FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

May 12,2009 

MEMORANDUM 

To: Judith Ingram 

Press Officer 

From: Joseph F. Stoltz 

Assistant Staff D" 

Audit Division 

Subject: Public Issuance of the Audit Report on Joe Donnelly for Congress 

Attached please find a copy of the audit report on Joe Donnelly for Congress, which was 

approved by the Commission on April 30, 2009. 

All parties involved have received informational copies of the report and the report may be 

released to the public on May 12,2009. 

Attachment as stated 

cc:	 Office of General Counsel 

Office of Public Disclosure 

Reports Analysis Division 

FEC Library 

ITDWeb 
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). 

Report of the Audit Division on 

Joe Donnelly For Congress 

January 1, 2005 - December 31, 2006 

About the Campaign (p. 2) 

Joe Donnelly for Congress is the principal campaign committee 

for Joe Donnelly, Democratic candidate for the U.S. House of 

Representatives from the state of Indiana, 2nd District, and is 

headquartered in South Bend, IN. For more information, see 

chart on the Campaign Organization, p. 2. 

Financial Activity (p. 2) 

•	 Receipts 

o	 Contributions from Individuals $ 917,547 

o	 Contributions from Political 589,008 

Party Committees and PACs 

o	 Candidate Loans 105,283 

o	 Transfers from Other Authorized 18,074 

Committees and Other Receipts 

Total Receipts $ 1,629,912 

•	 Disbursements 

o	 Operating Expenditures $ 1,495,683 

o	 Loan Repayment, Refunds and 106,820 

Other Disbursements 

Total Disbursements $1,602,503 

Findings and Recommendations (p. 3) 

•	 Disclosure of Loans (Finding 1) 

•	 Misstatement of Financial Activity (Finding 2) 

I 
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. Disclosure of Loans
 

Finding 2. Misstatement of Financial Activity
 

Page 

1
 

1
 

2
 

2
 

3
 

4
 

6
 
1 

Part I 

Background 

Authority for Audit 

This report is based on an audit of the Joe Donnelly for Congress (IDC), 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 ofAudit 

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 consistency between reported figures and bank records. 

5. The completeness of records. 

6. Other committee operations necessary to the review. 
2 

Part II 

Overview of Campaign 

Campaign Organization 

Important Dates Joe Donnelly for Congress 

• Date of Registration December 18, 2003 

• Audit Coverage January 1, 2005 - December 31, 2006 

Headquarters South Bend, Indiana 

Bank Information 

• Bank Depositories 1 

• Bank Accounts 1 

Treasurer 

• Treasurer When Audit Was Conducted James A. Masters 

• Treasurer During Period Covered by Audit Peter Mullen 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Used Commonly Available Campaign 

Management Software Package 

Yes 

•	 Who Handled Accounting and Paid and volunteer staff 

Recordkeeping Tasks 

Overview of Financial Activity 

(Audited Amounts) 

Cash on hand @ January 1, 2005 $116 

0 Contributions from Individuals 917,547 

0 Contributions from Political Party Committees and PACs 589,008 

0 Candidate Loans 105,283 

0 Transfers from Other Authorized Committees and Other 

Receipts 

18,074 

Total Receipts $1,629,912 

0 Operating Expenditures 1,495,683 

0 Loan Repayment, Refunds and Other Disbursements 106,820 

Total Disbursements $1,602,503 

Cash on hand @ December 31, 2006 $ 27,525 
3 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Disclosure of Loans 

During the period covered by the audit, the Candidate made loans to IDC totaling 

$109,930. These loans consisted of payments made directly from the Candidate's 

personal account to vendors, a loan made from funds in a credit union account, and a 

bank loan secured by property owned by the Candidate and his spouse. These loans were 

either not reported or incorrectly reported by IDe. In response to the interim audit report 

JDC filed amended reports correctly disclosing the loans. (For more detail, see p. 4) 

Finding 2. Misstatement of Financial Activity 

A comparison of IDC's reported financial activity to its bank records revealed a material 

misstatement of financial activity in calendar years 2005 and 2006. In calendar year 

2005; beginning and ending cash on hand was overstated $4,718 and $105,107 

respectively; reported receipts were overstated $34,460; and, reported disbursements 

were understated $65,929. In calendar year 2006, reported receipts were understated 

$105,797; and, ending cash on hand was understated $25,540. The Audit staff 

recommended that IDC amend its reports to correct the misstatements. In response, 

Counsel for IDC stated that IDC relied on volunteers and campaign staff who were not 

sufficiently familiar with Commission regulations to ensure compliance with federal 

campaign laws. IDC filed amended reports that materially corrected the above 

misstatements. (For more detail, see p. 6) 
4 

Part IV 

Findings and Recommendations 

Finding 1. Disclosure of Loans 

Summary 

During the period covered by the audit, the Candidate made loans to IDC totaling 

$109,930. These loans consisted of payments made directly from the Candidate's 

personal account to vendors, a loan made from funds in a credit union account, and a 

bank loan secured by property owned by the Candidate and his spouse. These loans were 

either not reported or incorrectly reported by me. In response to the interim audit report 

IDC filed amended reports correctly disclosing the loans. 

Legal Standard 

A. Contents of Reports. Each report must disclose for the reporting period and for the 

election cycle, the total amount of loans made by or guaranteed by the candidate and the 

identification of each person who makes, endorses or guarantees a loan to the committee. 

2 U.S.e. §434(b)(2)(G), (3)(E) and 4(D). 

B. Itemizing Loans. Each person who makes a loan to the political committee during 

the reporting period must be disclosed with the following information: 

•	 Identification of any endorser or guarantor of the loan; 

•	 The date the loan was made; 

•	 The amount of the loan. 11 CFR §104.3(a)(4)(iv). 

C. Reporting In-Kind Contributions. Each in-kind contribution must be reported as a 

contribution and an expenditure at the same usual and normal value on the date received. 

11 CFR §104.13(a)(1)(2). 

D. Schedule C. On a Schedule C, both the original loan and payments to reduce 

principal must be reported each reporting period until the loan is repaid. The committee 

need only list the candidate as the source of the loan. Also, the type of loan the candidate 

receives (i.e. bank loan, brokerage account, credit card, home equity line of credit) must 

be disclosed in either the first box for endorsers and guarantors with a notation for loan 

type or in the box for "Loan Source" after the candidate's name. 11 CFR §104.3(d) and 

§104.11. 

E. Reporting Bank Loans, Home Equity Loans and Other Lines of Credit. A 

political committee must disclose in the report covering the period when the loan was 

obtained on Schedules C-l: 

•	 The date, amount, and interest rate of the loan; 

•	 The name and address of the lending institution; and 

•	 The types and value of the collateral or other sources of repayment that secure the 

loan, if any. 11 CFR §104.3(d)(4). 
5 

Facts and Analysis 

During the period covered by the audit, the Candidate made loans to IDC totaling 

$109,930. The loans consisted of payments made directly from the Candidate's personal 

account to vendors, a loan made from funds in a credit union account, and a bank loan 

secured by property owned by the Candidate and his spouse. A description of these loans 

follows: 

Payments to Vendors by the Candidate - During 2005, the Candidate made 22 

payments from his personal account, totaling $19,430, directly to vendors for campaign 

related services such as polling and media buys. JDC disclosed only $14,783 as in-kinds 

contributions from the Candidate; the remaining $4,647 was not itemized as in-kind 

contributions on Schedules A (Itemized Receipts) and B (Itemized Disbursements). 

Further, since JDC considered these transactions to be loans they should have reported 

$19,430 in loans on Schedule e. 

Personal loans - The Candidate made two loans to IDC, totaling $90,500. Based on the 

documentation provided, the Audit staff determined that personal funds of the Candidate 

were used to make each loan. 

•	 On 10/31106, the Candidate loaned $15,500 to IDC. Funds were withdrawn 

from a credit union account in the name of the Candidate and spouse and 

deposited into the JDC's bank account. The receipt of these funds was not 

reported by IDe. This loan should have been reported and also itemized on 

Schedules A and e. 

•	 On 10127/06, the Candidate loaned $75,000 to IDC. 2 The source of these 

funds was a home equity loan secured by property owned by the Candidate 

and his spouse. The receipt of these funds was not reported by IDC. This 

loan should have been reported and also itemized on Schedules A and e. 

Further, since the original source of this loan was a home equity loan obtained 

by the Candidate, the loan should have been disclosed on Schedule C-1 

(Loans and Lines of Credit from Lending Institutions). 

IDC repaid the Candidate $101,400. However, IDC only reported $33,100, leaving 

$68,300 ($32,900 in 2005 and $35,400 in 2006) in loan repayments not reported. It 

should be noted that in 2006 IDC disclosed 2 other loan repayments to the Candidate 

totaling $11,900, however, there was no canceled checks or debits to IDC's bank account 

documenting these payments. 

Finally, on June 30,2005, and September 30,2005, IDC reported receiving $11,000 and 

$12,000 respectively from the Candidate. However, there were no Candidate check 

copies or IDC bank deposits/credits supporting the loans. 

2 Based on the documents submitted, there was sufficient equity in the property to cover the loan made by 

the Candidate. 
6 

This matter was discussed at the exit conference. Counsel for IDC (Counsel) indicated 

that all necessary amendments would be filed to accurately disclose the Candidate loans. 

Interim Audit Report Recommendation and Committee's Response 

The Audit staff recommended that IDC amend its reports to accurately disclose the loan 

transactions discussed above. In response, Counsel stated that because IDC's lack of 

trained compliance personnel and informal processes at the time, JDC did not properly 

report loans made by the Candidate. In addition to filing amendments to its reports to 

conform to the recommendation and subsequent conversations with the Audit staff, IDC 

has instituted policies and procedures to achieve more uniform compliance during 

subsequent election cycles. 

IDC filed amended reports that correctly disclosed the payments made directly to vendors 

by the Candidate as in-kind receipts on Schedule A and debts owed by IDC on Schedule 

D. The amendments also correctly disclosed all other loans received and repayments
 

made.
 

IFinding 2. Misstatement of Financial Activity 

Summary 

A comparison of IDC's reported financial activity to its bank records revealed a material
 

misstatement of financial activity in calendar years 2005 and 2006. In calendar year
 

2005; beginning and ending cash on hand was overstated $4,718 and $105,107
 

respectively; reported receipts were overstated $34,460; and, reported disbursements
 

were understated $65,929. In calendar year 2006, reported receipts were understated
 

$105,797; and, ending cash on hand was understated $25,540. The Audit staff
 

recommended that JDC amend its reports to correct the misstatements. In response,
 

Counsel for IDC stated that IDC relied on volunteers and campaign staff who were not
 

sufficiently familiar with Commission regulations to ensure compliance with federal
 

campaign laws. JDC filed amended reports that materially corrected the above
 

misstatements.
 

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 amount of receipts for the reporting period and for the election cycle; 

•	 The total amount of disbursements for the reporting period and for the election cycle; 

and 

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

Schedule B (Itemized Disbursements). 2 U.S.c. §434(b)(1), (2), (3), (4) and (5). 

Facts and Analysis 

The Audit staff reconciled the reported financial activity to the bank records and 

determined there were material misstatements of activity in calendar years 2005 and 

2006. The following charts outline the discrepancies. 
7 

2005 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

@ January 1,2005 

$4,834 $116 $4,718 

Overstated 

Receipts $251,742 $217,282 $34,460 

Overstated 

Disbursements $65,624 $131,553 $65,929 

Understated 

Ending Cash Balance @ 

December 31, 2005 

$190,952 $85,845 $105,107 

Overstated 

Beginning cash on hand was overstated by $4,718 and is unexplained, but likely resulted 

from prior period reporting errors. 

The overstatement of receipts was the result of the following: 

• Candidate loan reported on 6/30/05 - see next line	 $11,000 

•	 Candidate loan reported on 9/30/05 - neither loan was supported by a 12,000 

deposit or credit to JDC's bank account or a copy of the transmittal 

check 

• In-kind contributions from the Candidate not reported	 + 4,647 

• Receipt reported with the incorrect amount	 50 

• Contributions received but not reported + 990

• Contributions from individual that were reported but not deposited in 18,248 

bank3 

1,201 •	 Unexplained difference + 

Net Overstatement $34,460 

The understatement of disbursements was the result of the following: 

+	 $32,900 • Loan repayments made but not reported 

+ 26,893 • Disbursements not reported (mostly salary) 

• In-kind contributions from the Candidate not reported + 4,647

+ 320 • Bank charges and fees not reported 

+ 1,169 •	 Unexplained difference 

Understatement $65,929 

The overstatement of the ending cash on hand balance at December 31,2005 ($105,107) 

resulted from the discrepancies noted above, along with the beginning cash discrepancy. 

3 The Audit staff noted a number of contributions that were reported in calendar year 2005 but deposited 

between January 9,2006 and March 27,2006. The contributions addressed above ($18,248) may have 

also been deposited in 2006. 
8 

2006 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance $190,952 $85,845 $105,107 

@ January 1, 2006 Overstated I 

Receipts $1,306,832 $1,412,629 $105,797 

Understated 

Disbursements $1,495,800 $1,470,950 $24,850 

Overstated 

Ending Cash Balance @ $1,984 $27,524 $25,540 

December 31,2006 Understated 

The understatement of receipts was the result of the following: 

• Earmarked contributions received but not reported	 + $ 13,032 

• Candidate loans received but not reported	 + 90,500 

• In-kind contributions not reported	 + 4,468 

•	 Unexplained difference 2,203 

Net Understatement $105,797 

The overstatement of disbursements was the result of the following: 

• Loan repayment made but not reported	 + $35,400 

• Loan repayment reported but not supported by canceled check or debit 11,900 

•	 Other disbursements reported but not supported by canceled check or 48,040 

debit - the majority of which was reported as salary, taxes, insurance 

and media production. 

• Bank fees not reported	 + 1,689 

• Contribution refund not reported	 + 5,000 

• Reimbursement not reported correctly - incorrect amount	 + 222 

• Disbursements not reported	 + 16,064 

•	 Media disbursements overreported - (reported $285,299 - supported by ­ 13,266 

wire transfer $272,033) 

•	 Unexplained difference 10,019 

Net Overstatement $24,850 

The understatement of the closing cash balance at December 31,2006 ($25,540) resulted 

from all the discrepancies noted above. 

Counsel was informed of this matter and was provided schedules at the exit conference 

and in subsequent meetings. In addition to the reporting errors discussed above, the 

Audit staff expressed concerns regarding contributions reported but not deposited in 

IDe's bank account ($18,248). In addition to filing amended reports, Counsel agreed to 

address this matter. 
9 

Interim Audit Report Recommendation and Committee's Response 

The Audit staff recommended that IDC: 

•	 File amended reports to correct the misstatements described above. 

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

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

also recommended that IDC reconcile the cash balance of its most recent report to 

identify any subsequent discrepancies that may have impacted adjustments 

recommended by the Audit staff. 

•	 Provide an explanation for contributions reported but not deposited in IDC's bank 

account ($18,248). 

In response, Counsel stated that for much of the 2006 election cycle, JDC relied on 

volunteers and campaign staff who were not sufficiently familiar with Commission 

regulations to ensure compliance with federal campaign laws. Inexperienced campaign 

staff members were ill-equipped to adequately address the complexities of federal 

campaign finance law and lacked the necessary procedures to ensure that timely and 

accurate reporting and recordkeeping for receipts and disbursements occurred on a 

consistent basis. 

JDC hired PCMS, LLC, to provide professional compliance and accounting services and 

to prepare amended reports for the 2006 and subsequent election cycles. With respect to 

the contributions that were reported but not deposited in the bank account, Counsel stated 

that "the Committee has determined that the contributions were never received and 

should not have been reported. Five of the contributions at issue were pledged but never 

deposited, and hence erroneously reported." 

JDC has filed amended reports that materially corrected the misstatements discussed 

above. In addition, IDC has amended its most recent filed report to correct the ending 

cash on hand balance.