NRCC Chairman Says Funds Were Embezzled

The National Republican Congressional Committee said Thursday that its former treasurer, Christopher J. Ward, may have embezzled hundreds of thousands of dollars from the committee, but GOP sources said the total lost by the NRCC and other Republican committees could be as high as $1 million.

The NRCC said that Ward made "several hundred thousand dollars in unauthorized transfers of NRCC funds to outside committees whose bank accounts he had access to, including joint fundraising committees in which the NRCC participated. He also appears to have made subsequent transfers of several hundred thousand dollars in funds from those outside committees to what appear to be his personal and business bank accounts."

These joint committees from which Ward allegedly diverted funds include special committees set up to raise money for an annual dinner with President Bush put on by the NRCC and the National Republican Senatorial Committee. Those dinners usually meant millions of dollars for the Republican campaign committees.

One GOP insider said Ward also diverted funds from the leadership PACs and re-election campaigns for which he worked, usually in smaller amounts, although the insider said the total taken from those PACs and campaigns may actually end up being greater than the losses suffered by the NRCC itself.

NRCC Chairman Tom Cole and Rob Kelner, a lawyer with Covington & Burling retained by the NRCC to oversee its response to the accounting scandal, said the transfers go back at least until 2004, but that the NRCC is still unsure how much was diverted from committee coffers.

"The exact dollar figures are currently a moving target, and as the investigation progresses, it is entirely possible that these figures will change, either by increasing or decreasing," the NRCC said. "The forensic investigation has also noted numerous instances in which the unauthorized transfers were either not accurately reported, or were not reported at all, on FEC reports."

A GOP source said that, in some cases, Ward cut checks, in small amounts, from a lawmaker’s campaign or leadership PAC directly to his own bank account. At other times, the sources said, Ward used a dummy company as a go-between, but the money finally ended up in his account.

The source said that Ward issued a $4,208 check to himself in December from Rep. Jeb Hensarling’s (R-Texas) PAC, although he returned that money in early February, after the NRCC accounting scandal became public (See Related Story).

Ronald C. Machen, an attorney with WilmerHale in Washington who is representing Ward, did not reply to an e-mail seeking comment.

The NRCC has brought in PricewaterhouseCoopers to conduct a forensic audit. Cole estimated that the investigation into the accounting problems has already cost the committee between $360,000 to $370,000, and he acknowledged the internal audit was far from complete.

So far, the NRCC has decided to file a new FEC disclosure statement for January 2008 stating that it had $740,000 less cash on hand than previously reported. The NRCC's actual cash on hand at the end of January was $5.7 million, not the $6.64 million it reported to the FEC, the committee says.

While it's possible that the committee could face FEC fines for misreporting its financial data, Cole said he didn't think such punishment was warranted.

"Our working relationship with the FEC has been very good," Cole said. "We were the victims here."

Kelner, who said the committee has been cooperating fully with an FBI investigation into the matter, said he was "not aware of any reason why the NRCC should have legal exposure, particularly because the committee has been very aggressive in disclosing what it knows to the appropriate law enforcement authorities."

The NRCC said Thursday that, after becoming treasurer in 2003, Ward "submitted to the NRCC's bank and to the NRCC leadership bogus audit reprts for 2002, 2003, 2004 and 2005. The additional bogus audit was submitted to the NRCC's bank for 2006."

The NRCC also said there was a $200,000 discrepancy in the NRCC's line of credit, meaning the committee owed more than it thought it did. It is unclear if the NRCC believes that Ward was responsible for this discrepancy.

The NRCC made disclosures to members and to the media Thursday because the committee's new treasurer, Keith A. Davis, filed a notice alerting the FEC that auditors had discovered significant discrepancies in the funds officially registered with the FEC.

In a briefing for reporters, Kelner said the figures released Thursday do not represent the final tally of misreported funds, nor are the auditors certain that all of the missing money was misappropriated. Some of the missing funds may be the result of real accounting errors, not malfeasance, he said.

"That number is going to vary over time," Kelner said. "How much of that variance is due to misappropriation and how much of it is due to accounting errors is not really something that we can say with confidence."

Cole said in a statement that the evidence gathered to date shows that "we have been deceived and betrayed for a number of years by a highly respected and trusted individual. From the moment we learned that bogus financial statements had been submitted to the bank on our behalf, we took decisive and speedy action by contacting the FBI, which opened a criminal investigation."

He said that the NRCC is making "every effort . . . to prevent such a fraudulent act from happening again.”

Members say they did not suspect that Ward was doing anything out of the ordinary during his tenure as treasurer.

"I had no reason to suspect there was a problem," said Rep. Greg Walden (R-Ore.), who chaired the NRCC's audit committee during some of the years when Ward allegedly produced fake audits. "No one raised a red flag."

Still, Walden said he tried on numerous occasions to set up a meeting with the committee's outside accountant -- he believed it was Deloitte & Touche -- but that Ward repeatedly delayed. At one point, Walden said he approached then-Chairman Tom Reynolds (R-N.Y.) to get Ward to set something up, but that Ward called back immediately to complain that members of the accounting firm weren't returning his calls.

"There was always a reason," Walden said about Ward's excuses for not setting up a meeting.

NRCC officials say they discovered the allegedly "bogus" audits only after Texas Rep. Mike Conaway (R), a registered certified public accountant who chairs the committee's audit committee, pushed Ward repeatedly to give him a copy of an audit for 2006. Only then did Conaway and others start to realize the full scope of the alleged misdeeds.

Members briefed on the matter said that Ward attempted to submit a fake audit on a phony letterhead, but that the ruse was quickly discovered

"This is, unfortunately, not that unusual a scenario," Kelner said of the NRCC’s accounting problems. Numerous campaign committees have been the victims of embezzlement or other financial crimes over the last decade.

Ward, who had sole oversight of the committee's bookkeeping, was apparently acting alone, Kelner said. Since discovering the financial irregularities, the NRCC has altered its rules so that multiple people must sign off on all major expenditures.

"In hindsight, it would have been better to have better controls that might have averted this," Kelner said. He pointed out, however, that political committees and other non-profits often have less rigorous internal controls than corporations and other private businesses do.

Investigators working for the NRCC have been in contact with Ward since his ties with the committee were cut, but Kelner said the former treasurer has not provided them with any major breakthroughs in theprobe.

"We are seeking information from Mr. Ward," Kelner said. "At this point in time, we haven't learned anything from Mr. Ward that has affected the investigation in one way or another."