16

Facts and Analysis

The review of transfers from affiliated committees identified 18 transfers totaling $339,140
(63%) that were disclosed improperly. The RPA failed to disclose the aggregate year-to-date
(AYTD) totals for 17 transfers totaling $332,640. In addition, 12 of the transfers ($204,398)
were reported on the wrong line of the FEC Form 3, Detailed Summary Page.

Interim Audit Report Recommendation

The Audit staff recommended that the RPA include with the amended reports recommended
herein, amended Schedules A to correct its disclosure of transfers from affiliated
committees.

| Finding 7. Recordkeeping and Disclosure of Disbursements

Summary

The RPA failed to maintain adequate records and properly disclose the required information
for disbursements. A sample review of disbursements indicated that approximately 15%
were inadequately documented and 13% were not properly disclosed. The majority of
disclosure problems involved missing or inadequate purposes and missing or incomplete
addresses for the payee. The Audit staff recommended that the RPA obtain the missing
records, provide a complete listing of disbursements, provide a narrative description of
changes to be implemented to insure adequate disbursement records are maintained, and file
amended Schedules B (Itemized Disbursements) and H-4 (Joint Federal/Non-Federal
Activity) to correct the disclosure errors.

Legal Standard

Required Records for Disbursements. For each disbursement, the treasurer of a political
committee must keep records on the:

e Amount of the disbursement;

Date when the disbursement was made;

Name and address of the payee;

Purpose (a brief description of why the disbursement was made—see below); and

If the disbursement was made on behalf of a candidate, the candidate’s name and the
office sought by the candidate. 2 U.S.C. §432(c)(5) and 11 CFR §102.9(b).

Required Supporting Evidence. If the disbursement is in excess of $200, the records must
include a receipt or invoice from the payee, or a cancelled check or share draft to the payee.
If the disbursement was by credit card, the record must include the monthly statement or
customer receipt and the cancelled check used to pay the credit card bill. 2 U.S.C.
§432(c)(5), 11 CFR §102.9(b), and 11 CFR §104.3(b)(4)(i)(A).

Reporting Operating Expenditures. When operating expenditures to the same person
exceed $200 in a calendar year, the committee must report the:

e Amount of the disbursement;

e Date when the disbursement was made;

8 The payee is usually the person providing the goods or services to the committee. In the case of travel
advances, however, the payee is the person receiving the advance. 11 CFR §102.9(b)(2).


10

* Include this explanation on Schedule A if the contribution has to be itemized before
its legality is established;

* Seek a reattribution of the excessive portion, following the instructions provided in
FEC regulations (see below for explanation of reattribution); and

+ Ifthe committee does not receive a proper reattribution within 60 days after receiving
the excessive contribution, refund the excessive portion to the donor.
11 CER §§103.3(b)(3), (4) and (5) and 110.1(k)(3)(ii)(B).

Joint Contributions. Any contribution made by more than one person (except for a
contribution made by a partnership) must include the signature of each contributor on the
check or in a separate writing. A joint contribution is attributed equally to each donor unless
a statement indicates that the funds should be divided differently. 11 CFR §110.1(k)(1) and

(2).

Reattribution of Excessive Contributions. FEC regulations permit committees to ask

donors of excessive contributions whether they had intended their contribution to be a joint

contribution from more than one person and whether they would like to reattribute the

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

1. The reattribution must be signed by both contributors;

2. The reattribution must be received by the committee within 60 days after the committee
received the original contribution; and

3. The contributor may instead request a refund of the excessive amount. 11 CFR
§110.1(k)(3).

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

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

and 110.1(k)(3)(ii)(B). Further, a political committee must retain written records concerning

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

Revised Regulations Applied. The Commission recently adopted new regulations that
allow committees greater latitude to reattribute contributions to joint account holders and has
decided to apply these regulations to current matters. The Audit staff has evaluated the
excessive contributions discussed below using the new regulations.

Federal v. Non-Federal Account. The federal account may contain only those funds that
are permissible under the federal election law; the non-federal account may contain funds
that are not permitted under the federal law (but are legal under state law), such as
contributions that exceed the limits of the federal law and contributions from prohibited
sources, such as corporations and labor organizations. 11 CFR §102.5(a)(1)(i) and (a)(3).

Facts and Analysis

The review of the RPA’s receipts records identified seven contributions from six individuals
that appeared to exceed the contributions limits by $28,500. Without adequate supporting
documentation (See Finding 3), the Audit staff was unable to determine the proper
attribution for the majority of the contributions in question. For five of the contributions
(totaling $18,500), the only supporting documentation was a deposit ticket with a
contributor’s last name and amount listed. A portion of one contribution ($5,000) was
attributed to another individual by the RPA without evidence of obtaining the signature of


20

A. Underpayment of Federal Share of Allocable Expenses
Facts and Analysis

In addition to its separate federal and non-federal accounts, the RPA maintained a separate
federal allocation account to pay shared federal/non-federal expenses. Also, the RPA
established separate federal and non-federal accounts to pay for Victory 2000 coordinated
campaign activity. Despite having an allocation account, the RPA made payments for shared
activity directly from the federal and non-federal accounts. The Audit staff reviewed
disbursements (classified as shared expenses by the RPA) totaling $4,496,770 and
determined that the RPA may have underpaid the federal share by $1,576,104.

Lack of Supporting Documentation

When calculating the federal and non-federal shares of the allocable expenses, the Audit
staff included disbursements totaling $2,093,763 as potentially 100% federal because
additional supporting documentation is needed to determine if the activity is an allocable
expense. The purposes for these disbursements are summarized below:

Purpose Amount
Media $ 1,323,482
Direct Mail 667,688
Event Production 80,440
Travel — Republican National Convention 5,561
Other — Miscellaneous 16,592
Total $ 2,093,763

The majority of these disbursements [$1,790,852 (86%)] were made to two vendors.
Disbursements totaling $1,282,937 were made to Strategic Media Services for media buys
and $507,915 to Olsen, Delisi & Shuvalov for direct mail.

Copies of videotapes, scripts or storyboards for all commercials aired on behalf of the RPA,
along with records of the media placements and broadcast times of all commercials, must be
reviewed to determine the proper allocation of the media buys. Copies of the mail pieces for
direct mail are required to determine the allocation of these expenses. The RPA stated that
none of these materials were in its possession.

The vendors named above were contacted and asked to provide the supporting
documentation. In response, Olsen, Delisi & Shuvalov (ODS) provided copies of i invoices
that identified the direct mailer, i.e. “Arkansas GOTV Self Mailer,” “Arkansas 2" Seniors
Self Mailer,” and “Compare and Contrast Self Mailer,” and the number of pieces mailed but
examples of the mailers were not provided. Strategic Media Services (SMS) provided a
reconciliation of the payments received from the RPA and payments made to the media
outlets for the commercials that aired. SMS stated that they did not have videotapes of the
commercials in their possession. Records of the broadcast times and the identity of the
commercials being aired (station affidavits) were not provided.

Allocation Ratio

Also, the ballot composition ratio used by the RPA to allocate its administrative and generic
voter drive expenses understated the federal percentage by 8% (25% vs. 33%). The RPA
included two non-federal points that it was not entitled to when calculating the ratio. This


Part I
Background

Authority for Audit

This report is based on an audit of the Republican Party of Arkansas (RPA), 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

Following Commission approved procedures, the Audit staff evaluated various factors and as
aresult, this audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

Disclosure of contributions received.

Disclosure of disbursements, debts and obligations.

Disclosure of expenses allocated between federal and non-federal accounts.
Consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

SONAMRYWN DO

Limitations

The Audit staff’s testing of contributions from individuals was limited because of a lack of
adequate records. (See Finding 3). The review of debts and obligations was limited to the
year-end 2000 reporting period because the RPA failed to maintain vendor invoices for a
large number of disbursements. (See Finding 10).

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. The period
covered by this audit pre-dates these changes. Therefore, the statutory and regulatory
requirements cited in this report are those that were in effect during the audit period.


17

e Name and address of the payee; and
e Purpose (a brief description of why the disbursement was made—see above). 2 U.S.C.
§434(b)(5)(A) and 11 CFR §§104.3(b)(3) and 104.9.

Examples of Purpose

e Adequate Descriptions. Examples of adequate descriptions of “purpose” include the
following: dinner expenses, media, salary, polling, travel, party fees, phone banks, travel
expenses, travel expense reimbursement, catering costs, loan repayment, or contribution
refund. 11 CFR §104.3(b)(3)(i)(B).

e Inadequate Descriptions. The following descriptions do not meet the requirement for
reporting “purpose”: advance, election day expenses, other expenses, expense
reimbursement, miscellaneous, outside services, get-out-the-vote, and voter registration.
11 CFR §104.3(b)(3)(i)(B).

Preserving Records and Copies of Reports. The treasurer of a political committee must
preserve all records and copies of reports for 3 years after the report is filed. 2 U.S.C.
§432(d).

Facts and Analysis
The RPA did not satisfy the recordkeeping and reporting requirements for a significant
number of disbursements. The RPA provided the following records:

e A disbursement database that was approximately 91% complete;

e Bank statements and cancelled checks; and

e Vendor invoices.

A sample review of operating expenditures indicated that 15% of the disbursements were
inadequately documented. Using the bank records provided by the RPA, the Audit staff
compared the disbursement database to bank records. The RPA’s database listed only the
payee’s name, date and amount of the disbursement; no address or purpose was provided
although the accounting software used allows that information to be recorded. The majority
of cancelled checks did not provide an address for the payee and the purpose of the
expenditure was not consistently listed. Copies of vendor invoices were not maintained for
most disbursements.

The sample review also indicated that 13% of the disbursements were disclosed improperly.
Disclosure errors were comprised of the following:
e Missing or inadequate purpose description — 53%
e Missing or incorrect address listed - 42%
© Missing or incorrect name listed - 3%
e Missing memo entries to disclose actual vendor providing goods or services charged
on credit card — 2%

Interim Audit Report Recommendations

The Audit staff recommended that the RPA:
¢ Obtain any disbursement information not currently available in its records;
e Provide the Audit staff with a complete listing of disbursements;


23

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

above. 2 U.S.C. §441a(d) and 11 CFR §110.7(b)(1). Such purchases are referred to as

“coordinated party expenditures.” They are subject to the following rules:

e 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.

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

e The party committees—not the candidates—are responsible for reporting these
expenditures.

e Ifthe 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.

Independent Expenditures. The term “independent expenditure” means a payment made
for goods and services that expressly advocates the election or defeat of a clearly identified
candidate without the cooperation or consultation of the candidate. 2 U.S.C. §431(17).

Facts and Analysis

The coordinated party expenditure limitation in the 2000 election cycle for congressional
nominees in Arkansas was $33,780 each for the state and national party, or a combined total
of $67,560. The National Republican Congressional Committee (NRCC) disclosed
coordinated expenditures of $66,000 on behalf of Jay Dickey to Creative Media Planning for
media placement.'* The RPA did not disclose any coordinated expenditures on behalf of the
candidate. The remaining coordinated party expenditure limitation is $1,560 ($67,560 less
$66,000).

The RPA made disbursements totaling $339,581 from the federal ($92,395) and non-federal
accounts ($247,186) in support of Jay Dickey, a candidate for the House of Representatives
(AR District 04). The following payments were made:

Pavee Date Amount Purpose
Jay Dickey for Congress 08-01-2000 $ 1,000 Contribution
Jay Dickey for Congress 10-05-2000 4,000 Contribution |
Strategic Media Services 10-25-2000 39,844 Media Placement
Strategic Media Services 10-25-2000 119,531" | Media Placement
Bob Freeman Consulting 10-27-2000 5,000 Consulting
Strategic Media Services 11-03-2000 42,551 Media Placement
Strategic Media Services 11-03-2000 127,655"° | Media Placement

Total $ 339,581

For the payments from the federal account to Strategic Media Services, the disclosed
purpose on Schedule B (Itemized Disbursements) was “Jay Dickey Media” and the purpose
disclosed for the payment to Bob Freeman Consulting was “Consulting for Jay Dickey”.
None of the payments were disclosed as independent expenditures. Additional

'5 The RPA assigned its spending limit ($33,780) to the NRCC by written agreement dated October 3, 2000.
‘© Payments made from non-federal account.


19

Transfers. Generally, a political committee may not transfer funds from its non-federal
account to its federal account, except when the committee follows specific rules for paying
for shared federal/non-federal election activity. 11 CFR §§102.5(a)(1)(i) and 106.5(g).

Paying for Allocable Expenses. FEC regulations offer party committees two ways to pay

for allocable, shared federal/non-federal expenses.

e 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 non-
federal share of that expense; or

e 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)(1)(i) and (ii)(A).

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 H-4 (Joint Federal/Non-Federal Activity).

11 CER §104.10(b)(4).

Allocation Required for Generic Voter Drives. State and local party committees must

allocate all of their costs for generic voter drives. A generic voter drive is an activity that

urges the general public:

e To register to vote;

e To vote; or

¢ To support candidates of a particular party or candidates who are associated with a
particular issue, without mentioning a specific candidate. 11 CFR §106.5(a)(2)(iv).

Allocation Ratio for Administrative & Generic Voter Drive Costs. State and local party
committees must allocate their administrative expenses and generic voter drive costs
according to the ballot composition method. Under this method, a committee determines the
ratio of federal offices to the total number of federal and non-federal offices expected on the
ballot in the next general election in the state or geographic area. 11 CFR §106.5(d)(1) and

(2).

Allocation Ratio for Shared Fundraising Expenses. If a committee raises both federal and
non-federal funds through the same fundraising program or event, it must allocate the direct
cost of the fundraising event based upon the ratio of funds received by the federal account to
the total amount raised for the event. 11 CFR §106.5(f)(1).

Required Records for Reports and Statements. The treasurer of a political committee
will maintain records, including bank records, vouchers, worksheets, receipts and bills, in
sufficient detail to verify the accuracy and completeness of the information contained in the
reports. 11 CFR §104.14(b)(1).



| Finding 5. Apparent Prohibited Contributions Received

Summary

The RPA deposited two contributions totaling $11,500 from apparent prohibited sources into
its federal account. Contributions from these sources are allowed under the elections laws of
the State of Arkansas. The Audit staff recommended that the RPA submit documentation to
show that the funds received were not from prohibited sources or refund the contributions.

Legal Standard

Receipt of Prohibited Corporate Contributions. Political campaigns 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.

Federal v. Non-Federal Account. The federal account may contain only those funds that
are permissible under the federal election law; the non-federal account may contain funds
that are not permitted under the federal law (but are legal under state law), such as
contributions that exceed the limits of the federal law and contributions from prohibited
sources, such as corporations and labor organizations. 11 CFR §102.5(a)(1)(i) and (a)(3).

Questionable Contributions. If a committee receives a contribution that appears to be

prohibited (a questionable contribution), it must follow the procedures below:

1. Within 10 days after the treasurer receives the questionable contribution, the committee
must either:

e Return the contribution to the contributor without depositing it; or
© Deposit the contribution (and follow the steps below). 11 CFR §103.3(b)(1).

2. Ifthe 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:

e Confirm the legality of the contribution; or
e 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 IV
Findings and Recommendations

The following findings were discussed with the RPA’s representative at the exit conference.
Appropriate workpapers and supporting schedules were provided. The representative did not
respond to any of the issues.

The IAR was forwarded to the RPA for response on May 16, 2003. The Audit staff
contacted counsel for the committee and verified receipt of the report. The response was due
on June 18, 2003. The RPA did not respond to any of the findings and recommendations
contained in the IAR.

| Finding 1. Misstatement of Financial Activity

Summary

The Audit staff found that the RPA had misstated receipts, disbursements and cash-on-hand
balances for calendar years 1999 and 2000, with both receipts and disbursements being
overstated by more than 50% in calendar year 2000. The Audit staff recommended that the
RPA file amended reports to correct the reporting differences.

Legal Standard

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; and

¢ The total amount of disbursements for the reporting period and for the calendar year.
2 U.S.C. §434(b)(1), (2) and (4).

Facts and Analysis

The following chart details the discrepancies between the totals on the RPA’s disclosure
reports and bank records. These discrepancies are primarily the result of the RPA reporting
joint federal and non-federal activity? that did not pass through the federal allocation or any
other federal bank account. The chart lists: (a) the amounts the RPA reported, (b) the actual
amounts listed on its bank statements, and (c) the differences between the two amounts.
Succeeding paragraphs explain why the discrepancies occurred.

Comparison of Disclosure Reports and Bank Records

1999 Activity
Reported Bank Records* Discrepancy
Opening Cash Balance $ 36,965 $ 37,561 $ 596
Understated

3 The RPA established, but did not always use, an Allocation account to pay for shared federal and non-
federal activity.
* Net of interaccount transfers.


26

| Finding 11. Disclosure of Bank Depositories

Summary

The RPA failed to file an amendment to its Statement of Organization disclosing the
depositories in use during the audit period. The Audit staff recommended that the committee
file an amendment to its Statement of Organization to disclose the current depositories.

Legal Standard

A political committee must file a Statement of Organization that lists all banks, safe deposit
boxes or other depositories used by the committee. An amendment has to be filed within 10
days to report any change or correction to the information previously on file. 11 CFR
§102.2(a)(1)(vi) and (2).

Facts and Analysis

The RPA failed to file the required amendment to its Statement of Organization to list the
three banks in use during the audit period. The last amendment listing a change in
depositories was filed on December 17, 1990.

Interim Audit Report Recommendation
The Audit staff recommended that the RPA file an amendment to its Statement of
Organization to list all depositories currently in use.


Part ITI
Summaries

The Interim Audit Report (IAR) was forwarded to the RPA for response on May 16, 2003.
The Audit staff contacted counsel for the committee and verified receipt of the report. The
response was due on June 18, 2003. The RPA did not respond to any of the findings and

recommendations contained in the IAR.

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

The Audit staff found that the RPA had misstated receipts, disbursements and cash-on-hand
balances for calendar years 1999 and 2000, with both receipts and disbursements being
overstated by more than 50% in calendar year 2000. The Audit staff recommended that the
RPA file amended reports to correct the reporting differences. (For more detail, see p. 6)

Finding 2. Receipt of Contributions that Exceed Limits

The Audit staff identified seven contributions from six individuals that appeared to exceed
the contribution limits by $28,500. Copies of the contributor checks for five of these
contributions were not available to determine the proper attribution of the contribution. The
Audit staff recommended that the RPA submit documentation to show that the contributions
were not excessive or refund the excessive portion to the contributors. (For more detail,

see p. 9)

Finding 3. Recordkeeping for Contributions Received

The RPA failed to maintain adequate records for contributions received from individuals. A
sample review of contributions greater than $200 from individuals indicated that
approximately 12% were inadequately documented. The Audit staff recommended that the
RPA obtain the missing records and provide a complete listing of its contributors, along with
a narrative description of changes to be implemented to insure adequate contributor records
are maintained. (For more detail, see p. 11)

Finding 4. Itemizing Contributions and Transfers Received
The RPA did not itemize 21% of the sample of contributions from individuals, eight
contributions totaling $30,050 from political committees, 16 transfers totaling $269,721 from
affiliated committees, and one transfer of $50,000 from an authorized committee. The
Audit staff recommended that the RPA file amended Schedules A (Itemized Receipts)
disclosing the contributions and transfers not previously itemized. (For more detail;

see p. 13)

Finding 5. Apparent Prohibited Contributions Received

The RPA deposited two contributions totaling $11,500 from apparent prohibited sources into
its federal account. Contributions from these sources are allowed under the elections laws of
the State of Arkansas. The Audit staff recommended that the RPA submit documentation to
show that the funds received were not from prohibited sources or refund the contributions.
(For more detail, see p. 14)


Part II

i)

Overview of Committee

Committee Organization

Important Dates

Republican Party of Arkansas

© _ Date of Registration

January 16, 1978

e Audit Coverage

January 1, 1999 — December 31, 2000

Headquarters

Little Rock, AR

Bank Information

e __ Bank Depositories

Three

e Bank Accounts

Six Federal Accounts and Three Non-
Federal Accounts

Treasurers

e Treasurer When Audit Was Conducted

Lloyd E. Lindsey (until Dec 18, 2002)
Blair L. Fortner (from Dec 18, 2002)

e Treasurer During Period Covered by Audit

Harry “Pat” Dodge (until Aug 3, 1999)
Lloyd E. Lindsey (from Aug 3, 1999)

Management Information

e Attended FEC Campaign Finance Seminar _| No

e Used Commonly Available Campaign Yes
Management Software Package

e Who Handled Accounting and Paid Staff

Recordkeeping Tasks

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ January 1, 1999 $ 37,562
. Transfers from affiliate committees 812,051
e Contributions from individuals 577,734
. Internal transfers from non-federal accounts 3,175,380
e _ Other Receipts 109,050
Total Receipts $ 4,674,215
e __Operating Disbursements 4,645,490"
° Other Disbursements 24,648
Total Disbursements $ 4,670,138
Cash on hand @ December 31, 2000 $ 41,639

2 Includes $2,690,987 paid directly to vendors from the non-federal accounts for the non-federal portion of

allocable expenses; these funds should have been transferred to the Allocation account prior to disbursement

to the vendors that provided the goods or services.


15

Facts and Analysis

On November 17, 1999, the RPA deposited a transfer of $6,500 from the National
Republican Congressional Committee (NRCC) into its federal account. A copy of the
deposit item was not available. The Schedule B (Itemized Disbursements — Non-Federal
Memo Entry) filed by the NRCC reports the disbursement as a transfer of non-federal funds.

Also, the RPA deposited a contribution of $5,000 from the Potlatch Corporation into its
federal account on March 31, 2000. The check appears to be drawn on a corporate

account.'? A review of the April 2000 quarterly report filed by the Potlatch Employees
Political Fund (a registered political committee) does not list a contribution to the RPA.

The RPA did not deposit these questionable funds into a separate account nor, prior to July
2000, did it consistently maintain sufficient funds to refund the transfer or the contribution.

Interim Audit Report Recommendations
The Audit staff recommended that the RPA:
e Provide evidence that these funds were not from prohibited sources; or
e Refund $11,500 and provide evidence of such refunds (copies of the front and back
of the negotiated refund checks); and
e If funds were not available to make the necessary refunds, disclose the refunds due
on Schedule D (Debts and Obligations) until funds become available to make the
refunds.

Finding 6. Disclosure of Transfers Received from Affiliates

Summary

Disclosure errors occurred in 63% of the transfers from affiliates reported by the RPA. The
year-to-date totals were missing for all but one, and a significant number were reported on
the incorrect Detailed Summary Page line. The Audit staff recommended that the RPA file
amended Schedules A to correct these errors.

Legal Standard

Itemization Required for Transfers from Affiliated Committees. A political committee
must itemize any transfer from an affiliate committee, regardless of the amount. 2 U.S.C.
§434(b)(3)(D).

Required Information for Transfers from Affiliated Committees. For each itemized

transfer from an affiliate committee, the committee must provide the following information:

e The affiliate’s full name and address;

e The date of receipt (the date the committee received the transfer);

e The amount of the transfer; and

e The year-to-date total of all transfers from the same committee. 11 CFR §§100.12 and
104.3(a)(4)(iii)(B) and 2 U.S.C. §434(b)(3)(D).

12 The records of the Idaho Secretary of State indicate that the Potlatch Corporation is a registered corporation
in good standing.


Finding 9. Excessive Disbursements in Support of a Federal

Candidate
The RPA made disbursements totaling $339,581 in support of a federal candidate, including
contributions to the candidate and payments to vendors for consulting services and media
placements. The limitations were exceeded by $331,021. The Audit staff recommended that
the RPA submit documentation to show that the payments made in support of the federal
candidate were not excessive contributions or request a refund from the candidate. (For
more detail, see p. 22)

Finding 10. Itemizing Outstanding Debts and Obligations
The RPA failed to itemize outstanding debts totaling $25,332 to eight vendors on its year-
end 2000 disclosure report. The debts were related to the Victory 2000 Coordinated
Campaign. The Audit staff recommended that the RPA file an amended Schedule D (Debts
and Obligations) and Summary Page for year-end 2000 to disclose the debts. (For more
detail, see p. 25)

Finding 11. Disclosure of Bank Depositories

The RPA failed to file an amendment to its Statement of Organization disclosing the
depositories in use during the audit period. The Audit staff recommended that the committee
file an amendment to its Statement of Organization to disclose the current depositories. (For
more detail, see p. 26)


21

understatement, and the lack of documentation noted above, caused the RPA to underpay the
federal portion of its shared federal/non-federal activity.

The underpayment was determined as follows:

Allocation of Shared Expenses per Audit staff
Total Federal Non-federal
Reviewed Share Share

Allocation accounts $ 868,964 $ 364,190 $ 504,774
Federal and non-federal accounts 2,625,833 1,810,458 815,375
Victory 2000 federal and non- 1,001,973 757,339 244,634
federal accounts
Totals $ 4,496,770 $ 2,931,987 $ 1,564,783
Amount paid by non-federal
accounts $ 3,140,887
Less: Non-federal share as 1,564,783
determined by Audit staff above
Federal Share Paid By Non-Federal
Accounts $ 1,576,104

Interim Audit Report Recommendations
The Audit staff recommended that the RPA:

e Provide supporting documentation, to include copies of videotapes, scripts or
storyboards, station affidavits, mail pieces, contracts and invoices to show that the
disbursements classified above as potentially 100% federal by the Audit staff were
allocable expenses; or

e Reimburse the non-federal account $1,576,104 (or a lesser amount as determined
after the review of any additional documentation submitted) for the underpayment of
the federal share of allocable expenses and provide evidence of the reimbursement
(copies of the front and back of the negotiated instruments); and

e If funds were not available to make the necessary reimbursement, disclose the debt to
the non-federal account on Schedule D (Debts and Obligations) until funds become
available to make the reimbursement.

B. Use of Non-Federal Funds to Pay for 100% Federal and

Allocable Expenses
Facts and Analysis
The Audit staff reviewed disbursements made from the non-federal account and identified
$335,108 in payments to vendors for potentially 100% federal or shared activity. See
Attachment 1 for detailed purpose descriptions. The largest categories of disbursements
included direct payments to local county Republican committees ($100,500), phone banks
($80,025), and media buyers ($61,000). Documentation such as descriptions of activities to
be undertaken by the local committees, phone bank scripts, and videotapes (or
scripts/storyboards) of the commercials were not provided in support of these payments.

4 Includes $449,900 transferred from the non-federal account to the allocation account and $2,690,987 paid to
vendors directly from the non-federal accounts.


FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

July 9, 2003

MEMORANDUM
TO: RON M. HARRIS

PRESS OFFICER

PRESS OFFICE
FROM: JOSEPH F. STOLT: iL

ASSISTANT ST. CTOR

AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON THE
REPUBLICAN PARTY OF ARKANSAS

Attached please find a copy of the final audit report and related documents on the
Republican Party of Arkansas, which was approved by the Commission on June 30, 2003.

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

Attachment as stated

cc: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library


Unreported disbursements
Unreported transfer to non-federal account
Net overstatement

Closing Cash on Hand — 1999
The $63,716 overstatement of the closing cash on hand was the net result of the

misstatements described above.

Opening Cash on Hand — 2000
The overstatement of the opening cash on hand was the net result of the following:

Misstatement of 1999 year end cash
Reporting error: January 1, 2000 beginning cash on hand®
Net overstatement

Receipts — 2000
The overstatement of receipts was the net result of the following:

Error between amount reported and amount deposited in bank
Receipt reported twice

Non-reportable interaccount transfer reported on Schedule H-3
Reported receipts deposited into non-federal account
Reported transfers from non-federal account with no record of
receipt in federal allocation account

Unreported receipts from:

o Authorized candidate committees

o Transfers from non-federal account

o Transfers from affiliate committees

o Other Political committees

Over-reported receipts on disclosure reports (net)’
Unexplained difference

Net overstatement

Disbursements — 2000

The overstatement of disbursements was the net result of the following:

Math errors resulting in understatement

Math errors resulting in overstatement

Error between amount reported and clearing bank
Disbursements reported twice

Reported disbursements that did not clear federal accounts
Non-reportable interaccount transfer reported as a disbursement
to a vendor

Reported disbursements paid from non-federal account

- 1,131
: 600
+$ 14,276

+ $ 63,716

: 58.510

+ $ 5,206

$ 2,000
2,000
11,750
23,750
619,581

++ tet

65,050
- 23,493
- 269,724
- 15,000

+ 622,752

+ 302

+. $ 908,868

$ 1,525
6,377
2,100

34,699
5,138
11,750

teeete

+

12,600

© The RPA filed an amendment to the year-end 1999 ending cash but did not file an amendment to conform

the beginning cash at January 1, 2000.

7 See Footnote 5. The majority ($603,366) of the over-reporting occurred in the 30 day Post-General

reporting period.


Receipts $ 377,445 $ 298,857 $ 78,588
Overstated
Disbursements $ 320,985 $ 306,709 $ 14,276
Overstated
Ending Cash Balance $ 93,426 $ 29,710 $ 63,716
Overstated
2000 Activity
| Reported Bank Records Discrepancy
Opening Cash Balance $ 34,916 $ 29,710 $ 5,206
Overstated
Receipts $ 2,593,239 $ 1,684,371 $ 908,868
Overstated
Disbursements $ 2,547,432 $ 1,672,441 $ 874,991
Overstated
Ending Cash Balance $ 184,807 $ 41,639 $ 143,168
Overstated

Explanation of Discrepancies

Opening Cash on Hand — 1999

The $596 understatement of the opening cash balance was the result of the RPA not filing
corrected Summary and Detailed Summary Pages as detailed in the 1998 final audit report,
approved on December 7, 2000.

Receipts — 1999
The overstatement of receipts was the net result of the following:

¢ Non-reportable interaccount transfer reported on Schedule H-3 +$ 750
(Transfers from Non-Federal Accounts)

¢ Reported transfers from non-federal account not found in federal + 1,400
account

¢ Unreported receipt from affiliated committee - 6,500

¢ Reported receipts deposited into non-federal account + 7,175

¢ Over-reported receipts on disclosure reports (net)? + 75,223

e Unexplained difference + 540

e Net overstatement + $ 78,588

Disbursements — 1999

The overstatement of disbursements was the net result of the following:

¢ Disbursements reported twice +$ 14,442

e Reported disbursements that did not clear federal accounts + 1,783

e Unreported bank fees - 218

5 The Audit staff reconciled receipts by report period. Total deposits into the federal accounts were compared
to reported receipts (as adjusted for identified reconciling items) to determine the over/under reported
receipts. Receipts were under-reported by $5,383 at mid-year and over-reported by $80,606 at year-end. This
discrepancy may have been an attempt by the committee to compensate for other reporting irregularities.


Republican Party of Arkansas
Attachment 1 — Finding 8

Summary of Potentially Shared or 100% Federal Activity
Classified as Non-Federal Expenses by RPA

Fed Share of
Purpose Total Amount Alloc 100% Federal
Expenses
Administrative $ 29,376 $ 9,694

Payments to: staff for bonuses and expense reimbursements; State of Arkansas and
Regions Bank for payroll taxes; vendors for office supplies, copying and printing; and
Nixon Law Firm for legal services. Similar payments were made to these payees from the
federal and/or allocation accounts.

Consulting Services _ | 28,000 | 9,240 |
| Payments to consultants who also received payments for services from the federal account.
Fundraising | 7,345 l 1,836 |

Payments for fundraising expenses for Governor’s Appreciation Dinner listed on Schedule
H-2 (Allocation Ratios) with a 25% federal component.

Media l 61,000 l | 61,000

Payment to John Hudgen’s Advertising for placement of television ads; no further details
provided. This payment was made on October 23, 2000, just prior to the general election.

Payment to Federal 1,000 1,000
Candidate

Payment to Tim Hutchinson for Senate.

Phone Banks | 80,025 | 26,408 |

Payments to Olympia for phone bank services; the stated purposes on two of the canceled
checks were “GOTV Calls” and “Calls.” The memo line on the remaining canceled check
was blank. The costs of generic voter drives must be allocated pursuant to 11 CFR §106.5.

Travel — Republican 27,862 494 26,364
National Convention

Payments for delegate air travel and hotel accommodations. Also, payments for hospitality
suite supplies, delegation caucus room and photos. The main purpose of the national
convention is the nomination of the party’s presidential and vice-presidential candidates.

Totals [$234,608 | $ 47,673 | $ 88,364



Finding 6. Disclosure of Transfers Received from Affiliates
Disclosure errors occurred in 63% of the transfers from affiliates reported by the RPA. The
year-to-date totals were missing for all but one, and a significant number were reported on
the incorrect Detailed Summary Page line. The Audit staff recommended that the RPA file
amended Schedules A to correct these errors. (For more detail, see p. 15)

Finding 7. Recordkeeping and Disclosure of Disbursements
The RPA failed to maintain adequate records and properly disclose the required information
for disbursements. A sample review of disbursements indicated that approximately 15%
were inadequately documented and 13% were not properly disclosed. The majority of
disclosure problems involved missing or inadequate purposes and missing or incomplete
addresses for the payee. The Audit staff recommended that the RPA obtain the missing
records, provide a complete listing of disbursements, provide a narrative description of
changes to be implemented to insure adequate disbursement records are maintained, and file
amended Schedules B (Itemized Disbursements) and H-4 (Joint Federal/Non-Federal
Activity) to correct the disclosure errors. (For more detail, see p. 16)

Finding 8. Allocation of Federal and Non-Federal Expenses
A. Underpayment of Federal Share of Allocable Expenses. The RPA maintained an
allocation account to pay for shared federal/non-federal expenses. However, it also made
payments for allocable expenses from its federal and non-federal accounts. The Audit staff
reviewed disbursements (classified as shared expenses by the RPA) totaling $4,496,770 and
determined that the RPA may have underpaid its federal share by $1,576,104. Records are
inadequate to determine the proper allocation of disbursements totaling $2,093,763 that, as a
result, are considered potentially 100% federal. Also, the RPA used an incorrect ballot
composition ratio to determine the federal share of administrative and get-out-the-vote
expenses.

The Audit staff recommended that the RPA provide additional documentation to show that
the disbursements currently classified as potentially 100% federal by the Audit staff are
allocable expenses and reimburse the non-federal account for the amount of the
underpayment of the federal share. (For more detail, see p. 18)

B. Use of Non-Federal Funds to Pay for 100% Federal and Allocable Expenses. The
review of disbursements from the non-federal account identified payments totaling $234,608
that appeared to be for potentially 100% federal or shared federal/non-federal activity. The
potential federal share of these payments totaled $136,037. The Audit staff recommended
that the RPA provide additional documentation to show that these payments were not made
for potentially 100% federal or shared activity, or reimburse the non-federal account and file
memo Schedules B and H-4 to disclose these disbursements. (For more detail, see p. 21)


18

e Describe changes to be undertaken to ensure adequate payee records are maintained:
and

e Include with the amended reports recommended herein, amended Schedules B and
H-4 to correct the disclosure errors.

| Finding 8. Allocation of Federal and Non-Federal Expenses

Summary

A. Underpayment of Federal Share of Allocable Expenses. The RPA maintained an
allocation account to pay for shared federal/non-federal expenses. However, it also made
payments for allocable expenses from its federal and non-federal accounts. The Audit staff
reviewed disbursements (classified as shared expenses by the RPA) totaling $4,496,770 and
determined that the RPA may have underpaid its federal share by $1,576,104. Records are
inadequate to determine the proper allocation of disbursements totaling $2,093,763 that, as a
result, are considered potentially 100% federal. Also, the RPA used an incorrect ballot
composition ratio to determine the federal share of administrative and get-out-the-vote
expenses.

The Audit staff recommended that the RPA provide additional documentation to show that
the disbursements currently classified as potentially 100% federal by the Audit staff are
allocable expenses and reimburse the non-federal account for the amount of the
underpayment of the federal share.

B. Use of Non-Federal Funds to Pay for 100% Federal and Allocable Expenses. The
review of disbursements from the non-federal account identified payments totaling $234,608
that appeared to be for potentially 100% federal or shared federal/non-federal activity. The
potential federal share of these payments totaled $136,037. The Audit staff recommended
that the RPA provide additional documentation to show that these payments were not made
for potentially 100% federal or shared activity, or reimburse the non-federal account and file
memo Schedules B and H-4 to disclose these disbursements.

Legal Standard

Accounts for Federal and Non-Federal Activity. A party committee that finances political
activity in connection with both federal and non-federal elections must 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 §102.5(a)(1)(i).

Federal v. Non-Federal Account. The federal account may contain only those funds that
are permissible under the federal election law; the non-federal account may contain funds
that are not permitted under the federal law (but are legal under state law), such as
contributions that exceed the limits of the federal law and contributions from prohibited
sources, such as corporations and labor organizations. 11 CFR §102.5(a)(1)(i) and (a)(3).


24

documentation, such as copies of the videotapes or scripts for the commercials aired and a
consulting agreement outlining the services rendered, was not provided to support the
payments. Without such documentation, it is not possible to determine if some or all of
these payments are allocable expenses or independent expenditures.

The Audit staff’s calculation of the excessive portion of the disbursements in support of Jay
Dickey is as follows:

Total payments made in support of candidate $ 339,581
Less: Allowable contributions $ 5,000

Remaining §441a(d) limit 1,560 = 6,560
Excessive Amount $333,021

Interim Audit Report Recommendations
The Audit staff recommended that the RPA:
¢ Provide supporting documentation to show that the payments to vendors disclosed as
on behalf of Jay Dickey were not direct candidate support;
¢ Ifthese disbursements were independent expenditures:

o Include with the amended reports recommended herein, amended Schedules H-4
and E (Independent Expenditures) to report the independent expenditures and
certify that they were not made in coordination with the candidate;

o Reimburse the non-federal account $247,186, the sum of the amounts paid to
vendors from the non-federal account!’, and provide evidence of the
reimbursement (copies of the front and back of the negotiated instruments);

o. If funds were not available to make the necessary reimbursement, disclose the
amount owed on Schedule D (Debts and Obligations) as a debt until funds
become available to make the reimbursement; or

e Ifthese disbursements were coordinated expenditures:
co Include with the amended reports recommended herein amended Schedules
H-4 and F (Coordinated Expenditures) to report the disbursements;
co. Reimburse the non-federal account $247,186, the sum of the amounts paid to
vendors from the non-federal account'’, and provide evidence of the
reimbursement (copies of the front and back of the negotiated instruments);
o If funds were not available to make the necessary reimbursement, disclose the
amount owed on Schedule D (Debts and Obligations) as a debt until funds
become available to make the reimbursement; and
e Provide evidence that the disbursements (totaling $331,021 or a lesser amount as
determined after the review of any additional documentation submitted) were not
excessive or request a reimbursement from the candidate committee.

"7 These expenditures are also included in Finding 8A. After review of any documentation submitted in
support of these payments, the Audit staff will make the necessary adjustment to the appropriate finding.
'® See Footnote 17.



Table of Contents

Page

1
1

N

11
13
14
15
16
18
22
25

Part I. Background
Authority for Audit
Scope of Audit

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

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations

Finding 1.
Finding 2.
Finding 3.
Finding 4.
Finding 5.
Finding 6.
Finding 7.
Finding 8.
Finding 9.
Finding 10.
Finding 11.

Misstatement of Financial Activity

Receipt of Contributions that Exceed Limits
Recordkeeping for Contributions Received

Itemizing Contributions and Transfers Received

Apparent Prohibited Contributions Received

Disclosure of Transfers Received from Affiliates
Recordkeeping for and Disclosure of Disbursements Made
Allocation of Federal and Non-Federal Expenses
Excessive Disbursements in Support of a Federal Candidate
Itemizing Outstanding Debts and Obligations

Disclosure of Bank Depositories


11

the second contributor. There was only one name (the individual who signed the check)
imprinted on the face of the instrument. The RPA did not deposit the questionable
contributions into a separate account nor, prior to July 2000, did it consistently maintain
sufficient funds to refund these contributions.”

Interim Audit Report Recommendations
The Audit staff recommended that the RPA:
e Provide evidence demonstrating that the contributions in question were not
excessive; or
e Refund $28,500 and provide evidence of such refunds (copies of the front and back
of the negotiated refund checks); and
e If funds were not available to make the necessary refunds, disclose the refunds due
on Schedule D (Debts and Obligations) until funds become available to make the
refunds.

| Finding 3. Recordkeeping for Contributions Received

Summary

The RPA failed to maintain adequate records for contributions received from individuals. A
sample review of contributions greater than $200 from individuals indicated that
approximately 12% were inadequately documented. The Audit staff recommended that the
RPA obtain the missing records and provide a complete listing of its contributors, along with
a narrative description of changes to be implemented to insure adequate contributor records
are maintained.

Legal Standard

Recordkeeping Requirements for Receipts. Political committees must keep records of:

e All contributions received by or on behalf of the committee;

e The name and address of any person who makes a contribution in excess of $50, together
with the date and amount of the contribution; and

¢ The occupation and name of employer of any individual whose contributions aggregate
more than $200 during a calendar year, together with the date and amount of any such
contributions. 2 U.S.C. §432(c).

Preserving Documents. Committees must preserve these records for 3 years after a report
is filed. 2 U.S.C. §432(d).

Best Efforts Ensures Compliance

When the treasurer of a political committee shows that the committee used best efforts (see
below) to obtain, maintain, and submit the information required by the Act, the committee’s
reports and records will be considered to be in compliance with the Act. 2 US.C.

§432(h)(2)(i).

° The Audit staff also considered the apparent prohibited contributions received by the RPA in determining
if a sufficient balance was maintained to refund the questionable contributions.
(See Finding 5)


13

| Finding 4. Itemizing Contributions and Transfers Received

Summary

The RPA did not itemize 21% of the sample of contributions from individuals, eight
contributions totaling $30,050 from political committees, 16 transfers totaling $269,721 from
affiliated committees, and one transfer of $50,000 from an authorized committee. The Audit
staff recommended that the RPA file amended Schedules A (Itemized Receipts) disclosing
the contributions and transfers not previously itemized.

Legal Standard

When to Itemize. Political committees must itemize:

e Any contribution from an individual if it exceeds $200 per calendar year either by itself
or when aggregated with other contributions from the same contributor;

e Every contribution from any political committee, regardless of the amount;

e Every transfer from an authorized committee, regardless of the amount; and

e Every transfer from an affiliated committee, regardless of the amount. 2 U.S.C.
§434(b)(3)(A) thru (D).

Definition of Itemization. Itemization of contributions received means that the recipient
committee discloses, on a separate schedule, the following information:

e The amount of the contribution;

The date of receipt (the date the committee received the contribution);

The full name and address of the contributor;

The year-to-date total of all contributions from the same contributor; and

In the case of contributions from individual contributors, the contributor’s occupation
and the name of his or her employer. 11 CFR §§100.12 and 104.3(a)(4)(i) thru (iii) and 2
U.S.C. §434(b)(3)(A) thru (D).

Facts and Analysis

The Audit staff reviewed a sample of contributions from individuals, all contributions from
political committees, and all transfers from authorized and affiliated committees. The RPA
did not itemize 21% of the sample of contributions from individuals, eight contributions
totaling $30,050 from political committees, 16 transfers totaling $269,721 from affiliated
committees, and one transfer of $50,000 from an authorized committee. The RPA’s
itemization problems appear to be the result of inadequate recordkeeping. (See Finding 3).
Of the contributions that should have been itemized on Schedule A, 78% of the sample
contributions from individuals, eight of the nine contributions from political committees and
15 of the 16 transfers from affiliated committees were not recorded by the RPA in its
contribution database."!

Interim Audit Report Recommendations

The Audit staff recommended that the RPA include in the amended reports recommended
herein, amended Schedules A disclosing the contributions and transfers not previously
itemized.

' In the Commission’s audit of the committee for the 1998 election cycle, the Audit staff found that the RPA
did not itemize 16% of a sample of contributions from individuals and nine contributions (totaling $36,625)
from political committees.


Report of the
Audit Division on the
Republican Party of Arkansas

January 1, 1999 - December 31, 2000



22

Lacking documentation to support these payments as wholly non-federal activity, the Audit
staff has determined that $169,202 represents the potential federal share of these
disbursements ($88,364 for 100% federal activity and $80,838 for the federal share of
allocable expenses).

The Commission considered the Audit staff’s analysis and determined that the payments to
local county Republican committees ($100,500) should be viewed as transfers between party
committees. Absent any evidence to the contrary, the local committee is responsible for the
expenditure of the funds. As result of the Commission’s determination, the potential federal
share has been reduced by $33,165 ($100,500 x 33%) to $136,037 ($88,364 for 100%
federal activity and $47,673 for the federal share of allocable expenses).

Interim Audit Report Recommendations
The Audit staff recommended that the RPA:
¢ Provide supporting documentation, to include copies of videotapes, scripts or
storyboards, station affidavits, phone bank scripts, mail pieces, contracts and invoices
to show that the disbursements were not made for potentially 100% federal or shared
expenses; or
¢ Reimburse the non-federal account $136,037 (or a lesser amount as determined after
the review of any additional documentation submitted) for the underpayment of the
federal activity and provide evidence of the reimbursement (copies of the front and
back of the negotiated instruments);
© Include with the amended reports recommended herein, memo Schedules B (Itemized
Disbursements) and H-4 (Joint Federal/Non-Federal Activity) to disclose these
payments; and
e If funds were not available to make the necessary reimbursement, disclose the debt to
the non-federal account on Schedule D (Debts and Obligations) until funds become
available to make the reimbursement.

Finding 9. Excessive Disbursements in Support of a Federal
Candidate

Summary
The RPA made disbursements totaling $339,581 in support of a federal candidate, including

contributions to the candidate and payments to vendors for consulting services and media
placements. The limitations were exceeded by $331,021. The Audit staff recommended that
the RPA submit documentation to show that the payments made in support of the federal
candidate were not excessive contributions or request a refund from the candidate.

Legal Standard
Limits on Contributions Made by State and Local Party Committees. State and local
party committees may not contribute more than $5,000 per election to any candidate for a

Federal office. 2 U.S.C. §441a(a)(2)(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


Report of the Audit Division
on the

Republican Party of Arkansas
January 1, 1999 - December 31, 2000

Why the Audit

Was Done

Federal law permits the
Commission to conduct
an audit and field
investigation 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 Republican Party of Arkansas is a state party committee
headquartered in Little Rock, AR. For more information, see chart on
the Committee Organization, p. 2.

Financial Activity (p. 2)

Receipts

o. Transfers from affiliates $ 812,051
o Contributions from individuals 577,734
o. Transfers from RPA non-federal accounts 3,175,380
o All Other receipts 109,050
o Total Receipts $ 4,674,215

¢ Disbursements

o Operating disbursements $ 4,645,490
o. All Other disbursements 24,648
o Total Disbursements $ 4,670,138

Findings and Recommendations (p. 3)

eoceoeee

Misstatement of Financial Activity (Finding 1)

Receipt of Contributions that Exceed Limits (Finding 2)
Recordkeeping for Contributions Received (Finding 3)
Itemizing Contributions and Transfers Received (Finding 4)
Apparent Prohibited Contributions Received (Finding 5)
Disclosure of Transfers Received from Affiliates (Finding 6)
Recordkeeping for and Disclosure of Disbursements Made
(Finding 7)

Allocation of Federal and Non-Federal Expenses (Finding 8)
Excessive Disbursements in Support of a Federal Candidate
(Finding 9)

Itemizing Outstanding Debts and Obligations (Finding 10)
Disclosure of Bank Depositories (Finding 11)

oe

' 2U.S.C. §438(b).


i)
On

| Finding 10. Itemizing Outstanding Debts and Obligations

Summary

The RPA failed to itemize outstanding debts totaling $25,332 to eight vendors on its year-
end 2000 disclosure reports. The debts were related to the Victory 2000 Coordinated
Campaign. The Audit staff recommended that the RPA file an amended Schedule D (Debts
and Obligations) and Summary Page for year-end 2000 to disclose the debts.

Legal Standard

Continuous Reporting Required. A political committee must disclose the amount and
nature of outstanding debts and obligations until those debts are extinguished. 2 US.C.
§434(b)(8) and 11 CFR §§104.3(d) and 104.11(a).

Separate Schedules. A political committee must file separate schedules for debts owed by
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
extinguished. 11 CFR §104.11(a).

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 regularly
scheduled report.

e 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

The Audit staff reviewed disbursement records for the Victory 2000 Coordinated Campaign.
The review was limited to Victory 2000 because of a lack of adequate disbursement records
for other payments (see Finding 7). The RPA failed to properly disclose debts totaling
$25,332 to eight vendors that were outstanding on December 31, 2000. The unreported debt
was 18% of the reportable debt.!?

Interim Audit Report Recommendation

The Audit staff recommended that the RPA include with the amended reports recommended
herein amended Schedules D and Summary Page for the year-end 2000 report to disclose the
outstanding debts.

'® Reportable debt was determined by adding the total debt reported by the RPA for each reporting period to
the unreported debt identified above.


9

¢ Reported non-federal portion of shared activity on Schedule H-4 + 1,174,8248
that was paid directly from non-federal account (See Finding 8)

e Unreported disbursements - 369,1 38°

e Unexplained difference : 1,071

e Net overstatement + $ 874,991

Closing Cash on Hand — 2000

The $143,168 overstatement of the closing cash on hand was the net result of the
misstatements described above and a $104,084 overstatement of the opening cash on hand
for the 30 day Post-General report because of an amendment to the ending cash on hand for
the prior reporting period that was not carried forward to the next reporting period.

Interim Audit Report Recommendations
The Audit staff recommended that the RPA file amended reports, by reporting period, for
calendar years 1999 and 2000. The amended reports should have included:
¢ Corrected Summary and Detailed Summary Pages for each period to accurately
disclose the committee’s financial activity; and
e Amended Schedules A, B, H-3 and H-4, for each period to support the corrected
Summary and Detailed Summary Pages. The schedules should have included memo
entries to report the activity paid directly from the non-federal account that should
have been paid from the federal accounts.

| Finding 2. Receipt of Contributions that Exceed Limits

Summary

The Audit staff identified seven contributions from six individuals that appeared to exceed
the contribution limits by $28,500. Copies of the contributor checks for five of these
contributions were not available to determine the proper attribution of the contribution. The
Audit staff recommended that the RPA submit documentation to show that the contributions
were not excessive or refund the excessive portion to the contributors.

Legal Standard
Party Committee Limits. A party committee may not receive more than a total of $5,000
per year from any one contributor. 2 U.S.C. §441a(a)(1)(C) and 11 CFR §§110.1(a) and (d)

and 110.9(a).

Handling Contributions That Appear Excessive. If a committee receives a contribution
that appears to be 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,

® The majority ($1,146,623 paid directly from the non-federal account and $282,561 of unreported
disbursements) of the reporting errors occurred during the October Quarterly and 30 day Post-General

reporting periods.


Definition of Best Efforts

The treasurer and the committee will be considered to have used “best efforts” if the

committee satisfied all of the following criteria:

e All written solicitations for contributions included:

°  Acclear request for the contributor's full name, mailing address, occupation, and name
of employer; and
° The statement that Federal law requires such reporting.

e Within 30 days after the receipt of the contribution, the treasurer made at least one effort
to obtain the missing information, in either a written request or a documented oral
request.

e The treasurer reported any contributor information that although not initially provided by
the contributor, was obtained in a follow-up communication or was contained in the
committee’s records or in prior reports that the committee filed during the same two-year
election cycle. 11 CFR §104.7(b).

Facts and Analysis
The RPA did not satisfy the recordkeeping requirements for a significant number of
contributions received from individuals. The RPA provided the following records:
e A contributor database that was approximately 72% complete;
© Copies of deposit tickets that listed the deposited items by last name and amount; and
© Copies of contribution checks that were not associated with the deposit tickets and
not annotated to indicate whether the deposit was for the federal or the non-federal
account.'°

Ninety-seven percent (97%) of the contributions on the database provided by the RPA were
greater than $200. The Audit staff compared the database with deposit items greater than
$200 listed on the deposit tickets to identify additional contributions and provide a
representative contribution population for testing. A sample review of contributions greater
than $200 indicated that 12% were inadequately documented. For these contributions, the
only record available was a deposit ticket listing the individual’s last name and contribution
amount.

Interim Audit Report Recommendations
The Audit staff recommended that the RPA:
¢ Obtain any contributor information not currently available in its records;
e Provide the Audit staff with a complete listing of its contributors; and
© Describe changes to be undertaken, including procedures to back-up electronic data,
to avoid future problems with processing its receipts and retaining the necessary
records.

‘© In the Commission’s audit of the RPA for the 1998 election cycle, the Audit staff found that 10% of the
sample items reviewed were inadequately documented for the identical reasons note above. The RPA
indicated that a computer “crash” had destroyed all of its donor records. The RPA was initially unable to
provide a receipts database for 1999-2000 when requested by the Audit staff because computer problems
resulted in the loss of data. Information for receipts had to be re-entered by the committee from
available records.