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 the 

Commission to conduct 

audits and field 

investigations of any 

political committee diat 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 die Act^ The audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

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) 

Hany Teague for Congress is the principal campaign committee 

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

Representatives from the 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 

0 Contributions from Individuals $ 1,349,867 

o Loans from Candidate 1,764,573 

0 Contributions from Odier 

Political Committees 365,337 

o Other Receipts 56 

o Total Receipts $3,479^33 

• Disbursements 

Q Operating Expenditures 

o Loan Repayments 

o Contribution Refunds 

o Total Disbursements 

$ 3,415,047 

50,000 

2,250 

$3,467^97 

Finding and Recommendation (p. 3) 

• Misstatement of Financial Activity 

2U.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 

Parti. Background 

Authority for Audit 1 

Scope of Audit 1 

Partn. Overview of Campaign 

Campaign Organization 2 

Overviewof Financial Activity 2 

Part ni. Summary 

Finding and Recommendation 3 

Part IV. Finding and Recommt^ndation 

Misstatementof Financial Activity 4 
Parti 

Background 

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 Conunission) in accordance with 

die 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 Conunission to 

conduct audits and field investigations of any political comtoitfee that is requured 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 Se^ by selected committees to 

determine if the reports filed by a particular commftteeineet ^ threshold requirements 

for substantial compliance widi die Act. 2 U.j^.C>038(b). 

Scope of Audit 

FoUowuig Commission-approved procedures, the Audit st^ evaluated yldd|ous risk 

factors and as a result, fhe scope of this audit liixiited t|>&e followmg: ^ \ 

1. The receipt and permissibility Ipans. i ^ 

2. The consistency between repoiled figures and ban{^ records. 

3. The disclosure of individual contributors' occupation 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, N(^iy Mexico 

Bank Information 

• Bank Depositories One a 

• Bank Accounts Olid checking acejbuiht 

Treasurer 

• Treasurer When Audit Was Conducted Teresa Arsiaga 

• Treasurer During Period Covered by Audit tlari^aldwb 

Management Infomiation 

• Attended FEC Campaign Finance Semink No 

• Used Commonly Available Campaign 

Management Softwa^ Padca^^ ^ 

Yes .. 

• Who Handled Accounting and Recordkeeping . 

Tasks 

PaidSmif 

Ch%rview of Fiiiiuicial Activity 

(Audited Amounts) 

Cash on hand @ October HZmfl $0 

Receipts ZZZ"^ 

o Contribution^ frdm Indivicl\i|als $1,349,867 

o Loans from Candidate ' 1.764.573 

0 Contributions from Q^ r Political 

Committees ' ' 365,337 

o Other Receipts 56 

Total Receipts $3,479,833 

Disbursements 

0 Operating Expenditures $3,415,047 

o Loan Repayments 50,000 

o Contribution Refunds 2,250 

Total Disbursements $3^67,297 

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

Summary 

Finding and Recommendation 

BUsstatement of Financial Activity 

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

calendar year 2008, HTFC understated disbursements by $5^,472 and overstated its 

endmg cash on hand by $91,555. It appears that the nii^sfaiement was due to the 

misreportmg of disbursements and an incorrect cash balioti^on die 2008 Pre-General 

report which was carried forward onto subsequent rq^fts. KTFC fUed amended reports 

during audit fieldwork diat materially corrected t^se misstatements. 

The Audit staff recommended that HTFC p^vide any additional con^iSN^ts diey had on 

this matter. In response to the interim audit report, HTFC Counsel states that widi die 

exception of a technical correction, HTFC does l^pt object tp^^die report. He points out 

diat although a loan repayment to ihe Candidate wa$ originally reported as a memo entry, 

resultmg in an incorrect cash on Hand |%ure, this trans^on had still been fiilly disclosed 

to both the Commission and the public. (F(H: iQore detail, sjee p- 4) 
Part IV 

Finding and Reconrniendation 

I 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 diat fhe misstatement was due to the 

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

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

during audit fieldwork that materially corrected fhpse misstatements. 

The Audit staff recommended that HTFC fmaivide any additional comments diey had on 

diis matter. In response to the mterim audit report, HTFC Counsel states that with fhe 

exception of a technical correction, HTFC does not object to the report. Hei pomts out 

diat although a loan repayment to the Candidate W93 otiginally reported as a memo entry, 

resulting in an incorrect cash on hatld^gure, this traaisaotion had still been fully disclosed 

to both the Commission and die public. 

Legal Standard 

Contents of Reports. Eadi report must disclose: ' 

• The amount of ^ h on hand ^t the beginning and end of die reporting period; 

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

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

and 

• Certam transactions diat t)ec[uu:e itemization on Schedule A (Itemized Receipts) or 

Sch^ule 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 mfiuencing any 

election for Federd office is a contribution. The term "anydimg of value" includes all inkind contributions. Each in-k|nd contribution shall be reported as both a contribution and 

expenditure in accord^? witii 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 the latest amended 

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

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

Reported' Bank Records Discrepancy 

Openuig 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 $J2,537 ($91,555) 

Overstated 

The understatement of disbursements resulted frpni. fhe following: 

• Incorrecdy reported loan repayment to Caifdidate $50,000 

• In-kind contributions from Candidate, not reported 

as disbursements $ 9,573 

• Disbursement checks reported and subsequentiy 

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

• Unexplained difference , ($ 56) 

Net understatement of disl>ur$einents $ 58.472 

The $91,555 overstatement of endmg cash resulted primarily fh?m die misstatement of 

disbursements noted above $nd a $32,458 oversti^ment of the ending cash balance on 

the 2008 Pre-Genei^ report dikt was carried forwsurd onto Subsequent reports. 

HTFC*s representatives were i]i|ormed of this matter at an exit conference held at the 

close of audit fieldwork wid ^bseciuenUy, schedules were provided detailing the 

discn^ai^es. In a^written response to th^ exit coherence, HTFC counsel (Counsel) 

noted Aiat this was the Candidate's first ruii for office and that "[t]he Committee lacked 

acciess to an experienced'^ractitione^ to prepare the reports. Many of die initial errors 

made ul the reports were ()ue^ to the complexities of reporting transactions related to loans 

made to fhe^ campaign." 

Counsel commented that die c ^ on hand balance problem on the 2008 Pre-General 

report resulted from ^p^ne timing issues relative to amendments fded m 2(X)9. He added 

diat there was some cissgo^h in conununications between the Reports Analysis Division 

staff and HTFC staff reUtive to die reporting of a $50,000 loan repayment to die 

Candidate which resulted m the transaction being improperly disclosed as a memo entry. 

Regarding the disclosure of in-kmd contributions from the Candidate, Counsel 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, totalmg 

$9,573. On the original reports, these three payments were disclosed as loans received 

^ 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. 
6 

from the Candidate. Eventually, these loans were forgiven resulting in these items 

becoming m-kind contributions from die Candidate. Prior to audit fieldwork, HTFC filed 

amended reports disclosing the disbursements-side of these in-kind contributions as 

memo entries. The Audit staff notes that it was necessary for equal amoimts to be 

disclosed for both receipts and disbursements for these in-kind contributions and diat by 

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

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

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

which was then carried through to fhe most recentiy filed report. 

Interim Audit Report Recommendation aa^ Committee Response 

In die interim audit report, die Audit staff reconmi^id^ diat jHTTFC provide any 

additional comments diey had on this matter. In its cespons^ inpc Counsel reiterated 

that Congressman Teague had been a first time candidate during the 2(X)8 election cycle 

and HTFC did not have anyone with prior experience m submitting reports to fhe 

Conunission. He added that this resulted in the sole findmg in the repKMt ^^d that steps 

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

HTFC Counsel stated diat with the exception of a tep^cial correction, HTFC did not 

object to the mterim audit report. Consist ppmted out th^ aldiough the loan repayment 

to the Candidate was originally repOiM sts a teemo entry, t^ulting in an incorrect cash 

on hand figure, this transaction had stU) been fiiljy disclosed fo^both the Commission and 

the public. The Audit stiff l^ees that the loan rq)aymeQt.had been disclosed, albeit as a 

memo entry, and diat the amendments filed duHng audit fieldwork materially corrected 

the misstatements noted above.