Report of the 

Audit Division on the 

Tennessee Republican Party 

Federal Election Account 

January 1, 2005 - December 31, 2006 

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) 

The Tennessee Republican Party Federal Election Account is a 

state party committee headquartered in Nashville, Tennessee. For 

more information, see the chart on the Committee Organization, 

p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals $ 3,483,766 

o Contributions from Other Political 367,326 

Committees 

o Transfers from Affiliated/Other 2,743,200 

Party Committees 

o Transfers from Non-federal Account 555,805 

o All Other Receipts 22,980 

o Total Receipts $ 7,173,077 

Disbursements 

o Operating Disbursements $ 6,686,254 

o All Other Disbursements 406,753 

o Total Disbursements $ 7,093,007 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Contributions from Unregistered Political Organizations 

(Finding 2) 

• Apparent Coordinated Party Expenditures (Finding 3) 

• Disclosure of Expenditures for Salary and Wages (Finding 4) 

2 U.S.C. §438(b). 
Report of the 

Audit Division on the 

Tennessee Republican Party Federal 

Account 

January 1, 2005 - December 31, 2006 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Changes to the Law 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Misstatementof Financial Activity 4 

Finding 2. Contributions from Unregistered Political Organizations 7 

Finding 3. Apparent Coordinated Party Expenditures 8 

Finding 4. Disclosure of Expenditures for Salary and Wages 14 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Tennessee Republican Party Federal Election 

Account (TRP), 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: 

1. The receipt of excessive contributions and loans. 

2. The receipt of contributions from prohibited sources. 

3. The disclosure of contributions and other receipts. 

4. The disclosure of disbursements, debts and obligations. 

5. The disclosure of expenses allocated between federal and non-federal accounts. 

6. The consistency between reported figures and bank records. 

7. The completeness of records. 

8. Other committee operations necessary to the review. 

Changes to the Law 

On December 1,2005, the Commission voted to amend its rules to require state, district 

and local party committees to pay as administrative expenses the salaries, wages and 

fringe benefits of employees who spend 25 percent or less of their compensated time in a 

month on federal election activity (FEA) or activity in connection with a federal election 

("covered employees"). The previous regulation that allowed party committees to use 

non-federal funds for salaries and wages for covered employees was struck down in 

Shays v. FEC. The revised rule became effective on January 19,2006. (See Finding 4, 

Disclosure of Expenditures for Salary and Wages). 
Part II 

Overview of Committee 

Committee Organization 

Important Dates Tennessee Republican Party Federal 

Election Account 

• Date of Registration October 23,1975 

• Audit Coverage January 1,2005 - December 31,2006 

Headquarters Nashville, Tennessee 

Bank Information 

• Bank Depositories Three 

• Bank Accounts 12 Federal and 6 Non-federal accounts 

Treasurer 

• Treasurer When Audit Was Conducted Ed Roberson 

• Treasurer During Period Covered by Audit Joe R. Arnold (thru 2/17/05) 

Ed Roberson (2/18/05 to present) 

Management Information 

• Attended Commission Campaign Finance 

Seminar 

Yes 

• 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 1,2005 $ 5.973 

Receipts 

o Contributions from Individuals $ 3,483,766 

o 

o Contributions from Other Political Committees 367,326 

o Transfers fi'om Affiliated/Other Party Committees 2,743,200 

o Transfers from Non-federal Account 555,805 

o All Other Receipts 22,980 

Total Receipts $ 7,173,077 

Disbursements 

o Operating Disbursements $ 6,686,254 

o All Other Disbursements 406.753 

Total Disbursements $ 7,093,007 

Cash on hand @ December 31,2006 $ 86,043 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

On its reports as originally filed with the Commission, TRP significantly underreported receipts 

by $2,227,811 and disbursements by $1,440,129 for calendar year 2006. In addition, a 

comparison of TRP's amended reported figures to bank records revealed a misstatement of 

receipts, disbursements and cash-on-hand in both 2005 and 2006. For 2005, TRP overstated 

beginning cash on hand by $33,780, understated receipts by $117,371, understated 

disbursements by $77,948 and understated ending cash on hand $5,643. In 2006, receipts were 

understated by $459,936, disbursements understated by $159,582 and the ending cash on hand 

was understated by $294,475. In response to the interim audit report recommendation, TRP 

amended its reports to materially correct the misstatements noted above. 

(For more detail, see p. 4) 

Finding 2. Contributions from Unregistered Political Organizations 

A review of all contributions from unregistered political organizations indicated that TRP 

received $114,395 in contributions that may not have been made with permissible funds. TRP 

refunded $38,125 of these, but not in a timely manner. In response to the interim audit report 

recommendations, TRP materially complied with the Audit staffs recommendation by providing 

copies of the front and back of the negotiated contribution refund checks totaling $71,845, and 

provided six check stubs, totaling $4,325, for contribution refunds issued but not yet negotiated. 

The Committee did not address $100 of these unregistered political contributions. (For more 

detail, see p. 7) 

Finding 3. Apparent Coordinated Party Expenditures 

TRP appeared to have exceeded the 2006 coordinated party expenditure limit by $721,093. In 

response to the interim audit report, TRP provided a description of the procedure used for 

handling the non-allocable mail program. In response to the interim audit report, TRP provided 

additional documentation to support that there was volunteer involvement with the mail program. 

If these disbursements were considered not to have met the volunteer exemption, then TRP 

would have made an excessive coordinated contribution to Bob Corker for Senate in the amount 

of $716,093. (For more detail, see p. 8) 

Finding 4. Disclosure of E«xpenditures for Salary and Wages 

TRP did not maintain monthly logs, time sheets or affidavits for its employees. Absent such 

documentation it is not possible to determine whether the salaries must be paid wholly from the 

federal account or may be paid from the non-federal account or allocated between the federal and 

non-federal accounts as administrative expenses. In response to the interim audit report 

recommendations, TRP provided some additional affidavits which stated that the employee did 

not spend more the 25% of compensated time on federal election activities and amended its 

reports which materially corrected the disclosure of the above salaries and payroll taxes. (For 

more detail, see p. 14) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

On its reports as originally filed with the Commission, TRP significantly underreported receipts 

by $2,227,811 and disbursements by $1,440,129 for calendar year 2006. In addition, a 

comparison of TRP's amended reported figures to bank records revealed a misstatement of 

receipts, disbursements and cash-on-hand in both 2005 and 2006. For 2005, TRP overstated 

beginning cash on hand by $33,780, understated receipts by $117,371, understated 

disbursements by $77,948 and understated ending cash on hand $5,643. In 2006, receipts were 

understated by $459,936, disbursements understated by $159,582 and the ending cash on hand 

was understated by $294,475. In response to the interim audit report recommendation, TRP 

amended its reports to materially correct the misstatements noted above. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• 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 

• Certain transactions that require itemization on Schedule A (Itemized Receipts) or Schedule 

B (Itemized Disbursements). 2 U.S.C. §434(b)(l), (2), (3), (4) and(5). 

Facts and Analysis 

i. Orisinally Reported Activity for 2006 

As illustrated below, on the original disclosure reports filed with the Commission, TRP 

significantly underreported receipts and disbursements for calendar year 2006. 

Comparison of Originally Reported 2006 Activity to Reconciled Bank Totals 

Reported Bank Records Discrepancy 

Receipts $3,463,205 $5,691,016 $2,227,811 

understated 

Disbursements $4,274,905 $5,715,034 $1,440,129 

understated 

Amended reports filed with the Commission showed a significant increase in financial activity. 

The Audit staff discussed the increased activity issue with the TRP Controller. In his written 

response, the Controller agreed that the figures originally reported by TRP were understated; 

nevertheless, he did not believe this finding was warranted. The Controller explained that he 

attended an FEC conference in Florida in the summer of 2006 and inquired about what 

committees should do if, due to time constraints, they are unable to file the reports timely and 
accurately. The response was similar to the feedback he received from the Reports Analysis 

Division (RAD)^ later on that year. According to the Controller, he was again told to file the 

report on time and submit an amended report with the correct figures on a later date. 

Although it may be preferable to file a timely report that is incomplete rather than file nothing, 

the filing of a report that is materially misstated does not relieve the Treasurer of the obligation 

to file reports that are both timely and accurate. Amended reports were filed between 20 and 75 

days after the original reports were filed that partially corrected the errors. 

2, (Amended) Reported Activity for 2005 & 2006 

The Audit staff reconciled (amended) reported activity to bank records for calendar years 2005 

and 2006. 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. 

2005 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

(^January 1,2005 

$39,753 $5,973 $33,780 

Overstated 

Receipts $1,364,689 $1,482,060 $117,371 

Understated 

Disbursements $1,300,024 $1,377,972 $77,948 

Understated 

Ending Cash Balance @ 

December 31,2005 

$104,418 $110,061 $5,643 

Understated 

The beginning cash on hand was overstated by $33,780 and is unexplained, but likely resulted 

from prior period discrepancies. 

The understatement of receipts was the result of the following: 

• Receipts from the Republican National Committee (RNC) not reported 

• Transfer from the non-federal account not reported 

• Receipt from an individual not reported 

• Unexplained difference 

Net understatement of receipts 

20,300 

5,000 

100,000 

(7.929^ 

$ 117.371 

When committees call for guidance on what to do when they are unable to file a complete report timely, RAD 

advises them to file as complete of a report as possible by the deadline, and then to file an amended report as 

soon as possible with any omitted information. 

The excessive portion of this contribution ($90,000) was timely resolved by transfer to the non-federal account. 
The understatement of disbursements was the result of the following: 

• Transfers to non-federal account not reported^ 

• Unexplained difference 

Net understatement of disbursements $_ 

91,864 

(13,916) 

77.948 

The $5,643 understatement of the closing cash on hand was the result of the misstatements 

described above. 

2006 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

^January 1,2006 

$104,418 $110,061 $5,643 

Understated 

Receipts $5,231,080 $5,691,016 $459,936 

Understated 

Disbursements $5,555,452 $5,715,034 $159,582 

Understated 

Ending Cash Balance @ 

December 31,2006 

-$208,432' $86,043 $294,475 

Understated 

The understatement of receipts resulted from the following: 

• Receipts from other (mostiy unregistered) political committees not reported $ 

• Receipts from the RNC not reported 

• Transfers from the non-federal account not reported 

• The total per Schedule A for itemized contributions from individuals ($107,174) 

exceeded the amount reported ($97,174) on the Detailed Summary Page 

for the Post-General Report 

• Unexplained difference 

Understatement of receipts $ 459.936 

49,000 

183,900 

128,949 

10,000 

88.087 

The understatement of disbursements resulted from the following: 

• Transfers to non-federal account not reported 

• Net errors in reporting of disbursements to various vendors 

• Unexplained difference 

Understatement of disbursements 

14,050 

75,523 

70.009 

$ 159.582 

The $294,475 understatement of the closing cash on hand was the result of the misstatements 

described above. 

This amount includes the $90,000 transfer to the non-federal resolving the excessive contribution discussed in 

footnote 3. 

The negative cash balance resulted iirom reporting errors; the balance in the bank was never negative. This 

column does not foot as a result of a discrepancy between the ending reported cash balance of one report and 

the beginning cash on the succeeding report (an $11,522 understatement by TRP). On March 26,2007, after the 

Audit Notification Letter dated March, 15,2007, TRP amended this report and corrected the cash on hand 

balance. 
The Audit staff discussed the misstatements for 2005 and 2006 with TRP's representatives 

during the exit conference and presented them with copies of relevant workpapers. TRP 

representatives stated that corrective amendments would be filed. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended TRP provide any additional information or written comments that 

it considered relevant to the misstatement of activity on its original reports filed for 2006 and 

amend its reports to correct the misstatements for 2005 and 2006 as noted above. TRP should 

also have amended its most recently filed report to correct the cash on hand balance with an 

explanation that the change resulted from a prior period audit adjustment and TRP should have 

reconciled the cash balance of its most recent report to identify any subsequent discrepancies 

that may have impacted the $294,475 adjustment recommended by the Audit staff. TRP 

amended its reports to materially correct the misstatements noted above. Its response did not 

provide any additional comments on the misstatements of activity on its reports as originally 

filed. TRP has indicated that it will be amending the most current report to correct the cash on 

hand balance. 

Finding 2. Contributions from Unregistered Political 

Organizations 

Summary 

A review of all contributions from unregistered political organizations indicated that TRP 

received $114,395 in contributions that may not have been made with permissible funds. TRP 

refunded $38,125 of these, but not in a timely manner. In response to the interim audit report 

recommendations, TRP materially complied with the Audit staffs recommendation by providing 

copies of the front and back of the negotiated contribution refund checks totaling $71,845 and 

provided six check stubs, totaling $4,325, for contribution refunds issued but not negotiated. 

The Committee did not address $100 of these unregistered political contributions. 

Legal Standard 

A. Party Committee Limits. A party committee may not receive more than a total of $10,000 

per year from any person except that a multicandidate political committee may not contribute 

more than $5,000. 2 U.S.C. §44la(a)(l)(D) and 11 CFR §§110.1(a) and (c)(5), 110.2(d) and 

110.9. 

B. Handling Contributions That Appear Impermissible or Excessive. If a committee 

receives a contribution that appears to be impermissible or excessive, the committee must 

either: 

1. Return the questionable check to the donor; or 

2. Deposit the check into its federal account and: 

• Keep enough money in the account to cover all potential refunds; 

• Keep a written record explaining why the contribution may be illegal; 
• Include this explanation on Schedule A if the contribution has to be itemized before 

its legality is established. 11 CFR §103.3(b)(3), (4) and (5). 

Facts and Analysis 

During the review of contributions, the Audit staff identified 31 unregistered political 

organizations that made 37 contributions totaling $114,395 to TRP, of which $38,125 was 

refunded in an untimely manner. TRP did not have any records available to show that these 

contributions from unregistered political organizations were made with permissible funds. One 

of these unregistered political organizations (Republican Governors Association Federal PAC) 

contributed $50,225 to TRP and therefore exceeded the $10,000 contribution limit by $40,225 if 

the contribution was determined to have been made with permissible funds. TRP did refund 

$225 of this excessive contribution, but not in a timely manner. 

The Audit staff discussed this matter with TRP's representatives during the exit conference and 

presented them with copies of relevant workpapers. TRP representatives-stated that they would 

review the schedules and comply accordingly. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended TRP provide evidence demonstrating that the contributions in 

question were made with permissible funds and not excessive. Alternatively, TRP should have 

refunded the impermissible funds and/or excessive contribution and provided evidence of such 

refunds (copies of the front and back of the negotiated refund checks). If funds were not 

available to make the necessary refunds, TRP should have disclosed the refunds due on Schedule 

D (Debts and Obligations) until funds became available to make the refunds. 

In response to the interim audit report recommendations, TRP materially complied with the 

Audit staffs recommendation by providing copies of the front and back of negotiated 

contribution refund checks totaling $71,845. In addition, it provided six check stubs, totaling 

$4,325, for contribution refunds issued but not yet negotiated. TRP did not address $100 of 

these unregistered political contributions. 

I Finding 3. Apparent Coordinated Party ESxpenditures 

Summary 

TRP appeared to have exceeded the 2006 coordinated party expenditure limit by $721,093. In 

response to the interim audit report, TRP provided a description of the procedure used for 

handling the non-allocable mail program. In response to the interim audit report, TRP provided 

additional documentation to support that there was volunteer involvement with the mail program. 

If these disbursements were considered not to have met the volunteer exemption, then TRP 

would have made an excessive coordinated contribution to Bob Corker for Senate in the amount 

of $716,093. 
Legal Standard 

A. Limits on Contributions Made by National Parties.^ National party committees must 

comply with the contribution limits below: 

• $5,000 per election to a House or Presidential campaign'^ 

• $35,000 to a Senate campaign for the entire campaign period. This limit is shared by the 

national party committee and the Senate campaign committee. 

• $5,000 per year to a separate segregated fund (corporate or labor PAC) or a nonconnected 

committee. 

• Unlimited transfers to other party committees. 2 U.S.C. §441a(a) and (a)(h). 

B. Limits on Contributions Made by State and Local Party Committees. 

• A state party committee shares its limits with local party committees in its state unless a 

local committee can demonstrate its independence. 11 CFR §110.3(b)(3). 

• State and local party committees must comply with the contribution limits below: 

o $5,000 per election to a Federal campaign if the contributing committee has qualified 

as a multicandidate committee (see below), 

o $2,100 per election to a Federal campaign if the contributing committee has not 

qualified as a multicandidate committee, 

o $5,000 per year to a separate segregated fund (corporate or labor PAC) or a 

nonconnected committee, 

o Unlimited transfers to other party committees. 2 U.S.C. §441a(a). 

C. Coordinated Party Expenditures. National party committees and state party committees 

are permitted to purchase goods and services on behalf of candidates in the general 

election—over and above the contributions that are subject to contribution limits described 

above. Such purchases are referred to as "coordinated party expenditures." They are subject 

to the following rules: 

• The amount spent on "coordinated party expenditures" is limited by statutory formulas 

that are based on the Cost of Living Adjustment (COLA) and the voting age population. 

• Party committees are permitted to coordinate the spending with the candidate 

committees. 

• The parties may make these expenditures only in connection with the general election. 

• The party committees—^not the candidates—^are responsible for reporting these 

expenditures. 

• If the party committee exceeds the limits on coordinated party expenditures, the excess 

amount is considered an in-kind contribution, subject to the contribution limits described 

above. 

• A national or state party committee may assign all or part of its coordinated party 

spending authority to another party committee. 2 U.S.C. §441a(d) and 11 CFR 

§§l09.32(b) and 109.33(a). 

^ A party's national committee, Senate campaign committee, and House campaign committee are each considered 

a national party committee, and each one has a separate limit except with respect to Senate campaigns. 

^ This assumes the national party committee has qualified as a multicandidate committee. 
10 

D. Coordinated Communication. A communication is coordinated with a candidate, an 

authorized committee, a political party committee, or an agent of any of the foregoing when 

the communication: 

1. Is paid for by a person other than that candidate, authorized committee, political party 

committee, or agent of any of the foregoing. 

2. Satisfies at least one of the content standards in paragraph (c) of this section. One of the 

four content standards described in this section as satisfying this requirement is a public 

communication that expressly advocates the election or defeat of a clearly identified 

candidate for Federal office. 

3. Satisfies at least one of the conduct standards in paragraph (d) of this section. One of the 

six conduct standards described in this section as satisfying this requirement is common 

vendor if all of the following statements are true: 

• The person paying for the communication contracts with or employs a commercial 

vendor to create, produce, or distribute the communication. 

• That commercial vendor has provided certain services to the candidate in the current 

election cycle. Such services include the development of media strategy; selection of 

audiences; polling; fundraising; developing the content of a public communication; 

producing a public communication; identifying voters or developing voter lists, 

mailing lists, or donor lists; selecting personnel, contractors, or subcontractors; or 

consulting or otherwise providing political or media advice; and 

• That commercial vendor uses or conveys to the person paying for the communication: 

information about the candidate's campaign plans, projects, activities, or needs and 

that information is material to the creation, production, or distribution of the 

communication; or information used previously by the commercial vendor in 

providing services to the candidate and that information is material to the creation, 

production, or distribution of the communication. 11 CFR §109.21(a)(1), (2) and (3), 

(c)(3), and (d)(4). 

E. Expressly Advocating Definition. Expressly advocating means any communication that: 

1. Uses phrases such as "vote for", "re-elect", "support", "cast your ballot for", "vote 

against", or words which in context can have no other reasonable meaning than to urge 

the election or defeat of one or more clearly identified candidate(s); or 

2. When taken as a whole could only be interpreted by a reasonable person as containing 

advocacy of the election or defeat of one or more clearly identified candidate(s). 11 CFR 

§100.22. 

F. Volunteer Activity for Party Committee. The payment by a state committee of a political 

party of the costs of campaign materials (such as pins, bumper stickers, handbills, brochures, 

posters, party tabloids or newsletters, and yard signs) used by such committee in connection 

with volunteer activities on behalf of any nominee(s) of such party is not a contribution or 

disbursement, provided that the following conditions are met: 

I. Such payment is not for cost incurred in connection with any broadcasting, newspaper, 

magazine, bill board, direct mail, or similar type of general public communication. The 

term direct mail means any mailing(s) by a commercial vendor or any mailing(s) made 

from commercial lists. 
11 

2. The portion of the payment allocable to federal candidates must be paid with federal 

funds. 

3. Such payment is not made from contributions designated by the donor to be spent on 

behalf of a particular candidate for Federal office. 

4. Such materials are distributed by volunteers and not by commercial or for profit 

operations. 

5. If made by a political committee such payments shall be reported by the political 

committee as a disbursement. 

6. The exemption is not applicable to campaign materials purchased by the national party 

committees. 11 CFR §100.87 (a), (b), (c), (d), (e) and (g) and 11 CFR §100.147 (a), (b), 

(c), (d), (e)and(g). 

Facts and Analysis 

The Audit staff reviewed all disbursements related to various forms of media to determine 

whether TRP complied with applicable regulations regarding the production and dissemination 

of printed material and radio and television advertisements. If it contained Federal candidate 

support, the Audit staff reviewed the supporting documentation to determine if evidence was 

found which would suggest that coordination with the candidate might exist. During this review, 

the Audit staff noted that the coordinated party expenditure limit for the state of Tennessee in the 

2006 cycle for a Senate candidate was $362,200. As cited above, the national party committee 

and state party committees each have separate coordinated expenditure limits for a total 

combined limit in Tennessee of $724,400. By a letter dated September 1,2006, the Tennessee 

Republican Party assigned their limit to the National Republican Senatorial Committee (NRSC). 

NRSC spent most of this combined limit on media totaling $714,630 that supported Bob Corker 

for Senate. 

During this review, the Audit staff identified disbursements to one vendor. Creative Direct, LLC, 

for the production, printing and mailing of numerous direct mail pieces. TRP disclosed these 

disbursements either as federal election activity disbursements or federally funded operating 

disbursements. These disbursements to Creative Direct, LLC totaled $721,093 and were 

incurred during the period September through November of 2006. All of these disbursements 

were in support of Bob Corker for Senate or in opposition to his opponent Congressman Harold 

Ford, Jr. Bob Corker's campaign used this same vendor for direct mail disbursements which 

totaled $680,570 and were incurred during the period April through September of 2006. NRSC 

also utilized this same vendor for a coordinated expenditure incurred on September 7,2006, 

totaling $66,417. 

For the coordinated expenditure standard to apply, two conditions must be met: Content and 

Conduct. TRP appeared to have met the content standard, since the disbursements were for a 

public communication that expressly advocated the election or defeat of a clearly identified 

candidate for federal office. Although there was no language such as "vote for" or "defeat" in 

the material, the Audit staff determined that it could only be interpreted by a reasonable person 

as containing advocacy of the election of Bob Corker for Senate or the defeat of Harold Ford, Jr. 

For example, one of the direct mail pieces contains a picture of Bob Corker and discusses his 

plan for securing the borders and cracking down on illegal immigration on one side; the other 

side has a picture of his opponent and states, among other things, "Too bad Liberal Congressman 
12 

Harold Ford is all talk - no action on illegal immigration." Another direct mail piece pictures 

Congressman Ford and notes that when he ".. .did show up to vote, he VOTED AGAINST the 

recent TAX CUTS for Tennessee families." The piece also states that he is "Tennessee's Most 

Liberal Congressman." 

TRP also met one of the types of conduct to satisfy the conduct standard: Common Vendor. All 

three committees (NRSC, Bob Corker for Senate, and TRP) used a common vendor. Creative 

Direct, LLC. 

• NRSC reported a coordinated expenditure for direct mail costs totaling $66,417 on 

September 7,2006. 

• Bob Corker for Senate incurred direct mail costs totaling $680,570 during April through 

September of 2006. 

• TRP incurred direct mail costs totaling $721,093 during September through November of 

2006. 

Although there was no documentation to indicate that Creative Direct, LLC conveyed 

information about the candidate's campaign plans or needs to TRP, there was sufficient evidence 

to suggest-that coordination might have existed. 

At the exit conference, the Audit staff discussed this matter with TRP's representatives who 

stated they would review their records. Subsequently, the Audit staff provided a schedule of the 

$721,093 possible coordinated expenditures for their review. 

Subsequent to the exit conference, the Audit staff sent letters to TRP and Creative Direct, LLC, 

which contained questions to clarify whether there was coordination. The responses from TRP 

and Creative Direct, LLC indicated that they considered the direct mailings to be exempt 

volunteer activities. TRP stated: "We thought these were exempt. We had an official candidate, 

it was in the General, all processed and stamped in Tennessee, it was non-allocable, paid with 

Tennessee Victory funds, used volunteers." Creative Direct's response indicated its services 

were limited to the preparation of mail and handouts that would be used in connection with 

volunteer activities. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended TRP provide evidence that detailed if there was substantial 

volunteer involvement and discussed whether volunteers did any of the separation and 

distribution activities for the mailers such as: unpacking, bundling, sorting by zip code or other 

types of sorting, bagging, tagging, wrapping, loading, weighing, or delivering the mailers to the 

Post Office; or evidence to support that no coordination existed between TRP and Bob Corker 

for Senate. This evidence could have included samples of material produced and printed by 

Creative Direct, LLC for each of the committees, i.e. NRSC and Bob Corker for Senate; and a 

statement from the vendor detailing how orders were placed and how it avoided information 

sharing among these three clients. If the evidence provided indicated there was volunteer 

involvement or that no coordination occurred, then no further action was recommended. 

However, if the evidence provided indicated that coordination did occur, then the Audit staff 

recommended that TRP seek reimbursement from the candidate in the amount of $716,093.^ 

TRP did not contribute to Bob Corker for Senate; therefore, the amount of reimbursement sought should be 

$716,093 ($721,093-$5,000). 
13 

In response to the interim audit report, TRP provided a description of the procedure used for 

handling the non-allocable mail program during the fall of 2006. The response noted that 

volunteers at the Victory Field office were recruited by TN GOP Victory staff and organized to 

complete the following tasks: 

• Volunteers unloaded the boxes of unstamped and unaddressed mail from wrapped 

pallets, taking them into the Victory office. 

• Volunteers stacked the boxes inside the office. 

• Volunteer Team Leader opened boxes and stacked the unmarked mail on a series of 

tables for volunteers to stamp. 

• Volunteers sitting at the tables applied the Tennessee Republican Party indicia or stamp 

with a hand operated ink stamp to each piece of mail. 

• Volunteers placed the mail pieces back into boxes after they had been hand stamped with 

the Tennessee Republican Party's indicia. 

• Volunteers stacked the boxes of stamped mail near the door. 

• Volunteers loaded the boxes back onto the truck for delivery to the mail house to address 

the mail pieces. 

The response stated that during this process a volunteer physically touched each piece of mail to 

apply the hand operated ink stamp that was used to apply the non-profit indicia for postage used 

by the Tennessee Republican Party. Additionally, volunteers unloaded the delivery of 

unstamped mail pieces, unpackaged the mail pieces from boxes for stamping, repackaged the 

mail pieces after stamping and reloaded the delivery trucks with the stamped mail. 

In the Audit staff's opinion, the limited participation by volunteers detailed by TRP does not 

appear to meet the requirements of the volunteer materials exemption. In fact, this level of 

volunteer activity is specifically addressed by MUR 2559 (Oregon Republican Party) and MUR 

2288 (Shimizu for Congress) as not substantial enough for the volunteer exemption to apply. 

However, the Commission recently considered the volunteer exemption in the context of MUR 

5598 (Utah Republican Party) which had very similar facts to the volunteer activity described by 

TRP. In its decision, the Commission did not expressly conclude whether the volunteer 

exemption had, or had not, been met; rather it cited the complicated history relative to the 

volunteer exemption and dismissed the matter in an exercise of its prosecutorial discretion. The 

Commission also indicated a need for more detailed guidance to clarify the volunteer exemption. 

If these disbursements were considered not to have met the volunteer exemption, then TRP 

would have made an excessive coordinated contribution to Bob Corker for Senate in the amount 

of $716,093. 
14 

Finding 4. Disclosure of Expenditures for Salary and Wages 

Summary 

TRP did not maintain monthly logs, time sheets or affidavits for its employees. Absent such 

documentation it is not possible to determine whether the salaries must be paid wholly from the 

federal account or may be paid from the non-federal account or allocated between the federal and 

non-federal accounts as administrative expenses. In response to the interim audit report 

recommendations, TRP provided some additional affidavits which stated that the employee did 

not spend more the 25% of compensated time on federal election activities and amended its 

reports which materially corrected the disclosure of the above salaries and payroll taxes. 

Legal Standard 

A. Accounts for Federal and Non-federal Activity. A party committee that finances political 

activity in connection with both federal and non-federal elections shall establish two accounts 

(federal and non-federal) and allocate shared expenses, those that simultaneously support federal 

and non-federal election activity between the two accounts. Alternatively, the committee may 

conduct both federal and non-federal activity from one bank account, considered a federal 

account. 11 CFR §l02.5(a)(l)(i). 

B. Paying for Allocable Expenses. Commission regulations offer party committees two ways 

to pay for allocable shared federal/non-federal expenses. 

• They may pay the entire amount of the shared expense from the federal account and 

transfer funds from the non-federal account to the federal account to cover the nonfederal share of that expense; or 

• They may establish a separate, federal allocation account into which the committee 

deposits funds from both its federal and non-federal accounts solely for the purpose of 

paying the allocable expenses of shared federal/non-federal activities. 11 CFR 

. §106.5(g)(l)(i)and(ii)(A). 

C. Reporting Allocable Expenses. A political committee that allocates federal/non-federal 

expenses must report each disbursement it makes from its federal account (or separate allocation 

account) to pay for a shared federal/non-federal expense. Committees report these kinds of 

disbursements on Schedule H4 (Joint Federal/Non-Federal Activity Schedule). 11 CFR 

§104.10(b)(4). 

D. Costs allocable by State party committees between Federal and Non-federal accounts 

(Effective prior to January 19,2006). State party committees must pay salaries and wages 

from funds that comply with State law for employees who spend 25% or less of their time in any 

given month on federal election activity. 11 CFR § 106.7(c)(1). 

E. Costs allocable by State party committees between Federal and Non-federal accounts 

(Effective on January 19,2006). State party committees must either pay salaries, wages, and 

fringe benefits for employees who spend 25% or less of their time in a given month on Federal 

election activity with funds from their Federal account, or with a combination of funds from their 

federal and non-federal accounts. 11 CFR § 106.7(c)(1), as amended January 19,2006. 
15 

F. Allocation Ratios and Record-Keeping for Administrative Expenses. The percentages 

used for such allocations vary based on whether a Presidential and/or a Senate candidate appears, 

or doesn't appear, on the ballot in any even year. For the period 2005-2006, which included an 

even year in which a Senate candidate, but no Presidential candidate, appeared on the ballot, 

TRP chose the appropriate percentage, 21%, for a State committee to allocate administrative 

expenses to their Federal account. Committees must keep a monthly log of the percentage of 

time each employee spends in connection with a Federal election. 11 CFR § 106.7(d)(1) and 

(2)(iii). 

Facts and Analysis 

The Audit staffs review of payroll expenses indicated that TRP did not maintain monthly logs, 

time sheets or affidavits for its employees that worked for either the federal or non-federal 

accounts. Therefore, based on the regulatory change effective January 19,2006 (See page 1, 

Changes to the Law), the Audit staff applied the following to assess salary expenditures: 

1. For salary and payroll tax payments made before January 19,2006: 

If there is a monthly log, time sheet or affidavit which states that: 

• the time spent on federal activity is less than or equal to 25%, the payment can be 

made from the non-federal account and it requires nothing further of the federal 

committee; or 

• the time spent on federal activity exceeds 25%, or for which there is no 

documentation indicating a lesser percentage, the federal committee must disclose 

these payments on Schedule B, Line 30b, as non-allocable Federal Election 

Activity (FEA). Should such payments during this period be made from the nonfederal account, an appropriate memo Schedule B should be filed. 

2. For salary and payroll tax payments made on or after January 19,2006: 

If there is monthly log, time sheet or affidavit which states that: 

• the time spent on federal activity each month is none, or 0%; this may be paid by 

the non-federal account and requires nothing further of the federal committee; or 

• the time spent on federal activity is less than or equal to 25%; this payment must 

be made from the federal account and disclosed by the federal committee on 

Schedule H4 as allocable administrative activity, for which reimbursement may 

be sought at the administrative ratio. Should such payments during this period be 

made from the non-federal account, an appropriate memo Schedule H4 should be 

filed; or 

• the time spent on federal activity exceeds 25%, or for which there is no 

documentation indicating a lesser percentage, the federal committee must disclose 

these payments on Schedule B, Line 30b, as non-allocable FEA activity. Should 

such payments during this period be made from the non-federal account, an 

appropriate memo Schedule B should be filed. 

The results of the Audit staffs review of salary and payroll taxes, to include consideration of 

affidavits provided to date, are as follows: 
16 

1. Salary and payroll tax payments made from the non-federal account: 

• With respect to salary payments from this account totaling $23,114, TRP 

provided affidavits which stated that four individuals spent less than or equal to 

25% of their time per month on federal activities during the period on or after 

January 19,2006. In addition, there were payroll tax payments of $6,096 which 

relate to these salary payments paid during this period. Therefore, TRP is 

required to disclose as memo entries on Schedule H4 the salary payments of 

$23,114 and tax payments of $6,096. 

• TRP failed to provide documentation detailing the time spent on federal activities 

for employees whose earnings totaled $207,048 for the period before January 19, 

2006 and $37,792 for the period on or after January 19,2006. In addition, there 

were payroll tax payments of $53,198 which relate to the salary payments, 

totaling $207,048, paid during the period before January 19,2006 and the $9,968 

payroll tax payments that relate to the $37,792 salaries paid on or after January 

19,2006. Absent the supporting documentation, TRP was required to disclose 

these salary and payroll tax payments as memo entries on Schedule B, Line 30b. 

2. Salary and payroll tax payments made from the federal account: 

• TRP failed to provide supporting documentation detailing the time spent on 

federal activities for employees whose earnings totaled $23,194 for the period 

before January 19,2006 and $665,209 for the period on or after January 19,2006. 

In addition, payroll tax payments of $2,314 which relate to the salary payments, 

totaling $23,194, paid during the period before January 19,2006 and $161,923 

payroll tax payments that relate to the $665,209 salaries paid on or after January 

19,2006. TRP reported these salary and tax payments as allocable expenses on 

Schedule H4. Absent the supporting documentation, TRP should have disclosed 

these salary and tax payments on Schedule B, Line 30b for both periods. 

The Audit staff compared reimbursements received from the non-federal account for its share of 

allocable activity and made certain other adjustments. This analysis indicated there was no 

funding of federal activity by the non-federal accounts as a result of the activity discussed above. 

The Audit staff discussed this matter with TRP's representatives during the exit conference, and 

presented them with copies of relevant work papers. TRP representatives stated that they would 

review the schedules and amend its reports accordingly. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended TRP provide monthly logs or time sheets from each employee for 

each month worked attesting to the time spent by the employee for the period employed by TRP, 

or affidavits from each employee which provide information similar to a monthly log about 

employee activities, and amend its disclosure reports accordingly. If no additional 

documentation was provided, TRP should have amended its disclosure reports as detailed above. 

In response to the interim audit report recommendations, TRP provided some additional 

affidavits which stated that the employee did not spend more than 25% of compensated time on 
17 

federal election activities and amended its reports which materially corrected the disclosure of 

the above salaries and payroll taxes.