Audits detailed mishandling of campaign funds

When state Sen. Ted Lieu (D- Torrance) learned a few months ago that a state audit had found irregularities in his campaign finances, staffers immediately called Lieu’s longtime treasurer, Kinde Durkee.

Durkee assured them that everything was fine, Lieu said, and he took her word for it. He forgot about the incident until this month, when Durkee was arrested in a sweeping federal fraud case that is sending shock waves across the Democratic Party establishment.

Durkee is accused of stealing perhaps millions of dollars from her clients, who include dozens of prominent California Democrats. Authorities have not laid out the full scale of the alleged crime, but clients including Rep. Loretta Sanchez (D-Garden Grove) and Sen. Dianne Feinstein (D-Los Angeles) have said that that they believe Durkee wiped out their campaign funds. Feinstein announced Friday that she plans to put $5 million of her own money into her reelection campaign to make up for funds that may have been taken.

But well before the criminal complaint against Durkee was filed, multiple state audits had found major problems in campaign accounts controlled by Durkee, according to documents reviewed by The Times this week.

One question emerging in the scandal is why so many elected officials stuck with Durkee despite several red flags about her performance.

In fact, Durkee remained one of California’s top treasurers despite racking up more than $185,000 in fines for campaign finance violations over the last decade and being the subject of criminal investigations by the Los Angeles County district attorney’s office in 2008 and 2009.

At the time of her arrest, Durkee had control of more than 400 bank accounts, many of them campaign accounts.

Some experts said Durkee was able to survive for so long because she had so many prominent clients.

“Politics in both parties is an old boys and old girls club, and most of the candidates ... figure if everyone else is using Durkee, she must be all right,” said Dan Schnur, director of the Jesse M. Unruh Institute of Politics at USC. “If you were the only campaign thinking about hiring a person with this record, you might think twice about it, but there’s safety in numbers.”

In Lieu’s case, an audit by the State Franchise Tax Board found that $186,190 in credit card contributions to his unsuccessful 2010 race for attorney general had not been deposited in the campaign bank account, in some cases for well over a year. An additional $161,964 that was reported as having been transferred from Lieu’s Assembly committee to his attorney general campaign in December 2008 was not deposited until two years later.

Lieu said he trusted Durkee and always assumed his funds were in capable hands -- even after he learned of the audit. As of Thursday, he still had not seen the final audit report.

He said he barely knew Durkee when he hired her in 2002 for his Torrance City Council campaign, but more experienced politicians recommended her. Over the years, the money was there when he needed it, and with nearly $2 million in contributions flowing into his race for attorney general, he didn’t have time to count every penny, he said.

“One of the reasons I hired a campaign treasurer is so they handle all the reporting ... and all the money matters. So I have a professional doing it,” Lieu said.

Leiu’s was among eight tax board audits of Durkee-controlled campaign funds in which the Fair Political Practices Commission found enough problems to launch an investigation. The FPPC has opened 38 investigations into Durkee in the last 10 years. The information from the Lieu case was referred to the FBI as part of the investigation into Durkee opened earlier this year, according to FPPC enforcement chief Gary Winuk.

At least one of the politicians took swift action when an audit turned up issues: State Sen. Christine Kehoe (D-San Diego).

A state audit of her campaign fund in 2009 found that $11,776 in contributions to Kehoe was deposited in Lieu’s Assembly campaign account, a possible example of the shuffling of funds mentioned in the federal complaint against Durkee.

Expenditures totaling $157,166 were not reported on campaign statements, and the recipients of the funds could not be identified, the audit found. The audit also found, similar to Lieu’s case, more than $10,000 in contributions were not deposited in Kehoe’s campaign account until long after they were received.

In each case in which audits found problems, Durkee and her staff explained the issues as oversights or said that the bank accounts were not properly set up to handle credit card contributions.

After learning of the audit, Kehoe fired Durkee in 2009 because of the irregularities and reported her to the district attorney’s office.

Kehoe’s office declined to comment further about the case.

Feinstein is perhaps the most well-known politician who allegedly lost money. Her campaign was trying to determine how much money might be missing from its treasury, which had $5 million as of the most recent campaign finance report, but officials have been unable to access the account.

The Feinstein campaign plans to ask the Federal Elections Commission whether it can solicit contributions from donors who have already contributed the maximum $2,500 per election cycle in the event money is missing from the campaign account.

Feinstein, in a hallway interview in the Capitol on Thursday, said, “We will do what we have to do, believe me, to have a very strong campaign.”

The Feinstein campaign has established a new campaign committee, opened a new bank account and moved to have a separate treasurer and accounting firm.

Durkee, who has not yet entered a plea, was released on $200,000 bond and is scheduled to appear in court in Sacramento next month.

abby.sewell@latimes.com

Times staff writer Richard Simon in Washington contributed to this report.