Draft Final Audit Report of the 

Audit Division on the 

Democratic Party of Orange 

County FED PAC 

(January 1, 2007 - December 31, 2008) 

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 fbr 

substantial compliarice'''^^ 

with the Act.' The audit 

determines whefhi^^the, 

committee^complied 

with the limitations, 

prohibitibhs'^and 

disclosure reqmrements 

ofthe Act. '^-t^. 

Future Action l|) 

The Commission may/^ 

initiate an enforcement 

action, at a later time, 

with respect to any of 

the matters discussed in 

this report. 

About the Committee (p. 2)^ 

The Democratic Party of Orange Coifiity ^FED PAC (DPOC) is a 

local party committee, located in^S'anta Ana, Califomia^ For 

more information, see the ch^'oh Cpinmittee Organization, p. 2. 

Financial Activity$J^v^2) 

• Receipts 

o Contributioi^^om Individuals 

Contribution^^m Political 

Committees 

Loans Received 

Offsets to Expenditurc-i^^^ 

Tra^^eijg^rom Non-fedel:a|F.unds 

Transfere*§^in.,Lev Fund^^l:^*^' 

Total Receipts" i^^ - .. 

Disbursements " ' • iS^' 

Operating.Expend itures 

Transfers tip Affiliated Committees 

Contributions;tQ;Political 

Ggmmittees/^^" 

"Ende^^nt Expenditures 

Loan Repayments 

^i^Contribution Refunds 

• n^--i:-\....-y 

o ^^;!(Jther Disbursements 

o ,jFederal Election Activity 

Total Disbursements 

$ 334,560 

31,737 

13,000 

3,525 

202,684 

4,992 

$ 590,498 

$ 503,938 

45.483 

6,702 

21,529 

7,750 

806 

1,020 

11,118 

$ 598,346 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Untimely Deposit of Receipts (Finding 2) 

' 2 U.S.C. §438(b). 

^ Although the Statement of Organization lists the treasurer's Burbank, Califomia office address as 

DPOC's address, the committee is headquartered in Santa Ana, Califomia. 
Draft Final Audit Report of the 

Audit Division on the 

Democratic Party of Orange 

County FED PAC 

(January 1, 2007 - Decen^si^ 31, 2008) 
Table of Contents 

Part I. Background 

Authority for Audit 

Scope of Audit 

Page 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 'Ski 

Part IV. Findings and Recommei^^tions 

Finding 1. Misstatement of Financial Activity^ 

Finding 2. Untimely Deposit of Receipts^ \ 

fee 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Democratic Party of Orange County FED PAC 

(DPOC), 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 f)t<E^ia^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;fqr substantial .compliance with the 

Act. 2 U.S.C. §438(b). ""'' ^^ ' ' 

Scope of Audit 

Following Commission approved procedures, the AUidilf^taff evaluated various risk 

factors and as a result, this audit examined: "^"^-^^ 

1. The disclosure of disbursements, debtg';and obligations:^^ i. . 

2. The disclosure of expenses allocated$efwe^e%federal ananpil-federal accounts. 

3. The consistency between reported figujres and bimk records. 

4. The completeness of poprds. '"^^'^Ifl" ' 

5. The disclosure of indepeifd^i|^^ expenditures. 

6. Other committ^e^perations^cessary to me review. 

Limitations 

DPOC's tre2ilffie|.fe^f timi^erated'ia^^ firm that handled DPOC's 

accounting, recordkibepi^g and'r^prting. The firm also acts as DPOC's credit card 

proqessor.. The same cfedijt.card merchant account is used to process contributions for 

DPOC Eoid^a^ number of other clientsT The Audit staff did not have access to complete 

records fot tjiis.,account and therefore was limited in its ability to verify the proper 

accounting of-ti-eihsactions relating to the account. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration August 19,1996 

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

Headquarters Santa Ana, Califomia 

Bank Information 

• Bank Depositories One 

• Bank Accounts Five (two Fedejfai, one Levin, two Nonfederal) ''^y. 

Treasurer 

• Treasurer When Audit Was Conducted Kind^e/jDiirkee (May 15;20P7 - April 20, 

2Q#^ 

• Treasurers During Period Covered by Audit l|l&rice Hoffman (through MKy/U, 2007) 

iCM^feiDurke&May 15,2007 - Spril 20, 

201 l^F ^ 

Management Information 

• Attended FEC Campaign Finance Seminar Yes 

• Who Handled Accounting and 

Recordkeeping Tasks ^ 

iPaid Staff "^S^ ^ 

Ovep^W of Fiha^cili^^ctivi^^ 

(Audited Amounts) 

Cash-on-hand @ Januai$?iv,200j7 

Receipts .-^rrvfe;^ 

$ 12,785 

o Contribu^oii's'WmiMvidiMI^ 334,560 

o Contijibutions from FMilieal Coiteiitte.es 31,737 

o Lo^s Received 13,000 

o Offsets to Expenditures fv.:, 3,525 

o Transfers froni Non-federat^unds 202,684 

o Transfers from^Eevin Funds 4,992 

Total Receipts $ 590,498 

Disbursements 

o Operating Expenditures 503,938 

o Transfers to Affiiiated Committees 45,483 

o Contributions to Political Committees 6,702 

o Independent Expenditures 21,529 

o Loan Repayments 7,750 

o Contribution Refunds 806 

o Other Disbursements 1,020 

o Federal Election Activity 11,118 

Total Disbursements $ 598,346 

Cash-on-hand @ December 31,2008 $ 4,937 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of DPOC's reported figure^^ith bank records 

indicated that receipts and disbursements were understated by^^^l-Q and $13,057 in 

2007 and by $33,394 and $32,806 in 2008. In response to l^^erim Audit Report 

reconmiendation, DPOC amended its reports to materially (Inr^ighese misstatements. 

(For more detail, see p. 4) ^ 4^ 

Finding 2. Untimely Deposit o^Secei^ts '^^^ ^. 

Audit fieldwork indicated that DPOC failed to'^posit, within 10 days of reiieipt, 58 

percent of the contributions received during the 2O0Bt|lep^tiWn cycle. The ddays in 

depositing these contributions averaged 41 days. Th^^^it staff recommended that 

DPOC provide evidence showing tha1;#ie deposits in ques^m were deposited timely or 

submit any additional comments relev^^^^^finding. in%^cmse to the Interim Audit 

Report, a DPOC representative restated 1|p^^^^the depos^elays and made 

assurances that the changes made since th%audij|ivil^^)^ tikis problem from 

recurring. 

(For more detail, see pi6) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of DPOC's reported figures with bank records 

indicated that receipts and disbursements were understated by $13,110 and $13,057 in 

2007 and by $33,394 and $32,806 in 2008. In response to the Intefem Audit Report 

recommendation, DPOC amended its reports to materially cqir^ct these misstatements. 

Legal Standard V; 

Contents of Reports. Each report must disclose: % ^-^^i,. 

• The amount of cash-on-hand at the beginning and end of the rep6;^i^g period; 

• The total amount of receipts for the repoi|ing periol^yuid for the cale^;af year; 

• The total amount of disbursements for the'irqpbiting^^^ and for the calendar 

year; and 

• Certain transactions that requi^ig^mization on S^dule A (Itemized Receipts) or 

Schedule B (Itemized DisburseE^t^i. 2 U.S.C. §49f(|t)(L), (2), (3), (4) and (5). 

Facts and Analysis '(V< <^^^i'^:^^.. . 

^•^•^•J•A^.\^^^•.^^ g 3 A. Facts 

During audit field>york, a reconciliation of DPOC's reported financial activity with bank 

records for 2007 drid lOO^ indicated that cash-on^hand, receipts and disbursements were 

misstated in both years. ^'lhe.fojl$^ng^j:h the discrepancies for both years and 

2007lc'i)immittee Activijy;>.. *W 

- ' Reported Bank Records Discrepancy 

Beginning <da$h Balance @[l 

January 1,26()7^ -. ¥ 

$12,827 $12,785 $(42) 

Overstated 

Receipts ' v^^^^. $311,632 $324,742 $13,110 

Understated 

Disbursements ^' $292,185 $305,242 $13,057 

Understated 

Ending Cash Balance @ 

December 31,2007 

$32,274 $32,285 $11 

Understated 

The understatement of receipts was the result of the following: 

• Unreported receipts $ 12,113 

• Unexplained difference 997 

Understatement of Receipts $ 13,110 
The understatement of disbursements was the result of the following: 

• Unreported transfers to non-federal accounts $ 12,113 

• Unreported miscellaneous expenses 700 

• Unexplained difference 244 

Understatement of Disbursements $ 13,057 

The majority of the unreported receipts and disbursements, noted above, occurred 

between August 22 and December 22,2007. During that time, DPOC made deposits of 

individual contributions totaling $10,265 into its federal account that were intended for 

the non-federal account. Neither the deposits nor the transfers l^ll^^on-federal account 

were reported. The balance, $1,848 ($12,113-$ 10,265), was a^ansfer received from the 

non-federal account on January 30 and retumed on March^S^^"^;^ 

2008 Committee Activity ,4MK X "% 

1;. 

Reported ,i ^^Banfe Records "^'Discrepancy 

Beginning Cash Balance @ 

January 1,2008 

$32,274dJ s. $32,285 

Understated 

Receipts $232,362 '$33,394 

Understated 

Disbursements '^60,298 '^^293,104 $32,806 

Understated 

Ending Cash Balance @ 

December 31,2008 

^,3318^1 $599 

Understated 

if."" The understatement pf receiptstwas the result;qf the following: 

Unreported receipts 

"•"Sf.-. • Unexplained diffe»pn^cei^^|^;,, 

Undj^rstatement of^eceipts^ 

$ 33,370 

24 

$ 33,394 

The undierstatement of febursemeints was the result of the following: 

V ""^n^eported transfersxto nonifederal accounts 

Unexplained differeriie 

Net Wiierstatement of Disbursements 

$ 33,370 

(564) 

$ 32,806 

Between January'2 ^fed lgiiferuary 13,2008, DPOC made 22 deposits of contributions 

totaling $32,030 intd^Sis federal account that were intended for the non-federal account. 

In July, an additionallB 1,340 was deposited into the federal account that was intended for 

the non-federal account. DPOC did not report the deposits or the transfers to the nonfederal account. 

During audit fieldwork, DPOC representatives inquired as to whether they were required 

to report deposit errors made and corrected within a reporting period. The Audit staff 

noted that DPOC did not correct all of the errors within a reporting period. Further, 

DPOC representatives were informed that the numerous occurrences indicated a systemic 

problem and that political committees are required to report all receipts and 

disbursements. DPOC representatives described the 2008 deposits of non-federal funds 
to the federal account as errors; and stated that once identified and corrected, the errors 

were not repeated. 

DPOC misstated cash balances throughout 2007 and 2008 due to the errors outlined 

above and unknown adjustments from prior reporting periods. On December 31,2008, 

the cash balance was understated by $599. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference. Audit staff restated the misstatements previously discussed and 

received no additional comments from DPOC representatives. 

The Interim Audit Report recommended that DPOC: 

• Amend its reports to correct the misstatements for 2007^a[nd 2008 as noted above; 

Amend its most recently filed report to correct th^cash-6n-|l^d balance with an 

explanation that the change resulted from a p^or period audit;|idjustment. 

Further, DPOC should reconcile the cash ^alaiicV of its most fecdsnt report to 

identify any subsequent discrepancies thagmay affect the adjustniefi|^ ^ 

recommended by the Audit stafif. y^i^t^. \ . "^i^rP^ 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Rep6iJ i;econimendationfl|^gOC amended its reports to 

materially correct the misstatements nbjlei^b^e. ^ 

I Finding 2. Untimely Depos%|f Re^ijfit | 

Summary -v^, m 

Audit fieldwork indicate||^at Ij^ g failed to (|eposit, within 10 days of receipt, 58 

percent of the,cpntribution^|^^n/e&S^^ election cycle. The delays in 

depositing/tHese^Ohttto The Audit staff recommended that 

DPOC provide evi(iei&e!!showin|||jiat the deposits in question were deposited timely or 

submit.ah^ additional conments relevant to this finding. In response to the Interim Audit 

Report, a fepC represenfetiye restated the cause of the deposit delays and made 

assurances that the changes^made since the audit will prevent this problem fi'om 

recurring. . J^>^' 

Legal Standard f^^-^ 

Timing of Deposits.'^A treasurer of a political committee is responsible for making 

deposits of contributions. These deposits must be made within 10 days of the receipt of 

the contribution. 11§CFR 103.3(a). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the reconciliation of DPOC's bank activity identified a number 

of deposits in transit at the end of calendar year 2007. Of the 29 deposits held to be in 
transit, 24 consisted of contributions received prior to December 2007 and only one qf 

the 29 was deposited within the required 10 days. 

A review of all deposits into DPOC's federal account indicated that 230 of 430 

contribution deposits were made more than 10 days following the contribution's receipt.^ 

On average, the time between receipt and deposit for the late deposits was 41 days, 

ranging from 11 to 281 days.^ Contributions deposited untimely totaled $213,960 or 

approximately 58 percent of the contributions deposited. 

There was a greater delay for the deposit of contributions made by^^credit card than for 

those made by check. For the late credit card deposits, the aver|f|lMfelay between receipt 

and deposit was 57 days, while the average delay for check b,atcbes was 17 days. 

DPOC's Treasurer, at the time, discussed this problem in^solfhe-aetail in a written 

response to questions raised during audit fieldwork: ^ 

Merchant services accounts are normally^inked to the individual^jclient bank 

account. Unfortunately, there were inconsist|npies whil^ establishing'^e. merchant 

services account for DPOC and the account wal^neverpbperly activatedf Several 

months' worth of activity showed the credit card bqn^bution deposits were not 

properly posting to the (iommittee^bank account. tt^Was eventually discovered that 

the funds were being held in a stanf^d|ion-interest bearing checking account 

established for merchant services hQSted^|||;Purkee & Alisoljiates. In order to rectify 

the situation we immediately began ^yeri^^^^h^;edit caM transaction. As soon as 

all credit card transactions were accouiitedfd^, th^net;tOtal of each credit card batch 

was transferred intp^the Committee bank abcount. In^some instances, the transfer 

checks were voi4^d and re-i^Sjiied due to atdeclined credit card or a chargeback within 

the original batch; v This wa^ lengthy proc|ss,^but as of the present date, all credit 

card transactions haveJbeen^A^eirified and alljrands have been transferred properly. 

Thie bliieclMe^p^^^^ dela^p/ere due to new office procedures. During this time, 

v^e'e|tablished aii ij^fTice Reamer to process check deposits through our bank, 

ftet^scanner was nei^^chnol^^ our bank was testing. This technology placed a 

check'sjcanner and comj^uter sc)ftware in our office that allowed us to process deposits 

in the saiii^e fanner as a^bank teller processes deposits at a bank branch. We agreed 

to participate>m^jthe pro(^6ss as a means for our clients to save courier fees and to 

allow them to ha^e:^e'benefit of instant credit of deposits. Unfortunately, there were 

many discrepancies and processing malfunctions which we were not prepared to 

^ Since DPOC did not maintain a record showing the actual date a contribution was received, the Audit 

staff used the dates the batches were recorded in DPOC's accounting records. These dates coincided with 

the date written on deposit batch preparation sheets. Generally, the checks in the batches were dated a few 

days prior to the preparation date. The underlying presumption was that to be able to prepare the deposits, 

DPOC must have the contributions in hand. 

* Excluded from this calculation is a March 6,2006 deposit in transit, which could not be traced to 

DPOC's bank account, but based on DPOC bank reconciliations, was deposited sometime in March 2008. 

The time between receipt and deposit may have been in excess of two years. 
handle. As a result, many of our deposits were not properly processed and therefore 

did not settle timely. 

It should be noted that we have strict intemal controls in place to avoid these 

types of situations in the future. 

The Audit staff noted that it is not clear why this deposit delay problem was not identified 

and resolved more quickly, since the former treasurer's company, Durkee and Associates, 

both processed DPOC's credit card contributions^ and regularly reconciled its bank 

accounts. The delays for the credit card deposits spanned the entire election cycle, 

although the average time between contribution receipt and dei)O^in^2008 declined to 

35 days from 47 days in 2007. The deposit of checks processe|tVith the new technology 

may have been the cause of some deposit delays, but this dp'e!S''^5t..^xplain the late 

deposits prior to the adoption of the system in December'2007, libtidpes it explain why 

six of 13 check deposit batches from December 2008^W!?re%te. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference. Audit staff restated the issi^g^iscussed previously a^d^DPOC 

representatives did not comment. The Interim Audi^|ptSrt recommended diat DPOC 

provide evidence showing the deposits in question wefe^eposited timely or submit any 

additional comments relevant to this filing. 

C. Committee Response to Interim Audit Repprtvy,. I' 

In response to the Interim Audit Report, a l^PQC'iepresentat^ restated the position 

previously presented at the elo^^^ of audit fiddwork and assured that this problem will not 

recur. 

S Durkee and Associates handles accounting and reporting for a number of political clients, many of which 

had the same treasurer as DPOC, and used a shared credit card merchant account.