GOP sources cite lax controls at NRCC
The accounting scandal now haunting the National Republican Congressional Committee was preceded by a series of decisions over the past decade to relax internal financial controls at the committee, according to numerous Republican sources familiar with the NRCC’s operations during those years.
Under Virginia Rep. Tom Davis and New York Rep. Thomas Reynolds, who chaired the committee from 1999 until the end of 2006, the NRCC waived rules requiring the executive committee — made up of elected leaders and rank-and-file Republican lawmakers — to sign off on expenditures exceeding $10,000, merged the various department budgets into a single account and rolled back a prohibition on committee staff earning an income from outside companies.
These changes gave committee staffers more freedom to spend money quickly and react to a shifting political landscape during heated campaign battles, and House Republicans were able to claim larger majorities after the 2000, 2002 and 2004 elections.
But the actions also may have contributed to a perceived lack of oversight within the NRCC, especially over financial records, a failure that outside observers blame for an accounting scandal that could go much deeper than the allegedly forged audit a former treasurer sent to the committee’s principal lender in January. NRCC officials contacted the FBI soon after discovering that the former employee, Christopher J. Ward, had submitted what they believe to be a fake internal audit to Wachovia as part of a loan application by the committee.
House Republicans are still awaiting the completion of an outside audit of the committee, since at this time they are unsure of the scale or nature of the financial problems at the committee. Current NRCC Chairman Tom Cole (R-Okla.) has publicly stated that there were “accounting irregularities” at the committee that “may include fraud.”Ward, who was doing outside work for the NRCC and numerous other campaigns and PACs at the time, has hired Ronald Machen, a white-collar criminal defense attorney with the law firm WilmerHale, to represent him during the FBI probe.
The NRCC has replaced its treasurer after discovering the apparent accounting irregularities, and most committee staffers with direct knowledge of the NRCC’s financial problems have been shifted to other positions, said Republican sources familiar with NRCC internal operations. Cole brought in Keith Davis, a veteran compliance expert based in Virginia, to handle the committee’s books, replacing Christopher Parana, who took over from Ward in 2007 and who remains with the committee in another capacity.
A pivotal moment for the NRCC occurred in spring 2003, shortly after Reynolds took over the panel, when he ousted Donna Anderson, a longtime committee staffer who oversaw the NRCC’s accounting.
Ward then moved up to the top accounting position within the committee, making him responsible for tracking tens of millions of dollars in political contributions and expenditures each cycle.
“Clearly, after the transition from Anderson to Ward, it was a different regime for what followed,” said one GOP insider with strong ties to the NRCC.
Vendors who have done business with the NRCC, former committee aides and Republicans on Capitol Hill have argued that lax committee operations paved the way for the current trouble. For instance, the committee has failed to conduct an independent internal audit since 2003. Rep. Mike Conaway (D-Texas) and other committee members have now called for a forensic audit to appraise the books, a call that came after Conaway discovered that a planned independent audit he thought had happened during the 2006 election cycle hadn’t happened at all.
In another decision that has become controversial, the NRCC began, during Davis’ chairmanship, to allow its staffers to earn outside income. Taking advantage of that change, Ward founded Political Compliance Services in 2001 with Susan Arceneaux, helping dozens of lawmakers and congressional candidates comply with Federal Election Commission laws. The two severed their ties earlier this year, a lawyer for Arceneaux said.
Ward wasn’t alone in seeking outside income. Don McGahn, the NRCC’s longtime counsel, was retained by numerous Republican campaigns and leadership PACs, helping those organizations comply with FEC disclosure requirements.
When Reynolds took over as chairman of the NRCC in 2002, he faced increasing challenges in retaining key staffers. Republicans controlled the White House and Congress, and lucrative jobs beckoned for well-connected Republicans on K Street and in corporate government relations shops.
And with the ban on “soft money” contributions that were in place following the 2002 elections, Reynolds also faced the prospect of paying staffers competitive salaries in a hard-money environment.
“They needed to attract and keep top people, and that cost a lot of money,” one senior GOP leadership aide noted. “Without soft money, it was harder to pay people well, so they let them take on outside clients.”
On the expenditures, it is unclear when the executive committee approval for smaller expenditures was lifted, although a source close to Davis said the executive committee was still reviewing small-scale contracts during his tenure at the NRCC.
Davis, however, was NRCC chairman during a controversial episode in 1999 in which the committee gave $500,000 in soft money to organizations linked to Ed Buckham, former chief of staff to Rep. Tom DeLay (R-Texas). The Federal Election Commission later ruled that the soft-money expenditure, which was spent in part on issue ads attacking House Democrats, was improper and fined the NRCC $280,000 for the episode. The $500,000 soft-money payment was not approved by the NRCC’s executive committee.
Davis, Reynolds and the NRCC declined to comment for this story.
GOP insiders also point out that the NRCC’s entire executive committee, which includes every member of the elected leadership, would need to sign off on any changes to the bylaws, so Davis and Reynolds were not solely responsible for any decisions to roll back pre-existing restrictions.
Editor's note: This story has been updated to reflect that Don McGahn is still the NRCC general counsel.
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