Federal Election Commission

Office of Inspector General -- Audit Report

Audit of the Commission's Public Disclosure Process

December 8, 2005

If you require the entire printed version of the audit report, contact the Office of Inspector General, Federal Election Commission, 999 E Street, NW, Washington, DC 20463 or call Dorothy Maddox-Holland, Special Assistant, phone: (202) 694-1015, fax: (202) 501-8134, or e-mail: oig@fec.gov.

Executive Summary

In response to a request received from former Congressman Stephen Horn, the Office of Inspector General conducted an audit of the FEC’s public disclosure process. The former Congressman had expressed concern about the discrepancies between the amounts that political action committees (PACs) reported given to House and Senate candidates and the amounts that the candidates had reported receiving. Therefore, the primary objectives of the audit were to: 1) determine the extent, if any, of disclosure differences between candidate contributions reported by political committees and related political committee contributions reported received by candidates, and 2) assess whether an adequate process is in place to remedy any reporting discrepancies.

The audit work was conducted between August 2002 and July of 2005. We performed a significant amount of background research to obtain an understanding of the FEC’s disclosure process. We also conducted several preliminary meetings with management and contacted external organizations for information related to the audit. In order to achieve our stated objectives, we reviewed pertinent documentation, conducted interviews with Commission staff, and performed extensive analyses of campaign finance data to identify anomalies and other attributes of the data. We also developed process narratives and flowcharts which document the functions and processes of the FEC offices primarily responsible for the disclosure process.

Specifically, our audit examined the extent of disclosure differences within the Commission’s complex disclosure process and the magnitude of campaign finance data. We found that disclosure differences generally exist between the amounts of money reported given by a PAC and the contributions the candidate reported receiving. In fact, we computed a total variance of 1.2 million dollars between PAC contributions reported disbursed and related PAC contributions reported received by our judgmental sample of fifty House and Senate candidates. The total amount of PAC contributions reported given by the donor PACs did not equal the total amount of PAC contributions reported received by the fifty sampled candidates. Furthermore, remote users of the Commission’s disclosure database are not adequately made aware of potential reporting discrepancies that could occur among reporting entities. The disclosure database accessible from the FEC Web site does not warn users to be cautious when making conclusions from the data files in regards to a candidate’s campaign financing activity.

A variety of campaign factors that are inherently part of the FEC’s campaign finance disclosure process produce disclosure differences between the amounts of money reported given by a PAC and the contributions the candidate reported receiving from the PAC. Differences between reporting entities can be attributed to: timing disparities, returned PAC contributions, duplicate transactions, inaccurate or incomplete reporting, inaccurate coding, the non-reporting of in-kind contributions, and differences in filing requirements.

Additionally, we found the lapse in time between PAC reported disbursements and candidate reported receipts of those disbursements can also cause disclosure differences. In fact, PAC and candidate transactions can cross over one or more reporting cycles. Furthermore, we found it difficult to accurately match a PAC disbursement with the exact candidate receipt of that PAC disbursement since the donor committee’s identification number is not required to be included on the contribution check and one PAC can be known by several different names, acronyms, and abbreviations.

Overall, we believe the FEC consistently constructs, for the most part, an accurate depiction of financial activities based upon the participation of Congress and other mandated filers. To accommodate the evolving nature of the disclosure database, we found that the Commission has developed sound policies and procedures that attempt to prevent, identify, and correct reporting variances. Thus, the agency continually makes the data available to provide the electorate with the ability to make educated, informed decisions on the political process based in part on where candidates for federal office derive their financial support. However, patrons must understand that, due to the magnitude and complexity of the mandated disclosure system, the data must be understood before assumptions are made regarding a candidate’s campaign financing activities. We discovered that the FEC’s Web site doesn’t encourage patrons to review both sides (donor and recipients) before making assumptions with the numbers. Nor does the disclosure database effectively disclose the inherent factors that cause disclosure differences. Considering this, we made a few suggestions for improvement to the disclosure process, which are outlined at the end of this report.