Interim 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 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. 

About the Committee (p. 2) 

The Democratic Party of Orange County FED PAC (DPOC) 

is a local party committee, located in Santa Ana, California'. 

For more information, see the chart on Committee 

Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals $ 334,560 

o Contributions from Political 31,737 

Committees 

o Loans Received 13,000 

o Offsets to Expenditures 3,525 

o Transfers from Non-Federal Funds 202,684 

o Transfers from Levin Funds 4,992 

Total Receipts $ 590,498 

Disbursements 

o Operating Expenditures $ 503,938 

o Transfers to Affiliated 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 

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. 
Interim Audit Report of the 

Audit Division on the 

ic Party of Orange County 

FED PAC 

January 1, 2007 - December 31, 2008 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Misstatementof Financial Activity 4 

Finding 2. Untimely Deposit of Receipts 6 
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 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 

Following Commission approved procedures, the Audit staff evaluated various risk 

factors and as a result, this audit examined: 

1. The disclosure of disbursements, debts and obligations. 

2. The disclosure of expenses allocated between federal and non-federal accounts. 

3. The disclosure of individual contributors' occupation and name of employer. 

4. The consistency between reported figures and bank records. 

5. The completeness of records. 

6. Other committee operations necessary to the review. 

Scope Limitation 

The treasurer of DPOC operates an accounting firm that handles DPOC's accounting, 

recordkeeping and reporting. The firm also acts as DPOC's credit card processor. The 

same credit card merchant account is used to process contributions for DPOC and a 

number of other clients. The Audit staff did not have access to complete records for this 

account and therefore was limited in its ability to verify the proper accounting of 

transactions 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 (2 Federal, 1 Levin, 2 Non-Federal) 

Treasurer 

• Treasurer When Audit Was Conducted Kinde Durkee 

• Treasurers During Period Covered by Audit Florice Hof&nan (through 05/15/07), 

Kinde Durkee (05/16/07 to present) 

Management Information 

• Attended FEC Campaign Finance Seminar Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Firm 

Overview of Financial Activity 

(Audited Amounts) 

Cash on hand ® January 1,2007 $ 12,785 

o Contributions from Individuals 334,560 

o Contributions from Political Committees 31,737 

o Loans Received 13,000 

o Offsets to Expenditures 3,525 

o Transfers from Non-Federal Funds 202,684 

o Transfers from Levin Funds 4,992 

Total Receipts $ 590,498 

o Operating Expenditures 503,938 

o Transfers to Affiliated 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 figures to 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. The Audit staff recommends that DPOC 

amend its reports to correct these misstatements and submit any additional comments 

relevant to this finding. 

(For more detail, see p. 4) 

Finding 2. Untimely Deposit of Receipts 

Audit fieldwork indicated that DPOC failed to deposit, within 10 days of receipt, 58% of 

the contributions received during the 2008 election cycle. The delays in depositing these 

contributions averaged 41 days. The Audit staff recommends that DPOC provide 

evidence showing that the deposits in question were deposited timely or submit any 

additional comments relevant to this finding. 

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

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of DPOC's reported figures to 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. The Audit staff recommends that DPOC 

amend its reports to correct these misstatements and submit any additional comments 

relevant to this finding. 

Legal Standards 

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 calendar year; 

• The total amount of disbursements for the reporting period and for the calendar year; 

and 

• Certain transactions that require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(l), (2), (3), (4) and (5). 

Facts and Analysis 

A. Facts 

During audit fieldwork, a reconciliation of DPOC's reported financial activity with bank 

records for 2007 and 2008 indicated that cash on hand, receipts and disbursements were 

misstated in both years. The following charts outline the discrepancies for both years and 

provide explanations for the misstated activity. 

2007 Committee Activity 

Reported Bank Records Discrepancy 

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

Overstated 

Receipts $311,632 $324,742 $13,110 

Understated 

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

Understated 

Ending Cash $32,274 $32,285 $11 

Understated 

The understatement of receipts was the result of the following: 

• Unreported receipts 

• Unexplained difference 

Understatement of Receipts 

$ 12,113 

997 

$ 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 to the non-federal account 

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

non-federal account on January 30 and retumed on March 8. 

2008 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash $32,274 $32,285 $11 

Understated 

Receipts $232,362 $265,756 $33,394 

Understated 

Disbursements $260,298 $293,104 $32,806 

Understated 

Ending Cash $4,338 $4,937 $599 

Understated 

The understatement of receipts was the result of the following: 

• Unreported receipts $ 33,370 

• Unexplained difference 24 

Understatement of Receipts $ 33,394 

The understatement of disbursements was the result of the following: 

• Unreported transfers to non-federal accounts $ 33,370 

• Unexplained difference (564) 

Net Understatement of Disbursements $ 32,806 

Between January 2 and February 13,2008, DPOC made 22 deposits of contributions, 

totaling $32,030, into its federal account that were intended for the non-federal account. 

In July, an additional $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 witiiin 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 outiined 

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 Audit staff recommends that, within 30 days of service of this report, DPOC: 

• Amend its reports to correct the misstatements for 2007 and 2008 as noted above; 

and, 

• Amend its most recentiy filed report to correct the cash on hand balance with an 

explanation that the change resulted from a prior period audit adjustment. 

Further, DPOC should reconcile the cash balance of its most recent report to 

identify any subsequent discrepancies that may affect the adjustment 

recommended by the Audit staff. 

I Finding 2. Untimely Deposit of Receipts 

Summary 

Audit fieldwork indicated that DPOC failed to deposit, within 10 days of receipt, 58% of 

the contributions received during the 2008 election cycle. The delays in depositing these 

contributions averaged 41 days. The Audit staff recommends that DPOC provide 

evidence showing that the deposits in question were deposited timely or submit any 

additional comments relevant to this finding. 

Legal standard 

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 

tiie 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 of 

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% 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 average delay between receipt 

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

DPOC's Treasurer discussed this problem in some detail in a written response to 

questions raised during audit fieldwork: 

Merchant services accounts are normally linked to the individual client bank 

account. Unfortunately, there were inconsistencies while establishing the 

merchant services account for DPOC and the account was never properly 

activated. Several months' worth of activity showed the credit card contribution 

deposits were not properly posting to the Committee bank account. It was 

eventually discovered that the funds were being held in a standard non-interest 

bearing checking account established for merchant services hosted by Durkee & 

Associates. In order to rectify the situation we immediately began to verify 

each credit card transaction. As soon as all credit card transactions were 

accounted for, the net total of each credit card batch was transferred into the 

Committee bank account. In some instances, the transfer checks were voided 

and re-issued due to a declined credit card or a chargeback within the original 

batch. This was a lengthy process, but as of the present date, all credit card 

transactions have been verified and all funds have been transferred properly. 

The check deposit delays were due to new office procedures. During this time, 

we established an in-office e-scanner to process check deposits through our 

bank. The e-scanner was new technology our bank was testing. This 

technology placed a check scanner and computer software in our office that 

allowed us to process deposits in the same manner as a bank teller processes 

deposits at a bank branch. We agreed to participate in the process as a means 

for our clients to save courier fees and to allow them to have the benefit of 

instant credit of deposits. Unfortunately, there were many discrepancies and 

processing malfunctions which we were not prepared to handle. As a result. 

' 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. 
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 notes that it is not clear why this deposit delay problem was not identified 

and resolved more quickly, since the 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 deposit in 2008 declined to 35 days from 

47 days in 2007. The deposit of checks processed with the new technology may have 

been the cause of some deposit delays, but this does not explain the late deposits prior to 

the adoption of the system in December 2007, nor does it explain why six of 13 check 

deposit batches from December 2008 were late. 

Interim Audit Report & Audit Division Recommendation 

At the exit conference. Audit staff restated the issues discussed previously and DPOC 

representatives did not comment. 

The Audit staff recommends that, within 30 days of service of this report, DPOC provide 

evidence showing the deposits in question were deposited timely or submit any additional 

comments relevant to this finding. 

^ 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.