February 1, 2017

Compliance Corner: Implementing Best Practices for Off-Year Federal PAC Operations

Holland & Knight Eyes on Washington Blog
Andy Emerson | Aimee S. Lubin

With year-end Federal Election Commission (FEC) filings now submitted and the 2018 election season already underway, federal Political Action Committee (PAC) managers now have the opportunity to reassess efforts to ensuring continuing compliance with federal campaign finance laws.

Key best practices in this area include:

  1. Determining whether your PAC is better off filing disclosure reports with the FEC monthly, as is usually the case in an election year, or quarterly/semi-annually, which could potentially limit your administrative burden during off-years
  2. Reviewing your FEC Form 1 (Statement of Organization) to ensure that the FEC has your most up-to-date contact information
  3. Conducting a biannual audit, or less invasive legal compliance review, to ensure that your PAC is operating on a sound footing in the new election cycle

Assessing your Filing Frequency

PACs and party committees have the option of filing disclosure reports (FEC Form 3) with the FEC on a monthly basis or on a quarterly/semi-annual basis, and have the option of changing their filing frequency one time per year. It is a common practice for well-run PACs to change their filing frequency annually.

PACs often change their filing frequency because doing so reduces the administrative headache of filing every month during off years, while ensuring accurate and timely disclosure during election years. This is particularly true for federal PACs that give in multiple states. Filing on a monthly schedule during election years allows these active PACs to avoid filing pre-primary reports for each election in which they make a previously undisclosed contribution or expenditure. Alternatively, because quarterly reports are actually only due twice in 2017 and there are typically very few special federal elections, filing quarterly in this "off year" will dramatically reduce the number of required filings, and by extension the potential for misfiling or other compliance errors.

Switching your committee's filing frequency is easy: simply attach a letter (paper filers only) or submit a Form 99 indicating that you will now be filing reports on the other schedule. Note that filers who filed quarterly in 2016 do not need to submit a letter unless they want to switch to monthly filing - they are automatically on the "quarterly" schedule for 2017. Keep in mind you have one opportunity to switch your filing frequency a year, so be sure you want to do it before you make the switch.

Reviewing Your Administrative Information

This is also a good time to evaluate the administrative roles in your PAC and determine if your PAC's Statement of Organization needs to be amended for any reason. Ask yourself these questions:

  1. Have there been any role changes to the Treasurer, Assistant Treasurer or Custodian of Records?
  2. Has the physical address changed?
  3. Is the bank information still the same?
  4. Are the email addresses current? (Remember, you can list up to two email addresses to be used for FEC communication. It is a good idea to do this to ensure all communications from the FEC are received.)

If any of this information has changed, you are required to notify the FEC by filing an amended "Form 1" that contains current information.

Additionally, in January you may want to evaluate your preferred form of communication with the FEC. The FEC's default mode of communication is to send an email, even when issuing important notices such as Request For Additional Information, (RFAI) letters (which you don't want to miss!). However, if you prefer, you can opt-out of these particular emails from the FEC by submitting a written request maintain correspondence with the FEC via the USPS. This request can also be submitted when a Form 99 which allows for this type of memo text correspondence in additional to allowing you to change your filing schedule for the year.

Conduct a Compliance Review or General Audit

It is generally a best practice to conduct an annual or biannual legal compliance review of your PAC's operations, including reconciliation of bank statements with disclosure reports submitted to the FEC, and recipient committee's disclosures. Such a review may also be useful to ensure that any state-level contributions made by your PAC comply with state or local laws, including ever-changing state pay-to-play statutes, and to proactively identify and correct misreported contributions that might otherwise be cause for FEC inquiry.

A PAC may also consider whether a legal compliance review should be accompanied by a limited review of the PACs financial records by a Certified Public Accountant (CPA). A CPA can assist the PAC by applying analytical accounting procedures to the reports, banking records, and other internal documents in conjunction with potential inquiries to the PACs management team. These procedures can help ensure that the PAC's future financial statements conform to Generally Accepted Accounting Principles (GAAP) and may help identify the source of any discrepancies (including misappropriation of funds) that might be identified during a compliance review.

Ensuring your PAC's compliance with applicable federal and state laws can be a daunting task, but with the election behind us, and an off-year ahead, now is the time to implement best practices to ensure your ongoing compliance, and identify any potential deficiencies. Doing so will provide you with steady foundation as you move forward in this new election cycle.

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