May 24,2011 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Acting Staff Director 

From: Patricia Carmona 

Chief Compliance Officer 

Joseph F. Stoltz 

Assistant Staff Director 

Audit Division 

Kendrick Smith 

Audit Manager 

By: Scott Dotzler 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on the Democratic Party of 

Arkansas (A09-16) 

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

the Audit staffs recommendation is presented below and the finding is discussed in the 

attached Draft Final Audit Report. The Office of General Counsel has reviewed this 

memorandum and concurs with the recommendation. 

Misstatement of Financial Activity 

The Audit staff recommends that the Commission fmd that the Democratic Party of 

Arkansas misstated their financial activity for calendar year 2007. 

The Committee made no additional response to this finding and did not request an audit 

hearing. 

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

30 days ofthe Commission's vote. 

Should an objection be received. 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 on Voting Ballot Matters. Should 

you have any questions, please contact Scott Dotzler or Kendrick Smith at 694-1200. 

Attachment: 

- Draft Final Audit Report of the Audit Division on the Democratic Party of 

Arkansas 

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

Audit Division on the 

Democratic Party of Arkansas 

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 /^fftWM 

requirements for 

substantial compliance 

with the Act.' llie audif 

determines^vvthi^erivthe 

committeWoMplitdf* 

with tMjlirhitations, 

prohibit?6l^^d 

disclosure im^kements 

of the Act. 

About the Committee (p. 2) 

The Democratic Party of Arkansa^s^s a state party committee 

headquartered in Little Rock, Afl^^as. For more information, see 

die chart on die Committee,©|gipization, p. 2. 

Financial Acti^ty 

• Receipts 

Contribi@ifs from Individuals 

ContributidiHlfrom Other^Political 

^Cbmihittees 

Committees 

L^filiatW Party 

. .. 

TcaHsfei^ffriom Non-Fedi^ral Accounts 

o OtK^ecdi] ^ 

Total Rlieipts ^ -

isbursementer ' 

c^DperatinglDfsbursements 

tei^epay^^s Made 

ed^a^^^tii^^ctivity 

Transf^^^ton-Federal 

^count 

Ibr Disbursements 

^otal D^^ursements 

620,492 

326,600 

113,217 

1,507,775 

119,305 

$ 2,687,389 

$ 2,213,994 

31,319 

107,908 

224,349 

117,600 

$ 2,695,170 

Future Action^ 

The Commission may ^ 

initiate an enforcement 

action, at a later time, 

with respect to the 

matter discussed in this 

report. 

^fiitding and Recommendation (p. 3) 

^fl^^Misstatement of Financial Activity 

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

Audit Division on the 

Democratic Party of Arkansas 

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

Part I. Background 

Authority for Audit 

Scope of Audit 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summary 

Finding and Recommendation 

Page 

Part IV. Finding and Recommendittion 

Misstatement of Financial Activity 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Democratic Party of Arkansas (DPA), 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 .ays^political committee that is 

required to file a report under 2 U.S.C. §434. Prior to condu^^ing any audit under this 

subsection, the Commission must perform an intema|4§^>v of reports filed by selected 

committees to determine if the reports filed by a peu|i^ular'^0;x|m^ meet the threshold 

requirements for substantial compliance with^^ct. 2 U.s:^^|[38(b). 

Scope of Audit 

Following Commission approved procedures^|]^j|^Audit st^ evaluated%a§<pus risk 

factors and as a result, this audit examined: 

1. The disclosure of disbursemi 

2. The disclosure of expi 

3. The disclosure of individual 

4 

5 

6. Other commii$|^operatioMnecessary 

LtsFdebts and obligations. 

federm:^d non-federal accounts. 

S<name of employer. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

Date of Registration March 8,1976 

Audit Coverage January 1,2007 - December 31,2008 

Headquarters Little RQffjk, Arkansas 

Bank Information 

Bank Depositories 

• Bank Accounts l^e n FM^al, Five Non-federal, One 

^Levin (unij^P)>>. 

Treasurer 

• Treasurer When Audit Was Conducted 

• Treasurer During Period Covered j)y Audit ^ 

Karen 9jrcia ^"^^^ 

Management Information 

Attended FEC Campaign Finance 

• Who Handled Accounting and Recoin^epin; 

Tasks 

Otfirviem of FWncial llctivity 

j^|M|ited /founts) 

o ContiT^iQns from Oth'^ilQlitical^^^^mitteer 

o Transfer^^^ Affiliated^ ^ Coni^ees 

o Transfers fr^Mion-Federal^^counts 

o Other Receipts'^yy 

Total Receipts ,^ 

o Operating DisburseiS^I 

o Loan Repayments Madi ^ 

o Federal Election Activity 

o Transfers to Non-Federal Account 

o Other Disbursements 

Total Disbursements 

Cash on hand @ December 31,2008 

$ 68,560 

326,600 

113,217 

1,507,775 

119,305 

$ 2,687,389 

2,213,994 

31,319 

107,908 

224,349 

117,600 

$ 2,695.170 

$ 60,779 
Part III 

Summary 

Finding and Recommendation 

Misstatement of Financial Activity 

During audit fieldwork, a comparison of DPA's reported actiyity to bank records 

revealed a misstatement of receipts and disbursements in^2.6|0% DPA understated receipts 

and disbursements by $148,974 and $146,561, respectiy|iw 

In response to the Interim Audit Report, DPA amei 

the misstatements. (For more detail, see p. 4L 

" its r^rts to materially correct 
Part IV 

Finding and Recommendation 

I Misstatement of Financial Activity J 

Summary 

During audit fieldwork, a comparison of DPA's reported activity to bank records 

revealed a misstatement of receipts and disbursements in 207^. DPA understated receipts 

and disbursements by $148,974 and $146,561, iGspectr^f^ 

In response to the Interim Audit Report, DPA ameM^aits^r^orts to materially correct 

the misstatements. 

Legal Standard 

Contents of Reports. Each report must dis^^^: 

• the amount of cash on hand at the begiimin|| end^Sthe reporting^pipd; 

the total amount of receipts C^the reporting pe^^Ha for the calendar>-y.eiar; 

the total amount of disbursem^hp^%t|^e reportinj^eriod and for the calendar year; 

and, *^^^^£ 

certain transactions that require i^^izati'dh^n^jScheduT^^Qtemized Receipts) or 

Schedule B (Ite^m|bursem« L 2 U.«<[M(b)(^) , (3), (4) and (5) 

m 

Facts and Analysis 

A. Facts ^'-'^ y^^#¥:i?sta.^ ^ 

As part^tHeldwork, the^AuWifaff recdncilec L'S reported activity to its bank 

recor^^for 2007^^^^%follo\v^ chart outli^st^e discrepancies for the beginning cash 

baMif|e^,^receipts, dis^^^eni^^nd the ending cash balance. Succeeding paragraphs 

addr^slthe reasons fon^Te^'misstati^epts, if known. 

2007 ConMttee Activi% 

Reported Bank Records Discrepancy 

Beginning CasH^Ma^^^J^' 

@ January 1,20^^ r 

$67,443 $68,560 $1,117 

Understated 

Receipts ^ $1,410,249 $1,559,223 $148,974 

Understated 

Disbursements $1,400,534 $1,547,095 $146,561 

Understated 

Ending Cash Balance 

@ December 31,2007 

$77,158 $80,688 $3,530 

Understated 

The beginnmg cash balance was understated by $1,117 and is unexplained, but likely 

resulted from prior period discrepancies. 
The understatement of receipts resulted fix)m the following: 

• Unreported fundraising proceeds 

• Umeported reimbursement from non-federal account 

• Unexplained difference 

Net understatement of receipts 

87,496 

66,000 

(4,522) 

$ 148,974 

The understatement of disbursements resulted from the following: 

• Umeported transfer of fundraising proceeds to non-federal 

account 

• Unreported payment of non-federal activity 

• Unexplained difference 

Net understatement of disbursements 

$ 87,496 

66,000 

(6,935) 

$ 146,561 

The $87,496 adjustment included in both the ^^^sKatemen{^^ceipts and 

disbursements represents net non-federal pi^|^ls from fundrais1^>events in which DPA 

received both federal and non-federal con^^jtions. The contribution^>>were received in 

the form of the ticket price paid to attend tfa^^ents and were collect^'^^^a commercial 

ticket processing company. The company subl%^ently<i|u]b^ a checi£^ito>PPA for the 

proceeds, less its service fee. D|^:y^^posited the cM(»|M%o its federal accdfi , then 

calculated the non-federal share ^'dlr&asferred thailBiount to the non-federal account 

but failed to report the receipt of theirhoif-ifederal portiohTdf ydie proceeds and the transfer 

to the non-federal account ($87,496)^he fed^ki)ortionlil(5iig with the service fees 

were reported by DRAs?fe. 

The $66,000 adjustment included in both #g&derstate^1$bf receipts and 

disbursements repf^ents non-ff|eral activil^^aat was mistakenly paid for out of a 

federal accoimt, then¥lmibursllfusing non-federal funds. The reimbursement occurred 

approxiiiiByt^ely^e^ weewaiterthe~€i^ense wasfipaid, but neither transaction was 

repprfed^^Hy 

The $-^530 imderstatehi^^f th^l^Ling cash balance was the result ofthe misstatements 

describelf-above. 

B. Interim L-ildit Report 

The Audit staff diisclissed th^Mi 

conference and prov-ii%^eievant work papers detailing the reporting errors. Regarding 

udit Division's Recommendation 

.^misstatements for 2007 with DPA representatives at the exit 

the reporting of the noli^^eral proceeds and subsequent transfer, DPA representatives 

explained they excluded from the report both the receipt and the transfer because they 

only deposited the proceeds in the federal account after receiving a single, co-mingled 

check, which included both federal and non-federal funds. They fiirther added that they 

would amend the appropriate schedules as necessary to correct the misstatements. 

Regarding the non-federal activity that was paid for mistakenly out of a federal account 

and subsequently reimbursed using non-federal funds, DPA representatives contend that 

since both transactions occurred during the same reporting period, they were justified in 

excluding them from the report. 
In the Interim Audit Report, the Audit staff recommended that DPA amend its 2007 

reports to correct the misstatements noted above. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, DPA filed amended reports that materially 

corrected the misstatements. 

In addition, DPA provided evidence demonstrating that some adjustments suggested in 

the Interim Audit Report were not necessary. The amounts shown in the table above 

have been revised to refiect these changes.