Draft Final Audit Report of the 

Audit Division on 

Canseco for Congress 

(Januaiy 1, 2009 - December 31, 2010) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and Field 

investigations of any 

political committee 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 fof 

substantial cmj^iiance 

with the The audit 

deternr^^hether the 

conryimttae c^plied with 

the limitatA 

prohibitions i 

disclosure requii 

of the Act. 

Future Actioi 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign (p^2) 

Canseco for Congress is 

Francisco R. Canseco, 

of Representatives froi 

headquartered in San A 

the chart on the Campaij 

Financial Activity (p. 

• Receipts 

o Contribi^Rtffti lip Individi 

Contr/qutioni 

Poll 

paign committee for 

for the U.S. House 

23"* District, 

brmation, see 

Disiursq^ 

()Wat^ Expenditures 

Reraj^ent of Candidate Loans 

btal l^sbursements 

972,233 

316,035 

321,880 

9,794 

S 1,619,942 

$ 1,481,985 

58,505 

S 1,540,490 

dings and Recommendations (p. 3) 

Receipt of Apparent Prohibited Contributions (Finding 1) 

Receipt of Contributions that Exceed Limits (Finding 2) 

Misstatement of Financial Activity (Finding 3) 

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

Audit Division on 

Canseco for Congress 

(January 1, 2009 - December 31, 2010) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 

Scope of Audit 

Part II. Overview of Campaign 

Campaign Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recommenda' 

Finding 1. Receipt of Apparent Prohibited Contributions 

Finding 2. Receipt of Contributions that EK 

Findings. Misstatement of Financial 
Parti 

Background 

Authority for Audit 

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

Division of the Federal Election Commission (the Commission) 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 Conunission to 

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

report under 2 U.S.C. §434. Prior to conducting any auditmidgr subsection, the 

Commission must perform an internal review of report^lra^' committees to 

determine whether the reports filed by a particular comi^ittee me^^-^^^^reshold 

requirements for substantial compliance with the Act. ^siJ.S.Q.4'§438( 

Scope of Audit . 

Following Commission-approved procedures, the Audit staff eV^^ted various risk 

factors and as a result, this audit examined: w' 

1. the receipt of excessive contributions and lpaus;:!:^{:i;%.. 

2. the receipt of contributions from prohibitpjfi sov 

3. 

4. 

5. 

6. 

7. 

the disclosure of contributions received; 

the disclosure of individual contribvitprs' bccu^ati 

the consistency between reported jBgiires and ' 

the completeness of records; i 

other campaign < 

of employer; 

the review. 

V:.-

•;y 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration January 7,2004 . 

• Audit Coverage January Ejecember 31,2010 

Headquarters San Antonio, Texasl^^li^ii... 

Bank Information 

• Bank Depositories Two -m. i 

• Bank Accounts Two Checlsi^?i^ccounts 

Treasurer 

• Treasurer When Audit Was Conducted Randy Blair " 

• Treasurer During Period Covered by Audit BlS^Blair W 

Management Information 

• Attended Commission Campaign Finance 

Seminar '• 

0 

1 

• Who Handled Accounting and ' ; 

Recordkeeping Tasks 

Pa^§taff^= 

Cash-on-hani 

Receipts 

of Mnancial Activity 

-j^iidite^'Amounts) 

__ January 1,2009;W 

o Contributions fixy^^ividugas 

o Contributions! 

Committees 

Political 

o Candidate Loans 

o Other Receipts 

Total Receipts 

Disbursements 

o Operating Expenditures 

o Repayment of Candidate Loans 

Total Dbbursements 

Cash-on-hand @ December 31,2010 

972,233 

316,035 

321,880 

9,794 

Sl.619.942 

1,481,985 

58,505 

$1,540,490 

$ 79,452 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contributions 

During audit fieldwork, the Audit staff identified two contributions totaling $100,000 that 

i^pear to be prohibited contributions from a foreign national corporation. CFC Counsel 

(Counsel) stated that these transactions were loans from the candidate; however, the 

funds appear to have originated from the account of a 

Counsel later stated these funds represent draws from 

candidate and his sister. 

on. 

accounts of the 

In response to the Interim Audit Report, Counsel disp . ,..^^.^ „. . with 

the classification of these loans as contributions from a f^feij^^national coi^niitibn. 

However, on May 1,2013, CFC issued a check for $SS,39S td'^^fii^d the contribution 

received from the foreign national corporation. The remaining is'la prohibited 

contribution that has not been resolved. (For rrior«4^|^li see p. 

Finding 2. Receipt of ContributiodVWd|^^ Limits 

During audit fieldwork, the Audit staff::i^ptiii^ wee trs^'^^ons that Counsel stated 

were loans from the candidate. Ho; 

contributions from four indivi 

excess of die individual ggntribudi 

In response to^the Mteririi'^f '^ '^' 

that $ 160,293 was refunded 1 

appear to be-excessive 

funds. The total amount in 

; these 

loaned 

it is $170,3 

provided documentation demonstrating 

contributors in an untimely manner. 

Howeve^j-j&e documentation w^^ipt sufficient to demonstrate that CFC had repaid the 

remmriihg^lfr,OSO to the approi^te contributors ($170,343 - $160,293= $10,050). The 

Audit staj^'i^ji^rs the remair^ $10,050 to be excessive contributions from two 

individuals tMf i^^not resolv^v (For more detail, see p. 9.) 

Finding 3. MiS^tement of Financial Activity 

During audit fieldwor^ivai comparison of CFC's reported financial activity with its bank 

records revealed misstatements of beginning and ending cash-on-hand, as well as, 

misstatements of receipts and disbursements for calendar years 2009 and 2010. For 

2009, CFC overstated beginning cash-on-hand by $32,344, understated receipts by 

$13,161, understated disbursements by $31,048, and overstated ending cash-on-hwd by 

$50,231. For 2010, CFC overstated beginning cash-on-hand by $50,231, overstated 

receipts by $324,404, overstated disbursements by $313,123, and overstated ending cashon-hand by $61,512. 

In response to the Interim Audit Report, Counsel stated that, in order to avoid multiple 

filings of amendments, CFC would comply with all the recommendations once the 

Commission had finalized the audit. (For more detail, see p. 12.) 
Part IV 

Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contributions 

Summary 

During audit fieldwork, the Audit staff identified two contributions totaling $100,000 that 

appear to be prohibited contributions from a foreign national corporation. CFC Counsel 

(Counsel) stated that these transactions were loans from the candidate; however, the 

funds appear to have originated from the account of a forei] 

Counsel later stated these funds represent draws from 

candidate and his sister. 

In response to the Interim Audit Report, Counsel 

the classification of these loans as contributions from a 

However, on May 1,2013, CFC issued a check for $55 

received from the foreign national corporation. The remaining 

contribution that has not been resolved. 

..-1 

ration, 

accounts of the 

, 

with 

ional corpp^pdn. 

the contnWtion 

5 is.a prohibited 

in. Candidates and 

, in-kind contributions, or 

Legal Standard 

A. Receipt of Prohibited Contributionm -

committees may not accept contributidtisttin the fdim of mdi 

• In the name of another; .->1?^^;... 

• From the tie^^^.;funds of the-.fp]lpv^g sources: 

o Coi^drationS^iie., inc^ipprated organization, including a non-stock 

; Corporation, ^';in|p^oratedH^embership organization, and an 

^ incorporated cob^ative); /' 

-- p. Labor Organizatii^^ and 

'^^jNational Banks; 

• From^Fbi^al Govemm^t Contractors (including partnerships, individuals, and 

sole propi^il^m who l^ve contracts with the federd government); or 

• From Forei^Jiat|pn^s (including individuals who are not U.S. citizens and not 

lawfully adm1i|^'fdr permanent residence; foreign governments and foreign 

political partie^s; and groups organized under the laws of a foreign country or 

groups whose principal place of business is in a foreign country, as defined in 

22 U.S.C. §611(b)). 2 U.S.C. §§441b, 441c, 441e, and 441f. 

B. Contribution. A gift, subscription, loan (except a loan made in accordance with 11 

CFR §§100.82 and 100.83), advance, or deposit of money or anything of value made by 

any person for the purpose of influencing any election for federal office is a contribution. 

The term loan includes a guarantee, endorsement, and any other form of security. A loan 

that exceeds the contribution limitations of 2 U.S.C. §441a and 11 CFR part 110 shall be 

unlawful whether or not it is repaid. A loan is a contribution at the time it is made and is 

a contribution to the extent that it remains unpaid. The aggregate amount loaned to a 

candidate or committee by a contributor, when added to other contributions from that 
individual to that candidate or committee, shall not exceed the contribution limitations set 

forth at 11 CFR part 110 and 11 CFR § 100.52(a) and (b). 

C. Authorized Committee Limits. An authorized committee may not receive more than 

a total of $2,400 per election from any one person or $5,000 per election from a 

multicandidate political committee. 2 U.S.C. §441a(a)(l)(A), (2)(A) and (f); 11 CFR 

§§110.1(a) and (b) and 110.9(a). 

D. Partnership Contributions. In addition to counting against the partnership's limits, a 

contribution from a partnership must be attributed to individual partners; 

• According to each partner's share of the partnership's profits; or 

• On another basis agreed to by the partners. 

If the partnership attributed contributions on the basis oi^e^od 2 a^ye, it must reduce 

only the contributing partners' profits (or increase thein|osses) and^ej^fits must be 

reduced in proportion to the contribution attributed to t^&jpartner. options 

listed above, the portion attributed to each partner must hpi|^^hen aggrega^)^th other 

contributions from that person, exceed his or her contribu^^iimit. 11 CF^fi^lf).l(e). 

E. Questionable Contributions. If a committee receives a contiibu^pn that appears to 

be prohibited (a questionable contribution), it must fdllpw the proc^^s below: 

• Within 10 days after the treasurer receives thd^iq^stionable ddntribution, the 

committee must either: 

o Return the contribution ^^the-cmtributor Awthput depositing it; or 

o Deposit the contribution|md folloW'^e ^ps below). 

llCFR§lG3.3(b)JJ^ 

• If the committee d^osi|^¥l^|p|^stionable contiribution, it may not spend the 

funds andjm^|E^r^|red td'^^^d it. Therefore sufficient fiinds to make the 

refund^ii^tisibe ml^ or a account in a campaign depository must 

be ertakished for pos^]|$|llegal cqiitributions. 11 CFR §103.3(b)(4). 

fconunittee'must ke^^^written'record noting the basis for the appearance of 

jii^, and it must inclulte this information when reporting the receipt of the 

' co^btit^on. llCFR§l|^3(b)(5). 

• Withiif^dd^ys of the tro^urer's receipt of the questionable contribution, the 

committeV^ust makqi^t least one written or ored request for evidence that the 

contribution.is^eg^i Evidence of legality includes, for example, a written 

statement fromfthe contributor explaining why the contribution is legal or an oral 

explanation that is recorded by the committee in a memorandum. 

. 11 CFR §103.3(b)(l). 

• Within the 30-day period, the committee must either: 

o Confirm Ae legality of the contribution; or 

o Refund the contribution to the contributor and note the refund on the 

report covering tiie period in which the refund was made. 

11 CFR § 103.3(b)(1), (5). 

F. Personal Funds. Personal funds of a candidate consist of assets, income, or jointly 

owned spousal assets. Assets are amounts derived from any asset that, under applicake 

state law, at the time the individual became a candidate, the candidate had legal right of 

access to or control over, and with respect to which the candidate had legal and rightful 
title or an equitable interest. Personal fiinds may also be income received during the 

current election cycle of the candidate, including salary and other earned income from 

bona fide employment and income from stocks or investments, including interest, 

dividends or proceeds from the sale of such stocks or investments. 11 CFR §100.33. 

G. Expenditures by Candidates. Candidates for Federal office may make unlimited 

expenditures from personal funds as defined in the paragraph above. 11 CFR §110.10. 

H. Reporting Loans. All loans received by a committee must be itemized and 

continuously reported until repaid. All repayments made on a loan must also be itemized. 

11 CFR §§ 104.3(aX4)(iv), (b)(4)(iii) and 104.11. 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff identified two 

(S 14,000 + $86,000), which Counsel staled were loans 

source of these funds appears to be prohibited contrii 

corporation and not the candidate's personal funds. 

Prohibited Contrtbution-$14,000 / 

On Janua^ 29,2010, $14,000 was transferr^ into a< . 

was not disclosed on CFC's reports (SepFiiMiHg 3-'Misi 

Loans Not Reported). Counsel stated|^t this amount 

his partnership. In support of this 

loan was made to the candidate 

m 

ins tof-"-® " 

, Gounod 

luebles 

date made'^^fC. The 

foreign national 

^account. This transaction 

of Financial Activity, 

a loan to the candidate from 

ided a letter stating that the 

;A.de C.V C'Caza").^ Caza is 99 

percent owned by C^ec|Q-^yestmei^/^{.td. ("Canseco Investments"), while 1 percent is 

owned by Jorge paM^b^^h^^er of fHe^djdate. In addition, the candidate is a 

limited partner of Canseco fnye.f|^ents.^ iilp'uhsel also provided several e-mails between 

other pa^rs and from the preiu|^t of Cs^ which taken together explain that this 

amount'^^borrowed from Ca^l^ased on the candidate's capital account in the 

partriershipi|^e Audit staff did B^t review bank documentation relating to the source of 

these funds it came froi^^ account that was not owned by CFC. CFG did not 

make any repa)^^^ on this l|lb prior to the audit. 

Prohibited ContribMli^$86.000 

On April 13,2010, a chbck for $86,000 was deposited into a CFC bank account. This 

transaction was disclosed as a loan from the candidate on CFC's reports. A copy of the 

deposit documentation shows that this was a cashier's check remitted by Caza. Counsel 

provided two signed promissory notes showing that $58,000 was a loan to the candidate 

from his sister, and $28,000 as a loan to the candidate from Canseco Investments. The 

e-mails described in the preceding paragraph also explain that these amounts represent 

the balance of each partner's capital account in Caza. 

' Caza is a foreign national corporation registered in Mexico. 

' According to its filings with The Texas Secretary of State, Canseco Investments, Ltd. is a domestic 

limited partnership with FMC Developers, Inc., a corporation, as its general partner. 
CFC reported repayments totaling $44,605 to the candidate on its disclosure reports. 

However, Counsel did not provide documentation demonstrating that these payments 

were paid to either the candidate or Gaza. Additionally, the Audit staff could not trace 

payments, as reported, to CFC's bank account. 

The Audit staff concludes that the amounts of $14,000 and $86,000 represent apparent 

prohibited contributions from a foreign national corporation. Counsel maintains that 

these amounts represent personal investments in the partnership/ however. Counsel did 

not provide documentation to support that these were distributions to partners from 

Canseco Investments. Furthermore, the business registration of Canseco Investments 

does not indicate whether any of these individuals are partners; the only listed partner is a 

corporation. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff presented these ag^^i^nt.;prohibi^t9Pii^^utions 

to CFC. Counsel said that CFC would take another look^i^S matter. 

The Interim Audit Report recommended that CFC demdnsl 

for the amounts deposited were made with the candidate's 

permissible funds. Absent such a demonstration^-^it^ 

the $14,000 apparent prohibited contribution arid th 

apparent prohibited contribution. Additional||3 the 

amend its reports to correctly disclose l^. souii^ ^ 

the sources of funds 

s, or other 

recommena||^^at CFC refund 

95^ remaining of the $86,000 

immended that CFC 

C. Committee Response to the 

In response to the Interim Audit 

these loans as pro^tj^j^ntribl 

that the loans 1 

Investments: ai^, therefore, 

that Cansedb Investments acts 

Audit 

Counsel with the classification of 

a foreign national corporation. Counsel said 

's equitable interest in Canseco 

It their'l^'onal fimds. Furthermore, Counsel said 

Iding-^company for its only investment, Caza, and 

Cansecoi&yestments relies on to provide for its banking needs. All transactions for 

Canseco lii^slments are proces|ra by Caza and through Caza's accounts. Specifically, 

Counsel said Wti(l ) "all of the^pkpenses and payments on behalf of Canseco Investments 

are made directl^$^;^aza in J^e ordinary course of business; (2) Caza pays dividends 

directly to the OA^^f|^f,(^^eco Investments, which are treated for tax purposes as 

dividends from CansB^Tiiivestments and not Caza; and (3) tax payments and expenses 

incurred by Canseco ^vestments are paid for by Caza." Counsel said the loans made to 

the candidate and his sister were paid by Caza, akin to other expenses paid on behalf of 

Canseco Investments. Moreover, the loans represent the candidate's and his sister's 

* If the funds received from Caza are deemed permissible and not prohibited contributions from a foreign 

national corporation, the amount of funds from the candidate's sister and/or the partnership may be 

considered an excessive contribution. 

^ Information provided by Counsei in response to the Interim Audit Report showed that a S30,000 

repayment and two repayments totaling S 14,600 were erroneously applied to the $86,000 the CFC reported 

as a candidate loan. The $30,000, was in fact a repayment of excessive contributions from individuals 

noted in Finding 2. Repayments totaling $14,600 have not been applied to the prohibited contribution 

amounts in either finding because Counsel has not provided documentation to verify receipt by the 

appropriate payee. 
proportional interests in the assets of Canseco Investments, less an estinurted tax 

liability.®-' 

Counsel stated that, 'Svhile these loans may not meet the technical requirements set forth 

in 11 CFR §100.83, they are fundamentally different than a contribution for two key 

reasons." First, Counsel considered the loans derived from an asset for which the 

candidate had a legal ownership share and an equitable interest. He compared the loans 

to borrowing against a retirement plan or a life insurance policy. Second, Counsel stated 

that the interest rates charged by Caza on these loans to the candidate and his sister were 

above corrunercially available lending rates; hence, the candidate was not given an unfair 

lending advantage or a "sweetheart deal." 

While CFC's explanation expanded on previous statemept^' fieldwork, the 

information does not establish that the ^ds at issue cqhstitute th^S^l^date's personal 

funds (11 CFR §100.33(b)). Funds originating from C^t^a foreign n^^ud corppration, 

do not lose their character merely because the company^i^^^set held ^|^U,S.oiimited 

partnership, i.e., Canseco Investments. The Audit staff cpncr^ed that Caza^i 

source of frinds for the candidate's $100,000 loan to CF^! 

Subsequently, on May 1,2013, Counsel submitt^^d&jeionentation iting that 

CFC made untimely repayments of the loan tovCaza 

amended reports to correctly disclose the lo^ipdii 

Counsel stated that, in order to avoid rryjjll^pldillin^ of . 

all the recommendations, once the audt!^d been.^alized. Below are details explaining 

the resolution of these repayment® ' 

$55,395; CFC has not filed 

i. jjipurce of the loan as Caza. 

CFC would comply with 

Prohibited Contributiij'^ 

OnMay l,20l3iiCFC , 20]L^' CFC issss\S^||^eck td^(^^.spaying what Counsel had said was a 

$14,000 loan/The Audit stm^i^iders thisi^i^ount a repayment of a prohibited 

contributioh that was resolved'in|^ untimely marmer. 'm--: 

Pro tributions-$86 

On May 1, ZOif^CFC issued a^^eck to Caza repaying $41,395 of what was disclosed by 

CFC as an $86,b6A^ow. Thel^udit staff considers this amount a prohibited contribution 

that was resolved ifrj^;;|^|^ely maruier. 

On June 5,2013, Cou^l stated that a portion ($30,000) of the $44,605 reported as a 

repayment to the can^date was attributable to another candidate loan (See Finding 2). 

The Audit staff requested documentation to substantiate that the remaining $44,605 was 

repaid to the candidate or Caza. Counsel has not provided this documentation. As such, 

the Audit staff considers the remaining $44,605 to be a prohibited contribution that has 

not been resolved. 

' Counsel provided a redacted K-1 for the candidate showing his partnership interest in Canseco 

Investments. Counsel also stated that the fonds were loaned to the candidate and not distributed due to 

various tax concerns. 

^ Counsel asserted that the borrowers' percentage of ownership interest is at risk for non-payment of loans 

that are secured by their ownership interest in Canseco Investments. 
• 

I Finding 2. Receipt of Contributions that Exceed Limits 

Summary 

During audit fieldwork, the Audit staff identified three transactions that Counsel stated 

were loans from the candidate. However, these transactions appear to be excessive 

contributions fiem four individuals who loaned the candidate funds. The total amount in 

excess of the individual contribution limit is $170,343. 

In response to the Interim Audit Report, Counsel provided documentation demonstrating 

that $160,293 was refunded to the appropriate contributors in an untimely manner. 

However, the documentation was not sufficient to demonstrate 

remaining $10,050 to the appropriate contributors ($170,3,4|^^1 

Audit staff considers the remaining $10,050 to be exce^^ive cor" 

individuals that are not resolved. 

: CFC had repaid the 

2^3= $10,050). The 

from two 

Legal Standard 

A. Contribution Limits. During the 2009-2010 cycle, .:^d liip^dual or grouj^'5>^cr than 

a multicandidate committee) was permitted to contribute moret^>a total of $2,400 per 

election to a federal candidate's campaign (the cantp^gn includesl^;i^^idate and his 

or her agents and authorized committees). 2 (a)(l)(A^^'' 

,C 

B. Contribution. A gift, subscription, loan (i^cepta loah;m]^ in accordance with 11 

CFR §§ 100.72 and 100.73), advance, otidepbsit af-money'dis-ahything of value made by 

any person for the purpose of infli^radh^ any electigiiJo^federal office is a contribution. 

The term loan includes a guarantc^^dorsement,^iBaia.hSy other form of security. A loan 

.9f 2 U.S.C. §441a and 11 CFR part 110 shall be 

id. A'i^jan..is a contribution at the time it is made and is 

The aggregate amount loaned to a 

added to other contributions from that 

ittee, shall not exceed the contribution limitations set 

100.52(a) and (b). 

that exceeds the cont lir 

unlawful whetheript^otuj^i^i^ 

a contribution-it^lie extmf'^ 

candidate 

individ] 

foi 

immittee by a i 

that candidate or i 

liiCgR parts 110. 11 

I* •» A* r C. Handling'Cphtiibutions That Appear Excessive. If a corrunittee receives a 

contribution thai dp^e.^ tq be excessive, the committee must either: 

• Return the qdekipriable contribution to the donor; or 

• Deposit the cohtfibution into a campaign depository and keep enough money on 

account to coyer all potential refunds until the legality of the contribution is 

established. 11 CFR § 103.3(b)(3) and (4). 

D. Personal Funds. Personal fimds include salary and other earned income from bona 

fide employment and income &om stocks or investments, including interest, dividends or 

proceeds ^m the sale of such stocks or investments. 11 CFR § 100.33(b). 

E. Reporting Loans. All loans received by a committee must be itemized and 

continuously reported until repaid. All repayments made on a loan must also be itemized. 

11 CFR §§104.3(a)(4)(iv), (b)(4)(iii) and 104.11. 
10 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff identified three transactions that Counsel stated 

were loans from the candidate; however, they appear, to be excessive contributions from 

four individuals. The total amount that exceeds the individual contribution limit is 

$170,343. 

Excessiv(^ Contribution-$lS0,000 

On April 27,2010, a deposit of $150,000 was made to the CFG bank account. The 

deposit documentation shows that this was a check from an individual written to the 

candidate, but deposited directly into CFC's bank account. .... .. 

The $150,000 transaction was disclosed as a loan from ]&e candidjsf^^^n CFC's reports. 

The Audit staff requested documentation showing that |^s loan,wias i^ei^^th the 

candidate's personal funds. Counsel responded that thevfriinds'were derivej^.^n^^e sale 

of the candidate's stock. Later, Counsel stated that this v^^tersonal loa#n^~ to the 

candidate from an individual and provided a copy of a signed^j^mssory note. 

The Audit staff concludes that, in accordance wi|h0|^S.C. §432(§0^)v^e candidate is 

considered to have received tl^ personal loai:t.a^''^k^|$,pf the CF^'^ Therefore, absent 

further explanation and documentation, this fransac^on-^qlts jh aS excessive 

contribution of $ 147,600* from the indiyiduiilll 4^ ppF 

-I CFC disclosed a repayment of $lQiOJ]ip to the can(U%^.qh April 28,2010 in connection 

with the reported $150,000 loan. ;Hoi^yer, CFC h& not provided sufficient 

documentation to subst^«Ae that thd^inds were repaid to the original contributor. 

Although CFC..di^losM:Md>^^ymenf on a report to the Commission, the 

only documehi'provided Au^s]^ was a'l^pik statement showing a $10,000 check. No 

documet^tibn was provided tb^d^tify the ^ayee. 

ExceMive^ntributioiis-$30.060; 

On Decemh^yfQ^d 18,2009,.|22,000 and $8,000, respectively, were transferred into 

CFC's bank acbpiiht^m the^'ahdidate's personal bank account. The $22,000 was 

incorrectly disclos^.{^n.C^C''s reports as a loan; the $8,000 loan was not reported. (The 

misreporting of thesb'i.6|Hs are included in Finding 3, Misstatement of Financial Activity, 

under Loans Not Repori^ of $ 15,330.) Counsel stated that these amounts 

represented loans firim the candidate. However, additional documentation provided by 

CFC showed that the funds used to make these transfers did not come fh>m the 

candidate's personal funds. The funds were personal loans from different individuals 

made to the candidate and deposited into the candidate's personal account. Since these 

funds were used for campaign activity, the personal loans resulted in contributions to 

CFC. The Audit staff performed a cash balance analysis on the candidate's personal 

account and detennined that the funds transferred to CFC ($22,000 and $8,000) could 

only have come from three individuals. Absent further documentation and explanation. 

' This amount was derived by subtracting S2,400, the contribution limit for an individual, from the 

the contribution amount, $150,000. 
11 

CFC's receipt of these funds results in contributions by three individuals that exceed 

contribution limits by $22,743.' 

B. Interim Audit Report & Audit Division Recommendation 

During an interim fieldwork irieeting, the Audit staff requested further information to 

support that the contributions described above were permissible. At the exit conference, 

Counsel stated that the candidate bad already repaid some of the contributions that 

comprised the $22,000 and $8,000 contributions. The Audit staff commented that CFG 

may need to make further refunds. CFG has not reported repayments to these individuals 

and the Audit staff has not received documentation to support the repayments. 

The Interim Audit Report recommended that GFG demonstrate^tlM the^j^ntributioM 

were not excessive or that they originated from the candi^^^pe^^ffif funds. Absent 

such a demonstration, the Audit staff recommended tbgt GFG re^i|^%e excessive 

contributions, $ 147,600 and $22,743, to the original co^^^but^ or pfoVii^^ 

documentation showing that refiinds had already been that the'ii^^d.j!^ecks 

were negotiated. Furthermore, the Audit staff recommet^^;i^t GFG am^d-jti' reports 

to correctly disclose the source of funds for these loans. -' 

C. Committee Response to the Interim Audl^yRifp.9j^ 

In response to the Interim Audit Report, Counsel submit^ documratation demonstrating 

that GFG made repayments totaling $160,293)rju oudin^jslpW. GFG did not file 

amended reports. Counsel stated that, in.ord^:io qybid m^li^ple filings of r^orts, GFG 

would comply with all the recommen^rabns oncerJhe Goi^ission had finalized die 

MIn a subsequent iiiqe^n^h|||^^ Clii^l to discuss report changes made since the 

issuance of thq-^te^'Ai^t^^eport, C'6i|^i|ij[.expressed concern regarding the 

repayment qf>the two excessiy^^tributi(^for $10,050. Counsel felt that an affidavit 

subi^tteid:% the intermediary p4l|Be suppbhing the repayment should be sufficient 

docuqien^tipn and that GFG sho^ not have to make a second repayment. In addition, 

Gouhsei mbdj^t this might be artj|isue GFG would want to raise with the Commission. 

Excessive Contrihution-$iS0;000 

On May 1,2013, GFC;iss,ued a check to the contributor for $147,600 to repay the 

excessive contributioin^bunt. The Audit staff considers the $147,600 an excessive 

contribution that was refunded untimely. 

Excessive Contributions-$30,000 

Counsel submitted documentation showing that GFG issued a cashier's check for $28,000 

on September 22,2010, to one of the individuals who made an excessive contribution. 

According to an email from Counsel, GFG made a payment to one contributor who then 

' The excessive amount reflects contributions of $1 S,093, S7,1S7, and $7,693, minus a $2,400 

contribution limit for three individuals ($7,200). 

The Audit staff was provided a copy of the canceled check and the corresponding bank statement that 

supported the contributor's repayment. 
12 

paid other individuals who had loaned the candidate funds or whom CFC owed interest 

on their loans. Counsel did not provide sufficient documentation to demonstrate 

repayment to the other two contributors who made excessive contributions. The Audit 

st^ considers $12,693 to one of the three contributors as an excessive contribution that 

was refunded in an untimely manner and the remaining $10,050 from two contributors to 

be excessive contributions that CFC has not refunded. 

Finding 3. Misstatement of Financial Activity I 

Summary 

During audit fieldwork, a comparison of CFC's reported finmcial;,wtivi:|^ with its bank 

records revealed misstatements of beginning and ending well as, 

misstatements of receipts and disbursements for calend^ years 20%^d 2010. For 

2009, CFC overstated beginning cash-on-hand by $32,3^> und^rStat^jc^ipts by 

$13,161, understated disbursements by $31,048, and ovIl^i^^'Wing b^^^n-fa^d by 

$50,231. For 2010, CFC overstated beginning cash-on-h^d%y $50,231, ov^|^d 

receipts by $324,404, overstated disbursements by $313^1 overstated ending cashon-hand by $61,512. 

In response to the Interim Audit Report, Cou^T sia^dilhat, in ord»?to avoid multiple 

filings of amendments, CFC would comply >^|h all the^^^pmendations once the 

Commission had finalized the audit. v 

Legal Standard 

Contents of Reports. Each repQrt^m^st disclose: ' 

• The amount.o.f;ca^fonrhiand at^iinbjjeginning and end of the reporting period; 

^.reporting period and for the election cycle; 

The,,tpi^ amount of a% the reporting period and for the election 

i and 

I transactions that 

lie B (Itemized Di 

Facts and 

itemization on Schedule A (Itemized Receipts) or 

lents). 2 U.S.C. §434(b)(l), (2), (3), (4) and (5). 

.i'f" 

A. Facts 

During audit fieldwork, the Audit staff reconciled CFC's reported financial activity with 

its bank records for calendar years 2009 and 2010. The following chart outlines the 

discrepancies for the beginning cash balance, receipts, disbursements, and ending cash 

balance for 2009. Succeeding paragraphs address the reasons for the misstatements. 

" CFC should provide documentation for the remaining SI0,030 to support that the two other contributors 

received refunds. 
13 

2009 Activity 

Reported Bank Records Discrepancy 

Begirming Cash Balance 

©January 1.2009 

$ 32,344 $ 0 $ 32.344 

Overstated 

Receipts $160,551 $173,712 $ 13.161 

Understated 

Disbursements $101,630 $132,678 $ 31.048 

Understated 

Ending Cash Balance 

@ December 31.2009 

$ 91,265 $ 41.034 $ 50.231 

Overstated 

The beginning cash balance on January 1,2009, was ov^^Wd b^p|l344. The Audit 

staffs analysis could not explain this overstatement but^t likely r^^^:j^m prior 

period discrepancies. .jiv- ' (• 

The understatement of receipts resulted from the followi^^jf' 

Receipts not reported 

Loans received by CFC not reported or in icorrecfly re^^^^et) 

• Reported contributions &om individuals not^.^pported 

deposits 

• Unexplained difference • 

Net Understatement of Receipts 

The understatement of disbursementS;.^Wlted fron^J^e foinowing; 

• Disbursements not reporte^i?vf 

• Reported disbur^ments nidt Supported by a check 

or debit. ^ . 

Net UnderstatemiE 

.000 

15,330 

(2.025) 

(1,144) 

$41,912 

(19,864) 

^disbursements 

Kff-' 

CFC oy^hted the ending cash^l^^ce oh December 31.2009. by $50,231 as a result of 

2010 Activity ...r r ^ 

Reported Bank Records Discrepancy 

Beginning Cash Bal^^i." 

©January 1.2009 

$ 91.265 $41,034 $ 50,231 

Overstated 

Receipts $1,770,634 $1,446,230 $ 324,404 

Overstated 

Disbursements $1,720,935 $1,407,812 $ 313,123 

Overstated 

Ending Cash Balance 

©December 31.2009 

$ 140,964 $ 79.452 $ 61,512 

Overstated 
14 

The overstatement of receipts resulted from the following: 

• Receipts not reported 

• Return deposit items reported as loans 

• Loans received by CFC not reported 

• Duplicate reporting of contributions 

• Unexplained difference 

Net Overstatement of Receipts 

$ 1,676 

(305,000) 

14,000 

(22,121) 

(12,959) 

$ (324.404) 

The overstatement of disbursements resulted from the following: 

• Disbursements not reported 

• Return deposit items reported as loan repayments 

$ 36,250 

(305,000) 

Reported disbursements not supported by a check^til^ebit^,^ (44,369) 

• Unexplained IT different .r'-'"- f 4) 

Net Overstatement of Disbursements 

As a result of the above discrepancies, CFC overstated tli^'^ding cash balaiit^' djii 

December 31,2010, by $61,512. #' 

B. Interim Audit Report & Audit Division 

At the exit conference, the Audit staff provid^i 

report adjustments. Counsel acknowledged ^ adj 

Counsel that it would recommend these adjiS^ents^n 

The Interim Audit Report recommmcjet that CFGJ 

correct misstatements and amend.i]U[^pst recently' 

balance. The Audit s^..also recbi 

most recent report io'idielfiti]^;an sul 

adjustments.. •" . 

endation* 

a list dfBiscrepancies and 

Tfie Audit staff informed 

Audit Report. 

its FEC filings to 

to correct its cash-on-hand 

led that CFC reconcile the cash balance of its 

i|em discrepancies that might affect its 

••wi.-

C. Committee Response to theiijFterim Audit Report 

In response iiq . Ae Interim Audit Import, CFC did not file amended reports. Counsel 

stated that, in^rder to avoid mi^ple filings of reports, CFC would comply with all the 

reconmiendatli^^lpnce the Cqn^ission had finalized the audit. 

' . -V s. . 

Some of the adjustments changed based on subsequent information received from CFC and the Audit 

staffs determination of the proper handling of these misstatements. CFC was subsequently notified of 

these adjustments and informed that the changes would be incorporated in the Draft Final Audit Report.