Interim Audit Report of the 

Audit Division on 

Canseco for Congress 

(January 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 for 

substantial compliance 

with the Act.' The audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of the 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) 

Canseco for Congress is the principal campaign committee for 

Francisco R. Canseco, Republican candidate for the U.S. House 

of Representatives from the State of Texas, 23"* District, 

headquartered in San Antonio, Texas. For more information, see 

the chart on the Campaign Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o From Individuals 

o From Other Political 

Committees 

o Candidate Loans 

o Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Repayment of Candidate Loans 

Total Disbursements 

$ 1,006,533 

316,035 

578,429 

9,794 

5 1,910,791 

$ 1,467,834 

363,505 

S 1,831,339 

Findings 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). 
Interim 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 1 

Scope of Audit 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contributions 4 

Finding 2. Receipt of Contributions that Exceed Limits 7 

Findings. Misstatement of Financial Activity 9 
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 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 this subsection, the 

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

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

for substantial compliance with 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, this audit examined: 

1. the receipt of excessive contributions and loans; 

2. the receipt of contributions from prohibited sources; 

3. the disclosure of contributions received; 

4. the disclosure of individual contributors' occupation and name of employer; 

5. the consistency between reported figures and bank records; 

6. the completeness of records; and 

7. other committee operations necessary to the review. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration January 7,2004 

• Audit Coverage January 1,2009 - December 31,2010 

Headquarters San Antonio, Texas 

Bank Information 

• Bank Depositories Two 

• Bank Accounts Two Checking Accounts 

Treasurer 

• Treasurer When Audit Was Conducted Randy Blair 

• Treasurer During Period Covered by Audit Randy Blair 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Who Handled Accounting arid 

Recordkeeping Tasks 

Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ January li 2009 S 0 

Receipts 

o From Individuals 1,006,533 

o From Other Political Committees 316,035 

a Candidate Loans 578,429 

o Other Receipts 9,794 

Total Receipts S 1,910,791 

Disbursements 

o Operating Expenditures 1,467,834 

o Repayment of Candidate Loans 363,505 

Total Disbursements $ 1,831339 

Cash-on-hand @ December 31,2010 S 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 

appear to be prohibited contributions from a foreign national. CFC stated that these 

transactions were loans from the Candidate, but the funds appear to have originated from 

the account of a foreign corporation. CFC later indicated these funds represented draws 

from partnership capital accounts of the Candidate and his sister. Although untimely, 

CFC has refunded $44,605 of the $100,000 in apparent prohibited contributions. The 

Audit staff recommends that CFC provide documentation demonstrating that the 

Candidate made the loans from his personal funds or that CFC refund the remaining 

$55,395 in apparent prohibited contributions, and amend its reports to properly disclose 

the source of funds for these loans. (For more detail, see p. 4) 

Finding 2. Receipt of Contributions that Exceed Limits 

During audit fieldwork, the Audit staff identified contributions exceeding contribution 

limits by $170,343. Of this amount, $147,600 is from a personal loan made by an 

individual to the Candidate which is considered to be a contribution. The check was 

deposited directly into CFC's account. The Audit staff recommends that CFC refund the 

amount that exceeds the contribution limits and amend its reports to properly disclose 

these contributions. (For more detail, see p. 7) 

Finding 3. Misstatement of Financial Activity 

During audit fieldwork, a comparison of CFC's reported financial activity with its bank 

records revealed misstatements of beginning and ending caslv-on-hand for calendar years 

2009 and 2010, as well as misstatements of receipts and disbursements for calendar year 

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

by $990, understated disbursements by $16,897, and overstated ending cash-on-hand by 

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

cash-on-hand by $61,512. The Audit staff recommends that CFC amend its reports to 

correct the misstatements. (For more detail, see p. 9) 
Part IV 

Findings and Recommendations 

I Finding 1. Receipt of Apparent Prohibited Contributtoas | 

Summary 

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

appear to be prohibited contributions from a foreign national. CFC stated that these 

transactions were loans from the Candidate, but the funds appear to have originated from 

the account of a foreign corporation. CFC later indicated these funds represented draws 

from partnership capital accounts of the Candidate and his sister. Although untimely, 

CFC has refunded $44,605 of the $100,000 in apparent prohibited contributions. The 

Audit staff recommends that CFC provide documentation demonstrating that the 

Candidate made the loans from his personal fimds or that CFC refund the remaining 

$55,395 in apparent prohibited contributions, and amend its reports to properly disclose 

the source of funds for these loans. 

Legal Standard 

A. Receipt of Prohibited Contributions - General Prohibition. Candidates and 

committees may not accept contributions (in the form of money, in-kind contributions, or 

loans); 

• In the name of another; 

• From the treasury funds of the following sources: 

o Corporations (i.e., any incorporated organization, including a non-stock 

corporation, an incorporated membership organization, and an 

incorporated cooperative); 

o Labor Organizations; and 

o National Banks; 

• From Federal Government Contractors (including paitnerships, individuals, and 

sole proprietors who have contracts with the federal government); or 

• From Foreign Nationals (including individuals who are not U.S. citizens and not 

lawfully admitted for permanent residence; foreign governments and foreign 

political parties; 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)). 2U.S.C.§§441b,441c,441e,and441f. . 

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

CFR §§ 100.72 and 100.73), 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 11.0. 11 CFR § 100.52(a) and (b). 

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

contribution irom 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 of option 2 above, it must reduce 

only the contributing partners' profits (or increase their losses) and the profits must be 

reduced in proportion to the contribution attributed to the partner. Under both options 

listed above, the portion attributed to each partner must not, when aggregated with other 

contributions from that person, exceed his or her contribution limit. 11 CFR § 110.1(e). 

D. Questionable Contributions. If a committee receives a contribution that appears to 

be prohibited (a questionable contribution), it must follow the procedures below: 

• Within 10 days after the treasurer receives the questionable contribution, the 

committee must either: 

o Return the contribution to the contributor without depositing it; or 

o Deposit the contribution (and follow the steps below). 

11 CFR § 103.3(b)(1). 

• If the committee deposits the questionable contribution, it may not spend the 

funds and must be prepared to refund it. Therefore sufficient funds to make the 

refunds must be maintained or a separate account in a campaign depository must 

be established for possibly illegal contributions. 11 CFR § 103.3(b)(4). 

• The committee must keep a written record noting the basis for the appearance of 

illegality, and it must include this information wheti reporting the receipt of the 

contribution. 11 CFR § 103.3(b)(5). 

• Within 30 days of the treasurer's receipt of the questionable contribution, the 

committee must make at least one written or oral request for evidence that the 

contribution is legal. Evidence of legality includes, for example, a written 

statement from the contributor explaining why the contribution is legal or ah oral 

explanation that is recorded by the committee in a memorandum. 

llCFR§103.3(b)(l). 

• Within the 30-day period, the conunittee 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 the period in which the refund was made. 

11 CFR§103.3(b)(l),(5). . . 

E. 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 applicable 

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 funds 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. 

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

expenditures from personal funds as defined in 11 CFR § 100.33. 11 CFR § 110.10. 

G. Reporting Loans. All loans received by a conunittee 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. 

Facts and Analysis 

A. Facts 

During audit fieldyvork, the Audit staff noted two transactions totaling $100,000 that 

appear to be prohibited contributions from a foreign national. 

On January 29,2010, $14,000 was transferred into a CFC bank account. This transaction 

was not disclosed on CFC s reports. A CFC representative stated that this amount was a 

loan to the Candidate from his partnership. CFC provided a letter stating that the loan 

was made to the Candidate from Inmuebles Caza, S.A. de C.V. (Caza), which is wholly 

owned by Canseco Investments, Ltd., of which the Candidate is a limited partner. CFC 

also provided several e-mails between other partners and from the president of Caza, 

which taken together explain that this amount was borrowed from Caza based on the 

Candidate's capital account in the partnership. Audit staff was unable to review bank 

documentation relating to the source of this loan because it came from an account that 

was not owned by CFC. No repayments were made on this loan. 

On April 13,2010, a deposit of $86,000 was made to 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 remitt^ by Caza. CFC 

provided two promissory notes showing that $58,000 was a loan to the Candidate from 

his sister, and $28,000 was a loan to the Candidate from Canseco Investments, Ltd. The 

emails described in the preceding paragraph also explain that these amounts represent the 

balance of each partner's capital account in Caza. Of the $86,000 considered as an 

apparent prohibited contribution, $44,605 was untimely repaid to the Candidate, with the 

first of tluee payments being made on August 3,2010,112 days after the loan was . 

received. 

Caza appears to be a foreign corporation registered in Mexico. The Texas Secretary of 

State shows that Canseco Investments, Ltd. is registered as a limited partnership and is 

wholly owned by FMC Developers, Inc., a corporation. The Audit s^ concluded that 

the amounts of $14,000 and $86,000 represent apparent prohibited contributions fh)m a 

foreign national. Although CFC maintained that the loans represented personal 

investments in the partnership, there was no documentation provided to support that these 

were distributions to partners from Canseco Investments, Ltd. Furthermore, the business 

registration of Canseco Investments, Ltd. does not indicate whether any of these 

individuals are partners; the only registered partner is a corporation. 
B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff presented these apparent prohibited contributions 

to CFC. CFC representatives said that they would take another look at this matter. 

The Audit staff recommends that, within 30 calendar days of receipt of this report, CFC 

demonstrate that the loans were made with the Candidate's personal funds or other 

permissible funds. Absent such a demonstration, CFC should: 

• Refund the $ 14,000 apparent prohibited contribution and amend its reports to 

correctly disclose this loan; and 

• Refund S41,395 remaining of the $86,000^ apparent prohibited contribution and 

amend its reports to correctly disclose this loan. 

Finding 2. Receipt of Contributions that Exceed Limits 

Summary 

During audit fieldwork, the Audit staff identified contributions exceeding contribution 

limits by $ 170,343. Of this amount, $ 147,600 is from a personal loan made by an 

individual to the Candidate which is considered to be a contribution.^ The check was 

deposited directly into CFC's account. The Audit staff recommends that CFC refund the 

amount that exceeds the contribution limits and amend its reports to properly disclose 

these contributions. 

Legal Standard 

A. Contribution Limits. During the 2009-2010 cycle, no individual or group (other than 

a multicandidate committee) was permitted to contribute more than a total of $2,400 per 

election to a federal candidate's campaign (the campaign includes the candidate and his 

or her agents and authorized committees). 2 U.S.C. § 441a (a)(1)(A). 

« 

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

CFR §§ 100.72 and 100.73), 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 fix)m that 

individual to that candidate or committee, shall not exceed the contribution limitations set 

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

C. Handling Contributions That Appear Excessive. If a committee receives a 

contribution that appears to be excessive, the committee must either: 

• Return the questionable contribution to the donor; or 

^ If the Committee shows that all or a portion of the S86,000 was made with peimissibie fiinds, it would 

likely result in an excessive contribution instead of a prohibited contribution. In this case, the Audit staff 

would recommend that CFC refund the remaining excessive portion of the contribution. 

' The remaining amount of excessive contributions, $22,743, is later discussed as a part of this finding. 
• Deposit the contribution into a campaign depository and keep enough money on 

account to cover ail potential refunds until the legality of the contribution is 

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

D. Personal Funds. Personal funds include 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(b). 

£. 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. 

Facts and Analysis 

A. .Facts. 

During audit fieldwork, the Audit staff noted three transactions that appear to be 

excessive contributions from individuals. The total amount that exceeds the individual 

contribution limit is $170,343. 

On April 27,2010, a deposit of $150,000 was made to the CFC 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 the Candidate on CFC's reports. 

The Audit staff requested documentation showing that this loan was made with the 

Candidate's personal funds. CFC representatives responded that the funds were derived 

from the sale of the Candidate's stock. Later, CFC representatives stated that this was a 

personal loan made to the Candidate and provided a promissory note from the individual, 

which was signed only by the Candidate. 

However, according to Commission regulations, since the funds were deposited into 

CFC's account and used for campaign activity, the Candidate is considered to have 

received the loan as an agent of the Committee^. Furthermore, all loans, except those 

made by fmancial institutions in the ordinary course of business, are consider^ to be 

contributions^. Therefore, absent further explanation and documentation, this, transaction 

results in an excessive contribution of $147,600 from the individual 

It is noted that CFC disclosed a repayment of $10,000 to the Candidate on April 28,2010 

in cormection with the reported $150,000 loan. However, documentation has not been 

provided to substantiate that funds were remitted to the actual contributor. 

On December 10 and 18,2009, $22,000 and $8,000, respectively, were transferred into 

the CFC bank account from the Candidate's personal bank account. These transactions 

were not disclosed on CFC's reports. CFC stated that these amounts represented loans 

from the Candidate. However, additional documentation provided by CFC showed that 

* 2 U.S.C.§ 432(e)(2). 

®2U.S.C.§431(8)(B)(vii). 
the funds used to make these transfers did not come from the Candidate's personal funds, 

but from personal loans individuals made to the Candidate, which were 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 determined that the funds 

transferred to CFC ($22,000 and $8,000) could only have come from three individuals. 

Absent further documentation and explanation, CFC's receipt of these firnds results in 

contributions by three individuals that exceed contribution limits by $22,743. 

B. Interim Audit Report & Audit Division Recommendation 

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

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

CFC representatives stated that the Candidate had already repaid some of the 

contributions which comprised the $22,000 and $8,000 loans, and the Audit staff 

commented that CFC may need to make further refunds. Repayments made by the 

Candidate to these individuals have not been reported by CFC nor has documentation to 

support the repayments been received by the Audit staff. 

The Audit staff recommends that, within 30 calendar days of receipt of this report, CFC 

should demonstrate that the contributions were not excessive or originated from the 

Candidate's personal funds. Absent such a demonstration, CFC should: 

• Refund the excessive contribution of $ 147,600 or provide documentation showing 

that refunds have been made already. CFC should also amend its reports to 

conectly disclose the source of funds for this loan and provide evidence that the 

refund check was negotiated by the contributor. 

• Refund the excessive contributions totaling $22,743 or provide documentation 

showing that refunds have been made already. CFC should also amend its reports 

to properly disclose these transactions and provide evidence that the refunds 

checks were negotiated by the contributor. 

Finding 3. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of CFC's reported financial activity with its bank 

records revealed misstatements of begiiuiing and ending cash-on-hand for calendar years 

2009 and 2010, as well as misstatements of receipts and disbursements for calendar year 

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

by $990, understated disbursements by $16,897, and overstated ending cash-on-hand by 

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

cash-on-hand by $61,512. The Audit staff recommends that CFC amend its reports to 

correct the misstatements. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• The aniount of cash-on-hand at the beginning and end of the reporting period; 

• The total amount of all receipts for the reporting period and for the election cycle; 
10 

• The total amount of all disbursements for the reporting period and for the election 

cycle; and 

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

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

Facts and Analysis 

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. 

2009 Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2009 

$ 32,344 $ 0 $ 32,344 

Overstated 

Receipts $160,551 $159,561 $ 990 

Overstated 

Disbursements $101,630 $118,527 $ 16,897 

Understated 

Ending Cash Balance 

@ December 31,2009 

$ 91,265 $ 41,034 $ 50,231 

Overstated 

The beginning cash balance on January 1,2009, was overstated by $32,344. This 

overstatement is unexplained, but likely resulted from prior-period discrepancies. 

The overstatement of receipts resulted from the following: 

• Contributions from individuals not reported $ 1,000 

• November and December loans from the Candidate and individuals 

not reported 51,179 

• Reported contributions from individuals not supported by 

deposits (2,025) 

• September loan reported from the Candidate not supported by 

deposit (50,000) 

• Unexplained difference fl.144') 

Net Overstatement of Receipts $ f990'> 

The supporting information available indicated that the misreported loan transactions for 

September were unrelated to those for November and December. 

The understatement of disbursements resulted from the following: 

• Operating expenditures/reimbursements of expenses not reported $ 27,761 

• Reported operating expenditures not supported by a check or debit f10.864^ 

Net Understatement of Disbursements $ 16.897 
11 

CFC overstated the ending cash balance on December 31,2009, by S50,231 as a result of 

the misstatements described above. As a result of the above discrepancies, as well as 

other minor discrepancies during 2010, CFC overstated the ending cash balance on 

December 31,2010, by $61,512. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided the CFC representatives with a list of 

discrepancies and report adjustments. The CFC representatives acknowledged the 

adjustments and asked when they should file the amendments. 

The Audit staff recommends that, within 30 calendar days of receipt of this report, CFC 

should: 

• Amend its reports to correct the misstatements noted above; and 

• Amend its most recently filed report to correct the cash-on-hand balance. The 

Audit staff also recommends that CFC reconcile the cash balance of its most 

recent report to identify any subsequent discrepancies that may affect adjustments 

recommended by the Audit staff.