This file contains archived live captions of the audit hearing of the Federal Election Commission held on January 28, 2021. This file is not a transcript of the meeting, and it has not been reviewed for accuracy or approved by the Federal Election Commission. This file is not a transcript of the meeting, and it has not been reviewed for accuracy or approved by the Federal Election Commission. THANK YOU. GOOD MORNING. THE AUDIT HEARING FOR GRASSROOTS 1914 WILL NOW COME TO ORDER. THIS HEARING LOOKING CONDUCTED PURSUANT TO THE PROCEDURAL RULES ADOPTED BY THE COMMISSION IN 2009 WHICH IS AVAILABLE ON THE COMMISSION WEBSITE. I WANT TO NOTE THIS IS ACTUALLY THE 16th AUDIT HEARING ON THIS PROGRAM. Today we have Jonathan Bergen and Emily Hogan. This is my first time meeting you in virtual person. Welcome today. Also, I want to get into some of the details about this. It is a little longer than normal but I think it is worthwhile since we have new people with us. On October 14, 2020 the audit division sent a copy of the draft final audit report to the committee. That report set forth a single finding of misstatement of financial activity, increased activity by letter dated November 6, 2020 council requested a hearing on behalf of the committee. The commission granted the request and notified the committee on December 3, 2020. Council for today's hearing, you may have a brief opening statement. Following your presentation the, the commission, general staff is and staff director will have an opportunity to ask questions. At the end of the hearing you have an opportunity to make a closing statement. As stated in the December 3 letter, your statement should present issues and arguments that you already brought to the attention of the commission, to the audit division. Action and request by Commissioner at a hearing or intervening subsequent to your response to the draft final audit report, you may only present issues of arguments at the hearing that were raised in your response. And now, council, you can proceed with your opening statement. Thank you chair, Madam chair and thank you to you and the vice chair and all the commissioners for the opportunity to appear today. I wanted to start with a summary of how we got here. There is no factual dispute here. Grassroots victory pack -- PHC -- G VP is a non-connected pack that filed reports with the commission in 2017 and 2018 that understated disbursements by a bit over $106,000. In early 2018 on its own volition and without any audit notice, the committee reported and reported disbursements and amended those reports. In order to discover the source of the discrepancies, G VP retain the compliance to review past reports and financial activities. This review uncovered additional undisclosed disbursements , principally during the period from May through November 2017 , as well as previously reported contributions and disbursements that required amendment and G VP amended its reports in August 2018, and again, this is more than a year before any audit notice came. GVP did what it was supposed to do. As a result, and I really want to underscore this point, at the time the audit notification letter was sent in October 2019, there was no misstatement of financial activity on the filings in the public record. The draft final audit report states unequivocally GVP is correct in stating that in August 2018, prior to the October 2019 audit notification , it amended its disclosure reports to accurately disclose missing financial activity. Again, there is no factual dispute on this point. After GVP received his audit notice, a challenge the jurisdiction to conduct the audit based on a vote by the commission after quorum. After the commission disagreed with the challenge, GVP fully complied with the audit. The audit did not find any material errors. Again, I just want to keep coming back to this quote from the draft final audit report. GVP is correct in stating that in August 2018 prior to the October 2019 audit notification, it amended its disclosure reports to accurately disclose missing financial activity. Despite this, in May 2020 the audit division issued a preliminary audit finding of increased financial activity. Not a misstatement of activity, but increased financial activity. Now, in our view, it is unclear what public policy is served by the audit division making a finding that a committees amended filings differ from original filings as a preliminary audit finding did it. by making the amended filings, GVP already acknowledged its original filings were incorrect. The commission could have made such a finding from the face of the reports already on the public record. The audit neither added or subtracted anything to the analysis that the commission could have done based on those reports. GVP pointed all this out to the audit division in its response. In response, the audit issued an interim report that included a finding that there had been a misstatement of financial activity. Again, noticed the to change, not increased as the preliminary audit finding put it, but an actual misstatement. The draft final audit report includes the same finding of a misstatement. And so that is what brings us to today and why we sought a hearing before the commission. As we pointed out in our latest correspondence with the commission, under the audit division own written guidelines, the standard for misstatement of financial activity simply was not met. If you look at the audit divisions written manual , that is cited both in our earlier response and then also in the audit division response back to that response, there is a section entitled misstatements of financial activity . It is on page 28, and in its hearing memo the audit division acknowledges this section requires that the audit division compare a quote, compare a committees most recent reports filed , IE, and amended reports to its bank activity. Not the original reports, but the amended reports, which we know would not have shown any kind of material error. But that is not what the audit division dead. As we know, it appeared the GVP original filings against the reported bank activity. Accordingly, the audit division concedes that do not rely on the section entitled misstatements of financial activity to find the GV T -- GVP in fact made a misstatement of financial activity. The audit division contends it may rely on an entirely different section of its written, one entitled increased financial activity, to find that GVP had a misstatement of financial activity. We think this argument should be rejected by the commission. A misstatement of financial activity is simply not the same thing as increased financial activity. A finding that a committee misstated its financial activity is a judgment about the truth or falsity of its filings with the agency. As a result, according to the audit divisions own written manual, it is a sufficiently serious offense that in some circumstances it may actually be referred to the office of General Counsel for further action. A finding, on the other hand, that the committee had increased financial activities is a simple factual observation. Appearing will report against another. According to the audit divisions manual, such an infraction can only be referred to, or such a sanding can be referred to the alternative dispute resolution office, not OGC. The difference in the findings again is reflected in the standard that the audit division must follow in getting there. to find a misstatement of financial activity, according to the audit division, at least in that part of the manual, you need to compare the amended reports against the bank records. But defined increased financial activity, you merely need to compare the original reports against the bank activity. We think it is important from a policy standpoint and from a due process standpoint the audit division adhere to its own manual. The commission took an important step in 2011 in our view after congressional oversight hearings when it published the audit division manual from materiality thresholds. The commission publicly boasts on its website that it is work to further transparency it is please to advance his agency goal by making these internal documents available to the public. Yet, here the audit division asked the commission to approve a draft final audit report that is simply unsupported by the audit divisions own written guidelines. So we are here before the commission to urgent to reject this proposed finding of a misstatement of financial activity. Thank you for your time. Thank you. Are there any questions? Thank you. Thank you Mr. Berkon. I agree with you. I don't think we have a factual dispute here. Your committee, your client, filed reports, amended their reports, then was audited, and the audit report states that you have amended your reports. It seems to me, I mean, is the problem four words , misstatement of financial activity? If those words were taken out of the report, it said pretty much the same thing as has now, it just was headed increased activity instead of misstatement of financial activity, would that solve the problem? I think it would. I mean, as noted, I disagree with the policy of having a finding that essentially compares original reports against the bank records, but the manual says what it says. So I think if we will follow the manual, if we remove those four words, than the finding would be consistent with the manual. Great. That is all I got. Any other questions? Madam chair. What consequences in a practical sense would flow from that four word change to the audit report? >> Thank you Mr. vice chair. I think from a practical standpoint, it is mostly about what appears on the final record. We think the word misstatement has connotations associated with it that are far more negative and imply something that happened that just didn't happen. Really is about clearing up the public record. I think that is the first point. The second point is, according to the manual, a finding of increased financial activity, obviously it is up to the commission whether or not refers the matter for further enforcement, but a finding of increased financial activity according to the manual cannot be referred to OGC for further enforcement. I think that is a significant difference as well. Thank you. Thank you. Madame Chair, if I may. Good morning Commissioner. And Mr. Berkon and Ms. Hogan. Just to respond to the portion about the practical indications, from audits perspective, it would not change . We have categorize this as an increase financial activity finding, and we conducted the review in accordance with everything that is included within the increased financial activity review. This committee is , if any committee is eligible for referral in an increased activity context, it would only go to ADR, and the same is true for this particular committee. Madame Chair. Just a clarification as well. I realize auditors are not always known for realizing how important words are, but I wanted to highlight is well within our website one of the main categories if a committee or the regulating committee were to actually go and look at audit reports, we have approximately 14 finding issue categories. One of those is misstatements. Of somebody actually clicks on that misstatement to better view all of the findings, they them will see seven subcategories listed underneath that. One of those being increased activity . If you actually were to do that, you would see those previous audit reports that we have have in the past, some going back quite some years, that have the exact same verbiage, misstatement, increased activity. Just to highlight we have been fairly consistent in how we have presented this to committees. Thank you. >> Thank you. Any other questions? I am seeing none. Mr. Berkon or Ms. Hogan, would you care to make a closing statement? Thank you again Madame Chair. Again, just to close, I think as the commissioner in Vice Chair pointed out, we do think that removing those four words would , at the very least, make sure this finding is consistent with the written manual, and we ask the Commissioner to remove those four words so that is not part of the finding. Thank you very much. Thank you. Excuse me, technology at work. As were notified, the audio recording will be made available and posted to the commission website. The commission may rely on the contents of this audio recording and its consideration of the issues raised by any subsequent action , and the committee may be bound by any representations made at this hearing. I want to thank Mr. Berkon and Ms. Hogan for appearing today . This was very informative. We appreciate your time. That will adjourn this hearing. Thank you