FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C 20463 

April 27.2015 

MEMORANDUM 

To: 

Through: 

From: 

The Commission 

Alec Palmer 

Staff Director 

By: 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister—^ 

Assistant Staff Director 

Audit Division 

Kendrick Smith 

Audit Manager 

Brenda Wheeler, 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on Kevin McCarthy for 

Congress (KMFC)(A13-02) 

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

the Audit staff presents its recommendations below and discusses the findings in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendations. 

Finding 1. Receipt of Contributions in Excess of the Limit 

The Audit staff determined that KMFC received excessive contributions totaling 

$77,094. These errors occurred as a result of KMFC not resolving the excessive 

portions of contributions by forwarding presumptive letters to the contributors or 

issuing refunds in a timely manner. In response to the exit conference following 

fieldwork, KMFC provided copies of presumptive letters that were sent to the 

contributors. As a result, KMFC has resolved the excessive contributions, albeit in 

an untimely manner. In response to the Interim Audit Report recommendation, 

KMFC stated that it believes presumptive letters were sent to its contributors in a 

timely manner; however, it cannot prove such action was taken with a degree of 

acceptable certainty. KMFC reiterated its position in its response to the DFAR. 

The Audit staff recommends that the Commission find that KMFC received 

excessive contributions totaling $77,094. 
Finding 2. Misstatement of Financial Activity 

The Audit staff determined that KMFC misstated its financial activity for calendar 

years 2011 and 2012. In 2011, beginning cash-on-hand was overstated by 

$41,170, receipts were understated by $62,407, disbursements were overstated by 

$35,501, and ending cash-on-hand was understated by $56,738. In 2012, only the 

beginning and ending cash-on-hand were misstated. Beginning cash-on-hand was 

understated by $56,738 and ending cash-on-hand was understated by $73,397. 

However, subsequent to audit notification, KMFC filed amended disclosure 

reports which materially corrected the misstatements identified by the Audit staff. 

As such, KMFC has corrected the public record. In response to the Interim Audit 

Report recommendation, KMFC noted that it has made organizational changes and 

adopted new internal procedures and safeguards to minimize future administrative 

issues. As part of its response to the DFAR, KMFC provided a detailed 

chronology of actions taken to improve its financial and reporting obligations. 

The Audit staff recommends that the Commission find that KMFC misstated its 

financial activity for calendar years 2011 and 2012. 

KMFC did not request an audit hearing. 

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

30 days of the Conunission's vote. 

In case of an objection. Directive No. 70 states that the Audit Division Recommendation 

Miemorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Brenda Wheeler or Kendrick Smith at 

694-1200. 

Attachment; 

Draft Final Audit Report of the Audit Division on Kevin McCarthy for Congress 

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

Audit Division on 

Kevin McCarthy for Congress 

(January 1, 2011 - December 31, 2012) 

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 for 

substantial compl: 

with the Act. 

determine 

committffi^mpli 

the Ij^^ions, 

prombr 

disclosure^iedWrements 

of the Act. 

Future Actic^ 

The Commission m; 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign 

Kevin McCarthy for Congress jj 

committee for Kevin McCs 

U.S. House of Represent 

Congressional Distric 

Califomia. For mo; 

Organization i 

Financiaj 

• Receipts 

o ^Contributions 

jncipal campaign 

lublican candidate for the 

the state of Califomia, 23"* 

red in Bakersfield, 

Campaign 

..Disbursements 

ating Expenditures 

'Contribution Refunds 

Other Disbursements 

Total Disbursements 

$ 1,923,173 

2,422,238 

263,000 

27,616 

21,298 

$ 4,657,325 

$ 2,240,241 

41,692 

1,710,453 

$3,992,386 

Findings and Recommendations (p. 3) 

• Receipt of Contributions in Excess of the Limit (Finding 1) 

• Misstatement of Financial Activity (Finding 2) 

' On September 1,2014, the Federal Election Campaign Act of 1971, as amended ("the Act"), was 

transferred from Title 2 of the United States Code to new Title 52 of the United States Code. 

^ 52 U.S.C. §30111(b) (formerly 2 U.S.C. §438(b)). 
Draft Final Audit Report of the 

Audit Division on 

Kevin McCarthy for Congress 

(January 1, 2011 - December 31, 2012) 
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 Recomn^ggdati 

Finding 1. Receipt of Contributions in the 

Finding 2. Misstatement of Financial Activity 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Kevin McCarthy for Congress (KMFC), 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 52 U.S.C. §30111(b) (formerly 2 U.S.C. 

§438(b)), which permits the Commission to conduct audits and fijd^nvestigations of any 

political committee that is required to file a report under 52 U,i^pCr§3l9104 (formerly 2 

U.S.C. §434). Prior to conducting any audit under this sut 

perform an internal review of reports filed by selected c<^^it 

reports filed by a particular committee meet the threslnla>qequir 

compliance with the Act. 52 U.S.C. §30111(b) (f( 

the Commission must 

determine if the 

for substantial 

Scope of Audit 

Following Commission-approved procedures, the 

factors and as a result, this audit examined: 

1. the receipt of excessive contribi 

2. the receipt of contributions from 

3. the disclosure of contributions recei 

4. the disclosure of disbursements, del 

5. the disclosure of indj^ChisdsContributo: 

6. the consistency bpOt'eerTbqpo^d figures^ 

7. the completen^^^ 

other committee obor^onsiiicessary to th( 

urces; 

us risk 

name of employer; 

rds; 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration March 10,2006 yv 

Innnnnf 1 901 1 1 9019 • Auaii coverage 

Headquarters 

January i, zui ^^^^ecwnoer ji, zuiz 

BakersfieldJ^jgAipmia 

Bank Information 

• Bank Depositories Six yy^ X\ 

• Bank Accounts Tv^li^ffiS^ng, Four 

Treasurer \ J* 

• Treasurer When Audit Was Conducted ^ 'Ji^MomsojK(October 12,20i^present) 

• Treasurer During Period Covered by Audit 

(AuSxp^7 - October 11,2012) 

Jill ThoimQiK(pctober 12,2012 - present) 

Management Information 

• Attended Commission Campaign Finan^ ^ 

Seminar ^ 

• Who Handled Accountujg^^v ^ 

Recordkeeping TasksV'''^^\ \ \ 

^id 

iditei 

Lxicial Activity 

'Amounts) 

X( X \ XX-/ 

Cash-o^^lik|^«^ January \ 2011 \y $ 1,159,230 

Receipts \ ] 

o ContribumpuK^m IndMduals 1,923,173 

o Contributionyf|lfe^ Pg^cal Committees 2,422,238 

o Transfers fromiXiHlaitized Committees 263,000 

o Offsets to Operal^ Expenditures 27,616 

o Other Receipts 21,298 

Total Receipts S 4,657,325 

Disbursements 

o Operating Expenditures 2,240,241 

o Contribution Refunds 41,692 

o Other Disbursements 1,710,453 

Total Disbursements S 3,992386 

Cash-on-hand @ December 31,2012 S 1,824,169 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Receipt of Contributions in Excess of the Limit 

During audit fieldwork, the Audit staff reviewed contributions from individuals to 

determine if any exceeded the contribution limit. This review indicated that KMFC 

received apparent excessive contributions totaling $77,094. 

result of not resolving the excessive portions of coiV 

presumptive letter to the contributor or issuing a refund 

to the exit conference following freldwork, KMFC 

that were sent to the contributors. As a result, 

contributions, albeit in an untimely manner. In 

recommendation, KMFC stated that it believ 

contributors in a timely manner; however, it cam? 

degree of acceptable certainty. (For more detail. 

occurred as a 

ons by forwarding a 

In response 

umptive letters 

cessive 

nse to the Interim^^u^Report 

iresuiJ^ive letters wetes^ to its 

action was taken with a 

Finding 2. Misstatemen 

During audit fieldwork, a comparison o 

identified misstatements in 2011 and 201 

overstated by $41,170, 

overstated by $35,50 

only the beginni 

was understated b| 

However, subsequent to 

which mai 

KMFC,^ correct 

recoQlmeodation, KM^ noted 

in 

detail, see 

inciarAidtMty 

3rted a^^y with its bank records 

In ztiJ^C^eginnmgcag^ was 

were undef^tgl^^y $9sl4p^ disbursements were 

cash-on-m^ was uninstated by $56,738. In 2012, 

i-on-hand^re misstated. Beginning cash-on-hand 

iding cash-oi^fdid was understated by $73,397. 

filed amended disclosure reports 

sstatenMQtiddentified by the Audit staff. As such, 

ird. In response to the Interim Audit Report 

made organizational changes and adopted new 

minimize future administrative issues. (For more 
Part IV 

Findings and Recommendations 

Finding 1. Receipt of Contributions in ESxcess of the Limit 

Summary 

During audit fleldwork, the Audit staff reviewed contributions from individuals to 

determine if any exceeded the contribution limit. This review indicated that KMFC 

received apparent excessive contributions totaling $77,094. Thesi^wors occurred as a 

result of KMFC not resolving the excessive portions of contrihra6n^y forwarding a 

presumptive letter to the contributor or issuing a refund in a/|ffl^v manner. In response 

to the exit conference following fieldwork, KMFC provy^cotsjebiof presumptive letters 

that were sent to the contributors. As a result, KMFCJ;|a^esolvei^l^ 

contributions, albeit in an untimely manner. In reso^^is^ me IntenhQv^dit Report 

recommendation, KMFC stated that it believes dracpFesumptive letters\(m^ent to its 

contributors in a timely manner; however, it o^dtjjrove sach action wa^k^with a 

degree of acceptable certainty. 

Legal Standard 

A. Authorized Committee Limits. 

being completed, the relevant contrif 

one person or $5,000 per election froi 

U.S.C. §30116(a)(imjm(A) and (f 

(f)); 11 CFR §§1 and 11( 

imi 

: election cydtkfoyvhich this audit is 

i^were $2^d5^er election from any 

|te pWitical committee. 52 

rly>y5?C. §441a(aXl)(A), (2)(A) and 

ta). 

B. Handling Coi 

contribution that 

ins TJuit Appear Exc^ive. If a committee receives a 

e. dgcommittee must either: 

leciTRnheLdonor; or 

leral account and: 

monhv account to cover all potential refunds; 

explaining why the contribution may be illegal; 

planation on Schedule A if the contribution has to he 

e its legality is established; 

fbution or a redesignation of the excessive portion, following 

ions provided in the Commission regulations (see below for 

expltyi^tions of reattribution and redesignation); and 

• If the committee does not receive a proper reattribution or redesignation 

within 60 days after receiving the excessive contribution, refund the 

excessive portion to the donor. 11 CFR §§ 103.3(b)(3), (4) and (5) and 

110.1(k)(3)(ii)(B). 

C. Joint Contributions. Any contribution made by more than one person (except for a 

contribution made by a partnership must include the signature of each contributor on 

the check, money order, or other negotiable instrument or in a separate writing. A 

joint contribution is attributed equally to each donor unless a statement indicates that 

the funds should be divided differently. 11 CFR §110.1(k)(l) and (2). 
D. Reattribution of Excessive Contributions. The Commission regulations permit 

committees to ask donors of excessive contributions (or contributions that exceed the 

committee's net debts outstanding) whether they had intended their contribution to be 

a joint contribution from more than one person and whether they would like to 

reattribute the excess amount to the other contributor. The committee must inform 

the contributor that: 

• The reattribution must be signed by both contributors; 

• The reattribution must be received by the committee within 60 days after the 

committee received the original contribution; and 

• The contributor may instead request a refund of the excessive amount. 

11 CFR§110.1(k)(3). 

Within 60 days after receiving the excessive contribute 

receive the proper reattribution or refund the excessi 

§§ 103.3(b)(3) and 110.1(k)(3)(ii)(B). Further, a^til 

written records concerning the reattribution in^^^ 

§110.1(0(5). 

Notwithstanding the above, any excessive con 

instrument that is imprinted with the names of mdl 

attributed among the individuals n|ted.unless instrucl 

contributor(s). The conunittee mu^fin^hH^ach contril 

• How the contribution was attri 

• The contributor may instead requ^a i 

immittee must either 

the donor. 11 CFR 

must retain 

11 CFR 

I made off a written 

1 one individual may be 

lerwise by the 

(cessive amount. 

E. Redesignation oraxces! 

committee rec|i(^s^ ex< 

committee's net dd 

redesignpte-tbe^ce! 

conii»;Reenmu^|mfqmi 

le redesign^lioirmust 

Ijedesignati^i^st be 

The I 

I receive 

dbutor mai 

ontributio^. When an authorized candidate 

e contributim^r a contribution that exceeds the 

, the compimtee may ask the contributor to 

lution for use in another election. The 

itributorl 

by the contributor; 

iived by the committee within 60 days after the 

: ori^nal contribution; and 

. request a refund of the excessive amount. 

Within 60 daybi^tep^eiving the excessive contribution, the committee must either 

receive the prop^^rraesignation or refund the excessive portion to the donor. 11 CFR 

§ § 103.3(b)(3) aira 110.1 (b)(5)(ii)( A). Further, a political committee must retain 

written records concerning the redesignation in order for it to be effective. 11 CFR 

§110.1(0(5). 

When an individual makes an excessive contribution to a candidate's authorized 

committee, the campaign may presumptively redesignate the excessive portion to the 

general election if the contribution: 

• Is made before that candidate's primary election; 

• Is not designated in writing for a particular election; 

• Would be excessive if treated as a primary election contribution; and 
• As redesignated, does not cause the contributor to exceed any other contribution 

limit. 11 CFR § 110.1 (b)(5)(ii)(B)(l )-(4). 

The committee is required to notify the contributor of the redesignation within 60 

days of the treasurer's receipt of the contribution, and must offer the contributor the 

option to receive a refund instead. 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff utilized a combination o: 

focused reviews to identify apparent excessive contributions 

$77,094.^ All the excessive contributions ($77,094) were 

resolving the excessive portion of contributions by time 

to its contributors informing them how their contrib 

reattributed, or refunding the excessive contributi 

3le testing and 

indKiduals totaling 

Jt of KMFC not 

: a presumptive letter 

B. Interim Audit Report & Audit Divisioi 

The Audit staff discussed this matter during the 

fieldwork and provided KMFC representatives with 

contributions. The representatives a^^ds^estions rei 

reattribution and/or redesignation lettefsd^beould be issi 

projection. 

ignated and/or 

In response to the exit 

reattribution and redi 

apparent excessi 

had sent more presum^ 

projection. AgAjesult, 

ion 

at the conctAsion of 

lule of the apparent excessive 

J:he presumptive 

on the sample 

itted presumptive 

contributors relative to the 

ives provided evidence that it 

than identified in the sample 

excessive contributions, albeit untimely. 

that KMFC provide any comments it deemed 

C. Commih^ebAesponselolInterim Audit Report 

In response to^t];pInterim ^dit Report recommendation, KMFC disagreed with the 

Audit staffs conbi^imi,^ the presumptive letters were issued untimely. KMFC 

believes that it did unm^forward presumptive letters to its contributors informing them 

how their contributidiu had been redesignated and/or reattributed. KMFC further .stated 

that, because the issuance and tracking of the presumptive letters would have been 

handled by its prior treasurer, it could not prove with a degree of acceptable certainty that 

these letters were timely sent to contributors. 

^ The sample error amount was projected using a Monetary Unit Sample with a 95 percent confidence level 

plus the result of a focused review of contributions not included in the sample population. The sample 

estimate could be as low as S53,334 and as high as $130,427. 
The Audit staff maintains that, absent records to substantiate the presumptive letters were 

timely sent to its contributors, the corrective action taken by KMFC is untimely. 

Finding 2. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of KMFC's reported activity with its bank records 

identified misstatements in 2011 and 2012. In 2011, beginning cash-on-hand was 

overstated by $41,170, receipts were understated by $62,407, disbursements were 

overstated by $35,501 and ending cash-on-hand was understated ^$56,738. In 2012, 

only the beginning and ending cash-on-hand were misstated. cash-on-hand 

was understated by $56,738 and ending cash-on-hand was imdl^fetated by $73,397. 

However, subsequent to audit notification, KMFC filed anmSqa^^closure reports 

which materially corrected the misstatements identified ^the As such, 

KMFC has corrected the public record. In response^)j|emterim Ai,m!K^eport 

recommendation, KMFC noted that it has made or^izational change^^h^adopted new 

intemal procedures and safeguards to minimizsf^wire adn^istrative: 

Legal Standard 

Contents of Reports. 

Each report must disclose: 

• The amount of cash-on-hand at the 

• The total amount of receipts for the 

• The total amount of ^bt^irsements for 

• Certain transactionra{rt.re!^re itemizal 

Schedule B (Itgzlt^d Dis^i^ments). 5: 

(rtir 

(formerly 2 Us H(b) 

^and end orth^p^orting period; 

and ^fme election cycle; 

irtifag^p^iSd and election cycle; and 

^ on Schedule A (Itemized Receipts) or 

.S.C. §30104(b)(l), (2), (3), (4), and (5) 

U2).(3),(4):^(5)). 

Facts 

A. E? 

(ng^au^fieldwork, 

records foK^HJ and 2012> 

KMFC's 20HXclosure i 

why the discre^ 

iiudit J^sdf reconciled KMFC's reported activity with its bank 

: fmlowing chart outlines the discrepancies between 

3rts and its bank records. Succeeding paragraphs explain 

2011 Campaign Act^d^ 

Reported Bank Records Discrepancy 

Beginning Cash-on-Hand 

^ Januai7 1,2011 

$1,200,400 $1,159,230 $41,170 

Overstated 

Receipts $2,670,767 $2,733,174 $62,407 

Understated 

Disbursements $1,355,561 $1,320,060 $35,501 

Overstated 

Ending Cash-on-Hand 

^ December 31,2011 

$2,515,606 $2,572,344 $56,738 

Understated 
The $41,170 overstatement of beginning cash-on-hand likely resulted from prior-period 

discrepancies. 

The understatement of receipts resulted from the following. 

• Contributions from individuals and PACs, not reported 

• Contributions from individuals disclosed as memo entries 

• Unexplained difference 

Net Understatement of Receipts 

The overstatement of disbursements resulted from the following 

• Operating disbursements over reported (reported twice) 

• Disbursements not reported 

• Unexplained difference ' 

Net Overstatement of Disbursements 

The misstatements described above resulted in 

hand by $56,738. 

$ 41,000 

25,000 

(3.5931 

$ 62,407 

$ (46,912) 

11,067 

3M 

$ (35,501) 

ig cash-onFor 2012, KMFC understated its beginning cash-a 

ending cash-on-hand balance by $73,397. The um 

hand resulted from the discrepancies above d' 

understatement of its ending cash-on-1 

and political action committee contril 

rily resuli 

: by $56,79^ and its 

lent of its beginning cash-onidar year 2011. The 

)rted individual 

B. Interim Audit Rep 

The Audit staff discui 

fieldwork and pro 

based on disclosure 

reports filed su^bsequent 

amendme: 

such, tb^presental 

con 

^udit Divisi 

- during 

presentativ( 

1 filed liv KMFC prii 

The Interi 

relevant to thii! 

mnfU^ation 

exit comerence at the conclusion of 

ith reconciliations for 2011 and 2012 

audit notification and amended 

led the representatives that the 

jficatioirmatbrially corrected the misstatements. As 

:e any comments regarding this matter during the exit 

it Report roqommended that KMFC provide any comments it deemed 

C. Committee ReStao]^ to Interim Audit Report 

In response to the InjEnm Audit Report recommendation, KMFC conveyed that, prior to 

the audit notification, it had begun to undertake "corrective and prophylactic actions." 

KMFC engaged a new treasurer and new representatives including an outside Counsel 

and a new compliance firm. In addition, KMFC stated that it had adopted internal 

procedures and safeguards to minimize future issues.