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:
- It verifies disclosure and reporting of contributions, expenditures and liabilities.
- It determines whether electoral participants are complying with the political finance laws.
- In public financing systems, it ascertains 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.
- It provides 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 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 an associated 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 the 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 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 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;
- 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 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.
NOTES
[1] International Institute for Democracy and Electoral Assistance, Funding of Political Parties and Election Campaigns, 2003, p. 150.
[2] IFES, Enforcing Political Finance Laws: Training Handbook, 2005, p. 43.
[3] Ibid., p. 39.
