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NRCC Audits Forged, Nearly $1M Missing

By Reid Wilson

The investigation into financial and accounting irregularities at the National Republican Congressional Committee has uncovered discrepancies approaching $1 million and the committee will have to seriously adjust its recent disclosures to the Federal Election Commission, NRCC chair Tom Cole told the body's executive board Thursday. The uncovering of hundreds of thousands of dollars in possibly misappropriated funds has raised questions about the committee's system of financial controls, which a lawyer involved in the investigation says are in the process of overhaul.


Results of a preliminary investigation by a prominent Washington law firm show the committee overstated its cash on hand total to the FEC by as much as $740,000 at the end of January and underestimated the amount of debt it had incurred by about $220,000, according to a briefing provided to top GOP lawmakers and to reporters. The discrepancies came as former NRCC treasurer Christopher Ward, whose involvement was first reported on Politics Nation, allegedly made unauthorized transfers to other political committees he controlled and, later, from those committees into his own personal and business bank accounts.

At the end of January, the committee reported $6.4 million cash on hand, though the actual number was near $5.67 million. The committee's debt, reported at $2.3 million, was in fact higher than $2.5 million. Investigators said it was too early to tell how much of the missing cash had allegedly been skimmed into Ward's personal bank accounts and how much of the discrepancies were due to accounting errors. "It's going to be a while yet before we can disentangle that," said Rob Kelner, an attorney at Covington & Burling, the firm conducting the internal investigation. "We cannot know for sure, at this point in time, how much of that is attributable to unauthorized transfers."


The NRCC's new treasurer, Keith Davis, has filed an informational notice regarding the discrepancies and will file a report detailing the corrected information on March 20. Further amendments to previous reports are likely in the near future. This type of fraud, at political committees and other non-profit organizations, where financial controls are typically less stringent than at for-profit institutions, is not uncommon, Kelner said.


Indeed, any financial controls can be overcome by someone with the knowledge and ability to find the opportunities to do so, said Allan Bachman, of the Association of Certified Fraud Examiners. "This person was able to avail themselves of those opporutnities," he said, adding that it should not be surprising that Ward allegedly continued his activity for several years. "A fraud will continue until it's discovered."


Ward's alleged fraud goes back at least to 2002, when he submitted the first of five falsified audit reports from what Kelner implied were multiple accounting firms, though he declined to name those companies. That, said Bachman, should have raised questions. "An actual red flag might be a different audit firm every year," he said. "You want people to come back who are familiar with the company."


Those fake reports were what, in the end, got the former treasurer caught. Working as an independent contractor in charge of the committee's FEC filings and audits, Ward was asked for an audit report and a meeting with the outside auditors, a fairly standard request, by NRCC Audit Committee chairman Mike Conaway, himself an accountant with auditing experience.


When Ward failed to produce either the audit results or the meeting with the outside auditors, Conaway called the firm that had supposedly conducted the audit. "They'd never heard of us," Conaway recalled in an interview. The firm "had no knowledge of us as a client." As the investigation quickly progressed, on advice of counsel, the NRCC contacted the FBI and the FEC to inform them of the allegedly illegal behavior. While the NRCC would not comment on the investigation, they now feel the investigation has moved to a point at which they can comment, though Kelner would not say what that point was.


Conaway, who was not on the audit committee until this year, has seen the forged documents that were filed with the NRCC's bank, and he is not surprised that they passed muster. "They are very good. It was a very complicated, sophisticated scheme he had in place," the congressman said of Ward.


The part approval process that broke down, Kelner said, was at the end of the chain, as Ward was the last person to see and approve expenditures. "If you have one person who is in a position to authorize wire transfers and is going to be sending it to his own, ultimately to his own account, he can simply do it. He doesn't need a form," Kelner said. "So the approval process only works for transactions that people know about."


Several people suggested the NRCC had not engaged in certain audit industry standards. "It's a best practice not to have any significant money-handling authority invested entirely in any one person," Kelner said. Additionally, Bachman said the audit committee needed to be more involved from the start. Industry practice, he said, is for outside auditors to meet with the committee in person, every year. "The auditors would report independently to the audit committee, with management present, but would also have a dotted-line responsibility to management and the audit committee," he said.


That interaction could have prevented the falsified audit reports, which on their own are not hard to create. "You can go online right now and pull audit reports for GM, and 3M, and Disney, et cetera, and replicate them and just change the numbers," Bachman said.


Unlike many organizations, the NRCC chose to go public with the fraud. Many times, Bachman said, an organization will sweep such financial shenanigans under the rug. "It's very difficult to hide a murder. But a fraud, organizations roll up the carpets and don't make eye contact and you never hear about it." Some institutions will simply let the perpetrator go and never report the incident, he said.


But the NRCC, thanks to required FEC reports and the fact that multiple laws have likely been broken, did go public, and Cole seems determined to get the matter behind him and his committee. "It is my goal to be open and candid with the facts of this matter and to assure our members, our supporters and our staff at the NRCC that every effort is being made to prevent such a fraudulent act from happening again," he said in a statement.


Kelner said the committee has already taken many steps toward guaranteeing that assurance. "Procedures have changed and will continue to be refined," he said. "We're not finished, but we've got some really competent worthy folks taking over," Conaway added. "I'm confident in telling any perspective or current donor that we're taking care of business as we should."


For a committee battered by a difficult political landscape, more than two dozen retirements and an already bleak financial picture, the financial scandal is the last thing House Republicans need heading into the election. With outside help, the NRCC is slowly righting its buffeted financial ship. But as investigators dig further into Christopher Ward's years of fraud, the nearly $1 million unaccounted for, both through missing cash on hand and additional debt, is a figure that is only likely to grow.

Reid Wilson is an associate editor and writer for RealClearPolitics. He can be reached at reid@realclearpolitics.com

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