Final Audit Report of the 

Commission on the Kansas 

Republican Party 

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). TheCommission 

generally conducts such 

audits when a 

committee appears not 

to have met the 

threshold requirements 

for substantial 

compliance with the 

Act. The audit 

determines whether the 

committee complied 

with the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of 

the matters discussed in 

this report. 

About the Committee (p. 2) 

The Kansas Republican Party is a state party committee headquartered in 

Topeka, Kansas. For more information, see the chart on the Committee 

Organization, p. 2. 

Financial Activity^ (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions from Other Political 

Committees 

o Transfers from Affiliated/Other Party 

Committees 

o Transfers from Non-federal Accounts 

o All Other Receipts 

Total Receipts 

• Disbursements 

o Operating Disbursements 

o All Other Disbursements 

Total Disbursements 

$405,306 

50,877 

45,475 

18,738 

9,665 

$ 530,061 

$533,165 

6,485 

$ 539,650 

Commission Findings (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Receipt of a Prohibited Contribution (Finding 2) 

• Payment of Federal Activity Out of Non-federal Accounts (Finding 3) 

Additional Issues 

• National Convention Account Activity (Issue 1) 

• Receipt of Apparent Prohibited Contributions (Issue 2) 

• Payment of Federal Activity Out of Non-federal Accounts (Issue 3) 

' 2 U.S.C. §438(b). 

^ These figures have been revised to exclude the National Convention Account, see Additional Issue 1. 
Final Audit Report of the 

Commission on the 

Kansas Republican Party 

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

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Limitations 1 

Audit Hearing 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Commission Findings and Additional Issues 3 

Part IV. Commission Findings 

Finding 1. Misstatementof Financial Activity 5 

Finding 2. Receipt of a Prohibited Contribution 8 

Finding 3. Payment of Federal Activity Out of Non-federal Accounts 10 

Part V. Additional Issues 

Issue 1. National Convention Account Activity 12 

Issue 2. Receipt of Apparent Prohibited Contributions 13 

Issue 3. Payment of Federal Activity Out of Non-federal Accounts 16 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Kansas Republican Party (KRP), undertaken by the 

Audit Division of the Federal Election Commission (the Commission) in accordance with 

the Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division 

conducted the audit pursuant to 2 U.S.C. §438(b), which permits the Commission to 

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

report under 2 U.S.C. §434. Prior to conducting any audit under this subsection, the 

Commission must perform an internal review of reports filed by selected committees to 

determine if the reports filed by a particular committee meet the threshold requirements 

for substantial compliance with the Act. 2 U.S.C. §438(b). 

Scope of Audit 

Following Commission approved procedures, the Audit staff evaluated various risk 

factors and, as a result, this audit examined: 

1. The disclosure of disbursements, debts and obligations. 

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

3. The disclosure of individual contributors' occupation and name of employer. 

4. The receipt of contributions from prohibited sources. 

5. The consistency between reported figures and bank records. 

6. The completeness of records. 

7. Other committee operations necessary to the review. 

Limitations 

In maintaining its disbursement records, KRP satisfied the minimum recordkeeping 

requirements of 11 CFR §102.9; however, the Audit staffs testing of disbursements was 

limited by the lack of external documentation, such as invoices. This lack of third party 

records limited the testing for the proper reporting of debts and obligations; as well as the 

adequacy of disclosure of information, such as payee, address and purpose for 

disbursements. 

Audit Hearing 

KRP declined the opportunity for an audit hearing. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration March 15,1979 

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

Headquarters Topeka, Kansas 

Bank Information 

• Bank Depositories One 

• Bank Accounts Six Federal and Four Non-federal 

Treasurer 

• Treasurer When Audit Was Conducted Steve Fitzgerald 

• Treasurer During Period Covered by Audit Emmitt Mitchell (thru 2/04/07) 

David Thorne (2/05/07 thru 12/17/07) 

Morey Sullivan (12/18/07 thru 2/17/09) 

Management Information 

• Attended Commission Campaign Finance 

Seminar 

No 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid staff 

Overview of Financial Activity 

(Audited Amounts)^ 

Cash on hand January 1,2007 $ 14,426 

Receipts 

o Contributions from Individuals $ 405,306 

o Contributions from Other Political Committees 50,877 

o Transfers from Affiliated/Other Party Committees 45,475 

o Transfers from Non-federal Accounts 18,738 

o All Other Receipts 9,665 

Total Receipts $ 530,061 

Disbursements 

o Operating Disbursements $533,165 

o All Other Disbursements 6,485 

Total Disbursements $ 539,650 

Cash on hand @ December 31,2008 $ 4,837 

^ These figures have been revised to exclude the National Convention Account, see Additional Issue 1. 
Part III 

Summaries 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of KRP's reported figures with bank records indicated a 

misstatement of receipts, disbursements and cash on hand in both 2007 and 2008. For 2007, 

KRP overstated beginning cash on hand by $4,628, overstated receipts by $11,885, understated 

disbursements by $11,370 and overstated ending cash on hand by $27,883. In 2008, excluding 

KRP's National Convention account (See Additional Issue 1. below), KRP overstated receipts 

by $137,625, disbursements by $71,812 and the ending cash on hand by $93,696. In response 

to the Interim Audit Report, KRP amended its reports to materially correct the misstatements 

presented in that report. The Commission approved this finding. (For more detail, see p. 5) 

Finding 2. Receipt of a Prohibited Contribution 

During audit fieldwork, a review of contributions received by KRP identified a contribution of 

$10,000 that appeared to be from a prohibited source. In response to the Interim Audit Report, 

KRP indicated it had transferred sufficient funds from its federal to its non-federal account to 

resolve this contribution. The Commission approved this finding. (For more detail, see p. 8) 

Finding 3. Payment of Federal Activity Out of Non-federal 

Accounts 

Audit fieldwork identified payments totaling $20,123 from KRP's non-federal accounts that 

appeared to be for federal expenses. In response to the Interim Audit Report, KRP amended its 

reports to disclose these disbursements as federal/shared expenses. The Commission approved 

this finding. (For more detail, see p. 10) 

Additional Issues 

Pursuant to Commission Directive 70,* the following matters are discussed in the "Additional 

Issues" section. (For more detail, see p. 12) 

Issue 1. National Convention Account Activity 

During audit fieldwork, the Audit staff noted that in 2008 KRP maintained a separate account for 

expenses associated with the Republican National Convention (National Convention account). A 

portion of the receipts and expenses had been reported while the remainder had not. The Draft 

Final Audit Report acknowledged that in response to a recommendation in the Interim Audit 

Report, KRP filed amended reports to include the remainder of the activity. 

The Commission did not approve by the required four votes the Audit staffs recommended 

finding. The Commission did determine that KRP is not required to take any additional 

corrective action with respect to amended reports filed in response to the Interim Audit Report. 

^ Available at http://www.fec.gov/directives/directive_70.pdf 
Issue 2. Receipt of Apparent Prohibited Contributions 

During audit fieldwork, a review of contributions received by KRP and deposited into a National 

Convention account, identified three contributions totaling $42,498, which appeared to be from 

prohibited sources. In response to the Interim Audit Report, KRP indicated it had transferred 

some funds from its federal to its non-federal account and, citing insufficient funds, amended its 

most recent report to disclose a debt to its non-federal account for the remaining prohibited 

contributions. 

The Commission did not approve by the required four votes the Audit staffs recommended 

finding. 

Issue 3. Payment of Federal Activity Out of Non-federal 

Accounts 

Audit fieldwork indentified payments totaling $84,736 from KRP's non-federal accounts for 

potentially federal expenses. In response to the Interim Audit Report, KRP amended its reports 

to disclose these disbursements as federal/shared expenses. 

The Commission did not approve the Audit staffs recommendation by the required four votes. 
Part IV 

Commission Findings 

I Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of KRP's reported figures with bank records indicated a 

misstatement of receipts, disbursements and cash on hand in both 2007 and 2008. For 2007, 

KRP overstated beginning cash on hand by $4,628, overstated receipts by $11,885, understated 

disbursements by $11,370 and overstated ending cash-on-hand by $27,883. In 2008, excluding 

KRP's National Convention account (See Additional Issue I. below), KRP overstated receipts 

by $137,625, disbursements by $71,812 and the ending cash on hand by $93,696. In response 

to the Interim Audit Report, KRP amended its reports to materially correct the misstatements 

presented in that report. The Commission approved this finding. 

Legal Standard 

Contents of Reports. Each report must disclose: 

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

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

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

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

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

Facts and Analysis 

A. Facts 

The Audit staff reconciled reported activity to bank records for calendar years 2007 and 2008. 

The following charts outline the discrepancies for the beginning cash balances, receipts, 

disbursements and ending cash balances for each year. Succeeding paragraphs address the 

reasons for the misstatements. 

2007 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2007 

$19,054 $14,426 $4,628 

Overstated 

Receipts $184,566 $172,681 $11,885 

Overstated 

Disbursements $172,457 $183,827 $11,370 

Understated 

Ending Cash Balance 

@ December 31, 2007 

$31,163 $3,280 $27,883 

Overstated 

The beginning cash on hand was overstated by $4,628 and is unexplained, but likely resulted 

from prior period discrepancies. 
The overstatement of receipts was the result of the following: 

• Contribution amount incorrectly reported (see details below) 

• Non-federal caucus receipts reported in error 

• Transfer of funds from non-federal account not reported 

• Unexplained difference 

Net Overstatement of receipts 

The understatement of disbursements was the result ofthe following: 

• Transfer to non-federal account not reported (see details below) 

• Disbursements not reported 

Understatement of disbursements 

8,220 

(25,000) 

2,599 

2.296 

$ n 1.885^ 

8,220 

3.150 

$ 11.370 

KRP received a $15,000 contribution from an individual and deposited the funds to its federal 

account on October 24,2007. KRP reported the amount of this contribution as $6,780, which 

represented the $10,000 contribution limit for individuals less $3,220, the amount of 

contributions already received from the individual prior to October 24,2007, thus 

understating receipts by $8,220 ($l5,000-$6,780). In addition, KRP transferred $8,220, the 

excess portion of the contribution, from its federal account to its non-federal account on 

October 25,2007, but did not include the disbursement on its November 2007 monthly report. 

The $27,883 overstatement of the closing cash on hand was the result of the misstatements 

described above. 

In 2008, KRP partially disclosed activity from its National Convention account. The Audit staff 

included all activity from this account in deriving the misstatement presented in the Interim 

Audit Report. Nearly all receipts and expenditures of this account related to attendance at the 

Republican National Convention. The Commission did not approve by the required four votes 

the Audit Staff recommendation that the National Convention account was a Federal account and 

required disclosure (See Additional Issue 1. below). As a result, the Audit staff has excluded all 

activity from this account and revised the presentation of the misstatements of financial activity 

for 2008 in the chart and explanations of differences below. 

2008 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2008 

$31,163 $3,280 $27,883 

Overstated 

Receipts $495,005 $357,380 $137,625 

Overstated 

Disbursements $427,635 $355,823 $71,812 

Overstated 

Ending Cash Balance 

® December 31,2008 

$98,533 $4,837 $93,696 

Overstated 
The overstatement of receipts resulted from the following: 

• Reported receipts deposited into National Convention account $ (173,636) 

• Refund received from Paychex but not reported 2,846 

• Receipts deposited into various federal accounts not reported 25,822 

• Permissible cash deposit for sale of yard signs but not reported 13,236 

• Reported non-federal caucus receipts in error (10,000) 

• Transfers from the non-federal account but not reported 5,236 

• Unexplained difference (\.\29) 

Net Overstatement of receipts $ (137.625'^ 

The overstatement of disbursements resulted from the following: 

• Transfers to the non-federal account not reported $ 3,400 

• Reported disbursements from the National Convention account (132,708) 

• Disbursements reported not supported by a check or debit (10,285) 

• Other disbursements not reported 67.781 

Net Overstatement of disbursements $ ^71.812'^ 

The $93,696 overstatement of the closing cash on hand was the result of the misstatements 

described above. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the misstatements for 2007 and 2008 with a KRP representative during 

the exit conference and provided copies of relevant workpapers. The KRP representative stated 

that corrective amended reports would be filed. 

The Audit staff recommended that KRP amend its reports to correct the misstatements for 2007 

and 2008. It was also recommended that KRP amend its most recently filed report to correct the 

cash balance with an explanation that the change resulted from a prior-period audit adjustment 

and that KRP reconcile the cash balance of its most recent report to identify any subsequent 

discrepancies that may impact the adjustment recommended by the Audit staff. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, KRP amended its reports correcting 

the misreporting. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that KRP amended its reports to 

materially correct the misstatements presented in the Interim Audit Report. 

Commission Conclusion 

On March 3,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a finding 

that KRP misstated its financial activity for both 2007 and 2008, including the National 

Convention account. 
The Commission approved the Audit Staff recommendation with the exception of the National 

Convention account, but concluded that KRP is not required to take any additional corrective 

action with respect to the amended reports it filed. (See Additional Issue 1. below) 

Finding 2. Receipt of a Prohibited Contribution 

Summary 

During audit fieldwork, a review of contributions received by KRP identified a contribution of 

$10,000 that appeared to be from a prohibited source. In response to the Interim Audit Report, 

KRP indicated it had transferred sufficient funds from its federal to its non-federal account to 

resolve this contribution. The Commission approved this finding. 

Legal Standard 

A. Definition of Limited Liability Company. A limited liability company (LLC) is a business 

entity that is recognized as an LLC under the laws of the state in which it was established. 11 

CFR §110.1(g)(1). 

B. Application of Limits and Prohibitions to LLC Contributions. A contribution from an 

LLC is subject to contribution limits and prohibitions, depending on several factors as explained 

below: 

1. LLC as Partnership. The contribution is considered to be from a partnership if the LLC 

chooses to be treated as a partnership under Internal Revenue Service (IRS) tax rules or if 

it makes no choice about its tax status. A contribution by a partnership is attributed to 

each partner by his or her share of the partnership profits. 11 CFR §110.1 (e)(1) and 

(g)(2). 

2. LLC as Corporation. The contribution is considered a corporate contribution—^and is 

barred under the Act—if the LLC chooses to be treated as a corporation under IRS rules, 

or if its shares are traded publicly. 11 CFR §110.1 (g)(3). 

3. LLC with Single Member. The contribution is considered a contribution from a single 

individual if the LLC is a single-member LLC that has not chosen to be treated as a 

corporation under IRS rules. 11 CFR §110.1 (g)(4). 

C. Limited Liability Company's Responsibility to Notify Recipient Committee. At the time 

it makes a contribution, an LLC must notify the recipient committee: 

• That it is eligible to make the contribution; and 

• In the case of an LLC that considers itself a partnership (for tax purposes), how the 

contribution should be attributed among the LLC's members. 11 CFR §110.1(g)(5). 

D. Questionable Contributions. If a committee receives a contribution that appears to be 

prohibited (a questionable contribution), it must follow the procedures below: 

1. Within 10 days after the treasurer receives the questionable contribution, the committee 

must either: 

• Return the contribution to the contributor without depositing it; or 

• Deposit the contribution (and follow the steps below). 11 CFR § 103.3(b)(1). 
2. If the committee deposits the questionable contribution, it may not spend the funds and 

must be prepared to refund them. It must therefore maintain sufficient funds to make the 

refunds or establish a separate account in a campaign depository for possibly illegal 

contributions. 11 CFR § 103.3(b)(4). 

3. The committee must keep a written record explaining why the contribution may be 

prohibited and include this information when reporting the receipt of the contribution. 11 

CFR§103.3(b)(5). 

4. Within 30 days of the treasurer's receipt of the questionable contribution, the committee 

must make at least one written or oral request for evidence that the contribution is legal. 

Evidence of legality includes, for example, a written statement from the contributor 

explaining why the contribution is legal or an oral explanation that is recorded by the 

committee in a memorandum. 11 CFR §103.3(b)(1). 

5. Within these 30 days, the committee must either: 

• Confirm the legality of the contribution; or 

• Refund the contribution to the contributor and note the refund on the report covering 

the period in which the refund was made. 11 CFR § 103.3(b)(1). 

Facts and Analysis 

A. Facts 

The Audit staff reviewed contributions received by KRP and identified one contribution 

($10,000) that was determined to be from a limited liability company, which may choose a 

corporate tax filing status. As such, the limited liability company was required to affirm to KRP 

that it was eligible to make the contribution based on its tax filing status being other than 

corporate. Records provided by KRP did not contain any such affirmations or any follow-up by 

KRP to verify eligibility. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to a KRP representative during the exit conference. The 

KRP representative stated that a letter requesting the tax filing status would be sent to the limited 

liability company and that KRP would refund the contribution if it was prohibited. 

In the Interim Audit Report, the Audit staff recommended that KRP provide documentation 

establishing the tax filing status of the limited liability company. Absent such evidence, it was 

recommended that KRP refund the $10,000 to the contributor or transfer the funds to a nonfederal account and provide documentation of such refund (i.e., copy of the negotiated refund 

check, front and back) or transfer. If funds were not available, then the refund or transfer should 

have been disclosed on Schedule D (Debts and Obligations) until funds became available to 

make the refund or transfer. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, KRP acknowledged that this contribution was received 

from a company taxed as a corporation and deposited into its Federal account rather than its nonfederal account. KRP transferred sufficient funds on January 25,2010, from its federal account 

to its non-federal to resolve this contribution. 
10 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staffed acknowledged KRP's transfer of funds to 

resolve the prohibited contribution. 

Commission Conclusion 

On March 3, 2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a finding 

that KRP had received prohibited contributions. 

The Commission approved the Audit Division recommendation with respect to this $10,000 

prohibited contribution. (See Additional Issue 2. below) 

Finding 3. Payment of Federal Activity Out of Non-federal 

Accounts 

Summary 

Audit fieldwork identified payments totaling $20,123 from KRP's non-federal accounts that 

appeared to be for federal expenses. In response to the Interim Audit Report, KRP amended its 

reports to disclose these disbursements as federal/shared expenses. The Commission approved 

this finding. 

Legal Standard 

A. Accounts for Federal and Non-federal Activity. A party committee that finances political 

activity in connection with both federal and non-federal elections may establish two accounts 

(federal and non-federal) and allocate shared expenses—^those that simultaneously support 

federal and non-federal election activity—between the two accounts. Altematively, the 

committee may conduct both federal and non-federal activity from one bank account, 

considered a federal account. 11 CFR §102.5(a)(l)(i). 

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

to pay for allocable, shared federal/non-federal expenses. 

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

transfer funds from the non-federal account to the federal account to cover the nonfederal share of that expense; or 

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

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

paying the allocable expenses for shared federal/non-federal activities. 11 CFR 

§106.5(g)(l)(i)and(ii)(A). 

C. Reporting Allocable Expenses. A state, district or local committee that allocates 

federal/non-federal expenses must report each disbursement it makes from its federal account 

(or separate allocation account) to pay for a shared federal/non-federal expense. Committees 

report these kinds of disbursements on Schedule H4 (Disbursements for Allocated 

Federal/Nonfederal Activity). 11 CFR §104.17(b)(3). 

D. Allocation Ratio for Administrative & Non-Candidate Specific Voter Drive Costs. State 

and local party committees must allocate their administrative expenses and non-candidate 
11 

specific voter drive costs according to the fixed percentage ratio. Under this method, if a 

Presidential candidate and Senate candidate appear on the ballot, the committees must 

allocate at least 36% of expenses to their federal funds. 11 CFR §106.7(d)(2)(ii) and (3)(ii). 

Facts and Analysis 

A. Facts 

During fieldwork, the Audit staff noted that KRP maintained four non-federal bank accounts. 

KRP made payments from two of its non-federal accounts totaling $20,123 that should have 

been paid from a federal account. These payments were for allocable administrative expenses 

such as rent, telephone and office supplies. KRP should have paid these expenses from a federal 

account and reported them on Schedule H-4 usjng the fixed percentage ratio of 36% federal and 

64% non-federal in accordance with 11 CFR §i06.7(d)(2)(ii) and (3)(ii). 

Available documentation did not indicate that any of these payments were for solely non-federal 

activities; therefore, they were treated as allocable administrative expenses. The federal share of 

these expenses is $7,244 ($20,123 x 36% Federal share). 

The Audit staff compared reimbursements received from the non-federal account for its share of 

allocable activity. This analysis indicated the non-federal account could have reimbursed an 

additional amount that is in excess of the amount at issue. Therefore, after considering all 

adjustments, the Audit staff concluded that there was no net funding of federal activity from the 

non-federal accounts at the end of the two year audit period and only the disclosure issues need 

to be addressed by KRP. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff addressed this matter and provided a schedule identifying 

the transactions noted above to a KRP representative. The KRP representative stated that they 

would file amended reports to include these expenses as memo entries on Schedule H-4 

(Disbursements for Allocated Federal/Nonfederal Activity). 

In the Interim Audit Report, the Audit staff recommended KRP demonstrate that the identified 

disbursements paid from the non-federal accounts were solely non-federal expenses. Absent 

such a demonstration, it was recommended that KRP amend its reports to disclose the above 

noted disbursements as memo entries on Schedules H-4. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, KRP noted that due to scant records it was unable to 

demonstrate that these disbursements were for non-federal purposes. In light of the lack of 

records and the fact that no non-federal overfunding occurred, KRP amended its reports to 

correctly disclose these disbursements. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staffed acknowledged that KRP had amended its 

reports to disclose these transactions as recommended. 

Commission Conclusion 
12 

On March 3, 2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a finding 

that KRP had paid allocable administrative expenses from its non-federal accounts. It was also 

recommended that no transfer from the federal to the non-federal account was necessary since 

during the audit period the non-federal account had transferred less for shared expenses than was 

permitted. 

The Commission approved this finding with respect to the payment of allocable administrative 

expenses from the non-federal account. (See Additional Issue 3. below) 

Partv 

Additional Issues 

I Issue 1. National Convention Account Activity I 

Summary 

During audit fieldwork, the Audit staff noted that in 2008 KRP maintained a separate account for 

expenses associated with the Republican National Convention (National Convention account). A 

portion of the receipts and expenses had been reported while the remainder had not. The Draft 

Final Audit Report acknowledged that in response to a recommendation in the Interim Audit 

Report, KRP filed amended reports to include the remainder of the activity. 

The Commission did not approve by the required four votes the Audit staffs recommended 

finding. The Commission did determine that KRP is not required to take any additional 

corrective action with respect to amended reports filed in response to the Interim Audit Report. 

Legal Standard 

Contents of Reports. Each report must disclose: 

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

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

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

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

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

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reconciled reported activity to bank records for calendar 

year 2008. In 2008, one account was used almost exclusively for receipts and disbursements 

related to attendance at the Republican National Convention. KRP reported a portion of the 

activity from this account. In the Interim Audit Report, the Audit staff included all activity from 

this account as reportable activity. Opened in May of 2008, this account had deposits totaling 

$256,674, disbursements totaling $256,668 and an ending cash balance on December 31, 2008 of 

$5. 
13 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the reporting of the National Convention account as well as the 

misstatements presented in Finding 1 above with a KRP representative during the exit 

conference and provided copies of workpapers. The KRP representative stated that corrective 

amended reports would be filed. 

The Audit staff recommended that KRP amend its reports to include the remainder of the 

National Convention account. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, KRP amended its reports to include the remainder of the 

National Convention account activity. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that KRP amended its reports to 

materially correct the misstatements presented in the Interim Audit Report. 

Commission Conclusion 

On March 3, 2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a finding 

that KRP was required to report all receipts and disbursements related to the National 

Convention account. 

The Commission did not approve the Audit staffs recommended finding by the required four 

votes. Some Commissioners agreed with the recommendation that funds received and disbursed 

in connection with the National Convention were required to be reported to the Commission. 

Other Commissioners disagreed, citing a lack of information regarding whose convention travel, 

lodging and subsistence expenses were paid for from the National Convention account, as well 

as the absence of any statutory provision or regulation directly addressing the issue of what funds 

may be used to pay for such expenses for either delegates' or non-delegates' attendance at a 

National Convention. 

The Commission agreed that KRP need not file any further amended reports related to the 

National Convention account. 

Issue 2. Receipt of Apparent Prohibited Contributions 

Summary 

During audit fieldwork, a review of contributions received by KRP and deposited into a National 

Convention account, identified three contributions totaling $42,498, which appeared to be from 

prohibited sources. In response to the Interim Audit Report, KRP indicated it had transferred 

some funds from its federal to its non-federal account and, citing insufficient funds, amended its 

most recent report to disclose a debt to its non-federal account for the remaining prohibited 

contributions. 
14 

The Commission did not approve by the required four votes the Audit staffs recommended 

finding. 

Legal Standard 

A. Receipt of Prohibited Corporate Contributions. Political committees may not accept 

contributions made from the general treasury funds of corporations. This prohibition applies to 

any type of corporation including a non-stock corporation, an incorporated membership 

organization, and an incorporated cooperative. 2 U.S.C. §44lb. 

B. Questionable Contributions. If a committee receives a contribution that appears to be 

prohibited (a questionable contribution), it must follow the procedures below: 

1. Within 10 days after the treasurer receives the questionable contribution, the committee 

must either: 

• Return the contribution to the contributor without depositing it; or 

• Deposit the contribution (and follow the steps below). 11 CFR §103.3(b)(l). 

2. If the committee deposits the questionable contribution, it may not spend the funds and 

must be prepared to refund them. It must therefore maintain sufficient funds to make the 

refunds or establish a separate account in a campaign depository for possibly illegal 

contributions. 11 CFR §103.3(b)(4). 

3. The committee must keep a written record explaining why the contribution may be 

prohibited and must include this information when reporting the receipt of the 

contribution. 11 CFR §103.3(b)(5). 

4. Within 30 days of the treasurer's receipt of the questionable contribution, the committee 

must make at least one written or oral request for evidence that the contribution is legal. 

Evidence of legality includes, for example, a written statement from the contributor 

explaining why the contribution is legal or an oral explanation that is recorded by the 

committee in a memorandum. 11 CFR § 103.3(b)(1). 

5. Within these 30 days, the committee must either: 

• Confirm the legality of the contribution; or 

• Refund the contribution to the contributor and note the refund on the report covering 

the period in which the refund was made. 11 CFR § 103.3(b)(1). 

Facts and Analysis 

A. Facts 

During fieldwork, the Audit staff identified three contributions totaling $42,498 from apparent 

corporate entities. The Audit staff verified with the Secretary of State that these entities were 

incorporated when the contributions were made. These contributions were deposited into the 

National Convention account. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to a KRP representative during the exit conference. The 

KRP representative stated any prohibited contributions would be refunded. 

In the Interim Audit Report, the Audit staff recommended that KRP demonstrate that the three 

contributions were made with permissible funds. Absent such evidence, it was recommended 

that KRP refund the $42,498 to the contributors or transfer the funds to a non-federal account 
15 

and provide documentation of such refunds (i.e., copies of each negotiated refund check, front 

and back) or transfer. If funds were not available, then the refunds or transfer due were to be 

disclosed on Schedule D (Debts and Obligations) until funds became available to make the 

refunds or transfer. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, KRP acknowledged that these contributions were 

received from corporations and deposited into its National Convention account rather than its 

non-federal account. KRP transferred funds from its federal account to its non-federal account in 

partial payment of prohibited contributions and also amended its most recent report to disclose 

the remaining obligation of $37,498^ on Schedule D as owed by KRP to its non-federal account. 

D. Draft Final Audit Report 

The Draft Final Audit reported indicated these prohibited contributions ($42,498) had either been 

be resolved or reported as debt to the non-federal account. 

Commission Conclusion 

On March 3, 2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a finding 

that KRP had received prohibited contributions deposited in its National Convention account in 

the amount of $42,498. 

The Commission did not approve the Audit staffs recommended finding by the required four 

votes. Some Commissioners agreed with the recommendation that funds received for the 

National Convention were required to be permissible under the Act. Other Commissioners 

disagreed, citing a lack of any statutory provision or regulation directly addressing the issue of 

what funds may be used to pay expenses for either delegates' or non-delegates' attendance at a 

National Convention. 

The Commission agreed that, under the circumstances, KRP should remove from its next 

regularly scheduled report the $37,498 disclosed as debt and that it is not required to make any 

additional reimbursements from its federal account. 

Issue 3. Payment of Federal Activity Out of Non-federal 

Accounts 

Summary 

Audit fieldwork indentified payments totaling $84,736 from KRP's non-federal accounts for 

potentially federal expenses. In response to the Interim Audit Report, KRP amended its reports 

to disclose these disbursements as federal/shared expenses. 

The Commission did not approve the Audit staffs recommendation by the required four votes. 

^ In its response, KRP noted a portion of a prohibited contribution had been refunded; however, the refund was 

made from its non-federal account. 
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Legal standard 

A. Accounts for Federal and Non-federal Activity. A party committee that finances political 

activity in connection with both federal and non-federal elections may establish two accounts 

(federal and non-federal) and allocate shared expenses—^those that simultaneously support 

federal and non-federal election activity—^between the two accounts. Altematively, the 

committee may conduct both federal and non-federal activity from one bank account, 

considered a federal account. 11 CFR §102.5(a)(l)(i). 

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

to pay for allocable, shared federal/non-federal expenses. 

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

transfer funds from the non-federal account to the federal account to cover the nonfederal share of that expense; or 

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

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

paying the allocable expenses for shared federal/non-federal activities. 11 CFR 

§106.5(g)(l)(i)and(ii)(A). 

C. Reporting Allocable Expenses. A state, district or local committee that allocates 

federal/non-federal expenses must report each disbursement it makes from its federal account 

(or separate allocation account) to pay for a shared federal/non-federal expense. Committees 

report these kinds of disbursements on Schedule H4 (Disbursements for Allocated 

Federal/Nonfederal Activity). 11 CFR § 104.17(b) (3). 

D. Allocation Ratio for Administrative & Non-Candidate Specific Voter Drive Costs. State 

and local party committees must allocate their administrative expenses and non-candidate 

specific voter drive costs according to the fixed percentage ratio. Under this method, if a 

Presidential candidate and Senate candidate appear on the ballot, the committees must 

allocate at least 36% of expenses to their Federal funds. 11 CFR §106.7(d)(2)(ii) and (3)(ii). 

Facts and Analysis 

A. Facts 

Distinct from the National Convention account addressed previously in Issues 1 and 2, the Audit 

staff noted that KRP maintained four non-federal bank accounts. KRP made payments from two 

of its non-federal accounts totaling $84,736 that potentially should have been paid from a federal 

account. Most of these payments were for administrative and non-candidate specific voter drive 

expenses. Some of the expenses related to the National Convention, others were for postage, 

consulting, travel and printing where records were not adequate to establish if they were wholly 

non-federal, wholly federal, or allocable between the two. 

The non-federal account did not reimburse as much for shared expenses as was permissible 

during the audit period, therefore, no net funding of federal activity by the non-federal account 

occurred. Only the disclosure of the disbursements was at issue. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff addressed these matters and provided schedules of the 

transactions. The KRP representative stated that amended reports would be filed to include the 

disbursements as memo entries. 
17 

In the Interim Audit Report, the Audit staff recommended that KRP demonstrate that the 

identified disbursements paid from the non-federal account were solely non-federal expenses. 

Samples or descriptions of printed materials and other items were requested. Absent such a 

demonstration, it was recommended that KRP amend its reports to disclose, as memo entries, the 

disbursements on Schedules B (Itemized Disbursements) or H-4 (Disbursements for Allocated 

Federal/Nonfederal Activity), as appropriate. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, KRP noted that due to scant records it was unable to 

demonstrate that these disbursements were for non-federal purposes. In light of the lack of 

records and that no non-federal overfunding occurred, KRP amended its reports to disclose these 

disbursements. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staffed acknowledged that KRP had amended its 

reports to disclose these transactions. 

Commission Conclusion 

On March 3,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a finding 

that KRP had made potentially federal or allocable expenses from the non-federal accounts. 

The Commission did not approve the Audit staffs recommended finding by the required four 

votes. Some Commissioners agreed that KRP was required to report the disbursements in 

question. Others concluded that absent evidence that the expenses were in fact federal, the 

recommendation improperly shifts the burden to audited committees to disprove a negative.