RECEIVED 

TEOERAL ELECTION 

COMMISSION 

SECRETARIAT 

FEDERAL ELECTION COMMISSION 2012 JUL 13 ?H U' 3k 

WASHINGTON, D.C. 20463 

July 13,2012 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Staff Director 

•p From: Patricia Carmona 

Chief Compliance Officer 

Tom Hintermister-^ 

Assistant Staff Director 

Audit Division 

Kendrick Smi 

Audit Manager 

By: Tesfai Asmamaw -(©r TX 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on the Colorado 

Republican Federal Campaign Committee* (CRFCC) (A09-13) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendations below and discusses the findings in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendations. 

Finding 1. Misstatement of Financial Activity 

In response to the DFAR, CRFCC filed amended disclosure reports for calendar 

year 2007 that materially corrected the public record. In the Proposed Final Audit 

Report, the Audit staff will state that CRFCC's corrective actions have materially 

resolved this matter. 

The Audit staff reconmiends that the Commission find that CRFCC misstated its 

financial activity for 2007. 

Finding 2. Allocation of Expenditures 

In response to the DFAR, CRFCC contended that the net non-federal transfers to 

the allocation account ($395,630) included transfers of $147,260 for 100% nonfederal activities paid from the allocation account and reported on its state 

campaign disclosure reports. CRFCC also acknowledged its error in paying for 

On August 9, 2010, CRFCC changed its name to the Colorado Republican Committee. 
100% non-federal activity from the allocation account. CRFCC stated that this 

error stemmed from periods during which a large volume of checks were issued 

from its non-federal account, causing it to run out of checks. Rather than incur the 

costs of ordering checks and waiting for the new checks to arrive, CRFCC chose to 

transfer funds to its allocation account and make the necessary disbursements. 

CRFCC asserted that the Audit staffs proposed remedy was inadequate and 

improper to correct errors made in the reporting of or use of the allocation account 

as a pass-through account. CRFCC stated, "[t]he errors of the Committee were 

committed in the use of the allocations account as a pass-through account, and the 

failures by the Conunittee in not disclosing such transactions on Schedule H3 and 

other relevant federal reports, and not in the source or nature of the funds used.** 

CRFCC expressed a willingness to file amended reports to correct the disclosure of 

the transfers to and disbursements from the allocation account. Finally, CRFCC 

noted that it has recently retained new accountants with more expertise and 

experience with campaign fmance law, and that it has enacted significant changes 

in its use of its allocation account. 

After reviewing CRFCC*s response to the DFAR and its state campaign disclosure 

reports, the Audit staff confirmed that the non-federal transfers of $147,260 to the 

allocation account were for payment of non-federal activities, which CRFCC had 

properly reported in its state campaign disclosure reports. As a result, the nonfederal account has not overfunded its share of allocable activity and no further 

explanation is warranted, hi the Proposed Final Audit Report, the Audit staff will 

state that CRFCC demonstrated that the non-federal account did not overfund its 

share of allocable activity; however, we will add that CRFCC failed to comply with 

11 CFR § 106.7(f) by making disbursements from the allocation account as 

payment for 100% non-federal activity. 

The Audit staff recommends that the Commission fmd that CRFCC's non-federal 

account did not overfund its share of allocable activity. 

The Committee originally requested an audit hearing and subsequently withdrew its 

request. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 30 

days of the Commission's vote. 

In case of an objection, Directive No. 70 states that the Audit Division Recommendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Tesfai Asmamaw or Kendrick Smith at 

694-1200. 

Attachment: 

- Draft Final Audit Report of the Audit Division on the Colorado Republican Federal 

Campaign Committee 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on the 

Colorado Republican Federal 

Campaign Committee 

January 1, 2007 - December 31, 2008 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that 

is required to file reports 

under the Federal 

Election Campaign Act 

(the Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

with the Act.' llie 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 Colorado Republican Federal Campaign Committee is a state 

party committee headquartered in Greenwood Village, Colorado. 

For more information, see the chart on the Committee 

Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions from Political 

Committees 

o Transfers from Affiliated and 

Other Party Committees 

o Transfers from Non-federal 

Accounts 

o All Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Transfers to Affiliated and 

Other Party Committees 

o Contributions to Federal 

Candidates and Committees 

o Other Disbursements 

o Federal Election Activity 

o Refund of Contributions 

Total Disbursements 

$ 1,401,637 

1,148,144 

8,073,144 

437,078 

130,887 

$ 11,190,890 

S 1,898,431 

4,656,015 

39,800 

54,872 

4,109,265 

25,275 

$ 10,783,658 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Allocation of Expenditures (Finding 2) 

2 U.S.C. §4380)). 
Draft Final Audit Report of the 

Audit Division on the 

Colorado Republican Federal 

Campaign Committee 

January 1, 2007 - December 31, 2008 
Table of Contents 

Scope Of Audit 

Overvew of Financial Activity 

F»<i.ngs and Recommendations 

Part IV. Findlnesa-rfo ^ 

P^ding I. MisstateSenfff p- '**""nen«»ation« 

''•"^'-«2.A„ocaC?;SnT£^^«-' ^ 4 

6 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Colorado Republican Federal Campaign 

Committee (CRFCC), 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 risk 

factors and, as a result, this audit examined: 

1. the disclosure of disbursements, debts and obligations; 

2. the disclosure of expenses allocated between federal and non-federal accounts; 

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

4. the consistency between reported figures and bank records; 

5. the completeness of records; and 

6. other committee operations necessary to the review. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Dateof Registration February 17,1976 

• Audit Coverage January 1,2007 - December 31,2008 

Headquarters Greenwood Village, Colorado 

Bank Information 

• Bank Depositories One 

• Bank Accounts Five Federal and Three Non-federal 

Treasurer 

• Treasurer When Audit Was Conducted Richard Westfall 

• Treasurer During Period Covered by Audit Joseph Horatio Chavez 

(1/1/2007 to 8/15/2007) 

Richard Westfall (8/16/2007 to Present) 

Management Information 

• Attended Commission Campaign Finance 

Seminar 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand ® January 1,2007 $ 2,638 

Receipts 

o Contributions from Individuals 1,401,637 

o Contributions from Political Committees 1,148.144 

o Transfers from Affiliated and Other Party Committees 8,073.144 

o Transfers from Non-federal Accounts 437,078 

o All Other Receipts 130,887 

Total Receipts $ 11,190,890 

Disbursements 

o Operating Expenditures 1.898.431 

o Transfers to Affiliated and Other Party Committees 4,656.015 

o Contributions to Federal Candidates and Committees 39.800 

o Other Disbursements 54.872 

o Federal Election Activity 4,109,265 

o Refund of Contributions 25.275 

Total Disbursements $ 10,783,658 

Cash-on-hand @ December 31,2008 $ 409,870 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of CRFCC's reported figures with bank records revealed a 

misstatement of receipts and disbursements in 2007. CRFCC understated receipts by $70,809 and 

disbursements by $61,104. 

In the Interim Audit Report, the Audit staff recommended that CRFCC amend its disclosure reports to 

correct the misstatements. 

CRFCC did not submit a response to the Interim Audit Report. In addition, CRFCC did not comply 

with the Audit staffs recommendation to file amended disclosure reports to correct the 

misstatements. (For more detail, see p. 4) 

Finding 2. Allocation of Expenditures 

During audit fieldwork, a review of disbursements made for allocable activity indicated that 

CRFCC overfunded its share of non-federal activity by $131,725. In addition, it appears that 

CRFCC paid $19,000 out of its allocation account for 100% non-federal activity. 

In the Interim Audit Report, the Audit staff recommended that CRFCC demonstrate that the nonfederal accounts did not overfund their share of allocable activity and provide additional comments 

regarding the payment of non-federal activity from the allocation account. Absent such a 

demonstration, the Audit staff recommended that CRFCC reimburse the non-federal accounts 

$131,725. 

CRFCC did not submit a response to the Interim Audit Report. As such, CRFCC did not comply 

with the Audit stafTs recommendation to demonstrate that the non-federal accounts did not 

overfund their share of allocable activity. In addition, CRFCC has not provided any documentation 

that demonstrates that the non-federal accounts were reimbursed. (For more detail, see p. 6) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity | 

Summary 

During audit fieldwork, a comparison of CRFCC's reported figures with bank records revealed a 

misstatement of receipts and disbursements in 2007. CRFCC understated receipts by $70,809 and 

disbursements by $61,104. 

In the Interim Audit Report, the Audit staff recommended that CRFCC amend its disclosure reports to 

correct the misstatements. 

CRFCC did not submit a response to the Interim Audit Report. In addition, CRFCC did not comply 

with the Audit staffs recommendation to file amended disclosure reports to correct the 

misstatements. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amount of cash-on-hand at the beginning and end of the reporting period; 

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

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

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

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

Facts and Analysis 

A. Facts 

As part of fieldwork, the Audit staff reconciled reported activity with bank records for calendar 

years 2007 and 2008. The following chart outlines the discrepancies for receipts and disbursements 

in 2007. Succeeding paragraphs address the reasons for the misstatements, if known. 

2007 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2007 

$3,198 $2,638 $560 

Overstated 

Receipts $861,368 $932,177 $70,809 

Understated 

Disbursements $794,275 $855,379 $61,104 

Understated 

Ending Cash Balance 

@ December 31,2007 

$70,291 $79,436 $9,145 

Understated 
CRFCC overstated its beginning cash balance by $560, which is unexplained but likely resulted 

from prior period discrepancies. 

The understatement of receipts resulted from the following: 

• Transfers from non-federal accounts, not reported $ 51,500 

• Erroneous deposit of non-federal funds, not reported 7,950 

• Unexplained difference 11.359 

Understatement of Receipts $ 70.809 

CRFCC transferred non-federal funds of $51,500 to its allocation account to pay for shared 

activity; however, it did not report these transfers.^ Also, in December 2007, CRFCC 

erroneously deposited non-federal funds of $7,950 into its federal operations account. Three 

weeks later, in January 2008, CRFCC transferred these funds back. CRFCC reported the transfer 

back; however, it did not report the initial deposit. 

The understatement of disbursements resulted from the following: 

• Disbursements, not reported $ 40,500 

• Transfers to non-federal account, not reported 23,600 

• Prior year payroll disbursements reported in error (10,568) 

• Disbursement reported not supported by check or debit (585) 

• Unexplained difference 8.157 

Net Understatement of Disbursements $ 61.104 

The $9,145 understatement of the ending cash balance was the result of the misstatements 

described above. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the misstatements for 2007 with a CRFCC representative during the exit 

conference and provided copies of relevant work papers detailing the errors. The representative 

stated that corrective action would be taken based on the audit recommendation. The CRFCC 

representative did not submit a response following the exit conference. 

In the Interim Audit Report, the Audit staff recommended that CRFCC: 

• amend its reports to correct the misstatements for 2007; 

• amend its most recently filed report to correct the cash-on-hand balance with an explanation 

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

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

that may affect the adjustment recommended by the Audit staff. 

C. Committee Response to Interim Audit Report 

CRFCC did not submit a response to the Interim Audit Report. In addition, CRFCC did not comply 

with the Audit staffs recommendation to file amended disclosure reports to correct the 

misstatements. The Audit staff made several attempts to determine the reason for CRFCC's 

^ Under 11 CFR § 106.7, state party committees are allowed to mix funds from their federal and non-federal operating 

accounts to pay for allocable expenses utilizing an allocation account. These accounts are considered federal accounts 

from which a committee must report all activity, including the non-federal portion. 
noncompliance or failure to request an extended response period. During one attempt, a CRFCC 

representative stated that CRFCC's response had been sent by FedEx to the Audit staff. However, 

when shipping details (such as the tracking number) or an emailed copy of the response was 

requested, the representative could not comply. 

Finding 2. Allocation of Expenditures 

Summary 

During audit fieldwork, a review of disbursements made for allocable activity indicated that 

CRFCC overfunded its share of non-federal activity by $ 131,725. In addition, it appears that 

CRFCC paid $19,000 out of its allocation account for 100% non-federal activity. 

In the Interim Audit Report, the Audit staff recommended that CRFCC demonstrate that the nonfederal accounts did not overfund their share of allocable activity and provide additional comments 

regarding the payment of non-federal activity from the allocation account. Absent such a 

demonstration, the Audit staff recommended that CRFCC reimburse the non-federal accounts 

$131,725. 

CRFCC did not submit a response to the Interim Audit Report. As such, CRFCC did not comply 

with the Audit stafTs recommendation to demonstrate that the non-federal accounts did not 

overfund their share of allocable activity. In addition, CRFCC has not provided any documentation 

that demonstrates that the non-federal accounts were reimbursed. 

Legal standard 

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

to pay for shared federal/non-federal expenses. 

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

funds from the non-federal account to the federal account to cover the non-federal share of 

that expense; or 

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

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

federal/non-federal expenses. 11 CFR § 106.7(b). 

B. Disbursements from the Allocation Account. Funds from federal and non-federal accounts 

must be deposited into the allocation account solely for the purpose of paying shared federal/nonfederal expenses. 11 CFR § 106.7(f)( 1 )(ii). 

C. 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 expenses. 11 CFR §§102.5(a)(l)(i) and 106.5(g). 

D. Reporting Allocable Expenses. A state, district or local committee that allocates federal/nonfederal 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 (Disbursements for Allocated Federal/Non-federal Activity). 11 

CFR §104.17(b)(3). 
Facts and Analysis 

A. Facts * 

CRFCC maintained five federal bank accounts and three non-federal bank accounts during 2007 

and 2008. CRFCC represented one of these federal accounts as an "allocation account." CRFCC 

paid shared federal and non-federal expenses from this account, but it also made disbursements for 

purely federal expenses, for purely non-federal expenses and for transfers to other federal and nonfederal accounts. During the audit period, CRFCC transferred $403,750 from non-federal accounts 

into the allocation account. As of December 31,2008, CRFCC had disbursed all funds from this 

account.^ 

During audit fieldwork, the Audit staff calculated the non-federal share of expenditures required to 

be disclosed on Schedule H-4 and compared that to the amount transferred from non-federal 

accounts. The review indicated that the non-federal portion of shared activity was $244,905 and 

CRFCC spent $19,000 on purely non-federal activity. The following chart explains the calculation 

of overfunding by the non-federal accounts of $131,725. 

Net non-federal transfers to the allocation account $ 395,630^ 

Non-federal portion of allocable expenses (244,905) 

100% non-federal expendimres (19.000^ 

Net Overfunding of Non-federal Funds $131.725 

This net overfunding amount does not include the impermissible non-federal activity paid out of the 

allocation account ($19,000). A committee is prohibited from transferring funds from a non-federal 

account to reimburse a federal account for non-allocable activity. Per 11 CFR §106.7(f)(l)(ii), 

funds must be transferred to the allocation account solely for the purpose of paying shared 

federal/non-federal expenses. 

B. Interim Audit Report & Audit Division Recommendation 

When the Audit staff presented the overfunding during pre-audit and fieldwork, CRFCC 

representatives offered no explanations. At the exit conference, the Audit staff further discussed the 

overfunding with a CRFCC representative and provided spreadsheets outlining the calculation of 

the overfunding and solely non-federal expenditures paid from the allocation account. The CRFCC 

representative did not submit a response to the matters presented at the exit conference. 

In the Interim Audit Report, the Audit staff recommended that CRFCC demonstrate that the nonfederal accounts did not overfund their share of allocable expenses ($131,725), and that CRFCC did 

not pay for non-federal activity ($19,000) out of the allocation account. Absent such a 

demonstration, the Audit staff recommended that CRFCC reimburse the non-federal accoimt 

$131,725 and provide additional comments with respect to the $19,000 in 100% non-federal 

expenditures from the allocation account. 

^ Per CRFCC's bank statements, the allocation account balance was -S4,877 at December 31,2008. 

^ Net non-federal transfers to the allocation account consist of total transfers to the allocation account from non-federal 

accounts ($403,750) less transfers from the allocation account to non-federal accounts (S8,120). 
8 

C. Committee Response to Interim Audit Report 

CRFCC did not submit a response to the Interim Audit Report. As such, CRFCC has not 

demonstrated that the non-federal account did not overfund its share of allocable activity. In 

addition, no documentation has been provided that demonstrates that the non-federal accounts have 

been reimbursed $ 131,725.