Final Audit Report of the 

Commission on the Arizona 

Republican Party 

(January 1, 2009 - December 31, 2010) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political cornmittee 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 Arizona Republican Party is a state party committee with | 

headquarters in Phoenix, Arizona. For more information, see the 

chart on the Committee Organization, p. 2. | 

Financial Activity (p. 3) 

• Receipts 

o Contributions from Individuals 

o Political Committee Contributions 

o Transfers from Affiliates 

o Transfers from Non-federal and 

Levin Accounts 

o Offsets and Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Federal Election Activity 

o Transfers to Non-federal Accounts 

o Coordinated Expenditures 

o Other Expenditures 

Total Disbursements 

• Levin Receipts 

• Levin Disbursements 

$ 1,297,217 

32,00 i 

353,151 

196,71 Q 

19,581 

$ l,898i660 

I 

$ l,028,84j^ 

299,34p 

34,109 

529,36!l 

I2,50p 

$ l,904;i54 

$ 20301 

$ 28,329 

Commission Findings (p. 4) 

• Misstatement of Financial Activity (Finding 1) 

• Reported Coordinated Party Expenditures (Finding 2) 

• Reporting of Debts and Obligations (Finding 3) 

Additional Issue (p. 5) 

• Reported Coordinated Party Expenditures 

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

Commission on the Arizona 

Republican Party 

(January 1, 2009 - December 31, 2010) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Audit Hearing 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 3 

Part III. Summaries 

Commission Findings 4 

Additional Issue 5 

Part IV. Commission Findings 

Finding 1. Misstatement of Financial Activity 6 

Finding 2. Reported Coordinated Party Expenditures 9 

Finding 3. Reporting of Debts and Obligations 13 

Part V. Additional Issue 

Reported Coordinated Party Expenditures 15 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Arizona Republican Party (ARP), 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 intemal review of reports filed by selected 

committees to determine whether 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 

Following Commission-approved procedures, the Audit staff evaluated various risk 

factors and, as a result, this audit examined: 

1. the disclosure of individual contributors' occupation and name of employer; 

2. the disclosure of disbursements, debts and obligations; 

3. the disclosure of expenses allocated between federal, non-federal, and Levin 

accounts; 

4. the consistency between reported figures and bank records; 

5. the completeness of records; and 

6. other committee operations necessary to the review. 

Audit Hearing 

The ARP declined the opportunity for a hearing. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration October 6,1975' 

• Audit Coverage January 1,2009 - December 31,2010 

Headquarters Phoenix, Arizona 

Bank Information ! 

• Bank Depositories One 

• Bank Accounts Four Federal, One Levin and Four Non-federal j 

Accounts i 

i 

Treasurer 1 1 

• Treasurer When Audit Was Conducted Timothy Lee [through April 25,2012] 

Andrew A. Stevens [through February 11,2013;] 

Timothy Lee [as of February 12,2013] 

• Treasurer During Period Covered by Audit Timothy Lee 

Management Information 

• Attended a Commission Campaign Finance 

Seminar 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

^ The ARP registered with the Secretary of the Senate as the Republican State Committee of Arizona. In 1985, the i 

ARP filed an amended Statement of Organization, changing its name to the Arizona Republican Party. ; 
Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand January 1,2009 $4399 

Receipts 

o Contributions from Individuals $ 1,297,217 

o Political Committee Contributions 32,001 

o Transfers from Affiliates 353,151 

o Transfers from Non-federal and Levin Accounts 196,710 

o Offsets and Other Receipts 19,581 

Total Receipts $ 1,898,660 

Disbursements 

o Operating Expenditures $ 1,028,844 

o Federal Election Activity 299.340 

o Transfers to Non-federal Accounts 34,109 

o Coordinated Expenditures 529,361 

o Other Expenditures 12,500 

Total Disbursements $ 1,904,154 

Cash-on-hand @ December 31,2010 

Levin Cash-on-hand @ January 1,2009 

($ 1,095)^ 

$ 8,535 

Total Levin Receipts $ 20301 

Total Levin Disbursements $ 28,329 

Levin Cash-on-hand @ December 31,2010 $507 

Overdraft was cleared on January 6,2011. 
Part III 

Summaries 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of the ARP's reported financial activity with its bank ; 

records revealed a misstatement of the beginning and ending cash balances, receipts and 

disbursements in calendar years 2009 and 2010. The misstatements were due mainly to 

unreported transfers from the non-federal accounts, unreported receipts and operating 

expenditures, and unreported non-federal payroll paid from a federal account. For 2009, the 

ARP overstated the beginning cash balance by $25,971, understated receipts by $56,959 and 

disbursements by $92,890, and overstated the ending cash balance by $61,902. For 2010, the 

ARP understated receipts by $99,511 and disbursements by $55,892 and overstated the ending 

cash balance by $18,283. In response to the Interim Audit Report recommendation, the ARP 

amended its reports to materially correct the misstatements noted above. j 

The Commission approved a finding that the ARP misstated its financial activity for calendar 

years 2009 and 2010. (For more detail, see p. 6.) I 

i 

Finding 2. Reported Coordinated Party Expenditures 

For the audit period, the ARP reported coordinated expenditures for three House candidates that \ 

exceeded the 2010 coordinated party expenditure limit by a total of $383,862. In response to the! 

Interim Audit Report recommendation, the ARP provided a written description and ! 

documentation to show that the expenditures were not actually coordinated but qualified for the j 

volunteer materials exemption and were not properly disclosed on its reports. Given the 

uncertainty regarding the level of volunteer involvement needed to qualify State or local party ! 

committee expenditures for the volunteer materials exemption, as well as the amount of j 

documentation required to support such an exemption, the Draft Final Audit Report did not 

attribute the expenditures to the ARP's coordinated expenditure limit. ; 

The Commission approved a finding that the reported expenditures of $160,532 for one House ; 

candidate should not be attributed to the ARP's coordinated expenditure limit. (For more detail^ 

see p. 9.) 

j 

Finding 3. Reporting of Debts and Obligations 

Audit fieldwork indicated that the ARP failed to report debts and obligations for seven vendors ; 

totaling $81,948 on Schedule D (Debts and Obligations). In response to the Interim Audit 

Report recommendation, the ARP amended its reports to include these debts and obligations. 

I 

The Commission approved a finding that the ARP failed to report debts and obligations totaling 

$81,948. (For more detail, see p. 13.) j 
Additional Issue 

Reported Coordinated Party Expenditures 

As detailed in Finding 2 above, the ARP reported coordinated expenditures for three House 

candidates that exceeded the 2010 coordinated party expenditure limit by a total of $383,862. In 

response to the Interim Audit Report recommendation, the ARP only provided a written 

description for expenditures totaling $223,330, showing that the expenditures were not actually 

coordinated but qualified for the volunteer materials exemption and were not properiy disclosed 

on its reports, for two House candidates. Given the uncertainty regarding the level of volunteer 

involvement needed to qualify State or local party committee expenditures for the volunteer 

materials exemption, as well as the amount of documentation required to support such an 

exemption, the Draft Final Audit Report did not attribute the expenditures to the ARP's 

coordinated expenditure limit. 

The Commission did not approve by the required four votes the Audit staffs recommended 

finding that the reported expenditures of $223,330 for two House candidates should not be 

attributed to the ARP's coordinated expenditure limit. 

i 

Pursuant to Commission Directive 70,* this matter is discussed in the "Additional Issue" section.! 

As such, the expenditures totaling $223,330 are not included in Finding 2. (For more detail, see i 

p. 15.) 

* Available at http://www.fec.gov/directives/directive_70.pdf 
Part IV 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of the ARP's reported financial activity with its bank 

records revealed a misstatement of the beginning and ending cash balances, receipts and 

disbursements in calendar years 2009 and 2010. The misstatements were due mainly to 

unreported transfers from the non-federal accounts, unreported receipts and operating 

expenditures, and unreported non-federal payroll paid from a federal account. For 2009, the 

A^P overstated the beginning cash balance by $25,971, understated receipts by $56,959 and 

disbursements by $92,890, and overstated the ending cash balance by $61,902. For 2010, the 

ARP understated receipts by $99,511 and disbursements by $55,892 and overstated the ending 

cash balance by $18,283. In response to the Interim Audit Report recommendation, the ARP 

amended its reports to materially correct the misstatements noted above. 

The Commission approved a finding that the ARP misstated its financial activity for calendar 

years 2009 and 2010. 

Legal Standard 

A. 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). 

B. Transfers. Generally, a political committee may not transfer funds to its federal account 

from any other account or accounts maintained for the purpose of financing activity in 

connection with non-federal elections, except when the committee follows specific rules for 

paying for shared federal/non-federal election activity. 11 CFR §§102.5(a)(l)(i) and 106.5(g). • 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reconciled the ARP's reported financial activity with its 

bank records and identified a misstatement of the beginning and ending cash balances, receipts 

and disbursements for calendar years 2009 and 2010. The following charts detail the 

discrepancies between the totals on the ARP's disclosure reports and bank records. Succeeding 

paragraphs explain why the discrepancies occurred. 
2009 Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2009 

$30,370 $4,399 $25,971 

Overstated 

Receipts $483,816 $540,775 $56,959 

Understated 

Disbursements $449,381 $542,271 $92,890 

Understated 

Ending Cash Balance @ 

December 31,2009 

$64,805 $2,903 $61,902 

Overstated 

The $25,971 overstatement of the beginning cash balance was likely due to prior-period 

reporting discrepancies. 

The understatement of receipts was the result of the following: 

• Transfers from the non-federal accounts not reported 

• Contributions not reported 

• Reported receipts not supported by deposit documentation or credit 

• Unexplained difference 

Net Understatement of Receipts 

The understatement of disbursements was the result of the following: 

• Non-federal payroll paid from federal account not reported 

• Transfers to the non-federal account not reported 

• Operating expenditures not reported 

• Reported disbursements not supported by cancelled check or debit 

• Unexplained difference 

Net Understatement of Disbursements 

$51,042 

13,115 

(7,158) 

(40) 

$ 56.959 

$ 78,686 

10,300 

6,390 

(2,489) 

3 

$ 92.890 

The $61,902 overstatement of the ending cash balance resulted from the reporting discrepancies 

noted above. 

2010 Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2010 

$64,805 $2,903 $61,902 

Overstated 

Receipts $1,258,374 $1,357,885 $99,511 

Understated 

Disbursements $1,305,991 $1,361,883 $55,892 

Understated 

Ending Cash Balance @ 

December 31, 2010 

$17,188 ($1,095)' $18,283 

Overstated 

Overdraft was cleared on January 6,2011. 
The understatement of receipts was the result of the following: 

• Transfers from the non-federal accounts not reported $ 55,272 

• Contributions not reported 45,006 

• In-kind contributions not reported 11,151 

• Reported receipts not supported by deposit documentation or credit (11,697) 

• Unexplained difference (221) 

Net Understatement of Receipts $ 99.511 

The understatement of disbursements was the result ofthe following: 

• Non-federal payroll paid from the federal account not reported $ 14,202 

• Operating expenditures not reported 29,497 

• Transfers to non-federal accounts not reported 16,366 

• In-kind contributions not reported 11,151 

• Reported disbursements not supported by cancelled check or debit (11,788) 

• Disbursements paid from non-federal accounts reported in error (3,751) 

• Unexplained difference 215 

Net Understatement of Disbursements 

The $18,283 overstatement of the ending cash balance resulted from the reporting discrepancies ' 

noted above. 

The ARP contracted with Paychex, a third-party vendor, to process employee salaries, taxes and , 

health benefits.^ Paychex withdrew funds from the ARP's federal administrative account to pay. 

federal payroll, allocated payroll, non-federal payroll and related benefits. The non-federal 

account reimbursed the federal account for the non-federal payroll and benefits.^ The ARP 

initially reported only the federal payroll, allocated payroll and related benefits. The ARP did 

not initially report non-federal payroll and benefits and the reimbursement from the non-federal | 

account. Since the ARP paid the non-federal payroll, taxes and benefits from the federal i 

administrative account, these expenditures should have been reported on Schedule B - Other 

Disbursements and the reimbursement from the non-federal account on Schedule A - Other 

Receipts. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference. Audit staff provided the ARP representatives with workpapers detailing ' 

the misstatements of financial activity and discussed the reporting requirements for financial 

activity passing through the federal bank accounts. An ARP representative asked whether the ; 

requirement also applied to credit card contributions intended for the non-federal account. The ; 

Audit staff stated that because all credit card contributions are processed through the federal 

account, contributions intended for the non-federal account needed to be reported first on 

Schedule A - Other Receipts, and the transfer of the funds to the non-federal account reported on 

Schedule B - Other Disbursements. 

^ Paychex began providing payroll services on October 1,2009; prior to that date, payroll services were provided by 

Business Management Solutions LLC. 

^ U/A H tha t th(> nrtn.fpHern l ncRoiin t Hi H no t fiinH an v n f th n f(>HArnl nnvml l ^ A review of payroll expenditures showed that the non^federal account did not fimd any of the federal payroll. 
The Interim Audit Report recommended that the ARP: j 

• amend its reports to correct the misstatements for 2009 and 2010 as noted above; 

• amend its most recent report to correct the cash-on-hand balance with an explanation that = 

the change resulted from a prior-period audit adjustment; and 

• reconcile the cash balance of its most recent report to identify any subsequent [ 

discrepancies that may affect the $18,283 adjustment recommended by the Audit staff, j 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, the ARP filed amended reports that materially corrected ; 

the misstatements. 

i 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that the ARP amended its reports j 

to correct the misstatements. | 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, the ARP accepted the Audit staffs determination ! 

that the misstatements had been corrected. ; 

Commission Conclusion 

On August 22,2013, the Commission considered the Audit Division Recommendation ' 

Memorandum in which the Audit staff recommended that the Commission adopt a finding that ; 

the ARP misstated its financial activity for calendar years 2009 and 2010. 

The Commission approved the Audit staffs recommendation. 

Finding 2. Reported Coordinated Party Expenditures i_ 

Summary 

For the audit period, the ARP reported coordinated expenditures for three House candidates that i 

exceeded the 2010 coordinated party expenditure limit by a total of $383,862. In response to the 

Interim Audit Report recommendation, the ARP provided a written description and 

documentation to show that the expenditures were not actually coordinated but qualified for the ] 

volunteer materials exemption and were not properly disclosed on its reports. Given the 

uncertainty regarding the level of volunteer involvement needed to qualify State or local party | 

committee expenditures for the volunteer materials exemption, as well as the amount of i 

documentation required to support such an exemption, the Draft Final Audit Report did not 

attribute the expenditures to the ARP's coordinated expenditure limit. ; 

The Commission approved a finding that the reported expenditures of $160,532 for one House ; 

candidate should not be attributed to the ARP's coordinated expenditure limit. 

Legal Standard 

A. 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. Such purchases are termed I 

"coordinated party expenditures." They are subject to the following rules: 
10 

• 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, i 

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

committees. j 

• 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. 2 U.S.C. j 

§441a(d) and 11 CFR §§109.30 and 109.32. | 

B. Assignment of Coordinated Party Expenditure Limit. A political party may assign its 

authority to make coordinated party expenditures to another political party committee. Such an j 

assignment must be made in writing, state the amount of the authority assigned, and be received | 

by the assignee before any coordinated party expenditure is made pursuant to the assignment. | 

The political party committee that is assigned authority to make coordinated party expenditures : 

must maintain the written assignment for at least three years. 11 CFR §109.33(a) and (c). 

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

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

• $5,000 per election to a federal campaign if the contributing committee has qualified as a ' 

multicandidate committee; 

• $2,400 per election to a federal campaign if the contributing committee has not qualified '• 

as a multicandidate committee; ; 

• $5,000 per year to a separate segregated fund (corporate or labor political action j 

committee) or a nonconnected committee; and ! 

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

D. Volunteer Activity. 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, provided that the conditions below i 

are met. 

1. Such payment is not for costs incurred in connection with any broadcasting, newspaper, | 

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

political advertising. The term direct mail means any mailing(s) by a commercial vendor j 

or any mailing(s) made from commercial lists. 

2. The portion ofthe cost of such materials allocable to federal candidates must be paid 

from contributions subject to the limitations and prohibitions of the Act. 

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 in accordance with 11 CFR § 104.3 but need not be 

allocated to specific candidates in committee reports. 
11 

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 

A. Facts 

The coordinated expenditure limit for the 2010 election cycle for a House candidate in the state ; 

of Arizona was $43,500 each for the state and national party committees. The ARP reported 

receiving authorization from the Republican National Committee (RNC) and the National 

Republican Congressional Committee (NRCC) to make coordinated expenditures on behalf of 

House candidates Paul Gosar (Arizona District 1), David Schweikert (Arizona District 5) and 

Jesse Kelly (Arizona District 8). During audit fieldwork, the ARP did not provide to the Audit 

staff written assignment of authority from the national party committees to the ARP for making ' 

coordinated expenditures. Such written assignment of authority is required by 11 CFR 

§ 109.33(a). A review of the NRCC's disclosure reports indicated that the NRCC made 

coordinated expenditures of $85,000 on behalf of Paul Gosar for Congress and $85,000 for Kelly 

for Congress. Also, the NRCC reported receiving authorization from the RNC and the ARP to 

make these expenditures. Therefore, without documentation to support an increased coordinatedspending limit, the ARP's coordinated spending limit for each congressional candidate was 

$43,500.* 

The ARP reported making coordinated expenditures for direct mail pieces totaling $57,373 on ' 

behalf of Paul Gosar for Congress, $209,032 for David Schweikert for Congress and $262,957 ; 

for Kelly for Congress. These expenditures were in excess of the authorized coordinated i 

spending limit for each candidate and resulted in an apparent excessive in-kind contribution to 

each candidate. 

The following chart details the total amount of coordinated expenditures reported by the ARP 

and the resulting apparent excessive in-kind contributions. 

ARP Coordinated Expenditures 

Paul 

Gosar for 

Congress 

David 

Schweikert 

for Congress 

Kelly for 

Congress 

Total 

Reported Expenditures $57,373 $209,032 $262,957 

Less: Spending Limit ($43,500) ($43,500) ($43,500) 

Over Limit (In-kind Contribution) $13,873 $165,532 $219,457 

Less: Allowable Contribution^ ($5,000) ($5,000) ($5,000) 

• Apparent Excessive In-kind 

Contributions 

$8,873 $160,532 $214,457 $383,862 

Coordinated Expenditures reported 

by the NRCC'° $85,000 $0 $85,000 

" The ARP did not provide any documentation to demonstrate that it had transferred its authority to the NRCC to 

make coordinated expenditures on behalf of the candidates. 

' The ARP did not report any contributions to federal candidates during the 2010 election cycle. 

'° Reported expenditures by the NRCC were made prior to the expenditures reported by the ARP. 
12 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided the ARP representatives with a schedule ofthe 

apparent excessive in-kind contributions. The ARP representatives stated that they had not 

received a response from the RNC or NRCC about authorization of the coordinated expenditure 1 

limit and asked what this finding would mean for the ARP. The Audit staff stated that ifthe 

ARP cannot provide documentation to refute coordination, the Commission could find that the ! 

ARP had made an excessive in-kind contribution to the candidates and ask the ARP to request a | 

refund from the candidates. | 

I 

I 

The Interim Audit Report recommended that the ARP demonstrate that it had not exceeded its 

coordinated spending limit on behalf of Paul Gosar for Congress, David Schweikert for Congress, 

and Kelly for Congress. Absent evidence of the above, the Interim Audit Report recommended j 

that the ARP seek reimbursement from Paul Gosar for Congress in the amount of $8,873, David j 

Schweikert for Congress in the amount of $ 160,532 and Kelly for Congress in the amount of 

$214,457. ' 

C. Committee Response to Interim Audit Report i 

In response to the Interim Audit Report, the ARP stated that the expenditures in question were | 

not coordinated but, in fact, were "non-allocable contributions" and met the statutory and 

regulatory definition of "volunteer exempt activity" as provided at 2 U.S.C. §§431(8)(B)(ix) and' 

43 l(9)(B)(viii). The ARP stated that all of the mailings were distributed using lists of addressees 

owned and maintained by the ARP and had a significant volunteer component. For each of the . 

expenditures in question, the ARP supplied a commercial printer with a graphical design for the : 

mail piece and an address list drawn from the ARP's own comprehensive list of registered 

Arizona Republicans. The vendor prepared the pieces, including the printing of the ARP's bulk ' 

rate mail permit number and addressee information. The vendor's equipment sorted the mail 

pieces according to the postal zip code and party volunteers were responsible for binding the > 

mail pieces by grouping, placing them into U. S. Postal Service (USPS) bags or trays in 

accordance with USPS regulations and delivering the sorted mail to the USPS facility.'' I 

The Audit staff asked why the ARP reported these expenditures on Schedule F (Itemized 

Coordinated Party Expenditures) instead of Schedule B, Line 30b (Federal Election Activity). 

The ARP responded that during the time period covered by the audit, the ARP contracted with a j 

regional accounting firm that promoted itself as qualified to facilitate timely and accurate 

reporting to the Commission. The ARP provided this vendor with regular financial reports to be' 

used in the preparation of the disclosure reports. It subsequently became apparent that the ' 

accounting firm was experiencing significant intemal challenges in its compliance practice.'^ 

The ARP relied on this vendor to file accurate reports in a timely manner. The ARP has engaged 

'' The ARP provided photographs of the volunteers performing these duties for the expenditures in support of 

Congressman Schweikert. Documentation to support the expenditures in support ofthe Gosar 2010 and Kelly 20 IQ 

campaigns was not available because, during a change in party leadership and staffmg in January 2011, the-ARP j 

inadvertently discarded records of the previous campaign activities. The ARP contacted the candidate committees ' 

and requested that they provide any additional information they might have in their possession to ftirther support the 

volunteer involvement. The committees have provided none to date. The ARP acknowledged this recordkeeping j 

deficiency and continues to seek affidavits ftom the individuals responsible for the volunteer activities during the [ 

2010 campaign. 

The vendor notified the ARP in the first quarter of 2012 that the individual responsible for reporting compliance i 

to the Commission was no longer with the firm and had not been for some time. j 
13 I 

j 

a new compliance vendor and the ARP believes that this new service provider is technically j 

competent. ! 

i 

The Commission has addressed the applicability of the volunteer materials exemptions in the I 

Final Audit Reports of the Democratic Executive Committee of Florida (DECF) and the | 

Tennessee Republican Party (TRP). In these reports, the Commission recognized a lack of 

clarity regarding the application of the volunteer materials exemption. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged the ARP's response that provided j 

a written description and documentation of the tasks performed by the volunteers. Given the j 

lack of clarity regarding the amount of volunteer involvement needed to qualify for the volunteer; 

materials exemption, as well as the amount of documentation required to support such a 

exemption, the expenditures were not attributed to the ARP's coordinated expenditure limit.. 

£. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, the ARP accepted the Audit staffs determination 

that the expenditures were not attributable to the coordinated expenditure limit. 

Commission Conclusion 

On August 22,2013, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended that the Commission adopt a finding that i 

the reported expenditures of $383,862 should not be attributed to the ARP's coordinated j 

expenditure limit. The ARP had provided a written statement and photographs of volunteers for | 

David Schweikert for Congress performing various duties relating to these expenditures. ! 

The Commission approved a finding that the reported expenditures of $160,532 for David 

Schweikert for Congress should not be attributed to the ARP's coordinated expenditure limit. 

(See Additional Issue, Part V below with respect to the remaining $223,330 in reported j 

expenditures relating to Paul Gosar for Congress and Kelly for Congress). 

I Finding 3. Reporting of Debts and Obligations [ 

Summary 

Audit fieldwork indicated that the ARP failed to report debts and obligations for seven vendors • 

totaling $81,948 on Schedule D (Debts and Obligations). In response to the Interim Audit 

Report recommendation, the ARP amended its reports to include these debts and obligations. 

The Commission approved a finding that the ARP failed to report debts and obligations totaling! 

$81,948. : 

Legal Standard 

A. Continuous Reporting Required. A political committee must disclose the amount and 

nature of outstanding debts and obligations until those debts are extinguished. 

2 U.S.C. §434(b)(8) and 11 CFR §§104.3(d) and 104.11 (a). 
14 i 

i 

i 

B. Separate Schedules. A political committee must file separate schedules for debts owed by I 

the committee and debts owed to the committee, together with a statement explaining the 

circumstances and conditions under which each debt and obligation was incurred or i 

extinguished. 11 CFR § 104.11 (a). | 

C. Itemizing Debts and Obligations. 

• A debt of $500 or less must be reported once it has been outstanding 60 days from the 

date incurred (the date of the transaction); the committee reports it on the next regulariy ! 

scheduled report. 

• A debt exceeding $500 must be disclosed in the report that covers the date on which the ; 

debt was incurred. 11 CFR § 104.11 (b). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reviewed the ARP's disbursement records and disclosure i 

reports for proper reporting of debts and obligations for 12 selected vendors. The review 

identified debts totaling $ 188,956 owed to seven vendors that the ARP reported properly on ; 

Schedule D. However, the ARP did not report, as required, additional debts totaling $81,948 that 

it owed to these seven vendors. For the remaining five vendors, there were no debts that 

required reporting. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the reporting of debts and obligations with the ARP's representatives ; 

at the exit conference and provided workpapers detailing the unreported debts. The ARP 

representatives had no comment. i 

The Interim Audit Report recommended that the ARP amend its reports to disclose these debts 

and obligations on Scheduie D. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, the ARP amended its reports to include 

these debts and obligations. The ARP noted in its response that the unreported debts identified I 

in the audit were disputed debts but acknowledged that Commission regulations require that all | 

debt must be reported regardless of whether a payment dispute exists or not. I 

j 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that the ARP amended its reports ; 

to include the debts and obligations that were previously unreported. ! 

E. Committee Response to the Draft Final Audit Report j 

In response to the Draft Final Audit Report, the ARP accepted the Audit staffs determination 

that the ARP had reported the debts and obligations. 

This is the sum of the total unreported debt for each of the seven vendors during the period covered by the audit 

(debts counted only when incurred). 
15 

Commission Conclusion 

On August 22,2013, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended that the Commission adopt a finding that 

the ARP failed to report debts and obligations totaling $81,948. 

The Commission approved the Audit staffs recommendation. 

Partv 

Additional Issue 

I Reported Coordinated Party Expenditures 

Summary 

As detailed in Finding 2 above, the ARP reported coordinated expenditures for three House 

candidates that exceeded the 2010 coordinated party expenditure limit by a total of $383,862. In 

response to the Interim Audit Report recommendation, the ARP only provided a written 

description for expenditures totaling $223,330, showing that the expenditures were not actually 

coordinated but qualified for the volunteer materials exemption and were not properly disclosed 

on its reports, for two House candidates. Given the uncertainty regarding the level of volunteer 

involvement needed to qualify State or local party committee expenditures for the volunteer 

materials exemption, as well as the amount of documentation required to support such an 

exemption, the Draft Final Audit Report did not attribute the expenditures to the ARP's 

coordinated expenditure limit. 

The Commission did not approve by the required four votes the Audit staffs recommended 

finding that the reported expenditures of $223,330 for two House candidates should not be 

attributed to the ARP's coordinated expenditure limit. 

Pursuant to Commission Directive 70, this matter is discussed in the "Additional Issue" section. 

As such, the expenditures totaling $223,330 are not included in Finding 2. 

Legal standard 

The legal standard in Finding 2 is incorporated herein. 

Facts and Analysis 

A. Facts 

As detailed in Finding 2, Part IV above, the ARP reported making coordinated expenditures for; 

direct mail pieces totaling $57,373 on behalf of Paul Gosar for Congress and $262,957 for Kellyi 

for Congress. These expenditures were in excess of the authorized coordinated spending limit j 

for each candidate and resulted in an apparent excessive in-kind contribution to each candidate.; 

i 

The following chart details the total amount of coordinated expenditures reported by the ARP < 

and the resulting apparent excessive in-kind contributions. 
16 

ARP Coordinated Expenditures 

Paul 

Gosar for 

Congress 

Kelly for 

Congress 

Total 

Reported Expenditures $57,373 $262,957 

Less: Spending Limit ($43,500) ($43,500) 

Over Limit (In-kind Contribution) $13,873 $219,457 

••••I Less: Allowable Contribution'"* ($5,000) ($5,000) 

Apparent Excessive In-kind 

Contributions 

$8,873 $214,457 $223,330 

Coordinated Expenditures reported 

by the NRCC . $85,000 $85,000 

B. Interim Audit Report & Audit Division Recommendation 

The Interim Audit Report recommended that the ARP demonstrate that it did not exceed its i 

coordinated spending limit on behalf of Paul Gosar for Congress and Kelly for Congress. Absent 

evidence of the above, the Interim Audit Report recommended that the ARP seek reimbursement 

from Paul Gosar for Congress in the amount of $8,873 and Kelly for Congress in the amount of 

$214,457. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, the ARP stated that the expenditures in question were 

not coordinated but, in fact, were "non-allocable contributions" and met the statutory and 

regulatory definition of "volunteer exempt activity" as provided at 2 U.S.C. §§431(8)(B)(ix) and 

431(9)(B)(viii). As detailed in Finding 2, the ARP stated that all ofthe mailings had a 

significant volunteer component. The ARP provided a written description of the activities 

performed by the volunteers but additional documentation, i.e. photographs of volunteers 

performing the various tasks outlined in its written statement, were not provided.*^ 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged the ARP's response that provided; 

a written description ofthe tasks performed by the volunteers. Given the lack of clarity i 

regarding the amount of volunteer involvement needed to qualify for the volunteer materials 

exemption, as well as the amount of documentation required to support such a exemption, , the 

expenditures were not attributed to the ARP's coordinated expenditure limit. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, the ARP accepted the Audit staffs determination 

that tlie expenditures were not attributable to the coordinated expenditure limit. 

Commission Conclusion 

On August 22,2013, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended that the Commission adopt a finding that 

The ARP did not report any contributions to federal candidates during the 2010 election cycle. 

Reported expenditures by the NRCC were made prior to the expenditures reported by the ARP. 

Additional documentation to support the expenditures in support of the Gosar 2010 and Kelly 2010 campaigns 

was not available because during a change in party leadership and staffing in January 2011 the ARP inadvertently 

discarded records of the previous campaign activities. 
17 

the reported expenditures of $383,862 should not be attributed to the ARP's coordinated ' 

expenditure limit. ; 

The Commission did not approve the Audit staffs recommended finding by the required four 

votes. The Commission could not reach a consensus that a written description of volunteer I 

involvement alone is sufficient to qualify the expenses totaling $233,330 in support of Gosar 1 

2010 and Kelly 2010 for the volunteer nriaterials exemption. Some Commissioners voted to j 

approve the recommended finding. Other Commissioners determined that unsworn written i 

assertions absent any documentation of the nature and extent ofthe volunteer involvement would! 

not be sufficient. ! 

; 

] 

Pursuant to Commission Directive 70, this matter is presented as an "Additional Issue." As such, ! 

the expenses totaling $233,330 are not included in Finding 2.