Audits are crucial to the work
of the political finance regulator (PFR). A financial audit analyzes the
contribution and expenditure documentation, banking statements and other
financial records of a political party, candidate or other electoral
participant. The audit serves several purposes:
- Verifying disclosure and
reporting of contributions, expenditures and liabilities;
- Determining whether
electoral participants are complying with the political finance laws;
- In public financing
systems, ascertaining that any matching funds, grants or tax expenditures
received were legitimately earned. It also ensures that public funds were
used only for proper, politically related ends, not for private use or
gain.
- Providing the public with
valuable information about the contributions and expenditures of electoral
participants, as well as the PFR’s assessment of the accuracy and
completeness of each participant’s financial reporting.
Audits are increasingly
recognized as essential for political finance enforcement. But audit policies
vary greatly: Some countries conduct full audits of all political finance
reporting, while others provide for no audit oversight whatsoever. Some
countries may not even require basic bookkeeping and the maintenance of regular
financial records, without which it is impossible to effectively audit an
electoral participant.
Choice
of Auditor
The selection of auditors
differs depending on the country and the subject of the audit. The accounts of
a political party or an electoral campaign may be audited by a professional,
independent auditor selected directly by the party/candidate, or else by the
PFR or another competent government agency, such as the tax authority.
In Austria,
for instance, every political party must appoint an independent auditor to
certify that it has used its public subsidy in compliance with the political
finance laws. Before filing its disclosure reports, the party must obtain a
certification from the independent auditor affirming that the party’s financial
reporting represents a fair account of financial transactions of the party.
Although the Austrian practice
ensures that there is some independent review of the parties’ reporting, no
regulation provides for the reporting to be cross-checked by the PFR or another
public enforcing agency.[1] If a candidate
or party is required to select a private auditor, the law should set clear
standards for choosing professional auditors, and should specify how and when
the audit is to be performed. In addition, the PFR should retain some oversight
authority over the process.
In Poland,
auditors of political finance reports are selected by lottery to ensure their
political neutrality and professionalism.[2]
Choice
of Entities to be Audited
In some jurisdictions, the PFR
will conduct a full audit of every party and candidate in an election, or it
will require all parties/candidates to engage an independent auditor to review
their financial reporting. If the PFR lacks resources to comprehensively audit
the disclosure reports of all reporting entities, it may audit a random sample
during the election cycle. Another practice is to audit only parties or
candidates that receive public subsidies, show signs of political finance
irregularities or problems, or are the subject of external complaints.
Not all PFRs have this
authority, however. The Federal Election Commission in the United States,
for example, is not empowered to perform random audits. It can audit a
political party or candidate campaign committee only when the reporting entity
has failed to meet certain threshold requirements of the Federal Elections
Campaign Act.
Levels
of Review
Last, the scrutiny applied in
the audit depends on the practice of the PFR and auditors’ experience. It may include:
- field audits and visits
to offices of parties/candidates to establish that they are meeting basic
requirements for recording their financial activity and maintaining
adequate supporting documentation;
- review of disclosure statements
for apparent irregularities or violations in reporting;
- review of backup
documentation to ensure that it corroborates the reporting;
- evaluation of the overall
financial activity of a reporting entity, and comparison with the standard
or average practices of other parties/candidates; and/or
- closer analysis of
documentation showing signs of fraud, such as apparently forged signatures
or improperly altered information.[3]
Communication
Between Auditor and Reporting Entity
While the audit is being conducted,
it is often helpful for the PFR to inform the party/candidate of reporting or
documentation problems. This provides an opportunity for the problems to be
corrected or for the original reporting and documentation to be supplemented.
Such an exchange of information helps promote compliance with disclosure
requirements, eliminating the need for administrative proceedings or legal
sanctions. The PFR may formalize the process by issuing a draft audit report to
the party or candidate that was audited, with a request for a response to the
preliminary findings and correction of outstanding problems before the PFR
makes its final audit findings.
Audit
Report
After the audit is complete,
the PFR often issues a written report describing the scope of the audit, and
presenting the factual and legal grounds supporting the findings. The report
gives the PFR’s assessment of the electoral participant’s compliance with the
law, and indicates any remedial action required. Public release of the report
serves an important public disclosure function, making the information it
contains available to the media and civil society organizations.
[1] International IDEA, Funding of Political Parties
and Election Campaigns, 2003, op.
cit., p. 150
[2] IFES, Enforcing Political Finance Laws: Training
Handbook, 2005, op. cit., p.
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