Explainer on State Board of Elections Audits

ElectaFile Short Summary: “Audit” is a word that makes most people a bit nervous. This post demystifies the State Board’s process and offers helpful tips on what to do when a committee is audited. Sometimes, there’s a long “look back” period on requests for information (especially for folks who are serving in long-term offices (like superior court judges…)).

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Good morning!

We’ve talked before about the parallels between campaign finance reporting in NC and IRS tax filing. One word that is used in both worlds is “audit…” That word naturally puts folks a bit on edge. It means someone is coming behind you to check your work.

The SBOE is required by law to review campaign finance reports periodically and “check your work.” These are known as “audits,” and they are performed by audit professionals employed by the SBOE.

Note: This post talks about the State Board of Elections process. We’ll cover county boards of elections’ processes in another post.

When do Audits Happen? The law simply requires reports to be inspected for compliance. It doesn’t specify a time period per se. Given the number of reports filed annually in NC, this is a tall task. So there’s some necessary triaging and force multiplying.

They accomplish both by using a tiered review system. The State Board’s vision on timing and scale is set out in something called its “Campaign Finance Examination Policy,” available for all to read at this link. You should read that!

How Long Do I Have to Keep Records? (Prepare for a long-winded answer that may disappoint you…) Generally, candidate committees have to keep records from the first day of the election cycle until two years after the election for which you were campaigning or politically active. In other words, keep records for the full election cycle or term plus 2 years. This rule has a steep learning curve because it depends on the length of the term of office that the candidate seeks. For legislators, this could mean keeping records from the entire two year campaign cycle before the election, and if you win, for two years after that (assuming you aren’t running again). This time period gets especially long for 8-year superior court terms (8 year term/cycle plus 2 years).

Here’s what the State Board Manual says on Page 66 on holding records:

What About Keeping Records for Non-Candidate Committees? Retention periods for non-candidate committees is tricky.

Because on the one hand the definition of “election cycle” for candidate committees turns on the term of office the candidate seeks (term of office + 2 years…) and for party committees and PACs the definition of “election cycle” is 2 years from January 1 of the odd numbered year to December 31 of the even numbered year, we recommend that at minimum a party committee or PAC committee keep records for at least the two years running up to the election in which the committee is politically activity plus two years after that election. Here’s what the State Board Manual says on Page 17 on the definition of “Election Cycle” for party committees and PACs:

However, to be on the safe side, if the committee is politically active in a campaign for a candidate serving a longer term (4 or 8 years…) then that committee may wish to retain records for the length of that term before the election. Record retention over long periods of time can be challenging so we don’t suggest this lightly and many may disagree. There is a scenario where a PAC contributes to a judicial candidate who is elected to an 8 year term. Within the judicial candidate’s 10-year retention period, an audit questions a contribution received from that PAC. The PAC is then examined. If the PAC was active in that race—even many years earlier—having records to substantiate that contribution may be helpful.

What Are the Review Tiers of Auditing?

Generally, every committee can expect a Tier 1 initial review immediately after you file a report that is conducted by the SBOE using software analytics. For example, the SBOE’s system will flag miscalculated totals, missing data, or potential violations, e.g., contributions in excess of limits. Think about this as a software-driven passive tool that will alert SBOE pros to reports worthy of a closer look.

If the Tier 1 analysis triggers any tripwires, the report(s) will be subjected to a Tier 2 review. This is an instance where an SBOE professional will manually review your reports to make sense of what errors the Tier 1 review revealed.

When Will I First Hear from the Auditors?

Campaign Committees hear from SBOE auditing pros during something called the Tier 3 review (and perhaps the Tier 2 review if the Tier 2 review was clean enough not to require much back and forth—see example of a Tier 2 review here). This is an instance where a human being at SBOE has completed the Tier 2 review and needs more information from the treasurer. Often the first time you hear from the Auditor is via an email received from the SBOE professional. Auditors might ask for bank records or other records of data points included (or not…) in your filed reports. Treasurers have 15 business days to respond—you can ask for more time…but it is a “permission” and not “forgiveness” situation. You must ask!

What Happens After the Auditor Contacts Me and Requests Information?

The Tier 3 examination likely results in an informal back and forth sharing of information between the treasurer and the auditor. That process results in a draft audit memo that is shared with the treasurer for review. The audit memo—when final—becomes public and is ultimately reviewed by the Board of Elections itself. Prior public audit memos are available for all the world to see in this searchable database (among document types, just select for “audit letter-outgoing”). They do this because the idea is the public memos will benefit everyone to review.

Here’s the trick: there is plenty of opportunity for treasurers to amend and correct reports based on the feedback from the SBOE auditor. That’s what we mean by “back and forth.”

What Happens After Tier 3 Review Ends?

Ideally, if you find your committee in a Tier 3 review, you’ll be able to get to “peace” with the auditor through sharing additional information to support your reporting and through amendments as necessary. In that exercise, you may come away with “lessons learned…” about how to report things better or differently going forward. Some of these lessons usually show up in the public audit memo as informational reports.

In some instances Tier 3 reviews will warrant a Tier 4 review which is usually reserved for circumstances where a campaign finance complaint is received. Tier 4 reviews appear to be Tier 3 reviews with even more scrubbing and sorting of data and likely more general requests for information. If you find yourself in a Tier 4 review, ElectaFile is happy to refer you to professionals on both sides of the aisle for assistance.

The ultimate, rare instance in audit land is the full State Board getting directly involved. We’ll cover that in another post.

What if I Cannot Amend Reports to Fix Problems Identified by the Tier 3 Review?

There is a mechanism in the law for you to use if you simply cannot fully comply with the suggestions for amendment received from the SBOE. You are entitled to prepare something called a 08 NCAC 21 .0401 Written Response. Wonky name notwithstanding this is a means for you to respond in writing to the final audit memo—this response will become part of the public file along with the final audit memo. This could be the place where you can explain why you aren’t able to fully implement the corrective suggestions offered by the SBOE auditor.

Here’s how the State Board’s Examination Policy describes it:

We covered a lot of ground today—thanks for sticking with us. Audits are the scariest part of the compliance world, but they don’t have to be. Keep good clean records, and if you hear from the State Board of Elections—remember that the first rule is not to panic.

If you have feedback on this post, we’d love to hear it. Go get’em!

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