Draft Final Audit Report of the 

Audit Division 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 

Commission generally 

conducts such audits 

when a committee 

appears not to have met, 

the threshold 

requirements for 

substantial compliance: 

with the Act^si^e^udit 

determin^v^i^fi 

comnu^^ complied 

the iim^^ons, 

prohibitiof 

disclosure rg^^ements 

of the Act. 

Future Actioil 

The Commission m ^ 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign j^^ L 

Djou for Hawaii is the princin^^mpaign committee for 

Charles Kong Djou, Repu^l^^andidate for the U. S. House of 

Representatives from the^te ofs^^aii, l''^ District, 

headquartered inHoi^^u^awaii^^rmore information, see 

the chart on the Car^algr^Organizat^oi^^2. 

Financial^ 

• Receipts 

o Contributions fil^^dividuals 

o w^ntributions fro^^ti^er 

]^llt^i|^yQommittees^ 

o Transf(^^b'mJ)ther i^lShorized 

Col^ • ^ 

Total Rl 

Disbursenlente 

,o_ Operatii^^penditures 

^^^[dtion Refunds 

TotaT^^ursements 

$ 1,917,158 

717,032 

38,069 

$ 2,672,259 

$2,597,123 

5,985 

$ 2,603,108 

Findings and Recommendations (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). 
Draft Fi Audit Report of the 

Audit Division on 

Djou for Hawaii 

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

Page 

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 Recommendatioj 

Finding 1. Misstatementof Financial Acti^••^ 

Finding 2. Failure to File 48-Hour Notices 

Finding 3. Reporting of Debts and Obligations 6 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Djou for Hawaii (DFH), 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^|^ is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit unc^raissubsection, the 

Commission must perform an internal review of reports file#^se!ected committees to 

determine whether the reports filed by a particular comn^pe n^^^e threshold 

requirements for substantial compliance with the Act^U^.C. § ^ 

Scope of Audit 

Following Commission-approved procedures^' ilu-^ 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions and loans; 

2. the receipt of contributions from ^hibited sources; 

3. the disclosure of contributions recei 

4. the disclosure of disbursements, debl^n( 

5. the consistency between reported figi^ am 

6. the completeness otMiM^^"^ 

7. other campaign o^^uor^^cessary to review. 

Levaluated vanl 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration November 23,2QS^ 

• Audit Coverage January 1,20Q^December 31,2010 

Headquarters Honolulu, ^^If^^^lk 

Bank Information 

• Bank Depositories Onejjl^'% 

• Bank Accounts Onl'^hecking 

«i • 

Treasurer V 

• Treasurer When Audit Was Conducted Cl^S . Maiti^^a 

• Treasurer During Period Covered by Audit Chris s. M.ishiba r 

Management Information 

"VT _ ^KBH ^ 

Seminar 

Who Handled Accounting and 

Recordkeeping Tasks 

of Fin^'bial Activity 

i^mounts) 

Cash-ojn^^y ^ January^. 21109 ^ $ 123,939 

Receipts ^ 

o ContributioH^^m Indiv:Jii.ils 1.917,158 

o Contributionsl^^Other l^itical Committees 717,032 

o Transfers from Prized 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 

Findings and Recommendations 

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 b^^^02 . In response to 

the Interim Audit Report recommendation, DFH filed amende^reports that materially 

corrected the above misstatement. ^ tk. 

(For more detail, see p. 4.) 

Finding 2. Failure to File 48-Hou^^tices 

During audit fieldwork, the Audit staff noted )FH 

28 contributions, totaling $50,700, that were 

subsequent primary and general elections. In respdrf 

recommendation, DFH explained thatthe enormous v 

notification period and a shortage of nbrRQwer resulted 

contributions not being filed. 

(For more detail, see p. 5.) % 

#ces for 

on and 

eport 

Finding 3. Reg 

During audit fieldwg: 

disclosed on Sche 

Report recommendatiofp 

Schedules ] ^ 

(For more;^^il7'^^^6 

faHed to file 48-noi| 

prioi^i^he special el 

erim Audit' 

of receipts during the 

Tt^iii es for the identified 

of Dehi|#and Ohligations 

staff identilted debts totaling $168,990 that were not 

pid Obligatio^^Tn response to the Interim Audit 

iicri;ill\ correal the omission by filing amended 
Part IV 

Findings and Recommendations 

I 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^^i«^ that materially 

corrected the above misstatement. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amount of cash-on-hand at the beginning^! end of the repo: i i:l^^er^od; 

• the total amount of receipts for the reportin^^iod an^or the electio^^d^; and 

• the total amount of disbursements for the repo^lin•: oe^^and for the elj^on cycle. 

2 U.S.C. §434(b)(l), (2), and (4). - • ^ ^ 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff re(%icik*'. ! )i ! li^^^'pbrted activity with its bank 

records for the period c^^^b^'the audit arfS'cletermin^that DFH overstated the 

ending cash-on-hand|Slance^^Decemberfel. 2010 by $53,302. This was due 

primarily to repord^lpscrepan^s noted in d%J^ure reports filed during the audit 

period. 

The Interim Audit^^^^ecommended that DFH amend the cash balance on its most 

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

audit adjustment. Further, the Audit Report recommended 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. 

B. Inteoffi Aiiilii l^^^ t & :\fedit Division Recommendation 

At thgl^t conferenc^^^Audrl^^^xplained the misstatement and subsequently 

pro^oe^^H representees wit^cnedules detailing the discrepancy identified during 

the audit^^^d The repr^ntatives indicated that DFH would file the necessary 

amendment. • 
I 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. 

Legal standard 

Last-Minute Contributions (48-Hour Notice). Campaign^^riittees must file special 

notices regarding contributions of $1,000 or more received^^sTOm 20 days but not more 

than 48-hours before any election in which the candidate^runnu^^Chis rule applies to 

all types of contributions to any authorized committdi^^^he candidS^ncluding: 

• contributions from the candidate; 

• loans from the candidate and other nqn^^^sourc^: and 

• endorsements or guarantees of loans from^^! •-11 il^Tl^»CFR § 104.5©-

Facts and Analysis ^ 

A. Facts 

During audit fieldwork, the Audit staff iSkiii!K\r^^&ontribu]^5ns, totaling $338,471, 

that were greater than $1,000 and were recyve^mjri^^^^*8-hour notice period for the 

special general electioty[^^^|^s subsequ^^rimary ^ra general elections. A review 

of these contributions^5icai^Riat DFH dic^ot file 48-hour notices for 28 contributions 

totaling $50,700. 4 

B. Interim^^jj^yRgporfS^^^ mendation 

At the exi^onT^^^^iie i^>aff provided DFH representatives with schedules 

detailijnMie failure to^^^oticlMar 48 contributions totaling $87,700. In response to 

the €^^^nference, DF^^monstl^ecl that it had not received 20 of the contributions, 

totaling S^^jOO, within tn^otice^eriod. Those contribution amounts have been 

removed fri^Sfi above toS ($50,700 = $87,700 - $37,000). 

The Interim Audif^^Byrecommended that DFH provide documentation demonstrating 

that it had filed 48-h^^otices for the contributions in question or documentation 

establishing that thexontributions were not subject to 48-hour notification. 

C. Committee Response to Interim Audit Report 

DFH cited the enormous volume 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." 

I 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 \ M filing amended 

Schedules D. ^ ^ 

Legal Standard 

A. Continuous Reporting Required. A political 

and nature of outstanding debts and obligations 

U.S.C §434(b)(8) and 11 CFR §§ 104.3(d) and 1 

B. Obligation to Estimate Debt. When the 

known, the report shall state that the amount report^ 

amount is determined, the political committee shall 

Inclose the amount 

•p<»uished. 2 

•fe^debt or obli^.-.i'on is not 

estimate. Once the exact 

mend the report(s) containing 

the estimate or indicate the correct arm ;tton the report fSfili*- 'eporting period in which 

such amount is determined 

C. Separate Schedules. Aoolitical comimte^usn^>^^|^arate schedules for debts 

owed by the committe^^^^^ owed to tl^^ommitte^^ogether with a statement 

explaining the circu^^nces a^conditions Bjider which each debt and obligation was 

incurred or extingi!nSI^|J 1 C ^ §104.11(a). 

D. Itemizin 

t be reported once it has been outstanding 60 days from 

e aate^to<^ transaction); the committee reports it on the next 

port. 

p must be disclosed in the report that covers the date on 

turred. 11 CFR §104.11(b). 

Facts and 

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 manner, the review of DFH disbursements identified 40 

debts, totaling $l68,990^,that should have been reported on Schedule D. 

^ 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. 
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. 

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 

the unrecorded debts involved instances in which invoices hj 

shortly before payment was made or involved invoiced 

Consequently, the actual amount of the debt was unknot 

due. 

that a majority of 

been received until 

had been in dispute, 

the reports were