FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

Apri l 8, 2013 

MEMORANDUM 

TO: Thomas Hintermister 

Assistant Staff Director 

FROM: Lisa J. Stevenson 

Deputy General Counsel - Law 

Lorenzo Holloway 

Assistant General Counsel 

Compliance Advice 

Joshua S. Blume "^Jsj?) 

Attomey 

SUBJECT: Draft Final Audit Report - Arizona Republican Party 

(LRA 889) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the Draft Final Audit Report 

("DFAR") on the Arizona Republican Party ("ARP'* or "Committee"). Our comments in 

this memorandum focus on Finding 1 (Misstatement of Financial Activity) and Finding 2 

(Excessive Coordinated Party Expenditures). We concur with any findings not 

specifically discussed in this memorandum. If you have any questions, please contact 

Joshua Blume, the attomey assigned to this audit. ^ 

' The Office of General Counsel recommends that the Commission consider this document in open 

session because the DFAR does not include matters exempt from public disclosure. 11 C.F.R. § 2.4(a). 
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Draft Final Audit Report - Arizona Republican Party 

(LRA 889) 

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II. MISSTATEMENT OF FINANCIAL ACTIVITY (Finding 1) 

The Committee's third party vendor, which processed employee salaries, taxes 

and health benefits, withdrew funds from the Committee's federal account to pay federal 

payroll, allocable payroll, and purely non-federal payroll, as well as related benefits. 

With respect to the non-allocable non-federal payroll paid from the federal account, the 

Conunittee reimbursed the federal account for these payments with funds from its nonfederal account. 

The Committee did not report either the disbursements from the federal account 

for the payment of non-federal payroll or the transfers from the non-federal account to the 

federal account. The DFAR concludes that both the disbursements from the federal 

account for non-federal payroll and the reimbursements to the federal account from the 

non-federal account for these disbursements should have been reported, and we agree 

with this conclusion. 2 U.S.C. § 434(b)(2)(J), (4)(C), (H)(v); 11 C.F.R. 

§ 104.3(a)(2)(v), (viii),(b)(l)(ix). 

It should be noted that federal accounts may only accept funds that comply with 

the limitations and prohibitions ofthe Act.^ 11 C.F.R. § 102.5(a)(l)(i). Also, while there 

are enumerated exceptions, federal accounts may not accept transfers from any other 

account or accounts maintained for the purpose of financing activity in connection with 

non-federal elections. Id. Given these prohibitions, we recommend that the Audit 

Division revise the DFAR to include a citation to 11 C.F.R. § 102.5(a)(l)(i). 

III. EXCESSIVE COORDINATED EXPENDITURES (Finding 2) 

A. Background 

The ARP reported making coordinated expenditures for mailings on behalf of 

three candidates for the U.S. House of Representatives in Arizona in October and 

November 2010. It reported expenditures totaling $ 209,031.50 on behalf of candidate 

David Schweikert, $57,372.53 on behalf of candidate Paul Anthony Gosar, and 

^ The Audit Division also advised the ARP to report transfers of credit card contributions intended 

for the ARP*s non-federal account that are first deposited in the federal account and then transferred to the 

non-federal account. In Advisoiy Opinion 2001-17 (DNC Services), the Commission advised the DNC 

that it may process contributions intended to be split between the DNC's federal and non-federal accounts 

in a similar manner, but the DNC had represented that it would deposit contributions clearly intended to be 

non-federal directly into a non-federal account. In this case, the ARP deposited two types of contributions 

in its federal account: 1) contributions intended to be split between its federal and non-federal accounts and 

2) contributions intended solely for the non-federal account. We believe that the contributions intended to 

be split fall within the ambit of AO 200 M 7 because those similar types of contributions were the subject 

of the Commission's decision in AO 2001-17. We question, however, whether AO 2001-17 covers those 

contributions that were solely intended for the non-federal account. We are not recommending that the 

Audit Division take any action based on our understanding that the number of contributions solely intended 

to be non-federal that the ARP may have processed through its federal account is very small. 
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$262,956.70 on behalf of candidate Jesse Kelly. Each of these reported expenditures 

exceeded the 2010 coordinated party expenditure limit for the 2010 U.S. House of 

Representatives election in Arizona, which was $43,500.^ 

In response to the Interim Audit Report ("lAR"), the Committee argues that the 

above disbursements should not be counted towards its coordinated party expenditure 

limit because the disbursements qualify for the volunteer materials exemption and were 

not properiy disclosed on its reports. See 2 U.S.C. §§431(8)(B)(ix) and (9)(B)(viii); 11 

C.F.R. §§ 100.87 and 100.147. 

This fmding and the Committee's response to the lAR present the issue of 

whether the ARP describes sufficient involvement of its volunteers in the mailings so as 

to qualify them for the volunteer materials exemption. Cormected with this issue is also 

the question of what constitutes adequate documentation or evidence of volunteer 

involvement. 

B. Levels of Volunteer Involvement and Documentation Needed to Qualify 

for the Volunteer Materials Exemption. 

The DFAR concludes that the ARP's description of the activities its volunteers 

performed in coimection with the mailings demonstrates sufficient volunteer involvement 

to qualify the mailings for the volunteer materials exemption. Specifically, the DFAR 

concludes that ARP failed to disclose volunteer exempt activity spending in the amounts 

cited above on behalf of each candidate that the Committee previously reported as 

coordinated party expenditures. The DFAR thus implicitly concludes that ARP's 

disbursements for the mailings should not be coimted towards its coordinated party 

expenditure limit. 

Because of the uncertainty regarding the level of volunteer involvement needed to 

qualify State or local party disbursements for the exemption, we do not think there is a 

sufficient basis to conclude that the exemption does or does not apply. Rather, we 

recommend that the Audit Division note this issue in the cover memorandum that 

forwards the report to the Commission and revise, the report to indicate that there is a lack 

^ See 2 U.S.C. § 44Ia(d)(l). (3) and 11 C.F.R. § 109.32(b); see also Notice of Price Index 

Adjustmentsfor Expenditure Limitations and Lobbyist Bundling Disclosure Threshold, 75 Fed. Reg. 8353, 

83S4 (Feb. 24,2010). The actual limit that applied to the Committee in the 2010 election is unclear 

because although the Committee reported both receiving assignments of coordinated party expenditure 

spending authority from national committees and assigning some part of its own spending authority to one 

of those national committees, the amounts are unknown and there is no extant documentation ofthe 

assignments. Without documentation to support an increased coordinated spending limit, the ARP's 

coordinated spending limit for each congressional candidate was $43,500. See 11 C.F.R. §§ 109.33(a) 

(assignment must be in writing, must state amount of authority assigned, and must be received by assignee 

before any coordinated party expenditure made based on assignment), (c) (requiring party committees 

assigning or being assigned coordinated expenditure authority to maintain written records ofthe 

assignments for at least three years). 
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Draft Final Audit Report - Arizona Republican Party 

(LRA 889) 

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of clarity regarding the application of the exemption, and, in light of that lack of clarity, 

the disbursements are not being attributed to the ARP's coordinated expenditure limit. 

In its response to the lAR, the Committee states that both a commercial printing 

firm and volunteers were involved in the mailings. See Response of ARP to lAR, dated 

January 18,2013. The firm printed the mail pieces and also imprinted a graphic design 

supplied by the Committee; printed the bulk-rate mail indicia on the mail pieces; 

addressed each piece; and sorted the mail pieces by zip code. The volunteers bound 

finished groups of mail pieces; placed them in U.S. Postal Service bags and trays; and 

delivered the sorted mail pieces to a U.S. Postal Service facility. Id. 

The Committee submitted photographs of volunteers performing the above tasks 

with respect to the mailings on behalf of candidate Schweikert. See DFAR on the 

Arizona Republican Party, at 10 n.9. The Cpmmittee represents that it did not have 

documentation in support of its assertions about the mailings on behalf of candidates 

Gosar and Kelly because, during a transitional period to new leadership and staffing in 

January 2011, records of prior campaign activities were discarded. The ARP has 

apparently attempted to obtain documents or information from the candidates' 

committees but without success. It also has attempted to obtain affidavits without 

success. 

Recently, the Commission addressed the applicability ofthe volunteer materials 

exemption in the Final Audit Reports in the Democratic Executive Committee of Florida 

(DECF) and the Tennessee Republican Party Federal Election Account. In the DECF 

FAR, the Commission concluded that there existed a "lack of clarity in recent audits 

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

materials exemption," and the Audit staff did not count the expenses toward the 

coordinated party expenditures. See Final Audit Report of the Commission on the DECF 

(2012), at 3. In that matter, the DECF had provided a cell phone picture that had been 

taken by an individual who had averred by e-mail that he was present at the mailings of 

the mail pieces. See OGC Comments on DFAR on the DECF at 3. Similarly, in the 

earlier Tennessee Republican Party FAR, the Commission noted the "lack of clarity" 

regarding application of the exemption, and did not approve a finding that certain mail 

pieces did not qualify for the volunteer material exemption. See Final Audit Report of 

the Commission on the Tennessee Republican Party Federal Election Account (2011), at 

3. Our recommended approach here is consistent with the Commission's conclusions in 

both of these FARs. 

As noted in our comments on the DFARs in these prior audits, the Commission 

has failed to reach consensus in past enforcement matters regarding the application ofthe 

volunteer materials exemption under similar facts. See OGC Comments on Final Audit 

Report on Tennessee Republican Party Federal Election Account (LRA 745); OGC 

Comments on DFAR on the DECF (LRA 805); see also OGC Comments on Final Audit 

Report on the Washington State Democratic Central Committee (LRA 737). In 

particular, we noted MUR 5598, Utah Republican Party, et al., in which four 
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Draft Final Audit Report - Arizona Republican Party 

(LRA 889) 

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Commissioners issued a Statement of Reasons declining to draw a conclusion regarding 

whether the URP met the exemption in that case because of the "complicated history" of 

the exemption's application, and therefore dismissing the complaint as an exercise of 

prosecutorial discretion. See OGC Comments on Final Audit Report on the Tennessee 

Republican Party Federal Election Account (LRA 745); OGC Comments on Final Audit 

Report on the Washington State Democratic Central Committee (LRA 737) (discussing 

Statement of Reasons of Commissioners Petersen, Bauerly, Hunter, and Weintraub in 

MUR 5598, Utah Republican Party, et al. (April 9, 2009)). 

Recognizing the lack of clarity as to the volunteer materials exemption, the 

Commission has attempted, without success so far, to formulate a consensus policy 

regarding what constitutes "substantial volunteer involvement" for the purpose of 

applying the exemption. In particular, the Commission issued four draft documents for 

public comment in March 2010. See Proposed Interim Enforcement Policy, Agenda 

Document No. 10-16, Drafts A through D. While there appears to be broad agreement 

among the draft documents about some types of activities that would qualify a State or 

local committee for the volunteer materials exemption, there is disagreement among the 

drafts about whether any one of the potentially qualifying activities would, by itself, 

suffice to qualify the committee for the exemption, or whether only a number of activities 

taken together might suffice. Compare, e.g. Proposed Interim Enforcement Policy, 

supra. Draft A (Chairman Matthew S. Petersen, Commissioner Caroline C. Hunter, and 

Commissioner Donald F. McGahn II) at 5, Draft B (Commissioner Steven T. Walther) at 

5, Draft C (Vice Chair Cynthia L. Bauerly, and Commissioner Ellen L. Weintraub) at 5, 

and Draft D (Conmiissioner Donald F. McGahn II) at 4. 

In this matter, the ARP apparently submitted photographs documenting volunteers 

participating in activities relating to the mailings on behalf of candidate Schweikert. We 

understand that the ARP did not submit any affidavits or swom declarations from 

individuals with direct knowledge of the mailings on behalf of Schweikert. Nevertheless, 

based on our conclusion regarding the Commission's lack of consensus on the level of 

volunteer involvement needed to qualify a party committee for the volunteer materials 

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

exemption, we recommend that the Audit Division raise this issue in the cover 

memorandum to the Commission and indicate in its audit report that because of this lack 

of clarity, it is not attributing the ARP's spending on the Schweikert mailings to the 

ARP's coordinated expenditure limit. 

The ARP was unable to provide any documentation to support its assertions of 

volunteer exempt activity with respect to the mailings on behalf of candidates Gosar and 

Kelly. While a question exists regarding whether disbursements of a State or local 

committee may qualify for the exemption absent any documentation of the nature and 

extent of volunteer involvement apart from the committee's assertions, we recommend 

nevertheless that the Audit Division raise this issue in the cover memorandum to the 

Commission and indicate in the audit report that, because of the lack of clarity regarding 
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Draft Final Audit Report - Arizona Republican Party 

(LRA 889) 

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the application of the exemption, the disbursements on the Gosar and Kelly meetings are 

also not being attributed to the ARP's coordinated expenditure limit.^ 

^ This recommendation is consistent with our recommendation in comments we conveyed to the 

Audit Division in another matter, in which the State committee was unable to provide documentation to 

support its assertion of sufficient volunteer involvement to satisfy the exemption with respect to certain 

disbursements for mailings. See OGC Comments on Final Audit Report on the Washington State 

Democratic Central Committee ("WSDCC") (LRA 737), at 2-3. The Final Audit Report in that matter, 

issued in March 2011, noted this absence of documentation, as well as the fact that WSDCC expressed its 

belief that the mailings were intended as volunteer exempt activities and were reported as such. See Final 

Audit Report on WSDCC (2011), at 3-4. In light of the lack of clarity with respect to the amouiit of 

volunteer involvement needed to qualify for the volunteer materials exemption and the expiration ofthe 

statute of limitations, the Commission did not approve the Audit staffs finding by the required four votes. 

Id.