FEDERAL ELECTION COMMISSION 

WASHINGTON, O.C. 20463 

January 4.2012 

MEMORANDUM 

To: The Commission 

Through: 

From: 

Alec Palmer 

StaffDirector 

Patricia Carmona 

Chief Compliance Officer 

Tom Hintermister ""XV^^ 

Assistant Staff Director 

Audit Division 

in 

By: 

Subject: 

Martin Favin 

Audit Manager 

Philomena Brooks ^o^9^'f^:>r P& 

Lead Auditor 

Audit Division Recommendation Memorandum on John Kennedy for U.S. 

Senate, Inc. (A09-05) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staffs recommendation is presented below and the finding is discussed in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recotnmendation. 

Receipt of Contributions that Exceed Limits 

In response to die DFAR, the ti:easurer stated diat the committee appreciates diat 

the audit report acknowledges diey complied frdly with the Audit staffs 

recommendation. 

The Audit staff recommends that the Commission fmd dutt John Kennedy for U.S. 

Senate. Inc. received excessive contributions. 

The Committee did not request an audit hearing. 

If diis memorandum is approved, a Proposed Final Audit Report will be prepared within 

30 days of the Commission's vote. 
Should an objection be received. Directive No. 70 states that the Audit Division 

Recommendation Memorandum will be placed on the next regularly scheduled open 

session agenda. 

Documents related to this audit report can be viewed m the Votmg Ballot Matters folder. 

Should you have any questions, please contact Philomena Brooks or Marty Favin at 694-

1200. 

Attachments: 

- Draft Final Audit Report on John Kennedy for U.S. Senate, Inc. 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on John Kennedy 

for U.S. Senate, Inc. 

(January 1. 2007 - December 31, 2008) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that is 

required to file reports 

under the Federal 

Election Campaign Act 

(die Act). The 

Commission generally 

conducts such audits' 

when a committee 

appears not to have mej 

the threshold 

requirements for 

substantial compliance" 

with die Act.^ The audit 

determin|^^llL'Ilicl the 

comimtlee complied v. vU 

the tiimiat ions, 

prohibit iono a:id 

disclosure ivqinuinents 

of the Act. 

P 

Future Action 

Tie Commission n 4 

initiate an enforcement 

action, at a later time, 

with respect to the matter 

discussed in this report. 

About the Campaign 

John Kennedy for U.S. SenatddPTc. (JKFS) is die principal 

campaign committee for Join! Nccly Kennedy, Republican 

candidate for the United ^iiwes Sciisiic from Louisiana. JKFS is 

headquartered in McjLj||n. Virginia. To. :nore information, see 

chart on the Cam^g^n C^anization, 1.^ 

Financial^A4ivit:i^^) ^ 

• Receipts ^ 

o Contributions I Individuals 

o M^^ontributions From Piilitical 

('om:i.i'.!i*CN ^ 

o (JI'INJI^ iij Opji.iiing ^ 

Ex|^di||:v> 

o Othiy^eipts ^ 

Total Re%pts 

Lsbursemi 

g Expenditures 

o LoafTKepayments 

ontribution Refunds 

Other Disbursements 

btal Disbursements 

$ 3,550.103 

1,201,190 

18,488 

23.677 

$4,793,458 

$ 4,587,927 

37,500 

138,925 

440 

$4,764,792 

Finding and Recommendation (p. 3) 

• Receipt of Contributions that Exceed Limits 

2U.S.C. §438(b). 
Draft Final Audit Report of the 

Audit Division on John Kennedy 

for U.S. Senate, Inc. 

(January 1, 2007 - December 31, 2008) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Campaign 

Campaign Organization ^ 2 

Overview of Financial Activity ^ 2 

Part III. Summary 

Finding and Recommendation \ 3 

Part IV. Finding and Recomnjpndatiol^ 

Receipt of Contributions that Exceed Limits 
Parti 

Background 

Authority for Audit 

This report is based on an audit of John Kennedy for U.S. Senate, Inc. (JKFS), 

undertsdcen by die Audit Division of die Federal Election Commission (the Commission) 

in accordance with the Federal Election Campaign Act of 1971, a^mended (die Act). 

The Audit Division conducted the audit pursuant to 2 U.S.C. §'13^D^which permits the 

Commission to conduct audits and field investigations of aiy^olitical committee that is 

required to file a report under 2 U.S.C. §434. Prior to coiul^nni! :!iiy audit under this 

subsection, the Commission must perform an intemal review oi' icpoi K filed by selected 

committees to determine if the reports filed by a parlp^^ ^ommitico mjci the threshold 

requirements for substantial compliance widi dij .-m. 2 U.S.C. §438(lij. 

Scope of Audit v \ F 

Following Commission-approved procedures, the Aniiii s-.aff evaluated various risk 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions; ^ 

2. the receipt of contributions from pioliitJfflt'd ^onu-cs; 

3. the disclosure of contributions receiv%; ^ 

4. the disclosure of indi\ idii.il contributoS* o«:(-i![i.i:i{Mi ..nd name of employer; 

5. the consistency bej^vn rispoi ted figurc^^nid bank records; 

6. the completene^± ol recoil!^: ;.nd 

7. other committi^j opjr.ii ions lu-cessary to t!i/review. 

r 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration February 9,2004 

• Audit Coverage January 1,2007 - December 31,2008 

Headquarters McLean, Virgini.1 ~ ^ 

Banlt Information 

• Bank Depositories Two 

• Bank Accounts Two savi^£!^ iind t\\o ciiecking accounts 

Treasurer 

• Treasurer When Aiidit Was Conducted 

• Treasurer During Period Covered by Audit 

I^A . Davis 

I^Uiam P^i^r (January 1,^007 ^May 5, 

250S) . ^ 

Kciiii .A. Diivis (May 6,2008 to Present) 

Management Information t-

• Attended FEC Campaign Finance Seminar 

• Who Handled Accounting and % 

Recordkeeping Tasks % j 

Overview of Fi i 

4 (Audited A 

No 

PiiuiStatt 

> 

EUiciaf^Activity 

|nc|unts) 

•r 

Cash-on-haii^ .hinii;ir> 1,2l()7 ^ $5,820 

Receipts 

o Cont^niiui'.s From Indi\it1iiiils 3,550,103 

o Contribuiinn''I jom Politioil ('oi^ _ 

o Offsets to Oj'ji ;•:ill:: Expeniiiiures 

1,201.190 

18.488 

o Other Receipts 23.677 

Total Receipts $4,793,458 

Disbursements ^ 

o Operating Expenditures 4.587.927 

o Loan Repayments 37.500 

o Contribution Refunds 138,925 

o Other Disbursements 440 

Total Disbursements $4,764,792 

Cash-on-hand @ December 31,2008 $34,486 
Part III 

Summary 

Finding and Recommendation 

Receipt of Contributions that Exceed Limits 

A review of contributions from individuals indicated diat JKFS received excessive 

contributions totaling $224,722. This amount includes contributi^^r which JKFS made 

an untimely contribution refund, contributions for which JKFS M-nt aiiuntimely 

redesignation and/or reattribution letter to die contributor .mil i-onii ibutions for which JKFS 

made a payment to die U.S. Treasury. < 

\ 

In response to die Interim Audit Report, JKFS pro^^d c^ies of prt-Nnnijiiive 

redesignation and/or reattribution letters, photOi-oivcs of negotiated refuiul chucks and a 

check to die U.S. Treasury. The Audit staff re^v icv.od ihesejaterials and coiK-liicled diat 

dirough diese actions, JKFS had materially resolved .-ill c\i«ssive contributicms, albeit in an 

untimely manner. (For more detail, see p. 4) 
Part IV 

Finding and Recommendation 

I Receipt of Contributions that Exceed Limits 

Summary 

A review of contributions firom individuals mdicated that JKFS received excessive 

contributions totaling $224,722. This amoimt includes contribution^ Tor which JKFS made 

an untimely contribution refund, contributions for which JKFSj^r.i :i!i^untimely 

redesignation and/or reattribution letter to the contributor and coi:iributions for which JKFS 

made a payment to the U.S. Treasury. 

In response to the Interim Audit Report, JKFS piowi^^^ipks of prei^^gtive 

redesignation and/or reattribution letters, photocg^^of negotiated refmE[r;.!..-cks and a 

check to die U.S. Treasury. The Audit staff r^^v^cd thes^in.iterials and «.o-.«-hided that 

through these actions, JKFS had materially resoh%.*(i :iii jxce^^^p contributi^, albeit in an 

untimely manner. 

Legal Standard 

A. Authorized Committee Limits. Fo. • .J _ )()S election, ::n ^^rized committee could 

receive no more than a total of $2,300 per%eciitiii i'loni :i:i\ oniperson. 2 U.S.C. 

§441a(a)(l)(A), and (f); 11 CFR §§110.1(ari'-iH'.fB) iiiul I IU 'j:a). 

B. Handling Cont^utions I'liat Appear Mv^ssive. If a committee receives a 

contribution that a|^Sir.s lo lie excessive, the c(^plttee must: 

• retum the check to tlic dotior; or r 

• dem)Nit ilic coniribution and miiiniiiin sufficient funds'to potentially make a refund 

iM.p Ilic icgnliiy ol' the contribution is established; or 

• ^cck a reattribiii ion or a rcdcggpltion of the excessive portion, following the 

^ iiiNirnctions provided in the^^mmission regulations (see below for explanations of 

real I ri!ml ion and reiicsignation), and, if the committee does not receive a proper 

reattrilnilion or redc^i'jnation within 60 days of receiving the excessive 

contribution, rcfiii^Sie excessive portion to the donor. 11 CFR § 103.3(b)(3), (4) 

and (5). ^ 

C. Joint Contributions. Any contribution made by more than one person (except for a 

contribution made by a partnership) must mclude the signature of each contributor on die 

check or in a separate writing. A joint contribution is attributed equally to each donor 

unless a statement indicates that the funds should be divided differentiy. 11 CFR 

§110.1(k)(l)and(2). 

D. Reattribution of Excessive Contributions. Commission regulations permit 

committees to ask donors of excessive contributions (or contributions that exceed die 

committee's net debts outstanding) whedier diey had intended their contribution to be a 
joint contribution from more than one person and whether they would like to reattribute die 

excess amount to the other contributor. The conunittee must inform the contributor that: 

1. both contributors must sign the reattribution; 

2. the committee must receive the reattribution withm 60 days of receiving the 

original contribution; and 

3. the contributor instead may request a refund of the excessive amount. 11 CFR 

§110.1(k)(3). 

Within 60 days of receiving the excessive contribution, the committee must either receive 

the proper reattribution or refund the excessive portion to the donoik 11 CFR §§ 103.3(b)(3) 

and 110.1(k)(3)(ii)(B). Further, a political committee must iQia^\:iit!^n records 

conceming the reattribution in order for it to be effective. 11 Cl K §110.1(1)(5). 

4 

Notwithstanding die above, any excessive contribution mi-..! j on ai^ niicn instmment diat is 

imprinted with the names of more than one individuaj^mavBc attribnicd niiiong the 

individuals listed unless the contributor(s) instm(^^merwise. The connnii'.cc must inform 

each contributor how the contribution was iiiii ilnilcil and dMthe contribiiioi iii^t€ad may 

request a refund of the excessive amount. II C I K § 110 I rlv)^^i)(B). ^ 

E. Redesignation of Excessive Contnbutions. The Lommittee may ask the contributor 

to redesignate the excessive portion ofllu- itiii!i ibution fo.*- ii.s6 in another election. The 

committee must inform the contributor ili.ii: -

1. the contributor must sign the rede^ia'.-'!.: *^ F 

2. the committee must receive the red^ii'n.^n wi^p ^ days of receiving the 

original contribi||iiii-.: 1:11(1 

3. the contributiii :::ay instead, request a r^|md of the excessive amount. 11 CFR 

§110.1(b)(5^iiij.-.\j. 

Within 60 d.:>« :c^ j:ving«flc c.\cc^-ivc.^pmbution, the committee must either receive 

die prope|^*Jc-:i::r.- ..M OI refund gie excessive portion to the donor. 11 CFR § 103.3(b)(3) 

and 1 i;j. I b)(5)(ii)(A). r'ni iher, a poiliical committee must retain written records 

concc\ :i : i: llie redesignaiion in order for it to be effective. 11 CFR §110.1(1)(5). 

When an individual makes.aii excessive contribution to a candidate's authorized 

committee, die carniKiign i^y presumptively redesignate the excessive portion to the 

general election if ilic coi^bution: 

F 

1. is made before that candidate's primary election; 

2. is not designated in writing for a particular election; 

3. would be excessive if treated as a primary election contribution; and 

4. as redesignated, does not cause the contributor to exceed any other contribution 

limit. 

The committee is required to notify the contributor of the redesignation within 60 days of 

the treasurer's receipt of the contribution, and must offer the contributor the option to 

receive a refund instead. 11 CFR 110. l(b)(5)(ii)(B). 
Facts and Analysis 

A. Facts 

A review of contributions from individuals indicated that JKFS received excessive 

contributions totaling $224,722 that were resolved in an untimely manner or could still be 

resolved via presumptive reattribution or redesignation letters.^ Prior to receiving the 

Interim Audit Report, JKFS provided evidence that it sent untimely reattribution/ 

redesignation letters to contributors (conceming $62,700) and made untimely refunds to 

contributors (conceming $30,900). The remaining contributions, tolling $131,122 

($224,722 - $62,700 - $30,900), had not been addressed by JKI .S ^i^t o receiving die 

Interim Audit Report. 

Among die excessive contributions diat JKFS resolved ii ^ untim«.*!y rr^anner were 12 

contribution checks totaling $36,800, written on a b^^^^unt of i l.r.-iii-d liability 

company (LLC). One of three individuals associ^lpTwitihLthe LLC si^^'iicijh check. 

JKFS attributed these contributions to the eight individuals^hose names ji j imprinted 

on the 12 checks. The contribution checks were coihputer-j^li^ated and seqncn'.ially 

numbered (except for one missing check number). r'i\i: ol me TZ checks, toraling $9,200, 

were dated December 20,2007, and v^e signed by O::J individual. Three checks, totaling 

$13,800, were dated March 13,2008 iiiul wcic signed by a .>v(Mtd individual. The 

remaining four checks, totaling $13,800. MCIC also dated Ma:cii I3f2008 and were signed 

by a diird individual. JKFS attributed $4^0 to JJCII oi die eiyli: individuals, $2,300 each 

tp the primary^ and general elections. The^u^^'.di a'M-ilvi^d these contributions to the 

three check-signers, resultiii!: in excessive c^mbutions ui liie primary election. For these 

12 checks, JKFS pr()\ uHd pl:citqd|pies of until|ely presumptive redesignation letters, 

relating to the $18#)0 in cxcessW^ contribution ^om the eight individuals. 

Also, the Audit ^tal^ a^k»:d JKPS :n pifivhjcinioriniilion as to the permissibility of these 

contributi^. JKI-'S provider! ichcis from tBe eight individuals associated with the LLC, 

which .JiTiiined that IIIL* coniribiiuoii^ were from their personal funds and not from the 

funds^tif ihc I ,LC or any O:IUM entit>. Tlie letters from the three individuals who signed the 

checks aNo : mied that IIIL* LLC was not an incorporated entity and did not file its tax 

retum as a e -v ^vi a", ion. _ 

— -Je 

B. Interim Audit Reports Audit Division Recommendation 

The Audit staff informed JKFS representatives of this matter at the exit conference held 

at the close of audit fieldwork and in subsequent discussions. The Audit staff provided 

schedules of the contributions in question. The representatives stated that they would 

^ The $224,722 is comprised of $175,422, the projected dollar value of errors in the population, and $49,300 

from focused reviews of contributions not included in the sample population. The sample projection was 

made using a Monetary Unit Sample program with a 95 percent confidence level. The sample estimate of 

$175,422 could be as low as $119,124 or as high as $231,723. The $49,300 from two focused reviews 

resulted from a review of high-dollar contributions ($30,900) and a review of contributions from individuals 

associated with a limited liability company ($18,400). 

^ Date of the primary election was October 4,2008. 
take the necessary actions. In addition, JKFS representatives pointed out that the 

solicitation devices (reply cards) used during the campaign had specific instmctions on 

the contribution limits for the primary and general elections and the contributor filled 

them out. They added that these response devices included lines for spousal information. 

The Audit staff reviewed the solicitation devices and noted that, although they provided 

space for contributor information from more than one contributor, there is no evidence 

that more than one contributor completed the form(s). 

The Interim Audit Report recommended that JKFS provide evidence demonstrating that the 

contributions totaling $224,722 were not excessive or tiiat diey were resolved in a timely 

manner. Examples of such evidence given included: copies of ti^cly^pgotiated refund 

checks; timely signed/dated reattribution/redesignation letters: and/or presumptive 

reattribution/ redesignation letters. The Interim Audit Repoi i noted that the Audit staff 

would calculate a revised projected error amount if anvsiich evidence uas presented that 

demonstrated any of the sample exceptions were not^^^siVe contrihiiiiuns. 

Absent evidence that the contributions were not excessive ^were resohcd in :i limely 

manner, the Interim Audit Report further recohimenclcd du:: JKFS review i\> contributions 

to determine which were excessive and how each con id liclf^sol'^ed. The In^rim Audit 

Report noted that JKFS could have resolved any excessi\ c cor.i: ibutions by sending 

presumptive redesignation and/or reatmbutlon letters to ir.lurni '.he contributors how the 

JKFS designated and/or reattributed the contribuiion along ::li i'^ffer for a refund. For a 

reattribution, JKFS was to notify both th^)nirilnilor and the i|^dividual to whom a 

contribution was reattributed. Absent a re^^st lor a rct'nnd \fy the contributors, these 

letters would obviate tlic need for contributi^^&unds OMI [)ayment to the U.S. Treasury. 

For notifications sent to contrihiiiors, the Auo^taff requested that JKFS provide a copy of 

each notification a^d evidence tluii it was sent.^ic Audit staff noted that the appropriate 

reduction to the $131,122 in cxcj^-i^^.- v:ontribuiioiis not yet addressed as of the close of 

fieldwork wcmUl W made uhcr :i u-v ol" any€dditional letters submitted by JKFS in 

responsej^lic Inu- iiii .-\:!dii Report. For all refund checks not negotiated by the 

contribiiKiis or for a:i> contributor J Kl'^i^was unable to locate, the Interim Audit Report 

fiirth^i ioco:nmended tha! J KFS miikc a payment to the U.S. Treasury. 

In addition, ilic Interim Aucmleport recommended that if fimds were not available to 

make the necessary rcfund^KFS should disclose die contributions requiring refimds on 

Schedule D (Debts anil Oblations) until funds became available to make the refunds. 

C. Committee ResptShse to Interim Audit Report 

In response to the Interim Audit Report recommendation, JKFS provided copies of 

presumptive redesignation and/or reattribution letters sent after it had received the Interim 

Audit Report. The Audit staff reviewed tiiese letters along witii die corresponding 

contributor checks/credit card documentation and concluded that $121,100 in excessive 

contributions were eligible for such action. As a result, the Audit Staff considered 

$121,100 as resolved but not in a timely manner. JKFS also provided photocopies of 

negotiated refund checks sent to three individuals, totaling $6,900, which JKFS sent to die 

contributors subsequent to audit fieldwork but before transmittal of the Interim Audit 

Report. Fmally, JKFS submitted a check to die U.S. Treasury in die amount of $22,600 for 
stale-dated refund checks, which included $4,500 in excessive errors from the Audit staff's 

sample review of contributions from individuals. 

In summary, die Audit staffs review of contributions from individuals mdicated diat 

JKFS received excessive contributions totaling $224,722 diat were resolved, but not in a 

timely manner. The Interim Audit Report recommended diat JKFS address $131,122 in 

excessive contributions not yet addressed as of die close of fieldwork. JKFS's response 

provided evidence that resolved, albeit in an untimely manner, $132,500 ($121,100 + 

$6,900 + $4,500) in excessive contributions.* 

4 

* The $132,500 resolved by JKFS's response exceeded the $131,122 the Audit staff recommended that JKFS 

address in the Interim Audit Report recommendation. This occurred because the $131,122 was partially 

based on a projected dollar value of excessive errors in the population and JKFS located a slightly larger 

dollar value of excessive contributions eligible for presumptive redesignation and/or reattribution treatment.