Interim Audit Report of the 

Audit Division on Smoot for 

Congress 

(March 11, 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 

Conmiission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

with the Act.* TTie audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

About the Campaign (p. 2) 

Smoot for Congress is the congressional campaign conmiittee for 

Sheila Smoot, Democratic candidate for the U.S. House of 

Representatives from the State of Alabama, 7^^ District, and is 

headquartered in Birmingham, Alabama. For more information, 

see the chart on the campaign organization, p.2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions from Other 

Political Committees 

Total Receipts 

• Disbursements 

o Operating Disbursements 

o Other Disbursements 

Total Disbursements 

$ 151,083 

98,750 

$ 249,833 

$ 250,380 

1,030 

$ 251,410 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Receipt of Apparent Prohibited Contributions (Finding 2) 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

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

Division on 

Smoot for Congress 

(March 11, 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. Misstatement of Financial Activity 4 

Finding 2. Receipt of Apparent Prohibited Contributions 6 
Parti 

Background 

Authority for Audit 

This report is based on an audit of Smoot for Congress (SFC), 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 receipt of excessive contributions and loans; 

2. the receipt of contributions from prohibited sources; 

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

4. the consistency between reported figures and bank records; 

5. the completeness of records; and 

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

Overview of Campaign 

Campaign Organization 

Important Dates 

• Dateof Registration April 22, 2009 

• Audit Coverage March 11,2009 - December 31,2010 

Headquarters Birmingham, Alabama 

Bank Information 

• Bank Depositories Two 

• Bank Accounts Three 

Treasurer 

• Treasurer When Audit Was Conducted Adrienne Ellison 

• Treasurer During Period Covered by Audit Johanna Martin. March 11,2009 -

October 18,2010; and 

Adrienne Ellison. October 18, 2010 -

December 31,2010 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ March 11,2009 $0 

Receipts 

o Contributions from Individuals 151,083 

o Contributions from Other Political 

Committees 

98,750 

Total Receipts $ 249,833 

Disbursements 

o Operating Disbursements 250,380 

o Other Disbursements 1,030 

Total Disbursements $ 251,410 

Cash-on-hand @ December 31,2010 $(1,577)' 

^ SFC overdrew a bank account in the amount of $1,574. The bank later forgave this aniount when the account was 

closed out. See Finding 2 for discussion of apparent prohibited contribution from the bank for this amount. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

A comparison of SFC s reported financial activity with its bank records revealed a 

misstatement of receipts and disbursements in calendar years 2009 and 2010. The Audit 

staff recommends that SFC amend its disclosure reports to correct the misstatements. 

(For more detail, see p. 4.) 

Finding 2. Receipt of Apparent Prohibited Contributions 

Based on a review of all contributions received by SFC, the Audit staff identified 15 

contributions totaling $9,994 that appear to be from prohibited sources. The Audit staff 

recommends that SFC demonstrate that the contributions were made with permissible 

funds or refund them. (For more detail, see p. 6.) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

A comparison of SFC's reported financial activity with its bank records revealed a 

misstatement of receipts and disbursements in calendar years 2009 and 2010. The Audit 

staff recommends that SFC amend its disclosure 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 election cycle; 

• the total amount of 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)(l), (2), (3), (4) and (5). 

Facts and Analysis 

A. Facts 

The Audit staff reconciled SFC's reported activity with its bank records and identified a 

misstatement of receipts and disbursements for 2009 and 2010. The following charts 

detail the discrepancies and succeeding paragraphs explain the reasons for the 

misstatements, if known. 

2009 Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ March 11, 2009 

$0 $0 $0 

Receipts $60,008 $60,038 $(30) 

Understated 

Disbursements $55,674 $54,678 $996 

Overstated 

Ending Cash Balance 

@ December 31,2009 

$4,334 $5,360 $(1,026) 

Understated 

SFC understated receipts in 2009 by $30. However, when evaluating the identified errors, 

regardless of whether the errors were positive or negative (absolute values). Audit staff 

discovered that the committee misstated receipts by $5,694 ($2,862 + $2,270 + $562). 
The misstatement of receipts resulted from the following differences: 

• Receipts not reported, primarily contributions from individuals $2,862 

• Receipts reported twice 2,270 

• Reported receipts not supported by bank deposits or credits 562 

Sum of Reporting Adjustments $5.694 

SFC overstated disbursements in 2009 by $996. However, when evaluating the identified 

errors, regardless of whether the errors were positive or negative (absolute values), Audit 

staff discovered that the committee misstated disbursements by $4,305 ($1,383 + 2,922). 

The misstatement of disbursements resulted from the following differences: 

• Disbursements not reported $1,383 

• Disbursements reported not supported by canceled checks 2.922 

Sum of Reporting Adjustments $4.305 

2010 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

January 1,2010 

$4,334 $5,360 $(1,026) 

Understated 

Receipts $170,698 $189,795 $(19,097) 

Understated 

Disbursements $199,604 $196,732 $2,872 

Overstated 

Ending Cash Balance 

December 31,2010 

$(24,572) $(1,577) $(22,995) 

Understated 

The understatement of receipts resulted from the following: 

• Receipts not reported 

• Receipts reported twice or incorrectly 

• Reported contributor checks retumed by bank for insufficient 

funds with no report adjustments 

• Reported receipts not supported by bank deposits or credits 

• Bank correction erroneously reported as receipt 

Net Understatement of Receipts 

$22,417 

(410) 

(700) 

(1,810) 

(400) 

$19.097 

SFC overstated disbursements in 2010 by $2,872. However, when evaluating the 

identified errors, regardless of whether the errors were positive or negative (absolute 

values). Audit staff discovered that the committee misstated disbursements by $35,357 

($15,481 + 19,876). 

The misstatement of disbursements resulted from the following differences: 

• Disbursements not reported $ 15,481 

• Disbursements reported not supported by canceled checks 19.876 

Sum of Reporting Adjustments $35.357 
The reporting discrepancies noted above resulted in the $22,995 understatement of the 

ending cash balance. 

B. Interim Audit Report & Audit Division Recommendation 

Audit staff and SFC representatives discussed this matter at the exit conference held at 

the end of audit fieldwork. SFC representatives acknowledged the discrepancies in the 

reports and indicated that the committee would file corrective amendments. 

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

• amend its reports to correct the misstatements for 2009 and 2010 as 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, SFC should reconcile the cash balance on its most recent report to 

identify any subsequent discrepancies that may impact the $22,995 adjustment 

recommended by the Audit staff. 

Finding 2. Receipt of Apparent Prohibited Contributions 

Summary 

Based on a review of all contributions received by SFC, the Audit staff identified 15 

contributions totaling $9,994 that appear to be from prohibited sources. The Audit staff 

recommends that SFC demonstrate that the contributions were made with permissible 

funds or refund them. 

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) from the treasury funds of the following prohibited sources: 

• corporations (this means any incorporated organization, including a non-stock 

corporation, an incorporated membership organization, and an incorporated 

cooperative); 

• labor organizations; or 

• national banks. 2 U.S.C. §441b. 

B. Definition of Limited Liability Company. A limited liability company (LLC) is a 

business entity recognized as an LLC under the laws of the state in which it was 

established. 11 CFR §110.1(g)(1). 

C. Applications of Limits and Prohibitions to LLC Contributions. A contribution 

from an LLC is subject to contribution limits and prohibitions, depending on several 

factors, as explained below: 

1. LLC as Partnership. The contribution is considered a contribution from a 

partnership if the LLC chooses to be treated as a partnership under Intemal 
Revenue Service (IRS) tax mles, or if it makes no choice at all about its tax 

status. 11 CFR §110.1 (g)(2). 

2. LLC as Corporation. The contribution is considered a corporate 

contribution—and is barred under the Act—if the LLC chooses to be treated 

as a corporation under IRS mles, or if its shares are traded publicly. 11 CFR 

§110.1(g)(3). 

3. LLC with Single Member. The contribution is considered a contribution from 

a single individual if the LLC is a single-member LLC that has not chosen to 

be treated as a corporation under IRS mles. 11 CFR §110.1(g)(4). 

4. At the time it makes the contribution, an LLC shall provide to the recipient 

committee information on how the contribution is to be attributed and affirm 

that it is eligible to make the contribution. 11 CFR §110.1(g)(5). 

D. Questionable Contributions. If a contribution that presents genuine questions 

about its permissibility is received and deposited, the treasurer shall make his or her 

best efforts to determine whether it is from a prohibited source. If the legality of the 

contribution cannot be verified in 30 days of the treasurer's receipt, it shall be 

refimded to the contributor. 11 CFR §103.3(b)(l). 

Facts and Analysis 

A. Facts 

Based on a review of all contributions received by SFC, the Audit staff identified 15 

contributions totaling $9,994 that appear to be from prohibited sources. This amount 

includes contributions from twelve LLCs, totaling $7,720, two corporations, totaling 

$700 and one national bank, totaling $1,574. 

Audit staff requested that SFC provide documentation confirming how each LLC elected 

to be treated under IRS mles at the time the contributions were made. To date, no such 

documentation has been provided from SFC. Audit staff verified the corporate status 

with the appropriate Secretaries of State and could not determine the status of one of the 

entities. 

SFC incurred a negative bank account balance in November 2010, when it overdrew its 

account with a debit charge for a rental car. In January 2011, the account was closed 

when the bank posted a $1,574 credit. No information was provided to indicate that the 

credit posted by the bank was the result of a deposit by the committee. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff requested that SFC provide documentation from the bank explaining this 

transaction. The candidate stated that SFC would provide a letter from the bank. To 

date, no such letter has been provided. Audit staff and committee representatives 

discussed this matter at the exit conference held at the end of audit fieldwork. Audit staff 

requested that SFC provide documentation verifying that the contributions in question 

were permissible. To date, SFC has not submitted any additional documentation 

conceming this matter. 
The Audit staff recommends that, within 30 calendar days of service of this report, SFC 

provide evidence demonstrating that the contributions in question were made with 

pennissible funds. For contributions in question from LLCs, SFC should provide 

documentation from each entity explaining its tax treatment. SFC should also provide 

documentation from the bank explaining the $1,574 credit posted to SFC's account. 

If SFC does not provide evidence that the funds were permissible, then it should make 

refunds to the contributors or disgorge to the U.S. Treasury the impermissible amounts. 

SFC should provide evidence of any refunds by providing the front and back of the 

negotiated refund checks. 

If funds are not available to make the necessary refunds or disgorgement, SFC should 

disclose the contributions requiring refunds on Schedule D (Debts and Obligations) until 

funds become available to make such refunds.