One year later, DPA reporting is still a mess; FEC launches investigation

Last year we took some heat when we wrote a series of articles on the financial reports filed by the Democratic Party of Arkansas. This is the part where we say: We told you so.1

It has been one year to this day since our first article, in which we said:

“Nonetheless, the FEC is the canary in the coal mine for reporting accuracy and compliance, and well… let’s just hope the canary has really good health insurance, because it has been one seriously sick bird.”

One year later, we are sad to say there has been a change. Yesterday, the canary passed on. The canary is no more. He has ceased to be. He’s expired and gone to meet his maker. He’s a stiff! Or put anther way: The FEC has now begun an investigation of DPA’s records covering the 2017-2018 cycle (AKA “those things we told you about a year ago“).

Our articles led to two grievances (here and here) filed against the party by the party’s former attorney, and a review of events by an outside law firm who said they contacted Matt, but in fact, never contacted Matt. Ultimately, the party said they were going to have an outside party conduct an audit. We had compiled information for one last article back then, but once they announced they were going to do the audit, we figured we would hold that info as a check against the audit. We also learned yesterday that DPA has decided to forego such an audit because it is “cost prohibitive”.

Since we sat on a bunch of reporting irregularities and there will not be an independent audit, let’s take a look at what we found.2 Were were betting folk, we would bet dollars to donuts that the reporting inaccuracies for the 2017-2018 cycle are probably what triggered the FEC audit. But we’re getting ahead of ourselves. Before we delve into that, it is important to know we have been here before.

You may recall that the DPA had to pay a fine of $10,400 for non-compliance in the 2015-2016 cycle. In short, the reporting was screwed up,3 and DPA said they took actions to fix it. To quote from the settlement agreement (and add some emphasis):

The Reports Analysis Division (RAD) referred Respondents for a series of reporting errors and other FECA violations during the 2015-2016 election cycle. The Committee’s reporting errors included, among other items: excessive, prohibited, or other impermissible contributions or transfers; mathematical discrepancies; failure to provide supporting schedules; federal election activities/Levin funds, allocated federal and nonfederal activity, and the failure to properly itemize loans.

Respondents contend there were reporting challenges during the 2016 election cycle. Respondents further contend that the Committee made procedural changes to ensure future compliance.

Respondents, in an effort to avoid similar errors in the future, agree to: (a) amend relevant 2015-2016 reports to address any inadequate responses and non-responses to requests for additional information from RAD within one hundred twenty (120) days of the effective date of this agreement; (b) certify that a representative of the Committee participated in an FEC conference, webinar, or other program developed in consultation with the FEC’s Information Division within twelve (12) months of the effective date of this agreement; and (c) pay a civil penalty of $10,400 within one (1) year of the effective date of this agreement.

Keep those last two emphasized items in mind as we take at look at things in 2017-2018 and beyond.

That settlement agreement was dated February 18, 2018, and gave the party 120 days to file amended reports to get in full compliance with 2015-2016 reporting. We should note that no amended reports were filed after the agreement, and, in fact, the last amended reports for that cycle were filed in August of 2017, six months prior to the settlement agreement.

According to reports filed with the state, as of June 30, 2020, the DPA has cash on hand of…well, nobody knows. You see, state reporting requirements for political parties are the least transparent of all CC&E reports.4 Candidates and PACs have far more stringent reporting requirements. Political parties don’t have to report how much money they have on hand or any loans they might owe, only how much they took in and what they disbursed, with no running totals. In fact, they don’t even have to tell what the money they spent was for, or break out what they spent on party operations versus contributions to other campaigns. You could hide a whole lot behind that kevlar-lined brick wall of “transparent” reporting.

According to the more revealing FEC reports, as of June 30, 2020, the party has $21,343.66 cash on hand. (The fact they only have $21K less than ninety days before a presidential election is enough for an article itself, but that is beyond the scope of what we are looking at here.) According to the FEC reports, the DPA also has $135,631 in debts and obligations.5 All except $9,693 are current payables to vendors or refunds of contributions. By all measures of FEC reporting, the DPA has to write a lot of checks it can’t cash. This chart shows those payables going back to January of 2018.

How could they possibly string that many vendors along for so long? Either they have some very forgiving vendors, or the reporting is screwed up.6

Curiously, there are long periods where that number carries over from month to month without ever changing. A closer inspection of these liabilities on a month-to-month basis reveals this section of the report to be a large stinking pile of codswallop. To begin with, this particular category was never used by DPA in their reports until the January 2018 report, but the original January report didn’t use that category at all, and it first showed up when the reports for January through April were all amended in May of 2018. Payables in the amount of $24,875 were added to the January report, and they did not ever fall off the report until, well, never. They are all still there to this very day. In fact, quite a number of payables have been added to this category and have never been removed, which is why it has been an ever-increasing number for the most part.7

This could mean several things: the DPA is holding illegal contributions it was supposed to refund; the vendors are super nice, and they just don’t care if they ever get paid; or the reporting is screwed up.8 Unbelievably, right at the beginning of the 2017-2018 cycle, they had already screwed something up that persists to this very day.

But maybe you remember from this article where we found the DPA said they had supposedly corrected all these errors:

Doesn’t anyone ever look at the reports on a basic level and ask simple questions, like, “what is this number?” or “shouldn’t we be paying off the people we owe money to?”

We can find the answer to the last question if we harken back to a year-old statement from DPA Chairman Michael John Gray

Our party, like most state parties, relies on a compliance company to file state and federal expenditure reports. No one on staff is responsible for filing those reports. Any allegation that potential errors on reports are the result of staff action is false. This has been a practice at the party since before I arrived. Though, I understand that I remain ultimately responsible for the reports, as your Chairman.”

In other words, “It’s not our fault we don’t know how to read our own reports.”

The part that really jumps out though? “No one on staff is responsible for filing those reports. Any allegation that potential errors on reports are the result of staff action is false.”9 If nobody in the party is responsible for the information in the reports, then who is? There is a company called Political CFOs that DPA pays over $4,000 per month for “Accounting and Compliance Services.” Their website sure makes them sound like the go-to people for compliance:

But…how do the folks at Political CFOs get the information without someone at DPA first being responsible for compiling and sending them transaction information? We cannot be certain that any of the reporting errors or lack of questioning such things is the work of Political CFOs, but we can say with great certainty that it is a big political clusterfuck.10

Perhaps you recall the title of our first article on this topic last year including the words “incompetence” and “inaccuracy.” Welp, the more things change, the more they stay the same. In fact, in the second part of the email below, chairman Michael John Gray notes that the party was audited and fined by the FEC for the previous two cycles:

The chairman also mentions a loan they don’t have at First National Bank, and have not had for as long as he has been chair. As noted earlier, the party says in the FEC filings that it owes a debt of $9,693 as well. That is listed as a loan to the First National Bank of Jonesboro. The balance on that loan as of the June 30, 2020 report was $9,693, which is the same balance of the loan reported as of April 30, 2017.11 For three and half years, no payments have been made on it, which means either the bank is super nice and doesn’t care about getting its money back, or the reporting is screwed up.12

The report for May 2018 shows a loan from Simmons Bank, but it shows that loan with a balance of -$56,373.52. Yes, that’s a negative sign in front of that number.13 That would mean that DPA has a loan where the bank owes them $56,373.52, or…the reporting is screwed up.14 Even more fun is that that loan balance goes up and down until January 2019 when it goes to zero, then, in February 2019, it jumps back up and becomes an unchanging number of $60,000 until November 2019.

What makes things more interesting about this reported $60,000 loan is mentioned in the investigative report that DPA had done in response to grievances. It said that the DPA had a line of credit of $100,000, and, as of August 22, 2019, the balance of that line of credit was maxed out at $100,000. Both the state and federal reports only show one payment of $535.61 to Simmons Bank for loan repayment, made on August 28, 2019, so it stands to reason the balance was $100,000 instead of $60,000 as of August 31, 2019.

This means either the independent investigative report by the law firm incorrectly references a verified loan of $100,000, or the reporting is screwed up.

Considering that there were two payments on 11/27/2019, one for $27,718.95 and another for $72,281.05, totaling exactly $100,000, we are all in on the reporting being screwed up.

It’s fair to say that the FEC is all in on the reporting being screwed up as well. If you want to dig more into all the problems the FEC has found for 2019-2020, click here.

Neither Matt nor I have ever done campaign finance reporting. We have been looking at the reports from the perspective of two people who have the basic ability to read rules and regulations and compare how reports change (or don’t change) from month to month. You would think that the DPA would have someone with this not-so-highly advanced skill set doing the same, such as the Treasurer of the organization or, I don’t know, maybe pay some outside firm who specializes in such things $50K a year to do it so they don’t end up in a political clusterf….15 This is not rocket science.

But hey, why pay for an independent audit when the FEC will do it for free, right?16