17

the date on the check was almost always the date reported as received. In addition. REC
noted that contributions from PACs will have a cover letter that will be dated differentiy
from the date on the check. Also, fundraising events managed by others are frequently
held by the organizer until the completion of the event and then forwarded to RPC.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that RPC provide documentation that demonstrates the
contributions were deposited timely or provide any comments it may wish to make. In
response, RPC again stated that, in many instances, the date of the check, rather than the
date received was disclosed as the receipt date. RPC stated further, that it did not have
postmarked envelopes to confirm the actual receipt date.

It appears that, in many instances, RPC disclosed the check date as the date of receipt.
However, this is not the reason that the contributions were not deposited timely. As
previously stated, deposits for the above contributions were made three to four weeks
apart. Further, after allowing sufficient time for the contributions to reach RPC’s
headquarters, the above contributions were deposited, on average, 66 days late.


11

maintained sufficient funds, at all times, to refund both the excessive contributions noted
in Finding 2 and these prohibited contributions.

Although, no documentation was made available, RPC indicated that one of the entities
was actually a partnership and another was an LLC.

This matter was discussed at the exit conference. In response, RPC stated that it had
refunded $3,828 of the prohibited contributions. A review of RPC’s disclosure reports
also indicated that the refunds were reported.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that RPC provide evidence that the remaining
contributions ($3,400) were not prohibited. Such evidence was to include documentation
from each entity that demonstrated it was not a corporation at the time the contribution
was made.

Absent such evidence, it was recommended that RPC refund the remaining $3,400
($7,228 — $3,828) in contributions and provide copies (front and back) of all negotiated
refund checks.

In response to the interim audit report recommendation, RPC provided copies of
negotiated refund checks totaling $4,853 and signed statements from representatives of
two of the entities stating that their contributions ($2,375) were from non-incorporated
sources.

| Finding 4. Misstatement of Financial Activity

Summary

A comparison of RPC’s reported financial activity to bank records revealed a
misstatement of disbursements and ending cash on hand in calendar year 2003 and
beginning cash on hand in 2004. In response to the recommendation, RPC filed amended
reports that materially corrected its reported financial activity.

Legal Standard- :

Contents of Reports. Each report must disclose:

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

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

e The total amount of disbursements for the reporting period and for the calendar year.
2 US.C. §434(b)(1), (2) and (4).

Facts and Analysis

The Audit staff reconciled the reported activity to the bank records and determined there
was a significant misstatement of disbursements and ending cash on hand in calendar
year 2003 and the cash on hand balance in 2004. The following chart details the
discrepancies between the totals on RPC’s disclosure reports and the bank records.


Part II
Overview of Campaign

Campaign Organization

Important Dates

Richard Pombo for Congress

e Date of Registration

February 20, 2003

e Audit Coverage

January 1, 2003- December 31, 2004

Headquarters

Tracy, California

Bank Information

e Bank Depositories

1

e Bank Accounts 1 Checking
Treasurer
e Treasurer When Audit Was Conducted David Bauer

« Treasurer During Period Covered by Audit

Randall Pombo (through July 13, 2004);
David Bauer (from July 14, 2004)

Management Information

e Attended FEC Campaign Finance Seminar

Yes

e¢ Used Commonly Available Campaign
Management Software Package

Yes

e¢ Who Handled Accounting and
Recordkeeping Tasks

Paid Staff & Vendor

Overview of Financial Activity
(Audited Amounts)

Cash on hand @ January 1, 2003 $ 18,940
o Contributions from Individuals 535,006
o Contributions from Political Committees 556,167
o Other Receipts 14,813
Total Receipts $ 1,105,986
© Operating Expenditures 861,793
o Contribution Refunds 5,375
o Contributions to Federal Candidates 10,000
o Transfers to National Party Committee 147,500
Total Disbursements $ 1,024,668
Cash on hand @ December 31, 2004 $ 100,258


15

« 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

The Audit staff identified debts and obligations, totaling $42,336, from various vendors
throughout the audit period which should have been disclosed on Schedule D, but were
not. RPC had not disclosed any debts owed prior to its filing of the 2004 year end report.
All of the debts should have been disclosed in reports filed prior to the year end report.
Approximately, $18,000 of the debts related to the lease of a vehicle by the candidate and
his wife.

RPC was provided a schedule of the unreported debts. The treasurer did not offer any
comment,

Interim Audit Report Recommendation and Committee Response

In response to the interim audit report recommendation, RPC filed amended reports
disclosing $42,336 in debts.

Finding 7. Inadequate Disclosure - Form 3Z-1

Summary

RPC failed to provide the requested information on Form 3Z-1 (Consolidated Report of
Gross Receipts for Authorized Committees) with its 2003 July 15" Quarterly Report. In
addition, Form 3Z-1 filed with the 2003 Year End Report was materially incorrect. In
response to the interim audit report recommendation, RPC stated that its Form 3Z-1 was
not correctly filed due to software problems.

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 preceding 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 determining 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 Teceipts less the candidate’s personal contributions for each
election. 11 CFR §104.19.

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


Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that RPC provide evidence/documentation that
demonstrated payments totaling $7,030 represented reimbursements of campaign related
materials.

With respect to the salary payments totaling $11,722, RPC was to provide:
e an explanation of the work performed and why this amount was exempt from
inclusion on Form 1099 or Form W-2 (Wage and Tax Statement) or
e evidence that an amended Form 1099 has been issued to Annette Pombo for
calendar year 2003 and filed with the Internal Revenue Service.

Absent such documentation, the Audit staff recommended that the candidate’ wife
reimburse RPC $18,752 and provide evidence of such reimbursement (a copy of the both
front and back of the canceled check used to reimburse RPC). In addition, RPC was to
file amended reports disclosing the correct payee and/or purpose of these disbursements.

In response to the interim audit report recommendation, RPC provided an amended Form
1099 for year 2003 showing the additional compensation of $18,752 ($11,722 + $7,030)
previously omitted. Further, by letter, Annette Pombo stated that an amended tax return
would be filed upon receipt of the amended Form 1099. In addition, RPC filed amended
reports disclosing these payments to Annette Pombo as compensation for services.

| Finding 2. Receipt of Excessive Contributions

Summary

RPC accepted contributions from individuals and Native American tribes that exceeded
the limitation by $26,400. In response to the interim audit report recommendation, RPC
provided documentation that it refunded excessive contributions totaling $22,400;
presumptively reattributed a $2,000 excessive contribution; and, provided documentation
that demonstrated one contribution ($2,000) was not excessive.

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:
e return the questionable contribution to the donor; or
e 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.


obtain, maintain and submit this information. In response, RPC provided copies of
letters, dated July 12, 2005, sent to contributors requesting their occupation and/or name
of employer. RPC also filed amended reports correctly disclosing the contributor
information. (For more detail, see page 13.)

Finding 6. Reporting of Debts and Obligations

The Audit staff identified debts and obligations totaling $42,336 from various vendors
that were not disclosed on Schedules D (Debts and Obligations). In response to the
interim audit report recommendation, RPC filed amended Schedules D to disclose its
debts. (For more detail, see page 14.)

Finding 7. Inadequate Disclosure - Form 3Z-1

RPC failed to provide the requested information on Form 3Z-1 (Consolidated Report of
Gross Receipts for Authorized Committees) with its 2003 July 15" Quarterly Report. In
addition, Form 3Z-1 filed with the 2003 Year End Report was materially incorrect. In
response to the interim audit report recommendation, RPC stated that its Form 3Z-1 was
not correctly filed due to software problems. (For more detail, see page 15.)

Finding 8. Untimely Deposit of Contributions

A review of deposits of contributions from individuals and political committees identified
$671,045 in untimely deposits. In response, RPC stated that, in many instances, the date
of the check rather than the date received was disclosed as the receipt date. RPC further
stated that it did not have postmarked envelopes to confirm the actual receipt date. (For
more detail, see page 16.)


Part III
Summaries

Findings and Recommendations

Finding 1. Personal Use of Campaign Funds

In calendar year 2003, the candidate’s spouse issued checks payable to herself totaling
$58,623. These payments were reported as either salary/compensation or as
reimbursement of various expenses. However, it appeared that $18,752 represents the
personal use of campaign funds or additional salary. In response to the interim audit
report recommendation, RPC provided an amended Form 1099 (Miscellaneous Income)
for calendar year 2003 showing the additional $18,752 in compensation previously
omitted; indicated that an amended tax return would be filed; and, filed amended
disclosure reports. (For more detail, see page 5.)

Finding 2. Receipt of Excessive Contributions

RPC accepted contributions from individuals and Native American tribes that exceeded
the limitation by $26,400. In response to the interim audit report recommendation, RPC
provided documentation that it refunded excessive contributions totaling $22,400;
presumptively reattributed a $2,000 excessive contribution; and, provided documentation
that demonstrated one contribution ($2,000) was not excessive. (For more detail, see

page 7.)

Finding 3. Receipt of Prohibited Contributions

RPC received 21 apparent prohibited contributions from corporate entities totaling
$7,228. Subsequent to the exit conference, RPC indicated that it had refunded $3,828 of
the above contributions. In response to the interim audit report recommendation RPC
provided copies of negotiated refund checks totaling $4,853 and documentation
establishing that contributions of $2,375 were not from corporate sources. (For more
detail, see page 10.)

Finding 4. Misstatement of Financial Activity

A comparison of RPC’s reported financial activity to bank records revealed a
misstatement of disbursements and ending cash on hand in calendar year 2003 and
beginning cash on hand in 2004. In response to the recommendation, RPC filed amended
reports that materially corrected its reported financial activity. For more detail, see page
11)

Finding 5. Disclosure of Occupation/Name of Employer
Contributions from individuals were reviewed on a sample basis. For contributions
requiring itemization, the review indicated that RPC failed to disclose or inadequately
disclosed the contributor’s occupation and/or name of employer for about 28% of the
contributions. There was no documentation to indicate that RPC used “best efforts” to


16

Facts and Analysis

RPC failed to provide any information on Form 3Z-1 filed with its 2003 July 15"
Quarterly Report. The Audit staff determined gross receipts for the primary election of
$329,304 and for the general election of $12,500 should have been disclosed.

In addition, the activity disclosed on Form 3Z-1 filed with the 2003 Year End Report was
materially incorrect. The Audit staff determined gross receipts for the primary election of
$524,308 and for the general election of $18,108 should have been disclosed. There were
no personal contributions made by the Candidate for either election.

The Audit staff discussed this matter at the exit conference. RPC representatives offered
no relevant comments.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that RPC demonstrate that Forms 3Z-1 were correctly filed
or provide any relevant information as to why the errors occurred. In response to the
interim audit report recommendation, RPC stated that the Form 3Z-1 was not correctly
filed due to software problems.

| Finding 8. Untimely Deposit of Contributions |

Summary

A review of deposits of contributions from individuals and political committees identified
$671,045 in untimely deposits. In response, RPC stated that, in many instances, the date
of the check rather than the date received was disclosed as the receipt date. RPC further
stated that it did not have postmarked envelopes to confirm the actual receipt date.

Legal Standard

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 review of deposits of contributions from individuals and political committees-indicated
that RPC failed to deposit contributions totaling $671,045 in a timely manner. The Audit
staff used the date recorded in RPC’s database as the date of receipt. The review
indicated that the contributions from individuals ($338,608) and political committees
($331,437) were deposited, on average, 66 days late.

The above contributions were received between January 2003 and April 2004. During
this period, RPC did not make daily deposits. The number of days between deposits in
2003 was 27 and in 2004 was 22. RPC also changed treasurers in July 2004. Subsequent
contributions were deposited in a timely manner.

This matter was developed subsequent to the exit conference. RPC responded that there
was no reason for the checks being deposited so long after being received. They believe


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 ot
any person that would exist irrespective of the candidate’s campaign or duties as a
Federal officeholder.

If a committee uses campaign funds to pay expenses associated with travel that involves
both personal activities and campaign or office related activities, the incremental
expenses that result from the personal activities are personal use, unless the person(s)
benefiting from this use reimburse(s) the campaign account within thirty days for the
amount of the incremental expenses. 11 CFR §113.1(g)(1)

Facts and Analysis

Prior to July 2004, the candidate’s brother was RPC’s treasurer, while the candidate’s
wife, Annette Pombo, handled the campaign checkbook. In calendar year 2003, Annette
Pombo issued checks to herself, totaling $58,623. Of that amount, $25,900 was disclosed
as salary/compensation and included on Annette Pombo’s Form 1099. The remaining
amount, $32,723, was disclosed as either travel, fundraising or reimbursed expenses
($30,859) or food and decorations for meeting ($1,864).

Based on documentation made available, the following chart represents a breakdown for
payments totaling $32,723.

Amount Comment

$12,107 Timely reimbursement of campaign related materials supported by vendor
receipts.

$11,722 Additional salary/compensation paid to Annette Pombo but not included on
Form 1099 (Miscellaneous Income).

$7,030 Reported reimbursements of expenses supported only by canceled checks.

$1,864 Reimbursements for food and decorations for meetings but actually

represents reimbursements to two members of the Candidate’s
congressional staff for attending meetings of behalf of the candidate.

At issue was the $11,722 that represented additional salary/compensation not included on
Form 1099 and disclosed as various reimbursements and the $7,030 also disclosed as
reimbursements but supported only by a canceled check. Absent documentation
supporting the additional salary/compensation and reimbursed expenses, the Audit staff
considered these payments to be personal use of campaign funds.

This matter was discussed at the exit conference. Subsequent to the exit conference, RPC
representatives acknowledged that the $11,722 represents salary to the candidate’s wife
and not reimbursements as previously disclosed.



FEDERAL ELECTION COMMISSION
Washington, DC 20463

September, 25 2007

MEMORANDUM

To: Robert W. Biersack
Press Officer

From: Joseph F. Stoltz LY,
Assistant Staff Director
Audit Division

Subject: Public Issuance of the Audit Report on Richard Pombo for Congress

Attached please find a copy of the audit report on Richard Pombo for Congress,
which was approved by the Commission on September 11, 2007.

The report may be released to the public.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library
/ DSDD Website


E. Refund or Disgorge Questionable Contributions. If the identity of the original
contributor is known, the committee must either refund the funds to the source of the
original contribution or pay the funds to the U.S. Treasury. AO 1996-5.

Facts and Analysis
RPC accepted contributions from individuals and Native American tribes that exceeded

the contribution limitation by $26,400. The excessive portion of the contributions were
either presumptively reattributed to another individual or presumptively redesignated to
the general election.

Two of the excessive contributions could not be presumptively reattributed or
redesignated because such action created additional excessive contributions. Further,
RPC could not provide evidence that the contributors were notified of such action or
offered a refund of the excessive portion of the contributions.

RPC did not deposit the excessive portions into a separate account but did maintain
sufficient funds in its bank account to make the necessary refunds.

The Audit staff discussed this matter at the exit conference. RPC representatives inquired
if the correct procedures were followed would the identified contributions be considered
excessive. RPC was informed that if the correct procedures were followed, the
contributions would not have been excessive.

Subsequent to the exit conference, RPC indicated that the excessive contributions were
refunded and disclosed making the refunds.

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

e Provide evidence demonstrating that the contributions in question were refunded.
Such evidence should include copies of front and back of negotiated refund
checks);

e Ifarefund check had not been negotiated and the contribution could have been
presumptively reattributed under 11 CFR 110.1(k)(3)(ii)(B), send a letter to each
contributor informing them that their contribution has been reattributed and offer
arefund. A copy of such letter should be made available to the Audit staff.

e Absent such evidence, the Audit staff recommended that the value of the non-
negotiated refund checks be paid to the United States Treasury.

In response to the interim audit report recommendation, RPC provided copies of
negotiated refund checks totaling $22,400. RPC also provided a copy of a letter sent to
one contributor indicating the excessive portion ($2,000) was presumptively redesignated
to the general election. The letter also offered a refund. In addition, RPC provided
documentation demonstrating that a contribution ($2,000) was not excessive.


C. Redesignation of Excessive Contributions. The committee may ask the contributor
to redesignate the excess portion of the contribution for use in another election.

e 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:

Is made before that candidate’s primary election;

Is not designated in writing for a particular election;

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 redesignated 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. 11 CFR §110.1(b)(5)(ii)(B) & (C) and (1)(4)(ii). Presumptive
redesignations apply only within the same election cycle.

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.
e The committee must, within 60 days of receipt of the contribution, obtain and
retain a reattribution letter signed by all contributors; 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
e that the contributor may instead request a refund of the excessive amount. 11
CFR §110.1(k)(3)(@i)(B).

For this action to be valid, the committee must retain copies of the notices sent. 11 CFR

§110.1(1)(4)(ii).


Part IV
Findings and Recommendations

| Finding 1. Personal Use of Campaign Funds

Summary

In calendar year 2003, the candidate’s spouse issued checks payable to herself totaling
$58,623. These payments were reported as either salary/compensation or as
reimbursement of various expenses. However, it appeared that $18,752 represents the
personal use of campaign funds or additional salary. In response to the interim audit
report recommendation, RPC provided an amended Form 1099 (Miscellaneous Income)
for calendar year 2003 showing the additional $18,752 in compensation previously
omitted; indicated that an amended tax return would be filed; and, filed amended
disclosure reports.

Legal Standard
A. Required Records for Disbursements. For each disbursement, the treasurer of a
political committee must keep records on the:

e Amount;

e Date;

e Name and address of the payee’;

¢ Purpose (a brief description of why the disbursement was made); and

e Ifthe disbursement was made on behalf of a candidate, the candidate’s name and

the office sought by the candidate.

e Ifthe disbursement was in excess of $200, the records must include a receipt or
invoice from the payee, or a cancelled check or share draft to the payee. If the
disbursement was by credit card, the record must include the monthly statement
or customer receipt and the cancelled check used to pay the credit card bill. 2
U.S.C. §432(c)(5) and 11 CFR §§102.9(b).

B. Reporting Operating Expenditures. When operating expenditures to the same
person exceed $200 in an election cycle, the committee must report the:
e Amount;
e Date when the expenditures were made;
« Name and address of the payee; and
e Purpose (a brief description of why the disbursement was made). 2 U.S.C.
§434(b)(6)(A) and 11 CFR §104.3(b)(4)(i).

Use of Campaign Funds. Using campaign funds for personal use is prohibited. 2
U.S.C. §439a(b)(1)

? The payee is usually the person providing the goods or services to the committee. In the case of travel
advances, however, the payee is the person receiving the advance. 11 CFR §102.9(b)(2).


Part I
Background

Authority for Audit

This report is based on an audit of Richard Pombo for Congress (RPC), 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.

NAY YN


12

7]
2003 Activity __!
Reported Bank Records Discrepancy
Beginning Cash Balance $18, 940 $18,940 $0
@ January 1, 2003
Receipts $585,954 $592,288 $6,334
Understated
Disbursements $325,272 $337,494 $12,222
Understated
Ending Cash Balance @ $279,622 $273,734 $5,888
December 31, 2003 Overstated
Explanation of Discrepancies
Receipts
e In-kind contribution not reported + $ 6,274
e Unexplained difference + 60
Understatement $6,334
Disbursements
. Returned contributor checks reported as contribution - $ 3,650
refunds.
. Disbursements not reported + 11,100
. In-kind contribution not reported + 6,372
e Over reporting of disbursements - 1,417
e Unexplained difference - 183
Net Understatement $12,222

2003 Ending Cash-on-Hand / 2004 Beginning Cash on Hand Balances

The overstatement of the cash on hand balances resulted from the receipt and
disbursement reporting discrepancies noted above. Further, minor reporting errors in
calendar year 2004 resulted in the ending cash balance as reported to be materially
correct.

At the exit conference, RPC representatives were provided schedules detailing the above
adjustments and indicated they would research the errors.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that RPC file amended reports for the applicable reporting
periods in calendar year 2003. RPC should also have amended it most recent disclosure,
reducing ending cash on hand by $1,350 with an explanation that it resulted from audit
adjustments from a prior period. In response to the recommendation, RPC filed amended
reports that materially corrected its reported financial activity.


14

for about 28% of the contributions tested. There was no documentation made available
that indicated “best efforts” were used to obtain, maintain and submit this information.

The Audit staff discussed this matter at the exit conference. The treasurer asked if the
prior reports were checked to see if the information was previously disclosed. The Audit
staff subsequently reviewed the items in questions and informed RPC that the results did
not change. The treasurer also stated that RPC had changed software and that the new
software had problems with the contributor’s occupation and/or name of employer data
fields.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that RPC take the following action:
¢ Provide documentation that it exercised “best efforts” to obtain, maintain and
submit the required contributor information; or
« Make an effort to contact those individuals for whom the required information
was missing or incomplete, provide documentation of such efforts (such as
copies of letters to the contributors and/or phone logs), and file amended reports
to disclose any information obtained from such efforts.

In response to the interim audit report, RPC provided copies of letters, dated July 12,
2005, sent to contributors requesting this information. RPC also filed amended reports
correctly disclosing the contributor information.

Finding 6. Reporting of Debts and Obligations

Summary

The Audit staff identified debts and obligations totaling $42,336 from various vendors
that were not disclosed on Schedules D (Debts and Obligations). In response to the
interim audit report recommendation, RPC filed amended Schedules D to disclose its
debts.

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. 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.


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. Personal Use of Campaign Funds
Finding 2. Receipt of Excessive Contributions
Finding 3. Receipt of Prohibited Contributions
Finding 4. Misstatement of Financial Activity
Finding 5. Disclosure of Occupation/Name of Employer
Finding 6. Reporting of Debts and Obligations
Finding 7. Inadequate Disclosure - Form 3Z-1
Finding 8. Untimely Deposit of Contributions

Page

NN


Report of the

Audit Division on

Richard Pombo for Congress
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 Campaign (p. 2)

Richard Pombo for Congress (RPC) is the principal campaign
committee for Richard Pombo, Republican candidate for the U.S.
House of Representatives from the state of California, 11"
District and is headquartered in Tracy, California. For more
information, see the chart on Campaign Organization, p. 2.

Financial Activity (p. 2)

« Receipts

o Contributions from Individuals
Contributions from Political Committees

°
o Other Receipts
o Total Receipts

« Disbursements

fe}

Contribution Refunds

°
co Contributions to Federal Candidates

o Transfers to National Party Committee
°

Total Disbursements

Findings and Recommendations (p. 3)
Personal Use of Campaign Funds (Finding 1)

Receipt of Excessive Contributions (Finding 2)

Receipt of Prohibited Contributions (Finding 3)
Misstatement of Financial Activity(Finding 4)
Disclosure of Occupation/Name of Employer (Finding 5)
Reporting of Debts and Obligations (Finding 6)
Inadequate Disclosure - Form 3Z-1 (Finding 7)
Untimely Deposit of Contributions (Finding 8)

Operating Expenditures

$ 535,006
$56,167
14,813
$1,105,986

$ 861,793
5,375
10,000
147,500
$1,024,668


| Finding 3. Receipt of Prohibited Contributions

10

Summary
RPC received 21 apparent prohibited contributions from corporate entities totaling

$7,228. Subsequent to the exit conference, RPC indicated that it had refunded $3,828 of

the above contributions. In response to the interim audit report recommendation RPC

provided copies of negotiated refund checks totaling $4,853 and documentation
establishing that contributions of $2,375 were not from corporate sources.

Legal Standard

A. Receipt of Prohibited Corporate Contributions. Political campaigns may not

accept contributions made from the general treasury funds of corporations. This

prohibition applies to any type of corporation including a non-stock corporation, an

incorporated membership organization, and an incorporated cooperative. 2 U.S.C.
§441b.

B. Questionable Contributions. If a committee receives a contribution that appears to

be prohibited (a questionable contribution), it must follow the procedures below:

1.

Within 10 days after the treasurer receives the questionable contribution, the
committee must either:
¢ Return the contribution to the contributor without depositing it; or
e Deposit the contribution (and follow the steps below). 11 CFR §103.3(b)(1).
If the committee deposits the questionable contribution, it may not spend the
funds and must be prepared to refund them. It must therefore maintain sufficient
funds to make the refunds or establish a separate account in a campaign
depository for possibly illegal contributions. 11 CFR §103.3(b)(4).
The committee must keep a written record explaining why the contribution may
be prohibited and must include this information when reporting the receipt of the
contribution. 11 CFR §103.3(b)(5).
Within 30 days of the treasurer’s receipt of the questionable contribution, the
committee must make at least one written or oral request for evidence that the
contribution is legal. Evidence of legality includes, for example, a written
statement from the contributor explaining why the contribution is legal or an oral
explanation that is recorded by the committee ina memorandum. 11 CFR
§103.3(b)(1).
Within these 30 days, the committee must either:

e Confirm the legality of the contribution; or

e Refund the contribution to the contributor and note the refund on the report

covering the period in which the refund was made. 11 CFR §103.3(b)(1).

Facts and Analysis

The Audit staff determined that RPC received 21 apparent prohibited contributions
totaling $7,228. The contributions were received from 12 corporate entities. The
corporate status of each entity was verified with the respective Secretary of State.
Although RPC did not maintain a separate account to deposit such contributions, it


13

| Finding 5. Disclosure of Occupation/Name of Employer

Summary

Contributions from individuals were reviewed on a sample basis. For contributions
requiring itemization, the review indicated that RPC failed to disclose or inadequately
disclosed the contributor’s occupation and/or name of employer for about 28% of the
contributions. There was no documentation to indicate that RPC used “best efforts” to
obtain, maintain and submit this information. In response, RPC provided copies of
letters, dated July 12, 2005, sent to contributors requesting their occupation and/or name
of employer. RPC also filed amended reports correctly disclosing the contributor
information.

Legal Standard

A. Required Information for Contributions from Individuals. For each itemized
contribution from an individual, the committee must provide the following information:
The contributor’s full name and address (including zip code);

The contributor’s occupation and the name of his or her employer;

The date of receipt (the date the committee received the contribution);

The amount of the contribution; and

The aggregate election-to-date (or aggregate election cycle-to-date in the case of
authorized candidate committees) total of all contributions from the same
individual. 2 U.S.C. §434(b)(3)(A) and 11 CFR §§100.12 and 104.3(a)(4).

eooeee

B. Best Efforts Ensures Compliance. When the treasurer of a political committee
shows that the committee used best efforts (see below) to obtain, maintain, and submit
the information required by the Act, the committee’s reports and records will be
considered in compliance with the Act. 2 U.S.C. §432(h)(2)(i).

C. Definition of Best Efforts. The treasurer and the committee will be considered to
have used “best efforts” if the committee satisfied all of the following criteria:

¢ All written solicitations for contributions included:

o Aclear request for the contributor's full name, mailing address,
occupation, and name of employer; and
o A statement that such-reporting is required by Federal law.

e Within 30 days after the receipt of the contribution, the treasurer made at least one
effort to obtain the missing information, in either a written request or a
documented oral request.

e The treasurer reported any contributor information that, although not initially
provided by the contributor, was obtained in a follow-up communication or was
contained in the committee’s records or in prior reports that the committee filed
during the same two-year election cycle. 11 CFR §104.7(b).

Facts and Analysis

Contributions from individuals required to be itemized on Schedule A (Itemized
Receipts) were reviewed on a sample basis. The review indicated that RPC failed to
disclose or inadequately disclosed the contributor’s occupation and/or name of employer