FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C 20463 October 20,2016 

MEMORANDUM 

To: 

Through: 

From: 

The Commission 

Alec Palmer 

Staff Director 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Zuzana O. Pacioi 

Audit Manager 

By; 

Subject: 

Christopher.Carrell 

Lead Auditor 

Audit Division Recommendation Memorandum on the 

TeaPartyExpress.org (TPE) (A13-19) 

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

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

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

this memorandum and concurs with the recommendation's. 

Finding 1. Misstatement of Financial Activity 

The Audit staff determined that, for 2011, TPE understated its receipts and ending 

cash-on-hand by $133,667 and $127,193, respectively. For 2012, TPE overstated 

its receipts by $129,547; understated its disbursements by $5,244; and overstated 

its ending cash-on-hand by $65,710. Subsequent to audit notification, TPE 

amended its disclosure reports to materially correct the 2012 misstatements, 

however, did not correct the 2011 misstatements. TPE did not submit a response 

to the Interim Audit Report (lAR). In its response to the DFAR, TPE explained 

that during the time of activity it experienced challenges with data. TPE stated it 

was willing to amend reports as needed, however, has not done so as of yet. As 

such, TPE has not complied with the recommendation. 

The Audit staff recommends that the Commission find that TPE misstated its 

financial activity for calendar years 2011 and 2012 as stated above. 
Finding 2. Disclosure of Occupation/Name of Employer 

A review of all contributions from individuals requiring itemization indicated tliat 

2,896 contributions totaling $549,694 lacked disclosure of occupation and/or name 

of employer. During the audit, TPE demonstrated "best eiforts" to obtain, 

maintain, and submit, the missing occupation/name of employer information to 

materially correct the disclosure errors. Since TPE's corrective actions occurred 

after audit notification, this matter was included in the audit report. TPE did not 

submit a response to the lAR. In its response to the DFAR, TPE stated it has 

significantly improved its process for collecting and reporting occupation and 

name of employer information for contributions from individuals. The Audit staff 

considers this matter resolved. 

The Audit staff recommends that the Commission find that TPE failed to disclose 

occupation and/or name of employer information from individuals totaling 

$549,694. 

Finding 3. Reporting of Apparent Independent Expenditures 

A. Reporting of ADParent-IndeBendent-Ekpenditures 

During audit fieldwork, the Audit staff reviewed independent expenditures 

totaling $680,735 that TPE disclosed on Schedule E (Itemized Independent 

Expenditures). However, the Audit staff noted that TPE made additional 

expenditures totaling $848,522 which appeared to be media-related 

independent expenditures that TPE disclosed on Line 21b (Operating 

Expenditures) and Line 29 (Other Disbursements). TPE did not respond to the 

lAR. Iri its response to the DFAR, TPE stated that the identified 

communications in question were for fundraising and not electioneering 

purposes. Absent evidence demonstrating that these expenditures are not 

' independent expenditures and do not require reporting as independent 

expenditures, the Audit staff considers them independent expenditures. 

The Audit staff recommends that the Commission find that TPE failed to 

properly disclose independent expenditures totaling $848,522. 

B: Failure to File 24/48-Hour Reports for IndeDeftdeht Expehditiires' 

The Audit staff reviewed independent expenditures reported on Schedule E for 

24/48-hour reports and determined that TPE did not file the required 24-hour 

reports totaling $15,539 and 48-houT reports totaling $12,464. For each of 

these communications, records indicate that TPE publicly disseminated the 

communications within the 24/48-hour reporting period. 

In addition, the Audit staff identified $848,522 in apparent independent 

expenditures for which TPE did not file 24 or 48-hour reports, as required. No 

documentation or information was available pertaining to the date of public 

dissemination for these communications; therefore, the Audit staff was not able 

to determine whether or not such reports were required to be filed. TPE did 

not respond to the lAR. In its response to the DFAR, TPE did not address the 

24/48-hour reports specifically but stated that the bulk of the activity was 
towards fundraising and that the identified communications were for 

fimdraising and not electioneering purposes. The Audit staff considers this 

matter unresolved. 

The Audit staff recommends that the Commission fmd that TPE did not file 24/48-

hour reports totaling $28,003 for independent expenditures reported on Schedule 

E. In addition, the Audit staff further recommends that the Commission find that 

TPE did not file 24/48-hour reports for additional apparent independent 

expenditures totaling $848,522. 

Finding 4. Recordkeeping for Communications 

During audit fieldwork, the Audit staff reviewed disbursements to verify the 

accuracy of the information and proper classification of transactions disclosed on 

reports. TPE made 340 expenditures totaling $3,792,648 for which documentation 

was insufficient to make a determination pertaining to whether these 

disbursements were correctly reported on Schedule B, Line 21b (Operating 

Exp'enditures) or Line 29 (Other Disbursements). Of this total amount, there were 

237 disbursements totaling $2,302,864 for which TPE did not provide invoices 

and the associated direct mail piece for each of the disbursements. Additionally, 

there were 103 disbursements totaling $1,489,784 paid to direct mail vendors for 

which TPE provided no information about the direct mail communications. TPE 

did not respond to the lAR. In its response to the DEAR, TPE stated that it ^s 

provided copies of invoices and payments made but experienced challenges 

collecting further information from its consultants and email vendor. As such, the 

Audit staff considers this matter unresolved. 

The Audit staff recommends that the Commission find that TPE did not provide 

the necessary records pertaining to disbursements totaling $3,792,648. 

Finding S. Faiiure to Itemize Debt and Obligations 

During audit fieldwork, the Audit staff noted that TPE did not disclose debts and 

obligations totaling $310,561. TPE did not submit a response to the lAR. In its 

response to the DFAR, TPE explained that during the time of activity it 

experienced challenges with data. TPE stated it was willing to amend reports as 

needed, however, has not done so as of yet. As such, TPE .has not complied with 

the recommendation. 

The Audit staff recommends that the Commission find that TPE failed to itemize 

debts and obligations totaling $310,561. 

TPE did not request an audit hearing. 

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 Christopher Carrell or Zuzana Pacious at 

694-1200. 

Attachment: 

- Draft Final Audit Report of the Audit Division on TeaPartyExpress.org 

- LRA 995 (Tea Party Express) - ADRM Cmts (Final) 

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

Audit Division on the 

TeaPartyExpress.org 

(January 1, 2011 - December 31, 2012) 

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.' The audit 

determinjss -whetifie^ the 

comnnttee complied with. 

the iimititiqns, 

prohibitiotUwd 

disclosure requirements 

of the Act. 

About the Committee^ (p-: 2) 

TeaPartyExpress.org is an unauttiori^, qualified, non-party 

political action committee heaiSqua^ed in Willows, California. 

For more information, see.tiie 

Organization, p. 2. 

the Committee 

Financial Activity-(p. 2) 

* Receipts 

o Contributions'from Individuals 

o Refunds of Contributions Made 

'V..S 

to Federal Candidates 

o Other Receipts 

Total Receipts. 

.... . 

• Disburscmchts 

o Operating.Expcnditures 

: o Contriluitions to Federal 

Candidates/Other Committees 

' o -^Independent Expenditures 

o Confribution Reflmds 

,p Other Disbursements 

!.T-ofal Disbursements 

'Vs 

$ 10,135,860 

$2,500 

32,666 

S 10,171,026 

$ 8,320,177 

259,500 

680,735 

19,685 

77,827 

$ 9,357,924 

•>. 

Future Action 

The Commission mdy 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Disclosure of Occupation/Name of Employer (Finding 2) 

• Reporting of Apparent Independent Expenditures (Finding 3) 

• Recordkeeping for Communications (Finding 4) 

• Failure to Itemize Debts and Obligations (Finding 5) 

52 U.S.C. §30111(b). 
Drait Final Audit Repott of the 

Audit Division on the 

TeaPartyBxpresa'OTg 

(January 1, 2011 - December 31, 2012) 

• '-'f 

Asi-":-;.'. V 

• • 'v 

• V-. 

• "-Si u -.i?" • -••V 

' V . •: .. • •• 

...... 

r 
Table of Contents 

•k. 

'•I' 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recommendatiahs 

• •/••••. • 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part 11. Overview of Committee 

Committee Organization . 2 

Overview of Financial Activity T 2 

"s--

Finding 1. Misstatement of Financial Activity 5 

Finding 2. Disclosure of Occupation/Name of Employ&p;^ 7 

Finding 3. Reporting of Apparent fhdepen^ept Elxpmdita^^ 9 

Finding 4. Recordkeeping for Communicaid^hsi.. < ' 13 

Finding S. Failure to Itemize Debt and-ObP^atidns;. • . IS 

i 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the TeaPartyExpress.org^ (TPE), 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 S2 U.S.C. §30111(b), which permits the Commission to 

conduct audits and field investigations of any political committee-tltat is required to file a 

report under 52 U.S.C. §30104. Prior to conducting any audit under this subsection, the 

Commission must perform an internal review of reports file(| -1j^;SjBlected committees to 

determine if the reports filed by a particular committee rneet the 't^eshold requirements 

for substantial compliance with the Act. 52 U.S.C. §30111(b). • •• «• • • • . 

if 

Scope of Audit 

Following Commission-approved procedures, the. Audit st^ evaluated variqiis risk 

factors and as a result, this audit examined; O - j; ' • 

1. the consistency between reported figures and bank'^ebqrds; 

2. the disclosure of individual contributors' occupation aiid.{iame of employer; 

3. the disclosure of independent expehdi'tai^a; 

4. the disclosure of debts and obligations pertaiimg.to independent and apparent 

independent expenditures; < <' 

5. the completeness of i:qcprds4 and ^ 

6. other committee operations necessary to die review." 

Y'. -yV -f' 

' The cominittee's name during the audit period was Our Country Deserves Bener TeaPartyExpress.Org 

and was subsequently changed on May IS, 20IS. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

Date of Registration AugusMS, 2008 

• Audit Coverage January 1,2011 - Deceiriber 31,2012 

Headquarters Willows. Caiiforjii'a 

Bank Information • : v •. •. 

• Bank Depositories Three 

• Bank Accounts Three^Cheekipg; One Sayings 

Treasurer 

• Treasurer When Audit Was Conducted Kelly Lawl^r 

• Treasurer During Period Covered by Audit Betty Presley (1/1/2011 - 4/7/2011) 

Keiiy Lawler^4/8/2011 - Present) 

Management Information • • 

.• Attended Commission Campaign Finance' 

Seminar ^ ^ 

No 

• 

• Who Handled Accounting and Recordkeepittg 

Tasks 

Paid Staff 

Oyervieiy of Fiiiancial Activity 

Cash-on-hand ^-Jdiiuary 1,2011 S20,2S2 

Receipts 

o Contributions from Individuals 10,135.860 

o Refunds of Contributions Made to Federal 

Candldates/Qther Committees 2.500 

o Other. Receiptsr 32.666 

Total Receipts $10,171,026 

Disbursements 

o Operating Expenditure 8,320,177 

o Contributions to Federal Candidates/Other 

Committees 259,500 

o Independent Expenditures 680.735" 

o Contribution Refunds 19.685 

o Other Disbursements 77,827 

Total Disbursements $9,357,924 

Cash-on-hand ® December 31,2012 $833354 

^ This amount, as well as the amount for operating expenditures and other disbursements, may change as a result of 

the Commission's final consideration of the audit Finding 3. (See p. 9.) 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

A comparison of TPE's reported figures with its bank records indicated that in 2011, 

receipts and ending cash-on-hand were understated by $133,667 wd $127,193, 

respectively. In 2012, beginning cash-on-hand was understated by ^127,193, receipts 

were overstated by $129,547, disbursements were understated by..$S,244, and ending 

cash-on-hand was overstated by $65,710. Subsequent to aiidit ftclification, TPE amended 

its disclosure reports and partitdly corrected certain misstatements. * > 

yTPE did not submit a response to the Interim Audit Report. The Audit st^-considers 

this matter unresolved. (For more detail, see p. 5.) ..5.;. 

Finding 2. Disclosure of Occupatioh/^Nanie of Employer 

A review of all contributions from individuals requiring itemization indicated that 2,896 

contributions totaling $549,694 lacked disclosure of occupation/name of employer. 

During the audit, TPE demonstrated "best effortsC'-to obtain, riteintain and submit the 

missing occupation/name of employer informationHoi'inaterjaHy correct the disclosure 

errors. Since TPE's corrective action occurred after auditjnotiflcation, the matter was 

included in the Interim Aiidit'E^ort. 

TPE did not submit a response tfb^the Interim Audit'Report, however, the Audit staff 

considers this matter resoIVedt ^l^or inote detail',' see p. 7.) 

Finding 3. Repo^ing<:;of,Apparent Independent 

Ex-j^nditures ' 

During audit fieldwork, the Audit staff reviewed independent expenditures totaling 

$680,735 tliat^E disclosed.'on Schedule E (Itemized Independent Expenditures). 

However, the Audit staff identified additional expenditures totaling $848,522 (845,310 + 

3,212) which appeared Jto.be media-related independent expenditures that TPE disclosed 

on Line 21b (Operating Expenditures) and Line 29 (Other Disbursements). 

Of the $680,735 independent expenditures reported on Schedule E, TPE did not Hie 

24/48-hour reports for seven expenditures totaling $28,003. Additionally, of the 

$848,522 disclosed as operating expenditiuvs and other disbursements which appeared to 

be independent expenditures, TPE did not file any 24/48-hour reports. 

TPE did not submit a response to the Interim Audit Report. Absent evidence that the 

expenditures in question did not require reporting as independent expenditures and did 

not require 24/48-hour reports, the Audit staff considers these expenditures to be 

independent expenditures. (For more detail, see p. 9.) 
Finding 4. Recordkeeping for Communications 

During audit fieldwork, the Audit staff reviewed disbursements to verify the accuracy of 

the information and proper classification of transactions disclosed on reports. TPE 

reported 340 (237+103) expenditures totaling $3,792,648 (2,302,864 + 1,489,784), on 

Schedule B, Line 21b (Operating Expenditures) or Line 29 (Other Disbursements) with 

purposes such as "Postage & Delivery", "Printing & Mailshop" or "PAC Fundraising 

Postage & Delivery." Documentation provided by TPE was insufficient to make a 

determination pertaining to the purpose for these disbursements and verification as an 

operating or other expense. 

TPE did not submit a response to the Interim Audit Report. .Absent the further 

documentation as recommended, the Audit staff considers-t^ documentation provided to 

be insufficient. (For more detail, seep. 13.) 

Finding 5. Failure to Itemize DeMs and Obligations 

During audit fieldwprk and in the course of reyiew of independent and appaifei^''' 

independent expenditures, the Audit staff ndtisd thiJt ^PE.fafled to properly j^sclose debts 

and obligations pertaining to these expenditures tptaliW^^ 10,561. 

\ L ' .V 

TPE did not submit a response to the liitt^ina Audit Repoit.^iAbsent the filing of amended 

reports to include the debts owed, the A^t^epi^onsiders tlie.'iipatter unresolved. (For 

more detail, seep. 15.) 

•i-

:7. 

. V-y...... 
Part IV 

Findings and Recommendatioins 

Finding 1. Misstatement of Financial Activity 

Summary 

A comparison of TPE's reported figures with its bank records indicated that in 2011, 

receipts and ending cash-on-hand were understated by $133,667 and $127,193, 

respectively. In 2012, beginning cash-on-hand was understated by $.127,193, receipts 

were overstated by $129,547, disbursements were understated byl$S,^'44, and ending 

cash-on-hand was overstated by $65,710. Subsequent to auditirtptification, TPE amended 

its disclosure reports and partially corrected certain misstdtemeh^:^. 

J ' 

TPE did not submit a response to the Interim Audit.Jl'epbrt. The Audit'si^ considers 

this matter unresolved. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amount of cash-on-hand at^^q beginning and e^ of the reporting period; 

• the total amount of receipts for the repoj^ing period'iii^Mithe calendar year; 

• the total amount of disbursements fbr'Ihe reporting pefipd and for the calendar 

year;and '• 

• ••'• • "• •fi'« 

• certain transactions.;that require itemimtion on Schedule A (Itemized Receipts) or 

Schedule B (Itemized M^bursements). 52 U.S.C. §30104(b)(1), (2), (3), (4), and 

(5). 

Facta and Analysis 

<• A. Facts 

During.audit fieldwork^'thb-Audit Staff reconciled TPE's reported financial activity with 

its bank records for calend^ years.r20l 1 and 2012. The reconciliation determined that 

TPE misstated-receipts and'ehding cash-on-hand for 2011, and receipts, disbursements 

and ending cash;ba)ance fqj--2012. The following charts outline the discrepancies 

between TPE's disclosure reports and its bank records. The succeeding paragraphs 

explain why the discr^ancies occurred. 

2011 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance @ 

January 1,2011 

$21,661 $20,252 $1,409 

Overstated 

Receipts $3,668,329 $3,801,996 $133,667. 

Understated 

Disbursements $3,617,405 $3,622,469 $5,064 

Understated 

Ending Cash Balance $72,585 $199,779 $127,194. 
@ December 31,2011 | Understated 

The beginning cash balance was overstated by $1,409 and is unexplained, but likely 

resulted from prior-period discrepancies. 

The understatement of receipts resulted from the following; 

• Unitemized contributions from individuals, not reported 

on TPE's 2011 Mid-Year report + $103,315 

• Returned contributions not reported as negative receipts - 1,015 

• Unexplained differences + 31.367 

Net Understatement of Receipts . •+ $133.667 

The $127,193 understatement of the ending cash balance result fix>m the misstatements 

described above. 

2012 Committee Activity • y.-

Reported Bank Records Discrepancy 

Beginning Cash Balance @ 

January 1,2012 

$72,586 $199,779 

••1 . • 

• 4 

"^•Si2?7,r93 

Uhderstared 

Receipts $6,498,577 $6,369,030 

s 

$129,547 

Overstated 

Disbursements $5,730,211 $5,73"5;455 $5,244 

Understated 

Ending Cash Balance 

@ December 31,2012 

$899,0154 

•• 

•^-J.833^4 $65,710 

Overstated 

• •. Tvs • 

The overstatement of receipts resulted from the following: 

• Contributions from individuals not traced-to bank 

• Credit card contribution c^gebacks for previously 

repotted contributions* 

Qverstatcnient of Receipts 

The understatement of disbursements resulted from the following: 

Disbursements clearing bank, not reported + 

Reported disbursements not traced to bank 

Credit card contribution chargebacks reported as 

disbursements 

Unexplained differences ^ 

Net Understatement of Disbursements + 

$125,487 

4.060 

$129.547 

$350,475 

341,136 

4,060 

^ 

The majority of disbursements TPE failed to report cleared the bank in November 2012 

and should have been disclosed on TPE's 2012 Post-General report. During the same 

period, TPE reported a single transaction of $334,091 which did not clear the bank. 

Based on the available information, the Audit staff was unable to determine whether the 

reporting of the single transaction of $334,091 was in relation to those disbursements 

identified as not reported on the 2012 Post-General report. 
The net overstatement of the ending cash balance resulted from the misstatements 

described above, as well as from a $58,112 mathematical discrepancy in calculating the 

j ending cash balance. 

' Subsequent to audit notification, TPE filed amended 2012 reports in April 2014. The 

Audit staff analyzed the amended information and determined that the amendments 

corrected some but not all of the identified misstatements. 

B. Interim Audit Report and Audit Division Recommendation 

j The Audit staff discussed the misstatements for 2011 and 2012 with TPE's representative 

j during the exit conference and provided copies of relevant work papers detailing the 

I remaining misstatements. TPE provided no comments related'tb this rhatter in its 

response to the exit conference. . 

The Interim Audit Report recommended that TPE filg an amended 201-i^Mid-Year Report 

to disclose the additional Unitemized Contributions^^m Individuals totaling $ 103,315 

on Line 11 (a)(ii). The Interim Audit Report furt^r recommended that the ippstrecent 

disclosure report be amended to show the adjusted c^h-on^hand balance wi^-an 

explanation that it resulted from audit adjustment from a^.pnor period. 

C. Committee Response to Interim Audit Report .r, 

TPE did not submit a response to the Intenra Audit Report, horwere amended disclosure 

reports filed. The Audit staff considers this matter unsolved;. ' 

Finding 2. Disclosii^ of Occiipation^Name of Empioyet 

.....Nj 

Summary 

A review of all contributidns from individuals requiring itemization indicated that 2,896 

contributions totaUpg $549,694 lacked disdo'sure of occupation/name of employer. 

During audit, ITE demonshuted "best efforts" to obtain, maintain and submit the 

missing occupation/name Of employer-information to materially correct the disclosure 

errors. Since TPE's correetiye action occurred after audit notification, the matter was 

included in the Interim Audit Report. 

TPE did not submit a response to the Interim Audit Report, however, the Audit staff 

considers this matterresdlved. 

Legal Standard 

A. Required Information for Contributions from Individuals. For each itemized 

contribution from an individual, the committee must provide the following 

information: 

• the contributor's full name and address (including zip code); 

• the contributor's occupation and the name of his or her employer; 

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

• the amount of the contribution; and 
• the calendar year-to-date total of all contributions from the same individual. S2 

U.S.C. §30104(b)(3)(A) and 11 CFR §§ 100.12 and 104.3(a)(4)(i). 

B. Best Efforts Ensures Compliance. When the treasurer of a political committee 

shows that the committee used best efforts (see below) to obtain, maintain, and submit 

the information required by the Act, the committee's reports and records will be 

! considered in compliance with the Act. 52 U.S.C. §30102(i) and 11 CFR §104.7(a). 

C. Definition of Best Efforts. The treasurer and the committee will be considered to 

I have used "best efforts" if the committee satisfied all of the following criteria. 

• All written solicitations for contributions included; • " . 

o a clear request for the contributor's full name, inailing address, occupation, 

and name of employer; and 

o the statement that such reporting.is required by Federal law. 

o Note: The request and statement must appear in a clear and conspicuous 

manner on any response material included in a solicitation^ 

• Within 30 days of receipt of the contribution, thcteeasurer made at least one 

effort to obtain the missing information, inieither,a-written request br a 

documented oral request. ^ \ 

• The treasurer reported any coptributor infotma^pn that, although not initially 

provided by the contributor, was pbtained in a foilbw-up communication or was 

contained in the committee's records or- in prior reports that the committee filed 

j during the same two-year election cycled H CFR §l.p4.7(b). 

Facts and Analysjis: 

I •• '• :• 

A. Facts 

A review of all itemized C9ntributi.pns,from individuals indicated that 2,896 contributions 

totaling $54?,6^i or 25 j3efbent of thb:dbllaivValue of individual contributions required to. 

; be itemiz;^ by WE,-laQjced mS^psure of occupatiori/name of employer. The contributor 

entries ndth missing info^ation either disclosed with the .notation "n/a"; **Best 

Efforts Made"; or were left blank on t£e Schedules A (Itemized Receipts). 

During audit fieldwork, the Audit staff reviewed the receipt documents provided by TPE 

I to determine if TFE had utilized "best efforts" to obtain, maintain and submit the missing 

i information. TPE presented 391 follow-up letters sent to contributors requesting the 

I occupation/name of employer. In response to these letters, TPE provided the necessary 

occupation/name of employer information obtained from 137 individuals. For the 

I remaining 254 individuals, no further occupation/name of employer information was 

I provided. The Audit staff reviewed TPE's disclosure reports filed after the audit 

notification and determined that TPE amended its reports to materially disclose the 

missing occupation/name of employer information. ! 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to the TPE representative at the exit conference and 

• noted that TPE has materially resolved this matter and no further action was required. 
However, because TPE's corrective action was taken after the audit notification, the 

matter was presented in the Interim Audit Report. 

The Interim-Audit Report recommended that TPE provide any comments it deemed 

necessary with respect to this matter. 

C. Committee Response to Interim Audit Report 

TPE did not submit, a response the Interim Audit Report, however, the Audit staff 

considers this matter resolved. 

Finding 3. Reporting of Apparent Independent 

Expenditures 

Summary 

During audit fteldwork, the Audit staff reviewed independent expenditures totaling 

$680,735 that TPE disclosed on Schedule E (Itemized Independent Expei^ijtoes). 

However, the Audit staff identified additional e^nditure&tqtaling $848,S22;'(84S,310 + 

3,212) which appeared to be media-related independtmt ejipendjtures that Tj'E disclosed 

on Line 21b (Operating Expenditures) and Line 29 (OtK^' Disbursements). 

•• .. '-.Vi. 

Of the $680,735 independent expenditures .reported on SchiedUle E, TPE did not file 

24/48-hour reports for seven expenditures lotaling^$28,003.' Additionally, of the 

$848,522 disclosed as operating expenditups arMiS^er^isbui^ements which appeared to 

be independent expenditures, TPE did not nle.ah^ 24?4^iliSpur reports. 

TPE did not submit a-response'fo'the Interim Audit Report. Absent evidence that the 

expenditures in question, did not^require reporting as independent expenditures and did 

not require 24/48-hour reports,.;ih6' Audit staff cShsiders these expenditures to be 

independent expenditures.. 

" V. . 

Legal'Standard ' 

A. Dehnition of Independent Expenditures. An independent expenditure is an 

expenditure:.n^e for a communication expressly advocating the election or defeat of a 

clearly identified^.candidate Aat is not made in cooperation, consultation, or concert with, 

or at ^e request of suggestion of, a candidate, a candidate's authorized committee, or 

their agents, or a potitical party or its agents. 

A}-

A clearly identified candidate is one whose name, nickname, photograph or drawing 

appears, or whose identity is apparent through unambiguous reference, such as "your 

Congressman," or through an unambiguous reference to his or her status as a candidate, 

such as "the Democratic presidential nominee" or "Republican candidate for Senate in 

this state." 

Expressly advocating means any communication that; 

• Uses phrases such as "vote for the President" or "re-elect your Congressman" or 

communications of campaign slogan(s) or individual word(s), which in context 
10 

can have no other reasonable meaning than to urge election or defeat of one or 

more clearly identified candidates; or 

• When taken as a whole and with limited references to external events, such as 

J proximity to the election, could be interpreted by a reasonable person only as 

i advocating the election or defeat of one or more clearly identified candidates. 11 

CFR§§ 100.16(a), 100.17 and 100.22. 

B. Disclosure Requirements - General Guidelines. An independent expenditure shall 

be reported on Schedule E if, when added to other independent expenditures made to 

the same payee during the same calendar year, it exceeds $200. Independent 

expenditures made (i.e., publicly disseminated) prior to pay^Vht should be disclosed 

as memo entries on Schedule E and as a debt on Schedule D.. Independent 

expenditures of $200 or less need not be itemized, thou^ fHb^eommittee must report 

the total of those expenditures on line (b) on Scheduie E. 11 (^^§104.3(b)(3)(vii), 

104.4(a) and 104.11. 

C. Last-Minute Independent Expenditure Reports 

.J 

(24-Hour Reports). " • •• • • Ax^ < 

independent expenditures aggregating ^ 1,000 or piore^;With, respect to any given 

election, and made after the 20"' day but more thari 24'hours before the day of an 

election must be reported and the report must be received by the Commission within 

24 hours after the expenditure is made. A 24-hour rep6rt.:is.required for each 

additional $1,000 that aggregates. The 24-tiour report mUst be filed on a Schedule E. 

The date that a communication is publicly di^seminajted serves as the date that the 

Committee must use to determine whether;:die totki-ampunt of independent 

expenditures has, in the aiggregate, reached or exceeded the threshold reporting 

amount of $1,000.' 11 CFR.^§ 104.4(f) and; 104.5(g)(2). 

D. independent Expenditure Reports (48-Hoiir Reports). Any independent 

expenditures aggregatirig".$10,000 or more with respect to any given election, at any 

time during a calendar yeiuv-up to and including the 20th day before an election, must 

disclose this activitj^within ihours each time that the expenditures aggregate 

$l'6,0pp or more. The^reports rhiist be filed with the Commission within 48 hours 

after Uie.expenditure is made. 11 CFR §§ 104.4(f) and 104.5(g)(1). 

E. Formal Requirements Regarding Reports and Statements. Each political 

committee shall'jiiwn&in records with respect to the matters required to be reported 

which shall provide in sufficient detail the necessary information and data from which 

the filed reports may be verified, explained, clarified, and checked for accuracy and 

completeness. CFR §104.14(b)(1). 

Facts and Analysis 

A. Reporting of Apparent Independent Expenditures 

1. Facts 

During audit fieldwork, the Audit staff reviewed disbursements to ensure the 

reporting completeness and accuracy of independent expenditures that TPE disclosed 
11 

on Schedule E. The Audit staff noted that TPE correctly disclosed independent 

expenditures totaling $680,735 on Schedule E, however, made additional mediarelated expenditures totaling $848,522 and disclosed them as operating expenditures 

or other disbursements that may be considered independent expenditures. A 

I breakdown of the analysis for these expenditures is as follows; 

a) Independent Expenditures Reported as Operating Expenditures and 

Other Disbursements (Associated Invoice Provided) 

TPE made 235 apparent independent expenditures totaling $845,310 for 

which it provided supporting documentation such as invoices, scripts, ads, 

solicitation letters, etc. 

i) For apparent independent expenditures totaling $829,427, the 

commvinication contained language expressly.'advocating the election 

or defeat of clearly identified candidate^. 11 dPR §100.22(a). This 

amount mostly consists of costs associait'ed with I'T'fundraising letters 

each containing express advocacy. 

ii) For apparent independent expenditures totaling $ 15,883, the. 

communication could only be interpretedias containing the''advocacy 

of election or defeat of one clearly: identified candidate. 11 CFR§ 

100.22(b). * • • 

b) Independent Expenditures Repprted as .6p'^ati|n'g Expenditures and 

Other Disbursements (Ko Invdlce-Associatejl)' 

TPE made fifteen appareniindepehdenf expenditures which were reported 

as operating-expenditures of other disbursements. The Audit staff 

consujij^S the dTshinsements to^be apparent independent expenditures for 

thefolipwing re^dns: 

i) Con^unicatioQS Without Invoice -TPE provided eight 

telecomn^icafion.Scnpts; .however, the Audit staff was not able to 

' ' '•associate these scripts witii any invoices or with a particular 

disbursement. ...Therefore, the amount spent for these eight 

telecornmunicatibns scripts is unknown. These scripts contain express 

advocacyiangua|;e by calling for the "defeat of Barack Obama", "elect 

a new president", or "put Romney and Paul in White House." 11 CFR 

. $100.22^). 

ii)'^^etai(s on Invoice- There were seven independent expenditure emails 

totSdihg $3,212 that were supported by an invoice, however, the 

invoice could, not be traced to. the.disbursement database-be bank.'* 

Five of these independent expenditure emails totaling $2,288 

contained express advocacy language calling for the "defeat of Dick 

Lugar." 11 CFR § 100.22(a). Two independent expenditure emails 

totaling $924 could only be interpreted as containing the advocacy of 

election or defeat of one clearly identified candidate. 11 CFR§ 100.22 

(b). 

* Discrepancies between actual and reported disbursements are discussed in Finding 1. (See p.S.) 
12 

2. Interim Audit Report & Audit Division Recommendation 

At the exit confeFence, the Audit staff presented the schedule of disclosure errors for 

apparent independent expenditures. The TPE representative had no immediate 

comments, however, in response to the exit conference, provided additional e-mail 

communications and invoices which the Audit staff reviewed and incorporated into 

this finding. 

'Hie Interim Audit Report recommended that TPE provide: 

• Documentation and evidence that apparent independent expenditures noted 

above did not require reporting as independent expendi^es. Evidence should 

have included invoices with the corresponding complications and, where 

applicable, TPE's payment information. j 

Absent such evidence, TPE should have amended reports to disclose these 

disbursements as independent expenditures on Schedlile^ and should have 

submitted revised procedures for reportiitg independent eicpenditures. 

3. Committee Response to Interim Audit.Report \ " ' 

TPE did not submit a response to the Interini'Audit Repprt, nor were ammi^ed 

disclosure reports filed. Absent compliance with diefCcommendation above, the 

Audit staff considers these expenditures to be independent expenditures. 

B. Failure to File 24/48 Reports for independent Expenditures 

1. Facts 

ITie Audit staff reviewed .24/48-hour repijrts filed by TPE, as well as the apparent 

independent expenditures noted above, to determine whether additional reporting of a 

24/48-hour repofi wa.s requiijsid.® The fpllo^ying was. noted: 

a) fndependeh| Expenditures Reported on Schedule E (Independent 

' Expimditure Schedule) ' ' 

.^ TPE faiied'to file 24-hour reports totaling $15,539 and 48-hour reports 

• • totaling $12^464. Foreach of these communications, records indicate that 

, TPE publicly disseminated the communication within the 24/48-hour 

reporting period. 

• j'. I 

b) Apparent Independent Expenditures Reported as Operating 

Expenditures and Other Disbursements 

For apparent independent expenditures totaling $848,522 (845,310 + 

3,212) noted above, TPE did not file 24 or 48-hour reports. No 

documentation or information was available pertaining to the date of 

public dissemination for these communications; therefore, the Audit staff 

was not able to determine whether or not such reports were required to be 

filed. 

s The date the expenditure is publicly distributed serves as the date that the independent expenditure is 

made for purposes of the additional 24/48-hour report filing requirement. In the absence of a known date 

for public dissemination, the Audit staff used the invoice date or date of incuirence to determine if a 

24/48-hour report was required. 
13 

2. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided the TPE representative with a 

schedule of undisclosed 24/48-hour reports. The TPE representative did not provide 

any comments at that time. 

The Interim Audit Report recommended that TPE provide dowmcnt^ipn to supjiprt 

that the 24/48-hour reports, Iplfialing $845^3-10, were timely fijj^rbr that the reports 

were not required. Such documentation should have included support for the dates of 

public dissemination to determine whether a filing of a.;24/^8^hour report was 

required. 

3. Committee Response to Interim Audit Report 

TPE did not submit a response to the Interim Audit Report. Absent evidence that the 

expenditures in question did npt require, nepd^^g. as independent expenditures and 

did not require 24/48.-hour reports, the Audit stsi^cpn^defs these expetf^itures: above 

as requiring 24/48- hour reports. ; . 

Finding 4. Recordkeeping .foTr .ppmmunictftions 

Summary ^ '' 

During audit fieldwork, the Audit staff reviewed disbursements to verify the accuracy of 

the information and prqper classification of transactions disclosed on reports. TPE 

reported 340 (237=i-'i03Xoxpendi^res totaling $3,792,648 (2,302,864 + 1,489,784), on 

Schedule B, Line 21b (6|i^l^{ttipg|Expen^iture§)'^r Line 29 (Other Disbursements) with 

purposes such as "Ppstage & ;Delive^ & Mailshop" or "PAG Fundraising 

Postage & Delivei7?';^9cuirieiifelion provided by TPE was insufficient to make a 

detemuliation pertaining^tp the piirppse-for these disbursements and verification as an 

operating or other expense^:.'- .i-'" 

TPE did not submit a response to the Interim Audit Report. Absent the further 

documentation as:ipcomn:^(^ded, the Audit staff considers the documentation provided to 

be insufficient. 

Legal Standard 

A. Formal Requirements Regarding Reports and Statements. Each political 

committee shall maintain records with respect to the matters required to be reported 

which shall provide in sufficient detail the necessary information and data from which 

the filed reports may be verified, explained, clarified, and checked for accuracy and 

completeness. 11 CFR § 104.14(b)(1). 

B. Preserving Records and Copies of Reports. The treasurer of a political committee 

must preserve all records and copies of reports for 3 years after the report is filed. 52 

U.S.C. §30102(d). 
14 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reviewed disbursements to verify the accuracy of . 

the information and proper classification of transactions disclosed on reports. TPE made 

340 expenditures totaling $3,792,648 for which documentation was insufficient to make a 

determination pertaining to whether these disbursements were correctly reported on 

Schedule B, Line 21b (Operating Expenditures) or Line 29 (Other Disbursements). 

The Audit staffs analysis of the documentation that was provide^,'.including the 

reconciled committee's database, invoices, and bank statemenU^ determined the 

following: • ' 

• Disbursements - No Invoices or Conica of dbmibuniCati^s Provided 

f3r2:302.864Y ^ ' 

Disbursements totaling $2,302,864 were.paid to direct mail vendoi^ and.reflected 

on the committee's database and/or disclosed-pn Spb^ule B with purposes such 

as "Postage & Delivery", "Printing & Mailshqp^r "PAC Fundraising Postage & 

Delivery." The Audit staff requested copies of^&invoices and the associated 

direct mail piece for each of the. djsjbursements. T^-d$te, these invoices or other 

information to associate the paymet^Srtp.diese conuniihiGafions have not been 

provided. \ ^ ^ •i; •••••' 

• Disbursements - liivoices Provid^^^- fNbt Ahl^^b Associate with :€ohies ofComBiMiilfaHiafl. 

Disbursemehte .^ling $.1;,489,784 wem paid to direct mail vendors and were 

reflected on the ^E's database and/or disclosed on Schedule B with purposes 

such as "email nev^Sle$rer'^="PAC; pnHrie advertising" or "PAC fundraising 

emails.''" Fbr-5hese dishiifrsements, TPE provided copies of invoices as well as 

excelled checks;hut did Pot provide information about the related mail 

communications.-iWithout Mflcient details, the Audit staff is unable to verify 

TTE 's reporting itemization "of these amounts as operating expenditures or other 

disbursements. The Audit staff requested information that would allow an 

association between; these invoices and the communications, however, TPE has 

not respoiided. to that request. 

y 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff presented a schedule of the disbursements for 

which further records were necessary to verify the accuracy of TPE's reporting. TPE 

representatives provided additional e-mail communications, invoices, and two ads which 

the Audit staff reviewed and incorporated into this finding. The Audit staff provided an 

updated schedule of disbursements for which further records were necessary to verify the 

accuracy of TPE's reporting and requested that TPE provide additional invoices and 

information that would associate each invoice to the corresponding communication. TPE 

representatives provided an additional e-mail stating that TPE would provide additional 

documents but has not done so to date. 
15 

The Interim Audit Report recommended that TPE provide, in sufficient detail, the 

necessary information from which the reported operating expenditures and other 

disbursements totaling $3,792,648 may be verified or explained. Such records were to 

include: 

1. Copies of invoices and identification of the associated communications, and 

2. Tf the communication has already been provided, information associating each 

communication with an invoice(s). 

C. Committee Response to Interim Audit Report 

TPE did not submit a response to the Interim Audit Report. Absent the further 

documentation as recommended, the Audit staff considers the documentation provided to 

be insufficient. 

Finding 5. Failure to Itemize Debt andipblig^ipns . 

Summary 

During audit fieldwork and in the course of re'viewpf indepi^dent and appvent 

independent expenditures, the Audit staff noted that TPE failed to properly disclose debts 

and obligations pertaining to these expenditures totalihg.$310,561. 

TPE did not submit a response to the Intbrim' Audit Report. Absent the filing of amended 

reports to include the debts owed, the Audit staff considers the matter unresolved. 

Legal Standard 

A. Continuous Reporting Required. A political committee must disclose the amount 

and nature of outstanding debts uqd obligation^ .until those debts are extinguished. 

52 U.S.C. §30104(b)(8)i^d 1 L;CF^§§104.3(4j and 104.11(a). 

B. Itemizing Deb^viind Obiigations. 

• . ;A debt of $50(1 oriess rriiibt jie reported once it has been outstanding 60 days from 

% (late incurred'il^ date transaction); the committee reports it on the next 

regularly schedulecfwport.-' 

• A debt expeeding $SXfO must be disclosed in the report that covers the date on 

which the debt was Incurred. 11 CFR § 104.11(b). 

Facts and Anal^ls 

A. Facts 

During audit fieldwork, and in course of the review of independent and apparent 

independent expenditures, the Audit staff noted that TPE failed to properly disclose debts 

and obligations owed to 19 vendors totaling $310,561.^ The amounts were outstanding 

for a range of between 34 to 207 days and were mostly for advertising, media, printing, 

and mailing services. The incorrect disclosure consists of vendors with debts not 

reported as well as vendors for which the reported debt amount was understated. 

' Each debt amount was counted once, even if it required disclosure over multiple reporting periods. 
16 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to the TPE representative at the exit conference and 

provided schedules detailing the debt amounts which were incorrectly reported during the 

audited period. The TPE representative offered no comments in response to the exit 

conference. 

The Interim Audit Report recommended that TPE provide documentation demonstrating 

that these expenditures did not require r^orting or were properly reported on Schedules 

D. Absent such documentation, TPE should have amended its rep^gfrts^to correct the 

disclosure of debts and obligations totaling $310,561. % « •* 

C. Committee Response tolnterim Audit Report ^ 

TPE did not submit a response to the Interim Audit Reptiri^ nor SVere amended disclosure 

reports filed. Absent the filing of amended reports t@:.mcludje the de^^^wed, the Audit 

staff considers • • • the mattei- untes.ol.ved. >->. 

i -

t • • 

• 

•-5 

"V:.. 
FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20-163 

MEMORANDUM 

TO: 

FROM: 

Oai 8 2016 

SUBJECT: 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Adav Noti 

Associate General Counsel 

Policy Division 

Lorenzo Hollov^y 

Assistant General Counsel 

Compliance Advice 

Joshua Blume 

Attorney 

Audit Division Recommendation Memorandum on TeaPartyExpress.Org (LRA 

995) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the Audit Division Recommendation 

Memorandum ("ADRM") on TeaPartyExpress.Org ("the Committee"). The ADRM discusses 

five findings in the Draft Final Audit Report: Misstatement of Financial Activity (Finding 1); 

Disclosure of Occupation/Name of Employer (Finding 2); Reporting of Apparent Independent 

Expenditures (Finding 3); Recordkeeping for Communications (Finding 4);.and Failure to Itemize 

Debt and Obligations (Finding S). 

The ADRM also notes the Committee's response to Finding 3, in which it states that 

communications identified as apparent independent expenditures in that finding were designed for 

fundraising and not for electioneering purposes. The Audit Division states in the ADRM that it 

considers the communications to be independent expenditures absent evidence demonstrating that 
Comment on the Audit Division Recommendation Memorandum 

TeaPartyExpress.Org (LRA 995) 

Page 2 

they are not, thereby rejecting the Committee's implied argument that the identified 

communications should not be considered independent expenditures because their purpose was to 

raise funds. 

We concur with the Audit Division's conclusion and comment here solely for the purpose 

of expounding briefly upon the reasons for our agreement. If you have any questions, please 

contact Joshua Blume, the attorney assigned to this audit. 

11. FUNDRAISING COMMUNICATIONS CAN BE INDEPENDENT 

EXPENDITURES 

Although the Committee implies that communications intended to raise funds caimot 

qualify as independent expenditures even if they constitute express advocacy, that suggestion has 

no basis in law. The Federal Election Campaign Act of 1971, as amended, defines the term 

"independent expenditure," as "an expenditure by a person expressly advocating the election or 

defeat of a clearly identified candidate" that is not coordinated with that candidate. 52 U.S.C. 

§ 30101(17). The Commission's regulatory definition of "express advocacy" also is not made to 

depend upon the intentions of those who distribute the communication, but is based upon an 

analysis of the content of the communication itself. See 11 C.F.R. § 100.22. Indeed, the 

Commission and the courts have made clear that the extrinsic intentions of a communication's 

authors are not relevant to determining whether the communication is an independent mpenditure. 

See Explanation and Justification for Final Rule on Express Advocacy; Independent Expenditures; 

Corporate and Labor Organization Expenditures, 60 Fed. Reg. 35292,35295 (July 6,1995) 

(subjective intent of speaker not relevant consideration in applying section 100.22(b)); see also 

Federal Election Commission v. Wisconsin Right to Ufe, Inc., 551 U.S. 449,467-69 (2007) 

(declining to adopt test turning on speaker's intent to affect election for determining whether 

communications constitute functional equivalent of express advocacy in electioneering 

communications context). 

Consistent with this reasoning, the Commission has found in two previous audits that 

fundraising solicitations constituting express advocacy should be reported as independent 

expenditures. In an audit of the National Campaign Fund, the Commission found that 41 

f\mdraising communications constituted express advocacy and therefore were independent 

expenditures. See Commission Certifieation of [ADRM], The National Campaign Fund, A09-26, 

August 17,2012. In the audit of the Legacy Committee PAC, the Commission found that 36 

fundraising communications constituted express advocacy and therefore were independent 

expenditures. See Commission Certification of [ADRM], The Legacy Committee Political Action 

Committee, A09-22, June 11,2012. The Commission arrived at a like conclusion in a previous 

enforcement matter involving fundraising letters. See M.UR 5809 (Christian Voter Project) 

(committee failed to file independent expenditure notices for the costs of fundraising letters that 

expressly advocated the election or defeat of candidates). To our knowledge, the Commission has 

never indicated that a communication otherwise qualifying as an independent expenditure might 
Comment on the Audit Division Recommendation Memorandum 

TeaPartyExpress.org (LRA 995) 

Pages 

be exempt from disclosure as a matter of law because it was intended to raise funds.' 

' In the audit of Rightmarch.com PAG, Inc. (A09-2S), the Commission divided 3-3 on a proposed finding that 

the committee's fundraising communications were independent expenditures. See Final Audit Report of the 

Commission on R1GHTMARCH.COM PAC INC, at 17-18 (approved Feb.14,2013). The dispute in that matter, 

however, concerned whether the content of the communications couid reasonably be interpreted as something other 

than express advocacy as a matter of fact based on the overall fundraising context of the communications, as well as 

other factors, such as the absence of a reference to elections in the communications. Id, at 16.