FEDERAL ELECTION COMMISSION

WASHINGTON. DC 2046J

December 28, 2000

MEMORANDUM

TO: RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

FROM: ROBERT J. COSTA -&

ASSISTANT STAFF D~T-;; AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

THE REPUBLICAN PARTY OF ARKANSAS

Attached please find a copy ofthe final audit report and related documents on the

Republican Party ofArkansas which was approved by the Commission on December 7,

2000.

Informational copies of the report have been received by all parties involved and

the report may be released to the public on December 28, 2000.

Attachment as stated

cc: Office of General Counsel

Office ofPublic Disclosure

Reports Analysis Division

FEC Library
'"

"

•

REPORT OF THE AUDIT DIVISION

ON THE

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
TABLE OF CONTENTS

REPUBLICAN PARTY OF ARKAl\SAS

,;i~

Page

~\ Executive Summary f":.o"

rgJ Final Audit Report 5 •

In

i"b Background 5

Findings 7 ~-.~

W Transmittal to Committee 21 •

ru

r:J Chronology 23
FEDERAL ELECTION COMMISSION

WASHING rON, DC 20403

REPORT OF THE AUDIT DIVISION

ON THE

REPUBLICAN PARTY OF ARKANSAS

EXECUTIVE SUMMARY

The Republican Party of Arkansas (RPA) registered with the Federal Election

Commission (the Commission) on January 16, 1978, and maintains its headquarters in Little

Rock, Arkansas. The Treasurer during the audited period was Harry "Pat" Dodge. The cutTent

Treasurer is Lloyd E. Lindsey.

The audit was conducted pursuant to 2 U.S.C. §438(b), which states that the

Commission may conduct audits of any political committee whose reports fail to meet the

threshold level of compliance set by the Commission.

The six audit findings summarized below were presented to the RPA at the completion

of fieldwork on November 19, 1999 and later in the interim audit report (IAR). RPA's

responses to the findings are contained in the audit report.

Although it met the recordkeeping requirements of2 U.S.c. §432(c) with respect to

disbursements, the RPA did not maintain externally generated documentation, such as invoices,

bills or receipts for about 50% ofits disbursements. The lack ofthese records limited testing

for proper reporting of debts and obligations and the disclosure ofrequired information, such as

payee address. Further, with respect to receipts, the RPA failed to maintain adequate records

for contributions received from individuals.

RECEIPT OF CONTRIBUTIONS IN EXCESS OF THE LIMITATION - 2 U.S.c. Section

44Ia(a)(l)(c). - The audit questioned four apparent excessive contributions totaling $59,500

from four individuals. Two ofthe contributions were attributed to other persons, however no

reattribution documentation was available. In response to the IAR, the RPA demonstrated that

one ofthe contributions ($50,000) was deposited in error and that the etTor was cOtTected

timely. Three excessive contributions remain ($9,500) unresolved. No evidence of any refunds

was submitted and the amounts are not being reported as debts on the RPA's disclosure reports.

DOCUMENTATION OF RECEIPTS - 2 U.S.c. §432(c). Approximately 10% of

contributions from individuals were inadequately documented. Seven percent ofthe RPA's

contributions were documented only by a bank statement entry ($46,858). In response to the

JAR, the RPA states that a computer crash wiped out all ofits donors, and that the donors were

reentered in 1998. The RPA provided 46 check copies that account for an additional $24,750

of contributions, and 28 deposit tickets totaling $199,288. The RPA has not provided a

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complete listing ofits contributors. Further, a requested description of procedural changes

implemented was not provided.

ITDlIZATION OF CONTRIBUTIONS FROM INDIVIDUALS, POLITICAL COMMITTEES AND

PARTIES - 2 U.S.c. §434(b)(3)(A) & (B). Approximately 16% ofRPA's contributions were

not itemized as required. Also, nine contributions from political committees totaling $36,625

were not itemized on Schedules A. In response to the TAR, the RPA filed amended Schedules

A conecting some of the errors relative to contributions fi'om indi\'iduals, reducing the rate of

elTor to 10'%. No corrective action was taken for the contributions from political committees.

O~IlSSION OF DISCLOSURE INFORMATION FOR RECEIPTS - II CFR S104.3(a)(4)(i).

Approximately 13% of contributions from individuals on the RPA's disclosure reports were not

disclosed conectly. The majority of enol'S resulted from either no aggregate year-to-date totals

or incorrect aggregate year-to-date totals. In response to the TAR, the RPA filed amended

Schedules A correcting some ofthe errors, however, the rate of elTor is still 11 %.

MISSTATEMENT OF FINANCIAL ACTIVITY - 2 U.S.C. §434(b)(l), (2) and (4).

Reported receipts, disbursements and cash on hand for calendar years 1997 and 1998 were

misstated. In response to the IAR, the RPA states that it filed amended reports to coneet the

errors. However, no amended reports were provided with the response and none have been

located on the public record. Attempts to reach the RPA to inquire about the amended rep0l1s

have been unsuccessful.

USE OF FUNDS FROM NON-FEDERAL ACCOUNTS II CFR §§ 102.5(a)(I)(i),

106.5(g)(l)(i) & (ii) (A) and 104.10(b)(4).

1. Advertising and Polling Expenditures Funded From a Non-Federal Account.

A review of disbursements made from RPA's non-federal checking account

identified $754,417 in payments for shared advertising and polling which should have been

paid from the federal account and reimbursed in part by the non-federal account. Tbe federal

sbare ofthese expenditures is $165,972. The expenditures should have been repo11ed on

Schedules H-4, Joint FederalfNon-Federal Activity Schedule.

2. Shared Administrative Expenses Funded from a Non-Federal Account

The review of disbursements made from the RPA's non-federal account

identified $8,689 in payments for sbared administrative expenses. Tbese expenses should have

been paid from tbe federal account and reimbursed in part by tbe non-federal. The federal share

oftbese expenditures was $1,912. They sbould bave been reported on Schedules H-4, Joint

FederallNon-Federal Activity Schedule.

3. Expenditures in Connection with a Fundraising Event for a Federal Candidate

The review ofthe RPA's allocated expenditures identified four totaling $16,351,

that related to a May 2, 1997 salute to U.S. Senator Tim Hutchinson fundraising event. These

expenditures were allocated between the federal and nonfederal accounts using the

administrative expense ratio (25% federal and 75% non-federal). The RPA provide no

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documentation for the amount collected from the event or for amounts deposited in the federal

and non-federal accounts. Absent such documentation, the expenses were considered 100%

federal. Therefore, the non-federal account has overfunded the federal account by $12,263.

In response to the IAR recommendations for items one and two, the RPA states

that it filed amended reports to conect the etTOrs. However, no amended reports were provided

with the response and none have been located on the public record. Attempts to reach the RPA

10 inquire about the amended reports have been unsuccessful. With respect to item three, the

RPA transferred $12,203 iI'om its non-federal account to its federal account. By this transfer,

!he RPA has doubled the alllount of the non-federal account's over funding. A transfer in the

amount of $24,526 should be made to the non-federal account.

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A99-49

FEDERAL ELECTION COMMISSION

WASHING TO.\. DC e(l"" I

REPORT OF THE AUDIT DIVISION

ON THE

REPUBLICAN PARTY OF ARKANSAS

This report is based on an audit of the Republican Party of Arkansas

(RPA), undertaken by the Audit Division ofthe Federal Election Commission (the

Commission) in accordance with the provisions of the Federal Election Campaign Act of

1971, as amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle

2 ofthe United States Code which states, in part, that the Commission may conduct

audits and field investigations of any political committee required to file a report under

section 434 ofthis title. Prior to conducting any audit under this subsection, the

Commission shall perform an internal review ofreports filed by selected committees to

detem1ine ifthe reports filed by a particular committee meet the threshold requirements

for substantial compliance with the Act.

I. BACKGROUND

A. AUDIT AUTHORITY

B. AUDIT COVERAGE

The audit covered the period from January 1, 1997 through December 31,

1998. During this period, the RPA reported a beginning cash balance of$136,201; total

receipts of$1,565,357; totaldisbursements of$I,521,246; and a closing cash balance of

$36,955 1

•

C. COMMITTEE ORGANIZATION

The RPA registered with the Commission on January 16, 1978 and

maintains its headquarters in Little Rock, Arkansas. The Treasurer during the period

covered by fue audit was Harry "Pat" Dodge. The current Treasurer is Lloyd E. Lindsey.

All figures in this report have been rounded to the nearest dollar. The amounts do not foot due to

the RPA not carrying forward the same cash on hand balances for several reporting periods.

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Approved 12/07/2000
To manage its federal financial activity, the RPA used four bank accounts.

From these accounts the RPA made approximately 1,400 disbursements. Receipts were

composed of contributions from individuals (5600,900); contributions from other

political committees and transfers from affiliated and other party committees ($72,900);

loans received ($93,300); loan repayments received ($8,000); interest income of$500 and

transfers from its non-federal accounts totaling 5792,800'

The RPA also maintained two non-federal accounts from which it

expended $1,956,900, and a building fund account from which it expended $138,3003

•

D. AUDIT SCOPE AND PROCEDURES

The audit included testing of the following general categories:

I.

2.

3.

4.

The receipt of contributions or loans in excess ofthe statutory limitations

(See Finding I1.A.);

the receipt of contributions from prohibited sources, such as those from

corporations or labor organizations;

proper disclosure of contributions from individuals, political committees

and other entities, to include the itemization of contributions when

required, as well as, the completeness and accuracy of the information

disclosed (See Findings II.C. and n.D.);

proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and accuracy of

the infom1ation disclosed;

5. proper disclosure of debts and obligations;

6. the accuracy of total reported receipts, disbursements and cash balances as

compared to bank records (See Finding !I.E.);

7. adequate recordkeeping for committee transactions (See Finding II.B.);

8. proper disclosure ofthe allocation of costs associated with administrative

expenses and activities conducted jointly on behalf offederal and nonfederal elections and candidates (See Finding II.F.); and

These categories ofreceipts total approximately $1 ,568,400 or about $3,000 more than reported

receipts ($1,565,356).

This figures are not audited.

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Approved 12/0712000
9. other audit procedures that were deemed necessary in the situation.

Unless specifically discussed below, no material non-compliance with

statutory or regulatory requirements was detected. Although having met the

recordkeeping requirements of2 U.S.C. §432(c) with respect to disbursements, the RPA

did not maintain externally generated documentation, such as invoices, bills or receipts

for about 50% ofits disbursements, based on a sample review. The lack of these third

party records limited the testing for the proper reporting of debts and obligations and the

disclosure ofthe required infollnation, such as payee address, for disbursements. Further,

with respect to receipts, the RPA failed to maintain adequate records for contributions

received from individuals (See Finding II.B.). It should be noted that the Commission

may pursue further any ofthe matters discussed in this report in an enforcement action.

II. AUDIT FINDINGS AND RECOMMENDAnONS

Section 441a(a)(I)(C) ofTitle 2 ofthe United States Code states that no

person shall make contributions to any other political committee in any calendar year

which, in the aggregate, exceed $5,000.

A. RECEIPT OF CONTRIBUTIONS IN EXCESS OF THE LIMITAnON

Section 110.1 (k) ofTitle II ofthe Code ofFederal Regulations states, in

part, that any contribution made by more than one person, except for a contribution made

by a partnership, shall include the signature of each contributor on the check, money

order, or other negotiable instrument or in a separate writing and if a contribution made

by more than one person does not indicate the amount to be attributed to each contributor,

the contribution shall be attributed equally to each contributor.

If a contribution to a political committee, either on its face or when

aggregated with other contributions from the same contributor, exceeds the limitations on

contributions set forth in 11 CFR §110.1 (b), (c) or (d), as appropriate, the treasurer ofthe

recipient political committee may ask the contributor whether the contribution was

intended to be ajoint contribution by more than one person. A contribution shall be

considered to be reattributed to another contributor ifthe treasurer ofthe recipient

political committee asks the contributor whether the contribution is intended to be a joint

contribution by more than one person, and informs the contributor that he or she may

request the return ofthe excessive portion ofthe contribution ifit is not intended to be a

joint contribution; and, within sixty days from the date ofthe treasurer's receipt ofthe

contribution, the contributors provide the treasurer with a written reattribution ofthe

contribution, which is signed by each contributor, and which indicates the amount to be

attributed to each contributor if equal attribution is not intended.

Section 110.1 (1)(5) ofTitle 11 ofthe Code of Federal Regulations states,

in part, that ifa political committee does not retain the written records concerning

reattribution, the reattribution shall not be effective, and the original attribution shall

control.

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Section 11O.9(a) ofTitle 11 ofthe Code of Federal Regulations states, in

part, that no political committee shall accept any contribution or make any expenditure in

violation ofthe provisions of part 110.

Section 103.3(b)(4) ofTitle II of the Code of Federal Regulations states,

in relevant part, that any contribution which appears to be illegal under II eFR

103.3(b)(3), and which is deposited into a campaign depository sJlallno! be uscd for any

disbursements by the political committee until the contribution has been detem1ined to be

legal. The political committee must either establish a separate account in a campaign

depository for such contIibutions or maintain sufficient funds to make all such refunds.

A review ofRPA's receipt records identified four contributions from four

individuals which appeared to exceed the contribution limitations by $59,500. In 1997,

one individual made a contribution in the amount of $1 0,000, another made three

contributions, totaling $7,500. These contributions exceed the 55,000 contribution

limitation by $7,500. In 1998, one individual made a contribution in the amount of

$7,000, which exceeded the limitation by $2,000. Two contributions from another

individual were deposited into the Federal account in the amounts of $5,000 and $50,000.

Those amounts exceeded the limitation by $50,000. Committee officials explained that

the $50,000 contribution from this individual was intended for the non-federal account,

but had been inadvertently deposited into the federal account. The $50,000 check is

made payable to the "Arkansas Republican Party" with the word "Donation" on the

memo line. The $5,000 check was made payable to "The Republican Party of Arkansas"

with the word "Contribution" on the memo line. Neither the checks nor any associated

documentation contain any designation for the federal or non-federal accounts. Both

contributions were reported on line Ilc, "Other Political Committees", with the

individual listed as the contributor. Also, two of the contributions noted above were

attributed to other persons on the RPA's disclosure reports. However, there was no

reattribution documentation available for these contributions.

At the Exit Conference, the Audit staff provided the RPA representatives a

schedule ofthe identified excessive contributions. In a written response to the Exit

Conference, the RPA re-states that the $50,000 contribution should have been deposited

into its non-federal account, and contends that there is a reattribution letter on file for one

ofthe other excessive contributions, but did not provide a copy.

In the Interim Audit Report, the Audit staffrecommended that the RPA

provide evidence demonstrating that the contributions in question are not excessive.

Absent such evidence, the Audit staffrecommended that the RPA refund $59,500 and

provide evidence ofsuch refunds (copies ofthe front and back ofthe negotiated refund

checks). Iffunds were not available to make the necessary refunds, the Interim Audit

Report advised that those contributions requiring refunds be disclosed as debts on

Schedule D (Debts and Obligations) until such time that funds become available to make

the refunds.

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J

In its response to the Interim Audit Report, the RPA addressed three ofthe

four excessive contributions. The first was the $50,000 contribution. The RPA states

that after further investigation it has determined lhal the $50,000 contribution was

dcpositcd into thc incorrect account. The response goes on to explain that afler much

research, the RPA learned that the error was discovered thc n:ry ncxt day by its finance

person \\'ho immediately withdrew the money from the Federal accollnt and deposited it

into the state account. Finally, the RPA slales that the transaction was not reported by the

accounting finn that prepared its reports. A copy of the check that was used 10 make the

transfer and the deposit tickel for the non-federal account was provided. The Audit staff

was aware ofthe $50,000 transfer at the time ofthc fieldwork. At that time RPA officials

speculated that the transfer was a reimbursement for an o\"er payment hom the nonfederal account for shared expenses. The $50,000 was reported as a negative entry on

Schedule H3 (Transfers From Non-Federal Accounts) for administrative/voter drive

expenses. There was no indication on thc Schedule B-3, the cheek copy, or the deposit

ticket, that this transfer related to the excessive contribution in question. The contribution

was deposited into RPA's federal account on October 21, 1998 and the $50,000 was

transfelTed to the non-federal account on October 27,1998.

In light ofRPA's explanation, additional research was undertaken in an

aHempt to either support or refute the representations made by the RPA. First, there is no

evidence that the RPA had been over reimbursed for shared expenses, either at the time of

the transfer or for the election cycle, as suggested during the audit fieldwork and by the

negative cntry on the RPA's disclosure reports. For the election cycle, the non-federal

account paid less than its portion ofshared expenscs. Second, a review ofRPA's bank

accounts for the period during which the $50,000 remained in RPA's federal account

(October 21, 1998 - October 27, 1998) indicates that RPA did not require the $50,000 to

meet its operating expenses. Finally, as noted above the samc contributor made a

previous contribution in the amount of$5,000. The amount ofthe earlier contribution

suggests that the contributor was aware ofthe limitation. That contribution was made

only one week prior to the $50,000 contribution.

Given the above, the Audit staff concludes that the $50,000 was deposited

in en'or and that the eITor was timely corrected.

Thc RPA contends that no part ofthe $7,500 contributed by another

person is excessive because one contribution in the amount of$5,000 was deposited into

the non-federal account. A check copy and deposit ticket were provided. The Audit staff

notes that an October 14, 1997 deposit ticket suggests that the RPA's non-federal account

did receive a $5,000 check from a contributor with the same last name as the contributor

noted here. However, the contribution in question was dated April 2, 1997 and was

stamped as "entered" on April 7, 1997. No explanation for the 6 month time difference is

provided. The Audit staff concluded that it is likely that the October 14, 1997 deposit

ticket relates to another contribution.

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The RPA also states that a $7,000 contribution was actually a joint

contribution fi'om two individuals. The RPA stales that a copy of the check with both

signatures was enclosed. The Audit staffdidnot locate the check copy in the RPA's

response. However, a copy of the check was obtained during fieldwork. The check has

only one signature, and is drawn on an account that names only one account holder.

The fourth excessive conlriblltion (55,000) was not addressed by the RPA

in its response.

After reviewing RPA's response, the Audit staff concludes that three

excessive contributions remain in the amount of$9,500. No evidence of any refunds was

submitted and the amounts arc not being reported as debts on the RPA 's disclosure

reports.

B. DOCUMENTATION OF RECEIJ>TS

Section 432(c) ofTitle 2 of the United Stales Code requires, in relevant

pm1, that the treasurer ofa political committee keep an account of (1) all contributions

received by or on behalfofsuch political committee; (2) the name and address of any

person who makes any contribution in excess of$50, together with the date and amount

ofsuch contribution; and, (3) the identification of any person who makes a contrihution

or contributions aggregating more than $200 during a calendar year, together with the

date and amount of any such contribution.

Section 432(d) ofTitle 2 ofthe United States Code provides that the

treasurer shalI preserve alI records required to be kept by this section and copies of all

reports required to be filed by this subchapter for 3 years after the report is filed.

The Audit staffreviewed contributions received from individuals and

determined that for a material number, the recordkeeping requirements were not satisfied.

It was determined that the RPA's contributions deposited into its federal accounts during

the audit period were $673,775. The RPA's records consisted of a contributor database

that was approximately 65% 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 deposit tickets. Using the RPA's deposit slips, the Audit staff data

entered over 1,000 contributions not previously included in the contribution database

which brought it to approximately 80% ($615,6251 $673,775) of the total contributions

deposited into the federal aeeounts4

• The remainder, $142,430, consists ofsmall

contributions listed on the deposit slips that were not entered by the Audit staff($72,961),

deposits and credit memoranda that were listed on the RPA's bank statements but were

The deposit slips were used to supplement the contribution database instead of the copies of the

contributor checks since the RPA mixed copies ofits non-federal contributor checks with its

copies offederal contributor checks. The federal and non-federal contribution checks could not

be distinguished on their face.

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otherwise undocumented ($70,960)5, and an unexplained difference of$I,491. The

recordkeeping errors relate both to the contributions that the Audit staff recorded on the

contribution database from the deposit slips and those that are supported only by an entry

on a bank statement.' For many ofthe contributions entered by the Audit staff, copies of

the contributor checks were not available and no record other than the individuals' last

name on the deposit slips was available.

The contributions that were in the databasc, as revised by the Audit staff,

were tested on a sample basis and approximately 10% ofthe sample items were

inadequately documented. The receipts documented only by a bank statement entry

($46,858) account for 7% of the contributions received by the RPA.

At the exit conference, RPA's representatives were advised of this matter.

The representatives offered no response at that time and the RPA's written response to

the exit conference did not address this issue.

In the Interim Audit Report, the Audit staff recommended that the RPA

obtain any contributor infomlation not currently available in its records and provide the

Audit staff a complete listing ofits contributors. The Audit staff further recommended

that the RPA provide a narrative description of changes implemented with respect to

receipt processing to avoid future problems.

In its response to the Interim Audit Report, the RPA states that a computer crash

wiped out all of its donors, and that the donors were reentered in 1998. The RPA

provided 46 check copies, totaling $24,750, and 28 deposit tickcts, totaling $199,288.

The RPA has not provided the Audit staffwith a complete listing ofits contributors, as

was recommcnded. Furthcr, a narrative description of changes implementcd was not

provided.

C. ITEMIZATION OF CONTRIBUTIONS FROM INDIVIDUALS,

POLITICAL COMMITTEES AND PARTIES

Section 434(b)(3)(A) ofTitle 2 of the United States Code requires, in part,

a political committee to report the identification of each person who makes a contribution

to the committee in an aggregate amount or value in cxcess of$200 per calendar year,

together with the date and amount of any such contribution.

Section 434(b)(3)(B) ofTitle 2 ofthe United States Code states that each

report under this section shall disclose the identification of each political and party

Subsequent to the conclusion offield work, the RPA provided additional documentation which

reduced the amount ofthe undocumented receipts from $70,960 to $46,858. TIle additional

documentation was not entered on the contributor database.

The inconsistencies with RPA's receipts database also led to problems with the itemization and

disclosure of receipts (See Findings II.C. and IT.D.).

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committee which makes a contribution to the reporting committee during the reporting

period, together with the date and amount of any such contribution.

The Audit staff conducted a sample review of contributions from

individuals and determined that the RPA did not itemize on Schedules A (Itemized

Receipts) approximately 16% ofthe contributions that required itemization. It appears

that the majority of these erTors (81 %) were among contributions not originally recorded

by the RPA on its contribution database. In addition, as discussed above. a substantial

number ofthe RPA's contributions are not documented in its records. Therefore it is

likely that additional contributions that should have been itemized are not reflected in the

RPA's disclosure reports.

The Audit staff also reviewed all contributions which the RPA received

from political committees. Not itemized on Schedules A as required, were nine

contributions, totaling $36,625. Four ofthe nine contributions were not originally

recorded on the RPA's contribution database.

At the exit conference, the Audit staff advised RPA representatives ofthe

above. The RPA's representatives could offer no explanation for the failure to itemize

these contributions and the RPA's written response to the exit conference does not

address this issue.

In the Interim Audit Report, the Audit staffrecommended that the RPA

file amended Schedules A (Itemized Receipts), by reporting period, disclosing the

contributions not previously itemized. These amended reports should include

contributions that are not currently reflected in the RPA's contribution records but are

identified in response to recommendation #2.

In its response to the Interim Audit RcpOIi, thc RPA filcd amcnded

Schedules A which COITccted some ofthe itcmization elTors mentioned above. After

considering the amended schedules, the rate of error in the sample is 10%. No amended

schedules were filed for the contributions from political committecs.

D. OMISSION OF DISCLOSURE INFORMAnON FOR RECEIPTS

Section 104.3(a)(4)(i) ofTitle II ofthe Code ofFederal Regulations

states, in relevant part, that the identification of each contributor and the aggregate yearto-date total for such contributor shall be reported for each person who makes a

contribution to the reporting committee during the reporting period, whose contribution

or contributions aggregate in excess of $200 per calendar year, together with the date of

receipt and amount of any such contributions.

Section 100.12 ofTitle 1I ofthe Code ofFederal Regulations defines

identification. in the case of an individual, as his or her full name, including: First name,

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middle name or initial, if available, and last name; mailing address; occupation; and the

name of his or her employer.

A sample review of contributions from individuals itemized on the RPA's

disclosure reports revealed that approximately 13% were not disclosed correctly. The

majority of errors resulted from either no aggregate year-to-date totals or incotTect

aggregate year-to-date totals. Other errors included thc disclosure of incorrect contributor

names, incorrect contribution amounts, an inconect date and the failure to disclose a

contributor address. These enors appear to be related to the database problem mentioned

in Findings 11.B. and !I.C..

This matter was addressed by the Audit staff at the Exit Conference. The

RPA's representatives made no comment and the RPA's written response to the exit

conference docs not address this issue.

In the Interim Audit Report, the Audit staff recommended that the RPA

file amended Schedules A (Itemized Receipts) to correct its disclosure of contributions

from individuals.

[n its response to the Interim Audit Report, the RPA filed amended

Schedules A which corrected some ofthe disclosure errors mentioned above. After

revicwing the amended schedules, the rate of en'or in the sample is 11%.

E. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(l), (2) and (4) of Title 2 ofthe United States Code state,

in relevant part, that each report shall disclose the amount of cash on hand at the

beginning of each reporting period, the total amount of all receipts, and the total amount

of all disbursements for the reporting period and calendar year.

The Audit staffs reconciliation ofthe RPA's reported financial activity to

its bank activity, for the period January 1, 1997, through December 31, 1998, disclosed

that the RPA had misstated its receipts, disbursements and cash on hand balances. The

RPA did not provide workpapers detailing how the dollar amounts shown on its

disclosure repol1s were calculated.

The RPA's cash balance on January 1,1997 was $74,937. Reported cash

was $136,201, an overstatement $61,264. In an apparent attempt to conect its beginning

cash on hand balance when it filed its 1997 Year End disclosure report, the RPA reduced

its beginning cash on hand by $63,991. No explanation ofthis discrepancy was provided.

The RPA reported total receipts of$571,265, an overstatement of$37,887.

The correct receipts amount for 1997 was $533,378. The overstatement resulted from the

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RPA's: overstatement of unitemized contributions from individuals ($13,761) on both

the 1997 Mid Year and 1997 Year End disclosure reports; the reporting of contributions

deposited into thc non-federal account totaling $29,500; thc [,1ilure to report transfers

fr0111 its non-federal account totaling $2,450; the failure to report a contribution from a

party committee in the amount of$875; and an unexplained difference which overstated

receipts by $2,048.

Total reported disbursements were $560,236. The RPA should have

reported total disbursements of $606, 192. Therefore, disbursements were understated by

$45,956. The understatement stemmed mainly from the RPA's: failure to report

disbursements totaling $56,040; the reporting of disbursements totaling 54,783 which

were not supported by checks or debit memos from the RPA's bank accounts; the

reporting of disbursements with negative amounts ($12,630)"; the reporting of

disbursements with ineonect amounts ($15,682); and an unexplained understatement of

$2,249.

The RPA reported an ending cash on hand balance of $81,949 on

December 31, 1997, an overstatement of$79,827. The con'ect cash balance was

detem1ined to be $2,122. The overstatement resulted from thc misstatements detailed

above and from discrepancies in reported cash balances bctween the 1997 Mid Year and

1997 Year End disclosure reports.

The RPA reported total receipts of$994,091, an understatement of

$41,368. The conect amount was $1,035,459. The net understatement ofreceipts

resulted from the RPA's: understating oftransfers from its non-federal account for joint

activity by $50,301; the failure to report contributions from party committees of $34,750;

the reporting of contributions from political party committees in the amount of$47,075

which were deposited into its non-federal account; and an unexplained understatement of

$3,392.

Total reported disbursements were $961,020. The RPA should have

reported total disbursements of$I,000,020; an understatement of$39,000. The

understatement stemmed mainly from the RPA's: failure to report disbursements of

$60,134; reporting ofdisbursements totaling $17,856 which were not supported by

checks or debit memos on RPA's bank records; and, an unexplained understatement of

$3,278.

The RPA reported an ending cash on hand balance of$36,955 on

December 31, 1998, an understatement of $606. The conect cash balance was

determined to be $37,561.

These negative entries were not associated with any previously reported disbursements. The RPA

representatives were asked to explain these entries, but no explanation was provided.

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At the Exit Conference, RPA representatives were provided with

documentation explaining the misstatements. The RPA representatives agreed to correct

the misstatements. The RPA's written response to the exit conference did not address

this issue.

In the Interim Audit Report, the Audit staff recommended that the RPA

file comprehensive amended repOl1s for calendar ycars 1997 and 1998, which included

cOITected Summary and Detailed Summary Pages for each year to accurately disclose its

reported activity, as well as amended Schcdules A and B, by report period, for the

misstatements noted above.

In its response to the Interim Audit Report, the RPA states that it has filed

amended repol1s for 1997 and 1998 to correct these errors. Howcver, the amendcd

reports were not provided as pal1 ofthis response and have not been located on the public

record to date. Further, attempts to reach the RPA to inquire about the amended reports

have been unsucccssful. The RPA has not complied with the Audit staffs

recolllmendation on this maller.

F. USE OF FUNDS FROM NON-FEDERAL ACCOl::WS

Section 102.5(a)(I)(i) ofTitle 11 of the Code of Federal Regulations

states, in relevant part, that each organization, including a party committee, which

finances political activity in connection with both federal and non-federal elections shall

establish a separate federal account in a depository in accordance with 11 CFR part 103.

Such account shall be treated as a separate federal political corrunittee which shall

comply with the requirements ofthe Act. Only funds subject to the prohibitions and

limitations ofthe Act shall be deposited in such separate federal account. All

disbursements, contributions, expenditures and transfers by the committee in connection

with any federal election shall be made from its fcderal account. No transfers may be

made to such federal account fTom any other account(s) maintained by such organization

for the purpose of financing activity in connection with non-federal elections, except as

provided in 11 CFR §106.5(g).

Section 106.5(g)(l)(i) and (ii) (A) ofTit1e 11 ofthe Code ofFederal

Regulations states, in part, that committees that have established separate federal and

non-federal accounts under 11 CFR §§102.5(a)(I)(i) or (b)(I)(i) shall either: pay the

entire amount of an allocable expense from its federal account and transfer funds from its

non-federal account to its federal account solely to cover the non-federal share ofthat

allocable expense; or establish a separate allocation account into which funds from its

federal and nonfederal accounts shall be deposited solely for the purpose ofpaying the

allocable expenses ofjoint federal and non-federal activities.

Section 104.1 O(b)(4) ofTitle 11 of the Code ofFederal Regulations states,

in part, that a political committee that pays allocable expenses in accordance with II CFR

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§I OG.5(g) or §I OG.6(e) shall also report each disbursement from its federal account or

separate allocation account in payment for a joint federal and non-federal expense or

activity.

Section l06.5(a)(2)(iv) ofTitle 11 of the Code of Federal Regulations

states that allocable costs include generic voter drives including voter identification, voter

registration, or any other activities that urge the general public to register, vote or support

candidates of a particular party or associated with a particular issue, without mentioning a

specific candidate.

Section 106.5(d)(ii) of Title 11 of the Code of Federal Regulations states,

in relevant part, that all state and local party committees, except for states that do not hold

federal and non-federal elections in the same year, shall allocate their administrative

expenses and costs of generic voter drives according to the ballot composition method.

Under this method, expenses shall be allocated based on the ratio of federal offices

expected on the ballot to total federal and non-federal offices expected on the ballot in the

next general election to be held in the committee's state or geographic area.

Section 106.5(a)(2)(ii) ofTitle II of the Code of Federal Regulations

states, in part, that party committees that make disbursements in cOlillection with federal

and non-federal elections shall allocate the direct costs of a fundraising program or event

including disbursements for solicitation of funds and for planning and administration of

actual fundraising events, where federal and non-federal funds are collected by one

committee through such program or event.

The Audit staffs analysis of non-federal activity indicated that the nonfederal account could have transferred an additional $287,210 to the federal allocation

account for its share ofjoint activity. This amount exceeds the federal portion of the

shared expenditures paid from the non-federal account discussed in sections 1,2 and 3 of

this finding. Therefore, no transfer of funds is recommended. The additional amount that

could have been transfelTed from the non-federal account was the result ofthe RPA using

a ballot composition ratio of75%, that yielded a non-federal share ofjoint activity of

$990,411. The Audit staff determined that the RPA should have used a 78% ballot

composition ratio which would have increased the non-federal share ofjoint activity by

$39,616. In addition, the RPA made transfers from its non-federal account to its federal

allocation account of only $742,817, which was $287,210 ($990,411 + $39,616-

$742,817) less than the amount that it could have transferred.

1. Advertising and Polling Expenditures Funded from a Non-Federal

Account

A review of disbursements made from RPA's non-federal checking

account identified $754,417 in payments made directly to vendors for shared advertising

and polling expenses. The expenditures included production, mailing and marketing

costs for broadcast and plint ads for the 1998 Arkansas republican candidates for U.S.

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Senate and House; production, mailing and marketing costs for broadcast and print ads

against the 1998 Arkansas democratic candidates for U.S. Senate and House; and polling

costs. In some cases, the same payee received payment from the RPA's federal account

for the same type of expenses. These expenses should have been paid from the federal

account and reimbursed in part by the non-federal accollnt.

The print and broadcast advertisements should have been allocated using

the ballot composition ratio, pursuant to II CFR § I06.5(d)(ii). The Audit staff

detel111ined that the federal portion was 22%R. Although the ads made references to

federal officeholders who were also federal candidates, there was no express advocacy of

a federal candidate's election or defeat, and the communications did not contain any call

for action other than urging the public to contact thc candidate and voice support or

opposition.

Overall, the federal share ofthesc expenditures was $165,972. Further,

thcy should havc been reported on Schedules H-4, Joint Federal/Non-Fcdcral Activity

Schcdulc.

At the exit conference, the RPA representatives were advised of this

matter and were provided copies ofworkpapers. The RPA representatives indicated they

understood but offered no further comments.

In the Interim Audit Report, the Audit staffrecommended that the RPA

demonstrate that these are not shared advertising and polling expenditures made from a

non-federal account. Absent such a demonstration, it was recommended that the RPA

file appropriate memo Schedules H-4 by reporting period to disclose these expenditures.

In its response to the Interim Audit Report, the RPA states that it has filed

amended reports for J997 and 1998 to correct these errors. However, the amended

reports werc not provided as part of this response and havc not been locatcd on the public

record to date. Further, attempts to reach the RPA to inquirc about the amended reports

have been unsuccessful. The RPA has not complied with the Audit staWs

recommendation on this matter.

2. Shared Administrative Expenses Funded ii'om a Non-Federal Account

The review of disbursements made from the RPA's non-federal checking

account identified $8,689 in payments made directly to vendors for shared administrative

expenses. The payments were for expenses relating to a state committee meeting,

accounting, yard work, airfare reimbursement, along with a payment to the Republican

National Committee. These administrative expenses should have been paid from the

federal account and reimbursed by the non-federal for its share. The federal share of

It should be noted that, on its Schedules H-I, the RPA computed its federal share to be 25% in its

calculation of the ballot composition ratio.

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these expenditures was $1,912 (22% x $8,689). Further, they should have been reported

on Schedules H-4, Joint Federal/Non-Federal Activity Schedule.

This matter was discussed with the RPA representatives at the exit

conference and a schedule detailing the above noted expenditures was provided. In a

written response to the matters addressed at the exit conference, the RPA representatives

agreed that some ofthese expenditures were written from the wrong account.

In the Interim Audit Repot1, the Audit staff recommended that the RPA

demonstrate that these are not shared administrative expenditures made fi'om a nonfederal account. Absent such a demonstration, it was recommended that the RPA file

appropriate memo Schedules H-4 by repot1ing period to disclose these expenditures.

In its response to the Interim Audit Report. the RPJ\ states that it has filed

amended reports for 1997 and 1998 to conect these errors. However, the amended

repo11s were not provided as part ofthis response and have not been located on the public

record to date. Further, attempts to reach the RPA to inquire about the amended reports

have been unsuccessful. The RPA has not complied wilh the Audit staff's

recommendation on this matter.

3. Expenditures in COImection with a Fundraising Event for a Federal

Candidate

As a result ofour review ofdisbursements from the RPA's federal and

non-federal accounts; the Audit staffidentified four expenditures totaling $ I6,35 I which

were related to the May 2,1997 salute to U.S. Senator Tim Hutchinson fundraising event.

The RPA representatives did not provide documentation concerning the amount collected

from the event or the amounts deposited in the federal and non-federal accounts. Absent

such documentation, the fundraising expenses were considered to be 100% federal

expendi tures.

The RPA allocated the expenditures using the administrative expense

ratio, S4,088 (25%) federal and $12,263 (75%) non-federal. Therefore, the non-federal

account has overfunded the federal account by $12,263.

The RPA representatives were advised ofthis matter at the exit conference

and provided a schedule detailing these expenditures. In a written response to the exit

conference, the RPA representatives agreed that the expenditures noted above related to

the fundraising event, but provided no information that would allow an allocation ofthe

expenses.

In the Interim Audit Report, the Audit staffrecommended that the RPA

submit documentation relating to the amount offederal and non-federal funds received

from this event. It was further recommended that the RPA file appropriate memo

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Schedules H-4 to correct the disclosure ofthese expenditures, along with a Schedule H-2

(Allocation Ratios) to list the event on its reports.

In its response to the Interim Audit Report, the RPA transfen'cd $12,263

from its non-fcderal account to its federal account. A copy of the check (front only) and

the deposit ticket were provided. By en'oneously transferring this money. the RPA has

increased the amount that the non-federal account has overfunded the federal account by

$12,263. The $12,263 transferred should be returned to the non-federal account. The

RPA has not complied with the Aud it staffs recommendation on this matter.

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FEDERAl ELECTION COMMISSION

WASHINGTON, 0 C 204£d

Decem bel' 19, 2000

Mr. Lloyd E. Lindsey, Treasurer

Republican PaIiy of Arkansas

1201 West 6'11 Street

Little Rock, AR 7220 I

Dear Mr. Lindsey:

Attached please find the Final Audit RepOli on the Republican Party of Arkansas.

The Commission approved the report on December 7, 2000.

The Commission approved Final Audit Repoli will be placed on the public record

on December 26, 2000. Should you have any questions regarding the public release of

the repoli, please contact the Commission's Press Office at (202) 694-1220. Any

questions you have related to matters covered during the audit or in the report should be

directed to Mr. Bill Antosz or Mr. Alex Boniewicz ofthe Audit Division at (202) 694-

1200 or toll free at (800) 424-9530.

Sincerely,

~r!-fd/+ / ka:~ J. co, ---- Assistant Staff Director

Audit Division

Attachment as Stated

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CHRONOLOGY

REPUBLICAN PARTY OF ARKANSAS

Audit Fieldwork

Interim Audit Report

to the Committee

Response Received to the

Interim Audit Report

Final Audit Report Approved

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November 1 -

November 19, 1999

July 25, 2000

September 13, 2000

December 7,2000
in..-Ii .

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