related to RFC. When none of this documentation was provided, the Audit staff recommended
that the Commission issue subpoenas. At the exit conference on July 12, 2005, the Audit staff
reiterated to RFC officials that the Commission was in the process of issuing subpoenas for the
records requested at the April 19th interim conference.

The issuing of subpoenas. As a result of the above, the Commission issued subpoenas on August
30, 2005 to obtain documentation relating to credit card charges incurred by corporations on behalf
of RFC. On January 5, 2006, the final transmittal of subpoenaed materials was received and the
Audit staff determined that there were six corporate credit card accounts” to review. On February
28, 2006, photocopies of the statements were provided to RFC officials and the Audit staff
requested that they demonstrate whether the charges were RFC-related. No response to this
request was made by RFC. During the audit period, several RFC-related corporate entities
engaged in credit card transactions that potentially benefited RFC in the amount of $68,869 (See
Finding 1).

? Of the six corporate credit cards, two are in the name of The Stone Group, Inc., a company owned by RFC’s current
treasurer; two are in the name of Unique Graphics, owned by the current treasurer (recently, Unique Graphics
became a subsidiary of The Stone Group, Inc.); one is in the name of Marketing Services, Inc., a company owned by
the former treasurer who currently works for the Stone Group, Inc. (Marketing Services, Inc. is no longer in
business); and, for the last card the only documentation were statements provided by RFC. The Audit staff treated
this card as corporate until evidence to the contrary is provided. RFC made the majority of the payments on this
card during the audit period. The current or former treasurers were authorized signatories for these six cards.



Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that RFC provide evidence demonstrating that transactions made
on corporate credit cards were not in-kind contributions. The evidence should have documented
what portion, if any, of the beginning balances on the six corporate credit cards and the
additional charges incurred during the audit period were RFC-related. Absent such evidence, the
Audit staff recommended that RFC refund $47,148 ($68,869 - $21,721 payments made by RFC)
to the corporate entities who incurred these charges on RFC’s behalf.

The Audit staff further recommended that RFC itemize, as a memo entry, any specific
transaction charged on credit cards on behalf of RFC if the payment to the actual vendor
exceeded the $200 threshold. The memo entry was to include the name and address of the
vendor, the purpose, and the amount of the disbursement.

RFC did not respond to the interim audit report.

| Finding 2. Misstatement of Financial Activity

Summary

RFC misstated receipts, disbursements and cash-on-hand balances for calendar years 2001 and
2002. The Audit staff recommended that RFC amend its disclosure reports to correct the
misstatements. RFC did not respond to the interim audit report.

Legal Standard

Contents of Reports. Each report must disclose:

e The amount of cash on hand at the beginning and end of the reporting period;

¢ The total amount of receipts for the reporting period and for the calendar year;

¢ The total amount of disbursements for the reporting period and for the calendar year; and

e Certain transactions that require itemization on Schedule A (Itemized Receipts) or Schedule
B (Itemized Disbursements).
2 U.S.C. §434(b)(1), (2), and (4).

Facts and Analysis

The Audit staff reconciled reported activity to bank records for calendar years 2001 and 2002.
The following charts outline the discrepancies for the beginning cash balances, receipts,
disbursements, and the ending cash balances. The succeeding paragraphs explain why the
differences occurred, if known.

2001 Committee Activity
Reported Bank Records Discrepancy

Beginning Cash Balance @ $829,792 $14,446 $815,346
January 1, 2001 Overstated
Receipts $365,041 $386,449 $(21,408)

Understated
Disbursements $367,941 $388,329 $(20,388)

Understated
Ending Cash Balance @ $826,892 $12,566 $814,326
December 31, 2001 Overstated



Part III
Summaries

Findings and Recommendations

Finding 1. Receipt of Prohibited Corporate Contributions
During the audit period, several RFC-related corporate entities engaged in credit card
transactions that potentially benefited RFC in the amount of $68,869. The Audit staff
recommended that RFC provide documentation demonstrating that these transactions were not
from prohibited sources, were not for the benefit of RFC, or were timely refunded to the
corporate entities. Absent this documentation, it was further recommended that RFC make the
appropriate refunds. RFC did not respond to the interim audit report.

(For more detail, see p. 5)

Finding 2. Misstatement of Financial Activity

RFC misstated receipts, disbursements and cash-on-hand balances for calendar years 2001 and
2002. The Audit staff recommended that RFC amend its disclosure reports to correct the
misstatements. RFC did not respond to the interim audit report.

(For more detail, see p. 7)


Part II
Overview of Committee

Committee Organization

Important Dates

Republicans For Choice, PAC

e Date of Registration

January 29, 1990

e Audit Coverage

January 1, 2001 - December 31, 2002

Headquarters

Alexandria, Virginia

Bank Information

¢ Bank Depositories

One

e Bank Accounts

Two checking accountsm

Treasurer

e Treasurer When Audit Was Conducted

Ann E.W. Stone

e Treasurer During Period Covered by Audit

Ann E.W. Stone

Management Information

e Attended Commission Campaign Finance

Seminar No
e¢ Used Commonly Available Campaign
Management Software Package Yes
¢ Who Handled Accounting and
Recordkeeping Tasks Paid Staff

Overview of Financial Activity
(Audited Amounts)

Cash on hand @ January 1, 2001 $ 14,446
Receipts

o Contributions from Individuals 657,499
o__In-Kind Contributions 32,069
o Contributions from Political Committees 2,500
o Other receipts 11,757
Total Receipts $ 703,825
Disbursements

o Operating Expenditures 617,616
o In-Kind Contributions 32,069
o Contributions to Federal Candidates 22,700
o Other Disbursements 32,275
Total Disbursements $ 704,660
Cash on hand @ December 31, 2002 $ 13,611



C. Reporting Operating Expenditures. When operating expenditures to the same person
exceed $200 in an election cycle, the committee must report the:
e Amount;
e Date when the expenditures were made;
e Name and address of the payee; and
e Purpose (a brief description of why the disbursement was made). 2 U.S.C.
§434(b)(5)(A) and 11 CFR §104.3(b)(4)(i).

D. Credit Card Transactions. In the case of operating expenditures charged on a credit card, a
committee must itemize a payment to a credit card company if the payment exceeds the $200
aggregate threshold for itemization. The committee must also itemize, as a memo entry, any
specific transaction charged on a credit card if the payment to the actual vendor exceeds the
$200 threshold. The memo entry must include the name and address of the vendor, the purpose,
and the amount of the disbursement. 11 CFR §§102.9(b)(2) and 104.9.

Facts and Analysis

RFC may have accepted prohibited in-kind contributions totaling $68,869° in the form of RFC-
related expenses paid via six corporate credit cards.* Based on available documentation, the six
corporate credit card accounts had balances totaling $36,800 at the beginning of the audit period.
Since no information was provided relative to these balances, the balances were treated as RFC-
related for purposes of the Audit staff’s review. RFC incurred charges during the period totaling
$32,069.° Payments totaling $21,721 were made by RFC against the outstanding balances and
40 additional payments totaling $44,391 were made from unknown sources. At the end of the
audit period, RFC owed $2,757.

At a March 20, 2006 conference, the treasurer explained that the six credit cards had been used
by the corporations, as well as by RFC officials, both prior to and during the audit period.
Payments to the credit card companies were made by the corporations and RFC. The treasurer’s
explanation of RFC’s procedure for paying RFC-related charges from the credit card statements
was as follows: before the audit period, the cardholder would submit an expense report for any
charges incurred by RFC and then, RFC would reimburse the cardholder. However, during the
audit period this procedure was not always followed. RFC sometimes made payments directly to
the credit card companies instead of reimbursing the cardholders. She stated that recently, RFC
has returned to the original policy whereby expense reports were required.

The Audit staff noted that not all payments to the credit card companies reported on Schedules B
(Itemized Disbursements) included the required memo entries and none of the activity was
disclosed as debts owed by RFC on Schedules D (Debts and Obligations).

3 This figure could increase or decrease depending on the provision of additional documentation.

* See footnote 2.

5 The $32,069 in charges included goods and services, such as: gas, meals, internet services, and office supplies
($18,529); finance charges ($11,604); and, late or over limit fees ($1,936). Of the $32,069 in charges, $20,448
were incurred in 2001 and $11,621 in 2002.



FEDERAL ELECTION COMMISSION
Washington, DC 20463

September 20, 2006

MEMORANDUM

To: Robert W. Biersack
Press Officer

From: Joseph F. Stoltz
Assistant Staff
Audit Division |

Subject: Public Issuance of the Audit Report on Republicans for Choice, PAC

Attached please find a copy of the audit report and related documents on
Republicans for Choice, PAC, which was approved by the Commission on September 12,
2006.

Informational copies of the report have been received by all parties involved and
the report may be released to the public.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library
DSDD Website


Receipts — 2002
The net understatement of receipts resulted from the following:

e Deposited receipts not reported (consists principally of a $5,000 loan
from the current treasurer, a $5,000 loan from a former treasurer, and

a $2,500 contribution from a PAC) + $ 12,873
¢ Unreported prohibited in-kind contributions from credit card

charges made on behalf of RFC (See Finding 1, footnote 5) + 11,621
¢ Reported receipt not supported by deposit - 250
¢ Unexplained difference - 61

Total net understatement of receipts

Disbursements — 2002
The net overstatement of disbursements was the net result of the following:
¢ Reported disbursements not supported by a check or bank debit ($15,000

to a non-federal committee and $250 to an unregistered organization) - $ 15,250
¢ Unreported prohibited in-kind contributions from credit card

charges made on behalf of RFC (See Finding 1, footnote 5) + 11,621
© Unexplained difference : 1,836

Total net overstatement of disbursements -$ 5,465

Ending Cash Balance — 2002
The $784,679 net overstatement of the closing cash on hand resulted from the misstatements

described above.

It should be noted that the adjustments above relating to unreported prohibited in-kind
contributions could increase or decrease depending on the provision of additional
documentation. The Audit staff discussed this finding with RFC representatives at several
conferences and presented them with copies of relevant workpapers. RFC representatives
stated that corrective amendments would be filed.

Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that RFC file amended reports for calendar years 2001 and 2002.
Also, the most recent report was to have been amended to show the adjusted cash on hand
balance with an explanation that it resulted from audit adjustments from a prior period.

RFC did not respond to the interim audit report.


Beginning Cash Balance — 2001

The beginning cash on hand was overstated by $815,346, due principally to an erroneous
$805,100 adjustment made by RFC as an increase in its receipts made in an attempt to respond
to a 1996 audit report recommendation. The 1996 report recommended RFC amend its
reports to disclose loans on Schedule C (Loans) totaling $805,100. However, RFC
erroneously included the $805,100 in its reported cash total on its 1997 Mid Year Report;
thereby overstating cash by this amount from this point forward.

Receipts - 2001

The understatement of receipts resulted from the following:

¢ Unreported prohibited in-kind contributions from credit card
charges made on behalf of RFC (See Finding 1, footnote 5) +$ 20,448

e Unexplained difference + 960
Total understatement of receipts

Disbursements — 2001
The net understatement of disbursements resulted from the following:
e Unreported prohibited in-kind contributions from credit card

charges made on behalf of RFC (See Finding 1, footnote 5) +$ = 20,448
e Unexplained difference = 60
Total net overstatement of disbursements +_$__ 20,388

Ending Cash Balance - 2001
The $814,326 net overstatement of the ending cash on hand resulted from the misstatements

described above.

2002 Committee Activity
Reported Bank Records Discrepancy

Beginning Cash Balance @ $826,892 $12,566 $814,326
January 1, 2002 Overstated
Receipts $293,193 $317,376 $(24,183)
Understated

Disbursements $321,795 $316,331 $5,464
Overstated

Ending Cash Balance @ $798,290 $13,611 $784,679
December 31, 2002 Overstated

Beginning Cash Balance — 2002
The $814,326 net overstatement of the beginning cash on hand resulted from the
misstatements described above.


Part IV
Findings and Recommendations

| Finding 1. Receipt of Prohibited Corporate Contributions

Summary

During the audit period, several RFC-related corporate entities engaged in credit card
transactions that potentially benefited RFC in the amount of $68,869. The Audit staff
recommended that RFC provide documentation demonstrating that these transactions were not
from prohibited sources, were not for the benefit of RFC, or were timely refunded to the
corporate entities. Absent this documentation, it was further recommended that RFC make the
appropriate refunds. RFC did not respond to the interim audit report.

Legal Standard

A. Receipt of Prohibited Corporate Contributions. Political committees may not accept
contributions made from the general treasury funds of corporations. This prohibition applies to
any type of corporation including a non-stock corporation, an incorporated membership
organization, and an incorporated cooperative. 2 U.S.C. §441b.

B. Questionable Contributions. If a committee receives a contribution that appears to be
prohibited (a questionable contribution - in the form of money, in-kind contributions or loans), it
must follow the procedures below:

1. Within 10 days after the treasurer receives the questionable contribution, the committee
must either:
¢ Return the contribution to the contributor without depositing it; or
e Deposit the contribution (and follow the steps below). 11 CFR §103.3(b)(1).

2. If the committee deposits the questionable contribution, it may not spend the funds and
must be prepared to refund them. It must therefore maintain sufficient funds to make the
refunds or establish a separate account in a campaign depository for possibly illegal
contributions. 11 CFR §103.3(b)(4).

3. The committee must keep a written record explaining why the contribution may be
prohibited and must include this information when reporting the receipt of the
contribution. 11 CFR §103.3(b)(5).

4. Within 30 days of the treasurer’s receipt of the questionable contribution, the committee
must make at least one written or oral request for evidence that the contribution is legal.
Evidence of legality includes, for example, a written statement from the contributor
explaining why the contribution is legal or an oral explanation that is recorded by the
committee ina memorandum. 11 CFR §103.3(b)(1).

5. Within these 30 days, the committee must either:
¢ Confirm the legality of the contribution; or
¢ Refund the contribution to the contributor and note the refund on the report covering

the period in which the refund was made. 11 CFR §103.3(b)(1).



Part I
Background

Authority for Audit

This report is based on an audit of Republicans for Choice, PAC (RFC), undertaken by the Audit
Division of the Federal Election Commission (the Commission) in accordance with the Federal
Election Campaign Act of 1971, as amended (the Act). The Audit Division conducted the audit
pursuant to 2 U.S.C. §438(b), which permits the Commission to conduct audits and field
investigations of any political committee that is required to file a report under 2 U.S.C. §434.
Prior to conducting any audit under this subsection, the Commission must perform an internal
review of reports filed by selected committees to determine if the reports filed by a particular
committee meet the threshold requirements for substantial compliance with the Act. 2 U.S.C.
§438(b).

Scope of Audit

This audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions and other receipts.

The disclosure of disbursements, debts and obligations.

The disclosure of expenses allocated between federal and non-federal accounts.
The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

PAIAMWRYWNYE

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act of 2002
(BCRA). The BCRA contains many substantial and technical changes to the federal campaign
finance law. Most of the changes became effective November 6, 2002. Except for the period
November 6, 2002, through December 31, 2002, the period covered by this audit pre-dates these
changes. Therefore, the statutory and regulatory requirements cited in this report are primarily
those that were in effect prior to November 6, 2002.

History of the Audit

2002 Conciliation Agreement. On May 20, 2002, RFC entered into a Conciliation Agreement
(the Agreement) with the Commission admitting that it had knowingly accepted prohibited
contributions in the form of loans for payments made on behalf of RFC by a third-party vendor.
The Agreement resulted from a 1996 audit and eventual investigation by the Commisions’ Office
of General Counsel culminating in MUR 5173. The 1996 audit report recommended RFC amend
its reports to disclose loans on Schedule C (Loans) totaling $805,100. However, RFC erroneously
included the $805,100 in its reported cash total on its 1997 Mid Year Report; thereby overstating
cash by this amount from this point forward (See Finding 2).

Records necessary to complete audit fieldwork were not submitted in a timely fashion. At an
interim conference held on April 19, 2005, issues raised during fieldwork were presented to RFC
representatives. The Audit staff requested credit card statements and related documentation for
RFC payments made against balances owed on credit cards belonging to corporations possibly


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Changes to the Law
History of the Audit

Part II. Overview of Committee
Committee Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Receipt of Prohibited Corporate Contributions
Finding 2. Misstatement of Financial Activity

Page

Hee

w


Report of the
Audit Division on

Republicans for Choice, PAC
January 1, 2001 - December 31, 2002

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
(the Act). The
Commission generally
conducts such audits
when a committee
appears not to have met
the threshold
requirements for
substantial compliance
with the Act.' The audit
determines whether the
committee complied with
the limitations,
prohibitions and
disclosure requirements
of the Act.

Future Action
The Commission may
initiate an enforcement
action, at a later time,
with respect to any of the
matters discussed in this
report.

About the Committee (p. 2)

Republicans For Choice, PAC (RFC) is a non-connected
committee. RFC qualified for multi-candidate status on
November 19, 1990, and is headquartered in Alexandria,
Virginia. For more information, see the chart on the Committee
Organization, p. 3.

Financial Activity (p. 3)

¢ Receipts
o From Individuals $ 657,499
o In-Kind Contributions 32,069
o From Political Committees 2,500
o Other receipts 11,757
o Total Receipts $ 703,825
¢ Disbursements
o Operating Expenditures $ 617,616
o In-Kind Contributions 32,069
o Contributions to Fed. 22,700
Candidates 32,275
o Other Disbursements $ 704,660

o Total Disbursements

Findings and Recommendations (p. 4)
¢ Receipt of Prohibited Corporate Contributions (Finding 1)
¢ Misstatement of Financial Activity (Finding 2)

"2 U.S.C. §438(b).