News Items
November 01, 2011
Preventing An FEC Audit
For a PAC Treasurer, it’s hard to imagine anything more unnerving than a notification from the Federal Election Commission (FEC) that the PAC is being targeted for audit. Federal campaign law is quite explicit: responsibility for accurate and timely reporting of a PAC’s receipts and disbursements rests with the designated PAC Treasurer. While the Treasurer may rely on others to assist in the management and processing activities, he or she remains responsible for the PAC’s compliance with the federal campaign finance law.
Recently, the National Association of Business Political Action Committees (NABPAC) sponsored a session for its members on the topic of avoiding an FEC audit. Ms. Debbie Chacona (Chief of Reports Analysis Division, FEC) and Wade Williams, President of PAC Outsourcing LLC presented. Some highlights:
Ms. Chacona explained the importance of timely and accurate reporting, and reminded the audience that amendments to scheduled filings do not trigger audits. What triggers an audit? It typically begins with the Reports Analysis Division’s (RAD) routine reviews of a PAC’s filings which are performed by the assigned Reports Analyst. Mathematical discrepancies, failure to provide supporting schedules and failure to properly itemize contributions from individuals are among the top “red flags.” When questions do arise, a “Request for Additional Information” or RFAI is generated by the analyst requesting the PAC to respond by a certain date. When RFAIs are ignored or the responses are inadequate, such factors weigh heavily in the decision-making with regard to audit considerations. While the policy governing the audit decision is confidential, the aforementioned circumstances play a part in the determination. PAC Treasurers are contacted before a referral to the Office of General Counsel or the Alternative Disputes Resolution Office (ADRO) to explain the reason for the request for additional information and to request a response. An adequate and timely response at that point may prevent a referral, Ms Chacona counsels.
To recap: There’s generally no single condition or circumstance that triggers a FEC audit. Respond completely and timely to all RFAIs. Contact the assigned analyst to clarify questions and issues, especially if you’re unsure what is wrong or being requested. While the analyst cannot provide legal advice he/she can assist prior to the report being amended.
Mr. Williams has been actively involved in PAC formation and management for more than thirty years. His company provides compliance and administrative services to PACs, and he is acutely aware of the problems some PACs have experienced which have resulted in FEC audits and related fines. To put matters in perspective, Williams points out almost all PAC professional are trustworthy; most embezzlements are preventable, and the amount of political money is growing. Along with these factors, the FEC and the state compliance agencies simply don’t have the resources to audit PACs unless something has gone seriously wrong. So does that mean PAC managers and Treasurers can rest easy? Absolutely not, especially PAC Treasurers who are, by law, responsible for the proper conduct and reporting by the PAC. The solution is to ensure the PAC has an adequate system of internal controls in place. A system of effective internal control depends heavily on the separation of key functions among more than one person. The FEC has issued guidance on this matter, and every PAC must heed this advice. Internal auditors are a source of knowledge and guidance when establishing a control environment and they can provide valuable assistance to PAC managers and PAC Treasurers. Also, to avoid an FEC-initiated audit, Williams strongly urges PACs to conduct their own audits, typically at the close of an election cycle, or when there are changes in key PAC personnel. Another key to successful PAC management is adequate documentation of activities. Document everything he states.
Closing thoughts:
As a practical matter, percentage-wise the number of audits of SSFs conducted by the FEC is relatively small, and typically are the result of an embezzlement. The FEC audit staff is required to devote a substantial amount of effort to the presidential campaigns and related party and candidates’ committee accounts. That leaves precious little time and resources to conduct random audits of SSFs. For the PAC community what gets attention is the announcement of an audit of a company or association PAC where defalcation is alleged. The key is NOT to be the PAC that has that issue, and that’s accomplished by adhering to the “best practices” outlined during this NABPAC presentation. Avoiding an FEC audit is a worthy objective…periodic audits need to be part of that goal.