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Senate Campaigns Facing a Crime Wave?

Has Wall Street’s corporate crime wave infected Washington’s political campaigns?

Last week two Senators, Daniel Inouye (D-Hawaii) and Elizabeth Dole (R-N.C.), separately disclosed that their campaign accounts had been fleeced of roughly $100,000 a piece by campaign insiders.

Those revelations follow on the heels of Rep. John Boehner’s (R-Ohio) disclosure in April that his campaign treasurer had allegedly stolen more than $400,000 over a three-year period.

In 2001, the campaigns of then-Rep. Gary Condit (D-Calif.) and Rep. Sam Farr (D-Calif.) reported that more than $35,000 was embezzled from their campaign committees. And Sen. Trent Lott’s (R-Miss.) leadership political action committee was relieved of more than $85,000 by a PAC official who allegedly used the money to buy drugs.

“This problem has always existed and almost every election cycle you see some embezzlement issue,” said Larry Noble, former general counsel to the Federal Election Commission. “But it does seem like it’s on the increase, at least anecdotally.”

Campaign funds are easy targets for plunder given the often lax accounting standards of individual campaigns and a nearly invisible threat of audit from the FEC.

The government does not keep official statistics on incidents of campaign finance embezzlement. But many legal and political experts believe that the cases that come to public light are only the tip of the iceberg, given the fear most candidates have of being associated with even a whiff of scandal and the inability of the FEC to police against such fraud.

“Campaigns are basically multimillion dollar businesses that start up quickly and move a lot of money around quickly. But unlike many businesses, they lack the tight, internal controls that provide for good accounting and compliance,” said Noble, who now serves as executive director of the Center for Responsive Politics.

With the fast and loose standards of most campaigns, somebody who intends to steal would quickly realize how easy it is to do so, Noble said. Most campaigns are loath to spend any additional money on compliance matters, leaving them at risk from light-fingered aides.

Boehner’s campaign, which said it does not expect that it will recover the stolen money, instituted an unusually tough set of internal controls and promised that its books would be audited by an outside firm every two years.

Legislation to reform the FEC would restore the ability of the agency to conduct random audits of campaign committees. But that power has been historically resisted by Congress, which stripped the agency of its authority for random audits in 1979 and rejected an attempt to restore it during consideration of the Bipartisan Campaign Reform Act.

In each of the three latest cases, the FEC had little if anything to do with uncovering the schemes. Instead, the frauds were detected by other campaign officials. Only Inouye’s campaign chose not to refer the issue to law enforcement authorities.

Dole’s campaign, after an extensive internal audit, asked the Justice Department to investigate the alleged disappearance and mishandling of nearly $100,000 from two fundraising committees associated with Dole’s Senate campaign committee. In a July 15 letter to the FEC, the campaign said that a political consultant, Allen Haywood, who had been listed as the comptroller of the two fundraising committees, paid himself with unauthorized funds from the committees.

One of the committees was set up as a joint fundraising vehicle in 2002 to collect funds for Dole, the North Carolina Republican Party, and Rep. Robin Hayes’ (R-N.C.) campaign.

“The internal review has now been substantially completed and it would appear that the individual who was retained to manage the contributions, disbursements and FEC compliance matters for the Committee, Mr. Allen Haywood, did not properly perform those functions and responsibilities,” wrote Cleta Mitchell, the Dole campaign’s legal counsel. “It appears from the records we have reviewed that Mr. Haywood apparently paid amounts to himself from Committee funds that were not authorized and that were not reported by Mr. Haywood to the Federal Election Commission,” Mitchell wrote.

Similar financial irregularities involving Haywood were also discovered when the Dole campaign examined a second entity that was set up to host a fundraising dinner with President Bush.

Haywood, who did not return a phone call seeking comment, is a Washington, D.C.-based campaign veteran who has worked on the presidential campaigns of Sen. John McCain (R-Ariz.) and former Sen. Bob Dole (R-Kan.) as well as on the staff of the National Republican Senatorial Committee.

In February 2000, an analysis of presidential campaign spending by Griffin Strategies Group listed Haywood as the highest paid campaign worker, making nearly $115,000 from McCain’s campaigns and topping other political luminaries such as the Bush campaign’s Karl Rove and Karen Hughes.

It was unclear whether the McCain campaign would re-examine its records in light of the allegations against Haywood. Trevor Potter, who served as counsel to McCain’s campaign, was traveling and could not be reached for comment. But his law partner, Kirk Jowers, said he could not comment on the matter because Haywood has sought legal representation from their firm in light of the Dole campaign’s allegations.

A review of correspondence between the FEC and Haywood regarding the Dole committees revealed that the election watchdog was noticing an unusual level of apparently sloppy record-keeping by Haywood. But the questions raised by the FEC dealt more with the lack of identifying information about contributors rather than financial irregularities.

But the FEC concerns began to raise suspicions among other Dole campaign officials, according to a person familiar with the matter. Dole’s main Senate campaign committee, which had no relationship with Haywood, prides itself on maintaining strict accounting controls on its operation, the person said. But the extension of those controls to the joint-fundraising committees was resisted by Haywood, who assigned himself the duties of handling the checks that went in and out of the entities as well as the reporting duties required by the FEC.

The scenario in which one person handles all of the money and reporting duties, all too common in most campaigns, lends itself to the type of fraud and abuse encountered in the recent cases, Noble said.

In the matter of Inouye’s funds, which was reported last week by the Honolulu Advertiser, the campaign’s former treasurer improperly took between $90,000 and $100,000 by using a campaign credit card to purchase items for herself.

The paper reported that Theresa Blanco acknowledged making some unauthorized expenditures but her view of the matter appeared to differ from the campaign’s account.

The situation, which just came to light last week, apparently took place in 2001 and 2002, according to a review of FEC records. In an interview Thursday, Inouye told Roll Call that he was “shocked” when the fraud was discovered.

“Apparently, the person involved had every intention to return the money,” Inouye said. “This happens quite often in organizations where people have access to money, and … replace it.”

Inouye said he declined to seek charges against Blanco because she had repaid the money.

“The person has restored all the loss. They are good friends of mine too,” the Senator said.

Inouye held out little hope that anything could be done to prevent such fraud.

“I don’t see how you can put on a safeguard unless you are standing over their shoulder every moment of the time. But in a business such as ours, you have to have some level of trust and thank God it doesn’t happen all the time.”

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