News Items
April 22, 2008
About a year ago, the Federal Election Commission published its Policy Statement titled: “Safe Harbor for Misreporting Due to Embezzlement.” (http://edocket.access.gpo.gov/2007/E7-6299.htm). The reason for issuing the guidance was the fact that there has been a notable increase in the number of cases of misappropriation of committee funds by personnel involved in PAC activities. "NRCC Tells FEC It Will Change Cash Total; Cites ‘Unauthorized Transfers’ by Treasurer." (March 17, 2008 BNA Money & Politics) Along with these disturbing situations is the fact that inaccurate disclosure reports are then prepared and filed with the FEC, leaving committees vulnerable to enforcement action and potential liability for reporting errors.
But what about situations where there isn’t a “misappropriation” or an intentional misdeed, but rather a case of inept bookkeeping? We see this on a regular basis in the course of accepting a new client. Frequently, it is explained to us that the PAC has not received the appropriate level of attention, and, as a consequence, the financial disclosures being reported to the FEC aren’t accurate. An integral step in the initial phase of our outsourcing contract is to review and assure ourselves that the FEC reporting is indeed accurate. If we determine otherwise, the client is notified that we will need to conduct an audit and to amend any FEC filings determined to be inaccurate.
Having conducted the audit and prepared the amendments which now accurately reflect the PAC’s activities, what is the next step? Along with the publication of the FEC’s views on the need for internal controls (see above), the Commission issued its “Policy Regarding Self-Reporting of Campaign Finance Violations (Sua Sponte Submissions).” (http://edocket.access.gpo.gov/2007/E7-6185.htm). The Commission is encouraging self-reporting of these types of violations and offering a reduction in penalties between 25% and 75% lower that the Commission would otherwise have sought in identical matters arising by other means. In situations that are uncovered as the result of independent experts hired by respondents to conduct a thorough review, investigation or audit, the penalty may be reduced by as much as 75%. What’s meant by a “thorough review”? In the case of misstated financial information, the Commission would consider a “thorough review” to include: “An audit reconciling bank and internal financial records with FEC reports for the period in which the error was discovered, any subsequent reporting periods, and prior reporting periods for at least a year prior to the error (and extending further if additional errors are found); a review addressing internal controls and reporting procedures and identifying weaknesses contributing to the errors and remedies for those weaknesses.”
So it seems we’ve come full circle: The assumption is that if there are adequate internal controls in place, then the likelihood of misreporting is remote, but should a misstatement occur, if it is self-reported, the Commission is prepared to provide substantial relief with respect to a potential fine.
Some observers have noted that the surest way to avoid the issues raised in these policy statements is to hire a company that specializes in FEC financial reporting and outsource the compliance aspects of the PAC. Under such circumstances, the PAC Treasurer, the person ultimately responsible for the proper management and supervision of the PAC, has the assurance and knowledge that controls are in place and required FEC reporting is both timely and accurate.