Saturday, March 8, 2008

NRCC Needs Leadership Audit

The Republican National Congressional Committee announced it would conduct a forensic audit to search for stolen funds from 2003 to January of 2008. The committee indicated it would be after the 2008 elections before a detailed, comprehensive accounting investigation could be completed. They did not mention conducting a leadership audit to determine why so many people were asleep at the governance wheel. Their inattention allowed Treasurer Christopher J. Ward to fake at least one audit, commit financial fraud, and likely abscond with hundreds of thousands in donations made to the nonprofit political organization.

Consider the environment in 2003, the first year Chris skated by without an audit by an external accounting firm. In July 2002 Congress passed Sarbanes-Oxley to stem the kind of financial impropriety exemplified by Enron and WorldCom. Recall our Congressional representatives rushing to donate their Enron contributions to charity? The legislation aimed to identify and reduce financial practices that led to such distasteful fraud and abuse. It passed the House of Representatives 423-3.

All the key leaders of the NRCC associated with the current scandal voted for the bill. Then chair Tom Reynolds (R-NY), Eric Cantor (R-VA), and Tom Davis (R-VA) voted for Sarbox. While current chair Tom Cole (R-OK) didn't vote for the bill, his predecessor J.C. Watts did.

The legislation got board member’s attention across the country. Many nonprofits discussed the bill and whether to change any accounting practices to improve financial controls and oversight. As a nonprofit 527 organization, did the NRCC Executive Committee not have such a discussion? They had to know their financial controls needed tightening as they'd approved numerous relaxations since 1999, according to Republicans with knowledge of the organization's operations.

In 2004, the next year the NRCC went without a financial audit, New York held the Republican National Convention. Michael Oxley (R-OH) of Sarbanes-Oxley fame was treated like a rock star at the event. Wall Street firms, led by Goldman Sach's Hank Paulson, rushed to gather millions for the grand red carpet treatment. Several years after raising more than $5 million, Hank got tapped to be Treasury Department Chief.

After more years passed, President Bush lobbied to reduce the onerous restrictions imposed by Sarbanes-Oxley. In January 2007, the President spoke to implementing the law in a more cost effective way for corporations. That same month NRCC Chair Tom Cole appointed his Executive Committee. His press release included the appointment of Rep. Mike Conaway (R-TX) as head of the Audit Committee. Mike is a certified public accountant. The National Republican Congressional Committee entered its fourth year without a real external audit.

Most organizations have an annual financial audit with the timing dependent on its fiscal year. Accounting firms use Sarbanes-Oxley guidelines, even for nonprofits. The firm’s audit staff would have interviewed members of the NRCC Executive Committee as part of the governance assessment. A partner from the audit firm would have presented the audited financials along with a management letter. How could NRCC leadership not notice and miss these key ingredients? Or did Mr. Ward offer a fictional version for the board’s consumption?

Mike Conaway caught on after his full year as audit chair. A New York Times report cited late January 2008 as the occasion of his a-ha moment.

Committee officials said that bookkeeping irregularities were discovered in January after the chairman of the panel’s auditing committee, Representative Mike Conaway of Texas, a certified public accountant, repeatedly asked to meet with representatives of the audit firm that was supposed to be reviewing the committee’s books. He said that Mr. Ward had promised to set up a meeting with the auditors and scheduled the gathering in late January.

But 30 minutes before the scheduled meeting, committee officials said, Mr. Ward sent an e-mail message to colleagues announcing that, in fact, no audit had been done. The officials said the fund-raising committee had since determined that its books had not been audited since 2003 and that Mr. Ward had submitted a series of falsified audits.

The Hill reported:

Rep. Mike Conaway (Texas), the chairman of the NRCC audit committee and a certified public accountant, alerted the committee to the irregularities after he asked that the committee conduct an internal audit. Shortly thereafter the committee notified the FBI.

While the NRCC wants to minimize this as an accounting problem, it truly is a gross leadership gaffe. George W. Bush had this to say at the House Republican Conference in 2007, “And I know that the Republican Party is in good hands in the House of Representatives with these fine leaders.” Unfortunately campaign donors were in those same hands, and they weren’t good at all. Will competent leaders please step forward? The bunch we have isn’t cutting the mustard.