FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 :E? 23 P ii: 20 

September 23,2010 

MEMORANDUM 

To: 

Through: 

From: 

The Commission 

Alec Palmer J p 

Acting Staff Director 

Patricia Carmona ^ 

Chief Compliance Officer 

Joseph F. Stoltz < 

Assistant Staff! 

Audit Division 

Martin L. Favin ffj/\^J ^ 

Audit Manager 

By: 

Subject: 

Philomena E. Brooks 

Lead Auditor 

1 ^ 

Audit Division Recommendation Memorandum on Harry Teague for 

Congress (A09-01) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit 

Reports), the Audit Division recommends the Commission approve the finding as 

presented in die attached Draft Final Audit Report (DEAR). The Office of General 

Counsel has reviewed this memorandum and concurs widi die recommendation. The 

committee declined our offer for a hearing and did not provide a written response to the 

DEAR. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared 

within 30 days of the Conunission's vote. 

Should an objection be received. Directive No. 70 states diat die Audit Division 

Recommendation Memorandum will be placed on the next regularly scheduled open 

session agenda. 

Documents related to this audit can be viewed on Voting Ballot Matters. Should 

you have any questions, please contact Philomena Brooks or Marty Favin at 694-1200. 

Attachment: Draft Final Audit Report of die Audit Division on Harry Teague for Congress 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on 

Harry Teague for Congress 

October 24, 2007 - December 31. 2008 

Why the Audit 

Was Done 

Federal law permits die 

Commission to conduct 

audits and field 

investigations of any 

political committee that is 

required to file reports 

under the Federal 

Election Campaign Act 

(die Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

widi the Act.^ Ttie audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requbements 

of die Act. 

Future Action 

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) 

Harry Teague for Congress is the principal campaign committee 

for Harry Teague, Democratic candidate for die U.S. House of 

Representatives from die state of New Mexico, 2*^ District, and is 

headquartered in Hobbs, New Mexico. For more information, see 

the chart on the Campaign Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Loans from Candidate 

o Contributions from Other 

Political Committees 

o Other Receipts 

o Total Receipts 

• Disbursements 

o Operating Expenditures 

o Loan Repayments 

o Contribution Refunds 

o Total Disbursements 

$ 1,349,867 

1,764,573 

365,337 

56 

$3,479^33 

$ 3,415,047 

50,000 

2,250 

$ 3,467^97 

Finding and Recommendation (p. 3) 

• Misstatement of Financial Aaivity 

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

Audit Division on 

Harry Teague for Congress 

October 24, 2007 - December 31, 2008 
Table of Contents 

Page 

Part I. Background 

Audiority for Audit 1 

Scope of Audit 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Summary 

Finding and Recommendation 3 

Part IV. Finding and Recommendation 

Misstatement of Financial Activity 4 
Parti 

Backgroimd 

Authority for Audit 

This report is based on an audit of Harry Teague for Congress (HTFC), undertaken by the 

Audit Division of the Federal Election Commission (the Commission) in accordance with 

the Federal Election Campaign Act of 1971, as amended (die 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 committee that is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit under diis subsection, die 

Commission must perform an intemal review of reports filed by selected committees to 

determine if die reports filed by a particular committee meet the threshold requirements 

for substantial compliance widi the Act. 2 U.S.C. §438(b). 

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated various risk 

factors and as a result, the scope of this audit was limited to the following: 

1. The receipt and permissibility of loans. 

2. The consistency between reported figures and bank records. 

3. The disclosure of mdividual contributors' occupation and name of employer. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates Harry Teague for Congress 

• Date of Registration November 5,2007 

• Audit Coverage October 24.2007 - December 31,2008 

Headquarters Hobbs. New Mexico 

Bank Information 

• Bank Depositories One 

• Bank Accounts One checking account 

Treasurer 

• Treasurer When Audit Was Conducted Teresa Arsiaga 

• Treasurer During Period Covered by Audit Carl Baldwin 

Management Infonnation 

• Attended FEC Campaign Finance Seminar No 

• Used Commonly Available Campaign 

Management Software Package 

Yes 

• Who Handled Accounting and Recordkeeping 

Tasks 

Paid Suiff 

Overview of Financial Activity 

(Audited Amounts) 

Cash on hand @ October 24,2007 $0 

Receipts 

0 Contributions from Individuals $1,349,867 

0 Loans from Candidate 1.764.573 

0 Contributions from Other Political 

Committees 365,337 

0 Other Receipts 56 

Total Receipts $3,479,833 

Disbursements 

o Operating Expenditures $3,415,047 

0 Loan Repayments 50.000 

o Contribution Refunds 2.250 

Total Disbursements $3,467,297 

Cash on hand @ December 31,2008 $ 12,536 
Part III 

Smnmary 

Finding and Recommendation 

Misstatement of Financial Activity 

A comparison of HTFC's reported financial activity to its bank records revealed that for 

calendar year 2008, HTFC understated disbursements by $58,472 and overstated its 

ending cash on hand by $91,555. It appears that die misstatement was due to die 

misreporting of disbursements and an incorrect cash balance on the 2008 Pre-General 

report which was carried forward onto subsequent reports. HTFC filed amended reports 

during audit fieldwork that materially corrected these misstatements. 

The Audit staff recommended that HTFC provide any additional comments it had on diis 

matter. In response to the interim audit report, HTFC counsel states diat widi the 

exception of a technical correction, HTFC does not object to the report. Counsel points 

out that although a loan repayment to the Candidate was originally reported as a memo 

entry, resulting in an incorrect cash on hand figure, the transaction was fully disclosed to 

both the Commission and the public. (For more detail, see p. 4) 
Part IV 

Finding and Reconmiendation 

Misstatement of Financial Activity 

Summary 

A comparison of HTFC's reported financial activity to its bank records revealed that for 

calendar year 2008, HTFC understated disbursements by $58,472 and overstated its 

ending cash on hand by $91,555. It appears that die misstatement was due to die 

misreporting of disbursements and an incorrect cash balance on the 2(X)8 Pre-General 

report which was carried forward onto subsequent reports. HTFC filed amended reports 

during audit fieldwork diat materially corrected these misstatements. 

The Audit staff recommended that HTFC provide any additional comments it had on this 

matter. In response to the interim audit report, KTFC counsel states that with the 

exception of a technical correction, HTFC does not object to the report. Counsel points 

out that although a loan repayment to the Candidate was originally reported as a memo 

entry, resulting in an incorrect cash on hand figure, the transaction was fully disclosed to 

both die Commission and die public. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• The amount of cash on hand at the begmning and end of the reporting period; 

• The total amount of receipts for die reportmg period and for the election cycle; 

• The total amount of disbursements for die reporting period and for die election cycle; 

and 

• Certain transactions diat require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 2 U.S.C. §434(b) (1),(2),(3),(4) and (5). 

Reporting In-Kind Contributions. A gift, subscription, loan, advance, or deposit of 

money or anydiing of value made by any person for the purpose of influencing any 

election for Federai office is a contribution. The term "anytiiing of value" includes all inkind contributions. Each in-kind contribution shall be reported as both a contribution and 

expenditure in accordance widi 11 CFR 104.3. 11 CFR §§100.52 and 104.13. 

Facts and Analysis 

The Audit staff reconciled HTFC's reported financial activity to the bank records for 

calendar years 2007 and 2008. The reconciliations were based on die latest amended 

reports filed prior to notification of the audit. The chart on the next page outiines the 

discrepancies for receipts, disbursements and ending cash balance for calendar year 2008. 
2008 Activity 

Reported' Bank Records Discrepancy 

Opening Cash Balance 

©January 1.2008 

$362,386 $362,386 $0 

Receipts $3,071,899 $3,071,274 ($625) 

Overstated 

Disbursements $3,362,651 $3,421,123 $58,472 

Understated 

Ending Cash Balance 

©December 31,2008 

$104,092 $12,537 ($91,555) 

Overstated 

The understatement of disbursements resulted from die following: 

• Incorrecdy reported loan repayment to Candidate $50,0(X) 

• In-kind contributions from Candidate, not reported 

as disbursements $ 9,573 

• Disbursement checks reported and subsequentiy 

voided widi no adjustment made to reports ($ 1,045) 

• Unexplained difference f$ 56) 

Net understatement of disbursements $ 58^72 

The $91,555 overstatement of ending cash resulted primarily from die misstatement of 

disbursements noted above and a $32,458 overstatement of die ending cash balance on 

die 2008 Pre-General report that was carried forward onto subsequent reports. 

This matter was discussed with HTFC representatives at an exit conference held at die 

close of audit fieldwork. In a written response to the exit conference, HTFC counsel 

noted that this was the Candidate's first run for office and diat **[t]he Conunittee lacked 

access to an experienced practitioner to prepare die reports. Many of the initial errors 

made in the reports were due to the complexities of reporting transactions related to loans 

made to the campaign." 

HTFC counsel commented that the cash on hand balance problem on the 2008 PreGeneral report resulted from some timing issues relative to amendments filed in 2009. 

He added diat there was some confusion in communications between the Reports 

Analysis Division staff and HTFC staff relative to die reporting of a $50,000 loan 

repayment to the Candidate which resulted in the transaction being improperly disclosed 

as a memo entry. 

Regarding the disclosure of in-kind contributions from the Candidate, HTFC 

representatives provided additional documentation regarding loans made by the 

Candidate in the form of three credit card payments personally made by the Candidate on 

behalf of HTFC. totaling $9,573. On die original reports, diese diree payments were 

^ This column does not total correctly due to HTFC overstating the ending cash on hand balance on its 

2008 Pre-General report by $32,458 and carrying forward the erroneous balance to subsequent reports. 
disclosed as loans received from the Candidate. Eventually, these loans were forgiven 

resulting in these items becoming in-kind contributions from the Candidate. Prior to 

audit fieldwork, HTFC filed amended reports disclosing the disbursement-side of diese 

in-kind contributions as memo entries. The Audit staff notes that it was necessary for 

equal amounts to be disclosed for both receipts and disbursements for these in-kind 

contributions and diat doing so would also result in a correct cash on hand. 

During audit fieldwork, HTFC filed amended disclosure reports that materially corrected 

the misstatements noted above. These amendments also corrected reported cash on hand. 

Interim Audit Report Recommendation and Committee Response 

In die interim audit report, the Audit staff recommended that HTFC provide any 

additional comments it had on this matter. In its response, HTFC counsel reiterated that 

Congressman Teague had been a first time candidate during the 2008 election cycle and 

HTFC did not have anyone widi prior experience m submitting reports to die 

Commission. He added that this resulted in the sole finding in the report and that steps 

have been taken to revise and address HTFC's compliance procedures. 

HTFC counsel stated diat widi the exception of a technical correction. HTFC did not 

object to die interim audit report. Counsel added that although die loan repayment to die 

Candidate was originally reported as a memo entry, resulting in an incorrect cash on hand 

figure, die transaction was fully disclosed to both die Commission and the public. The 

Audit staff agrees that the loan repayment was disclosed, albeit as a memo entry, and diat 

die amendments filed during audit fieldwork materially corrected the misstatements noted 

above.