CLARK HILL 

CM HII PLC 

1001 Pannyhai 

Suits 1300 Samh 

WSshHigloii. DC 20004 

T 202.722.0909 

T 202.572.9669 F 202.772.0919 

F 202.572.6699 

EmsH; ebesGhain0darklill.Gain' clarkhill.com 

July 19,2017 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Federal Election Commission 

999 E Street, NW 

Washington, DC 20463 

VU EMAIL: SHThomas@fec.gov 

Re: Response to Interim Audit Report from McSallv for Congress Committee 

Dear Mr. Hintermister: 

On behalf of the McSally fisr Congress Committee ("Committee"), and Paul Kilgore, in 

his official capacity as Treasurer, we file this response to the Interirn Audit Report received on 

May 20,2017, in connection with the Federal Election Commission's ("FEC's" or 

"Commission's") audit of the Committee. The Committee will address each finding below. 

Prior to addressing the findings, the Conunittee would like to bring to the Commission's 

attention the unique circumstances the Committee encountered during the 2012-2014 election 

cycles, and the extraordinary remedial measures the Committee has undertaken to fiilly comply 

with the Federal Election Campaign Act of 1971, as amended (the "Actf) and Commission 

regulations. Congresswoman McSally is a second term Member of Congress fioni Arizona's 2°^ 

congressional district. Rep. McSally is a retired Colonel and political newcomer who became 

tibe Republican nominee in the 2012 election for Arizona's 2 congressional district. Over the 

2012 and 2014 election cycles, the Committee raised and spent over $12.3 million dollars. The 

Committee received more than 45,300 contributions from over 22,600 individual contributors, 

the majority of this in the form of low dollar contributions. This volume of contributions for a 

candidate, who was not an incumbent, is not only rare, it is almost without comparison! The 

level of support was tremendous, but it created unique challenges for Committee staff in 

handling the overwhelming volume of activity. When the initial 2014 treasurer, who was 

employed at an accounting firm but who had no political finance experience, realized she did not 

have the capacity to handle the volume of activity, the Committee searched for an experienced 

political treasurer and a person with statewide federal treasurer experience. The Committee was 

not aware that she was also overwhelmed until she stepped.aside right before the 2014 election. 
July 19,2017 

Page 2 

The Committee did eveiything it could to ensure accurate accounting and reporting amidst the 

massive amount of activity. 

In 2015, Rep McSally directed the Committee to undertake a comprehensive internal 

review of all of its accounting and FEC reports beginnmg with the Committee's inception in 

2012. Unlike the Commission's Audit, this internal review was not a sample of the Committee's 

activity for the period of time being reviewed; rather, the Conunittee started finm the very 

beginning and completely rebuilt its database consisting of over $12.3 million dollars of activity 

over the 2012-2014 election cycles. In other words, we started from scratch and 

researched/redocumented every single transaction, donation, and expenditure to ensure 

everything was documented correctly for the entire history of the committee. It is hi^y unusual. 

for a political committee to undertake such an endeavor, especially one with this amount of 

activity. This was a herculean effort on the part of the Committee, and as a result of this 

unprecedented review, every rq)ort filed since the first report in 2012 throu^ the Year-End 

2014 was refilled on January 31,2016, (prior to the Exit Conference). Moreover, it is critical to 

understand that the Committee's ame^ments are not based on the prior reports, but instead 

reflect what actually occurred. All of the Committee's reports and bank statements currently 

reconcile to the penny. 

Finding 1. Misstatement of Financial Activity 

The Audit staff identified a misstatement of financial activity in calendar years 2013 and 

2014. At the Exit Conference, Audit staff reported that foe Committee's amendments materially 

corrected foe 2013 misstatement. In addition. Audit Staff r^orted that foe Conunittee materially 

corrected the beginning and ending cash on hand for 2014. However, according to foe Auditors, 

foe Committee's amendments resulted in a material overstatement of receipts and disbursements 

for 2014. 

The Auditors provided foe Committee wifo a spreadsheet detailing the transactions foe 

Auditors believed accounted for the 2014 misstatement. The Committee reviewed foe 

spreadsheet foe Auditors provided and compared the transactions to the Committee's amended 

reports. The Conunittee disagrees with the Audit Staff that there is a misstatement and maintains 

that foe amendments filed on January 31,2016, materially corrected foe misstatement. The 

Corrunittee's amendments were created by rebuilding foe database using bank statements, credit 

card statements, donor forms, invoices and any other financial information available. The 

amendments were not based on foe filed rq)orts, and may not reflect transactions that 

inadvertently appeared on foe origirud reports. 

A. 2014 Receipts Overstatement 

The lAR states that the Corrunittee's 2016 amendments overstated receipts by $94,528. 

At foe Exit Conference, Audit staff provided a list of 122 receipts they believed made up foe 

overstatement. In other words, this list included a series of identified receipts foat Audit staff 

contends were disclosed on foe Corrunittee's 2016 amended reports, but should not have been 

CLARK HILL 
July 19,2017 

Page 3 

disclosed because Audit staff was unable to find documentation for or evidence of the 

transactions in the Committee's bank accounts. 

In its Exit Conference response, the Committee disputed the list of receipts the Audit 

staff stated comprised the misstatement and disagreed with the misstated amount of $94,528. 

The Committee conducted its own review of this list of receipts, and of the 122 transactions, at 

least 33 transactions totaling $27,11S do not appear on any of the amended reports. Although 

many of these transactions appeared on the Committee's audited reports, they were not included 

in the amendments because feey were either rq)orted as duplicates on the audited reports or 

because the transaction did not actually happen in the first place. Again, the Committee rebuilt, 

its database wifeout reference to the prior reports. Thus, to the extent the Audit staff fliinlcR this 

list of receipts should be reported as negative entries or in some other way, the Committee 

disagrees because doing so would be an inaccurate reflection of what actually occurred. 

In addition, the Committee sq)arately reported $21,100 in contribution refunds and 

$45,015.45 in offsets to operating expenditures that Audit staff contends the Committee reported 

incorrectly and that contributes to the alleged misstatement of receipts. As explained in further 

detail below, the Committee believes the way it reported these transactions is consistent with the 

statute and Commission regulations. 

B. 2014 Disbursements Overstatement 

The lAR states the Committee overstated disbursanents by $85,472, and provided a list 

of disbursements they believe make up the overstatement. In other words, it is a list of 

disbursements the Auditors believe were disclosed on the Conunittee's 2016 amended reports, 

but for which the Auditors were unable to find documentation for or evidence of in the bank 

accounts, and therefore, should not have appeared on the Committee's amended reports. The 

Committee has reviewed the list and at least 23 of the transactions totaling approximately 

$16,908 were not disclosed on the Committee's amended rq)orts. Again, many of feese 

transactions cleared on the Committee's audited rqports, but they were not included in the 

amendments because they were either reported as duplicates on the audited reports or because 

the transaction did not actually happen in the first place, and the Committee believes its 2016 

amended rq)orts are an accurate r^ection of what actually occurred at the time. 

Moreover, as referenced above. Audit staff contends the Committee misrq)orted $21,100 

in contribution refunds and $45,015.45 in offeets to operating expenditures. As explained in 

further detail below, the Committee believes the way it rq)orted these transactions is consistent 

with the statute and Commission regulations, and that there is no material misstatement. 

C. Reporting of Contribution Refunds and Offsets to Operating Expenditures 

It appears the main point of contention is with respect to the $21,100 the Committee 

reported as contribution refunds and $45,157 the Conunittee r^orted as offeets to operating 

expenditures. The Committee believes the way it reported these transactions is consistent with 

the statute and Commission regulations. 

CLARK HILL 
July 19,2017 

Page 4 

Cotttribuiion Refunds: The Committee leported $21,100 in contributions that were later 

refunded to the contributors. It is our understanding that the Audit staffs position is that these 

contributions were not "received" by the Committee and that the Committee did not actually 

issue refunds. As such. Audit staff contends these transactions were "chargebacks" and should 

have been reported as negative entries on Schedule A rather than as refunds on Schedule B. 

However, these contributions were not bounced checks or the electronic equivalent As such, the 

Committee believes that of the $21,100 in refunds, $15,500 were properly reported as receipts 

and disbursements. The remaining $5,600 constitute fimds diat were actually received into the 

Committee's accounts, and under the regulations the Committee is required to show this as a 

receipt on Schedule A. A refund of that money is supposed to be shown as a disbursement under 

Schedule B. Although the credit card merchant provider may have reduced the amount 

forwarded to the Committee in a later set of transactions instead of pulling a disbursement from 

die bank account, the Committee believes this transaction should be shown as a Schedule B 

disbursement. 

Commission regulations do not specifically address how chargebacks must be treated for 

reporting purposes. The Committee recognizes that the Conunission has provided guidance 

regarding when a Committee should report a transaction as a negative entry in the Campaign 

Guide for Congressional Candidates and Committees. These instances include when (1) a 

contribution is redesignated or reattributed during a different reporting period; (2) che^ 

returned due to insufficient funds; (3) checks that are never cas^; and (4) investment losses. 

The Reports Analysis Division has issued guidance stating that, with respect to contributions, 

"Negative entries on Schedule A should only be used to disclose returned or bounced 

contribution checks and not for refunds by the Committee." However, the Commission has not 

provided clear guidance regarding how a Committee must report a chargeback, and there is no 

reason why the Committee cannot choose to report a transaction in a different way if it appears 

to the Committee that it is a more accurate reflection of what occurred at the time. 

Offsets to Operating Expen^ures: The Conunittee also reported $45,015.45 in of&ets 

to operating expenditures on the amended 2014 Year-End Report filed on January 31,2016. 

These offsets represent disbursements i&om the Committee that were made and reported during 

2014, but that never cleared the bank. Because the transactions never cleared, they were reported 

as offsets on Schedule A (i.e., receipts) to maintain an accurate cash on hand. Au^t staff 

contends that these transactions should be reported as negative entries on Schedule B, 

Disbursements. 

The Committee notes that Conunission guidance provides that uncleared checks written 

by the Committee should be reported as negative entries rather tt^ offoets to operating 

expenditures. Nonetheless, the Coimhittee does not believe its decision to report this amounts as 

of^ts is inconsistent with the statute or Commission regulations. The Committee reported the 

uncleared checks as off^ (receipts) in order to ensure the cash on hand was accurate. This did 

not distort the public record or overstate contributions received by the Committee. The Detailed 

Sununary pages of the reports clearly delineate between contributions the Committee has 

received fmm contributors and other types of receipts, such as interest, loans, refunds or rebates. 

CLARK HILL 
July 19,2017 

Page 5 

The amended.iepo'^ disclose the disbursements totaling $45,015.45, but because those checks 

did not clear, tiiose funds were treated as offsets. This was a reasonable way to account for these 

transactions even if it was not the preferred way. 

D. Audit Staff Recommendation 

Audit staff has recommended that the Conunittee file a Form 99 within 30 days of receipt 

of the lAR to "explain its reporting methodology" for the public record. The Committee believes 

that filing a Form 99 referencing activity that occurred almost three years ago will create 

needless confusion. The Commission's Audit is a just a sample. The Committee's own internal 

review (or audit, if you will) was not based on a sample. It was a complete recreation of its 

database, and the Committee's amendments reconcile with every bank statement down to the 

penny. Even if this could be considered a misstatement, it barely represents 1.5% of the 

Committee's receipts and disbursements and is not material. Nonetheless, the Conunittee does 

not believe it misstated its receipts or its disbursements, and huthermore, does not understand 

how the Audit staff came up with the amounts they contend make up the alleged misstatement. 

Finding 2. Occupation/Name of Employer (OCC/NOE) 

The Audit staff determined that this Finding was materially corrected by the Committee's 

amendments. However, the Committee would like to note for the record that it utilized "best 

efforts" to collect and report occupation/name of employer during the entire history of the 

committee including the 2014 cycle. The Committee's solicitation materials inclu^ a clear 

request for the name^ address, occupation and employer of individuals whose contributions 

aggregated $200 during the election cycle, and in instances where a contributor did not provide 

that information, the Committee would m^e at least one effort to obtain that information. 

Finding 3. Receipt of Contributions from Individuals in Excess of the Limits 

At the Exit Conference, Audit staff informed the Committee that during fieldwork they 

had identified 156 contributions fiom individuals, totaling $332,412 that exceeded the limits. 

The lAR, however, states that during fieldwork Audit staff identified 153 contributions firom 

individuals, totaling $319,212 that exceeded the limits. The Committee does not understand why 

the amounts changed and ^y there is a discrepancy between the two corrununications with 

Audit staff. 

Nonetheless, the Committee has resolved the remaining $6,601 in excessive 

contributions. Four were resolved by issuing refimds to the contributors, and copies of the 

negotiated checks for three have been provided to the Audit staff.' The fifth was not excessive 

as it was from an individual who shared the same name with another individual who had 

' The Committee recently attempted for the fourth time to issue a refood to the remaining contributor. The 

Committee has confirmed that the most recent refund was received and will provide a negotiated copy of the check 

as soon as it is available. 

CLARK HILL 
July 19,2017 

Page 6 

contributed the maximum amount The Committee was able to show these were two different 

individuals and neither individual was excessive. 

The Committee also notes that an overwhelming majority of the contributions it accqited 

were able to be resolved by redesignations and reattributions. As stated in the lAR, the 

Committee resolved $31,893 by issuing refunds, as well as the additional $6,601 discussed 

above. The Committee had approximately $138,763 on hand on Election Day 2014, which was 

more than enough to cover the refunded amounts, and the refunds totaled less than 1% of the 

amount the Committee raised. 

Finding 4. Disclosure of 48-Hour Notices 

The lAR states that the Conunittee did not file 48-hour notices for 29 contributions 

totaling $91,053, and untimely filed 48-hour notices for four contributions totaling $8,800. In 

the lAR, the toted error amount for non-filed or untimely filed 48-hour notices in the JAR is 33 

contributions totaling $99,853. The Committee notes, however, that these amounts differ from 

the amounts presented at the Exit Conference. At the Exit Conference, Audit staff stated that the 

Committee ^d not file notices for 26 contributions totaling $47,345.55, and untimely filed 

notices for 6 contributions totaling $14,000. Thus, at the Exit Conference, the total error amount 

for 48-hour notices that were not filed or were untimely filed totaled $61,345. This is a 

difference of $38,508, and again, the Committee does not understand why the amounts changed 

or why there is such a discrqiancy between two conununications by Audit staff on the same 

t(^ic. 

The Conunittee notes that the voluihe of contributions it received during the time period 

before the primary and general elections was, at times, overwhelming. Nonetheless, the 

Committee filed notices for almost 90% of the amount raised during the 48-hour time period. 

The Committee has implemented procedures and hired experienced FEC compliance specialists 

to ensure future compliance. 

Finding S. Failure to Itemize Contributions from Political Committees 

The Auditors identified 14 contributions finm PACs totaling $32,250 that were not 

itemized on Line 1 Ic. The 14 contributions were disclosed in the Committee's amended reports 

and the finding has been resolved. The Committee has hired an experienced FEC compliance 

specialist to serve as treasurer to ensure such inadvertent errors do not happen in the future. 

Finding 6. Recordkeeping and Disclosure of Receipts (Joint Fundraising Committee 

Transfers) 

The Auditors determined that the Conunittee did not disclose proceeds fifom one joint 

fundraiser totaling $200, and did not itemize 127 memo entries totaling $146,094.58 for two 

joint fundraising events held in March 2014. The Committee materially corrected the 

itemization errors in its amendments, and the finding has been resolved. The Committee has 

CLARK HILL 
July 19,2017 

Page 7 

implemented procedures and hired experienced FEC compliance specialists to ensure such errors 

do not happen in the future. 

Conclusion 

The Committee takes its compliance obligations very seriously and its obligation to the 

public to be as transparent as possible. To that end, the Committee spent an extraordinary 

amount of time and resources reviewing and amen^ng its reports in an effort to ensure the public 

record is as complete and accurate as possible. This was an unprecedented full review of over 

$12.3 million in activity over two election cycles, including the audited cycle, in which the 

Committee received mote than 45,300 contributions fixim over 22,600 individual contributors. 

Again, we believe it is critical that the Commission imderstand that the Committee did not 

engage in audit sampling when it conducted its review. The Committee went to the barebones 

and rebuilt its database from scratch, and therefore we believe the amended reports filed by the 

Committeeon January 31,2016, provide an accurate reflection of the Committee's activity at the 

time it occurred. 

The Committee has made every effort to work with Audit staff to resolve any outstanding 

issues, and we appreciate the time the Audit staff took to work with the Committee during this 

process. 

Respectfully submitted. 

Elizabeth Beacham White 

Counsel to McSally for Congress 

179