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.^ The audi? 

determine: 

committffi^omplT 

the lumtwons, 

prombitiqr^nd 

disclosur^^rements 

of the Act. 

About the Campaign 

Kevin McCarthy for Congress J 

committee for Kevin McC: 

U.S. House of Represem 

Congressional Distri 

California. For 

Organization cl 

Financ 

• Receipts 

ntributions 

utions 

jncipal campaign 

ipublican candidate for the 

state of California, 23"" 

red in Bakersfield, 

Campaign 

^Disbursements 

Operating Expenditures 

Contribution Refunds 

Other Disbursements 

Total Disbursements 

$ 1,923,173 

2,422,238 

263,000 

27,616 

21,298 

S 4,657,325 

$2,240,241 

41,692 

1,710,453 

$ 3,992,386 

Future Actim 

The Commission 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

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 1. 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 Recomm^^ati 

Finding I. Receipt of Contributions in the 

Finding 2. Misstatement of Financial Activity 
Parti 

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 fjdT^nvestigations of any 

political committee that is required to file a report under 52 lJJut^7§^]04 (formerly 2 

U.S.C. §434). Prior to conducting any audit under this subsd^RkL the Commission must 

perform an internal review of reports filed by selected CQmmitteeis^determine if the 

reports filed by a particular committee meet the thres)n;m^uiremqm substantial 

compliance with the Act. 52 U.S.C. §30111(b) (foijfign^ U.S.C. m^). 

Scope of Audit 

Following Commission-approved procedures, the 

factors and as a result, this audit examined: 

1. the receipt of excessive contribut 

2. the receipt of contributions from pi 

3. the disclosure of contributions recei 

4. the disclosure of disbursements, debt 

5. the disclosure of IndividnaLcontributoi 

6. the consistency 

7. the completen^ 

8. other committee 

lurces; 

us risk 

name of employer; 

cords; 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration March 10,2006 

• Audit Coverage January 1,20IL^^^'^^ber31,2012 

Headquarters BakersfieldJ^isl^rnia 

Bank Information X X 

• Bank Depositories Six W 

• Bank Accounts Tv/j^i^!S8tHng, Four 

Treasurer /«r V 

• Treasurer When Audit Was Conducted ^ 'JV14^omspPs(Pctober 12,2^ ^present) 

• Treasurer During Period Covered by Audit Rayiqdhd^rp^ ^ 

(AuguKA^OO? - October 11,2012) 

Jill Thom^OTsipctober 12,2012 - present) 

Management Information 

• Attended Commission Campaign Financ^ 

Seminar ^ 

• Who Handled Accountujg^chv Vi 

Recordkeeping TasksV^ > 

^aid Sta^p/ 

idite« 

Incial Activity 

Casb-ofTihiiii^)^ January \ 2011 J/^ S 1,159,230 

Receipts X \ V ) 

o Contribu^liqp^rom IndMduals 1,923,173 

o Contributioi^J?^ Pogncal Committees 2,422,238 

o Transfers from Apt^ized Committees 263,000 

o Offsets to Operate Expenditures 27,616 

o Other Receipts 21,298 

Total Receipts $ 4,657,325 

Disbursements 

o Operating Expenditures 2,240,241 

o Contribution Refunds 41,692 

o Other Disbursements 1,710,453 

Total Disbursements $ 3,992,386 

Cash-on-hand @ December 31,2012 $ 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 india^ed that KMFC 

received apparent excessive contributions totaling $77,094. UTtatTSiVors occurred as a 

result of I6^FC not resolving the excessive portions of conp4bl^ns by forwarding a 

presumptive letter to the contributor or issuing a refund ip^rumi^smanner. In response 

to the exit conference following fieldwork, KMFC pi^i^ copiea,^f^resumptive letters 

that were sent to the contributors. As a result, KMG^^n^resolved t^eK^essive 

contributions, albeit in an untimely manner. In iXK^nse to the Interini^oHik Report 

recommendation, KMFC stated that it believj|uhHpresui?^ve letters vvete|^^to its 

contributors in a timely manner; however, it cannbyhiQve^Qj^action was tglren with a 

degree of acceptable certainty. (For more detail, se^ 

Finding 2. Misstatemen 

During audit fieldwork, a comparison o 

identified misstatements in 2011 and 20f 

overstated by $41,170, repeats were und 

overstated by $3S,S0 

only the beginninR^fidsSnding 

was understated by^^^^S am 

However, subsequent to 

which mate^lyg&rtqcted 

KMFC^t^K^rrectbimb^ubr 

recqglmw^ation. KMFC i^ted 

intemabp^edures and 

detail, see 

incial 2Vdt;|idty 

sited a^^^ with its bank records 

In ^^Cbegipnlre cash-on-hand was 

by $88u4^ disbursements were 

cash-on-h^d was uni»stated by $56,738. In 2012, 

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

ding cash-ol^K^d was understated by $73,397. 

filed amended disclosure reports 

isstatemaotirTdentified by the Audit staff. As such, 

rd. In response to the Interim Audit Report 

s made organizational changes and adopted new 

minimize future administrative issues. (For more 
Part IV 

Findings and Recommendations 

Finding 1. Receipt of Contributions in Excess of the Limit 

Summary 

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. The&^gmrs occurred as a 

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

presumptive letter to the contributor or issuing a refund in a^mh[y manner. In response 

to the exit conference following fieldwork, KMFC prov|d^co|ve^f presumptive letters 

that were sent to the contributors. As a result, KMFC^jim^esolveh^flhrexcessive 

contributions, albeit in an untimely manner. In respjkis^ me IntermQv^it Report 

recommendation, KMFC stated that it believes tmtpresumptive lettersWhs^ntto its 

contributors in a timely manner; however, it odwotjirove wch 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 fro? 

U.S.C. §30116(a)(l)rA)r(^(A) and (f 

tie election dycl^'oyvhich this audit is 

I were $2S0^er election from any 

. mumcj^ttidate oWitical committee. 52 

ferly!NJ>;C. §441a(a)(l)(A), (2)(A) and 

(f)); 11 CFR §§11J 

B. Handling Contri 

contribution that ap{ 

Reici^Jllg^tte^ion 

3sit the^i^^into 

ns Thm Appear Ei live. If a committee receives a 

Tcommittee must either: 

EheclTRrtiheulonor; or 

deral account and: 

Keep ei^^monbvl&^e account to cover all potential refunds; 

Keep a wrlit^ reccjjpdexplaining why the contribution may be illegal; 

iclude thisWplanation on Schedule A if the contribution has to be 

jized berve its legality is established; 

jution or a redesignation of the excessive portion, following 

the Ihs^pdtions provided in the Commission regulations (see below for 

expiations 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.I(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 contributifl^tbj^ommittee must either 

receive the proper reattribution or refund the excessi^^ortmqj^the donor. 11 CFR 

§§ 103.3(b)(3) and 110.1(k)(3)(ii)(B). Further, aaO^t^ commiM^must retain 

written records concerning the reattribution iivwfterror it to be efraf^e. 11 CFR 

§110.1(0(5). 

Notwithstanding the above, any excessive contH^^tio^fhaNvas made oft a written 

instrument that is imprinted with the names of mohq^t^n one individual may be 

attributed among the individuals n^tefUinless instruclxio^herwise by the 

contributor(s). The committee munwi^rAfach contriE 

• How the contribution was attribu 

• The contributor may instead reque^a I9£^hll^)fftIot^kcessive amount. 

E. Redesignation 

committee re( 

committee's net dd 

redesign^tS'^eL.Mces! 

commjlfteeinwl^n^^ t1 

ie redesignationSpust 

ijedesignati^imist be 

ontributifl^. When an authorized candidate 

e contribut^ tor a contribution that exceeds the 

the compnttee may ask the contributor to 

lution for use in another election. The 

itributoTtnat: 

by the contributor; 

ived by the committee within 60 days after the 

tee received the original contribution; and 

The^Aimqbutor may /nstead request a refund of the excessive amount. 

Within 60 day>Aftep^eiving the excessive contribution, the committee must either 

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

§§103.3(b)(3) arra 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)(IH4). 

The committee is required to notiiy 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 contribi 

reattributed, or refunding the excessive contributi 

B. Interim Audit Report & Audit Divisio 

The Audit staff discussed this matter during the ex 

fieldwork and provided KMFC representatives with S 

contributions. The representatives asl^d,^estions re] 

reattribution and/or redesignation letteWha^t'eQUld be issu 

projection. 

lie testing and 

iduals totaling 

of KMFC not 

presumptive letter 

and/or 

mn 

fn^at the concision of 

Jule of the apparent excessive 

^he presumptive 

^on the sample 

In response to the exit 

reattribution and red( 

apparent excessivj 

had sent more presum^ 

projection. A^ju^sult, 

ice, the reprS^^^tives si^iimtted presumptive 

iTM liters that wew sent to fne contributors relative to the 

jbutiona.jln total, th&«presentatives provided evidence that it 

lettel^ its contrib\Sn than identified in the sample 

excessive contributions, albeit untimely. 

ided that KMFC provide any comments it deemed 

C. Comm])K;ebAesponse lojinterim Audit Report 

In response towpinterim Report recommendation, KMFC disagreed with the 

Audit staffs conbljmini^ the presumptive letters were issued untimely. KMFC 

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

how their contribution 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. 

I 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 $3S,S01 and ending cash-on-hand was understated ^$56,738. In 2012, 

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

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

However, subsequent to audit notification, KMFC filed apraftlq0^closure reports 

which materially corrected the misstatements identified ^the Abmts^aff. As such, 

KMFC has corrected the public record. In responsem^jjemterim A<|ai^Report 

recommendation, KMFC noted that it has made orl^izational change^^mli^^adopted new 

internal procedures and safeguards to minimizg^^re adil^istrative issu 

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 disbursements for 

• Certain transactioi 

Schedule B (Ite 

nd end of 

DitiRtefl^ied and 

ortif_ 

re itemizaib^ on Schwule A (Itemized Receipts) or 

DisBUrWnts). S^.S.C. §30104(b)(1), (2), (3), (4), and (5) 

irting period; 

^the election cycle; 

I and election cycle; and 

Facts 

A. E 

Duilng^a^i^fieldwork, 

records foK^HH and 2012' 

KMFC's 20rv^closure 

why the discrepi 

ludit reconciled KMFC's reported activity with its bank 

le fmlowing chart outlines the discrepancies between 

3rts and its bank records. Succeeding paragraphs explain 

sd. 

2011 Campaign Act,^dty 

Reported Bank Records Discrepancy 

Beginning Cash-on-Hand 

^January 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 thi 

hand by $56,738. 

For 2012, KMFC understated its beginning cash-(^ 

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

hand resulted from the discrepancies^st^above durinj 

understatement of its ending cash-on-n^^^iPiiQarily resul 

and political action committee contribu 

$ 41,000 

25,000 

(3,593) 

S 62,407 

$(46,912) 

11,067 

344 

$ (35,501) 

B. Interim Audit Repopt-db^Audit Divisie 

The Audit staff discuj 

fieldwork and pro\ 

based on disclosure i 

reports filed subsequentl; 

amendme^^ie^^B^udT 

such, th^f^resentatHte^id n2 

con" 

The Interi 

relevant to thi 

)mi 

g cash-onby $56,73*1^ and its 

ent of its beginning cash-onidar year 2011. The 

nreported individual 

ition 

:r during^ exit coifference at the conclusion of 

sresentativel^ith reconciliations for 2011 and 2012 

JCMFC priq^audit notification and amended 

led the representatives that the 

tificatTo?rmail8rially corrected the misstatements. As 

: any comments regarding this matter during the exit 

immended that KMFC provide any comments it deemed 

C. Committee ReiRo]^ to Interim Audit Report 

In response to the In^im 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.