Final Audit Report of the 

Commission on 

Djou for Hawaii 

(January 1, 2009 - December 31, 2010) 

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 

Conunission 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 

conunittee 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. 

About the Campaign (p. 2) 

Djou for Hawaii is the principal campaign committee for 

Charles Kong Djou, Republican candidate for the U. S. House of 

Representatives from the state of Hawaii, 1^* District, 

headquartered in Honolulu, Hawaii. For more information, see 

the chart on the Campaign Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions firom Other 

Political Committees 

o Transfers from Other Authorized 

Committees 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Contribution Refunds 

Total Disbursements 

$ 1,917,158 

717,032 

38,069 

$ 2,672,259 

$ 2,597,123 

5,985 

$ 2,603,108 

Commission Findings (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Failure to File 48-Hour Notices (Finding 2) 

• Reporting of Debts and Obligations (Finding 3) 

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

Commission on 

Djou for Hawaii 

(January 1, 2009 - December 31, 2010) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Audit Hearing 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Commission Findings 3 

Part IV. Commission Findings 

Finding 1. Misstatement of Financial Activity 4 

Finding 2. Failiure to File 48-Hour Notices 5 

Finding 3. Reporting ofDebts and Obligations 6 
Parti 

Background 

Authority for Audit 

This report is based on an audit of Djou for Hawaii (DFH), imdertaken by the Audit 

Division of the Federal Election Conunission (the Conunission) 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 imder 2 U.S.C. §434. Prior to conducting any audit imder this subsection, the 

Commission must perform an intemal review of reports filed by selected committees to 

determine whether the reports filed by a particular conmiittee 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 various risk 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions and loans; 

2. the receipt of contributions from prohibited sources; 

3. the disclosure of contributions received; 

4. the disclosure of disbursements, debts and obligations; 

5. the consistency between reported figures and bank records; 

6. the completeness of records; and 

7. other campaign operations necessary to the review. 

Audit Hearing 

DFH declined the opportimity for a hearing before the Commission on the matters 

presented in this report. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration November 23,2007 

• Audit Coverage January 1,2009 - December 31,2010 

Headquarters Honolulu, Hawaii 

Bank Information 

• Bank Depositories One 

• Bank Accoimts One checking 

Treasurer 

• Treasiurer When Audit Was Conducted Chris S. Mashiba 

• Treasurer During Period Covered by Audit Chris S. Mashiba 

Management Information 

• Attended Commission Campaign Finance 

Seminar 

No 

• Who Handled Accoimting and 

Recordkeeping Tasks 

Volunteer Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand January 1,2009 $ 123,939 

Receipts 

o Contributions from Individuals 1,917,158 

o Contributions from Other Political Committees 717,032 

o Transfers from Other Authorized Committees 38,069 

Total Receipts $2,672,259 

Disbursements 

o Operating Expenditures 2,597,123 

o Contribution Refunds 5,985 

Total Disbursements $2,603,108 

Cash-on-hand @ December 31,2010 $ 193,090 
Part III 

Summaries 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of reported figures with bank records revealed that 

DFH overstated its December 31,2010 cash-on-hand balance by $53,302. In response to 

the Interim Audit Report reconunendation, DFH filed amended reports that materially 

corrected the above misstatement. 

The Commission approved a finding that DFH misstated its cash-on-hand for December 

31,2010. 

(For more detail, see p. 4.) 

Finding 2. Failure to File 48-Hour Notices 

During audit fieldwork, the Audit staff noted that DFH failed to file 48-hour notices for 

28 contributions, totaling $50,700, that were received prior to the special election and 

subseqiient primary and general elections. In response to the Interim Audit Report 

recommendation, DFH explained that the enormous volume of receipts diu-ing the 

notification period and a shortage of manpower resulted in notices for the identified 

contributions not being filed. 

The Commission approved a finding that DFH failed to file 48-hour notices for 28 

contributions totaling $50,700. 

(For more detail, see p. 5.) 

Finding 3. Reporting of Debts and Obligations 

During audit fieldwork, the Audit staff identified debts totaling $168,990 that were not 

disclosed on Schedule D (Debts and Obligations). In response to the Interim Audit 

Report recommendation, DFH materially corrected the omission by filing amended 

Schedules D. In response to the DFAR, the finding amoimt was adjusted to $124,318, to 

reflect the actual debt not reported. 

The Commission approved a finding that DFH failed to report debts and obligations 

totaling $124,318. 

(For more detail, see p. 6.) 
Part IV 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of reported figures with bank records revealed that 

DFH overstated its December 31,2010 cash-on-hand balance by $53,302. In response to 

the Interim Audit Report recommendation, DFH filed amended reports that materially 

corrected the above misstatement. 

The Commission approved a finding that DFH misstated its cash-on-hand for December 

31,2010. 

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 amoimt 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. 

2 U.S.C. §434(b)(l), (2), and (4). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reconciled DFH's reported activity with its bank 

records for the period covered by the audit and determined tiiat DFH overstated the 

ending cash-on-hand balance as of December 31,2010 by $53,302. This was due 

primarily to reporting discrepancies noted in disclosure reports filed diuing the audit 

period. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff explained the misstatement and subsequently 

provided DFH representatives with schedules detailing the discrepancy identified during 

the audit period. The representatives indicated that DFH would file the necessary 

amendment. 

The Interim Audit Report recommended that DFH amend the cash balance on its most 

recently filed report with an explanation that the change resulted from a prior-period 

audit adjustment. Further, the Audit Report reconunended that DFH reconcile the cash 

balance of its most recent report to identify any subsequent discrepancies that may affect 

the adjustment recommended by the Audit staff. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit report, DFH filed amended reports that materially 

corrected the above misstatement. 
D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit Staff acknowledged that DFH materially 

resolved the misstatements by filing amended disclosure reports. 

E. Committee Response to the Draft Final Audit Report 

DFH did not offer any additional comments in its response to the Draft Final Audit 

Report. 

Commission Conclusion 

On August 8,2012, the Commission considered the Audit Division Recommendation 

Memorandum which reconunended that the Commission adopt a finding that DFH 

misstated its cash-on-hand for December 31,2010. 

The Commission approved the Audit staffs recommendation. 

Finding 2. Failure to File 48-Hour Notices 

Summary 

During audit fieldwork, the Audit staff noted that DFH failed to file 48-hour notices for 

28 contributions, totaling $50,700, that were received prior to the special election and 

subsequent primary and general elections. In response to the Interim Audit Report 

recommendation, DFH explained that the enormous volume of receipts during the 

notification period and a shortage of manpower resulted in notices for the identified 

contributions not being filed. 

The Commission approved a finding that DFH failed to file 48-hour notices for 28 

contributions totaling $50,700. 

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 not more 

than 48-hoiirs before any election in which the candidate is miming. This rule applies to 

all types of contributions to any authorized committee of the candidate, including: 

• contributions firom the candidate; 

• loans from the candidate and other non-bank sources; and 

• endorsements or guarantees of loans from the banks. 11 CFR § 104.5(f). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff identified 199 contributions, totaling $338,471, 

that were greater than $1,000 and were received during the 48-hour notice period for the 

special general election, as well as subsequent primary and general elections. A review 

of these contributions indicated that DFH did not file 48-hour notices for 28 contributions 

totaling $50,700. 
B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided DFH representatives with schedules 

detailing the failure to file notices for 48 contributions totaling $87,700. In response to 

the exit conference, DFH demonstrated that it had not received 20 of the contributions, 

totaling $37,000, within the notice period. Those contribution amoimts have been 

removed from the above total ($50,700 = $87,700 - $37,000). 

The Interim Audit Report recommended that DFH provide documentation demonstrating 

that it had filed 48-hour notices for the contributions in question or documentation 

establishing that the contributions were not subject to 48-hour notification. 

C. Committee Response to Interim Audit Report 

DFH cited the enormous voliune of contributions received in the notice period and the 

shortage of manpower as contributing factors in its failure to file 48-hour notices for the 

remaining $50,700 in contributions identified in the audit. A committee representative 

further explained: "However, on certain occasions, I was not able to report some of the 

contributions for the 48 hour report that were received on the respective 48 hour report 

date because they were in fact entered into the software a day or two later by another 

volunteer staff member. This procedure has been corrected and should not happen again 

in this next election cycle." 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit Staff acknowledged that DFH failed to file 48-

hour notices for 28 contributions totaling $50,700. 

£. Committee Response to the Draft Final Audit Report 

DFH did not offer any additional comments in its response to the Draft Final Audit 

Report. 

Commission Conclusion 

On August 8,2012, the Commission considered the Audit Division Recommendation 

Memorandum which recommended that the Commission adopt a finding that DFH failed 

to file 48-hour notices for 28 contributions totaling $50,700. 

The Commission approved the Audit staffs recommendation. 

Finding 3. Reporting of Debts and Obligations 

Summary 

During audit fieldwork, the Audit staff identified debts totaling $168,990 that were not 

disclosed on Schedule D (Debts and Obligations). In response to the Interim Audit 

Report recommendation, DFH materially corrected the omission by filing amended 

Schedules D. In response to the DFAR, the finding amount was adjusted to $124,318, to 

reflect the actual debt not reported. 
The Commission approved a finding that DFH failed to report debts and obligations 

totaling $124,318. 

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) and 104.11(a). 

B. Obligation to Estimate Debt. When the exact amount of a debt or obligation is not 

known, the report shall state that the amount reported is an estimate. Once the exact 

amount is determined, the political committee shall either amend the report(s) containing 

the estimate or indicate the correct amount on the report for the reporting period in which 

such amount is determined 

C. Separate Schedules. A political conunittee must file separate schedules for debts 

owed by the committee and debts owed to the conmiittee, together with a statement 

explaining the circumstances and conditions under which each debt and obligation was 

incurred or extinguished. 11 CFR § 104.11 (a). 

D. Itemizing Debts and Obligations. 

• A debt of $500 or less must be reported once it has been outstanding 60 days from 

the date incurred (the date of the transaction); the committee reports it on the next 

regularly scheduled report. 

• A debt exceeding $500 must be disclosed in the report that covers the date on 

which the debt was incurred. 11 CFR § 104.11 (b). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff noted that the DFH disclosure reports filed during 

the audit period did not disclose any debt owed. Although DFH paid the majority of its 

vendor invoices in a timely maimer, the review of DFH disbursements identified debts 

totaling $168,990^ that should have been reported on Schedule D. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff informed DFH representatives of this matter at the exit conference and 

subsequently provided schedules detailing the undisclosed debts for each reporting period 

of the audit cycle. DFH representatives indicated that DFH would file amended reports. 

The Interim Audit Report recommended that DFH amend its reports to disclose all 

unreported debts and obligations. 

^ Each debt in this amount was counted once even if it required disclosure over multiple reporting periods. 

In order for DFH to correctly file amended reports, the schedule provided included the amount of each 

debt required to be reported for each reporting period. 
C. Committee Response to Interim Audit Report 

DFH filed amended Schedules D that materially corrected the unreported debts and 

obligations. Further, DFH's response stated that it continued to believe that a majority of 

the unrecorded debts involved instances in which invoices had not been received until 

shortly before payment was made or involved invoiced amounts that had been in dispute. 

Consequently, the actual amount of the debt was unknown at the time the reports were 

due. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit Staff acknowledged that DFH failed to report 

debts and obligations totaling $168,990. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, DFH questioned the sample projection for 

unreported debt totaling $168,990 as being greater than the actual amount identified by 

the audit. DFH stated that debts and obligations totaling $124,318 that were included on 

its amended reports filed in response to the interim audit report represent DFH's 

unreported debt. DFH requested that the finding total be revised to the lower amount. 

Upon further review, the Audit staff revised the amount of unreported debts to $124,318. 

Commission Conclusion 

On August 8,2012, the Commission considered the Audit Division Recommendation 

Memorandum which recommended that the Commission adopt a finding that DFH failed 

to report debts and obligations totaling $124,318. 

The Coinmission approved the Audit staffs reconunendation.