowledged that procedures to ensure the
filing of 48-hour notices may have not always been followed.

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, including:

e Contributions from the candidate;

e Loans from the candidate and other non-bank sources; and

e Endorsements or guarantees of loans from banks. 11 CFR §104.5(f).

Facts and Analysis

A review of those contributions of $1,000 or more that were deposited during the 48-hour
notice filing period for the general election revealed that FOE] failed to file 48-hour
notices for 20 contributions totaling $26,250.° These contributions were from 15
individuals and 5 political committees.

° FOEI was inconsistent when recording the receipt date of contributions in their database. Dates entered
into the database were the deposit date, the data entry date or the check date. The Audit staff reviewed
deposits made during the 48-hour notice period to determine which contributions required a 48-hour
notice.


Part II
Overview of Campaign

nw

Campaign Organization

Important Dates

Friends of Ernest Istook*

¢ Date of Registration

May 14, 1993

e Audit Coverage

January 1, 2003 - December 31, 2004

“Headquarters

Oklahoma City, OK

“Bank Information

e Bank Depositories

3

e Bank Accounts

2 Checking and 1 Money Market

Treasurer

¢ Treasurer When Audit was Conducted

James R. Hale

¢ Treasurer During Period Covered by Audit

James R. Hale

“Management Information

e Attended FEC Campaign Finance Seminar No

¢ Used Commonly Available Campaign Yes
Management Software Package

¢ Who Handled Accounting and Recordkeeping | Paid Staff

Tasks

Overview of Financial Activity
(Audited Amounts)

Cash on hand @ January 1, 2003 | $ 4,470
© Contributions from Individuals 890,840
© Contributions from Political Committees 799,470
_o Offsets to Expenditures 22,495
o Other Receipts 1,165
Total Receipts $ 1,713,970
o Operating Expenditures 1,125,484
o Refunds 7,000
o Contributions to Other Political Committees 277,100
Total Disbursements $ 1,409,584
Cash on hand @ December 31, 2004 $ 308,856

> FOE] changed its name to Istook for Congress on September 30, 2005.


| Finding 5. Disclosure of Receipts

Summary

A review of contributions from political committees revealed FOEI did not accurately
disclose the required information. FOEI filed amended reports after notification of the
audit that materially corrected the disclosure of these items.

Legal Standard
A. Required Information for Contributions from Political Committees. For each
contribution from a political committee, the reporting committee must provide the
following information:

e The committee’s name and address;

© The date of the receipt;

e The amount of the contribution; and

e The election cycle-to-date total. 11 CFR §104.3(a)(4) and 2 U.S.C.

§434(b)(3)(B).

B. Election Cycle. The election cycle begins on the first day following the date of the
previous general election and ends on the date of the next general election. 11 CFR
§100.3(b).

Facts and Analysis

A sample review of contributions from political committees revealed FOE] did not
accurately disclose the required information for 25% of the items tested. These errors
include the inaccurate reporting of the contribution amount, the election cycle-to-date
total or the contributor address. Many of the errors appear to have been caused by
inconsistencies when entering contributor information into FOEI’s database. FOEI filed
amended reports after notification of the audit that materially corrected the disclosure of
these items.

The Audit staff discussed this matter with the treasurer at the exit conference.
Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that FOEI submit written comments it considered relevant.
FOEI provided no further comments on this matter.

| Finding 6. Disclosure of Disbursements

Summary

A review of disbursements revealed that FOEI failed to disclose or inaccurately disclosed
the required information. FOEI filed amended reports after notification of the audit that
corrected some but not all of the disclosure discrepancies. In response to the interim
audit report recommendation, FOEI stated that amended reports would be filed by May
31, 2007 to correct the disclosure of disbursements.


24

For the 2003 Year End Report, Form 3Z-1 should have disclosed $933,983 for the
primary election and $24,014 for the general election. However, FOEI disclosed no gross
receipts on Form 3Z-1 included with its 2003 Year End Report. There were no personal
contributions by the Candidate in 2003.

The Audit staff discussed this matter with the treasurer at the exit conference. The
treasurer responded with a statement that explained the error was due to a
misunderstanding of the new filing requirement and that steps have been taken to ensure
future compliance

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FOEI provide any further comments it considered
relevant. In response to the interim audit report recommendation, the FOE] treasurer
provided a copy of a previously submitted statement.


20

A review of payments made to credit card companies revealed that FOEI did not disclose
memo entries totaling $83,284 on Schedule B. The credit cards used for these purchases
were in the name of the Candidate and the transactions included but were not limited to
airline tickets, lodging expenses, and meal expenses. These memo entries are required to
disclose the name and address of the original vendor, as well as the date, amount, and
purpose of the original purchase. FOEI filed amended reports after notification of the
audit that corrected the disclosure of items totaling $40,106.

A review of reimbursements made to the Candidate and his spouse also revealed that
FOE] did not disclose memo entries totaling $1,306 on Schedule B. The amount
primarily includes reimbursements to the Candidate’s spouse for meal expenses and an
airline ticket. FOEI filed amended reports after notification of the audit that failed to
correct the disclosure of these items.

The Audit staff discussed this matter with the treasurer at the exit conference. FOEI was
provided schedules of the transactions noted above. In response, the treasurer stated he
would amend the appropriate schedules as necessary.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FOEI file amended reports to correct the disclosure of
the remaining disbursements as noted above. In response to the interim audit report
recommendation, FOEI stated that amended reports would be filed by May 31, 2007 to
correct the disclosure of disbursements.

| Finding 7. Reporting of Debts and Obligations

Summary

A review of operating expenditures revealed that FOE] failed to report debts and
obligations owed to six vendors. In response to the interim audit report recommendation,
FOE] stated that amended reports would be filed by May 31, 2007 to correct the reporting
of debts and obligations.

Legal Standard

A. 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) and104.1 1 (a).

B. 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).

C. Itemizing Debts and Obligations.

e 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.

e 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).


2003 Activity

Reported | Bank Records Discrepancy |
Opening Cash Balance $ 738 $ 4,470 $ 3,732
@ January 1, 2003 Understated
Receipts $928,720 $939,540 $10,820
Understated
Disbursements $326,648 $359,270 $32,621
Understated
Ending Cash Balance $602,810 $584,741 $18,069
@ December 31, 2003 Overstated
Disbursements — 2003
The understatement of disbursements was the net result of the following:
« Disbursements Not Reported + $25,254

FOEI did not report fifty payments to vendors that should have been
disclosed on their 2003 reports. Of this amount, a single payment to

one vendor of $13,500 for campaign research should have been
disclosed on its 2003 Year End Report.

¢ In Kind Contributions Not Reported
FOE] did not report In-Kind contributions received from nine political

committees.

¢ Disbursements Overstated

Amount includes two checks totaling $857 that were erroneously

reported twice and three reported amounts totaling $581 that could not

be traced to bank records or FOEI’s check register.

e Incorrect Reported Amounts (Net)
Amount includes ten checks where the amounts reported were

different from the amount clearing the bank.

+ 8,555
- 1,438
+ 250

Total Net Understatement of Disbursements $32,621


from improper redesignations and/or reattributions. FOEI untimely refunded $57,100 of
these contributions. In response to the interim audit report recommendation, FOEI stated
that they have issued refund checks for the remaining $2,000 and will provide copies as
soon as the checks clear the bank.

Legal Standard

A. Authorized Committee Limits: An authorized committee may not receive more
than a total of $2,000 per election from any one person. 2 U.S.C. §441a(a)(1)(A) and 11
CFR §110.1(a) and (b).

B. Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:
© return the questionable contribution to the donor; or
¢ deposit the contribution into its federal account and keep enough money on
account to cover all potential refunds until the legality of the contribution is
established. 11 CFR §103.3(b)(3) and (4).
The excessive portion may also be redesignated to another election or reattributed to
another contributor as explained below.

C. Redesignation of Excessive Contributions. The committee may ask the contributor
to redesignate the excess portion of the contribution for use in another election.
© The committee must, within 60 days of receipt of the contribution, obtain and
retain a signed redesignation letter which informs the contributor that a refund of
the excessive portion may be requested; or
e refund the excessive amount. 11 CFR §§110.1(b)(5), 110.1(1)(2) and 103.3(b)(3).

Notwithstanding the above, when an authorized political committee receives an excessive
contribution from an individual or a non-multi-candidate committee, the committee may
presumptively redesignate the excessive portion to the general election if the
contribution:

e Is made before that candidate’s primary election;

¢ Is not designated in writing for a particular election;

e Would be excessive if treated as a primary election contribution; and

¢ As redesignated, does not cause the contributor to exceed any other contribution

limit.

Also, the committee may presumptively redesignate the excessive portion of a general
election contribution back to the primary election if the amount redesignated does not
exceed the committee’s primary net debt position.

The committee is required to notify the contributor in writing of the redesignation within
60 days of the treasurer’s receipt of the contribution and must offer the contributor the
option to receive a refund instead. For this action to be valid, the committee must retain
copies of the notices sent. Presumptive redesignations apply only within the same
election cycle. 11 CFR §110.1(b)(5)(ii)(B) & (C) and (1)(4)(ii).

D. Reattribution of Excessive Contributions. When an authorized committee receives
an excessive contribution, the committee may ask the contributor if the contribution was
intended to be a joint contribution from more than one person.


and cash-on-hand amounts were still misstated. In response to the interim audit report
recommendation, FOE] stated that amended reports would be filed by May 31, 2007 to
correct the remaining misstatements. (For more detail, see p. 14)

Finding 5. Disclosure of Receipts

A review of contributions from political committees revealed FOEI did not accurately
disclose the required information. FOEI filed amended reports after notification of the
audit that materially corrected the disclosure of these items. (For more detail, see p. 18)

Finding 6. Disclosure of Disbursements

A review of disbursements revealed that FOEI failed to disclose or inaccurately disclosed
the required information. FOE] filed amended reports after notification of the audit that
corrected some but not all of the disclosure discrepancies. In response to the interim
audit report recommendation, FOEI stated that amended reports would be filed by May
31, 2007 to correct the disclosure of disbursements. (For more detail, see p. 18)

Finding 7. Reporting of Debts and Obligations

A review of operating expenditures revealed that FOEI failed to report debts and
obligations owed to six vendors. In response to the interim audit report recommendation,
FOEI stated that amended reports would be filed by May 31, 2007 to correct the reporting
of debts and obligations. (For more detail, see p. 20)

Finding 8. Failure to File 48-Hour Notifications

FOEI failed to file 48-hour notices prior to the general election for 20 contributions
totaling $26,250. In response to the interim audit report recommendation, the FOEI
treasurer provided a statement wherein he acknowledged that procedures to ensure the
filing of 48-hour notices may have not always been followed. (For more detail, see p. 21)

Finding 9. Untimely Deposit of Contributions

A review of contributions revealed FOEI did not timely deposit contributor checks. In
response to the interim audit report recommendation, the FOEI treasurer provided a copy
of a previously submitted statement wherein he acknowledged that procedures to ensure
the timely deposit of contributions may have not always been followed. (For more detail,
see p. 22)

Finding 10. Disclosure on Form 3Z-1

FOEI filed Form 3Z-1 (Consolidation Report of Gross Receipts for Authorized
Committees) with its 2003 July Quarterly and 2003 Year End Reports but did not
disclose the correct financial information. In response to the interim audit report
recommendation, the FOEI treasurer provided a copy of a previously submitted statement
wherein he explained that the error was due to a misunderstanding of the new filing
requirement and that steps have been taken to ensure future compliance. (For more
detail, see p. 23)


Part III
Summaries

Findings and Recommendations

Finding 1. Receipt of Prohibited Contributions

FOEI received contributions totaling $11,825 from corporations, limited liability
companies (LLC), and a labor organization. Contributions from unions, corporations and
from LLCs that elect to be treated as corporations under IRS rules are prohibited. FOEI
untimely refunded $8,075 of these contributions. In response to the interim audit report
recommendation, FOEI provided copies of additional negotiated refund checks totaling
$2,750 and provided evidence that one of the contributions was not prohibited. Asa
result, the amount of prohibited contributions received by FOEI was reduced to $10,825.
(For more detail, see p. 5)

Finding 2. Receipt of Excessive Contributions

A review of contributions from individuals indicated that FOEI failed to timely resolve
excessive contributions totaling $59,100. Most of these excessive contributions resulted
from improper redesignations and/or reattributions. FOEI untimely refunded $57,100 of
these contributions. In response to the interim audit report recommendation, FOEI stated
that they have issued refund checks for the remaining $2,000 and will provide copies as
soon as the checks clear the bank. (For more detail, see p. 6)

Finding 3. Personal Use of Campaign Funds

The Audit staff identified expenditures totaling $8,936 paid by FOEI for what appeared
to be personal expenses. Of this amount, the Candidate and the campaign manager
reimbursed $2,615 to FOEI prior to the interim audit report. In response to the interim
audit report recommendation, FOEI provided a copy of a negotiated reimbursement
check from the Candidate for $3,189 and a signed statement from the campaign manager
acknowledging that expenditures totaling $1,135 were for his personal use and would be
reimbursed to FOEI. For the remaining amount $1,997 ($8,936-$2,615-$3,189-$1,135),
FOEI provided evidence that the expenditures were not for personal use.

In addition to the amounts above, FOEI identified unauthorized expenditures made by a
campaign worker totaling $30,504 that were paid with campaign funds. The campaign
worker was apprehended and prosecuted. The bank partially reimbursed FOEI for checks
processed with a false signature. No further comments were provided with regard to this
matter. (For more detail, see p. 9)

Finding 4. Misstatement of Financial Activity

FOEI had material misstatements of reported activity in both years covered by the audit.
In 2003, FOEI understated its disbursements. In 2004, FOEI understated it receipts and
disbursements. As a result of these misstatements, FOE] also reported incorrect cash-on-
hand amounts in both years. FOEI filed amended reports after notification of the audit
that corrected the misstatement of receipts in 2004; however, disbursements in both years


2004 Activity
] Reported Bank Records Discrepancy
Opening Cash Balance $ 602,810 $ 584,740 $18,069
@January 1, 2004 Overstated
Receipts $ 748,328 $ 774,430 $26,102
Understated
Disbursements $1,045,317 $1,050,314 $ 4,997
Understated
Ending Cash Balance $ 305,820 $ 308,856 $ 3,036
@December 31, 2004 Understated
Receipts — 2004
The understatement of receipts was the result of the following:
¢ Receipts Not Reported + $13,190
FOE] did not report contributions received from twelve political
committees and one Indian nation.
¢ In Kind Contributions Not Reported + 7,323

FOE] did not report twelve In-Kind contributions received from eight

political committees.

« Incorrect Reported Amount
FOE] incorrectly reported a contribution of $2,500 from a political
committee as $1,000.

¢ Offsets to Operating Expenditures Not Reported
FOEI did not report two refunds from vendors.

e Interest Received from Bank Not Reported
FOEI did not report the monthly interest received from the money

market account.

e Unexplained Difference

+ 1,500
+ 1,273
+ 1,165
+ 1,651

Total Understatement of Receipts $26,102


2. LLC as Corporation. The contribution is considered a corporate contribution—
and is barred under the Act—if the LLC chooses to be treated as a corporation
under IRS rules, or if its shares are traded publicly. 11 CFR §110.1(g)(3).

3. LLC with Single Member. The contribution is considered a contribution from a
single individual if the LLC is a single-member LLC that has not chosen to be
treated as a corporation under IRS rules. 11 CFR §110.1(g)(4).

Facts and Analysis

FOE] accepted 24 contributions totaling $11,825 from apparent prohibited sources. Of
these, 19 contributions totaling $7,075 were from corporations, 4 contributions totaling
$3,750 were from LLCs, and $1,000 was from a local union organization. For those
contributions from corporations, the Audit staff verified the corporate status of the
entities at the time the contribution was made with the Oklahoma’s Secretary of State.
For those contributions from LLCs, FOEI could not demonstrate whether the entities
were taxed as a corporation or a partnership under the rules of the Internal Revenue
Service (IRS). If the entities are treated as corporations by the IRS, their contributions
represent prohibited corporate contributions. It should also be noted that FOEI did not
establish a separate account for questionable contributions; however, FOEI maintained a
sufficient balance in its bank account to refund the prohibited contributions.

This matter was discussed with the treasurer at the exit conference. The Audit staff
provided a schedule of the apparent prohibited contributions. In response, the treasurer
untimely refunded $8,075. For the apparent prohibited contributions from LLCs totaling
$3,750, the treasurer provided copies of letters sent to the LLCs requesting that they
verify their tax filing status.

Interim Audit Report Recommendation and Committee Response

The Audit staff recommended FOE] take the following action:

e Provide evidence demonstrating that the remaining contributions totaling $3,750 were
not prohibited, or were timely refunded. Such evidence should have included
documentation indicating their filing status with the IRS or copies of the front and
back of timely negotiated refund checks; or

e Refund $3,750 to the contributors and provide evidence of such refunds (copies of
front and back of negotiated refund checks); or

e If funds were not available to make necessary refunds, disclose the contributions
requiring refunds on Schedule D (Debt and Obligations) until funds became available
to make the refunds.

In response to the interim audit report recommendation, FOEI provided copies of
additional negotiated refund checks totaling $2,750. FOEI also provided evidence that
one of the contributions was not prohibited. As a result, the amount of prohibited
contributions received by FOEI was reduced to $10,825.

| Finding 2. Receipt of Excessive Contributions

Summary
A review of contributions from individuals indicated that FOE] failed to timely resolve
excessive contributions totaling $59,100. Most of these excessive contributions resulted


22

This matter was discussed with the treasurer at the exit conference. The Audit staff
provided schedules of the contributions for which 48-hour notices were not filed. In
response, the treasurer provided evidence that 48-hour notices for two of the
contributions totaling $2,250 were filed on November 2, 2004, the date of the general
election. Since these two notices were untimely filed less than 48 hours before the
general election, they are included with the $26,250 in contributions that do not comply
with the filing requirements for 48-hour notices. FOEI provided no further explanation
for why the remaining 48-hour notices were not filed.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FOEI provide evidence that these 48-hour notices
werc timely filed or provide any further comments it considered relevant. In response to
the interim audit report recommendation, the FOEI treasurer provided a statement
wherein he acknowledged that procedures to ensure the filing of 48-hour notices may
have not always been followed.

| Finding 9. Untimely Deposit of Contributions

Summary

A review of contributions revealed FOEI did not timely deposit contributor checks. In
response to the interim audit report recommendation, the FOEI treasurer provided a copy
of a previously submitted statement wherein he acknowledged that procedures to ensure
the timely deposit of contributions may have not always been followed.

Legal Standard

A. Deposit of Receipts. The treasurer of a political committee must deposit
contributions (or return them to the contributors without being deposited) within 10 days
of the treasurer’s receipt. 11 CFR §103.3(a).

Facts and Analysis

A sample review of contributions from political committees revealed FOE! did not timely
deposit 73% of the contributor checks reviewed. Also, a sample review of contributions
from individuals revealed that FOE] did not timely deposit 53% of the contributor checks
reviewed. In determining the timeliness of contributions, the Audit staff compared the
contributor check date with the bank deposit date.'° As a result, the Audit staff
determined contributions were deposited up to 122 days late.

The Audit staff discussed this matter with the treasurer at the exit conference. In
response, the treasurer provided a statement that explained that As a matter of internal
control, the Committee has always stressed timely deposits of all contributions. The
procedure is to copy all checks along with the deposit ticket and take the deposit of
contributions to the bank daily when the deposit is large and/or at least once a week
regardless of the size of the deposit. The deposit should be made by an individual
separate from the individual recording the contribution. After reviewing the deposits it is
apparent that this policy was not always followed. The Committee has again stressed

'’ The Audit staff calculated the date of receipt as three days from the date on the contributors check to
allow for delivery of the contribution.


FEDERAL ELECTION COMMISSION
Washington, DC 20463

May 30, 2007

MEMORANDUM
To: Robert W. Biersack
Press Officer
From: Joseph F. Stoltz
Assistant Staff Daector
Audit Division
Subject: Public Issuance of the Audit Report on Friends of Ernest Istook

Attached please find a copy of the audit report on Friends of Ernest Istook, which
was approved by the Commission on May 18, 2007.

The report may be released to the public on May 30, 2007.

Attachment as stated

cc: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library
VDSDD Website


This matter was discussed with the treasurer at the exit conference. The Audit staff
provided a schedule of the excessive contributions. In response, the treasurer untimely
refunded $50,100 and indicated that the excessive portion from two contributors totaling
$2,000 was timely refunded or reattributed.* However, documentation to support such
action taken for the contributions from these two individuals was not provided.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FOEL:

« Provide evidence demonstrating that the remaining $2,000 ($59,100 - $50,100 -
$7,000) in contributions were not excessive. Such evidence should have included,
but not be limited to, documentation that the contributors were notified in a timely
manner of the actions taken by FOEI or that the excessive contributions were timely
refunded or reattributed; or

¢ Refund the remaining $2,000 to the contributors and provide evidence of such
refunds (copies of front and back of negotiated refund checks); or

«If funds were not available to make necessary refunds, disclose the contributions
requiring refunds on Schedule D (Debt and Obligations) until funds become available
to make the refunds.

In response to the interim audit report recommendation, FOE] stated that they have issued
refund checks for the remaining $2,000 and will provide copies as soon as the checks

clear the bank.

| Finding 3. Personal Use of Campaign Funds

Summary

The Audit staff identified expenditures totaling $8,936 paid by FOEI for what appeared
to be personal expenses. Of this amount, the Candidate and the campaign manager
reimbursed $2,615 to FOEI prior to the interim audit report. In response to the interim
audit report recommendation, FOEI provided a copy of a negotiated reimbursement
check from the Candidate for $3,189 and a signed statement from the campaign manager
acknowledging that expenditures totaling $1,135 were for his personal use and would be
reimbursed to FOEI. For the remaining amount $1,997 ($8,936-$2,615-$3,189-$1,135),
FOEI provided evidence that the expenditures were not for personal use.

In addition to the amounts above, FOE] identified unauthorized expenditures made by a
campaign worker totaling $30,504 that were paid with campaign funds, The campaign
worker was apprehended and prosecuted. The bank partially reimbursed FOEI for checks
processed with a false signature. No further comments were provided with regard to this
matter.

Legal Standard
A. Use of Campaign Funds. Using campaign funds for personal use is prohibited. 2

U.S.C. §439a(b)(1).

* The remaining $2,000 in excessive contributions are not eligible to be resolved by sending notifications
pursuant to |] CFR §110.1(k)(3)(i)(B).


* the committee must, within 60 days of receipt of the contribution, obtain and
retain a reattribution letter signed by each contributor; or

e refund the excessive contribution. 11 CFR §§110.1(k)(3), 110.1(1)(3) and
103.3(b)(3).

Notwithstanding the above, any excessive contribution that was made on a written
instrument that is imprinted with the names of more than one individual may be attributed
among the individuals listed unless instructed otherwise by the contributor(s). The
committee must inform each contributor:
e how the contribution was attributed; and
¢ that the contributor may instead request a refund of the excessive amount. 11
CFR §110.1(k)(3)(ii)(B).

Facts and Analysis

A review of contributions from individuals indicates that FOEI failed to timely resolve
excessive contributions totaling $59,100. Of these, FOEI untimely refunded $7,000 of
the excessive amount prior to the audit. It should be noted that FOEI maintained a
sufficient balance in its bank account to refund the excessive contributions. Most of the
excessive contributions were received prior to the primary election and are excessive for
one of the following reasons:

Contribution by check with two names imprinted- FOEI failed to timely resolve
excessive contributions totaling $18,600. These contributions were identified as
excessive because they were made by a check imprinted with two names and signed by
only one of the individuals. In most cases, FOE] attributed the contribution to both
individuals whose names are imprinted on the check or designated the contribution to a
single contributor for both elections. Such action requires that within 60 days of the
contribution, FOE] obtain a signed reattribution or redesignation from the contributors or
inform the individuals of how the contribution was presumptively reattributed or
redesignated and offer a refund of the excessive portion. FOEI did not provide any
records relating to the redesignation or reattribution of these contributions. As a result,
the entire amount of the contribution was attributed by the Audit staff to the individual
that signed the check.

Contribution by check with one name imprinted- FOE] failed to timely resolve
excessive contributions totaling $40,500. These contributions were identified as
excessive because they were made by a check imprinted with one name and in most cases
were either designated by FOEI to both elections or were attributed by FOEI to two
individuals. Such action requires that within 60 days of the contribution, FOEI obtain a
signed reattribution or redesignation from the contributors or inform the individuals of
how the contribution was presumptively redesignated and offer a refund of the excessive
portion. FOEI records did not include a signed redesignation or a signature from the
second individual acknowledging them as an accountholder. Records also did not
include notification to inform individuals of how the contribution was presumptively
redesignated. As a result, the entire amount of the contribution was attributed by the
Audit staff to the individual who signed the check.


Part IV
Findings and Recommendations

| Finding 1. Receipt of Prohibited Contributions

Summary

FOEI received contributions totaling $11,825 from corporations, limited liability
companies (LLC), and a labor organization. Contributions from unions, corporations and
from LLCs that elect to be treated as corporations under IRS rules are prohibited. FOEIT
untimely refunded $8,075 of these contributions. In response to the interim audit report
recommendation, FOEI provided copies of additional negotiated refund checks totaling
$2,750 and provided evidence that one of the contributions was not prohibited. Asa
result, the amount of prohibited contributions received by FOEI was reduced to $10,825

Legal Standard
A. Receipt of Prohibited Contributions — General Prohibition. Candidates and
committees may not accept contributions (in the form of money, in-kind contributions or
loans):
1. In the name of another; or
2. From the treasury funds of the following prohibited sources:
¢ Corporations (this means any incorporated organization, including a non-stock
corporation, an incorporated membership organization, and an incorporated
cooperative);
¢ Labor Organizations;
e National Banks;
e Federal Government Contractors (including partnerships, individuals, and sole
proprietors who have contracts with the federal government); and
e Foreign Nationals (including individuals who are not U.S. citizens and not
lawfully admitted for permanent residence; foreign governments and foreign
political parties; and groups organized under the laws of a foreign country or
groups whose principal place of business is in a foreign country, as defined in
22 U.S.C. $611(b)). 2 U.S.C. §§441b, 4416, 44le, and 441f.

B. Definition of Limited Liability Company. A limited liability company (LLC) is a
business entity recognized as an LLC under the laws of the state in which it was
established. 11 CFR §110.1(g)(1).

C. Application of Limits and Prohibitions to LLC Contributions. A contribution
from an LLC is subject to contribution limits and prohibitions, depending on several
factors, as explained below:

1. LLC as Partnership. The contribution is considered a contribution from a
partnership if the LLC chooses to be treated as a partnership under Internal
Revenue Service (IRS) tax rules, or if it makes no choice at all about its tax status.
A partnership contribution may not exceed $2,000 per candidate, per election, and
it must be attributed to each lawful partner. 11 CFR §110.1(a), (b), (e) and (g)(2).


Legal Standard
A. Reporting Operating Expenditures. When operating expenditures to the same
person exceed $200 an election cycle, the committee must report the:

e Amount;

¢ Date when the expenditures were made;

¢ Name and address of the payee*; and

e Purpose (a brief description of why the disbursement was made—see below). 2

U.S.C. §434(b)(5)(A) and 11 CFR §104.3(b)(4)(i).

B. Examples of Purpose.

« Adequate Descriptions. Examples of adequate descriptions of “purpose” include
the following: dinner expenses, media, salary, polling, travel, party fees, phone
banks, travel expenses, travel expense reimbursement, catering costs, loan
repayment, or contribution refund. 11 CFR §104.3 (b)(4)(i)(A).

¢ Inadequate Descriptions. The following descriptions do not meet the requirement
for reporting “purpose”: advance, election day expenses, other expenses, expense
reimbursement, miscellaneous, outside services, get-out-the-vote, and voter
registration. 11 CFR §104.3 (b)(4)(i)(A).

C. Credit Card Transactions. In the case of operating expenditures charged on a credit
card, a committee must itemize a payment to a credit card company if the payment
exceeds the $200 aggregate threshold. The committee must also itemize, as a memo
entry, any specific transaction charged on a credit card if the payment to the actual
vendor exceeds the $200 threshold. 11 CFR §§102.9(b)(2) and 104.9.

D. Contributions to Other Federal Candidates. When itemizing a contribution to
another candidate, the committee must report the information listed above. For
contributions to federal candidates, the committee must also include the office sought,
state and, if applicable, Congressional district, and the election for which the contribution
was made. Contributions to other candidates are included in the total for Line 21. 11
CFR §104.3(b)(3)(v).

Facts and Analysis

A sample review of operating expenditures itemized on Schedule B revealed that FOEI
failed to disclose or inaccurately disclosed the required information for 30% of the items
reviewed. The errors consisted of reporting the incorrect vendor name and address. The
Audit staff also identified disbursements disclosed with a purpose that inaccurately
described the reason for the disbursement. FOEI filed amended reports after notification
of the audit that materially corrected the disclosure of these items.

A review of contributions made to other political committees revealed that FOEI did not
disclose the office sought, the state, and/or congressional district of the recipient
candidate for contributions totaling $24,395. FOEI filed amended reports after
notification of the audit that failed to correct the disclosure of these items.

8 Payee means the person who provides the goods or services to the committee. 11 CFR §102.9(b)(2)(i(A)


Part I
Background

Authority for Audit

This report is based on an audit of the Friends of Ernest Istook (FOEI), 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.

NAMEN

? This audit is based on reports filed prior to when FOEI was notified of the audit on April 25, 2005. The
review of amended reports filed on August 29, 2005 indicates that FOEI corrected some of the reporting
discrepancies identified in this audit.


reasons was beyond what the Commission has previously considered as de
we 6
minimis.

¢ Between December 29, 2003 and January 5, 2004, FOEI paid $1,861 for costs
incurred by the Candidate and his son in connection with a trip to New Orleans
for the Sugar Bowl. These costs consisted of airfare ($1,220), lodging ($334),
car rental ($161), and meals ($146). No invoices, receipts, minutes of meetings,
agendas, or itineraries were available to document that these expenses were in
connection with a campaign or officeholder related event.

The Audit staff discussed these expenses with FOE] at the exit conference and
they provided the following response, “A significant campaign fundraiser was
planned to take place at the Sugar Bowl game, where the University of
Oklahoma and L-S-U were playing for the national title, attracting tens of
thousands of Oklahomans to New Orleans. The original plans included a
fundraising event or two, fact finding trips to the Port of New Orleans and the
nearby commercial and military shipbuilding yards, plus a speaking engagement,
with his son ... accompanying him to assist. (These visits were in connection
with the Congressman’s chairmanship over Customs and shipping issues and
government shipbuilding programs.) Arrangements for the fundraising and fact
finding portions fell apart at a late date (They were rescheduled and occurred in
August.), but the speaking engagement (to a large crowd of Oklahomans)
remained.”

Absent documentation or other pertinent information sufficient to support that
these expenses were for campaign-related or officeholder activity, the Audit staff
maintains that these $1,861 in expenses paid for by FOEI were for personal use.

« Between May 2, 2003 and June 16, 2004, FOEI paid $649 for various items
where no invoices, receipts, minutes of meetings, agendas, or itineraries were
available to document that these expenses were in connection with a campaign
or officeholder related event. The majority of these expenses were incurred
outside the Candidate’s home state or Washington, DC. These items included a
meal at a New York City restaurant ($288), airfare to Minneapolis-St. Paul for
the Candidate’s wife ($124), computer supplies purchased in Alexandria,
Virginia ($115), gasoline purchased en route to a University of Oklahoma (OU)
vs. University of Texas football game ($35), and flowers purchased in Oklahoma

City ($87).

In its response to the exit conference, FOEI stated that the meal at a New York
City restaurant was a fundraising event coordinated with a New York
Congressman, but did not provide documentation in support of this fundraiser.
Additionally, FOEI conceded that it was unable to locate documentation to
support charges for the airfare, computer supplies, and flowers. FOEI stated that
the florist charge was evidently made by the campaign manager while the
candidate was traveling. Finally, FOEI stated that the gasoline was purchased on

° See AO 2001-3


14

3. any other written record which would document the specific campaign or political
purpose of the charges; or

4. additional expense or mileage log documentation showing that the automobile
lease was in conformance with AO 2001-3.

Absent such evidence, the Audit staff recommended that the Candidate reimburse $6,321
to FOEI and provide evidence of the reimbursement (i.e. a copy of the front and back of
the negotiated check).

B. Unauthorized Expenditures. Since the treasurer stated his intentions to close FOEI
in the near future, the Audit staff recommended that FOEI submit any written comments
it considered relevant.’

In response to the interim audit report recommendation, FOEI provided a copy of a
negotiated reimbursement check from the Candidate for $3,189 and a signed statement
from the campaign manager acknowledging that expenditures totaling $1,135 were for
his personal use and would be reimbursed to FOEI. For the remaining amount $1,997
($8,936-$2,615-$3,189-$1,135), FOEI provided evidence that the expenditures were not
for personal use. Therefore, the Audit staff concluded that FOEI made expenditures for
the personal use of Candidate and campaign manager totaling $6,939.

| Finding 4. Misstatement of Financial Activity

Summary

FOEI had material misstatements of reported activity in both years covered by the audit.
In 2003, FOE] understated its disbursements. In 2004, FOEI understated it receipts and
disbursements. As a result of these misstatements, FOEI also reported incorrect cash-on-
hand amounts in both years. FOEI filed amended reports after notification of the audit
that corrected the misstatement of receipts in 2004; however, disbursements in both years
and cash-on-hand amounts were still misstated. In response to the interim audit report
recommendation, FOE] stated that amended reports would be filed by May 31, 2007 to
correct the remaining misstatements.

Legal Standard

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 for the election cycle; and

¢ The total amount of disbursements for the reporting period and for the election cycle;

e Certain transactions that require itemization on Schedule A (Itemized Receipts) or
Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(1), (2), (3), (4), and (5).

Facts and Analysis

A comparison of reported activity to bank records revealed that FOEI had misstatements
in 2003 and 2004. The following outlines the discrepancies for each year and explains
misstatements identified during the audit.

7 Ina letter to the Reports Analysis Division filed on November 20, 2006, the Treasurer stated that FOET
was in the process of closing the committee.


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.
Finding 2.
Finding 3.
Finding 4.
Finding 5.
Finding 6.
Finding 7.
Finding 8.
Finding 9.

Receipt of Prohibited Contributions
Receipt of Excessive Contributions
Personal Use of Campaign Funds
Misstatement of Financial Activity
Disclosure of Receipts

Disclosure of Disbursements
Reporting of Debts and Obligations
Failure to File 48-Hour Notifications
Untimely Deposit of Contributions

Finding 10. Disclosure of Form 3Z-1

Page


23

timely deposits and now the individual making the deposit fax [sic] us a copy of the
deposit ticket and the contributions are reviewed via internet and reconciled by our staff”.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that FOEI provide any further comments it considered
relevant. In response to the interim audit report recommendation, the FOEI treasurer
provided a copy of a previously submitted statement wherein he acknowledged that
procedures to ensure the timely deposit of contributions may have not always been
followed.

| Finding 10. Disclosure of Form 3Z-1

Summary

FOE] filed Form 3Z-1 (Consolidation Report of Gross Receipts for Authorized
Committees) with its 2003 July Quarterly and 2003 Year End Reports but did not
disclose the correct financial information. In response to the interim audit report
recommendation, the FOEI treasurer provided a copy of a previously submitted statement
wherein he explained that the error was due to a misunderstanding of the new filing
requirement and that steps have been taken to ensure future compliance.

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 proceeding 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,

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

Facts and Analysis
FOEI filed Form 3Z-1 with its 2003 July Quarterly and 2003 Year End Reports with

incorrect financial information.

Using the electronic data provided by FOEI, the Audit staff determined gross receipts for
the primary election of $470,983 and for the general election of $2,150 should have been
disclosed on Form 3Z-1 included with its 2003 July Quarterly Report. FOEI disclosed
gross receipts for the primary election of $427,297 and no gross receipts for the general
election

"' This regulation became effective January 27, 2003; as such, this audit period is the first that required the
filing of this form.


Report of the
Audit Division on

Friends of Ernest Istook
January 1, 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.

' 2 U.S.C. §438(b).

About the Committee (p. 2)

Friends of Ernest Istook (FOEI) is the principal campaign
committee for Ernest Istook, Republican candidate for the U.S.
House of Representatives from the state of Oklahoma, sf
District. FOE] is headquartered in Oklahoma City, OK. For more
information, see chart on the Campaign Organization, p. 2.

Financial Activity (p. 2)
+ Receipts

o Contributions from Individuals $ 890,840
© Contributions from Political

Committees 799,470
o Offsets to Expenditures 22,495
o Other Receipts 1,165

o Total Receipts $ 1,713,970
« Disbursements

© Operating Expenditures $ 1,125,484

o Refunds 7,000
© Contributions to Other
Committees 277,100

o Total Disbursements $ 1,409,584
Findings and Recommendations (p. 3)
Receipt of Prohibited Contributions (Finding 1)
Receipt of Excessive Contributions (Finding 2)
Personal Use of Campaign Funds (Finding 3)
Misstatement of Financial Activity (Finding 4)
Disclosure of Receipts (Finding 5)

Disclosure of Disbursements (Finding 6)

Reporting of Debts and Obligations (Finding 7)
Failure to File 48-Hour Notifications (Finding 8)
Untimely Deposit of Contributions (Finding 9)
Disclosure of Form 3Z-1 (Finding 10)

Cr ey


B. Personal Use Defined. Personal use is defined as any use of funds in a campaign
account of a present or former candidate to fulfill a commitment, obligation, or expense
of any person that would exist irrespective of the candidate’s campaign or duties as a
Federal officeholder. 11 CFR §113.1(g).

Commission regulations list a number of purposes that would constitute personal use per
se. This includes but is not limited to the use of campaign funds for:
¢ Household food items or supplies;
e Funeral, cremation or burial expenses;
¢ Clothing other than items of de minimis value used in the campaign such as T
shirts or caps;
¢ Tuitions payments;
¢ Mortgage rent or utility payments;
« Admission to sporting events, concerts, theaters, or other form of entertainment
unless part of a specific campaign or officeholder activity;
e Dues, fees or gratuities at a country club, health club, recreational facility or other
nonpolitical organization; and
¢ Salary payments to a family member (unless the family member is providing bona
fide services). 11 CFR §113.1(g)(1)(i).

Where a specific purpose is not listed as personal use, the Commission makes a
determination, on a case-by-case basis, whether an expense would fall within the
regulation's definition of personal use. Examples of such other uses include:

« Legal expenses;

* Meal expenses

e Travel expenses; and

* Vehicle expenses. 11 CFR §113.1(g)(1)(i).

C. Mixed Use. For those uses of campaign funds that involve both personal use and
either campaign or office-holder activity, the committee must maintain a
contemporaneous log or other record to document the dates and expenses related to the
personal use of campaign funds. The log must be updated whenever campaign funds are
used for personal,expenses rather than for campaign or officeholder expenses. 11 CFR

§113.1(g)(8).

D. Advisory Opinion 2001-3. Based on the circumstances presented in Advisory
Opinion 2001-3, the Commission ruled that the use of a campaign vehicle for personal
purposes that is equal to 5% of the vehicle’s annual mileage is de minimis and would not
require reimbursement to the committee.

Facts and Analysis

A. Personal Use. During the review of disbursements, the Audit staff identified
expenditures totaling $8,936 paid by FOEI for what appeared to be personal expenses.
The expenditures included items that appeared to constitute personal use per se under 11
CFR §113.1(g)(1)(i) and expenses that required a determination on a case by case basis
as to whether the expense would fall within the regulation's definition of personal use.


a Texas trip for meetings at the OU-Texas game, but did not provide
documentation in support of these meetings.

Absent documentation or other pertinent information sufficient to support that
these expenses were for campaign-related and official business, the Audit staff
maintains that these $649 in expenses paid for by FOEI were for personal use.

3. Finally, the Audit staff identified additional disbursements, totaling $2,615, which
were subsequently reimbursed by the Candidate and the campaign manager in
response to the exit conference. The Candidate reimbursed FOEI for expenses
totaling $1,597. This included $760, primarily for charges made (and paid for by
FOE) on the campaign credit card that were also submitted for reimbursement
directly to the Candidate and the Candidatc’s wife. The remaining $837 were
campaign credit card charges (paid for by FOED) for personal items such as CD’s,
airfare, department store purchases, jewelry, groceries, gas, and membership fees
where the Candidate stated he used the wrong credit card by mistake.

The campaign manager reimbursed $1,018 for campaign credit card charges (paid for
by FOEI) for personal items such as drug store purchases, a studio tour, lodging, dry
cleaning, a hair cut, and flowers.

B. Unauthorized Expenditures. In November of 2003, FOEI identified unauthorized
expenditures made by a campaign worker between October 9, 2003 and November 14,
2003, totaling $30,504 that were paid with campaign funds. The campaign worker forged
campaign checks totaling $28,012 to himself and various vendors and made unauthorized
campaign credit card charges totaling $2,492. FOEI stated that the campaign worker
evidently went into the campaign manager’s desk drawer to get the checkbook, and
obtained the credit card data from credit card statements that were on the campaign
manager’s desk. Not all the campaign’s losses were detected and reported in time to be
reimbursed, although $21,173 of the bank fraud was reimbursed by First Fidelity Bank
because the bank had accepted and processed checks with false signatures. The
campaign worker was apprehended, prosecuted, and is currently serving a three-year
sentence at an Oklahoma State Penitentiary for embezzlement. Subsequent to this
activity, during the review of disbursements, the Audit staff identified additional forged
checks totaling $4,139 to various vendors.

The Audit staff discussed this matter with the treasurer at the exit conference and
provided schedules of the transactions noted above. In response, FOEI provided copies
of cancelled checks, affidavits of unauthorized activity, bank reimbursement
documentation, and news articles relating to the embezzlement.

Interim Audit Report Recommendation and Committee Response
A. Personal Use. The Audit staff recommended that FOEI provide evidence that the
$6,321 ($8,936 - $1,597 - $1,018) in expenditures described above were campaign or
officeholder expenses and not for personal use. Such evidence was to consist of:

1. invoices, receipts, minutes of meetings, agendas, itineraries;
2. names of organizations that sponsored trips;