FEC Adopts New Audit ProceduresFriday, May 5, 2023
The Federal Election Commission adopted new procedures yesterday to streamline the agency’s audit program. The new procedures will apply to audits initiated after June 1, 2024, of federal PACs and national party committees that register and report with the FEC, as well as substantially all federal candidates’ campaign committees. (The few, mostly third-party, presidential candidates that receive public funding are subject to a separate audit process.)
Here are a few key takeaways from the new audit procedures:
1. What triggers an audit. Even with the new streamlined procedures, FEC audits will feel like a colonoscopy without the preventive health benefits. If you represent a committee registered with the FEC, you do not want to be audited.
The new FEC procedures do not revise the triggers for an audit, but the document includes a good summary of the audit triggers. Basically, if your committee fails to adequately and timely respond to a certain number of “Requests for Additional Information” concerning reports filed with the FEC, staff in the agency’s Reports Analysis Division who review the reports will refer your committee for an audit. RFAIs, which are sarcastically known as “FEC love letters” by those who deal with the agency, take issue with deficiencies or ambiguities in filed reports. RFAIs typically require a committee to amend the reports at issue and should always be responded to.
In short, the FEC’s audits are “for cause” and not random. Do not give the FEC cause for auditing your committee.
2. Recordkeeping requirements. While the FEC’s new audit procedures also do not revise committees’ recordkeeping requirements, the document includes a sobering reminder of the records committees are required or expected to keep. Per the new audit procedures document, these records include:
bank statements, committee reconciliations, documentation for all accounts (including the federal and Levin account, if applicable), receipt and disbursement databases, credit card merchant statements, invoices, canceled checks, committee credit card records, contributor check copies, communications soliciting and receiving contributions, signed contracts, payroll journals, deposit batches, debit and credit memos, source documentation for contributions, and loan/line of credit information.
As this list should indicate, the FEC recordkeeping and reporting requirements are not a game for amateurs. We often see even professional CPAs screw things up for clients in major ways if they lack FEC experience. This is why we always recommend that clients retain a “compliance firm” (which is separate from and in addition to a campaign finance law firm) with FEC experience to handle these functions. Retaining a good FEC compliance firm is a wise investment that can prevent expensive audits (see Point #1 above).
3. Streamlined audit process. The new FEC audit procedures streamline the audit process in a few key ways:
- Reduced number of audit report drafts. Under the existing process, audited committees and FEC staff and commissioners alike are subject to a confusing round of four separate iterations of the audit report—the “Interim Audit Report,” the “Draft Final Audit Report,” the “Proposed Final Audit Report,” and the “Final Audit Report.”
Under the new process, there will only be two drafts—the “Proposed Final Audit Report” that is presented to commissioners for their consideration and the “Final Audit Report” that is adopted by a vote of the commissioners.
- Earlier routinized agency legal analysis. Under the existing process, attorneys in the FEC’s Office of General Counsel (“OGC”) are not routinely involved in audits until later in the process when the “Draft Final Audit Report” is presented to the commissioners for their review. However, if the auditors have legal questions about any issues raised by the audit, they may seek OGC’s advice at any time.
Under the new process, OGC is to provide a written legal analysis of each finding that the auditors make at the “exit conference,” which is right after the auditors conduct the audit and present their findings to the audited committee. This will help ensure that any findings proposed by the auditors—who are not attorneys—have a sound legal basis.
- Earlier committee engagement on legal issues with agency staff. Because audited committees will be presented with OGC’s legal analysis earlier in the audit process, committees also will have an earlier opportunity to dispute with the auditors and OGC attorneys any legal issue raised by the exit conference report, as well as any factual finding or recommended corrective action. If these issues cannot be resolved at the staff level, then committees may request a hearing to address these issues directly with the FEC commissioners.
Due to the opportunity to more meaningfully address legal questions at the exit conference stage, as well as the continued availability of audit hearings, committees will no longer submit a separate “request for legal consideration” to the commissioners for any legal disputes that may arise from issues raised by the exit conference report. (Requests for legal consideration will still be available for corrective actions requested by Reports Analysis Division staff during the reports review process, as well as for audits conducted prior to the new procedures taking effect.)
To reiterate: Even with the FEC’s new streamlined audit procedures, committees should avoid FEC audits by taking proactive compliance measures. However, if your committee gets audited by the FEC, you should lawyer up. The audit findings eventually become public in a final audit report issued by the FEC and also typically lead to enforcement penalties. Any audit findings that are unsupported by the facts and law should be disputed vigorously early in the audit process. The Gober Group has represented clients in numerous FEC audits throughout the years and is well-equipped to help your committee in the event of an audit.