For decades, Federal election committee reporting laws have for decades ensured an even playing field for candidates. In spite of the regulations, the FEC has found that despite these stringent laws, embezzlement, misappropriation and other financial crimes still take place.
Often, these laws are often broken without committee management even becoming aware of the wrongdoing. This can lead not only to the startling realization that the PAC's funds are missing, but also that in all likelihood, misappropriation and embezzlement have led to erroneous FEC reporting for as long as the wrongdoings were happening. These inaccurate disclosure reports mean committees are at risk of violating FEC reporting laws, which can leave them open to enforcement action. Even if PAC management wasn't aware of the actions, they will still be held accountable – ignorance is no excuse for the FEC.
How Safe Harbor can help
Understanding that the entire PAC management may not be involved in embezzlement or misappropriation, the FEC in 2007 established its safe harbor rules, which protect committees that have specific internal controls in place. These checks are meant to be a proactive step to keep embezzlement or misappropriations from ever happening within the organization in the first place.
Ignorance is no excuse for the FEC.
"The Commission is issuing a Statement of Policy to announce that it is creating a safe harbor for the benefit of political committees that have certain internal controls in place to prevent misappropriations and associated misreporting," the FEC explained in its initial announcement. "Specifically, the Commission does not intend to seek civil penalties against a political committee for filing incorrect reports due to the misappropriation of committee funds if the committee has the specified safeguards in place."
However, the FEC will only withhold pursuing a civil penalty if the PAC has had both the internal control reporting measures in place and accurately follows all steps outlined by the FEC once an instance of misappropriations is discovered.
The FEC recently consolidated the questions it receives most surrounding how safe harbor works, and the appropriate steps PACs must take to avoid civil penalties. These questions concern:
- The minimum internal controls that are required
- What to do upon discovering a misappropriation
- Common preventative measures
Preventing misappropriations
The best way to avoid having to handle a misappropriation is, of course, preventing it from ever happening in the first place. Accomplishing this requires additional controls that are not required by the FEC to attain safe harbor status, but can certainly prove effective for keeping any financial wrongdoing at bay.
First off, keep the number of people who are allowed to sign the PAC's checks to an absolute minimum. It can also be a good idea to establish a threshold amount that requires an additional signature if the check amount surpasses it.
These controls obviously don't take into account the use of debit and credit cards. However, these transaction methods should be heavily regulated as well – this may include asking the card issuer to place a limit on spending in a pre-established period.
For more preventative measures, get in touch with a PAC help group that has years of experience in this area.
Be sure you have all internal controls in place to both meet safe harbor requirements and keep these transgressions at bay in the first place.
How do I attain safe harbor?
The above tips may help prevention, but they won't help you achieve safe harbor. To be considered protected by safe harbor by the FEC, the PAC management team must ensure the group meets all minimum internal controls. For example, any bank accounts connected to the PAC must be opened in the name of the committee and use the group's EIN – as opposed to opening the account in the name of a person, and using that person's social security number.
Furthermore, the PAC must have checks in place to ensure there are no unauthorized transactions on a monthly basis. These records must match all disclosure reports before they are filed, and whoever performs this function cannot be a check signer or anyone involved in the PAC's accounting group.
Anytime the PAC performs a wire transfer, it must be authorized in writing by two individuals, who must be identified in the PAC's internal control documents. Controls must also have an imprest system in place. This system, as defined by the FEC, is a series of procedures in which "the sum of the disbursements recorded in the petty cash log since the last replenishment and the remaining cash always equals the stated amount of the fund."
For a complete list of minimum controls, visit the FEC website or speak with PAC management consultants like Public Affairs Support Services (PASS)..
As soon as anyone in the PAC discovers a potential misappropriation, in order to remain in safe harbor with the FEC, the individual must notify enforcement agencies, including both law enforcement and the FEC. The FEC will require new reports that account for the misappropriated funds.
Though not common, embezzlement and misappropriations can cause serious harm to your PAC. Be sure you have all internal controls in place to both meet safe harbor requirements and avoid these transgressions in the first place.