Good morning Chairman Horn and Members of the Subcommittee. I want to thank you for inviting me to testify regarding our investigation into the Federal Election Commission's (FEC) Political Action Committee (PAC) contribution disclosure system. I will provide you with concrete reforms to our campaign finance system that we believe are both viable and necessary. I also hope to persuade you that these reforms are not only in the best interests of the public and the FEC, but also of the candidates themselves.
POGO found that the current status of the FEC's data creates opportunities for unfair allegations of misconduct against candidates. We discovered that hundreds of thousands of dollars in contributions are unaccounted for, improperly listed, or otherwise missing from FEC data.
Current FEC data inaccuracies are often very misleading. POGO's investigation took months of original research and consultations with numerous campaign finance experts, including senior FEC staff and officials and the independent Center for Responsive Politics. POGO discovered that surprisingly, although both candidates and PACs must each submit financial contribution data, these numbers are never compared.
To be honest, at the beginning of this investigation, POGO believed that the large number of discrepancies and the sizable differentials associated with congressional candidates might be the result of hidden PAC contributions or some other nefarious activity on the part of candidates. It was not long into our investigation, however, that we found it was the FEC's current disclosure system itself that was causing the misleading differentials.
Review of these differentials led POGO to discover several systemic flaws and to propose realistic reforms, many of which have been suggested in bills before Congress and in the FEC's annual reports to Congress. POGO's investigation and report provides the tangible evidence needed to achieve the implementation of these campaign finance reforms.
The most immediate impact of the reforms listed below would be to allow the FEC to better discern genuine campaign finance infractions from data errors, and therefore more effectively use their resources to enforce campaign finance laws. Even high-level FEC officials have admitted that they have had to assume a level of "chaos" in their numbers, making enforcement of the law sporadic at best. FEC sources stated that due to limited resources, they believe some violations will have to slip through the system.
The longer-range intention of our work is to rebuild the integrity of the FEC and the campaign finance disclosure process. If the more comprehensive campaign finance reforms currently being debated are ever to pass, the FEC will ultimately be responsible for overseeing and regulating the $100,000 contributions that are fueling that debate. If the FEC is not equipped to handle the current oversight of $1,000 and $5,000 PAC contributions, how can it be expected to tackle the big dollars? We believe our suggested reforms can lead to the institution-building necessary for positive systemic change.
However, it does not appear that change is likely to emanate from within the FEC without direction and funding from Congress. The FEC is resigned to reacting to outside complaints of illegal activity, rather than using the resources at its disposal -- the information it collects from contributors and candidates. As a result the FEC accepts the inaccuracies in their data and regards them as tolerable. In fact, it was expressed by FEC officials that even with the proper resources, it was not clear that the FEC would spend them on fixing the systemic problems POGO discovered. This acquiescence is not only harmful to the public and the media, who rely on accurate disclosure, but also to the candidates, who are portrayed by the FEC data as intentionally concealing contributions. In addition, contrary to the FEC's assessment, POGO believes that these reforms would, in the long-run, save the FEC both time and money. In the end, the FEC's very mission is compromised by its bunker mentality.
The individuals POGO used as examples are just that -- examples to prove the systemic flaws in the system. As you can see from Appendix C in our report, by August 1997, nine months after the 1996 election, only four candidates out of nearly 500, were in the FEC data as having reported receiving the same amount of PAC money that the PACs reported contributing. In other words, every other candidate that ran for election in 1996 had either over-reported, or in the majority of cases, under-reported, PAC contributions. The discrepancies found in their reports were overwhelmingly caused by the flaws in the FEC's system and could have been avoided if our recommended reforms were implemented. To indicate that the candidates in no way intended to provide inaccurate or incomplete information, a number of the candidates told POGO they were going to amend their FEC filings as a result of our inquiries.
I will now outline the ten reforms we identified to remedy the systemic flaws we encountered. Appendix E of the version of our report prepared for the Subcommittee breaks these reforms down into two categories -- those that require legislative action, and those that could be addressed internally by the FEC.
First, the FEC does not compare PAC receipts reported by candidates with contributions reported by the PACs. The current system allows inaccuracies in FEC data to go undetected and uncorrected. Discrepancies that occurred between candidate and PAC reports -- in some cases by as much as hundreds of thousands of dollars -- remain undetected and uncorrected. In fact, these discrepancies are so common that a zero balance is rare. This misinformation makes a candidate vulnerable to unfair accusations of improprieties. The FEC should compare sets of data as a basis to check the accuracy of PAC and candidate data.
Second, the FEC groups data in two calendar year periods. To perform this investigation, POGO was required to look at data from at least three different two-year cycles to identify contributions that were given to House candidates for their 1996 elections. The FEC should begin to group data by two- and six-year campaign-cycles.
Candidates and PACs also file primary and general campaign data in monthly, quarterly and semiannual reports by calendar year. Campaign finance laws, however, do not correspond with calendar years, but with primary and general campaign-cycles. New legislation should simplify the process by requiring candidates and PACs to file by two- and six-year campaign-cycles. This reform may also require extending contribution limits from the current general and primary election basis to campaign cycles.
Third, one of the most time-consuming aspects of this project was identifying and cross-referencing the irregular use of PAC names used by the candidates, the PACs and the FEC. The FEC, the candidates and the PACs use neither the same name for a PAC nor their already-established identification numbers when filing receipts and disbursements, making it difficult to check contribution limits. The FEC should enforce its current requirement to use similar PAC names (i.e., the name printed on the check) and require I.D. numbers on all receipts and disbursements.
Fourth, the FEC does not correct many duplicate entries in filings submitted by candidates. POGO's investigation also revealed that the FEC often unwittingly creates duplicate entries by assigning two different transaction numbers to the same contribution. The FEC's inability to correct erroneous reporting of this kind creates phantom contributions in the candidate's receipt index. This problem again makes a candidate vulnerable to accusations of hiding PAC contributions or of violating contribution thresholds. Once duplicates are discovered, the FEC should send an inquiry to the PAC asking for confirmation of the two contributions.
Fifth, when PAC contributions are returned by candidates, PACs often do not report the unaccepted contribution to the FEC, although it is currently required. This failure to report returned contributions leaves the false impression that candidates have accepted the money. In particular, this problem causes a dilemma for candidates who pledge not to accept any PAC money, because FEC records falsely show them receiving PAC contributions. The FEC should recommend to candidates who return PAC contributions that they provide the FEC with a list of the PACs and the returned contributions.
Sixth, campaign committees are not always aware of "in-kind" PAC contributions although the contributions had been reported by the PACs to the FEC. This lack of reporting may cause embarrassment for the candidate who does not report an "in-kind" contribution. The FEC should require PACs to notify campaign committees of all "in-kind" contributions.
Seventh, the FEC does not have adequate tools to enforce compliance and deter noncompliance of regulations. As a result, some PACs and candidates are unconcerned about noncompliance and thus often do not meet existing requirements. The FEC should be granted the authority to conduct random audits as a deterrent to noncompliance. The FEC should also consider publishing a report, press release and web page that would list PACs and candidates whose reports were found by the FEC to be incomplete or inaccurate. A fee schedule to impose fines for noncompliance should be created and enforced.
Eighth, electronic filing is not required for candidate and PAC filings. If electronic filing were mandated by Congress for candidates and PACs reporting over a certain level of financial activity, many, if not all, of POGO's reforms could be easily implemented through the electronic filing system. Having a threshold would protect small PACs and candidates with limited resources from undue hardship. This system would dramatically increase the accuracy and thoroughness of FEC data, as well as simplifying the process for all participants.
Ninth, the Senate mandates that its candidates file their reports with the Secretary of the Senate (Office of Public Records) which only sends the reports to the FEC on microfilm. While it is possible to run computer searches for House candidates and PACs, Senate candidates have to be searched the old-fashioned way -- on microfilm and various other paper indices that have yet to be assembled into one searchable computerized system. Senate candidates should be required to send their filings directly to the FEC, as is already required of the House.
And finally tenth, PACs usually issue one check that is later divided by multiple candidates involved in a multi-candidate entity. This practice muddies disclosure. In the case of one Senator and one Representative, their reported receipts totaled significantly above each of their actual PAC contributions. This falsely portrayed them as accepting more money than they actually received. The FEC should require that separate checks be issued to each participating member in the multi-candidate entity.
This concludes my presentation of POGO's ten recommended reforms. Thank you again for giving us the opportunity to speak before you today. For the purposes of this hearing, we have provided all the Members of this Subcommittee a copy of our report, "Re-Establishing Institutional Integrity at the FEC: Ten Common Sense Campaign Finance Disclosure Reforms," with the names of the candidates removed. I hope it proves to be a useful tool as you consider this important issue. I would be happy to answer any questions regarding our investigation or our findings.