FEDERAL ELECTION COMMISSION 

WASHINGTON, 0.0.20463 

MEMORANDUM May 4, 2016 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Acting General Counsel 

Lorenzo HoIIoway 

Assistant General Counsel 

Compliance Advice 

Jennifer G. Waldman 0^^ 

Attorney u 

SUBJECT: Interim Audit Report on McSally for Congress (LRA #1047) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the Interim Audit Report ("lAR") on 

McSally for Congress ("Committee"). The lAR contains five findings: Failure to File 

Contributions from Political Committees (Finding 5); Failure to File 48-Hour Notices (Finding 

4); Receipt of Contributions in Excess of the Limit (Finding 3); Disclosure of Occupation/Name 

of Employer (Finding 2); and Misstatement of Financial Activity (Finding 1). Our comments in 

this memorandum address Finding 1, Misstatement of Financial Activity. If you have any 

questions, please contact Jennifer Waldman, the attomey assigned to this audit. 
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McSally for Congress (LRA #1047) 

Page 2 of3 

II. MISSTATEMENT OF FINANCIAL ACTIVITY (nNDING 1) 

The lAR finds that the Committee misstated its receipts and disbursements for 2013 and 

2014 and lists the various reporting discrepancies that resulted in the misstatements. One 

discrepancy involves how the Committee reported transactions related to contributions made by 

credit card. The Committee received certain contributions via credit cards, but the payments to 

the Committee were rejected because they were not suppprted by sufficient funds and credit 

limits to pay the charges. The Federal Election Commission Campaign Guide for Congressional 

Candidates and Committees, June 2014 ("Campaign Guide") recommends that when a 

contribution is rejected, a committee report it as a negative entry on Schedule A so as to, in 

effect, zero out the previously reported contribution that never materialized. Federal Election 

Commission Campaign Guide for Congressional Candidates and Committees, June 2014, p 113. 

Instead, the Committee reported the rejected charge as a receipt and then as a corresponding 

refund. The Committee, however, never actually refunded these contributions because the funds 

were never received. The Committee, therefore, inflated its receipts (reporting a contribution 

that never materialized), and it inflated its disbursement (reporting a refund) totals. 

A second discrepancy relates to how the Committee reported its voided payments to 

vendors (such as media firms) for future services. The Committee initially reported the 

payments to the vendor on Schedule B as a disbursement. When the Committee decided not to 

use that service (or not to air a commercial) they were then required to report the fact that these 

previously reported disbursements never occurred since the money never leff the Committee's 

account. The Campaign Guide recommends that the cancelled payment previously reported be 

amended as a negative amount on Schedule B - showing that the funds were never spent. Id. 

Instead, the Committee reported the voided payment as an offset to operating expenditures on 

Schedule A (receipts). This inflated Schedule A (receipts) because it had the same effect as if 

the Committee had received a refund from the vendor, which it did not. In addition. Schedule B 

(disbursements) was inflated because the report still showed that the Committee had spent the 

funds. 

The Federal Election Campaign Act of 1971, as amended, ("FECA") states that a 

committee must report the total amounts of receipts and disbursements in various categories, 

including refunds and rebates. But, the FECA and its regulations do not directly address how a 

committee should report rejected credit card charges and voided payments. See 52 U.S.C. § 

30104(b)(2)(i) and (4); 11 C.F.R. §§ 104.3(a)(3), (ix)(A) and (B), (b)(2)(v)(A) and (B), (4)(v). 

As noted, the Campaign Guide does provide further instruction on how to address these two 

scenarios. 

The lAR notes that while there is agreement in the ending cash-on-hand balance, the 

corresponding receipts and disbursements are inflated. The Committee argues that it believes 

that its decision to report subsequently voided payments as offsets was consistent with the 

Commission's regulations because the cash-on-hand was correct. However, this is insufficient 

because the Act and Commission regulations require that the Committee accurately report 

receipts and disbursements, not just the ultimate cash on hand balance. 11 C.F.R. § 104.14(d); 

see Final Audit Report on Democratic Party of Wisconsin, at 9 (approved Mar. 25,2015) 

(Committee had reporting errors that resulted in inflated disbursements and receipts and argued 
Comments on the Interim Audit Report 

McSally for Congress (LRA #1047) 

Page 3 of3 

that disclosure was suificient, the Commission disagreed); Final Audit Report on 

TeaPartyExpress.Org PAG at 9 (approved Jan. 6,2017) (finding of misstatement of financial 

activity due to improperly reported and inflated disbursement totals) (approved by the 

Commission without discussion). By improperly reporting the incomplete credit card 

transactions and the voided payments, the Committee disclosed inflated receipt and disbursement 

totals creating an inaccurate picture of the Committee's finances. 

Regardless of whether the cash-on-hand numbers were ultimately accurate, the way in 

which the Committee made these disclosures created inaccuracies in both the receipts and 

disbursements totals as the lAR outlines. Accuracy is one of the core principles of disclosure.' 

The Commission's regulations, therefore, require that a committee file timely and accurate 

reports, and the treasurer must certify that the provided information is accurate. See 11 C.-F.R. § 

104.3,104.4,104.5, 104.6,104.7,104.8,104.9, 104.18(g), and 104.20. 

While the lAR raises the Committee's argument and reasoning for the differing cash-onhand, we recommend that the Audit Division revise the lAR to include the legal basis supporting 

its conclusion that the Committee's interpretation is incorrect, i.e., that merely reporting an 

accurate cash-on-hand balance is insufficient and that the regulations require accurate disclosure 

of receipts and disbursements. 

1 In the context of reporting refunds, the Commission noted that to create an accurate picture, refunds must 

be reported but not "as memo entries, since they will effect the committee's total disbursements and cash on haneT 

(emphasis added). Contribution and Expenditure Limitations and Prohibitions; Contributions by Persons and 

Multicandidate Political Committees, 52 Fed. Reg. 760 (Jan. 9,1987).