Federal Election Commission

Performance and Accountability Report

Fiscal Year 2005
TABLE OF CONTENTS 

List of Illustrations iii 

Message From the Chairman v 

How to Use This Report vii 

SECTION I – Management’s Discussion And Analysis 

Mission and Organizational Structure 1 

Performance Goals, Objectives and Results 7 

Analysis of the FEC’s Financial Statements and Stewardship Information 11 

Analysis of the FEC’s Systems, Controls and Legal Compliance 12 

Possible Future Effects of Existing Events and Conditions 13 

Other Management Information, Initiatives, and Issues 14 

Limitations of the Financial Statements 15 

SECTION II – PERFORMANCE REPORT 17 

SECTION III – AUDITOR’S REPORT AND FINANCIAL STATEMENTS 

Message from the Chief Financial Officer 27 

Independent Auditor’s Report 29 

Management’s Response to Independent Auditor’s Report 57 

Principal Statements 75 

Notes to Financial Statements 81 

Require Supplementary Information 95 

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APPENDICES 

Appendix A – Inspector General’s Management and Performance Challenges A1 

Appendix B - Performance Measures B1 

Appendix C – Glossary C1 

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LIST OF ILLUSTRATIONS 

Figure 1 – FEC Organizational Chart 4 

Figure 2 – Total Reports and Statement Filed 18 

Figure 3 – Total Website Hits, Fiscal Year (in millions) 19 

Figure 4 – Data Requests Responded to Within 72 Hours 19 

Figure 5 – Number of Non-Presidential Audits Completed 20 

Figure 6 – Number of Presidential Audits Completed 21 

Figure 7 – Number of Cases Referred for Enforcement Action 21 

Figure 8 – Number of Cases Closed: OGC 22 

Figure 9 – Number of Cases Closed: ADR and AF 22 

Figure 10 – Total Amount of Fines or Penalties (in millions) 23 

Figure 11 – Matching Fund Payouts 23 

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V

MESSAGE FROM THE CHAIRMAN

November 15, 2005

I am pleased to present the Federal Election Commission’s (FEC) Performance and 

Accountability Report for fiscal year (FY) 2005. This report highlights our efforts to achieve 

the FEC’s goals of disclosing campaign finance information efficiently and effectively, 

enforcing the provisions of the Federal Election Campaign Act, and overseeing the public 

funding of Presidential elections. 

Two of the most important aspects of the FEC’s mission are to make the campaign finance 

process more transparent and to make information more accessible to the electorate. To these 

ends, the FEC provides information to the public in a variety of ways. Reports filed by political 

committees (e.g. candidate campaigns, party committees, and political action committees) are 

available within 48 hours of their receipt by the FEC. The Commission’s disclosure database, 

which contains millions of transactions, is available through the FEC’s website. Citizens can 

access information on contributions by using a variety of search elements (e.g., donor’s name, 

recipient’s name, date, amount, or geographic location).

The financial and performance data presented in this report are reliable, complete and accurate. 

Our employees continually assess the efficiency and effectiveness of our organizational 

processes and take corrective action when necessary. In accordance with the requirements 

of the Federal Managers’ Financial Integrity Act, I hereby give a statement of assurance 

that management controls are in place and the Commission’s financial systems conform to 

government standards. Our compliance with this Act is discussed more fully in Sections I and 

III of this Report. 

The FEC received an unqualified (clean) opinion on its financial statements, except with 

respect to our cost allocation methodology for the Statement of Net Cost. There have been 

significant advancements in financial reporting and internal controls since last year’s audit. 

We are committed to working both internally and externally with auditors to improve our 

management and fiscal processes. Corrective action plans will be developed and implemented 

to correct identified problems. 

The FEC’s 2005 Performance and Accountability Report demonstrates how well we performed 

during the year and shows our commitment to providing the high level of service the electorate 

expects and deserves from the Commission. I am very pleased to be able to share our progress 

with all of our stakeholders and look forward to reporting even more success in the years 

ahead. 

Sincerely,

Scott E. Thomas

Chairman
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HOW TO USE THIS REPORT 

This Performance and Accountability Report (PAR) was produced to meet the requirements of 

the Accountability of Tax Dollars Act of 2002 and guidance from the Office of Management and 

Budget, which expanded the authorization granted under the Reports Consolidation Act of 2000 

to require that virtually all Federal agencies prepare a PAR annually. It provides the Federal 

Election Commission’s (FEC) financial and performance information for fiscal year (FY) 2005, 

enabling the President, the Congress, and the American people to assess the Commission’s 

performance in meeting its mission. This report is available on the Commission’s website at 

www.fec.gov (click on “About the FEC” and then “Budget”). This is the second PAR issued by 

the FEC. 

The FY 2005 PAR is organized into the following three major sections: 

• Management’s Discussion and Analysis - provides an overview of the financial and 

performance information contained in the Performance and Financial Sections. It 

includes the Commission’s assessment of the reliability and completeness of the

information presented. Management’s Discussion and Analysis provides an overview of 

the FEC organization, highlights its most important goals and results, and addresses 

issues affecting the Commission’s future performance. 

• Performance Report - provides a report on the FEC’s accomplishments and results in 

meeting its goals and objectives, as required by the Government Performance and Results 

Act. 

• Auditor’s Report and Financial Statements - provides details on the FEC’s finances, 

including the auditor’s report and the Commission’s financial statements. 

The Commission’s Strategic Plan, FY 2004 – 2009, and its annual performance plans, which 

form the basis for this report, are available on the FEC website at www.fec.gov (click on “About 

the FEC” and then “Budget”). 

In addition, the FEC prepares an Annual Report that covers the activities of each calendar year. 

Annual Reports for 1996 through 2004 are available on the FEC website at 

http://www.fec.gov/pages/anreport.shtml. The 2005 report will be published in the spring of 

2006. 

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 viii 
Section I

Management’s Discussion and Analysis

SECTION I

Management’s Discussion

and Analysis
Section I.A: Mission and Organizational Structure 

Introduction to the Federal Election Commission 

The Federal Election Commission (FEC) was created to strengthen the integrity of the electoral 

process by ensuring that the campaign finance process is fully disclosed and that the campaign 

finance laws are effectively and fairly enforced. In addition to administering and enforcing the 

limits, prohibitions, and reporting requirements of the Federal Election Campaign Act (FECA), 

the Commission also administers and oversees the Presidential public funding program, which is 

funded by the $3 tax checkoff provided on Federal tax returns. Through the public funding 

program, the Federal government provides matching funds to candidates seeking their party’s 

Presidential nomination, financing for Presidential nominating conventions, and grants to 

Presidential nominees for the general election campaigns. 

History of the Federal Election Commission 

Concerns about campaign financing first surfaced in 1791, when groups supporting and opposing 

Alexander Hamilton published competing newspapers to sway the voters. Campaign finance 

legislation dates back to President Theodore Roosevelt’s efforts in 1905, but it was not until 

1971 that Congress enacted the FECA, which provided for an enforcement mechanism for 

campaign finance legislation. Congress created the FEC in 1974 as the independent regulatory 

agency to administer and enforce the FECA. 

Congress amended the FECA in 1976 after the Supreme Court case Buckley v. Valeo. The Court 

upheld contribution limits because they served the government’s interest in safeguarding the 

integrity of elections by preventing even the appearance of corruption of public officials.

However, the Court overturned expenditure limits, stating: “It is clear that a primary effect of 

these expenditure limitations is to restrict the quantity of campaign speech by individuals, groups 

and candidates. The restrictions...limit political expression at the core of our electoral process

and of First Amendment freedoms.” The Court also sustained other public funding provisions 

and upheld disclosure and recordkeeping requirements. However, the Court found that the 

method of appointing FEC Commissioners violated the constitutional principle of separation of

powers, since Congress, not the President, appointed four of the Commissioners, who exercised 

executive powers. Now the six commissioners are appointed by the President with the advice 

and consent of the Senate. 

The most recent amendments to the FECA were passed in 2002. Among other things, the

Bipartisan Campaign Reform Act of 2002 (BCRA or McCain-Feingold) banned national parties 

from raising or spending non-Federal funds (often called "soft money"), restricted so-called issue 

ads, increased the contribution limits, and indexed certain limits for inflation. The BCRA was

challenged in court within days of its passage into law. The Supreme Court, in McConnell v. 

FEC, upheld most of the challenged provisions of the BCRA, including its two principal

features: the control of soft money and the regulation of electioneering communications. The 

Court found unconstitutional other BCRA provisions banning contributions from minors and 

requiring party committees to choose whether to make coordinated or independent expenditures 

on behalf of their nominees. 

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How the FEC Accomplishes Its Mission 

MISSION 

To assure that the campaign finance process is fully disclosed 

and that the rules are effectively and fairly enforced, fostering 

the electorate’s faith in the integrity of the nation’s political process. 

The FEC strives to foster and maintain an attitude of voluntary compliance with the rules of the 

campaign finance process through three major programs: 

• Public Disclosure - facilitates public disclosure of campaign finance activity and 

provides information and policy guidance on the law and Commission regulations to the 

public, press, and the regulated community; 

• Compliance - enforces the FECA through audits, investigations, and civil litigation; and 

• Public Financing - implements the public funding programs for Presidential campaigns 

and conventions. This includes certification and audits of participating candidates and 

committees and enforcement of public funding legislation. 

Public Disclosure- Keeping the Public Informed 

The disclosure of the sources and amounts of funds used to finance Federal elections is one of 

the most important of the FEC’s duties. The Commission makes the financial reports of all 

Federal political committees accessible to the general public, thus providing an added incentive 

for the regulated community to comply with the campaign finance law. 

The sheer volume of data available to the public is staggering. The Commission defines its work 

in the context of election cycles, which include the preceding and actual election years, i.e., 

calendar years (CYs) 2005 and 2006 constitute the 2006 election cycle. In the 2004 election

cycle, over 8,000 political committees filed approximately 95,000 reports containing information 

concerning nearly 3 million itemized contributions, as well as millions of other itemized

disbursements, receipts, and other payments previously not entered into Commission databases. 

These reports are filed electronically, except for Senate reports and reports from other

committees with less than $50,000 in activity. Paper reports filed by political committees are 

available on the Commission’s website within 48 hours of their receipt, and almost immediately 

for electronically filed reports. Interested citizens can select a profile of a committee’s financial 

activity for each election cycle. Citizens also can access information on contributions by using a 

variety of search elements (e.g., donor’s name, recipient’s name, date, amount, or geographic 

location). 

In addition to campaign finance reports, the FEC makes available on its website and through the 

Public Disclosure office items such as statistical summaries of reported campaign activities,

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information on closed enforcement actions, audit reports and Commission meeting agenda items,

and other public documents. The FEC also discloses information by issuing press releases

covering statistical information and the agency's activities. 

The FEC’s disclosure program includes not only the review and placement of information on the 

public record, but also educational outreach, including campaign finance workshops and 

seminars, a toll-free line for consumer requests, and automatic fax transmission of FEC 

publications 24-hours-a-day, 7-days-a-week. 

Compliance - Interpreting and Enforcing the Law

The Commission has exclusive jurisdiction over the civil enforcement of Federal campaign 

finance law. The FEC reviews each report filed by Federal candidates and committees to ensure 

that they have complied with the contribution and disclosure requirements. FEC staff may

generate enforcement actions called Matters Under Review (MURs) when it appears that a

violation of the law has occurred. In addition, individuals and groups outside the agency may 

initiate MURs by filing complaints. Other government agencies may also refer enforcement 

matters to the FEC. If four of the six Commissioners vote to find reason to believe that a 

violation of the law has occurred, the Office of the General Counsel, Office of Administrative 

Review or the Office of Alternative Dispute Resolution will investigate the matter. If the

investigation reveals a violation of the law, the Commission attempts to resolve the matter by

reaching a conciliation agreement with the respondents. The agreement may require the 

candidate or committee to pay a civil penalty and take other remedial steps. If an agreement 

cannot be reached, the Commission may file suit against the appropriate persons in a U.S. 

District Court. As required by law, the Commission keeps enforcement matters strictly

confidential until they are concluded. Once the Commission has resolved and closed a MUR, the 

pertinent documents are placed on the public record. 

Public Financing – Funding Presidential Elections 

Every Presidential election since 1976 has utilized public funds. Public funds are provided 

through two programs: (1) grants are given to party conventions and candidates running in the 

general election, and (2) matching funds are given to candidates running in the party primaries. 

The FEC administers the public funding program by determining which candidates and 

committees are eligible to receive the funds and in what amounts. The Secretary of the Treasury 

makes the payments. Committees receiving public funds must keep detailed records of their 

financial activities. After the elections, the FEC audits each publicly funded committee. If an

audit reveals that a committee has exceeded the spending limits or used public funds for 

impermissible purposes, the committee must pay back an appropriate amount to the U.S. 

Treasury. 

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How the FEC is Organized 

Figure 1 – FEC Organizational Chart 

Commissioners

The FEC is structured to foster bipartisan decision making. Its work is directed by six 

Commissioners, who are appointed by the President with the advice and consent of the Senate. 

The Commissioners serve full time and are responsible for administering and enforcing the 

FECA. They generally meet twice weekly, once in a closed session to discuss matters that, by 

law, must remain confidential, and once in a meeting open to the public. At these meetings, they 

formulate policy and vote on significant legal and administrative matters. Each member serves a 

six-year term, and two seats are subject to appointment every two years. By law, no more than

three Commissioners can be members of the same political party, and at least four votes are 

required for any official Commission action. Chairmanship of the Commission rotates among the

members each year, with no member serving as Chairman more than once during his or her term. 

Three offices support the Commissioners in accomplishing the FEC’s mission. Brief

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descriptions of the Office of the General Counsel, the Office of the Staff Director, and the Office 

of Inspector General follow: 

Office of General Counsel

The General Counsel position was created by the FECA in 1974. The Office of General Counsel 

consists of five organizational units: 

• Policy Division - drafts, for Commission consideration, advisory opinions and regulations, 

as well as other legal memoranda interpreting the Federal campaign finance law. It also 

provides legal advice in response to legislative inquiries, legal reviews for all FEC 

publications, and training to Commission staff concerning changes in the law. 

• Enforcement Division - investigates alleged violations of the law, negotiates conciliation 

agreements, and recommends civil penalties for individuals and entities that have violated the 

FECA. 

• Litigation Division - handles all civil litigation arising out of any legal actions brought by or 

against the Commission. It is the exclusive representative of the Commission before the 

Federal district and circuit courts, and before the Supreme Court with respect to matters 

involving public financing of Presidential campaigns and conventions. 

• General Law and Advice Division - responsible for processing all audit and repayment 

matters, as well as handling debt settlements, administrative terminations, and administrative 

fines matters. It also handles all administrative law, disclosure, Freedom of Information Act, 

Privacy Act, and employment and labor law matters, and administers FEC’s Ethics in 

Government Act program. 

• Office of Complaints Examination and Legal Administration - provides central docketing 

functions, administrative information technology (IT), and information services, and tracks 

performance data for the Office of General Counsel. 

Office of the Staff Director

The Staff Director position also was created by the FECA in 1974. The Staff Director is 

supported by a Deputy Staff Director for Management/Chief Financial Officer, a Deputy Staff 

Director for Audit & Review, and a Deputy Staff Director for Information Technology/Chief

Information Officer. The Commission’s work is supported by several staff offices, including the 

Administration Division; Office of Congressional, Legislative and Intergovernmental Affairs; 

Office of Equal Employment Opportunity and Special Programs; Office of Human Resources 

and Labor Relations; Office of Budget, Planning and Management; and the Press Office. 

Program offices under the Office of the Staff Director include: 

• Office of Administrative Review - established in 2000 after statutory amendments permitted

the Commission to impose civil money penalties for violations of certain reporting 

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requirements. Under the civil monetary penalties program, if the Commissioners issue a 

“reason to believe” finding that a committee failed to file or filed late a required report or 

notice it will notify the committee of its finding and the amount of the proposed civil money 

penalty. Within 40 days, the committee may challenge the “reason to believe” finding. This 

office evaluates these challenges and may recommend that the Commission: (1) uphold the 

finding and civil money penalty; (2) uphold the finding, but modify or waive the civil money 

penalty; (3) determine that no violation occurred; or (4) terminate its proceedings. The office

also serves as the Commission’s liaison with the U.S. Department of the Treasury on debt 

collection matters involving unpaid civil money penalties under this program. 

• Audit Division - evaluates the matching fund submissions of Presidential primary candidates

and determines the amount of contributions that may be matched with Federal funds. As

required by law, it audits all public funding recipients. It also audits those committees that,

according to FEC determinations, have not met the threshold requirements for substantial 

compliance with the law. The division’s resources are also used in the Commission’s 

investigations of complaints. 

• Reports Analysis Division - provides committee officials with technical assistance in

complying with reporting requirements and conducts detailed examinations of the campaign 

finance reports filed by political committees. Due to limited resources in compliance, the 

review of reports represents the only full scrutiny of 100% of all committee filings. Each

committee has an analyst assigned, who assists the committee and seeks to ensure voluntary 

compliance with the law and full, accurate disclosure. The division also performs the first 

part of the late and non-filing programs, referring committees to the Office of Administrative 

Review for final action, and refers debt settlement and administrative termination actions to

the Office of General Counsel for final legal action. 

• Information Technology Division - provides internal IT support, operates the electronic filing 

system, and enters information into the FEC database from all reports filed by political

committees and other entities. It is responsible for operating and maintaining the FEC 

website that is now the main source of information and disclosure of campaign finance data. 

The division is also responsible for the computer programs that sort and organize campaign 

finance data into indexes. These indexes permit a detailed analysis of campaign finance 

activity and provide a tool for monitoring contribution limits. The indexes are available on 

the website. The division publishes the Reports on Financial Activity series of periodic 

studies on campaign finance and generates statistics for other publications. 

• Commission Secretary - responsible for all administrative matters relating to Commission 

meetings, as well as Commission votes taken outside of the meetings. This includes 

preparing meeting agendas, agenda documents, Sunshine Act notices, meeting minutes, and 

vote certifications. The Secretary also logs, circulates, and tracks numerous materials not 

related to Commission meetings and records the Commissioners' votes on these matters. All 

matters on which a vote is taken are entered into the Secretary's database.

• Information Division - provides general educational assistance to candidates, committees, 

and others involved in elections through the Internet, e-mail, letters, telephone conversations, 

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publications, and conferences. To foster voluntary compliance with the FECA, the FEC

engages in proactive outreach and educational efforts, such as seminars and reminder notice 

mailings before each major filing period. 

• Alternative Dispute Resolution Office - provides parties in enforcement actions with an

alternative method for resolving complaints that have been filed against them or for 

addressing issues identified in the course of an FEC audit. The program is designed to 

promote compliance with FECA and Commission regulations and to reduce the cost of 

processing complaints by encouraging settlements outside the FEC’s normal enforcement

track. 

• Public Disclosure Division - processes incoming campaign finance reports from Federal 

political committees. These reports are available to the public in the Public Records Office at 

FEC headquarters, located at 999 E Street, N.W., Washington, DC. The Division also faxes 

and mails copies of reports to requestors. 

Office of the Inspector General 

The Office of the Inspector General, established in 1988 under amendments to the Inspector 

General Act, is independent and reports to both the Commissioners and the Congress. The FEC's

Inspector General has two major responsibilities: to conduct internal audits and investigations to 

detect fraud, waste and abuse within the agency and to improve the economy and effectiveness

of agency operations. The Inspector General is required to report its activities to Congress on a 

semiannual basis. These reports include descriptions of any serious problems or deficiencies in 

agency operations, as well as corrective steps taken by the agency. 

Section 1.B: Performance Goals, Objectives, and Results 

Highlights 

The FEC pursues three major goals: 

Goal 1: Allow the public to make informed choices in the 

electoral process through the full disclosure of the sources of

candidate campaign funding. 

Goal 2: Foster an attitude of voluntary compliance with the 

disclosure and limitations provisions of the FECA through 

enforcement of the Act in a timely, consistent, and comprehensive 

manner. 

Goal 3: Limit the influence of personal wealth and special interest

groups on the outcome of Presidential elections by offering public 

funding of campaigns. 

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Goal 1 – Informed Choices 

Since its inception, the FEC has been committed to providing the pubic information on campaign 

financing in a timely and useful manner. Key indicators for Goal 1 are: 

• Making reports filed with the FEC will be available to the public within 48 hours. 

• Reviewing all reports and statements received. 

• Responding to data requests from the press, public, and committees within 72 hours.

The FEC has been able to achieve its goal of making reports filed with the FEC available to the 

public within 48 hours. To accomplish this, the staff is scheduled to be in the office on evenings

and weekends when reports are due. This ensures coverage for phones calls from all time zones 

and mail deliveries. The Public Disclosure office also works closely with the IT Division to 

ensure that all equipment and programs are functioning properly. 

During the last year, the Reports Analysis Division was able to meet or exceed its goals in 

reviewing all reports and statements received. The existing backlog of reports to review is at its 

lowest point for comparable non-election year periods. These goals were met due to efforts

made to: 1) replace staffing vacancies slots rapidly; 2) improve training capabilities; 3) better 

coordinate RAD business activities with other FEC divisions and offices; 4) establish more

defined roles for each of the division's branches; and 5) continually review processes and 

procedures used to conduct division activities. 

The FEC has also achieved its goal of responding to information requests within 72 hours. The 

agency maintains a staff of information specialists and press spokespersons that is sufficient to 

respond efficiently to the large number of inquiries that often arise during elections and at other 

times when the public interest focuses on the FEC. The agency further ensures that FEC staff 

members are well trained and informed about recent legal developments and agency actions and 

that staff has access to the resources needed to respond to inquiries. Staff members strive to

respond to inquiries during the same day that calls are received. Response time may be affected 

by the nature and complexity of the request, equipment malfunctions, call volume, and staffing 

issues. 

Goal 2 – Ensure Compliance 

The FEC is dedicated to demonstrating to the public and the election community that the FECA 

is fairly and swiftly enforced, thereby encouraging a high level of voluntary compliance with the 

FECA. Key indicators for Goal 2 are: 

• Referring committees found to have questionable activity for audit or enforcement action. 

• Meet deadlines for issuance of advisory opinions and filing litigation pleadings 

• Maintain an average active enforcement caseload in excessive of 50% of total caseload 

and close more than 50% of enforcement cases with substantive Commission action 

During FY 2005, the Office of General Counsel was able to meet deadlines for issuance of 

advisory opinions and filing litigation pleadings. OGC was also able to process or close more 

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than 50% of enforcement cases with substantive commission action and was able to maintain 

more than 50% active cases. The FEC uses the Enforcement Priority System to prioritize cases 

to ensure that resources are efficiently and effectively utilized. Cases are put on a timetable 

depending on the substance and procedural posture of the case. Meetings are held on a regular 

basis to discuss the progress of the case. Fiscal year 2005 was the first full fiscal year that OGC 

operated under its reorganization. New procedures were implemented, processes streamlined, 

and highly-qualified attorneys were actively recruited. 

Several factors influenced these indicators by increasing OGC’s workload. First, because the 

2004 elections were the first to be regulated under the BCRA, the agency had no well-established

precedents regarding cases arising from alleged violations of BCRA provisions; therefore cases 

dealing with the BCRA issues were given the highest priority. Second, during FY 2005 the 

Commission received 182 complaints, which is among the largest number of complaints and 

referrals filed during a single fiscal year. Finally, the agency handled a large number of cases 

during FY 2005 because the fiscal year covered a Presidential election year, which typically

precipitates an increase in the number of complaints filed. 

Goal 3 – Provide Public Funding for Presidential Elections 

The FEC is committed to implementing the public funding provisions of the campaign finance 

law and successfully administering the public funding program. Key indicators for Goal 3 are:

• Establishing the eligibility of candidates for matching funds in a timely manner. 

• Ensuring that all Federal funds disbursed in Presidential elections are properly certified 

eligible candidates and accounted for. 

Each primary candidate requesting public funding must prepare candidate letter of agreements 

and certifications and present a threshold submission verifying the receipt of contributions 

greater than $5,000 in each of twenty states to qualify for public funding. The Audit Division

and OGC review the letter for completeness immediately upon its receipt, and any discrepancies 

are discussed with the committee. The committee then makes the requested changes and/or 

additions. The threshold submissions are reviewed by temporary staff hired for that purpose. 

Then the submission is reviewed by the Deputy Assistant Staff Director and undergo a

referencing process by a member of the Audit staff. The review of threshold submissions is 

completed within 15 business days of receipt. To date, all threshold submissions have been 

completed within the 15-day time frame except in cases where the 20-state threshold has not 

been met and additional time is given to the committee to correct the problem, which may 

include submitting additional contributors.

To ensure that all public funds disbursed in Federal elections are properly certified and 

accounted, funds for nominating conventions and general election candidates are disbursed only 

after the proper documentation has been received and reviewed. In both cases, a letter similar to

the primary candidate letter of agreements and certifications is presented by the committees and

is reviewed in the same manner as the primary letter. Primary candidates make monthly 

submission requests that are reviewed by temporary staff in the same manner as the threshold 

submission. Submission review must be completed by the end of the month in order to certify 

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payments to the Department of Treasury for payment on the first business day of the following

month. All submission reviews were completed on a timely basis. 

One factor that has affected the primary payments is a shortfall in the Fund that results in 

candidates receiving only a portion of the funds to which they are entitled. Although the full 

amount is certified to the Department of the Treasury, a pro rata payment is made when the 

balance in the Fund is not sufficient to make the full payment. 

The agency’s goal is to release all audit reports to the public by December 31 of the year after 

the election. In some cases, the report is made public by placement on an open session agenda 

prior to December 31; however, the Commission’s discussion of the report may delay final 

approval until after December 31. This goal has been met in all but one case, which occurred in 

the 2000 election cycle. In that instance, the goal was not met due to the complexity of the audit, 

which is still in the litigation phase today. 

Performance Data Collection and Reporting 

As a result of the pattern of campaign financing, not all data is collected or available on a fiscal 

year basis. Therefore, an assessment of FEC performance can best be determined by comparing 

trends from election cycle to election cycle. Assurance of the accuracy of performance data 

reported is achieved through data verification processes inherent in the recurring use and updates 

of the data. FEC analysts, managers, and executives verify the data on an ongoing basis. The

data received a final review by budget and program branch chiefs with budget and performance 

responsibilities prior to submission and underwent final review by the Staff Director. The Data

Sources and Quality discussion in Part II of this report provides additional information about the 

FEC’s actions to ensure the accuracy of data, which are documented in the Data Verification and

Validation sections of the FEC’s annual performance budgets and reports. In several areas, the 

volume received did not match expectation, so the reporting on those measures focuses on 

meeting FEC targets, e.g. processing all reports filed regardless of volume received. 

Limitations on Performance Data Collection and Reporting 

The Commission defines its work in the context of election cycles. An election cycle consists of 

the preceding and actual election years, i.e., calendar years 2003 and 2004 constitute the 2004 

election cycle. An election cycle, therefore, spans three fiscal years (i.e., the 2004 cycle begins in 

FY 2003 and ends in FY 2005). The 2004 Presidential election took place in FY 2005. The 

beginning of the new fiscal year (October 1) coincides with the peak pre-election period when 

the FEC experiences its heaviest workloads for many programs. 

The flow of work for programs such as audits and enforcement actions is such that action on the 

referrals for audits and compliance actions from the 2004 election will not be finalized for 3 to 4 

years after the election. As a result, work undertaken or completed in any fiscal year includes 

work that began in previous election cycles. The Strategic Plan for FY 2004-2009 outlines 

performance goals and workloads by election cycle, while the annual performance plan (now the

performance budget) relates the specific activities of FY 2005 to work from several election 

cycles. The performance budget relates the performance goals for FY 2005 to the levels of

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funding. Goals for the major program areas, public disclosure, compliance, and public financing, 

establish targets for the speed/timeliness in which an action should take place, and the volume of 

transactions that will be processed. 

Section 1.C: Analysis of FEC’s Financial Statements and Stewardship 

Information 

Balance sheet 

As a small agency, almost 98% of FEC’s assets consist of Fund Balance with Treasury (cash) 

and Property Plant and Equipment (PPE). 

Cash decreased by about $3.3 million or 28% from FY 2004 largely due to payments to 

contractors working on IT contracts and GSA for construction work. PPE increased by 

approximately $1.3 million or 15% from FY 2004 mainly as a result the completion of leasehold 

improvements of FEC’s Washington headquarters in April 2005. 

Statement of Net Cost 

FEC’s total budget in FY 2005 was $51.7 million. Of this, about $37.8 million or 73% is related 

to personnel costs. Overall, costs increased by approximately $4.3 million or 8.4% from FY 

2004. The largest part of the increase, $4.6 million, was Gross Costs with the public which 

increased due to salaries, depreciation and IT related contracts in FY 2005. Staffing increased in 

FY 2004-5 as a result of changes in legislation affecting campaign finance laws in late 2002. 

Statement of Changes in Net Position 

Total Financing Sources under Cumulative Results of Operations increased by about $4.5 

million or 8.6% primarily due to an increase in Appropriations Used which is largely a function

of payments made. Appropriations Used increased primarily because of the increase in budget 

for salaries from the prior year, the increased rent and IT contracts. 

Statement of Budgetary Resources 

Total Budgetary Resources increased by approximately $2.0 million or 3.9% over FY 2004. 

Primarily this is due to an increase in the appropriation of $919,000 and a decrease in transfers 

out of $481,000. In FY 2004 FEC transferred funds to the newly formed Election Assistance 

Commission. Total Status of Budgetary Resources increased by $2.0 million. This is primarily 

due to an increase in payroll, rent and related services of $620,000 and Category B (IT contracts) 

obligations of about $987,000. Obligated balances transferred, net, end of period decreased by 

$3.5 million primarily as a result of the liquidation of undelivered orders for construction 

services and IT contracts. 

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Statement of Financing 

Total resources used to finance activities increased by $1.9 million which is primarily the result 

of an increase in obligations incurred for payroll, rent and IT contracts. Total resources used to 

finance net cost of operations increased by $3.5 million or 7.1% from FY 2004 primarily due to

the liquidation of obligations for construction and IT contracts. Components not requiring or 

generating resources increased by $726,000 due to an increase in depreciation. 

Statement of Custodial Activity 

Cash collections for civil penalties decreased from the prior year in the area of civil penalties by 

approximately $2.0 million. This is primarily due to the cyclical nature of federal election cycles

and thus, the related enforcement cycles. 

The FEC does not maintain any stewardship assets. 

Section 1.D: Analysis of the Entity’s Systems, Controls, and Legal 

Compliance 

The FEC managers’ self-assessments required by OMB Circulars A-123 and A-127 indicate that 

there are no material weaknesses. Employees in all divisions continue to review specific 

procedures on an ongoing basis and improve internal controls where possible. 

This year the independent auditors, Clifton Gunderson (CG), identified four material weaknesses 

(cost accounting system and processes, custodial receipts, general property and equipment and

information technology) and two reportable conditions (financial reporting and payroll). While 

FEC management recognizes that room for improvement exists, the FEC fundamentally 

disagrees with several of CG’s findings (see Section III - Management’s Response to Auditor’s 

Report for a full analysis) 

Debt Collection Improvement Act 

The FEC manages its delinquent debt pursuant to the Debt Collection Improvement Act (DCIA) 

of 1996. It refers delinquent debt greater than 90 days old to the Department of the Treasury 

(Treasury) for cross servicing and offset. In FY 2005, the FEC’s net receivables totaled 

$427,151. 

Prompt Payment Act 

The Prompt Pay Act requires Federal agencies to make timely vendor payments and to pay 

interest penalties when payments are late. The FEC’s on-time payment rate for FY 2005 was

effectively 100%. 

Improper Payments Information Act 

In accordance with OMB guidance, the FEC reviewed all of its programs and activities to identify 

those that may be susceptible for significant erroneous payments. The FEC does not make grants, 

and its non-personnel expenses are approximately $15 million. The FEC is confident that

 12 
improper payments are immaterial. 

Grants Management 

FEC does not administer any grant programs. 

Section 1.E: Possible Future Effects of Existing Events and Conditions 

There are several existing events and conditions that could have possible future effects on the 

FEC. 

First, the Supreme Court will hear two cases this term regarding the campaign finance law. The

first case, Wisconsin Right to Life, Inc. v. Federal Election Commission, challenges provisions of 

the BCRA that prevent corporations or labor unions from buying radio and television ads that 

reference a clearly identified federal candidate during the weeks just before an election. Second 

are the consolidated cases, of Randall v. Sorrell, Vt. Republican State Committee v. Sorrell, and 

Sorrell v. Randall. These cases present challenges to a 1997 Vermont law that puts a ceiling on

how much a candidate for state office can spend. Under the law, candidates for governor may 

spend no more than $300,000 per two-year election cycle. Candidates for lieutenant governor 

may spend no more than $100,000, and smaller limits apply to other offices. 

Second, proposed legislation from the House or Senate, if enacted, could have future effects. 

One such proposal is S. 1053, the 527 Reform Act of 2005, which would amend the FECA to

clarify when organizations described in section 527 of the Internal Revenue Code of 1986 must 

register as political committees. The House has a similar piece of legislation pending, H.R. 

1316, the 527 Fairness Act of 2005. 

Third, legislative recommendations from the FEC, if enacted, could have future effects. On 

March 5, 2005, the FEC submitted 16 legislative recommendations to Congress and the 

President, five of which were considered a priority by the Commission. 

• The addition of the Commission to the list of agencies that are authorized to issue

immunity under Title 18; 

• Increasing the record retention period from three years to five years; 

• Adding a provision to make it a violation for anyone to aid and abet another party in 

violating the FECA; 

• Making permanent the Administrative Fine program for reporting violations; and 

• Requiring the electronic filing of Senate reports. 

Fourth, the solvency of the Presidential Election Campaign Fund may have major consequences 

for the FEC. The agency’s early projections concerning primary matching payments for the 

2004 election cycle indicated that January 2004 payments to eligible Presidential candidates 

could be less than 20% of the amount certified, even if one major party candidate declined to

participate in the matching payment program. However, three major party candidates—Howard 

Dean, John Kerry and President Bush—chose not to participate in the program, and the only 

shortfall that occurred in the 2004 cycle took place in February, when candidates received

 13 
approximately 46 cents per dollar certified. For the 2004 elections, a total of eight candidates 

were certified for matching funds. With the participation of three additional major party 

candidates, the program would have experienced severe shortfalls. The Presidential Election 

Campaign Fund is likely to continue to face major deficits in timely payments in the 2008 

election and is in danger of falling short of the funds necessary to meet the objectives of the

public financing program unless legislative action is taken. The Commission has consistently 

made legislative recommendations to Congress to address this problem. The FEC is concerned 

that the potential for a totally open primary in both major parties in 2008 (with the presumed

participation of many candidates in both primaries) will further exacerbate the potential shortfall.

At some point, without legislative remedy, the shortfall could impact payments to general 

election candidates as well as to primary candidates. 

Section 1.F: Other Management Information, Initiatives and Issues

Management’s Response to Inspector General’s Management and Performance 

Challenges

The FEC recognizes that our agency, like all others, faces management and performance 

challenges. The Inspector General identified three areas – information technology security, 

financial reporting and human capital management – that represent critical infrastructure and

operational challenges for all Federal agencies. We are cognizant of these government-wide 

challenges and are working both internally and partnering externally to address and overcome 

these challenges. 

Information Technology Security 

The Commission agrees with the Inspector General that the benefits of information technology 

(IT) also bring the risks of fraud, inappropriate disclosure of sensitive data, and disruption of

critical operations and services. While the FEC’s is exempt from the Paperwork Reduction Act

and its progeny governing IT management controls and procedures for IT security, FEC 

management continues its commitment to the spirit and intent of such legislation. 

As the Inspector General points out, computerized systems enable the FEC to carry out its 

mandate to ensure that the campaign process is fully disclosed. To address the ever-present

threats of data misuse, destruction, or inappropriate disclosures, as well as to ensure continuity of 

operations in the event of a disaster, the Commission has taken aggressive actions to secure its IT 

infrastructure. In FY 2005, the Commission continued a mandatory security awareness training 

program for its employees and contractors. We also continue to monitor and evaluate our

Information System Security Policy. 

The FEC will continue its vigilance in this area and welcomes further comments from the 

Inspector General on IT security issues. 

Financial Reporting 

 14 
The FEC shares the IG’s goal of producing timely, accurate, and useful financial information that 

is essential for making day-to-day operating decisions and managing the government’s 

operations more efficiently and effectively. The FEC is also committed to fully complying with 

all financial management laws and standards. 

The FEC achieved considerable progress in financial reporting in FY 2005. The Commission 

took many steps to formalize and streamline its reporting process. We worked to make

reconciliation more efficient and to have minimal items to reconcile. The steps taken by the FEC 

will enable us to be 100% USSGL compliant in FY 2006. Finally, the FEC is working diligently

to determine whether it should upgrade or replace its accounting system to meet the demands of 

the new reporting requirements. 

These are just some of the improvements made in financial management in FY 2005. And 

although significant progress has been made in this area, the FEC understands the challenges 

ahead. In FY 2006 we will focus on improving the accounts receivable and property processes 

and training of finance and other key staff. 

Human Capital Management 

The Commission encounters the same long-standing challenge that faces the rest of the federal 

government: the development and implementation of a consistent strategic approach to managing 

and maintaining an appropriately skilled workforce. To address this challenge, the Commission 

has undertaken a comprehensive human capital management initiative. This initiative includes

effective planning for future needs, changes in recruitment, strategic hiring, training the current 

workforce, and retention of critical staff. The Commission made strides in succession planning 

and diversity in the hiring of several mid-career managers to fill critical top-level positions. We

have implemented a new performance appraisal system and identified and addressed training 

gaps and mission-critical leadership positions. 

The Commission is committed in moving forward on the President’s Management Agenda to 

make Government more citizen-centered, market-based and results-oriented by assisting FEC

management in restructuring its workforce to implement necessary changes in the human capital 

management arena. We are dedicated to maintaining and strengthening our commitment to a

diverse Federal workforce that is skilled, flexible, and focused on results and service. We are

aware that we still have much to do and are diligently working to improve our overall situation. 

Section 1.G: Limitations of the Financial Statements 

The principal financial statements have been prepared to report the financial position and results

of operations of the Federal Election Commission, pursuant to the requirements of 31 U.S.C. 

3515 (b). While the statements have been prepared from the books and records of the Federal 

Election Commission in accordance with U.S. generally accepted accounting principles (GAAP)

for Federal entities and the formats prescribed by the Office of Management and Budget, the 

statements are in addition to the financial reports used to monitor and control budgetary 

resources which are prepared from the same books and records. The statements should be read 

 15 
with the realization that they are for a component of the U.S. Government, a sovereign entity. 

 16 
Section II

Performance Report

SECTION II

Performance Report
Overview of Strategic Plan 

The FEC’s Strategic Plan for FY 2004 – 2009 was developed in accordance with the 

Government Performance and Results Act. This plan provides the framework for how the FEC 

will use its resources to implement and enforce the campaign finance laws during the 2004 (FYs 

2003-2005), 2006 (FYs 2005-2007), and 2008 (FYs 2007-2009) election cycles. 

FY 2005 Performance Budget and Results 

The FEC’s Strategic Plan identifies performance goals by election cycle or other multi-year

periods. The FY 2005 Performance Budget focuses on the results sought for only the fiscal year. 

While it is difficult to measure how the FEC ensures public faith in the political and campaign 

finance systems, the FEC gauges its effectiveness through a series of indicators designed to 

measure performance in areas that promote confidence in the campaign finance process. 

The FEC continues to refine its performance measurement metrics to demonstrate to the 

American people how effectively it is performing its mission. This year, the FEC operated under 

its first performance budget, which tied performance goals to levels of funding. The 

Commission submitted a list of performance measures with the FY 2005 budget that reflected 

information reported in previous years. As part of the evolution to a performance budget, the 

Commission reviewed these performance metrics for FY 2005 and determined that many of them 

were measures of output rather than outcome. The FEC is revising its strategic plan and will 

submit new performance measures with the performance budget due to the Congress in February 

2006. 

The Commission’s eight key performance measures by major program are highlighted below, 

with comparative results from FYs 2002, 2003, and 2004. Results for the performance indicators 

submitted with the FY 2005 budget are provided in Appendix B. 

Goals and Objectives for FY 2005 

To achieve its mission, the FEC has identified three major program areas - public disclosure, 

compliance, and public financing. FEC’s goals, objectives, performance measures, and desired 

outcomes described in this report are tied to these three core FEC programs: 

1. Public Disclosure 

Goal: Allow the public to make informed choices in the electoral process through the full 

disclosure of the sources of candidate campaign funding. 

Objective: To ensure full, accurate, and timely disclosure of campaign finance activity in Federal 

elections by publicizing campaign finance reports required to be filed for public view under the 

FECA, and to provide information and policy guidance on the FECA to the public, press, and 

those persons and entities required to comply with the FECA. 

17
Performance Measures: 

• Make reports filed with the FEC available to the public within 48 hours. 

• Review all reports and statements received. 

• Respond to data requests from press, public, and committees within 72 hours. 

Analysis: 

When a committee files its FEC report on paper, the Commission’s Public Records Office 

ensures that a copy is available for public inspection within 48 hours at FEC’s headquarters, 

located at 999 E Street, N.W., Washington, DC. Simultaneously, the FEC’s IT staff begins to

enter the information disclosed in the report into the FEC computer database. Reports filed 

electronically are made available to the public within 24 hours, if not almost immediately. The 

amount of information disclosed has grown dramatically over the years. By December 2004, 

more than 28 million pages of information dating back to 1972 were available for public review. 

87,500 90,500

71,000

106,706

0

20,000

40,000

60,000

80,000

100,000

120,000

FY 2002 FY 2003 FY 2004 FY 2005

Figure 2 – Total Reports and Statements Filed 

On the FEC website, the public can access all reports filed with the agency regardless of whether 

they were filed electronically or on paper. Scanned copies of paper reports can be searched and

viewed through the FECs digital imaging system on-line. The imaging system permits a user to 

view a committee’s report on a high resolution computer screen (or a paper copy), just as the 

document appeared in its original form. Campaign finance data can also be searched in a host of 

different ways: one can search the database by individual contributor, committee, candidate,

occupation, date, dollar amount, or other search criteria. In FY 2005, the website recorded more 

than 100 million “hits” from the public, more than double the “hits” in FY 2002. 

18
46.6

59.2

100 102

0

20

40

60

80

100

120

FY 2002 FY 2003 FY 2004 FY 2005

Figure 3 - Total Website Hits, Fiscal Year (in millions) 

The Commission’s Reports Analysis Division reviews all reports to track compliance with the 

law and to ensure that the public record provides a full and accurate portrayal of campaign 

finance activity. Significant backlogs of reports awaiting review developed, reaching more than 

30,000 reports at one point in the 2000 cycle. However, the division made significant 

improvement in the timeliness of the review of reports in FY 2004 for the 2004 cycle, resulting 

in the lowest backlog ever. In 2004, the Reports Analysis Division collaborated with other 

divisions to provide greater accessibility and more efficient service to the public and the 

regulated community. 

The Public Disclosure Division, Press Office, and Information Division staff assists thousands of

callers and visitors every year. 

Public Records

Printouts

Press

Publications

Figure 4 – Data Requests Responded to Within 72 Hours - 2002 (inner circle) to 2005 

2. Compliance 

Goal: The goal of the FEC’s Compliance program is to foster an attitude of voluntary 

compliance with the limits, prohibitions, and reporting requirements of the FECA through 

enforcement of the FECA in a timely, consistent, and comprehensive manner. 

Objective: Demonstrate to the public and the election community that the FECA is enforced 

19
fairly and swiftly, thus resulting in (1) a high level of voluntary compliance with the FECA, and 

(2) the most efficient use of FEC enforcement resources by focusing on the most salient and 

significant FECA compliance concerns. 

Performance Measures: 

• Committees found to have questionable activity are referred for audit or enforcement action. 

• Meet deadlines for issuance of advisory opinions and filing litigation pleadings 

• Maintain an average active enforcement caseload in excessive of 50% of total caseload and

close more than 50% of enforcement cases with substantive Commission action 

Analysis: 

The desired outcomes are the perception by the regulated community that disclosure reports must

be filed accurately and timely and that the FECA is enforced impartially and timely. Compliance 

goals focus primarily on the number of actions accomplished. Enforcement cases are generated 

through complaints filed by the public, referrals from other Federal and state agencies, and the 

FEC’s own monitoring procedures. The Reports Analysis Division reviews each committee 

report filed to ensure the accuracy of the information on the public record and to monitor the 

committee’s compliance with the law. If the information disclosed in a report appears to be

incomplete or inaccurate, the reviewing analyst sends the committee a “request for additional 

information.” The committee may avoid a potential enforcement action and/or audit by 

responding promptly to such a request. Most responses take the form of an amended report. 

Although the Commission does not have authority to conduct random audits of committees, it 

can audit a committee “for cause” when the committee’s reports indicate probable violations of 

the law. In FY 2005, the Audit Division completed a major effort to increase the number of nonPresidential committees audited in each election cycle. 

17

21

32

21

12

17

22

27

32

FY 2002 FY 2003 FY 2004 FY 2005

Figure 5 – Number of Non-Presidential Audits Completed 

20
7

11

0

1

0

2

4

6

8

10

12

FY 2002 FY 2003 FY 2004 FY 2005

Figure 6 – Number of Presidential Audits Completed 

Whether initiated by outside complaint or internal referral, the most complex and legally

significant enforcement matters are handled by the Enforcement Division of the Office of 

General Counsel (OGC), which: 

• Recommends to the Commission whether to find “reason to believe” the FECA has been 

violated, a finding that formally initiates an investigation; 

• Investigates potential violations of the FECA by requesting, subpoenaing, and reviewing 

documents and interviewing and deposing witnesses; and 

• Conducts settlement negotiations on behalf of the Commission, culminating in “conciliation 

agreements” with respondents. 

Based on the results of its investigations, the Office of General Counsel recommends to the 

Commission whether to find “probable cause to believe” the FECA has been violated. The 

agency must attempt to resolve enforcement matters through conciliation. If conciliation fails, 

however, the FEC may sue a respondent in Federal district court. 

13

17 18

56

0

10

20

30

40

50

60

FY 2002 FY 2003 FY 2004 FY 2005

Figure 7 – Number of Cases Referred for Enforcement Action 

In addition, two programs under the Office of the Staff Director (Administrative Fines and 

Alternative Dispute Resolution) have allowed the Office of General Counsel to focus its

enforcement resources on more substantive cases and improve the timeliness of cases closed. 

The total cases closed decreased partially because some of the less substantive cases were

transferred to the new Administrative Fine and Alternative Dispute Resolution programs, 

21
allowing the Office of General Counsel to concentrate its resources on more salient cases. The 

efforts by the Office of General Counsel, Administrative Fine Program, and Alternative Dispute 

Resolution have led to increased fines and penalties being levied against committees. 

91 86

72

79

0

20

40

60

80

100

FY 2002 FY 2003 FY 2004 FY 2005

Figure 8 – Number of Cases Closed: OGC 

Administrative Fine and Alternative Dispute Resolution cases are closed in significantly less

time than OGC cases. Administrative Fine cases for late and non-filers take less time to 

complete, especially when measured from the date a “reason to believe” determination is made

to the final resolution date. The difficulties associated with the mail processing and delivery 

post-9/11 had a somewhat adverse impact on processing these cases. There is evidence, however, 

that the program is improving filing timeliness and compliance, and that the cases are most likely

to derive from non-electronically filed reports (also from smaller committees in terms of dollar 

activity). Alternative Dispute Resolution cases have shown improvement in timeliness for those

cases not dismissed and generally take less time to complete than traditional enforcement cases. 

117

18

394

49

137

41

214

79

0

100

200

300

400

500

FY

2002

FY

2003

FY

2004

FY

2005

Alternative

Dispute

Resolution 

Administrative

Fine

Figure 9 – Number of Cases Closed: ADR and AF 

22
0

0.5

1

1.5

2

2.5

3

3.5

FY

2002

FY

2003

FY

2004

FY

2005

ADR

AF

OGC

Figure 10 - Amount of fines or penalties (in millions) 

3. Public Financing 

Goal: Limit the influence of personal wealth and special interest groups on the outcome of 

Presidential elections by offering public funding of campaigns. 

Objective: Implement the Presidential election public funding provisions of the campaign 

finance law and successfully administer the public funding provisions for qualified candidates in 

Presidential elections. 

Performance Measures: 

• Establish the eligibility of candidates for matching funds in a timely manner. 

• Ensure that all Federal funds disbursed in Presidential elections are properly certified and

accounted for by eligible candidates.

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

1992 1996 2000 2004

Figure 11 - Matching Fund Payouts 

Based on statutory criteria, the Commission determines which candidates and committees are 

eligible for public funds, and in what amounts. The U.S. Treasury then makes the necessary 

payments. Later, the Commission audits all of the committees that received public funds to 

ensure that they used the funds properly. Based on the Commission’s findings, committees may 

23
be required to make repayments to the U.S. Treasury. (For information about the public 

financing process, visit the FEC’s website at www.fec.gov.) 

Other FY 2005 Performance Results 

IT developments and enhancements assist the FEC in meeting its objectives and goals. The two 

major on-going initiatives are the IT Enhancements and the Electronic Filing projects. During 

FY 2005, the Commission continued to provide point of entry for the filing of House disclosure 

documents; scan all documents and transmit images to the House Office in usable format for that 

office; work with the Senate Office in making Senate documents available for disclosure; and

enhance and upgrade the FEC imaging system and all web-based disclosure applications. The

FEC also continued its multi-year enhancement and upgrade of IT systems for all Commission 

Offices and Divisions; migration to client/server environment; implementation of document

management system; and maintenance of its new finance and accounting system. The

Commission started a data mining program to take advantage of the enhanced disclosure system

and to enhance the automated review process in RAD. 

The Commissioners and management staff continued to comply with government-wide laws and

regulations for budget, planning, personnel, Equal Employment Opportunity, and other issues 

affecting Federal agencies and to provide guidance and support to the staff in meeting the FEC 

mission and achieving agency objectives and goals. 

The Department of Agriculture, which performs the payroll function for the FEC, underwent a 

Statement of Auditing Standards (SAS) 70 system review, which noted several reportable 

conditions that did not affect the FEC. These audits, completed under the guidelines of the 

American Institute of Certified Public Accountants’ SAS Number 70, Service Organizations,

provide an opinion on the internal controls placed in operation and include tests of operating

effectiveness. 

Data Sources and Quality 

The FEC has a planning and budgeting system based on a detailed Management Information 

System (MIS), and is driven by program-based workloads and activity data, outputs, and 

productivity measures. The FEC has also married the A-123 and A-127 processes, under the 

Federal Managers’ Financial Integrity Act, to ongoing program management activities, and 

relates the annual A-123 reports to the FEC budget requests. 

The evaluation of program resources--mainly staff resources--and the resulting program outputs

and productivity measures are used in the internal planning and budget formulation processes. 

Commission management plans and budget requests are workload-driven and related to resource 

levels and expected program activity levels. 

As a personnel-intensive agency, approximately 70% of the Commission’s resources are staff 

costs, and the remaining 30% represents mainly rent and other direct support for that staff. Using 

the MIS and summary MIS reports, all workloads, program outputs, productivity, and 

effectiveness and efficiency are being monitored in monthly management reports. Several other 

24
tracking systems monitor the status of reports processing (filing, filming, data coding and entry, 

and reports review), enforcement and litigation activities, Advisory Opinions and regulatory rule 

making, and audit progress. The Enforcement Priority System continually adjusts active

enforcement case loads to match available resources. 

A major, multiyear effort to institute a case management system for OGC to track enforcement 

cases resulted in the system becoming fully operational in FY 2003. This system monitors case 

status and tracks staff time by case for all OGC programs, not just enforcement. The 

implementation of the case management system provides a significant tool for the FEC to 

monitor resource usage and case progress. 

25
26
Section III

Auditor’s Report And Financial Statements

SECTION III

Auditor’s Report and

Financial Statements
MESSAGE FROM THE CHIEF FINANCIAL OFFICER 

November 15, 2005

I am pleased to present the Federal Election Commission’s (FEC’s) financial statements 

for fiscal year (FY) 2005. This section contains the independent auditor’s report, 

management’s response to the auditor’s report and the principal financial statements 

and notes. 

The financial statements have been prepared from the books and records of the FEC 

in accordance with U. S. generally accepted accounting principles (GAAP) for the 

Federal Government and Office of Management and Budget Circular A-136, Financial 

Reporting. 

We continue to strive for excellence in the financial management of the FEC. Every 

dollar is important and the way we manage those dollars makes a difference in how 

successfully we accomplish our mission. The FEC received an unqualified opinion 

on the Balance Sheet, State of Changes in Net Position, Statement of Budgetary 

Resources, Statement of Financing and Statement of Custodial Activity. The FEC 

received a qualified opinion from Clifton Gunderson (CG) on our cost allocation 

methodology for the Statement of Net Cost, despite the fact that the process was 

the same as last year and the FEC addressed all the recommendations from FY 2004 

audit in this area. The auditor opined that the FEC has four material weakness (cost 

accounting system and processes, custodial receipts, general property and equipment 

and information technology) and two reportable conditions (financial reporting and 

payroll). The FEC fundamentally disagrees with CG’s conclusions. 

During the past year, the FEC achieved progress on many fronts. We reduced 

considerably the time spent preparing interim and final financial statements and 

implemented a formal process for the Chief Financial Officer to review these reports. 

We developed and formally documented budget and property policies and procedures. 

We also updated the accounting policy and procedure manual. Finally, we engaged 

contractors to resolve software problems in our accounting system. 

Looking ahead, we will be taking actions that will have both short- and long-term 

benefits. We will continue to strengthen our fiscal management and accountability by 

enhancing internal controls, complying with financial management laws and regulations, 

and taking timely corrective actions on the auditor’s recommendations concerning 

material weaknesses and reportable conditions. Specifically, we are working to make 

the accounting system 100 percent compliant with the U.S. Standard Government 

Ledger by FY 2006. We will undertake a study to determine whether our accounting 

system should be upgraded or replaced so that we can comply with Department of the 

Treasury and Office of Management and Budget’s new reporting requirements. 

27
I am fully committed to the continuing improvement of the Commission’s financial management. My goal 

is to attain an unqualified audit opinion each year, maintain strong internal controls and provide timely, 

accurate and reliable financial information to ensure we make informed decisions. 

Sincerely,

Anthony P. Scardino

Chief Financial Officer

28
29

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

Office of Inspector General

MEMORANDUM

TO: The Commission

FROM: Inspector General

SUBJECT: Audit of the Federal Election Commission’s Fiscal Year 2005 Financial

 Statements

DATE: November 10, 2005

This letter transmits the final audit report of the Federal Election Commission’s (FEC) fiscal 

year (FY) 2005 financial statements. In accordance with the Accountability of Tax Dollars 

Act of 2002, the FEC prepared financial statements in accordance with Office of Management 

and Budget (OMB) Bulletin No. 01-09, Form and Content of Agency Financial Statements, as 

amended, and subjected them to audit.

The Chief Financial Officers Act of 1990 (Public Law 101-576, commonly referred to as 

the “CFO Act”), as amended, requires the FEC Office of Inspector General (OIG), or an 

independent external auditor as determined by the Inspector General, to audit the agency 

financial statements. Under a contract monitored by the OIG, Clifton Gunderson LLP (CGLLP), an independent certified public accounting firm, performed the audit of the FEC’s FY 

2005 financial statements. 

The OIG commends the FEC for the accomplishment of completing the fiscal year 2005 on 

time this year. The Inspector General acknowledges the significant challenge of meeting the 

accelerated due date of the annual financial statement audit required by OMB.

Audit Process

CG-LLP conducted the audit in accordance with auditing standards generally accepted in the 

United States of America; the standards applicable to financial audits contained in Government 

Auditing Standards, issued by the Comptroller General of the United States; and OMB Bulletin 

No. 01-02, Audit Requirements for Federal Financial Statements, as amended. The results of 

INDEPENDENT AUDITOR’S REPORT
30 

2

the financial statement audit are detailed in three reports: report on compliance with laws and 

regulations; report on internal control; and the opinion on the financial statements.

Report on Compliance with Laws and Regulations

FEC management is responsible for complying with laws and regulations applicable to the 

agency. To obtain reasonable assurance about whether FEC’s financial statements are free of 

material misstatements, CG-LLP performed tests of compliance with certain provisions of 

laws and regulations, non-compliance with which could have a direct and material effect on the 

determination of financial statement amounts, and certain laws and regulations specified in OMB 

Bulletin No. 01-02, such as the Anti-Deficiency Act and the Prompt Payment Act. 

The results of CG-LLP’s tests of compliance with laws and regulations described in the audit 

report disclosed no instances of noncompliance with the laws and regulations that are required to 

be reported under Government Auditing Standards and OMB Bulletin No. 01-02.

Report on Internal Control

CG-LLP’s planning and performance of the audit included consideration of the FEC’s internal 

control over financial reporting. The CG-LLP auditors obtained an understanding of the FEC’s 

internal control; determined whether internal controls had been placed in operation; assessed 

control risk; and performed tests of controls in order to determine auditing procedures for the 

purpose of expressing an opinion on the financial statements. The auditors limited their internal 

control testing to those controls necessary to achieve the objectives described in OMB Bulletin 

No. 01-02 and consequently CG-LLP did not provide an opinion on internal control.

Internal control as it relates to the financial statements, is a process, affected by agency’s 

management and other personnel, designed to provide reasonable assurance of the following: 

(1) transactions are properly recorded, processed, and summarized to permit preparation of the 

financial statements and assets are safeguarded against loss from unauthorized acquisition, use 

or disposition; (2) transactions are executed in accordance with laws governing the use of budget 

authority and other laws and regulations that could have a direct and material effect on the 

financial statements and other laws and regulations identified by OMB; and (3) transactions and 

other data that support reported performance measures are properly recorded, processed, and 

summarized to permit the preparation of performance information in accordance with criteria 

stated by management.

In performing the testing of internal control necessary to achieve the objectives in OMB Bulletin 

No. 01-02, the auditors identified matters relating to significant deficiencies in the design or 

operation of FEC’s internal control. The testing of internal control identified both reportable 

conditions and material weaknesses. The American Institute of Certified Public Accountants 

(AICPA) categorizes reportable conditions as matters relating to significant deficiencies in the 
31



design or operation of the internal control, which in the judgment of the auditor, could adversely 

affect the agency’s ability to record, process, summarize, and report financial data consistent with 

the assertions by management in the financial statements. Material weaknesses are reportable 

conditions in which the design or operation of one or more of the internal control components 

does not reduce to a relatively low level the risk that misstatements in amounts that would be 

material in relation to the financial statements being audited may occur and not be detected 

within a timely period by employees in the normal course of performing their assigned 

functions. 

CG-LLP identified material weaknesses in the areas of:

v Cost Accounting System and Processes

v Administrative Fines, Civil Penalties and Miscellaneous Receipts

v General Property and Equipment

v Information Technology

CG-LLP identified reportable conditions, not considered to be material weaknesses, which 

include the following:

v Financial Reporting

v Payroll

Opinion on the Financial Statements

CG-LLP audited the balance sheets of the FEC as of September 0, 2005 and 2004, and the 

related statements of net cost, changes in net position, budgetary resources, financing, and 

custodial activity for the years then ended. In the report dated November 7, 2005, CG-LLP 

issued a qualified opinion on the FEC’s financial statements.

In fiscal year 2005, the FEC was late in providing cost information to support the allocation of 

program costs reported on the statement of net cost. As a result, adequate time did not remain to 

obtain sufficient competent evidential matter and apply auditing procedures necessary to conduct 

the audit in accordance with the standards and OMB audit guidance mentioned above.

In the independent auditor’s opinion, except for the effects of such adjustments to the fiscal year 

2005 statement of net cost, if any, as might have been necessary had the auditors been able to 

perform adequate audit procedures on the program costs referred to in the preceding paragraph, 

the financial statements and related notes referred to above were presented fairly, in all material 

respects, the financial position of the FEC as of September 0, 2005 and 2004, and its net cost, 

changes in net position, budgetary resources, reconciliation of net cost to budgetary obligations, 
32 

4

and custodial activity for the years then ended in conformity with accounting principles generally 

accepted in the United States of America.

The audit included an examination, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements. The audit also included assessing the accounting 

principles used and significant estimates made by management, as well as evaluating the overall 

principal statements’ presentation.

Audit Follow-up

The report on internal control contains numerous recommendations to address weaknesses found 

by the auditors. Management was provided a draft copy of the audit report for comment and 

CG-LLP reviewed management’s comments. Although CG-LLP stands by the report and the 

weaknesses detailed, the OIG and CG-LLP intend to work with management through the followup and audit process to ensure the weaknesses are addressed satisfactorily. In accordance with 

OMB Circular No. A-50, Audit Followup, revised, and based on an agreement with the Offices of 

the Staff Director and General Counsel, the Staff Director or designee shall develop an action 

plan for corrective action of the recommendations. The action plan is to set forth specific action 

planned to implement the recommendations and the schedule for implementation. 

OIG Evaluation of Clifton Gunderson LLP’s Audit Performance

In connection with the OIG’s contract with CG-LLP, the OIG reviewed CG-LLP’s reports 

and related documentation and inquired of its representatives. Specifically, we performed 

the following: (1) reviewed CG-LLP’s approach and planning of the audit; (2) evaluated 

the qualifications and independence of the auditors; (3) monitored the work of the auditors 

throughout the audit; (4) examined audit documents and audit reports to ensure compliance 

with Government Auditing Standards and OMB Bulletin No. 01-02; and (5) performed other 

procedures we deemed necessary.

The OIG’s review of CG-LLP’s work, as differentiated from an audit in accordance with 

Government Auditing Standards issued by the Comptroller General of the United States, was 

not intended to enable us to express an opinion on the FEC’s financial statements; provide 

conclusions about the effectiveness of internal control; or reach conclusions on whether FEC’s 

management substantially complied with laws and regulations related to the audit. CG-LLP 

is responsible for the opinion and conclusions reached in the attached reports dated November 

7, 2005. The OIG review disclosed no instances where CG-LLP did not comply, in all material 

respects, with Government Auditing Standards.
33

5

If you should have any questions, please contact my office on (202) 694-1015. We appreciate the 

courtesies and cooperation extended to Clifton Gunderson LLP and the OIG staff during the 

conduct of the audit.

 Lynne A. McFarland

Inspector General

Attachments

Cc: Acting Staff Director

Chief Financial Officer and Deputy Staff Director for Management

Accounting Officer

Information Technology Director
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Independent Auditor’s Report 

To the Inspector General of the 

 Federal Election Commission 

We have audited the balance sheets of the Federal Election Commission (FEC) as of 

September 30, 2005 and 2004, and the related statements of net cost, changes in net position, 

budgetary resources, financing, and custodial activity for the years then ended. These financial 

statements are the responsibility of FEC’s management. Our responsibility is to express an 

opinion on these financial statements based on our audit. 

Except as discussed in the following paragraph, we conducted our audits in accordance with 

auditing standards generally accepted in the United States of America; the standards applicable 

to financial audits contained in Government Auditing Standards, issued by the Comptroller 

General of the United States; and Office of Management and Budget (OMB) Bulletin No. 01-02, 

Audit Requirements for Federal Financial Statements, as amended. Those standards require that 

we plan and perform the audit to obtain reasonable assurance about whether the financial 

statements are free of material misstatement. An audit includes examining, on a test basis, 

evidence supporting the amounts and disclosures in the financial statements. An audit also 

includes assessing the accounting principles used and significant estimates made by 

management, as well as evaluating the overall financial statements’ presentation. We believe our 

audits provide a reasonable basis for our opinion. 

In fiscal year 2005, the FEC was late in providing cost information to support the allocation of 

program costs reported on the statement of net cost. As a result, adequate time did not remain to 

obtain sufficient competent evidential matter and apply auditing procedures necessary to conduct 

the audit in accordance with the standards and OMB audit guidance mentioned above. 

In our opinion, except for the effects of such adjustments to the fiscal year 2005 statement of net 

cost, if any, as might have been necessary had we been able to perform adequate audit 

procedures on the program costs referred to in the preceding paragraph, the financial statements 

and related notes referred to above present fairly, in all material respects, the financial position of 

the FEC as of September 30, 2005 and 2004, and its net cost, changes in net position, budgetary 

resources, reconciliation of net cost to budgetary obligations, and custodial activity for the years 

then ended in conformity with accounting principles generally accepted in the United States of 

America. 
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In accordance with Government Auditing Standards, we have also issued our reports dated 

November 7, 2005 on our consideration of FEC’s internal control over financial reporting, and 

on our tests of FEC’s compliance with certain provisions of laws and regulations. The purpose 

of those reports is to describe the scope of our testing of internal control over financial reporting 

and compliance and the results of that testing, and not to provide an opinion on the internal 

control over financial reporting or on compliance. Those reports are an integral part of our audit 

performed in accordance with Government Auditing Standards and should be considered in 

assessing the results of our audit. 

Our audits were made for the purpose of forming an opinion on the basic financial statements 

taken as a whole. The Management Discussion and Analysis, required supplementary 

information, and other accompanying information contain a wide range of data, some of which is 

not directly related to the financial statements. We do not express an opinion on this 

information. However, we compared this information for consistency with the financial 

statements and discussed the methods of measurement and presentation with the FEC officials. 

Based on this limited work, we found no material inconsistencies with the financial statements or 



nonconformance with OMB guidance. 

Calverton, Maryland 

November 7, 2005 
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  

Independent Auditor’s Report on Internal Control 

To the Inspector General of the 

 Federal Election Commission 

We have audited the financial statements of the Federal Election Commission (FEC) as of and 

for the year ended September 30, 2005, and have issued our report dated November 7, 2005. In 

our report, our opinion was qualified for the effects of adjustments, if any, as might have been 

necessary had we been able to perform adequate audit procedures on the cost information 

supporting the allocation of program costs reported on the statement of net cost. Except as 

described above, we conducted our audit in accordance with auditing standards generally 

accepted in the United States of America; the standards applicable to financial audits contained 

in Government Auditing Standards, issued by the Comptroller General of the United States; and 

Office of Management and Budget (OMB) Bulletin No. 01-02, Audit Requirements for Federal 

Financial Statements, as amended. 

In planning and performing our audit, we considered FEC’s internal control over financial 

reporting by obtaining an understanding of FEC’s internal control; determined whether internal 

controls had been placed in operation; assessed control risk; and performed tests of controls in 

order to determine our auditing procedures for the purpose of expressing our opinion on the 

financial statements. We limited our internal control testing to those controls necessary to 

achieve the objectives described in OMB Bulletin No. 01-02. We did not test all internal 

controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial 

Integrity Act (FMFIA) (31 U.S.C. 3512), such as those controls relevant to ensuring efficient 

operations. The objective of our audit was not to provide assurance on internal control. 

Consequently, we do not provide an opinion on internal control. 

Our consideration of the internal control over financial reporting would not necessarily disclose 

all matters in the internal control over financial reporting that might be reportable conditions. 

Under standards issued by the American Institute of Certified Public Accountants, reportable 

conditions are matters coming to our attention relating to significant deficiencies in the design or 

operation of the internal control that, in our judgment, could adversely affect the agency’s ability 

to record, process, summarize, and report financial data consistent with the assertions by 

management in the financial statements. Material weaknesses are reportable conditions in which 

the design or operation of one or more of the internal control components does not reduce to a 

relatively low level the risk that misstatements in amounts that would be material in relation to 

the financial statements being audited may occur and not be detected within a timely period by 

employees in the normal course of performing their assigned functions. Because of inherent 

limitations in internal controls, misstatements, losses, or noncompliance may nevertheless occur 
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and not be detected. However, we noted certain matters discussed in the following paragraphs 

involving the internal control and its operation that we consider to be reportable conditions and 

material weaknesses. 

Finally, with respect to internal control related to performance measures reported in FEC’s 

Performance and Accountability Report, we obtained an understanding of the design of 

significant internal controls relating to the existence and completeness assertions, as required by 

OMB Bulletin No. 01-02, as amended. Our procedures were not designed to provide assurance 

on internal control over reported performance measures, and, accordingly, we do not provide an 

opinion on such controls. 

******************************** 

FEC attained a major achievement by having its financial statements audited for the first time in 

fiscal year 2004. FEC continues to design and implement internal controls to strengthen its 

financial reporting processes. Also, early in the second half of fiscal year 2005, FEC hired a 

Deputy Staff Director for Management/Chief Financial Officer, a position which was not filled 

for over a year. In fiscal year 2005, however, certain controls were still being designed, not yet 

implemented, not fully implemented or not consistently implemented throughout the year. 

MATERIAL WEAKNESSES

I. Cost Accounting System and Processes 

The weaknesses identified below collectively resulted in a material weakness in FEC’s 

cost accounting system and processes. 

A. Cost Allocation Methodology (Repeat Finding) 

FEC does not have a cost accounting system that is integrated with the general ledger 

(GL) system. The current cost accounting system is not adequate to produce the cost 

data for the Statement of Net Cost (SNC) in an efficient manner. Moreover, the lack 

of documented procedures and the heavy reliance on a single person to carry out this 

process impaired FEC’s ability to generate timely information especially after the 

person became unavailable. Consequently, FEC was not able to provide the 

documentation for cost allocation timely and we were not able to apply auditing 

procedures to satisfy ourselves with the program costs reported on the SNC. 

The cost data presented on the SNC is compiled from three systems’ raw data, which 

is then gathered and analyzed using an elaborate, complex, and manually intensive 

process. Raw data used in the allocation of costs, such as FTE hours, is sometimes 

based on estimates due to the timing of the availability of the data. 
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FEC summarizes employee hours in a spreadsheet based on an office’s program 

numbers, which is generated by a system. The program numbers represent the type of 

work performed by an employee and the hours are assigned directly or allocated to 

FEC’s three major programs. FEC could not provide crosswalk documentation or 

definitions supporting the basis of assignment or allocation. The data accumulation 

and analysis is performed by one person and not subjected to a second review. 

The manually intensive and elaborate cost allocation process dictates the need for a 

formal comprehensive policy and procedures. 

A control activity in the GAO Standards for Internal Control in the Federal 

Government is appropriate documentation of transactions and internal control. 

Internal control and all transactions and other significant events need to be clearly 

documented, and the documentation should be readily available for examination. The 

documentation should appear in management directives, administrative policies, or 

operating manuals. All documentation and records should be properly managed and 

maintained. 

Recommendations: 

 

1. Establish formal and comprehensive cost allocation methodology and related policy 

and procedures. 

2. Cross-train employees to minimize the risks of major interruptions in normal business 

operations. 

3. Establish a review process wherein a person, other than the preparer, reviews the 

work performed to ensure accuracy and propriety. 

4. Maintain audit trails to support the allocation methodology and amounts. 

B. Managerial Cost Accounting (Repeat Finding) 

Statement of Federal Financial Accounting Standards No. 4, Managerial Cost 

Accounting Concepts and Standards for the Federal Government, requires reporting 

components to perform a minimum-level of cost accounting and provide basic 

information necessary to accomplish the many objectives associated with planning, 

decision-making, and reporting. This minimum-level of cost accounting includes, 

among others: providing information for performance measurement; integrating both 

cost accounting and general financial accounting by using the United States Standard 

General Ledger (USSGL); providing useful information; and accommodating 

management’s special cost information needs or any other needs that may arise due to 
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unusual or special situations or circumstances. The present FEC cost accounting 

system does not provide the minimum-level identified above. 

FEC is currently testing a new cost accounting system with a target implementation 

date of January 2006. The FEC believes the conditions noted above will be corrected 

by the new cost accounting system. 

Recommendation: 

5. Evaluate the functional requirements for the new cost accounting system to ensure 

that at least, the minimum level of cost accounting required in SFFAS No. 4 is 

attained. 

II. Administrative Fines, Civil Penalties and Miscellaneous Receipts (Custodial 

Receipts) (New Condition) 

The weaknesses identified below collectively resulted in a material weakness in FEC’s 

custodial receipts. 

FEC does not have adequate systems and controls in place to ensure that custodial 

receipts are properly accounted for and recorded timely. There were no formal 

accounting policy and procedures to ensure that various offices periodically forward to, 

or notify, the finance office of all identifiable, legally enforceable claims (receivable and 

revenue) for recording of activities in accordance with the accounting standards. The 

lack of a policy, standard mechanism and consistent approach resulted in transactions not 

being recorded and reported timely and required the FEC to expend significant effort 

towards the end of the fiscal year to identify all transactions that should be recorded. 

Moreover, for receivables already recorded in the books, FEC lacked adequate 

documentation of analysis applied in determining the allowance for doubtful accounts. In 

addition, transactions related to the custodial receipts, which are non-appropriated funds, 

were recorded in Standard General Ledger (SGL) account no. 1011, an account used for 

appropriated funds. The use of the incorrect SGL account was corrected in September 

2005 when the auditors brought this issue to FEC’s attention. 

SFFAS No. 7, Accounting for Revenue and Other Financing Sources, states that nonexchange revenue (e.g. penalties and fines) should be recognized when a specifically 

identifiable, legally enforceable claim to resources arises, to the extent that collection is 

probable (more likely than not) and the amount is reasonably estimable. An allowance 

for uncollectible accounts receivable should be recognized as a revenue adjustment. 
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The United States Standard General Ledger (USSGL) provides a uniform Chart of 

Accounts and technical guidance to be used in standardizing federal agency accounting. 

Recommendations: 

6. Establish and implement policy and procedures ensuring communication and 

coordination between program offices and finance office on activities with financial 

impact. The policy should also clearly establish the FEC’s revenue recognition 

policy. The finance office should design a standard report outlining all the necessary 

information to record the financial activities. The report should be prepared and 

submitted timely at least monthly by the program offices to the finance office. 

7. Document the policy and basis for the allowance for uncollectible accounts. 

III. General Property and Equipment (Property) (Modified Repeat Finding) 

FEC’s accounting for property involves a time-consuming effort that increases the risk of 

errors due to its process of expensing its property at the time of acquisition and preparing 

a journal voucher to reclassify the expense to an asset for reporting purposes. In midSeptember 2005, FEC changed to a new property management system. However, the 

accounting for property did not change. 

Our audit disclosed deficiencies, errors or omissions that questioned the effectiveness of 

FEC’s internal control on property. The weaknesses identified below collectively 

resulted in a material weakness in FEC’s general property and equipment. Some 

examples are noted below: 

• The internal control to ensure completeness and proper valuation of property recorded 

in the books was not properly designed, and consequently, was not effective. The 

periodic property reconciliation process did not identify software that should have 

been capitalized until during the audit process. In addition, the monthly management 

analysis of financial activities did not show an analysis of property. 

• Although the number of items in FEC’s capitalized asset is not many, most of these 

assets are bulk purchases comprised of many individual properties which are 

individually entered into the property system for accountability purposes. The 

information contained in the property system is not always complete. We found that 

some items in the property system did not have the bar code identification, serial 

number and location of the asset. 

• Although we were informed that a property physical inventory was conducted, FEC 

could not provide the instructions, complete results and reconciliation of the physical 

inventory to the property system and the general ledger balance. 
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• FEC did not always capitalize assets in accordance with the Statement of Federal 

Financial Accounting Standards (SFFAS) No. 10, Accounting for Internal Use 

Software. Moreover, FEC’s processes of identifying software in progress and 

completed were not adequate to ensure that all software was identified and recorded. 

• For 12 of the 18 property additions tested, the receiving reports were not complete or 

included incorrect information. 

• The obligating memo for one of the 15 sample items was not approved by the 

accounting officer, an authorized approving officer. 

• There was no standard process, mechanism or a policy to ensure that program offices 

notify the finance office of the acquisition or disposition of property such as software 

in development, completed software, construction in progress, and completed 

construction to ensure the accounting impact of the transaction is recorded timely and 

properly. 

One of the five standards for internal control in the Government Accountability Office’s 

(GAO) Standards for Internal Control in the Federal Government is control activities. 

Control activities occur at all levels and functions of the entity. They include a wide 

range of diverse activities such as approvals, authorizations, verifications, reconciliations, 

performance reviews, maintenance of security, and the creation and maintenance of 

related records, which provide evidence of execution of these activities as well as 

appropriate documentation. 

Recommendations: 

8. Reconcile the total of the individual property items in the property system to the bulk 

purchase total recorded in the books to ensure completeness of the property system 

records. 

9. Document physical inventory procedures, results, and reconciliation and maintain the 

documentation for audit trail purposes. 

10. Revise the software capitalization policy to comply with SFFAS No. 10. 

11. Enforce compliance and consistent implementation of policies and procedures related 

to completing receiving reports and the review and approval of obligating memos or 

documents. 

12. Establish a standard process and policy where program offices are required to notify 

the finance office of any property acquisition or disposition with accounting impact to 

ensure proper and timely recording of the transaction. 
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IV. Information Technology (IT) 

The reportable conditions below, when evaluated together, make the IT area a material 

weakness. 

A. Entity-Wide Security Program 

GAO reported in July 2005 that the underlying cause for information security 

weaknesses is that agencies have not yet fully implemented entity-wide information 

security programs. An entity-wide security program provides a framework and 

continuing cycle of activity for managing risk, developing security policies, assigning 

responsibilities, and monitoring the adequacy of the entity’s computer-related 

controls. Without a well-designed program, security controls may be inadequate; 

responsibilities may be unclear, misunderstood, and improperly implemented; and 

controls may be inconsistently applied. Such conditions may lead to insufficient 

protection of sensitive or critical resources and disproportionately high expenditures 

for controls over low-risk resources. (U.S. Government Accountability Office, 

Weaknesses Persist at Federal Agencies Despite Progress Made in Implementing 

Related Statutory Requirements, GAO-05-552 [Washington, D.C.: July 2005]). 

FEC has taken important steps to establish an effective information security program, 

but has not completed the documentation, approval and implementation of an entitywide security program plan. In October 2004, FEC issued a memo informing 

employees that the “Information System Security Program Policy” (Policy Number 

58A) was approved and should be followed by all employees. Policy Number 58A 

was created to “manage the risk to information rather than just systems” and serve as 

the backbone of FEC’s entity-wide security program. Policy 58A and its subsets 

supplement Directive 58, “Electronic Records, Software and Computer Usage,” 

which was issued in November 1997. 

In fiscal year 2005, FEC has completed the identification of its major applications and 

mission critical general support systems (MCGSS) as part of its risk mitigation 

strategy. FEC management also created a Security Review Policy that calls on 

management to perform annual external penetration testing, disaster recovery tests, a 

review of incident response procedures, a network vulnerability study, a code review 

of one major application and a review of access control procedures. Additionally, 

FEC management is currently in the process of soliciting bids for risk assessments. 

Management has completed the statement of work, received proposals and is 

currently reviewing the proposals. The risk assessment and business impact analysis 

are key components in the development of security plans and disaster recovery plans. 

These components are essential in the establishment of the framework for the 

development and implementation of the FEC’s security plans and disaster recovery 

plans. 
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Current weaknesses that exist in FEC’s information security program include the 

following: 

• (Repeat Finding) FEC has not fully implemented its documented framework of 

policies and standards to mitigate risks associated with the management of 

information resources. 

• (Repeat Finding) FEC has not completed the documentation, approval and 

implementation of its entity-wide security program plan. 

• (Modified Repeat Finding) FEC has not completed the documentation, approval 

and implementation of security plans for six of the 13 identified major 

applications and MCGSS. 

• Resource Classifications in FEC’s security plans are not based on Risk 

Assessments. 

• (Modified Repeat Finding) FEC has not fully implemented a program for the 

continuous monitoring and evaluation of the computer security policy and control 

effectiveness. Although the FEC has created a Security Review Policy, the FEC 

did not provide evidence of several components of the security reviews to be 

conducted during the fiscal year that would document the continuous monitoring 

and evaluation of the security policy. For example, the auditors were not 

provided with evidence of the following reviews required by the policy: MCGSS 

reviews; test of the incident response procedures; and a code review of one major 

application. The FEC has created a Security Review Policy that calls on 

management to perform annual external penetration testing, disaster recovery 

testing, a review of incident response procedures, a network vulnerability study, 

and a review of access control procedures. Additionally, FEC management issued 

a memo on May 21, 2004 outlining a schedule of review of its major applications 

and MCGSS with reviews of the MCGSS beginning in the third quarter of fiscal 

year 2005.

• (Repeat Finding) Risk assessments have not been conducted for more than three 

years. FEC management is currently in the process of soliciting bids for risk 

assessments. 

• (Repeat Finding) Major applications and MCGSS have not been certified and 

accredited to ensure that they are operating according to FEC’s security 

requirements. 

• There are weaknesses in FEC’s program to document corrective actions and 

verify that the weaknesses identified have been addressed. 
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Recommendations: 

13. Implement a framework of policies and standards to mitigate risks associated with the 

information resources management. 

14. Complete the documentation, approval and implementation of an entity-wide security 

program plan. 

15. Develop and implement security plans for all major applications and MCGSS as part 

of a risk mitigation strategy. 

16. Ensure that Resource Classifications in FEC’s security plans accurately reflect the 

risk and vulnerabilities of FEC systems. 

17. Complete the implementation of the program for the continuous monitoring and 

evaluation of the computer security policy and control effectiveness. 

18. Conduct risk assessments at least every three years as part of an overall strategy to 

mitigate risks associated with its information technology environment. 

19. Certify that the major applications and MCGSS are operating according to FEC’s 

security requirements. 

20. Strengthen FEC’s program to document corrective actions and verify that weaknesses 

identified have been addressed. Ensure and document that recommendations from the 

most recent network security review have been implemented. 

B. Controls to Protect Information 

For a computerized organization like FEC, achieving an adequate level of information 

protection is highly dependent upon maintaining consistently effective access controls 

and system software controls. Access controls limit and monitor access to computer 

resources (i.e., data files, application programs, and computer-related facilities and 

equipment) to the extent necessary to provide reasonable assurance that these 

resources are protected against waste, loss, unauthorized modification, disclosure, or 

misappropriation. Access controls include logical/technical controls such as 

designing security software programs to prevent or detect unauthorized access to 

sensitive data. Similarly, system software controls limit and monitor access to 

powerful programs and sensitive files that control computer processing and secure the 

application and data supported by the system. 
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Our limited testing of internal controls identified weaknesses related to the 

information protection in the FEC’s information systems environment. Impacted 

areas included the local area and wide area networks as well as its midrange computer 

systems (e.g. servers). These vulnerabilities expose FEC and its computer systems to 

risks of external and internal intrusion, and subject sensitive information related to its 

major applications to potential unauthorized access, modification, and/or disclosure. 

Current weaknesses in access controls include the following: 

• (Modified Repeat Finding) The principle of “least privilege” is not enforced. A 

high-level finance officer has system administrator access to the GL system. 

• (Repeat Finding) FEC does not maintain visitor logs for data center access and 

has not implemented adequate compensating controls to monitor and record 

visitor access to the data center. 

• (Modified Repeat Finding) FEC does not use access request forms to document 

user access rights or periodically review all access rights for appropriateness. 

Specifically, we noted that data center access request e-mails were only available 

for three out of 40 users and there was no evidence of data center access 

revalidation. Additionally, we noted that access rights for the new property 

system were not documented; access requests were verbally approved, according 

to management. 

• (Modified Repeat Finding) The GL system application does not have the built in 

functionality to enforce password controls. Specifically, 

o It does not enforce password changes, 

o It does not have an account lockout policy, 

o It does not prevent users from using previous passwords, and 

o It does not have the ability to enforce strong password requirements. 

• (Repeat Finding) FEC does not comply with its auditing policy because it does 

not automatically log the network activity described in its Audit Event Standards, 

even though it has the capability to do so. 

• FEC is not actively monitoring the use of budgetary overrides in the GL 

application. 

• FEC does not periodically review its firewall rule set for appropriateness.

• Local area network (LAN) user accounts are not appropriately reviewed: 

o One account has not been used since 1998; 

o One account has not been used since 2002; and 

o Two accounts have not logged on since 2004. 
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Recommendations: 

21. Create a new GL system application role to give employees with necessary and 

appropriate access rights to fulfill their job responsibility. 

22. Monitor and record visitor access to the data center. 

23. Use access request forms to document user access rights and periodically review the 

access for appropriateness. 

24. Develop mitigating controls to ensure that GL system passwords are in agreement 

with FEC policy. 

25. Automatically log network activity as required by the Audit Events Standards.

26. Institute a process to manually review logs of users using budgetary overrides where 

the reviewer is an individual who does not have access to utilize the overrides. 

27. Periodically review the firewall rule set for appropriateness. 

28. Periodically review LAN user accounts and disable unnecessary user accounts. 

C. Contingency Plan 

Losing the capability to process and protect information maintained on FEC’s 

computer systems can significantly impact FEC’s ability to accomplish its mission to 

serve the public. The purpose of service continuity controls is to ensure that, when 

unexpected events occur, critical operations continue without interruption or critical 

operations are promptly resumed. 

To achieve this objective, FEC should have procedures in place to protect information 

resources and minimize the risk of unplanned interruptions and a plan to recover 

critical operations should interruptions occur. These plans should consider activities 

performed at FEC’s general support facilities (e.g. FEC’s LAN, wide area network, 

and telecommunications facilities), as well as the activities performed by users of 

specific applications. To determine whether the disaster recovery plans will work as 

intended, FEC should establish and periodically test the capability to perform its 

functions in disaster simulation exercises. 

Our review of the service continuity controls identified deficiencies that could affect 

FEC’s ability to respond to a disruption in business operations as a result of a disaster 

or other long-term emergency. The deficiencies were as follows: 
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• (Modified Repeat Finding) FEC has not performed a Business Impact Analysis 

(BIA) to formally identify and prioritize all critical data and operations on its 

networks and the resources needed to recover them if there is a major interruption 

or disaster. In addition, we could not determine whether FEC had established 

emergency processing priorities that will help manage disaster situations more 

effectively for the network. FEC also has not included business owners in the 

discussion to determine how much backup data is needed on-hand to minimize the 

impact of a disaster. FEC is currently in the process of creating a request for 

proposal for completing a BIA. 

• (Modified Repeat Finding) FEC has not established an alternate processing site 

for its operations in the event of a disaster, including its general ledger system. 

Additionally, the FEC disclosure database is replicated at an off-site location as a 

web-enabled, read-only database the public can access. In the event that data 

cannot be updated at FEC and then replicated to the off-site location, there is no 

operational mechanism to update the disclosure database at the off-site location. 

FEC has developed a cost analysis of establishing an alternate site and is currently 

pursuing interagency agreements to address this issue. 

• FEC has not developed a Continuity of Operations Plan (COOP) to support the 

continuation of its core mission in the event of a disaster that renders the FEC’s 

facilities unusable. 

• (Modified Repeat Finding) FEC has not developed and documented a 

comprehensive contingency plan of its data centers, networks and 

telecommunication facilities. FEC has created a contingency plan that includes 

procedures for restoring its network and the GL system application in the event of 

a disaster. Although FEC has identified the system resources and relevant points 

of contact associated with the two systems, the following elements were missing 

from the contingency plan: 

o The plan does not cover all major applications and mission critical 

systems, and 

o The plan does not prioritize resources or set a timeframe for recovery. 

Recommendations: 

29. Perform a Business Impact Analysis to formally identify and prioritize all critical data 

and operations on FEC’s networks and the resources needed to recover them if there 

is a major interruption or disaster. Ensure that emergency processing priorities are 

established to assist in managing disaster situations more effectively for the network 

and include business owners in the discussion to determine how much backup data is 

needed on-hand to minimize the impact of a disaster. 
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30. Establish alternative processing site for FEC’s operations in the event of a disaster 

and ensure that an operational mechanism exists to update the disclosure database in 

the event that the FEC database is unavailable to replicate the disclosure database 

resident at the off-site location. 

31. Develop a Continuity of Operations Plan (COOP) to support the continuation of the 

FEC’s core mission in the event of a disaster that renders the FEC’s facilities 

unusable. 

32. Develop and document a comprehensive contingency of operations plan of FEC’s 

data centers, networks and telecommunication facilities. 

D. Software Development and Change Controls 

Establishing controls over the modification of application software programs helps to 

ensure that only authorized programs and authorized modifications are implemented. 

This is accomplished by instituting policies, procedures, and techniques that help 

make sure all programs and program modifications are properly authorized, tested, 

and approved and that access to and distribution of programs is carefully controlled. 

Without proper controls, there is a risk that security features could be inadvertently or 

deliberately omitted or "turned off" or that processing irregularities or malicious code 

could be introduced. 

(Modified Repeat Finding) FEC has not fully implemented its System Development 

Life Cycle (SDLC) Methodology, specifically: 

• The FEC is not using Change Implementation/Notices to document change 

requests, 

• One change did not show evidence of user acceptance testing, 

• Two changes did not show evidence of implementation approval, 

• Test results and approvals are not documented on Test Problem Reports and 

Test Approval Determinations, as indicated in the SDLC, and 

• The FEC did not perform a feasibility study or cost-benefit analysis for the 

acquisition of Probar, a new property management system. 

Recommendation: 

33. Fully implement the System Development Life Cycle Methodology. 
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REPORTABLE CONDITIONS

V. Financial Reporting (Modified Repeat Finding) 

A. General Ledger (GL) System Setup and Posting Model Definitions (Modified 

Repeat Finding) 

The GL system setup and posting model definitions do not fully comply with the 

transactions posting models consistent with the USSGL guidance and policies when 

recording and classifying certain transactions. The resources expended to 

periodically review and research incorrect posting logic errors, reconciliation, and 

adjustments to the general ledger accounts could be devoted to the routine daily 

business operations of FEC. FEC is aware of the inherent limitations of the GL 

system and has requested assistance from the vendor to correct posting logic. FEC 

anticipates corrections will be finalized in fiscal year 2006. 

Recommendation: 

34. Ensure that corrections made to the posting logic comply with the USSGL and that 

the USSGL accounts and posting logic are updated as changes to USSGL are issued. 

B. Continuing Resolution Accounting (New Finding) 

FEC did not record apportionments granted during the continuing resolution period in 

accordance with the instructions from the OMB Circular No. A-11, Preparation and 

Submission of Budget Estimates, and OMB Bulletin No. 04-05, Apportionment of 

Continuing Resolution(s) for Fiscal Year 2005. Specifically, FEC recorded the entire 

requested appropriation of $52 million as budget authority in October 2004 even 

though the entire budget authority did not become available until January 2005. 

Under the continuing resolution accounting scenario provided by the U.S. Treasury, 

amounts recorded as appropriation/ apportionment should only be in amounts 

determined in accordance with OMB Bulletin No. 04-05. Although the incorrect 

entries automatically became correct entries upon the receipt of the full appropriation, 

which was apportioned in January 2005, the system’s funds control during the 

continuing resolution period was not effective and the risk that unavailable funds 

could be expended during this period was high. 

In addition, proper reconciliation should be performed by reflecting what was actually 

recorded in the books versus what was reported by the U.S. Treasury FMS 6653, 

Undisbursed Appropriation Account Ledger. 
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Recommendation: 

35. Comply with the continuing resolution accounting scenario prescribed by U.S. 

Treasury in accordance with memorandum issued by OMB. 

C. Integrated Financial Management System (Repeat Finding) 

 

A single, integrated financial management system is a unified set of financial systems 

linked together electronically in an efficient and effective manner to provide agencywide financial system support. Integration means that the user is able to have one 

view into systems such that, at whatever level the individual is using the system, he or 

she can obtain needed information efficiently and effectively through electronic 

means. It does not necessarily mean having only one software application covering 

all financial management system needs within an agency. Interfaces are acceptable as 

long as the supporting details are maintained and accessible to managers. Interface 

linkages must be electronic unless the number of transactions is so small that it is not 

cost beneficial to automate the interface. Easy reconciliation between systems, where 

interface linkages are appropriate, must be maintained to ensure data accuracy. 

FEC does not have an integrated financial management system. Significant financial 

management systems such as the cost system, receivable systems and the property 

and equipment system do not interface with the GL system. 

Recommendation: 

36. Continue to assess the degree of integration necessary to have a single, unified 

financial system by evaluating the functional requirements and the costs and benefits 

of integrating the financial reporting, property and equipment, receivable, and the cost 

systems with the GL system. 

VI. Payroll (Modified Repeat Finding) 

The results of our internal control tests disclosed weaknesses in payroll processing 

similar to the prior year, as follows: 

• Transmitting certain payroll transactions, such as leave balance adjustments, to FEC’s 

payroll service provider is a two-step process initiated by the FEC. We noted that in 

two instances, FEC made the first step in adjusting an employee’s leave balance but 

failed to perform the second step. As a result, the leave adjustment was not 

transmitted or reflected in the service provider’s system. 

• Documentation such as election forms for payroll deduction authorization (FEGLI, 

federal tax withholding, savings bond, FEHB, and TSP-FERS) and SF-50 form were 
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not consistently maintained in the payroll files, and therefore some were not available 

for our review. 

• FEC’s policy requires timekeepers to perform bi-weekly reconciliations between the 

leave balances in FEC’s records and the payroll service provider. The timekeepers 

are to forward leave balance certifications to the finance office indicating whether 

balances agree or disagree. Thirteen of the 45 leave balance certification forms were 

not submitted and five of the 45 submitted were incomplete. Furthermore, there was 

no indication that the finance office followed-up on the certifications that were not 

received or incomplete. 

• For two of the 45 employees tested, the T&A (time and attendance) report did not 

agree with the service provider’s leave balance report. However, the timekeeper 

certified that the leave balance report agreed with individual leave records. In 

addition, there were also two instances where the timekeeper submitted a leave 

balance certification but there was no leave balance on the employee’s T&A report. 

• For two of the 45 employees tested, we noted four instances where the approved 

T&A reports were not properly completed. 

OMB Circular A-123, Management Accountability and Control (Revised June 21, 1995), 

requires that “the documentation for transactions, management controls and other 

significant events must be clear and readily available for examination.” GAO Standards 

for Internal Control in the Federal Government states that transactions and other 

significant events should be authorized and executed only by persons acting within the 

scope of their authority. This is the principal means of assuring that only valid 

transactions to exchange, transfer, use or commit resources and other events are initiated 

or entered into.” 

FEC Accounting Manual Vol. I, Section 1.3.2.2.10, Reconciliation, states that 

“transactions recorded in the FEC accounting system [should be] periodically reconciled 

with source documents.” Section 1.3.2.2.15, Compensation, also states “timely, accurate, 

and complete subsidiary records [should be] maintained of vacation [and] sick leave and 

other balances.” 

Recommendations: 

37. Implement procedures to ensure that leave adjustments are completely processed and 

transmitted to the service provider. 

38. Maintain in the personnel files all payroll deduction authorization forms initiated 

through FEC, i.e., not done directly by the employee with a service provider. 

39. Ensure that timekeepers: perform the bi-weekly reconciliation between leave balances 

reported in its records and the service provider’s records; and submit the bi-weekly 

leave balance certification to the finance office timely. 
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40. Implement procedures for ensuring all payroll and personnel documents are properly 

completed and authorized before payroll data is transmitted to the payroll service 

provider for processing. 

41. Consider automating payroll processing to decrease the risk of errors. 

VII. Status of Prior Year Comments 

 

As required by Government Auditing Standards and OMB Bulletin No. 01-02, as 

amended, we have reviewed the status of FEC’s corrective actions with respect to the 

findings and recommendations from the previous year’s report on internal controls. For 

those items not addressed in various sections of our Independent Auditor’s Report on 

Internal Control, summarized above, the following discusses the current status of 

resolutions for matters raised: 

 

Financial Reporting 

• Condition: FEC did not have a written policy and procedures to formalize plans, 

methods, and procedures to guide the financial statement preparation and reporting 

process. 

In fiscal year 2005, FEC established an accounting department annual calendar and 

audit schedule and developed written procedures for the compilation of the quarterly 

reports. Therefore, we have removed this as a material weakness. 

• Condition: FEC did not prepare and analyze monthly reconciliations of subsidiary 

and summary account balances. 

In fiscal year 2005, FEC continued with the monthly reconciliations and analysis that 

it started at the end of fiscal year 2004 for Fund Balance with Treasury, budgetary 

accounts, and general property and equipment accounts. However, we continue to 

identify deficiencies in the reconciliation of software in development and physical 

inventory. This condition, therefore, continues to exist for certain accounts as 

explained above. 

Entity-Wide Security Program 

• Condition: There is no periodic security awareness training. Training is only 

provided to new employees and contractors. FEC did conduct a baseline awareness 

training program, but does not have a process in place to provide security awareness 

training on an annual basis. 
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In fiscal year 2005, FEC provided periodic computer security awareness training to 

all employees and contractors (i.e. contractors granted access to the FEC’s network). 

Therefore, we have removed this as a reportable condition. 

Controls to Protect Information 

• Condition: No documentation or verification that the vulnerabilities identified in the 

February 2004 network penetration scan had been addressed. 

In fiscal year 2005, FEC rescanned its systems and verified that the vulnerabilities 

identified in the February 2004 network penetration scan had been addressed. 

Therefore, we have removed this as a reportable condition. 

• Condition: There are no records of access requests granted to remote users. FEC 

was unable to provide access request approval documentation to support the access of 

all dial-up and virtual private network (VPN) users that we sampled for our review. 

In addition, there was no evidence of periodic re-validations of these users. 

In fiscal year 2005, FEC documented and revalidated VPN and dial-up access rights 

and privileges. Therefore, we have removed this as a reportable condition. 

• Condition: GL system access requests are not properly documented or reviewed. 

FEC was only able to provide us original access matrices for eight of the 33 current 

GL system users. Additionally, FEC does not periodically perform revalidations of 

GL system access. 

In fiscal year 2005, FEC documented access requests for new users and performed 

revalidations of access rights granted to existing users of the GL system. Therefore, 

we have removed this as a reportable condition. 

• Condition: Data center access is not adequately documented or reviewed: 

o Four employees have their names misspelled on the cardholder report; 

o One of the individuals with access to the data center was terminated recently, but 

his access key is still active and the physical location of the key could not be 

determined; and 

o FEC could not identify one user who has access to the data center or justify why 

the individual has access to the data center

In fiscal year 2005, FEC disabled the active access keys of users not requiring access 

to the data center and identified all users with access to the data center, but FEC 

needs to ensure names are correctly spelled on the cardholder report. Therefore, we 

have removed this as a reportable condition. 
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Contingency Plan 

• Condition: FEC does not have adequate capacity for most of its back-up tapes in its 

fireproof safe; hence, back-up tapes are not kept in a fireproof safe. 

In fiscal year 2005, FEC has procured an additional fireproof safe(s) for back-up 

tapes. Therefore, we have removed this as a reportable condition. 

• Condition: FEC’s data center is fully exposed to a wet pipe sprinkler system, with 

no compensating controls to avoid inadvertent water damage to critical hardware and 

magnetic media in the case of a malfunction or false alarm. 

FEC has compensating controls to avoid inadvertent water damage to critical 

hardware and magnetic media in the case of a malfunction or false alarm from the wet 

pipe sprinkler system. Therefore, we have removed this as a reportable condition. 

Software Development and Change Controls 

• Condition: No written policy has been created to manage software libraries. 

In fiscal year 2005, FEC has established a written policy to manage software libraries. 

Therefore, we have removed this as a reportable condition. 

• Condition: Written procedures to modify, test, approve or release software for any 

of its applications, including the GL system, have not been documented. 

In fiscal year 2005, FEC documented written procedures to modify, test, approve and 

release software for its applications. Therefore, we have removed this as a reportable 

condition. 

• Condition: Emergency change procedures and procedures for installing patches are 

not documented. 

In fiscal year 2005, FEC documented written emergency change procedures for 

installing patches. Therefore, we have removed this as a reportable condition. 

• Condition: Certain software code changes for the GL system were not reviewed 

before being implemented. 

In fiscal year 2005, FEC has established policies and procedures to ensure that the 

software code is reviewed prior to moving the modified code into production. 
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Additionally, there were no software changes to the GL system for fiscal year 2005. 

Therefore, we have removed this as a reportable condition. 

OTHER MATTERS 

Federal Managers’ Financial Integrity Act (31 U.S.C. 3512) (FMFIA) 

OMB Circular No. A-123, Management Accountability and Control, provides the reporting 

guidelines for the FMFIA. OMB Circular No. A-123 states that annually, by December 31, the 

head of each executive agency submit to the President and the Congress (i) a statement on 

whether there is reasonable assurance that the agency’s controls are achieving their intended 

objectives, (ii) a report on material weaknesses in the agency controls, and (iii) whether the 

agency’s financial management systems conform with government-wide requirements. 

OMB Bulletin No. 01-02 requires that the auditor’s report on internal control “identify those 

material weaknesses disclosed by the audit that were not reported in the reporting entity’s 

FMFIA report.” FEC’s FMFIA report dated October 4, 2005 reports that FEC management did 

not identify material weaknesses, but acknowledged the FEC fiscal year 2004 Independent 

Auditor’s Report on Internal Control included material weaknesses. FEC disagreed with the 

material weaknesses identified in the internal control report, and therefore, did not prepare a 

report on material weaknesses, including agency plans to correct the material weaknesses and 

progress against those plans in the FMFIA report submitted. 

******************************** 

In addition to the material weaknesses and reportable conditions described above, we noted 

certain matters involving internal control and its operation that we reported to the management of 

FEC in a separate letter dated November 7, 2005. 

This report is intended solely for the information and use of the management of FEC, FEC 

Office of Inspector General, OMB, and Congress, and is not intended to be and should not be 

used by anyone other than these specified parties. 



Calverton, Maryland 

November 7, 2005 
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Independent Auditor’s Report on Compliance with Laws and Regulations 

To the Inspector General of the 

 Federal Election Commission 

We have audited the financial statements of the Federal Election Commission (FEC) as of and 

for the year ended September 30, 2005, and have issued our report dated November 7, 2005. In 

our report, our opinion was qualified for the effects of adjustments, if any, as might have been 

necessary had we been able to perform adequate audit procedures on the allocation of program 

costs in the statement of net cost. Except as described above, we conducted our audit in 

accordance with auditing standards generally accepted in the United States of America; the 

standards applicable to financial audits contained in Government Auditing Standards, issued by 

the Comptroller General of the United States; and Office of Management and Budget (OMB) 

Bulletin No. 01-02, Audit Requirements for Federal Financial Statements, as amended. 

The management of FEC is responsible for complying with laws and regulations applicable to 

FEC. As part of obtaining reasonable assurance about whether FEC’s financial statements are 

free of material misstatements, we performed tests of its compliance with certain provisions of 

laws and regulations, noncompliance with which could have a direct and material effect on the 

determination of financial statement amounts, and certain other laws and regulations specified in 

OMB Bulletin No. 01-02. We limited our tests of compliance to these provisions and we did not 

test compliance with all laws and regulations applicable to FEC. 

The results of our tests of compliance with laws and regulations described in the preceding 

paragraph disclosed no instances of noncompliance with the laws and regulations that are 

required to be reported under Government Auditing Standards and OMB Bulletin No. 01-02. 

Providing an opinion on compliance with certain provisions of laws and regulations was not an 

objective of our audit, and accordingly, we do not express such an opinion. 

We noted certain immaterial instances of noncompliance that we have reported to management 

of FEC in a separate letter dated November 7, 2005.

This report is intended solely for the information and use of the management of FEC, FEC 

Office of Inspector General, OMB and Congress, and is not intended to be and should not be 

used by anyone other than these specified parties. 



Calverton, Maryland 

November 7, 2005 
MANAGEMENT COMMENTS AND RESPONSE TO THE 

INDEPENDENT AUDITOR’S REPORT 

EXECUTIVE SUMMARY

This year the independent auditors, Clifton Gunderson (CG), identified four material 

weaknesses (cost accounting system and processes, custodial receipts, general property and 

equipment and information technology) and two reportable conditions (financial reporting and 

payroll). While area for improvement exists, the FEC fundamentally disagrees with several of 

CG’s findings. The FEC has made significant progress in addressing the material weaknesses 

and reportable conditions identified last year. We demonstrated the improvements made

throughout the financial and information technology (IT) areas, and yet very little 

improvement was recognized. 

We firmly believe that the FEC improved its financial reporting and IT policies and 

procedures, both in response to audit findings and in compliance with all laws and 

regulations. Following are specific highlights: 

• Cost allocation methodology - although the process is manual, it meets the flexible

standards allowed for in this area. There were no changes in the cost allocation 

methodology from last year to this year. Yet, last year it was not a material weakness 

and this year it not only was a material weakness, it was enough to qualify a statement. 

A new system will be implemented in early FY 2006. Management found it was 

neither cost effective nor practical to implement the system so close to the end of the 

fiscal year. The new system will ensure accurate and more efficient processing. 

• Managerial cost accounting – should not be classified as a material weakness because 

the critical elements of SFFAS No. 4 have been met. 

• Custodial receipts - the process we had in place was sufficient given the nature of the 

activity. For FY 2006 we require monthly, standardized reports from the relevant 

divisions. 

• General property and equipment - we believe that none of the weaknesses cited by 

CG, either alone or collectively, are substantial enough to warrant classification as a 

material weakness. 

• Information Technology - none of the reportable conditions in the area of IT, either 

individually or collectively, rise to the level of material weakness. The FEC meets the 

standards set forth in all applicable IT standards and regulations. 

Most important, any issue noted by CG was detected within a timely period by employees in 

the normal course of performing their assigned functions and, therefore, by definition does not 

constitute a material weakness. 

57
COMMENTS AND RESPONSE

Following are the FEC’s responses to and comments on the auditor’s report on internal 

control. Clifton Gunderson (CG) also provided a report on compliance with laws and 

regulations. They found that the FEC was in compliance with laws and regulations. 

The FEC is proud of the significant progress made over the past fiscal year in terms of 

strengthening our internal controls. Such strides have been noted both by the Inspector 

General and the independent auditors. Fully mindful of the IG’s and auditor’s comments 

from the previous year, we took a critical look at the issues and prioritized them. Most

findings in the finance area were resolved in FY 2005. For example, in prior years it had taken 

us up to three weeks to prepare quarterly financial reports. Now we are able to complete this 

process in a matter of days. We were also able to improve our timeliness with respect to

reconciliations. Not only have we become more efficient at producing financial reports, we

have become more effective. This year we only had to make six “on top” adjustments; down 

from thirteen last year. 

We implemented several process changes. We standardized and formalized reconciliation 

processes. We added purchase order reconciliation, relationship testing and property modules 

to automate our system processes and reduce error. All of these improvements have been 

formally documented. The Accounting Policy and Procedure manual was changed and 

formally reviewed and approved by the Chief Financial Officer. The manuals have allowed 

for better cross training of staff to ensure that no process is fully dependent on one employee. 

 

The overriding issue for the FEC’s comments is what constitutes a material weakness. GAO 

defines material weakness as “. . . reportable conditions in which the design or operation of

one or more of the internal control components does not reduce to a relatively low level the 

risk that misstatements in amounts that would be material in relation to the financial 

statements being audited may occur and not be detected within a timely period by employees 

in the normal course of performing their assigned functions.” Reportable conditions “are 

matters coming to the auditor's attention that, in the auditor's judgment, should be 

communicated because they represent significant deficiencies in the design or operation. . ..” 

(OMB Bulletin 01-02). 

MATERIAL WEAKNESSES

I. Cost Accounting System and Processes 

A. Cost Allocation Methodology (Repeat Finding) (NFR #37, #38, #40) 

Recommendations 

1. Establish formal and comprehensive cost allocation methodology and related 

policy and procedures. 

58
FEC RESPONSE:

The FEC established and provided the auditors with a simple, straightforward 

crosswalk, supporting the basis of allocations. The FEC also established and provided 

the auditors with cost allocation methodology and related policy and procedures. 

2. Cross-train employees to minimize the risks of major interruptions in normal 

business operations. 

FEC RESPONSE:

The FEC cross-trained three employees on the cost allocation process. The FEC 

provided evidence to the auditors that personnel were crossed trained and able to 

perform the cost-allocation process. 

3. Establish a review process wherein a person, other than the preparer, reviews 

the work performed to ensure accuracy and propriety. 

FEC RESPONSE:

The FEC established a review process for the cost allocation process. The FEC 

provided evidence to the auditors that a review process was in place and was followed 

in the cost-allocation process. 

4. Maintain audit trails to support the allocation methodology and amounts. 

FEC RESPONSE:

The FEC maintained an audit trail that supports the allocation methodology and 

provided the audit trail to the auditors. 

B. Managerial Cost Accounting (Repeat Finding) 

Recommendation: 

5. Evaluate the functional requirements for the new cost accounting system to 

ensure that at least, the minimum level of cost accounting required in SFFAS 

No. 4 is attained. 

FEC RESPONSE:

The FEC disagrees with this finding and its classification as a material weakness. 

SFFAS No. 4 gives agencies the flexibility to devise methods for allocating costs that 

are appropriate for the agency’s size, mission and nature of costs incurred, so long as

the method is reliable and timely. The FEC’s system provides sufficient information 

59
to both high level management and program managers on the full cost of federal 

programs, our activities, and outputs. The FEC system meets the fundamental 

elements of managerial cost accounting as set forth in SFFAS No. 4. It: (1)

accumulates and reports FTE usage rates on a regular basis for management

information purposes; (2) establishes responsibility segments to match costs with 

outputs; (3) determines full costs of government goods and services; and (4) uses 

appropriate costing methodologies to accumulate and assign costs to outputs. The new 

system will meet the same requirements. 

II. Administrative Fines, Civil Penalties and Miscellaneous Receipts (Custodial 

Receipts) (New Condition) (NFR #19, #36, #38) 

FEC RESPONSE:

While we are cognizant of the issues presented in this finding, we do not believe it 

warrants classification as a material weakness. Although the FEC recognizes this as

an area that needs to be strengthened with more formal processes, the FEC does have 

adequate systems and controls in place to ensure custodial receipts are properly 

accounted for and timely recorded. 

During FY 2005, the relevant divisions reported internally on a quarterly basis. Take

for example the Administrative Fine program. After an initial attempt to collect debts,

delinquent civil penalties are referred to Treasury. This requires significant reporting 

and documentation. The FEC and Treasury amounts must balance each month, and 

this reconciliation serves as an external check. 

Of the total in-house serviced debt outstanding at September 30, 2005, over 70% of it

accrued in September 2005. Thus, most of the accounts receivable (AR) balance could 

not have been entered into the general ledger (GL) before year end. The increase in 

in-house serviced debt was due in part to the fact that Treasury put a hold on 

submission of collections. CG did not propose any adjustments to any balances 

recorded in GL. Therefore, FEC believes it is unlikely material misstatements could

have occurred in this area and not have been detected in a timely manner by the staff 

in the routine performance of their jobs. 

While we believe that quarterly reporting was sufficient given the nature of the 

activities, we have implemented monthly reporting for FY 2006. We are in the process 

of developing a standard format for each division to use. Each month all internally 

generated reports will be reconciled to the GL and each division will be provided a 

status report. FEC will continue reconciling cash and receivables with Treasury and 

adding aging categories to facilitate review by management and preparation of the 

quarterly report on receivables to Treasury. All of these changes, including a 

description of how the Allowance for Uncollectible Accounts is calculated, will be put 

into the Accounting Manual once they are finalized. 

60
Recommendations: 

6. Establish and implement policy and procedures ensuring communication and 

coordination between program offices and finance office on activities with 

financial impact. The policy should also clearly establish the FEC’s revenue 

recognition policy. The finance office should design a standard report 

outlining all the necessary information to record the financial activities. The

report should be prepared and submitted timely at least monthly by the 

program offices to the finance office. 

FEC RESPONSE:

A policy will be developed and distributed to program offices for monthly reporting. 

Expected completion: November 30, 2005. 

7. Document the policy and basis for the allowance for uncollectible accounts. 

FEC RESPONSE:

Procedures will be developed and included in the Accounting Policy and Procedures 

Manual. Expected completion: November 30, 2005. 

III. General Property and Equipment (Property) (Modified Repeat Finding) (NFR 

#38, #39, #32) 

FEC RESPONSE:

The FEC agrees with this comment in general, but not its classification as a Material

Weakness. The FEC made significant strides in the property accounting area in FY

2005. Furthermore, the FEC did not have to make any material adjustments to the GL 

or schedules provided to CG as a result of the audit. 

Significant improvements from last year’s report on internal controls include: 

 

• A new property system was implemented in September 2005 which 

eliminated difficulty in calculating depreciation which stemmed from 

programming issues with the prior contractor; 

• Software-in-development was tracked and reported quarterly; 

• All assets were recorded at invoice values (vs. estimates for some last 

year); and 

• Exceptions to internal control sample items decreased significantly 

As noted to CG, the new property system facilitates preparation of audit schedules and 

related notes. Moreover, the new system, along with improved policies and 

procedures to be implemented in FY 2006, will: 1) help link individual assets to bulk 

purchases by PO number; 2) help identify new assets that meet the capitalization 

61
criteria; and 3) capture additional data regarding custody and location of assets. For 

example, all new computers made as part of a bulk purchase were entered in the 

system with the associated purchase order and reports were developed to list 

individual items. These improvements should result in a more seamless integration 

between the inventory system and the identifying, reporting and tracking of capitalized 

assets to the balances in the general ledger. FEC is also continuing to review all 

inventory items to complete the information coded in the system. 

The process of conducting a physical inventory of assets for FY 2005 was contracted 

out to a vendor. The contractor used a bar code scanner for all assets and uploaded the 

information to the property system. The general ledger balance was reconciled to the

balances in the property system and the reconciliation was provided to CG. The 

physical inventory did not disclose any capitalized assets that needed to be adjusted. In

FY 2006 specific procedures will be written for the contractor and FEC staff to use 

and assist with the reconciliation. 

FEC software capitalization policy is in compliance with SSFAS No. 10. The FEC 

believes the process to identify software in progress and completed software in 

progress was adequate and that all such software was identified and recorded 

correctly. CG has not provided specifics as to why it believes FEC is not in

compliance with SFFAS No. 10, which was taken almost verbatim from the standard. 

FEC is continuing to develop more formalized methods of notifications for various 

property events to trigger entries in the general ledger. This will include coding 

training in FY 2006 for affected offices. The timeliness of completed construction was 

more a function of a delay in obtaining adequate information from General Services

Administration (GSA) than a lack of internal notifications. FEC notes these types of 

transactions were all recorded accurately well before the year end statements were 

prepared. 

The FEC is only aware of problems with nine receiving reports, not twelve as

indicated in the report. Most of these were for the lack of descriptions on the receiving 

report, which is not required by FEC. We agree with one noted problem where the 

approving official cited the work authorization number instead of the invoice number 

on the receiving report; however, the invoice was paid correctly. 

Recommendations: 

8. Reconcile the total of the individual property items in the property system to 

the bulk purchase total recorded in the books to ensure completeness of the

property system records. 

FEC RESPONSE:

The FEC implemented a new property system to accomplish this. For example, all 

new computers made as part of a bulk purchase were entered in the system with the 

associated purchase order and reports were developed to list individual items. The 

62
FEC maintains that for each individual asset of a bulk purchase, the reconciliation of 

cost between the general ledger and the inventory system is not necessary and will not 

be accurate due to freight and/or installation costs which are not recorded at the 

individual asset level. The damage/loss of an individual asset of a bulk purchase

would not materially impact the balances in the general ledger. Bulk buys are 

recorded in the general ledger at the actual total invoice cost. The individual items are 

tracked in the physical inventory system and are inventoried annually. 

9. Document physical inventory procedures, results, and reconciliation and 

maintain the documentation for audit trail purposes. 

FEC RESPONSE:

Procedures will be developed for the next inventory which is planned for FY 2006. 

The reconciliation will be maintained for audit. 

10. Revise the software capitalization policy to comply with SFFAS No. 10. 

FEC RESPONSE:

The software capitalization policy is in compliance with SSFAS No. 10. No specific 

area of non compliance was identified by CG. 

11. Enforce compliance and consistent implementation of policies and procedures 

related to completing receiving reports and the review and approval of 

obligating memos or documents. 

FEC RESPONSE:

As noted in last year’s response and throughout this year’s fieldwork, the description 

on the receiving report is an optional, not a required, field. In FY 2006 the form and

procedures will be rewritten to make this clearer.

12. Establish a standard process and policy where program offices are required to 

notify the finance office of any property acquisition or disposition with 

accounting impact to ensure proper and timely recording of the transaction. 

FEC RESPONSE:

FEC agrees with this recommendation and has already started to write the policy and 

develop necessary procedures and forms. Expected completion: December 31, 2005. 

63
IV. Information Technology (IT) 

FEC RESPONSE:

The FEC does not agree that the reportable conditions in the IT area reach the level of 

a material weakness. In conjunction with the Financial Statements Audit of the FEC, 

four areas of Information Technology were examined for material weaknesses. The

outcome of the audit in IT revealed a number of reportable conditions, none of which, 

individually, rise to the level of material weakness. FEC Management is also of the 

opinion that the collective “weight” of these reportable conditions does not together 

result in a material weakness. The reason for this position is that reportable conditions 

have been recognized and corrective actions have been and are being taken. The cost

benefits test may be used for portions of these conditions, but for the majority the FEC 

has initiated corrective actions, some of which pre-date the audit. 

FEC Management has also indicated our position on the FEC exemption from the

Paperwork Reduction Act, which also exempts the FEC from many of the related and 

underlying statutes and regulations. We agree that best practices and sound 

management controls justify the use of some of the recommendations made during the 

audit in the area of IT control (many of which the FEC as implemented already). 

However, the FEC strongly believes that these recommendations, either singularly or

collectively, do not rise to the level of material weaknesses. In addition, the FEC 

maintains that the agency cannot be held to guidance and criteria identified in studies

and analyses as if these were standards that are required to be adhered to. 

Finally, the FEC continues to maintain that it is not appropriate to find the existence of

financial management material weaknesses for systems and applications that do not 

directly impact on the accuracy and security of information used in the FEC financial 

statements. 

A. Entity-Wide Security Program 

Recommendations: 

13. Implement a framework of policies and standards to mitigate risks associated 

with the information resources management. 

FEC RESPONSE:

As a vital component of the Information Systems Security Program Policy (ISSPP) 

58A, the FEC developed and approved sub-policy 58-2.1: Risk Management Policy. 

This policy establishes a framework of procedures and standards to mitigate risks 

associated with the management of information resources. The Risk Management 

Policy states that external risk assessments should be performed within the

recommended 3 year period; however, current budgetary restraints have prevented 

this. 

64
FEC management completed the Statement of Work (SOW), received proposals from 

three vendors and is currently reviewing the proposals. In addition the FEC has

allocated $250,000 in FY 2006 (pending no further budgetary constraints) to partially 

accomplish this goal. Until greater resources are allocated, the FEC shall continue to

conduct its own internal reviews such as those specified in its Security Review Policy. 

14. Complete the documentation, approval and implementation of an entity-wide 

security program plan. 

FEC RESPONSE:

In November 1997, the FEC established Directive 58, outlining the Commission 

policy on the control of Commission software and the use of agency computers. This 

Directive formed the basis of the Agency’s computer security program. This Directive 

has been enhanced and expanded incorporating the latest guidance and best practices

provided by NIST. In December 2001 Directive 58 was updated by establishing an 

Information Systems Security Officer. In April 2004 Information System Security 

Program Policy 58A was developed and the final policy was approved by the Chief 

Information Officer in September 2004. The implementation of the FEC entity wide

security program plan occurred on October 2004, when FEC issued a memo informing 

all employees/contractors that “Information System Security Program Policy” Policy 

Number: 58A was approved and should be adhered to by all employees/contractors. 

15. Develop and implement security plans for all major applications and MCGSS 

as part of a risk mitigation strategy. 

FEC RESPONSE:

The FEC has provided the financial auditors with system security plans for all of its 

financial systems and four non-financial systems for a total of seven. The financial 

auditors have been provided with planned target dates for the remaining four nonfinancial systems. 

16. Ensure that Resource Classifications in FEC’s security plans accurately reflect 

the risk and vulnerabilities of FEC systems. 

FEC RESPONSE:

The FEC has implemented an entity-wide security program plan that specifies that 

external risk assessments should be performed within the recommended 3 year period. 

FEC management has completed the Statement of Work (SOW) has received 

proposals from three vendors and is currently reviewing the proposals. In addition the 

FEC has allocated $250,000.00 in fiscal 2006 (pending no further budgetary 

constraints) to partially accomplish this goal. Until greater resources are allocated, the 

FEC shall continue to utilize the considerable knowledge, skills and experience of the 

65
Information Technology Division to provide input for resource classifications. 

17. Complete the implementation of the program for the continuous monitoring 

and evaluation of the computer security policy and control effectiveness.

FEC RESPONSE:

The FEC has implemented an entity-wide security program plan that specifies the 

establishment of a program for the continuous monitoring and evaluation of the

computer security policy and control effectiveness. To this end the FEC has 

developed and implemented 58-2.11 Security Review Policy that specifies a minimum 

set of review activities such as: annual external penetration testing; disaster recovery 

testing; a review of incident response procedures; a network vulnerability study; a

code review of one Major Application and a review of access control procedures.

FEC has provided the auditors with documentation and evidence that the specified 

activities did occur. 

18. Conduct risk assessments at least every three years as part of an overall 

strategy to mitigate risks associated with its information technology 

environment. 

FEC RESPONSE:

The FEC has implemented an entity-wide security program plan that specifies that 

external risk assessments should be performed within the recommended 3 year period. 

FEC management completed the Statement of Work (SOW), received proposals from 

three vendors and is currently reviewing the proposals. In addition the FEC has

allocated $250,000 in FY 2006 (pending no further budgetary constraints) to partially 

accomplish this goal. Until greater resources are allocated, the FEC shall continue to

conduct its own internal reviews such as those specified in its Security Review Policy. 

19. Certify that the major applications and MCGSS are operating according to

FEC’s security requirements. 

FEC RESPONSE:

The FEC has implemented an entity-wide security program plan that specifies that the

certification of its major applications and mission critical general support systems are 

operating according to FEC’s security requirements. These certifications will occur

upon the completion of external risk assessments. In lieu of such assessments, FEC 

has leveraged the considerable knowledge, skills and experience of the Information 

Technology Division senior management. 

20. Strengthen FEC’s program to document corrective actions and verify that 

weaknesses identified have been addressed. Ensure and document that 

66
recommendations from the most recent network security review have been 

implemented. 

FEC RESPONSE:

The FEC has completed the majority of recommendations from the prior year’s audit. 

In accordance with its risk management strategy, the FEC has assessed the risk 

associated with these deficiencies and has documented, developed and implemented 

compensating controls or has documented and developed multi-fiscal-year mitigation 

strategies to counteract the specified deficiency. These compensating controls and/or 

multi-fiscal-year mitigation strategies take into account that all associated risk may not 

be completely eliminated during the current audit year, resulting in some residual risk. 

Any residual risk has been accepted by the appropriate system owner. 

B. Controls to Protect Information 

Recommendations: 

21. Create a new GL system application role to give employees with necessary and 

appropriate access rights to fulfill their job responsibility. 

FEC RESPONSE:

The FEC has recognized the need to further refine the granularity of GL’s access 

control matrix and has developed a system application role with appropriate access

rights for employees to fulfill their job responsibility. The FEC is currently testing the 

system application role to reduce the possibility of disrupting critical business

functions. The financial auditors have been provided planned target dates for the 

implementation of the system application role. 

22. Monitor and record visitor access to the data center. 

FEC RESPONSE:

 

Individuals requiring an escort within the FEC building are always escorted by an

authorized employee when they enter the FEC computer facilities. The FEC has

historically used the Kastle Key system to electronically log when someone enters the 

computer facility and will continue to do so. However, ITD has implemented the use 

of a written log for all escorted persons who enter the facility, even though we believe

it is a manual redundant system. 

23. Use access request forms to document user access rights and periodically 

review the access for appropriateness. 

67
FEC RESPONSE:

The FEC has instituted a process that utilizes electronic mail to request, approve and 

document user access rights. Access rights are periodically reviewed in accordance 

with 58-2.11 Security Review Policy. 

24. Develop mitigating controls to ensure that GL system passwords are in 

agreement with FEC policy. 

FEC RESPONSE:

The current version of PeopleSoft does not contain a facility for the automated 

enforcement of passwords. The FEC is aware of this vulnerability and the risk

associated with this version of PeopleSoft’s lack of automated authentication 

enforcement. The FEC has implemented a series of compensating controls consisting 

of additional user awareness training, policy issuance and manual enforcement to 

mitigate associated risk. The FEC understands and accepts the residual risk until an 

automated solution can be found. 

25. Automatically log network activity as required by the Audit Events Standards.

FEC RESPONSE:

The Audit Event Standards have been modified, and the FEC in now in compliance 

with these standards. 

26. Institute a process to manually review logs of users using budgetary overrides 

where the reviewer is an individual who does not have access to utilize the 

overrides. 

FEC RESPONSE:

Please refer to the Accounting Officer response in NFR-10. 

27. Periodically review the firewall rule set for appropriateness. 

FEC RESPONSE:

The FEC does periodically review the firewall rules. The rules were reviewed in May 

2005. 

28. Periodically review LAN user accounts and disable unnecessary user accounts. 

68
FEC RESPONSE:

The System Administrators review computer accounts periodically and delete the 

accounts that have not been accessed within 90 days. The user accounts are also 

reviewed and deleted using the “Hiring Report” that is produced by HR. In addition, 

all user accounts that have not been accessed within 90 days will be disabled. 

C. Contingency Plan 

Recommendations: 

29. Perform a Business Impact Analysis to formally identify and prioritize all 

critical data and operations on FEC’s networks and the resources needed to 

recover them if there is a major interruption or disaster. Ensure that emergency 

processing priorities are established to assist in managing disaster situations

more effectively for the network and include business owners in the discussion 

to determine how much backup data is needed on-hand to minimize the impact 

of a disaster. 

FEC RESPONSE:

The BIA is a new requirement, and we do not have funds in the 06 Budget. Funds will 

be requested in the 2007 Budget. 

The plan covers all major Financial Applications and does provide a detailed 

restoration time for the PeopleSoft restoration process. The other major application, 

Comprizon Buy, is a less complicated restoration and has a much shorter relative time 

frame for installation, making a detailed time breakdown unnecessary. 

30. Establish alternative processing site(s) for FEC’s operations in the event of a

disaster and ensure that an operational mechanism exists to update the 

disclosure database in the event that the FEC database is unavailable to

replicate the disclosure database resident at the offsite location. 

FEC RESPONSE:

Currently an alternate processing site for operations is not in the budget, and we could 

not afford an alternate site. 

31. Develop a Continuity of Operations Plan (COOP) to support the continuation 

of the FEC’s core mission in the event of a disaster that renders the FEC’s 

facilities unusable. 

FEC RESPONSE:

The COOP plan is a new requirement that was raised by the audit this year, and funds 

69
will be requested in the 2007 budget. 

32. Develop and document a comprehensive contingency of operations plan of 

FEC’s data centers, networks and telecommunication facilities. 

FEC RESPONSE:

This has been done. Please see the disaster recovery plan 

D. Software Development and Change Controls 

Recommendation: 

33. Fully implement the System Development Life Cycle Methodology. 

FEC RESPONSE:

Establishing controls over the modification of application software programs is an

industry Best Practice and one the FEC agrees with. The FEC has instituted policies, 

procedures and techniques that help make sure all programs and program 

modifications are properly authorized, tested and approved. This has been 

accomplished through the implementation of the SDLC and the associated policies and

procedures (for example: the Change Management Policy, Requirements Procedure, 

Release Procedure, Change Management Procedure, etc.) The SDLC has been fully 

implemented; however, we have found that there are a couple instances where the

SDLC does not match the actual practice. For example, changes are documented 

using ClearQuest (an industry standard for managing changes). However, the SDLC 

mentions documenting changes using a Change Implementation Notice. As a result of

this difference the FEC is in the process of making sure the SDLC reflects the actual

practice. To reiterate, the FEC does have procedures and controls in place to ensure 

programs and program modifications are properly authorized, tested and approved, 

and the FEC is in the process of making sure those procedures and controls are 

identified properly in the SDLC. 

REPORTABLE CONDITIONS

V. Financial Reporting (Modified Repeat Finding) 

A. General Ledger (GL) System Setup and Posting Model Definitions (Modified 

Repeat Finding) (NFR #41) 

Recommendation: 

34. Ensure that corrections made to the posting logic comply with the USSGL and 

that the USSGL accounts and posting logic are updated as changes to USSGL 

are issued. 

70
FEC RESPONSE:

We agree with this finding. As noted by CG, FEC’s consultant recommended fixing 

this problem at the beginning of the next fiscal year. FEC expects to be in full 

compliance with USSGL in FY 2006. 

B. Continuing Resolution Accounting (New Finding) (NFR #13, #35) 

FEC RESPONSE:

We disagree with this finding and its classification as a Reportable Condition. As

discussed with CG on several occasions, FEC believes the reconciliations with

Treasury were proper. Management was well aware the Agency was operating under a 

CR and the FEC had in place compensating controls to track spending against the CR. 

This information (i.e., internal correspondence, tracking reports, etc.) was made

available to CG. In fact, FEC operated under 3 CRs in FY 2005 until the appropriation

passed in December 2004. The duration of the CRs was 50 days, 12 days and 5 days, 

respectively. The FEC believes there was no danger of overspending the CR amount, 

as the Budget Officer had to manually approve all non-personnel related expenditures 

personally. Before approving any expenditure, the Budget Officer compared available 

balances to the request and only approved the most critical expenditures. 

It is not always feasible for a small agency to record appropriations, detailed budgets 

and purchase orders in increments this small. In fact, Treasury does not record 

appropriation information at all until the warrant is issued. In FY 2005 Treasury did 

not record the warrant until January 2005, more than 3 months after the fiscal year 

started. Even if the FEC recorded the CR amount, it would still not agree to 

Treasury’s fund balance of zero. FEC would still have reconciling items with 

Treasury’s balance. FEC believes this is no more accurate than recording the full 

appropriation from a control perspective. If FEC did not record the appropriation in 

its general ledger, a budget could not be input to control spending at all. 

The most important issue is that the reconciliations have been current and correct all 

year. CG audited the reconciliations of all cash accounts extensively, proposed no 

adjustments and had no other findings. 

CG should also be aware that FEC recorded only the CR amount for FY 2006. It was 

considerably easier this year because the CR was for 48 days (about 13% of the total) 

and FEC expects only the one CR for FY 2006 instead of piecemeal CRs like last year. 

Recommendation: 

35. Comply with the continuing resolution accounting scenario prescribed by U.S.

Treasury in accordance with memorandum issued by OMB. 

71
FEC RESPONSE:

As noted, FEC disagrees with this as a Reportable Condition. However, FEC is in full 

compliance with this in FY 2006. 

C. Integrated Financial Management System (Repeat Finding) (NFR #40) 

 

FEC RESPONSE:

While the FEC is pleased that CG has downgraded this from a material weakness to a 

reportable condition, we still disagree with this classification. To be fully integrated, a

system must use the same information in preparing performance and cost allocation 

reports and in this regard, FEC’s systems are fully integrated. Even if one were to

adopt a more broad definition of integration, the FEC is compliant with OMB and 

GAO standards. CG is fully aware that a budget preparation and MIS system will be 

fully operational and integrated with the financial system as of January 1, 2006. The 

FEC implemented these new systems even though OMB guidance and GAO standards 

do not require agencies to have totally integrated systems. 

Recommendation: 

36. Continue to assess the degree of integration necessary to have a single, unified 

financial system by evaluating the functional requirements and the costs and 

benefits of integrating the financial reporting, property and equipment, 

receivable, and the cost systems with the GL system; 

FEC RESPONSE:

The FEC continues to perform a cost-benefit analysis to determine whether total 

integration of all budget, procurement, property and financial systems is worth the cost 

for a small federal agency. Based upon the accuracy and reliability of our current

financial systems, the FEC is comfortable with the risks of the current interfaces we 

have developed between the systems. 

Additionally, the FEC has requested funding in the FY 2006 and FY 2007 budgets to 

fully examine our finance system requirements, with the objectives ranging from a

system upgrade to a complete system replacement that would be fully integrated with

the FEC's budget, procurement, inventory, and HR system. The FEC has been 

meeting with US Government agencies that have been selected as Centers of 

Excellence (COE), as well representatives of the Office of Management and Budget to 

refine our quest for a integrated financial management system. 

72
VI. Payroll (Modified Repeat Finding) 

FEC RESPONSE:

The FEC believes it has strong controls in the payroll area, but as in all areas we

believe controls can be improved. The FEC improved several important control

processes in the payroll area in FY 2005. Compliance with requirements to submit 

leave verification reports requested from timekeepers saw improvement in the latter

part of the year. 

Recommendations: 

37. Implement procedures to ensure that leave adjustments are completely 

processed and transmitted to the service provider. 

FEC RESPONSE:

Instructions will be issued in early FY 2006 to ensure staff is clear on this issue. 

Another technician will initial the changes have been made correctly. 

38. Maintain in the personnel files all payroll deduction authorization forms

initiated through FEC, i.e., not done directly by the employee with a service 

provider. 

FEC RESPONSE:

Finance and HR met in May 2005 to coordinate the roles of the respective offices. 

Most of the documents cited as missing by CG were subsequently located. More 

attention will be paid to this in FY 2006, including spot checks by management. 

39. Ensure that timekeepers: perform the monthly reconciliation between leave 

balances reported in its records and the service provider’s records; and submit 

the bi-weekly leave balance certification to the finance office timely. 

FEC RESPONSE:

As noted to CG during the audit, compliance with this requirement increased 

significantly during the latter part of the fiscal year and is continuing in FY 2006. 

Finance management will also have a technician audit one timesheet for completeness

per timekeeper for each pay period. Results will be documented. 

40. Implement procedures for ensuring all payroll and personnel documents are 

properly completed and authorized before payroll data is transmitted to the 

payroll service provider for processing. 

73
FEC RESPONSE:

FEC will place more emphasis on this in FY 2006 including sampling of timesheets

for completeness and accuracy. 

41. Consider automating payroll processing to decrease the risk of errors. 

FEC RESPONSE:

FEC is studying the merging of time and attendance with the management information 

system. Part of that study will include whether it is feasible to further automate the 

payroll process. 

OTHER MATTERS 

Federal Managers’ Financial Integrity Act (31 U.S.C. 3512) (FMFIA) 

OMB Circular No. A-123, Management Accountability and Control, provides the reporting 

guidelines for the FMFIA. OMB Circular No. A-123 states that annually, by December 31, 

the head of each executive agency submit to the President and the Congress (i) a statement on 

whether there is reasonable assurance that the agency’s controls are achieving their intended 

objectives, (ii) a report on material weaknesses in the agency controls, and (iii) whether the 

agency’s financial management systems conform with government-wide requirements. 

OMB Bulletin No. 01-02 requires that the auditor’s report on internal control “identify those

material weaknesses disclosed by the audit that were not reported in the reporting entity’s 

FMFIA report.” FEC’s FMFIA report dated October 4, 2005 reports that FEC management

did not identify material weaknesses, but acknowledged the FEC fiscal year 2004 Independent 

Auditor’s Report on Internal Control included material weaknesses. FEC disagreed with the 

material weaknesses identified in the internal control report, and therefore, did not prepare a 

report on material weaknesses, including agency plans to correct the material weaknesses and

progress against those plans in the FMFIA report submitted.

FEC RESPONSE:

We believe that our annual assurance letter satisfies the requirements of A-123 for FY 2005. 

OMB Circular A-123 Management's Accountability and Control states “[t]he statement on 

reasonable assurance represents the agency head's informed judgment as to the overall 

adequacy and effectiveness of management controls within the agency.” When monitoring

and evaluating internal controls, A-123 clearly states that management should independently 

make the determination as to whether any material weaknesses exist. The “auditor’s reports” 

is only one of ten possible sources. 

We further believe that our documentation is sufficient under A-123. A-123 states “[a]gency 

management should determine the appropriate level of documentation needed to support this 

assessment.” We are comfortable with our current level of documentation. 

74
PRINCIPAL STATEMENTS 

Federal Election Commission 

BALANCE SHEET 

As of September 30, 2005 and 2004 

2005 2004

Assets

Intragovernmental:

Fund Balance with Treasury (Note 2) $ 8,567,325 $ 11,817,284

Total Intragovernmental Assets 8,567,325 11,817,284

Accounts Receivable, net (Note 3) 427,150 95,358

General Property and equipment, net 

(Note 4) 10,064,293 8,753,961

Advances to others 11,614 4,014

Total Assets $ 19,070,382 $ 20,670,617

Liabilities 

Intragovernmental:

Accounts Payable (Note 5) $ 137,000 $ 237,080

Custodial Liability 677,317 461,025

Total Intragovernmental 814,317 698,105

Accounts Payable 884,084 742,256

Accrued payroll and benefits 1,484,178 1,190,514

Unfunded leave 1,963,941 1,785,307

Actuarial Federal Employees 

Compensation (FECA) liability (Note 6) 36,076 43,425

Other 1,954 5,187

Total Liabilities 5,184,550 4,464,794

Commitments and Contingencies (Note 7) - -

Net Position

Unexpended appropriations 5,821,557 9,280,593

Cumulative results of operations 8,064,275 6,925,230

Total Net Position 13,885,832 16,205,823

Total Liabilities and Net Position $ 19,070,382 $ 20,670,617

The accompanying notes are an integral part of these statements. 

75
Federal Election Commission 

STATEMENT OF NET COST 

For the Years Ending September 30, 2005 and 2004 

Program Costs: 2005 2004 

Obtain Compliance: 

Gross costs (Note 9) $ 21,932,137 $ 31,058,811

Less: earned revenue - -

Net program costs 21,932,137 31,058,811

Promote Disclosure: 

Gross costs 25,868,674 15,942,147

Less: earned revenue (185,860) (149,818)

Net program costs 25,682,814 15,792,329

Public Financing: 

Gross costs 8,435,437 4,591,751

Less: earned revenue - -

Net program costs 8,435,437 4,591,751

Election Administration: 

Gross costs - 309,386

Less: earned revenue - -

Net program costs - 309,386

Net Cost of Operations $ 56,050,388 $ 51,752,277

The accompanying notes are an integral part of these statements. 

76
Federal Election Commission 

STATEMENT OF CHANGES IN NET POSITION 

For the Years Ending September 30, 2005 and 2004 

2005 2004

Cumulative

Results of 

Operations

Unexpended

Appropriations

Cumulative 

Results of 

Operations

Unexpended

Appropriations

Beginning Balances $ 6,925,230 $ 9,280,593 $ 6,014,404 $ 10,411,548

Budgetary Financing Sources 

Appropriations received 52,159,000 - 51,240,000

Appropriations transferred 

in/out (+/-) - - (481,092) 

Other adjustments 

(rescissions, etc.) (+/-) (747,105) - (1,463,081)

Appropriations used 54,870,931 (54,870,931) 50,426,782 (50,426,782)

54,870,931 (3,459,036) 50,426,782 (1,130,955)

Other Financing Sources: 

Imputed financing from costs 

absorbed by others 2,318,502 2,236,321 

2,318,502 - 2,236,321 -

Total Financing Sources 57,189,433 (3,459,036) 52,663,103 (1,130,955)

Net Cost of Operations (+/-) (56,050,388) (51,752,277)

Ending Balances $ 8,064,275 $ 5,821,557 $ 6,925,230 $ 9,280,593

The accompanying notes are an integral part of these statements. 

77
Federal Election Commission 

STATEMENT OF BUDGETARY RESOURCES 

For the Years Ending September 30, 2005 and 2004 

2005 2004

Budgetary Resources

Budget authority:

Appropriations received $ 52,159,000 $ 51,240,000 

Net transfers - (481,092) 

52,159,000 50,758,908

Unobligated balance: 

Beginning of period 1,401,279 1,323,078 

1,401,279 1,323,078

Subtotal $ 53,560,279 $ 52,081,986

Recoveries of prior year obligations 693,562 887,780 

Enacted rescissions (417,272) (302,316) 

Permanently not available:

Cancellations of expired/no-year accounts (329,833) (1,160,764)

Total Budgetary Resources $ 53,506,736 $ 51,506,686 

Status of Budgetary Resources 

Obligations incurred

Direct

Category A 43,207,209 42,587,222 

Category B 8,505,031 7,518,185 

51,712,240 50,105,407

Unobligated balance 

Balance currently available:

Category A 32,731 86,214 

Category B 1,398 - 

34,129 86,214

Unobligated balance not available 1,760,367 1,315,065

Total Status of Budgetary Resources $ 53,506,736 $ 51,506,686 

Relationship of Obligations to Outlays: 

Obligated balance, net beginning of period $ 10,050,338 $ 10,564,690

Obligated balance transferred, net, end of period

Undelivered orders 4,015,446 7,875,301 

Accounts payable 2,505,262 2,169,850 

Other liabilities 1,954 5,187 

6,522,662 10,050,338

Outlays 

Disbursements 54,543,120 49,737,166

Net Outlays $ 54,543,120 $ 49,737,166 

The accompanying notes are an integral part of these statements. 

78
Federal Election Commission 

STATEMENT OF FINANCING 

For the Years Ending September 30, 2005 and 2004

2005 2004

Resources Used to Finance Activities 

Budgetary Resources Obligated 

Obligations Incurred $ 51,712,240 $ 50,105,407

Less: Recoveries of prior year obligations (693,562) (887,780)

Net obligations 51,018,678 49,217,627

Other Resources 

Imputed financing from costs absorbed by others 2,318,502 2,236,321

Net other resources used to finance activities 2,318,502 2,236,321

Total resources used to finance activities 53,337,180 51,453,948

Resources Used to Finance Items not Part of the Net cost of 

Operations 

Change in budgetary resources obligated for goods, 

services and benefits ordered but not yet provided (3,852,253) (1,209,155)

Resources that finance the acquisition of assets 4,443,890 3,421,957

Total resources used to finance items not part of 

the net cost of operations 591,637 2,212,802

Total resources used to finance the net cost of operations 52,745,543 49,241,146

Components of the Net Cost of Operations that will not 

require or Generate Resources in the Current Period

Components Requiring or Generating Resources in

Future Periods: 

Increase in annual leave liability 178,635 86,430

Increase (decrease) in FECA liability (7,349) 17,158

Total components of Net Cost of Operations that 

will require or generate resources in future periods 171,286 103,588

Components not Requiring or Generating Resources: 

Depreciation and amortization 3,133,559 2,407,543

Total components of Net Cost of Operations that 

will not require or generate resources 3,133,559 2,407,543

Total components of net cost of operations that will not 

require or generate resources in the current periods 3,304,845 2,511,131

Net Cost of Operations $ 56,050,388 $ 51,752,277

The accompanying notes are an integral part of these statements. 

79
Federal Election Commission 

STATEMENT OF CUSTODIAL ACTIVITY 

For the Years Ended September 30, 2005 and 2004 

2005 2004

Collections on Behalf of the Federal 

Government

Cash Collections 

Miscellaneous Receipts $ 217,035 $ 476,507

Civil Penalties 2,024,301 3,737,570

Administrative Fees 411,687 830,330

Allowance for Uncollectible Receivables (60,579) (381,431)

Total Custodial Revenue $ 2,592,444 $ 4,662,976

Disposition of Collections 

Transferred to Treasury $ 2,260,652 $ 4,567,618

Amount to be Transferred 331,792 95,358

Total Disposition of Collections $ 2,592,444 $ 4,662,976

The accompanying notes are an integral part of these statements. 

80
 

NOTES TO THE FINANCIAL STATEMENTS 

 

Note 1 - Summary of Significant Accounting Policies 

Reporting Entity 

The accompanying financial statements present the financial position, net cost of operations, 

changes in net position, custodial activity, budgetary resources, and financing of the Federal 

Election Commission (FEC). Created in 1975 by an act of Congress, the FEC is an 

independent agency charged with administering and enforcing the Federal Election Campaign 

Act (FECA). The financial activity presented relates primarily to the execution of the FEC 

congressionally approved budget. Until March 31, 2004 FEC retained responsibility for 

Election Administration. Under P.L. 107-252, effective April 1, 2004, that responsibility and 

remaining funds were transferred to the newly formed Election Assistance Commission. 

The Presidential Election Campaign Fund ("the fund") is not a reporting entity of the FEC. 

Federal Accounting Standards Advisory Boards’ (FASAB) Statement of Federal Financial 

Accounting Concept No. 2, “Entity and Display,” states that two criteria determine whether a 

program qualifies as an agency‘s reporting entity: conclusive criteria and indicative criteria. 

Conclusive criteria include which agency budgets the funds. Indicative criteria include which 

agency exercises “continuing administrative control including the ability to select or remove 

the governing authority and the authority to review and/or modify budget requests.” Since the 

funds are budgeted, apportioned, recorded, reported and paid by Treasury, the accounts of the 

Presidential Election Campaign Fund are not included in the FEC’s financial statements. 

The FEC maintains eligibility requirements for the fund. Under the Internal Revenue Code, 

qualified Presidential candidates receive money from this fund. The FEC helps Treasury 

determine which candidates are eligible to receive the funds and the amount of funds to be 

received. The Secretary of the Treasury makes the payments to eligible candidates and major 

party and qualified minor party nominees as well as National Party Conventions also receive 

money from this fund. The Fund is financed exclusively by a voluntary tax check off. 

Individual taxpayers may direct $3 of their tax to the Fund (up to $6 for joint filers) by 

checking a box on their tax return. 

Basis of Accounting and Presentation 

These financial statements reflect both accrual and budgetary accounting transactions. Under 

the accrual method of accounting, revenues are recognized when earned and expenses are 

recognized when a liability is incurred, without regard to receipt or payment of cash. 

Budgetary accounting is designed to recognize the obligation of funds according to legal 

requirements. Budgetary accounting is essential for compliance with legal constraints and 

controls over the use of Federal funds. 

These financial statements have been prepared from the books and reports of FEC in

accordance with U.S. generally accepted accounting principles (GAAP) for the Federal 

government and the Office of Management and Budget (OMB) Circular A-136, Form and 

Content of Agency Financial Statements. 

81
Assets 

Intra-governmental assets are those assets that arise from transactions with other Federal 

entities. Entity assets are available for use by the entity in its operations while nonentity

assets are assets held by the entity but not available for use by the entity in its operations. 

Fund Balance with Treasury 

FEC does not maintain cash in commercial bank accounts. The U.S. Treasury processes cash 

receipts and disbursements. Funds with the U.S. Treasury consist of appropriated and 

deposited funds that are available to pay current liabilities and finance authorized purchase 

commitments as well as custodial collections which are not available to finance FEC 

activities. Custodial collections are classified as non-entity assets. 

Accounts Receivable 

FEC’s accounts receivable represent amounts due from the public or U.S. Treasury for fines 

and penalties assessed by FEC and referred to Treasury for collection. An allowance for 

uncollectible accounts has been established and included in Accounts Receivable, net on the 

balance sheet. The allowance is a percentage of the overall receivable balance and the 

collection rate of past balances. 

General Property and Equipment 

General P&E is reported at acquisition cost. The capitalization threshold is established at

$25,000 and a useful life of 2 or more years. General P&E consists of items that are used by 

FEC to support its mission. Depreciation on these assets is calculated using the straight-line 

method with no salvage value. Depreciation begins the month after the asset is placed in 

service. Maintenance, repairs and minor renovations are expensed as incurred. Except for 

software, expenditures that materially increase values, change capacities or extend useful lives 

are capitalized. 

Internal use software development and acquisition costs of $25,000 are capitalized as software 

development in progress until the development stage is completed and the software

successfully tested. At acceptance, software development-in-progress costs are reclassified as

internal use software costs and amortized using the straight-line method over an estimated 

useful life of 5 years. Purchased commercial software that does not meet the capitalization

criteria is expensed. Enhancements which do not add significant new capability or 

functionality are expensed. Construction costs of $25,000 or more are accumulated as 

Construction in Progress until occupancy and then are capitalized as a Leasehold

Improvement over 7 years or the remainder of the lease whichever is less. 

The land and building in which the FEC operates is leased from a commercial entity. The

General Services Administration (GSA) provides the facility occupied by the FEC. GSA 

charges the FEC a Standard Level Users Charge that approximates the commercial rental rates

for similar properties. 

82
Liabilities 

Liabilities represent amounts that are likely to be paid by the FEC as the result of transactions 

or events that have already occurred; however, no liabilities are paid by the FEC without an 

appropriation. Intragovernmental liabilities arise from transactions with other Federal 

entities. Liabilities classified as not covered by budgetary resources are liabilities for which 

appropriations have not been enacted and liabilities resulting from the agency’s custodial

activities. FEC also has an intragovernmental liability to the U.S.Treasury for funds collected 

from the public but not yet transferred. These funds may not be used to fund FEC operations. 

Accounts Payable 

Accounts payable consist of amounts owed for goods, services, and other expenses received 

but not yet paid. 

Accrued Payroll and Benefits 

Accrued Payroll and Benefits represents salaries, wages and benefits earned by employees, 

but not disbursed as of September 30, 2005. Accrued payroll and benefits are payable to 

employees and are therefore not classified as intragovernmental. 

Annual, Sick and Other Leave 

Annual leave is recorded as a liability when it is earned; the liability is reduced as leave is 

taken. Each year, the balance in the accrued, restored, and compensatory leave account is 

adjusted to reflect current leave balances and pay rates. Accrued annual leave is paid from 

future funding sources and accordingly is reflected as a liability not covered by budgetary

resources. Sick leave and other types of non-vested leave are expensed as taken. 

Employee Retirement Plans 

Civil Service Retirement System (CSRS) and Federal Employees Retirement System 

(FERS) 

FEC employees participate in one of two retirement programs, either the CSRS or the FERS, 

which became effective on January 1, 1987. Most FEC employees hired after December 31, 

1983, are automatically covered by FERS and Social Security. 

For CSRS covered employees, the FEC withheld 7.0% of gross earnings. The FEC matches

the withholding, and the sum of the withholding and the matching funds is transferred to the 

Civil Service Retirement System. 

For each fiscal year the Office of Personnel Management (OPM) calculates the U.S. 

Government service cost for covered employees, which is an estimate of the amount of funds 

that, if accumulated annually and invested over an employee’s career, would be enough to pay 

that employee’s future benefits. Since the U.S. Government’s estimated service cost exceeds 

contributions made by employer agencies and covered employees this plan is not fully funded 

by the FEC and its employees. For 2005 and 2004, FEC recognized $2.318M and $2.236M, 

respectively, as of September 30, as an imputed cost and as an imputed financing source for 

the difference between the estimated service cost and the contributions made by FEC and its 

employees. 

83
FERS contributions made by employer agencies and covered employees exceed the U.S. 

Government’s estimated service costs. For FERS covered employees the FEC made 

contributions of 10.7% of basic pay. Employees contributed .80% of gross earnings. 

Employees participating in FERS are covered under the Federal Insurance Contribution Act 

(FICA) for which the FEC contributes a matching amount to the Social Security 

Administration. 

Thrift Savings Plan (TSP) 

Employees covered by CSRS and FERS are eligible to contribute to the U.S. Government’s 

TSP, administered by the Federal Retirement Thrift Investment Board. The FEC makes a 

contribution of 1% of basic pay for FERS-covered employees. FERS employees are eligible

to contribute up to 15% of basic pay to their TSP account for 2005. In addition, FEC makes 

matching contributions, of up to 5% of basic pay, for employees who contribute to the Thrift 

Saving Plan. Contributions are matched dollar for dollar for the first 3 percent of pay 

contributed each pay period and 50 cents on the dollar for the next 2 percent of pay. CSRS 

participants may contribute up to 10% of their gross pay, but there is no governmental 

matching contribution. The maximum amounts that either FERS or CSRS employees may 

contribute to the plan in calendar year 2005 is $14,000 for those under age fifty and $18,000 

for those fifty and older. 

The FEC financial statements do not report CSRS or FERS assets, accumulated plan benefits, 

or unfunded liabilities, if any, which may be applicable to FEC employees and funded by 

FEC. Such reporting is the responsibility of OPM. 

Contingencies 

A contingency is an existing condition, situation, or set of circumstances involving 

uncertainty as to possible gain or loss. The uncertainty will ultimately be resolved when one 

or more future events occur or fail to occur. A contingency liability is recognized when a past 

event or exchange transaction has occurred, and future outflow or other sacrifice of resources 

is measurable and probable. A contingency is not disclosed when any of the conditions for 

liability recognition are met but the chance of the future event or events’ occurring is remote. 

A contingency is disclosed when any of the conditions for liability recognition are not met

and the chance of the future confirming event or events occurring is more than remote but less

than probable. 

Revenues and Other Financing Sources 

Annual Salaries and Expenses Appropriation 

Annual one year appropriations are provided by Congress and are available for obligation in 

the fiscal year for which it was provided to fund the overall operation of the FEC. 

84
Imputed Financing Sources 

In accordance with OMB Circular A-136, all expenses should be reported by agencies 

whether or not these expenses would be paid by the agency that incurs the expense. The

amounts for certain expenses of the FEC, which will be paid by other Federal agencies, are 

recorded in the “Statement of Net Cost.” A corresponding amount is recognized in the 

“Statement of Changes in Net Position” as an “Imputed Financing Source.” These imputed 

financing sources primarily represent unfunded pension costs of FEC employees. 

Statement of Net cost 

Sub-Organization Program Costs 

The FEC Statement of Net Cost is presented by Responsibility Segment. The Responsibility 

Segments are based on the FEC’s mission and funding sources. The major programs that

comprise the Responsibility Segments are: Obtain Compliance, Promote Disclosure and 

Public Financing. Costs for a fourth segment, Election Administration, is reported for the six 

months ended March 31, 2004, when the function transferred to the Election Assistance 

Commission. 

Earned Revenue 

Earned revenues collected by FEC included fees for seminars and conferences held during the 

year in various parts of the country. Earned revenues collected by FEC also included amounts

collected from the public for information provided under the Freedom of Information Act 

(FOIA), primarily photocopying. 

Net Position

Net position is the residual difference between asset and liabilities and comprises Unexpended 

Appropriations and Cumulative Results of Operations. 

Unexpended appropriations include appropriations not yet obligated or expended, represented 

by the unobligated balances and undelivered orders of FEC’s appropriated funds. 

Unobligated balances associated with appropriations that expire at the end of the fiscal year 

remain available for obligation adjustments, but not for new obligations, until that account is 

closed, five years after the appropriations expire. Cumulative Results of Operation is the Net 

Result of FEC’s operation since inception. 

Statement of Custodial Activity 

The Statement of Custodial Activity summarizes collections transferred or transferable to the 

U.S. Treasury or other parties for miscellaneous receipts, fines and penalties. These amounts

are not reported as revenue to FEC. 

Use of Estimates 

The preparation of financial statements in accordance with the accounting principles 

described above require management to make estimates and assumptions that affect the 

amounts reported in the financial statements and accompanying footnotes. Actual results 

could differ from those estimates. 

85
Note 2 - Fund Balance with Treasury 

Fund balances with Treasury consisted of the following at and September 30, 2005 and 2004: 

2005 2004

Appropriated Fund $ 8,317,158 $ 11,451,617

Custodial Funds 250,167 365,667

Total Fund Balance with Treasury $ 8,567,325 $ 11,817,284

Status of Fund Balance with Treasury 

2005 2004

Unobligated Balance 

- Available $ 34,129 $ 86,214

- Unavailable 1,760,367 1,315,065

Obligated Balance, Not Yet Disbursed 6,522,662 10,050,338

Custodial Funds 250,167 365,667

Total Status of Fund Balance with Treasury $ 8,567,325 $ 11,817,284

Fund Balance with Treasury is an asset maintained with Treasury. The appropriated funds are 

available to pay current liabilities. FEC has the authority to disburse funds to agencies and 

institutions participating in its programs through the Treasury, which processes cash receipts 

and disbursements on its behalf. Custodial Funds consist of monies collected by FEC but not 

yet transferred to the U.S. Treasury. Custodial Funds are not available to finance FEC 

activities and are therefore classified as non-entity assets. 

Available unobligated balances represent amounts that are apportioned for obligation in the 

current fiscal year. Unavailable unobligated balances represent amounts that are not 

apportioned for obligation during the current fiscal year and expired appropriations no longer 

available to incur new obligations. Obligated balances not yet disbursed include 

reimbursements and other income earned, undelivered orders and expended authority-unpaid. 

86
Non-entity Assets 

Non – entity assets consist of the following at September 30: 

2005 2004

Intragovernmental:

Fund balance with Treasury (Custodial) $ 250,167 $ 365,667

With the Public: 

Accounts Receivable 427,150 95,358

Total non-entity Assets $ 677,317 $ 461,025

Total entity Assets 18,393,065 20,209,592

Total Assets $ 19,070,382 $ 20,670,617

Non-entity assets are not available to finance FEC activities. 

Note 3 - Accounts Receivable, Net 

Accounts Receivable consist of the following at September 30: 

 

2005 

Gross Accounts 

Receivable Allowance 

Net Accounts 

Receivable 

NON-ENTITY 

Intragovernmental $ - $ - $ -

With the Public 869,161 442,011 427,150

Total Non-Entity 869,161 442,011 427,150

TOTAL $ 869,161 $ 442,011 $ 427,150

2004 

Gross Accounts 

Receivable Allowance 

Net Accounts 

Receivable 

NON-ENTITY 

Intragovernmental $ - $ - $ -

With the Public 476,789 381,431 95,358

Total Non-Entity 476,789 381,431 95,358

TOTAL $ 476,789 $ 381,431 $ 95,358

87
Non-Entity Receivables consist of Civil Penalties assessed by FEC through its enforcement 

processes or conciliation agreements reached with parties. Three FEC offices administer the 

fines: the Office of General Counsel (OGC), the Office of Administrative Review (OAR) and 

the Office of Alternate Dispute Resolution (ADR). Each has a distinct role in the enforcement

and collection process. The offices also have significantly different volumes. Therefore, each

has a different rate of collection. The Allowance is based on the historical rate of collection 

for the office and an overall assessment of the debtor’s willingness and ability to pay. OAR 

debts are referred to the U.S. Treasury for collection when delinquent. At September 30, 

2005, OGC had receivables of $285,750 and an allowance of $65,187 (23%) for a net 

receivable of $220,563. At September 30, 2004 OGC’s receivable was $47,250 and the 

allowance was $37,800 (80%) for a net receivable of $9,450. At September 30, 2005, OAR 

has a receivable of $509,911 and an allowance of $376,824 (74%) for a net receivable of 

$133,087. For the year ended September 30, 2004, OAR was owed $413,289 and the 

allowance was $330,630 (80%) for a net receivable of $82,659. The ADR receivable at 

September 30, 2005 was $73,500 with an allowance of $0 (0%) for a net receivable of 

$73,500. At September 30, 2004 the receivable for ADR was $16,250 while the allowance 

was $13,000 (80%) for a net receivable of $3,250. 

Note 4 – General Property and Equipment, Net 

Capitalized property and equipment, net of accumulated depreciation, consisted of the

following as of September 30: 

2005 

Asset Class 

Service 

Life 

(years)

Acquisition 

Value

Accumulated 

Depreciation

Net Book 

Value 

Software 5 $ 8,661,885 $ 5,206,852 $ 3,455,033

Desktop and 

laptop 

computers and 

peripherals 3 2,956,069 2,098,701 857,368

Leasehold 

Improvements 7 or less 4,416,381 1,961,072 2,455,309

Furniture 7 852,754 306,338 546,416

Equipment 7 284,611 235,595 49,016

Software-inDevelopment n.a. 2,701,151 - 2,701,151

Totals $ 19,872,851 $ 9,808,558 $ 10,064,293

88
 

2004 

Asset Class 

Service 

Life 

(years)

Acquisition 

Value

Accumulated 

Depreciation

Net Book 

Value 

Software 5 $ 8,150,070 $ 3,651,895 $ 4,498,175

Desktop and 

laptop 

computers and 

peripherals 3 2,431,700 1,460,814 970,885

Leasehold 

Improvements 7 or less 1,912,848 1,153,973 758,875

Furniture 7 694,730 173,555 521,175

Equipment 7 234,763 234,763 -

Software-inDevelopment n.a. 1,078,650 - 1,078,650

Construction-inProgress n.a. 926,200 - 926,200

Totals $ 15,428,961 $ 6,675,000 $ 8,753,961

 

Depreciation expense was $3,133,559 and $2,407,543 for the fiscal years ended September

30, 2005 and 2004, respectively. 

Note 5 - Liabilities Covered and Not Covered By Budgetary Resources 

Liabilities Covered by Budgetary Resources are those for which budgetary resources are 

available in the current fiscal year. Liabilities Not Covered by Budgetary Resources result 

from the receipt of goods and services, or the occurrence of events, for which appropriations, 

revenues, or other financing sources necessary to pay the liabilities have not yet been made

available through Congressional appropriation. These include FECA and annual leave 

liability. FEC’s liabilities covered and not covered by budgetary resources are as follows as 

of September 30: 

89
2005 2004 

Liabilities Covered by Budgetary Resources 

Accounts Payable – Intragovernmental $ 137,000 $ 237,080

Accounts Payable – With the Public 884,084 742,256

Accrued Payroll and Benefits 1,484,178 1,190,514

Other 1,954 5,187

Liabilities Not Covered by Budgetary Resources 

Intragovernmental: 

Custodial Liability 677,317 461,025

Accrued Unfunded FECA Liability 36,076 43,425

With the Public: 

Accrued Unfunded Annual Leave $ 1,963,941 $ 1,785,307

Total Liabilities Covered and Not Covered by

Budgetary Resources $ 5,184,550 $ 4,464,794

Note 6 - FECA Liability 

The Federal Employee’s Compensation Act (FECA) provides income and medical cost

protection to covered Federal civilian employees injured on the job, employees who have 

incurred a work-related occupational disease, and beneficiaries of employees whose death is 

attributable to a job-related injury or occupational disease. Claims incurred for benefits for 

FEC employees under FECA are administered by the Department of Labor (DOL) and are 

ultimately paid by the FEC. 

The FEC accrues FECA liability at September 30th each year. FECA liability includes two

components: (1) the accrued liability which represents money owed for claims paid by the 

DOL through the current fiscal year, for which billing to and payment by the FEC will occur 

in a subsequent fiscal year and; (2) the liability for future costs which represents the expected

liability for approved compensation cases beyond the current fiscal year. Estimated future

costs have been actuarially determined, using the model provided by DOL, and are regarded 

as a liability to the public because neither the costs nor reimbursement have been recognized 

by DOL. FECA liability is included in Liabilities Not Covered by Budgetary Resources, as 

described in Note 5. 

Note 7 – Commitments and Contingencies 

In the opinion of FEC management and legal counsel, FEC is not a party to any legal actions 

which are likely to result in a material liability. Accordingly, no provision for loss is included

in the financial statements. 

90
Note 8 – Leases 

The FEC has a commitment under an operating lease for its headquarters office space. The 

lease is for a period of ten years and expires September 30, 2007. Under their lease agreement

with GSA, the FEC is charged rent that is intended to approximate commercial rental rates.

FEC has no capital leases. Future payments due under the lease: 

Future Operating Lease Payments 

Fiscal Year Lease Payment 

2006 $ 4,059,984

2007 4,075,749

Total Future Lease Payments $ 8,135,733

Note 9 - Statement of Net Cost 

FEC’s costs are broken into three main programs as noted below: 

2005 

Obtain 

Compliance

Promote 

Disclosure 

Public 

Financing Totals

Intragovernmental 

gross costs $ 2,898,838 $ 3,419,141 $ 1,114,937 $ 7,432,916

Intragovernmental 

net costs 2,898,838 3,419,141 1,114,937 7,432,916

Gross costs with the 

public 19,033,299 22,249,533 7,320,500 48,803,332

Less: earned revenues 

from the public (185,860) (185,860)

Net costs with the 

public 19,033,299 22,263,673 7,320,500 48,617,472

Net Cost of 

Operations $ 21,932,137 $ 25,682,814 $ 8,435,437 $ 56,050,388

91
2004 

Obtain 

Compliance 

Promote 

Disclosure

Public 

Financing 

Election

Administration Totals

Intragovernmental 

gross costs $ 4,843,146 $ 2,485,933 $ 716,013 $ - $ 8,045,092 

Intragovernmenta

l net costs 4,843,146 2,485,933 716,013 - 8,045,092 

Gross costs with 

the public 26,215,665 13,456,214 3,875,738 309,386 43,857,004 

Less: earned 

revenues from the 

public (149,818) (149,818) 

Net costs with the

public 26,215,665 13,306,396 3,875,738 309,386 43,707,186 

Net Cost of 

Operations $ 31,058,811 $ 15,792,329 $ 4,591,751 $ 309,386 $ 51,752,277 

Note 10 - Statement of Budgetary Resources 

The Statement of Budgetary Resources (SBR) compares budgetary resources with the status 

of those resources. As of September 30, 2005, budgetary resources were $53,506,736 and net

outlays were $54,543,120. As of September 30, 2004, budgetary resources were $51,506,686 

and net outlays were $49,737,166. 

Apportionment Categories of Obligations Incurred 

FEC receives apportionments of its resources from OMB. Category A apportionments are 

those for resources that can be obligated without restriction on the purpose of the obligation, 

other than to be in compliance with legislation underlying programs for which the resources 

were made available. Category B apportionments are to be used for Information Technology 

enhancements only. 

The apportionment categories of obligations incurred are summarized below at September 30, 

2005 and September 30, 2004: 

2005 2004

Direct:

Category A $ 43,207,209 $ 42,587,222

Category B 8,505,031 7,518,185

Total Apportionment Categories of Obligations 

Incurred $ 51,712,240 $ 50,105,407

Comparison to the Budget of the United States Government 

Statement of Federal Financial Accounting Standards No. 7 (SFFAS No. 7), Accounting for 

Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and 

Financial Accounting, requires an explanation of material differences between budgetary 

resources available, the status of those resources and outlays as presented in the Statement of

92
Budgetary Resources to the related actual balances published in the Budget of the United 

States Government (Budget). However, the Budget has not yet been published. The Budget is

scheduled for publication in February 2006 and will be available through OMB. Accordingly, 

information required for such disclosure is not available at the time of publication of these 

financial statements. 

Note 11 - Custodial Revenues and Accounts Receivable 

FEC uses the accrual basis of accounting for the collections of fines, penalties and 

miscellaneous receipts. Collectibility by FEC of the fines and penalties is based on the

responsible parties’ willingness and ability to pay: 

2005 2004

Fines, Penalties and Other Misc. Revenue $ 2,592,444 $ 4,662,976

Accounts Receivable for Fines, Penalties and 

Other Misc. Receipts 

Accounts Receivable $ 869,161 $ 476,789

Less: Allowance for Doubtful Accounts 442,010 381,431

Total $ 427,150 $ 95,358

Note 12 – Explanation of the Relationship Between Liabilities Not Covered by 

Budgetary Resources on the Balance Sheet and the Change in Components Requiring or 

Generating Resources in Future Periods 

The increase (decrease) in FECA Liability of $(7,349) is included as part of the Resources

that fund expenses recognized in prior periods line item of the Statement of Financing. The

change in the unfunded annual leave balance between FY 2004 and FY 2005 of $178,634 is 

reflected as Components Requiring or Generating Resources in future Periods on the 

Statement of Financing. See Note 5 for the liability balance. 

93
94
REQUIRED SUPPLEMENTARY INFORMATION 

Federal Election Commission 

Required Supplementary Information 

As of September 30, 2005 and 2004 

Intragovernmental Assets: 

 

2005 2004 

Trading Partner Agency: 

Fund Balance 

with Treasury 

Fund Balance 

with Treasury 

Treasury $ 8,567,325 $ 11,817,284

Total $ 8,567,325 $ 11,817,284

Intragovernmental Liabilities: 

2005 2004 

Trading Partner Agency: Accounts Payable Accounts Payable 

Covered by Budgetary Resources: 

Department of Health & Human 

Services $ $ 11,574

Department of Labor 2,947

Department of Treasury 5,198

Government Printing Office 347

General Services Administration 137,000 198,444

OPM 588

U.S. Department of Agriculture 10,002

U.S. Postal Service 7,980

Total Covered by Budgetary 

Resources $ 137,000 $ 237,080

Custodial:

Department of Treasury 677,317 461,025

Total Intragovernmental 

Liabilities $ 814,317 $ 698,105

95
Federal Election Commission 

Statement of Budgetary Resources

For the Years Ending September 30, 2005 and 2004 

2005 2004

Budgetary Resources Obtain 

Compliance 

Promote 

Disclosure 

Public 

Financing Total Total

Budget authority: 

Appropriations received $ 20,409,463 $ 23,899,744 $ 7,849,793 $ 52,159,000 $ 51,240,000

Net transfers - - - (481,092)

20,409,463 23,899,744 7,849,793 52,159,000 50,758,908

 

Unobligated balance: 

Beginning of period 548,311 642,079 210,889 1,401,279 1,323,078 

548,311 642,079 210,889 1,401,279 1,323,078

Subtotal 20,957,774 24,541,823 8,060,682 $ 53,560,279 $ 52,081,986

 

Recoveries of prior year

obligations 271,386 317,797 104,379 693,562 887,780

Enacted rescissions (163,276) (191,198) (62,798) (417,272) (302,316)

Permanently not available: 

Cancellations of 

expired/no-year

accounts 

Pursuant to Public 

Law (129,061) (151,133) (49,639) (329,833) (1,160,764)

Total Budgetary Resources $ 20,936,823 $ 24,695,034 $ 8,052,624 $ 53,506,736 $ 51,506,686

 

Status of Budgetary Resources 

Obligations incurred 

Direct 

Category A 16,906,688 19,797,949 6,502,572 43,207,207 42,587,222

Category B 3,327,961 3,897,085 1,279,985 8,505,031 7,518,185

20,234,649 23,695,034 7,782,557 51,712,240 50,105,407

 

Unobligated balance 

Balance currently available: 

Category A 12,807 14,998 4,926 32,731 86,214

Category B 547 641 210 1,398 -

13,354 15,638 5,136 34,129 86,214

 

Unobligated balance not 

available 688,820 806,616 264,931 1,760,367 1,315,065

Total Status of Budgetary 

Resources $ 20,936,823 $ 24,517,289 $ 8,052,624 $ 53,506,736 $ 51,506,686

 

Relationship of Obligations to 

Outlays: 

Obligated balance, net beginning 

of period $ 3,932,629 $ 4,605,159 $ 1,512,550 $ 10,050,338 $ 10,564,690

 

Obligated balance transferred,

net, end of period 

Undelivered orders 1,571,217 1,839,916 604,314 4,015,446 7,875,301

Accounts payable 980,292 1,147,935 377,035 2,505,262 2,169,850

Other liabilities 765 895 294 1,954 5,187

Total Obligated balance, net, 

end of period 2,551,509 2,987,850 981,350 6,522,662 10,050,338

Outlays 

Disbursements 21,342,353 24,992,170 8,208,597 54,543,120 49,737,166

 

Net Outlays $ 21,342,353 $ 24,992,170 $ 8,208,597 $ 54,543,120 $ 49,737,166

96
APPENDICES

APPENDICES
A1

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

Office of Inspector General

MEMORANDUM

TO: The Commission

FROM: Inspector General

SUBJECT: Inspector General Statement on the Federal Election Commission’s 

Management and Performance Challenges

DATE: October 21, 2005

On November 22, 2000 the President signed the Reports Consolidation Act of 2000 

(Public Law 106-531), an amendment to the Chief Financial Officers (CFO) Act of 

1990. The Reports Consolidation Act of 2000 requires Inspectors General to provide a 

summary and assessment of the most serious management and performance challenges 

facing Federal agencies and the agencies’ progress in addressing these challenges. 

Previously, the Federal Election Commission (FEC) Inspector General was not subject 

to this requirement, since the FEC was not a covered agency of the CFO Act of 1990. 

As a result of the enactment of the Accountability of Tax Dollars Act of 2002, the FEC 

is now subject to these provisions. The attached document responds to the requirements, 

and provides the annual statement on Commission challenges to be included in the 

Federal Election Commission Performance and Accountability Report (PAR) Fiscal Year 

(FY) 2005.

The Inspector General’s 2005 Statement on the Federal Election Commission’s 

Management and Performance Challenges summarizes three areas for inclusion in 

the FEC’s FY 2005 PAR: Information Technology Security; Financial Reporting; 

and Human Capital Management. The Inspector General identified these same three 

challenges in the 2004 PAR and continues to believe the issues remain challenges for the 

FEC. The FEC has devoted significant efforts to address the challenges and progress is 

being made on these important areas. 

The assessment of the three FEC management and performance challenges is 

attached. The Inspector General’s assessments are based on information derived from 

Appendix A – Inspector General’s Management and Performance 

Challenges
A2 

a combination of several sources; including Office of Inspector General audit and inspection 

work, Commission reports, and a general knowledge of the Commission’s programs. 

The Reports Consolidation Act of 2000 permits agency comment on the Inspector General’s 

statements. Agency comments, if applicable, are to be included in the final version of the PAR 

that is due on November 15, 2005.

 Lynne A. McFarland

Inspector General

Attachment

Cc: Robert J. Costa, Acting Staff Director

Anthony P. Scardino, CFO and Deputy Staff Director for Management

2
A3



FEC Management and Performance Challenges

(Prepared by FEC’s Office of the Inspector General)

INFORMATION TECHNOLOGY SECURITY

Accomplishment of the Federal Election Commission’s (FEC) mission and goals depend 

heavily on computerized systems. The FEC mission is to assure that the campaign finance 

process is fully disclosed, and that the rules are effectively and fairly enforced, fostering the 

electorate’s faith in the integrity of the nation’s political process. The FEC is responsible 

for providing the electorate with the capability to make educated, informed decisions about 

the source of financial support for candidates of federal office, as well as provide confidence 

that those who disregard the laws regarding campaign financing and/or its requirements for 

public disclosure will be held accountable for non-compliance. 

The Commission’s computerized disclosure database plays a significant role in the mission 

of the agency. The database contains millions of transactions, and is available through 

the FEC’s website, which allows the public to access campaign contribution information. 

In addition to the disclosure database, the FEC manages a number of mission-critical 

automated information systems that process and store business and administrative 

computer data. The FEC’s local area network (LAN) supports approximately 375 users. 

The LAN provides desktop computing and other computer network services, to include 

Internet access, electronic mail, data storage, printing, and dial-up services. 

While information technology (IT) can result in a number of benefits, such as information 

being processed quickly and communicated almost instantaneously, it also increases the risk 

of fraud, inappropriate disclosure of sensitive data, and disruption of critical operations 

and services. Although one of the FEC’s primary responsibilities is the disclosure of 

campaign finance information, the FEC is also responsible for ensuring a high level of 

protection of confidential and proprietary information that should not be released to 

the pubic under the Privacy Act or other statutes. Employee’s personal data, the Office 

of General Counsel’s enforcement priority system data, and information on the FEC’s 

investigations related to violations of election law are among several examples of sensitive 

information residing on the FEC’s LAN. In addition to the protection of information, the 

FEC is also responsible for ensuring the integrity of campaign finance information before 

and after release. The unauthorized or intentional modification of computer data could 

lead to the erroneous and inaccurate disclosure of campaign finance information and have 

an adverse impact on the electoral process. 
A4 



The Government Accountability Office (GAO) has reported IT security as a high-risk area 

throughout the government since February 1997. The GAO designated IT security as a 

government-wide high-risk area because of growing evidence indicating that controls over 

computerized operations were not effective, and risks were increasing. A primary reason 

for these weaknesses is that federal agencies have not yet fully implemented comprehensive 

security management programs, which are critical to identifying information security 

weaknesses and risks on an ongoing basis. 

In 2004, IT security was identified in the Inspector General’s first Statement on the Federal 

Election Commission’s Management and Performance Challenges. An independent public 

accounting (IPA) firm hired by the Inspector General reported in the FEC’s fiscal year (FY) 

2004 FEC financial statement audit that information security management is a material 

weakness. The IPA’s audit report included a total of twenty-seven recommendations to 

improve weaknesses related to information security management. Recommendations 

included establishing alternative processing sites for the FEC’s operations in the event of 

a disaster and the development of a comprehensive contingency of operations plan of the 

FEC’s data centers, networks, and telecommunication facilities, among others.

The Inspector General believes progress is being made to improve the IT security at 

the Commission. Several of the FY 2004 audit recommendations have already been 

implemented to improve IT security. One of the FY 2004 audit recommendations was to 

provide periodic computer security awareness training to all employees and contractors who 

are granted access to the FEC’s computer network. The IT Division has implemented this 

recommendation and on October 28, 2004, the FEC’s Information System Security Program 

Policy was distributed to all FEC employees and contractors. The policy requires that FEC 

management educate all employees on IT security rules and principals. As a result, the FEC 

has instituted an IT security awareness training program that provides mandatory security 

training for all new employees and contractors in addition to annual refresher training. 

Other important steps have been taken by the FEC to improve IT security. In May of 2005, 

the IT Division, with the assistance of an outside consultant, performed a security audit of 

the FEC’s computer network to determine the extent to which the FEC’s IT infrastructure 

may be vulnerable to an external Internet-based penetration. In addition, the IT Division 

has procured a fire-proof safe to provide additional protection for the computer backup 

tapes prior to being sent off-site and also issued written procedures to manage changes in 

the computer software operating on Commission computers.

The commitment of the IT Division staff has been critical for the accomplishment of the 

numerous tasks necessary to protect the FEC’s IT infrastructure, as well as to accomplish 
A5



the many aggressive IT initiatives contained in the FEC’s IT strategic plan. Although 

progress is being made, considerable work remains to be done, to include resolving several 

of the audit recommendations contained in the FY 2004 financial statement audit. The 

continuous commitment of the Commission staff, buy in from the top down on the 

importance of IT security, and sound management practices are key elements to ensuring 

the FEC is prepared for the challenges that exist in the ever-changing IT environment.

FINANCIAL REPORTING

On November 7, 2002, the President signed the Accountability of Tax Dollars Act of 2002 

(Public Law 107-289). The Act requires the FEC and other federal agencies not previously 

covered by the Chief Financial Officers Act, to prepare and submit to the Congress and the 

Director of the Office of Management and Budget (OMB) audited financial statements. 

Beginning in FY 2004, the FEC is required to prepare and submit annual audited financial 

statements. 

The FEC was successful in obtaining an unqualified (clean) audit opinion on its first annual 

financial statement audit for fiscal year (FY) 2004. An independent public accounting (IPA) 

firm hired by the Inspector General conducted the FEC’s FY 2004 audit. The IPA firm 

audited the FEC’s balance sheet as of September 30, 2004, and the related statements of net 

cost, changes in net position, budgetary resources, financing, and custodial activity for the 

year then ended. The IPA firm opined that the financial statements were presented fairly, 

in all material respects, and presented in conformity with generally accepted accounting 

principles.

The FEC’s ability to receive an unqualified opinion on the first annual financial statement 

audit is an important achievement. Although the auditors issued an overall unqualified 

opinion on the financial statements, it is important to note the FY 2004 internal control 

audit report included a material weakness related to financial reporting and three reportable 

conditions. For example, the auditors concluded the interim financial statements contained 

several misstatements and/or misclassifications resulting from ineffective internal controls 

over the financial statement preparation and reporting process. In addition, a tremendous 

amount of effort, resources, and time by FEC management, staff, and consultants was 

necessary in order to achieve an unqualified opinion for FY 2004. 

The Inspector General strongly believes in the importance of sound financial management. 

The federal government has a stewardship obligation to prevent fraud, waste, and abuse; 

to use tax dollars appropriately; and to ensure financial accountability to the President, the 

Congress, and the American people. Timely, accurate, and useful financial information is 

essential for making operating decisions day-to-day; managing the government’s operations 
A6 



more efficiently, effectively, and economically; meeting the goals of federal financial 

management reform legislation (such as the Chief Financial Officers Act); supporting 

results-oriented management approaches; and ensuring accountability on an ongoing basis.

The Inspector General is confident the accounting and financial management staff is 

making some progress to correct the weaknesses identified during the FY 2004 audit. 

Specifically, the FEC has developed important plans for the guidance and preparation of 

the quarterly and annual financial statements, to include an annual calendar and audit 

schedule detailing key due dates for financial reports to third parties. In addition, the FEC’s 

recruitment and hiring of a new Chief Financial Officer in mid 2005 is another important 

step the FEC has taken to address the challenges of financial reporting. 

The effort required to accomplish the federal financial and performance reporting 

requirements and meet the deadlines imposed is a significant challenge for the FEC. 

Many entities must work together to make this happen; including financial managers and 

staff, program managers with performance reporting responsibilities, consultants, and 

independent auditors. The FEC’s first annual financial statement audit and submission 

of the Performance and Accountability Report, for FY 2004, coincided with OMB’s 

accelerated reporting initiatives. OMB guidance shortened the time to prepare and submit 

the PAR, as well as to audit the year-end financial statements, from 120 days for FY 2003, 

to 45 days for FYs 2004 and 2005. 

The Commission’s ability to meet these accelerated time frames will depend upon having 

effective and timely interim and year-end procedures to accumulate and record financial 

transactions, close the books, and prepare the financial statements. A challenge for the 

FEC’s financial management system is the ability to produce timely, accurate, and reliable 

information throughout the course of the year. By doing so, the effort will be lessened at 

fiscal year end to compile, analyze, and correct its financial data in order to prepare accurate 

financial statements within a reasonable timeframe after the close of the fiscal year. The 

FEC has made progress towards these goals, however existing weaknesses still exist and 

significant challenges remain ahead. 
A7



HUMAN CAPITAL MANAGEMENT

According to the Government Accountability Office’s (GAO) high-risk update report 

released in January 2005, human capital management continues to be identified as a 

significant challenge to the federal government. Human capital management was first 

designated as a government-wide high-risk issue by GAO in January 2001 because of the 

federal government’s long-standing lack of a consistent strategic approach to manage 

the human capital needed to maximize government performance. The area remains high 

risk because GAO believes that federal human capital strategies are not designed to meet 

the current and emerging workforce challenges or drive the transformations necessary for 

agencies to meet these challenges. 

GAO reported the federal government is making progress in addressing human capital 

challenges in the last few years. However, GAO believes ample opportunities exist for 

agencies to improve their strategic management of human capital and effectively respond 

to current and emerging challenges. To initiate reform within the current human capital 

system, strategic workforce plans are required to identify and focus human capital 

investments on long-term issues that best contribute to results. According to GAO, 

“agencies need to reform their current systems so that performance and organizational 

results can be linked to pay and rewards”. GAO also stated that “agencies need to continue 

to create effective hiring processes and use flexibilities and incentives to retain critical 

talent”. Furthermore, GAO believes that agencies must have a sustained leadership to 

provide the focused attention essential to completing multiyear transformations. 

Federal agencies, such as the FEC, must ensure a sufficient management capacity exists 

and must have adequate resources to properly design and effectively implement more 

performance oriented systems. The federal government depends on a dynamic, diverse 

workforce with the appropriate knowledge, proficiency, and skills base to achieve its 

mission. Factors such as the aging workforce suggest that the FEC’s future expertise and 

institutional knowledge will likely decline without appropriate attention and action. 

Recognizing these challenges, the Commission has several programs established to make 

maximum use of the available authorities to recruit, hire, develop, and retain key talent to 

ensure that the agency’s mission is successfully executed. For example, the Commission has 

student volunteer and paid internship programs that offer opportunities to college students; 

these programs attract students with diverse backgrounds who have the skills needed to 

meet future employment needs. Special hiring tools, such as recruitment incentives, are 

used to effectively compete for highly qualified applicants. Furthermore, the Commission 

has established mentoring programs and other professional development opportunities 

to include detailing employees to other federal agencies to obtain skills relevant to the 

employee’s current position with the FEC. Commission funds have also been allocated for 
A8



an executive development program; the Office of Human Resources and Labor Relations 

plans to use these funds to provide formal executive level training for the Commission’s 

senior managers. 

Additionally, the FEC’s 2005 legislative recommendations to the President included the 

resubmission of the recommendation for the creation of Senior Executive Service (SES) 

positions. Since the Commission is not currently permitted to have SES positions, current 

senior managers are employed in senior level positions. According to the FEC, “the 

current senior level pay and benefits structure hinders the Commission’s ability to recruit 

talented executives from other agencies and retain high performing senior managers”. 

The Commission believes that converting senior level positions into SES positions would 

support the trend toward performance-based pay for senior executives that exist in the 

federal government and allow it to remain competitive in the marketplace for federal 

executives when a vacancy arises.

Other FEC programs and policies utilized to address challenges in human capital 

management include: retention incentives, the creation of an agency-wide flexi-place 

or telework policy, development of a database which will track employee semi-annual 

performance appraisals as well as the participation in occupational studies. 

To measure job satisfaction among Commission employees, the agency also accepted 

an invitation to participate in the 2004 Federal Human Capital Survey. The survey is 

another performance tool that measures employees’ perceptions of whether, and to what 

extent, conditions characterizing successful organizations are present in their agencies. It 

also provides general indicators of how well the federal government is running its human 

resources management systems. The results of the survey provided the FEC critical 

information and insight on areas that need improvement. 

The FEC needs to continue to create effective hiring processes and use existing flexibilities 

and incentives to retain critical talent to reshape its workforce. Commission leaders 

and managers must effectively manage people, ensure continuity of leadership, and 

sustain a learning environment that drives continuous improvement in performance. The 

Commission must also reform the current management system so the pay and awards 

are linked to performance and organizational goals. An effective performance oriented 

system can be a vital tool for aligning federal agencies with desired results and creating a 

clear portrait of how individual performance can contribute to successful execution of the 

agency’s mission. In addition, the FEC needs to integrate its approach to human capital 

management into budgetary and strategic planning processes to ensure the agency’s ability 

to function over the long run. Federal agencies, such as the FEC, must transform their 

organizations to meet the new challenges of the 21st century and their most important asset 

in this transformation is their people. 
Appendix B – Performance Measures, Fiscal Years 2002 - 2005 

■ - Met 

□ – On track to meet 

Performance Measure Met 

Place between 85,000 to 90,000 reports and 20,000 to 25,000 statements from 7,500 to

8,000 committees filing reports on the public record each election cycle 

□

Complete coding and entry of summary data from documents and statements filed each 

cycle and meet the 48 hour deadline for making documents public for 99% of those 

filed 

■

Complete coding and entry of itemized data from reports filed, including 2.5 to 3.0 

million itemized transactions per cycle, completing 95% within 45 days of reports 

being received at the FEC, and all reports processed within a median 7 days from

receipt at the commission 

□

Complete the review of all reports filed and refer all potential enforcement actions and

audits each cycle, 60% of reviews within 90 days of receipt (quarterly filing periods) 

■

Issue 20,000 Requests for Additional Information (RFAI’s) per cycle to correct the 

public record, 60% within 90 days of receipt of report (contacting filers within 90 days 

minimizes repetitious errors which tend to further burden the disclosure process) 

■

Respond to requests for assistance from 40,000 filers per cycle ■

Produce analytical releases after each election year quarterly report and the 

pre-general election report 

■

Produce Summary statistical analyses after each election cycle: Reports on Financial 

Activity 

■

Conduct a database accuracy review monthly for summary and itemized data entry ■

Provide free access to the FEC disclosure database to all state elections offices wishing 

to participate and grant waivers for state filings for participating states: currently 48 

states 

■

Provide timely on-line access to the FEC disclosure database to the public through the 

FEC website and the storefront Public Records Office 

■

Make electronic filings available over the Internet upon receipt and processing at the 

FEC and make images of non-electronically filed reports also viewable on the FEC 

Web site: 4 million visits and over 100 million hits per cycle on the FEC Disclosure

site 

■

Respond to over 200,000 requests for data, information, copies of reports or indices, 

and other requests for assistance each cycle (not including visits and hits on the FEC 

website) 

□

Respond to 100% of 50 to 60 Advisory Opinion requests per cycle within 60 and 20-

day statutory deadlines 

■

Publish an Annual Report each year, the FEC Record monthly, and provide prior 

notice of filing dates to filers 

■

Make FEC disclosure forms and copies of FECA and FEC Regulations available to 

filers electronically and in print form

■

 B1 
Produce additional informational and educational publications and videos such as 

campaign guides, brochures, and other pamphlets 

■

Conduct five to six campaign finance workshops to educate filers, and monthly 

roundtables on FECA issues 

■

Refer 75 committees for potential audits under 2 U.S.C. 438(b) per cycle, with 50 in 

the second year of cycle (e.g. FY 2005 for 2004 cycle) and all audit referrals of 

candidate committees within the statutory deadline of six months from the general 

election 

□

Refer 45 to 50 committees for potential enforcement actions under 2 U.S.C. 437(g) per 

cycle 

□

Complete audits of committees referred under 2 U.S.C. 438(b), estimated 45-50 for 

each cycle 

□

Process 175-200 complaints plus 45-50 internal referrals during the two-year period ■

Assuming an average total caseload of 125-150 cases in any given month, maintain an 

average active caseload of 50% of total caseload

■

Activate 50% of incoming cases on average over the election cycle ■

Close 175-200 cases in each election cycle, at least 50% with substantive Commission 

action. (This 50% represents cases in which the Commission has reached a substantive 

finding on the merits of the matter, other than dismissal, including findings of no 

RTB.) 

■

Conserve limited enforcement resources for more complex, substantive cases by 

continuing an administrative fine program for late and non-filing committees, 

removing non-filer enforcement from the standard complex enforcement process; close 

375-400 cases in the second year of the cycle (e.g. FY 2005 for the 2004 cycle.) 

□

Conserve additional enforcement resources through the continued operation of the 

ADR program, designed to streamline the resolution of administrative complaints and 

Title 2 audit referrals without resorting to the more complex, substantive enforcement 

procedures. Close 75-100 cases per election cycles, including any cases referred for 

mediation 

■

Pursue resolution of cases through litigation and defend the FEC and FECA in suits 

brought by other parties to fully enforce the FECA: 1) Initiate litigation in an estimated 

7-10 offensive suits per cycle (always meeting five-year statute of limitations) and 2) 

Defend the FEC and FECA in 20-30 suits initiated per cycle 

■

Process monthly certification requests for federal matching funds (estimated 10-12 

candidates in a presidential election with an incumbent, 15-17 candidates in an “open” 

presidential election) 

■

Audit primary candidates receiving federal matching funds (same criteria for number 

of candidates) 

■

Audit at least four (major) national party convention and host committees receiving 

federal funds for nominating conventions, and any eligible minor party convention 

committees 

■

Audit general election candidate committees of two major parties (and any eligible 

minor parties) 

■

 B2 
Appendix C: Glossary of Terms 

 

 ADR Alternative Dispute Resolution

BCRA Bipartisan Campaign Reform Act of 2002 

DAP Data Access Program

EAC Election Assistance Commission 

EQS Enforcement Query System

EPS Enforcement Priority System 

FEC Federal Election Commission 

FECA Federal Election Campaign Act 

FMFIA Federal Managers’ Financial Integrity Act 

FTE Full Time Equivalent 

 FY Fiscal Year 

GPRA Government Performance and Results Act 

 IG Inspector General 

 IT Information Technology 

MIS Management Information System 

MUR Matters Under Review

OAR Office of Administrative Review 

OEA Office of Election Administration 

OGC Office of General Counsel 

OIG Office of the Inspector General 

OMB Office of Management and Budget 

PAR Performance and Accountability Report 

PAC Political Action Committee 

RAD Reports Analysis Division 

RTB Reason to Believe 

RFAI Request for Additional Information 

 C1