FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

Apri l 14, 2010 

MEMORANDUM 

TO: Patricia Carmona 

Chief Compliance Officer 

FROM: 

Joseph F. Stoltz 

Assistant Staff Director 

Christopher Hughey 

Deputy General Counsel 

Lawrence L. Calvert, Jr. 

Associate General Couo^l / v -

Lorenzo Holloway 

Assistant General Counsel 

For Public Finance and Audit Advice 

Allison T. Steinle /^Tb 

Attomey 

SUBJECT: Interim Audit Report on the Kansas Republican Party (LRA 801) 

1. INTRODUCTION 

The Office of the General Counsel has reviewed the proposed Interim Audit Report 

("proposed report" or "lAR") on the Kansas Republican Party (**the Committee"). The Audit 

Division has requested that we specifically address two issues in our legal analysis. First, the 

Audit Division has identified four corporate contributions used to defiay national convention 

costs. Second, the Audit Division has identified a non-federal account that the Committee used for 

state level caucus activity, as well as several other non-federal accounts that the Committee used 

for what appears to be federal or allocable activity. Because these issues affect all three findings, 

we have organized our analysis by issue rather than findmg. We concur with any findings not 

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

Steinle, the attomey assigned to this audit.' 
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Proposed Interim Audit Report 

Kansas Republican Party (LRA 801) 

Page 2 of 5 

II. CORPORATE FUNDS USED TO DEFRAY NATIONAL CONVENTION COSTS 

Both Findings 1 and 2 involve four contributions totaling $52,498 from three corporations 

and one LLC that failed to affirm its tax filing status with the Committee. These four contributions 

were deposited into a non-federal account that the Committee used for expenses associated with 

the Republican National Convention. Finding 1 concludes that the activity in the Republican 

National Convention account, as well as the activity in other non-federal accounts, should have 

been reported to the Commission as federal activity. Finding 2 elaborates on these contributions, 

and notes that they specifically were used to defray the cost of hotel rooms, breakfasts for the 

delegates, and entertainment at the Republican National Convention. Finding 2 concludes that the 

four contributions were prohibited corporate contributions. 

We first recommend that Finding 1 elaborate on the receipts and disbursements from the 

Republican National Convention account —^namely, it should explain that they were used to 

defray the cost of hotel rooms, breakfasts for the delegates, and entertainment. While Finding 2 

does this, Finding 1 does not. Finding 1 also should include this infonnation given that it is 

relevant to its legal conclusion and Finding 1 precedes Finding 2. 

Substantively, however, we agree with the Audit Division that the Republican National 

Convention costs should have been reported as federal activity, and that the four contributions 

were prohibited corporate contributions. Commission regulations explicitly state that 

disbursements by national convention delegates or by "delegate conunittees" for the purpose of 

delegate travel and subsistence costs associated with attending a national nominating convention 

are expenditures. 11 C.F.R. § 110.14(e)(1) and (h)(1). In a series of advisory opinions ("AOs"), 

tbe Conunission has applied to disbursements by entities other than national convention delegates 

or delegate conunittees the principle that national convention delegates' travel and subsistence 

costs are expenditures. First, in AO 1980-64 (National Education Association), the Commission 

held that direct donations by a labor organization for travel and subsistence expenses of delegates 

were expenditures and therefore prohibited by 2 U.S.C. § 441b.^ Next, in three subsequent 

advisory opinions from the mid-1990s, it held that the authorized campaign committees of 

Members of Congress could permissibly pay for travel and subsistence costs incurred by the 

Members in their capacities as national convention delegates, because the payments would be "in 

connection with a Federal election." AO 1996-20 (Lucas for Congress); AO 1996-19 (Walsh for 

Congress); AO 1995-47 (Robert Underwood). Finally, and most relevant to this situation, it 

concluded that disbursements made by a party committee for the travel and subsistence expenses 

of national convention delegates were expenditures and, as a result, the previously unregistered 

party committee was required to register with the Commission as a political committee. AO 

2000-38 (Democratic Party of Puerto Rico). Accordingly, this Conunittee's disbursements for 

' On January 21,2010, Citizens United v. FEC, 558 U.S. (2010), struck down section 441b's restrictions 

on corporate independent expenditures as unconstitutional. However, die Citizens United decision does not affect the 

restrictions of section 441b on direct corporate or union contributions to state party committees. RepubUcan National 

Committee v. FEC, No. 08-1953 (D.D.C. Mar. 26,2010), slip op. at 2. Nor does it affect fhe requirement that state 

party committees with federal and non-federal accounts pay for entirely federal expenditures using federally 

permissible funds. 
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Proposed Interim Audit Report 

Kansas Republican Party (LRA 801) 

Page 3 of5 

delegate travel and subsistence costs at the Republican National Convention also were 

expenditures, and were required to be made from funds permissible under 2 U.S.C. § 44lb. 

III. PAYMENT OF FEDERAL ACTIVITY WITH NON-FEDERAL FUNDS 

Finding 3 involves two other non-federal accounts, from which the Committee made 

$104,859 in payments that the proposed report concludes should have been paid from a federal 

account. $12,639 of this was for a mailer that mentioned a federal candidate, and national party 

convention pins and lodging. $92,220 was identified as being for postage, rent, travel, printing, 

and office services, but the Committee failed to provide any documentation showing these 

payments were solely non-federal. $10,925 was identified as being for mailers, for which the 

Conunittee was not able to produce printed copies. Finally, in its cover memorandum, the Audit 

Division notes that it did not consider disbursements the Committee made from a non-federal 

account it used for expenses associated with a state level caucus to be FEA that was required to be 

reported as such and paid with federal funds. We generally agree with the Audit Division's 

application of the law in the proposed report, but we have comments and recommendations about 

how the Audit Division should frame each type of expense in the I AR. We also recommend that 

the Audit Division revise the proposed report to remove language that suggests that the Committee 

did not use non-federal funds to finance federal activity. 

We suggest that if possible, the $12,639 be further broken down by type of expense, 

because the analysis is different with respect to each of the expenses identified for this amount. 

The expenditures for a mailer that mentioned a federal candidate should have been paid 

with 100 percent federal funds because they were made for Federal Election Activity ("FEA"). 

The definition of FEA includes any public commimications that refer to a clearly identified 

candidate for federal office, and that promote or support a candidate for that office, or attack or 

oppose a candidate for that office. iS'ee2U.S.C. § 431(20); 11 C.F.R. § 100.24. Accordingly, these 

expenditures were required to be paid from 100 percent federal funds. 11 CF.R. §§ 106.7(c), 

300.30(b)(1). 

The analysis regarding the expenditures for national convention lodging is identical to that 

in Part n of our conunents, and these disbursements also should have been paid from 100 percent 

federal funds for the reasons stated above. 

With respect to the expenditures for national convention pins, we understand that the 

Committee has been unable to produce copies of the pins or other evidence of the content of the 

pins, such as order forms or prototypes, and that the Audit Division has assumed that the pins had 

some relation to the national convention because the disbursement was made in close temporal 

proximity to the convention. In our view, however, this fact is not sufficient to support the 

conclusion that disbursements for the pins should have been paid with 100 percent federal funds. 

Depending on their content, the pins may have been payable with 100 percent federal fimds, but 

they also may have been allocable, or payable with 100 percent non-federal funds. See 11 C.F.R. 

§§ 106.7,300.3003), 300.33. We suggest that the L\R describe the facts and state that the auditors 

are unable to verify that this disbursement was properly made from a non-federal account. The 
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Proposed Interim Audit Report 

Kansas Republican Party (LRA 801) 

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Committee should be given the opportunity to submit copies of the pins or otherwise demonstrate 

the non-federal nature of the pins in response to the lAR. 

The expenditures for postage, rent, travel, printing, and offrce services should have been 

treated as 36/64 percent allocable administrative and non-get-out-the-vote ("non-GOTV") 

expenses. Commission regulations define ordinary non-GOTV expenses such as rent, utilities, 

and office equipment and supphes as administrative costs, and as such, they are subject to the 

administrative cost allocation mles. 11 C.F.R. § 106.7(c)(2). Specifically, in both a Presidential 

and Senatorial election year, state and local party committees must allocate at least 36 percent of 

non-GOTV administrative expenses to their federal accounts. 11 C.F.R. § 106.7(d)(2)(ii) and 

(3)(ii). 

The treatment of the expenditures for the mailers that the Committee was unable to 

produce would depend on their content. For example, if the mailers were public communications 

that referred to a clearly identified candidate for federal office, and promoted, supported, attacked, 

or opposed a candidate for that office, they would be federal election activity that would be 

required to be paid with 100 percent federal fimds. See 2 U.S.C. § 431(20); 11 C.F.R. § 100.24. If 

the mailers fell into one of several enumerated exemptions, such as generic campaign or GOTV 

activity, they could be paid with a combination of federal and non-federal Levin funds. 11 C.F.R. 

§ 106.7(c). Only if the mailers were 100 percent non-federal could they be paid with 100 percent 

non-federal funds. 11 C.F.R. §§ 300.30(b), 300.33. Because the Committee has been unable to 

produce the content of the mailers, we again suggest that the lAR state that the auditors are unable 

to verify that the expenditures were properly from a non-federal account and were not required to 

be reported to the Commission. As the proposed report states, the Committee will have the 

opportunity to submit samples ofthe mailers or otherwise demonstrate the non-federal nature of 

the expenditures in response to the lAR. 

We also agree with the Audit Division that expenses associated with a state level caucus 

are not FEA that must be paid from federal funds. BCRA and Commission regulations specifically 

exclude the costs of state, district, or local political conventions, meetings, or conferences from the 

definition of FEA. The Commission has stated that they may be paid with entirely non-federal 

fimds. See 2 U.S.C. § 431(20)(B); 11 CF.R. § 100.24(c)(3); Explanation and Justification for 11 

CF.R § 100.24, 67 Fed. Reg. 49,070 (July 29, 2002). 

Moreover, while this Office agrees that some portion of the $104,859 in payments should 

have been paid from a federal account, the proposed report states that '*there was no funding of 

federal activity by the non-federal accounts" because "the non-federal account could have 

reimbursed [the federal account] an additional amount that is in excess of the amounts at issue." 

See Proposed Report at 10. It is our understanding that this statement means that while in the 

Audit Division's view the payments should have been made from a federal or allocation account, 

the Committee also used an equal or greater amoimt of 100 percent federal funds to pay for other 

expenses that it could have allocated or paid with 100 percent non-federal funds. The Audit 

Division has concluded that under these circumstances, the Committee did not need to make a 

reimbursement transfer from the federal to the non-federal accounts, which in tum brought the 

payment issue under the threshold for inclusion in the lAR as a finding that the Committee may not 
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Proposed Interim Audit Report 

Kansas Republican Party (LRA 801) 

PageSofS 

have complied with 11 C.F.R § 102.5. However, the statement that "there was no funding of 

federal activity by the non-federal accounts" is not legally or factually accurate. As discussed 

above, the Conunittee did fund federal activity using non-federal accounts on several occasions. 

Accordingly, we recommend the Audit Division revise the finding to remove this language, and 

more clearly explain, to the extent possible while retaining the confidentiality ofthe audit 

thresholds, why the finding is purely a disclosure finding and the proposed report does not require 

the Committee to take any remedial action aside from amending its disclosure reports.