Excessive Contributions — Testing Method

Sample Projection Amount? $51,802
Review of contributions not in the sample (error $6,900
amount) :
Review of contributions redesignated to the 2018 $15,600
Primary election (error amount) ,
Total Amount of Excessive Contributions $74,302
Reasons for Excessive Contributions

Contributions not resolved via presumptive letter $58,702
or refund 3)
Contributions not resolved via signed

redesignation letter or refund $15,608
Total Amount of Excessive Contributions - $74,302

B. Additional Information

The errors totaling $6,900 were the result of TCFC not sending a presumptive letter to its
contributors informing them how their contribution had beer attributed or designated by
TCFC. The errors totalitig $15,600 were theifesult of TCFC designating contributions to
the 2018 Primary ele¢tion without authorization from its contributors.

TCFC did not maintain a separateaccount for questionable contributions. However,
based on its cash=on-hand at the end of thélaudit period ($322,825), it appears that TCFC
did maintain sufficientyfunds to make refunds of the apparent excessive contributions.

C. Iiterita, Audit Report & Audit Division Recommendation

The Audit staff discussed this matfer with TCFC representatives at the exit conference
and provided s¢hedules of the apparent excessive contributions. TCFC representatives
asked questions regarding the documentation needed to resolve the excessive
contributions. The Audif staff explained that the presumptive letters sent in response to
the exit conference would untimely resolve most of the excessive contributions. For
others, obtaining a signed redesignation letter would untimely resolve the excessive
contributions.

In response to the exit conference, TCFC submitted the following documentation:

3 The sample error projection ($51,802) is based on a Monetary Unit Sample with a 95 percent confidence
level. The sample estimate could be as low as $34,528 or as high as $74,141. A review of other
contributions not included in the sample population identified excessive contributions totaling $6,900.


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Page



2016 Campaign Activity
Reported Bank Records Discrepancy
Beginning Cash Balance $182,458 $192,695 $10,237
@ January 1, 2016 Understated
Receipts $1,087,161 $1,075,355 $11,806
Overstated
Disbursements $985,793 $945,225 $40,568
Overstated
Ending Cash Balance $283,826 $322,825 $38,999
@ December 31, 2016 Understated
The overstatement of disbursements resulted from the following;
e Media expenses reported but never cleared bank $39,498
e Unexplained difference 1,070
Overstatement of Disbursements . $40,568

The $38,999 understatement of the 2016 ending cash balance resulted from thé’reporting
discrepancies described above, as well as prior periodyreporting differences,

B. Interim Audit Report & Audit Division Recommendation

The Audit staff discussed the misstatementspfor 2015 and 2016,with TCFC
representatives during the exit conference and provided copies of relevant work papers
detailing the misstatements. In response, TCFC representatives stated that they intended
to file amendments.

The Interim Audit Report recommended that TCFC amend its disclosure reports to
correct the misstatementssfor both 2015 and 2016yIn addition, TCFC should have
amended its most recently filed disélosure report to correct the cash balance with an
explanationgthiat théjehange resulted from the prior period audit adjustment. It was
further récommended that TCFC teconcile the ending cash balance of its most recent
reportitoidentify any subsequent diserepancies that would affect the adjustment
recommended by the Audit staff.

C. Committee Response to Interim Audit Report

In response to the InterimAudit Report recommendation, TCFC characterized the over-
reported media expense of $39,498 as an outstanding check at year end. TCFC
representatives stated that the check was written on November 10, 2016 and was never
cashed by the payee. When TCFC realized that the check had not been negotiated, it
reissued a new check which was processed by the bank on January 10, 2017. This
explanation had not been presented to the Audit staff prior to the issuance of the Interim
Audit Report. However, the Audit staff believes the documentation and explanation
support TCFC’s position. As such, the Audit staff adjusted the bank reconciliation and
re-categorized the disbursement as an outstanding check at year end. Since TCFC did not
report the second disbursement in its disclosure reports, overall disbursements and the
current cash-on-hand was not misstated. Therefore, in light of this clarification, no
adjustment was needed to disclosure reports for this matter.


Part II
Overview of Campaign

Campaign Organization

Important Dates

e Date of Registration July 13, 2011

e Audit Coverage January 1, 2015). December 31, 2016
Headquarters Washington, DC.

Bank Information

e Bank Depositories One

e Bank Accounts One Checking

Treasurer

e Treasurer When Audit Was Conducted JenniferMay (March 6, 2017 — Present)

e Treasurer During Period Covered by.Audit | David Gould (September 16, 2011 -
March 5, 2017)

Management Information”
e Attended FEC Campaign Finance Seminar | NotiAvailable
e Who Handled Accounting and Not Available

Recordkeeping Tasks.

Overviewiof Financial Activity

“(Audited Amounts)

Cash-on-hand @ January 1, 2015 $203,155
Receipts .

o Contributions ftom Individuals 678,652
o Contributions fromPolitical Committees 1,011,140
o Other Receipts 3,883
Total Receipts $ 1,693,675
Disbursements

o Operating Expenditures 1,544,050
o Contribution Refunds 6,520
o Other Disbursements 23,435
Total Disbursements $ 1,574,005
Cash-on-hand @ December 31, 2016 $ 322,825

? During pre-audit, the Audit staff asked TCFC to complete an internal control questionnaire, which included these
questions. To date, the questionnaire has not been returned by TCFC.


Part I
Background

Authority for Audit

This report is based on an audit of Tony Cardenas for Congress (TCFC), 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), 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. Prior to conducting any audit under this
subsection, the Commission must perform an internal review ofeports filed by selected
committees to determine if the reports filed by a particular committee meet the threshold
requirements for substantial compliance with the Act.952 U.S.C. §30h11(b).

Scope of Audit

Following Commission-approved procedures; the Audit staff,evaluated various risk
factors and as a result, this audit examined:

the receipt of excessive contributions and loans;

the receipt of contributions from prohibited sources;

the disclosure of contributions received}

the disclosure of individual contributors’ occupation and name of employer;
the consistency between reported figures andybank tecords;

the completeness of records; and, :

other committee operations necessary to the review.

HA ge eS


Part IV
Findings and Recommendations

[Finding 1, Misstatement of Financial Activity

Summary

During audit fieldwork, a comparison of TCFC’s reported financial activity with its bank
records revealed misstatements of the ending cash balance for 2015 and the
disbursements and ending cash balance for 2016. For 2015, TCRC understated the
ending cash balance by $10,237. For 2016, TCFC overstated disbursements by $40,568,
and understated the ending cash balance by $38,999. In responséto the Interim Audit
Report recommendation, TCFC demonstrated that an over-reported disbursement was
actually an outstanding check which was later reissued\by TCFC. As such, TCFC
provided evidence that no adjustment was needed,to 2016 disclosure reports for this
matter. In addition, TCFC amended its most recently filed.disclosure report to correct its
cash balance.

Legal Standard
Contents of Reports. Each report mustidisclose:
e the amount of cash-on-hand at the beginning and end ofthe reporting period;
e the total amount of receipts for the,reportingyperiod and for the election cycle-to-
date;
e the total amount6f disbursements forthe reporting period and for the election
cycle-to-date;fand
e certain trarisactions that require itemizationvon Schedule A (Itemized Receipts) or
Schedule B (Itemized Disbursements). 52 U.S.C. §30104(b)(1), (2), (3), (4) and
(5).

Facts and Analysis

A. Facts)

During audit fieldwork, the Audit staff reconciled TCFC’s reported financial activity with
its bank recordsifor calendar years 2015 and 2016. The 2015 ending cash balance was
understated by $10}237. ‘This discrepancy resulted from misstatements prior to 2015 as
the beginning cash balance for 2015 was also understated.

The following chart outlines the 2016 discrepancies between TCFC’s disclosure reports
and its bank records, and the succeeding paragraphs explain why the discrepancies
occurred.


THE FEDERAL ELECTION COMMISSION
Washington, DC 20463

December 6, 2018

MEMORANDUM

To: The Commission

Through: Alec Palmer IP
Staff Director

From: Patricia C. Orrock <2 for PCO
Chief Compliance Officer
Thomas E. Hintermister
Assistant Staff Director —T A
Audit Division
Kendrick Smith
Audit Manager DS

By: Lezhi Irving AZ for LI
Lead Auditor

Subject: Audit Division Recommendation Memorandum on Tony Cardenas for

Congress (A17-01)

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports),
the Audit staff presented the Draft Final Audit Report (DFAR) to Tony Cardenas for
Congress (TCFC) on October 23, 2018 (see attachment), In response to the DFAR, TCFC
did not provide any additional comments. TCFC did not request an audit hearing.

This memorandum provides the Audit staff's recommendation for each finding outlined in
the DFAR. The Office of General Counsel has reviewed this memorandum and concurs
with the recommendations.

Finding 1. Misstatement of Financial Activity

In response to the Interim Audit Report, TCFC demonstrated that an over-reported
disbursement was actually an outstanding check which was later reissued by TCFC
and subsequently cleared its bank account. As a result of this new evidence, an
adjustment to the 2016 disclosure reports was no longer necessary for this matter.
In addition, TCFC amended its most recently filed disclosure report to correct its
cash balance. TCFC did not provide any additional comments regarding this
finding in its response to the DFAR.


= 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

= Tf 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 ing@ separate writing. A
joint contribution is attributed equally to each donor unless a statement indicates that
the funds should be divided differently. 11 CFR §1104(k)(1)mand (2).

D. Reattribution of Excessive Contributions. The Commission regulations permit
committees to ask contributors of excessive contributions (or contributions that
exceed the committee’s net debts outstanding),whetheitthey had intendeditheir
contribution to be a joint contribution from moréjthan on@person and whether they
would like to reattribute the excess amount to the other contributor. The committee
must inform the contributor that: a
e 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}jand
e The contributor may_instead requesta réfund of thé’excessive amount. 11 CFR
§110.1(k)(3).

Within 60 day$ afterireceiving the excessivejcontribution, the committee must either
receive the proper reatttibution/onrefund the excessive portion to the donor. 11 CFR
§§103.3(6)@)iand 110.109(3)(ii)(B). Further, a political committee must retain
written records concerning the reattribution in order for it to be effective. 11 CFR

§140,1(1)(5).

Presumptive Reattribution - 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 bespresumptively attributed among the individuals listed unless

instructed otherwiseby the contributor(s). The committee must inform each

contributor:

e How the contribution was attributed; and

e The contributor may instead request a refund of the excessive amount. 11 CFR
§110.1(k)(3)(B).

E. Redesignation of Excessive Contributions, When an authorized candidate
committee 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:


TCEC representatives also clarified other immaterial adjustments presented by the Audit
staff in the bank reconciliation. Specifically, they stated that over-reported receipts
totaling $11,200 were reversals of contributions made in previous election cycles and one
disbursement made in 2015 that was not cashed by the payee. This explanation had not
been presented to the Audit staff prior to the issuance of the Interim Audit Report.
However, the Audit staff believes the documentation and explanation support TCFC’s
position, but the Audit staff does not agree with the manner in which TCFC reported the
reversals. While the manner in which TCFC reported the reversals did result in a correct
cash balance, it also resulted in TCFC overstating its receipts and disbursements in its
disclosure reports. TCFC agreed that it should have disclosed the reversals as negative
disbursements on Schedule B (Itemized Disbursements). To corfect'this matter, TCFC
amended its disclosure report in the manner recommended by the Audit staff.

| Finding 2. Receipt of Contributions in Excess of the Limit |

Summary

During audit fieldwork, the Audit staff reviewéd contributions from individuals to
determine if any exceeded the contribution limit. This.reyiew indicated that TCFC
received apparent excessive contributions totaling $74,302. These errors occurred as a
result of TCFC not resolving the excéssive portions of contributions by forwarding
presumptive redesignation or reattribution letters to its contributors, obtaining signed
redesignation letters from its contributors, or issliing refunds of the excessive portions of
contributions in a timely manner. In response tothe €xit conference, TCFC materially
resolved, albeit untimely,.the,apparent excessive contributions. In response to the Interim
Audit Report recommendation, TCFC provided documentation which demonstrated that
the refund check had been negotiated and stated that it has fully complied with the
auditors’ recommendations as to this finding.

Legal Standard)

A. Authorized Committee Limits. An authorized committee may not receive more
than a total of $2,700 per electioifrom any one person or $5,000 per election from a
multieaididate political committee. 52 U.S.C. §30116; 11 CFR §§110.1(a) and (b)
and 110.9)

B. Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:
e Return the questionable check to the donor; or
e Deposit the check into its federal account and:
= Keep enough money in the account to cover all potential refunds or
establish a separate account in a campaign depository for such
contributions;
= 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;


Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

During audit fieldwork, a comparison of TCFC’s reported financial activity with its bank
records revealed misstatements of the ending cash balance for 201'Stand the
disbursements and ending cash balance for 2016. For 2015, TCFC understated the
ending cash balance by $10,237. For 2016, TCFC overstated disbursements by $40,568,
and understated the ending cash balance by $38,999. Inesponse to,the Interim Audit
Report recommendation, TCFC demonstrated that an@yer-reported disbursement was
actually an outstanding check which was later reissued by TCFC. As such, TCFC
provided evidence that no adjustment was needed to 2016,disclosure reports»for this
matter. In addition, TCFC amended its most tecently filed disclosure report to correct its
cash balance. (For more detail, see p. 4.)

Finding 2. 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 indicated that TCFC
received apparent excessive contributions totaling $74,302sThese errors occurred as a
result of TCFC not resolving the excessive portions of contributions by forwarding
presumptive redesignation or reattribution letters to its contributors, obtaining signed
redesignation letter$ frém its contributors, or issuing refunds of the excessive portions of
contributions in a timely manner. In response to the exit conference, TCFC materially
resolved, albeituntimely, theapparent excessive contributions. In response to the Interim
Audit Report recommiendation, TCFC provided documentation which demonstrated that
the refund check had been, negotiated and stated that it has fully complied with the
auditors’ zecommendationsias to this finding. (For more detail, see p. 6.)


Draft Final Audit Report of the
Audit Division on
Tony Cardenas for Congress

(January 1, 2015 - December 31, 2016)



10

Corrective Action Taken in Response to Exit Conference

Presumptive Letters Sent Untimely $47,500
Signed Redesignation Letters Obtained Untimely $13,000
Refund Issued Untimely $2,600

The Audit staff concluded that, of the $74,302 in excessive cont
demonstrated that it resolved contributions totaling $63,100 int

tibtitions, TCFC
untimely manner. As

In response to the Interim Audit Reportye: ion, TFC provided documentation
which demonstrated that the refund ch $2,600 had been negotiated. In addition,
TCEC stated it has fully complied with the auditors’ ecommen dations as to this finding.


Draft Final Audit Report of the
Audit Division on

Tony Cardenas for Congress
(January 1, 2015 - December 31, 2016)

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 Aét.! Thelaudit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requitements
of the 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.

' 52 U.S.C. §30111(b).

About the Campaign (p. 2)

Tony Cardenas for Congress is\the principal campaign committee
for Tony Cardenas, Democratic candidate for the United States
House of Representatives from the state of California, 29th
District, and is headquartered in Washington, DC. For more
information, see’the Campaign Organization chart, p. 2.

Financial Activity (p>2)
e Receipts

oO “Contributions from Individuals $ 678,652
o ‘Contributions from Political

Committees, 1,011,140
o Other Receipts 3,883
Total Receipts $ 1,693,675

¢ Disbursements

o Operating’Expenditures $ 1,544,050
Contribution Refunds 6,520
o Other Disbursements 23,435
Total Disbursements $ 1,574,005

Findings and Recommendations (p. 3)
e Misstatement of Financial Activity (Finding 1)
° Receipt of Contributions in Excess of the Limit (Finding 2)


The Audit staff recommends that the Commission find that TCFC did not misstate
its disbursements and ending cash balance for calendar year 2016. The Audit staff
further recommends that the Commission find that TCFC misstated its ending cash
balance by $10,237 for calendar year 2015.

Finding 2. Receipt of Contributions in Excess of the Limit

In response to the Interim Audit Report, TCFC provided documentation which
demonstrated that one remaining refund check of $2,600, untimely issued to
remedy an excessive portion of a contribution, had been negotiated. In addition,
TCFC stated it has fully complied with the auditors’ recommendations as to this
finding. TCFC did not provide any additional comments regarding this finding in
its response to the DFAR.

The Audit staff recommends that the Commission find that TCFC received
excessive contributions totaling $74,302.

If this memorandum is approved, a Proposed Final Audit Report will be prepared within
30 days of the Commission’s vote.

In case of an objection, Directive No. 70 states that the Audit Division
Recommendation Memorandum will be placed on the next regularly scheduled open
session agenda.

Documents related to this audit report can be viewed in the Voting Ballot Matters folder.
Should you have any questions, please contact Lezhi Irving or Kendrick Smith at 694-
1200.

Attachment:
- Draft Final Audit Report of the Audit Division on Tony Cardenas for Congress

ce: Office of General Counsel



e The redesignation must be signed by the contributor;

e The redesignation must be received by the committee within 60 days after the
committee received the original contribution; and

e The contributor may instead request a refund of the excessive amount. 11 CFR

§110.1(b)(5).

Within 60 days after 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)(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(1)(5).

Presumptive Redesignation - When an individual makés an excessive contribution to

a candidate’s authorized committee, the campaign may, presumptively redesignate the

excessive portion to the general election if the contribution:

e Is made before that candidate’s primary election;

e Is not designated in writing for a partictlamelection}

e Would be excessive if treated as a primary el€ction’contribution; and

e As redesignated, does not cause the contributor to,exceed any other contribution
limit. 11 CFR §110.1(b)(5)(ii)@B)(1)-(4).

The committee is required to notify the conttibutor by any written method, including
electronic mail, of the redesignation within 60 daySof thetreasurer’s receipt of the
contribution, and mustffer the contributor’ the option to receive a refund instead. 11

CER §110.1(b)(5)@i)(B)(5) and (6).

Facts and Analysis

A. Facts ‘

During auditifieldWork, the Audit staff utilized sample testing and reviews of other
contributions not includéd in the Sample population to identify apparent excessive
contributions from individwals.