Interim 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 compliance 

with the Act.^ The audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

About the Campaign (p. 2) 

Kevin McCarthy for Congress is the principal campaign 

committee for Kevin McCarthy, Republican candidate for the 

U.S. House of Representatives from the state of Califomia, 23^ 

Congressional District, and is headquartered in Bakersfield, 

Califomia. For more information, see the Campaign 

Organization chart, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions from Political 

Coiiunittees 

o Transfers from Authorized 

Committees 

o Offsets to Operating 

Expenditures 

o Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Contribution Refunds 

o 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 

S 3,992,386 

Future Action 

The Commission may 

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 C'the Act"), was 

transferred from Title 2 of the United States Code to new Title S2 of the United States Code. 

^ 52 U.S.C. §30111(b) (formerly 2 U.S.C. §438(b)). 
Interim Audit Report of the 

Audit Division on 

Kevin McCarthy for Congress 

(January 1, 2011 - December 31, 2012) 
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 Contributions in Excess of the Limit 4 

Finding 2. Misstatement of Financial Activity 6 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Kevin McCarthy for Congress (KMFC), 

undert^en by the Audit Division of the Federal Election Conunission (the Conunission) 

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 field 

investigations of any political committee that is required to file a report under 52 U.S.C. 

§30104 (formerly 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 conunittees 

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

requirements for substantial compliance with the Act. 52 U.S.C. §30111(b) (formerly 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 ; 

2. the receipt of contributions from prohibited sources; 

3. the disclosure of contributions received; 

4. the disclosure of disbursements, debts and obligations; 

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

6. the consistency between reported figures and bank records; 

7. the completeness of records; and 

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

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration March 10,2006 

e Audit Coverage January 1,2011 - December 31,2012 

Headquarters Bakersfield, California 

Bank Information 

e Bank Depositories Six 

e Bank Accounts Two checking. Four savings 

Treasurer 

e Treasurer When Audit Was Conducted Jill Thomson (October 12,2012 - present) 

• Treasurer During Period Covered by Audit Raymond Karp 

(August 22, 2007 - October 11,2012) 

Jill Thomson (October 12,2012 - present) 

Management Information 

e Attended Commission Campaign Finance 

Seminar 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

Overview of Financial Activity 

Cash-on-hand ® January 1,2011 $ 1,159,230 

Receipts 

o Contributions from Individuals 1,923,173 

o Contributions from Political Committees 2,422,238 

o Transfers from Authorized Committees 263,000 

o Offsets to Operating 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 S 3,992,386 

Cash-on-hand @ December 31,2012 $ 1,824,169 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Receipt of Contributions in Ebccess of the Limit 

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. These errors occurred as a 

result of I04FC not resolving the excessive portions of contributions by forwarding a 

presumptive letter to the contributor or issuing a refund in a timely maimer. In response 

to the exit conference following fieldwork, KMFC provided copies of presumptive letters 

that were sent to the contributors. As a result, KMFC has resolved the excessive 

contributions, albeit in an untimely manner. The Audit staff recommends that KMFC 

provide any comments it deems relevant to this matter. (For more detail, see p. 4.) 

Finding 2. Misstatement of Financial Activity 

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 by $56,738. In 2012, 

only the beginning and ending cash-on-hand were misstated. Beginning cash-on-hand 

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

However, subsequent to audit notification, KMFC filed amended disclosure reports 

which materially corrected the misstatements identified by the Audit staff. As such, 

KMFC has corrected the public record. The Audit staff recommends that KMFC provide 

any comments it deems relevant to this matter. (For more detail, see p. 6.) 
Part IV 

Findings and Recommendations 

Finding 1. Receipt of Contributions in Excess of the Limit 

Summaxy 

During audit fieidwork, 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. These errors occurred as a 

result of KMFC not resolving the excessive portions of contributions by forwarding a 

presumptive letter to the contributor or issuing a refund in a timely manner. In response 

to the exit conference following fieidwork, KMFC provided copies of presumptive letters 

that were sent to the contributors. As a result, KMFC has resolved the excessive 

contributions, albeit in an untimely manner. The Audit staff recommends that KMFC 

provide any comments it deems relevant to this matter. 

Legal Standard 

A. Authorized Committee Limits. During the election cycle for which this audit is 

being completed, the relevant contribution limits were $2,500 per election from any 

one person or $5,000 per election from a multicandidate political committee. 52 

U.S.C. §30116(a)(1)(A), (2)(A) and (f) (formerly 2 U.S.C. §441a(a)(l)(A), (2)(A) and 

(f)); 11 CFR §§110.1(a) and (b) and 110.9(a). 

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

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

• Return the questionable check to the donor; or 

• Deposit the check into its federal account and: 

• Keep enough money in the account to cover all potential refunds; 

• Keep a written record explaining why the contribution may be illegal; 

" Include this explanation on Schedule A if the contribution has to be 

itemized before its legality is established; 

• Seek a reattribution or a redesignation of the excessive portion, following 

the instructions provided in the Commission regulations (see below for 

explanations 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 

110.1(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 afrer 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 afrer receiving the excessive contribution, the committee must either 

receive the proper reattribution or refund the excessive portion to the donor. 11 CFR 

§§103.3(b)(3) and 110.1(k)(3)(ii)(B). Fiirther, a political committee must retain 

written records concerning the reattribution in order for it to be effective. 11 CFR 

§110.1(0(5). 

Notwithstanding the above, any excessive contribution that was made on a written 

instrument that is imprinted with the names of more than one individual may be 

attributed among the individuals listed unless instructed otherwise by the 

contributor(s). The committee must inform each contributor: 

• How the contribution was attributed; and 

• The contributor may instead request a refund of the excessive amount. 

E. Redesignation of Excessive Contributions. When an authorized candidate 

conunittee receives an excessive contribution (or a contribution that exceeds the 

committee's net debts outstanding), the committee may ask the contributor to 

redesignate the excess portion of the contribution for use in another election. The 

committee must inform the contributor that: 

• The redesignation must be signed by the contributor; 

• The redesignation must be received by the committee within 60 days afrer the 

committee received the original contribution; and 

• The contributor may instead request a refund of the excessive amount. 

Within 60 days afrer receiving the excessive contribution, the committee must either 

receive the proper redesignation or refund the excessive portion to the donor. 11 CFR 

§§103.3(b)(3) and 110.1(b)(S)(ii)(A). Further, a political committee must retain 

written records conceming 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)(l )-(4). 

The committee is required to notify 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 of sample testing and 

focused reviews to identify apparent excessive contributions from individuals totaling 

$77,094^. All the excessive contributions ($77,094) were the result of KMFC not 

resolving the excessive portion of contributions by timely forwarding a presumptive letter 

to its contributors informing them how their contribution had been redesignated and/or 

reattributed, or refunding the excessive contribution. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter during the exit conference at the conclusion of 

fieldwork and provided KMFC representatives with a schedule of the apparent excessive 

contributions. The representatives asked questions regarding the presumptive 

reattribution and/or redesignation letters that could be issued based on the sample 

projection. 

In response to the exit conference, the representatives submitted presumptive 

reattribution and redesignation letters that were sent to the contributors relative to the 

apparent excessive contributions. In total, the representatives provided evidence that it 

had sent more presumptive letters to its contributors than identified in the sample 

projection. As a result, KMFC has resolved the excessive contributions, albeit untimely. 

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

KMFC provide any comments it deems relevant to this matter. 

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 by $56,738. In 2012, 

only the beginning and ending cash-on-hand were misstated. Beginning cash-on-hand 

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

However, subsequent to audit notification, KMFC filed amended disclosure reports 

^ 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 $53,334 and as high as $130,427. 
which materially corrected the misstatements identified by the Audit staff. As such, 

KMFC has corrected the public record. The Audit staff recommends that KMFC provide 

any comments it deems relevant to this matter. 

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 election cycle; and 

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

Schedule B (Itemized Disbursements). 52 U.S.C. §30104(b)(l), (2), (3), (4), and (5) 

(formerly 2 U.S.C. §434(b)(l), (2), (3), (4). and (5)). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the audit staff reconciled KMFC's reported activity with its bank 

records for 2011 and 201-2. The following chart outlines the discrepancies between 

KMFC's 2011 disclosure reports and its bank records. Succeeding paragraphs explain 

why the discrepancies occurred. 

2011 Campaign Activity 

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 Cashron-Hand 

@ December 31,2011 

$2,515,606 $2,572,344 $56,738 

Understated 

The $41,170 overstatement of begirming 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 

$ 41,000 

25,000 

(3.593^ 

$ 62,407 
The overstatement of disbursements resulted from the following. 

• Operating disbursements over reported (reported twice) $(46,912) 

• Disbursements not reported 11,067 

• Unexplained difference 344 

Net Overstatement of Disbursements S (35,501) 

The misstatements described above resulted in the understatement of ending cash-onhand by $56,738. 

For 2012, KMFC understated its begiiming cash-on-hand balance by $56,738 and its 

ending cash-on-hand balance by $73,397. The understatement of its beginning cash-onhand resulted from the discrepancies noted above during calendar year 2011. The 

understatement of its ending cash-on-hand primarily resulted from unreported individual 

and political action committee contributions. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter during the exit conference at the conclusion of 

field work and provided KMFC representatives wi^ reconciliations for 2011 and 2012 

based on disclosure reports filed by KMFC prior to audit notification and amended 

reports filed subsequently. The Audit staff informed the representatives that the 

amendments filed after audit notification materially corrected the misstatements. As 

such, the representatives did not make any comments regarding this matter during the exit 

conference. 

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

KMFC provide any comments it deems relevant to this matter.