Attachment 1
Paul Williams for Congress

‘Summary of Disbursements made after November 7, 2000

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Page 17 of 22



2. Disclosure of Loan from Candidate

Section 104.3(d) of Titlel 1 of the Code of Federal Regulations
requires that a reporting committee disclose on Schedule C or D as appropriate the
amount and nature of outstanding debts and obligations. Such debts and obligations
owed to or by a political committee that remain outstanding shall be continuously
reported until extinguished (11 CFR §104.11).

The PWFC reported a $20,000 loan on Schedule C from the
Candidate dated June 12, 2000. On October 3, 2000 PWFC submitted an amended report
asserting that this loan was from personal funds of the Candidate. On the next report
filed (October 15 Quarterly), PWFC reported $20,000 as owed on the Summary Page, but
did not file a Schedule C. On the 30-Day Pre General report that covered the period
October 1-18, 2000, PWFC reported the loan aggregate ($20,000) but did not include this
amount within the aggregate amount of Total Receipts for the calendar year. Also,
PWFC did not report the loan as a debt on either the Summary Page or on a Schedule C.
The last report filed (30 Day Post General) did not include the loan within aggregate
totals of receipts for the calendar year, and, again PWFC did not report the amount of the
loan as a debt or include a Schedule C. Finally, the loan receipt could not be traced to
bank records of either of the accounts identified in sworn affidavits from the Treasurer,
the Candidate, and other PWFC personnel. For the period July 19 through September 24,
2000 the PWEC itemized five expenses totaling $19,692 that were not disbursed from the
disclosed bank accounts of PWFC. Under subpoena the Audit staff also obtained the
bank statements for one personal account of the Candidate. The expenses were not
disbursed from this account either.

No repayments to the candidate for this loan were reported on
Schedules B or C as required or were documented in the limited records obtained.

3. Disclosure of Disbursements

Section 434(b)(5)(A) of Title 2 of the United States Code states
that each report under this section shall disclose the name and address of each person to
whom an expenditure in an aggregate amount or value in excess of $200 within the
calendar year is made by the reporting committee to meet a candidate or committee
operating expense, together with the date, amount, and purpose of such operating
expenditure.

The Audit staff was able to partially verify the disclosure for the
168 disbursements for which tissue copies of checks were provided. The address could
be verified for one vendor only.'? Of the 122 disbursements that required itemization,
PWEC failed to itemize 53 disbursements totaling $6,781.

° Several invoices were obtained from one consultant through the subpoena process.

Page 11 of 22



PAUL WILLIAMS FOR CONGRESS

CHRONOLOGY

Audit Fieldwork

Interim Audit Report to
the Committee

Response Received to the
Interim Audit Report

Final Audit Report Approved

Page 21 of 22

March 28 — May 2, 2002

August 20, 2002

October 7, 2002

November 5, 2002


PWFC also asserted that, despite missing disclosure information on the reports, it
requested the appropriate information from each contributor.

With respect to the loan reported from the Candidate, PWFC stated that the
candidate provided PWFC with personal funds for ancillary matters and performed
numerous professional duties.

EXCESS DISBURSEMENTS OF CASH — 2 U.S.C. §432(h)(1); 11 CFR §102.11.
PWFC personnel made 59 cash withdrawals totaling $16,754 that exceeded the $100
limit on cash transactions. A bank account closing debit ($1,287) and an unnumbered
check ($1,000) may also have been cash withdrawals.

In response to the interim audit report PWFC stated that the cash withdrawals
($16,764) were probably for volunteer expenses.

PERSONAL USE OF EXCESS CAMPAIGN FUNDS — 11 CFR §§113.1(e)
113.1(g), and 113.2(2)(b-d). Subsequent to the General Election PWFC expended $5,801
for goods and services that appear to have been for personal use.

In response to the interim audit report PWFC made no reference to, or comment
on, this finding.

MISSTATEMENT OF FINANCIAL ACTIVITY — U.S.C. §§434(b)(1), (2), and (4).
PWEFC over reported receipts by $6,902 and over reported disbursements by $9,636 based
on available bank records. Included in the reported activity were receipts totaling
$24,035 and disbursements totaling $23,749 that did not originate from any account
acknowledged by PWFC.

In response to the interim audit report PWFC did not file amended schedules to
correct the public record; nor did it explain why some reported activity was not reflected
on the bank statements and why some bank activity was not reported.

Page 2 of 22


Page 18 of 22



Page 20 of 22


election disbursements listed on Attachment 1. The evidence provided was to include an
accounting of the cash withdrawn from the PWFC account during that period.

PWEC made no reference to, nor comment on, this Finding.
E. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(1), (2), and (4) of Title 2 of the United States Code state,
in part, that a political committee shall disclose the amount of cash on hand at the
beginning of the reporting period and the total amount of all receipts and the total amount
of all disbursements for the reporting period and calendar year.

The Audit staff's reconciliation of PWFC’s reported financial activity” to
its bank activity for the period of January 1, 1999 through December 31, 2000 revealed
misstatements of its reported receipts, disbursements and ending cash-on-hand. As noted
above, PWFC maintained very limited records of its receipts and disbursements. The
Commission obtained bank statements directly from the banks identified by PWFC in
response to subpoenas. Absent more detailed records, the Audit staff could not identify
all differences between bank and reported activity.

According to the bank statements and identified in-kind transactions,
PWEC received $129,492 in receipts.'> The PWFC reported receipts of $136,394.
Identified differences include:

$(4,035) of receipts reported in 1999 not traceable to bank

$(20,000) loan receipt reported in 2000 not traceable to bank

$400 of receipts during the Year End 2000 reporting period not reported
$1,710 in-kind receipt for office space not reported

$15,023 unidentified difference

PWFC bank records and identified in-kind transactions total $129,462 of
disbursements.'° PWFC, however, reported disbursements of $139,098. Major identified
differences include:

$(23,749) of disbursements reported in 1999 and 2000 not traceable to the
bank statements.

$1,287 closing debit for Compass Bank not reported in 2000,

$3,227 of in-kind expenditures not reported in 2000

$1,000 unnumbered check that cleared Wells Fargo bank on April 24 not
reported in 2000.

$1,527 Year End 2000 disbursements not reported

$7,072 unidentified difference

“ See footnote 13

5 $20,305 in 1999 and $109,187 in 2000.

6 $14,106 in 1999 and $115,356 in 2000

Page 15 of 22



a. Compass Bank

PWFC provided no cancelled checks or other external
documentation (receipts or invoices) for the 210 disbursements made from the Compass
Bank account. These disbursements, debited to the account between August 23, 1999
and May 16, 2000, totaled $35,279. All withdrawals per the bank statements, except two,
that were in excess of $200 could be traced to the disclosure reports. The two
transactions included an entry identified as a check but without a check number for
$1,000 on April 24, 2000 and the final closing debit for $1,287 on May 16, 2000. Neither
withdrawal could be traced as a transfer to the other PWFC bank account and neither one
was itemized. It therefore appears that these two disbursements were not reported.

b. Wells Fargo Bank

For disbursements from the Wells Fargo Bank account, the
Audit staff was provided six books of check tissue copies (168) and all bank statements.”
There were 503 disbursements from Wells Fargo Bank that total $90,955, and were
debited to the account between April 28, 2000 and December 31, 2000. These
disbursements included 174 transactions by check and 329 other transactions that are
described on the bank statements as debits by credit card purchases, point of sale
purchases, ATM withdrawals of cash, and service charges.

The disbursement records provided by PWFC do not satisfy
minimum recordkeeping requirements. The address was not maintained for the 168
check tissue copies, the purpose was missing for 28, the amount was missing or incorrect
for 9, and the payee or date was not recorded or was illegible on the tissue copies for 6 of
the disbursements. The October 2000 bank statement provided by PWFC included
partial information (payee, date and amount) for debits totaling $2,575. There were no
records maintained for the remaining $29,268 ($90,955-$59,112-$2,575) in
disbursements (checks and debits) that cleared the Wells Fargo bank during the Audit
period. Sixty-one of these debits were cash withdrawals and associated fees totaling
$16,918 (see Finding II.C.).

c. Reported Receipts and Disbursements not Traced to
Available Bank Documentation

In addition to the review of financial activity discussed
above, the Audit staff reviewed all itemized transactions on the disclosure reports. This
review identified 36 disbursement transactions totaling $23,749, contributions from
individuals totaling $4,035, and a loan receipt for $20,000 that could not be traced to
available bank documentation. The receipts from individuals and twenty-three of the
reported disbursements totaling $3,562 were reported in 1999 before any bank account
acknowledged by the PWFC was opened. The loan receipt ($20,000) and the remaining

‘ A consultant provided one invoice for this account through the subpoena process.

Page 7 of 22


District. The Treasurer for PWFC from inception through the present is Mr. Mike
Mundy. PWFC maintained its headquarters in Kemah, Texas.

To manage its financial activity, PWFC acknowledges two bank accounts.
From these accounts, PWFC made 713 disbursements totaling $129,462. PWFC reported
contributions from individuals totaling $110,775, contributions from political party
committees and other political committees totaling $5,619,° and a loan from the
Candidate for $20,000. PWFC did not use accounting or campaign management software
to prepare and file its reports. Accounting, recordkeeping and reporting functions were
performed by the Candidate and a consultant

D. History AND AUDIT SCOPE

On April 3, 2001, the Commission voted to audit PWFC and the Audit
staff notified PWFC’s Treasurer by letter dated April 4, 2001. The audit notification
letter also outlined the scope of the audit and described the records necessary for the
audit. After several unsuccessful attempts to reach the Treasurer, the Candidate referred
the Audit staff to a PWFC consultant for the provision of records. The consultant
acknowledged by letter dated April 26, 2001 that the campaign was attempting to gather
the records for the Audit staff.

After several more conversations and a discussion about the consequences
of not providing records, the Audit staff received some records on August 13, 2001.
These records consisted of six books of tissue copies of checks and four of five pages of
one bank statement. On August 22, 2001 the Treasurer was notified that these records
were not adequate for audit purposes and that as Treasurer he was legally responsible for
the records pursuant to 2 U.S.C. §432(c), and (d). On this date the Treasurer was advised
of the additional records required. He was also informed about the subpoena process and
subsequent issues that could arise from the audit if the records were not produced.

On August 27, 2001 the Treasurer explained that the landlord of PWFC’s
headquarters had discarded all the campaign materials when he wanted the office space
cleared out for another tenant. The Treasurer was informed that subpoenas would be
requested for all involved parties. On September 5, 2001 the Treasurer provided the
missing page from the one bank statement mentioned above and the addresses of the
landlord and the Candidate for the issuance of subpoenas.

In October 2001 the Commission approved the issuance of subpoenas to
the Treasurer, Candidate, the landlord for the PWFC office space, the campaign
consultant who provided the few records noted above, and to a second consultant who
appeared to have access to PWFC’s financial records and who also prepared a portion of

> Within the total for contributions from individuals PWFC included $3,548 of contributions
disclosed as from other political committees. Receipt records were limited; thus the Audit staff
could not determine from PWFC records the extent of contributions received from individuals and
other political committees. See Section I. D. History and Audit Scope.

Page 4 of 22



AO1-04
FEDERAL ELECTION COMMISSION

WASHINGTON DC 2404

REPORT OF THE AUDIT DIVISION
ON
PAUL WILLIAMS FOR CONGRESS

L BACKGROUND
A. AUDIT AUTHORITY

This report is based on an audit of Paul Williams for Congress (PWFC),
undertaken by the Audit Division of the Federal Election Commission (the Commission)
in accordance with the provisions of the Federal Election Campaign Act of 1971, as
amended (the Act). The audit was conducted pursuant to Section 438(b) of Title 2 of the
United States Code, which states, in part, that the Commission may conduct audits and
field investigations of any political committee required to file a report under Section 434
of this title. Prior to conducting any audit under this subsection, the Commission shall
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.

B. AUDIT COVERAGE

The audit covered the period from January 23, 1999, the date of the first
reported transaction,' through December 31, 2000. PWFC reported a beginning cash
balance of $0; total receipts for the audit period of $136,395; total disbursements for the
audit period of $139,098; and an ending cash balance of ($2,703) on November 27,
2000.°

Cc. COMMITTEE ORGANIZATION

PWEC registered with the Federal Election Commission on August 8,
1999, as the principal campaign committee for Paul Williams (the Candidate),
Republican candidate for the U.S. House of Representatives from the State of Texas, 9”

According to the bank records obtained through subpoena. the bank activity did not commence
until August 23, 1999. The bank records relate to those accounts identified in swom affidavits
from the Treasurer and the Candidate:

. This date is the end of the Post General reporting period. the last report filed by PWFC. On
February 16, 2001, PWFC was notified by Mailgram of its “Failure to File the Year-End Report”
covering the period November 28 through December 31, 2000. To date, PWFC has not
responded.

Page 3 of 22



The ending cash on hand at December 31, 2000 was $30 according to the
bank records available. PWFC reported the ending cash on hand balance on November
27, 2000 as ($2,703). This report was the last report filed by PWFC. As of November
27, 2000 the cash on hand should have been $1,157, a difference of $3,860.

If the disclosed receipts and disbursements that could not be traced to the
banks acknowledged by PWFC are added to the acknowledged bank activity for 1999
and 2000, then the correct reportable receipts are $153,527 ($129,492 + $4,035 +
$20,000) and the correct reportable disbursements are $153,211 ($129,462 +$23,749),
and the ending cash-on-hand at December 31, 2000 was $316.

In the Interim Audit Report the Audit staff recommended that PWFC file
comprehensive amended Summary and Detailed Summary pages for calendar years 1999
and 2000 as well as appropriate Schedules A and B, by reporting period, correcting the
misstatements noted above. As a supplement to the amendments the Audit staff also
recommended that PWFC provide full explanations and supporting documentation for all
transactions noted above that: (1) were reported but not reflected on bank statements
provided to date; and (2) appear on the bank statements but not reported.

Although PWFC made no direct reference to, or comment on, this
Finding, PWFC stated within its general narrative that it “...would like some directions
from the FEC regarding how to handle [the filing of amended schedules] since records
have been discarded.” Notwithstanding the grass-roots nature of the campaign, the
limited resources, and the dispersal of volunteers and others associated with the campaign
following the election, the disposal of the records has been cited by PWFC as the ultimate
hardship prohibiting them from complying with the FEC recommendations. PWFC
further asserted that PWFC no longer has a bank account and has no funds to pay for an
accountant to prepare these amendments.

The only guidance sought by PWFC from the Audit Division was on
September 23, 2002 (the original due date of the response) and that was to request a 15-
day extension to respond.

PWEC did not file amended schedules; nor did it explain why some
reported activity was not reflected on the bank statements and why some bank activity
was not reported.

Page 16 of 22



For disbursements, the required records include the name and address of
every person to whom any disbursement is made along with the date,
amount, and purpose of the disbursement. If the disbursement is in excess
of $200 then a receipt or invoice from the payee or a cancelled check to
the payee shall also be obtained.

The treasurer or his or her authorized agent shall use his or her best efforts
to obtain, maintain, and submit the required information and shall keep a
complete record of such efforts. The treasurer is required to preserve all
records and accounts for 3 years after the report to which such records and
accounts relate is filed.

Section 100.7(a)(1)(iti) of Title 11 of the Code of Federal Regulations
defines the donation of goods offered free or at less than the usual charge or the payment
of services on the committee’s behalf as an in-kind contribution. Any in-kind
contribution must also be reported as an in-kind expenditure pursuant to 11 CFR
§100.8(a)(1)(iv).

1. Receipts

As discussed in Section I.D., PWFC provided no documentation to
support receipts prior to the issuance of subpoenas. Under subpoena the Candidate
provided receipt records that consisted of copies of some response devices and copies of
contributor checks attached to deposit tickets. This documentation covered $17,695 or
13% of the total reported receipts. In addition, a consultant to PWFC provided copies of
contributor checks totaling $3,620 that were not attached to deposit tickets and not
included in materials obtained from others. Thus, only $21,305 ($17,695 + $3,610) or
15.6% of the total reported receipts are documented with respect to contributor name,
address, date, and amount of the contribution. The occupation and name of employer for
contributors was maintained for only 27 contributions from individuals, totaling $5,950.
No records were obtained for $9,067 of the $9,167 of receipts reported from political
party or other political committees. Finally, no record is available for in-kind receipts
totaling $3,227 (see below).

2. Disbursements

In response to subpoenas the Audit staff received a complete set of
bank statements for the Audit period from the two banks identified by PWFC.

The Audit staff compared the disbursements itemized on Schedule

B of PWFC disclosure reports to both the tissue copies of checks provided by PWFC and
to the checks and other debits listed on the bank statements secured through subpoenas.

Page 6 of 22


Page 22 of 22


FEDERAL ELECTION COMMISSION

WASHINGTON DE 20405

November 12, 2002

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ -

ASSISTANT STAF RECTOR
AUDIT DIVISION |

SUBJECT: | PUBLIC ISSUANCE OF THE AUDIT REPORT ON
PAUL WILLIAMS FOR CONGRESS COMMITTEE

Attached please find a copy of the audit report and related documents on
Paul Williams for Congress, which was approved by the Commission on November 5,
2002.

All parties involved have been sent informational copies of the report and the report
may be released to the public.

Attachment as stated

cc: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library



kept in a box where volunteers would place receipts and invoices for expenses, materials,
and other matters pertaining to the campaign. PWFC acknowledges that the campaign
“was focused more on delivering its message to potential voters and the mechanics of
getting voters to vote than keeping accurate records.” Despite this admission PWFC
asserts that they had used “ best efforts” to maintain the records but that they had been
discarded by the landlord after the General Election in 2000. PWFC made no comment
regarding any efforts to obtain duplicate records from banks or vendors.

PWEC also made no comment and offered no explanation regarding the
reported disbursements ($23,749) and receipts ($24,035) for which no bank records were
provided. Further, PWFC made no response regarding the disposition of the $1,287
closing debit and $1,000 unnumbered check.

With regard to the $16,918 in cash withdrawals, PWFC surmised that the
withdrawals were to reimburse volunteers for expenses.

Finally, PWFC disputed the Audit staff's estimate on the in-kind value of
office space. PWFC stated “...anyone would be a fool to pay $1,710 for a one-room,
windowless, office at that location.” PWFC offered no estimate of its own and did not
challenge the specific parameters used by the Audit staff to attain the estimate.

B. DISCLOSURE OF RECEIPTS AND DISBURSEMENTS

1. Disclosure of Contributions from Individuals

Section 434(b)(3)(A) of Title 2 of the United States Code requires,
in part, a political committee to report the identification of each person (other than a
political committee) who makes a contribution to the committee in an aggregate amount
or value in excess of $200 per calendar year, together with the date and amount of any
such contribution.

Section 431(13) of Title 2 of the United States Code defines the
term “identification” to be, in the case of any individual, the name, the mailing address,
and the occupation of such individual, as well as the name of his or her employer; and, in
the case of any other person, the full name and address of such person.

Section 104.3(a)(4) of Title 11 of the Code of Federal Regulations
states, in part, that the identification of each contributor and the aggregate year-to-date
total for such contributor shall be reported for each person, other than any political
committee, whose contribution or contributions aggregate in excess of $200 per calendar
year and for all committees which make contributions to the reporting committee during
the reporting period.

Sections 104.7(a) and (b) of Title 11 of the Code of Federal
Regulations state, in part, that when the treasurer of a political committee shows that best
efforts have been used to obtain, maintain, and submit the information required by the

Page 9 of 22


13 untraced disbursements ($23,749-$3,562=$20,187)° were reported during the report
periods for which bank statements were secured by subpoena.

d. In-Kind Contributions

PWFC reported three in-kind receipts from two political
committees, but failed to keep records of these transactions as either receipts or
expenditures. The amount totaled $1,517; PWFC also did not report or keep records for
in-kind contributions of office space provided free of charge by two individuals. The
Audit staff estimated this in-kind contribution to be $1,710.°

e. Summary

PWFC failed to keep adequate records for any of the 713
disbursements from its bank accounts totaling $126,234, and four in-kind transactions
totaling $3,227. Sixty-one of the disbursements from banks were cash withdrawals
totaling $16,918 (see Finding II.C.). Partial records were kept for 211 disbursements
totaling $61,688. Reported disbursements totaling $23,749 and receipts totaling $24,035
could not be traced to bank records. As a result of subpoenas issued by the Commission,
invoices supporting seven reported’ disbursements totaling $3,320 were obtained.

In the Interim Audit Report the Audit staff recommended that PWFC
demonstrate that it has satisfied the recordkeeping requirements of 11 CFR §§102.9 and
104.14; provide an explanation and documentation to support reported transactions
totaling $23,749 of disbursements and $24,035 of receipts that do not appear on the bank
records obtained by the Commission; provide an explanation and documentation to
support the disposition of both the $1,287 closing debit for Compass Bank and the $1,000
unnumbered check from Wells Fargo; and provide complete receipt and disbursement
records for campaign transactions to include an account of contributions and other
receipts, and copies of cancelled checks, invoices, receipted bills, etc for disbursements.
Further, the Audit staff recommended that PWFC provide an explanation and
documentation for the $16,918 in cash withdrawals from PWFC accounts.

In the response to the Interim Audit Report PWFC described itself as “...a
small grassroots campaign without the resources to afford the luxury of an accountant,
bookkeeper, or staff to handle and maintain the day-to-day records.” Most records were

Because the Audit staff was only able to trace those reported disbursements that were itemized, the
actual number and amount of untraced disbursements (that may occur within the unitemized total)
may be larger for this period.

For approximately 6 months of 2000 an individual and his spouse provided about 300 square feet
of office space to PWFC free of charge. The Audit staff estimated this in kind contribution to be

$1.710 based on the individual's statement that he would normally lease the space for $0.95/ft per
month.

Included among these invoices was one relating to a reported disbursement for $1,059 that could
not be traced to any PWFC account.

Page 8 of 22


PWFC’s reports. Subpoenas were issued to Compass Bank (listed on the Statement of
Organization as the campaign depository) and to Wells Fargo Bank (bank account
information provided by PWFC).

On December 10, 2001 the Commission received, as a result of responses
to subpoenas, limited receipts documentation (totaling $17,695), a few deposit tickets
(totaling $3,960) and copies of loose contributor checks totaling $3,620. Complete bank
statements from Compass Bank and Wells Fargo Banks were also received through the
subpoena process with the last of the material received on April 3, 2002.

The scope of this audit is therefore limited to the bank statement and tissue
copies of checks that cleared the bank, accounting for $59,112, maintained by PWFC
(these checks represent 42% of the total reported disbursement activity), complete bank
statements and limited receipts documentation secured via subpoena, and PWFC
disclosure reports. Some additional information was obtained through interrogatories
accompanying the subpoenas and conversations between the Audit staff and PWFC
representatives.

In the narrative response to the Interim Audit Report PWFC explained that
it operated a grassroots campaign with limited resources; that most functions of the
campaign were performed by volunteers; that most records were kept in a box which was
inappropriately discarded after the election, and that following the loss on election day
everyone involved with the campaign retumed to their normal lives. See the responses to
Findings II.A, I.B, ILC, and ILE.

Il. AUDIT FINDINGS AND RECOMMENDATIONS

A. FAILURE TO MAINTAIN RECORDS

Section 104.14(b)(1) of Title 11 of the Code of Federal Regulations states,
in part, that each political committee required to file any report or statement shall
maintain all records relevant to such reports or statements as follows: maintain records,
including bank-records, with respect to the matters required to be reported, including
vouchers, worksheets, receipts, bills, and accounts, which shall provide in sufficient
detail the necessary information and data from which the filed reports and statements
may be verified, explained, clarified, and checked for accuracy and completeness.

Sections 102.9(a) through (f) of Title 11 of the Code of Federal
Regulations specifies the records required to be kept by the treasurer for both receipts and
disbursements, and the recordkeeping duties of the treasurer:

For contributions in excess of $50, the account shall include the name and
address of the contributor together with the date and amount of the
contribution. If the contribution aggregates in excess of $200 for the
calendar year the regulations additionally require the identification of the
contributor (full name and mailing address along with the occupation and
name of employer) as defined at 11 CFR §100.12.

Page 5 of 22


FEDERAL ELECTION COMMISSION

WASHINGTON DC 244

A01-04

November 5, 2002

Mr. Michael Mundy, Treasurer
Paul Williams For Congress
1518 Drexel Drive

Katy, Texas 77493

Dear Mr. Mundy:

Attached please find the Report of the Audit Division on Paul Williams for
Congress. The Commission approved the report on November 5, 2002.

The Commission approved Final Audit Report will be placed on the public record
on November 12, 2002. Should you have any questions regarding the public release of
the report, please contact the Commission's Press Office at (202) 219-4155.

Any questions you have related to matters covered during the audit or in the
report should be directed to Cornelia Riley or Russ Bruner of the Audit Division at (202)
694-1200 or toll free at (800) 424-9530.

Sincerely,

| bk ESLEL
/ joseph F. Stoltz /

/ Assistant Staff Director
if Audit Division

Attachment as stated

Page 19 of 22



FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20403

PAUL WILLIAMS FOR CONGRESS

EXECUTIVE SUMMARY

Paul Williams for Congress (PWFC) registered with the Federal Election
Commission on August 8, 1999, as the principal campaign committee for Paul Williams,
Republican candidate for the U.S. House of Representatives from the State of Texas, 3”
District. The Treasurer for PWFC from inception through the present is Mr. Mike
Mundy. PWFC maintained its headquarters in Kemah, Texas. The audit was conducted
pursuant to 2 U.S.C. §438(b), which states that the Commission may conduct audits of
any political committee whose reports fail to meet the threshold level of compliance set
by the Commission. The findings were presented to PWFC in the interim audit report
mailed to both the Candidate and the Treasurer on August 20, 2002.

The following is an overview of the findings contained in the audit report:

FAILURE TO MAINTAIN RECORDS — 11 CFR §§102.9(a)-(f) and 104.14(b)(1).
PWEC failed to keep adequate records for any of the 713 disbursements from its bank
accounts totaling $126,234, and four in-kind transactions totaling $3,227. Sixty-one
disbursements were cash withdrawals totaling $16,918. Complete receipt records were
maintained for only 27 contributions totaling $5,950 from individuals and 1 receipt for
$100 from a political committee. Reported disbursements totaling $23,749 and receipts
totaling $24,035 could not be traced to bank records.

In response to the interim audit report PWFC asserted that they had tried to
maintain the records but that they were inappropriately discarded. PWFC made no
comment regarding the reported disbursements ($23,749) and receipts ($24,035) for
which no bank records were provided. With regard to the $16,918 in cash withdrawals,
PWFC surmised that the withdrawals were to reimburse volunteers for expenses.

DISCLOSURE OF RECEIPTS AND DISBURSEMENTS — 2 U.S.C.
§§434(b)(3)(A) and 431(13); 11 CFR §§104.3(a)(4) and 104.7(a) and {b). A material
percentage of the documented contributions were incorrectly disclosed, and a material
percentage of all disclosed contributions were incomplete. A loan from the Candidate
was incorrectly reported. A material number of disbursements were incorrectly disclosed
and/or incompletely disclosed.

In response to the interim audit report PWFC responded that it would be
burdensome or impossible to file the recommended amendments without the records.

Page 1 of 22



For those disbursements that were itemized (69), 23 had missing or
incomplete addresses, and 2 were reported for the wrong amount. Except for one vendor
the Audit staff was unable to verify disclosed purposes by invoices or other third party
documentation.

Although the Audit staff was unable to verify the accuracy of
disclosure for the disbursements for which there was no recordkeeping, the Audit staff
did evaluate the adequacy and completeness of disclosure of all disbursements itemized
on the reports that appeared to require itemization. Of the 167 disclosed disbursements
evaluated, 29 (17%) entries lacked complete addresses, and 65 (39%) had missing or
inadequately described purposes.

In the Interim Audit Report the Audit staff recommended that PWFC file
amended Schedules A, B and C, by reporting period, to fully correct the deficiencies
noted above. With respect to the loan the Audit staff recommended that PWFC provide
documentation to support both the receipt of the loan and the contention that the loan was
from personal funds of the Candidate. The documentation was to include bank and other
financial records of the Candidate adequate to demonstrate that the loan was made from
his personal funds.

With respect to filing amended reports, PWFEC responded that it “... would
desire to file amended reports if records were available; however, finds it either onerous
or impossible to meet said recommendation without the records.” PWFC also asserted
that, despite missing disclosure information on the reports, it provided each contributor
with a response device that requested the appropriate information.

With respect to the loan reported from the Candidate, PWFC stated “...the
candidate on numerous occasions provided PWFC with personal funds for ancillary
matters. In addition, the candidate performed numerous professional duties, such as the
drafting of campaign material, which has a value, which PWFC did not have to expend in
the marketplace.”

PWEC did not disclose any in-kind expenditure made by the Candidate on
behalf of the campaign. Furthermore the disclosed loan could not be traced to bank
receipts. Finally, PWFC provided no documentation to support the personal nature of
any funding provided by the Candidate.

Cc. EXCESS DISBURSEMENTS OF CASH

Section 432(h)(1) of Title 2 of the United States Code requires that all
disbursements by a political committee, except for disbursements from the petty cash
fund shall be made by check drawn on account(s) established at the committee’s
campaign depository or depositories. The regulations governing the use of a petty cash
fund (11 CFR §102.11) restrict any committee from making expenditures in excess of
$100 to any person per purchase or transaction. Ifa petty cash fund is maintained, it shall
be the duty of the treasurer of the political committee to keep and maintain a written
journal of all disbursements. This written journal shall include the name and address of

Page 12 of 22



D. PERSONAL UsE OF EXCESS CAMPAIGN FUNDS

Excess campaign funds are defined at 11 CFR §113.1(e) as amounts
received by a candidate as contributions which he or she determines are in excess of any
amount necessary to defray his or her campaign expenditures. Excess campaign funds
may not be converted to any personal use by any person (11 CFR §113.2(d)). According
to 11 CFR §113.1(g) 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 of any
person that would exist irrespective of the candidate’s campaign. Examples of personal
use (11 CFR §113.1(g)) include but are not limited to household food items or supplies,
funeral expenses, clothing, tuition payments, mortgage, rent or utility payments,
admission to entertainment events; dues, fees or gratuities to a nonpolitical organization,
salary payments to a member of the candidate’s family (with exceptions); and legal,
meal, travel and vehicle expenses not associated with the campaign.

Permissible uses of excess campaign funds (11 CFR §113.2(2)(b-d))
relevant to a non officeholder include donations to certain charities, transfers to a
national, State, or local committee of any political party, or to repay to a candidate any
loan the proceeds of which were used in connection with his or her campaign.

At close of business on November 7, 2000, Election Day, the PWFC had
cash on hand of $5,052. Between that date and January 26, 2001 (the last bank statement
obtained by the Audit staff) PWFC received $1,008 in additional deposits, paid the
Treasurer $250, and made expenditures identified on the bank statements as Other
withdrawals totaling $5,801. The cash balance on January 26, 2001 was $9. The Other
withdrawals are grouped by categories (restaurants, service stations, communications,
cash withdrawals, and miscellaneous) on Attachment 1.

The disbursements listed on Attachment | are the types of expenses that
would exist irrespective of the campaign and appear to represent funds converted to
personal use. These disbursements do not appear to fall into any of the categories
allowable under 11 CFR §113.2(2)(b-d). They do not represent donations to charities, or
transfers to national, State or local party committees. Also they do not appear to
represent repayment of a loan from the candidate. Although PWFC had reported a loan
receipt from the candidate on the July Quarterly report, no loan receipt could be traced to
bank records, and the loan was not reported on either the Pre-General or Post General’?
reports. The Summary Page of both these reports also indicated that no outstanding
obligations existed. Finally, these expenditures include no salary or office expense
payments. The Audit staff is of the opinion that both the timing and nature of these
disbursements indicate that they were for personal use. The personal nature is also
supported by the out-of-state location of some of the disbursements.

In the Interim Audit Report the Audit staff recommended that PWFC
provide evidence to establish the relationship to the campaign of the $5,801 in post

8 Post General report (covering October 19-November 27) was the last report filed by PWFC. This

report was not signed.

Page 14 of 22


PAUL WILLIAMS FOR CONGRESS

TABLE OF CONTENTS

Page

Executive Summary 1

Final Audit Report 3

Background 3

Findings 5
Transmittal to Committee 19

Chronology 21


REPORT OF THE AUDIT DIVISION
ON THE

Paul Williams for Congress
Committee

Approved November 5, 2002

FEDERAL ELECTION COMMISSION
999 E STREET, N.W.
WASHINGTON, D.C.



Act, any report of such committee shall be considered in compliance with the Act. The
treasurer and the committee will only be deemed to have exercised best efforts if all
written solicitations for contributions include a clear request for the contributor’s full
name, mailing address, occupation and name of employer, and include an accurate
statement of Federal law regarding the collection and reporting of individual contnibutor
identifications; the treasurer makes at least one effort after the receipt of each
contribution aggregating in excess of $200 per calendar year, in either a written request
or documented oral request, within 30 days of receipt of the contribution, to obtain the
information; and, the treasurer reports all contributor information not provided by the
contributor, but in the committee’s possession, including information in contributor
records, fundraising records and previously filed reports, in the same two-year election
cycle.

The contributor records supplied by the PWFC did not permit an
evaluation of the accuracy of the disclosure of contributions. Using the records obtained
through subpoena, (approximately 15% of reported receipts) a very limited test was
performed. These records were used in conjunction with reported contributions from the
same contributors to determine the information required to be disclosed.* This limited
testing revealed that (out of 29 contributions testable for disclosure) one contribution was
reported on the wrong line number,’ three were disclosed as being from the wrong
person, and eight were either missing occupation/name of employer or the
occupation/name of employer was incorrectly disclosed. Thirteen reported
occupation/name of employer entries could not be verified because they lacked
supporting records.

The Audit staff also evaluated the adequacy of disclosure for all
itemized contributions.'° Of the 121 disclosed contributions evaluated, 100 entries
contained disclosure errors: 88 were missing aggregate year-to-date totals; 25 had
inadequate or incorrect occupation/name of employer, 8 were missing addresses or had
incomplete addresses; and 4 were missing a contributor name or were disclosed from the
wrong contributor."

This aggregation could be based only on contributions itemized on the reports. Thus most
contributions could not be tied to a contributor history for aggregation purposes.

This contribution was from a political action committee and should have been itemized and
reported under Line 1 1c, whereas it was itemized under Line 11a and reported under Line 11b:
" PWEC itemized some contributions that did not require itemization. These transactions were not
included in this review.

The errors in contributor name were identified from the receipts documentation provided through

subpoena. The total number of errors by category 1s greater than the total number of entries
containing errors because some contributions contained in more than one error.

Page 10 of 22


every person to whom any disbursement is made, as well as the date, amount, and
purpose of such disbursement. In addition, if any disbursement is made for a candidate,
the journal shall include the name of that candidate and the office (including State and
Congressional district) sought by such candidate.

Between May 15 and December 28, 2000, PWFC personne! made 61
ATM withdrawals totaling $16,918, including fees. The separate transactions ranged in
amount from $63 to $300 each. Fifty-nine withdrawals totaling $16,754 exceeded the
$100 limit on cash transactions. On November 6, the day before the general election,
$900 was withdrawn. During the week subsequent to the election (between November 9
and 15) $1,802 cash was withdrawn; within another 5-day period (November 20-24)
$1,500 was withdrawn in cash. A total of $4,171 in cash was withdrawn after the general
election. Four cash withdrawals totaling $671 were made both after the election and
outside the state of Texas.

Another likely cash transaction involved the closing debit for the account
maintained in Compass Bank. On May 16, 2000 the account at Compass Bank was
closed with a debit of $1,287. This transaction was not itemized on the disclosure reports
and the amount was not deposited into the other acknowledged depository (Wells Fargo
Bank) of PWFC. Therefore it appears that this debit may have been negotiated for cash
or was deposited into an undisclosed account.

PWFC has provided no evidence that these disbursements were made out
of a petty cash fund. No disbursements to a petty cash fund were disclosed by PWFC,
nor were any of the above transactions itemized. There are no records to establish the
disposition of the cash withdrawn from PWFC’s account.

In the Interim Audit Report the Audit staff recommended that PWFC
demonstrate that the $18,205 apparently disbursed in cash falls within the provisions of 2
USC §432(h) and provide an accounting of the cash disbursements.

PWFEC responded that the cash disbursements were probably for volunteer
expenses. PWFC explained that ‘It was common practice for PWFC to provide [a]
volunteer “in charge” of the campaign activity with sufficient funds, almost always cash,
to pay for meals, gasoline, and other related matters.” That statement does not satisfy the
provisions of 2 USC §432(h) and 11 CFR 102.11. Disbursements must be by check
unless made from a petty cash fund. Further, any disbursement from petty cash should
not exceed $100 to any person per transaction and must be documented in a written
journal. The response also implies that volunteer expenses extended out-of-state ($671)
and long after the election ($4,171). PWFC made no suggestion as to the disposition of
the closing debit or the unnumbered check. The prohibited nature of these cash
disbursements remains unchanged.

Page 13 of 22