Draft Final Audit Report of the 

Audit Division on Smoot for 

Congress 

(March 11, 2009 - December 31, 2010) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political conimittee that is 

required to file reports 

under the Federal 

Election Campaign Act 

(the Act). The 

Commission generally 

conducts such audits 

when a committee . • 

appears not to have met 

the threshold 

requirements for ^ 

substantial compliance 

with,the Act.!::tee;'aud^ 

determines whethetjt&e,^^ 

committee complied W^th , 

the limitations, ^-^ 

prohibitions and 

disclosure requirements 

ofthe Act. 

About the Campaigii (p. 2) 

Smoot for Congress is the congressional campaign committee for 

Sheila Smoot, Democratj[G candidate for the U.S. House of 

Representatives from the State pf Alabama, 7* District, and is 

headquartered in Birminghani, Ala^aTM^- For more information, 

see the chart on the campaign organiz^ion, p. 2. 

Financial Activity (p. 2) ' 

• Receipts 

| 'd^^ from Individuals 

V 9; Contributions from Other 

; Political Committees 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Other Disbursements 

Total Disbursements 

..•\ $ 151,083 

98,750 

$ 249,833 

$ 250,380 

1,030 

$ 251,410 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

Receipt of Apparent Prohibited Contributions (Finding 2) 

Future Action ; \ 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

2 U.S.C. §438(b). 
Draft Final Audit Report of the 

Audit Division on 

Smoot for Congress 

(March 11, 2009 - December 31, 2010) 

••••.:'-•:"

\ • -'A 

17 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Campaign 

Campaign Organization , > ^ 

Overview of Financial Activity /^. .s^ > 2 

Part III. Summaries ^ <.>x x- K 

Findings and Recommendations ^<<^; = J> ' :\ 

Part IV. Findings and Recommendations 

Finding 1. Misstatement of Financial Acfi^^^ ^3']) \ v ^ 

Finding 2. Receipt of Apparent Prohibited OontribMo^^^ ; ? 6 

A 

• \ /- "^ '•i '- '.i 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Smoot for Congress (SFC), undertaken by the Audit 

Division of the Federal Election Conimission (the Conimission) in accordance with the 

Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division 

conducted the audit pursuant to 2 U.S.C. §438(b), which permits the Commission to 

conduct audits and field investigations of any political conmiittee that is required to file a 

report under 2 U.S.C. §434. Prior to conducting any a^^pider this subsection, the 

Commission must perform an intemal review of re^^p|i^d by selected committees to 

determine if the reports filed by a particular conGmii^P^elet t^^^ threshold requirements 

for substantial compliance with the Act. 2 U.Siil^'438(b). - •, 

Scope of Audit ^ ' 

Following Commission-approved procedures!^ Audit staff evaluated various risk 

factors and as a result, this audit examined: X't^K y5^|#' 

1. the receipt of excessive contrilmtions and loanlsil^. if^^ 

2. the receipt of contributions frcfm|p^Shi]biited sourc1^;%^ 

3. the disclosure of individual co&^but6r$'^|)p^^ of employer; 

4. the consistency between reporte^^^resMdi^lbiank recbrdis j,^ 

5. the completeness^djffecprds; and \ : *^ ' *"^"x. 

6. other committee operMonVnecessaf^* to the re\d^^ > 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration April 22,200?^ 

• Audit Coverage March Ilg2g09 - December 31,2010 

Headquarters Birmihghain-, Alabama 

Bank Information 

<:,;• 

• Bank Depositories \-.;x 

• Bank Accounts ilpu'ee 

Treasurer 

• Treasurer When Audit Was Conducted l^rienne Ellison 

• Treasurer During Period Covered,by Audit lx^^s^an&Ms^m. March 11>;200? -

OdoM4C2010; and ^^-^ 

AdriSyifeEllison. October 18,2010 -

vDecembei^illbi 2010 

Management Informatioii_ vvv^\-^ 

• Attended FEC Camp^pi^nance Seminar 

• Who Handled Ael^piSng aoSfei*^ 

Recordkeeping 'f l 

^3>aid staff; 

J^^n^lp oiftjFi^ Activity 

lAudited^^Spiounts) 

Cash-on-haiiidi ^^JVIarch 11,^^9 ^^^P' $0 

Receipts 

o Contributions Mjm>IndividuS|^^ 151,083 

o Contributions from^S^^^tftcjlitica 98,750 

Committees '^JvlJ?^^ 

Total Receipts $ 249,833 

Disbursements 

o Operating Expenditures 250,380 

o Other Disbursements 1,030 

Total Disbursements $ 251,410 

Cash-on-hand December 31,2010 $ (1,577) ^ 

^ SFC overdrew its bank accounts in the amount of $1,577. The bank later forgave $1,574 when one account was 

closed out. See Finding 2 for discussion of apparent prohibited contribution from the bank for $1,574. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

A comparison of SFC's reported financial activity with its h^nk records revealed a 

misstatement of receipts and disbursements in calendar yG00OO9 and 2010. The 

Interim Audit Report recommended that SFC amend i|^^||Gitbsure reports to correct the 

misstatements. No amended reports have been filed|©^t||.^The candidate stated that 

SFC would file the amended reports in the near fufer^Foi^l^ detail, see p. 4) 

Finding 2. Receipt of Appai^^^rohibited^i^atributions 

Based on a review of all contributions reciSi^^by SFC, the Audit staS^entified 15 

contributions totaling $9,994 that appear to Sel&om prohibitjed sourceslj-^iltie Interim 

Audit Report recommended that SFC demonstrateito it iisfHe the contriteti^ns with 

permissible fimds or refimd ther^ijfe?!^ to thiM^m Audit Report, WC stated 

that one ofthe contributions in ql|^i^y|||y|LS refunded^he was not incorporated, 12 were 

from sole proprietors or partnerships|2ui(iS^w^^ not prohibited but resulted from a 

vendor error. However, SFC provid^iaio d6'c^|?Eyt§tion to^upport its statement and 

therefore the Audit ,staff still consider^^lfte contri6pti|ns.totaliiigi;$9,994 apparent 

prohibited contribufions. (For more dQtsil^^^epi^^) 

.f-:;:=jp'-*. * . • . • * •' •• -:\ 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

A comparison of SFC's reported financial activity with its bank records revealed a 

misstatement of receipts and disbursements in calendar years.2009 and 2010. The 

Interim Audit Report recommended that SFC amend its diliflipWe reports to correct the 

misstatements. No amended reports have been filed tp^Mfi^ThG candidate stated that 

SFC would file the amended reports in the near fiituEK#l||^^ 

Legal standard 

Contents of Reports. Each report must d^^0^: 

• the amount of cash-on-hand at the^%|inning and end of the rbpoifing period; 

the total amount of receipts for the repi^i^ peri^d'ijand for the election cycle; 

the total amount of disbursements for tli^r€lppiti^^#i6riod and for the election 

cycle; and 

certain transactions that requiteitemization oir^:iphedule A (Itemized Receipts) or 

Schedule B (Itemized Disbi»m€ltil|)^>2 . <^.. .. ,(2),(3),(4)and(5) U.S.C . 

Facts and Analy^ij^l^i;;^;^'-: 

'••.'f'.v 

A. Facts ^-^l 

The Audit staff recdnpile^ SFC*'s irejorted activity with its bank records and identified a 

misstatement of receipts^and4is^ f6r20.09 and 2010. The following charts 

detail the discrepancies and-isue'ceedihgiii^^ the reasons for the 

misstatements, if known. 

2009 Actiyi^ \: : i:^ 

v., •• • •.. 

\ . ' . ',• 

•\ Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ March 11,2009 

$0 $0 $0 

Receipts $60,008 $60,038 $(30) 

Understated 

Disbursements $55,674 $54,678 $996 

Overstated 

Ending Cash Balance 

@ December 31,2009 

$4,334 $5,360 $(1,026) 

Understated 

SFC understated receipts in 2009 by $30. However, when evaluating the identified errors, 

regardless of whether the errors were positive or negative (absolute values), the Audit staff 

discovered that the committee misstated receipts by $5,694 ($2,862 + $2,270 + $562). 
The misstatement of receipts resulted fix)m the following differences: 

• Receipts not reported, primarily contributions from individuals 

• Receipts reported twice 

• Reported receipts not supported by bank deposits or credits 

Sum of Reporting Adjustments 

$2,862 

2,270 

562 

$5.694 

SFC overstated disbursements in 2009 by $996. However, when evaluating the identified 

errors, regardless of whether the errors were positive or negative (absolute values), The 

Audit staff discovered that the conunittee misstated disbursements by $4,305 ($1,383 + 

2,922). 

The misstatement of disbursements resulted from the.#ilpwing differences: 

• Disbursements not reported : .-5 $1,383 

• Disbursements reported not supported by canceled checks 2.922 

Sum of Reporting Adjustments /--.M^' $4.305 

2010 Activity "H^^I^K /y^ 

Reported "^^iBiSank^Recbrds Discrepancy 

Opening Cash Balance 

January 1,2010 

f'4%334 ^^^^^g..'$5,360 $(1,026) 

Understated 

Receipts ... $l|9j795 $(19,097) 

Understated 

Disbursements yiP-^"^'"''35| $199SS0^ ^: '$196,732: $2,872 

Overstated 

Ending Cash Balaiki^N 

December 31,2010 H' K 

'•f5i$(24,572) 

;i:'i:pi \' . 

$(1,577) 

•\ 

$(22,995) 

Understated 

The uhderstateme*it,of receipts resuHedjifFom the following: 

• (• Receipts not rfepdrted "^vi^j^ '"^^^ 

• Receipts reported t^^i^ie or ihj^Erectly 

• Repj^rted contributor<Ohecks retired by bank for insufficient 

fimd^%ith no report adjustments^**' 

• Reported receipts not siipjported by bank deposits or credits 

• Bank correbti6h>prrone^usly reported as receipt 

Net Understatenientof:]^^^ 

$22,417 

(410) 

(700) 

(1,810) 

(400) 

$19.097 

SFC overstated disbursements in 2010 by $2,872. However, when evaluating the 

identified errors, regardless of whether the errors were positive or negative (absolute 

values), the Audit staff discovered that the committee misstated disbursements by 

$35,357 ($15,481 + 19,876). 

The misstatement of disbursements resulted from the following differences: 

• Disbursements not reported $ 15,481 

• Disbursements reported not supported by canceled checks 19.876 

Sum of Reporting Adjustments $35.357 
The reporting discrepancies noted above resulted in the $22,995 understatement of the 

ending cash balance. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff and SFC representatives discussed this matter at the exit conference held 

at the end of audit fieldwork. SFC representatives acknowledged the discrepancies in the 

reports and indicated that the committee would file corrective amendments. 

The Interim Audit Report recommended that SFC amend its reports to correct the 

misstatements for 2009 and 2010 as noted above and amend its most recently filed report 

to correct the cash-on-hand balance with an explanation^t^^t tlie change resulted from a 

prior period audit adjustment. It fiirther recommend^d:^ijiiEit SFC reconcile the cash 

balance on its most recent report to identify any sub|j^|uenf;:discrepancies that may 

hnpact the $22,995 adjustment. 

C. Conmiittee Response to Interim Audtit ^Report 

SFC did not file any amended reports in rOspOnse to the Interim Audit Report. In a 

subsequent communication, however, the candidate stated that the requested amendments 

would be filed in the near fiiturCvsKj.,^ 

Finding 2. Receipt of^p^axent Prohibited Contributions | 

1\ ^ 

Summary ^-^u^^^ "^^x " . 

Based on a revie^y of Ml^cOjo re.cjiiiyed.by. SFC, the Audit staff identified 15 

contributions totaling $9,994appear to be from prohibited sources. The Interim 

Audit Report recomn|ended that SFC demonstrate that it made the contributions with 

permissible fimds or\efijnd ihpml In response to. the Interim Audit Report, SFC stated 

that one?o®e7G0n^^ refunded, one was not incorporated, 12 were 

fropi'^oie prbpriet^s^^ p^tne^hips, and one wa^ hot prohibited but resulted from a 

veiaidoii. error. Howev^jg^jSFC jprovided no documentation to support its statement and 

therefqrigvthe Audit stai^^^ill considers the contributions totaling $9,994 apparent 

prohibited?^;ontributions.\i: A 

Legal Sta^ ^ | | 

A. Receipt of PrpnibitedXIontributions - General Prohibition. Candidates and 

committees may<iipj.,acc,#'t contributions (in the form of money, in-kind contributions 

or loans) from tiie #|a^u]y funds of the following prohibited sources: 

• corporations (this means any incorporated organization, including a non-stock 

corporation, an incorporated membership organization, and an incorporated 

cooperative); 

• labor organizations; or 

• national banks. 2 U.S.C. §441b. 

B. Definition of Limited Liability Company. A limited liability company (LLC) is a 

business entity recognized as an LLC under the laws of the state in which it was 

established. 11 CFR § 110.1 (g)(1). 
C. Applications of Limits and Prohibitions to LLC Contributions. A contribution 

from an LLC is subject to contribution limits and prohibitions, depending on several 

factors, as explained below: 

1. LLC as Partnership. The contribution is considered a contribution from a 

partnership if the LLC chooses to be treated as a partnership under Intemal 

Revenue Service (IRS) tax rules, or if it makes no choice at all about its tax 

stattis. 11 CFR §110.1(g)(2). 

2. LLC as Corporation. The contribution is considered a corporate 

contribution—and is barred under the Act—if the LLC chooses to be treated 

as a corporation under IRS rules, or if its shares are traded publicly. 11 CFR 

§110.1(g)(3). 

3. LLC with Single Member. The contribution is considered a contribution from 

a single individual if the LLC is a single-member LLC that has not chosen to 

be treated as a corporation under IRS i^les. 11 CFR §110.1(g)(4). 

4. At the time it makes the contribiitiqni; an LLC shall provide to the recipient 

committee information on how^the>contribution is to be aittribiLited and affirm 

tiiat it is eligible to make tiie contributipn. 11 XiJFR §110.1 (g).(5).^ 

\ ' .• - .• 

D. Questionable Contribution!!. If a contribution that presents genuine qu'igstions 

about its permissibility is received and deposited, tiie treasurer shall make his or her 

best efforts to determine whether it is from a prohibited-source. If the legality of the 

contribution cannot be verified in 30 days ofthe treasurer's'receipt, it shall be 

refimded to tiie^coEit]^^ 11 CFR §103.3(b)(l). 

(• • 

Facts and Analysis 

A. Facts- • V . 

Based on a review of all coiitribiitiohs received by SFC, the Audit staff identified 15 

contiibutions totaling $9,994 that appear to be from prohibited sources. This amount 

includes contributions from 12 LLCs, totaling $7,720, two corporations, totaling $700, 

and one national bank, totaling $1,574. 

The Audit staff requested that SFC provide documentation confirming how each LLC 

elected to be treated under IRS rules at the time the contributions were made. To date, 

SFC has provided no such documentation. The Audit staff verified the corporate status 

with the appropriate Secretaries of State and could not determine the status of one of the 

entities. 

SFC incurred a negative bank account balance in November 2010, when it overdrew its 

account with a debit charge for a rental car. In January 2011, the account was closed 

when the bank posted a $1,574 credit. SFC provided no information to indicate that the 

credit posted by the bank was the result of a deposit by the committee. 

B. Interim Audit Report & Audit Division Recommendation Thtransaction e Audit staf . Thfe requeste candidatd tha e statet SFdC tha provid t SFCe woul dcumentatio d providen a from lette thr frome ban thk explainin e bank. Tgo this 
date, no such letter has been provided. The Audit staff and conimittee representatives 

discussed this matter at the exit conference held at the end of audit fieldwork. The Audit 

staff requested that SFC provide documentation verifying that the contributions in 

question were permissible. To date, SFC has not submitted any additional documentation 

conceming this matter. 

The Interim Audit Report recommended that SFC provide evidence demonstrating that 

the contributions in question were made with permissible funds. For the contributions 

from LLCs, it was recommended that SFC provide documentation from each entity 

explaining its tax treatment. It was further recommended that SFC provide 

documentation from the bank explaining the $1,574 cre(ti^Msted to SFC's account. 

The Interim Audit Report stated that if SFC did no^t<prOjiid'(i^evi^ that the funds were 

permissible, it should have made refunds to the^eonti^utoi^^ot^^Ugorged to the U.S. 

Treasury the impermissible amounts. The A^|ptiaff requestO^M^ provide 

evidence of any refunds by providing the jfron^sdid back of the neg|^a|ted refund checks. 

In addition, if funds were not available to malij|H|hp nec^^^ refunds or^^di^s^rgement, 

the Audit staff requested that SFC.disclose the ci&ij^^^^s'^requiring refun^^xon 

Schedule D (Debts and Obligations)^until funds beci^^lp^ailable to make such refunds 

C. Committee Response to Interim-Audii|%ei)ort 

In response to the Interim Audit Report^^SFC^sfajeld^that it redded one of the two 

corporate contributions, one was not ihcpiporated^ pne^^ not^^hibited but rather the 

result of a vendor error, and 12 were made by sole proprietors or partnerships. 

In its response, SFC explained that the vendorierror resulted from a double charge by a 

rental car company, which led to a negative balance in the committee's bank account. 

Accordinjg to SFC, the $1,574 credited by the baiJc to SFC's account occurred after SFC 

wojied with botii the bank and the rental car. bompany to correct a duplicate charge by 

the i-i^tal car company. The SFC did not submit any documentation in support of this 

explanation so the Audit staff still considers the $1,574 to be an apparent prohibited 

contribution frpm the bank: • 

With respect tb^the contributipn SFC stated was not incorporated, the Audit staff was 

unable to verify its porporate status with the Secretary of State. However, since the name 

on the contribution check included "Inc.," the Audit staff still considers this item to be an 

apparent prohibited contribution. 

SFC did not document the contribution it claimed to have refunded or the 12 

contributions SFC claimed were made by sole proprietors or partnerships. Without 

further documentation to support the statements above, SFC did not comply with the 

Interim Audit Report recommendation. The Audit staff considers the contributions 

totaling $9,994 to be apparent prohibited contributions.