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 Conmiission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

Interim Audit Report of the Audit 

Division on The Legacy 

Committee Political Action 

Committee 

January 1, 2007 - December 31, 2008 

About the Committee (p. 2) 

The Legacy Committee Political Action Committee is a 

nonconnected, multi-candidate committee headquartered in 

Laguna Niguel, Califomia. For more information, see the chart 

on Conmiittee Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Loans Received 

Total Receipts 

• Disbursements 

o Independent Expenditures 

o Operating Expenditures 

o Contributions to Federal Candidate 

Committees and Other Political 

Committees 

o Refunds of Contributions 

o Other Disbursements 

o Loan Repayments 

Total Disbursements 

$ 1,544,747 

5,000 

$ 1^49,747 

$ 1,162,464 

217,889 

47,250 

19,139 

12,853 

5,000 

$ 1,464,595 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Failure to File Notices and Properly Disclose Independent 

Expenditures (Finding 2) 

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

Audit Division on The Legacy 

Committee Political Action 

Committee 

January 1, 2007 - December 31, 2008 
Table of Contents 

Page 

Part I. Backgroimd 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 4 

Finding 2. Failure to File Notices and Properly Disclose Independent 

Expenditures 5 
Parti 

Background 

Authority for Audit 

This report is based on an audit of The Legacy Committee Political Action Committee 

(LCP) 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 intemal 

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 consistency between reported figures and bank records; 

2. the disclosure of individual contributors' occupation/name of employer; 

3. the disclosure of independent expenditures; and 

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

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration September 19,2006 

• Audit Coverage January 1,2007 - December 31,2008 

Headquarters Laguna Niguel, Califomia 

Bank Information 

• Bank Depositories One 

• Bank Accounts Two Checking Accounts 

Treasurer 

• Treasurer When Audit Was Conducted James V. Lacy 

• Treasurer During Period Covered by Audit James V. Lacy 

Management Information 

• Attended Commission Campaign Finance Seminar Yes 

• Who Handled Accounting and Recordkeeping Tasks Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ January 1,2007 $0 

Receipts 

o Contributions from Individuals 1,544,747 

o Loans Received 5,000 

Total Receipts $ 1,549,747 

Disbursements 

o Independent Expenditures 1.162,464^ 

o Operating Expenditures 217,889 

o Contributions to Federal Candidate 47,250 

Committees and Other Political Committees 

o All Other Disbursements 36,992 

Total Disbursements $ 1,464,595 

Cash-on-hand @ December 31,2008 $ 85,152 

^ This amount, as well as the amount for operating expenditures, may change as a result of the finding on 

page 5. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of LCP* s reported financial activity with its bank 

records revealed that, for 2008, LCP understated its reported receipts and disbursements 

by $32,411 and $25,529, respectively. The Audit staff recommends that LCP amend its 

reports to correct the misstatements. (For more detail, see p. 4) 

Finding 2. Failure to File Notices and Properly Disclose 

Independent Expenditures 

LCP disclosed independent expenditures totaling $1,159,647 on Schedule E (Itemized 

Independent Expenditures). During audit fieldwork, the Audit staff noted that only 

$412,891 of these expenditures appeared to meet the definition of independent 

expenditiire and contained language expressly advocating the election or defeat of a 

clearly identified candidate. Of these independent expenditures ($412,891): 

• LCP did not timely file 24/48-hour notices for $374,327 and did not file any 24-

hour notices for $17,491; and 

• LCP did not properly disclose independent expenditures totaling $294,570 made 

(i.e., publicly disseminated) prior to payment as "memo" entries on Schedule E 

and as a reportable debt on Schedule D (Debts and Obligations). 

If LCP believes that these expenditures did not require reporting as independent 

expenditures, the Audit staff recommends that it provide evidence to support that 

conclusion. Absent that, it is recommended that LCP submit and implement revised 

procedures for reporting independent expenditures. (For more detail, see p. 5) 
Part IV 

Findings and Recommendations 

I Finding 1. Misstatement of Financial Activity 

Summary 

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

records revealed that, for 2008, LCP understated its reported receipts and disbursements 

by $32,411 and $25,529, respectively. The Audit staff recommends that LCP amend its 

reports to correct the misstatements. 

Legal Standard 

Contents of Reports. Each report must disclose: 

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

• The total amount of receipts for the reporting period and for the calendar year; 

• The total amount of disbursements for the reporting period and for the calendar year; 

and 

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

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

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reconciled reported financial activity with bank 

records for calendar years 2007 and 2008. A misstatement of receipts and disbursements 

was identified for 2008. The following chart outlines the discrepancies. 

2008 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

@ January 1,2008 

$19,508 $19,365 $143 

Overstated 

Receipts $1,066,076 $1,098,487 $32,411 

Understated 

Disbursements $1,007,171 $1,032,700 $25,529 

Understated 

Ending Cash Balance 

©December 31, 2008 

$78,413 $85,152 $6,739 

Understated 

The understatement of receipts resulted from unidentified differences that occurred 

primarily in the second half of the year. Based on a limited review of available records, it 

appeared that all contributor information received by the vendor that processed deposits 
of contributions may not have been forwarded to the vendor responsible for the data 

entry. 

The understatement of disbursements resulted from the following: 

• Refunds of contributions not reported $ 18,152 

• Bank and credit card fees not reported 4,560 

• Independent expenditures not reported 2.817 

Understatement of disbursements $ 25.529 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff explained the misstatements and provided 

schedules to LCP's Treasurer and Assistant Treasurer. They agreed to amend their 

reports as necessary. 

The Audit staff recommends that, within 30 calendar days of service of this report, LCP: 

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

• Amend its most recently filed report to correct the cash-on-hand balance with an 

explanation that the change resulted from a prior period audit adjustment. 

Further, LCP should reconcile the cash balance of its most recent report to 

identify any subsequent discrepancies that may affect the adjustment 

recommended by the Audit staff. 

Finding 2. Failure to File Notices and Properly Disclose 

Independent Expenditures 

Summary 

LCP disclosed independent expenditures totaling $1,159,647 on Schedule E (Itemized 

Independent Expenditures). During audit fieldwork, the Audit staff noted that only 

$412,891 of these expenditures appeared to meet the definition of independent 

expenditures and contained language expressly advocating the election or defeat of a 

clearly identified candidate. Of these independent expenditures ($412,891): 

• LCP did not timely file 24/48-hour notices for $374,327 and did not file any 24-

hour notices for $17,491; and 

• LCP did not properly disclose independent expenditures totaling $294,570 made 

(i.e., publicly disseminated) prior to payment as "memo" entries on Schedule E 

and as a reportable debt on Schedule D (Debts and Obligations). 

If LCP believes that these expenditures did not require reporting as independent 

expenditures, the Audit staff recommends that it provide evidence to support that 

conclusion. Absent that, it is recommended that LCP submit and implement revised 

procedures for reporting independent expenditures. 
Legal Standard 

A. Definition of Independent Expenditures. The term "independent expenditure" 

means an expenditure by a person for a communication expressly advocating the election 

or defeat of a clearly identified candidate that is not made in coordination with any 

candidate or authorized committee or agent of a candidate. 1ICFR § 100.16. 

B. Disclosure Requirements - General Guidelines. An independent expenditure shall 

be reported on Schedule £ if, when added to other independent expenditures made to the 

same payee during the same calendar year, it exceeds $200. Independent expenditures 

made (i.e., publicly disseminated) prior to payment should be disclosed as "memo" 

entries on Schedule E and as a reportable debt on Schedule D. Independent expenditures 

of $200 or less do not need to be itemized, though the committee must report the total of 

those expenditures on line (b) on Schedule E. 11 CFR §§104.3(b)(3)(vii), 104.4(a) and 

104.11. 

C. Last-Minute Independent Expenditure Reports (24-Hour Notices). Any 

independent expenditures aggregating $1,(X)0 or more, with respect to any given election, 

and made after the 20^ day but more than 24 hours before the day of an election must be 

reported and the report must be received by the Commission within 24 hours after the 

expenditure is made. A 24-hour notice is required each time additional independent 

expenditures aggregate $1,000 or more. The date that a communication is publicly 

disseminated serves as the date that the committee must use to determine whether the 

total amount of independent expenditures has, in the aggregate, reached or exceeded the 

threshold reporting amount of $1,000. 11 CFR §§ 104.4(f) and 104.5(g)(2). 

D. Independent Expenditure Reports (48-Hour Notices). Any independent 

expenditure aggregating $10,000 or more with respect to any given election, at any time 

during a calendar year, up to and including the 20di day before an election, must be 

disclosed within 48 hours each time the expenditures aggregate $10,000 or more. The 

notices must be filed with the Commission within 48 hours after the expenditure is made. 

11 CFR §§104.4(f) and 104.5(g)(1). 

Facts and Analjrsis 

A. Facts 

Initially, LCP disclosed all expenditures as operating expenditures (Schedule B, Line 

21(b)). During 2008, LCP received notices from the Commission's Reports Analysis 

Division (RAD) questioning whether any of the expenditures, e.g., "Printing," were for 

public commimications containing express advocacy. LCP*s Treasurer acknowledged 

that some of the communications contained express advocacy but contended that the 

purpose of the communication was fundraising. RAD advised LCP that if the 

communication contained express advocacy, LCP should amend its reports to disclose the 

expenditures as independent expenditures. Subsequently, LCP filed the requested 

amended reports. 

LCP disclosed independent expenditures totaling $1,159,647 on Schedule E. During 

audit fieldwork, it was noted that most of these disbursements were for the printing and 
postage of direct mail solicitation letters and were disclosed as either in support of John 

McCain for President or in opposition to Hillary Clinton or Barack Obama for President. 

The Audit staff reviewed these expenditures to determine if they were properly reported 

on Schedule E and to determine if LCP filed the required 24/48-hour notices. The review 

noted that only $412,891 of these expenditures appeared to meet the definition of an 

independent expenditure and contained language expressly advocating the election or 

defeat of a clearly identified candidate. A review of the direct mail pieces and invoices 

for those expenditures ($412,891) revealed the following: 

• LCP did not timely file 24/48-hour notices of its independent expenditures for 

$374,327. In addition, LCP did not file any 24-hour notices for $17,491 of these 

expenditures. 

• LCP reported the independent expenditures when the invoices were paid. 

However, most of these payments were weeks or months after the dissemination 

date of the printed material. For expenditures totaling $294,570, LCP should 

have disclosed independent expenditures as memo entries on Schedule E, filed 

with reports covering the dates when the materials were disseminated, and 

included a corresponding debt on Schedule D. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff addressed these matters at the exit conference and provided appropriate 

schedules to LCP representatives. The Audit staff indicated that, at this time, no 

amended reports were necessary to correct the reporting of the independent expenditures 

or to address the 24/48-hour notices that were not filed or not filed timely. LCP 

representatives stated that they will review these schedules. 

The Audit staff recommends diat, within 30 calendar days of service of this report, LCP 

take the following action: 

• Provide any documentary evidence that would demonstrate that these 

disbursements were not independent expenditures and therefore did not require 

24/48-hour notices; and 

• Submit and implement revised procedures for reporting independent expenditures, 

as well as for tracking dissemination dates for such expenditures, in order to allow 

for timely filing of 24/48-hour reporting notices.