FEDERAL ELECTION COMMJSSION 

WASHINGTON, D.C. 20463 

July 7,2017 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas £. Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson for LJS 

Acting General Counsel 

Lorenzo Holloway 

SUBJECT: 

Assistant General Counsel 

Compliance Advice 

Joshua Blume ^ 

Attorney ^ 

Draft Final Audit Report on the New York Republican Federal Campaign 

Committee (LRA 1038) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the Draft Final Audit Report ("DFAR") 

on the New York Republican Federal Campaign Committee ("the Committee"). The DFAR 

contains five findings: Misstatement of Financial Activity (Finding 1); Recordkeeping for 

Employees (Finding 2); Disclosure of Occupation/Name of Employer (Finding 3); Reporting of 

Apparent Independent Expenditures (Finding 4); and Recordkeeping for Communications 

(Finding S). Our comments address certain aspects of Findings 1,2, and 4. We concur with all 

other findings and with other aspects of Findings 1,2, and 4 that we do not discuss in this 

memorandum. If you have any questions, please contact Joshua Blume, the attorney assigned to 

this audit. 
Comments on the Draft Final Audit Report 

New York Republican Federal Campaign Committee (LRA 1038) 

Page 2 

n. MISSTATEMENT OF FINANCIAL ACTIVITY (Finding 1) 

The principal cause of the misstatements of receipts and disbursements identified in this 

finding appears to have been unreported receipts and disbursements of non-federal contributions 

by the Committee's federal account. The Committee stated that it had used its federal account as a 

general purpose merchant account to process both non-federal and federal credit card contributions 

for administrative convenience. 

We recommend that the Audit Division revise the DEAR to address whether the 

Committee's use of its federal account in this manner complied with 11 C.F:R. § 102.S. The 

DEAR recites the prohibition imposed by section 102.5, but the DEAR does not address whether 

the Committee complied with this provision. 

The analysis of whether the Committee complied with section 102.5 should address the 

Committee's contention that the credit card company it employed allowed only one Committee 

account to serve as the merchant account and that the Committee promptly transferred any 

contributions intended for the non-federal accounts to those accounts. The Committee cites 

Advisory Opinion 2001-17 (DNC Services) in support of its position. In that advisory opinion, the 

Commission primarily addressed the question of how a national committee should report 

contributions intended to be split into a federal and a non-federal component, but also endorsed the 

requestor's stated intention to deposit the total amount of such a contribution in its federal account 

and to transfer the non-federal component of the contribution to its non-federal account. Advisory 

Opinion 2001-17 (DNC Services). The Commission also deemed it permissible for the requestor 

to report a receipt of the federal component of the contribution by the federal account and, through 

itemization on Schedule A, a receipt of the non-federal component of the overall contribution by 

the non-federal account. Id. 

Thus, to the extent that the contributions routed through the federal account were 

composite contributions, containing both federal and non-federal components, the Committee's 

treatment of these would appear to be permissible under the reasoning set forth in Advisory 

Opinion 2001 -17 (DNC Services). However, given the Committee's statement that it was required 

to use its federal account as a global merchant account for the processing of all credit card 

contributions, it is conceivable that some contributions intended to be wholly non-federal, and 

having no federal component, were also routed through the federal account. The depositing of 

these non-federal contributions into the federal account would violate 11 C.E.R. 

§ 102.5(a)(2)(i)-(iii). Accordingly, we recommend that the Audit Division revise the DEAR to 

include a request that the Committee clarify, with respect to the contributions at issue in the 

discussion of this aspect of the finding, whether and to what extent the contributions involved were 

"composite" contributions containing both a federal and a non-federal component. 

III. REPORTING OF APPARENT INDEPENDENT EXPENDITURES (Finding 4) 

The DEAR concludes that disbursements the Committee incurred for communications 

totaling approximately $1.35 million contain express advocacy as that term is defined in 11 C.E.R. 

§ 100.22, and therefore should have been reported as independent expenditures. The Committee 

contends, however, that all of the direct mail advertisements at issue were processed and 
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distributed by volunteers. Consequently, the Committee argues that the costs of the 

advertisements should be considered exempt under the Commission's volunteer materials 

exemption ("VME"). See 11 C.F.R. § 100.147. 

We have two comments on this finding. First, we address the DFAR's conclusions about 

the application of the VME. Second, we comment on the express advocacy content of a new 

communication that the Committee submitted in response to the lAR, which was not previously 

among the communications reviewed by the Audit Division or by this office. 

A. Conclusions Regarding Application of the VME 

The DFAR divides the disbursements into three categories based upon whether, and to 

what extent, the Committee submitted information or documentation to support its assertion that 

the VME applies as follows: 

• $209,615, for which the Committee submitted affidavits, volunteer statements 

and photographs; 

• $906,027, for which the Committee submitted affidavits alone;' and 

• $236,476, for which the Committee did not submit any information. 

The DFAR states that the disbursement for the advertisements in the first category, totaling 

$209,615, was not determined to be an independent expenditure, and that the Committee did not 

sufficiently document the involvement of volunteers with respect to the remaining two categories 

of disbursements. We comment below on these three categories of disbursements. 

With respect to the first disbursement category, totaling $209,615, the DFAR notes that the 

Committee submitted pictures of a single volunteer working on each individual mail piece, as well 

as signed volunteer forms, and states that this disbursement was not determined to be an 

independent expenditure. Because the DFAR's statement could be read to suggest that the Audit 

Division concluded that the documentation the Committee submitted sufficed to warrant the 

application of the VME, we recommend that the conclusion of the DFAR be modified to indicate 

that in light of the lack of clarity regarding the degree of volunteer involvement and the quantum 

and type(s) of evidence needed to qualify a given disbursement for an express advocacy 

communication as exempt under the VME, the disbursement will not be deemed an independent 

expenditure. See, e.g., Final Audit Report on Nebraska Democratic Party, at 16-17 (approved Oct. 

23,2014); Final Audit Report on South Dakota Democratic Party, at 15 (approved Apr. 17,2015); 

Memorandum from Adav Noti to Patricia C. Orrock, Draft Final Audit Report on the Colorado 

Republican Committee (LRA 961), at 5 (Aug. 15,2016). The lack of clarity regarding the VME 

' To be precise, the Committee submitted seven affidavits dated in 201S that relate to both the S209,61S mail 

piece group and to the $906,027 mail piece group, for a total amount of approximately SI. 128 million. Qf this total, 

the Committee submitted additional documentation with respect to $209,61 S in mail pieces that was added as an 

attachment to one of the seven afiidavits: the affidavit of Brett Buerck of Majority Strategies. The remaining 

$906,027 in mail pieces were supported by the seven affidavits alone. The Committee submitted five additional 

affidavits dated in 2017 as an attachment to its response to the lAR. Thus, the Committee has submitted a total of 12 

affidavits. 
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indicates that definite positive or negative conclusions iabout the adequacy of submitted evidence 

to meet the VME would not be appropriate. 

The DFAR also states that the second category of disbursements lacked sufficient 

documentation to qualify for the VME and that the Audit staff considers the question unresolved. 

In this category, the Committee submitted affidavits from individuals involved in supervising or 

coordinating aspects of the volunteer mailing process, but no other evidence or documents. These 

affidavits were executed by individuals claiming to have personal knowledge of, and 

responsibility for administering, the Committee's volunteer mailing program, including the former 

counsel to the Committee during the relevant period of time, campaign managers for two 

campaigns assisted by the Committee's efforts, and the heads of businesses, including campaign 

consulting firms and print or mail vendors, involved with these efforts. Several affidavits, 

including that of the former counsel to the Committee, provide fairly detailed descriptions of the 

types of volunteer mailing activities that they recommended the volunteers perform in order to 

qualify the mailings for the VME. 

We recommend that the DFAR be revised to remove the conclusion that the Committee did 

not sufficiently document the involvement of volunteers. A definite conclusion on this question 

would not be consistent with the DFAR's acknowledgement elsewhere of the lack of a clear 

standard for applying the VME.^ We recommend that the DFAR state instead that because of the 

lack of a clear standard for applying the VME, the Audit staff is unable to determine whether 

swom affidavits of the nature submitted by the Committee suffice to document the involvement of 

volunteers and is therefore referring this question to the Commission for decision. We also 

recommend that the Audit Division raise the issue of the qualification of the second category of 

disbursements for the VME in the cover memorandum that will accompany the transmission of the 

DFAR to the Commission. 

Finally, the DFAR concludes that the third category of disbursements lacked adequate 

documentary support to meet the VME. We agree with this conclusion in spite of our general 

concerns regarding the drawing of definite conclusions on the applicability of the VME, as 

discussed above. ITie Commission has not approved application of the VME based solely on a 

general, conclusory assertion made by the committee's representative. See Memorandum from 

Adav Noti to Patricia C. Orrock, Draft Final Audit Report on the Colorado Republican Committee 

(LRA 961), at 6 (Aug. 15,2016). Given the uncertainty in this area, however, we recommend that 

the Audit Division raise this issue in the memorandum accompanying the transrnission of the 

DFAR to the Commission. Id. 

^ In comments on the DFAR on the Illinois Republican Pany, we stated that in light of the lack of clarity 

regarding the application of the VME, we could not draw a conclusion about whether the swom affidavits in that 

matter, similar to the swom affidavits in this matter, sufficed to document the applicability of the VME. See 

Memorandum from Adav Noti to Patricia C. Orrock, Draft Final Audit Report on the Illinois Republican Party (LRA 

1006), at 4-5 (Jan. 31,2017). 
Comments on the Draft Final Audit Report 

New York Republican Federal Campaign Committee (LRA 1038) 

Pages 

B. Communication Classifled as Express Advocacy Under Section 100.22(a) 

That Should Be Deemed Express Advocacy Under Section 100.22(h). 

Included in the Committee's response to the lAR were copies of mail pieces that were 

previously reviewed by the Audit Division and by this office. However, two of the mail pieces 

appear to be new in the sense that they were not previously submitted by the Committee. The 

Committee associates the two new mail pieces with two invoices in its response. However, the 

Committee had previously associated these same invoices with two different mail pieces. The 

Audit Division had determined that the two mail pieces previously associated with the invoices 

contained express advocacy according to the standard set forth in 11 C.F.R. § 100.22(a), and has 

not changed this classification in light of the submission of the new mail pieces partly because it 

considers the new mail pieces to contain express advocacy according to the standard set forth in 11 

C.F.R. § 100.22(a). We believe it is appropriate to substitute the two new mail pieces for the prior 

mail pieces associated with the invoices, because the most reasonable interpretation of the 

Conunittee's action is consistent with that intent. 

Regarding the content of the new mail pieces, we agree that both of them contain express 

advocacy. However, we comment on the classification of one of the communications because we 

believe that its characteristics qualify it as containing express advocacy according to the standard 

set forth in 11 C.F.R. § 100.22(b), rather than subsection (a). ^ 

The communication in question criticizes candidate Dan Maffei for using tax dollars to 

award $200,000 in bonuses to his staff following his defeat in a 2010 election for his 

Congressional seat. It also contains images of Mr. Maffei and states, "Don't let Dan Maffei get his 

hands on your tax dollars again!" The communication observes that "[i]n 2010, we fired Dan 

Maffei for bankrupting our economy and voting for one of the largest tax increases in American 

history." It further states, "We fired Maffei from Congress for wasting our money once before. 

Let's not let him do it again." While this communication qualifies as express advocacy, it does not 

contain words or phrases exhorting the reader to vote for or against a candidate of the kind listed in 

section 100.22(a). Rather, the advertisement contains express advocacy as that term is defined in 

section 100.22(b) because the exhortation in the advertisement, "[l]et*s not let him do it again" 

immediately following a statement that Mr. Maffei had been fired fi:om Congress before for 

wasting money constitute a clear and unmistakable reference to an impending election. 11 C.F.R. 

§ 100.22(b)(1). Further, the same phrases constitute a criticism of Mr. Maffei's character, 

qualifications and accomplishments, and this chticism has no reasonable meaning other than that 

the reader should vote against Maffei, because it is by preventing him from regaining his 

Congressional position that the reader would ensure that he will not be in a position to waste 

taxpayer funds again. 11 C.F.R. § 100.22(b)(2); Express Advocacy; Independent Expenditures; 

Corporate and Labor Organization Expenditures, 60 Fed. Reg. 3S292,3S29S (July 6,1995) 

C'Communications discussing or commenting on a candidate's character, qualifications or 

accomplishments are considered express advocacy under new section 100.22(b) if, in context, they 

^ We believe that substituting this mail piece for the previous mail piece is particularly appropriate for the 3 

additional reason that the description of the mail piece on the invoice, "Hands on Money," appears to reflect more ;.i 

closely the content of the new mail piece than it does the content of the older one. 
Comments on the Draft Final Audit Report 

New York Republican Federal Campaign Committee (LRA 1038} 

Page 6 

have no other reasonable meaning than to encourage actions to elect or defeat the candidate in 

question.").