In accordance with the requirements of the Inspector General Act of 1978, as amended, I am submitting the Federal Election Commission (FEC), Office of Inspector General (OIG) Semiannual Report to Congress covering the period October 1, 2003 through March 31, 2004.

            The objectives of the Office of Inspector General are to 1) conduct and supervise audits and investigations relating to the Federal Election Commission’s programs and operations; 2) detect and preventing fraud, waste, and abuse of agency programs and operations while providing leadership and coordination; 3) recommend policies designed to promote economy, efficiency, and effectiveness of the establishment; and 4) keep the Commissioners and Congress fully and currently informed about problems and deficiencies in FEC agency programs and operations, and the need for corrective action. In order to accomplish these objectives and improve the accountability and performance of the Federal Election Commission, the OIG relies on audits, investigations, and inspections conducted by the OIG staff.

            Major activities and accomplishments relevant to the Federal Election Commission, Office of Inspector General are summarized in the Executive Summary. Detailed information on a specific topic can be found in subsequent sections of this report.

            The audit entitled Audit of the FEC’s Public Disclosure Process – (OIG-02-03) was originated during a previous reporting period. The two major objectives associated with the audit are 1) to determine the extent, if any, of disclosure differences between candidate contributions reported by political committees and related committee contributions reported received by candidates; and 2) determine whether an adequate process is in place to remedy reporting discrepancies.

            During this reporting period the Office of Inspector General has made significant progress in executing the audit pertaining to the FEC public disclosure system. The auditors met and discussed the results of a preliminary review of various campaign finance transactions with a dollar value difference between what the political action committee (PAC) reported vs. what the candidate reported. Based on this discussion the auditors selected and tracked additional transactions to include only those with a difference of $10,000-$20,000. Pertinent information from each transaction was documented to include the amount of the transaction and date reported by the committee/PAC and date recorded by the candidate.

            Additional work related to the audit included randomly selecting one candidate (incumbent only) to compare balances of candidate receipts vs. political committee disbursement. The OIG has reviewed a large quantity of material such as quarterly reports and amendments (if applicable), as well as mid-year and year-end reports filed by candidates. The auditors also obtained and evaluated the summary report of committees who gave to the candidates - the summary report summarizes campaign finance transactions reported by the PAC or Non-Party committees. The auditors then traced each transaction, as reported by the committee/PAC, to the corresponding quarterly report filed by the candidate. The OIG auditors met to discuss the audit objectives, the related audit steps, and work completed thus far.

            A significant amount of time has been and continues to be devoted to completing this assignment. The section entitled Audit, starting on page 9, contains more detailed information.

            For many years improving financial management and information security has been an important priority of the federal Government. On November 7, 2002, the President signed Public Law 107-289, The Accountability of Tax Dollars Act of 2002, which states that Federal entities are required to have their financial statements audited annually by the agency Inspector General. Starting with fiscal year 2004, and annually thereafter, the FEC Inspector General is required to perform an audit of the agency’s financial statements.

            The President’s goal is to ensure that federal financial management systems produce accurate and timely information to support operating, budget, and policy decisions. The OIG’s goal is to ensure that the agency’s financial operations are properly conducted, financial statements are presented fairly, and applicable laws and regulations are being followed. The OIG is preparing to meet this obligation and has contracted with an independent certified public accounting (CPA) firm to conduct the audit of the FEC’s financial statements. Additional information pertaining to this topic is located on page 12, the Financial Statement Audit Planning section of this report.

            Prior to the end of this reporting period, the OIG received a congressional request from Senator Jack Reed regarding electronic voting machines. The letter from Senator Reed stated that he was writing on behalf of his constituents in Rhode Island. In order to accurately respond to the concerns of the constituents, Senator Reed contacted the OIG for assistance.

            The auditor responsible for this assignment provided Senator Reed with background information about the FEC and its purpose for being established. Additional information was also given pertaining to the Commission’s Office of Election Administration (OEA – the OEA transferred to the EAC on April 1, 2004) and the newly created Election Assistance Commission (EAC) along with information concerning electronic voting machines. For detailed information see the Congressional Request section located on page 15.

            Inspectors General are responsible for ensuring efficiency and integrity in the programs and operations of the agencies they oversee. The OIG hotline provides a prompt, effective, and confidential channel for reporting fraud, waste, abuse, and mismanagement to the Inspector General. Individuals with information regarding the manner in which the FEC executes its programs and operations are encouraged to contact the Office of Inspector General by calling, visiting, e-mailing or sending correspondence to our office.

            The OIG is currently addressing a hotline complaint received from an individual who requested confidentiality. The complaint was recorded on the OIG’s Procedures for Processing Hotline Calls form, which states a preliminary inquiry must be conducted on all allegations reported to the OIG. During this reporting period, the OIG conducted a preliminary inquiry pertaining to the hotline complaint. Once the preliminary inquiry is completed, the OIG will determine whether or not a full investigation is warranted. For complete details, see the section entitled Hotline Complaint, which is on page 17.

            In addition to audits, investigations, and reviews, the OIG also performs an array of other activities. This section is intended to provide a brief synopsis of the general activities pertaining to the OIG. Starting with page 18, in the section entitled Additional Office of Inspector General Activities, detailed information regarding the additional activities of the FEC/OIG can be found.

·   The FY 2004 Omnibus Appropriations Bill requires all Inspectors General to submit a report to Congress on the implementation of the Rural Development Act of 1972. Research as been conducted and the report will be finalized in June (see page 18).

·   The Commission’s Policy Legal Review Administrative Law office contacted the OIG regarding the OIG’s contract authority. FEC management asked the Administrative Law office to provide a legal opinion on whether the FEC OIG may enter into contracts absent Commission approval. To discuss the issue the OIG met with an attorney representing the Administrative Law office (see page 18).