December 4, 2007

By: Laurence D. Laufer

PAC Compliance: Internal Controls

It is essential that political committees take steps to protect their assets from misappropriation and errors that lead to misreporting. Earlier this year the Federal Election Commission issued a policy statement creating a Safe Harbor for Misreporting Due to Embezzlement and also more general guidance on internal controls. The safe harbor lists internal controls and additional steps to be taken after discovering that committee funds were misappropriated that would preclude the FEC from seeking monetary penalty for the filing of incorrect reports due to the misappropriation. These measures include:
  • Review of bank statements for unauthorized transactions and reconciliation with accounting records on a monthly basis. Bank records must also be reconciled to disclosure reports prior to filing.
  • These reconciliations must be done by a person other than a check signer or an individual handling the committee’s accounting.
  • Double signatures or written authorization required for payment checks in excess of $1,000.
  • Restrictive endorsement on all checks received, such as: “For Deposit Only to the Account of the Payee”. The individual receiving checks must not also handle accounting or have banking authority for the PAC.
Post-discovery measures require notifying relevant law enforcement and the FEC of the misappropriation and voluntarily filing amended reports with the FEC. The FEC’s guidelines are a baseline for internal control.  Comerica Bank, which provides administrative services for PACs, advises that additional controls can give additional protection. Examples include: 1) having authorized requestors and authorized signers - these should not be the same people; and 2) utilizing a third party for administration of the PAC. While the FEC’s guidance pertains only to federal political committees, all PACs should adopt similar safeguards.

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