FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

July 29,2016 

MEMORANDUM 

To: The Commission 

Through: 

From: 

Alec Palmer 

Staff Director 

Patricia C. Orrdck 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Kehdrick Smi 

By: 

Subject: 

^'^Terry O'Eri 

Lead, Audi tp!f 

Audit Division Recommendation Memorandum on Ted Lieu for Congress 

(TLFC) (A 15-05) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendation below and discusses the finding in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendation. 

Misstatement of Financial Activity 

The Audit staff determined that TLFC misstated its fihanciai activity for calendar 

year 2014. The receipts were understated by $87,748 and the disbursements were 

understated by $92,802. In response to the Interim Audit Report recommendation, 

TLFC filed amended disclosure reports which materially corrected the 

misstatements. As such, TLFC has conected the public record and had no 

additional comments in response to the DFAR. 

The Audit staff recommends that the Commission find that TLFC misstated its 

financial activity for calendar year 2014, as stated above. 

TLFC did not request an audit hearing. 
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 Terry O'Brien or Kendrick Smith at 694-

1200. 

Attachment: 

- Draft Final Audit Report of the Audit Division on Ted Lieu for Congress 

cc: Oftice of General Counsel 
Draft Final Audit Report of the 

Audit Division on 

Ted Lieu for Congress 

(Februaiy 18, 2014 - December 31, 2014) 

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 conunittee 

appears not to have met,<i Ji 

the threshold 

requirements for 

substantial compliance - ^ 

with the Act,' J^.audit 

dbterinihes^wh^i^Vth<|v. 

cqmmji^ complied'Witfc,. 

the hmit^ns, 

prohibitii 

About the Campaign 

Ted Lieu for Congress is the pj^ifcip^l campaign committee for 

Ted Lieu, Democratic caodidli^ the U.S. House of 

Representatives from the ^te o tnia,- 33"* District, and is 

headquartered in Ent^ini^. (Ifalifon n more information, see 

the Campaign Orgfi^zatibn chart, p. 2.' 

Financial j^^ivityj^. 2) 

Receipts 

o Contributions 

)ntributions 

" Individuals 

• : 

Authorized 

of the Act. v.v*. 

Future Actioh: ' 

The Conunission may 

initiate an enforcement 

action, at a later time, 

with respect to the matter 

discussed in this report. 

ipts 

V. Total Receipts 

> i^sbursements 

6' Operating Expenditures 

o Loan Repayments to the 

Candidate 

o Contribution Refunds 

o Other Disbursements 

Total Disbursements 

$ 1,686,988 

543,129 

5,200 

46,300 

76,000 

11,357 

87,810 

S 2,456,784 

$2,115,224 

76,000 

17,600 

133,500 

S 2342,324 

Finding and Recommendation (p. 3) 

• Misstatement of Financial Activity 

32 U.S.C. §30111(b). 
Draft Final Report of the Audit 

Division on 

Ted Lieu for Congress 

(February 18, 2014 - December 31, 2014) 

i'S 

••-.y 

V:-. 
Table of Contents 

'1 ^ 

r;» •••I':. • 

' V'?. 

•y-; 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Campaign 

} Campaign Organization 2 

j Overview of Financial Activity 2 

I 

I Part III. Summary 

Finding and Recommendation 3 

Part IV. Findi^ and Recommen^tion •%.. 

Misstatement of Financial Activity ^ 4 
Parti 

Background 

Authority for Audit 

This report is based on an audit of Ted Lieu for Congress (TLFC), 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 S2 U.S.C. §30111 (b), which permits the Commission to 

conduct audits and field investigations of any political committe^jthat is required to file a 

report under 52 U.S.C. §30104. Prior to conducting any audit ^der fhis subsection, the 

Commission must perform an internal review of reports filed b^. fleeted committees to 

determine if the reports filed by a particular committee m.eei the direshold requirements 

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

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated varidu^ risk 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions and loans; ! 

2. the.receiptofcontributions from pi^hibited sources; -

3. the disclosure of contributions receiVed^. 

4. the disclosure of individual contributors' occupation and li^e of employer; 

5. the consistency between reported figures an^baiik recn^s; 

6. the completeness of recpn^; and • 

7. other committee op^tioi^'i^cessary to tbe review. 

>..v 

% 
Part II 

Overview of Campaign 

Campaign Organization 

Impdrtant Dates 

• Date of Registration February 6,2014 

• Audit Covei^e February 18,2014,- December 31,2014 

Headquarters Encino, Califomih 

Bank Information • M. • 

• Bank Depositories Two f 

• Bank Accounts One CbfMiSng, Ontf='$avirigs 

Treasurer 

• Treasurer When Audit Was Conducted Jatne Leiderman 

• Treasurer During Period Covered by Audit 

Management Information 

• Attended Commission Campaign Finance 

Seminar >-• 

• Who Handled Accounting and •' 

Recordkeeping Tasks 

:^d Staff ' y, 

•• • * 

OverView of Financiai Activity 

Cash-on-hand ^ February ISt 2jDl4 SO 

Receipts 

o Contributions from Ihdi^dpals 1,686,988 

o Contributions from PolitiS^ Committees 543,129 

o Gonfributiohs from the Cat£|!idate 5,200 

o Transfers from Other Authorized 

Committees 46,300 

o Loans fix)m the Carididate 75,000 

o Offsets to Operating Expenditures 11,357 

o Other Receipts 87.810 

Total Receipts $2,456,784 

Disbursements 

o Operating Expenditures 2,115,224 

o Loan Repayments to the Candidate 76.000 

o Contribution Refunds 17.600 

o Other Disbursements 133,500 

Total Disbursements S 2342,324 

Cash-on-hand @ December 31,2014 S 114.460 
Part III 

Summary 

Finding and Recommendation 

Misstatement of Financial Activity 

Ehiring audit fieidwork, a comparison of TLFC's reported iinanc^! activity with its bank 

records revealed a misstatement of receipts and disbursements,fdf calieridar year 2014. 

TLFC understated its receipts by $87,748 and understated Us'disbursements by $92,802. 

In response to the Interim Audit Report recommendation^ TLF^Ildi^d amended disclosure 

reports that materially corrected the misstatements for cafdndair yei/£;^0,14. (For more 

detail, see p. 4.) " 

'A-
Part IV 

Finding and Recommendation 

I Misstatement of Financial Activity | 

Summary 

During audit fieldwork, a comparison of TLFC's reported financial activity with its bank 

records revealed a misstatement of receipts and disbursements for calendar year 2014. 

TLFC understated its receipts by $87,748 and understated its disbursements by $92,802. 

In response to the Interim Audit Report recommendation, TLFC tiled amended disclosure 

reports that materially corrected the misstatements for calendar year 2014. 

•V 

Lei^l Standards 

A. Contents of Reports. Each report must disclose: 

• the amount of cash-on-hand at the beginning and end of the reporting periojd; 

• the total amount of receipts for the reporting pmqd and for the election cycle 

including other forms of receipts; -

• the total amount of disbursements for the reporting period and for the election cycle; 

• transfers to other committees authdrized by the same candidate; 

• any other disbursements; and ' ' ^ 

• certain transactions that requite itemization ori'Sqhedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 52 U.S.C.'§30104(b)(1), (2), (3), (4) and (5). 

• ' 3: 

B. Categories of Receipts for Authorized Committees. 

An authorized committee of a candidate for Federal office shall report the total amount of 

other receipts received during the reporting period and during the election cycle. 

IIC.F.R.§I04.3(a)(3)(x). • ' • /' 

C. CatfBgories of Disbursenaente for Authorized Committees. 

An authorized committee of a candidate for Federal office shall report the total amount of 

transfers to other committeiss authorized by the same candidate m^e during the reporting 

period. II C.F;R. §104.3(b)(2)(ii). 

D. Joint Fundra^ing by Committees. 

The participants in a joint fundraising effort under this section shall either establish a 

separate committee or select a participating committee, to act as fundraising 

representative for all participants. The fundraising representative shall be a reporting 

political committee and an authorized committee of each candidate for federal office 

participating in the joint fundraising activity. 11 C.F.R. §102.17(a)(I)(i). 
Facts and Analysis 

A. Facts 

As part of audit fieldwork, the Audit staff reconciled TLFC's reported activity with its 

bank records for calendar year 2014. The reconciliation revealed that TLFC misstated its 

receipts and disbursements. The following chart outlines the discrepancies between 

TLFC's 2014 disclosure reports and its bank records, and the succeeding paragraphs 

explain why the discrepancies occurred. 

2014 Campaign Activity >•-

Reported Bank Records Discrepancy 

Beginning Cash Balance @ 

February 18,2014 

$0 

V. • 

$0 

Receipts $2,369,036 $2,456,784 

.* 

F,.. 

$87,748 

Understated 

Disbursements $2,249,522 $2,342,324 ' $92,802 

Understated 

Ending Cash Balance @ 

December 31,2014 

$121,864" . $114,460 $7,404 

Overstated 

V ' ••. 

The understatement of receipts resulted nom ttS^^tQUowuig: 

• Contributions for Lieu Victory Fudd,^ 

• Other receipts, not jjl^grted ; 

Understatement of K(e<^ipts 

The understatement of %bursei^nts resulted from the following: 

• Transfere.Qf Lieu ViQlpty'F'tikd.fipptributions, not reported 

• Other di'sbur^ments, hdj^portetf 

• Under-reported disburse^Ms 

• Over-reported disbujFsemen^^ 

Net Understatemepi of Disbursements 

•• if.' 

m 

S 87,748 

$ 86JS0 

7,540 

2 

The $7,404 over^tement of the ending cash balance resulted from the misstatements 

described above, as well as from a $2,350 mathematical discrepancy in calculating the 

ending cash balance. 

' TLFC miscalculated its ending cash balance. !tshou!dbeS119,S14(adifrerenceofS2,3S0). Using the 

correct ending cash balance (SI 19,314), the discrepancy is SS,0S4. 

' On April 17,2014, TLFC entered into a joint fiindraising agreement with the Democratic State Central 

Committee of CA - Federal. The agreement established both committees as participants and a new 

committee. Lieu Victory Fund, was formed to serve as the fiindraising representative. TLFC did not 

disclose Lieu Victory Fund as a joint fiindraising representative or the depository established to receive 

and distribute proceeds on its Statement of Organization, received on February 7,2014. TLFC and Lieu 

Victory Fund share the same treasurer, Jane Leiderman. 
Regarding the $86,750 in receipts and disbursements that were not reported by TLFC, the 

Audit staff determined that TLFC processed credit card contributions designated for the 

Lieu Victory Fund. Per the TLFC treasurer, these credit card contributions were received 

on donation forms designating the Lieu Victory Fund as the recipient committee. The 

treasurer further informed the Audit staff that Ae Lieu Victory Fund had no way to 

accept/deposit credit card contributions because it had not established a credit card 

merchant account. Alternatively, the Lieu Victory Fund used TLFC's credit card 

merchant account to process its credit card contributions and then periodically transferred 

these contributions in bulk to the Lieu Victory Fund. TLFC did not report the receipt of 

these credit card contributions or the transfer (disbursement) to the Lieu Victory Fund. 

However, TLFC did report the subsequent transfers of net proce^' from Lieu Victory 

Fund (including memo entries of the gross amounts), and die Lfeu Victory Fund itemized 

each of the credit card contributions on its disclosure repo^. 

B. Interim Audit Report & Audit Division Reconiiilcndation 

The Audit staff discussed the misstatement during ^e exit conference aiidprovided the 

treasurer with supporting documentation. The jd^urer stated that the credit-card 

contributions deposited into the TLFC account wete^curateiy reported by Lieu Victory 

Fund and that $46,000 of the $86,750 in contributioh's^^ly wound up coming back to 

TLFC as its share of proceeds from the joint fundraiser!'^e treasurer added that the 

proceeds had also been properly repoi^,|^ TLFC. ' . 

In response to the exit conference, the trel^uref'^a^that the decision to utilize the 

TLFC merchant account to process-Lieu V^ctoig^'iiiidc^tributiohs was made when "the 

campaign was in full mod^g^jgll the mone^^eeded to.be processed immediately." She 

further added that, ^ the TLFGir^urer, it w^ acceptable to use the TLFC merchant 

account for the follb^g reasorb; 

• Contributors wouild;.!^ .n^e "Lieu'VOn their credit card statements and this 

would.rdlow ]^em t^^^r ii^tifiE^d contribution to Lieu Victory Fund; 

• Most of the bq^ibutiohs^^ere eventually transferred back to TLFC when Lieu 

.Victory Fund dis^jimed rfs^pigg^ds to the fundraiser participants; 

w ihLFC transferred'i^ds to ^li^burse Lieu Victory Fund the same day that the 

credit card contributions were processed by the TLFC merchant account. The 

treasUi^ further stafi^ that TLFC did not misuse the funds nor did it use any of 

the funds intended for Lieu Victory Fund. 

Alternatively, the treasurer stated that she could have processed the credit card 

contributions through her company's merchant account and made a disbursement to Lieu 

Victory Fund. But, she thought this method may cause complications with contributors 

not being able to easily identify a charge to their credit cards. 

In accordance with 52 U.S.C. §30104(b)(2), an authorized committee must report all of 

its receipts and disbursements, including, more specifically, transfers of funds to a 

candidate's other authorized committees. Although the funds received may or may not 

ultimately be characterized as contributions to TLFC, they were, nevertheless, at least 

reportable as receipts. As a registered and, therefore, a reporting committee TLFC was 
required to report, at a minimum, the receipt of these contributions as "other receipts." 

S2U.S.C. §30104(b)(2)(J); 11 C.F.R. §104.3(ap)(x). Regarding the disbursements 

(transfers) to Lieu Victory Fund, a joint fimdraising representative is considered an 

authorized conunittee of each candidate who participates in the joint fundraising 

arrangement. 11 C.F.R. §102.17(a)(l)(i). An authorized committee of a candidate is 

required to report transfers of funds m^e to other authorized committees of the same 

candidate. 11 C.F.R. §104.3(b)(2)(ii). Thus, TLFC was required to report its 

disbursements of funds to Lieu Victory Fund. 

The Interim Audit Report recommended that TLFC amend its disclosure reports to 

correct the misstatements noted above and reconcile the cash balance on its most recent 

report to identify any subsequent discrepancies that could aff^t the recommended 

adjustments. Further, TLFC was recommended to adjust j^'c^h.balance, as necessary, 

on its most recent report, noting that the adjustment was the resultOf prior-period audit 

adjustments. '>V; 

C. Committee Response to Interim Audit v... 

In response to the Interim Audit Report reconomefl^on, TitFC filed amended disclosure 

reports that materially corrected the misstatements l^^iendar year 2014. TLFC also 

filed an amended Statement of Organ^tion identifyingrLieu Victory Fund as a joint 

fundraising representative. ' li-i-.-. Vi-

'••VO'-- 'v 

.*.• -