2012 Libertarian Audit Committee: Out of Control?

Apparently the audit of the 2012 financial records of the Libertarian Party remains unfinished, making this the longest audit in the history of the LP, perhaps by a factor of 2 or more . . .

I say apparently as I offered my resignation as one of the three members of the 2012/2014 Audit Oversight Committee (Aaron Star, Brett Pojunis and myself) to Chair Neale this past October 21st; It was accepted a few days later.

Earlier today George Phillies published the 2012/2014 Libertarian Party Audit Oversight Committee’s Second Interim Report at:

http://groups.yahoo.com/neo/groups/LNCDiscussPublic/files

with the file name of:

Audit201310.pdf

and the associated text:

>>>This is the Second Interim Report of the LNC Audit Committee, clearly marked “not confidential”. And, no, I did not get it from Starchild. George Phillies<<<

He didn’t get it from me either, although my name is on it as one of its three authors (Aaron authored the initial draft of this report (while asking Brett and I to create draft reports as well, which neither of us did).  We did edit the first draft of this, each of us expressed concerns about its length and purpose, I had some input into its (re-)organization, but overall this is Mr. Starr’s work product which I supported.

The first five sections are reproduced below. George has not published Section 6 (and may not have access to as it deals with clearly confidential issues).

I am available here to answer any questions about my past service on this committee, as well as by email (drbuchman@gmail.com).

For the convenience of IPR Readers I’ve reproduced the text of the file George Phillies posted at the link above as text below.

Joe

(Note: Some of the formatting in the PDF version of this document makes it easier to read from the link above (which requires creating (or using an existing) Yahoo account, I believe.)

Also two pages of charts (the last two pages in the report) are not reproduced below.  Finally I’m not certain the report posted by Dr. Phillies was identical to the last version I was part of editing (it appears so on its face, but I have not carefully double-checked for that.  I’m not confident that the PDF to text conversion below is without error (I’ve attempted to clean up some of the formatting, including removing page numbers from within the text and fixing one misspelling.  If you find other errors, please let me know and I’ll fix them here.)

 



Second Interim Report of the 2012/2014  Libertarian Party Audit Committee

 15 October 2013

Note: Our first Interim Report for the 2012 Audit was presented to the Libertarian National Committee, 14 July 2013. Because some LNC members were not present, and because this report may be made available to others, some material has been repeated here. Materials previously presented in executive session are not included here. This report is not confidential.

This report addresses the following major deficiencies:

1) Related Party Transactions with LNC Board Member Cloud, page 3.

2) LNC Funds Used to Pay Personal Expenses of the Executive Director, page 11.

3) Other Questionable Employee Benefit Practices, page 19.

4) Errors in Accounting Records, page 22.

5) Issues not yet addressed, page 23.

6) FEC Reports: (addressed in a separate confidential document).

EXECUTIVE SUMMARY OF INTERIM REPORT RECOMMENDATIONS

•  Adhere to the Policy Manual requirement that written contracts between the LNC and all  vendors be approved by the Chair and reviewed by General Counsel.

•  Cease the practice of payment of commissions where a clear basis cannot be measured.

•  Cease the practice of payments where a detailed invoice has not been provided.

•  Cease the practice of staff editing of vendor invoices.

•  Adhere to the Policy Manual requirement that the Chair or Treasurer must approve expense  reimbursements to the Executive Director.

•  Recover funds inappropriately paid to or on behalf of the Executive Director.

•  Correct errors made in the accounting records.

•  Direct staff to obtain documentation on advances made for moving expense.

•  Direct staff to provide to the Audit Committee specified receipts or statements from 2013 to  determine the nature of shipping expenses recorded as being Carla Howell’s moving expenses.

SCOPE AND AUTHORITY OF THE AUDIT COMMITTEE

 An Audit Committee is required by the Bylaws.

Bylaw Article 10.2 states “The National Committee shall cause an efficient double-entry system of  accounts to be installed and maintained. Financial statements of the Party shall be prepared in  accordance with Generally Accepted Accounting Principles (GAAP). Audits shall be performed annually  by an independent auditor. The non-officer members of the National Committee shall appoint a  standing Audit Committee of three members with power to select the independent auditor. One  member shall be a non-officer member of the National Committee and the other two shall not be  members of the National Committee. The Audit Committee shall clarify for the National Committee any  recommendations made by the auditor.”

The Policy Manual explicates the role of the Audit Committee:

“The Audit Committee’s tasks are to select an independent audit company and to direct the  scale and scope of standard annual audits of the Party’s accounting records and processes.  Following receipt of the audit company’s report, the Committee shall help the LNC interpret the  audit results and assist the latter in preparing any action plans that might be needed to alleviate  deficiencies.”

The Policy Manual clarifies that the Audit Committee shall have access to corporate records:

“Members of the National Committee and Audit Committee are entitled to inspect and copy  books, records (including electronic records) and documents of the Libertarian National  Committee, Inc. to the extent reasonably related to the performance of the member’s duties to  the corporation, including those duties as a member of a committee, but not for any other  purpose or in any manner that would violate any duty to the corporation. Prior to obtaining  copies the member shall execute a standard nondisclosure agreement. If the member requires  an outside professional to assist in reviewing and analyzing the materials, that individual shall  also execute a standard nondisclosure agreement prior to receiving the materials.”

The Audit Committee has been granted special rights to review the Party’s records. Each LNC Member  has an absolute right under Washington, D.C. law to inspect corporate records in the exercise of his or  her duties as a board member and to enlist agents to assist with this.

Any member of the LNC (including the member of the LNC who sits on the Audit Committee) has the  legal right to enlist the help of outside professionals to review the Party’s corporate records, provided  that such review is reasonably related to one’s duties as a member of the Board of the Libertarian  National Committee, Inc.

1.0 RELATED PARTY TRANSACTIONS WITH LNC BOARD MEMBER CLOUD 

The LNC Policy Manual requires that each contract or modifications thereto shall be in writing. It  requires that the Chair approve any contract in excess of $7,500. It requires that all contracts of more  than one year in duration or for more than $25,000 be reviewed and approved by General Counsel prior  to signing by the Chair.

1.1 SUMMARY OF RELATED ISSUES IN OUR FIRST INTERIM REPORT  At the LNC meeting on July 14, 2013, the 2012/2014 Audit Committee reported that a review of  materials supplied by LP staff indicated the lack of documentation required of other vendors for  payments of $38,800 to board member Michael Cloud. We reported that the payments were made  without a written contract; that Mr. Cloud’s three invoices requesting payment lacked itemized details  and were for round dollar amounts; and that the face of the invoices included a promise to provide  details at a later date (“I will piece together an itemized and documented bill for all my fundraising and  writing services during this time frame – with prices and royalties – before the end of this month.”),  which effectively made that a request for an advance payment in anticipation of documentation, or, in  effect, a loan.

Because Generally Accepting Accounting Principles requires that we provide disclosure in the financial  statements of transactions with related parties, we informed the LNC that the Audit Committee had  requested the prior month (June 2013) from staff all information on the work product produced for  $38,800 so that an appropriate footnote disclosure could be completed. We reported that we did not  yet have that requested information. At the meeting, Chairman Neale and staff both agreed that staff  would provide the requested information within 7 days.

We promised to generate a supplemental report based on our findings.

Though we had not seen anything detailing the payment calculations, we had been told that Mr. Cloud’s  pay was commission-based. For fundraising services performed by Mr. Cloud, we asked staff for the  gross amount of money raised (per solicitation, where applicable) and the net amount after direct costs.  We asked for a listing of the donations generated, identical in nature to the demands that had been  made by the LNC in the case of Big L Solutions, another related party vendor. For copywriting services  performed by Mr. Cloud, we asked for copies of the work provided. In cases where the aim of the  copywriting service was raising money, we requested the gross amount of money raised (per  solicitation, where applicable) and the net amount after direct costs, identical in nature to what had  been provided to us in the case of Big L Solutions.

1.2 SUMMARY OF RESULTS OF REQUESTS MADE FOLLOWING FIRST INTERIM REPORT 

The Audit Committee received some of the information on various later dates from Robert Kraus up to  and including August 3. The data provided by Mr. Kraus included a database of donations by fundraising  appeal. Staff was not cooperative in fulfilling our requests in a timely manner, and it required assistance  from Chairman Neale to get additional information. However, as of this date (mid October 2013) some  requested data has yet to be provided.

The Audit Committee noted that a July 29, 2013 email Mr. Kraus forwarded to us from Carla Howell  made reference to an invoice Mr. Cloud turned in a week prior (“Everything else needed should be on  the invoice Michael turned in a week Ago.”), so we then requested and received a copy of that invoice.  This new invoice from Mr. Cloud included a detailed breakdown of the items produced by him, along  with the money raised. This invoice was the first time a formula purportedly used for calculating Mr.  Cloud’s compensation was provided to the committee, despite several prior requests.

We thought that we were close to wrapping up our work, but then an examination of the metadata of  some of Mr. Cloud’s work product that Mr. Kraus provided to us revealed that some work product for  which Mr. Cloud had been paid was recorded as having been authored by then Executive Director  Howell. We realized that we could not rely on Staff assertions about the documents alone to  substantiate what Mr. Cloud wrote, so we requested that we be forwarded emails showing that Mr.  Cloud had indeed sent the 37 documents for which he had received payment.

Staff claimed that this newly-provided detailed invoice was generated by Mr. Cloud in late December  2012, presumably to fulfill Mr. Cloud’s commitment to providing details prior to his final payment.  However, the facts do not support that apparently false or mistaken assertion. We analyzed the  donations database Mr. Kraus generated in early August 2013 to calculate the estimated amount raised  by each fundraising letter. We compared those figures to Mr. Cloud’s detailed invoice, which also  included the dollars raised by each fundraising letter (and upon which a commission had been paid).

The figures on the invoice were larger than the donations known as of December 2012, and those  figures either matched or were slightly less than the totals from the database Mr. Kraus sent to us.  However, Mr. Kraus’ database of donations includes gifts all the way through August 1, 2013. Staff  explained that Mr. Cloud’s detailed invoice included estimates of future gifts. However, we did not find  it credible that anyone can so accurately predict the performance of a fundraising appeal to the exact  dollar amount many months in advance. The Audit Committee concluded that the more reasonable and  probable explanation was that this new invoice had been created in July of 2013, not December of  2012, by LNC board member Cloud with the assistance of one or more staff members.

Mr. Kraus provided the Audit Committee with a database of the fundraising amounts for each letter for  which Mr. Cloud had claimed authorship and payment. To the date of this report, however, we have not  been provided a similar listing of the amounts raised per email solicitation attributed to Mr. Cloud.  Upon inquiry, staff confirmed that the LP does not currently use any mechanism to track whether online donations came in via the “donate” link in an email message or via some other channel. Instead, to  calculate commissions on email fundraising, Mr. Kraus had assumed that any non-membership online  donations from a 3-5 day period following each email solicitation were attributable to that email appeal.  A commission should not be paid on an unknown, immeasurable, or unknowable, amount. (For  example, if the day after an email solicitation was distributed, a donor contributed in response to an  online Facebook post made by Arvin Vorha, that donation would have been attributed to the fundraising  email, for which an inappropriate payment would have then been made, and then incorrectly recorded  as an earned “commission.”)

1.3 INITIAL CONCLUSIONS AND RENEWED REQUESTS FOR CLARIFICATION 

The Audit Committee concluded that staff could not reliably document the amount of money that Mr.  Cloud’s efforts generated, and therefore we could not craft a financial statements disclosure footnote  based on such figures. We needed some metric to disclose to our membership in order for them to be  able to gauge how much work was done for the paid funds (formerly mischaracterized as  “commissions”). We thought perhaps we could craft a disclosure footnote based on a cost per written  word, assuming we could verify which words Mr. Cloud had indeed authored.

The Audit Committee then requested additional assistance from Chairman Neale, providing him a list of  items we were waiting to receive from staff. We suggested that perhaps he could have Ms. Howell  clarify matters, as we had been hearing mostly from Mr. Kraus (in part due to her vacation following the  July LNC meeting).

On August 13, 2013, Chairman Neale forwarded to the Audit Committee some responses from Ms.  Howell to questions asked by Chairman Neale regarding these matters. We noted with interest that Ms.  Howell indicated that for some of the pieces she “was essentially taking dictation from him” for the  contents of a mail piece, thus she might be shown as the author of a document, rather than Mr. Cloud.

We then repeated our requests for missing information and over the next few days discussed with  Chairman Neale our mutual sense that we could not fully trust the information provided. We agreed we  had, at best, an overly constrained ability to substantiate Mr. Cloud’s actual work product.

1.4 AUGUST TELECONFERENCE 

August 19, 2013. Chairman Neale then called a teleconference to review the status of the Audit  Committee’s work with the LNC’s Executive Committee. Mr. Cloud explained during the teleconference  meeting that the reason why documents show Ms. Howell as the author is because Mr. Cloud did indeed  dictate fundraising appeal wording to her over the phone and she would type it into a Word document  that she created on her computer. As a result, it was claimed that there was no email traffic between  them to memorialize or document that Mr. Cloud was the author – or that could be used to show that  he was in any way responsible for the editing or coauthoring of these documents. Later, Ms. Howell  reported that she would revise the documents independently and/or by reading them aloud over the phone to Mr. Cloud, who would respond over the phone with editorial changes. Ms. Howell would then  incorporate into the final document on her computer.

The Audit Committee challenged the reasonableness of the explanation that no supporting  documentation existed for the editing of three issues of LP News, the authoring of 28 written  fundraising appeals and six major party news releases, because Mr. Cloud did this predominantly by  dictating original content and edits over a telephone and rarely, if ever, made use of an email account or  computer to perform this work.

1.5 INITIAL RELATED DRAFT FINANCIAL DISCLOSURE STATEMENT FOOTNOTE 

In the absence of documentation of the work performed, the Audit Committee proposed that the  financial statement footnote include the following language:

•  Over-the-phone review and editing services for three  issues of LP News $1,500

•  Over-the-phone consulting services performed during May  through December –dictating to the Executive Director  approximately 23,500 words for fundraising appeals and  news releases at about $1.60 per word $37,300

1.6 NEW DOCUMENTATION PROVIDED 

On August 28, 2013, Chairman Neale directed Ms. Howell to forward to the audit committee the emails  which were used to transmit Mr. Cloud’s finished work products to her. We and Chairman Neale agreed  that September 5 was a reasonable deadline for this to be done.

Before we received those forwarded emails, on September 3, 2013, Chairman Neale forwarded from  Ms. Howell a newly revised invoice from Mr. Cloud. We had not requested that this be done, and were  only expecting forwarded emails.

 1.7 ANALYSIS OF NEW VERSUS PRIOR DOCUMENTATION: 

A comparison revealed a number of differences between this new invoice and the one previously  provided to us.

•  Some items formerly attributed to Mr. Cloud on the previous invoice had been deemed not to  have been written by him at all, and were either removed from the new invoice or amended to  award only partial commission from a collaborative writing, or co-authorship, with Ms. Howell.

•  New items were listed that were not on the previous invoice.

•  One item was re-classified into a different type of work, which then impacted the amount of the  calculated fee.

•  The new invoice included items Mr. Cloud had previously agreed to do for free before he  became a paid vendor. These were related to promotion for the 2012 national convention, and  the new invoice suggests he was owed for these under the terms and payment rates of his post- convention vendor agreement, but suggests that Mr. Cloud simply chose not to bill for them and  showed them as a “discount”.  Additionally, the metadata of this new invoice indicated that it had not been solely prepared by Mr.  Cloud, as it was also edited by Ms. Howell.

1.8 APPARENT EDITING BY STAFF OF A PREVIOUSLY SUBMITTED INVOICE 

The Audit Committee thought it inappropriate for any staff member to edit an invoice provided by any  vendor.

This un-requested new invoice with such substantial changes left us to conclude that staff had used no  consistent basis for the payments to Mr. Cloud, either at the time the payments were issued or at the  time these subsequent attempts were made, to justify said payments. Neither appropriate  documentation, nor detailed invoices of work were provided at the time payments were made. And the  determination of what work was performed and by which authors has been evolving over time and  remains uncertain to date. At least some portions of the commissions paid were based on revenues that  could not and cannot be accurately measured.

1.9 MORE DOCUMENTATION PROVIDED AND REVIEWED 

September 5, 2013. Mr. Benedict provided to us copies of 44 emails between Ms. Howell and Mr. Cloud  during this contract. We noted that some of the emails had been partially redacted with indicators left  to specifically tell us that it was redacted. However, on another email which had not been noted as  having been redacted, one portion of the header information was visibly altered, leaving us to question whether the other materials sent to us were unaltered, or whether they had also been partially  reconstructed after the fact during the 8 days it took them to provide the emails.

At this point we constructed a chart of what seemed to be substantiated by these emails, presuming  they were accurate representations, and what was left unsubstantiated. You will find as an Exhibit to  this report titled A Recap and Analysis of Michael Cloud’s Summation Invoice for May through December 31.

1.10 CALCULATION OF COST PAID PER WORD (BOTH AUTHORED AND/OR CO-AUTHORED) 

Leaving aside for the moment that the Audit Committee cannot substantiate the dollars raised by Mr.  Cloud through email fundraising, it is claimed that $216,106 was raised from all of his writing efforts  based on our count of 22,488 words being written, which supports the payment to Michael of  $39,466.50 in gross fees and commissions (before discounting the amount to the $38,800 billed).

However, of the total revenues generated, $76,867 (over 1/3) was from work that cannot be  substantiated in the emails staff provided to us. If you review the chart provided in the Exhibits you’ll  find that there are 11 items for which no documentation was provided to support work the LNC paid for.  There is no substantiation for those 4,589 words written, no substantiation that three issues of LP News  were edited and therefore no substantiation that $13,252.85 in gross fees and commissions (before  discounts) were earned by Mr. Cloud.

Though the Audit Committee’s task does not include making judgments about how much a vendor’s  work is worth, we will pass along to the LNC some additional data for your independent evaluations. Of  the roughly $26,000 in fees the Audit Committee can substantiate, the Word document properties show  around 3,900 minutes of time that these documents were open. We can’t be sure how much time Mr.  Cloud spent working on these. (One can easily imagine that a person will often walk away from a  document with it open on his computer while working on something else. One can also imagine that  someone might spend some time not working directly on a document because there is thinking that  goes on before writing commences. And there is work that is done after completing the document.)  Using this amount of time as the best available reasonable gauge of the amount of work done, results in  a rate of pay of approximately $400 per hour.

1.11 REVISED FINANCIAL DISCLOSURE LANGUAGE BASED ON DOCUMENTATION PROVIDED IN  SEPTEMBER 

On September 8, we proposed new language for the financial statement footnote concerning this  related party transaction:

•  Services performed from May through December –editing  and co-authoring with the Executive Director  approximately 22,500 words for fundraising appeals and  news releases at a cost of about $1.72 per word. $38,800

Crafting this footnote for disclosure was our goal in this matter, and that part of the task for the audited  financial statements is now concluded. We have informed you of the internal process shortcomings that  we found along the way.

1.12 INITIAL CONCLUSIONS: 

•  The Policy Manual was violated in that there was never a written contract between the LNC and  Mr. Cloud that was approved by the Chair and reviewed by General Counsel.

•  Ms. Howell approved the payment of $38,800 to Mr. Cloud based on invoices that lacked  supporting details explaining how the amount due was calculated.

•  Staff assisted with constructing for the Audit Committee a detailed invoice and claimed that it  was created around the time of the final payment in December 2012, while the information in  the document could not have been known until July 2013. Chairman Neale agreed with our  suspicion that staff constructed documents after the fact.

•  Staff later provided the Audit Committee with a further revised detailed invoice that removes  several works previously attributed to Mr. Cloud and adds several, including some that Mr.  Cloud had previously agreed to do for free. The metadata of this revised invoice shows that Mr.  Cloud authored the invoice and Ms. Howell edited it. Staff altered an invoice prepared by a  vendor, who also serves above them in the organization, namely as a board member.

•  Commissions based upon $119,618 raised by email fundraising are not supported and cannot be  solely attributed to Mr. Cloud because there is no tracking mechanism to link website  contributions with email solicitations.

•  It took an inordinate amount of time for Staff to forward to the Audit Committee forty-four  emails between Mr. Cloud and Ms. Howell intended to show that Mr. Cloud wrote the  documents for which he received payment. The Audit Committee found evidence that the  emails were altered.

•  No evidence has been presented to the Audit Committee that Mr. Cloud reviewed three issues  of LP News for the $1,500 he charged. None of the 44 emails that were forwarded to the Audit  Committee showed the sending of drafts or the receiving of suggested edits for LP News.

•  No evidence has been presented to the Audit Committee that the terms of the agreement were  agreed upon at the commencement of work. We cannot foreclose the possibility that the terms  stated in the detailed billing (created long after the payment) were made up after-the-fact to fit  the data.

2.0 LNC FUNDS — USED TO PAY PERSONAL EXPENSES OF THE EXECUTIVE DIRECTOR 

The LNC Policy Manual requires that all contracts or modifications thereto shall be in writing. It requires  that the Chair approve any contract in excess of $7,500. It requires that all contracts of more than one  year in duration or for more than $25,000 be reviewed and approved by General Counsel prior to  signing by the Chair.

The Policy Manual requires that the Employment Policy and Compensation Committee complete a  review of any contract for director-level employment no less than 10 days prior to the Chair signing it,  and that the contract be circulated to the LNC on a strictly confidential basis after it has been reviewed  by Counsel and the Employment Policy and Compensation Committee.

2.1 BACKGROUND 

At its December 2011 meeting in Las Vegas, after the appropriate reviews by General Counsel and EPCC,  the LNC exercising its plenary control and management of the Party’s affairs, as stated in the Bylaws,  voted to approve a contract to hire Carla Howell as the Executive Director.

The Executive Director employment agreement with Ms. Howell (which she primarily wrote) includes  the following language:

“You will be reimbursed for expenses of moving from the Boston area to the Washington DC  area and for commuting expenses (travel and lodging) between the two areas as necessary  through February 28, 2012, not to exceed $20,000 total overall expenses.”

“As ED, you will adhere to the bylaws and policies adopted by the LNC, you will hold the position  of a fiduciary to the LNC, and you will be obligated to act in good faith and with the highest  fidelity and prudence in the best interest of the LNC.”

“This letter sets forth the entire agreement regarding your employment.”

Because the Bylaws state that the Chair’s authority to direct the business and affairs of the organization  are subject to express National Committee policies and directives issued in the exercise of the National  Committee’s plenary control and management of Party affairs, properties and funds, the Chair does not  have the ability to modify the Executive Director’s employment agreement without the consent of the  LNC. The contract does give the Chair the express authority to extend employment from June 30, 2013  to December 31, 2013, but only under the existing terms of the agreement.

Between December 2011 and July 2013, the LNC did not approve any changes to Ms. Howell’s  employment agreement.

On September 8, 2013, we initiated inquiries on a separate matter that had come to our attention. The  FEC report filed on April 20, 2012 indicated that the Party paid $1,750 to Recai Yavalar on March 8, 2012  for a “rental deposit”. This is not a common expense one would see on the Party’s FEC reports, and it  seemed to coincide with the time that Ms. Howell moved to Washington, D.C. The transaction memo in the QuickBooks file indicated this was related to Ms. Howell’s residence. Mr. Kraus confirmed to us that  this was, indeed, a rental deposit on Ms. Howell’s current residence in Arlington.

2.2 INAPPROPRIATE/UNAUTHORIZED PAYMENT OF RENTAL DEPOSITS 

A payment of a rental deposit for one’s permanent housing falls outside the bounds of the moving and  commuting expenses the LNC had agreed (via her employment contract) to pay for her to move to the D.C. area. This is not an out-of-pocket expense reimbursement, as would be the case with temporary  housing, airfare, or hiring movers. It is rather an asset on deposit with a third party, and it will  presumably be refunded to Ms. Howell in the future when she leaves this residence.  Since the deposit had been paid by the Party, the Audit Committee requested a copy of the current  residential lease so that we could confirm that the lease itself was in her name, not under the Party’s  name, which would have required another disclosure in the audited financial statements.

When we later received a copy of the lease, we confirmed that the lease is in the name of Ms. Howell,  not the LNC. This means no financial disclosure of a possible liability is needed, but it also means that  the deposit will later be refunded to Ms. Howell personally rather than to the LNC.

Mr. Kraus incorrectly recorded this disbursement as an employee benefit expense. Instead, it should  have been recorded as an asset (a deposit with a third party) with the expectation that those funds  would be returned to the LNC at a later date. This deposit will be refunded to Ms. Howell at the  conclusion of her lease, or be retained for damages for which she, not the LNC, should be held  personally liable.

We confirmed that there is no provision in the employee handbook offering any subsidies of employee  housing costs as a standard benefit. If the intention had been to pay for Ms. Howell’s housing as an  employee benefit, the LNC would have been required to treat this as taxable income to Ms. Howell,  reportable on her W-2 and subject to employee withholdings and employer payroll taxes.

Upon inquiry, Mr. Kraus confirmed to us that the amount had not been reported as income on her 2012  W-2 form, that no employee withholdings or employer taxes were remitted to the IRS on this amount,  and that no other employees have received such a benefit.

2.3 MOVING AND COMMUTING EXPENSES ANALYSIS 

Because of this contractual compliance issue, the Audit Committee made further inquiries about all  moving and commuting expenses. We requested a schedule of all expenditures be made (along with the  supporting documentation) for Ms. Howell’s moving/commuting expenses incurred from her hiring to  the present. Staff provided us with some of the additional documentation we requested for the  remaining moving/commuting expenses, but not all of it. Examination of the materials that were provided and subsequent other inquiries from us revealed a number of additional reporting and  recording concerns.

Mr. Kraus admitted that carte blanche had essentially been given to Ms. Howell, assuming that under  the terms of her contract that she had the right to use $20,000 as she saw fit toward hotel, travel,  moving expenses, etc. without regard to the limitations set by the agreement that the LNC approved  and Ms. Howell signed, and in apparent violation of the policy manual’s requirement that:

“The Chair or Treasurer shall be required to approve (and evidence by signing or initialing) all  expenses and expense account reimbursements more than $200 made to the Executive Director  or other officers prior to payment. No officer shall approve his or her own expenses.”

Ms. Howell admits to having approved her own expenses and claimed no knowledge of any required  approval process even though her agreement required her to “adhere to the bylaws and policies  adopted by the LNC” and she was clearly not ignorant of the existence of the LNC’s Policy Manual.

In addition to the lack of proper approvals, there were issues with a number of disbursements.

We include as an Exhibit at the end of this report a summary of all the moving related expenses for Carla  Howell paid by the LNC that we were able to examine.

Of the $18,800.87 in expenses paid to Ms. Howell or on her behalf, we found:

•  Expenses allowed by her employment agreement and supported by receipts $9,548.07

•  Expenses allowed by her employment agreement, but not supported by $2,125.24  receipts

•  Expenses of a type allowed by her employment agreement and supported by $2,423.16  receipts, but incurred after February, 2012

•  Expenses of a type allowed by her employment agreement, but not supported $415.60  by receipts and incurred after February, 2012

•  Expenses not authorized by her employment agreement, though supported by $3,550.00  receipts

•  Expenses not authorized by her employment agreement and not supported by $738.40  receipts

2.4 REVIEW OF DOCUMENTATION OF MOVING AND COMMUTING EXPENSES 

For expenses that we categorized as supported by receipts, there were some deficiencies in the support.  We qualified as “supported by receipts” instances where Ms. Howell provided us only her check carbons – not canceled checks or invoices. Such was the case for the $550 Virtually Nowhere expense for  packing and the $1,080 for rent to Marie Allen Properties, LLC for the period March 12-31, 2012.  Technically, we should have treated those as having not been supported, but we gave Ms. Howell the  benefit of the doubt.

In the case of the $3,201.54 in charges to Arpin Van Lines for Ms. Howell’s moving expense to her  current residence in Arlington, while we have not seen an invoice, we have seen a household goods bill  of lading issued by the company supporting that the work was performed and a “paid” stamp indicating  that it was for the amount in question. We qualified that transaction as having been supported by a  receipt.

We did not qualify as having documentation those instances where Ms. Howell provided a copy of her  credit card statement (though no receipts) indicating those listed transactions supporting  reimbursement to her. There is no way to fully validate with a credit card statement alone that an  expense is proper.

For travel and temporary lodging expenses incurred beyond the authorized period of December through  February, Mr. Kraus admitted that paying those was an oversight on his part and that if he was paying  attention to the dates he would have asked the Chair for authorization, not understanding perhaps that  the Chair would need to get permission from the LNC to amend the agreement. Chairman Neale agreed  with us that the Chair does not have the ability to modify the agreement.

We have concerns about expenses that were paid without supporting receipts, even in cases where it  appears that the category of expense was covered by the agreement. For example, at the end of March,  Ms. Howell was reimbursed $2,926.56 for her out-of-pocket expenses. Among the expenses that were  not supported by receipts was a $500.00 payment to Helping Hands for packing and moving, and  payments amounting to $390 to Bruce Simono (Ms. Howell’s next door neighbor in Wayland,  Massachusetts) for packing ($350) and gasoline ($40).

2.5 DETAILED ANALYSIS OF PARTY FUNDS APPARENTLY — USED FOR PERSONAL EXPENSES 

Of greater concern are the unequivocal instances where party funds were converted to personal use.

•  During Ms. Howell’s transition from Massachusetts to the D.C. area, before she moved into her  current residence, she took up temporary residence at a facility owned by Marie Allen  Properties, where the rent was $1,800 per month. These temporary housing costs through  February 2012 were to be paid by the LNC per her employment contract. In February, two  payments were made to Marie Allen Properties, LLC, each for $1,800.00. We were not provided  a copy of the first check, but we were provided a copy of the second, which included the  following email from Ms. Howell:

“Hi Robert, I got the check for temporary housing you sent – thanks. There is also a  deposit due in the same amount. Due to the unexpected outlays I’ve had to make lately to get my house in sell-able condition, it would be helpful not to have to float this. Is  this something that can be charged to the travel/lodging budget? If so, I could either  apply it to the last month’s rent, in which case it would become a regular lodging  expense. Or I could reimburse LNC when it is return to me (minus any they deem me  liable for, which I would be responsible for). Please advise. Thanks.”

We were also provided with a copy of the lease, with a two-month term commencing February  11, 2012 and ending April 11, 2012. The lease specifically prohibits the tenant from using the  security deposit to pay the cost of rent or any other monthly fee.

There are several problems with the payments made to Marie Allen Properties, including the  $1,080 reimbursed to Ms. Howell.

First, Ms. Howell’s agreement allowed her to be reimbursed for expenses of moving from the  Boston area to the Washington DC area and for commuting expenses (travel and lodging)  between the two areas as necessary, but only through February 28, 2012. Ms. Howell states  that the Chair approved extending the time beyond February after she told him that she was not  going to be able to sell her Massachusetts home by the end of February. However, this  rationale rings hollow to us because the Chair does not have the power to modify an agreement  made by the LNC. She can’t rely on a claim that the chair has ostensible or apparent authority  to do this because she received actual notice of this limit in his authority when she was provided  with copies of the bylaws and policy manual, and she was present at the meeting when the LNC  approved the contract terms that hired her.

Second, Mr. Kraus failed to record the security deposit in the books as an asset. As such, the  financial statements do not show the amount is owed back to the Party. Instead, he recorded  the security deposit expenditure as an employee benefit expense (commingled along with Ms.  Howell’s other travel expenses).

Finally, Ms. Howell received a refund of her deposit from her landlord (less any offsets for any  damages there might have been) at the end of the lease, just a couple of months later, and she  did not return the $1,800 to the LNC. When we inquired of her about this, she stated that this  was an oversight on her part and that she is willing to reimburse the party.

•  We confirmed with Mr. Kraus that the aforementioned March 8, 2012 payment of $1,750.00 to  Recai Yavalar for a “rental deposit” is a rental deposit on Ms. Howell’s current residence in  Arlington. We have reviewed the lease agreement, which is in her name and for a one-year  term commencing April 1, 2012. When we inquired further as to why the LNC paid this amount,  Ms. Howell made the following statement:

“This was another situation that I had forgotten about, and it has taken a while for me  to piece together what happened.  his was a deposit for an apartment where I now live. At the time I had been looking  desperately for an apartment in both DC and Virginia to get out of the temporary place I  was in in DC, which was quite uncomfortable for me for a variety of reasons. I found the  place I’m now in in Arlington, and was hoping to move in asap. I had hoped it would  become a permanent residence and wouldn’t have to move again, but was not sure  about whether I would want to eventually land in VA or DC. I was told I would be able to  break the lease if I could find a replacement tenant, which seemed to be easy to do  given how competitive the housing market was at the time and how expensive any type  of temporary living had become. Tourist season had begun in DC, and the Circle Hotel I’d  stayed in previous, which I was told was about the cheapest that could be found near  Foggy Bottom, had shot up to mid-$200s/day. So I was anxious to secure this apartment.  It was a far better deal than anything else I had found, and several others I tried to get  had fallen through.

“Recai Yalavar appears to be some relative or associate of the landlord who showed me  the apartment. I send regular rental checks to a management company. I did not  remember his name.

“During this time I was both juggling sale of my house and the tenant whose apartment I  was taking over. He was also trying to close a house sale. When I was first shown the  apartment, he was expecting to close and move out within about a week. So I had  hoped to move in early or mid March. But then he was having trouble with getting a  mortgage, and it was getting repeatedly delayed. I recall that I was calling for status  updates quite regularly to try to find out when I could move in. This continued  throughout most of the month.

“It was my plan, as far as I can remember, to count the $1750 paid by the LNC for this  apartment to pay for rent. As the month wore on, it became more clear that I was not  going to be able to move in until near the end of the month of March.

“At that point I was flying back to Boston to close on my house and in the midst of  packing and moving, while also juggling my job. That’s about the last time I remember  thinking about this deposit.

“Again I am happy to repay whatever may be owed by me and again, I apologize for my  neglect in keeping track of expenses. I assume this full amount of $1750 should be  refunded, as I do not recall paying, and have no record of paying, for any additional rent  in March, even though I may have started to move possessions into the apartment in  the last few days of the month. As such I think it is reasonable to assume that this money should be refunded in its entirely to the LNC, and I am happy to do that in  whatever form is requested.”

Ms. Howell’s explanation fails to address the crux of the issue. A payment of a rental deposit for  one’s housing falls outside the bounds of moving and commuting expenses. This is not an out- of-pocket expense reimbursement, as would be the case with temporary housing, airfare, or  hiring movers. It is rather an asset on deposit with a third party. And similar to the $1,800.00  deposit paid to Marie Allen Properties, it will also be refunded to Ms. Howell at the conclusion  of her lease, or be retained for damages for which she, not the LNC, should be held personally  liable.

Chairman Neale inquired with Mark Hinkle and Bill Redpath (who were Chair and Treasurer at  the time) and neither of them reported through him to the Audit Committee any knowledge of  this rental deposit having been paid by the Party.

2.6 ABSENCE OF RECEIPTS CONTRIBUTED TO THE PAYMENT OF PERSONAL EXPENSES 

•  We made an inquiry as to some missing receipts associated with a January reimbursement check  made to Ms. Howell. Ms. Howell provided a copy of her credit card statement (though no  receipts) indicating those listed transactions supporting the reimbursement. The credit card  statement does not provide sufficient detail to determine whether an expense was legitimate.  However, we were able to discern from a line on the credit card statement that makes reference  to a $173.40 flight between D.C. and Massachusetts, that the passenger was not Ms. Howell.  Rather, it was for Ms. Howell’s friend (Leslie Fish). The LNC had reimbursed Ms. Howell for her  friend’s travel expense.  Had a receipt been provided and scrutinized before reimbursement was issued, this payment  likely would never have occurred. This demonstrates that the word of the Executive Director (or  even just seeing an amount on a credit card statement) is an insufficient substitute for receipt  evidence. The LNC’s newly-passed policy requiring receipts for all expenses should reduce the  chances of a similar situation in the future.

2.7 INITIAL RECOMMENDATIONS

To address the above we recommend the LNC require Ms. Howell to immediately reimburse the LNC  $9,252.80 for expenses that were:

o  not supported by receipts,

o  for travel and temporary lodging expenses incurred after February 2012, or

o  not authorized by her employment agreement.

Furthermore, we recommend that the books for 2012 record a Miscellaneous Receivable for $9,252.80  and an offsetting reduction in Other Benefits, Goodwill and Training, and that our outside CPA firm be  notified of this correction to finalize the 2012 audited financial statements.

3.0 OTHER QUESTIONABLE EMPLOYEE BENEFIT PRACTICES 

To confirm that there were no other issues with inappropriate payments made on Ms. Howell’s behalf  we requested that staff provide us with a schedule of other expenses incurred in 2012 and in 2013  under the category Other Benefits, Goodwill and Training.

As a result of this inquiry we uncovered two additional issues.

3.1 OTHER EMPLOYEE MOVING EXPENSES 

•  We received a schedule of an additional $2,402.00 in employee benefits incurred during 2012.  No supporting receipts were provided for the $252.00 paid to Bertucci’s for staff food nor for  the $150.00 paid to employee Nick Dunbar for an election night party. The remaining $2,000  was paid to incoming employee Eric Dixon for moving expense from Idaho.  We were provided with a copy of an employment offer letter from Ms. Howell to Mr. Dixon  stating that he “will be given $2,000 with your first paycheck to cover expenses for relocating to  the D.C. area with the understanding that you will not end your employment with us nor be  terminated for cause before your first year of employment, in which case $2,000 will be  deducted from your final paycheck.”

There is no provision in the employee handbook authorizing paying for moving expenses as an  employee benefit. It would be appropriate to address in the employee handbook under what  circumstances, if any, we should offer to pay for moving expenses.

We were not provided with any other documentation concerning Mr. Dixon’s moving expenses,  but we are able to determine that this amount was not paid through the payroll system and  therefore will not appear on his W-2.

In order for reimbursed moving expenses to not be considered taxable wages to the employee,  the employee must adequately account for his moving expenses by giving his employer  documentation of those expenses, such as a statement of expense, an account book, a diary, or  a similar record in which he entered each expense at or near the time he had it. Documentation  includes receipts, canceled checks, and bills. The accounting should be provided in a reasonable  period of time, typically within 60 days, and the employer is required to report the amount of  reimbursed expenses on the employee’s W2 in Box 12. If the expenses are not accountable,  they should be included in Box 1 and treated as ordinary wages.

Mr. Kraus might recall an email thread that included the current Audit Committee Chairman and  then LNC Chairman Bill Redpath back in October 2009 concerning this very issue when Wes  Benedict was hired as Executive Director. As a result, Mr. Benedict provided the appropriate  documentation and the LNC properly reported qualified non-taxable moving expense for him.

Staff may want to remind themselves of the requirements by re-reading IRS Publication 521.

3.2 UNDOCUMENTED SHIPPING EXPENSES 

•  We noted that the general ledger records reveal additional expenses incurred for Ms. Howell’s  move in March and April of 2013 (more than one year after she moved). We requested  documentation supporting those expenses and any others that are not yet listed as moving  expenses for Carla. We also asked whether Carla authorized these payments.  Mr. Kraus did not provide those records to us. He stated that it was a misclassification on his  part based on a prior memorized credit card entry and that he will correct the classification of  the transactions. Mr. Kraus is incorrect. We performed a global search with a recent  QuickBooks file of the LNC’s accounting records. There are no other examples where another  transaction included in the memo field the phrase “CH Move Exp,” such as was found in a  $504.75 April 2013 transaction with UPS; or “CH Moving Exp,” such as was found in a $451.55  March 2013 transaction with FedEx Kinko’s. This memo language was not “memorized” from  another transaction. It was manually entered. In addition, if Mr. Kraus had been using a  “memorized transaction” in QuickBooks, we would have seen other examples where UPS and  FedEx Kinko’s transactions were being classified as an employee benefit expense. We found no  instances of that, so we repeated our request, to which Mr. Kraus replied:

“Sorry, I can not find any related UPS/Fec-Ex receipts except for one USP from OK to DC  on something Geoff signed (the lease I assume). I do know that I personally sent some  stuff back to DC from the Chicago Meeting that would account for some of this. I do not  have those receipts. There were some other boxes that Carla sent as part of the  Candidate archival and Training Project that was defunded. I’ve reclassified all of those  related expenses previously to their natural accounts. We can ask Carla to see if she can  dig up those receipts. They were charged (obviously) to our credit card. As we  mentioned we are now keeping better records of those charges per the new policy and  now are getting approval from Geoff or the Treasurer for any credit card charges per the  new policy. I honestly still do not know why I put “CH Moving” and simply attributed  that to memorized transactions without looking further into it – my apologies for the  error. Either way these were obviously misclassified and I thank the audit committee for  pointing out the error so that it could be corrected. There are now no “moving  expenses” for 2013.”

We do not understand how Mr. Kraus could know now that these were misclassifications on his  part if he has no receipts to support his conclusions and his notes at the time indicated  otherwise. These transactions took place earlier this year, so the records are available. If staff  were directed to inquire of UPS and FedEx about the details of these shipments, they would be able to provide us with the all the details of the shipments, including the shipments’ starting  points, destinations, weights, dimensions and who signed for the receipts. Having this  information would enable the LNC to determine whether Ms. Howell was paid for additional  moving expenses more than one year after she was scheduled to move.

3.3 RECOMMENDATIONS 

We recommend that the LNC take the following actions:

1)  Direct Mr. Kraus to obtain documentation from Mr. Dixon supporting that he incurred at least  $2,000 in moving expense. To the extent that receipts cannot be produced, the balance should  be treated as taxable compensation on his W2 for 2013.

2)  Direct Mr. Kraus to provide to the Audit Committee receipts or statements from UPS and FedEx  supporting all March and April 2013 shipments. If complete records do not exist at LPHQ, Mr.  Kraus should be required to contact UPS and FedEx to obtain those records.

4.0 ERRORS IN ACCOUNTING RECORDS 

There are two errors in the accounting records that need to be addressed.

4.1 FUNDRAISING COST RECORDED AS AN ADMINISTRATIVE EXPENSE 

•  When Mr. Kraus recorded invoices from Mr. Cloud in the accounting records, during 2012, he  arbitrarily classified 25% of the $38,800 (or $9,950) in bills from Mr. Cloud as administrative  expense, rather than fundraising. The reconstructed detailed invoice sent in August 2013 shows  that only $5,500 is administrative ($4,000 for eight news releases and $1,500 for reviewing  three issues of LP News) and the balance fundraising, so our financial statements understate  fundraising costs and overstate administrative costs by the same magnitude. Had the detailed  invoice been provided prior to the payment being issued, this classification could have been  recorded properly the first time.

4.2 MISCLASSIFICATION OF EXPENSES 

At the end of March 2012, Ms. Howell was reimbursed $2,926.56 for her out-of-pocket  expenses. Of that amount, Mr. Kraus improperly classified $406.56 as travel not associated with  her commuting, even though the subject heading of the expense reimbursement request  submitted by Ms. Howell states “Expenses against budget for travel/lodging/move – CH paid to  be reimbursed” and the details support such a classification (e.g. taxi for temp apt search).

RECOMMENDATION

We recommend that the LNC take the following action:

Direct that Mr. Kraus work with the Audit Committee to correct the books for 2012 and that our outside  CPA firm be notified of this correction to finalize the 2012 audited financial statements.

 5.0 ISSUES NOT YET ADDRESSED 

After we have had an opportunity to resolve the above issues, we expect our next, if not final, report for 2012 will focus on the assisting of staff with implementing the recommendations made by the auditor  (and adopted by the LNC) and developing recommendations for Policies for the two remaining  unaddressed issues identified by our independent auditing firm:

1) Document Retention

2) Whistleblower Protection.

Respectfully submitted:

Aaron Starr, Chairman

Joseph G. Buchman, PhD

Brett H. Pojunis

 

 

44 thoughts on “2012 Libertarian Audit Committee: Out of Control?

  1. Jill Pyeatt

    So, Carla Howell hands Michael Cloud $38,800 and only creates paperwork when someone asks her about it. Are the rumors correct that they used to be romantically involved?

    I personally think this is a big deal that the LNC should research and take care of immediately. And, in the meantime, Ms. Howell was given new employment with the Libertarian Party.

    And, we think we’re better than the Republicans and Democrats–why?..

  2. paulie

    Are the rumors correct that they used to be romantically involved?

    It is not a rumor or a secret that they were. She turned down his marriage proposal and they split up romantically while continuing to work together professionally.

  3. Steven Wilson

    I believe Howell left people hanging for a bit while she decided what course of action to take prior to her resignation. Personal or otherwise, if the LNC and the party get into a financial paper chase for Mid terms, we will have proven several nay sayers correct.

    When you trivialize the ledger, you place yourself in peril. No matter what party you are with, you don’t budget other peoples money.

  4. George Phillies

    Steve, Please clarify your first sentence. To which resignation are you referring?

    Also, I find “you don’t budget other peoples money” to be a marvel of obscurity.

  5. Wes Wagner

    Let’s not forget that last term Mr Hinkle spent thousands of dollars on hiring the Oregon Republican Party’s lawyer to give an opinion on the Oregon situation to the LNC without soliciting input from both sides, which were also unauthorized.

    Perhaps next time we can have 6 digit embezzlement!!! Our party is growing!

  6. paulie

    The recommendation that staff should stop editing invoices from suppliers after the invoices were submitted seems meritorious.

    The LNC passed some policy manual changes as a result of the issues raised by the audit report. Go to http://hq.lp.org/pipermail/lnc-business_hq.lp.org/2013/thread.html and do a search for “audit” to find the relevant threads, or see http://hq.lp.org/pipermail/lnc-business_hq.lp.org/2013/date.html near the bottom – scroll up past legal expense vote and the audit-related votes are in a fairly coherent bloc right above that.

    Beyond that, the matter will be handled in executive session at the upcoming meeting Dec 7-8. I’m not sure what we could actually keep a secret at this point even if we wanted to; I imagine whatever part of the discussion took part on the LNC-discuss list has or will be put on the reflector anyway, the report (or most of it) has already been leaked, and IIRC audit-discuss emails are not archived (except in the personal email archives of LNC members that are on that list if they keep email archives). I’m not sure what else I am allowed to say right now, if anything, so I better not say it.

  7. paulie

    As the post is a trifle long, a separate discussion thread might be good.

    I don’t want to step on Joe’s toes and drive him away from IPR after he just got back, but I suggested his editorial at the beginning of the post should be taken out of this post and posted as a separate article by someone else, at least if we are going to stick with what have been supposed to be IPR rules up until this point. Alternatively, we should stop playing those games altogether and announce openly that individual writers can post their own editorials any time they feel like it.

  8. Wes Wagner

    Paulie

    “Alternatively, we should stop playing those games altogether and announce openly that individual writers can post their own editorials any time they feel like it.”

    I am perfectly fine with this provided that it is tagged and categorized “editorial”.

  9. paulie

    I believe Howell left people hanging for a bit while she decided what course of action to take prior to her resignation.

    Resignation from what? What are you talking about?

    If you are talking about LNC executive director, her contract was not renewed and she accepted the job of political director with the LNC when Wes came back as executive director. I am not aware of anything resembing what you state in regards to her jobs with LPHQ. If you mean at the Center for Small Government, she turned that over to Michael Cloud while she is employed by LP national. I’m not aware of her leaving anyone hanging there either. If you mean something else, please explain what.

    No matter what party you are with, you don’t budget other peoples money.

    Another confusing sentence. Please explain.

  10. paulie

    I am perfectly fine with this provided that it is tagged and categorized “editorial”.

    I agree that if we make this change editorials should be marked as such, and further separated into IPR group editorials, IPR owner editorials and IPR author editorials. However, the idea has always been shot down every time I brought it up. What has happened instead is that we have gradually de facto moved in that direction while inconsistently maintaining a rule against it.

  11. George Phillies

    It seems to me that Buchman’s remarks are really not editorial, but are a report from his point of view on why he did certain things. If he had said “The Treasurer and Chair should be suspended for cause…”, or “Z should be fired”, that would have been editorializing.

    My reason for the split is that the column is extremely long before you reach the comments.

  12. paulie

    It seems to me that Buchman’s remarks are really not editorial, but are a report from his point of view on why he did certain things. If he had said “The Treasurer and Chair should be suspended for cause…”, or “Z should be fired”, that would have been editorializing.

    Here are some comments that I would consider editorial in the main post:

    *I think everyone knows Aaron Starr did the bulk of the work here, for which, IMO, he deserves well-earned, much deserved credit and gratitude).

    *I supported Geoff in that; I believe it was out of his desire to clean things up/not have anything hidden, but in retrospect what I now think should have happened is that the Audit Committee should have finished its report in July and gone into hibernation until the 2013 Audit (we’re appointed for two year terms), and the LNC through its Treasurer or Chair completed that financial investigation, utilizing other outside experts, like Mr. Starr if desired, rather than tasking this to the committee. There was sufficient information at the time, IMO, for appropriate management notes to go into the final Auditor’s Report, as well as sufficient Red Flags for further investigation.

    *At the time (early July 2013) however, I was okay with being commissioned to do this work, especially with Aaron doing the bulk of it, and doing it extremely well. The guy is competent, motivated, dedicated and seemingly tireless.

    *Frankly I’m rather lazy.

    * I’m happy to be focused on my work as interim chair of the 2014 Platform Committee rather trying to simultaneously serve on an Audit Committee that (in effect, from my perspective) now seems to be attempting to conduct a second more detailed audit and/or fulfill the role of the Treasurer, the external Auditors, the LNC itself, or some combination of the above.

    *And . . . to answer the question I offer in the title of this Post, despite my resignation, NO. NO, I do not believe the Audit Committee is out of control (at least not as of the time I resigned). I do believe we were tasked with work that is at best at the very outside edges of our original boundaries.

    *I believe we did a good-faith effort to fulfill on those tasks, and to bring these issues to light.

    IPR authors are not supposed to offer their personal opinions in articles, at least that has been supposed to have been the rule up til now. We should either openly chuck that rule or enforce it more consistently.

    My reason for the split is that the column is extremely long before you reach the comments.

    Splitting out the introductory editorial/POV from the audit report itself as two separate posts would make each post less long. Nothing wrong with Joe’s editorial/POV being posted at IPR, but if we are to go with past precedent it should be posted by someone other than Joe.

    Speaking of which, I have a couple more editorial responses to articles elsewhere I’d like someone to post for me (or we could explicitly change the rule and I’ll just post them myslef).

  13. George Phillies

    Paulie, fair enough. I was looking at opinions with broader scope.

    The audit committee appears not to have discussed a potential but not currently actual additional liability (my opinion, my crude estimate) in the quarter to half million dollar range. I am referring to an actual potential liability, folks at the door to take the money, not the other nominal million+ liability for the life members.

  14. paulie

    The audit committee appears not to have discussed a potential but not currently actual additional liability (my opinion, my crude estimate) in the quarter to half million dollar range.

    I am referring to an actual potential liability, folks at the door to take the money, not the other nominal million+ liability for the life members.

    If you mean Oregon, there is no imminent judgement against the LNC so it would not be part of the 2013 audit. There are all kinds of potential lawsuit against the LNC which have not been filed; no audit report could possibly cover all of them.

  15. Wes Wagner

    Although I am not going to comment directly about the above two posts, I can say that people who know me well know that I treat people who realize their own mistakes and show up on my doorstep for reconciliation much more differently than individuals that I have to pursue to extract justice.

    Timeliness is important too.

  16. George Phillies

    Given that the $38,000 to an LNC member went out the door without a written contract or review by counsel, one might wonder how many other expenditures were made without the oversight that LNC, Inc.’s Board required.

  17. Wes Benedict

    Nice to see this on IPR because now staff gets to see the audit committee reports and defend itself. A lot of this is grossly misleading–selective facts released which give the reader a false impression of what actually happened. I wasn’t on staff in 2012 which is the period for the audit report above. The safest thing for my own job is for me to sit still and be quiet. So I’ll continue.

    It’s a shame we have to waste so much time on b.s. like this. My first day after arriving in D.C. in August, I spent most of it — you guessed it – working on a staff response to the Audit Committee. I felt like–what a waste of time. Why am I here wasting time when I was getting good work done before while working for a PAC?

    Now I’m glad to be here because I will not let the rest of our staff get thrown under the bus and smeared with false or misleading implications without at least someone standing up to defend them. I might end up getting smeared and or fired too, but at least I’ve seen more of the facts and get the chance to give my version.

    For the record, I recruited Tim Hagan to run for Treasurer (while I wasn’t on staff) and he defeated both Joe Buchman and Aaron Starr (George Phillies dropped out of the race).

    Staff processes thousands of transactions and maintains databases with a half-million contacts. I sign several checks a day to pay LNC bills. The LNC constantly comes up with new projects and demands on staff time. More vendors, more contracts, more projects. So it is true that plenty of i’s and t’s don’t get dotted and crossed completely. But the LNC wants to implement things like a new membership plan that changes all the membership levels and throws things more towards chaos. If it ain’t broke, break it.

    I could go through the Policy Manual and find dozens of things both staff and the LNC fail to comply with.

    Try auditing the LNCC. I once asked Aaron Starr for a copy of the LNCC bylaws–not the financials–just the bylaws–and he wouldn’t give me a copy. Now here he is demanding a copy of every single email between Carla Howell and Michael Cloud. It’s gross. I proposed alternatives to verifying which work was completed that did not involve giving every email to Aaron Starr, because giving all those emails to Aaron Starr might be a violation of the harassment section of the Policy Manual and it was unnecessary.

    Joe, I miss you being on the audit committee. At least you had a some sense of fairness about you. Plus, as a UFO enthusiast, we counted on you to see things others might miss.

  18. Wes Benedict

    Paulie, IPR has been boring lately. If you think this will juice it up a little, feel free to post it. But I don’t think you need my permission anyway.

  19. Joseph Buchman Post author

    Paulie,

    You’re correct, except I don’t feel toes stepped on. I’m reediting it a bit now.

    Joe

  20. Pingback: LNC passes policy manual changes regarding audit related issues | Independent Political Report

  21. Joseph Buchman Post author

    Paulie is correct, and I’m a bit rusty here. I believe the new version of the article is editorializing-free. If I remember the process correctly, I think I’m also free to post my opinion in comments after the article, which I’ll do next.

    Joe

  22. Joseph Buchman Post author

    For those questioning why I resigned, while I did so rather impulsively and without prior discussion with Aaron or Brett which I now regret, I did so for two reasons:

    1) It was my understanding when I volunteered to be considered for appointment by the non-officer members of the LNC for service on the audit committee that my duties would be confined to:

    A) researching and vetting various auditing firms,

    B) contracting with an auditing firm and

    C) assisting the LNC in answering any questions they might have about the results of that audit.

    As part of that process I also visited, in-person, members of the Auditing Firm in their offices outside Washington DC, was present for the first, and last days of the five-days of fieldwork for the audit itself and have met in-person with both Aaron in Los Angeles and Brett in Las Vegas to discuss this audit.

    IMO we completed the roles explicated above in full in late June 2013. However in July it seemed to me we had been commissioned to, in effect, conduct a second more detailed review of the financial records of the Libertarian Party. I felt this was a role more suited to the Chair or Treasurer and wrote at the time:

    From: Joseph Buchman
    Date: Tue, Jul 2, 2013 at 2:41 PM
    Subject: Re: Related Party Transactions
    To: Aaron Starr
    Cc: Robert Kraus, Jackie, Kelly, Brett, Geoffrey Neale, Tim Hagan

    Hello everyone,

    I am concerned that we may be overstepping the authority and proper function of the Audit Committee at this point.

    IMO it was fine of Aaron, as our chair, to ask for the materials from Robert as part of our commission to assist the LNC in correctly interpreting the results of the audit.

    However, that should not, again, in my opinion only, be, in effect, the result of a second audit by the three of us.

    So, to the degree requests from us do not require significant additional work by LP staff, or incur additional costs from the auditors themselves, I would like to see them supported.

    Once either of those thresholds has been reached, however, I think we should be cognizant of the boundaries the bylaws establish for the committee.

    At this point there is, again IMO, sufficient evidence to report to the LNC as a whole concerns about some remunerations and contracts, and then having raised those concerns to consider our role fulfilled, and our authority more or less exhausted as it relates to the Audit Oversight committee.

    It also seems to me that there are issues here which might be best addressed, not only by the LNC as a whole, but also in convention next year.

    In short, I deeply respect and am personally aligned with Chair Starr’s desire for transparency here, I support his requests for information but do not believe we have the authority to demand the same.

    If I’ve misunderstood that boundary/role, please let me know.

    All the best,

    Joseph G. Buchman, PhD, MBA (finance),

    (Note: Jackie and Kelly in the CC field above are members of the auditing firm. Kelly did the fieldwork, Jackie is her supervisor.)

    Nonetheless Chair Neale instructed LP Office staff to provide the detailed records to the members of the Audit Committee that had been requested by Chair Starr.

    I supported Geoff in that; I believe it was out of his desire to clean things up/not have anything hidden, but in retrospect what I now think should have happened is that the Audit Committee should have finished its report in July and gone into hibernation until the 2013 Audit (we’re appointed for two year terms), and the LNC through its Treasurer or Chair completed that financial investigation, utilizing other outside experts, like Mr. Starr if desired, rather than tasking this to the committee. There was sufficient information at the time, IMO, for appropriate management notes to go into the final Auditor’s Report, as well as sufficient Red Flags for further investigation.

    At the time (early July 2013) however, I was okay with being commissioned to do this work, especially with Aaron doing the bulk of it, and doing it extremely well. The guy is competent, motivated, dedicated and seemingly tireless.

    I’m not. Frankly I’m rather lazy. So I felt like this was a ton more work than I’d signed up for, especially as the Platform Committee was soon to have its last members appointed and I am (or was) concurrently serving as its chair and apparently have a somewhat more limited amount of time to devote to things Libertarian than Mr. Starr!

    2) My second reason for resigning was the result of an October 15th phone call from Chair Neale which was highly critical of the Audit Oversight Committee and our (seeming) failure to end the process of the 2012 audit. I’m not inclined to share the details of that phone call here, but it left me feeling rather . . . let’s just say unappreciated.

    (At about the same time I started getting calls from a collection agency threatening litigation against me personally for unpaid debts of the Gary Johnson 2012 campaign (in this case an unpaid Twitter Account) in which I’d had zero involvement (perhaps they had confused me with another Joe who had worked on the campaign) . This wasn’t the first time I’d received such demands for payment on my home phone, and I reached a point of feeling I’d about “had it” with all things (BIG L) Libertarian, or at least financial ones.)

    So I offered my resignation in an email to Geoff Neale. In retrospect I should have offered that to the chair of the Audit Committee, and not the chair of the LNC. Nonetheless Geoff accepted it. We’ve had a good conversation since then, and I’m happy to be focused on my work as interim chair of the 2014 Platform Committee rather trying to simultaneously serve on an Audit Committee that (in effect, from my perspective) now seems to be attempting to conduct a second more detailed audit and/or fulfill the role of the Treasurer, the external Auditors, the LNC itself, or some combination of the above.

  23. Joseph Buchman Post author

    To answer the question I offer in the title of this Post, despite my resignation, NO. NO, I do not believe the Audit Committee is out of control (at least not as of the time I resigned). I do believe we were tasked with work that is at best at the very outside edges of our original boundaries.

    I believe we did a good-faith effort to fulfill on those tasks, and to bring these issues to light. (I cannot however speak knowingly to issues involved after the following report was submitted and my subsequent resignation accepted.)

  24. Joseph Buchman Post author

    Wes @ November 23, 2013 at 3:55 pm

    (What happened to the comments being numbered?)

    I miss being on the Audit Oversight Committee as well. What I don’t miss is being on a committee tasked with reviewing all the emails between Carla and Cloud or having to deal with the mess created when basic policies and accounting processes aren’t followed.

    Somewhere there’s a disconnect there.

    It’s unfair, IMO, to lay that all on Aaron or to personalize this as you and others have done. Nor would it be fair of Aaron or others to tweak the audit, or extend the Audit Committee’s work for political purposes.

    IMO it was fine of the Audit Committee Chair to ask for detailed records, Brett surely had the authority as an LNC member to ask for them regardless; but what was missing was some clear boundary for our work, or the implementation of that.

    I admire your defense of your staff; I did not know until today that you had not been given a copy of that report, your defense should surely be part of that audit process as well, IMO. FYI I did ask to be included in the confidential Audit-discuss listserve created by the LNC, and that request was denied.

    For those curious about my involvement in the UFO issue which you have somehow seen fit to raise here, or for those who may find that remark as disparaging, I’m not at all embarrassed. It’s surely damaged my credibility in Higher Education far more than in Libertarian circles. One of the reasons I was able to be in DC and support the 2012 Audit Fieldwork is that I had just served as the Moderator for the week-long Citizens Hearing on UFO Disclosure with former US Senator Mike Gravel (who identified himself as a Libertarian in those Hearings), former 10-term US Representatives Roscoe Bartlett and Lynn Woolsey, as well as former Representatives Darlene Hooley, Carolyn Kilpatrick and Merrill Cook. If fact I contacted, recruited and contracted with five of those six for their service on that committee.

    http://citizenhearing.org/

    Witnesses included a former head of the FAA, a moon-walking Apollo astronaut (Dr. Edgar Mitchell (PhD from MIT), a former Canadian Minister of Defense, military officials from 10 nations, a former Congressman from Brazil, Dr. Jesse Marcel Jr . . . My idea, at least, of a group of honest, courageous, heroic folk.

    Of course when I ran for the US Congress (Utah’s First District, 2008) and called for legislation to protect whistle blowers; and then open hearings on “waste, fraud, criminal-activity and the UFO issue” I was attacked by the likes of Steve Gordon, who called the chair of the LNC to have me removed as a candidate, among other things.

    So Wes, your comment that I apparently have seen things in the Audit that other’s don’t or haven’t seen is hurtful at best; so let me suggest again that the LP would be best served by taking the issues raised in our Second Interim Report, if not in the Citizen Hearing on UFO Disclosure as well, far more seriously.

    The idea that we’re alone in the Universe is about as absurd to me as the idea Mr. Cloud earned his $38,000, or that it costs $20,000 to move to DC from . . . where, Kolob?

    (There, I just made IPR a lot less dull, at least for our readers on Kolob.)

    🙂

    Joe

  25. Pingback: Wes Benedict responds to LNC audit controversy | Independent Political Report

  26. Joseph Buchman Post author

    Wes Benedict @ November 23, 2013 at 3:55 pm

    >>For the record, I recruited Tim Hagan to run for Treasurer (while I wasn’t on staff) and he defeated both Joe Buchman and Aaron Starr (George Phillies dropped out of the race).<< Yes, yes. But we all know that was Libertarian Girl's doing. No one can defeat a candidate she has endorsed/is managing. And, FYI, she is staying with her dad now who, it is my understanding, was recently moved into a hospice. All good thoughts and prayers going your way LG! Joe

  27. paulie

    (What happened to the comments being numbered?

    Redlich brothers switched layouts a few months ago and the new layout does not include them. There were promises or at least strong hints that they would find a way to fix this quickly, and for a while it was a hot topic here. It seems to have faded away because nothing has happened on it in months and people have either got used to not having them anymore, resigned that it’s not going to be fixed (or at least not any time soon), or perhaps in some cases left for that reason or a combination of reasons.

  28. Pingback: Joe Buchman responds to LNC audit controversy | Independent Political Report

  29. Chuck Moulton

    Joseph Buchman wrote:

    What happened to the comments being numbered?

    Paulie wrote:

    Redlich brothers switched layouts a few months ago and the new layout does not include them. There were promises or at least strong hints that they would find a way to fix this quickly, and for a while it was a hot topic here. It seems to have faded away because nothing has happened on it in months and people have either got used to not having them anymore, resigned that it’s not going to be fixed (or at least not any time soon), or perhaps in some cases left for that reason or a combination of reasons.

    I left because they destroyed the comments section, made everything really ugly, and only posted boring stories.

    This is the first interesting post in months though, so I’ll follow these threads a few days.

  30. Joseph Buchman Post author

    Chuck Moulton @ November 24, 2013 at 12:11 am,

    I’ve been gone about 54 weeks, and have only been back here for 24 hours or so.

    FYI I’m working on my next major topic, the 2014 Libertarian Platform Committee, for which I serve as the current interim chair.

    Hope to keep that interesting as well.

    Joe

  31. Chuck Moulton

    A lot of this report seems to be nitpicking honest mistakes, leaving the implication that they were malicious embezzlement. The Carla Howell and Eric Dixon moving expenses, Robert Kraus shipping expenses, and Nick Dunbar election night party expenses seem to fall in that category. Btw, I attended that election night party and there was indeed food (it was delicious).

    The first section about the Michael Cloud fundraising seems to have some merit though. I am naturally distrustful of financial arrangements between a board member and the party, and these answers so far do not seem satisfactory.

    On the one hand, I admire Aaron Starr’s investigative skills here. On the other hand, as much as I favor transparency I believe staff should have been given an opportunity to correct honest mistakes and misunderstandings of policy before dragging their names through the mud in a report (e.g., Carla reimbursing the apartment deposit to the LP when it was brought to her attention).

    I’ll have to be more careful about the Word documents I send to the Bylaws Committee… already Aaron can figure out I only spent 2 minutes each writing the bylaws amendments I proposed on Friday.

  32. Joseph Buchman Post author

    Chuck,

    >> I believe staff should have been given an opportunity to correct honest mistakes and misunderstandings of policy before dragging their names through the mud in a report (e.g., Carla reimbursing the apartment deposit to the LP when it was brought to her attention).<< I agree. I believe we offered that chance in buckets full. If I remember correctly we were told the Chair needed the report before any corrective action could be taken. That also came as a surprise. This is all memorialized in a series of emails, ones I don't have the time or inclination to dig through just now, and ones that I'm not confident it would serve to reproduce here. But it was my impression that we were disclosing each issue as it was uncovered so corrective actions could be taken. This report was also submitted on October 15th. It remained undisclosed here, or apparently anywhere, for well over a month. Once someone shared with me that the report had been posted elsewhere, I decided it might serve some good to reproduce it here, and to be available to answer questions about my past involvement. IMO the feedback here will be useful to both the two remaining members of the Audit Committee (as well as whoever the LNC may choose to have join them as the third member, or perhaps whoever the choose to repopulate that committee with in other ways) AND to the staff and LNC itself. I think it's also fair to say that if not for Aaron's detailed review, no funds would have been likely to have been noted as needing to be repaid, and no repayment would have been made. That fact alone is one worth reporting, IMO. There was a lack of oversight and/or self-aware/self-correcting behavior that opened the door to this mess and, among the more minor of other things, left me feeling I was on a committee being asked to do things that I'd not signed up to do. (A kind of bait and switch is how it felt at times. Kinda like signing up for a job as janitor and then finding the expectation that you reframe the building because 30 years ago you got an MBA in reframing buildings. I earned an MBA in Finance (MS in Management at the time, now renamed), but I didn't pursue a career doing or teaching finance. I (thought I) had gone on to other things! Vetting Auditing Companies, and evaluating THEIR work product is one thing. Going over quickbooks, and reading employee emails is another. . .)

  33. paulie

    Chuck

    On the other hand, as much as I favor transparency I believe staff should have been given an opportunity to correct honest mistakes and misunderstandings of policy before dragging their names through the mud in a report

    The report was just audit committee to LNC and Aaron asked that it be kept private. The LNC has still not released it; this is a leak. If we didn’t have leaks, mistrust, unauthorized internal investigators etc right now would be the opportunity to correct things before they could be made public. The audit committee, and for that matter the outside auditors, are not empowered to address the problems they uncover, at least as far as I know. Their task as I understand it is just to report what they find to the LNC; the LNC is then supposed to decide what to do about it. I’m not saying the curiosity and internal watchdog tendencies of interested non-LNC members are a good thing or a bad thing, but they are why we have this information being discussed by whoever wants to weigh in on it right now rather than allowing a chance to deal with it internally first. We can have people fereting out this information and getting a vicarious thrill at uncovering it and feasting on the drama, or we can decry that this information being made public drags people’s names through the mud, but we can’t very well do both at the same time.

  34. paulie

    Chuck

    I left because they destroyed the comments section, made everything really ugly, and only posted boring stories.

    This is the first interesting post in months though, so I’ll follow these threads a few days.

    Joe

    I’ve been gone about 54 weeks, and have only been back here for 24 hours or so.

    FYI I’m working on my next major topic, the 2014 Libertarian Platform Committee, for which I serve as the current interim chair.

    I hope you both stick around. I liked the old layout better too, but Warren said it was out of date and a security problem which was causing us to be listed as a virus site somewhere. Looking forward to the reports from the platform committee. If Chuck gets a chance to do something similar with the bylaws committee, even better.

  35. paulie

    Joe

    If I remember correctly we were told the Chair needed the report before any corrective action could be taken. That also came as a surprise.

    Geoff probably wanted a detailed account of everything laid out in one place so he could consider it in a systematic fashion at his leisure and get input from other LNC members as to what should be done about it, rather than just making executive decisions on the fly without a chance to think things through. BTW, I am just speculating; if he said something like this, I don’t remember it, so I am not disclosing anything.

  36. paulie

    Chuck

    I’ll have to be more careful about the Word documents I send to the Bylaws Committee… already Aaron can figure out I only spent 2 minutes each writing the bylaws amendments I proposed on Friday.

    I’m sure your vendor invoice will be adjusted accordingly 🙂

  37. Mark Axinn

    I am pleased that Joe and Chuck are back and interested in this subject, but I differ with their opinion that IPR is boring.

    If scandals du jour do not obsess all of us, we will have to muddle on with mundane posts like LPNY running a dozen candidates in an off-year, a new team being elected in Nevada, LPO quickly taking aim at the John Kasich Re-election Protection Act, LPAR qualifying for ballot status, Green and Socialist Workers Party news and other positive results.

    Oh, yes, I think some guy named Robert Sarvis made a bit of a splash in Chuck’s state meriting coverage and praise too.

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